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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 19, 2004
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PRG-SCHULTZ INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 000-28000 58-2213805
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
600 GALLERIA PARKWAY, SUITE 100
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (770) 779-3900
N/A
(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
To promote retention of key employees during the Company's exploration of
strategic alternatives, among other goals, on October 19, 2004, the Company's
Compensation Committee approved a program under which the Company intends to
modify employment and compensation arrangements with certain management
employees, including the executive officers identified in the table below. Under
the program, the officers will be offered additional benefits related to certain
change of control events if they agree to more stringent restrictive covenants.
Individual agreements will not be effective until signed.
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NAME TITLE
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John M. Cook Chairman, President and Chief Executive Officer
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John M. Toma Vice Chairman
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James E. Moylan, Jr. Executive Vice President, Finance, Chief Financial
Officer and Treasurer
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Richard J. Bacon Executive Vice President, International Operations
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James L. Benjamin Executive Vice President, U.S. Operations
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Eric D. Goldfarb Executive Vice President and Chief Information
Officer
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Paul H. van Leeuwen Executive Vice President, Business Development
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Marie A. Neff Executive Vice President, Human Resources
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Neither the Company nor any of its affiliates has any material relationship with
any of the officers other than the officers' positions with the Company (or as a
shareholder), pursuant to the agreements described herein, and as described in
the Company's proxy statement filed April 16, 2004.
AGREEMENT WITH MR. COOK.
Under the approved revision (the "2004 Cook Amendment") to Mr. Cook's Employment
Agreement, Mr. Cook will agree to more stringent restrictive covenants. The new
covenants impose heightened requirements related to confidentiality and non-use
of Company trade secrets and intellectual property, non-solicitation of
customers and employees, and non-competition with the Company. The 2004 Cook
Amendment will eliminate a provision in Mr. Cook's pre-existing Employment
Agreement requiring reduction of certain payments received following a change of
control if those payments (when aggregated with other similar payments and
benefits) would, absent such reduction, have exceeded the threshold provided
under applicable tax laws regarding "golden parachute" payments (and would have
thus resulted in an excise tax). The 2004 Cook Amendment will also provide for a
gross-up payment equal to any excise tax incurred due to having exceeded such
threshold, plus the income tax and any additional tax incurred as a result
of the gross-up payment. Apart from eliminating such reduction and adding the
gross-up provision, the 2004 Cook Amendment does not provide for any new
compensatory benefits. Based on information currently available, the Company
does not believe it probable that such a gross-up payment will be required. The
2004 Cook Amendment will provide for liquidated damages in the event that
the noncompete or anti-solicitation restrictive covenants are breached. The
amount of liquidated damages will vary with the duration of the violation
and be subject to a ceiling on the amount payable which is equal to the amount
of any
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termination payments received by Mr. Cook from the Company. In all other
respects, Mr. Cook's pre-existing Employment Agreement remains in full force and
effect.
AGREEMENTS WITH MR. TOMA AND EXECUTIVE VICE PRESIDENTS.
The Compensation Committee also approved revisions (the "Amendments") to the
employment arrangements of Mr. Toma and the Executive Vice Presidents (together,
the "Key Officers") containing heightened restrictive covenants substantially
similar to Mr. Cook's. The Amendments will entitle the Key Officers to certain
payments upon a change of control ("Transaction Success Fees"). The Amendments
supersede the provisions of the Key Officers' pre-existing Employment Agreements
as they relate to termination payments and, except as to Mr. Moylan's Amendment,
increase the amount of such payments under certain circumstances upon or soon
following a change of control. The Amendments also provide for restricted stock
awards of 40,000 shares to each of the Key Officers except Mr. Moylan. Mr. Cook
will not receive any restricted stock or a Transaction Success Fees.
Transaction Success Fees. A "Transaction Success Fee" is payable only if a
change of control occurs before a particular date set forth in the Amendment.
The amount of the Transaction Success Fee will be a minimum of 50% and a maximum
of 150% of the officer's current annual base salary, and will vary with the per
share price received by the Company shareholders upon the change of control.
Payment of the Transaction Success Fee is subject to continued service
conditions as follows:
o One-third of the Transaction Success Fee will be payable within 30 days
after the 6-month anniversary of the change of control, if the individual
is employed by the Company or its successor or affiliates on the 6-month
anniversary.
o The remaining two-thirds will be payable within 30 days after the 1-year
anniversary, if the individual is so employed on the 1-year anniversary.
o If the individual is not offered a job equivalent to his or her current
position following the change of control, but has remained in service with
the company through the change of control, he or she will be entitled to
payment of the entire amount within 30 days after the change of control.
o If the individual remains employed following the change of control, but he
or she is terminated without cause (as defined in the Amendment) or
terminates his or her employment for good reason (as defined in the
Amendment) during the 12-month period following the change of control, he
or she will be entitled to any or all of the transaction success fee not
yet paid within 30 days following such termination.
Payment amounts and dates are subject to adjustment in the event that payments
to Company shareholders in connection with the transaction are subject to
post-closing conditions.
If an individual is terminated for cause, as that term is defined in the
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Agreement, prior to the due date for an installment, that installment is
forfeited. However, if an individual is terminated for cause after payment of
the first installment but prior to payment of the second installment, he or she
is not obligated to refund the previously paid installment.
Termination Payments. The Amendments will replace the provisions of the Key
Officers' Employment Agreements relating to termination payments in their
entirety. Following the Amendments, termination payments for the Key Officers
(except Mr. Toma and Mr. Moylan) will be payable as set forth below.
o If the Key Officer is not offered a job equivalent to his or her current
position following a change of control that occurs prior to a specified
date, or if he or she terminates employment for good reason (or is
terminated without cause) during the first 6 months following such a change
of control, he or she will be entitled to a termination payment equal to
two times annual base salary, payable in equal bi-weekly installments over
the 2-year period beginning 6 months following the change of control;
o If the Key Officer terminates his or her employment for good reason, or his
or her employment is terminated without cause, after the 6-month
anniversary, but on or before the 1-year anniversary, of any such change of
control, he or she will be entitled to a payment equal to one and one-half
times annual base salary, payable in equal bi-weekly installments over the
18-month period beginning 6 months following termination of employment; and
o If the Key Officer terminates his or her employment for good reason, or his
or her employment is terminated without cause prior to any such change of
control or following the 1-year anniversary of any such change of control,
the Key Officer will be entitled to termination payments under
substantially the same terms as provided under his or her pre-existing
employment agreement.
Mr. Toma's entitlement to termination payments is unchanged from his
pre-existing employment agreement.
Payment of bi-weekly installments will begin immediately upon a change of
control or termination of employment (as applicable), without the 6-month
delay otherwise provided, if the American Jobs Creation Act of 2004 is
interpreted to permit elimination of the delay.
Mr. Moylan's entitlement to termination payments remains the same as was
provided in his pre-existing Employment Agreement.
Restricted Stock Awards. The Amendments, except for Mr. Moylan's, will also
provide for restricted stock awards representing 40,000 shares of the
Company's common stock to be granted to each officer.
The restricted stock awards will be subject to service-based cliff vesting.
The restricted awards vest 3 years following the date of grant, subject to
early vesting upon a change of control, death, disability, or involuntary
termination of employment without cause. The restricted awards are
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forfeited if the recipient voluntarily terminates his or her employment by
the Company (or a subsidiary, affiliate or successor thereof) prior to
vesting. Certificates representing the shares to be issued pursuant to the
restricted awards will be held in escrow by the Company and are generally
nontransferable until vesting. During the vesting period, the award
recipients will be entitled to receive dividends with respect to the
escrowed shares and to vote the shares.
Liquidated Damages. The Amendments will provide for liquidated damages in
the event that the noncompete or anti-solicitation restrictive covenants
are breached. The amount of liquidated damages will vary with the duration
of the violation and be subject to a ceiling on the amount payable which is
equal to the sum of any termination payments received from the Company plus
the value of any restricted stock received in conjunction with the
Amendment.
Cut-Back of Benefits. The Amendments will provide that the benefits to
which an officer is otherwise entitled thereunder will be reduced if they
(when aggregated with other similar payments and benefits) would otherwise
exceed the golden parachute threshold so as to result in an excise tax
being imposed on the officer under the "golden parachute" tax laws.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Except for the historical information contained in this report, the
statements made by the Company are forward-looking statements that involve
risks and uncertainties. All such statements are subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Future
events could differ significantly from the expectations of management
expressed or implied in this report. In particular, whether Mr. Cook would
be entitled to a gross-up payment is subject to a number of uncertainties
including the United States laws and regulations governing taxation then in
effect, whether the Company experiences a change of control, and the price
paid to Company shareholders in connection with any such change of control,
which in turn is likely to be affected by a variety of factors affecting
the market generally and the Company's common stock in particular. The
Company is unable to predict if or when a change of control could or would
take place. Whether or not a change of control takes place depends upon
such factors as the outcome of the Company's evaluation of strategic
alternatives, the Company's future financial performance, the performance
of the market in general, and other factors described in the section
entitled "Risk Factors" in the Company's Form 10-K filed March 5, 2004 with
the Securities and Exchange Commission. The Company disclaims any
obligation or duty to update or modify these forward-looking statements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
PRG-Schultz International, Inc. has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
PRG-SCHULTZ INTERNATIONAL, INC.
Date: October 25, 2004 By: /s/Clinton McKellar, Jr.
Clinton McKellar, Jr.
General Counsel and Secretary
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