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CHANGE OF CONTROL AND RESTRICTIVE
COVENANT AGREEMENT
This
Change of Control and Restrictive Covenant Agreement ("Agreement")
is
entered into this 14th day of February, 2005 by and among John M.
Toma
("Executive"), PRG-Schultz USA, Inc., a Georgia corporation
("USA"), and
PRG-Schultz International, Inc., a Georgia corporation that owns
all of the
capital stock of USA ("PRGS").
WHEREAS, Executive and USA entered into that certain Employment
Agreement,
dated March 20, 1996, as amended on May 14, 2002 ("Employment
Agreement"), which
sets forth the terms of employment under which USA employed
Executive as the
Vice Chairman, for USA;
WHEREAS, Executive is a senior executive of USA whose services
are
extremely valuable to USA;
WHEREAS, Executive has had and will have access to the valuable
and
proprietary trade secrets of USA and its customers, and Executive
has had and
will have close contact with the customers and employees of
USA;
WHEREAS, Executive and USA desire to enter into this Change of
Control and
Restrictive Covenant Agreement to (a) amend certain provisions of
the Employment
Agreement regarding termination of employment and severance in the
manner set
forth herein, (b) provide Executive additional security and
benefits in the
event of any actual or threatened change of control of PRGS, (c)
provide
incentives to Executive to remain employed with USA, (d) provide
PRGS with
reasonable protection of the valuable trade secrets and
confidential information
of USA and its customers, as well as the relationships between USA
and its
customers and employees, and (e) preserve the goodwill of PRGS for
the benefit
of the shareholders in the event a change of control occurs;
NOW, THEREFORE, for good and
valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as
follows:
1.
Definitions. As used in this Agreement, the following terms shall
have
the meaning specified:
"Business of USA" shall mean (a) audit services (i) to identify and
recover
lost profits from any source, including, without limitation,
payment errors,
missed or inaccurate discounts, allowances, or rebates, vendor
pricing errors,
or duplicate payments and (ii) to identify expense containment
opportunities;
(b) development and use of technology to provide such services; and
(c)
provision of related consulting services.
"Cause" shall have the meaning ascribed to such term in the
Employment
Agreement.
"Change of Control" shall mean the occurrence of any of the
following
events: (i) a majority of the outstanding voting stock of PRGS
shall have been
acquired or beneficially owned
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by any person (other than PRGS or a subsidiary of PRGS) or any two
or more
persons acting as a partnership, limited partnership, syndicate or
other group,
entity or association acting in concert for the purpose of voting,
acquiring,
holding, or disposing of voting stock of PRGS; or (ii) a merger or
a
consolidation of PRGS with or into another corporation, other than
(A) a merger
or consolidation with a subsidiary of PRGS, or (B) a merger or
consolidation in
which the holders of voting stock of PRGS immediately prior to the
merger as a
class hold immediately after the merger at least a majority of all
outstanding
voting power of the surviving or resulting corporation or its
parent; or (iii) a
statutory exchange of shares of one or more classes or series of
outstanding
voting stock of PRGS for cash, securities, or other property, other
than an
exchange in which the holders of voting stock of PRGS immediately
prior to the
exchange as a class hold immediately after the exchange at least a
majority of
all outstanding voting power of the entity with which PRGS stock is
being
exchanged; or (iv) the sale or other disposition of all or
substantially all of
the assets of PRGS, in one transaction or a series of transactions,
other than a
sale or disposition in which the holders of voting stock of PRGS
immediately
prior to the sale or disposition as a class hold immediately after
the exchange
at least a majority of all outstanding voting power of the entity
to which the
assets of PRGS are being sold; or (v) the liquidation or
dissolution of PRGS; or
(vi) the entry into a definitive agreement with respect to any of
the events
specified in the foregoing clauses (i) through (v) on or prior to
December 31,
2005 if the transactions contemplated by such agreement shall
thereafter be
consummated on or before March 31, 2006. In the event of the
occurrence of a
Change of Control under clause (vi) above, for all purposes hereof,
other than
the determination under this Agreement that a Change of Control has
occurred on
or before December 31, 2005, the date the transactions contemplated
by such
agreement are consummated shall be deemed to be the date of such
Change of
Control.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Competing Business" shall mean any business engaging in the same
or
substantially similar business as the Business of USA.
"Confidential Information" shall mean any confidential or
proprietary
information relating to USA or its customers or affiliates that is
not a Trade
Secret.
"Good Reason" shall mean any one of the following: (i) USA's
demotion of
the Executive to a lesser position than the position in which he is
serving
prior to such demotion; (ii) the assignment to Executive of duties
materially
inconsistent with his position or material reduction of the
Executive's duties,
responsibilities or authority, all of which, as of the date hereof,
are as set
forth on Exhibit A attached hereto and incorporated herein, in
either case
without the Executive's prior written consent; provided, however,
that a change
in the foregoing that results solely from PRGS ceasing to be a
publicly traded
entity or from PRGS becoming a wholly owned subsidiary of a
publicly traded
entity shall not, in either event and standing alone, constitute
grounds for
"Good Reason"; (iii) any reduction in Executive's base salary,
target bonus or
target bonus plan without the Executive's prior consent unless
other executives
who are parties to agreements similar to this one also suffer a
comparable
reduction in their base salaries, target bonus, or target bonus
plan (for
purposes of this subsection (iii) "other executives" shall refer to
James
Benjamin, Marie Neff, James Moylan, Richard Bacon, Eric Goldfarb,
Paul van
Leeuwen or John Toma); or (iv) unless agreed to by Executive, the
relocation of
Executive's
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principal place of business outside of the metropolitan area of
Atlanta,
Georgia, in each case not remedied by USA within thirty (30) days
after receipt
by USA of written notification from Executive as provided in
Section 18 of this
Agreement to USA that specifically identifies the Good Reason. The
Executive
must notify USA of any event that constitutes Good Reason within
ninety (90)
days following the Executive's knowledge of its occurrence or
existence or such
event shall not constitute Good Reason under this Agreement.
"Per
Share Price" shall mean the value of the consideration received by
a
shareholder of PRGS in exchange for one share of the Common Stock
of PRGS in
connection with a transaction which constitutes a Change of
Control.
"Secret Information" means Confidential Information and Trade
Secrets.
"Trade Secrets" shall mean information of USA, its affiliates or
customers,
without regard to form, including, but not limited to, technical or
nontechnical
data, a formula, a pattern, a compilation, a program, a device, a
method, a
technique, a drawing, a design, a process, financial data,
financial plans,
product plans, or a list of actual or potential customers or
suppliers which is
not commonly known by or available to the public and which
information: (a)
derives economic value, actual or potential, from not being
generally known to,
and not being readily ascertainable by proper means by, other
persons who can
obtain economic value from its disclosure or use, and (b) is the
subject of
efforts that are reasonable under the circumstances to maintain its
secrecy.
"Works" shall mean any work of authorship, code, invention,
improvement,
discovery, process, formula, code algorithm, program, system,
method, visual
work, or work product, whether or not patentable or eligible for
copyright, and
in whatever form or medium and all derivative works thereof, which
are, have
been or will be created, made, developed, or conceived by Executive
in the
course of employment with USA, with USA's time, on USA's premises,
using USA's
resources or equipment, or relating to the Business of USA.
2.
Transaction Success Fee.
(a) Amount of Transaction Success Fee. Subject to the conditions
set
forth in Section 2(b) below, USA shall pay to Executive an amount
(the
"Transaction Success Fee") in the event a Change of Control occurs
on or before
December 31, 2005, as follows:
(i) If the Per Share Price received by the PRGS shareholders in
connection with the Change of Control is equal to or less than
$7.00 per share,
the amount of the Transaction Success Fee shall be equal to
$200,000.00.
(ii) If the Per Share Price received by the PRGS shareholders
in
connection with the Change of Control is $7.01 or more, but equal
to or less
than $11.00, the amount of the Transaction Success Fee shall be
calculated in
accordance with the following formula:
(1) Per Share Price
minus $7.00 = Increase Dollar Amount;
(2) Increase Dollar
Amount divided by $4.00 = Increase Percentage
Amount;
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(3) Increase
Percentage Amount plus 50% = Aggregate Increase
Percentage;
(4) Multiply Aggregate
Increase Percentage by $400,000.00
For example, if the Per Share Price is $9.00, the Increase Dollar
Amount will
equal $2.00, the Increase Percentage Amount will equal 50% (or .50)
and the
Aggregate Increase Percentage will equal 100% (or 1). Accordingly,
in such case,
the Transaction Success Fee would be $400,000.00.
(iii) If the Per Share Price received by the PRGS shareholders
in
connection with the Change of Control is $11.01 or greater, the
amount of the
Transaction Success Fee shall be equal to $600,000.00.
If
any written agreement with any "other executive" as defined in the
Good
Reason definition in Section 1 hereof, similar to this Agreement,
is amended to
reduce to a lower number the $7.00 amount in Section 2(a) of such
agreement,
then the $7.00 in this Section 2(a) shall be automatically reduced
to such lower
dollar amount. In the event of any stock split, stock dividend, or
similar
adjustment in the number of outstanding shares of Common Stock of
PRGS, then the
base prices of $7.00 to $11.00 that are set forth above and that
are used to
determine the amount of the Transaction Success Fee shall be
equitably adjusted
to reflect such split, dividend, or similar adjustment and the base
numbers of
$7.00 and $4.00 set forth in (ii)(1)-(2) above shall also be
equitably adjusted.
(b) Conditions. In order for Executive to be eligible to receive
the
Transaction Success Fee, the Change of Control must occur on or
before December
31, 2005, and one of the following conditions must be met:
(i) Executive is employed by USA or its affiliates on the date
of
a Change of Control, but Executive is not offered a job after the
Change of
Control with USA or its successor or affiliates, or Executive is
offered
employment after the Change of Control, but the terms of such
employment are
such that Executive would be entitled to resign from employment for
Good Reason;
or
(ii) Executive is employed by USA or its affiliates on the date
of a Change of Control and Executive remains employed by USA or its
successor or
affiliates during the period beginning with the Change of Control
and continuing
through the date that the Transaction Success Fee (or portion
thereof) is earned
and due for payment in accordance with Section 2(c)(i) and (ii)
below; or
(iii) Executive is employed by USA or its affiliates on the
date
of a Change of Control and Executive remains employed by USA or its
successor or
affiliates after the date of the Change of Control, but Executive
voluntarily
terminates such employment for Good Reason during the 12-month
period following
the Change of Control;
(iv) Executive is employed by USA or its affiliates on the date
of a Change of Control and Executive remains employed by USA or its
successor or
affiliates after
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the date of the Change of Control, but such employment is
terminated by USA (or
its successor or an affiliate) without Cause during the 12-month
period
following the Change of Control; or
(v) Executive's employment with USA or its affiliates is
terminated prior to the date of a Change of Control without Cause
or for Good
Reason, either in contemplation of a Change of Control or at the
insistence of
the prospective purchaser of PRGS; provided, however, that,
notwithstanding
anything to the contrary contained herein, Executive shall have no
right to
receive any portion of a Transaction Success Fee, until the actual
occurrence of
a Change of Control that occurs on or before December 31, 2005, and
in the event
a Change of Control does not occur on or before December 31, 2005,
Executive
shall have no right to receive a Transaction Success Fee.
(c) Payment Terms. The Transaction Success Fee shall be due and
payable as follows:
(i) If Executive is employed by USA or its successor or
affiliates on the six-month anniversary of the Change of Control,
one-third of
the Transaction Success Fee shall be due and payable by USA to
Executive within
30 days after such six-month anniversary.
(ii) If Executive is employed by USA or its successor or
affiliates on the one-year anniversary of the Change of Control,
two-thirds of
the Transaction Success Fee shall be due and payable by USA to
Executive within
30 days after such one-year anniversary.
(iii) Upon the occurrence of the events described in Section
2(b)(i) through (iv) above, the entire Transaction Success Fee
(less any amounts
previously paid hereunder) shall be due and payable in a lump sum
within 30 days
after the occurrence of such event.
(iv) Upon the occurrence of the event described in Section
2(b)(v) above, the entire Transaction Success Fee shall be due and
payable 30
days after the later to occur of termination of employment or the
date of the
Change of Control.
Notwithstanding the foregoing, if a portion of the Per Share Price
to be
received by the PRGS shareholders is placed in escrow, paid in
installments or
over time, or otherwise deferred for any reason, including in order
to fund
potential claims in connection with a breach of any representation
or warranty
given in connection with a Change of Control transaction or to be
earned and
paid based on conditions to be determined after the closing of the
Change of
Control transaction, the Transaction Success Fee shall be based on
the Per Share
Price amount actually received by the PRGS shareholders and any
increase in the
Transaction Success Fee caused by any post-closing payments shall
be paid on the
later of the date set forth above or 30 days after the date of such
post-closing
payment to the PRGS shareholders.
(d) Termination for Cause. If Executive's employment is terminated
by
USA (or a successor or affiliate) for Cause prior to the six-month
anniversary
of a Change of Control, Executive shall not be entitled to receive
any portion
of the Transaction Success Fee. If Executive's employment is
terminated by USA
(or its successor or an affiliate) for Cause after
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the six-month anniversary of a Change of Control, USA shall pay the
portion of
the Transaction Success Fee due under Section 2(c)(i), but
Executive shall not
be entitled to receive the amount described in Section 2(c)(ii). To
the extent
the amount due under 2(c)(i) has been paid by USA prior to a
termination under
the condition described in the foregoing sentence, Executive shall
not be
required to refund such portion of the Transaction Success Fee.
3.
Restricted Stock Award. Executive acknowledges and agrees that
execution
of this Agreement will also constitute Executive's acceptance of a
restricted
stock award of 40,000 shares of the Common Stock of PRGS, the terms
and
conditions of which are set forth on Exhibit B attached hereto and
incorporated
herein. This Agreement will not be deemed accepted until Executive
has delivered
an executed copy hereof to USA's Human Resources Department at the
address set
forth on the signature page hereto.
4. Amendments to Employment
Agreement.
(a) The second sentence of Section 11(a) of the Employment
Agreement
is hereby amended by striking the phrase "or engaging in activities
prohibited
by Sections 6, 7, 8, or 9 hereof" and replacing such language with
the phrase
"or engaging in activities prohibited by Sections 8 through 14 of
that certain
Change of Control and Restrictive Covenant Agreement by and between
Executive
and USA, dated February 14, 2005 ("Change of Control
Agreement")."
(b) Section 11(c) of
the Employment Agreement is hereby deleted in its
entirety and replaced by the following:
"(c)
This Agreement may be terminated by Employee for "Good Reason"
upon
thirty (30) days prior written notice of termination served
personally in
accordance with Section 15 hereof, such "Good Reason" being
specified in the
notice; provided that at the time of such notice to the Company,
there is no
basis for termination by the Company of Employee's employment for
cause. For
purposes of this Agreement, "Good Reason" shall have the meaning
ascribed to
such term in the Change of Control Agreement."
(c) Section 3(b) of Exhibit C of the Employment Agreement is
hereby
amended by inserting the following sentence at the end of the
paragraph:
"Subject to the proviso below, if John Cook ceases to be Chief
Executive Officer of PRGX for any reason, it shall be deemed a
termination of
Employee's employment without cause solely for purposes of
entitlement to
compensation pursuant to this Section 3(b) and pursuant to Section
4(b)(iii)
hereof, and Employee shall be entitled to compensation pursuant to
this Section
3(b) and pursuant to Section 4(b)(iii) hereof. In no event shall
this provision
be deemed applicable to the interpretation of any of the terms of
any of
Employee's awards of equity compensation from PRGX, it being hereby
acknowledged
by both parties hereto that the terms of all such awards, including
the
Restricted Stock Award granted hereunder, must be interpreted in
accordance with
the PRGX Stock Incentive Plan."
(d) Sections 3, 6, 7, 8, 9 and 10 of the Employment Agreement
are
hereby deleted in their entirety.
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(e) Section 3(h) of Exhibit C to the Employment Agreement is
hereby
deleted in its entirety.
5.
Acknowledgement of Restrictive Covenant Consideration.
Executive
acknowledges and agrees that $1,020,000.00 (the "Restrictive
Covenant
Consideration") of the aggregate value of amounts that USA has
agreed to pay
under Section 3 hereof and any amounts that USA has agreed to pay
Executive
under the Employment Agreement as a result of termination of his
employment, is
being paid in consideration of Executive's agreement to Sections
12, 13 and 14
below. Moreover, Executive acknowledges and agrees that the
Restrictive Covenant
Consideration is subject to forfeiture in accordance with Section
15(b) hereof
in the event Executive breaches any of the covenants set forth in
Section 12, 13
or 14 hereof.
6. Taxes. PRG shall
deduct or withhold such amounts as may be required
pursuant to applicable federal, state, local, or other laws from
all amounts
payable to Executive or awards to be made to Executive pursuant to
this
Agreement.
7.
Excess Payments. In the event that any payment or award to be
received
by Executive pursuant to Sections 2 or 3 hereof or the value of any
acceleration
right occurring pursuant to this Agreement in connection with a
Change of
Control would be subject to an excise tax pursuant to Section 4999
of the Code
(or any successor provision), whether in whole or in part, as a
result of being
an "excess parachute payment," within the meaning of such term in
Section
280G(b) of the Code (or any successor provision), the amount
payable under
Sections 2 or 3 shall be reduced so that no portion of such payment
or the value
of such acceleration rights is subject to the excise tax pursuant
to Section
4999 of the Code. If the amount necessary to eliminate such excise
tax exceeds
the amount otherwise payable under Sections 2 or 3, no payment
shall be made
under these Sections and no further adjustments shall be made.
Notwithstanding
the previous sentence, no portion of such payment or any
acceleration right
which tax counsel, selected by USA's accountant and acceptable to
Executive,
determines not to constitute a "parachute payment" within the
meaning of Section
280G(b)(2) of the Code will be taken into account.
8.
Confidentiality. Executive covenants and agrees that, during and
after
his employment by USA, he will treat as confidential and will not,
without the
prior written approval of USA, use (other than in the performance
of his
designated duties for USA) or disclose the Trade Secrets or
Confidential
Information; provided, the foregoing obligation with respect to
Confidential
Information shall expire five years after termination of
Executive's employment
by USA.
9.
Records. All records, notes, files, recordings, tapes, disks,
memoranda,
reports, price lists, client lists, drawings, plans, sketches,
documents,
equipment, apparatus, and like items, and all copies thereof,
relating to the
business of USA or its affiliates or the Secret Information, which
shall be
prepared by Executive or which shall be disclosed to or which shall
come into
the possession of Executive, shall be and remain the sole and
exclusive property
of USA. Executive agrees that at any time upon request from USA, to
promptly
deliver to USA the originals and all copies of any of the foregoing
that are in
the Executive's possession, custody or control
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10.
Executive Inventions.
(a) Ownership of Works. All Works shall be the sole and
absolute
property of Company, including all patent, copyright, trade secret,
or other
rights in respect thereof. Executive agrees to and hereby does
assign to Company
all right, title, and interest in and to any and all Works,
including all
worldwide copyrights, patent rights, and all trade secret
information embodied
therein, in all media and including all rights to create derivative
works
thereof. Executive waives any and all rights Executive may have in
any Works,
including but not limited to the right to acknowledgement as author
or moral
rights. Executive agrees not to use or include in Works any
patented,
copyrighted, restricted or protected code, specifications,
concepts, or trade
secrets of any third party or any other information that Executive
would be
prohibited from using by any confidentiality, non-disclosure or
other agreement
with any third party. Executive agrees to fully and promptly
disclose in writing
to USA any such Works as such Works from time to time may
arise.
(b) Further Assurances. Executive shall, without charge to USA
other
than reimbursement of Executive's reasonable out-of-pocket
expenses, execute and
deliver all such further documents and instruments, including
applications for
patents and copyrights, and perform such acts, at any time during
or after the
term of this Agreement as may be necessary or desirable, to obtain,
maintain,
and defend patents, copyrights, or other proprietary rights in
respect of the
Works or to vest title to such Works in USA, its successors,
assigns, or
designees. Without limiting the generality of the foregoing,
Executive further
agrees to give all lawful testimony, during or after the term of
Executive's
employment, which may be required in connection with any
proceedings involving
any Works so assigned by Executive. Executive agrees to keep and
maintain
adequate and complete records (in the form of notes, laboratory
notebooks,
sketches, drawings, optical drives, hard drives and as may
otherwise be
specified by USA) of all inventions and original works of
authorship made by
Executive (solely or jointly with others) in the course of
employment with
Company, with USA's time, on USA's premises, or using USA's
resources or
equipment, which records shall be available to and remain the sole
property of
USA at all times.
(c) No Obligations to Third Parties. Executive represents and
warrants
to USA that Executive is not subject to any employment,
non-disclosure,
confidentiality, non-compete, or other agreement with any third
party which
would prevent or prohibit Executive from fulfilling Executive's
duties for USA.
If Executive is the subject of any such agreement, and has any
doubt as to its
applicability to Executive's position with USA, Executive will
provide a copy of
such agreement to USA so that USA can make a determination as to
its effect on
Executive's ability to work for USA. Executive agrees to notify the
company in
writing before making any disclosure or perform any work on behalf
of USA which
appears to threaten or conflict with any proprietary rights
Executive claims or
intends to claim in any invention or original work of authorship.
In the event
Executive fails to give such notice, Executive agrees that he will
make no claim
against USA with respect to any such invention or work of
authorship.
11.
Cooperation. Executive agrees to cooperate at any time to the
extent
and in the manner requested by USA and at USA's expense, in the
prosecution or
defense of any claims, litigation or other proceeding involving the
Works, the
property of USA or the Secret Information.
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Executive agrees to diligently protect any and all Secret
Information against
loss by inadvertent or unauthorized disclosure. Executive will
comply with
regulations, policies, and procedures established by USA,
including, without
limitation, all regulations, policies, and procedures established
for the
purpose of protecting Secret Information.
12.
Agreement Not to Compete. Executive covenants and agrees that
during
his employment by USA and for a period of two years after
termination, for any
reason, of such employment, he will not, without the prior written
consent of
USA, within Fulton County, Georgia, for himself or on behalf of
another,
directly or indirectly, engage in any business for which he
provides services
which are the same or substantially similar to his services for USA
(as
described in the Employment Agreement) to or on behalf of a
Competing Business;
provided, however, if the termination occurs on or after the second
anniversary
of the date of the Change of Control, the two year non-compete
period set forth
herein shall reduce to a one year non-compete period. Executive
acknowledges and
agrees that Fulton County, Georgia is the geographic area within
which the
Executive performs services for the Company.
13.
Agreement Not to Solicit Customers. During Executive's employment
by
USA and for a period of two years after the termination of such
employment for
any reason, whether by USA or by Executive, with or wi
