PRGX Global, Inc.
Annual Report 2011

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-K(Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-28000 PRGX Global, Inc.(Exact name of registrant as specified in its charter) Georgia 58-2213805(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)600 Galleria Parkway 30339-5986Suite 100 (Zip Code)Atlanta, Georgia (Address of principal executive offices) Registrant's telephone number, including area code: (770) 779-3900Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of each exchange on which registeredCommon Stock, No Par Value The NASDAQ Stock Market LLC (The Nasdaq Global Market)Preferred Stock Purchase Rights The NASDAQ Stock Market LLC (The Nasdaq Global Market)Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xNote—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from theirobligations under those Sections.Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the bestof the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. xIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes x No ¨Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check One):¨ Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Small reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No xThe aggregate market value, as of June 30, 2011, of common shares of the registrant held by non-affiliates of the registrant was approximately $141.9million, based upon the last sales price reported that date on The Nasdaq Global Market of $7.15 per share. (Aggregate market value is estimated solely for thepurposes of this report and shall not be construed as an admission for the purposes of determining affiliate status.)Common shares of the registrant outstanding as of February 27, 2012 were 25,088,505. Documents Incorporated by ReferencePart III: Portions of Registrant's Proxy Statement relating to the Company’s 2012 Annual Meeting of Shareholders. Table of ContentsPRGX Global, Inc.FORM 10-KDecember 31, 2011 Page Part I Item 1. Business 1 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 18 Item 2. Properties 18 Item 3. Legal Proceedings 18 Item 4. Mine Safety Disclosures 18 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19 Item 6. Selected Financial Data 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 38 Item 8. Financial Statements and Supplementary Data 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 71 Item 9A. Controls and Procedures 71 Item 9B. Other Information 72 Part III Item 10. Directors, Executive Officers and Corporate Governance 73 Item 11. Executive Compensation 73 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 74 Item 13. Certain Relationships and Related Transactions, and Director Independence 75 Item 14. Principal Accountants’ Fees and Services 75 Part IV Item 15. Exhibits, Financial Statement Schedules 76 Signatures 81 Table of ContentsCautionary Statement Regarding Forward-Looking StatementsThe following discussion includes “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are at times identified by words such as “plans,” “intends,” “expects,” or “anticipates” and words of similar effect and include statementsregarding the Company’s financial and operating plans and goals. These forward-looking statements include any statements that cannot be assessed until theoccurrence of a future event or events. Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company”refer to PRGX Global, Inc. and its subsidiaries.These forward-looking statements are subject to risks, uncertainties and other factors, including but not limited to those discussed herein and below underItem 1A “Risk Factors.” Many of these risks are outside of our control and could cause actual results to differ materially from the results discussed in the forward-looking statements. Factors that could lead to material changes in our performance may include, but are not limited to: • our ability to successfully execute our recovery audit growth strategy; • our continued dependence on our largest clients for significant revenues; • changes to Medicare and Medicaid recovery audit contractor (“RAC”) programs and the impact of our incurring significant costs as a subcontractor inthe national Medicare RAC program and otherwise in connection with our healthcare claims recovery audit business; • revenues that do not meet expectations or justify costs incurred; • our ability to develop material sources of new revenue in addition to revenues from our core accounts payable recovery audit services; • changes to revenues from our Medicare audit recovery work due to a number of pressures and uncertainties affecting Medicare spending generallyand over which we have little or no control; • changes in the market for our services; • client and vendor bankruptcies and financial difficulties; • our ability to retain and attract qualified personnel; • our inability to protect and maintain the competitive advantage of our proprietary technology and intellectual property rights; • our reliance on operations outside the U.S. for a significant portion of our revenues; • the highly competitive environments in which our recovery audit services and analytics and advisory services businesses operate and the resultingpricing pressure on those businesses; • our ability to integrate recent and future acquisitions; • uncertainty in the global credit markets; • our ability to maintain compliance with our financial covenants; • a cyber-security incident involving the misappropriation, loss or unauthorized disclosure or use of confidential information of our clients; • effects of changes in accounting policies, standards, guidelines or principles; or • terrorist acts, acts of war and other factors over which we have little or no control.Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation toupdate any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipatedevents. New factors emerge from time to time and it is not possible for management to predict all such factors. iTable of ContentsPART I ITEM 1.BusinessPRGX Global, Inc., together with its subsidiaries, is an analytics-powered information and professional services firm based in the United States of America(“U.S.”). PRGX Global, Inc. was incorporated in the State of Georgia in 1996. At the heart of our client services portfolio is the core capability of mining clientdata to deliver “actionable insights.” Actionable insights allow our clients to improve their financial performance by reducing costs, improving business processesand increasing profitability. In 2010, we rebranded the Company as “PRGX” and adopted the tagline “Discover Your Hidden Profits.”We currently provide services to clients in 38 countries, and conduct our operations through three reportable operating segments: Recovery Audit Services— Americas, Recovery Audit Services — Europe/Asia-Pacific and New Services. The Recovery Audit Services — Americas segment represents recovery auditservices (other than healthcare claims recovery audit services) we provide in the U.S., Canada and Latin America. The Recovery Audit Services — Europe/Asia-Pacific segment represents recovery audit services (other than healthcare claims recovery audit services) we provide in Europe, Asia and the Pacific region. TheNew Services segment represents healthcare claims recovery audit services and our analytics and advisory services. We report the unallocated portion of corporateselling, general and administrative expenses not specifically attributable to the three operating segments in Corporate Support. For additional financial informationrelating to our reporting segments, see Note 4 — Operating Segments and Related Information of our Consolidated Financial Statements included in Item 8 of thisForm 10-K.Our core business is “recovery audit,” a service based on the mining of a tremendous amount of our clients’ purchasing data, looking for overpayments totheir third-party suppliers. Most of our large retail clients in mature geographic markets employ their own internal staff to audit and recover overpayments tosuppliers, engaging us as a supplement to this internal function. For other clients, including some large and mid-size retailers and our “commercial” (non-retail)clients, we serve as the complete outsourced provider of this standard function. We process over 1.5 million client files each year, including purchase orders,receipt and shipment data, invoices, payables data and point of sales data, and, at any point in time, have over 6 petabytes of client data available for analysis.Our healthcare claims recovery audit services involve the identification of overpayments and underpayments made to healthcare providers such as hospitalsand physicians’ practices. We identify such improper payments by using various methods, including proprietary methods which are comparable to the proprietarytechniques we developed through many years of performing other types of recovery audits involving massive volumes of transaction data. Auditing medical claimsdata requires that we maintain a staff of healthcare professionals with in-depth expertise in healthcare procedures and billing processes.Our analytics and advisory services target client functional and process areas where we have established expertise, enabling us to provide services to seniorfinance executives to optimize working capital, reduce enterprise costs, transform the finance function and improve corporate performance. Recovery auditservices operate in a mindset of continuous improvement, i.e., reporting on the over-payment “categories” and their root causes. Our advisory services teams arewell-positioned to help clients resolve many of the root causes of errors identified as part of our recovery audit services. Our analytics services teams enhance ourclient value propositions relating to spend analytics and sourcing/procurement excellence. We use the data from our clients to create spend reporting at the line-item level of detail, a capability that many of our clients do not possess in-house. This information enables us to assist clients with supplier rationalization,collaborative purchasing, strategic sourcing and procurement transformation, all of which can dramatically enhance the clients’ bottom lines.We provide certain of our insights through web-based technologies using the “SaaS” (software as a service) delivery model. Our SaaS model uses a periodiclicense fee allowing customers to tailor service levels such as frequency of data refresh and scope of reporting outputs. Our range of software-based solutionsextends to fraud prevention and compliance reporting, control monitoring and contract management. As our clients’ data volumes and complexity levels continueto grow, we are using our deep data management experience to incubate new actionable insight solutions in retail and healthcare, as well as to develop customanalytics services. Taken together, our software capability and solutions provide multiple routes to helping our clients achieve greater profitability. 1Table of ContentsThe PRGX Strategy and Client Value PropositionsDuring 2009, our executive management team performed an extensive review of our competitive advantages and marketplace opportunities and developeda revised business strategy for growth. The five components of this growth strategy are: 1.grow the accounts payable recovery audit business; 2.trailblaze accountability in healthcare; 3.expand data mining for profitability; 4.broaden our services footprint; and 5.build a strong team with a high-performance culture.These elements of our growth strategy represent our plans to reinvigorate our core business while significantly expanding our services portfolio. The go-to-market strategy is built on a competency foundation that includes data mining, audit/forensics capabilities, finance and procure-to-pay business process expertise,and a proprietary business intelligence platform. We now refer to these as our core capabilities of “Audit, Analytics and Advice.” We believe that we can combinethese core capabilities effectively to discover and deliver hidden profits for our clients, enabling the creation of a new service category in the professional servicesmarketplace: Profit Discovery.We have identified five major routes to discover profits for clients, each of which we refer to as a Client Value Proposition, or “CVP.” These CVPs representour services portfolio, and we discuss them within the descriptions of the various planks of our growth strategy below.Grow the Accounts Payable Recovery Audit BusinessThe “Grow the Accounts Payable Recovery Audit Business” component of our business strategy is focused on expanding our traditional stronghold inrecovery audit in the retail industry, along with a renewed focus on profitably delivering recovery audit services to non-retail (or what we internally refer to as“commercial”) clients.To facilitate growth in the accounts payable recovery audit market, we have reintroduced a dedicated sales force. In addition, we have increased our focus onthe quality of our client relationships and management of our existing client accounts. We also have established alliance agreements with several third-partyservice providers to allow us to offer our clients a comprehensive suite of recovery audit services beyond accounts payable to include tax, real estate, andtelecommunications audits. The new service offerings made possible by these alliance partners broaden the scope of audits with existing clients, and we expectthem to help us establish new client relationships and business opportunities around the globe. With a keen focus on business development and audit strategy, wesucceeded in growing our recovery audit business in 2011 for the first year-over-year increase in revenues since 2002. We believe we will continue to growrecovery audit revenues in 2012.Next-Generation Recovery Audit, one of our five Customer Value Propositions, aims to build on these improvements by delivering a better recovery auditservice to our clients. We have completed the initial development of our Next-Generation Recovery Audit business model and implemented it in several clientteams in 2011. Through this model, we are introducing innovation in best practices for recovery audit, increasing the quality and consistency of service andimplementing sophisticated central data storage, audit technologies and tools. These improvements also enabled us to lower our cost of delivering our services in2011, and we believe that we will realize further improvements in 2012.Key to serving clients more efficiently and cost-effectively under our Next-Generation Recovery Audit service delivery model is success in our offshoringinitiative. In 2010, we established our operations in Pune, India, and now have over 140 employees in India, providing business analytics, information technologyand other support services to our client teams in other parts of the world. By lowering our cost of delivery, we are significantly expanding the addressable targetmarket for our recovery audit services. Historically, much of our recovery audit focus has been on clients in the retail industry due to the enormous volumes oftransactions engaged in by these clients. With the improvements in our service delivery model that we are building into Next-Generation Recovery Audit, webelieve we can compete more effectively in our core retail market, and also can profitably expand our service offerings to industries such as manufacturing,energy, financial institutions and transportation and logistics. We further enhanced our capabilities in this area with our December 2011 acquisition of BusinessStrategy, Inc. (“BSI”). We acquired BSI for the scale and efficiencies we believe it will deliver to us in the commercial recovery audit arena. Building on thisacquisition, we are now creating a world-class shared service center in Grand Rapids, Michigan. 2™Table of ContentsTrailblaze Accountability in HealthcareThe primary focus of our Healthcare Claims Recovery Audit services to date has been the auditing of Medicare spending as part of the legislativelymandated Medicare recovery audit contractor (“RAC”) program of the Centers for Medicare and Medicaid Services (“CMS”), the federal agency that administersthe Medicare program. From March 2005 through March 2008, we were one of three recovery audit contractors that participated in CMS’s Medicare RACdemonstration project. Under the demonstration project, we were responsible for auditing Medicare spending in the State of California. Two other contractors wereresponsible for auditing Medicare spending in Florida and New York. Under CMS’s national Medicare RAC program, we are operating as a subcontractor in threeof the national Medicare RAC program’s four geographic regions. The principal services we provide as part of the Medicare RAC program involve theidentification of overpayments and underpayments made by Medicare to healthcare providers, such as hospitals and physicians’ practices. We identify suchimproper payments by using various methods, including proprietary methods that are comparable to the proprietary techniques we developed through many yearsof performing other types of recovery audits involving massive volumes of transaction data.Our second Customer Value Proposition, Healthcare Claims Recovery Audit, drives our growth strategy in healthcare — to execute with excellence ourrole in the Medicare RAC program, and leverage our healthcare services infrastructure to expand recovery audit services to other healthcare payers. We haveinvested heavily in the infrastructure and tools required to execute our Medicare RAC program subcontracts and believe much of this infrastructure can be appliedto the audit of medical claims paid by other healthcare payers.As a result of health care reform in the U.S., as reflected in the Patient Protection and Affordable Care Act, which became law in 2010, recovery auditing ofmedical claims is now mandated for state Medicaid programs. As the opportunities to serve these state Medicaid programs emerge, we are focusing our efforts onopportunities where our capabilities are a good match for the scope and administration of a state’s Medicaid program. With these filters in place, we have alreadyselectively competed in a number of state Medicaid procurements. We were awarded the Medicaid RAC contract for the State of Mississippi and have begunassociated audit activities. We also were recently notified that we have been awarded the Medicaid RAC contract for an additional state, but the contract is not yetin place.In addition to audits of medical claims under the Medicare and Medicaid programs, we believe that private payers, including health insurance companies,represent a significant opportunity for our recovery audit services, and that we are well-positioned to further grow our healthcare claims recovery audit business byfocusing on the private payer market. We currently are focusing our sales capabilities on the numerous opportunities for sales of healthcare claims recoveryauditing on behalf of government entities and plan to expand this focus to include private payers and self-insured employers.Expand Data Mining for ProfitabilityIn 2010, we launched Profit Optimization, an integrated set of analytics and advisory services across drivers of client profitability other than the recovery ofoverpayments. Our current Profit Optimization CVPs are Spend Optimization, Fraud Prevention & Compliance, and Profit Performance Optimization. Wecontinue to enhance our client value proposition around spend analytics and sourcing/procurement excellence. In our third CVP, Spend Optimization, we analyzeline-item purchasing detail and provide insights from that analysis to our clients. This information enables our clients to better manage their businesses byimproving their ability to bundle their spend dollars, source their direct and indirect goods globally, negotiate better terms with their suppliers and vendors,organize their procurement organizations and implement better internal processes and controls.Our fourth CVP, Fraud Prevention & Compliance, leverages the unique insights we gain from working closely with our clients in finance, audit and lossprevention and the sophisticated proprietary audit tools we use to mine clients’ data to discover where there is a risk of fraud or abuse. Through these services, wehelp clients protect their organization’s assets, and our reports document and record their proactive efforts to develop an effective fraud management program thatanticipates, prevents, detects and remedies fraud and abuse. 3Table of ContentsBroaden Our Services FootprintSenior executives of complex organizations regularly require external help to identify and maximize profit improvement opportunities. Our advisoryservices combine data analytics with deep functional expertise and a practical hands-on approach to help these client executives improve their operating margins.Profit Performance Optimization, our fifth CVP, leverages these capabilities and our long-standing client relationships by providing services includingworking capital optimization, corporate performance management, enterprise cost reduction and finance transformation to senior finance executives. These servicesfocus on improving the profitability of our clients’ procure-to-pay cycle and on merchandise optimization.Build a Strong Team with a High-Performance CultureThe final element of our strategy is to become a magnet for global talent and expertise relevant to our service lines and operations. As part of our overalltransformation, we are building a culture of results-oriented performance and collaboration, and an environment that promotes innovation and knowledge sharing.This transformation is crucial to ensure that we capture, understand, and deploy the very best practices consistently across every client globally. In addition, wehave maintained our increased focus on recruiting as is evident by our recent hiring of several managing directors in our analytics and advisory service line andsenior leadership in our healthcare claims recovery audit service line. The success of our growth strategy is predicated on continuously improving the capabilitiesof our client-facing personnel who identify the levers to add to clients’ profitability and effectively position all of our service offerings.Update on Our Strategy ExecutionWe now have completed the first year since the implementation of our growth strategy, and we are encouraged by the success we have achieved to date. In2011, our accounts payable recovery audit business generated the first year-over-year increase in revenues since 2002. Further, we accomplished this importantmilestone while also reducing our cost of revenues as a percentage of revenues in these segments. These improvements in financial performance occurred while wewere making significant investments in our accounts payable recovery audit segments, including re-implementing a sales force, establishing and expandingoffshore capabilities, completing strategic acquisitions and developing our Next-Generation Recovery Audit service delivery model. We will continue to drivetoward increasing our revenues and lowering our costs as a percentage of revenues in accounts payable recovery audit.Our healthcare claims recovery audit business grew significantly in both 2010 and 2011, although we incurred losses in this new service line in each of thoseyears. However, this unit exceeded our revenue expectations in the second half of 2011, and we anticipate that we will achieve operating profits in this service linein 2012.We also grew our analytics and advisory services business over the past three years, both organically and through acquisitions. We have acquired, developedand improved the tools we use in performing these services. The acquisitions we completed in this area also helped us to broaden our services footprint and provideextensive services to our clients and prospective clients. We believe our recent success in adding new clients and improving client retention rates in our recoveryaudit businesses is due in part to these additional service offerings, although these benefits are not reflected in the New Services segment.In the fourth quarter of 2011, we hired several senior leaders in both our analytics and advisory services business and our healthcare claims recovery auditbusiness. These new additions demonstrate our commitment to building a strong team with a high-performance culture.Collectively, these changes reflect our transformation from essentially a one-product, one-industry provider to an analytics-powered information andprofessional services firm. We believe that Profit Discovery, our combination of audit, analytics and advisory capabilities, represents a new category of businessservices that will enable us to provide greater value to our existing clients and to expand our reach into new clients and industries. 4™Table of ContentsThe Recovery Audit Industry and PRGXBusinesses and government agencies with substantial volumes of payment transactions involving multiple vendors, numerous discounts and allowances,fluctuating prices and complex pricing arrangements or rate structures find it difficult to process every payment correctly. Although these entities correctly processthe vast majority of payment transactions, errors occur in a small percentage of transactions. These errors include, but are not limited to, missed or inaccuratediscounts, allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. In the aggregate, these transaction errors can representsignificant amounts of reduced cash flow and lost profits for these entities. Many factors contribute to the errors, including communication failures between thepurchasing and accounts payable departments, complex pricing arrangements or rate structures, personnel turnover and changes in information and accountingsystems.Recovery auditing is a business service focused on finding overpayments created by these errors. We are the leading worldwide provider of recovery auditservices, principally to large businesses and government agencies having numerous payment transactions and complex purchasing/payment environments. Thesebusinesses and agencies include: • retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to these retailers; • business enterprises other than retailers, such as manufacturers, financial services firms, and pharmaceutical companies; • healthcare payers, both private sector health insurance companies and state and federal government payers such as CMS; and • federal and state government agencies other than government healthcare payers.Under virtually all of our recovery audit contracts, we receive a percentage of overpayments and other savings that we identify and that our clients recoveror realize. We generate the substantial majority of our revenues from accounts payable recovery audit services that we provide to retail clients. These audit servicestypically recur annually and are the most extensive of our recovery audit services, focusing on numerous recovery categories related to procurement and paymentactivities, as well as client/vendor promotions and allowances. These audits typically entail comprehensive and customized data acquisition from the client,frequently including purchasing, receiving, point-of-sale, pricing and deal documentation, emails, and payment data. Recovery audits for larger retail clients oftenrequire year-round on-site work by multi-auditor teams.In addition to these retail clients, we also provide accounts payable recovery audit services to clients in other industries. We typically refer to these clients asour “commercial clients.” Services to these types of clients to date have historically tended to be either periodic (typically, every two to three years) or rotational innature with different divisions of a given client being audited in pre-arranged periodic sequences, and are typically relatively short in duration. Accordingly, therevenues we derive from a given commercial client may change markedly from year to year.The recovery audit services we provide to our retail and commercial clients involve the identification of overpayments relating to purchases. We alsoprovide recovery audit services relating to healthcare claims which involve the identification of overpayments and underpayments made by healthcare payers tohealthcare providers, such as hospitals and physicians’ practices. Auditing medical claims data requires in-depth expertise in healthcare procedures and billingprocesses. Due to the different expertise necessary to provide healthcare claims recovery audit services, we include the results of our operations in this area in ourNew Services segment rather than in one of our two recovery audit services segments.Some organizations (primarily large retailers) maintain internal recovery audit departments to recover certain types of payment errors and identifyopportunities to reduce costs. Despite having such internal resources, many companies also retain independent recovery audit firms, such as PRGX, due to theirspecialized knowledge and focused technologies. In the U.S., Canada, the United Kingdom and France, large retailers routinely engage independent recovery auditfirms as a standard business practice. In other countries, large retailers and many other types of businesses also engage independent recovery audit firms, but thispractice is less common. 5Table of ContentsAs businesses have evolved, PRGX and the recovery audit industry have evolved with them, innovating processes, error identification tools, and claim typesto maximize recoveries. The following are a number of factors significantly impacting the recovery audit industry: • Data Capture and Availability. Businesses increasingly are using technology to manage complex procurement and accounts payable systems andrealize greater operating efficiencies. Many businesses worldwide communicate with vendors electronically — whether by Electronic DataInterchange (“EDI”) or the Internet — to exchange inventory and sales data, transmit purchase orders, submit invoices, forward shipping andreceiving information and remit payments. These systems capture more detailed data and enable the cost effective review of more transactions byrecovery auditors. • Increased Role of Email Documentation in Client Transaction Data. Clients and vendors increasingly document transaction terms in emailcorrespondence that is not integrated into their financial systems and increases opportunities for errors. To efficiently identify these errors, recoveryaudit firms must use sophisticated tools that are able to ingest and search through massive volumes of emails to identify potential errors that then areinvestigated by the auditors. A comprehensive recovery audit requires the effective use of email search tools and techniques. • Increasing Number of Auditable Claim Categories. Traditionally, the recovery audit industry identified simple, or “disbursement,” claim types such asthe duplicate payment of invoices. Enhancements to accounts payable software, particularly large enterprise software solutions used by many largecompanies, have reduced the extent to which these companies make simple disbursement errors. However, the introduction of creative vendordiscount programs, complex pricing arrangements and activity-based incentives has led to an increase in auditable transactions and potential sourcesof error. These transactions are complicated to audit, as the underlying transaction data is difficult to access and recognizing mistakes is complex.Recovery audit firms such as PRGX with significant industry-specific expertise and sophisticated technology are best equipped to audit thesecomplicated, or “contract compliance,” claim categories. • Globalization. As the operations of major retailers and other business enterprises become increasingly global, they often seek service providers with aglobal reach. • Consolidation in the Retail Industry. Retailer consolidation continues in both the U.S. and internationally. As retailers grow larger, vendors becomemore reliant on a smaller number of retailer customers, and, as a result, the balance of power favors retailers rather than their vendors. This dynamiccreates an environment that allows retailers to assert overpayment claims more easily. • Significant Promotional Activity. Trade promotion spending is substantial within the retail trade and significant sums are being spent in categorieswith numerous transactions and a high potential for errors, such as scan downs, or discounts at the point of sale. Because of the high volume of tradepromotion within retail, there are significant opportunities for mistakes and, therefore, auditable claims. • Move Toward Standard Auditing Practices. Increasingly, our client’s vendors are insisting on the satisfaction of certain conditions, such as clearerpost-audit procedures, better documentation and electronic communication of claims, before accepting the validity of a claim.We expect the evolution of the recovery audit industry to continue. In particular, we expect that the industry will continue to move towards the electroniccapture and presentation of data, more automated, centralized processing and faster approvals and deductions of claims.ClientsPRGX provides its services principally to large and mid-sized businesses and government agencies having numerous payment transactions and complexprocurement environments. Retailers continue to constitute the largest part of our client and revenue base. Our five largest clients contributed approximately 30.2%of our revenues in 2011, 31.3% in 2010 and 29.9% in 2009. Wal-Mart Stores, Inc. (and its affiliated companies) accounted for approximately 10.2% of ourrevenues in 2011, 12.1% in 2010 and 12.3% in 2009. 6Table of ContentsClient ContractsPRGX provides services to its clients pursuant to contracts. Our compensation under recovery audit service contracts generally is stated as a stipulatedpercentage of improper payments or other savings recovered for or realized by clients. Recovery audit clients generally recover claims by either (a) taking creditsagainst outstanding payables or future purchases from the involved vendors or service providers, or (b) receiving refund checks directly from those vendors orservice providers. Industry practice generally dictates the manner in which a client receives a recovery audit claim. In many cases, we must satisfy client-specificprocedural guidelines before we can submit recovery audit claims for client approval. For services such as advisory services, client contracts often provide forcompensation to us in the form of a flat fee, or fee rate per hour, or a fee per other unit of service.Most of our contracts provide that the client may terminate the contract without cause prior to the completion of the term of the agreement by providingrelatively short prior written notice of termination. In addition to being subject to termination for material default, our Medicare RAC program subcontracts aresubject to termination or partial termination for convenience to the extent all or any portion of the work covered by the associated Medicare RAC prime contract iseliminated by CMS, or to the extent our performance of the subcontract results in an organizational conflict of interest that is not mitigated or able to be mitigatedafter joint consultation among CMS, the Medicare RAC prime contractor and PRGX.TechnologyPRGX uses advanced, proprietary information systems and processes and a large-scale technology infrastructure to conduct its audits of clients’ paymenttransactions. Because of the ever-increasing volume and complexity of the transactions of our clients, we believe that our proprietary technology and processesserve as important competitive advantages over both our principal competitors and our clients’ in-house internal recovery audit functions. To sustain thesecompetitive advantages, we continually invest in technology initiatives to deliver innovative solutions that improve both the effectiveness and efficiency of ourservices.We aim our data acquisition, data processing and data management methodologies at maximizing efficiencies and productivity and maintaining the higheststandards of transaction auditing accuracy. At the beginning of a typical recovery audit engagement, we use a dedicated staff of data acquisition specialists andproprietary tools to acquire a wide array of transaction data from the client for the time period under review. We typically receive this data by secured electronictransmissions, digital media or paper. For paper-based data, we use a custom, proprietary imaging technology to scan the paper into electronic format. Upon receiptof the data, we secure, catalogue, back up and convert it into standard, readable formats using third party and proprietary tools.Our technology professionals clean and map massive volumes of client data, primarily using high performance database and storage technologies, intostandardized layouts at one of our data processing facilities. We also generate statistical reports to verify the completeness and accuracy of the data.We then process the data using proprietary algorithms (business rules) leveraging over thirty years’ experience to help uncover patterns or potentialproblems in clients’ various transactional streams. We deliver this data with a high probability of transaction errors to our auditors who, using our proprietary auditsoftware, sort, filter and search the data to validate and identify actual transaction errors. We also maintain a secure database of audit information with the ability toquery on multiple variables, including claim categories, industry codes, vendors and audit years, to facilitate the identification of additional recovery opportunitiesand provide recommendations for process improvements to clients.Once we identify and validate transaction errors, we present the information to clients for approval and submission to vendors as “claims.” We offer a web-based claim presentation and collaboration tool, which uses proprietary imaging technology to help the client view, approve and submit claims to vendors.In providing our spend analytics services, we use proprietary algorithms and technologies to clean and classify a client’s vendor spend data down to the lineitem level. We then are able to present this information to the client as a multi-dimensional data cube over a web-based interface. We believe these proprietaryalgorithms and technologies provide us with a competitive advantage over many of our competitors. 7Table of ContentsAuditor Hiring, Training and CompensationMany of our auditors and specialists formerly held finance-related management positions in the industries we serve. Training provided in the field by ourexperienced auditors enables newly hired auditors to develop and refine their auditing skills and improve productivity. Additionally, we provide training forauditors utilizing self-paced media such as specialized computer-based training modules. We periodically upgrade our training programs based on feedback fromauditors and changing industry protocols. Many of our auditors and specialists participate in one of our incentive compensation plans that link compensation of theauditor or specialist to audit performance.Proprietary RightsFrom time to time, we develop new software and methodologies that replace or enhance existing proprietary software and methodologies. We rely primarilyon trade secret and copyright protection for our proprietary software and other proprietary information. We consider the costs associated with these activities to beresearch and development costs and expense them as incurred. However, we capitalize the costs incurred for the development of computer software that will besold, leased, or otherwise marketed or that will be used in our operations beginning when technological feasibility has been established. Research and developmentcosts, including the amortization of amounts previously capitalized, were $3.4 million in 2011, $3.2 million in 2010 and $1.8 million in 2009.We own or have rights to various trademarks, trade names and copyrights, including U.S. and foreign registered trademarks and trade names and U.S.registered copyrights, that are valuable assets and important to our business. We monitor the status of our copyright and trademark registrations to maintain them inforce and renew them as appropriate. The duration of our active trademark registrations varies based upon the relevant statutes in the applicable jurisdiction, butgenerally endure for as long as they are used. The duration of our active copyright registrations similarly varies based on the relevant statutes in the applicablejurisdiction, but generally endure for the full statutory period. Our trademarks and trade names are of significant importance and include, but are not limited to, thefollowing: PRGX, Discover Your Hidden Profits, PRG-Schultz, imDex, Profit Discovery, AuditPro, SureF!nd, DirectF!nd, claimDex, PRGXAPTrax, PRGX AuditTrax, PRGX ClaimTrax, PRGX DealTrax, PRGX MailTrax, PRGX FraudTrax, and PRGX SpendTrax.CompetitionAccounts Payable Recovery AuditWe believe that the principal providers of domestic and international accounts payable recovery audit services in major markets worldwide consist ofPRGX, one substantial competitor, and numerous other smaller competitors. The smaller recovery audit firms generally do not possess multi-country servicecapabilities and do not have the centralized resources or broad client base required to support the technology investments necessary to provide comprehensiverecovery audit services for large, complex accounts payable systems. These smaller firms, therefore, are less equipped to audit large, data-intensive purchasing andaccounts payable systems. In addition, many of these firms have limited resources and may lack the experience and knowledge of national promotions, seasonalallowances and current recovery audit practices. As a result, we believe that compared to most other firms providing accounts payable recovery audit services,PRGX has competitive advantages based on its national and international presence, well-trained and experienced professionals, and advanced technology.While we believe that PRGX has the greatest depth and breadth of audit expertise, data and technology capabilities, scale and global presence in theindustry, we face competition from the following:Client Internal Recovery Audit Departments. A number of large retailers (particularly those in the discount, grocery and drug sectors) have developed aninternal recovery audit process to review transactions prior to turning them over to external recovery audit firms. Regardless of the level of recoveries madeby internal recovery audit departments, we have observed that virtually all large retail clients retain at least one (primary), and sometimes two (primary andsecondary), external recovery audit firms to capture errors not identified by their internal recovery audit departments. 8®®®®™™™™™™™™™™™™Table of ContentsOther Accounts Payable Recovery Audit Firms. The competitive landscape in the recovery audit industry is comprised of: • Full-service accounts payable recovery audit firms. We believe that only one company other than PRGX offers a full suite of U.S. and internationalrecovery audit services; • A large number of smaller accounts payable recovery firms which have a limited client base and which use less sophisticated tools to minedisbursement claim categories at low contingency rates. These firms are most common in the U.S. market. Competition in most international markets,if any, typically comes from small niche providers; • Firms that offer a hybrid of audit software tools and training for use by internal audit departments, or general accounts payable process improvementenablers; and • Firms with specialized skills focused on recovery audit services for discrete sectors such as sales and use tax or real estate.Other Providers of Recovery Audit Services. The major international accounting firms provide recovery audit services; however, we believe their practicestend to be primarily focused on tax-related services.Healthcare Claims Recovery Audit ServicesA number of national and regional private payers have developed their own post-payment recovery audit capabilities. Nevertheless, these private payerstypically also retain or engage one or more third party post payment audit service providers. The competitive landscape in the healthcare claims recovery auditincludes: • Firms that provide recovery audit services across multiple industries including healthcare; • Firms that provide healthcare IT solutions and services to both the government and private payers; and • Firms that contract with federal and state governments’ integrity programs.Analytics and Advisory ServicesOur analytics and advisory services business faces competition from regional and local consulting firms; privately and publicly held worldwide and nationalfirms; large, well-known ERP software vendors; procurement-specific software providers and smaller, very specialized analytics providers. These businessescompete generally on the basis of the range, quality and cost of the services and products provided to clients. We believe that we differentiate ourselves from ourcompetitors by virtue of synergies with our analytics capabilities and our direct channel to existing accounts payable recovery audit clients.RegulationVarious aspects of our business, including, without limitation, our data acquisition, processing and reporting protocols, are subject to extensive andfrequently changing governmental regulation in both the U.S. and internationally. These regulations include extensive data protection and privacy requirements. Inthe U.S., we are subject to the provisions of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) with respect to our healthcare claimsrecovery audit work. Internationally, we must comply with the European Data Protection Directive that various members of the European Union haveimplemented, as well as with data protection laws that exist in many of the other countries where we have a presence. Failure to comply with such regulations may,depending on the nature of the noncompliance, result in the termination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to ourreputation or in certain circumstances, criminal penalties. 9Table of ContentsEmployeesAs of January 31, 2012, PRGX had approximately 1,600 employees, of whom approximately 750 were in the U.S. The majority of our employees areinvolved in the audit function. None of our employees are covered by a collective bargaining agreement, and we believe our employee relations are satisfactory.WebsitePRGX makes available free of charge on its website, www.prgx.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K and all amendments to those reports. PRGX makes all filings with the Securities and Exchange Commission available on its website no later than theclose of business on the date the filing was made. In addition, investors can access our filings with the Securities and Exchange Commission at www.sec.gov.We also post certain corporate governance materials, including our Board of Directors committee charters and our Code of Conduct and Code of Ethics ForSenior Financial Officers, on our website under the heading “Corporate Governance” on the “Investors” page. From time to time, we may update the corporategovernance materials on our website as necessary to comply with rules issued by the SEC or NASDAQ, or as desirable to further the continued effective andefficient governance of our company. 10Table of ContentsITEM 1A.Risk FactorsRevenues from our accounts payable recovery audit business declined for several years through 2010. We must successfully execute our recovery audit growthstrategy in order to increase our revenues, and must lower our cost of delivery in order to maintain profitability.Over time, our clients tend to resolve recurring transaction processing deficiencies. In addition, many of our clients have an internal staff that audits thetransactions before we do. As the skills, experience and resources of our clients’ internal recovery audit staffs improve, they will identify many overpaymentsthemselves and reduce some of our audit recovery opportunities. Based on these and other factors, including competitive rate pressures and loss of clients fromtime to time, without improved audit execution and acquisition of new clients, we believe that our accounts payable recovery audit business will experiencerevenue declines and may incur losses.We depend on our largest clients for significant revenues, so losing a major client could adversely affect our revenues and liquidity.We generate a significant portion of our revenues from our largest clients. Our five largest clients collectively accounted for approximately 30.2% of ourannual revenues in 2011, 31.3% in 2010 and 29.9% in 2009. Wal-Mart Stores Inc. (and its affiliated companies) accounted for approximately 10.2% of our totalrevenues in 2010, 12.1% in 2010 and 12.3% in 2009. If we lose any of our major clients, our results of operations and liquidity could be materially and adverselyaffected.Our growth strategy may not be successful.As discussed in Item 1 “The PRGX Strategy,” our objectives are to build on our position as the leading worldwide provider of recovery audit services and todevelop and grow our analytics and advisory services businesses. Our strategic plan to achieve these objectives focuses on efforts designed to maintain ourdedicated focus on clients and rekindle our growth. These efforts are ongoing, and the results of the strategy will not be known until sometime in the future.Successful execution of our strategy requires sustained management focus, organization and coordination over time, as well as success in building relationshipswith third parties. If we are unable to execute our strategy successfully, our results of operations and cash flows could be adversely affected. In addition, executionof our strategy will require material investments and additional costs that may not yield incremental revenues and improved financial performance as planned.The terms of our credit facility place restrictions on us, which create risks of default and reduce our flexibility.Our current credit facility contains a number of affirmative, negative, and financial covenants that limit our ability to take certain actions and require us tocomply with specified financial ratios and other performance covenants. No assurance can be provided that we will not violate the covenants of our secured creditfacility in the future. If we are unable to comply with our financial covenants in the future, our lenders could pursue their contractual remedies under the creditfacility, including requiring the immediate repayment in full of all amounts outstanding, if any. Additionally, we cannot be certain that, if the lenders demandedimmediate repayment of any amounts outstanding, we would be able to secure adequate or timely replacement financing on acceptable terms or at all.Our ability to make payments due on our debt will depend upon our future operating performance, which is subject to general economic and competitiveconditions and to financial, business and other factors, many of which we cannot control. If the cash flow from our operating activities is insufficient to make thesepayments, we may take actions such as delaying or reducing capital expenditures, attempting to restructure or refinance our debt, selling assets or operations orseeking additional equity capital. Some or all of these actions may not be sufficient to allow us to service our debt obligations and we could be required to file forbankruptcy. Further, we may be unable to take any of these actions on satisfactory terms, in a timely manner or at all. In addition, our credit agreements may limitour ability to take several of these actions. Our failure to generate sufficient funds to pay our debts or to undertake any of these actions successfully couldmaterially and adversely affect our business, results of operations and financial condition. 11Table of ContentsWe have incurred and will continue to incur significant costs in establishing the necessary resources to provide services for Medicare, Medicaid and otherhealthcare claims audit recovery work. Furthermore, revenues from our Medicare, Medicaid and other healthcare claims audit recovery work lag significantlybehind these costs and may not justify the costs incurred.We have expended substantial resources in connection with preparing for and providing healthcare claims recovery audit services, including those underCMS’s Medicare RAC program. We continue to incur significant costs relating to our healthcare claims recovery audit services business, including ourparticipation as a subcontractor in the national Medicare RAC program. We incurred operating losses of approximately $4.5 million, $4.8 million and $4.0 millionduring the years ended December 31, 2011, 2010 and 2009, respectively, in connection with our healthcare claims recovery audit work. In addition, as a result ofthe complex regulations governing many healthcare payments and recoupments, including a multi-layered scheme for provider appeals of overpaymentdeterminations under the Medicare RAC program, the terms of the Company’s Medicare RAC subcontracts and the complexity of Medicare and other healthcaredata, systems and processes, generally, it is more difficult and takes longer to achieve recoveries from healthcare claims recovery auditing than in other areas ofour recovery audit business.Our participation in the Medicare recovery audit program is as a subcontractor, and, consequently, is subject to being reduced or eliminated should oursubcontracts be terminated or should the prime contractors with whom we have contracted have their prime contracts with CMS terminated or should thosecontracts expire.Under CMS’s Medicare recovery audit contractor program, we are participating as a subcontractor in three of the program’s four geographic regions.Accordingly, we have entered into three separate subcontracts with the prime contractors and are not directly contracting with CMS. Under these circumstances,we generally bear the risk that the prime contractors will not meet their performance obligations to CMS under the prime contract, that the prime contractors willnot pay us amounts due under the subcontracts and that the prime contractors will seek to terminate our subcontracts or otherwise minimize our role in theMedicare RAC program. Furthermore, the failure of a prime contractor to perform its obligations to CMS could result in the termination of the associated contractwith CMS, which would, in turn, result in the termination of our subcontract. Additionally, CMS could choose not to exercise its option to extend its contract withany of the prime contractors at the end of any one-year term, which would also, in turn, result in our subcontract with that prime contractor expiring. Thetermination or expiration of any of these subcontracts or the failure of the prime contractors to make required payments to us could have a material adverse effecton our business, financial condition and results of operations.Recovery auditing of Medicare and Medicaid spending is subject to a number of pressures and uncertainties that could impact our future opportunities andrevenues from this business.As contrasted with recovery auditing for our retail and commercial clients, recovery auditing of Medicare and Medicaid spending is legislatively mandatedand is subject to, among other things, the efforts of healthcare providers and provider associations, including political pressures, to end or severely limit theMedicare and Medicaid recovery audit programs. We expect these efforts and political pressures to be ongoing throughout the life of these programs. During 2007,for example, a number of significant developments resulted from these efforts. In October 2007, CMS implemented a temporary “pause” in our review under theMedicare RAC demonstration program of certain payments made to rehabilitation hospitals. Further, in November 2007, legislation was introduced in Congressproposing a one-year halt to CMS’s Medicare RAC demonstration program and calling for an assessment of the program by the U.S. Government AccountabilityOffice. Although the referenced legislation was not passed, and the national Medicare RAC program is in place, similar legislative efforts to delay or eliminateRAC programs could emerge at any time, and management is unable to assess the prospects for the success of any such efforts. If federally mandated recoveryaudit programs are significantly limited or delayed, subjected to burdensome or commercially challenging requirements, terms and/or conditions, or altogetherterminated, our future revenues, operating results and financial condition could be materially and adversely affected.We may be unable to protect and maintain the competitive advantage of our proprietary technology and intellectual property rights.Our operations could be materially and adversely affected if we are not able to protect our proprietary software, audit techniques and methodologies, andother proprietary intellectual property rights. We rely on a combination of 12Table of Contentstrade secret and copyright laws, nondisclosure and other contractual arrangements and technical measures to protect our proprietary rights. Although we presentlyhold U.S. and foreign registered trademarks and U.S. registered copyrights on certain of our proprietary technology, we may be unable to obtain similar protectionon our other intellectual property. In addition, our foreign registered trademarks may not receive the same enforcement protection as our U.S. registeredtrademarks.Additionally, to protect our confidential and trade secret information, we generally enter into nondisclosure agreements with our employees, consultants,clients and potential clients. We also limit access to, and distribution of, our proprietary information. Nevertheless, we may be unable to deter misappropriation orunauthorized dissemination of our proprietary information, detect unauthorized use and take appropriate steps to enforce our intellectual property rights. In spite ofthe level of care taken to protect our intellectual property, there is no guarantee that our competitors will not independently develop technologies that aresubstantially equivalent or superior to our technology. Moreover, although we are not aware of any infringement of our services and products on the intellectualproperty rights of others, we also are subject to the risk that someone else will assert a claim against us in the future for violating their intellectual property rights.Cyber-security incidents, including data security breaches or computer viruses, could harm our business by disrupting our delivery of services, damaging ourreputation or exposing us to liability.We receive, process, store and transmit, often electronically, the confidential data of our clients and others. Unauthorized access to our computer systems orstored data could result in the theft or improper disclosure of confidential information, the deletion or modification of records or could cause interruptions in ouroperations. These cyber-security risks increase when we transmit information from one location to another, including transmissions over the Internet or otherelectronic networks. Despite implemented security measures, our facilities, systems and procedures, and those of our third-party service providers, may bevulnerable to security breaches, acts of vandalism, software viruses, misplaced or lost data, programming and/or human errors or other similar events which maydisrupt our delivery of services or expose the confidential information of our clients and others. Any security breach involving the misappropriation, loss or otherunauthorized disclosure or use of confidential information of our clients or others, whether by us or a third party, could (i) subject us to civil and criminalpenalties, (ii) have a negative impact on our reputation, (iii) expose us to liability to our clients, third parties or government authorities, and (iv) cause our presentand potential clients to choose another service provider. Any of these developments could have a material adverse effect on our business, results of operations andfinancial condition.Operational failures in our data processing facilities could harm our business and reputation.An interruption of data processing services caused by damage or destruction of our facilities or a failure of our data processing equipment could result in aloss of clients, difficulties in obtaining new clients and a reduction in revenue. In addition, we also may be liable to third parties or our clients because of suchinterruption. These risks would increase with longer service interruptions. Despite any disaster recovery and business continuity plans and precautions we haveimplemented (including insurance) to protect against the effects of service delivery interruptions, such interruptions could result in a material adverse effect on ourbusiness, results of operations and financial condition.Client and vendor bankruptcies and financial difficulties could reduce our earnings.Our clients generally operate in intensely competitive environments and, accordingly, bankruptcy filings by our clients are not uncommon. Bankruptcyfilings by our large clients or the significant vendors who supply them or unexpectedly large vendor claim chargebacks lodged against one or more of our largerclients could have a materially adverse effect on our financial condition and results of operations. Similarly, our inability to collect our accounts receivable due toother financial difficulties of one or more of our large clients could adversely affect our financial condition and results of operations.Recent economic conditions which have adversely impacted the U.S. retail industry may continue to have a negative impact on our revenues. Since wegenerally audit our clients’ purchases up to 15 months in arrears, we cannot yet determine if we have experienced the full impact of the recent economic downturnon our business and revenues. Although retail industry economic conditions have improved from recent levels, our revenues may continue to be impactednegatively by the general retail environment. Specifically, client liquidity and the liquidity of client vendors can have a significant impact on claim production, theclaim approval process, and the ability of clients to offset or otherwise make recoveries from their vendors. 13Table of ContentsIf a client files for bankruptcy, we could be subject to an action to recover certain payments received in the 90 days prior to the bankruptcy filing known as“preference payments.” If we are unsuccessful in defending against such claims, we would be required to make unbudgeted cash payments which could strain ourfinancial liquidity, and our earnings would be reduced.Our failure to retain the services of key members of management and highly skilled personnel could adversely impact our operations and financialperformance.Our future success depends largely on the efforts and skills of our executive officers and key employees. As such, we have entered into employmentagreements with key members of management. While these employment agreements include limits on the ability of key employees to directly compete with us inthe future, nothing prevents them from leaving our company.In addition, it is especially challenging to attract and retain highly qualified skilled auditors and other professionals in an industry where competition forskilled personnel is intense. Accordingly, our future performance also depends, in part, on the ability of our management team to work together effectively,manage our workforce, and retain highly qualified personnel.We rely on operations outside the U.S. for a significant portion of our revenues and are increasingly dependent on operations outside the U.S. for supportingour operations globally.Operations outside the U.S. generated approximately 47.3% of our annual revenues in 2011, 49.7% in 2010 and 45.9% in 2009. These internationaloperations are subject to numerous risks, including: • greater exposure to the possibility of economic instability, the disruption of operations from labor and political disturbances, expropriation or war inthe international markets we serve; • difficulties in staffing and managing foreign operations and in collecting accounts receivable; • fluctuations in currency exchange rates, particularly weaknesses in the British pound, the euro, the Canadian dollar, the Mexican peso, the Brazilianreal and other currencies of countries in which we transact business, which could result in currency translations that materially reduce our revenuesand earnings; • costs associated with adapting our services to our foreign clients’ needs; • unexpected changes in regulatory requirements and laws; • expenses and legal restrictions associated with transferring earnings from our foreign subsidiaries to us; • difficulties complying with a variety of foreign laws and regulations, such as those relating to data content retention, privacy and employee welfare; • business interruptions due to widespread disease, potential terrorist activities, or other catastrophes; • reduced or limited protection of our intellectual property rights; • longer accounts receivable cycles; and • competition with large or state-owned enterprises or regulations that effectively limit our operations and favor local competitors.Because we expect a significant portion of our revenues to continue to come from operations outside the U.S., and expect to continue transitioning certain ofour operations to locations outside the U.S., the occurrence of any of these events could materially and adversely affect our business, financial condition and resultsof operations.In 2011, our European operations accounted for approximately 29.3% of our consolidated revenues. There have been continuing concerns and uncertaintiesregarding the stability of the European economies. A decline in the economic conditions in Europe may materially and adversely affect our operations both inEurope and on a consolidated basis. 14Table of ContentsFurthermore, in 2010 we began transitioning certain of our core data processing and other functions to locations outside the U.S., including India, where 8%of our employees were located at December 31, 2011. India has from time to time experienced instances of civil unrest and hostilities with Pakistan. In recentyears, there have been military confrontations between India and Pakistan in the region of Kashmir and along the India-Pakistan border as well as terrorist activityin several major Indian cities. Although the relations between the two countries generally have been improving, military activity or terrorist attacks in the futurecould adversely affect the Indian economy by disrupting communications and making travel more difficult, which may have a material adverse effect on our abilityto deliver services from India. Disruption in our Indian operations could materially and adversely affect our profitability and our ability to execute our growthstrategy.Our recovery audit services and analytics and advisory services businesses operate in highly competitive environments and are subject to pricing pressure.The recovery audit business is highly competitive, with numerous other recovery audit firms and other providers of recovery audit services. In addition,many of our clients have developed their own internal recovery audit capabilities. As a result of competition among the providers of recovery audit services andthe availability of certain recovery audit services from clients’ internal audit departments, our recovery audit services business is subject to intense price pressure.Such price pressure could cause our profit margins to decline and have a material adverse effect on our business, financial condition, and results of operations.Our analytics and advisory services business also has numerous competitors varying in size, market strength and specialization. This business faces fiercecompetition, in some cases, from firms who have established and well-known franchises and brands. Frequently, this business must compete not only on servicequality and expertise, but also on price. Intense price competition faced by this service line could negatively impact our profit margins and have a potential adverseeffect on our business, financial condition and results of operations.Our client contracts generally contain provisions under which the client may terminate our services prior to the completion of the agreement.Many of our client contracts provide that the client may terminate the contract without cause prior to the end of the term of the agreement by providing uswith relatively short prior written notice of the termination. As a result, the existence of contractual relationships with our clients is not an assurance that we willcontinue to provide services for our clients through the entire terms of their respective agreements. If clients representing a significant portion of our revenuesterminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenues and earnings from such contracts and this would have amaterial adverse effect on our operations and financial results. In addition, client contract terminations also could harm our reputation within the industry whichcould negatively impact our ability to obtain new clients.Our failure to comply with applicable governmental privacy laws and regulations could substantially impact our business, operations and financial condition.We are subject to extensive and evolving federal, state and foreign privacy laws and regulations. Changes in privacy laws or regulations or newinterpretations of existing laws or regulations could have a substantial effect on our operating methods and costs. Failure to comply with such regulations couldresult in the termination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to the Company’s reputation, or in certaincircumstances, criminal penalties, any of which could have a material adverse effect on our results of operations, financial condition, business and prospects.Determining compliance with such regulations is complicated by the fact that many of these laws and regulations have not been fully interpreted by governingregulatory authorities or the courts, and many of the provisions of such laws and regulations are open to a wide range of interpretations. There can be no assurancethat we are or have been in compliance with all applicable existing laws and regulations or that we will be able to comply with new laws or regulations.The ownership change that occurred as a result of our 2006 exchange offer limits our ability to use our net operating losses.We have substantial tax loss and credit carry-forwards for U.S. federal income tax purposes. On March 17, 2006, as a result of the closing of its exchangeoffer, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownership change resulted in anannual IRC Section 382 15Table of Contentslimitation that limits the use of certain tax attribute carry-forwards. Of the $59.6 million of U.S. federal net loss carry-forwards available to the Company, $20.6million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. We believe that such limitations and the loss of these carry-forwardsmay significantly increase our projected future tax liability.Certain of our tax positions may be subject to challenge by the Internal Revenue Service and other tax authorities, and if successful, these challenges couldincrease our future tax liabilities and expense.For U.S. federal income tax purposes, as well as local country tax purposes in the jurisdictions where we operate, from time to time we take positions underprovisions of applicable tax law that are subject to varying interpretations. Certain of our tax positions may be subject to challenge by the applicable taxingauthorities, including, in the U.S., the Internal Revenue Service. If our tax positions are successfully challenged, our future tax liabilities and expense couldsignificantly increase.While we believe that our tax positions are proper based on applicable law and we believe that it is more likely than not that we would prevail with respectto challenges to these positions, we can make no assurances that we would prevail if our positions are challenged or that business economics would justify themounting of a legal defense against such challenges. If our tax positions are successfully challenged by the U.S. or non-U.S. taxing authorities, it could increaseour future tax liabilities and expense and have a material adverse impact on our financial position, results of operations and cash flows.Future impairment of goodwill, other intangible assets and long-lived assets would reduce our future earnings.As of December 31, 2011, the Company’s goodwill and other intangible assets totaled $36.6 million. We must perform annual assessments to determinewhether some portion, or all, of our goodwill, intangible assets and other long-lived assets are impaired. Future annual impairment testing could result in adetermination that our goodwill, other intangible assets or our long-lived assets have been impaired. Future adverse changes in the business environment or in ourability to perform audits successfully and compete effectively in our markets or the discontinuation of our use of certain of our intangible or other long-lived assetscould result in impairment which could materially adversely impact future earnings.Our articles of incorporation, bylaws, shareholder rights plan and Georgia law may inhibit a change of control that shareholders may favor.Our articles of incorporation, bylaws and Georgia law contain provisions that may delay, deter or inhibit a future acquisition of PRGX that is not approvedby our Board of Directors. This could occur even if our shareholders receive attractive offers for their shares or if a substantial number, or even a majority, of ourshareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us to negotiate with andobtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter or inhibit a future acquisition include thefollowing: • a classified Board of Directors; • the requirement that our shareholders may only remove directors for cause; • specified requirements for calling special meetings of shareholders; • the ability of the Board of Directors to consider the interests of various constituencies, including our employees, clients and creditors and the localcommunity, in making decisions; and • the ability of the Board of Directors to issue shares of preferred stock with such designations, powers, preferences and rights as it determines, withoutany further vote or action by our shareholders.In addition, we have in place a “poison pill” shareholders’ rights plan that could trigger a dilutive issuance of common stock upon substantial purchases ofour common stock by a third party that are not approved by the Board of Directors. These provisions also could discourage bids for our shares of common stock ata premium and could have a material adverse effect on the market price of our common stock. 16Table of ContentsOur stock price has been and may continue to be volatile.Our common stock is currently traded on The Nasdaq Global Market. The trading price of our common stock has been and may continue to be subject tolarge fluctuations. For example, for the year ended December 31, 2011, our stock traded as high as $8.39 per share and as low as $4.07 per share. Our stock pricemay increase or decrease in response to a number of events and factors, including: • future announcements concerning us, key clients or competitors; • quarterly variations in operating results and liquidity; • changes in financial estimates and recommendations by securities analysts; • developments with respect to technology or litigation; • changes in applicable laws and regulations; • the operating and stock price performance of other companies that investors may deem comparable to our company; • acquisitions and financings; and • sales and purchases of our stock by insiders.Fluctuations in the stock market, generally, also impact the volatility of our stock price. Finally, general economic conditions and stock market movementsmay adversely affect the price of our common stock, regardless of our operating performance. 17Table of ContentsITEM 1B.Unresolved Staff CommentsNone. ITEM 2.PropertiesOur principal executive offices are located in approximately 132,000 square feet of office space in Atlanta, Georgia. We lease this space under an agreementexpiring on December 31, 2014. We have subleased approximately 58,000 square feet of our principal executive office space to independent third parties. Ourvarious operating units lease numerous other parcels of operating space in the various countries in which we currently conduct our business.Excluding the lease for our principal executive offices, the majority of our real property leases are individually less than five years in duration. See Note 8 of“Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. ITEM 3.Legal ProceedingsOn December 16, 2011, an employee of our wholly owned subsidiary PRGX USA, Inc. filed a lawsuit in the U.S. District Court for the District ofMinnesota (Civil Action No. 0:11-CV-03631-PJS-FLN). The Plaintiff alleges that PRGX USA, Inc. failed to pay overtime wages to the Plaintiff and othersimilarly situated individuals as required by the Fair Labor Standards Act (FLSA). The Plaintiff is seeking designation of this action as a collective action. Inaddition, the Plaintiff is seeking an unspecified amount of monetary damages and costs, including attorneys’ fees. We filed an Answer denying all of the assertedclaims on January 31, 2012 and have been engaged in pre-discovery discussions with the Plaintiff’s counsel. We intend to vigorously defend against these claims.The case is in the very preliminary stages, and we currently are unable to determine the likelihood or amount of any potential loss that may arise from this matter.In addition, we are party to a variety of other legal proceedings arising in the normal course of business. While the results of these proceedings cannot bepredicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position orresults of operations. ITEM 4.Mine Safety DisclosuresNot applicable. 18Table of ContentsPART II ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is traded under the symbol “PRGX” on The Nasdaq Global Market (Nasdaq). The Company has not paid cash dividends on its commonstock since it became a public company in 1996 and does not intend to pay cash dividends in the foreseeable future. Moreover, restrictive covenants included in oursecured credit facility specifically prohibit payment of cash dividends and limits the amount of our common stock that we may repurchase to $1.0 million on anannual basis. As of February 27, 2012, there were 209 holders of record of our common stock and management believes there were approximately 3,400 beneficialholders. The following table sets forth, for the quarters indicated, the range of high and low sales prices for the Company’s common stock as reported by Nasdaqduring 2011 and 2010. 2011 Calendar Quarter High Low 1st Quarter $6.64 $5.41 2nd Quarter 8.39 5.99 3rd Quarter 7.42 4.48 4th Quarter 6.23 4.07 2010 Calendar Quarter High Low 1st Quarter $6.27 $5.01 2nd Quarter 6.93 3.60 3rd Quarter 5.75 4.00 4th Quarter 6.53 5.65 Issuer Purchases of Equity SecuritiesA summary of our repurchases of our common stock during the fourth quarter ended December 31, 2011 is set forth below. 2011 TotalNumber ofSharesPurchased(a) AveragePricePaid perShare Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs MaximumApproximate DollarValue of Shares thatMay Yet BePurchased Under thePlans or Programs (millions of dollars) October 1 – October 31 1,081 $5.41 — $— November 1 – November 30 — $— — $— December 1 – December 31 — $— — $— 1,081 $5.41 — $— (a)All shares reported during the quarter were surrendered by an employee to satisfy tax withholding obligations upon vesting of restricted stock. 19Table of ContentsPerformance GraphSet forth below is a line graph presentation comparing the cumulative shareholder return on our common stock, on an indexed basis, against cumulativetotal returns of The Nasdaq Composite Index and the RDG Technology Composite Index. The graph assumes that the value of the investment in the common stockin each index was $100 on December 31, 2006 and shows total return on investment for the period beginning December 31, 2006 through December 31, 2011,assuming reinvestment of any dividends. Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933 or theSecurities Exchange Act of 1934 that might incorporate future filings, including this Annual Report on Form 10-K, in whole or in part, the Performance Graphpresented below shall not be incorporated by reference into any such filings. Cumulative Total Return 12/06 12/07 12/08 12/09 12/10 12/11 PRGX Global, Inc. 100.00 107.13 51.00 73.88 79.13 74.38 NASDAQ Composite 100.00 110.38 65.58 95.27 112.22 110.58 RDG Technology Composite 100.00 115.01 65.30 105.06 118.52 118.29 20Table of ContentsITEM 6.Selected Financial DataThe following table sets forth selected consolidated financial data for the Company as of and for the five years ended December 31, 2011. The followingdata reflects the business acquisitions that we have completed through December 31, 2011. We have included the results of operations for these acquiredbusinesses in our results of operations since the date of their acquisitions. We have derived this historical consolidated financial data from our ConsolidatedFinancial Statements and Notes thereto, which have been audited by our Independent Registered Public Accounting Firm. The Consolidated Balance Sheets as ofDecember 31, 2011 and 2010, and the related Consolidated Statements of Operations and Comprehensive Income, Shareholders’ Equity and Cash Flows for eachof the years in the three-year period ended December 31, 2011 and the report of the Independent Registered Public Accounting Firm thereon are included in Item 8of this Form 10-K.Certain reclassifications have been made to the 2007 through 2010 consolidated financial data to conform it to classifications adopted in 2011.The data presented below should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-Kand other financial information appearing elsewhere in this Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.” Years Ended December 31, 2011 2010 2009 2008 2007 (In thousands, except per share data) Statements of Operations Data: Revenues $203,117 $184,081 $179,583 $195,706 $227,369 Operating expenses: Cost of revenues 137,482 126,069 115,064 124,997 139,373 Selling, general and administrative expenses 49,102 40,735 40,390 36,455 62,950 Depreciation of property and equipment 5,401 4,903 3,505 2,991 4,879 Amortization of intangible assets 4,991 4,131 3,227 2,203 1,890 Operational restructuring expense — — — — 1,644 Total operating expenses 196,976 175,838 162,186 166,646 210,736 Operating income 6,141 8,243 17,397 29,060 16,633 Gain on bargain purchase, net (1) — — (2,388) — — Foreign currency transaction (gains) losses on short-term intercompany balances 417 422 (1,595) 3,283 (1,152) Interest expense, net 1,616 1,305 3,025 3,245 13,815 Loss on debt extinguishment and financial restructuring — 1,381 — — 9,397 Income (loss) from continuing operations before income taxes 4,108 5,135 18,355 22,532 (5,427) Income tax expense (2) 1,292 1,882 3,028 3,502 1,658 Income (loss) from continuing operations 2,816 3,253 15,327 19,030 (7,085) Discontinued operations: Earnings from discontinued operations, net of income taxes — — — — 20,215 Net earnings $2,816 $3,253 $15,327 $19,030 $13,130 Basic earnings (loss) per common share: Earnings (loss) from continuing operations $0.11 $0.14 $0.67 $0.87 $(0.62) Earnings from discontinued operations — — — — 1.66 Net earnings $0.11 $0.14 $0.67 $0.87 $1.04 Diluted earnings (loss) per common share: Earnings (loss) from continuing operations $0.11 $0.13 $0.65 $0.83 $(0.62) Earnings from discontinued operations — — — — 1.66 Net earnings $0.11 $0.13 $0.65 $0.83 $1.04 21Table of Contents December 31, 2011 2010 2009 2008 2007 (In thousands) Balance Sheet Data: Cash and cash equivalents $20,337 $18,448 $33,026 $26,688 $42,364 Working capital 16,071 17,678 18,479 10,512 16,998 Total assets 126,413 106,321 110,513 98,783 122,438 Long-term debt, excluding current installments 6,000 9,000 11,070 14,331 38,078 Total shareholders’ equity $59,090 $48,843 $41,439 $22,710 $2,349 (1)In July 2009, we acquired the business and certain assets of First Audit Partners LLP. The excess of the fair value of assets acquired over the purchase price resulted in a gain on bargain purchasefor this acquisition. See Note 14 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. (2)Low effective tax rates in 2009 and 2008 are primarily attributable to reductions in the deferred tax asset valuation allowance. The low effective tax rate in 2007 is primarily attributable to the non-recognition of loss carry-forward benefits. See Note 1 (i) and Note 9 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. 22Table of ContentsITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroductionWe conduct our operations through three reportable operating segments: Recovery Audit Services – Americas, Recovery Audit Services – Europe/Asia-Pacific and New Services. The Recovery Audit Services – Americas segment represents recovery audit services (other than healthcare claims recovery auditservices) we provide in the U.S., Canada and Latin America. The Recovery Audit Services – Europe/Asia-Pacific segment represents recovery audit services (otherthan healthcare claims recovery audit services) we provide in Europe, Asia and the Pacific region. The New Services segment includes analytics and advisoryservices as well as healthcare claims recovery audit services. We include the unallocated portion of corporate selling, general and administrative expenses notspecifically attributable to the three operating segments in Corporate Support.Recovery auditing is a business service focused on finding overpayments created by errors in payment transactions, such as missed or inaccurate discounts,allowances and rebates, vendor pricing errors, erroneous coding and duplicate payments. Generally, we earn our recovery audit revenues by identifyingoverpayments made by our clients, assisting our clients in recovering the overpayments from their vendors, and collecting a specified percentage of the recoveriesfrom our clients as our fee. The fee percentage we earn is based on specific contracts with our clients that generally also specify: (a) time periods covered by theaudit; (b) the nature and extent of services we are to provide; and (c) the client’s responsibilities to assist and cooperate with us. Clients generally recover claims byeither taking credits against outstanding payables or future purchases from the relevant vendors, or receiving refund checks directly from those vendors. Themanner in which a claim is recovered by a client is often dictated by industry practice. In addition, many clients establish client-specific procedural guidelines thatwe must satisfy prior to submitting claims for client approval. For some services we provide, such as certain of our analytics and advisory services, we earn ourcompensation in the form of a flat fee, a fee per hour, or a fee per other unit of service.We earn the vast majority of our recovery audit revenues from clients in the retail industry due to many factors, including the high volume of transactionsand the complicated pricing and allowance programs typical in this industry. Changes in consumer spending associated with economic fluctuations generallyimpact our recovery audit revenues to a lesser degree than they affect individual retailers due to several factors, including: • Diverse client base – our clients include a diverse mix of discounters, grocery, pharmacy, department and other stores that tend to be impacted tovarying degrees by general economic fluctuations, and even in opposite directions from each other depending on their position in the market and theirmarket segment; • Motivation – when our clients experience a downturn, they frequently are more motivated to use our services to recover prior overpayments to makeup for relatively weaker financial performance in their own business operations; • Nature of claims – the relationship between the dollar amount of recovery audit claims identified and client purchases is non-linear. Claim volumesare generally impacted by purchase volumes, but a number of other factors may have an even more significant impact on claim volumes, includingnew items being purchased, changes in discount, rebate, marketing allowance and similar programs offered by vendors and changes in a client’s or avendor’s information processing systems; and • Timing – the client purchase data on which we perform our recovery audit services is historical data that typically reflects transactions between ourclients and their vendors that took place 3 to 15 months prior to the data being provided to us for audit. As a result, we generally experience a delayedimpact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients’ circumstances.While the net impact of the economic environment on our recovery audit revenues is difficult to determine or predict, we believe that for the foreseeablefuture, our revenues will remain at a level that will not have a significant adverse impact on our liquidity, and we have taken steps to mitigate any adverse impactof an economic downturn on our revenues and overall financial health. These steps include devoting substantial efforts to develop a lower cost service deliverymodel to enable us to more cost effectively serve our clients. Further, we continue to pursue our ongoing growth strategy to expand our business beyond our corerecovery audit services to retailers by growing the 23Table of Contentsportion of our business that provides recovery audit services to enterprises other than retailers and growing our New Services segment which includes ourhealthcare claims recovery audit services and our analytics and advisory services. Our healthcare claims recovery audit services include services we provide as aparticipant in the Medicare Recovery Audit Contractor program (the “Medicare RAC program”).The investments we are making in connection with our growth initiatives have had a significant negative impact on our recent reported financial results.While we generated $14.4 million of incremental revenues in our New Services segment in 2011 compared to 2010, we continue to generate operating losses inthis segment. However, our healthcare claims recovery audit services generated improved revenues in 2011 as compared to 2010. The improvement in revenuesincreased in the second half of 2011 and we believe we will continue to generate increasing revenues in 2012. Offsetting this improvement in healthcare claimsrecovery audit revenues in the second half of 2011 was a decline in revenues in our analytics and advisory services business. While we will continue to monitor theperformance of the New Services segment and will focus on achieving profitability in this segment in the near future, we continue to believe in the growthpotential of these services and the opportunity they represent for our Company. As a result, in the fourth quarter of 2011 and early in 2012, we invested inadditional senior, market-facing talent in our analytics and advisory services and hired senior leaders for our healthcare claims recovery audit service line.Results of OperationsThe following table sets forth the percentage of revenues represented by certain items in our Consolidated Statements of Operations and ComprehensiveIncome for the periods indicated: Years Ended December 31, 2011 2010 2009 Statements of Operations Data: Revenues 100.0% 100.0% 100.0% Operating expenses: Cost of revenues 67.7 68.5 64.1 Selling, general and administrative expenses 24.2 22.1 22.5 Depreciation of property and equipment 2.7 2.7 1.9 Amortization of intangible assets 2.4 2.2 1.8 Total operating expenses 97.0 95.5 90.3 Operating income 3.0 4.5 9.7 Gain on bargain purchase, net — — (1.3) Foreign currency transaction (gains) losses on short-term intercompany balances 0.2 0.2 (0.9) Interest expense, net 0.8 0.7 1.7 Loss on debt extinguishment — 0.8 — Earnings before income taxes 2.0 2.8 10.2 Income tax expense 0.6 1.0 1.7 Net earnings 1.4% 1.8% 8.5% Revenues. Revenues were as follows (in thousands): Years Ended December 31, 2011 2010 2009 Recovery Audit Services – Americas $115,807 $115,156 $121,561 Recovery Audit Services – Europe/Asia-Pacific 61,570 57,590 52,489 New Services 25,740 11,335 5,533 Total $203,117 $184,081 $179,583 Total revenues increased by $19.0 million, or 10.3%, in 2011 and $4.5 million, or 2.5%, in 2010. Below is a discussion of our revenues for our threeoperating segments. 24Table of ContentsRecovery Audit Services – Americas revenues increased by 0.6% in 2011 and decreased by 5.3% in 2010. We experience changes in our reported revenuesbased on the strength of the U.S. dollar relative to foreign currencies. Changes in the value of the U.S. dollar relative to currencies in Canada and Latin Americapositively impacted reported revenues in both 2011 and 2010. On a constant dollar basis, adjusted for changes in foreign exchange (“FX”) rates, 2011 revenuesdecreased by 0.5% compared to an increase of 0.6% as reported, and 2010 revenues decreased by 7.5% compared to a decrease of 5.3% as reported.The slight increase in our Recovery Audit Services – Americas revenues in 2011 was due to a number of factors. Revenues increased 7.7% due to newclients, new geographic territories for existing clients and a promotion from secondary auditor to primary auditor at a significant client. Growth in revenues fromexisting clients accounted for an increase of 1.6% and revenues from our acquisition of Business Strategy, Inc. (“BSI”) in December 2011 added another 0.6% toour revenues. These increases were offset primarily by discontinued clients and, to a lesser extent, demotions from primary auditor to secondary auditor and fromrestrictions on claim types imposed by certain clients.Although we generated year over year increases in revenues in this segment for 2011, we experienced declining revenues in this segment in years prior to2011 due to reduced liquidity of our clients’ vendors, competitive rate pressures, client attrition, and the impact of our clients developing and strengthening theirown internal audit capabilities as a substitute for our services. To address these issues, offset their impact and generate growth in this segment, we beganimplementing several growth strategies in late 2009. We reinstituted a sales function in 2010, resulting in a significant increase in our client count in recentquarters. We continue to implement our service delivery model transformation designed to make our recovery audit process more cost efficient and effective. Weconcluded successful pilots of our new service delivery platform in 2011, and are planning to expand its use in 2012. We also are providing greater value to ourexisting and potential clients by offering adjacent services in the procure-to-pay value chain and to the CFO suite, and by capitalizing on our existing data miningand related competencies. While we are encouraged by some of our recent successes, we can provide no assurances that we will be able to build on them in thefuture or that we will be able to sustain our current revenue levels in this segment. We have completed our previously disclosed investment program; however, webelieve that a certain level of ongoing investments will be necessary for us to continue to grow our revenues in the Recovery Audit Services – Americas segment.Recovery Audit Services – Europe/Asia-Pacific revenues increased by 6.9% in 2011 and by 9.7% in 2010. The changes in the strength of the U.S. dollarrelative to foreign currencies in Europe, Asia and Australia positively impacted reported revenues in 2011 but adversely impacted reported revenues in 2010. On aconstant dollar basis, adjusted for changes in FX rates, 2011 revenues increased by 1.5% compared to an increase of 6.9% as reported, and 2010 revenues increasedby 12.8% compared to an increase of 9.7% as reported. The 2011 increase on a constant dollar basis consists of a 7.9% increase in revenues from new clients,partially offset by lower revenues from existing clients and a negligible loss from discontinued clients. The 2010 increase on a constant dollar basis consists of a17.9% increase in revenues from existing clients and a small gain from new clients, partially offset by a loss in revenues from discontinued clients. As in ourRecovery Audit Services – Americas segment, we experience competitive and other pressures in this segment, but to a lesser degree due to the smaller number ofcompetitors with global capabilities. We intend to execute the same strategic initiatives for this segment as we are in the Recovery Audit Services – Americassegment.New Services revenues increased by 127.1% in 2011 and increased by 104.9% in 2010. We generated these increases in both our analytics and advisorybusiness and our healthcare claims recovery audit business. Approximately 40% of the increase in New Services revenues in 2011 and 2010 is attributable toincremental revenues associated with our acquisitions of Etesius Limited (“Etesius”) in February 2010 and TJG Holdings LLC (“TJG”) in November 2010. Theremaining increases resulted from organic growth.Growth in our analytics and advisory business was very strong through the first half of 2011, but revenues declined in the second half of the year comparedto the first half of 2011. As part of our continuing investment in our New Services segment, we realigned this organization and hired three new managing directorsin the fourth quarter of 2011. We anticipate that these new managing directors will begin to drive increasing revenues beginning in the second quarter of 2012. Weexpect our analytics and advisory business revenues to remain below 2011 levels in the first half of 2012, but to exceed 2011 levels in the second half of the year. 25Table of ContentsGrowth in our healthcare claims recovery audit business is due primarily to our participation as a subcontractor in three of the Medicare RAC program’sfour geographic regions. These revenues grew more slowly in the first half of 2011 than we had anticipated, but the growth accelerated in the third and fourthquarters and we believe this growth will continue into 2012. As in our analytics and advisory business, we hired additional leaders in our healthcare claimsrecovery audit business in the fourth quarter of 2011 and early in 2012. We expect these new leaders to help manage the growth and to improve our operatingperformance in this practice area.Cost of Revenues (“COR”). COR consists principally of commissions and other forms of variable compensation we pay to our auditors based primarily uponthe level of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff, andsalaried operational and client service managers for our recovery audit and analytics and advisory services businesses. COR also includes other direct and indirectcosts incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. Asignificant portion of the components comprising COR is variable and will increase or decrease with increases or decreases in revenues. Beginning in 2011, wereclassified depreciation and amortization to present them separately from COR and selling, general and administrative expenses (“SG&A”). The COR and SG&Aexpenses presented below for 2010 and 2009 reflect these reclassifications.COR expenses were as follows (in thousands): Years Ended December 31, 2011 2010 2009 Recovery Audit Services — Americas $64,946 $67,744 $67,056 Recovery Audit Services — Europe/Asia-Pacific 47,105 44,200 39,651 New Services 25,431 14,125 8,357 Total $137,482 $126,069 $115,064 COR as a percentage of revenues for Recovery Audit Services — Americas was 56.1% in 2011, 58.8% in 2010 and 55.2% in 2009. The increase in COR asa percentage of revenues from 2009 to 2010 is partially attributable to a decline in revenue without a corresponding reduction in COR. We were investing in ourvarious growth and other strategic initiatives, and included significant portions of these costs in Recovery Audit Services — Americas COR in 2010. Although wecontinued to make these investments in 2011, we began to realize the benefits of the investments and were able to increase revenues and still reduce COR by 4.1%.As we enter 2012, we continue to implement additional facets of our strategic initiatives, and believe we will continue to reduce COR as a percentage of revenuesin the coming year.COR as a percentage of revenues for Recovery Audit Services — Europe/Asia-Pacific was 76.5% in 2011, 76.7% in 2010 and 75.5% in 2009. The slightchanges in the gross margins in these periods primarily resulted from changes in the mix of audit revenues and from changes in our methods of providing auditservices in Europe. We subcontract a significant portion of our audit services in Europe to third-party audit firms, which we refer to as the associate model. Wegenerally earn a lower gross margin from associate model audits than we earn from audits we perform ourselves, which we refer to as employee model audits. In2011, we generated a greater percentage of our revenues in this segment from associate model audits, which changed the mix of our revenues and negativelyimpacted our gross margins. We migrated several of the larger audits to an employee model in 2011 and another in January 2012. Although we incur someincreased costs during this migration process, we expect that the migrations ultimately will result in higher gross margins for this segment and for the Company asa whole.The slight increase in COR as a percentage of revenues in 2010 primarily resulted from deferred consideration attributable to the Etesius acquisition.The higher COR as a percentage of revenues for Recovery Audit Services — Europe/Asia-Pacific (76.5% for 2011) compared to Recovery Audit Services— Americas (56.1% for 2011) is due primarily to differences in service delivery models, scale and geographic fragmentation. The Recovery Audit Services —Europe/Asia-Pacific segment generally serves fewer clients in each geographic market and generates lower revenues per client than those served by the Company’sRecovery Audit Services — Americas segment.New Services COR relates primarily to costs of advisory services and costs associated with the Medicare RAC program subcontracts. New Servicesrevenues exceeded COR by $0.3 million in 2011, but COR exceeded revenues by $2.8 million in each of 2010 and 2009 due primarily to our investments in theMedicare RAC program as well as our investments in our analytics and advisory services capabilities. 26Table of ContentsSelling, General and Administrative Expenses (“SG&A”). SG&A expenses of the Recovery Audit and New Services segments include the expenses of salesand marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreigncurrency transaction gains and losses other than those relating to short-term intercompany balances, and gains and losses on asset disposals. Corporate SupportSG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to our segment activities and include the expenses ofinformation technology services, the corporate data center, human resources, legal, accounting, treasury, administration and stock-based compensation charges.SG&A in each of our segments previously included foreign currency transaction gains and losses, including the gains and losses related to short-termintercompany balances. Gains and losses result from the re-translation of the foreign subsidiaries’ balances payable to the U.S. parent from their local currency totheir U.S. dollar equivalent. Substantial changes from period to period in FX rates have significantly impacted the amount of such gains and losses and likely willcontinue to do so in the future. In order to highlight the impact of these changes, we now classify the net foreign currency transaction gains and losses on short-term intercompany balances as a non-operating item excluded from operating income. The SG&A expenses presented below for 2010 and 2009 reflect thispresentation.SG&A expenses were as follows (in thousands): Years Ended December 31, 2011 2010 2009 Recovery Audit Services — Americas $18,479 $16,448 $14,155 Recovery Audit Services — Europe/Asia-Pacific 4,627 4,764 5,717 New Services 4,907 2,608 762 Subtotal for segments 28,013 23,820 20,634 Corporate support 21,089 16,915 19,756 Total $49,102 $40,735 $40,390 Recovery Audit Services — Americas SG&A increased 12.3% in 2011 and 16.2% in 2010. These increases resulted primarily from costs incurred inconnection with the execution of our growth strategies. The 2011 increase also includes greater incentive compensation accruals and some incremental expensesresulting from our December 2011 BSI acquisition. The increase in 2010 was primarily a result of costs we incurred to build our sales and business developmentcapabilities.Recovery Audit Services — Europe/Asia-Pacific SG&A decreased 2.9% in 2011 and 16.7% in 2010. The 2010 decrease was primarily attributable torelatively lower severance costs and incentive compensation accruals. Although incentive compensation accruals increased in 2011, most other SG&A expensesdecreased in 2011, resulting in the 2.9% decrease between years.New Services SG&A increased 88.2% in 2011 and 242.3% in 2010. The increase in 2010 was attributable to the additional operating costs of our February2010 acquisition of Etesius and our November 2010 acquisition of TJG, as well as higher costs relating to our performance of the Medicare RAC programsubcontracts and additional sales and business development personnel. These acquisitions also resulted in increased expenses in 2011 due to the inclusion of theacquired entities for the full year in 2011 compared to only a partial year in 2010. In addition, during 2011, we hired additional resources for both our analytics andadvisory business and our healthcare claims recovery audit business and incurred additional SG&A expenses associated with the additional personnel.Corporate Support SG&A includes stock-based compensation charges of $5.1 million in 2011, $4.0 million in 2010 and $3.3 million in 2009. Excludingstock-based compensation charges, Corporate Support SG&A increased 23.7% in 2011 and decreased 21.2% in 2010. The 2010 decrease is attributable to lower2010 professional fees and a litigation settlement accrual and severance charges in 2009 for which there are no comparable costs in 2010, as well as decreasedincentive compensation accruals in 2010. The increase in 2011 is due to higher incentive compensation accruals relative to the decreased incentive compensationaccruals in 2010, costs associated with the BSI acquisition, and higher sales and marketing expenses associated with our renewed focus on revenue growth andclient retention. 27Table of ContentsDepreciation of property and equipment. Depreciation of property and equipment was as follows (in thousands): Years Ended December 31, 2011 2010 2009 Recovery Audit Services – Americas $3,491 $3,442 $2,771 Recovery Audit Services – Europe/Asia-Pacific 417 354 303 New Services 1,493 1,107 431 Total $5,401 $4,903 $3,505 The increases in depreciation in the Recovery Audit Services segments relate primarily to improvements we made to our IT infrastructure beginning in thefourth quarter of 2009. The increase in depreciation in the New Services segment is due primarily to an increase in the depreciation of capitalized softwaredevelopment costs and software we purchased in the Etesius acquisition.Amortization of intangible assets. Amortization of intangible assets was as follows (in thousands): Years Ended December 31, 2011 2010 2009 Recovery Audit Services – Americas $2,467 $2,427 $2,027 Recovery Audit Services – Europe/Asia-Pacific 1,665 1,403 1,200 New Services 859 301 — Total $4,991 $4,131 $3,227 The increase in amortization expense in each segment is due to the amortization of intangible assets recorded in connection with our recent acquisitions.These acquisitions include the December 2011 acquisition of BSI in Recovery Audit Services – Americas, the July 2009 acquisition of First Audit Partners and the2011 associate migrations in Recovery Audit Services – Europe / Asia Pacific, the February 2010 acquisition of Etesius in New Services and the November 2010acquisition of TJG in New Services. We anticipate that amortization expense will increase in 2012 due to the inclusion of a full year of amortization relating to the2011 acquisitions and the completion of an associate migration in early 2012.Foreign Currency Transaction (Gains) Losses on Short-Term Intercompany Balances. Foreign currency transaction gains and losses on short-termintercompany balances result from the remeasurement of the foreign subsidiaries’ balances payable to the U.S. parent from their local currency to their U.S. dollarequivalent. Substantial changes from period to period in foreign currency exchange rates may significantly impact the amount of such gains and losses. Thestrengthening of the U.S. dollar relative to other currencies results in recorded losses on short-term intercompany balances receivable from our foreign subsidiarieswhile the relative weakening of the U.S. dollar results in recorded gains.In 2009, the local currencies of certain of our foreign subsidiaries with significant short-term intercompany balances strengthened relative to the U.S. dollar,resulting in recorded gains of $1.6 million for the year. The U.S. dollar generally strengthened relative to those foreign currencies in 2010 and 2011, resulting inour recording net foreign currency transaction losses on short-term intercompany balances of $0.4 million in each of those years.Interest Expense, net and Loss on Extinguishment of Debt. Net interest expense was $1.6 million in 2011, $1.3 million in 2010 and $3.0 million in 2009. Wealso recorded a $1.4 million loss on extinguishment of debt in 2010. In January 2010, we entered into a new credit facility with SunTrust Bank and repaid our priorterm loan from Ableco LLC in full (see “Secured Credit Facility” below for additional information regarding this transaction). The loss on extinguishment of debtconsists of the write-off of the unamortized deferred loan costs associated with the prior credit facility. The interest rate on the new credit facility is based on theone-month LIBOR rate, plus an applicable margin of from 2.25% to 3.5% per annum. The interest rate in effect at December 31, 2011 under the new credit facilitywas approximately 2.77%, while the prior credit facility bore a minimum interest rate of 9.75%. The increase in net interest expense in 2011 was primarily due tointerest expense associated with business acquisition obligations and uncertain tax positions. The decrease in interest expense in 2010 resulted from the lowerinterest rate on the debt and from lower amortization of loan origination fees under the new credit facility. 28Table of ContentsIncome Tax Expense. Our reported effective tax rates on earnings approximated 31.5% in 2011, 36.7% in 2010 and 16.5% in 2009. Reported income taxexpense in each year primarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally are less than the expected tax rateprimarily due to reductions of the Company’s deferred tax asset valuation allowance, which resulted in the low effective tax rate in 2009. The higher tax rate in2010 is due to earnings before income taxes from our foreign subsidiaries representing a higher percentage of total earnings before income taxes than in the prioryears, partially offset by a reduction in the deferred tax asset valuation allowance that resulted from additional deferred tax liabilities that we recorded relating tothe Etesius acquisition. The 2011 effective tax rate reflects a higher base rate due to taxes on earnings from foreign subsidiaries and additional accruals foruncertain tax positions in a foreign jurisdiction, partially offset by the reduction of a portion of the valuation allowance on deferred tax assets resulting from theadditional deferred tax liabilities that we recorded in connection with the BSI acquisition and the reversal of a portion of the valuation allowance attributable to thedeferred tax assets of a foreign subsidiary.As of the end of the past three years, management determined that based on all available evidence, deferred tax asset valuation allowances of $52.0 millionin 2011, $54.8 million in 2010 and $58.3 million in 2009 were appropriate. We recorded reductions in the deferred tax asset valuation allowance of $1.7 million in2011 and $1.2 million in 2010 as a result of the deferred tax liabilities that we recorded relating to business acquisitions. The remaining reduction in each of thethree years was due primarily to lower net deferred tax assets for which we recorded a portion of the valuation allowance. We expensed or impaired a significantamount of intangible assets in previous years for financial reporting purposes. For income tax reporting purposes, we continue to deduct the amortization of theseintangible assets over their tax lives, generally 15 years. The excess of tax amortization over amortization for financial reporting purposes is reducing the relateddeferred tax asset each year, resulting in lower deferred tax assets and a lower related valuation allowance, although increases in our net operating losses havepartially offset this impact in recent years. This reduction in deferred tax assets related to intangible assets was $5.8 million in 2011, $6.1 million in 2010 and $5.3million in 2009, and we currently project this effect to continue at these elevated levels through 2013 before declining in subsequent years.As of December 31, 2011, we had approximately $75.2 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income.The federal loss carry-forwards expire through 2031. As of December 31, 2011, we had approximately $90.5 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2016 and 2031 and are subject to certain limitations.On March 17, 2006, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownershipchange resulted in an annual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $75.2 million of U.S. federal loss carry-forwards available to the Company, $19.2 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million.Liquidity and Capital ResourcesAs of December 31, 2011, we had $20.3 million in cash and cash equivalents and no borrowings under the revolver portion of our credit facility. Therevolver had approximately $8.3 million of calculated availability for borrowings at the end of 2011. The Company was in compliance with the covenants in itsSunTrust credit facility as of December 31, 2011.The $20.3 million in cash and cash equivalents includes $6.5 million held in the U.S., $4.0 million held in Canada, and $9.8 million held in other foreignjurisdictions, primarily in the United Kingdom, France and Brazil. Certain foreign jurisdictions restrict the amount of cash that can be transferred to the U.S. orimpose taxes and penalties on such transfers of cash. To the extent we have excess cash in foreign locations that could be used in, or is needed by, our operationsin the U.S., we may incur significant penalties and/or taxes to repatriate these funds. Generally, we have not provided deferred taxes on the undistributed earningsof international subsidiaries as we consider these earnings to be permanently reinvested. However, we do not consider the earnings of our Canadian subsidiary tobe permanently invested, and have provided deferred taxes relating to the potential repatriation of the funds held in Canada. 29Table of ContentsOperating Activities. Net cash provided by operating activities was $19.3 million in 2011, $3.5 million in 2010 and $18.2 million in 2009. These amountsconsist of two components, specifically, net earnings adjusted for certain non-cash items (such as depreciation, amortization stock-based compensation expense,and deferred income taxes) and changes in assets and liabilities, primarily working capital, as follows: Years Ended December 31, 2011 2010 2009 Net earnings $2,816 $3,253 $15,327 Adjustments for certain non-cash items 13,945 13,636 6,476 16,761 16,889 21,803 Changes in operating assets and liabilities 2,532 (13,420) (3,637) Net cash provided by operating activities $19,293 $3,469 $18,166 The $15.8 million improvement in cash provided by operating activities in 2011 compared to 2010 was due to changes in assets and liabilities, primarilyworking capital. The 2011 improvement relates primarily to changes in accounts payable and compensation accruals as we used cash in 2010 to pay the 2009accruals, required less cash in 2011 to pay the lower 2010 incentive compensation accruals, and increased these accruals again in 2011. These changes in accountspayable and compensation accruals resulted in $17.2 million less cash used for working capital, which was partially offset by $2.1 million of additional cash usedto fund the net increase in billed and unbilled receivables. This increase in billed and unbilled receivables is due primarily to our increase in revenues from ourparticipation in the Medicare RAC program, for which we generally cannot invoice until the cash is collected by the prime contractors for whom we operate as asubcontractor. The increase in unbilled receivables was also due to increases in revenues from recovery audit clients for which we have agreed not to invoice theclients until a later date even though we have already earned the related revenues.The $14.7 million decline in cash provided by operating activities in 2010 compared to 2009 was due to lower net earnings, partially offset by higher non-cash charges. The greater use of cash for working capital needs resulted from an increase in receivables primarily relating to the Medicare RAC program anddeferral of costs associated with this program, as well as the decrease in incentive compensation accruals in 2010 as noted above.We include an itemization of these changes in our Consolidated Statements of Cash Flows included in Part II, Item 8 of this Form 10-K.We incurred operating losses from our healthcare claims recovery audit services within our New Services segment of approximately $4.5 million in 2011,$4.8 million in 2010 and $4.0 million in 2009, primarily related to the Medicare RAC program. Our investments in software development and infrastructure costsrelated to Medicare RAC program were $1.5 million in 2011, $0.8 million in 2010 and $1.0 million in 2009. We also have unbilled receivables, deferred costs(included in other current assets), as well as capitalized software development costs and other fixed assets associated with this program. These losses andinvestments have had a significant negative impact on our cash flows. We expect to continue to increase receivables and other current assets, and incur capitalexpenditures relating to this program in 2012. However, we increased claim submission levels in the third and fourth quarters of 2011 and now believe that we willgenerate sufficient revenues to enable us to decrease the amount of cash required to fund these operations going forward.We have one customer, Wal-Mart Stores Inc., that has accounted for 10% or more of our annual revenues in each of the past three years. The loss of thiscustomer would negatively impact our operating cash flows and would potentially have a material adverse impact on the Company’s liquidity.Investing Activities and Depreciation and Amortization Expense. Depreciation and amortization expense was $10.4 million in 2011, $9.0 million in 2010and $6.7 million in 2009. Net cash used for capital expenditures was $8.3 million in 2011, $6.9 million in 2010 and $5.5 million in 2009. These capitalexpenditures primarily related to investments we made to upgrade our information technology infrastructure, develop our Next-Generation Recovery Audit servicedelivery model and develop software relating to our participation in the Medicare RAC program.Capital expenditures are discretionary and we currently expect future capital expenditures to decline slightly from 2011 levels as we continue to enhance ourNext-Generation Recovery Audit service delivery model and our healthcare audit systems. We may alter our capital expenditure plans should we experiencechanges in our operating results which cause us to adjust our operating plans. 30Table of ContentsBusiness AcquisitionsWe made several business acquisitions during the past three years, each of which is discussed more fully in Note 14 – Business Acquisitions in “Notes toConsolidated Financial Statements” in Part II, Item 8 of this Form 10-K. A summary of these activities follows.In July 2009, we acquired the business and certain assets of First Audit Partners LLP (“FAP”), a privately-held European provider of recovery audit servicesbased in Cambridge, United Kingdom, for a purchase price valued at $5.8 million. The purchase price included an initial cash payment of $1.6 million that we paidin July 2009. We made the first of two deferred payments required as part of the FAP acquisition in January 2010 in the amount of £0.5 million ($0.8 million) andthe second payment of £0.8 million ($1.3 million) in July 2010. Additional variable consideration may be due based on the operating results generated by theacquired business over a four year period from the date of acquisition. From the acquisition date to December 31, 2011, we paid £0.7 million ($1.2 million) of theearn-out and recorded accretion and other adjustments of the liability of $1.0 million, resulting in an earn-out payable of $1.7 million as of December 31, 2011.In February 2010, we acquired all of the issued and outstanding capital stock of Etesius Limited, a privately-held European provider of purchasing andpayables technologies and spend analytics based in Chelmsford, United Kingdom for a purchase price valued at $3.1 million. The purchase price included an initialcash payment of $2.8 million and a $0.3 million payment for obligations on behalf of Etesius shareholders that we paid in February 2010 as well as deferredpayments of $1.2 million over four years from the date of the acquisition. We also may be required to make additional payments of up to $3.8 million over a four-year period if the financial performance of this service line meets certain targets. These payments would be to Etesius employees that we hired in connection withthe acquisition. We will not be obligated to make the deferred and earn-out payments to these employees if they resign or are terminated under certaincircumstances. We therefore are recognizing the accrual of the deferred payments as compensation expense. From the acquisition date to December 31, 2011, wepaid $0.1 million of the deferred payments. An additional $1.1 million will be due through February 2014 unless there is a termination of employment of theseemployees under certain circumstances. We have not paid or accrued any earn-out payments as of December 31, 2011.In November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurementoperations improvement services based in Chicago, Illinois for a purchase price valued at $3.7 million. The purchase price included an initial cash payment of $2.3million that we paid in November 2010. Additional payments of up to a maximum of $1.9 million may be due to the sellers in four semi-annual payments if certainperformance targets are met. We recorded $1.4 million as the estimated fair value of these payments at the acquisition date. From the acquisition date toDecember 31, 2011, we paid $0.7 million of the earn-out and recorded accretion and other adjustments of the liability of $0.4 million, resulting in an earn-outpayable of $1.1 million as of December 31, 2011.In December 2011, we acquired Business Strategy, Inc. and substantially all of the assets of Strategic Document Solutions, LLC (collectively, “BSI”), bothbased in Grand Rapids, Michigan, for a purchase price valued at $12.2 million. BSI is a provider of recovery audit and related procure-to-pay process improvementservices for commercial clients, and a provider of customized software solutions and outsourcing solutions to improve back office payment processes. Thepurchase price included an initial cash payment of $2.8 million and 640,614 shares of our common stock having a value of $3.7 million. An additional payment ofapproximately $0.8 million is due in the first quarter of 2012 for working capital received in excess of a specified minimum level. Additional variableconsideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, may be due based on the performance of the acquiredbusinesses over a two year period from the date of acquisition. We may also be required to pay additional consideration of up to $8.0 million, payable in cash overa period of two years, based on certain net cash fee receipts from a particular recovery audit claim at a specific client. We recorded an additional $4.9 millionpayable based on management’s estimate of the fair value of the variable consideration payable.Financing Activities and Interest Expense. Net cash used in financing activities was $5.4 million in 2011, $3.5 million in 2010 and $5.7 million in 2009. Asdescribed in more detail below, we entered into a new credit facility in January 2010. We used the $15.0 million term loan proceeds to repay the remaining $14.1million of outstanding principal under our prior term loan and to pay $0.5 million in loan costs incurred in connection with the new credit facility. We mademandatory principal payments totaling $3.0 million on the new credit facility in each of 2011 and 31Table of Contents2010. In 2011, we also paid $1.7 million of deferred acquisition consideration and repurchased $1.1 million of stock from employees to allow them to satisfy theirtax withholding obligations in connection with the vesting of restricted stock and restricted stock units.During 2009, we made mandatory principal payments totaling $5.0 million on our then-existing term loan and reduced our capital lease obligations by $0.3million.Secured Credit FacilityOn January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). We used substantially all thefunds from the SunTrust term loan to repay in full the $14.1 million outstanding under our then-existing Ableco LLC term loan. The SunTrust credit facilityconsists of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Company and itsdomestic subsidiaries and is secured by substantially all of our assets. Amounts available for borrowing under the SunTrust revolver are based on our eligibleaccounts receivable and other factors. Borrowing availability under the SunTrust revolver at December 31, 2011 was $8.3 million. We had no borrowingsoutstanding under the SunTrust revolver as of December 31, 2011.The SunTrust term loan requires quarterly principal payments of $0.8 million from March 2010 and through December 2013, and a final payment of $3.0million in January 2014. The loan agreement requires mandatory prepayments with the net cash proceeds from certain asset sales, equity offerings and insuranceproceeds received by the Company. The loan agreement also requires an additional annual prepayment contingently payable based on excess cash flow (“ECF”) ifour leverage ratio, as defined in the agreement, exceeds a certain threshold. Our leverage ratio was below the threshold in 2011 and 2010 and ECF payments werenot required on the loan in either year.Interest on both the revolver and term loan are payable monthly and accrued at an index rate based on the one-month LIBOR rate, plus an applicable marginas determined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, depending on our consolidatedleverage ratio, and is determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was 2.5% and the interest rate wasapproximately 2.77% at December 31, 2011. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the $15.0million SunTrust revolving credit facility.The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financialstatements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among otherthings, to incur debt, incur liens, make investments, sell assets, repurchase shares of its capital stock or declare or pay dividends on its capital stock. The financialcovenants included in the SunTrust credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximumleverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidatedearnings before interest, taxes, depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default.In September 2010 we entered into an amendment of the SunTrust credit facility that lowered the required minimum adjusted EBITDA and fixed chargecoverage ratio through December 31, 2010. In October 2010 we entered into an interest rate swap agreement with SunTrust that limits our exposure to increases inthe one-month LIBOR rate. In October 2011 we entered into an amendment of the SunTrust credit facility that increased our capital expenditure limits for 2011and 2012.We believe that we will have sufficient borrowing capacity and cash generated from operations to fund our capital and operational needs for at least the nexttwelve months. 32Table of ContentsContractual Obligations and Other CommitmentsAs discussed in “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K, the Company has certain contractual obligations andother commitments. A summary of those commitments as of December 31, 2011 is as follows: Payments Due by Period (in thousands) Contractual obligations Total LessThan1 Year 1-3 Years 3-5Years MoreThan5 Years Long-term debt obligations (1) $9,000 $3,000 $6,000 $— $— Interest and commitment fee on Secured Credit Facility (2) 503 293 210 — — Operating lease obligations 22,791 7,843 13,968 966 14 Payments to Messrs. Cook and Toma (3) 992 59 123 130 680 Purchase price payments for business acquisitions (4) 9,106 3,502 5,604 — — Expected interest and compensation relating to business acquisition obligations (5) 2,538 1,526 1,012 — — Total $44,930 $16,223 $26,917 $1,096 $694 (1)Excludes variable rate interest (LIBOR plus 2.25% to 3.50% per annum) payable monthly. For an estimate of interest due on the loan see footnote (2).(2)Represents the estimated commitment fee and interest due on the Secured Credit Facility using the interest rate as of December 31, 2011 and assuming noborrowings on the revolver. See Note 7 of the Notes to Consolidated Financial Statements for additional information regarding the Credit Agreement.(3)Represents estimated reimbursements payable for healthcare costs incurred by these former executives.(4)Represents the estimated present value of deferred payments relating to our acquisitions of FAP, Etesius, TJG and BSI – see “Business Acquisitions” above.These amounts generally represent the estimated present value of the variable consideration which may be due based on cash flows generated by theacquired business over the next few years. Certain of the obligations are denominated in British pounds sterling. The U.S. dollar amounts included above arebased on December 31, 2011 foreign exchange rates.(5)Represents the estimated interest and compensation expense to be incurred to increase the present value amounts for business acquisition obligations listedabove to the estimated payment amounts.As of December 31, 2011, our liabilities for uncertain tax positions were $2.6 million, which are classified as current. We are unable to reasonably estimatethe timing of future cash flows related to such amounts as the timing is dependent on examinations by taxing authorities.2006 Management Incentive PlanAt the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of our common stock under the 2006 Management Incentive Plan (“2006 MIP”). On September 29, 2006, an aggregate of 682,301 PerformanceUnits were awarded under the 2006 MIP to seven executive officers of the Company. The awards had an aggregate grant date fair value of $4.0 million. AtPerformance Unit settlement dates (which vary by participant), participants are issued that number of shares of Company common stock equal to 60% of thenumber of Performance Units being settled, and are paid in cash an amount equal to 40% of the fair market value of that number of shares of common stock equalto the number of Performance Units being settled. The awards were 50% vested at the award date and the remainder of the awards vested ratably overapproximately the following eighteen months with the awards fully vesting on March 17, 2008. On March 28, 2007, the Company granted 20,000 PerformanceUnits to an additional executive officer under the 2006 MIP. The award had a grant date fair value of $0.3 million and was scheduled to vest ratably over fouryears. The awards contain certain anti-dilution and change of control provisions. As a result, the number of Performance Units awarded were automaticallyadjusted on a pro-rata basis upon the conversion into common stock of the Company’s senior convertible notes and Series A convertible preferred stock. TheCompany granted an additional 1,436,484 Performance Units in 2007 and 122,073 Performance Units in 2006 with aggregate grant date fair values of $24.0million in 2007 and $1.6 million in 2006 as a result of this automatic adjustment provision.All Performance Units must be settled before April 30, 2016. We recognized compensation expense (credit) of less than $0.1 million in 2011, $0.1 millionin 2010 and $(0.2 million) in 2009 related to these 2006 MIP Performance Unit awards. The 2009 compensation credit resulted from the remeasurement of theliability-classified portion of the awards to fair value based on the market price of our common stock. We determined the amount of compensation expenserecognized on the assumption that none of the Performance Unit awards will be forfeited. 33Table of ContentsCash payments relating to these MIP awards were $0.1 million in 2011, $0.6 million in 2010 and $1.9 million in 2009. There were no MIP awardsoutstanding as of December 31, 2011.Off Balance Sheet ArrangementsAs of December 31, 2011, the Company did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s RegulationS-K.Critical Accounting PoliciesWe describe our significant accounting policies in Note 1 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K. However,certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application ofsignificant judgment by management. As a result, they are subject to an inherent degree of uncertainty. We consider accounting policies that involve the use ofestimates that meet both of the following criteria to be “critical” accounting policies. First, the accounting estimate requires us to make assumptions about mattersthat are highly uncertain at the time that the accounting estimate is made. Second, alternative estimates in the current period, or changes in the estimate that arereasonably likely in future periods, would have a material impact on the presentation of our financial condition, changes in financial condition or results ofoperations.In addition to estimates that meet the “critical” estimate criteria, we also make many other accounting estimates in preparing our consolidated financialstatements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well asdisclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition,refund liabilities, accounts receivable allowance for doubtful accounts, goodwill and other intangible assets and income taxes. We base our estimates andjudgments on historical experience, information available prior to the issuance of the consolidated financial statements and on various other factors that we believeto be reasonable under the circumstances. This information forms the basis for making judgments about the carrying values of assets and liabilities that are notreadily apparent from other sources. Materially different results can occur as circumstances change and additional information becomes known, including changesin those estimates not deemed “critical”.We believe the following critical accounting policies, among others, involve our more significant estimates and judgments we used in the preparation of ourconsolidated financial statements. We have discussed the development and selection of accounting estimates, including those deemed “critical,” and the associateddisclosures in this Form 10-K with the audit committee of the Board of Directors. • Revenue Recognition. We generally recognize revenues on the accrual basis except with respect to an insignificant number of our international unitswhere we recognize revenues on the cash basis. We generally recognize revenues for a contractually specified percentage of amounts recovered whenwe have determined that our clients have received economic value (generally through credits taken against existing accounts payable due to theinvolved vendors or refund checks received from those vendors), and when we have met the following criteria: (a) persuasive evidence of anarrangement exists; (b) services have been rendered; (c) the fee billed to the client is fixed or determinable; and (d) collectability is reasonablyassured. Additionally, for purposes of determining appropriate timing of recognition and for internal control purposes, we rely on customary businesspractices and processes for documenting that the criteria described in (a) through (d) above have been met. Such customary business practices andprocesses may vary significantly by client. On occasion, it is possible that a transaction has met all of the revenue recognition criteria described abovebut we do not recognize revenues, unless we can otherwise determine that criteria (a) through (d) above have been met, because our customarybusiness practices and processes specific to that client have not been completed. The determination that we have met each of the aforementionedcriteria, particularly the determination of the timing of economic benefit received by the client and the determination that collectability is reasonablyassured, requires the application of significant judgment by management and a misapplication of this judgment could result in inappropriaterecognition of revenues. 34Table of ContentsDuring the third quarter of 2011, we changed the point at which we recognize revenue for our healthcare claims recovery audit services within ourNew Services segment based on our gaining sufficient experience with auditing such claims. We now recognize revenue without formal client sign-off provided that we can objectively demonstrate that the acceptance criteria specified by the client are satisfied. This change resulted in a $1.4 millionincrease in revenues, a $0.4 million increase in net earnings and a $0.02 increase in basic and diluted earnings per common share in 2011. • Unbilled Receivables & Refund Liabilities. Unbilled receivables relate to claims for which our clients have received economic value but for which wecontractually have agreed not to invoice the clients. Unbilled receivables arise when a portion of our fee is deferred at the time of the initial invoice.At a later date (which can be up to a year after the original invoice, or a year after completion of the audit period), we invoice the unbilled receivableamount. Notwithstanding the deferred due date, our clients acknowledge that we have earned this unbilled receivable at the time of the originalinvoice, but have agreed to defer billing the client for the related services.Refund liabilities result from reductions in the economic value previously received by our clients with respect to vendor claims identified by us andfor which we previously have recognized revenues. We satisfy such refund liabilities either by offsets to amounts otherwise due from clients or bycash refunds to clients. We compute the estimate of our refund liabilities at any given time based on actual historical refund data.We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenues.During the fourth quarter of 2010, we revised our estimate of expected refund rates of unbilled receivables in our Recovery Audit Services –Americas operating segment. We obtained sufficient historical data on our realization of paybacks from unbilled receivables that enabled us to makethis change to our method of calculating this estimate. The impact of this change resulted in a $0.2 million increase in fourth quarter 2010 netearnings, or less than $0.01 per basic and diluted share. We do not expect that this change in estimate will have a material impact on our net earningsin future periods. • Goodwill and Other Intangible Assets. We assess the recoverability of our goodwill and other intangible assets during the fourth quarter of each year,or sooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. For our goodwill impairment testing in thefourth quarter of 2011, we implemented Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) UpdateNo. 2011-08 (see New Accounting Standards in Note 1 to our Consolidated Financial Statements included in Item 8 of this Form 10-K) and elected toassess qualitative factors prior to performing the two-step process utilized in this testing. Under the new guidance, we are not required to calculate thefair value of our reporting units that hold goodwill unless we determine that it is more likely than not that the fair value of these reporting units is lessthan their carrying values. In this analysis, we considered a number of factors, including changes in our legal, business and regulatory climates,changes in competition or key personnel, macroeconomic factors impacting our company or our clients, our recent financial performance andexpectations of future performance and other pertinent factors. Based on this analysis, we determined that it was not necessary for us to perform thetwo-step process, and we did not record an impairment charge in 2011. We last calculated the fair value of our reporting units that hold goodwill in thefourth quarter of 2010, at which time we used independent business valuation professionals to estimate fair value and determined that fair valueexceeded carrying value for all relevant reporting units.In connection with the business acquisitions we completed in 2011, we recorded additional goodwill of $8.0 million and additional intangible assets of$4.1 million consisting primarily of customer relationships, non-compete agreements and trademarks. In connection with the business acquisitions wecompleted in 2010, we recorded additional goodwill of $0.6 million and additional intangible assets of $3.9 million consisting primarily of customerrelationships, non-compete agreements and trade names. We determined these amounts based on estimates we made and on valuation reports weobtained from third parties. We generally use accelerated amortization methods for customer relationships and trade names, and straight-lineamortization for non-compete agreements. 35Table of Contents • Income Taxes. Our effective tax rate is based on historical and anticipated future taxable income, statutory tax rates and tax planning opportunitiesavailable to us in the various jurisdictions in which we operate. Significant judgment is required in determining the effective tax rate and in evaluatingour tax positions. Tax regulations require items to be included in the tax returns at different times than the items are reflected in the financialstatements. As a result, our effective tax rate reflected in our Consolidated Financial Statements included in Item 8 of this Form 10-K is different thanthat reported in our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax returns, and some aretemporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generallyrepresent items that can be used as a tax deduction or credit in our tax returns in future years for which we have already recorded the tax benefit in thestatement of operations. We establish valuation allowances to reduce net deferred tax assets to the amounts that we believe are more likely than not tobe realized. We adjust these valuation allowances in light of changing facts and circumstances. Deferred tax liabilities generally represent tax expenserecognized in our consolidated financial statements for which payment has been deferred, or expense for which a deduction has already been taken onour tax returns but has not yet been recognized as an expense in our consolidated financial statements.We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not berealized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which thosetemporary differences are deductible. In determining the amount of valuation allowance to record, we consider all available positive and negativeevidence affecting specific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the lengthof carry-back and carry-forward periods, and the implementation of tax planning strategies. Objective positive evidence is necessary to support aconclusion that a valuation allowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists. Cumulativetax losses in recent years are the most compelling form of negative evidence we considered in this determination.As a result of this review in 2011, we released a portion of our valuation allowance relating to a foreign subsidiary, and recorded $0.5 million of taxbenefit in the fourth quarter of 2011. Also in the fourth quarter of 2011, management recorded the initial purchase accounting entries for theDecember 2011 acquisition of Business Strategy, Inc. As a part of this process, we recorded a $1.7 million reduction in the deferred tax asset valuationallowance that resulted from the deferred tax liabilities that we recorded relating to the acquisition. This reduction was accounted for as an income taxbenefit in the fourth quarter of 2011.We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. We refer to U.S. generally accepted accounting principles (“GAAP”) for guidance onderecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Our policy for recording interest andpenalties associated with tax positions is to record such items as a component of earnings before income taxes. As a part of an ongoing Canadian taxaudit, we continue to defend our tax position related to the valuation of an intercompany transaction. We recognized $0.6 million of additional taxexpense in the fourth quarter of 2011 to reflect our estimate of the potential tax due based on our continuing discussions with the Canadian taxauthorities. • Stock-Based Compensation. We account for awards of equity instruments issued to employees under the fair value method of accounting andrecognize such amounts in our statements of operations. We measure compensation cost for all stock-based awards at fair value on the date of grantand recognize compensation expense in our Consolidated Statements of Operations and Comprehensive Income using the straight-line method overthe service period over which we expect the awards to vest. We recognize compensation costs for awards with performance conditions based on theprobable outcome of the performance conditions. We accrue compensation cost if we believe it is probable that the performance condition(s) will beachieved and do not accrue compensation cost if we believe it is not probable that the performance condition(s) will be achieved.We estimate the fair value of all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed foruse in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the inputof highly subjective assumptions, including the expected stock price volatility. 36Table of ContentsWe estimate the fair value of awards of restricted shares and nonvested shares as being equal to the market value of the common stock on the date ofthe award. We classify our share-based payments as either liability-classified awards or as equity-classified awards. We remeasure liability-classifiedawards to fair value at each balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value and do notsubsequently remeasure them. We have classified our share-based payments which are settled in our common stock as equity-classified awards andour share-based payments that are settled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally areequal to the grant-date fair value of the award amortized over the vesting period of the award. The liability for liability-classified awards generally isequal to the fair value of the award as of the balance sheet date multiplied by the percentage vested at the time. We charge (or credit) the change in theliability amount from one balance sheet date to another to compensation expense.Stock-based compensation expense was $5.1 million in 2011, $4.0 million in 2010 and $3.3 million in 2009. We discuss stock-based compensation inmore detail in Note 1(l) and Note 13 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K.New Accounting StandardsRefer to Note 1 of “Notes to Consolidated Financial Statements” for a discussion of recent accounting standards and pronouncements. 37Table of ContentsITEM 7A.Quantitative and Qualitative Disclosures About Market RiskForeign Currency Market Risk. Our reporting currency is the U.S. dollar although we transact business in various foreign locations and currencies. As aresult, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates, or weak economic conditions in theforeign markets in which we provide our services. Our operating results are exposed to changes in exchange rates between the U.S. dollar and the currencies of theother countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of foreign functional currency revenues decreases. Whenthe U.S. dollar weakens, the value of the foreign functional currency revenues increases. Overall, we are a net receiver of currencies other than the U.S. dollar and,as such, benefit from a weaker dollar. We therefore are adversely affected by a stronger dollar relative to major currencies worldwide. In 2011, we recognized$23.8 million of operating income from operations located outside the U.S., virtually all of which we accounted for originally in currencies other than the U.S.dollar. Upon translation into U.S. dollars, such operating income would increase or decrease, assuming a hypothetical 10% change in weighted-average foreigncurrency exchange rates against the U.S. dollar, by approximately $2.4 million. We do not have any arrangements in place currently to hedge our foreign currencyrisk.Interest Rate Risk. Our interest income and expense are sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interestrates affect the interest earned on our cash equivalents as well as interest paid on our debt. We had $9.0 million outstanding under a term loan and $8.3 million ofcalculated borrowing availability under our revolving credit facility as of December 31, 2011, but had no amounts drawn under the revolving credit facility as ofthat date. Interest on both the revolver and the term loan are payable monthly and accrue at an index rate using the one-month LIBOR rate plus an applicablemargin as determined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum and was 2.77% atDecember 31, 2011. Assuming full utilization of the revolving credit facility, a hypothetical 100 basis point change in interest rates applicable to the revolverwould result in an approximate $0.1 million change in annual pre-tax income. A hypothetical 100 basis point change in interest rates applicable to the term loanwould result in an approximate $0.1 million change in annual pre-tax income.In order to mitigate some of this interest rate risk, we entered into an interest rate swap agreement with SunTrust Bank in October 2010 under which we payadditional interest on a notional amount of $3.8 million through December 31, 2013 to the extent that the one-month LIBOR rate is below 1.23%, and receivepayments from SunTrust Bank to the extent the index exceeds this level. The notional amount is equal to the final two payments due under the term loan inDecember 2013 and January 2014. Currently, LIBOR is below 1.23% and we are paying a minimal amount of additional interest under this agreement. ShouldLIBOR rates increase above the 1.23% level, we will incur additional interest expense on all of the amounts outstanding under our credit facility, but will offset aportion of this additional expense with the income we earn from the swap agreement. 38Table of ContentsITEM 8.Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageNumber Report of Independent Registered Public Accounting Firm 40 Consolidated Statements of Operations and Comprehensive Income for the Years ended December 31, 2011, 2010 and 2009 41 Consolidated Balance Sheets as of December 31, 2011 and 2010 42 Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2011, 2010 and 2009 43 Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010 and 2009 44 Notes to Consolidated Financial Statements 45 39Table of ContentsReport of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersPRGX Global, Inc.Atlanta, GeorgiaWe have audited the accompanying consolidated balance sheets of PRGX Global, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010 and therelated consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2011. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanyingindex. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements and schedule based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis forour opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PRGX Global, Inc. andsubsidiaries at December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011,in conformity with accounting principles generally accepted in the United States of America.Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly,in all material respects, the information set forth therein.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) and our report dated March 14, 2012 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 14, 2012 40Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(In thousands, except per share data) Years Ended December 31, 2011 2010 2009 Statements of Operations Revenues $203,117 $184,081 $179,583 Operating expenses: Cost of revenues 137,482 126,069 115,064 Selling, general and administrative expenses 49,102 40,735 40,390 Depreciation of property and equipment 5,401 4,903 3,505 Amortization of intangible assets 4,991 4,131 3,227 Total operating expenses 196,976 175,838 162,186 Operating income 6,141 8,243 17,397 Gain on bargain purchase, net (Note 14) — — 2,388 Foreign currency transaction (gains) losses on short-term intercompany balances 417 422 (1,595) Interest expense (1,904) (1,451) (3,229) Interest income 288 146 204 Loss on debt extinguishment (Note 7) — (1,381) — Earnings before income taxes 4,108 5,135 18,355 Income tax expense (Note 9) 1,292 1,882 3,028 Net earnings $2,816 $3,253 $15,327 Basic earnings per common share (Note 5) $0.11 $0.14 $0.67 Diluted earnings per common share (Note 5) $0.11 $0.13 $0.65 Weighted-average common shares outstanding (Note 5): Basic 24,634 23,906 22,915 Diluted 25,029 24,144 23,560 Statements of Comprehensive Income Net earnings $2,816 $3,253 $15,327 Foreign currency translation adjustments (519) 380 183 Comprehensive income $2,297 $3,633 $15,510 See accompanying Notes to Consolidated Financial Statements. 41Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2011 2010 ASSETS Current assets: Cash and cash equivalents $20,337 $18,448 Restricted cash 64 64 Receivables: Contract receivables, less allowances of $811 in 2011 and $591 in 2010: Billed 30,583 31,144 Unbilled 10,041 4,749 40,624 35,893 Employee advances and miscellaneous receivables, less allowances of $272 in 2011 and $669 in 2010 1,343 827 Total receivables 41,967 36,720 Prepaid expenses and other current assets 5,571 3,586 Deferred income taxes (Note 9) 23 36 Total current assets 67,962 58,854 Property and equipment: Computer and other equipment 24,993 23,068 Furniture and fixtures 2,980 2,982 Leasehold improvements 3,066 3,073 Software 19,753 13,945 50,792 43,068 Less accumulated depreciation and amortization (32,206) (27,373) Property and equipment, net 18,586 15,695 Goodwill (Note 6). 13,194 5,196 Intangible assets, less accumulated amortization of $22,115 in 2011 and $17,574 in 2010 (Note 6) 23,406 23,855 Unbilled receivables 1,672 1,462 Deferred loan costs, net of accumulated amortization (Note 7) 376 558 Deferred income taxes (Note 9) 831 403 Other assets 386 298 $126,413 $106,321 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $15,035 $14,365 Accrued payroll and related expenses 21,920 13,871 Refund liabilities 6,746 7,179 Deferred revenues 1,688 1,381 Current portions of debt (Note 7) 3,000 3,000 Business acquisition obligations (Note 14) 3,502 1,380 Total current liabilities 51,891 41,176 Long-term debt (Note 7) 6,000 9,000 Noncurrent business acquisition obligations (Note 14) 5,604 2,435 Refund liabilities 1,000 982 Other long-term liabilities 2,828 3,885 Total liabilities 67,323 57,478 Commitments and contingencies (Notes 2, 7, 8, 11 and 12) Shareholders’ equity (Notes 11 and 13): Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 25,108,754 shares issued andoutstanding in 2011 and 23,932,774 shares issued and outstanding in 2010. 251 239 Additional paid-in capital 574,266 566,328 Accumulated deficit (518,592) (521,408) Accumulated other comprehensive income 3,165 3,684 Total shareholders’ equity 59,090 48,843 $126,413 $106,321 See accompanying Notes to Consolidated Financial Statements. 42Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYYears Ended December 31, 2011, 2010 and 2009(In thousands, except share data) Common Stock AdditionalPaid-InCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome TreasuryStock TotalShareholders’Equity Shares Amount Balance at December 31, 2008 21,789,645 $218 $559,359 $(539,988) $3,121 $— $22,710 Net earnings — — — 15,327 — — 15,327 Foreign currency translation adjustments — — — — 183 — 183 Issuances of common stock: Restricted share awards 817,905 8 (8) — — — — Restricted shares remitted by employees for taxes (15,096) — (116) — — — (116) Stock option exercises 9,375 — 26 — — — 26 2006 MIP Performance Unit settlements 884,473 9 (9) — — — — Forfeited restricted share awards (134,656) (1) 1 — — — — Purchase of treasury stock — — — — — (246) (246) Retirement of treasury stock (78,754) (1) (245) — — 246 — Stock-based compensation expense — — 3,555 — — — 3,555 Balance at December 31, 2009 23,272,892 233 562,563 (524,661) 3,304 — 41,439 Net earnings — — — 3,253 — — 3,253 Foreign currency translation adjustments — — — — 380 — 380 Issuances of common stock: Restricted share awards 560,460 6 (6) — — — — Restricted shares remitted by employees for taxes (28,547) — (214) — — — (214) Stock option exercises 38,633 — 109 — — — 109 2006 MIP Performance Unit settlements 134,490 1 (1) — — — — Forfeited restricted share awards (45,154) (1) 1 — — — — Stock-based compensation expense — — 3,876 — — — 3,876 Balance at December 31, 2010 23,932,774 239 566,328 (521,408) 3,684 — 48,843 Net earnings — — — 2,816 — — 2,816 Foreign currency translation adjustments — — — — (519) — (519) Issuances of common stock: Restricted share awards 694,030 7 (7) — — — — Shares issued for acquisition 640,614 6 3,716 — — — 3,722 Restricted shares remitted by employees for taxes (132,974) (1) (1,062) — — — (1,063) Stock option exercises 116,073 1 352 — — — 353 2006 MIP Performance Unit settlements 26,898 — — — — — — Forfeited restricted share awards (168,661) (1) 1 — — — — Stock-based compensation expense — — 4,938 — — — 4,938 Balance at December 31, 2011 25,108,754 $251 $574,266 $(518,592) $3,165 $— $59,090 See accompanying Notes to Consolidated Financial Statements. 43Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended December 31, 2011 2010 2009 Cash flows from operating activities: Net earnings $2,816 $3,253 $15,327 Adjustments to reconcile earnings from operations to net cash provided by operating activities: Gain on bargain purchase, net — — (2,388) Depreciation and amortization 10,392 9,034 6,732 Amortization of debt discount, premium and deferred loan costs 188 1,539 789 Stock-based compensation expense 5,093 3,980 3,345 Loss on disposals of property, plant and equipment, net 6 15 109 Foreign currency transaction (gains) losses on short-term intercompany balances 417 422 (1,595) Deferred income taxes (2,151) (1,354) (516) Changes in operating assets and liabilities, net of business acquisitions: Restricted cash — 193 (195) Billed receivables 1,717 (1,757) 1,092 Unbilled receivables (5,419) (320) 1,466 Prepaid expenses and other current assets (718) (1,400) 183 Other assets (455) 56 55 Accounts payable and accrued expenses 110 (2,529) (936) Accrued payroll and related expenses 8,289 (6,255) (3,163) Refund liabilities (837) (39) (567) Deferred revenues (338) (139) 405 Noncurrent compensation obligations 432 (707) (1,589) Other long-term liabilities (249) (523) (388) Net cash provided by operating activities 19,293 3,469 18,166 Cash flows from investing activities: Business acquisitions, net of cash acquired (3,155) (7,741) (2,029) Purchases of property and equipment, net of disposal proceeds (8,287) (6,934) (5,511) Net cash used in investing activities (11,442) (14,675) (7,540) Cash flows from financing activities: Repayments of former credit facility (Note 7) — (14,070) (5,315) Repayments of long-term debt and capital lease obligations (3,000) (3,260) — Proceeds from term loan (Note 7) — 15,000 — Payments for deferred loan costs (6) (666) (50) Payments of deferred acquisition consideration (1,694) (409) — Repurchases of common stock — — (246) Restricted stock remitted by employees for taxes (1,063) (214) (116) Proceeds from stock option exercises 353 109 26 Net cash used in financing activities (5,410) (3,510) (5,701) Effect of exchange rates on cash and cash equivalents (552) 138 1,413 Net change in cash and cash equivalents 1,889 (14,578) 6,338 Cash and cash equivalents at beginning of year 18,448 33,026 26,688 Cash and cash equivalents at end of year $20,337 $18,448 $33,026 Supplemental cash flow statement information: Cash paid during the year for interest $422 $570 $1,939 Cash paid during the year for income taxes, net of refunds received $4,235 $2,743 $4,247 Deferred and contingent business acquisition consideration (Note 14) $5,643 $1,638 $4,210 See accompanying Notes to Consolidated Financial Statements. 44Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Description of Business and Basis of PresentationDescription of BusinessThe principal business of PRGX Global, Inc. and subsidiaries is providing recovery audit services to large businesses and government agencies havingnumerous payment transactions. These businesses include, but are not limited to: • retailers such as discount, department, specialty, grocery and drug stores; • business enterprises other than retailers such as manufacturers, financial services firms, and pharmaceutical companies; • healthcare payers, both private sector health insurance companies and state and federal government payers such as the Centers for Medicare andMedicaid Services (“CMS”); and • federal and state government agencies.Except as otherwise indicated or unless the context otherwise requires, “PRGX,” “we,” “us,” “our” and the “Company” refer to PRGX Global, Inc. and itssubsidiaries. PRGX currently provides services to clients in 38 countries.Basis of PresentationThe consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries. All significant intercompanybalances and transactions have been eliminated in consolidation.Certain reclassifications have been made to the 2010 financial statements to conform to the presentations adopted in 2011. We now reflect depreciation andamortization as separate line items in our Consolidated Statements of Operations and Comprehensive Income. We also now reflect net foreign currency transactiongains and losses on short-term intercompany balances (previously included in “Selling, general and administrative expenses”) as a non-operating item excludedfrom operating income.Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure ofcontingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).Actual results could differ from those estimates.(b) Revenue Recognition, Unbilled Receivables and Refund LiabilitiesWe base our revenues on specific contracts with our clients. These contracts generally specify: (a) time periods covered by the audit; (b) nature and extent ofaudit services we are to provide; (c) the client’s duties in assisting and cooperating with us; and (d) fees payable to us, generally expressed as a specifiedpercentage of the amounts recovered by the client resulting from overpayment claims identified. Clients generally recover claims either by taking credits againstoutstanding payables or future purchases from the involved vendors, or receiving refund checks directly from those vendors. The manner in which a claim isrecovered by a client often is dictated by industry practice. In addition, many clients establish specific procedural guidelines that we must satisfy prior tosubmitting claims for client approval, and these guidelines are unique to each client. For some services we provide, we earn our compensation in the form of a flatfee, a fee per hour, or a fee per other unit of service.We generally recognize revenues on the accrual basis except with respect to an insignificant number of our international units where we recognize revenueson the cash basis. We generally recognize revenues for a contractually specified percentage of amounts recovered when we have determined that our clients havereceived economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from thosevendors) and when we have met the following criteria: (a) persuasive evidence of an arrangement exists; (b) services have been rendered; (c) the fee billed to theclient is fixed or determinable; 45Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS and (d) collectability is reasonably assured. In certain limited circumstances, we will invoice a client prior to meeting all four of these criteria; in such cases, wedefer the revenues until we meet all of the criteria. Additionally, for purposes of determining appropriate timing of recognition and for internal control purposes, werely on customary business practices and processes for documenting that we have met the criteria described in (a) through (d) above. Such customary businesspractices and processes may vary significantly by client. On occasion, it is possible that a transaction has met all of the revenue recognition criteria described abovebut we do not recognize revenues, unless we can otherwise determine that criteria (a) through (d) above have been met, because our customary business practicesand processes specific to that client have not been completed.Historically, there has been a certain amount of revenues with respect to which, even though we had met the requirements of our revenue recognition policy,our clients’ vendors ultimately have rejected the claims underlying the revenues. In that case, our clients may request a refund or offset of such amount eventhough we may have collected fees. We record any such refunds as a reduction of revenues. We provide refund liabilities for these reductions in the economic valuepreviously received by our clients with respect to vendor claims we identified and for which we previously have recognized revenues. We compute an estimate ofour refund liabilities at any given time based on actual historical refund data.During the fourth quarter of 2010, we revised our estimate of expected refund rates of unbilled receivables in our Recovery Audit Services – Americasoperating segment. We obtained sufficient historical data on our realization of paybacks from unbilled receivables that enabled us to make this change to ourmethod of calculating this estimate. The impact of this change in estimate resulted in a $0.2 million increase in fourth quarter 2010 net earnings, or less than $0.01per basic and diluted share. We believe that this change represents an improvement in our method for determining this estimate.During the third quarter of 2011, we changed the point at which we recognize revenue for our healthcare claims recovery audit services within our NewServices segment based on our gaining sufficient experience with auditing such claims. We now recognize revenue without formal client sign-off provided that wecan objectively demonstrate that the acceptance criteria specified by the client are satisfied. This change resulted in a $1.4 million increase in revenues, a $0.4million increase in net earnings and a $0.02 increase in basic and diluted earnings per common share in 2011.Unbilled receivables relate to claims for which clients have received economic value but for which we contractually have agreed not to submit an invoice tothe clients at such time. Unbilled receivables arise when a portion of our fee is deferred at the time of the initial invoice. At a later date (which can be up to a yearafter original invoice, and at other times a year after completion of the audit period), we invoice the unbilled receivable amount. Notwithstanding the deferred duedate, our clients acknowledge that we have earned this unbilled receivable at the time of the original invoice, but have agreed to defer billing the client for therelated services.We record periodic changes in unbilled receivables and refund liabilities as adjustments to revenues.We derive a relatively small portion of revenues on a “fee-for-service” basis whereby billing is based upon a flat fee, a fee per hour, or a fee per other unit ofservice. We recognize revenues for these types of services as we provide and invoice for them, and when criteria (a) through (d) as set forth above are met.(c) Cash and Cash EquivalentsCash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less from date of purchase. Weplace our temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal DepositInsurance Corporation insurance limit.Our cash and cash equivalents included short-term investments of approximately $2.4 million in 2011 and $1.7 million in 2010 which were held at banks inBrazil. 46Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (d) Fair Value of Financial InstrumentsWe state cash and cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled services,accounts payable, deferred revenues and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and theshort term maturity of these items.We recorded long-term debt of $9.0 million as of December 31, 2011 and $12.0 million as of December 31, 2010 at the unpaid balances as of those datesbased on the effective borrowing rates and repayment terms when originated. Substantially all of these balances include variable borrowing rates, and we believethat the fair values of such instruments are approximately equal to their carrying values as of those dates.We recorded lease obligations of $2.8 million as of December 31, 2011 and $3.2 million as of December 31, 2010 representing the fair value of future leasepayments for office space we no longer use, reduced by sublease rentals we expect to earn. We adjust the recorded liability for the remaining lease payments, net ofsublease income, based on payments we make and sublease income we receive.We recorded business acquisition obligations of $9.1 million as of December 31, 2011 and $3.8 million as of December 31, 2010 representing the fair valueof deferred consideration and earn-out payments estimated to be due as of those dates. We determine the estimated fair values based on our projections of futurerevenues or other factors used in the calculation of the ultimate payment to be made. We use the discount rate that we used to value the liability at the acquisitiondate, which we based on specific business risk, cost of capital, and other factors. We consider these factors to be Level 3 inputs (significant unobservable inputs).(e) Property and EquipmentWe report property and equipment at cost or estimated fair value at acquisition date and depreciate them over their estimated useful lives using the straight-line method. During the second quarter of 2010, we revised our estimate of the useful lives of certain fixed assets used for the purpose of calculating depreciationexpense based on a review of our planned fixed asset replacement cycle. Our revised useful lives for fixed assets are three years for computer laptops, four yearsfor desktops, five years for IT server, storage and network equipment, five years for furniture and fixtures and three years for purchased software. We continue toamortize leasehold improvements using the straight-line method over the shorter of the lease term or ten years. The impact of the change in estimate was areduction in depreciation expense of approximately $0.6 million in 2010. Depreciation expense was $5.4 million in 2011, $4.9 million in 2010 and $3.5 million in2009.We review the carrying value of property and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset maynot be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cashflows are less than the carrying value, we will recognize an impairment loss equal to the amount by which the carrying value exceeds the fair value of the asset. Noimpairment charges were necessary in the three years ended December 31, 2011.(f) Software Development CostsWe capitalize a portion of the costs we incur relating to our internal development of software that we use in our operations and amortize these costs using thestraight-line method over the expected useful lives of three to seven years.We also capitalize a portion of the costs we incur related to our internal development of software that we intend to market to others. We amortize these costsover the products’ estimated economic lives, which typically are three years, beginning when the underlying products are available for general release to customers.We review the carrying value of capitalized software development costs for impairment whenever events and circumstances indicate that the carrying value of theasset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expectedfuture cash flows are less than the carrying value, we will recognize an impairment loss equal to the amount by which the carrying value 47Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS exceeds the fair value of the asset. No impairment charges were necessary in the three years ended December 31, 2011. We consider the costs associated with theseactivities to be research and development costs and expense them as incurred. However, we capitalize the costs incurred for the development of computer softwarethat will be sold, leased, or otherwise marketed or that will be used in our operations beginning when technological feasibility has been established. Research anddevelopment costs, including the amortization of amounts previously capitalized, were $3.4 million in 2011, $3.2 million in 2010 and $1.8 million in 2009.(g) Goodwill and Intangible AssetsGoodwill represents the excess of the purchase price over the estimated fair market value of net identifiable assets of acquired businesses. We evaluate therecoverability of goodwill in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carrying amount may exceed its fairvalue. This evaluation has two steps. The first step identifies potential impairments by comparing the fair value of the reporting unit with its carrying value,including goodwill. If the calculated fair value of a reporting unit exceeds the carrying value, goodwill is not impaired, and the second step is not necessary. If thecarrying value of a reporting unit exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair value of goodwillwith the carrying value. If the fair value is less than the carrying value, we would record an impairment charge.For our goodwill impairment testing in the fourth quarter of 2011, we implemented Financial Accounting Standards Board (“FASB”) Accounting StandardsCodification (“ASC”) Update No. 2011-08 (see New Accounting Standards below) and elected to assess qualitative factors prior to performing the two-stepprocess described above. Under the new guidance, we are not required to calculate the fair value of our reporting units that hold goodwill unless we determine thatit is more likely than not that the fair value of these reporting units is less than their carrying values. In this analysis, we considered a number of factors, includingchanges in our legal, business and regulatory climates, changes in competition or key personnel, macroeconomic factors impacting our company or our clients, ourrecent financial performance and expectations of future performance and other pertinent factors. Based on this analysis, we determined that it was not necessary forus to perform the two-step process. We last calculated the fair value of our reporting units that hold goodwill in the fourth quarter of 2010, at which time we usedindependent business valuation professionals to estimate fair value and determined that fair value exceeded carrying value for all relevant reporting units. Noimpairment charges were necessary in the three years ended December 31, 2011.(h) Direct Expenses and Deferred CostsWe typically expense direct expenses that we incur during the course of recovery audit and delivery of advisory services as incurred. For certainimplementation and set-up costs associated with our “fee for service” revenues that we earn over an extended period of time, we defer the related direct andincremental costs and recognize them as expenses over the life of the underlying contract.In addition, we incur significant personnel and other costs when performing recovery audit services to certain healthcare organizations. The process ofdocumenting that we have met our revenue recognition criteria as described in (b) Revenue Recognition, Unbilled Receivables and Refund Liabilities above isextensive and generally is completed from three months to a year after we substantially have completed our services. We defer these costs and recognize them asexpenses when we record the related revenues. As of December 31, 2011, we had deferred $1.1 million of these costs and reflected them as “Prepaid expenses andother current assets” in our Consolidated Balance Sheet.(i) Income TaxesWe account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss andtax credit carry forwards. We measure deferred tax assets and liabilities using enacted tax rates we expect to apply to taxable income in the years in which weexpect to recover or settle those temporary differences. We recognize the effect on the deferred tax assets and liabilities of a change in tax rates in income in theperiod that includes the enactment date. 48Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesare deductible. In determining the amount of valuation allowance to record, we consider all available positive and negative evidence affecting specific deferred taxassets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods and theimplementation of tax planning strategies. Objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or aportion of deferred tax assets when significant negative evidence exists. Cumulative losses for tax reporting purposes in recent years are the most compelling formof negative evidence we considered in this determination.We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. In accordance with FASB ASC 740, our policy for recording interest and penalties associated with tax positions is to recordsuch items as a component of earnings before income taxes.(j) Foreign CurrencyWe use the local currency as the functional currency in the majority of the countries in which we conduct business outside of the United States. We translatethe assets and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange at the balance sheet date. We include the translationgains and losses as a separate component of shareholders’ equity and in the determination of comprehensive income. Comprehensive income included translationgains (losses) related to long-term intercompany balances of $(0.1 million) in 2011, $(0.1 million) in 2010, and $0.2 million in 2009. We translate revenues andexpenses in foreign currencies at the weighted average exchange rates for the period. We separately state the foreign currency transaction gains and losses onshort-term intercompany balances in the Consolidated Statements of Operations and Comprehensive Income. We include all other realized and unrealized foreigncurrency transaction gains (losses) in “Selling, general and administrative expenses.”(k) Earnings Per Common ShareWe compute basic earnings per common share by dividing net earnings available to common shareholders by the weighted-average number of shares ofcommon stock outstanding during the period. We compute diluted earnings per common share by dividing net earnings available to common shareholders by thesum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumed exercise of stock optionsusing the treasury stock method, and (3) the dilutive effect of other potentially dilutive securities. We exclude the potential dilutive effect of stock options andconvertible instruments from the determination of diluted earnings per share if the effect of including them would be antidilutive.(l) Stock-Based CompensationWe account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in ourConsolidated Statements of Operations and Comprehensive Income. We measure compensation cost for all stock-based awards at fair value on the date of grantand recognize compensation expense in our Consolidated Statements of Operations and Comprehensive Income using the straight-line method over the serviceperiod over which we expect the awards to vest. We recognize compensation costs for awards with performance conditions based on the probable outcome of theperformance conditions. We accrue compensation cost if we believe it is probable that the performance condition(s) will be achieved and do not accruecompensation cost if we believe it is not probable that the performance condition(s) will be achieved.We estimate the fair value of all time-vested options as of the date of grant using the Black-Scholes option valuation model, which was developed for use inestimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjectiveassumptions, including the expected stock price volatility. 49Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS For time-vested option grants that resulted in compensation expense recognition, we used the following assumptions in our Black-Scholes valuation models: Years Ended December 31, 2011 2010 2009Risk-free interest rates 0.86% - 2.30% 0.80% - 2.65% 1.60% - 2.71%Dividend yields — — —Volatility factor of expected market price .732 - .797 .795 - 1.036 .950 - 1.081Weighted-average expected term of option 3.7 - 5 years 3.9 - 4.9 years 4 - 5 yearsForfeiture rate — — —We estimate the fair value of awards of restricted shares and nonvested shares as being equal to the market value of the common stock on the date of theaward. We classify our share-based payments as either liability-classified awards or as equity-classified awards. We remeasure liability-classified awards to fairvalue at each balance sheet date until the award is settled. We measure equity-classified awards at their grant date fair value and do not subsequently remeasurethem. We have classified our share-based payments which are settled in our common stock as equity-classified awards and our share-based payments that aresettled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal to the fair value of the award at grant-dateamortized over the vesting period of the award. The liability for liability-classified awards generally is equal to the fair value of the award as of the balance sheetdate multiplied by the percentage vested at the time. We record the change in the liability amount from one balance sheet date to another to compensation expense.(m) Comprehensive IncomeConsolidated comprehensive income consists of consolidated net earnings and foreign currency translation adjustments. We present the calculation ofconsolidated comprehensive income in the accompanying Consolidated Statements of Operations and Comprehensive Income.(n) Segment ReportingWe report our operating segment information in three segments: Recovery Audit Services — Americas; Recovery Audit Services — Europe / Asia Pacific;and New Services. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to our three segmentsin Corporate Support. Our business segments reflect the internal reporting that our Chief Executive Officer, who is our chief operating decision maker, uses for thepurpose of making decisions about allocating resources and assessing performance. Our management, including our Chief Executive Officer, uses what weinternally refer to as “Adjusted EBITDA” as the primary measure of profit or loss for purposes of assessing the operating performance of all operating segments.We define Adjusted EBITDA as earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as adjusted for unusual andother significant items that management views as distorting the operating results of the various segments from period to period.EBITDA and Adjusted EBITDA are not financial measures determined in accordance with GAAP. Such non-GAAP financial measures do not measure theprofit or loss of the reportable segments in accordance with GAAP. Given that we use Adjusted EBITDA as our primary measure of segment performance, GAAPrules on segment reporting require that we include this non-GAAP measure in our discussion of our operating segments. We also must reconcile AdjustedEBITDA to our operating results presented on a GAAP basis. We provide this reconciliation in Note 4 to these consolidated financial statements along with otherinformation about our reportable segments. We do not intend the reconciling items to be, nor should they be, interpreted as non-recurring or extraordinary, or inany manner be deemed as adjustments made in accordance with GAAP. Because Adjusted EBITDA is not a financial measure determined in accordance withGAAP, it may not be comparable to other similarly titled measures of other companies. 50Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (o) New Accounting StandardsA summary of new accounting standards issued by the FASB and included in the ASC that apply to PRGX is as follows:FASB ASC Update No. 2011-05. In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (“ASU2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of shareholders’ equity. Theamendments in ASU 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of othercomprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity isrequired to present each component of net income along with total net income, each component of other comprehensive income along with a total for othercomprehensive income, and a total amount for comprehensive income. The amendments in ASU 2011-05 do not change the items that must be reported in othercomprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued FASB ASCUpdate No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other ComprehensiveIncome in Accounting Standards Update No. 2011-05,” which defers only those changes in ASU 2011-05 that relate to the presentation of reclassificationadjustments. The Company adopted these changes as of December 31, 2011, except for those changes that were deferred by the issuance of ASU 2011-12, andreflected the changes in the accompanying Consolidated Statements of Operations and Comprehensive Income. The adoption of ASU No. 2011-05 only impactedthe presentation of our financial statements and did not have a material impact on our consolidated results of operations, financial position or cash flows.FASB ASC Update No. 2011-08. In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Testing Goodwill for Impairment (“ASU2011-08”). ASU 2011-08 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwillimpairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on aqualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events andcircumstances for an entity to consider in conducting the qualitative assessment. The Company must adopt these changes no later than its fiscal year beginningJanuary 1, 2012, but may adopt the changes earlier than that period. We adopted ASU No. 2011-08 during our fiscal quarter ended September 30, 2011 on aprospective basis for our goodwill impairment tests. The adoption of ASU 2011-08 affects only how goodwill is tested for impairment and, therefore, did not havea material impact on our consolidated results of operations, financial position or cash flows.(2) RETIREMENT OBLIGATIONSThe July 31, 2005 retirements of the Company’s former Chairman, President and CEO, John M. Cook, and the Company’s former Vice Chairman, John M.Toma, resulted in an obligation to pay retirement benefits of approximately $7.6 million (present value basis) to be paid in monthly cash installments principallyover a three-year period, beginning February 1, 2006. On March 16, 2006, the parties amended the terms of the applicable severance agreements in conjunctionwith the Company’s financial restructuring. Pursuant to the terms of the severance agreements, as amended (1) the Company’s obligations to pay monthly cashinstallments to Mr. Cook and Mr. Toma were extended from 36 months to 58 months and from 24 months to 46 months, respectively; however, the total dollaramount of monthly cash payments to be made to each remained unchanged, and (2) we agreed to pay a fixed sum of $150,000 to defray the fees and expenses ofthe legal counsel and financial advisors to Messrs. Cook and Toma. We completed the final payments under these portions of the agreements in 2010.The severance agreements also provide for an annual reimbursement, beginning in February 2007, to Mr. Cook and Mr. Toma for the cost of healthinsurance for themselves and their respective spouses (not to exceed $25,000 and $20,000, respectively, subject to adjustment based on changes in the ConsumerPrice Index), continuing until each reaches the age of 80. At December 31, 2011, we had accrued $0.7 million related to these health insurance obligations. 51Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) MAJOR CLIENTSWal-Mart Stores Inc. (and its affiliated companies) accounted for approximately 10.2% of total revenues in 2011, 12.1% in 2010 and 12.3% in 2009. Werecorded these revenues primarily in the Recovery Audit Services – Americas Segment.(4) OPERATING SEGMENTS AND RELATED INFORMATIONWe conduct our operations through three reportable operating segments: Recovery Audit Services – Americas, Recovery Audit Services – Europe/Asia-Pacific and New Services. The Recovery Audit Services – Americas segment includes recovery audit services (other than healthcare claims recovery auditservices) we provide in the U.S., Canada and Latin America. The Recovery Audit Services – Europe/Asia-Pacific segment includes recovery audit services (otherthan healthcare claims recovery audit services) we provide in Europe, Asia and the Pacific region. The New Services segment includes analytics and advisoryservices and recovery audit services we provide to organizations in the healthcare industry. We include the unallocated portion of corporate selling, general andadministrative expenses not specifically attributable to the three operating segments in Corporate Support.We evaluate the performance of our operating segments based upon revenues and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA.We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”),and then adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from period to period.Adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition transaction costs and acquisition obligations classifiedas compensation, intangible asset impairment charges, litigation settlements, severance charges and foreign currency gains and losses on short-term intercompanybalances viewed by management as individually or collectively significant. We do not have any inter-segment revenues. Segment information for the years endedDecember 31, 2011, 2010 and 2009 and segment asset information as of December 31, 2011 and 2010 (in thousands) is as follows: RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific NewServices CorporateSupport Total 2011 Revenues $115,807 $61,570 $25,740 $— $203,117 Net earnings $2,816 Income tax expense 1,292 Interest expense, net 1,616 EBIT $26,280 $7,484 $(6,951) $(21,089) 5,724 Depreciation of property and equipment 3,491 417 1,493 — 5,401 Amortization of intangible assets 2,467 1,665 859 — 4,991 EBITDA 32,238 9,566 (4,599) (21,089) 16,116 Foreign currency transaction losses on short-term intercompany balances 144 272 1 — 417 Acquisition transaction costs and acquisition obligations classified ascompensation — — 440 360 800 Transformation severance and related expenses 1,465 566 — — 2,031 Stock-based compensation — — — 5,093 5,093 Adjusted EBITDA $33,847 $10,404 $(4,158) $(15,636) $24,457 Capital expenditures $5,459 $1,041 $1,787 $— $8,287 52Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific NewServices CorporateSupport Total 2011 Allocated assets $62,702 $20,308 $17,316 $— $100,326 Unallocated assets: Cash and cash equivalents — — — 20,337 20,337 Restricted cash — — — 64 64 Deferred loan costs — — — 376 376 Deferred income taxes — — — 854 854 Prepaid expenses and other assets — — — 4,456 4,456 Total assets $62,702 $20,308 $17,316 $26,087 $126,413 RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific NewServices CorporateSupport Total 2010 Revenues $115,156 $57,590 $11,335 $— $184,081 Net earnings $3,253 Income tax expense 1,882 Interest expense, net 1,305 Loss on debt extinguishment 1,381 EBIT $25,062 $6,478 $(6,804) $(16,915) 7,821 Depreciation of property and equipment 3,442 354 1,107 — 4,903 Amortization of intangible assets 2,427 1,403 301 — 4,131 EBITDA 30,931 8,235 (5,396) (16,915) 16,855 Foreign currency transaction (gains) losses on short-term intercompanybalances 33 391 (2) — 422 Acquisition transaction costs and acquisition obligations classified ascompensation — — 371 — 371 Stock-based compensation — — — 3,980 3,980 Adjusted EBITDA $30,964 $8,626 $(5,027) $(12,935) $21,628 Capital expenditures $5,674 $329 $931 $— $6,934 Allocated assets $57,143 $17,698 $9,347 $— $84,188 Unallocated assets: Cash and cash equivalents — — — 18,448 18,448 Restricted cash — — — 64 64 Deferred loan costs — — — 558 558 Deferred income taxes — — — 439 439 Prepaid expenses and other assets — — — 2,624 2,624 Total assets $57,143 $17,698 $9,347 $22,133 $106,321 53Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS RecoveryAuditServices —Americas Recovery AuditServices —Europe/Asia-Pacific NewServices CorporateSupport Total 2009 Revenues $121,561 $52,489 $5,533 $— $179,583 Net earnings $15,327 Income tax expense 3,028 Interest expense, net 3,025 EBIT $35,914 $9,239 $(4,017) $(19,756) 21,380 Depreciation of property and equipment 2,771 303 431 — 3,505 Amortization of intangible assets 2,027 1,200 — — 3,227 EBITDA 40,712 10,742 (3,586) (19,756) 28,112 Foreign currency transaction gains on short-term intercompany balances (360) (1,235) — — (1,595) Litigation settlement — — — 650 650 Gain on bargain purchase, net — (2,388) — — (2,388) Stock-based compensation — — — 3,345 3,345 Adjusted EBITDA $40,352 $7,119 $(3,586) $(15,761) $28,124 Capital expenditures $4,281 $266 $964 $— $5,511 The following table presents revenues by country based on the location of clients served (in thousands): Years Ended December 31, 2011 2010 2009 United States $106,241 $92,574 $97,141 United Kingdom 36,123 31,422 25,169 Canada 20,200 22,141 20,560 France 13,425 12,231 12,055 Brazil 5,718 5,128 4,320 Mexico 4,836 3,950 3,740 Sweden 2,145 1,460 2,158 Spain 1,901 2,065 2,547 Belgium 1,459 2,705 2,186 Australia 1,299 1,690 1,424 Norway 1,174 279 19 New Zealand 1,111 738 802 Other 7,485 7,698 7,462 $203,117 $184,081 $179,583 The following table presents long-lived assets by country based on the location of the asset (in thousands): December 31, 2011 2010 United States $46,083 $34,273 United Kingdom 8,792 10,295 All Other 1,073 1,034 $55,948 $45,602 54Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) EARNINGS PER COMMON SHAREThe following tables set forth the computations of basic and diluted earnings per common share (in thousands, except per share data). Years Ended December 31, 2011 2010 2009 Basic earnings per common share: Numerator: Net earnings $2,816 $3,253 $15,327 Denominator: Weighted-average common shares outstanding $24,634 $23,906 $22,915 Basic earnings per common share $0.11 $0.14 $0.67 Diluted earnings per common share: Numerator: Net earnings $2,816 $3,253 $15,327 Denominator: Weighted-average common shares outstanding $24,634 $23,906 $22,915 Incremental shares from stock-based compensation plans 395 238 645 Denominator for diluted earnings per common share $25,029 $24,144 $23,560 Diluted earnings per common share $0.11 $0.13 $0.65 Weighted average shares outstanding excludes anti-dilutive shares that totaled 1.5 million shares in 2011, 1.7 million shares in 2010 and 1.2 million sharesin 2009. The number of common shares we used in the basic and diluted earnings per common share computations include nonvested restricted shares of1.2 million in 2011, 1.2 million in 2010 and 1.0 million in 2009, and nonvested restricted share units that we consider to be participating securities of 0.2 million in2011, 0.3 million in 2010 and 0.2 million in 2009.(6) GOODWILL AND INTANGIBLE ASSETS(a) GoodwillWe evaluate the recoverability of goodwill in the fourth quarter of each year or sooner if events or changes in circumstances indicate that the carryingamount may exceed its fair value. These analyses did not result in an impairment charge during the periods presented. Goodwill in our Recovery Audit Services —Americas segment was $12.4 million at December 31, 2011 and $4.6 million at December 31, 2010. The $4.6 million of goodwill at December 31, 2010 consistsof gross goodwill of $364.5 million less total accumulated impairment losses of $359.9 million recorded through 2005. In addition, we recorded goodwill of $7.8million in our Recovery Audit Services — Americas segment in conjunction with our December 2011 acquisition of Business Strategy, Inc. (“BSI”) (see Note 14— Business Acquisitions below). We also recorded goodwill of $0.2 million in our Recovery Audit Services — Europe Asia/Pacific segment in 2011 relating toour acquisition of a third-party audit firm to which we had subcontracted a portion of our audit services (an “associate migration”). In conjunction with our 2010acquisition of TJG Holdings, LLC, we recorded goodwill of $0.6 million in our New Services segment (see Note 14 — Business Acquisitions below).(b) Intangible AssetsIntangible assets consist principally of amounts we assigned to customer relationships, trademarks, non-compete agreements and trade names in conjunctionwith business acquisitions. Changes in intangible assets in 2011 relate primarily to our December 2011 BSI acquisition and an associate migration. Changes inintangible 55Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS assets in 2010 relate primarily to the acquisitions of Etesius Limited (“Etesius”) and TJG Holdings LLC (“TJG”). The acquisitions in both 2011 and 2010 aredescribed in more detail in Note 14 – Business Acquisitions below. Intangible assets associated with the Etesius acquisition and the associate migration aredenominated in British pounds sterling and are subject to movements in foreign currency rates (“FX adjustments”). We present the amounts below in United Statesdollars utilizing foreign currency exchange rates as of December 31, 2011.As of January 21, 2010, the Company changed its trade name from PRG-Schultz International, Inc. to PRGX Global, Inc. and is using the previous tradename only in limited circumstances. We intend to maintain the legal rights to the former name but, for accounting purposes, have reclassified the intangible assetassociated with this trade name from an indefinite lived intangible asset to one with a definite life and began amortizing the trade name in January 2010.Amortization expense relating to intangible assets was $4.6 million in 2011, $4.0 million in 2010 and $2.6 million in 2009. Based on our currentamortization methods, we project amortization expense for the next five years will be $5.3 million in 2012, $4.8 million in 2013, $3.5 million in 2014, $2.6 millionin 2015 and $1.7 million in 2016.Changes in noncurrent intangible assets during 2011 and 2010 were as follows (in thousands): CustomerRelationships Trademarks Non-competeAgreements TradeNames Total Gross carrying amount: Balance, January 1, 2010 $34,181 $523 $773 $2,200 $37,677 Acquisition of Etesius 1,565 — — — 1,565 Acquisition of TJG 829 — 808 665 2,302 FX adjustments and other (70) (18) (28) — (116) Balance, December 31, 2010 36,505 505 1,553 2,865 41,428 Associate migration — — 98 — 98 Acquisition of BSI 2,836 555 650 — 4,041 FX adjustments and other (35) (2) (8) — (45) Balance, December 31, 2011 $39,306 $1,058 $2,293 $2,865 $45,522 Accumulated amortization: Balance, January 1, 2010 $(13,454) $(40) $(79) $— $(13,573) Amortization expense (3,158) (83) (197) (567) (4,005) FX adjustments and other 3 — 2 — 5 Balance, December 31, 2010 (16,609) (123) (274) (567) (17,573) Amortization expense (3,236) (104) (519) (747) (4,606) FX adjustments and other 52 3 8 — 63 Balance, December 31, 2011 $(19,793) $(224) $(785) $(1,314) $(22,116) Net carrying amount: Balance, December 31, 2010 $19,896 $382 $1,279 $2,298 $23,855 Balance, December 31, 2011 $19,513 $834 $1,508 $1,551 $23,406 Estimated useful life (years) 6–20 years 6 years 1–5 years 4–5 years (7) DEBT AND CAPITAL LEASESLong-term debt and capital lease obligations consisted of the following (in thousands): December 31, 2011 2010 SunTrust term loan due quarterly through January 2014 $9,000 $12,000 Less current portion 3,000 3,000 Noncurrent portion $6,000 $9,000 56Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityconsists of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Company and all ofits material domestic subsidiaries and secured by substantially all of the assets of the Company. Availability under the SunTrust revolver is based on eligibleaccounts receivable and other factors. As of December 31, 2011, we had no outstanding borrowings under the SunTrust revolver.The SunTrust term loan requires quarterly principal payments of $0.8 million each which commenced in March 2010, and a final principal payment of $3.0million in January 2014. The loan agreement requires mandatory prepayments with the net cash proceeds from certain asset sales, equity offerings and insuranceproceeds received by the Company. The loan agreement also requires an annual additional prepayment contingently payable based on excess cash flow (“ECF”) ifour leverage ratio as defined in the agreement exceeds a certain threshold. Our leverage ratio was below the threshold in 2011 and 2010, and ECF payments werenot required on the loan for either year.Interest on both the revolver and term loan are payable monthly and accrued at an index rate using the one-month LIBOR rate, plus an applicable margin asdetermined by the loan agreement. The applicable interest rate margin varies from 2.25% per annum to 3.5% per annum, dependent on our consolidated leverageratio, and is determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was 2.5% and the interest rate wasapproximately 2.77% at December 31, 2011. We also must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the $15.0million SunTrust revolving credit facility. The weighted-average interest rate on term loan balances outstanding under the SunTrust credit facility during 2011,including fees, was 3.5%.The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financialstatements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among otherthings, to incur debt, incur liens, make investments, sell assets, repurchase shares of its capital stock or declare or pay dividends on its capital stock. The financialcovenants included in the SunTrust credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximumleverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidatedearnings before interest, taxes, depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default.We used substantially all the funds from the SunTrust term loan to repay in full the principal of $14.1 million outstanding under a previous term loan. Inconjunction with terminating the previous credit facility, we recorded a loss on extinguishment of debt totaling $1.4 million consisting of the write-off of theunamortized deferred loan costs.In September 2010 we entered into an amendment of the SunTrust credit facility that lowered the required minimum adjusted EBITDA and fixed chargecoverage ratio through December 31, 2010. In October 2010 we entered into an interest rate swap agreement with SunTrust that limits our exposure to increases inthe one-month LIBOR rate. In October 2011 we entered into an amendment of the SunTrust credit facility that increased our capital expenditure limits for 2011and 2012. 57Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future Minimum PaymentsFuture minimum principal payments of long-term debt as of December 31, 2011 are as follows (in thousands): Year Ending December 31, 2012 $3,000 2013 3,000 2014 3,000 2015 — 2016 — Thereafter — $9,000 (8) LEASE COMMITMENTSPRGX is committed under noncancelable lease arrangements for facilities and equipment. Rent expense, excluding costs associated with the termination ofnoncancelable lease arrangements, was $6.7 million in 2011, $6.2 million in 2010 and $6.2 million in 2009.We have subleased approximately 58,000 square feet of our principal executive office space to independent third parties. The sublease rental income weearn is less than the lease payments we make. At December 31, 2011, our liabilities relating to these lease obligations were $2.8 million, of which we haveincluded $1.1 million in “Accounts payable and accrued expenses” and $1.7 million in “Other long-term liabilities” in our Consolidated Balance Sheet. We adjustthe fair value of the remaining lease payments, net of sublease income, based on payments we make and sublease income we receive. We include accretion of thisliability related to discounting in rent expense.We have entered into several operating lease agreements that contain provisions for future rent increases, free rent periods or periods in which rent paymentsare reduced (abated). We charge the total amount of rental payments due over the lease term to rent expense on the straight-line, undiscounted method over thelease terms.Future minimum lease payments under noncancelable operating leases (both gross and net of any sublease income) are as follows (in thousands): Year Ending December 31, Gross SubleaseIncome Net 2012 $7,843 $(875) $6,968 2013 7,459 (814) 6,645 2014 6,509 (753) 5,756 2015 849 — 849 2016 117 — 117 Thereafter 14 — 14 Total payments $22,791 $(2,442) $20,349 58Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) INCOME TAXESEarnings (loss) before income taxes relate to the following jurisdictions (in thousands): Years Ended December 31, 2011 2010 2009 United States $(3,182) $(3,189) $4,369 Foreign 7,290 8,324 13,986 $4,108 $5,135 $18,355 The provision for income taxes consists of the following (in thousands): Years Ended December 31, 2011 2010 2009 Current: Federal $— $— $40 State 79 30 85 Foreign 3,364 3,206 3,419 3,443 3,236 3,544 Deferred: Federal (1,603) (514) — State (133) — — Foreign (415) (840) (516) (2,151) (1,354) (516) Total $1,292 $1,882 $3,028 The significant differences between the U.S. federal statutory tax rate of 34% (35% in 2009) and the Company’s effective income tax expense for earnings(in thousands) are as follows: Years Ended December 31, 2011 2010 2009 Statutory federal income tax rate $1,397 $1,746 $6,424 State income taxes, net of federal effect (130) 577 90 Change in deferred tax asset valuation allowance (1,910) (3,254) (6,093) First Audit Partners acquisition – basis difference — — 668 Foreign taxes 1,481 2,407 586 Compensation deduction limitation 360 448 1,104 Other, net 94 (42) 249 $1,292 $1,882 $3,028 59Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities consist of the following (in thousands): December 31, 2011 2010 Deferred income tax assets: Accounts payable and accrued expenses $1,875 $2,100 Accrued payroll and related expenses 3,046 1,748 Stock-based compensation expense 8,716 8,314 Depreciation of property and equipment 4,177 4,074 Non-compete agreements 50 84 Unbilled receivables and refund liabilities (1,675) 1,064 Foreign operating loss carry-forwards of foreign subsidiary 1,422 1,875 Federal operating loss carry-forwards 26,332 20,877 Intangible assets 11,935 17,686 State operating loss carry-forwards 2,625 2,321 Other 3,582 4,032 Gross deferred tax assets 62,085 64,175 Less valuation allowance 52,047 54,801 Gross deferred tax assets net of valuation allowance 10,038 9,374 Deferred income tax liabilities: Intangible assets 7,531 7,177 Capitalized software 974 1,106 Other 679 652 Gross deferred tax liabilities 9,184 8,935 Net deferred tax assets $854 $439 We reduce our deferred tax assets by a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differencesare deductible. In making this determination, we consider all available positive and negative evidence affecting specific deferred tax assets, including our past andanticipated future performance, the reversal of deferred tax liabilities, the length of carry-back and carry-forward periods and the implementation of tax planningstrategies.Objective positive evidence is necessary to support a conclusion that a valuation allowance is not needed for all or a portion of deferred tax assets whensignificant negative evidence exists. Cumulative tax losses in recent years are the most compelling form of negative evidence considered by management in thisdetermination. As of December 31, 2011, management determined that based on all available evidence, a valuation allowance of $52.0 million is appropriate,representing a decrease of $2.8 million from the valuation allowance of $54.8 million recorded as of December 31, 2010. A portion of this decrease relates to ourDecember 2011 acquisition of BSI (see Note 14 – Business Acquisitions below). We recorded a $1.7 million reduction in the deferred tax asset valuation allowancethat resulted from the deferred tax liabilities that we recorded relating to the acquisition. This reduction was accounted for as an income tax benefit in 2011.As of December 31, 2011, we had approximately $75.2 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income.The federal loss carry-forwards expire through 2031. As of December 31, 2011, we had approximately $90.5 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2016 and 2031 and are subject to certain limitations.Generally, we have not provided deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanentlyreinvested. However, in 2011, we determined that the earnings of our Canadian subsidiary should no longer be considered to be permanently reinvested. Thischange resulted in earnings of $4.8 million that we anticipated we would repatriate, and we provided additional deferred taxes of $0.2 million in 2011 relating tothis potential repatriation, representing the estimated withholding tax liability to be due when such amounts are repatriated. We did not provide additionalincremental U.S. income tax expense on these amounts as the Canadian subsidiary is classified as a branch for U.S. income tax purposes. 60Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS On March 17, 2006, the Company experienced an ownership change as defined under Section 382 of the Internal Revenue Code (“IRC”). This ownershipchange resulted in an annual IRC Section 382 limitation that limits the use of certain tax attribute carry-forwards. Of the $75.2 million of U.S. federal loss carry-forwards available to the Company, $19.2 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million.We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interimperiods, disclosure, and transition. Our policy for recording potential interest and penalties associated with uncertain tax positions is to record such items as acomponent of earnings before income taxes.We recorded unrecognized tax benefits of $2.6 million as of December 31, 2011, an increase of $0.5 million over the $2.1 million recorded at December 31,2010. We recorded accrued interest and penalties of $2.2 million as of December 31, 2011, an increase of $0.4 million over the $1.8 million recorded atDecember 31, 2010. We recognized interest expense of $0.4 million in 2011 and $0.3 million in 2010 related to the liability for unrecognized tax benefits. Due tothe complexity of the tax rules underlying these unrecognized tax benefits, and the unclear timing of tax audits, tax agency determinations, and other events, wecannot establish reasonably reliable estimates for the periods in which the cash settlement of these liabilities will occur.We file U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. As of December 31, 2011, the 2008 through 2011 taxyears generally remain subject to examination by federal and most state and foreign tax authorities. The use of net operating losses generated in tax years prior to2008 may also subject returns for those years to examination.(10) EMPLOYEE BENEFIT PLANSWe maintain a defined contribution retirement plan in accordance with Section 401(k) of the Internal Revenue Code, which allows eligible participatingemployees to defer receipt of up to 50% of their annual compensation and contribute such amount to one or more investment funds. We match employeecontributions in a discretionary amount to be determined by management each plan year up to the lesser of 6% of an employee’s annual compensation or $3,000per participant. We also may make additional discretionary contributions to the Plan as determined by management each plan year. Company matching funds anddiscretionary contributions vest at the rate of 20% each year beginning after the participants’ first year of service. We did not make a contribution in 2011. Wecontributed approximately $1.0 million in 2010 and $1.0 million in 2009.(11) SHAREHOLDER RIGHTS PLANOn August 1, 2000, the Board authorized a shareholder protection rights plan designed to protect Company shareholders from coercive or unfair takeovertechniques through the use of a Shareholder Protection Rights Agreement approved by the Board (the “Rights Plan”). The terms of the Rights Plan, as amended,provide for a dividend of one right (collectively, the “Rights”) to purchase a fraction of a share of participating preferred stock for each share owned. This dividendwas declared for each share of common stock outstanding at the close of business on August 14, 2000. The Rights, which expire on August 10, 2012, may beexercised only if certain conditions are met, such as the acquisition (or the announcement of a tender offer, the consummation of which would result in theacquisition) of 15% or more of our common stock by a person or affiliated group in a transaction that is not approved by the Board. Issuance of the Rights does notaffect our finances, interfere with our operations or business plans, or affect our earnings per share. The dividend was not taxable to the Company or itsshareholders and did not change the way in which the Company’s shares may be traded.Effective July 31, 2000, in connection with the Rights Plan, the Board amended the Company’s Articles of Incorporation to establish a new series of stock,which is designated as participating preferred stock. The Company’s remaining, undesignated preferred stock may be issued at any time or from time to time inone or 61Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS more series with such designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights) asmay be determined by the Board, without any further votes or action by the shareholders.(12) COMMITMENTS AND CONTINGENCIESLegal ProceedingsOn April 1, 2003, Fleming Companies (“Fleming”), one of the Company’s larger U.S. recovery audit services clients at the time, filed for Chapter 11bankruptcy reorganization. During the quarter ended March 31, 2003, the Company received approximately $5.6 million in payments on account from Fleming.On January 24, 2005, the Company received a demand from the Fleming Post Confirmation Trust (“PCT”), a trust which was created pursuant to Fleming’sChapter 11 reorganization plan to represent the client, for preference payments received by the Company. The demand stated that the PCT’s calculation of thepreference payments was approximately $2.9 million. The Company disputed the claim. Later in 2005, the PCT filed suit against the Company seeking to recoverapproximately $5.6 million in payments that were made to the Company by Fleming during the 90 days preceding Fleming’s bankruptcy filing, and that werealleged to be avoidable either as preferences or fraudulent transfers under the Bankruptcy Code.On July 29, 2009, the Company entered into a settlement agreement in connection with the PCT lawsuit. Under the terms of the settlement agreement, theCompany paid the PCT $1.7 million to resolve all claims made by the PCT in the litigation. In connection with the settlement, the Company also agreed to dismissall proofs of claim it may have against Fleming in connection with the bankruptcy. Selling, general and administrative expenses for the year ended December 31,2009 includes a charge of $0.7 million related to the settlement with the PCT for amounts not previously accrued.On December 16, 2011, an employee of our wholly owned subsidiary PRGX USA, Inc., filed a lawsuit in the U.S. District Court for the District ofMinnesota (Civil Action No. 0:11-CV-03631-PJS-FLN). The Plaintiff alleges that PRGX USA, Inc. failed to pay overtime wages to the Plaintiff and othersimilarly situated individuals as required by the Fair Labor Standards Act (FLSA). The Plaintiff is seeking designation of this action as a collective action. Inaddition, the Plaintiff is seeking an unspecified amount of monetary damages and costs, including attorneys’ fees. We filed an Answer denying all of the assertedclaims on January 31, 2012 and have been engaged in pre-discovery discussions with the Plaintiff’s counsel. We intend to vigorously defend against these claims.The case is in the very preliminary stages and we currently are unable to determine the likelihood or amount of any potential loss that may arise from this matter.In addition, we are party to a variety of other legal proceedings arising in the normal course of business. While the results of these proceedings cannot bepredicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position orresults of operations.(13) STOCK-BASED COMPENSATIONThe Company currently has three stock-based compensation plans under which awards have been granted: (1) the Stock Incentive Plan (“SIP”), (2) the 2006Management Incentive Plan (“2006 MIP”), and (3) the 2008 Equity Incentive Plan (“2008 EIP”). The Company generally issues authorized but previouslyunissued shares to satisfy stock option exercises, grants of restricted stock awards and vesting of restricted stock units.The SIP, as amended, authorized the grant of options or other stock-based awards, with respect to up to 1,237,500 shares of the Company’s common stock tokey employees, directors, consultants and advisors. The majority of options granted pursuant to the SIP had five to seven year terms and vested and became fullyexercisable on a ratable basis over one to five years of continued employment or service. The SIP expired in June 2008.During the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annualmeeting of the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restrictedstock, 62Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS restricted stock units and other incentive awards. Two million shares of the Company’s common stock initially were reserved for issuance under the 2008 EIPpursuant to award grants to key employees, directors and service providers. The options granted pursuant to the 2008 EIP have seven year terms.An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2010 and approved at the Company’s annual meeting ofshareholders held on June 15, 2010. This amendment, among other things, increases the number of shares reserved for issuance under the 2008 EIP by 3,400,000shares to a total of 5,400,000 shares and provides that restricted stock awards and other full value awards will count as 1.41 shares against the available pool ofshares under the plan. As of December 31, 2011, there were 999,918 shares available for future grants under the 2008 EIP.Stock options granted under the 2008 EIP generally have a term of seven years and vest in equal annual increments over the vesting period, which typicallyis three years for employees and one year for directors. The following table summarizes stock option grants during the years ended December 31, 2011, 2010 and2009: Grantee Type # ofOptionsGranted VestingPeriod WeightedAverageExercise Price Grant DateFair Value 2011 Director group 65,801 1 year or less $7.23 $267,360 Director group 16,237 3 years 6.32 64,666 Employee group 140,000 2 years 6.09 521,108 Employee group 475,064 3 years 7.38 2,056,677 Employee inducement 200,000 3-4 years (1) 5.37 625,940 2010 Director group 51,276 1 year $4.20 $129,604 Director 8,546 3 years 5.39 34,146 Employee group 649,010 3 years 4.14 1,739,687 2009 Employee Inducement 296,296 4 years $3.57 $763,529 Director group 42,730 1 year 2.82 88,011 Employee group 505,755 3 years 2.92 1,088,334 (1)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the fourth quarter of 2011 to three employees inconnection with their joining the company. Vesting for 100,000 of the three grants is subject to specific performance conditions that require the employee toachieve certain performance targets. These targets include specified cumulative revenue targets over a four-year period or minimum levels of claims-relatedcriteria over a three-year period. The remaining 100,000 awards vest ratably over a four-year period. 63Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nonvested stock awards, including both restricted stock and restricted stock units, generally are nontransferable until vesting and the holders are entitled toreceive dividends with respect to the nonvested shares. Prior to vesting, the grantees of restricted stock are entitled to vote the shares, but the grantees of restrictedstock units are not entitled to vote the shares. Generally, nonvested stock awards vest in equal annual increments over the vesting period, which typically is threeyears for employees and one year for directors. The following table summarizes nonvested stock awards (restricted stock and restricted stock units) grants duringthe years ended December 31, 2011, 2010 and 2009: Grantee Type # of SharesGranted Vesting Period Grant DateFair Value 2011 Director group 65,801 1 year or less $475,493 Director group 17,237 3 years 109,229 Employee group 60,000 2 years 365,400 Employee group 455,064 3 years 3,372,024 Employee inducement 120,000 3-4 years (1) 679,400 2010 Director 51,276 1 year $215,274 Director group 8,546 3 years 46,063 Employee group 600,010 3 years 2,410,965 2009 Employee Inducement 344,445 4 years $1,229,669 Director group 42,730 1 year 120,499 Employee 20,000 3 years 57,400 Employee group 522,832 3 years 1,546,636 Employee group 25,000 3 years 168,500 (1)The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the fourth quarter of 2011 to twoemployees in connection with their joining the company. Vesting for each of the two grants is subject to specific performance conditions that require theemployee to achieve certain performance targets. These targets include specified cumulative revenue targets over a four-year period for one grant andminimum levels of claims-related criteria over a three-year period for the other grant.A summary of option activity as of December 31, 2011, and changes during the year then ended is presented below: Options Shares Weighted-AverageExercisePrice(Per Share) Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue($ 000’s) Outstanding at January 1, 2011 2,268,779 $6.54 Granted 897,102 6.70 Exercised (116,073) 3.04 $390 Forfeited (171,837) 8.33 Expired (17,081) 9.51 Outstanding at December 31, 2011 2,860,890 $6.61 4.83 years $3,031 Exercisable at December 31, 2011 1,305,481 $8.01 3.65years $1,447 The weighted-average grant date fair value of options granted was $3.94 per share in 2011, $2.69 per share in 2010 and $2.31 per share in 2009. The totalintrinsic value of options exercised was $0.4 million in 2011, $0.1 million in 2010 and less than $0.1 million in 2009. 64Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of nonvested stock awards (restricted stock and restricted stock units) activity as of December 31, 2011, and changes during the year then endedis presented below: Nonvested Stock Shares WeightedAverage GrantDate Fair Value(Per Share) Nonvested at January 1, 2011 1,489,031 $4.61 Granted 718,102 6.96 Vested (521,693) 3.95 Forfeited (266,946) 8.18 Nonvested at December 31, 2011 1,418,494 $5.37 The weighted-average grant date fair value of nonvested stock awards (restricted stock and restricted stock units) granted was $6.96 per share in 2011, $4.05per share in 2010 and $3.27 per share in 2009. The total vest date fair value of stock awards vested during the year was $3.6 million in 2011, $1.5 million in 2010,and $0.5 million in 2009.2006 MIP Performance UnitsAt the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of the Company’s common stock under the 2006 MIP. On September 29, 2006, an aggregate of 682,301 Performance Units were awarded underthe 2006 MIP to seven executive officers of the Company. The awards had an aggregate grant date fair value of $4.0 million. At Performance Unit settlement dates(which varied), participants were issued that number of shares of Company common stock equal to 60% of the number of Performance Units being settled, andwere paid in cash an amount equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units beingsettled. The awards were 50% vested at the award date and the remainder of the awards vested ratably over approximately the following eighteen months with theawards fully vesting on March 17, 2008. The awards contain certain anti-dilution and change of control provisions. As a result, the number of Performance Unitsawarded were automatically adjusted on a pro-rata basis upon the conversion into common stock of any of the Company’s senior convertible notes or Series Aconvertible preferred stock. During 2006, the Company granted an additional 122,073 Performance Units with aggregate grant date fair values of $1.6 million as aresult of this automatic adjustment provision.On March 28, 2007, the Company granted 20,000 Performance Units to an additional executive officer under the 2006 MIP. The award had a grant date fairvalue of $0.3 million and was scheduled to vest ratably over four years. During 2007, the Company granted an additional 1,436,484 Performance Units to the eightexecutive officers with aggregate grant date fair values of $24.0 million as a result of the automatic adjustment provision related to the conversions of convertiblesecurities into common stock.All Performance Units must be settled before April 30, 2016. We recognized compensation expense (credit) of $0.1 million in 2011, $0.1 million in 2010,and $(0.2 million) in 2009 related to these 2006 MIP Performance Unit awards. The 2009 compensation credit resulted from the remeasurement of the liability-classified portion of the awards to fair value based on the market price of our common stock. We determined the amount of compensation expense recognized onthe assumption that none of the Performance Unit awards would be forfeited.During 2011, one current executive officer settled the remaining 44,831 Performance Units outstanding, resulting in the issuance of 26,898 shares ofcommon stock and a cash payment of $0.1 million. There were no Performance Units outstanding as of December 31, 2011.During 2010, three current and former executive officers settled an aggregate of 224,158 Performance Units under the 2006 MIP. These settlements resultedin the issuance of 134,490 shares of common stock and cash payments totaling $0.6 million. 65Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS During 2009, eight current and former executive officers settled an aggregate of 1,474,129 Performance Units under the 2006 MIP. These settlementsresulted in the issuance of 884,473 shares of common stock and cash payments totaling $1.9 million.Stock-based compensation charges aggregated $5.1 million in 2011, $4.0 million in 2010 and $3.3 million in 2009. We include these charges in “Selling,general and administrative expenses” in the accompanying Consolidated Statements of Operations and Comprehensive Income. As of December 31, 2011, therewas $9.2 million of unrecognized stock-based compensation expense related to stock options and nonvested stock which we expect to be recognized over aweighted average period of 1.79 years.(14) BUSINESS ACQUISITIONSWe completed several acquisitions since 2009 that we describe below. Generally, we acquire businesses that we believe will provide a strategic fit for ourexisting operations, cost savings and revenue synergies, or enable us to expand our capabilities in our New Services segment.We allocate the total purchase price in a business acquisition to the fair value of identified assets acquired and liabilities assumed based on the fair values atthe acquisition date, and record amounts exceeding the fair values as goodwill. If the fair value of the assets acquired exceeds the purchase price, we record thisexcess as a gain on bargain purchase. We determine the estimated fair values of intangible assets acquired using our estimates of future discounted cash flows to begenerated by the acquired business over the estimated duration of those cash flows. We base the estimated cash flows on our projections of future revenues, cost ofrevenues, capital expenditures, working capital needs and tax rates. We estimate the duration of the cash flows based on the projected useful life of the assets andbusiness acquired. We determine the discount rate based on specific business risk, cost of capital and other factors.First Audit Partners LLPOn July 16, 2009, the Company’s UK subsidiary acquired the business and certain assets of First Audit Partners LLP (“FAP”), a privately-held Europeanprovider of recovery audit services based in Cambridge, United Kingdom. We have integrated the business and assets of FAP into our Recovery Audit Services –Europe/Asia-Pacific operating segment and have included the results of operations of FAP in the results of operations of this segment since the acquisition date.This acquisition enabled us to expand the growing list of major European retailers to whom we provide our services.The financial terms of the FAP Asset Purchase Agreement (“APA”) are denominated in British pounds sterling; parenthetical references to U.S. dollarequivalents below are based on the foreign exchange rates as of the acquisition date. The APA required an initial payment to the FAP owners of £1.0 million ($1.6million) and required additional deferred payments of £0.5 million ($0.8 million) in January 2010 and £0.8 million ($1.3 million) in July 2010. Additional variableconsideration (“earn-out”) also may be due based on the operating results generated by the acquired business over the next four years. We recorded an additional£1.2 million ($1.9 million) payable based on management’s estimate of the fair value of the earn-out liability. We based this calculation on our estimate of theamount and timing of the variable consideration to be earned over the four-year period using a discount rate that we determined based on specific business risk,cost of capital and other factors. We recorded a total estimated purchase price of approximately $5.8 million. The excess of fair values of assets acquired over thepurchase price resulted in a gain on bargain purchase of $2.8 million that we recorded net of $0.4 million of transaction costs. From the acquisition date toDecember 31, 2011, we paid £0.7 million ($1.2 million) of the earn-out and recorded accretion and other adjustments of the liability of $1.0 million, resulting in anearn-out payable of $1.7 million as of December 31, 2011.Etesius LimitedIn February 2010, the Company’s UK subsidiary acquired all the issued and outstanding capital stock of Etesius Limited (“Etesius”), a privately-heldEuropean provider of purchasing and payables technologies and spend analytics based in Chelmsford, United Kingdom. We have included the results of operationsof Etesius in our New Services segment results of operations since the acquisition date. We intend for Etesius to expand our capabilities in our analytics andadvisory services business. 66Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS The financial terms of the Etesius share purchase agreement (“SPA”) required an initial payment to the Etesius shareholders of $2.8 million and a $0.3million payment for obligations on behalf of Etesius shareholders which resulted in a total estimated purchase price value of approximately $3.1 million.The SPA requires deferred payments of $1.2 million over four years from the date of the SPA to certain selling shareholders who are now our employees.The SPA also provides for potential additional variable payments (“earn-out”) to these selling shareholders/employees over the same four-year period based on thefinancial performance of certain of the Company’s services lines, up to a maximum of $3.8 million. Because we will not be obligated to make the deferred andearn-out payments upon the termination of employment of these employees under certain circumstances, we will recognize these payments as compensationexpense if earned. From the acquisition date to December 31, 2011, we paid $0.1 million of the deferred payments. An additional $1.1 million will be due throughFebruary 2014 unless there is a termination of employment of these employees under certain circumstances. We currently estimate that we will not pay anyvariable consideration relating to these provisions.TJG Holdings LLCIn November 2010, we acquired the business and certain assets of TJG Holdings LLC (“TJG”), a privately-held provider of finance and procurementoperations improvement services based in Chicago, Illinois. We have included the results of operations of TJG in our New Services segment results of operationssince the acquisition date. We intend for the TJG acquisition to allow us to expand our analytics and advisory services business. We recorded goodwill inconnection with this acquisition, representing the value of the assembled workforce, including a management team with deep industry knowledge. This goodwill isdeductible for tax purposes.The financial terms of the TJG Asset Purchase Agreement required an initial payment to the TJG owners of $2.3 million. Additional variable consideration(“earn-out”) may also be due based on the operating results generated by the acquired business over the next two years. We recorded an additional $1.4 millionpayable based on management’s estimate of the fair value of the earn-out liability. We calculated the earn-out liability based on estimated future discounted cashflows to be generated by the acquired business over a two year period. We determined the discount rate based on specific business risk, cost of capital and otherfactors. The total estimated purchase price was valued at approximately $3.7 million. From the acquisition date to December 31, 2011, we paid $0.7 million of theearn-out and recorded accretion and other adjustments of the liability of $0.4 million, resulting in an earn-out payable of $1.1 million as of December 31, 2011.Business Strategy, Inc.In December 2011, we acquired Business Strategy, Inc. and substantially all of the assets of Strategic Document Solutions, LLC (collectively, “BSI”), bothbased in Grand Rapids, Michigan, for a purchase price valued at $12.2 million. BSI is a provider of recovery audit and related procure-to-pay process improvementservices for commercial clients, and a provider of customized software solutions and outsourcing solutions to improve back office payment processes. We haveincluded the results of operations of BSI in our Recovery Audit Services – Americas segment and the results of operations of SDS in our New Services segmentresults of operations since the acquisition date. These amounts aggregated $0.8 million of revenues and $0.1 million of net earnings. We intend for the BSI andSDS acquisitions to allow us to expand our commercial recovery audit capabilities and to expand the services we offer to our clients.The purchase price included an initial cash payment of $2.8 million and 640,614 shares of our common stock having a value of $3.7 million. An additionalpayment of approximately $0.8 million is due in the first quarter of 2012 for working capital received in excess of a specified minimum level. Additional variableconsideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, may be due based on the performance of the acquiredbusinesses over a two year period from the date of acquisition. We may also be required to pay additional consideration of up to $8.0 million, payable in cash overa period of two years, based on certain net cash fee receipts from a particular recovery audit claim at a specific client. We recorded an additional $4.9 millionpayable based on management’s estimate of the fair value of the variable consideration payable. Our assessment of these fair 67Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS values is preliminary, and may be adjusted for information that currently is not available to us. Any changes to the initial estimates of the fair value of the assetsand liabilities will be recorded to those assets and liabilities and residual amounts will be allocated to goodwill.The initial estimate of the fair values of the assets acquired and purchase price is summarized as follows (in thousands): Fair values of net assets acquired: Equipment $70 Intangible assets, primarily customer relationships 4,041 Working capital, including work in progress 1,967 Deferred tax liabilities (1,736) Goodwill 7,826 Fair value of net assets acquired $12,168 Fair value of purchase price $12,168 The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and BSI as if theacquisition had occurred as of January 1, 2010. The unaudited pro forma financial information is not indicative of, nor does it purport to project, the futurefinancial position or operating results of the Company. Pro forma adjustments included in these amounts consist primarily of amortization expense associated withthe intangible assets recorded in the allocation of the purchase price. The unaudited pro forma financial information excludes acquisition and integration costs anddoes not give effect to any estimated and potential cost savings or other operating efficiencies that could result from the acquisition. Year Ended December 31, 2011 2010 Revenues $210,073 $193,609 Net earnings $2,508 $3,299 68Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (15) QUARTERLY RESULTS (UNAUDITED)The following tables set forth certain unaudited condensed quarterly financial data for each of the last eight quarters during our fiscal years endedDecember 31, 2011 and 2010. We have derived the information from unaudited Condensed Consolidated Financial Statements that, in the opinion of management,reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results forany quarter are not necessarily indicative of the results to be expected for any future period. 2011 Quarter Ended 2010 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 (In thousands, except per share data) Revenues $50,718 $50,704 $51,751 $49,944 $41,329 $45,507 $46,900 $50,345 Operating expenses: Cost of revenues (1) 34,594 34,523 34,125 34,240 29,770 30,873 31,695 33,731 Selling, general and administrative expenses (1) 12,430 12,297 12,417 11,958 9,999 10,344 10,136 10,256 Depreciation of property and equipment 1,181 1,214 1,464 1,542 1,154 1,227 1,290 1,232 Amortization of intangible assets 1,121 1,129 1,277 1,464 1,019 1,038 1,000 1,074 Total operating expenses 49,326 49,163 49,283 49,204 41,942 43,482 44,121 46,293 Operating income (loss) 1,392 1,541 2,468 740 (613) 2,025 2,779 4,052 Foreign currency transaction (gains) losses on short-term intercompanybalances (448) (431) 1,055 241 621 1,091 (1,274) (16) Interest expense, net 347 478 398 393 384 271 315 335 Loss on debt extinguishment — — — — 1,381 — — — Earnings (loss) before income taxes 1,493 1,494 1,015 106 (2,999) 663 3,738 3,733 Income tax expense (benefit) 1,121 784 593 (1,206) 436 628 1,177 (359) Net earnings (loss) $372 $710 $422 $1,312 $(3,435) $35 $2,561 $4,092 Basic earnings (loss) per common share (2) $0.02 $0.03 $0.02 $0.04 $(0.15) $0.00 $0.11 $0.17 Diluted earnings (loss) per common share (2) $0.02 $0.03 $0.02 $0.04 $(0.15) $0.00 $0.11 $0.17 (1)We have reclassified certain previously reported amounts for all quarters prior to the fourth quarter of 2011 to conform with classifications adopted in thefourth quarter of 2011.(2)We calculate each quarter as a discrete period; the sum of the four quarters may not equal the calculated full-year amount.In the fourth quarter of 2011, management determined that a valuation allowance is no longer required against the deferred tax assets for one of its foreignsubsidiaries given its return to profitability and future projected profitability. This adjustment resulted in a $0.5 million income tax benefit in the fourth quarter of2011. Also in the fourth quarter of 2011, management recorded the initial purchase accounting entries for the December 2011 acquisition of Business Strategy, Inc.As a part of this process, we recorded a $1.7 million reduction in the deferred tax asset valuation allowance that resulted from the deferred tax liabilities that werecorded relating to the acquisition. This reduction was accounted for as an income tax benefit in the fourth quarter of 2011.As a part of an ongoing Canadian tax audit, we continue to defend our tax position related to the valuation of an intercompany transaction. We recognized$0.6 million of additional tax expense in the fourth quarter of 2011 to reflect our estimate of the potential tax due based on our continuing discussions with theCanadian tax authorities.In the fourth quarter of 2010, management determined that it was not probable that the Company would make a matching contribution to the definedcontribution retirement plan in 2011 for contributions made by employees in 2010. As a result, we reversed the amount recorded as of September 30, 2010 of $0.9million in the fourth quarter of 2010. 69Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Also in the fourth quarter of 2010, management finalized the purchase accounting entries relating to the February 2010 acquisition of Etesius Limited. Inthis process, we recorded a $1.2 million reduction in the deferred tax asset valuation allowance that resulted from the deferred tax liabilities that we recordedrelating to the acquisition. We recorded this amount as a reduction in our income tax expense in the fourth quarter of 2010. As we completed the acquisition in thefirst quarter of 2010, we should have recorded this reduction in income tax expense in the first quarter of 2010. Had we recorded the adjustment in the first quarterof 2010, our net loss would have been $2.2 million as compared to the reported net loss of $3.4 million. We do not believe that the delay in recording this non-cashitem is material to the users of our financial statements as it had no impact on our revenues, operating income, Adjusted EBITDA or cash flows, which we believeare the key metrics used by analysts, lenders and other users of our financial statements in evaluating the Company’s performance. Therefore, we do not consider itnecessary to restate the 2010 quarterly financial statements. 70Table of ContentsITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone ITEM 9A.Controls and ProceduresEvaluation of Disclosure Controls and ProceduresThe Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange ActRule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective as of December 31, 2011.Management’s Annual Report on Internal Control Over Financial ReportingThe Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in theExchange Act Rule 13a-15(f). Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of financialstatements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, haveinherent limitations and can provide only reasonable assurance that the objectives of the internal control system are met. Under the supervision and with theparticipation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officerand Treasurer, the Company conducted an assessment of the effectiveness of internal control over financial reporting based on the framework in Internal Control –Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that,as of December 31, 2011, the Company’s internal control over financial reporting is effective. The Company’s internal control over financial reporting as ofDecember 31, 2011 has been audited by BDO USA, LLP, an independent registered public accounting firm, as stated in their report which is included herein,which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011.This evaluation excluded our operations acquired through the acquisition of Business Strategy, Inc. and substantially all of the assets of Strategic DocumentSolutions, LLC (collectively, “BSI”). The acquired operations accounted for 11% of our total assets and less than 1% of our total revenues as reported in ourconsolidated financial statements as of and for the year ended December 31, 2011. In accordance with SEC guidance regarding the reporting of internal controlover financial reporting in connection with an acquisition, management may omit an assessment of an acquired business’ internal control over financial reportingfrom management’s assessment of internal control over financial reporting for a period not to exceed one year. Management did not assess the effectiveness ofBSI’s internal control over financial reporting because of the timing of the acquisition, which was completed on December 1, 2011.There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarterthat has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Management’s report shall not bedeemed filed for purposes of Section 18 of the Exchange Act.Report of Independent Registered Public Accounting FirmBoard of Directors and ShareholdersPRGX Global, Inc.Atlanta, GeorgiaWe have audited PRGX Global, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2011, based on criteriaestablished in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).The Company’s 71Table of Contentsmanagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the accompanying Item 9A, “Management’s Annual Report on Internal Control Over Financial Reporting”. Our responsibility is toexpress an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.As indicated in the accompanying Item 9A, “Management’s Annual Report on Internal Control over Financial Reporting”, management’s assessment of andconclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Business Strategy, Inc. and Strategic DocumentSolutions, LLC (collectively, “BSI”) which were acquired on December 1, 2011, and which are included in the consolidated balance sheet of the Company as ofDecember 31, 2011, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the year thenended. BSI constituted 11% of total assets as of December 31, 2011, and less than 1% of total revenues for the year then ended. Management did not assess theeffectiveness of internal control over financial reporting of BSI because of the timing of the acquisition which was completed on December 1, 2011. Our audit ofinternal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of BSI.In our opinion, PRGX Global, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of theCompany as of December 31, 2011 and 2010, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cashflows for each of the three years in the period ended December 31, 2011 and our report dated March 14, 2012 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 14, 2012 ITEM 9B.Other Information.None. 72Table of ContentsPART III ITEM 10.Directors, Executive Officers and Corporate GovernanceExcept as set forth below, the information required by Item 10 of this Form 10-K is incorporated herein by reference to the information contained in thesections captioned “Proposal I: Election of Directors”, “Information about the Board of Directors and Committees of the Board of Directors”, “Executive Officers”and “Section 16(a) Beneficial Ownership Reporting Compliance” of our definitive proxy statement (the “Proxy Statement”) for the 2012 Annual Meeting ofStockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as amended(the “Exchange Act”).We have undertaken to provide to any person without charge, upon request, a copy of our code of ethics applicable to our chief executive officer and seniorfinancial officers. You may obtain a copy of this code of ethics free of charge from our website, www.prgx.com. ITEM 11.Executive CompensationThe information required by Item 11 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “ExecutiveCompensation”, “Information about the Board of Directors and Committees of the Board of Directors”, and “Report of the Compensation Committee” of the ProxyStatement. 73Table of ContentsITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersExcept as set forth below, the information required by Item 12 of this Form 10-K is incorporated by reference to the information contained in the sectioncaptioned “Ownership of Directors, Principal Shareholders and Certain Executive Officers” of the Proxy Statement.Securities Authorized for Issuance Under Equity Compensation PlansThe Company currently has three stock-based compensation plans under which awards have been granted: (1) the Stock Incentive Plan (“SIP”), (2) the 2006Management Incentive Plan (“2006 MIP”), and (3) the 2008 Equity Incentive Plan (“2008 EIP”). The SIP, as amended, authorized the grant of options or otherstock-based awards, with respect to up to 1,237,500 shares of the Company’s common stock to key employees, directors, consultants and advisors. The SIP expiredin June 2008.At the annual meeting of shareholders held on August 11, 2006, the shareholders of the Company approved a proposal granting authorization to issue up to2.1 million shares of the Company’s common stock under the 2006 MIP. At Performance Unit settlement dates (which varied), participants were paid in commonstock and in cash. Participants received a number of shares of Company common stock equal to 60% of the number of Performance Units being paid out, plus acash payment equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units being paid out. Theawards were 50% vested at the award date and the remainder of the awards vested ratably over approximately the following eighteen months. The awards containcertain anti-dilution and change of control provisions. Also, the number of Performance Units awarded were automatically adjusted on a pro-rata basis upon theconversion into common stock of any of the Company’s senior convertible notes or Series A convertible preferred stock.During the first quarter of 2008, the Board of Directors of the Company adopted the 2008 EIP, which was approved by the shareholders at the annualmeeting of the shareholders on May 29, 2008. The 2008 EIP authorizes the grant of incentive and non-qualified stock options, stock appreciation rights, restrictedstock, restricted stock units and other incentive awards. Two million shares of the Company’s common stock initially were reserved for issuance under the 2008EIP pursuant to award grants to key employees, directors and service providers.An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2010 and approved at the Company’s annual meeting ofshareholders held on June 15, 2010. The amendment, among other things, increased the number of shares reserved for issuance under the 2008 EIP by 3,400,000shares to a total of 5,400,000 shares and provided that restricted stock awards and other full value awards would count as 1.41 shares against the available pool ofshares under the plan.The following table presents certain information with respect to compensation plans under which equity securities of the registrant were authorized forissuance as of December 31, 2011: Plan category Number of securities tobe issued upon exerciseof outstanding options,warrants and rights Weighted-averageexercise price ofoutstanding options,warrants and rights Number of securities remainingavailable for future issuanceunder equity compensation plans(excluding securities reflected incolumn (a)) (a) (b) (c) Equity compensation plans approved by security holders: Stock Incentive Plan 527,455 $12.59 — 2008 Equity Incentive Plan 1,864,916 5.48 999,918 Share awards (1) — — 92,558 Equity compensation plans not approved by securityholders (2), (3) 468,519 4.34 — Total 2,860,890 $6.61 1,092,476 (1)Amounts presented represent 60% of Performance Unit awards under the Company’s 2006 Management Incentive Plan. Performance Unit awards arerequired to be settled 60% in common stock and 40% in cash. There were no awards outstanding at December 31, 2011.(2)Inducement Option Grant – during the first quarter of 2009, in connection with his joining the Company as its President and Chief Executive Officer, theCompany made inducement grants outside its existing stock-based compensation plans to Mr. Romil Bahl. Mr. Bahl received an option to purchase 296,296shares of the common stock of the Company and had exercised options to purchase 27,777 shares through December 31, 2011.(3)Inducement Option Grants – during the fourth quarter of 2011, in connection with their joining the Company in senior leadership positions, the Companymade inducement grants outside its existing stock-based compensation plans to three executives. The aggregate amount of the grants included options topurchase 200,000 shares of the common stock of the Company. Vesting of 100,000 of the grants is subject to certain performance requirements. 74Table of ContentsITEM 13.Certain Relationships and Related Transactions, and Director IndependenceThe information required by Item 13 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “Informationabout the Board of Directors and Committees of the Board of Directors”, “Executive Compensation — Employment Agreements” and “Certain Transactions” ofthe Proxy Statement. ITEM 14.Principal Accountants’ Fees and ServicesThe information required by Item 14 of this Form 10-K is incorporated by reference to the information contained in the sections captioned “PrincipalAccountants’ Fees and Services” of the Proxy Statement. 75Table of ContentsPART IV ITEM 15.Exhibits, Financial Statement Schedules (a)Documents filed as part of the report (1)Consolidated Financial Statements:For the following consolidated financial information included herein, see Index on Page 36. Page Report of Independent Registered Public Accounting Firm 40 Consolidated Statements of Operations and Comprehensive Income for the Years ended December 31, 2011, 2010, and 2009 41 Consolidated Balance Sheets as of December 31, 2011 and 2010 42 Consolidated Statements of Shareholders’ Equity for the Years ended December 31, 2011, 2010, and 2009 43 Consolidated Statements of Cash Flows for the Years ended December 31, 2011, 2010, and 2009 44 Notes to Consolidated Financial Statements 45 (2)Financial Statement Schedule: Schedule II — Valuation and Qualifying Accounts S-1 (3)Exhibits ExhibitNumber Description2.1 Share Purchase Agreement dated February 25, 2010 by and between PRGX U.K. Limited and Etesius Limited (incorporated by reference toExhibit 2.1 to the Registrant’s Form 10-K filed on March 29, 2010).2.2 Acquisition Agreement dated December 1, 2011, among PRGX Global, Inc., PRGX Commercial LLC, Business Strategy, Inc., StrategicDocument Services, LLC, DD&C Investments, L.L.C., Charles Fayon, Daniel Geelhoed and Dennis VanDyke. (incorporated by reference toExhibit 2.1 to the Registrant’s Form 8-K filed on December 2, 2011).3.1 Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose of filingwith the Commission) (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 17, 2006).3.1.1 Articles of Amendment of the Registrant dated January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed onJanuary 25, 2010).3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on December 11,2007).4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-K for the year ended December 31,2001).4.2 See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively.4.3 Shareholder Protection Rights Agreement, dated as of August 9, 2000, between the Registrant and Rights Agent, effective May 1, 2002(incorporated by reference to Exhibit 4.3 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2002).4.3.1 First Amendment to Shareholder Protection Rights Agreement, dated as of March 12, 2002, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.3 to the Registrant’s Form 10-Q for the quarterly period ended September 30, 2002).4.3.2 Second Amendment to Shareholder Protection Rights Agreement, dated as of August 16, 2002, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.3 to the Registrant’s Form 10-Q for the quarterly period ended September 30, 2002). 76Table of Contents4.3.3 Third Amendment to Shareholder Protection Rights Agreement, dated as of November 7, 2006, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on November 14, 2005).4.3.4 Fourth Amendment to Shareholder Protection Rights Agreement, dated as of November 14, 2006, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on November 30, 2005).4.3.5 Fifth Amendment to Shareholder Protection Rights Agreement, dated as of March 9, 2006, between the Registrant and Rights Agent (incorporatedby reference to Exhibit 4.9 to the Registrant’s Form 10-K for the year ended December 31, 2005).4.3.6 Sixth Amendment to Shareholder Protection Rights Agreement, dated as of September 17, 2007, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on September 21, 2007).4.3.7 Seventh Amendment to Shareholder Protection Rights Agreement, dated as of August 9, 2010, between the Registrant and Rights Agent(incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on August 9, 2010).4.3.8 Eighth Amendment, dated August 4, 2011, to the Registrant’s Shareholder Protection Rights Agreement between the Registrant and AmericanStock Transfer and Trust Company, as Rights Agent, dated as of August 9, 2000, as amended (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 10-Q for the quarter ended June 30, 2011).+10.1 1996 Stock Option Plan, dated as of January 25, 1996, together with Forms of Non-qualified Stock Option Agreement (incorporated by referenceto Exhibit 10.2 to the Registrant’s March 26, 1996 Registration Statement No. 333-1086 on Form S-1).+10.2 Form of Indemnification Agreement between the Registrant and Directors and certain officers, including named executive officers, of theRegistrant (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-K for the year ended December 31, 2003).+10.3 Form of the Registrant’s Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for thequarterly period ended June 30, 2001).10.4 Noncompetition, Nonsolicitation and Confidentiality Agreement among The Profit Recovery Group International, Inc., Howard Schultz &Associates International, Inc., Howard Schultz, Andrew Schultz and certain trusts, dated January 24, 2002 (incorporated by reference to Exhibit10.34 to the Registrant’s Form 10-K for the year ended December 31, 2001).10.5 Office Lease Agreement between Galleria 600, LLC and PRG-Schultz International, Inc. (incorporated by reference to Exhibit 10.43 to theRegistrant’s Form 10-K for the year ended December 31, 2001).10.5.1 First Amendment to Office Lease Agreement between Galleria 600, LLC and PRG-Schultz International, Inc. (incorporated by reference toExhibit 10.65 to the Registrant’s Form 10-K for the year ended December 31, 2002).+10. 6 Amended Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 10-Q for the quarterly period ended June 30,2002).+10.7 Amended HSA-Texas Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 10-Q for the quarterly period endedJune 30, 2002).10.8 Investor Rights Agreement, dated as of August 27, 2002, among PRG-Schultz International, Inc., Berkshire Fund V, LP, Berkshire Investors LLCand Blum Strategic Partners II, L.P. (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-Q for the quarterly period endedSeptember 30, 2002).10.8.1 Amendment to Investor Rights Agreement dated March 28, 2006 (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 10-Q for thequarter ended March 31, 2006).+10.9 Form of Non-employee Director Option Agreement (incorporated by reference to Exhibit 99.1 to the Registrant’s Report on Form 8-K filed onFebruary 11, 2005).+10.10 Amended and Restated Employment Agreement between Registrant and Mr. James B. McCurry, dated as of December 17, 2007 (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December 19, 2007).+10.10.1 Release Agreement dated December 1, 2008 between the Registrant and Mr. McCurry (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on December 4, 2008). 77Table of Contents+10.11 Separation and Release Agreement between Registrant and Mr. John M. Cook, dated as of August 2, 2005 (incorporated by reference to Exhibit99.1 to Registrant’s Form 8-K filed on August 8, 2005).+10.11.1 First Amendment to Separation and Release Agreement with John M. Cook dated March 16, 2006 (incorporated by reference to Exhibit 99.1 to theregistrant’s Form 8-K filed on March 22, 2006).+10.12 Separation and Release Agreement between Registrant and Mr. John M. Toma, dated as of August 2, 2005 (incorporated by reference to Exhibit99.2 to Registrant’s Form 8-K filed on August 8, 2005).+10.12.1 First Amendment to Separation and Release Agreement with John M. Toma dated March 16, 2006 (incorporated by reference to Exhibit 99.2 tothe registrant’s Form 8-K filed on March 22, 2006).+10.13 Employment Agreement between the Registrant and Peter Limeri entered into on November 28, 2008 (incorporated by reference to Exhibit 10.2 tothe Registrant’s Form 8-K filed on December 4, 2008).10.14 Amended and Restated Standstill Agreement, dated as of July 16, 2007, between Registrant and Blum Capital Partners, L.P. and certain of itsaffiliates (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on July 16, 2007).10.15 Restructuring Support Agreement dated December 23, 2005 (incorporated by reference to Exhibit 10.66 to the Registrant’s Form 10-K for the yearended December 31, 2005).10.15.1 Amended and Restated Restructuring Support Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarterended March 31, 2006).+10.16 Employment Agreement between the Registrant and Larry Robinson dated November 28, 2008 (incorporated by reference to Exhibit 10.3 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.16.1 Separation Agreement between the Registrant and Larry Robinson dated August 3, 2010 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on August 9, 2010).+10.17 Employment Agreement between the Registrant and Brad Roos dated November 28, 2008 (incorporated by reference to Exhibit 10.4 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.18 Expatriate Assignment Agreement with Brad Roos (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on February 14,2008).+10.18.1 Separation Agreement between the Registrant and Brad Roos dated May 29, 2009 (incorporated by reference to Exhibit 10.2 to the Registrant’sForm 8-K filed on June 1, 2009).10.19 Registration Rights Agreement dated March 17, 2006 (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 10-Q for the quarterended March 31, 2006).+10.22 Amended and Restated 2006 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for the quarterended September 30, 2006).+10.22.1 Form of Performance Unit Agreement under 2006 Amended and Restated Management Incentive Plan (incorporated by reference to Exhibit 10.2to the Registrant’s Form 10-Q for the quarter ended September 30, 2006).+10.22.2 Form of Amendment to Performance Unit Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December11, 2007).+10.23 Employment Agreement with Norman Lee White dated June 19, 2006 (incorporated by reference to Exhibit 10.1 to the Registrant’s Report onForm 8-K filed on June 20, 2006).+10.23.1 Separation Agreement dated November 30, 2008 between PRG-Schultz USA and Mr. White (incorporated by reference to Exhibit 10.5 to theRegistrant’s Form 8-K filed on December 4, 2008).+10.24 Form of Non-Employee Director Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed onSeptember 18, 2007).+10.26 PRGX Global, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on June 4, 2008). 78Table of Contents+10.26.1 PRGX Global, Inc. 2008 Equity Incentive Plan, as amended and restated effective April 27, 2010 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on June 21, 2010).+10.26.2 Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed onJune 4, 2008).+10.26.3 Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to the Registrant’s Form8-K filed on June 4, 2008).+10.27 Employment Agreement dated January 8, 2009, by and between Mr. Romil Bahl and the Registrant (incorporated by reference to Exhibit 10.1 tothe Registrant’s Form 8-K filed on January 14, 2009).+10.27.1 Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on January 14, 2009).+10.27.2 Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 14, 2009).+10.28 Employment Agreement dated May 26, 2009 by and between the Registrant and Robert B. Lee (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on June 1, 2009).10.29 Revolving Credit and Term Loan Agreement dated as of January 19, 2010, by and among PRGX Global, Inc. (formerly PRG-SchultzInternational, Inc.), and PRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as co-borrowers, the lenders from time to time party thereto,SunTrust Bank, as issuing bank, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Form10-Q filed on November 7, 2011).10.29.1 Subsidiary Guaranty Agreement dated as of January 19, 2010 by and among PRGX Global, Inc. (formerly PRG-Schultz International, Inc), andPRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as borrowers, each of the subsidiaries of PRGX Global, Inc. listed on schedule I thereto,as guarantors, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed onJanuary 25, 2010).10.29.2 Security Agreement dated January 19, 2010 among PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGX USA, Inc. (formerlyPRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, as grantors, in favor ofSunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 25, 2010).10.29.3 Equity Pledge Agreement dated as of January 19, 2010, made by PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGX USA, Inc.(formerly PRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, as grantors, in favorof SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed on January 25, 2010).10.29.4 Loan Documents Modification Agreement dated June 21, 2010, by and among the Borrowers, the Guarantors and the Lender.10.29.5 Second Loan Documents Modification Agreement dated September 30, 2010, by and among the Borrowers and the Lender (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on October 1, 2010).10.29.6 Third Loan Documents Modification Agreement dated October 17, 2011, by and among the Borrowers and the Lender.+10.30 Employment Agreement between the Registrant and Victor A. Allums dated November 28, 2008 (incorporated by reference to Exhibit 10.31 tothe Registrant’s Form 10-K filed on March 29, 2010).+10.31 Employment Agreement between the Registrant and Jennifer G. Moore dated November 28, 2008 (incorporated by reference to Exhibit 10.32 tothe Registrant’s Form 10-K filed on March 29, 2010).+10.31.1 Separation Agreement between the Registrant and Jennifer G. Moore dated October 26, 2009 (incorporated by reference to Exhibit 10.32.1 to theRegistrant’s Form 10-K filed on March 29, 2010). 79Table of Contents+10.32 Employment Agreement between the Registrant and James Shand dated March 12, 2009 (incorporated by reference to Exhibit 10.33 to theRegistrant’s Form 10-K filed on March 29, 2010).+10.33 Employment Agreement between the Registrant and Michael Noel dated September 30, 2009. (incorporated by reference to Exhibit 10.33 to theRegistrant’s Form 10-K filed on March 16, 2011).+10.34 Employment Agreement between the Registrant and Catherine Lafiandra dated February 1, 2010.+10.35 Employment Agreement between the Registrant and Puneet Pamnani dated February 8, 2012.14.1 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.1 to the Registrant’s Form 10-K for the year ended December31, 2003).21.1 Subsidiaries of the Registrant.23.1 Consent of BDO USA, LLP31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2011.31.2 Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2011.32.1 Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the year ended December 31, 2011.101 The following financial information from the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, formatted inExtensible Business Reporting Language (“XBRL”): (i) Consolidated Statements of Operations and Comprehensive Income, (ii) ConsolidatedBalance Sheets, (iii) Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.* +Designates management contract or compensatory plan or arrangement.*Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be “filed” or part of a registration statement or prospectus for purposesof Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject toliability under these sections. 80Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. PRGX GLOBAL, INC.By: /S/ ROMIL BAHL Romil Bahl President, Chief Executive Officer, Director (Principal Executive Officer)Date: March 14, 2012Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. Signature Title Date/S/ ROMIL BAHL Romil Bahl President, Chief Executive Officer and Director(Principal Executive Officer) March 14, 2012/S/ ROBERT B. LEE Robert B. Lee Chief Financial Officer and Treasurer(Principal Financial Officer) March 14, 2012/S/ BRIAN D. LANE Brian D. Lane Controller(Principal Accounting Officer) March 14, 2012/S/ DAVID A. COLE David A. Cole Director March 14, 2012/S/ WILLIAM C. COPACINO William C. Copacino Director March 14, 2012/S/ PATRICK G. DILLS Patrick G. Dills Chairman of the Board March 14, 2012/S/ ARCHELLE GEORGIOU FELDSHON Archelle Georgiou Feldshon Director March 14, 2012/S/ N. COLIN LIND N. Colin Lind Director March 14, 2012/S/ PHILIP J. MAZZILLI, JR. Philip J. Mazzilli, Jr. Director March 14, 2012/S/ STEVEN P. ROSENBERG Steven P. Rosenberg Director March 14, 2012 81Table of ContentsSCHEDULE II — VALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009(In thousands) Additions Deductions Description Balance atBeginningof Year Charge(Credit) toCosts andExpenses Credit tothe respectivereceivable (1) Balance atEnd ofYear 2011 Allowance for doubtful accounts receivable $591 221 (1) $811 Allowance for doubtful employee advances and miscellaneous receivables $669 366 (763) $272 Deferred tax valuation allowance $54,801 (2,754) — $52,047 2010 Allowance for doubtful accounts receivable $1,032 (360) (81) $591 Allowance for doubtful employee advances and miscellaneous receivables $351 559 (241) $669 Deferred tax valuation allowance $58,304 (3,503) — $54,801 2009 Allowance for doubtful accounts receivable $921 137 (26) $1,032 Allowance for doubtful employee advances and miscellaneous receivables $311 235 (195) $351 Deferred tax valuation allowance $64,307 (6,003) — $58,304 (1)Write-offs, net of recoveries S-1Table of Contents Exhibit 10.29.4LOAN DOCUMENTS MODIFICATION AGREEMENTTHIS LOAN DOCUMENTS MODIFICATION AGREEMENT (this “Amendment”) is made and entered into as of the 21 day of July, 2010, by and amongPRGX GLOBAL, INC., a Georgia corporation formerly known as PRG-Schultz International, Inc. (“PRGX”), PRGX USA, INC., a Georgia corporation formerlyknown as PRG-Schultz USA, Inc. (“PRG-USA”) (PRGX and PRG-USA are each individually, a “Borrower”, and collectively, the “Borrowers”), each of theSubsidiaries of PRGX listed on Schedule I hereto (each such Subsidiary individually, a “Guarantor” and collectively, the “Guarantors”), and SUNTRUST BANK,as Administrative Agent, the sole Lender and Issuing Bank.BACKGROUND STATEMENTWHEREAS, Borrowers have entered into that certain Revolving Credit and Term Loan Agreement, dated as of January 19, 2010 (as may be subsequentlyamended, restated, supplemented or otherwise modified from time-to-time, the “Credit Agreement”; all capitalized terms used but not otherwise defined hereinshall have the meanings ascribed to them in the Credit Agreement), with the Administrative Agent, the issuing bank thereunder and the lenders from time to timeparty thereto (the “Lenders”); andWHEREAS, Guarantors and Administrative Agent have entered into that certain Subsidiary Guaranty Agreement, dated as of January 19, 2010 (as may besubsequently amended, restated, supplemented or otherwise modified from time-to-time, the “Subsidiary Guaranty Agreement”); andWHEREAS, Borrowers and Guarantors have entered into various other instruments, agreements, documents and writings in connection with the CreditAgreement and the Subsidiary Guaranty Agreement (as may be subsequently amended, restated, supplemented or otherwise modified from time-to-time,collectively, the “Loan Documents”); andWHEREAS, with the consent described below PRGX and certain of PRGX’s direct and indirect Subsidiaries have changed their legal names from thenames set forth in the left-hand column of the chart set forth on Exhibit A hereto (the “Prior Names”) to the respective names set forth opposite the Prior Names inthe right-hand column of the chart set forth on Exhibit A hereto (the “New Names”) (such name changes referred to herein as the “Name Changes”); andWHEREAS, Administrative Agent and Lenders have consented to the Name Changes pursuant to that certain Name Change Consent, dated as ofJanuary 19, 2010, subject to the terms and conditions more specifically set forth therein, including, without limitation, upon Administrative Agent’s request, toexecute and deliver this Amendment; andWHEREAS, Borrowers, Guarantors and Administrative Agent have agreed to amend the Credit Agreement, the Subsidiary Guaranty Agreement and theother Loan Documents to reflect the Name Changes.NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which herebyis acknowledged by the parties hereto, Borrowers, Guarantors, Administrative Agent, the sole Lender and Issuing Bank agree as follows:1. Modification of Credit Agreement, the Subsidiary Guaranty Agreement and Loan Documents. The Credit Agreement, the Subsidiary GuarantyAgreement and each of the other Loan Documents are hereby amended, effective as of the date hereof, so that all references therein to the Prior Names shall referto the New Names. Without limiting the generality of clause (i) of the sixth sentence ofstSection 1.4 of the Credit Agreement (or any corresponding provision of the Subsidiary Guaranty Agreement or any other Loan Document), the terms of the LoanDocuments are hereby further amended, effective as of the date hereof, so that all references therein to the Credit Agreement, the Subsidiary Guaranty Agreementor any other Loan Document shall refer to Credit Agreement, the Subsidiary Guaranty Agreement and each other Loan Document as amended herein.2. Ratification and Reaffirmation. Except as herein expressly modified or amended, all the terms and conditions of the Credit Agreement, the SubsidiaryGuaranty Agreement and the other Loan Documents are hereby ratified, affirmed, and approved. As of the date hereof, Borrowers and Guarantors hereby reaffirmand restate each and every warranty and representation set forth in any Loan Document, in each case except to the extent such warranty or representation expresslyrelates to an earlier date. In consideration of Administrative Agent agreeing to the transactions contemplated by this Amendment, Borrowers agree to pay allreasonable, out-of-pocket costs and expenses of the Administrative Agent incurred in connection with the preparation and execution of this Amendment andconsummation of the transactions contemplated hereby.3. No Novation. The parties hereto hereby acknowledge and agree that this Amendment shall not constitute a novation of the indebtedness evidenced by anyof the Loan Documents, and further that the terms and provisions of the Loan Documents shall remain valid and in full force and effect except as be hereinmodified and amended.4. No Defenses; Release. For purposes of this Paragraph 4, the term “Borrower Parties” shall mean Borrowers and Guarantors collectively and the term“Lender Parties” shall mean Administrative Agent, Lenders and Issuing Bank, and shall include each of their respective predecessors, successors and assigns, andeach past and present, direct and indirect, parent, subsidiary and affiliated entity of each of the foregoing, and each past and present employee, agent, attorney-in-fact, attorney-at-law, representative, officer, director, shareholder, partner and joint venturer of each of the foregoing, and each heir, executor, administrator,successor and assign of each of the foregoing; references in this paragraph to “any” of such parties shall be deemed to mean “any one or more” of such parties; andreferences in this sentence to “each of the foregoing” shall mean and refer cumulatively to each party referred to in this sentence up to the point of such reference.Each Borrower and each Guarantor hereby acknowledges, represents and agrees: that, as of the date hereof, Borrowers and Guarantors have no defenses, setoffs,claims, counterclaims or causes of action of any kind or nature whatsoever with respect to the Credit Agreement, the Subsidiary Guaranty Agreement, the otherLoan Documents or the Obligations, or with respect to any other documents or instruments now or heretofore evidencing, securing or in any way relating to theObligations (all of said defenses, setoffs, claims, counterclaims or causes of action being hereinafter referred to as “Loan Related Claims”); that, to the extent thatBorrowers or Guarantors may be deemed to have any Loan Related Claims as of the date hereof, Borrowers and Guarantors do hereby expressly waive, releaseand relinquish any and all such Loan Related Claims, whether or not known to or suspected by Borrowers and Guarantors; that Borrowers and Guarantors shall notinstitute or cause to be instituted any legal action or proceeding of any kind based upon any Loan Related Claims; and that Borrowers and Guarantors shallindemnify, hold harmless and defend all Lender Parties from and against any and all Loan Related Claims and any and all losses, damages, liabilities and relatedreasonable expenses (including reasonable fees, charges and disbursements of any counsel for any Lender Parties) suffered or incurred by any Lender Parties as aresult of any assertion or allegation by any Borrower Parties of any Loan Related Claims or as a result of any legal action related thereto, provided that suchindemnity shall not , as to any Lender Parties, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a courtof competent jurisdiction by final and nonappealable judgment to have resulted from (i) the gross negligence or willful misconduct of such Lender Parties or (ii) aclaim brought by any Borrower or Guarantor against any Lender Parties for breach in bad faith of such Lender Parties’ obligations under any 2Loan Document. Notwithstanding the foregoing provisions of this Paragraph 4, Borrowers and Guarantors make no such releases, representations, warranties,standstills or agreements with respect to any future Loan Related Claims.5. No Waiver or Implication. Borrowers and Guarantors hereby agree that nothing herein shall constitute a waiver by Administrative Agent or any Lender ofany default, whether known or unknown, which may now exist under the Credit Agreement, the Subsidiary Guaranty Agreement or any other Loan Document.Borrowers and Guarantors hereby further agree that no action, inaction or agreement by Administrative Agent or any Lender, including, without limitation, anyextension, indulgence, waiver, consent or agreement of modification which may have occurred or have been granted or entered into (or which is now occurring oris being granted or entered into hereunder or otherwise) with respect to nonpayment of the Loans or any portion thereof, or with respect to matters involvingsecurity for the Loans, or with respect to any other matter relating to the Loans, shall require or imply any future extension, indulgence, waiver, consent oragreement by Administrative Agent or any Lender. Borrowers and Guarantors hereby acknowledge and agree that Administrative Agent has made no agreement,and is in no way obligated, to grant any future extension, indulgence, waiver or consent with respect to the Loans or any matter relating to the Loans.6. No Release of Collateral. Borrowers and Guarantors further acknowledge and agree that this Amendment shall in no way occasion a release of anycollateral held by Administrative Agent as security to or for the Loans, and that all collateral held by Administrative Agent as security to or for the Loans shallcontinue to secure the Loans.7. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original hereof and submissible intoevidence and all of which together shall constitute one instrument.8. Headings. The headings of the paragraphs and other provisions hereof are provided for convenience only and shall not in any way affect the meaning orconstruction of any provision of this Amendment.9. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Borrowers, Guarantors, Administrative Agent, Lenders,Issuing Bank and their respective heirs, successors and assigns, whether voluntary by act of the parties or involuntary by operation of law.10. Miscellaneous. Notwithstanding anything to the contrary contained in this Amendment, it is understood and agreed that the amendment of the variousLoan Documents in this one Amendment is being done as a matter of administrative convenience only, and does not make any party to this Amendment also aparty to any respective Loan Document unless a party thereto other than by virtue of this Amendment. Without limiting the generality of the foregoing, and foravoidance of doubt, no consent of any party to this Amendment shall be required in connection with any further amendment, supplement or other modification toany such respective Loan Document, or to any waiver thereunder, unless such consent is otherwise required pursuant to the terms of such respective LoanDocument (after giving effect to the preceding sentence).(Signatures on following page) 3IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the day and year first above written. PRGX GLOBAL, INC., a Georgia corporation, formerly knownas PRG-Schultz International, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX USA, INC., a Georgia corporation, formerly known asPRG-Schultz USA, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGDS, LLC, a Georgia limited liability companyBy: /s/ Robert B. Lee (SEAL)Name: Robert B. Lee Title: Chief Financial Officer & Treasurer PRGFS, INC., a Delaware corporationBy: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer [CORPORATE SEAL](Signatures continue on following page)PRG INTERNATIONAL, INC., a Georgia corporationBy: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGTS, LLC, a Georgia limited liability companyBy: /s/ Robert B. Lee (SEAL)Name: Robert B. Lee Title: Chief Financial Officer & Treasurer PRGX ASIA, INC., a Georgia corporation, formerly known asThe Profit Recovery Group Asia, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX AUSTRALIA, INC., a Georgia corporation, formerlyknown as PRG-Schultz Australia, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL](Signatures continue on following page)PRGX BELGIUM, INC., a Georgia corporation, formerlyknown as PRG-Schultz Belgium, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX BRASIL, LLC, a Georgia limited liability company,formerly known as PRG-Schultz Brasil, LLCBy: /s/ Robert B. Lee (SEAL)Name: Robert B. Lee Title: Chief Financial Officer & Treasurer PRGX CANADA, LLC, a Georgia limited liability company,formerly known as PRG-Schultz Canada, LLCBy: /s/ Robert B. Lee (SEAL)Name: Robert B. Lee Title: Chief Financial Officer, Treasurer & Controller PRGX EUROPE, INC., a Georgia corporation, formerly knownas PRG-Schultz Europe, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL](Signatures continue on following page) PRGX FRANCE, INC., a Georgia corporation, formerly knownas PRG-Schultz France, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX GERMANY, INC., a Georgia corporation, formerlyknown as The Profit Recovery Group Germany, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX MEXICO, INC., a Georgia corporation, formerly knownas The Profit Recovery Group Mexico, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL](Signatures continue on following page)PRGX NETHERLANDS, INC., a Georgia corporation, formerlyknown as The Profit Recovery Group Netherlands, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX NEW ZEALAND, INC., a Georgia corporation, formerlyknown as The Profit Recovery Group New Zealand, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX PORTUGAL, INC., a Georgia corporation, formerlyknown as PRG-Schultz Portugal, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL](Signatures continue on following page)PRGX SCANDINAVIA, INC., a Georgia corporation, formerlyknown as PRG-Schultz Scandinavia, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX SPAIN, INC., a Georgia corporation, formerly known asThe Profit Recovery Group Spain, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX SWITZERLAND, INC., a Georgia corporation, formerlyknown as PRG-Schultz Switzerland, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX TEXAS, INC., a Texas corporation, formerly known asHS&A Acquisition – UK, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL](Signatures continue on following page)SUNTRUST BANK, as Administrative Agent, the sole Lenderand Issuing BankBy: /s/ D. Scott CathcartName: D. Scott CathcartTitle: First Vice President(End of signatures)SCHEDULE ISUBSIDIARIES 1.PRGDS, LLC, a Georgia limited liability company 2.PRGFS, Inc., a Delaware corporation 3.PRG International, Inc., a Georgia corporation 4.PRGTS, LLC, a Georgia limited liability company 5.PRGX Asia, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Asia, Inc. 6.PRGX Australia, Inc., a Georgia corporation, formerly known as PRG-Schultz Australia, Inc. 7.PRGX Belgium, Inc., a Georgia corporation, formerly known as PRG-Schultz Belgium, Inc. 8.PRGX Brasil, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Brasil, LLC 9.PRGX Canada, LLC, a Georgia limited liability company, formerly known as PRG-Schultz Canada, LLC 10.PRGX Europe, Inc., a Georgia corporation, formerly known as PRG-Schultz Europe, Inc. 11.PRGX France, Inc., a Georgia corporation, formerly known as PRG-Schultz France, Inc. 12.PRGX Germany, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Germany, Inc. 13.PRGX Mexico, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Mexico, Inc. 14.PRGX Netherlands, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Netherlands, Inc. 15.PRGX New Zealand, Inc., a Georgia corporation, formerly known as The Profit Recovery Group New Zealand, Inc. 16.PRGX Portugal, Inc., a Georgia corporation, formerly known as PRG-Schultz Portugal, Inc. 17.PRGX Scandinavia, Inc., a Georgia corporation, formerly known as PRG-Schultz Scandinavia, Inc. 18.PRGX Spain, Inc., a Georgia corporation, formerly known as The Profit Recovery Group Spain, Inc. 19.PRGX Switzerland, Inc., a Georgia corporation, formerly known as PRG-Schultz Switzerland, Inc. 20.PRGX Texas, Inc., a Texas corporation, formerly known as HS&A Acquisition – UK, Inc.EXHIBIT ANAME CHANGES Prior Names New NamesPRG-Schultz International, Inc. PRGX Global, Inc.PRG-Schultz USA, Inc. PRGX USA, Inc.The Profit Recovery Group Asia, Inc. PRGX Asia, Inc.PRG-Schultz Australia, Inc. PRGX Australia, Inc.PRG-Schultz Belgium, Inc. PRGX Belgium, Inc.PRG-Schultz Brasil, LLC PRGX Brasil, LLCPRG-Schultz Canada, LLC PRGX Canada, LLCPRG-Schultz Europe, Inc. PRGX Europe, Inc.PRG-Schultz France, Inc. PRGX France, Inc.The Profit Recovery Group Germany, Inc. PRGX Germany, Inc.The Profit Recovery Group Mexico, Inc. PRGX Mexico, Inc.The Profit Recovery Group Netherlands, Inc. PRGX Netherlands, Inc.The Profit Recovery Group New Zealand, Inc. PRGX New Zealand, Inc.PRG-Schultz Portugal, Inc. PRGX Portugal, Inc.PRG-Schultz Scandinavia, Inc. PRGX Scandinavia, Inc.The Profit Recovery Group Spain, Inc. PRGX Spain, Inc.PRG-Schultz Switzerland, Inc. PRGX Switzerland, Inc.HS&A Acquisition – UK, Inc. PRGX Texas, Inc.Exhibit 10.29.6THIRD LOAN DOCUMENTS MODIFICATION AGREEMENTTHIS THIRD LOAN DOCUMENTS MODIFICATION AGREEMENT (this “Amendment”) is made and entered into as of the 17th day of October, 2011,by and among PRGX GLOBAL, INC., a Georgia corporation formerly known as PRG-Schultz International, Inc. (“PRGX”), PRGX USA, INC., a Georgiacorporation formerly known as PRG-Schultz USA, Inc. (“PRG-USA”) (PRGX and PRG-USA are each individually, a “Borrower”, and collectively, the“Borrowers”), and SUNTRUST BANK, as Administrative Agent, the sole Lender and Issuing Bank.BACKGROUND STATEMENTWHEREAS, Borrowers have entered into that certain Revolving Credit and Term Loan Agreement, dated as of January 19, 2010 (as heretofore amended,and as the same may be subsequently amended, restated, supplemented or otherwise modified from time-to-time, the “Credit Agreement”; all capitalized termsused but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement), with the Administrative Agent, the issuing bankthereunder and the lenders from time to time party thereto (the “Lenders”); andWHEREAS, Borrowers, Administrative Agent, the sole Lender and Issuing Bank have agreed to amend the Credit Agreement and the other LoanDocuments.NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which herebyis acknowledged by the parties hereto, Borrowers, Administrative Agent, the sole Lender and Issuing Bank agree as follows:1. Modification of Credit Agreement and Loan Documents. The Credit Agreement is hereby amended, effective as of the date hereof, by deletingSection 6.5 in its entirety and replacing it with the following:“Section 6.5 Capital Expenditures. PRGX and its Subsidiaries will not make Capital Expenditures in excess of (i) $7,000,000 during the 2010 Fiscal Year,(ii) $9,000,000 during the 2011 Fiscal Year, (iii) $8,000,000 during the 2012 Fiscal Year, and (iv) $7,000,000 during any subsequent Fiscal Year.”Without limiting the generality of clause (i) of the sixth sentence of Section 1.4 of the Credit Agreement (or any corresponding provision of any other LoanDocument), the terms of the Loan Documents are hereby amended, effective as of the date hereof, so that all references therein to the Credit Agreement shall referto Credit Agreement as amended herein.2. Ratification and Reaffirmation. Except as herein expressly modified or amended, all the terms and conditions of the Credit Agreement and the other LoanDocuments are hereby ratified, affirmed, and approved. As of the date hereof, Borrowers hereby reaffirm and restate each and every warranty and representationset forth in any Loan Document, in each case except to the extent such warranty or representation expressly relates to an earlier date. In consideration ofAdministrative Agent agreeing to the transactions contemplated by this Amendment, Borrowers agree to pay all reasonable, out-of-pocket costs and expenses of theAdministrative Agent incurred in connection with the preparation and execution of this Amendment and consummation of the transactions contemplated hereby.3. No Novation. The parties hereto hereby acknowledge and agree that this Amendment shall not constitute a novation of the indebtedness evidenced by anyof the Loan Documents, and further that the terms and provisions of the Loan Documents shall remain valid and in full force and effect except as be hereinmodified and amended.4. No Defenses; Release. For purposes of this Paragraph 4, the term “Borrower Parties” shall mean Borrowers collectively and the term “Lender Parties”shall mean Administrative Agent, Lenders and Issuing Bank, and shall include each of their respective predecessors, successors and assigns, and each past andpresent, direct and indirect, parent, subsidiary and affiliated entity of each of the foregoing, and each past and present employee, agent, attorney-in-fact, attorney-at-law, representative, officer, director, shareholder, partner and joint venturer of each of the foregoing, and each heir, executor, administrator, successor andassign of each of the foregoing; references in this paragraph to “any” of such parties shall be deemed to mean “any one or more” of such parties; and references inthis sentence to “each of the foregoing” shall mean and refer cumulatively to each party referred to in this sentence up to the point of such reference. EachBorrower hereby acknowledges, represents and agrees: that, as of the date hereof, Borrowers have no defenses, setoffs, claims, counterclaims or causes of action ofany kind or nature whatsoever with respect to the Credit Agreement, the other Loan Documents or the Obligations, or with respect to any other documents orinstruments now or heretofore evidencing, securing or in any way relating to the Obligations (all of said defenses, setoffs, claims, counterclaims or causes of actionbeing hereinafter referred to as “Loan Related Claims”); that, to the extent that Borrowers may be deemed to have any Loan Related Claims as of the date hereof,Borrowers do hereby expressly waive, release and relinquish any and all such Loan Related Claims, whether or not known to or suspected by Borrowers; thatBorrowers shall not institute or cause to be instituted any legal action or proceeding of any kind based upon any Loan Related Claims; and that Borrowers shallindemnify, hold harmless and defend all Lender Parties from and against any and all Loan Related Claims and any and all losses, damages, liabilities and relatedreasonable expenses (including reasonable fees, charges and disbursements of any counsel for any Lender Parties) suffered or incurred by any Lender Parties as aresult of any assertion or allegation by any Borrower Parties of any Loan Related Claims or as a result of any legal action related thereto, provided that suchindemnity shall not , as to any Lender Parties, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a courtof competent jurisdiction by final and nonappealable judgment to have resulted from (i) the gross negligence or willful misconduct of such Lender Parties or (ii) aclaim brought by any Borrower against any Lender Parties for breach in bad faith of such Lender Parties’ obligations under any Loan Document. Notwithstandingthe foregoing provisions of this Paragraph 4, Borrowers make no such releases, representations, warranties, standstills or agreements with respect to any futureLoan Related Claims.5. No Waiver or Implication. Borrowers hereby agree that nothing herein shall constitute a waiver by Administrative Agent or any Lender of any default,whether known or unknown, which may now exist under the Credit Agreement or any other Loan Document. Borrowers hereby further agree that no action,inaction or agreement by Administrative Agent or any Lender, including, without limitation, any extension, indulgence, waiver, consent or agreement ofmodification which may have occurred or have been granted or entered into (or which is now occurring or is being granted or entered into hereunder or otherwise)with respect to nonpayment of the Loans or any portion thereof, or with respect to matters involving security for the Loans, or with respect to any other matterrelating to the Loans, shall require or imply any future extension, indulgence, waiver, consent or agreement by Administrative Agent or any Lender. Borrowershereby acknowledge and agree that Administrative Agent has made no agreement, and is in no way obligated, to grant any future extension, indulgence, waiver orconsent with respect to the Loans or any matter relating to the Loans.6. No Release of Collateral. Borrowers further acknowledge and agree that this Amendment shall in no way occasion a release of any collateral held byAdministrative Agent as security to or for the Loans, and that all collateral held by Administrative Agent as security to or for the Loans shall continue to secure theLoans. 27. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original hereof and submissible intoevidence and all of which together shall constitute one instrument.8. Headings. The headings of the paragraphs and other provisions hereof are provided for convenience only and shall not in any way affect the meaning orconstruction of any provision of this Amendment.9. Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of Borrowers, Administrative Agent, Lenders, Issuing Bank andtheir respective heirs, successors and assigns, whether voluntary by act of the parties or involuntary by operation of law.(Signatures on following page) 3IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the day and year first above written. PRGX GLOBAL, INC., a Georgia corporation, formerly knownas PRG-Schultz International, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] PRGX USA, INC., a Georgia corporation, formerly known asPRG-Schultz USA, Inc.By: /s/ Robert B. LeeName: Robert B. LeeTitle: Chief Financial Officer & Treasurer [CORPORATE SEAL] SUNTRUST BANK, as Administrative Agent, the sole Lenderand Issuing BankBy: /s/ D. Scott CathcartName: D. Scott CathcartTitle: First Vice PresidentExhibit 10.34EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of January 31, 2010, to be effective February 1, 2010 (the“Effective Date”) by and between PRGX Global, Inc., a Georgia corporation (the “Company”), and Catherine H. Lafiandra (the “Executive”).W I T N E S S E T H:WHEREAS, the Company considers the availability of the Executive’s services to be important to the management and conduct of the Company’s businessand desires to secure the availability of the Executive’s services; andWHEREAS, the Executive is willing to make the Executive’s services available to the Company on the terms and subject to the conditions set forth herein.NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth and intending to be legallybound, the Company and the Executive agree as follows: 1.Employment and Duties.(a) Position. The Company hereby employs the Executive, and the Executive hereby accepts such employment, as the Senior Vice President —Human Resources of the Company, on the terms and subject to the conditions of this Agreement. The Executive agrees to perform such duties and responsibilitiesas are customarily performed by persons acting in such capacity or as are assigned to Executive from time to time by the Board of Directors of the Company or itsdesignees. The Executive acknowledges and agrees that from time to time the Company, within reason, may assign Executive additional positions with theCompany or the Company’s subsidiaries, with such title, duties and responsibilities as shall be determined by the Company. The Executive will report directly tothe Chief Executive Officer of the Company.(b) Duties. The Executive shall devote the Executive’s best efforts and full professional time and attention to the business and affairs of the Companyand the Company’s subsidiaries. During the Term, Executive shall not serve as a director or principal of any other company or charitable or civic organizationwithout the prior written consent of the Board of Directors of the Company. The principal place(s) of employment of the Executive shall be the Company’sexecutive offices in Atlanta, Georgia subject to reasonable travel on the business of the Company or the Company’s subsidiaries. The Executive shall be expectedto follow and be bound by the terms of the Company’s Code of Conduct and Code of Ethics for Senior Financial Officers and any other applicable policies as theCompany from time to time may adopt.2. Term. This Agreement is effective as of the Effective Date, and will continue through the first anniversary of the Effective Date, unless terminated orextended as hereinafter provided. This Agreement shall be extended for successive one-year periods following the original term (through each subsequentanniversary thereafter) unless any party notifies the other in writing at least 30 days prior to the end of the original term, or the end of any additional one-yearrenewal term, that the Agreement shall not be extended beyond its then current term. The term of this Agreement, including any renewal term, is referred to hereinas the “Term.” 3.Compensation.(a) Base Salary. The Company shall pay the Executive an annual base salary of $200,000. The annual base salary shall be paid to the Executive inaccordance with the established payroll practices of the Company (but no less frequently than monthly) subject to ordinary and lawful deductions. TheCompensation Committee of the Company will review the Executive’s base salary from time to time to consider whether any increase should be made. The basesalary during the Term will not be less than that in effect at any time during the Term.(b) Annual Bonus. During the Term, the Executive will be eligible to participate in an annual incentive bonus plan that will establish measurablecriteria and incentive compensation levels payable to the Executive for performance in relation to defined targets established by the Compensation Committee ofthe Company’s Board of Directors, after consultation with management, and consistent with the Company’s business plans and objectives. To the extent thetargeted performance levels are exceeded, the incentive bonus plan will provide a means by which the annual bonus will be increased. Similarly, the incentive planwill provide a means by which the annual bonus will be decreased or eliminated if the targeted performance levels are not achieved. In connection with such annualincentive bonus plan, subject to the corresponding performance levels being achieved, the Executive shall be eligible for an annual target bonus equal to 50 percentof the Executive’s annual base salary and an annual maximum bonus equal to 100 percent of the Executive’s annual base salary. Any bonus payments duehereunder shall be payable to the Executive no later than the 15 day of the third month following the end of the applicable year to which the incentive bonusrelates. The Executive’s annual incentive bonus for calendar year 2010 shall be subject to pro-ration based on the number of days that Executive is actuallyemployed by the Company during 2010 (beginning with the Effective Date).(c) Stock Compensation. The Executive also shall be eligible to receive stock options, restricted stock, stock appreciation rights and/or other equityawards under the Company’s applicable equity plans on such basis as the Compensation Committee or the Board of Directors of the Company or their designees,as the case may be, may determine on a basis not less favorable than that provided to the class of employees that includes the Executive. Except as specifically setforth above, however, nothing herein shall require the Company to make any equity grants or other awards to the Executive in any specific year.4. Indemnity. The Company and the Executive will enter into the Company’s standard indemnification agreement for executive officers. 5.Benefits.(a) Benefit Programs. The Executive shall be eligible to participate in any plans, programs or forms of compensation or benefits that the Companyor the Company’s subsidiaries provide to the class of employees that includes the Executive, on a basis not less favorable than that provided to such class ofemployees, including, without limitation, group medical, disability and life insurance, paid time-off, and retirement plan, subject to the terms and conditions ofsuch plans, programs or forms of compensation or benefits.(b) Paid Time-Off. The Executive shall be entitled to five weeks of paid time-off, to be accrued and used in accordance with the normal Companypaid time-off policy. 2th6. Reimbursement of Expenses. The Company shall reimburse the Executive, subject to presentation of adequate substantiation, including receipts, for thereasonable travel, entertainment, lodging and other business expenses incurred by the Executive in accordance with the Company’s expense reimbursement policyin effect at the time such expenses are incurred. In no event will such reimbursements, if any, be made later than the last day of the year following the year in whichthe Executive incurs the expense. 7.Termination of Employment.(a) Death or Incapacity. The Executive’s employment under this Agreement shall terminate automatically upon the Executive’s death. If theCompany determines that the Incapacity, as hereinafter defined, of the Executive has occurred, it may terminate the Executive’s employment and this Agreement.“Incapacity” shall mean the inability of the Executive to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for aperiod of 90 days in the aggregate in any rolling 180-day period.(b) Termination by Company For Cause. The Company may terminate the Executive’s employment during the Term of this Agreement for Cause.For purposes of this Agreement, “Cause” shall mean, as determined by the Board of Directors of the Company in good faith, the following:(i) the Executive’s willful misconduct or gross negligence in connection with the performance of the Executive’s duties which the Board ofDirectors of the Company believes does or is likely to result in material harm to the Company or any of its subsidiaries;(ii) the Executive’s misappropriation or embezzlement of funds or property of the Company or any of its subsidiaries;(iii) the Executive’s fraud or dishonesty with respect to the Company or any of its subsidiaries;(iv) the Executive’s conviction of, indictment for (or its procedural equivalent), or entering of a guilty plea or plea of no contest with respect toany felony or any other crime involving moral turpitude or dishonesty; or(v) the Executive’s breach of a material term of this Agreement, or violation in any material respect of any code or standard of behaviorgenerally applicable to officers of the Company (including, without, limitation the Company’s Code of Conduct, Code of Ethics for Senior FinancialOfficers and any other applicable policies as the Company from time to time may adopt), after being advised in writing of such breach or violationand being given 30 days to remedy such breach or violation, to the extent that such breach or violation can be cured;(vi) the Executive’s breach of fiduciary duties owed to the Company or any of its subsidiaries;(vii) the Executive’s engagement in habitual insobriety or the use of illegal drugs or substances; or 3(viii) the Executive’s willful failure to cooperate, or willful failure to cause and direct persons under the Executive’s management or direction,or employed by, or consultants or agents to, the Company or its subsidiaries to cooperate, with all corporate investigations or independentinvestigations by the Board of Directors of the Company or its subsidiaries, all governmental investigations of the Company or its subsidiaries ororders involving the Executive, the Company or the Company’s subsidiaries entered by a court of competent jurisdiction.Notwithstanding the above, and without limitation, the Executive shall not be deemed to have been terminated for Cause unless and until there has been deliveredto the Executive (i) a letter from the Board of Directors of the Company finding that the Executive has engaged in the conduct set forth in any of the precedingclauses and specifying the particulars thereof in detail and (ii) a copy of a resolution duly adopted by the affirmative vote of the majority of the members of theBoard of Directors of the Company who are not officers of the Company at a meeting of the Board of Directors called and held for such purpose or such otherappropriate written consent (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard beforethe Board of Directors of the Company), finding that the Executive has engaged in such conduct and specifying the particulars thereof in detail.(c) Termination by Executive for Good Reason. The Executive may terminate the Executive’s employment for Good Reason. For purposes of thisAgreement, “Good Reason” shall mean, without the Executive’s consent, the following:(i) any action taken by the Company which results in a material reduction in the Executive’s authority, duties or responsibilities (except that anychange in the foregoing that results solely from (A) the Company ceasing to be a publicly traded entity or from the Company becoming a wholly-owned subsidiary of another publicly traded entity or (B) any change in the geographic scope of the Executive’s authority, duties or responsibilitieswill not, in any event and standing alone, constitute a substantial reduction in the Executive’s authority, duties or responsibilities), including anyrequirement that the Executive report directly to anyone other than the Chief Executive Officer of the Company;(ii) the assignment to the Executive of duties that are materially inconsistent with Executive’s authority, duties or responsibilities;(iii) any material decrease in the Executive’s base salary or annual bonus opportunity or the benefits generally available to the class ofemployees that includes the Executive, except to the extent the Company has instituted a salary, bonus or benefits reduction generally applicable to allexecutives of the Company other than in contemplation of or after a Change in Control;(iv) the relocation of the Executive to any primary place of employment other than as specified in Section 1(b) above which might require theExecutive to move the Executive’s residence which, for this purpose, means any reassignment to a place of employment 50 miles or more from theplace (or, if applicable, all places) of employment set forth in Section 1(b), without the Executive’s express written consent to such relocation;provided, however, this subsection (iv) shall not apply in the case of business travel which requires the Executive to relocate temporarily for periodsof 90 days or less; 4(v) the failure by the Company to pay to the Executive any portion of the Executive’s base salary, annual bonus or other benefits within 10 daysafter the date the same is due; or(vi) any material failure by the Company to comply with the terms of this Agreement.Notwithstanding the above, and without limitation, “Good Reason” shall not include any resignation by the Executive where Cause for the Executive’s terminationby the Company exists and the Company then follows the procedures described above. The Executive must give the Company notice of any event or condition thatwould constitute “Good Reason” within 30 days of the event or condition which would constitute “Good Reason,” and upon the receipt of such notice theCompany shall have 30 days to remedy such event or condition. If such event or condition is not remedied within such 30-day period, any termination ofemployment by the Executive for “Good Reason” must occur within 30 days after the period for remedying such condition or event has expired.(d) Termination by Company Without Cause or by Executive Other than For Good Reason. The Company may terminate the Executive’semployment during the Term of this Agreement without Cause, and Executive may terminate the Executive’s employment for other than Good Reason, upon 30days’ written notice. The Company may elect to pay the Executive during any applicable notice period (in accordance with the established payroll practices of theCompany, no less frequently than monthly) and remove him from active service.(e) Termination by Executive on Failure to Renew. The Executive may terminate the Executive’s employment at any time on or before theexpiration of the Term of the Agreement, if the Company notifies the Executive that the Term of the Agreement shall not be extended as provided in Section 2above. 8.Obligations of the Company Upon Termination.(a) Without Cause; Good Reason; Non-Renewal (No Change in Control). If, during the Term, the Company terminates the Executive’semployment without Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance withSection 7(c) hereof, or the Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e)hereof, other than within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:(i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, ifgreater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for whichthe Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of one year or the sum of four weeksfor each full year of continuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, beginningimmediately following termination of employment (the “Severance Period”), payable in accordance with the established payroll practices of theCompany (but no less frequently than monthly), beginning on the first payroll date following 30 days after termination of employment, with 5the Executive to receive at that time a lump sum payment with respect to any installments the Executive was entitled to receive during the first 30 daysfollowing termination of employment, and the remaining payments made as if they had commenced immediately following termination ofemployment;(ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’semployment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonusfor the year otherwise would be paid had the Executive continued employment;(iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than thatunder a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the SeverancePeriod, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated activeemployees during such Severance Period, provided that such continued participation is possible under the general terms and provisions of such plansand programs and provided that such continued coverage by the Company shall terminate in the event Executive becomes eligible for any suchcoverage under another employer’s plans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’sspouse or dependents is not feasible under the terms and provisions of such plans and programs (or where such continuation would adversely affectthe tax status of the plan pursuant to which the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of theexpected Company contribution therefor for such same period of time, with such payments to be made in accordance with the established payrollpractices of the Company (not less frequently than monthly) for the period during which such cash payments are to be provided;(iv) payment of any Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” shall mean the sum of (A) the Executive’sannual base salary through Executive’s termination of employment which remains unpaid, (B) the amount, if any, of any incentive or bonuscompensation earned for any completed fiscal year of the Company which has not yet been paid, (C) any reimbursements for expenses incurred butnot yet paid, and (D) any benefits or other amounts, including both cash and stock components, which pursuant to the terms of any plans, policies orprograms have been earned or become payable, but which have not yet been paid to the Executive, including payment for any unused paid time-off(but not including amounts that previously had been deferred at the Executive’s request, which amounts will be paid in accordance with theExecutive’s existing directions). The Accrued Obligations will be paid to the Executive in a lump sum as soon as administratively feasible after theExecutive’s termination of employment, which for purposes of any incentive or bonus compensation described in (B) above shall mean at the sametime such annual bonus would otherwise have been paid;(v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested basedsolely on the continued employment of the Executive. Additionally, all of Executive’s outstanding stock options shall remain outstanding until theearlier of (i) one year after the date of termination 6of the Executive’s employment or (ii) the original expiration date of the options (disregarding any earlier expiration date provided for in any otheragreement, including without limitation any related grant agreement, based solely on the termination of the Executive’s employment); and(vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to$20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after thetermination of the Executive’s employment.(b) Without Cause; Good Reason; Non-Renewal (Change in Control). If, during the Term, the Company terminates the Executive’s employmentwithout Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c)hereof, or the Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof,within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:(i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, ifgreater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for whichthe Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of 18 months or the sum of four weeksfor each full year of continuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, beginningimmediately following termination of employment (the “Change in Control Severance Period”), payable in accordance with the established payablepractices of the Company (but no less frequently than monthly), beginning on the first payroll date following 30 days after termination ofemployment, with the Executive to receive at that time a lump sum payment with respect to any installments the Executive was entitled to receiveduring the first 30 days following termination of employment;(ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’semployment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonusfor the year otherwise would be paid had the Executive continued employment;(iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than thatunder a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Change inControl Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during such Change in Control Severance Period, provided that such continued participation is possible under the generalterms and provisions of such plans and programs and provided that such continued contribution by the Company shall terminate in the eventExecutive becomes eligible for any such coverage under another employer’s plans. If the Company reasonably determines that maintaining suchcoverage for 7the Executive or the Executive’s spouse or dependents is not feasible under the terms and provisions of such plans and programs (or where suchcontinuation would adversely affect the tax status of the plan pursuant to which the coverage is provided), the Company shall pay the Executive cashequal to the estimated cost of the expected Company contribution therefor for such same period of time, with such payments to be made in accordancewith the established payroll practices of the Company (not less frequently than monthly) for the period during which such cash payments are to beprovided;(iv) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment,which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonuswould otherwise have been paid;(v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested basedsolely on the continued employment of the Executive. Additionally, all of the Executive’s outstanding stock options shall remain outstanding until theearlier of (i) one year after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding anyearlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the terminationof the Executive’s employment); and(vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to$20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after thetermination of the Executive’s employment.(c) Death or Incapacity. If the Executive’s employment is terminated by reason of death or Incapacity in accordance with Section 7(a) hereof, theExecutive shall be entitled to receive:(i) payment of an amount equal to the actual full-year bonus earned for the year that includes Executive’s death or Incapacity, prorated basedon the number of days the Executive is employed for the year, payable at the same time such annual bonus would otherwise have been paid had theExecutive continued employment; and(ii) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment,which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonuswould otherwise have been paid.(d) Cause; Other Than for Good Reason. If the Company terminates the Executive’s employment for Cause in accordance with Section 7(b)hereof, or the Executive terminates the Executive’s employment other than for Good Reason in accordance with Section 7(d) hereof, this Agreement shallterminate without any further obligation to the Executive other than to pay the Accrued Obligations (except that any incentive or bonus compensation earned forany completed fiscal year of the Company which has not yet been paid shall not be paid if the Company terminates the Executive’s employment for Cause inaccordance with Section 7(b) hereof) as soon as administratively feasible after the Executive’s termination of employment. 8(e) Release and Waiver. Notwithstanding any other provision of this Agreement, the Executive’s right to receive any payments or benefits underSections 8(a)(i), (ii), (iii), (v) and (vi) and 8(b)(i), (ii), (iii), (v) and (vi) of this Agreement upon the termination of the Executive’s employment by the Companywithout Cause, by the Executive for Good Reason, or by the Executive upon the Company’s failure to renew the Agreement is contingent upon and subject to theExecutive signing and delivering to the Company a separation agreement and complete general release of all claims in a form acceptable to Company, andallowing the applicable revocation period required by law to expire without revoking or causing revocation of same, within 30 days following the date oftermination of Executive’s employment.(f) Change in Control. For purposes of this Agreement, Change of Control means the occurrence of any of the following events:(i) The accumulation in any number of related or unrelated transactions by any person of beneficial ownership (as such term is used in Rule13d-3, promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50 percent or more of the combined total votingpower of the Company’s voting stock; provided that for purposes of this subsection (a), a Change in Control will not be deemed to have incurred if theaccumulation of 50 percent or more of the voting power of the Company’s voting stock results from any acquisition of voting stock (i) by theCompany, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of the Company’s subsidiaries, or(iii) by any person pursuant to a merger, consolidation, reorganization or other transaction (a “Business Combination”) that would not cause a Changein Control under subsection (ii) below; or(ii) A consummation of a Business Combination, unless, immediately following that Business Combination, substantially all the persons whowere the beneficial owners of the voting stock of the Company immediately prior to that Business Combination beneficially own, directly orindirectly, at least 50 percent of the combined voting power of the voting stock of the entity resulting from that Business Combination (including,without limitation, an entity that as a result of that transaction owns the Company, or all or substantially all of the Company assets, either directly orthrough one or more subsidiaries) in substantially the same proportions relative to each other as the ownership, immediately prior to that BusinessCombination, of the voting stock of the Company;(iii) A sale or other disposition of all or substantially all of the assets of the Company except pursuant to a Business Combination that would notcause a Change in Control under subsection (ii) above;(iv) At any time less than a majority of the members of the Board of Directors of the Company or any entity resulting from any BusinessCombination are Incumbent Board Members. 9(v) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a BusinessCombination that would not cause a Change in Control under subsection (ii) above; or(vi) Any other transaction or event that the Board of Directors of the Company identifies as a Change in Control for purposes of thisAgreement.(vii) For purposes of this Agreement, an “Incumbent Board Member” shall mean any individual who either is (a) a member of the CompanyBoard of Directors as of the Effective Date or (b) a member who becomes a member of the Company’s Board of Directors subsequent to the EffectiveDate of this Agreement, whose election or nomination by the Company’s shareholders, was approved by a vote of at least a majority of the thenIncumbent Board Members (either by specific vote or by approval of a proxy statement of the Company in which that person is named as a nomineefor director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a resultof an actual or threatened election contest (within the meaning of Rule 14A-11 of the Exchange Act) with respect to the election or removal ofdirectors or other actual threatened solicitation or proxies or consents by or on behalf of the person other than a board of directors. For purposes of thisAgreement, a person means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporatedassociation, joint-stock company, trusts, unincorporated organization or any other entity of any kind. 9.Business Protection Agreements.(a) Definitions. For purposes of this Agreement, the following terms shall have the following meanings:(i) “Business of the Company” means services to (A) identify clients’ erroneous or improper payments, (B) assist clients in the recovery ofmonies owed to them as a result of overpayments and overlooked discounts, rebates, allowances and credits, and (C) assist clients in the improvementand execution of their procurement and payment processes.(ii) “Confidential Information” means any information about the Company or the Company’s subsidiaries and their employees, customersand/or suppliers which is not generally known outside of the Company or the Company’s subsidiaries, which Executive learns of in connection withExecutive’s employment with the Company, and which would be useful to competitors or the disclosure of which would be damaging to theCompany or the Company’s subsidiaries. Confidential Information includes, but is not limited to: (A) business and employment policies, marketingmethods and the targets of those methods, finances, business plans, promotional materials and price lists; (B) the terms upon which the Company orthe Company’s subsidiaries obtains products from their suppliers and sells services and products to customers; (C) the nature, origin, composition anddevelopment of the Company or the Company’s subsidiaries’ services and products; and (D) the manner in which the Company or the Company’ssubsidiaries provide products and services to their customers. 10(iii) “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence in furtherance of the Business of theCompany.(iv) “Restricted Territory” means, and is limited to, the geographic area described in Exhibit A attached hereto. Executive acknowledges andagrees that this is the area in which the Company and its subsidiaries does business at the time of the execution of this Agreement, and in which theExecutive will have responsibility, at a minimum, on behalf of the Company and the Company’s subsidiaries. Executive acknowledges and agreesthat if the geographic area in which Executive has responsibility should change while employed under this Agreement, Executive will execute anamendment to the definition of “Restricted Territory” to reflect such change. This duty shall be part of the consideration provided by Executive forExecutive’s employment hereunder.(v) “Trade Secrets” means the trade secrets of the Company or the Company’s subsidiaries as defined under applicable law.(b) Confidentiality. Executive agrees that the Executive will not (other than in the performance of Executive’s duties hereunder), directly orindirectly, use, copy, disclose or otherwise distribute to any other person or entity: (a) any Confidential Information during the period of time the Executive isemployed by the Company and for a period of five years thereafter; or (b) any Trade Secret at any time such information constitutes a trade secret under applicablelaw. Upon the termination of Executive’s employment with the Company (or upon the earlier request of the Company), Executive shall promptly return to theCompany all documents and items in the Executive’s possession or under the Executive’s control which contain any Confidential Information or Trade Secrets.(c) Non-Competition. Executive agrees that during the Executive’s employment with the Company and for a period of two years thereafter,Executive will not, either for himself or on behalf of any other person or entity, compete with the Business of the Company within the Restricted Territory byperforming activities which are the same as or similar to those performed by Executive for the Company or the Company’s subsidiaries.(d) Non-Solicitation of Customers. Executive agrees that during Executive’s employment with the Company and for a period of two yearsthereafter, Executive shall not, directly or indirectly, solicit any actual or prospective customers of the Company or the Company’s subsidiaries with whomExecutive had Material Contact, for the purpose of selling any products or services which compete with the Business of the Company(e) Non-Recruitment of Employees or Contractors. Executive agrees that during the Executive’s employment with the Company and for a periodof two years thereafter, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of the Company or the Company’ssubsidiaries with whom Executive had Material Contact, to terminate or lessen such employment or contract.(f) Obligations of the Company. The Company agrees to provide Executive with Confidential Information in order to enable Executive to performExecutive’s duties hereunder. The covenants of Executive contained in the covenants of Confidentiality, Non-Competition, Non-Solicitation of Customers andNon-Recruitment of Employees or Contractors set forth in 11Subsections 9(b) - 9(e) above (“Protective Covenants”) are made by Executive in consideration for the Company’s agreement to provide Confidential Informationto Executive, and intended to protect Company’s Confidential Information and the investments the Company makes in training Executive and developing customergoodwill.(g) Acknowledgments. Executive hereby acknowledges and agrees that the covenants contained in (b) through (e) of this Section 9 and Section 10hereof are reasonable as to time, scope and territory given the Company and the Company’s subsidiaries’ need to protect their business, customer relationships,personnel, Trade Secrets and Confidential Information. Executive acknowledges and represents that Executive has substantial experience and knowledge such thatExecutive can readily obtain subsequent employment which does not violate this Agreement.(h) Specific Performance. Executive acknowledges and agrees that any breach of any of the Protective Covenants or the provisions of Section 10 byhim will cause irreparable damage to the Company or the Company’s subsidiaries, the exact amount of which will be difficult to determine, and that the remediesat law for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any other remedy that may be available at law, in equity, orhereunder, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any violationof any of the Protective Covenants by him. 10.Ownership of Work Product.(a) Assignment of Inventions. Executive will make full written disclosure to the Company, and hold in trust for the sole right and benefit of theCompany, and hereby assigns to the Company, or its designees, all of the Executive’s right, title, and interest in and to any and all inventions, original works ofauthorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which the Executivemay solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time theExecutive is engaged as an employee of the Company (collectively referred to as “Inventions”) and which (i) are developed using the equipment, supplies,facilities or Confidential Information or Trade Secrets of the Company or the Company’s subsidiaries, (ii) result from or are suggested by work performed byExecutive for the Company or the Company’s subsidiaries, or (iii) relate at the time of conception or reduction to practice to the business as conducted by theCompany or the Company’s subsidiaries, or to the actual or demonstrably anticipated research or development of the Company or the Company’s subsidiaries, willbe the sole and exclusive property of the Company or the Company’s subsidiaries, and Executive will and hereby does assign all of the Executive’s right, title andinterest in such Inventions to the Company and the Company’s subsidiaries. Executive further acknowledge that all original works of authorship which are madeby him (solely or jointly with others) within the scope of and during the period of the Executive’s employment arrangement with the Company and which areprotectible by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.(b) Patent and Copyright Registrations. Executive agrees to assist the Company and the Company’s subsidiaries, or their designees, at theCompany or the Company’s subsidiaries’ expense, in every proper way to secure the Company’s or the Company’s subsidiaries’ rights in the Inventions and anycopyrights, patents, mask work rights or other intellectual property 12rights relating thereto in any and all countries, including the disclosure to the Company and the Company’s subsidiaries of all pertinent information and data withrespect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company or the Company’s subsidiariesshall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company and its subsidiaries, and their successors,assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectualproperty rights relating thereto. Executive further agree that the Executive’s obligation to execute or cause to be executed, when it is in the Executive’s power to doso, any such instrument or papers shall continue after the termination of this Agreement.(c) Inventions Retained and Licensed. There are no inventions, original works of authorship, developments, improvements, and trade secrets whichwere made by Executive prior to the Executive’s employment with the Company (collectively referred to as “Prior Inventions”), which belong to Executive, whichrelate to the Company’s or the Company’s subsidiaries’ proposed business, products or research and development, and which are not assigned to the Company orthe Company’s subsidiaries hereunder.(d) Return of Company Property and Information. The Executive agrees not to remove any property of the Company or the Company’ssubsidiaries or information from the premises of the Company or the Company’s subsidiaries, except when authorized by the Company or the Company’ssubsidiaries. Executive agrees to return all such property and information within seven days following the cessation of Executive’s employment for any reason.Such property includes, but is not limited to, the original and any copy (regardless of the manner in which it is recorded) of all information provided by theCompany or the Company’s subsidiaries to the Executive or which the Executive has developed or collected in the scope of the Executive’s employment, as wellas all issued equipment, supplies, accessories, vehicles, keys, instruments, tools, devices, computers, cell phones, materials, documents, plans, records, notebooks,drawings, or papers. Upon request by the Company, the Executive shall certify in writing that all copies of information subject to this Agreement located on theExecutive’s computers or other electronic storage devices have been permanently deleted. Provided, however, the Executive may retain copies of documentsrelating to any employee benefit plans applicable to the Executive and income records to the extent necessary for the Executive to prepare the Executive’sindividual tax returns.11. Mitigation. The Executive shall not be required to mitigate the amount of any payment the Company becomes obligated to make to the Executive inconnection with this Agreement, by seeking other employment or otherwise. Except as specifically provided above with respect to the health care continuationbenefit, the amount of any payment provided for in Section 8 shall not be reduced, offset or subject to recovery by the Company by reason of any compensationearned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise.12. Withholding of Taxes. The Company shall withhold from any amounts or benefits payable under this Agreement all federal, state, city or other taxesthat the Company is required to withhold under any applicable law, regulation or ruling.13. Modification and Severability. The terms of this Agreement shall be presumed to be enforceable, and any reading causing unenforceability shall yieldto a construction permitting 13enforcement. If any single covenant or provision in this Agreement shall be found unenforceable, it shall be severed and the remaining covenants and provisionsenforced in accordance with the tenor of the Agreement. In the event a court should determine not to enforce a covenant as written due to overbreadth, the partiesspecifically agree that said covenant shall be enforced to the maximum extent reasonable, whether said revisions be in time, territory, scope of prohibited activities,or other respects.14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.15. Remedies and Forum. The parties agree that they will not file any action arising out of this Agreement other than in the United States District Courtfor the Northern District of Georgia or the State or Superior Courts of Cobb County, Georgia. Notwithstanding the pendency of any proceeding, either party shallbe entitled to injunctive relief in a state or federal court located in Cobb County, Georgia upon a showing of irreparable injury. The parties consent to personaljurisdiction and venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. The prevailing partyshall be entitled to recover its costs and attorney’s fees from the non-prevailing party(ies) in any such proceeding no later than 90 days following the settlement orfinal resolution of any such proceeding. The existence of any claim or cause of action by the Executive against the Company or the Company’s subsidiaries,including any dispute relating to the termination of this Agreement, shall not constitute a defense to enforcement of said covenants by injunction.16. Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by registered or certified mail, returnreceipt requested, or by a nationally-recognized overnight delivery service to the parties at their addresses set forth on the signature page of this Agreement. Eachparty may, from time to time, designate a different address to which notices should be sent.17. Amendment. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the partieshereto or their legal representatives.18. Binding Effect. This Agreement shall be binding on the Executive and the Company and their respective successors and assigns effective on theEffective Date. Executive consents to any assignment of this Agreement by the Company, so long as the Company will require any successor to all or substantiallyall of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that theCompany would be required to perform it if no such succession had taken place. If the Executive dies before receiving all payments due under this Agreement,unless expressly otherwise provided hereunder or in a separate plan, program, arrangement or agreement, any remaining payments due after the Executive’s deathshall be made to the Executive’s beneficiary designated in writing (provided such writing is executed and dated by the Executive and delivered to the Company ina form acceptable to the Company prior to the Executive’s death) and surviving the Executive or, if none, to the Executive’s estate.19. No Construction Against Any Party. This Agreement is the product of informed negotiations between the Executive and the Company. If any part ofthis Agreement is deemed to 14be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. The Executive and the Company agree that none of the parties were in asuperior bargaining position regarding the substantive terms of this Agreement.20. Deferred Compensation Omnibus Provision. Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit whichis provided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Code shall beprovided and paid in a manner, and at such time, including without limitation payment and provision of benefits only in connection with the occurrence of apermissible payment event contained in Section 409A (e.g. separation from service from the Company and its affiliates as defined for purposes of Section 409A ofthe Code), and in such form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided thereinfor non-compliance. Notwithstanding any other provision of this Agreement, the Company’s Compensation Committee or Board of Directors is authorized toamend this Agreement, to amend or void any election made by the Executive under this Agreement and/or to delay the payment of any monies and/or provision ofany benefits in such manner as may be determined by it to be necessary or appropriate to comply, or to evidence or further evidence required compliance, withSection 409A of the Code (including any transition or grandfather rules thereunder). For purposes of this Agreement, all rights to payments and benefits hereundershall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. If the Executive is a keyemployee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s stock is publicly traded on an establishedsecurities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject toSection 409A of the Code shall be deferred for six (6) months after termination of Executive’s employment or, if earlier, Executive’s death, as required bySection 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically duringthe 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soonas the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any suchbenefit may be provided during the 409A Deferral Period at the Executive’s expense, with the Executive having a right to reimbursement from the Company oncethe 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. For purposes of this Agreement, termination ofemployment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further serviceswould be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independentcontractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36-monthperiod (or, if lesser, Executive’s period of service).21. Mandatory Reduction of Payments in Certain Events. Anything in this Agreement to the contrary notwithstanding, in the event it shall bedetermined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant tothe terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Code, then, prior tothe making of any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of the Payment after payment of the Excise Tax to(ii) the net benefit to 15Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than theamount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). Inthat event, cash payments shall be modified or reduced first and then any other benefits. The determination of whether an Excise Tax would be imposed, theamount of such Excise Tax, and the calculation of the amounts referred to in clauses (i) and (ii) of the foregoing sentence shall be made by an independentaccounting firm selected by Company and reasonably acceptable to the Executive, at the Company’s expense (the “Accounting Firm”), and the Accounting Firmshall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of theuncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Paymentswhich Executive was entitled to, but did not receive pursuant to this Section 21, could have been made without the imposition of the Excise Tax(“Underpayment”). In such event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall bepromptly paid by the Company to or for the benefit of the Executive.22. Entire Agreement. Except as provided in the next sentence, this Agreement constitutes the entire agreement of the parties with respect to the mattersaddressed herein and it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of thisAgreement. It is further specifically agreed and acknowledged that, except as provided herein, the Executive shall not be entitled to severance payments or benefitsunder any severance or similar plan, program, arrangement or agreement of or with the Company for any termination of employment occurring while thisAgreement is in effect.[Signatures are on the following page.] 16IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written herein. PRGX GLOBAL, INC.By: /s/ Victor A. AllumsIts: Senior Vice President and General Counsel 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel EXECUTIVE/s/ Catherine H. LafiandraCatherine H. Lafiandra290 Robin Hood RoadAtlanta, GA 30309 17EXHIBIT ARESTRICTED TERRITORYThe Atlanta-Sandy Springs-Marietta, GA Metropolitan Statistical Area.Exhibit 10.35EMPLOYMENT AGREEMENTTHIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of February 8, 2012 (the “Effective Date”) by and between PRGXGlobal, Inc., a Georgia corporation (the “Company”), and Puneet Pamnani (the “Executive”). This Agreement supersedes, replaces and terminates any employmentagreement or compensation arrangement previously entered into or agreed to by and among the Company and/or any of its subsidiaries and the Executive.W I T N E S S E T H:WHEREAS, the Company considers the availability of the Executive’s services to be important to the management and conduct of the Company’s businessand desires to secure the availability of the Executive’s services; andWHEREAS, the Executive is willing to make the Executive’s services available to the Company on the terms and subject to the conditions set forth herein.NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth and intending to be legallybound, the Company and the Executive agree as follows: 1.Employment and Duties.(a) Position. The Company hereby employs the Executive, and the Executive hereby accepts such employment, as the Senior Vice President —Strategy, M&A and Portfolio Management of the Company, on the terms and subject to the conditions of this Agreement. The Executive agrees to perform suchduties and responsibilities as are customarily performed by persons acting in such capacity or as are assigned to Executive from time to time by the Board ofDirectors of the Company or its designees. The Executive acknowledges and agrees that from time to time the Company may assign Executive additional positionswith the Company or the Company’s subsidiaries, with such title, duties and responsibilities as shall be determined by the Company. The Executive agrees to servein any and all such positions without additional compensation. The Executive will report directly to the Chief Executive Officer of the Company.(b) Duties. The Executive shall devote the Executive’s best efforts and full professional time and attention to the business and affairs of the Companyand the Company’s subsidiaries. During the Term, Executive shall not serve as a director or principal of any other company or charitable or civic organizationwithout the prior written consent of the Board of Directors of the Company. The principal place(s) of employment of the Executive shall be the Company’sexecutive offices in Atlanta, Georgia subject to reasonable travel on the business of the Company or the Company’s subsidiaries. The Executive shall be expectedto follow and be bound by the terms of the Company’s Code of Conduct and Code of Ethics for Senior Financial Officers and any other applicable policies as theCompany from time to time may adopt.2. Term. This Agreement is effective as of the Effective Date, and will continue through the first anniversary of the Effective Date, unless terminated orextended as hereinafter provided. This Agreement shall be extended for successive one-year periods following the original term (through each subsequentanniversary thereafter) unless any party notifies the other in writing at least 30 days prior to the end of the original term, or the end of any additional one-yearrenewal term, that the Agreement shall not be extended beyond its then current term. The term of this Agreement, including any renewal term, is referred to hereinas the “Term.” 3.Compensation.(a) Base Salary. The Company shall pay the Executive an annual base salary of $223,650. The annual base salary shall be paid to the Executive inaccordance with the established payroll practices of the Company (but no less frequently than monthly) subject to ordinary and lawful deductions. TheCompensation Committee of the Company will review the Executive’s base salary from time to time to consider whether any increase should be made. The basesalary during the Term will not be less than that in effect at any time during the Term.(b) Annual Bonus. During the Term, the Executive will be eligible to participate in an annual incentive bonus plan that will establish measurablecriteria and incentive compensation levels payable to the Executive for performance in relation to defined targets established by the Compensation Committee ofthe Company’s Board of Directors, after consultation with management, and consistent with the Company’s business plans and objectives. To the extent thetargeted performance levels are exceeded, the incentive bonus plan will provide a means by which the annual bonus will be increased. Similarly, the incentive planwill provide a means by which the annual bonus will be decreased or eliminated if the targeted performance levels are not achieved. In connection with such annualincentive bonus plan, subject to the corresponding performance levels being achieved, the Executive shall be eligible for an annual target bonus equal to 50 percentof the Executive’s annual base salary and an annual maximum bonus equal to 100 percent of the Executive’s annual base salary. Any bonus payments duehereunder shall be payable to the Executive no later than the 15 day of the third month following the end of the applicable year to which the incentive bonusrelates.(c) Stock Compensation. The Executive also shall be eligible to receive stock options, restricted stock, stock appreciation rights and/or other equityawards under the Company’s applicable equity plans on such basis as the Compensation Committee or the Board of Directors of the Company or their designees,as the case may be, may determine on a basis not less favorable than that provided to the class of employees that includes the Executive. Except as specifically setforth above, however, nothing herein shall require the Company to make any equity grants or other awards to the Executive in any specific year.4. Indemnity. The Company and the Executive will enter into the Company’s standard indemnification agreement for executive officers. 5.Benefits.(a) Benefit Programs. The Executive shall be eligible to participate in any plans, programs or forms of compensation or benefits that the Companyor the Company’s subsidiaries provide to the class of employees that includes the Executive, on a basis not less favorable than that provided to such class ofemployees, including, without limitation, group medical, disability and life insurance, paid time-off, and retirement plan, subject to the terms and conditions ofsuch plans, programs or forms of compensation or benefits. 2th(b) Paid Time-Off. The Executive shall be entitled to five weeks of paid time-off, to be accrued and used in accordance with the normal Companypaid time-off policy.6. Reimbursement of Expenses. The Company shall reimburse the Executive, subject to presentation of adequate substantiation, including receipts, for thereasonable travel, entertainment, lodging and other business expenses incurred by the Executive in accordance with the Company’s expense reimbursement policyin effect at the time such expenses are incurred. In no event will such reimbursements, if any, be made later than the last day of the year following the year in whichthe Executive incurs the expense. 7.Termination of Employment.(a) Death or Incapacity. The Executive’s employment under this Agreement shall terminate automatically upon the Executive’s death. If theCompany determines that the Incapacity, as hereinafter defined, of the Executive has occurred, it may terminate the Executive’s employment and this Agreement.“Incapacity” shall mean the inability of the Executive to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for aperiod of 90 days in the aggregate in any rolling 180-day period.(b) Termination by Company For Cause. The Company may terminate the Executive’s employment during the Term of this Agreement for Cause.For purposes of this Agreement, “Cause” shall mean, as determined by the Board of Directors of the Company in good faith, the following:(i) the Executive’s willful misconduct or gross negligence in connection with the performance of the Executive’s duties which the Board ofDirectors of the Company believes does or is likely to result in material harm to the Company or any of its subsidiaries;(ii) the Executive’s misappropriation or embezzlement of funds or property of the Company or any of its subsidiaries;(iii) the Executive’s fraud or dishonesty with respect to the Company or any of its subsidiaries;(iv) the Executive’s conviction of, indictment for (or its procedural equivalent), or entering of a guilty plea or plea of no contest with respect toany felony or any other crime involving moral turpitude or dishonesty; or(v) the Executive’s breach of a material term of this Agreement, or violation in any material respect of any code or standard of behaviorgenerally applicable to officers of the Company (including, without, limitation the Company’s Code of Conduct, Code of Ethics for Senior FinancialOfficers and any other applicable policies as the Company from time to time may adopt), after being advised in writing of such breach or violationand being given 30 days to remedy such breach or violation, to the extent that such breach or violation can be cured;(vi) the Executive’s breach of fiduciary duties owed to the Company or any of its subsidiaries; 3(vii) the Executive’s engagement in habitual insobriety or the use of illegal drugs or substances; or(viii) the Executive’s willful failure to cooperate, or willful failure to cause and direct persons under the Executive’s management or direction,or employed by, or consultants or agents to, the Company or its subsidiaries to cooperate, with all corporate investigations or independentinvestigations by the Board of Directors of the Company or its subsidiaries, all governmental investigations of the Company or its subsidiaries ororders involving the Executive, the Company or the Company’s subsidiaries entered by a court of competent jurisdiction.Notwithstanding the above, and without limitation, the Executive shall not be deemed to have been terminated for Cause unless and until there has been deliveredto the Executive (i) a letter from the Board of Directors of the Company finding that the Executive has engaged in the conduct set forth in any of the precedingclauses and specifying the particulars thereof in detail and (ii) a copy of a resolution duly adopted by the affirmative vote of the majority of the members of theBoard of Directors of the Company who are not officers of the Company at a meeting of the Board of Directors called and held for such purpose or such otherappropriate written consent (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard beforethe Board of Directors of the Company), finding that the Executive has engaged in such conduct and specifying the particulars thereof in detail.(c) Termination by Executive for Good Reason. The Executive may terminate the Executive’s employment for Good Reason. For purposes of thisAgreement, “Good Reason” shall mean, without the Executive’s consent, the following:(i) any action taken by the Company which results in a material reduction in the Executive’s authority, duties or responsibilities (except that anychange in the foregoing that results solely from (A) the Company ceasing to be a publicly traded entity or from the Company becoming a wholly-owned subsidiary of another publicly traded entity or (B) any change in the geographic scope of the Executive’s authority, duties or responsibilitieswill not, in any event and standing alone, constitute a substantial reduction in the Executive’s authority, duties or responsibilities), including anyrequirement that the Executive report directly to anyone other than the Chief Executive Officer of the Company;(ii) the assignment to the Executive of duties that are materially inconsistent with Executive’s authority, duties or responsibilities;(iii) any material decrease in the Executive’s base salary or annual bonus opportunity or the benefits generally available to the class ofemployees that includes the Executive, except to the extent the Company has instituted a salary, bonus or benefits reduction generally applicable to allexecutives of the Company other than in contemplation of or after a Change in Control;(iv) the relocation of the Executive to any primary place of employment other than as specified in Section 1(b) above which might require theExecutive to move the Executive’s residence which, for this purpose, means any reassignment to a place of employment 50 miles or more from theplace (or, if applicable, all places) of employment 4set forth in Section 1(b), without the Executive’s express written consent to such relocation; provided, however, this subsection (iv) shall not apply inthe case of business travel which requires the Executive to relocate temporarily for periods of 90 days or less;(v) the failure by the Company to pay to the Executive any portion of the Executive’s base salary, annual bonus or other benefits within 10 daysafter the date the same is due; or(vi) any material failure by the Company to comply with the terms of this Agreement.Notwithstanding the above, and without limitation, “Good Reason” shall not include any resignation by the Executive where Cause for the Executive’s terminationby the Company exists and the Company then follows the procedures described above. The Executive must give the Company notice of any event or condition thatwould constitute “Good Reason” within 30 days of the event or condition which would constitute “Good Reason,” and upon the receipt of such notice theCompany shall have 30 days to remedy such event or condition. If such event or condition is not remedied within such 30-day period, any termination ofemployment by the Executive for “Good Reason” must occur within 30 days after the period for remedying such condition or event has expired.(d) Termination by Company Without Cause or by Executive Other than For Good Reason. The Company may terminate the Executive’semployment during the Term of this Agreement without Cause, and Executive may terminate the Executive’s employment for other than Good Reason, upon 30days’ written notice. The Company may elect to pay the Executive during any applicable notice period (in accordance with the established payroll practices of theCompany, no less frequently than monthly) and remove him from active service.(e) Termination by Executive on Failure to Renew. The Executive may terminate the Executive’s employment at any time on or before theexpiration of the Term of the Agreement, if the Company notifies the Executive that the Term of the Agreement shall not be extended as provided in Section 2above. 8.Obligations of the Company Upon Termination.(a) Without Cause; Good Reason; Non-Renewal (No Change in Control). If, during the Term, the Company terminates the Executive’semployment without Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance withSection 7(c) hereof, or the Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e)hereof, other than within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:(i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, ifgreater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for whichthe Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of one year or the sum of four weeksfor each full year of continuous service the Executive has with the Company and 5its subsidiaries at the time of termination of employment, beginning immediately following termination of employment (the “Severance Period”),payable in accordance with the established payroll practices of the Company (but no less frequently than monthly), beginning on the first payroll datefollowing 30 days after termination of employment, with the Executive to receive at that time a lump sum payment with respect to any installmentsthe Executive was entitled to receive during the first 30 days following termination of employment, and the remaining payments made as if they hadcommenced immediately following termination of employment;(ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’semployment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonusfor the year otherwise would be paid had the Executive continued employment;(iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than thatunder a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the SeverancePeriod, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated activeemployees during such Severance Period, provided that such continued participation is possible under the general terms and provisions of such plansand programs and provided that such continued coverage by the Company shall terminate in the event Executive becomes eligible for any suchcoverage under another employer’s plans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’sspouse or dependents is not feasible under the terms and provisions of such plans and programs (or where such continuation would adversely affectthe tax status of the plan pursuant to which the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of theexpected Company contribution therefor for such same period of time, with such payments to be made in accordance with the established payrollpractices of the Company (not less frequently than monthly) for the period during which such cash payments are to be provided;(iv) payment of any Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” shall mean the sum of (A) the Executive’sannual base salary through Executive’s termination of employment which remains unpaid, (B) the amount, if any, of any incentive or bonuscompensation earned for any completed fiscal year of the Company which has not yet been paid, (C) any reimbursements for expenses incurred butnot yet paid, and (D) any benefits or other amounts, including both cash and stock components, which pursuant to the terms of any plans, policies orprograms have been earned or become payable, but which have not yet been paid to the Executive, including payment for any unused paid time-off(but not including amounts that previously had been deferred at the Executive’s request, which amounts will be paid in accordance with theExecutive’s existing directions). The Accrued Obligations will be paid to the Executive in a lump sum as soon as administratively feasible after theExecutive’s termination of employment, which for purposes of any incentive or bonus compensation described in (B) above shall mean at the sametime such annual bonus would otherwise have been paid; 6(v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested basedsolely on the continued employment of the Executive. Additionally, all of Executive’s outstanding stock options shall remain outstanding until theearlier of (i) one year after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding anyearlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the terminationof the Executive’s employment); and(vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to$20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after thetermination of the Executive’s employment.(b) Without Cause; Good Reason; Non-Renewal (Change in Control). If, during the Term, the Company terminates the Executive’s employmentwithout Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c)hereof, or the Executive terminates the Executive’s employment upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof,within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:(i) payment of the Executive’s annual base salary in effect immediately preceding the date of the Executive’s termination of employment (or, ifgreater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for whichthe Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of 18 months or the sum of four weeksfor each full year of continuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, beginningimmediately following termination of employment (the “Change in Control Severance Period”), payable in accordance with the established payablepractices of the Company (but no less frequently than monthly), beginning on the first payroll date following 30 days after termination ofemployment, with the Executive to receive at that time a lump sum payment with respect to any installments the Executive was entitled to receiveduring the first 30 days following termination of employment;(ii) payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’semployment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonusfor the year otherwise would be paid had the Executive continued employment;(iii) continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than thatunder a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Change inControl Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during such Change in Control Severance Period, 7provided that such continued participation is possible under the general terms and provisions of such plans and programs and provided that suchcontinued contribution by the Company shall terminate in the event Executive becomes eligible for any such coverage under another employer’splans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’s spouse or dependents is not feasibleunder the terms and provisions of such plans and programs (or where such continuation would adversely affect the tax status of the plan pursuant towhich the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of the expected Company contribution thereforfor such same period of time, with such payments to be made in accordance with the established payroll practices of the Company (not less frequentlythan monthly) for the period during which such cash payments are to be provided;(iv) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment,which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonuswould otherwise have been paid;(v) vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested basedsolely on the continued employment of the Executive. Additionally, all of the Executive’s outstanding stock options shall remain outstanding until theearlier of (i) one year after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding anyearlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the terminationof the Executive’s employment); and(vi) payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to$20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 60 days after thetermination of the Executive’s employment.(c) Death or Incapacity. If the Executive’s employment is terminated by reason of death or Incapacity in accordance with Section 7(a) hereof, theExecutive shall be entitled to receive:(i) payment of an amount equal to the actual full-year bonus earned for the year that includes Executive’s death or Incapacity, prorated basedon the number of days the Executive is employed for the year, payable at the same time such annual bonus would otherwise have been paid had theExecutive continued employment; and(ii) payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment,which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonuswould otherwise have been paid.(d) Cause; Other Than for Good Reason. If the Company terminates the Executive’s employment for Cause in accordance with Section 7(b)hereof, or the Executive terminates the Executive’s employment other than for Good Reason in accordance with Section 7(d) 8hereof, this Agreement shall terminate without any further obligation to the Executive other than to pay the Accrued Obligations (except that any incentive orbonus compensation earned for any completed fiscal year of the Company which has not yet been paid shall not be paid if the Company terminates the Executive’semployment for Cause in accordance with Section 7(b) hereof) as soon as administratively feasible after the Executive’s termination of employment.(e) Release and Waiver. Notwithstanding any other provision of this Agreement, the Executive’s right to receive any payments or benefits underSections 8(a)(i), (ii), (iii), (v) and (vi) and 8(b)(i), (ii), (iii), (v) and (vi) of this Agreement upon the termination of the Executive’s employment by the Companywithout Cause, by the Executive for Good Reason, or by the Executive upon the Company’s failure to renew the Agreement is contingent upon and subject to theExecutive signing and delivering to the Company a separation agreement and complete general release of all claims in a form acceptable to Company, andallowing the applicable revocation period required by law to expire without revoking or causing revocation of same, within 30 days following the date oftermination of Executive’s employment.(f) Change in Control. For purposes of this Agreement, Change of Control means the occurrence of any of the following events:(i) The accumulation in any number of related or unrelated transactions by any person of beneficial ownership (as such term is used in Rule13d-3, promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50 percent or more of the combined total votingpower of the Company’s voting stock; provided that for purposes of this subsection (a), a Change in Control will not be deemed to have incurred if theaccumulation of 50 percent or more of the voting power of the Company’s voting stock results from any acquisition of voting stock (i) by theCompany, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of the Company’s subsidiaries, or(iii) by any person pursuant to a merger, consolidation, reorganization or other transaction (a “Business Combination”) that would not cause a Changein Control under subsection (ii) below; or(ii) A consummation of a Business Combination, unless, immediately following that Business Combination, substantially all the persons whowere the beneficial owners of the voting stock of the Company immediately prior to that Business Combination beneficially own, directly orindirectly, at least 50 percent of the combined voting power of the voting stock of the entity resulting from that Business Combination (including,without limitation, an entity that as a result of that transaction owns the Company, or all or substantially all of the Company assets, either directly orthrough one or more subsidiaries) in substantially the same proportions relative to each other as the ownership, immediately prior to that BusinessCombination, of the voting stock of the Company;(iii) A sale or other disposition of all or substantially all of the assets of the Company except pursuant to a Business Combination that would notcause a Change in Control under subsection (ii) above;(iv) At any time less than a majority of the members of the Board of Directors of the Company or any entity resulting from any BusinessCombination are Incumbent Board Members. 9(v) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a BusinessCombination that would not cause a Change in Control under subsection (ii) above; or(vi) Any other transaction or event that the Board of Directors of the Company identifies as a Change in Control for purposes of thisAgreement.(vii) For purposes of this Agreement, an “Incumbent Board Member” shall mean any individual who either is (a) a member of the CompanyBoard of Directors as of the Effective Date or (b) a member who becomes a member of the Company’s Board of Directors subsequent to the EffectiveDate of this Agreement, whose election or nomination by the Company’s shareholders, was approved by a vote of at least a majority of the thenIncumbent Board Members (either by specific vote or by approval of a proxy statement of the Company in which that person is named as a nomineefor director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a resultof an actual or threatened election contest (within the meaning of Rule 14A-11 of the Exchange Act) with respect to the election or removal ofdirectors or other actual threatened solicitation or proxies or consents by or on behalf of the person other than a board of directors. For purposes of thisAgreement, a person means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporatedassociation, joint-stock company, trusts, unincorporated organization or any other entity of any kind. 9.Business Protection Agreements.(a) Definitions. For purposes of this Agreement, the following terms shall have the following meanings:(i) “Business of the Company” means services to (A) identify clients’ erroneous or improper payments, (B) assist clients in the recovery ofmonies owed to them as a result of overpayments and overlooked discounts, rebates, allowances and credits, and (C) assist clients in the improvementand execution of their procurement and payment processes.(ii) “Confidential Information” means any information about the Company or the Company’s subsidiaries and their employees, customersand/or suppliers which is not generally known outside of the Company or the Company’s subsidiaries, which Executive learns of in connection withExecutive’s employment with the Company, and which would be useful to competitors or the disclosure of which would be damaging to theCompany or the Company’s subsidiaries. Confidential Information includes, but is not limited to: (A) business and employment policies, marketingmethods and the targets of those methods, finances, business plans, promotional materials and price lists; (B) the terms upon which the Company orthe Company’s subsidiaries obtains products from their suppliers and sells services and products to customers; (C) the nature, origin, composition anddevelopment of the Company or the Company’s subsidiaries’ services and products; and (D) the manner in which the Company or the Company’ssubsidiaries provide products and services to their customers. 10(iii) “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence in furtherance of the Business of theCompany.(iv) “Restricted Territory” means, and is limited to, the geographic area described in Exhibit A attached hereto. Executive acknowledges andagrees that this is the area in which the Company and its subsidiaries does business at the time of the execution of this Agreement, and in which theExecutive will have responsibility, at a minimum, on behalf of the Company and the Company’s subsidiaries. Executive acknowledges and agreesthat if the geographic area in which Executive has responsibility should change while employed under this Agreement, Executive will execute anamendment to the definition of “Restricted Territory” to reflect such change. This duty shall be part of the consideration provided by Executive forExecutive’s employment hereunder.(v) “Trade Secrets” means the trade secrets of the Company or the Company’s subsidiaries as defined under applicable law.(b) Confidentiality. Executive agrees that the Executive will not (other than in the performance of Executive’s duties hereunder), directly orindirectly, use, copy, disclose or otherwise distribute to any other person or entity: (a) any Confidential Information during the period of time the Executive isemployed by the Company and for a period of five years thereafter; or (b) any Trade Secret at any time such information constitutes a trade secret under applicablelaw. Upon the termination of Executive’s employment with the Company (or upon the earlier request of the Company), Executive shall promptly return to theCompany all documents and items in the Executive’s possession or under the Executive’s control which contain any Confidential Information or Trade Secrets.(c) Non-Competition. Executive agrees that during the Executive’s employment with the Company and for a period of two years thereafter,Executive will not, either for himself or on behalf of any other person or entity, compete with the Business of the Company within the Restricted Territory byperforming activities which are the same as or similar to those performed by Executive for the Company or the Company’s subsidiaries.(d) Non-Solicitation of Customers. Executive agrees that during Executive’s employment with the Company and for a period of two yearsthereafter, Executive shall not, directly or indirectly, solicit any actual or prospective customers of the Company or the Company’s subsidiaries with whomExecutive had Material Contact, for the purpose of selling any products or services which compete with the Business of the Company(e) Non-Recruitment of Employees or Contractors. Executive agrees that during the Executive’s employment with the Company and for a periodof two years thereafter, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of the Company or the Company’ssubsidiaries with whom Executive had Material Contact, to terminate or lessen such employment or contract.(f) Obligations of the Company. The Company agrees to provide Executive with Confidential Information in order to enable Executive to performExecutive’s duties hereunder. The covenants of Executive contained in the covenants of Confidentiality, Non-Competition, Non-Solicitation of Customers andNon-Recruitment of Employees or Contractors set forth in 11Subsections 9(b)—9(e) above (“Protective Covenants”) are made by Executive in consideration for the Company’s agreement to provide Confidential Informationto Executive, and intended to protect Company’s Confidential Information and the investments the Company makes in training Executive and developing customergoodwill.(g) Acknowledgments. Executive hereby acknowledges and agrees that the covenants contained in (b) through (e) of this Section 9 and Section 10hereof are reasonable as to time, scope and territory given the Company and the Company’s subsidiaries’ need to protect their business, customer relationships,personnel, Trade Secrets and Confidential Information. Executive acknowledges and represents that Executive has substantial experience and knowledge such thatExecutive can readily obtain subsequent employment which does not violate this Agreement.(h) Specific Performance. Executive acknowledges and agrees that any breach of any of the Protective Covenants or the provisions of Section 10 byhim will cause irreparable damage to the Company or the Company’s subsidiaries, the exact amount of which will be difficult to determine, and that the remediesat law for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any other remedy that may be available at law, in equity, orhereunder, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any violationof any of the Protective Covenants by him. 10.Ownership of Work Product.(a) Assignment of Inventions. Executive will make full written disclosure to the Company, and hold in trust for the sole right and benefit of theCompany, and hereby assigns to the Company, or its designees, all of the Executive’s right, title, and interest in and to any and all inventions, original works ofauthorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which the Executivemay solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time theExecutive is engaged as an employee of the Company (collectively referred to as “Inventions”) and which (i) are developed using the equipment, supplies,facilities or Confidential Information or Trade Secrets of the Company or the Company’s subsidiaries, (ii) result from or are suggested by work performed byExecutive for the Company or the Company’s subsidiaries, or (iii) relate at the time of conception or reduction to practice to the business as conducted by theCompany or the Company’s subsidiaries, or to the actual or demonstrably anticipated research or development of the Company or the Company’s subsidiaries, willbe the sole and exclusive property of the Company or the Company’s subsidiaries, and Executive will and hereby does assign all of the Executive’s right, title andinterest in such Inventions to the Company and the Company’s subsidiaries. Executive further acknowledge that all original works of authorship which are madeby him (solely or jointly with others) within the scope of and during the period of the Executive’s employment arrangement with the Company and which areprotectible by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.(b) Patent and Copyright Registrations. Executive agrees to assist the Company and the Company’s subsidiaries, or their designees, at theCompany or the Company’s subsidiaries’ expense, in every proper way to secure the Company’s or the Company’s subsidiaries’ rights in the Inventions and anycopyrights, patents, mask work rights or other intellectual property 12rights relating thereto in any and all countries, including the disclosure to the Company and the Company’s subsidiaries of all pertinent information and data withrespect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company or the Company’s subsidiariesshall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company and its subsidiaries, and their successors,assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectualproperty rights relating thereto. Executive further agree that the Executive’s obligation to execute or cause to be executed, when it is in the Executive’s power to doso, any such instrument or papers shall continue after the termination of this Agreement.(c) Inventions Retained and Licensed. There are no inventions, original works of authorship, developments, improvements, and trade secrets whichwere made by Executive prior to the Executive’s employment with the Company (collectively referred to as “Prior Inventions”), which belong to Executive, whichrelate to the Company’s or the Company’s subsidiaries’ proposed business, products or research and development, and which are not assigned to the Company orthe Company’s subsidiaries hereunder.(d) Return of Company Property and Information. The Executive agrees not to remove any property of the Company or the Company’ssubsidiaries or information from the premises of the Company or the Company’s subsidiaries, except when authorized by the Company or the Company’ssubsidiaries. Executive agrees to return all such property and information within seven days following the cessation of Executive’s employment for any reason.Such property includes, but is not limited to, the original and any copy (regardless of the manner in which it is recorded) of all information provided by theCompany or the Company’s subsidiaries to the Executive or which the Executive has developed or collected in the scope of the Executive’s employment, as wellas all issued equipment, supplies, accessories, vehicles, keys, instruments, tools, devices, computers, cell phones, materials, documents, plans, records, notebooks,drawings, or papers. Upon request by the Company, the Executive shall certify in writing that all copies of information subject to this Agreement located on theExecutive’s computers or other electronic storage devices have been permanently deleted. Provided, however, the Executive may retain copies of documentsrelating to any employee benefit plans applicable to the Executive and income records to the extent necessary for the Executive to prepare the Executive’sindividual tax returns.11. Mitigation. The Executive shall not be required to mitigate the amount of any payment the Company becomes obligated to make to the Executive inconnection with this Agreement, by seeking other employment or otherwise. Except as specifically provided above with respect to the health care continuationbenefit, the amount of any payment provided for in Section 8 shall not be reduced, offset or subject to recovery by the Company by reason of any compensationearned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise.12. Withholding of Taxes. The Company shall withhold from any amounts or benefits payable under this Agreement all federal, state, city or other taxesthat the Company is required to withhold under any applicable law, regulation or ruling.13. Modification and Severability. The terms of this Agreement shall be presumed to be enforceable, and any reading causing unenforceability shall yieldto a construction permitting 13enforcement. If any single covenant or provision in this Agreement shall be found unenforceable, it shall be severed and the remaining covenants and provisionsenforced in accordance with the tenor of the Agreement. In the event a court should determine not to enforce a covenant as written due to overbreadth, the partiesspecifically agree that said covenant shall be enforced to the maximum extent reasonable, whether said revisions be in time, territory, scope of prohibited activities,or other respects.14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.15. Remedies and Forum. The parties agree that they will not file any action arising out of this Agreement other than in the United States District Courtfor the Northern District of Georgia or the State or Superior Courts of Cobb County, Georgia. Notwithstanding the pendency of any proceeding, either party shallbe entitled to injunctive relief in a state or federal court located in Cobb County, Georgia upon a showing of irreparable injury. The parties consent to personaljurisdiction and venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. The prevailing partyshall be entitled to recover its costs and attorney’s fees from the non-prevailing party(ies) in any such proceeding no later than 90 days following the settlement orfinal resolution of any such proceeding. The existence of any claim or cause of action by the Executive against the Company or the Company’s subsidiaries,including any dispute relating to the termination of this Agreement, shall not constitute a defense to enforcement of said covenants by injunction.16. Notices. All written notices required by this Agreement shall be deemed given when delivered personally or sent by registered or certified mail, returnreceipt requested, or by a nationally-recognized overnight delivery service to the parties at their addresses set forth on the signature page of this Agreement. Eachparty may, from time to time, designate a different address to which notices should be sent.17. Amendment. This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the partieshereto or their legal representatives.18. Binding Effect. This Agreement shall be binding on the Executive and the Company and their respective successors and assigns effective on theEffective Date. Executive consents to any assignment of this Agreement by the Company, so long as the Company will require any successor to all or substantiallyall of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that theCompany would be required to perform it if no such succession had taken place. If the Executive dies before receiving all payments due under this Agreement,unless expressly otherwise provided hereunder or in a separate plan, program, arrangement or agreement, any remaining payments due after the Executive’s deathshall be made to the Executive’s beneficiary designated in writing (provided such writing is executed and dated by the Executive and delivered to the Company ina form acceptable to the Company prior to the Executive’s death) and surviving the Executive or, if none, to the Executive’s estate.19. No Construction Against Any Party. This Agreement is the product of informed negotiations between the Executive and the Company. If any part ofthis Agreement is deemed to 14be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. The Executive and the Company agree that none of the parties were in asuperior bargaining position regarding the substantive terms of this Agreement.20. Deferred Compensation Omnibus Provision. Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit whichis provided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Code shall beprovided and paid in a manner, and at such time, including without limitation payment and provision of benefits only in connection with the occurrence of apermissible payment event contained in Section 409A (e.g. separation from service from the Company and its affiliates as defined for purposes of Section 409A ofthe Code), and in such form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided thereinfor non-compliance. Notwithstanding any other provision of this Agreement, the Company’s Compensation Committee or Board of Directors is authorized toamend this Agreement, to amend or void any election made by the Executive under this Agreement and/or to delay the payment of any monies and/or provision ofany benefits in such manner as may be determined by it to be necessary or appropriate to comply, or to evidence or further evidence required compliance, withSection 409A of the Code (including any transition or grandfather rules thereunder). For purposes of this Agreement, all rights to payments and benefits hereundershall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. If the Executive is a keyemployee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s stock is publicly traded on an establishedsecurities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject toSection 409A of the Code shall be deferred for six (6) months after termination of Executive’s employment or, if earlier, Executive’s death, as required bySection 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically duringthe 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soonas the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any suchbenefit may be provided during the 409A Deferral Period at the Executive’s expense, with the Executive having a right to reimbursement from the Company oncethe 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. For purposes of this Agreement, termination ofemployment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further serviceswould be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independentcontractor) would permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36-monthperiod (or, if lesser, Executive’s period of service).21. Mandatory Reduction of Payments in Certain Events. Anything in this Agreement to the contrary notwithstanding, in the event it shall bedetermined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant tothe terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Code, then, prior tothe making of any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of the Payment after payment of the Excise Tax to(ii) the net benefit to 15Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than theamount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). Inthat event, cash payments shall be modified or reduced first and then any other benefits. The determination of whether an Excise Tax would be imposed, theamount of such Excise Tax, and the calculation of the amounts referred to in clauses (i) and (ii) of the foregoing sentence shall be made by an independentaccounting firm selected by Company and reasonably acceptable to the Executive, at the Company’s expense (the “Accounting Firm”), and the Accounting Firmshall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of theuncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Paymentswhich Executive was entitled to, but did not receive pursuant to this Section 21, could have been made without the imposition of the Excise Tax(“Underpayment”). In such event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall bepromptly paid by the Company to or for the benefit of the Executive.22. Entire Agreement. Except as provided in the next sentence, this Agreement constitutes the entire agreement of the parties with respect to the mattersaddressed herein and it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of thisAgreement. It is further specifically agreed and acknowledged that, except as provided herein, the Executive shall not be entitled to severance payments or benefitsunder any severance or similar plan, program, arrangement or agreement of or with the Company for any termination of employment occurring while thisAgreement is in effect.[Signatures are on the following page.] 16IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written herein. PRGX GLOBAL, INC.By: /s/ Victor A. AllumsIts: Senior Vice President and General Counsel 600 Galleria Parkway Suite 100 Atlanta, Georgia 30339 Attn: General Counsel EXECUTIVE/s/ Puneet PamnaniPuneet Pamnani860 Peachtree Street, #1217Atlanta, Georgia 30308 17EXHIBIT ARESTRICTED TERRITORYThe Atlanta-Sandy Springs-Marietta, GA Metropolitan Statistical Area. 18EXHIBIT 21.1PRGX GLOBAL, INC.SUBSIDIARIESAs of December 31, 2011 Company Jurisdiction of OrganizationPRGX USA, Inc. GeorgiaPRGX Asia, Inc. GeorgiaPRGX Australia, Inc. GeorgiaPRGX Belgium, Inc. GeorgiaPRGX Canada, LLC GeorgiaPRGX Commercial, LLC GeorgiaPRGX Costa Rica, Inc. GeorgiaPRGX New Zealand, Inc. GeorgiaPRGX Netherlands, Inc. GeorgiaPRGX Mexico, Inc. GeorgiaPRGX France, Inc. GeorgiaPRGX Germany, Inc. GeorgiaPRGX Acquisition, Corp. GeorgiaPRGX Switzerland, Inc. GeorgiaPRGX Italy, Inc. GeorgiaPRGX Spain, Inc. GeorgiaPRGX Portugal, Inc. GeorgiaPRG International, Inc. GeorgiaPRG USA, Inc. GeorgiaPRGX Scandinavia, Inc. GeorgiaPRGX Holdings, Inc. GeorgiaPRGX Puerto Rico, Inc. GeorgiaPRGX Chile, Inc. GeorgiaPRGX Europe, Inc. GeorgiaPRGX Brasil, LLC GeorgiaPRGX India Private Limited IndiaPRGX Holdings Mexico, S de RL de CV MexicoPRGX Servicios Mexico S de RL de CV MexicoPRGX de Mexico S de RL de CV MexicoPRGX Argentina S.A. ArgentinaProfit Recovery Brasil Ltda. BrazilPRG-Schultz International PTE LTD SingaporePRG-Schultz Suzhou' Co Ltd. ChinaPRG-Schultz CR s.r.o. Czech RepublicPRGFS, Inc. DelawarePRGX Texas, Inc. TexasMeridian Corporation Limited Jersey (Channel Islands)PRGX UK Holdings Ltd United KingdomPRG-Schultz Ireland LTD IrelandPRGX UK Ltd United KingdomEtesius Limited United KingdomPRGX Canada Corp. CanadaPRG-Schultz Deutschland GmbH GermanyPRGX Nederland B.V. NetherlandsPRG-Schultz Colombia Ltda. ColumbiaPRG-Schultz Svenska AB SwedenPRG-Schultz Venezuela S. R. L. VenezuelaPRG-Schultz Polska Sp. z o.o PolandHoward Schultz & Associates (Asia) Limited Hong KongHS&A International PTE LTD SingaporePRG-Schultz (Thailand) Limited ThailandHoward Schultz de Mexico, S.A. de C.V. MexicoPRGDS, LLC GeorgiaPRGTS, LLC GeorgiaEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmPRGX Global, Inc.Atlanta, GeorgiaWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File No. 333-134698 and No. 333-171986) and Form S-8 (FileNo. 333-153837, No. 333-64125, No. 333-08707, No. 333-30885, No. 333-61578, No. 333-81168, No. 333-100817, No. 333-137438 and No. 333-170809) ofPRGX Global, Inc. and subsidiaries of our reports dated March 14, 2012, relating to the consolidated financial statements and financial statement schedule, and theeffectiveness of PRGX Global, Inc. and subsidiaries’ internal control over financial reporting, which appear in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaMarch 14, 2012EXHIBIT 31.1CERTIFICATIONI, Romil Bahl, certify that:1. I have reviewed this Form 10-K of PRGX Global, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; and(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; and(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. March 14, 2012 By: /s/ Romil Bahl Romil Bahl President, Chief Executive Officer,Director(Principal Executive Officer)EXHIBIT 31.2CERTIFICATIONI, Robert B. Lee, certify that:1. I have reviewed this Form 10-K of PRGX Global, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant andhave:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; and(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; and(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting. March 14, 2012 By: /s/ Robert B. Lee Robert B. Lee Chief Financial Officer and Treasurer(Principal Financial Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of PRGX Global, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2011 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Romil Bahl, President and Chief Executive Officer of the Company and I, Robert B.Lee, Chief Financial Officer and Treasurer, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the bestof the undersigned’s knowledge: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) theinformation contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. March 14, 2012 By: /s/ Romil Bahl Romil Bahl President, Chief Executive Officer,Director(Principal Executive Officer) March 14, 2012 By: /s/ Robert B. Lee Robert B. Lee Chief Financial Officer and Treasurer(Principal Financial Officer)

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