PRGX Global, Inc.
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549________________________________________FORM 10-K ________________________________________(Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016OR ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 of (I.R.S. Employerincorporation or organization) Identification 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 className of each exchange on which registeredCommon Stock, No Par ValueThe NASDAQ Stock Market LLC (The Nasdaq Global Select Market)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. Yes ¨ No ýIndicate 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 ýNote – 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 ý 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. ýIndicate 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 ý 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 “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):¨ Large accelerated filerýAccelerated filer¨Non-accelerated filer¨Smaller reporting companyIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No ýThe aggregate market value, as of June 30, 2016, of common shares of the registrant held by non-affiliates of the registrant was approximately $110.0million, based upon the last sales price reported that date on The Nasdaq Global Select Market of $5.22 per share. (Aggregate market value is estimated solely forthe purposes of this report and shall not be construed as an admission for the purposes of determining affiliate status.)Common shares of the registrant outstanding at March 6, 2017 were 21,910,591.Documents Incorporated by ReferencePart III: Portions of Registrant’s Proxy Statement relating to the Company’s 2017 Annual Meeting of Shareholders. PRGX GLOBAL, INC.FORM 10-KDecember 31, 2016INDEX Page No.Part I Item 1. Business1Item 1A. Risk Factors8Item 1B. Unresolved Staff Comments15Item 2. Properties15Item 3. Legal Proceedings15Item 4. Mine Safety Disclosures15 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities16Item 6. Selected Financial Data18Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations20Item 7A. Quantitative and Qualitative Disclosures About Market Risk36Item 8. Financial Statements and Supplementary Data37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure76Item 9A. Controls and Procedures76Item 9B. Other Information77Part III Item 10. Directors, Executive Officers and Corporate Governance78Item 11. Executive Compensation78Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters79Item 13. Certain Relationships and Related Transactions, and Director Independence80Item 14. Principal Accountant Fees and Services80Part IV Item 15. Exhibits, Financial Statement Schedules81Item 16. Form 10-K Summary86Signatures86Cautionary 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 growthstrategy;•our continued dependence on our largest clients for significantrevenue;•the use of internal recovery audit groups by our clients, reducing the amount of recoveries available tous;•commoditization of our services and the effects of ratereductions;•the significant control that our clients have over assertion or acceptance of recovery audit claims against their suppliers and the correspondingimpact on our revenue;•changes to Medicare and Medicaid recovery audit contractor (“RAC”) programs administered by the Centers for Medicare and MedicaidServices (“CMS”) and other government agencies, and our role in the national Medicare RAC program, the results of operations of which arereported in our discontinued operations;•revenue that does not meet expectations or justify costsincurred;•our ability to develop material sources of new revenue in addition to revenue from our core accounts payable recovery auditservices;•changes in the market for ourservices;•client and vendor bankruptcies and financialdifficulties;•our ability to retain and attract qualified personnel and effectively manage our globalworkforce;•our ability to protect and maintain the competitive advantage of our proprietary technology and intellectual propertyrights;•our reliance on operations outside the U.S. for a significant portion of ourrevenue;•our ability to effectively manage foreign currencyfluctuations;•the highly competitive environments in which our recovery audit services and Adjacent Services businesses operate and the resulting pricingpressure on those businesses;•our ability to integrate recent and futureacquisitions;•our ability to realize operational cost savings and the transformation severance and related expenses we may incur to generate thesesavings;•uncertainty in the global creditmarkets;•our ability to maintain compliance with the financial and non-financial covenants in our financingarrangements;•our tax positions and other factors that could affect our effective income tax rate or our ability to use our existing deferred taxassets;•our ability to operate in compliance with changing data privacyrequirements;•our ability to comply with a variety of foreign laws and regulations, such as those relating to data protection and employment, as well as U.S.laws affecting operations outside of the United States;•a cyber-security incident involving the misappropriation, loss or unauthorized disclosure or use of client data or other confidential information ofour clients;•effects of changes in accounting policies, standards, guidelines orprinciples;•terrorist acts, acts of war and other factors over which we have little or no control;or•our ability to effectively develop, maintain, operate and improve our proprietary technology platforms andapplications.i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.iiPART IITEM 1. BusinessPRGX Global, Inc., together with its subsidiaries, is a global leader in recovery audit and spend analytics services, providing services within our clients'Source-to-Pay ("S2P") business processes. Our services include recovery audit, spend analytics and supplier information management ("SIM") services. We arebased in the United States of America (“U.S.”) and serve clients in more than 30 countries. PRGX Global, Inc. was incorporated in the State of Georgia in 1996. Atthe heart of our client services portfolio is the core capability of mining client data to deliver “actionable insights.” Actionable insights allow our clients to improvetheir financial performance by reducing costs, improving business processes, managing risks and increasing profitability.The vast majority of our revenue comes from recovery audit, a service based on the mining of a tremendous amount of our clients’ purchasing-related data,looking for overpayments made to their third-party suppliers. PRGX is the world's leading provider of accounts payable recovery audit services principally to largebusinesses and government agencies with high volumes of transactions and complex pricing arrangements with vendors. We provide services to 75% of the top 20global retailers and over 20% of the top 50 companies in the Fortune 500. We earn the largest portion of our revenue from our retail clients. Recovery audit in theretail industry is a mature service offering and we have been serving a number of our clients for decades. Pricing of merchandise for resale in the retail industry isextremely complex due to the high volume of promotions, allowances and rebates provided by suppliers. The second largest portion of our business is referred towithin the recovery audit business as “commercial.” Commercial recovery auditing is the delivery of recovery audit services to industries other than retail, such astelecommunications, automotive and industrial manufacturing, resources, financial services, and transportation. Recovery audit in the industries represented withincommercial is typically less complex in terms of vendor pricing structure, scope of purchase transactions made available for audit and depth of audit programswithin individual companies. “Contract compliance” auditing is a specific type of recovery auditing which is more heavily utilized by commercial clients and isexpected to be a growing part of our business. This service offering focuses on auditing complex supplier billings against large services, construction and licensingcontracts, and is relevant to a large portion of our client base. We continue to innovate through technological advances, new audit tools and expanded serviceofferings, including spend analytics and SIM services. These services target client functional and process areas where we have established expertise, enabling us toprovide services to finance, merchandising and procurement executives to improve working capital, optimize purchasing leverage in vendor pricing negotiations,improve insight into product margin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendormaster data and improve visibility and diagnostics of direct and indirect spend. These service offerings are increasingly important to our business and areapplicable to clients in both retail and commercial industries.PRGX is unique in that we are a global recovery audit services provider, serving clients in over 30 countries across a multitude of industries. We conduct ouroperations through three reportable segments: Recovery Audit Services - Americas, Recovery Audit Services - Europe/Asia-Pacific and Adjacent Services. TheRecovery Audit Services - Americas segment represents recovery audit services we provide in the U.S., Canada and Latin America and is our largest segment interms of clients served and revenue generated. The Recovery Audit Services - Europe/Asia-Pacific segment represents recovery audit services we provide inEurope, Asia and the Pacific region and is responsible for a significant portion of our revenue. Our Adjacent Services offerings are generally provided to clients ona global basis. We report the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportablesegments in Corporate Support. For additional financial information relating to our reporting segments, see Note 2 - Operating Segments and Related Informationof our Consolidated Financial Statements included in Item 8 of this Form 10-K.In October 2016, we announced that we had entered into agreements to acquire Cost & Compliance Associates, LLC and Cost & Cost Compliance AssociatesLimited (together, “C&CA"), a commercial recovery audit and contract compliance firm with operations in the U.S. and the U.K., and Lavante, Inc. (“Lavante”), aSoftware-as-a-Service ("SaaS")-based SIM and recovery audit services firm based in San Jose, California. The Lavante acquisition closed in October 2016 and theC&CA acquisition closed in February 2017.As of December 31, 2015, the Company discontinued its Healthcare Claims Recovery Audit ("HCRA") business. PRGX has entered into agreements withthird parties to fulfill its Medicare recovery audit contractor ("RAC") program subcontract obligations to audit Medicare payments and provide support for claimsappeals and assigned its remaining Medicaid contract to another party. The Company will continue to incur certain expenses while the current Medicare RACcontracts are still in effect.1The Recovery Audit Industry and PRGXMany businesses and government agencies generate substantial volumes of payment transactions involving multiple vendors, numerous discounts andallowances, fluctuating prices and complex pricing arrangements or rate structures. Although these entities correctly process the vast majority of paymenttransactions, errors occur in a small percentage of transactions. These errors include, but are not limited to, missed or inaccurate discounts, allowances and rebates,vendor pricing errors, erroneous coding and duplicate payments. Many factors contribute to the errors, including communication failures between the purchasingand accounts payable departments, complex pricing arrangements or rate structures, personnel turnover and changes in information and accounting systems. In theaggregate, these transaction errors can represent meaningful amounts of reduced cash flow and lost profits for these entities. Recovery auditing is a business servicefocused on finding overpayments created by these errors. These audits are either accounts payable audits or contract compliance audits and entail comprehensiveand customized data acquisition from the client, frequently including purchasing, receiving, point-of-sale, pricing and deal documentation, emails, and paymentdata.PRGX, like most companies in the recovery audit services industry, generates the majority of its revenue through contingent fee arrangements, sharing a pre-determined percentage of successful claims or “recoveries” generated from an audit. There are certain recovery audit services or types of audits that are billed as afixed fee or on a time and materials basis, but the vast majority of our revenue is generated through contingent fee contracts.Recovery audit clients generally recover claims by either (a) taking credits against outstanding payables or future purchases from the involved vendors orservice providers, or (b) receiving refund checks directly from those vendors or service providers. Industry practice generally dictates the manner in which a clientreceives the benefit for a recovery audit claim. In many cases, we must satisfy client-specific procedural guidelines before we can submit recovery audit claims forclient approval.Contracts with recovery audit clients generally vary in length from one year to three years, with some being evergreen. Most of our recovery audit contractsprovide that the client may terminate the contract without cause prior to the completion of the term of the agreement by providing relatively short prior writtennotice of termination.As 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 impacting recovery auditing:•Data Capture and Availability. Businesses increasingly are using technology to manage complex procurement and accounts payable systems in an effortto realize greater operating efficiencies. Many businesses worldwide communicate with vendors electronically - whether by Electronic Data Interchange (“EDI”)or the Internet - to exchange inventory and sales data, transmit purchase orders, submit invoices, forward shipping and receiving information and remit payments.These systems capture more detailed data, which should further inform transactional reviews by recovery 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 or merchant deal systems, which increases opportunities for errors. To efficiently identify these errors,recovery audit firms must use sophisticated technology-based tools that are able to ingest and search through massive volumes of emails to identify potential errorsthat then are investigated by the auditors. A comprehensive recovery audit requires the effective use of technology-based email search tools and techniques.•Increasing Number of Auditable Claim Categories. Traditionally, the focus of a recovery audit was on a simple, or “disbursement,” claim type, such asthe duplicate payment of invoices. Enhancements to accounts payable software, particularly large enterprise software solutions used by many large companies,have reduced the extent to which these companies make simple disbursement errors. However, the introduction of creative vendor discount programs, complexpricing arrangements and activity-based incentives has led to an increase in auditable transactions and potential sources of error. These transactions arecomplicated to audit, as the underlying transaction data is difficult to access and recognizing mistakes can be complex. Recovery audit firms such as PRGX withsignificant industry-specific expertise and sophisticated technology are best equipped to audit these complicated claim categories.•Globalization. As the operations of business enterprises become increasingly multi-national, they often seek service providers with a global reach.Sophistication in systems and processes varies markedly across the global network of suppliers which further drives the need for our services. PRGX serves clientsin more than 30 countries and we believe we are the recovery audit service provider best suited to deliver multi-national audits.•Significant Promotional Activity. Trade promotion spending is substantial within the retail trade and significant sums are being spent in categories withnumerous transactions and a high potential for errors, such as scan downs, or discounts at the point of sale. Because of the high volume of trade promotion withinretail, there are significant opportunities for mistakes and, therefore, auditable claims.2•Technology Platform. The ability to efficiently and cost effectively ingest large volumes of structured and unstructured data is critical to providing best inclass recovery audit services. We believe we have developed the most sophisticated and highest performing large data processing infrastructure system in ourindustry. This system is based on the Hadoop open source technology standard and allows us to effectively process and manage our clients’ data in large scalevolumes and at superior speeds. We are achieving significant acceleration in data processing speeds for both structured and unstructured data sets, which supportsour efforts to accelerate audit results and transform our core audit processes.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 auditing closer to the time of the payment transaction.Adjacent ServicesOur Adjacent Services business, targets client functional and process areas where we have established expertise, enabling us to provide services to our clients'finance, merchandising and procurement functions to improve working capital, optimize purchasing leverage in vendor pricing negotiations, improve insight intoproduct margin and true cost of goods for resale, identify and manage risks associated with vendor compliance, improve quality of vendor master data and improvevisibility and diagnostics of direct and indirect spend. Our Adjacent Services include our global PRGX OPTIXTM analytics solution and our SIM services offering,which includes the CIPS Sustainability Index ("CSI") offered in the United Kingdom through our strategic alliance with the Chartered Institute of Purchasing &Supply ("CIPS"). As our clients’ supplier base, data volumes and complexity levels continue to grow, we are using our deep data management experience todevelop new actionable insight solutions, compliance-related tools, analytics solutions and data transformation services. Taken together, our deep understanding ofour clients’ S2P data and our Adjacent Services solutions provide multiple routes to help our clients achieve greater profitability.ClientsPRGX provides its services principally to large businesses and government agencies having a tremendous volume of payment transactions and complexprocurement environments. Retailers continue to constitute the largest part of our client and revenue base. Our five largest clients contributed approximately 37.3%of our revenue from continuing operations in 2016, 34.5% in 2015 and 32.2% in 2014. We have one client, The Kroger Co., that accounted for approximately 11%of our revenue from continuing operations in 2016, while no client accounted for 10% or more of our revenue from continuing operations in 2015 or 2014.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, capabilities and focused technologies. In the U.S., Canada, the United Kingdom, France, Mexico, Brazil, and Australia, large retailersroutinely engage independent recovery audit firms as a standard business practice. It is typical in the retail industry for large firms to engage a primary audit firm atone contingency fee rate and a secondary firm to audit behind the primary at a higher rate. Our commercial recovery audit clients are typically Fortune 1000companies in industries other than retail and with multi-billion dollars of purchase transactions to be audited. These clients range from large multi-nationalmanufacturing and resource companies, to large regional or national telecommunications and financial services institutions to global high tech softwareorganizations. The audit specialty practice of contract compliance is a specific type of recovery auditing which is more heavily utilized by commercial clients andis expected to be a growing part of our business. This service offering focuses on auditing complex supplier billings against large services, construction andlicensing contracts, and is relevant to a large portion of our client base.3The PRGX StrategyPRGX is a global leader in recovery audit and spend analytics services. We provide recovery audit and other S2P services, including, spend analytics andSIM services. We principally offer these services to large businesses and government agencies having a tremendous volume of payment transactions and complexprocurement environments. We plan to achieve revenue growth and higher profitability through the following strategy:1.Grow and improve our core recovery audit business;2.Differentiate our service offerings and capabilities;3.Create adjacent service offerings, including SaaS solutions; and4.Expand into new high potential industries and geographies.Grow and improve our core recovery audit businessWe continue to be the industry leader by introducing innovative concepts and audit processes. In addition, we are deploying global best practices and rollingout enhanced world class and proprietary audit tools to drive deeper recoveries and enable next generation audit concepts. We expect to achieve our objectivesthrough process redesign coupled with investing in our technology infrastructure and aggressively rolling out new technologies across our global audits.Differentiate our service offerings and capabilitiesWe plan to differentiate our service offerings and capabilities through enhancing our current services and implementing innovations such as:•Audit acceleration. Our clients are constantly seeking to accelerate the audit process to deliver audit results closer to the time of the transaction to increaserecovery yields, provide a greater opportunity to address process errors, and reduce supplier abrasion. We believe that our deep and broad businessprocess experience across thousands of audits, together with our enhanced and new technology initiatives will put us in a unique position to achievesuperior results for our clients.•Global audit best practice programs. Our global programs take advantage of our operations that span over 30 countries to provide true global auditcapabilities to multi-national companies. This unique perspective gives our clients visibility to their business practice variations around the world andcreates value for our clients by allowing them to see their data in new ways.Create adjacent and high value service offeringsWe will continue to focus on new service offerings that complement our existing services and provide increased value to our customers.Our Adjacent Services offerings, including PRGX OPTIX and SIM services, target client functional and process areas where we have established expertise,enabling us to provide services to support our clients' finance, merchandising and procurement functions. These services can be project-based (advisory services),which are typically billed on a rates and hours basis, or subscription-based (typically SaaS offerings), which are billed on a monthly basis. The Adjacent Servicesofferings assist our clients in improving many aspects of their businesses, including working capital, optimization of purchasing leverage in vendor pricingnegotiations, improved insight into product margin and true cost of goods for resale, identification and management of risks associated with vendor compliance,improved quality of vendor master data and improved visibility and diagnostics of direct and indirect spend.Expand into new high potential industries and geographiesOur plans include continuing to build our commercial recovery audit practice, which serves industries outside of retail in order to reduce our industryconcentration. We have organized the commercial recovery audit practice into industry verticals such as resources, telecommunications, financial services andmanufacturing, and are building focused practice areas with targeted service offerings for each industry.4TechnologyPRGX uses advanced, proprietary information systems and processes and a large-scale technology infrastructure to conduct its audits of clients’ paymenttransactions. The ability to efficiently and cost effectively ingest large volumes of structured and unstructured data is critical to providing best in class recoveryaudit and spend analytics services. We believe we have developed the most sophisticated and highest performing large data processing infrastructure system in therecovery audit industry. This system is based on the Hadoop open source technology standard and allows us to effectively process and manage our clients’ data.We are achieving significant acceleration in data processing speeds for both structured and unstructured data sets, which supports our efforts to accelerate auditresults, transform core audit processes and deliver actionable spend analytics insights.We believe that our proprietary technology and processes serve as important competitive advantages over both our principal competitors and our clients’internal recovery audit functions. To sustain these competitive advantages, we continually invest in technology initiatives to deliver innovative solutions thatimprove both the effectiveness and efficiency of our services.We design our data acquisition, data processing and data management processes with the objectives of maximizing efficiencies and productivity andmaintaining the highest standards of transaction auditing and spend analytics accuracy. We also maintain sophisticated and highly reliable security standards andtools to protect all data under our control. At the beginning of a typical recovery audit or spend analytics engagement, we use a dedicated staff of data acquisitionspecialists and proprietary tools to acquire a wide array of transaction data from the client for the time period under review. We typically receive this data bysecured electronic transmissions, digital media or paper. For paper-based data, we use a custom, proprietary imaging technology to scan the paper into electronicformat. Upon receipt of the data, we secure, catalog, back up and convert it into standard, readable formats using third party and proprietary tools.Our technology professionals clean and map massive volumes of structured and unstructured client data, primarily using high performance database andstorage technologies, into standardized layouts at one of our secure data processing facilities. We also generate statistical reports to verify the completeness andaccuracy of the data.We then process the data using proprietary algorithms (business rules) leveraging over thirty years’ experience to help uncover patterns or potential problemsin clients’ various transactions or transactional streams. We deliver this processed data to our auditors who, using our proprietary audit software, sort, filter andsearch the data to validate and identify actual transaction errors. We also maintain a secure database of audit information with the ability to query on multiplevariables, including claim categories, industry codes, vendors and audit years, to facilitate the identification of additional recovery opportunities and providerecommendations 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 aproprietary web-based claim presentation and collaboration tool 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.As part of our Adjacent Services we offer the PRGX OPTIX suite of analytics tools. The PRGX OPTIX suite facilitates S2P business decisions throughactionable, data-enabled insights that are delivered through four primary modules - Product, Payment, Spend and Supplier. Each of these modules is powered bythe core PRGX OPTIX platform that provides the ability to process and visualize S2P data delivered via a SaaS interface. In addition to the PRGX OPTIX suite,we offer SIM services through our proprietary Lavante SIM platform. The SIM platform is designed to enable supplier master data harmonization, on-boarding,compliance with regulatory and client specified standards and requirements, as well as an enterprise level view of supplier performance. Lavante SIM is offered asa SaaS-based technology solution.5CompetitionAccounts Payable Recovery Audit ServicesWe believe that the principal providers of domestic and international accounts payable recovery audit services in major markets worldwide consist of PRGX,two substantial competitors, and numerous other smaller competitors. The smaller recovery audit firms generally do not possess multi-country service capabilitiesand advanced technology infrastructure necessary to support our clients' large and complex purchasing and accounts payable operations. In addition, many of thesefirms have limited resources and may lack the experience and knowledge of national promotions, seasonal allowances and current recovery audit practices. As aresult, we believe that compared to most other firms providing accounts payable recovery audit services, PRGX has competitive advantages based on its domesticand 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 the industry,we face competition from the following:Client Internal Recovery Audit Departments. A number of large retailers (particularly those in the discount, grocery and drug store sectors) have developedan internal recovery audit process to review transactions prior to turning them over to external recovery audit firms. The scale and scope of these client internalorganizations varies by client based on their level of in-house expertise and investment in required tools and technologies. Regardless of the level of recoveriesmade by internal recovery audit departments, virtually all large retail clients retain at least one (primary), and frequently two (primary and secondary), externalrecovery audit firms to capture errors not identified by their internal recovery audit departments.Other 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 two companies other than PRGX offer 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 mine disbursementclaim categories at low contingency rates. These firms are most common in the U.S. and U.K. markets. Competition in most international markets, if any,typically comes from small niche providers;•Firms, including one of our two substantial competitors, that offer a hybrid of audit software tools and training for use by internal audit departments, orgeneral accounts payable process improvement enablers; and•Firms with specialized skills focused on recovery audit services for discrete sectors such as sales and use tax, telecom, freight or realestate.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.Adjacent ServicesOur Adjacent Services business faces competition from global and regional consulting firms; well-known ERP software vendors; procurement-specificsoftware and SaaS providers and smaller, very specialized analytics providers. These competitors generally compete on the basis of the breadth of services, marketreputations and integration with other services. We believe that we differentiate ourselves from our competitors through our in-depth knowledge of our clients’data, systems, and purchasing processes, along with advanced and specialized technology tools.Hiring, Training and Compensation of PersonnelMany of our auditors and other professionals formerly held finance-related management positions in the industries we serve. Training primarily is providedin the field by our experienced professionals enabling newly hired personnel to develop and refine their skills and improve productivity. We also use various othertraining materials such as process manuals and documented policies and procedures to supplement the field training provided by our experienced professionals. Weperiodically upgrade our training programs based on feedback from auditors and changing industry protocols. Many of our professionals participate in one of ourincentive compensation plans that link their compensation to the financial performance of their service offering(s).6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 capitalize the costs incurred for the development ofcomputer software that will be sold, leased, or otherwise marketed or that will be used in our operations beginning when technological feasibility has beenestablished. We consider the costs associated with developing or replacing methodologies to be research and development costs and we expense them as incurred.Research and development costs, including the amortization of amounts previously capitalized, were approximately $3.5 million in 2016, $3.0 million in 2015 and$3.1 million in 2014.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®, Thrive in the Data™, imDex™, Profit Discovery™, GET™; PRGX APTrax™, PRGX AuditTrax™, PRGXClaimTrax™, PRGX MailTrax™, PRGX MerchTrax™, PRGX SpendTrax™, Lavante®, Lavante SIM TM and PRGX OPTIXTM.RegulationVarious aspects of our business, including, without limitation, our data flows and our data acquisition, processing and reporting protocols, are subject toextensive and frequently changing governmental regulation in the U.S. and the numerous other countries around the world where we operate. These regulationsinclude extensive data protection and privacy requirements. In the U.S., we are subject to the provisions of the Health Insurance Portability and Accountability Actof 1996 (“HIPAA”) with respect to our discontinued HCRA business. Internationally, we must comply with the European Data Protection Directive that variousmembers of the European Union have implemented, as well as with data protection laws that exist in many of the other countries where we serve clients. Failure tocomply with such regulations may, depending on the nature of the noncompliance, result in the termination or loss of contracts, the imposition of contractualdamages, civil sanctions, damage to our reputation or in certain circumstances, criminal penalties.EmployeesAs of January 31, 2017, PRGX had approximately 1,500 employees, of whom approximately 600 were in the U.S. The majority of our employees areinvolved in our recovery audit business.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 ("SEC") available on its website no laterthan the close of business on the date the filing was made. In addition, investors can access our filings with the Securities and Exchange Commission atwww.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.7ITEM 1A. Risk FactorsRevenue from our accounts payable recovery audit business generally has declined in the recent past. We must successfully execute our growth strategy inorder to increase our revenue, 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. In addition, our revenues are potentially impacted by competitive rate pressures, our dependencyon clients to approve our claims on a timely basis, changes in audit scope by our clients and occasional loss of clients or movement from primary to secondaryposition. We must continually innovate new audit concepts, improve audit execution and develop new clients in order to prevent revenue declines and avoid lossesin our business.We depend on our largest clients for significant revenue, so losing a major client could adversely affect our revenue and liquidity.We generate a significant portion of our revenue from our largest clients. Our five largest clients collectively accounted for 37.3% of our revenue fromcontinuing operations in 2016, 34.5% in 2015 and 32.2% in 2014. We have one client, The Kroger Co., that accounted for approximately 11% of our revenue fromcontinuing operations in 2016, while no client accounted for 10% or more of our revenue from continuing operations in 2015 or 2014. If we lose any of our majorclients, our results of operations and liquidity could be materially and adversely affected.Although we continually seek to diversify our client base, we may be unable to offset the effects of an adverse change in one of our key client relationships.For example, if our existing clients elect not to renew their contracts with us at the expiration of the current terms of those contracts, or reduce the services theypurchase thereunder, our recurring revenue base will be reduced, which could have a material adverse effect on our business, financial position, results ofoperations, and cash flows. In addition, we could lose clients if: (i) they cancel their agreements with us; (ii) we fail to win a competitive bid at the time of contractrenewal; (iii) the financial condition of any of our clients deteriorates; or (iv) our clients are acquired by, or acquire, companies with which we do not havecontracts. Any of these could materially and adversely affect our business, financial position, results of operations, and cash flows.Our strategy may not be successful.As discussed in Item 1 “The PRGX Strategy,” our objectives are to achieve higher profitability and growth by growing and improving our core recoveryaudit business, differentiating our service offerings and capabilities, creating adjacent service offerings (including SaaS solutions) and expanding into new highpotential industries and geographies. These efforts are ongoing, and the results of our efforts will not be known until sometime in the future. Successful executionof our strategy requires sustained management focus, innovation, organization and coordination over time, as well as success in building relationships with thirdparties. If we are unable to execute our strategy successfully, our business, financial position, results of operations and cash flows could be adversely affected. Inaddition, execution of our strategy will require material investments and additional costs that may not yield incremental revenue and improved financialperformance as planned.Our acquisitions, investments, partnerships and strategic alliances may require significant resources and/or result in significant unanticipated losses, costs orliabilities.Acquisitions have contributed and are expected to continue to contribute to our revenue. Although we cannot predict our rate of growth as the result ofacquisitions with complete accuracy, we believe that additional acquisitions, investments and strategic alliances will be important to our growth strategy.We may finance future acquisitions by issuing additional equity and/or debt. The issuance of additional equity in connection with any such transaction couldbe substantially dilutive to existing shareholders. The issuance of additional debt could increase our leverage substantially. In addition, announcement orimplementation of future transactions by us or others could have a material effect on the price of our common stock. We could face financial risks associated withincurring significant debt. Additional debt may reduce our liquidity, curtail our access to financing markets, impact our standing with credit agencies and increasethe cash flow required for debt service. Any incremental debt incurred to finance an acquisition could also place significant constraints on the operation of ourbusiness.Furthermore, any future acquisitions of businesses or facilities could entail a number of additional risks, including:•problems with effective integration of acquired operations;•the inability to maintain key pre-acquisition business relationships;•increased operating costs;•the diversion of our management team from our other operations;8•problems with regulatory agencies;•exposure to unanticipated liabilities;•difficulties in realizing projected efficiencies, synergies and cost savings; and•changes in our credit rating and financing costs.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 may limit our ability to take certain actions and require usto comply with specified financial ratios and other performance covenants. No assurance can be provided that we will not violate the covenants of our securedcredit facility in the future. If we are unable to comply with our financial covenants in the future, our lenders could pursue their contractual remedies under thecredit facility, including requiring the immediate repayment in full of all amounts outstanding, if any. Additionally, we cannot be certain that, if the lendersdemanded immediate 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 debt we may have outstanding will depend upon our future operating performance, which is subject to general economicand competitive conditions and to financial, business and other factors, many of which we cannot control. If the cash flow from our operating activities isinsufficient to make these payments, we may take actions such as delaying or reducing capital expenditures, attempting to restructure or refinance our debt, sellingassets or operations or seeking additional equity capital. Some or all of these actions may not be sufficient to allow us to service our debt obligations and we couldbe required to file for bankruptcy. Further, we may be unable to take any of these actions on satisfactory terms, in a timely manner or at all. In addition, our creditagreements may limit our ability to take several of these actions. Our failure to generate sufficient funds to pay our debts or to undertake any of these actionssuccessfully could materially and adversely affect our business, financial position, results of operations and cash flows.We have incurred and will continue to incur significant costs in connection with our discontinued HCRA services business.As of December 31, 2015, we discontinued the HCRA services business, but will continue to incur significant costs as it winds down. There are complexregulations governing many healthcare payments and recoupments, including a multi-layered scheme for provider appeals of overpayment determinations underthe Medicare RAC program. These regulations, the terms of the Company’s contracts and the complexity of Medicare and other healthcare data, systems andprocesses, generally make it more difficult and costly to exit this portion of our business. Finally, while we maintain reserves on our balance sheet, any appealssettlements which require us to repay a significant portion of our historical fees could materially and adversely impact our results of operations and cash flow.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 generally rely on a combination of trade secret and copyright laws, nondisclosure and other contractualarrangements and technical measures to protect our proprietary rights. Although we presently hold U.S. registered copyrights on certain of our proprietarytechnology and certain U.S. and foreign registered trademarks, we may be unable to obtain similar protection on our other intellectual property. In addition, ourforeign registered trademarks may not receive the same enforcement protection as our U.S. registered trademarks.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 sensitive proprietary information will not be improperly accessed or thatour competitors will not independently develop technologies that are substantially equivalent or superior to our technology.We could be subjected to claims of intellectual property infringement.Although we are not aware of any infringement of our services and products on the intellectual property rights of others, the potential for intellectual propertyinfringement claims continually increases as the universe of intellectual property continues to rapidly expand, and we are subject to the risk that someone else willassert a claim against us for violating their intellectual property rights. Any claim for intellectual property infringement, even if not meritorious, could be expensiveto defend. If we were held liable for infringing third party intellectual property rights, we could incur substantial damage awards, and potentially be required tocease using the technology, produce non-infringing technology or obtain a license to use such technology. Such potential liabilities or increased costs could bematerial to us.9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,financial position, and cash flows.Our ability to deliver our SaaS solutions is dependent on the development and maintenance of the infrastructure of the Internet by third parties.The infrastructure of the Internet consists of multiple fragmented networks. Multiple third-party organizations run this infrastructure together under thegovernance of the Internet Corporation for Assigned Numbers and Names (ICANN) and the Internet Assigned Numbers Authority under the stewardship ofICANN. The Internet has experienced outages and other delays resulting from damage to portions of infrastructure, denial-of-service attacks or related cyberincidents, and the Internet could face outages and delays in the future. These outages and delays could reduce the level of Internet usage or result in fragmentationof the Internet, resulting in multiple separate networks lacking interconnection. These scenarios are outside of our control and could impair the delivery of ourSaaS solutions to our clients. Resulting interruptions in our SaaS solutions or the ability of our clients to access our SaaS solutions could result in a loss of potentialor existing clients and harm our business.Our software and SaaS solutions may not be error-free and could result in claims of breach of contract and liabilities.Our software and SaaS solutions are very complex and may not be error-free, especially when first released. Although we perform extensive testing, thefailure of any solution to operate in accordance with its specifications, documentation or applicable license agreement could require us to correct the deficiency. Ifsuch deficiency cannot be corrected in accordance with the relevant contract for services, the deficiency could constitute a material breach of the contract allowingfor the contract’s termination and possibly subjecting us to liability. Also, we sometimes indemnify our clients against third-party infringement claims and certainother losses. If such claims for indemnification are made, even if they are without merit, they could be expensive to resolve. A significant judgment against uscould have a material adverse impact on us.Operational failures in our data processing facilities could harm our business and reputation.An interruption of our SaaS hosting facilities or other data processing services, including an interruption caused by damage or destruction of communicationlines or physical facilities or a failure of data processing equipment, could result in a loss 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 such interruption. These risks would increase with longer service interruptions. Despiteany disaster recovery and business continuity plans and precautions we have implemented (including insurance) to protect against the effects of service deliveryinterruptions, such interruptions could result in a material adverse effect on our business, results of operations, financial position, and cash flows.Our investment of substantial capital in information technology systems, and a failure to successfully implement such systems could adversely affect ourbusiness.We have invested and continue to invest substantial amounts in the development and implementation of information technology systems. Althoughinvestments are carefully planned, there can be no assurance that such systems will justify the related investments. If we fail to realize the benefits expected fromour information technology system investments, or if we fail to do so within the envisioned time frame, it could have an adverse effect on our results of operations,financial position, and cash flows.10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, results of operations, and cash flows. Similarly, our inability to collect our accountsreceivable due to other financial difficulties of one or more of our large clients could adversely affect our financial position, results of operations, and cash flows.Economic conditions which adversely impact our clients and their vendors in the retail industry in the United Kingdom and Europe may continue to have anegative impact on our revenue. Specifically, client liquidity and the liquidity of client vendors can have a significant impact on claim production, the claimapproval process, and the ability of clients to offset or otherwise make recoveries from their vendors.If 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 our management team and highly skilled personnel could adversely impact our operations and financialperformance.Our future success depends largely on the efforts and skills of our management team, including our executive officers and other key employees. As such, wehave entered into employment agreements with key members of our management team. While these employment agreements include limits on the ability of keyemployees to directly compete with us in the future, nothing prevents them from leaving our company. We also do not maintain “key person” life insurancepolicies on any of our executive officers or other key employees. Thus, we may have to incur costs to replace such employees if we were to lose their services, andour ability to execute our business strategy could be impaired if we are unable to replace such employees in a timely manner.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 revenue and are increasingly dependent on operations outside the U.S. for supportingour operations globally.Operations outside the U.S. generated 42.6% of our annual revenue in 2016, 41.8% in 2015 and 45.0% in 2014. These international operations are subject tonumerous risks, including:•greater exposure to the possibility of economic instability, the disruption of operations from labor and political disturbances, expropriation orwar in the international markets we serve;•difficulties in staffing and managing foreign operations and in collecting accountsreceivable;•fluctuations in currency exchange rates, particularly weaknesses in the British pound, the euro, the Canadian dollar, the Mexican peso, theBrazilian real, the Australian dollar, the Indian rupee and other currencies of countries in which we transact business, which could result incurrency translations that materially reduce our revenue and earnings;•costs associated with adapting our services to our foreign clients’needs;•unexpected changes in regulatory requirements andlaws;•expenses and legal restrictions associated with transferring earnings from our foreign subsidiaries tous;•difficulties in complying with a variety of foreign laws and regulations, such as those relating to data protection and employment, as well as U.S.laws affecting operations outside of the United States;•business interruptions due to widespread disease, actual or potential terrorist activities, or othercatastrophes;•reduced or limited protection of our intellectual propertyrights;•longer accounts receivable cycles;and•competition with large or state-owned enterprises or regulations that effectively limit our operations and favor localcompetitors.Because we expect a significant portion of our revenue 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 position, results ofoperations, and cash flows.11In 2016, our European operations accounted for 19.5% of our consolidated revenue. There have been continuing concerns and uncertainties regarding thestability of certain European economies. A continued decline in the economic conditions in Europe may materially and adversely affect our operations both inEurope and on a consolidated basis.Furthermore, in 2010 we began transitioning certain of our core data processing and other functions to locations outside the U.S., including India, whereapproximately 19% of our employees were located on December 31, 2016. While our operations in India have been key to serving clients more efficiently andcost-effectively under our improved service delivery model, India has from time to time experienced instances of civil unrest and hostilities with neighboringcountries. Geopolitical conflicts, military activity, terrorist attacks, or other political uncertainties in the future could adversely affect the Indian economy bydisrupting communications and making business operations and travel more difficult, which may have a material adverse effect on our ability to deliver servicesfrom India. Disruption of our Indian operations could materially and adversely affect our profitability and our ability to execute our growth strategy.Our business operates in highly competitive environments and is subject to pricing pressure.The environments in which our business operates are highly competitive, with numerous other recovery audit firms and other service providers. In addition,many of our recovery audit clients have developed their own internal recovery audit capabilities. As a result of competition among the providers of these servicesand the availability of certain recovery audit services from clients’ internal audit departments, our business is subject to intense rate pressure. Our AdjacentServices business also has numerous competitors varying in size, market strength and specialization, many of whom have established and well-known franchisesand brands. Intense price competition faced by all of our service lines could negatively impact our profit margins and have a potential adverse effect on ourbusiness, financial position, results of operations, and cash flows.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 term of their respective agreements. If clients representing a significant portion of our revenueterminated their agreements unexpectedly, we may not, in the short-term, be able to replace the revenue and income from such contracts and this would have amaterial adverse effect on our business, financial condition, results of operations and cash flows. In addition, client contract terminations also could harm ourreputation within the industry which could negatively impact our ability to obtain new clients.Our charges to earnings resulting from acquisition, restructuring and integration costs may materially adversely affect the market value of our common stock.We account for the completion of our acquisitions using the purchase method of accounting. We allocate the total estimated purchase prices to net tangibleassets, amortizable intangible assets and indefinite-lived intangible assets, and based on their fair values as of the date of completion of the acquisitions, record theexcess of the purchase price over those fair values as goodwill. Our financial results, including earnings per share, could be adversely affected by a number offinancial adjustments required in purchase accounting including the following:•we will incur additional amortization expense over the estimated useful lives of certain of the intangible assets acquired in connection withacquisitions during such estimated useful lives;•we will incur additional depreciation expense as a result of recording purchased tangible assets; and•to the extent the value of goodwill or intangible assets becomes impaired, we may be required to incur material charges relating to theimpairment of those assets.12Our failure to comply with applicable governmental privacy laws and regulations in the U.S. and internationally could substantially impact our business,operations, financial position, and cash flows.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 business, financial condition and results of operations. Failure to comply withsuch regulations could result in the termination or loss of contracts, the imposition of contractual damages, civil sanctions, damage to the Company’s reputation, orin certain circumstances, criminal penalties, any of which could have a material adverse effect on our results of operations, financial position, cash flows, businessand prospects. Determining compliance with such regulations is complicated by the fact that the interpretations of these laws and regulations by governingregulatory authorities and the courts evolve over time, and many of the provisions of such laws and regulations are open to a wide range of interpretations. Further,laws are increasingly aimed at the use of personal information for marketing purposes, such as the European Union’s e-Privacy Directive, and the country-specificregulations that implement that directive. Such laws and regulations are also subject to new and differing interpretations and may be inconsistent amongjurisdictions. These and other requirements could reduce demand for our services or restrict our ability to store and process data or, in some cases, impact ourability to offer our services in certain locations or our customers' ability to deploy our solutions globally. There can be no assurance that we are or have been incompliance with all applicable existing laws and regulations or that we will be able to comply with new laws or regulations.With respect to trans-border data flows from the European Economic Area, or EEA, we are certified under the new U.S.-European Union Privacy ShieldFramework, as agreed to by the U.S. Department of Commerce and the European Union (“EU”), as a means to legally transfer European personal information fromEurope to the United States. Despite our Privacy Shield certification and extensive efforts to maintain the privacy, integrity and controlled use of confidentialinformation, including personally identifiable information, through a combination of hardware, software, and physical security, coupled with strong internal datasecurity processes, procedures and controls that we believe meet or exceed relevant laws, regulations and industry best practices, we may experience hesitancy,reluctance, or refusal by European or multi-national clients to use our services due to the potential risk exposure they may face as a result of their data beingtransferred outside of the European Union.Certain ownership changes may limit 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 limitation that limits the use of certain tax attribute carry-forwards. Of the $94.4 million of U.S. federal net loss carry-forwards available tothe Company, $13.5 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under IRC Section 382 and has determined that on August 4, 2008, the Company experienced an additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows. TheCompany believes that another ownership change occurred during the fourth quarter of 2016 and is currently assessing any potential impacts on our deferred taxassets. It is possible that reported net operating losses and related deferred tax assets could be limited in their availability for future use, which may significantlyincrease 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 respect tochallenges 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.13We may have exposure to additional income tax liabilities or additional costs if the U.S. government changes certain U.S. tax rules or other laws applicable toU.S. corporations doing business in foreign jurisdictions.We are a U.S. corporation that conducts business both in the U.S. and in foreign jurisdictions. From time to time, proposals for changes to tax and other lawsare made that may negatively impact U.S. corporations doing business in foreign jurisdictions, including proposals for comprehensive tax reform. While the scopeof future changes remains unclear, proposed changes might include limiting the ability of U.S. corporations to deduct certain expenses attributable to offshoreearnings, modifying the foreign tax credit rules and taxing currently certain transfers of intangible assets offshore or imposing other economic disincentives todoing business outside of the U.S. The enactment of some or all of these proposals could increase the Company’s effective tax rate or otherwise adversely affectour profitability.Future impairment of goodwill, other intangible assets and long-lived assets would reduce our future earnings.As of December 31, 2016, the Company’s goodwill and other intangible assets totaled $24.8 million. We must perform periodic assessments to determinewhether some portion, or all, of our goodwill, intangible assets and other long-lived assets are impaired. Our most recent assessment showed no impairment to ourgoodwill, intangible assets and other long-lived assets, but future impairment testing could result in a determination that our goodwill, other intangible assets orour other long-lived assets have been impaired. Future adverse changes in the business environment or in our ability to perform audits successfully and competeeffectively in our markets or the discontinuation of our use of certain of our intangible or other long-lived assets could result in impairment which could materiallyadversely impact future earnings.Claims under our self-insurance program may differ from our estimates, which could materially impact our results of operations.We use a combination of insurance and self-insurance plans to provide for the potential liabilities for healthcare benefits for our employees. We estimate theliabilities associated with the risks that we retain by considering historical claims experience, demographic factors, severity factors and other actuarialassumptions. Our results could be materially impacted by claims and other expenses related to such plans if future occurrences and claims differ from theseassumptions and historical trends.Our articles of incorporation, bylaws 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 forcause;•specified requirements for calling special meetings ofshareholders;•the ability of the Board of Directors to consider the interests of various constituencies, including our employees, clients and creditors and thelocal community, 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,without any further vote or action by our shareholders.14Our stock price has been and may continue to be volatile.Our common stock is currently traded on The Nasdaq Global Select Market. The trading price of our common stock has been and may continue to be subjectto large fluctuations. For example, for the year ended December 31, 2016, our stock traded as high as $6.20 per share and as low as $3.04 per share. Our stockprice may 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 ourcompany;•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.ITEM 1B. Unresolved Staff CommentsNone.ITEM 2. PropertiesOur principal executive offices are located in approximately 58,000 square feet of office space in Atlanta, Georgia. We have subleased approximately 3,000square feet of our principal executive office space to independent third parties. In January 2014, we amended the lease for our principal executive offices to extendthe term through December 31, 2021, reduce the lease payment for 2014, and reduce the space under lease to approximately 58,000 square feet effective January1, 2015. This space is used by our Recovery Audit Services - Americas and Adjacent Services segments and is the primary location of our Corporate Supportpersonnel. Our various operating units lease numerous other parcels of operating space elsewhere in the U.S. and in the various other countries in which wecurrently 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. SeeContractual Obligations and Other Commitments in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in PartII, Item 7 of this Form 10-K and Note 6 of “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Form 10-K for a discussion of costs wemay incur in the future to the extent we (i) reduce our office space capacity or (ii) commit to, or occupy, new properties in the locations in which we operate.ITEM 3. Legal ProceedingsWe are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted withcertainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations orcash flows.ITEM 4. Mine Safety DisclosuresNot applicable.15PART IIITEM 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 Select Market (Nasdaq). The Company has not paid cash dividends on itscommon stock since it became a public company in 1996 and does not intend to pay cash dividends in the foreseeable future. Moreover, restrictive covenantsincluded in our secured credit facility specifically prohibit payment of cash dividends. As of March 8, 2017, there were 133 holders of record of our common stockand management believes there were approximately 2,510 beneficial holders. The following table sets forth, for the quarters indicated, the range of high and lowsales prices for the Company’s common stock as reported by Nasdaq during 2016 and 2015.2016 Calendar Quarter High Low1st Quarter $4.90 $3.042nd Quarter 5.81 4.563rd Quarter 5.50 4.584th Quarter 6.20 4.25 2015 Calendar Quarter High Low1st Quarter $5.77 $3.842nd Quarter 4.99 3.653rd Quarter 4.51 3.354th Quarter 4.42 3.50Issuer Purchases of Equity SecuritiesA summary of our repurchases of our common stock during the fourth quarter ended December 31, 2016 is set forth below. 2016 Total Numberof SharesPurchased Average PricePaid per Share Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs (a) Maximum ApproximateDollar Value of Sharesthat May Yet BePurchased Under thePlans or Programs (millions of dollars)October 1 - October 31 — $— — $—November 1 - November 30 — $— — $—December 1 - December 31 1,859 $5.25 1,859 $— 1,859 $5.25 1,859 $15.5 (a)On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our common stock fromtime to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program, bringing the totalamount of its common stock that the Company could repurchase under the program to $20.0 million. On October 24, 2014, our Board of Directors authorized a $20.0million increase to the stock repurchase program, increasing the total share repurchase program to $40.0 million, and extended the duration of the program to December31, 2015. During October 2015, our Board of Directors authorized an additional $10.0 million increase in the program, increasing the total repurchase program to $50.0million, and extended the duration of the program to December 31, 2016. In December 2016, our Board of Directors authorized an additional $10.0 million increase inthe program, increasing the total repurchase program to $60.0 million, and extended the duration of the program to December 31, 2017. From the February 2014announcement of the Company's current stock repurchase program through December 31, 2016, the Company repurchased a total of 8.6 million shares under thisprogram for an aggregate purchase price of $44.5 million. The timing and amount of future repurchases, if any, will depend upon the Company’s stock price, theamount of the Company's available cash, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchasesunder the stock repurchase program at any time.16Performance GraphSet forth below is a line graph presentation comparing the cumulative shareholder return on our common stock, on an indexed basis, against cumulative totalreturns of The Nasdaq Composite Index and the RDG Technology Composite Index. The graph assumes that the value of the investment in the common stock ineach index was $100 on December 31, 2011 and shows total return on investment for the period beginning December 31, 2011 through December 31, 2016,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 12/11 12/12 12/13 12/14 12/15 12/16PRGX Global, Inc. 100.00 108.40 112.94 96.13 62.52 99.16NASDAQ Composite 100.00 116.41 165.47 188.69 200.32 216.54RDG Technology Composite 100.00 114.61 152.95 178.50 183.08 206.8117ITEM 6. Selected Financial DataThe following table sets forth selected financial data from continuing operations for the Company as of and for each of the five years in the period endedDecember 31, 2016. The following data reflects the business acquisitions that we have completed through December 31, 2016. We have included the results ofoperations for these acquired businesses in our results of operations since the date of their acquisitions. We have derived this historical consolidated financial datafrom our Consolidated Financial Statements and Notes thereto, which have been audited by our Independent Registered Public Accounting Firm. TheConsolidated Balance Sheets as of December 31, 2016 and 2015, and the related Consolidated Statements of Operations, Comprehensive Income (Loss),Shareholders’ Equity and Cash Flows for each of the years in the three-year period ended December 31, 2016 and the report of the Independent Registered PublicAccounting Firm thereon are included in Item 8 of this Form 10-K.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.” Certain reclassifications have been made to the prior periods to conform to the current period presentation. Years Ended December 31, (1) 2016 2015 2014 2013 2012Statements of Operations Data: (In thousands, except per share data)Revenue, net $140,844 $138,302 $161,552 $178,268 $190,411Operating expenses: Cost of revenue 91,299 93,169 110,890 112,853 123,157Selling, general and administrative expenses 39,399 32,284 38,581 46,143 46,601Depreciation of property and equipment 5,033 5,317 6,025 6,783 5,743Amortization of intangible assets 1,832 2,458 3,531 4,997 7,224Impairment charges — — — 2,773 —Total operating expenses 137,563 133,228 159,027 173,549 182,725Operating income from continuing operations 3,281 5,074 2,525 4,719 7,686Foreign currency transaction (gains) losses on short-term intercompany balances 84 2,165 2,003 (13) (377)Interest expense (income), net (153) (190) (77) (77) 966Other loss (121) 1,191 57 — —Income from continuing operations beforeincome taxes 3,471 1,908 542 4,809 7,097Income tax expense (2) 1,242 369 3,241 2,755 1,297Net income (loss) from continuing operations $2,229 $1,539 $(2,699) $2,054 $5,800Basic earnings (loss) from continuing operations percommon share $0.10 $0.06 $(0.09) $0.07 $0.23Diluted earnings (loss) from continuing operations percommon share $0.10 $0.06 $(0.09) $0.07 $0.2318 December 31, 2016 2015 2014 2013 2012Balance Sheet Data: (3) (In thousands)Cash and cash equivalents $15,723 $15,122 $25,735 $43,700 $37,806Working capital 16,706 21,641 36,006 50,506 37,445Total assets 93,474 80,391 102,782 132,829 143,586Long-term debt, excluding current installments — — — — 3,000Total shareholders' equity $52,390 $52,415 $70,986 $93,828 $84,652(1)Data for all years prior to 2015 has been restated in order to reflect only continuing operations.(2)The taxes recorded for 2014 were primarily related to the recording of a valuation allowance on the future use of net losses in our U.K. operations. The high effectivetax rate relative to the U.S. federal statutory rate in 2013 is due to taxes on income of foreign subsidiaries with no benefit recognized for losses incurred in the U.S. dueto the Company having a deferred tax asset valuation allowance. The low effective tax rate in 2012 is attributable to recognition of certain previously unrecognized taxbenefits. See Note 1 (i) and Note 7 of “Notes to Consolidated Financial Statements” included in Item 8 of this Form 10-K.(3)Data in this table reflects the balance sheet amounts for both continuing and discontinued operations.19ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsIntroductionPRGX Global, Inc. is a global leader in recovery audit and spend analytics, providing services within our clients' Source-to-Pay ("S2P") business processes.At the heart of our client services portfolio is the core capability of mining client data to deliver "actionable insights." Actionable insights allow our clients toimprove their financial performance by reducing costs, improving business processes, managing risks and increasing profitability.Our services include recovery audit, spend analytics and supplier information management ("SIM") services. We serve clients in more than 30 countries andconduct our operations through three reportable segments: Recovery Audit Services - Americas, Recovery Audit Services - Europe/Asia-Pacific and AdjacentServices. The Recovery Audit Services - Americas segment represents recovery audit services we provide in the U.S., Canada and Latin America. The RecoveryAudit Services - Europe/Asia-Pacific segment represents recovery audit services we provide in Europe, Asia and the Pacific region. The Adjacent Servicessegment includes advisory, analytics and SIM services, as well as our PRGX OPTIX suite of analytics tools. We include the unallocated portion of corporateselling, general and administrative expenses not specifically attributable to the three reportable 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. Recovery audit services are part of the broader S2P services market space,focused on the payment side of the S2P market.Generally, we earn our recovery audit revenue on a contingent fee basis by identifying overpayments made by our clients, assisting our clients in recoveringthe overpayments from their vendors, and collecting a specified percentage of the recoveries from our clients as our fee. The fee percentage we earn is based onspecific contracts with our clients that generally also specify: (a) time periods covered by the audit; (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 by either taking credits against outstanding payables or futurepurchases from the relevant vendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by a client is often dictatedby industry practice. In addition, many clients establish client-specific procedural guidelines that we must satisfy prior to submitting claims for client approval. Ourrecovery audit business also includes contract compliance services which focus on auditing complex supplier billings against large services, construction andlicensing contracts, and is relevant to a large portion of our client base. Such services include verification of the accuracy of third party reporting, appropriatenessof allocations and other charges in cost or revenue sharing types of arrangements, adherence to contract covenants and other risk mitigation requirements andnumerous other reviews and procedures to assist our clients with proper monitoring and enforcement of the obligations of their contractors. Services in ourAdjacent Services segment can be project-based (advisory services), which are typically billed on a rates and hours basis, or subscription-based (typically SaaSofferings), which are billed on a monthly basis.We earn the vast majority of our recovery audit revenue from clients in the retail industry due to many factors, including the high volume of transactions andthe complicated pricing and allowance programs typical in this industry. Changes in consumer spending associated with economic fluctuations generally impactour recovery audit revenue 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 andtheir market 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 adelayed impact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients’circumstances.20We have processes in place to mitigate the financial impact arising from fluctuations in our businesses. These processes include reviewing and monitoringfinancial and operational results through our internal reporting, devoting substantial efforts to develop an improved service delivery model to enable us to morecost effectively serve our clients, and maintaining the flexibility to control the compensation-related portions of our cost structure.While the net impact of the economic environment on our recovery audit revenue is difficult to determine or predict, we believe that for the foreseeablefuture, our revenue will remain at a level that will allow us to continue investing in our growth strategy. Included in our growth strategy are our investments indeveloping and enhancing our technology platforms and improved operational processes within our recovery audit business. In addition, we continue to pursue theexpansion of our business beyond retail recovery audit services by growing the portion of our business that provides recovery audit services to enterprises otherthan retailers; growing our contract compliance service offerings; expanding into new industry verticals, such as resources; and growing our Adjacent Serviceswhich includes our global PRGX OPTIXTM analytics solutions and our SIM services offering. We believe that our recovery audit business uniquely positions us tocreate value for clients and gives us a competitive advantage over other players in the broader S2P market for four fundamental reasons:•We already have the clients' spend data - we serve a large and impressive list of very large, multinational companies in our core recovery auditbusiness, which requires access to and processing of these clients' detailed S2P data on a daily, weekly or at least periodic basis;•We know the clients' spend data and underlying processes - the work we do in recovery audit requires that we fully understand our clients’ systems,buying practices, receiving and payment procedures, as well as their suppliers’ contracting, performance and billing practices;•We take a different perspective in analyzing the clients' spend data - we look horizontally across our clients' processes and organizational structuresversus vertically, which is how most companies are organized and enterprise resource planning systems are designed; and•Our contingent fee recovery audit value proposition minimizes our clients' cost of entry and truly aligns us with ourclients.As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionable insightsolutions, as well as to develop custom analytics and data transformation services. Taken together, our deep understanding of our clients’ S2P data and ourtechnology-based solutions provide multiple routes to help our clients achieve greater profitability. Our Adjacent Services business targets client functional andprocess areas where we have established expertise, enabling us to provide services to finance, merchandising and procurement executives to improve workingcapital, optimize purchasing leverage in vendor pricing negotiations, improve insight into product margin and true cost of goods for resale, identify and managerisks associated with vendor compliance, improve quality of vendor master data and improve visibility and diagnostics of direct and indirect spend.In an effort to accelerate our growth and expand our technology offerings within Adjacent Services, during the fourth quarter of 2016, we acquired Lavante,Inc. ("Lavante"), a SaaS-based SIM and recovery audit services firm based in San Jose, California.Discontinued OperationsAs of December 31, 2015, the Company discontinued its HCRA business. PRGX entered into agreements with third parties to fulfill its Medicare RACprogram subcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party.The Company will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. The discussions and financial results in Item 7have been adjusted to reflect the discontinued business.21Non-GAAP Financial MeasuresEBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of the Company’s performance. They are notpresented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provide additionalmeaningful information in evaluating its performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measures forsimilar purposes. In addition, a measure similar to Adjusted EBITDA is used in the restrictive covenants contained in the Company’s secured credit facility.However, EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysisof the Company’s results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that, as describedabove, the adjustments may vary from period to period and in the future the Company will incur expenses such as those used in calculating these measures. TheCompany’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. Weinclude a reconciliation of net loss to each of EBIT, EBITDA and Adjusted EBITDA and a calculation of Adjusted EBITDA by segment below in “AdjustedEBITDA”.Results of Operations from Continuing OperationsThe following table sets forth the percentage of revenue represented by certain items in our Consolidated Statements of Operations from continuingoperations for the periods indicated: Years Ended December 31, 2016 2015 2014Revenue, net 100.0 % 100.0 % 100.0 %Operating expenses: Cost of revenue 64.8 67.4 68.6Selling, general and administrative expenses 28.0 23.3 23.9Depreciation of property and equipment 3.6 3.8 3.7Amortization of intangible assets 1.3 1.8 2.2Impairment charges — — (0.1)Total operating expenses 97.7 96.3 98.3Operating income from continuing operations 2.3 3.7 1.7 Foreign currency transaction (gains) losses on short-term intercompany balances 0.1 1.6 1.2Interest expense, net (0.2) (0.1) —Income (loss) before income taxes from continuing operations 2.4 2.2 0.5Income tax expense 0.9 0.3 2.0 Net income (loss) from continuing operations 1.5 % 1.9 % (1.5)%Year Ended December 31, 2016 Compared to Prior Years from Continuing OperationsRevenue. Revenue was as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $99,861 $97,009 $106,533Recovery Audit Services – Europe/Asia-Pacific 37,335 36,264 44,319Adjacent Services 3,648 5,029 10,700Total $140,844 $138,302 $161,55222Consolidated revenue from continuing operations increased by $2.5 million, or 1.8%, in 2016 compared to 2015, and decreased by $23.3 million, or 14.4%,in 2015 compared to 2014. Our 2016 year over year growth was led by our global retail recovery audit business, which is the largest of our recovery auditbusinesses. We experience changes in our reported revenue based on the strength of the U.S. dollar relative to foreign currencies. On a constant dollar basis,adjusted for changes in foreign exchange ("FX") rates, consolidated revenue from continuing operations increased 4.5% for in 2016 when compared to 2015 anddecreased 9.1% in 2015 when compared to 2014. Below is a discussion of our revenue for our three reportable segments.Recovery Audit Services - Americas revenue increased $2.8 million, or 2.9%, in 2016 compared to 2015 and decreased $9.5 million, or 8.9%, compared to2014. The 2016 year over year growth was led by our retail recovery audit business, which is the largest of our recovery audit businesses. Changes in the value ofthe U.S. dollar relative to currencies in Canada and Latin America negatively impacted reported revenue in both 2016 and 2015. On a constant dollar basis,adjusted for changes in FX rates, 2016 revenue increased 3.9% compared to 2015 and on an as-reported basis increased 2.9%. On a constant dollar basis, adjustedfor changes in FX rates, 2015 revenue decreased by 5.7% compared to 2014 and on an as-reported basis decreased 8.9%.The changes in our Recovery Audit Services - Americas revenue in 2016 and 2015 were due to a number of factors in addition to changes in FX rates. Theincrease in revenue in 2016 compared to 2015 was primarily driven by stronger claims conversion, the implementation of acceleration and maturity modelprograms, increased staffing at certain audits and improvements in our proprietary audit tools. This growth was partially offset by continued rate pressures and theabove-mentioned changes in FX rates. Revenue increased 1.7% in 2016 compared to 2015 and 5.3% in 2015 compared to 2014 due to revenue from new clients.Revenue from existing clients increased 1.9% in 2016 compared to 2015 and decreased 13.8% in 2015 compared to 2014. The revenue decrease in 2015 was dueprimarily to lower revenue from certain large retail clients, including a U.S. grocer that filed bankruptcy and another that increased its internal resources and isidentifying more claims itself, scope restrictions at another significant client, and continued rate pressure from our clients.Recovery Audit Services - Europe/Asia-Pacific revenue increased $1.1 million, or 3.0%, in 2016 compared to 2015 and decreased $8.1 million, or 18.2%, in2015. The revenue growth was primarily driven by stronger claims conversion, the implementation of acceleration and maturity model programs, increased staffingat certain audits and improvements in our proprietary audit tools. This growth was partially offset by continued rate pressures and unfavorable year over yearchanges in FX rates. The changes in the value of the U.S. dollar relative to foreign currencies in Europe, Asia and the Pacific region negatively impacted reportedrevenue in 2016 and 2015. Revenue increased 2.7% in 2016 and 3.5% in 2015 due to new clients. Revenue from existing clients increased 1.6% in 2016 anddecreased 21.7% in 2015. The 2015 revenue decrease is due primarily to lower revenue from various retail clients in Europe as a result of U.K. grocery specificregulatory enforcement activities resulting in tighter restrictions on the age of transactions being audited and claim deduction policies and practices. Revenue in2015 was also adversely impacted by scope restrictions and lower contingency fee rates at a few clients. Partially offsetting these 2015 revenue declines was anincrease in 2015 revenue in the Asia-Pacific region. On a constant dollar basis, adjusted for changes in FX rates, 2016 revenue increased by 9.6% compared to anincrease of 3.0% as reported, and 2015 revenue decreased by 7.3% compared to a decrease of 18.2% as reported.Adjacent Services revenue decreased by $1.4 million, or 27.5%, in 2016 compared to 2015 and decreased $5.7 million, or 53.0%, in 2015 compared to 2014.The decline in revenue in 2016 compared to 2015 is primarily due to the delay in starting certain projects within our pipeline and finishing a few other projects' keydeliverables prior to December 31, 2016. After eliminating revenue from the Chicago, Illinois-based consulting practice that was sold during the fourth quarter of2014, 2015 revenue decreased by approximately 20% compared to 2014. The remaining decrease in 2015 revenue primarily resulted from a slower than plannedramp up of our spend analytics business during the second half of 2015, partially offset by an increase in our SIM revenue.Cost of Revenue (“COR”). COR consists principally of commissions and other forms of variable compensation we pay to our auditors based primarily on thelevel of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff andsalaries for operational and client service managers for our recovery audit services and our Adjacent Services businesses. COR also includes other direct andindirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. Asignificant number of the components comprising COR are variable and will increase or decrease with increases or decreases in revenue.23COR was as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $60,706 $60,214 $68,163Recovery Audit Services – Europe/Asia-Pacific 24,802 25,424 31,103Adjacent Services 5,791 7,531 11,624Total $91,299 $93,169 $110,890COR as a percentage of revenue for Recovery Audit Services - Americas was 60.8% in 2016, 62.1% in 2015 and 64.0% in 2014. We continue to invest inour various growth and other strategic initiatives, and include portions of these costs in Recovery Audit Services - Americas COR each year. The improvement inCOR as a percentage of revenue for 2016 compared to 2015 is primarily due to the increase in revenues and positive financial impact of operational processimprovements, partially offset by costs associated with senior leadership and audit staff personnel that were not in place in prior periods. The improvement in CORas a percentage of revenue for 2015 compared to 2014 is due to cost reductions implemented in late 2014 and early 2015, our continued focus on strengtheningoperational processes, as well as a $0.7 million reduction in transformation expenses compared to 2014.COR as a percentage of revenue for Recovery Audit Services - Europe/Asia-Pacific was 66.4% in 2016, 70.1% in 2015 and 70.2% in 2014. COR decreased2.4% in 2016 compared to 2015 and 18.3% in 2015 compared to 2014. The 2016 positive impact was primarily due to the increase in revenues and the impact oftransforming our operational processes. The improvements were partially offset by the increased costs associated with senior leadership and audit staff personnelthat were not in place in prior periods. The decrease in 2015 compared to 2014 was primarily related to reductions in our cost structure due to a reorganizationcoupled with reduced compensation-related costs that vary with revenue. In addition, our continuing efforts to centralize and standardize the recovery auditprocesses enabled us to lower our COR as a percentage of revenue in this segment in 2016 and 2015.The higher COR as a percentage of revenue for Recovery Audit Services - Europe/Asia-Pacific (66.4% for 2016) compared to Recovery Audit Services -Americas (60.8% for 2016) 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 average revenue per client than those served by theRecovery Audit Services - Americas segment.Adjacent Services COR is primarily related to our continued investments in personnel whom we are hiring to either sell or assist with potential servicedelivery. Due to the nature of these costs and the reduced Adjacent Services revenue, COR as a percentage of revenue increased to 158.8 % in 2016 from 149.8%in 2015 and 108.6% in 2014.Selling, General and Administrative Expenses (“SG&A”). SG&A expenses for all segments other than Corporate Support include the expenses of sales andmarketing 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.24SG&A expenses were as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $8,421 $7,685 $10,211Recovery Audit Services – Europe/Asia-Pacific 5,442 5,487 6,829Adjacent Services 1,469 662 2,124Subtotal for reportable segments 15,332 13,834 19,164Corporate Support 24,067 18,450 19,417Total $39,399 $32,284 $38,581Recovery Audit Services - Americas SG&A expenses increased 9.6% in 2016 compared to 2015 and decreased 24.7% in 2015 compared to 2014. Theincrease in 2016 is due primarily to higher personnel and bad debt costs. The decrease in 2015 is due primarily to lower personnel costs.Recovery Audit Services - Europe/Asia-Pacific SG&A expenses were essentially flat in 2016 compared to 2015 after decreasing 19.7% in 2015 compared to2014. The decrease in 2015 is due mainly to lower transformation and facilities costs.Adjacent Services SG&A expenses increased $0.8 million in 2016 compared to 2015 due mainly to the inclusion of the operating expenses for Lavante,which was acquired in the fourth quarter of 2016. Adjacent Services SG&A expenses decreased 68.8% in 2015 compared to 2014 primarily from reducedtransformation and facilities costs.Corporate Support SG&A expenses include stock-based compensation charges of $5.1 million in 2016, $3.9 million in 2015 and $4.5 million in 2014.Excluding stock-based compensation charges, Corporate Support SG&A expense increased 30.4% in 2016 compared to 2015 and decreased 2.4% in 2015compared to 2014. The increase in 2016 compared to 2015 is due mainly to increases in incentive compensation expenses, U.S. healthcare insurance benefit claimcosts and the costs associated with business acquisition activity. The decrease in 2015 compared to 2014 reflects our focus on controlling our expenses.Depreciation of Property and Equipment. Depreciation of property and equipment was as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $3,750 $4,036 $4,711Recovery Audit Services – Europe/Asia-Pacific 529 647 592Adjacent Services 755 634 722Total $5,034$5,317 $6,025Depreciation expense declined in 2016 and 2015 primarily as a result of the reduced level of capital purchases in 2014, 2015 and 2016 when compared toprior periods, which reduced the amount of depreciation to be recorded as those assets became fully depreciated.Amortization of Intangible Assets. Amortization of intangible assets was as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $1,477 $1,728 $2,002Recovery Audit Services – Europe/Asia-Pacific — 600 1,195Adjacent Services 355 130 334Total $1,832 $2,458 $3,53125Generally, we amortize the customer relationship and trademark intangible assets we record in connection with an acquisition on an accelerated basis oversix years or longer, and we amortize non-compete agreements and trade names on a straight-line basis over five years or less. This methodology results in higheramortization immediately following an acquisition, and declining expense in subsequent periods. Our most recent acquisitions prior to December 31, 2016 includeLavante in October, 2016, the SIM services business acquired from Global Edge, LLC and certain affiliated companies (collectively, "Global Edge") in December2015, Business Strategy, Inc. and substantially all the assets of an affiliated company (collectively, "BSI") in Recovery Audit Services - Americas in December2011, the associate migrations in Recovery Audit Services - Europe / Asia-Pacific in 2011 and 2012, and Etesius Limited and TJG Holdings LLC in AdjacentServices in 2010. Amortization expense declined in our recovery audit segments in 2016 and 2015 compared to the prior year as we did not complete a materialacquisition in these segments in either year. Similarly, Adjacent Services amortization increased in 2016 due to the amortization of certain assets acquired in theacquisition of Lavante.Foreign Currency Transaction (Gains) Losses on Short-Term Intercompany Balances. Foreign currency transaction gains and losses on short-termintercompany balances result from fluctuations in the exchange rates between foreign currencies and the U.S. dollar and the impact of these fluctuations, primarilyon balances payable by our foreign subsidiaries to their U.S. parent. Substantial changes from period to period in foreign currency exchange rates may significantlyimpact the amount of such gains and losses. The strengthening of the U.S. dollar relative to other currencies results in recorded losses on short-term intercompanybalances receivable from our foreign subsidiaries while the relative weakening of the U.S. dollar results in recorded gains.The U.S. dollar generally strengthened relative to the local currencies of certain of our foreign subsidiaries in 2016, 2015 and 2014 resulting in our recordingnet foreign currency losses on short-term intercompany balances of less than $0.1 million, $2.2 million and $2.0 million, respectively.Net Interest Expense (Income). Net interest income was $0.2 million in each of 2016 and 2015 and $0.1 million in 2014 due to reductions in interest accrualson uncertain tax positions.Income Tax Expense. Our reported effective tax rates on earnings approximated 35.8% in 2016, 19.3% in 2015, and 598.0% in 2014. Reported income taxexpense in each year primarily results from taxes on the income of foreign subsidiaries. We have recorded a deferred tax asset valuation allowance that effectivelyeliminates income tax expense or benefit relating to our U.S. operations. The tax rate for 2016 reflects the impact of recognizing benefit for certain deferred taxassets in New Zealand and Singapore. The tax rate for 2015 reflects the impact of recognizing benefit for certain deferred tax assets in Australia. The tax rate in2014 reflects the impact of recording a valuation allowance against certain deferred tax assets in the United Kingdom. The effective tax rates noted above excludediscontinued operations in the current and prior years.Together with the reversal of interest expense accruals, the total net reduction to our reserves for uncertain tax positions based on changes in accruals was $0.1million in 2016, $0.2 million in 2015, and $0.1 million in 2014.As of the end of each of the past three years, management determined that based on all available evidence, deferred tax asset valuation allowances of $50.1million in 2016, $45.6 million in 2015 and $52.0 million in 2014 were appropriate.As of December 31, 2016, we had approximately $94.5 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. TheU.S. federal loss carry-forwards expire through 2035. As of December 31, 2016, we had approximately $135.1 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2021 and 2036 and are subject to certain limitations. The stateloss carry-forwards at December 31, 2016, reflect adjustments for prior period write-downs associated with ownership changes for state purposes.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 and also resulted in the write-off of certaindeferred tax assets and the related valuation allowances that the Company recorded in 2006. Of the $94.5 million of U.S. federal loss carry-forwards available tothe Company, $13.5 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under Section 382 and has determined that on August 4, 2008, the Company experienced another additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows. TheCompany believes that there has been an ownership change as defined under IRC Section 382 in the fourth quarter of 2016. The Company is currently assessingwhat impact this ownership change may have on our ability to utilize the reported net operating losses and related deferred tax assets in future periods.26Adjusted EBITDA. We evaluate the performance of our operating segments based upon revenue and measures of profit or loss we refer to as EBITDA andAdjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation andamortization (“EBITDA”), and then adjusted for unusual and other significant items that management views as distorting the operating results of the varioussegments from period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related chargesand benefits (acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingentconsideration), tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, severance charges and foreign currencytransaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant.Reconciliations of consolidated net loss to each of EBIT, EBITDA and Adjusted EBITDA for the periods included in this report are as follows (inthousands): Years Ended December 31, 2016 2015 2014Net income (loss) $905 $(3,226) $(7,526)Income tax expense 1,242 369 3,241Interest income, net (153) (190) (77)EBIT 1,994 (3,047) (4,362)Depreciation of property and equipment 5,047 5,352 6,216Amortization of intangible assets 1,832 2,458 3,531EBITDA 8,873 4,763 5,385Foreign currency transaction (gains) losses on short-term intercompany balances 84 2,165 2,003Acquisition-related charges — — 249Transformation severance and related expenses 1,383 2,299 4,050Other loss (121) 1,191 57Stock-based compensation 5,123 3,926 4,532Adjusted EBITDA $15,342 $14,344 $16,276Acquisition-related charges include acquisition obligations classified as compensation of $0.2 million in 2014 which were paid in the third quarter of 2014.Transformation severance and related expenses decreased $0.9 million, or 39.8%, in 2016 compared to 2015 and $1.8 million, or 43.2%, in 2015 compared to2014. These expense reductions were due to reduced restructuring activities in each of 2016 and 2015 relative to the prior year.Stock-based compensation increased $1.2 million, or 30.5%, in 2016 compared to 2015 due to the issuance in 2016 of performance-based equity grantswhose value fluctuates with our stock price. Stock-based compensation decreased $0.6 million, or 13.4%, in 2015 compared to 2014 due primarily to thecompletion of the expense recognition period for prior year equity grants that exceeded the recognized expense for new grants in 2015.We include a detailed calculation of Adjusted EBITDA by segment in Note 2 of “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.A summary of Adjusted EBITDA by segment for the years ended December 31, 2016, 2015, and 2014 was as follows (in thousands): Years Ended December 31, 2016 2015 2014Recovery Audit Services – Americas $31,251 $29,431 $29,507Recovery Audit Services – Europe/Asia-Pacific 7,403 5,942 7,672Adjacent Services (3,354) (3,134) (2,381)Subtotal for reportable segments 35,300 32,239 34,798Corporate Support (18,702) (14,215) (14,296)Total for continuing operations $16,598 $18,024 $20,50227Recovery Audit Services - Americas Adjusted EBITDA increased by $1.8 million, or 6.2%, in 2016 compared to 2015 and decreased $0.1 million, or 0.3%,in 2015 compared to 2014. The 2016 increase resulted primarily from increased revenue that exceeded the associated increases in COR and SG&A expenses.Recovery Audit Services - Europe/Asia-Pacific Adjusted EBITDA increased by $1.5 million, or 24.6%, in 2016 compared to 2015. This increase is dueprimarily to increased revenue that exceeded the associated increases in COR and SG&A expenses. Adjusted EBITDA decreased by $1.7 million, or 22.5%, in2015 compared to 2014. The decrease in 2015 is due to lower revenue partially offset by lower COR and SG&A expenses.Adjacent Services Adjusted EBITDA declined 7.0% to a loss of $(3.4) million in 2016 compared to 2015, and declined 31.6% to a loss of $(3.1) million in2015 compared to 2014. These declines are due to revenue in each period declining at a faster rate than COR and SG&A expenses.Corporate Support Adjusted EBITDA decreased by $4.5 million, or 31.6%, in 2016 compared to 2015 due mainly to increased US healthcare benefit costs,the addition of sales personnel, increases in incentive compensation expenses and increased legal costs associated with business acquisition activities. AdjustedEBITDA improved by $0.1 million, or 0.6%, in 2015 compared to 2014.Liquidity and Capital ResourcesAs of December 31, 2016, we had $15.7 million in cash and cash equivalents and borrowings under our revolving credit facility totaling $3.6 million. As ofDecember 31, 2016, the revolver had $16.4 million of availability for borrowings and the Company was in compliance with the covenants in its SunTrust creditfacility. We amended the SunTrust credit facility in January 2014, December 2014 and December 2016 as further described in Secured Credit Facility below.The $15.7 million in cash and cash equivalents includes $4.1 million held in the U.S., $1.9 million held in Canada, and $9.7 million held in other foreignjurisdictions, primarily in the United Kingdom, Australia, New Zealand, Mexico, and Brazil. Certain foreign jurisdictions restrict the amount of cash that can betransferred to the U.S. or impose taxes and penalties on such transfers of cash. To the extent we have excess cash in foreign locations that could be used in, or isneeded by, our operations in the U.S., we may incur significant penalties and/or taxes to repatriate these funds. Generally, we have not provided deferred taxes onthe undistributed earnings of international subsidiaries as we consider these earnings to be permanently reinvested. However, we do not consider the earnings ofour Canadian subsidiary to be permanently invested, and have provided deferred taxes relating to the potential repatriation of the funds held in Canada.Operating Activities. Net cash provided by operating activities was $10.1 million in 2016, $13.5 million in 2015 and $10.0 million in 2014. These amountsconsist of two components, specifically, net income (loss) adjusted for certain non-cash items (such as depreciation, amortization, stock-based compensationexpense, impairment charges, and deferred income taxes) and changes in assets and liabilities, primarily working capital, as follows (in thousands): Years Ended December 31, 2016 2015 2014Net income (loss) $905 $(3,226) $(7,526)Adjustments for certain non-cash items 11,307 15,112 16,443 12,212 11,886 8,917Changes in operating assets and liabilities (2,094) 1,567 1,130Net cash provided by operating activities $10,118 $13,453 $10,047The decrease in net cash provided by operating activities in 2016 compared to 2015 is primarily the result of the use of working capital through increasedreceivables and reduced payables and accruals that offset the net income and non-cash item improvements. The increase in net cash provided by operating activitiesin 2015 compared to 2014 is primarily attributable to the improvement in working capital resulting from a decrease of $5.6 million in accounts receivable partiallyoffset by a $3.7 million decrease in accounts payable, accrued payroll and other accrued expenses.We include an itemization of these changes in our Consolidated Statements of Cash Flows in Part II, Item 8 of this Form 10-K.We have one client, The Kroger Co., that accounted for approximately 11% of our revenue from continuing operations in 2016. No client accounted for 10%or more of our revenue from continuing operations in 2015 or 2014. The loss of any one of our major clients would negatively impact our operating cash flows andwould potentially have a material adverse impact on the Company’s liquidity.28Investing Activities. Net cash used for capital expenditures was $5.9 million in 2016, $4.5 million in 2015 and $4.7 million in 2014. These capitalexpenditures primarily related to investments we made to upgrade our information technology infrastructure, develop our proprietary audit tools and developsoftware relating to Adjacent Services.Capital expenditures are discretionary and we currently expect to continue to make capital expenditures to enhance our information technology infrastructureand proprietary audit tools in 2017. Should we experience changes in our operating results, we may alter our capital expenditure plans.In addition to capital expenditures, we completed the acquisition of Lavante during the fourth quarter of 2016, and borrowed approximately $3.6 millionunder the SunTrust revolver to complete the acquisition.Business Acquisitions and DivestituresWe made several business acquisitions over the past few years, each of which is discussed more fully in Note 12 - Business Acquisitions and Divestitures in“Notes to Consolidated Financial Statements” in Part II, Item 8 of this Form 10-K. Following is a summary of recent business acquisition and divestiture activitiesimpacting our liquidity and capital resources in the past three years.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 were potentially required to make additional payments of up to $3.8 million overa four-year period if the financial performance of this service line met certain targets. These payments would be to Etesius employees that we hired in connectionwith the acquisition. We were not obligated to make the deferred and earn-out payments to these employees if they resigned or were terminated under certaincircumstances. We therefore recognized the accrual of the deferred payments as compensation expense. From the acquisition date to December 31, 2014, we paid$1.4 million of deferred payments and variable consideration. This amount included the final $0.7 million of deferred payments paid in February 2014 and thefinal payment of $0.2 million of variable consideration paid in August 2014.In December 2011, we acquired BSI, based in Grand Rapids, Michigan, for a purchase price valued at $11.9 million. BSI was a provider of recovery auditand related procure-to-pay process improvement services for commercial clients, and a provider of customized software solutions and outsourcing solutions toimprove back office payment processes. The purchase price included an initial cash payment of $2.8 million and 640,614 shares of our common stock having avalue of $3.7 million. An additional payment of approximately $0.7 million was made in the first half of 2012 for working capital received in excess of a specifiedminimum level. Additional variable consideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, potentially was duebased on the performance of the acquired businesses over a two year period from the date of acquisition. We also could have been required to pay additionalconsideration of up to $8.0 million, payable in cash over a period of two years, based on certain net cash fee receipts from a particular recovery audit claim at aspecific client. We recorded an additional $4.9 million payable at the acquisition date based on management’s estimate of the fair value of the variableconsideration payable. From the acquisition date to December 31, 2014, we paid $6.3 million of the earn-out liability consisting of cash payments of $3.6 millionand 404,775 shares of our common stock having a value of $2.7 million. We also recorded accretion and other adjustments of the earn-out liability of $1.4 million.There was no remaining earn-out payable as of December 31, 2014.In December 2015, we acquired the SIM business of Global Edge for a purchase price valued at $0.7 million. The purchase price included an initial cashpayment of $0.5 million and additional variable cash consideration based on the performance of the acquired businesses over a two year period from the date ofacquisition valued at $0.2 million.In October 2016, we completed the acquisition of Lavante, a SaaS-based supplier of SIM and recovery audit services, for a net purchase price of $3.7million. Lavante’s assets consist primarily of its proprietary software applications and customer contracts.We did not complete a business acquisition in the year ended December 31, 2014.29In October 2014, we divested certain assets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business. Theseassets, related to the assets previously acquired in November 2010 from TJG Holdings LLC, were sold to Salo, LLC, a Minnesota limited liability company. Wereceived an initial cash payment of $1.1 million in connection with the closing of the transaction and recognized a loss on the sale of less than $0.1 million, whichwe recognized in Other loss in the Consolidated Statements of Operations. We have also received payment for working capital transferred to the buyer. In addition,we received $0.7 million in earn-out payments based on certain revenue recognized by the buyer in relation to the acquired business during the year following theclosing date of the divestiture.In August 2015, we divested certain assets from a document service offering purchased as part of the BSI acquisition in 2011.We did not receive any initialcash payments at closing of the transaction and recognized a non-cash loss on the sale of $1.6 million, which we recognized in Other loss in the ConsolidatedStatements of Operations. We may receive certain earn-out consideration based on a percentage of 2016 revenue recognized by the buyer from the clientstransferred in connection with the disposition. The revenue sharing percentage ranges from 10% to 30% based on the type of solution or service delivered.Financing Activities. Net cash used by financing activities was $0.1 million in 2016, $18.4 million in 2015 and $22.7 million in 2014. The net cash used byfinancing activities in 2016, 2015 and 2014 included $3.8 million, $18.1 million and $22.7 million, respectively, for the repurchase of common stock (see StockRepurchase Program below).Secured Credit FacilityOn January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityinitially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust credit facility is guaranteed by the Companyand its domestic subsidiaries and is secured by substantially all of our assets. Borrowing availability under the SunTrust revolver at December 31, 2016 was $20.0million. As of December 31, 2016, we had $3.6 million in outstanding borrowings under the SunTrust revolver. The SunTrust term loan required quarterlyprincipal payments of $0.8 million from March 2010 through December 2013, and a final principal payment of $3.0 million in January 2014 that we paid inDecember 2013.On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed credit facility from $15.0 million to $25.0million, lowered the applicable margin to a fixed rate of 1.75%, eliminated the provision limiting availability under the credit facility based on eligible accountsreceivable, increased our stock repurchase program limit, and extended the scheduled maturity of the credit facility to January 16, 2015 (subject to earliertermination as provided therein). We must pay a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the $25.0 million credit facility.On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 millionto $20.0 million. The credit facility bears interest at a rate per annum comprised of a specified index rate based on one-month LIBOR, plus an applicable margin(1.75% per annum). The index rate is determined as of the first business day of each calendar month. With the provision of a fixed applicable margin of 1.75% perthe amendment of the SunTrust credit facility, the interest rate at December 31, 2016 was approximately 2.4%. The credit facility includes two financial covenants(a maximum leverage ratio and a minimum fixed charge coverage ratio) that apply only if we have borrowings under the credit facility that arise or remainoutstanding during the final 30 calendar days of any fiscal quarter. These financial covenants also will be tested, on a modified pro forma basis, in connection witheach new borrowing under the credit facility. This amendment also extends the scheduled maturity of the revolving credit facility to December 23, 2017 andlowered the commitment fee to 0.25% per annum, payable quarterly, on the unused portion of the revolving credit facility.On December 21, 2016, we entered into an amendment of the SunTrust credit facility in order to clarify certain definitions and other terms of the 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 or declare or pay dividends on its capital stock. The financial covenants included in the SunTrustcredit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for theCompany and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidated earnings before interest, taxes,depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default. As of December 31, 2016, we had $3.6 million inoutstanding borrowings under the SunTrust revolver. The Company was in compliance with the covenants in its SunTrust credit facility as of December 31, 2016.30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.Stock Repurchase ProgramOn February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our commonstock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program,bringing the total amount of common stock that we could repurchase under the program to $20.0 million. On October 24, 2014, our Board of Directors authorizeda $20.0 million increase to the stock repurchase program, increasing the total stock repurchase program to $40.0 million, and extended the duration of the programto December 31, 2015. During October 2015, our Board of Directors authorized an additional $10.0 million increase to the stock repurchase program, increasingthe total stock repurchase program to $50.0 million, and extended the duration of the program to December 31, 2016. In December 2016, our Board of Directorsauthorized an additional $10.0 million increase to the stock repurchase program, increasing the total stock repurchase program to $60.0 million, and extended theduration of the program to December 31, 2017. We repurchased 905,403 shares of our common stock during the year ended December 31, 2016 for $3.8 million.From the February 2014 announcement of the Company’s current stock repurchase program through December 31, 2016, the Company has repurchased 8.6million shares, or 28.7%, of its common stock outstanding on the date of the original announcement of the program, for an aggregate cost of $44.5 million. Theseshares were retired and accounted for as a reduction to Shareholders' equity in the Consolidated Balance Sheet. Direct costs incurred to acquire the shares areincluded in the total cost of the shares.The timing and amount of future repurchases, if any, will depend upon the Company’s stock price, the amount of the Company’s available cash, regulatoryrequirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.Contractual 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, 2016 is as follows: Payments Due by Period (in thousands)Contractual obligations Total LessThan1 Year 1-3 Years 3-5Years MoreThan5 YearsSecured Credit Facility $3,600 $3,600 Interest and commitment fee on Secured Credit Facility (1) $311 $311 $— $— $—Operating lease obligations 10,719 3,266 4,362 3,079 12Payments to Messrs. Cook and Toma (2) 638 64 134 141 299Severance 797 797 — — —Total $16,065 $8,038 $4,496 $3,220 $311(1)Represents the estimated commitment fee and interest due on the Secured Credit Facility using the interest rate as of December 31, 2016 and assuming borrowingsunder the SunTrust revolver of $3.6 million as of December 31, 2016 and the additional revolver borrowing of $10.0 million that took place on February 17, 2017. SeeNote 5 of the Notes to Consolidated Financial Statements for additional information regarding the Secured Credit Facility.(2)Represents estimated reimbursements payable for healthcare costs incurred by these former executives.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”). At Performance Unit settlement dates, participants were issuedthat number of shares of Company common stock equal to 60% of the number of Performance Units being settled, and were 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 being settled. Prior to 2012, Performance Units wereonly granted in 2006 and 2007, and the last of such units were settled in May 2011.31On June 19, 2012, seven senior officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all remaining availableawards under the plan. The awards had an aggregate grant date fair value of $1.2 million and vest ratably over three years.All Performance Units were settled prior to December 31, 2015. We recognized compensation expense of less than $0.1 million in 2015 and $0.2 million in2014 related to these 2006 MIP Performance Unit awards. We determined the amount of compensation expense recognized on the assumption that none of thePerformance Unit awards would be forfeited and recorded actual forfeitures as incurred.Cash payments relating to MIP awards were less than $0.1 million in 2015 and $0.1 million in 2014. The 2006 MIP terminated on April 30, 2016.2008 Equity Incentive PlanDuring 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. During 2015 and 2016, the company granted performance based restricted stock units (“PBU’s”) whichwill vest based on certain performance criteria. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to a range depending onthe grant between 40% to 43% of the number of PBUs being settled, and the payment of cash in an amount equal to a range depending on the grant between 57%and 60% of the fair market value of that number of shares of common stock equal to the number of Performance Units being settled.There were no cash payments relating to the PBUs in 2016 or 2015.Off-Balance Sheet ArrangementsAs of December 31, 2016, 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. Certain ofour accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significantjudgment by management. As a result, they are subject to an inherent degree of uncertainty. We consider accounting policies that involve the use of estimates thatmeet both of the following criteria to be “critical” accounting policies. First, the accounting estimate requires us to make assumptions about matters that are highlyuncertain at the time that the accounting estimate is made. Second, alternative estimates in the current period, or changes in the estimate that are reasonably likelyin future periods, would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations.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, revenue 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.32•Revenue Recognition. We generally recognize revenue for a contractually specified percentage of amounts recovered when we have determined that ourclients have received economic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checksreceived from those vendors), and when we have met the following criteria: (a) persuasive evidence of an arrangement exists; (b) services have beenrendered; (c) the fee billed to the client is fixed or determinable; and (d) collectability is reasonably assured.Additionally, for purposes of determining appropriate timing of recognition and for internal control purposes, we rely on customary business practices andprocesses for documenting that the criteria described in (a) through (d) above have been met. Such customary business practices and processes may varysignificantly by client. On occasion, it is possible that a transaction has met all of the revenue recognition criteria described above but we do not recognizerevenue, unless we can otherwise determine that criteria (a) through (d) above have been met, because our customary business practices and processesspecific to that client have not been completed. The determination that we have met each of the aforementioned criteria, particularly the determination ofthe timing of economic benefit received by the client and the determination that collectability is reasonably assured, requires the application of significantjudgment by management and a misapplication of this judgment could result in inappropriate recognition of revenue.•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. These unbilled receivables arise when a portion of our fee is deferred at the time of the initialinvoice. 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 unbilledreceivable amount. Notwithstanding the deferred due date, our clients acknowledge that we have earned this unbilled receivable at the time of theoriginal invoice, 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 and forwhich we previously have recognized revenue. We satisfy such refund liabilities either by offsets to amounts otherwise due from clients or by cashrefunds 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 revenue.•Goodwill, Other Intangible Assets, Long-lived Assets, and Impairment Charges. Goodwill represents the excess of the purchase price over the estimatedfair market value of net identifiable assets of acquired businesses. Intangible assets are assets that lack physical substance. We evaluate therecoverability of goodwill and other intangible assets in accordance with ASC 350, Intangibles-Goodwill and Other, in the fourth quarter of each yearor sooner if events or changes in circumstances indicate that the carrying amount may exceed its fair value. This evaluation includes a preliminaryassessment of qualitative factors to determine if it is necessary to perform a two-step impairment testing process. The first step identifies potentialimpairments by comparing the fair value of the reporting unit with its carrying value, including goodwill. If the calculated fair value of a reporting unitexceeds the carrying value, goodwill is not impaired, and the second step is not necessary. If the carrying value of a reporting unit exceeds the fairvalue, the second step calculates the possible impairment loss by comparing the implied fair value of goodwill with the carrying value. If the fair valueis less than the carrying value, we would record an impairment charge.We are not required to calculate the fair value of our reporting units that hold goodwill unless we determine that it is more likely than not that the fairvalue of these reporting units is less than their carrying values. In this analysis, we consider a number of factors, including changes in our legal, businessand regulatory climates, changes in competition or key personnel, macroeconomic factors impacting our company or our clients, our recent financialperformance and expectations of future performance and other pertinent factors. Based on these analyses, we determined that it was not necessary for usto perform the two-step process. We last used independent business valuation professionals to estimate fair value in the fourth quarter of 2010 anddetermined that fair value exceeded carrying value for all relevant reporting units. No impairment charges were necessary based on our internalcalculations in the three years ended December 31, 2016.We review the carrying value of long-lived assets such as property and equipment for impairment when events and circumstances indicate that thecarrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In caseswhere undiscounted expected future cash flows are less than the carrying value, we will recognize an impairment loss equal to the amount by which thecarrying value exceeds the fair value of the asset. No impairment charges were necessary in the three years ended December 31, 2016.33•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 financial statements.As a result, our effective tax rate reflected in our Consolidated Financial Statements included in Item 8 of this Form 10-K is different than that reportedin our tax returns. Some of these differences are permanent, such as expenses that are not deductible on our tax returns, and some are temporarydifferences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax assets generally represent itemsthat 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 our ConsolidatedStatements 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 be realized.The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences are deductible. In determining the amount of valuation allowance to record, we consider all available positive and negative evidence affectingspecific deferred tax assets, including our past and anticipated future performance, the reversal of deferred tax liabilities, the length of carry-back andcarry-forward periods, and the implementation of tax planning strategies. Objective positive evidence is necessary to support a conclusion that a valuationallowance is not needed for all or a portion of deferred tax assets when significant negative evidence exists. Cumulative tax losses in recent years are themost compelling form of 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 U.S. generally accepted accounting principles (“GAAP”) for guidance on derecognition,classification, interest and penalties, accounting in interim periods, disclosure, and transition. Our policy for recording interest and penalties associatedwith tax positions is to record such items as a component of income before income taxes. A number of years may elapse before a particular tax position isaudited and finally resolved or before a tax assessment is raised. The number of years subject to tax assessments varies by tax jurisdictions.•Stock-Based Compensation. We account for awards of equity instruments issued to employees and directors under the fair value method of accountingand recognize such amounts in our Consolidated Statements of Operations. We measure compensation cost for all stock-based awards at fair value onthe date of grant and recognize compensation expense using the straight-line method over the service period over which we expect the awards to vest.We recognize compensation costs for awards with performance conditions based on the probable outcome of the performance conditions. We accruecompensation cost if we believe it is probable that the performance condition(s) will be achieved and do not accrue compensation cost if we believe it isnot probable that the performance condition(s) will be achieved. In the event that it becomes probable that performance condition(s) will no longer beachieved, we reverse all of the previously recognized compensation expense in the period such a determination is made.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 usein estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input ofhighly subjective assumptions, including the expected stock price volatility, which we calculate based on the historical volatility of our common stock.We use a risk-free interest rate, based on the U.S. Treasury instruments in effect at the time of the grant, for the period comparable to the expected term ofthe option. We use the “simplified” method in estimating the expected term of options as we have concluded that our historical share option exerciseexperience is a less than reasonable basis upon which to estimate the expected term for our grants.34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 awardsto 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 and ourshare-based payments that are settled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal tothe grant-date fair value of the award amortized over the vesting period of the award. The liability for liability-classified awards generally is equal to thefair 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 the liabilityamount from one balance sheet date to another to compensation expense.New Accounting StandardsFor information related to new and recently adopted accounting standards, see Note 1 – Summary of Significant Accounting Policies and Basis ofPresentation, in “Notes to Consolidated Financial Statements” in Item 8 of this Form 10-K.35Item 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 revenue decreases. Whenthe U.S. dollar weakens, the value of the foreign functional currency revenue 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 2016, we recognized$13.0 million of operating income from operations located outside the U.S., virtually all of which was originally accounted for 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 $1.3 million. We currently do not have any arrangements in place 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 amounts outstanding under our revolving credit facility, if any. We had $16.4million of borrowing availability under our revolving credit facility as of December 31, 2016, and had $3.6 million borrowed under the facility as of that date.Interest on the amended credit facility is payable monthly and accrues at an index rate using the one-month LIBOR rate plus an applicable margin of 1.75%.Assuming full utilization of the credit facility, a hypothetical 100 basis point change in interest rates would result in an approximate $0.2 million change in annualpre-tax income.36ITEM 8. Financial Statements and Supplementary DataINDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No.Report of Independent Registered Public Accounting Firm38Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 201439Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 201440Consolidated Balance Sheets as of December 31, 2016 and 201541Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2016, 2015 and 201442Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 201443Notes to Consolidated Financial Statements4437Report 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, 2016 and 2015 and therelated consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2016. 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, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31,2016, 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, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO) and our report dated March 16, 2017 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 16, 201738PRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Years Ended December 31, 2016 2015 2014Revenue, net $140,844 $138,302 $161,552Operating expenses: Cost of revenue 91,299 93,169 110,890Selling, general and administrative expenses 39,399 32,284 38,581Depreciation of property and equipment 5,033 5,317 6,025Amortization of intangible assets 1,832 2,458 3,531Total operating expenses 137,563 133,228 159,027Operating income from continuing operations 3,281 5,074 2,525 Foreign currency transaction losses on short-term intercompany balances 84 2,165 2,003Interest expense (107) (71) (351)Interest income 260 261 428Other (income) loss (121) 1,191 57Income from continuing operations before income taxes 3,471 1,908 542Income tax expense (Note 7) 1,242 369 3,241Net income (loss) from continuing operations $2,229 $1,539 $(2,699) Discontinued operations: Loss from discontinued operations (1,324) (4,765) (4,827)Income tax expense (benefit) — — —Net loss from discontinued operations (1,324) (4,765) (4,827) Net income (loss) $905 $(3,226) $(7,526) Basic earnings (loss) per common share (Note 3): Basic earnings (loss) from continuing operations $0.10 $0.06 $(0.09)Basic loss from discontinued operations (0.06) (0.18) (0.17)Total basic earnings (loss) per common share $0.04 $(0.12) $(0.26) Diluted earnings (loss) per common share (Note 3): Diluted earnings (loss) from continuing operations $0.10 $0.06 $(0.09)Diluted loss from discontinued operations (0.06) (0.18) (0.17)Total diluted earnings (loss) per common share $0.04 $(0.12) $(0.26) Weighted-average common shares outstanding (Note 3): Basic 21,969 25,868 28,707Diluted 22,016 25,904 28,70739PRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands) Years Ended December 31, 2016 2015 2014Net income (loss) $905 $(3,226) $(7,526)Foreign currency translation adjustments (507) (769) (551)Comprehensive income (loss) $398 $(3,995) $(8,077)See accompanying Notes to Consolidated Financial Statements.40PRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data) December 31, 2016 2015ASSETSCurrent assets: Cash and cash equivalents $15,723 $15,122Restricted cash 47 48Receivables: Contract receivables, less allowances of $799 in 2016 and $930 in 2015: Billed 29,186 26,576Unbilled 2,278 1,967 31,464 28,543 Employee advances and miscellaneous receivables, less allowances of $500 in 2016 and $681 in 2015 2,184 1,740Total receivables 33,648 30,283Prepaid expenses and other current assets 3,363 2,323Total current assets 52,781 47,776 Property and equipment: Computer and other equipment 30,219 29,671Furniture and fixtures 2,652 2,842Leasehold improvements 3,558 3,446Software 26,896 23,788 63,325 59,747Less accumulated depreciation and amortization (51,089) (48,167)Property and equipment, net 12,236 11,580 Goodwill (Note 4) 13,823 11,810Intangible assets, less accumulated amortization of $36,128 in 2016 and $35,708 in 2015 10,998 6,684Unbilled receivables 854 656Deferred income taxes (Note 7) 2,269 1,361Other assets 513 524Total assets $93,474 $80,391 LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities: Accounts payable and accrued expenses $7,299 $5,966Accrued payroll and related expenses 13,868 11,278Refund liabilities 7,900 7,887Deferred revenue 1,330 965 Current portion of debt (Note 5) 3,600 —Business acquisition obligations (Note 12) 2,078 39Total current liabilities 36,075 26,135 Noncurrent business acquisition obligations (Note 12) 1,926 —Refund liabilities 804 752Other long-term liabilities 2,279 1,089Total liabilities 41,084 27,976 Commitments and contingencies (Notes 5, 6, 9 and 10) Shareholders’ equity (Notes 9 and 11): Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 21,845,920 sharesissued and outstanding at December 31, 2016 and 22,681,656 shares issued and outstanding at December31, 2015 218 227Additional paid-in capital 575,118 575,532Accumulated deficit (523,233) (524,138)Accumulated other comprehensive income 287 794Total shareholders’ equity 52,390 52,415Total liabilities and shareholders’ equity $93,474 $80,391See accompanying Notes to Consolidated Financial Statements.41PRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYYears Ended December 31, 2016, 2015 and 2014(In thousands, except share data) Common Stock AdditionalPaid-InCapital AccumulatedDeficit Accumulated OtherComprehensiveIncome TotalShareholders'Equity Shares Amount Balance at December 31, 2013 29,367,439 $294 $604,806 $(513,386) $2,114 $93,828Net loss — — — (7,526) — (7,526)Foreign currency translation adjustments — — — — (551) (551)Issuances of common stock: Restricted share awards 220,442 2 (2) — — —Shares issued for acquisition 187,620 2 1,277 — — 1,279Restricted shares remitted by employees for taxes (72,834) (1) (567) — — (568)Stock option exercises 716,780 7 2,816 — — 2,8232006 MIP Performance Unit settlements 16,526 1 (1) —Forfeited restricted share awards (67,970) (1) 1 — — —Repurchase of common stock (3,605,142) (36) (22,649) — — (22,685)Stock-based compensation expense — — 4,386 4,386Balance at December 31, 2014 26,762,861 268 590,067 (520,912) 1,563 70,986Net loss — — — (3,226) — (3,226)Foreign currency translation adjustments — — — — (769) (769)Issuances of common stock: Restricted share awards 23,200 — — — — —Restricted shares remitted by employees for taxes (17,147) — (312) — — (312)Stock option exercises 29,128 — 91 — — 912006 MIP Performance Unit settlements 9,918 — — — — —Forfeited restricted share awards (7,918) — — — — —Repurchases of common stock (4,118,386) (41) (18,030) — — (18,071)Stock-based compensation expense — — 3,716 — — 3,716Balance at December 31, 2015 22,681,656 227 575,532 (524,138) 794 52,415Net income — — — 905 — 905Foreign currency translation adjustments — — — — (507) (507)Issuances of common stock: Restricted shares remitted by employees for taxes (20,829) — (217) — — (217)Stock option exercises 90,496 — 320 — — 320Repurchases of common stock (905,403) (9) (3,763) — — (3,772)Stock-based compensation expense — — 3,246 — — 3,246Balance at December 31, 2016 21,845,920 $218 $575,118 $(523,233) $287 $52,390See accompanying Notes to Consolidated Financial Statements.42PRGX GLOBAL, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Years Ended December 31, 2016 2015 2014Cash flows from operating activities: Net income (loss) $905 $(3,226) $(7,526)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,879 7,810 9,747Amortization of deferred loan costs 60 20 104Stock-based compensation expense 5,123 3,926 4,532Foreign currency transaction losses on short-term intercompany balances 84 2,165 2,003Deferred income taxes (861) (1,112) 1,566Other loss from sale of assets 22 1,191 57Changes in operating assets and liabilities, net of business acquisitions: Restricted cash 1 5 4Billed receivables (3,339) 4,331 (6,351)Unbilled receivables (509) 1,305 7,278Prepaid expenses and other current assets (1,506) 705 1,575Other assets (65) — 5Accounts payable and accrued expenses 1,218 (1,949) (3,432)Accrued payroll and related expenses 2,606 (3,595) 536Refund liabilities 67 2,389 (1,297)Deferred revenue (5) (784) 720Noncurrent compensation obligations — — 414Other long-term liabilities (562) 272 112Net cash provided by operating activities 10,118 13,453 10,047Cash flows from investing activities: Business acquisition, net of cash acquired (3,669) (520) —Business divestiture — 783 1,100Purchases of property and equipment, net of disposal proceeds (5,887) (4,482) (4,709)Net cash used in investing activities (9,556) (4,219) (3,609)Cash flows from financing activities: Payments for deferred loan costs — (100) (104)Payments of deferred acquisition consideration — — (2,208)Proceeds from term loan 3,600 — —Repurchase of common stock (3,772) (18,071) (22,685)Restricted stock repurchased from employees for withholding taxes (218) (312) (568)Proceeds from option exercises 326 91 2,823Net cash used in financing activities (64) (18,392) (22,742)Effect of exchange rates on cash and cash equivalents 103 (1,455) (1,661)Net increase (decrease) in cash and cash equivalents 601 (10,613) (17,965)Cash and cash equivalents at beginning of period 15,122 25,735 43,700Cash and cash equivalents at end of period $15,723 $15,122 $25,735 Supplemental disclosure of cash flow information: Cash paid during the period for interest $60 $63 $132Cash paid during the period for income taxes, net of refunds received $1,407 $1,085 $3,892See accompanying Notes to Consolidated Financial Statements.43Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION(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. PRGX also provides services adjacent to recovery audit services, including supplier information management ("SIM"), datatransformation, spend analytics and associated advisory services, to a similar client base. These businesses include, but are not limited to:•retailers such as discount, department, specialty, grocery and drug stores, and wholesalers who sell to theseretailers;•business enterprises other than retailers such as manufacturers, financial services firms, pharmaceutical companies, and resource companiessuch as oil and gas companies; 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 over 30 countries across a multitude of industries.Basis of PresentationDuring the fourth quarter of 2015 we discontinued the Healthcare Claims Recovery Audit ("HCRA") business. The results of our continuing anddiscontinued operations for the years ended December 31, 2016, 2015 and 2014 are presented in accordance with ASC 205-20, Presentation of FinancialStatements - Discontinued Operations.The 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.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, Billed and Unbilled Receivables, and Refund LiabilitiesWe base our revenue 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 specified percentageof the amounts recovered by the client resulting from overpayment claims identified. Clients generally recover claims either by taking credits against outstandingpayables or future purchases from the involved vendors, or receiving refund checks directly from those vendors. The manner in which a claim is recovered by aclient often is dictated by industry practice. In addition, many clients establish specific procedural guidelines that we must satisfy prior to submitting claims forclient approval, and these guidelines are unique to each client. For some services we provide, we earn our compensation in the form of a fixed fee, a fee per hour,or a fee per other unit of service.We generally recognize revenue for a contractually specified percentage of amounts recovered when we have determined that our clients have receivedeconomic value (generally through credits taken against existing accounts payable due to the involved vendors or refund checks received from those vendors) andwhen we have met the following criteria: (a) persuasive evidence of an arrangement exists; (b) services have been rendered; (c) the fee billed to the client is fixedor determinable; and (d) collectability is reasonably assured. In certain limited circumstances, we will invoice a client prior to meeting all four of these criteria; insuch cases, we defer the revenue until we meet all of the criteria. Additionally, for purposes of determining appropriate timing of recognition and for internalcontrol purposes, we rely on customary business practices and processes for documenting that we have met the criteria described in (a) through (d) above. Suchcustomary business practices and processes may vary significantly by client. On occasion, it is possible that a transaction has met all of the revenue recognitioncriteria described above but we do not recognize revenue, unless we can otherwise determine that criteria (a) through (d) above have been met, because ourcustomary business practices and processes specific to that client have not been completed.44Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Historically, there has been a certain amount of revenue 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 revenue. In that case, our clients may request a refund or offset of such amount even thoughwe may have collected fees. We record any such refunds as a reduction of revenue. 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 revenue. We compute an estimate ofour refund liabilities at any given time based on actual historical refund data.Billed receivables are stated at the amount we plan to collect and do not bear interest. We make ongoing estimates relating to the collectibility of our billedreceivables and maintain a reserve for estimated losses resulting from the inability of our clients to meet their financial obligations to us. This reserve is primarilybased on the level of past-due accounts based on the contractual terms of the receivables, our history of write-offs, and our relationships with, and the economicstatus of, our clients.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 revenue.We derive a relatively small portion of revenue on a “fee-for-service” basis whereby billing is based upon a fixed fee, a fee per hour, or a fee per other unit ofservice. We recognize revenue 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 (“FDIC”) insurance limit or otherwise may not be covered by FDIC insurance. Some of our cash and cash equivalents are held at banks injurisdictions outside the U.S. that have restrictions on transferring such assets outside of these countries on a temporary or permanent basis. Such restricted netassets are not significant in comparison to our consolidated net assets.The $15.7 million in cash and cash equivalents as of December 31, 2016 includes $4.1 million held in the U.S., $1.9 million held in Canada, and $9.7 millionheld in other foreign jurisdictions, primarily in the United Kingdom, Australia, New Zealand, Mexico and Brazil. Our cash and cash equivalents included short-term investments of approximately $2.2 million as of December 31, 2016 and $4.5 million as of December 31, 2015, of which approximately $2.2 million and $3.2million, respectively, were held at banks outside of the United States, primarily in Brazil and Canada.(d) Fair Value of Financial InstrumentsWe state cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled receivables, accountspayable, deferred revenue and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short termmaturity of these items.We record bank debt, if any, as of the period end date based on the effective borrowing rate and repayment terms when originated. As of December 31, 2016,we had $3.6 million in bank debt outstanding, and we had no bank debt outstanding as of December 31, 2015. We believe the carrying value of the bank debtapproximates its fair value. We considered the factors used in determining the fair value of this debt to be Level 3 inputs (significant unobservable inputs).We had $4.0 million of business acquisition obligations as of December 31, 2016, and no such obligation as of December 31, 2015. Our business acquisitionobligations represent the fair value of deferred consideration and earn-out payments estimated to be due as of the date for which we recorded these amounts. Wedetermine the preliminary estimated fair values based on our projections of future revenue and profits or other factors used in the calculation of the ultimatepayment to be made. The discount rate that we use to value the liability is based on specific business risk, cost of capital, and other factors. We consider thesefactors to be Level 3 inputs (significant unobservable inputs).We state certain assets at fair value on a nonrecurring basis as required by accounting principles generally accepted in the United States of America.Generally, these assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.45Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(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. Our useful lives for fixed assets are three years for computer laptops, four years for desktops, five years for IT server, storage and network equipment,five years for furniture and fixtures and three years for purchased software. We amortize leasehold improvements using the straight-line method over the shorter ofthe lease term or ten years. Depreciation expense from continuing operations was $5.0 million in 2016, $5.3 million in 2015 and $6.0 million in 2014.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, 2016.(f) Software Development CostsWe capitalize a portion of the costs we incur related 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 clients.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 exceeds the fair value ofthe asset.We consider software development activities to be research and development costs and expense them as incurred. However, we capitalize the costs incurredfor the development of computer software that will be sold, leased, or otherwise marketed or that will be used in our operations beginning when technologicalfeasibility has been established. Research and development costs from continuing operations, including the amortization of amounts previously capitalized, were$3.5 million in 2016, $3.0 million in 2015 and $3.1 million in 2014.(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 and other intangible assets in accordance with ASC 350, Intangibles—Goodwill and Other, in the fourth quarter of each year or sooner ifevents or changes in circumstances indicate that the carrying amount may exceed its fair value. This evaluation includes a preliminary assessment of qualitativefactors to determine if it is necessary to perform a two-step impairment testing process. The first step identifies potential impairments by comparing the fair valueof 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 the carrying value of a reporting unit exceeds the fair value, the second step calculates the possible impairment loss bycomparing the implied fair value of goodwill with the carrying value. If the fair value is less than the carrying value, we would record an impairment charge.We are not required to calculate the fair value of our reporting units that hold goodwill unless we determine that it is more likely than not that the fair valueof these reporting units is less than their carrying values. In this analysis, we consider a number of factors, including changes in our legal, business and regulatoryclimates, 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 these analyses, we determined that it was not necessary for us to perform the two-stepprocess. We last used independent business valuation professionals to estimate fair value in the fourth quarter of 2010 and determined that fair value exceededcarrying value for all relevant reporting units. No impairment charges were necessary based on our internal assessments in the three years ended December 31,2016.(h) Direct Expenses and Deferred CostsWe typically expense direct expenses that we incur during the course of recovery audit and delivery of Adjacent Services offerings as incurred. For certainimplementation and set-up costs associated with our “fee for service” revenue 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.46Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(i) Income TaxesWe account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributableto differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax creditcarry forwards. We measure deferred tax assets and liabilities using enacted tax rates we expect to apply to taxable income in the years in which we expect torecover 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 the period thatincludes the enactment date.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 in recent years are the most compelling form of negative evidence weconsidered 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 income before income taxes. A number of years may elapse before a particular tax position is audited and finally resolved or when atax assessment is raised. The number of years subject to tax assessments also varies by tax jurisdictions.(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 (loss). We translate revenue and expenses inforeign currencies at the weighted average exchange rates for the period. We separately state the foreign currency transaction gains and losses on short-termintercompany balances in the Consolidated Statements of Operations. We include all other realized and unrealized foreign currency transaction gains (losses) in“Selling, general and administrative expenses.”(k) Earnings (Loss) Per Common ShareWe compute basic earnings (loss) per common share by dividing net income (loss) available to common shareholders by the weighted-average number ofshares of common stock outstanding during the period. We compute diluted earnings (loss) per common share by dividing net income (loss) available to commonshareholders by the sum of (1) the weighted-average number of shares of common stock outstanding during the period, (2) the dilutive effect of the assumedexercise of stock options using the treasury stock method, and (3) the dilutive effect of other potentially dilutive securities. We exclude the potential dilutive effectof stock options and convertible instruments from the determination of diluted earnings (loss) per common share if the effect of including them would beantidilutive.(l) Stock-Based CompensationWe account for awards of equity instruments issued to employees and directors under the fair value method of accounting and recognize such amounts in ourConsolidated Statements of Operations. We measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensationexpense in our Consolidated Statements of Operations using the straight-line method over the service period over which we expect the awards to vest. Werecognize compensation costs for awards with performance conditions based on the probable outcome of the performance conditions. We accrue compensation costif we believe it is probable that the performance condition(s) will be achieved and do not accrue compensation cost if we believe it is not probable that theperformance condition(s) will be achieved. In the event that it becomes probable that performance condition(s) will no longer be achieved, we reverse all of thepreviously recognized compensation expense in the period such a determination is made.47Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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, which we calculate based on the historical volatility of our common stock. We use a risk-free interestrate, based on the U.S. Treasury instruments in effect at the time of the grant, for the period comparable to the expected term of the option. We use the “simplified”method in estimating the expected term of options as we have concluded that our historical share option exercise experience is a less than reasonable basis uponwhich to estimate the expected term for our grants.We estimate the fair value of nonvested stock awards (restricted stock and restricted stock units) as being equal to the market value of the common stock onthe date of the 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 not subsequentlyremeasure them. We have classified our share-based payments which are settled in our common stock as equity-classified awards and our share-based paymentsthat are settled in cash as liability-classified awards. Compensation costs related to equity-classified awards generally are equal to the fair value of the award atgrant-date amortized 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 thebalance sheet date multiplied by the percentage vested at the time. We record the change in the liability amount from one balance sheet date to another tocompensation expense.(m) Comprehensive Income (Loss) and Accumulated Other Comprehensive IncomeConsolidated comprehensive income (loss) consists of consolidated net income (loss) and foreign currency translation adjustments. We present thecalculation of consolidated comprehensive income (loss) in the accompanying Consolidated Statements of Comprehensive Income (Loss). No amounts have beenreclassified out of Accumulated Other Comprehensive Income during the periods presented in our consolidated financial statements.(n) Segment ReportingWe report our operating segment information in three segments: Recovery Audit Services – Americas; Recovery Audit Services – Europe/Asia-Pacific andAdjacent Services. We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to our three operatingsegments in Corporate Support. Our business segments reflect the internal reporting that our Chief Executive Officer, who is our chief operating decision maker,uses for the purpose of making decisions about allocating resources and assessing performance. Our management, including our Chief Executive Officer, uses whatwe internally refer to as “Adjusted EBITDA” as the primary measure of profit or loss for purposes of assessing the operating performance of all operatingsegments. We define Adjusted EBITDA as earnings from continuing operations before interest, taxes, depreciation and amortization (“EBITDA”) as adjusted forunusual and other 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 2 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.(o) Reclassification of Prior Year Balance SheetCertain reclassifications have been made in the prior year in order to conform to the current year presentation.(p) New Accounting StandardsA summary of the new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting StandardsCodification (“ASC”) that apply to us is set forth below.48Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)FASB ASC Update No. 2016-09 - In March 2016, the FASB issued Accounting Standards Update 2016-09, Stock Compensation (Topic 718). The standardrequires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capitalpools. The standard also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting.In addition, the standard allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The standard became effective for theCompany beginning January 1, 2017. The Company does not believe that the adoption of this standard will have a material effect on its consolidated results ofoperations, financial condition, cash flows, and financial statement disclosures.FASB ASC Update No. 2016-05 - In March 2016, the FASB issued Accounting Standards Update 2016-05, Derivatives and Hedging (Topic 815). Thestandard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in andof itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The standard will become effectivefor the Company beginning January 1, 2018. The Company is currently assessing the impact adoption of this standard will have on its consolidated results ofoperations, financial condition, cash flows, and financial statement disclosures.FASB ASC Update No. 2016-02 - In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842). The standard requires therecognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, withclassification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-typelease occurs if the lessor transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed withoutthe transfer of control, the lease is treated as a financing lease. If the lessor does not convey risks and rewards or control, an operating lease results. The standardwill become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on itsconsolidated results of operations, financial condition, cash flows, and financial statement disclosures.In May 2014, the FASB issued an accounting standards update with new guidance on recognizing revenue from contracts with customers. The standardsupdate outlines a single comprehensive model for entities to utilize to recognize revenue when it transfers goods or services to customers in an amount that reflectsthe consideration that will be received in exchange for the goods and services. Additional disclosures will also be required to enable users to understand the nature,amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In 2016, the FASB issued accounting standards updates toaddress implementation issues and to clarify the guidance for identifying performance obligations, licenses and determining if a company is the principal or agentin a revenue arrangement. In August 2015, the FASB deferred the effective date of this standards update to fiscal years beginning after December 15, 2017, withearly adoption permitted on the original effective date of fiscal years beginning after December 15, 2016. We have substantially completed our evaluation ofsignificant contracts and are currently assessing the impact of adopting the standards update on our consolidated financial statements. We will continue ourevaluation of the standards update through the date of adoption.(2) OPERATING SEGMENTS AND RELATED INFORMATIONWe conduct our operations through three reportable segments:Recovery Audit Services – Americas represents recovery audit services (other than HCRA services) provided in the United States of America (“U.S.”),Canada and Latin America.Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services provided in Europe, Asia and the Pacific region.Adjacent Services represents data transformation, spend analytics, PRGX OPTIX and SIM services, and associated advisory services.We include the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segmentsin Corporate Support.During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") programsubcontract obligations to audit Medicare payments and provide support for claims appeals and assigned its remaining Medicaid contract to another party. TheCompany will continue to incur certain expenses while the current Medicare RAC contracts are still in effect. As part of discontinuing the HCRA business, theCompany increased its accrual for outstanding Medicare RAC appeals liability by approximately $2.1 million. The HCRA services business has been reported asDiscontinued Operations in accordance with US GAAP.49Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Discontinued operations information for the years ended December 31, 2016, 2015 and 2014 (in thousands) is as follows: Results of Discontinued Operations (in thousands)Years Ended December 31, 201620152014Revenue, net(14)1,2662,640Cost of sales1,1124,7435,069Selling, general and administrative expense1841,2532,207Depreciation and amortization1435191Pretax loss from discontinued operations(1,324)(4,765)(4,827)Income tax expense———Net loss from discontinued operations(1,324)(4,765)(4,827)We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and AdjustedEBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization(“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segmentsfrom period to period. Such adjustments include restructuring charges, stock-based compensation, bargain purchase gains, acquisition-related charges and benefits(acquisition transaction costs, acquisition obligations classified as compensation, and fair value adjustments to acquisition-related contingent consideration),tangible and intangible asset impairment charges, certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gainsand losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.50Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Segment information for the years ended December 31, 2016, 2015 and 2014 (in thousands) is as follows: RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2016 Revenue, net $99,861 $37,335 $3,648 $— $140,844 Net income from continuing operations $2,229Income tax expense 1,242Interest income, net (153)EBIT $25,476 $6,455 $(4,617) $(23,996) 3,318Depreciation of property and equipment 3,750 529 754 — 5,033Amortization of intangible assets 1,477 — 355 — 1,832EBITDA 30,703 6,984 (3,508) (23,996) 10,183Foreign currency transaction (gains) losses on short-termintercompany balances 31 107 17 (71) 84Transformation severance and related expenses 517 312 258 242 1,329Other income — — (121) — (121)Stock-based compensation — — — 5,123 5,123Adjusted EBITDA $31,251 $7,403 $(3,354) $(18,702) $16,598 Capital expenditures $4,393 $600 $894 $— 5,887 Allocated assets $47,690 $14,813 $10,532 $— $73,035 Unallocated assets: Cash and cash equivalents — — — 15,723 15,723Restricted cash — — — 47 47Deferred income taxes — — — 2,269 2,269Prepaid expenses and other assets — — — 800 800Discontinued operations — — — 1,600 1,600Total assets $47,690 $14,813 $10,532 $20,439 $93,47451Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2015 Revenue, net $97,009 $36,264 $5,029 $— $138,302 Net income from continuing operations $1,539Income tax expense 369Interest income, net (190)EBIT $22,539 $2,573 $(5,131) $(18,263) 1,718Depreciation of property and equipment 4,036 647 634 — 5,317Amortization of intangible assets 1,728 600 130 — 2,458EBITDA 28,303 3,820 (4,367) (18,263) 9,493Foreign currency transaction (gains) losses on short-termintercompany balances 807 1,533 12 (187) 2,165Transformation severance and related expenses 322 589 30 308 1,249Other loss — — 1,191 — 1,191Stock-based compensation — — — 3,926 3,926Adjusted EBITDA $29,432 $5,942 $(3,134) $(14,216) $18,024 Capital expenditures $3,669 $543 $270 $— $4,482 Allocated assets $44,588 $13,922 $1,030 $— $59,540 Unallocated assets: Cash and cash equivalents — — — 15,122 15,122Restricted cash — — — 48 48Deferred loan cost 80 80Deferred income taxes — — — 1,361 1,361Prepaid expenses and other assets — — — 2,465 2,465Discontinued operations — — — 1,775 1,775Total assets $44,588 $13,922 $1,030 $20,851 $80,39152Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices CorporateSupport Total2014 Revenue, net $106,533 $44,319 $10,700 $— $161,552 Net loss from continuing operations $(2,699)Income tax expense 3,241Interest income, net (77)EBIT $21,066 $2,772 $(4,161) $(19,212) 465Depreciation of property and equipment 4,711 592 722 — 6,025Amortization of intangible assets 2,002 1,195 334 — 3,531EBITDA 27,779 4,559 (3,105) (19,212) 10,021Foreign currency transaction (gains) losses on short-termintercompany balances 380 1,828 — (205) 2,003Acquisition-related charges — — 249 — 249Transformation severance and related expenses 1,348 1,285 418 589 3,640Other loss — — 57 57Stock-based compensation 4,532 4,532Adjusted EBITDA $29,507 $7,672 $(2,381) $(14,296) $20,502 Capital expenditures $3,930 $651 $123 $— $4,704Allocated assets $50,252 $18,556 $4,596 $— $73,404Unallocated assets: Cash and cash equivalents — — — 25,735 25,735Restricted cash — — — 53 53Deferred income taxes — — — 41 41Prepaid expenses and other assets — — — 2,729 2,729Discontinued operations — — — 820 820Total assets $50,252 $18,556 $4,596 $29,378 $102,78253Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The following table presents revenue by country based on the location of clients served (in thousands): Years Ended December 31, 2016 2015 2014United States $80,857 $80,484 $88,859United Kingdom 17,501 19,540 23,817Canada 14,531 12,388 15,851France 6,934 6,186 8,508Australia 7,354 6,111 5,762Mexico 4,900 4,340 4,653Brazil 1,169 1,223 3,050New Zealand 979 596 1,353Spain 964 1,019 1,275Thailand 654 933 986Hong Kong 824 864 903Colombia 583 610 841Other 3,594 4,008 5,694 $140,844 $138,302 $161,552The following table presents long-lived assets by country based on the location of the asset (in thousands): December 31, 2016 2015 United States $34,429 $26,281 United Kingdom 2,047 2,939 All Other 1,074 1,297 $37,550 $30,517 One client, The Kroger Co., accounted for approximately 11% of revenue from continuing operations in 2016, and no client accounted for 10% or more ofrevenue from continuing operations in 2015 or 2014.(3) EARNINGS (LOSS) PER COMMON SHAREThe following tables set forth the computations of basic and diluted earnings (loss) per common share (in thousands, except per share data): Years Ended December 31,Basic earnings (loss) per common share: 2016 2015 2014Numerator: Net income (loss) from continuing operations $2,229 $1,539 $(2,699)Net loss from discontinued operations (1,324) (4,765) (4,827) Denominator: Weighted-average common shares outstanding 21,969 25,868 28,707 Basic earnings (loss) per common share from continuing operations $0.10 $0.06 $(0.09)Basic loss per common share from discontinued operations $(0.06) $(0.18) $(0.17)54Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) Years Ended December 31,Diluted earnings (loss) per common share: 2016 2015 2014Numerator: Net income (loss) from continuing operations $2,229 $1,539 $(2,699)Net loss from discontinued operations (1,324) (4,765) (4,827) Denominator: Weighted-average common shares outstanding 21,969 25,868 28,707 Incremental shares from stock-based compensation plans 47 36 —Denominator for diluted earnings per common share 22,016 25,904 28,707 Diluted earnings (loss) per common share from continuing operations $0.10 $0.06 $(0.09)Diluted loss per common share from discontinued operations $(0.06) $(0.18) $(0.17)Weighted-average shares outstanding excludes antidilutive shares underlying options that totaled 2.9 million, 3.3 million, and 3.3 million shares,respectively, from the computation of diluted earnings (loss) per common share for the years ended December 31, 2016, 2015, and 2014. Weighted-average sharesoutstanding excludes antidilutive Performance Units issuable under the Company's 2006 Management Incentive Plan that totaled less than 0.1 million shares fromthe computation of diluted earnings (loss) per common share for the year ended December 31, 2014. The number of common shares we used in the basic anddiluted earnings (loss) per common share computations include nonvested restricted shares of less than 0.1 million, 2.7 million, and 0.5 million for the years endedDecember 31, 2016, 2015, and 2014, respectively, and nonvested restricted share units that we consider to be participating securities of less than 0.1 million for theyears ended December 31, 2016, 2015 and 2014.55Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(4) 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 carrying amountmay exceed its fair value. These analyses did not result in an impairment charge during the periods presented.Goodwill by reportable segments during 2016 and 2015 was as follows (in thousands): RecoveryAuditServices –Americas Recovery AuditServices –Europe/Asia-Pacific AdjacentServices TotalBalance, January 1, 2015 $12,177 $859 $— $13,036Goodwill disposed in connection with business divestiture (1,422) — — (1,422)Goodwill recorded in connection with business combinations — — 242 242Foreign currency translation — (46) — (46)Balance, December 31, 2015 10,755 813 242 11,810Goodwill disposed in connection with business divestiture — — — —Goodwill recorded in connection with business combinations — — 2,146 2,146Foreign currency translation — (133) — (133)Balance, December 31, 2016 $10,755 $680 $2,388 $13,823During 2016, we recorded goodwill of $2.1 million in our Adjacent Services segment in conjunction with our October 31, 2016 acquisition of Lavante.Lavante is a SaaS-based SIM and recovery audit services firm, based in San Jose, California. Lavante’s assets consist primarily of its proprietary softwareapplications and customer contracts.During 2015, we recorded goodwill of $0.2 million in our Adjacent Services segment relating to the acquisition of the SIM business from Global Edge.In October 2014, we divested certain previously acquired assets within our Adjacent Services segment that were related to our Chicago, Illinois-basedconsulting business (see Note 12 below). The goodwill from the 2010 purchase of TJG Holdings LLC was disposed of as a result of this divestiture. During August2015, we divested certain assets from a document service offering within our Recovery Audit Services - Americas segment and disposed of $(1.4) million ofassociated goodwill.(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 gross carrying amounts for intangible assets in 2015 related primarily to the divestiture of certain assets from a documentservice offering ("SDS assets"). Changes in gross carrying amounts for intangible assets in 2014 related primarily to the divestiture of certain previously acquiredassets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business ("TJG assets"). Note 12 – Business Acquisitionsand Divestitures below includes a more detailed description of the divestiture in 2014 and recent acquisitions. Certain of our intangible assets associated withacquisitions of assets or businesses by our foreign subsidiaries are denominated in the local currency of such subsidiary and therefore are subject to foreigncurrency ("FX") adjustments. We present the amounts for these transactions in United States dollars utilizing foreign currency exchange rates as of the respectivebalance sheet dates.Amortization expense relating to intangible assets was $1.8 million in 2016, $2.5 million in 2015 and $3.5 million in 2014. As of December 31, 2016 andbased on our current amortization methods, we project amortization expense relating to intangible assets for the next five years will be $2.8 million in 2017, $2.6million in 2018, $2.5 million in 2019, $2.2 million in 2020 and $0.8 million in 2021. We generally use accelerated amortization methods for customer relationshipsand trade names, and straight-line amortization for non-compete agreements and trademarks.Changes in noncurrent intangible assets during 2016 and 2015 were as follows (in thousands):56Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued) CustomerRelationships Trademarks Non-competeAgreements Software TradeNames TotalGross carrying amount: Balance, January 1, 2015 $38,496 $1,059 $1,657 $— $2,200 $43,412Disposition of SDS assets (291) (101) (126) — — (518)FX adjustments and other (421) (27) (54) — — (502)Balance, December 31, 2015 37,784 931 1,477 — 2,200 42,392Acquisition of Lavante assets — — — 5,901 277 6,178FX adjustments and other (1,211) (78) (155) — — (1,444)Balance, December 31, 2016 $36,573 $853 $1,322 $5,901 $2,477 $47,126Accumulated amortization: Balance, January 1, 2015 $(29,496) $(869) $(1,408) $— $(2,200) $(33,973)Amortization expense (2,211) (125) (122) — — (2,458)Disposition of SDS assets 64 87 95 — — 246FX adjustments and other 397 26 54 — — 477Balance, December 31, 2015 (31,246) (881) (1,381) — (2,200) (35,708)Amortization expense (1,414) (50) (96) (272) — (1,832)FX adjustments and other 1,179 78 155 — — 1,412Balance, December 31, 2016 $(31,481) $(853) $(1,322) $(272) $(2,200) $(36,128)Net carrying amount: Balance, December 31, 2015 $6,538 $50 $96 $— $— $6,684Balance, December 31, 2016 $5,092 $— $— $5,629 $277 $10,998Estimated useful life (years) 6-20 years 6 years 1-5 years 4 years 4-5 years (5) DEBTOn January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facilityinitially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust term loan required quarterly principalpayments of $0.8 million beginning in March 2010, and a final principal payment of $3.0 million due in January 2014 that we paid in December 2013. TheSunTrust credit facility is guaranteed by the Company and all of its material domestic subsidiaries and secured by substantially all of the assets of the Company.Prior to the January 2014 amendment to the SunTrust credit facility described below, amounts available under the SunTrust revolver were based on eligibleaccounts receivable and other factors. Interest on both the revolver and term loan was payable monthly and accrued at an index rate using the one-month LIBORrate, plus an applicable margin as determined by the loan agreement. The applicable interest rate margin varied from 2.25% per annum to 3.5% per annum,dependent on our consolidated leverage ratio, and was determined in accordance with a pricing grid under the SunTrust loan agreement. The applicable margin was2.25% and the interest rate was approximately 2.43% at December 31, 2013. We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unusedportion of the $15.0 million SunTrust revolving credit facility. The weighted-average interest rate on term loan balances outstanding under the SunTrust creditfacility during 2013, including fees, was 4.1%. We made mandatory principal payments on the SunTrust term loan totaling $3.0 million and the final principalpayment of $3.0 million during the year ended December 31, 2013.57Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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 or declare or pay dividends on its capital stock. The financial covenants included in the SunTrustcredit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for theCompany and a minimum fixed charge coverage ratio, and also require the Company to maintain minimum consolidated earnings before interest, taxes,depreciation and amortization. In addition, the SunTrust credit facility includes customary events of default.On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 millionto $25.0 million, lowered the applicable margin to a fixed rate of 1.75%, eliminated the provision limiting availability under the revolving credit facility based oneligible accounts receivable and extended the scheduled maturity of the revolving credit facility to January 16, 2015 (subject to earlier termination as providedtherein). We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the SunTrust revolving credit facility through theamendment date below.On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 millionto $20.0 million. The credit facility bears interest at a rate per annum comprised of a specified index rate based on one-month LIBOR, plus an applicable margin(1.75% per annum). The index rate is determined as of the first business day of each calendar month with the provision of a fixed applicable margin of 1.75% perthe amendment of the SunTrust credit facility. The credit facility includes two financial covenants (a maximum leverage ratio and a minimum fixed chargecoverage ratio) that apply only if we have borrowings under the credit facility that arise or remain outstanding during the final 30 calendar days of any fiscalquarter. These financial covenants also will be tested, on a modified pro forma basis, in connection with each new borrowing under the credit facility. Thisamendment also extended the scheduled maturity of the revolving credit facility to December 23, 2017 and lowered the commitment fee to 0.25% per annum,payable quarterly, on the unused portion of the revolving credit facility. The weighted-average interest rate for the commitment fee due on the revolving creditfacility was 0.25% in 2016 and 2015.On December 21, 2016, we entered into an amendment of the SunTrust credit facility in order to clarify certain definitions and other terms of the facility.On October 31, 2016 the Company borrowed $3.6 million from its credit facility to finance the acquisition of Lavante, Inc. On February 27, 2017 theCompany borrowed $10.0 million from its credit facility to finance the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC andCost & Compliance Associates Limited. Total borrowings for the Company as of March 15, 2017 are $13.6 million.The Company was in compliance with the covenants in its SunTrust credit facility as of December 31, 2016.Future Minimum PaymentsAs of December 31, 2016, there was $3.6 million in debt that will come due in 2017. There were no future minimum principal payments of debt as ofDecember 31, 2015.(6) LEASE COMMITMENTSPRGX is committed under noncancelable lease arrangements for facilities and equipment. Rent expense, excluding costs associated with the termination ofnoncancelable lease arrangements, was $3.9 million in 2016, $4.6 million in 2015 and $6.0 million in 2014.In January 2014, we amended the lease for our principal executive offices to extend the term through December 31, 2021, reduce the lease payment for 2014,and reduce the space under lease from approximately 132,000 square feet to approximately 58,000 square feet effective January 1, 2015. As of December 31,2015, we had no subleased property. Starting in February 2016 we subleased approximately 3,000 square feet.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.58Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)Future minimum lease payments under noncancelable operating leases including the amended lease for our principal executive offices, are as follows (inthousands):Year Ending December 31,GrossSublease IncomeAmount2017$3,333$(67)$3,26620182,456(69)2,38720192,046(72)1,97420201,788(74)1,71420211,442(77)1,365Thereafter12—12Total payments$11,077$(359)$10,718(7) INCOME TAXESIncome (loss) before income taxes from continuing operations relate to the following jurisdictions (in thousands): Years Ended December 31, 2016 2015 2014United States $(5,306) $(244) $(3,369)Foreign 8,777 2,152 3,911 $3,471 $1,908 $542The provision for income taxes for continuing operations consists of the following (in thousands): Years Ended December 31, 2016 2015 2014Current: Federal $— $— $—State — (13) (11)Foreign 2,103 1,494 1,686 2,103 1,481 1,675Deferred: Federal — — —State — — —Foreign (861) (1,112) 1,566 (861) (1,112) 1,566Total $1,242 $369 $3,24159Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The significant differences between the U.S. federal statutory tax rate of 34% and the Company’s effective income tax expense for earnings (in thousands)are as follows: Years Ended December 31, 2016 2015 2014Statutory federal income tax rate $1,180 $649 $184State income taxes, net of federal effect (173) (240) (189)Deferred tax true-up (4,103) 8,078 —Change in deferred tax asset valuation allowance 4,877 (6,729) 2,094Foreign taxes in excess of U.S. statutory rate (712) (223) 714Compensation deduction limitation 113 (1,201) 381Other, net 60 35 57Total $1,242 $369 $3,241The reconciliations shown above reflect changes to prior period schedules as a result of the reporting of discontinued operations for those periods.Additionally, it has been determined that permanent adjustments for compensation deduction limitations were inappropriately applied in 2014. This correction isreflected as a credit in the rate reconciliation for 2015. There was an offsetting increase in the valuation allowance for the 2015 deduction recorded.The tax effects of temporary differences and carry-forwards that give rise to deferred tax assets and liabilities consist of the following (in thousands): Years Ended December 31, 2016 2015Deferred income tax assets: Accounts payable and accrued expenses $737 $954Accrued payroll and related expenses 3,062 1,713Stock-based compensation expense 3,531 2,668Depreciation of property and equipment 2,579 3,061Capitalized software — 94Non-compete agreements — —Unbilled receivables and refund liabilities 2,216 2,029Operating loss carry-forwards of foreign subsidiary 10,907 3,275Federal operating loss carry-forwards 33,087 31,884State operating loss carry-forwards 3,919 4,038Other 1,181 883Gross deferred tax assets 61,219 50,599Less valuation allowance 50,114 45,565Gross deferred tax assets net of valuation allowance 11,105 5,034Deferred income tax liabilities: Intangible assets 2,299 2,775Capitalized software 1,928 —Other 4,609 898Gross deferred tax liabilities 8,836 3,673Net deferred tax assets $2,269 $1,361During 2016, the Company recorded deferred tax assets and liabilities associated with foreign jurisdictions where branch operations are conducted. Thedeferred tax impacts were generally offset by changes to the Company's valuation allowance and have been reflected in the 2016 year end balances noted above.60Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)During 2015, the Company undertook a detailed review of the Company's deferred taxes and it was determined that some reclassifications and adjustmentswere needed. All adjustments were offset by changes to the Company's valuation allowance and have been reflected in the 2015 year end balances noted above.Our reported effective tax rates on income approximated 35.8% in 2016, 19.3% in 2015, and 598.0% in 2014. Reported income tax expense in each yearprimarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally differ from the expected tax rate primarily due to theCompany’s deferred tax asset valuation allowance on the domestic earnings and taxes on income of foreign subsidiaries.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. Since this evaluation requires consideration of future events, significant judgment is required in making the evaluation, and our conclusion could bematerially different should certain of our expectations not be met.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, 2015, management determined that based on all available evidence, a valuation allowance was required for all U.S. deferredtax assets due to losses incurred for income tax reporting purposes for the past several years. We recorded a valuation allowance of $50.1 million as of December31, 2016, representing a change of $4.5 million from the valuation allowance of $45.6 million recorded as of December 31, 2015.In 2015, management determined that a valuation allowance was no longer required against the deferred tax assets of one of its foreign subsidiaries. As ofDecember 31, 2015, we had gross deferred tax assets of $1.5 million relating to this subsidiary. The benefit of these deferred tax assets is reflected as a credit totax expense of $1.5 million during the year ended December 31, 2015.In 2016, management determined that a valuation allowance was no longer required against the deferred tax assets of certain of its foreign subsidiaries. As ofDecember 31, 2016, we had gross deferred tax assets of $8.4 million relating to those foreign subsidiaries. The benefit of these deferred tax assets is reflected as acredit of $1.7 million to tax expense during the year ended December 31, 2016.As of December 31, 2016, we had approximately $94.5 million of U.S. federal loss carry-forwards available to reduce future U.S. federal taxable income. TheU.S. federal loss carry-forwards expire through 2035. As of December 31, 2016, we had approximately $135.1 million of state loss carry-forwards available toreduce future state taxable income. The state loss carry-forwards expire to varying degrees between 2021 and 2036 and are subject to certain limitations. The stateloss carry-forwards at December 31, 2016, reflect adjustments for prior period write-downs associated with ownership changes for state tax purposes.Generally, we have not provided deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanentlyreinvested. As it relates to the earnings of our Canadian and Brazilian subsidiaries, we assert that we are not permanently reinvested. We provided additionaldeferred taxes of $0.2 million in 2016, $0.3 million in 2015, and $0.2 million in 2014 representing the estimated withholding tax liability due if such amounts arerepatriated. We did not provide additional incremental U.S. income tax expense on these amounts as the Canadian subsidiary is classified as a branch for U.S.income tax purposes and our Brazilian subsidiary did not have undistributed earnings during the year.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 and also resulted in the write-off of certaindeferred tax assets and the related valuation allowances that the Company recorded in 2006. Of the $94.5 million of U.S. federal loss carry-forwards available tothe Company, $13.5 million of the loss carry-forwards are subject to an annual usage limitation of $1.4 million. The Company has reviewed subsequent potentialownership changes as defined under IRC Section 382 and has determined that on August 4, 2008, the Company experienced an additional ownership change. Thissubsequent ownership change did not decrease the original limitation nor did it impact the Company’s financial position, results of operations, or cash flows. TheCompany believes that there has been an ownership change as defined under IRC Section 382 in the fourth quarter of 2016. The Company is currently assessingwhat impact this ownership change may have on our ability to utilize the reported net operating losses and related deferred tax assets in future periods.61Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax positiontaken or expected to be taken in a tax return. We refer to GAAP for guidance on derecognition, classification, interest and penalties, accounting in interim periods,disclosure, and transition. Our policy for recording potential interest and penalties associated with uncertain tax positions is to record such items as a component ofincome before income taxes. A number of years may elapse before a particular tax position is audited and finally resolved or when a tax assessment is raised. Thenumber of years subject to tax assessments also varies by tax jurisdictions. As a part of an ongoing Canadian tax audit, we continue to defend our tax positionrelated to the valuation of an intercompany transaction. While we have established accruals for this matter, an assessment by the Canadian Revenue Authority mayexceed such amounts.A reconciliation of our beginning and ending amount of unrecognized tax benefits and related accrued interest thereon is as follows: Unrecognized TaxBenefits Accrued Interest andPenaltiesBalance at January 1, 2014 $724 $260 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 33Decrease based on payments made during the year — — Decreases based on tax positions related to the prior years $(47) $(73)Balance at December 31, 2014 $677 $220 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 24 Decreases based on payments made during the year — — Decreases based on tax positions related to the prior years (142) (42)Balance at December 31, 2015 $535 $202 Additions based on tax positions related to the current year — — Additions based on tax positions related to the prior years — 11 Decreases based on payments made during the year — — Decreases based on tax positions related to the prior years (38) (59)Balance at December 31, 2016 $497 $154Due to the complexity of the tax rules underlying these unrecognized tax benefits, and the unclear timing of tax audits, tax agency determinations, and otherevents, we cannot 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, 2016, the 2013 through 2015 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 to2013 may also subject returns for those years to examination.62Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(8) EMPLOYEE BENEFIT PLANSWe maintain a defined contribution retirement plan (the "Plan") in accordance with Section 401(k) of the Internal Revenue Code, which allows eligibleparticipating employees to defer receipt of up to 50% of their annual compensation and contribute such amount to one or more investment funds. We matchemployee contributions in a discretionary amount to be determined by management and approved by the Board of Directors each plan year up to the lesser of 6%of an employee’s annual compensation or $3,000 per participant. We also may make additional discretionary contributions to the Plan as determined bymanagement and approved by the Board of Directors each plan year. Company matching funds and discretionary contributions vest 100% after three years ofservice for participants who either had attained three or more years of service or were hired on or after January 1, 2012. For all other participants, companymatching funds and discretionary contributions vest at the rate of 20% after two years of service and 100% after three years of service. We amended the Plan in2013 to add Roth 401(k) plan features that allow participating employees to make post-tax contributions in addition to, or in lieu of, the pre-tax contributionsallowed under the Plan. Company matching funds are made on a pre-tax basis for both pre-tax and post-tax employee contributions, and are subject to the abovelimitations based on the aggregate pre-tax and post-tax contribution by the participant. The Company contributed to the Plan approximately $0.8 million in 2016,$0.8 million in 2015, and $1.0 million in 2014.(9) CAPITAL STRUCTUREEffective July 31, 2000, the Board of Directors amended the Company’s Articles of Incorporation to establish a new series of stock, which is designated asparticipating preferred stock. The Company’s remaining, undesignated preferred stock may be issued at any time or from time to time in one or more series withsuch designations, powers, preferences, rights, qualifications, limitations and restrictions (including dividend, conversion and voting rights) as may be determinedby the Board of Directors, without any further votes or action by the shareholders. As of December 31, 2016 and 2015, the Company had no preferred stockoutstanding.On December 11, 2012, we closed a public offering of 6,249,234 shares of our common stock, which consisted of 2,500,000 shares sold by us and 3,749,234shares sold by certain selling shareholders, at a price to the public of $6.39 per share. The net proceeds to us from the public offering, after deducting underwritingdiscounts and commissions and offering expenses, were $14.7 million. We did not receive any proceeds from the sale of shares by the selling shareholders. Inaddition, the underwriters elected to exercise an overallotment option for an additional 687,385 shares, and completed the additional sale on January 8, 2013. Thenet proceeds to us from the overallotment, after deducting underwriting discounts and commission and offering expenses, were $4.1 million.In partial satisfaction of a business acquisition obligation, we issued 187,620 shares of our common stock having a value of $1.3 million in the year endedDecember 31, 2014 and 217,155 shares of our common stock having a value of $1.5 million in the year ended December 31, 2013.On February 21, 2014, our Board of Directors authorized a stock repurchase program under which we could repurchase up to $10.0 million of our commonstock from time to time through March 31, 2015. On March 25, 2014, our Board of Directors authorized a $10.0 million increase to the stock repurchase program,bringing the total amount of its common stock that the Company could repurchase under the program to $20.0 million. On October 24, 2014, our Board ofDirectors authorized a $20.0 million increase to the stock repurchase program, increasing the total share repurchase program to $40.0 million, and extended theduration of the program to December 31, 2015. In October 2015, our Board of Directors authorized an additional $10.0 million increase to the stock repurchaseprogram, increasing the total share repurchase program to $50.0 million, and extended the duration of the program to December 31, 2016. In December 2016, ourBoard of Directors authorized an additional $10.0 million increase to the stock repurchase program, increasing the total share repurchase program to $60.0 million,and extended the duration of the program to December 31, 2017. We repurchased 0.9 million shares of our common stock during the year ended December 31,2016 for $3.8 million. We repurchased 4.1 million shares of our common stock during the year ended December 31, 2015 for $18.1 million.Pursuant to exercises of outstanding stock options, we issued 90,496 shares of our common stock having a value of $0.3 million in the year endedDecember 31, 2016 and 29,128 shares of our common stock having a value of less than $0.1 million in the year ended December 31, 2015.63Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(10) COMMITMENTS AND CONTINGENCIESLegal ProceedingsWe are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted withcertainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations orcash flows.(11) STOCK-BASED COMPENSATIONDuring 2016, the Company currently had two shareholder-approved stock-based compensation plans under which equity awards have been granted: (1) the2006 Management Incentive Plan (“2006 MIP”); and (2) the 2008 Equity Incentive Plan (“2008 EIP”) (collectively, the “Plans”). The Company generally issuesauthorized but previously unissued shares to satisfy stock option exercises, grants of restricted stock awards and vesting of restricted stock units and settlements of2006 MIP Performance Units.2008 EIP AwardsDuring 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. The options granted pursuant to the 2008 EIP generally 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, 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 provides that restricted stock awards and other full value awards will count as 1.41 shares against the available pool ofshares under the plan.An amendment to the 2008 EIP was adopted by the Company’s Board of Directors in April 2012 and approved at the Company’s annual meeting ofshareholders held on June 19, 2012. This amendment increased the number of shares reserved for issuance under the 2008 EIP by 2,200,000 shares to a total of7,600,000 shares.An amendment to the 2008 EIP was adopted by the Company's Board of Directors in April 2014 and approved at the Company’s annual meeting ofshareholders held on June 24, 2014. This amendment increased the number of shares reserved for issuance under the 2008 EIP by 3,000,000 shares to a total of10,600,000 shares. Any shares issued in connection with an award against this 3,000,000 share pool will count against the available pool of shares on a one-to-onebasis. As of December 31, 2016, there were approximately 0.6 million shares available for future grants under the 2008 EIP.Stock options granted under the 2008 EIP generally vest in equal annual increments over the vesting period, which typically is three years for employees andone year for directors. The following table summarizes stock option grants during the years ended December 31, 2016, 2015, and 2014:64Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)GranteeType # ofOptionsGranted Vesting Period WeightedAverageExercise Price WeightedAverage GrantDate Fair Value2016 Director group(1) 195,417 1 year or less $5.01 $2.71Director group(2) 35,000 3 years $4.80 $2.66Employee inducement (3)(4) 232,500 3 years $4.61 $2.60 2015 Director group 249,273 1 year or less $4.49 $2.44Employee group 17,092 3 years $3.99 $1.33Employee inducement (5) 135,000 3 years $5.51 $1.42 2014 Director group 51,276 1 year or less $6.45 $1.89Employee group(6) 1,480,000 3 years $6.99 $1.81Employee inducement (7) 270,000 3 years $6.64 $1.71 (1)Includes 20,417 non-qualified stock options granted to one director in connection with the director joining the Company's board of directors.(2)The Company granted non-qualified stock options to one director in connection with the director joining the Company's board of directors.(3)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the first nine months of 2016 in connection with an employee joining theCompany.(4)The Company granted non-qualified stock options outside its existing stock-based compensation plans in connection with the closing of the Lavante acquisition.(5)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the first nine months of 2015 to three employees in connection with theemployees joining the Company.(6)The weighted average exercise price for these options is calculated based on an exercise price of $6.36 for the options that vest on June 27, 2015, $6.99 for the options that vest onJune 27, 2016 and $7.63 for the options that vest on June 27, 2017.(7)The Company granted non-qualified stock options outside its existing stock-based compensation plans in the third quarter of 2014 to two executives in connection with the executivesjoining the Company.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.65Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The following table summarizes nonvested stock awards granted during the years ended December 31, 2016, 2015 and 2014:GranteeType # of Stock AwardsGranted Vesting Period WeightedAverage GrantDate Fair Value2016 Employee group (1) 1,250,750 2 years $4.88Employee inducement (2) 100,000 3 years $4.94 2015 Director group 4,273 1 year or less $4.02Director group 17,092 3 years $3.99Employee group(3) 2,493,333 2 years $3.99Employee inducement (4) 10,000 3 years $5.29 2014 Director group 51,276 1 year or less $6.45Employee group 120,000 3 years $6.36Employee inducement (5) 70,000 3 years $6.04 (1)The Company granted nonvested performance-based stock awards (restricted stock units) in the first six months of 2016 to five executive officers, and certain other key employees.(2)The Company granted nonvested performance-based stock awards (restricted stock units) outside its existing stock-based compensation plans in the second and third quarters of 2016to three employees in connection with the employees joining the Company.(3)The Company granted nonvested performance-based stock awards (restricted stock units) in the first quarter of 2015 to eight executive officers totaling 1,325,000 units. During thethird and fourth quarters of 2015, the Company issued 1,168,333 units to key employees.(4)The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the first quarter of 2015 to two employees in connection withthe employees joining the Company.(5)The Company granted nonvested stock awards (restricted stock) outside its existing stock-based compensation plans in the third quarter of 2014 to two executives inconnection with the executives joining the Company.Performance-Based Restricted Stock UnitsOn August 3, 2016, a senior leader of the Company was granted 10,000 performance-based restricted stock units ("PBUs") outside of the existing stock-based compensation plan as an inducement for employment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% ofthe number of PBUs being settled and the payment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% ofthe number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding theHCRA business) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will becomevested and payable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of thePBUs will become vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payablewill be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% ofthe PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).On June 27, 2016, certain employees of the Company were granted 641,750 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled by theissuance of Company common stock equal to 40% of the number of PBUs being settled and the payment of cash in an amount equal to the fair market value of thatnumber of shares of common stock equal to 60% of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulativeadjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will becomevested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. If performance falls between the statedperformance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performancelevels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall become vested and payable if performancedoes not equal or exceed the threshold performance level).66Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)On June 20, 2016, a senior leader of the Company was granted 30,000 PBUs outside of the existing stock-based compensation plan as an inducement foremployment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 40% of the number of PBUs being settled and thepayment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 60% of the number of PBUs being settled. ThePBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Auditbusiness) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested andpayable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs willbecome vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will bebased on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of thePBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).On May 5, 2016, an executive officer of the Company was granted 60,000 PBUs outside of the existing stock-based compensation plan as an inducement foremployment. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and thepayment of cash in an amount equal to the fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. ThePBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Auditbusiness) achieves for the two-year performance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested andpayable; at the target performance level, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs willbecome vested and payable. If performance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will bebased on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than 150% of thePBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).On March 31, 2016, five executive officers and three other senior leaders of the Company were granted 609,000 PBUs under the 2008 EIP. Upon vesting, thePBUs will be settled by the issuance of Company common stock equal to 43% of the number of PBUs being settled and the payment of cash in an amount equal tothe fair market value of that number of shares of common stock equal to 57% of the number of PBUs being settled. The PBUs vest and become payable based onrevenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-yearperformance period ending December 31, 2017. At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performancelevel, 100% of the PBUs will become vested and payable; and at the maximum performance level, 150% of the PBUs will become vested and payable. Ifperformance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolationbetween such stated performance levels (although the PBUs may not become vested and payable for more than 150% of the PBUs and no PBUs shall becomevested and payable if performance does not equal or exceed the threshold performance level).On September 28, 2015, certain employees of the Company were granted 1,123,333 PBUs under the 2008 EIP. On December 14, 2015, certain employeesof the Company were granted an additional 45,000 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stockequal to 25% of the number of PBUs being settled and the payment of cash in an amount equal to 75% of the fair market value of that number of shares ofcommon stock equal to the number of PBUs being settled. The PBUs vest and become payable based on the cumulative adjusted EBITDA that the Company(excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016. At the thresholdperformance level, 35% of the PBUs will become vested and payable and at the target performance level, 100% of the PBUs will become vested and payable. Ifperformance falls between the stated performance levels, the percentage of PBUs that shall become vested and payable will be based on straight line interpolationbetween such stated performance levels (although the PBUs may not become vested and payable for more than 100% of the PBUs and no PBUs shall becomevested and payable if performance does not equal or exceed the threshold performance level).67Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)On March 30, 2015, eight executive officers of the Company were granted 1,325,000 PBUs under the 2008 EIP. Upon vesting, the PBUs will be settled bythe issuance of Company common stock equal to 50% of the number of PBUs being settled and the payment of cash in an amount equal to 50% of the fair marketvalue of that number of shares of common stock equal to the number of PBUs being settled. The PBUs vest and become payable based on the cumulative adjustedEBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two-year performance period ending December 31, 2016.At the threshold performance level, 35% of the PBUs will become vested and payable; at the target performance level, 100% of the PBUs will become vested andpayable; and at the maximum performance level, 200% of the PBUs will become vested and payable. If performance falls between the stated performance levels,the percentage of PBUs that shall become vested and payable will be based on straight line interpolation between such stated performance levels (although thePBUs may not become vested and payable for more than 200% of the PBUs and no PBUs shall become vested and payable if performance does not equal orexceed the threshold performance level).The following table summarizes the PBUs granted during the years ended December 31, 2016 and 2015: Total PBUs GrantedPBUs Settled in Common Stock(1)PBUs Settled in Cash (2)20161,350,750560,670790,08020152,493,333954,5831,538,750(1)Represents the number of PBUs to be settled in common stock at the target performance level.(2)Represents the number of PBUs to be settled in cash at the target performance level.During 2015, the PBUs were expensed at the target performance level based on management's estimates. During the fourth quarter of 2015, it wasdetermined it was "not probable" that the threshold performance level would be achieved by the vesting period ending December 31, 2016 and the Companyreversed approximately $0.8 million of expense incurred in the second quarter and $0.6 million of expense incurred in third quarter, a total of $1.4 million for theyear ended December 31, 2015.During 2016, the PBUs that were granted in 2016 were expensed at the target performance level based on management's estimates.Stock Appreciation RightsOn April 27, 2016, the Company's Chief Executive Officer was granted stock appreciation rights (“SARs”) covering 200,000 shares of the Company’scommon stock under the 2008 EIP. The SARs were issued with an initial value per share equal to $4.71. The SARs will vest and become payable in cash in a lumpsum (net of applicable withholdings) on June 30, 2018, subject to the Chief Executive Officer’s continued employment through such date. Upon vesting, theCompany will pay an amount equal to the excess of (i) the fair market value, as of June 30, 2018, of the shares of the Company’s common stock with respect to theSARs that have become vested and payable over (ii) the aggregate initial value of such SARs.68Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)A summary of option activity as of December 31, 2016, and changes during the year then ended is presented below:Options Shares Weighted-AverageExercisePrice(Per Share) Weighted-AverageRemainingContractualTerm AggregateIntrinsicValue($ 000’s)Outstanding at January 1, 2016 3,337,784 $6.36 4.76 years $70Granted 462,917 4.80 Exercised (90,496) 3.37 $144Forfeited (271,537) 6.15 Expired (18,283) 2.82 Outstanding at December 31, 2016 3,420,385 $6.26 4.30 years $1,204Exercisable at December 31, 2016 2,357,784 $6.28 3.76 years $670The weighted-average grant date fair value of options granted was $2.66 per share in 2016, $2.32 per share in 2015 and $1.80 per share in 2014. The total intrinsicvalue of options exercised was $144 thousand in 2016, $40.0 thousand in 2015 and $1.7 million in 2014.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, 2016 2015 2014Risk-free interest rates 0.58% - 1.20% 0.80% - 1.59% 0.88% - 1.79%Dividend yields —% —% —%Volatility factor of expected market price .391 - .779 .323 - .733 .370 - .390Weighted-average expected term of option 1.3 - 4.5 years 3.1 - 5 years 3.5 - 4.5 yearsForfeiture rate —% —% —%A summary of nonvested stock awards (restricted stock and restricted stock units) activity as of December 31, 2016 and changes during the year then endedis presented below:Nonvested Stock Shares WeightedAverage GrantDate Fair Value(Per Share)Nonvested at January 1, 2016 2,822,042 $4.30Granted 1,550,750 4.86Vested (305,572) 6.26Forfeited (174,170) 4.32Nonvested at December 31, 2016 3,893,050 $4.37The weighted-average grant date fair value of nonvested stock awards (restricted stock and restricted stock units) granted was $4.86 per share in 2016, $4.00per share in 2015 and $6.29 per share in 2014. The total vest date fair value of stock awards vested during the year was $0.7 million in 2016, $1.2 million in 2015and $2.3 million in 2014.69Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)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. At Performance Unit settlement dates, participants were issued that number of shares ofCompany common stock equal to 60% of the number of Performance Units being settled, and were paid in cash an amount equal to 40% of the fair market value ofthat number of shares of common stock equal to the number of Performance Units being settled. Prior to 2012, Performance Units were only granted in 2006 and2007, and the last of such units were settled in May 2011.On June 19, 2012, seven senior officers of the Company were granted 154,264 Performance Units under the 2006 MIP, comprising all remaining availableawards under the 2006 MIP. The awards had an aggregate grant date fair value of $1.2 million and vest ratably over three years. Upon vesting, the PerformanceUnits were settled by the issuance of Company common stock equal to 60% of the number of Performance Units being settled and the payment of cash in anamount equal to 40% of the fair market value of that number of shares of common stock equal to the number of Performance Units being settled.During the year ended December 31, 2015, an aggregate of 16,530 Performance Units were settled, which resulted in the issuance of 9,918 shares ofcommon stock and cash payments totaling less than $0.1 million. During the year ended December 31, 2014, an aggregate of 27,546 Performance Units weresettled, which resulted in the issuance of 16,526 shares of common stock and cash payments totaling $0.1 million. Since the June 19, 2012 grant date to December31, 2014, an aggregate of 137,740 Performance Units were settled by three current executive officers and three former executive officers, and 16,524 PerformanceUnits were forfeited by one former executive officer. Such settlements resulted in the issuance of 79,356 shares of common stock and cash payments totaling $0.3million. As of December 31, 2016, no Performance Units were outstanding. There was no settlement of Performance Units during 2016.We recognized compensation expense of $0.0 in 2016, less than $0.1 million in 2015 and $0.2 million in 2014 related to these 2006 MIP Performance Unitawards. We determined the amount of compensation expense recognized on the assumption that none of the Performance Unit awards would be forfeited andrecorded actual forfeitures as incurred. The 2006 MIP terminated in April 2016.Stock-based compensation charges aggregated $5.1 million in 2016, $3.9 million in 2015, and $4.5 million in 2014. We include these charges in “Selling,general and administrative expenses” in the accompanying Consolidated Statements of Operations. At December 31, 2016, there was $5.8 million of unrecognizedstock-based compensation expense related to stock options, restricted stock awards, restricted stock unit awards, and Performance Unit awards which we expect torecognize over a weighted-average period of 1.2 years.(12) BUSINESS ACQUISITIONS AND DIVESTITURESWe completed several acquisitions and divestitures in recent years that we describe below. Generally, we acquire businesses that we believe will provide astrategic fit for our existing operations, cost savings and revenue synergies, or enable us to expand our capabilities in our Adjacent Services segment. We divestassets or businesses that we no longer find strategically aligned with our service offerings.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 revenue, cost ofrevenue, 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.Etesius LimitedIn February 2010, the Company’s U.K. 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 Adjacent Services segment results of operations since the acquisition date as we acquired Etesius with the intention of expanding our capabilitiesin this segment.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.70Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The SPA required 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 provided 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 were not obligated to make the deferred and earn-out payments upon the termination of employment of these employees under certain circumstances, we recognized these payments as compensation expense asearned. From the acquisition date to December 31, 2014, we paid $1.4 million of deferred payments and variable consideration. This amount consisted of the final$0.7 million of deferred payments paid in February 2014 and $0.2 million of variable consideration paid in August 2014. We currently estimate that we will notpay any additional variable consideration relating to these provisions resulting in no remaining amounts payable relating to this acquisition as of December 31,2016.Business Strategy, Inc.In December 2011, we acquired BSI, based in Grand Rapids, Michigan, for a purchase price valued at $11.9 million. BSI was a provider of recovery auditand related procure-to-pay process improvement services for commercial clients, and a provider of customized software solutions and outsourcing solutions toimprove back office payment processes. We have included the results of operations of Business Strategy, Inc. in our Recovery Audit Services – Americas segmentand the results of operations of the affiliated company in our Adjacent Services segment results of operations since the acquisition date. These amounts aggregated$0.8 million of revenue and $0.1 million of net income in 2011 and $10.9 million of revenue and $1.5 million of net income in 2012. We acquired BSI with theintention of expanding 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 $0.7 million was due and paid in the first half of 2012 for working capital received in excess of a specified minimum level. We weresubject to additional variable consideration of up to $5.5 million, payable via a combination of cash and shares of our common stock, based on the performance ofthe acquired businesses over a two-year period from the date of acquisition. We were also subject to additional consideration of up to $8.0 million, payable in cashover a 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 as of the acquisition date based on management’s estimate of the fair value of the variable consideration payable. We adjusted the $12.2 million initialestimates of the fair value of the assets and liabilities in 2012, resulting in reductions to goodwill of $0.2 million, and the fair value of the purchase price of $0.2million, and recorded this change retroactively to 2011. The final goodwill amount of $7.6 million includes $1.5 million that is deductible for income tax purposes.The final allocation of the fair values of the assets acquired and purchase price is summarized as follows (in thousands):Fair values of net assets acquired: Final AllocationEquipment $70Intangible assets, primarily customer relationships 4,041Working capital, including work in progress 1,967Deferred tax liabilities (1,736)Goodwill 7,577Fair value of net assets acquired $11,919Fair value of purchase price $11,919From the acquisition date to December 31, 2014, we paid $6.3 million of the earn-out liability consisting of cash payments of $3.6 million and 404,775shares of our common stock having a value of $2.7 million. We also recorded accretion and other adjustments of the earn-out liability of $1.4 million, resulting inno remaining earn-out payable as of December 31, 2014.Global EdgeIn December 2015, we acquired the SIM business of Global Edge for a purchase price valued at $0.7 million. The purchase price included an initial cashpayment of $0.5 million and additional variable cash consideration based on the performance of the acquired businesses over a two year period from the date ofacquisition valued at $0.2 million.LavanteIn October 2016, we acquired Lavante, a SaaS-based supplier of SIM and recovery audit services firm for a net purchase price of $3.7 million. Lavante’sassets consist primarily of its proprietary software applications.71Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)We have recorded Lavante's assets acquired and liabilities assumed based on our preliminary estimates of their fair values at the acquisition date. Thedetermination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable and amortizabletangible and identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing andamount of future cash flows and discount rates reflecting risk inherent in the future cash flows. The estimated fair values of Lavante's assets acquired and liabilitiesassumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. We expect to complete our fair value determinations no later thanthe fourth quarter of 2017. We do not currently expect our fair value determinations to change materially; however, there may be differences compared to thoseamounts reflected in our consolidated financial statements as of December 31, 2016 as we finalize our fair value analysis and such changes could be material.Based on our preliminary estimates, the purchase price exceeded the aggregate estimated fair value of the acquired assets and assumed liabilities at theacquisition date by $2.1 million, which amount has been allocated and recognized as goodwill within our Adjacent Service business segment. None of the goodwillassociated with the acquisition is deductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.The preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed is presented below:As of October 31, 2016 Cash and cash equivalents $28Account receivables 207Other Current Assets 92Goodwill 2,146Intangible Assets 6,178Fixed Assets 98Total Assets 8,749Accounts payable 121Deferred revenue 370Other current liabilities 757Total Liabilities 1,248Total purchase price $3,669Our estimates of the fair values of identifiable intangible assets are presented below: Fair values at October31, 2016Remaining useful lives(in months)Trademarks $16348Patents 11412Software 5,90148Total intangible assets $6,178 In general, intangible assets include trade names, trademarks, copyrights, patents, customer contacts and/or relationships, developed technology (computersoftware), technological know-how, and brand names. When estimating the value of such assets, we consider the future income stream associated with the specificasset, taking into account the asset's estimated remaining life, average annual anticipated rate of return, and market rates of return. Often, an income approach suchas a multi-period excess earnings model or distributor model will be used.We may also consider the market price of comparable assets recently sold or the asking prices for similar assets currently for sale. This methodology involvesresearching the industry to determine if comparable companies pay or receive royalties for rights associated with the use of the asset. The royalty rates charged orreceived are then used as valuation benchmarks. The relief from royalty method is often used in the valuation of assets involving fair royalty rates (e.g.,trademarks, patents, etc.).72Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)The cost approach analyzes the current cost to re-create or duplicate an asset minus the decrease in value due to the passage of time or obsolescence. Forexample, when valuing a trademark (when it is not the primary asset acquired), we calculate the costs that would have been incurred over the years in establishingconsumer recognition and perception of quality, service and reliability. We also consider the legal costs incurred in registering the asset.We are still reviewing the valuation of the Lavante acquisition, in particular the value of any potential earnout due to Lavante, the useful lives of the long-lived assets acquired from Lavante and any potential deferred tax assets or liabilities associated with the valuation.The revenue and loss from continuing operations of Lavante from the acquisition date through December 31, 2016 are presented below and included in ourconsolidated statements of operations. These amounts are not necessarily indicative of the results of operations that Lavante would have realized if it had continuedto operate as a stand-alone company during the period presented, primarily due to costs that are now reflected in our unallocated corporate costs and not allocatedto Lavante. From October 31, 2016 toDecember 31, 2016Revenue $383Loss from continuing operations $(891)As required by ASC 805, the following unaudited pro forma statements of operations for the years ended December 31, 2016 and 2015 give effect to theLavante acquisition as if it had been completed on January 1, 2015. The unaudited pro forma financial information is presented for illustrative purposes only and isnot necessarily indicative of what the operating results actually would have been during the periods presented had the Lavante acquisition been completed duringthe periods presented. In addition, the unaudited pro forma financial information does not purport to project future operating results. This information ispreliminary in nature and subject to change based on final purchase price adjustments. The pro forma statements of operations do not reflect: (1) any anticipatedsynergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Lavante acquisition. December 31, 2016December 31, 2015Revenue from continuing operations (pro forma) 143,198140,994Loss from continuing operations (pro forma) (3,418)(5,516)DivestituresIn October 2014, we divested certain assets within our Adjacent Services segment that were related to our Chicago, Illinois-based consulting business. Theseassets, previously acquired in November 2010 from TJG Holdings LLC, were sold to Salo, LLC, a Minnesota limited liability company. We received an initialcash payment of $1.1 million in connection with the closing of the transaction and recognized a loss on the sale of less than $0.1 million, which we recognized inOther loss in the Consolidated Statements of Operations. We have also received payment for working capital transferred to the buyer. In addition, we received $0.8million in earn-out payments based on certain revenue recognized by the buyer in relation to the acquired business during the year following the closing date of thedivestiture.In August 2015, we divested certain assets from a document service offering purchased as part of the Business Strategy, Inc. acquisition in 2011.We did notreceive any initial cash payments at closing of the transaction and recognized a loss on the sale of $1.6 million, which we recognized in Other loss in theConsolidated Statements of Operations.73Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(13) QUARTERLY RESULTS (UNAUDITED)The following tables set forth certain unaudited condensed consolidated quarterly financial data for each of the last eight quarters during our fiscal yearsended December 31, 2016 and 2015. We have derived the information from unaudited Condensed Consolidated Financial Statements that, in the opinion ofmanagement, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. Theoperating results for any quarter are not necessarily indicative of the results to be expected for any future period. The quarterly results are updated for continuingoperations. 2016 Quarter Ended 2015 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 (In thousands, except per share data)Revenue, net $31,233 $35,291 $35,137 $39,183 $32,985 $36,995 $33,365 $34,957Operating expenses: Cost of revenue 21,646 23,431 22,367 23,855 23,167 24,111 23,507 22,384Selling, general and administrativeexpenses 8,848 9,620 9,883 11,048 7,944 9,185 8,284 6,871Depreciation of property and equipment 1,232 1,216 1,376 1,209 1,279 1,294 1,255 1,489Amortization of intangible assets 394 395 393 650 746 754 517 441Total operating expenses 32,120 34,662 34,019 36,762 33,136 35,344 33,563 31,185Operating income (loss) from continuingoperations (887) 629 1,118 2,421 (151) 1,651 (198) 3,772Foreign currency transaction (gains) losseson short-term intercompany balances (1,007) 196 (165) 1,060 1,692 (416) 654 235Interest expense (income), net (29) (12) (14) (98) (42) (53) (8) (87)Other (income) loss 10 18 (168) 19 — — 1,612 (421)Income (loss) from continuing operationsbefore income taxes 139 427 1,465 1,440 (1,801) 2,120 (2,456) 4,045Income tax expense (benefit) 204 460 (685) 1,263 455 296 421 (803)Net income (loss) from continuingoperations (65) (33) 2,150 177 (2,256) 1,824 (2,877) 4,848 Basic earnings (loss) per common sharefrom continuing operations (1) $— $— $0.10 $0.01 $(0.09) $0.07 $(0.11) $0.19 Diluted earnings (loss) per common sharefrom continuing operations (1) $— $— $0.10 $0.01 $(0.09) $0.07 $0.11 $0.19(1)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 2016, we released a valuation allowance of $1.1 million against the net deferred tax assets of certain of our foreign subsidiaries,which reduced our income tax expense for the period.In the fourth quarter of 2015, we released a valuation allowance of $1.5 million against the net deferred tax assets of one of our foreign subsidiaries, whichreduced our income tax expense for the period.74Table of ContentsPRGX GLOBAL, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(14) SUBSEQUENT EVENTSIn February 2017, we completed the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC. and Cost & Compliance AssociatesLimited. At the closing of the transaction, we paid $10.0 million in cash, which amount is subject to a customary working capital adjustment. In addition, we maybe required to pay earnout consideration in cash over a period of two years, based on the performance of the acquired businesses and our contract compliancebusiness following closing. The aggregate consideration we may be required to pay in connection with this acquisition cannot exceed $18.0 million.75ITEM 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 and ChiefFinancial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule13a-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 concluded thatthe Company’s disclosure controls and procedures are effective as of December 31, 2016.Changes in internal controls over financial reportingDuring the fourth quarter of 2015, internal controls were designed and implemented to enhance the planning and review of tax provisions and positions by anadditional member of the accounting department other than the preparer and reviewer in order to prevent and detect potential errors. These changes materiallyaffected, or are reasonably likely to materially affect, our internal control over financial reporting. These controls have been tested and we found them to beeffective as key controls had been designed and documented during the fourth quarter of 2015.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 (2013 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, 2016, the Company’s internal control over financial reporting excluding the newly acquired Lavante business iseffective. The Company’s internal control over financial reporting as of December 31, 2016 has been audited by BDO USA, LLP, an independent registered publicaccounting firm, as stated in their report which is included herein, which expresses an unqualified opinion on the effectiveness of the Company’s internal controlover financial reporting as of December 31, 2016.Management’s report shall not be deemed filed for purposes of Section 18 of the Exchange Act.76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, 2016, based on criteriaestablished in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSOcriteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying "Item 9A, Management’s Annual Report on Internal Control Over Financial Reporting”.Our responsibility is to express 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 Lavante, Inc., which was acquired on October 31,2016, and which is included in the consolidated balance sheet of the Company as of December 31, 2016, and the related consolidated statements of operations,comprehensive income (loss), shareholders’ equity, and cash flows for the year then ended. Lavante, Inc. constituted 9.6% and 12.6% of total assets and net assets,respectively, as of December 31, 2016, and 0.3% and (40.0%) of revenues and net income from continuing operations, respectively, for the year then ended.Management did not assess the effectiveness of internal control over financial reporting of Lavante, Inc. because of the timing of the acquisition which wascompleted on October 31, 2016. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal controlover financial reporting of Lavante, Inc.In our opinion, PRGX Global, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016,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, 2016 and 2015, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cashflows for each of the three years in the period ended December 31, 2016 and our report dated March 16, 2017 expressed an unqualified opinion thereon./s/ BDO USA, LLPAtlanta, GeorgiaMarch 16, 2017ITEM 9B. Other InformationNone.77PART IIIITEM 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 2017 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.78ITEM 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 PlansDuring 2016, the Company had two shareholder approved stock-based compensation plans under which equity awards have been granted: (1) the 2006Management Incentive Plan (“2006 MIP”), and (2) the 2008 Equity Incentive Plan (“2008 EIP”).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. The 2006MIP terminated on April 30, 2016.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. Pursuant to amendments to the 2008 EIP that were approved by the Company's Board of Directors and theCompany's shareholders in 2010, 2012 and 2014, 10,600,000 shares are reserved for issuance under the 2008 EIP pursuant to award grants to key employees,directors and service providers.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, 2016:Plan category Number of securities to beissued upon exercise ofoutstanding options,warrants and rights Weighted-average exerciseprice of outstandingoptions, warrants andrights Number of securitiesremaining available for futureissuance under equitycompensation plans (excludingsecurities reflected in column(a)) (a) (b) (c)Equity compensation plans approved by security holders: 2008 Equity Incentive Plan 2,867,885 6.37 627,507Equity compensation plans not approved by securityholders(1), (2), (3) 552,500 5.71 —Total 3,420,385 $6.26 627,507(1)Inducement Option Grant - in connection with senior personnel joining the company in the second quarter of 2016 and in connection with certain employees joining theCompany as part of the closing of the Lavante acquisition in the fourth quarter of 2016, the Company made inducement grants outside its existing stock-basedcompensation plans. The employees received options to purchase 232,500 shares of the common stock of the Company.(2)Inducement Option Grant - during the first and second quarters of 2015, in connection with senior personnel joining the Company, the Company made inducementgrants outside its existing stock-based compensation plans. These employees received options to purchase 110,000 shares of the common stock of the Company.(3)Inducement Option Grant - during the third quarter of 2014, in connection with two executives joining the Company, the Company made inducement grants outside itsexisting stock-based compensation plans to the executives. The executives received options to purchase 270,000 shares of the common stock of the Company.79ITEM 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” of theProxy Statement.ITEM 14. Principal Accountant 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 “PrincipalAccountant Fees and Services” of the Proxy Statement.PART IVITEM 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 38. Page No.Report of Independent Registered Public Accounting Firm38Consolidated Statements of Operations for the Years Ended December 31, 2016, 2015 and 201439Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2016, 2015 and 201440Consolidated Balance Sheets as of December 31, 2016 and 201541Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2016, 2015 and 201442Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, 2015 and 201443Notes to Consolidated Financial Statements44(2) Financial Statement Schedule:Schedule II - Valuation and Qualifying Accounts85(3) ExhibitsExhibitNumber Description2.1 Share Purchase Agreement dated February 28, 2010 by and between PRGX U.K. Limited and Sajid Ghani and Others (incorporated byreference to Exhibit 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 Solutions, LLC, DD&C Investments, L.L.C., Charles Fayon, Daniel Geelhoed and Dennis VanDyke. (incorporated by referenceto Exhibit 2.1 to the Registrant’s Form 8-K filed on December 2, 2011). 2.3 Asset Purchase Agreement dated October 6, 2016, by and among PRGX USA, INC., PRGX UK LTD., Cost & Compliance Associates,LLC, Cost & Compliance Associates Limited and Robert F. Donohue (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-Kfiled on October 6, 2016). 2.4 Agreement and Plan of Merger dated October 25, 2016, by and among PRGX USA, Inc., Braveheart Merger Co., Lavante, Inc., PointGuardVentures I, L.P. and Krish Panu (incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K filed on October 25, 2016). 3.1 Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose offiling with 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 effective January 20, 2010 (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-Kfiled on January 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 December11, 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 December31, 2001). 4.2 See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively. +10.1 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).81 10.2 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 toExhibit 10.34 to the Registrant’s Form 10-K for the year ended December 31, 2001). 10.3 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). 10.4 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). 10.5 Third Amendment of Lease, entered into as of January 8, 2014, by and between Galleria 600, LLC and the Company (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on January 14, 2014). +10.6 Amended and Restated 2006 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q for thequarter ended September 30, 2006). +10.7 Form of Performance Unit Agreement under 2006 Amended and Restated Management Incentive Plan (incorporated by reference to Exhibit10.2 to the Registrant’s Form 8-K filed on June 22, 2012). +10.8 PRGX Global, Inc. 2008 Equity Incentive Plan, as Amended and Restated Effective April 25, 2014 (incorporated by reference to Exhibit10.1 to the Registrant’s Form 8-K filed on June 30, 2014). +10.9 Form of Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-Kfiled on June 4, 2008). +10.10 Form of Non-Qualified Stock Option Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to the Registrant’sForm 8-K filed on June 4, 2008). +10.11 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). +10.12 Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 14, 2009). +10.13 Form of Performance-Based Restricted Stock Unit Agreement for Employees (incorporated by reference to Exhibit 10.1 to the Registrant’sForm 8-K filed on April 1, 2015). 10.14 Amended & Restated Revolving Credit Agreement dated as of December 23, 2014, among PRGX Global, Inc. and PRGX USA, Inc., asborrowers, the lenders from time to time party thereto and SunTrust Bank, as administrative agent and issuing bank (incorporated byreference to Exhibit 10.1 to the Registrant’s Form 8-K filed on December 30, 2014). 10.15 Subsidiary Guaranty Agreement dated as of January 19, 2010 by and among PRGX Global, Inc. (formerly PRG-Schultz International, Inc),and PRGX USA, Inc. (formerly PRG-Schultz USA, Inc.), as borrowers, each of the subsidiaries of PRGX Global, Inc. listed on Schedule Ithereto, as guarantors, and SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-Kfiled on January 25, 2010). 10.16 Security Agreement dated January 19, 2010 among 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, infavor of SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed on January 25,2010). 10.17 Equity Pledge Agreement dated as of January 19, 2010, made by PRGX Global, Inc. (formerly PRG-Schultz International, Inc), PRGXUSA, Inc. (formerly PRG-Schultz USA, Inc.), and the other direct and indirect subsidiaries of PRGX Global, Inc. signatory thereto, asgrantors, in favor of SunTrust Bank, as administrative agent (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed onJanuary 25, 2010). 10.18 Loan Documents Modification Agreement dated June 21, 2010, by and among the Borrowers, the Guarantors and the Lender (incorporatedby reference to Exhibit 10.29.4 to the Registrant’s Form 10-K filed on March 15, 2012). 10.19 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). 8210.20 Third Loan Documents Modification Agreement dated October 17, 2011, by and among the Borrowers and the Lender (incorporated byreference to Exhibit 10.29.6 to the Registrant’s Form 10-K filed on March 15, 2012) 10.21 Fourth Loan Documents Modification Agreement, entered into as of January 17, 2014, by and among the Borrowers, the Guarantors and theLender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed on January 24, 2014). 10.22 Fifth Loan Documents Modification Agreement and Waiver, entered into as of May 8, 2014, by and among the Borrowers, the Guarantorsand the Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on May 12, 2014). 10.23 Sixth Loan Documents Modification Agreement and Waiver, entered into as of August 7, 2014, by and among the Borrowers, theGuarantors and the Lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed on August 7, 2014). 10.24 Seventh Loan Documents Modification Agreement, entered into as of October 23, 2014, by and among the Borrowers, the Guarantors andthe Lender (incorporated by reference to Exhibit 10.29 to the Registrant's Form 10-K filed on March 13, 2015). 10.25 Eighth Loan Documents Modification Agreement, entered into as of December 23, 2014, by and among the Borrowers, the Guarantors andthe Lender (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K filed on December 30, 2014). 10.26 Ninth Loan Documents Modification Agreement, entered into as of December 21, 2016, by and among the Borrowers, the Guarantors andthe Lender. 10.27 PRGX Global, Inc. Deferred Compensation Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.2 to the Registrant’sForm 8-K filed on June 30, 2014). 10.28 Form of PRGX Global, Inc. Restricted Stock Unit Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.3 to theRegistrant’s Form 8-K filed on June 30, 2014). 10.29 Employment Agreement between the Registrant and Victor A. Allums dated November 28, 2008 (incorporated by reference to Exhibit10.31 to the Registrant’s Form 10-K filed on March 29, 2010). 10.30 Employment Agreement between the Registrant and Tushar Sachdev dated June 18, 2013 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 10-Q filed on August 6, 2013). 10.31 Separation Agreement between the Registrant and Romil Bahl dated December 5, 2013 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on December 11, 2013). +10.32 Employment Agreement between the Registrant and Ronald E. Stewart dated December 13, 2013 (incorporated by reference to Exhibit 10.1to the Registrant’s Form 8-K filed on December 19, 2013). +10.33 Employment Agreement between the Registrant and Michael Cochrane dated April 24, 2014 (incorporated by reference to Exhibit 10.1 tothe Registrant’s Form 8-K filed on April 29, 2014). +10.34 Separation Agreement between the Registrant and James R. Shand dated August 14, 2014 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on August 20, 2014). +10.35 Separation Agreement between the Registrant and Robert B. Lee dated September 11, 2014 (incorporated by reference to Exhibit 10.1 to theRegistrant’s Form 8-K filed on September 11, 2014). +10.36 Employment Agreement between the Registrant and Peter Limeri dated September 11, 2014 (incorporated by reference to Exhibit 10.1 tothe Registrant’s Form 8-K filed on November 21, 2014). +10.37 Separation Agreement between the Registrant and Catherine Lee dated September 25, 2015 (incorporated by reference to Exhibit 10.1 toRegistrant's Form 10-Q filed on November 6, 2015). +10.38 Separation Agreement between the Registrant and Michael W. Reene dated January 22, 2016 (incorporated by reference to Exhibit 10.1 toRegistrant's Form 10-K filed on March 15, 2016). +10.39 Separation Agreement between the Registrant and Puneet Pamnani dated April 22, 2016. +10.40 Amendment of Employment Agreement dated April 27, 2016, by and between Ronald E. Stewart and the Company (incorporated byreference to Exhibit 10.1 to Registrant's Form 8-K filed on April 29, 2016). +10.41 Form of PRGX Global, Inc. Stock Appreciation Rights Agreement (incorporated by reference to Exhibit 10.2 to Registrant's Form 8-K filedon April 29, 2016). 8310.42 Agreement dated as of November 10, 2016 by and among PRGX Global, Inc. and Matthew A. Drapkin, Northern Right CapitalManagement, L.P., Northern Right Capital (QP), L.P., and BC Advisors, LLC (incorporated by reference to Exhibit 10.1 to Registrant'sForm 8-K filed on November 10, 2016). 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 endedDecember 31, 2003). 21.1 Subsidiaries of the Registrant. 23.1 Consent of BDO USA, LLP. 31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2016. 31.2 Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the year ended December 31, 2016. 32.1 Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the year ended December31, 2016.101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase+ Designates management contract or compensatory plan or arrangement.84SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTSFOR THE YEARS ENDED DECEMBER 31, 2016, 2015 AND 2014(In thousands) Additions Deductions Description Balance atBeginningof Year Charge(Credit) toCosts andExpenses Credit tothe respectivereceivable (1) Balance atEnd ofYear2016 Allowance for doubtful accounts receivable $930 (129) (2) $799Allowance for doubtful employee advances and miscellaneousreceivables $681 2,184 (2,365) $500Deferred tax valuation allowance $45,565 4,549 — $50,1142015 Allowance for doubtful accounts receivable $2,243 (1,311) (2) $930Allowance for doubtful employee advances and miscellaneousreceivables $692 1,294 (1,305) $681Deferred tax valuation allowance $52,002 (6,437) — $45,5652014 Allowance for doubtful accounts receivable $1,996 253 (6) $2,243Allowance for doubtful employee advances and miscellaneousreceivables $402 1,125 (835) $692Deferred tax valuation allowance $48,453 3,549 — $52,002-----------------------------(1)Write-offs net of recoveries.85ITEM 16. Form 10-K SummaryNone.SIGNATURESPursuant 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/ RONALD E. STEWART Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer) Date: March 16, 2017Pursuant 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/ RONALD E. STEWART President, Chief Executive Officer and Director March 16, 2017Ronald E. Stewart (Principal Executive Officer) /s/ PETER LIMERI Chief Financial Officer and Treasurer March 16, 2017Peter Limeri (Principal Financial Officer) /s/ BRADLEY T. WHITE Controller March 16, 2017Bradley T. White (Principal Accounting Officer) /s/ DAVID A. COLE Director March 16, 2017David A. Cole /s/ MATTHEW A. DRAPKIN Director March 16, 2017Matthew A. Drapkin /s/ WILLIAM F. KIMBLE Director March 16, 2017William F. Kimble /s/ MYLLE H. MANGUM Director March 16, 2017Mylle H. Mangum /s/ GREGORY J. OWENS Director March 16, 2017Gregory J. Owens /s/ JOSEPH E. WHITTERS Chairman of the Board March 16, 2017Joseph E. Whitters 86Exhibit10.26NINTH LOAN DOCUMENTS MODIFICATION AGREEMENTTHIS NINTH LOAN DOCUMENTS MODIFICATION AGREEMENT (this “Amendment”) is made and entered into as ofthe 21st day of December, 2016, by and among PRGX GLOBAL, INC., a Georgia corporation (“PRGX”), and PRGX USA, INC., aGeorgia corporation (“PRG-USA”) (PRGX and PRG-USA are each individually, a “Borrower”, and collectively, the “Borrowers”),each of the Subsidiaries of PRGX listed as a “Guarantor” on the signature pages hereto (each such Subsidiary individually, a“Guarantor”, and collectively, the “Guarantors”), and SUNTRUST BANK, as Administrative Agent, the sole Lender and IssuingBank.BACKGROUND STATEMENTWHEREAS, Borrowers have entered into that certain Amended and Restated Revolving Credit Agreement, dated as ofDecember 23, 2014 (as may have been and may be subsequently amended, restated, supplemented or otherwise modified from time-to-time, the “Credit Agreement”; all capitalized terms used but not otherwise defined herein shall have the meanings ascribed tothem in the Credit Agreement), with the Administrative Agent, the issuing bank thereunder and the lenders from time to time partythereto (the “Lenders”); andWHEREAS, Guarantors and Administrative Agent have entered into that certain Subsidiary Guaranty Agreement, dated asof January 19, 2010 (as may have been and may be subsequently amended, restated, supplemented or otherwise modified fromtime-to-time, the “Subsidiary Guaranty Agreement”); andWHEREAS, Borrowers and Guarantors have entered into various other instruments, agreements, documents and writings inconnection with the Credit Agreement and the Subsidiary Guaranty Agreement (as may have been and may be subsequentlyamended, restated, supplemented or otherwise modified from time-to-time, collectively, the “Loan Documents”); andWHEREAS, Borrowers have requested that the Credit Agreement be amended in the manner herein provided in order toclarify or modify certain existing provisions contained therein, all as more specifically set forth herein; andWHEREAS, Administrative Agent, the Issuing Bank and the Lenders are willing to amend the Credit Agreement asaforesaid, provided, however, that Borrowers and Guarantors fully comply with the provisions of this Amendment; andWHEREAS, Guarantors are willing to reaffirm the covenants, representations and warranties set forth in the SubsidiaryGuaranty Agreement.NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receiptand sufficiency of which hereby is acknowledged by the parties10264921v3hereto, Borrowers, Guarantors, Administrative Agent, the sole Lender and Issuing Bank agree as follows:1. Conditions Precedent. Notwithstanding any other provision of this Amendment, and without affecting in any manner therights of Administrative Agent, the sole Lender or the Issuing Bank hereunder, it is understood and agreed that this Amendmentshall not become effective, and the Loan Parties shall have no rights under this Amendment, until: (i) Administrative Agent shallhave received fully executed counterparts to this Amendment from the Loan Parties; and (ii) reimbursement or payment of all itsreasonable out-of-pocket expenses incurred in connection with this Amendment (including, without limitation, reasonable fees,charges and disbursements of counsel to Administrative Agent).2. Modification of Credit Agreement and Loan Documents. The Credit Agreement is hereby amended, effective as of thedate hereof, as follows:(i) By amending and restating the following defined terms set forth in Section 1.1 as follows:“Consolidated Fixed Charges” shall mean, for PRGX and its Subsidiaries for any period, the greater of: (a) the sum(without duplication) of (i) Consolidated Interest Expense paid or payable for such period (but only to the extent comprisedof cash interest expense), (ii) scheduled principal payments paid or payable on Consolidated Total Debt during such period,including, but not limited to, Deferred Payments paid or payable during such period, (iii) Restricted Payments paid in cash(other than to a Loan Party) during such period, (iv) Earn-Out Payments paid or payable during such period, plus (v)amortization for rental exposure write-offs paid in cash during such period; and (b) $1.00.“Consolidated Interest Expense” shall mean, for PRGX and its Subsidiaries for any period determined on aconsolidated basis in accordance with GAAP, the sum of (i) net interest expense, including without limitation the interestcomponent of any payments in respect of Capital Lease Obligations capitalized or expensed during such period (whether ornot actually paid during such period), plus (ii) the net amount payable (or minus the net amount receivable) with respect toHedging Transactions during such period (whether or not actually paid or received during such period).“Fixed Charge Coverage Ratio” shall mean, as of any date of determination, the ratio of: (a) Consolidated AdjustedEBITDA less the actual amount paid by PRGX and its Subsidiaries in cash on account of Capital Expenditures and CashTaxes (to the extent comprised of income taxes actually paid in cash), in each case measured for the four consecutive FiscalQuarters ending on or immediately prior to such date; to (b) Consolidated Fixed Charges, measured for the four consecutiveFiscal Quarters ending on or immediately prior to such date (but in any event excluding as a10264921v32Consolidated Fixed Charge any Restricted Payment consisting of the redemption, purchase or repurchase by PRGX of itscommon stock prior to July 1, 2016).(ii) By adding the following new defined term to Section 1.1, to be inserted into its proper alphabetical order:“Cash-Based Deferred/Incentive Compensation” shall mean any deferred or incentive compensation paymentobligation of PRGX or any of its Subsidiaries that mandatorily must be, or optionally may be, settled in cash.(iii) By adding the following sentence at the end of the defined term “Indebtedness” in Section 1.1:“Deferred and incentive compensation payment obligations of PRGX and its Subsidiaries shall not constitute Indebtedness,except to the extent constituting Cash-Based Deferred/Incentive Compensation that in accordance with GAAP must bereflected on the consolidated balance sheet of PRGX and its Subsidiaries.(iv) By amending and restating the following defined term set forth in Section 1.1 as follows:“Consolidated Total Debt” shall mean, as of any date of determination, all Indebtedness of PRGX and its Subsidiariesmeasured on a consolidated basis as of such date, but excluding (i) Indebtedness of the type described in subsection (xi) ofthe definition thereto, (ii) obligations in respect of Earn-Out Payments, (iii) Cash-Based Deferred/Incentive Compensationand (iv) Indebtedness comprised of obligations owing or accrued with respect to Dark Leases.(v) In Section 7.1, by deleting the word “and” at the end of clause (j) thereof, relettering clause (k) thereof as clause (l)thereof, and inserting the following new clause (k) immediately before relettered clause (l):(k) Unsecured Indebtedness consisting of Cash-Based Deferred/Incentive Compensation; and(vi) Subsection (a) of Section 7.3 is hereby amended and restated to read in its entirety as follows:(a) The Borrowers will not, and will not permit any of their respective Subsidiaries to, merge into or consolidateinto any other Person, or permit any other Person to merge into or consolidate with it, or sell, lease, transfer or otherwisedispose of (in a single transaction or a series of transactions) all or substantially all of its assets (in each case, whether nowowned or hereafter acquired) or all or substantially all of the stock of any of its Subsidiaries (in each case, whether nowowned or hereafter acquired) or liquidate or dissolve; provided, that if at the time thereof and10264921v33immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing (i) anyBorrower or any Subsidiary may merge with a Person if such Borrower (or such Subsidiary if the Borrower is not a party tosuch merger) is the surviving Person, (ii) any Subsidiary may merge into another Subsidiary; provided, that if any party tosuch merger is a Subsidiary Loan Party, the Subsidiary Loan Party shall be the surviving Person (except in the event of amerger among Subsidiary Loan Parties, in which case any single Subsidiary Loan Party shall be the surviving Person), (iii)in connection with a Permitted Acquisition involving a reverse-merger transaction, any Subsidiary (if not also a Borrower)may merge with and into the Target so long as the Target thereby becomes a Domestic Subsidiary and a Subsidiary LoanParty in accordance with the terms and conditions of this Agreement, (iv) any (a) Subsidiary may sell, transfer, lease orotherwise dispose of all or substantially all of its assets to any Borrower or to a Subsidiary Loan Party, (b) DomesticSubsidiary that is not Loan Party may sell, transfer, lease or otherwise dispose of all or substantially all of its assets to anyother Domestic Subsidiary that is not a Loan Party and (c) Foreign Subsidiary may sell, transfer, lease or otherwise disposeof all or substantially all of its assets to any other Foreign Subsidiary and (v) any Subsidiary (other than a Subsidiary LoanParty) may liquidate or dissolve if the Borrowers determine in good faith that such liquidation or dissolution is in the bestinterests of the Borrowers and is not materially disadvantageous to the Lenders; provided, that any such merger involving aPerson that is not a wholly-owned Subsidiary immediately prior to such merger shall not be permitted unless also permittedby Section 7.4.(vii) In Section 7.4, subsection (h) is hereby amended and restated to read in its entirety as follows (to correct an errantcross-reference):(h) To the extent permitted by Section 7.5(iv), PRGX’s redemption, purchase or repurchase of its common stockpursuant to open-market purchases, privately negotiated transactions or otherwise;3. Consolidated Adjusted EBITDA (Lavante Transaction). Reference is made to that certain Consent to MergerTransaction, dated as of October 28, 2016, by and among the Borrowers, the Administrative Agent and the sole Lender, relating tothe then-pending acquisition of 100% of the Capital Stock of Lavante, Inc. (the “Lavante Consent”). It is understood and agreed thatthe Acquired Adjusted EBITDA of the Lavante Acquired Business (as contemplated by the Lavante Consent) for any period (orportion thereof) prior to November 1, 2016 shall be excluded when determining “Consolidated Adjusted EBITDA” for anyapplicable period (notwithstanding proviso (x) of the definition thereof).4. GAAP Adjustment. Reference is made to FASB Accounting Standards Update No. 2016-02, issued February 2016, andrelated pronouncements, regarding a change in the treatment under GAAP of operating leases. In accordance with Section 1.3 of theCredit Agreement, it is understood and agreed that: (a) in no event shall any liability in respect of an operating lease of PRGX or anyof its Subsidiaries constitute “Indebtedness” under the Credit Agreement except to10264921v34the extent (if at all) that it would have constituted “Indebtedness” under the pre-existing accounting principles utilized by PRGX andits Subsidiaries; and (b) all such excluded operating leases shall continue to be governed by Section 7.14 of the Credit Agreement.5. Ratification and Reaffirmation. Except as herein expressly modified or amended, all the terms and conditions of theCredit Agreement and the other Loan Documents are hereby ratified, affirmed, and approved. As of the date hereof and givingeffect to the modifications and amendments hereunder, Borrowers hereby reaffirm and restate each and every warranty andrepresentation set forth in any Loan Document, in each case except to the extent such warranty or representation expressly relates toan earlier date.6. Reaffirmation of Guaranty. Guarantors hereby ratify, confirm, reaffirm and covenant that the Subsidiary GuarantyAgreement which they have executed is validly existing and binding against each of them under the terms of such SubsidiaryGuaranty Agreement. Guarantors hereby reaffirm and restate, as of the date hereof and giving effect to the modifications andamendments hereunder, all covenants, representations and warranties set forth in the Subsidiary Guaranty Agreement, andspecifically reaffirm that each of their obligations under the Subsidiary Guaranty Agreement extend and apply for all purposes to theCredit Agreement as amended hereby.7. No Novation. The parties hereto hereby acknowledge and agree that this Amendment shall not constitute a novation ofthe indebtedness evidenced by any of the Loan Documents, and further that the terms and provisions of the Loan Documents shallremain valid and in full force and effect except as be herein modified and amended.8. Release. For purposes of this Paragraph 8, the term “Borrower Parties” shall mean Borrowers and Guarantorscollectively and the term “Lender Parties” shall mean Administrative Agent, Lenders and Issuing Bank, and shall include each oftheir respective predecessors, successors and assigns, and each past and present, direct and indirect, parent, subsidiary and affiliatedentity 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 assignof each of the foregoing; references in this paragraph to “any” of such parties shall be deemed to mean “any one or more” of suchparties; and references in this sentence to “each of the foregoing” shall mean and refer cumulatively to each party referred to in thissentence up to the point of such reference. Each Borrower and each Guarantor hereby acknowledges, represents and agrees: that, asof the date hereof, Borrowers and Guarantors have no defenses, setoffs, claims, counterclaims or causes of action of any kind ornature whatsoever with respect to the Credit Agreement, the Subsidiary Guaranty Agreement, the other Loan Documents or theObligations, or with respect to any other documents or instruments now or heretofore evidencing, securing or in any way relating tothe Obligations (all of said defenses, setoffs, claims, counterclaims or causes of action being hereinafter referred to as “Loan RelatedClaims”); that, to the extent that Borrowers or Guarantors may be deemed to have any Loan Related Claims as of the date hereof,Borrowers and Guarantors do hereby expressly waive, release and relinquish any and all such Loan Related Claims, whether or notknown to or suspected by Borrowers and Guarantors; that Borrowers and Guarantors shall not institute or cause to be instituted anylegal action or proceeding of any kind based upon any Loan Related Claims; and that Borrowers and10264921v35Guarantors shall indemnify, hold harmless and defend all Lender Parties from and against any and all Loan Related Claims and anyand all losses, damages, liabilities and related reasonable expenses (including reasonable fees, charges and disbursements of anycounsel for any Lender Parties) suffered or incurred by any Lender Parties as a result of any assertion or allegation by any BorrowerParties of any Loan Related Claims or as a result of any legal action related thereto, provided that such indemnity shall not, as to anyLender 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 non-appealable judgment to have resulted from (i) the gross negligence or willful misconductof such Lender Parties or (ii) a claim brought by any Borrower or Guarantor against any Lender Parties for breach in bad faith ofsuch Lender Parties’ obligations under any Loan Document. Notwithstanding the foregoing provisions of this Paragraph 8,Borrowers and Guarantors make no such releases, representations, warranties, standstills or agreements with respect to any futureLoan Related Claims.9. Authority. Each Borrower and Guarantor hereby represents and warrants that the execution, delivery and performance ofthis Amendment by it has been duly authorized by all necessary actions of each Borrower and Guarantor, and do not and will notviolate any provision of law, or any writ, order or decree of any court or governmental authority or agency or any provision of theorganizational documents of any Borrower or Guarantor, and do not and will not, with the passage of time or the giving of notice,result in a breach of, or constitute a default or require any consent under, or result in the creation of any Lien upon any property orassets of any Borrower or Guarantor pursuant to, any law, regulation, instrument or agreement to which any Borrower or Guarantoris a party or by which any Borrower or any Guarantor or any of their respective properties may be subject, bound or affected.10. No Waiver or Implication. Borrowers and Guarantors hereby agree that, except as contemplated by the clarifyingamendments to the Credit Agreement effected by this Amendment, nothing herein shall constitute a waiver by Administrative Agentor any Lender of any default, whether known or unknown, which may now exist under the Credit Agreement or any other LoanDocument. Borrowers and Guarantors hereby further agree that no action, inaction or agreement by Administrative Agent or anyLender, including, without limitation, any extension, indulgence, waiver, consent or agreement of modification which may haveoccurred 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 withrespect 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 AdministrativeAgent and Lenders have made no agreement, and are in no way obligated, to grant any future extension, indulgence, waiver orconsent with respect to the Loans or any matter relating to the Loans.11. No Release of Collateral. Borrowers and Guarantors further acknowledge and agree that this Amendment shall in noway occasion a release of any collateral held by Administrative Agent as security to or for the Loans, and that all collateral held byAdministrative Agent as security to or for the Loans shall continue to secure the Loans.10264921v3612. Strict Compliance. Except as expressly modified hereby, Borrowers and Guarantors are hereby notified thatAdministrative Agent, the Issuing Bank and the Lenders demand that Borrowers and Guarantors strictly comply with the terms ofthis Amendment, the Credit Agreement and the other Loan Documents, in each case, as amended hereby. This notice evidences theintent of Administrative Agent, the Issuing Bank and the Lenders to rely on the exact terms of this Amendment and the CreditAgreement and the other Loan Documents, in each case, as amended hereby.13. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed anoriginal hereof and submissible into evidence and all of which together shall constitute one instrument.14. Headings. The headings of the paragraphs and other provisions hereof are provided for convenience only and shall notin any way affect the meaning or construction of any provision of this Amendment.15. 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 theparties or involuntary by operation of law.(Signatures on following page)10264921v37IN WITNESS WHEREOF, this Amendment has been duly executed by the parties hereto as of the day and year first abovewritten.Borrowers:PRGX GLOBAL, INC., a Georgia corporationBy: /s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX USA, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]Guarantors:PRGDS, LLC, a Georgia limited liability companyBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGFS, INC., a Delaware corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementPRG INTERNATIONAL, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGTS, LLC, a Georgia limited liability companyBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX ASIA, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX AUSTRALIA, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementPRGX BELGIUM, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX BRASIL, LLC, a Georgia limited liability companyBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX CANADA, LLC, a Georgia limited liability companyBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX EUROPE, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementPRGX FRANCE, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX GERMANY, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX MEXICO, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX NETHERLANDS, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementPRGX NEW ZEALAND, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX PORTUGAL, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX SCANDINAVIA, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX SPAIN, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementPRGX SWITZERLAND, INC., a Georgia corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX TEXAS, INC., a Texas corporationBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL]PRGX COMMERCIAL LLC, a Georgia limited liability companyBy:/s/ Peter Limeri Name: Peter LimeriTitle: Chief Financial Officer[CORPORATE SEAL](Signatures continue on following page)Ninth Loan Documents Modification AgreementAdministrative Agent, Lender andIssuing Bank:SUNTRUST BANK, as Administrative Agent, the sole Lender and Issuing BankBy: /s/ Mark Clegg Name: Mark Clegg Title: VP Portfolio Manager (End of signatures)Ninth Loan Documents Modification AgreementExhibit 10.39SEPARATION AGREEMENTTHIS SEPARATION AGREEMENT (this “Agreement”) is made and entered into this 22nd day of April, 2016, by andbetween PUNEET PAMNANI (“Executive”) and PRGX GLOBAL, INC., a Georgia corporation (“Company”). Executive andCompany are sometimes hereinafter referred to together as the “Parties” and individually as a “Party.”BACKGROUND:A. Executive was employed as the Senior Vice President – M&A and Chief Strategy Officer pursuant to an employmentagreement between Executive and Company effective as of February 8, 2012 (“Employment Agreement”).B. Executive’s last date of active service was March 29, 2016.C. Executive and Company now mutually desire to (i) provide for the end Executive’s employment and (ii) terminate theEmployment Agreement effective as of the date hereof.D. Company and Executive wish to avoid any disputes which could arise under the Employment Agreement and havetherefore compromised any claims or rights they have or may have under the Employment Agreement by agreeing to the terms ofthis Agreement. NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises, the mutual promises, covenants andagreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto hereby agree as follows:1.Termination of Employment. The Parties agree that (a) the Employment Agreement is hereby terminated as ofthe date hereof, (b) Executive’s employment with Company shall terminate effective April 28, 2016 (“Termination Date”), and (c)all benefits, privileges and authorities related to Executive’s employment with Company shall hereby cease, except as otherwisespecifically set forth in this Agreement.2. No Admission. The Parties agree that their entry into this Agreement is not and shall not be construed to be an admissionof liability or wrongdoing on the part of either Party.3. Future Cooperation. Executive agrees that, notwithstanding the termination of Executive’s employment, Executiveupon reasonable notice will make himself available to Company or its designated representatives for the purposes of: (a) providinginformation regarding the projects and files on which Executive worked for the purpose of transitioning such projects; and (b)providing information regarding any other matter, file, project and/or client with whom Executive was involved while employed byCompany.14. Consideration.(a) In consideration for Executive’s agreement to terminate the Employment Agreement, to fully release Companyfrom any and all Claims as described below, and to perform the other duties and obligations of Executive contained herein,Company will, subject to ordinary and lawful deductions and Sections 4(b) and (c) below:(i) Pay severance to Executive in the form of salary continuation for the twelve (12) months immediatelyfollowing the Termination Date (“Severance Period”). Such payments shall be made in accordance with Company’s standardpay practices in an amount equal to Nine thousand four hundred forty-seven and 31/100 dollars ($9,447.31) per bi-weeklypay period during the Severance Period, except that no payments shall be made during the period that begins immediatelyafter the Termination Date and ends on the earlier of (i) Executive’s death or (ii) six months after the Termination Date. Thepayments that would otherwise have been made in such period shall be accumulated and paid, without interest, in a lumpsum on the first bi-weekly pay period after the end of such period.(ii) Continue after the Termination Date any health care (medical, dental and vision) plan coverage, otherthan under a flexible spending account, provided to Executive and Executive’s spouse and dependents at the TerminationDate for the Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to Executive asavailable to similarly-situated active employees during such Severance Period, provided that such continued coverage shallterminate in the event Executive becomes eligible for any such coverage under another employer’s plans.(iii) Pay an amount equal to Executive's actual earned full-year bonus for 2016, pro-rated based on thenumber of days Executive was employed for such year on and before the Termination Date, payable at the time Executive'sannual bonus for such year otherwise would have been paid had Executive continued employment. Payment of any pro-ratedbonus hereunder will be dependent upon the Company’s achievement of certain revenue and adjusted EBITDA performancegoals established by the Compensation Committee for 2016 in the same manner as are applicable to similarly-situatedexecutives of the Company who participate in the annual bonus plan for 2016.(iv) Vest in full, effective as of the date upon which the revocation period for the Release described inSection 4(b) below expires without Executive having elected to revoke the Release, all of Executive's outstanding unvestedoptions and restricted stock that would have vested based solely on the continued employment of Executive. All ofExecutive's outstanding vested stock options shall remain outstanding until the earlier of (i) one year after the TerminationDate 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 Executive'semployment). Additionally, subject to the expiration of the revocation period for the Release described in Section 4(b)without Executive having elected to revoke the Release, a prorated number of Executive’s outstanding unvestedperformance-based restricted stock units that2were granted as of March 30, 2015 (“Unvested PBUs”) shall remain outstanding and be eligible to become vested andpayable in accordance with the terms of such restricted stock units, except Executive shall not be entitled to receive anydividend equivalents with respect to such prorated number of Executive’s restricted stock units after the date Executive’semployment with the Company terminates. Such prorated number of Unvested PBUs shall be equal to the number of suchUnvested PBUs multiplied by a fraction, the numerator of which is 484 and the denominator of which is (x) the number ofdays in the two-year period beginning with calendar year 2015 and ending with calendar year 2016 (the “CumulativePerformance Period”) if no Change in Control (as defined in the restricted stock units award agreement) occurs prior to theend of the Cumulative Performance Period or (y) the number of days in the Cumulative Performance Period until theChange in Control occurs if a Change in Control occurs prior to the end of the Cumulative Performance Period.(v) Payment of one year of outplacement services from Executrak or an outplacement service provider ofExecutive's choice, limited to $20,000 in total. This outplacement services benefit will be forfeited if Executive does notbegin using such services within 60 days after the Termination Date.(b) Notwithstanding anything else contained herein to the contrary, no payments shall be made or benefits deliveredunder this Agreement (other than payments required to be made by Company pursuant to Section 5 below) unless, within thirty (30)days after the Termination Date: (i) Executive has signed and delivered to Company a Release in the form attached hereto as ExhibitA (the “Release”); and (ii) the applicable revocation period under the Release has expired without Executive having elected torevoke the Release. Executive agrees and acknowledges that Executive would not be entitled to such consideration absent executionof the Release and expiration of the applicable revocation period without Executive having revoked the Release. Any payments tobe made, or benefits to be delivered, under this Agreement (other than the payments required to be made by Company pursuant toSection 5 below and the vesting of outstanding unvested options, restricted stock and restricted stock units as set forth in Section4(a)(iv) above) within the thirty (30) days after the Termination Date shall be accumulated and paid in a lump sum, or as to benefitscontinued at Executive’s expense subject to reimbursement, reimbursement shall be made, on the first bi-weekly pay periodoccurring more than thirty (30) days after the Termination Date, provided Executive delivers the signed Release to Company andthe revocation period thereunder expires without Executive having elected to revoke the Release.(c) As a further condition to receipt of the payments and benefits in Section 4(a) above, Executive also waives anyand all rights to any other amounts payable to him upon the termination of his employment relationship with Company, other thanthose specifically set forth in this Agreement, including without limitation any severance, notice rights, payments, benefits and otheramounts to which Executive may be entitled under the laws of any jurisdiction and/or his Employment Agreement, and Executiveagrees not to pursue or claim any of such payments, benefits or rights. 35. Other Benefits.Nothing in this Agreement or the Release shall:(a) alter or reduce any vested, accrued benefits (if any) Executive may be entitled to receive under any401(k) plan established by Company;(b) affect Executive’s right (if any) to elect and (subject to Section 4(a)(ii) above) pay for continuation ofExecutive’s health insurance coverage under Company’s health plans pursuant to the Consolidated Omnibus BudgetReconciliation Act of 1985 (C.O.B.R.A.), as amended;(c) affect Executive’s right (if any) to receive (i) any base salary that has accrued through the TerminationDate and is unpaid, (ii) any reimbursable expenses that Executive has incurred before the Termination Date but are unpaid(subject to Company’s expense reimbursement policy) and (iii) any unused paid time off days to which Executive will beentitled to payment, all of which shall be paid as soon as administratively practicable (and in any event within thirty (30)days) after the Termination Date; or(d) affect Executive’s right to continue to receive his base salary and benefits through the Termination Date,as in effect as of the date hereof, which base salary and benefits will continue through the Termination Date, except withrespect to any changes in benefits that are applicable generally to the other executives of Company.6. Confidentiality of Agreement Terms. Except as otherwise expressly provided in this Section 6, Executive agrees thatthis Agreement and the terms, conditions and amount of consideration set forth in this Agreement are and shall be deemed to beconfidential and hereafter shall not be disclosed by Executive to any other person or entity. The only disclosures excepted by thisparagraph are (a) as may be required by law; (b) Executive may tell prospective employers the dates of Executive’s employment,positions held, evaluations received, Executive’s duties and responsibilities and salary history with Company; (c) Executive maydisclose the terms and conditions of this Agreement to Executive’s attorneys and tax advisers; and (d) Executive may disclose theterms of this Agreement to Executive’s spouse, if any; provided, however, that any spouse, attorney or tax adviser learning about theterms of this Agreement must be informed about this confidentiality provision, and Executive will be responsible for any breachesof this confidentiality provision by his spouse, attorneys or tax advisers to the same extent as if Executive had directly breached thisAgreement.7. Restrictive Covenants.(a) Definitions. For purposes of this Agreement, the following terms shall have the following respective meanings:(i) “Business of Company” means services to (A) identify clients’ erroneous or improper payments tovendors and assist clients in the recovery of monies4owed to clients as a result of overpayments and overlooked discounts, rebates, allowances and credits, (B) identify and assistclients in recovering amounts owed to them by other third parties, including amounts owed to clients due to non-compliancewith applicable contracts, course of dealing or usual and customary terms, (C) assist clients in efforts to organize, manageand analyze their purchasing and payment data, and (D) assist clients in analyzing and managing vendor-related risks.(ii) “Confidential Information” means any information about Company or its subsidiaries and theiremployees, customers and/or suppliers which is not generally known outside of Company, which Executive learned inconnection with Executive's employment with Company, and which would be useful to competitors or the disclosure ofwhich would be damaging to Company or any subsidiary of Company. Confidential Information includes, but is not limitedto: (A) business and employment policies, marketing methods and the targets of those methods, finances, business plans,promotional materials and price lists; (B) the terms upon which Company or any subsidiary of Company obtains productsfrom its suppliers and sells services and products to customers; (C) the nature, origin, composition and development ofCompany's or any subsidiary’s services and products; and (D) the manner in which Company or any subsidiary of Companyprovides products and services to its customers.(iii) “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence infurtherance of the Business of Company.(iv) “Restricted Territory” means, and is limited to, the geographic area included in the Atlanta-SandySprings-Marietta, Georgia metropolitan statistical area. Executive acknowledges and agrees that this is a portion of the areain which Company and its subsidiaries does business at the time of the execution of this Agreement, and in which Executivehad responsibility on behalf of Company.(v) “Trade Secrets” means Confidential Information of Company and its subsidiaries which meets thedefinition of a trade secret under applicable law.(b) Confidentiality. Executive agrees that Executive will not, directly or indirectly, use, copy, disclose, distribute orotherwise make use of on his own behalf or on behalf of any other person or entity (i) any Confidential Information for a period offive (5) years after the Termination Date or (ii) any Trade Secret at any time such information constitutes a trade secret underapplicable law.(c) Non-Competition. Executive agrees that for a period of two (2) years following the Termination Date,Executive will not, either for himself or on behalf of any other person or entity, compete with the Business of Company within theRestricted Territory by performing activities which are the same as or similar to those performed by Executive for Company orCompany’s subsidiaries.5(d) Non-Solicitation of Customers. Executive agrees that for a period of two (2) years following the TerminationDate, Executive shall not, directly or indirectly, solicit any actual or prospective customers of Company or any subsidiary withwhom Executive had Material Contact, for the purpose of selling any products or services which compete with the Business ofCompany.(e) Non-Recruitment of Employees or Contractors. Executive agrees that for a period of two (2) years following theTermination Date, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of Company orany subsidiary with whom Executive had Material Contact, to terminate or lessen such employment or contract.(f) Acknowledgments. Executive hereby acknowledges and agrees that the covenants contained in (b) through (e)of this Section 7 hereof are reasonable as to time, scope and territory given Company’s and Company’s subsidiaries’ need to protecttheir business, customer relationships, personnel, Trade Secrets and Confidential Information. For purposes of the covenantscontained in (b) through (e) of this Section 7, Company shall refer also to Company's subsidiaries as applicable. In the event anycovenant or other provision in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable byreason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive inany other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/orover the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as towhich it may be enforceable, all as determined by such court in such action, and the invalidity of any one or more of the covenantsor other provisions in this Agreement shall not cause or render any other covenants or provisions in this Agreement invalid orvoidable. Executive acknowledges and represents that Executive has substantial experience and knowledge such that Executive canreadily obtain subsequent employment which does not violate this Agreement.(g) Specific Performance. Executive acknowledges and agrees that any breach of the provisions of this Section 7 byhim will cause irreparable damage to Company or Company’s subsidiaries, the exact amount of which will be difficult to determine,and that the remedies at law for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any otherremedy that may be available at law, in equity, or hereunder, Company shall be entitled to specific performance and injunctiverelief, without posting bond or other security, to enforce or prevent any violation of any of the provisions of this Section 7 byExecutive. Additionally, notwithstanding the obligations within Section 11 of this Agreement regarding the exclusive jurisdiction ofthe United States District Court for the Northern District of Georgia and the State and Superior Courts of Cobb County, Georgiapertaining to actions arising out of this Agreement, and in addition to Company’s right to seek injunctive relief in any state or federalcourt located in Cobb County, Georgia, the Parties hereby acknowledge and agree that Company may seek specific performanceand injunctive relief in any jurisdiction, court or forum applicable to Executive’s then current residency in order to prevent or torestrain any breach by Executive, or any and all of Executive’s partners, co-venturers, employers, employees, or agents, actingdirectly or indirectly on behalf of or with Executive, of any of the provisions of the restrictive covenants contained in this Section 7.68. Return of all Property and Information of Company. Executive agrees to return all property of the Company and itssubsidiaries within seven (7) days following the execution of this Agreement. Such property includes, but is not limited to, theoriginal and any copy (regardless of the manner in which it is recorded) of all information provided by Company or any subsidiarythereof to Executive or which Executive has developed or collected in the scope of Executive’s employment related to Company andits subsidiaries or affiliates as well as all Company or subsidiary-issued equipment, supplies, accessories, vehicles, keys,instruments, tools, devices, computers, cell phones, pagers, materials, documents, plans, records, notebooks, drawings, or papers.Upon request by Company, Executive shall certify in writing that Executive has complied with this provision, and has deleted allinformation of Company and its subsidiaries from any computers or other electronic storage devices owned by Executive. Executivemay only retain information relating to Executive’s benefit plans and compensation to the extent needed to prepare Executive’s taxreturns.9. No Harassing or Disparaging Conduct. Executive further agrees and promises that Executive will not engage in, orinduce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed ator about Company or its subsidiaries or affiliates, the activities of Company or its subsidiaries or affiliates, or the Releasees at anytime in the future. Notwithstanding the foregoing, this Section 9 may not be used to penalize Executive for providing truthfultestimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency ofcompetent jurisdiction.10. References. Following the Termination Date, Executive agrees to direct any third party seeking an employmentreference to the Company’s Senior Vice President-Human Resources and Company agrees to give any potential employers whoinquire about Executive’s work history at Company a neutral reference consisting of Employee’s dates of employment, title andcompensation. The Company will not be responsible with respect to any references which are directed by Executive to anyone otherthan the Company’s Senior Vice President-Human Resources.11. Construction of Agreement and Venue for Disputes. This Agreement shall be deemed to have been jointly drafted bythe Parties and shall not be construed against either Party. This Agreement shall be governed by the law of the State of Georgia, andthe Parties agree that any actions arising out of or relating to this Agreement or Executive’s employment with Company must bebrought exclusively in either the United States District Court for the Northern District of Georgia, or the State or Superior Courts ofCobb County, Georgia. Notwithstanding the pendency of any proceeding, either Party shall be entitled to injunctive relief in a stateor federal court located in Cobb County, Georgia upon a showing of irreparable injury. The Parties consent to personal jurisdictionand venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. Theprevailing Party shall be entitled to recover its costs and attorneys fees from the non-prevailing Party in any such proceeding no laterthan 90 days following the settlement or final resolution of any such proceeding. The existence of any claim or cause of action byExecutive against Company or Company's subsidiaries or affiliates, including any dispute relating to the termination of Executive'semployment or under this Agreement, shall not constitute a defense to enforcement of said covenants by injunction.712. Severability. If any provision of this Agreement shall be held void, voidable, invalid or inoperative, no other provisionof this Agreement shall be affected as a result thereof, and accordingly, the remaining provisions of this Agreement shall remain infull force and effect as though such void, voidable, invalid or inoperative provision had not been contained herein.13. No Reliance Upon Other Statements. This Agreement is entered into without reliance upon any statement orrepresentation of any Party hereto or any Party hereby released other than the statements and representations contained in writing inthis Agreement (including all Exhibits hereto).14. Entire Agreement. This Agreement, including all Exhibits hereto (which are incorporated herein by this reference),contains the entire agreement and understanding concerning the subject matter hereof between the Parties hereto. No waiver,termination or discharge of this Agreement, or any of the terms or provisions hereof, shall be binding upon either Party hereto unlessconfirmed in writing. This Agreement may not be modified or amended, except by a writing executed by both Parties hereto. Nowaiver by either Party hereto of any term or provision of this Agreement or of any default hereunder shall affect such Party’s rightsthereafter to enforce such term or provision or to exercise any right or remedy in the event of any other default, whether or notsimilar.15. Further Assurance. Upon the reasonable request of the other Party, each Party hereto agrees to take any and allactions, including, without limitation, the execution of certificates, documents or instruments, necessary or appropriate to give effectto the terms and conditions set forth in this Agreement.16. No Assignment. Neither Party may assign this Agreement, in whole or in part, without the prior written consent of theother Party, and any attempted assignment not in accordance herewith shall be null and void and of no force or effect.17. Binding Effect. This Agreement shall be binding on and inure to the benefit of the Parties and their respective heirs,representatives, successors and permitted assigns.18. Indemnification. Company understands and agrees that any indemnification obligations under its governing documentsor the indemnification agreement between Company and Executive with respect to Executive’s service as an officer of Companyremain in effect and survive the termination of Executive’s employment under this Agreement as set forth in such governingdocuments or indemnification agreement.19. Nonqualified Deferred Compensation.(a) It is intended that any payment or benefit which is provided pursuant to or in connection with this Agreementwhich is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the“Code”) shall be paid and provided in a manner, and at such time and form, as complies with the applicable requirements of Section409A of the Code to avoid the unfavorable tax consequences provided therein for non-compliance.8(b) Neither Company nor Executive shall take any action to accelerate or delay the payment of any monies and/orprovision of any benefits in any manner which would not be in compliance with Section 409A of the Code (including any transitionor grandfather rules thereunder).(c) Because Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, anypayments to be made or benefits to be delivered in connection with Executive’s “Separation from Service” (as determined forpurposes of Section 409A of the Code) that constitute deferred compensation subject to Section 409A of the Code shall not be madeuntil the earlier of (i) Executive’s death or (ii) six months after Executive’s Separation from Service (the “409A Deferral Period”) asrequired by Section 409A of the Code. Payments otherwise due to be made in installments or periodically during the 409A DeferralPeriod shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payment shallbe made as otherwise scheduled. Any such benefits subject to the rule may be provided under the 409A Deferral Period atExecutive’s expense, with Executive having a right to reimbursement from Company once the 409A Deferral Period ends, and thebalance of the benefits shall be provided as otherwise scheduled.(d) For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights toreceive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code.(e) Notwithstanding any other provision of this Agreement, neither Company nor its subsidiaries or affiliates shallbe liable to Executive if any payment or benefit which is to be provided pursuant to this Agreement and which is considered deferredcompensation subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section409A of the Code.[signatures on following page]9IN WITNESS WHEREOF, the Parties have executed, or caused their duly authorized representatives to execute, thisAgreement as of the day and year first above written.“Executive”/s/ Puneet Pamnani Puneet Pamnani“Company”PRGX GLOBAL, INC.By: /s/ Victor A. Allums Title: Senior Vice President & General Counsel10EXHIBIT AForm of ReleaseRELEASEIn consideration for the undertakings and promises set forth in that certain Separation Agreement, dated as of _______________, 2016 (the “Agreement”), between PUNEET PAMNANI (“Executive”) and PRGX GLOBAL, INC. (“Company”), Executive(on behalf of himself and his heirs, assigns and successors in interest) unconditionally releases, discharges, and holds harmlessCompany and its subsidiaries and affiliates and their respective officers, directors, employees, agents, insurers, assigns andsuccessors in interest (collectively, “Releasees”) from each and every claim, cause of action, right, liability or demand of any kindand nature, and from any claims which may be derived therefrom (collectively “Released Claims”), that Executive had, has, ormight claim to have against Releasees at the time Executive executes this Agreement, whether presently known or unknown toExecutive, including, without limitation, any and all claims listed below, other than any such claims Executive has or might haveunder the Agreement:(a) arising from Executive’s employment, pay, bonuses, vacation or any other Executive benefits, and other termsand conditions of employment or employment practices of Company;(b) arising out of or relating to the termination of Executive’s employment with Company or the surroundingcircumstances thereof;(c) based on discrimination and/or harassment on the basis of race, color, religion, sex, national origin, handicap,disability, age or any other category protected by law under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of1991, Executive Order 11246, the Age Discrimination in Employment Act, the Older Workers Benefits Protection Act, theEqual Pay Act, the Americans With Disabilities Act, the Rehabilitation Act of 1973, C.O.B.R.A. (as any of these laws mayhave been amended) or any other similar labor, employment or anti-discrimination law under state, federal or local law;(d) based on any contract, tort, whistleblower, personal injury wrongful discharge theory or other common lawtheory; or(e) arising under the Employment Agreement or any other written or oral agreements between Executive andCompany or any of Company’s subsidiaries (other than the Agreement).Executive covenants not to sue or initiate any claims against any of the Releasees on account of any Released Claim or toincite, assist or encourage other persons or entities to bring claims of any nature whatsoever against Company or Releasees.Executive further covenants not to accept, recover or receive any monetary damages or any other form of relief which may arise outof or inconnection with any administrative remedies which may be filed with or pursued independently by any governmental agency oragencies, whether federal, state or local.Executive hereby acknowledges that Executive has no interest in reinstatement, reemployment or employment withCompany, and Executive forever waives any interest in or claim of right to any future employment by Company. Executive furthercovenants not to apply for future employment with Company or otherwise seek or encourage reinstatement.By signing this Release, Executive certifies that:(a) Executive has carefully read and fully understands the provisions of this Release;(b) Executive was advised by Company in writing, via this Release, to consult with an attorney before signing thisRelease;(c) Executive understands that any discussions he may have had with counsel for Company regarding hisemployment or this Release does not constitute legal advice to him and that he has retained his own independent counsel torender such advice;(d) Executive understands that this Agreement FOREVER RELEASES Company and all other Releasees from anylegal action arising prior to the date of execution of this Agreement;(e) In signing this Agreement, Executive DOES NOT RELY ON AND HAS NOT RELIED ON ANYREPRESENTATION OR STATEMENT (WRITTEN OR ORAL) NOT SPECIFICALLY SET FORTH IN THIS RELEASEOR THE AGREEMENT by Company or any other Releasee, or by any of their agents, representatives, or attorneys withregard to the subject matter, basis, or effect of this Agreement or otherwise;(f) Company hereby allows Executive no less than twenty-one (21) days from its initial presentation to Executive toconsider this Release before signing it, should Executive so desire; and(g) Executive agrees to its terms knowingly, voluntarily and without intimidation, coercion or pressure.Executive may revoke this Release within seven (7) calendar days after signing it. To be effective, such revocation must bereceived in writing by the General Counsel of Company at the offices of Company at 600 Galleria Parkway, Suite 100, Atlanta,Georgia 30339. Revocation can be made by hand delivery or facsimile before the expiration of this seven (7) day period.[signature on following page]IN WITNESS WHEREOF, the undersigned has executed this Release as of the date set forth below.“Executive” Puneet Pamnani Dated: ________ ___, 2016EXHIBIT 21.1PRGX GLOBAL, INC.SUBSIDIARIESAs of December 31, 2016CompanyJurisdiction of OrganizationPRGX USA, Inc.GeorgiaPRGX Asia, Inc.GeorgiaPRGX Australia, Inc.GeorgiaPRGX Belgium, Inc.GeorgiaPRGX Canada, LLCGeorgiaPRGX Commercial LLCGeorgiaPRGX 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, LLCGeorgiaPRGX India Private LimitedIndiaPRGX Holdings Mexico, S de RL de CVMexicoPRGX Servicios Mexico S de RL de CVMexicoPRGX de Mexico S de RL de CVMexicoPRGX Argentina S.A.ArgentinaPRGX Brasil Ltda.BrazilPRGX International PTE LimitedSingaporePRG-Schultz Suzhou' Co Ltd.ChinaPRGX Shanghai Company LimitedChinaPRGX CR s.r.o.Czech RepublicPRGFS, Inc.DelawarePRGX Texas, Inc.TexasMeridian Corporation LimitedJersey (Channel Islands)PRGX UK Holdings LtdUnited KingdomPRGX UK LtdUnited KingdomEtesius LimitedUnited KingdomPRGX Canada Corp.CanadaPRGX Deutschland GmbHGermanyPRGX Nederland B.V.NetherlandsPRGX Colombia Ltda.ColombiaPRGX Svenska ABSwedenPRG-Schultz Venezuela S. R. L.VenezuelaPRGX Polska Sp. z o.o.PolandPRGDS, LLCGeorgiaPRGTS, LLCGeorgiaLavante, IncDelaware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, No. 333-171986, No. 333-185027 and No.333-208075) and Form S-8 (File No. 333-153837, No. 333-64125, No. 333-08707, No. 333-30885, No. 333-61578, No. 333-81168, No. 333-100817, No. 333-137438, No. 333-170809, No. 333-189010 and No. 333-204489) of PRGX Global, Inc. and subsidiaries of our reports dated March 16, 2017, relating to theconsolidated financial statements and financial statement schedule, and the effectiveness of PRGX Global, Inc. and subsidiaries' internal control over financialreporting, which appear in this Form 10-K./s/ BDO USA, LLPAtlanta, GeorgiaMarch 16, 2017EXHIBIT 31.1CERTIFICATIONI, Ronald E. Stewart, 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, particularlyduring 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 purposes inaccordance 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 16, 2017 By: /s/ Ronald E. Stewart Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer)EXHIBIT 31.2CERTIFICATIONI, Peter Limeri, 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, particularlyduring 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 purposes inaccordance 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 16, 2017 By: /s/ Peter Limeri Peter Limeri 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 ended December 31, 2016 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Stewart, President and Chief Executive Officer of the Company and I, PeterLimeri, 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 thebest of 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 16, 2017 By: /s/ Ronald E. Stewart Ronald E. Stewart President, Chief Executive Officer, Director(Principal Executive Officer) March 16, 2017 By: /s/ Peter Limeri Peter Limeri Chief Financial Officer and Treasurer(Principal Financial Officer)

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