UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR  
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 0-28000
  PRGX Global, Inc.
(Exact name of registrant as specified in its charter)  
Georgia
 
58-2213805
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
600 Galleria Parkway
 
30339-5986
Suite 100
 
(Zip Code)
Atlanta, Georgia
 
 
(Address of principal executive offices)
 
 
Registrant ’ s telephone number, including area code: (770) 779-3900
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 1934 during 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 requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to 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 to submit 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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):  
¨   Large accelerated filer
ý
Accelerated filer
¨   Non-accelerated filer     (Do not check if a smaller reporting company)
¨
Smaller reporting company
 
¨
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes   ¨     No   ý
Common shares of the registrant outstanding at August 4, 2017 were 22,386,990 .


PRGX GLOBAL, INC.
FORM 10-Q
For the Quarter Ended June 30, 2017
INDEX
 
 
Page No.
Part I.  Financial Information
 
Part II.  Other Information
 


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue
 
$
38,510

 
$
35,291

 
$
72,079

 
$
66,524

Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenue
 
25,605

 
23,431

 
48,631

 
45,077

Selling, general and administrative expenses
 
11,424

 
9,620

 
21,960

 
18,468

Depreciation of property and equipment
 
1,109

 
1,216

 
2,329

 
2,448

Amortization of intangible assets
 
722

 
395

 
1,444

 
789

Total operating expenses
 
38,860

 
34,662

 
74,364

 
66,782

Operating income (loss) from continuing operations
 
(350
)
 
629

 
(2,285
)
 
(258
)
Foreign currency transaction losses (gains) on short-term intercompany balances
 
(957
)
 
196

 
(1,509
)
 
(811
)
Interest expense (income), net
 
48

 
(12
)
 
85

 
(41
)
Other expense (income)
 
5

 
18

 
(194
)
 
28

Income (loss) from continuing operations before income taxes
 
554

 
427

 
(667
)
 
566

Income tax expense
 
879

 
460

 
1,506

 
664

Net loss from continuing operations
 
$
(325
)
 
$
(33
)
 
$
(2,173
)
 
$
(98
)
 
 
 
 
 
 
 
 
 
Discontinued operations (Note D):
 
 
 
 
 
 
 
 
Loss from discontinued operations
 
(349
)
 
(559
)
 
(685
)
 
(1,046
)
Other loss (income)
 
—

 
—

 
—

 
—

Income tax expense (benefit)
 
—

 
—

 
—

 
—

Net loss from discontinued operations
 
(349
)
 
(559
)
 
(685
)
 
(1,046
)
 
 
 
 
 
 
 
 
 
Net loss
 
$
(674
)
 
$
(592
)
 
$
(2,858
)
 
$
(1,144
)
 
 
 
 
 
 
 
 
 
Basic loss per common share (Note B):
 
 
 
 
 
 
 
 
Basic loss from continuing operations
 
$
(0.01
)
 
$
—

 
$
(0.10
)
 
$
—

Basic loss from discontinued operations
 
(0.02
)
 
(0.03
)
 
(0.03
)
 
(0.05
)
Total basic loss per common share
 
$
(0.03
)
 
$
(0.03
)
 
$
(0.13
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
Diluted loss per common share (Note B)
 
 
 
 
 
 
 
 
Diluted loss from continuing operations
 
$
(0.01
)
 
$
—

 
$
(0.10
)
 
$
—

Diluted loss from discontinued operations
 
(0.02
)
 
(0.03
)
 
(0.03
)
 
(0.05
)
Total diluted loss per common share
 
$
(0.03
)
 
$
(0.03
)
 
$
(0.13
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding (Note B):
 
 
 
 
 
 
 
 
Basic
 
22,227

 
21,969

 
22,087

 
22,202

Diluted
 
22,227

 
21,969

 
22,087

 
22,202


1

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss
 
$
(674
)
 
$
(592
)
 
$
(2,858
)
 
$
(1,144
)
Foreign currency translation adjustments
 
(569
)
 
(118
)
 
(294
)
 
(487
)
Comprehensive loss
 
$
(1,243
)
 
$
(710
)
 
$
(3,152
)
 
$
(1,631
)

See accompanying Notes to Condensed Consolidated Financial Statements.

2

PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
 
 
June 30, 2017
 
December 31, 2016
ASSETS
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
12,870

 
$
15,723

Restricted cash
 
161

 
47

Receivables:
 
 
 
 
Contract receivables, less allowances of $1,071 in 2017 and $799 in 2016:
 
 
 
 
Billed
 
30,081

 
29,186

Unbilled
 
1,689

 
2,278

 
 
31,770

 
31,464

Employee advances and miscellaneous receivables, less allowances of $351 in 2017 and $500 in 2016
 
2,097

 
2,184

Total receivables
 
33,867

 
33,648

Prepaid expenses and other current assets
 
4,563

 
3,363

Total current assets
 
51,461

 
52,781

Property and equipment
 
68,256

 
63,325

Less accumulated depreciation and amortization
 
(53,880
)
 
(51,089
)
Property and equipment, net
 
14,376

 
12,236

Goodwill
 
22,803

 
13,823

Intangible assets, less accumulated amortization of $37,977 in 2017 and $36,128 in 2016
 
9,560

 
10,998

Noncurrent portion of unbilled receivables
 
815

 
854

Deferred income taxes
 
2,228

 
2,269

Other assets
 
325

 
513

Total assets
 
$
101,568

 
$
93,474

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
Accounts payable and accrued expenses
 
$
8,917

 
$
7,299

Accrued payroll and related expenses
 
12,688

 
13,868

Refund liabilities
 
7,615

 
7,900

Deferred revenue
 
1,682

 
1,330

Current portion of debt (Note E)
 
—

 
3,600

Business acquisition obligations
 
2,079

 
2,078

Total current liabilities
 
32,981

 
36,075

Long-term debt (Note E)
 
13,600

 
—

Noncurrent refund liabilities
 
714

 
804

Other long-term liabilities
 
2,393

 
4,205

Total liabilities
 
49,688

 
41,084

Commitments and contingencies (Note G)
 


 


Shareholders’ equity (Note B):
 
 
 
 
Common stock, no par value; $.01 stated value per share. Authorized 50,000,000 shares; 22,394,990 shares issued and outstanding at June 30, 2017 and 21,845,920 shares issued and outstanding at December 31, 2016
 
224

 
218

Additional paid-in capital
 
577,754

 
575,118

Accumulated deficit
 
(526,091
)
 
(523,233
)
Accumulated other comprehensive income (loss)
 
(7
)
 
287

Total shareholders’ equity
 
51,880

 
52,390

Total liabilities and shareholders’ equity
 
$
101,568

 
$
93,474

See accompanying Notes to Condensed Consolidated Financial Statements.

3

PRGX GLOBAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(2,858
)
 
$
(1,144
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
3,777

 
3,244

Amortization of deferred loan costs
 
20

 
—

Stock-based compensation expense
 
3,254

 
1,799

Loss on sale of fixed assets
 
—

 
14

Deferred income taxes
 
—

 
(267
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
(1,509
)
 
(811
)
Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
Restricted cash
 
(114
)
 
(96
)
Billed receivables
 
1,518

 
2,077

Unbilled receivables
 
636

 
190

Prepaid expenses and other current assets
 
(850
)
 
(510
)
Other assets
 
328

 
(44
)
Accounts payable and accrued expenses
 
2,270

 
1,105

Accrued payroll and related expenses
 
(1,988
)
 
(442
)
Refund liabilities
 
(377
)
 
109

Deferred revenue
 
351

 
17

Other long-term liabilities
 
(3,182
)
 
221

Net cash provided by operating activities
 
1,276

 
5,462

Cash flows from investing activities:
 
 
 
 
Business acquisition, net of cash acquired
 
(10,128
)
 
—

Purchases of property and equipment, net of disposal proceeds
 
(4,049
)
 
(2,138
)
Net cash used in investing activities
 
(14,177
)
 
(2,138
)
Cash flows from financing activities:
 
 
 
 
Proceeds from term loan
 
10,000

 
—

Payment of deferred loan cost
 
(157
)
 
—

Restricted stock repurchased from employees for withholding taxes
 
(60
)
 
(143
)
Proceeds from option exercises
 
821

 
132

Repurchase of common stock
 
—

 
(3,658
)
Net cash provided by (used in) financing activities
 
10,604

 
(3,669
)
Effect of exchange rates on cash and cash equivalents
 
(556
)
 
397

Net (decrease) increase in cash and cash equivalents
 
(2,853
)
 
52

Cash and cash equivalents at beginning of period
 
15,723

 
15,122

Cash and cash equivalents at end of period
 
$
12,870

 
$
15,174

Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid during the period for interest
 
$
149

 
$
15

Cash paid during the period for income taxes, net of refunds received
 
$
731

 
$
385


See accompanying Notes to Condensed Consolidated Financial Statements.

4
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A – Basis of Presentation
The accompanying Condensed Consolidated Financial Statements (Unaudited) of PRGX Global, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 .
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. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Company’s Form 10-K for the year ended December 31, 2016 .
New Accounting Standards
A summary of the new accounting standards issued by the Financial Accounting Standards Board (“FASB”) and included in the Accounting Standards Codification (“ASC”) that apply to PRGX is set forth below:

FASB ASC Update No. 2017-04 - In January 2017, the FASB issued Accounting Standards Update 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The standard removes the second step of the two step test used to determine an impairment of goodwill. Under the new standard, an entity only compares the fair value of the reporting unit to the carrying amount, including goodwill, and records the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The standard will become effective for the Company beginning January 1, 2020. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, 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 the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. The standard requires lessors to classify leases as either sales-type, finance or operating. A sales-type lease 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 without the 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 standard will become effective for the Company beginning January 1, 2019. The Company is currently assessing the impact adoption of this standard will have on its consolidated results of operations, financial condition, cash flows, and financial statement disclosures.

FASB ASC Update No. 2014-9 and additional updates - In May 2014, the FASB issued an accounting standards update with new guidance on recognizing revenue from contracts with customers.  The standards update outlines a single comprehensive model for an entity to utilize to recognize revenue when it transfers goods or services to customers in an amount that reflects the 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 to address implementation issues and to clarify the guidance for identifying performance obligations, licenses and determining if a company is the principal or agent in a revenue arrangement. The standard will become effective for the Company beginning January 1, 2018.  We have substantially completed our evaluation of significant contracts and are currently assessing the impact of adopting the standards update on our consolidated financial statements. We will continue our evaluation of the standards update through the date of adoption.


5
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note B – Earnings (Loss) Per Common Share
The following tables set forth the computations of basic and diluted earnings (loss) per common share for the three and six months ended June 30, 2017 and 2016 (in thousands, except per share data):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Basic earnings (loss) per common share:
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net loss from continuing operations
 
$
(325
)
 
$
(33
)
 
$
(2,173
)
 
$
(98
)
Net loss from discontinued operations
 
$
(349
)
 
$
(559
)
 
$
(685
)
 
$
(1,046
)
Denominator:
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding
 
22,227

 
21,969

 
22,087

 
22,202

Basic loss per common share from continuing operations
 
$
(0.01
)
 
$
—

 
$
(0.10
)
 
$
—

Basic loss per common share from discontinued operations
 
$
(0.02
)
 
$
(0.03
)
 
$
(0.03
)
 
$
(0.05
)
Total basic loss per common share
 
$
(0.03
)
 
$
(0.03
)
 
$
(0.13
)
 
$
(0.05
)

For all periods presented, basic and diluted net loss per share is the same, as any additional common stock equivalents would be anti-dilutive. For the  three  and  six months ended June 30, 2017 and 2016 , weighted-average common shares outstanding excludes from the computation of diluted earnings (loss) per common share anti-dilutive shares underlying options that totaled  3.3 million and 3.4 million  shares, respectively. In addition, we excluded 1.9 million and 2.7 million of restricted stock units from the calculation of weighted-average diluted common shares outstanding for the three and six months ended June 30, 2017 and 2016 , respectively, which would have been anti-dilutive due to the net loss in those periods.
We repurchased no shares of our common stock under our stock repurchase program during the three and six months ended June 30, 2017 . During the three and six months ended June 30, 2016, we repurchased 0.2 million and 0.9 million shares of our common stock for $1.0 million and $3.6 million , respectively, under our stock repurchase program.
Pursuant to exercises of outstanding stock options, we issued 82,993 shares of our common stock having a value of approximately $0.4 million in the three months ended June 30, 2017 and 167,460 shares of our common stock having a value of approximately $0.8 million in the six months ended June 30, 2017 . In connection with stock option exercises, we issued no shares of our common stock in the three months ended June 30, 2016 and 46,896 shares of our common stock having a value of approximately $0.1 million in the six months ended June 30, 2016 .
Note C – Stock-Based Compensation
The Company has two stock-based compensation plans, the 2008 Equity Incentive Plan ("2008 EIP") and the 2017 Equity Incentive Compensation Plan ("2017 EICP") of which only the 2008 EIP has awards that were outstanding in the relevant periods. We describe the 2008 EIP in the Company’s Annual Report on Form 10–K for the fiscal year ended December 31, 2016 . For all periods presented herein, awards outside any shareholder-approved plan are referred to as inducement awards.
At the 2017 annual meeting of the Company's shareholders, held on June 27, 2017, the shareholders approved the 2017 EICP. Under the 2017 EICP, the Company may grant awards that include stock options (both incentive stock options and nonqualified stock options), stock appreciation rights, restricted stock, deferred stock, restricted stock units, performance units, performance shares, dividend equivalents, bonus shares, and other stock based or cash based awards. The maximum number of shares of common stock that may be issued pursuant to awards under the 2017 EICP is 3,400,000 shares plus the number of shares of common stock subject to awards granted under the 2008 EIP that were outstanding when the 2017 EICP became effective and that thereafter again become available for grant. However, the total number of shares of common stock that may be delivered pursuant to the exercise of incentive stock options granted under the 2017 EICP shall not exceed 3,400,000 shares.
No additional awards may be granted under the 2008 EIP after approval by the Company's shareholders of the 2017 EICP on June 27, 2017.


2008 EIP Awards and Inducement Awards

6
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock options, including those granted under the 2008 EIP and inducement awards, generally have a term of seven years and vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. The following table summarizes stock option activity for the six months ended June 30, 2017 .
Options
 
Shares
 
Weighted-
Average
Exercise
Price
(Per Share)
 
Weighted-
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic
Value
($ 000’s)
Outstanding at January 1, 2017
 
3,420,385

 
$
6.26

 
4.3 years
 
$
1,204

Granted (1)
 
445,566

 
6.20

 
 
 
 
Exercised
 
(167,460
)
 
4.90

 
 
 
$
239

Forfeited
 
(373,004
)
 
6.36

 
 
 
 
Expired
 
(34,273
)
 
4.39

 
 
 
 
Outstanding at June 30, 2017
 
3,291,214

 
$
6.33

 
4.6 years
 
$
1,519

Exercisable at June 30, 2017
 
2,602,893

 
$
6.49

 
3.7 years
 
$
981

(1) During the six months ended June 30, 2017, 320,000 options were granted to employees as inducements for employment and 125,566 options were granted to the members of our Board of Directors. The weighted-average grant date fair value of options granted was $3.01 per share for the six months ended June 30, 2017 .
Nonvested stock awards, (restricted stock and restricted stock units), including those granted under the 2008 EIP and inducement awards, generally are nontransferable until vesting and the holders are entitled to receive 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 restricted stock units are not entitled to vote the shares. Generally, nonvested stock awards with time-based vesting criteria vest in equal annual increments over the vesting period, which typically is three years for employees and one year for directors. Nonvested stock awards with performance based vesting criteria vest in accordance with specific performance criteria associated with the awards. The following table summarizes nonvested stock award activity during the six months ended June 30, 2017 .
Nonvested stock
 
Shares
 
Weighted
Average Grant
Date Fair Value
(Per Share)
Nonvested at January 1, 2017
 
3,893,050

 
$
4.37

Granted (1)
 
792,930

 
6.32

Vested
 
(28,334
)
 
6.36

Forfeited
 
(2,364,728
)
 
4.03

Nonvested at June 30, 2017
 
2,292,918

 
$
5.36

(1) Includes grants to members of our board of directors of 29,920 shares of restricted stock and 21,259 restricted stock units, inducement grants of 41,000 shares of restricted stock and 59,000 performance-based restricted stock units, and grants to employees under the 2008 EIP of 310,139 shares of restricted stock, 56,812 restricted stock units, and 274,800 performance-based restricted stock units during the six months ended June 30, 2017.

On March 30, 2017,  six  executive officers and  six  other senior leaders of the Company were granted 274,800  performance-based restricted stock units ("PBUs") under the 2008 EIP. Upon vesting, the PBUs will be settled by the issuance of Company common stock equal to  100%  of the number of PBUs being settled. The PBUs vest and become payable based on revenue and the cumulative adjusted EBITDA that the Company (excluding the Healthcare Claims Recovery Audit business) achieves for the two -year performance period ending December 31, 2018. At the threshold performance 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. If performance falls between the stated performance levels, the percentage of PBUs that will become vested and payable will be based on straight line interpolation between such stated performance levels (although the PBUs may not become vested and payable for more than  100% of the PBUs and no PBUs shall become vested and payable if performance does not equal or exceed the threshold performance level).

7
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


During May 2017,  one  executive officer and one senior leader of the Company were granted a total of 59,000  PBUs as inducement grants on substantially the same terms as the grant of PBUs made on March 30, 2017.

The PBUs granted during the six months ended June 30, 2017 and during 2016 were expensed at the target performance level based upon management's estimates for the three and six months ended June 30, 2017 and 2016.

Selling, general and administrative expenses for the six months ended June 30, 2017 and 2016 include $3.2 million and $1.8 million , respectively, related to stock-based compensation charges. At June 30, 2017 , there was $7.9 million of unrecognized stock-based compensation expense related to stock options, restricted stock awards and restricted stock unit awards which we expect to recognize over a weighted-average period of 1.8  years. The unrecognized stock-based compensation expense related to restricted stock unit awards with performance vesting criteria is based on our estimate of both the number of shares of the Company's common stock that will ultimately be issued and cash payments that will be made when the restricted stock units are settled.


Note D – Operating Segments and Related Information
We conduct our operations through the following three reportable segments:
Recovery Audit Services – Americas represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in the United States of America (“U.S.”), Canada and Latin America.
Recovery Audit Services – Europe/Asia-Pacific represents recovery audit services (other than Healthcare Claims Recovery Audit services) provided in Europe, Asia and the Pacific region.
Adjacent Services represents data transformation, spend analytics, PRGX OPTIX TM , SIM services and associated advisory services.
Additionally, Corporate Support includes the unallocated portion of corporate selling, general and administrative expenses not specifically attributable to the three reportable segments.
During the fourth quarter of 2015, PRGX entered into agreements with third parties to fulfill its Medicare recovery audit contractor ("RAC") program 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. As a result, the Healthcare Claims Recovery Audit services business has been reported as Discontinued Operations in accordance with GAAP.
Discontinued operations information for the three and six months ended June 30, 2017 and 2016 is as follows:  
Results of Discontinued Operations
Three Months Ended June 30,
 
Six Months Ended June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Revenue, net
$
—

 
$
(4
)
 
$
—

 
$
(15
)
Cost of sales
342

 
451

 
676

 
840

Selling, general and administrative expense
5

 
100

 
5

 
184

Depreciation and amortization
2

 
4

 
4

 
7

Loss from discontinued operations before income taxes
$
(349
)
 
$
(559
)
 
$
(685
)
 
$
(1,046
)
Income tax expense
—

 
—

 
—

 
—

Net loss from discontinued operations
$
(349
)
 
$
(559
)
 
$
(685
)
 
$
(1,046
)

8
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss referred to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from 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 gains and losses on short-term intercompany balances viewed by management as individually or collectively significant. We do not have any inter-segment revenue.
Segment information for the three and six months ended June 30, 2017 and 2016 (in thousands) is as follows:
 
 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
26,553

 
$
10,773

 
$
1,184

 
$
—

 
$
38,510

Net loss from continuing operations
 
 
 
 
 
 
 
 
 
(325
)
Income tax expense
 
 
 
 
 
 
 
 
 
879

Interest expense (income), net
 
 
 
 
 
 
 
 
 
48

EBIT
 
$
5,586

 
$
3,057

 
$
(1,913
)
 
$
(6,128
)
 
$
602

Depreciation of property and equipment
 
779

 
152

 
178

 
—

 
1,109

Amortization of intangible assets
 
328

 
—

 
394

 
—

 
722

EBITDA
 
$
6,693

 
$
3,209

 
$
(1,341
)
 
$
(6,128
)
 
$
2,433

Other expense (income)
 
—

 
—

 
5

 
—

 
5

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(78
)
 
(937
)
 
(2
)
 
60

 
(957
)
Transformation severance and related expenses
 
187

 
82

 
45

 
1

 
315

Stock-based compensation
 
—

 
—

 
—

 
1,688

 
1,688

Adjusted EBITDA
 
$
6,802

 
$
2,354

 
$
(1,293
)
 
$
(4,379
)
 
$
3,484



9
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
25,122

 
$
8,698

 
$
1,471

 
$
—

 
$
35,291

Net loss from continuing operations
 
 
 
 
 
 
 
 
 
(33
)
Income tax expense
 
 
 
 
 
 
 
 
 
460

Interest expense (income), net
 
 
 
 
 
 
 
 
 
(12
)
EBIT
 
$
5,998

 
$
505

 
$
(488
)
 
$
(5,600
)
 
$
415

Depreciation of property and equipment
 
936

 
140

 
140

 
—

 
1,216

Amortization of intangible assets
 
373

 
—

 
22

 
—

 
395

EBITDA
 
$
7,307

 
$
645

 
$
(326
)
 
$
(5,600
)
 
$
2,026

Other expense (income)
 
—

 
—

 
18

 
—

 
18

Foreign currency transaction (gains) losses on short-term intercompany balances
 
30

 
185

 
7

 
(26
)
 
196

Transformation severance and related expenses
 
276

 
25

 
—

 
(76
)
 
225

Stock-based compensation
 
—

 
—

 
—

 
1,035

 
1,035

Adjusted EBITDA
 
$
7,613

 
$
855

 
$
(301
)
 
$
(4,667
)
 
$
3,500


 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
50,936

 
$
18,604

 
$
2,539

 
$
—

 
$
72,079

Net loss from continuing operations
 
 
 
 
 
 
 
 
 
(2,173
)
Income tax expense
 
 
 
 
 
 
 
 
 
1,506

Interest expense (income), net
 
 
 
 
 
 
 
 
 
85

EBIT
 
$
11,571

 
$
3,466

 
$
(3,655
)
 
$
(11,964
)
 
$
(582
)
Depreciation of property and equipment
 
1,689

 
292

 
348

 
—

 
2,329

Amortization of intangible assets
 
657

 
—

 
787

 
—

 
1,444

EBITDA
 
$
13,917

 
$
3,758

 
$
(2,520
)
 
$
(11,964
)
 
$
3,191

Other expense (income)
 
 
 
 
 
(193
)
 
(1
)
 
(194
)
Foreign currency transaction (gains) losses on short-term intercompany balances
 
(241
)
 
(1,189
)
 
(4
)
 
(75
)
 
(1,509
)
Transformation severance and related expenses
 
264

 
221

 
45

 
369

 
899

Stock-based compensation
 
—

 
—

 
—

 
3,254

 
3,254

Adjusted EBITDA
 
$
13,940

 
$
2,790

 
$
(2,672
)
 
$
(8,417
)
 
$
5,641



10
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 
 
Recovery
Audit
Services –
Americas
 
Recovery Audit
Services –
Europe/Asia-
Pacific
 
Adjacent
Services
 
Corporate
Support
 
Total
Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
46,689

 
$
17,947

 
$
1,888

 
$
—

 
$
66,524

Net loss from continuing operations
 
 
 
 
 
 
 
 
 
(98
)
Income tax expense
 
 
 
 
 
 
 
 
 
664

Interest expense (income), net
 
 
 
 
 
 
 
 
 
(41
)
EBIT
 
$
9,996

 
$
2,759

 
$
(1,574
)
 
$
(10,656
)
 
$
525

Depreciation of property and equipment
 
1,928

 
238

 
282

 
—

 
2,448

Amortization of intangible assets
 
745

 
—

 
44

 
—

 
789

EBITDA
 
$
12,669

 
$
2,997

 
$
(1,248
)
 
$
(10,656
)
 
$
3,762

Other expense (income)
 
—

 
—

 
28

 
—

 
28

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(228
)
 
(561
)
 
6

 
(28
)
 
(811
)
Transformation severance and related expenses
 
420

 
96

 
—

 
243

 
759

Stock-based compensation
 
—

 
—

 
—

 
1,799

 
1,799

Adjusted EBITDA
 
$
12,861

 
$
2,532

 
$
(1,214
)
 
$
(8,642
)
 
$
5,537


11
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note E – Debt
On January 19, 2010, we entered into a four -year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facility initially consisted of a $15.0 million committed revolving credit facility and a $15.0 million term loan. The SunTrust term loan required quarterly principal payments 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. The SunTrust 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 eligible accounts 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 LIBOR rate, 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. We also paid a commitment fee of 0.5%  per annum, payable quarterly, on the unused portion of the $15.0 million SunTrust revolving credit facility.
On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 million to $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 on eligible accounts receivable and extended the scheduled maturity of the revolving credit facility to January 16, 2015 (subject to earlier termination as provided therein). We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the SunTrust revolving credit facility through the next amendment date.
On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 million to $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 (which was set at 1.75% per annum pursuant to this amendment). 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% per the amendment of the SunTrust credit facility. The credit facility included two financial covenants (a maximum leverage ratio and a minimum fixed charge coverage ratio) that would apply only if we had borrowings under the credit facility that arose or remained outstanding 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 with each new borrowing under the credit facility. This amendment 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 credit facility 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 the Company borrowed $10.0 million from its credit facility to finance the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC and Cost & Compliance Associates Limited. Total borrowings outstanding as of June 30, 2017 were $13.6 million .
On May 4, 2017, we entered into an amendment of the SunTrust credit facility, that, among other things, (i) increased the aggregate principal amount of the committed revolving credit facility from $20.0 million to $35.0 million through December 31, 2018, which will be reduced to $30.0 million thereafter, (ii) extended the maturity date of the credit facility to December 31, 2019, (iii) added customary provisions to reflect European Union “bail-in” directive compliance language, and (iv) modified the financial covenants applicable to the Company during the remaining term of the credit facility by (A) revising the maximum leverage ratio and minimum fixed charge coverage ratio and (B) adding an additional financial covenant requiring the Company to maintain a minimum amount of consolidated adjusted EBITDA.

12
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In addition, the applicable margin used to determine the interest rate per annum on outstanding borrowings under the credit facility, and the ongoing commitment fee payable on the unused portion of the revolving credit facility commitment, both of which previously had been fixed percentages per annum, have been amended and both now will vary based upon our quarterly leverage ratio calculation under the SunTrust credit facility. The applicable margin per annum on interest accruing on all borrowings under the credit facility outstanding on or after May 4, 2017, and the applicable percentage per annum commitment fee accruing on and after that date, respectively will be determined as follows:
Pricing Level
Leverage Ratio
Applicable Margin for LIBOR Index Rate Loans
Applicable Margin for Base Rate Loans
Applicable Percentage for Commitment Fee
I
Less than 1.25:1.00
2.25% per annum
1.25% per annum
0.250% per annum
II
Greater than or equal to 1.25:1.00 but less than 1.75:1.00
2.50% per annum
1.50% per annum
0.375% per annum
III
Greater than or equal to 1.75:1.00
2.75% per annum
1.75% per annum
0.375% per annum
As of June 30, 2017 there was $13.6 million in debt outstanding under the revolving SunTrust facility that will be due December 31, 2019. The amount available for additional borrowing under the SunTrust credit facility was $21.4 million as of June 30, 2017. Based on the terms of the credit facility, as amended, the applicable interest rate at June 30, 2017 was approximately 3.50% . As of June 30, 2017 we were required to pay a commitment fee of 0.25%  per annum, payable quarterly, on the unused portion of the revolving SunTrust credit facility.
The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets or declare or pay dividends on its capital stock. The financial covenants included in the credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for the Company and a minimum fixed charge coverage ratio, and also require the Company to maintain a minimum amount of consolidated EBITDA. In addition, the credit facility includes customary events of default. The Company was in compliance with the covenants in the SunTrust credit facility as of June 30, 2017 .

Note F – Fair Value of Financial Instruments
We state cash equivalents at cost, which approximates fair market value. The carrying values for receivables from clients, unbilled receivables, accounts payable, deferred revenue and other accrued liabilities reasonably approximate fair market value due to the nature of the financial instrument and the short-term maturity 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 June 30, 2017 , we had $13.6 million in bank debt outstanding, and we had no bank debt outstanding as of June 30, 2016 . We believe the carrying value of the bank debt approximates 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 June 30, 2017 , and no such obligations as of June 30, 2016 . Our business acquisition obligations represent the estimated fair value of the deferred consideration and projected earn-out payments due as of the end of the recording period. We determine the estimated fair value of business acquisition obligations based on our projections of future revenue and profits or other factors used in the calculation of the ultimate payment(s) 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 these factors to be Level 3 inputs (significant unobservable inputs).
We state certain assets at fair value on a nonrecurring basis as required by GAAP. Generally, these assets are recorded at fair value on a nonrecurring basis as a result of impairment charges.

13
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note G – Commitments and Contingencies
Legal Proceedings
We are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.

14
Table of Contents
PRGX GLOBAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Note H – Income Taxes
Reported income tax expense in each period primarily results from taxes on the income of foreign subsidiaries. The effective tax rates generally differ from the expected tax rate due primarily to the Company’s deferred tax asset valuation allowance on the domestic earnings and taxes on income of foreign subsidiaries.
Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In addition, we are subject to the continuous examination of our income tax returns by the Internal Revenue Service in the U.S. and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.
We apply a “more-likely-than-not” recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken 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. In accordance with FASB ASC 740, our policy for recording interest and penalties associated with 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 is audited and finally resolved or when a tax assessment is raised. The number of years subject to tax assessments also varies by tax jurisdiction.

Note I - Business Acquisitions

Cost & Compliance Associates
In February 2017, we completed the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC and Cost & Compliance Associates Limited (collectively “C&CA”). C&CA is a commercial recovery audit and contract compliance firm with operations in the U.S. and the UK. At the closing of the transaction, we paid approximately $10.0 million in cash. In addition, we may be required to pay earnout consideration in cash over a period of two years, based on the performance of the acquired business and our contract compliance business following closing. The aggregate consideration we may be required to pay in connection with this acquisition cannot exceed $18.0 million .
We have recorded C&CA’s assets and liabilities acquired based on our preliminary estimates of their fair values as of the acquisition date. The estimated fair value of C&CA assets acquired and resulting goodwill are subject to adjustment as we finalize our fair value analysis. We expect to complete our fair value determinations no later than the fourth quarter of 2017. There may be differences compared to those amounts reflected in our consolidated financial statements as of June 30, 2017 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 at the acquisition date by  $8.8 million , which amount has been allocated and recognized as goodwill within our Recovery Audit Services - Americas business segment.  No ne of the goodwill associated 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 (in thousands):

Accounts receivable, net
 
$
1,611

Unbilled revenue
 
8

Commissions receivable
 
48

Prepaid expenses
 
78

Goodwill
 
8,801

Net fixed assets
 
323

Other current assets
 
12

Total assets
 
10,881

Accounts payable
 
342

Accrued commissions
 
507

Taxes payable
 
44

Total liabilities
 
893

Total purchase price
 
$
9,988


15

We are still reviewing the valuation of the C&CA acquisition, in particular the value of any potential earnout due to C&CA, the value and useful lives of any long-lived assets acquired from C&CA and any potential deferred tax assets or liabilities associated with the valuation.
The revenue and earnings from continuing operations of C&CA from the acquisition date through June 30, 2017 are presented below and included in our consolidated statements of operations. These amounts are not necessarily indicative of the results of operations that C&CA would have realized if it had continued to 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 allocated to C&CA.
Revenue (in thousands)
 
$
4,650

Earnings from operations (in thousands)
 
$
1,242

As required by ASC 805, the following unaudited pro forma statements of operations for the six months ended June 30, 2017 and 2016 give effect to the C&CA acquisition as if it had been completed on January 1, 2016. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the periods presented had the C&CA acquisition been completed on January 1, 2016. In addition, the unaudited pro forma financial information does not purport to project future operating results. This information is preliminary in nature and subject to change based on final purchase price adjustments. The pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the C&CA acquisition.
 
 
Six months ended
 
 
June 30, 2017

 
June 30, 2016

Revenue from continuing operations (pro forma)
 
$
72,918

 
$
73,919

Income (loss) from continuing operations (pro forma)
 
$
(2,843
)
 
$
1,145


Lavante
In October 2016, we acquired Lavante, Inc. ("Lavante"), a SaaS-based supplier of SIM and recovery audit services firm, for a net purchase price of $3.8 million . Lavante’s assets consist primarily of its proprietary software applications.
We have recorded Lavante's assets acquired and liabilities assumed based on our preliminary estimates of their fair values at the acquisition date. The determination of the fair values of the assets acquired and liabilities assumed (and the related determination of estimated lives of depreciable and amortizable tangible and identifiable intangible assets) requires significant judgment and estimates. The estimates and assumptions used include the projected timing and amount 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 liabilities assumed and resulting goodwill are subject to adjustment as we finalize our fair value analysis. We expect to complete our fair value determinations no later than the fourth quarter of 2017. We do not currently expect our fair value determinations to change materially; however, there may be differences compared to those amounts 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 by $2.3 million , which amount has been allocated and recognized as goodwill within our Adjacent Service business segment. No ne of the goodwill associated with the acquisition is deductible for income tax purposes and, as such, no deferred taxes have been recorded related to goodwill.

16

The preliminary allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed is presented below (in thousands):
 
 
 
Cash and cash equivalents
 
$
28

Account receivables
 
207

Other current assets
 
92

Goodwill
 
2,286

Intangible assets
 
6,178

Fixed assets
 
98

Total assets
 
8,889

Accounts payable
 
121

Deferred revenue
 
370

Other current liabilities
 
757

Total liabilities
 
1,248

Total purchase price
 
$
3,809

Our estimates of the fair values of identifiable intangible assets are presented below (in thousands):
 
 
Fair values at October 31, 2016
 
Remaining useful lives (in months)
Trademarks
 
$
163

 
48
Patents
 
114

 
12
Software
 
5,901

 
48
Total intangible assets
 
$
6,178

 
 

In general, intangible assets include trade names, trademarks, copyrights, patents, customer contacts and/or relationships, developed technology (computer software), technological know-how, and brand names. When estimating the value of such assets, we consider the future income stream associated with the specific asset, taking into account the asset's estimated remaining life, average annual anticipated rate of return, and market rates of return. Often, an income approach such as 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 involves researching the industry to determine if comparable companies pay or receive royalties for rights associated with the use of the asset. The royalty rates charged or received 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.).
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. For example, 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 establishing consumer recognition and perception of quality, service and reliability. We also consider the legal costs incurred in registering the asset.

17

As required by ASC 805, the following unaudited pro forma statements of operations for the six months ended June 30, 2016 give effect to the Lavante acquisition as if it had been completed on January 1, 2016. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of what the operating results actually would have been during the period presented had the Lavante acquisition been completed on January 1, 2016. In addition, the unaudited pro forma financial information does not purport to project future operating results. This information is preliminary in nature and subject to change based on final purchase price adjustments. The pro forma statements of operations do not reflect: (1) any anticipated synergies (or costs to achieve synergies) or (2) the impact of non-recurring items directly related to the Lavante acquisition.
 
 
Six months ended June 30, 2016
Revenue from continuing operations (pro forma)
 
$
67,891

Loss from continuing operations (pro forma)
 
$
(2,982
)
Note J – Subsequent Events
None

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
PRGX Global, Inc. is a global leader in recovery audit and spend analytics services, providing services to support and enhance 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 to improve their financial performance by reducing costs, improving business processes, managing risks and increasing profitability.
Our services include recovery audit, spend advisory, spend analytics and supplier information management ("SIM") services. We serve clients in more than 30 countries and conduct our operations through three reportable segments: Recovery Audit Services - Americas, Recovery Audit Services - Europe/Asia-Pacific and Adjacent Services. The Recovery Audit Services - Americas segment represents recovery audit services we provide in the U.S., Canada and Latin America. The Recovery Audit Services - Europe/Asia-Pacific segment represents recovery audit services we provide in Europe, Asia and the Pacific region. The Adjacent Services segment includes spend analytics and advisory services, SIM services, and our PRGX OPTIX TM suite of analytics tools. We include the unallocated portion of corporate selling, 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 recovering the 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 on specific 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 future purchases 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 dictated by industry practice. In addition, many clients establish client-specific procedural guidelines that we must satisfy prior to submitting claims for client approval. Our recovery audit business also includes contract compliance services which focus on auditing complex supplier billings against large services, construction and licensing contracts, and is relevant to a large portion of our client base. Such services include verification of the accuracy of third party reporting, appropriateness of allocations and other charges in cost or revenue sharing types of arrangements, adherence to contract covenants and other risk mitigation requirements and numerous other reviews and procedures to assist our clients with proper monitoring and enforcement of the obligations of their contractors. Services in our Adjacent Services segment can be project-based (advisory services), which are typically billed on a rates and hours basis, or subscription-based (software-as-a-service or "SaaS" offerings), 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 and the complicated pricing and allowance programs typical in this industry. Changes in consumer spending associated with economic fluctuations generally impact our 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, online, pharmacy, department and other stores that tend to be impacted to varying degrees by general economic fluctuations, and even in opposite directions from each other depending on their position in the market and their market segment;
•
Motivation - when our clients experience a downturn, they frequently are more motivated to use our services to recover prior overpayments to make up 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 volumes are generally impacted by purchase volumes, but a number of other factors may have an even more significant impact on claim volumes, including new items being purchased, changes in discount, rebate, marketing allowance and similar programs offered by vendors and changes in a client’s or a vendor’s information systems; and
•
Timing - the client purchase data on which we perform our recovery audit services is historical data that typically reflects transactions between our clients and their vendors that took place 3 to 15 months prior to the data being provided to us for audit. As a result, we generally experience a delayed impact from economic changes that varies by client and the impact may be positive or negative depending on the individual clients’ circumstances.


19

We have processes in place to mitigate the financial impact arising from fluctuations in our businesses. These processes include reviewing and monitoring financial and operational results through our internal reporting, devoting substantial efforts to develop an improved service delivery model to enable us to more cost 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 foreseeable future, 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 in innovation through our audit strategy team, developing and enhancing our technology platforms and improved operational processes within our recovery audit business. In addition, we continue to pursue the expansion of our business beyond retail recovery audit services by growing the portion of our business that provides recovery audit services to enterprises other than retailers, which we refer to as our commercial business; growing our contract compliance service offerings; expanding into new industry verticals, such as telecommunications, pharmaceuticals and resources; and growing our Adjacent Services which includes our global PRGX OPTIX TM analytics solutions and our SIM services offering. We believe that our recovery audit business uniquely positions us to create 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 audit business, 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 structures versus "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 our clients.

As our clients’ data volumes and complexity levels continue to grow, we are using our deep data management experience to develop new actionable insight solutions, as well as to develop custom analytics and data transformation services. Taken together, our in-depth understanding of our clients’ S2P data and our technology-based solutions provide multiple routes to help our clients achieve greater profitability. Our Adjacent Services business targets client functional and process areas where we have established expertise, enabling us to provide 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 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.
In the first quarter of 2017 we completed the acquisition of substantially all of the assets of Cost & Compliance Associates, LLC and Cost & Compliance Associates Limited (collectively, "C&CA"), a commercial recovery audit and contract compliance firm with operations in the U.S. and the UK. The C&CA acquisition is immediately accretive to PRGX’s profitability, significantly increases our market share within the commercial industry and brings a rich set of global clients and a skilled and experienced workforce.
On February 27, 2017, we launched our PRGX OPTIX™ suite of analytics tools. The PRGX OPTIX TM suite facilitates S2P business decisions through actionable, data-enabled insights that are delivered through four primary modules - Product, Payment, Spend and Supplier. Each of these modules is powered by the core PRGX OPTIX TM platform that provides the ability to process and visualize S2P data delivered via a SaaS interface.
Discontinued Operations
As of December 31, 2015, the Company discontinued its Healthcare Claims Recovery Audit business. PRGX entered into agreements with third parties to fulfill its Medicare RAC program 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 this Report have been adjusted to reflect the discontinued business.


20

Non-GAAP Financial Measures
EBIT, EBITDA and Adjusted EBITDA are all “non-GAAP financial measures” presented as supplemental measures of the Company’s performance. They are not presented in accordance with accounting principles generally accepted in the United States, or GAAP. The Company believes these measures provide additional meaningful information in evaluating its performance over time, and that the rating agencies and a number of lenders use EBITDA and similar measures for similar 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 analysis of the Company’s results as reported under GAAP. In addition, in evaluating EBIT, EBITDA and Adjusted EBITDA, you should be aware that, as described above, 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. The Company’s presentation of these measures should not be construed as an inference that future results will be unaffected by unusual or nonrecurring items. We include a reconciliation of net loss to each of EBIT, EBITDA and Adjusted EBITDA and a calculation of Adjusted EBITDA by segment below in “Adjusted EBITDA”.
Results of Operations from Continuing Operations
The following table sets forth the percentage of revenue represented by certain items in the Company’s Condensed Consolidated Statements of Operations from continuing operations (Unaudited) for the periods indicated:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenue
 
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Operating expenses:
 
 
 
 
 
 
 
 
Cost of revenue
 
66.5

 
66.4

 
67.5

 
67.8

Selling, general and administrative expenses
 
29.7

 
27.3

 
30.5

 
27.8

Depreciation of property and equipment
 
2.9

 
3.4

 
3.2

 
3.7

Amortization of intangible assets
 
1.9

 
1.1

 
2.0

 
1.2

Total operating expenses
 
101.0

 
98.2

 
103.2

 
100.5

Operating income (loss)
 
(1.0
)
 
1.8

 
(3.2
)
 
(0.5
)
 
 
 
 
 
 
 
 
 
Foreign currency transaction (gains) losses on short-term intercompany balances
 
(2.5
)
 
0.6

 
(2.1
)
 
(1.2
)
Interest expense (income), net
 
0.1

 
—

 
0.1

 
—

Other expense (income)
 
—

 
—

 
(0.3
)
 
—

Income (loss) before income taxes
 
1.4

 
1.2

 
(0.9
)
 
0.7

Income tax expense
 
2.3

 
1.3

 
2.1

 
1.0

 
 
 
 
 
 
 
 
 
Net loss
 
(0.8
)%
 
(0.1
)%
 
(3.0
)%
 
(0.3
)%
Three and Six Months Ended June 30, 2017 Compared to the Corresponding Period of the Prior Year from Continuing Operations
Revenue. Revenue was as follows (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
26,553

 
$
25,122

 
$
50,936

 
$
46,689

Recovery Audit Services – Europe/Asia-Pacific
 
10,773

 
8,698

 
18,604

 
17,947

Adjacent Services
 
1,184

 
1,471

 
2,539

 
1,888

Total
 
$
38,510

 
$
35,291

 
$
72,079

 
$
66,524



21

Total revenue for the three months ended June 30, 2017 increased by $3.2 million , or 9.1% , compared to the same period in 2016 . Total revenue for the six months ended June 30, 2017 increased by $5.6 million , or 8.4% , compared to the same period in 2016 . On a constant dollar basis adjusted for changes in foreign currency exchange rates, consolidated revenue from continuing operations for the three and six months ended June 30, 2017 increased 10.4% and 9.8%, respectively, when compared to the same periods in 2016. The 2017 amounts include revenue from the C&CA and Lavante acquired businesses which were not in the prior year amounts. Excluding revenue from these acquired businesses, revenue from continuing operations for the three months ended June 30, 2017 was essentially unchanged and for the six months ended June 30, 2017 increased 1.4% on a year-over-year constant dollar basis.
Below is a discussion of our revenue for our three reportable segments.
Recovery Audit Services – Americas revenue, including revenue from the C&CA and Lavante acquired businesses, increased by $1.4 million , or 5.7% , for the three months ended June 30, 2017 compared to the same period in 2016 . For the six months ended June 30, 2017 , revenue increased by $4.2 million , or 9.1% compared to the same period in 2016. Excluding revenue from the acquired businesses, revenue for this segment declined 3.4% for the three months ended June 30, 2017 and increased 1.3% for the six months ended June 30, 2017 on a year-over-year constant dollar basis. Revenue from existing clients in the three months ended June 30, 2017 decreased 5.1% compared to the same period in 2016. Revenue from new clients, including clients acquired as part of the C&CA and Lavante acquisitions, in the three months ended June 30, 2017 increased 10.8% compared to the same period in 2016. Revenue from existing clients in the six months ended June 30, 2017 was essentially unchanged compared to the same period in 2016. Revenue from new clients, including clients acquired as part of the C&CA and Lavante acquisitions, in the six months ended June 30, 2017 increased 9.6% compared to the same period in 2016.
Recovery Audit Services – Europe/Asia-Pacific revenue, including revenue from the C&CA acquired business, increased by $2.1 million , or 23.9% , for the three months ended June 30, 2017 compared to the same period in 2016 . For the six months ended June 30, 2017 , revenue increased by $0.7 million or 3.7% compared to the same period in 2016. Excluding revenue from the C&CA acquired business, revenue for this segment increased 14.8% for the three months ended June 30, 2017 and decreased 0.7% for the six months ended June 30, 2017 on a year-over-year constant dollar basis. Revenue from our existing clients in the three months ended June 30, 2017 increased 5.6% compared to the same period in 2016. Revenue from new clients in the three months ended June 30, 2017 increased 18.4% compared to the same period in 2016, which was primarily due to the clients acquired as part of the C&CA acquisition. Revenue from existing clients in the six months ended June 30, 2017 decreased 9.9% compared to the same period in 2016. Revenue from new clients in the six months ended June 30, 2017 increased 13.6% compared to the same period in 2016, which was primarily due to the clients acquired as part of the C&CA acquisition.
Adjacent Services revenue, including revenue from the Lavante SIM acquired business, decreased by $0.3 million , or 19.5% , for the three months ended June 30, 2017 compared to the same period in 2016 . For the six months ended June 30, 2017 , revenue increased by $0.7 million , or 34.5% . Excluding the 2017 Lavante SIM revenue, on a year-over-year constant dollar basis Adjacent Services revenue decreased by 28.8% for the three months ended June 30, 2017 and increased 20.7% for the six months ended June 30, 2017.
Cost of Revenue (“COR”). COR consists principally of commissions and other forms of variable compensation we pay to our auditors based primarily on the level of overpayment recoveries and/or profit margins derived therefrom, fixed auditor salaries, compensation paid to various types of hourly support staff and salaries for operational and client service managers for our recovery audit services and our Adjacent Services businesses. COR also includes other direct and indirect costs incurred by these personnel, including office rent, travel and entertainment, telephone, utilities, maintenance and supplies and clerical assistance. A significant portion of the components comprising COR is variable and will increase or decrease with increases or decreases in revenue.

22

COR was as follows (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
17,324

 
$
15,614

 
$
32,602

 
$
29,938

Recovery Audit Services – Europe/Asia-Pacific
 
6,717

 
6,261

 
12,903

 
12,373

Adjacent Services
 
1,564

 
1,556

 
3,126

 
2,766

Total
 
$
25,605

 
$
23,431

 
$
48,631

 
$
45,077


On a consolidated basis, COR as a percentage of revenue was 66.5% and 66.4% for the three months ended June 30, 2017 and 2016, respectively, and 67.5% and 67.8% for the six months ended June 30, 2017 and 2016, respectively. Excluding COR associated with the Lavante and C&CA acquired businesses, COR decreased $0.4 million, or 1.8%, for the three months ended June 30, 2017 and increased $0.3 million, or 0.7%, for the six months ended June 30, 2017 on a constant dollar basis, compared to the prior year.
COR as a percentage of revenue for Recovery Audit Services – Americas was 65.2% and 62.2% for the three months ended June 30, 2017 and 2016 , respectively, and 64.0% and 64.1% for the six months ended June 30, 2017 and 2016 , respectively. The increase in the 2017 second quarter compared to the prior year is primarily related to the COR associated with the acquired businesses.
COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific was 62.4% and 72.0% for the three months ended June 30, 2017 and 2016 , respectively, and 69.4% , and 68.9% for the six months ended June 30, 2017 and 2016 , respectively. The improvement in the 2017 second quarter compared to the same period in the prior year is primarily due to the increased revenue in the 2017 period.
COR as a percentage of revenue for Recovery Audit Services – Europe/Asia-Pacific is generally higher than COR as a percentage of revenue for Recovery Audit Services – Americas primarily due 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 on average generates lower revenue per client than those served by the Company’s Recovery Audit Services – Americas segment.
Adjacent Services COR relates primarily to our continued investments in service delivery, which consist mainly of fixed personnel costs. Due primarily to COR associated with the acquired Lavante SIM business, Adjacent Services COR as a percentage of revenue increased to 132.1% for the three months ended June 30, 2017 from 105.8% for the same period in 2016. COR as a percentage of revenue improved to 123.1% for the six months ended June 30, 2017 from 146.5% for the same period in 2016 due to the increases in revenue in the 2017 period compared to 2016.
Selling, General and Administrative Expenses (“SG&A”). SG&A expenses for all segments other than Corporate Support include the expenses of sales and marketing activities, information technology services and allocated corporate data center costs, human resources, legal, accounting, administration, foreign currency transaction gains and losses other than those relating to short-term intercompany balances and gains and losses on asset disposals. Corporate Support SG&A represents the unallocated portion of SG&A expenses which are not specifically attributable to our segment activities and include the expenses of information technology services, the corporate data center, human resources, legal, accounting, treasury, administration and stock-based compensation charges.

23

SG&A expenses were as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
2,615

 
$
2,171

 
$
4,658

 
$
4,310

Recovery Audit Services – Europe/Asia-Pacific
 
1,786

 
1,608

 
3,133

 
3,138

Adjacent Services
 
959

 
216

 
2,130

 
336

Subtotal for reportable segments
 
5,360

 
3,995

 
9,921

 
7,784

Corporate Support
 
6,064

 
5,625

 
12,039

 
10,684

Total
 
$
11,424

 
$
9,620

 
$
21,960

 
$
18,468

Recovery Audit Services – Americas SG&A expenses increased by $0.4 million and $0.3 million for the three and six months ended June 30, 2017 , respectively compared to the same periods in 2016 . The increases are primarily the results of increased payroll and related costs not associated with the Lavante or C&CA acquired business.
Recovery Audit Services – Europe/Asia-Pacific SG&A increased by $0.2 million for the three months ended June 30, 2017 compared to the same period in 2016 and was essentially unchanged for the six months ended June 30, 2017 compared to the same period in 2016 . The increase in the three-month period is primarily driven by additional expenses associated with the Lavante and C&CA acquired businesses. Excluding these expenses, Recovery Audit Services - Europe Asia-Pacific SG&A was essentially unchanged for the three months ended June 30, 2017 and decreased $0.2 million for the six months ended June 30, 2017.
Adjacent Services SG&A increased approximately $0.7 million and $1.8 million in the three and six months ended June 30, 2017 , respectively, compared to the same periods in 2016 . These increases are primarily due to the costs associated with the Lavante SIM business, which were not included in the prior year amounts.
Corporate Support SG&A increased $0.4 million and $1.4 million for the three and six months ended June 30, 2017 , respectively, compared to the same period in 2016 . These increases are primarily due to increased stock-based compensation expense in the 2017 periods.

24

Depreciation of property and equipment. Depreciation of property and equipment was as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
779

 
$
936

 
$
1,689

 
$
1,928

Recovery Audit Services – Europe/Asia-Pacific
 
152

 
140

 
292

 
238

Adjacent Services
 
178

 
140

 
348

 
282

Total
 
$
1,109

 
$
1,216

 
$
2,329

 
$
2,448

The overall decrease in depreciation relates primarily to the mix and timing of our capital expenditures and the associated useful lives for such purchases.
Amortization of intangible assets. Amortization of intangible assets was as follows (in thousands):
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
328

 
$
373

 
$
657

 
$
745

Recovery Audit Services – Europe/Asia-Pacific
 
—

 
—

 
—

 
—

Adjacent Services
 
394

 
22

 
787

 
44

Total
 
$
722

 
$
395

 
$
1,444

 
$
789

The increase in amortization expense for the three and six months ended June 30, 2017 compared to the same periods in 2016 is primarily due to the increase in intangible assets from the acquisition of Lavante partially offset by the end of the finite lives of certain intangible assets.
Foreign Currency Transaction (Gains) Losses on Short-Term Intercompany Balances. Foreign currency transaction gains and losses on short-term intercompany balances result from fluctuations in the exchange rates for foreign currencies and the U.S. dollar and the impact of these fluctuations, primarily on balances payable by our foreign subsidiaries to their U.S. parent. Substantial changes from period to period in foreign currency exchange rates may significantly impact 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 intercompany balances receivable from our foreign subsidiaries while the relative weakening of the U.S. dollar results in recorded gains. In the three and six months ended June 30, 2017 , we recorded foreign currency transaction gains of $1.0 million and $1.5 million, respectively, on short-term intercompany balances. In the three and six months ended June 30, 2016, we recorded losses of $0.2 million and gains of $0.8 million, respectively, on short-term intercompany balances.
Net Interest Expense (Income) & Other Income. The change in net interest expense (income) for the three and six months ended June 30, 2017 compared to the same periods in 2016 was due to increased borrowings under the Company's credit facility for the acquisitions of Lavante and C&CA.
Income Tax Expense. Our income tax expense amounts as reported in the accompanying Condensed Consolidated Financial Statements (Unaudited) do not reflect amounts that normally would be expected due to several factors. The most significant of these factors is that for U.S. tax reporting purposes we have net operating loss carryforwards and other tax attributes which created deferred tax assets on our balance sheet. 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. Generally, these factors result in our recording no net income tax expense or benefit relating to our operations in the United States. Reported income tax expense for the three and six months ended June 30, 2017 and 2016 primarily results from taxes on the income of certain of our foreign subsidiaries.
Adjusted EBITDA. We evaluate the performance of our reportable segments based upon revenue and measures of profit or loss we refer to as EBITDA and Adjusted EBITDA. We define Adjusted EBITDA as earnings from continuing operations before interest and taxes (“EBIT”), adjusted for depreciation and amortization (“EBITDA”), and then further adjusted for unusual and other significant items that management views as distorting the operating results of the various segments from 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,

25

certain litigation costs and litigation settlements, certain severance charges and foreign currency transaction gains and losses on short-term intercompany balances viewed by management as individually or collectively significant.
Reconciliations of net loss to each of EBIT, EBITDA and Adjusted EBITDA for the periods included in this Report are as follows (in thousands):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Net loss
 
$
(674
)
 
$
(592
)
 
$
(2,858
)
 
$
(1,144
)
Income tax expense
 
879

 
460

 
1,506

 
664

Interest expense (income), net
 
48

 
(12
)
 
85

 
(41
)
EBIT
 
253

 
(144
)
 
(1,267
)
 
(521
)
Depreciation of property and equipment
 
1,113

 
1,219

 
2,333

 
2,455

Amortization of intangible assets
 
722

 
395

 
1,444

 
789

EBITDA
 
2,088

 
1,470

 
2,510

 
2,723

Foreign currency transaction (gains) losses on short-term intercompany balances
 
(957
)
 
196

 
(1,509
)
 
(811
)
Transformation severance and related expenses
 
314

 
557

 
899

 
1,095

Other income (loss)
 
5

 
18

 
(194
)
 
28

Stock-based compensation
 
1,688

 
1,035

 
3,254

 
1,799

Adjusted EBITDA
 
$
3,138

 
$
3,276

 
$
4,960

 
$
4,834


Adjusted EBITDA for the three months ended June 30, 2017 was $3.1 million, or 8.1% of revenue, compared to Adjusted EBITDA of $3.3 million, or 9.3% of revenue, for the same period in the prior year. The 2017 amount includes a loss associated with the Lavante SIM business of approximately $0.9 million for the three months ended June 30, 2017, which is consistent with our previous guidance. Excluding the 2017 impact of the Lavante and C&CA acquired businesses which are not part of our prior year financial statements, Adjusted EBITDA for the three months ended June 30, 2017 increased approximately 1.3% on a constant dollar basis compared to the same period in the prior year.

Adjusted EBITDA for the six months ended June 30, 2017 was $5.0 million, or 6.9% of revenue, compared to Adjusted EBITDA of $4.8 million, or 7.3% of revenue, for the same period in the prior year. The 2017 amount includes a loss associated with the Lavante SIM business of approximately $1.9 million for the six months ended June 30, 2017, which is consistent with our previous guidance. Excluding the 2017 impact of the Lavante and C&CA acquired businesses which are not part of our prior year financial statements, Adjusted EBITDA in the six months ended June 30, 2017 increased approximately 5.9% on a constant dollar basis compared to the same period in the prior year.
Transformation severance and related expenses for the three and six months ended June 30, 2017 decreased $0.2 million compared to the same periods in 2016 . Transformation severance and related expenses fluctuate with staff reductions and lease expenses associated with vacating office space across all segments in order to reduce our cost structure.
Stock-based compensation for the three months and six months ended June 30, 2017 increased $0.7 million and $1.4 million, respectively, compared to the same period in 2016 due primarily to the effect of year-over-year increases in our stock price on the cost associated with unvested performance-based restricted stock units.
We include a detailed calculation of Adjusted EBITDA by segment in Note D of “Notes to Consolidated Financial Statements” in Item 1 of this Form 10-Q. A summary of Adjusted EBITDA by segment, excluding discontinued operations, for the three and six months ended June 30, 2017 and 2016 is as follows (in thousands):

26

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Recovery Audit Services – Americas
 
$
6,802

 
$
7,613

 
$
13,940

 
$
12,861

Recovery Audit Services – Europe/Asia-Pacific
 
2,354

 
855

 
2,790

 
2,532

Adjacent Services
 
(1,293
)
 
(301
)
 
(2,672
)
 
(1,214
)
Subtotal for reportable segments
 
7,863

 
8,167

 
14,058

 
14,179

Corporate Support
 
(4,379
)
 
(4,667
)
 
(8,417
)
 
(8,642
)
Total
 
$
3,484

 
$
3,500

 
$
5,641

 
$
5,537

Recovery Audit Services – Americas Adjusted EBITDA decreased by $0.8 million, or 10.7%, for the three months ended June 30, 2017 compared to the same period in 2016 and increased $1.1 million, or 8.4%, for the six months ended June 30, 2017 compared to the same period in 2016. The decrease in the three month period is primarily due to higher payroll and related costs in the segment during the three months ended June 30, 2017 compared to the same period in 2016. The increase in the six-month period is primarily due to the higher revenue in the segment during the six months ended June 30, 2017 compared to the same period in 2016.
Recovery Audit Services – Europe/Asia-Pacific Adjusted EBITDA increased by $1.5 million, or 175.3%, for the three months ended June 30, 2017 , compared to the same period in 2016 and increased $0.3 million, or 10.2%, for the six months ended June 30, 2017, compared to the same period in 2016. These increases are primarily due to the higher revenue in the segment for the 2017 periods compared to the same periods in 2016.
Adjacent Services Adjusted EBITDA decreased $1.0 million for the three months ended June 30, 2017 and $1.4 million for the six months ended June 30, 2017, compared to the same periods in 2016 . These decreases are primarily due to the additional SG&A expenses associated with theLavante business.
Corporate Support Adjusted EBITDA improved by $0.3 million for the three months ended June 30, 2017 and by $0.2 million for the six months ended June 30, 2017, compared to the same periods in 2016 primarily due to reduced payroll and related expenses.
Liquidity and Capital Resources
Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less from the date of purchase. We place our temporary cash investments with high credit quality financial institutions. At times, certain investments may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit or otherwise may not be covered by FDIC insurance. Some of our cash and cash equivalents are held at banks in jurisdictions outside the U.S. that have restrictions on transferring such assets outside of these countries on a temporary or permanent basis. Such restricted net assets are not material to our consolidated net assets.
As of June 30, 2017 , we had $12.9 million in cash and cash equivalents and $13.6 million of borrowings under our revolving credit facility with SunTrust. As of June 30, 2017 , the limit on our revolving credit facility was $35 million and we had $21.4 million of availability for additional borrowings. As of June 30, 2017, the Company was in compliance with the covenants in its SunTrust credit facility. We amended the SunTrust credit facility in January 2014, December 2014, December 2016 and May 2017 as further described in Secured Credit Facility below.
The $12.9 million in cash and cash equivalents includes $2.7 million held at banks in the U.S. and the remainder held at banks in other jurisdictions, primarily, in Mexico, Canada, the United Kingdom, India, Australia, France and Brazil. Certain foreign jurisdictions restrict the amount of cash that can be transferred to the U.S. or impose taxes and penalties on such transfers of cash. To the extent we have excess cash in foreign jurisdictions that could be used in, or is needed by, our operations in the U.S., we may incur significant penalties and/or taxes to repatriate these funds. Generally, we have not provided for deferred taxes on the undistributed earnings of international subsidiaries as we consider these earnings to be permanently reinvested. However, we do not consider the earnings of our Canadian subsidiary to be permanently reinvested, and have provided deferred taxes relating to the potential repatriation of the funds held in Canada.
Our cash and cash equivalents as of June 30, 2017 included short-term investments of approximately $1.8 million, the majority of which was held at banks outside of the United States, primarily in Brazil and Canada.

27

Operating Activities. Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2017. The net cash provided by operating activities was $5.5 million for the six months ended June 30, 2016. These amounts consist of two components, specifically, net loss adjusted for certain non-cash items (such as depreciation, amortization, stock-based compensation expense, and deferred income taxes) and changes in assets and liabilities, primarily working capital, as follows (in thousands):
 
 
Six Months Ended June 30,
 
 
2017
 
2016
Net loss
 
$
(2,858
)
 
$
(1,144
)
Adjustments for certain non-cash items
 
5,522

 
4,232

 
 
2,664

 
3,088

Changes in operating assets and liabilities
 
(1,388
)
 
2,374

Net cash provided by operating activities
 
$
1,276

 
$
5,462

The decrease in net cash from operating activities in the six months ended June 30, 2017 compared to the same period in 2016 is primarily the result of the payment of incentive compensation during the first quarter of 2017 based on the previous year's financial performance. No comparable annual incentive compensation was paid during 2016 for 2015 performance.
We include an itemization of these changes in our Condensed Consolidated Statements of Cash Flows (Unaudited) in Item 1 of this Form 10-Q.
Investing Activities. Net cash used for property and equipment capital expenditures was $4.0 million and $2.1 million for the six months ended June 30, 2017 and 2016 , respectively. These capital expenditures primarily related to investments we made to upgrade our information technology infrastructure and develop new analytics tools.
Capital expenditures are discretionary and we currently expect to continue to make capital expenditures to enhance our information technology infrastructure and analytics 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 C&CA during the first quarter of 2017, and borrowed approximately $10.0 million under the SunTrust revolving credit facility to complete the acquisition.
Financing Activities. Net cash provided by financing activities was $10.6 million for the six months ended June 30, 2017. Net cash used by financing activities was $3.7 million for the six months ended June 30, 2016 . The net cash provided by financing activities in 2017 was due primarily to $10.0 million in borrowings from our SunTrust credit facility to fund the acquisition of C&CA during the first quarter of 2017. The net cash used by financing activities in 2016 was due primarily to $3.6 million of stock repurchases.
Secured Credit Facility
On January 19, 2010, we entered into a four-year revolving credit and term loan agreement with SunTrust Bank (“SunTrust”). The SunTrust credit facility initially 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 Company and its domestic subsidiaries and is secured by substantially all of our assets. Borrowing availability under the SunTrust revolver at December 31, 2016 was $20.0 million. As of December 31, 2016, we had $3.6 million in outstanding borrowings under the SunTrust revolver. The SunTrust term loan required quarterly principal 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 in December 2013.
On January 17, 2014, we entered into an amendment of the SunTrust credit facility that increased the committed revolving credit facility from $15.0 million to $25.0 million, lowered the applicable margin to a fixed rate of 1.75%, eliminated the provision limiting availability under the credit facility based on eligible accounts receivable, increased our stock repurchase program limit, and extended the scheduled maturity of the credit facility to January 16, 2015 (subject to earlier termination as provided therein). We also paid a commitment fee of 0.5% per annum, payable quarterly, on the unused portion of the $25.0 million credit facility through the next amendment date.
On December 23, 2014, we entered into an amendment of the SunTrust credit facility that reduced the committed revolving credit facility from $25.0 million to $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 (which was set as 1.75% per annum pursuant to this amendment). The index rate is determined as of the first business day of each calendar month. With the provision of a fixed

28

applicable margin of 1.75% per the amendment of the SunTrust credit facility, the interest rate at December 31, 2016 was approximately 2.4%. The credit facility included two financial covenants (a maximum leverage ratio and a minimum fixed charge coverage ratio) that would apply only if we had borrowings under the credit facility that arose or remained outstanding 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 with each new borrowing under the credit facility. This amendment 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.
    
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 May 4, 2017, we entered into an amendment of the SunTrust credit facility, that, among other things, (i) increased the aggregate principal amount of the committed revolving credit facility from $20.0 million to $35.0 million through December 31, 2018, which amount will be reduced to $30.0 million thereafter, (ii) extended the maturity date of the credit facility to December 31, 2019, (iii) added customary provisions to reflect European Union “bail-in” directive compliance language, and (iv) modified the financial covenants applicable to the Company during the remaining term of the credit facility by (A) revising the maximum leverage ratio and minimum fixed charge coverage ratio and (B) adding an additional financial covenant requiring the Company to maintain a minimum amount of consolidated adjusted EBITDA. In addition, the applicable margin used to determine the interest rate per annum on outstanding borrowings under the credit facility, and the ongoing commitment fee payable on the unused portion of the revolving credit facility commitment, both of which previously had been fixed percentages per annum, have been amended and both now will vary based upon our quarterly leverage ratio calculation under the SunTrust credit facility.
The SunTrust credit facility includes customary affirmative, negative, and financial covenants binding on the Company, including delivery of financial statements and other reports, maintenance of existence, and transactions with affiliates. The negative covenants limit the ability of the Company, among other things, to incur debt, incur liens, make investments, sell assets or declare or pay dividends on its capital stock. The financial covenants included in the SunTrust credit facility, among other things, limit the amount of capital expenditures the Company can make, set forth maximum leverage and net funded debt ratios for the Company 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 June 30, 2017 , we had $13.6 million in outstanding borrowings under the SunTrust revolver. The Company was in compliance with the covenants in the SunTrust credit facility as of June 30, 2017 .
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 next twelve months.
Stock Repurchase Program
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 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 authorized a $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 program to December 31, 2015. During October 2015, our Board of Directors authorized an additional $10.0 million increase to the stock repurchase program, increasing the 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 Directors authorized an additional $10.0 million increase to the stock repurchase program, increasing the total stock repurchase program to $60.0 million, and extended the duration of the program to December 31, 2017. From the February 2014 announcement of the Company’s current stock repurchase program through June 30, 2017 , the Company has repurchased 8.6 million 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. These shares were retired and accounted for as a reduction to Shareholders' equity in the Condensed Consolidated Balance Sheet (Unaudited). Direct costs incurred to acquire the shares are included 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, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.
Off-Balance Sheet Arrangements
As of June 30, 2017 , the Company did not have any material off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of the SEC’s Regulation S-K.

29

Critical Accounting Policies
We describe the Company’s significant accounting policies in Note 1 of Notes to Consolidated Financial Statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 . We consider certain of these accounting policies to be “critical” to the portrayal of the Company’s financial position and results of operations, as they require the application of significant judgment by management. As a result, they are subject to an inherent degree of uncertainty. We identify and discuss these “critical” accounting policies in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 . Management bases its estimates and judgments on historical experience and on various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, management evaluates its estimates and judgments, including those considered “critical”. Management has discussed the development, selection and evaluation of accounting estimates, including those deemed “critical,” and the associated disclosures in this Form 10-Q with the Audit Committee of the Board of Directors.

30

Forward-Looking Statements
Some of the information in this Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which statements involve substantial risks and uncertainties including, without limitation, statements regarding: (1) future results of operations or of the Company’s financial condition, (2) the adequacy of the Company’s current working capital and other available sources of funds, (3) the Company's goals and plans for the future, including its strategic initiatives and growth opportunities, (4) expectations regarding future revenue trends, and (5) the expected impact of the Company’s decision to exit the Company's Healthcare Claims Recovery Audit Services business. All statements that cannot be assessed until the occurrence of a future event or events should be considered forward-looking. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue” or similar words. Risks and uncertainties that may potentially impact these forward-looking statements include, without limitation, those set forth under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 and its other periodic reports filed with the Securities and Exchange Commission. The Company disclaims any obligation or duty to update or modify these forward-looking statements.
There may be events in the future, however, that the Company cannot accurately predict or over which the Company has no control. The risks and uncertainties listed in this section, as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of any of the events denoted above as risks and uncertainties and elsewhere in this Form 10-Q could have a material adverse effect on our business, financial condition and results of operations.

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Market Risk. Our reporting currency is the U.S. dollar, although we transact business in various foreign locations and currencies. As a result, our financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign 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 the other countries in which we operate. When the U.S. dollar strengthens against other currencies, the value of foreign functional currency revenue decreases. When the 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. During the three months ended June 30, 2017 , we recognized $3.7 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 foreign currency exchange rates against the U.S. dollar, by approximately $0.4 million for the three months ended June 30, 2017 . We currently do not have any arrangements in place to hedge our foreign currency risk.
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. interest rates affect the interest earned on our cash equivalents as well as interest paid on amounts outstanding under our revolving credit facility, if any. As of June 30, 2017 , we had $13.6 million outstanding against our revolving credit facility. Interest on our revolving credit facility is payable monthly and accrues at an index rate using the one-month LIBOR rate plus an applicable margin. Assuming full utilization of the revolving credit facility, a hypothetical 100 basis point change in interest rates applicable to the revolver would result in an approximate $0.35 million change in annual pre-tax income.


32

Item 4. Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2017 .
There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are party to a variety of legal proceedings arising in the normal course of business. While the results of these proceedings cannot be predicted with certainty, management believes that the final outcome of these proceedings will not have a material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes in the risks facing the Company as described in the Company’s Form 10-K for the year ended December 31, 2016 .
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s current credit facility prohibits the payment of any cash dividends on the Company’s capital stock.
The following table sets forth information regarding the purchases of the Company’s equity securities made by or on behalf of the Company or any affiliated purchaser (as defined in Exchange Act Rule 10b-18) during the three months ended June 30, 2017.
2017
 
Total Number
of Shares
Purchased (a)
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
 
Maximum Approximate
Dollar Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
 
 
 
 
 
 
 
 
(millions of dollars)
April 1 - April 30
 
 
 
$
—

 
—

 
$
—

May1 - May 31
 
 
 
$
—

 
—

 
$
—

June 1 - June 30
 
6,113

 
$
6.35

 
—

 
$
—

 
 
6,113

 
$
6.35

 
—

 
$
15.5

(a) Amount represents shares surrendered by employees to satisfy tax withholding obligations resulting from restricted stock awards that vested during the three months ended June 30, 2017.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

34

Item 6. Exhibits

Exhibit
Number
  
Description
3.1

  
Restated Articles of Incorporation of the Registrant, as amended and corrected through August 11, 2006 (restated solely for the purpose of filing 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-K filed 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 December 11, 2007).
 
 
4.1

  
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 10-K for the year ended December 31, 2001).
 
 
4.2

  
See Restated Articles of Incorporation and Bylaws of the Registrant, filed as Exhibits 3.1 and 3.2, respectively.
 
 
 
10.1

 
Tenth Loan Documents Modification Agreement, entered into as of May 4, 2017 by and among PRGX Global, Inc. and PRGX USA, Inc., as borrowers, the subsidiaries of PRGX Global, Inc. signatory thereto, as guarantors, and SunTrust Bank, as administrative agent, the sole lender and issuing bank(incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q filed on May 9, 2017).
 
 
 
10.2

 
Employment Agreement between the Registrant and Daryl T. Rolley dated May 8, 2017.

31.1

  
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2017.
 
 
31.2

  
Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), for the quarter ended June 30, 2017.
 
 
32.1

  
Certification of the Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for the quarter ended June 30, 2017.
 
 
 
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


35

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
PRGX GLOBAL, INC.
 
 
 
August 8, 2017
By:
 
/s/ Ronald E. Stewart
 
 
 
Ronald E. Stewart
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)
 
 
 
August 8, 2017
By:
 
/s/ Peter Limeri
 
 
 
Peter Limeri
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)

36
    

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of May 8, 2017 (the “Effective Date”) by and between PRGX Global, Inc., a Georgia corporation (the “Company”), and Daryl T. Rolley (the “Executive”).
W I T N E S S E T H:
WHEREAS , the Company considers the availability of the Executive’s services to be important to the management and conduct of the Company’s business and desires to secure the availability of the Executive’s services; and
WHEREAS , the Executive is willing to make the Executive’s services available to the Company on the terms and subject to the conditions set forth herein.
NOW, THEREFORE , in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth and intending to be legally bound, the Company and the Executive agree as follows:
1.     Employment and Duties .
(a)     Position . The Company hereby employs the Executive, and the Executive hereby accepts such employment, as the Senior Vice President & Chief Commercial Officer of the Company, effective as of the Effective Date, on the terms and subject to the conditions of this Agreement. The Executive agrees to perform such duties and responsibilities as are customarily performed by persons acting in such capacity or as are assigned to Executive from time to time by the Board of Directors of the Company or its designees. The Executive acknowledges and agrees that from time to time the Company may assign Executive additional positions with the Company or the Company’s subsidiaries, with such title, duties and responsibilities as shall be determined by the Company. The Executive agrees to serve in any and all such positions without additional compensation. The Executive will report directly to the Chief Executive Officer of the Company.
(b)     Duties . The Executive shall devote the Executive’s best efforts and full professional time and attention to the business and affairs of the Company and the Company’s subsidiaries. During the Term, as defined below, Executive shall not serve as an officer, director or principal of any other company or charitable or civic organization without the prior written consent of the Board of Directors of the Company. The principal place(s) of employment of the Executive shall be the Company’s executive offices in Atlanta, Georgia, subject to travel required for the business of the Company or the Company’s subsidiaries. The Executive shall be expected to follow and be bound by the terms of the Company’s Code of Conduct and Code of Ethics for Senior Financial Officers and any other applicable policies as the Company from time to time may adopt.
2.     Term . This Agreement is effective as of the Effective Date, and will continue through the first anniversary of the Effective Date, unless terminated or extended as hereinafter provided. This Agreement shall be extended for successive one-year periods following the original term



(through each subsequent anniversary thereafter) unless any party notifies the other in writing at least 30 days prior to the end of the original term, or the end of any additional one-year renewal term, that the Agreement shall not be extended beyond its then current term. The term of this Agreement, including any renewal term, is referred to herein as the “Term.”
3.     Compensation .
(a)     Base Salary . The Company shall pay the Executive an annual base salary of $390,000.00. The annual base salary shall be paid to the Executive in accordance with the established payroll practices of the Company (but no less frequently than monthly) subject to ordinary and lawful deductions. The Compensation Committee of the Company will review the Executive’s base salary from time to time to consider whether any increase should be made. The base salary during the Term will not be less than that in effect at any time during the Term.
(b)     Annual Bonus . During the Term, the Executive will be eligible to participate in an annual incentive bonus plan that will establish measurable criteria and incentive compensation levels payable to the Executive for performance in relation to defined targets established by the Compensation Committee of the Company, after consultation with management, and consistent with the Company’s business plans and objectives. To the extent the targeted performance levels are exceeded, the incentive bonus plan will provide a means by which the annual bonus will be increased. Similarly, the incentive plan will provide a means by which the annual bonus will be decreased or eliminated if the targeted performance levels are not achieved. In connection with such annual incentive bonus plan, subject to the corresponding performance levels being achieved, the Executive shall be eligible for an annual target bonus equal to 80 percent of the Executive’s annual base salary and an annual maximum bonus of not less than 160 percent of the Executive’s annual base salary. Any bonus payments due hereunder shall be payable to the Executive no later than the 15 th day of the third month following the end of the applicable year to which the incentive bonus relates. Notwithstanding the foregoing, the Executive’s annual incentive bonus for calendar year 2017 shall be prorated based on the number of days the Executive is employed during calendar year 2017 and the actual incentive bonus to be paid to the Executive for calendar year 2017 shall not be less than 50 percent of the prorated target bonus for which the Executive is eligible for calendar year 2017.
(c)     Stock Compensation . The Company shall grant to the Executive, effective as of the Effective Date, as an initial equity award, nonqualified stock options covering 150,000 shares of the common stock, no par value per share, of the Company (the “Initial Options”), restricted stock covering 24,000 shares of such common stock (the “Initial Restricted Stock”) and 36,000 performance-based restricted stock units (the “Initial PBUs”). The Initial Options, Initial Restricted Stock and Initial PBUs will constitute inducement awards, be granted outside of any shareholder-approved equity compensation plan of the Company, and will vest as follows:
(i)    The Initial Options will be time-vested options with an exercise price equal to the fair market value of the common stock as of the date of grant, have a term of seven years and will vest and become exercisable with respect to one-third of the Initial Options on each of the first three anniversaries of the date of grant, subject to the Executive’s continued employment through such date(s).

2


(ii)    The Initial Restricted Stock will be time-vested restricted stock and will vest and become nonforfeitable with respect to one-third of the Initial Restricted Stock on each of the first three anniversaries of the date of grant, subject to the Executive’s continued employment through such date(s).
(iii)     The Initial PBUs will be performance-based restricted stock units and will vest and become payable in accordance with the terms set forth in a separate inducement award agreement between the Company and the Executive.
The Initial Options, Initial Restricted Stock and Initial PBUs shall be subject to such other customary terms and conditions as shall be set forth in separate inducement award agreements.
Beginning in calendar year 2018, the Executive shall be eligible to receive stock options, restricted stock, stock appreciation rights and/or other equity awards under the Company’s applicable equity plans on such basis as the Compensation Committee or the Board of Directors of the Company or their designees, as the case may be, may determine on a basis not less favorable than that provided to the class of employees that includes the Executive. Except as specifically set forth above, however, nothing herein shall require the Company to make any equity grants or other awards to the Executive in any specific year.
4.      Indemnity . The Company and the Executive will enter into the Company’s standard indemnification agreement for executive officers.

5.     Benefits .
(a)     Benefit Programs . The Executive shall be eligible to participate in any plans, programs or forms of compensation or benefits that the Company or the Company’s subsidiaries provide to the class of employees that includes the Executive, on a basis not less favorable than that provided to such class of employees, including, without limitation, group medical, disability and life insurance, paid time-off, and retirement plan, subject to the terms and conditions of such plans, programs or forms of compensation or benefits.
(b)     Paid Time-Off . The Executive shall be entitled to five weeks of paid time-off annually, to be accrued and used in accordance with the normal Company paid time-off policy.
6 .     Reimbursement of Expenses . The Company shall reimburse the Executive, subject to presentation of adequate substantiation, including receipts, for the reasonable travel, entertainment, lodging and other business expenses incurred by the Executive in accordance with the Company’s expense reimbursement policy in effect at the time such expenses are incurred. In no event will such reimbursements, if any, be made later than the last day of the year following the year in which the Executive incurs the expense.
7.     Termination of Employment .
(a)     Death or Incapacity . The Executive’s employment under this Agreement shall terminate automatically upon the Executive’s death. If the Company determines that the

3


Incapacity, as hereinafter defined, of the Executive has occurred, it may terminate the Executive’s employment and this Agreement. “Incapacity” shall mean the inability of the Executive to perform the essential functions of the Executive’s job, with or without reasonable accommodation, for a period of 90 days in the aggregate in any rolling 180-day period.
(b)     Termination by Company For Cause . The Company may terminate the Executive’s employment during the Term of this Agreement for Cause. For purposes of this Agreement, “Cause” shall mean, as determined by the Board of Directors of the Company in good faith, the following:
(i)    the Executive’s willful misconduct or gross negligence in connection with the performance of the Executive’s duties which the Board of Directors of the Company believes does or is likely to result in material harm to the Company or any of its subsidiaries;
(ii)    the Executive’s misappropriation or embezzlement of funds or property of the Company or any of its subsidiaries;
(iii)    the Executive’s fraud or dishonesty with respect to the Company or any of its subsidiaries;
(iv)    the Executive’s conviction of, indictment for (or its procedural equivalent), or entering of a guilty plea or plea of no contest with respect to any felony or any other crime involving moral turpitude or dishonesty;
(v)    the Executive’s breach of a material term of this Agreement, or violation in any material respect of any code or standard of behavior generally applicable to officers of the Company (including, without, limitation the Company’s Code of Conduct, Code of Ethics for Senior Financial Officers and any other applicable policies as the Company from time to time may adopt), after being advised in writing of such breach or violation and being given 30 days to remedy such breach or violation, to the extent that such breach or violation can be cured;
(vi)    the Executive’s breach of fiduciary duties owed to the Company or any of its subsidiaries;
(vii)    the Executive’s engagement in habitual insobriety or the use of illegal drugs or substances; or
(viii)    the Executive’s willful failure to cooperate, or willful failure to cause and direct persons under the Executive’s management or direction, or employed by, or consultants or agents to, the Company or its subsidiaries to cooperate, with all corporate investigations or independent investigations by the Board of Directors of the Company or its subsidiaries, all governmental investigations of the Company or its subsidiaries or orders involving the Executive, the Company or the Company’s subsidiaries entered by a court of competent jurisdiction.

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Notwithstanding the above, and without limitation, the Executive shall not be deemed to have been terminated for Cause unless and until there has been delivered to the Executive (i) a letter from the Board of Directors of the Company finding that the Executive has engaged in the conduct set forth in any of the preceding clauses and specifying the particulars thereof in detail and (ii) a copy of a resolution duly adopted by the affirmative vote of the majority of the members of the Board of Directors of the Company who are not officers of the Company at a meeting of the Board of Directors called and held for such purpose or such other appropriate written consent (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board of Directors of the Company), finding that the Executive has engaged in such conduct and specifying the particulars thereof in detail.

(c)     Termination by Executive for Good Reason . The Executive may terminate the Executive’s employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean, without the Executive’s consent, the following:
(i)    any action taken by the Company which results in a material reduction in the Executive’s authority, duties or responsibilities (except that any change in the foregoing that results solely from (A) the Company ceasing to be a publicly traded entity or from the Company becoming a wholly-owned subsidiary of another publicly traded entity or (B) any change in the geographic scope of the Executive’s authority, duties or responsibilities will not, in any event and standing alone, constitute a substantial reduction in the Executive’s authority, duties or responsibilities), including any requirement that the Executive report directly to anyone other than the Chief Executive Officer of the Company;
(ii)    the assignment to the Executive of duties that are materially inconsistent with Executive’s authority, duties or responsibilities;
(iii)    any material decrease in the Executive’s base salary or annual bonus opportunity or the benefits generally available to the class of employees that includes the Executive, except to the extent the Company has instituted a salary, bonus or benefits reduction generally applicable to all executives of the Company other than in contemplation of or after a Change in Control;
(iv)    the relocation of the Executive to any principal place of employment other than Atlanta, Georgia, or any requirement that executive relocate his residence other than to the Atlanta, Georgia metropolitan area, without the Executive’s express written consent to either such relocation; provided, however, this subsection (iv) shall not apply in the case of business travel which requires the Executive to relocate temporarily for periods of 90 days or less;
(v)    the failure by the Company to pay to the Executive any portion of the Executive’s base salary, annual bonus or other benefits within 10 days after the date the same is due; or
(vi)    any material failure by the Company to comply with the terms of this Agreement.

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Notwithstanding the above, and without limitation, “Good Reason” shall not include any resignation by the Executive where Cause for the Executive’s termination by the Company exists and the Company then follows the procedures described above. The Executive must give the Company notice of any event or condition that would constitute “Good Reason” within 30 days of the event or condition which would constitute “Good Reason,” and upon the receipt of such notice the Company shall have 30 days to remedy such event or condition. If such event or condition is not remedied within such 30-day period, any termination of employment by the Executive for “Good Reason” must occur within 30 days after the period for remedying such condition or event has expired.

(d)     Termination by Company Without Cause or by Executive Other than For Good Reason . The Company may terminate the Executive’s employment during the Term of this Agreement without Cause, and Executive may terminate the Executive’s employment for other than Good Reason, upon 30 days’ written notice. The Company may elect to pay the Executive his base salary and the Company’s contribution to the cost of the Executive’s welfare benefits during any applicable notice period (in accordance with the established payroll practices of the Company, no less frequently than monthly) and remove him from active service.
(e)     Termination on Failure to Renew . The Company and the Executive agree that the Executive’s employment will terminate immediately following the expiration of the Term of the Agreement, if the Company notifies the Executive that the Term of the Agreement shall not be extended as provided in Section 2 above.
(f)     Resignation from Board of Directors and Other Positions . Notwithstanding any other provision of this Agreement, the Executive agrees to resign, as soon as administratively practicable, from any and all positions held with the Company or any subsidiary or affiliate of the Company, at the time of termination of the Executive’s employment if the Executive’s employment is terminated pursuant to Sections 7(b), (c), (d) or (e) of this Agreement and the Executive is serving in any such positions at such time.
8.     Obligations of the Company Upon Termination .
(a)     Without Cause; Good Reason; Non-Renewal (No Change in Control) . If, during the Term, the Company terminates the Executive’s employment without Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c) hereof, or the Executive’s employment terminates upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof, other than within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:
(i)    payment of the Executive’s base salary in effect immediately preceding the date of the Executive’s termination of employment (or, if greater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for which the Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of (A) one year or (B) the sum of four weeks for each full year of continuous service the Executive has with the

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Company and its subsidiaries at the time of termination of employment, such period beginning immediately following termination of employment (the period after the date of the Executive’s termination of employment for which the Executive shall be entitled to continued payment of base salary pursuant to this Section 8(a)(i) shall be referred to as the “Severance Period”), payable in accordance with the established payroll practices of the Company (but no less frequently than monthly) beginning on the first payroll date following 60 days after termination of employment, with the Executive to receive at that time a lump sum payment with respect to any installments the Executive was entitled to receive during the first 60 days following termination of employment, and the remaining payments made as if they had commenced immediately following termination of employment; provided, however, that notwithstanding anything contained in this Section 8(a)(i) to the contrary, if the Executive’s employment terminates as described above before the first anniversary of the Effective Date, the Severance Period shall be limited to the greater of (A) six months or (B) the number of monthly anniversaries after the Effective Date that the Executive remained employed;
(ii)    payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’s employment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonus for the year otherwise would be paid had the Executive continued employment;
(iii)    continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than that under a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during such Severance Period, provided that such continued participation is possible under the general terms and provisions of such plans and programs and provided that such continued coverage by the Company shall terminate in the event Executive becomes eligible for any such coverage under another employer’s plans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’s spouse or dependents is not feasible under the terms and provisions of such plans and programs (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of the expected Company contribution therefor for such same period of time, with such payments to be made in accordance with the established payroll practices of the Company (not less frequently than monthly) for the period during which such cash payments are to be provided;
(iv)    payment of any Accrued Obligations. For purposes of this Agreement, “Accrued Obligations” shall mean the sum of (A) the Executive’s annual base salary through Executive’s termination of employment which remains unpaid, (B) the amount, if any, of any incentive or bonus compensation earned for any completed fiscal year of the Company which has not yet been paid, (C) any reimbursements for expenses

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incurred but not yet paid, and (D) any benefits or other amounts, including both cash and stock components, which pursuant to the terms of any plans, policies or programs have been earned or become payable, but which have not yet been paid to the Executive, including payment for any unused paid time-off (but not including amounts that previously had been deferred at the Executive’s request, which amounts will be paid in accordance with the Executive’s existing directions). The Accrued Obligations will be paid to the Executive in a lump sum as soon as administratively feasible after the Executive’s termination of employment, which for purposes of any incentive or bonus compensation described in (B) above shall mean at the same time such annual bonus would otherwise have been paid;
(v)     vesting of a prorated number of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested based solely on the continued employment of the Executive through the first applicable vesting date immediately following the date of termination of employment for each type of such award (e.g., options, restricted stock, etc.) equal to the number of awards of such type that would vest as of such next vesting date multiplied by a fraction, the numerator of which is the number of monthly anniversaries that have occurred, as measured from the immediately preceding vesting date of such award (or, if none, since the date of grant of such award) to the date of termination of Executive’s employment, and the denominator of which is the number of monthly anniversary dates between such immediately preceding vesting date of such award (or, if none, the date of grant of such award) and the first vesting date immediately following the date of termination of Executive’s employment for such type of award. Additionally, all of Executive’s outstanding stock options shall remain outstanding until the earlier of (i) one year after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding any earlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the termination of the Executive’s employment); and
(vi)    payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to $20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 90 days after the termination of the Executive’s employment.
(b)      Without Cause; Good Reason; Non-Renewal (Change in Control) . If, during the Term, the Company terminates the Executive’s employment without Cause in accordance with Section 7(d) hereof, the Executive terminates the Executive’s employment for Good Reason in accordance with Section 7(c) hereof, or the Executive’s employment terminates upon the Company’s failure to renew the Agreement in accordance with Section 7(e) hereof, within two years after a Change in Control, subject to Section 20 below, the Executive shall be entitled to receive:
(i)    payment of the Executive’s base salary in effect immediately preceding the date of the Executive’s termination of employment (or, if greater, the Executive’s annual base salary in effect immediately preceding any action by the Company described in Section 7(c)(iii) above for which the Executive has terminated the Executive’s employment for Good Reason), for the period equal to the greater of (A) 18 months or (B)

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the sum of four weeks for each full year of continuous service the Executive has with the Company and its subsidiaries at the time of termination of employment, such period beginning immediately following termination of employment (the period after the date of the Executive’s termination of employment for which the Executive shall be entitled to continued payment of base salary pursuant to this Section 8(b)(i) shall be referred to as the “Change in Control Severance Period”), payable in accordance with the established payable practices of the Company (but no less frequently than monthly) beginning on the first payroll date following 60 days after termination of employment, with the Executive to receive at that time a lump sum payment with respect to any installments the Executive was entitled to receive during the first 60 days following termination of employment; provided, however, that notwithstanding anything contained in this Section 8(b)(i) to the contrary, if the Executive’s employment terminates as described above before the first anniversary of the Effective Date, the Change in Control Severance Period shall be limited to the greater of (A) nine months or (B) the product of 1.5 multiplied by number of monthly anniversaries after the Effective Date that the Executive remained employed;
(ii)    payment of an amount equal to the Executive’s actual earned full-year bonus for the year in which the termination of Executive’s employment occurs, prorated based on the number of days the Executive was employed for the year, payable at the time the Executive’s annual bonus for the year otherwise would be paid had the Executive continued employment;
(iii)    continuation after the date of termination of employment of any health care (medical, dental and vision) plan coverage, other than that under a flexible spending account, provided to the Executive and the Executive’s spouse and dependents at the date of termination for the Change in Control Severance Period, on a monthly or more frequent basis, on the same basis and at the same cost to the Executive as available to similarly-situated active employees during such Change in Control Severance Period, provided that such continued participation is possible under the general terms and provisions of such plans and programs and provided that such continued contribution by the Company shall terminate in the event Executive becomes eligible for any such coverage under another employer’s plans. If the Company reasonably determines that maintaining such coverage for the Executive or the Executive’s spouse or dependents is not feasible under the terms and provisions of such plans and programs (or where such continuation would adversely affect the tax status of the plan pursuant to which the coverage is provided), the Company shall pay the Executive cash equal to the estimated cost of the expected Company contribution therefor for such same period of time, with such payments to be made in accordance with the established payroll practices of the Company (not less frequently than monthly) for the period during which such cash payments are to be provided;
(iv)    payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment, which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonus would otherwise have been paid;

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(v)     vesting in full of the Executive’s outstanding unvested options, restricted stock and other equity-based awards that would have vested based solely on the continued employment of the Executive. Additionally, all of the Executive’s outstanding stock options shall remain outstanding until the earlier of (i) one year after the date of termination of the Executive’s employment or (ii) the original expiration date of the options (disregarding any earlier expiration date provided for in any other agreement, including without limitation any related grant agreement, based solely on the termination of the Executive’s employment); and
(vi)    payment of one year of outplacement services from Executrack or an outplacement service provider of the Executive’s choice, limited to $20,000 in total. This outplacement services benefit will be forfeited if the Executive does not begin using such services within 90 days after the termination of the Executive’s employment.
(c)     Death or Incapacity . If the Executive’s employment is terminated by reason of death or Incapacity in accordance with Section 7(a) hereof, the Executive shall be entitled to receive:
(i)    payment of an amount equal to the actual full-year bonus earned for the year that includes Executive’s death or Incapacity, prorated based on the number of days the Executive is employed for the year, payable at the same time such annual bonus would otherwise have been paid had the Executive continued employment; and
(ii)    payment of any Accrued Obligations in a lump sum as soon as administratively feasible after the Executive’s termination of employment, which for purposes of any incentive or bonus compensation described in Section 8(a)(iv)(B) above shall mean at the same time such annual bonus would otherwise have been paid.
(d)     Cause; Other Than for Good Reason . If the Company terminates the Executive’s employment for Cause in accordance with Section 7(b) hereof, or the Executive terminates the Executive’s employment other than for Good Reason in accordance with Section 7(d) hereof, this Agreement shall terminate without any further obligation to the Executive other than to pay the Accrued Obligations (except that any incentive or bonus compensation earned for any completed fiscal year of the Company which has not yet been paid shall not be paid if the Company terminates the Executive’s employment for Cause in accordance with Section 7(b) hereof) as soon as administratively feasible after the Executive’s termination of employment.
(e)     Release and Waiver . Notwithstanding any other provision of this Agreement, the Executive’s right to receive any payments or benefits under Sections 8(a)(i), (ii), (iii), (v) and (vi) and 8(b)(i), (ii), (iii), (v) and (vi) of this Agreement upon the termination of the Executive’s employment by the Company without Cause, by the Executive for Good Reason, or upon the Company’s failure to renew the Agreement is contingent upon and subject to the Executive signing and delivering to the Company a separation agreement and complete general release of all claims in a form acceptable to Company, and allowing the applicable revocation period required by law to expire without revoking or causing revocation of same, within 60 days following the date of termination of Executive’s employment.

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(f)     Change in Control . For purposes of this Agreement, Change of Control means the occurrence of any of the following events:
(i)    The accumulation in any number of related or unrelated transactions by any person of beneficial ownership (as such term is used in Rule 13d-3, promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of 50 percent or more of the combined total voting power of the Company’s voting stock; provided that for purposes of this subsection (a), a Change in Control will not be deemed to have incurred if the accumulation of 50 percent or more of the voting power of the Company’s voting stock results from any acquisition of voting stock (i) by the Company, (ii) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of the Company’s subsidiaries, or (iii) by any person pursuant to a merger, consolidation, reorganization or other transaction (a “Business Combination”) that would not cause a Change in Control under subsection (ii) below; or
(ii)    A consummation of a Business Combination, unless, immediately following that Business Combination, substantially all the persons who were the beneficial owners of the voting stock of the Company immediately prior to that Business Combination beneficially own, directly or indirectly, at least 50 percent of the combined voting power of the voting stock of the entity resulting from that Business Combination (including, without limitation, an entity that as a result of that transaction owns the Company, or all or substantially all of the Company assets, either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as the ownership, immediately prior to that Business Combination, of the voting stock of the Company;
(iii)    A sale or other disposition of all or substantially all of the assets of the Company except pursuant to a Business Combination that would not cause a Change in Control under subsection (ii) above;
(iv)    At any time less than a majority of the members of the Board of Directors of the Company or any entity resulting from any Business Combination are Incumbent Board Members.
(v)    Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, except pursuant to a Business Combination that would not cause a Change in Control under subsection (ii) above; or
(vi)    Any other transaction or event that the Board of Directors of the Company identifies as a Change in Control for purposes of this Agreement.
(vii)    For purposes of this Agreement, an “Incumbent Board Member” shall mean any individual who either is (a) a member of the Company Board of Directors as of the Effective Date or (b) a member who becomes a member of the Company’s Board of Directors subsequent to the Effective Date of this Agreement, whose election or nomination by the Company’s shareholders, was approved by a vote of at least a majority of the then Incumbent Board Members (either by specific vote or by approval of a proxy statement of

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the Company in which that person is named as a nominee for director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14A-11 of the Exchange Act) with respect to the election or removal of directors or other actual threatened solicitation of proxies or consents by or on behalf of the person other than a board of directors. For purposes of this Agreement, a person means any individual, corporation, partnership, limited liability company, joint venture, incorporated or unincorporated association, joint-stock company, trusts, unincorporated organization or any other entity of any kind.
9.     Business Protection Agreements .
(a)     Definitions . For purposes of this Agreement, the following terms shall have the following meanings:
(i)    “Business of the Company” means services to (A) identify clients’ erroneous or improper payments to vendors and assist clients in the recovery of monies owed to clients as a result of overpayments and overlooked discounts, rebates, allowances and credits, (B) identify and assist clients in recovering amounts owed to them by other third parties, including amounts owed to clients due to non-compliance with applicable contracts, course of dealing or usual and customary terms, (C) assist clients in efforts to organize, manage and analyze their purchasing and payment data, and (D) assist clients in analyzing and managing vendor-related risks.

(ii)    “Confidential Information” means any information about the Company or the Company’s subsidiaries and their employees, customers and/or suppliers which is not generally known outside of the Company or the Company’s subsidiaries, which Executive learns of in connection with Executive’s employment with the Company, and which would be useful to competitors or the disclosure of which would be damaging to the Company or the Company’s subsidiaries. Confidential Information includes, but is not limited to: (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 the Company or the Company’s subsidiaries obtains products from their suppliers and sells services and products to customers; (C) the nature, origin, composition and development of the Company or the Company’s subsidiaries’ services and products; and (D) the manner in which the Company or the Company’s subsidiaries provide products and services to their customers.

(iii)    “Material Contact” means contact in person, by telephone, or by paper or electronic correspondence in furtherance of the Business of the Company.
(iv)    “Restricted Territory” means, and is limited to, the geographic area described in Exhibit A attached hereto. Executive acknowledges and agrees that this is the area in which the Company and its subsidiaries does business at the time of the execution of this Agreement, and in which the Executive will have responsibility, at a minimum, on

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behalf of the Company and the Company’s subsidiaries. Executive acknowledges and agrees that if the geographic area in which Executive has responsibility should change while employed under this Agreement, Executive will execute an amendment to the definition of “Restricted Territory” to reflect such change. This duty shall be part of the consideration provided by Executive for Executive’s employment hereunder.
(v)    “Trade Secrets” means the trade secrets of the Company or the Company’s subsidiaries as defined under applicable law.
(b)     Confidentiality . Executive agrees that the Executive will not (other than in the performance of Executive’s duties hereunder), directly or indirectly, use, copy, disclose or otherwise distribute to any other person or entity: (a) any Confidential Information during the period of time the Executive is employed by the Company and for a period of five years thereafter; or (b) any Trade Secret at any time such information constitutes a trade secret under applicable law. Upon the termination of Executive’s employment with the Company (or upon the earlier request of the Company), Executive shall promptly return to the Company all documents and items in the Executive’s possession or under the Executive’s control which contain any Confidential Information or Trade Secrets. Notwithstanding the foregoing, the Executive will not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a Trade Secret that (i) is made (A) in confidence to a Federal, State or local government official, either directly or indirectly, or to an attorney, and (B) solely for purposes of reporting or investigating a suspected violation of law, or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding filed in a lawsuit or other proceeding, if such filing is made under seal. If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Trade Secret to the Executive’s attorney and use the Trade Secret in the court proceeding, if the Executive (i) files any document containing the Trade Secret under seal and (ii) does not disclose the Trade Secret, except pursuant to court order.
(c)     Non-Competition . Executive agrees that during the Executive’s employment with the Company and for a period of two years thereafter, Executive will not, either for himself or on behalf of any other person or entity, compete with the Business of the Company within the Restricted Territory by performing activities which are the same as or similar to those performed by Executive for the Company or the Company’s subsidiaries.
(d)     Non-Solicitation of Customers . Executive agrees that during Executive’s employment with the Company and for a period of two years thereafter, Executive shall not, directly or indirectly, solicit any actual or prospective customers of the Company or the Company’s subsidiaries with whom Executive had Material Contact, for the purpose of selling any products or services which compete with the Business of the Company.
(e)     Non-Recruitment of Employees or Contractors . Executive agrees that during the Executive’s employment with the Company and for a period of two years thereafter, Executive will not, directly or indirectly, solicit or attempt to solicit any employee or contractor of the Company or the Company’s subsidiaries with whom Executive had Material Contact, to terminate or lessen such employment or contract.

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(f)     Future Cooperation . Executive agrees that, notwithstanding the termination of Executive’s employment and for a period of two years thereafter, Executive upon reasonable notice will make himself available to Company or its designated representatives for the purposes of: (a) providing information 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 by Company; provided that such cooperation shall not unreasonably interfere with Executive’s other business affairs. The Company will reimburse the Executive for all reasonable out of pocket expenses incurred with such cooperation and, if such cooperation is to be rendered during the time after which no additional severance is owed to the Executive, shall compensate Executive for his services and time as a consultant at customary and market rates to be mutually agreed upon by the parties.
(g)     Obligations of the Company . The Company agrees to provide Executive with Confidential Information in order to enable Executive to perform Executive’s duties hereunder. The covenants of Executive contained in the covenants of Confidentiality, Non-Competition, Non-Solicitation of Customers and Non-Recruitment of Employees or Contractors set forth in Subsections 9(b) - 9(e) above (“Protective Covenants”) are made by Executive in consideration for the Company’s agreement to provide Confidential Information to Executive, and intended to protect Company’s Confidential Information and the investments the Company makes in training Executive and developing customer goodwill.
(h)     Acknowledgments . Executive hereby acknowledges and agrees that the covenants contained in (b) through (e) of this Section 9 and Section 10 hereof are reasonable as to time, scope and territory given the Company and the Company’s subsidiaries’ need to protect their business, customer relationships, personnel, Trade Secrets and Confidential Information. Executive acknowledges and represents that Executive has substantial experience and knowledge such that Executive can readily obtain subsequent employment which does not violate this Agreement.
(i)     Obligations to Former Employers . Executive represents to the Company that: (i) except as disclosed to the Company in writing on or before the date of this Agreement, Executive is not a party to any agreement that may restrict Executive from engaging in any activities which Executive may be required or expected to perform in connection with Executive’s duties with the Company, and (ii) Executive has returned or destroyed any papers or electronic media in Executive’s possession that contained trade secrets or confidential information of any former employer or other third party that Executive had a duty to return or destroy. Executive will not disclose or use any trade secrets or confidential information of any former employer or other third party for the Company’s benefit without the prior written consent of such party and the Company.
(j)     Protected Rights . Notwithstanding any other provision of this Agreement, the Company and Executive acknowledge and agree that nothing in this Agreement shall prohibit Executive from reporting possible violations of Federal, State or other law or regulations to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are

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protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding. Executive further acknowledges that nothing herein limits Executive’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company. Executive does not need the prior authorization of the Company to make any such reports or disclosures, and Executive is not required to notify the Company that Executive made any such reports or disclosures or is assisting in any such investigation. Additionally, Executive (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.
(k)     Specific Performance . Executive acknowledges and agrees that any breach of any of the Protective Covenants or the provisions of Section 10 by him will cause irreparable damage to the Company or the Company’s subsidiaries, the exact amount of which will be difficult to determine, and that the remedies at law for any such breach will be inadequate. Accordingly, Executive agrees that, in addition to any other remedy that may be available at law, in equity, or hereunder, the Company shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any violation of any of the Protective Covenants by him.
10.     Ownership of Work Product .
(a)     Assignment of Inventions . Executive will make full written disclosure to the Company, and hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designees, all of the Executive’s right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whether or not patentable or registrable under copyright or similar laws, which the Executive may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during the period of time the Executive is engaged as an employee of the Company (collectively referred to as “Inventions”) and which (i) are developed using the equipment, supplies, facilities or Confidential Information or Trade Secrets of the Company or the Company’s subsidiaries, (ii) result from or are suggested by work performed by Executive for the Company or the Company’s subsidiaries, or (iii) relate at the time of conception or reduction to practice to the business as conducted by the Company or the Company’s subsidiaries, or to the actual or demonstrably anticipated research or development of the Company or the Company’s subsidiaries, will be the sole and exclusive property of the Company or the Company’s subsidiaries, and Executive will and hereby does assign all of the Executive’s right, title and interest in such Inventions to the Company and the Company’s subsidiaries. Executive further acknowledge that all original works of authorship which are made by him (solely or jointly with others) within the scope of and during the period of the Executive’s employment arrangement with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.

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(b)     Patent and Copyright Registrations . Executive agrees to assist the Company and the Company’s subsidiaries, or their designees, at the Company or the Company’s subsidiaries’ expense, in every proper way to secure the Company’s or the Company’s subsidiaries’ rights in the Inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the Company and the Company’s subsidiaries of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company or the Company’s subsidiaries shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company and its subsidiaries, and their successors, assigns, and nominees the sole and exclusive rights, title and interest in and to such Inventions, and any copyrights, patents, mask work rights or other intellectual property rights relating thereto. Executive further agree that the Executive’s obligation to execute or cause to be executed, when it is in the Executive’s power to do so, any such instrument or papers shall continue after the termination of this Agreement.
(c)     Inventions Retained and Licensed . There are no inventions, original works of authorship, developments, improvements, and trade secrets which were made by Executive prior to the Executive’s employment with the Company (collectively referred to as “Prior Inventions”), which belong to Executive, which relate to the Company’s or the Company’s subsidiaries’ proposed business, products or research and development, and which are not assigned to the Company or the Company’s subsidiaries hereunder.
(d)     Return of Company Property and Information . The Executive agrees not to remove any property of the Company or the Company’s subsidiaries or information from the premises of the Company or the Company’s subsidiaries, except when authorized by the Company or the Company’s subsidiaries. Executive agrees to return all such property and information within seven days following the cessation of Executive’s employment for any reason. Such property includes, but is not limited to, the original and any copy (regardless of the manner in which it is recorded) of all information provided by the Company or the Company’s subsidiaries to the Executive or which the Executive has developed or collected in the scope of the Executive’s employment, as well as all issued equipment, supplies, accessories, vehicles, keys, instruments, tools, devices, computers, cell phones, materials, documents, plans, records, notebooks, drawings, or papers. Upon request by the Company, the Executive shall certify in writing that all copies of information subject to this Agreement located on the Executive’s computers or other electronic storage devices have been permanently deleted. Provided, however, the Executive may retain copies of documents relating to any employee benefit plans applicable to the Executive and income records to the extent necessary for the Executive to prepare the Executive’s individual tax returns.
11.     Mitigation . The Executive shall not be required to mitigate the amount of any payment the Company becomes obligated to make to the Executive in connection with this Agreement, by seeking other employment or otherwise. Except as specifically provided above with respect to the health care continuation benefit, the amount of any payment provided for in Section 8 shall not be reduced, offset or subject to recovery by the Company by reason of any compensation earned by the Executive as the result of employment by another employer after the Date of Termination, or otherwise.

16


12.     Withholding of Taxes . The Company shall withhold from any amounts or benefits payable under this Agreement all federal, state, city or other taxes that the Company is required to withhold under any applicable law, regulation or ruling.

13.     Modification and Severability . The terms of this Agreement shall be presumed to be enforceable, and any reading causing unenforceability shall yield to a construction permitting enforcement. If any single covenant or provision in this Agreement shall be found unenforceable, it shall be severed and the remaining covenants and provisions enforced in accordance with the tenor of the Agreement. In the event a court should determine not to enforce a covenant as written due to overbreadth, the parties specifically agree that said covenant shall be enforced to the maximum extent reasonable, whether said revisions be in time, territory, scope of prohibited activities, or other respects.
14.     Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Georgia.
15.     Remedies and Forum . The parties agree that they will not file any action arising out of this Agreement other than in the United States District Court for the Northern District of Georgia or the State or Superior Courts of Cobb County, Georgia. Notwithstanding the pendency of any proceeding, either party shall be entitled to injunctive relief in a state or federal court located in Cobb County, Georgia upon a showing of irreparable injury. The parties consent to personal jurisdiction and venue solely within these forums and solely in Cobb County, Georgia and waive all otherwise possible objections thereto. The prevailing party shall be entitled to recover its costs and attorney’s fees from the non-prevailing party(ies) in any such proceeding no later than 90 days following the settlement or final resolution of any such proceeding. The existence of any claim or cause of action by the Executive against the Company or the Company’s subsidiaries, including any dispute relating to the termination of this Agreement, shall not constitute a defense to enforcement of said covenants by injunction.
16.     Notices . All written notices required by this Agreement shall be deemed given when delivered personally or sent by registered or certified mail, return receipt requested, or by a nationally-recognized overnight delivery service to the parties at their addresses set forth on the signature page of this Agreement. Each party may, from time to time, designate a different address to which notices should be sent.
17.     Amendment . This Agreement may not be varied, altered, modified or in any way amended except by an instrument in writing executed by the parties hereto or their legal representatives.
18.     Binding Effect . This Agreement shall be binding on the Executive and the Company and their respective successors and assigns effective on the Effective Date. Executive consents to any assignment of this Agreement by the Company, so long as the Company will require any successor to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. If the Executive dies before receiving all payments due under this Agreement, unless expressly otherwise provided hereunder

17


or in a separate plan, program, arrangement or agreement, any remaining payments due after the Executive’s death shall be made to the Executive’s beneficiary designated in writing (provided such writing is executed and dated by the Executive and delivered to the Company in a form acceptable to the Company prior to the Executive’s death) and surviving the Executive or, if none, to the Executive’s estate.
19.     No Construction Against Any Party . This Agreement is the product of informed negotiations between the Executive and the Company. If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties. The Executive and the Company agree that none of the parties were in a superior bargaining position regarding the substantive terms of this Agreement.
20.     Deferred Compensation Omnibus Provision . Notwithstanding any other provision of this Agreement, it is intended that any payment or benefit which is provided pursuant to or in connection with this Agreement which is considered to be deferred compensation subject to Section 409A of the Code shall be provided and paid in a manner, and at such time, including without limitation payment and provision of benefits only in connection with the occurrence of a permissible payment event contained in Section 409A (e.g. separation from service from the Company and its affiliates as defined for purposes of Section 409A of the Code), and in such form, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for non‑compliance. Notwithstanding any other provision of this Agreement, the Company’s Compensation Committee or Board of Directors is authorized to amend this Agreement, to amend or void any election made by the Executive under this Agreement and/or to delay the payment of any monies and/or provision of any benefits in such manner as may be determined by it to be necessary or appropriate to comply, or to evidence or further evidence required compliance, with Section 409A of the Code (including any transition or grandfather rules thereunder). For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code. If the Executive is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of Executive’s employment or, if earlier, Executive’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”). In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise scheduled. In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Executive’s expense, with the Executive having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled. For purposes of this Agreement, termination of employment shall mean a “separation from service” within the meaning of Section 409A of the Code where it is reasonably anticipated that no further services would be performed after such date or that the level of bona fide services Executive would perform after that date (whether as an employee or independent contractor) would

18


permanently decrease to no more than 20 percent of the average level of bona fide services performed over the immediately preceding 36-month period (or, if lesser, Executive’s period of service).
21.     Mandatory Reduction of Payments in Certain Events . Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “Payment”) would be subject to the excise tax (the “Excise Tax”) imposed by Section 4999 of the Code, then, prior to the making of any Payment to Executive, a calculation shall be made comparing (i) the net benefit to Executive of the Payment after payment of the Excise Tax to (ii) the net benefit to Executive if the Payment had been limited to the extent necessary to avoid being subject to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payment shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). In that event, cash payments shall be modified or reduced first and then any other benefits. The determination of whether an Excise Tax would be imposed, the amount of such Excise Tax, and the calculation of the amounts referred to in clauses (i) and (ii) of the foregoing sentence shall be made by an independent accounting firm selected by Company and reasonably acceptable to the Executive, at the Company’s expense (the “Accounting Firm”), and the Accounting Firm shall provide detailed supporting calculations. Any determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Payments which Executive was entitled to, but did not receive pursuant to this Section 21, could have been made without the imposition of the Excise Tax (“Underpayment”). In such event, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.
22.     Entire Agreement . Except as provided in the next sentence, this Agreement constitutes the entire agreement of the parties with respect to the matters addressed herein and it supersedes all other prior agreements and understandings, both written and oral, express or implied, with respect to the subject matter of this Agreement. It is further specifically agreed and acknowledged that, except as provided herein, the Executive shall not be entitled to severance payments or benefits under any severance or similar plan, program, arrangement or agreement of or with the Company for any termination of employment occurring while this Agreement is in effect.


[Signatures are on the following page.]

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IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first written herein.
PRGX GLOBAL, INC.

By: /s/ Victor A. Allums    
Its: Senior Vice President and General Counsel
600 Galleria Parkway
Suite 100
Atlanta, Georgia 30339
Attn: General Counsel


EXECUTIVE

/s/ Daryl T. Rolley    
Daryl T. Rolley
461 Pine Tree Drive NE
Atlanta, Georgia 30305























20

            

EXHIBIT A

RESTRICTED TERRITORY

“Restricted Territory” refers to all of the geographic areas described in I. and II. below, collectively.

I.    All of the following Metropolitan Statistical Areas in the U.S., collectively:

Akron, OH
Atlanta-Sandy Springs-Roswell, GA
Austin-Round Rock, TX
Boise City, ID
Charlotte-Concord-Gastonia, NC-SC
Chicago-Naperville-Elgin, IL-IN-WI
Cincinnati, OH-KY-IN
Dallas-Fort Worth-Arlington, TX
Danville, IL
Davenport-Moline-Rock Island, IA-IL
Fayetteville-Springdale-Rogers, AR-MO
Grand Rapids-Wyoming, MI
Harrisburg-Carlisle, PA
Houston-The Woodlands-Sugar Land, TX
Indianapolis-Carmel-Anderson, IN
Jacksonville, FL
Killeen-Temple, TX
Miami-Fort Lauderdale-West Palm Beach, FL
Milwaukee-Waukesha-West Allis, WI
Minneapolis-St. Paul-Bloomington, MN-WI
Modesto, CA
Nashville-Davidson--Murfreesboro--Franklin, TN
New York-Newark-Jersey City, NY-NJ-PA
Phoenix-Mesa-Scottsdale, AZ
San Francisco-Oakland-Hayward, CA
San Jose-Sunnyvale-Santa Clara, CA
Seattle-Tacoma-Bellevue, WA
St. Louis, MO-IL
York-Hanover, PA

II.    All of the area within the city limits of the following cities and within 25 kilometers of the city limits of the following cities, collectively:

Bangkok, Thailand
Boulogne-Billancourt, France
Brampton, Ontario, Canada
Brno, Czech Republic
Cheshunt, United Kingdom
Croix, Nord-Pas-de-Calais, France
Hampshire, United Kingdom
Hemel Hempstead, United Kingdom
Laval, Quebec, Canada

A – 1 of 2

Letchworth Garden City, United Kingdom
Levallois-Perret, France
London, United Kingdom
Luton, United Kingdom
Manchester, United Kingdom
Hawthorn East, Victoria, Australia
Mexico City, Mexico
Milton Keynes, United Kingdom
Mississauga, Ontario, Canada
Montreal, Quebec, Canada
Perth, Western Australia, Australia
Pune, India
Pymble, New South Wales, Australia
Rungis, France
Sao Paulo, Brazil
Saskatoon, Saskatchewan, Canada
Stellarton, Nova Scotia, Canada
Surrey, United Kingdom
Sydney, New South Wales, Australia
Toronto, Ontario, Canada
Worksop, United Kingdom




A – 2 of 2




EXHIBIT 31.1
CERTIFICATION
I, Ronald E. Stewart, certify that:
1. I have reviewed this Form 10-Q 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 the statements 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 the financial 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 Exchange Act 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 and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 recent fiscal 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, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 reasonably likely 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 control over financial reporting.
 
 
 
 
 
 
 
 
August 8, 2017
 
 
 
By:
 
/s/ Ronald E. Stewart
 
 
 
 
 
 
Ronald E. Stewart
 
 
 
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)





EXHIBIT 31.2
CERTIFICATION
I, Peter Limeri, certify that:
1. I have reviewed this Form 10-Q 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 the statements 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 the financial 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 Exchange Act 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 and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and
(b) Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness 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 recent fiscal 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, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’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 reasonably likely 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 control over financial reporting.
 
 
 
 
 
 
 
 
August 8, 2017
 
 
 
By:
 
/s/ Peter Limeri
 
 
 
 
 
 
Peter Limeri
 
 
 
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)





EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PRGX Global, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Stewart, President and Chief Executive Officer of the Company and I, Peter Limeri, Chief Financial Officer and Treasurer, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best 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) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
 
 
 
 
 
 
August 8, 2017
 
 
 
By:
 
/s/ Ronald E. Stewart
 
 
 
 
 
 
Ronald E. Stewart
 
 
 
 
 
 
President, Chief Executive Officer, Director
(Principal Executive Officer)
 
 
 
 
August 8, 2017
 
 
 
By:
 
/s/ Peter Limeri
 
 
 
 
 
 
Peter Limeri
 
 
 
 
 
 
Chief Financial Officer and Treasurer
(Principal Financial Officer)