SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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/ / Preliminary Proxy Statement
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Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
NCO Group
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(Name of Registrant as Specified in Its Charter)
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NCO GROUP, INC.
1740 Walton Road
Blue Bell, PA 19422-0987
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on June 23, 1997
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To the Shareholders of NCO Group, Inc.:
The 1997 Annual Meeting of Shareholders of NCO Group, Inc. ( "NCO" or
the "Company") will be held on Monday, June 23, 1997, at 1:00 p.m., prevailing
time, at the Philadelphia Marriott West, 111 Crawford Avenue, Conshohocken,
Pennsylvania, for the purpose of considering and acting upon the following:
1. To elect one Class I director to hold office for a term of three
years and until his successor is duly elected and qualified, as more fully
described in the accompanying Proxy Statement;
2. To approve an amendment to the 1996 Stock Option Plan (the "1996
Plan") and to ratify the award of certain option grants, as more fully described
in the accompanying Proxy Statement; and
3. To approve amendments to the 1996 Non-Employee Director Stock Option
Plan (the "Director Plan") and to ratify the award of certain option grants, as
more fully described in the accompanying Proxy Statement; and
4. To transact such other business as may properly come before the
Annual Meeting.
Only shareholders of record at the close of business on May 16, 1997,
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
or postponement thereof.
If the Annual Meeting is adjourned for one or more periods aggregating
at least 15 days because of the absence of a quorum, those shareholders entitled
to vote who attend the reconvened Annual Meeting, if less than a quorum as
determined under applicable law, shall nevertheless constitute a quorum for the
purpose of acting upon any matter set forth in this Notice of Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
MICHAEL J. BARRIST
President and Chief Executive Officer
Blue Bell, Pennsylvania
May 23, 1997
NCO GROUP, INC.
1740 Walton Road
Blue Bell, Pennsylvania 19422-0987
(610) 832-1440
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
-----------------------------------------
The accompanying proxy is solicited by the Board of Directors of NCO
Group, Inc. ("NCO" or the "Company") for use at the 1997 Annual Meeting of
Shareholders (the "Meeting") to be held on Monday, June 23, 1997 at 1:00 p.m.,
prevailing time, at the Philadelphia Marriott West, 111 Crawford Avenue,
Conshohocken, Pennsylvania, and any adjournments or postponements thereof. This
Proxy Statement and accompanying proxy card are first being mailed to
shareholders on or about May 23, 1997.
The cost of this solicitation will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or teletype by officers, directors or employees of the Company,
without additional compensation. Upon request, the Company will pay the
reasonable expenses incurred by record holders of the Company's Common Stock who
are brokers, dealers, banks or voting trustees, or their nominees, for mailing
proxy material and annual shareholder reports to the beneficial owners of the
shares they hold of record.
Only shareholders of record, as shown on the transfer books of the
Company, at the close of business on May 16, 1997 (the "Record Date"), are
entitled to notice of, and to vote at, the Meeting or any adjournment or
postponement thereof. On the Record Date, there were 7,058,625 shares of Common
Stock outstanding.
Proxies in the form enclosed, if properly executed and received in time
for voting, and not revoked, will be voted as directed on the proxies. If no
directions to the contrary are indicated, the persons named in the enclosed
proxy will vote all shares of Common Stock "for" the election of the nominee for
director hereinafter named and "for" the approval of the Proposals 2 and 3, as
more fully described herein. Sending in a signed proxy will not affect a
shareholder's right to attend the Meeting and vote in person since the proxy is
revocable. Any shareholder who submits a proxy has the power to revoke it by,
among other methods, giving written notice to the Secretary of the Company at
any time before the proxy is voted.
The presence, in person or represented by proxy, of the holders of a
majority of the outstanding shares of Common Stock will constitute a quorum for
the transaction of business at the Meeting. All shares of the Company's Common
Stock present in person or represented by proxy and entitled to vote at the
Meeting, no matter how they are voted or whether they abstain from voting, will
be counted in determining the presence of a quorum. If the Meeting is adjourned
because of the absence of a quorum, those shareholders entitled to vote who
attend the adjourned Meeting, although constituting less than a quorum as
provided herein, shall nevertheless constitute a quorum for the purpose of
electing directors. If the Meeting is adjourned for one or more periods
aggregating at least 15 days because of the absence of a quorum, those
shareholders entitled to vote who attend the reconvened Meeting, if less than a
quorum as determined under applicable law, shall nevertheless constitute a
quorum for the purpose of acting upon any matter set forth in the Notice of
Annual Meeting.
Each share of Common Stock is entitled to one vote on each matter which
may be brought before the Meeting. The election of directors will be determined
by a plurality vote and the nominee receiving the most "for" votes will be
elected. Approval of any other proposal will require the affirmative vote of a
majority of the shares cast on the proposal. Under the Pennsylvania Business
Corporation Law, an abstention, withholding of authority to vote or broker
non-vote, will not have the same legal effect as an "against" vote and will not
be counted in determining whether the proposal has received the required
shareholder vote. However, for purposes of compliance with the shareholder
approval condition of Rule 16b-3 of the Securities Exchange Act of 1934
applicable to the ratification of stock option grants described in Proposal 2
and Proposal 3, an abstention, withholding of authority to vote or broker
non-vote may have the effect of an "against" vote and may be counted in
determining whether the proposal has received the required shareholder vote.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors shall consist
of not fewer than three nor more than seven directors, with the exact number
fixed by the Board of Directors.
Following completion of the Company's initial public offering in the
fourth quarter of 1996, the Board of Directors was reorganized by increasing the
number of directors from three to five, appointing Eric S. Siegel and Allen F.
Wise as outside directors to fill the vacancies created by the increase and
dividing the Board into three classes. Class I consists of Mr. Michael J.
Barrist, whose term will expire at the 1997 Annual Meeting of Shareholders;
Class II consists of Messrs. Bernard R. Miller and Allen F. Wise, whose terms
will expire at the 1998 Annual Meeting of Shareholders; and Class III consists
of Messrs. Charles C. Piola and Eric S. Siegel, whose terms will expire at the
1999 Annual Meeting of Shareholders. Beginning with the 1997 Annual Meeting of
Shareholders, directors whose terms are expiring will be elected by the
shareholders to serve for three year terms.
At the Meeting, shareholders will elect one Class I director to serve
for a term of three years and until his successor is elected and qualified.
Unless directed otherwise, the persons named in the enclosed proxy intend to
vote such proxy "for" the election of the listed nominee or, in the event of
inability of the nominee to serve for any reason, for the election of such other
person as the Board of Directors may designate to fill the vacancy. The Board
has no reason to believe that the nominee will not be a candidate or will be
unable to serve.
The following table sets forth information, as of the Record Date,
concerning the Company's directors and the nominee for election to the Board of
Directors. The director nominee, Michael J. Barrist, was nominated by the Board
of Directors and currently serves as director. The nominee has consented to
being named in the Proxy Statement and to serve if elected.
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Director Term
Name Age Position Since Expires
- ------------------------------ ------- ------------------------------------------- ------------- -------------
Michael J. Barrist(1)(2) 36 Chairman of the Board, President 1986 1997
and Chief Executive Officer
Charles C. Piola, Jr. 50 Executive Vice President and 1986 1999
Director
Bernard R. Miller 49 Senior Vice President, Development 1996 1998
and Director
Eric S. Siegel(2)(3) 40 Director 1996 1999
Allen F. Wise(2)(3) 54 Director 1996 1998
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(1) Nominee for director.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
The following information about the Company's directors is based, in
part, upon information supplied by such persons.
Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of the Company since purchasing the Company in 1986. Mr.
Barrist was employed by U.S. Healthcare Inc. from 1984 to 1986, most recently as
Vice President of Operations, and was employed by Gross & Company, a certified
public accounting firm, from 1980 through 1984. Mr. Barrist is a certified
public accountant.
Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Sales and Marketing and has served as a director since that time.
Prior to joining NCO, Mr. Piola was the Regional Sales Manager for Trans World
Systems from 1983 to 1986 and IC Systems from 1979 to 1981, both of which were
accounts receivable management companies.
Bernard R. Miller joined the Company as Senior Vice President of
Development in 1994 when NCO acquired B. Richard Miller, Inc. ("BRM"), a
Philadelphia-based accounts receivable management company owned principally by
Mr. Miller. Mr. Miller became a director in 1996. Prior to joining the Company,
Mr. Miller served as President and Chief Executive Officer of BRM since founding
it in 1980.
Eric S. Siegel was appointed to the Board of Directors of the Company
in December 1996. Mr. Siegel has been president of Siegel Management Company, a
management consulting firm, since 1983. Mr. Siegel also is an adjunct faculty
member at the Wharton School of the University of Pennsylvania and is co-author
of The Ernst & Young Business Plan Guide.
Allen F. Wise was appointed to the Board of Directors of the Company in
December 1996. Mr. Wise has been a director and Chief Executive Officer of
Coventry Corporation, a managed care company, since October 1996. Prior thereto,
he was Executive Vice President of United Healthcare Corporation since October
1994, President of Wise Health Systems, a healthcare management company, from
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September 1993 to October 1994, Chief Executive Officer of Keystone Health Plan
and Chief Operating Officer of Independence Blue Cross from September 1991 to
September 1993 and Vice President of US Healthcare, Inc. from April 1985 to
September 1991. Mr. Wise is also a director of Transition Systems Inc.
Board of Directors, Committees and Attendance at Meetings
The Board of Directors held two meetings during 1996. Each director
attended 75% or more of the meetings of the Board and committees of which they
were members during 1996.
The Board of Directors has appointed a Compensation Committee to make
recommendations to the Board of Directors concerning compensation for the
Company's executive officers; review general compensation levels for other
employees as a group; and take such other actions as may be required in
connection with the Company's compensation and incentive plans. During 1996, the
Compensation Committee held one meeting. The Report of the Compensation
Committee begins on page 7 of this Proxy Statement.
The Board of Directors also has appointed an Audit Committee to make
recommendations concerning the engagement of independent public accountants;
review with the independent public accountants the plans for and scope of the
audit, the audit procedures to be utilized and the results of the audit; approve
the professional services provided by the independent public accountants; review
the independence of the independent public accountants; and review the adequacy
and effectiveness of the Company's internal accounting controls. The Audit
Committee did not meet during 1996.
The Board of Directors has not appointed a standing Nominating
Committee.
Director Compensation
Each director of the Company who is not also an employee receives an
annual fee of $5,000 and a fee of $500 for each meeting of the Board or any
committee of the Board attended, plus reimbursement of expenses incurred in
attending meetings.
Pursuant to the Company's Director Plan which was approved by the
shareholders in September of 1996, each person who is not an employee of the
Company is automatically granted an option to purchase 1,000 shares of Common
Stock upon their initial election or appointment to the Board at the fair market
value of the Common Stock on the date of the grant. Immediately after the 1997
Annual Meeting of Shareholders and at each annual meeting of shareholders
thereafter, each individual who is re-elected or continues as a non-employee
director automatically is granted an option to purchase 1,000 shares of Common
Stock at the fair market value of the Common Stock on the date of the grant.
Each of Messrs. Siegel and Wise was granted an option to purchase 1,000 shares
of Common Stock at an exercise price of $18.125 per share upon their appointment
to the Board of Directors in December 1996. The Director Plan authorizes the
issuance of options to purchase an aggregate of 24,258 shares of Common Stock.
The Director Plan was amended in April 1997, subject to shareholder approval, to
(i) provide that each person who was a non-employee director as of the date of
the approval of the amendments by the Board and each person who thereafter is
first elected or appointed to serve as a non-employee director of the Company
automatically would be granted an option to purchase 10,000 shares of Common
stock, (ii) increase the number of shares of Common Stock under options granted
to a person who is re-elected or continues as a non-employee director at each
subsequent annual meeting of shareholders (beginning with this Meeting) from
1,000 shares to 2,000 shares; (iii) increase the number of shares of Common
Stock authorized for issuance under the Director Plan from 24,258 shares of
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Common Stock to 100,000 shares of Common Stock and; (iv) eliminate the
prohibition on any director receiving an option to purchase more than 1,000
shares in any calendar year. As a result of the amendments to the Director Plan,
and subject to shareholder approval, each of Messrs. Siegel and Wise received a
grant of an option to purchase 10,000 shares of Common Stock at an exercise
price of $25.00 per share in April 1997 and will be granted an option to
purchase 2,000 shares immediately following the 1997 Annual Meeting of
Shareholders at the fair market value of the Common Stock on the date of grant.
See "Proposal 3 -- Approval of Amendments to the 1996 Non-Employee Director
Stock Option Plan." All options granted under the Director Plan are exercisable
one year after the date of grant, except that they become immediately
exercisable upon a "change in control" as defined in the Director Plan, and,
unless terminated earlier by the terms of the Director Plan, expire ten years
after the date of grant.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Principal and Selling Shareholders
The following table sets forth as of the Record Date, certain
information regarding the beneficial ownership of the Common Stock by: (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock; (ii) each of the Company's directors and nominee for director;
(iii) each of the executive officers of the Company named in the Summary
Compensation Table; and (iv) the Company's directors, nominee for director and
executive officers as a group. Except as otherwise indicated, to the knowledge
of the Company, the beneficial owners of the Common Stock listed below have sole
investment and voting power with respect to such shares.
Shares Beneficially Owned(1)
---------------------------------------------
Name of Beneficial Owner Number Percent
- ---------------------------------------------------- ---------------------- ------------------
Michael J. Barrist (2)(3) 2,302,650 32.6%
CRW Financial, Inc. (4) 595,178 8.1
Joseph C. McGowan(5) 29,563 *
Bernard R. Miller 191,934 2.7
Charles C. Piola, Jr.(2)(6) 1,062,827 15.1
Eric S. Siegel(7) 5,695 *
Steven L. Winokur (8) 162,689 2.3
Allen F. Wise -- *
All directors and executive officers
as a group (8 persons)(9) 3,755,358 52.8
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*Less than one percent.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Securities and Exchange Commission and,
accordingly, include securities owned by or for the spouse, children or
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certain other relatives of such person as well as other securities as
to which the person has or shares voting or investment power or has the
right to acquire within 60 days after the Record Date. The same shares
may be beneficially owned by more than one person. Beneficial ownership
may be disclaimed as to certain of the securities.
(2) The address of such person is c/o NCO Group, Inc., 1740 Walton Road,
Blue Bell, Pennsylvania 19422-0987.
(3) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Annette
Barrist which Mr. Barrist has the sole right to vote pursuant to an
irrevocable proxy and (ii) 60,192 shares held in trust for the benefit
of members of Mrs. Annette Barrist's family for which Mr. Barrist is a
co-trustee. Excludes 140,518 shares held in trust for the benefit of
Mr. Barrist's child, as to which Mr. Barrist disclaims beneficial
ownership. Mrs. Annette Barrist is the mother of Michael J. Barrist.
(4) Based upon a Schedule 13D, dated February 12, 1997, provided to the
Company by CRW Financial, Inc. Includes 250,000 shares issuable upon
exercise of a warrant. The address of CRW Financial, Inc. is 443 South
Gulph Road, King of Prussia, PA 19406.
(5) Represents shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
(6) Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children, as to which Mr. Piola disclaims beneficial ownership.
(7) Includes 3,695 shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
(8) Includes: (i) 140,518 shares held in trust for the benefit of Mr.
Barrist's child for which Mr. Winokur is a co-trustee; and (ii) 22,171
shares issuable upon the exercise of options which are exercisable
within 60 days after the Record Date.
(9) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Barrist
which Mr. Barrist has the sole right to vote pursuant to an irrevocable
proxy, (ii) 60,192 shares held in trust for the benefit of members of
Mrs. Barrist's family for which Mr. Barrist is a co-trustee, (iii)
140,518 shares held in trust for the benefit of Mr. Barrist's child for
which Mr. Winokur is a co-trustee and (iv) an aggregate of 55,429
shares issuable upon exercise of options which are exercisable within
60 days after the Record Date. Excludes 140,518 shares held in trust
for the benefit of Mr. Piola's children.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than ten percent of a registered class of the Company's Common Stock to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Executive officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
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reports were required, all Section 16(a) filing requirements applicable to the
Company's executive officers, directors and greater than ten percent beneficial
shareholders were complied with during the year ended December 31, 1996 except
that Mr. Miller filed one late report on Form 4.
EXECUTIVE COMPENSATION
Compensation Committee Report
Prior to the completion of the Company's initial public offering in
November 1996, compensation decisions, including decisions with respect to
compensation for 1996, were made by the Board of Directors consisting of Messrs.
Barrist, Piola and Miller. In December 1996, the Board of Directors appointed a
Compensation Committee, consisting of Messrs. Barrist, Siegel and Wise, which
will make compensation decisions in the future concerning the principal
executive officers of the Company except that Mr. Barrist will abstain from
decisions concerning his compensation.
The policies of the Company's compensation program with respect to
executive officers are:
(1) Provide compensation that will attract and retain superior
executive talent;
(2) Support the achievement of the goals contained in the Company's
annual plan by linking a portion of the executive officer's compensation to the
achievement of such goals; and
(3) Enhance shareholder value by the use of stock options to further
align the interests of the executive officers with those of shareholders.
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation, long term incentive
compensation in the form of stock options, and various benefits generally
available to all full-time employees of the Company, including participation in
group medical and life insurance plans and a 401(k) plan. The Company seeks to
be competitive with compensation programs offered by companies of a similar size
within the accounts receivable management industry based on formal and informal
surveys conducted by the Company.
Base Salary. In September 1996, the Company entered into five-year
employment agreements with Messrs. Barrist, Piola, Miller, Winokur and McGowan
pursuant to which they are entitled to receive annual base salaries of $275,000,
$225,000, $150,000, $150,000, and $125,000, respectively, adjusted each year in
accordance with the Consumer Price Index. The Board of Directors believes that
the base salaries established in the employment agreements were competitive with
base salaries offered by similarly situated public companies.
Annual Incentive Compensation. Under the employment agreements, Mr.
Barrist is entitled to receive an annual bonus of $50,000 if the Company reaches
performance goals determined by the Board of Directors. He is also entitled to a
bonus of $100,000 if the Company's net income increases by 20% over the prior
year and a bonus equal to 5% of any increase in net income in excess of 20%, in
each case adjusted for dilution. Mr. Piola is eligible for an annual bonus of
$50,000, $75,000, or $100,000 if the Company's annual increase in net income
(adjusted for dilution) over the prior year exceeds 20%, 30%, or 40%,
respectively. Mr. Miller is entitled to a bonus equal to .00375 of the
annualized revenue resulting from companies acquired during the preceding year,
subject to a maximum bonus of $100,000. Messrs. Winokur and McGowan receive such
annual bonuses as are determined by the Board of Directors.
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Stock Options. The Company uses the 1996 Plan as a long-term incentive
plan for executive officers and key employees. The objectives of the 1996 Plan
are to align the long-term interests of officers, key employees and directors
of, and important consultants to, the Company with the shareholders by creating
a direct link between compensation and shareholder return and to enable such
persons to develop and maintain a significant long-term equity interest in the
Company. The Plan authorizes the Compensation Committee to award stock options
to the Company's officers, key employees, directors and important consultants.
Stock option grants in 1996 were determined by the entire Board of Directors
acting as the Compensation Committee. In general under the 1996 Plan, options
are granted with an exercise price equal to the fair market value of the Common
Stock on the date of grant and are exercisable according to a vesting schedule
determined by the Compensation Committee at the time of grant. Information
concerning option grants to certain executive officers in 1996 is set forth in
the Summary Compensation Table. For information concerning option grants to
executive officers in 1997 in connection with the amendment to the 1996 Plan,
see "Proposal 2 -- Approval of Amendment to the 1996 Stock Option Plan."
Determination of Compensation of Chief Executive Officer. Mr. Barrist's
annual base salary for 1996 was increased to $275,000, effective in November
1996, pursuant to his employment agreement. Prior to that, Mr. Barrist's annual
base salary was $200,000.
Policy with respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, for certain
compensation exceeding $1,000,000 paid during a taxable year to the chief
executive officer and the four other highest paid executive officers, excluding,
among other things, certain performance-based compensation. The Compensation
Committee has considered the impact of Section 162(m) and, based on current
compensation levels of the executive officers of the Company, believes that it
will not have a material adverse effect on the Company in 1997.
Members of the Board of Directors acting as the Compensation Committee
during 1996: Michael J. Barrist, Charles C. Piola, Jr. and Bernard R. Miller.
-8-
Summary Compensation Table
The following table sets forth the Compensation earned by the Chief
Executive Officer and the four next most highly compensated executive officers
of the Company whose aggregate salaries and bonuses exceeded $100,000 for
services rendered in all capacities to the Company during 1996.
Long-Term
Compensation
Awards (1)
-----------------
Annual Compensation Securities
Name and ----------------------------- Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation($)(2)
- ------------------------------------ ---------- ------------- ----------- ----------------- ----------------------
Michael J. Barrist 1996 208,653 53,862(3) -- 5,957
Chairman of the Board, President 1995 200,000 242,641 -- 5,993
and Chief Executive Officer
Charles C. Piola, Jr. 1996 202,884 33,333(3) -- 16,413
Executive Vice President and 1995 200,000 135,714 -- 15,835
Director
Bernard R. Miller 1996 136,730 26,448(3) 50,000 7,926
Senior Vice President, Development 1995 130,000 21,645 -- 5,955
and Director
Steven L. Winokur, 1996 149,422 35,000 31,201 --
Vice President, Finance and Chief 1995 -- -- 33,257 --
Financial Officer
Joseph C. McGowan 1996 117,000 18,000 41,600 3,664
Vice President, Operations(4) 1995 100,000 30,000 44,344 5,088
- -------------------
(1) The Company did not grant any restricted stock awards or stock
appreciation rights during 1996.
(2) For 1996, consists of premiums for disability policies paid by the
Company of $3,582, $14,038, $6,217, $-0-, and $1,989 and the Company
matching contribution under the 401(k) Profit Sharing Plan of $2,375,
$2,375, $1,709, $-0- and $1,675 for the benefit of Messrs. Barrist,
Piola, Miller, Winokur and McGowan, respectively.
(3) These bonus amounts represent the bonuses earned by the respective
officers from September 3, 1996, the date of the Company's termination
of its status as an S Corporation under the Internal Revenue Code of
1986, as amended, until December 31, 1996. No bonus was paid to these
executive officers (who were also shareholders) for the period while
the Corporation was an S Corporation in 1996. The total bonus amounts
for 1996 for Mr. Barrist, Mr. Piola and Mr. Miller would have been
$161,587, $100,000 and $79,343, respectively.
(4) Mr. McGowan became Co-Chief Operating Officer in 1997.
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Option Grants in 1996
The following table sets forth certain information concerning stock
options granted during 1996 to each of the executive officers of the Company
named in the Summary Compensation Table.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
----------------------------------------------------------- -----------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
---- --------- ------------- ------- ----------- -- ---
Michael J. Barrist -- -- -- -- -- --
Charles C. Piola, Jr. -- -- -- -- -- --
Bernard R. Miller 50,000(2) 17.1% $ 17.00 12/18/06 $534,560 $1,354,681
Steven L. Winokur 31,201(3) 10.6% 13.00 10/17/06 255,088 646,443
Joseph C. McGowan 41,600(3) 14.2% 13.00 10/17/06 340,106 861,896
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(1) Represents the difference between the market value of the Common Stock
for which the option may be exercised, assuming that the market value
of the Common Stock on the date of grant appreciates in value to the
end of the ten-year option term at annualized rates of 5% and 10%,
respectively, and the exercise price of the option. The rates of
appreciation used in this table are prescribed by regulation of the SEC
and are not intended to forecast future appreciation of the market
value of the Common Stock.
(2) These options were granted on 12/18/96 at the fair market value of the
Common Stock on the date of grant and become exercisable in three equal
annual installments beginning one year after the date of grant.
(3) The options were granted on 10/17/96 at the initial public offering
price of the Common Stock and become exercisable in three equal annual
installments beginning one year after the date of grant.
-10-
Aggregated Option Exercises in 1996 and 1996 Year-End Option Values
No stock options were exercised in 1996. The following table sets forth
certain information concerning the number of unexercised options and the value
of unexercised options at December 31, 1996 held by each of the executive
officers of the Company named in the Summary Compensation Table.
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares Acquired Value December 31, 1996 December 31, 1996(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ---------------- -------- -------------------------------- -------------------------
Michael J. Barrist -- -- --/-- --/--
Charles C. Piola, Jr. -- -- --/-- --/--
Bernard R. Miller -- -- --/50,000 --/$0
Steven L. Winokur -- -- 11,086/53,373 $156,811/$434,513
Joseph C. McGowan -- -- 14,781/71,163 $209,077/$579,369
- --------------
(1) Represents the difference between the last sale price of the Common
Stock on December 31, 1996 ($16.875 per share), as reported on the
Nasdaq National Market, and the exercise price of in-the-money options,
multiplied by the number of exercisable or unexercisable options held,
as the case may be.
Employment Agreements
In September 1996, the Company entered into five-year employment
agreements with Messrs. Barrist, Piola, Miller, Winokur and McGowan pursuant to
which they are entitled to receive annual base salaries of $275,000, $225,000,
$150,000, $150,000, and $125,000, respectively, adjusted each year in accordance
with the Consumer Price Index. Mr. Barrist is entitled to receive an annual
bonus of $50,000 if the Company reaches performance goals determined by the
Board of Directors. He is also entitled to a bonus of $100,000 if the Company's
net income increases by 20% over the prior year and a bonus equal to 5% of any
increase in net income in excess of 20%, in each case adjusted for dilution. Mr.
Piola is eligible for an annual bonus of $50,000, $75,000, or $100,000 if the
Company's annual increase in net income (adjusted for dilution) over the prior
year exceeds 20%, 30%, or 40%, respectively. Mr. Miller is entitled to a bonus
equal to .00375 of the annualized revenue resulting from companies acquired
during the preceding year, subject to a maximum bonus of $100,000. Messrs.
Winokur and McGowan receive such annual bonuses as are determined by the Board
of Directors.
Each of the employment agreements provides that, in the event of the
death of the employee or the termination of employment by the Company other than
"for cause" (as defined in the agreements), the Company shall continue to pay
the employee's full compensation, including bonuses, for the balance of the
employment term. In addition to a non-disclosure covenant, each employee
agreement also contains a covenant-not-to compete with the Company for a period
of two years following the date that the Company ceases to pay the employee any
compensation pursuant to the terms of the agreement.
-11-
Stock Option Plans
In June 1995, the Company adopted, and the shareholders approved, the
Company's 1995 Stock Option Plan (the "1995 Plan"). In September 1996, the
Company adopted, and the shareholders approved, the 1996 Stock Option Plan (the
"1996 Plan") and the 1996 Non-Employee Director Stock Option Plan (the "Director
Plan" and collectively with the 1995 Plan and the 1996 Plan, the "Plans"). The
1996 Plan was amended by the Board in January 1997 (See Proposal 2) and the
Director Plan was amended by the Board in April 1997 (See Proposal 3), in each
case subject to shareholder approval. The purpose of the Plans is to attract and
retain employees, non-employee directors, and independent consultants and
contractors and to provide additional incentive to them by encouraging them to
invest in the Common Stock and acquire an increased personal interest in the
Company's business. Payment of the exercise price for options granted under the
Plans may be made in cash, shares of Common Stock or a combination of both. All
options granted pursuant to the Plans are exercisable in accordance with a
vesting schedule which is set at the time of the issuance of the option and,
except as indicated below, may not be exercised more than ten years from the
date of grant. Options granted under the Plans will become immediately
exercisable upon a "change in control" as defined in the Plans.
1995 Plan and 1996 Plan. All officers, directors, key employees,
independent contractors and independent consultants of the Company or any of its
current or future parents or subsidiaries are eligible to receive options under
the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors or, at the option of the Board
of Directors, the Board may administer the Plans. The Committee will select the
optionees and will determine the nature of the option granted, the number of
shares subject to each option, the option vesting schedule and other terms and
conditions of each option. The Board of Directors may modify or supplement these
Plans and outstanding options and may suspend or terminate these Plans, provided
that such action may not adversely affect outstanding options.
The Company has reserved 221,719 shares of Common Stock for issuance
upon the exercise of options granted under the 1995 Plan and 478,281 shares of
Common Stock for issuance upon the exercise of options granted under the 1996
Plan, which includes 259,868 shares subject to shareholder approval in
connection with the amendment of the 1996 Plan. Options to purchase an aggregate
of 566,321 shares of Common Stock have been issued under the 1995 Plan and the
1996 Plan, including options to purchase 126,189 shares subject to shareholder
approval in connection with the amendment of the 1996 Plan. Options granted
under these Plans may be incentive stock options intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options not intended to so qualify. These Plans require the exercise price of
incentive stock options to be at least equal to the fair market value of the
Common Stock on the date of the grant. In the case of options granted to a
shareholder owning, directly or indirectly, in excess of 10% of the Common
Stock, the option exercise price must be at least equal to 110% of the fair
market value of the Common Stock on the date of grant and such option may not be
exercised more than five years from the date of grant. The option price for
non-qualified options, at the discretion of the Compensation Committee, may be
less than the fair market value of the Common Stock on the date of grant.
All unexercised options terminate three months following the date on
which an optionee's employment by, or relationship with, the Company or any
parent or subsidiary of the Company, terminates other than by reason of
disability or death (but not later than the expiration date) whether or not such
termination is voluntary. Any option held by an employee who dies or who ceases
to be employed because of disability must be exercised by the employee or his
representative within one year after the employee dies or ceases to be an
employee (but not later than the scheduled termination date). Options are not
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transferable except to the decedent's estate in the event of death. No
additional options may be granted under the 1995 Plan and no option may be
granted under the 1996 Plan after August 2006. No individual may receive options
under the 1995 Plan or the 1996 Plan for more than 90% of the total number of
shares of the Company's Common Stock authorized for issuance under such Plans.
Director Plan. All non-employee directors automatically receive options
under the Director Plan. The Director Plan is administered by the Board of
Directors of the Company, including non-employee directors, who may modify,
amend, suspend or terminate the plan, other than the number of shares with
respect to which options are to be granted, the option exercise price, the class
of persons eligible to participate, or options previously granted.
The Company has reserved 100,000 shares of Common Stock for issuance
upon the exercise of options under the Director Plan, which includes 75,742
shares subject to shareholder approval in connection with the amendment of the
Director Plan. Options granted under the Director Plan are not incentive stock
options under Section 422 of the Code. Each person who is first elected or
appointed to serve as a non-employee director of the Company is automatically
granted options to purchase 1,000 shares of Common Stock at the fair market
value of the Common Stock on the date of the grant. Immediately after the
Company's 1997 annual meeting of shareholders and at each annual meeting of
shareholders thereafter, each individual who is re-elected or continues as a
non-employee director automatically is granted an option to purchase 1,000
shares of Common Stock at the fair market value of the Common Stock on the date
of the grant. Each of Messrs. Siegel and Wise was granted an option to purchase
1,000 shares of Common Stock at an exercise price of $18.125 per share upon
their appointment to the Board of Directors in December 1996. As amended, each
person who was a non-employee director as of the date of the approval of the
amendments by the Board and each person who thereafter is first elected or
appointed to serve as a non-employee director of the Company automatically would
be granted an option to purchase 10,000 shares of Common Stock and automatically
would be granted an option to purchase 2,000 shares of Common Stock at each
annual meeting of shareholders thereafter (beginning with this Meeting) provided
that such person is re-elected or continues as a non-employee director. As a
result of the amendments to the Director Plan, and subject to shareholder
approval, each of Messrs. Siegel and Wise received a grant of an option to
purchase 10,000 shares of Common Stock in April 1997 at an exercise price of
$25.00 per share and will be granted an option to purchase 2,000 shares
immediately following the 1997 Annual Meeting of Shareholders at the fair market
value of the Common Stock on the date of grant.
Stock Performance Graph
The following graph shows a comparison of the cumulative total return
for the Company's Common Stock, the Nasdaq Stock Market and the NCO Composite
Index (defined below), assuming an investment of $100 in each on November 6,
1996, the date that the Company's Common Stock was first registered under the
Securities Exchange Act of 1934, and, in the case of the Indexes, the
reinvestment of all dividends.
The NCO Composite Index reflects the performance of the following
publicly traded companies in industries similar to that of the Company: The
Union Corporation, FCA International Ltd., APAC Teleservices, Inc., Precision
Response Corporation, TeleTech Holdings, Inc., Telespectrum Worldwide, Inc.,
Sitel Corporation, ACT Communication Group, Inc., ICT Group, RMH Teleservices,
Inc. and Sykes Enterprises, Inc.
The beginning and end data points used for the performance graph are
listed below.
-13-
150 |--------------------------------|
| * |
| |
100 |-----*#&-------------#----------|
| & |
| |
50 |--------------------------------|
| |
| |
0 |--------------------------------|
11/6/96 12/31/96
Performance Graph Data Points 11/6/96 12/31/96
- ----------------------------------------- ---------------- ----------------
NCO Group, Inc. * 100 130
Nasdaq # 100 104
NCO Composite Index & 100 85
CERTAIN TRANSACTIONS
Compensation Committee Interlocks and Insider Participation
Prior to the completion of the Company's initial public offering in
November 1996, the Company did not have a Compensation Committee and
compensation decisions were made by the Board of Directors, consisting of
Messrs. Barrist, Piola and Miller, each of whom is also an executive officer of
the Company. In December, the Board appointed Messrs. Siegel and Wise to the
Board and established a Compensation Committee consisting of Messrs. Barrist,
Siegel and Wise. Certain transactions between the Company and the foregoing
persons are described below.
Real Estate Matters
The Company currently leases four facilities in Blue Bell,
Pennsylvania. These facilities are leased from limited partnerships, in each
case the general partner of which is a corporation with Mr. Barrist as the sole
shareholder and the limited partners of which are Messrs. Barrist, Piola, Miller
and Mr. Barrist's mother, except that, in certain partnerships, an unaffiliated
person is also a limited partner. Under the facilities leases, the Company paid
the limited partnerships owned by the persons named above approximately $489,926
for the year ended December 31, 1996. At one of the facilities, the Company has
sublet the space to an affiliate of the limited partnership owning the facility
for a monthly rent of $1,454, which is equal to the monthly rent paid by the
Company.
-14-
The Company made interest-free advances to the limited partnerships for
the purpose of making improvements to these facilities. The largest aggregate
amount of indebtedness outstanding during 1996 was $249,820 which was repaid in
June 1996.
In July 1997, the Company will terminate its leases of the Blue Bell
facilities and will relocate such offices to a 82,000 square foot facility
located in Ft. Washington, Pennsylvania leased from a limited partnership of
which J. Brian O'Neill is a partner. Mr. O'Neill is a principal shareholder, and
the Chairman of the Board and Chief Executive Officer, of CRW Financial, Inc.,
which owns 8.1% of the Company's Common Stock. The lease term is 12 years
beginning on July 1, 1997. The annual rental for the first five years of the
lease is $1,107,000 and the Company is responsible for the payment of operating
expenses, taxes and insurance.
The Company believes that the terms of the leases described above are
no less favorable to the Company than would have been obtained from unaffiliated
parties.
S Corporation Distributions
On September 3, 1996 (the "Termination Date"), the Company terminated
its status as an S Corporation. In connection therewith, the Company declared a
distribution to the then existing shareholders in an amount equal to the
Company's undistributed S Corporation earnings as of such date, and paid such
distributions with a portion of the proceeds of its initial public offering,
including distributions of $1,815,042, $1,015,193 and $170,508 to Messrs.
Barrist, Piola and Miller, respectively.
Distribution and Tax Indemnification Agreement
In 1996, the Company entered into a distribution and tax
indemnification agreement with its shareholders as of the Termination Date which
provided for: (i) the payment of the estimated S Corporation distribution
described above, (ii) the adjustment of the S Corporation distributions based on
the final determination of the Company's actual undistributed S Corporation
earnings through the Termination Date, (iii) an indemnification by the Company
of such shareholders for any losses or liabilities with respect to any
additional taxes (including interest, penalties, legal and accounting fees and
any additional taxes resulting from any indemnification) resulting from the
Company's operations during the period in which it was an S Corporation (the "S
Corporation Period") and (iv) an indemnification by such shareholders of the
Company for the amount of any tax refund received by such shareholders due to a
reduction in their share of the Company's S Corporation taxable income for the S
Corporation Period less any taxes, interest or penalties imposed by any tax
authority on any distributions to such shareholders with respect to the S
Corporation Period in excess of such shareholder's share of taxable income of
the Company for the S Corporation Period.
Loan to Bernard R. Miller
In 1995, the Company loaned $135,888 to Bernard R. Miller, Senior Vice
President of Development, at an interest rate of 7.0% per year to enable him to
exercise an option to purchase 86,881 shares of Common Stock, which option was
issued to him in connection with the acquisition of BRM, a company which was
principally owned by Mr. Miller. This loan was repaid in May 1996.
-15-
Professional Services
The Company paid consulting fees of $40,000 to Siegel Management
Company in 1996. The Company also paid a fee to Siegel Management Company of
$240,000 after the consummation of its initial public offering in November, 1996
for various consulting and advisory services rendered to the Company in
connection with such public offering. Eric S. Siegel is a director of the
Company and is the President and owner of Siegel Management Company. In
connection with such consulting services, in 1996 Mr. Siegel also received
options to purchase 11,086 shares of Common Stock under the Company's 1995 Stock
Option Plan at an exercise price of $13.00 per share.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1996 STOCK OPTION PLAN
In January 1997, the Board of Directors approved an amendment (the
"Amendment") to the Company's 1996 Stock Option Plan (the "1996 Plan") to
increase the number of shares of Common Stock authorized for issuance under the
Plan from 218,413 shares to 478,281 shares. The 1996 Plan is discussed in
"EXECUTIVE COMPENSATION - Stock Option Plans". Under the 1996 Plan, of the
218,413 shares of Common Stock authorized under the Plan, only 3,411 shares were
available for future options grants in January 1997. The Amendment increases the
maximum number of shares issuable under the 1996 Plan by 259,868 shares to a
total of 478,281 shares, subject to approval by the shareholders of the Company.
The purpose of the proposed increase is to provide sufficient shares for future
option grants to officers, employees, non-employee directors and independent
consultants and contractors of the Company, particularly in light of the recent
acquisitions effected by the Company and the additional resulting personnel. The
Board of Directors believes that the Company and its shareholders benefit
significantly from having the Company's key personnel receive options to
purchase the Company's Common Stock, and that the opportunity thus afforded such
persons to acquire Common Stock is an essential element of an effective
management incentive program. The Board of Directors also believes that stock
options, particularly incentive stock options, are valuable in attracting and
retaining highly qualified personnel and in providing additional motivation to
such personnel to use their best efforts on behalf of the Company and its
shareholders.
To date, options to purchase 126,189 shares of Common Stock authorized
by the Amendment have been granted in 1997, subject to shareholder approval. For
information concerning grants of the additional options to executive officers of
the Company, see "OPTION GRANTS IN 1997." Approval of the Amendment will also
constitute ratification of the grant of the options to the executive officers
named in that table. Information concerning options granted in 1996 to the
persons named in the Summary Compensation Table is set forth under "EXECUTIVE
COMPENSATION - Option Grants in 1996" above.
A summary of certain federal income tax consequences associated with
the 1996 Plan is set forth in "FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 PLAN
AND THE DIRECTOR PLAN."
There are three reasons for seeking shareholder approval of Proposal 2.
One is to satisfy a Nasdaq Stock Market requirement that requires companies
whose shares are reported on the Nasdaq National Market to obtain shareholder
approval of stock plans for directors, officers or key employees. The second
reason is to satisfy requirements of the Code which require shareholder approval
of the Amendment in order for options granted for the additional shares issuable
under the 1996 Plan to qualify as incentive stock options to the extent so
designated and for the 1996 Plan to satisfy one of the conditions of Section
-16-
162(m) applicable to performance-based compensation. The final reason is to
satisfy a condition of Rule 16b-3 under the Securities Exchange Act of 1934 (the
"Exchange Act") which provides an exemption from the provisions of Section 16(b)
of the Exchange Act regarding "short-swing" profits if, among other reasons, an
award of options is ratified by the shareholders at the next annual meeting of
shareholders.
If the shareholders do not approve Proposal 2, then the maximum number
of shares issuable under the Plan will remain at 218,413 shares and all grants
of options to purchase Common Stock authorized by Proposal 2 shall be null and
void.
The Board of Directors recommends that you vote "FOR" approval of
Proposal 2.
PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
In April 1997, the Board of Directors approved amendments (the
"Amendments") to the Company's 1996 Non-Employee Director Stock Option Plan 1996
(the "Director Plan") to: (i) provide that each person who was a non-employee
director as of the date of the approval of the Amendments by the Board and each
person who thereafter is first elected or appointed to serve as a non-employee
director of the Company automatically would be granted an option to purchase
10,000 shares of Common Stock, (ii) increase the number of shares of Common
Stock under options granted to a person who is re-elected or continues as a
non-employee director at each subsequent annual meeting of shareholders
(beginning with this Meeting) from 1,000 shares to 2,000 shares; (iii) increase
the number of shares of Common Stock authorized for issuance under the Director
Plan from 24,258 shares of Common Stock to 100,000 shares of Common Stock;
and (iv) eliminate the prohibition on any director receiving an option to
purchase more than 1,000 shares in any calendar year. The Director Plan is
discussed in "EXECUTIVE COMPENSATION - Stock Option Plans". The Board of
Directors, with Messrs. Siegel and Wise abstaining, adopted the Amendments in
April 1997 because they believed that the additional stock options authorized by
the Amendments will be an important aid in attracting, retaining and
compensating non-employee directors of the Company and aligning their interests
with those of the Company's shareholders.
Each of Messrs. Siegel and Wise was granted an option to purchase
1,000 shares of Common Stock at an exercise price of $18.125 per share upon
their appointment to the Board of Directors in December 1996. As a result of the
Amendments of the Director Plan, and subject to shareholder approval, each of
Messrs. Siegel and Wise was granted an option to purchase 10,000 shares of
Common Stock at an exercise price of $25.00 and will be granted an option to
purchase 2,000 shares immediately following the 1997 Annual Meeting of
Shareholders at the fair market value of the Common Stock on the date of grant.
Approval of the Amendments will also constitute ratification of the grant of the
options to Messrs. Siegel and Wise in April 1997 and at the 1997 Annual Meeting
of Shareholders.
A summary of certain federal income tax consequences associated with
the Director Plan is set forth in "FEDERAL INCOME TAX CONSEQUENCES OF THE 1996
PLAN AND THE DIRECTOR PLAN."
There are two reasons for seeking shareholder approval of Proposal 3.
One is to satisfy a Nasdaq Stock Market requirement that requires companies
whose shares are reported on the Nasdaq National Market to obtain shareholder
approval of stock plans for directors, officers or key employees. The other
reason is to satisfy a condition of Rule 16b-3 under the Exchange Act which
-17-
provides an exemption from the provisions of Section 16(b) of the Exchange Act
regarding "short-swing" profits if, among other reasons, an award of options is
ratified by the shareholders at the next annual meeting of shareholders.
If the shareholders do not approve Proposal 3, then the initial and
subsequent grants under the Director Plan will remain at 1,000 shares, the
maximum number of shares issuable under the Director Plan will remain at 24,258
shares and the April 1997 grants to Messrs. Siegel and Wise of options to
purchase 10,000 shares of Common Stock authorized by Proposal 3 shall be null
and void.
The Board of Directors recommends that you vote "FOR" approval of
Proposal 3.
OPTION GRANTS IN 1997
Set forth below is information with respect to options to purchase
Common Stock granted in 1997 pursuant to the amendments to the 1996 Plan and the
Director Plan described above.
Number of Shares Exercise Price
Name and Position Subject to Option Per Share
- --------------------------------------------------------------- ------------------------- ---------------------
Michael J. Barrist 15,000 $25.00
Chairman of the Board, President
and Chief Executive Officer
Charles C. Piola, Jr. 10,000 25.00
Executive Vice President
Bernard R. Miller 10,000 25.00
Senior Vice President
Steven L. Winokur 10,000 25.00
Vice President, Finance and Chief Financial Officer
Joseph C. McGowan 10,000 25.00
Co-Chief Operating Officer
Michael Noah 20,000 25.00
Co-Chief Operating Officer
All current executive officers as a group (6 persons) 75,000 25.00
All current directors who are not 20,000 25.00
executive officers as a group (2 persons)
All employees, including all current officers who are not 51,189(1) 24.76(1)
executive officers, as a group (22 persons)
(1) Does not include options to purchase 3,411 shares which were granted in 1997
which were previously authorized under the 1996 Plan. The exercise price shown
represents the weighted average exercise price.
On May 16, 1997, the last sale price of the Common Stock was $25.25 per
share as reported on the Nasdaq National Market System.
-18-
FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 PLAN AND THE DIRECTOR PLAN
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF THE
FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLANS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"), AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE PROVISIONS OF
THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY AND DO NOT
REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW. EACH PARTICIPANT WHO ACQUIRES
SHARES OF COMMON STOCK UNDER THE PLANS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO HIS OR HER INDIVIDUAL TAX POSITION AND THE EFFECT OF ANY
LEGISLATIVE REVISIONS ON SUCH POSITION.
Options granted under the 1996 Plan may be incentive stock options
("Incentive Options") intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options not intended to so
qualify ("Non-Qualified Options"). Option granted under the Director Plan will
be treated as Non-Qualified Options.
Incentive Stock Options
Generally, under the Code, an optionee will not realize taxable income by
reason of the grant or the exercise of an Incentive Option (see, however,
discussion of Alternative Minimum Tax below). If an optionee exercises an
Incentive Option and does not dispose of the shares until the later of (i) two
years from the date the option was granted and (ii) one year from the date of
exercise, the entire gain, if any, realized upon disposition of such shares will
be taxable to the optionee as long-term capital gain, and the Company will not
be entitled to any deduction. If an optionee disposes of the shares within the
period of two years from the date of grant or one year from the date of exercise
(a "disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and the Company will receive a corresponding
deduction, in an amount equal to the excess of (1) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (2) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges, makes a gift of
or transfers legal title to the share (except transfers, among others, by
pledge, on death or to spouses). If the disposition is by sale or exchange, the
optionee's tax basis will equal the amount paid for the share plus any ordinary
income realized as a result of the disqualifying disposition.
The exercise of an Incentive Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the shares
purchased at the time of the exercise exceeds the option exercise price is an
adjustment for purposes of computing the so-called alternative minimum tax. In
the event of a disqualifying disposition of the shares in the same taxable year
as exercise of the Incentive Option, no adjustment is then required for purposes
of the alternative minimum tax, but regular income tax, as described above, may
result from such disqualifying disposition. Effective January 1, 1994, the
Revenue Reconciliation Act of 1994 replaced the 24% alternative minimum tax rate
on individuals with a two-tier alternative minimum tax rate having an initial
rate of 26% and a second-tier rate of 28% on alternative minimum taxable income
over $175,000.
An optionee who surrenders shares as payment of the exercise price of his
Incentive Option generally will not recognize gain or loss on his surrender of
such shares. The surrender of shares previously acquired upon exercise of an
Incentive Option in payment of the exercise price of another Incentive Option,
-19-
is, however, a "disposition" of such stock. If the incentive stock option
holding period requirements described above have not been satisfied with respect
to such stock, such disposition will be a disqualifying disposition that may
cause the optionee to recognize ordinary income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise of
an Incentive Option by surrendering shares will be subject to the incentive
stock option holding period requirements. Of those shares, a number of shares
(the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased by
any ordinary income recognized as a result of any disqualifying disposition of
the surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of deter-
mining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Options
Generally, there will be no federal income tax consequences to either the
optionee or the Company on the grant of Non-Qualified Options granted pursuant
to the 1996 Plan or the Director Plan. On the exercise of a Non-Qualified
Option, the optionee has taxable ordinary income equal to the excess of the fair
market value of the shares acquired on the exercise date over the option price
of the shares. The Company will be entitled to a federal income tax deduction
(subject to the limitations contained in Section 162) in an amount equal to such
excess.
Upon the sale of stock acquired by exercise of a Non-Qualified Option,
optionees will realize long-term or short-term capital gain or loss depending
upon their holding period for such stock. Under current law, net capital gains
(net long term capital gain less net short term capital loss) is subject to a
maximum rate of 28%. Capital losses are deductible only to the extent of capital
gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Option will not recognize gain or loss with respect to the shares
so delivered unless such shares were acquired pursuant to the exercise of an
Incentive Option and the delivery of such shares is a disqualifying disposition.
See "Federal Income Tax Consequences - Incentive Stock Options". The optionee
will recognize ordinary income on the exercise of the Non-Qualified Option as
described above. Of the shares received in such an exchange, that number of
shares equal to the number of shares surrendered will have the same tax basis
and capital gains holding period as the shares surrendered. The balance of the
shares received will have a tax basis equal to their fair market value on the
date of exercise and the capital gains holding period will begin on the date of
exercise.
Limitation on Company's Deduction
Section 162(m) of the Code will generally limit to $1.0 million the
Company's federal income tax deduction for compensation paid in any year to its
chief executive officer and its four highest paid executive officers, to the
extent that such compensation is not "performance based." Under Treasury
regulations, and subject to certain transition rules, a stock option will, in
general, qualify as "performance based" compensation if it (i) has an exercise
price of not less than the fair market value of the underlying stock on the date
of grant, (ii) is granted under a plan that limits the number of shares for
-20-
which options may be granted to an employee during a specified period, which
plan is approved by a majority of the shareholders entitled to vote thereon, and
(iii) is granted by a compensation committee consisting solely of at least two
independent directors. If a stock option to an executive referred to above is
not "performance based", the amount that would otherwise be deductible by the
Company in respect of such stock option will be disallowed to the extent that
the executive's aggregate non-performance based compensation paid in the
relevant year exceeds $1.0 million. The Company believes that the 1995 Plan and
the 1996 Plan are not subject to Section 162(m) except that the additional stock
options authorized by Proposal 2 will be subject to Section 162(m). In addition,
the Company believes that the options granted to date in connection with
Proposal 2 may not qualify for the performance based exception described above.
SHAREHOLDER PROPOSALS
Shareholder proposals for the 1998 Annual Meeting of Shareholders must be
submitted to the Company by January 23, 1998 to receive consideration for
inclusion in the Company's Proxy Statement relating to the 1998 Annual Meeting
of Shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public auditors for 1996 and for 1997 are the
firm of Coopers & Lybrand, L.L.P., Philadelphia, Pennsylvania. A representative
of Coopers & Lybrand, L.L.P. is expected to be present at the Meeting and to be
available to respond to appropriate questions. The representative will have the
opportunity to make a statement if he so desires.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
This Proxy Statement is accompanied by the Company's Annual Report to
Shareholders for 1996. The Annual Report is not a part of the proxy solicitation
materials.
EACH PERSON SOLICITED HEREUNDER CAN OBTAIN A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR 1996 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WITHOUT CHARGE EXCEPT FOR EXHIBITS TO THE REPORT, BY SENDING A
WRITTEN REQUEST THEREFOR TO:
NCO GROUP, INC.
1740 WALTON ROAD
BLUE BELL, PA 19422-0987
ATTENTION: STEVEN L. WINOKUR,
VICE PRESIDENT, FINANCE
AND CHIEF FINANCIAL OFFICER
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OTHER MATTERS
The Company is not presently aware of any matters (other than procedural
matters) which will be brought before the Meeting which are not reflected in the
attached Notice of the Meeting. The enclosed proxy confers discretionary
authority to vote with respect to any and all of the following matters that may
come before the Meeting: (i) matters which the Company does not know, a
reasonable time before the proxy solicitation, are to be presented at the
Meeting; (ii) approval of the minutes of a prior meeting of shareholders, if
such approval does not amount to ratification of the action taken at the
meeting; (iii) the election of any person to any office for which a bona fide
nominee named in this Proxy Statement is unable to serve or for good cause will
not serve; (iv) any proposal omitted from this Proxy Statement and the form of
proxy pursuant to Rules 14a-8 or 14a-9 under the Securities Exchange Act of
1934; and (v) matters incident to the conduct of the Meeting. In connection with
such matters, the persons named in the enclosed proxy will vote in accordance
with their best judgment.
By Order of the Board of Directors
MICHAEL J. BARRIST, President and Chief
Executive Officer
Blue Bell, Pennsylvania
May 23, 1997
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APPENDIX 1
[submitted to SEC pursuant Regulations 14a-4 and 14a-6]
PROXY
NCO GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS - JUNE 23, 1997
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
NCO GROUP, INC.
The undersigned hereby constitutes and appoints Steven L. Winokur and
Joseph C. McGowan, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to appear at the Annual Meeting of Shareholders of NCO
Group, Inc. (the "Company") to be held on the 23rd day of June, 1997, and at any
postponement or adjournment thereof, and to vote all of the shares of the
Company which the undersigned is entitled to vote, with all the powers and
authority the undersigned would possess if personally present.
BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF
ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(Continued and to be signed on reverse side)
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE
INDICATED, THE PROXY AGENTS INTEND TO VOTE FOR THE ELECTION OF ALL THE NOMINEES
LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSALS 2 AND 3.
Please mark your votes as indicated in this example |X|
PROPOSAL 1. The election of Michael J. Barrist as a Class I director of the
Company to hold office for a term of three years and until his successor is duly
elected and qualified.
For all nominees listed above (except as marked to the contrary) |_|
To withhold authority to vote for all nominees, check this box: |_|
To withhold authority to vote for any individual nominee, print that
nominee's name on the space provided below:
-----------------------------------------------------------
PROPOSAL 2. The amendment to the 1996 Stock Option Plan and to ratify the award
of certain option grants, as more fully described in the accompanying Proxy
Statement; and
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 3. The amendments to the 1996 Non-Employee Director Stock Option Plan
and to ratify the award of certain option grants, as more fully described in the
accompanying Proxy Statement; and
/ / FOR / / AGAINST / / ABSTAIN
PROPOSAL 4. To transact such other business as may properly come before the
Annual Meeting.
The undersigned hereby acknowledges receipt of the Company's 1996
Annual Report to Shareholders, Notice of the Company's 1997 Annual Meeting of
Shareholders and the Proxy Statement relating thereto.
DATE:___________________________, 1997
(Please date this Proxy)
--------------------------------------
--------------------------------------
Signature(s)
It would be helpful if you signed
your name exactly as it appears on
your stock certificate(s),
indicating any official position or
representative capacity. If shares
are registered in more than one
name, all owners should sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
Appendix 2
[submitted to SEC pursuant Item 10 of Schedule 14A but not part of Proxy
Statement submitted to shareholders]
NCO GROUP, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS REGARDING
AMENDMENT OF THE 1996 STOCK OPTION PLAN
Upon motion duly made and seconded, the following resolutions were
adopted by the directors present:
RESOLVED, that the Directors of the Corporation have determined that it
is in the best interest of the Corporation and its shareholders that the 1996
Stock Option Plan for Non-Employee Directors (the "1996 Plan") be amended by
amending and restating the first sentence of Section 2 of the 1996 Plan to read
hereinafter as follows(the "Amendment"):
"2. Aggregate Number of Shares
478,281 shares of the Company's Common Stock shall be the aggregate
number of shares which may be issued under this Plan."
RESOLVED, that the Amendment is adopted and approved and the President
of the Corporation is authorized and directed to submit the Amendment to the
shareholders for their approval at the 1997 Annual Meeting of Shareholders; and
further
1
Appendix 3
[submitted to SEC pursuant Item 10 of Schedule 14A but not part of Proxy
Statement submitted to shareholders]
NCO GROUP, INC.
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
REGARDING AMENDMENT OF THE
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
Upon motion duly made and seconded, the following resolutions were
adopted by the directors present, with Messrs. Siegel and Wise abstaining:
RESOLVED, that the Directors of the Corporation have determined that it
is in the best interest of the Corporation and its shareholders that the 1996
Stock Option Plan for Non-Employee Directors (the "Director Plan") be amended by
amending and restating Section 2 and Section 3 of the Director Plan to read
hereinafter as follows(the "Amendments"):
"2. Aggregate Number of Shares
100,000 shares of the Company's common stock, no par value
("Common Stock"), shall be the aggregate number of shares which may be issued
under this Plan. Notwithstanding the foregoing, in the event of any change in
the outstanding shares of the Common Stock of the Company by reason of a stock
dividend, stock split, combination of shares, recapitalization, merger,
consolidation, transfer of assets, reorganization, conversion or what the Board
of Directors deems in its sole discretion to be similar circumstances, the
aggregate number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Board of Directors. Reacquired shares of the Company's Common Stock, as well as
unissued shares, may be used for the purpose of this Plan. Common Stock of the
Company subject to options which have terminated unexercised, either in whole or
in part, shall be available for future options granted under this Plan. No
adjustment shall be made with respect to the 46.56-for-1 stock split effected in
September 1996.
3. Participation
Each director of the Company at the close of business on the
date that the Amendments to the Plan are adopted by the Board of Directors (the
"Effective Date") who is not an employee of the Company or any Company
subsidiary corporation automatically shall be granted an option to purchase
10,000 shares of the Company's Common Stock (such figure to be subject to
adjustment for the same events described in Section 2 hereof). Thereafter, each
1
person who is not an employee of the Company or any Company subsidiary cor
poration on the date of grant of an option hereunder and who is first (i)
appointed as a director by the Board of Directors to fill any vacancy on the
Board (an "Appointment"); or (ii) elected as a director of the Company at any
annual or special meeting of shareholders of the Company automatically shall be
granted, as of the date of such Appointment ("Appointment Date") or such
election, as the case may be, an initial option to purchase 10,000 shares of the
Company's Common Stock (such figure to be subject to adjustment for the same
events described in Section 2 hereof). Thereafter, each person who is not an
employee of the Company or any Company subsidiary corporation on the date of
grant of an option hereunder and who (i) is reelected as a director of the
Company at any annual or special meeting of shareholders of the Company; or (ii)
continues as a director of the Company at any annual or special meeting of
shareholders of the Company at which directors of the Company are elected or
reelected automatically shall be granted, as of the date of each such annual or
special meeting of shareholders, an option to purchase 2,000 shares of the
Company's Common Stock (such figure to be subject to adjustment for the same
events described in Section 2 hereof); provided, however, that if at any time
there are insufficient shares then available for grant under this Plan to all
persons who are to receive a option on such date, then each such person
automatically shall be granted an option to purchase such lower number of shares
as shall be equal to the number of shares then available (if any) for grant
under this Plan multiplied by a fraction, of which the numerator shall be the
full number of shares for which such person was supposed to receive an option
and the denominator shall be the total full number of shares for which all such
persons were supposed to receive an option under this Plan on such date,
subject, however, to the provisions of Section 6 hereof, but in no event shall
any such person receive an amount of options in excess of that which such person
was to receive under this Plan if sufficient shares had been available. The
Effective Date, the Appointment Date, or the election or reelection of directors
at an annual or special meeting of shareholders after the Effective Date of the
Plan, as the case may be, shall constitute the grant of the option and the date
of the grant of such option to each such director."
RESOLVED, that the Amendments are adopted and approved and the
President of the Corporation is authorized and directed to submit the Amendments
to the shareholders for their approval at the 1997 Annual Meeting of
Shareholders; and further
2