<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
PRECISION RESPONSE CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
(3) Filing Party:
- -------------------------------------------------------------------------------
(4) Date Filed:
- -------------------------------------------------------------------------------
<PAGE> 2
PRECISION RESPONSE CORPORATION
1505 N.W. 167TH STREET
MIAMI, FLORIDA 33169
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 12, 1998
To the Shareholders of Precision Response Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Precision Response Corporation (the "Company") will be held at the
Weston Hills Country Club, 2600 Country Club Way, Fort Lauderdale, Florida
33332, on Friday, June 12, 1998, at 10:00 a.m. (Eastern time) for the following
purposes:
1. To elect seven directors of the Company to serve for a one-year
term expiring in 1999;
2. To approve an amendment to the Company's Amended and Restated 1996
Incentive Stock Plan, as amended (the"Employee Stock Plan"),
increasing the number of shares of the Company's common stock
reserved for issuance under the Employee Stock Plan from 3,000,000
shares to 4,000,000 shares, subject to any future antidilution
adjustments; and
3. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
These items are fully discussed in the following pages, which are made part
of this Notice. The Board of Directors has fixed the close of business on
Friday, April 17, 1998, as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting or any postponement or
adjournment thereof.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, if you are unable to attend in person and wish to have your
shares voted, PLEASE FILL IN, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN
IT IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. In the event you decide
to attend the meeting, you may, if so desired, revoke the proxy and vote your
shares in person.
By Order of the Board of Directors
/s/ Richard D. Mondre
----------------------------------------
Richard D. Mondre
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Miami, Florida
April 30, 1998
<PAGE> 3
PRECISION RESPONSE CORPORATION
1505 N.W. 167TH STREET
MIAMI, FLORIDA 33169
--------------------------------
PROXY STATEMENT
--------------------------------
GENERAL INFORMATION
The enclosed proxy is solicited by the Board of Directors (the "Board") of
Precision Response Corporation ("PRC" or the "Company") for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the Weston Hills
Country Club, 2600 Country Club Way, Fort Lauderdale, Florida 33332, on Friday,
June 12, 1998, at 10:00 a.m. (Eastern time), and any postponement or adjournment
thereof, for the purposes set forth in the attached notice. A form of proxy is
enclosed herewith. Any shareholder who executes and delivers the proxy may
revoke it at any time prior to its use.
The cost of this solicitation will be borne by the Company. In addition to
the solicitation of proxies by mail, directors, officers and employees of the
Company may solicit proxies by telephone, telegram, personal interview or other
means without additional compensation or remuneration therefor. Brokers,
dealers, banks, voting trusts, custodians and other institutions, and their
nominees, who are holders of shares of the Company's common stock (the "Common
Stock") on the Record Date referred to below, will be requested to forward the
soliciting material to the beneficial owners of such shares of Common Stock and
to obtain authorization for the execution of proxies. The Company will, upon
request, reimburse such institutions for their reasonable expenses in forwarding
proxy material to their beneficial owners.
The Company's Annual Report to Shareholders for 1997 is being mailed with
this Proxy Statement to shareholders entitled to vote at the Annual Meeting. The
Company intends to commence its distribution of this Proxy Statement and the
proxy on or about May 4, 1998.
VOTING PROCEDURES
VOTING AND REVOCABILITY OF PROXIES
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the Annual Meeting in accordance with the
instructions marked thereon. If no specific instructions are given, the shares
will be voted (1) FOR the election of the seven nominees of the Board set forth
herein, and (2) FOR the approval of the amendment to the Company's Amended and
Restated 1996 Incentive Stock Plan, as amended (the "Employee Stock Plan"). A
shareholder giving a proxy has the power to revoke it at any time prior to its
exercise by voting in person at the Annual Meeting, by giving written notice of
revocation to the Secretary prior to the Annual Meeting or by giving a later
dated proxy at any time before voting at the Annual Meeting.
Each share of Common Stock outstanding on the Record Date referred to below
will be entitled to one vote on all matters. The affirmative vote of a plurality
of the votes cast is required for the election of directors. The affirmative
vote of a majority of the votes cast is required for the approval of the
amendment to the Employee Stock Plan. Abstentions and broker non-votes will not
be included in vote totals and will have no effect on the outcome of the vote.
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on Friday, April 17,
1998 (the "Record Date"), are entitled to notice of and to vote at the Annual
Meeting. Presence in person or by proxy of a majority of the shares of Common
Stock outstanding on the Record Date is required for a quorum. As of the close
of business on the Record Date, there were outstanding 21,549,000 shares of
common stock. Mark J. Gordon and David L. Epstein, the controlling shareholders
of PRC, are the Chairman of the Board and Chief Executive Officer and President,
respectively, of the Company.
1
<PAGE> 4
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is a list (as of April 10, 1998) of the names of the directors
and executive officers of the Company, their respective ages and their
respective positions with the Company. The terms of the directors expire
annually upon the holding of the Annual Meeting.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ------- --------------------------------------------------------------
<S> <C> <C>
Mark J. Gordon 50 Chairman of the Board and Chief Executive Officer
David L. Epstein 34 Director and President
Richard D. Mondre 52 Director, Executive Vice President, General Counsel and Secretary
Richard N. Ferry, Jr. 46 Executive Vice President - Business Development
Bernard J. Kosar, Jr. 34 Director and Senior Vice President - Client Relations
Paul M. O'Hara 52 Senior Vice President - Finance and Chief Financial Officer
Derek J. Reynolds 48 Senior Vice President - Information Services
Robert K. Tenzer 37 Senior Vice President - Human Resources
Thomas C. Teper 36 Senior Vice President - Facilities Acquisition and Development
James R. Weber 50 Senior Vice President - Telemarketing Operations
Colleen J. Williams 47 Senior Vice President - Account Services
Thomas F. Jennings, Jr. 38 Vice President and Controller
Joseph E. Gillis 41 Vice President and Treasurer
Neil A. Natkow 49 Director
Richard N. Krinzman 49 Director
Christian Mustad 59 Director
</TABLE>
The following sets forth the background of each of the Company's directors and
executive officers, including the principal occupation of those individuals for
at least the past five years:
MARK J. GORDON joined the Company in 1984 and became a director at that time.
Mr. Gordon has served as the Company's Chief Executive Officer since 1985.
DAVID L. EPSTEIN joined the Company in 1982, was named Executive Vice
President in 1984, and has served as President since 1985. He became a director
of the Company in April 1996.
RICHARD D. MONDRE joined the Company in March 1996 as Executive Vice
President, General Counsel and Secretary. He became a director of the Company in
May 1996. From January 1983 to March 1996, Mr. Mondre was a partner at the law
firm of Rubin Baum Levin Constant Friedman & Bilzin ("Rubin Baum"), which served
as the Company's regular outside counsel until January 31, 1998. As of February
1, 1998, the successor firm to Rubin Baum, Bilzin Sumberg Dunn Price & Axelrod
LLP ("BSDPA"), commenced serving as the Company's regular outside counsel. After
joining the Company, Mr. Mondre remained "Of Counsel" to Rubin Baum and is
currently "Of Counsel" to BSDPA.
BERNARD J. KOSAR, JR. was appointed a director of the Company in October 1996.
Mr. Kosar joined the Company in January 1997 as Senior Vice President - Client
Relations. From January 1995 until joining the Company, Mr. Kosar had served as
a consultant to the Company. Since July 1985 until his retirement in 1997, Mr.
Kosar had been a quarterback in the National Football League and most recently
with the Miami Dolphins. Mr. Kosar is also a director and majority owner of
Tidewater Management Group, Inc., a franchisee for a national food chain, and
Bernie Kosar Greeting Card Company, a distributor of greeting cards.
RICHARD N. FERRY, JR. joined the Company in November 1994 as Vice President -
Business Development, was appointed Senior Vice President in that position in
May 1996 and was appointed Executive Vice President in that position in November
1997. From November 1993 to November 1994, Mr. Ferry was a principal of Virtual
Marketing International, providing consulting services to a number of companies,
including many of the Company's competitors in the teleservicing and direct
marketing industries. From November 1991 to November 1993, Mr. Ferry was the
Director of Marketing Services at Century Telecommunications, a provider of
telephone services, and from September 1984 until November 1991, Mr. Ferry was
the Vice President of Operations for Advanced Telemarketing Corp., a provider of
teleservices.
2
<PAGE> 5
PAUL M. O'HARA joined the Company in August 1996 as Senior Vice President -
Finance and Chief Financial Officer. From March 1994 until joining the Company,
Mr. O'Hara was Executive Vice President and Chief Financial Officer of Sunbeam
Corp., a consumer products company. From April 1988 to March 1994, Mr. O'Hara
was Executive Vice President and Chief Financial Officer of Fruit of the Loom,
an apparel manufacturer.
DEREK J. REYNOLDS joined the Company in October 1996 as Senior Vice President
- - Information Services. From March 1993 until joining the Company, Mr. Reynolds
was the Chief Information Officer and Senior Vice President of GC Services L.P.,
a financial services and information processing company. Prior to that position,
Mr. Reynolds was employed for over ten years with Equifax, a diverse information
services company, most recently as Senior Vice President, Information and
Communication Services.
ROBERT K. TENZER joined the Company in September 1994 as Director of Human
Resources. Mr. Tenzer was appointed Vice President of Human Resources in May
1997 and Senior Vice President in September 1997. From September 1984 until
joining the Company, Mr. Tenzer was a Director of Human Resources and Store
Operations for Neiman Marcus, a clothing and specialty items retailer. Mr.
Tenzer has a Masters of Science in Human Resources Management.
THOMAS C. TEPER joined the Company in May 1990 as Vice President of Finance
and Chief Financial Officer. Mr. Teper was appointed Vice President of Corporate
Planning and Development in January 1994 and Vice President - Facilities
Acquisition and Development in May 1996. Mr. Teper was appointed Senior Vice
President - Facilities Acquisition and Development in May 1997. Mr. Teper is a
Certified Public Accountant.
JAMES R. WEBER joined the Company in June 1996, and was formally appointed
Senior Vice President - Telemarketing Operations in November 1996. From August
1994 until joining the Company, Mr. Weber was Senior Vice President Operations
for SafeCard Services, Inc., a credit card protection company. From June 1992 to
August 1994, Mr. Weber worked with MCI Telecommunications, a telecommunications
company, initially as a Center Director and then as Regional Director for the
western region. From March 1985 to May 1992, Mr. Weber held a number of
positions with American Express Company, a financial services company, including
that of Director for its telephone service center and card issuance division.
COLLEEN J. WILLIAMS joined the Company in October 1994 as Account Services
Director and was appointed Senior Vice President - Account Services in November
1996. From November 1993 until joining the Company, Ms. Williams was an
Assistant Vice President with PNC Mortgage Corp. of America, a national mortgage
bank. From June 1986 to November 1993, Ms. Williams served as Vice President for
a number of divisions of Citibank (Florida), N.A., a national banking
association.
THOMAS F. JENNINGS, JR. joined the Company in March 1997 as Controller and was
formally appointed Vice President, Controller and Principal Accounting Officer
in May 1997. From July 1994 until joining the Company, Mr. Jennings was Vice
President and Chief Financial Officer for the Music Division of Blockbuster
Entertainment. From March 1993 to July 1994 , Mr. Jennings was Controller for
the Domestic Consumer Division of Blockbuster Entertainment. From September 1981
to joining Blockbuster Entertainment, Mr. Jennings was employed by the public
accounting firm of Coopers & Lybrand LLP, most recently as Manager, Audit
Services. Mr. Jennings is a Certified Public Accountant.
JOSEPH E. GILLIS joined the Company in November 1994 as Chief Financial
Officer and Treasurer, continues to serve as Treasurer and was appointed a Vice
President in May 1997. From October 1993 until joining the Company, Mr. Gillis
was Chief Financial Officer of William Schneider, Inc., a jewelry manufacturer.
From June 1989 to October 1993, Mr. Gillis was Vice President of Finance for the
Vertical Blinds Division of Hunter Douglas, Inc., a manufacturer of window
coverings, or its predecessor, Profile Corp. Mr. Gillis is a Certified Public
Accountant.
NEIL A. NATKOW was appointed a director of the Company in October 1996. Dr.
Natkow served as Senior Vice President - Health Care for the Company from
February 1997 to October 1997. Upon leaving the Company, Dr. Natkow became
President of NAN II, Inc., a Florida corporation which is the general partner of
PhyTrust, Ltd., a Florida management services organization. From December 1993
until his retirement in October 1995, Dr. Natkow served as an executive officer
of PCA Health Plans of Florida, a health maintenance organization, most recently
as its Chief Executive Officer.
3
<PAGE> 6
From July 1992 to December 1993, Dr. Natkow was the President and Chief
Executive Officer of Family Health Plan, a health maintenance organization, and,
from June 1987 to July 1992, Dr. Natkow was the Vice President for Professional
Affairs at Southeastern University for Health Sciences. Dr. Natkow is also a
director of Sheridan Healthcare, Inc., a publicly traded company.
RICHARD N. KRINZMAN was appointed a director of the Company in February 1997.
Mr. Krinzman is a shareholder at the law firm of Holtzman, Krinzman, Equels &
Furia, P.A., a position he has held since 1978. Mr. Krinzman has practiced law
in Dade County, Florida, for the past 25 years with concentration on
transactional matters in the areas of real property, banking and commercial law.
Mr. Krinzman is a member of the Audit and Compensation Committees of the Board.
CHRISTIAN MUSTAD was appointed a director of the Company in October 1996. For
the past 24 years, Mr. Mustad has been a managing director of The Mustad Group,
which owns and/or manages approximately 35 companies in 17 countries. The Mustad
Group businesses and activities range from manufacturing of horseshoe nails,
level gauging for the shipping industry, precision parts, paper cores, machinery
for the cardboard industry and fasteners to oil recycling. Mr. Mustad is a
member of the Audit and Compensation Committees of the Board.
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board held three meetings and acted by unanimous written consent in lieu
of a meeting 10 times during 1997. Each director attended 75% or more of the
aggregate number of meetings of the Board and committees of the Board on which
he served during 1997.
The Company's Board has an Audit Committee and a Compensation Committee, each
of which is currently comprised of Mr. Mustad and Mr. Krinzman, non-employee
directors of the Company. The Audit Committee recommends the annual engagement
of the Company's independent auditors, with whom the Audit Committee reviews the
scope of audit and non-audit assignments, related fees, the accounting
principles used by the Company in financial reporting, internal financial
auditing procedures and the adequacy of the Company's internal control
procedures. The Compensation Committee determines executive officers' salaries
and bonuses and administers the Company's Employee Stock Plan and the 1996
Non-employee Director Stock Option Plan (the "Director Stock Plan;" together
with the Employee Stock Plan, the "Stock Plans"). The Audit Committee held two
meetings during 1997. The Compensation Committee held one meeting and acted by
unanimous written consent in lieu of a meeting 10 times during 1997.
The Board does not currently have a nominating committee or a committee
performing similar functions. Such functions are performed by the Board as a
whole.
DIRECTOR COMPENSATION
Directors who are not employees or officers of the Company receive a quarterly
retainer of $2,500 and receive $500 for attendance at each meeting of the Board
or committee thereof. Such directors also receive an option to purchase 2,500
shares of Common Stock, under the Director Stock Plan, upon initial election and
upon each re-election as a director at the Company's Annual Meeting. Directors
may also be reimbursed for certain expenses in connection with attendance at
Board and Board committee meetings. Other than with respect to reimbursement of
expenses, directors who are employees or officers of the Company will not
receive additional compensation for service as a director. See "Executive
Compensation - Employee Stock Plan and Director Stock Plan."
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION PHILOSOPHY
The Compensation Committee determines executive officers' salaries and bonuses
and administers the Company's Stock Plans. The Compensation Committee's strategy
is to develop and implement an executive compensation program that allows the
Company to attract and retain highly qualified persons to manage the Company in
order to enhance shareholders' value. The objectives of this strategy are to
provide a compensation package that permits the recognition
4
<PAGE> 7
of individual contributions and achievements as well as Company results. Within
this strategy, the Compensation Committee considers it essential to the vitality
of the Company to maintain levels of compensation opportunity that are
competitive with similar companies in the teleservices industry. At times, the
Committee also evaluates compensation relative to a broader range of companies,
whether or not included in the Company's peer group, that have particular lines
of business comparable to those of the Company.
EXECUTIVE COMPENSATION
Executive compensation is comprised of base salary, annual bonus compensation
and long-term compensation primarily in the form of stock options.
BASE SALARIES
Base salary levels for executive officers are designed to be consistent with
competitive practice and level of responsibility. Base salary levels are
generally set forth in the executive officers' employment agreements and
increases in their base salary in 1997 were generally made in accordance with
their agreements, where applicable. The employment agreements for the Named
Executive Officers (as defined in "Executive Compensation Table" below),
including Mr. Gordon, and all other employment agreements for the Company's
executive officers in effect as of April 15, 1998 are described under
"Employment Agreements."
LONG-TERM COMPENSATION
The Compensation Committee believes that the use of equity-based long-term
compensation plans directly links executive interests to enhancing shareholder
value. In this regard, the Compensation Committee recommends the approval of the
amendment to the Employee Stock Plan set forth in "Proposal 2: Approval of
Amendment to the Precision Response Corporation Amended and Restated 1996
Incentive Stock Plan" ("Proposal 2"). Stock options and other stock incentives
are an integral part of the Company's executive compensation program in order to
align the interests of the executive officers with the interests of the
Company's shareholders.
Stock option grants are generally provided to executive officers as a part of
their initial compensation package at levels commensurate with their experience
and responsibility. Stock option grants are considered annually by the
Compensation Committee for all executive officers. A primary consideration in
granting stock options is to encourage members of management to hold significant
equity ownership in the Company. Stock option compensation bears a direct
relationship to corporate performance in that, over the long term, share price
appreciation depends upon corporate performance, and without share price
appreciation the options are of no value.
As a result of substantially all of the Company's stock options granted prior
to October 1, 1997, having an exercise price per share of Common Stock
significantly in excess of the then market value of the Company's Common Stock
and consistent with the Compensation Committee's view that stock options should
be an integral part of the Company's compensation program and provide a
meaningful incentive to future performance, the Compensation Committee
determined it was appropriate to adopt a plan to reset, effective December 5,
1997, (the "Repricing Date"), the exercise price of all outstanding employee
stock options. The Company offered each employee holding outstanding stock
options (approximately 170 employees in total) the opportunity to change the
option price, date of grant and vesting period as of the Repricing Date with
respect to his or her respective outstanding stock options. Under the terms of
the plan, an employee's previously granted stock options would be cancelled,
including any vested options, and such employee would receive the equivalent
number of new stock options at an exercise price equal to the fair market value
of the Company's common stock on the Repricing Date ($7.875 per share). The new
stock options received by an employee would have a vesting schedule the same as
such employee's cancelled stock options except that vesting for the new stock
options would commence from the Repricing Date. Generally, the new grants would
vest at 20% on each of the first five anniversaries from the Repricing Date. The
Company's plan was accepted by approximately 125 employees with respect to
925,000 outstanding stock options. Additionally, prior to adopting the Repricing
Plan, the Compensation Committee separately repriced certain of the existing
stock options held by three specific executive officers of the Company
(including two Named Executives, as hereinafter defined). Options covering a
total of 646,000
5
<PAGE> 8
shares of common stock were repriced, with 310,000 shares having a new exercise
price of $7.41 per share and 336,000 shares having a new exercise price of $6.88
per share. As part of the repricing, certain of these stock options provided for
a new vesting schedule. See "Option Grants and Holdings - 1997 Repricing of
Options."
Submitted by the Compensation Committee of the Board of Directors.
Christian Mustad
Richard N. Krinzman
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in 1997, 1996 and 1995 by
the chief executive officer and the Company's four other most highly compensated
executive officers whose aggregate annual compensation exceeded $100,000 and who
were executive officers of the Company at December 31, 1997 (together, the
"Named Executive Officers"). The Company does not have a pension plan or a
long-term incentive plan, has not issued any restricted stock awards and has not
granted any stock appreciation rights as of this date. The Company has granted
stock options. See "Option Grants and Holdings" and "Employee Stock Plan and
Director Stock Plan." The value of all perquisites and other personal benefits
received by each Named Executive Officer in each respective year did not exceed
10% of the Named Executive Officer's total annual salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ----------------
COMPENSATION SECURITIES
FISCAL ------------------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)(1) COMPENSATION(2)
- ---------------------------------- ------- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Mark J. Gordon 1997 $403,269 - - $10,703
Chief Executive Officer 1996 358,554 - - 13,301
1995 281,496 - - 15,194
David L. Epstein 1997 388,187 - - -
President 1996 358,554 - - -
1995 276,635 - - -
Richard D. Mondre 1997 372,270 $ 40,000 - -
Executive Vice President, 1996 271,884(3) 40,000 - -
General Counsel and Secretary 1995 - - -
Bernard J. Kosar, Jr. 1997 260,097 105,000 415,000(4) -
Senior Vice President- 1996 - - 60,000(4) 68,000(5)
Client Relations 1995 - - - 115,000(5)
Paul M. O'Hara 1997 298,215 50,000 350,000(8) -
Senior Vice President-Finance 1996 91,495(6) 25,000(7) 200,000(8) -
and Chief Financial Officer 1995 - - - -
</TABLE>
- ----------
(1) See "Option Grants and Holdings" below for a description of such executive
officers' options and the repricing of certain of those options in 1997.
(2) Consists of premiums paid for three split-dollar life insurance policies
for the benefit of the Mark Gordon Family Trust.
(3) Mr. Mondre joined the Company in March 1996. His base annual salary for
1996 was $360,000.
(4) The option for 60,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996. See "Option Grants and Holdings - 1997 Repricing of
Options."
(5) This amount represents the total commissions and fees earned by Mr. Kosar
in that year in connection with consulting services performed for the
Company prior to joining the Company as an executive officer.
(6) Mr. O'Hara joined the Company in August 1996. His base annual salary for
1996 was $250,000.
(7) This amount was earned in 1996 but paid in 1997.
(8) The option for 200,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996. See "Option Grants and Holdings - 1997 Repricing of
Options."
6
<PAGE> 9
OPTION GRANTS AND HOLDINGS
1997 OPTION GRANTS
The following table summarizes the options which were granted (including those
options granted in connection with cancellation of options granted in 1996)
during 1997 to the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------------------ VALUE AT ASSUMED
% OF TOTAL CLOSING VALUE AT ANNUAL RATES
NUMBER OF OPTIONS MARKET GRANT-DATE OF STOCK PRICE
SECURITIES GRANTED TO PRICE ON MARKET APPRECIATION
UNDERLYING EMPLOYEES EXERCISE DATE OF PRICE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE GRANT EXPIRATION ---------- -----------------------
NAME GRANTED YEAR ($/SH)(2) ($/SHARE)(3) DATE 0%($)(3) 5%($) 10%($)
- ------------------- ----------- ----------- -------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark J. Gordon -- -- -- -- -- -- -- --
David L. Epstein -- -- -- -- -- -- -- --
Richard D. Mondre -- -- -- -- -- -- -- --
Bernard J. Kosar, Jr. 60,000(4) 1.64 7.41 7.94 7/26/99 31,800 76,463 123,110
200,000 5.45 7.41 7.94 1/1/04 106,000 672,673 1,401,570
50,000 1.36 7.41 7.94 2/17/04 26,500 172,602 362,114
165,000 4.50 7.41 7.94 9/30/04 87,450 620,792 1,330,364
Paul M. O'Hara 200,000(4) 5.45 6.88 7.13 8/8/04 50,000 606,638 1,339,714
150,000 4.09 6.88 7.13 11/9/04 37,500 472,894 1,052,153
</TABLE>
- -----------------
(1) Potential realizable value is based on the assumption that the Company's
Common Stock price appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the option term. The
amounts have been calculated based on the requirements promulgated by the
Securities and Exchange Commission. The actual value, if any, a Named
Executive Officer may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised (if the
executive were to sell the shares on the date of exercise). Accordingly,
there is no assurance that the value realized will be at or near the
potential realizable value as calculated in this table.
(2) The exercise price reflects the repricing of certain of these options in
1997 after their being granted. See "1997 Repricing of Options" below.
(3) For purposes of and as provided under the Employee Stock Plan, "fair market
value" on the date of grant of any option is the average of the high and
low sales prices of a share of Common Stock on the NASDAQ National Market
on the trading day immediately preceding such date of grant. The
Compensation Committee of the Company believes this calculation more
accurately reflects "fair market value" of the Company's Common Stock on
any given day as compared to simply using the closing market price on the
date of grant. As a result, the closing market price on the date of grant
at times may be different than the exercise price per share.
(4) This option was granted in connection with cancellation of option to
purchase same number of shares of Common Stock granted in 1996. See "1997
Repricing of Options" below.
1997 OPTION EXERCISES AND YEAR-END VALUES
The following table provides information regarding the value of all options
exercised during 1997 and unexercised options held at December 31, 1997 by the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT "IN-THE-MONEY" OPTIONS AT
ACQUIRED DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------- -------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark J. Gordon -- -- -- -- -- --
David L. Epstein -- -- -- -- -- --
Richard D. Mondre -- -- -- -- -- --
Bernard J. Kosar, Jr. 30,000 $ 92,700 237,500 207,500 $ 660,250 $ 576,850
Paul M. O'Hara -- -- 350,000 -- 1,158,500 --
</TABLE>
- ----------
(1) Based on a per share price of $10.19 on December 31, 1997, which was the
closing market price of the Company's Common Stock on the last day of the
Company's 1997 fiscal year.
7
<PAGE> 10
1997 REPRICING OF OPTIONS
The following table provides information as to the repricing during the 1997
fiscal year by the Company of the exercise price of stock options previously
awarded to any of the Named Executive Officers. The repricing as described in
the following table was authorized by the Compensation Committee as a result of
the trading price of the Company's Common Stock and in order to provide a
meaningful incentive for future performance. The repricing was done at "fair
market value" as determined under the Employee Stock Plan. See "Compensation
Committee Report on Executive Compensation" hereinabove.
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF MARKET EXERCISE ORIGINAL
SECURITIES PRICE OF PRICE OF OPTION TERM
UNDERLYING STOCK AT STOCK NEW REMAINING
OPTIONS TIME OF AT TIME OF EXERCISE AT TIME OF
NAME DATE REPRICED (#) REPRICING($)(1) REPRICING ($) PRICE ($) REPRICING
- -------------------- ---------- ------------- ---------------- --------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Mark J. Gordon - - - - - -
David L. Epstein - - - - - -
Richard D. Mondre - - - - - -
Bernard J. Kosar, Jr. 10/1/97 60,000 7.94 16.75 7.41 1 Year 299 Days
10/1/97 200,000 7.94 35.38 7.41 6 Years 94 Days
10/1/97 50,000 7.94 33.38 7.41 6 Years 140 Days
Paul M. O'Hara 11/10/97 200,000 7.13 23.88 6.88 6 Years 271 Days
</TABLE>
- ----------------
(1) See footnote (2) to "1997 Option Grants" hereinabove.
EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN
The Company has adopted the Employee Stock Plan and the Director Stock Plan.
Officers, key employees and non-employee consultants may be granted stock
options, stock appreciation rights, stock awards, performance shares and
performance units under the Employee Stock Plan. The Company currently has
reserved 3,000,000 shares of the Common Stock for issuance under the Employee
Stock Plan. As discussed in Proposal 2, the Company is seeking approval to
increase the number of shares reserved for issuance under the Employee Stock
Plan to 4,000,000 shares, subject to further antidilution adjustments. For a
summary of the material items of the Employee Stock Plan, see Proposal 2.
The Director Stock Plan provides for annual grants of a nonqualified stock
option to each non-employee director of the Company. The option allows such
directors to purchase 2,500 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant. These options
will have a term of ten years and vest in equal installments over three years.
The Company has reserved 96,584 shares of Common Stock for issuance under the
Director Stock Plan, after giving effect to the stock splits by way of share
dividends completed prior to the Company's initial public offering (the "Initial
Public Offering"), and subject to further antidilution adjustments. As of the
Record Date, options to purchase 5,000 shares had been granted to Christian
Mustad at an exercise price of $43.00 per share for 2,500 shares and $21.13 per
share for the remaining 2,500 shares, to Richard Krinzman at an exercise price
of $33.75 per share for 2,500 shares and $21.13 per share for the remaining
2,500 shares and to Neil A. Natkow at an exercise price of $43.00 per share for
2,500 shares.
Excluding the option of Richard N. Ferry, Jr., the Company's Executive Vice
President-Business Development, to purchase the balance of 7,000 shares at an
exercise price of $0.01 per share, the options to purchase 2,873,000 shares
granted under the Stock Plans outstanding as of the Record Date, have a weighted
average exercise price of $8.59 per share.
RETIREMENT PLANS
The Company has adopted a profit sharing plan (the "Profit Sharing Plan")
which covers substantially all employees who have been employed with the Company
for at least two years and are at least 21 years of age. Under the terms of the
Profit Sharing Plan, the Company makes elective contributions to the Profit
Sharing Plan, the allocation of which to employees is based on relative salary.
8
<PAGE> 11
Effective January 1, 1997, the Company amended the Profit Sharing Plan to
include certain 401(k) savings plan features (as amended, the "Profit
Sharing/401(k) Plan"). Under the provisions of the Profit Sharing/401(k) Plan,
employees meeting certain eligibility requirements may contribute a maximum of
15% of pre-tax gross wages, subject to certain restrictions imposed pursuant to
the Internal Revenue Code of 1986, as amended (the "Code"). Company
contributions are at the discretion of its Board. Vesting occurs over a six-year
period at the rate of 20% per year, beginning after the second year of service.
The Company did not contribute to the Profit Sharing/401(k) Plan or the Profit
Sharing Plan during 1997, 1996 and 1995.
EMPLOYMENT AGREEMENTS
MARK J. GORDON AND DAVID L. EPSTEIN. Each of Mr. Gordon and Mr. Epstein has an
employment agreement with the Company, the terms of which are substantially
similar. The initial employment term is the period from July 1, 1996 to June 30,
2001, but is thereafter subject to automatic annual renewal, absent notice from
either party of its desire not to renew. However, the employee may terminate the
agreement at any time upon 30 days' notice. Each has a minimum base salary of
$425,000 per annum (adjusted for inflation) subject to increase by the
Compensation Committee. An annual bonus is payable based on criteria to be
agreed upon by the Compensation Committee and the employee at the beginning of
each year. No such criteria have yet been established. Each agreement provides
for the annual grant of stock options in a number to be determined by the
Compensation Committee, but for no fewer than 5% of the aggregate number of
shares for which options were granted under the Stock Plans during the year.
Each of Mr. Gordon and Mr. Epstein has waived both their annual bonus and stock
option grants with respect to the years ended December 31, 1996 and 1997. Each
of Mr. Gordon and Mr. Epstein has certain piggyback and demand registration
rights. If either Mr. Gordon's or Mr. Epstein's employment is terminated by
death, disability or voluntary resignation, the employee is entitled to
severance equal to 18 months' salary, bonus and benefits, and if employment is
terminated by the Company without cause (as defined in the agreements), the
terminated individual is entitled to severance equal to salary, bonus and
benefits for the balance of the contract term or three years, whichever is
longer.
RICHARD D. MONDRE. Mr. Mondre's employment agreement extends to March 31,
1999, and provides for minimum annual compensation of $400,000, subject to
increase by the Compensation Committee based on Company performance and other
factors. If Mr. Mondre's employment is terminated by the Company during the term
of the contract without cause, he will be entitled to severance equal to the
compensation and benefits payable over the balance of the term, not to exceed
$450,000. If a change in control has occurred, the $450,000 cap does not apply.
A change in control generally means that neither Mr. Gordon nor Mr. Epstein
controls the Company (the "Change in Control"). Mr. Mondre has been granted
piggyback registration rights. Mr. Mondre is authorized to remain "Of Counsel"
to Bilzin Sumberg Dunn Price & Axelrod LLP as long as his duties in that
capacity do not interfere with his performance under the employment agreement
with the Company.
BERNARD J. KOSAR, JR. On January 2, 1997, Mr. Kosar agreed to join the Company
as an executive officer. Mr. Kosar initially entered into a one-year employment
agreement with the Company providing for a base annual salary of $150,000 and a
discretionary bonus. In October 1997, the Company and Mr. Kosar entered into an
amendment to such employment agreement providing, among other things, for
automatic renewal of such employment agreement for successive one year terms
unless either party notifies the other in writing not to renew at least 60 days
prior to expiration of the initial term or any renewal term, an increase in the
base annual salary to $275,000, quarterly bonuses in amounts and based upon the
Company's actual revenues equaling or exceeding forecasted revenues on a
quarterly basis and the percentage by which forecasted revenues are exceeded in
any quarter and severance equal to his compensation (salary and bonuses) for one
year in the event Mr. Kosar is terminated without cause within 180 days of a
change in control. In connection with such amendment to his employment
agreement, Mr. Kosar was granted options to purchase 165,000 shares at an
exercise price of $7.41 per share vesting 50% on the date of grant (October 1,
1997) and 25% on each of the first and second anniversaries from the date of
grant, his existing options to purchase 310,000 shares were repriced to $7.41
per share (of which options to purchase 250,000 shares were also modified to
provide for a more accelerated vesting schedule then when originally granted to
him) and the vesting of all his options now accelerates on a change in control.
RICHARD N. FERRY, JR. Mr. Ferry's three-year employment agreement extends to
June 30, 1999 and originally provided for a base annual salary of $175,000 in
the first year, with incremental increases of $25,000 for each of the next two
years. An annual bonus is payable based on Mr. Ferry's performance. In November
1997, the Company and Mr. Ferry entered into an amendment to such employment
agreement providing, among other things, for an increase in the base annual
salary to $300,000 for the remainder of the employment term and severance equal
to his base annual salary for
9
<PAGE> 12
and payable over one year in the event that Mr. Ferry is terminated without
cause at any time or Mr. Ferry resigns or quits the Company's employment within
90 days after a change in control. In connection with such amendment to his
employment agreement, Mr. Ferry was granted options to purchase 200,000 shares
at an exercise price of $6.88 per share vesting 50% 6 months from the date of
grant (November 10, 1997) and approximately 17% on each of the first, second and
third anniversaries from the date of grant, certain of his existing options to
purchase 136,000 shares were repriced to $6.88 per share and also modified to
provide for the same vesting schedule as the new options granted to him and the
vesting of all of his options now accelerates on a change in control.
PAUL M. O'HARA. Mr. O'Hara's three-year employment agreement extends to August
8, 1999 and originally provided for a base annual salary of $250,000, plus, for
the 1996 calendar year, a guaranteed bonus of $25,000. For each year thereafter,
a performance bonus in an amount up to $100,000 was payable, based upon and
subject to the Company's achievement of projected quarterly earnings per share.
In November 1997, the Company and Mr. O'Hara entered into an amendment to such
employment agreement providing, among other things, for an increase in the base
annual salary to $350,000 effective as of August 1, 1997, a new performance
bonus of $50,000 per quarter based upon and subject to the Company's achievement
of forecasted quarterly earnings per share on a fully diluted basis and
severance equal to a lump-sum payment of $550,000 in the event that Mr. O'Hara
is terminated without cause at any time or Mr. O'Hara resigns or quits the
Company's employment within 90 days after a change in control. In connection
with such amendment to his employment agreement, Mr. O'Hara was granted options
to purchase 150,000 shares at an exercise price of $6.88 per share vesting 50% 6
months from the date of grant (November 10, 1997) and approximately 17% on each
of the first, second and third anniversaries from the date of grant, his
existing options to purchase 200,000 shares were repriced to $6.88 per share and
also modified to provide for the same vesting schedule as the new options
granted to him and the vesting of all of his options now accelerates on a change
in control.
DEREK J. REYNOLDS. Mr. Reynolds' three-year employment agreement extends to
October 27, 1999 and originally provided for a base annual salary of $250,000
which was increased to $275,000 in July 1997, plus, for the 1996 calendar year,
a guaranteed bonus of $15,000. An annual bonus is payable thereafter based on
Mr. Reynolds' performance. Pursuant to his employment agreement, on October 28,
1996, Mr. Reynolds was granted an option to purchase 200,000 shares of Common
Stock at an exercise price equal to $39.38, which was repriced on December 5,
1997 to $7.875 per share. The option vests in varying amounts over six years and
terminates eight years from the date of grant. If Mr. Reynolds' employment is
terminated by the Company during the term of the contract without cause, he will
be entitled to severance equal to his compensation for one year from the date of
termination or until expiration of his employment term, whichever is shorter.
THOMAS C. TEPER. Mr. Teper's three year employment agreement extends until
April 14, 2000 and provides for a base annual salary of $150,000, $175,000 and
$200,000 per annum for the first, second and third years of the employment term,
respectively. A discretionary annual bonus of not less than $25,000 per annum is
payable based on Mr. Teper's performance. If Mr. Teper's employment is
terminated by the Company during the term of the employment agreement without
cause or he resigns as a result of a breach of the employment agreement or being
required to be based in a location other than Dade, Broward or Palm Beach
County, Florida, he will be entitled to severance equal to his base annual
salary for one year from the date of termination or until expiration of his
employment term, whichever is shorter.
COLLEEN J. WILLIAMS. Ms. Williams three year employment agreement extends
until April 14, 2000 and provides for a base annual salary of $200,000 per annum
during the employment term. A discretionary annual bonus is payable based on Ms.
Williams' performance. If Ms. Williams' employment is terminated by the Company
during the term of the employment agreement without cause she will be entitled
to severance equal to her base annual salary for one year from the date of
termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was comprised of two non-employee
directors during 1997. Messrs. Mustad and Natkow served as those non-employee
directors during January and part of February 1997 (with Dr. Natkow ceasing to
serve prior to becoming an officer of the Company) and Messrs. Mustad and
Krinzman served as such for the balance of 1997. The Compensation Committee
determines executive officers' salaries and bonuses and administer the Company's
Stock Plans.
10
<PAGE> 13
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's articles of incorporation (the "Articles") contain a provision
eliminating the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
Business Corporation Act of Florida. This provision in the Articles does not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Florida law. Each director will continue to be subject to
liability for breach of a director's duty of loyalty to the Company or its
shareholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, or for any transaction from which the
director derived an improper personal benefit. This provision also does not
affect a director's responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws.
The Articles and bylaws of the Company (the "Bylaws") provide that the Company
will indemnify its directors and officers, and may indemnify its employees and
other agents, to the fullest extent permitted by law. The Company's Bylaws also
permit it to secure insurance on behalf of any person it is required or
permitted to indemnify for any liability arising out of his or her actions in
such capacity, regardless of whether the Articles and Bylaws would permit
indemnification. The Company maintains liability insurance for its directors and
officers.
In addition to the indemnification provided for in the Company's Articles and
Bylaws, the Company has entered into agreements to indemnify its directors and
its executive officers. These agreements, among other things, indemnify the
Company's directors and executive officers for all direct and indirect expenses
and costs (including, without limitation, all reasonable attorneys' fees and
related disbursements, other out of pocket costs and reasonable compensation for
time spent by such persons for which they are not otherwise compensated by the
Company or any third person) and liabilities of any type whatsoever (including,
but not limited to, judgments, fines and amounts paid in settlement) actually
and reasonably incurred by such person in connection with either the
investigation, defense, settlement or appeal of any threatened, pending or
completed action, suit or other proceeding, including any action by or in the
right of the corporation, arising out of such person's services as a director,
officer, employee or other agent of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain talented and experienced
directors and officers.
At present, there is pending a class action lawsuit against the Company
involving certain of its directors and officers where indemnification may be
required or permitted. The class action lawsuit, captioned NATHAN S. DAVIS V.
PRECISION RESPONSE CORPORATION; MARK J. GORDON; PAUL M. O'HARA; DAVID L.
EPSTEIN; JAMES F. MURRAY; RICHARD D. MONDRE; BERNARD J. KOSAR, JR.; CHRISTIAN
MUSTAD; NEIL A. NATKOW; GOLDMAN SACHS & CO.; DAIN BOSWORTH INC.; MERRILL LYNCH &
CO.; AND FURMAN SELZ LLC (Case No. 98-0334 CIV - Middlebrooks), was filed on or
about February 25, 1998, in the United States District Court for the Southern
District of Florida. The suit alleges that the defendants violated Section 11 of
the Securities Act of 1933, as amended (the "Securities Act"), by allegedly
making misrepresentations and omissions of material facts in the prospectus
prepared in connection with the Company's equity offering in January 1997 (the
"Second Equity Offering"). The alleged misrepresentations and omissions concern,
among other matters, the failure to include the financial results of the Company
for the three months ended December 31, 1996 and the omission to disclose the
existence of a cost-cutting program that had been allegedly initiated prior to
the Second Equity Offering by the Company's largest client and main source of
revenue. The suit also alleges that the individual defendants who were officers
of the Company violated Section 15 of the Securities Act based on the same
alleged conduct described above.
In addition to seeking class certification, the plaintiff seeks class monetary
damages for himself and persons who purchased the Company's Common Stock on, or
traceable to, the Second Equity Offering or between January 29, 1997 through and
inclusive of July 10, 1997 (excluding the defendants and the immediate family
members of each of the individual defendants and their respective legal
representatives, heirs, successors and assigns), costs and expenses and
appropriate further relief.
The Company believes that this lawsuit is without merit and intends to contest
the lawsuit vigorously.
11
<PAGE> 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1997 the Company's facility at 4300 N.W. 135th Street, Miami, as well
as two additional facilities located at 4250 N.W. 135th Street, Miami, and 13180
N.W. 43rd Avenue, Miami (both of the latter facilities are currently used for
warehouse space), were leased to the Company by a corporation of which Mr.
Gordon is the sole shareholder. Prior to May 1, 1996, such facilities were
leased to the Company on a month-to-month basis. In May 1996, the Company
entered into written leases for such facilities. The leases commenced on May 1,
1996 for a term of five years, with a five-year renewal option. During 1997 the
aggregate monthly rent for these three properties was approximately $24,000.
Total rent expense for these facilities was $275,000 in 1997. The Company
believes that the rents payable under these leases are no less favorable to it
than could be obtained from unaffiliated parties. In February 1998 in connection
with the Company's restructuring plan, the lease for the facility at 4300 N.W.
135th Street, Miami, was terminated in consideration of a termination payment of
$81,636.72 to the landlord. The Company believes that the amount of the
termination payment was no less favorable to it than could have been negotiated
from an unaffiliated party.
The Company had guaranteed mortgage loans of the affiliated corporation
(mentioned above) relative to the three properties being leased by the Company.
However, during 1997, these mortgage loans were refinanced naming only Mr.
Gordon as guarantor.
The Company subleases its facility at 11975 S.W. 140th Terrace, Miami, from a
partnership jointly owned by Messrs. Gordon and Epstein. The term of this
sublease expires in January 1999 and the monthly rental obligation is
approximately $14,000 for 1997 and $15,000 for 1998. The property is subleased
to the Company on the same terms as the primary lease with an unaffiliated
party. The affiliated partnership holds an option to purchase the property. The
Company also subleases a parking facility adjacent to the 11975 S.W. 140th
Terrace facility from the same affiliated partnership. This sublease also
expires in January 1999 and the monthly rental obligation is approximately
$2,500 plus one-twelfth of the applicable real estate taxes. This property is
also subleased to the Company on the same terms as the primary lease. The
Company was originally the lessee under both primary leases, but assigned its
interest to the partnership in May 1996 for nominal consideration. The aggregate
rental expenses with respect to the subleases in 1997 for each of the two
aforementioned facilities were $173,000 and $37,000, respectively. Effective
June 1996, the Company entered into a net lease with the aforementioned
partnership for an additional parking area. The term of the lease expires five
years from June 1996 and the monthly rental obligation is approximately $2,500.
The aggregate rental expenses with respect to the lease of the additional
parking area in 1997 was $32,000. The Company believes that the rents paid and
that are payable under these subleases and the net lease are no less favorable
than could be obtained from unaffiliated parties.
Prior to the Company's Initial Public Offering, the Company was treated for
Federal and state income tax purposes as an S corporation under the Internal
Revenue Code of 1986, as amended (the "Code"), and comparable state tax laws. As
a result, earnings of the Company were taxed for Federal and state income tax
purposes directly to the shareholders of the Company, rather than to the
Company. In connection with the Initial Public Offering, the Company was
converted from an S corporation to a C corporation under the Code. The Company's
Board declared a dividend (the "Dividend") totaling approximately $5.2 million ,
payable in cash to the Company's shareholders of record prior to the Initial
Public Offering (which included certain affiliates of Messrs. Gordon and
Epstein). The Dividend, totaling $5.2 million, was equal to the Company's
estimate of its cumulative taxable income prior to conversion to a C corporation
to the extent such taxable income had not previously been distributed. The
Dividend was subject to adjustment based upon actual cumulative taxable income
as finally determined. In connection with the foregoing, the Company and its
shareholders who received the Dividend are parties to an S Corporation Tax
Allocation and Indemnification Agreement (the "Tax Agreement") relating to their
respective income tax liabilities. The Tax Agreement indemnifies such
shareholders for any adjustments causing an increase in the shareholders'
Federal and state income tax liability (including interest and penalties)
related to the Company's tax years prior to the consummation of the Initial
Public Offering, unless such adjustments result in or are related to a
corresponding decrease in the shareholders' Federal and state income tax
liability with respect to another S corporation taxable year. Subject to certain
limitations, the Tax Agreement also provides that the Company will be
indemnified by the shareholders with respect to Federal and state income taxes
(plus interest and penalties) shifted from an S corporation taxable year to a
Company taxable year subsequent to the consummation of the Initial Public
Offering. Since the shareholders have not given any security for their
indemnification obligation, the Company's ability to collect such payments is
dependent upon the financial condition of the shareholders at the time any such
indemnification obligation arises. The Company is not currently aware of any tax
adjustments which may arise under the Tax Agreement. The Tax Agreement further
provides that,
12
<PAGE> 15
to the extent that the cumulative taxable income of the Company prior to its
conversion to a C corporation (as subsequently established in connection with
the filing of the Company's income tax return for the Company's short S
corporation tax year) is less than the Dividend, the shareholders who received
the Dividend will make a payment equal to such difference to the Company, and if
such cumulative taxable income is greater than the Dividend, the Company will
make an additional distribution equal to such difference to such shareholders,
in either case, with interest thereon. In 1997 the Company's income tax return
for the Company's short S corporation tax year was filed and, as a result, an
additional distribution in the aggregate amount of $174,000 was made in 1997 to
the shareholders who had received the Dividend. Any payment made by the Company
to the shareholders pursuant to the Tax Agreement may be considered by the
Internal Revenue Service or the state taxing authorities to be nondeductible by
the Company for income tax purposes.
The Company funds a portion of the life insurance premiums payable with
respect to three split-dollar life insurance policies owned by the Mark Gordon
Family Trust. The amounts paid by the Company are reimbursable to the Company
without interest upon the death of Mr. Gordon, the surrender of the policies or
the termination of the arrangement. This obligation is secured by the benefits
payable under the insurance policies. The aggregate amount outstanding for these
premiums as of December 31, 1997 was approximately $110,000.
Richard D. Mondre, the Company's Executive Vice President, General Counsel and
Secretary and a director, was a partner of Rubin Baum until immediately prior to
joining the Company in March 1996 and remains "Of Counsel" to BSDPA, the
successor firm to Rubin Baum. Prior to February 1, 1998, Rubin Baum had acted as
the Company's regular outside legal counsel and since then BSDPA has acted as
the Company's regular outside counsel. The total fees and costs paid by the
Company to Rubin Baum in 1997 were approximately $1,030,000. The Company
believes that the fees paid to Rubin Baum are no less favorable than could be
obtained from other comparable law firms in the area.
During 1997, the Company paid approximately $200,000 in fees to charter an
aircraft in connection with business travel for the Company's personnel. The
aircraft is owned by an entity of which Mark J. Gordon, the Company's Chairman
of the Board and Chief Executive Officer, is the sole shareholder. The Company
believes that the fees paid to Mr. Gordon's affiliate were no less favorable to
it than would have been obtained from unaffiliated parties.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Record Date except as otherwise noted by (i)
each shareholder of the Company who beneficially owns more than 5% of the
Company's Common Stock; (ii) each director (and nominee for director) of the
Company; (iii) each Named Executive Officer; and (iv) all directors and
executive officers of the Company as a group. Except as otherwise indicated, the
Company believes that the beneficial owners of Common Stock listed below, based
on information provided by such owners, have sole investment and voting power
with respect to such shares. The address of each person who beneficially owns
more than 5% of Common Stock is the Company's principal executive office, unless
otherwise noted.
13
<PAGE> 16
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------------------
NAME NUMBER PERCENT (1)
- ---- ---------------------- ---------------
<S> <C> <C>
Mark J. Gordon (2) 7,291,040 (3) 33.8%
David L. Epstein (2) 4,915,660 (4) 22.8
Richard D. Mondre (2) 4,123,802 (5) 19.1
The Crabbe Hudson Group, Inc. (6)(7) 2,360,600 11.0
The Capital Group Companies, Inc. (6)(8) 2,043,000 9.5
Stacy Lynn Gordon PRC Trust 1,435,000 (9) 6.6
Jason Howard Gordon PRC Trust 1,435,000 (10) 6.6
Bernard J. Kosar, Jr. 497,500 (11) 2.3
Paul M. O'Hara 175,000 (12) *
Christian Mustad 113,167 (13) *
Neil A. Natkow 26,433 (14) *
Richard N. Krinzman 4,667 (15) *
All directors and executive officers as a
group (16 persons) 13,274,017 (16) 59.6%
</TABLE>
- ----------
* Less than 1%.
(1) Percentage of beneficial ownership is based on 21,549,000 shares of Common
Stock outstanding as of the Record Date, except that, in the case of
Messrs. Kosar, O'Hara, Mustad, Natkow and Krinzman and all directors and
executive officers as a group, the number of options held by Messrs. Kosar,
O'Hara, Mustad, Natkow and Krinzman and all directors and executive
officers as a group which are exercisable within 60 days of the Record Date
are also included in such calculations, as applicable.
(2) Mr. Gordon and Mr. Epstein each has the right to acquire some or all of the
other's shares in certain circumstances pursuant to a shareholder agreement
and each has certain rights to acquire shares owned by Mr. Mondre pursuant
to shareholder agreements. For a more detailed description of these rights,
see "Shareholder and Voting Trust Agreements."
(3) Includes 142,994 shares owned directly by Mr. Gordon and 5,509,500 shares
(of which 297,500 shares were acquired after the Record Date but as to
which an affiliate of Mr. Gordon had sole voting power as of the Record
Date) held by a Texas limited partnership in which Mr. Gordon is a
63.57074% limited partner, three grantor retained annuity trusts are
limited partners having an aggregate 34.42926% interest, Mr. Gordon's wife
is a 1% limited partner and a Texas corporation, which is wholly owned by
Mr. Gordon, is a 1% general partner. The grantor retained annuity trusts
each provides an annuity to Mr. Gordon for five years, and thereafter Mr.
Gordon's wife and his lineal descendants have a principal and/or income
interest in the remainder. Also includes (i) 575,000 shares held by a Texas
limited partnership in which Mr. Gordon is a 98% limited partner, Mr.
Gordon's wife is a 1% limited partner and a Texas corporation, which is
wholly owned by Mr. Gordon, is a 1% general partner; and (ii) 408,750
shares beneficially owned by Mr. Mondre (held as described in footnote (5)
below), but as to which, pursuant to a voting trust agreement currently
between a Texas corporation owned and controlled by Mr. Gordon and the
limited partnerships owned and controlled by Mr. Mondre, Mr. Gordon has
voting control. Such voting trust agreement continues until February 2006,
subject to earlier termination in certain circumstances, and gives Mr.
Gordon absolute discretion in voting the shares. See "Shareholder and
Voting Trust Agreements." Also includes (i) 3,513 shares held by the David
L. Epstein 1996 Grantor Retained Annuity Trust #2 ("DEGRAT2") as to which
Mr. Gordon shares the voting and dispositive duties with respect to these
shares as co-trustee under the trust which provides an annuity to Mr.
Epstein for five years and with family members having the remainder
interest; (ii) 648,283 shares beneficially owned by the David Epstein 1995
Grantor Trust (held as described below) as to which Mr. Gordon shares the
voting and dispositive duties with respect to the shares as co-trustee
under this trust, which was created by Mr. Epstein for the benefit of his
children; and (iii) 3,000 shares held by The Mark J. Gordon 1996 Family
Limited Partnership, a limited partnership for which Mr. Gordon is the sole
1% general partner and trusts for the benefit of his nieces and nephews are
the limited partners. The shares beneficially owned by the David Epstein
1995 Grantor Trust are held of record by two Texas limited partnerships in
which each trust is a 98% limited partner, Mr. Epstein's wife is a 1%
limited partner and a Texas corporation, which is wholly owned by the
trust, is the 1% general partner. Messrs. Gordon and Mondre share the
voting and dispositive duties with respect to these shares as co-trustees
under the trust, which was created by Mr. Epstein for the benefit of his
children, and as the directors of the Texas corporation which is the
general partner of each Texas limited partnership.
(4) Includes 96,487 shares owned directly by Mr. Epstein and 1,330,917 shares
(of which 297,500 shares were acquired after the Record Date, but as to
which an affiliate of Mr. Epstein had sole voting power as of the Record
Date with respect to 132,084 of such shares and an affiliate of Mr. Gordon
had sole voting power as of the Record Date with respect to the balance of
such shares) held by a Texas limited partnership in which Mr. Epstein is a
71.36487% limited partner, two grantor retained annuity trusts are limited
partners having an aggregate 26.63513% interest, Mr. Epstein's wife is a 1%
limited partner and a Texas corporation, which is wholly owned by Mr.
Epstein, is the 1% general partner. The grantor retained annuity trusts
each provides an annuity to Mr. Epstein for five years, and his wife, his
parents and their lineal descendants and others have principal and/or
income interests in the remainder. Also includes (i) 475,000 shares held by
a Texas limited partnership in which Mr. Epstein is a 98% limited partner,
Mr. Epstein's wife is a 1% limited partner and a Texas corporation, which
is wholly owned by Mr. Epstein, is the 1% general partner; (ii) 1,435,000
shares beneficially owned by the Jason Howard Gordon PRC Trust (held as
described in footnote (10) below) and 1,435,000 shares beneficially owned
by the Stacy Lynn Gordon PRC Trust (held as described in footnote (9)
below), as to which Mr. Epstein shares the voting and dispositive duties as
co-trustee under these trusts which were created by Mr. Gordon for the
benefit of his children; and (iii) 136,250 shares beneficially owned by Mr.
Mondre (held as described in footnote (5) below), but as to which, pursuant
to a voting trust agreement currently between a Texas corporation owned and
controlled by Mr. Epstein and the limited partnerships owned and controlled
by Mr. Mondre, Mr. Epstein has voting control. Such voting trust agreement
continues until February 2006,
14
<PAGE> 17
subject to earlier termination in certain circumstances, and gives Mr.
Epstein absolute discretion in voting the shares. See "Shareholder and
Voting Trust Agreements." Also includes 7,006 shares held by the Mark J.
Gordon 1996 Grantor Retained Annuity Trust #2 ("MJGGRAT2") as to which Mr.
Epstein shares the voting and dispositive duties with respect to these
shares as co-trustee under the trust, which provides an annuity to Mr.
Gordon for five years and with family members having the remainder
interest.
(5) Includes 495,000 shares held by a Texas limited partnership in which Mr.
Mondre is a 94.71279% limited partner, the Richard D. Mondre 1996 Grantor
Retained Annuity Trust #1 ("RDMGRAT") is a 3.28721% limited partner, Mr.
Mondre's wife is a 1% limited partner and a Texas corporation, which is
wholly owned by Mr. Mondre, is the 1% general partner. The RDMGRAT provides
an annuity to Mr. Mondre for five years, after which his wife and his son
have an income interest in the remainder and Mr. Mondre's wife and/or
lineal descendants, subject to a further trust, have a principal interest
in the remainder. Also includes 50,000 shares held by a Texas limited
partnership in which Mr. Mondre is a 98% limited partner, Mr. Mondre's wife
is a 1% limited partner and a Texas corporation, which is wholly owned by
Mr. Mondre, is the 1% general partner. All such shares are subject to
voting trust agreements described in footnotes (3) and (4) above. Also
includes (i) 7,006 shares held by the MJGGRAT2 as to which Mr. Mondre
shares the voting and dispositive duties as co-trustee under the trust;
(ii) 1,435,000, 1,435,000 and 648,283 shares as to which Mr. Mondre shares
the voting and dispositive duties as co-trustee under the Jason Howard
Gordon PRC Trust, the Stacy Lynn Gordon PRC Trust and the David Epstein
1995 Grantor Trust, respectively (see footnotes (3) and (4) above and (9)
and (10) below); (iii) 3,513 shares held by the DEGRAT2 as to which Mr.
Mondre shares the voting and dispositive duties with respect to the shares
as co-trustee under the trust (see footnote (3) above); and (iv) 50,000
shares held by a Texas limited partnership in which a Texas corporation,
which is wholly owned by Mr. Mondre, is the 1% general partner and Mr.
Mondre's son is a 99% limited partner.
(6) The information set forth herein with respect to such person is based
solely upon a Schedule 13G filed by such person with the Securities and
Exchange Commission (the "Commission") during the month ended February 28,
1998 and, accordingly, may not reflect its holdings as of the Record Date.
(7) The Crabbe Hudson Group, Inc., 121 SW Morrison, Suite 1400, Portland,
Oregon 97204, is a registered investment adviser and, in connection
therewith, is deemed to be the beneficial owner of 2,360,600 shares of
Common Stock with respect to which it shares voting and dispositive powers.
(8) The Capital Group Companies, Inc. ("Capital Group"), 333 South Hope Street,
Los Angeles, California 90071, is the parent holding company of a group of
investment management companies, including, without limitation, Capital
Research and Management Company ("Capital Research"), a registered
investment adviser having the same address as Capital Group, and Capital
Group through Capital Research is deemed (as is Capital Research) to be the
beneficial owner of 2,043,000 shares of Common Stock with respect to which
Capital Research has sole dispositive power. SMALLCAP World Fund, Inc., a
registered investment company which is advised by Capital Research and has
the same address as Capital Group, is deemed to also be the beneficial
owner of 1,398,000 of such 2,043,000 shares with respect to which SMALLCAP
World Fund, Inc. has sole voting power.
(9) All of these shares are held by two Texas limited partnerships in which the
trust is a 98% limited partner, Stacy Lynn Gordon is a 1% limited partner
and a Texas limited liability company is the 1% general partner. The
general partner is owned by the trust as a 99% member and by a Texas
corporation, which is wholly owned by the trust, as a 1% managing member.
Messrs. Epstein and Mondre share the voting and dispositive duties with
respect to these shares as co-trustees under this trust, which was created
by Mr. Gordon for the benefit of his daughter, Stacy Lynn Gordon, and as
directors of the Texas corporation.
(10) All of these shares are held by two Texas limited partnerships in which the
trust is a 98% limited partner, Jason Howard Gordon is a 1% limited partner
and a Texas limited liability company is the 1% general partner. The
general partner is owned by the trust as a 99% member and by a Texas
corporation, which is wholly owned by the trust, as a 1% managing member.
Messrs. Epstein and Mondre share the voting and dispositive duties with
respect to these shares as co-trustees under this trust, which was created
by Mr. Gordon for the benefit of his son, Jason Howard Gordon, and as
directors of the Texas corporation.
(11) Includes 395,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(12) Includes 175,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(13) Includes 1,667 shares of Common Stock issuable upon the exercise of options
within 60 days of the Record Date.
(14) Includes 833 shares of Common Stock issuable upon the exercise of options
within 60 days of the Record Date.
(15) Includes 1,000 shares held on behalf of Mr. Krinzman's mother, 1,000 shares
held on behalf of Mr. Krinzman's mother-in-law and 1,667 shares issuable
upon the exercise of options within 60 days of the Record Date.
(16) See other footnotes above. Does not include options held by officers and
directors which are not exercisable within 60 days of the Record Date.
SHAREHOLDER AND VOTING TRUST AGREEMENTS
Mr. Gordon and Mr. Epstein are parties to a shareholder agreement which grants
to each the right to purchase some or all of the other's shares upon the death
or total incapacity of the other or the involuntary transfer of the other's
shares, and a right of first refusal on any shares proposed to be sold to or by
a third party. References throughout this section to individuals' share
ownership mean the family limited partnerships, grantor retained annuity trusts
and other entities which are the record owners of such shares. See "Beneficial
Ownership" for a description of the shares which are beneficially owned by each
of Messrs. Gordon, Epstein and Mondre and their respective immediate family
members.
15
<PAGE> 18
Mr. Mondre acquired his shares of Common Stock 75% from Mr. Gordon and 25%
from Mr. Epstein in February 1996 at a price of $0.55 per share (the
"Acquisition"). The purchase prices are evidenced by nine-year promissory notes,
each bearing interest at 5.61% per annum, with interest payable annually and the
entire principal due at maturity. Such notes are guaranteed by Mr. Mondre's
spouse and are secured by a pledge of the shares sold and other securities owned
by Mr. Mondre's spouse pursuant to separate pledge agreements.
In connection with the Acquisition, Mr. Mondre entered into a shareholders
agreement with Mr. Gordon and Mr. Epstein which, for a period extending through
April 1, 1999, provides for significant restrictions on Mr. Mondre's rights to
sell, alienate or otherwise dispose of the shares of Common Stock acquired by
Mr. Mondre from Mr. Gordon and Mr. Epstein, respectively, as well as rights on
the part of Mr. Gordon and Mr. Epstein to purchase those shares under certain
circumstances. Such restrictions and purchase rights do not relate to shares
which may be owned by Mr. Mondre from time to time that were not acquired from
Mr. Gordon or Mr. Epstein or those shares of Common Stock permitted to be sold
by Mr. Mondre. Currently, all shares of Common Stock owned by Mr. Mondre were,
in fact, acquired from either Mr. Gordon or Mr. Epstein. Generally, Mr. Mondre
may not sell, alienate or otherwise dispose of their shares of Common Stock
prior to April 1, 1999, without the consent of Mr. Gordon and Mr. Epstein,
subject to certain exceptions including a change in control, termination of
employment without cause, a sale of the Company, a sale of shares in a public
offering and death or disability (subject to the repurchase rights of Mr. Gordon
and Mr. Epstein described below). The Common Stock then owned by Mr. Mondre is
subject to repurchase by Mr. Gordon and Mr. Epstein at the acquisition price if
his employment with the Company terminates during his respective three-year
employment term as a result of his resignation or termination by the Company
with cause. All of such repurchase rights terminate upon a change in control, a
sale of the Company, or termination of employment without cause during the
three-year employment term.
Pursuant to voting trust agreements entered into at the time of the
Acquisition, each of Mr. Gordon and Mr. Epstein retained the right to vote the
shares sold by him to Mr. Mondre until February 16, 2006, subject to earlier
termination in certain events. The voting trusts terminate with respect to any
shares permitted to be sold by Mr. Mondre under the applicable shareholder
agreement described above and terminate completely upon the death of the voting
trustee or upon a change in control. As of the Record Date, each of Mr. Gordon
and Mr. Epstein exercises such voting rights through a separate Texas
corporation owned and controlled by him.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and changes in ownership with
the Commission and the National Association of Securities Dealers, Inc.
Executive officers, directors and greater than ten percent shareholders are
required by the Exchange Act to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations that no Forms 5 were required, the Company believes
that, during 1997, its directors, executive officers and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements except in one instance. James R. Weber, Senior Vice
President-Telemarketing Operations of the Company, inadvertently failed to file
a Form 4 for November 1997 in connection with the sale of 500 shares of Common
Stock owned by him. Such Form 4 is in the process of being filed.
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<PAGE> 19
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder returns on the
Company's Common Stock for the period covering July 17, 1996 (the first day of
trading subsequent to the Company's Initial Public Offering) through December
31, 1997, on a quarterly basis, with the cumulative total return of The Nasdaq
Stock Market - U.S. (the "Nasdaq Market") Index and a group of peer companies in
the telecommunications industry (the "Peer Group") for the same period.
COMPARISON OF SEVENTEEN-MONTH CUMULATIVE TOTAL RETURN(1)
AMONG THE COMPANY(2), THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP(3)
The following table presents, in tabular form, the data set forth in the
performance graph to be included in the Proxy Statement:
<TABLE>
<CAPTION>
PRECISION NASDAQ
RESPONSE STOCK PEER
CORPORATION MARKET GROUP
----------------- ----------- ------------
<S> <C> <C> <C>
07/17/96 $ 100 $ 100 $ 100
09/96 266 113 149
12/96 242 119 107
03/97 163 112 78
06/97 114 133 88
09/97 53 155 64
12/97 70 146 52
</TABLE>
- ----------
(1) Assumes the investment of $100 on July 17, 1996 and reinvestment of
dividends (no dividends were declared on the Company's Common Stock during
the period).
(2) The Company completed the Initial Public Offering, declared effective on
July 16, 1996, at an exercise price of $14.50 per share. Prior to the
Initial Public Offering, the Company's common stock was not listed or
quoted on any organized market system.
(3) The peer group companies are: APAC Teleservices, ATC Communications Group,
ICT Group, National TechTeam, RMH Teleservices, SITEL, SYKES Enterprises,
TeleSpectrum Worldwide, TeleTech Holdings and West TeleServices. As some of
the members of the peer group may have completed their initial public
offerings subsequent to that of the Company, they are included in the above
graph beginning with the month in which their respective company's common
stock was first listed on an organized market system, or in the case of
this particular group, the Nasdaq National Market.
17
<PAGE> 20
PROPOSAL 1
ELECTION OF DIRECTORS
The election of seven directors of the Company is proposed, each to hold
office until the Annual Meeting of Shareholders next succeeding his election and
until his respective successor is elected and qualified or as otherwise provided
in the Bylaws of the Company. Unless marked otherwise, proxies received will be
voted FOR the election of each of the nominees named below who have been
designated by the Board. If any such nominee is unable or unwilling to serve as
a nominee for the office of director at the time of the Annual Meeting, the
proxies may be voted for either (i) a substitute nominee who shall be designated
by the proxy holders or by the present Board to fill such vacancy or (ii) for
the balance of the nominees, leaving a vacancy. Alternatively, the size of the
Board may be reduced accordingly. The Board has no reason to believe that any
such nominees will be unwilling or unable to serve if elected as a director.
1998 NOMINEES
Set forth below is a list of the nominees for directors of the Company. The
terms of the directors expire annually upon the holding of the Annual Meeting.
NAME DIRECTOR SINCE
---- --------------
Mark J. Gordon 1984
David L. Epstein April 1996
Richard D. Mondre May 1996
Bernard J. Kosar, Jr. October 1996
Christian Mustad October 1996
Neil A. Natkow October 1996
Richard N. Krinzman February 1997
For biographical and other information regarding such nominees, including the
principal occupation of those individuals for at least the past five years, see
"Directors and Executive Officers."
The nominees for directors who receive a plurality of the votes cast by the
holders of the shares of Common Stock represented in person or by proxy at the
Annual Meeting will be elected.
THE BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE NOMINEES LISTED
ABOVE.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE
PRECISION RESPONSE CORPORATION
AMENDED AND RESTATED 1996 INCENTIVE STOCK PLAN
SUMMARY OF PLAN
PURPOSE
The Board submits to the shareholders for their approval an amendment to the
Precision Response Corporation Amended and Restated 1996 Incentive Stock Plan,
as amended (the "Employee Stock Plan"), to increase the number of shares
reserved for issuance under the Employee Stock Plan from 3,000,000 shares of
Common Stock to 4,000,000 shares of Common Stock. The material provisions of the
Employee Stock Plan are summarized below. The purpose of the Employee Stock Plan
is to provide incentives which will attract and retain highly competent persons
as officers and key employees of the Company, as well as independent contractors
providing consulting or advisory services to the
18
<PAGE> 21
Company ("non-employee consultants"). It is intended to enable such key
employees (including officers) and non-employee consultants of the Company or
any subsidiary to own stock in the Company or to receive monetary payments based
on the value of such stock, and to take advantage of the tax benefits allowed by
the Code to employer stock plans.
NUMBER OF SHARES
The Company currently has reserved 3,000,000 shares of Common Stock for
issuance under the Employee Stock Plan, subject to further antidilution
adjustments. The proposed amendment to the Employee Stock Plan would increase
the number of shares reserved for issuance under the Employee Stock Plan to
4,000,000 shares of Common Stock, subject to further antidilution adjustments.
ADMINISTRATION
The Compensation Committee of the Board administers the Employee Stock Plan.
The Compensation Committee, which serves at the discretion of the Board, is
currently comprised of two non-employee directors of the Company. From time to
time the Board may increase the size of the Compensation Committee and appoint
additional members thereof, remove members (with or without cause), and appoint
new members in substitution therefor, and fill vacancies however caused;
provided, however, that at no time shall a Compensation Committee of less than
two non-employee members of the Board administer the Employee Stock Plan. The
members of the Compensation Committee are chosen by the Board so that grants
made under the Employee Stock Plan to officers (who may also be directors) of
the Company ("Section 16 Insiders") who are subject to liability under Section
16 of the Exchange Act, and other transactions by such persons, qualify for the
maximum exemption from Section 16 liability provided by Rule 16b-3 under the
Exchange Act. The Compensation Committee has final authority to interpret any
provision of the Employee Stock Plan, any grant made under the Employee Stock
Plan or any provision of any agreement evidencing such grant. The Compensation
Committee is authorized, subject to the provisions of the Employee Stock Plan,
to establish such rules and regulations as it deems necessary for the proper
administration of the Employee Stock Plan and to make such determinations and
interpretations and to take such action in connection with the Employee Stock
Plan and any Awards (as hereinafter defined) granted as it deems necessary or
advisable.
ELIGIBILITY
Key employees (including officers), prospective key employees (conditioned
upon and effective not earlier than their becoming an employee) and non-employee
consultants of the Company or any subsidiary of the Company are eligible to
participate in the Employee Stock Plan. Only key employees of the Company or any
subsidiary are eligible to receive incentive stock options ("ISOs"). In
determining key employees to whom Awards (as defined below) will be granted, the
Compensation Committee takes into consideration the key employee's present and
potential contribution to the success and growth of the Company's business and
other such factors as the Compensation Committee may deem proper or relevant in
its discretion including whether such person performs important job functions or
makes important decisions for the Company, as well as the judgment, initiative,
leadership and continued efforts of eligible participants. As of the Record
Date, the Compensation Committee has not adopted formal eligibility limitation
criteria. Therefore, quantification of the current number of employees and
non-employee consultants that would technically be eligible for participation is
not currently readily determinable. As of the Record Date, approximately 192
employees held outstanding stock options.
TYPES OF AWARDS
The Employee Stock Plan permits the Company to grant ISOs, nonqualified stock
options ("NSOs"), stock appreciation rights, stock awards, performance shares
and performance units (collectively, "Awards"). These Awards are described
below.
STOCK OPTIONS
Stock options consist of awards from the Company, in the form of agreements,
which enable the holder (an "optionee") to purchase a specific number of shares
of Common Stock, at set terms and at a fixed purchase price. ISOs are options
that qualify for preferred tax treatment under Section 422 of the Code. NSOs are
options that do not qualify as ISOs.
19
<PAGE> 22
Options designated as ISOs that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as NSOs for Federal income tax
purposes automatically without further action by the Compensation Committee on
the date of such failure to continue to meet the requirements of Section 422 of
the Code.
TERM OF OPTIONS. The Compensation Committee determines the term of each option
and the time or times, and conditions (such as a change in control) under which,
each option vests and may be exercised. However, the term of an ISO may not
exceed ten years from the date of grant and the term of an NSO may not exceed
fifteen years from the date of grant.
EXERCISE PRICE. The Compensation Committee also determines the option exercise
price. However, the exercise price of an ISO may not be less than the fair
market value of Common Stock on the date of grant. Under certain circumstances
(relating to ownership of more than 10% of the total combined voting power of
all classes of stock of the Company), the exercise price of an ISO may not be
less than 110% of the fair market value on the date of grant and the term of
such ISO may not exceed five years from the date of grant. The exercise price
for an NSO may not be less than 85% of the fair market value on the date of
grant, except for a maximum of 50,000 shares of Common Stock which may be
granted at an exercise price as low as $0.01 per share. For purposes of the
Employee Stock Plan and any Awards thereunder, "fair market value" of Common
Stock is the mean between the highest and lowest sale prices for the Company's
Common Stock as reported on the Nasdaq National Market (or such other
consolidated transaction reporting system on which such Common Stock is
primarily traded) on the date immediately preceding the date of grant (or on the
next preceding trading date if Common Stock was not traded on the date
immediately preceding the date of grant), provided, however, that, if the
Company's Common Stock is not at any time readily tradable on a national
securities exchange or other market system, "fair market value" shall mean the
amount determined in good faith by the Compensation Committee as the fair market
value of the Common Stock.
LIMITATION ON EXERCISE OF ISOS. The aggregate fair market value (determined as
of the time the option is granted) of the Common Stock with respect to which
ISOs are exercisable for the first time by a participant during any calendar
year (under all option plans of the Company) shall not exceed $100,000 and, to
the extent in excess of such $100,000, such excess options shall be treated as
NSOs.
TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. If an optionee
terminates his or her employment or consulting relationship for any reason, his
or her option may be exercised to the extent it had vested and was exercisable
at the date of such termination for a period of time determined by the
Compensation Committee at the time the option is granted. Pursuant to the terms
of the existing option agreements entered into at the time of the granting of an
option, in the case of a termination other than for disability, death or breach
of an employment contract by the optionee, the period for exercise as to vested
options following termination generally does not exceed three months. In the
case of termination for disability, the period for exercise as to vested options
is generally 12 months. In the case of termination for death, the exercise
period for vested options is generally for 18 months following the issuance of
letters testamentary or letters of administration to the personal
representative, executor or administrator of the deceased optionee, if the death
occurs either during the employment or during the three month period following
termination (other than a termination for breach of an employment agreement or
if the optionee was terminated for cause), but in no event later than two years
after the optionee's death. In the case of termination for breach by the
optionee of an employment agreement with the Company or if the optionee was
terminated for cause, the exercise period ends on the date of termination. In no
event may an option be exercised after the expiration of the original term of
the option.
In the event of the death of an optionee while an option remains exercisable,
such option, to the extent vested, is exercisable during such period after his
or her death as the Compensation Committee shall have determined (but not beyond
the stated duration of the option), and then only by the executor or
administrator of the estate of the deceased or the person or persons to whom the
deceased optionee's rights passes by will or the laws of descent and
distribution.
MANNER OF EXERCISE. Options are exercisable only by delivery of a written
notice in a form prescribed by the Compensation Committee. The Compensation
Committee may specify in the agreement evidencing the grant of an option a
minimum number of shares that may be purchased upon any exercise of the option.
Subsequent to the grant of any options which are not immediately exercisable in
full, the Compensation Committee, at any time before complete termination of
such options, may accelerate the time or times at which such options may be
exercised in whole or in part.
PAYMENT OF EXERCISE PRICE. The Compensation Committee determines how an
optionee may pay the exercise price of an option. The Employee Stock Plan
specifically states that a check is an acceptable form of consideration and
that,
20
<PAGE> 23
subject to the discretion of the Compensation Committee and as provided in the
agreement evidencing the grant, payment may also be made by delivery of shares
of Common Stock of the Company, if such payment does not result in a charge to
earnings of the Company for financial accounting purposes, or by a combination
of check and shares, or by delivery to the Company of a properly executed
exercise notice together with a copy of irrevocable instructions to a broker to
deliver to the Company the appropriate amount of proceeds from the sale or loan
of the shares exercised (often referred to as a "cashless exercise"). Subject to
certain restrictions and the discretion of the Compensation Committee, an
optionee who incurs a tax liability upon the exercise of an option may satisfy
any withholding obligation by electing to have the Company retain a sufficient
number of shares to cover the withholding obligation.
STATUS OF OPTIONEE. The recipient of an option shall not be deemed for any
purpose to be a shareholder of the Company with respect to any of the Common
Stock subject thereto except to the extent that the option shall have been
exercised and, in addition, a certificate shall have been issued and delivered
to the participant.
STOCK APPRECIATION RIGHTS
A stock appreciation right (an "SAR") is a right to participate in the
appreciation of the fair market value of the shares of Common Stock subject to
the right. SARs may be granted to the holders of stock options or may be granted
independently of and without relation to stock options. An SAR granted in
conjunction with a stock option will entitle the holder to elect, in lieu of
exercising the stock option, to receive the appreciation in the fair market
value of the shares subject to the option up to the date the right is exercised.
Such appreciation shall be measured from not less than the option price. In the
case of an SAR issued independently of any stock option, such appreciation shall
be measured from not less than 85% of the fair market value of the Common Stock
on the day the right is granted. Payment of such appreciation shall be made in
cash or in shares of Common Stock, or a combination thereof, as determined by
the Compensation Committee and as set forth in the Award, but no SAR shall
entitle the holder to receive, upon exercise thereof, more than the number of
shares of Common Stock (or cash equivalent) with respect to which the right is
granted. An SAR relating to an NSO may be made as part of the NSO at the time of
its grant or at any time thereafter up to six months prior to its expiration. An
SAR relating to an ISO may be made a part of such ISO only at the time of its
grant. Each SAR will be exercisable at the times and to the extent set forth
therein, but no SAR shall be exercisable earlier than six months after the date
it was granted or later than the earlier of (i) the term of the related stock
option, if any, or (ii) 15 years after it was granted. In the event of the death
of a grantee while an SAR remains exercisable, such SAR shall be exercisable
during such period after his or her death as the Compensation Committee shall
have determined (but not beyond the stated duration of the right), and then only
by the executor or administrator of the estate of the deceased or the person or
persons to whom the deceased grantee's rights shall pass by will or the laws of
descent and distribution.
STOCK AWARDS
A stock award (a "Stock Award") is a grant of shares of Common Stock to the
grantee without payment for such shares or payment at less than fair market
value of the shares as additional compensation for services rendered to the
Company. Stock Awards are subject to such terms and conditions as the
Compensation Committee determines, including, without limitation, restrictions
on the sale or other disposition of such shares and rights of the Company to
reacquire such shares for no consideration upon termination of the grantee's
employment or consulting relationship within specified periods. The grantee of a
Stock Award shall have, with respect to the shares subject to such Stock Award,
all the rights of a holder of shares of the Company's Common Stock, including
the right to receive dividends and to vote the shares.
PERFORMANCE SHARES
Performance shares ("Performance Shares") entitle the grantee to receive
shares of Common Stock or cash of an equivalent value at the end of a specified
Performance Period (defined below). A "Performance Period" relates to the period
during which the receipt of the shares of Common Stock will be deferred.
Performance Shares may be awarded either alone or in addition to other Awards
under the Employee Stock Plan. The Compensation Committee will determine the
number of Performance Shares to be awarded to any grantee, the duration of the
Performance Period and the conditions under which receipt of the shares of
Common Stock will be deferred, and the other terms and conditions of the grant.
The Compensation Committee may condition the grant of Performance Shares upon
the attainment of certain specified performance goals or other factors or
criteria as the Compensation Committee shall determine. Unless otherwise
determined by the Compensation Committee at the time of the award of a
Performance Share, any dividends payable during the Performance Period with
respect to the shares covered by a Performance Share award will not be
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<PAGE> 24
paid to the grantee. Subject to the provisions of the Performance Share award
and the Employee Stock Plan, at the expiration of the Performance Period, shares
of Common Stock and/or cash of an equivalent value shall be delivered to the
grantee, or his or her legal representative, in a number equal to the vested
shares covered by the Performance Share award. If the grantee's employment or
consulting arrangement with the Company terminates during the Performance
Period, the Performance Shares in question will vest or be forfeited in
accordance with the terms and conditions established by the Compensation
Committee.
PERFORMANCE UNITS
Performance units ("Performance Units") consist of the right to receive a
fixed dollar amount, payable in cash or shares of Common Stock or a combination
of both. Performance Units may be awarded either alone or in addition to other
Awards under the Employee Stock Plan. The Compensation Committee will determine
the time or times at which Performance Units shall be awarded, the duration of
the period (the "Performance Cycle") during which, and the conditions under
which, a grantee's right to Performance Units will be vested, and the other
terms and conditions of the award of Performance Units. The Compensation
Committee may condition the vesting of Performance Units upon the attainment of
certain specified goals or such other factors or criteria as the Compensation
Committee shall determine. At the expiration of the Performance Cycle, the
Compensation Committee shall determine the extent to which the performance goals
have been achieved, and the percentage of the Performance Units that have
vested. Subject to the applicable provisions of the Performance Unit grant and
the Employee Stock Plan, at the expiration of the Performance Cycle, cash and/or
shares of Common Stock of an equivalent cash value shall be delivered to the
grantee, or his or her legal representative, in payment of the vested
Performance Units covered by the Performance Unit award. Upon termination of the
grantee's employment or consulting arrangement with the Company during the
Performance Cycle for a given Performance Unit award, the Performance Units in
question will vest or be forfeited in accordance with the terms and conditions
established by the Compensation Committee.
TERMS APPLICABLE TO ALL AWARDS
NON-TRANSFERABILITY OF AWARDS. Awards granted under the Employee Stock Plan
are non-transferable by the participant, other than as required by law
(including a qualified domestic relations order as defined by the Code or Title
I of the Employment Retirement Income Security Act, or the rules thereunder), by
will or the laws of descent and distribution or, if the Award expressly so
provides, to the participant's immediate family (which for purposes of the
Employee Stock Plan is limited to the participant's children, grandchildren and
spouse), or to one or more trusts for the benefit of such immediate family
members or partnerships in which such immediate family members and/or trusts are
the only partners. Except with respect to a qualified domestic relations order,
Awards may be exercised during the lifetime of the participant only by the
participant. In the event of the death of a participant while the participant is
rendering services to the Company, each Award theretofore granted to him or her
shall be exercisable during such period after his or her death as the
Compensation Committee shall in its discretion set forth in such Award at the
date of grant (but not beyond the stated duration of the Award) and then only
(i) by the executor or administrator of the estate of the deceased participant
or the person or persons to whom the deceased participant's rights under the
Award passes by will or the laws of descent and distribution, and (ii) to the
extent that the deceased participant was entitled to do so at the date of his or
her death.
ADJUSTMENT ON CHANGES IN CAPITALIZATION. If the Company at any time changes
the number of issued Common Stock without new consideration to the Company (such
as by stock dividend, stock split, recapitalization, reorganization, exchange of
shares, liquidation, combination or other change in corporate structure
affecting the Common Stock) or makes a distribution of cash or property which
has a substantial impact on the value of issued Common Stock, the total number
of shares available for Awards under the Employee Stock Plan shall be
appropriately adjusted and the number of shares covered by each outstanding
Award and the reference price or fair market value for each outstanding Award
shall be adjusted so that the net value of such Award shall not be changed.
EFFECT OF ACQUISITION OF THE COMPANY. In the event any sale of assets, merger,
consolidation, combination or other corporate reorganization or restructuring of
the Company with or into another corporation which results in the outstanding
Common Stock being converted into or exchanged for different securities, cash or
other property, each outstanding Award, subject to the other provisions of the
Employee Stock Plan and any limitation applicable to a particular Award, may be
assumed or substituted by the successor corporation (or a parent or subsidiary
or such
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<PAGE> 25
successor corporation) and the grantee will be entitled to receive, upon
exercise of the Award, an equivalent amount of securities, cash or other
property received with respect to the Common Stock in such transaction as would
have been received upon exercise of the Award immediately prior to such
transaction.
WITHHOLDING. All payments or distributions made pursuant to the Employee Stock
Plan shall be net of any amounts required to be withheld pursuant to applicable
Federal, state and local tax withholding requirements. If the Company proposes
or is required to distribute Common Stock pursuant to the Employee Stock Plan,
it may require the recipient to remit to it an amount sufficient to satisfy such
tax withholding requirements prior to the delivery of any certificates for such
Common Stock.
TERM, AMENDMENT AND TERMINATION. The Employee Stock Plan will expire by its
own terms on May 30, 2006. The Board may amend, alter, suspend or discontinue
the Employee Stock Plan at any time, but such amendment, alteration, suspension
or discontinuation may not adversely affect any outstanding Award without the
consent of the holder. To the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or Section 422 of the Code (or any other applicable
law or regulation, including the rules of the Nasdaq Market), the Company must
obtain shareholder approval of certain amendments to the Employee Stock Plan in
the manner and to the degree required by such laws and regulations. No Award
shall be granted after May 30, 2006; provided, however, that the terms and
conditions applicable to any Award granted prior to such date may thereafter be
amended or modified by mutual agreement between the Company and the participant
or such other persons as may then have an interest therein. Also, by mutual
agreement between the Company and a participant under the Employee Stock Plan or
under any other present or future plan of the Company, Awards may be granted to
such participant in substitution and exchange for, and in cancellation of, any
Awards previously granted such participant under the Employee Stock Plan, or any
other present or future plan of the Company.
RULE 16B-3. Awards granted to persons subject to Section 16 of the Exchange
Act, referred to as "Section 16 Insiders," are subject to any additional
applicable restrictions under Rule 16b-3.
REGISTRATION OF UNDERLYING COMMON STOCK
On January 13, 1997, the Company filed a Registration Statement on Form S-8
with the Commission in order to register the 1,931,684 shares of Common Stock
then reserved for issuance under the Employee Stock Plan. To the extent that
such Registration Statement is effective under the Securities Act of 1933, as
amended (the "Securities Act"), shares of Common Stock issued upon the exercise
of outstanding stock options granted under the Employee Stock Plan will be
immediately and freely tradable without restriction under the Securities Act,
subject to applicable volume limitations, if any, under Rule 144 promulgated
under the Securities Act and, in the case of executive officers of the Company,
Section 16 of the Exchange Act. Subject to the shareholders approval of this
amendment, it is currently contemplated that at the appropriate time the Company
will file an additional Registration Statement on Form S-8 in order to register
the additional shares of Common Stock which would be reserved for issuance under
the Employee Stock Plan.
OUTSTANDING AWARDS
As of the Record Date, options to purchase 2,870,000 shares were outstanding
under the Employee Stock Plan, of which options to purchase 2,133,000 shares had
been granted to executive officers of the Company. In addition, options to
purchase an additional 49,000 shares had been exercised as of the Record Date,
of which options to purchase 44,000 shares had been exercised by two executive
officers of the Company. Except for an option to purchase 21,000 shares granted
to Richard N. Ferry, Jr., the Company's Executive Vice President - Business
Development, which has an exercise price of $0.01 per share, all options which
have been granted under the Employee Stock Plan have had exercise prices equal
to the fair market value of the Common Stock on the date of grant of the option.
Options granted under the Employee Stock Plan generally vest over a period of
years and have a total term of seven years.
Excluding Mr. Ferry's option to purchase the balance of 7,000 shares at an
exercise price of $0.01 per share, the options outstanding as of the Record Date
to purchase 2,863,000 shares granted under the Employee Stock Plan have a
weighted average exercise price of $8.47 per share.
As of the Record Date, the Company has not granted any SARs, Stock Awards,
Performance Shares or Performance Units under the Employee Stock Plan.
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<PAGE> 26
RECENT PRICE OF COMMON STOCK
On the Record Date, the closing sale price of the Common Stock on the Nasdaq
National Market was $8.25 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the U.S. Federal income tax consequences
of Awards granted under the Employee Stock Plan based on U.S. Federal income tax
laws in effect on January 1, 1998.
INCENTIVE STOCK OPTIONS. No taxable income is recognized by an optionee upon
the grant of an ISO. No taxable income is recognized upon the exercise of an ISO
by an optionee (except to the extent the ISO affects the determination of the
optionee's alternative minimum taxable income under Section 56 of the Code, as
discussed in the paragraph below entitled "Alternative Minimum Taxable Income
Adjustment"), provided (i) no disposition of a share of Common Stock issued
pursuant to the exercise of the ISO is made by the optionee within two (2) years
(the "2 year holding period") from the date of the grant of the ISO nor within
one (1) year (the "1 year holding period") after the transfer of such share to
him or her (a "disqualifying disposition"); and (ii) the optionee was an
employee of the Company at all times from the date of the grant of the ISO to
the date, generally, three (3) months before the date of such exercise
("continuously employed") (that is, the optionee may exercise the ISO within
three (3) months following his or her termination of employment without the
recognition of taxable income on such exercise).
If a share of Common Stock is transferred to an optionee pursuant to his or
her exercise of an ISO, and if no disqualifying disposition of such share is
made by the optionee, and the optionee is continuously employed by the Company,
then upon the subsequent disposition of such share by the optionee, (i) any
amount realized in excess of the option exercise price is treated as long-term
capital gain (subject to various tax rates depending on how long such share is
held); (ii) any loss sustained is a long-term capital loss; and (iii) no
deduction under Section 162 of the Code (relating to trade or business expenses)
("employer tax deduction") is allowed to the Company for federal tax purposes.
If a share of Common Stock transferred to an optionee pursuant to his or her
exercise of an ISO is disposed of by the optionee prior to the expiration of
either the 1 or 2 year holding periods in a disqualifying disposition, then for
the taxable year of such disposition (i) the optionee recognizes ordinary
compensation income in an amount equal to the excess, if any, of the fair market
value of such share at exercise over the option exercise price (or, if such fair
market value is less than such exercise price, an amount equal to the amount
realized on such disposition) and (ii) the Company is allowed a corresponding
employer deduction. The basis of such share is then increased by the amount of
the income so recognized, and any subsequent gain or loss recognized by the
optionee with respect to such share is treated as short-term or long-term
capital gain or loss (as the case may be) and will not result in any further
employer tax deduction.
NONQUALIFIED STOCK OPTIONS. With respect to NSOs: (i) no income is recognized
by the optionee at the time the option is granted; (ii) generally, at exercise,
ordinary income is recognized by the optionee in an amount equal to the
difference between the option exercise price paid for the shares and the fair
market value of the shares on the date of exercise, and the Company is entitled
to an employer tax deduction in the same amount; and (iii) upon disposition of
the shares, any gain or loss is treated as capital gain or loss. In the case of
an optionee who is also an employee at the time of grant, any income recognized
upon exercise of an NSO will constitute wages for which withholding will be
required.
STOCK APPRECIATION RIGHTS. With respect to Stock Appreciation Rights, if the
grantee elects to receive the appreciation inherent in the Stock Appreciation
Right in cash, the cash is ordinary income, taxable to the grantee. If the
grantee elects to receive the appreciation in the Company's Common Stock, the
stock received will be ordinary income to the grantee to the extent of the
difference between its fair market value and the amount, if any, the grantee
paid for the stock. The Company is entitled to an employer tax deduction in the
same amount of the ordinary income.
STOCK AWARDS. With respect to Stock Awards, generally, ordinary income is
recognized to the grantee on the date of grant in an amount equal to the
difference between the fair market value of the Common Stock awarded and the
consideration paid by the grantee, if any, for such shares and, the Company is
entitled to an employer tax deduction in the same amount.
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<PAGE> 27
PERFORMANCE SHARES AND PERFORMANCE UNITS. With respect to Performance Shares
and Performance Units, generally, ordinary income is recognized by the grantee
upon receipt by the grantee of shares of Common Stock or cash of an equivalent
value or a combination of both upon the expiration of either the Performance
Period or the Performance Cycle and the Company is entitled to an employer tax
deduction in the same amount.
ALTERNATIVE MINIMUM TAXABLE INCOME ADJUSTMENT. The exercise by an optionee of
an ISO granted under the Employee Stock Plan may subject the optionee to
alternative minimum tax ("AMT") under Section 56 of the Code. Under Section
56(b)(3) of the Code, for purposes of computing the amount of the alternative
minimum taxable income ("AMTI") of an individual for any taxable year, (i)
Section 83 (relating to NSOs) as opposed to Section 421 (relating to ISOs) of
the Code applies to the transfer of a share of Common Stock pursuant to the
exercise of an ISO (that is, the ISO is treated as an NSO) and (ii) the optionee
must treat the difference, if any, between the fair market value of the ISO and
the option exercise price as an adjustment in determining AMTI under Section
56(b)(3) of the Code in the first taxable year in which the optionee's rights in
such share are either transferable or are not subject to a substantial risk of
forfeiture under Section 83(a) of the Code. An optionee may alter the timing and
amount of such an AMTI adjustment, if any, by filing with the Internal Revenue
Service an election under Section 83(b) of the Code within thirty (30) days
after the date of the exercise of an ISO. Such an AMTI adjustment, if any, is
also added to the basis of such share for purposes of determining adjusted gain
or loss under the AMT upon disposition of such share. No such AMT adjustment is
required if the exercise of an ISO and the subsequent disposition of such share
occur within the same taxable year.
AMENDMENT TO THE EMPLOYEE STOCK PLAN
PROPOSAL
Because the Board considers the Employee Stock Plan a very effective means to
promote the success and to assist in the further growth and development of the
Company, the Board on March 12, 1998 approved an amendment to the Employee Stock
Plan, subject to the approval of the Company's shareholders. The Board seeks the
approval of the Company's shareholders to increase the number of shares of
Common Stock issuable pursuant to the Employee Stock Plan from 3,000,000 shares
to 4,000,000 shares.
PURPOSES OF THE AMENDMENT
The purpose for increasing the number of shares available for issuance under
the Employee Stock Plan is to ensure that the Company will continue to be able
to grant Awards as incentives to those individuals upon whose efforts and
motivation the Company relies for the continued success and development of its
business and to attract and retain the best qualified personnel.
REQUIRED VOTE
The affirmative vote of a majority of the shares of Common Stock represented
in person or by proxy at the Annual Meeting which cast a vote on Proposal 2 is
necessary for the adoption and approval of the proposed amendment to the
Employee Stock Plan.
THE BOARD RECOMMENDS A VOTE FOR ADOPTION OF THE PROPOSED AMENDMENT TO THE
EMPLOYEE STOCK PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of Coopers & Lybrand L.L.P. ("Coopers & Lybrand") acted as
the Company's independent public accountants for the Company's fiscal year ended
December 31, 1997. This firm has acted as the independent public accountants for
the Company since December 27, 1995. It is anticipated that the Audit Committee
of the Board will recommend to the Board for its approval the selection of
Coopers & Lybrand to serve as the Company's independent public accountants for
the fiscal year ending December 31, 1998, after the Audit Committee has
undertaken the appropriate review, including reviewing the terms of engagement
of Coopers & Lybrand for 1998. Such independent public accountants, if selected
by the Board, will continue to serve at the pleasure of the Board. The selection
of independent public accountants is not being submitted to shareholders for
approval because there is no legal requirement
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<PAGE> 28
to do so. A representative of Coopers & Lybrand is expected to be present at the
Annual Meeting in order to have the opportunity to make a statement, if such
representative desires to do so, and to be available to respond to appropriate
questions relating to the examination by Coopers & Lybrand of the Company's 1997
financial statements.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any shareholder of the Company who wishes to present a proposal to be
considered at the 1999 Annual Meeting of Shareholders and who wishes to have
such proposal receive consideration for inclusion in the Company's proxy
statement for such meeting must deliver such proposal to the Secretary of the
Company, at the principal executive offices of the Company, 1505 N.W. 167th
Street, Miami, Florida 33169, no later than December 31, 1998. Any such
shareholder proposal must comply with the requirements of Rule 14a-8 promulgated
under the Exchange Act.
OTHER MATTERS
FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1997 is being provided to shareholders with this Proxy Statement.
THE COMPANY WILL FURNISH TO EACH PERSON SOLICITED HEREUNDER, WITHOUT CHARGE,
COPIES OF ITS ANNUAL REPORT ON FORM 10-K (INCLUDING EXHIBITS) FOR THE COMPANY'S
FISCAL YEAR ENDED DECEMBER 31, 1997, AS FILED WITH THE COMMISSION, UPON RECEIPT
OF A WRITTEN REQUEST TO MR. PAUL O'HARA, SENIOR VICE PRESIDENT - FINANCE AND
CHIEF FINANCIAL OFFICER, AT THE ADDRESS OF THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES STATED ABOVE.
OTHER
As of the date of this Proxy Statement, there are no other matters which the
Board intends to present or has reason to believe others will present at the
Annual Meeting. If any other matters properly come before the Annual Meeting or
any postponement or adjournment thereof, it is intended that the holders of the
Proxies will act in respect thereof in accordance with their best judgment.
By Order of the Board of Directors
/s/ RICHARD D. MONDRE
----------------------------------
Richard D. Mondre
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
Miami, Florida
April 30, 1998
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<PAGE> 29
Appendix A
PROXY PRECISION RESPONSE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Mark J. Gordon and David L.
Epstein, and each of them, with full power of substitution, as attorneys and
proxies to appear and to vote all shares of common stock of Precision Response
Corporation (the "Company") which the undersigned may be entitled to vote at the
Annual Meeting of Shareholders of the Company to be held at the Weston Hills
Country Club, 2600 Country Club Way, Fort Lauderdale, Florida 33332, on Friday,
June 12, 1998, at 10:00 a.m. (Eastern time) and at any postponements or
adjournments thereof. The undersigned hereby acknowledges receipt of the Notice
of Annual Meeting of Shareholders and the Proxy Statement, each dated April 30,
1998, and instructs its attorneys and proxies to vote as set forth on this
Proxy.
A [X] Please mark your
votes as in this
example.
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD NOMINEES: Mark J. Gordon
1. ELECTION OF DIRECTORS [ ] [ ] David L. Epstein
(Proposal 1) Richard D. Mondre
Bernard J. Kosar, Jr.
FOR, EXCEPT vote withheld from the Christian Mustad
following nominee(s): Neil A. Natkow
Richard N. Krinzman
</TABLE>
- ------------------------------------------------------------
2. APPROVAL OF AMENDMENT TO THE PRECISION RESPONSE CORPORATION AMENDED AND
RESTATED 1996 INCENTIVE STOCK PLAN (Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(To be Signed on Reverse Side)
3. In their discretion, to transact such other business as may properly come
before the meeting or any postponement or adjournment thereof.
The shares represented by this Proxy will be voted as specified. IF NO
CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE SPECIFIED NOMINEES AND THE
AMENDMENT TO THE PRECISION RESPONSE CORPORATION AMENDED AND RESTATED 1996
INCENTIVE STOCK PLAN. THIS PROXY CARD MUST BE PROPERLY COMPLETED, SIGNED, DATED
AND RETURNED IN ORDER TO HAVE YOUR SHARES VOTED.
PLEASE NOTE ANY CHANGE OF
ADDRESS.
Signature____________________
Date_________________________
Signature____________________
Date_________________________
NOTE: Please sign exactly as
name appears above. Joint
owners should each sign. When
signing as attorney,
executor, administrator,
trustee, etc., indicate
title. If the signer is a
corporation, sign in the
corporate name by a duly
authorized officer.
PLEASE DETACH AND MAIL IN THE
ENVELOPE PROVIDED
