<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:
[ ] 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
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.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
PRECISION RESPONSE CORPORATION
1505 N.W. 167th Street
Miami, Florida 33169
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on June 21, 1999
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 Don
Shula's Hotel, 6842 Main Street, Miami Lakes, Florida 33014, on Monday, June
21, 1999, 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 2000;
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
4,000,000 shares to 4,750,000 shares, subject to any future
antidilution adjustments; and
3. To approve the amendment and restatement in its entirety of the
Company's 1996 Nonemployee Director Stock Option Plan (the
"Director Stock Plan"); and
4. 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
Wednesday, April 28, 1999, 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, 1999
<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 Don Shula's Hotel,
6842 Main Street, Miami Lakes, Florida 33014, on Monday, June 21, 1999, 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 1998 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, 1999.
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, (2) FOR the approval of the amendment to the Company's Amended and
Restated 1996 Incentive Stock Plan, as amended (the "Employee Stock Plan") and
(3) FOR the amendment and restatement in its entirety of the Company's 1996
Nonemployee Director Stock Option Plan (the "Director 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 amendments to the Employee Stock Plan and the Director 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.
1
<PAGE> 4
RECORD DATE AND SHARE OWNERSHIP
Only shareholders of record at the close of business on Wednesday, April 28,
1999 (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 21,549,000 shares of common stock
outstanding. Mark J. Gordon and David L. Epstein, the controlling shareholders
of PRC, are the Chairman of the Board and Chief Executive Officer,
respectively, of the Company.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is a list (as of April 26, 1999) 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 51 Chairman of the Board
David L. Epstein 35 Director and Chief Executive Officer
Richard D. Mondre 54 Director, Executive Vice President, General Counsel and Secretary
Wesley T. O'Brien 43 President and Chief Operating Officer
Richard N. Ferry, Jr. 47 Executive Vice President - Business Development
Paul M. O'Hara 53 Executive Vice President - Finance and Chief Financial Officer
James R. Weber 51 Senior Vice President - Operations
Frank Modrak 44 Senior Vice President - Sales
Michael P. Miller 38 Senior Vice President - Information Services and Chief
Information Officer
Robert K. Tenzer 38 Senior Vice President - Human Resources
Thomas F. Jennings, Jr. 39 Vice President and Controller
Joseph E. Gillis 42 Vice President and Treasurer
Bernard J. Kosar, Jr. 35 Senior Advisor and Director
Neil A. Natkow 52 Director
Richard N. Krinzman 51 Director
Christian Mustad 61 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 served as the Company's Chief Executive Officer from 1985 to
November 1998. Since April 1996 to date, Mr. Gordon has served as Chairman of
the Board.
DAVID L. EPSTEIN joined the Company in 1982 and was named Executive Vice
President in 1984, President in 1985 and Chief Executive Officer in November
1998. Mr. Epstein 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.
2
<PAGE> 5
WESLEY T. O'BRIEN became President and Chief Operating Officer of the Company
in November 1998. From October 1995 until joining the Company, Mr. O'Brien was
the Chief Executive Officer and President of Trescom International
Communications Corporation, an international and long distance communications
company. Prior to that position, Mr. O'Brien was employed for approximately
twelve years with MCI Communications Corporation, a long distance
telecommunications company, where he served in various executive capacities.
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. Additionally, Mr. Ferry was appointed as President of
prcnetcare.com, Inc., a new subsidiary of the Company, in February 1999. 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.
PAUL M. O'HARA joined the Company in August 1996 as Senior Vice President -
Finance and Chief Financial Officer. Mr. O'Hara was appointed as Executive Vice
President - Finance in November 1998. 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, Inc., an apparel manufacturer.
JAMES R. WEBER joined the Company in June 1996 as Senior Vice President -
Telemarketing Operations and was formally appointed as an executive officer in
November 1996. Mr. Weber was appointed Senior Vice President Operations in
October 1998. 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.
FRANK MODRAK joined the Company in January 1996 as Vice President - Sales.
Mr. Modrak was appointed Senior Vice President - Sales in November 1998. From
1987 until joining the Company, Mr. Modrak was the National Director of
Customer Service and Sales for Cox Communications, a cable communications
company.
MICHAEL P. MILLER joined the Company in April 1999 as Senior Vice President -
Information Services and Chief Information Officer. From July 1997 until
December 1998, Mr. Miller was the Senior Vice President and Chief Technology
Officer for IQI, Inc., a telemarketing company located in Los Angeles,
California, which has merged with ATC Communications to form Aegis
Communications Group, Inc. From August 1995 until March 1997, Mr. Miller was
the Chief Information Officer for Softbank Exposition and Conference Company, a
trade show production and management company and a division of Softbank, Inc.
of Tokyo, Japan, and from January 1992 until July 1995, Mr. Miller was employed
by The Gap, Inc., an apparel retailer and manufacturer, where he served as the
Senior Director of Management Information Systems and, prior to that position,
as Director of Network Design and Engineering. Mr. Miller also has managed a
consulting firm that he originally founded in 1986, initially providing custom
software to the medical, dental and legal professions and later information
technology services to a wide variety of clients in the retail, banking and
manufacturing sectors.
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.
3
<PAGE> 6
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 PricewaterhouseCoopers LLP (formerly,
Coopers & Lybrand LLP). 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.
BERNARD J. KOSAR, JR. was appointed a director of the Company in October
1996. Mr. Kosar is currently employed by the Company as a Senior Advisor, in
which, among other functions, he advises executives of the Company on general
sales and client matters and participates in client relations. Mr. Kosar served
as Senior Vice President - Client Relations for the Company from January 1997
to September 1998. 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.
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 and Chief Executive Officer 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. From
August 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. Dr.
Natkow is a member of the Audit and Compensation Committees of the Board.
RICHARD N. KRINZMAN was appointed a director of the Company in February 1997.
Mr. Krinzman is a shareholder and director of the law firm of Holtzman,
Krinzman, Equels & Furia, P.A., a position he has held since 1979. Mr. Krinzman
has practiced law in Dade County, Florida, for over 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 Committee of the Board.
CHRISTIAN MUSTAD was appointed a director of the Company in October 1996. For
the past 25 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 horseshoes
and 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.
4
<PAGE> 7
BOARD MEETINGS AND COMMITTEES OF THE BOARD
The Board held three meetings and acted by unanimous written consent in lieu
of a meeting twelve times during 1998. 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 1998.
The Company's Board has an Audit Committee, which is currently comprised of
Messrs. Mustad and Krinzman and Dr. Natkow, and a Compensation Committee, which
is currently comprised of Mr. Mustad and Dr. Natkow, nonemployee 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 Director Stock Plan
(together, the "Stock Plans"). The Audit Committee held two meetings during
1998. The Compensation Committee held one meeting and acted by unanimous
written consent in lieu of a meeting twelve times during 1998.
The Board does not currently have a nominating committee or a committee
performing similar functions. The Board as a whole performs such functions.
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. Prior to the adoption by the Board of the
Restated Director Stock Plan subject to the approval of the Company's
shareholders, 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. The Restated
Director Stock Plan has increased those awards to an option to purchase at
least 5,000 shares of Common Stock (up to 50,000 shares at the discretion of
the Board) upon initial election and an option to purchase 5,000 shares of
Common Stock upon each re-election, provided that, upon and subject to
re-election of the three nonemployee directors at the Annual Meeting, the three
nonemployee directors will each be awarded an option to purchase 15,000 shares
of Common Stock. 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" and "Proposal 3: APPROVAL OF THE AMENDEMENT AND RESTATEMENT IN ITS
ENTIRETY OF THE DIRECTOR STOCK PLAN" ("Proposal 3").
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 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.
5
<PAGE> 8
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 1998 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 Messrs. Gordon and Epstein, the Chairman of the Board and Chief
Executive Officer, respectively, of the Company, and all other employment
agreements for the Company's executive officers in effect as of April 26, 1999,
are described under "Employment Agreements."
ANNUAL BONUS COMPENSATION
Annual bonuses for executive officers are generally determined either by the
Compensation Committee based upon the performance and efforts of an executive
officer and the Company's operating performance for the particular year or
pursuant to a bonus plan or formula established by the Company and approved by
the Compensation Committee. With respect to 1998, neither the Chairman of the
Board nor Chief Executive Officer of the Company received any annual bonus,
although two other Named Executive Officers received annual bonuses as
indicated in the "Executive Compensation Table" below. See also "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, with four of the Named
Executive Officers having a provision in their respective employment agreements
to receive annually at least 5% of the total annual grants to all employees of
the Company. 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.
Submitted by the Compensation Committee of the Board of Directors.
Christian Mustad
Neil A. Natkow
6
<PAGE> 9
EXECUTIVE COMPENSATION TABLE
The following table sets forth information with respect to all compensation
paid or earned for services rendered to the Company in 1998, 1997 and 1996 by
the Chairman of the Board and former chief executive officer of the Company,
the current chief executive officer of the Company 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, 1998. In addition, the following table includes an additional individual
who served as an executive officer of the Company during 1998 (all of the
individuals named in the following table are collectively defined as 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 other annual compensation (perquisites and other
personal benefits) received by each Named Executive Officer in each respective
year did not exceed the lesser of $50,000 or 10% of the Named Executive
Officer's total annual salary and bonus reported for such Named Executive
Officer.
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
- ----------------------------------- ------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
David L. Epstein 1998 $ 418,841 -- -- --
Chief Executive Officer 1997 388,187 -- -- --
1996 358,554 -- -- --
Mark J. Gordon 1998 408,226 -- -- $ 29,712(2)
Chairman of the Board and 1997 403,269 -- -- 10,703(2)
Former Chief Executive Officer 1996 358,554 -- -- 13,301(2)
Richard D. Mondre 1998 406,588 -- -- --
Executive Vice President, 1997 372,270 -- -- --
General Counsel and Secretary 1996 271,884(3) $ 40,000(4) -- --
Paul M. O'Hara 1998 374,639 50,000 200,000 --
Executive Vice President- 1997 298,215 50,000 350,000(6) --
Finance and Chief Financial 1996 91,495(5) 25,000(4) 200,000(6) --
Officer
Richard N. Ferry, Jr. 1998 331,870 -- 200,000 --
Executive Vice President- 1997 196,738 73,514 336,000(7) --
Business Development 1996 153,461 32,000 157,000(7) --
James R. Weber 1998 228,574 75,000 85,000 --
Senior Vice President- 1997 194,429 89,325 115,000(8) --
Operations 1996 114,015 38,497(4) 40,000(8) --
Bernard J. Kosar, Jr. 1998 285,594 -- 250,000 400,000(9)
Senior Advisor and Former 1997 260,097 105,000 475,000(10) --
Senior Vice President-Client 1996 -- -- 60,000(10) 68,000(11)
Relations
</TABLE>
7
<PAGE> 10
- -----------
(1) See "Option Grants and Holdings" below for a description of such executive
officers' options.
(2) Consists of premiums paid for three split-dollar life insurance policies
for the benefit of the Mark Gordon Family Trust. See "Certain Relationships
and Related Transactions."
(3) Mr. Mondre joined the Company in March 1996. His base annual salary for
1996 was $360,000.
(4) This amount was earned in 1996 but paid in 1997.
(5) Mr. O'Hara joined the Company in August 1996. His base annual salary for
1996 was $250,000.
(6) The option for 200,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
(7) The option for 136,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
(8) The option for 40,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
(9) This amount represents the amount payable to Mr. Kosar under a new
employment agreement effective October 1, 1998 entered into by Mr. Kosar
with the Company in connection with and consideration of the cancellation
of his then existing employment agreement with the Company. Mr. Kosar
resigned as an executive officer of the Company effective October 1, 1998.
See "Employment Agreements."
(10) The option for 60,000 of these shares was granted in connection with
cancellation of option to purchase same number of shares of Common Stock
granted in 1996.
(11) This amount represents the total commissions and fees earned by Mr. Kosar
in 1996 in connection with consulting services performed for the Company
prior to joining the Company as an executive officer.
OPTION GRANTS AND HOLDINGS
1998 OPTION GRANTS
The following table summarizes the options which were granted during 1998 to
the Named Executive Officers:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------- Potential Realizable
% of Value at Assumed
Total Closing Value at Annual Rates
Number of Options Market Grant-Date of Stock Price
Securities Granted to Price On Market Appreciation
Underlying Employees Exercise Date of Price for Option Term(1)
Options In Fiscal Price Grant Expiration ---------- --------------------------
Name Granted (#) Year ($/Sh) ($/Share)(2) Date 0%($)(2) 5%($) 10%($)
- -------------------- ---------- --------- ------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David L. Epstein -- -- -- -- -- -- -- --
Mark J. Gordon -- -- -- -- -- -- -- --
Richard D. Mondre -- -- -- -- -- -- -- --
Paul M. O'Hara 200,000 12.02 6.94 7.00 11/19/05 12,000 581,941 1,340,204
Richard N. Ferry, Jr. 200,000 12.02 6.94 7.00 11/19/05 12,000 581,941 1,340,204
James R. Weber 85,000 5.11 5.09 5.00 10/05/05 -- 165,368 395,555
Bernard J. Kosar, Jr. 250,000 15.03 8.03 9.13 3/18/05 275,000 1,204,207 2,440,447
</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 "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 officer 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) 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.
8
<PAGE> 11
1998 OPTION EXERCISES AND YEAR-END VALUES
The following table provides information regarding the value of all options
exercised during 1998 and unexercised options held at December 31, 1998 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, 1998 DECEMBER 31, 1998 (1)
ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- --------------------- -------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
David L. Epstein -- -- -- -- -- --
Mark J. Gordon -- -- -- -- -- --
Richard D. Mondre -- -- -- -- -- --
Paul M. O'Hara -- -- 315,500 234,500 $ 223,048 $ 174,703
Richard N. Ferry, Jr. 7,000 $66,868 317,880 225,120 272,911 167,714
James R. Weber -- -- 100,000 100,000 107,738 107,738
Bernard J. Kosar, Jr. -- -- 228,750 466,250 22,306 73,369
</TABLE>
- ----------
(1) Based on a per share price of $7.625 on December 31, 1998, which was the
closing market price of the Company's Common Stock on the last day of the
Company's 1998 fiscal year.
EMPLOYEE STOCK PLAN AND DIRECTOR STOCK PLAN
The Company has adopted the Employee Stock Plan and the Director Stock Plan.
Officers, key employees and nonemployee 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 4,000,000 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 4,750,000 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 nonemployee director of the Company. Prior to the adoption by
the Board of the Restated Director Stock Plan subject to the approval of the
Company's shareholders, such directors received an option to purchase 2,500
shares of Common Stock on initial election to the Board and on each annual
re-election at an exercise price equal to the fair market value of the Common
Stock on the date of grant, having a term of ten years and vesting in equal
annual installments over three years. The Restated Director Stock Plan has
increased those awards to an option to purchase at least 5,000 shares of Common
Stock (up to 50,000 shares at the discretion of the Board) upon initial
election and an option to purchase 5,000 shares of Common Stock upon each
re-election, provided that upon and subject to re-election of the three
nonemployee directors at the Annual Meeting, the three nonemployee directors
will each be awarded an option to purchase 15,000 shares of Common Stock. The
Restated Director Stock Plan also provides that options to be issued will vest
in full on the first anniversary from the date of grant. Prior to the adoption
by the Board of the Restated Director Stock Plan subject to the approval of the
Company's shareholders, the Company had 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"). As discussed in Proposal 3, as
part of the amendment and restatement in its entirety of the Director Stock
Plan, the Company is seeking approval to increase the number of shares reserved
for issuance under the Director Stock Plan to 300,000 shares, subject to
further antidilution adjustments. For a summary of the Director Stock Plan, as
previously in effect and as amended and restated, including the material
amendments to the Director Stock Plan incorporated in the Restated Director
Stock Plan, see Proposal 3.
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 3,858,200
9
<PAGE> 12
shares granted under the Stock Plans outstanding as of the Record Date, have a
weighted average exercise price of $7.35 per share.
RETIREMENT PLANS
The Company maintains a profit sharing and 401(k) savings plan (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 accrued a contribution of approximately
$85,000 to the Profit Sharing/401(k) Plan during 1998, which was paid in early
April 1999. The Company also contributed approximately $45,000 to the Profit
Sharing/401(k) Plan for 1997, which was paid in 1998. The Company did not
contribute to the Profit Sharing/401(k) Plan during 1996.
EMPLOYMENT AGREEMENTS
MARK J. GORDON AND DAVID L. EPSTEIN. Each of Mr. Gordon and Mr. Epstein
entered into an employment agreement with the Company in May 1996, the terms of
which are substantially similar except to the extent the terms of Mr. Epstein's
agreement have been modified as hereinafter indicated pursuant to an amendment
to his agreement effective as of April 1, 1999 (the "Epstein Amendment"). The
initial employment term is the period from July 1, 1996 to June 30, 2001,
subject to the Epstein Amendment extending Mr. Epstein's initial term to March
31, 2002, 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 current
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, except
that the Epstein Amendment now gives the Compensation Committee authority to
determine the annual bonus in its sole discretion based upon the operating
results of the Company and Mr. Epstein's performance during the year. 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. The vesting of any options granted pursuant to the agreements
will accelerate in certain events including a change in control (as defined
therein). 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, 1997
and 1998. 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 or constructive
termination (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. The Epstein Amendment
also added nonrenewal of Mr. Epstein's agreement to events in which the
foregoing three-year severance would be paid and the Company has agreed to
enter into a split-dollar life insurance arrangement with Mr. Epstein. See
"Certain Relationships and Related Transactions" for discussion of such
split-dollar life insurance arrangement.
RICHARD D. MONDRE. Effective April 1, 1999, Mr. Mondre entered into a new
employment agreement with the Company replacing his former employment agreement
that had expired as of March 31, 1999. Mr. Mondre's new employment agreement
extends to March 31, 2002, with automatic renewal of such employment agreement
for successive one-year terms unless either party notifies the other in writing
of nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $400,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the
Company and Mr. Mondre's performance, and the annual grant of stock options in
a number to be determined by the Compensation Committee, but no fewer than 5%
of the aggregate number of
10
<PAGE> 13
shares for which options were granted under the Stock Plans during the year
(other than stock options awarded to certain executive officers pursuant to a
provision in their respective employment agreements with the Company
substantially the same as the stock option grant provision in Mr. Mondre's
employment agreement). The vesting of any options granted to Mr. Mondre as
described in the previous sentence will accelerate in certain events including a
Change in Control (as hereinafter defined). If Mr. Mondre's employment is
terminated by the Company without cause or as the result of constructive
termination (as defined) other than in connection with a Change in Control, he
will be entitled to the sum of the salary that he would have received during the
greater of (i) the one year period following the date of such termination and
(ii) the remainder of the initial term (if such termination occurs during the
initial term) and $200,000. If Mr. Mondre's employment is not renewed by the
Company at the end of the initial term or any one-year renewal term other than
in connection with a Change of Control, he will be entitled to one year's
salary. If Mr. Mondre's employment is terminated without cause or as a result of
constructive termination or nonrenewal by the Company (or its successor) within
generally 180 days before or after a Change in Control, he will be entitled to a
lump sum severance payment equal to 2.99 times an amount equal to the average of
the sum of the annual salary and bonus amount paid to him each year during the
employment term. A "Change in Control" generally means that neither Mr. Gordon
nor Mr. Epstein control the Company nor is occupying the positions of Chairman
of the Board and/or Chief Executive Officer of the Company. Mr. Mondre has also
been granted certain demand and piggyback registration rights. Mr. Mondre is
authorized to remain "Of Counsel" to BSDPA as long as his duties in that
capacity do not interfere with his performance under the employment agreement
with the Company.
WESLEY T. O'BRIEN. Mr. O'Brien's employment agreement extends to December 31,
2001, with automatic renewal of such employment agreement for successive
one-year terms unless either party notifies the other in writing of nonrenewal
at least 60 days prior to expiration of the initial term or any renewal term.
The employment agreement provides for, among other things, an annual salary of
$350,000, an annual bonus determined by the Compensation Committee in its sole
discretion based upon the operating results of the Company and Mr. O'Brien's
performance in an amount not to exceed 75% of Mr. O'Brien's annual salary, and
stock options to acquire 350,000 shares of Common Stock at an exercise price of
$5.50 per share (the fair market value on the date of grant) vesting 50% six
months from the date of grant (October 20, 1998), 17% on each of the first and
second anniversaries from the date of grant and 16% on the third anniversary
from the date of grant. The vesting of Mr. O'Brien's options accelerate in
certain events including a Change in Control. If Mr. O'Brien's employment is
terminated by the Company without cause or as a result of constructive
termination (as defined) other than in connection with a Change in Control, he
will be entitled to the sum of the salary that he would have received during
the greater of (i) the one year period following the date of such termination
and (ii) the remainder of the initial term (if such termination occurs during
the initial term) and $175,000. If Mr. O'Brien's employment is not renewed by
the Company at the end of the initial term or any one-year renewal term other
than in connection with a Change in Control, he will be entitled to one year's
salary unless the Company waives his covenant-not-to-compete. If Mr. O'Brien's
employment is terminated without cause or as a result of constructive
termination or nonrenewal by the Company (or its successor) within 180 days
after a Change in Control, he will be entitled to a lump sum severance payment
equal to 2.99 times an amount equal to the average of the sum of the annual
salary and bonus amount paid to him each year during the employment term.
RICHARD N. FERRY, JR. Effective April 1, 1999, Mr. Ferry entered into a new
employment agreement with the Company replacing his employment agreement that
was to expire on June 30, 1999. Mr. Ferry's new employment agreement extends to
March 31, 2002, with automatic renewal of such employment agreement for
successive one-year terms unless either party notifies the other in writing of
nonrenewal at least 60 days prior to expiration of the initial term or any
renewal term. The employment agreement provides for, among other things, an
annual salary of $300,000, an annual bonus determined by the Compensation
Committee in its sole discretion based upon the operating results of the
Company and Mr. Ferry's performance, and the annual grant of stock options in a
number to be determined by the Compensation Committee, but no fewer than 5% of
the aggregate number of shares for which options were granted under the Stock
Plans during the year (other than stock options awarded to certain executive
officers pursuant to a provision in their respective employment agreements with
the Company substantially the same as the stock option grant provision in Mr.
Ferry's employment agreement). The vesting of any options granted to
11
<PAGE> 14
Mr. Ferry as described in the previous sentence will accelerate in certain
events including a Change in Control. If Mr. Ferry's employment is terminated by
the Company without cause or as the result of constructive termination (as
defined) other than in connection with a Change in Control, he will be entitled
to the sum of the salary that he would have received during the greater of (i)
the one-year period following the date of such termination and (ii) the
remainder of the initial term (if such termination occurs during the initial
term) and $150,000. If Mr. Ferry's employment is not renewed by the Company at
the end of the initial term or any one-year renewal term other than in
connection with a Change of Control, he will be entitled to one year's salary.
If Mr. Ferry's employment is terminated without cause or as a result of
constructive termination or nonrenewal by the Company (or its successor) within
generally 180 days before or after a Change in Control, he will be entitled to a
lump sum severance payment equal to 2.99 times an amount equal to the average of
the sum of the annual salary and bonus amount paid to him each year during the
employment term. Upon a Change in Control the vesting of all of the options
presently held by Mr. Ferry accelerates.
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 per annum 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 from 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. Additionally, Mr. O'Hara's 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.
JAMES R. WEBER. Mr. Weber's employment agreement extends to March 31, 2001,
with an automatic renewal of such employment agreement for successive one-year
terms unless either party notifies the other in writing of nonrenewal at least
60 days prior to expiration of the initial term or any renewal term. The
employment agreement provides for, among other things, a base annual salary of
$225,000 through March 31, 1999, $250,000 through March 31, 2000 and $275,000
thereafter, and an annual bonus based on Mr. Weber's performance and consistent
with the Company's then current bonus plan. In connection with the employment
agreement, (i) the Company granted Mr. Weber stock options to acquire 85,000
shares of Common Stock at an exercise price of $5.09 per share vesting 50% on
the date of grant (October 6, 1998) and an additional 25% on each of the first
and second anniversaries from the date of grant and (ii) the Company amended
Mr. Weber's existing stock options to purchase an aggregate of 115,000 shares
of Common Stock at an exercise price of $7.875 per share to provide for a new
vesting schedule (with 50% of such options immediately vesting and an
additional 25% of such options vesting on each of April 1, 1999 and April 1,
2000) and for accelerating vesting upon a Change in Control, which accelerated
vesting on a Change in Control is also provided with respect to the new options
covering 85,000 shares described above. If Mr. Weber's employment is terminated
by the Company without cause (including, without limitation, upon a Change in
Control), he will be entitled to (i) the salary and certain benefits that he
would have received during the one-year period following the date of
termination of his employment as and when they would have been payable or
provided if he had remained an employee for such additional one-year period and
(ii) an amount equal to the average of the annual bonus paid to him during the
employment term, which amount will be paid in twelve equal consecutive monthly
installments thereafter. However, Mr. Weber will not be entitled to the
foregoing severance to the extent that he receives or is entitled to receive
compensation or benefits for new employment with respect to employment services
rendered during such period.
12
<PAGE> 15
MICHAEL P. MILLER. Mr. Miller's employment agreement, which commenced on
April 26, 1999, extends to April 25, 2001, with an automatic extension for an
additional one-year period unless, prior to January 25, 2001, either Mr. Miller
or the Company notifies the other in writing of nonrenewal. The employment
agreement provides for, among other things, a base annual salary of $185,000,
an annual bonus, based on Mr. Miller's performance and consistent with the
Company's then current bonus plan, of up to 40% of his base annual salary, and
reimbursement of up to a maximum amount of $65,000 for expenses incurred by Mr.
Miller in connection with the relocation of himself and his family from Pacific
Palisades, California to south Florida. If Mr. Miller is not employed by the
Company continuously for at least the one-year period commencing April 26, 1999
other than if he is terminated without cause, he shall repay the Company all
amounts received for relocation expenses. The employment agreement also
provides for stock options to acquire 60,000 shares of Common Stock at an
exercise price of $4.38 per share (the fair market value of the Common Stock on
the date he commenced employment) vesting 33-1/3% on each of the first, second
and third anniversaries from the date of grant (April 26, 1999). If Mr.
Miller's employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control), he will be entitled to the
salary that he would have received from the date of termination through the 180
day period following the date of termination or the expiration of the term of
the employment agreement, whichever is less. However, Mr. Miller will not be
entitled to the foregoing severance to the extent that he receives or is
entitled to receive compensation or benefits from new employment with respect
to employment services rendered during such period.
ROBERT TENZER. Mr. Tenzer's employment agreement extends to December 31,
2000, with no renewal options. The employment agreement provides for, among
other things, a base annual salary of $125,000 until October 1, 1998, at which
time the Company's then President was to review the base annual salary. As a
result of such review, the base annual salary was increased to $150,000. The
employment agreement also provides for an annual bonus based on Mr. Tenzer's
performance and consistent with the Company's then current bonus plan. In
connection with the employment agreement, (i) the Company granted Mr. Tenzer
stock options to acquire 70,000 shares of Common Stock at an exercise price of
$4.69 per share vesting 33%, 34% and 33% on each of the first, second and third
anniversaries from the date of grant (September 14, 1998) and (ii) the Company
amended Mr. Tenzer's existing stock options to purchase an aggregate of 70,000
shares of Common Stock at an exercise price of $7.875 per share to provide for
a new vesting schedule (with options for 10,000 shares immediately vesting and
options for 60,000 shares vesting in 20% annual increments on each of December
5, 1998, 1999, 2000, 2001 and 2002) and for accelerating vesting upon a Change
in Control, which accelerated vesting on a Change in Control is also provided
with respect to the new options covering 70,000 shares described above. If Mr.
Tenzer's employment is terminated by the Company without cause (including,
without limitation, upon a Change in Control) or Mr. Tenzer resigns his
employment with the Company within 90 days of a significant change in the scope
of his job responsibilities or within 90 days of a Change in Control, he will
be entitled to the salary that he would have received during the one-year
period following the date of termination of his employment as and when it would
have been payable if he had remained an employee for such additional one-year
period. However, Mr. Tenzer will not be entitled to the foregoing severance to
the extent that he receives or is entitled to receive compensation for new
employment with respect to employment services rendered during such period.
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 which provided, among
other things, for automatic renewal of such employment agreement for successive
one-year terms unless either party notified 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
were exceeded in any quarter and severance equal to his compensation (salary
and bonuses) for one year in the event Mr. Kosar was 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. Additionally, Mr. Kosar's then existing options to purchase
310,000 shares were repriced to $7.41 per share
13
<PAGE> 16
(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. Effective
October 1, 1998, the Company and Mr. Kosar entered into a new employment
agreement that supersedes and replaces in its entirety the above mentioned
employment agreement, as amended. The new employment agreement extends to March
31, 2000, and provides, among other things, for an annual salary of $75,000 and
commissions, payable to Mr. Kosar at the rate of 1-1/2% of Adjusted Gross Sales
(as defined) collected by the Company from a customer as a result of Mr. Kosar's
material facilitative efforts in procuring that customer for the Company. Such
commissions for each such customer are payable up to a period of one year or the
termination of employment other than with cause, whichever is less. In
connection with the cancellation of the former employment agreement, as amended,
Mr. Kosar received a cancellation payment in the aggregate amount of $400,000.
All stock option agreements between the Company and Mr. Kosar remain unchanged.
Mr. Kosar also resigned as an executive officer of the Company effective October
1, 1998 and, pursuant to his new employment agreement, is acting as a Senior
Advisor to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was comprised of two nonemployee
directors during 1998, Messrs. Mustad and Krinzman until June 1998 and Mr.
Mustad and Dr. Natkow for the remainder of 1998. The Compensation Committee
determines executive officers' salaries and bonuses and administers the
Company's Stock Plans. Since January 1, 1998 to the date of this Proxy
Statement, the members of the Compensation Committee have not had any
relationship with the Company requiring disclosure under Item 404 of Regulation
S-K, other than the disclosure regarding Mr. Krinzman's law firm set forth in
"Certain Relationships and Related Transactions" which relates to the period
after Mr. Krinzman was no longer serving as a member of the Compensation
Committee.
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
14
<PAGE> 17
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 lawsuit against the Company involving certain
of its directors and officers where indemnification may be required or
permitted. The lawsuit, captioned HENRY E. FREEMAN AND FREEMAN INDUSTRIAL
ENTERPRISES CORPORATION V. PRECISION RESPONSE CORPORATION, MARK J. GORDON,
DAVID L. EPSTEIN AND RICHARD D. MONDRE (Case No. 398-CV-1895-AVC (D. Conn)),
was filed on or about August 26, 1998, in the Superior Court of the Judicial
District of Stamford/Norwalk in the state of Connecticut. The lawsuit has since
been removed by the Company to the United States District Court for the
District of Connecticut. This lawsuit alleges that the Company breached its
contracts with the plaintiffs by allegedly failing to pay all commissions
relating to certain clients whom the plaintiffs allegedly claim they procured
for the Company. The complaint also contains claims of breach of fiduciary
duty, breach of covenant of good faith and fair dealing, civil conspiracy,
fraud/fraud in the inducement, intentional infliction of emotional distress and
violations of the Connecticut Unfair Trade Practices Act. The plaintiffs seek
actual, compensatory and punitive damages, declaratory judgement that certain
contracts are invalid due to undue influence exercised upon plaintiffs,
recission of such contracts, an accounting and interest, costs and attorneys'
fees.
On November 16, 1998, the Company filed a motion (i) to dismiss for lack of
personal jurisdiction as to Richard Mondre and (ii) to dismiss for improper
venue or, in the alternative, to transfer to the U.S. District Court for the
Southern District of Florida. On that same day, the Company filed a motion to
dismiss the complaint for failure to state a cause of action.
On January 6, 1999, the plaintiffs voluntarily dismissed with prejudice this
lawsuit against Richard Mondre, which dismissal has been approved by the Court.
On or about February 12, 1999, the plaintiffs filed an Amended Complaint,
asserting the same causes of action as in the original complaint, as well as a
claim for negligent misrepresentation. The Company has filed a motion to
dismiss the Amended Complaint for failure to state a cause of action, which is
currently pending. The Company's motion to dismiss for improper venue or, in
the alternative, to transfer is also currently pending before the Court.
The case is currently in the discovery stage. The Company believes that the
plaintiffs' allegations are totally without merit and intends to defend the
lawsuit vigorously.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998 the Company leased two facilities, currently used for warehouse
space, located at 4250 N.W. 135th Street, Miami, and 13180 N.W. 43rd Avenue,
Miami, from a corporation of which Mark J. Gordon, the Chairman of the Board of
the Company, is the sole shareholder. Prior to May 1, 1996, these two
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 1998 the aggregate monthly rent for these two properties was
approximately $23,000. Total rent expense for these facilities was
approximately $275,000 in 1998. The Company believes that the rents payable
under these leases are no less favorable to it than could be obtained from
unaffiliated parties.
The Company's former facility located at 4300 N.W. 135th Street, Miami, was
also leased to the Company by the affiliated corporation described above. Prior
to May 1, 1996, the facility was leased to the Company on a month-to-month
basis. In May 1996, the Company entered into a written lease for such facility.
The lease commenced on May 1, 1996 for a term of five years, with a five-year
renewal option. In February 1998 in connection with the Company's restructuring
plan, the lease for this facility was terminated in consideration of a
termination payment of approximately $82,000 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. During January and
February 1998 the monthly rental obligation for this property was approximately
$6,000 and, accordingly, total rent expense for this facility and prior to
termination was approximately $12,000 in 1998.
15
<PAGE> 18
The Company subleases its facility at 11975 S.W. 140th Terrace, Miami, from a
partnership jointly owned by Mr. Gordon and David L. Epstein, the Chief
Executive Officer of the Company. The term of this sublease expires in January
2004 and the monthly rental obligation is approximately $15,000 for 1998 and
$16,000 for 1999. In addition, the Company is obligated to remit an annual
payment for applicable property taxes. 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 expires in January
2002 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 1998 for each of the two aforementioned facilities
were approximately $186,000, plus approximately $33,000 relating to property
taxes, and $37,000, including real estate taxes, 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 $2,800 plus
one-twelfth of the applicable real estate taxes. The aggregate rental expense
with respect to the lease of the additional parking area in 1998 was
approximately $41,000, including real estate taxes. 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.
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, 1998 was approximately $140,000.
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 and BSDPA in 1998 were approximately $98,000 and
$468,000, respectively. The Company believes that the fees paid to Rubin Baum
and BSDPA are no less favorable than could be obtained from other comparable
law firms in the area.
During 1998, the Company paid approximately $198,000 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 Mr. Gordon 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.
Richard N. Krinzman, a director of the Company, is a shareholder and director
of the law firm of Holtzman, Krinzman, Equels & Furia, P.A., located in Miami,
Florida. In July 1998, such law firm was engaged by the Company to represent it
in connection with governmental relations matters. Pursuant to such engagement,
such law firm received a retainer of $25,000 and is payable $2,500 per month.
The engagement is terminable at any time by either party. The Company believes
that this engagement and the fees payable to such law firm in connection
therewith are no less favorable than could be obtained from other comparable
law firms in the area.
In 1999, the Company will commence funding a portion of the life insurance
premiums payable with respect to split-dollar life insurance policies owned by
two separate trusts for the benefit of Mr. Epstein's family. The amounts paid
by the Company are reimbursable to the Company without interest upon, under one
policy, the death of Mr. Epstein, and under the other policy, the death of the
last to die of Mr. Epstein and his spouse, the surrender of the policies or the
termination of the arrangement. This obligation is secured by the benefits
payable under the insurance policies. Premiums in the aggregate amount of
approximately $25,000 are expected to be paid by the Company in 1999 with
respect to this obligation.
16
<PAGE> 19
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 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------------------
NAME NUMBER PERCENT(1)
------------------ --------------------- --------------
<S> <C> <C>
Mark J. Gordon(2) 6,744,533(3) 31.3%
David L. Epstein(2) 4,762,167(4) 22.1
Richard D. Mondre 4,413,283(5) 20.5
The Crabbe Hudson Group, Inc.(6)(7) 3,315,700 15.4
Stacy Lynn Gordon PRC Trust 1,435,000(8) 6.7
Jason Howard Gordon PRC Trust 1,435,000(9) 6.7
Bernard J. Kosar, Jr. 761,950(10) 3.4
Paul M. O'Hara(2) 434,500(11) 2.0
Richard N. Ferry, Jr.(2) 432,120(12) 2.0
Christian Mustad 115,667(13) *
James R. Weber 100,000(14) *
Neil A. Natkow 28,100(15) *
Richard N. Krinzman 12,167(16) *
All directors and executive officers as a
group (16 persons) 13,976,754(17) 60.9%
</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, Ferry, Mustad, Weber, Natkow and Krinzman and all
directors and executive officers as a group, the number of options held by
Messrs. Kosar, O'Hara, Ferry, Mustad, Weber, 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 each of
Mr. O'Hara and Mr. Ferry pursuant to stock purchase and pledge agreements.
For a more detailed description of these rights, see "Shareholder and
Voting Trust Agreements."
(3) Includes 150,000 shares owned directly by Mr. Gordon and 4,959,500 shares
held by a Texas limited partnership in which Mr. Gordon is a 80.71911%
limited partner, two grantor retained annuity trusts are limited partners
having an aggregate 17.28089% 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) 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 (ii) 3,000 shares held by The
Mark J. Gordon 1996 Family
17
<PAGE> 20
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 100,000 shares owned directly by Mr. Epstein and 1,180,917 shares
held by a Texas limited partnership in which Mr. Epstein is a 78.65071%
limited partner, a grantor retained annuity trust is a 4.83439% limited
partner, a trust for the benefit of Mr. Epstein's children is a 14.5149%
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. The grantor retained annuity trust 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 (9) below) and 1,435,000 shares beneficially owned by the
Stacy Lynn Gordon PRC Trust (held as described in footnote (8) 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, subject to earlier
termination in certain circumstances, and gives Mr. Epstein absolute
discretion in voting the shares. See "Shareholder and Voting Trust
Agreements."
(5) Includes 845,000 shares in the aggregate held by two Texas limited
partnerships in each of 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. 545,000 of these
shares are subject to voting trust agreements described in footnotes (3)
and (4) above. Also includes (i) 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 (8) and (9) below); and (ii) 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 Commission during
the month ended February 28, 1999 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 3,315,700 shares of
Common Stock with respect to which it shares voting powers on 3,011,400
shares and shares dispositive powers on 3,315,700 shares.
(8) All of these shares are held by two Texas limited partnerships in each of
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.
(9) All of these shares are held by two Texas limited partnerships in each of
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.
(10) Includes 591,250 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(11) Includes 234,500 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(12) Includes 232,120 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(13) Includes 4,167 shares of Common Stock issuable upon the exercise of options
within 60 days of the Record Date.
(14) Includes 100,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the Record Date.
(15) Includes 2,500 shares of Common Stock issuable upon the exercise of options
within 60 days of the Record Date.
(16) 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 4,167 shares of Common
Stock issuable upon the exercise of options within 60 days of the Record
Date.
18
<PAGE> 21
(17) 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.
Mr. Mondre acquired 595,000 of his current shares of Common Stock 75% from
Mr. Gordon and 25% from Mr. Epstein in February 1996 (the "1996 Acquisition")
and 300,000 of his shares of Common Stock from an affiliate of Mr. Gordon in
October 1998. The purchase prices for such shares are evidenced by long-term
promissory notes guaranteed by Mr. Mondre's spouse and are secured by a pledge
of the shares sold and, in the case of the shares purchased in the 1996
Acquisition, other securities owned by Mr. Mondre's spouse pursuant to separate
pledge agreements. Pursuant to voting trust agreements entered into at the time
of the 1996 Acquisition, each of Mr. Gordon and Mr. Epstein retained the right
to vote 408,750 and 136,250, respectively, of the total shares sold by them to
Mr. Mondre in February 1996 until February 16, 2006, subject to earlier
termination in certain events. The voting trusts terminate with respect to any
shares sold by Mr. Mondre upon the payment by Mr. Mondre of a prorata portion
of the principal of the promissory note evidencing the purchase price of such
shares together with any accrued and unpaid interest, 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.
Each of Mr. O'Hara and Mr. Ferry acquired his shares of Common Stock 62.5%
from an affiliate of Mr. Gordon and 37.5% from an affiliate of Mr. Epstein in
September 1998. The purchase prices for such shares are evidenced by long-term
promissory notes guaranteed by the spouses of each of Mr. O'Hara and Mr. Ferry
and are secured by a pledge of the shares sold pursuant to stock purchase and
pledge agreements. In connection with these purchases, each of Mr. O'Hara and
Mr. Ferry agreed to significant restrictions on their respective rights to
sell, alienate or otherwise dispose of the shares of Common Stock acquired by
them from the affiliates of Mr. Gordon and Mr. Epstein, respectively, as well
as to rights on the part of such affiliates to purchase those shares under
certain circumstances. Generally, each of Mr. O'Hara and Mr. Ferry may not
sell, alienate or otherwise dispose of their shares of Common Stock prior to
September 2, 2001, without the consent of the affiliates of Mr. Gordon and Mr.
Epstein, subject to certain exceptions including a Change in Control,
termination of employment by the Company other than for cause, a sale of the
Company and death. Such shares owned by Mr. O'Hara and Mr. Ferry are subject to
repurchase rights of the affiliates of Mr. Gordon and Mr. Epstein,
respectively, at the acquisition price if the respective individual's
employment with the Company terminates prior to September 2, 2001, as a result
of termination by the Company of his employment for cause or his resignation
from employment with the Company other than after a Change in Control. All of
the repurchase rights terminate upon the occurrence of a Change in Control,
termination by the Company of the respective individual's employment other than
for cause or a sale of the Company.
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.
19
<PAGE> 22
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 1998, its directors, executive officers and greater than ten
percent beneficial owners complied with all applicable Section 16(a) filing
requirements.
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, 1998, 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 TWENTY NINE-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:
PRECISION NASDAQ
RESPONSE STOCK PEER
CORPORATION MARKET GROUP
--------------- ---------- ----------
07/17/96 $ 100 $ 100 $ 100
09/96 266 113 149
12/96 242 119 107
03/97 163 112 79
06/97 114 133 90
09/97 53 155 65
12/97 70 145 53
03/98 63 170 65
06/98 55 175 48
09/98 41 158 38
12/98 53 205 44
- ----------
(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, 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.
20
<PAGE> 23
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 either (i) for 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.
1999 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.
21
<PAGE> 24
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 4,000,000 shares of
Common Stock to 4,750,000 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 Company
("nonemployee consultants"). It is intended to enable such key employees
(including officers) and nonemployee 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 4,000,000 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
4,750,000 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 nonemployee 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 nonemployee 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 nonemployee
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
22
<PAGE> 25
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 nonemployee consultants that would technically be
eligible for participation is not currently readily determinable. As of the
Record Date, approximately 198 employees and one nonemployee consultant 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. 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.
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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, 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 of or loan against 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
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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 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
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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 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.
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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 National
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. 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 then
reserved for issuance under the Employee Stock Plan (including, without
limitation, but subject to the approval of the Company's shareholders of this
Proposal 2, the proposed increase of an additional 750,000 shares).
OUTSTANDING AWARDS
As of the Record Date, options to purchase 3,838,200 shares were outstanding
under the Employee Stock Plan, of which options to purchase 2,753,000 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 14,000 and 30,000 shares had been exercised by an
existing executive officer and a former executive officer, respectively, of the
Company. Except for an option to purchase 21,000 shares (of which only the
option to purchase 7,000 shares remains outstanding) 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 3,831,200 shares granted under the Employee Stock Plan have a
weighted average exercise price of $7.28 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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RECENT PRICE OF COMMON STOCK
On the Record Date, the closing sale price of the Common Stock on The Nasdaq
National Market was $4.0625 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the applicable Federal income tax
consequences of Awards granted under the Employee Stock Plan based on U.S.
Federal income tax laws in effect on the date of this Proxy Statement.
INCENTIVE STOCK OPTIONS. No taxable income is recognized by a holder of an
option (an "optionee") upon the grant or exercise of an ISO. No taxable
ordinary income is recognized by the optionee upon the disposition 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 any share of Common Stock issued
pursuant to the exercise of the ISO is made by the optionee within two (2)
years from the date of the grant of the ISO nor within one (1) year after the
transfer of such share to him or her (a disposition within either of such
periods is hereinafter referred to as 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 (the optionee is "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 any 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
income tax purposes.
If any share of Common Stock transferred to an optionee pursuant to his or
her exercise of an ISO is disposed of by the optionee 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 lesser of (a)
the excess, if any, of the fair market value of such share at the time of the
exercise of the option over the option exercise price and (b) the amount
realized on such disposition over the option exercise price; (ii) the basis of
such share is then increased by the amount of any income recognized, and any
additional 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 (iii) the Company is allowed an employer tax deduction in an amount
equal to the optionee's ordinary compensation income described in (i) above.
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 Federal income tax
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
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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.
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 April 26, 1999 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
4,000,000 shares to 4,750,000 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.
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PROPOSAL 3
APPROVAL OF THE AMENDMENT AND RESTATEMENT
IN ITS ENTIRETY OF THE DIRECTOR STOCK PLAN
PROPOSAL
In May 1996, the Company established the 1996 Nonemployee Director Stock
Option Plan (the "Director Stock Plan") which was approved by the shareholders
at such time. The Director Stock Plan provides for annual grants of
nonqualified stock options to each member of the Board who is not a salaried
officer or employee of the Company or any of its direct or indirect
subsidiaries. On April 26, 1999, the Board authorized and approved an amended
and restated Director Stock Plan (the Director Stock Plan as amended and
restated is sometimes referred to hereinafter as the "Restated Director Stock
Plan"), subject to the approval of the shareholders of the Company. The Board
seeks the approval of the Company's shareholders for the adoption of the
Restated Director Stock Plan in order to continue in effect the Restated
Director Stock Plan.
A description of the Director Stock Plan, as previously in effect and as
amended, including the material amendments to the Director Stock Plan
incorporated in the Restated Director Stock Plan, is presented below. The
descriptions of the Director Stock Plan prior to its amendment and restatement
and the Restated Director Stock Plan are qualified in their entirety by
reference to the full text of such plans. A copy of the Restated Director Stock
Plan is annexed hereto as Exhibit "A". A copy of the Director Stock Plan in the
form previously in effect may be obtained without charge upon written request
to Richard D. Mondre, the Company's Executive Vice President, General Counsel
and Secretary, at the Company's principal executive office, 1505 N.W. 167th
Street, Miami, Florida 33169.
SUMMARY OF THE DIRECTOR STOCK PLAN
PURPOSE
The purpose of the Director Stock Plan is to provide incentives which will
attract and retain outstanding individuals to serve as members of the Board,
thereby strengthening the mutuality of interests between such persons and the
Company's shareholders. The amendment and restatement of the Director Stock
Plan was made (i) to enable the Board to have the ability and flexibility to
structure options in a manner that the Board believes will facilitate and help
the Company secure and retain outstanding individuals to serve as members of
the Board, (ii) in order to add value to such options and make them a more
attractive and effective form of incentive compensation, and (iii) in order to
ensure that the Company will continue in the future to be able to grant options
as incentives to secure and retain such individuals.
<PAGE> 33
NUMBER OF SHARES
Prior to the adoption of the Restated Director Stock Plan, the Company had
previously reserved 96,584 shares of Common Stock for issuance under the
Director Stock Plan, subject to further anti-dilution adjustments. As part of
the Restated Director Stock Plan, the number of shares of the Company's Common
Stock reserved for issuance under the Director Stock Plan was increased to
300,000 shares, subject to any future anti-dilution adjustments.
ADMINISTRATION
Although the Board generally administers the Director Stock Plan, the
Director Stock Plan and the Restated Director Stock Plan are substantively
self-executing except that, under the Restated Director Stock Plan, the Board
has been given discretion to determine the number of shares (from 5,000 up to
50,000 shares) included in the option granted to an individual upon his initial
election to the Board. See "Stock Options" below.
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ELIGIBILITY
Participation in the Director Stock Plan is limited to members of the Board
who are not salaried officers or employees of the Company or any of its direct
or indirect subsidiaries (a "Nonemployee Director").
STOCK OPTIONS
As required by the Code, nonemployee directors of a company are only eligible
to receive nonqualified stock options (options that do not meet the
requirements of Section 422 of the Code). Stock options consist of grants from
the Company, in the form of agreements, which enable the holder to purchase a
specific number of shares of Common Stock, at set terms and at a fixed purchase
price, which terms and price are hereinafter described. Prior to the adoption
of the Restated Director Stock Plan, effective on the date of a Nonemployee
Director's initial election to the Board, each Nonemployee Director was
automatically awarded a nonqualified stock option to purchase 2,500 shares of
Common Stock (the "Initial Option"). Upon each re-election of such Nonemployee
Director to the Board at the Company's annual meeting of shareholders, each
Nonemployee Director was automatically awarded an additional nonqualified stock
option to purchase 2,500 shares of Common Stock (the "Additional Option");
provided, however, that a Nonemployee Director is not granted such Additional
Option upon such re-election if such Nonemployee Director was granted an
Initial Option in the immediately preceding 12 months period upon his or her
initial election to the Board.
As part of the Restated Director Stock Plan, the Initial Option was increased
to 5,000 shares of Common Stock. In addition, the Restated Director Stock Plan
authorized the Board, in its sole discretion in furtherance of the purposes of
the Restated Director Stock Plan, to grant an Initial Option in excess of 5,000
shares of Common Stock up to and not exceeding 50,000 shares. Further, the
Restated Director Stock Plan increased the Additional Option to 5,000 shares of
Common Stock except that the Restated Director Stock Plan provides that each
existing Nonemployee Director re-elected at this Annual Meeting will be granted
an option to purchase 15,000 shares of Common Stock in lieu of the Additional
Option of 5,000 shares. The purpose of the exception for this Annual Meeting
re-election is to retroactively adjust the aggregate number of options
previously awarded to the three existing Nonemployee Directors, who have served
as directors of the Company over the last few years, to be more consistent with
the increased Initial Option and Additional Option to be hereafter awarded if
the Restated Director Stock Plan is approved by the Company's shareholders.
EXERCISE PRICE
The exercise price for all options granted under the Director Stock Plan and
Restated Director Stock Plan is 100% of the Fair Market Value (as hereinafter
defined) of Common Stock on the date of the grant. The "Fair Market Value" on a
given day is the mean between the highest and lowest sale prices of the shares
of Common Stock on the day immediately preceding such date as reported on The
Nasdaq National Market (or such other consolidated transaction reporting system
on which such shares of Common Stock are primarily traded). If such shares of
Common Stock are not traded on such date, then the exercise price is the Fair
Market Value on the next preceding day on which the shares are traded.
TERM AND VESTING OF EXERCISE RIGHTS
All options granted under the Director Stock Plan and the Restated Director
Stock Plan are subject to a ten year term. Prior to the adoption of the
Restated Director Stock Plan, the right to exercise such options, in whole or
in part, from time to time after the date granted, would vest in one-third
annual increments on each of the first three anniversary dates from the date of
grant. No option granted was exercisable during the first year following the
date such option is granted. The Restated Director Stock Plan modified the
vesting provisions so that all options granted may be exercised, in whole or in
part, from time to time on or after the first anniversary of the date the
option was granted.
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Notwithstanding the above vesting schedule, any option granted under the
Director Stock Plan becomes fully vested and exercisable upon (i) the death of
a Nonemployee Director while serving on the Board or (ii) a Nonemployee
Director's "Retirement" (meaning a Nonemployee Director's termination of
service as a member of the Board after the age of 70 years or at any time with
the consent of the Board). Prior to the adoption of the Restated Director Stock
Plan, such death or Retirement had to occur on or after the first anniversary
of the date such option was granted. The Restated Director Stock Plan
eliminated the requirement that such death or Retirement occur on or after the
first anniversary of the date such option is granted and further authorized the
addition of permanent disability (inability, due to mental, emotional or
physical injury or illness, to perform the essential functions of a Board
member) of a Nonemployee Director or any change in control (as defined) of the
Company as events the occurrence of which cause options granted to a
Nonemployee Director to become fully vested and exercisable before the first
anniversary of the date the option is granted.
If a Nonemployee Director's service is terminated for any reason, his or her
option may be exercised to the extent it has vested and is exercisable at the
date of such termination for a period of time pursuant to the terms of the
Director Stock Plan. In the case of a termination other than for death or
Retirement of a Nonemployee Director, the period for exercise as to vested
options following termination is 90 days under the Director Stock Plan. In the
case of Retirement, the period for exercise as to vested options is 180 days.
In the case of death, the period for exercise as to vested options is 12
months. In addition, the Restated Director Stock Plan added that, in the case
of termination of any Nonemployee Director's service as a member of the Board
by reason of permanent disability, the period for exercise as to vested options
is 180 days. However, in no event may an option be exercised more than ten
years after the date the option is granted.
MANNER OF EXERCISE AND PAYMENT OF EXERCISE PRICE
Options granted under the Director Stock Plan and Restated Director Stock
Plan are exercised by a Nonemployee Director (or upon his or her death by his
or her personal representative, executor or administrator or upon incapacity by
his guardian), as to all or part of the Common Stock covered by the options
which have vested by giving written notice of exercise to the Secretary of the
Company. Payment in full of such purchase price is to be made (a) by check
payable to the Company for the purchase price of the shares to be purchased or
(b) by tendering to the Company previously acquired shares of Common Stock,
held for at least 6 months, having a Fair Market Value (determined as of the
date such options are exercised) equal to the entire purchase price of the
shares to be purchased or (c) by a combination of both methods. No shares of
Common Stock may be issued until full payment therefore has been received by
the Company and no Nonemployee Director has any of the rights of a shareholder
of the Company until the certificates for such shares of Common Stock are
issued to the Nonemployee Director following the exercise of his or her
options.
NONTRANSFERABILITY
Any options granted under the Director Stock Plan and Restated Director Stock
Plan are nontransferable by the Nonemployee Director, other than as required by
law or by will or the laws of decent and distribution, or to an immediate
family member (a spouse or lineal descendent) or a trust or family partnership
or other entity for the benefit of such persons (collectively "Permitted
Transferees"). Options may be exercised during the lifetime of the Nonemployee
Director only by the Nonemployee Director or the Nonemployee Director's
guardian or legal representative, unless transferred to a Permitted Transferee,
in which case such options can be exercised by the Permitted Transferee. In the
event of the death of a Nonemployee Director, options theretofore granted to
him or her are exercisable during the 12 month period after his or her death
(but not beyond the ten-year term of the grant) and then only (i) by the
executor or administrator of the estate of the deceased Nonemployee Director or
the person or persons to whom the deceased Nonemployee Director's rights under
the option pass by will or the laws of descent and distribution or, if
previously transferred to a Permitted Transferee, by the Permitted Transferee,
and (ii) to the extent that the deceased Nonemployee Director (or Permitted
Transferee) was entitled to do so at the date of the Nonemployee Director's
death.
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ADJUSTMENT ON CHANGES IN CAPITALIZATION
If the Company at any time changes the number of issued shares of Common
Stock without new consideration to the Company (such as by stock dividend or
stock split), the total number of shares available for stock option grants
under the Restated Director Stock Plan will be appropriately adjusted and the
number of shares covered by and the exercise price for each outstanding option
shall be adjusted so that the aggregate consideration payable to the Company
and the value of such option shall not be changed. If, during the term of any
option granted, the Common Stock shall be changed into another kind of stock,
securities, cash or other property as a result of reorganization, sale, merger,
consolidation, or other similar transaction, adequate provision will be made
whereby the Nonemployee Directors shall thereafter be entitled to receive, upon
the due exercise of any outstanding options, the stock, securities, cash or
other property the Nonemployee Directors would have been entitled to receive
immediately prior to the effective date of any such transaction for Common
Stock which could have been acquired through the exercise of such options.
AMENDMENT AND DISCONTINUATION OF THE DIRECTOR STOCK PLAN
Under the Restated Director Stock Plan, the Board may amend, suspend or
discontinue the Restated Director Stock Plan at any time, but no such action
may adversely affect any outstanding option, provided, however, that any such
amendment shall be adopted subject to and conditioned upon obtaining the
approval of the Company's shareholders if the amendment without such subsequent
approval of the Company's shareholders (a) would result in the Restated
Director Stock Plan losing its status as a protected plan under Rule 16b-3 (as
then in effect) of the Exchange Act or (b) would violate the Exchange Act or
any other rules or regulations promulgated thereunder or the rules of The
Nasdaq Stock Market, Inc. or any other securities exchange on which the
Company's Common Stock is traded. Prior to the adoption of the Restated
Director Stock Plan, the Director Stock Plan could not be amended more
frequently than once every 6 months and no amendment could be adopted which
would result in any Nonemployee Director losing his or her status as a
"disinterested" administrator within the meaning of Rule 16b-3 (as then in
effect) under the Exchange Act. As part of the Restated Director Stock Plan,
such restrictions were removed consistent with Rule 16b-3 of the Exchange Act
as currently in effect. The Director Stock Plan is effective indefinitely until
discontinued by action of the Board.
REGISTRATION OF UNDERLYING COMMON STOCK
On January 13, 1997, the Company filed a registration statement on Form S-8
(the "Registration Statement") with the Commission in order to register the
96,584 shares of Common Stock then reserved for issuance under the Director
Stock Plan. To the extent that the Registration Statement remains effective
under the Securities Act, shares of Common Stock issued upon the exercise of
outstanding stock options will be immediately and freely tradable without
restriction under the Securities Act, subject to applicable volume limitations,
if any, under Rule 144 of the Securities Act and Section 16 of the Exchange
Act. Subject to the shareholders approval of the Restated Director Stock Plan,
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
additional shares of Common Stock which would be reserved for issuance under
the Restated Director Stock Plan.
OUTSTANDING OPTIONS
As of the Record Date, options to purchase 20,000 shares had been granted to
Nonemployee Directors of the Company at a weighted average exercise price of
approximately $22.62 per share, all of which remained outstanding and
approximately 6,667 shares of which had vested and were exercisable. The
amendment and restatement of the Director Stock Plan does not effect or change
in any manner the terms of the outstanding options to purchase 20,000 shares of
Common Stock which were granted under the Director Stock Plan prior to the
adoption of the Restated Director Stock Plan.
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RECENT PRICE OF COMMON STOCK
On the Record Date, the closing sale price of the Common Stock on The Nasdaq
National Market was $4.0625 per share.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the applicable Federal income tax
consequences of options granted under the Director Stock Plan based on U.S.
Federal income tax laws in effect on the date of this Proxy Statement.
With respect to nonqualified stock options: (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 the 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.
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 3 is
necessary for the approval of the Restated Director Stock Plan.
THE BOARD RECOMMENDS A VOTE FOR ADOPTION OF THE RESTATED DIRECTOR STOCK PLAN.
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INDEPENDENT PUBLIC ACCOUNTANTS
The accounting firm of PricewaterhouseCoopers L.L.P. ("PwC") acted as the
Company's independent public accountants for the Company's fiscal year ended
December 31, 1998. 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 PwC to serve as the Company's independent public accountants for
the fiscal year ending December 31, 1999, after the Audit Committee has
undertaken the appropriate review, including reviewing the terms of engagement
of PwC for 1999. 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 to do so. A representative of
PwC 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 PwC of the Company's 1998 financial statements.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any shareholder of the Company who wishes to present a proposal to be
considered at the 2000 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 30, 1999. Any such
shareholder proposal must comply with the requirements of Rule 14a-8
promulgated under the Exchange Act.
The persons named as proxies for the 2000 Annual Meeting of Shareholders will
generally have discretionary authority to vote on any matter presented by a
shareholder for action at that meeting. Generally, in the event that the
Company receives notice of any shareholder proposal no later than the close of
business on the sixtieth (60th) day, nor earlier than the close of business on
the ninetieth (90th) day, prior to the first anniversary of the date of the
Annual Meeting for 1999, then, so long as the Company includes in its proxy
statement for the 2000 Annual Meeting of Shareholders advice on the nature of
the matter and how the named proxies intend to vote the shares for which they
have received discretionary authority, such proxies may exercise discretionary
authority with respect to such matter, subject to, and except to the extent
limited by, the rules of the Commission governing shareholder proposals.
OTHER MATTERS
FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Shareholders for the year ended
December 31, 1998 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, 1998, AS FILED WITH THE COMMISSION, UPON RECEIPT
OF A WRITTEN REQUEST TO MR. PAUL O'HARA, EXECUTIVE VICE PRESIDENT - FINANCE AND
CHIEF FINANCIAL OFFICER, AT THE ADDRESS OF THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICES STATED ABOVE.
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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, 1999
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EXHIBIT "A"
PRECISION RESPONSE CORPORATION
AMENDED AND RESTATED
1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE. PRECISION RESPONSE CORPORATION, a Florida corporation (the
"Company"), hereby adopts the Amended and Restated 1996 Nonemployee Director
Stock Option Plan ("Plan"). The purpose of the Plan is to attract and retain
outstanding individuals to serve as members of the Board of Directors of the
Company by providing such persons opportunities to acquire common stock, $.01
par value, of the Company ("Common Shares"), thereby strengthening the
mutuality of interest between such persons and the Company's shareholders.
2. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance under the Plan an aggregate of Three Hundred Thousand (300,000) Common
Shares, which may be authorized but unissued shares. Upon the lapse,
expiration, termination or cancellation of any option granted under this Plan,
all unissued shares subject to or reserved for such option may again be used
for options thereafter granted under this Plan.
3. PARTICIPATION. Participation in this Plan is limited to members of
the Board of Directors who are not salaried officers or employees of the
Company or any of its direct or indirect subsidiaries (hereinafter sometimes
referred to in this Plan as a "Nonemployee Director" or "Participant").
4. OPTIONS TO BE GRANTED UNDER THE PLAN. Effective on the date of a
Nonemployee Director's initial election to the Board of Directors, each
Nonemployee Director shall automatically be awarded nonqualified stock options
to purchase at least Five Thousand (5,000) Common Shares, not to exceed a
maximum of Fifty Thousand (50,000) Common Shares (the "Initial Option"). The
actual number of stock options comprising the Initial Option awarded to each
Nonemployee Director shall be determined by the Board of Directors as it shall
deem necessary or advisable and in the best interests of the Company in order
to attract and obtain outstanding and highly qualified candidates to serve on
the Company's Board of Directors. Upon each re-election of such Nonemployee
Director to the Board of Directors at the Company's annual meeting of
shareholders (an "Annual Meeting"), each Nonemployee Director shall
automatically be awarded an additional nonqualified stock option (the
"Additional Option") to purchase Five Thousand (5,000) Common Shares; provided,
however, that (i) a Nonemployee Director shall not be granted such Additional
Option upon such re-election if such Nonemployee Director was granted an
Initial Option in the immediately preceding twelve (12) month period upon his
or her initial election to the Board of Directors in accordance with the
provisions of this Section 4, and (ii) upon the re-election of each existing
Nonemployee Director to the Board of Directors at the Annual Meeting to be held
in 1999 (the "1999 Annual Meeting"), each such re-elected Nonemployee Director
shall automatically be awarded a nonqualified stock option to purchase Fifteen
Thousand (15,000) Common Shares (the "1999 Re-election Option") in lieu of the
Additional Option for Five Thousand (5,000) Common Shares. The 1999 Re-election
Option shall be awarded solely with respect to the 1999 Annual Meeting.
Thereafter, any subsequent re-election of any Non-Employee Director shall be
accompanied by the award of the Additional Option. The Company is authorized to
provide the Participant with a stock option agreement consistent with the terms
of this Plan.
5. OPTION EXERCISE PRICE. Each option granted under this Plan shall be
exercisable at an option price equal to one hundred (100%) percent of the Fair
Market Value (as defined in Section 10 hereof) of the Common Shares on the date
of the grant of such option hereunder.
6. LIMITATIONS ON EXERCISE. Any option granted under this Plan may be
exercised (in accordance with the provisions of Section 7 hereof) in whole or
in part, from time to time after the date granted, subject to the following
limitations:
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(a) No option granted hereunder may be exercised during the
first year following the date such option is granted. On or after the first
anniversary of the date the option is granted, each option may be exercised to
the maximum cumulative extent of one hundred (100%) percent of the total number
of Common Shares covered by the option.
(b) Notwithstanding the limitations of Section 6(a) above,
any option granted under this Plan shall become fully exercisable upon:
(i) the death or Permanent Disability (as hereinafter
defined) of a Nonemployee Director while serving on the Board of Directors or
upon the Retirement (as hereinafter defined) of a Nonemployee Director if such
death, Permanent Disability or Retirement shall occur on or after the date such
option is issued. For purposes of this Section 6, a Nonemployee Director shall
be deemed to have a "Permanent Disability" if, in the reasonable judgment of the
Board of Directors, the Nonemployee Director is unable, due to mental, emotional
or physical injury or illness, to perform the essential functions of his or her
position as a member of the Board of Directors. For purposes of this Section 6,
the term "Retirement" shall mean and refer to a Nonemployee Director's
termination of service as a member of the Board of Directors after the age of
seventy (70) years or at any other time with the consent of the Board of
Directors; or
(ii) Any Change in Control (as hereinafter defined)
of the Company if such Change in Control occurs on or after the date such option
is issued. A "Change in Control" shall be deemed to have occurred upon the
happening of any of the following events: (A) the acquisition in one or more
transactions by any "person" (as the term "person" is used for purposes of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of "beneficial ownership" (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty-five (25%) percent or more of the
combined voting power of the Company's then outstanding voting securities (the
"Voting Securities"); provided, however, that for purposes hereof the Voting
Securities acquired (by sale, merger, consolidation or in any other manner) from
the Company by any person shall be excluded from the determination of such
person's beneficial ownership of Voting Securities (but such Voting Securities
shall be included in the calculation of the total number of Voting Securities
then outstanding); or (B) the individuals who, as of the date hereof, are
members of the Board of Directors of the Company (the "Incumbent Board") shall
cease for any reason to constitute more than one-half (1/2) of the members of
the Board; provided, however, that, if the election, or nomination for election
by the Company's shareholders of any new director is approved by a vote of more
than one-half (1/2) of the members of the Incumbent Board, such new director
shall, for purposes hereof, be considered as a member of the Incumbent Board; or
(C) approval by the shareholders of the Company of (i) a merger or consolidation
involving the Company if the shareholders of the Company immediately before such
merger or consolidation do not own, directly or indirectly immediately following
such merger or consolidation, more than one-half (1/2) of the combined voting
power of the outstanding voting securities of the corporation resulting from
such merger or consolidation in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger or
consolidation (unless, however, the event described in subparagraph (B) above
does not occur in connection therewith) or (ii) a complete liquidation or
dissolution of the Company or an agreement for the sale or other disposition of
all or substantially all of the assets of the Company; provided, however, that,
notwithstanding the foregoing, (x) a Change in Control shall not be deemed to
occur solely because twenty-five (25%) percent or more of the then outstanding
Voting Securities is acquired by (1) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the Company or
any of its subsidiaries, (2) any corporation which, immediately prior to such
acquisition, is owned directly or indirectly by the shareholders of the Company
in the same proportion as their ownership of stock in the Company immediately
prior to such acquisition or (3) Mark J. Gordon and/or David L. Epstein and/or
any member of his respective Immediate Family (as hereinafter defined) or any
person or entity directly or indirectly controlled, under common control with or
controlled by any, some or all of them, and (y) a Change in Control shall not be
deemed to occur solely because any person or entity (the "Subject Person")
acquired beneficial ownership of more than the permitted amount of the
outstanding Voting Securities as a result of the acquisition of Voting
Securities by the Company
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<PAGE> 42
which, by reducing the number of Voting Securities outstanding, increases the
proportional number of shares beneficially owned by the Subject Person, provided
that, if a Change in Control would occur (but for the operation of this
sentence) as a result of the acquisition of Voting Securities by the Company
and, after such share acquisition by the Company, the Subject Person becomes the
beneficial owner of any additional Voting Securities which increases the
percentage of the then outstanding Voting Securities beneficially owned by the
Subject Person, then a Change in Control shall occur. For purposes of this
Section 6(b)(ii), the date of the Change in Control (the "Change in Control
Date") shall be the later to occur of the closing date or the effective date (as
the case may be) of the transaction or event resulting in the Change in Control;
provided, however, that, notwithstanding the foregoing, the Change in Control
Date solely for the event set forth in item (A) of this Section 6(b)(ii) shall
be the date which is fifteen (15) business days after the occurrence of such
event.
(c) Any option granted under this Plan may not be exercised
after the earliest to occur of any of the following events:
(i) more than ninety (90) days after termination of
any Nonemployee Director's service as a member of the Board of
Directors for any reason other than death, Permanent Disability or
Retirement (and then only to the extent that the Nonemployee Director
could have exercised such option on the date of termination);
(ii) more than one hundred eighty (180) days after a
Nonemployee Director's Retirement from the Board of Directors;
(iii) more than one hundred eighty (180) days after
the Permanent Disability of a Nonemployee Director;
(iv) more than twelve (12) months after the death of
a Nonemployee Director; or
(v) more than ten (10) years from the date the
option is granted.
7. METHOD AND TIME OF EXERCISE: DELIVERY OF CERTIFICATES. Any option
granted under this Plan shall be deemed to be exercised on the date on which
written notice of the exercise of such option is received by the Secretary of
the Company at the Company's corporate headquarters. Such notice shall be
accompanied by: (i) a check payable to the Company for the purchase price of
the shares to be purchased; or (ii) the delivery of Common Shares which shall
have been owned by the Participant for at least six (6) months whose Fair
Market Value on the date of the exercise of such option equals the purchase
price of the shares to be purchased; or (iii) any combination of the foregoing.
8. NONTRANSFERABILITY. Any option granted under this Plan shall not be
transferable other than as required by law or by will or the laws of descent
and distribution or to the Participant's Immediate Family (as hereinafter
defined) or trusts or family partnerships or other entities for the benefit of
such persons (collectively "Permitted Transferees"), and shall be exercisable,
during the Participant's lifetime, only by the Participant or the Participant's
guardian or legal representative, unless transferred to a Permitted Transferee,
in which case such option can be exercised by the Permitted Transferee. If a
Nonemployee Director shall die during the option period, any option granted to
such Participant may be exercised by his or her estate or the person to whom
the option passes by will or the laws of descent and distribution or, if
previously transferred to a Permitted Transferee, by the Permitted Transferee,
but only in accordance with the provisions of Section 6 above. For purposes of
this Section 8 and Section 6(b), the term "Immediate Family" shall mean and
refer to Participant's spouse and lineal descendants.
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<PAGE> 43
9. OTHER PROVISIONS; SECURITIES REGISTRATION. The grant of any option
under the Plan may also be subject to such other provisions as counsel to the
Company shall deem appropriate, including, without limitation, such provisions
as may be necessary or appropriate to comply with federal or state securities
laws and stock listing requirements.
10. DEFINITION OF FAIR MARKET VALUE. The term "Fair Market Value", as
used in this Plan, shall mean, as of any date, the mean between the highest and
lowest sale prices of the Common Shares as reported on The Nasdaq National
Market (or such other consolidated transaction reporting system on which such
Common Shares are primarily traded) on the date immediately preceding the date
of grant or, if such Common Shares are not traded on such day, then the next
preceding day on which the shares are traded, all as reported by such source as
the Board of Directors may select.
11. ADJUSTMENT PROVISIONS. If the Company shall at any time change the
number of issued Common Shares without new consideration to the Company (such
as by stock dividend or stock split), the total number of shares reserved for
issuance under this Plan and the number of shares covered by each outstanding
option and the exercise price thereunder shall be automatically adjusted so
that the aggregate consideration payable to the Company and the value of each
option shall not be changed. If, during the term of any option granted under
this Plan, the Common Shares shall be changed into another kind of stock,
securities, cash or other property whether as a result of reorganization, sale,
merger, consolidation, or other similar transaction, the Board of Directors
shall cause adequate provision to be made whereby the Participants shall
thereafter be entitled to receive, upon the due exercise of any outstanding
options, the stock, securities, cash or other property the Participants would
have been entitled to receive immediately prior to the effective date of any
such transaction for Common Shares which could have been acquired through the
exercise of such options.
12. AMENDMENT OR DISCONTINUATION OF PLAN. The Board of Directors may
amend the Plan at any time or suspend or discontinue the Plan at any time, but
no such action shall adversely affect any outstanding option; provided,
however, that any such amendment shall be adopted subject to and conditioned
upon obtaining the approval of the Company's shareholders if the amendment
without such subsequent approval of the Company's shareholders (a) would result
in this Plan losing its status as a protected plan under Rule 16b-3 (as then in
effect) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or (b) would violate the Exchange Act or any other rules or regulations
promulgated thereunder or the rules of The Nasdaq Stock Market, Inc. or any
other securities exchange on which the Company's Common Shares are traded.
13. GOVERNING LAW. This Plan and the options granted hereunder shall
be governed and construed in accordance with the laws of the State of Florida
(regardless of the law that might otherwise govern under applicable State of
Florida principles of conflicts of laws).
14. SHAREHOLDER APPROVAL. The 1996 Nonemployee Director Stock Option
Plan was originally adopted by the Board of Directors of the Company and
approved by the Company's shareholders on May 31, 1996 and the Plan, as amended
and restated herein, was adopted by the Board of Directors of the Company on
April 26, 1999, subject to obtaining the approval of the Company's shareholders
at the next Annual Meeting.
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<PAGE> 44
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 Don Shula's Hotel,
6842 Main Street, Miami Lakes, Florida 33014, on Monday, June 21, 1999, 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 Proxy Statement, each dated April 30, 1999, and instructs its
attorneys and proxies to vote as set forth on this Proxy.
[X] Please mark your votes as in this example.
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 Christian Mustad
withheld from Neil A. Natkow
the following Richard N. Krinzman
nominee(s): _______________________________________
2. APPROVAL OF AMENDMENT TO THE PRECISION RESPONSE CORPORATION AMENDED AND
RESTATED 1996 INCENTIVE STOCK PLAN (Proposal 2)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF THE AMENDMENT AND RESTATEMENT IN ITS ENTIRETY OF THE PRECISION
RESPONSE CORPORATION 1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN (Proposal 3)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(To be signed on Reverse Side)
4. 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, THE
AMENDMENT TO THE PRECISION RESPONSE CORPORATION AMENDED AND RESTATED 1996
INCENTIVE STOCK PLAN AND THE AMENDMENT AND RESTATEMENT IN ITS ENTIRETY OF THE
PRECISION RESPONSE CORPORATION 1996 NONEMPLOYEE DIRECTOR STOCK OPTION 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 owner
should each sign. When signing
as an 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.
