<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended December 31, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
Commission File No. 0-21639
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NCO GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2858652
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
1740 Walton Road
Blue Bell Pennsylvania 19422-0987
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(Address of principal (Zip Code)
executive offices)
Registrant's Telephone Number, Including Area Code (610) 832-1440
--------------
Securities Registered Pursuant to Section 12(b) of the Act: None
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Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, no par value 7,058,625
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(Title of Class) (Number of Shares Outstanding
as of March 27, 1997)
Indicate by check mark whether the Registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of
the Registrant is $80,052,177. (1)
<PAGE>
Documents incorporated by reference are listed in the Exhibit Index.
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(1) The aggregate dollar amount of the voting stock set forth equals the
number of shares of the Company's Common Stock outstanding, reduced by
the amount of Common Stock held by officers, directors and shareholders
owning 10% or more of the Company's Common Stock, multiplied by
$24.875, the last reported sale price for the Company's Common Stock on
March 27, 1997. The information provided shall in no way be construed
as an admission that any officer, director or 10% shareholder in the
Company may be deemed an affiliate of the Company or that he is the
beneficial owner of the shares reported as being held by him, and any
such inference is hereby disclaimed. The information provided herein is
included solely for recordkeeping purposes of the Securities and
Exchange Commission.
<PAGE>
In accordance with instruction G(3) to Form 10-K, NCO Group, Inc.
("NCO" or the "Company") is amending its Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1997 to provide information
required in Part III.
<PAGE>
TABLE OF CONTENTS
Page
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PART III
Item 10. Directors and Executive Officers of the Registrant...............1
Item 11. Executive Compensation...........................................3
Item 12. Security Ownership of Certain Beneficial Owners and Management...6
Item 13. Certain Relationships and Related Transactions...................7
Signatures.......................................................9
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth information concerning the Company's
directors. Information concerning the Company's executive officers who are not
directors is set forth in Item 4.1 of the Annual Report on Form 10-K previously
filed.
<TABLE>
<CAPTION>
Director
Name Age Position Since
---- --- -------- ------
<S> <C> <C> <C>
Michael J. Barrist 35 Chairman of the Board, President and Chief Executive 1986
Officer
Charles C. Piola, Jr. 49 Executive Vice President and Director 1986
Bernard R. Miller 49 Senior Vice President, Development and Director 1996
Eric S. Siegel 40 Director 1996
Allen F. Wise 54 Director 1996
</TABLE>
The following information about the Company's directors is based, in
part, upon information supplied by such persons.
Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of the Company since purchasing the Company in 1986. Mr.
Barrist was employed by U.S. Healthcare Inc. from 1984 to 1986, most recently as
Vice President of Operations, and was employed by Gross & Company, a certified
public accounting firm, from 1980 through 1984. Mr. Barrist is a certified
public accountant.
Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Sales and Marketing and has served as a director since that time.
Prior to joining NCO, Mr. Piola was the Regional Sales Manager for Trans World
Systems from 1983 to 1986 and IC Systems from 1979 to 1981, both accounts
receivable management companies.
Bernard R. Miller joined the Company as Senior Vice President of
Development in 1994 when NCO acquired B. Richard Miller, Inc. ("BRM"), a
Philadelphia-based accounts receivable management company owned principally by
Mr. Miller. Mr. Miller became a director in 1996. Prior to joining the Company,
Mr. Miller served as President and Chief Executive Officer of BRM since he
founded it in 1980.
Eric S. Siegel was appointed to the Board of Directors of the Company
in December 1996. Mr. Siegel has been president of Siegel Management Company, a
management consulting firm, since 1983. Mr. Siegel also is an adjunct faculty
member at the Wharton School of the University of Pennsylvania and is co-author
of The Ernst & Young Business Plan Guide.
Allen F. Wise was appointed to the Board of Directors of the Company in
December 1996. Mr. Wise has been a director and Chief Executive Officer of
Coventry Corporation, a managed care company, since October 1996. Prior thereto,
he was Executive Vice President of United Healthcare Corporation since October
1994, President of Wise Health Systems, a healthcare management company, from
September 1993 to October 1994, Chief Executive Officer of Keystone Health Plan
and Chief Operating Officer of Independence Blue Cross from September 1991 to
September 1993 and Vice President of US Healthcare, Inc. from April 1985 to
September 1991. Mr. Wise is also a director of Transition Systems Inc.
<PAGE>
Board Reorganization
Following completion of the Company's initial public offering in the
fourth quarter of 1996, the Board of Directors was reorganized by increasing the
number of directors from three to five, appointing Eric S. Siegel and Allen F.
Wise as outside directors to fill the vacancies created by the increase and
dividing the Board into three classes. Class I consists of Mr. Michael J.
Barrist, whose term will expire at the 1997 annual meeting of shareholders;
Class II consists of Messrs. Bernard R. Miller and Allen F. Wise, whose terms
will expire at the 1998 annual meeting of shareholders; and Class III consists
of Messrs. Charles C. Piola and Eric S. Siegel, whose terms will expire at the
1999 annual meeting of shareholders. Beginning with the 1997 annual meeting of
shareholders, directors whose terms are expiring will be elected by the
shareholders to serve for three year terms.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who beneficially own more
than ten percent of a registered class of the Company's Common Stock to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Executive officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's executive officers, directors and greater than ten percent beneficial
shareholders were complied with during the year ended December 31, 1996 except
that Mr. Miller filed one late report on Form 4.
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<PAGE>
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the Compensation earned by the Chief
Executive Officer and the four next most highly compensated executive officers
of the Company whose aggregate salaries and bonuses exceeded $100,000 for
services rendered in all capacities to the Company during 1996.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards (1)
Annual Compensation ----------
------------------- Securities
Name and Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation($)(2)
------------------ ---- --------- -------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Michael J. Barrist Chairman of the Board, 1996 208,653 53,862(3) -- 5,957
President and Chief Executive Officer 1995 200,000 242,641 -- 5,993
Charles C. Piola, Jr. 1996 202,884 33,333(3) -- 16,413
Executive Vice President and Director 1995 200,000 135,714 -- 15,835
Bernard R. Miller 1996 136,730 26,448(3) 50,000 7,926
Senior Vice President, Development 1995 130,000 21,645 -- 5,955
Steven L. Winokur, Vice President, 1996 149,422 35,000 31,201 --
Finance and Chief Financial Officer 1995 -- -- 33,257 --
Joseph C. McGowan 1996 117,000 18,000 41,600 3,664
Vice President, Operations 1995 100,000 30,000 44,344 5,088
</TABLE>
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(1) The Company did not grant any restricted stock awards or stock appreciation
rights during 1996.
(2) For 1996, consists of premiums for disability policies paid by the Company
of $3,582, $14,038, $6,217, $-0-, and $1,989 and the Company matching
contribution under the 401(k) Profit Sharing Plan of $2,375, $2,375,
$1,709, $-0- and $1,675 for the benefit of Messrs. Barrist, Piola, Miller,
Winokur and McGowan, respectively.
(3) These bonus amounts represent the bonuses earned by the respective officers
from September 3, 1996, the date of the Company's termination of its status
as an S Corporation, until December 31, 1996. The total bonus amounts for
1996 for Mr. Barrist, Mr. Piola and Mr. Miller would have been $161,587,
$100,000 and $79,343, respectively.
Option Grants in 1996
The following table sets forth certain information concerning stock
options granted during 1996 to each of the executive officers of the Company
named in the Summary Compensation Table.
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<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
------------------------------------------------------ -----------------------------
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
---- --------- ------------ ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Barrist -- -- -- -- -- --
Charles C. Piola, Jr. -- -- -- -- -- --
Bernard R. Miller 50,000(2) 17.1% $ 17.00 12/18/06 $534,560 $1,354,681
Steven L. Winokur 31,201(3) 10.6% 13.00 10/17/06 255,088 646,443
Joseph C. McGowan 41,600(3) 14.2% 13.00 10/17/06 340,106 861,896
</TABLE>
(1) Represents the difference between the market value of the Common Stock
for which the option may be exercised, assuming that the market value
of the Common Stock on the date of grant appreciates in value to the
end of the ten-year option term at annualized rates of 5% and 10%,
respectively, and the exercise price of the option. The rates of
appreciation used in this table are prescribed by regulation of the SEC
and are not intended to forecast future appreciation of the market
value of the Common Stock.
(2) These options were granted on 12/18/96 at the fair market value of the
Common Stock on the date of grant and become exercisable in three equal
annual installments beginning one year after the date of grant.
(3) The options were granted on 10/17/96 at the initial public offering
price of the Common Stock and become exercisable in three equal
annual installments beginning one year after the date of grant.
Aggregated Option Exercises in 1996 and 1996 Year-End Option Values
No stock options were exercised in 1996. The following table sets forth
certain information concerning the number of unexercised options and the value
of unexercised options at December 31, 1996 held by each of the executive
officers of the Company named in the Summary Compensation Table.
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<PAGE>
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares Acquired Value December 31, 1996 December 31, 1996(1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael J. Barrist -- -- --/-- --/--
Charles C. Piola, Jr. -- -- --/-- --/--
Bernard R. Miller -- -- --/50,000 --/$0
Steven L. Winokur -- -- 11,086/53,373 $156,811/$434,513
Joseph C. McGowan -- -- 14,781/71,163 $209,077/$579,369
</TABLE>
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(1) Represents the difference between the last sale price of the Common
Stock on December 31, 1996 ($16.875 per share), as reported on the
Nasdaq National Market, and the exercise price of in-the-money options,
multiplied by the number of exercisable or unexercisable options held,
as the case may be.
Employment Agreements
In September 1996, the Company entered into five-year employment
agreements with Messrs. Barrist, Piola, Miller, Winokur and McGowan pursuant to
which they are entitled to receive annual base salaries of $275,000, $225,000,
$150,000, $150,000, and $125,000, respectively, adjusted each year in accordance
with the Consumer Price Index. Mr. Barrist is entitled to receive an annual
bonus of $50,000 if the Company reaches performance goals determined by the
Board of Directors. He is also entitled to a bonus of $100,000 if the Company's
net income increases by 20% over the prior year and a bonus equal to 5% of any
increase in net income in excess of 20%, in each case adjusted for dilution. Mr.
Piola is eligible for an annual bonus of $50,000, $75,000, or $100,000 if the
Company's annual increase in net income (adjusted for dilution) over the prior
year exceeds 20%, 30%, or 40%, respectively. Mr. Miller is entitled to a bonus
equal to .00375 of the annualized revenue resulting from companies acquired
during the preceding year, subject to a maximum bonus of $100,000. Messrs.
Winokur and McGowan receive such annual bonuses as are determined by the Board
of Directors.
Each of the employment agreements provides that, in the event of the
death of the employee or the termination of employment by the Company other than
"for cause" (as defined in the agreements), the Company shall continue to pay
the employee's full compensation, including bonuses, for the balance of the
employment term. In addition to a non-disclosure covenant, each employee
agreement also contains a covenant-not-to compete with the Company for a period
of two years following the date that the Company ceases to pay the employee any
compensation pursuant to the terms of the agreement.
Director Compensation
Each director of the Company who is not also an employee receives an
annual fee of $5,000 and a fee of $500 for each meeting of the Board or any
committee of the Board attended, plus reimbursement of expenses incurred in
attending meetings.
Pursuant to the Company's 1996 Non-Employee Director Stock Option Plan
which was approved by the shareholders in September of 1996 (the "Director
Plan"), each person who is not an employee of the Company is automatically
granted an option to purchase 1,000 shares of Common Stock upon their initial
election or appointment to the Board at the fair market value of the Common
Stock on the date of the grant. Immediately after the 1997 Annual Meeting of
Shareholders and at each annual meeting of shareholders thereafter, each
individual who is re-elected or continues as a non-employee director
automatically is granted an option to purchase 1,000 shares of Common Stock at
the fair market value of the Common Stock on the date of the grant. The Director
Plan authorizes the issuance of options to purchase an aggregate of 24,258
shares of Common Stock. The Director Plan was amended in April 1996, subject to
shareholder approval, to increase the initial option grant to 10,000 shares of
Common Stock and the annual option grant to 2,000 shares of Common Stock and to
increase the number of shares authorized to be issued under the Director Plan to
100,000 shares. All options are exercisable immediately and, unless terminated
earlier by the terms of the Director Plan, expire ten years after the date of
grant.
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<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of the April 30, 1997, certain
information regarding the beneficial ownership of the Common Stock by: (i) each
person known by the Company to own beneficially more than five percent of the
outstanding Common Stock; (ii) each of the Company's directors; (iii) each of
the executive officers of the Company named in the Summary Compensation Table;
and (iv) the Company's directors and executive officers as a group. Except as
otherwise indicated, to the knowledge of the Company, the beneficial owners of
the Common Stock listed below have sole investment and voting power with respect
to such shares.
Shares Beneficially Owned(1)
----------------------------------
Name of Beneficial Owner Number Percent
-------------- -------------
Michael J. Barrist (2)(3) 2,302,650 32.6%
CRW Financial, Inc. (4) 595,178 8.1
Joseph C. McGowan(5) 29,563 *
Bernard R. Miller 191,934 2.7
Charles C. Piola, Jr.(2)(6) 1,062,827 15.1
Eric S. Siegel 2,000 *
Steven L. Winokur (7) 162,689 2.3
Allen F. Wise -- *
All directors and executive officers
as a group (8 persons)(8) 3,751,663 52.8
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*Less than one percent.
(1) The securities "beneficially owned" by a person are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission and, accordingly,
include securities owned by or for the spouse, children or certain other
relatives of such person as well as other securities as to which the person
has or shares voting or investment power or has the right to acquire within
60 days after the Record Date. The same shares may be beneficially owned by
more than one person. Beneficial ownership may be disclaimed as to certain
of the securities.
(2) The address of such person is c/o NCO Group, Inc., 1740 Walton Road, Blue
Bell, Pennsylvania 19422-0987.
(3) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Annette Barrist
which Mr. Barrist has the sole right to vote pursuant to an irrevocable
proxy and (ii) 60,192 shares held in trust for the benefit of members of
Mrs. Annette Barrist's family for which Mr. Barrist is a co-trustee.
Excludes 140,518 shares held in trust for the benefit of Mr. Barrist's
child, as to which Mr. Barrist disclaims beneficial ownership. Mrs. Annette
Barrist is the mother of Michael J. Barrist.
(4) Based upon a Schedule 13D, dated February 12, 1997, provided to the Company
by CRW Financial, Inc. Includes 250,000 shares issuable upon exercise of a
warrant. The address of CRW Financial, Inc. is 443 South Gulph Road, King
of Prussia, PA 19406.
(5) Represents shares issuable upon the exercise of options which are
exercisable within 60 days of April 30, 1997.
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<PAGE>
(6) Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children, as to which Mr. Piola disclaims beneficial ownership.
(7) Includes: (i) 140,518 shares held in trust for the benefit of Mr. Barrist's
child for which Mr. Winokur is a co-trustee; and (ii) 22,171 shares
issuable upon the exercise of options which are exercisable within 60 days
of the Record Date.
(8) Includes: (i) 231,501 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy,
(ii) 60,192 shares held in trust for the benefit of members of Mrs.
Barrist's family for which Mr. Barrist is a co-trustee, (iii) 140,518
shares held in trust for the benefit of Mr. Barrist's child for which Mr.
Winokur is a co-trustee and (iv) an aggregate of 51,734 shares issuable
upon exercise of options which are exercisable within 60 days of April 30,
1996. Excludes 140,518 shares held in trust for the benefit of Mr. Piola's
children.
Item 13. Certain Relationships and Related Transactions.
Real Estate Matters
The Company currently leases four facilities in Blue Bell,
Pennsylvania. These facilities are leased from limited partnerships, in each
case the general partner of which is a corporation with Mr. Barrist as the sole
shareholder and the limited partners of which are the current shareholders of
the Company except that, in certain partnerships, an unaffiliated person is also
a limited partner. The leases for the four facilities provide for terms expiring
between 1998 and 2005. Under the facilities leases, the Company paid the limited
partnerships controlled by the Company's current shareholders approximately
$489,926 for the year ended December 31, 1996. At one of the facilities, the
Company has sublet the space to an affiliate of the limited partnership owning
the facility for a monthly rent of $1,454, which is equal to the monthly rent
paid by the Company. While the Company believes that the terms of the leases are
no less favorable to the Company than would have been obtained by unaffiliated
parties, there can be no assurance that conflicts of interest will not arise in
the future with respect to these leases. Any material transactions that may
arise in the future with respect to these leases or any other future material
transactions between the Company and its directors, executive officers or
principal shareholders will be subject to approval by the Company's independent
directors and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
The Company made interest-free advances to the limited partnerships for
the purpose of making improvements to these facilities. The largest aggregate
amount of indebtedness outstanding during 1996 was $249,820 which was repaid in
June 1996.
S Corporation Distributions
On September 3, 1996 (the "Termination Date"), the Company terminated
its status as an S Corporation. In connection therewith, the Company declared a
distribution to the then existing shareholders in an amount equal to the
Company's undistributed S Corporation earnings as of such date, and paid such
distributions with a portion of the proceeds of its initial public offering,
including distributions of $1,815,042, $1,015,193 and $170,508 to Messrs.
Barrist, Piola and Miller, respectively.
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<PAGE>
Distribution and Tax Indemnification Agreement
In 1996, the Company entered into a distribution and tax
indemnification agreement with its shareholders as of the Termination Date which
provided for: (i) the payment of the estimated S Corporation distribution
described above, (ii) the adjustment of the S Corporation distributions based on
the final determination of the Company's actual undistributed S Corporation
earnings through the Termination Date, (iii) an indemnification by the Company
of the current shareholders for any losses or liabilities with respect to any
additional taxes (including interest, penalties, legal and accounting fees and
any additional taxes resulting from any indemnification) resulting from the
Company's operations during the period in which it was an S Corporation (the "S
Corporation Period") and (iv) an indemnification by the shareholders as of the
Termination Date of the Company for the amount of any tax refund received by
such shareholders due to a reduction in their share of the Company's S
Corporation taxable income for the S Corporation Period less any taxes, interest
or penalties imposed by any tax authority on any distributions to such
shareholders with respect to the S Corporation Period in excess of such
shareholder's share of taxable income of the Company for the S Corporation
Period.
Loan to Bernard R. Miller
In 1995, the Company loaned $135,888 to Bernard R. Miller at an
interest rate of 7.0% per year to enable him to exercise an option to purchase
86,881 shares of Common Stock, which option was issued to him in connection with
the acquisition of BRM, a company which has principally owned by Mr. Miller.
This loan was repaid in May 1996.
Professional Services
The Company paid consulting fees of $40,000 to Siegel Management
Company for 1996. The Company also paid a fee to Siegel Management Company of
$240,000 after the consummation of its initial public offering in November, 1996
for various consulting and advisory services rendered to the Company in
connection with such public offering. Eric S. Siegel is a director of the
Company and is the President and owner of Siegel Management Company. In 1996,
Mr. Siegel received options to purchase 11,086 shares of Common Stock under the
Company's 1995 Stock Option Plan at an exercise price of $13.00 per share.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
NCO GROUP, INC.
Date: April 30, 1997 By: /s/ Michael J. Barrist
------------------------------------------
Michael J. Barrist, Chairman of the Board,
President and Chief Executive Officer
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