<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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 240.14a-11(c) or 240.14a-12
NCO GROUP, INC.
- -----------------------------------------------------------------------------
(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:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
NCO GROUP, INC.
515 Pennsylvania Avenue
Fort Washington, PA 19034
-----------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on May 26, 1999
-----------------------------------------------------
To the Shareholders of NCO Group, Inc.:
The 1999 Annual Meeting of Shareholders of NCO Group, Inc. ("NCO" or
the "Company") will be held on May 26, 1999 at 1:00 p.m., prevailing time, at
the Philadelphia Marriott West, 111 Crawford Avenue, Conshohocken, Pennsylvania,
for the purpose of considering and acting upon the following:
1. To elect three Class III directors to hold office for a term of
three years and until each of their respective successors is duly elected and
qualified, as more fully described in the accompanying Proxy Statement;
2. To approve amendments to the 1996 Stock Option Plan, as more fully
described in the accompanying Proxy Statement; and
3. To transact such other business as may properly come before the
Annual Meeting.
Only shareholders of record at the close of business on April 1, 1999
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
or postponement thereof.
If the Annual Meeting is adjourned for one or more periods aggregating
at least 15 days because of the absence of a quorum, those shareholders entitled
to vote who attend the reconvened Annual Meeting, if less than a quorum as
determined under applicable law, shall nevertheless constitute a quorum for the
purpose of acting upon any matter set forth in this Notice of Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED
TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors
/s/ Michael J. Barrist
--------------------------------------
MICHAEL J. BARRIST
Chairman of the Board,
President and Chief Executive Officer
Fort Washington, Pennsylvania
April 23, 1999
<PAGE>
NCO GROUP, INC.
515 Pennsylvania Avenue
Fort Washington, PA 19034
(215) 793-9300
-----------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
-----------------------------------------
The accompanying proxy is solicited by the Board of Directors of NCO
Group, Inc. ("NCO" or the "Company") for use at the 1999 Annual Meeting of
Shareholders (the "Meeting") to be held on May 26, 1999 at 1:00 p.m., prevailing
time, at the Philadelphia Marriott West, 111 Crawford Avenue, Conshohocken,
Pennsylvania, and any adjournments or postponements thereof. This Proxy
Statement and accompanying proxy card are first being mailed to shareholders on
or about April 23, 1999.
The cost of this solicitation will be borne by the Company. In addition
to solicitation by mail, proxies may be solicited in person or by telephone,
telegraph or teletype by officers, directors or employees of the Company,
without additional compensation. Upon request, the Company will pay the
reasonable expenses incurred by record holders of the Company's Common Stock who
are brokers, dealers, banks or voting trustees, or their nominees, for mailing
proxy material and annual shareholder reports to the beneficial owners of the
shares they hold of record.
Only shareholders of record, as shown on the transfer books of the
Company, at the close of business on April 1, 1999 (the "Record Date"), are
entitled to notice of, and to vote at, the Meeting or any adjournment or
postponement thereof. On the Record Date, there were 21,472,849 shares of Common
Stock outstanding.
Proxies in the form enclosed, if properly executed and received in time
for voting, and not revoked, will be voted as directed on the proxies. If no
directions to the contrary are indicated, the persons named in the enclosed
proxy will vote all shares of Common Stock "for" the election of the nominees
for director hereinafter named and "for" the approval of Proposal 2, as more
fully described herein. Sending in a signed proxy will not affect a
shareholder's right to attend the Meeting and vote in person since the proxy is
revocable. Any shareholder who submits a proxy has the power to revoke it by,
among other methods, giving written notice to the Secretary of the Company at
any time before the proxy is voted.
The presence, in person or represented by proxy, of the holders of a
majority of the outstanding shares of Common Stock will constitute a quorum for
the transaction of business at the Meeting. All shares of the Company's Common
Stock present in person or represented by proxy and entitled to vote at the
Meeting, no matter how they are voted or whether they abstain from voting, will
be counted in determining the presence of a quorum. If the Meeting is adjourned
because of the absence of a quorum, those shareholders entitled to vote who
attend the adjourned Meeting, although constituting less than a quorum as
provided herein, shall nevertheless constitute a quorum for the purpose of
electing directors. If the Meeting is adjourned for one or more periods
aggregating at least 15 days because of the absence of a quorum, those
shareholders entitled to vote who attend the reconvened Meeting, if less than a
quorum as determined under applicable law, shall nevertheless constitute a
quorum for the purpose of acting upon any matter set forth in the Notice of
Annual Meeting.
<PAGE>
Each share of Common Stock is entitled to one vote on each matter which
may be brought before the Meeting. The election of directors will be determined
by a plurality vote and the three nominees receiving the most "for" votes will
be elected. Approval of any other proposal will require the affirmative vote of
a majority of the shares cast on the proposal. Under the Pennsylvania Business
Corporation Law, an abstention, withholding of authority to vote or broker
non-vote, will not have the same legal effect as an "against" vote and will not
be counted in determining whether the proposal has received the required
shareholder vote.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors shall consist
of not fewer than three nor more than seven directors, with the exact number
fixed by the Board of Directors. The Board of Directors has fixed the number of
directors at seven. The Bylaws further provide that the Board shall be
classified into three classes, as nearly equal in number as possible. One class
of directors is to be elected annually.
At the Meeting, shareholders will elect three Class III directors to
serve for a term of three years and until each of their respective successors is
elected and qualified. Unless directed otherwise, the persons named in the
enclosed proxy intend to vote such proxy "for" the election of the listed
nominees or, in the event of inability of any of the nominees to serve for any
reason, for the election of such other person as the Board of Directors may
designate to fill the vacancy. The Board has no reason to believe that any of
the nominees will not be a candidate or will be unable to serve.
The following table sets forth information, as of the Record Date,
concerning the Company's directors and the nominees for election to the Board of
Directors. The director nominees, Charles C. Piola, Jr., Eric S. Siegel, and
Stuart Wolf were nominated by the Board of Directors. Mr. Piola and Mr. Siegel
currently serve as directors. The nominees have consented to being named in the
Proxy Statement and to serve if elected.
<TABLE>
<CAPTION>
Director Term
Name Age Position Since Expires
- --------------------------- --- ---------------------------------------- --------- -------
<S> <C> <C> <C> <C>
Michael J. Barrist 38 Chairman of the Board, President and 1986 2000
Chief Executive Officer
David E. D'Anna 42 Executive Vice President and Divisional 1999 2000
Chief Executive Officer, Technology-based
Outsourcing Services, and Director
Charles C. Piola, Jr. (1) 51 Executive Vice President, Business 1986 1999
Development and Director
Bernard R. Miller 51 Executive Vice President and Divisional 1996 2001
Chief Executive Officer, Healthcare
Services and Director
Eric S. Siegel (1)(2)(3) 42 Director 1996 1999
Allen F. Wise (2)(3) 56 Director 1996 2001
Stuart Wolf (1) 46 Nominee for Director N/A N/A
</TABLE>
- ----------------------------------------------
(1) Nominee for director.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
2
<PAGE>
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.
David E. D'Anna joined the Company as an Executive Vice President and
Divisional Chief Executive Officer, Technology-based Outsourcing Services, and a
director in March 1999 when NCO acquired JDR Holdings, Inc. ("JDR"), a provider
of accounts receivable management and other outsourced services. Prior to
joining the Company, Mr. D'Anna was Chief Executive Officer, President and a
director of JDR since its inception in 1993.
Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Business Development and has served as a director since that time.
Prior to joining NCO, Mr. Piola was the Regional Sales Manager for Trans World
Systems from 1983 to 1986 and IC Systems from 1979 to 1981, both of which were
accounts receivable management companies.
Bernard R. Miller joined the Company as Senior Vice President of
Development in 1994 when NCO acquired B. Richard Miller, Inc. ("BRM"), a
Philadelphia-based accounts receivable management company owned principally by
Mr. Miller. Mr. Miller became a director in 1996 and an Executive Vice President
in September 1997. Mr. Miller became Divisional Chief Executive Officer,
Healthcare Services in November 1998. Prior to joining the Company, Mr. Miller
served as President and Chief Executive Officer of BRM since founding it in
1980.
Eric S. Siegel was appointed to the Board of Directors of the Company
in December 1996. Mr. Siegel has been president of Siegel Management Company, a
management consulting firm, since 1983. Mr. Siegel also is an adjunct faculty
member at the Wharton School of the University of Pennsylvania and is co-author
of The Ernst & Young Business Plan Guide.
Allen F. Wise was appointed to the Board of Directors of the Company in
December 1996. Mr. Wise has been a director and Chief Executive Officer of
Coventry Corporation, a managed care company, since October 1996. Prior thereto,
he was Executive Vice President of United Healthcare Corporation since October
1994, President of Wise Health Systems, a healthcare management company, from
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.
Stuart Wolf has been the chief executive officer of Reimbursement
Technologies, Inc., a provider of billing services for emergency room
physicians, since founding the company in 1991. Reimbursement Technologies is
now a subsidiary of Laidlaw Inc. NCO provides accounts receivable management
services to Reimbursement Technologies.
3
<PAGE>
Board of Directors, Committees and Attendance at Meetings
The Board of Directors held nine meetings during 1998. Each director
attended 75% or more of the meetings of the Board and committees of which they
were members during 1998.
The Board of Directors has appointed a Compensation Committee to make
recommendations to the Board of Directors concerning compensation for the
Company's executive officers; review general compensation levels for other
employees as a group; and take such other actions as may be required in
connection with the Company's compensation and incentive plans. During 1998, the
Compensation Committee held three meetings. The Report of the Compensation
Committee begins on page 7 of this Proxy Statement.
The Board of Directors also has appointed an Audit Committee to make
recommendations concerning the engagement of independent public accountants;
review with the independent public accountants the plans for and scope of the
audit, the audit procedures to be utilized and the results of the audit; approve
the professional services provided by the independent public accountants; review
the independence of the independent public accountants; and review the adequacy
and effectiveness of the Company's internal accounting controls. The Audit
Committee held one meeting during 1998.
The Board of Directors has not appointed a standing Nominating
Committee. See "Shareholder Proposals" for information concerning the nomination
of directors for election.
Director Compensation
Each director of the Company who is not also an employee receives an
annual fee of $5,000 and a fee of $500 for each meeting of the Board or any
committee of the Board attended, plus reimbursement of expenses incurred in
attending meetings.
Pursuant to the Company's Director Plan, as amended, each person who
was a non-employee director as of the date of the approval of amendments to the
Director Plan by the Board and each person who thereafter is first elected or
appointed to serve as a non-employee director of the Company automatically is
granted an option to purchase 15,000 shares of Common Stock at the fair market
value of the Common Stock on the date of the grant and each person who is
re-elected or continues as a non-employee director at each subsequent annual
meeting of shareholders automatically is granted an option to purchase 3,000
shares of Common Stock at the fair market value of the Common Stock on the date
of grant. Each of Messrs. Siegel and Wise received an option to purchase 3,000
shares of Common Stock at an exercise price of $21.63 immediately following the
1998 Annual Meeting of Shareholders. In addition, Mr. Wolf will receive an
option to purchase 15,000 shares of Common Stock and each of Messrs. Siegel and
Wise will receive an option to purchase 3,000 shares of Common Stock immediately
following the 1999 Annual Meeting of Shareholders, assuming, in the case of Mr.
Wolf and Mr. Siegel, that they are elected at such Meeting. All options granted
under the Director Plan are exercisable one year after the date of grant, except
that they become immediately exercisable upon a "change in control" as defined
in the Director Plan, and, unless terminated earlier by the terms of the option,
expire ten years after the date of grant.
The Company has engaged Siegel Management Company to provide advisory
and consulting services with respect to prospective acquisitions by the Company.
The Company paid fees of $250,000 and $-0- to Siegel Management Company for
services rendered in 1998 and 1999, respectively. Eric S. Siegel is a director
of the Company and is the President and owner of Siegel Management Company.
4
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth as of the Record Date, certain
information regarding the beneficial ownership of the Common Stock by: (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock; (ii) each of the Company's directors and nominees for director;
(iii) each of the executive officers of the Company named in the Summary
Compensation Table; and (iv) the Company's directors, nominees for director and
executive officers as a group. Except as otherwise indicated, to the knowledge
of the Company, the beneficial owners of the Common Stock listed below have sole
investment and voting power with respect to such shares.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
------------------------------------------
Name of Beneficial Owner Number Percent
- --------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Advanta Partners LP (2)............................ 1,547,171 7.2%
Michael J. Barrist (3)(4).......................... 2,416,857 11.3
Patrick M. Baldasare (5)........................... 16,666 *
David E. D'Anna.................................... 1,001,398 4.7
Joseph C. McGowan (5).............................. 54,356 *
Bernard R. Miller (6).............................. 238,716 1.1
Charles C. Piola, Jr. (3)(7)....................... 1,101,073 5.1
PNC Bancorp. (8)................................... 1,288,451 6.0
SAFECO Corporation (9)............................. 1,709,450 7.9
Eric S. Siegel (10)................................ 33,586 *
Steven L. Winokur (11)............................. 223,309 1.0
Allen F. Wise (5).................................. 19,500 *
Stuart Wolf........................................ -- --
All directors and executive officers
as a group (13 persons) (12).................. 5,345,014 24.5
</TABLE>
*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 Advanta Partners LP is 712 Fifth Avenue, 28th Floor, New
York, NY 10019-4102.
(3) The address of such person is c/o NCO Group, Inc., 515 Pennsylvania Avenue,
Fort Washington, Pennsylvania 19034.
(4) Includes: (i) 223,288 shares of Common Stock owned by Mrs. Annette Barrist
which Mr. Barrist has the sole right to vote pursuant to an irrevocable
proxy, (ii) 77,119 shares held in trust for the benefit of members of Mrs.
Annette Barrist's or Mr. Barrist's family for which Mr. Barrist is a
co-trustee, and (iii) 21,667 shares issuable upon the exercise of options
which are exercisable within 60 days after the Record Date. Excludes
179,160 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.
(5) Represents shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
(6) Includes 62,500 shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
5
<PAGE>
(7) Includes 12,500 shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date. Excludes 179,160 shares
held in trust for the benefit of Mr. Piola's children, as to which Mr.
Piola disclaims beneficial ownership.
(8) Based upon a Schedule 13D, dated February 12, 1999, provided to the
Company. The Schedule 13G also included PNC Bancorp, Inc. (a wholly-owned
subsidiary of PNC Bancorp.) and PNC Bank, National Association (a wholly
owned subsidiary of PNC Bancorp Inc.) as reporting persons and beneficial
owners of the number of shares of Common Stock shown in the table. The
address of PNC Bancorp and PNC Bank, National Association is One PNC Plaza,
249 Fifth Avenue, Pittsburgh, PA 15265. The address of PNC Bancorp, Inc. is
222 Delaware Avenue, Wilmington, DE 19899.
(9) Based upon a Schedule 13G, dated February 11, 1999, provided to the
Company. The Schedule 13G also included SAFECO Asset Management Company
("SAMC"), a subsidiary of SAFECO Corporation, as the beneficial owner of
the number of shares of Common Stock shown in the table, and SAFECO Common
Stock Trust as the beneficial owner of 1,455,700 of the shares of Common
Stock shown in the table. According to the Schedule 13G, SAMC is an
investment adviser and reported shares are owned beneficially by registered
investment companies for which SAMC serves as an investment adviser. SAFECO
Corporation and SAMC disclaimed beneficial ownership of the shares reported
in the Schedule 13G. The address of SAFECO Corporation is SAFECO Plaza,
Seattle, WA 98185. The address of SAMC is 601 Union Street, Suite 2500,
Seattle, WA 98101. The address of SAFECO Common Stock Trust is 10865
Willows Road, N.E., Redmond, WA 98052.
(10) Includes 30,586 shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
(11) Includes: (i) 179,160 shares held in trust for the benefit of Mr. Barrist's
child for which Mr. Winokur is a co-trustee; (ii) 43,849 shares issuable
upon the exercise of options which are exercisable within 60 days after the
Record Date; and (iii) 300 shares held in custody for the benefit of Mr.
Winokur's minor children for which Mr. Winokur is custodian.
(12) Includes: (i) 223,288 shares of Common Stock owned by Mrs. Barrist which
Mr. Barrist has the sole right to vote pursuant to an irrevocable proxy,
(ii) 77,119 shares held in trust for the benefit of members of Mrs.
Barrist's and Mr. Barrist's family for which Mr. Barrist and Joshua Gindin
are co-trustees, (iii) 179,160 shares held in trust for the benefit of Mr.
Barrist's child for which Mr. Winokur and Mr. Gindin are co-trustees, (iv)
an aggregate of 312,017 shares issuable upon exercise of options which are
exercisable within 60 days after the Record Date, (v) 300 shares held in
custody for the benefit of Mr. Winokur's minor children for which Mr.
Winokur is custodian; (vi) 179,160 shares held in trust for the benefit of
Mr. Piola's children for which Mr. Gindin is trustee; and (vii) 1,500
shares held in trust for the benefit of members of Mr. Barrist's family for
which Mr. Gindin is a co-trustee.
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, 1998, except
that the initial statement of beneficial ownership filed by Joshua Gindin did
not timely report certain shares beneficially owned by him.
6
<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee, which makes compensation decisions
concerning the principal executive officers of the Company, consists of Messrs.
Siegel and Wise.
The policies of the Company's compensation program with respect to
executive officers are:
(1) Provide compensation that will attract and retain superior
executive talent;
(2) Support the achievement of the goals contained in the Company's
annual plan by linking a portion of the executive officer's compensation to the
achievement of such goals; and
(3) Enhance shareholder value by the use of stock options to further
align the interests of the executive officers with those of shareholders.
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation, long term incentive
compensation in the form of stock options, and various benefits generally
available to all full-time employees of the Company, including participation in
group medical and life insurance plans and a 401(k) plan. The Company seeks to
be competitive with compensation programs offered by companies of a similar size
within the accounts receivable management industry based on formal and informal
surveys conducted by the Company.
Base Salary. Generally, the Company enters into long-term employment
agreements with each of its executive officers which establish, among other
things, minimum base salary levels and incentive compensation arrangements.
Effective January 1, 1999, the employment agreements for Messrs. Barrist,
Miller, Winokur and McGowan were amended to, among other things, extend the term
of their agreements. In connection with these amendments, minimum base salary
levels were set at amounts designed to be competitive with executive positions
at similarly situated companies. An independent compensation consultant assisted
the Compensation Committee with its review of executive officer compensation
levels. Under their respective employment agreements, as amended, Messrs.
Barrist, Miller, Winokur and McGowan are entitled to receive annual base
salaries of $450,000, $250,000, $250,000, $250,000, and $250,000, respectively,
adjusted each year in accordance with the Consumer Price Index ("CPI"). Mr.
Piola's employment agreement, as amended, requires him to devote three business
days per week to the performance of his duties under the agreement and provides
for the payment to him of an annual base salary of $135,000, adjusted each year
in accordance with the CPI. In connection with the acquisition of the Response
Center in February 1998, the Company entered into a three-year employment
agreement with Patrick Baldasare, pursuant to which Mr. Baldasare is entitled to
receive a base salary of $250,000.
7
<PAGE>
Annual Incentive Compensation. Under his employment agreement, 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. In 1998, Mr. Miller was 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. Under his employment
agreement, Mr. Baldasare is entitled to a bonus of $50,000 for meeting the terms
and conditions of his agreement. Additionally, Mr. Baldasare is entitled to a
bonus of $100,000 in the event his Division's EBITDA exceeds specified
thresholds and, for 1999 and 2000, a bonus equal to 5% of the Division's pre-tax
income for the year in excess of 110% of the prior year's pre-tax income. An
independent compensation consultant assisted the Compensation Committee with its
review of incentive compensation awards for 1998.
Stock Options. The Company uses the 1996 Stock Option Plan as a
long-term incentive plan for executive officers and key employees. The
objectives of the 1996 Plan are to align the long-term interests of officers,
key employees and directors of, and important consultants to, the Company with
the shareholders by creating a direct link between compensation and shareholder
return and to enable such persons to develop and maintain a significant
long-term equity interest in the Company. The 1996 Plan authorizes the
Compensation Committee to award stock options to the Company's officers, key
employees, directors and important consultants. In general under the 1996 Plan,
options are granted with an exercise price equal to the fair market value of the
Common Stock on the date of grant and are exercisable according to a vesting
schedule determined by the Compensation Committee at the time of grant.
Information concerning option grants to certain executive officers in 1998 is
set forth in the Summary Compensation Table.
Determination of Compensation of Chief Executive Officer. Mr. Barrist's
annual base salary for 1998 was $275,000 pursuant to his employment agreement
which was the same as the last annual salary in effect as of the end of 1997.
Mr. Barrist's annual base salary was raised to $450,000 per year, effective
January 1, 1999, as part of the amendment of his employment agreement and
extension of his employment term. Mr. Barrist also was paid a bonus of $351,728
pursuant to his employment agreement as a result of the achievement of certain
performed goals and the increase in the Company's net income to $14.7 million
for 1998 from net income of $7.1 million in 1997, a 108% increase. In approving
the increase in Mr. Barrist's base salary and the amount of incentive
compensation payable to Mr. Barrist for 1998, the Compensation Committee was
assisted by an independent compensation consultant. Mr. Barrist also was awarded
options to purchase a total of 55,000 shares of Common Stock during 1998.
Policy with respect to Section 162(m) of the Internal Revenue Code.
Generally, Section 162(m) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder (collectively, "Section 162(m)"), denies a
deduction to any publicly held corporation, such as the Company, for certain
compensation exceeding $1,000,000 paid during a taxable year to the chief
executive officer and the four other highest paid executive officers, excluding,
among other things, certain qualified performance-based compensation. The
Compensation Committee has considered the impact of Section 162(m) and, based on
current compensation levels of the executive officers of the Company, believes
that it will not have a material adverse effect on the Company in 1999.
Members of the Compensation Committee during 1998: Eric S. Siegel and
Allen F. Wise.
8
<PAGE>
Summary Compensation Table
The following table sets forth the compensation earned during each of
the last three years by the Chief Executive Officer
and the five next most highly compensated executive officers of the Company
whose aggregate salaries and bonuses exceeded $100,000 for services rendered in
all capacities to the Company during 1998.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards (1)
------------
Annual Compensation Securities
Name and ------------------------- Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation($)(2)
- ------------------------------------ ---- ----------- ----------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Michael J. Barrist 1998 275,000 351,728 55,000 27,247
Chairman of the Board, President 1997 280,288 279,648 42,500 18,681
and Chief Executive Officer 1996 208,653 53,862(3) -- 5,957
Charles C. Piola, Jr. 1998 166,154 100,000 14,500 39,161
Executive Vice President, Business 1997 229,327 100,000 22,500 20,565
Development and Director 1996 202,884 33,333(3) -- 16,413
Bernard R. Miller 1998 150,000 100,000 30,000 8,998
Executive Vice President; 1997 152,885 100,000 22,500 8,328
Divisional CEO, Healthcare Services 1996 136,730 26,448(3) 75,000 7,926
and Director
Steven L. Winokur, 1998 150,000 100,000 30,000 2,500
Executive Vice President, Finance, 1997 152,885 45,000 30,000 1,541
Chief Financial Officer and 1996 149,422 35,000 46,802 --
Treasurer
Joseph C. McGowan 1998 150,000 100,000 30,000 4,820
Executive Vice President and 1997 138,942 45,000 30,000 10,696
Divisional CEO, Accounts Receivable 1996 117,000 18,000 41,600 3,664
Management
Patrick M. Baldasare 1998 233,150 50,000 55,000 2,500
Executive Vice President and 1997 -- -- -- --
Divisional CEO, Marketing Strategy 1996 -- -- -- --
</TABLE>
- -------------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights during the year presented.
(2) For 1998, consists of premiums for disability policies paid by the Company
of $3,358, $1,022, $6,498, $-0-, $2,320 and $-0-, and the Company matching
contribution under the 401(k) Profit Sharing Plan of $2,500, $2,500,
$2,500, $2,500, $2,500 and $2,500, for the benefit of Messrs. Barrist,
Piola, Miller, Winokur, McGowan and Baldasare, respectively, and a portion
of the premiums for split-dollar life insurance policies paid by the
Company of $21,389 and $35,639 for the benefit of Messrs. Barrist and
Piola, respectively. The portion of the premiums for the split-dollar life
insurance policies were calculated in accordance with SEC regulations as if
the premiums were advanced to the executive officers without interest until
the time the Company expects to recover the premiums.
(3) These bonus amounts represent the bonuses earned by the respective officers
from September 3, 1996, the date of the Company's termination of its status
as an S Corporation under the Internal Revenue Code of 1986, as amended,
until December 31, 1996. No bonus was paid to these executive officers (who
were also shareholders) for the period while the Corporation was an S
Corporation in 1996. The total bonus amounts for 1996 for Mr. Barrist, Mr.
Piola and Mr. Miller would have been $161,587, $100,000 and $79,343,
respectively.
9
<PAGE>
Option Grants in 1998
The following table sets forth certain information concerning stock
options granted during 1998 to each of the executive officers of the Company
named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Individual Grants Appreciation for
Option Term (1)
---------------------------------------------------- ---------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
- ----------------------- ---------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Barrist 40,000(2) 5.2% $21.00 8/4/08 $528,360 $1,338,750
15,000(3) 1.9% 33.38 12/16/08 314,893 797,871
Charles C. Piola, Jr. 12,000(2) 1.5% 21.00 8/4/08 158,508 401,625
2,500(3) 0.3% 33.38 12/16/08 52,482 132,979
Bernard R. Miller 20,000(2) 2.6% 21.00 8/4/08 264,180 669,375
10,000(3) 1.3% 33.38 12/16/08 209,929 531,914
Steven L. Winokur 20,000(2) 2.6% 21.00 8/4/08 264,180 669,375
10,000(3) 1.3% 33.38 12/16/08 209,929 531,914
Joseph C. McGowan 20,000(2) 2.6% 21.00 8/4/08 264,180 669,375
10,000(3) 1.3% 33.38 12/16/08 209,929 531,914
Patrick M. Baldasare 25,000(4) 3.2% 24.75 1/2/08 389,194 986,133
25,000(5) 3.2% 29.19 2/6/08 458,981 1,162,959
5,000(3) 0.6% 33.38 12/16/08 104,964 265,957
</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 8/4/98 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) These options were granted on 12/16/98 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.
(4) These options were granted on 1/2/98 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.
(5) These options were granted on 2/6/98 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.
10
<PAGE>
Aggregated Option Exercises in 1998 and 1998 Year-End Option Values
The following table sets forth certain information concerning stock
options exercised during 1998 by each of the executive officers of the Company
named in the Summary Compensation Table and the number of unexercised options
and the value of unexercised options at December 31, 1998 held by each of the
executive officers of the Company named in the Summary Compensation Table.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares Acquired Value December 31, 1998 December 31, 1998 (2)
Name on Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael J. Barrist -- -- 14,167/83,333 $337,929/$1,810,212
Charles C. Piola, Jr. -- -- 7,500/29,500 $192,920/$702,903
Bernard R. Miller -- -- 57,500/70,000 $1,876,220/$1,823,740
Steven L. Winokur 35,000 $ 751,818 38,849/65,601 $1,292,370/$1,651,437
Joseph C. McGowan 47,172 $1,043,637 49,356/70,800 $1,674,131/$1,840,337
Patrick M. Baldasare -- -- --/55,000 --/$959,675
</TABLE>
- -------------------
(1) Represents the difference between the last sale price of the Common Stock
on the date of exercise, as reported on the Nasdaq National Market, and the
exercise price of the options, multiplied by the number of shares for which
the options were exercised.
(2) Represents the difference between the last sale price of the Common Stock
on December 31, 1998 ($45.00 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 applicable.
Employment Agreements
In September 1996, the Company entered into employment agreements with
Messrs. Barrist, Piola, Miller, Winokur and McGowan which agreements were
amended effective as of May 1, 1998, in the case of Mr. Piola, and as of January
1, 1999, in the case of the other officers. As amended, the term of Mr. Piola's
employment agreement terminates on September 1, 2001 and the term of the
employment agreements for each of Messrs. Barrist, Miller, Winokur and McGowan
terminates on December 31, 2003, subject to any early termination provisions set
forth in the agreements. In connection with the acquisition of The Response
Center in February, the Company entered into a three-year employment agreement
with Patrick Baldasare. The salaries and bonuses payable under these agreements
are described above in "Compensation Committee Report."
11
<PAGE>
Each of the employment agreements (except for the employment agreement
for Mr. Baldasare) 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. Mr.
Baldasare's employment agreement provides that, in the event of his death,
disability (as defined in the agreement), or termination "for cause" (as defined
in the agreement), he is entitled to receive his full compensation, including
the pro rata portion of any bonuses, due to him for the period up to his
termination which remains unpaid. In addition to a non-disclosure covenant, each
employment agreement (except for the employment agreement for Mr. Baldasare)
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. In addition to a
non-disclosure covenant, Mr. Baldasare's employment agreement contains a
non-interference covenant for a period of three years following termination of
employment.
In connection with the acquisition of JDR in March 1999, the Company
entered into an employment agreement with David E. D'Anna providing for a term
expiring on March 31, 2002, subject to any early termination provisions in the
agreement. Under the agreement, Mr. D'Anna is entitled to receive an annual base
salary of $367,500, increased as of June 1st each year by at least five percent,
and such other amount as the Board may determine. In addition, Mr. D'Anna is
entitled to a bonus of up to $300,000 based upon the performance of the
Technology-based Outsourcing Services. In the event that the performance of the
Division exceeds the stated goals, any further additional bonus will be at the
discretion of the Company. In addition to a non-disclosure covenant, Mr.
D'Anna's employment agreement also contains a covenant not to compete with the
Company for a period of one year after his employment is terminated by Mr.
D'Anna or by the Company for cause, or for the remaining term of the Agreement
if Mr. D'Anna's employment is terminated by the Company without cause.
Executive Salary Continuation Plan
The Company has adopted an Executive Salary Continuation Plan which
provides beneficiaries of designated participants with a salary continuation
benefit in the event of the participant's death while employed by the Company.
Participants are selected by the Board of Directors of the Company. The salary
continuation payments range from a payment of $30,000 for 10 years after the
death of the participant to a payment of 50% to 100% of a participant's salary
for five years after the death of the participant. The Company maintains
insurance on the lives of the participants to satisfy its obligations under the
Plan. Each of Messrs. Barrist, Piola, Miller, Winokur, McGowan, and Baldasare is
a participant in this Plan and their respective beneficiary will be entitled to
receive 100% salary continuation payments for five years in the event of their
death.
Stock Option Plans
The Company's stock option plans, sometimes referred to as the Plans,
consist of the Stock Option Plan (the "1995 Plan"), the 1996 Stock Option Plan
(the "1996 Plan"), and the 1996 Non-Employee Director Stock Option Plan (the
"Director Plan"). The 1996 Plan was amended by the Board in February 1999,
subject to shareholder approval. See "Proposal 2 - Approval of Amendments to the
1996 Stock Option Plan." The purpose of the Plans is to attract and retain
employees, non-employee directors, and independent consultants and contractors
and to provide additional incentive to them by encouraging them to invest in the
Common Stock and acquire an increased personal interest in the Company's
business. Payment of the exercise price for options granted under the Plans may
be made in cash, shares of Common Stock or a combination of both. All options
granted pursuant to the Plans are exercisable in accordance with a vesting
schedule which is set at the time of the issuance of the option and, except as
indicated below, may not be exercised more than ten years from the date of
grant. Options granted under the Plans will become immediately exercisable upon
a "change in control" as defined in the Plans.
12
<PAGE>
1995 Plan and 1996 Plan. All officers, directors, key employees,
independent contractors and independent consultants of the Company or any of its
current or future parents or subsidiaries are eligible to receive options under
the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors or, at the option of the Board
of Directors, the Board may administer the Plans. The Committee will select the
optionees and will determine the nature of the option granted, the number of
shares subject to each option, the option vesting schedule and other terms and
conditions of each option. If Proposal 2 is approved, the 1996 Plan will be
amended to authorize the Compensation Committee to delegate to the President of
the Company its duties, power and authority under the 1996 Plan pursuant to such
conditions or limitations as the Compensation Committee may establish, except
that only the Compensation Committee or the full Board of Directors may select
and grant options to participants who are subject to Section 16 of the
Securities Exchange Act of 1934. The Board of Directors may modify or supplement
these Plans and outstanding options and may suspend or terminate these Plans,
provided that such action may not adversely affect outstanding options.
The Company is authorized to issue 332,578 shares of Common Stock upon
the exercise of options granted under the 1995 Plan and 2,717,422 shares of
Common Stock upon the exercise of options granted under the 1996 Plan, which
includes 1,000,000 shares of Common Stock subject to shareholder approval in
connection with the amendment of the 1996 Plan described in Proposal 2. Options
granted under these Plans may be incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or options not intended to so qualify, except that incentive stock options may
only be granted to employees of the Company. These Plans require the exercise
price of incentive stock options to be at least equal to the fair market value
of the Common Stock on the date of the grant. In the case of incentive stock
options granted to a shareholder owning, directly or indirectly, in excess of
10% of the Common Stock, the option exercise price must be at least equal to
110% of the fair market value of the Common Stock on the date of grant and such
option may not be exercised more than five years from the date of grant. The
option price for non-qualified options, at the discretion of the Compensation
Committee, may be less than the fair market value of the Common Stock on the
date of grant.
All unexercised options terminate three months following the date on
which an optionee's employment by, or relationship with, the Company or any
parent or subsidiary of the Company, terminates other than by reason of
disability or death (but not later than the expiration date) whether or not such
termination is voluntary. Any option held by an employee who dies or who ceases
to be employed because of disability must be exercised by the employee or his
representative within one year after the employee dies or ceases to be an
employee (but not later than the scheduled termination date). Options are not
transferable otherwise than by will or the laws of descent and distribution. No
additional options may be granted under the 1995 Plan and no options may be
granted under the 1996 Plan after August 2006. No individual may receive options
under the 1995 Plan or the 1996 Plan for more than 90% of the total number of
shares of the Company's Common Stock authorized for issuance under such Plans.
Director Plan. All non-employee directors automatically receive options
under the Director Plan. The Director Plan is administered by the Board of
Directors of the Company, including non-employee directors, who may modify,
amend, suspend or terminate the plan, other than the number of shares with
respect to which options are to be granted, the option exercise price, the class
of persons eligible to participate, or options previously granted.
The Company is authorized to issue 150,000 shares of Common Stock upon
the exercise of options under the Director Plan. Options granted under the
Director Plan are not incentive stock options under Section 422 of the Code.
Each person who is first elected or appointed to serve as a non-employee
director of the Company automatically is granted an option to purchase 15,000
shares of Common Stock and automatically is granted an option to purchase 3,000
shares of Common Stock at each annual meeting of shareholders thereafter
provided that such person is re-elected or continues as a non-employee director.
13
<PAGE>
Stock Performance Graph
The following graph shows a comparison of the cumulative total return
for the Company's Common Stock, the Nasdaq Stock Market and the NCO Composite
Index (defined below), assuming an investment of $100 in each on November 6,
1996, the date that the Company's Common Stock was first registered under the
Securities Exchange Act of 1934, and the reinvestment of all dividends.
The NCO Composite Index reflects the performance of the following
publicly traded companies in industries similar to that of the Company: Century
Business Services, Compass International Services, Creditrust Corporation,
Healthcare Recoveries, Profit Recovery Group International, TeleTech Holdings,
United Payors & United Providers, Inc., and West TeleServices Corporation.
The beginning and end data points used for the performance graph are
listed below.
600 |-------------------------------------------------------------------------|
| |
| |
|-------------------------------------------------------------------------|
| |
| * |
500 |-------------------------------------------------------------------------|
| |
| |
|-------------------------------------------------------------------------|
| |
| |
400 |-------------------------------------------------------------------------|
| |
| |
|-------------------------------------------------------------------------|
| |
| |
300 |-------------------------------------------------------------------------|
| * |
| |
|-------------------------------------------------------------------------|
| |
| |
200 |-------------------------------------------------------------------------|
| # |
| |
|-------------------------------------------------------------------------|
| * |
| # # |
100 |--------*#@--------------------------------------------------------------|
| @ |
| @ @ |
|-------------------------------------------------------------------------|
| |
| |
0 |-------------------------------------------------------------------------|
11/96 12/96 12/97 12/98
<TABLE>
<CAPTION>
Performance Graph Data Points 11/6/96 12/31/96 12/31/97 12/31/98
- ------------------------------------------------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
NCO Group, Inc.........*............................... 100 130 297 519
Nasdaq.................#............................... 100 104 126 176
NCO Composite Index....@............................... 100 88 53 59
</TABLE>
14
<PAGE>
CERTAIN TRANSACTIONS
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Messrs. Siegel and Wise. Certain
transactions with respect to the Company and Messrs. Siegel or Wise are
described below.
Distribution and Tax Indemnification Agreement
In 1996, the Company entered into a distribution and tax
indemnification agreement with its shareholders as of September 3, 1996 (the
"Termination Date"), the date the Company terminated its status as an S
Corporation, which provided for: (i) the payment of estimated S Corporation
distributions, (ii) the adjustment of the S Corporation distributions based on
the final determination of the Company's actual undistributed S Corporation
earnings through the Termination Date, (iii) an indemnification by the Company
of such shareholders for any losses or liabilities with respect to any
additional taxes (including interest, penalties, legal and accounting fees and
any additional taxes resulting from any indemnification) resulting from the
Company's operations during the period in which it was an S Corporation (the "S
Corporation Period") and (iv) an indemnification by such shareholders of the
Company for the amount of any tax refund received by such shareholders due to a
reduction in their share of the Company's S Corporation taxable income for the S
Corporation Period less any taxes, interest or penalties imposed by any tax
authority on any distributions to such shareholders with respect to the S
Corporation Period in excess of such shareholder's share of taxable income of
the Company for the S Corporation Period.
Professional Services
The Company has engaged Siegel Management Company to provide advisory
and consulting services with respect to prospective acquisitions by the Company.
The Company paid fees of $250,000 and $-0- to Siegel Management Company for
services rendered in 1998 and 1999, respectively. Eric S. Siegel is a director
of the Company and is the President and owner of Siegel Management Company.
Use of Airplane
From time to time, the Company uses an airplane which is partly owned
by Michael J. Barrist. The Company pays to a third party management company
which is not affiliated with Mr. Barrist the monthly management fee and
out-of-pocket costs for the Company's use of the airplane.
PROPOSAL 2
APPROVAL OF AMENDMENTS TO THE 1996 STOCK OPTION PLAN
In February 1999, the Board of Directors approved amendments to the
Company's 1996 Stock Option Plan (the "1996 Plan"), subject to approval by the
shareholders of the Company, to increase the number of shares of Common Stock
authorized for issuance under the Plan by 1,000,000 shares from 1,717,422 shares
to 2,717,422 shares, and to authorize the Compensation Committee to delegate to
the President of the Company the authority to make awards under the 1996 Plan to
non-executive officers and employees. The 1996 Plan is discussed in "Executive
Compensation -- Stock Option Plans."
15
<PAGE>
Under the 1996 Plan, of the 1,717,422 shares of Common Stock authorized
under the 1996 Plan, approximately less than 260,000 shares were available for
future options grants at December 31, 1998. The purpose of the proposed increase
is to provide sufficient shares for future option grants to officers, employees,
non-employee directors and independent consultants and contractors of the
Company, particularly in light of the recent acquisitions effected by the
Company and the additional resulting personnel. The Board of Directors believes
that the Company and its shareholders benefit significantly from having the
Company's key personnel receive options to purchase the Company's Common Stock,
and that the opportunity thus afforded such persons to acquire Common Stock is
an essential element of an effective management incentive program. The Board of
Directors also believes that stock options, particularly incentive stock
options, are valuable in attracting and retaining highly qualified personnel and
in providing additional motivation to such personnel to use their best efforts
on behalf of the Company and its shareholders.
If Proposal 2 is approved, the 1996 Plan will also be amended to
authorize the Compensation Committee to delegate to the President of the Company
its duties, powers and authority under the 1996 Plan subject to such conditions
or limitations as the Compensation Committee may establish, except that only the
Compensation Committee or the full Board of Directors may select and grant
options to participants who are subject to Section 16 of the Securities and
Exchange Act of 1934. The purpose of this amendment is to permit flexibility and
ease of administration with respect to the 1996 Plan as it relates to
non-executive officers and employees of the Company and its subsidiaries.
For information concerning grants of the options pursuant to the 1996
Plan, see "Option Grants in 1999." Information concerning options granted in
1998 to the persons named in the Summary Compensation Table is set forth under
"Executive Compensation -- Option Grants in 1998" above.
A summary of certain federal income tax consequences associated with
the 1996 Plan is set forth in "Federal Income Tax Consequences of the 1996
Plan."
There are two reasons for seeking shareholder approval of Proposal 2.
One is to satisfy a Nasdaq Stock Market requirement that requires companies
whose shares are reported on the Nasdaq National Market to obtain shareholder
approval of amendments to stock plans for directors, officers or key employees.
The second reason is to satisfy requirements of the Code which require
shareholder approval of the amendments in order for options granted for the
additional shares issuable under the 1996 Plan to qualify as incentive stock
options to the extent so designated and for the 1996 Plan to satisfy one of the
conditions of Section 162(m) applicable to performance-based compensation.
If the shareholders do not approve Proposal 2, then the maximum number
of shares issuable under the Plan will remain at 1,717,422 shares, and no
delegation of the Compensation Committee's authority under the 1996 Plan will be
made.
The Board of Directors recommends that you vote "FOR" approval of
Proposal 2.
16
<PAGE>
OPTION GRANTS IN 1999
Options to purchase a total of 77,750 shares of the Company's Common
Stock have been granted to-date in 1999 under the 1996 Plan to 120 employees of
the Company (none of whom are directors or executive officers of the Company) at
exercise prices ranging from $33.125 to $37.000 per share. Of the options
granted in 1999, no options were granted pursuant to the amendments to the 1996
Plan described above. No determination has been made with respect to the grant
of options in 1999 authorized by the amendments to any director, executive
officer or other employee of the Company.
In addition, in connection with the acquisition of JDR in March 1999,
the Company assumed outstanding options to purchase JDR stock which, as a result
of the acquisition and the assumption of the options and the JDR Stock Option
Plan, were converted into options to purchase up to 333,538 shares of NCO Common
Stock.
On April 19, 1999, the last sale price of the Common Stock was $36 7/8
per share as reported on the Nasdaq National Market.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 PLAN
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE 1996 PLAN AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE
PROVISIONS OF THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY
AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW. EACH PARTICIPANT WHO
ACQUIRES SHARES OF COMMON STOCK UNDER THE PLANS SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR WITH RESPECT TO HIS OR HER INDIVIDUAL TAX POSITION AND THE EFFECT OF
ANY LEGISLATIVE REVISIONS ON SUCH POSITION.
Options granted under the 1996 Plan may be incentive stock options
("Incentive Options") intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options not intended to so
qualify ("Non-Qualified Options").
Incentive Stock Options
Generally, under the Code, an optionee will not realize taxable income
by reason of the grant or the exercise of an Incentive Option (see, however,
discussion of alternative minimum tax below). If an optionee exercises an
Incentive Option and does not dispose of the shares until the later of (i) two
years from the date the option was granted and (ii) one year from the date of
exercise, the entire gain, if any, realized upon disposition of such shares will
be taxable to the optionee as long-term capital gain, and the Company will not
be entitled to any deduction. If an optionee disposes of the shares within the
period of two years from the date of grant or one year from the date of exercise
(a "disqualifying disposition"), the optionee generally will realize ordinary
income in the year of disposition and the Company will receive a corresponding
deduction, in an amount equal to the excess of (1) the lesser of (a) the amount,
if any, realized on the disposition and (b) the fair market value of the shares
on the date the option was exercised over (2) the option price. Any additional
gain realized on the disposition will be long-term or short-term capital gain
and any loss will be long-term or short-term capital loss. The optionee will be
considered to have disposed of a share if he sells, exchanges, makes a gift of
or transfers legal title to the share (except transfers, among others, by
pledge, on death or to spouses). If the disposition is by sale or exchange, the
optionee's tax basis will equal the amount paid for the share plus any ordinary
income realized as a result of the disqualifying disposition.
17
<PAGE>
The exercise of an Incentive Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the shares
purchased at the time of the exercise exceeds the option exercise price is an
adjustment for purposes of computing the so-called alternative minimum tax. In
the event of a disqualifying disposition of the shares in the same taxable year
as exercise of the Incentive Option, no adjustment is then required for purposes
of the alternative minimum tax, but regular income tax, as described above, may
result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Option generally will not recognize gain or loss on his surrender
of such shares. The surrender of shares previously acquired upon exercise of an
Incentive Option in payment of the exercise price of another Incentive Option,
is, however, a "disposition" of such stock. If the incentive stock option
holding period requirements described above have not been satisfied with respect
to such stock, such disposition will be a disqualifying disposition that may
cause the optionee to recognize ordinary income as discussed above.
Under the Code, all of the shares received by an optionee upon exercise
of an Incentive Option by surrendering shares will be subject to the incentive
stock option holding period requirements. Of those shares, a number of shares
(the "Exchange Shares") equal to the number of shares surrendered by the
optionee will have the same tax basis for capital gains purposes (increased by
any ordinary income recognized as a result of any disqualifying disposition of
the surrendered shares if they were incentive stock option shares) and the same
capital gains holding period as the shares surrendered. For purposes of
determining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Options
Generally, there will be no federal income tax consequences to either
the optionee or the Company on the grant of Non-Qualified Options pursuant to
the 1996 Plan. On the exercise of a Non-Qualified Option, the optionee (except
as described below) has taxable ordinary income equal to the excess of the fair
market value of the shares acquired on the exercise date over the option price
of the shares. The Company will be entitled to a federal income tax deduction
(subject to the limitations contained in Section 162(m)) in an amount equal to
such excess, provided that the Company complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Option,
optionees will realize long-term or short-term capital gain or loss depending
upon their holding period for such stock. Capital losses are deductible only to
the extent of capital gains for the year plus $3,000 for individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Option will not recognize gain or loss with respect to the shares
so delivered unless such shares were acquired pursuant to the exercise of an
Incentive Option and the delivery of such shares is a disqualifying disposition.
See "Federal Income Tax Consequences - Incentive Stock Options". The optionee
will recognize ordinary income on the exercise of the Non-Qualified Option as
described above. Of the shares received in such an exchange, that number of
shares equal to the number of shares surrendered will have the same tax basis
and capital gains holding period as the shares surrendered. The balance of the
shares received will have a tax basis equal to their fair market value on the
date of exercise and the capital gains holding period will begin on the date of
exercise.
18
<PAGE>
Limitation on Company's Deduction
Section 162(m) of the Code will generally limit to $1,000,000 the
Company's federal income tax deduction for compensation paid in any year to its
chief executive officer and its four highest paid executive officers, to the
extent that such compensation is not "performance based." Under Treasury
regulations, a stock option will, in general, qualify as "performance based"
compensation if it (i) has an exercise price of not less than the fair market
value of the underlying stock on the date of grant, (ii) is granted under a plan
that limits the number of shares for which options may be granted to an employee
during a specified period, which plan is approved by a majority of the
shareholders entitled to vote thereon, and (iii) is granted by a compensation
committee consisting solely of at least two independent directors. If a stock
option to an executive referred to above is not "performance based", the amount
that would otherwise be deductible by the Company in respect of such stock
option will be disallowed to the extent that the executive's aggregate
non-performance based compensation paid in the relevant year exceeds $1,000,000.
SHAREHOLDER PROPOSALS
Under the Company's Bylaws, shareholder proposals with respect to the
2000 Annual Meeting of Shareholders, including nominations for directors, which
have not been previously approved by the Board of Directors must be submitted to
the Secretary of the Company not later than December 27, 1999. Any such
proposals must be in writing and sent either by personal delivery,
nationally-recognized express mail or United States mail, postage prepaid to NCO
Group, Inc., 515 Pennsylvania Avenue, Fort Washington, Pa 19034, Attention:
Secretary of the Company. Each nomination or proposal must include the
information required by the Bylaws. All late or nonconforming nominations and
proposals will be rejected.
Shareholder proposals for the 2000 Annual Meeting of Shareholders must
be submitted to the Company by December 27, 1999 to receive consideration for
inclusion in the Company's Proxy Statement relating to the 2000 Annual Meeting
of Shareholders. Any such proposal must also comply with SEC proxy rules,
including SEC Rule 14a-8.
In addition, shareholders are notified that the deadline for providing
the Company timely notice of any shareholder proposal to be submitted outside of
the Rule 14a-8 process for consideration at the Company's 2000 Annual Meeting of
Shareholders is December 27, 1999. As to all such matters which the Company does
not have notice on or prior to December 27, 1999, discretionary authority shall
be granted to the persons designated in the Company's proxy related to the 2000
Annual Meeting of Shareholders to vote on such proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's independent public auditors for 1998 and for 1999 are the
firm of PricewaterhouseCoopers LLP, Philadelphia, Pennsylvania. A representative
of PricewaterhouseCoopers LLP is expected to be present at the Meeting and to be
available to respond to appropriate questions. The representative will have the
opportunity to make a statement if he so desires.
19
<PAGE>
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
This Proxy Statement is accompanied by the Company's Annual Report to
Shareholders for 1998. The Annual Report is not a part of the proxy solicitation
materials.
Each shareholder can obtain a copy of the Company's Annual Report on
Form 10-K for 1998 as filed with the Securities and Exchange Commission, without
charge except for exhibits to the report, by sending a written request to:
NCO Group, Inc.
515 Pennsylvania Avenue
Fort Washington, PA 19034
Attention: Steven L. Winokur,
Executive Vice President, Finance
and Chief Financial Officer
OTHER MATTERS
The Company is not presently aware of any matters (other than
procedural matters) which will be brought before the Meeting which are not
reflected in the attached Notice of the Meeting. The enclosed proxy confers
discretionary authority to vote with respect to any and all of the following
matters that may come before the Meeting: (i) matters which the Company did not
receive notice by January 29, 1999 were to be presented at the Meeting; (ii)
approval of the minutes of a prior meeting of shareholders, if such approval
does not amount to ratification of the action taken at the meeting; (iii) the
election of any person to any office for which a bona fide nominee named in this
Proxy Statement is unable to serve or for good cause will not serve; (iv) any
proposal omitted from this Proxy Statement and the form of proxy pursuant to
Rules 14a-8 or 14a-9 under the Securities Exchange Act of 1934; and (v) matters
incident to the conduct of the Meeting. In connection with such matters, the
persons named in the enclosed proxy will vote in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Michael J. Barrist
---------------------------------------
MICHAEL J. BARRIST,
Chairman of the Board,
President and Chief Executive Officer
Fort Washington, Pennsylvania
April 23, 1999
20
<PAGE>
APPENDIX
PROXY
NCO GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS - MAY 26, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF NCO GROUP, INC.
The undersigned hereby constitutes and appoints Steven L. Winokur and
Joseph C. McGowan, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned, to appear at the Annual Meeting of Shareholders of NCO
Group, Inc. (the "Company") to be held on the 26th day of May, 1999, and at any
postponement or adjournment thereof, and to vote all of the shares of the
Company which the undersigned is entitled to vote, with all the powers and
authority the undersigned would possess if personally present.
BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR,
IF ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS
CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS
TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT.
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as [X]
indicated in
this example
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE
INDICATED, THE PROXY AGENTS INTEND TO VOTE FOR THE ELECTION OF ALL THE NOMINEES
LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSAL 2.
PROPOSAL 1. The election of Charles C. Piola, Jr., Eric S. Siegel and Stuart
Wolf as Class III directors of the Company to hold office for a term of three
years and until their respective successor is duly elected and qualified.
FOR all nominees listed To withhold authority to
above (except as marked to vote for all nominees,
the contrary), check this box: check this box:
/ / / /
To withhold authority to vote for any individual nominee, print that nominee's
name on the space provided below:
- --------------------------------------------------------------------------------
PROPOSAL 2. The amendment to the 1996 Stock Option Plan (the "1996 Plan") to
increase the number of shares that may be issued under the 1996 Plan by
1,000,000 shares and to permit the Compensation Committee to delegate authority
under the 1996 Plan to the President of the Company, as more fully described in
the accompanying Proxy Statement; and
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL 3. To transact such other business as may properly come before the
Annual Meeting.
The undersigned hereby acknowledges receipt of the Company's 1998 Annual Report
to Shareholder s, Notice of the Company's 1999 Annual Meeting of Shareholders
and the Proxy Statement relating thereto.
DATE____________________________________________________, 1999
(Please date this Proxy)
______________________________________________________________
______________________________________________________________
Signature(s)
It would be helpful if you signed your name exactly as it appears on your stock
certificate(s), indicating any official position or representative capacity. If
shares are registered in more than one name, all owners should sign.
PLEASE DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
