<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
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 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
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
(A)
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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 15, 2000
-----------------------------------------------------
To the Shareholders of NCO Group, Inc.:
The 2000 Annual Meeting of Shareholders of NCO Group, Inc. ("NCO" or
the "Company") will be held on May 15, 2000 at 2:00 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 two Class I 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 an amendment 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 March 24, 2000
are entitled to notice of, and to vote at, the Annual Meeting or any adjournment
or postponement thereof.
If the Annual Meeting is adjourned for one or more periods aggregating
at least 15 days because of the absence of a quorum, those shareholders entitled
to vote who attend the reconvened Annual Meeting, if less than a quorum as
determined under applicable law, shall nevertheless constitute a quorum for the
purpose of acting upon any matter set forth in this Notice of Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
URGED TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
MICHAEL J. BARRIST
Chairman of the Board,
President and Chief Executive Officer
Fort Washington, Pennsylvania
April 14, 2000
<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 2000 Annual Meeting of
Shareholders (the "Meeting") to be held on May 15, 2000 at 2:00 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 14, 2000.
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 March 24, 2000 (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 25,547,631 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 two 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 six. 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 two Class I 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, Michael J. Barrist and David E. D'Anna, were
nominated by the Board of Directors and 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 (1) 39 Chairman of the Board, President and Chief 1986 2000
Executive Officer
David E. D'Anna (1) 43 Executive Vice President and Divisional 1999 2000
Chief Executive Officer, Technology-Based
Outsourcing, and Director
Charles C. Piola, Jr. 52 Director 1986 2002
Eric S. Siegel (2) 43 Director 1996 2002
Allen F. Wise (2)(3) 57 Director 1996 2001
Stuart Wolf (2)(3) 47 Director 1999 2002
</TABLE>
- ----------------
(1) Nominee for director.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
The following information about the Company's directors is based, in
part, upon information supplied by such persons.
Michael J. Barrist has served as Chairman of the Board, President and
Chief Executive Officer of the Company since purchasing the Company in 1986. Mr.
Barrist was employed by U.S. Healthcare Inc.
2
<PAGE>
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, 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 or its predecessor since its inception in 1980.
Charles C. Piola, Jr. joined the Company in 1986 as Executive Vice
President, Business Development and a director. Mr. Piola retired as Executive
Vice President in January 2000 and has been providing services on a part-time
basis since 1999. 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.
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.
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 was the chief executive officer of Reimbursement
Technologies, Inc., a provider of billing services for emergency department
physicians, since founding the company in 1991 until his retirement in August
1999. Reimbursement Technologies is now a subsidiary of Laidlaw Inc. NCO
provides accounts receivable management services to Reimbursement Technologies.
Previously, from 1979 to his retirement in 1989, Mr. Wolf was co-founder and
President of Specialty Services Group, Inc., a physician billing/financial
management services company.
Board of Directors, Committees and Attendance at Meetings
The Board of Directors held nine meetings during 1999. Each director
attended 75% or more of the meetings of the Board and committees of which they
were members during 1999.
The Board of Directors has appointed a Compensation Committee to:
o make recommendations to the Board of Directors concerning
compensation for the Company's executive officers;
o review general compensation levels for other employees as a group;
and
o take such other actions as may be required in connection with the
Company's compensation and incentive plans.
3
<PAGE>
During 1999, 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:
o make recommendations concerning the engagement of independent public
accountants;
o 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;
o approve the professional services provided by the independent public
accountants;
o review the independence of the independent public accountants; and
o review the adequacy and effectiveness of the Company's internal
accounting controls.
The Audit Committee held three meetings during 1999.
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
During 1999, each director of the Company who was not also an employee
received 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. Effective January 1, 2000, the annual fee was increased
to $10,000.
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, and Mr. Wolf received an option to purchase 15,000
shares of Common Stock, each at an exercise price of $33.00 per share,
immediately following the 1999 Annual Meeting of Shareholders. In addition, each
of Messrs. Siegel, Wise and Wolf will receive an option to purchase 3,000 shares
of Common Stock immediately following the 2000 Annual Meeting of Shareholders.
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.
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> <C>
Michael J. Barrist (2).............................. 1,999,356 7.8%
David E. D'Anna..................................... 213,861 *
Joseph C. McGowan (3)............................... 35,000 *
Bernard R. Miller (4)............................... 171,340 *
Charles C. Piola, Jr. (5)........................... 983,406 3.8
SAFECO Corporation (6).............................. 2,688,427 10.5
Eric S. Siegel (3).................................. 39,129 *
Wellington Management Company, LLP (7).............. 2,228,300 8.7
Steven L. Winokur (8)............................... 201,910 *
Allen F. Wise (3)................................... 22,500 *
Stuart Wolf......................................... -- *
All directors and executive officers
as a group (14 persons) (9)..................... 3,716,984 14.4
</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) Includes: (i) 173,288 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) 54,166 shares issuable upon the exercise of options
which are exercisable within 60 days after the Record Date. Excludes 152,160
shares held in trust for the benefit of Mr. Barrist's child, as to which
shares Mr. Barrist disclaims beneficial ownership. Mrs. Annette Barrist is
the mother of Michael J. Barrist. Mr. Barrist's address is c/o NCO Group,
Inc., 515 Pennsylvania Avenue, Fort Washington, Pennsylvania 19034.
(3) Represents shares issuable upon the exercise of options which are
exercisable within 60 days after the Record Date.
(4) Includes 49,999 issuable upon the exercise of options which are exercisable
within 60 days after the Record Date. Mr. Miller resigned as a director and
employee in January 2000.
(5) Includes 24,833 issuable upon the exercise of options which are exercisable
within 60 days after the Record Date. Excludes 119,160 shares held in trust
for the benefit of Mr. Piola's children, as to which Mr. Piola disclaims
beneficial ownership.
(6) Based upon a Schedule 13G, dated February 10, 2000, 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
5
<PAGE>
number of shares of Common Stock shown in the table, and SAFECO Common Stock
Trust as the beneficial owner of 1,913,235 of the shares of Common Stock
shown in the table. According to the Schedule 13G, SAMC is an investment
adviser and the 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.
(7) Based on a Schedule 13G, dated February 9, 2000, provided to the Company.
The address of Wellington Management Company, LLP is 75 State Street,
Boston, Massachusetts 02109.
(8) Includes: (i) 152,160 shares held in trust for the benefit of Mr. Barrist's
child for which Mr. Winokur is a co-trustee; (ii) 49,450 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.
(9) Includes: (i) 173,288 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) 152,160 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 314,740 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) 119,160 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, 1999, except
that the following reports were not timely filed: initial statements of
beneficial ownership filed by Patrick M. Baldasare, Robert DiSante, Stephen W.
Elliott, Richard Raquet and Stuart Wolf; and statement of changes in beneficial
ownership filed by Michael J. Barrist, David E. D'Anna (two reports), Robert
DiSante, Stephen W. Elliot (two reports), Joshua Gindin, Joseph C. McGowan (two
reports), Bernard R. Miller, Charles C. Piola, Jr. (two reports), Richard
Raquet, Eric S. Siegel, Paul E. Weitzel, Jr. and Steven L. Winokur.
6
<PAGE>
EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee makes compensation decisions concerning the
principal executive officers of the Company. The policies of the Company's
compensation program with respect to executive officers are:
o Provide compensation that will attract and retain superior executive
talent;
o 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
o 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, Winokur and McGowan are entitled to receive annual base salaries of
$450,000, $250,000 and $250,000, respectively, adjusted each year in accordance
with the Consumer Price Index ("CPI"). In connection with the acquisition of JDR
in March 1999, the Company entered into a three-year employment agreement with
Mr. D'Anna, pursuant to which Mr. D'Anna is entitled to receive a base salary of
$367,500, increased as of June 1st each year by at least five percent and such
other amount as the Board determines. Mr. Miller resigned as a director and
employee of the Company in January 2000.
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. In 1999, Mr. Miller received a 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. D'Anna
is entitled to receive a bonus of up to $300,000 based upon the performance of
the Technology- Based Outsourcing division. 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. An independent compensation consultant assisted
the Compensation Committee with its review of incentive compensation awards for
1999.
7
<PAGE>
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 1999 is
set forth in the Summary Compensation Table. An independent compensation
consultant assisted the Compensation Committee with its review of stock option
awards for 1999.
Determination of Compensation of Chief Executive Officer. 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 $424,601 pursuant to his
employment agreement as a result of the achievement of certain performance goals
and the increase in the Company's results of operations. Mr. Barrist also was
awarded options to purchase a total of 100,000 shares of Common Stock during
1999. An independent compensation consultant assisted the Compensation Committee
in evaluating the increase in Mr. Barrist's base salary, the amount of incentive
compensation paid to Mr. Barrist for 1999 and the stock options awarded to Mr.
Barrist.
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 believes
that it will not have a material adverse effect on the Company in 2000.
Members of the Compensation Committee during 1999: Eric S. Siegel
(through May 26, 1999), Allen F. Wise and Stuart Wolf (beginning May 26, 1999).
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 four next most
highly compensated executive officers of the Company whose aggregate salaries
and bonuses exceeded $100,000 for services rendered in all capacities to the
Company during 1999.
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards (1)
-----------------
Annual Compensation Securities
Name and ------------------------- Underlying All Other
Principal Position Year Salary($) Bonus($) Options (#) Compensation($)(2)
- ------------------------------------ --------- ------------ ------------ ----------------- ----------------------
<S> <C> <C> <C> <C> <C>
Michael J. Barrist 1999 450,000 424,601 100,000 54,666
Chairman of the Board, President and 1998 275,000 351,728 55,000 27,247
Chief Executive Officer 1997 280,288 279,648 42,500 18,681
David E. D'Anna 1999 296,706 300,000 50,000 2,500
Executive Vice President and 1998 -- -- -- --
Divisional CEO, Technology-Based 1997 -- -- -- --
Outsourcing
Joseph C. McGowan 1999 250,000 150,000 75,000 4,841
Executive Vice President and 1998 150,000 100,000 30,000 4,820
Divisional CEO, Accounts Receivable 1997 138,942 45,000 30,000 10,696
Management
Bernard R. Miller 1999 250,000 100,000 50,000(3) 15,133
Executive Vice President; Divisional 1998 150,000 100,000 30,000 8,998
CEO, Healthcare Services and 1997 152,885 100,000 22,500 8,328
Director
Steven L. Winokur, 1999 250,000 150,000 75,000 2,500
Executive Vice President, Finance, 1998 150,000 100,000 30,000 2,500
Chief Financial Officer and Treasurer 1997 152,885 45,000 30,000 1,541
</TABLE>
- -----------------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights during the year presented.
(2) For 1999, consists of premiums for disability policies paid by the Company
of $908, $-0-, $2,341, $12,633 and $-0- for the benefit of Messrs. Barrist,
D'Anna, McGowan, Miller and Winokur, respectively, the Company matching
contribution under the 401(k) Profit Sharing Plan of $2,500 for each officer
and a portion of the premiums for split-dollar life insurance policies paid
by the Company of $51,258 for the benefit of Mr. Barrist. 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 officer without interest until the time the Company expects to
recover the premiums.
(3) Mr. Miller returned these options to the Company in December 1999. Mr.
Miller resigned as a director and employee in January 2000.
9
<PAGE>
Option Grants in 1999
The following table sets forth certain information concerning stock
options granted during 1999 to each of the executive officers of the Company
named in the Summary Compensation Table. All options were granted on December
13, 1999 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.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (1)
----------------------------------------------------- ----------------------
Number of
Securities Percent of Total
Underlying Options Granted Exercise
Options to Employees in Price Per Expiration
Name Granted Fiscal Year Share Date 5% 10%
- ------------------------------------- ------------ ---------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Barrist 100,000 6.7% $ 29.938 12/13/09 $1,883,100 $4,771,369
David E. D'Anna 50,000 3.3% 29.938 12/13/09 941,550 2,385,684
Joseph C. McGowan 75,000 5.0% 29.938 12/13/09 1,412,325 3,578,527
Bernard R. Miller 50,000(2) 3.3% 29.938 12/13/09 941,550 2,385,684
Steven L. Winokur 75,000 5.0% 29.938 12/13/09 1,412,325 3,578,527
</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) Mr. Miller returned these options to the Company in December 1999.
10
<PAGE>
Aggregated Option Exercises in 1999 and 1999 Year-End Option Values
The following table sets forth certain information concerning stock
options exercised during 1999 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, 1999 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, 1999 December 31, 1999 (2)
Name on Exercise Realized (1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael J. Barrist -- -- 46,666/150,834 $376,047/$389,231
David E. D'Anna -- -- -/50,000 $ -/$9,350
Joseph C. McGowan 60,156 $2,088,838.10 29,999/105,001 $251,667/$231,118
Bernard R. Miller 50,000 $1,927,050.00 49,999/77,501 $693,317/$212,380
Steven L. Winokur 30,000 $ 993,302.50 44,449/105,001 $561,750/$231,118
</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, 1999 ($30.125 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, Miller, Winokur and McGowan which agreements were amended
effective as of January 1, 1999. As amended, the term of each of the employment
agreements terminates on December 31, 2003, subject to any early termination
provisions set forth in the agreements. In connection with the acquisition of
JDR in March 1999, the Company entered into a three-year employment agreement
with Mr. D'Anna. The salaries and bonuses payable under these agreements are
described above in "Compensation Committee Report."
Mr. D'Anna's agreement provides that he will continue to be paid his
salary and prorated bonus in the event his employment is terminated without
"cause" (as defined in his agreement). Each of the other 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 employment agreement also contains a covenant-not-to- compete
with the Company.
11
<PAGE>
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, McGowan and Winokur is a participant in this Plan
and their respective beneficiaries 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 2000,
subject to shareholder approval. See "Proposal 2 - Approval of Amendment 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.
1995 Plan and 1996 Plan. All officers, directors, key employees,
independent contractors and independent consultants of the Company or any of its
current or future parents or subsidiaries are eligible to receive options under
the 1995 Plan and the 1996 Plan. These Plans are administered by the
Compensation Committee of the Board of Directors or, at the option of the Board
of Directors, the Board may administer the Plans. The Committee will select the
optionees and will determine the nature of the option granted, the number of
shares subject to each option, the option vesting schedule and other terms and
conditions of each option. The Board of Directors may modify or supplement these
Plans and outstanding options and may suspend or terminate these Plans, provided
that such action may not adversely affect outstanding options.
Pursuant to an amendment to the 1996 Plan approved by the shareholders
in 1999, the Compensation Committee delegated to the President of the Company
the authority under the 1996 Plan to select the optionees and determine the
nature of the option granted, the number of shares subject to each option
(subject to an annual limit of 5,000 shares per participant or 10,000 shares
with respect to grants to participants in connection with an acquisition), the
option vesting schedule and other terms and conditions of each option. However,
the President has no authority to grant options to any participant who is
subject to Section 16 of the Securities and Exchange Act of 1934.
The Company is authorized to issue 332,578 shares of Common Stock upon
the exercise of options granted under the 1995 Plan and 3,717,422 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
12
<PAGE>
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. 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.
JDR and Compass Options
In connection with the acquisition of JDR in March 1999, the Company
assumed outstanding stock options to purchase a total of approximately 323,758
shares of NCO common stock. In connection with the acquisition of Compass
International Services Corporation in August 1999, the Company assumed
outstanding stock options to purchase a total of approximately 198,970 shares of
NCO common stock.
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: Billing
Concepts Corp., Century Business Services, Creditrust Corporation, MedQuist
Inc., ProBusiness Services, Inc., Profit Recovery Group International and United
Payors & United Providers, Inc.
The beginning and end data points used for the performance graph are
listed below.
|--------------------------------------------------------------------------|
| |
| * |
500 |--------------------------------------------------------------------------|
| |
| |
|--------------------------------------------------------------------------|
| |
| |
400 |--------------------------------------------------------------------------|
| |
| |
|--------------------------------------------------------------------------|
| * |
| # |
300 |--------------------------------------------------------------------------|
| * |
| |
|------------------------------------@-------------------------------------|
| |
| @ |
200 |--------------------------------------------------------------------------|
| # |
| @ |
|--------------------------------------------------------------------------|
| * |
| @ # |
| # |
100 |------*#@-----------------------------------------------------------------|
| |
| |
|--------------------------------------------------------------------------|
| |
| |
0 |--------------------------------------------------------------------------|
11/96 12/96 12/97 12/98 12/99
<TABLE>
<CAPTION>
Performance Graph Data Points 11/6/96 12/31/96 12/31/97 12/31/98 12/31/99
- ---------------------------------------------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NCO Group, Inc...............*...................... 100 130 297 519 347
Nasdaq.......................#...................... 100 104 126 176 327
NCO Composite Index..........@...................... 100 113 251 214 154
</TABLE>
14
<PAGE>
CERTAIN TRANSACTIONS
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consisted of Messrs. Siegel and Wise through
May 26, 1999 at which time Mr. Wolf replaced Mr. Siegel. No person who served as
a member of the Compensation Committee during 1999 was a current or former
officer or employee of the Company or engaged in certain transactions with the
Company required to be disclosed by regulations of the Securities and Exchange
Commission. Additionally, there were no compensation committee "interlocks"
during 1999, which generally means that no executive officer of the Company
served as a director or member of the compensation committee of another entity,
one of whose executive officers served as a director or member of the
Compensation Committee.
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 AMENDMENT TO THE 1996 STOCK OPTION PLAN
In February 2000, the Board of Directors approved an amendment 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 2,717,422 shares
to 3,717,422 shares. The 1996 Plan is discussed in "Executive Compensation --
Stock Option Plans."
Under the 1996 Plan, of the 2,717,422 shares of Common Stock authorized
under the 1996 Plan, 30,083 shares were available for future options grants at
December 31, 1999. 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.
For information concerning grants of options in 2000 pursuant to the
1996 Plan, see "Option Grants in 2000." Information concerning options granted
in 1999 to the persons named in the Summary Compensation Table is set forth
under "Executive Compensation -- Option Grants in 1999" 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."
15
<PAGE>
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 amendment in order for options granted for the
additional shares issuable under the 1996 Plan to qualify as incentive stock
options to the extent so designated and for the 1996 Plan to satisfy one of the
conditions of Section 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 2,717,422 shares.
The Board of Directors recommends that you vote "FOR" approval of
Proposal 2.
OPTION GRANTS IN 2000
Options to purchase a total of 2,250 shares of the Company's Common
Stock have been granted to- date in 2000 under the 1996 Plan to five employees
of the Company (none of whom are directors or executive officers of the Company)
at exercise prices ranging from $25.438 to $26.125 per share. None of these
options were granted pursuant to the amendment to the 1996 Plan described above.
No determination has been made with respect to the grant of any other options
authorized by the amendment to any director, executive officer or other employee
of the Company.
On April 10, 2000, the last sale price of the Common Stock was $29.1875
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
16
<PAGE>
the option was granted and (ii) one year from the date of exercise, the entire
gain, if any, realized upon disposition of such shares will be taxable to the
optionee as long-term capital gain, and the Company will not be entitled to any
deduction. If an optionee disposes of the shares within the period of two years
from the date of grant or one year from the date of exercise (a "disqualifying
disposition"), the optionee generally will realize ordinary income in the year
of disposition and the Company will receive a corresponding deduction, in an
amount equal to the excess of (1) the lesser of (a) the amount, if any, realized
on the disposition and (b) the fair market value of the shares on the date the
option was exercised over (2) the option price. Any additional gain realized on
the disposition will be long-term or short-term capital gain and any loss will
be long-term or short-term capital loss. The optionee will be considered to have
disposed of a share if he sells, exchanges, makes a gift of or transfers legal
title to the share (except transfers, among others, by pledge, on death or to
spouses). If the disposition is by sale or exchange, the optionee's tax basis
will equal the amount paid for the share plus any ordinary income realized as a
result of the disqualifying disposition.
The exercise of an Incentive Option may subject the optionee to the
alternative minimum tax. The amount by which the fair market value of the shares
purchased at the time of the exercise exceeds the option exercise price is an
adjustment for purposes of computing the so-called alternative minimum tax. In
the event of a disqualifying disposition of the shares in the same taxable year
as exercise of the Incentive Option, no adjustment is then required for purposes
of the alternative minimum tax, but regular income tax, as described above, may
result from such disqualifying disposition.
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 deter
mining ordinary income upon a subsequent disqualifying disposition of the
Exchange Shares, the amount paid for such shares will be deemed to be the fair
market value of the shares surrendered. The balance of the shares received by
the optionee will have a tax basis (and a deemed purchase price) of zero and a
capital gains holding period beginning on the date of exercise. The Incentive
Stock Option holding period for all shares will be the same as if the option had
been exercised for cash.
Non-Qualified Options
Generally, there will be no federal income tax consequences to either
the optionee or the Company on the grant of Non-Qualified Options 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.
17
<PAGE>
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.
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
2001 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 15, 2000. 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 2001 Annual Meeting of Shareholders must
be submitted to the Company by December 15, 2000 to receive consideration for
inclusion in the Company's Proxy Statement relating to the 2001 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 2001 Annual Meeting of
Shareholders is December 15, 2000. As to all such matters which the Company does
not have notice on or prior to December 15, 2000, discretionary authority shall
be granted to the persons designated in the Company's proxy related to the 2001
Annual Meeting of Shareholders to vote on such proposal.
18
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, the independent accountants who had been
engaged by the Company as principal accountant to audit the Company's
consolidated financial statements, was dismissed effective April 12, 2000. The
decision to change accountants was recommended by the Audit Committee of the
Company's Board of Directors and approved by the Company's Board of Directors.
The reports of PricewaterhouseCoopers LLP on the financial statements
of the Company during the two-year period ended December 31, 1999 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope, or accounting principles. During the
two-year period ended December 31, 1999 and the subsequent interim period
preceding the dismissal of PricewaterhouseCoopers LLP, the Company did not have
any disagreements with PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the
subject matter of the disagreement in connection with its reports.
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.
On April 12, 2000, the Company engaged Ernst & Young LLP as the
Company's new principal accountant to audit the Company's financial statements.
Accordingly, Ernst & Young LLP will act as the Company's independent public
accountants for the year ending December 31, 2000. A representative of Ernst &
Young 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.
ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K
This Proxy Statement is accompanied by the Company's Annual Report to
Shareholders for 1999. 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 1999 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
19
<PAGE>
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 December 27, 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
MICHAEL J. BARRIST,
Chairman of the Board,
President and Chief Executive Officer
Fort Washington, Pennsylvania
April 14, 2000
20
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
PROXY
NCO GROUP, INC.
ANNUAL MEETING OF SHAREHOLDERS - MAY 15, 2000
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 15th day of May, 2000, 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)
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<TABLE>
<CAPTION>
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<S> <C>
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE INDICATED, Please Mark
THE PROXY AGENTS INTEND TO VOTE FOR THE ELECTION OF ALL THE NOMINEES LISTED IN PROPOSAL your votes as [X]
1 AND FOR APPROVAL OF PROPOSAL 2. indicated in
this example
PROPOSAL 1. The election of Michael J. Barrist and David E. D'Anna as Class I 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 To withhold authority to vote for any individual nominee, print
above (except as marked to vote for all nominees, that nominee's name on the space provided below:
the contrary), check this box: check this box:
--------- ---------
| | | |
| | | | ________________________________________________________________
| | | |
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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, as more fully described in the
accompanying Proxy Statement; and
FOR AGAINST ABSTAIN
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| | | | | |
| | | | | |
| | | | | |
--------- --------- ---------
PROPOSAL 3. To transact such other business as may properly come before the
Annual Meeting.
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|
</TABLE>
The undersigned hereby acknowledges receipt of the
Company's 1999 Annual Report to Shareholders,
Notice of the Company's 2000 Annual Meeting of
Shareholders and the Proxy Statement relating thereto.
DATE__________________________________________, 2000
(Please date this Proxy)
____________________________________________________
____________________________________________________
Signature(s)
Please sign 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.
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