<PAGE>
CRW FINANCIAL, INC.
443 SOUTH GULPH ROAD
KING OF PRUSSIA, PA 19406
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 16, 1997
------------------------
To Our Stockholders:
The 1997 Annual Meeting of Stockholders (the "Meeting") of CRW Financial,
Inc., a Delaware corporation (the "Company"), will be held at the Philadelphia
Marriott West, 111 Crawford Avenue, West Conshohocken, PA 19428, at 10:00 a.m.,
local time, on October 16, 1997 for the following purposes:
1. To elect two (2) directors constituting Class II of the Company's Board
of Directors for a three (3) year term to hold office until the Annual
Meeting of Stockholders in 2000 and until their successors are elected
and qualified;
2. To approve and ratify the reappointment by the Board of Directors of
Arthur Andersen LLP as the Company's independent certified public
accountants for the fiscal year ending December 31, 1997; and
3. To transact such other business as may properly come before the Meeting.
The Board of Directors has fixed the close of business on September 2, 1997
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Meeting or any adjournment thereof.
For a period of ten days prior to the Meeting, a stockholder list will be
kept at the Company's principal office and shall be available for inspection by
stockholders during normal business hours. A stockholder list will also be
present and available for inspection during the Meeting.
Your attention is directed to the attached Proxy Statement for further
information regarding each Proposal to be made.
THE BOARD OF DIRECTORS URGES YOU TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED STAMPED, SELF-ADDRESSED ENVELOPE PROVIDED
PROMPTLY, ALTHOUGH YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
THE RETURN OF THE ENCLOSED PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
SHOULD YOU DECIDE TO ATTEND THE MEETING.
By Order of the Board of Directors
By: /s/ J. Brian O'Neill
-------------------------------------
J. BRIAN O'NEILL
Chairman of the Board and
Chief Executive Officer
September 12, 1997
<PAGE>
CRW FINANCIAL, INC.
443 SOUTH GULPH ROAD
KING OF PRUSSIA, PA 19406
------------------------
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
------------------------
This Proxy Statement is furnished to the stockholders of CRW Financial,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by order of the Board of Directors of the Company, for
use at the Company's 1997 Annual Meeting of Stockholders (the "Meeting"). The
Meeting will be held at 10:00 a.m., local time, on Thursday, October 16, 1997.
The purposes of the Meeting are set forth on the accompanying Notice of Annual
Meeting of Stockholders. The Proxy Statement and the accompanying proxy card are
first being mailed to stockholders of record of the Company on or about
September 12, 1997.
The enclosed proxy is being solicited on behalf of the Board of Directors
of the Company, and all costs of solicitation will be borne by the Company. Such
costs include preparation, printing and mailing of the Notice of Annual Meeting
of Stockholders, Proxy Statement, Annual Report and proxy card, all of which are
herewith enclosed. The solicitation will be conducted principally by mail,
although directors, officers and regular employees of the Company may solicit
proxies personally or by telephone or telegram. Such persons will not receive
special compensation for such services. Arrangements will also be made with
brokerage houses, other custodians, nominees and fiduciaries to forward
soliciting material to the beneficial owners of the stock of the Company. The
Company will reimburse such persons for reasonable out-of-pocket expenses
incurred by them.
The close of business on September 2, 1997 has been fixed as the record
date (the "Record Date") for the determination of stockholders entitled to
notice of and to vote at the Meeting. On the Record Date, the Company's
outstanding voting securities consisted of 6,255,433 shares of common stock,
$.01 par value per share (the "Stock"). Each outstanding share of Stock entitles
the holder thereof to one vote on each matter to be voted upon at the Meeting.
The holders of a majority of the outstanding shares of Stock constitute a quorum
for the transaction of business at the Meeting. Holders of Stock have no
cumulative voting rights in the election of directors.
If the enclosed proxy is properly signed, dated and returned, the Stock
represented thereby will be voted in accordance with the instructions thereon.
If no instructions are indicated, the Stock represented thereby will be voted
FOR the election of Bernard Morgan and Eustace W. Mita as the Class II
directors, FOR the ratification of the appointment of Arthur Andersen LLP as the
Company's independent certified public accountants and on any other matters that
may properly come before the meeting.
You are requested to complete, sign, date and return the accompanying proxy
card and return it in the envelope provided. Proxies may be revoked by
stockholders at any time prior to the voting thereof by giving notice of
revocation in writing to the Secretary of the Company, by delivering a duly
executed proxy bearing a later date or by voting in person at the Meeting by
written ballot.
1
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation classifies the Board of
Directors into three classes, as nearly equal in number as possible, each of
which provides for a three year term. Class I is currently comprised of one
director and Classes II and III are each currently comprised of two directors.
The term of office of one class of directors expires each year in rotation so
that one class is elected at each annual meeting for a full three-year term. The
term of the Class II directors expires on the date of this Annual Meeting.
Bernard Morgan and Eustace W. Mita are the current Class II directors.
Messrs. Morgan and Mita have been nominated by the Board of Directors for
election to serve as the Class II directors for a three year term expiring at
the Annual Meeting to be held in 2000 and until their successors are elected and
qualified.
Listed below is background information concerning Messrs. Morgan and Mita
and each of the other current directors and executive officers of the Company.
NOMINEES FOR DIRECTOR -- CLASS II (TERM EXPIRES AT ANNUAL MEETING IN 2000)
BERNARD MORGAN, 60, has been a director of the Company since February 1996
and, prior to retiring in 1989, worked for First Fidelity Bancorporation and
Fidelcor for 20 years in various positions including Vice Chairman, Chief
Executive Officer, Deputy Chairman, Chief Operating Officer, President and
Executive Vice President. Mr. Morgan is also currently a director of Atlantic
Electric, Inc. Mr. Morgan received his B.A. Degree from St. Joseph's University
and his M.B.A. degree from the Wharton School, University of Pennsylvania.
EUSTACE MITA, 43, has been a director of the Company since August 1996 and
has served as Chief Operating Officer of HAC Group, Inc., an automobile leasing
training company, since 1990. In 1984, Mr. Mita founded Mita Leasing, an
automobile retail leasing company, and served as its President until the company
was sold in 1992. Mr. Mita is also currently a director of First Republic Bank
in Philadelphia, Pennsylvania.
DIRECTORS -- CLASS III (TERM EXPIRES AT ANNUAL MEETING IN 1998)
J. BRIAN O'NEILL, 37, has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since May 1995 and held the same
positions with Casino & Credit Services, Inc., the Company's former parent
company ("CCS"), from July 1992 to May 1995. From April 1992 to July 1992, Mr.
O'Neill served as President of Brian O'Neill Investments, a private investment
company. Mr. O'Neill is also currently Chairman of the Board of Directors and
Chief Executive Officer, as well as interim President, of TeleSpectrum Worldwide
Inc. ("TeleSpectrum").
MARK DENINO, 43, has been a director of the Company since February 1996 and
has been a general partner and managing director of Technology Leaders II
Management, L.P., the general partner of Technology Leaders II, L.P., which is a
venture capital firm and a significant shareholder of the Company, since 1994.
For more than three years prior to that, Mr. DeNino was President of Crossroads
Capital, Inc., an investment banking firm. Mr. DeNino is also currently a
director of Integrated Systems Consulting Group, Inc., Aloette Cosmetics, Inc.
and TeleSpectrum. Mr. DeNino graduated from the Harvard Graduate School of
Business Administration with a M.B.A. degree and from Boston College with a B.S.
degree in finance and accounting.
DIRECTOR -- CLASS I (TERM EXPIRES AT ANNUAL MEETING IN 1999)
ROBERT N. VERRATTI, 54, has been a director of the Company since March 1996
and has been Chief Executive Officer of National Media Corp. since May 1997.
From 1985 to May 1997, he was the Chief Executive Officer of Charlestown
Investments, Ltd., an investment company. Prior to 1985, Mr. Verratti served as
acting President of Great Western Cities, Inc., also an investment company. He
is a graduate of the U.S. Naval Academy and served in the nuclear submarine
service.
2
<PAGE>
DIRECTORS' MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1996, the Board of Directors held
five meetings. No incumbent director who was a director or member of a committee
during 1996 attended fewer than 75% of the Board meetings or committee meetings
held during fiscal 1996.
The Board of Directors has established an Audit Committee which, among
other things, considers the overall scope and approach of the annual audit and
the recommendations of the Company's independent auditors, recommends the
appointment of independent auditors, considers significant accounting methods
adopted or proposed to be adopted and considers procedures for internal
controls. The Audit Committee currently is comprised of Messrs. Morgan and Mita.
The Audit Committee met twice in 1996. The Board has also established a
Compensation Committee which evaluates and establishes all executive
compensation arrangements. The Compensation Committee is comprised of Messrs.
DeNino, Verratti and Mita. The Compensation Committee met twice in 1996. The
Board does not have a standing nominating committee.
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
JONATHAN P. ROBINSON, 33, has been the Vice President, Treasurer, Secretary
and Chief Financial Officer of the Company since May 1995 and held the same
positions with CCS from April 1993 to May 1995. From June 1986 to April 1993,
Mr. Robinson was employed by Arthur Andersen & Co., certified public
accountants, where he last served as an Audit Manager. Mr. Robinson is a
certified public accountant. Mr. Robinson is also the Director of Acquisitions
and interim Chief Operating Officer of TeleSpectrum.
The Company knows of no family relationships between any director,
executive officer or person nominated or chosen by the Company to become a
director or executive officer other than the fact that Messrs. O'Neill and Mita
are cousins.
VOTE REQUIRED
Provided that a quorum of stockholders is present at the Meeting in person
or represented by proxy, and is entitled to vote thereon, the Class II directors
will be elected by a plurality of the votes cast by holders of Common Stock at
the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
BERNARD MORGAN AND EUSTACE W. MITA AS THE CLASS II DIRECTORS.
------------------------------
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent certified public accountants, were the
auditors for the Company's most recent fiscal year. Stockholders will be asked
to approve the selection of Arthur Andersen LLP by the Board of Directors to
serve as independent certified public accountants for the Company for the fiscal
year ending December 31, 1997. It is expected that representatives of Arthur
Andersen LLP will be present at the Meeting, will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions raised at the Meeting or submitted to them in writing
before the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS.
OTHER BUSINESS
Management of the Company does not intend to present at the meeting, and
does not have any reason to believe that others will present, any item of
business other than those set forth herein. If other matters are properly
presented for a vote, however, the Proxy will be voted upon such matters in
accordance with the judgment of the persons acting under the Proxy.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Stock, constituting its only outstanding class of
voting securities, as of August 25, 1997 by: (i) each person known by the
Company to own beneficially more than five percent of the outstanding shares of
any class of voting securities, (ii) each director and nominee for director of
the Company, (iii) certain executive officers of the Company and (iv) all
directors and executive officers of the Company as a group, except that shares
underlying options or warrants exercisable within 60 days are deemed to be
outstanding for purposes of calculating the beneficial ownership of securities
owned by the holder of such options or warrants. Each beneficial owner set forth
below has sole voting and investment power over the shares listed.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS (1) SHARES CLASS
- -------------------- --------- -------------
<S> <C> <C>
J. Brian O'Neill (2)(3)..................................... 2,177,693 27.1%
Technology Leaders II, L.P. (4)............................. 745,413 11.9%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Fir Tree, Inc. (5).......................................... 603,303 9.6%
d/b/a Fir Tree Partners
1211 Avenue of the Americas
29th Floor
New York, NY 10036
TL Ventures Third Corp. (4)................................. 592,132 9.5%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Eustace W. Mita (3)(6)...................................... 162,500 2.6%
Jonathan P. Robinson........................................ 141,200 2.2%
Mark DeNino (6)............................................. 104,702 1.7%
Robert N. Verratti (7)...................................... 67,500 1.1%
Bernard Morgan (7).......................................... 57,500 *
All executive officers and directors as a group............. 2,711,095 32.6%
(6 persons) (8)
</TABLE>
- ------------------
* Less than 1%
(1) Except where otherwise indicated, the address of each beneficial owner
listed is c/o CRW Financial, Inc., 443 South Gulph Road, King of Prussia,
PA 19406.
(2) Number of shares of Common Stock includes 900,000 shares issuable upon
exercise of stock options, 592,654 shares issuable upon conversion of a
$1,000,000 convertible subordinated note and 300,000 shares issuable upon
exercise of a warrant.
(3) Mr. O'Neill and Mr. Mita are cousins. However, Messrs. O'Neill and Mita
disclaim being part of any group with respect to the Company.
(4) A total of 1,629,552 shares of Stock are beneficially owned by Technology
Leaders II, L.P., TL Ventures Third Corp., Mark DeNino and certain other
related parties (the "TL Group"). Each member of the TL Group has affirmed
that it is a member of a group under Section 13(d)(3) of the Exchange Act
and thus may be considered to have beneficial ownership of all securities
of the Company held by any member of the TL Group. The above table,
however, only includes securities actually held of record by the relevant
stockholder based on Form 4s filed by such securityholders on July 7, 1997.
4
<PAGE>
(5) The shares of Stock indicated are beneficially owned by both Fir Tree, Inc.
d/b/a Fir Tree Partners ("Fir Tree") and Jeffrey Tannenbaum, the sole
shareholder, executive officer, director and principal of Fir Tree. The
above table, however, only includes securities actually held of record by
the relevant stockholder based on Amendment No. 2 to Scheudle 13D filed by
Fir Tree on June 26, 1997.
(6) Number of shares includes 97,500 shares issuable upon exercise of stock
options.
(7) Number of shares includes 37,500 shares issuable upon exercise of stock
options.
(8) Number of shares includes 1,170,000 shares issuable upon exercise of stock
options, 592,654 shares issuable upon conversion of a $1,000,000
convertible subordinated note and 300,000 shares issuable upon exercise of
a warrant.
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded to, earned by or paid
to the Company's Chief Executive Officer and the two other executive officers of
the Company serving at the end of 1996 whose annual cash compensation exceeded
$100,000 during the last three fiscal years. The table includes amounts paid to
such individuals by Casino and Credit Services, Inc. ("CCS"), the Company's
former parent company, during 1994 and until May 1995, but excludes compensation
related to CCS stock options. David S. Christie, the Company's former President,
resigned from such position in February 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------
------------------------------------ SECURITIES
OTHER UNDERLYING
COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS ($) (1) (2) (#) COMPENSATION
- --------------------------- ---- --------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Brian O'Neill 1996 $275,000 $ 85,940 $14,688 450,000
Chairman of the Board and 1995 275,000 137,500 14,632 450,000
Chief Executive Officer 1994 255,000 115,906 14,766 -- (3)
1996 149,388 5,542 26,844 --
David S. Christie 1995 135,000 -- 35,552 90,000
Former President 1994 85,517 -- 10,086 --
Jonathan P. Robinson
Vice President,
Treasurer, 1996 125,000 39,060 7,440 90,000
Secretary and Chief 1995 110,000 65,544 6,752 120,000
Financial Officer 1994 102,792 55,635 4,015 -- (4)
</TABLE>
- ------------------
(1) Each executive officer pays $100 per month toward the lease payments with
respect to his Company furnished car. The balance of the lease payments of
$1,224 per month as to Mr. O'Neill and $620 per month as to Mr. Robinson are
paid by the Company.
(2) During 1994, 1995 and until October 1996, Mr. Christie received a housing
allowance of $2,400 per month and a car allowance of $437 per month.
(3) In May 1996, Mr. O'Neill received a warrant to purchase 610,160 shares of
TeleSpectrum common stock from the Company for $1.50 per share.
(4) In May 1996, Mr. Robinson received a warrant to purchase 76,316 shares of
TeleSpectrum common stock from the Company for $1.50 per share.
5
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1996
The following table provides information regarding stock options granted
during the fiscal year ended December 31, 1996 to the executive officers named
in the Summary Compensation Table set forth above. All such stock options are
immediately exercisable for a term of ten years. No stock options were granted
with an exercise price less than current fair market value of the Company's
Common Stock, as determined under the Company's 1995 Stock Option Plan.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR SHARE DATE 5% ($) 10% ($)
- ---- ----------- ------------ --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
J. Brian O'Neill 450,000(1) 36% $1.94 1/22/06 $549,025 $1,391,337
Jonathan P. Robinson 90,000(2) 7% 1.94 1/22/06 109,805 278,267
David S. Christie -- -- -- -- -- --
</TABLE>
- ------------------
(1) These options were granted as non-qualified stock options.
(2) 51,633 of these options were granted as incentive stock options and the
remainder were granted as non-qualified stock options.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1996 DECEMBER 31, 1996 ($)(1)
-------------------- ------------------------
SHARES ACQUIRED VALUE EXERCISABLE (E) EXERCISABLE (E)
NAME ON EXERCISE (#) REALIZED ($)(2) UNEXERCISABLE (U) UNEXERCISABLE (U)
- ---- --------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
J. Brian O'Neill -- $ -- 900,000(E) $ 6,340,500(E)
Jonathan P. Robinson 103,092 880,837 106,908(E) 767,803(E)
David S. Christie 90,000 812,700 -- --
</TABLE>
- ------------------
(1) Based upon the fair market value of the Company's Stock of $8.50 per share
as of December 31, 1996 determined by taking the closing price of the Stock
on the Nasdaq SmallCap Market on the last trading date of the year.
(2) Based upon the difference between the fair market value of the Company's
Stock and the exercise price of the relevant options on the date of
exercise.
COMPENSATION OF DIRECTORS
During 1996, the Company's non-employee directors received stock options to
purchase 7,500 shares of Common Stock and cash consideration of $25,000 for
their service on the Board. On April 19, 1996, the Board of Directors approved a
resolution to provide for annual non-employee director compensation of options
to purchase 25,000 shares of Common Stock and a cash payment of $10,000. Such
resolution also provided that members of the Audit or Compensation Committee of
the Board of Directors would receive compensation in the form of options to
purchase a further 7,500 shares of Common Stock in the year they are appointed
to such committees, and an annual option to purchase 2,000 shares of Common
Stock thereafter. Directors who are also employees of the Company receive no
compensation for their services as directors.
6
<PAGE>
EMPLOYMENT AGREEMENTS
On May 11, 1995, the Company entered into Employment Agreements with J.
Brian O'Neill as Chief Executive Officer and Jonathan P. Robinson as Vice
President, Treasurer and Chief Financial Officer, each for a term of three
years. These agreements provide for initial salaries for Messrs. O'Neill and
Robinson of $275,000 and $125,000, respectively, reviewed annually, as well as
performance bonuses based both upon performance targets for the Company's
consolidated earnings and a subjective analysis of the Company's overall
performance and present and future business prospects. The agreements also
provide for grants of stock options to Messrs. O'Neill and Robinson under the
Plan, to purchase 450,000 and 120,000 shares of Common Stock, respectively. The
agreements may be terminated by the Company with or without cause, provided that
if the Company terminates either agreement without cause, or if either party
terminates either agreement following a Change in Control (as defined in the
Employment Agreements) of the Company, the executive in question is entitled to
all salary and bonuses which would have been paid to him for the remainder of
the term of the agreement as well as continued employment benefits from the
Company for the remainder of the term of the agreement. In addition, the
agreements both contain a non-competition provision extending for one year after
termination of employment for cause and six months after termination for any
other reason; provided, however, that if an agreement is terminated by the
Company without cause or if either party terminates the agreement following a
Change in Control of the Company, the non-competition period ends upon the date
of termination.
During 1995, the Company entered into a three year Employment Agreement
with David S. Christie as President of the Company. The agreement provided for
an initial salary of $130,000, as well as a housing allowance of $2,400 per
month and a performance bonus based on performance targets for the Company's
consolidated earnings. The agreement also provided for a grant of stock options
to Mr. Christie under the Plan to purchase 90,000 shares of Common Stock. In
October 1996, Mr. Christie's salary was increased to $200,000. On February 2,
1997, Mr. Christie's contract was assigned to NCO Group, Inc. which assumed all
rights and obligations under the contract. As a result, Mr. Christie resigned as
President of CRW Financial, Inc. in February 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, CRW's Compensation
Committee of the Board of Directors consisted of Mark DeNino, Eustace W. Mita
and Robert N. Verratti. Mr. Verratti purchased $100,000 of certain subordinated
notes (the "Subordinated Notes") issued by the Company in May 1996 which the
Company used for the initial capitalization of TeleSpectrum. Amounts outstanding
under the Subordinated Notes bear interest at 12% per annum. In consideration
for his purchase of the Subordinated Notes, Mr. Verratti was issued warrants by
the Company to purchase 68,250 shares of the common stock of TeleSpectrum held
by the Company at an exercise price of $1.50 per share. The warrants may be
exercised at any time for a term of ten years. The Company also granted Mr.
Verratti certain registration rights with respect to the common stock in
TeleSpectrum underlying such warrants.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Pursuant to regulations adopted by the Securities and Exchange Commission
regarding disclosure of companies' executive compensation policies, the
Company's Compensation Committee of the Board of Directors has prepared the
following report pertaining to the Company's executive compensation policies for
the fiscal year ended December 31, 1996.
Basic Policy Considerations
The Company's Compensation Committee of the Board of Directors was
responsible for formulating and administering corporate policy with respect to
executive compensation during fiscal 1996. The Company's executive compensation
is based on the principles that compensation should be, to a significant extent,
reflective of the financial performance of the Company, and that a significant
7
<PAGE>
portion of executive officers' compensation should provide long-term incentives.
Executive compensation is set at levels that are sufficiently competitive so
that the Company may attract, retain and motivate the best individuals to
contribute to the Company's goals and objectives and its overall financial
success. Methods of compensation are designed to provide incentives for
performance that result in continuing improvements in the Company's financial
results or condition, over both the short term and the long term, and to assure
continued service to the Company. Stock options constitute a significant portion
of incentive compensation, which causes the ultimate interest of the executives
to be aligned with the interests of the stockholders in increasing the value of
their investment. Each executive officer's compensation is based in part upon
both individual experience and performance and the Company's net income.
The Company's executive compensation program is comprised of two elements:
annual compensation in the form of salary and possible bonuses as short term
incentives, and long term compensation in the form of stock options. The details
of this compensation program are discussed below.
Annual Compensation
The Committee establishes annual salary by evaluating individual
performance and considering compensation of comparable executives, although
salary determinations have not been based upon any specific constant criteria
and no formal comparison of any peer group to the salaries determined for the
executive officers has been made. No one factor or combination of factors is
determinative of annual compensation for executive officers and the ultimate
compensation awarded represents a Compensation Committee practice of subjective,
informal compensation policies and practices.
Executive officers are eligible for annual incentive bonuses based on
specific net income and operating cash flow targets. In addition, the
Compensation Committee may grant bonuses at their discretion. Factors the
Compensation Committee considers in determining discretionary bonuses include
the Company's overall financial results, the Company's stock price performance,
the overall economic conditions in the markets in which the Company operates,
the strength of the market, the Company's competitive environment, the
individual's contribution to the Company's economic and strategic objectives,
the efforts required and expended by the individual, the individual's abilities
to develop, execute and implement short term and long term corporate goals and
the individual's role in maximizing Company profitability, managing costs and
reducing the impact of economic and demographic restrictions on Company
performance. Nevertheless, no one factor or combination of these factors
specifically determines a discretionary bonus.
Long Term Compensation -- Stock Options
The stock option component of the executive officers' compensation package
is designed to provide incentives for the enhancement of stockholder value,
since the full benefit of stock option grants will not be realized unless there
has been appreciation in per share values over several years. In this regard,
options have been granted at fair market value on the date of grant. As with the
grant of incentive cash bonuses, no constant criteria are used year after year.
Instead the Committee makes a determination of the effectiveness of the
executive and the level of contributions to the Company's success, with no one
factor or combination of factors being determinative. Because the options are
granted at fair market value relative to the date of grant, any value which
ultimately accrues to the executives is based entirely on the Company's
performance, as perceived by investors who establish the price for the Company's
shares.
CEO Compensation
J. Brian O'Neill has been the Company's Chairman and Chief Executive
Officer since its inception in May 1995. In determining Mr. O'Neill's
compensation, the Company evaluated the same factors as it does with other
executive officers. During fiscal year 1996, Mr. O'Neill received salary
compensation of $275,000 and a bonus of $85,940. The Company also granted
options to Mr. O'Neill
8
<PAGE>
to purchase 450,000 shares of Common Stock, exercisable for ten years at an
exercise price of $1.94 per share. Thus, a significant portion of Mr. O'Neill's
compensation is dependent on corporate performance through appreciation of stock
price.
Qualifying Executive Compensation for Deductibility Under Section 162(m) of
the Code
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that publicly held corporations may generally not deduct
certain compensation for executive officers unless such compensation is
"performance-based" as defined in Section 162(m). The Compensation Committee
notes that the provisions of the Amended and Restated 1995 Stock Option Plan are
designed to satisfy the requirements applicable to "performance-based"
compensation plans and, accordingly, to preserve the deductibility by the
Company of compensation income recognized by holders of options granted under
the Amended and Restated 1995 Stock Option Plan. In addition, the Compensation
Committee intends to administer the Amended and Restated 1995 Stock Option Plan
so that it conforms in operation to all such requirements.
CONCLUSION OF REPORT
The Compensation Committee believes that this compensation program, with
its emphasis on incentivizing compensation, serves to focus the efforts of the
Company's executives on the attainment of sustained growth and profitability for
the benefit of the Company and its stockholders.
This report has been submitted by the Compensation Committee of the Board
of Directors.
THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS:
MARK DENINO, ROBERT N. VERRATTI AND EUSTACE W. MITA
9
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock during the period from
May 15, 1995 (the date of initial listing of the Common Stock on Nasdaq) through
and including December 31, 1996 with (i) the cumulative total return on the
Nasdaq Stock Market -- U.S. Index and (ii) the cumulative total return on the
Nasdaq Financial Index. The comparison assumes $100 was invested on May 15, 1995
in the Company's Common Stock and in each of the foregoing indices and assumes
reinvestment of dividends.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts
the following plot points:
05/15/95 12/95 12/96
-------- ----- -----
CRW Financial, Inc. 100 162 785
NASDAQ Stock Market--US 100 123 151
NASDAQ Financial 100 127 163
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases an aggregate of 13,000 square feet of office space in
King of Purssia, Pennsylvania from 210 Mall Boulevard Associates, a partnership
which is controlled by J. Brian O'Neill, the Company's Chairman and Chief
Executive Officer. The lease commenced on December 15, 1996 and requires monthly
base rent payments through December 15, 2001 of $23,478. The Company believes
the lease to be at the prevailing commercial market rate. In 1996, the Company
paid $11,739 in rent to 210 Mall Boulevard Associates.
The Company also subleases an aggregate of 21,000 square feet of office
space in King of Prussia, Pennsylvania from HFS, Inc. ("HFS") and has subleased
the facility to TeleSpectrum. The sublease requires TeleSpectrum to pay all
costs associated with the sublease through its termination on April 1, 2005. HFS
leases the facility from CRW Building Limited Partnership, a limited partnership
controlled by Mr. O'Neill. Prior to subleasing the facility to TeleSpectrum, the
Company paid approximately $365,000 in rent during 1996 under the sublease with
HFS.
In addition, the Company also leased office space in 1996 in Conshohocken,
Pennsylvania from Lee Park Investors, L.P., a limited partnership controlled by
Mr. O'Neill. This lease was assumed by NCO Group, Inc. on February 2, 1997. The
Company paid approximately $46,000 in rent to Lee Park Investors, L.P. in 1996.
The aggregate minimum rent on all of the above leases through the end of their
terms, net of commitments for payments under subleases, is approximately $1.3
million.
In November 1995, Mr. O'Neill and his wife (collectively, "Lender") made a
$1 million loan (the "Loan") to the Company and the Company executed a Term Loan
Note (the "Note") in favor of Lender. The Note bears interest at 12.5% per
annum, is payable in equal monthly installments of $33,454 and matures on
November 1, 1998. The Company also paid Lender a commitment fee equal to one
percent of the amount of the Loan in consideration for making the Loan. The Loan
was used by the Company to purchase certain computer equipment in which Lender
obtained a security interest and for general working capital of the Company. The
Note is convertible at any time during the term thereof and for one year
thereafter into shares of Common Stock at a conversion rate of $1.625 per share
based on the principal then outstanding on the Note. Principal paid by the
Company during the last fiscal year may also be converted into Common Stock at
the same conversion price. As of August 25, 1997, the Note was convertible into
592,654 shares of Common Stock. The Company also entered into a Registration
Rights Agreement with Lender which provides Lender with certain piggyback and
demand registration rights with respect to the Common Stock which may be
obtained upon conversion of the Note. The piggyback registration rights remain
in effect for five years until February 29, 2001, and the demand registration
rights may only be exercised during the last year of such period.
In connection with the Company's private placement of preferred stock in
February 1996, Mr. O'Neill entered into a put agreement which provided holders
of the preferred stock with the right to require Mr. O'Neill to purchase any
preferred stock still held by them at a price of $11.62 per share on March 1,
1999. All of the preferred stock has subsequently been converted to common stock
by the holders thereof and no preferred stock is currently outstanding. In
consideration for Mr. O'Neill's execution of the put agreement, the Company
granted Mr. O'Neill a warrant to purchase 300,000 shares of the Company's Common
Stock at an exercise price of $1.94 per share. This warrant expires on August
31, 1999. The Company also entered into a Registration Rights Agreement with Mr.
O'Neill which provides Mr. O'Neill with certain piggyback and demand
registration rights with respect to the Common Stock underlying the warrant. The
piggyback registration rights remain in effect for five years until February 29,
2001, and the demand registration rights may only be exercised during the last
year of such period.
The Company caused the formation of TeleSpectrum and subsequently during
May 1996 received 8,510,137 shares of TeleSpectrum common stock in consideration
of a capital contribution to TeleSpectrum of $1.6 million in cash and the
assignment to TeleSpectrum of a promissory note in the amount of $500,000. On
August 13, 1996, TeleSpectrum completed an initial public offering of 11,879,000
shares of its common stock, at a public offering price of $15 per share (the
"IPO").
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<PAGE>
The capital contribution made by the Company to TeleSpectrum represented
proceeds of borrowings by the Company under subordinated notes (the
"Subordinated Notes") issued to eight individuals, one partnership and one
corporation (the "Lenders") on May 22, 1996. The capital contribution was used
by TeleSpectrum for professional and other costs associated with the IPO.
Amounts outstanding under the Subordinated Notes bore interest at 12% per annum.
All principal and accrued interest under the Subordinated Notes was repaid in
full, in September 1996.
As part of the consideration for the Subordinated Notes, the Company issued
to the Lenders warrants (the "Lender Warrants") to purchase a total of 1,433,454
shares of TeleSpectrum's common stock held by the Company. The Lender Warrants
are exercisable at any time during a 10 year term at a price of $1.50 per share.
In connection with TeleSpecturm's initial capitalization by the Company,
TeleSpectrum granted the Lenders the right to have TeleSpectrum shares of common
stock subject to the Lender Warrants registered under the Securities Act along
with the registration of any other shares of TeleSpectrum common stock and also
the right to certain demand registrations subject to the Lenders' agreement not
to sell any TeleSpectrum common stock underlying the Lender Warrants during the
180 days after consummation of the IPO by TeleSpectrum.
The Lenders who represent officers, directors of significant stockholders
of the Company, their respective relationships with the Company and TeleSpectrum
and their respective loan and share amounts at the time of initial issuance are
as follows:
<TABLE>
<CAPTION>
SUBORDINATED TELESPECTRUM SHARES OF COMMON STOCK
LENDER NOTES AMOUNTS SUBJECT TO LENDER WARRANTS
- ------ ------------- -----------------------------------
<S> <C> <C>
Technology Leaders II, L.P.................. $362,250 247,270
Stockholder of Company
TL Ventures Third Corp...................... 287,750 196,423
Stockholder of Company
J. Brian O'Neill............................ 650,000 443,693
Chairman and CEO of Company and
TeleSpectrum
Bernard Morgan.............................. 100,000 68,250
Director of Company
Robert N. Verratti.......................... 100,000 68,250
Director of Company
Jonathan P. Robinson........................ 50,000 34,145
CFO of Company and Director of
Acquisitions of TeleSpectrum
</TABLE>
The Company also granted warrants (the "Management Warrants") to four
individuals related to the Company (the "Managers") in consideration for the
performance of their services on behalf of the Company in connection with
TeleSpectrum's IPO. The Management Warrants entitle the Managers to have the
common stock subject to the Management Warrants registered under the Securities
Act along with the registration of any other shares of TeleSpectrum common stock
and also to certain demand registrations, subject to the agreement by the
Managers not to sell any TeleSpectrum common stock underlying the Management
Warrants during the 180 days after consummation of the IPO by TeleSpectrum. The
Managers who represent officers, directors or principal stockholders of the
Company (whose relationships to the Company and TeleSpectrum are set forth in
the table above) and the respective original share amounts subject to their
Management Warrants are as follows: J. Brian O'Neill -- 610,160 shares and
Jonathan P. Robinson -- 76,316 shares. The Company obtained an appraisal which
indicated that the Management Warrants had a fair value of $0.75 per warrant on
the date of grant. Accordingly, the Company recorded a non-cash compensation
charge of $629,000 in the second quarter of 1996.
12
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act and the regulations promulgated
thereunder require the Company's officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the U.S. Securities and Exchange
Commission ("SEC") and to furnish the Company with copies of these reports.
Based solely on the Company's review of the copies of these reports it has
received, and written representations received from certain Reporting Persons,
the Company believes that all filings required to be made by Reporting Persons
for transactions occurring during the fiscal year ended December 31, 1996 were
made on a timely basis, except that Bernard Morgan and Robert N. Verratti each
exercised stock options and sold Stock of the Company during November and
December 1996 but did not file Form 4's with respect to such transactions until
December 12, 1996 and January 12, 1997, respectively.
ANNUAL REPORT
A copy of the Company's Annual Report, which includes a copy of the
Company's Form 10-K, and Form 10-K/A for the fiscal year ended December 31,
1996, is enclosed. The Company will provide copies of any exhibits to Form 10-K
to a stockholder of record as of the Record Date upon the written request of
such person and such person's payment of the Company's reasonable expenses of
furnishing such exhibit. All such requests should be directed to Jonathan P.
Robinson, Chief Financial Officer, CRW Financial, Inc., 443 South Gulph Road,
King of Prussia, PA 19406.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders must be received by the Company at its offices in King of
Prussia, Pennsylvania on or before May 15, 1998 in order to be considered for
inclusion in the Company's Proxy Statement and form of proxy relating to such
meeting. Any change in this date will be communicated to stockholders in a
timely fashion.
By Order of the Board of Directors
By: /s/ J. Brian O'Neill
-------------------------------------
J. BRIAN O'NEILL
Chairman of the Board and
Chief Executive Officer
September 12, 1997
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<PAGE>
CRW Financial, Inc. PROXY
443 South Gulph Road
King of Prussia, PA 19406
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints J. Brian O'Neill and Jonathan P. Robinson,
and each of them, as Proxy, with the power to appoint his substitute, and hereby
authorizes him to represent and to vote, as designated below, all the shares of
common stock of CRW Financial, Inc. held on record by the undersigned on
September 2, 1997 at the annual meeting of stockholders to be held on October
16, 1997 or any adjournment thereof.
1. ELECTION OF CLASS II DIRECTORS _____ FOR the nominees listed below _____
WITHHOLD AUTHORITY to vote for the nominees listed below
Bernard Morgan and Eustace W. Mita
(INSTRUCTION: To withhold authority to vote for any individual nominee draw a
line through such nominee's name above).
2. SELECTION OF AUDITORS
_____ FOR _____ AGAINST _____ ABSTAIN
3. In his discretion the Proxy is authorized to vote upon such other business as
may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this proxy will be
voted for Proposals 1 and 2.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated ______________________________, 1997
- ------------------------------------------
Signature
- ------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
- ------------------------------------------
Signature if held jointly
