-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JiEykfO35JLhzW1z+QADHYhtmylcqlhpsjot7lHNvLNh+Zu+paGv+uyKHcF/Mx4/ 53rWSVVpZo04c+/UpX3fbg== 0000950116-02-000793.txt : 20020418 0000950116-02-000793.hdr.sgml : 20020418 ACCESSION NUMBER: 0000950116-02-000793 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020520 FILED AS OF DATE: 20020418 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCO GROUP INC CENTRAL INDEX KEY: 0001022608 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-CONSUMER CREDIT REPORTING, COLLECTION AGENCIES [7320] IRS NUMBER: 232858652 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21639 FILM NUMBER: 02614318 BUSINESS ADDRESS: STREET 1: 515 PENNSYLVANIA AVE CITY: FT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2157939300 DEF 14A 1 def14a.txt DEF 14A SCHEDULE 14A (Rule 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /x/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /x/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12 NCO GROUP, INC. - ----------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) ----------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): /x/ No fee required / / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. 1) Title of each class of securities to which transaction applies: ---------------------------------------------------------------------- 2) Aggregate number of securities to which transaction applies: ---------------------------------------------------------------------- 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ---------------------------------------------------------------------- 4) Proposed maximum aggregate value of transaction: ---------------------------------------------------------------------- 5) Total fee paid: ---------------------------------------------------------------------- / / Fee paid previously with preliminary materials. / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 1) Amount Previously Paid: ___________________________________________________________________________ 2) Form, Schedule or Registration Statement no.: ___________________________________________________________________________ 3) Filing Party: ___________________________________________________________________________ 4) Date Filed: ___________________________________________________________________________ NCO GROUP, INC. 507 Prudential Road Horsham, Pennsylvania 19044 ----------------------------------------------------- NOTICE OF ANNUAL MEETING OF SHAREHOLDERS to be held on May 20, 2002 ----------------------------------------------------- To the Shareholders of NCO Group, Inc.: The 2002 Annual Meeting of Shareholders of NCO Group, Inc. ("NCO" or the "Company") will be held on May 20, 2002 at 2:00 p.m., prevailing time, at the Philadelphia Marriott West, 111 Crawford Avenue, West Conshohocken, Pennsylvania, for the purpose of considering and acting upon the following: 1. To elect two Class III directors to hold office for a term of three years and until each of their respective successors is duly elected and qualified, as more fully described in the accompanying Proxy Statement; 2. To approve 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 13, 2002 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 Horsham, Pennsylvania April 18, 2002 NCO GROUP, INC. 507 Prudential Road Horsham, Pennsylvania 19044 (215) 441-3000 ----------------------------------------- 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 2002 Annual Meeting of Shareholders (the "Meeting") to be held on May 20, 2002 at 2:00 p.m., prevailing time, at the Philadelphia Marriott West, 111 Crawford Avenue, West 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 18, 2002. 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 13, 2002 (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 25,873,676 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. Each share of Common Stock is entitled to one vote on each matter that 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 currently has fixed the number of directors at seven. The Bylaws further provide that the Board shall be classified into three classes, as nearly equal in number as possible. One class of directors is to be elected annually. At the Meeting, shareholders will elect two Class III directors to serve for a term of three years and until each of their respective successors is elected and qualified. Unless directed otherwise, the persons named in the enclosed proxy intend to vote such proxy "for" the election of the listed nominees or, in the event of inability of any of the nominees to serve for any reason, for the election of such other person as the Board of Directors may designate to fill the vacancy. The Board has no reason to believe that any of the nominees will not be a candidate or will be unable to serve. The following table sets forth information, as of the Record Date, concerning the Company's directors and the nominees for election to the Board of Directors. The director nominees, Charles C. Piola, Jr. and Eric S. Siegel, 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. Stuart Wolf is not standing for reelection and his term as a director will expire at the 2002 Annual Meeting. At the 2002 Annual Meeting, the Board of Directors expects to fix the number of directors at six.
Director Term Name Age Position Since Expires - -------------------------------- ----- --------------------------------- -------- ------------ Michael J. Barrist 41 Chairman of the Board, President 1986 2003 and Chief Executive Officer William C. Dunkelberg, Ph.D. (1) 59 Director 2000 2004 Leo J. Pound (2) 47 Director 2000 2003 Charles C. Piola, Jr. (3) 54 Director 1986 2002 Eric S. Siegel (1)(2)(3) 45 Director 1996 2002 Allen F. Wise (1)(2) 59 Director 1996 2004 Stuart Wolf (1)(2) 49 Director 1999 2002 - ----------------------------------------------------------------------------------------------------------------------
(1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) Nominee for director. 2 The following information about the Company's directors is based, in part, upon information supplied by such persons. Michael J. Barrist has served as Chairman of the Board, President and Chief Executive Officer of the Company since purchasing the Company in 1986. Mr. Barrist was employed by U.S. Healthcare Inc. from 1984 to 1986, most recently as Vice President of Operations, and was employed by Gross & Company, a certified public accounting firm, from 1980 through 1984. Mr. Barrist is a certified public accountant. William C. Dunkelberg, Ph.D. was appointed to the Board of Directors of the Company in September 2000. Dr. Dunkelberg is currently Professor of Economics at the Fox School of Business and Management at Temple University, where he served as Dean from 1987 through 1994 and as Director of the Center for the Advancement and Study of Entrepreneurship from 1991 through 1994. Prior to that, Dr. Dunkelberg was a Professor of Economics and Management at Purdue and Stanford Universities. In addition, Dr. Dunkelberg has served as the Chief Economist for the National Federation of Independent Business since 1971. Dr. Dunkelberg currently serves on the board of Advanta Corporation. Leo J. Pound was appointed to the Board of Directors of the Company in September 2000. Mr. Pound is Principal of Pound Consulting, which provides management consultant services to both public and private enterprises. From February 1999 to July 2000, he was Chief Financial Officer of Marble Crafters, a stone importer and fabricator. From October 1995 to February 1999, he was Chief Financial Officer of Jos. H. Stomel & Sons, a wholesale distributor. Mr. Pound is a certified public accountant and a member of the American and Pennsylvania Institutes of Certified Public Accountants. 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 President and Chief Executive Officer of Coventry Heath Care, Inc., a managed care company, or its predecessor, since October 1996. From October 1994 to October 1995, he was Executive Vice President of MetraHealth Companies, Inc., a managed health care company, in Reston, Virginia. From October 1995 to October 1996, he was Executive Vice President of UnitedHealth Group, Incorporated, a managed health care company. From January 1994 to October 1994, he was President and Chief Executive Officer of Wise Health System, a health care investment company. From 1991 to 1994, Mr. Wise was President and Chief Executive Officer of Keystone Health Plan, a managed health care company, and also Chief Operating Officer of Independence Blue Cross, a health care insurance company located in Philadelphia, Pennsylvania. Mr. Wise was Vice President of US Healthcare, Inc. from 1985 to 1991. Stuart Wolf was elected to the Board of Directors of the Company in May 1999. Mr. 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. 3 Board of Directors, Committees and Attendance at Meetings The Board of Directors held seven meetings during 2001. Each director attended 75% or more of the meetings of the Board and committees of which they were members during 2001. 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. During 2001, the Compensation Committee held four meetings. The Report of the Compensation Committee begins on page 8 of this Proxy Statement. The Board of Directors also has appointed an Audit Committee to: o make recommendations concerning the engagement of independent auditors; o review with the independent auditors 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 auditors; o review the independence of the independent auditors; and o review the adequacy and effectiveness of the Company's internal accounting controls. The responsibilities of the Audit Committee are described in the Audit Committee Charter adopted by the Audit Committee and the Board of Directors, a copy of which was attached as Appendix A to the Proxy Statement relating to the 2001 Annual Meeting of Shareholders. The Audit Committee currently consists of Messrs. Pound, Siegel, Wise and Wolf. Each member of the Audit Committee is independent, as defined in Rule 4200(a)(15) of the National Association of Securities Dealers' listing standards. The Audit Committee held six meetings during 2001. The Report of the Audit Committee begins on page 5 of this Proxy Statement. The Board of Directors has not appointed a standing Nominating Committee. See "Shareholder Proposals" for information concerning the nomination of directors for election. 4 Director Compensation During 2001, each director of the Company who was not also an employee received an annual fee of $10,000 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. The Board is considering raising the annual and per meeting fee and providing for a committee chairman fee in light of the increased responsibilities and duties of the directors under current and proposed regulations. 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. Dunkelberg, Pound, Siegel, Wise and Wolf received an option to purchase 3,000 shares of Common Stock, each at an exercise price of $25.35 per share, immediately following the 2001 Annual Meeting of Shareholders. In addition, each of Messrs. Dunkelberg, Pound, Siegel (assuming that he is reelected at the 2002 Annual Meeting) and Wise will receive an option to purchase 3,000 shares of Common Stock immediately following the 2002 Annual Meeting of Shareholders. All options granted under the Director Plan become 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. Audit Committee Report The Audit Committee has reviewed and discussed the audited financial statements with the Company's management. The Audit Committee also discussed with Ernst & Young LLP, the Company's independent auditors, the matters required to be discussed by Statement on Auditing Standards No. 61, "Communication with Audit Committees." The Audit Committee has received the written disclosures from Ernst & Young LLP required by Independence Standards Board Standard No. 1, "Independence Discussions with Audit Committees," and has discussed with Ernst & Young LLP their independence. Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors of the Company that the audited financial statements be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 for filing with the Securities and Exchange Commission. Members of the Audit Committee during 2001: Leo J. Pound, Eric S. Siegel, Allen F. Wise and Stuart Wolf. 5 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 named executive officers of the Company; 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.
Shares Beneficially Owned (1) ------------------------- Name of Beneficial Owner Number Percent - ------------------------ ------ ------- Michael J. Barrist (2)............................. 2,209,356 8.5% William C. Dunkelberg, Ph. D. (3).................. 17,400 * Stephen W. Elliott (4)............................. 75,000 * Joshua Gindin, Esq. (5)............................ 419,439 1.6 Steven Leckerman (4)............................... 80,000 * Charles C. Piola, Jr. (6).......................... 820,573 3.2 Leo J. Pound (7)................................... 16,156 * SAFECO Corporation (8)............................. 3,447,727 13.3 Eric S. Siegel (9)................................. 48,129 * Paul E. Weitzel, Jr. (10).......................... 70,667 * Steven L. Winokur (11)............................. 301,910 1.2 Allen F. Wise (4).................................. 28,500 * Stuart Wolf (12)................................... 21,000 * All directors and executive officers as a group (12 persons) (13)................... 3,878,851 14.5%
- ----------------------------- *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) 214,166 shares issuable upon the exercise of options. Excludes 152,160 shares held in trust for the benefit of Mr. Barrist's children, 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., 507 Prudential Road, Horsham, Pennsylvania 19044. (3) Includes 15,000 shares issuable upon the exercise of options. 6 (4) Represents shares issuable upon the exercise of options. (5) Includes: (i) 152,160 shares held in trust for the benefit of Mr. Barrist's children for which Mr. Gindin is co-trustee; (ii) 94,160 shares held in trust for the benefit of Mr. Piola's children for which Mr. Gindin is trustee; (iii) 77,119 shares held in trust for the benefit of members of Mrs. Annette Barrist or Mr. Barrist's family for which Mr. Gindin is co-trustee; (iv) 1,500 shares held in trust for the benefit of members of Mrs. Annette Barrist's family for which Mr. Gindin is a co-trustee; and (v) 90,000 shares issuable upon exercise of options. (6) Includes 37,000 shares issuable upon the exercise of options. Excludes 94,160 shares held in trust for the benefit of Mr. Piola's children, as to which Mr. Piola disclaims beneficial ownership. (7) Includes 15,000 shares issuable upon the exercise of options and 1,156 shares owned by Mr. Pound's wife and minor child. (8) Based upon a Schedule 13G filed with the SEC on January 18, 2002. The Schedule 13G also included SAFECO Asset Management Company ("SAMC"), a subsidiary of SAFECO Corporation, as the beneficial owner of 3,272,727 of the shares of Common Stock shown in the table and SAFECO Common Stock Trust as the beneficial owner of 2,103,952 of the shares of Common Stock shown in the table. According to the Schedule 13G, SAMC is an investment adviser and 3,248,727 of the reported shares are owned beneficially by registered investment companies, including SAFECO Common Stock Trust, for which SAMC serves as investment advisor. SAFECO Corporation and SAMC disclaimed beneficial ownership of all but 24,000 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. (9) Includes 45,129 shares issuable upon the exercise of options. (10) Includes 66,667 shares issuable upon the exercise of options. (11) Includes: (i) 152,160 shares held in trust for the benefit of Mr. Barrist's children for which Mr. Winokur is a co-trustee; (ii) 149,450 shares issuable upon the exercise of options; and (iii) 300 shares held in custody for the benefit of Mr. Winokur's minor children for which Mr. Winokur is custodian. (12) Includes 18,000 shares issuable upon the exercise of options. (13) 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 and Mr. Gindin are co-trustees; (iii) 152,160 shares held in trust for the benefit of Mr. Barrist's children for which Mr. Winokur and Mr. Gindin are co-trustees; (iv) an aggregate of 833,912 shares issuable upon the exercise of options; (v) 300 shares held in custody for the benefit of Mr. Winokur's minor children for which Mr. Winokur is custodian; (vi) 94,160 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 Mrs. Annette Barrist's family for which Mr. Gindin is a co-trustee. 7 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, 2001, except that the following reports were not timely filed: two reports of statement of changes in beneficial ownership filed by Charles C. Piola, Jr. and one report of annual statement of beneficial ownership filed by Robert DiSante. 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 to provide compensation that will attract and retain superior executive talent; o to 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 to 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. Mr. Barrist also serves as President and Chief Executive Officer of NCO Portfolio Management, Inc., sometimes referred to as NCO Portfolio. Mr. Gindin also serves as Executive Vice President and General Counsel of NCO Portfolio and Mr. Winokur also serves as an employee of NCO Portfolio. The Company owns approximately 63% of the outstanding common stock of NCO Portfolio. The compensation committee of NCO Portfolio makes decisions concerning the compensation payable to Messrs. Barrist, Gindin and Winokur in their capacities as officers and/or employees of NCO Portfolio. 8 Base Salary. Generally, the Company enters into long-term employment agreements with each of its executive officers that establish, among other things, minimum base salary levels and incentive compensation arrangements. The Company attempts to set minimum base salary levels at amounts designed to be competitive with executive positions at similarly situated companies. During 2000, an independent compensation consultant assisted the Compensation Committee with its review of executive officer compensation levels. Under their employment agreements, as amended and after giving effect to raises they have received subsequent to those agreements, Messrs. Barrist, Elliott, Gindin, Leckerman, Weitzel and Winokur currently are entitled to receive annual base salaries of $553,733, $263,682, $216,430, $256,750, $256,750 and $270,539, respectively, adjusted each year in accordance with the Consumer Price Index ("CPI"). Messrs. Barrist, Gindin and Winokur are also currently entitled to receive annual base salaries from NCO Portfolio of $102,700, $51,350 and $51,350, respectively. Annual Incentive Compensation. Messrs. Barrist, Elliott, Gindin, Leckerman, Weitzel and Winokur generally receive such annual bonuses as are determined by the Board of Directors. These bonuses are based on attaining certain goals as are determined by the Board of Directors. 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 2001 is set forth in the Summary Compensation Table. Determination of Compensation of Chief Executive Officer. Mr. Barrist's annual base salary was raised to $553,733 per year, effective January 1, 2002. Mr. Barrist also was paid a bonus of $192,895 pursuant to his employment agreement as a result of the achievement of certain performance goals determined by the Board of Directors. Mr. Barrist also was awarded options to purchase a total of 150,000 shares of Common Stock during 2001. In addition, in his capacity as President and Chief Executive Officer of NCO Portfolio, Mr. Barrist was paid a salary of $81,923 and a bonus of $100,000 by NCO Portfolio and received options to purchase 125,000 shares of NCO Portfolio common stock for services rendered in 2001. 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 2002. Members of the Compensation Committee during 2001: William C. Dunkelberg, Ph.D. (beginning May 15, 2001), Eric S. Siegel, Allen F. Wise and Stuart Wolf. 9 Summary Compensation Table The following table sets forth the compensation earned during each of the last three years by the Chief Executive Officer and the five next most highly compensated executive officers of the Company whose aggregate salaries and bonuses exceeded $100,000 for services rendered in all capacities to the Company during 2001.
Long-Term Compensation Awards (1) ----------- Annual Compensation Securities Name and --------------------- Underlying All Other Principal Position Year Salary($) Bonus($) Options (#) Compensation($)(2) - -------------------------------- ------ ------- ------- ----------- ----------------- Michael J. Barrist 2001(3) 621,111 292,895 150,000 51,433 Chairman of the Board, President 2000 525,000 50,000 150,000 34,628 and Chief Executive Officer 1999 450,000 424,601 100,000 54,666 Stephen W. Elliott 2001 256,750 142,978 50,000 3,186 Executive Vice President, 2000 250,000 120,000 50,000 2,625 Information Technology and Chief 1999 200,000 120,000 50,000 2,500 Information Officer Joshua Gindin, Esq. 2001(4) 251,702 121,018 50,000 5,711 Executive Vice President and 2000 205,200 100,000 50,000 2,625 General Counsel 1999 200,000 100,000 50,000 2,500 Steven Leckerman 2001 250,000 168,750 50,000 8,132 Executive Vice President, 2000 213,007 187,500 50,000 2,625 U.S. Operations 1999 162,308 120,000 50,000 2,500 Paul E. Weitzel, Jr. 2001 250,000 132,891 50,000 4,460 Executive Vice President, Corporate 2000 205,200 100,000 50,000 -- Development and International 1999 200,000 100,000 50,000 -- Operations Steven L. Winokur 2001(4) 304,394 165,031 50,000 6,978 Executive Vice President, Finance, 2000 256,250 150,000 75,000 2,625 Chief Financial Officer and 1999 250,000 100,000 75,000 2,500 Treasurer
- -------------------------- (1) The Company did not grant any restricted stock awards or stock appreciation rights during the year presented. (2) For 2001, included: (i) the Company matching contribution under the 401(k) Profit Sharing Plan of $2,146 for Messrs. Barrist, Elliot, Gindin, Leckerman and Winokur; (ii) premiums for disability and life insurance policies paid by the Company of $5,217, $1,040, $3,565, $5,986, $4,460 and $4,832 for the benefit of Messrs. Barrist, Elliot, Gindin, Leckerman, Weitzel and Winokur, respectively; and (iii) in the case of Mr. Barrist, $44,070 representing a portion of the premium for a split-dollar life insurance policy for the benefit of Mr. Barrist paid by the Company. The portion of the premium for the split-dollar life insurance policy was calculated in accordance with SEC regulations as if the premium was advanced to the executive officer without interest until the time the Company expects to recover the premium. (3) For 2001, includes salary of $81,923 and bonus of $100,000 paid by NCO Portfolio, but does not include options to purchase 125,000 shares of NCO Portfolio common stock granted by NCO Portfolio. See "Option Grants in 2001." (4) For 2001, includes salary of $40,962 and bonus of $25,000 paid by NCO Portfolio, but does not include options to purchase 90,000 shares of NCO Portfolio common stock granted by NCO Portfolio. See "Option Grants in 2001." 10 Option Grants in 2001 The following table sets forth certain information concerning stock options granted during 2001 to each of the executive officers of the Company named in the Summary Compensation Table. All options were granted on December 15, 2001 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.
Potential Realizable Value at Assumed Annual Rates of Stock Price Individual Grants Appreciation for 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% - -------------------------------- ---------- ----------------- --------- ---------- --------- ---------- Michael J. Barrist 150,000 13.4% $20.05 12/14/11 $1,891,401 $4,793,180 Stephen W. Elliott 50,000 4.5 20.05 12/14/11 630,467 1,597,727 Joshua Gindin, Esq. 50,000 4.5 20.05 12/14/11 630,467 1,597,727 Steven Leckerman 50,000 4.5 20.05 12/14/11 630,467 1,597,727 Paul E. Weitzel, Jr. 50,000 4.5 20.05 12/14/11 630,467 1,597,727 Steven L. Winokur 50,000 4.5 20.05 12/14/11 630,467 1,597,727
- ----------------------- (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. NCO Portfolio granted Messrs. Barrist, Gindin and Winokur options to purchase shares of common stock of NCO Portfolio for services rendered as officers and/or employees of NCO Portfolio. The following table sets forth certain information concerning stock options granted during 2001 to Messrs. Barrist, Gindin and Winokur by NCO Portfolio. All options were granted at the fair market value of NCO Portfolio common stock on the date of grant and become exercisable in three equal annual installments beginning one year after the date of grant. 11
Potential Realizable Value at Assumed Annual Rates of Stock Price Individual Grants Appreciation for 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% - -------------------------------- ---------- ----------------- --------- ---------- --------- ---------- Michael J. Barrist 100,000 17.2% $7.00 3/28/11 $440,226 $1,115,620 25,000 4.3 6.60 12/14/11 103,768 262,968 Joshua Gindin, Esq. 75,000 12.9 7.00 3/28/11 330,170 836,715 15,000 2.6 6.60 12/14/11 62,261 157,781 Steven L. Winokur 75,000 12.9 7.00 3/28/11 330,170 836,715 15,000 2.6 6.60 12/14/11 62,261 157,781
- ---------------------- (1) See footnote (1) above. Aggregated Option Exercises in 2001 and 2001 Year-End Option Values The following table sets forth certain information concerning stock options exercised during 2001 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, 2001 held by each of the executive officers of the Company named in the Summary Compensation Table.
Number of Securities Underlying Unexercised Value of Unexercised Shares Options at In-the-Money Options at Acquired Value December 31, 2001 December 31, 2001 (1) Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable - ------------------------- ---------------- --------------- ---------------------------- --------------------------- Michael J. Barrist -- -- 214,166 / 283,334 $182,515 / $427,500 Stephen W. Elliott 26,664 $463,421 75,000 / 100,000 $28,500 / $142,500 Joshua Gindin, Esq. 10,000 $ 92,400 90,000 / 100,000 $44,500 / $142,500 Steven Leckerman 7,500 $ 95,210 80,000 / 100,000 $19,000 / $142,500 Paul E. Weitzel, Jr. -- -- 66,667 / 100,000 $9,334 / $142,500 Steven L. Winokur -- -- 149,450 / 125,000 $337,191 / $142,500
- ------------------------ (1) Represents the difference between $22.90, the last sale price of the Common Stock on December 31, 2001, 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. 12 NCO Portfolio granted Messrs. Barrist, Gindin and Winokur options to purchase shares of common stock of NCO Portfolio for services rendered as officers and employees of NCO Portfolio. The following table sets forth certain information concerning NCO Portfolio common stock options exercised during 2001 by Messrs. Barrist, Gindin and Winokur and the number of unexercised options and the value of unexercised options at December 31, 2001 held by them.
Number of Securities Underlying Unexercised Value of Unexercised Options at In-the-Money Options at Acquired December 31, 2001 December 31, 2001 (1) Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable - ------------------ ----------- -------------- ------------------------- -------------------------- Michael J. Barrist -- -- -- / 125,000 -- / $22,500 Joshua Gindin, Esq. -- -- -- / 90,000 -- / $15,000 Steven L. Winokur -- -- -- / 90,000 -- / $15,000
- -------------------- (1) Represents the difference between $7.10, the last sale price of NCO Portfolio common stock on December 31, 2001, 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 The Company has entered into employment agreements with each of Messrs. Barrist, Elliott, Gindin, Leckerman, Weitzel and Winokur. The term of the agreements with Messrs. Barrist, Gindin, Weitzel and Winokur ends on December 31, 2003, the term of the agreement with Mr. Elliott ends on January 31, 2007 and the term of the agreement with Mr. Leckerman ends on November 21, 2004, subject, in each case, to any early termination provisions set forth in the agreements. The salaries and bonuses payable under these agreements are described above in "Compensation Committee Report." The agreements for Messrs. Barrist, Gindin and Winokur provide that, in the event of their death or the termination of their 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 term. The agreements for Messrs. Elliott and Leckerman provide that if the Company terminates their employment without cause, they will continue to be paid their base salary through the balance of the term and a prorated portion of their bonus through the date of termination. The agreement for Mr. Weitzel provides that if the Company terminates his employment without cause, he will be paid his salary for the balance of the term in a lump-sum payment. In addition to a non-disclosure covenant, each employment agreement also contains a non-competition or non-interference covenant. 13 Executive Salary Continuation Plan The Company has adopted an Executive Salary Continuation Plan that 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 per year for 10 years after the death of the participant to a payment of 50% to 100% of a participant's salary and bonus, subject to a maximum of $400,000 per year, 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, Elliott, Gindin, Leckerman, Weitzel and Winokur is a participant in this Plan and their respective beneficiaries will be entitled to receive 100% salary and bonus 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"), the 1996 Non-Employee Director Stock Option Plan (the "Director Plan"), the JDR Holdings, Inc. 1997 Stock Option Plan (the "JDR Plan"), and the Compass Employee Incentive Compensation Plan (the "Compass Plan"). The 1996 Plan was amended by the Board in April 2002, 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. The President of the Company has the authority under the 1996 Plan, as amended, 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. 14 The Company is authorized to issue 332,579 shares of Common Stock upon the exercise of options granted under the 1995 Plan and 6,217,422 shares of Common Stock upon the exercise of options granted under the 1996 Plan, which includes 1,500,000 shares of Common Stock subject to shareholder approval in connection with the amendment of the 1996 Plan described in Proposal 2. Options granted under these Plans may be incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to so qualify, except that incentive stock options may only be granted to employees. 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 Plans. In connection with the acquisition of JDR Holdings, Inc. in March 1999 and Compass International Services Corporation in August 1999, the Company assumed the JDR Plan and the Compass Plan and outstanding stock options under those plans. There are currently outstanding stock options to purchase a total of 5,516 shares and 110,978 shares of NCO Common Stock under the JDR Plan and Compass Plan, respectively. No additional options may be granted under the JDR Plan or the Compass Plan. 15 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 S&P Midcap 400 Index, assuming an investment of $100 in each on December 31, 1996 and the reinvestment of all dividends. Previously, the Company used a composite index for comparison purposes that reflected the performance of seven publicly traded companies in industries similar to that of the Company. However, two of the companies in the composite index were acquired and ceased being public companies and one company in the composite index changed its line of business. As a result, the Company replaced the composite index with the S&P Midcap 400 Index. The beginning and end data points used for the performance graph are listed below.
400 |-------------------------------------------------o----------------------------------------------------------------------------- | | |------------------------------------------------------------------------------------------------------------------------------- | | |------------------------------------------------------------------------------------------------------------------------------- | | |------------------------------------------------------------------------------------------------------------------------------- | * | 300 |------------------------------------------------------------------------------------------------------------------------------- | | o |------------------------------------------------------------------------------------------------------------------------------- | | o |------------------------------------------------------------------------------------------------------------------------------- | | o |------------------------------------------------------------------------------------------------------------------------------- | + | + o 200 |------------------------------------------------------------------------------------------------------------------------------- | * | + |------------------------------------------------*------------------------------------------------------------------------------ | * | + |------------------------------------------------------------------------------------------------------------------------------- | | |---------------------------+--------------------------------------------------------------------------------------------------- | | * 100 |------o--*--+------------------------------------------------------------------------------------------------------------------ 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-o- NCO Group -*- Nasdaq -+- S&P Midcap 400
Performance Graph Data Points 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 - ------------------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- NCO Group, Inc............................ 100 229 400 268 270 204 Nasdaq.................................... 100 122 170 315 191 151 S&P Midcap 400............................ 100 130 154 174 202 201
16 CERTAIN TRANSACTIONS Compensation Committee Interlocks and Insider Participation The Compensation Committee consisted of Messrs. Dunkelberg, Siegel, Wise and Wolf. No person who served as a member of the Compensation Committee during 2001 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 2001, 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. NCO Portfolio Management, Inc. In February 2001, the Company completed the merger of its subsidiary, NCO Portfolio Management, Inc. ("NCO Portfolio"), with Creditrust Corporation ("Creditrust"). Creditrust was a purchaser, collector and manager of defaulted consumer receivables. Creditrust filed for protection under Chapter 11 of the Bankruptcy Code in June 2000. The merger was part of Creditrust's plan of reorganization that was confirmed by the Bankruptcy Court in January 2001. As a result of the merger, the Company owns approximately 63% of the outstanding stock of NCO Portfolio and has elected a majority of the members of the board of directors. In connection with this transaction, Michael J. Barrist, the Company's Chairman, President and Chief Executive Officer, purchased 382,161 shares of NCO Portfolio stock for a purchase price of $2.0 million as part of the plan of reorganization. Mr. Barrist also serves as Chairman, President and Chief Executive Officer of NCO Portfolio. Joshua Gindin, the Company's Executive Vice President and General Counsel, also serves as Executive Vice President and General Counsel of NCO Portfolio and Steven L. Winokur, the Company's Executive Vice President and Chief Financial Officer, also serves as an employee of NCO Portfolio. NCO Portfolio focuses on the purchase of delinquent receivables. NCO Portfolio is a public company that trades under the symbol "NCPM." In connection with the plan of reorganization, the Company entered into a 10-year servicing agreement with NCO Portfolio under which the Company's subsidiary, NCO Financial Systems, Inc. has the exclusive right to manage and collect all consumer receivables owned by NCO Portfolio. Under the agreement, NCO Financial Systems is paid a servicing fee ranging from 20% to 40% of collections, depending on the nature of the accounts. Management believes that the fees paid are reasonable and are consistent with rates charged by other collection agencies for the same type of services. For the year ended December 31, 2001, NCO Portfolio paid NCO Financial Systems, Inc. servicing fees of $27.5 million. In addition, the Company intends to refer all opportunities to purchase delinquent receivables in the United States to NCO Portfolio. As part of the merger, the Company amended its credit agreement with Citizens Bank of Pennsylvania ("Citizens Bank") to provide NCO Portfolio with a $50.0 million revolving subfacility through which the Company may borrow to extend credit to NCO Portfolio. NCO Portfolio pays interest to the Company on outstanding borrowings at an interest rate equal to the Company's interest rate under the credit agreement with Citizens Bank plus two percent, all of which (except for one percent) is then paid by the Company to Citizens Bank. The Company's investment in NCO Portfolio currently is limited to a $25.0 million equity investment and the $50.0 million subfacility. As of December 31, 2001, the Company had loaned a total of $47.1 million to NCO Portfolio. 17 In connection with Creditrust's Plan of Reorganization, the Company assumed the lease and purchased related assets of one call center of Creditrust for a purchase price of approximately $1.0 million. NCO Portfolio subleases a portion of the call center from the Company and pays the Company a proportionate amount of the rent. Use of Airplane From time to time, the Company uses an airplane that is partly owned by Michael J. Barrist. The Company pays the monthly management fee and out-of-pocket costs for the Company's use of the airplane to a third party management company, which is not affiliated with Mr. Barrist. The Company paid costs of $358,000, $368,000, and $363,000 for the years ended December 31, 1999, 2000, and 2001, respectively. PROPOSAL 2 APPROVAL OF AMENDMENT TO THE 1996 STOCK OPTION PLAN In April 2002, 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 1,500,000 shares from 4,717,422 shares to 6,217,422 shares. The 1996 Plan is discussed in "Executive Compensation -- Stock Option Plans." Under the 1996 Plan, of the 4,717,422 shares of Common Stock authorized under the 1996 Plan, 324,316 shares were available for future options grants at December 31, 2001. 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. 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. Information concerning options granted in 2001 to the persons named in the Summary Compensation Table is set forth under "Executive Compensation -- Option Grants in 2001" above. No options to purchase shares of the Company's Common Stock have been granted to-date in 2002 under the 1996 Plan. No determination has been made with respect to the grant of any options authorized by the amendment to any director, executive officer or other employee of the Company. On April 10, 2002, the last sale price of the Common Stock was $29.06 per share as reported on the Nasdaq National Market. A summary of certain federal income tax consequences associated with the 1996 Plan is set forth in "Federal Income Tax Consequences of the 1996 Plan." There are two reasons for seeking shareholder approval of Proposal 2. One is to satisfy a Nasdaq Stock Market requirement that requires companies whose shares are reported on the Nasdaq National Market to obtain shareholder approval of amendments to stock plans for directors, officers or key employees. The second reason is to satisfy requirements of the Code which require shareholder approval of the 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. 18 If the shareholders do not approve Proposal 2, then the maximum number of shares issuable under the 1996 Plan will remain at 4,717,422 shares. The Board of Directors recommends that you vote "FOR" approval of Proposal 2. FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 PLAN THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE 1996 PLAN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE PROVISIONS OF THE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW ONLY AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW. EACH PARTICIPANT WHO ACQUIRES SHARES OF COMMON STOCK UNDER THE PLANS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO HIS OR HER INDIVIDUAL TAX POSITION AND THE EFFECT OF ANY LEGISLATIVE REVISIONS ON SUCH POSITION. Options granted under the 1996 Plan may be incentive stock options ("Incentive Options") intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to so qualify ("Non-Qualified Options"). Incentive Stock Options Generally, under the Code, an optionee will not realize taxable income by reason of the grant or the exercise of an Incentive Option (see, however, discussion of alternative minimum tax below). If an optionee exercises an Incentive Option and does not dispose of the shares until the later of (i) two years from the date the option was granted and (ii) one year from the date of exercise, the entire gain, if any, realized upon disposition of such shares will be taxable to the optionee as long-term capital gain, and the Company will not be entitled to any deduction. If an optionee disposes of the shares within the period of two years from the date of grant or one year from the date of exercise (a "disqualifying disposition"), the optionee generally will realize ordinary income in the year of disposition and the Company will receive a corresponding deduction, in an amount equal to the excess of (1) the lesser of (a) the amount, if any, realized on the disposition and (b) the fair market value of the shares on the date the option was exercised over (2) the option price. Any additional gain realized on the disposition will be long-term or short-term capital gain and any loss will be long-term or short-term capital loss. The optionee will be considered to have disposed of a share if he sells, exchanges, makes a gift of or transfers legal title to the share (except transfers, among others, by pledge, on death or to spouses). If the disposition is by sale or exchange, the optionee's tax basis will equal the amount paid for the share plus any ordinary income realized as a result of the disqualifying disposition. 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. 19 Under the Code, all of the shares received by an optionee upon exercise of an Incentive Option by surrendering shares will be subject to the incentive stock option holding period requirements. Of those shares, a number of shares (the "Exchange Shares") equal to the number of shares surrendered by the optionee will have the same tax basis for capital gains purposes (increased by any ordinary income recognized as a result of any disqualifying disposition of the surrendered shares if they were incentive stock option shares) and the same capital gains holding period as the shares surrendered. For purposes of determining ordinary income upon a subsequent disqualifying disposition of the Exchange Shares, the amount paid for such shares will be deemed to be the fair market value of the shares surrendered. The balance of the shares received by the optionee will have a tax basis (and a deemed purchase price) of zero and a capital gains holding period beginning on the date of exercise. The Incentive Stock Option holding period for all shares will be the same as if the option had been exercised for cash. Non-Qualified Options Generally, there will be no federal income tax consequences to either the optionee or the Company on the grant of Non-Qualified Options pursuant to the 1996 Plan. On the exercise of a Non-Qualified Option, the optionee has taxable ordinary income equal to the excess of the fair market value of the shares acquired on the exercise date over the option price of the shares. The Company will be entitled to a federal income tax deduction (subject to the limitations contained in Section 162(m)) in an amount equal to such excess, provided that the Company complies with applicable reporting rules. Upon the sale of stock acquired by exercise of a Non-Qualified Option, optionees will realize long-term or short-term capital gain or capital 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. 20 SHAREHOLDER PROPOSALS Under the Company's Bylaws, shareholder proposals with respect to the 2003 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 November 18, 2002. 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., 507 Prudential Road, Horsham, PA 19044, 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 2003 Annual Meeting of Shareholders must be submitted to the Company by November 18, 2002 to receive consideration for inclusion in the Company's Proxy Statement relating to the 2003 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 2003 Annual Meeting of Shareholders is November 18, 2002. As to all such matters which the Company does not have notice on or prior to November 18, 2002, discretionary authority shall be granted to the persons designated in the Company's proxy related to the 2003 Annual Meeting of Shareholders to vote on such proposal. 21 RELATIONSHIP WITH INDEPENDENT AUDITORS General The Company's independent auditors for 2001 and 2002 are the firm of Ernst & Young LLP, Philadelphia, Pennsylvania. Representatives of the firm of Ernst & Young LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Audit Fees Ernst & Young LLP billed the Company fees of $390,000 for professional services rendered for the audit of the Company's annual financial statements for the fiscal year ended December 31, 2001 and the reviews of the financial statements included in the Company's Forms 10-Q for that fiscal year. In addition, Ernst & Young LLP billed NCO Portfolio fees of $159,000 for professional services rendered for the audit of NCO Portfolio's annual financial statements for the fiscal year ended December 31, 2001 and the reviews of the financial statements included in NCO Portfolio's Forms 10-Q for that fiscal year. Financial Information Systems Design and Implementation Fees Neither the Company nor NCO Portfolio engaged Ernst & Young LLP to provide professional services related to financial information systems design and implementation for the fiscal year ended December 31, 2001. All Other Fees Ernst & Young LLP billed the Company fees of $616,000 for services rendered to the Company, other than for services covered by the preceding two paragraphs, for the fiscal year ended December 31, 2001. In addition, Ernst & Young LLP billed NCO Portfolio fees of $94,000 for services rendered to NCO Portfolio, other than for services covered by the preceding two paragraphs, for the fiscal year ended December 31, 2001. The Audit Committee has considered and determined that the services provided by Ernst & Young LLP are compatible with Ernst & Young LLP maintaining its independence. Change in Accountants PricewaterhouseCoopers LLP, the independent public accountants who had been engaged by the Company as the principal accountants to audit the Company's consolidated financial statements, was dismissed effective April 12, 2000. On that date, the Company engaged Ernst & Young LLP as the Company's principal accountants to audit the Company's consolidated financial statements. 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. The Company requested PricewaterhouseCoopers LLP to furnish it a letter addressed to the Securities and Exchange Commission stating whether it agreed with the above statements. A copy of that letter, dated April 14, 2000 was filed as Exhibit 1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 14, 2000. 22 ANNUAL REPORT TO SHAREHOLDERS AND FORM 10-K This Proxy Statement is accompanied by the Company's Annual Report to Shareholders for 2001. 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 2001 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. 507 Prudential Road Horsham, PA 19044 Attention: Steven L. Winokur, --------- Executive Vice President, Chief Financial Officer and Treasurer OTHER MATTERS The Company is not presently aware of any matters (other than procedural matters) that 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 17, 2001 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 Horsham, Pennsylvania April 18, 2002 23 APPENDIX A PROXY NCO GROUP, INC. ANNUAL MEETING OF SHAREHOLDERS - MAY 20, 2002 SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NCO GROUP, INC. The undersigned hereby constitutes and appoints Steven Leckerman and Steven L. Winokur, 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 20th day of May, 2002, and at any postponement or adjournment thereof, and to vote all of the shares of the Company which the undersigned is entitled to vote, with all the powers and authority the undersigned would possess if personally present. BOTH PROXY AGENTS PRESENT AND ACTING IN PERSON OR BY THEIR SUBSTITUTES (OR, IF ONLY ONE IS PRESENT AND ACTING, THEN THAT ONE) MAY EXERCISE ALL THE POWERS CONFERRED BY THIS PROXY. DISCRETIONARY AUTHORITY IS CONFERRED BY THIS PROXY AS TO CERTAIN MATTERS DESCRIBED IN THE COMPANY'S PROXY STATEMENT. (continued and to be signed on reverse side) ................................................................................ FOLD AND DETACH HERE X Please mark your votes as indicated in this example FOR AGAINST ABSTAIN THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTIONS TO THE CONTRARY ARE INDICATED, THE PROXY AGENTS INTEND TO VOTE FOR THE ELECTION OF ALL THE NOMINEES LISTED IN PROPOSAL 1 AND FOR APPROVAL OF PROPOSAL 2. PROPOSAL 1. The election of 01 Charles C. Piola, Jr. and 02 Eric S. Siegel as Class III directors of the Company to hold office for a term of three years and until their respective successor is duly elected and qualified. FOR all nominees listed above (except as marked to the contrary), check this box: To withhold authority to vote for all nominees, check this box: To withhold authority to vote for any individual nominee, print that nominee's name on the space provided below: - ------------------------------------------------------------------ PROPOSAL 2. The amendment to the 1996 Stock Option Plan (the "1996 Plan") to increase the number of shares that may be issued under the 1996 Plan by 1,500,000 shares, as more fully described in the accompanying Proxy Statement; and PROPOSAL 3. To transact such other business as may properly come before the Annual Meeting. The undersigned hereby acknowledges receipt of the Company's 2001 Annual Report to Shareholders, Notice of the Company's 2002 Annual Meeting of Shareholders and the Proxy Statement relating thereto. DATE ________________________________________, 2002 (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. - -------------------------------------------------------------------------------- FOLD AND DETACH HERE -----END PRIVACY-ENHANCED MESSAGE-----