<PAGE> 1
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
CHILDTIME LEARNING CENTERS
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(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)(4) 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE> 2
CHILDTIME LEARNING CENTERS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 20, 1998
To the Shareholders:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of Childtime
Learning Centers, Inc. (the "Company") will be held at Tam O'Shanter Country
Club, 5051 Orchard Lake Road, W. Bloomfield, MI 48325, on August 20, 1998, at
10:00 a.m., Eastern Daylight Time, to consider and act upon the following
matters:
(1) The election of three directors to serve until the 2001 Annual
Meeting of Shareholders and until their successors shall have been duly
elected and qualified.
(2) Such other business as may properly come before the meeting.
Only shareholders of record at the close of business on June 26, 1998 will
be entitled to vote at the meeting.
Your attention is called to the attached proxy statement and the
accompanying proxy. You are requested to sign and return the proxy in the
enclosed envelope, to which no postage need be affixed if mailed in the United
States. If you attend the meeting, you may withdraw your proxy and vote your own
shares.
A copy of the Annual Report of the Company for the fiscal year ended April
3, 1998 accompanies this Notice.
By Order of the Board of Directors
MICHAEL M. YEAGER
Secretary
Farmington Hills, Michigan
July 17, 1998
<PAGE> 3
CHILDTIME LEARNING CENTERS, INC.
38345 WEST 10 MILE ROAD, SUITE 100
FARMINGTON HILLS, MICHIGAN 48335
-------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 20, 1998
GENERAL INFORMATION
The Annual Meeting of Shareholders of Childtime Learning Centers, Inc. (the
"Company") will be held at Tam O'Shanter Country Club, 5051 Orchard Lake Road,
W. Bloomfield, MI 48325, on August 20, 1998, at 10:00 a.m., Eastern Daylight
Time, for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. The approximate mailing date for this proxy statement and proxy is
July 17, 1998.
It is important that your shares be represented at the meeting. If it is
impossible for you to attend the meeting, please sign and date the enclosed
proxy and return it to the Company. The Board of Directors of the Company
solicits the proxy. Shares represented by valid proxies in the enclosed form
will be voted if received in time for the Annual Meeting. Expenses in connection
with the solicitation of proxies will be borne by the Company and may include
requests by mail and personal contact by its directors, officers, and employees.
The Company will reimburse brokers or other nominees for their expenses in
forwarding proxy materials to principals. Any person giving a proxy has the
power to revoke it any time before it is voted.
All references in this Proxy Statement to "fiscal 1998" are references to
the Company's fiscal year ended April 3, 1998. Unless otherwise stated,
references to the "Company" mean Childtime Learning Centers, Inc. and its wholly
owned subsidiary, Childtime Childcare, Inc.
VOTING SECURITIES AND PRINCIPAL HOLDERS
Only holders of record of shares of the Company's Common Stock, no par
value (the "Common Stock"), at the close of business on June 26, 1998 (the
"Record Date") are entitled to notice of, and to vote at, the meeting or at any
adjournment or adjournments thereof, each share having one vote. On the Record
Date, there were issued and outstanding 5,429,655 shares of the Common Stock.
As of the Record Date, the only persons known to the Company to be the
beneficial owners of more than 5% of the Company's outstanding Common Stock were
Childcare Associates, KD Partners II, George A. Kellner, Wellington Management
Company, LLP and its affiliate Wellington Trust Company, N.A. Reference is made
to the table (and, in particular, note 6 to such table) set forth under the
caption "Election of Directors" for the number of shares and percentage of the
Company's outstanding Common Stock beneficially owned by Childcare Associates,
KD Partners II and George A. Kellner. According to Schedule 13G's filed with the
Securities and Exchange Commission, Wellington Management Company LLP
beneficially owns 537,400 shares of the Company's Common Stock (9.9%) and
Wellington Trust Company, N.A. beneficially owns 327,400 shares (6.03%). The
address of both of these shareholders is 75 State Street, Boston, Massachusetts
92109.
I. ELECTION OF DIRECTORS
The Board of Directors proposes that Milton H. Dresner, Benjamin R.
Jacobson and George A. Kellner be elected as directors of the Company to hold
office until the Annual Meeting of the Shareholders in 2001, and in each case,
until his successor is elected and qualified.
The persons named in the accompanying proxy intend to vote all valid
proxies received by them for the election of the foregoing nominees, unless such
proxies are marked to the contrary. The three nominees receiving the greatest
number of votes cast at the meeting or its adjournment shall be elected.
Abstentions, withheld votes and broker non-votes will not be deemed votes cast
in determining which nominees receive the
<PAGE> 4
greatest number of votes cast, but they will be counted for purposes of
determining whether a quorum is present. If any nominee is unable or declines to
serve, which is not anticipated, it is intended that the proxies be voted in
accordance with the best judgment of the proxy holder. The following information
is furnished with respect to each nominee for election as a director, with
respect to each director whose term of office as a director will continue after
this meeting, and with respect to each executive officer of the Company named in
the Summary Compensation Table below:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF OUTSTANDING SHARES
COMMON STOCK OF THE COMPANY'S
POSITIONS AND OF THE COMPANY COMMON STOCK
NAME AND YEAR OFFICES WITH THE BENEFICIALLY BENEFICIALLY
FIRST BECAME COMPANY AND OTHER OWNED AS OF OWNED AS OF
A DIRECTOR(1) AGE PRINCIPAL OCCUPATIONS THE RECORD DATE(2) THE RECORD DATE
------------- --- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
DIRECTORS AND NOMINEES FOR ELECTION AS DIRECTORS
Milton H. Dresner (1995)............. 72 President of
Highland Companies
(Southfield,
Michigan)............... 11,000(3)(4) *
Jason K. Feld (1996)................. 44 Vice-President of
Assessment Technologies,
Inc.
(Tucson, Arizona)....... 5,250(3)(5) *
James W. Geisz (1995)................ 45 General Partner of
TGV Partners
(Los Angeles,
California)............. 64,828(3) 1.2%
Benjamin R. Jacobson (1996).......... 53 Managing Partner of
Jacobson Partners
(New York, New York).... 5,000(3) *
George A. Kellner (1995)............. 54 Chairman of the Board
of the Company and
Managing Partner of
Kellner, DiLeo & Co.
(New York, New York).... 2,870,000(3)(6) 52.8
Harold A. Lewis (1995)............... 52 President and Chief
Executive Officer of
the Company............. 191,500(7) 3.5
Leonard C. Tylka (1995).............. 51 Manager of Corporate
Development, The Loewen
Group, Inc.
(Trevose,
Pennsylvania)........... 5,000(3)(8) *
OTHER EXECUTIVE OFFICERS
Michael M. Yeager..................................................... 45,500(7) *
Deborah D. Ludwig..................................................... 19,084(7) *
William H. Van Huis................................................... 16,584(7)(9) *
Taylor V. Ward........................................................ 12,084(7) *
All directors and executive officers as a group (12 persons).......... 3,249,529(3)(7) 58.9%
</TABLE>
- -------------------------
* Less than 1%.
(1) All addresses are care of Childtime Learning Centers, Inc., 38345 West 10
Mile Road, Suite 100, Farmington Hills, Michigan 48335.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
2
<PAGE> 5
(3) Includes 5,000 shares of Common Stock, issuable pursuant to stock options
granted under the Company's Director Stock Option Plan, that are exercisable
within 60 days after the Record Date.
(4) Mr. Dresner is a minority investor in Childcare Associates. Mr. Dresner
disclaims beneficial ownership in the shares of Common Stock owned by such
shareholder.
(5) Includes 250 shares of Common Stock with respect to which Mr. Feld shares
voting and investing powers with his spouse.
(6) Includes 2,427,373 shares of Common Stock owned by Childcare Associates and
437,627 shares of Common Stock owned by KDPartners II. Mr. Kellner is the
managing partner of Childcare Associates and the managing partner of KD
Special Situations Partners, the investment general partner of KD Partners
II. The address for Childcare Associates is c/o Kellner, DiLeo & Co., 900
Third Avenue, 10th Floor, New York, New York 10022, and the address for KD
Partners II is c/o Ansbacher (Cayman) Limited, Jeannette Street, P.O. Box
887, Georgetown, Grand Cayman, Cayman Islands, British West Indies. Does not
include shares beneficially owned by Harold A. Lewis which, pursuant to a
voting agreement, are to be voted by Mr. Lewis as directed by Mr. Kellner
for the five-year period ending on February 6, 2001 or, if sooner, until
Childcare Associates and KD Partners II beneficially own, in the aggregate,
less than 25% of the then outstanding shares of Common Stock.
(7) Includes shares of Common Stock, issuable pursuant to stock options granted
to the executive officers of the Company pursuant to the Company's 1995
Stock Incentive Plan for Key Employees, that are exercisable within 60 days
after the Record Date, as follows: Harold A. Lewis -- 28,000 shares; Michael
M. Yeager -- 9,500 shares; Deborah D. Ludwig -- 5,834 shares; William H. Van
Huis -- 5,834 shares; and Taylor V. Ward -- 5,834 shares; and all executive
officers as a group (6 people) -- 58,251 shares.
(8) Mr. Tylka is a minority investor in Childcare Associates. Mr. Tylka
disclaims beneficial ownership of the shares of Common Stock owned by such
shareholder.
(9) Includes 2,000 shares of Common Stock owned by the spouse of Mr. Van Huis.
OTHER INFORMATION RELATING TO DIRECTORS AND NOMINEES
The following is a brief account of the business experience during the past
five years of each member or nominee of the Board of Directors of the Company.
Milton H. Dresner has been a director of Childtime Childcare, Inc. since
November 1993. Mr. Dresner is a real estate developer and private investor with
his principal offices in Southfield, Michigan. Mr. Dresner also serves as a
director of Avatar Holdings, Inc., a real estate development company located in
Coral Gables, Florida; BioTime, Inc., a medical research and development company
located in Berkeley, CA; and Hudson General Corporation, an aviation services
company located in Great Neck, New York.
Jason K. Feld has been a research scientist at the University of Arizona
since 1987 specializing in the field of early childhood development and
education. In addition, since 1987, Dr. Feld has been a director and Vice
President of Assessment Technology, Inc., a private, Tucson, Arizona based
corporation that conducts national research in child development and education
and provides multi-media and educational products and services.
James W. Geisz has been a director of Childtime Childcare, Inc. since June
1992. Since April 1990, Mr. Geisz has been primarily engaged as a general
partner of TGV Partners, an investment partnership focusing on leveraged
buyouts. From November 1992 to June 1997, Mr. Geisz also served as the general
counsel of Empire Kosher Poultry, Inc., a kosher food manufacturer located in
Mifflintown, Pennsylvania.
Benjamin R. Jacobson has been the managing general partner of Jacobson
Partners, a New York City based investment-banking partnership since 1989. Mr.
Jacobson also serves as Chairman of the Board of the YMCA of Greater New York
and is a member of the Board of Trustees of Union College.
George A. Kellner has been a director and Chairman of the Board of
Childtime Childcare, Inc. since July 1990. Mr. Kellner is Managing Director of
K.D. Managers, LLC, a private New York City based
3
<PAGE> 6
partnership specializing in merger arbitrage and a member firm of the New York
and American Stock Exchanges. Mr. Kellner is a Trustee of Milton Academy,
Trinity College, Vice Chairman of Phoenix House, and a Member of the Advisory
Council of the Department of Economics at Princeton University.
Harold A. Lewis has been the President and Chief Executive Officer and a
director of Childtime Childcare, Inc. since August 1991. From 1990 to 1991, he
was Chief Operating Officer International Operations of U.S. Travel Systems,
Inc., a national, multi-unit travel company headquartered in Rockville,
Maryland. Mr. Lewis serves on the Dean's Executive Council at the Frank G. Zarb
School of Business at Hofstra University.
Leonard C. Tylka has been a director of Childtime Childcare, Inc. since
November 1990. From 1987 through May 15, 1997, Mr. Tylka, a certified public
accountant, served as the Controller of KD Equities, a private equity investment
firm located in New York City. Subsequent to May 15, 1997, Mr. Tylka became
Corporate Development Manager for The Loewen Group, Inc., a publicly held
funeral home and cemetery operator, headquartered in Burnaby, British Columbia,
Canada.
MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES AND COMPENSATION OF
DIRECTORS
The Board of Directors held four meetings during fiscal 1998. Except for
Mr. Geisz, who missed one Board meeting, each of the directors attended 100% of
the meetings of the Board of Directors and the committees of the Board of
Directors on which they serve, during the periods in which they were members of
the Board or of such committees.
The Board of Directors of the Company currently has an Audit Committee and
a Compensation Committee. The Board of Directors does not have a separate
nominating committee.
The duties of the Compensation Committee include recommending to the entire
Board of Directors of the Company the compensation arrangements for senior
management and directors of the Company and administration of the 1995 Stock
Incentive Plan For Key Employees. During fiscal 1998, the Compensation Committee
held one meeting. The members of the Compensation Committee are Milton H.
Dresner, James W. Geisz, George A. Kellner and Benjamin R. Jacobson.
The duties of the Audit Committee include reviewing the services provided
by the Company's independent auditors, consulting with such auditors on audits
and proposed audits and reviewing the need for internal auditing procedures and
the adequacy of internal controls. During fiscal 1998, the Audit Committee held
two meetings. The members of the Audit Committee are James W. Geisz, George A.
Kellner and Leonard C. Tylka.
The current standard arrangement for compensation of directors is as
follows: officers of the Company who are directors do not receive any additional
compensation for services as a director. Directors who are not employees of the
Company receive directors' fees of $6,000 per year, $500 for each Board meeting
attended and $250 for each Committee meeting attended. Such directors are also
participants in the Company's Director Stock Option Plan. Pursuant to such plan,
Options to purchase 2,500 shares were granted to each non-employee director in
connection with the Company's initial public offering and will automatically be
granted, subject to availability, to each non-employee director at each annual
meeting, starting with the 1997 Annual Meeting of Shareholders, where they are
elected or remain in office. Options for up to 75,000 shares are available for
grant under the Director Stock Option Plan, each of which becomes fully vested
and exercisable on the first anniversary of the date of grant. The exercise
price of options granted under the Plan will equal the market price of the
Common Stock at the time of grant.
4
<PAGE> 7
II. COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information for the fiscal years ended April
3, 1998, March 28, 1997, and March 29, 1996 concerning the compensation of the
Company's Chief Executive Officer and the four other most highly compensated
executive officers of the Company:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- --------------------------
FISCAL OTHER ANNUAL OPTIONS ALL OTHER
NAME AND POSITION YEAR SALARY BONUS(1) COMPENSATION(2) (SHARES) COMPENSATION(3)
----------------- ------ ------ -------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Harold A. Lewis................. 1998 $210,000 $131,689 -- 36,000 $3,360
President and Chief 1997 200,000 32,000 -- -- 2,439
Executive Officer 1996 190,000 167,702 -- 24,000 2,476
Michael M. Yeager............... 1998 $112,663 $ 64,716 $6,907 15,000 $1,678
Chief Financial Officer, 1997 101,000 17,000 6,966 -- 1,809
Secretary and Treasurer 1996 96,000 69,111 6,211 6,750 1,133
Deborah D. Ludwig............... 1998 $ 82,576 $ 24,266 -- 7,500 $ 986
Vice President -- 1997 79,000 13,500 -- -- 942
Eastern Region 1996 76,500 40,158 -- 5,000 937
Taylor V. Ward.................. 1998 $ 66,266 $ 24,266 $5,077 7,500 $ 822
Vice President -- 1997 63,000 6,250 5,100 -- 696
Western Region 1996 60,000 37,965 4,800 5,000 698
William H. Van Huis............. 1998 $ 76,461 $ 39,131 -- 7,500 $ 856
Vice President -- 1997 70,000 11,250 -- -- 716
Marketing 1996 67,000 39,061 -- 5,000 714
</TABLE>
- -------------------------
(1) Includes the bonus accrued in the year indicated, which was paid in the
following year.
(2) Includes reimbursement of expenses related to use of personal automobiles.
(3) Includes premiums paid in connection with life insurance policies and
contributions made by the Company to the Company's 401(k) plan.
5
<PAGE> 8
OPTION GRANTS IN FISCAL 1998
The following table provides details regarding stock options granted to the
executive officers named in the above Summary Compensation Table in the last
fiscal year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
---------------------------------------- RATES OF STOCK PRICE
% OF TOTAL APPRECIATION FOR
NUMBER OF OPTIONS GRANTED EXERCISE TERM(2)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR SHARE DATE 5% 10%
---- ---------- --------------- --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Harold A. Lewis................ 36,000 33.0% $9.1875 4/9/03 112,410 255,330
Michael M. Yeager.............. 15,000 13.8 9.1875 4/9/03 46,837 106,387
Deborah D. Ludwig.............. 7,500 6.9 9.1875 4/9/03 23,419 53,194
Taylor V. Ward................. 7,500 6.9 9.1875 4/9/03 23,419 53,194
William H. Van Huis............ 7,500 6.9 9.1875 4/9/03 23,419 53,194
</TABLE>
- -------------------------
(1) The indicated stock options vest at a rate of 33% per year, beginning on the
first anniversary of the date of the grant and have a term of six years
(subject to full accelerated vesting upon any entity or person, other than
Childcare Associates or KD Equities, acquiring beneficial ownership of more
than 50% of the Company's outstanding voting stock). All rights to exercise
such stock options terminate upon the termination of such optionees
employment, except that the optionee may exercise that portion of the stock
option which has become fully vested on the date the optionee's employment
is terminated or up to 90 days thereafter at the discretion of the
Compensation Committee.
(2) In accordance with SEC rules, these columns show gains that might exist for
the option over the life of the option, a period of six years. This
valuation is hypothetical; if the stock price does not increase above the
exercise price, compensation to the named executive officer will be zero.
These gains are based on assumed rates of annual compounded stock price
appreciation of 5% and 10% from the date the options were granted over the
full option term. Of course, actual gains, if any, on stock option exercises
and stock accruals are dependent on the future performance of the Common
Stock and overall stock market conditions. There can be no assurance that
the amounts reflected in the table will be achieved. A 5% or 10% annually
compounded increase in the Company's stock price from the date of the grant
to the end of the six-year option term would result in stock prices of
$12.31 and $16.28 per share, respectively.
6
<PAGE> 9
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning stock options
exercised during the fiscal year ended April 3, 1998, by the executive officers
named in the above Summary Compensation Table, as well as the value of
unexercised options held by such persons on April 3, 1998, as measured in terms
of the closing price of the Common Stock on that date as quoted on the NASDAQ
National Market System ($16.44 per share).
<TABLE>
<CAPTION>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
UPON VALUE OPTIONS AT FISCAL YEAR-END AT 4/3/98
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Harold A. Lewis.................. -- -- 28,000/32,000 $174,014/$217,516
Michael M. Yeager................ -- -- 9,500/12,250 $ 60,724/$ 84,741
Deborah D. Ludwig................ -- -- 5,834/ 6,666 $ 36,256/$ 45,313
Taylor V. Ward................... -- -- 5,834/ 6,666 $ 36,256/$ 45,313
William H. Van Huis.............. -- -- 5,834/ 6,666 $ 36,256/$ 45,313
</TABLE>
SENIOR EXECUTIVE BONUS ARRANGEMENTS
Incentive Bonus Plan. During fiscal 1998, each of the executive officers
named above in the Summary Compensation Table (the "Officers") participated in
the Company's new Standard Incentive Plan which would entitle the Officers to
receive a bonus upon the Company achieving earnings per share increases, revenue
growth and quality improvements. This bonus arrangement was structured by the
Company's Compensation Committee based on an analysis by an outside compensation
consultant during fiscal 1997.
In fiscal 1998, the Company achieved various levels of the objectives of
the three-pronged incentive formula. Accordingly, with respect to fiscal 1998,
the Company's Compensation Committee authorized a bonus, and the Company paid
incentive bonuses to the Officers (which are reflected in the Summary
Compensation Table) in an aggregate amount of $284,068. (See "Compensation
Committee Report on Executive Compensation -- Bonuses".)
EMPLOYMENT AGREEMENT
The Company entered into an Employment Agreement with Mr. Lewis in fiscal
1996. Under this agreement, the Company will employ Mr. Lewis for an initial two
year employment term, which term of employment will renew automatically every
two years thereafter until terminated by the Company or Mr. Lewis. The
Employment Agreement provides for a minimum base salary of $190,000 to be
reviewed annually by the Company's Board of Directors, and participation in
various management bonus incentive arrangements. The Employment Agreement also
provides for, among other things, Mr. Lewis' participation in the Company's 1995
Stock Incentive Plan for Key Employees and certain medical, death, disability
and other benefits available to the Company's senior management. The Employment
Agreement may be terminated by the Company upon the death of Mr. Lewis, upon his
permanent disability or with or without cause. If Mr. Lewis' employment is
terminated without cause, he will be entitled to receive the greater of (a)
one-year of salary or (b) the remainder of his salary to be paid during the
current employment term, and in either case, benefits and a pro-rata portion of
his bonus for the fiscal year in which such termination occurs. If Mr. Lewis is
terminated within six months after a change in control (as defined in the
Employment Agreement), including a constructive termination within such
six-month period, Mr. Lewis will be entitled to receive two-years of salary,
benefits and a pro-rata portion of his bonus for the fiscal year in which such
termination occurs. During the term of the agreement and for a period of 12
months thereafter (9 months in the event Mr. Lewis' employment is terminated
without cause), Mr. Lewis will be subject to noncompetition and nonsolicitation
restrictions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All the members of the Compensation Committee are non-employee directors of
the Company. The Compensation Committee currently consists of Messrs. Dresner,
Geisz, Kellner and Jacobson.
7
<PAGE> 10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee's overall compensation policy applicable to the
Company's executive officers is to provide a compensation program that will
attract and retain qualified executives for the Company and provide them with
incentives to achieve the Company's goals and increase shareholder value. The
Compensation Committee implements this policy through establishing salaries,
incentive bonuses and by granting stock options. The Compensation Committee's
current policy is not to provide significant pension or other retirement
benefits for the Company's executives.
During fiscal 1997, an outside compensation consultant was engaged to
analyze overall compensation practices utilized by similar sized,
multi-location, service oriented companies. The results of such consultant's
analysis were taken into consideration by the Compensation Committee in
recommending fiscal 1998 and fiscal 1999 compensation levels.
Salaries
The Compensation Committee's policy is to provide salaries that are
generally competitive with those of comparable officers in comparably sized
companies in the child care and other industries. The Committee relies heavily
on the recommendations of the Company's Chief Executive Officer as well as its
members' own subjective judgments in setting individual salary levels.
In making his recommendations with regard to the fiscal 1998 salaries for
the executive officers, the Chief Executive Officer generally utilized a range
of 3%-6% for establishing salary increases or a higher percentage if he deemed
it necessary to provide a generally competitive salary for a particular officer.
The Chief Executive Officer's salary for fiscal 1998 was established by the
Compensation Committee in accordance with Mr. Lewis' employment agreement with
the Company and the Committee's subjective view of his individual performance
and contributions to the overall performance of the Company.
Bonuses
The Compensation Committee's policy is that a significant portion of the
executive's total compensation should be tied to incentive bonus plans. As a
result, the compensation of the Company's executive officers is directly related
to the overall financial and operating performance of the Company.
The Compensation Committee has structured the fiscal 1998 bonus plan based
upon a three-pronged incentive formula tied to earnings per share increase,
revenue growth and quality improvements. For fiscal 1998, the Compensation
Committee determined that a bonus tied to revenues and quality improvements was
warranted and, therefore, an $284,068 senior management incentive bonus was
authorized (maximum bonus pool available for fiscal 1998 was $417,000).
The allocation of the incentive bonus pool amounts among the officers was
determined by the Chief Executive Officer and approved by the Chairman of the
Board. The portion allocated to the Chief Executive Officer was determined by
the Compensation Committee and equaled 42% in fiscal year 1998 as compared to
41%, which was the percentage allocated in prior years to Mr. Lewis and
reflected, in part, the desire to provide total cash compensation to Mr. Lewis
which was generally competitive in the market. The Chief Executive Officer's
allocation among the other officers was based on his subjective view of various
factors, including his perception of the relative contribution made by each of
the officers to the Company's overall performance and the need to provide
generally competitive cash compensation to each officer. The determination was
not based on specific objectives and no specific weight was given to any of the
factors considered.
Stock Options
The Committee's policy is to award stock options to the Company's officers
and other key employees in amounts reflecting the participant's position and
ability to influence the Company's overall performance.
8
<PAGE> 11
Options are intended to provide participants with an increased incentive to make
contributions to the long-term growth of the Company, to join the interests of
participants with the interests of shareholders of the Company, and to attract
and retain qualified employees. The Committee's policy has been to grant options
with a term of up to ten years (three year pro rata vesting) and to fix the
exercise price of the options at the fair market values of the underlying shares
on the date of grant. Such options will, therefore, only have value if the price
of the underlying shares increases. The Compensation Committee's general
practice is to consider the granting of stock options after the end of each
fiscal year.
The Compensation Committee granted options to executive officers (including
Mr. Lewis) during fiscal 1998, based upon the recommendation of the Chief
Executive Officer. In making his recommendations, the Chief Executive Officer
subjectively considered certain factors, including his perception of individual
performance, the individuals' contribution to the overall performance of the
Company and the anticipated value of the executive's contribution to the
Company's future performance, as well as the need to retain executives. The
determination was not based on specific objectives and no specific weight was
given to any of the factors considered.
By the Compensation Committee
George A. Kellner, Chairman
Milton H. Dresner
James W. Geisz
Benjamin R. Jacobson
9
<PAGE> 12
PERFORMANCE GRAPH
The following line graph compares the yearly cumulative total shareholder
return (i.e., the change in share price plus the cumulative amount of dividends,
assuming dividend reinvestment, divided by the initial share price, expressed as
a percentage) on the Company's Common Stock from February 2, 1996 (date of
initial public offering) through April 3, 1998 with (i) the cumulative total
return of the NASDAQ Stock Market-US Index, and (ii) the cumulative total return
of the peer group consisting of Children's Discovery Centers, Inc., Nobel
Education Dynamics, Inc., Kiddie Academy International, Inc. and New Horizon
Kids Quest, Inc. which the Company believes creates a representative cross
section of the child care industry. The Company has removed Sunrise Educational
Services, Inc. from the peer group utilized in last years' proxy statement due
to the sale and privatization of the company during its 1997 fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CHILDTIME LEARNING CENTERS, INC.,
THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
CHILDTIME NASDAQ
LEARNING STOCK
MEASUREMENT PERIOD CENTERS, PEER MARKET
(FISCAL YEAR COVERED) INC. GROUP (U.S.)
<S> <C> <C> <C>
2/02/96 100 100 100
3/96 82 105 103
3/97 80 64 115
3/98 150 89 174
</TABLE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, 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.
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, each of the officers named in the Summary
Compensation Table and each director of the Company, as identified in the Proxy
Statement, inadvertently failed to file a Form 5 to report the grant of a stock
option during fiscal 1998. Each such grant was a transaction exempt from the
scope of Section 16(b) of the Securities and Exchange Act of 1934. In addition,
Kathryn C. Peel, a new executive officer of the Company, inadvertently omitted
to include her fiscal 1998 option grant on her Form 3. The Company has been
advised that the required forms will be filed in the near future.
10
<PAGE> 13
III. OTHER MATTERS
OTHER PROPOSALS
Neither the Company nor the members of its Board of Directors intend to
bring before the Annual Meeting any matters other than those set forth in the
Notice of Annual Meeting of Shareholders, and they have no present knowledge
that any other matters will be presented for action at the meeting by others. If
any other matters properly come before such meeting, however, it is the
intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgement.
A shareholder proposal which is intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices, 38345 West 10 Mile Road, Suite 100, Farmington Hills,
Michigan 48335, by April 18, 1999.
AUDITORS
The Board of Directors has selected PricewaterhouseCoopers L.L.P. (formerly
Coopers & Lybrand L.L.P.), to serve as the Company's independent auditors for
fiscal 1999. PricewaterhouseCoopers L.L.P. has served in such capacity since
July 1990. Representatives from PricewaterhouseCoopers LLP will be present at
the Annual Meeting of Shareholders, will have an opportunity to make a statement
if they wish, and will be available to respond to appropriate questions.
By Order of the Board of Directors
MICHAEL M. YEAGER
Secretary
Dated: July 17, 1998
11
<PAGE> 14
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<S><C>
PROXY PROXY
CHILDTIME LEARNING CENTERS, INC.
Proxy Solicited on Behalf of The Board of Directors
For The Annual Meeting of Stockholders - August 20, 1998
The undersigned appoints Harold A. Lewis and Michael M. Yeager, and each of them, as proxies, with full power of substitution
and revocation, to vote, as designated on the reverse side hereof, all the Common Stock of Childtime Learning Centers, Inc. which
the undersigned has power to vote, with all powers which the undersigned would possess if personally present, at the annual meeting
of stockholders thereof to be held on August 20, 1998, or at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of the nominees named.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
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<PAGE> 15
<TABLE>
<S><C>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. / /
[ CHILDTIME LEARNING CENTERS, INC. ]
For Withheld For All
All All Except
/ / / / / /
----------------------------
(Except Nominee written above)
1. Election of Directors
Milton H. Dresner
Benjamin R. Jacobson
George A. Kellner
Dated: , 1998
--------
Signature(s)
-------------------------------
------------------------------------------
Please sign exactly as your name(s) appear(s)
on this Proxy. Joint owners should indicate
capacity in which they are signing. Trustees,
Executors, etc. should indicate capacity in
which they are signing.
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- FOLD AND DETACH HERE -
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