<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, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Childtime Learning Centers, Inc.
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(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 18, 1999
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 18, 1999, at
10:00 a.m., Eastern Daylight Time, to consider and act upon the following
matters:
(1) The election of two directors to serve until the 2002 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 25, 1999 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
2, 1999 accompanies this Notice.
By Order of the Board of Directors
MICHAEL M. YEAGER
Secretary
Farmington Hills, Michigan
July 19, 1999
<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 18, 1999
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 18, 1999, 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 19, 1999.
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 1999" are references to
the Company's fiscal year ended April 2, 1999. Unless otherwise stated,
references to the "Company" mean Childtime Learning Centers, Inc. and its wholly
owned subsidiaries.
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 25, 1999 (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 5,431,655 shares of the Common Stock.
As of the Record Date, the following persons were known to the Company to
be beneficial owners of more than 5% of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
PERSON SHARES PERCENT
------ ------ -------
<S> <C> <C> <C>
Childcare Associates (1) 2,427,373 44.7
c/o Kellner, DiLeo & Co.
900 Third Avenue, 10th Floor
New York, New York 10022
FMR Corp. (2) 522,800 9.6
82 Devonshire Street
Boston, Massachusetts 02109
Gilder Gagnon Howe & Co. LLC (2) 519,640 9.6
1775 Broadway, 26th Floor
New York, New York 10019
KD Partners II (1) 437,627 8.1
c/o Ansbacher (Cayman) Limited
Jeanette Street
P.O. Box 887
Georgetown, Grand Cayman
Cayman Islands, British West Indies
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PERSON SHARES PERCENT
------ ------ -------
<S> <C> <C> <C>
Wellington Management Company, LLP (2)(3) 300,000 5.5
Wellington Trust Company, NA
75 State Street
Boston, Massachusetts 02109
</TABLE>
(1) Reference is made to the table (and, in particular, note 6 to such table)
set forth under the caption "Election of Directors". 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.
(2) Based on Schedule 13G as filed by such holder with the Securities and
Exchange Commission.
(3) Wellington Trust Company, NA is an affiliate of Wellington Management
Company, LLP.
I. ELECTION OF DIRECTORS
The Board of Directors proposes that James W. Geisz and Jason K. Feld be
elected as directors of the Company to hold office until the Annual Meeting of
the Shareholders in 2002, 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 two 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 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)............. 73 President of
Highland Companies
(Southfield,
Michigan)............... 13,500(3)(4) *
Jason K. Feld (1996)................. 45 Vice-President of
Assessment Technologies,
Inc.
(Tucson, Arizona)....... 7,750(3)(5) *
James W. Geisz (1995)................ 46 General Partner of
TGV Partners
(Los Angeles,
California)............. 17,500(3) *
Benjamin R. Jacobson (1996).......... 54 Managing Partner of
Jacobson Partners (New
York, New York)......... 7,500(3) *
</TABLE>
2
<PAGE> 5
<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>
George A. Kellner (1995)............. 55 Chairman of the Board
of the Company and
Managing Partner of
Kellner, DiLeo & Co.
(New York, New York).... 2,872,500(3)(6) 52.9
Harold A. Lewis (1995)............... 53 President and Chief
Executive Officer of
the Company............. 216,967(7) 4.0
Leonard C. Tylka (1995).............. 52 Chief Financial Officer
Polar Ice Entertainment
Inc. (Palm Beach
Gardens, Florida)....... 7,500(3)(8) *
OTHER EXECUTIVE OFFICERS
Michael M. Yeager..................................................... 55,460(7)(9) 1.0
Deborah D. Ludwig..................................................... 24,383(7) *
William H. Van Huis................................................... 21,883(7)(10) *
Taylor V. Ward........................................................ 17,383(7) *
All directors and executive officers as a group (13 persons).......... 3,271,334(3)(7) 59.2%
</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.
(3) Includes 7,500 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 KD Partners 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. 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 -- 48,000 shares;
Michael M. Yeager -- 16,570 shares; Deborah D. Ludwig -- 10,000 shares;
William H. Van Huis -- 10,000 shares; and Taylor V. Ward -- 10,000 shares;
and all executive officers as a group (7 people) -- 102,000 shares.
3
<PAGE> 6
(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 410 shares indirectly owned through the Company's 401(k) plan.
(10) 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 & 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 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
KD Managers, LLC, a private New York City based limited liability corporation,
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 1997, he served as Controller of KD
Equities, a private equity investment firm located in New York City. From May
1997 to September 1998, Mr. Tylka was Corporate Development Manager for The
Loewen Group, Inc., a publicly held funeral home and cemetery operator,
headquartered in Burnaby, British Columbia, Canada. In April 1999, he became
Chief Financial Officer of Polar Ice Entertainment Inc., an ice rink
owner-operator located in Palm Beach Gardens, Florida.
MEETINGS OF THE BOARD OF DIRECTORS AND BOARD COMMITTEES AND COMPENSATION OF
DIRECTORS
No director attended fewer than 75% of the four Board of Director meetings
held in fiscal 1999 or the committees of the Board of Directors on which he
served.
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.
4
<PAGE> 7
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 1999, 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 1999, 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 are granted to each non-employee director,
subject to availability, at each annual meeting at which 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.
5
<PAGE> 8
II. COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth information for the fiscal years ended April
2, 1999, April 3, 1998, and March 28, 1997 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............... 1999 $225,000 $ 52,677 -- 16,400 $4,267
President and Chief 1998 210,000 131,689 -- 36,000 3,360
Executive Officer 1997 200,000 32,000 -- -- 2,439
Michael M. Yeager............. 1999 $120,500 $ 27,074 $6,966 6,900 $2,104
Chief Financial Officer, 1998 112,663 64,716 6,907 15,000 1,678
Secretary and Treasurer 1997 101,000 17,000 6,966 -- 1,809
Deborah D. Ludwig............. 1999 $ 84,500 $ 15,564 -- 3,400 $1,248
Vice President -- 1998 82,576 24,266 -- 7,500 986
Eastern Region 1997 79,000 13,500 -- -- 942
Taylor V. Ward................ 1999 $ 69,000 $ 15,752 $5,261 3,400 $1,112
Vice President -- 1998 66,266 24,266 5,077 7,500 822
Western Region 1997 63,000 6,250 5,100 -- 696
William H. Van Huis........... 1999 $ 82,000 $ 16,186 -- 3,400 $1,372
Vice President -- 1998 76,461 39,131 -- 7,500 856
Marketing 1997 70,000 11,250 -- -- 716
</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.
OPTION GRANTS IN FISCAL 1999
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............... 16,400 32.8% $16.875 4/2/04 $94,120 $213,528
Michael M. Yeager............. 6,900 13.8 16.875 4/2/04 39,599 89,838
Deborah D. Ludwig............. 3,400 6.8 16.875 4/2/04 19,513 44,268
Taylor V. Ward................ 3,400 6.8 16.875 4/2/04 19,513 44,268
William H. Van Huis........... 3,400 6.8 16.875 4/2/04 19,513 44,268
</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
6
<PAGE> 9
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
optionee's 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
$22.614 and $29.895 per share, respectively.
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 2, 1999, 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 2, 1999, as measured in terms
of the closing price of the Common Stock on that date as quoted on the NASDAQ
National Market System ($12.50 per share).
<TABLE>
<CAPTION>
SHARES VALUE OF UNEXERCISED
ACQUIRED NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
UPON VALUE OPTIONS AT FISCAL YEAR-END AT 4/2/99
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Harold A. Lewis.................. -- -- 36,000/40,400 $75,750/$79,500
Michael M. Yeager................ -- -- 11,750/16,900 26,688/ 33,125
Deborah D. Ludwig................ -- -- 7,500/ 8,400 15,781/ 16,563
Taylor V. Ward................... -- -- 7,500/ 8,400 15,781/ 16,563
William H. Van Huis.............. -- -- 7,500/ 8,400 15,781/ 16,563
</TABLE>
SENIOR EXECUTIVE BONUS ARRANGEMENTS
Incentive Bonus Plan. During fiscal 1999, each of the executive officers
named above in the Summary Compensation Table (the "Officers") participated in
the Company's 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. These bonus arrangements were structured by the
Company's Compensation Committee based on an analysis by an outside compensation
consultant during fiscal 1997.
In fiscal 1999, the Company achieved various levels of the objectives of
the three-pronged incentive formula. Accordingly, with respect to fiscal 1999,
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 $127,253. (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 employed Mr. Lewis for an initial two
year employment term, which term automatically renews 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'
7
<PAGE> 10
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.
The Company entered into a consulting agreement with Mr. Tylka in May 1997.
The agreement requires Mr. Tylka to provide certain consulting services to the
Company in consideration of an annual fee of $25,000, payable monthly, plus
expenses. This agreement shall continue until terminated by Harold A. Lewis.
Such termination requires the written consent of George A. Kellner, as long as
Mr. Kellner is Chairman of the Board of Directors of the Company.
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 service 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 1999 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 1999 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.
8
<PAGE> 11
The Compensation Committee has structured the fiscal 1999 bonus plan based
upon a three-pronged incentive formula tied to earnings per share increase,
revenue growth and quality improvements. For fiscal 1999, the Compensation
Committee determined that a bonus was warranted and, therefore, a $127,253
senior management incentive bonus was authorized (maximum bonus pool available
for fiscal 1999 was $436,000).
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 41% in fiscal year 1999 as compared to
42%, which was the percentage allocated in the prior year. 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 allocation
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. 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
six 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 1999, 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 2, 1999 with the cumulative total return
of (i) the NASDAQ Stock Market-US Index, and (ii) a peer index group consisting
of Standard Industrial Classification ("SIC") Code 8351, which includes Child
Care Services. The Company believes that the new peer index provides a stable
and encompassing grouping for comparison on an industry basis. In prior years
the Company identified specific publicly traded companies as a peer group, which
made comparison from year to year more difficult due to certain ownership
changes.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CHILDTIME LEARNING CENTERS, INC.,
THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
[CHART]
<TABLE>
<CAPTION>
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CHILDTIME NEW OLD NASDAQ
MEASUREMENT PERIOD LEARNING PEER PEER STOCK MARKET
(FISCAL YEAR COVERED) CENTERS, INC. GROUP GROUP (U.S.)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/02/96 100 100 100 100
-----------------------------------------------------------------------------------------------------------
3/96 82 102 109 103
-----------------------------------------------------------------------------------------------------------
3/97 80 37 52 115
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3/98 150 62 51 174
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3/99 117 77 30 234
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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.
10
<PAGE> 13
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended April 2, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with for fiscal 1999, except that
the following executive officers of the Company failed to report their fiscal
1999 stock option grants on Form 4 or 5 on a timely basis: Harold A. Lewis,
Michael M. Yeager, Cherie M. King, Deborah D. Ludwig, Kathryn C. Peel, William
Van Huis, and Taylor V. Ward. The Company has been advised that the required
forms will be filed in the near future.
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 2000 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 March 21, 2000.
AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP to serve as
the Company's independent auditors for fiscal 2000. PricewaterhouseCoopers LLP
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 19, 1999
11
<PAGE> 14
PROXY PROXY
CHILDTIME LEARNING CENTERS, INC.
Proxy Solicited on Behalf of The Board of Directors
For The Annual Meeting of Stockholders - August 19, 1999
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 18, 1999, 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
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
CHILDTIME LEARNING CENTERS, INC.
[ ]
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<CAPTION>
<S><C>
For Withheld For All
All All Except
1. Election of Directors / / / / / /
James W. Geisz ------------------------------
Jason K. Feld (Except Nominee written above)
Dated , 1999
------------------------
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.
</TABLE>
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