<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CORPORATEFAMILY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
TENNESSEE 8351 62-1302117
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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209 TENTH AVENUE SOUTH, SUITE 300
NASHVILLE, TENNESSEE 37203-4173
(615) 256-9915
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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MARGUERITE W. SALLEE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORPORATEFAMILY SOLUTIONS, INC.
209 TENTH AVENUE SOUTH, SUITE 300
NASHVILLE, TENNESSEE 37203-4173
(615) 256-9915
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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<S> <C>
JAMES H. CHEEK, III HENRY D. KAHN
BASS, BERRY & SIMS PLC PIPER & MARBURY L.L.P.
FIRST AMERICAN CENTER 36 SOUTH CHARLES STREET
NASHVILLE, TENNESSEE 37238 BALTIMORE, MARYLAND 21201
(615) 742-6200 (410) 539-2530
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
AMOUNT MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE(2) FEE(1)
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<S> <C> <C> <C>
Common Stock, no par value........................... $30,360,000 $9,200
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(1) Pursuant to Rule 457(o), the aggregate number of shares need not be
included.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 18, 1997
SHARES
(CORPORATFAMILY LOGO)
COMMON STOCK
Of the shares of Common Stock offered hereby, shares are
being sold by CorporateFamily Solutions, Inc. (the "Company") and shares
are being sold by the Selling Shareholders. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Shareholders.
See "Principal and Selling Shareholders."
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock of the Company. It is currently estimated that the initial
public offering price will be between $ and $ per share. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. Application has been made for quotation of the
Common Stock on the Nasdaq National Market under the symbol "CFAM."
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Selling Shareholders
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
Total(3)........................ $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $500,000.
(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to additional shares of Common Stock, solely
to cover over-allotments, if any. If the Underwriters exercise this option
in full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Shareholders will be $ , $ and $ ,
respectively. See "Principal and Selling Shareholders" and "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
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MONTGOMERY SECURITIES J.C. BRADFORD & CO.
, 1997
<PAGE> 3
Certain persons participating in this Offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Stock.
Such transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Except as otherwise indicated, all information in this Prospectus (i) gives
effect to a 0.65-for-1 stock split of the Company's Common Stock to be effected
immediately prior to the Offering, (ii) gives effect to the conversion of all of
the Company's outstanding Series A Preferred Stock into 1,169,979 shares of
Common Stock in connection with the Offering, and (iii) assumes no exercise of
the Underwriters' over-allotment option. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those occurring elsewhere in this Prospectus. Unless the
context otherwise requires, all references to the "Company" in this Prospectus
shall include CorporateFamily Solutions, Inc. and its subsidiaries. All
references to years contained in this Prospectus relate to the Company's fiscal
years.
THE COMPANY
CorporateFamily Solutions, Inc. is a leading national provider of a broad
range of management and consulting services for employers seeking to create a
"family friendly" work environment by providing their employees with workplace
child care, education and other family support programs. The Company manages
corporate-sponsored Family Centers, built and equipped by an employer at or near
its offices, providing high quality services such as early childhood education,
child care, back-up child care, kindergartens, get-well care, summer camps, and
parent support services. The Company currently manages 87 Family Centers for 65
corporate clients in 27 states and has 17 centers under development, including
centers for nine new corporate clients. Eleven of the Company's corporate
clients operate multiple Family Centers. In addition, the Company provides
work/life consulting services to help employers realize the benefits of work and
family programs and policies and to align work/life concerns of working families
with business strategies of employers. Consulting services provided by the
Company include feasibility studies, work/life strategic planning, return on
investment analyses and development of work/life programs and policies. During
1996, the Company provided consulting services to 25 corporate clients. The
Company's clients include many of America's best known corporations, such as
AlliedSignal Inc., Barnett Banks, Inc., The Boeing Company, Campbell Soup
Company, The Chase Manhattan Corporation, Citicorp, Columbia/HCA Healthcare
Corporation, Eli Lilly and Company, J.C. Penney Company, Inc., Johnson &
Johnson, MBNA Corporation, Merck & Co., Inc., NationsBank Corporation, Owens
Corning, S.C. Johnson & Son, Inc., and USAA.
The Company believes it is uniquely positioned to take advantage of two
related trends in corporate America: (i) the changing profile of the work force
and (ii) the growing recognition by employers that responding to family needs of
employees is an essential strategy to attract, retain and motivate their
employees. The resulting demand for work and family services also reflects an
increasing awareness by employers that helping employees balance work and family
responsibilities and creating a work environment that facilitates that balance
will increase productivity on the job. In response to these trends, the Company
seeks to establish management and consulting relationships with major employers
interested in providing a broad range of high quality work and family services
to meet the needs of their employees.
The Company's growth strategy is to develop new corporate clients, expand
existing client relationships, develop new services and products and pursue
strategic acquisitions. Since January 1, 1993, the Company has increased the
number of corporate clients from 21 to 65, including 34 of the 1996 "Fortune
500" largest corporations in America, and has increased the number of Family
Centers from 24 to 87. Revenue has correspondingly increased from $17.0 million
in 1993 to $62.9 million in 1996, and operating income increased from a loss of
$1.1 million in 1993 to a profit of $1.9 million in 1996. In October 1995, the
Company acquired Resources for Child Care Management, Inc. ("RCCM"), an operator
of 21 employer-sponsored child care centers. The Company expanded its consulting
services during the second half of 1996 and believes that such services enhance
relationships with existing clients and will provide opportunities for
developing new relationships with other employers. The Company has pilot
programs for new services under development or
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evaluation, including the management of corporate-sponsored elementary schools,
tutoring and other education services, elder care, and the distribution of
educational books, toys, games and software for family members of all ages.
The Company was founded in 1987 to address a growing demand for high
quality, employer-sponsored child care and has evolved to provide a broad range
of work and family services for employers and their employees. The Company was
founded by Marguerite Sallee, President and Chief Executive Officer; Lamar
Alexander, former Secretary of Education and former Governor of Tennessee; Honey
Alexander, former Vice Chairman of the Corporation for Public Broadcasting; Bob
Keeshan, better known as television's "Captain Kangaroo;" and Brad Martin,
Chairman and Chief Executive Officer of Proffitt's, Inc., a retail department
store chain. The Company's executive offices are located at 209 Tenth Avenue
South, Suite 300, Nashville, Tennessee, and its telephone number is (615)
256-9915.
THE OFFERING
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Common Stock offered by the Company.......... shares
Common Stock offered by the Selling
Shareholders............................... shares
Common Stock to be outstanding after the
Offering................................... shares(1)
Use of proceeds.............................. Repayment of indebtedness, working capital,
and for general corporate purposes, including
possible acquisitions.
Proposed Nasdaq National Market symbol....... CFAM
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(1) Excludes (i) 1,538,297 shares of Common Stock, with a weighted average
exercise price per share of $7.26, reserved for issuance upon the exercise
of stock options granted pursuant to the Company's stock option plans, (ii)
26,000 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants to purchase Common Stock at an exercise price of $6.15
and (iii) shares of Common Stock reserved for future grant under the
Company's stock option plans. Using the modified treasury stock method, the
outstanding options and warrants represent shares of Common Stock
equivalents, assuming an offering price of $ per share. See
"Management -- Compensation Pursuant to Plans" and "Description of Capital
Stock -- Warrants."
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
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YEAR ENDED(1) QUARTER ENDED
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DECEMBER 30, DECEMBER 29, DECEMBER 27, MARCH 29, MARCH 28,
1994 1995 1996 1996 1997
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INCOME STATEMENT DATA:
Revenue................................. $24,513 $36,920 $62,926 $14,435 $17,480
Operating expenses...................... 21,092 32,708 55,589 12,697 15,342
Selling, general and administrative
expenses.............................. 2,958 3,525 4,659 1,133 1,416
Depreciation and amortization........... 387 520 758 188 200
------- ------- ------- ------- -------
Operating income........................ 76 167 1,920 417 522
Interest expense, net................... 50 86 343 132 72
------- ------- ------- ------- -------
Income before income taxes.............. 26 81 1,577 285 450
Income tax expense (benefit)............ -- (460) (1,159) 7 221
------- ------- ------- ------- -------
Net income.............................. $ 26 $ 541 $ 2,736 $ 278 $ 229
========== ========== ========== ======= =======
Net income per share(2)................. $ 0.02 $ 0.19 $ 0.76 $ 0.11 $ 0.10
========== ========== ========== ======= =======
Weighted average number of common and
common equivalent shares
outstanding(2)........................ 2,660 3,356 4,100 4,090 4,232
SELECTED OPERATING DATA (AT END OF PERIOD)(1):
Family Center clients(3)................ 41 58 65 59 65
Family Centers(4)....................... 48 75 85 78 86
Program capacity(5)..................... 5,295 9,113 10,702 9,759 10,988
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MARCH 28, 1997
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ACTUAL AS ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital............................................. $ 1,818
Total assets................................................ 19,071
Long-term debt, including current maturities................ 4,193
Shareholders' equity........................................ 7,207
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(1) The Company's fiscal year ends on the Friday closest to December 31. In
October 1995, the Company acquired all of the outstanding capital stock of
RCCM, an operator of 21 employer-sponsored child care centers. The
transaction was accounted for as a purchase, and consideration paid
consisted of $3.4 million in cash and 324,995 shares of Common Stock.
(2) Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year, which includes additional dilution related to conversion of
outstanding preferred stock, stock options and warrants as computed under
the modified treasury stock method. See the Company's consolidated financial
statements and note 8 thereto.
(3) A Family Center client is defined as an entity that as of the applicable
date was under contract with the Company for the management of one or more
open and operating Family Centers.
(4) Family Centers are defined as the facilities which the Company is engaged to
manage and operate on behalf of its Family Center clients.
(5) Program capacity is defined as the maximum aggregate number of individuals
that the Company will enroll in the services and programs at its Family
Centers. As of each of the respective dates, the state licensed capacity was
6,361, 10,487, 12,440, 11,326 and 12,835 individuals, respectively.
(6) Adjusted to give effect to the sale of the shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price
of $ per share, and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds" and "Capitalization."
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following factors in
evaluating an investment in the shares of Common Stock offered hereby.
Management of Growth. The Company has experienced substantial growth
during the past several years through internal growth and by acquisition. The
Company's ability to experience future growth will depend upon a number of
factors, including the ability to further develop existing client relationships
and to obtain new client relationships, the expansion of services and programs
offered by the Company, the maintenance of high quality services and programs
and the hiring and training of qualified management, regional vice presidents,
center directors and other personnel. Sustaining growth may require the
implementation of enhancements to operational and financial systems and will
also depend on the Company's ability to expand its sales and marketing force.
There can be no assurance that the Company will be able to manage its expanding
operations effectively or that it will be able to maintain or accelerate its
growth, and any failure to do so could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Growth Strategy" and "-- Operations."
Market Acceptance of Work and Family Services. The Company's business
strategy depends on employers recognizing the value of work and family services.
There can be no assurance that there will be continued growth in the number of
employers that view work-site family services as cost-effective or beneficial to
their work forces. Although employer-sponsored on-site, near-site or consortium
centers have gained some degree of acceptance during the past decade, less than
20% of employers financially supported such centers in 1995. Any negative change
in current corporate acceptance of financially supported child care could have a
material adverse effect on the Company's business, results of operations,
financial condition and growth prospects. There can be no assurance that
demographic trends, including an increasing percentage of mothers in the
workforce, will continue to lead to increased market share for the center-based
segment in general and the work-site segment in particular.
Competition. The Company competes for corporate clients as well as
individual enrollment in a highly fragmented and competitive market. In the
competition for corporate clients, the Company primarily competes with other
organizations which focus on the work-site segment of the child care market and
with certain center-based child care chains that have divisions which compete
for corporate opportunities. The Company also competes with a diverse group of
large and small competitors for a range of child care and other work and family
services including work/life, employee benefits and management consultants. Some
of these competitors have significantly greater financial resources and may be
willing to enter into contract models, invest initial capital in facilities or
enter into other financial arrangements that are not consistent with the
Company's business strategy. Many of these competitors offer consulting,
work-site child care and other services at lower prices than the Company. Some
of these competitors for corporate relationships have greater penetration than
the Company in certain geographic regions and multiple relationships with
corporate entities. Increased competition for corporate relationships on a
national or local basis could result in increased pricing pressure and loss of
market share, thereby having a material adverse effect on the Company's
business, results of operations and financial condition as well as its ability
to pursue its growth strategy successfully.
The Company believes its ability to compete successfully for enrollment at
a Family Center depends on a number of factors, including quality of services
and products, convenience and price. The Company is often at a price
disadvantage with respect to family child care providers, who operate at
standards lower than national accreditation standards at which the Company
operates and generally do not comply or are not required to comply with the same
health, safety, insurance and operational regulations as the Company. The
Company also competes with many not-for-profit providers of child care and
preschools, some of which are able to offer lower pricing than the Company. Many
of the Company's competitors in the center-based segment also offer child care
at a lower price than the Company, and some have substantially greater financial
resources than the Company or have greater name recognition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors or that competitive pressures faced by the
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Company will not have a material adverse effect on its business, results of
operations and financial condition. See "Business -- Competition."
Dependence on Corporate Client Relationships. A significant portion of the
Company's business is derived from Family Centers associated with corporate
clients for which the Company provides work-site family services for single or
multiple sites pursuant to management contracts. While the specific terms of
such contracts vary, some management contracts are subject to early termination
by the corporate client without cause. While the Company has a history of
consistent contract renewals, there can be no assurance that future renewals
will be secured. In addition, a significant percentage of the Company's
corporate relationships are concentrated in the healthcare, financial services
and the pharmaceutical industries and could be threatened by changes in these
industries. The early termination or nonrenewal of a significant number of
corporate management contracts or the termination of a multiple-site corporate
client relationship could have a material adverse effect on the Company's
business, results of operations and financial condition.
Changing Economic Conditions. The Company's revenue and net income are
subject to general economic conditions. A significant portion of the Company's
revenue is derived from employers which historically have reduced their
expenditures for work-site family services during economic downturns. Should the
economy weaken in any future period, these corporate clients may reduce or
eliminate their expenditures on work and family services, and prospective
clients may not commit resources to such services. These factors could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Risks Associated with Acquisitions. The Company plans as part of its
growth strategy to evaluate the acquisition of other providers of work/life,
employer-sponsored child care and consulting services. While the Company reviews
acquisition candidates in the ordinary course of its business, the Company is
not currently a party to any agreements or negotiations with respect to any
material acquisitions. Acquisitions involve numerous risks, including potential
difficulties in the assimilation of acquired operations, diversion of
management's attention, negative financial impacts based on the amortization of
acquired intangible assets, the dilutive effects of the issuance of Common Stock
in connection with an acquisition and potential loss of key employees of the
acquired operation. No assurance can be given as to the success of the Company
in identifying, executing and assimilating acquisitions in the future. See "Use
of Proceeds" and "Business -- Growth Strategy."
Dependence on Key Management. The success of the Company is highly
dependent on the efforts, abilities, and continued services of its executive
officers and other key employees. The loss of any of the executive officers or
key employees could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company believes that its
future success will depend upon its ability to continue to attract, motivate and
retain highly-skilled managerial, sales and marketing, regional and center
director personnel. Although the Company historically has been successful in
retaining the services of its senior management, there can be no assurance that
the Company will be able to do so in the future. See "Management -- Employment
Agreements."
Ability to Obtain and Maintain Insurance; Adverse Publicity. The Company
currently maintains the following types of insurance policies: workers'
compensation, commercial general liability, automobile liability, commercial
property liability, student accident coverage and excess "umbrella" liability.
These policies provide for a variety of coverages and are subject to various
limitations, exclusions and deductibles. To date, the Company has been able to
obtain insurance in amounts it believes to be appropriate. There can be no
assurance that the Company's insurance premiums will not increase in the future
as a consequence of conditions in the insurance business generally or the
Company's experience in particular. As a result of adverse publicity concerning
reported incidents of alleged abuse at child care centers and the length of time
before the expiration of applicable statutes of limitations for the bringing of
child abuse and personal injury claims (typically a number of years after the
child reaches the age of majority), some operators of child care and family
centers have had difficulty obtaining general liability insurance, child abuse
liability insurance or similar liability insurance or have been able to obtain
such insurance only at substantially higher rates. Any adverse publicity
concerning reported incidents of child abuse at any child care centers, whether
or not directly relating to or involving the Company, could result in decreased
enrollment at the Company's centers,
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<PAGE> 9
termination of existing corporate relationships, inability to attract new
corporate relationships or increased insurance costs, any of which could have a
material adverse effect on the Company's business, results of operations, and
financial condition. See "Business -- Insurance" and " -- Litigation."
Litigation. Because of the nature of its business, the Company is and
expects that in the future it may be subject to claims and litigation alleging
negligence, inadequate supervision and other grounds for liability arising from
injuries or other harm to the people it serves, primarily children. In addition,
claimants may seek damages from the Company for child abuse, sexual abuse and
other acts allegedly committed by Company employees. There can be no assurance
that lawsuits will not be filed, that the Company's insurance will be adequate
to cover liabilities resulting from any claim or that any such claim or the
publicity resulting from it will not have a material adverse effect on the
Company's business, results of operations, and financial condition including,
without limitation, adverse effects caused by increased cost or decreased
availability of insurance and decreased demand for the Company's services from
corporate sponsors and parents. See "Business -- Litigation."
Seasonality and Variability of Quarterly Operating Results. The Company's
revenue and results of operations fluctuate with the seasonal demands for child
care. The Company's revenue typically declines during the third quarter as a
result of decreased enrollments in its centers as parents withdraw their
children for vacations and their older children for entry into elementary
schools. A portion of the Company's costs are fixed costs, and where the Company
is responsible for such costs, the Company's results of operations are affected
by fluctuation in center and program utilization. The Company's quarterly
results of operations may also fluctuate based upon the number and timing of
center openings and/or acquisitions, the performance of new and existing
centers, the contractual arrangements under which centers are operated, the
change in the mix of such contractual arrangements, the timing and level of
consulting and development fees, center closings, competitive factors and
general economic conditions. The inability of existing centers to maintain their
current profitability, the failure of newly opened centers to contribute to
profitability and the failure to maintain and grow the consulting and
development services could result in additional fluctuations in the future
operating results of the Company on a quarterly or annual basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Unaudited Selected Quarterly Operating Results."
Impact of Governmental Regulation. The Company's Family Centers are
subject to numerous federal, state and local regulations and licensing
requirements. Although these regulations vary greatly from jurisdiction to
jurisdiction, government agencies generally review, among other things, the
adequacy of buildings and equipment, licensed capacity, the ratio of staff to
children, staff training, record keeping, the dietary program, the daily
curriculum and compliance with health and safety standards. Failure of a center
to comply with applicable regulations can subject it to governmental sanctions,
which might include fines, corrective orders, probation, or, in more serious
cases, suspension or revocation of the center's license to operate or an award
of damages to private litigants and could require significant expenditures by
the Company to bring its Family Centers into compliance. In addition, state and
local licensing regulations often provide that the license held by a family
services company may not be transferred. As a result, any transferee of a family
services business (primarily child care) must apply to any applicable
administrative bodies for new licenses. There can be no assurance that the
Company would not have to incur material expenditures to relicense centers it
may acquire in the future. There can be no assurance that government agencies
will not impose additional restrictions on the Company's operations which could
adversely affect the Company's business, results of operations, and financial
condition. Although a limited number of the Company's employees are paid at the
minimum wage, the recent increase in the federal minimum wage could result in a
corresponding increase in the wages paid to the Company's employees, which could
have a material effect on the Company's business, results of operations, and
financial condition. See "Business -- Regulation."
Control by Certain Shareholders. Upon completion of the Offering,
executive officers and directors, and their affiliates, will beneficially own an
aggregate of approximately % of the outstanding shares of Common Stock
(approximately % if the Underwriters' over-allotment option is exercised in
full). Accordingly, such persons, if they were to act in concert, would likely
be in a position to control the Company through their ability to significantly
affect the outcome of elections of members of the Board of Directors and the
decision whether to effect or prevent a merger or sale of assets, to adopt,
amend, or repeal the Company's
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Amended and Restated Charter (the "Charter") and Amended and Restated Bylaws
(the "Bylaws"), and to take certain other actions requiring the vote or consent
of the Company's shareholders. Such control could also preclude an unsolicited
acquisition of the Company and, consequently, adversely affect the market price
of the Common Stock. See "Management" and "Principal and Selling Shareholders."
Absence of Public Market; Possible Volatility of Stock Price. Prior to
this Offering, there has been no public market for the Company's Common Stock.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market. There can be no assurance that a viable public market for the
Common Stock will develop or be sustained after the Offering or that purchasers
of the Common Stock will be able to resell their Common Stock at prices equal to
or greater than the initial public offering price. The initial public offering
price will be determined by negotiations among the Company, the Selling
Shareholders and the representatives of the Underwriters and may not be
indicative of the prices that may prevail in the public market after the
Offering is completed. Numerous factors, including announcements or fluctuations
in the Company's or its competitors' operating results, market conditions for
the Company's services or products, investor perception of the Company and of
the work and family services industry generally, the timing and announcement of
acquisitions by the Company or its competitors, government regulatory action, or
liquidity of the market for the Common Stock, could have a significant impact on
the future price of the Common Stock. In addition, the stock market in recent
years has experienced significant price and volume fluctuations that often have
been unrelated or disproportionate to the operating performance of companies.
These broad fluctuations may adversely affect the market price of the Common
Stock. See "Underwriting."
Dilution. The purchasers of the Common Stock offered hereby will
experience immediate and significant dilution in net tangible book value of
$ per share, and present shareholders will experience a material
increase in net tangible book value of $ per share. See "Dilution."
Anti-Takeover Provisions. The Company's Charter and Bylaws will, after the
completion of the Offering, contain certain provisions that could make more
difficult the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise. These provisions establish staggered terms for members of
the Company's Board of Directors and include advance notice procedures for
shareholders to nominate candidates for election as directors of the Company and
for shareholders to submit proposals for consideration at shareholders'
meetings. In addition, the Company will be subject to the Tennessee Business
Combination Act (the "Combination Act") of the Tennessee Business Corporation
Act ("TBCA") which limits transactions between a publicly held company and
"interested shareholders" (generally, those shareholders who, together with
their affiliates and associates, own 10% or more of the voting power of any
class or series of a Company's stock). The restrictions of the Combination Act
would not apply to those who were "interested shareholders" prior to the
consummation of the Offering. These provisions of the TBCA may have the effect
of deterring certain potential acquisitions of the Company. The Company's
Charter will provide for 10,000,000 authorized but unissued shares of Preferred
Stock, the rights, preferences, qualifications, limitations and restrictions of
which may be fixed by the Board of Directors without any further action by
shareholders. See "Description of Capital Stock."
Shares Eligible for Future Sale. Upon consummation of the Offering, the
Company will have shares of Common Stock issued and outstanding. The
shares of Common Stock sold in this Offering will be freely tradeable
without restriction or limitation under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" (as defined
under the Securities Act). All of the remaining shares of Common Stock
are "restricted securities" as that term is defined by Rule 144 promulgated
under the Securities Act. Of these shares, will be eligible for sale in
the public market 90 days following the date of this Offering pursuant to Rule
144. Furthermore, upon the expiration of lockup agreements with the Underwriters
180 days after the date of this Prospectus (or earlier with the consent of the
Representatives), an additional shares of Common Stock will be
eligible for immediate sale pursuant to Rule 144 under the Securities Act.
Additional shares of Common Stock, including shares issuable upon exercise of
options, shares acquired pursuant to the Company's stock purchase plan and
warrants, will also become eligible for sale in the public market from time to
time. In addition, holders of 1,584,180 shares of Common Stock are entitled to
certain rights with respect to the registration of such shares for sale under
the
9
<PAGE> 11
Securities Act. See "Shares Eligible for Future Sale,"
"Management -- Compensation Pursuant to Plans" and "Description of Capital
Stock -- Registration Rights."
Risks Associated with Forward-Looking Statements. This Prospectus contains
certain statements that are "forward-looking statements." Those statements
include, among other things, the discussions of the Company's business strategy
and expectations concerning developments in the work and family services
industry, the Company's market position, future operations, growth by
acquisitions and as internally generated, contribution margins and profitability
and liquidity and capital resources. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions are
intended to identify forward-looking statements. Investors in the Common Stock
offered hereby are cautioned that reliance on any forward-looking statements
involves risks and uncertainties, and that although the Company believes that
the assumptions on which the forward-looking statements contained herein are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could be
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the risk factors discussed above. In light of these and
other uncertainties, the inclusion of a forward-looking statement herein should
not be regarded as a representation by the Company that the Company's plans and
objectives will be achieved. The Company does not intend to update any of these
forward-looking statements.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, at an assumed initial public offering price of $ per share, are
estimated to be $ million after deduction of the underwriting discount and
estimated offering expenses payable by the Company. The Company will not receive
any proceeds from the sale of Common Stock by the Selling Shareholders.
Approximately $4.2 million of the net proceeds will be used to repay
indebtedness outstanding under the Company's loans (the "Loans"). The
indebtedness outstanding under the Loans was incurred primarily to finance the
acquisition of RCCM in October 1995, bears interest ranging from 8.0% to 10.0%
and has final maturities from 1998 to 2010. The Company expects to enter into a
revolving credit facility upon closing of this Offering to provide up to $5.0
million of borrowings.
The Company intends to use the balance of the net proceeds for working
capital to further develop its services and products and for other general
corporate purposes, including possible acquisitions of companies engaged in
similar or complementary businesses. Although the Company regularly evaluates
acquisition opportunities and conducts preliminary discussions regarding
acquisitions, the Company has no present agreements, arrangements, or
commitments with respect to, and no portion of the net proceeds has been
allocated for, any such transaction. Pending such uses, the net proceeds will be
invested in short-term, investment-grade interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
It is the present policy of the Board of Directors to retain all earnings to
support operations and to finance expansion of the Company's business;
therefore, the Company does not anticipate declaring or paying dividends on the
Common Stock in the foreseeable future. The declaration and payment of cash
dividends in the future will be at the Board of Directors' discretion and will
depend on the Company's earnings, financial condition, capital needs and other
factors deemed pertinent by the Board of Directors, including limitations, if
any, on the payment of dividends under state law and any then-existing credit
agreement. Pursuant to the terms of the outstanding Loans, the Company is
prohibited from declaring or paying cash dividends.
11
<PAGE> 13
DILUTION
The net tangible book value of the Company at March 28, 1997 was
approximately $1.6 million, or $0.53 per share of Common Stock. Net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share, deducting the underwriting discount and estimated
offering expenses payable by the Company and applying the estimated net proceeds
therefrom as set forth under "Use of Proceeds," the adjusted net tangible book
value of the Company as of March 28, 1997 would have been approximately
$ million, or $ per share of Common Stock. This represents an
immediate increase in the pro forma net tangible book value of $ per
share of Common Stock to existing shareholders and an immediate dilution in pro
forma net tangible book value of $ per share of Common Stock to
investors purchasing Common Stock in this Offering. The following table
illustrates this dilution on a per-share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
---------
Net tangible book value per share........................... $
---------
Increase per share attributable to new investors............
---------
Pro forma net tangible book value per share, as adjusted for
the Offering..............................................
---------
Dilution per share to new investors......................... $
=========
</TABLE>
The following table summarizes the number of shares of Common Stock
purchased from the Company during the last five years, the total consideration
paid to the Company, and the average price per share paid by the Company's
existing shareholders and to be paid by the new investors purchasing shares of
Common Stock from the Company in the Offering (before deducting the underwriting
discount and estimated offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... % $ % $
New investors...................
------- ----- -------- -----
Total................. 100.0% $ 100.0%
======= ===== ======== =====
</TABLE>
- ---------------
(1) The computations in the tables set forth above (i) give effect to conversion
of all Series A Preferred Stock into 1,169,979 shares of Common Stock and
(ii) exclude 1,538,297 shares of Common Stock, with a weighted average
exercise price of $7.26, reserved for issuance upon exercise of stock
options granted pursuant to the Company's stock option plans and 26,000
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants to purchase Common Stock at an exercise price of $6.15. See
"Description of Capital Stock."
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 28, 1997 and as adjusted to reflect (i) the issuance and sale by the
Company of the shares of Common Stock offered hereby, at an assumed
initial public offering price of $ per share, and the application of
the estimated net proceeds received by the Company therefrom as described under
"Use of Proceeds" and (ii) conversion of all outstanding shares of Series A
Preferred Stock into 1,169,979 shares of Common Stock in connection with the
Offering. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements, including the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 28, 1997
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt........................ $ 911 $
======= =========
Long-term debt, less current maturities..................... $ 3,282 $
------- -------
Shareholders' equity:
Series A Preferred Stock, no par value, 1,125,000 shares
authorized, 1,125,000 shares issued and outstanding,
actual; none authorized or outstanding, as adjusted.... 4,480
Preferred Stock, no par value, 3,875,000 authorized; none
outstanding, actual; 10,000,000 shares authorized and
none outstanding, as adjusted.......................... --
Common Stock, no par value, 10,000,000 shares authorized;
1,866,424 shares issued and outstanding, actual;
100,000,000 shares authorized and issued and
outstanding, as adjusted(1)............................ 6,908
Accumulated deficit....................................... (4,182)
------- -------
Total shareholders' equity........................ 7,207
------- -------
Total capitalization......................... $10,489 $
======= =========
</TABLE>
- ---------------
(1) Excludes (i) 1,568,847 shares of Common Stock, with a weighted average
exercise price of $7.22 per share, reserved for issuance upon the exercise
of stock options granted pursuant to the Company's stock option plans, and
(ii) 26,000 shares of Common Stock reserved for issuance upon exercise of
outstanding warrants to purchase Common Stock at an exercise price of $6.15.
See "Description of Capital Stock."
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The selected consolidated financial data of the Company for each of the
five years ended January 1, 1993 (fiscal 1992), December 31, 1993, December 30,
1994, December 29, 1995 and December 27, 1996 are derived from the audited
consolidated financial statements of the Company. The consolidated financial
statements as of and for the fiscal years ended December 30, 1994, December 29,
1995 and December 27, 1996 have been audited by Arthur Andersen LLP, independent
auditors. The consolidated financial statements as of and for the fiscal years
ended January 1, 1993 and December 31, 1993 have been audited by Deloitte &
Touche, LLP, independent auditors. The selected consolidated financial and
operating data of the Company for the quarters ended March 29, 1996, and March
28, 1997, is derived from unaudited financial statements which, in the opinion
of management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial condition and
the results of operations. Operating results for the quarter ended March 28,
1997, are not indicative of results for the full year. The following data should
be read in conjunction with "Management's Discussion and Analysis of the
Financial Condition and Results of Operations" and the consolidated financial
statements, including the notes thereto, included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED(1) QUARTER ENDED
----------------------------------------------------------------------- ------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 27, MARCH 29, MARCH 28,
1993 1993 1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue..................... $10,666 $16,967 $24,513 $36,920 $62,926 $14,435 $17,480
Operating expenses.......... 8,899 14,458 21,092 32,708 55,589 12,697 15,342
Selling, general and
administrative expenses... 2,998 3,344 2,958 3,525 4,659 1,133 1,416
Depreciation and
amortization.............. 187 239 387 520 758 188 200
------- ------- ------- ------- ------- ------- -------
Operating income (loss)..... (1,418) (1,074) 76 167 1,920 417 522
Interest expense, net....... (83) (9) 50 86 343 132 72
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes..................... (1,335) (1,065) 26 81 1,577 285 450
Income tax (benefit)
expense................... -- -- -- (460) (1,159) 7 221
------- ------- ------- ------- ------- ------- -------
Net income (loss)........... $(1,335) $(1,065) $ 26 $ 541 $ 2,736 $ 278 $ 229
========= ========== ========== ========== ========== ========== ========
Net income (loss) per
share(2).................. $ (0.91) $ (0.71) $ 0.02 $ 0.19 $ 0.76 $ 0.11 $ 0.10
========= ========== ========== ========== ========== ========== ========
Weighted average number of
common and common
equivalent shares
outstanding(2)............ 1,482 1,494 2,660 3,356 4,100 4,090 4,232
SELECTED OPERATING DATA(3):
Family Center clients(4).... 21 29 41 58 65 59 65
Family Centers(5)........... 24 33 48 75 85 78 86
Program capacity(6)......... 2,997 3,850 5,295 9,113 10,702 9,759 10,988
</TABLE>
<TABLE>
<CAPTION>
AS OF
-----------------------------------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 27, MARCH 28,
1993 1993 1994 1995 1996 1997
----------- ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................ $ 2,086 $ 998 $ 939 $ 407 $ 1,769 $ 1,818
Total assets........................... 4,589 4,774 5,265 16,987 20,281 19,071
Long-term debt, including current
maturities........................... 245 758 883 5,064 4,416 4,193
Shareholders' equity................... 2,977 2,067 1,724 4,015 6,976 7,207
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the Friday closest to December 31. In
October 1995, the Company acquired all of the outstanding capital stock of
RCCM, an operator of 21 employer-sponsored child care centers. The
transaction was accounted for as a purchase, and consideration paid
consisted of $3.4 million in cash and 324,995 shares of Common Stock.
(2) Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year, which includes additional dilution related to conversion of
outstanding preferred stock, stock
14
<PAGE> 16
options and warrants as computed under the modified treasury stock method.
For additional information concerning the Company's historical share and per
share information, see the Company's consolidated financial statements and
note 8 thereto.
(3) Selected operating data is as of the end of the periods presented.
(4) A Family Center client is defined as an entity that as of the applicable
date was under contract with the Company for the management of one or more
open and operating Family Centers.
(5) Family Centers are defined as the facilities which the Company is engaged to
manage and operate on behalf of its Family Center clients.
(6) Program capacity is defined as the maximum aggregate number of individuals
that the Company will enroll in the services and programs at its Family
Centers. As of each of the respective dates, the state licensed capacity was
4,416, 5,279, 6,361, 10,487, 12,440, 11,326 and 12,835 individuals,
respectively.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes certain forward-looking statements.
Prospective investors are cautioned that all forward-looking statements involve
risks and uncertainties, including without limitation, those discussed in "Risk
Factors." Although the Company believes that the assumptions underlying the
forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurances that
the forward-looking statements included in this Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company that the objectives
and plans of the Company will be achieved. The following discussion and analysis
should be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements, including the notes thereto, and selected
consolidated financial data included elsewhere in this Prospectus. Historical
results are not necessarily indicative of trends in operating results for any
future period.
OVERVIEW
The Company is a leading national provider of a broad range of work and
consulting services for employers seeking to create a "family friendly" work
environment by providing their employees with workplace child care, education
and other family support programs. The Company manages corporate-sponsored
Family Centers, built and equipped by an employer at or near its offices,
providing high quality services such as early childhood education, child care,
back-up child care, kindergartens, get-well care, summer camps, and parent
support services. The Company currently manages 87 Family Centers for 65
corporate clients in 27 states and has 17 centers under development, including
centers for nine new corporate clients. Eleven of the Company's corporate
clients operate multiple Family Centers. In addition, the Company provides
work/life consulting services to help employers realize the benefits of work and
family programs and policies and to align work/life concerns of working families
with business strategies of employers. Consulting services provided by the
Company include feasibility studies, work/life strategic planning, return on
investment analyses and development of work/life programs and policies. During
1996, the Company provided consulting services to 25 corporate clients. The
Company expects its future growth will be generated from (i) developing new
corporate clients, (ii) managing additional Family Centers for existing clients,
(iii) providing additional work and family services and programs for existing
clients, (iv) expanding its work/life consulting services and (v) pursuing
strategic acquisitions.
The Company's revenue is derived from (i) the operation of Family Centers
and (ii) consulting services. Revenue from Family Centers consists of parent
fees for tuition, amounts paid by corporate clients to fund a portion of the
operating costs of a Family Center ("Client Operating Financial Support") and
management fees from clients. Parent fees represent the largest portion of the
Company's revenue and are generally comparable to prevailing market rates for
similar services. Management fees are generally a fixed monthly fee or a per
diem, per child fee. Separate from Family Center revenue, the Company generates
revenue from consulting services, which are typically fixed-fee based, are
generated from specific engagements or monthly retainers and are recognized as
services are performed. In 1996, no single client accounted for more than 10% of
the Company's revenue.
Operating expenses consist of direct expenses associated with the operation
of Family Centers and with delivery of consulting services. Family Center
operating expenses consist primarily of (i) staff salaries, taxes and benefits;
(ii) food costs; and (iii) program supplies and materials. Staff salaries, taxes
and benefits generally comprise 80% to 90% of Family Center operating expenses.
Consulting operating expenses are comprised primarily of (i) staff salaries,
taxes and benefits; (ii) contract labor; and (iii) other direct operating
expenses. Selling, general and administrative expenses are comprised primarily
of (i) salaries, taxes and benefits for non-center personnel, including
corporate, regional and business development personnel; (ii) accounting and
legal fees; (iii) insurance; and (iv) general corporate expenses. Depreciation
and amortization expense consists of the depreciation of three Company-owned
Family Center facilities, the personalty owned by the Company and amortization
of goodwill primarily related to the acquisition of RCCM.
16
<PAGE> 18
The Company's Family Center contracts are typically three to five years in
length, with automatic annual renewals. The Company operates Family Centers
under three contract models: (i) cost-plus contracts, (ii) partnership
contracts, and (iii) profit/loss contracts. Under each contract model, clients
typically assume financial responsibility for construction costs and ongoing
facility expenses. Parent fees are collected under each contract model and vary
in amount depending, among other things, on the level of Client Operating
Financial Support of a Family Center and the services provided.
Cost-Plus Contract. Under a cost-plus contract, revenue from
employers typically consists of: (a) Client Operating Financial
Support paid to the Company for reimbursement of any of a Family
Center's operating expenses and allocated corporate overhead that are
in excess of parent fees and (b) management fees. The cost-plus
contract model provides that all operating costs of a Family Center
are paid from parent fees and Client Operating Financial Support. As
of December 27, 1996, 40 of the Company's 85 Family Centers were
operated under cost-plus contracts, generating 53% of Family Center
revenue.
Partnership Contract. Under a partnership contract, revenue from
employers typically consists of: (a) a fixed amount of Client
Operating Financial Support and (b) management fees. To the extent
that the parent fees and Client Operating Financial Support do not
cover the Family Center operating expenses, the Company is responsible
for such excess expenses. To the extent that parent fees and Client
Operating Financial Support exceed operating expenses of a Family
Center and an allocated portion of the Company's overhead, the
difference is generally credited to the employer. In addition, Client
Operating Financial Support often includes payments to cover initial
operating losses during the enrollment building period (typically
during the 12 months following the opening of a Family Center). As of
December 27, 1996, 32 of the Company's Family Centers were operated
under partnership contracts, generating 31% of Family Center revenue.
Profit/Loss Contract. Under a profit/loss contract, revenue is
generated primarily from parent fees, and the Company may receive
limited Client Operating Financial Support. The Company does not
receive a management fee and bears profit and loss responsibility for
the operations of the Family Center. These contracts are subject to a
greater degree of variability in operating results than the other
contract types. As of December 27, 1996, 13 of the Company's Family
Centers were operated under profit/loss contracts, generating 16% of
its Family Center revenue.
The Company believes its operating model, which requires limited or no
capital investment for facilities and pre-opening expenses and provides three
contract structures to meet the varying needs of its clients, is unique and
reduces Family Center operating variability and risk.
The Company measures profitability at the client level based on the
combined results of Family Center operations and consulting services from a
client. The Company's Family Center profitability (the "Operating Contribution")
is defined as Family Center revenue, including management fees, less Family
Center operating expenses prior to allocated corporate overhead. During the
first two years of operation, a Family Center generates varying degrees of
Operating Contribution, depending upon the contract model. During 1996, the
Company's 61 mature Family Centers (defined as those open as of December 30,
1994 and remaining open as of December 27, 1996) averaged approximately $85,000
in Operating Contribution. An additional component of client profitability is
consulting revenue for services performed. In the latter half of 1996, the
Company expanded its consulting services which resulted in 31 consulting
engagements for 25 corporate clients. The consulting revenue and operating
margins generated from consulting engagements will vary significantly depending
upon the general complexity of the project and the resources the Company must
allocate to complete the engagement. Consulting engagements are quoted on a
fixed-fee basis per engagement. In general, the Company believes that the
operating margin generated from the consulting business will be greater than
that attained from its Family Center operations.
In October 1995, the Company acquired all of the outstanding capital stock
of RCCM, an operator of 21 employer-sponsored child care centers. The
consideration paid consisted of $3.4 million in cash and 324,995 shares of
Common Stock. The transaction was accounted for as a purchase and resulted in
$5.7 million of goodwill, which is being amortized over 18 years.
17
<PAGE> 19
The Company reports its quarterly results in 13 week increments (two
four-week periods and one five-week period) instead of three calendar months.
The 1997 fiscal year will contain 53 weeks, and the fourth quarter of 1997 will
contain 14 weeks.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data for the Company expressed as a percentage of revenue.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------------------------ ---------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, MARCH 29, MARCH 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses..................... 86.0 88.6 88.3 88.0 87.8
Selling, general and administrative
expenses............................. 12.1 9.5 7.4 7.8 8.1
Depreciation and amortization.......... 1.6 1.4 1.2 1.3 1.1
----- ----- ----- ----- -----
Operating income....................... 0.3 0.5 3.1 2.9 3.0
Interest expense, net.................. 0.2 0.2 0.6 0.9 0.4
----- ----- ----- ----- -----
Income (loss) before income taxes...... 0.1 0.2 2.5 2.0 2.6
Income tax expense (benefit)........... - (1.2) (1.8) 0.1 1.3
----- ----- ----- ----- -----
Net income............................. 0.1% 1.5% 4.3% 1.9% 1.3%
========== ========== ========== ======= =======
</TABLE>
QUARTER ENDED MARCH 28, 1997 COMPARED TO QUARTER ENDED MARCH 29, 1996
Revenue. Revenue increased $3.1 million, or 21.1%, to $17.5 million for
the quarter ended March 28, 1997, from $14.4 million for the quarter ended March
29, 1996. The increase in revenue was primarily the result of (i) internal
growth generated at mature centers and (ii) the operation of a net eleven new
centers opened since the beginning of fiscal 1996. Consulting revenue increased
to $199,000 for the quarter ended March 28, 1997, from $49,000 for the quarter
ended March 29, 1996. The increase in consulting revenue resulted from the
Company's expansion of its consulting capabilities during the latter half of
1996.
Operating Expenses. Operating expenses increased $2.6 million, or 20.8%,
to $15.3 million for the quarter ended March 28, 1997 from $12.7 million for the
quarter ended March 29, 1996. Operating expenses as a percentage of revenue
declined slightly to 87.8% in the first quarter of 1997 as compared with 88.0%
for the comparable period in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $300,000, or 25.0%, to $1.4 million for the
quarter ended March 28, 1997 from $1.1 million for the quarter ended March 29,
1996. Selling, general and administrative expenses as a percentage of revenue
increased to 8.1% in the first quarter of 1997 as compared with 7.8% for the
comparable period in 1996. This increase was primarily the result of the
increased overhead costs in support of the net eleven new centers opened since
the beginning of 1996 and the 14 centers under development as of the end of the
first quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased $12,000, or 6.1%, to $200,000 for the quarter ended March 28, 1997,
from $188,000 for the quarter ended March 29, 1996.
Operating Income. Operating income increased $105,000, or 25.2%, to
$522,000 for the quarter ended March 28, 1997, from $417,000 for the quarter
ended March 29, 1996. Operating income as a percentage of revenue increased to
3.0% from 2.9% for the comparable period in 1996.
Net Interest Expense. Net interest expense decreased $61,000, or 45.8%, to
$72,000 for the quarter ended March 28, 1997, from $133,000 for the quarter
ended March 29, 1996. This decrease is primarily the result of the reduction in
the amount of borrowings outstanding in the first quarter of 1997 compared to
the same period in 1996.
18
<PAGE> 20
Income Taxes. The provision for income taxes was $221,000 in the first
quarter of 1997 versus $7,000 in the comparable quarter of 1996. In 1997, the
Company recorded income tax expense at the estimated annual effective federal
and state tax rates. In 1996, the Company recorded income tax expense at the
estimated state tax rates. The Company did not incur any federal income tax
expense during the first quarter of 1996 as a result of a reduction of valuation
allowances in order to utilize net operating loss carryforwards.
YEAR ENDED DECEMBER 27, 1996 COMPARED TO YEAR ENDED DECEMBER 29, 1995
Revenue. Revenue increased $26.0 million, or 70.5%, to $62.9 million in
1996 from $36.9 million in 1995. The revenue increase was primarily the result
of (i) $20.3 million in revenue generated by RCCM in 1996 compared to $4.5
million in revenue in 1995, (ii) internal growth generated at mature centers,
(iii) a full year of operation at centers opened in 1995, and (iv) the operation
of net ten new centers in 1996. In 1996, the Company opened 12 new centers for
nine clients and closed two centers. Consulting revenue increased to $415,000 in
1996 from $86,000 in 1995. The increase in consulting revenue resulted from the
Company's expansion of its consulting capabilities during the latter half of
1996.
Operating Expenses. Operating expenses increased $22.9 million, or 70.0%,
to $55.6 million in 1996 from $32.7 million in 1995. Operating expenses as a
percentage of revenue declined to 88.3% in 1996 from 88.6% in 1995. Operating
expenses in 1995 were impacted by expenses of $512,000 incurred in the operation
and closing of a neighborhood child care center that the Company acquired as a
part of an acquisition in 1993. This impact was offset in part by the 1996
operating expenses reflecting a full year of operations associated with the
Family Centers acquired in the RCCM acquisition. In general, RCCM Family Centers
had a greater proportion of cost-plus contracts which had typically operated
with higher operating expense levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 34.3%, to $4.7 million in
1996 from $3.5 million in 1995. Selling, general and administrative expenses as
a percentage of total revenue decreased to 7.4% in 1996 from 9.5% in 1995. This
reduction resulted primarily from the economies of scale achieved in connection
with the 21 Family Centers acquired in the RCCM acquisition, as well as the
operation of ten net new centers in 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased $238,000, or 45.8%, to $758,000 in 1996 from $520,000 in 1995.
Amortization expense increased to $419,000 in 1996 from $270,000 in 1995. This
increase is attributable to a full year of amortization of the goodwill
associated with the RCCM acquisition. Depreciation expense increased to $340,000
in 1996 from $250,000 in 1995, and is attributable to a full year of
depreciation on two Family Center properties acquired in the RCCM acquisition.
Operating Income. Operating income increased to $1.9 million in 1996 from
$167,000 in 1995 and increased as a percent of revenue from 0.5% in 1995 to 3.0%
in 1996.
Net Interest Expense. Net interest expense increased to $343,000 in 1996
from $86,000 in 1995. The increase is a result of increased borrowings related
primarily to the acquisition of RCCM in October 1995.
Income Taxes. In 1996 the Company received an income tax benefit of $1.2
million as a result of a reduction in the valuation allowance relative to
deferred tax assets. In 1995 the Company recorded an income tax benefit of
$460,000.
YEAR ENDED DECEMBER 29, 1995 COMPARED TO YEAR ENDED DECEMBER 30, 1994
Revenue. Revenue increased $12.4 million, or 50.6%, to $36.9 million in
1995 from $24.5 million in 1994. The revenue increase was primarily the result
of (i) the acquisition of RCCM effective October 2, 1995, (ii) the operation of
six new centers opened in 1995 and (iii) growth in mature centers and centers
opened in 1994.
Operating Expenses. Operating expenses increased $11.7 million, or 55.7%,
to $32.7 million in 1995 from $21.0 million in 1994. Operating expenses as a
percentage of total revenue increased to 88.6% in 1995 from 86.0% in 1994. This
increase primarily resulted from expenses of $512,000 incurred in the operation
and
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<PAGE> 21
the closing of a neighborhood child care center that the Company acquired as
part of an acquisition in 1993 and higher operating expenses associated with the
Family Centers acquired in the RCCM transaction.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $600,000, or 20.0%, to $3.6 million in 1995
from $3.0 million in 1994. Selling, general and administrative expense as a
percentage of revenue decreased to 9.5% in 1995 from 12.1% in 1994. This
decrease was attributable to more efficient utilization of operational and
financial personnel and systems resulting from the increase in the number of
Family Centers under management.
Depreciation and Amortization. Depreciation and amortization expense
increased $133,000, or 34.4%, to $520,000 in 1995 from $387,000 in 1994.
Amortization expense increased to $270,000 in 1995 from $185,000 in 1994. This
increase was primarily the result of the RCCM acquisition. Depreciation expense
increased to $250,000 in 1995 from $202,000 in 1994. This increase is
attributable to the additional depreciation expense in the fourth quarter on the
two Family Center properties acquired in the RCCM acquisition.
Operating Income. Operating income increased to $167,000 in 1995 from
$76,000 in 1994.
Net Interest Expense. Net interest expense increased to $86,000 in 1995
from $50,000 in 1994. The increase was the result of increased indebtedness of
finance the RCCM acquisition in October 1995.
Income Taxes. In 1995 the Company recorded an income tax benefit of
$460,000 as a result of a reduction in the valuation allowance relative to
certain deferred tax assets.
UNAUDITED SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly operating
information for the nine quarters ended March 28, 1997. This data has been
prepared on the same basis as the audited consolidated financial statements
contained elsewhere herein and includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of this
information for the periods presented, when read in conjunction with the
Company's consolidated financial statements and notes thereto contained
elsewhere herein. The operating results for any previous quarter are not
necessarily indicative of results of any future period.
<TABLE>
<CAPTION>
1995 1996 1997
--------------------------------------- ----------------------------------------- --------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.......................... $6,828 $7,224 $10,185 $12,683 $14,435 $15,644 $15,984 $16,863 $17,480
Operating income (loss).......... 63 83 69 (48) 417 439 418 646 522
Income (loss) before taxes....... 55 90 80 (144) 285 378 340 574 450
Income tax expense
(benefit)(1)................... 2 4 5 (471) 7 20 22 (1,208) 221
Net income....................... 53 86 75 327 278 358 318 1,782 229
</TABLE>
- ---------------
(1) The income tax benefit in the fourth quarter of 1995 resulted from a
reduction in valuation allowance due to management's determination that the
Company's deferred tax assets other than operating losses will likely be
realized. In the fourth quarter of 1996, management determined that the
Company's net operating loss carryforwards will likely be realized and,
therefore, the remaining valuation allowance was removed.
The Company's revenue and results of operations fluctuate with the seasonal
demands for child care. The Company's revenue typically declines during the
third quarter as a result of decreased enrollments in its Family Centers as
parents withdraw their older children for entry into elementary schools. Since a
portion of the Company's costs are fixed costs, the Company's results are
affected by fluctuation in center and program utilization. Quarterly results of
operations may also fluctuate based upon the number and timing of center
openings and/or acquisitions, the performance of new and existing centers, the
contractual arrangements under which centers are operated, the change in the mix
of such contractual arrangements, the timing and
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<PAGE> 22
level of consulting and development fees, center closings, competitive factors
and general economic conditions. In addition, (i) the acquisition of RCCM in
October 1995 and (ii) the closing of the neighborhood child care center in the
fourth quarter of 1995 significantly impacted the Company's operating results
for that quarter. The effects of seasonality have historically been obscured by
the Company's growth. The Company anticipates that these seasonal trends will
continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company has primarily provided its services under management contracts
which require little or no capital investment by the Company for growth of its
operations. Corporate clients typically assume financial responsibility for
construction costs and ongoing facility expenses. Since inception, the Company
has financed its operating needs and acquisitions from investments from
shareholders, funded debt and cashflow from operations.
The Company had working capital of $1.8 million as of March 28, 1997 and
December 27, 1996, as compared to $971,000 and $407,000 as of March 29, 1996 and
December 29, 1995, respectively. During 1996, net cash provided by operating
activities was $2.0 million as compared to $770,000 in 1995. The increase in
cash generated by operating activities is a result of the increase in income
before income taxes. Cash used in investing activities in 1996 totaled $169,000,
compared to $4.2 million in 1995. The cash used in investing activities in 1996
was primarily for furniture and equipment. Cash used in investing activities in
1995 primarily consisted of the $3.6 million paid as consideration for RCCM and
related costs and $514,000 for purchase of property and equipment. Cash used in
financing activities in 1996 was $551,000 compared to cash provided from
financing activities of $3.1 million in 1995. The 1996 primary use of cash was
for repayment of indebtedness while cash provided from financing activities in
1995 was primarily from the debt financing of the RCCM acquisition.
The Company expects to enter into a $5.0 million revolving credit facility
upon the closing of this Offering to be used for working capital and other
general corporate purposes. Borrowing under the new credit facility will bear
interest at LIBOR. The new credit facility will be subject to renewal on an
annual basis.
The Company believes that funds provided by operations, available borrowing
under the credit facility and the net proceeds from the Offering will be
sufficient to meet its needs for working capital and capital expenditures
through the end of 1998. The Company does not anticipate material capital
expenditures during 1997 or 1998. An element of the Company's growth strategy is
to pursue strategic acquisitions. The Company may be required to seek external
financing sources to pursue such acquisitions. There can be no assurance that
the Company would be able to obtain such financing on reasonable or attractive
terms, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This
statement imposes criteria for evaluating the recoverability of long-term assets
at each balance sheet date. The Company adopted SFAS 121 effective January 1,
1996. Such adoption did not have a material impact on the results of operations,
financial condition or cash flows of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement requires new disclosures in the notes to the
financial statements about stock-based compensation plans based on the fair
value of the equity instruments granted. Companies also may base the recognition
of compensation cost for instruments issued under stock-based compensation plans
on these fair values. The Company adopted the disclosure provisions of SFAS 123
effective January 1, 1996, but currently does not plan to change the method of
accounting for these plans.
SFAS No. 128, "Earnings per Share" has been issued effective for years
ending after December 15, 1997. This statement establishes standards for
computing and presenting earnings per share and also establishes standards with
respect to disclosure of information about an entity's capital structure. The
Company is
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<PAGE> 23
required to adopt the provisions of SFAS No. 128 in the fourth quarter of 1997
and does not expect adoption thereof to have a material effect on the Company's
financial position or results of operations; however, the effect on net income
per share is disclosed in the financial statements.
SFAS No. 129, "Disclosure of Information About Capital Structure" has been
issued effective for years ending after December 15, 1997. This statement
establishes standards for disclosing information about an entity's capital
structure. The Company will be required to adopt the provisions of SFAS No. 129
in the fourth quarter of 1997 and does not expect adoption thereof to have a
material impact on the Company's financial position, results of operations or
cash flows.
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<PAGE> 24
BUSINESS
OVERVIEW
The Company is a leading national provider of a broad range of management
and consulting services for employers seeking to create a "family friendly" work
environment by providing their employees with workplace child care, education
and other family support programs. The Company manages corporate-sponsored
Family Centers, built and equipped by an employer at or near its offices,
providing high quality services such as early childhood education, child care,
back-up child care, kindergartens, get-well care, summer camps, and parent
support services. The Company currently manages 87 Family Centers for 65
corporate clients in 27 states and has 17 centers under development, including
centers for nine new corporate clients. Eleven of the Company's corporate
clients operate multiple Family Centers. In addition, the Company provides
work/life consulting services to help employers realize the benefits of work and
family programs and policies and to align work/life concerns of working families
with business strategies of employers. Consulting services provided by the
Company include feasibility studies, work/life strategic planning, return on
investment analyses and development of work/life programs and policies. During
1996, the Company provided consulting services to 25 corporate clients. The
Company's clients include many of America's best known corporations, such as
AlliedSignal Inc., Barnett Banks, Inc., The Boeing Company, Campbell Soup
Company, The Chase Manhattan Corporation, Citicorp, Columbia/HCA Healthcare
Corporation, Eli Lilly and Company, J.C. Penney Company, Inc., Johnson &
Johnson, MBNA Corporation, Merck & Co., Inc., NationsBank Corporation, Owens
Corning, S.C. Johnson & Son, Inc. and USAA.
MARKET OPPORTUNITY
The Company believes it is uniquely positioned to take advantage of two
related trends: (i) the changing profile of the work force and the work place
and (ii) the growing recognition by employers that responding to family needs of
employees is an essential strategy to attract, retain and motivate their
employees. The resulting demand for work and family services also reflects an
increasing awareness by employers that helping employees balance work and family
responsibilities and creating a work environment that facilitates that balance
will increase productivity on the job.
The profile of the workforce has changed dramatically over recent decades.
For example, (i) over 60% of mothers with children under the age of six are
currently employed or seeking employment, compared to 22% in 1960; (ii) among
college-educated women, 70% of mothers with children under the age of one are in
the workforce; and (iii) in 84% of all married couples, both spouses work. In
addition to the changing composition of the workforce, pressures on employees to
work harder and longer are increasingly making it difficult for employees to
meet the needs of their families. Employers are increasingly recognizing that it
is necessary to help employees meet their family needs. The Hudson Institute's
1997 report "Workforce 2020," focusing on major trends expected to shape the
work force through the year 2020, concludes that American firms will need to
continue to compete for the best employees by offering an ever-expanding array
of benefits and accommodating a variety of lifestyle and work place
arrangements.
As a result of the increased competition for a limited number of qualified
employees, the Company believes large employers are becoming "family friendly"
in order to attract, retain, and motivate employees. The Mississippi Forum on
Children and Families reports that 40% of workers polled cited lack of available
child care as a barrier to employment and 28% said they had quit a job due to
lack of child care. The Child Care Action Campaign, a New York-based advocacy
group, reported that child care related absences cost employers approximately
$3.0 billion annually. Many of the Company's corporate clients have experienced
reduced absenteeism, improved productivity, enhanced recruitment and retention,
improved employee morale and an enhanced corporate image as a result of Family
Center services. At Johnson and Johnson, a corporate client of the Company with
five Family Centers in operation and two under development, 86% of female
employees who use or would use Johnson and Johnson's work/family programs stated
that those programs were important to their decision to continue employment with
Johnson & Johnson. At AlliedSignal, Inc., the availability of the Family Center
reduced absenteeism of employees using the center by 89%. In addition, Chase
Manhattan Corporation calculated its Family Center providing back-up child care
generated net
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<PAGE> 25
savings of approximately $727,000 over a one year period, as a result of the
reduced absenteeism of employees using the program.
A significant portion of the Company's business involves providing child
care services. The child care market is a $30 billion industry segment with
diverse competition from both the public and private sectors. The market for
child care services remains highly fragmented and is experiencing a shift toward
center-based care. The 20 largest child care providers, including the for profit
and not-for-profit sectors, comprise less than 5% of total child care revenues
in the United States. Investment by corporations in child care services has
grown in recent years and continues to grow. The Child Care Information Exchange
reported that the corporate-sponsored segment of the industry comprised just 1%
of the total child care market, but the corporate-sponsored segment grew by 25%
in 1995, as compared with 5% growth in the industry as a whole. In its 1996
survey of 1,050 major employers, Hewitt Associates identified a 30% increase
over the past five years in companies that provide some type of child care
service. The majority of employers, however, still provide no child care
support, and employers providing such services generally offer only limited
support. For example, in the Hewitt survey, only 9% of companies supporting
child care provided a workplace child care center. The Company believes that
child care assistance is becoming an important employee benefit which will lead
to further growth in the corporate-sponsored segment and that employer-sponsors
and parents will seek association with high quality providers to provide
education services for their children.
CORPORATEFAMILY SOLUTIONS' APPROACH AND COMPETITIVE ADVANTAGE
The Company believes it is the leading provider of work and family services
solely dedicated to the corporate-sponsored segment of the market. The Company's
operations are geographically and customer diversified with 87 Family Centers
for 65 corporate clients located in 27 states. In addition, the Company
currently has 17 Family Centers under development for nine new corporate
clients. The Company believes that it is uniquely positioned as a result of its
ability to (i) manage corporate relationships both on a local and national
level; (ii) provide high quality services and programs complying with national
accreditation standards; and (iii) deliver operational excellence through its
high caliber of Company employees and through offering innovative solutions to
employer and employee concerns. Satisfaction of clients and their employees is
closely monitored by executive management, and the Company believes its low
turnover rate among corporate clients is representative of the overall
operational excellence and satisfaction expressed by the Company's clients and
their employees. The Company believes it best distinguishes itself from its
various competitors by the following:
Strategic Focus on Corporate Clients. Since inception, the Company
has focused on establishing relationships with and providing work and
family services for corporate clients. The Company believes its focus on
corporate clients creates substantial opportunities for growth because (i)
the Company has developed expertise in operating in a corporate environment
and responding to the changing needs of the workforce; (ii) the convenience
of a workplace-based center and the corporate client's endorsement of the
Company enhances its ability to market its services directly to the
corporate client employees; (iii) corporate sponsorship provides greater
financial resources to allow the Company to offer high quality services and
educational programs; and (iv) large employers require high quality
providers that have a proven track record of providing services nationwide
and in multiple locations. The Company's size and diverse client base
enhances its ability to manage a variety of corporate needs from those of
single site clients to multiple-site, multiple-service clients. The Company
seeks to differentiate itself from other providers of work and family
services by focusing on corporate clients, delivering higher quality
services, maintaining more highly qualified service personnel and
identifying and responding to client needs.
High Quality Services. The Company operates all its child care
programs and Family Centers at standards to achieve accreditation set forth
by the National Association for the Education of Young Children (NAEYC), a
national organization dedicated to improving the quality of care and
developmental education provided to young children. NAEYC accreditation is
a distinction earned by less than 10% of child care programs in the
country. Through the financial assistance provided by corporate clients,
the Family Centers generally have greater operational resources than other
centers, which directly translates into higher teacher compensation, lower
teacher-child ratios, enhanced curriculum and increased
24
<PAGE> 26
employee training and development. Accordingly, such financial assistance
enables the Family Center to deliver higher quality services and programs
resulting in increased satisfaction for clients and their employees and an
enhanced learning environment for children.
Highly Qualified Personnel. The Company believes that the experience
and knowledge of its Center Directors, Executive Directors, Regional Vice
Presidents of Operations ("Regional Vice Presidents"), consulting personnel
and Advisory Board members are critical elements in its ability to provide
high-quality services, secure new corporate clients and expand services and
programs to existing clients. At the Family Center level, operational
performance is the immediate responsibility of the Center Director. Center
Directors average over 15 years of family service and child care
experience, including over eight years directing a child care center, and
approximately 98% and 44% of Center Directors have received undergraduate
and advanced degrees, respectively. The Company trains its Center Directors
to fulfill their responsibilities through on-going training programs
designed to enhance interpersonal and business skills, basic financial
concepts and marketing. For several clients with multiple sites, the
Company employs an Executive Director who is responsible for the
coordination and consistency of the various programs an individual client
may have around the country. The six Regional Vice Presidents, who oversee
the Center Directors, have an average of 11 years of experience in managing
multiple center operations and an average of 12 years directing a child
care center. The Company's consulting services are provided by eight
employees with an average of 13 years of work/life services and consulting
experience. Advising both the Family Center and consulting personnel is an
Advisory Board of 18 nationally recognized leaders in education and/or
early childhood development.
Responsiveness and Flexibility to Client Needs. The Company provides
a broad range of services and programs tailored to meet the changing needs
of each client and its workforce. The Company develops and implements child
care, education and other family services to meet client and employee needs
beyond traditional child care programs. Specifically, the Company has
implemented summer camps, special event and conference care, extended
hours, weekend and 24-hour care for multiple shift workforces, family
resource services, back-up care, school-age programs, and kindergartens.
The Company believes it provides its Center Directors with corporate
support and significant autonomy which enables them to better meet the
objectives of each corporate client. In addition, the Company's three
contract models provide corporate clients flexibility in structuring their
financial commitment to work and family services. The Company's consulting
services provide clients the opportunity to better evaluate their needs and
review the effectiveness of programs already in place.
GROWTH STRATEGY
The Company's objective is to strengthen its position as one of the leading
providers of work and family services. To achieve this goal, the Company employs
the following key strategies:
Developing new corporate clients. The Company intends to develop new
corporate client relationships through aggressive sales and marketing of
its management and consulting services. Marketing efforts are designed to
focus potential clients on (i) the benefits to employers of utilizing work
and family services and (ii) the Company's high quality services and
programs. In general, the Company targets employers with more than 1,000
employees at a work site. In the first half of 1997, the Company increased
its sales and marketing personnel to expand market penetration and to
enhance its responsiveness to client requests and proposals. The Company
believes that its consulting division enhances its ability to educate
employers on the benefits of implementing work and family services and to
establish relationships with new corporate clients.
Expanding existing corporate client relationships. The Company seeks
to (i) develop new Family Centers for existing corporate clients who have
multiple work sites, (ii) provide additional services and programs at
existing Family Centers, and (iii) provide consulting services to assist
clients in evaluating work/life policies and programs. The Company
currently manages multiple Family Centers for 11 clients that currently
have 33 Family Centers in operation and six under development, including
Johnson & Johnson with five centers in operation and two under development;
USAA with two Family Centers in
25
<PAGE> 27
operation and three under development; Barnett Bank with five Family
Centers in operation; Citicorp with four Family Centers in operation; and
MBNA with four Family Centers in operation. The Company believes that its
existing client base provides expansion opportunities for additional Family
Centers and additional services and programs such as back-up care,
school-age programs and summer camps. Many of the Company's existing
clients have begun utilizing the Company's consulting services to help
evaluate the effectiveness of their work/life policies, and the Company
believes that its existing client base will continue to look to the Company
for an increasing array of consulting services.
Developing new services and products. The Company seeks to develop a
continuum of work and family services to meet the needs of corporate
clients and their employees. The Company's approach to relationship
management allows it to work with existing clients, employees and their
families to address needs as they arise and to develop new services or
programs designed to meet those needs. The Company has pilot programs for
new services under development or evaluation, including the management of
corporate-sponsored elementary schools, tutoring and other education
services, elder care, and the distribution of educational books, toys,
games and software for family members of all ages.
Pursing strategic acquisitions. The Company intends to pursue
acquisitions of related work and family service businesses in order to (i)
enter into new geographic markets, (ii) increase its presence in existing
markets and (iii) provide additional services and programs to respond to
client interests and the family needs of employees. The Company believes
that the work and family services industry is growing and fragmented, and
that there are acquisition opportunities. In October 1995, the Company
acquired RCCM, an operator of 21 employer-sponsored child care centers.
SERVICES
The Company works in conjunction with its clients and their employees to
respond to changing workplace needs and to help employees balance their work and
family responsibilities. A client relationship often begins with the Company
providing consulting services to an employer, and progresses to the planning,
development and management of a Family Center, where the Company provides
services to a client's employees at the workplace. These work and family
services are designed to (i) address employers' ever-changing workplace needs,
(ii) enhance employee productivity, (iii) improve recruitment and retention of
employees and (iv) improve the overall employee-employer-family relationship.
The Company emphasizes operational excellence, client service and program
leadership, and requires that each Family Center be operated at NAEYC standards.
Services include:
Family Centers. The Company currently operates 87 Family Centers for 65
corporate clients in 27 states and has 17 centers under development, including
centers for nine new corporate clients. The "Family Center" concept evolved from
the more traditional work place child care center and is designed to serve a
broader segment of the work site population. In addition to providing services
for pre-school children, school-age children and elder dependents of employees,
the centers are designed to be able to address the broader lifestyle needs of
all employees. Each Family Center provides a number of services designed to meet
the business objectives of the corporate client and the family needs of the
client's employees. As a result, the physical facility, operating policies, and
services are tailored for each client. Services currently offered at the
Company's Family Centers include:
Early Childhood Education. The Company offers early childhood
education at each of its 87 Family Centers. The Company's proprietary
program for learning, entitled "The World at Their Fingertips," includes
educational programs for infants, toddlers, and preschoolers and creates
developmentally appropriate experiences for every child. "The World at
Their Fingertips" includes many components designed to promote physical,
cognitive, emotional, and language development and provides a
developmentally appropriate educational curriculum enabling teachers to
provide individualized, personalized, responsive care and affection for
each child. The infant and toddler program provides a rich environment for
development with learning centers planned to maximize large and small motor
experiences, sensory and cognitive experiences, language, music and
personal experiences. The preschool program provides a developmentally
appropriate learning-centered curriculum, including dramatic play,
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<PAGE> 28
art expression, construction/blocks, computer and music/movement. The
Company's early childhood educational services meet or exceed the standards
established by the National Academy of Early Childhood Programs ("NAECP"),
a division of NAEYC.
Corporate-Sponsored Child Care. The Company currently operates 82
child care programs in its Family Centers. At the end of 1996, the program
capacity at the Company's Family Centers exceeded 10,000 children.
Consistent, reliable child care is an essential service for working
families. Family Centers provide child care in many different ways,
including traditional day care, evening care when parents work late,
weekend care, 24-hour care for multiple shift workforces, special event
care, emergency care, school holiday care, as well as other services.
Summer Camps. The Company currently operates summer camps in
conjunction with 38 Family Centers and as a stand-alone service for one
corporate client. During 1996, the Company provided this service to
approximately 1,300 children. The camps include programs for children in
age-related groups from five to 12 years old. Programs include
age-appropriate enrichment activities such as science, computers,
gymnastics, dance, sports, and other activities, and include both on-site
and off-site day camps.
Back-Up Care Programs. The Company currently operates 34 back-up care
programs. Four centers exclusively offer back-up care programs, while other
back-up care programs are offered in designated rooms within a larger
Family Center. The Company has approximately 5,600 families registered to
use back-up care. Back-up care programs serve families whose primary child
care arrangements are unavailable because of emergencies, illness, or
caregiver turnover and provide care on school holidays and release days.
The Company's back-up care programs serve children from ages six weeks to
12 years. Family Centers that exclusively offer back-up care programs range
in size from 12 to 110 children and include the first such program ever
accredited by NAEYC.
Kindergartens. The Company currently operates 25 Family Center
kindergartens, all of which meet or exceed the standards set by NAECP.
During 1996, the Company's kindergarten programs served approximately 1,300
children. The kindergarten curriculum employs a comprehensive developmental
approach that challenges and prepares children for success in school and is
tailored to reflect the expectations of the surrounding school systems. The
Company has added kindergartens to certain of its Family Centers in
response to the demand from parents seeking to maintain the quality
learning environment that their children have experienced in Family
Centers.
School-age Programs. The Company currently operates 13 school-age
programs in Family Centers for children ages six to 12 years. During 1996,
the Company provided these services to approximately 500 children. These
programs may include before- and after-school care, tutorial services and
enrichment programs such as gymnastics, computer, or foreign language
instruction.
Get-Well Care. The Company currently offers get-well care in 13
Family Centers. These programs serve mildly ill children recovering from
various illnesses and injuries and are typically staffed with a registered
nurse or licensed practical nurse.
Parent Support. All Family Centers include support programs for
parents, including parent education programs, seminars, support groups and
resource libraries. Parent education programs include family resource rooms
(serving as a library for parents and a site for parent seminars),
scheduled family counseling, "lunch and learns," evening programs with
presentations and round table discussions on topics of concern to parents
(such as child behavior and time management), and first-aid and CPR
training. Support services include meals-to-go, laundry pick-up and
carpooling coordination. The Company's parent support services are
developed and implemented with the involvement of a parent advisory group
established at each Family Center.
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<PAGE> 29
Consulting Services. The Company offers a comprehensive range of work/life
consulting services to help employers assess, plan and develop work and family
solutions, realize the benefits of work/life programs and policies and to align
work/life concerns with other strategic concerns of employers. Specific examples
of services provided by the Company include:
- Guidance, staffing and support for work and family initiatives,
including a company-wide work/life conference;
- Development of a strategic work/life plan for a national workforce
based on a customized survey, focus groups and management
interviews;
- A feasibility study of the viability of worksite primary schools;
- Consultation on the integration of a client's work/life, diversity
and training efforts;
- A multisite study to identify dependent care needs and develop a
strategic plan to meet those needs; and
- A return on investment study to analyze the benefits of clients'
work/life investments.
The Company believes that its consulting and development services play an
integral role in its client services and allow it to strengthen existing and
develop new corporate relationships. During 1996, the Company provided
consulting services for 25 corporate clients.
OPERATIONS
General. The Company is organized into two integrated operating units
consisting of Family Center operations and consulting services. The Company's
management philosophy promotes a commitment to excellence for children, parents,
clients and staff. Corporate operations are coordinated from the Company's
headquarters located in Nashville, Tennessee. Corporate office functions include
Family Center operations oversight, human resources, marketing, business
development, facility design, finance, accounting, risk management, information
systems, and corporate communications.
Family Center Operations. Family Center operations are organized into six
operational regions, each managed by a Regional Vice President who reports to
the Company's Chief Operating Officer. Regional Vice Presidents and regional
support staff are responsible for Family Center development, direct management
oversight, quality control, financial performance, and client relations. Each
Family Center is managed by a Center Director. Each Family Center's size,
staffing, hours of operation and range of services provided vary according to
each corporate client's needs and desires. Family Centers range in size from
3,000 square feet to 47,000 square feet and enrollment capacity from 35 to 450.
Staffing for a Family Center typically consists of an administrative team, a
teaching staff and support personnel. Family Centers are typically located on a
corporate client's site, either in converted space, or free-standing structures
designed specifically for use as a Family Center. Currently, 73 centers are
located at client worksites and 14 are located on properties contiguous to the
worksite. The facilities are generally owned or leased by the corporate clients,
except for the three owned by the Company.
Consulting Services. The Company's consulting services are provided
through a division of the Company titled The Resource Group, which is based in
Morristown, New Jersey. The Resource Group is staffed by eight full-time
employees with additional contract consultants depending on the workload and
expertise needed to complete a particular project. During 1996, the Company
provided consulting services to 25 corporate clients ranging from simple need
assessments to complex multisite development of work/life strategic plans. In
addition to consulting services, The Resource Group supports the Company's
Family Center programs, ensuring such programs remain state of the art and of
the highest quality and conducts research and development of new services.
Training. The Company has developed a comprehensive training program for
its employees. Management training is provided on an ongoing basis to all Center
Directors and includes human resource management, risk management, budgeting,
customer service, and program implementation. Teacher training
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<PAGE> 30
is conducted in each Family Center and includes orientation and ongoing training
including training related to child development and education, health, safety
and emergency procedures. Training is conducted on a regular basis at each
Family Center and in company-wide meetings and is designed to meet NAEYC
training standards.
Health and Safety. The Company emphasizes the health and safety at each
Family Center. The Company maintains a variety of security measures at its
centers, which may include electronic security or access systems, sign-out
procedures for children and other site-specific measures. Safety features are
incorporated into the operation of the Family Centers, including selection of
safe and age-appropriate toys and play equipment, cushioned surfaces surrounding
play structures, rounded corners on furniture, child-size amenities and open and
windowed lay-outs providing increased visibility for teachers and parents. The
Company schedules emergency drills for fire safety and other emergencies, and
requires current CPR and first aid certification for center management
personnel.
Communication and Information Systems. The Company has an information,
communication and financial reporting system which links every Family Center to
the Company's regional and corporate offices. This system provides timely
financial information on such items as revenue, expenses, enrollments, payroll
and staff hours. The Company seeks to improve its operating efficiencies by
providing management with more timely information through its information
systems.
MARKETING
Management believes that the Company's broad-based operations in 27 states
with 87 Family Centers and the expertise and reputation of its management team
have created valuable and strong name recognition within the work and family
services industry. The Company's directors, senior officers and Advisory Board
members are involved at the national level with education, work/life and
children's services issues, and their prominence and involvement in such issues
plays a key role in attracting new clients and developing additional services
and products for existing clients.
The Company's marketing and sales efforts focus on (i) developing new
corporate client relationships, (ii) expanding existing relationships and (iii)
promoting and maintaining relationships with client employees and families.
Sales and marketing activities at the corporate level are led by the Company's
business development group, with assistance provided by executive officers,
Regional Vice Presidents, Center Directors, The Resource Group and support
personnel. The Company has four business development officers, including two
individuals who recently joined the Company. Development officers generally
cover distinct geographic territories within the continental United States.
The Company markets its services to prospective clients in a variety of
ways, including direct mail to qualified prospects, industry conferences, and
telephone and personal visits to interested potential clients. In addition,
clients often refer other employers to the Company. With existing clients, the
Company maintains regular contact through its business development personnel and
operations management and is committed to understanding the client's evolving
business circumstances and workforce family needs. At each Family Center,
regional and center management are responsible for marketing to families and
staying abreast of new and changing needs for both the employer and employees.
This responsiveness and client involvement enables the Company to develop and
market additional services to existing clients as well as to new corporate
clients.
COMPETITION
Depending on the services provided, the Company competes with a variety of
companies in each segment of its operations. The Company's largest competitors
for employer-sponsored child care services include Bright Horizons Children's
Centers, Inc. and the corporate-sponsored child care divisions of other large
child care companies. The Company believes that it is distinguished from these
competitors by its exclusive focus on corporate clients and commitment to
accreditation standards. The Company believes that it is able to compete
successfully by understanding and responding to the business needs of
prospective clients and by offering professionally developed programs, highly
qualified personnel, attention to risk management and a broad range of services.
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<PAGE> 31
The Company has a number of competitors for work/life consulting services
and center services complementary to its Family Centers. Many of such
competitors provide, among other services and products, work/life consulting
services, adult education and contract school services, and have greater
financial and operating resources than the Company. The Company believes that
its presence at the workplace and knowledge of family needs as well as its
ability to integrate a number of services and programs into a Family Center
tailored to the needs of an employer distinguishes the Company from these
competitors.
The Company's ability to compete successfully for corporate-sponsored work
and family services, developed in partnership with employers, depends on a
number of factors, including quality of service, cost-effective delivery of
services and ability to provide the scope of services necessary for an
employer's needs. With respect to child care services, there are many
center-based child care companies that compete for corporate relationships to
provide on-site family services, some of which have greater financial or other
resources that allow them to compete successfully against the Company. The
Company believes that its staff of trained professionals is well equipped to
develop a plan with a corporate client to best meet the work and family needs of
the employer's workforce. Through participating in the development plan of the
Family Center, consulting with the contractor and employer, staffing the Family
Center to provide the scope and depth of services the employer and its employees
need and desire, and given the Company's experience with 65 employers managing
87 centers, the Company believes it is well positioned to provide services that
are family-friendly and improve the work environment for corporate employees,
thereby enhancing the overall productivity of the corporate client's operations.
Along with competition for corporate clients, each Family Center faces
competition for enrollment from a wide range of community-based child care
providers. The Company believes, however, that client employees perceive greater
value, convenience and flexibility associated with the Company's services.
REGULATION
The Company's child care operations are subject to a variety of federal,
state and local regulations and licensing requirements. The Company has policies
and procedures in place in order to comply with the regulations and
requirements. Although the regulations and requirements vary greatly from
jurisdiction to jurisdiction, governmental agencies generally review, among
other things, the center's safety, fitness and adequacy of buildings and
equipment, licensed capacity, the ratio of staff personnel to enrolled children,
staff training, dietary program, daily curriculum, recordkeeping, and compliance
with health and safety standards. In most jurisdictions, these agencies conduct
scheduled and unscheduled inspections of centers, and licenses must be renewed
periodically. In a few jurisdictions, new legislation or regulations have been
enacted or are being considered which establish requirements for employee
background checks or other clearance procedures for new employees of child care
centers. Failures by a center to comply with applicable regulations can subject
it to governmental sanctions, which might include fines, corrective orders,
being placed on probation or, in more serious cases, suspension or revocation of
the center's license to operate or an award of damages to private litigants and
could require significant expenditures by the Company to bring the Company's
centers into compliance.
In addition, state and local licensing regulations often provide that the
license held by the Company may not be transferred. As a result, any transferee
of a family services business (primarily child care) must apply to any
applicable administrative bodies for new licenses. There can be no assurance
that the Company would not have to incur material expenditures to relicense
centers it may acquire in the future. The Company believes it is in substantial
compliance with all material regulations applicable to its business.
EMPLOYEES
As of June 18, 1997, the Company employed approximately 2,650 full-time
employees, of whom 32 were employed at its corporate headquarters. Six employees
serve as Regional Vice Presidents, 87 as Center Directors, and approximately
2,500 as teachers and administrative personnel in the Family Centers. In
addition, at June 18, 1997, the Company had approximately 535 part-time
employees and 700 substitutes on
30
<PAGE> 32
its payroll. None of the Company's employees are represented by a labor union,
and the Company believes its relationship with its employees is good.
LITIGATION
The Company is, from time to time, subject to claims and suits arising in
the ordinary course of its business. Such claims have, in the past, generally
been covered by insurance. Currently, the Company believes that no pending
litigation or proceeding, individually or in the aggregate, will have a material
adverse effect on the Company, although no assurance can be given with respect
to the ultimate outcome of any such actions. Furthermore, there can be no
assurance that the Company's insurance will be adequate to cover all liabilities
that may arise out of claims brought against the Company.
INSURANCE
The Company's insurance program currently includes the following types of
policies: worker's compensation, commercial general liability, automobile
liability, commercial property liability, student accident coverage, and excess
"umbrella" liability. The policies provide for a variety of coverages, are
subject to various limits and include deductibles or self-insured retentions.
Management believes that the Company's current insurance coverages are adequate
to meet its needs. The Company has not experienced difficulty in obtaining
insurance coverage, but there can be no assurances that adequate insurance
coverage will be available in the future, or that the Company's current coverage
will protect it against all possible claims. There is no assurance that claims
in excess of, or not included within, the Company's insurance coverage will not
be asserted, the effect of which could have an adverse effect on the Company.
See "Risk Factors -- Adverse Publicity; Ability to Obtain and Maintain
Insurance."
TRADEMARKS
The Company has filed applications for registration of the following
trademarks and service marks with the United States Patent and Trademark Office:
Family Solutions(SM) and CorporateFamily Centers(SM). A registered
trademark/service mark in the United States may be effective indefinitely
subject only to a required supplemental filing every ten years and the continued
use of the mark by the registrant. A properly registered trademark/service mark
establishes the presumption of ownership of the trademark/service mark by the
registrant and constitutes constructive notice of such ownership.
PROPERTIES
The Company's executive offices are located in Nashville, Tennessee, and
consist of 7,105 square feet leased through July 30, 2000, with an option to
renew the lease for two additional five-year terms. In addition, the Company (i)
owns three child care facilities, one of which is under contract to be sold, and
(ii) leases certain real property for use at four Family Centers. Three of the
above-mentioned leases have agreements whereby the client becomes contractually
responsible for the lease obligation in the event the Company no longer operates
a Family Center for such client at the location. The Company also leases other
facilities at various locations, which are not material to its business.
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<PAGE> 33
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Marguerite W. Sallee(1)........ 51 President, Chief Executive Officer and Director
Robert D. Lurie................ 51 Chairman of the Board, President of The Resource Group and
Director
David J. Gleason............... 51 Executive Vice President and Chief Operating Officer
Michael E. Hogrefe............. 37 Executive Vice President, Chief Financial Officer and
Secretary
Lamar Alexander(1)............. 57 Vice Chairman of the Board and Director
JoAnne Brandes(2)(3)........... 43 Director
Jerry L. Calhoun(1)(3)......... 53 Director
Thomas G. Cigarran(2).......... 55 Director
E. Townes Duncan(3)............ 44 Director
Joseph J. Guzzo(2)............. 57 Director
</TABLE>
- ---------------
(1) Member of the Nominating Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Marguerite W. Sallee is a founder of the Company and has served as
President, Chief Executive Officer and a director since February 1987. Prior
thereto, Ms. Sallee served as Commissioner of Human Services in former Governor
Lamar Alexander's cabinet. Ms. Sallee received a Bachelor of Arts from Duke
University and a Master of Arts in Psychology from Austin Peay University. She
is a director of Proffitt's, Inc., an owner and operator of department stores,
MagneTek, Inc., a manufacturer of integrated electrical products, and Phoenix
Healthcare Corporation, a managed healthcare company, and is a former Chairman
of the Nashville Area Chamber of Commerce. In addition, Ms. Sallee is a delegate
to the Presidential Summit for Children.
Robert D. Lurie has served as Chairman of the Company since December 1995
and as President of The Resource Group, a division of the Company focused on
providing consulting and resource support to work/life center operations, since
October 1995. From 1984 to 1995, Mr. Lurie served as President and Chief
Executive Officer of RCCM, which was acquired by the Company in October 1995.
Mr. Lurie received his Bachelor of Arts degree from the University of Florida
and his Master of Arts in American Civilization from the University of Texas at
Austin. He completed his graduate studies in Administration and Social Policy at
the Harvard University Graduate School of Education.
David J. Gleason, Ph.D. has served as an Executive Vice President and Chief
Operating Officer of the Company since 1988. From 1986 until April 1988, Dr.
Gleason was Vice President of Support Services of Children's World Learning
Centers, a national child care corporation. Dr. Gleason served as Executive
Director of the National Child Development Associate Program in Washington, D.C.
He received a Bachelor's degree from St. Michael's College, a Master's degree in
Child Development from the University of Chicago and a Ph.D. in Human
Development Education from the University of Maryland. Dr. Gleason has served as
a member of the Advisory Committee of the National Academy of Early Childhood
Programs and the Commission for Center Accreditation for the National
Association for Education of Young Children and is currently a member of the
Board of Directors of the Alliance of Work/Life Professionals.
Michael E. Hogrefe has served as an Executive Vice President, Chief
Financial Officer and Secretary since January 1996. Mr. Hogrefe served as
Treasurer of Service Merchandise Company, Inc., a national retail chain of
catalog stores, from July 1993 through January 1996 and as Assistant Treasurer
from March 1990 to July 1993. Mr. Hogrefe received a Bachelor of Science in
Management from Drake University and a Master's in Business Administration from
New York University, Stern School of Business.
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<PAGE> 34
Lamar Alexander is a founder of the Company and has served as Vice Chairman
of the Board of Directors since May 1996. He also serves the Company as Chairman
of the Nominating Committee of the Board of Directors. Mr. Alexander served as a
director of the Company from September 1987 to April 1991. Mr. Alexander
currently serves as Co-Director of Empower America, a conservative public policy
advocacy organization, Chairman of the National Commission of Philanthropy and
Civic Renewal and Honorary Chairman of the Campaign for a New American Century,
a political action committee. From 1991 to 1993 he served as Secretary of the
United States Department of Education, from 1987 to 1990 he served as President
of the University of Tennessee, and from 1979 to 1987 he served as Governor of
Tennessee. Mr. Alexander also currently serves as a director of InterMedia
Partners, a national cable television partnership, The Learning Company, an
international educational software company, and as a director and Vice Chairman
of Processed Foods, Inc., a food manufacturing company.
JoAnne Brandes has served as a director of the Company since December 1995.
Ms. Brandes has served as Vice President and General Counsel for S.C. Johnson
Commercial Markets, Inc., a manufacturer and marketer of cleaning and sanitation
products and services since October 1996. Prior to that time, Ms. Brandes served
as Vice President of Corporate Communication Worldwide for S.C. Johnson & Son,
Inc., a manufacturer of cleaning and personal care products, from May 1992 to
October 1996. Prior thereto, Ms. Brandes served as Senior Legal Counsel to S.C.
Johnson & Son, Inc. from 1981 to 1992. Ms. Brandes serves as a director of
Alternative Resources Corporation, a temporary technical staffing company; a
Regent in the University of Wisconsin System Board of Regents; Director of Child
Care Action Campaign, a not-for-profit child advocacy group; and serves on the
State of Wisconsin's Governor's Child Care Council.
Jerry L. Calhoun was elected as a director in April 1997. Mr. Calhoun
currently serves as Vice President of Employee and Union Relations for The
Boeing Company, an aeronautics design and manufacturing company, and has served
in such capacity since January 1997. Prior to that time, Mr. Calhoun served in
various capacities at The Boeing Company, including Vice President of Human
Resources from November 1994 to January 1997, Director of Business Resources
from November 1992 to November 1994 and Director of Human Resources from October
1990 to November 1992.
Thomas G. Cigarran has served as a director of the Company since November
1987 and currently serves as the Chairman of the Audit Committee of the Board of
Directors. Mr. Cigarran has been Chairman, President and Chief Executive Officer
of American Healthcorp, Inc., an operator of comprehensive hospital-based
diabetes treatment centers and a provider of diabetes disease management
services for third-party payors, since September 1988 and was President and
Chief Operating Officer from its founding in September 1981 until September
1988. In addition, Mr. Cigarran has served as Chairman of the Board and Chief
Executive Officer of AmSurg Corp., a developer, acquirer and manager of
practice-based ambulatory surgery centers, since 1992. Mr. Cigarran is a
director of ClinTrials Research Inc., a contract research organization providing
services to pharmaceutical, biotechnology and medical device industries.
E. Townes Duncan has been a director of the Company since April 1988 and
currently serves as the Chairman of the Compensation Committee of the Board of
Directors. Mr. Duncan has served as the President of Solidus, LLC, a private
investment firm, since January 1997. Since November 1993, Mr. Duncan has served
as Chairman of the Board, Chief Executive Officer and a director of Comptronix
Corporation, a provider of electronics contract manufacturing services.
Comptronix Corporation filed a petition for Chapter 11 protection on August 9,
1996. From 1985 to 1993, Mr. Duncan was a Vice President and principal of Massey
Burch Investment Group, Inc., a venture capital corporation. Mr. Duncan is a
director of J. Alexander's Corporation, an owner and operator of restaurants,
and Sirrom Capital Corporation, a specialty finance company.
Joseph J. Guzzo has served as a director of the Company since November
1991. Mr. Guzzo is the President of International Operations for Marriott
Management Services Corp. Since joining Marriott Corporation in 1962, Mr. Guzzo
has served in a variety of management positions, including Vice President of
Finance & Administration for the Theme Park Group and Vice President and
Controller for Marriott Restaurant Operations. Mr. Guzzo is also Chairman of the
Board and a director of the Marriott Credit Union.
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<PAGE> 35
Under the terms of the Company's Amended and Restated Charter (the
"Charter"), the members of the Board of Directors are divided into three
classes, each of which serves a term of three years. Each class is to consist as
nearly as practicable of one-third of the total number of directors constituting
the Board of Directors. Marguerite W. Sallee and E. Townes Duncan comprise the
"Class I" Directors, and their current term expires in 2000. Lamar Alexander,
JoAnne Brandes and Joseph J. Guzzo are the "Class II" directors with terms
ending in 1999. The "Class III" directors are Robert D. Lurie, Jerry L. Calhoun
and Thomas G. Cigarran, and their term expires in 1998. Executive officers of
the Company are elected on an annual basis and serve at the discretion of the
Board of Directors. The following constitute the standing committees of the
Board of Directors:
Nominating Committee. The Nominating Committee develops general
criteria concerning the qualifications and selection of Board members and
recommends candidates for such positions to the Board of Directors.
Audit Committee. The Audit Committee makes recommendations to the
Board of Directors concerning the Company's financial statements and the
appointment of independent accountants, reviews significant audit and
accounting policies and practices, meets with the Company's independent
accountants concerning, among other things, the scope of audits and
reports, and reviews the performance of the overall accounting and
financial controls of the Company.
Compensation Committee. The Compensation Committee has the
responsibility for reviewing and approving salaries, bonuses, and other
compensation and benefits of executive officers, advising management
regarding benefits and other terms and conditions of compensation, and
administering the Company's employee stock incentive plan. No executive
officer of the Company served during 1996 as a member of the Compensation
Committee. The Company has no required disclosures regarding Compensation
Committee interlocks and insider participation in compensation decisions.
See "-- Compensation Pursuant to Plans."
DIRECTOR COMPENSATION
The Company has adopted, subject to subsequent shareholder approval, the
1997 Outside Directors' Stock Incentive Plan ("1997 Outside Directors' Plan")
that will become effective upon the consummation of the Offering. The 1997
Outside Directors' Plan provides that, on the date of each Annual Meeting of
Shareholders beginning in 1998, each Outside Director (continuing to serve as a
director) will receive a restricted stock award of that number of shares of
Common Stock with a fair market value (as defined in the 1997 Outside Directors'
Plan) of $10,000. In addition, Outside Directors receive a $10,000 cash retainer
annually and are entitled to reimbursement from the Company for reasonable
out-of-pocket expenses incurred in connection with attending Board of Directors
or committee meetings.
Pursuant to an agreement dated August 26, 1996, between the Company and
Lamar Alexander, Mr. Alexander agreed to serve as Vice Chairman. In his capacity
as Vice Chairman, Mr. Alexander works with the Company's Chief Executive Officer
regarding business development, strategic analysis and expanding the Company's
educational focus. Mr. Alexander's compensation under this agreement consists of
(i) $72,000 per annum commencing July 1, 1997 and (ii) the grant of an option
for the purchase of an aggregate of 32,500 shares of Common Stock at an exercise
price of $7.69 per share. Options for the purchase of 19,500 shares are fully
vested, and options for the purchase of the remaining 13,000 shares will vest on
January 1 of 1998 and 1999. He shall serve in such capacity during his current
term, and, if nominated and re-elected as a director, shall continue to serve in
such capacity until August 2000.
EMPLOYMENT AGREEMENTS
Robert Lurie is employed by the Company under an Employment Agreement dated
August 27, 1995 (the "Employment Agreement"). Under the Employment Agreement,
Mr. Lurie is employed as President of The Resource Group for a term ending
August 27, 2000 and also serves as Chairman of the Board of Directors. As
compensation under the Employment Agreement, Mr. Lurie is paid a base salary and
is eligible for a performance bonus comparable to that of the other executive
officers of the Company, and he
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<PAGE> 36
received a grant of an option to purchase 325,000 shares of Common Stock at
$7.69 per share, which option vests in one-fifth increments over a five-year
vesting period. The Employment Agreement will terminate upon death or permanent
disability, may be terminated by the Company for cause and may be terminated by
Mr. Lurie for any reason upon 60 days' written notice to the Company. In
addition, pursuant to an Agreement Not To Compete dated August 27, 1995 (the
"Non-Compete Agreement"), Mr. Lurie has agreed for a period of five years, upon
his termination from the Company for any reason, not to become employed,
directly or indirectly, by, or to have a significant financial interest in any
other enterprise engaged in, the family services business in which the Company
is engaged in the United States. For such Non-Compete Agreement, Mr. Lurie shall
be paid an aggregate of $500,000, in yearly installments of $100,000 beginning
on the fourth business day following the effective date of this Offering.
The Company has entered into agreements with each of the Named Executive
Officers (as hereinafter defined) other than Mr. Lurie whereby, upon the
termination of such person's employment under specified conditions within one
year following a change in control of the Company (as defined in the
agreements), such person would receive a cash payment of two times such person's
base salary at the time of the termination. In consideration of such payment,
the Named Executive Officer has agreed not to compete with the Company's
business during the term of employment and for one year following the
termination of such person's employment.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the total compensation paid or accrued by
the Company on behalf of the Chief Executive Officer and the three next most
highly compensated executive officers of the Company whose aggregate salary and
bonus exceeded $100,000 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company for the year ended December
27, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
-------------------------- -------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY ($)(2) BONUS ($) AWARDS ($) OPTIONS (#)
- --------------------------- ------------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Marguerite W. Sallee........................ $126,855 $10,000 -- 188,500
President and Chief Executive Officer
Robert D. Lurie............................. 124,679 -- -- --
Chairman of the Board and President, The
Resource Group
David J. Gleason............................ 124,752 5,000 -- 165,100
Executive Vice President and Chief
Operating Officer
Michael E. Hogrefe.......................... 124,808 25,000 $ (3) 6,500
Executive Vice President, Chief Financial
Officer and Secretary
</TABLE>
- ---------------
(1) The Company did not grant any stock appreciation rights or make any
long-term incentive plan payouts during 1995.
(2) Includes amounts deferred by the employee under the Company's 401(k) plan.
(3) Mr. Hogrefe received a restricted stock grant for 32,500 shares of Common
Stock under the Company's 1996 Stock Incentive Plan, subject to the terms of
a Restricted Stock Award Agreement, including (i) a permanent restriction on
transfer in the form of a permanent right of first refusal in favor of the
Company to repurchase the shares at the then book value and (ii) forfeiture
in the event of Mr. Hogrefe's breach of confidentiality and non-competition
covenants or termination of Mr. Hogrefe's employment for cause as defined in
the agreement, which provisions may be amended or modified by action of the
Company's Board of Directors. Because there was no trading market for the
Common Stock as of December 27, 1996, the value of the shares has been
calculated on the basis of an assumed initial public offering price of
$ per share.
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<PAGE> 37
The following table sets forth certain information concerning stock options
granted during 1996 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS OF STOCK APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERMS
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME (#) 1996 ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marguerite W. Sallee........... 188,500 40.39% $7.69 01/01/06 $911,897 $2,310,927
Robert D. Lurie................ -- -- -- -- -- --
David J. Gleason............... 165,100 35.38 7.69 01/01/06 798,696 2,024,053
Michael E. Hogrefe............. 6,500 1.39 7.69 01/01/06 31,445 79,687
</TABLE>
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers pursuant to the Company's stock
option plans. No Named Executive Officer exercised any options for the purchase
of Common Stock in 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 27, 1996 (#) DECEMBER 27, 1996(1)($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marguerite W. Sallee............................. 106,802 226,070 $ $
Robert D. Lurie.................................. 130,000 195,000
David J. Gleason................................. 94,380 202,020
Michael E. Hogrefe............................... -- 6,500
</TABLE>
- ---------------
(1) There was no public trading market for the Common Stock as of December 27,
1996. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $ per share, less the
applicable exercise price.
COMPENSATION PURSUANT TO PLANS
The Company has historically granted options for the purchase of Common
Stock pursuant to the 1987 Stock Option Plan, the 1996 Stock Incentive Plan and
other contractual grants. As of June 18, 1997, options for the purchase of
1,538,297 shares of Common Stock were outstanding at a weighted average exercise
price per share of $7.26. The Company does not intend to make further grants
pursuant to those plans. The Company has, and prior to the Offering its
shareholders will have, approved the 1997 Stock Incentive Plan.
1997 Stock Incentive Plan. The Company has adopted a stock incentive plan
(the "Stock Incentive Plan") that will become effective upon the consummation of
the Offering. The Stock Incentive Plan was approved by the Board of Directors of
the Company in June 1997 and will be approved by the shareholders of the Company
prior to the consummation of the Offering. Under the Stock Incentive Plan, the
Compensation Committee has the authority to grant to key employees and
consultants of the Company the following types of awards: (1) stock options; (2)
stock appreciation rights; (3) restricted stock; and/or (4) other stock-based
awards. Pursuant to the Stock Incentive Plan, shares of Common Stock
have been reserved and will be available for distribution, which may include
authorized and unissued shares or treasury shares. Any shares as to which an
option or other award expires, lapses unexpired, or is forfeited, terminated or
canceled may
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<PAGE> 38
become subject to a new option or other award. The Stock Incentive Plan will
terminate on, and no award may be granted later than, the tenth anniversary of
the date of adoption of the Stock Incentive Plan, but the exercise date of
awards granted prior to such tenth anniversary may extend beyond that date.
Incentive stock options ("ISOs") and non-qualified stock options may be
granted for such number of shares as the Committee may determine and may be
granted alone, in conjunction with, or in tandem with other awards under the
Stock Incentive Plan or cash awards outside the Stock Incentive Plan. A stock
option will be exercisable at such times and subject to such terms and
conditions as the Committee will determine. However, in the case of an ISO, the
term will be no more than ten years after the date of grant (five years in the
case of ISOs for certain 10% shareholders). The option price for an ISO will not
be less than 100% (110% in the case of certain 10% shareholders) of the fair
market value of the Common Stock as of the date of grant and for any
non-qualified stock option will not be less than 50% of the fair market value as
of the date of grant. Stock options and stock appreciation rights granted under
the Stock Incentive Plan may not be assigned or transferred other than by will
or by the laws of descent and distribution.
Stock appreciation rights may be granted under the Stock Incentive Plan in
conjunction with all or part of a stock option and will be exercisable only when
the underlying stock option is exercisable. Once a stock appreciation right has
been exercised, the related portion of the stock option underlying the stock
appreciation right will terminate. Upon the exercise of a stock appreciation
right, the Committee will pay to the employee or consultant in cash, Common
Stock or a combination thereof (the method of payment to be at the discretion of
the Committee), an amount equal to the excess of the fair market value of the
Common Stock on the exercise date over the option date, multiplied by the number
of stock appreciation rights being exercised.
Restricted stock awards may be granted alone, in addition to, or in tandem
with, other awards under the Stock Incentive Plan or cash awards made outside
the Plan. The provisions attendant to a grant of restricted stock may vary from
participant to participant. In making an award of restricted stock, the
Committee will determine the periods during which the restricted stock is
subject to forfeiture and may provide such other awards designed to guarantee a
minimum of value for such stock. During the restricted period, the employee or
consultant may not sell, transfer, pledge, or assign the restricted stock but
will be entitled to vote the restricted stock and to receive, at the election of
the Committee, cash or deferred dividends.
The Committee also may grant other types of awards such as performance
shares, convertible preferred stock, convertible debentures or other
exchangeable securities that are valued, as a whole or in part, by reference to
or otherwise based on the Common Stock. These awards may be granted alone, in
addition to, or in tandem with, stock options, stock appreciation rights,
restricted stock, or cash awards outside of the Stock Incentive Plan. Awards
will be made upon such terms and conditions as the Committee may determine.
If there is a change in control or a potential change in control of the
Company (as defined in the Stock Incentive Plan), stock appreciation rights and
limited stock appreciation rights outstanding for at least six months, and any
stock options which are not then exercisable, in the discretion of the Board,
may become fully exercisable and vested. Notwithstanding the foregoing, stock
appreciation rights held by persons subject to Section 16(b) of the Exchange
Act, will be automatically exercised if the change in control or potential
change in control is not within the control of such person for purpose of Rule
16b-3(e)(3) of the Exchange Act. Also, in the discretion of the Board, the
restrictions and deferral limitations applicable to restricted stock and other
stock-based awards may lapse and such shares and awards will be deemed fully
vested. Stock options, stock appreciation rights, limited stock appreciation
rights, restricted stock and other stock-based awards, will, unless otherwise
determined by the Committee in its sole discretion, be cashed out on the basis
of the change in control price (as defined in the Stock Incentive Plan and as
described below). The change in control price will be the highest price per
share paid in any transaction reported on the Nasdaq National Market or paid or
offered to be paid in any bona fide transaction relating to a change in control
or potential change in control at any time during the immediately preceding
60-day period. The committee has the discretion to determine the change in
control price, based on the parameters described in the preceding sentence.
Employee Stock Purchase Plan. The Company has adopted an employee stock
purchase plan (the "Stock Purchase Plan") that will become effective promptly
following the Offering. The Stock Purchase Plan
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<PAGE> 39
was approved by the Board of Directors on , 1997, and will be
approved by the shareholders of the Company prior to consummation of the
Offering. An aggregate of shares of Common Stock has been reserved for
issuance pursuant to the Stock Purchase Plan. Under the Stock Purchase Plan,
employees, including executive officers, who have been employed by the Company
continuously for at least one year are eligible, as of the first day of any
option period (January 1 through June 30, or July 1 through December 31) (an
"Option Period"), to contribute on an after-tax basis up to % of their base
pay per pay period through payroll deductions and/or a single lump-sum
contribution per Option Period to be used to purchase shares of Common Stock.
Notwithstanding the foregoing, no employee who is a 5% or greater shareholder of
the Company's voting stock is eligible to participate in the Stock Purchase
Plan. On the last trading day of each Option Period (the "Exercise Date"), the
amount contributed by each participant over the course of the Option Period will
be used to purchase shares of Common Stock at a purchase price per share equal
to the lesser of (a) 85% of the closing market price of the Common Stock on the
Exercise Date, or (b) 85% of the closing market price of the Common Stock on the
first trading date of such Option Period. The Stock Purchase Plan is intended to
qualify for favorable tax treatment under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code").
401(k) Retirement Savings Plan. Employees of the Company participate in a
savings plan (the "401(k) Plan") which is qualified under Sections 401(a) and
401(k) of the Code. To be eligible, an employee must have been employed by the
Company for at least twelve months. The 401(k) Retirement Savings Plan permits
employees to make voluntary contributions up to specified limits. Additional
contributions may be made by the Company at its discretion, and the Company
makes a matching contribution equal to at least 25% of an employee's
contribution, limited to 6% of an employee's wages, which contributions vest
ratably over a six-year period.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The TBCA provides that a corporation may indemnify any of its directors and
officers against liability incurred in connection with a proceeding if (i) such
person acted in good faith, (ii) the director or officer reasonably believed, in
the case of conduct in an official capacity, that such conduct was in the
corporation's best interests, or, in all other cases, that such conduct was not
opposed to the best interests of the corporation, and (iii) in connection with
any criminal proceeding, the director or officer had no reasonable cause to
believe his or her conduct was unlawful. In actions brought by or in the right
of the corporation, however, the TBCA provides that no indemnification may be
made if the director or officer was adjudged liable to the corporation. The TBCA
also provides that in connection with any proceeding charging improper personal
benefit to an officer or director, no indemnification may be made if such
officer or director is adjudged liable on the basis that such personal benefit
was improperly received. In cases where the director or officer is wholly
successful, on the merits or otherwise, in the defense of any proceeding
instigated because of his or her status as an officer or director of a
corporation, the TBCA mandates that the corporation indemnify the director or
officer against reasonable expenses incurred in the proceeding. Notwithstanding
the foregoing, the TBCA provides that a court of competent jurisdiction, upon
application, may order that an officer or director be indemnified for reasonable
expenses if, in consideration of all relevant circumstances, the court
determines that such individual is fairly and reasonably entitled to
indemnification, even if such officer or director (i) was adjudged liable to the
corporation in a proceeding by or in right of the corporation, (ii) was adjudged
liable on the basis that personal benefit was improperly received, or (iii)
breached his or her duty of care to the corporation.
The Company's Charter provides that to the fullest extent permitted by
Tennessee law no director shall be personally liable to the Company or its
shareholders for monetary damages for breach of any fiduciary duty as a
director. Under the TBCA, this charter provision relieves the Company's
directors of personal liability to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability arising
from a judgment or other final adjudication establishing (i) any breach of the
director's duty of loyalty, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, or (iii) any
unlawful distributions. In addition, the Company's Bylaws provide that each
director and officer of the Company shall be indemnified by the Company to the
fullest extent allowed by Tennessee law,
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<PAGE> 40
and the Company will enter into indemnification agreements with each of the
Company's directors and executive officers (upon receipt of shareholder approval
of the form of indemnification agreement).
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of the Common Stock (after giving effect to the conversion
of all shares of Series A Preferred Stock into 1,169,979 shares of Common Stock)
as of the date of this Prospectus, by: (i) each director of the Company; (ii)
each Named Executive Officer; (iii) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock; (iv) each Selling
Shareholder; and (v) all directors and executive officers of the Company as a
group, both before and after giving effect to this Offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING(1) SHARES TO BE THE OFFERING
----------------------- SOLD IN THE -----------------------
NAME NUMBER PERCENT OFFERING NUMBER PERCENT
- ---- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Frontenac Venture V Limited
Partnership........................ 527,410(2) 17.2%
Marriott International, Inc.......... 467,914(3) 15.3
Massey Burch Investment Group and
related parties (as a group)....... 453,810(4) 14.8
Robert D. Lurie...................... 424,151(5)(6) 13.3
The Valley Venture Fund Limited
Partnership........................ 269,042(4) 8.8
Trinity Ventures..................... 260,779(7) 8.5
Marguerite W. Sallee................. 246,162(8)(6) 7.6
David G. Gleason..................... 201,760(9) 6.3
Lamar Alexander...................... 198,769(10) 6.4
Thomas G. Cigarran................... 68,076(11) 2.2
Michael E. Hogrefe................... 33,800(12) 1.1
E. Townes Duncan..................... 12,870(13) *
JoAnne Brandes....................... 780(14) *
Jerry L. Calhoun..................... -- *
Joseph J. Guzzo...................... -- *
All directors and executive officers
as a group (10 persons)............ 1,186,368(15) 33.0
</TABLE>
SELLING SHAREHOLDERS
- ---------------
* Represents less than 1 of the Common Stock outstanding.
(1) Shares subject to options and warrants held by the persons shown in the
table which are exercisable within 60 days of June 18, 1997 are deemed
outstanding for the purpose of computing the percentage ownership of such
person and the percentage ownership of all executive officers and directors
as a group but are not deemed outstanding for the purpose of computing the
percentage ownership of the other persons shown in the table.
(2) Includes 7,410 shares of Common Stock issuable upon the exercise of
outstanding options owned by Frontenac Company, an affiliate of Frontenac
Venture V Limited Partnership. The principal address is 135 South LaSalle
Street, Suite 3800, Chicago, Illinois 60604.
(3) Includes 780 shares of Common Stock issuable upon the exercise of
outstanding options and 26,000 shares issuable upon the exercise of a
warrant, both of which are held by Marriott International, Inc. of which
Mr. Guzzo is an officer. Mr. Guzzo does not share voting and investment
power with respect to
39
<PAGE> 41
the shares indicated. The principal address for Marriott International,
Inc. is 1 Marriott Place, Washington, D.C. 20058.
(4) The business address of Massey Burch Investment Group, Inc. ("Massey
Burch") and related entities is 310 25th Avenue North, #103, Nashville,
Tennessee 37203. The persons whose shares are included as parties related
to Massey Burch include (i) Central Confederate Venture Fund Limited
Partnership; (ii) The Valley Venture Funds Limited Partnership; and (iii)
Massey Burch Investment Group Pension Plan. Donald M. Johnston, Lucius E.
Burch III and Frank B. Sheffield, Jr. are the principals of Massey Burch,
affiliates of which are investment managers and general partners of Central
Confederate Venture Fund Limited Partnership, The Central Confederate
Venture Fund and The Valley Venture Fund Limited Partnership. Certain
investment management services with respect to the foregoing investment
partnerships are also provided by Massey Burch Capital Corp., the
principals of which are Donald M. Johnston, William Earthman, III, Benjamin
H. Gray, J. Donald McLemore, Jr., and Lucius E. Burch, IV. Accordingly, the
foregoing named principals, Massey Burch and Massey Burch Capital Corp. may
be deemed to be the beneficial owners of shares owned by each of the
foregoing investment partnerships. Massey Burch and certain of its
principals may hold powers of attorney for certain of its investment
advisory clients under which they share voting and investment power with
respect to the shares indicated.
(5) Includes 130,000 shares of Common Stock issuable upon the exercise of
outstanding options and 1,651 shares owned by Mr. Lurie's wife, Jane
Kyle-Lurie. Mr. Lurie disclaims beneficial ownership of the shares held by
his wife.
(6) The principal address of such person is c/o CorporateFamily Solutions,
Inc., 209 10th Avenue South, Suite 300, Nashville, Tennessee 37203.
(7) Includes an option for the purchase of 780 shares of Common Stock. The
principal address is 155 Bovet Road, Suite 660, San Mateo, California
94402.
(8) Includes 161,012 shares issuable upon the exercise of outstanding options.
(9) Includes 143,260 shares of Common Stock issuable upon the exercise of
outstanding options.
(10) Includes 19,890 shares of Common Stock issuable upon the exercise of
outstanding options and 98,383 shares owned by Mr. Alexander's wife, Leslee
B. Alexander, individually and as trustee for Mr. Alexander's children. Mr.
Alexander disclaims beneficial ownership of the shares held by record and
as trustee by Mrs. Alexander. Mr. Alexander's principal address is P. O.
Box 22275, Nashville, Tennessee 37202.
(11) Includes 30,810 shares of Common Stock issuable upon the exercise of
outstanding options.
(12) Includes 32,500 shares of restricted stock and 1,300 shares of Common Stock
issuable upon the exercise of outstanding options.
(13) Includes 11,310 shares of Common Stock issuable upon the exercise of
outstanding options.
(14) Includes 780 shares of Common Stock issuable upon the exercise of
outstanding options.
(15) Includes 527,092 shares of Common Stock issuable upon the exercise of
outstanding options and warrants.
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<PAGE> 42
CERTAIN TRANSACTIONS
The Company purchases food from Marriott International, Inc. ("Marriott")
for use in several Family Centers managed by the Company. Marriott is the record
owner of 441,134 shares of the Company's Common Stock and holds options and
warrants for the purchase of 26,780 shares of Common Stock. In the years 1994,
1995 and 1996, the Company made food purchases from Marriott totaling
approximately $330,000, $420,000 and $417,000, respectively. The Company also
has an agreement with Marriott to operate and manage a Family Center for its
employees. During the years 1994, 1995 and 1996, the Company received management
fees from Marriott totaling $51,500, $53,300, and $57,780, respectively. Joseph
Guzzo, a member of the Board of Directors of the Company, is the President of
International Operations for Marriott Management Services Corp.
The Company has also entered into agreements with S.C. Johnson & Son, Inc.
(i) to operate and manage a Family Center for its employees and (ii) for
consulting services provided on an ongoing basis. During the year 1996, the
Company received management fees from S.C. Johnson & Son, Inc. with respect to
operation of its Family Center totaling $50,000, and the Company received
consulting fees totaling $25,000. Management fees of $12,500 were paid by S.C.
Johnson & Son, Inc. for the year 1995 pursuant to a management contract with
RCCM. Prior to the fourth quarter of 1995, the Company received no revenue from
such contract. JoAnne Brandes, a member of the Board of Directors of the
Company, is Vice President of Corporate Communication Worldwide for S.C. Johnson
& Son, Inc.
The Company has entered into agreements with The Boeing Company (i) to
operate and manage a Family Center for its employees and (ii) to consult with
the Company concerning work and family issues. The Company expects to receive a
management fee of $75,000 and a consulting fee of $45,000 pursuant to its
contracts with Boeing in 1997. In 1996, the Company received a fee of $40,000
relating to a consulting contract and to the development of a Family Center.
Jerry L. Calhoun, a member of the Board of Directors of the Company, is employed
as Vice President of Employee and Union Relations at The Boeing Company.
Robert D. Lurie, Chairman of the Board of Directors of the Company and
President of The Resource Group, received $3.1 million in cash and 292,500
shares of the Company's Common Stock as consideration for the acquisition of his
interest in RCCM in October 1995. Mr. Lurie's wife, Jane Kyle-Lurie, received
$13,022 in cash and 1,651 shares of the Company's Common Stock in consideration
of the acquisition of her interest in RCCM.
The Company believes that the above-mentioned transactions between the
Company and its directors, officers, or other affiliates were, and that future
transactions will be, on terms no less favorable to the Company than can be
obtained from unaffiliated third parties.
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<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 100,000,000 shares of Common Stock, no
par value per share, and 10,000,000 shares of preferred stock, no par value per
share ("Preferred Stock"). As of the date of this Prospectus, 3,066,974 shares
of Common Stock were issued and outstanding and were held of record by 170
shareholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by shareholders. Subject to prior dividend rights and
sinking fund or redemption or purchase rights that may be applicable to any
outstanding Preferred Stock, the holders of Common Stock are entitled to share
ratably in such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion out of funds legally available therefor.
See "Dividend Policy." The holders of Common Stock are entitled to share ratably
in any assets remaining after satisfaction of all prior claims upon liquidation
of the Company. The holders of Common Stock are not entitled to cumulative
voting in the election of directors, which means that the holders of a majority
of the shares voting for the election of directors can elect all of the
directors then standing for election by the holders of Common Stock. The
Company's Charter provides that the members of the Board of Directors are
divided into three classes, consisting as nearly as practicable of one-third of
the total number of directors, each class of which serves a term of three years.
The Company's Charter gives holders of Common Stock no preemptive or other
subscription or conversion rights, and there are no redemption provisions with
respect to such shares. All outstanding shares of Common Stock are, and the
shares offered hereby when sold in the manner contemplated by this Prospectus
will be, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of holders of shares of any series of Preferred Stock which the Company
may designate and issue in the future.
PREFERRED STOCK
Prior to the effectiveness of this Offering, the Company will have
1,125,000 shares of Series A Preferred Stock authorized and outstanding. Upon
completion of this Offering, all of these shares shall convert into shares of
Common Stock. Pursuant to the conversion terms, the outstanding Series A
Preferred Stock will be converted into an aggregate of 1,169,979 shares of
Common Stock. Thereafter, the Series A Preferred Stock will be canceled and
cease to exist under the Company's Charter, and the Company will have no
outstanding class of preferred stock but will have 10,000,000 shares of
Preferred Stock authorized and available for issuance.
The authorized Preferred Stock may be issued from time to time in one or
more designated series or classes. Subject to the provisions of the Company's
Charter and limitations prescribed by law, the Board of Directors, without
further action or vote by the shareholders, is authorized to establish the
voting, dividend, redemption, conversion, liquidation, and other relative
provisions as may be provided in a particular series or class. The issuance of
Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to acquire, or
discourage a third party from acquiring, a majority of the outstanding voting
stock of the Company. The Company has no present intention to issue any series
or class of Preferred Stock.
WARRANTS
A warrant for the purchase of up to 26,000 shares of Common Stock is
currently outstanding. The warrant is exercisable in whole or in part upon
providing a written notice of exercise and payment in full to the Company of the
exercise price. The exercise price is $6.15 per share. The warrant expires on
January 15, 1998.
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<PAGE> 44
REGISTRATION RIGHTS
Following the consummation of the Offering, beneficial holders of an
aggregate of 1,169,979 shares of Common Stock ("Demand Registrable Shares") will
have contracted rights with respect to the registration of the sale of such
shares. Beginning 180 days after the date of this Prospectus (the "IPO Date"),
the holders of the Demand Registrable Shares then outstanding have the right to
one demand registration on Form S-1 (or its successor form) upon written demand
to the Company by the holders of 66 2/3% of such shares. On or after the date
the Company is entitled to register the Demand Registrable Shares on Form S-3
(or any similar short form registration statement), the holders of such shares
may, at any time, demand registration of such shares, so long as the aggregate
offering value of such shares is equal to or exceeds $1,000,000.
In addition, the beneficial holders of the above shares and the beneficial
holders of an additional 414,201 shares of Common Stock (together with the
Demand Registrable Shares, the "Incidental Registrable Shares") may require the
Company to include all or a portion of such holder's Incidental Registrable
Shares in a registration statement filed by the Company for its own account,
provided, among other conditions, that the managing underwriter (if any) of such
offering has the right, subject to certain conditions, to limit the number of
Incidental Registrable Shares included in such registration statement. If the
managing underwriter limits the number of Incidental Registrable Shares that can
be included in the registration statement, the Incidental Registrable Shares
that are also Demand Registrable Shares shall be first included.
In general, all fees, costs and expenses of such registrations (other than
underwriting commissions, dealers' fees, broker's fees and concessions
applicable to the Common Stock) will be borne by the Company. The registration
rights set forth above shall terminate as of the fifth anniversary of the IPO
Date.
CERTAIN PROVISIONS OF THE CHARTER, BYLAWS AND TENNESSEE LAW
General. The provisions of the Charter, the Bylaws, and Tennessee
statutory law described in this section may delay or make more difficult
acquisitions or changes of control of the Company that are not approved by the
Board of Directors. Such provisions have been implemented to enable the Company,
particularly (but not exclusively) in the initial years of its existence as an
independent, publicly-owned company, to develop its business in a manner that
will foster its long-term growth without the disruption of the threat of a
takeover not deemed by the Board of Directors to be in the best interests of the
Company and its shareholders.
Directors. Pursuant to the Company's Charter, the members of the Board of
Directors are divided into three classes, each of which serves a term of three
years. The Bylaws provide that the number of directors shall be no fewer than
five or more than fifteen, with the exact number to be established by the Board
of Directors and subject to change from time to time as determined by the Board
of Directors, and that vacancies on the Board of Directors (including vacancies
created by an increase in the number of directors) may be filled by the Board of
Directors, acting by a majority of the remaining directors then in office, or by
a plurality of the votes cast by the shareholders at a meeting at which a quorum
is present. Officers are elected annually by and serve at the pleasure of the
Board of Directors.
The Charter provides that directors may be removed only for cause and only
by (i) the affirmative vote of the holders of a majority of the voting power of
all the shares of the Company's capital stock then entitled to vote in the
election of directors, voting together as a single class, unless the vote of a
special voting group is otherwise required by law, or (ii) the affirmative vote
of a majority of the entire Board of Directors then in office. This provision,
in conjunction with the provision of the Charter authorizing the Board of
Directors to fill vacant directorships, could prevent shareholders from removing
incumbent directors without cause and filling the resulting vacancies with their
own nominees.
Advance Notice for Shareholder Proposals or Making Nominations at
Meetings. The Bylaws establish an advance notice procedure for shareholder
proposals to be brought before a meeting of shareholders of the Company and for
nominations by shareholders of candidates for election as directors at an annual
meeting or a special meeting at which directors are to be elected. Subject to
any other applicable requirements, only such business may be conducted at a
meeting of shareholders as has been brought before the meeting by, or at the
43
<PAGE> 45
direction of, the Board of Directors, or by a shareholder who has given to the
Secretary of the Company timely written notice in proper form, of the
shareholder's intention to bring that business before the meeting. The presiding
officer at such meeting has the authority to make such determinations. Only
persons who are selected and recommended by the Board of Directors, or the
committee of the Board of Directors designated to make nominations, or who are
nominated by a shareholder who has given timely written notice, in proper form,
to the Secretary prior to a meeting at which directors are to be elected will be
eligible for election as directors of the Company.
To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of the Company not later than 120
days in advance of the anniversary date of the Company's proxy statement for the
previous year's annual meeting or, in the case of special meetings, at the close
of business on the tenth day following the date on which notice of such meeting
is first given to shareholders.
The notice of any shareholder proposal or nomination for election as
director must set forth various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on the Company's books (if they so appear) and the class and number
of shares of the Company's capital stock that are beneficially owned by them.
Amendment of the Bylaws and Charter. The Bylaws provide that a majority of
the members of the Board of Directors who are present at any regular or special
meeting or the holders of a majority of the voting power of all shares of the
Company's capital stock represented at regular or special meeting have the power
to amend, alter, change, or repeal the Bylaws.
Except as may be set forth in resolutions providing for any class or series
of Preferred Stock, any proposal to amend, alter, change, or repeal any
provision of the Charter requires approval by the affirmative vote of both a
majority of the members of the Board of Directors then in office and the holders
of a majority of the voting power of all of the shares of the Company's capital
stock entitled to vote on the amendments, with shareholders entitled to
dissenters' rights as a result of the Charter amendment voting together as a
single class. Shareholders entitled to dissenters' rights as a result of a
Charter amendment are those whose rights would be materially and adversely
affected because the amendment (i) alters or abolishes a preferential right of
the shares; (ii) creates, alters, or abolishes a right in respect of redemption;
(iii) alters or abolishes a preemptive right; (iv) excludes or limits the right
of the shares to vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other securities with
similar voting rights; or (v) reduces the number of shares held by such holder
to a fraction if the fractional share is to be acquired for cash. In general,
however, no shareholder is entitled to dissenter's rights if the security he or
she holds is listed on a national securities exchange or the Nasdaq National
Market.
Anti-Takeover Legislation. The Tennessee Business Combination Act (the
"Combination Act") provides, among other things, that any corporation to which
the Combination Act applies, including the Company, shall not engage in any
"business combination" with an "interested shareholder" for a period of five
years following the date that such shareholder became an interested shareholder
unless prior to such date the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
shareholder becoming an interested shareholder. Pursuant to an exemption
provided by the Combination Act, Frontenac Venture V Limited Partnership,
Marriott International, Inc. and Robert Lurie would not be "interested
shareholders" subject to this provision.
The Combination Act defines "business combination," generally, to mean any:
(i) merger or consolidation; (ii) share exchange; (iii) sale, lease, exchange,
mortgage, pledge, or other transfer (in one transaction or a series of
transactions) of assets representing 10% or more of (A) the market value of
consolidated assets, (B) the market value of the corporation's outstanding
shares or (C) the corporation's consolidated net income; (iv) issuance or
transfer of shares from the corporation to the interested shareholder; (v) plan
of liquidation; (vi) transaction in which the interested shareholder's
proportionate share of the outstanding shares of any class of securities is
increased; or (vii) financing arrangements pursuant to which the interested
shareholder, directly or indirectly, receives a benefit except proportionately
as a shareholder.
44
<PAGE> 46
The Combination Act defines "interested shareholder," generally, to mean
any person who is the beneficial owner, either directly or indirectly, of 10% or
more of any class or series of the outstanding voting stock, or any affiliate or
associate of the corporation who has been the beneficial owner, either directly
or indirectly, of 10% or more of the voting power of any class or series of the
corporation's stock at any time within the five-year period preceding the date
in question. Consummation of a business combination that is subject to the
five-year moratorium is permitted after such period if the transaction (i)
complies with all applicable charter and bylaw requirements and applicable
Tennessee law and (ii) is approved by the affirmative vote of at least
two-thirds of the outstanding voting stock not beneficially owned by the
interested shareholder, or when the transaction meets certain fair price
criteria. The fair price criteria include, among others, the requirement that
the per share consideration received in any such business combination by each of
the shareholders is equal to or exceeds the higher of (i) the highest per share
price paid by the interested shareholder during the preceding five-year period
for shares of the same class or series plus interest thereon from such date at a
treasury bill rate less the aggregate amount of any cash dividends paid and the
market value of any dividends paid other than in cash since such earliest date,
up to the amount of such interest, (ii) the highest preferential amount, if any,
such class or series is entitled to receive on liquidation, or (iii) the market
value of the shares on either the date the business combination is announced or
the date when the interested shareholder reaches the 10% threshold, whichever is
higher, plus interest thereon less dividends as noted above.
The Tennessee Control Share Acquisition Act (the "Acquisition Act")
prohibits certain shareholders from exercising in excess of 20% of the voting
power in a corporation acquired in a "control share acquisition," as defined in
the Acquisition Act, unless such voting rights have been previously approved by
the disinterested shareholders of the corporation. The Company has not elected
to make the Acquisition Act applicable to the Company. No assurance can be given
that such election, which must be expressed in a charter or bylaw amendment,
will or will not be made in the future.
The Tennessee Greenmail Act (the "Greenmail Act") prohibits the Company
from purchasing or agreeing to purchase any of its securities, at a price in
excess of fair market value, from a holder of 3% or more of any class of such
securities who has beneficially owned such securities for less than two years,
unless such purchase has been approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued by the Company or
the Company makes an offer of at least equal value per share to all holders of
shares of such class.
The effect of the Combination Act, the Acquisition Act, and the Greenmail
Act may be to render more difficult a change of control of the Company.
TRANSFER AGENT AND REGISTRAR
will be the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that a significant public
market for the Common Stock will be developed or sustained after the Offering.
No prediction can be made as to the effect, if any, that market sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Stock of the Company
in the public market after the restrictions described below lapse could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this Offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares of
Common Stock sold in this Offering ( shares if the underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or limitation under the Securities Act, except to the extent such
shares are subject to the agreement with the representatives of the Underwriters
described below, and except for any shares purchased by "affiliates," as that
term is defined under the Securities Act, of the Company. The remaining
shares are "restricted securities" within the meaning of Rule 144
adopted under the Securities Act (the "Restricted Shares"). The Restricted
Shares were issued and sold by the Company in private transactions in reliance
upon exemptions
45
<PAGE> 47
from registration under the Securities Act, and none of such shares may be sold
in the public market, except in compliance with the registration requirements of
the Securities Act or pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act. Upon consummation of
the Offering, the beneficial holders of of the Restricted Shares will
have certain registration rights with respect to the sale of such shares. See
"Description of Capital Stock -- Registration Rights."
In general, under Rule 144 any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least a one-year period (as computed under Rule 144) is entitled to sell within
any three-month period a number of shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
shares after giving effect to this Offering), and (ii) the average
weekly trading volume of the Company's Common Stock during the four calendar
weeks immediately preceding the date on which the notice of sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain provisions relating to the manner and notice of sale
and the availability of current public information about the Company. A
shareholder who is not an affiliate of the Company at any time during the 90
days immediately preceding a sale, and who has beneficially owned his or her
shares for at least two years (as computed under Rule 144), is entitled to sell
such shares under Rule 144(k) without regard to the volume, manner and notice of
sale, and availability of public information limitations described above. Shares
properly sold in reliance upon Rule 144 to persons who are not affiliates are
thereafter freely tradeable without restrictions or registration under the
Securities Act.
The Company, the Company's executive officers and directors, and certain
other shareholders have agreed not to offer, sell, or otherwise dispose of any
of their Restricted Shares (in the aggregate, representing approximately % of
the shares outstanding after the Offering) for a period of 180 days after the
date of this Prospectus (the "Lock-up Period") without the prior consent of
Montgomery Securities. Notwithstanding the preceding sentence, the Company may
grant options to purchase or award shares of Common Stock under the Stock
Incentive Plan and the Stock Purchase Plan and issue shares in connection with
acquisitions.
As soon as practicable following the consummation of this Offering, the
Company intends to file a registration statement under the Securities Act to
register approximately shares of Common Stock issuable pursuant to the
Stock Incentive Plan. See "Management -- Compensation Pursuant to Plans." Shares
issued pursuant to such plans after the effective date of such registration
statement will be available for sale in the open market subject to the Lock-up
Period, if applicable.
46
<PAGE> 48
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
Montgomery Securities and J.C. Bradford & Co. (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
underwriting agreement (the "Underwriting Agreement") by and among the Company,
the Selling Shareholders and the Underwriters, to purchase from the Company and
the Selling Shareholders the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares of Common Stock if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Montgomery Securities.......................................
J.C. Bradford & Co..........................................
---------
Total.............................................
========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose initially to offer the Common Stock to the public
on the terms set forth on the cover page of this Prospectus. The Underwriters
may allow to selected dealers a concession of not more than $ per share; and
the Underwriters may allow, and such dealers may reallow, a concession of not
more than $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
Certain Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise such
over-allotment option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will severally indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company's officers and directors, the Selling Shareholders and certain
other holders of the Common Stock who, immediately following the Offering
(assuming no exercise of the Underwriters' over-allotment option) collectively
will beneficially own an aggregate of shares of Common Stock, have
agreed that for a period of 180 days after the effective date of the Offering
they will not, without the prior written consent of Montgomery Securities,
directly or indirectly, offer for sale, sell, solicit an offer to sell, contract
or grant an option to sell, pledge, transfer, establish an open put equivalent
position or otherwise dispose of any shares of Common Stock, options or warrants
to acquire shares of Common Stock or securities exchangeable or exercisable or
convertible into shares of Common Stock held by them. The Company has also
agreed not to issue, offer, sell, grant options to purchase or otherwise dispose
of any of the Company's equity securities or any other securities convertible
into or exchangeable with its Common Stock for a period of 180 days after the
effective date of the Offering without the prior written consent of Montgomery
Securities, subject to limited exceptions and grants and exercises of stock
options and warrants. The holder of the warrant issued by the Company has also
agreed not to offer, sell or otherwise dispose of any shares of Common Stock
issuable upon exercise of the warrant for a period of 180 days after the closing
of the Offering without the prior written consent of Montgomery Securities. In
evaluating any request for a waiver of the 180-day lock-up period, the
underwriters will consider, in accordance with their customary practice, all
relevant facts and circumstances at the time of the request including, without
limitation, the recent trading market for the Common Stock, the
47
<PAGE> 49
size of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such Issuance. See "Shares Eligible
for Future Sale."
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase shares of Common Stock in
the open market to reduce the Underwriters' short position or to stabilize the
price of the Common Stock, they may reclaim the amount of the selling concession
from the selling group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations among the Company, the Selling
Shareholders and the Representatives. Among the factors to be considered in such
negotiations were the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
financial condition, its past and present earnings and the trend of such
earnings, the prospects for future earnings of the Company, the present state of
the Company's development, the general condition of the economy and the
securities markets at the time of the Offering and the market prices of and the
demand for publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Shareholders by Bass, Berry & Sims PLC,
Nashville, Tennessee. Certain members of Bass, Berry & Sims PLC beneficially own
12,501 shares of Common Stock. Certain legal matters in connection with this
Offering will be passed upon for the Underwriters by Piper & Marbury L.L.P.,
Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company as of December 29,
1995 and December 27, 1996, and for each year of the three years in the
respective periods ended December 30, 1994, December 29, 1995 and December 29,
1996, appearing in this Prospectus and Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
48
<PAGE> 50
The consolidated statements of operations, shareholders' equity and
cashflows of RCCM for the nine months ended September 30, 1995, appearing in
this Prospectus and Registration Statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The consolidated financial statements of RCCM as of December 31, 1994 and
the year then ended appearing in this Prospectus and Registration Statement,
have been audited by Trien, Rosenberg, Rosenberg, Weinberg, Ciullo & Fazzari,
LLP (formerly Trien, Rosenberg, Felix, Rosenberg, Barr & Weinberg), independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement or the exhibits and schedules thereto,
certain portions having been omitted pursuant to the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is made to the Registration Statement, including the
exhibits and schedules thereto.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Seven World Trade Center, 13th floor, New York, New York 10048, and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a web site that contains reports, proxy
statements and other information regarding registrants, including the company.
The address of the Commission's web site is http://www.sec.gov.
As a result of the Offering, the Company will be subject to the information
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). So long as the Company is subject to periodic reporting requirements of
the Exchange Act, it will continue to furnish the reports and other information
required thereby to the Commission. The Company intends to furnish its
shareholders with annual reports containing financial statements audited by its
independent public accountants and quarterly reports for the first three
quarters of each year containing unaudited financial information.
49
<PAGE> 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CORPORATEFAMILY SOLUTIONS, INC.
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 29, 1995 and
December 27, 1996......................................... F-3
Consolidated Statements of Income for each of the three
years ended December 30, 1994, December 29, 1995 and
December 27, 1996......................................... F-4
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 30, 1994, December 29, 1995
and December 27, 1996..................................... F-5
Consolidated Statements of Cash Flows for each of the three
years ended December 30, 1994, December 29, 1995 and
December 27, 1996......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Consolidated Balance Sheets as of December 27,
1996 and March 28, 1997................................... F-20
Unaudited Consolidated Statements of Income for the three
months ended March 29, 1996 and March 28, 1997............ F-21
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 29, 1996 and March 28, 1997...... F-22
Notes to Unaudited Consolidated Financial Statements........ F-23
RESOURCES FOR CHILD CARE MANAGEMENT, INC.
Report of Independent Public Accountants.................... F-24
Consolidated Statement of Operations for the nine months
ended September 30, 1995.................................. F-25
Consolidated Statement of Shareholders' Equity for the nine
months ended September 30, 1995........................... F-26
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995.................................. F-27
Notes to Consolidated Financial Statements.................. F-28
Report of Independent Public Accountants.................... F-31
Consolidated Balance Sheet as of December 31, 1994.......... F-32
Consolidated Statement of Operations for the year ended
December 31, 1994......................................... F-33
Consolidated Statement of Shareholders' Equity for the year
ended December 31, 1994................................... F-34
Consolidated Statement of Cash Flows for the year ended
December 31, 1994......................................... F-35
Notes to Consolidated Financial Statements.................. F-36
</TABLE>
F-1
<PAGE> 52
After the matter discussed in Note 13 to CorporateFamily Solution, Inc.'s
financial statements is effected, we expect to be in a position to render the
following audit report.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 14, 1997, except for Note 13, as to which
the date is July 17, 1997.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CorporateFamily Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of
CORPORATEFAMILY SOLUTIONS, INC. (a Tennessee corporation) and subsidiary as of
December 29, 1995 and December 27, 1996 and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three fiscal
years in the period ended December 27, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
CorporateFamily Solutions, Inc. and subsidiary as of December 29, 1995 and
December 27, 1996 and the results of their operations and their cash flows for
each of the three fiscal years in the period ended December 27, 1996, in
conformity with generally accepted accounting principles.
F-2
<PAGE> 53
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 1995 AND DECEMBER 27, 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,584,597 $ 2,913,388
Restricted cash........................................... 608,980 168,858
Accounts receivable, less allowance of $84,000 and
$123,000,
respectively........................................... 3,478,292 5,304,678
Prepaid expenses.......................................... 157,086 90,249
Current deferred tax asset................................ 700,365 969,823
----------- -----------
Total current assets.............................. 6,529,320 9,446,996
PROPERTY AND EQUIPMENT, net................................. 3,928,095 3,757,201
INTANGIBLE ASSETS, net...................................... 6,240,499 5,752,813
NONCURRENT DEFERRED TAX ASSET............................... -- 1,012,396
OTHER ASSETS................................................ 288,727 311,128
----------- -----------
Total assets...................................... $16,986,641 $20,280,534
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 657,463 $ 911,000
Trade accounts payable.................................... 813,850 1,289,050
Income tax payable........................................ -- 137,743
Accrued expenses:
Payroll and related benefits........................... 2,854,130 3,244,602
Other.................................................. 734,437 1,257,391
Deferred revenue, current portion......................... 453,378 668,882
Amounts held in escrow.................................... 608,980 168,858
----------- -----------
Total current liabilities......................... 6,122,238 7,677,526
LONG-TERM DEBT, net of current portion...................... 4,406,195 3,504,673
DEFERRED REVENUE, net of current portion.................... 1,095,639 978,722
OTHER LONG-TERM LIABILITIES................................. 1,347,863 1,143,992
----------- -----------
Total liabilities................................. 12,971,935 13,304,913
----------- -----------
COMMITMENTS, CONTINGENCIES AND GUARANTEES (See Note 9)
SHAREHOLDERS' EQUITY:
Series A preferred stock, no par value; authorized,
5,000,000 shares; issued and outstanding, 1,125,000
shares................................................. 4,450,932 4,480,372
Common stock, no par value; authorized, 10,000,000 shares;
issued and outstanding, 1,818,018 and 1,866,203,
respectively........................................... 6,680,894 6,906,114
Accumulated deficit....................................... (7,117,120) (4,410,865)
----------- -----------
Total shareholders' equity........................ 4,014,706 6,975,621
----------- -----------
Total liabilities and shareholders' equity........ $16,986,641 $20,280,534
========== ==========
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 54
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 29, 1995, AND DECEMBER
27, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE................................................. $24,512,981 $36,919,884 $62,926,075
EXPENSES:
Operating............................................. 21,091,613 32,707,762 55,588,596
Selling, general and administrative................... 2,957,808 3,525,017 4,659,000
Depreciation and amortization......................... 387,363 519,948 758,553
----------- ----------- -----------
OPERATING INCOME........................................ 76,197 167,157 1,919,926
INTEREST EXPENSE, NET................................... 49,720 86,544 343,048
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.............................. 26,477 80,613 1,576,878
----------- ----------- -----------
INCOME TAX BENEFIT (EXPENSE):
Current............................................... (500) (7,889) (142,000)
Deferred.............................................. -- 468,458 1,300,817
----------- ----------- -----------
(500) 460,569 1,158,817
----------- ----------- -----------
NET INCOME.............................................. $ 25,977 $ 541,182 $ 2,735,695
========== ========== ==========
NET INCOME PER SHARE.................................... $ 0.02 $ 0.19 $ 0.76
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE> 55
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 29, 1995,
AND DECEMBER 27, 1996
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK,
NO PAR VALUE NO PAR VALUE
---------------------- ---------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT DEFICIT TOTAL
--------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993..................... 1,125,000 $4,392,052 1,508,309 $4,907,734 $(7,494,345) $1,805,441
Receipt and retirement of
outstanding shares.... -- -- (19,186) -- (131,054) (131,054)
Stock options
exercised............. -- -- 46,150 23,160 -- 23,160
Escrow stock canceled.... -- -- (42,250) -- -- --
Accretion of preferred
stock................. -- 29,440 -- -- (29,440) --
Net income............... -- -- -- -- 25,977 25,977
--------- ---------- --------- ---------- ----------- ----------
BALANCE, December 30,
1994..................... 1,125,000 4,421,492 1,493,023 4,930,894 (7,628,862) 1,723,524
Acquisition of RCCM...... -- -- 324,995 1,750,000 -- 1,750,000
Accretion of preferred
stock................. -- 29,440 -- -- (29,440) --
Net income............... -- -- -- -- 541,182 541,182
--------- ---------- --------- ---------- ----------- ----------
BALANCE, December 29,
1995..................... 1,125,000 4,450,932 1,818,018 6,680,894 (7,117,120) 4,014,706
Issuance of stock
options............... -- -- -- 100,000 -- 100,000
Stock options
exercised............. -- -- 15,685 97,220 -- 97,220
Issuance of stock........ -- -- 32,500 28,000 -- 28,000
Accretion of preferred
stock................. -- 29,440 -- -- (29,440) --
Net income............... -- -- -- -- 2,735,695 2,735,695
--------- ---------- --------- ---------- ----------- ----------
BALANCE, December 27,
1996..................... 1,125,000 $4,480,372 1,866,203 $6,906,114 $(4,410,865) $6,975,621
======== ========= ======== ========= ========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE> 56
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 29, 1995,
AND DECEMBER 27, 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 25,977 $ 541,182 $2,735,695
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 387,363 519,948 758,553
Other noncash expense............................... -- -- 68,000
Deferred tax benefit................................ -- (468,458) (1,300,817)
Loss on disposal of assets.......................... -- 159,009 68,975
Changes in assets and liabilities:
Increase in accounts receivable................... (508,481) (542,592) (1,826,386)
Decrease in prepaid expenses...................... 49,124 33,244 66,837
Increase in accounts payable and accrued
expenses....................................... 548,356 490,132 1,545,332
Increase in deferred revenue...................... 46,198 135,386 98,587
Increase (decrease) in other long-term
liabilities.................................... 121,481 (53,014) (203,871)
Increase (decrease) in other noncurrent assets.... (12,847) (44,502) 37,599
----------- ----------- ----------
Net cash provided by operating activities.... 657,171 770,335 2,048,504
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment..................... (148,500) (514,382) (168,948)
Increase in intangible assets.......................... -- (35,000) --
Purchase of assets of Morris & Moran Associates,
Inc................................................. (410,000) -- --
Purchase of capital stock of RCCM...................... -- (3,612,943) --
----------- ----------- ----------
Net cash used in investing activities........ (558,500) (4,162,325) (168,948)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing related to acquisition.................. 300,000 3,500,000 --
Payments on long-term debt............................. (185,299) (438,396) (647,985)
Proceeds from issuance of common stock................. 23,160 -- 97,220
----------- ----------- ----------
Net cash provided by (used in) financing
activities................................ 137,861 3,061,604 (550,765)
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... $ 236,532 $ (330,386) $1,328,791
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 1,678,451 1,914,983 1,584,597
----------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 1,914,983 $ 1,584,597 $2,913,388
========== ========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest.............................. $ 66,781 $ 135,814 $ 455,849
========== ========== =========
NON CASH INVESTING ACTIVITIES:
Issuance of options in exchange for consulting
services............................................ $ -- $ -- $ 100,000
========== ========== =========
Issuance of restricted common shares................... $ -- $ -- $ 28,000
========== ========== =========
Accretion of preferred stock........................... $ 29,440 $ 29,440 $ 29,440
========== ========== =========
Issuance of common stock in connection with acquisition
of RCCM............................................. $ -- $ 1,750,000 $ --
========== ========== =========
Receipt of 19,186 common shares from director for
payment of notes receivable......................... $ 131,054 $ -- $ --
========== ========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE> 57
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED DECEMBER 30, 1994, DECEMBER 29, 1995,
AND DECEMBER 27, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
CorporateFamily Solutions, Inc. (the "Company" and formerly Corporate Child
Care, Inc.) was incorporated under the laws of the state of Tennessee on
February 1, 1987 for the purpose of developing and managing Family Centers. The
Company is a leading national provider of a broad range of management and
consulting services for employers seeking to provide their employees with child
care services and other family support programs. The Company operates and
manages corporate-sponsored Family Centers, built and equipped by the employer
at or near its offices, providing such services as early childhood education,
child care, back-up child care, kindergartens, get-well care, summer camps and
parent support services. In addition, the Company provides work/life consulting
services to help employers realize the benefits of work and family programs and
policies and to align work/life concerns of working families with business
strategies of employers. Consulting services provided by the Company include
feasibility studies, work/life strategic planning, return on investment
analyses, and development of work/life programs and policies. The Company
operates and manages corporate-sponsored Family Centers for major corporations,
healthcare and governmental entities located throughout the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
CorporateFamily Solutions, Inc. and its wholly-owned subsidiary Resources for
Child Care Management, Inc. ("RCCM"). References to the Company in these notes
include CorporateFamily Solutions, Inc. and its subsidiary on a consolidated
basis. All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
In connection with the acquisition of RCCM in 1995 (see Note 2), the
Company is required to maintain cash in escrow pending the final resolution of
certain tax matters associated with RCCM prior to the acquisition date. The
majority of the tax matters were resolved in 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
furniture and equipment -- 3 to 10 years; center improvements -- 3 to 10 years;
buildings -- 30 to 32 years. Expenditures for maintenance and repairs are
generally charged to expense as incurred, whereas expenditures for improvements
and replacements are capitalized.
The cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts and the resulting gain or loss is reflected in
the consolidated statements of income.
Property and equipment obtained through purchase acquisitions are stated at
the estimated fair value determined on the respective dates of acquisition.
F-7
<PAGE> 58
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
In connection with acquisitions, the Company has entered into various
noncompete agreements with certain individuals and assumed certain management
contracts. The estimated values allocated to such contracts are amortized on a
straight-line basis over the terms of the respective contracts.
The excess of the aggregate purchase price over the fair value of assets of
businesses acquired (goodwill) is being amortized on a straight-line basis over
a period of 18 to 20 years.
Subsequent to an acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of its intangible assets may warrant revision or that the
remaining balance of such assets may not be recoverable. When factors indicate
that such assets should be evaluated for possible impairment, the Company uses
an estimate of the acquired operations undiscounted cash flows over the
remaining life of the asset in measuring whether the asset is recoverable.
DEFERRED REVENUE
Deferred revenue results from construction advances (see Note 3), cash
received on uncompleted consulting or development projects, and amounts
refundable to clients pursuant to certain Family Center management contracts.
Based on the terms of certain Family Center management contracts, refundable
profits may be either reinvested in future Family Center operations, or refunded
to the employer-sponsor.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist primarily of deposits held pursuant to
certain Family Center management contracts. The deposits will be remitted to the
clients upon termination of the respective contracts.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
fiscal years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
REVENUE RECOGNITION
Revenue from Family Center operations is recognized as services are
rendered. Revenue from consulting projects and from development activities is
recognized as the services are performed.
The Company maintains contracts with its customers to manage and operate
their Family Centers under various terms. The Company's contracts are generally
three to five years in length with annual renewals. Management expects to renew
the Company's existing contracts for periods consistent with the remaining
renewal options allowed by the contracts or other reasonable extensions.
CONCENTRATIONS OF CREDIT RISK AND REVENUES
A significant number of the Company's customers are in the healthcare,
pharmaceutical, and financial service industries.
F-8
<PAGE> 59
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for employee
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB Opinion No. 25"), and related Interpretations. Under APB
Opinion No. 25, no compensation cost related to employee stock options has been
recognized because all options are granted with exercise prices equal to or
greater than the estimated fair market value at the date of grant. See Note 7
for further discussion.
NET INCOME PER SHARE
The computation of net income per share is based on the weighted average
number of common shares and common equivalent shares outstanding during the
period. Common equivalent shares include stock options, warrants and preferred
stock, and are determined using the modified treasury stock method. See Note 8
for further discussion.
Statement of Financial Accounting Standards No. 128, "Earnings per Share",
("SFAS 128"), has been issued effective for fiscal periods ending after December
15, 1997. SFAS No. 128 establishes standards for computing and presenting
earnings per share. The Company is required to adopt the provisions of SFAS No.
128 in the fourth quarter of 1997. See Note 8 for further discussion.
FISCAL YEAR
The Company's fiscal year is the 52-53 week period ending on the Friday
nearest to December 31.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from these estimates.
NEW PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of", ("SFAS
121"). This statement imposes criteria for evaluating the recoverability of
long-term assets at each balance sheet date. The Company adopted SFAS 121
effective December 30, 1995. The Company did not experience a material impact on
its results of operations, financial conditions or cash flows as a result of
adoption.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure", ("SFAS
129"). SFAS 129 establishes standards for disclosing information about an
entity's capital structure. The Company will be required to adopt SFAS 129 in
the fourth quarter of 1997. Management does not expect the adoption to have a
material impact on the Company's financial position, results of operation or
cash flows.
F-9
<PAGE> 60
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
Effective October 2, 1995, the Company acquired, through a reverse
subsidiary merger, RCCM. The Company was the surviving entity in the merger
which was accounted for as a purchase. The merger was consummated by the
exchange of 324,995 shares of the Company's common stock and $3,372,500 cash for
100% of the outstanding shares of RCCM's common stock. The principal shareholder
of RCCM also entered into an employment agreement and an agreement not to
compete with the Company (see Note 9). The total purchase price was $5,362,943,
which has been allocated to the assets acquired and liabilities assumed based on
their estimated fair values as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 1,473,799
Property and equipment...................................... 3,089,407
Goodwill.................................................... 5,740,203
Other assets................................................ 15,259
Deferred tax assets, net.................................... 212,944
Current liabilities......................................... (1,677,791)
Long-term debt.............................................. (3,490,878)
-----------
$ 5,362,943
==========
</TABLE>
The results of RCCM's operations since the date of the acquisition have
been reflected in these consolidated financial statements.
The following unaudited pro forma information combines the consolidated
results of the Company and RCCM as if the acquisition had occurred on January 1,
1994, after giving effect to amortization of goodwill and interest expense on
borrowings to finance the acquisition. The pro forma information is not
necessarily indicative of the results of operations which would have been
obtained during such periods. While the Company believes that it will realize
certain long-term synergies through the integration of certain operating
functions, there can be no assurances that such synergies can be realized, and
no amounts have been reflected in the pro forma adjustments to reflect such
anticipated synergies.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
DECEMBER 30, DECEMBER 29,
1994 1995
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.................................................... $37,705,129 $48,733,113
========== ==========
Net loss.................................................... $ (876,308) $ (634,530)
========== ==========
Net loss per share.......................................... $ (0.48) $ (0.34)
========== ==========
</TABLE>
Effective April 18, 1994, the Company acquired certain assets of Morris &
Moran Associates, Inc. ("MMA") and assumed the management and operating
contracts for four employer sponsored Family Centers located in Florida. The
centers were previously managed and operated by MMA. The acquisition was
accounted for as a purchase and the results of operations since the date of
acquisition have been reflected in these consolidated financial statements. The
purchase price was allocated to the assets acquired based on their estimated
fair values as follows:
<TABLE>
<S> <C>
Furniture and equipment..................................... $ 50,000
Management contracts........................................ 144,000
Goodwill.................................................... 216,000
--------
$410,000
========
</TABLE>
F-10
<PAGE> 61
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Furniture and equipment.................................... $ 922,327 $ 1,075,282
Center improvements........................................ 735,669 744,016
Buildings.................................................. 3,082,009 3,089,653
Land....................................................... 54,100 54,100
---------- -----------
4,794,105 4,963,051
Less accumulated depreciation.............................. (866,010) (1,205,850)
---------- -----------
$3,928,095 $ 3,757,201
========= ==========
</TABLE>
Construction advances of $1,290,500 have been received to finance the
building of a child care facility in Westchester County, New York. Such advances
have been recorded as deferred revenue when received. The Company is required to
maintain certain standards relating to the ongoing operations of the center for
a minimum operating period as defined in agreements with the parties advancing
the funds. In the absence of default under agreements with these parties,
repayment of the funds received is forgiven on a pro-rata basis over a ten to
fifteen year period. The Company recognizes this forgiveness of the advances as
income on the same pro-rata basis. The Company recognized income of $77,944 and
$116,917 during 1995 and 1996, respectively, and at December 29, 1995 and
December 27, 1996, $1,212,556 and $1,095,639 of the original funding remains in
deferred revenue on the Company's consolidated balance sheets.
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Goodwill, net of amortization of $143,832 and $481,198...... $5,998,159 $5,614,218
Management contracts, net of amortization of $124,476 and
$151,866.................................................. 107,003 57,213
Noncompete agreements, net of amortization of $69,239 and
$99,239................................................... 80,761 50,761
Other....................................................... 54,576 30,621
---------- ----------
$6,240,499 $5,752,813
========= =========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Term loan, monthly principal payments of $58,333, commencing
May 1996, plus interest at 9.75%, maturing August 1, 1998.
The maturity will be extended to April 1, 2001 provided
the holders of the Company's preferred stock have redeemed
no more than $500,000 of preferred stock prior to August
1, 1998 and no event of default exists. The interest rate
may be reduced to 9.0% as long as the Company meets
certain debt to cash flow ratios as defined in the
agreement................................................. $3,500,000 $3,033,333
Promissory note to bank, monthly payments of $5,655
including interest at the bank's prime rate plus .5%
(8.75% at December 27, 1996), maturing November 1,
1999...................................................... 513,893 491,390
</TABLE>
F-11
<PAGE> 62
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Promissory note to bank, monthly payments of $4,403
including interest at 9.875%, maturing April 15, 2010. The
fixed interest rate will be adjusted in April 2000 and
again in April 2005 to 300 basis points in excess of the
weekly average yield on five year United States Treasury
Securities................................................ 400,000 391,092
Promissory note to bank, monthly principal payments of
$10,000 plus interest at 8%, maturing September 1,
1998...................................................... 374,765 289,858
Promissory note to bank, monthly principal payments of
$5,000 plus interest at 8.5%, maturing April 1, 1999...... 195,000 140,000
Note payable to shareholder, interest at 10%, principal and
accrued interest payable at maturity on June 30, 1998..... 50,000 50,000
Note payable to shareholder, annual principal payments of
$10,000 due through June 30, 1998, interest payable
quarterly at 10%.......................................... 30,000 20,000
---------- ----------
5,063,658 4,415,673
Less current maturities..................................... (657,463) (911,000)
---------- ----------
$4,406,195 $3,504,673
========= =========
</TABLE>
The notes payable to shareholders are secured by land and building with a
carrying value of approximately $198,000 at December 27, 1996.
The promissory notes to bank and the term loan are secured primarily by
accounts receivable, general intangibles, and substantially all of the Company's
furniture and equipment. The promissory notes contain certain restrictive
covenants with respect to minimum net worth, net income and cash flows as
defined in the note agreements. At December 27, 1996, the Company was in
compliance with such covenants.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 911,000
1998........................................................ 1,052,248
1999........................................................ 1,177,876
2000........................................................ 720,016
2001........................................................ 255,418
Thereafter.................................................. 299,115
----------
$4,415,673
=========
</TABLE>
The Company has entered into a revolving line of credit agreement with a
bank for $500,000. Borrowings under the line bear interest at the bank's prime
rate plus 1.5% (9.75% at December 27, 1996) and are secured by a deed of trust
on certain real estate, a security interest in the Company's accounts
receivable, and certain furniture and equipment. No amounts have been advanced
under the line as of December 27, 1996. The line matures on May 1, 1997.
F-12
<PAGE> 63
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income tax benefit (expense) consisted of the following for the fiscal
years ended December 30, 1994, December 29, 1995, and December 27, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
-------- --------- ----------
<S> <C> <C> <C>
Current tax expense.............................. $ (500) $ (7,889) $ (142,000)
Deferred tax benefit (expense)................... -- (101,449) (624,225)
Reduction (increase) in valuation allowance...... -- 569,907 1,925,042
-------- --------- ----------
Income tax benefit (expense), net...... $ (500) $ 460,569 $1,158,817
======== ========= =========
</TABLE>
A reconciliation of the U.S. Federal statutory rate to the effective rate
is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- ----------
<S> <C> <C> <C>
U.S. Federal statutory rate........................ $(9,002) $(27,408) $ (536,139)
State taxes on income.............................. (1,059) (3,225) (85,000)
Expenses not deductible............................ 9,561 (78,705) (145,086)
Change in valuation allowance...................... -- 569,907 1,925,042
------- -------- ----------
$ (500) $460,569 $1,158,817
======= ======== =========
</TABLE>
Significant components of the Company's deferred tax liabilities and
assets, using a tax rate of 38%, are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Current assets:
Reserves on assets....................................... $ 31,868 $ 46,927
Liabilities not yet deductible........................... 668,497 922,896
----------- ----------
Total current assets..................................... 700,365 969,823
========== =========
Noncurrent assets (liabilities):
Net operating loss carryforwards......................... 1,925,042 944,822
Other.................................................... (18,963) 67,574
----------- ----------
Noncurrent asset......................................... 1,906,079 1,012,396
Less valuation allowance................................. (1,925,042) --
----------- ----------
Net noncurrent asset (liability)......................... (18,963) 1,012,396
----------- ----------
Total net deferred tax asset..................... $ 681,402 $1,982,219
========== =========
</TABLE>
SFAS 109 requires the Company to record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax assets will
not be realized." It further states that "forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in recent years."
The 1995 reduction in valuation allowance results from management's
determination during the fourth quarter of 1995 that it is more likely than not
that the deferred tax assets other than net operating losses would be realized.
Based on 1996 pre-tax income and projected future earnings, management
determined in the fourth quarter of 1996 that it is more likely than not that
the Company's net operating loss carryforwards are realizable. Therefore, the
remaining valuation allowance was removed in 1996.
The ultimate realization of this deferred income tax asset depends on the
Company's ability to generate sufficient taxable income in the future. If the
Company is unable to generate sufficient taxable income in the
F-13
<PAGE> 64
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
future through operating results or tax planning opportunities, increases in the
valuation allowance will be required through a charge to expense (decreasing
shareholders' equity).
At December 27, 1996, the Company had approximately $2.3 million of net
operating loss carryforwards for income tax purposes available to offset future
taxable income, which begin expiring in 2005.
7. SHAREHOLDERS' EQUITY
COMMON STOCK
The transferability of the Company's common stock is restricted by the
terms of a shareholders' agreement which gives the remaining shareholders a
right of first refusal and the Company a right of second refusal in any proposed
sale of the Company's common stock by a shareholder. The shareholders' agreement
will expire on completion of a qualified initial public offering, as defined
therein.
During 1996, the Company granted 32,500 shares of common stock to an
officer of the Company. The transferability of these shares is restricted by the
terms of a restricted stock award agreement between the officer and the Company.
Under the terms of the agreement, the Company retains a permanent right of first
refusal which allows it to repurchase the shares at the current book value in
any proposed sale of the stock by the officer. Compensation has been recorded
based on the book value of the security. In the event the Company removes the
right of first refusal it will be required to recognize compensation expense for
the difference between the then fair market value and book value of the
Company's common stock.
SERIES A PREFERRED STOCK
The Series A Preferred Stock contains a $4.00 per share liquidation
preference over common stock in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
The Series A Preferred Stock is convertible to common stock at the option
of the preferred shareholder at any time at the conversion price as defined in
the Certificate of Designation Establishing Series of Shares ("Certificate").
Under the terms of the Certificate, each preferred shareholder has voting rights
on all matters and participates in dividends to common shares on an
"as-if-converted basis." The initial conversion is defined in the Certificate as
one share of common stock for each share of Series A Preferred Stock. Under the
terms of the Certificate, effective April 29, 1995, the conversion price was
modified, and the aggregate outstanding preferred shares are now convertible
into approximately 1,169,979 common shares. In the event that the Company
effects a public offering of its common stock at a designated offering price and
yielding net proceeds as defined in the Certificate, the preferred shares would
be automatically converted into common shares at the then effective conversion
price as defined in the Certificate. In the event that any public offering of
the Company's common stock does not meet the minimum offering price or net
proceed amounts defined in the agreement, the Company intends to obtain a
commitment from each preferred shareholder to convert the preferred shares to
common shares prior to the consummation of the public offering.
In the event the any shares of Series A Preferred Stock have not been
converted to common stock by August, 1997 or upon the occurrence of a change in
control of the Company, as defined in the Certificate, each preferred
shareholder has the option to cause the Company to redeem the Series A Preferred
Stock at $4.00 per share plus any declared but unpaid dividends. The excess of
the preferred share's redemption value over the carrying value is being accreted
by periodic charges to retained earnings. The Company intends to seek a deferral
of the redemption option.
The transferability of the Company's Series A Preferred Stock is restricted
by the terms of a shareholders' agreement which gives certain other shareholders
a right of first refusal in any proposed sale of the Company's preferred stock
by a shareholder.
F-14
<PAGE> 65
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The Company has two stock incentive plans, the 1987 Stock Option Plan and
the 1996 Stock Incentive Plan, which provide for qualified and non-qualified
incentive stock option grants and other stock based awards for which options may
be granted to "key employees" as designated by the Board of Directors. These
options are exercisable commencing on dates specified in the option agreements.
The options expire at the earlier of ten years from date of grant or three
months after termination of the holder's employment with the Company. The
exercise prices on stock options granted to date range from $4.62 to $7.69 per
share.
The Company periodically issues options to members of its Board of
Directors. These options have the same terms and conditions as the options
issued to employees and expire at the earlier of ten years from date of grant or
three months after termination of service as a member of the Board of Directors.
The Company accounts for options issued to employees and Directors under
APB Opinion No. 25. All options are granted with exercise prices equal to or
greater than management's estimate of the fair value of the Company's common
stock on the date of grant. As a result, no compensation cost has been
recognized.
SFAS 123 establishes new financial accounting and reporting standards for
stock-based compensation plans. The Company has adopted the disclosure-only
provision of SFAS 123. As a result, no compensation cost has been recognized for
the Company's employee stock option plans. Had compensation cost for the
employee stock option plans been determined based on the fair value at the grant
date for awards in 1995 and 1996 consistent with the provisions of SFAS 123, the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts for the 1995 and 1996 fiscal years:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C> <C>
Net income: As reported.................................... $ 541,182 $2,735,695
========= =========
Pro forma...................................... $ 434,164 $2,431,780
========= =========
EPS: As reported.................................... $ 0.19 $ 0.76
========= =========
Pro forma...................................... $ 0.16 $ 0.69
========= =========
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option on its date of grant has been estimated for
pro forma purposes using the Black-Scholes option pricing model using the
following weighted average assumptions:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Expected dividend yield..................................... 0.00% 0.00%
Expected stock price volatility............................. 0.00 0.00
Risk free interest rate..................................... 7.82 5.58
Expected life of options.................................... 10 years 10 years
</TABLE>
F-15
<PAGE> 66
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's option plans, including options
issued to members of the Board of Directors, is as follows for the 1994, 1995
and 1996 fiscal years:
<TABLE>
<CAPTION>
1994
---------
NUMBER OF
SHARES
---------
<S> <C>
Outstanding at beginning of period.......................... 463,847
Granted..................................................... 117,000
Exercised................................................... (42,250)
Canceled.................................................... (68,900)
--------
Outstanding at end of period................................ 469,697
========
Available for future grant.................................. 163,403
========
Exercisable................................................. 251,073
========
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of period......................... 469,697 $5.65
Granted.................................................... 206,700 7.69
Exercised.................................................. -- --
Canceled................................................... (26,000) 6.66
--------- ------
Outstanding at end of period............................... 650,397 $6.57
======== =============
Available for future grant................................. 60,704
========
Exercisable................................................ 363,245 $5.78
======== =============
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at beginning of period......................... 650,397 $6.57
Granted.................................................... 482,300 7.69
Exercised.................................................. (15,685) 6.20
Canceled................................................... (32,091) 6.68
--------- ------
Outstanding at end of period............................... 1,084,921 $6.98
======== =============
Available for future grant................................. 318,994
========
Exercisable................................................ 446,513 $6.11
======== =============
</TABLE>
The weighted average contractual life remaining on options outstanding
under the above plans at December 27, 1996 is 7.5 years.
In addition to the above plans, the Company issued 32,500 options during
1996 to the vice chairman of its Board of Directors in exchange for consulting
services. The options have an exercise price of $7.69 per share and expire in
2005. In 1996, 13,000 of the options vested with the remainder vesting ratably
over the next three years. The options were valued under the provisions of SFAS
123 and appropriate compensation expense was recorded.
During 1995, the Company also issued 325,000 options to an employee and
former shareholder of RCCM. The options are exercisable at $7.69 per share and
will vest at a rate of 65,000 shares per year over a
F-16
<PAGE> 67
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
five year period unless the shareholder is terminated without cause prior to the
end of the vesting period, in which case all options will immediately vest and
will remain in effect until their expiration ten years after date of issuance.
The Company determined the intrinsic value of the options was not material.
STOCK PURCHASE WARRANTS
Prior to 1994, the Company issued 78,000 stock purchase warrants to a
shareholder. Warrants outstanding at December 29, 1995 and December 27, 1996,
total 80,275 and 52,000 respectively, and have exercise prices ranging from
$5.77 to $7.69 per share. The warrants have expiration dates ranging from
January of 1997 to January of 1998.
8. NET INCOME PER SHARE
Earnings per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
fiscal year, which includes the additional dilution related to conversion of
Series A Preferred Stock, stock options and warrants as computed under the
modified treasury stock method.
The following table presents information necessary to calculate earnings
per share for the fiscal years ended December 30, 1994, December 29, 1995 and
December 27, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income..................................... $ 25,977 $ 541,182 $2,735,695
Plus earnings from common stock equivalent
shares (net of tax provision):
Reduction of interest expense................ -- 99,097 286,381
Increase in investment income................ -- -- 93,796
---------- ---------- ----------
Adjusted net income............................ $ 25,977 $ 640,279 $3,115,872
========= ========= =========
Weighted average common shares outstanding..... 1,489,940 1,572,487 1,861,311
Plus additional shares from common stock
equivalent shares:
Options and warrants......................... -- 613,449 1,068,209
Series A Preferred Stock..................... 1,169,979 1,169,979 1,169,979
---------- ---------- ----------
Adjusted weighted average common shares
outstanding.................................. 2,659,919 3,355,915 4,099,499
========= ========= =========
</TABLE>
No adjustments relating to options and warrants have been made to net
income or weighted average common shares outstanding in calculating 1994 primary
earnings per share as the effect of such adjustments would have been
anti-dilutive.
In the fourth quarter of 1997, the Company will be required to adopt the
provisions of SFAS No. 128. Under the standards established by SFAS 128 earnings
per share is measured at two levels: basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares after considering the additional dilution
related to preferred stock, options and warrants.
F-17
<PAGE> 68
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma amounts present the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 in fiscal
1994:
<TABLE>
<CAPTION>
(PRO FORMA)
-----------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Basic earnings per share.................................... $0.02 $0.34 $1.48
===== ===== =====
Diluted earnings per share.................................. $0.02 $0.20 $0.88
===== ===== =====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases various equipment, automobiles, office space and Family
Center facilities under non-cancelable operating leases. Rent expense was
approximately $575,000, $895,000, and $735,000 in 1994, 1995, and 1996,
respectively. Future minimum payments under non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
- ------------------
<S> <C>
1997................................................... $ 443,516
1998................................................... 420,231
1999................................................... 323,066
2000................................................... 130,891
2001................................................... 110,086
Thereafter............................................. 237,500
----------
Total............................................. $1,665,290
=========
</TABLE>
Future minimum lease payments include approximately $544,000 of lease
commitments which are guaranteed by third-parties pursuant to operating
agreements for Family Centers.
EMPLOYMENT AND NONCOMPETE AGREEMENTS
Subsequent to its acquisition of RCCM, the Company entered into an
employment agreement with a former shareholder of RCCM. The agreement contains
certain severance benefits including salary continuation until August 27, 1998
if the employee is terminated without cause prior to that date.
The same individual also entered into an agreement not to compete with the
Company. This agreement provides for the payment of an aggregate of $500,000,
payable in equal yearly installments of $100,000 to the individual beginning on
the earlier of January 1, 1999 or the date of closing of an initial public
offering, subject to certain limitations, in exchange for the individual's
commitment not to compete with the Company for a period of five years from the
date of his termination.
OTHER
The Company is a defendant in certain legal matters in the ordinary course
of business. Management believes that the resolution of such matters will not
have a material effect on the Company's financial condition or results of
operations.
The Company's Family Centers are subject to numerous federal, state and
local regulations and licensing requirements. Failure of a center to comply with
applicable regulations can subject it to governmental sanctions which could
require expenditures by the Company to bring its Family Centers into compliance.
F-18
<PAGE> 69
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
During 1996, the Company maintained a tax-exempt 401(k) Retirement Savings
Plan (the "Plan") for all full-time employees with over one year of service.
During 1996, employees could contribute up to the lesser of $9,500 or 20% of
their salaries, subject to IRS limitations. The Company does not make
contributions to the Plan.
During 1996, the Company's subsidiary RCCM, maintained a tax-exempt 401(k)
Retirement Savings Plan for employees with over 90 days of service. During 1996
employees could contribute up to the lesser of $9,500 or 20% of their salaries,
subject to IRS limitations. The Company made contributions of approximately
$41,000 in 1996.
Plan administrative expenses paid by the Company during 1994, 1995, and
1996 were $8,510, $8,250, and $30,484, respectively.
11. RELATED PARTY TRANSACTIONS
During 1994 and 1995, the Company maintained a verbal consulting agreement
with a member of the Company's Board of Directors for development and marketing
services. The agreement was terminated in December 1995 in connection with the
individual's resignation from the Board of Directors. Fees paid under this
agreement totaled $60,000 in 1994 and $61,000 in 1995.
The Company purchases food from a shareholder for use in several Company
managed Family Centers. Total food purchases from the shareholder during 1994,
1995, and 1996 fiscal years were approximately $330,000, $420,000, and $417,000,
respectively.
The Company has agreements with two shareholders to operate and manage
Family Centers for the shareholders' employees. Under the terms of the
agreements the Company receives annual management fees. During 1994, 1995, and
1996 fiscal years, the Company received management fees from the shareholders
totaling approximately $102,000, $68,000 and $134,000, respectively.
The Company has also entered into an agreement with the employer of one
member of its Board of Directors to operate and manage a Family Center and
provide consulting services on an ongoing basis. In return for its services
under this agreement, the Company received management fees of $0, $12,500,
$50,000 and consulting fees of $0, $0, $25,000, respectively for fiscal 1994,
1995 and 1996.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of financial instruments is made in
accordance with the requirements of Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of Financial Instruments". The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies.
CASH, ACCOUNTS RECEIVABLE, AND ACCOUNTS PAYABLE
The carrying amounts of these items are a reasonable estimate of their fair
value due to their short-term nature.
LONG-TERM DEBT
The estimated fair value of long-term debt is based on management's
estimate of the present value of estimated future cash flows discounted at the
current market rate for financial instruments with similar characteristics and
maturity. At December 27, 1996 such fair value approximates the carrying amounts
for long-term debt in the accompanying consolidated balance sheets.
F-19
<PAGE> 70
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK SPLIT
On July 17, 1997, the Board of Directors approved a stock split in which
each existing share of the Company's common stock was exchanged for 0.65 shares
of common stock. All share and per share amounts have been retroactively
restated for all periods presented to reflect this stock split.
F-20
<PAGE> 71
CORPORATEFAMILTY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 27, 1996 AND MARCH 28, 1997
<TABLE>
<CAPTION>
DECEMBER 27, MARCH 28,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,913,388 $ 2,389,036
Restricted cash........................................... 168,858 171,348
Accounts receivable, net.................................. 5,304,678 4,641,661
Prepaid expenses.......................................... 90,249 104,239
Deferred tax asset........................................ 969,823 969,823
----------- -----------
Total current assets.............................. 9,446,996 8,276,107
PROPERTY AND EQUIPMENT, net................................. 3,757,201 3,687,476
INTANGIBLE ASSETS, net...................................... 5,752,813 5,651,055
DEFERRED TAX ASSET.......................................... 1,012,396 1,012,396
OTHER ASSETS................................................ 311,128 444,201
----------- -----------
Total assets...................................... $20,280,534 $19,071,235
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 911,000 $ 911,000
Trade accounts payable.................................... 1,289,050 473,429
Income tax payable........................................ 137,743 233,652
Accrued expenses:
Payroll and related benefits........................... 3,244,602 2,830,052
Other.................................................. 1,257,391 1,193,513
Deferred revenue, current portion......................... 668,882 644,670
Amounts held in escrow.................................... 168,858 171,348
----------- -----------
Total current liabilities......................... 7,677,526 6,457,664
LONG-TERM DEBT, net of current portion...................... 3,504,673 3,282,358
DEFERRED REVENUE, net of current portion.................... 978,722 949,492
OTHER LONG-TERM LIABILITIES................................. 1,143,992 1,175,042
----------- -----------
Total liabilities................................. 13,304,913 11,864,556
----------- -----------
COMMITMENTS, CONTINGENCIES AND GUARANTEES
SHAREHOLDERS' EQUITY:
Series A preferred stock, no par value; authorized,
5,000,000 shares; issued and outstanding, 1,125,000
shares................................................. 4,480,372 4,480,372
Common stock, no par value; authorized, 10,000,000 shares;
issued and outstanding, 1,866,203 and 1,866,424 shares,
respectively........................................... 6,906,114 6,907,814
Accumulated deficit....................................... (4,410,865) (4,181,507)
----------- -----------
Total shareholders' equity........................ 6,975,621 7,206,679
----------- -----------
Total liabilities and shareholders' equity........ $20,280,534 $19,071,235
========== ==========
</TABLE>
F-21
<PAGE> 72
CORPORATE FAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 29, 1996 AND MARCH 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
REVENUE..................................................... $14,435,369 $17,479,991
EXPENSES:
Operating................................................. 12,696,924 15,341,889
Selling, general and administrative....................... 1,132,694 1,415,872
Depreciation and amortization............................. 188,489 200,010
----------- -----------
OPERATING INCOME............................................ 417,262 522,220
INTEREST EXPENSE, NET....................................... 132,609 71,862
----------- -----------
INCOME BEFORE INCOME TAXES.................................. 284,653 450,358
----------- -----------
INCOME TAX EXPENSE.......................................... 6,631 221,000
----------- -----------
NET INCOME.................................................. $ 278,022 $ 229,358
========== ==========
NET INCOME PER SHARE........................................ $ 0.11 $ 0.10
========== ==========
</TABLE>
F-22
<PAGE> 73
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 29, 1996 AND MARCH 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 278,022 $ 229,358
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 188,489 200,010
Changes in assets and liabilities......................
Decrease in accounts receivable...................... 203,588 663,017
Increase in prepaid expenses......................... (2,478) (13,990)
Increase (decrease) in accounts payable and accrued
expenses............................................ 16,574 (1,294,049)
Increase in income taxes payable..................... -- 95,909
Increase (decrease) in deferred income............... 103,366 (53,442)
Increase (decrease) in other long-term liabilities... (107,912) 31,050
Decrease (increase) in other non-current assets...... 70,699 (133,073)
---------- -----------
Net cash provided by (used in) operating
activities...................................... 750,348 (275,210)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net................... (14,477) (28,527)
---------- -----------
Net cash used in investing activities............. (14,477) (28,527)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt................................ (4,800) (222,315)
Proceeds from issuance of common stock.................... 92,570 1,700
---------- -----------
Net cash provided by (used in) financing
activities...................................... 87,770 (220,615)
---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 823,641 (524,352)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 1,584,597 2,913,388
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $2,408,238 $ 2,389,036
---------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest................................. $ 141,713 $ 100,172
========= ==========
Cash payments of income taxes............................. $ -- $ 125,091
========= ==========
</TABLE>
F-23
<PAGE> 74
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 28, 1997 and the consolidated
statements of operations and cash flows for the periods ended March 29, 1996 and
March 28, 1997 have been prepared by the Company in accordance with the
accounting policies described in its annual financial statement for the year
ended December 27, 1996 and should be read in conjunction with the notes
thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial positions,
results of operations and changes in cash flows at March 28, 1997 and for all
periods presented have been made. The results of operations for the period ended
March 28, 1997 are not necessarily indicative of the operating results for the
full year.
2. NET INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
fiscal year, which includes the additional dilution related to conversion of
preferred stock, stock options and warrants as computed under the modified
treasury stock method.
The following table presents information necessary to calculate earnings
per share for the fiscal years ended March 29, 1996 and March 28, 1997:
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
---------- ----------
<S> <C> <C>
Net income.................................................. $ 278,022 $ 229,358
Plus earnings from common stock equivalent shares (net of
tax provision):
Reduction of interest expense.......................... 90,081 61,825
Increase in investment income.......................... 72,631 127,374
---------- ----------
Adjusted net income......................................... $ 440,734 $ 418,557
========= =========
Weighted average common shares outstanding.................. 1,849,804 1,866,203
Plus additional shares from common stock equivalent shares:
Options and warrants...................................... 1,070,510 1,195,606
Preferred shares.......................................... 1,169,979 1,169,979
---------- ----------
Adjusted weighted average common shares outstanding......... 4,090,293 4,231,788
========= =========
</TABLE>
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"), has been issued effective for fiscal periods ending after December
15, 1997. SFAS 128 establishes standards for computing and presenting earnings
per share. The Company is required to adopt the provisions of SFAS 128 in the
fourth quarter of 1997. Under the standards established by SFAS 128, earnings
per share is measured at two levels: basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares after considering the additional dilution
related to preferred stock, convertible debt, options and warrants.
The following pro forma amounts represent the basic earnings per share and
diluted earnings per share as if the Company had adopted SFAS 128 for the
quarters presented:
<TABLE>
<CAPTION>
MARCH 29, MARCH 28,
1996 1997
--------- ---------
<S> <C> <C>
Basic earnings per share.................................... $0.15 $0.12
======= =======
Diluted earnings per share.................................. $0.08 $0.07
======= =======
</TABLE>
F-24
<PAGE> 75
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Resources for Child Care Management, Inc.
We have audited the accompanying statements of operations, shareholders'
equity and cash flows of Resources for Child Care Management, Inc. (a New Jersey
corporation) and subsidiaries for the nine months ended September 30, 1995.
These statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Resources for
Child Care Management, Inc. and subsidiaries for the nine months ending
September 30, 1995, in conformity with generally accepted accounting principles.
Nashville, Tennessee
March 14, 1997
F-25
<PAGE> 76
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
<S> <C>
Tuition, consultation and fee revenue....................... $11,813,229
-----------
Center operating expenses................................... 10,985,900
Management and general expenses............................. 1,849,545
-----------
12,835,445
-----------
Loss from operations........................................ (1,022,216)
Interest expense............................................ (8,572)
-----------
Loss before income tax...................................... (1,030,788)
-----------
Income tax expense (benefit) (Notes 1 and 5)
Current................................................... 30,007
Deferred.................................................. (383,699)
-----------
(353,692)
-----------
Net loss.......................................... $ (677,096)
==========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 77
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN TREASURY ACCUMULATED
STOCK CAPITAL STOCK DEFICIT TOTAL
------ ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994................ $558 $119,315 $ -- $ (378,202) $$(258,329)
Net loss................................ -- -- -- (677,096) (677,096)
Purchase of treasury shares............. -- -- (25,000) -- (25,000)
---- -------- -------- ----------- ---------
Balance, September 30, 1995............... $558 $119,315 $(25,000) $(1,055,298) $(960,425)
====== ======== ======== ========== =========
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 78
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net loss.................................................... $ (677,096)
-----------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization.......................... 68,332
Amortization of construction advance................... (48,715)
(Increase) decrease in assets
Accounts receivable.................................. (833,757)
Deferred income taxes................................ (383,699)
Increase (decrease) in liabilities
Accounts payable..................................... 409,930
Accrued salaries and vacation payable................ 464,910
Other accrued expenses............................... 53,105
-----------
Total adjustments................................. (269,894)
-----------
Net cash used in operating activities............. (946,990)
-----------
Cash flow from financing activities
Repurchase of common stock................................ (25,000)
Deferred income........................................... 897,623
Increase in note payable to bank.......................... 375,000
Repayment of long-term debt............................... (27,444)
Working capital advances.................................. 747,320
-----------
Net cash provided by financing activities......... 1,967,499
-----------
Cash flows from investing activities
Additions to property and equipment....................... (1,158,431)
Other..................................................... 41,489
-----------
Net cash used in investing activities............. (1,116,942)
-----------
Net decrease in cash........................................ (96,433)
Cash, beginning period...................................... 96,433
-----------
Cash, end of period......................................... $ --
==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 54,400
==========
Income taxes........................................... $ --
==========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 79
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Resources for Child Care Management, Inc. and Subsidiaries (the "Company")
provides consulting services and develops and operates workplace child care
programs in response to the work/family issues affecting the employees of its
corporate clients.
(B) CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Resources for Child Care Management of
Florida, Inc. and Child Care Management Services, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(C) REVENUE RECOGNITION
Revenue is recognized as services are performed. No allowance for doubtful
accounts has been established based on management's expectation of collections.
(D) PROPERTY AND EQUIPMENT
The cost of property and equipment (other than leasehold improvements) is
charged to operations over the estimated useful lives of the respective assets
using depreciation computed by the straight-line method as follows:
<TABLE>
<S> <C>
Building.................................................... 30-32 Years
Furniture, fixtures and equipment........................... 3-10 Years
Office equipment............................................ 5 Years
Leasehold improvements...................................... Life of lease
</TABLE>
Maintenance and minor repairs and replacements are charged directly to
operations. Major renewals and improvements are capitalized.
(E) FURNITURE, FIXTURES AND EQUIPMENT EXCHANGE
Under certain operating agreements, the Company contracts with their client
to purchase suitable furniture and equipment to set up the child care center. In
these instances the client advances funds to the Company. Title to any such
furnishings is retained by the client; unexpended funds are returned to the
client.
(F) WORKING CAPITAL ADVANCES
Each client under contract provides a working capital advance to fund the
operating expenses of the program until such program is fully operational. At
that time, any remaining balance becomes part of the operating budget. At the
end of each contract, the client has the option of requesting the return of any
working capital advance surplus in excess of expenses incurred.
(G) DEFERRED INCOME TAXES
Certain income and expense items are accounted for in different periods for
income tax purposes than for financial reporting purposes. Provisions for
deferred taxes are made in recognition of these timing differences.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and tax bases of assets and
liabilities existing
F-29
<PAGE> 80
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at each balance sheet date, using enacted tax rates for years in which taxes are
expected to be paid or recovered.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from these estimates.
NOTE 2 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following at September 30,
1995:
<TABLE>
<CAPTION>
<S> <C>
Building.................................................... 1,965,188
Furniture, fixtures and equipment........................... 419,931
Leasehold improvements...................................... 23,133
----------
2,408,252
Less: Accumulated depreciation and amortization............. 262,177
----------
$2,146,075
=========
</TABLE>
Construction advances of $1,290,500 have been received to finance the
building of a child care facility in Westchester County, New York. Such advances
have been recorded as deferred revenue when received. The Company is required to
maintain certain standards relating to the ongoing operations of the center for
a minimum operating period as defined in agreements with the parties advancing
the funds. In the absence of default under agreements with these parties,
repayment of the funds received is forgiven on a pro-rata basis over a ten to
fifteen year period. The Company recognizes this forgiveness of the advances as
income on the same pro-rata basis. During the nine month period ended September
30, 1995 the Company recognized income of $48,715, and at September 30, 1995,
$1,241,785 of the original funding remains in deferred revenue on the Company's
consolidated balance sheet.
NOTE 3 -- NOTE PAYABLE -- BANK
The Company has a note payable to a bank totaling $200,000 as of September
30, 1995. The note bears interest at 1.75% over the bank's prime rate and is due
on demand. The note is secured by accounts receivable.
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following at September 30, 1995:
<TABLE>
<S> <C>
Promissory note to bank, monthly payments of $5,655
including interest at the bank's prime rate plus .5% (9%
at December 29, 1995), maturing November 1, 1999.......... 518,748
Promissory note to bank, monthly payments of $4,403
including interest at 9.875%, maturing April 15, 2010. The
fixed interest rate will be adjusted in April 2000 and
again in April 2005 to 300 basis points in excess of the
weekly average yield on five year United States Treasury
Securities................................................ 400,000
--------
918,748
Less current maturities..................................... (33,180)
--------
$885,568
========
</TABLE>
F-30
<PAGE> 81
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The promissory notes to bank are secured primarily by substantially all of
the Company's accounts receivable, furniture and equipment and buildings.
NOTE 5 -- INCOME TAXES
Deferred income taxes result from the use of the accrual basis of
accounting for financial statement reporting purposes and the cash basis of
accounting for income tax purposes and differences in the recording of
depreciation expense.
NOTE 6 -- LEASES
The company leases various equipment, automobiles, office space and child
care facilities under non-cancelable operating leases. Rent expense was
approximately $71,000 for the nine months ended September 30, 1995. Future
minimum payments under non-cancelable operating leases are as follows:
<TABLE>
<S> <C>
1996........................................................ $158,662
1997........................................................ 28,435
1998........................................................ 22,000
1999........................................................ 22,000
2000........................................................ 22,000
</TABLE>
F-31
<PAGE> 82
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
of Resources for Child Care Management, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Resources
for Child Care Management, Inc. and Subsidiaries as of December 31, 1994 and the
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial position
of Resources for Child Care Management, Inc. and Subsidiaries as of December 31,
1994 and the results of their operations and their cash flows for the year ended
December 31, 1994, in conformity with generally accepted accounting principles.
TRIEN, ROSENBERG, FELIX
ROSENBERG, BARR & WEINBERG
March 9, 1995, except note 8(f)
which is as of May 8, 1995.
F-32
<PAGE> 83
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets
Cash...................................................... $ 96,433
Accounts receivable (Notes 1 and 5)....................... 573,083
Loan receivable........................................... 12,500
Prepaid expenses.......................................... 62,827
Deferred income taxes (Notes 1 and 7)..................... 177,000
----------
Total current assets.............................. 921,843
----------
Property and equipment, at cost, less accumulated
depreciation and amortization of $193,845 (Notes 1, 3, and
6)........................................................ 1,055,976
----------
Other assets
Deposits.................................................. 14,458
Cash surrender value of officer's life insurance policy... 36,079
Split-dollar insurance receivable (Note 4)................ 15,746
Other..................................................... 10,600
----------
76,883
----------
$2,054,702
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.......................................... $ 325,693
Note payable -- bank (Note 5)............................. 225,000
Current maturities of long-term debt (Note 6)............. 19,500
Accrued salaries and vacation pay......................... 342,314
Other accrued expenses.................................... 110,943
----------
Total current liabilities......................... 1,023,450
----------
Long-term debt, less current maturities (Note 6)............ 526,692
Deferred income (Note 8).................................... 392,877
Working capital advances (Note 1)........................... 370,012
----------
1,289,581
----------
Commitments and contingencies (Note 8)
Shareholders' equity
Common stock, $.01 par value
Authorized: 56,000 shares
Issued and outstanding: 55,791 shares.................. 558
Additional paid-in capital.................................. 119,315
Accumulated deficit......................................... (378,202)
----------
(258,329)
----------
$2,054,702
=========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 84
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
<S> <C>
Tuition, consultation and fee revenue....................... $13,192,148
-----------
Center operating expenses................................... 11,938,686
Management and general expenses............................. 1,503,934
-----------
13,442,620
-----------
Loss from operations........................................ (250,472)
Interest income............................................. 2,629
-----------
Loss before income taxes.................................... (247,843)
-----------
Income tax (credit) expense (Notes 1 and 7)
Current................................................... 1,149
Deferred.................................................. (105,962)
-----------
(104,813)
-----------
Net loss.......................................... $ (143,030)
==========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 85
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993*.......................... $556 $116,317 $(235,172) $(118,299)
Net loss........................................... -- -- (143,030) (143,030)
Capital contribution............................... 2 2,998 -- 3,000
---- -------- --------- ---------
Balance, December 31, 1994........................... $558 $119,315 $(378,202) $(258,329)
====== ======== ========= =========
</TABLE>
- ---------------
* Restated, see Note 2.
See accompanying notes to financial statements.
F-35
<PAGE> 86
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities Net loss............... $(143,030)
---------
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization.......................... 46,970
(Increase) decrease in assets
Accounts receivable.................................. (83,546)
Prepaid expenses..................................... (8,235)
Deferred income taxes................................ (105,962)
Deposits............................................. (2,341)
Other................................................ (16,346)
Increase (decrease) in liabilities
Accounts payable..................................... 63,381
Accrued salaries and vacation payable................ 57,087
Income taxes payable................................. (33,941)
Other accrued expenses............................... 62,249
---------
Total adjustments................................. (20,684)
---------
Net cash used in operating activities............. (163,714)
---------
Cash flow from financing activities
Issuance of common stock.................................. 3,000
Deferred income........................................... 392,877
Increase in note payable -- bank.......................... 225,000
Repayment of long-term debt............................... (31,920)
Decrease in furniture, fixtures and equipment exchange.... (23,970)
Working capital advances.................................. 100,372
---------
Net cash provided by financing activities......... 665,359
---------
Cash flows from investing activities
Additions to property and equipment....................... (432,737)
Increase in cash surrender value of life insurance........ (12,687)
---------
Net cash used in investing activities............. (445,424)
---------
Net increase in cash........................................ 56,221
Cash, beginning year........................................ 40,212
---------
Cash, end of year........................................... $ 96,433
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................... $ 15,002
Income taxes........................................... 35,090
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the year ended December 31, 1994, the Company assumed long-term debt
of $547,910 in connection with the purchase of property and equipment (see Note
6).
See accompanying notes to financial statements.
F-36
<PAGE> 87
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF BUSINESS
Resources for Child Care Management, Inc. and Subsidiaries (the "Company")
provides consulting services and develops and operates workplace child care
programs in response to the work/family issues affecting the employees of its
corporate clientele.
(B) CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Resources for Child Care Management of
Florida, Inc. and Child Care Management Services, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(C) REVENUE RECOGNITION
Revenue is recognized as services are performed. No allowance for doubtful
accounts has been established based on management's expectation of collections.
(D) PROPERTY AND EQUIPMENT
The cost of property and equipment (other than leasehold improvements) is
charged to operations over the estimated useful lives of the respective assets
using depreciation computed by the straight-line method as follows:
<TABLE>
<S> <C>
Building.................................................... 39 Years
Furniture, fixtures and equipment........................... 7-10 Years
Office equipment............................................ 5 Years
Leasehold improvements...................................... Life of lease
</TABLE>
Maintenance and minor repairs and replacements are charged directly to
operations. Major renewals and improvements are capitalized.
(E) FURNITURE, FIXTURES AND EQUIPMENT EXCHANGE
Under certain operating agreements, the Company contracts with their client
to purchase suitable furniture and equipment to set up the child care center. In
these instances the client advances funds to the Company. Title to any such
furnishings is retained by the client, unexpended funds are returned to the
client.
(F) WORKING CAPITAL ADVANCES
Each client under contract provides a working capital advance to fund the
operating expenses of the program until such program is fully operational. At
that time, any remaining balance becomes part of the operating budget. At the
end of each contract, the client has the option of requesting the return of any
working capital advance surplus in excess of expenses incurred.
(G) DEFERRED INCOME TAXES
Certain income and expense items are accounted for in different periods for
income tax purposes than for financial reporting purposes. Provisions for
deferred taxes are made in recognition of these timing differences.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and tax bases of assets and
liabilities existing
F-37
<PAGE> 88
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at each balance sheet date, using enacted tax rates for years in which taxes are
expected to be paid or recovered.
NOTE 2 -- RESTATEMENT
Accumulated deficit has been restated to reflect the following:
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
-----------
<S> <C>
Balance as of and for the year ended December 31, 1993, as
previously reported....................................... $ 46,815
Restatements attributable to:
Salary expense accrual adjustment, less deferred income
taxes of $55,579....................................... 82,877
Due from QCC written off, less deferred income taxes of
$67,440................................................ 105,480
--------
Balance as of and for the year ended December 31, 1993, as
restated.................................................. $235,172
=========
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following at December 31,
1994:
<TABLE>
<CAPTION>
<S> <C>
Construction in progress (Note 8)........................... $ 415,665
Building (Note 6)........................................... 547,910
Furniture, fixtures and equipment........................... 246,733
Office equipment............................................ 35,138
Leasehold improvements...................................... 4,375
----------
1,249,821
Less: Accumulated depreciation and amortization............. 193,845
----------
$1,055,976
=========
</TABLE>
NOTE 4 -- SPLIT-DOLLAR INSURANCE RECEIVABLE
During the year ended December 31, 1994, the Company maintained a
split-dollar insurance policy on the life of the principal shareholder.
Spilt-dollar insurance receivable consists of premiums paid by the Company which
will be reimbursed from the proceeds of the policy.
NOTE 5 -- NOTE PAYABLE -- BANK
During 1994, the Company executed a $250,000 commercial note with the bank,
payable on demand and bearing interest at the bank's prime rate plus 1.75%. The
principal amount outstanding under the note at December 31, 1994 was $225,000.
The obligation is collateralized by accounts receivable.
NOTE 6 -- LONG-TERM DEBT
During 1994, the Company assumed a mortgage obligation of $47,910 in
connection with its acquisition of a building used as a day care facility. The
mortgage note bears interest at the bank's prime rate plus one-half percent per
annum and is repayable in monthly installments of $5,655, including interest,
through October 1999 when the outstanding principal balance of approximately
$433,000 is due.
F-38
<PAGE> 89
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The mortgage obligation is personally guaranteed by the Company's principal
shareholder.
Minimum annual principal repayments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
<S> <C>
1995........................................................ $ 19,500
1996........................................................ 21,329
1997........................................................ 23,330
1998........................................................ 25,518
1999........................................................ 456,515
--------
$546,192
========
</TABLE>
NOTE 7 -- INCOME TAXES
Deferred income taxes result from the use of the accrual basis of
accounting for financial statement reporting purposes and the cash basis of
accounting for income tax purposes, differences in the recording of depreciation
expense, and net operating losses which are available to offset future taxable
income.
The federal net operating losses expire as follows: $145,000 in 2007 and
$211,000 in 2009.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
(A) SAVINGS AND RETIREMENT PLAN
The Company established an employee savings and retirement plan effective
October 1, 1990, pursuant to Section 401(k) of the Internal Revenue Code.
Employees may contribute up to 15% of their salary, subject to maximum annual
contributions.
(B) EMPLOYEE BENEFITS
Under the Company's cafeteria benefit plan each salaried employee may
choose among health, dental, life and disability insurance, dependent care, and
retirement benefits. The Company contributes from $150 to $180 per month per
employee towards the cost of the selected options. The excess coverage cost is
deducted from the employee's salary on a pretax basis.
(C) CENTER OPERATING LEASES
The Company has entered into long-term operating leases for facilities and
transportation equipment through 2011 in connection with the operation of day
care facilities, as follows:
<TABLE>
<CAPTION>
TRANSPORTATION
YEAR ENDING DECEMBER 31 TOTAL FACILITIES EQUIPMENT
- ----------------------- -------- ---------- --------------
<S> <C> <C> <C>
1995........................................................ $ 54,880 $ 20,500 $34,380
1996........................................................ 50,187 20,500 29,687
1997........................................................ 26,017 20,500 5,517
1998........................................................ 20,500 20,500 --
1999........................................................ 20,500 20,500 --
Thereafter.................................................. 246,000 246,000 --
-------- -------- -------
$418,084 $348,500 $69,584
======== ======== ==========
Rent expense for the year ended December 31, 1994........... $ 62,014 $ 28,250 $33,764
======== ======== ==========
</TABLE>
The facilities lease is subject to increases based on Consumer Price Index
adjustments. The facilities lease expires 2011; the Company has the option to
renew the lease for two additional five-year periods.
F-39
<PAGE> 90
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(D) OPERATING LEASES -- ADMINISTRATION
The Company leases its administrative headquarters in Morristown, New
Jersey under a five-year lease expiring in October 1997. The Company pays all
gas and electric charges; the landlord pays for all maintenance and garbage
removal services. Rental payments are adjusted for actual yearly increases in
municipal real estate taxes.
The Company also leases transportation equipment for its administrative
headquarters under leases expiring through 1997.
These long-term operating leases require minimum annual rentals as follows:
<TABLE>
<CAPTION>
TRANSPORTATION
YEAR ENDING DECEMBER 31 TOTAL FACILITIES EQUIPMENT
- ----------------------- -------- ---------- --------------
<S> <C> <C> <C>
1995........................................................ $ 69,840 $ 55,992 $13,848
1996........................................................ 64,346 55,992 8,754
1997........................................................ 46,660 46,660 --
-------- -------- -------
$180,846 $158,644 $22,602
======== ======== ==========
Rent expense for the year ended December 31, 1994........... $ 65,941 $ 55,992 $ 9,949
======== ======== ==========
</TABLE>
(E) MAJOR CLIENTS
The Company earned revenue from major clients as follows for the year end
December 31, 1994:
<TABLE>
<CAPTION>
<S> <C>
Percentage of revenue....................................... 38%
Number of major clients..................................... 3
</TABLE>
(F) CONSTRUCTION IN PROGRESS
During 1994, the Company committed to construct a day care facility in
Westchester County, New York. The estimated cost of the facility is
approximately $2,110,000 (unaudited), which is expected to be funded as follows:
<TABLE>
<S> <C>
Client advances (unaudited)................................. $1,710,000
Bank financing.............................................. 400,000
----------
$2,110,000
=========
</TABLE>
Client advances of $392,877 (through December 31, 1994) and $797,235
(through May 8, 1995) have been received to finance the construction in
progress. Such advances are recorded as deferred income when received. The
deferred income will be amortized over 15 years, the minimum operating period as
defined in the Company's Operating Agreement with clients, commencing with the
opening of the day care facility. In the event of default by the Company under
the Operating Agreement, amounts advanced may have to be returned to the
clients.
On May 8, 1995 the Company executed a $400,000 commercial mortgage note
with a bank, repayable over 15 years (the "note"). The note is collateralized by
accounts receivable, the premises to be constructed and certain rights related
to such property. The note is personally guaranteed by the principal shareholder
of the Company.
F-40
<PAGE> 91
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The note bears interest at an adjustable rate as follows:
<TABLE>
<S> <C>
Through April 15, 2000.......................... 9.875% per annum
From April 16, 2000
through April 15, 2005........................ The 5-year U.S. Treasury Securities' rate
in effect at February 28, 2000, plus 3%
From April 16, 2005 through
April 15, 2010 (due date)..................... The 5-year U.S. Treasury Securities' rate
in effect at February 28, 2005, plus 3%
</TABLE>
The note is repayable, (i) interest only through April 15, 1996, (ii) in
equal monthly installments of $4,403 which include principal and interest from
April 16, 1996 through April 15, 2000. The monthly installments shall be recast
at April 16, 2000 and again on April 16, 2006 to provide that the then
outstanding principal balance self-amortizes in equal monthly installments which
include principal and interest through April 15, 2010. Minimum annual principal
repayments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------------------------------------------ --------
<S> <C>
1995........................................................ $ --
1996........................................................ 10,335
1997........................................................ 15,025
1998........................................................ 16,578
1999........................................................ 18,291
Thereafter.................................................. 339,771
--------
$400,000
========
</TABLE>
The Company is subject to certain restrictive financial covenants under the
note.
F-41
<PAGE> 92
======================================================
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such offer or solicitation
would be unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company, or that information contained
herein is correct as of any time, subsequent to the date hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 11
Dividend Policy....................... 11
Dilution.............................. 12
Capitalization........................ 13
Selected Consolidated Financial and
Operating Data...................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 32
Principal and Selling Shareholders.... 39
Certain Transactions.................. 41
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 45
Underwriting.......................... 47
Legal Matters......................... 48
Experts............................... 48
Additional Information................ 49
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
----------------------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
======================================================
======================================================
SHARES
[CORPORATEFAMILY LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
, 1997
======================================================
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized estimate of fees and expenses
payable by the Registrant in connection with the Offering described in the
Registration Statement, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 9,200
NASD fee.................................................... 3,536
Nasdaq Stock Market application fee.........................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing and engraving expenses.............................
Blue sky fees and expenses.................................. 3,000*
Transfer agent and registrar fees...........................
Miscellaneous fees and expenses............................. $
--------
Total............................................. $
========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Tennessee Business Corporation Act ("TBCA") provides that a corporation
may indemnify any director or officer against liability incurred in connection
with a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interest, or, in all other cases, that his or her conduct was
not opposed to the best interests of the corporation, and (iii) in connection
with any criminal proceeding, the director or officer had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the TBCA provides that no indemnification may
be made if the director or officer is adjudged to be liable to the corporation.
Similarly, the TBCA prohibits indemnification in connection with any proceeding
charging improper personal benefit to director or officer, if such director or
officer is adjudged liable on the basis that a personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as an director or officer of a corporation, the TBCA mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the TBCA provides
that a court of competent jurisdiction, upon application, may order that a
director or officer be indemnified for reasonable expense if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, whether or not the standard
of conduct set forth above was met.
The Amended and Restated Charter (the "Charter") and Amended and Restated
Bylaws of the Company will provide that the Company will indemnify from
liability, and advance expenses to, any present or former director or officer of
the Company to the fullest extent allowed by the TBCA, as amended from time to
time, or any subsequent law, rule, or regulation adopted in lieu thereof.
Additionally, the Charter provides that no director of the Company will be
personally liable to the Company or any of its shareholders for monetary damages
for breach of any fiduciary duty except for liability arising from (i) any
breach of a director's duty of loyalty to the Company or its shareholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) any unlawful distributions, or (iv) receiving
any improper personal benefit. The Company has entered into indemnification
agreements with each of the Company's directors and executive officers.
II-1
<PAGE> 94
The proposed form of the Underwriting Agreement filed as Exhibit 1 to this
Registration Statement contains certain provisions relating to the
indemnification of the Company and its controlling persons by the Underwriters
and relating to the indemnification of the Underwriters by the Company, its
controlling persons and the Selling Shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has not issued unregistered securities during the past three
years, except as noted below:
Since June 1994, the Company has issued 46,456 shares of Common Stock
upon the exercise of stock options granted (i) to non-employee directors of
the Company and (ii) to employees pursuant to the Company's option plans,
with a weighted average exercise price of $5.32.
On October 2, 1995, the Company issued 324,995 shares of Common Stock
as consideration for the acquisition of all the shares of common stock of
RCCM, at an assumed price of $5.38 per share of the Company's Common Stock.
On April 18, 1996, the Company granted 32,500 shares of Common Stock
to Michael E. Hogrefe pursuant to a restricted stock award agreement in
consideration of services to be provided to the Company.
Each of the above issuances was completed pursuant to the exemption found
in Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1* -- Form of Underwriting Agreement
2 -- Agreement and Plan of Merger among Corporate Child Care,
Inc., CCC Acquisition Corporation, Resources for Child Care
Management, Inc., and Robert D. Lurie dated August 27, 1995
3.1* -- Amended and Restated Charter of Registrant
3.2* -- Amended and Restated Bylaws of Registrant
4.1* -- Specimen Common Stock certificate
4.2* -- Article of the Registrant's Amended and Restated
Charter (included in Exhibit 3.1)
5* -- Opinion of Bass, Berry & Sims PLC
10.1* -- CorporateFamily Solutions, Inc. Employee Stock Ownership
Plan
10.2* -- CorporateFamily Solutions, Inc. 1997 Stock Incentive Plan
10.3 -- Amended and Restated 1987 Stock Option Plan
10.4 -- 1996 Stock Incentive Plan
10.5 -- Employment Agreement of Robert D. Lurie dated August 27,
1995
10.6 -- Agreement Not to Compete of Robert D. Lurie dated August 27,
1995
10.7 -- Letter Agreement with Lamar Alexander dated August 26, 1996
10.8 -- Form of Severance Agreement.
10.9* -- Revolving Credit Agreement
10.10 -- Form of Indemnification Agreement
10.11 -- Registration Agreement dated August 29, 1991
10.12 -- Stock Purchase Warrant dated January 15, 1993
</TABLE>
II-2
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Arthur Andersen LLP
23.3 -- Consent of Trien, Rosenberg, Rosenberg, Weinberg, Ciullo &
Fazzari, LLP
23.4* -- Consent of Bass, Berry & Sims PLC (to be included in Exhibit
5)
24 -- Power of Attorney (included in signature page)
27 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
(b) The following report and schedule is filed as part of the Registration
Statement:
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>
No other schedules are required or are applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered hereunder, the
Registrant will, unless in the opinion of its counsel the question has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Nashville, Tennessee on June 18,
1997.
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Marguerite W. Sallee
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to the
Registration Statement appears below hereby constitutes and appoints Marguerite
W. Sallee and Michael E. Hogrefe, and each of them, with full power to act
without the other, as his attorney-in-fact, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (until revoked in writing) to sign any and all amendments to this
Registration Statement (including post-effective amendments and amendments
thereto) and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and, in each case, to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
each of them full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARGUERITE W. SALLEE President and Chief Executive June 18, 1997
- ----------------------------------------------------- Officer (Principal Executive
Marguerite W. Sallee Officer)
/s/ MICHAEL E. HOGREFE Executive Vice President, Chief June 18, 1997
- ----------------------------------------------------- Financial Officer and
Michael E. Hogrefe Secretary (Principal Financial
and Accounting Officer)
/s/ ROBERT D. LURIE Chairman of the Board and June 18, 1997
- ----------------------------------------------------- Director
Robert D. Lurie
/s/ LAMAR ALEXANDER Vice Chairman of the Board and June 18, 1997
- ----------------------------------------------------- Director
Lamar Alexander
</TABLE>
II-4
<PAGE> 97
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOANNE BRANDES Director June 18, 1997
- -----------------------------------------------------
JoAnne Brandes
/s/ JERRY L. CALHOUN Director June 18, 1997
- -----------------------------------------------------
Jerry L. Calhoun
Director June , 1997
- -----------------------------------------------------
Thomas G. Cigarran
/s/ E. TOWNES DUNCAN Director June 18, 1997
- -----------------------------------------------------
E. Townes Duncan
/s/ JOSEPH J. GUZZO Director June 18, 1997
- -----------------------------------------------------
Joseph J. Guzzo
</TABLE>
II-5
<PAGE> 98
ARTHUR ANDERSEN LLP
NASHVILLE, TENNESSEE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CorporateFamily Solutions, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of CorporateFamily Solutions, Inc. and
subsidiaries for the three years ended December 29, 1996 included in the Form
S-1 and have issued our report thereon dated March 14, 1997. Our audits were
made for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed under Item 14(a)(ii) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth herein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 14, 1997
S-1
<PAGE> 99
SCHEDULE II
CORPORATEFAMILY SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING OF CHARGED TO COSTS DEDUCTIONS BALANCE AT
PERIOD AND EXPENSES(1) (CHARGE OFFS)(1) END OF PERIOD
------------ ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
Year ended December 27, 1996:
Allowance for doubtful accounts........ $84,000 $58,000 $19,000 $123,000
========= ============ ============= ==========
Year ended December 29, 1995:
Allowance for doubtful accounts........ $45,000 $61,000 $22,000 $ 84,000
========= ============ ============= ==========
Year ended December 30, 1994:
Allowance for doubtful accounts........ $33,000 $18,500 $ 6,500 $ 45,000
========= ============ ============= ==========
</TABLE>
- ---------------
(1) Additions to the allowance for doubtful accounts are included in selling,
general and administrative expense. All deductions or charge offs are
charged against the allowance for doubtful accounts.
S-2
<PAGE> 100
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE
- ------- ----------- ----------
<C> <C> <S> <C>
1* -- Form of Underwriting Agreement..............................
2 -- Agreement and Plan of Merger among Corporate Child Care,
Inc., CCC Acquisition Corporation, Resources for Child Care
Management, Inc., and Robert D. Lurie dated August 27,
1995........................................................
3.1* -- Amended and Restated Charter of Registrant..................
3.2* -- Amended and Restated Bylaws of Registrant...................
4.1* -- Specimen Common Stock certificate...........................
4.2* -- Article of the Registrant's Amended and Restated Charter
(included in Exhibit 3.1)...................................
5* -- Opinion of Bass, Berry & Sims PLC...........................
10.1* -- CorporateFamily Solutions, Inc. Employee Stock Ownership
Plan........................................................
10.2* -- CorporateFamily Solutions, Inc. 1997 Stock Incentive Plan...
10.3 -- 1987 Stock Option Plan......................................
10.4 -- 1996 Stock Incentive Plan...................................
10.5* -- CorporateFamily Solutions, Inc. 401(k) Retirement Plan......
10.6 -- Employment Agreement of Robert D. Lurie dated August 27,
1995........................................................
10.7 -- Agreement Not to Compete of Robert D. Lurie dated August 27,
1995........................................................
10.8 -- Form of Severance Agreement.................................
10.9 -- Letter Agreement with Lamar Alexander dated August 26,
1996........................................................
10.10* -- Revolving Credit Agreement..................................
10.11 -- Registration Agreement dated August 29, 1991................
10.12 -- Stock Purchase Warrant dated January 15, 1993...............
10.13 -- Form of Indemnification Agreement...........................
11 -- Statement re computation of per-share earnings..............
21 -- Subsidiaries of the Registrant..............................
23.1 -- Consent of Arthur Andersen LLP..............................
23.2 -- Consent of Arthur Andersen LLP..............................
23.3 -- Consent of Trien, Rosenberg, Rosenberg, Weinberg, Ciullo &
Fazzari, LLP................................................
23.4* -- Consent of Bass, Berry & Sims PLC (to be included in Exhibit
5)..........................................................
24 -- Power of Attorney (included in signature page)..............
27 -- Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
CORPORATE CHILD CARE, INC.
CCC ACQUISITION CORPORATION
AND
RESOURCES FOR CHILD CARE MANAGEMENT, INC.
ROBERT LURIE
DATED AUGUST 27, 1995
================================================================================
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is executed the
27th day of August, 1995, by and among Corporate Child Care, Inc., a Tennessee
corporation ("CCC"), CCC Acquisition Corporation, a newly formed New Jersey
corporation and wholly owned subsidiary of CCC ("Merger Sub"), and Resources
For Child Care Management, Inc., a New Jersey corporation ("RCCM") and Robert
Lurie ("Lurie").
RECITALS
WHEREAS, the Boards of Directors of CCC and RCCM each have determined
that a business combination between CCC and RCCM is in the best interests of
their respective companies and shareholders and presents an opportunity for
their respective companies to achieve long-term strategic and financial
benefits, and accordingly have agreed to effect the merger provided for herein
upon the terms and subject to the conditions set forth herein; and
WHEREAS, the shareholders listed on Exhibit A hereto (the
"Shareholders") own all of the issued and outstanding shares of the capital
stock of RCCM in the amounts listed beside the name of each Shareholder; and
WHEREAS, Robert Lurie is a Shareholder and is the President and Chief
Executive Officer of RCCM and, in such capacity, is familiar with the
operations of RCCM; and
WHEREAS, CCC, Merger Sub, RCCM and Lurie desire to enter into the
Agreement to set forth their understandings regarding the business combination
between CCC and RCCM.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub shall
be merged with and into RCCM in accordance with this Agreement and the separate
corporate existence of Merger Sub shall thereupon cease (the "Merger"). RCCM
shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation") and shall be a wholly owned
subsidiary of CCC. The Merger shall have the effects specified in the New
Jersey Business Corporation Act ("NJBCA").
1
<PAGE> 3
1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Bass, Berry & Sims, 2700 First American Center, Nashville,
Tennessee, at 9:00 a.m., local time, on October 2, 1995 or at such other time,
date or place as CCC and RCCM may agree. The date on which the Closing occurs
is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth
in Article 7 shall have been fulfilled or waived in accordance herewith and
this Agreement shall not have been terminated as provided in Article 8, the
parties hereto shall cause Articles of Merger meeting the requirements of the
NJBCA to be properly executed and filed in accordance with the NJBCA on the
Closing Date. The Merger shall become effective at the time of filing of the
Articles of Merger or at such later time which the parties hereto shall have
agreed upon and designated in such filing as the effective time of the Merger
(the "Effective Time").
1.4 Additional Documents and Assurances. If at any time after the
Effective Time the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets
of RCCM, or (b) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors or their designees
shall be authorized to execute and deliver, in the name and on behalf of RCCM,
all such deeds, bills of sale, assignments and assurances and do, in the name
and on behalf of RCCM, all such other acts and things necessary, desirable or
proper to vest, perfect or confirm its right, title or interest in, to or under
any of the rights, privileges, powers, franchises, properties or assets of RCCM
and otherwise to carry out the purposes of this Agreement.
ARTICLE 2.
CERTIFICATE OF INCORPORATION AND BYLAWS
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 Certificate of Incorporation. The Certificate of
Incorporation of Merger Sub in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation, until
duly amended in accordance with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation, until
duly amended in accordance with applicable law.
2.3 Directors. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation as of
the Effective Time.
2
<PAGE> 4
2.4 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
ARTICLE 3.
CONVERSION OF RCCM STOCK
3.1 Conversion of Shares. At the Effective Time, and subject to
the terms and conditions hereof, by virtue of the Merger and without any action
on the part of the holder of any common stock, no par value, of RCCM ("RCCM
Common Stock") each share of RCCM Common Stock shall be converted into the
right to receive $49.18 cash ("Cash Per Share Price") and 6.6666 shares of
common stock, no par value, of CCC ("CCC Common Stock"). Subject to the terms
and conditions hereof, the aggregate amount of cash and the total number of
shares of CCC Common Stock ("CCC Shares") to be issued pursuant to Sections
3.1 and 3.4 shall be $3,372,500 cash and 500,000 shares, respectively.
3.2 Fractional Shares. In lieu of the issuance of fractional
shares of CCC common stock, each Shareholder, upon surrender of a certificate
which immediately prior to the Effective Time represented RCCM Common Stock,
shall be entitled to receive a cash payment (without interest) equal to the
value of any fraction of a share of CCC common stock to which such holder would
be entitled but for this provision.
3.3 Exchange of Certificates. After the Effective Time, each
holder of an outstanding certificate or certificates theretofore representing
RCCM Common Stock (other than shares as to which dissenters' rights have been
perfected and not withdrawn or otherwise forfeited under the NJBCA) upon
surrender thereof to the Secretary of CCC, shall be entitled to receive in
exchange therefor (i) any payment due in lieu of fractional shares and (ii) the
amount of cash and a certificate or certificates representing the number of
whole shares of CCC common stock into which such holders' outstanding shares of
RCCM Common Stock were converted. CCC may, at its option, refuse to pay any
dividend or other distribution, if any, payable to holders of shares of CCC
common stock to the holders of certificates representing outstanding shares of
RCCM Common Stock until such certificates are surrendered for exchange and the
CCC Shares have been released for delivery.
3.4 RCCM Options. Prior to the Effective Time, each holder of a
stock option or warrant to acquire RCCM Common Stock ("RCCM Option") shall have
agreed to surrender such option in exchange for the consideration specified
herein. Each outstanding RCCM Option shall be cancelled at the Effective Time
and in exchange therefore shall be delivered to each holder of a RCCM Option an
amount of cash, equal to the difference between (i) the product of the cash Per
Share Price times the number of shares issuable upon exercise of the holder's
RCCM Option, minus (ii) the cash consideration payable under the RCCM Option by
the Option Holder and a whole number of CCC Shares (and cash in lieu of
fractional shares).
3
<PAGE> 5
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF RCCM AND LURIE
RCCM and Lurie, jointly and severally, represent and warrant to CCC as
of the date of this Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. RCCM is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of New Jersey. RCCM is duly licensed or
qualified to do business as a foreign corporation and is in good standing under
the laws of any other state of the United States in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the assets, business,
results of operations, prospects or financial condition of RCCM. RCCM has all
requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. RCCM is not in
violation of any order of any court, governmental authority or arbitration
board or tribunal, or any law, ordinance, governmental rule or regulation to
which RCCM or any of its properties or assets is subject. RCCM has obtained
all licenses, permits and other authorizations and has taken all actions
required by applicable law or governmental regulations in connection with its
business as now conducted.
4.2 Authorization, Validity and Effect of Agreements. RCCM and
Lurie each has the requisite power and authority to execute, deliver and
perform this Agreement and all agreements and documents contemplated hereby and
to consummate the transactions contemplated hereby and thereby. Subject only
to the approval of this Agreement and the transactions contemplated hereby by
the holders of a majority of the outstanding shares of RCCM Common Stock, the
consummation by RCCM of the transactions contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby (when executed and delivered
pursuant hereto for value received) will constitute, the valid and legally
binding obligations of RCCM and Lurie, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
4.3 Capitalization. The authorized capital stock of RCCM consists
of 100,000 shares of common stock, no par value (the "RCCM Common Stock"). As
of the date hereof, there are 53,910 shares of RCCM Common Stock issued and
outstanding and Exhibit A is a true and complete list of all persons or
entities who own or have the right to acquire, directly or indirectly, any
equity interest in RCCM. RCCM has no outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of RCCM on any matter. All issued and outstanding shares of
RCCM Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except for the RCCM
4
<PAGE> 6
Options, which consist of stock options to purchase 21,090 shares of RCCM
Common Stock issued to key employees of RCCM pursuant to the RCCM Option Plan
and set forth on Schedule 4.3, there are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate RCCM to issue, transfer or sell any shares of
capital stock of RCCM.
4.4 Prior Sales of Securities. All offers and sales of RCCM
Common Stock prior to the date hereof were at all relevant times exempt from
the registration requirements of the Securities Act of 1933, as amended, and
were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws.
4.5 Subsidiaries. Schedule 4.5 hereto is a complete list of each
corporation, partnership, joint venture or other business organization (the
"Subsidiary" or, with respect to all such organizations, the "Subsidiaries") in
which RCCM or any Subsidiary owns, directly or indirectly, any capital stock or
other equity interest, or with respect to which RCCM or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization and the percentage of stock
or other equity interest of each Subsidiary owned by RCCM. Each Subsidiary
which is a corporation is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified
to transact business as a foreign corporation and is in good standing in the
jurisdictions listed in Schedule 4.5, which are the only jurisdictions where
the properties owned or leased or the business transacted by it makes such
licensing or qualification to do business as a foreign corporation necessary,
and no other jurisdiction has demanded, requested or otherwise indicated that
(or inquired whether) it is required so to qualify. Each Subsidiary which is
not a corporation is duly organized and validly existing under the laws of the
jurisdiction of its organization. Each Subsidiary has the power and authority
and possesses all governmental and other permits, licenses and other
authorizations to own or lease its properties and carry on its business as now
conducted. The outstanding capital stock of each Subsidiary which is a
corporation is validly issued, fully paid and nonassessable. RCCM and the
Subsidiaries have good and valid title to the equity interests in the
Subsidiaries shown as owned by each of them on Schedule 4.5, free and clear of
all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind. Except where otherwise indicated
herein or unless the context otherwise requires, any reference to RCCM herein
shall include RCCM and all of its wholly owned Subsidiaries.
4.6 Other Interests. Except as set forth on Schedule 4.6, RCCM
does not own directly or indirectly any interest or investment in any
corporation, partnership, joint venture, business, trust or other entity.
4.7 No Violation. Except for consents which may be required from
Summit Bank and NationsBank relating to certain mortgages they hold, which
consents shall be obtained or determined not to be required no later than
August 30, 1995, neither the execution and
5
<PAGE> 7
delivery by RCCM of this Agreement nor the consummation by RCCM of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or Bylaws of RCCM; (ii) conflict with, result in a breach of any
provision of or the modification or termination of, constitute a default under,
or result in the creation of imposition of any lien, security interest, charge
or encumbrance upon any of the assets of RCCM pursuant to any commitment,
lease, contract, or other material agreement or instrument to which RCCM is a
party; or (iii) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule or regulation applicable to RCCM.
4.8 Financial Statements. RCCM has delivered its audited
financial statements for the years ended December 31, 1994 and December 31,
1993 and will deliver promptly unaudited interim financial statements for the
six month period ending June 30, 1995 and for July 31, 1995. Except for
$127,500 in the aggregate of assets as previously agreed to by CCC and RCCM,
each of the balance sheets provided to CCC (including the related notes and
schedules) fairly presents the financial position of RCCM as of its date and
each of the statements of income, retained earnings and cash flows provided to
CCC (including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows of RCCM for the periods set forth
therein, subject, in the case of unaudited statements, to normal year- end
audit adjustments which would not be material in amount or effect, but
including appropriate accruals) in each case in accordance with generally
accepted accounting principles consistently applied during the periods
involved, except as may be noted therein. Such financial statements have been
prepared from the books and records of the Company which accurately and fairly
reflect the transactions and dispositions of the assets of the Company. With
the exception of the deferred tax asset, as of December 31, 1994 or any
subsequent date for which a balance sheet is provided, RCCM did not have
liabilities, contingent or otherwise, whether due or to become due, known to
RCCM or Lurie, other than as indicated on the balance sheet of such date. RCCM
has adequately funded all accrued employee benefit costs and such funding (to
the date thereof) is reflected in the balance sheet.
4.9 No Material Adverse Changes. Since June 30, 1995, there has
not been (i) any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or
otherwise, whether due or to become due, known or unknown), of RCCM; (ii) any
dividend declared or paid or distribution made on the capital stock of RCCM, or
any capital stock thereof redeemed or repurchased; (iii) any incurrence of long
term debt; (iv) any salary, bonus or compensation increases to any officers,
employees or agents of RCCM except in the ordinary course of business and
consistent with past practice; (v) any pending or threatened labor disputes or
other labor problems against or potentially affecting RCCM; or (vi) any other
transaction entered into by RCCM, except in the ordinary course of business and
consistent with past practice.
4.10 Tax Returns. Except for taxes owed for fiscal 1994, RCCM has
filed or will file when due all federal, state, and local tax returns, reports,
and estimates for all periods on
6
<PAGE> 8
or before the Closing Date, and there is not in force any extension of the date
on which any tax return was or is due to be filed by or with respect to RCCM or
any waiver or agreement by RCCM for the extension of time for the payment of
any tax. All such returns, reports and estimates were or will be prepared in
the manner required by applicable law and all taxes owed (whether or not shown
on any tax return) have been paid or adequate provision made therefor. RCCM is
not aware of any issues asserted by taxing authorities regarding the accuracy
or completeness of prior tax returns, reports or estimates. The provisions for
taxes reflected in the balance sheet of RCCM as of December 31, 1994, and the
subsequent financial statements referred to in Section 4.8 are adequate to
cover the liability of RCCM for all taxes (except for federal income tax but
including employee income tax withholding, social security, and unemployment
taxes) due and payable or accruable to the date thereof.
4.11 No ERISA Liability. RCCM does not maintain, with respect to
its employees, any Employee Benefit Plans, as defined in Section 3(3) of the
Employment Retirement Income Security Act of 1974, as amended (ERISA), or
Multi- Employer Plans as defined in Sections 4001(c)(2) and 4001(a)(3) of
ERISA.
4.12 Assets; Leaseholds. Except for the mortgages and other claims
listed on Schedule 4.24,
(a) Assets. RCCM owns the assets reflected on the June
30, 1995 RCCM balance sheet (including any patents, copyrights, trade
names, service marks and other names and marks used in connection with
its business), including the leasehold estates created by certain
leases, with good and marketable title, free and clear of any and all
claims, liens, mortgages, options, charges, conditional sale or title
retention agreements, security interests, restrictions, easements, or
encumbrances whatsoever and free and clear of any rights or privileges
capable of becoming claims, liens, mortgages, options, charges,
security interests, restrictions, easements or encumbrances, except
for certain of the assets which are encumbered by liens that RCCM has
the means to remove prior to the Effective Time. Such assets are all
the assets which are being used to carry on the business of RCCM.
(b) Leaseholds. RCCM owns good and marketable leasehold
title to the premises leased by RCCM, free and clear of any and all
claims, liens, mortgages, options, charges, conditional sale or title
retention agreements, security interests, restrictions, easements, or
encumbrances whatsoever and free and clear of any rights or privileges
capable of becoming claims, liens, mortgages, options, charges,
security interests, restrictions, easements or encumbrances, except to
the extent expressly set forth in the leases. Following the Merger,
RCCM will continue to have good and marketable leasehold title to the
premises now leased by RCCM free and clear of any claims, liens,
mortgages, options, charges, security interests, restrictions,
easements, rights, privileges and encumbrances.
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4.13 Lawfully Operating. RCCM has been and currently is conducting
and each of the premises leased or owned have been and now are being used and
operated, in compliance with all statutes, regulations, bylaws, orders,
covenants, restrictions or plans of federal, state, regional, county or
municipal authorities, agencies or board applicable to the same.
4.14 No Subleases or Licenses. There are no subleases or licenses
to use all or any portion of the premises leased by RCCM, except as set forth
in the leases. The leases are valid, binding and enforceable in accordance
with the terms of each, and are in good standing. RCCM is not in default in
payment of rent, or in the performance of any of its obligations under the
leases. The landlords or lessors under the leases are not in breach of any of
their obligations under the leases. No state of facts exists which, after
notice or lapse of time or both, would result in a breach or default under the
leases. The copies of the leases which RCCM has delivered to CCC are true,
correct and complete copies of the leases and RCCM has delivered to CCC all
amendments, modifications, letter agreements and instruments of whatever form
which relate to such leases.
4.15 No Litigation. There is no action, proceeding, investigation
or inquiry pending or, to the best of RCCM's knowledge, threatened (a) which
might, if adversely determined, result in any material adverse change in the
condition (financial or otherwise), properties, assets, liabilities, business
operations or prospects of RCCM or (b) which questions or may adversely affect
this Agreement or any action or obligation to be taken in connection therewith.
There are no judgments, citations, fines or penalties heretofore asserted
against RCCM under any federal, state, local or foreign law which remain unpaid
or which otherwise bind its respective assets, nor has RCCM received any
notices or any other communications from any federal, state, local or foreign
agency or other governmental authority with respect to any violation of any
federal, state, local or foreign law. RCCM has not been advised by any
attorney representing it that there may be any "loss contingencies," as defined
in Financial Accounting Standards Board Principles No. 5.
4.16 Corporate Records. True and correct copies of the Certificate
of Incorporation and bylaws of RCCM and any RCCM Subsidiaries have been
delivered to CCC. The corporate minute books of RCCM and any RCCM Subsidiaries
submitted to CCC for review correctly reflect all corporate action taken at all
the meetings (or by written consent in lieu thereof) of its directors and
shareholders and correctly record all resolutions thereof.
4.17 No Defaults. RCCM has in all material respects performed all
obligations to be performed by it under all contracts, agreements, and
commitments to which it is a party, and there is not under any such contracts,
agreements, or commitments any existing default or event of default or event
which with notice or lapse of time or both would constitute a default.
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4.18 Hazardous Substances.
(a) Hazardous Substances (as hereinafter defined) have
not at any time been illegally or improperly generated, used, treated
or stored on, or transported to or from, any RCCM Property (as
hereinafter defined);
(b) Hazardous Substances (as hereinafter defined) have
not at any time been released or disposed of on any RCCM Property;
(c) RCCM is in compliance with all applicable
Environmental Laws (as hereinafter defined) and the requirements of
any permits issued under such Environmental Laws with respect to any
RCCM Property;
(d) There are no past, pending or to the knowledge of
RCCM threatened Environmental Claims (as hereinafter defined) against
RCCM or any RCCM Property;
(e) There are no facts or circumstances, conditions or
occurrences on any RCCM Property that could reasonably be anticipated
by RCCM:
(i) to form the basis of an Environmental Claim
against RCCM or any RCCM Property; or
(ii) to cause such RCCM Property to be subject to
any restrictions on the ownership, occupancy, use or
transferability of such RCCM Property under any Environmental
Law; and
(f) There are not now, nor have there been at any time,
any underground storage tanks located on any RCCM Property.
For purposes of this Agreement, the following terms shall have the
following meanings:
"RCCM Property" shall mean (i) any real property and improvements
presently owned, leased, used, operated or occupied by RCCM, and (ii) any other
real property and improvements at any previous time owned, leased, used,
operated or occupied by RCCM.
"Hazardous Substances" shall mean those substances listed in Section
101(14) of CERCLA, as hereinafter defined, including, but not limited to:
(i) any petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation,
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transformers or other equipment that contain dielectric fluid
containing detectible levels of polychlorinated byphenyls, and radon
gas;
(ii) any chemicals, petroleum products, materials or
substances defined as or included in the definition of hazardous
substance, hazardous wastes, restricted hazardous waters, toxic
substances, toxic pollutants, contaminants or pollutants, or words of
similar import, under any applicable Environmental Law; and
(iii) any other chemical, material or substance, exposure
to which is prohibited, limited or regulated by any governmental
authority.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601.
"Environmental Law" means any federal, state or local statute, law,
rule, regulation, ordinance, code, policy or rule of common law no in effect
and in each case as amended and any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree or
judgment, relating to the environment, health, safety or Hazardous Materials,
including without limitation CERCLA; the Toxic Substances Control Act, as
amended 15 U.S.C. 2601 et seq.; the Clean Air Act, as amended, 42 U.S.C. 7401
et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1151 et
seq.; the Federal Insecticide, Fungicide, and Rodenticides Act, as amended, 7
U.S.C. 135, et seq.; the Hazardous Materials Transportation Act, as amended, 49
U.S.C. 1801 et seq.; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq.; the Safe Drinking Water Act, 42 U.S.C. 3808 et seq.; the
Clean Water Act, as amended, 33 U.S.C. 1251, et seq.; and any applicable state
or local law;
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceeds relating in any way to
any Environmental Law (for purposes of this subclause (E) of Section 411,
Claims) or any permit issued under any such Environmental Law, including
without limitation:
(i) any and all Claims by governmental or regulatory
authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law;
and
(ii) any and all Claims by any third party seeking
damages, response, costs, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
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"Release" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping, placing and the like,
into or upon any land or water or air, or otherwise entering into the
environment.
4.19 Labor Matters. RCCM has not been the subject of any union
activity or labor dispute, and there have not been any strike of any kind
called or threatened to be called against. RCCM has not violated any
applicable federal or state law or regulation, including but not limited to the
Fair Labor Standards Act, relating to employment or labor practices. RCCM
has no liability to any of its employees, agents, or consultants in connection
with claims, or grievances by, or the termination of, such employees, agents,
or consultants.
4.20 No Brokers. RCCM has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of RCCM or CCC to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
Other than the foregoing arrangements, RCCM is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
4.21 Consents and Approvals. Except for the consents and approvals
listed on Schedule 4.21, which schedule 4.21 will be provided on or before the
Closing Date, RCCM has or will obtain on or before closing all consents,
approvals, authorizations or orders of third parties, including governmental or
judicial authorities, necessary for the authorization, execution and
performance of this Agreement by RCCM and RCCM will use its best, good faith
efforts to secure all such consents and approvals on terms and conditions which
are approved by CCC.
4.22 Management Contracts. Schedule 4.22 contains a complete and
accurate list of all written and oral agreements, contracts and commitments to
which RCCM is a party, together with all amendments thereto, for the operation
and/or management of child care centers (the "Management Contracts"), including
the amount of cash flow generated from each center in operation ("Center
Contributions") for each contract during the last two fiscal years and the
estimated projected cash flow from each center in operation for each contract
for the fiscal year 1995.
The Management Contracts are in full force and effect and all parties
to the same have performed all obligations required to be performed by them to
date, and RCCM is not, and, to the best knowledge of RCCM, no other party is,
in breach or default thereunder. To the best knowledge of RCCM, except for the
First Fidelity contract which has been discussed with CCC, RCCM is on good
terms with the parties to the Management Contracts and has no reason to believe
that any Management Contract may not be continued or renewed by the parties
thereto on the same terms and conditions as presently exist. Between the date
hereof
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and the Closing Date, RCCM will promptly advise CCC of any action or event
which would be required in order to make the representations set forth above in
this Section 4.22 true and complete as of the date of such action or event.
4.23 Consulting Contracts. Schedule 4.23 contains a complete and
accurate list of all written and oral agreements, contacts and commitments to
which RCCM or Lurie are a party, together with all amendments thereto, to
provide consulting services, technical or other activities (other than
Management Contracts), including payments received therefor, during the last
two fiscal years and including commitments for fiscal year 1995.
4.24 General Contracts. Schedule 4.24 contains a complete and
correct list of all other written and oral agreements, contracts and
commitments, together with all amendments thereto, to which RCCM is a party, of
the following types:
(a) Mortgages, indentures, security agreements and other
agreements and instruments relating to the borrowing of money or
evidencing credit or relating to the purchase or sale of stock or
other securities;
(b) Collective bargaining agreements;
(c) Bonus, profit-sharing, compensation, stock option,
stock appreciation, pension, retirement, deferred compensation or
other plans, agreements, trusts, funds or arrangements for the benefit
of employees (whether or not legally binding) and other options,
warrants and other agreements relating to securities of any of the
RCCM;
(d) Agreements, orders or commitments for the purchase by
RCCM of supplies or services exceeding $10,000 in the aggregate and
not incurred in the ordinary course of business of a center;
(e) Leases of real or personal property with more than
six months until expiration or renewal;
(f) Agreements, orders or commitments for capital
expenditures in excess of $10,000 for any single project;
(g) Consulting agreements, contracts or commitments;
(h) Employment agreements, contracts or commitments for
full, part-time or consulting services; and
(i) Other agreements, contracts or commitments (other
than those under which RCCM is the purchaser or obligor and which are
terminable by RCCM at will or upon not more than 30 days' notice
without penalty) which in any way involve
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payments, receipts, or potential liabilities of more than $10,000 in
the case of any such agreement, contract or commitment (or in the case
of any related set of agreements, contracts or commitments).
These agreements, contracts and commitments are in full force and
effect and all parties to the same have performed all obligations required to
be performed by them to date, and RCCM is not, and, to the best knowledge of
RCCM, no other party is, in breach or default thereunder. Between the date
hereof and the Closing Date, RCCM will promptly advise CCC of any action or
event which would be required in order to make the representations set forth
above in this Section 4.24 true and correct as of the date of such action or
event.
4.25 No Default. RCCM is not in default in the performance,
observance or fulfillment of any of the material terms, provisions or
conditions of any agreement, contract, license, lease or other commitment to
which RCCM is or may be a party and that will be assumed by CCC, nor does any
condition exist which with notice or lapse of time or both would render such
RCCM in such default. Except as set forth on Schedule relating to any of the
Management Contracts, RCCM has not received notice that any party to any such
agreement intends to cancel or terminate such agreement or to exercise or not
to exercise any options under any such agreements.
4.26 Disclosure. The representations and warranties of RCCM and
Lurie contained in this Agreement and the information contained in the
Schedules, written documents, financial statements, lists, certificates and
other instruments delivered by or on behalf of RCCM pursuant to this Agreement,
do not contain an untrue statement of a material fact or omit to state a
material fact required to be stated herein or therein or necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. There is no fact which is material to the business
of RCCM which RCCM has not prior to the date hereof disclosed to CCC in
writing.
4.27 Relationships with Related Persons. No officer, director or
Shareholder of RCCM has, and no affiliate of any officer, director or
Shareholder of RCCM has, any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of RCCM. Except
as set forth on Schedule 4.27, no officer, director or Shareholder of RCCM, or
affiliate thereof, individually or collectively, owns or has owned of record or
as beneficial owner, an equity interest or any other financial or profit
interest in any firm, corporation or any other entity or person which (a) has
had business dealings or a material financial interest in any transaction with
RCCM, or (b) which is in competition with RCCM.
4.28 Indebtedness to and from Officers, Directors and Shareholders.
RCCM is not indebted, directly or indirectly, to any person who is an employee,
officer or director of any of RCCM or any Shareholder or any affiliate of any
such person in any amount whatsoever.
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4.29 Unlawful Payments. Neither RCCM, nor any officer, director,
employee, agent or other representative of RCCM, nor any shareholder acting or
purporting to act on behalf of RCCM has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property or services, in
violation of applicable law, (i) as a kickback or bribe to any person, or (ii)
to any political organization or the holder of, or any aspirant to, any
elective or appointed office of any Nation, State, political subdivision
thereof, in other governmental body or instrumentality.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF CCC AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to RCCM (the "CCC Disclosure Letter"), CCC and Merger Sub
represent and warrant to RCCM as of the date of this Agreement as follows:
5.1 Existence; Good Standing; Corporate Authority; Compliance With
Law. Each of CCC and Merger Sub is a corporation duly incorporated and validly
existing under the laws of the state of its incorporation. CCC is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where
the failure to be so qualified would not have a material adverse effect on the
assets, business, results of operations, prospects or financial condition of
CCC. CCC has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted. CCC is not in
violation of any order of any court, governmental authority or arbitration
board or tribunal, or any law, ordinance, governmental rule or regulation to
which CCC or any of its properties or assets is subject. CCC has obtained all
licenses, permits and other authorizations and has taken all actions required
by applicable law or governmental regulations in connection with its business
as now conducted.
5.2 Authorization, Validity and Effect of Agreements. Each of CCC
and Merger Sub has the requisite corporate power and authority to execute,
deliver and perform this Agreement and all agreements and documents
contemplated hereby and to consummate the transactions contemplated hereby and
thereby. Subject only to the approval of the Agreement by the holders of a
majority of the shares of CCC Preferred Stock present and voting thereon and
the approval by the Board of Directors of CCC of the issuance of CCC Shares,
the consummation by CCC and Merger Sub of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto for value received) will constitute, the
valid and legally binding obligations of CCC and Merger Sub, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
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insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
5.3 Capitalization. The authorized capital stock of CCC consists
of 10,000,000 shares of common stock, no par value ("CCC Common Stock") and
5,000,000 shares of preferred stock, no par value (the "CCC Preferred Stock").
As of August 26, 1995, there were 2,326,476 shares of CCC Common Stock issued
and outstanding, and 1,125,000 shares of CCC Preferred Stock issued and
outstanding. CCC has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of CCC on any matter. All issued and outstanding shares of
CCC Common Stock are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights. Other than as provided for in Schedule 5.3,
there are no options, warrants, calls, subscriptions, convertible securities,
or other rights, agreements or commitments which obligate CCC to issue,
transfer or sell any shares of capital stock of CCC.
5.4 Subsidiaries. Schedule 5.4 hereto is a complete list of each
corporation, partnership, joint venture or other business organization (the
"Subsidiary" or, with respect to all such organizations, the "Subsidiaries") in
which CCC or any Subsidiary owns, directly or indirectly, any capital stock or
other equity interest, or with respect to which RCCM or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization and the percentage of stock
or other equity interest of each Subsidiary owned by RCCM. Each Subsidiary
which is a corporation is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified
to transact business as a foreign corporation and is in good standing in the
jurisdictions listed in Schedule 5.4, which are the only jurisdictions where
the properties owned or leased or the business transacted by it makes such
licensing or qualification to do business as a foreign corporation necessary,
and no other jurisdiction has demanded, requested or otherwise indicated that
(or inquired whether) it is required so to qualify. Each Subsidiary which is
not a corporation is duly organized and validly existing under the laws of the
jurisdiction of its organization. Each Subsidiary has the power and authority
and possesses all governmental and other permits, licenses and other
authorizations to own or lease its properties and carry on its business as now
conducted. The outstanding capital stock of each Subsidiary which is a
corporation is validly issued, fully paid and nonassessable. CCC and the
Subsidiaries have good and valid title to the equity interests in the
Subsidiaries shown as owned by each of them on Schedule 5.4, free and clear of
all liens, claims, charges, restrictions, security interests, equities,
proxies, pledges or encumbrances of any kind. Except where otherwise indicated
herein or unless the context otherwise requires, any reference to CCC herein
shall include the Company and all of its wholly owned Subsidiaries.
5.5 No Violation. Neither the execution and delivery by CCC and
Merger Sub of this Agreement, nor the consummation by CCC and Merger Sub of the
transactions
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contemplated hereby in accordance with the terms hereof, will: (i) conflict
with or result in a breach of any provisions of the Charter or Bylaws of CCC or
Merger Sub; (ii) conflict with, result in a breach of any provision of or the
modification or termination of, constitute a default under, or result in the
creation or imposition of any lien, security interest, charge, or encumbrance
upon any of the assets of CCC or Merger Sub pursuant to any commitment, lease,
contract, or other material agreement or instrument to which CCC or Merger Sub
is a party; or (iii) violate any order, arbitration award, judgment, writ,
injunction, decree, statute, rule, or regulation applicable to CCC or Merger
Sub.
5.6 Litigation. There are no actions, suits or proceedings
pending against CCC or, to the actual knowledge of the executive officers of
CCC, overly threatened in writing against CCC, at law or in equity, or before
or by any federal or state commission, board, bureau, agency or
instrumentality, that are reasonably likely to have a CCC Material Adverse
Effect.
5.7 Absence of Certain Changes. Since June 30, 1995, there has
not been any material adverse change in the financial condition, results of
operations, business, prospects, assets or liabilities (contingent or
otherwise, whether due or to become due, known or unknown), of CCC, except for
changes in the ordinary course of business consistent with historical
experience resulting from the seasonal nature of CCC's business.
5.8 No Brokers. CCC has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of RCCM or CCC to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
Other than the foregoing arrangements, CCC is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
5.9 CCC Common Stock. The issuance and delivery by CCC of shares
of CCC Common Stock in connection with the Merger and this Agreement have been
duly and validly authorized by all necessary corporate action on the part of
CCC except for the approval of its shareholders contemplated by this Agreement.
The shares of CCC Common Stock to be issued in connection with the Merger and
this Agreement, when issued in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable.
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5.10 Disclosure. The representations and warranties of CCC
contained in this agreement, and the information contained in the Schedules,
written documents, financial statements, lists, certificates and other
instruments delivered by or on behalf of CCC pursuant to this Agreement, do not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein or necessary to make the statements
herein or therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE 6.
COVENANTS
6.1 Covenants of CCC and RCCM. During the period from the date
hereof and continuing until the Effective Time (except as expressly
contemplated or permitted hereby, or to the extent that the other parties shall
otherwise consent in writing) each of CCC and RCCM covenants with the other
that, insofar as the obligations relate to it:
(a) From the date hereof to the Effective Time, each of
RCCM and CCC shall allow, and each shall cause its representatives to
allow, all designated officers, attorneys, accountants and other
representatives of the other access at all reasonable times during
regular business hours to the records and files, correspondence,
audits and properties, as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of RCCM and CCC.
(b) Except as and to the extent required by law, CCC and
RCCM hereby agree not to disclose or use, and each shall cause its
representatives not to disclose or use, any confidential information
with respect to the other party hereto furnished, or to be furnished,
by such other party or their representatives in connection herewith at
any time or in any manner other than in connection with its evaluation
of the Merger. Except as required by law, and as set forth in this
subparagraph (e), neither CCC nor RCCM nor its representatives shall
make any public statements regarding the Merger or this Agreement
without the prior written approval of the other party.
(c) Each of RCCM and CCC agree to cooperate in the
preparation, filing and audits, if any, of Federal tax returns for
RCCM for fiscal year 1994 and subsequent periods prior to Closing.
RCCM agrees that all tax returns for RCCM for fiscal year 1994 must be
approved by CCC prior to filing.
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6.2 Covenants of RCCM and Lurie. RCCM and Lurie, jointly and
severally, covenant and agree that between the date hereof and continuing until
the Effective Time (except as expressly contemplated or permitted hereby, or to
the extent that CCC shall otherwise consent in writing):
(a) Conduct of Business. From the date hereof to the
Closing Date, except as otherwise consented to by CCC in writing, RCCM
will:
(i) carry on its business only in the ordinary
course in substantially the same manner as heretofore;
(ii) maintain and keep its properties and
equipment in as good repair, working order and condition as at
present, except for ordinary wear and tear;
(iii) to the extent reasonably possible, keep in
full force and effect insurance comparable in amount and scope
of coverage to that now maintained by them;
(iv) perform all of its obligations under all
contracts and commitments listed on Schedules 4.22, 4.23 and
4.24;
(v) use its best reasonable efforts to maintain
and preserve its business organization intact and maintain its
relationships with its respective suppliers and customers so
that they will be preserved after the Closing Date; and
(vi) not take, or permit to be taken, any action
described in Section 4.9 without the prior written consent of
CCC.
(b) Shareholder Approval. Prior to the Closing Date,
RCCM will, through its Board of Directors, recommend to its
shareholders the approval of the Agreement and RCCM will promptly
prepare and deliver solicitation materials necessary to obtain the
requisite approval of its shareholders at the earliest practicable
date. RCCM will promptly advise CCC of any notice given or demand
made by a dissenting RCCM shareholder. RCCM shall furnish to CCC all
information concerning RCCM and the Shareholders as CCC may reasonably
request in connection with the preparation of solicitation materials
necessary to obtain the approval, if necessary, of the CCC
Shareholders.
(c) Subsequent Schedules and Financial Statements. Prior
to the Closing Date, RCCM shall provide CCC with any changes in or
additions to any Schedules delivered by RCCM pursuant to this
Agreement.
(d) No Solicitation of Transactions. RCCM shall not,
directly or indirectly, through any officer, director, employee or
agent, solicit, initiate or encourage the
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submission of proposals or offers from any person, corporation, or
other entity relating to (i) any acquisition or the purchase of all or
(other than in the ordinary course of business) a portion of the
assets of, or any equity interest in, RCCM, or (ii) any business
combination with RCCM, and RCCM shall immediately cease and cause to
be terminated any existing discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and
shall request in writing the return of all confidential information
heretofore provided to such parties. Further, RCCM shall not
participate in any discussions or negotiations regarding, or furnish
to any other person, corporation or other entity, any information with
respect to, or otherwise facilitate, encourage or cooperate with, in
any way, any effort or attempt by any other person, corporation or
other entity, to do or seek any of the foregoing. RCCM shall promptly
notify CCC if any such proposal or offer, or any inquiry or contact
with any person with respect thereto, is made and, to the extent such
disclosure is not prohibited, shall indicate in reasonable detail in
any such notice to CCC the identity of the offeror and the terms and
conditions of any proposal.
(e) Representations and Warranties. From the date hereof
to the Closing Date, neither RCCM nor Lurie will not take any action
that would cause any of RCCM's representations or warranties contained
in this Agreement, or otherwise made in writing to CCC, to become
untrue, incorrect, incomplete or misleading.
(f) Confidentiality; Return of Materials. RCCM, its
accountants, counsel and other agents or representatives shall hold in
confidence all materials, documents, work papers and other information
furnished to it by CCC until the Closing Date. If this Agreement is
terminated in accordance with Section 8.4 hereof, RCCM will return to
CCC all materials, documents, work papers and other materials obtained
from CCC or generated by or on behalf of RCCM, whether so obtained or
generated before or after the execution of this Agreement.
(g) Employment Agreement. Lurie shall enter into an
employment agreement with CCC in substantially the form of
Exhibit 6.2(g) to be effective as of the Closing.
(h) Non-Compete Agreement. Lurie shall enter into a
consulting and non-competition agreement with CCC in substantially the
form of Exhibit 6.2(h) to be effective as of the Closing.
(i) Employment Agreements with Key Managers. RCCM and
Lurie shall each use its best reasonable efforts to cause certain key
managers of RCCM, if any are designated by CCC, to enter into
employment agreements with CCC in substantially the form of Exhibit
6.2(i).
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<PAGE> 21
(j) Shareholders' Agreement. RCCM and Lurie shall each
use its best reasonable efforts to cause Shareholders receiving CCC
shares to enter into a Shareholders' Agreement, and related documents,
in substantially the form of Exhibit 6.2(j).
(k) Best Efforts. RCCM and Lurie shall each use its best
reasonable efforts to effect the transfer of all Management Contracts
to CCC and to bring about the satisfaction of the conditions contained
in Article 7 of this Agreement.
6.3 Covenants of CCC. CCC covenants and agrees that between the
date hereof and continuing until the Effective Time (except as expressly
contemplated or permitted hereby, or to the extent that RCCM shall otherwise
consent in writing):
(a) Representations and Warranties. From the date hereof
to the Closing Date, CCC will not take any action that would cause any
of CCC's representations or warranties contained in this Agreement, or
otherwise made in writing to RCCM, to become untrue, incorrect,
incomplete or misleading.
(b) Confidentiality; Return of Materials. CCC, its
accountants, counsel and other agents or representatives shall hold in
confidence all materials, documents, work papers, and other
information furnished to it by RCCM until the Closing Date. If this
Agreement is terminated in accordance with Section 8.3 hereof, CCC
will return to RCCM all materials, documents, work papers and other
materials obtained from RCCM or generated by or on behalf of CCC,
whether so obtained or generated before or after the execution of this
Agreement.
(c) Governance. CCC's Board of Directors shall, as soon
as practical after Closing, take all action necessary to cause Robert
Lurie to be elected to the Board of Directors of CCC. CCC's Board of
Directors shall further, as soon as practical after Closing, elect
Robert Lurie as Chairman of the Board of Directors.
(d) Shareholder Approval. CCC shall furnish to RCCM all
information concerning CCC and its shareholders as RCCM may reasonably
request in connection with the preparation of solicitation materials
necessary to obtain the approval of the RCCM shareholders.
(e) Best Efforts. CCC shall use its best reasonable
efforts to bring about the satisfaction of the conditions contained in
Article 7 of this Agreement.
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<PAGE> 22
ARTICLE 7.
CONDITIONS
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved in the manner required by applicable
law and by the Board of Directors and holders of the issued and
outstanding shares of capital stock of RCCM entitled to vote thereon
and by the Board of Directors and holders of CCC Preferred Stock.
(b) No action or proceeding shall have been instituted
before a court or other governmental body by any governmental agency
or public authority to restrain or prohibit the transactions
contemplated by this Agreement or to obtain an amount of damages or
other material relief in connection with the execution of the
Agreement or the related agreements or the consummation of the Merger;
and no governmental agency shall have given notice to any party hereto
to the effect that consummation of the transactions contemplated by
this Agreement would constitute a violation of any law or that it
intends to commence proceedings to restrain consummation of the
Merger.
(c) All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board
or other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time.
(d) CCC shall have received from RCCM copies of all
resolutions adopted by the Board of Directors and shareholders of RCCM
in connection with this Agreement and the transactions contemplated
hereby. RCCM shall have received from CCC and Merger Sub copies of
all resolutions adopted by the Board of Directors and shareholders of
each respective company in connection with this Agreement and the
transactions contemplated hereby.
7.2 Conditions to Obligation of RCCM to Effect the Merger. The
obligation of RCCM to effect the Merger shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations
and warranties contained herein and otherwise made by or on behalf of
CCC in writing, in connection with the transactions contemplated
hereby, shall be true in all material respects when made and at and as
of the Closing Date, as though originally made at and as of the
Closing.
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<PAGE> 23
(b) Performance. CCC shall have duly performed and
complied with all terms, agreements, covenants and conditions required
by this Agreement to be performed or complied with by them prior to or
at the Closing.
(c) Corporate Proceedings. All corporate and other
proceedings of CCC in connection with the Agreement and the other
transactions contemplated by this Agreement, and all documents and
instruments incident thereto, shall be reasonably satisfactory in form
and substance to RCCM and its counsel and RCCM and its counsel shall
have received all such documents and instruments, or copies thereof,
certified if requested, as may be reasonably requested.
(d) Consents. To the extent that any permits, consents
or approvals of any person or entity shall be required for the
consummation of the transactions contemplated herein by CCC, such
consents or approvals shall have been obtained and delivered to RCCM.
7.3 Conditions to Obligation of CCC and Merger Sub to Effect the
Merger. The obligations of CCC and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations
and warranties contained herein and otherwise made by or on behalf of
RCCM and Lurie in writing, in connection with the transactions
contemplated hereby, shall be true in all material respects when made
and at and as of the Closing Date, as though originally made at and as
of the Closing; provided, however, that the failure of the agreements
listed in Schedules 4.22 or 4.23 to remain in full force and effect
shall not be deemed a violation of the representations and warranties
contained in Sections 4.9, 4.22 and/or 4.23.
(b) Performance. RCCM and Lurie shall have duly
performed and complied with all terms, agreements, covenants and
conditions required by this Agreement to be performed or complied with
by each of them prior to or at the Closing.
(c) Corporate Proceedings. All corporate and other
proceedings of RCCM in connection with the Agreement and all documents
and instruments incident thereto, shall be reasonably satisfactory in
form and substance to CCC and its counsel, and CCC and its counsel
shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably requested.
(d) Employment Agreement. Lurie shall have executed an
employment agreement pursuant to Section 6.2(g) hereof.
(e) Non-Compete Agreement. Lurie shall have entered into
an agreement not to compete pursuant to Section 6.2(h) hereof.
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<PAGE> 24
(f) Consents. Other than as set forth in Section 7.3(i),
any permits, consents or approval of any person or entity required for
the consummation of the transactions contemplated herein shall have
been obtained and delivered to CCC.
(g) Material Adverse Change. There shall have been no
material adverse change in the assets, business, results of
operations, prospects or condition (financial or otherwise) or
business prospects of RCCM since the date of this Agreement.
(h) Litigation. No action or proceeding shall have been
instituted or, to the knowledge of RCCM, threatened, and no order,
decree, or judgment of any court, agency, commission or authority
shall be existing questioning the validity of this Agreement or
seeking to restrain the consummation of the transactions contemplated
by this Agreement that, in the reasonable opinion of counsel for CCC,
will render it impossible or inadvisable to consummate the
transactions provided for in this Agreement.
(i) Consents to Transfer of Management Contracts. To the
extent possible, using the best good faith efforts of RCCM, consents
to the transfer in the Merger of all the Management Contracts listed
on Schedule 4.22 hereto shall have been obtained on substantially the
same terms and conditions as provided to RCCM prior to the Merger;
provided, however that RCCM and Lurie agree to use their best good
faith efforts to obtain the consents necessary to effect the transfer,
on substantially the same terms and conditions, of any remaining
contracts within 60 days of Closing; and provided, further, that the
failure to obtain consents to the transfer of any Management Contracts
shall not effect the validity of this agreement.
(j) Auditors' Letter. Trien & Rosenberg, the accounting
firm for RCCM, shall have executed a letter, in a form satisfactory to
CCC, agreeing to cooperate with CCC's accountants for the purposes of
facilitating CCC's accountants' preparation of consolidated financial
statements.
(k) Dissenting Shareholders. The number of shares of
RCCM common stock which shall have perfected their dissenters' rights
under the NJBCA shall not exceed 10% of the shares of RCCM outstanding
immediately prior to the Effective Time.
(l) Escrow Agreement. Lurie shall have entered into an
escrow agreement if required pursuant to Section 9.7 hereof and as is
required by Section 9.8 hereof.
(m) Shareholders' Agreements. The Shareholders' shall
have each executed a Shareholders' Agreement and related investor
representations letter pursuant to Section 6.2(j) hereof.
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<PAGE> 25
(n) RCCM Optionholder Consents. Each holder of a RCCM
Option shall have agreed, in writing, to surrender such RCCM Option in
exchange for the consideration specified in Section 3.4.
ARTICLE 8.
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, before or after the approval of this Agreement by the shareholders of
RCCM and/or CCC, by the mutual written consent of CCC and RCCM.
8.2 Termination by Either CCC or RCCM. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either CCC or RCCM if (a) the Merger shall not have been consummated by
November 1, 1995 or (b) the approval of RCCM's shareholders required by Section
6.2 shall not have been obtained at a meeting duly convened therefor or at any
adjournment thereof, or (c) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (c) shall have used all reasonable efforts to remove
such injunction, order or decree.
8.3 Termination by RCCM. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the adoption and approval by the shareholders of RCCM referred to in
Section 6.2, by action of the Board of Directors of RCCM, if there has been a
breach by CCC or Merger Sub of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have a CCC Material
Adverse Effect, or (b) there has been a material breach of any of the covenants
or agreements set forth in this Agreement on the part of CCC, which breach is
not curable or, if curable, is not cured within 30 days after written notice of
such breach is given by RCCM to CCC.
8.4 Termination by CCC. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, before or
after the approval by the shareholders of RCCM referred to in Section 6.2, by
action of the Board of Directors of CCC, if (a) there has been a breach by RCCM
of any representation or warranty contained in this Agreement which would have
or would be reasonably likely to have an RCCM Material Adverse Effect, (b)
there has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of RCCM, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
given by CCC to RCCM.
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<PAGE> 26
8.5 Effect of Termination and Abandonment. Upon termination of
this Agreement pursuant to this Section, this Agreement shall be void and of no
other effect, except for confidentiality and expense provisions, and there
shall be no liability by reason of this Agreement or the termination thereof on
the part of any party hereto (other than for breach of a covenant contained
herein), or on the part of the respective directors, officers, employees,
agents or shareholders of any of them.
8.6 Extension; Waiver. At any time prior to the Effective Time,
any party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 9.
SURVIVAL OF RCCM REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement or in any
instrument delivered by Lurie or RCCM pursuant to this Agreement shall survive
the consummation of the Agreement and the transactions contemplated hereby but
shall terminate 1 year after the Closing Date; provided however that the
representations and warranties in Sections 4.4 (Prior Sales of Securities),
4.18 (Hazardous Substances), and 4.19 (Labor Matters) shall terminate 3 years
after the Closing Date and provided, further, that the representations and
warranties set forth in Section 4.10 regarding taxes shall survive until the
running of all applicable statutes of limitation, and thereafter shall be of no
further force and effect. All representations and warranties of RCCM or Lurie
and CCC shall be unaffected by any investigations made by RCCM or CCC or
knowledge obtained as a result thereof or otherwise.
9.2 Indemnification by RCCM and Lurie. RCCM and Lurie hereby
agree, jointly and severally, to indemnify and hold CCC harmless from and
against, and agree to properly defend CCC from and reimburse CCC for, any and
all losses, damages, costs, expenses, liabilities, obligations and claims of
any kind ("Losses") (including, without limitation, reasonable attorneys' fees
and other legal costs and expenses) which CCC may at any time suffer or incur,
or become subject to, as a result of, in connection with, relating to or
arising out of:
(a) Any misrepresentation or breach of any of the
representations and warranties made by RCCM or Lurie in or pursuant to
this Agreement;
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<PAGE> 27
(b) Any federal, state and/or local taxes owed whether or
not shown on any return filed by RCCM for the tax years 1991 through
1995 and for Quality Child Care, Inc. for any period prior to the
Closing Date;
(c) Any failure by RCCM or Lurie to carry out, perform,
satisfy or discharge any of the covenants, agreements, undertakings,
liabilities or obligations under this Agreement or under any of the
documents and materials delivered by RCCM pursuant to this Agreement;
and
(d) Any suit, action or other proceeding brought by any
person or arising out of, or in any way related to, any of the matters
referred to in clauses (a) or (b) immediately above.
9.3 Indemnification by CCC. CCC hereby agrees to indemnify and
hold RCCM and Lurie harmless from and against, and agrees to properly defend
RCCM from and reimburse RCCM for, any and all losses, damages, costs, expenses,
liabilities, obligations and claims of any kind ("Losses") (including, without
limitation, reasonable attorneys' fees and other legal costs and expenses)
which RCCM may at any time suffer or incur, or become subject to, as a result
of, in connection with, relating to or arising out of:
(a) Any misrepresentation or breach of any of the
representations and warranties made by CCC in or pursuant to this
Agreement;
(b) Any failure by CCC to carry out, perform, satisfy or
discharge any of the covenants, agreements, undertakings, liabilities
or obligations under this Agreement or under any of the documents and
materials delivered by CCC pursuant to this Agreement; and
(c) Any suit, action or other proceeding brought by any
person or arising out of, or in any way related to, any of the matters
referred to in clauses (a) or (b) immediately above.
9.4 Limitations. Notwithstanding anything to the contrary herein,
any claim by an indemnified party against any indemnifying party under this
Agreement, except for any claim under Section 9.2(b) hereof, shall be payable
by the indemnifying party only in the event and to the extent that the
accumulated amount of the claims in respect of such indemnifying party's
obligations to indemnify under this Agreement shall exceed the amount of
$25,000 in the aggregate (the "Indemnification Threshold"); provided, however,
that at such time as the aggregate amount of claims in respect of the indemnity
obligations of such party shall exceed the Indemnification Threshold, such
party shall thereafter be liable for the full amount of all indemnification
losses subject to a maximum indemnity of $100,000 for any claims under Section
9.2(a), (c) or (d). Nothing in this Section shall limit a party's obligation
to indemnify for Losses pursuant to Section 9.2(b) hereof.
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<PAGE> 28
9.5 Right of Setoff. CCC shall have the option to recoup from Lurie
all or any part of any Losses up to $100,000 which CCC may at any time suffer
or incur, and for which CCC is indemnified pursuant to Sections 9.2(a), (c) and
(d) hereof, and all or any part of any Losses up to $500,000 which CCC may at
any time suffer or incur, and for which CCC is indemnified pursuant to Section
9.2(b) hereof, by notifying Lurie that CCC is reducing the payments owed under
his Non-Competition Agreement, entered into pursuant to Section 6.2(h) hereof,
on a dollar-for-dollar basis. This right of setoff shall be applied to the
payment(s) due to Lurie for the periods immediately following the determination
of the Loss.
9.6 1994 Tax Return Indemnity. It is agreed that on or prior to the
Closing Date RCCM will prepare and file its tax returns due for the year 1994.
RCCM agrees that Arthur Andersen & Co. shall review and approve such returns
before filing and Lurie agrees that he shall pay to CCC immediately following
Closing an amount up to $140,000 equal to the additional tax paid by RCCM
(having taken into account any tax savings arising from the inclusion of net
operating loss carryovers included in the tax returns) as a result of the
business relationship of RCCM and Work Family Development Directions, Inc. (the
"Work Family Relationship").
9.7 Escrow For 1995 Tax Liability. At the Closing, in the event that
the Work Family Relationship is not set forth in an agreement satisfactory to
CCC, Lurie shall deposit into escrow with CCC $437,400 of the cash portion of
the Per Share Price which Lurie shall receive in the Merger (the "Escrowed
Funds") and the Escrowed Funds shall be held pursuant to the terms of an escrow
agreement between Lurie and CCC which shall be entered into on or before the
Closing Date on terms which are reasonably satisfactory to Lurie and CCC (the
"Escrow Agreement"). The Escrowed Funds shall be used solely for the purposes
of indemnifying CCC on a dollar for dollar basis for any Loss related to the
RCCM tax return filed for 1995 and arising out of the Work Family Relationship.
9.8 Escrow for Other Tax Liabilities. At the Closing, Lurie shall
deposit into escrow with CCC $165,000 of the cash portion of the Per Share
Price which Lurie shall receive in the Merger (the Additional Escrowed Funds")
and the Additional Escrowed Funds shall be held pursuant to the terms of an
Escrow Agreement. The Additional Escrowed Funds shall be used solely for the
purposes of indemnifying CCC on a dollar for dollar basis for any Loss arising
out of the indemnity set forth in Section 9.2(b) hereof.
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ARTICLE 10.
GENERAL PROVISIONS
10.1 Non-survival of CCC Representations and Warranties. All
representations and warranties of CCC in this Agreement or in any instrument
delivered pursuant to this Agreement shall be deemed to the extent expressly
provided herein to be conditions to the Merger and shall not survive the
Merger.
10.2 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
<TABLE>
<S> <C>
If to CCC or Merger Sub: If to RCCM:
Corporate Child Care, Inc. Resources for Child Care Management
209 Tenth Avenue South 16 South Street
Suite 300 Suite 300
Nashville, Tennessee 37203 Morristown, New Jersey 07960
Attn: Marguerite W. Sallee Attn: Robert Lurie
and: with a copy to:
James H. Cheek, III Marsha Bilzin
Bass, Berry & Sims Stuzin and Camner, P.A.
2700 First American Center 1221 Brickell Avenue
Nashville, Tennessee 37238 Miami Beach, Florida 33131
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
10.3 Assignment, Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
10.4 Entire Agreement. This Agreement, the Exhibits, the
Schedules, and any documents delivered by the parties in connection herewith
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto, No addition to or modification of any provision
of this Agreement shall be binding upon any party hereto unless made in writing
and signed by all parties hereto.
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<PAGE> 30
10.5 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the shareholders of RCCM and CCC, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.6 Governing Law. The validity of this Agreement, the
construction of its terms and the determination of the rights and duties of the
parties hereto shall be governed by and construed in accordance with the laws
of the United States and those of the State of Tennessee applicable to
contracts made and to be performed wholly within such state.
10.7 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
10.8 Headings. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context
otherwise requires, words describing the singular number shall include the
plural and vice versa, and words denoting any gender shall include all genders
and words denoting natural persons shall include corporations and partnerships
and vice versa.
10.10 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
10.11 Severability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
29
<PAGE> 31
10.12 Expenses. Each party to this Agreement shall bear its own
expenses in connection with the Merger and the transactions contemplated
hereby.
10.13 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
<TABLE>
<S> <C>
CORPORATE CHILD CARE, INC.
ATTEST:
By: /s/ David C. Gleason By: /s/ Marguerite W. Sallee
------------------------------- ---------------------------------------
Marguerite W. Sallee
CCC ACQUISITION CORPORATION
ATTEST:
By: /s/ David C. Gleason By: /s/ Marguerite W. Sallee
------------------------------- ---------------------------------------
Marguerite W. Sallee
RESOURCES FOR CHILD CARE
MANAGEMENT, INC.
ATTEST:
By: /s/ David J. Gleason By: /s/ Robert Lurie
------------------------------- ------------------------------------------------
Robert Lurie
ATTEST: ROBERT LURIE
By: /s/ Jane Lurie /s/ Robert Lurie
---------------------------------------- ---------------------------------------------------
</TABLE>
30
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED 1987 STOCK OPTION PLAN
1. Purpose. The purpose of the Corporate Child Care, Inc. 1987
Stock Option Plan (the "Plan") is to advance the growth and prosperity of
Corporate Child Care, Inc. (the "Company") and its subsidiaries by providing
key employees with an additional incentive to contribute to the best interests
of the Company. Without prejudice to other compensation programs approved from
time to time by the Board of Directors (the "Board") and/or shareholders of the
Company, such additional incentive is to be given key employees by means of
stock options provided for under the Plan. In the discretion of the Committee
hereinafter provided for and the Board, such options may be "Incentive Stock
Options" within the meaning of Section 422A of the Internal Revenue Code of
1986 (the "Code"), or "non-statutory" stock options.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board unless and until
such time as the Board delegates administration to a committee pursuant to
subparagraph 2(c) (the "Committee"). The Board shall administer the Plan only
if a majority of the entire Board, and a majority of the directors acting with
respect to each matter pertaining to the administration of the Plan, is
comprised of disinterested persons. For the purposes of this paragraph 2,
"disinterested person" shall mean a person who has not at any time within one
year prior to the date in question been eligible for participation in the Plan
or any other plan of the Company or any of its subsidiaries entitling the
participants therein to acquire stock or stock options of the Company or any of
its subsidiaries.
(b) The Board shall have the power, subject to, and within, the
limits of the express provisions of the Plan:
<PAGE> 2
(i) To determine from time to time which of the eligible
persons shall be granted options under the Plan, the term of each
granted option, the time or times during the term of each option
within which all or portions of each option may be exercised, whether
the options granted shall be Incentive Stock Options or non- statutory
options, and the number of shares for which each option shall be
granted.
(ii) To construe and interpret the Plan and options
granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise of this
power, shall generally determine all questions of policy and
expediency that may arise and may correct any defect, omission or
inconsistency in the Plan or in any option agreement in a manner and
to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To prescribe the terms and provisions of each option
granted (which need not be identical).
(iv) To amend the Plan as provided herein.
(v) Generally, to exercise such powers and to perform
such acts as are deemed necessary or expedient to promote the best
interests of the Company.
(c) The Board, by resolution, may delegate administration of the
Plan (including, without limitation, the Board's powers under subparagraph
2(b)) to a Committee composed of not less than three members, all of whom shall
be disinterested persons. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, subject, however, to such
constraints, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board at any time
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<PAGE> 3
may remove members from or add members to the Committee or may abolish the
Committee and revest in the Board the administration of the Plan. Vacancies on
the Committee, howsoever caused, shall be filled by the Board.
(d) The interpretation and construction by the Board of any
provisions of the Plan or of any option granted under it shall be final, and
the interpretation or construction by any Committee appointed pursuant to
subparagraph 2(c) of any such provisions or option shall also, unless otherwise
determined by the Board, be final. No member of such Committee or of the Board
shall be liable for any action or determination made in good faith with respect
to the Plan or any option granted under it.
3. Eligible Employees. The Board or the Committee shall
determine from time to time those officers and key employees of the Company and
its subsidiaries to whom options shall be granted and, pursuant to the
provisions of the Plan, the amount thereof and the terms and conditions,
including requirements as to continued employment by the participant, upon
which such options are granted and are exercisable. Directors of the Company
who are not also employees of the Company or its subsidiaries shall not be
eligible to participate in the Plan. For purposes of the Plan, "employee"
shall be defined as a person who is employed full-time by the Company and who
devotes all of his or her time, attention and energies to the business of the
Company.
4. The Stock. The stock subject to the options and other
provisions of the Plan shall be shares of the Company's authorized and unissued
Common Stock, no par value per share, or reacquired Common Stock held in the
treasury. The total number of shares of the Company's Common Stock that may be
transferred pursuant to the exercise of stock options under the Plan shall not
exceed in the aggregate 895,000 shares, subject to adjustment as provided in
paragraph 8. Shares
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<PAGE> 4
subject to options which terminate or expire prior to exercise shall be
available for further option hereunder.
Each option granted under this Plan shall be subject to the
requirement that if at any time the Board or the Committee shall determine that
the listing, registration or qualification of the shares subject thereto upon
any securities exchange or under any state or Federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable in
connection with the issue or transfer of shares subject thereto, no such option
may be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board or the Committee. If required at
any time by the Board or the Committee, an option may not be exercised until
the optionee has delivered an investment letter to the Company containing the
representations that all shares being purchased are being acquired by the
optionee for investment and not with a view to, or for resale in connection
with, any distribution of such shares.
5. Terms and Conditions of Options. All stock options granted
pursuant to the Plan shall be in such form as the Board or the Committee shall
from time to time determine, shall clearly indicate whether such option is an
Incentive Stock Option or a non-statutory stock option, and shall be subject to
the following terms and conditions:
(a) Option Price. The price per share for Common Stock under each
option granted under the Plan shall be determined and fixed by the Board or the
Committee but, in the case of Incentive Stock Options, shall in no event be
less than 100% of the fair market value of the Common Stock on the date of
grant of such option, and, in the case of non-statutory stock options, shall in
no event be less than 85% of the fair market value of the Common Stock on the
date of grant of such
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<PAGE> 5
option. In the case of the grant of an Incentive Stock Option to an individual
who, at the time of the grant, owns more than 10% of the total combined voting
power of all classes of stock of the Company, such price per share shall not be
less than 110% of the fair market value of the Common Stock on the date of
grant of the option.
(b) Option Period. The period during which an option may be
exercised shall be determined by the Board or the Committee, provided, however,
that in no event shall an Incentive Stock Option be exercisable after the
expiration of 10 years from the date such option was granted; and provided
further that in the case of the grant of an Incentive Stock Option to an
individual who, at the time of the grant, owns more than 10% of the total
combined voting power of all classes of stock of the Company, in no event shall
such option be exercisable more than five years from the date of the grant.
Options may be made exercisable in installments, and such options or
installments thereof may be exercised in part from time to time after they
become exercisable. The maturity of any installment or installments may be
accelerated at the discretion of the Board or the Committee.
In the event that a participant shall cease to be employed by the
Company or one of its subsidiaries for any reason other than his death, all
options held by him pursuant to the Plan and not previously exercised at the
date of such termination shall terminate immediately and become void and of no
effect; provided, however, that the Board or the Committee shall have the right
to extend the exercise period not in excess of three months following the date
of termination of the participant's employment, subject to the further
condition, however, that no Incentive Stock Option shall be exercisable after
the expiration of 10 years from the date it is granted. Notwithstanding the
foregoing, if the termination is due to disability, or to retirement with the
consent of the Company, such disabled or retiring participant shall have the
right to exercise his options which have not
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<PAGE> 6
previously been exercised at the date of such termination of employment at any
time within three months after such termination, subject to the condition that
no Incentive Stock Option shall be exercisable after the expiration of 10 years
from the date it is granted. Whether termination of employment is due to
disability or is to be considered retirement with the consent of the Company
shall be determined by the Board or the Committee, which determination shall be
final and conclusive.
If the participant should die while in the employ of the Company or a
subsidiary of the Company or within a period of three months after the
termination of his employment by retirement and shall not have fully exercised
options granted under the Plan, such options may be exercised in whole or in
part at any time within 12 months after the participant's death by the
executors or administrators of the participant's estate or by any person or
persons who shall have acquired the options directly from the participant by
bequest or inheritance, subject to the condition that no Incentive Stock Option
shall be exercisable after the expiration of 10 years from the date it is
granted.
The exercise of an option granted under the Plan shall not affect the
optionee's right or ability to exercise any other option granted under the Plan
or any other stock option plan of the Company or its subsidiaries.
(c) Limitations on Grants. No Incentive Stock Option shall be
granted to any participant under the Plan if the aggregate fair market value
(as of the date the option is granted) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by such
participant during any calendar year (under all such plans of the Company and
any subsidiary of the Company) exceeds $100,000.
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<PAGE> 7
(d) Limitations on Disposition. To obtain the tax benefits
associated with Incentive Stock Options, the optionee must make no disposition
of shares acquired pursuant to the exercise of an Incentive Stock Option within
two years from the granting of such Incentive Stock Option or within one year
from the date of the exercise of such Incentive Stock Option.
6. Payment for Stock. Payment for shares subject to options
granted under the Plan may be made by the optionee in the form of cash or by
means of unrestricted shares of the Company's Common Stock or any combination
thereof upon the exercise of the option. Payment in currency or by check, bank
draft, cashier's check or postal money order shall be considered payment in
cash. In the event of payment in the Company's Common Stock, the shares used
in payment of the purchase price shall be taken at the fair market value
thereof on the date of the exercise of the option.
7. Non-Assignability. No option shall be transferable otherwise
than by will or the laws of descent and distribution and an option is
exercisable during the lifetime of the optionee only by him.
8. Adjustment Upon Changes in Stock.
(a) The number of shares of Common Stock available for the
granting of options under the Plan and the number of shares and price per share
of Common Stock subject to outstanding options granted pursuant to the Plan
shall be adjusted by the Board or the Committee in an equitable manner to
reflect changes in the capitalization of the Company, including, but not
limited to, such changes as result from merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend or any other dividend not in the ordinary course of
business, combination of shares, exchange of shares and change in corporate
structure. If any adjustment under this subparagraph 8(a) would create a
fractional share of Common
7
<PAGE> 8
Stock or a right to acquire a fractional share of Common Stock, such fractional
share shall be disregarded and the number of shares available under the Plan
and the number covered under any options granted pursuant to the Plan shall be
the next lower number of shares, rounding all fractions downward.
(b) Change in Control Provisions.
(i) Impact of Event. In the event of:
(1) a "Change in Control" as defined below or
(2) a "Potential Change in Control" as defined
below, but only if and to the extent so determined by the
Committee or the Board at or after grant (subject to any right
of approval expressly reserved by the Committee or the Board
at the time of such determination),
the following acceleration and valuation provisions shall apply if so
determined by the Board in its sole discretion:
(A) any option awarded under the Plan
not previously exercisable and vested shall become
fully exercisable and vested.
(B) Unless otherwise set forth in the
award agreement and except as otherwise provided in
Section (C) below, the value of all outstanding
options, in each case to the extent vested, shall,
unless otherwise determined by the Committee in its
sole discretion at or (except in the case of an
Incentive Stock Option) after grant but prior to any
Change in Control, be cashed out on the basis of the
"Change in Control Price" as defined below as of the
date such Change in Control or such Potential Change
in Control is determined to have occurred or such
other date as the Committee may determine prior to
the Change in Control.
(C) In the case of any options held by
any person subject to Section 16(a) of the Exchange
Act, the value of all such options, in each case to
the extent that they are vested, shall (unless
otherwise determined by the Committee in its sole
discretion) be cashed out on the basis of the "Change
in Control Price" as defined below as of the date of
such Change in Control or such Potential Change in
Control
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<PAGE> 9
is determined to have occurred, but only if the
Change in Control or Potential Change in Control is
outside the control of the grantee for purposes of
Rule 16b-3(e)(3) under the Exchange Act, or any
successor provision promulgated by the Securities and
Exchange Commission.
(ii) Definition of Change in Control. For purposes of
this Section, a "Change in Control" means the happening of any of the
following:
(1) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its
subsidiaries, becomes the beneficial owner of the Company's
securities having 35% or more of the combined voting power of
the then outstanding securities of the Company that may be
cast for the election of directors of the Company (other than
as a result of an issuance of securities initiated by the
Company in the ordinary course of business); or
(2) as the result of, or in connection with, any
cash tender or exchange offer, merger or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Company or any successor company or entity
entitled to vote generally in the election of the directors of
the Company or such other company or entity after such
transaction are held in the aggregate by the holders of the
Company's securities entitled to vote generally in the
election of directors of the Company immediately prior to such
transaction; or
(3) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Company's stockholders, of each director of
the Company first elected during such period was approved by a
vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the
beginning of any such period.
(iii) Definition of Potential Change in Control.
For purposes of this Section, a "Potential Change in Control" means
the happening of any one of the following:
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<PAGE> 10
(1) The approval by stockholders of an agreement
by the Company, the consummation of which would result in a
Change in Control of the Company as defined above; or
(2) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Company or a subsidiary or any Company employee
benefit plan (including any trustee of such plan acting as
such trustee)) of securities of the Company representing 5% or
more of the combined voting power of the Company's outstanding
securities and the adoption by the Committee of a resolution
to the effect that a Potential Change in Control of the
Company has occurred for purposes of this Plan.
(iv) Change in Control Price. For purposes of this
Section, "Change in Control Price" means the highest price per share
paid in any transaction reported on the Nasdaq Stock Market or such
other exchange or market as is the principal trading market for the
stock, or paid or offered in any bona fide transaction related to a
Potential or actual Change in Control of the Company at any time
during the 60 day period immediately preceding the occurrence of the
Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee except that, in the case of Incentive Stock Options, such
price shall be based only on transactions reported for the date on
which a cash out occurs under this Section.
(c) Any adjustment made by the Board or the Committee under this
paragraph 8 shall be conclusive and binding on all affected persons. No
Incentive Stock Option granted pursuant to the Plan shall be adjusted in a
manner that causes such Incentive Stock Option to fail to continue to qualify
as an Incentive Stock Option within the meaning of Section 422A of the Code.
9. Amendment. The Board from time to time may amend this Plan,
but except as provided above with respect to dilutions or other adjustments or
mergers or consolidations, or with the approval of the Company's shareholders,
may not (a) increase the aggregate number of shares
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<PAGE> 11
available for options hereunder, (b) change the price at which options may be
granted, (c) extend the maximum period during which an option may be exercised,
or (d) change the eligibility requirements for options hereunder. Rights and
obligations under any option granted before amendment of the Plan shall not be
altered or impaired by amendment of the Plan, except with the consent of the
person to whom the option was granted.
10. Fair Market Value of Stock. Whenever pursuant to the terms of
the Plan the fair market value of the Company's Common Stock is required to be
determined as of a particular date, such fair market value shall equal the last
sale price of the Common Stock on the principal exchange on which the Common
Stock is then listed, or if the Common Stock is not then listed on any
exchange, on the National Association of Securities Dealers Automated Quotation
System National Market System ("NMS"), or, if price quotations for the Common
Stock are not available on NMS, the mean between the closing bid and asked
price of the Common Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or if no bid quotation is available on
NASDAQ, the fair value of such Common Stock as determined by the Board, in each
case, on the business day immediately preceding the date on which the
determination is made. Fair market value shall be determined in all cases
without regard to any restriction other than a restriction which, by its terms,
will never lapse.
11. No Rights as Shareholder. A participant in the Plan shall
have no rights as a shareholder with respect to any shares covered by his
option until the date of the issuance of a stock certificate to him. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued.
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<PAGE> 12
12. Indemnification of Committee. In addition to such other
rights of indemnification as they may have as directors or as members of the
Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct in
the performance of his duties; provided that within 60 days after institution
of any such action, suit or proceeding, the Committee member shall in writing
offer the Company the opportunity, at its own expense, to handle and defend the
same.
13. Termination. This Plan shall terminate on October 1, 1997,
unless sooner terminated by action of the Board. No option may be granted
hereunder after termination of the Plan, but such termination shall not affect
the validity of any option then outstanding.
14. Shareholder Approval. The Plan shall be subject to approval
by the holders of a majority of the outstanding shares of Common Stock of the
Company present and voting at a meeting of shareholders, which approval must
occur within the period beginning 12 months before and ending 12 months after
the date the Plan is adopted by the Board, provided, however, that options may
be granted thereunder when all the conditions (other than shareholder approval)
precedent to the granting of options under the Plan have been completed by the
Company.
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<PAGE> 1
EXHIBIT 10.4
CORPORATE CHILD CARE, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Corporate Child Care, Inc. 1996 Stock Incentive Plan
(the "Plan") is to enable Corporate Child Care, Inc. (the "Corporation") to
attract, retain and reward key employees of and consultants to the Corporation
and its Subsidiaries and Affiliates, and strengthen the mutuality of interests
between such key employees and consultants by awarding such key employees and
consultants performance-based stock incentives and/or other equity interests or
equity-based incentives in the Corporation, as well as performance-based
incentives payable in cash. The creation of the Plan shall not diminish or
prejudice other compensation programs approved from time to time by the Board.
For purposes of the Plan, the following terms shall be defined as set
forth below:
A. "Affiliate" means any entity other than the Corporation and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Corporation directly or indirectly owns at least 20%
of the combined voting power of all classes of stock of such entity or at least
20% of the ownership interests in such entity.
B. "Board" means the Board of Directors of the Corporation.
C. "Common Stock" means the Corporation's Common Stock, no par value.
D. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
E. "Committee" means the Committee referred to in Section 2 of the
Plan.
F. "Corporation" means Corporate Child Care, Inc., a corporation
organized under the laws of the State of Delaware or any successor corporation.
G. "Disability" means disability as determined under the Corporation's
long-term disability insurance policy.
H. "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission
("Commission") under the Securities Exchange Act of 1934, as amended, or any
successor definition adopted by the Commission.
I. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Corporation at or before the time of such retirement,
from active employment with the Corporation and any Subsidiary or Affiliate
prior to age 65, in accordance with any applicable early retirement policy of
the Corporation then in effect or as may be approved by the Committee.
J. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
K. "Fair Market Value" means with respect to the Stock, as of any given
date or dates, unless otherwise determined by the Committee in good faith, the
reported closing price of a share of such class of Stock on The Nasdaq Stock
Market ("Nasdaq Stock Market") or such other exchange or market as is the
principal trading
<PAGE> 2
market for such class of Stock, or, if no such sale of a share of such class of
Stock is reported on the Nasdaq Stock Market or other exchange or principal
trading market on such date, the fair market value of a share of such class of
Stock as determined by the Committee in good faith.
L. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
M. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
N. "Normal Retirement" means retirement from active employment with the
Corporation and any Subsidiary or Affiliate on or after age 65.
O. "Other Stock-Based Award" means an award under Section 8 below that
is valued in whole or in part by reference to, or is otherwise based on, Stock.
P. "Plan" means this Corporate Child Care, Inc. 1996 Stock Incentive
Plan, as amended from time to time.
Q. "Restricted Stock" means an award of shares of Stock that is subject
to restrictions under Section 7 below.
R. "Restriction Period" shall have the meaning provided in Section 7.
S. "Retirement" means Normal or Early Retirement.
T. "Stock" means the Common Stock.
U. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Corporation all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Stock covered by such Stock Option (or
such portion thereof), subject, where applicable, to the pricing provisions in
Section 6(b)(ii), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof).
V. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
W. "Subsidiary" means any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
In addition, the terms "Change in Control," "Potential Change in
Control" and "Change in Control Price" shall have the meanings set forth,
respectively in Sections 9(b), (c) and (d) below and the term "Cause" shall have
the meaning set forth in Section 5(j) below.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Disinterested Persons, who shall be appointed by the Board and who shall serve
at the pleasure of the Board. The functions of the Committee specified in the
Plan may be exercised by an existing Committee of the Board composed exclusively
of Disinterested Persons. The initial Committee shall be the Compensation
Committee of the Board.
<PAGE> 3
The Committee shall have authority to grant, pursuant to the terms of
the Plan, to officers, other key employees and consultants eligible under
Section 4: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted
Stock, and/or (iv) Other Stock-Based Awards.
In particular, the Committee shall have the authority, consistent with
the terms of the Plan:
(a) to select the officers and other key employees of and
consultants to the Corporation and its Subsidiaries and Affiliates to
whom Stock Options, Stock Appreciation Rights, Restricted Stock, and/or
Other Stock-Based Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock, and/or Other Stock-Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible employees;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of Stock
relating thereto, based in each case on such factors as the Committee
shall determine, in its sole discretion); and to amend or waive any
such terms and conditions to the extent permitted by Section 11 hereof;
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash or Restricted Stock under Section 5(m) or
(n), as applicable, instead of Stock;
(f) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan;
(g) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining
the amount (if any) of any deemed earnings on any deferred amount
during any deferral period); and
(h) to determine whether to require payment withholding
requirements in shares of Stock.
The Committee shall have the authority to adopt, alter and repeal such
rules, guidelines and practices governing the Plan as it shall, from time to
time, deem advisable; to interpret the terms and provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Corporation and Plan participants.
Notwithstanding the foregoing, the Committee shall have no authority to
determine the terms or conditions of awards to Outside Directors, which shall be
governed solely by Section 9 hereof.
SECTION 3. SHARES OF STOCK SUBJECT TO PLAN.
The aggregate number of shares of Stock reserved and available for
distribution under the Plan shall not exceed 1,100,000 shares. Such shares of
Common Stock may consist, in whole or in art, of authorized and unissued shares
or treasury shares.
<PAGE> 4
If any shares of Stock that have been optioned cease to be subject to a
Stock Option, or if any shares of Stock that are subject to any Restricted Stock
or Other Stock-Based Award granted hereunder are forfeited prior to the payment
of any dividends, if applicable, with respect to such shares of Stock, or any
such award otherwise terminates without a payment being made to the participant
in the form of Stock, such shares shall again be available for distribution in
connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, Stock dividend, Stock split or
other change in corporate structure affecting the Stock, an appropriate
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Options granted under the Plan, and in the number of
shares subject to other outstanding awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
Such adjusted option price shall also be used to determine the amount payable by
the Corporation upon the exercise of any Stock Appreciation Right associated
with any Stock Option. The maximum number of shares that may be awarded to any
participant under Section 4 of this Plan will be adjusted in the same manner as
the number of shares subject to outstanding Options.
SECTION 4. ELIGIBILITY.
Officers and other key employees of and consultants to the Corporation
and its Subsidiaries and Affiliates who are responsible for or contribute to the
management, growth and/or profitability of the business of the Corporation
and/or its Subsidiaries and Affiliates are eligible to be granted awards under
the Plan. No officer or key employee shall be eligible to receive awards
relative to shares of Stock which exceed 300,000 shares during any calendar
year.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan and/or cash awards made outside of the Plan.
Any Stock Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non- Qualified Stock Options. Incentive Stock Options may
be granted only to individuals who are employees of the Corporation or any
Subsidiary of the Corporation.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights).
Options granted to officers, key employees and consultants under the
Plan shall be subject to the following terms and conditions and shall contain
such additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee
at the time of grant but shall be not less than 100% (or, in the case
of any employee who owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation or of
any of its Subsidiaries, not less than 110%) of the Fair Market Value
of the Stock at grant, in the case of Incentive Stock Options, and not
less than 50% of the Fair Market Value of the Stock at grant, in the
case of Non-Qualified Stock Options.
(b) Option Term. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable
more than ten years (or, in the case of an employee who owns stock
possessing more than 10% of the total combined voting power of all
classes of stock of the
<PAGE> 5
Corporation or any of its Subsidiaries or parent corporations, more
than five years) after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that
except as provided in Section 5(g) and (h) and Section 10, unless
otherwise determined by the Committee at or after grant, no Stock
Option shall be exercisable prior to the first anniversary date of the
granting of the Option. The Committee may provide that a Stock Option
shall vest over a period of future service at a rate specified at the
time of grant, or that the Stock Option is exercisable only in
installments. If the Committee provides, in its sole discretion, that
any Stock Option is exercisable only in installments, the Committee may
waive such installment exercise provisions at any time at or after
grant in whole or in part, based on such factors as the Committee shall
determine, in its sole discretion. The Committee may establish
performance conditions or other conditions to the exercisability of any
Stock Options, as determined by the Committee in its sole discretion,
which conditions may be waived by the Committee in its sole discretion.
(d) Method of Exercise. Subject to whatever installment
exercise restrictions apply under Section 5(c), Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Corporation specifying the
number of shares to be purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by check, note or such other instrument as the
Committee may accept. As determined by the Committee, in its sole
discretion, at or (except in the case of an Incentive Stock Option)
after grant, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the
exercise of a Non-Qualified Stock Option or Restricted Stock, subject
to an award hereunder (valued at the Fair Market Value of the Stock on
the date the option is exercised, as determined by the Committee). If
payment of the exercise price is made in part or in full with Stock,
the Committee may award to the employee a new Stock Option to replace
the Stock which was surrendered.
If payment of the option exercise price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted
Stock, such Restricted Stock (and any replacement shares relating
thereto) shall remain (or be) restricted in accordance with the
original terms of the Restricted Stock award in question, and any
additional Stock received upon the exercise shall be subject to the
same forfeiture restrictions, unless otherwise determined by the
Committee, in its sole discretion, at or after grant.
No shares of Stock shall be issued until full payment therefor
has been made. An optionee shall generally have the rights to dividends
or other rights of a stockholder with respect to shares subject to the
Option when the optionee has given written notice of exercise, has paid
in full for such shares, and, if requested, has given the
representation described in Section 13(a).
(e) Non-Transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of
descent and distribution, and all Stock Options shall be exercisable,
during the optionee's lifetime, only by the optionee.
(f) Bonus for Taxes. In the case of a Non-Qualified Stock
Option, the Committee in its discretion may award at the time of grant
or thereafter the right to receive upon exercise of such Stock Option a
cash bonus calculated to pay part or all of the federal and state, if
any, income tax incurred by the optionee upon such exercise.
(g) Termination by Death. Subject to Section 5(k), if an
optionee's employment by the Corporation and any Subsidiary or (except
in the case of an Incentive Stock Option) Affiliate terminates by
reason of death, any Stock Option held by such optionee may thereafter
be exercised, to the extent such option was exercisable at the time of
death or (except in the case of an Incentive Stock Option) on such
accelerated basis as the Committee may determine at or after grant (or
except in the case of an Incentive Stock Option, as may be determined
in accordance with procedures established by the Committee) by the
legal representative of the estate or by the legatee of the optionee
under the will of the optionee, for a period
<PAGE> 6
of one year (or such other period as the Committee may specify at or
after grant) from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(h) Termination by Reason of Disability. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it
was exercisable at the time of termination or (except in the case of an
Incentive Stock Option) on such accelerated basis as the Committee may
determine at or after grant (or, except in the case of an Incentive
Stock Option, as may be determined in accordance with procedures
established by the Committee), for a period of (i) three years (or such
other period as the Committee may specify at or after grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter, in
the case of a Non-Qualified Stock Option and (ii) one year from the
date of termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter, in the case of
an Incentive Stock Option; provided however, that, if the optionee dies
within the period specified in (i) above (or other such period as the
committee shall specify at or after grant), any unexercised
Non-Qualified Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of
death for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever
period is shorter. In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise period applicable to Incentive Stock
Options, but before the expiration of any period that would apply if
such Stock Option were a Non-Qualified Stock Option, such Stock Option
will thereafter be treated as a Non-Qualified Stock Option.
(i) Termination by Reason of Retirement. Subject to Section
5(k), if an optionee's employment by the Corporation and any Subsidiary
or (except in the case of an Incentive Stock Option) Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to
the extent it was exercisable at the time of such Retirement or (except
in the case of an Incentive Stock Option) on such accelerated basis as
the Committee may determine at or after grant (or, except in the case
of an Incentive Stock Option, as may be determined in accordance with
procedures established by the Committee), for a period of (i) three
years (or such other period as the Committee may specify at or after
grant) from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the case of a Non-Qualified Stock Option and (ii) three
months from the date of such termination of employment or the
expiration of the stated term of such Stock Option, whichever period is
the shorter, in the event of an Incentive Stock Option; provided
however, that, if the optionee dies within the period specified in (i)
above (or other such period as the Committee shall specify at or after
grant), any unexercised Non-Qualified Stock Option held by such
optionee shall thereafter be exercisable to the extent to which it was
exercisable at the time of death for a period of twelve months from the
date of such death or until the expiration of the stated term of such
Stock Option, whichever period is shorter. In the event of termination
of employment by reason of Retirement, if an Incentive Stock Option is
exercised after the expiration of the exercise period applicable to
Incentive Stock Options, but before the expiration of the period that
would apply if such Stock Option were a Non- Qualified Stock Option,
the option will thereafter be treated as a Non-Qualified Stock Option.
(j) Other Termination. Subject to Section 5(k), unless
otherwise determined by the Committee (or pursuant to procedures
established by the Committee) at or (except in the case of an Incentive
Stock Option) after grant, if an optionee's employment by the
Corporation and any Subsidiary or (except in the case of an Incentive
Stock Option) Affiliate is involuntarily terminated for any reason
other than death, Disability or Normal or Early Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be
exercised, to the extent otherwise then exercisable, for the lesser of
three months or the balance of such Stock Option's term if the
involuntary termination is without Cause. For purposes of this Plan,
"Cause" means (i) a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or (ii) a
participant's willful misconduct or dishonesty, which is directly and
materially harmful to the business or reputation of the Corporation or
any Subsidiary or Affiliate. If an optionee voluntarily terminates
employment with the Corporation and any Subsidiary or (except in the
case of an Incentive Stock Option) Affiliate (except for Disability,
Normal or Early Retirement), the Stock Option
<PAGE> 7
shall thereupon terminate; provided, however, that the Committee at
grant or (except in the case of an Incentive Stock Option) thereafter
may extend the exercise period in this situation for the lesser of
three months or the balance of such Stock Option's term.
(k) Incentive Stock Options. Anything in the Plan
to the contrary notwithstanding, no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor
shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code,
or, without the consent of the optionee(s) affected, to disqualify any
Incentive Stock Option under such Section 422.
No Incentive Stock Option shall be granted to any participant
under the Plan if such grant would cause the aggregate Fair Market
Value (as of the date the Incentive Stock Option is granted) of the
Stock with respect to which all Incentive Stock Options issued after
December 31, 1986 are exercisable for the first time by such
participant during any calendar year (under all such plans of the
Company and any Subsidiary) to exceed $100,000.
To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue
Service pronouncement:
(i) if (x) a participant's employment is
terminated by reason of death, Disability or Retirement and
(y) the portion of any Incentive Stock Option that is
otherwise exercisable during the post-termination period
specified under Section 5(g), (h) or (i), applied without
regard to the $100,000 limitation contained in Section 422(d)
of the Code, is greater than the portion of such Option that
is immediately exercisable as an "Incentive Stock Option"
during such post-termination period under Section 422, such
excess shall be treated as a Non-Qualified Stock Option; and
(ii) if the exercise of an Incentive Stock Option
is accelerated by reason of a Change in Control, any portion
of such Option that is not exercisable as an Incentive Stock
Option by reason of the $100,000 limitation contained in
Section 422(d) of the Code shall be treated as a Non-
Qualified Stock Option.
(l) Buyout Provisions. The Committee may at any time
offer to buy out for a payment in cash, Stock or Restricted Stock an
Option previously granted, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time
that such offer is made.
(m) Settlement Provisions. If the option agreement
so provides at grant or (except in the case of an Incentive Stock
Option) is amended after grant and prior to exercise to so provide
(with the optionee's consent), the Committee may require that all or
part of the shares to be issued with respect to the spread value of an
exercised Option take the form of Restricted Stock, which shall be
valued on the date of exercise on the basis of the Fair Market Value
(as determined by the Committee) of such Restricted Stock determined
without regards to the forfeiture restrictions involved.
(n) Performance and Other Conditions. The Committee
may condition the exercise of any Option upon the attainment of
specified performance goals or other factors as the Committee may
determine, in its sole discretion. Unless specifically provided in the
option agreement, any such conditional Option shall vest immediately
prior to its expiration if the conditions to exercise have not
theretofore been satisfied. The shares of Common Stock acquired
pursuant to any conditional Option shall not be transferable by an
Optionee subject to Section 16(a) of the Exchange Act within six months
of the date such Option first becomes exercisable.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted
in conjunction with all or part of any Stock Option granted under the Plan. In
the case of a Non-Qualified Stock Option, such rights may be granted
<PAGE> 8
either at or after the time of the grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of the grant
of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee, subject to
Section 6(b), in accordance with the procedures established by the Committee for
such purpose. Upon such exercise, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options
relating to exercised Stock Appreciation Rights shall no longer be exercisable
to the extent that the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock Options to
which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan; provided,
however, that any Stock Appreciation Right granted to an optionee
subject to Section 16(a) of the Exchange Act subsequent to the grant of
the related Stock Option shall not be exercisable during the first six
months of its term. The exercise of Stock Appreciation Rights held by
optionees who are subject to Section 16(a) of the Exchange Act shall
comply with Rule 16b-3(e) thereunder, to the extent applicable. In
particular, such Stock Appreciation Rights shall be exercisable only
pursuant to an irrevocable election made at least six months prior to
the date of exercise or within the applicable ten business day "window"
periods specified in Rule 16b-3(e)(3).
(ii) Upon the exercise of a Stock Appreciation
Right, an optionee shall be entitled to receive an amount in cash
and/or shares of Stock equal in value to the excess of the Fair Market
Value of one share of Stock over the option price per share specified
in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been
exercised, with the Committee having the right to determine the form of
payment. When payment is to be made in shares, the number of shares to
be paid shall be calculated on the basis of the Fair Market Value of
the shares on the date of exercise. When payment is to be made in cash,
such amount shall be calculated on the basis of the average of the
highest and lowest quoted selling price, regular way, of the Stock on
the Nasdaq Stock Market or such other exchange or market as is the
principal trading market for the Stock, or, if no such sale of Stock is
reported on such date, the fair market value of the Stock as determined
by the Committee in good faith.
(iii) Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would be
transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation
Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 3 of the Plan on
the number of shares of Stock to be issued under the Plan.
(v) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control and/or a Potential
Change in Control, the amount to be paid upon the exercise of a Stock
Appreciation Right shall be based on the Change in Control Price,
subject to such terms and conditions as the Committee may specify at
grant.
(vi) The Committee may condition the exercise of
any Stock Appreciation Right upon the attainment of specified
performance goals or other factors as the Committee may determine, in
its sole discretion. Unless specifically provided in the applicable
award agreement, any such conditional Stock
<PAGE> 9
Appreciation Right held by a grantee subject to Section 16(a) of the
Exchange Act shall not be exercisable until the expiration of six
months following the satisfaction of the condition giving rise to such
Stock Appreciation Right.
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be issued
either alone, in addition to or in tandem with other awards granted under the
Plan and/or cash awards made outside the Plan. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares of Restricted Stock to be awarded to
any person, the price (if any) to be paid by the recipient of Restricted Stock
(subject to Section 7(b)), the time or times within which such awards may be
subject to forfeiture, and the other terms, restrictions and conditions of the
awards in addition to those set forth in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a
Restricted Stock award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Corporation, and has
otherwise complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall
be established by the Committee and may be zero.
(ii) Awards of Restricted Stock must be accepted within a
period of 60 days (or such shorter period as the Committee may specify
at grant) after the award date, by executing a Restricted Stock Award
Agreement and paying whatever price (if any) is required under Section
7(b)(i).
(iii) Each participant receiving a Restricted Stock award
shall be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the name of
such participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Corporation until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock
awarded pursuant to this Section 7 shall be subject to such restrictions as the
Committee, in its discretion, may determine, which may include the following
restrictions and conditions:
(i) In accordance with the provisions of this Plan and the
award agreement, during a period set by the Committee commencing with
the date of such award (the "Restriction Period"), the participant
shall not be permitted to sell, transfer, pledge, assign or otherwise
encumber shares of Restricted Stock awarded under the Plan. Within
these limits, the Committee, in its sole discretion, may provide for
the lapse of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a stockholder of the
Corporation, including the right to vote the shares, and the right to
receive any cash dividends. The Committee, in its sole
<PAGE> 10
discretion, as determined at the time of award, may permit or require
the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested, subject to Section 14(e), in additional
Restricted Stock to the extent shares are available under Section 3, or
otherwise reinvested. Pursuant to Section 3 above, Stock dividends
issued with respect to Restricted Stock shall be treated as additional
shares of Restricted Stock that are subject to the same restrictions
and other terms and conditions that apply to the shares with respect to
which such dividends are issued. If the Committee so determines, the
award agreement may also impose restrictions on the right to vote and
the right to receive dividends.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a participant's
employment with the Corporation and any Subsidiary or Affiliate for any
reason during the Restriction Period, all shares still subject to
restriction will vest, or be forfeited, in accordance with the terms
and conditions established by the Committee at or after grant.
(iv) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, certificates for an appropriate number of unrestricted shares
shall be delivered to the participant promptly.
(d) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Corporation and service
of the participant, the Committee may provide, in its sole discretion, for a
tandem performance-based or other award designed to guarantee a minimum value,
payable in cash or Stock to the recipient of a restricted stock award, subject
to such performance, future service, deferral and other terms and conditions as
may be specified by the Committee.
SECTION 8. OTHER STOCK-BASED AWARDS.
(a) Administration. Other Stock-Based Awards, including, without
limitation, performance shares, convertible preferred stock, convertible
debentures, exchangeable securities and Stock awards or options valued by
reference to earnings per share or Subsidiary performance, may be granted either
alone or in addition to or in tandem with Stock Options, Stock Appreciation
Rights or Restricted Stock granted under the Plan and/or cash awards made
outside of the Plan; provided that no such Other Stock-Based Awards may be
granted in tandem with Incentive Stock Options if that would cause such Stock
Options not to qualify as Incentive Stock Options pursuant to Section 422 of the
Code.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of shares of Stock to be awarded pursuant to
such awards, and all other conditions of the awards. The Committee may also
provide for the grant of Stock upon the completion of a specified performance
period.
The provisions of Other Stock-Based Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. Other Stock-Based Awards made pursuant
to this Section 8 shall be subject to the following terms and conditions:
(i) Shares subject to awards under this Section 8 and the
award agreement referred to in Section 8(b)(v) below, may not be sold,
assigned, transferred, pledged or otherwise encumbered prior to the
date on which the shares are issued, or, if later, the date on which
any applicable restriction, performance or deferral period lapses.
(ii) Subject to the provisions of this Plan and the award
agreement and unless otherwise determined by the Committee at grant,
the recipient of an award under this Section 8 shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
interest or dividend equivalents with respect to the number of shares
covered by the award, as determined at the time of the award by the
Committee, in its sole discretion, and the Committee may provide that
such amounts (if any) shall be deemed to have been reinvested in
additional Stock or otherwise reinvested.
<PAGE> 11
(iii) Any award under Section 8 and any Stock covered by any
such award shall vest or be forfeited to the extent so provided in the
award agreement, as determined by the Committee, in its sole
discretion.
(iv) In the event of the participant's Retirement, Disability
or death, or in cases of special circumstances, the Committee may, in
its sole discretion, waive in whole or in part any or all of the
remaining limitations imposed hereunder (if any) with respect to any or
all of an award under this Section 8.
(v) Each award under this Section 8 shall be confirmed by,
and subject to the terms of, an agreement or other instrument by the
Corporation and the participant.
(vi) Stock (including securities convertible into Stock)
issued on a bonus basis under this Section 8 may be issued for no cash
consideration. Stock (including securities convertible into Stock)
purchased pursuant to a purchase right awarded under this Section 8
shall be priced at least 85% of the Fair Market Value of the Stock on
the date of grant.
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section 9(b) or
(2) a "Potential Change in Control" as defined in Section
9(c), but only if and to the extent so determined by the Committee or
the Board at or after grant (subject to any right of approval expressly
reserved by the Committee or the Board at the time of such
determination),
the following acceleration and valuation provisions shall apply if so determined
by the Board in its sole discretion:
(i) Any Stock Appreciation Rights (including, without
limitation, any Limited Stock Appreciation Rights) outstanding
for at least six months and any Stock Option awarded under the
Plan not previously exercisable and vested shall become fully
exercisable and vested.
(ii) Unless otherwise set forth in the award
agreement, the restrictions applicable to any Restricted Stock
and Other Stock-Based Awards, in each case to the extent not
already vested under the Plan, shall lapse and such shares and
awards shall be deemed fully vested.
(iii) Unless otherwise set forth in the award
agreement and except as otherwise provided in Section 9(a)(iv)
below, the value of all outstanding Stock Options, Stock
Appreciation Rights, Restricted Stock and Other Stock-Based
Awards, in each case to the extent vested, shall, unless
otherwise determined by the Committee in its sole discretion
at or (except in the case of an Incentive Stock Option) after
grant but prior to any Change in Control, be cashed out on the
basis of the "Change in Control Price" as defined in Section
10(d) as of the date such Change in Control or such Potential
Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change in
Control.
(iv) In the case of any Stock Options, Stock
Appreciation Rights, Restricted Stock and Other Stock-Based
Awards held by any person subject to Section 16(a) of the
Exchange Act, the value of all such Stock Options, Stock
Appreciation Rights, Restricted Stock or Other Stock-Based
Awards, in each case to the extent that they are vested and
have been held for at least six months, shall (unless
otherwise determined by the Committee in its sole discretion)
be cashed out on the basis of the "Change in Control Price" as
defined in Section 9(d) as of the date of such Change in
Control or such Potential Change in Control is determined to
have occurred, but only if the Change in Control or Potential
Change in Control is outside the control of the grantee for
purposes of Rule
<PAGE> 12
16b-3(e)(3) under the Exchange Act, or any successor provision
promulgated by the Securities and Exchange Commission.
(b) Definition of Change in Control. For purposes of Section
9(a), a "Change in Control" means the happening of any of the following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Exchange Act, other than
the Corporation or a wholly-owned subsidiary thereof or any
employee benefit plan of the Corporation or any of its
Subsidiaries, becomes the beneficial owner of the
Corporation's securities having 35% or more of the combined
voting power of the then outstanding securities of the
Corporation that may be cast for the election of directors of
the Corporation (other than as a result of an issuance of
securities initiated by the Corporation in the ordinary course
of business); or
(ii) as the result of, or in connection with, any
cash tender or exchange offer, merger or other business
combination, sales of assets or contested election, or any
combination of the foregoing transactions, less than a
majority of the combined voting power of the then outstanding
securities of the Corporation or any successor corporation or
entity entitled to vote generally in the election of the
directors of the Corporation or such other corporation or
entity after such transaction are held in the aggregate by the
holders of the Corporation's securities entitled to vote
generally in the election of directors of the Corporation
immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the Board cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for
election by the Corporation's stockholders, of each director
of the Corporation first elected during such period was
approved by a vote of at least two-thirds of the directors of
the Corporation then still in office who were directors of the
Corporation at the beginning of any such period.
(c) Definition of Potential Change in Control. For purposes of
Section 9(a), a "Potential Change in Control" means the happening of any one of
the following:
(i) The approval by stockholders of an agreement by
the Corporation, the consummation of which would result in a
Change in Control of the Corporation as defined in Section
9(b); or
(ii) The acquisition of beneficial ownership,
directly or indirectly, by any entity, person or group (other
than the Corporation or a Subsidiary or any Corporation
employee benefit plan (including any trustee of such plan
acting as such trustee)) of securities of the Corporation
representing 5% or more of the combined voting power of the
Corporation's outstanding securities and the adoption by the
Committee of a resolution to the effect that a Potential
Change in Control of the Corporation has occurred for purposes
of this Plan.
(d) Change in Control Price. For purposes of this Section 9,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the Nasdaq Stock Market or such other exchange or market
as is the principal trading market for the Stock, or paid or offered in any bona
fide transaction related to a Potential or actual Change in Control of the
Corporation at any time during the 60 day period immediately preceding the
occurrence of the Change in Control (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the Committee
except that, in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the optionee exercises such Stock
Appreciation Rights or, where applicable, the date on which a cash out occurs
under Section 9(a)(iii).
<PAGE> 13
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Other Stock-Based Award or Outside Director Restricted Stock
theretofore granted, without the optionee's or participant's consent or which,
without the approval of the Corporation's stockholders, would:
(a) except as expressly provided in this Plan, increase
the total number of shares reserved for the purpose of the Plan;
(b) materially increase the benefits accruing to
participants under the Plan; or
(c) materially modify the requirements as to eligibility
for participation in the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options (on a one for one or other basis), including
previously granted Stock Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Corporation, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Corporation. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder; provided, however, that, unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option or other award under the Plan to represent to and
agree with the Corporation in writing that the optionee or participant is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock- transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed, and any applicable Federal or
state securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee
of the Corporation or any Subsidiary or Affiliate any right to continued
employment with the Corporation or a Subsidiary or Affiliate, as the case may
be, nor shall it interfere in any way with the right of the Corporation or a
Subsidiary or Affiliate to terminate the employment of any of its employees at
any time.
<PAGE> 14
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Corporation, or make arrangements satisfactory to the Committee regarding
the payment of, any Federal, state, or local taxes of any kind required by law
to be withheld with respect to such amount. The Committee may require
withholding obligations to be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Corporation under the Plan shall be conditional on such payment or
arrangements and the Corporation and its Subsidiaries or Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan awards) at
the time of any dividend payment shall only be permissible if sufficient shares
of Stock are available under Section 3 for such reinvestment (taking into
account then outstanding Stock Options and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any determination made
hereunder in a manner that is not inconsistent with their legal obligations as
members of the Board. In addition to such other rights of indemnification as
they may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorneys' fees actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in such action, suit or proceeding that such
Committee member is liable for negligence or misconduct in the performance of
his duties; provided that within 60 days after institution of any such action,
suit or proceeding, the Committee member shall in writing offer the Corporation
the opportunity, at its own expense, to handle and defend the same.
(h) In addition to any other restrictions on transfer that may be
applicable under the terms of this Plan or the applicable award agreement, no
Option, Stock Appreciation Right, Restricted Stock award, or Other Stock- Based
Award or other right issued under this Plan is transferable by the participant
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended. The designation of
a beneficiary will not constitute a transfer.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of the date of approval of the Plan by a
majority of the votes cast by the holders of the Corporation's Stock.
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock award,
Other Stock-Based Award or Outside Director Restricted Stock award shall be
granted pursuant to the Plan on or after the tenth anniversary of the date of
adoption by the Plan by the Board, but awards granted prior to such tenth
anniversary may be extended beyond that date.
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into effective as of the 27 day of
August, 1995, by and between Corporate Child Care, Inc., a Tennessee
corporation (the "Company"), and Robert Lurie (the "Employee").
WHEREAS, the Employee and the Company desire to establish an
employment relationship and to set forth in an agreement the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of the
mutual promises and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
1. Employment and Term of Employment. The Company hereby agrees
to employ the Employee, and the Employee hereby agrees to serve the Company, on
the terms and conditions set forth herein for the period commencing on the date
hereof and expiring on August 27, 2000 (the "Expiration Date"), unless sooner
terminated as hereinafter set forth.
2. Positions and Duties. The Employee shall serve as the
Chairman of the Board of Directors and President of the Consulting Division for
the Company. The Employee shall devote substantially all his working time and
efforts, not to be less than 40 hours per week on average, to the business and
affairs of the Company. Unless the Employee and the Company agree otherwise,
the Employee may continue to reside in Morristown, New Jersey. The Employee
shall use his best efforts to advance the best interests of the Company, and
shall not engage in outside business activities which interfere with the
performance of his duties hereunder.
3. Compensation.
(a) Base Salary. The Employee shall be paid a base
salary at the rate comparable to that of the other executive officers
of the Company at the time of Closing ("Base Salary"), which may be
revised from time to time based on a review of Company and Employee
performance (but in no event below the amount stated above during the
term of this Agreement), payable in substantially equal monthly
installments during the period of the Employee's employment hereunder.
(b) Insurance. Effective August 27, 1995, the Company
shall provide the Employee with insurance comparable to, and on the
same terms as, the insurance provided to similar employees of the
Company.
<PAGE> 2
(d) Company Stock Options. Effective August 27, 1995
and subject to the approval of the Board of Directors and shareholders
of the Company, Employee will receive an initial grant of 500,000
options to purchase the Company's common stock at an exercise price of
$5.00 per share (the "Options"). The Options will be non-qualified
options and will expire August 27, 2005. The Options will vest at a
rate of 100,000 shares per year over a five (5) year vesting period;
provided however, that if Employee is terminated by the Company
without cause within five (5) years from the date of grant, all
Options will become fully vested at the time of termination and will
remain in effect until their expiration. Additionally, the Employee
shall be eligible to participate in the Company's 1987 Stock Option
Plan, a copy of which is attached hereto as Exhibit B.
(e) Other Benefits. Effective August ___, 1995, the
Company shall provide the Employee with other benefits, including but
not limited to, vacation, sick leave and holidays, comparable to those
provided to similar employees of the Company.
(f) Bonus. The Employee shall be eligible to earn an
annual performance based bonus which shall be defined by Company
management and approved by the Executive Committee.
4. Termination
(a) Disability. If, as a result of the Employee's
incapacity due to physical or mental illness, the Employee shall have
been absent from his duties hereunder on a full time basis for
either: (i) 20 consecutive business days (excluding vacation days)
during any 12-month period or (ii) 30 business days in the aggregate
during any 12-month period, the Company may terminate the Employee's
employment hereunder.
(b) Termination Upon Death. If the Employee should die
during the term of this Agreement, the Company's obligations under
this Agreement shall cease, except those obligations set forth in
Section 5(b) hereof, and the Employee's employment shall be deemed
terminated as of the end of the month during which death occurs.
(c) Termination by the Company. The Company may
terminate the Employee's employment hereunder at any time for Cause or
for any other reason. For the purposes of this Agreement, the Company
shall have "Cause" to terminate the Employee's employment hereunder
upon (i) willful acts of dishonesty or fraud by the Employee which are
materially harmful to the Company; (ii) the Employee's willful failure
faithfully to perform the duties of his office, after written notice
and a 30-day opportunity to cure; (iii) any breach of the Employee's
fiduciary duty to the Company; or (iv) the willful violation by the
Employee of the provisions of Section 7 hereof.
(d) Termination by the Employee. The Employee may
terminate his employment hereunder (i) at any time if in his sole
judgment his health should become impaired to an
2
<PAGE> 3
extent that makes the continued performance of his duties hereunder
hazardous to his physical or mental health or his life, or (ii) upon
60 days' written notice for any other reason.
(e) Notice of Termination. Any termination by the
Company pursuant to subsection (a) or (c) above or by the Employee
pursuant to subsection (d) above shall be communicated by written
notice of termination to the other party hereto.
(f) Property of the Company. The Employee agrees that
upon the termination of his employment with the Company for any reason
he will surrender to the Company all lists, books, records and similar
materials, and all copies thereof in his possession and will also
return to the Company all other property of the Company which has come
into her possession while employed by the Company.
5. Compensation Upon Termination or During Disability.
(a) During any period in which the Employee fails to
perform his duties hereunder as a result of incapacity due to physical
or mental illness, the Employee shall continue to receive his Base
Salary until the Employee's employment is terminated pursuant to
Section 4(a) hereof, or until the Employee terminates his employment
pursuant to Section 4(d)(i) hereof, whichever first occurs. The
Company shall then have no further obligations to the Employee under
this Agreement.
(b) If the Employee's employment shall be terminated for
Cause or if the Employee dies or if the Employee terminates his
employment for any reason other than pursuant to Section 4(d)(i), the
Company shall pay the Employee his Base Salary and shall maintain in
effect all of Employee's benefits set forth in Section 3(c) of this
Agreement, through the date on which his employment is terminated at
the rate in effect at the time notice of termination is given. The
Company shall then have no further obligations to the Employee under
this Agreement except that in the event of termination by death, the
Employee's estate or beneficiaries, as the case may be, shall be paid
such amounts as may be payable under the Company's life insurance
policies, if any, then in effect for the Company's employees.
(c) If prior to August 27, 1998, the Company terminates
the Employee's employment for any reason, other than for Cause or
pursuant to Sections 4(a) and 4(b) above, the Company shall pay the
Employee his Base Salary and maintain in effect all of the Employee's
benefits set forth in Section 3(c) of this Agreement from the date on
which his employment is terminated until August 27, 1998 at the rate
in effect at the time notice of termination is given. The Company
shall then have no further obligations to the Employee under this
Agreement. If following August 27, 1998, the Company terminates the
Employee's employment for any reason, other than for Cause or pursuant
to Sections 4(a) and 4(b) above, the Company shall pay the Employee
his Base Salary and maintain in effect all of the Employee's benefits
set forth in Section 3(c) of this Agreement for a period of six months
from the date on which his employment is terminated at the rate in
effect at the time notice
3
<PAGE> 4
of termination is given. The Company shall then have no further
obligations to the Employee under this Agreement. Notwithstanding the
foregoing, any compensation pursuant to this Section 5(c) owed the
Employee following termination shall at a minimum be paid for a period
of six months from the date on which his employment his employment is
terminated at the rate in effect at the time notice of termination is
given.
6. Binding Agreement. This Agreement and all obligations of the
Company hereunder shall be binding upon the successors and assigns of the
Company. This Agreement and all rights of the Employee hereunder shall inure
to the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees.
7. Confidentiality. During the period of employment pursuant to
the terms of this Agreement, Employee shall not, without the prior written
consent of the Company, disclose to any person other than (a) to a person to
whom disclosure is necessary or appropriate in connection with the performance
by Employee of his duties as an employee of the Company or its subsidiaries or
affiliates, or (b) (subject to the Company's ability to obtain a protective
order from a court of competent jurisdiction and the Company's agreement in
writing to indemnify Employee for liabilities and expenses she incurs by virtue
of such nondisclosure) to any person upon the order or direction of any court,
administrative body, or quasi-governmental body, any confidential information
obtained by Employee while in the employ of the Company with respect to any of
the Company's services, products, improvements, designs or styles, customers,
methods of marketing or distribution, systems, procedures, plans, proposals,
policies or methods.
8. Specific Performance. The Employee acknowledges and agrees
that compliance with Section 7 hereof is necessary to protect the business,
goodwill and proprietary interests of the Company and recognizes that, in the
event of a breach of Section 7 hereof by the Employee, the Company would be
irreparably harmed and that monetary damages would be an inadequate remedy in
favor of the Company. Accordingly, the Employee and the Company agree that in
the event of such a breach, the Company shall be entitled, in addition to any
other remedies and damages available, to injunctive relief against the
Employee, his partners, agents, servants, employers, employees and all persons
acting for or with him.
9. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:
4
<PAGE> 5
If to the Employee:
Robert Lurie
President
RCCM
47 Bergen Road
Murray Hill, NJ 07974
If to the Company:
Corporate Child Care, Inc.
631 Second Avenue South, Suite 2F
Nashville, TN 37210
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or government regulation or ruling.
11. Governing Law. This Agreement shall be construed according to
the laws of Tennessee, without giving effect to the principles of conflicts of
laws of such State. If any controversy or claim arising out of this agreement
results in litigation between the parties to this agreement, such litigation
shall be prosecuted in the courts of the State of Tennessee or in federal
courts located within the State of Tennessee. The parties to this agreement
hereby irrevocably consent to the jurisdiction of the courts of the State of
Tennessee and the federal courts located within the State of Tennessee in any
action or proceeding arising out of or relating to this agreement. This
provision has been bargained for at arm's length and is the result of bilateral
negotiations.
12. Amendment; Modification; Waiver. This Agreement may not be
amended except by the written agreement of the parties hereto. No provisions
of this Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Employee and
the Company. No waiver by either party hereto at any time of any breach by the
other party hereto or compliance with any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Binding Effect. This Agreement and the services to be
rendered by the Employee hereunder are personal in nature and neither this
Agreement nor any rights or obligations pursuant to this Agreement may be
assigned, transferred or delegated without the consent of the Company and the
Employee. Without limiting the generality of the foregoing, the Employee's
right to receive payments hereunder shall not be assignable, transferable or
delegable, whether by pledge, creation
5
<PAGE> 6
of a security interest or otherwise, other than a transfer by will or by the
laws of descent and distribution and, in the event of any attempted assignment
or transfer contrary to this paragraph, the Company shall have no obligation
and/or liability to pay any amount so attempted to be assigned, transferred or
delegated.
14. No Waiver. No delay or omission by the parties in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed or a waiver thereof, and my such right, remedy or power may be
exercised by the parties from time to time and as often as may be deemed
expedient or necessary by the parties hereto.
15. Attorney's Fees. If the Company must take action to enforce
or defend its rights under this Agreement, the Company shall be entitled to
recover its costs and reasonable attorney's fees in addition to any other
relief granted in such action.
16. Entire Contract. This Agreement constitutes the entire
agreement and supersedes all other prior agreements, employment contracts and
understandings, both written and oral, express or implied with respect to the
subject matter of this Agreement.
17. Severability. Any invalid or unenforceable provision
hereof shall be deemed severed from this Agreement and the balance of the
Agreement shall be construed and enforced as if the Agreement did not contain
the particular provision held to be invalid or unenforceable.
18. Declaration. Employee hereby declares that he has read the
terms of this Agreement, understands and fully accepts the terms hereof and
executes this Agreement as her free and voluntary act. Employee hereby
represents that, in signing this Agreement, she is relying upon only those
representations, warranties and covenants contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first above written.
COMPANY:
CORPORATE CHILD CARE, INC.
By: /s/ Marguerite W. Sallee
----------------------------------
Title: President and CEO
-------------------------------
EMPLOYEE
/s/ Robert Lurie
-------------------------------------
Robert Lurie
6
<PAGE> 1
EXHIBIT 10.6
AGREEMENT NOT TO COMPETE
THIS AGREEMENT NOT TO COMPETE (the "Agreement") is made and entered
into effective as of the 27 day of August, 1995, by and between Robert D. Lurie
("Lurie"), and Corporate Child Care, Inc., a Tennessee corporation ("Company").
W I T N E S S E T H:
For and consideration of $500,000 payable in yearly installments of
$100,000 per year beginning on the sooner of January 1, 1999 or the date of the
closing of an initial public offering of the Company's Common Stock.
1. For a period of five (5) years from the date of termination of
Lurie's employment with the Company for any reason, or any of its affiliates or
successors, for any reason, Lurie shall not directly or indirectly engage in
any business or activity that competes, directly or indirectly, with the
business in which the Company or any of its affiliates or successors is engaged
on the date hereof or on the date of termination in the geographic areas of the
United States in which the Employee worked or for which the Employee was
responsible during the term of his employment, whether alone, as a partner,
officer, director, employee, consultant, as holder of a beneficial interest in
any such business or activity or by any other means. This paragraph does not
prohibit Lurie from making a purely passive investment not to exceed (or to be
capable of exceeding by exercise of conversion or similar rights) a five
percent (5%) interest in any such entity in competition with the Company.
2. During the period of Lurie's employment with the Company, or
any of its affiliates or successors, and for a period of 5 years thereafter,
Lurie shall not divert or attempt to divert from the Company or any of its
affiliates any business of any kind in which such entities are engaged, or
induce or attempt to induce any person who is an employee of the Company or any
of its affiliates to leave the employ of any such entity.
3. Lurie will not, directly or indirectly, supply or divulge to
any person, firm, association or corporation, or use in any way detrimental to
the Company or any of its affiliates, any of the Company's or its affiliates'
trade secrets or other nonpublic information, including but not limited to the
Company's or its affiliates' methods of conducting or obtaining business, its
methods of advertising or promoting the Company's or its affiliates' business,
or the names of any of the Company's or its affiliates' customers or any list
of such customers or the names of any other persons who have dealt with the
Company or any of its affiliates or who are prospective customers of the
Company or any of its affiliates.
4. Lurie shall not, without the prior written consent of the
Company, disclose to any person, other than a person to whom Lurie has been
ordered to disclose in connection with any
<PAGE> 2
judicial or administrative proceeding or inquiry, any confidential information
obtained by Lurie with respect to any of the Company's or its affiliates'
services, products, improvements, designs or styles, customers, methods of
marketing or distribution, systems, procedures, plans, proposals, policies or
methods.
5. Lurie acknowledges that compliance with this Agreement is
necessary to protect the business, goodwill and proprietary interests of the
Company and its affiliates and recognizes that irreparable injury will result
to the Company and its affiliates in the event of a breach of this Agreement.
For the reasons mentioned above, Lurie agrees that the Company shall be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation of the terms of this Agreement by Lurie,
his partners, agents, servants, employers, employees and all persons acting for
or with him.
6. Lurie hereby declares that he has read the terms of this
Agreement, understands and fully accepts said terms, and executes this
Agreement as his free and voluntary act.
7. In the event that any provision of this Agreement is declared
invalid or unenforceable, such invalidity or unenforceability shall in no way
affect the validity or enforceability of any other provision. In the event any
of the restrictions set forth in this Agreement cannot be legally enforced for
the period of time specified, such fact shall not affect the applicability of
such restrictions for a reasonable period of time.
8. This Agreement shall be construed in accordance with the laws
of the State of Tennessee, applicable to contracts to be wholly performed in
such state. The appropriate state or federal court located in Nashville,
Tennessee, shall have exclusive jurisdiction over all matters arising under
this Agreement.
9. For the purposes of this Agreement, "affiliates" shall mean
any person, corporation or other entity that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, the Company.
/s/ Robert D. Lurie
------------------------------------
ROBERT D. LURIE
CORPORATE CHILD CARE, INC.
By: /s/ Marguerite W. Sallee
---------------------------------
Title: President and CEO
------------------------------
2
<PAGE> 1
EXHIBIT 10.7
August 26, 1996
Mr. Lamar Alexander
1114 17th Avenue South, Suite 103
Nashville, Tennessee 37212
Dear Lamar:
I am writing to summarize the terms of your new relationship with
CorporateFamily Solutions. These terms have been developed and discussed
following your commitment in March to rejoin our company. The terms have been
approved by the Compensation Committee of the Board of Directors. I will inform
the full board at our regular meeting September 5. To recount our agreement:
On May 28, 1996, the Board of Directors elected you as a board member.
You were also elected vice-chairman of the company. As vice-chairman you
will work at the direction of the chief executive officer:
- working with us on our overall business strategy and communication
plan,
- helping to expand our eduction mission,
- developing strategies to increase the value of the company to its
stockholders,
- identifying and recruiting strategic partners,
- identifying and recruiting new corporate clients and helping to
expand existing relationships with corporate clients.
We understand that serving as vice-chairman will be a significant
professional responsibility for you but that this is not a full-time job. We
are interested more in results than the amount of time you spend. I will work
with you to set specific objectives and monitor the results.
This is intended to be an agreement for four (4) years. For the next
four years, your compensation will be the following:
- First, as a member of the board you will be entitled to the same
benefits other directors are eligible to receive, including a full
grant of stock options (3,000) for the year 1996.
<PAGE> 2
Mr. Lamar Alexander
August 26, 1996
Page 2
- Second, for your leadership role as vice-chairman of the company
your salary will be $6,000 per month. In addition, you will
receive 40,000 options for the four-year agreement at an exercise
price of $5 per share. The 1996 options vest immediately. The
options for 1997, 1998, and 1999 will vest on January 1 of those
years.
We have agreed that although your duties and activities began earlier
this year, you will not be paid a salary until beginning July 1, 1997. In
exchange for your foregoing this salary, the company will issue you 10,000
additional options at $5 per share which will vest immediately.
It is understood that you or the company may terminate this agreement at
any time for any reason. If the agreement is terminated, the company will not
be liable to pay you any salary beyond the date of your termination.
Additionally, consistent with all employee and director stock options, upon
termination of this agreement, you will have ninety (90) days to exercise the
vested portion of your stock options and will forfeit the unvested portion.
All of us look forward to having you involved again in the company you
helped to found.
Sincerely,
/s/ Marguerite W. Sallee
Marguerite W. Sallee
President and Chief Executive Officer
<PAGE> 1
Exhibit 10.8
THIS AGREEMENT dated as of ______, 1997, between CorporateFamily
Solutions, Inc., a Tennessee corporation (the "Company"), and ____________
(the "Executive").
The Company's Board of Directors has determined that it is appropriate
to reinforce and encourage the continued attention and dedication of certain
members of the Company's senior management, including the Executive, to their
assigned duties without distraction in potentially disturbing circumstances
arising from the possibility of a change in control of the Company.
This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company (as defined herein).
1. TERM. This Agreement shall terminate, except to the extent
that any obligation of the Company hereunder remains unpaid as of such time or
with respect to the Executive's obligations pursuant to Section 7, upon the
earliest of (i) the termination of the Executive's employment with the Company
based on death, Disability (as defined in Section 3(b)), Retirement (as defined
in Section 3(c)), or Cause (as defined in Section 3(d)) or by the Executive
other than for Good Reason (as defined in Section 3(e)); and (ii) one year from
the date of a Change in Control of the Company if the Executive has not
terminated his employment for Good Reason as of such time.
2. CHANGE IN CONTROL. No Compensation shall be payable under this
Agreement unless and until (a) there shall have been a Change in Control of the
Company, while the Executive is still an employee of the Company and (b) the
Executive's employment by the Company thereafter shall have been terminated in
accordance with Section 3. For purposes of this Agreement, a Change in Control
means the happening of any of the following:
(i) any person or entity, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
other than the Company, a wholly-owned subsidiary thereof, any employee
benefit plan of the Company or any of its Subsidiaries becomes the
beneficial owner of the Company's securities having 30% or more of the
combined voting power of the then outstanding securities of the Company
that may be cast for the election of directors of the Company (other
than a result of an issuance of securities initiated by the Company in
the ordinary course of business); or
(ii) as a result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sale of assets
or contested election, or any combination of the foregoing transactions less
than a majority of the combined voting power of the then outstanding securities
of the Company or any successor corporation or entity entitled to vote
generally in the election of the directors of the Company or such other
corporation or entity after such transaction are held in the aggregate by the
holders of the Company's securities entitled to vote generally in the election
of directors of the Company immediately prior to such transaction; or
<PAGE> 2
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the
Company's shareholders, of each director of the Company first elected
during such period was approved by a vote of at least two-thirds of the
directors of the Company then still in office who were directors of the
Company at the beginning of any such period.
3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If a Change in
Control of the Company shall have occurred while the Executive is still an
employee of the Company, the Executive shall be entitled to the compensation
provided in Section 4 upon the subsequent termination of the Executive's
employment with the Company by the Executive or by the Company unless such
termination is as a result of (i) the Executive's death; (ii) the Executive's
Disability (as defined in Section (3)(b) below); (iii) the Executive's
Retirement (as defined in Section 3(c) below); (iv) the Executive termination
by the Company for Cause (as defined in Section 3(d) below); or (v) the
Executive's decision to terminate employment other than for Good Reason (as
defined in Section 3(e) below).
(b) DISABILITY. If, as a result of the Executive's
incapacity due to physical or metal illness, the Executive shall have been
absent form his duties with the Company on a full-time basis for six months and
within 30 days after written notice of termination is thereafter given by the
Company the Executive shall not have returned to the full-time performance of
the Executive's duties, the Company may terminate this Agreement for
"Disability."
(c) RETIREMENT. The term "Retirement" as used in this
Agreement shall mean termination by the Company or the Executive of the
Executive's employment based on the Executive's having reached age 65 or such
other age as shall have been fixed in any arrangement established with the
Executive's consent with respect to the Executive.
(d) CAUSE. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement only, the Company shall
have "Cause" to terminate the Executive's employment hereunder only on the
basis of fraud, misappropriation or embezzlement on the part of the Executive.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than three-quarters of the membership of the Company's Board of Directors
(excluding the Executive) at a meeting of the Board called and held for the
purpose (after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive was
guilty of conduct set forth in the second sentence of this Section 3(d) and
specifying the particulars thereof in detail.
(e) GOOD REASON. The Executive may terminate the
Executive's employment for Good Reason at any time during the term of this
Agreement. For purposes of this Agreement "Good Reason" shall mean any of the
following (without the Executive's express written consent):
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(i) the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Executive from or any
failure to reelect the Executive to any of such positions, except in
connection with the termination of him employment for Disability,
Retirement or Cause or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's base
salary as in effect on the date hereof or as the same may be
increased from time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Nashville, Tennessee, or the
Executive's relocation to any place other than the location at
which the Executive performed the Executive's duties prior to a Change
in Control of the Company, except for required travel by the Executive
on the Company's business to any extent substantially consistent with
the Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any provision of
this Agreement;
(v) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(vi) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 3(f), and for purposes of this Agreement, no such
purported termination shall be effective.
(f) NOTICE OF TERMINATION. Any termination by the Company
pursuant to Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate those specific termination
provisions in this Agreement relied upon and which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated. For purposes
of this Agreement, no such purported termination by the Company shall be
effective without such Notice of Termination.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (a) if
this Agreement is terminated by the Company for Disability, 30 days after
Notice of Termination is given to the Executive (provided that the Executive
shall not have returned to the performance of the Executive's duties on a
full-time basis during such 30-day period) or (b) if the Executive's employment
is terminated by the Company for any other reason, the date on which a Notice
of Termination is given.
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4. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT. If the
Company shall terminate the Executive's employment following a Change in
Control other than pursuant to Section 3(b), 3(c) or 3(d) or is the Executive
shall terminate his employment following a Change in Control for Good Reason,
then the Company shall pay to the Executive as severance pay in a lump sum, in
cash, on the fifth day following the Date of Termination, an amount equal to
the sum of two times the Executive's annual base salary at the time of the
Change in Control of the Company; provided, however, that if the lump sum
severance payment under this Section 4, either alone or together with other
payments which the Executive has the right to receive from the Company, would
constitute a "parachute payment" (as defined in Section 28OG of the Internal
Revenue Code of 1986, as amended (the "Code")), such lump sum severance payment
shall be reduced to the largest amount as will result in no portion of the lump
sum severance payment under this Section 4 being subject to the excise tax
imposed by Section 4999 of the Code.
5. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER
CONTRACTUAL RIGHTS. (a) The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer after the Date of
Termination, or otherwise.
(b) The provisions of this Agreement, and any payment
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any benefit plan, incentive
plan or stock option plan, employment agreement or other contract, plan or
arrangement.
6. SUCCESSOR TO THE COMPANY. (a) The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach
of this Agreement and shall entitle the Executive to terminate the Executive's
employment for Good Reason. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor or assign to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 6 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. If at any time during the
term of this Agreement the Executive is employed by any corporation a majority
of the voting securities of which is then owned by the Company, "Company" as
used in Sections 3, 4, 11 and 12 hereof shall in addition include such
employer. In such event, the Company agrees that is shall pay or shall cause
such employer to pay any amounts owed to the Executive pursuant to Section 4
hereof.
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(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
7. COVENANT NOT TO COMPETE. (a) For and in consideration of the
Company's promises contained herein, during the term of this Agreement and for
a period of one (1) year from the date of Termination of the Executive
following a Change in Control the Executive (i) shall not directly or
indirectly engage in any business or activity that competes, directly or
indirectly, with the business in which the Company or any of its affiliates or
successors is engaged on the date hereof or on the date of termination in the
geographic areas of the United States in which the Employee worked or for which
the Employee was responsible during the term of his employment, whether alone,
as a partner, officer, director, employee, consultant, as holder of a
beneficial interest in any such business or activity or by any other means; and
(ii) shall not divert or attempt to divert from the Company or any of its
affiliates any business of any kind in which such entities are engaged, or
induce or attempt to induce any person who is an employee of the Company or any
of its affiliates to leave the employ of any such entity.
(b) The Executive acknowledges that compliance with this
Agreement is necessary to protect the business, goodwill and proprietary
interests of the Company and its affiliates and recognizes that irreparable
injury will result to the Company and its affiliates in the event of a breach
of this Agreement. For the reasons mentioned above, the Executive agrees that
the Company shall be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation of the terms of this
Agreement by the Executive, his or her partners, agents, servants, employers,
employees and all persons acting for or with him.
8. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
CorporateFamily Solutions, Inc.
209 Tenth Avenue South, Suite 300
Nashville, Tennessee 37203-4173
Attention: President
If to the Executive:
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or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9. MISCELLANEOUS. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of Tennessee.
10. VALIDITY. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
12. LEGAL FEES AND EXPENSES. The Company shall pay all legal fees
and expenses which the Executive may incur as a result of the Company's
contesting the validity, enforceability or the Executive's interpretation of,
or determinations under, this Agreement.
13. CONFIDENTIALITY. During the term of this Agreement and
thereafter, the Executive shall retain in confidence any and all confidential
information known to the Executive concerning the Company and its business so
long as such information is not otherwise publicly disclosed.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
CORPORATEFAMILY SOLUTIONS
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
EXECUTIVE:
--------------------------------------------
Name:
---------------------------------------
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EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of
_____________, 1997, by and between CORPORATEFAMILY SOLUTIONS, INC., a Tennessee
corporation (the "Company"), and the undersigned (the "Indemnitee").
RECITALS
WHEREAS, it is essential to the Company that it attract and retain as
directors and officers the most capable persons available; and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in the current environment; and
WHEREAS, the Indemnitee currently is serving as a director or officer
of the Company, and the Company desires that the Indemnitee continue to serve in
such capacity. The Indemnitee is willing to continue to serve in such capacity
if the Indemnitee is adequately protected against the risks associated with such
service; and
WHEREAS, the Company and the Indemnitee have concluded that the
indemnities available under the Company's charter, bylaws and any insurance now
or hereafter in effect need to be supplemented to more fully protect the
Indemnitee against the risks associated with the Indemnitee's service to the
Company; and
WHEREAS, in recognition of Indemnitee's need for additional protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and in order to induce Indemnitee to
continue to provide services to the Company as a director or officer thereof,
the Company wishes to provide in this Agreement for the indemnification of
Indemnitee to the fullest extent permitted by law and as set forth in this
Agreement.
NOW THEREFORE, in consideration of the foregoing, the covenants
contained herein and Indemnitee's continued service to the Company, the Company
and Indemnitee, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. The following terms, as used herein, shall
have the following respective meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether
<PAGE> 2
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings relative to the foregoing.
"Change in Control" shall be deemed to have taken place if: (i)any
person or entity, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, other than the Company or a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or any of its
subsidiaries, becomes the beneficial owner of the Company securities having 35%
or more of the combined voting power of the then outstanding securities of the
Company that may be cast for the election of directors of the Company (other
than as a result of an issuance of securities initiated by Company in the
ordinary course of business); or (ii)as the result of, or in connection with,
any cash tender or exchange offer, merger or other business combination, sale of
substantially all of the assets or contested election, or any combination of the
foregoing transactions less than a majority of the combined voting power of the
then-outstanding securities of Company or any successor corporation or entity
entitled to vote generally in the election of the directors of the Company or
such other corporation or entity after such transaction is held in the aggregate
by the holders of the Company securities entitled to vote generally in the
election of directors of the Company immediately prior to such transaction; or
(iii) during any period of two consecutive years, individuals who at the
beginning of any such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the Company's shareholders, of each
director of the Company first elected during such period was approved by a vote
of at least two-thirds of the directors of the Company then still in office who
were directors of the Company at the beginning of any such period.
"Claim" means (a) any threatened, pending or completed action, suit,
proceeding or arbitration or other alternative dispute resolution mechanism, or
(b) any inquiry, hearing or investigation, whether conducted by the Company or
any other Person, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or arbitration or other
alternative dispute resolution mechanism, in each case whether civil, criminal,
administrative or other (whether or not the claims or allegations therein are
groundless, false or fraudulent) and includes, without limitation, those brought
by or in the name of the Company or any director or officer of the Company.
"Company Agent" means any director, officer, partner, employee, agent,
trustee or fiduciary of the Company, any Subsidiary or any Other Enterprise.
"Covered Event" means any event or occurrence on or after the date of
this Agreement related to the fact that Indemnitee is or was a Company Agent or
related to anything done or not done by Indemnitee in any such capacity, and
includes, without limitation, any such event or occurrence (a) arising from
performance of the responsibilities, obligations or duties imposed by ERISA or
any similar applicable provisions of state or common law, or (b) arising from
any merger, consolidation or other business combination involving the Company,
any Subsidiary or
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any Other Enterprise, including without limitation any sale or other transfer of
all or substantially all of the business or assets of the Company, any
Subsidiary or any Other Enterprise.
"D&O Insurance" means the directors' and officers' liability insurance
described on Exhibit l to this Agreement and any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that provided under
the insurance described on Exhibit 1.
"Determination" means a determination made by (a) a majority vote of a
quorum of Disinterested Directors; (b) Independent Legal Counsel, in a written
opinion addressed to the Company and Indemnitee; (c) the shareholders of the
Company; or (d) a decision by a court of competent jurisdiction not subject to
further appeal.
"Disinterested Director" shall be a director of the Company who is not
or was not a party to the Claim giving rise to the subject matter of a
Determination.
"Expenses" includes attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, copying costs, delivery service fees and other
expenses and obligations of any nature whatsoever paid or incurred in connection
with investigating, prosecuting or defending, being a witness in or
participating in (including on appeal), or preparing to prosecute or defend, be
a witness in or participate in any Claim, for which Indemnitee is or becomes
legally obligated to pay.
"Independent Legal Counsel" shall mean a law firm or a member of a law
firm that (a) neither is nor in the past five years has been retained to
represent in any material matter the Company, any Subsidiary, Indemnitee or any
other party to the Claim, (b) under applicable standards of professional conduct
then prevailing would not have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights to
indemnification under this Agreement and (c) is reasonably acceptable to the
Company and Indemnitee.
"Loss" means any amount which Indemnitee is legally obligated to pay as
a result of any Claim, including, without limitation (a) all judgments,
penalties and fines, and amounts paid or to be paid in settlement, (b) all
interest, assessments and other charges paid or payable in connection therewith
and (c) any federal, state, local or foreign taxes imposed (net of the value to
Indemnitee of any tax benefits resulting from tax deductions or otherwise as a
result of the actual or deemed receipt of any payments under this Agreement,
including the creation of the Trust).
"Other Enterprise" means any corporation (other than the Company or any
Subsidiary), partnership, joint venture, association, employee benefit plan,
trust or other enterprise or organization to which Indemnitee renders service at
the request of the Company or any Subsidiary.
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<PAGE> 4
"Parent" shall have the meaning set forth in the regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended;
provided the term "Parent" shall not include the board of directors of a
corporation in its capacity as a board of directors, and provided further that
if the other party to any transaction referred to in Section 12.1.2 has no
Parent as so defined above, "Parent" shall mean such other party.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (or any subdivision, department, commission or agency thereof), and
includes without limitation any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended.
"Potential Change in Control" shall be deemed to have occurred if (a)
the Company enters into an agreement or arrangement the consummation of which
would result in the occurrence of a Change in Control, (b) any Person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control or (c) the
Board of Directors of the Company adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
"Subsidiary" means any corporation of which more than 50% of the
outstanding stock having ordinary voting power to elect a majority of the board
of directors of such corporation is now or hereafter owned, directly or
indirectly, by the Company.
"Trust" has the meaning set forth in Section 9.2.
"Voting Securities" means any securities of the Company which vote
generally in the election of directors.
Section 2. Indemnification
2.1. General Indemnity Obligation.
2.1.1. Subject to the remaining provisions of this Agreement,
the Company hereby indemnifies and holds Indemnitee harmless for any Losses or
Expenses arising from any Claims relating to (or arising in whole or in part out
of) any Covered Event, including without limitation, any Claim the basis of
which is any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or attempted by Indemnitee in
the capacity as a Company Agent, whether or not Indemnitee is acting or serving
in such capacity at the date of this Agreement, at the time liability is
incurred or at the time the Claim is initiated.
2.1.2. The obligations of the Company under this Agreement
shall apply to the fullest extent authorized or permitted by the provisions of
applicable law, as presently in effect or as changed after the date of this
Agreement, whether by statute or judicial decision (but, in the
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case of any subsequent change, only to the extent that such change permits the
Company to provide broader indemnification than permitted prior to giving effect
thereto).
2.1.3. Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company, unless the
Company has joined in or consented to the initiation of such Claim; provided,
the provisions of this Section 2.1.3 shall not apply following a Change in
Control to Claims seeking enforcement of this Agreement, the Charter or Bylaws
of the Company or any other agreement now or hereafter in effect relating to
indemnification for Covered Events.
2.1.4. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the Losses
or Expenses paid with respect to a Claim but not, however, for the total amount
thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless
against the portion thereof to which Indemnitee is entitled.
2.1.5. Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating to (or arising in whole or in part out of)
a Covered Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Company shall indemnify and hold Indemnitee
harmless against all Expenses incurred in connection therewith.
2.2. Indemnification for Serving as Witness and Certain Other Claims.
Notwithstanding any other provision of this Agreement, the Company hereby
indemnifies and holds Indemnitee harmless for all Expenses in connection with
(a) the preparation to serve or service as a witness in any Claim in which
Indemnitee is not a party, if such actual or proposed service as a witness arose
by reason of Indemnitee having served as a Company Agent on or after the date of
this Agreement and (b) any Claim initiated by Indemnitee on or after the date of
this Agreement (i) for recovery under any directors' and officers' liability
insurance maintained by the Company or (ii) following a Change in Control, for
enforcement of the indemnification obligations of the Company under this
Agreement, the Charter or Bylaws of the Company or any other agreement now or
hereafter in effect relating to indemnification for Covered Events, regardless
of whether Indemnitee ultimately is determined to be entitled to such insurance
recovery or indemnification, as the case may be.
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Section 3. Limitation on Indemnification.
3.1. Coverage Limitations. No indemnification is available pursuant
to the provisions of this Agreement:
3.1.1. If such indemnification is not lawful;
3.1.2. If Indemnitee's conduct giving rise to the Claim with
respect to which indemnification is requested was knowingly fraudulent, a
knowing violation of law, deliberately dishonest or in bad faith or constituted
willful misconduct;
3.1.3. In respect of any Claim based upon or attributable to
Indemnitee gaining in fact any personal profit or advantage to which Indemnitee
was not legally entitled;
3.1.4. In respect of any Claim based upon or in connection
with a proceeding by or in the right of the Company in which the director was
adjudged liable to the Company.
3.1.5. In respect of any Claim for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company within
the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended;
or
3.1.6. If Indemnitee's conduct giving rise to the Claim with
respect to which indemnification is requested constituted a breach of the duty
of loyalty to the corporation or its shareholders.
3.1.7. In respect of any Claim based upon any violation of
Section 48-18-304 of the Tennessee Business Corporation Act, as amended.
3.2. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment otherwise due and payable to the extent
Indemnitee has otherwise actually received payment (whether under the Charter or
the Bylaws of the Company, the D&O Insurance or otherwise) of any amounts
otherwise due and payable under this Agreement.
Section 4. Payments and Determinations.
4.1. Advancement and Reimbursement of Expenses. If requested by
Indemnitee, the Company shall advance to Indemnitee, no later than two business
days following any such request, any and all Expenses for which indemnification
is available under Section 2. In order to obtain such advancement or
reimbursement, the Indemnitee must also furnish to the Company a written
affirmation of his good faith belief that he has conducted himself in good faith
and that he reasonably believed that: (1) In the case of conduct in his official
capacity with the corporation, that his conduct was in its best interest; and
(2) in all other cases, that his conduct was at least not opposed to its best
interests; and (3) in the case of any criminal proceeding, he had no reasonable
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case to believe his conduct was unlawful. In addition, Indemnitee must furnish
to the Company a written undertaking, executed personally or on his behalf, to
repay the advance if it is ultimately determined that he is not entitled to
indemnification. Upon any Determination that Indemnitee is not permitted to be
indemnified for any Expenses so advanced, Indemnitee hereby agrees to reimburse
the Company (or, as appropriate, any Trust established pursuant to Section 9.2)
for all such amounts previously paid. Such obligation of reimbursement shall be
unsecured and no interest shall be charged thereon.
4.2. Payment and Determination Procedures.
4.2.1. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, together with such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
4.2.2. Upon written request by Indemnitee for indemnification
pursuant to Section 4.2.1, a Determination with respect to Indemnitee's
entitlement thereto shall be made in the specific case (a) if a Change in
Control shall have occurred, as provided in Section 9.1; and (b) if a Change in
Control shall not have occurred, by (i) the Board of Directors by a majority
vote of a quorum of Disinterested Directors, (ii) Independent Legal Counsel, if
either (A) a quorum of Disinterested Directors is not obtainable or (B) a
majority vote of a quorum of Disinterested Directors otherwise so directs or
(iii) the shareholders of the Company (if submitted by the Board of Directors)
but shares of stock owned by or voted under the control of any Indemnitee who is
at the time party to the proceeding may not be voted. If a Determination is made
that Indemnitee is entitled to indemnification, payment to Indemnitee shall be
made within 10 days after such Determination.
4.2.3. If no Determination is made within 60 days after
receipt by the Company of a request for indemnification by Indemnitee pursuant
to Section 4.2.1, a Determination shall be deemed to have been made that
Indemnitee is entitled to the requested indemnification (and the Company shall
pay the related Losses and Expenses no later than 10 days after the expiration
of such 60-day period), except where such indemnification is not lawful;
provided, however, that (a) such 60-day period may be extended for a reasonable
time, not to exceed an additional 30 days, if the Person or Persons making the
Determination in good faith require such additional time for obtaining or
evaluating the documentation and information relating thereto; and (b) the
foregoing provisions of this Section 4.2.3 shall not apply (i) if the
Determination is to be made by the shareholders of the Company and if (A) within
15 days after receipt by the Company of the request by Indemnitee pursuant to
Section 4.2.1 the Board of Directors has resolved to submit such Determination
to the shareholders at an annual meeting of the shareholders to be held within
75 days after such receipt, and such Determination is made at such annual
meeting, or (B) a special meeting of shareholders is called within 15 days after
such receipt for the purpose of making such
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<PAGE> 8
Determination, such meeting is held for such purpose within 60 days after having
been so called and such Determination is made at such special meeting, or (ii)
if the Determination is to be made by Independent Legal Counsel.
Section 5. D & O Insurance.
5.1. Current Policies. The Company hereby represents and warrants to
Indemnitee that Exhibit 1 contains a complete and accurate description of the
D&O Insurance and that such insurance is in full force and effect.
5.2. Continued Coverage. The Company shall maintain, to the extent
practicable, the D&O Insurance for so long as this Agreement remains in effect.
The Company shall cause the D&O Insurance to cover Indemnitee, in accordance
with its terms and at all times such insurance is in effect, to the maximum
extent of the coverage provided thereby for any director or officer of the
Company.
5.3. Indemnification. In the event of any reduction in, or cancellation
of, the D&O Insurance (whether voluntary or involuntary on behalf of the
Company), the Company shall, and hereby agrees to, indemnify and hold Indemnitee
harmless against any Losses or Expenses which Indemnitee is or becomes obligated
to pay as a result of the Company's failure to maintain the D&O Insurance in
effect in accordance with the provisions of Section 5.2, to the fullest extent
permitted by applicable law, notwithstanding any provision of the Charter or the
Bylaws of the Company, or any other agreement now or hereafter in effect
relating to indemnification for Covered Events. The indemnification available
under this Section 5.3 is in addition to all other obligations of
indemnification of the Company under this Agreement and shall be the only remedy
of Indemnitee for a breach by the Company of its obligations set forth in
Section 5.2.
Section 6. Subrogation. In the event of any payment under this
Agreement to or on behalf of Indemnitee, the Company shall be subrogated to the
extent of such payment to all of the rights of recovery of Indemnitee against
any Person other than the Company or Indemnitee in respect of the Claim giving
rise to such payment. Indemnitee shall execute all papers reasonably required
and shall do everything reasonably necessary to secure such rights, including
the execution of such documents reasonably necessary to enable the Company
effectively to bring suit to enforce such rights.
Section 7. Notification and Defense of Claims.
7.1. Notice by Indemnitee. Indemnitee shall give notice in writing to
the Company as soon as practicable after Indemnitee becomes aware of any Claim
with respect to which indemnification will or could be sought under this
Agreement; provided the failure of Indemnitee to give such notice, or any delay
in giving such notice, shall not relieve the Company of its obligations under
this Agreement except to the extent the Company is actually prejudiced to any
such failure or delay.
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<PAGE> 9
7.2. Insurance. The Company shall give prompt notice of the
commencement of any Claim relating to Covered Events to the insurers on the D&O
Insurance, if any, in accordance with the procedures set forth in the respective
policies in favor of Indemnitee. The Company shall thereafter take all necessary
action to cause such insurers to pay, on behalf of Indemnitee, all amounts
payable as a result of such Claims in accordance with the terms of such
policies.
7.3. Defense.
7.3.1. In the event any Claim relating to Covered Events is by
or in the right of the Company, Indemnitee may, at the option of Indemnitee,
either control the defense thereof or accept the defense provided under the D&O
Insurance; provided, however, that Indemnitee may not control the defense if
such decision would jeopardize the coverage provided by the D&O Insurance, if
any, to the Company or the other directors and officers covered thereby.
7.3.2. In the event any Claim relating to Covered Events is
other than by or in the right of the Company, Indemnitee may, at the option of
Indemnitee, either control the defense thereof, require the Company to defend or
accept the defense provided under the D&O Insurance; provided, however, that
Indemnitee may not control the defense or require the Company to defend if such
decision would jeopardize the coverage provided by the D&O Insurance to the
Company or the other directors and officers covered thereby. In the event that
Indemnitee requires the Company to so defend, or in the event that Indemnitee
proceeds under the D&O Insurance but Indemnitee determines that such insurers
under the D&O Insurance are unable or unwilling to adequately defend Indemnitee
against any such Claim, the Company shall promptly undertake to defend any such
Claim, at the Company's sole cost and expense, utilizing counsel of Indemnitee's
choice who has been approved by the Company. If appropriate, the Company shall
have the right to participate in the defense of any such Claim.
7.3.3. In the event the Company shall fail, as required by any
election by Indemnitee pursuant to Section 7.3.2, timely to defend Indemnitee
against any such Claim, Indemnitee shall have the right to do so, including
without limitation, the right (notwithstanding Section 7.3.4) to make any
settlement thereof, and to recover from the Company, to the extent otherwise
permitted by this Agreement, all Expenses and Losses paid as a result thereof.
7.3.4. The Company shall have no obligation under this
Agreement with respect to any amounts paid or to be paid in settlement of any
Claim without the express prior written consent of the Company to any related
settlement. In no event shall the Company, authorize any settlement imposing any
liability or other obligations on Indemnitee without the express prior written
consent of Indemnitee. Neither the Company nor Indemnitee shall unreasonably
withhold consent to any proposed settlement.
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<PAGE> 10
Section 8. Determinations and Related Matters.
8.1. Presumptions.
8.1.1. If a Change in Control shall have occurred, Indemnitee
shall be entitled to a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement and the Company shall have the burden of
proof in rebutting such presumption.
8.1.2. The termination of any claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, shall not adversely affect either the
right of Indemnitee to indemnification under this Agreement or the presumptions
to which Indemnitee is otherwise entitled pursuant to the provisions of this
Agreement nor create a presumption that Indemnitee did not meet any particular
standard of conduct or have a particular belief or that a court has determined
that indemnification is not permitted by applicable law.
8.2. Appeals; Enforcement.
8.2.1. In the event that (a) a Determination is made that
Indemnitee shall not be entitled to indemnification under this Agreement, (b)
any Determination to be made by Independent Legal Counsel is not made within 90
days of receipt by the Company of a request for indemnification pursuant to
Section 4.2.1 or (c) the Company fails to otherwise perform any of its
obligations under this Agreement (including, without limitation, its obligation
to make payments to Indemnitee following any Determination made or deemed to
have been made that such payments are appropriate), Indemnitee shall have the
right to commence a Claim in any court of competent jurisdiction, as
appropriate, to seek a Determination by the court, to challenge or appeal any
Determination which has been made, or to otherwise enforce this Agreement. If a
Change of Control shall have occurred, Indemnitee shall have the option to have
any such Claim conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Any such judicial proceeding challenging or
appealing any Determination shall be deemed to be conducted de novo and without
prejudice by reason of any prior Determination to the effect that Indemnitee is
not entitled to indemnification under this Agreement. Any such Claim shall be at
the sole expense of Indemnitee except as provided in Section 9.3.
8.2.2. If a Determination shall have been made or deemed to
have been made pursuant to this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such Determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2,
except if such indemnification is unlawful.
8.2.3. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement. The
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<PAGE> 11
Company hereby consents to service of process and to appear in any judicial or
arbitration proceedings and shall not oppose Indemnitee's right to commence any
such proceedings.
8.3. Procedures. Indemnitee shall cooperate with the Company and with
any Person making any Determination with respect to any Claim for which a claim
for indemnification under this Agreement has been made, as the Company may
reasonably require. Indemnitee shall provide to the Company or the Person making
any Determination, upon reasonable advance request, any documentation or
information reasonably available to Indemnitee and necessary to (a) the Company
with respect to any such Claim or (b) the Person making any Determination with
respect thereto.
Section 9. Change in Control Procedures.
9.1. Determinations. If there is a Change in Control, any Determination
to be made under Section 4 shall be made by Independent Legal Counsel selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). The Company shall pay the reasonable fees of the
Independent Legal Counsel and indemnify fully such Independent Legal Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
Independent Legal Counsel pursuant hereto.
9.2. Establishment of Trust. Following the occurrence of any Potential
Change in Control, the Company, upon receipt of a written request from
Indemnitee, shall create a Trust (the "Trust") for the benefit of Indemnitee,
the trustee of which shall be a bank or similar financial institution with trust
powers chosen by Indemnitee. From time to time, upon the written request of
Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy
any and all Losses and Expenses reasonably anticipated at the time of each such
request to be incurred by Indemnitee for which indemnification may be available
under this Agreement. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by mutual
agreement of Indemnitee and the Company or, if the Company and Indemnitee are
unable to reach such an agreement, or, in any event, a Change in Control has
occurred by Independent Legal Counsel (selected pursuant to Section 9.1). The
terms of the Trust shall provide that, except upon the prior written consent of
Indemnitee and the Company, (a) the Trust shall not be revoked or the principal
thereof invaded, other than to make payments to unsatisfied judgment creditors
of the Company, (b) the Trust shall continue to be funded by the Company in
accordance with the funding obligations set forth in this Section, (c) the
Trustee shall promptly pay or advance to Indemnitee any amounts to which
Indemnitee shall be entitled pursuant to this Agreement, and (d) all unexpended
funds in the Trust shall revert to the Company upon a Determination by
Independent Legal Counsel (selected pursuant to Section 9.1) or a court of
competent jurisdiction that Indemnitee has been fully indemnified under the
terms of this Agreement. All income earned on the assets held in the trust shall
be reported as income by the Company for federal, state, local and foreign tax
purposes.
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9.3. Expenses. Following any Change in Control, the Company shall be
liable for, and shall pay the Expenses paid or incurred by Indemnitee in
connection with the making of any Determination (irrespective of the
determination as to Indemnitee's entitlement to indemnification) or the
prosecution of any Claim pursuant to Section 8.2, and the Company hereby agrees
to indemnify and hold Indemnitee harmless therefrom. If requested by counsel for
Indemnitee, the Company shall promptly give such counsel an appropriate written
agreement with respect to the payment of its fees and expenses and such other
matters as may be reasonably requested by such counsel.
Section 10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company, any
Subsidiary, any Other Enterprise or any Affiliate of the Company against
Indemnitee or Indemnitee's spouse, heirs, executors, administrators or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two-year period; provided, however, that if any
shorter period of limitations, whether established by statute or judicial
decision, is otherwise applicable to any such cause of action such shorter
period shall govern.
Section 11. Contribution. If the indemnification provisions of this
Agreement should be unenforceable under applicable law in whole or in part or
insufficient to hold Indemnitee harmless in respect of any Losses and Expenses
incurred by Indemnitee, then for purposes of this Section 11, the Company shall
be treated as if it were, or was threatened to be made, a party defendant to the
subject Claim and the Company shall contribute to the amounts paid or payable by
Indemnitee as a result of such Losses and Expenses incurred by Indemnitee in
such proportion as is appropriate to reflect the relative benefits accruing to
the Company on the one hand and Indemnitee on the other and the relative fault
of the Company on the one hand and Indemnitee on the other in connection with
such Claim, as well as any other relevant equitable considerations. For purposes
of this Section 11 the relative benefit of the Company shall be deemed to be the
benefits accruing to it and to all of its directors, officers, employees and
agents (other than Indemnitee) on the one hand, as a group and treated as one
entity, and the relative benefit of Indemnitee shall be deemed to be an amount
not greater than the Indemnitee's yearly base salary or Indemnitee's
compensation from the Company during the first year in which the Covered Event
forming the basis for the subject Claim was alleged to have occurred. The
relative fault shall be determined by reference to, among other things, the
fault of the Company and all of its directors, officers, employees and agents
(other than Indemnitee) on the one hand, as a group and treated as one entity,
and Indemnitee's and such group's relative intent, knowledge, access to
information and opportunity to have altered or prevented the Covered Event
forming the basis for the subject Claim.
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Section 12. Miscellaneous Provisions.
12.1. Successors and Assigns, Etc.
12.1.1. This Agreement shall be binding upon and inure to the
benefit of (a) the Company, its successors and assigns (including any direct or
indirect successor by merger, consolidation or operation of law or by transfer
of all or substantially all of its assets) and (b) Indemnitee and the heirs,
personal and legal representatives, executors, administrators or assigns of
Indemnitee.
12.1.2. The Company shall not consummate any consolidation,
merger or other business combination, nor will it transfer 50% or more of its
assets (in one or a series of related transactions), unless the ultimate Parent
of the successor to the business or assets of the Company shall have first
executed an agreement, in form and substance satisfactory to Indemnitee, to
expressly assume all obligations of the Company under this Agreement and agree
to perform this Agreement in accordance with its terms, in the same manner and
to the same extent that the Company would be required to perform this Agreement
if no such transaction had taken place; provided that, if the Parent is not the
Company, the legality of payment of indemnity by the Parent shall be determined
by reference to the fact that such indemnity is to be paid by the Parent rather
than the Company.
12.2. Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held by any court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
deemed to be modified to the minimum extent necessary to avoid a violation of
law and, as so modified, such provision and the remaining provisions shall
remain valid and enforceable in accordance with their terms to the fullest
extent permitted by law.
12.3. Rights Not Exclusive; Continuation of Right of Indemnification.
Nothing in this Agreement shall be deemed to diminish or otherwise restrict
Indemnitee's right to indemnification pursuant to any provision of the Charter
or Bylaws of the Company, any agreement, vote of shareholders or Disinterested
Directors, applicable law or otherwise. This Agreement shall be effective as of
the date first above written and continue in effect until no Claims relating to
any Covered Event may be asserted against Indemnitee and until any Claims
commenced prior thereto are finally terminated and resolved, regardless of
whether Indemnitee continues to serve as a director of the Company, any
Subsidiary or any Other Enterprise.
12.4. No Employment Agreement. Nothing contained in this Agreement
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company, any Subsidiary or any Other Enterprise.
12.5. Subsequent Amendment. No amendment, termination or repeal of
any provision of the Charter or Bylaws of the Company, or any respective
successors thereto, or of any relevant provision of any applicable law, shall
affect or diminish in any way the rights of Indemnitee to
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<PAGE> 14
indemnification, or the obligations of the Company, arising under this
Agreement, whether the alleged actions or conduct of Indemnitee giving rise to
the necessity of such indemnification arose before or after any such amendment,
termination or repeal.
12.6. Notices. Notices required under this Agreement shall be given in
writing and shall be deemed given when delivered in person or sent by certified
or registered mail, return receipt requested, postage prepaid. Notices shall be
directed to the Company at CorporateFamily Solutions, Inc., 209 Tenth Avenue
South, Suite 300, Nashville TN 37203-4173, Attention: Chairman of the Board, and
to Indemnitee at _______________________________ (or such other address as
either party may designate in writing to the other).
12.7. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Tennessee
applicable to contracts made and performed in such state without giving effect
to the principles of conflict of laws.
12.8. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to discriminate part of
this Agreement or to affect the construction thereof.
12.9. Counterparts. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one instrument.
12.10. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall constitute, or be deemed to constitute, a waiver of any other provisions
hereof (whether or not similar) nor shall any such waiver constitute a
continuing waiver.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
CORPORATEFAMILY SOLUTIONS, INC.
By:
----------------------------
Title:
-------------------------
INDEMNITEE
--------------------------------
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EXHIBIT 10.11
CORPORATE CHILD CARE, INC.
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (this "Agreement"), dated as of August 29,
1991 is between CORPORATE CHILD CARE, INC., a Tennessee corporation (the
"Corporation"), the persons and entities identified on Schedule I hereto
attached (the "New Investors"), the persons and entities identified on Schedule
II hereto attached (the "1988 Investors"), and the persons and entities
identified on Schedule III hereto attached (the "1991 Investors").
RECITALS
A. The Corporation and the 1988 Investors are parties to that certain
Securities Purchase Agreement dated as of April 29, 1988 and May 2, 1988 (the
"1988 Purchase Agreement") which granted such 1988 Investors certain securities
registration rights.
B. The Corporation and the 1991 Investors are parties to that certain
Securities Purchase and Exchange Agreement dated as of April 3, 1991 (the "1991
Purchase Agreement"), which granted such 1991 Investors certain securities
registration rights.
C. The New Investors have agreed to purchase shares of the Series A
Preferred Stock of the Corporation pursuant to that certain Series A Preferred
Stock Purchase Agreement dated of even date herewith (the "Series A Preferred
Stock Purchase Agreement"), provided that this Agreement is executed.
D. The Corporation, the 1988 Investors and the 1991 Investors deem it
desirable to enter into this Agreement in order to induce the New Investors to
purchase the Series A Preferred Shares pursuant to the Series A Preferred Stock
Purchase Agreement.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. In addition to capitalized terms elsewhere defined
herein, as used in this Agreement:
"Commission" means the Securities and Exchange Commission.
"Common Registrable Shares" means at any time (i) any Common Shares or
Warrant Shares originally issued to the 1988 Investors (not including Common
Shares that are Preferred
<PAGE> 2
Registrable Shares); (ii) any Common Shares then outstanding which were issued
as, or were issued directly or indirectly upon the conversion or exercise of
other securities issued as, a dividend or other distribution with respect to or
in replacement of Common Registrable Shares (other than Warrant Shares); and
(iii) any Common Shares then issuable directly or indirectly upon the conversion
or exercise of other securities which were issued as a dividend or other
distribution with respect to or in replacement of Common Registrable Shares;
provided that Common Registrable Shares shall not include any shares which have
theretofore been registered and sold pursuant to the Securities Act or which
have been sold to the public pursuant to Rule 144 or any similar rule
promulgated by the Commission pursuant to the Securities Act. For purposes of
this Agreement, a Person will be deemed to be a holder of Common Registrable
Shares whenever such Person has the then-existing right to acquire such Common
Registrable Shares (by conversion, purchase or otherwise), whether or not such
acquisition has actually been effected.
"Common Shares" means the shares of Common Stock of the Corporation, no
Par value.
"Demand Registration" shall have the meaning ascribed thereto in
Section 2(a) of this Agreement.
"Initial Public Offering" means an underwritten initial offering
pursuant to an effective registration statement under the Securities Act
resulting in a sale by the Corporation of Common Shares to the public at an
aggregate offering price for the shares sold for the account of the Corporation
of at least ten million dollars ($10,000,000), with the per share price to the
public being not less than the lesser of (a) $10 per share (such amount to be
adjusted proportionately in the event the Common Shares are subdivided into a
greater number or combined into a lesser number) or (b) three times the then
current conversion price of the Series A Preferred Shares.
"1988 Investors" has the meaning set forth in the introductory
paragraph.
"1991 Investors" has the meaning set forth in the introductory
paragraph.
"Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Piggyback Registration" shall have the meaning ascribed thereto in
Section 3(a) of this Agreement.
"Preferred Registrable Shares" means at any time (i) any Common Shares
then outstanding which were issued upon conversion of Series A Preferred Shares;
(ii) any Common Shares then issuable upon conversion of Series A Preferred
Shares then outstanding; (iii) any Common Shares then outstanding which were
issued as, or were issued upon the conversion or exercise of other securities
issued as, a dividend or other distribution with respect to or in replacement of
Series A Preferred Shares or other Preferred Registrable Shares; and (iv) any
Common Shares then issuable
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<PAGE> 3
upon the conversion or exercise of other securities which were issued as a
dividend or other distribution with respect to or in replacement of Series A
Preferred Shares or other Preferred Registrable Shares; provided that Preferred
Registrable Shares shall not include any shares which have theretofore been
registered and sold pursuant to the Securities Act or which have been sold to
the public pursuant to Rule 144 or any similar rule promulgated by the
Commission pursuant to the Securities Act. For purposes of this Agreement, a
Person will be deemed to be a holder of Preferred Registrable Shares whenever
such Person has the then-existing right to acquire such Preferred Registrable
Shares (by conversion, purchase or otherwise), whether or not such acquisition
has actually been effected.
"Primary Registration" means the offer and sale by the Corporation for
its own account of securities registered under the Securities Act.
"1988 Purchase Agreement" has the meaning set forth in paragraph A of
the Recitals.
"1991 Purchase Agreement" has the meaning set forth in paragraph B of
the Recitals.
"Registrable Shares" means the Common Registrable Shares and Preferred
Registrable Shares.
"Registration Expenses" shall have the meaning ascribed thereto in
Section 6 of this Agreement.
"Secondary Registration" shall mean the offer and sale of securities to
the public by or on behalf of one or more of the holders of the Corporation's
securities pursuant to a registration statement filed by the Corporation with,
and declared effective by, the Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Series A Preferred Shares" means the shares of Series A Preferred
Stock of the Corporation, no par value.
"Series A Preferred Stock Purchase Agreement" has the meaning set forth
in paragraph D of the Recitals.
"Short-Form Registration" has the meaning set forth in Section 2(a).
"Warrants" means those certain Warrants to purchase Common Shares
issued to the 1988 Investors pursuant to the 1988 Purchase Agreement.
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<PAGE> 4
"Warrant Shares" means the Common Shares issued or issuable upon
exercise of the Warrants, whether or not such Warrants have been exercised.
2. Demand Registration and Short-Form Registration.
(a) At any time after 180 days after the effective date of any
registration statement the Corporation has filed under the Securities Act with
respect to any of its securities, the holder or holders of at least 662/3% of
Preferred Registrable Shares then outstanding may, by written notice delivered
to the Corporation, require registration under the Securities Act of all or part
of their Preferred Registrable Shares on Form S-1 or any similar long-form
registration ("Demand Registration"). The Corporation shall not be obligated to
effect more than one Demand Registration. A registration will not count as the
permitted Demand Registration until it has become effective and will not count
as the permitted Demand Registration unless the holders of Preferred Registrable
Shares initially requesting such Demand Registration are able to register and
sell at least 662/3% of the Preferred Registrable Shares agreed by such holders
to be included in such Demand Registration; provided that in any event the
Corporation will pay all Registration Expenses in connection with any
registration initiated as a Demand Registration requested hereunder (unless the
holder or holders of Preferred Registrable Shares requesting such Demand
Registration request that the registration statement be withdrawn, in which
case, such holders of Preferred Registrable Shares shall pay such Registration
Expenses). On or after the date upon which the Corporation has become entitled
as a registrant to use Form S-3 or any similar short- form registration
("Short-Form Registration"), any holder or holders of Preferred Registrable
Shares may, at any time, require registration under the Securities Act of all or
any part of their Preferred Registrable Shares on a Short-Form Registration;
provided, however, that the aggregate offering value of the Preferred
Registrable Shares requested to be registered in any Short-Form Registration
must equal at least $1,000,000. Within ten days after receipt of any request
pursuant to this Section 2(a), the Corporation will give written notice of such
request to all other holders of Preferred Registrable Shares and will use its
best efforts to include in such registration all Preferred Registrable Shares
with respect to which the Corporation has received written requests for
inclusion therein within 15 days after the date the Corporation's notice is
received (or deemed received as provided in Section 19 hereof).
(b) The Corporation will have the right to preempt any Demand
Registration or Short-Form Registration with a Primary Registration by
delivering written notice of such intention to the holders of Preferred
Registrable Shares who have requested such Demand Registration or Short-Form
Registration within 15 days after the Corporation has received a request for
such registration. In the ensuing Primary Registration, the holders of
Registrable Shares will have such piggyback registration rights as are set forth
in Section 3 hereof. Upon the Corporation's preemption of a requested Demand
Registration, such requested registration will not count as the permitted Demand
Registration.
(c) If a Demand Registration or a Short-Form Registration
is an underwritten public offering and the managing underwriters advise the
Corporation in writing that in their
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<PAGE> 5
opinion the number of Registrable Shares and other securities requested to be
included exceeds the number of Registrable Shares and other securities which can
successfully be sold in such offering without causing a diminution in the
offering price or otherwise adversely affecting the offering, the Corporation
will include in such registration, prior to the inclusion of any securities
which are not Preferred Registrable Shares, the number of Preferred Registrable
Shares requested to be included which in the opinion of such underwriters can
successfully be sold without causing a diminution in the offering price or
otherwise adversely affecting the offering, such Preferred Registrable Shares to
be taken pro rata from the respective holders of such Preferred Registrable
Shares on the basis of the number of Preferred Registrable Shares owned by such
holders, with further successive pro rata allocation among the holders of
Preferred Registrable Shares if any such holder of Preferred Registrable Shares
has requested the registration of less than all such Preferred Registrable
Shares it is entitled to register.
(d) The Corporation may postpone for up to three months the
filing or the effectiveness of a registration statement for a Demand
Registration or a Short-Form Registration if the Corporation reasonably
determines that such Demand Registration or Short-Form Registration would have
any material adverse effect upon the Corporation or any of its material assets
or operations or any material pending or proposed transaction.
3. Piggyback Registrations.
(a) Whenever the Corporation proposes to register any of its
securities under the Securities Act (except on Form S-4 or S-8 or any successor
form), the Corporation will give prompt written notice (in any event within
three business days after its receipt of notice of any exercise of Demand
Registration or Short-Form Registration rights) to all holders of Registrable
Shares of its intention to effect such a registration and will use its best
efforts to include in such registration all Registrable Shares with respect to
which the Corporation has received written requests for inclusion therein within
15 days after giving the Corporation notice (a "Piggyback Registration").
(b) If a Piggyback Registration is an underwritten Primary
Registration on behalf of the Corporation, and the managing underwriters advise
the Corporation in writing that in their opinion the number of securities
requested to be included in such registration exceeds the number which can
successfully be sold in such offering without causing a diminution in the
offering price or otherwise adversely affecting the offering, the Corporation
will include in such registration, (i) first, the securities the Corporation
proposes to sell, and (ii) second, the Registrable Shares requested to be
included in such registration which in the opinion of such underwriters can
successfully be sold without causing a diminution in the offering price or
otherwise adversely affecting the offering, such Registrable Shares to be taken
pro rata from the holders of such Registrable Shares on the basis of the number
of Registrable Shares owned by such holders, with further successive pro rata
allocations among the holders of Registrable Shares if any such holder of
Registrable Shares has requested the registration of less than all such
Registrable
5
<PAGE> 6
Shares it is entitled to register, and (iii) third, other securities
requested to be included in such registration.
(c) If a Piggyback Registration is an underwritten Secondary
Registration on behalf of holders of the Corporation's securities, and the
managing underwriters advise the Corporation in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can successfully be sold in such offering, the Corporation will
include in such registration, (i) first, the Preferred Registrable Shares
requested to be included in such registration which in such opinion of such
underwriters can successfully be sold, such Preferred Registrable Shares to be
taken pro rata from the holders of such Preferred Registrable Shares on the
basis of the number of Preferred Registrable Shares owned or deemed to be owned
by such holders, with further successive pro rata allocations among the holders
of Preferred Registrable Shares if any such holder of Preferred Registrable
Shares has requested the registration of less than all such Preferred
Registrable Shares it is entitled to register, (ii) second, the Common
Registrable Shares requested to be included in such registration which in such
opinion of such underwriters can successfully be sold, such Common Registrable
Shares to be taken pro rata from the holders of such Common Registrable Shares
on the basis of the number of Common Registrable Shares owned or deemed to be
owned by such holders, with further successive pro rata allocations among the
holders of Common Registrable Shares if any such holder of Common Registrable
Shares has requested the registration of less than all such Common Registrable
Shares it is entitled to register, and (iii) other securities requested to be
included in such registration.
(d) If the Corporation has previously filed a registration
statement with respect to Registrable Shares pursuant to Section 2 or pursuant
to this Section 3, and if such previous registration has not been withdrawn or
abandoned, the Corporation shall not be required to file or cause to be effected
any other registration of any of its equity securities or securities convertible
or exchangeable into or exercisable for its equity securities under the
Securities Act (except on Form S-4 or S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of 180 days has elapsed from the effective date of such previous
registration.
4. Holdback Agreements.
(a) Each holder of at least 5% of the Registrable Shares
agrees not to effect any public sale or distribution of equity securities of the
Corporation, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and the 90-day period
beginning on the effective date of any underwritten Demand Registration or
Short-Form Registration (except as part of such underwritten registration),
unless the underwriters managing the registered public offering otherwise agree
or otherwise require. Each holder of Registrable Shares agrees not to effect any
public sale or distribution of equity securities of the Corporation, or any
securities convertible into or exchangeable or exercisable for such securities
for such period beginning on the effective date of any underwritten Primary
Registration (except as part of such
6
<PAGE> 7
underwritten registration) as the holders of Registrable Shares and the
underwriters managing the registered public offering shall mutually agree.
(b) The Corporation agrees (i) not to effect any public sale
or distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration, Short-Form Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-4 or S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (ii) use its best
efforts to cause each holder of at least 5% (on a fully-diluted basis) of its
equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, purchased from the Corporation at any time
after the date of this Agreement (other than in a registered public offering) to
agree not to effect any public sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
5. Registration Procedures. Whenever the holders of Registrable
Shares have requested that any Registrable Shares be registered pursuant to this
Agreement, the Corporation will use its best efforts to effect the registration
and the sale of such Registrable Shares in accordance herewith and with the
intended method of disposition thereof, and pursuant thereto the Corporation
will as expeditiously as practicable:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best efforts to
cause such registration statement to become and remain effective for such
period, not to exceed three months, as may be reasonably necessary to effect the
sale of such securities:
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period, which need not exceed three months, and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance herewith and with
the intended methods of disposition by the sellers thereof set forth in such
registration statement;
(c) furnish to each seller of Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriters may reasonably request
in order to facilitate the disposition of the Registrable Shares owned by such
seller or the sale of such securities by such underwriters; and
7
<PAGE> 8
(d) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdiction as any seller reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Shares owned
by such seller (provided, however, that the Corporation will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph; (ii) consent to
general service of process in any such jurisdiction; or (iii) subject itself to
taxation in any such jurisdiction);
(e) use its best efforts to cause all such Registrable Shares
to be listed on each securities exchange on which similar securities issued by
the Corporation are then listed;
(f) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(g) enter into such customary agreements (including
underwriting agreements in customary form) as the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares (including, without limitation, effecting a stock split or a
combination of shares);
(h) make available for inspection by each seller of
Registrable Shares, any underwriter participating in any disposition pursuant to
such registration statement, and any attorney, accountant or other agent
retained by any such seller or underwriter who agrees to hold in confidence and
keep secret and inviolate, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(i) notify each seller of such Registrable Shares, promptly
after it shall receive notice thereof, of the time when such registration
statement has become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(j) notify each seller of such Registrable Shares of any
request by the Commission for the amending or supplementing of such registration
statement or prospectus or for additional information:
(k) prepare and file with the Commission, promptly upon the
request of any seller of such Registrable Shares, any amendments or supplements
to such registration statement or prospectus which, in the reasonable written
opinion of counsel selected by the holders of a majority of the Preferred
Registrable Shares being registered and concurred in by the reasonable opinion
of counsel for the Corporation, is required under the Securities Act or the
rules and regulations thereunder in connection with the distribution of
Registrable Shares by such seller;
8
<PAGE> 9
(l) prepare and promptly file with the Commission and promptly
notify each seller of such Registrable Shares of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event shall have occurred as the result of which any such prospectus or any
other prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading;
(m) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be issued;
(n) at least forty-eight hours prior to the filing of any
registration statement or prospectus or twenty-four hours prior to the filing of
any amendment or supplement to such registration statement or prospectus,
furnish a copy thereof to each seller of such Registrable Shares and refrain
from filing any such registration statement, prospectus, amendment or supplement
to which counsel selected by the holders of a majority of the Preferred
Registrable Shares being registered shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or the rules and
regulations thereunder, unless, in the case of an amendment or supplement, in
the opinion of counsel for the Corporation the filing of such amendment or
supplement is reasonably necessary to protect the Corporation from any
liabilities under any applicable federal or state law and such filing will not
violate applicable laws; and
(o) at the request of counsel selected by the holders of a
majority of such Registrable Shares in connection with an underwritten offering,
use its best efforts to furnish on the date or dates provided for in the
underwriting agreement: (i) an opinion of counsel, addressed to the underwriters
and the sellers of Registrable Shares, covering such matters as such
underwriters and sellers may reasonably request, including, without limiting the
generality of the foregoing, opinions substantially to the effect that (A) such
registration statement has become effective under the Securities Act; (B) to the
best of such counsel's knowledge no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the Securities Act; (C) the registration
statement, the prospectus, and each amendment or supplement thereto comply as to
form in all material respects with the requirements of the Securities Act and
the applicable rules and regulations of the Commission thereunder (except that
such counsel need express no opinion as to financial statements or other
financial or statistical data or information regarding the underwriters or the
selling shareholders contained therein); (D) while such counsel has not verified
the accuracy, completeness, or fairness of the statements contained in any
registration statement or prospectus, as either may be amended or supplemented,
nothing has come to such counsel's attention that
9
<PAGE> 10
would cause it to believe that the registration statement, the prospectus, or
any amendment or supplement thereto contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except that such
counsel need express no opinion as to financial statements or other financial
or statistical data or information regarding the underwriters or the selling
shareholders contained therein); (E) the descriptions in the registration
statement, the prospectus, or any amendment or supplement thereto of all legal
and governmental proceedings and all contracts and other legal documents or
instruments are accurate in all material respects; and (F) while such counsel
has not verified the accuracy, completeness, or fairness of the statements
contained in any registration statement or prospectus, as either may be amended
or supplemented, such counsel does not know of any legal or governmental
proceedings, pending or threatened, required to be described in the
registration statement, the prospectus, or any amendment or supplement thereto
which are not described as required nor of any contracts or documents or
instruments of the character required to be described in the registration
statement, the prospectus, or any amendment or supplement thereto or to be
filed as described or filed as required; and (ii) a letter or letters from the
independent certified public accountants of the Corporation addressed to the
underwriters, covering such matters as such underwriters may reasonably
request, in which letters such accountants shall state, without limiting the
generality of the foregoing, that they are independent certified public
accountants within the meaning of the Securities Act and that in the opinion of
such accountants the financial statements and other financial data of the
Corporation included in the registration statement, the prospectus, or any
amendment or supplement thereto comply in all material respects with the
applicable accounting requirements of the Securities Act.
6. Registration Expenses.
(a) All expenses incident to the Corporation's performance of
or compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of the Corporation's independent certified public accountants,
legal counsel to the Corporation, underwriters (excluding discounts and
commissions attributable to the Registrable Shares included in such
registration) and other persons retained by the Corporation (all such expenses
being herein called "Registration Expenses"), will be borne by the Corporation.
In addition, the Corporation will pay all internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit or quarterly
review, the expense of any liability insurance obtained by the Corporation and
the expenses and fees for listing the securities to be registered on each
securities exchange on which any shares of Common Stock are then listed.
(b) In connection with each Demand Registration, Short-Form
Registration and Piggyback Registration effected pursuant to this Agreement in
which Registrable Shares are included, the Corporation will reimburse the
holders of Registrable Shares covered by such registration for the reasonable
fees and disbursements of one counsel chosen by the holders of a majority of the
Registrable Shares included in such registration.
10
<PAGE> 11
7. Indemnification.
(a) The Corporation agrees to indemnify, to the extent
permitted by law, each seller of Registrable Shares, its officers and directors
and each Person who controls such seller (within the meaning of the Securities
Act or the Securities Exchange Act) against all losses, claims, damages,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees except as limited by Section 7(e)) caused by any untrue or alleged untrue
statement of a material fact contained in any registration statement, prospectus
or any amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as the same (i) are caused
by or contained in any information furnished in writing to the Corporation by
such seller expressly for use therein or (ii) caused by such seller's failure to
deliver a copy of the registration statement or prospectus or any amendments or
supplements thereto after the Corporation has furnished such seller with a
sufficient number of copies of same and both (A) such delivery is required by
law and (B) such registration statement or prospectus or any amendments or
supplements thereto does not contain any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact. In connection
with an underwritten offering, the Corporation will indemnify such underwriters,
their officers and directors and each Person who controls such underwriters
(within the meaning of the Securities Act or the Securities Exchange Act) to the
same extent as provided above with respect to the indemnification of the sellers
of Registrable Shares. The reimbursements required by this Section 7(a) will be
made by periodic payments during the course of the investigation or defense, as
and when bills are required or expenses incurred.
(b) The Corporation agrees to indemnify, to the extent
permitted by law, each seller of Registrable Shares, its officers and directors
and each Person who controls such seller (within the meaning of the Securities
Act or the Securities Exchange Act) against all losses, claims, damages,
liabilities and expenses (including, without limitation, reasonable attorneys'
fees except as limited by Section 7(e)) caused by the breach by the Corporation
of any covenant or representation or warranty made by the Corporation in an
underwriting agreement.
(c) In connection with any registration statement in which a
seller of Registrable Shares is participating, each such seller will furnish to
the Corporation in writing such information and affidavits as the Corporation
reasonably requests for use in connection with any such registration statement
or prospectus or any amendment thereof or supplement thereto and, to the extent
permitted by law, will indemnify the Corporation, its directors and officers and
each Person who controls the Corporation (within the meaning of the Securities
Act or the Securities Exchange Act) against any losses, claims, damages,
liabilities and expenses (including, without limitation, attorneys' fees except
as limited by Section 7(c)) resulting from any untrue statement of a material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that such untrue statement or
omission is contained in any information or affidavit so furnished in writing
11
<PAGE> 12
by such seller; provided that the obligation to indemnify will be several, not
joint and several, among such sellers of Registrable Shares, and the liability
of each such seller of Registrable Shares will be in proportion to, and provided
further that such liability will be limited to, the net amount received by such
seller from the sale of Registrable Shares pursuant to such registration
statement.
(d) Each seller of Registrable Shares agrees to indemnify, to
the extent permitted by law, the Corporation, its directors and officers and
each Person who controls the Corporation (within the meaning of the Securities
Act or the Securities Exchange Act) against any losses, claims, damages,
liabilities and expenses (including without limitation, attorneys' fees except
as limited by Section 7(e)) caused by the breach by such seller of a covenant or
representation or warranty made by such seller in an underwriting agreement;
provided, however, that each seller's obligation to indemnify will be several,
not joint and several among the sellers of Registrable Shares, and the liability
of each such seller of Registrable Shares in any event will be limited to the
net amount received by such Seller from the sale of Registrable Shares pursuant
to the registration agreement to which such underwriting agreement pertains.
(e) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(f) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Corporation also agrees to make such provisions as are reasonably requested by
any indemnified party for contribution to such party in the event the
corporation's indemnification is unavailable for any reason.
8. Compliance with Rule 144. In the event that the Corporation
(a) registers a class of securities under Section 12 of the Exchange Act, (b)
issues an offering circular meeting the requirements of Regulation A under the
Securities Act or (c) commences to file reports under Section 13 or 15(d) of the
Exchange Act, then at the request of any holder of Registrable Shares who
proposes to sell securities in compliance with Rule 144 promulgated by the
Commission, the Corporation will use its best efforts to (i) forthwith furnish
to such holder a written statement as to compliance with the filing
requirements of the Commission as set forth in Rule 144 as such rule
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<PAGE> 13
may be amended from time to time and (ii) make available such information as
will enable the holders of Registrable Shares to make sales pursuant to
Rule 144.
9. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements. The holders of a
majority of the Preferred Registrable Shares requested to be registered will
have the right to select the managing underwriters of any offering of the
Corporation's securities in which the Corporation does not participate, subject
to the approval of the Executive Committee, and the Corporation will have such
right in any offering in which it participates.
10. No Inconsistent Agreements. The Corporation will not hereafter
enter into any agreements with respect to its securities which is inconsistent
with the rights granted to the holders of Registrable Shares entitled to be
registered in this Agreement. The Corporation shall not issue to any stockholder
any piggyback registration rights equal or superior to those of the holders of
Preferred Registrable Shares, without the written consent of the holders of a
majority of the Preferred Registrable Shares (piggyback registration rights
shall be deemed equal or superior to those of the holders of Preferred
Registrable Shares if they adversely affect the rights of the holders of
Preferred Registrable Shares hereunder).
11. Adjustments Affecting Registrable Shares. The Corporation will
not take any action affecting or otherwise cause or permit any change to occur,
in, its authorized, issued and outstanding capital stock which would adversely
affect the ability of the holders of Registrable Shares to include such
Registrable Shares in a registration undertaken pursuant to this Agreement or
which would adversely affect the marketability of such Registrable Shares in any
such registration (including, without limitation, effecting a stock split or a
combination of shares).
12. Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
13. Amendments and Waivers. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived at any time
only by the written agreement of the Corporation, the holders of not less than a
majority of the Preferred Registrable Shares and the holders of not less than a
majority of the Common Registrable Shares.
14. Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto, whether so
expressed or not. In addition, and whether or not any express assignment has
13
<PAGE> 14
been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Shares are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Shares who consents
in writing to be bound by this Agreement.
15. Entire Agreement. This Agreement constitutes the entire
agreement of the parties covering the matters referred to herein, and supersedes
all prior agreements and understandings, including without limitation, Section
5.9 and Schedule 5.9 of the 1988 Purchase Agreement and Section 5.4 of the 1991
Purchase Agreement.
16. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
17. Term. This Agreement shall terminate five years after the
effective date of the Initial Public Offering.
18. Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.
19. Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier services to the addresses
set forth below, or to such other address as any party hereto designates by
written notice to the other parties given in accordance herewith, and shall be
deemed to have been received: (i) upon delivery, when delivered personally; (ii)
three business days after mailing, if mailed; or (iii) one business day after
timely delivery to the courier, if delivered by overnight courier service.
If to the Corporation, to:
Corporate Child Care, Inc.
631 Second Avenue South
Nashville, Tennessee 37210
Attn: Chief Executive Officer
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<PAGE> 15
with a copy to:
Bass, Berry & Sims
First American Center
Nashville, Tennessee 37238
Attn: James H. Cheek, III
If to holders of Series A Preferred Shares, to their respective
addresses set forth on the stock record books of the Corporation.
If to the other stockholders, to their respective addresses set forth
on the stock record books of the Corporation.
20. Governing Law. The validity, meaning and effect of this \
Agreement shall be determined in accordance with the laws of the State of
Tennessee applicable to contracts made and to be performed within that state.
21. Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
The parties hereto have executed this Registration Agreement as of the
date first set forth above.
CORPORATE CHILD CARE, INC.
By: /s/ Marguerite W. Sallee
----------------------------------------
Its: President & CEO
----------------------------------------
FRONTENAC VENTURE V LIMITED
PARTNERSHIP
By: Frontenac Company
its General Partner
By: /s/ Martin Koldyke
----------------------------------------
a general partner
TRINITY VENTURES II, L.P.
By: /s/ David Nierenberg
----------------------------------------
David Nierenberg,
General Partner
15
<PAGE> 16
TRINITY VENTURES III, L. P.
By: /s/ David Nierenberg
---------------------------------------
David Nierenberg,
General Partner
TRINITY SIDE-BY-SIDE FUND I,L.P.
By: /s/ David Nierenberg
---------------------------------------
David Nierenberg,
General Partner
DOMINION CAPITAL MARKETS
CORPORATION
By: /s/ Gregory W. Feldmann
---------------------------------------
Gregory W. Feldmann,
President
16
<PAGE> 17
MASSEY BURCH VENTURE INVESTORS
By: Gibraltar Partners, Ltd.
General Partner
By: Apache Venture Partners
General Partners
By: /s/ E. Townes Duncan
---------------------------------------
Partner
THE CENTRAL CONFEDERATE VENTURE
FUND LIMITED PARTNERSHIP
By: MB Investment Management, Inc.
Co-Investment Manager
By: /s/ Don McLemore
---------------------------------------
Title: Vice President
--------------------------------
By: /s/ E. Townes Duncan
---------------------------------------
Title: Vice President
------------------------------
By: Jamestown Investment Managers
(Bermuda) Limited
By: /s/ E. Townes Duncan
---------------------------------------
Attorney-in-Fact
By: United Finance Management Limited
By: /s/ E. Townes Duncan
---------------------------------------
Attorney-in-Fact
17
<PAGE> 18
THE VALLEY VENTURE FUND LIMITED
PARTNERSHIP
By: Massey Burch Venture Group, Inc.,
General Partner
By: /s/ Don McLemore
---------------------------------------
Title: Vice President
--------------------------------
By: /s/ E. Townes Duncan
---------------------------------------
Title: Vice President
--------------------------------
WC INVESTMENTS
By: /s/ William C. Weaver, III
---------------------------------------
Its:
---------------------------------------
/s/ Thomas J. Sherrard, III
-------------------------------------------
Thomas J. Sherrard, III
NELSON CAPITAL PARTNERS, L.P.
By: /s/ Timothy Douglas, Vice President
---------------------------------------
Its:Nelson Capital Investment Corp.,
---------------------------------------
its Managing General Partner
FIRST AMERICAN CORPORATION
By: /s/ Alex P. Waddell
---------------------------------------
Its:/s/ Senior Vice President and Treasurer
---------------------------------------
/s/ John A. Wade
---------------------------------------
John Wade
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<PAGE> 19
SCHEDULE I
NEW INVESTORS
Frontenac Venture V
Massey Burch Venture Investors
The Central Confederate Venture Fund Limited Partnership
The Valley Venture Fund Limited Partnership
Trinity Ventures II, L.P.
Trinity Ventures, III, L.P.
Trinity Side-By-Side Fund I, L.P.
Dominion Capital Markets Corporation
19
<PAGE> 20
SCHEDULE II
1988 INVESTORS
The Central Confederate Venture Fund Limited Partnership
WC Investments
Thomas J. Sherrard, III
The Valley Venture Fund Limited Partnership
Nelson Capital Partners, L.P.
Massey Burch Venture Investors
First American Corporation
John Wade
20
<PAGE> 21
SCHEDULE III
1991 INVESTORS
Massey Burch Venture Investors
The Central Confederate Venture Fund Limited Partnership
The Valley Venture Fund Limited Partnership
21
<PAGE> 1
EXHIBIT 10.12
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO OR FOR RESALE IN CONNECTION WITH THE
DISTRIBUTION THEREOF. NO DISPOSITION OF THESE SECURITIES MAY BE MADE
IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (ii) AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH DISPOSITION WITHOUT REGISTRATION IS IN COMPLIANCE WITH ALL
SUCH SECURITIES LAWS.
WARRANT NO. 33
STOCK PURCHASE WARRANT
TO PURCHASE COMMON STOCK
OF
CORPORATE CHILD CARE, INC.
THIS IS TO CERTIFY THAT, for good and valuable consideration received,
MARRIOTT CORPORATION, a Delaware corporation, is entitled to subscribe for and
purchase from CORPORATE CHILD CARE, INC., a Tennessee corporation (the
"Company"), 40,000 shares (the "Shares," which term shall refer to the number
of shares of the Company's Common Stock which may be purchased hereunder, as
the same may be adjusted from time to time pursuant to Section 3 hereof) of the
Company's Common Stock, no par value per share ("Common Stock"), at the
purchase price of $4.00 per Share (the "Purchase Price"), at any time prior to
January 15, 1998, subject to the provisions and upon the terms and conditions
hereinafter set forth. Certain capitalized terms used herein shall have the
meanings ascribed to them in Section 7 hereof.
Section 1.
Exercise of Warrant. The holder of this Warrant may, at
any time prior to 5 o'clock p.m., Nashville, Tennessee Time, on January 15,
1998, exercise this Warrant, in whole or in part, for the purchase of any
number of Shares at the time up to the number of Shares specified in the first
paragraph of this Warrant, less the number of Shares as to which this Warrant
has been previously exercised, at the Purchase Price specified in the first
paragraph of this Warrant, as adjusted, if necessary, pursuant to Section 3
hereof. In order to exercise this Warrant in whole or in part, the holder
hereof shall deliver to the Company at 631 Second Avenue South, Suite 2F,
Nashville, Tennessee 37210, or such address as the Company shall designate in a
written notice to the holder hereof, (i) a written notice of such holder's
election to exercise this Warrant, which notice
<PAGE> 2
shall be in substantially the form of the Subscription Notice attached hereto
and shall specify the number of Shares to be purchased, (ii) a certified check
or checks payable to the Company in an amount equal to the aggregate Purchase
Price of the number of Shares being purchased, and (iii) this Warrant. The
Company shall, as promptly as practicable, and in any event within 20 days
thereafter, execute and deliver or cause to be executed and delivered, in
accordance with said notice, a certificate or certificates representing the
aggregate number of Shares specified in said notice. The stock certificate or
certificates so delivered shall be in such denominations as may be reasonably
specified in said notice and shall be registered in the name of such holder.
Such certificate or certificates shall be deemed to have been issued and such
holder shall be deemed for all purposes to have become a holder of record of
such shares as of the date the notice and payment is received by the Company as
aforesaid.
If this Warrant shall have been exercised only in part, the Company
shall, at the time of delivery of the certificate or certificates, deliver to
such holder a new Warrant evidencing the rights of such holder to purchase the
Shares comprising the remaining shares of Common Stock called for by this
Warrant, which new Warrant in all other respects shall be identical with this
Warrant, or, at the request of such holder, appropriate notation may be made on
this Warrant and the same returned to such holder. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issue and delivery of stock certificates and new Warrants under this Section.
Section 2. Restrictions on Transfer.
A. Transfer of Warrant. Subject to the restrictions set forth in
this Section 2, this Warrant may be transferred, in whole or in part, to any
person by presentation of the Warrant to the Company with written instructions
for such transfer, and any such transferee shall be entitled to all of the
continuing rights and benefits of a purchaser of the Warrants.
Neither this Warrant nor the Shares have been registered under the
Securities Act or any Blue Sky laws. This Warrant has been acquired for
investment purposes and not with a view to distribution or resale and may not
be made subject to a security interest, pledged, hypothecated, sold or
otherwise transferred without an effective registration statement for such
Warrant under the Securities Act and any applicable Blue Sky laws or an opinion
of counsel reasonably satisfactory to the Company that registration is not
required under the Securities Act or under any applicable Blue Sky laws.
B. Mechanics and Expenses of Transfer. Upon presentation for
transfer in compliance with the terms hereof, the Company shall promptly
execute and deliver a new Warrant or Warrants identical to this Warrant in the
name or names of the transferee or transferees and in the denominations
specified in such instructions. The Company agrees to maintain at its
principal office books for the registration of the Warrants. The Company shall
pay all expenses, taxes and other charges payable in connection with the
preparation, issuance and delivery of Warrants under this Section.
2
<PAGE> 3
C. Transfer of Shares. Transfer of the Shares shall be
restricted in the same manner and to the same extent as the Warrant. The
certificates representing the Shares shall bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO OR FOR RESALE IN CONNECTION WITH THE
DISTRIBUTION THEREOF. NO DISPOSITION OF THE SHARES MAY BE MADE IN THE
ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (ii) AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH DISPOSITION WITHOUT REGISTRATION IS IN COMPLIANCE WITH ALL
SUCH SECURITIES LAWS.
Section 3. Anti-dilution Adjustments.
A. Effect of "Split-ups" and "Split-downs" and Certain Dividends.
In case at any time or from time to time while this Warrant remains
outstanding, the Company shall subdivide as a whole, by reclassification, stock
split, issuance of a stock dividend on the Common Stock payable in Common
Stock, or otherwise, the number of shares of Common Stock then outstanding into
a greater number of shares of Common Stock, with or without par value, the
number of Shares to which this Warrant relates shall be increased
proportionately and the Purchase Price per Share shall be decreased
proportionately. In case at any time or from time to time the Company shall
without payment of any consideration consolidate as a whole, by
reclassification, reverse stock split or otherwise, the number of shares of
Common Stock then outstanding into a lesser number of shares of Common Stock,
with or without par value, the number of Shares shall be reduced
proportionately and the Purchase Price per Share shall be increased
proportionately.
B. Effect of Certain Distributions. If on any date the Company
makes a distribution to holders of its Common Stock (including any such
distribution made in connection with a share exchange or merger in which the
Company is the continuing corporation) of evidences of its indebtedness or
assets, the number of Shares to which this Warrant relates shall be adjusted as
at the close of business on said date to a number determined by multiplying the
number of Shares immediately prior to such distribution by a fraction, the
numerator of which shall be the Fair Market Value (as defined in subsection 3.G
hereof) immediately prior to such distribution, and the denominator of which
shall be the Fair Market Value of the Common Stock minus the fair market value
(as determined in good faith by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so to be distributed to the
holder of one share of Common Stock.
C. Effect of Merger or Share Exchange. In case the Company
shall, while this Warrant remains outstanding, enter into any mandatory share
exchange with or merge into any other corporation wherein the Company is not
the surviving corporation, or sell or convey its property as
3
<PAGE> 4
an entirety or substantially as an entirety, and in connection with such share
exchange, merger, sale or conveyance, shares of stock or other securities of
another issuer shall be issuable or deliverable in respect of or exchange for
the Common Stock of the Company, the holder of this Warrant shall thereafter be
entitled to purchase pursuant to such Warrant (in lieu of the number of Shares
which such holder would have been entitled to purchase immediately prior to
such share exchange, merger, sale or conveyance) the shares of stock or other
securities issued in respect of or exchange for such number of Shares at the
time of such share exchange, merger, sale or conveyance, at an aggregate
purchase price equal to that which would have been payable if such number of
Shares had been purchased by exercise of this Warrant immediately prior
thereto. In the event of any such share exchange, merger, sale or conveyance in
which cash and/or other property rather than (or in addition to) stock or other
securities shall be payable or deliverable in respect of or exchange for Common
Stock of the Company, the holder of this Warrant shall be entitled to purchase
throughout the remaining term of this Warrant and pursuant to this Warrant (in
lieu of the number of Shares which such holder would have been entitled to
purchase immediately prior to such share exchange, merger, sale or conveyance)
a number of shares of common stock of the acquiring or surviving corporation
(or if same is a subsidiary of another corporation, then of its direct or
indirect parent which is not a subsidiary of another) having a value on the
date of such transaction equal to the fair market value of such property and/or
the amount of cash, as the case may be, that would have been payable to the
holder of this Warrant if the Warrant had been exercised immediately prior to
such share exchange, merger, sale or conveyance. In case of any such share
exchange, merger, sale or conveyance, appropriate provision shall be made by a
resolution of the Board of Directors of the Company with respect to the rights
and interests thereafter of the holder of this Warrant, to the end that all the
provisions of the Warrant (including adjustment provisions) shall thereafter be
applicable, as nearly as reasonably practicable, in relation to such stock or
other securities.
D. Reorganization and Reclassification. In case of any
reorganization or reclassification of the capital stock of the Company (except
as provided in subsection C of this Section), while this Warrant remains
outstanding, the holder of this Warrant shall thereafter be entitled to
purchase pursuant to such Warrant (in lieu of the number of Shares which such
holder would have been entitled to purchase immediately prior to such
reorganization or reclassification) the shares of stock of any class or classes
or other securities or property to which such number of Shares would have been
entitled at the time of such reorganization or reclassification, at an
aggregate purchase price equal to that which would have been payable if such
number of Shares had been purchased immediately prior to such reorganization or
reclassification. In case of any such reorganization or reclassification,
appropriate provision shall be made by resolution of the Board of Directors of
the Company with respect to the rights and interests thereafter of the holder
of this Warrant, to the end that all the provisions of the Warrant (including
adjustment provisions) shall thereafter be applicable, as nearly as reasonably
practicable, in relation to such stock or other securities or property.
E. Statement of Adjustment of Shares Purchasable Hereunder and
Current Price. Whenever the number of Shares is adjusted pursuant to any of the
foregoing provisions of this Section 3, the Company shall promptly prepare a
written statement signed by the President of the Company, setting forth the
adjustment in the number of Shares, determined as provided in this
4
<PAGE> 5
Section, and the amount of the then current Purchase Price, and in reasonable
detail the facts requiring such adjustment and the calculation thereof. Such
statement shall be filed among the permanent records of the Company and a copy
thereof shall be furnished to the holder(s) of the Warrants without request,
and shall at all reasonable times during business hours be open to inspection
by such holders.
F. Determination by the Board of Directors. All determinations
by the Board of Directors of the Company under the provisions of this Section 3
shall be made in good faith with due regard to the interests of the holders of
Warrants and the other holders of securities of the Company and in accordance
with good financial practice, and all valuations made by the Board of Directors
of the Company under the terms of this Section 3 must be made with due regard
to any market quotations of securities involved in, or related to, the subject
of such valuation.
For all purposes of this Section 3 and the Warrants, unless the
context otherwise requires, the term "Fair Market Value" shall have the
following meaning:
"Fair Market Value": per share of Common Stock at any date, the
average of the daily market prices for 30 consecutive business days commencing
45 business days before such date. The market price for each such business day
shall be the last sale price on such day as reported on the consolidated
transaction reporting system for the principal securities exchange on which the
Common Stock is then listed or admitted to trading (or, if applicable, the last
sale price reported by the National Association of Securities Dealers Automated
Quotation Service ("NASDAQ") National Market System), or, if no sale takes
place on such day on any such exchange or no such sale is quoted on such
System, the average of the closing bid and asked prices on such day as so
reported, or, if the Common Stock is not then listed or admitted to trading on
any stock exchange, the market price for each such business day shall be the
average of the reported closing bid and asked prices on such day in the over-
the-counter market, as reported by NASDAQ. If no market prices are reported,
then the market price shall be the fair market value as determined in good
faith by the Board of Directors, whose determination shall be conclusive.
Section 4. Covenants of the Company. The Company covenants and
agrees that:
(a) it will reserve and set apart and have, free from
preemptive rights, at all times a number of shares of authorized but
unissued Common Stock, or other stock or securities deliverable
pursuant to Section 3 hereof, sufficient to enable it at any time to
fulfill all its obligations hereunder; and
(b) all shares of Common Stock issued upon the exercise of
this Warrant shall be validly issued, fully paid and nonassessable.
5
<PAGE> 6
Section 5. Notices. In case the Company proposes:
(a) to pay any dividend payable in stock (of any class or
classes) or in securities convertible into Common Stock upon its
Common Stock or make any distribution (other than dividends in cash)
to the holders of its Common Stock; or
(b) to grant to the holders of its Common Stock generally
any rights or options; or
(c) to effect any capital reorganization or
reclassification of capital stock of the Company; or
(d) to consolidate or enter into a mandatory share
exchange with, or merge into, any other corporation or to sell or
convey its property as an entirety or substantially as an entirety; or
(e) to effect the liquidation, dissolution or winding up
of the Company;
then the Company shall cause notice of any such intended action to be given to
the holder of this Warrant not less than 30 days prior to the date on which the
transfer books of the Company shall close or a record be taken for such stock
dividend, distribution or granting of rights or options, or the date when such
capital reorganization, reclassification, consolidation, share exchange,
merger, transfer, liquidation, dissolution or winding up shall be effective, as
the case may be.
Any notice or other document required or permitted to be given or
delivered to the holder of this Warrant shall be mailed first-class postage
prepaid to such holder at the last address shown on the books of the Company
maintained for the registry and transfer of Warrants. Any notice or other
document required or permitted to be given or delivered to holders of record of
outstanding Warrant Stock shall be mailed first class postage prepaid to each
such holder at such holder's address as the same appears on the stock records
of the Company. Any notice or other document required or permitted to be given
or delivered to the Company shall be mailed first-class postage prepaid, or
delivered, to the principal office of the Company, at 631 Second Avenue South,
Suite 2F, Nashville, Tennessee 37210, or such other address within the United
States of America as shall have been furnished by the Company to the holder of
this Warrant and the holders of record of Warrant Stock.
Section 6. Warrant Holder Not Shareholder; Limitation of Liability.
This Warrant does not confer upon the holder hereof, as such, any right
whatsoever as a shareholder of the Company. No provision hereof, in the
absence of affirmative action by the holder hereof to purchase Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such holder for the purchase price or as a
shareholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
6
<PAGE> 7
Section 7. Certain Definitions. For all purposes of this Warrant,
unless the context otherwise requires:
A. "Company" shall mean Corporate Child Care, Inc., a Tennessee
corporation, or its successors and assigns.
B. "Common Stock" shall mean and include the Company's authorized
Common Stock as the same existed on the date hereof, and any other securities
as to which this Warrant becomes exercisable pursuant to Section 3.
C. "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
D. "Blue Sky laws" shall mean any state securities laws, and
rules and regulations thereunder, all as the same shall be in effect at the
time.
E. "Warrant Stock" shall mean the shares of Common Stock
purchasable or purchased by the holder of this Warrant upon the exercise
thereof pursuant to Section 1.
F. Whenever the term "transfer" is used herein with respect to
the disposition of this Warrant or Warrant Stock, or of any interest in either
thereof, such term shall refer to any such disposition which would constitute a
sale thereof within the meaning of the Securities Act.
G. "Person" shall mean an individual, corporation, partnership,
trust, unincorporated organization and any government, and any political
subdivision, instrumentality and agency thereof.
Section 8. Loss, Destruction, etc. of Warrants. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of any Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity in such form and amount as
shall be reasonably satisfactory to the Company, or in the event of such
mutilation upon surrender and cancellation of the Warrant, the Company will
make and deliver a new Warrant, of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Warrant. Any Warrant issued under the provisions of
this Section 8 in lieu of any Warrant alleged to be lost, destroyed or stolen,
or of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
Section 9. Applicable Law. The validity, interpretation and
performance of this Warrant and each of its terms and provisions shall be
governed by the laws of the State of Tennessee without regard to its principles
of conflicts of laws.
7
<PAGE> 8
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
in its name by its President and attested by its Secretary or Assistant
Secretary.
Dated: January 15, 1993
<TABLE>
<S> <C>
CORPORATE CHILD CARE. INC.
By:/s/ Marguerite W. Sallee
-------------------------------------------------------------------------------------------
President
Attest:
/s/ Robert J. Brady
- ----------------------------------
Secretary
</TABLE>
8
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
OF
CORPORATE FAMILY SOLUTIONS, INC.
i. Resources for Child Care Management, Inc., a New Jersey corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
dated March 14, 1997 included in or made a part of CorporateFamily Solutions,
Inc. registration statement, and to all references made to our Firm.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 18, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on Resources for Child Care Management, Inc. dated March 14, 1997 included in
or made a part of CorporateFamily Solutions, Inc. registration statement, and
to all references made to our Firm.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 18, 1997.
<PAGE> 1
EXHIBIT 23.3
CONSENT AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of our report dated
March 9, 1995, except Note 8(f) which is as of May 8, 1995 relative to the
consolidated financial statements (presented separately in the Registration
Statement) of Resources for Child Care Management, Inc. and Subsidiaries and to
the reference to our firm under the caption "experts" in the prospectus.
/s/ TRIEN, ROSENBERG, ROSENBERG,
WEINBERG, CIULLO & FAZZARI, LLP
-----------------------------------
TRIEN, ROSENBERG, ROSENBERG,
WEINBERG, CIULLO & FAZZARI, LLP
Morristown, NJ
June 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-30-1995
<PERIOD-END> DEC-27-1996
<EXCHANGE-RATE> 1
<CASH> 2,913,888
<SECURITIES> 0
<RECEIVABLES> 5,427,678
<ALLOWANCES> 123,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,446,996
<PP&E> 4,963,051
<DEPRECIATION> (1,205,850)
<TOTAL-ASSETS> 20,280,534
<CURRENT-LIABILITIES> 7,677,526
<BONDS> 3,504,673
4,480,372
0
<COMMON> 6,906,114
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,280,534
<SALES> 0
<TOTAL-REVENUES> 62,926,075
<CGS> 0
<TOTAL-COSTS> 61,006,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 58,000
<INTEREST-EXPENSE> 343,048
<INCOME-PRETAX> 1,576,878
<INCOME-TAX> (1,300,817)
<INCOME-CONTINUING> 2,735,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,735,695
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
