<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1997
REGISTRATION NO. 333-29523
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
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)
</TABLE>
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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)
---------------------
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
</TABLE>
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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. [ ]
---------------------
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 JULY 24, 1997
2,350,000 SHARES
(CORPORATEFAMILY LOGO)
COMMON STOCK
Of the 2,350,000 shares of Common Stock offered hereby, 1,350,000 shares
are being sold by CorporateFamily Solutions, Inc. (the "Company") and 1,000,000
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 $8.00 and $10.00 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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<CAPTION>
=====================================================================================================================
Price to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Selling Shareholders
- ---------------------------------------------------------------------------------------------------------------------
<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 $700,000.
(3) The Company and certain Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 51,386 and 301,114 additional shares,
respectively, 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, Proceeds to Company 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.
------------------------
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 1,169,935 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
employer-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, Marriott International, Inc., MBNA Corporation, Merck & Co., Inc.,
NationsBank Corporation, Owens Corning, S.C. Johnson & Son, Inc., and USAA.
The Company believes it is positioned to take advantage of two related
trends in corporate America: (i) the changing profile of the work force with an
increased number of dual income households and working parents and (ii) the
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. A significant portion
of this growth was attributable to the Company's acquisition in October, 1995 of
Resources for Child Care Management, Inc. ("RCCM"), an operator of 21
employer-sponsored child care centers. The Company expanded its consulting
3
<PAGE> 5
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 evaluation, including the
management of employer-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......................... 1,350,000 shares
Common Stock offered by the Selling Shareholders............ 1,000,000 shares
Common Stock to be outstanding after the Offering........... 4,416,848 shares(1)
Use of proceeds............................................. Repayment of indebtedness,
working capital, and for
general corporate purposes,
including possible
acquisitions.
Proposed Nasdaq National Market symbol...................... CFAM
</TABLE>
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(1) Excludes (i) 1,546,421 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;
(iii) 475,000 shares of Common Stock reserved for future grant under the
Company's stock option plans; and (iv) 100,000 shares of Common Stock
reserved for issuance pursuant to the Company's employee stock purchase
plan. Using the modified treasury stock method, the outstanding options and
warrants represent 689,051 shares of Common Stock equivalents, assuming an
offering price of $9.00 per share. See "Management -- Compensation Pursuant
to Plans" and "Description of Capital Stock -- Warrants."
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<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
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YEAR ENDED(1) SIX MONTHS ENDED
------------------------------------------ ----------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 28, JUNE 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................................. $24,513 $36,920 $62,926 $30,079 $36,381
Operating expenses...................... 21,092 32,708 55,589 26,479 32,028
Selling, general and administrative
expenses.............................. 2,958 3,525 4,659 2,363 2,785
Depreciation and amortization........... 387 520 758 381 397
------- ------- ------- ------- -------
Operating income........................ 76 167 1,920 856 1,171
Interest expense, net................... 50 86 343 194 125
------- ------- ------- ------- -------
Income before income taxes.............. 26 81 1,577 662 1,046
Income tax expense (benefit)............ -- (460) (1,159) 26 500
------- ------- ------- ------- -------
Net income.............................. $ 26 $ 541 $ 2,736 $ 636 $ 546
======= ======= ======= ======= =======
Net income per share(2)(3).............. $ 0.01 $ 0.19 $ 0.75 $ 0.20 $ 0.17
======= ======= ======= ======= =======
Weighted average number of common and
common equivalent shares
outstanding(2)........................ 2,702 3,398 4,102 4,082 4,072
SELECTED OPERATING DATA (AT END OF PERIOD)(1):
Family Center clients(4)................ 41 58 65 59 65
Family Centers(5)....................... 48 75 85 81 87
Program capacity(6)..................... 5,295 9,113 10,702 10,178 11,278
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<CAPTION>
JUNE 27, 1997
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ACTUAL AS ADJUSTED(7)
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BALANCE SHEET DATA:
Working capital............................................. $ 2,531 $10,082
Total assets................................................ 19,391 26,031
Long-term debt, including current maturities................ 3,960 --
Shareholders' equity........................................ 7,672 18,272
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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) Supplemental pro forma net income per share of $0.71 for the year ending
December 27, 1996 and $0.17 for the six months ended June 27, 1997 was
computed by adjusting the historical net income per share as reflected above
for the reduction in interest expense and after giving effect to the
estimated number of shares that would be required to be sold (at an assumed
initial public offering price of $9.00 per share) to repay $4.4 million and
$4.0 million in debt at December 27, 1996 and June 27, 1997, respectively.
(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 to be in compliance with National Association for the Education of
Young Children ("NAEYC") standards. As of each of the respective dates, the
state licensed capacity was 6,361, 10,487, 12,440, 11,902 and 13,122
individuals, respectively.
(7) Adjusted to give effect to the sale of the 1,350,000 shares of Common Stock
offered by the Company hereby, at an assumed initial public offering price
of $9.00 per share, and the application of the estimated net proceeds
therefrom as described in "Use of Proceeds" and "Capitalization."
5
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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. The Company may experience difficulty in
attracting and retaining qualified personnel in various markets necessary to
meet growth opportunities. Hiring and retaining qualified personnel may require
increased salaries and enhanced benefits in more competitive markets, which
could result in a material adverse effect on the Company's business, results of
operations and financial condition. 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
2% 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 work
force, 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
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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 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.
Risks Associated with New Family Centers. For contracts where the Company
does not receive additional financial operating support from the employer
necessary to cover all costs during the enrollment building period, the Company
may incur operating losses at a Family Center. Such operating losses have been
incurred at certain centers for more than a year following the opening of such
centers; however, such losses, if any, have varied in amount and time duration
from center to center. The Company's contracts generally provide that the
Company may recover such initial losses out of future center level operating
profits. There can be no assurance that the Company will be able to negotiate
contracts that will provide funds to pay for such operating losses or that the
Company can grow the Family Center enrollment sufficiently to eliminate such
losses. In the event a Family Center cannot operate profitably, the Company may
elect to close a Family Center, which could result in additional expense to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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."
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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, employment practices liability
and excess "umbrella" liability including coverage for child abuse and
molestation. 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, 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
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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 32.9% of the outstanding shares of Common Stock
(approximately 32.6% 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 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."
Shares Eligible for Future Sale. Upon consummation of the Offering, the
Company will have 4,416,848 shares of Common Stock issued and outstanding. The
2,350,000 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 2,066,848 shares of Common Stock
are "restricted securities" as that term is defined by Rule 144 promulgated
under the Securities Act. Of these shares, 228,107 will be eligible for sale in
the public market 90 days following the date of this Offering pursuant to Rule
144; of the persons holding these shares, no person holds more than 0.75% of the
outstanding shares. Furthermore, upon the expiration of lockup agreements with
the Underwriters 180 days after the date of this Prospectus (or earlier with the
consent of Montgomery Securities), an additional 1,838,741 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 630,574 shares of Common Stock
following completion of the Offering are entitled to certain rights with respect
to the registration of such shares for sale under the Securities Act. See
"Shares Eligible for Future Sale," "Management -- Compensation Pursuant to
Plans" and "Description of Capital Stock -- Registration Rights."
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."
9
<PAGE> 11
Dilution. The purchasers of the Common Stock offered hereby will
experience immediate and significant dilution in net tangible book value of
$6.12 per share, and present shareholders will experience a material increase in
net tangible book value of $2.19 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."
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 $9.00 per share, are
estimated to be $10.6 million (approximately $11.0 million if the Underwriters'
over-allotment option is exercised in full) 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 $4.0 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 has received a
commitment for a revolving credit facility to be completed in connection with
the 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 June 27, 1997 was
approximately $2.1 million, or $0.69 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 1,350,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $9.00 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 June 27, 1997 would have been approximately $12.7
million, or $2.88 per share of Common Stock. This represents an immediate
increase in the pro forma net tangible book value of $2.19 per share of Common
Stock to existing shareholders and an immediate dilution in pro forma net
tangible book value of $6.12 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....................... $9.00
Net tangible book value per share........................... $0.69
Increase per share attributable to new investors............ 2.19
-----
Pro forma net tangible book value per share, as adjusted for
the Offering.............................................. 2.88
-----
Dilution per share to new investors......................... $6.12
=====
</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....... 3,066,848 69.4% $11,536,706 48.7% $3.76
New investors............... 1,350,000 30.6 12,150,000 51.3 9.00
--------- ----- ----------- -----
Total............. 4,416,848 100.0% $23,686,706 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) The computations in the tables set forth above (i) give effect to conversion
of all Series A Preferred Stock into 1,169,935 shares of Common Stock and
(ii) exclude 1,546,421 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 June
27, 1997 and as adjusted to reflect (i) the issuance and sale by the Company of
the 1,350,000 shares of Common Stock offered hereby, at an assumed initial
public offering price of $9.00 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 1,169,935 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>
JUNE 27, 1997
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt........................ $ 911 $ --
======= =======
Long-term debt, less current maturities..................... $ 3,049 $ --
------- -------
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;
1,896,913 shares issued and outstanding, actual;
100,000,000 shares authorized and 4,416,848 issued and
outstanding, as adjusted(1)............................ 7,056 22,136
Accumulated deficit....................................... (3,864) (3,864)
------- -------
Total shareholders' equity........................ 7,672 18,272
------- -------
Total capitalization......................... $10,721 $18,272
======= =======
</TABLE>
- ---------------
(1) Excludes (i) 1,546,421 shares of Common Stock, with a weighted average
exercise price of $7.26 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 selected consolidated
financial and operating data of the Company for the six months ended June 28,
1996, and June 27, 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 six months
ended June 27, 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) SIX MONTHS ENDED
----------------------------------------------------------------------- -------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 28, JUNE 27,
1993 1993 1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................... $10,666 $16,967 $24,513 $36,920 $62,926 $30,079 $36,381
Operating expenses................ 8,899 14,458 21,092 32,708 55,589 26,479 32,028
Selling, general and
administrative expenses......... 2,998 3,344 2,958 3,525 4,659 2,363 2,785
Depreciation and amortization..... 187 239 387 520 758 381 397
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........... (1,418) (1,074) 76 167 1,920 856 1,171
Interest expense, net............. (83) (9) 50 86 343 194 125
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes........................... (1,335) (1,065) 26 81 1,577 662 1,046
Income tax (benefit) expense...... -- -- -- (460) (1,159) 26 500
------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $(1,335) $(1,065) $ 26 $ 541 $ 2,736 $ 636 $ 546
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share(2)(3)..................... $ (0.91) $ (0.71) $ 0.01 $ 0.19 $ 0.75 $ 0.20 $ 0.17
======= ======= ======= ======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding(2).................. 1,482 1,494 2,702 3,398 4,102 4,082 4,072
SELECTED OPERATING DATA(1)(4):
Family Center clients(5).......... 21 29 41 58 65 59 65
Family Centers(6)................. 24 33 48 75 85 81 87
Program capacity(7)............... 2,997 3,850 5,295 9,113 10,702 10,178 11,278
</TABLE>
<TABLE>
<CAPTION>
AS OF
-------------------------------------------------------------------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 27,
1993 1993 1994 1995 1996 1997
----------- ------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $2,086 $ 998 $ 939 $ 407 $ 1,769 $ 2,531
Total assets.............................. 4,589 4,774 5,265 17,055 20,378 19,391
Long-term debt, including current
maturities.............................. 245 758 883 5,064 4,416 3,960
Shareholders' equity...................... 2,977 2,067 1,724 4,015 6,976 7,672
</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 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) Supplemental pro forma net income per share of $0.71 for the year ending
December 27, 1996 and of $0.17 for the six months ended June 27, 1997 was
computed by adjusting the historical net income per share as reflected above
for the reduction in interest expense and after giving effect to the
estimated number of shares that would be required to be sold (at an assumed
initial public offering price of $9.00 per share) to repay $4.4 million and
$4.0 million in debt at December 27, 1996 and June 27, 1997, respectively.
(4) Selected operating data is as of the end of the periods presented.
(5) 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.
(6) Family Centers are defined as the facilities which the Company is engaged to
manage and operate on behalf of its Family Center clients.
(7) 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 to be in compliance with NAEYC standards. As of each of the
respective dates, the state licensed capacity was 4,416, 5,279, 6,361,
10,487, 12,440, 11,902 and 13,122 individuals, respectively.
14
<PAGE> 16
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, are generally comparable to prevailing market rates for
similar services offered by companies operating under National Association for
the Education of Young Children ("NAEYC") guidelines in the local market and are
paid weekly or monthly in advance. Management fees are generally a fixed monthly
fee or a per diem, per child fee. Client Operating Financial Support and
management fees are paid monthly. 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
15
<PAGE> 17
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.
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 finance the facility and equipment, provide for ongoing facility
expenses and reimburse the Company for center personnel expenses incurred prior
to the center opening date. 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
including, initial operating losses during the enrollment building
period (typically during the 12 months following the opening 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 reimbursed to the employer. In addition,
Client Operating Financial Support often includes payments to cover
initial operating losses during the enrollment building period. 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. Initial operating losses during the enrollment
building period are generally funded by the Company. Initial operating
losses may range from $50,000 to $125,000 per center. 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, reduces Family
Center operating variability and risk. The mix of contracts has not varied
substantially over the past several years.
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
16
<PAGE> 18
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.
The Company anticipates a continuation of its current operations during the
remainder of 1997 and 1998. During the first six months of 1997, the Company
opened net two Family Centers. Of the 17 Family Centers currently under
development, six to eight Family Centers are anticipated to open during 1997
and, of the remaining centers, eight are anticipated to open in 1998. The actual
opening of a new center is subject to a number of conditions and factors,
including, among others, construction timing, employer needs and weather
conditions.
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.
Concurrent with the Offering, the Company intends to remove the
restrictions, set forth in the restricted stock agreement, on 32,500 shares of
Common Stock held by the Company's Chief Financial Officer. As a result, the
Company will record a non-recurring, non-cash compensation charge of $264,500
(for which the Company will not realize a tax deduction) in the third quarter of
1997 (assuming an initial public offering price of $9.00 per share). See
"Management -- Executive Compensation and Other Information."
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 SIX MONTHS ENDED
------------------------------------------ -------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 28, JUNE 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
(UNAUDITED)
<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 88.0
Selling, general and administrative
expenses................................ 12.1 9.5 7.4 7.9 7.7
Depreciation and amortization............. 1.6 1.4 1.2 1.3 1.1
----- ----- ----- ----- -----
Operating income.......................... 0.3 0.5 3.1 2.8 3.2
Interest expense, net..................... 0.2 0.2 0.6 0.6 0.3
----- ----- ----- ----- -----
Income (loss) before income taxes......... 0.1 0.3 2.5 2.2 2.9
Income tax expense (benefit).............. - (1.2) (1.8) 0.1 1.4
----- ----- ----- ----- -----
Net income................................ 0.1% 1.5% 4.3% 2.1% 1.5%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 27, 1997 COMPARED TO SIX MONTHS ENDED JUNE 28, 1996
Revenue. Revenue increased $6.3 million, or 21.0%, to $36.4 million for
the six months ended June 27, 1997 from $30.1 million for the six months ended
June 28, 1996. The increase in revenue was primarily a result of (i) the
operation of a net 12 new centers opened since the beginning of 1996 and (ii)
internal growth at mature centers. Consulting revenue increased to $441,000 for
the first six months of 1997 from $132,000 from the comparable period of 1996.
The increase in consulting revenue resulted from the Company's expansion of its
consulting capabilities during the latter half of 1996.
17
<PAGE> 19
Operating Expenses. Operating expenses increased $5.5 million, or 21.0%,
to $32.0 million for the first six months of 1997 from $26.5 million for the
first six months of 1996. Operating expenses as a percentage of revenue remained
unchanged at 88.0% for the first six months of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $422,000, or 17.8%, to $2.8 million for the
six month period ended June 27, 1997 from $2.4 million for the six month period
ended June 28, 1996. Selling, general and administrative expenses as a
percentage of revenue decreased to 7.7% in the first six months of 1997 as
compared with 7.9% for the comparable period in 1996. This decrease is
attributable to economies of scale as a result of a larger revenue base. The
Company does not anticipate that future declines in selling, general and
administrative expenses as a percentage of revenues, if any, will be comparable
to declines experienced in prior periods.
Depreciation and Amortization. Depreciation and amortization expense
increased $16,000 to $397,000 for the six month period ended June 27, 1997 from
$381,000 for the comparable period in 1996.
Operating Income. Operating income increased $315,000, or 36.7%, to $1.2
million for the first six months of 1997 from $856,000 for the first six months
of 1996. Operating income as a percentage of revenue increased to 3.2% in the
first six month period of 1997 from 2.8% for the comparable period in 1996.
Net Interest Expense. Net interest expense decreased $69,000 to $125,000
for the six month period ended June 27, 1997, from $194,000 for the six month
period ended June 28, 1996. This decrease is primarily the result of the
reduction of borrowings outstanding in the first half of 1997 compared with the
same period in 1996.
Income Taxes. The provision for income taxes was $500,000 for the six
month period ended June 27, 1997 as compared to $26,000 for the comparable
period of 1996. The Company did not incur any federal income tax expense during
the six month period ended June 28, 1996 as a result of a reduction of valuation
allowances in order to utilize net operating loss carryforwards. The Company's
effective tax rate for the six month period ended June 27, 1998 was 47.8% due to
amortization of approximately $200,000 of goodwill which is not tax-deductible.
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) $19.6 million in revenue generated by RCCM in 1996 compared to $4.3
million in revenue from October 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 net ten new centers in 1996. The Company does not anticipate that
future declines in selling, general and administrative expenses as a percentage
of revenues, if any, will be comparable to declines experienced in prior
periods.
18
<PAGE> 20
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 3.1%
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) growth in mature
centers and centers opened in 1994; and (iii) the operation of a net six new
centers opened in 1995. In 1995, the Company opened seven new centers and closed
one neighborhood child care center that the Company acquired as part of an
acquisition in 1993.
Operating Expenses. Operating expenses increased $11.6 million, or 55.0%,
to $32.7 million in 1995 from $21.1 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 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 $567,000, or 18.9%, to $3.5 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 to
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.
19
<PAGE> 21
UNAUDITED SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly operating
information for the ten quarters ended June 27, 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 (145) 285 378 340 574 450
Income tax expense
(benefit)(1)........... 1 4 5 (471) 7 20 22 (1,208) 221
Net income............... 54 86 75 326 278 358 318 1,782 229
<CAPTION>
1997
--------
2ND
QUARTER
--------
<S> <C>
Revenue.................. $18,901
Operating income
(loss)................. 648
Income (loss) before
taxes.................. 595
Income tax expense
(benefit)(1)........... 279
Net income............... 316
</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 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 $2.5 million and $1.8 million as of June
27, 1997 and December 27, 1996, respectively, as compared to $1.3 million and
$407,000 as of June 28, 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. During the six months
ended June 27, 1997, net cash provided by operating activities was $338,000 as
compared with $1.5 million for the comparable period in 1996. The decrease in
cash provided by operating activities was primarily the result of a decrease in
accounts payable and accrued expenses. 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
20
<PAGE> 22
indebtedness while cash provided from financing activities in 1995 was primarily
from the debt financing of the RCCM acquisition.
The Company has received a commitment for a $5.0 million revolving credit
facility to be completed in connection with 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 and
the Company's anticipated needs to fund future growth 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 No. 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 No.
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 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 set
forth herein.
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.
21
<PAGE> 23
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, Marriott International, Inc., MBNA Corporation, Merck & Co., Inc.,
NationsBank Corporation, Owens Corning, S.C. Johnson & Son, Inc. and USAA.
MARKET OPPORTUNITY
The Company believes it is positioned to take advantage of two related
trends: (i) the changing profile of the work force, with more dual income
households and working parents, and the workplace and (ii) the 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 work force has changed dramatically as a result of an
increase in households where both parents are employed or, in households with
one parent, where the sole wage earner needs child care or other family
services. 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)
only 7% of all families currently conform to the perceived traditional family
consisting of the wage earning father, stay-at-home mother and one or more
children, down from 20% in 1969; and (iii) in 84% of all married couples, both
spouses work. As a result of the changing composition of the work force and
increasing pressures on employees to work harder and longer, parents are facing
additional difficulties in meeting the needs of their families. The Company
believes 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 workplace 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. Trends such as these have led to quantifiable benefits to
employers which further reinforce the strategy of offering family friendly
services at the workplace. For example, at Johnson and Johnson, a corporate
client of the Company with five Family Centers
22
<PAGE> 24
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 savings
of approximately $800,000 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 with the 20 largest child care
providers, including the for profit and not-for-profit sectors, comprising less
than 5% of total child care revenues in the United States. The child care
industry is experiencing a shift toward center-based care as the percentage of
children under the age of five enrolled in such programs has increased from 13%
to 30% between 1977 and 1993. Investment by corporations in child care services
has grown in recent years and continues to grow. The Child Care Information
Exchange in 1996 reported that the employer-sponsored segment of the industry
comprised just 1% of the total child care market, but the employer-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 employer-sponsored segment and that employer-sponsors
and parents will seek association with high quality providers to provide
education and other 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 employer-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 well 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 work force; (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.
23
<PAGE> 25
High Quality Services. The Company operates all its child care
programs and Family Centers at standards to achieve accreditation set forth
by 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. The Company's operating model, which generally
requires that all facility, facility-related costs and management fees be
paid by the employer-sponsor, provides more financial resources available
at the Company's Family Centers than most other centers. These financial
resources directly translate into higher teacher compensation, lower
teacher-child ratios, enhanced curriculum and increased 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, teachers 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. Lead teachers
typically hold a four year degree or an associate degree and three plus
years of child care experience. Other teachers typically have several years
experience in the child care field or hold an associate degree in early
childhood education or are Child Development Associate credentialed. For
several clients with multiple sites, the Company employs an Executive
Director who is responsible for the coordination and consistency of the
various programs of a multicenter client 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 work force. 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 work forces, 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
24
<PAGE> 26
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 eight under development, including
Johnson & Johnson with five Family Centers in operation and two under
development; USAA with two Family Centers in operation and three under
development; Barnett Bank with five Family Centers in operation; Citicorp
with four Family Centers in operation and two under development; 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
employer-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.
Pursuing 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.
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 workplace 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
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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, 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.
Employer-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 work forces, 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 500
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
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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.
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 work force
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 a client's
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, eight of which are clients for
which the Company operates one or more Family Centers.
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 provides consulting services to
corporate clients including feasibility studies, work/life strategic planning,
benchmark studies, policy and practice alignment, return on investment analysis
and community investment. 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
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development of new services. 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.
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 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 work force 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 enable 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
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Horizons Children's Centers, Inc. and, to a lesser extent, the
employer-sponsored child care divisions of other large child care companies,
such as Kindercare and Children's Discovery Centers. 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. The Company also faces competition for enrollment from a variety of
for-profit, not-for-profit and government-based providers.
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 it
distinguishes itself from competitors by its presence at the workplace,
knowledge of family needs, and ability to integrate a number of services and
programs into a Family Center tailored to the needs of an employer.
The Company's ability to compete successfully for employer-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 work force. 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.
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EMPLOYEES
As of June 27, 1997, the Company employed approximately 2,550 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 27, 1997, the Company had approximately 535 part-time
employees and 700 substitutes on its payroll. None of the Company's employees is
represented by a labor union, and the Company believes its relationship with its
employees is good.
LITIGATION
The Company has been named as a defendant in a lawsuit in which the
plaintiff is seeking compensatory and punitive damages for injuries allegedly
sustained at a Family Center in Florida. The case is in the preliminary stages
of discovery and pleading, and the Company intends to defend its position
vigorously. The Company maintains insurance for damages that may be sustained in
this case with the exception of punitive damages in certain circumstances, and
its insurer is participating in the defense of the case. Based on its present
understanding of the case and the advice of counsel, management of the Company
does not believe that the Company has a material exposure to uninsured damages.
In addition to the litigation noted above, 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.
Management believes the resolution of the above noted litigation and other legal
matters will not have a material effect on the Company's financial condition or
results of operations, 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, employment
practices liability and excess "umbrella" liability including coverage for child
abuse and molestation. The policies provide for a variety of coverages, are
subject to various limits, 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 two child care facilities 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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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)........... 44 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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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 October
1994 to September 1996 and served as Director of Corporate Communication
Worldwide from May 1992 to September 1994. 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 the 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, completed the sale of substantially all of its assets in November 1996 and
consummated its plan of liquidation in June 1997. 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
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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.
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 and the shareholders have approved the 1997 Outside
Directors' Stock Incentive Plan ("1997 Outside Directors' Plan") that will
become effective upon the consummation of the Offering. An aggregate of 25,000
shares have been reserved for issuance pursuant to the 1997 Outside Directors'
Plan. 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. The restricted stock shall vest in one-third
increments with one-third vesting on the date of grant and the remaining shares
vesting equally on the first and second anniversary dates of the initial grant,
as long as the Outside Director continues to serve as a director of the Company.
No shares of restricted stock granted pursuant to the 1997 Outside Director's
Plan shall be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and distribution
until the earlier of (i) five years from the date of grant and (ii) the date on
which the Outside Director ceases to serve as a director of the Company. Outside
Directors awarded such restricted stock may exercise full voting rights and
shall be entitled to receive all dividends and other distributions paid with
respect to such shares from the date of grant. Shares of restricted stock that
have not vested at the time of a grantee's resignation, removal, or failure to
be elected as a member of the Board of Directors shall be forfeited. 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
33
<PAGE> 35
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 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.
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<PAGE> 36
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 $292,500(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 1996.
(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 are being terminated by action of the
Company's Board of Directors upon the closing of the Offering. 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 $9.00 per share.
The following table sets forth certain information concerning stock options
granted during 1996 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SECURITIES TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS OF STOCK APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERMS
GRANTED EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME (#) 1996 ($/SHARE) DATE 5% ($) 10% ($)
- ---- ---------- ------------ --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marguerite W. Sallee........... 188,500 40.87% $7.69 01/01/06 $911,897 $2,310,927
Robert D. Lurie................ -- -- -- -- -- --
David J. Gleason............... 165,100 35.80 7.69 01/01/06 798,696 2,024,053
Michael E. Hogrefe............. 6,500 1.41 7.69 01/01/06 31,445 79,687
</TABLE>
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<PAGE> 37
The following table sets forth certain information with respect to stock
options granted to the Named Executive Officers pursuant to the Company's stock
option plans. No Named Executive Officer exercised any options for the purchase
of Common Stock in 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 27, 1996 (#) DECEMBER 27, 1996(1)($)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Marguerite W. Sallee............................. 106,411 226,460 $353,876 $311,659
Robert D. Lurie.................................. 130,000 195,000 170,300 255,450
David J. Gleason................................. 94,380 202,020 309,643 278,041
Michael E. Hogrefe............................... -- 6,500 -- 8,515
</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 $9.00 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 July 23, 1997, options for the purchase of
1,546,421 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 and shareholders 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. 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, 450,000 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 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
36
<PAGE> 38
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 price, 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 Stock Incentive 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 and its shareholders have
adopted an employee stock purchase plan (the "Stock Purchase Plan") that will
become effective promptly following the Offering. An aggregate of 100,000 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 15% of their base pay per pay period through payroll
deductions 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) Plan permits employees to make
salary deferrals up to specified limits. Additional contributions may be made by
the Company at its
37
<PAGE> 39
discretion, and the Company makes a matching contribution equal to at least 25%
of an employee's salary deferral, 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, 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).
38
<PAGE> 40
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 1,169,935 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 -----------------------
MANAGEMENT AND FIVE PERCENT BENEFICIAL OWNERS NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Frontenac Venture V Limited Partnership...... 527,410(2) 17.2% 260,000 267,410 6.0%
Marriott Management Services Corp............ 467,912(3) 15.1 -- 467,912 10.5
Joseph J. Guzzo.............................. 467,912(3) 15.1 -- 467,912 10.5
Massey Burch Investment Group and related
parties (as a group)....................... 453,806(4) 14.8 453,481 325 *
Robert D. Lurie.............................. 424,151(5)(6) 13.3 -- 424,151 9.3
The Valley Venture Fund Limited
Partnership................................ 269,040(4) 8.8 269,040 -- *
Trinity Ventures (as a group)................ 260,778(7) 8.5 -- 260,778 5.9
Marguerite W. Sallee......................... 246,161(6)(8) 7.6 -- 246,161 5.4
David G. Gleason............................. 201,760(6)(9) 6.3 16,250 185,510 4.1
Trinity Ventures II, L.P..................... 195,425(7) 6.4 -- 195,425 4.4
Lamar Alexander.............................. 193,325(10) 6.3 4,768 188,557 4.2
Central Confederate Venture Fund Limited
Partnership................................ 184,441(4) 6.0 184,441 -- *
Thomas G. Cigarran........................... 68,076(11) 2.2 -- 68,076 1.5
Michael E. Hogrefe........................... 33,800(12) 1.1 -- 33,800 *
E. Townes Duncan............................. 12,870(13) * -- 12,870 *
JoAnne Brandes............................... 780(14) * -- 780 *
Jerry L. Calhoun............................. -- * -- -- *
All directors and executive officers as a
group (10 persons)......................... 1,648,835(15) 45.9 21,018 1,627,817 32.9
OTHER SELLING SHAREHOLDERS
Nelson Capital Partners, L.P................. 87,828 2.9 38,767 49,061 1.1
First Union National Bank.................... 78,000 2.5 78,000 -- *
Distributees of Massey Burch Venture
Investors.................................. 77,027(16) 2.5 74,826 2,201 *
Robert M. Keeshan............................ 70,254 2.3 16,250 54,004 1.2
First American Corporation................... 40,170 1.3 40,170 -- *
Ruth W. Manecke.............................. 14,906 * 3,250 11,656 *
John Wade.................................... 8,276 * 8,276 -- *
A.L. Alexander............................... 5,962 * 5,962 -- *
</TABLE>
- ---------------
* 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 July 24, 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
39
<PAGE> 41
135 South LaSalle Street, Suite 3800, Chicago, Illinois 60604. In the event
that the Underwriters' over-allotment option is exercised in full,
Frontenac Venture V Limited Partnership would sell an additional 260,000
shares of Common Stock and would beneficially own 7,410 shares after the
Offering.
(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 Management Services Corp. Mr.
Guzzo is an officer of an affiliate of Marriott Management Services Corp.
and shares voting and investment power with respect to the shares
indicated. The principal address for Marriott Management Services Corp. is
1 Marriott Drive, 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 entities 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 held by
Trinity Ventures II, L.P. The entities whose shares are included as
affiliated parties related to Trinity Ventures (as a group) include (i)
Trinity Ventures II, L.P; (ii) Trinity Ventures III, L.P.; and (iii)
Trinity Side By Side Fund I, L.P. The principal address is 300 Sand Hill
Road, Building 1, Suite 240, Menlo Park, California.
(8) Includes 161,011 shares of Common Stock issuable upon the exercise of
outstanding options.
(9) Includes 143,260 shares of Common Stock issuable upon the exercise of
outstanding options.
(10) Includes 20,410 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. The shares being sold in the
Offering are being sold for the benefit of Mr. Alexander's children.
(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 525,661 shares of Common Stock issuable upon the exercise of
outstanding options and warrants.
(16) The distributees are comprised of 49 persons or entities, none of whom have
held any position, office or material relationship with the Company within
the past three years.
40
<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, 3,066,848 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 will convert into shares of
Common Stock. Pursuant to the conversion terms, the outstanding Series A
Preferred Stock will be converted into an aggregate of 1,169,935 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 546,586 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 83,988 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 a demand registration, 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
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<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 any 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 and except for provisions in the Charter establishing (i) the
designation of three classes of directors; (ii) the allowance of the removal of
directors only for cause; and (iii) the requirements to call a special meeting
of shareholders, each of which provisions require the affirmative vote of
holders of two-thirds of the voting power of the shares entitled to vote at an
election of directors, any proposal to amend, alter, change, or repeal any other
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 Management Services Corp. 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
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<PAGE> 46
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.
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
SunTrust Bank, Nashville, N.A. 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
4,416,848 shares of Common Stock (4,468,234 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,350,000
shares of Common Stock sold in this Offering (2,702,500 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
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<PAGE> 47
described below, and except for any shares purchased by "affiliates," as that
term is defined under the Securities Act, of the Company. The remaining
2,066,848 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 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 630,574 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
44,168 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 41.6%
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. Of the persons holding 228,107 restricted shares not subject to a
lock-up with the Underwriters, no person holds more than 0.75% of the
outstanding shares.
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 2,121,421 shares of Common Stock issuable pursuant to the
Company's stock incentive plans and stock purchase 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.
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<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............................................. 2,350,000
=========
</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.
The Company and certain of the 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 352,500 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 1,838,741 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 except pursuant to the Company's stock incentive and employee stock
purchase plans or pursuant to acquisitions. 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
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<PAGE> 49
the Common Stock, the 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
14,280 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.
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<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.
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<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,
December 27, 1996 and June 27, 1997 (unaudited)........... F-3
Consolidated Statements of Income for each of the three
years ended December 30, 1994, December 29, 1995 and
December 27, 1996 and each of the six month periods ended
June 28, 1996 (unaudited) and June 27, 1997 (unaudited)... F-4
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 30, 1994, December 29, 1995
and December 27, 1996 and the six months ended June 27,
1997 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for each of the three
years ended December 30, 1994, December 29, 1995 and
December 27, 1996 and each of the six month periods ended
June 28, 1996 (unaudited) and June 27, 1997 (unaudited)... F-6
Notes to Consolidated Financial Statements.................. F-7
RESOURCES FOR CHILD CARE MANAGEMENT, INC.
Report of Independent Public Accountants.................... F-22
Consolidated Statement of Operations for the nine months
ended September 30, 1995.................................. F-23
Consolidated Statement of Shareholders' Equity for the nine
months ended September 30, 1995........................... F-24
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1995.................................. F-25
Notes to Consolidated Financial Statements.................. F-26
Report of Independent Public Accountants.................... F-29
Consolidated Statement of Operations for the year ended
December 31, 1994......................................... F-30
Consolidated Statement of Shareholders' Equity for the year
ended December 31, 1994................................... F-31
Consolidated Statement of Cash Flows for the year ended
December 31, 1994......................................... F-32
Notes to Consolidated Financial Statements.................. F-33
</TABLE>
F-1
<PAGE> 52
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.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 14, 1997, except for Note 13, as to which
the date is July 17, 1997.
F-2
<PAGE> 53
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 27, JUNE 27,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 1,584,597 $ 2,913,388 $ 2,854,911
Restricted cash....................................... 608,980 168,858 172,466
Accounts receivable, less allowance of $84,000,
$123,000, and $122,000, respectively............... 3,478,292 5,304,678 5,137,133
Prepaid expenses...................................... 225,319 188,435 82,978
Current deferred tax asset............................ 700,365 969,823 871,629
----------- ----------- -----------
Total current assets.......................... 6,597,553 9,545,182 9,119,117
PROPERTY AND EQUIPMENT, net............................. 3,928,095 3,757,201 3,631,246
INTANGIBLE ASSETS, net.................................. 6,240,499 5,752,813 5,552,327
NONCURRENT DEFERRED TAX ASSET........................... -- 1,012,396 650,739
OTHER ASSETS............................................ 288,727 311,128 437,791
----------- ----------- -----------
Total assets.................................. $17,054,874 $20,378,720 $19,391,220
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt.................. $ 657,463 $ 911,000 $ 911,000
Trade accounts payable................................ 813,850 1,289,050 391,703
Income tax payable.................................... -- 137,743 6,974
Accrued expenses:
Payroll and related benefits....................... 2,922,363 3,342,788 3,639,914
Other.............................................. 734,437 1,257,391 979,040
Deferred revenue, current portion..................... 258,295 332,117 62,855
Other current liabilities............................. 195,083 336,765 424,574
Amounts held in escrow................................ 608,980 168,858 172,466
----------- ----------- -----------
Total current liabilities..................... 6,190,471 7,775,712 6,588,526
LONG-TERM DEBT, net of current portion.................. 4,406,195 3,504,673 3,049,360
DEFERRED REVENUE, net of current portion................ 1,095,639 978,722 920,263
OTHER LONG-TERM LIABILITIES............................. 1,347,863 1,143,992 1,161,396
----------- ----------- -----------
Total liabilities............................. 13,040,168 13,403,099 11,719,545
----------- ----------- -----------
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 4,480,372
Common stock, no par value; authorized, 10,000,000
shares; issued and outstanding, 1,818,018,
1,866,203 and 1,896,913, respectively.............. 6,680,894 6,906,114 7,056,334
Accumulated deficit................................... (7,117,120) (4,410,865) (3,865,031)
----------- ----------- -----------
Total shareholders' equity.................... 4,014,706 6,975,621 7,671,675
----------- ----------- -----------
Total liabilities and shareholders' equity.... $17,054,874 $20,378,720 $19,391,220
=========== =========== ===========
</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
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------ -------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 28, JUNE 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE......................... $24,512,981 $36,919,884 $62,926,075 $30,078,887 $36,380,776
EXPENSES:
Operating..................... 21,091,613 32,707,762 55,588,596 26,478,632 32,028,340
Selling, general and
administrative............. 2,957,808 3,525,017 4,659,000 2,363,067 2,784,870
Depreciation and
amortization............... 387,363 519,948 758,553 381,008 397,025
----------- ----------- ----------- ----------- -----------
OPERATING INCOME................ 76,197 167,157 1,919,926 856,180 1,170,541
INTEREST EXPENSE, NET........... 49,720 86,544 343,048 193,727 124,707
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES...... 26,477 80,613 1,576,878 662,453 1,045,834
----------- ----------- ----------- ----------- -----------
INCOME TAX BENEFIT (EXPENSE):
Current....................... (500) (7,889) (142,000) (26,502) (40,149)
Deferred...................... -- 468,458 1,300,817 -- (459,851)
----------- ----------- ----------- ----------- -----------
(500) 460,569 1,158,817 (26,502) (500,000)
----------- ----------- ----------- ----------- -----------
NET INCOME...................... $ 25,977 $ 541,182 $ 2,735,695 $ 635,951 $ 545,834
=========== =========== =========== =========== ===========
NET INCOME PER SHARE............ $ 0.01 $ 0.19 $ 0.75 $ 0.20 $ 0.17
=========== =========== =========== =========== ===========
</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
<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
Stock options exercised
(Unaudited)........... -- -- 30,710 150,220 -- 150,220
Net income (Unaudited)... -- -- -- -- 545,834 545,834
--------- ---------- --------- ---------- ----------- ----------
BALANCE, June 27, 1997
(Unaudited).............. 1,125,000 $4,480,372 1,896,913 $7,056,334 $(3,865,031) $7,671,675
========= ========== ========= ========== =========== ==========
</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
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------------ -------------------------
DECEMBER 30, DECEMBER 29, DECEMBER 27, JUNE 28, JUNE 27,
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... $ 25,977 $ 541,182 $2,735,695 $ 635,951 $ 545,834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 387,363 519,948 758,553 381,008 397,025
Other noncash expense....................... -- -- 68,000 28,000 --
Deferred tax expense (benefit).............. -- (468,458) (1,300,817) -- 459,851
Loss on disposal of assets.................. -- 159,009 68,975 68,975 21,077
Changes in assets and liabilities:
Decrease (increase) in accounts
receivable.............................. (508,481) (542,592) (1,826,386) (199,784) 167,545
Decrease (increase) in prepaid expenses... 49,124 (72,617) 36,884 112,537 105,457
Increase (decrease) in accounts payable
and accrued expenses.................... 548,356 595,993 1,575,285 397,382 (1,009,341)
Increase in other current liabilities..... 32,720 162,363 141,682 91,316 87,809
Increase (decrease) in deferred revenue... 13,478 (26,977) (43,095) 99,883 (327,721)
Increase (decrease) in other long-term
liabilities............................. 121,481 (53,014) (203,871) (131,962) 17,404
Increase (decrease) in other noncurrent
assets.................................. (12,847) (44,502) 37,599 57,130 (126,663)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities.......................... 657,171 770,335 2,048,504 1,540,436 338,277
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............ (148,500) (514,382) (168,948) (80,290) (91,661)
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) (80,290) (91,661)
---------- ---------- ---------- ---------- ----------
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) (230,438) (455,313)
Proceeds from issuance of common stock........ 23,160 -- 97,220 96,570 150,220
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities................ 137,861 3,061,604 (550,765) (133,868) (305,093)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 236,532 (330,386) 1,328,791 1,326,278 (58,477)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 1,678,451 1,914,983 1,584,597 1,584,597 2,913,388
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...... $1,914,983 $1,584,597 $2,913,388 $2,910,875 $2,854,911
========== ========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments of interest..................... $ 66,781 $ 135,814 $ 455,849 $ 263,340 $ 189,453
========== ========== ========== ========== ==========
Cash payments of income taxes................. $ -- $ -- $ -- $ -- $ 170,918
========== ========== ========== ========== ==========
NON CASH INVESTING ACTIVITIES:
Issuance of options in exchange for consulting
services.................................... $ -- $ -- $ 100,000 $ -- $ --
========== ========== ========== ========== ==========
Issuance of restricted common shares.......... $ -- $ -- $ 28,000 $ 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
(INFORMATION FOR THE SIX MONTH PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS
UNAUDITED)
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 employer-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 employer-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 operation's undiscounted cash flows over the
remaining life of the asset in measuring whether the asset is recoverable.
DEFERRED REVENUE
Deferred revenue results from employer-sponsor advances (see Note 3), and
cash received on uncompleted consulting or development projects.
OTHER CURRENT LIABILITIES
Other current liabilities consist primarily of 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-sponsors.
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.
F-8
<PAGE> 59
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATIONS OF CREDIT RISK AND REVENUES
A significant number of the Company's customers are in the healthcare,
pharmaceutical, and financial service industries.
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)
<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>
Advances of $1,290,500 were received to fund the building of a child care
facility in Westchester County, New York. Such advances were 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 as well as restrictions on the payment on cash
dividends. 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 expense............................. -- (101,449) (624,225)
Reduction 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 in the periods in which the restriction is removed.
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 1,169,935 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 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 $ 0.75
======== ==========
Pro forma........................................ $ 0.16 $ 0.68
======== ==========
</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.................................................... 490,425 7.69
Exercised.................................................. (15,685) 6.20
Canceled................................................... (32,091) 6.68
--------- ------
Outstanding at end of period............................... 1,093,046 $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
stock options granted prior to June 19, 1996, Series A Preferred Stock and
warrants as computed under the modified treasury stock method. The additional
dilution related to stock options granted subsequent to June 18, 1996 has been
computed using the treasury stock method and has been included in common
equivalent shares outstanding for all periods presented.
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.................. -- 95,900 277,143
Increase in investment income.................. -- -- 82,331
--------- --------- ----------
Adjusted net income.............................. $25,977 $637,082 $3,095,169
========= ========= ==========
Weighted average common shares outstanding....... 1,531,907 1,614,454 1,903,278
Plus additional shares from common stock
equivalent shares:
Options and warrants........................... -- 613,449 1,028,885
Series A Preferred Stock....................... 1,169,935 1,169,935 1,169,935
--------- --------- ----------
Adjusted weighted average common shares
outstanding.................................... 2,701,842 3,397,838 4,102,098
========= ========= ==========
</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 $1.44
===== ===== =====
Diluted earnings per share.................................. $0.01 $0.19 $0.85
===== ===== =====
</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 has been named as a defendant in a lawsuit in which the
plaintiff is seeking compensatory and punitive damages for injuries allegedly
sustained at a Family Center in Florida. The case is in the preliminary stages
of discovery and pleading, and the Company intends to defend its position
vigorously. The Company maintains insurance for damages that may be sustained in
this case with the exception of punitive damages in certain circumstances, and
its insurer is participating in the defense of the case. Based on its present
understanding of the case and the advice of its counsel, management of the
Company does not believe that it has a material exposure to uninsured damages.
F-18
<PAGE> 69
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the litigation noted above, the Company is a defendant in
certain other legal matters in the ordinary course of business. Management
believes the resolution of the above noted litigation and other legal 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.
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.
F-19
<PAGE> 70
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
14. INTERIM FINANCIAL INFORMATION (UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 27, 1997 and the consolidated
statements of operations and cash flows for the periods ended June 28, 1996 and
June 27, 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 June 27, 1997 and for all
periods presented have been made. The results of operations for the period ended
June 27, 1997 are not necessarily indicative of the operating results for the
full year.
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
period, which includes the additional dilution related to conversion of stock
options granted prior to June 19, 1996, preferred stock and warrants as computed
under the modified treasury stock method. The additional dilution related to
stock options granted subsequent to June 18, 1996 has been computed using the
treasury stock method and has been included in common equivalent shares
outstanding for all periods presented.
F-20
<PAGE> 71
CORPORATEFAMILY SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents information necessary to calculate earnings
per share for the six months ended June 28, 1996 and June 27, 1997:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Net income.................................................. $635,951 $545,834
Plus earnings from common stock equivalent shares (net of
tax provision):
Reduction of interest expense.......................... 144,248 115,000
Increase in investment income.......................... 32,907 44,343
--------- ---------
Adjusted net income......................................... $813,106 $705,177
========= =========
Weighted average common shares outstanding.................. 1,897,332 1,911,297
Plus additional shares from common stock equivalent shares:
Options and warrants...................................... 1,014,848 990,880
Preferred shares.......................................... 1,169,935 1,169,935
--------- ---------
Adjusted weighted average common shares outstanding......... 4,082,115 4,072,112
========= =========
</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 six
month periods presented:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Basic earnings per share.................................... $0.34 $0.29
===== =====
Diluted earnings per share.................................. $0.20 $0.17
===== =====
</TABLE>
F-21
<PAGE> 72
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.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
March 14, 1997
F-22
<PAGE> 73
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-23
<PAGE> 74
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-24
<PAGE> 75
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 period for:
Interest............................................... $ 54,400
===========
Income taxes........................................... $ --
===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 76
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-26
<PAGE> 77
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-27
<PAGE> 78
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-28
<PAGE> 79
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 statements of operations,
stockholders' equity, and cash flows of Resources for Child Care Management,
Inc. and Subsidiaries for the year ended December 31, 1994. These statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these 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 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 financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated statements referred to in the first
paragraph present fairly, in all material respects, the results of operations
and cash flows of Resources for Child Care Management, Inc. and Subsidiaries 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-29
<PAGE> 80
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 statements.
F-30
<PAGE> 81
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 statements.
F-31
<PAGE> 82
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 statements.
F-32
<PAGE> 83
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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-33
<PAGE> 84
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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-34
<PAGE> 85
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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-35
<PAGE> 86
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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-36
<PAGE> 87
RESOURCES FOR CHILD CARE MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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-37
<PAGE> 88
Gatefold layout with a collage of pictures reflecting children, parents
and Family Centers. The text on the inside front cover states "CorporateFamily
Solutions Helping Companies and Families Work Together." On the gatefold page
in the center is a map of the United States which sets forth the 87 centers in
operation and the 17 centers under development. In addition, the map is
surrounded by additional pictures similar to those on the inside cover and
interspersed are the names and logos of 17 of the Company's clients. The
inside back cover states "CorporateFamily Solutions brings into a single, clear
focus the entire kaleidoscope of viewpoints on work/family issues - employees,
families and children." At the bottom of the inside back cover is the Company
name and logo.
<PAGE> 89
======================================================
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............................ 15
Business................................ 22
Management.............................. 31
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.
======================================================
======================================================
2,350,000 SHARES
[CORPORATEFAMILY LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
J.C. BRADFORD & CO.
, 1997
======================================================
<PAGE> 90
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......................... 28,100
Accounting fees and expenses................................ 125,000*
Legal fees and expenses..................................... 150,000*
Printing and engraving expenses............................. 125,000*
Blue sky fees and expenses.................................. 3,000*
Transfer agent and registrar fees........................... 1,000*
Miscellaneous fees and expenses............................. $255,164*
--------
Total............................................. $700,000
========
</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> 91
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 7 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 Purchase 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 -- Form of Commitment for 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> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.13 -- Amendment to Registration Agreement dated July 18, 1997
10.14 -- 1997 Outside Directors' Plan
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>
- ---------------
+ Previously filed.
(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> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Nashville, Tennessee on
July 23, 1997.
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Marguerite W. Sallee
President and Chief Executive
Officer
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 July 23, 1997
- ----------------------------------------------------- Officer (Principal Executive
Marguerite W. Sallee Officer)
/s/ MICHAEL E. HOGREFE Executive Vice President, Chief July 23, 1997
- ----------------------------------------------------- Financial Officer and
Michael E. Hogrefe Secretary (Principal Financial
and Accounting Officer)
/s/ ROBERT D. LURIE* Chairman of the Board and July 23, 1997
- ----------------------------------------------------- Director
Robert D. Lurie
/s/ LAMAR ALEXANDER* Vice Chairman of the Board and July 23, 1997
- ----------------------------------------------------- Director
Lamar Alexander
/s/ JOANNE BRANDES* Director July 23, 1997
- -----------------------------------------------------
JoAnne Brandes
/s/ JERRY L. CALHOUN* Director July 23, 1997
- -----------------------------------------------------
Jerry L. Calhoun
/s/ THOMAS G. CIGARRAN* Director July 23, 1997
- -----------------------------------------------------
Thomas G. Cigarran
/s/ E. TOWNES DUNCAN* Director July 23, 1997
- -----------------------------------------------------
E. Townes Duncan
/s/ JOSEPH J. GUZZO* Director July 23, 1997
- -----------------------------------------------------
Joseph J. Guzzo
*By /s/ MARGUERITE W. SALLEE
-------------------------------------------------
as Attorney-in-fact
</TABLE>
II-4
<PAGE> 94
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> 95
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> 96
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 7 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 Purchase
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 -- Form of Commitment for 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...............
10.13 -- Amendment to Registration Agreement dated July 18, 1997.....
10.14 -- 1997 Outside Directors' Plan................................
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>
- ---------------
+ Previously filed.
<PAGE> 1
___________ SHARES
CORPORATEFAMILY SOLUTIONS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED [AUGUST] __, 1997
- i -
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES ...............................................................2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS......................2
COMPLIANCE WITH REGISTRATION REQUIREMENTS.......................................................2
OFFERING MATERIALS FURNISHED TO UNDERWRITERS....................................................3
DISTRIBUTION OF OFFERING MATERIALS BY THE COMPANY...............................................3
THE UNDERWRITING AGREEMENT......................................................................3
AUTHORIZATION OF THE COMMON SHARES..............................................................3
NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS..............................................4
NO MATERIAL ADVERSE CHANGE......................................................................4
INDEPENDENT ACCOUNTANTS.........................................................................4
PREPARATION OF THE FINANCIAL STATEMENTS.........................................................4
INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES.............................5
CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS..................................................5
STOCK EXCHANGE LISTING..........................................................................6
NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR
APPROVALS REQUIRED.........................................................................6
NO MATERIAL ACTIONS OR PROCEEDINGS..............................................................7
INTELLECTUAL PROPERTY RIGHTS....................................................................7
ALL NECESSARY PERMITS, ETC......................................................................7
TITLE TO PROPERTIES.............................................................................7
TAX LAW COMPLIANCE..............................................................................8
COMPANY NOT AN INVESTMENT COMPANY...............................................................8
INSURANCE.......................................................................................8
NO PRICE STABILIZATION OR MANIPULATION..........................................................8
RELATED PARTY TRANSACTIONS......................................................................8
NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS.....................................................8
COMPANY'S ACCOUNTING SYSTEM.....................................................................9
COMPLIANCE WITH ENVIRONMENTAL LAWS..............................................................9
ERISA COMPLIANCE...............................................................................10
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.....................................10
THE UNDERWRITING AGREEMENT.....................................................................10
THE CUSTODY AGREEMENT AND POWER OF ATTORNEY....................................................11
TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED.................................11
DELIVERY OF THE COMMON SHARES TO BE SOLD.......................................................11
NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED.............................11
NO REGISTRATION OR OTHER SIMILAR RIGHTS........................................................12
NO FURTHER CONSENTS, ETC.......................................................................12
DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS..................................12
NO PRICE STABILIZATION OR MANIPULATION.........................................................12
CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES.........................................12
SECTION 2. PURCHASE, SALE AND DELIVERY OF COMMON SHARES.................................................13
THE FIRM COMMON SHARES.........................................................................13
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
THE FIRST CLOSING DATE.........................................................................13
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE............................................13
PUBLIC OFFERING OF THE COMMON SHARES...........................................................14
PAYMENT FOR THE COMMON SHARES..................................................................14
DELIVERY OF THE COMMON SHARES..................................................................15
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS.....................................................16
SECTION 3. ADDITIONAL COVENANTS.........................................................................16
A. COVENANTS OF THE COMPANY.......................................................................16
REPRESENTATIVE'S REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS.................................16
SECURITIES ACT COMPLIANCE......................................................................16
AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT
MATTERS...................................................................................17
COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS.....................................17
BLUE SKY COMPLIANCE............................................................................17
USE OF PROCEEDS................................................................................17
TRANSFER AGENT.................................................................................17
EARNINGS STATEMENT.............................................................................18
PERIODIC REPORTING OBLIGATIONS.................................................................18
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES...........................................18
FUTURE REPORTS TO THE REPRESENTATIVE...........................................................18
B. COVENANTS OF THE SELLING STOCKHOLDERS..........................................................19
AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES...........................................19
DELIVERY OF FORMS W-8 AND W-9..................................................................19
SECTION 4. PAYMENT OF EXPENSES..........................................................................19
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS............................................20
ACCOUNTANTS' COMFORT LETTER....................................................................20
COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER, NO OBJECTION FROM
NASD......................................................................................21
NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE............................................21
OPINION OF COUNSEL FOR THE COMPANY.............................................................21
OPINION OF COUNSEL FOR THE UNDERWRITERS........................................................22
OFFICERS' CERTIFICATE..........................................................................22
BRING-DOWN COMFORT LETTER......................................................................22
OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS................................................23
SELLING STOCKHOLDERS' CERTIFICATE..............................................................23
SELLING STOCKHOLDERS' DOCUMENTS................................................................23
LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY OTHER THAN
SELLING STOCKHOLDERS......................................................................23
ADDITIONAL DOCUMENTS...........................................................................23
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES......................................................24
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT..............................................................24
SECTION 8. INDEMNIFICATION..............................................................................24
INDEMNIFICATION OF THE UNDERWRITERS............................................................24
INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS.....................................26
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.............................................27
SETTLEMENTS....................................................................................27
SECTION 9. CONTRIBUTION................................................................................28
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS..........................................29
SECTION 11. TERMINATION OF THIS AGREEMENT...............................................................30
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY.........................................31
SECTION 13. NOTICES.....................................................................................31
SECTION 14. SUCCESSORS..................................................................................32
SECTION 15. PARTIAL UNENFORCEABILITY....................................................................32
SECTION 16. GOVERNING LAW PROVISIONS....................................................................32
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND
DELIVER COMMON SHARES......................................................................33
SECTION 18. GENERAL PROVISIONS..........................................................................33
</TABLE>
-iii-
<PAGE> 5
UNDERWRITING AGREEMENT
August __, 1997
MONTGOMERY SECURITIES
J.C. BRADFORD & CO., L.L.C.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. CorporateFamily Solutions, Inc., a Tennessee
corporation (the "Company"), proposes to issue and sell to the several
underwriters named in SCHEDULE A (the "Underwriters") an aggregate of [___]
shares of its Common Stock, par value $.01 per share (the "Common Stock"); and
the shareholders of the Company named in SCHEDULE B (collectively, the "Selling
Stockholders") severally propose to sell to the Underwriters an aggregate of
[___] shares of Common Stock, each Selling Stockholder selling the amount set
forth opposite such Selling Stockholder's name in SCHEDULE B UNDER THE CAPTION
"NUMBER OF FIRM COMMON SHARES TO BE SOLD". The [___] shares of Common Stock to
be sold by the Company and the [___] shares of Common Stock to be sold by the
Selling Stockholders are collectively called the "Firm Common Shares". In
addition, certain of the Selling Stockholders have severally granted to the
Underwriters an option to purchase up to an additional [___] shares of Common
Stock, each such Selling Stockholder granting an option to sell up to the amount
set forth opposite such Selling Stockholder's name in SCHEDULE B UNDER THE
CAPTION "MAXIMUM NUMBER OF OPTIONAL COMMON SHARES TO BE SOLD", all as provided
in Section 2. The additional [___] shares to be sold by the Company and the
additional [___] shares to be sold by the Selling Stockholders pursuant to such
option are collectively called the "Optional Common Shares". The Firm Common
Shares and, if and to the extent such option is exercised, the Optional Common
Shares are collectively called the "Common Shares". Montgomery Securities and
J.C. Bradford & Co. L.L.C. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-[___]), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended,
-1-
<PAGE> 6
including the financial statements, exhibits and schedules thereto, in the form
in which it was declared effective by the Commission under the Securities Act of
1933 and the rules and regulations promulgated thereunder (collectively, the
"Securities Act"), including any information deemed to be a part thereof at the
time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities
Act, is called the "Registration Statement". Any registration statement filed by
the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; PROVIDED, HOWEVER, if the Company has, with the consent
of Montgomery Securities, elected to rely upon Rule 434 under the Securities
Act, the term "Prospectus" shall mean the Company's prospectus subject to
completion (each, a "preliminary prospectus") dated [___] (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company and each of the Selling Stockholders hereby
confirm their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The Company represents, warrants and covenants to each
Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied, to the Commission's satisfaction, with all
requests of the Commission for additional or supplemental information.
No stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement is in effect and no
proceedings for such purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T under the
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Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the
Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective, complied in all material respects with the
Securities Act and did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date, did not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Representatives expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to the Representatives three complete manually signed
copies of the Registration Statement and of each consent and
certificate of experts filed as a part thereof, and conformed copies of
the Registration Statement (without exhibits) and preliminary
prospectuses and the Prospectus, as amended or supplemented, in such
quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIALS BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares in
violation of the Securities Act.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the
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Company pursuant to this Agreement, will be validly issued, fully paid
and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement,
except as described in the Prospectus or for such rights as have been
duly waived or satisfied.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
or contemplated in the Prospectus, subsequent to the respective dates
as of which information is given in the Prospectus: (i) there has been
no material adverse change, or any development that could reasonably be
expected to result in a material adverse change, in the condition,
financial or otherwise, or in the earnings, business, operations or
prospects, whether or not arising from transactions in the ordinary
course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "Material Adverse Change");
(ii) the Company and its subsidiaries, considered as one entity, have
not incurred any material liabilities or obligations, indirect, direct
or contingent, not in the ordinary course of business nor entered into
any material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends
paid to the Company or other subsidiaries, any of its subsidiaries on
any class of capital stock or repurchase or redemption by the Company
or any of its subsidiaries of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. Arthur Andersen LLP, who have
expressed their opinion with respect to the Company's financial
statements (which term as used in this Agreement includes the related
notes thereto) and supporting schedules filed with the Commission as a
part of the Registration Statement and included in the Prospectus,
Arthur Andersen LLP and Trien, Rosenberg, Rosenberg, Weinberg, Ciullo &
Fazzari, LLP, who have expressed their opinion with respect to the
financial statements (which term as used in this Agreement includes the
related notes thereto) of Resources For Child Care Management, Inc.
("RCCM")] are each independent public or certified public accountants
as required by the Securities Act and the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act").
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements of the Company and RCCM filed with the Commission as a part
of the Registration Statement and included in the Prospectus present
fairly the consolidated financial position of the Company and its
subsidiaries and RCCM, as the case may be, as of and at the dates
indicated and the results of their respective operations and the
respective cash flows for the periods specified. The supporting
schedules, if any, included in the Registration Statement present
fairly the information required to be
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stated therein. Such financial statements and supporting schedules have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes
thereto, and, in the case of interim financial statements, except for
any normal year end audit adjustments which adjustments are not
considered by the Company to be necessary for a fair presentation of
the Company's financial condition and results of operations. No other
financial statements or supporting schedules are required to be
included in the Registration Statement. The financial data set forth in
the Prospectus under the captions "Prospectus Summary--Summary Selected
Financial Data", "Selected Financial Data" and "Capitalization" fairly
present the information set forth therein on a basis consistent with
that of the audited financial statements contained in the Registration
Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement. Each of the Company and each subsidiary is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. All of the
issued and outstanding capital stock of each subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance or claim.
The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries
listed in Exhibit 21 to the Registration Statement.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" (other
than for subsequent issuances, if any, pursuant to employee benefit
plans described in the Prospectus or upon exercise of outstanding
options or warrants for the purchase of Common Stock described in the
Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Stockholders)
have been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal
or other similar rights to
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subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights
of first refusal or other rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any
capital stock of the Company or any of its subsidiaries other than
those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set
forth in the Prospectus accurately and fairly and in all material
respects presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Stock, including the
Common Shares, is registered pursuant to Section 12(g) of the Exchange
Act and is listed on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act
or delisting the Common Stock from the Nasdaq National Market, nor has
the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") is
contemplating terminating such registration or listing.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of
its subsidiaries is in violation of its charter or by-laws or is in
default (or, with the giving of notice or lapse of time, would be in
default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound (including, without limitation, the
Company's Term Loan and Security Agreement with NationsBank of
Tennessee, N.A., as lender), or to which any of the property or assets
of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
The Company's execution, delivery and performance of this Agreement
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and consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate
action and will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, or require the consent of any other party to, any Existing
Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate,
result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and
from the NASD.
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. Except as set forth in
the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened (i) against or affecting the Company or any of its
subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable probability
that such action, suit or proceeding might be determined adversely to
the Company or such subsidiary and (B) any such action, suit or
proceeding, if so determined adversely, would reasonably be expected to
result in a Material Adverse Change. No material labor dispute with the
employees of the Company or any of its subsidiaries, exists or, to the
Company's knowledge, is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent
rights, copyrights, licenses, approvals, trade secrets and other
similar rights (collectively, "Intellectual Property Rights")
reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights
would not result in a Material Adverse Change. Neither the Company nor
any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision,
would result in a Material Adverse Change.
(p) ALL NECESSARY PERMITS, ETC. The Company and each
subsidiary possess such valid and current certificates, authorizations
or permits (collectively, "Permits") issued by the appropriate state or
federal agencies or bodies necessary to conduct their respective
businesses, except where the failure to obtain such Permits would not
result in a Material Adverse Change, and neither the Company nor any
subsidiary has received any notice of proceedings relating to the
revocation or modification of, or non-compliance with, any such Permits
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company and each of its
subsidiaries has good and marketable title to all the properties and
assets reflected as owned in the financial statements referred to in
Section 1(A)(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except (i) those
reflected in the financial statements (or elsewhere in the Prospectus)
or (ii) such as do not materially
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and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by
the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases, with such
exceptions as are not material and do not materially interfere with the
use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company or such subsidiary.
(r) TAX LAW COMPLIANCE. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax
returns and have paid all taxes reflected on such returns as being due
by any of them and, if due and payable, any related or similar
assessment, fine or penalty levied against any of them, except for (i)
such returns for which the Company or its subsidiaries have obtained an
extension which has not yet expired or (ii) amounts being contested in
good faith for which adequate reserves have been established in the
most recent balance sheet contained in the Prospectus. The Company has
made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(A)(i) above in respect of
all federal, state and foreign income and franchise taxes for all
periods as to which the tax liability of the Company or any of its
subsidiaries has not been finally determined.
(s) COMPANY NOT AN "INVESTMENT COMPANY". The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act of
1940.
(t) INSURANCE. Each of the Company and its subsidiaries are
insured by what the Company believes to be recognized, financially
sound and reputable institutions with policies in such amounts and with
such deductibles and covering such risks as are believed by the Company
to be adequate and customary for their businesses including, but not
limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, and acts of vandalism. The Company has no reason to
believe that it or any subsidiary will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be
necessary or appropriate to conduct its business as now conducted and
at a cost that would not result in a Material Adverse Change. Neither
of the Company nor any subsidiary has been denied any insurance
coverage which it has sought or for which it has applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
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(v) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its subsidiaries nor, to the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a
system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are generally executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as generally necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) neither the Company nor any of its subsidiaries is in violation of
any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without
limitation, laws and regulations relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum and petroleum
products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Materials of
Environment Concern (collectively, "Environmental Laws"), which
violation includes, but is not limited to, noncompliance with any
permits or other governmental authorizations required for the operation
of the business of the Company or its subsidiaries under applicable
Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens
group, employee or otherwise, that alleges that the Company or any of
its subsidiaries is in violation of any Environmental Law; (ii) there
is no claim, action or cause of action filed with a court or
governmental authority, no investigation with respect to which the
Company has received written notice, and no written notice by any
person or entity alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or
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penalties arising out of, based on or resulting from the presence, or
release into the environment, of any Material of Environmental Concern
at any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental
Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or
by operation of law; and (iii) to the Company's knowledge, there are no
past or present actions, activities, circumstances, conditions, events
or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental
Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or against any person or
entity whose liability for any Environmental Claim the Company or any
of its subsidiaries has retained or assumed either contractually or by
operation of law.
(z) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue
Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA)
which would result in a Material Adverse Change has occurred or is
reasonably expected to occur with respect to any "employee benefit
plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have
any material "amount of unfunded benefit liabilities" (as defined under
ERISA). Neither the Company, its subsidiaries nor any of their ERISA
Affiliates has incurred any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit
plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each
"employee benefit plan" established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be
qualified under Section 401(a) of the Code is so qualified and nothing
has occurred, whether by action or failure to act, which would cause
the loss of such qualification.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
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B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
Selling Stockholder, severally and not jointly, represents, warrants and
covenants to each Underwriter as follows:
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the
(i) Custody Agreement signed by such Selling Stockholder and
[ ], as custodian (the "Custodian"), relating to the
deposit of the Common Shares to be sold by such Selling Stockholder
(the "Custody Agreement") and (ii) Power of Attorney appointing certain
individuals named therein as such Selling Stockholder's
attorneys-in-fact (each, an "Attorney-in-Fact") to the extent set forth
therein relating to the transactions contemplated hereby and by the
Prospectus (the "Power of Attorney"), of such Selling Stockholder has
been duly authorized, executed and delivered by such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights
to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS
OBTAINED. Such Selling Stockholder has, and on the First Closing Date
and the Second Closing Date (as defined below) will have, good and
valid title to all of the Common Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the
legal right and power, and all authorizations and approvals required by
law and under its trust agreement or other organizational documents to
enter into this Agreement and its Custody Agreement and Power of
Attorney, to sell, transfer and deliver all of the Common Shares which
may be sold by such Selling Stockholder pursuant to this Agreement and
to comply with its other obligations hereunder and thereunder.
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the
Common Shares which are sold by such Selling Stockholder pursuant to
this Agreement will pass good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
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(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED. The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement and the Power of Attorney
will not contravene or conflict with, result in a breach of, or
constitute a Default under, or require the consent of any other party
to, the trust agreement or other organizational documents of such
Selling Stockholder or any other agreement or instrument to which such
Selling Stockholder is a party or by which it is bound or under which
it is entitled to any right or benefit, any provision of applicable law
or any judgment, order, decree or regulation applicable to such Selling
Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority
or agency, is required for the consummation by such Selling Stockholder
of the transactions contemplated in this Agreement, except such as have
been obtained or made and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from
the NASD.
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling
Stockholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering
contemplated by this Agreement, except for such rights as are described
in the Prospectus under "Shares Eligible for Future Sale".
(g) NO FURTHER CONSENTS, ETC. No consent, approval or waiver
is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale
or purchase by the Underwriters of any of the Common Shares which may
be sold by such Selling Stockholder under this Agreement or the
consummation by such Selling Stockholder of any of the other
transactions contemplated hereby.
(h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE
PROSPECTUS. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date and the Second Closing
Date will be, true, correct, and complete in all material respects, and
does not, and on the First Closing Date and the Second Closing Date
will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not
misleading. Such Selling Stockholder confirms as accurate the number of
shares of Common Stock set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling
Stockholders" (both prior to and after giving effect to the sale of the
Common Shares).
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(i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling
Stockholder has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(j) CONFIRMATION OF COMPANY REPRESENTATIONS AND WARRANTIES.
Such Selling Stockholder has no reason to believe that the
representations and warranties of the Company contained in Section 1(A)
hereof are not true I and correct, is familiar with the Registration
Statement and the Prospectus and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement or
the Prospectus which has had or would have a Material Adverse Effect
and is not prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
THE FIRM COMMON SHARES. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an aggregate of
[___] Firm Common Shares and (ii) the Selling Stockholders agree to sell to the
several Underwriters an aggregate of [___] Firm Common Shares, each Selling
Stockholder selling the number of Firm Common Shares set forth opposite such
Selling Stockholder's name on SCHEDULE B. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but subject to
the conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Stockholders the
respective number of Firm Common Shares set forth opposite their names on
SCHEDULE A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company and the Selling Stockholders shall be $[___] per
share.
THE FIRST CLOSING DATE. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representative) at 6:00 a.m. San Francisco time, on [August] __, 1997, or such
other time and date not later than 10:30 a.m. San Francisco time, on [August]__,
1997 as the Representative shall designate by notice to the Company (the time
and date of such closing are called the "First Closing Date"). The Company and
the Selling Stockholders hereby acknowledge that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company, the Selling Stockholders or the Representatives to recirculate to
the public copies of an amended or supplemented Prospectus or a delay as
contemplated by the provisions of Section 10.
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<PAGE> 18
THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
and the Selling Stockholders hereby grant an option to the several Underwriters
to purchase, severally and not jointly, up to an aggregate of [___] Optional
Common Shares from the Company and the Selling Stockholders at the purchase
price per share to be paid by the Underwriters for the Firm Common Shares. The
option granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) upon notice by the Representatives to the Company and the Selling
Stockholders, which notice may be given at any time within 30 days from the date
of this Agreement. Such notice shall set forth (i) the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
(ii) the names and denominations in which the certificates for the Optional
Common Shares are to be registered and (iii) the time, date and place at which
such certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case the term
"First Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common Shares). Such
time and date of delivery, if subsequent to the First Closing Date, is called
the "Second Closing Date" and shall be determined by the Representatives and
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. If any Optional Common Shares are to be
purchased, (a) each Underwriter agrees, severally and not jointly, to purchase
the number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the same
proportion to the total number of Optional Common Shares to be purchased as the
number of Firm Common Shares set forth on SCHEDULE A opposite the name of such
Underwriter bears to the total number of Firm Common Shares and (b) the Company
and each Selling Stockholder agree, severally and not jointly, to sell the
number of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representative may determine) that bears the same
proportion to the total number of Optional Common Shares to be sold as the
number of Optional Common Shares set forth in SCHEDULE B opposite the name of
such Selling Stockholder (or, in the case of the Company, as the number of
Optional Common Shares to be sold by the Company as set forth in the paragraph
"Introductory" of this Agreement) bears to the total number of Optional Common
Shares. The Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company and the
Selling Stockholders.
PUBLIC OFFERING OF THE COMMON SHARES. The Representatives hereby advise
the Company and the Selling Stockholders that the Underwriters intend to offer
for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has
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<PAGE> 19
been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if applicable, at
the Second Closing Date) by wire transfer of immediately available funds to the
order of the Company. Payment for the Common Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if applicable, at the
Second Closing Date) by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have agreed
to purchase. Montgomery Securities, individually and not as the Representative
of the Underwriters, may (but shall not be obligated to) make payment for any
Common Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Stockholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Stockholder hereunder and to hold such amounts for the account of such
Selling Stockholder with the Custodian under the Custody Agreement.
DELIVERY OF THE COMMON SHARES. The Company and the Selling Stockholders
shall deliver, or cause to be delivered, to the Representatives for the accounts
of the several Underwriters certificates for the Firm Common Shares to be sold
by them at the First Closing Date, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The Company and the Selling Stockholders shall also deliver, or cause
to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase from them at the First Closing Date or the Second Closing
Date, as the case may be, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor. The
certificates for the Common Shares shall be in definitive form and registered in
such names and denominations as the Representative shall have requested at least
two full business days prior to the First Closing Date (or the Second Closing
Date, as the case may be) and shall be made available for inspection on the
business day
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<PAGE> 20
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Representatives may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus Delivery Period"), prior to amending or
supplementing the Registration Statement (including any registration
statement filed under Rule 462(b) under the Securities Act) or the
Prospectus (including any amendment or supplement through incorporation
by reference of any report filed under the Exchange Act), the Company
shall furnish to the Representatives for review a copy of each such
proposed amendment or supplement, and the Company shall not file any
such proposed amendment or supplement to which the Representatives
timely and reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from the Nasdaq National Market or any other
securities exchange upon which it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any
proceedings for any of such purposes. If the Commission shall enter
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<PAGE> 21
any such stop order at any time, the Company will use its best efforts
to obtain the lifting of such order at the earliest possible moment.
Additionally, the Company agrees that it shall comply with the
provisions of Rules 424(b), 430A and 434, as applicable, under the
Securities Act and will use its reasonable efforts to confirm that any
filings made by the Company under such Rule 424(b) were received in a
timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading or to comply
with law, or if in the opinion of the Representatives or counsel for
the Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to Section 3(A)(a) hereof), file with the Commission and
furnish at its own expense to the Underwriters and to dealers,
amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE
PROSPECTUS. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto as the
Representatives may reasonably request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the Blue Sky or state securities laws of those
jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and
exemptions in effect so long as reasonably required for the
distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would
subject it to general service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation
as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof
promptly.
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<PAGE> 22
(f) USE OF PROCEEDS. The Company shall apply in all material
respects the net proceeds from the sale of the Common Shares sold by it
in the manner described under the caption "Use of Proceeds" in the
Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending _____ [31], 1998 that satisfies
the provisions of Section 11(a) of the Securities Act.
(j) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period, the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market, or other applicable exchange
or over-the-counter market all reports and documents required to be
filed under the Exchange Act.
(k) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
During the period of 180 days following the date of the Prospectus, the
Company will not, without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities), directly or indirectly, sell, offer, contract
or grant any option to sell, pledge, transfer or establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of or transfer, or announce the
offering of, or file any registration statement under the Securities
Act in respect of, any shares of Common Stock, options or warrants to
acquire shares of the Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Common Shares);
PROVIDED, HOWEVER, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other
stock plan or arrangement described in the Prospectus or upon the
exercise of warrants to purchase common stock described in the
Prospectus, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell,
offer, dispose of or otherwise transfer any such shares or options
during such 180 day period without the prior written consent of
Montgomery Securities (which consent may be withheld at the sole
discretion of Montgomery Securities); and provided further that the
Company may issue shares of Common Stock in acquisitions, but only if
the recipients of such shares agree in writing not to sell, offer,
dispose of or otherwise transfer any such shares or options during such
180 day period without the prior written consent of Montgomery
Securities (which consent may be withheld at the sole discretion of
Montgomery Securities).
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<PAGE> 23
(m) FUTURE REPORTS TO THE REPRESENTATIVES. During the period
of five years hereafter, the Company will furnish to the
Representatives at 600 Montgomery Street, San Francisco, CA 94111
Attention: Frank M. Dunlevy: (i) as soon as practicable after the end
of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash
flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder,
severally and not jointly, further covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such
Selling Stockholder will not, without the prior written consent of
Montgomery Securities (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned
either of record or beneficially (as defined in Rule 13d-3 under the
Exchange Act) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of
trading on the date 180 days after the date of the Prospectus.
(b) DELIVERY OF FORMS W-8 AND W-9. To deliver to the
Representatives prior to the First Closing Date a properly completed
and executed United States Treasury Department Form W-8 (if the Selling
Stockholder is a non-United States person) or Form W-9 (if the Selling
Stockholder is a United States Person).
Montgomery Securities, on behalf of the several Underwriters, may, in
its sole discretion, waive in writing the performance by the Company or any
Selling Stockholder of any one or more of the foregoing covenants or extend the
time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company and the Selling
Stockholders, jointly and severally, agree to pay in such proportions as they
may agree upon among themselves all costs, fees and expenses incurred in
connection with the performance of their obligations hereunder and in connection
with the transactions
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<PAGE> 24
contemplated hereby, including without limitation (i) all expenses incident to
the issuance and delivery of the Common Shares (including all printing and
engraving costs), (ii) all fees and expenses of the registrar and transfer agent
of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes
in connection with the issuance and sale of the Common Shares to the
Underwriters, (iv) all fees and expenses of the Company's counsel, independent
public or certified public accountants and other advisors, (v) all costs and
expenses incurred in connection with the preparation, printing, filing, shipping
and distribution of the Registration Statement (including financial statements,
exhibits, schedules, consents and certificates of experts), each preliminary
prospectus and the Prospectus, and all amendments and supplements thereto, and
this Agreement, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, and, if
requested by the Representatives, preparing and printing a "Blue Sky Survey" or
memorandum, and any supplements thereto, advising the Underwriters of such
qualifications, registrations and exemptions, (vii) all filing fees payable to
the NASD, including for review of the underwriting arrangements, (viii) the
fees and expenses associated with including the Common Shares on the Nasdaq
National Market, and (ix) all other fees, costs and expenses referred to in Item
14 of Part II of the Registration Statement. Except as provided in this Section
4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their
own expenses, including the fees and disbursements of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein or in any applicable registration rights agreements,
including but not limited to (i) fees and expenses of counsel and other advisors
for such Selling Stockholders, (ii) fees and expenses of the Custodian and (iii)
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by such Selling Stockholders to the Underwriters hereunder (which taxes, if
any, may be deducted by the Custodian under the provisions of Section 2 of this
Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second
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<PAGE> 25
Closing Date as though then made, to the timely performance in all material
respects by the Company and the Selling Stockholders of their respective
covenants and other obligations hereunder, and to each of the following
additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from Arthur Andersen LLP,
independent public or certified public accountants for the Company, and
Trien, Rosenberg, Rosenberg, Weinberg, Ciullo & Fazzari, LLP,
independent public or certified public accountants for RCCM, letters
dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Representatives, containing statements
and information of the type ordinarily included in accountant's
"comfort letters" to underwriters, delivered according to Statement of
Auditing Standards No. 72 (or any successor bulletin), with respect to
the audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and to the knowledge of the
Company no proceedings for such purpose shall have been
instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and after
the date of this Agreement and prior to the First Closing Date and,
with respect to the
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<PAGE> 26
Optional Common Shares, the Second Closing Date the reasonable judgment
of the Representatives there shall not have occurred any Material
Adverse Change.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Bass, Berry & Sims PLC, counsel for
the Company, dated as of such Closing Date, the form of which is
attached as EXHIBIT A (and the Representatives shall have received an
additional [___] conformed copies of such counsel's legal opinion for
each of the several Underwriters).
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Representatives
shall have received the favorable opinion of Piper & Marbury L.L.P.,
counsel for the Underwriters, dated as of such Closing Date, with
respect to the matters set forth in paragraphs (i), (vii), (viii),
(ix), (xi) (xi), (xii), and the next-to-last paragraph of EXHIBIT A
(and the Representatives shall have received an additional [___]
conformed copies of such counsel's legal opinion for each of the
several Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a
written certificate executed by the President and Chief Executive
Officer of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to
the effect set forth in subsections (b)(ii) and (c)(ii) of this Section
5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1(A) of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied in all material
respects with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received from Arthur Andersen LLP and Trien, Rosenberg, Rosenberg,
Weinberg, Ciullo & Fazzari, LLP, independent public or certified
public accountants for the Companioned RCCM, respectively, letters
dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made
in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the
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<PAGE> 27
specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing
Date or Second Closing Date, as the case may be (and the
Representatives] shall have received an additional [___] conformed
copies of such accountants' letter for each of the several
Underwriters).
(h) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. On each
of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Bass,
Berry & Sims PLC, counsel for the Selling Stockholders, dated as of
such Closing Date, the form of which is attached as EXHIBIT B (and the
Representatives shall have received an additional [___] conformed
copies of such counsel's legal opinion for each of the several
Underwriters).]
(i) SELLING STOCKHOLDERS' CERTIFICATE. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received a written certificate executed by each Selling Stockholder,
dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Stockholder set forth in Section 1(B) of this
Agreement are true and correct with the same force and effect
as though expressly made by such Selling Stockholder on and as
of such Closing Date; and
(ii) such Selling Stockholder has complied in all
material respects with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(j) SELLING STOCKHOLDERS' DOCUMENTS. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by
the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Stockholders and such
further information, certificates and documents as the Representatives
may reasonably request.
(k) LOCK-UP AGREEMENT FROM CERTAIN SHAREHOLDERS OF THE COMPANY
OTHER THAN SELLING STOCKHOLDERS. On the date hereof, the Company shall
have furnished to the Representatives an agreement in the form of
EXHIBIT C hereto from each director and each executive officer of the
Company, and such agreement shall be in full force and effect on each
of the First Closing Date and the Second Closing Date.
(l) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and
counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence
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<PAGE> 28
the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied or waived
when and as required to be satisfied, this Agreement may be terminated by the
Representatives by written notice to the Company and the Selling Stockholders at
any time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, or
[Section 11] , or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company or the Selling Stockholders to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representatives and the other Underwriters (or such Underwriters
as have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representatives of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any
party by written notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters to the extent required by Sections 4 and 6 hereof, (b) of
any Underwriter to the Company or the Selling Stockholders, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. Each of the Company
and each of the Selling Stockholders, jointly and severally, agrees to
indemnify and hold harmless
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each Underwriter, its officers and employees, and each person, if any,
who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or
expense, as incurred, to which such Underwriter or such controlling
person may become subject, under the Securities Act, the Exchange Act
or other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company),
insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i)
upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company or the Selling
Stockholders contained herein; or (iv) in whole or in part upon any
failure of the Company or the Selling Stockholders to perform their
respective obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter
in connection with, or relating in any manner to, the Common Stock or
the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon any matter covered by clause (i) or (ii) above,
PROVIDED that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined
by a final judgment that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all reasonable expenses (including the
reasonable fees and disbursements of counsel chosen by Montgomery
Securities) as such expenses are reasonably incurred by such
Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action; PROVIDED, HOWEVER,
that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the
extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with information furnished to the Company and the
Selling Stockholders by the Representatives expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity
agreement shall not inure to the benefit of any Underwriter from whom
the
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<PAGE> 30
person asserting any loss, claim, damage, liability or expense
purchased Common Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter
pursuant to Section 2 and a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss,
claim, damage, liability or expense. The maximum liability of any
Selling Stockholder hereunder shall be limited to the proceeds received
by such Selling Stockholder upon the sale of Common Shares hereunder
(including any Optional Common Shares). The indemnity agreement set
forth in this Section 8(a) shall be in addition to any liabilities that
the Company and the Selling Stockholders may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Stockholders and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company, or any such director, officer, Selling
Stockholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or
alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or arises out of or is based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement,
any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with
information furnished to the Company and the Selling Stockholders by
the Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred
by the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and each of the
Selling Stockholders, hereby acknowledges that the only information
that the Underwriters have furnished to the Company and the Selling
Stockholders expressly for use in the Registration
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<PAGE> 31
Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth (A) as
the last two paragraphs on the inside front cover page of the
Prospectus concerning stabilization and passive market making by the
Underwriters and (B) in the table in the first paragraph and in the
second, sixth, seventh, eighth, and ninth paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that
such statements are correct. The indemnity agreement set forth in this
Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it
is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party
(Montgomery Securities in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
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<PAGE> 32
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held
to be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Stockholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before
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<PAGE> 33
deducting expenses) received by the Company and the Selling Stockholders, and
the total underwriting discount received by the Underwriters, in each case as
set forth on the front cover page of the Prospectus (or, if Rule 434 under the
Securities Act is used, the corresponding location on the Term Sheet) bear to
the aggregate initial public offering price of the Common Shares as set forth on
such cover. The relative fault of the Company and the Selling Stockholders, on
the one hand, and the Underwriters, on the other hand, shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact or any such inaccurate or alleged inaccurate representation or warranty
relates to information supplied by the Company or the Selling Stockholders, on
the one hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
SCHEDULE A. For purposes of this Section 9, each officer and employee of an
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
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<PAGE> 34
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on SCHEDULE A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date. this Agreement maybe terminated by the Representatives by written notice
given to the Company and the Selling Stockholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq Stock Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or
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<PAGE> 35
any substantial change or development involving a prospective substantial change
in United States' or international political, financial or economic conditions,
as in the judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the reasonable judgment of the Representatives there shall have occurred
any Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the conduct
of the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Stockholders
to any Underwriter, except that the Company and the Selling Stockholders shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters to the extent required by to Sections 4 and 6 hereof, (b) any
Underwriter to the Company or the Selling Stockholders, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13 NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
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<PAGE> 36
If to the Company:
CorporateFamily Solutions, Inc.
209 10th Avenue South
Suite 300
Nashville, Tennessee 37203
Facsimile: (615) 254-3766
Attention: Marguerite W. Sallee
If to the Selling Stockholders:
Bass Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Facsimile: (615) 742-6298
Attention: James H. Cheek III, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
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<PAGE> 37
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Stockholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated
business person or entity who was represented by counsel during negotiations
regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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<PAGE> 38
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
CORPORATEFAMILY SOLUTIONS, INC.
By:________________________________
Marguerite W. Sallee
President and Chief Executive
Officer
SELLING STOCKHOLDERS
By:________________________________
(Attorney-in-fact)
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
J.C. BRADFORD & CO. L.L.C.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:___________________________
Richard A. Smith
Authorized Signatory
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<PAGE> 39
SCHEDULE A
NUMBER OF
FIRM COMMON SHARES
UNDERWRITERS TO BE PURCHASED
Montgomery Securities ................................. [___]
J.C. Bradford & Co., L.L.C. ........................... [___]
[___] ................................................. [___]
[___] ................................................. [___]
Total.......................................... [___]
-1-
<PAGE> 40
SCHEDULE B
NUMBER OF MAXIMUM NUMBER OF
SELLING STOCKHOLDER FIRM COMMON SHARES OPTIONAL COMMON SHARES
TO BE SOLD TO BE SOLD
[___] [___]
[___] [___]
Total: [___] [___]
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<PAGE> 1
EXHIBIT 3.1
THE FOLLOWING AMENDED AND RESTATED CHARTER WILL BE FILED WITH THE
SECRETARY OF STATE'S OFFICE IMMEDIATELY PRIOR TO THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
AMENDED AND RESTATED
CHARTER
OF
CORPORATEFAMILY SOLUTIONS, INC.
1. The name of the corporation is CorporateFamily Solutions, Inc.
2. The corporation is for profit.
3. The duration of the corporation is perpetual.
4. The street address and zip code of the corporation's principal office in
Tennessee will be:
209 Tenth Avenue South, Suite 300
Nashville, Tennessee 37203-4173
County of Davidson
5. (a) The name of the corporation's registered agent is Marguerite W.
Sallee.
(b) The street address, zip code, and county of the corporation's
registered office and registered agent in Tennessee shall be:
209 Tenth Avenue South, Suite 300
Nashville, Tennessee 37203-4173
County of Davidson
6. The corporation is organized to do any and all things and to exercise
any and all powers, rights, and privileges that a corporation may now or
hereafter be organized to do or to exercise under the Tennessee Business
Corporation Act, as amended from time to time.
7. The maximum number of shares of stock the corporation is authorized to
issue is:
a. One hundred million (100,000,000) shares of common stock, no par
value per share, which shall be entitled to one vote per share and, upon
dissolution of the corporation, shall be entitled to receive the net assets of
the corporation.
b. Ten million (10,000,000) shares of preferred stock without par value.
Shares of preferred stock may be issued from time to time in one or more classes
or series, each such class or series to be so designated as to distinguish the
shares thereof from the shares of all other classes and series. The Board of
Directors is hereby vested with the authority to divide preferred stock into
classes or series and to fix and
<PAGE> 2
determine the relative rights, preferences, qualifications, and limitations of
the shares of any class or series so established.
8. The shareholders of the corporation shall not have preemptive rights.
9. All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the corporation shall be managed under the
direction of, a Board of Directors. The directors shall be divided into three
classes, designated Class I, Class II, and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. Each class of directors shall be
elected for a three year term, except at the 1997 special meeting of
shareholders, Class III directors shall be elected for a one year term, Class II
directors for a two year term and Class I directors for a three year term. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting of shareholders for the year in which his or her
term expires and until his or her successor shall be elected and shall qualify;
subject, however, to prior death, resignation, retirement, disqualification, or
removal from office. Any vacancy on the Board of Directors, including a vacancy
that results from an increase in the number of directors or a vacancy that
results from the removal of a director with cause, may be filled only by the
Board of Directors.
Any director may be removed from office but only for cause and only by
(a) the affirmative vote of the holders of a majority of the voting power of the
shares entitled to vote in the election of directors, considered for this
purpose as one class, unless a vote of a special voting group is otherwise
required by law, or (b) the affirmative vote of a majority of the entire Board
of Directors then in office.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of shareholders, the election, term of office, filling of
vacancies, and other features of such directorships shall be governed by the
terms of this Charter applicable thereto.
Notwithstanding any other provision of this Charter, the affirmative
vote of holders of two-thirds of the voting power of the shares entitled to vote
at an election of directors shall be required to amend, alter, change or repeal,
or to adopt any provisions as part of this Charter or as part of the
corporation's Bylaws inconsistent with the purpose and intent of this Article 9.
10. To the fullest extent permitted by the Tennessee Business Corporation
Act as in effect on the date hereof, and as hereafter amended from time to time,
a director of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director. If
the Tennessee Business Corporation Act or any successor statute is amended after
adoption of this provision to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the Tennessee Business Corporation Act, as so amended from time to
time, or such successor statute. Any repeal or modification of this Article 10
by the shareholders of the corporation shall not affect adversely any right or
protection of a director of the corporation existing at the time of such repeal
or modification or with respect to events occurring prior to such time.
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11. The corporation shall indemnify every person who is or was a party or
is or was threatened to be made a party to any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that he or she is or was a director or officer or is or was serving at the
request of the corporation as a director, officer, employee, agent, or trustee
of another corporation or of a partnership, joint venture, trust, employee
benefit plan, or other enterprise, including service on a committee formed for
any purpose (and, in each case, his or her heirs, executors, and
administrators), against all expense, liability, and loss (including counsel
fees, judgments, fines, ERISA excise taxes, penalties, and amounts paid in
settlement) actually and reasonably incurred or suffered in connection with such
action, suit, or proceeding, to the fullest extent permitted by applicable law,
as in effect on the date hereof and as hereafter amended. Such indemnification
may include advancement of expenses in advance of final disposition of such
action, suit, or proceeding, subject to the provision of any applicable statute.
The indemnification and advancement of expenses provisions of this
Article 11 shall not be exclusive of any other right that any person (and his or
her heirs, executors, and administrators) may have or hereafter acquire under
any statute, this Charter, the corporation's Bylaws, resolution adopted by the
shareholders, resolution adopted by the Board of Directors, agreement, or
insurance, purchased by the corporation or otherwise, both as to action in his
or her official capacity and as to action in another capacity. The corporation
is hereby authorized to provide for indemnification and advancement of expenses
through its Bylaws, resolution of shareholders, resolution of the Board of
Directors, or agreement, in addition to that provided by this Charter.
12. The corporation shall hold a special meeting of shareholders only in
the event of (a) a call of the Board of Directors of the corporation or the
officers authorized to do so by the Bylaws of the corporation, or (b) the
holders of at least twenty percent of all the votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting sign, date, and
deliver to the corporation's secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held, which
shall be held upon the call of the Board of Directors.
Notwithstanding any other provision of this Charter, the affirmative vote
of holders of two-thirds of the voting power of the shares entitled to vote at
an election of directors shall be required to amend, alter, change or repeal, or
to adopt any provisions as part of this Charter or as part of the corporation's
Bylaws inconsistent with the purpose and intent of this Article 12.
CORPORATEFAMILY SOLUTIONS, INC.
By:___________________________________________
Marguerite W. Sallee
President and Chief Executive Officer
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EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CORPORATEFAMILY SOLUTIONS, INC.
(THE "CORPORATION")
ARTICLE I.
OFFICES
The Corporation may have such offices, either within or without the
State of Tennessee, as the Board of Directors may designate or as the business
of the Corporation may require from time to time.
ARTICLE II.
SHAREHOLDERS
2.1 ANNUAL MEETING.
An annual meeting of the shareholders of the Corporation shall
be held on such date as may be determined by the Board of Directors. The
business to be transacted at such meeting shall be the election of directors and
such other business as shall be properly brought before the meeting.
2.2 SPECIAL MEETINGS.
A special meeting of shareholders shall be held on call of the
Board of Directors or if the holders of at least twenty percent (20%) of all the
votes entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date and deliver to the Corporation's Secretary one (1) or
more written demands for the meeting describing the purpose or purposes for
which such special meeting is to be held, including all statements necessary to
make any statement of such purpose not incomplete, false or misleading, and
include any other information specified in Schedule 14A, Rule 14a-3, Rule 14a-8,
or Rule 14a-11 of the Rules and Regulations of the Securities and Exchange
Commission and which written request shall be accompanied by a certified check
for fifty thousand dollars ($50,000) payable to the Corporation to cover the
Corporation's expenses in connection with such meeting, including the
preparation of proxy materials or information statements and the mailing of
notices and proxy materials to shareholders. Only business within the purpose or
purposes described in the meeting notice may be conducted at a special
shareholders' meeting.
2.3 PLACE OF MEETINGS.
The Board of Directors may designate any place, either within
or without the State of Tennessee, as the place of meeting for any annual
meeting or for any special meeting. If no place is fixed by the Board of
Directors, the meeting shall be held at the principal office of the Corporation.
2.4 NOTICE OF MEETINGS; WAIVER.
(A) NOTICE. Notice of the date, time and place of each annual
and special shareholders' meeting and, in the case of a special meeting, a
description of the purpose or purposes for which the meeting is called, shall be
given no fewer than ten (10) days nor more than two (2) months before the date
of the meeting. Such notice shall comply with the requirements of Article XI of
these Bylaws.
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(B) WAIVER. A shareholder may waive any notice required by
law, the Corporation's Charter (the "Charter") or these Bylaws before or after
the date and time stated in such notice. Except as provided in the next
sentence, the waiver must be in writing, be signed by the shareholder entitled
to the notice and be delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. A share holder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the meeting,
unless the shareholder at the beginning of the meeting (or promptly upon his or
her arrival) objects to holding the meeting or transacting business at the
meeting and (2) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
2.5 RECORD DATE.
The Board of Directors shall fix as the record date for the
determination of shareholders entitled to notice of a shareholders' meeting, to
demand a special meeting, to vote or to take any other action, a date not more
than seventy (70) days before the meeting or action requiring a determination of
shareholders.
A record date fixed for a shareholders' meeting is effective
for any adjournment of such meeting unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
four (4) months after the date fixed for the original meeting.
2.6 SHAREHOLDERS' LIST.
After the record date for a meeting has been fixed, the
Corporation shall prepare an alphabetical list of the names of all shareholders
who are entitled to notice of a shareholders' meeting. Such list will show the
address of and number of shares held by each shareholder. The shareholders' list
will be available for inspection by any shareholder, beginning two (2) business
days after notice of the meeting is given for which the list was prepared and
continuing through the meeting, at the Corporation's principal office or at a
place identified in the meeting notice in the city where the meeting will be
held. A shareholder or his or her agent or attorney is entitled on written
demand to inspect and, subject to the requirements of the Tennessee Business
Corporation Act (the "Act"), to copy the list, during regular business hours and
at his or her expense, during the period it is available for inspection.
2.7 VOTING OF SHARES.
Unless otherwise provided by the Act or the Charter, each
outstanding share is entitled to one (1) vote on each matter voted on at a
shareholders' meeting. Only shares are entitled to vote.
Unless otherwise provided in the Charter, directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present.
2.8 PROXIES.
A shareholder may vote his or her shares in person or by
proxy. A shareholder may appoint a proxy to vote or otherwise act for him or her
by signing an appointment either personally or through an attorney-in-fact. An
appointment of a proxy is effective when received by the Secretary or other
officer or agent authorized to tabulate votes. An appointment is valid for
eleven (11) months unless another period is expressly provided in the
appointment form. An appointment of a proxy is revocable by the shareholder
unless the appointment form conspicuously states that it is irrevocable, and the
appointment is coupled with an interest.
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2.9 ACCEPTANCE OF SHAREHOLDER DOCUMENTS.
If the name signed on a shareholder document (a vote, consent,
waiver, or proxy appointment) corresponds to the name of a shareholder, the
Corporation, if acting in good faith, is entitled to accept such shareholder
document and give it effect as the act of the shareholder. If the name signed on
such shareholder document does not correspond to the name of a shareholder, the
Corporation, if acting in good faith, is nevertheless entitled to accept such
shareholder document and to give it effect as the act of the shareholder if:
(I) the shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity;
(II) the name signed purports to be that of a fiduciary
representing the shareholder and, if the Corporation requests, evidence
of fiduciary status acceptable to the Corporation has been presented
with respect to such shareholder document;
(III) the name signed purports to be that of a receiver or
trustee in bankruptcy of the share holder and, if the Corporation
requests, evidence of this status acceptable to the Corporation has
been presented with respect to the shareholder document;
(IV) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to such shareholder document; or
(V) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
(1) of the co-owners, and the person signing appears to be acting on
behalf of all the co-owners.
The Corporation is entitled to reject a shareholder document
if the Secretary or other officer or agent authorized to tabulate votes, acting
in good faith, has a reasonable basis for doubt about the validity of the
signature on such shareholder document or about the signatory's authority to
sign for the shareholder.
2.10 ACTION WITHOUT MEETING.
Action required or permitted by the Act to be taken at a
shareholders' meeting may be taken without a meeting. If all shareholders
entitled to vote on the action consent to taking such action without a meeting,
the affirmative vote of the number of shares that would be necessary to
authorize or take such action at a meeting is the act of the shareholders.
The action must be evidenced by one (1) or more written
consents describing the action taken, at least one of which is signed by each
shareholder entitled to vote on the action in one (1) or more counterparts,
indicating such signing shareholder's vote or abstention on the action and
delivered to the Corpo ration for inclusion in the minutes or for filing with
the corporate records.
If the Act or the Charter requires that notice of a proposed
action be given to nonvoting share holders and the action is to be taken by
consent of the voting shareholders, then the Corporation shall give its
nonvoting shareholders written notice of the proposed action at least ten (10)
days before such action is taken. Such notice shall contain or be accompanied by
the same material that would have been required to be sent to nonvoting
shareholders in a notice of a meeting at which the proposed action would have
been submitted to the shareholders for action.
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2.11 PRESIDING OFFICER AND SECRETARY.
Meetings of the shareholders shall be presided over by the
Chairman, or if the Chairman is not present or if the Corporation shall not have
a Chairman, by the Vice Chairman, the President, or Chief Executive Officer, or
if neither the Chairman, the Vice Chairman, the President, nor the Chief
Executive Officer is present, by a chairman chosen by a majority of the
shareholders entitled to vote at such meeting. The Secretary or, in the
Secretary's absence, an Assistant Secretary shall act as secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is present, a
majority of the shareholders entitled to vote at such meeting shall choose any
person present to act as secretary of the meeting.
2.12 NOTICE OF NOMINATIONS.
Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors authorized
to make such nominations or by any shareholder entitled to vote in the election
of directors generally. Any such shareholder nomination may be made, however,
only if written notice of such nomination has been given, either by personal
delivery or the United States mail, postage prepaid, to the Secretary of the
Corporation not later than (a) with respect to an election to be held at an
annual meeting of shareholders, one hundred twenty days in advance of the
anniversary date of the proxy statement for the previous year's annual meeting,
and (b) with respect to an election to be held at a special meeting of
shareholders for the election of directors called other than by written request
of a shareholder, the close of business on the tenth day following the date on
which notice of such meeting is first given to shareholders, and (c) in the case
of a special meeting of shareholders duly called upon the written request of a
shareholder to fill a vacancy or vacancies (then existing or proposed to be
created by removal at such meeting), within ten business days of such written
request. In the case of any nomination by the Board of Directors or a committee
appointed by the Board of Directors authorized to make such nominations,
compliance with the proxy rules of the Securities and Exchange Commission shall
constitute compliance with the notice provisions of the preceding sentence.
In the case of any nomination by a shareholder, each such
notice shall set forth: (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, (i) the name, age, business
address, and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
Corporation which are beneficially owned by such person, and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies with respect to nominees for election as directors,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a director, if elected); and
(b) as to the shareholder giving the notice (i) the name and address, as they
appear on the Corporation's books, of such shareholder, and (ii) the class and
number of shares of the Corporation which are beneficially owned by such
shareholder; and (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
2.13 NOTICE OF NEW BUSINESS.
At an annual meeting of the shareholders only such new
business shall be conducted, and only such proposals shall be acted upon, as
have been properly brought before the meeting. To be properly brought before the
annual meeting such new business must be (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (c) otherwise properly brought before
the meeting
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by a shareholder. For a proposal to be properly brought before an annual meeting
by a shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and the proposal and the
shareholder must comply with Rule 14a-8 under the Securities Exchange Act of
1934. To be timely, a shareholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation within the time
limits specified by Rule 14a-8.
A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (b)
the name and address, as they appear on the Corporation's books, of the
shareholder proposing such business, (c) the class and number of shares of the
Corporation which are beneficially owned by the shareholder, and (d) any
financial interest of the shareholder in such proposal.
Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.13. The presiding officer of the meeting
shall, if the facts warrant, determine and declare to the meeting that new
business or any shareholder proposal was not properly brought before the meeting
in accordance with the provisions of this Section 2.13, and if he or she should
so determine, he or she shall so declare to the meeting and any such business or
proposal not properly brought before the meeting shall not be acted upon at the
meeting. This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees, but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
2.14 CONDUCT OF MEETINGS.
Meetings of the shareholders generally shall follow accepted
rules of parliamentary procedure subject to the following:
(a) The presiding officer of the meeting shall have absolute
authority over the matters of procedure, and there shall be no appeal from the
ruling of the presiding officer. If, in his or her absolute discretion, the
presiding officer deems it advisable to dispense with the rules of parliamentary
procedure as to any meeting of shareholders or part thereof, he or she shall so
state and shall state the rules under which the meeting or appropriate part
thereof shall be conducted.
(b) If disorder should arise which prevents the continuation
of the legitimate business of the meeting, the presiding officer may quit the
chair and announce the adjournment of the meeting, and upon so doing, the
meeting will immediately be adjourned.
(c) The presiding officer may ask or require that anyone not
a bona fide shareholder or proxy leave the meeting.
(d) The resolution or motion shall be considered for vote only
if proposed by a shareholder or a duly authorized proxy and seconded by a
shareholder or duly authorized proxy other than the individual who proposed the
resolution or motion.
(e) Except as the President, Chief Executive Officer, or
chairman may permit, no matter shall be presented to the meeting which has not
been submitted for inclusion in the agenda at least thirty (30) days prior to
the meeting.
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ARTICLE III.
DIRECTORS
3.1 POWERS AND DUTIES.
All corporate powers shall be exercised by or under the
authority of and the business and affairs of the Corporation managed under the
direction of the Board of Directors.
3.2 NUMBER AND TERM.
(A) NUMBER. The Board of Directors shall consist of no fewer
than five (5) or more than fifteen (15) members. The exact number of directors,
within the minimum and maximum, or the range for the size of the Board, or
whether the size of the Board shall be fixed or variable range may be fixed,
changed or determined from time to time by the Board of Directors.
(B) TERM. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Each class of directors shall be elected for a
three year term, except at the 1997 special meeting of shareholders, Class III
directors shall be elected for a one year term, Class II directors for a two
year term and Class I directors for a three year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office until the
annual meeting of shareholders for the year in which his or her term expires and
until his or her successor shall be elected and shall qualify, subject, however,
to prior death, resignation, retirement, disqualification, or removal from
office.
3.3 MEETINGS; NOTICE.
The Board of Directors may hold regular and special meetings
either within or without the State of Tennessee. The Board of Directors may
permit any or all directors to participate in a regular or special meeting by,
or conduct the meeting through the use of, any means of communication by which
all directors participating may simultaneously hear each other during the
meeting. A director participating in a meeting by this means is deemed to be
present in person at the meeting.
(A) REGULAR MEETINGS. Unless the Charter otherwise provides,
regular meetings of the Board of Directors may be held without notice of the
date, time, place or purpose of the meeting.
(B) SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman, the President or a majority of the
directors. Unless the Charter otherwise provides, special meetings must be
preceded by at least twenty-four (24) hours' notice of the date, time and place
of the meeting but need not describe the purpose of such meeting. Such notice
shall comply with the requirements of Article XI of these Bylaws.
(C) ADJOURNED MEETINGS. Notice of an adjourned meeting need
not be given if the time and place to which the meeting is adjourned are fixed
at the meeting at which the adjournment is taken, and if the period of
adjournment does not exceed one (1) month in any one (1) adjournment.
(D) WAIVER OF NOTICE. A director may waive any required
notice before or after the date and time stated in the notice. Except as
provided in the next sentence, the waiver must be in writing, signed
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by the director, and filed with the minutes or corporate records. A director's
attendance at or participation in a meeting waives any required notice to him or
her of such meeting unless the director at the beginning of the meeting (or
promptly upon his or her arrival) objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or assent to action
taken at the meeting.
3.4 QUORUM.
Unless the Charter requires a greater number, a quorum of the
Board of Directors consists of a majority of the fixed number of directors if
the Corporation has a fixed board size or a majority of the number of directors
prescribed, or if no number is prescribed, the number in office immediately
before the meeting begins, if the Corporation has a variable range board.
3.5 VOTING.
If a quorum is present when a vote is taken, the affirmative
vote of a majority of directors present is the act of the Board of Directors,
unless the Charter or these Bylaws require the vote of a greater number of
directors. A director who is present at a meeting of the Board of Directors when
corporate action is taken is deemed to have assented to such action unless:
(I) he or she objects at the beginning of the meeting (or
promptly upon his or her arrival) to holding the meeting or
transacting business at the meeting;
(II) his or her dissent or abstention from the action taken
is entered in the minutes of the meeting; or
(III) he or she delivers written notice of his or her dissent
or abstention to the presiding officer of the meeting before its
adjournment or to the Corporation immediately after adjournment of the
meeting. The right of dissent or abstention is not available to a
director who votes in favor of the action taken.
3.6 ACTION WITHOUT MEETING.
Unless the Charter otherwise provides, any action required or
permitted by the Act to be taken at a Board of Directors meeting may be taken
without a meeting. If all directors consent to taking such action without a
meeting, the affirmative vote of the number of directors that would be necessary
to authorize or take such action at a meeting is the act of the Board of
Directors. Such action must be evidenced by one or more written consents
describing the action taken, at least one of which is signed by each director,
indicating the director's vote or abstention on the action, which consents shall
be included in the minutes or filed with the corporate records reflecting the
action taken. Action taken by consent is effective when the last director signs
the consent, unless the consent specifies a different effective date.
3.7 COMPENSATION.
Directors and members of any committee created by the Board of
Directors shall be entitled to such reasonable compensation for their services
as directors and members of such committee as shall be fixed from time to time
by the Board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending meetings of the Board or of any such committee
meetings. Any director receiving such compensation shall not be barred from
serving the Corporation in any other capacity and receiving reasonable
compensation for such other services.
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3.8 RESIGNATION.
A director may resign at any time by delivering written notice
to the Board of Directors, the Chairman, President or to the Corporation. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
3.9 VACANCIES.
Unless the Charter otherwise provides, if a vacancy occurs on
the Board of Directors, including a vacancy resulting from an increase in the
number of directors or a vacancy resulting from the removal of a director with
or without cause, either the shareholders or the Board of Directors may fill
such vacancy. If the vacancy is filled by the shareholders, it shall be filled
by a plurality of the votes cast at a meeting at which a quorum is present. If
the directors remaining in office constitute fewer than a quorum of the Board of
Directors, they may fill such vacancy by the affirmative vote of a majority of
all the directors remaining in office.
3.10 REMOVAL OF DIRECTORS.
(A) BY SHAREHOLDERS. The shareholders may remove one (1) or
more directors with or without cause unless the Charter provides that directors
may be removed only for cause. If cumulative voting is authorized, a director
may not be removed if the number of votes sufficient to elect him or her under
cumulative voting is voted against his or her removal. If cumulative voting is
not authorized, a director may be removed only if the number of votes cast to
remove him or her exceeds the number of votes cast not to remove him or her.
(B) BY DIRECTORS. If so provided by the Charter, any of the
directors may be removed for cause by the affirmative vote of a majority of the
entire Board of Directors.
(C) GENERAL. A director may be removed by the shareholders or
directors only at a meeting called for the purpose of removing him or her, and
the meeting notice must state that the purpose, or one (1) of the purposes, of
the meeting is removal of directors.
ARTICLE IV.
COMMITTEES
Unless the Charter otherwise provides, the Board of Directors may
create one (1) or more committees, each consisting of one (1) or more members.
All members of committees of the Board of Directors which exercise powers of the
Board of Directors must be members of the Board of Directors and serve at the
pleasure of the Board of Directors.
The creation of a committee and appointment of a member or members to
it must be approved by the greater of (i) a majority of all directors in office
when the action is taken or (ii) the number of directors required by the Charter
or these Bylaws to take action.
Unless otherwise provided in the Act, to the extent specified by the
Board of Directors or in the Charter, each committee may exercise the authority
of the Board of Directors. All such committees and their members shall be
governed by the same statutory requirements regarding meetings, action without
meetings, notice and waiver of notice, quorum and voting requirements as are
applicable to the Board of Directors and its members.
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ARTICLE V.
OFFICERS
5.1 NUMBER.
The officers of the Corporation shall be a Chairman, a Vice
Chairman, a President, a Chief Executive Officer, a Chief Financial Officer, a
Secretary and such other officers, including Vice Presidents, as may be from
time to time appointed by the Board of Directors or by the Chairman with the
Board of Directors' approval. One person may simultaneously hold more than one
office except the President may not simultaneously hold the office of Secretary.
5.2 APPOINTMENT.
The principal officers shall be appointed annually by the
Board of Directors at the first meeting of the Board following the annual
meeting of the shareholders, or as soon thereafter as is conveniently possible.
Each officer shall serve at the pleasure of the Board of Directors and until his
or her successor shall have been appointed, or until his or her death,
resignation or removal.
5.3 RESIGNATION AND REMOVAL.
An officer may resign at any time by delivering notice to the
Corporation. Such resignation is effective when such notice is delivered unless
such notice specifies a later effective date. An officer's resignation does not
affect the Corporation's contract rights, if any, with the officer.
The Board of Directors may remove any officer at any time with
or without cause, but such removal shall not prejudice the contract rights, if
any, of the person so removed.
5.4 VACANCIES.
Any vacancy in an office for any reason may be filled for the
unexpired portion of the term by the Board of Directors.
5.5 DUTIES.
(A) CHAIRMAN. The Chairman shall preside at all meetings of
the shareholders and the Board of Directors and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
(B) VICE-CHAIRMAN. The Vice Chairman shall, in the absence of
the Chairman, preside at meetings of the shareholders and the Board of Directors
and shall assist the Chairman to see that all orders and resolutions of the
Board of Directors are carried into effect.
(C) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of
the Corporation shall have general supervision over the active management of the
business of the Corporation.
(D) PRESIDENT. The President shall have the general powers and
duties of supervision and management usually vested in the office of the
President of a corporation and shall perform such other duties as the Board of
Directors may from time to time prescribe.
9
<PAGE> 10
(E) VICE PRESIDENT. The Vice President or Vice Presidents (if
any) shall be active executive officers of the Corporation, shall assist the
Chairman, the Chief Executive Officer and the President in the active management
of the business, and shall perform such other duties as the Board of Directors
may from time to time prescribe.
(F) CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have the custody of the Corporation's funds and securities, shall keep or cause
to be kept full and accurate account of receipts and disbursements in books
belonging to the Corporation, and shall deposit or cause to be deposited all
monies and other valuable effects in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of Directors.
The Chief Financial Officer shall disburse or cause to be disbursed the funds of
the Corporation as required in the ordinary course of business or as may be
ordered by the Board, taking proper vouchers for such disbursements, and shall
render to the Chairman, the President, the Chief Executive Officer, and
directors at the regular meetings of the Board, or whenever they may require it,
an account of all of his or her or her transactions as Chief Financial Officer
and the financial condition of the Corporation. He or she shall perform such
other duties as may be incident to the office or as prescribed from time to time
by the Board of Directors.
(G) SECRETARY AND ASSISTANT SECRETARY. The Secretary or
Assistant Secretary shall attend all meetings of the Board of Directors and all
meetings of the shareholders and shall prepare and record all votes and all
minutes of all such meetings in a book to be kept for that purpose. He or she
shall also perform like duties for any committee when required. The Secretary or
Assistant Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board of Directors when required, and unless
directed otherwise by the Board of Directors, shall keep a stock record
containing the names of all persons who are shareholders of the Corporation,
showing their place of residence and the number of shares held by each of them.
The Secretary or Assistant Secretary shall have the responsibility of
authenticating records of the Corporation. The Secretary or Assistant Secretary
shall perform such other duties as may be prescribed from time to time by the
Board of Directors.
(H) OTHER OFFICERS. Other officers appointed by the Board of
Directors shall exercise such powers and perform such duties as may be delegated
to them.
(I) DELEGATION OF DUTIES. In case of the absence or disability
of any officer of the Corpo ration or of any person authorized to act in his or
her place, the Board of Directors may from time to time delegate the powers and
duties of such officer to any officer, or any director, or any other person whom
it may select, during such period of absence or disability.
5.6 INDEMNIFICATION, ADVANCEMENT OF EXPENSES AND INSURANCE.
(A) INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
Corporation shall indemnify and advance expenses to each director and officer of
the Corporation, or any person who may have served at the request of the
Corporation's Board of Directors or its President or Chief Executive Officer as
a director or officer of another corporation (and, in either case, such person's
heirs, executors and administrators), to the full extent allowed by the laws of
the State of Tennessee, both as now in effect and as hereafter adopted. The
Corporation may indemnify and advance expenses to any employee or agent of the
Corporation who is not a director or officer (and such person's heirs, executors
and administrators) to the same extent as to a director or officer, if the Board
of Directors determines that doing so is in the best interests of the
Corporation.
(B) NON-EXCLUSIVITY OF RIGHTS. The indemnification and
expense advancement provisions of subsection (a) of this Section 5.6 shall not
be exclusive of any other right which any person (and
10
<PAGE> 11
such person's heirs, executors and administrators) may have or hereafter acquire
under any statute, provision of the Charter, provision of these Bylaws,
resolution adopted by the shareholders, resolution adopted by the Board of
Directors, agreement, or insurance (purchased by the Corporation or otherwise),
both as to action in such person's official capacity and as to action in another
capacity.
(C) INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any individual who is or was a director, officer,
employee or agent of the Corporation, or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation's Board of Directors or its Chief Executive Officer as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any expense, liability or loss whether or not the Corporation would have
the power to indemnify such person against such expense, liability or loss under
this Article or the Act.
ARTICLE VI.
SHARES OF STOCK
6.1 SHARES WITH OR WITHOUT CERTIFICATES.
The Board of Directors may authorize that some or all of the
shares of any or all of the Corpo ration's classes or series of stock be
evidenced by a certificate or certificates of stock. The Board of Directors may
also authorize the issue of some or all of the shares of any or all of the
Corporation's classes or series of stock without certificates. The rights and
obligations of shareholders with the same class and/or series of stock shall be
identical whether or not their shares are represented by certificates.
(A) SHARES WITH CERTIFICATES. If the Board of Directors
chooses to issue shares of stock evidenced by a certificate or certificates,
each individual certificate shall include the following on its face: (i) the
Corporation's name, (ii) the fact that the Corporation is organized under the
laws of the State of Tennessee, (iii) the name of the person to whom the
certificate is issued, (iv) the number of shares represented thereby, (v) the
class of shares and the designation of the series, if any, which the certificate
represents, and (vi) such other information as applicable law may require or as
may be lawful.
If the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative rights,
preferences and limitations determined for each series (and the authority of the
Board of Directors to determine variations for future series) shall be
summarized on the front or back of each certificate. Alternatively, each
certificate shall state on its front or back that the Corporation will furnish
the shareholder this information in writing, without charge, upon request.
Each certificate of stock issued by the Corporation shall be
signed (either manually or in facsimile) by any two officers of the Corporation.
If the person who signed a certificate no longer holds office when the
certificate is issued, the certificate is nonetheless valid.
(B) SHARES WITHOUT CERTIFICATES. If the Board of Directors
chooses to issue shares of stock without certificates, the Corporation, if
required by the Act, shall, within a reasonable time after the issue or transfer
of shares without certificates, send the shareholder a written statement of the
information required on certificates by Section 6.1(a) of these Bylaws and any
other information required by the Act.
11
<PAGE> 12
6.2 SUBSCRIPTIONS FOR SHARES.
Subscriptions for shares of the Corporation shall be valid
only if they are in writing. Unless the subscription agreement provides
otherwise, subscriptions for shares, regardless of the time when they are made,
shall be paid in full at such time, or in such installments and at such periods,
as shall be determined by the Board of Directors. All calls for payment on
subscriptions shall be uniform as to all shares of the same class or of the same
series, unless the subscription agreement specifies otherwise.
6.3 TRANSFERS.
Transfers of shares of the capital stock of the Corporation
shall be made only on the books of the Corporation by (i) the holder of record
thereof, (ii) by his or her legal representative, who, upon request of the
Corporation, shall furnish proper evidence of authority to transfer, or (iii)
his or her attorney, authorized by a power of attorney duly executed and filed
with the Secretary of the Corporation or a duly appointed transfer agent. Such
transfers shall be made only upon surrender, if applicable, of the certificate
or certificates for such shares properly endorsed and with all taxes thereon
paid.
6.4 LOST, DESTROYED OR STOLEN CERTIFICATES.
No certificate for shares of stock of the Corporation shall be
issued in place of any certificate alleged to have been lost, destroyed or
stolen except on production of evidence, satisfactory to the Board of Directors,
of such loss, destruction or theft, and, if the Board of Directors so requires,
upon the furnishing of an indemnity bond in such amount and with such terms and
such surety as the Board of Directors may in its discretion require.
ARTICLE VII.
CORPORATE ACTIONS
7.1 CONTRACTS.
Unless otherwise required by the Board of Directors, the
Chairman, the President, the Chief Executive Officer or any Vice President shall
execute contracts or other instruments on behalf of and in the name of the
Corporation. The Board of Directors may from time to time authorize any other
officer, assistant officer or agent to enter into any contract or execute any
instrument in the name of and on behalf of the Corpo ration as it may deem
appropriate, and such authority may be general or confined to specific
instances.
7.2 LOANS.
No loans shall be contracted on behalf of the Corporation and
no evidence of indebtedness shall be issued in its name unless authorized by the
Chairman, the President, the Chief Executive Officer, or the Board of Directors.
Such authority may be general or confined to specific instances.
7.3 CHECKS, DRAFTS, ETC.
Unless otherwise required by the Board of Directors, all
checks, drafts, bills of exchange and other negotiable instruments of the
Corporation shall be signed by either the Chairman, the President, the Chief
Executive Officer, a Vice President or such other officer, assistant officer or
agent of the Corporation as may be authorized so to do by the Board of
Directors. Such authority may be general or confined to specific business, and,
if so directed by the Board, the signatures of two or more such officers may be
required.
12
<PAGE> 13
7.4 DEPOSITS.
All funds of the Company not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks or
other depositories as the Board of Directors may authorize.
7.5 VOTING SECURITIES HELD BY THE CORPORATION.
Unless otherwise required by the Board of Directors, the
Chairman, the President or the Chief Executive Officer shall have full power and
authority on behalf of the Corporation to attend any meeting of security
holders, or to take action on written consent as a security holder, of other
corporations in which the Corporation may hold securities. In connection
therewith the Chairman, the President, or the Chief Executive Officer shall
possess and may exercise any and all rights and powers incident to the ownership
of such securities which the Corporation possesses. The Board of Directors may,
from time to time, confer like powers upon any other person or persons.
7.6 DIVIDENDS.
The Board of Directors may, from time to time, declare, and
the Corporation may pay, dividends on its outstanding shares of capital stock in
the manner and upon the terms and conditions provided by applicable law. The
record date for the determination of shareholders entitled to receive the
payment of any dividend shall be determined by the Board of Directors, but which
in any event shall not be less than ten (10) days prior to the date of such
payment.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board of
Directors, and in the absence of such determination, shall be the calendar year.
ARTICLE IX.
CORPORATE SEAL
The Corporation shall not have a corporate seal.
ARTICLE X.
AMENDMENT OF BYLAWS
These Bylaws may be altered, amended, repealed or restated, and new
Bylaws may be adopted, at any meeting of the shareholders by the affirmative
vote of a majority of the stock represented at such meeting, or by the
affirmative vote of a majority of the members of the Board of Directors who are
present at any regular or special meeting.
13
<PAGE> 14
ARTICLE XI.
NOTICE
Unless otherwise provided for in these Bylaws, any notice required
shall be in writing except that oral notice is effective if it is reasonable
under the circumstances and not prohibited by the Charter or these Bylaws.
Notice may be communicated in person; by telephone, telegraph, teletype or other
form of wire or wireless communication; or by mail or private carrier. If these
forms of personal notice are impracticable, notice may be communicated by a
newspaper of general circulation in the area where published; or by radio,
television or other form of public broadcast communication. Written notice to a
domestic or foreign corporation authorized to transact business in Tennessee may
be addressed to its registered agent at its registered office or to the
corporation or its secretary at its principal office as shown in its most recent
annual report or, in the case of a foreign corporation that has not yet
delivered an annual report, in its application for a certificate of authority.
Written notice to shareholders, if in a comprehensible form, is
effective when mailed, if mailed postpaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Except as provided above, written notice, if in a comprehensible form, is
effective at the earliest of the following: (a) when received; (b) five (5) days
after its deposit in the United States mail, if mailed correctly addressed and
with first class postage affixed thereon; (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee; or (d) twenty (20) days
after its deposit in the United States mail, as evidenced by the postmark if
mailed correctly addressed, and with other than first class, registered or
certified postage affixed. Oral notice is effective when communicated if
communicated in a comprehensible manner.
14
<PAGE> 1
[LOGO]
CORPORATEFAMILY SOLUTIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF TENNESSEE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 22003R 10 1
THIS CERTIFIES THAT
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE PER
SHARE, OF
CORPORATEFAMILY SOLUTIONS, INC.
transferable on the books of the Corporation by the holder of record hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are
issued and shall be held subject to all of the provisions of the Amended and
Restated Charter and of the Amended and Restated Bylaws of the Corporation and
all amendments and supplements thereto, copies of which are on file with the
Corporation to all of which the holder by acceptance of this Certificate
assents. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile signatures of the Corporation's duly authorized
officers.
Dated:
<TABLE>
<CAPTION>
<S> <C> <C>
COUNTERSIGNED AND REGISTERED:
SUNTRUST BANK,
ATLANTA TRANSFER AGENT PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND REGISTRAR
BY
AUTHORIZED SIGNATURE SECRETARY
</TABLE>
<PAGE> 2
CORPORATEFAMILY SOLUTIONS, INC.
The shares represented by this Certificate are issued subject to all
the provisions of the Amended and Restated Charter and Amended and Restated
Bylaws of the Corporation, as from time to time amended, to which the holder by
acceptance hereof assents.
The Corporation will furnish the shareholder information regarding the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences and limitations determined for
each series of stock issued by the Corporation (and the authority of the board
of directors to determine variations for future series) upon request in writing
and without charge.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT-______ Custodian_____________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act _______________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
__________________________________________________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated ____________________
---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
---------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5
B A S S, B E R R Y & S I M S P L C
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
July 23, 1997
CorporateFamily Solutions, Inc.
209 Tenth Avenue South, Suite 300
Nashville, Tennessee 37203-4173
Re: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of a
registration statement on Form S-1 (the "Registration Statement") filed by you
with the Securities and Exchange Commission on June 19, 1997, as subsequently
amended, covering 1,401,386 shares of no par value common stock (the "Common
Stock") of CorporateFamily Solutions, Inc. (the "Company") to be sold by the
Company (including 51,386 shares that may be purchased by the underwriters upon
exercise of an option to cover over-allotments) and 1,301,114 shares of Common
Stock to be sold by certain selling shareholders (including 301,114 shares that
may be purchased by the underwriters upon exercise of an option to cover
over-allotments) to the underwriters represented by Montgomery Securities and
J.C. Bradford & Co., LLC (the "Underwriters") for public distribution pursuant
to the Underwriting Agreement between the Company and the Underwriters filed as
an exhibit to the Registration Statement.
In connection with this opinion, we have examined and relied upon such
records, documents and other instruments as in our judgment are necessary or
appropriate in order to express the opinions hereinafter set forth and have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, and the conformity to original documents of all
documents submitted to us as certified or photostatic copies.
Based on the foregoing and such other matters as we have deemed
relevant, we are of the opinion that the shares of Common Stock to be sold by
the Company, when issued and delivered in the manner and on the terms described
in the Registration Statement (after the same is declared effective), will be
validly issued, fully paid and nonassessable.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
/s/ Bass Berry & Sims PLC
<PAGE> 1
EXHIBIT 10.1
CORPORATEFAMILY SOLUTIONS, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 ESTABLISHMENT OF PLAN.
CorporateFamily Solutions, Inc., a Tennessee corporation (the
"Company") with principal offices located in Nashville, Tennessee, adopts the
following employee stock purchase plan for its eligible employees, effective on
January 1, 1998 (unless a different date is hereafter determined by the Board of
Directors). This Plan shall be known as the 1997 Employee Stock Purchase Plan.
1.2 PURPOSE.
The purpose of this Plan is to provide an opportunity for eligible
employees of the Employer to become shareholders of the Company. It is believed
that broad-based employee participation in the ownership of the business will
help to achieve the unity of purpose conducive to the continued growth of the
Employer and to the mutual benefit of its employees and shareholders.
1.3 QUALIFICATION.
This Plan is intended to be an employee stock purchase plan which
qualifies for favorable Federal income tax treatment under Section 423 of the
Code.
1.4 RULE 16B-3 COMPLIANCE.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, and should be interpreted in accordance therewith.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below:
2.1 Board of Directors. The Board of Directors of CorporateFamily
Solutions, Inc.
2.2 Closing Market Price. The last sale price of the Stock as reported
in the Nasdaq National Market System (or other over-the-counter market or an
exchange, if applicable) on the date specified; or if no sales occurred on such
day, at the mean between the closing "bid" and "asked" prices on such day; but
if there should be any material alteration in the present system of reporting
sales prices of such Stock, or if such Stock should no longer be listed on
Nasdaq's National Market System (or other over-the-counter market or an
exchange), the market value of the Stock as of a particular date shall be
determined in such a method as shall be specified by the Plan Administrator.
<PAGE> 2
2.3 Code. The Internal Revenue Code of 1986, as amended from time to
time.
2.4 Commencement Date. The first day of each Option period.
2.5 Contribution Account. As set forth in Article V, the account
established on behalf of a Participant to which shall be credited the amount of
the Participant's contribution.
2.6 Effective Date. January 1, 1998, or such other date as may be
established by the Board of Directors.
2.7 Employee. Each employee of an Employer except:
(i) any employee whose customary employment is twenty (20) hours
per week or less, or
(ii) any employee whose customary employment is for not more than
five months in any calendar year.
2.8 Employer. The Company and any corporation which is a Subsidiary of
the Company (except for a Subsidiary which by resolution of the Board of
Directors is expressly not authorized to become a participating Employer). The
term "Employer" shall include any corporation into which an Employer may be
merged or consolidated or to which all or substantially all of its assets may be
transferred, provided such corporation does not affirmatively disavow this Plan.
2.9 Exercise Date. The last trading date of each Option Period on the
Nasdaq National Market System.
2.10 Exercise Price. The price per share of the Stock to be charged to
Participants at the Exercise Date, as determined in Section 6.3.
2.11 Five-Percent Shareholder. An Employee who owns five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Company or any Subsidiary thereof. In determining this five percent test,
shares of stock which the Employee may purchase under outstanding options,
warrants or other convertible securities, as well as stock attributed to the
Employee from members of his family or otherwise under Section 424(d) of the
Code, shall be treated as stock owned by the Employee in the numerator, but
shares of stock which may be issued under options, warrants or other convertible
securities shall not be counted in the total of outstanding shares in the
denominator.
2.12 Grant Date. The first trading date of each Option Period on the
Nasdaq National Market System (or other over-the-counter market or an exchange,
if applicable).
2.13 Nasdaq. The National Association of Securities Dealers Automated
Quotation System.
2.14 Option Period. Periods of six (6) months as follows: (i) January
1 through June 30 and (ii) July 1 through December 31. The First Option Period
shall commence on the Effective Date and end on the following June 30 or
December 31, whichever occurs first.
2.15 Participant. Any Employee of an Employer who has met the
conditions for eligibility as provided in Article IV and who has elected to
participate in the Plan.
2
<PAGE> 3
2.16 Plan. CorporateFamily Solutions, Inc. 1997 Employee Stock
Purchase Plan.
2.17 Plan Administrator. The committee composed of one or more
individuals to whom authority is delegated by the Board of Directors to
administer the Plan. The initial committee shall be the Compensation Committee
of the Board of Directors.
2.18 Stock. Those shares of common stock, no par value per share, of
the Company which are reserved pursuant to Section 6.1 for issuance upon the
exercise of options granted under this Plan.
2.19 Subsidiary. Any corporation in an unbroken chain of corporations
beginning with the Company each of which (other than the last corporation in the
chain) owns stock possessing fifty percent (50%) or more of the combined voting
power of all classes of stock in one of the other corporations in such chain.
ARTICLE III
SHAREHOLDER APPROVAL
3.1 SHAREHOLDER APPROVAL REQUIRED.
Without the approval of the shareholders of the Company, no amendment
to this Plan shall increase the number of shares reserved under the Plan, other
than as provided in Section 10.3. Approval by shareholders must comply with
applicable provisions of the corporate charter and bylaws of the Company and
with Tennessee law prescribing the method and degree of shareholder approval
required for issuance of corporate stock or options.
ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 CONDITIONS.
Each Employee shall become eligible to become a Participant for each
Option Period on its Commencement Date if such Employee has been employed by the
Employer for a continuous period of at least one year prior to the Commencement
Date. No Employee who is a Five-Percent Shareholder shall be eligible to
participate in the Plan. Notwithstanding anything to the contrary contained
herein, no individual who is not an Employee shall be granted an option to
purchase Stock under the Plan.
4.2 APPLICATION FOR PARTICIPATION.
Each Employee who becomes eligible to participate shall be furnished a
summary of the Plan and an enrollment form. If such Employee elects to
participate hereunder, Employee shall complete such form and file it with
Employer no later than ten (10) days prior to the next Commencement Date. The
completed enrollment form shall indicate the amount of Employee contribution
authorized by the Employee. If no new enrollment form is filed by a Participant
in advance of any Option Period after the initial Option Period, that
Participant shall be deemed to have elected to continue to participate with the
same contribution previously elected (subject to the limit of 15% of base pay).
If any Employee does not elect to participate in any given Option Period, such
Employee may elect to participate on any future Commencement Date so long as
such Employee continues to meet the eligibility requirements.
3
<PAGE> 4
4.3 DATE OF PARTICIPATION.
All Employees who elect to participate shall be enrolled in the Plan
commencing with the first paydate after the Commencement Date following their
submission of the enrollment form. Upon becoming a Participant, the Participant
shall be bound by the terms of this Plan, including any amendments whenever
made.
4.4 ACQUISITION OR CREATION OF SUBSIDIARY.
If the stock of a corporation is acquired by the Company or another
Employer so that the acquired corporation becomes a Subsidiary, or if a
Subsidiary is created, the Subsidiary in either case shall automatically become
an Employer and its Employees shall become eligible to participate in the Plan
on the first Commencement Date after the acquisition or creation of the
Subsidiary, as the case may be. In the case of an acquisition, credit shall be
given to Employees of the acquired Subsidiary for service with such corporation
prior to the acquisition for purposes of satisfying the requirement of Section
4.1 of one year of continuous employment. Notwithstanding the foregoing, the
Board of Directors may by appropriate resolutions (i) provide that the acquired
or newly created Subsidiary shall not be a participating Employer, (ii) specify
that the acquired or newly created Subsidiary will become a participating
Employer on a date other than the first Commencement Date after the acquisition
or creation, or (iii) attach any conditions whatsoever (including denial of
credit for prior service) to eligibility of the employees of the acquired or
newly created Subsidiary.
ARTICLE V
CONTRIBUTION ACCOUNT
5.1 EMPLOYEE CONTRIBUTIONS.
The enrollment form signed by each Participant shall authorize the
Employer to deduct from the Participant's compensation an after-tax amount in an
exact number of dollars during each payroll period not less than ten dollars
($10.00) for a bi-weekly payroll period nor more than an amount which is fifteen
percent (15%) of the Participant's base pay on the Commencement Date. The dollar
amount deducted each payday shall be credited to the Participant's Contribution
Account. Participant contributions will not be permitted to commence at any time
during the Option Period other than on a Commencement Date. No interest will
accrue on any contributions or on the balance in a Participant's Contribution
Account.
5.2 MODIFICATION OF CONTRIBUTION RATE.
No change shall be permitted in a Participant's amount of withholding
except upon a Commencement Date, and then only if the Participant files a new
enrollment form with the Employer at least ten (10) days in advance of the
Commencement Date designating the desired withholding rate. Notwithstanding the
foregoing, a Participant may notify the Employer at any time that Participant
wishes to discontinue the Participant's contributions (except during the last 10
days of the Option Period). This notice shall be in writing and on such forms as
provided by the Employer and shall become effective as of a date provided on the
form not more than thirty (30) days following its receipt by the Employer. The
Participant shall become eligible to recommence contributions on the next
Commencement Date.
5.3 WITHDRAWAL OF CONTRIBUTIONS.
A Participant may elect to withdraw the balance of his Contribution
Account at any time during the Option Period prior to the Exercise Date (except
during the last 10 days of the Option Period). The option
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granted to a Participant shall be canceled upon his withdrawal of the balance in
his Contribution Account. This election to withdraw must be in writing on such
forms as may be provided by the Employer. If contributions are withdrawn in this
manner, further contributions during that Option Period will be discontinued in
the same manner as provided in Section 5.2, and the Participant shall become
eligible to recommence contributions on the next Commencement Date.
5.4 LIMITATIONS ON CONTRIBUTIONS.
During each Option Period the total contributions by a Participant to
his Contribution Account shall not exceed fifteen percent (15%) of the
Participant's base pay on the Commencement Date multiplied by the number of
payroll periods during that Option Period. If a Participant's total
contributions should exceed this limit, the excess shall be returned to the
Participant after the end of the Option Period, without interest.
ARTICLE VI
ISSUANCE AND EXERCISE OF OPTIONS
6.1 RESERVED SHARES OF STOCK.
The Company shall reserve one hundred thousand (100,000) shares of
Stock for issuance upon exercise of the options granted under this Plan.
6.2 ISSUANCE OF OPTIONS.
On the Grant Date each Participant shall be deemed to receive an option
to purchase Stock with the number of shares and Exercise Price determined as
provided in this Article VI, subject to the maximum limit specified in Section
6.6(a). All such options shall be automatically exercised on the following
Exercise Date, except for options which are canceled when a Participant
withdraws the balance of his Contribution Account or which are otherwise
terminated under the provisions of this Plan.
6.3 DETERMINATION OF EXERCISE PRICE.
The Exercise Price of the options granted under this Plan for any
Option Period shall be the lesser of
(i) eighty-five percent (85%) of the Closing Market Price of
the Stock on the Exercise Date, or
(ii) eighty-five percent (85%) of the Closing Market Price of
the Stock on the Grant Date.
6.4 PURCHASE OF STOCK.
On an Exercise Date, all options shall be automatically exercised,
except that the options of a Participant who has terminated employment pursuant
to Section 7.1 or who has withdrawn all his contribution shall expire. The
Contribution Account of each Participant shall be used to purchase the maximum
number of whole shares of Stock determined by dividing the Exercise Price into
the balance of the Participant's Contribution Account. Any money remaining in a
Participant's Contribution Account representing a fractional share shall remain
in his Contribution Account to be used in the next Plan Year along with new
contributions in the next Plan Year; provided, however, that if the Participant
does not enroll for the next Plan Year, the balance remaining shall be returned
to him in cash.
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6.5 TERMS OF OPTIONS.
Options granted under this Plan shall be subject to such amendment or
modification as the Employer shall deem necessary to comply with any applicable
law or regulation, including but not limited to Section 423 of the Code, and
shall contain such other provisions as the Employer shall from time to time
approve and deem necessary.
6.6 LIMITATIONS ON OPTIONS.
In addition to the limitation on contributions provided in Section 5.4,
the options granted hereunder are subject to the following limitations:
(a) No Participant shall be permitted to purchase during any
calendar year Common Stock under this Plan (and any other plan of the
Employer or Subsidiary which is qualified under Section 423 of the
Code) having a market value in excess of $25,000 (as determined on the
Grant Date for the Option Period during which each such share of Common
Stock is purchased).
(b) No option may be granted to a Participant if the
Participant immediately after the option is granted would be a
Five-Percent Shareholder.
(c) No Participant may assign, transfer or otherwise alienate
any options granted to him under this Plan, otherwise than by will or
the laws of descent and distribution, and such options must be
exercised during the Participant's lifetime only by the Participant.
6.7 PRO-RATA REDUCTION OF OPTIONED STOCK.
If the total number of shares of Stock to be purchased under option by
all Participants on an Exercise Date exceeds the number of shares of Stock
remaining authorized for issuance under Section 6.1, a pro-rata allocation of
the shares of Stock available for issuance will be made among Participants in
proportion to their respective Contribution Account balances on the Exercise
Date, and any money remaining in the Contribution Accounts shall be returned to
the Participants.
6.8 STATE SECURITIES LAWS.
Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to issue shares of Stock to any Participant if to do so
would violate any state securities law applicable to the sale of Stock to such
Participant. In the event that the Company refrains from issuing shares of Stock
to any Participant in reliance on this Section, the Company shall return to such
Participant the amount in such Participant's Contribution Account that would
otherwise have been applied to the purchase of Stock.
ARTICLE VII
TERMINATION OF PARTICIPATION
7.1 TERMINATION OF EMPLOYMENT.
Any Employee whose employment with the Employer is terminated during
the Option Period prior to the Exercise Date for any reason except death,
disability or retirement at or after age 65 shall cease being a Participant
immediately. The balance of that Participant's Contribution Account shall be
paid to such
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Participant as soon as practical after his termination. The option granted to
such Participant shall be null and void.
7.2 DEATH.
If a Participant should die while employed by the Employer, no further
contributions on behalf of the deceased Participant shall be made. The legal
representative of the deceased Participant may elect to withdraw the balance in
said Participant's Contribution Account by notifying the Employer in writing at
least ten (10) days prior to the last day of the Option Period during which the
Participant died. In the event no election to withdraw is made in a timely
manner, the balance accumulated in the deceased Participant's Contribution
Account shall be used to purchase shares of Stock in accordance with Section
6.4. Any money remaining which is insufficient to purchase a whole share shall
be paid to the legal representative.
7.3 RETIREMENT.
If a Participant should retire from the employment of the Employer at
or after attaining age 65, no further contributions on behalf of the retired
Participant shall be made. The Participant may elect to withdraw the balance in
his Contribution Account by notifying the Employer in writing at least ten (10)
days prior to the last day of the Option Period during which the Participant
retired. In the event no election to withdraw is made in a timely manner, the
balance accumulated in the retired Participant's Contribution Account shall be
used to purchase shares of Stock in accordance with Section 6.4, and any money
remaining which is insufficient to purchase a whole share shall be paid to the
retired Participant.
7.4 DISABILITY.
If a Participant should terminate employment with the Employer on
account of disability, as determined by reference to the definition of
"disability" in the Employer's long-term disability plan, no further
contributions on behalf of the disabled Participant shall be made. The
Participant may elect to withdraw the balance in his Contribution Account by
notifying the Employer in writing at least ten (10) days prior to the last day
of the Option Period during which the Participant became disabled. In the event
no election to withdraw is made in a timely manner, the balance accumulated in
the disabled Participant's Contribution Account shall be used to purchase shares
of Stock in accordance with Section 6.4, and any money remaining which is
insufficient to purchase a whole share shall be paid to the disabled
Participant.
ARTICLE VIII
OWNERSHIP OF STOCK
8.1 STOCK CERTIFICATES.
Stock purchased through exercise of the options granted hereunder shall
be uncertificated. However, certificates will be issued as soon as practical at
the written request of the Participant, in the name of the Participant, jointly
in the name of the Participant and a member of the Participant's family, or to
the Participant as custodian for the Participant's child under the applicable
jurisdiction's Gift to Minors Act.
8.2 PREMATURE SALE OF STOCK.
If a Participant (or former Participant) sells or otherwise disposes of
any shares of Stock obtained under this Plan prior to two (2) years after the
Grant Date of the option under which such shares were obtained, that Participant
(or former Participant) must notify the Employer immediately in writing
concerning such disposition.
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ARTICLE IX
ADMINISTRATION AND AMENDMENT
9.1 ADMINISTRATION.
The Plan Administrator shall (i) administer the Plan and keep records
of the Contribution Account balance of each Participant, (ii) interpret the
Plan, and (iii) determine all questions arising as to eligibility to
participate, amount of contributions permitted, determination of the Exercise
Price, and all other matters of administration. The Plan Administrator shall
have such duties, powers and discretionary authority as may be necessary to
discharge the foregoing duties, and may delegate any or all of the foregoing
duties to any individual or individuals (including officers or other Employees
who are Participants). The Board of Directors shall have the right at any time
and without notice to remove or replace any individual or committee of
individuals serving as Plan Administrator. All determinations by the Plan
Administrator shall be conclusive and binding on all persons. Any rules,
regulations, or procedures that may be necessary for the proper administration
or functioning of this Plan that are not covered in this Plan document shall be
promulgated and adopted by the Plan Administrator.
9.2 AMENDMENT.
The Board of Directors of the Employer may at any time amend the Plan
in any respect, including termination of the Plan, without notice to
Participants. If the Plan is terminated, all options outstanding at the time of
termination shall become null and void and the balance in each Participant's
Contribution Account shall be paid to that Participant. Notwithstanding the
foregoing, no amendment of the Plan as described in Section 3.1 shall become
effective until and unless such amendment is approved by the shareholders of the
Company.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES.
The Employer will pay all expenses of administering this Plan that may
arise in connection with the Plan.
10.2 NO CONTRACT OF EMPLOYMENT.
Nothing in this Plan shall be construed to constitute a contract of
employment between an Employer and any Employee or to be an inducement for the
employment of any Employee. Nothing contained in this Plan shall be deemed to
give any Employee the right to be retained in the service of an Employer or to
interfere with the right of an Employer to discharge any Employee at any time,
with or without cause, regardless of the effect which such discharge may have
upon him as a Participant of the Plan.
10.3 ADJUSTMENT UPON CHANGES IN STOCK.
The aggregate number of shares of Stock reserved for purchase under the
Plan as provided in Section 6.1, and the calculation of the Exercise Price as
provided in Section 6.3, shall be adjusted by the Plan Administrator (subject to
direction by the Board of Directors) 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,
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reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, combination of shares, exchange of shares and change in
corporate structure. If any adjustment under this Section 10.3 would create a
fractional share of Stock or a right to acquire a fractional share of Stock,
such fractional share shall be disregarded and the number of shares available
under the Plan and the number of shares covered under any options granted
pursuant to the Plan shall be the next lower number of shares, rounding all
fractions downward.
10.4 EMPLOYER'S RIGHTS.
The rights and powers of any Employer shall not be affected in any way
by its participation in this Plan, including but not limited to the right or
power of any Employer to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
10.5 LIMIT ON LIABILITY.
No liability whatever shall attach to or be incurred by any past,
present or future shareholders, officers or directors, as such, of the Company
or any Employer, under or by reason of any of the terms, conditions or
agreements contained in this Plan or implied therefrom, and any and all
liabilities of any and all rights and claims against the Company, an Employer,
or any shareholder, officer or director as such, whether arising at common law
or in equity or created by statute or constitution or otherwise, pertaining to
this Plan, are hereby expressly waived and released by every Participant as a
part of the consideration for any benefits under this Plan; provided, however,
no waiver shall occur, solely by reason of this Section 10.5, of any right which
is not susceptible to advance waiver under applicable law.
10.6 GENDER AND NUMBER.
For the purposes of the Plan, unless the contrary is clearly indicated,
the use of the masculine gender shall include the feminine, and the singular
number shall include the plural and vice versa.
10.7 GOVERNING LAW.
The validity, construction, interpretation, administration and effect
of this Plan, and any rules or regulations promulgated hereunder, including all
rights or privileges of any Participants hereunder, shall be governed
exclusively by and in accordance with the laws of the State of Tennessee, except
that the Plan shall be construed to the maximum extent possible to comply with
Section 423 of the Code and the Treasury regulations promulgated thereunder.
10.8 HEADINGS.
Any headings or subheadings in this Plan are inserted for convenience
of reference only and are to be ignored in the construction of any provisions
hereof.
10.9 SEVERABILITY.
If any provision of this Plan is held by a court to be unenforceable or
is deemed invalid for any reason, then such provision shall be deemed
inapplicable and omitted, but all other provisions of this Plan shall be deemed
valid and enforceable to the full extent possible under applicable law.
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IN WITNESS WHEREOF, the Employer has adopted this Plan effective on
January 1, 1998 (or such other date as may be determined by the Board of
Directors).
Date: __________, 1997 CORPORATEFAMILY SOLUTIONS, INC.
By:______________________________
Title:___________________________
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EXHIBIT 10.2
CORPORATEFAMILY SOLUTIONS, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the CorporateFamily Solutions, Inc. 1997 Stock Incentive
Plan (the "Plan") is to enable CorporateFamily Solutions, Inc. (the "Company")
to attract, retain and reward key employees of and consultants to the Company
and its Subsidiaries and Affiliates and to strengthen the mutuality of interests
between the Company and each of 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 Company, 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 Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company 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 Company.
C. "Cause" has the meaning provided in Section 5(j) of the Plan.
D. "Change in Control" has the meaning provided in Section 9(b) of the
Plan.
E. "Change in Control Price" has the meaning provided in Section 9(d)
of the Plan.
F. "Common Stock" means the Company's Common Stock, no par value per
share.
G. "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
H. "Committee" means the Committee referred to in Section 2 of the
Plan.
I. "Company" means CorporateFamily Solutions, Inc., a Company
organized under the laws of the State of Tennessee or any successor company.
J. "Disability" means permanent and total disability within the
meaning of Section 22(e)(3) of the Code, as determined by the Committee.
K. "Early Retirement" means retirement, for purposes of this Plan with
the express consent of the Company at or before the time of such retirement,
from active employment with the Company and any
<PAGE> 2
Subsidiary or Affiliate prior to age 65, in accordance with any applicable early
retirement policy of the Company then in effect or as may be approved by the
Committee.
L. "Effective Date" has the meaning provided in Section 13 of the Plan.
M. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
N. "Fair Market Value" means, as of a given date, (i) the average bid
and asked prices for the Stock on The Nasdaq Stock Market's National Market for
the last preceding date on which there was a sale of the Stock, or (ii) if the
Stock is not traded on The Nasdaq Stock Market's National Market, the fair
market value of a share of Stock as determined by the Committee in good faith.
O. "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.
P. "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16b-3(b)(3) promulgated under
the Exchange Act and an outside director within the meaning of Treasury
Regulation Sec. 162-27(e)(3) promulgated under the Code.
Q. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
R. "Nasdaq National Market" means the Nasdaq Stock Market's National
Market System.
S. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate on or after age 65.
T. "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, the
Common Stock.
U. "Plan" means this CorporateFamily Solutions 1997 Stock Incentive
Plan, as amended from time to time.
V. "Potential Change in Control" has the meaning provided in Section
9(c) of the Plan.
W. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 7 of the Plan.
X. "Restriction Period" has the meaning provided in Section 7 of the
Plan.
Y. "Retirement" means Normal or Early Retirement.
Z. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
AA. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company 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 Common Stock covered by such Stock Option (or such
portion thereof), subject,
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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).
BB. "Stock Option" or "Option" means any option to purchase shares of
Common Stock (including Restricted Stock, if the Committee so determines)
granted pursuant to Section 5 below.
CC. "Subsidiary" means any Company (other than the Company) in an
unbroken chain of companies beginning with the Company if each of the companies
(other than the last Company 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 companies in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by a Committee of not less than two
Non-Employee Directors, 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 Non-Employee Directors. The initial Committee shall be the Compensation
Committee of the Board. In the event there are not at least two Non-Employee
Directors on the Board, the Plan shall be administered by the Board and all
references herein to the Committee shall refer to the Board.
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, key employees and consultants to
the Company 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 persons;
(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 Common
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
10 hereof;
(e) to determine whether and under what circumstances a Stock
Option may be settled in cash or Restricted Stock under Section 5(l) or
(m), as applicable, instead of Common Stock;
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(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 shares of Common 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);
(h) to determine whether to require payment withholding
requirements in shares of Common Stock; and
(i) to impose any holding period required to satisfy Section
16 under the Exchange Act.
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 Company and Plan participants.
SECTION 3. SHARES OF COMMON STOCK SUBJECT TO PLAN.
(a) As of the Effective Date, the aggregate number of shares
of Common Stock that may be issued under the Plan shall be 450,000
shares. The shares of Common Stock issuable under the Plan may consist,
in whole or in part, of authorized and unissued shares or treasury
shares. No grantee shall be eligible to receive awards pursuant to this
Plan relating to in excess of 100,000 shares of Common Stock in any
fiscal year (the "Section 162(m) Maximum").
(b) If any shares of Common Stock that have been optioned
cease to be subject to a Stock Option, or if any shares of Common 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 Common Stock, or any such
award otherwise terminates without a payment being made to the
participant in the form of Common Stock, such shares shall again be
available for distribution in connection with future awards under the
Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, extraordinary cash dividend, stock dividend, stock
split or other change in corporate structure affecting the Common
Stock, an appropriate substitution or adjustment shall be made in the
maximum number of shares that may be awarded under the Plan, in the
number and option price of shares subject to outstanding Options
granted under the Plan, the Section 162(m) Maximum 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. An adjusted option price shall also be
used to determine the amount payable by the Company upon the exercise
of any Stock Appreciation Right associated with any Stock Option.
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SECTION 4. ELIGIBILITY.
Officers, other key employees and consultants to the Company and its
Subsidiaries and Affiliates who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and/or
its Subsidiaries and Affiliates are eligible to be granted awards under the
Plan.
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 Company or
any Subsidiary of the Company.
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 Common 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 Company or of any
of its Subsidiaries, not less than 110%) of the Fair Market Value of
the Common Stock at grant, in the case of Incentive Stock Options, and
not less than 50% of the Fair Market Value of the Common 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 Company or any of its Subsidiaries or parent
companies, 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 9, 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.
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(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 Company 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 shares of Common Stock already owned by the
optionee or, in the case of the exercise of a Non-Qualified Stock
Option, in the form of Restricted Stock subject to an award hereunder
(valued at the Fair Market Value of the Common 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 Common Stock, the
Committee may award to the employee a new Stock Option to replace the
Common 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 Common 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 Common 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 shareholder 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 12(a).
(e) 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 Incentive 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 or an optionee who elects to make a disqualifying disposition
(as defined in Section 422(a)(1) of the Code) of Common Stock acquired
pursuant to the exercise of an Incentive 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 Company 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 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 Company 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
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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 Company 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 Company
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
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<PAGE> 8
Company or any Subsidiary or Affiliate. If an optionee voluntarily
terminates employment with the Company and any Subsidiary or (except in
the case of an Incentive Stock Option) Affiliate (except for
Disability, Normal or Early Retirement), the Stock Option 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 Common Stock with respect to which all 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) 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, Common 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
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<PAGE> 9
conditional Option shall vest immediately prior to its expiration if
the conditions to exercise have not theretofore been satisfied.
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 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.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash
and/or shares of Common Stock equal in value to the excess of
the Fair Market Value of one share of Common 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 Fair Market Value of the Common Stock on the date
of exercise.
(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 Common Stock
to be issued under the Plan.
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<PAGE> 10
(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.
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 Company, 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
Company 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 shares of Common Stock covered by such
award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the
following restrictions and conditions:
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(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, 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
shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The
Committee, in its sole 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 12(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 Company 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 Company 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 Common 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 Common Stock awards
or options valued by reference to earnings per share or Subsidiary
performance, may be granted either alone, in addition to, or in tandem
with Stock Options, Stock Appreciation Rights, or Restricted Stock
granted under the Plan and 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
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<PAGE> 12
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 Common Stock to be awarded pursuant to such awards,
and all other conditions of the awards. The Committee may also provide
for the grant of Common 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 shares of Common Stock or
otherwise reinvested.
(iii) Any award under this Section 8 and any shares
of Common 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 Company and the participant.
(vi) Common Stock (including securities convertible
into Common Stock) issued on a bonus basis under this Section
8 may be issued for no cash consideration. Common Stock
(including securities convertible into Common 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
Common Stock on the date of grant.
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(i) a "Change in Control" as defined in Section 9(b);
or
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(ii) 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:
(1) Subject to the limitations set forth below in
this Section 9(a), the following acceleration provisions shall
apply:
a) Any Stock Options awarded under the Plan
not previously exercisable and vested shall become
fully exercisable and vested.
b) Any Stock Appreciation Rights outstanding
for at least six months which are awarded under the
Plan and not previously exercisable and vested shall
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.
c) In the discretion of the Board, 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.
(2) Subject to the limitations set forth below in
this Section 9(a), 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 Board or by the Committee in its
sole discretion prior to any Change in Control, be cashed out
on the basis of the "Change in Control Price" as defined in
Section 9(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 Board or Committee may determine prior
to the Change in Control.
(3) The Board or the Committee may impose additional
conditions on the acceleration or valuation of any award in
the award agreement.
(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 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
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(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 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
(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.
(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 shareholders of an agreement by
the Company, the consummation of which would result in a
Change in Control of the Company 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 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.
(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 National Market or such other
exchange or market as is the principal trading market for the Common
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 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)(2).
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may at any time amend, alter or discontinue the Plan;
provided, however, that, without the approval of the Company's shareholders, no
amendment or alteration may be made which would (a) except as a result of the
provisions of Section 3(c) of the Plan, increase the maximum number of shares
that may be issued under the Plan or increase the Section 162(m) Maximum, (b)
change the provisions governing Incentive Stock Options except as required or
permitted under the provisions governing incentive stock options under
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<PAGE> 15
the Code, or (c) make any change for which applicable law or regulatory
authority (including the regulatory authority of the Nasdaq National Market or
any other market or exchange on which the Common Stock is traded) would require
shareholder approval or for which shareholder approval would be required to
secure full deductibility of compensation received under the Plan under Section
162(m) of the Code. 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, or Other Stock-Based Award
theretofore granted, without the participant's consent.
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.
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 Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. 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 Common 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 Company 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 Common 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
Commission, any stock exchange upon which the Common 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
shareholder 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 Company or any Subsidiary or Affiliate any right to
continued employment with the Company or a Subsidiary or Affiliate, as
the case may be, nor shall it interfere in any way with the right of
the Company or a Subsidiary or Affiliate to terminate the employment of
any of its employees at any time.
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<PAGE> 16
(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 Company, 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
Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement. The obligations of the
Company under the Plan shall be conditional on such payment or
arrangements and the Company 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 Common 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 Tennessee.
(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 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.
(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 Stock Option, Stock Appreciation Right, Restricted Stock
award, or Other Stock-Based Award or other right issued under this Plan
is transferable by the participant without the prior written consent of
the Committee, other than transfers by will or by the laws of descent
and distribution. The designation of a beneficiary will not constitute
a transfer.
(i) The Committee may, at or after grant, condition the
receipt of any payment in respect of any award or the transfer of any
shares subject to an award on the satisfaction of a six-month holding
period, if such holding period is required for compliance with Section
16 under the Exchange Act.
16
<PAGE> 17
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective upon the date of consummation of the
Company's initial public offering (the "Effective Date"), provided that it has
been approved by the Board of the Company and by a majority of the votes cast by
the holders of the Company's Common Stock.
SECTION 14. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Restricted Stock award,
Other Stock-Based Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the Effective Date of the Plan, but awards granted prior to
such tenth anniversary may be extended beyond that date.
17
<PAGE> 1
NationsBank
1 NationsBank Plaza
Nashville, TN 37239-1697
NATIONSBANK
June 13, 1997
Mr. Michael E. Hogrefe
Chief Financial Officer
CorporateFamily Solutions, Inc.
209 Tenth Avenue South, Suite 300
Nashville, TN 37203-4173
Dear Mike:
Thank you for the opportunity to make the following commitment to you.
NationsBank of Tennessee, N.A. (the "Bank") is pleased to have approved for
CorporateFamily Solutions, Inc. (the "Borrower") a credit facility consisting
of a Revolving Line of Credit in an amount not to exceed $5,000,000 (the
"Loan"). This commitment is to be used by you for the purpose of acquisitions
or working capital (not to be used to repay existing Bank secured debt.)
This commitment is subject to the execution and delivery to the Bank of legal
documents yet to be prepared, including, without limitation, a promissory note.
The making and funding of any loans under this commitment is expressly subject
to the terms and conditions set forth in the attached Terms and Conditions.
If you find the terms and conditions of this commitment to be acceptable to
you, please execute the enclosed copy of this letter and return it to the
undersigned. If not accepted, this commitment shall expire on June 30, 1997.
We appreciate the opportunity to provide you with the financial services of
NationsBank of Tennessee, N.A.
Sincerely,
/s/ William H. Diehl
- ------------------------
Vice President
Accepted and agreed to this ___ day of _________________________, 19___.
CorporateFamily Solutions, Inc.
By: ___________________________
<PAGE> 2
TERMS AND CONDITIONS
BORROWER: CorporateFamily Solutions, Inc.
PURPOSE: Acquisition and Working Capital
AMOUNT OF LOAN: $5,000,000
INTEREST RATE:
Prime Rate Daily: NationsBank Prime Rate adjusted daily.
COMMITMENT FEE:
Borrower agrees to pay to the Bank quarterly an unused commitment fee in the
amount of .25% of the difference between the maximum amount of this Loan and
the average principal amount outstanding under this Loan for the preceding
quarter.
REPAYMENT TERMS:
Balloon: In one principal payment due on May 1, 1998, together with interest
payable on the first day of each month.
LOAN DOCUMENTS:
This commitment letter shall constitute one of the Loan Documents and
shall survive the closing of the Loan, the execution and delivery of
all Loan Documents, and the making of any advances or disbursements
thereunder. In the event of a conflict between a provision contained
in this commitment letter and a provision of any other Loan Document,
the terms of the other Loan Document shall control.
CONDITIONS TO FIRST ADVANCE:
Prior to the making by the Bank of the first advance to the Borrower, the
following conditions precedent shall have been satisfied.
The Bank shall have received, duly executed, all Loan Documents and any other
documents and instruments necessary or advisable in connection with the Loan,
all of which shall be in form and substance satisfactory to the Bank and its
counsel.
CONDITIONS TO EACH ADVANCE:
Prior to the disbursement by the Bank of any advances to Borrower under this
Loan, the Bank shall have determined that there shall exist no event of
default; the representations and warranties contained in the Loan documents
shall be true and accurate as of the date of such advance; there shall have
occurred no material adverse change in the financial condition of the Borrower
or any other person liable for repayment of the Loan; and the
<PAGE> 3
Bank shall have determined that the prospect of payment or performance of the
Loan has not been materially impaired.
ADVANCE PROCEDURE:
Advances on this Loan will be made by telephonic or written communication from
a person reasonably believed by the Bank to be an authorized representative of
the Borrower. Unless otherwise agreed by the Bank, all advances will be made to
a demand deposit account maintained at the Bank in the name of the Borrower.
REPORTING REQUIREMENTS:
So long as the Borrower is indebted to the Bank, the Borrower shall submit to
the Bank the following:
1. Quarterly, within 45 days of the end of each quarter, internally prepared
financial statements of the Borrower, including a balance sheet and income
statement; and
2. Annually, within ninety (90) days following the end of the Borrower's fiscal
year, a balance sheet and income statement prepared in accordance with
generally accepted accounting principles on an audited basis by an independent
certified public accountant acceptable to the Bank, including statements of
financial condition, income, cash flows and changes in shareholders' equity.
REPRESENTATIONS AND WARRANTIES:
Good Standing. Borrower is a corporation, duly organized, validly existing and
in good standing under the laws of Tennessee and has the power and authority to
own its property and to carry on its business in each jurisdiction in which
Borrower does business.
Authority and Compliance. Borrower has full power and authority to execute and
deliver the Loan Documents and to incur and perform the obligations provided
for therein, all of which have been duly authorized by all proper and necessary
action of the appropriate governing body of Borrower. No consent or approval of
any public authority or other third party is required as a condition to the
validity of any Loan Document, and Borrower is in compliance with all laws and
regulatory requirements to which it is subject.
Binding Agreement. This Agreement and the other Loan Documents executed by
Borrower constitute valid and legally binding obligations of Borrower,
enforceable in accordance with their terms.
Litigation. There is no proceeding involving Borrower pending or, to the
knowledge of Borrower, threatened before any court or governmental authority,
agency or arbitration authority, except as disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement.
No Conflicting Agreements. There is no charter, bylaw, stock provision,
partnership agreement or other document pertaining to the organization, power
or authority of Borrower and no provision of any existing agreement, mortgage,
indenture or contract binding on Borrower or affecting its property, which
would conflict with or in any way
2
<PAGE> 4
prevent the execution, delivery or carrying out of the terms of this Agreement
and the other Loan Documents.
Ownership of Assets. Borrower has good title to its assets, and its assets are
free and clear of liens, except those granted to Bank and as disclosed to Bank
in writing prior to the date of this Agreement.
Taxes. All taxes and assessments due and payable by Borrower have been paid or
are being contested in good faith by appropriate proceedings and the Borrower
has filed all tax returns which it is required to file.
Financial Statements. The financial statements of Borrower heretofore delivered
to Bank have been prepared in accordance with GAAP applied on a consistent
basis throughout the period involved and fairly present Borrower's financial
condition as of the date or dates thereof, and there has been no material
adverse change in Borrower's financial condition or operations since December
31, 1996. All factual information furnished by Borrower to Bank in connection
with this Agreement and the other Loan Documents is and will be accurate and
complete on the date as of which such information is delivered to Bank and is
not and will not be incomplete by the omission of any material fact necessary
to make such information not misleading.
Place of Business. Borrower's chief executive office is located at
209 Tenth Avenue South, Suite 300
Nashville, TN 37203
Environmental Compliance. The conduct of Borrower's business operations and the
condition of Borrower's property does not and will not violate any federal
laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule,
regulation or rule of common law and any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials.
Continuation of Representation and Warranties. All representations and
warranties made under this Letter of Commitment shall be deemed to be made at
and as of the date hereof and at and as of the date of any advance under any
Loan.
FINANCIAL COVENANTS:
Until full payment and performance of all obligations of Borrower under the
Loan, Borrower will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other loan document):
Funded Debt to EBITDA: Maintain on a trailing four quarter basis a Funded Debt
to EBITDA ratio of no more than 2.0 to 1
"Funded Debt" means at any date, with respect to Borrower, all of the
following obligations (without duplication) of Borrower: (i) all
obligations of Borrower for borrowed money, (ii) all obligations of
Borrower evidenced by bonds, debentures,
3
<PAGE> 5
notes or other similar instruments, (iii) all obligations of Borrower to
pay the deferred purchase price of property or services, except accounts
payable arising in the ordinary course of business, (iv) all obligations
of Borrower as lessee under capital leases, (v) all obligations of
Borrower to purchase securities or other property which arise out of or
in connection with the sale of the same or substantially similar
securities or property, (vi) all non-contingent obligations of Borrower
to reimburse any bank or other person in respect of amounts paid under a
letter of credit or similar instrument, (vii) all debt of others secured
by a lien on any asset of Borrower, whether or not such debt is assumed
by Borrower and (viii) all debt of others guaranteed by Borrower.
"EBITDA" is defined as Earnings Before Interest, Taxes, Depreciation, and
Amortization
All accounting terms not specifically defined or specified herein shall have the
meanings generally attributed to such terms under generally accepted accounting
principles ("GAAP"), as in effect from time to time, consistently applied.
AFFIRMATIVE COVENANTS:
Until full payment and performance of all obligations of Borrower under the Loan
Documents, Borrower will, without the prior written consent of Bank (and without
limiting any requirement of any other Loan Documents):
INSURANCE. Maintain insurance with responsible insurance companies on such of
its properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity, specifically to
include fire and extended coverage insurance covering all assets, business
interruption insurance, workers compensation insurance and liability insurance,
all to be with such companies and in such amounts as are satisfactory to Bank
and providing for at least 30 days prior notice to Bank of any cancellation
thereof. Satisfactory evidence of such insurance will be supplied to Bank prior
to funding under the Loan(s) and 30 days prior to each policy renewal.
EXISTENCE AND COMPLIANCE. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
ADVERSE CONDITION OR EVENTS. Promptly advise Bank in writing of (i) any
condition, event or act which comes to its attention that would or might
materially adversely affect Borrower's financial condition or operations or
Bank's rights under the Loan Documents, (ii) any litigation filed by or against
Borrower, (iii) any event that has occurred that would constitute an event of
default under any Loan Documents and (iv) any uninsured or partially uninsured
loss through fire, theft, liability or property damage in excess of an aggregate
of $100,000.
TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments and other
obligations, including, but not limited to taxes, costs or other expenses
arising out of this transaction,
4
<PAGE> 6
as the same become due and payable, except to the extent the same are being
contested in good faith by appropriate proceedings in a diligent manner.
MAINTENANCE. Maintain all of its tangible property in good condition and repair
and make all necessary replacements thereof, and preserve and maintain all
licenses, trademarks, privileges, permits, franchises, certificates and the like
necessary for the operation of its business.
ENVIRONMENTAL. Immediately advise Bank in writing of (i) any and all
enforcement, cleanup, remedial, removal, or other governmental or regulatory
actions instituted, completed or threatened pursuant to any applicable federal,
state, or local laws, ordinances or regulations relating to any Hazardous
Materials affecting Borrower's business operations; and (ii) all claims made or
threatened by any third party against Borrower relating to damages,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials. Borrower shall immediately notify Bank of any remedial
action taken by Borrower with respect to Borrower's business operations.
Borrower will not use or permit any other party to use any Hazardous Materials
at any of Borrower's places of business or at any other property owned by
Borrower except such materials as are incidental to Borrower's normal course of
business, maintenance and repairs and which are handled in compliance with all
applicable environmental laws. Borrower agrees to permit Bank, its agents,
contractors and employees to enter and inspect any of Borrower's places of
business or any other property of Borrower at any reasonable times upon three
(3) days prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure that
Borrower is complying with this covenant and Borrower shall reimburse Bank on
demand for the costs of any such environmental investigation and audit.
Borrower shall provide Bank, its agents, contractors, employees and
representatives with access to and copies of any and all data and documents
relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's business operations within
five (5) days of the request therefore.
NEGATIVE COVENANTS
Until full payment and performance of all obligations of Borrower under the Loan
Documents, Borrower will not, without the prior written consent of Bank (and
without limiting any requirement of any Loan Documents):
Transfer of Assets or Control. Sell, lease, assign or otherwise dispose of or
transfer any assets, except in the normal course of its business, or enter into
any merger or consolidation, or transfer control or ownership of the Borrower or
from or acquire any subsidiary.
Liens. Grant, suffer or permit any contractual or noncontractual lien on or
security interest in its assets, except in favor of Bank, or fail to promptly
pay when due all lawful claims, whether for labor, materials or otherwise.
Extension of Credit. Make any loan or advance to any individual, partnership,
corporation or other entity.
5
<PAGE> 7
Borrowings. Create, incur, assume or become liable in any manner for any
indebtedness (for borrowed money, deferred payment for the purchase of assets,
lease payments, as surety or guarantor for the debt for another, or otherwise)
other than to Bank, except for normal trade debts incurred in the ordinary
course of Borrower's business, and except for existing indebtedness disclosed
to Bank in writing and acknowledged by Bank prior to the date of this
Agreement.
Character of Business. Change the general character of business as conducted
at the date hereof, or engage in any type of business not reasonably related to
its business as presently conducted.
EVENTS OF DEFAULT
A default shall occur under this Letter of Commitment and under each of the
Loan Documents and under any other promissory note executed by Borrower in
favor of Bank if the Borrower, any endorser or any guarantor of the Loan
defaults in the payment of any amounts due and owing under the Loan or any other
indebtedness owing to Bank within fifteen (15) days of its due date or fails to
timely and properly observe, keep or perform any term, covenant, agreement or
condition in any of the Loan Documents or in any other loan agreement,
promissory note, security agreement, deed of trust, deed to secure debt,
mortgage, assignment or other contract securing or evidencing payment of any
indebtedness of Borrower, any endorser or any guarantor of any loan to Bank or
to any affiliate or subsidiary of NationsBank Corporation.
REMEDIES UPON DEFAULT
If any event of default shall occur Bank shall have all rights, powers and
remedies available under each of the loan Documents as well as rights and
remedies available at law or in equity.
CLOSING COSTS AND EXPENSES:
Expenses: The Borrower shall pay all costs and expenses incurred by the Bank
in connection with the Bank's review, due diligence and closing of the Loan,
including attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law) incurred by
the Bank in connection with the negotiation and preparation of the Loan
Documents, the costs of any environmental investigation and audit, appraisal,
title insurance premiums, survey and inspection fees, whether or not the Loan
actually closes.
MATERIAL ADVERSE CHANGE:
This commitment may be terminated, in the sole discretion of the Bank, upon the
occurrence of a material adverse change in the financial condition of the
Borrower or any other person liable to the Bank for the repayment of this Loan.
6
<PAGE> 8
NON-ASSIGNABLE:
This commitment and the right of Borrower to receive loans hereunder may not be
assigned by Borrower.
RELIANCE:
This commitment constitutes an offer by the Bank to the Borrower to make a Loan
on the terms and conditions set forth herein and should not be relied upon by
any third party for any purpose.
AMENDMENT AND WAIVER:
No alteration, modification, amendment or waiver of any terms and conditions of
this commitment, or of any of the documents required by or delivered to the
Bank under this commitment, shall be effective or enforceable against the Bank
unless set forth in a writing signed by the Bank.
GOVERNING LAW:
This commitment and the Loan shall be governed by and construed in accordance
with the laws of the State of Tennessee (without regard to choice of law
principles).
INTEGRATION:
The terms set forth above represent the entire understanding between the
Borrower and the Bank with respect to the subject matter of this commitment,
and this commitment supersedes any prior and contemporaneous agreements,
commitments, discussions and understandings, oral or written, with respect to
the subject matter of this commitment.
ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE AND
ANY SUCCESSOR THEREOF (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL
7
<PAGE> 9
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF
THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
AGREEMENT; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES
SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES
BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT
PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE
THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
The terms and conditions set forth above are accepted this ___________ day of
_______________, 19_____.
Corporate Family Solutions, Inc.
By:
------------------------------
Title:
---------------------------
8
<PAGE> 1
EXHIBIT 10.13
CORPORATEFAMILY SERVICES, INC.
AMENDMENT TO REGISTRATION AGREEMENT
Pursuant to Section 13 thereof, CorporateFamily Solutions, Inc. (the
"Corporation"), holders of the Company's Common Stock, no par value per share,
and holders of the Company's Series A Preferred Stock, no par value per share,
who are parties to the Registration Agreement dated August 29, 1991, hereby
agree to amend the Registration Agreement as follows:
1. The definition of "Initial Public Offering" in Section 1 of the
Registration Agreement is hereby amended and restated in its entirety to read as
follows:
"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).
2. All other provisions of the Registration Agreement are hereby affirmed.
3. This Amendment may be executed via facsimile and in counterparts, which
when taken together shall constitute one agreement.
SHAREHOLDER:
/s/ Donald M. Johnston
------------------------------------
Signature
Donald M. Johnston
------------------------------------
Name
7/14/97
------------------------------------
Date
<PAGE> 2
CENTRAL CONFEDERATE VENTURE FUND
LIMITED PARTNERSHIP
By: MB Investment Management, Inc.
Co-Investment Manager
By: /s/ J. Donald McLemore
----------------------------------------
Title: Vice President
By: /s/ Donald M. Johnston
----------------------------------------
Title: Vice President
Date: 7/14/97
VALLEY VENTURE FUND
By: Massey Burch Venture Group, L.P.
General Partner
By: /s/ J. Donald McLemore
----------------------------------------
Title: Vice President
By: /s/ Donald M. Johnston
----------------------------------------
Title: Vice President
Date: 7/14/97
FRONTENAC VENTURE V LIMITED
PARTNERSHIP
By: Frontenac Company, its General Partner
By: /s/ Rodney Goldstein
----------------------------------------
Name: Rodney Goldstein, its General Partner
Date: July 15, 1997
TRINITY VENTURES II, L.P.
By: Trinity TVL Partners, L.P., its General
Partner
By: /s/ Noel J. Fenton
----------------------------------------
Name: Noel J. Fenton, its General Partner
Date: 7/18/97
2
<PAGE> 3
TRINITY VENTURES III, L.P.
By: Trinity TVL Partners, L.P., its General
Partner
By: /s/ Noel J. Fenton
-------------------------------------
Name: Noel J. Fenton, its General Partner
Date: 7/18/97
TRINITY SIDE-BY-SIDE FUND I, L.P.
By: Trinity TVL Partners, L.P., its General
Partner
By: /s/ Noel J. Fenton
-------------------------------------
Name: Noel J. Fenton, its General Partner
Date: 7/18/97
CORPORATION:
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ Michael E. Hogrefe
-----------------------------------
Name: Michael E. Hogrefe
---------------------------------
Title: EVP and CFO
--------------------------------
Date: July 18, 1997
---------------------------------
3
<PAGE> 1
EXHIBIT 10.14
CORPORATEFAMILY SOLUTIONS, INC.
1997 OUTSIDE DIRECTORS' INCENTIVE PLAN
1. PURPOSE
The purposes of the Plan are to advance the interests of the Company
and its shareholders by attracting and retaining the highest quality of
experienced persons as Outside Directors and to align the interests of the
Outside Directors more closely with the interests of the Company's shareholders.
2. DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings
indicated below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Change in Control" has the meaning provided in Section 9 of
the Plan.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor thereto.
(d) "Committee" shall mean a committee of the Board of Directors
composed of not less than two Non-Employee Directors.
(e) "Company" shall mean CorporateFamily Solutions, Inc., a
corporation organized under the laws of the State of
Tennessee, or any successor corporation.
(f) "Disability" means permanent and total disability within the
meaning of Section 22(e)(3) of the Code, as determined by the
Committee.
(g) "Fair Market Value" shall mean, as of a given date, (i) the
average bid and asked prices for the Stock on the Nasdaq Stock
Market's National Market for the last preceding date on which
there was a sale of the Stock, or (ii) if the Stock is not
traded on the Nasdaq Stock Market's National Market, the fair
market value of a share of Stock as determined by the
Committee in good faith.
(h) "Non-Employee Director" means a member of the Board who is a
Non-Employee Director within the meaning of Rule 16-3(b)(3)
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Treasury Regulation Sec.
162-27(e)(3).
(i) "Outside Director" shall mean any member of the Board who is
not an officer or employee of the Company or any Subsidiary of
the Company.
(j) "Plan" shall mean the 1997 Outside Directors' Incentive Plan.
<PAGE> 2
(k) "Restricted Stock" shall mean an award of Stock that is
subject to restrictions under Paragraph 7 below.
(l) "Restricted Period" shall have the meaning provided in
Paragraph 7.
(m) "Stock" shall mean the Common Stock, no par value, of the
Company.
(n) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
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.
3. ADMINISTRATION
The Plan shall be administered by the Committee. The Committee is
authorized to interpret the Plan and may from time to time adopt such rules and
regulations, not inconsistent with the provisions of the Plan, as it may deem
advisable to carry out the Plan. All decisions made by the Committee in
construing the provisions of the Plan shall be final.
4. ELIGIBILITY
Each Outside Director shall be eligible to participate under the Plan.
5. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Paragraph 8, not more than 25,000
shares of Stock may be granted as an incentive award with respect to the
Restricted Stock awards granted under the Plan. Such shares that are reserved
for issuance under the Plan are authorized but unissued shares of Stock. Shares
of Stock subject to a Restricted Stock award shall, upon the expiration or
termination of any such Restricted Stock award to the extent unexercised, again
be available for grant under the Plan.
6. GRANT OF RESTRICTED STOCK
Restricted Stock grants will be awarded under this Plan pursuant to the
following formula: Each Outside Director shall receive on the date of the annual
meeting of the Company's shareholders, commencing with the 1998 annual meeting
of shareholders, an award of Restricted Stock such that the total number of
shares of Restricted Stock has an aggregate Fair Market Value of $10,000.
7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
(a) Term
The Outside Director Restricted Stock shall vest as follows:
(i) Of the aggregate number of shares of Restricted
Stock granted on the date of each Annual Meeting of
Shareholders, one-third of such shares shall immediately vest
on the date of grant;
2
<PAGE> 3
(ii) At the first Annual Meeting of Shareholders
following the Annual Meeting at which the Restricted Stock was
granted, if the grantee is still serving as a director of the
Company, the Restricted Stock shall vest with respect to
one-half of the remaining shares of the Restricted Stock; and
(iii) At the second Annual Meeting of Shareholders
following the Annual Meeting at which the Restricted Stock was
granted, if the director is still serving as a director of the
Company, the Outside Director Restricted Stock shall vest with
respect to the remaining shares of the Restricted Stock.
(b) Until the earlier of (i) five years from the date of grant and (ii)
the date on which the Outside Director ceases to serve as a director of
the Company (the "Restriction Period"), no Restricted Stock may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, otherwise than by will or by the laws of descent and
distribution.
Each certificate representing Restricted Stock granted pursuant to this
Section 7 shall bear the following legend:
"The sale or other transfer of the shares represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in the
CorporateFamily Solutions, Inc. 1997 Outside Directors' Incentive Plan
(the "Plan"). A copy of the Plan and the rules of such Plan may be
obtained from the Secretary of CorporateFamily Solutions, Inc."
Once the Restriction Period has lapsed, the grantee shall be entitled to have
the legend required by this Section 7 removed from such stock certificate(s);
provided, however, that such certificate shall be subject to any legend required
by applicable state or federal law.
(c) From the date on which the Restricted Stock is granted, grantees
awarded such Stock may exercise full voting rights with respect to the
Restricted Stock.
(d) Grantees holding Restricted Stock that has vested in accordance
with Section 7(a) hereof, shall be entitled to receive all dividends
and other distributions paid with respect to such shares of Stock while
they are so held. If any such dividends or distributions are paid in
Stock, such shares of Stock shall be subject to the same restrictions
on transferability as the shares of Restricted Stock with respect to
which they were paid.
(e) Grantees of Restricted Stock shall enter into a Restricted Stock
Award Agreement with the Company setting forth the restrictions imposed
on the Stock granted to him or her.
(f) All shares of Restricted Stock which have not vested in accordance
with Section 7(a) hereof, at the time of a grantee's resignation,
removal, or failure to be elected as a member of the Board of Directors
shall be forfeited and such forfeited shares shall again be available
for award hereunder.
8. CAPITAL ADJUSTMENTS AND CORPORATE REORGANIZATIONS
In the event of any change in the outstanding shares of Stock by reason
of a stock dividend, split or combination, or recapitalization or
reclassification, or reorganization, merger or consolidation, in which the
Company is the surviving corporation or other similar change affecting the
Stock, the number of shares then
3
<PAGE> 4
subject to Restricted Stock awards and for which Restricted Stock awards may
thereafter be granted shall be appropriately adjusted by the Committee to
reflect such change. No fractional shares shall be issued as a result of such
adjustment.
9. CHANGE IN CONTROL PROVISIONS
All restrictions imposed on the Restricted Stock shall expire
automatically upon a Change in Control. A "Change in Control" means the
happening of any of the following:
(a) 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
(b) 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
(c) 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.
10. EFFECTIVE DATE AND TERM OF THE PLAN
The Plan shall be effective as of January 1, 1998. Subject to Section
11 hereof, the Board in its discretion may terminate the Plan at any time with
respect to any shares for which Restricted Stock awards have not theretofore
been granted. Except with respect to Restricted Stock awards then outstanding,
if not sooner forfeited or terminated, the Plan shall terminate upon, and no
further Restricted Stock awards shall be granted after, January 1, 2008.
11. AMENDMENTS
The Board may amend, alter, or discontinue the Plan without shareholder
approval to the fullest extent permitted by the Exchange Act and the rules and
regulations promulgated thereunder, but no amendment, alteration, or
discontinuation shall be made which would impair the rights of a grantee or
under an Outside Director Restricted Stock award theretofore granted without the
grantee's consent or which requires shareholder approval pursuant to any other
applicable law or regulation.
4
<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
July 23, 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
July 23, 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
July 23, 1997
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