<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(Exact name of registrant as specified in its certificate of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 8351 [APPLIED FOR]
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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)
---------------------
MICHAEL E. HOGREFE
CHIEF FINANCIAL OFFICER
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:
<TABLE>
<S> <C>
JAMES H. CHEEK, III, ESQ. ALFRED O. ROSE, ESQ.
BASS, BERRY & SIMS PLC ROPES & GRAY
FIRST AMERICAN CENTER ONE INTERNATIONAL PLACE
NASHVILLE, TENNESSEE 37238-2700 BOSTON, MASSACHUSETTS 02110
(615) 742-6200 (617) 951-7000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement and the effective time ("Effective Time") of the mergers (the
"Merger") of one subsidiary of Bright Horizons Family Solutions, Inc. ("Bright
Horizons Family Solutions") with and into CorporateFamily Solutions, Inc.
("CorporateFamily") and of another subsidiary of Bright Horizons Family
Solutions with and into Bright Horizons, Inc. ("Bright Horizons") as described
in the Amended and Restated Agreement and Plan of Merger dated June 17, 1998.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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(d)
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT PRICE(1)(2) REGISTRATION FEE
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share... 11,217,309 shares N/A $260,476,523 $11,870
====================================================================================================================================
</TABLE>
(1) Based upon the assumed number of shares that may be issued in the Merger
described herein. Such assumed number is based upon the number of shares of
common stock, par value $0.01 per share, of the Registrant ("Bright Horizons
Family Solutions Common Stock") expected to be issued on the effective date
of the Merger for each issued and outstanding share of common stock of
CorporateFamily ("CorporateFamily Common Stock") and Bright Horizons
("Bright Horizons Common Stock"). The amount of the registration fee is
reduced, pursuant to Rule 457(b), by the amount paid May 15, 1998 ($64,971)
pursuant to Section 14(g) of the Securities Exchange Act of 1934 by
CorporateFamily, on behalf of CorporateFamily and Bright Horizons, in
connection with the filing of a Preliminary Joint Proxy Statement on May 15,
1998.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(1) and Rule 457(c), based on the sum of (i) the product of
(a) $24.0625 (the average of the high and low prices of CorporateFamily
Common Stock on June 11, 1998, on The Nasdaq National Market) times (b)
4,743,275 shares of CorporateFamily Common Stock and (ii) the product of (a)
$26.00 (the average of the high and low prices of Bright Horizons Common
Stock on June 11, 1998, on The Nasdaq National Market) times (b) 5,628,518
shares of Bright Horizons Common Stock.
THE REGISTRANT WILL AMEND 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
(BRIGHT HORIZONS LOGO) (CORPORATEFAMILY SOLUTIONS LOGO)
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Bright Horizons, Inc. and CorporateFamily
Solutions, Inc. have agreed on a merger of equals designed to create one of the
largest national worklife and early childhood education companies. The combined
company will be named Bright Horizons Family Solutions, Inc. and will have its
principal offices in Cambridge, Massachusetts and Nashville, Tennessee.
If the merger is completed, CorporateFamily shareholders will receive one
share of Bright Horizons Family Solutions common stock in exchange for each
share of CorporateFamily common stock that they own. Bright Horizons
stockholders will receive 1.15022 shares of Bright Horizons Family Solutions
common stock in exchange for each share of Bright Horizons common stock that
they own. Based on closing prices on June 16, 1998, the market value of one
share of CorporateFamily common stock was $24.19, one share of Bright Horizons
common stock was $26.75, and 1.15022 shares of CorporateFamily common stock was
$27.82. We estimate that, following the merger, CorporateFamily shareholders
will own, on a fully diluted basis, 43.2% of the stock of Bright Horizons Family
Solutions and Bright Horizons stockholders will own, on a fully diluted basis,
56.8%. The shares of Bright Horizons Family Solutions common stock will be
listed on The Nasdaq National Market under the symbol "BFAM."
The merger requires the approval of a majority of the stockholders of both
companies. We have scheduled special meetings for our stockholders to vote on
the merger. YOUR VOTE IS VERY IMPORTANT.
Whether or not you plan to attend a meeting, please take time to vote by
completing and mailing the enclosed proxy card in the postage paid envelope
provided. If you sign, date and mail your proxy card without indicating how you
want to vote, your proxy will be counted as a vote in favor of the merger. If
you fail to return your card, the effect will be equivalent to a vote against
the merger.
The dates, times and places of the meetings are as follows:
FOR BRIGHT HORIZONS STOCKHOLDERS:
Friday, July 24, 1998
10:00 a.m. (EDT)
Offices of Ropes & Gray
One International Place
Boston, Massachusetts
FOR CORPORATEFAMILY SHAREHOLDERS:
Friday, July 24, 1998
9:00 a.m. (CDT)
Offices of CorporateFamily
209 Tenth Avenue South, Suite 300
Nashville, Tennessee
This Joint Proxy Statement/Prospectus provides you with detailed information
about the proposed merger. In addition, you may obtain information about our
companies from documents filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
/s/ Roger H. Brown
ROGER H. BROWN
Chairman of the Board and Chief Executive Officer
Bright Horizons, Inc.
/s/ Marguerite W. Sallee
MARGUERITE W. SALLEE
President and Chief Executive Officer
CorporateFamily Solutions, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE BRIGHT HORIZONS FAMILY SOLUTIONS COMMON STOCK TO BE
ISSUED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR CERTAIN MATTERS YOU SHOULD CONSIDER.
This Joint Proxy Statement/Prospectus is dated June 17, 1998 and is first being
mailed to stockholders on or about June 19, 1998.
<PAGE> 3
BRIGHT HORIZONS, INC.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(617) 577-8020
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 24, 1998
Notice is hereby given that a special meeting of the stockholders (the
"Special Meeting") of Bright Horizons, Inc. ("Bright Horizons") will be held on
Friday, July 24, 1998 at 10:00 a.m. EDT at the offices of Ropes & Gray, One
International Place, Boston, Massachusetts, for the following purposes:
1. To consider and vote on a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger dated June 17, 1998 by and
between Bright Horizons, CorporateFamily Solutions, Inc.
("CorporateFamily"), Bright Horizons Family Solutions, Inc. ("Bright
Horizons Family Solutions"), CFAM Acquisition, Inc. and BRHZ Acquisition,
Inc., and the transaction contemplated thereby (the "Merger Agreement").
Pursuant to the Merger Agreement, (i) Bright Horizons and CorporateFamily
will form Bright Horizons Family Solutions, a Delaware corporation, (ii)
BRHZ Acquisition, Inc., a Delaware corporation and newly formed wholly
owned subsidiary of Bright Horizons Family Solutions, will merge with and
into Bright Horizons (the "Bright Horizons Merger"), with Bright Horizons
being the surviving corporation, and (iii) CFAM Acquisition, Inc., a
Tennessee corporation and newly formed wholly owned subsidiary of Bright
Horizons Family Solutions, will merge with and into CorporateFamily (the
"CorporateFamily Merger"), with CorporateFamily being the surviving
corporation (the Bright Horizons Merger, together with the CorporateFamily
Merger, the "Merger"). As a result of the Merger, Bright Horizons and
CorporateFamily will become wholly owned subsidiaries of Bright Horizons
Family Solutions. Upon the consummation of the Merger, each outstanding
share of CorporateFamily common stock shall be converted into one share of
Bright Horizons Family Solutions common stock, par value $0.01 per share,
and each outstanding share of Bright Horizons common stock shall be
converted into 1.15022 shares of Bright Horizons Family Solutions common
stock.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 10, 1998 as
the record date for the determination of the stockholders entitled to notice of
and to vote at the Special Meeting, or any adjournment or postponement thereof.
Only holders of record of Bright Horizons common stock on the record date are
entitled to vote at the Special Meeting. A list of such stockholders will be
available at the time and place of the Special Meeting and, during the ten days
prior to the Special Meeting, at the offices of Ropes & Gray, One International
Place, Boston, Massachusetts 02110.
You can ensure that your shares of Bright Horizons common stock are voted
at the Special Meeting by signing and dating the enclosed proxy and returning it
in the postage paid envelope provided. Sending in a signed proxy will not affect
your right to attend the Special Meeting and vote in person. You may revoke your
proxy at any time before it is voted by giving written notice to the Secretary
of Bright Horizons at Bright Horizons' headquarters, One Kendall Square,
Building 200, Cambridge, Massachusetts 02139, by signing and returning a later
dated proxy or by voting in person at the Special Meeting.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE POSTAGE PAID ENVELOPE PROVIDED.
By Order of the Board of Directors,
Stephen I. Dreier
Stephen I. Dreier,
Secretary
Cambridge, Massachusetts
June 17, 1998
<PAGE> 4
CORPORATEFAMILY SOLUTIONS, INC.
209 Tenth Avenue South
Suite 300
Nashville, Tennessee 37203-4173
(615) 256-9915
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1998
Notice is hereby given that a special meeting of the shareholders (the
"Special Meeting") of CorporateFamily Solutions, Inc. ("CorporateFamily") will
be held on Friday, July 24, 1998 at 9:00 a.m. CDT at the offices of
CorporateFamily, 209 Tenth Avenue South, Suite 300, Nashville, Tennessee, for
the following purposes:
1. To consider and vote on a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger dated June 17, 1998 by and
between CorporateFamily, Bright Horizons, Inc. ("Bright Horizons"), Bright
Horizons Family Solutions, Inc. ("Bright Horizons Family Solutions"), CFAM
Acquisition, Inc. and BRHZ Acquisition, Inc., and the transactions
contemplated thereby (the "Merger Agreement"). Pursuant to the Merger
Agreement, (i) CorporateFamily and Bright Horizons will form Bright
Horizons Family Solutions, a Delaware corporation, (ii) BRHZ Acquisition,
Inc., a Delaware corporation and newly formed wholly owned subsidiary of
Bright Horizons Family Solutions, will merge with and into Bright Horizons
(the "Bright Horizons Merger"), with Bright Horizons being the surviving
corporation, and (iii) CFAM Acquisition, Inc., a Tennessee corporation and
newly formed wholly owned subsidiary of Bright Horizons Family Solutions,
will merge with and into CorporateFamily (the "CorporateFamily Merger"),
with CorporateFamily being the surviving corporation (the Bright Horizons
Merger, together with the CorporateFamily Merger, the "Merger"). As a
result of the Merger, CorporateFamily and Bright Horizons will become
wholly owned subsidiaries of Bright Horizons Family Solutions. Upon the
consummation of the Merger, each outstanding share of CorporateFamily
common stock shall be converted into one share of Bright Horizons Family
Solutions common stock, par value $0.01 per share, and each outstanding
share of Bright Horizons common stock shall be converted into 1.15022
shares of Bright Horizons Family Solutions common stock.
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on June 10, 1998 as
the record date for the determination of the shareholders entitled to notice of
and to vote at the Special Meeting, or any adjournment or postponement thereof.
Only holders of record of CorporateFamily common stock on the record date are
entitled to vote at the Special Meeting. A list of such shareholders will be
available at the time and place of the Special Meeting and, prior to the Special
Meeting, at the offices of CorporateFamily at the address written above.
You can ensure that your shares of CorporateFamily common stock are voted
at the Special Meeting by signing and dating the enclosed proxy and returning it
in the postage paid envelope provided. Sending in a signed proxy will not affect
your right to attend the Special Meeting and vote in person. You may revoke your
proxy at any time before it is voted by giving written notice to the Secretary
of CorporateFamily at the address written above, by signing and returning a
later dated proxy or by voting in person at the Special Meeting.
Whether or not you expect to attend, WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE POSTAGE PAID ENVELOPE PROVIDED.
By Order of the Board of
Directors,
/s/ Michael E. Hogrefe
Michael E. Hogrefe,
Executive Vice President,
Chief Financial Officer and
Secretary
Nashville, Tennessee
June 17, 1998
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 2
CAUTIONARY STATEMENT........................................ 16
RISK FACTORS................................................ 17
THE CORPORATEFAMILY SPECIAL MEETING......................... 23
THE BRIGHT HORIZONS SPECIAL MEETING......................... 25
THE MERGER.................................................. 27
Background of the Merger.................................. 27
CorporateFamily's Reasons for the Merger; Recommendations
of the CorporateFamily Board of Directors.............. 27
Opinion of CorporateFamily's Financial Advisor............ 30
Bright Horizons' Reasons for the Merger; Recommendations
of the Bright Horizons Board of Directors.............. 34
Opinion of Bright Horizons' Financial Advisor............. 36
Interests of Certain Persons in the Merger................ 40
Accounting Treatment...................................... 42
Fiscal Year............................................... 43
Regulatory Matters........................................ 43
No Appraisal Rights....................................... 43
The Nasdaq National Market Listing........................ 43
Certain Federal Income Tax Consequences................... 43
Certain Restrictions on Resale of Bright Horizons Family
Solutions Common Stock................................. 45
THE MERGER AGREEMENT........................................ 47
Exchange Ratios; Exchange of Certificates................. 47
Treatment of Outstanding Stock Options of CorporateFamily
and Bright Horizons.................................... 48
Representations and Warranties............................ 48
Conduct of Business Pending the Merger.................... 49
No Solicitation of Transactions........................... 51
Indemnification; Insurance................................ 52
Conditions to Consummation of the Merger.................. 52
Termination; Amendment and Waiver......................... 54
Fees and Expenses......................................... 55
STOCK OPTION AGREEMENTS..................................... 55
BRIGHT HORIZONS FAMILY SOLUTIONS UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION............................ 58
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA OF BRIGHT
HORIZONS.................................................. 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BRIGHT HORIZONS.............. 69
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA OF
CORPORATEFAMILY........................................... 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CORPORATEFAMILY.............. 79
INFORMATION CONCERNING BRIGHT HORIZONS...................... 87
INFORMATION CONCERNING CORPORATEFAMILY...................... 97
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INFORMATION CONCERNING BRIGHT HORIZONS FAMILY SOLUTIONS..... 103
Business and Strategy..................................... 103
Management................................................ 104
OWNERSHIP OF BRIGHT HORIZONS................................ 112
OWNERSHIP OF CORPORATEFAMILY................................ 114
BRIGHT HORIZONS FAMILY SOLUTIONS STOCK INCENTIVE PLAN....... 117
BRIGHT HORIZONS FAMILY SOLUTIONS EMPLOYEE STOCK PURCHASE
PLAN...................................................... 118
DESCRIPTION OF BRIGHT HORIZONS FAMILY SOLUTIONS CAPITAL
STOCK..................................................... 118
COMPARISON OF STOCKHOLDERS' RIGHTS.......................... 120
LEGAL MATTERS............................................... 125
EXPERTS..................................................... 125
STOCKHOLDER PROPOSALS....................................... 125
OTHER MATTERS............................................... 125
WHERE YOU CAN FIND MORE INFORMATION......................... 126
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<TABLE>
<CAPTION>
ANNEXES
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<S> <C>
ANNEX I AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER DATED JUNE
17, 1998
ANNEX II COMPANY STOCK OPTION AGREEMENT BETWEEN BRIGHT HORIZONS, AS
GRANTEE, AND CORPORATEFAMILY, AS ISSUER
ANNEX III COMPANY STOCK OPTION AGREEMENT BETWEEN CORPORATEFAMILY, AS
GRANTEE, AND BRIGHT HORIZONS, AS ISSUER
ANNEX IV OPINION OF NATIONSBANC MONTGOMERY SECURITIES LLC
ANNEX V OPINION OF BT ALEX. BROWN INCORPORATED
</TABLE>
ii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A. We believe that the combination of our two companies will create one of the
largest national worklife and early childhood education companies and, as
such, we expect (1) to better serve our clients in building family-friendly
work environments; (2) to improve the quality and availability of early
childhood education for young children; and (3) to create more value for you
and other stockholders. We will be combining CorporateFamily's strengths in
the Southeast and Midwest with Bright Horizons' strengths in the Northeast,
Midwest and West. The combined company will work with over 220 clients, will
manage over 250 employer-sponsored early education centers in 35 states and
will have the capacity to serve over 31,000 children and their families.
Q. WHAT IS "BRIGHT HORIZONS FAMILY SOLUTIONS, INC."?
A. "Bright Horizons Family Solutions, Inc." is the name that Bright Horizons and
CorporateFamily have agreed to use for the combined company after the Bright
Horizons/CorporateFamily merger.
Q. WHAT DO I NEED TO DO NOW?
A. Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the meetings to vote on
the merger. Both stockholder meetings will take place on July 24, 1998. The
Boards of Directors of CorporateFamily and Bright Horizons recommend the
merger.
Q. CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A. Yes. You can change your vote at any time before your proxy is voted at the
stockholder meeting. You can do this in one of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy card to the Secretary of Bright Horizons at the address below if you
are a Bright Horizons stockholder or to the Secretary of CorporateFamily at
the address below if you are a CorporateFamily shareholder. Third, you can
attend the stockholder meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy. You should send any written
notice or new proxy card to the Secretary of Bright Horizons, if you are a
Bright Horizons stockholder, at the following address: Bright Horizons, Inc.,
One Kendall Square, Building 200, Cambridge, Massachusetts 02139 or to the
Secretary of CorporateFamily, if you are a CorporateFamily shareholder, at
the following address: CorporateFamily Solutions, Inc., 209 Tenth Avenue
South, Suite 300, Nashville, Tennessee 37203-4173.
Q. SHOULD I SEND MY STOCK CERTIFICATES NOW?
A. No. After the merger is completed, we will send you written instructions for
exchanging your stock certificates.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. CorporateFamily shareholders will receive one share of Bright Horizons Family
Solutions common stock in exchange for each share of CorporateFamily common
stock they own. Bright Horizons stockholders will receive 1.15022 shares of
Bright Horizons Family Solutions common stock for each share of Bright
Horizons common stock they own. No fractional shares will be issued. Instead,
stockholders who would otherwise be entitled to receive a fractional share
will receive cash based on the value of the fractional share of Bright
Horizons Family Solutions common stock.
Q. WILL THE BRIGHT HORIZONS FAMILY SOLUTIONS COMMON STOCK BE LISTED ON A
NATIONAL TRADING MARKET?
A. Yes. Bright Horizons Family Solutions expects to list the shares of Bright
Horizons Family Solutions common stock to be issued in the merger on The
Nasdaq National Market under the symbol "BFAM."
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A. We are working to complete the merger as quickly as possible. We currently
expect to complete the merger by July 31, 1998.
Q. WHAT ARE THE TAX CONSEQUENCES OF THE MERGER?
A. We expect the merger to be tax-free for federal income tax purposes, except
for taxes on cash received for a fractional share.
1
<PAGE> 8
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully the entire document, including "Cautionary
Statements," and the documents to which we have referred you. Throughout the
document, please keep in mind that Bright Horizons has a fiscal year ending June
30 and CorporateFamily has a fiscal year ending the Friday closest to December
31.
THE COMPANIES
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
<TABLE>
<S> <C>
209 Tenth Avenue South One Kendall Square
Suite 300 Building 200
Nashville, TN 37203-4173 Cambridge, MA 02139
(615) 256-9915 (617) 577-8020
</TABLE>
Bright Horizons Family Solutions, Inc., a newly formed Delaware
corporation, has not, to date, conducted any significant activities other than
those incident to its formation and its participation in the preparation of this
Joint Proxy Statement/ Prospectus and certain other matters contemplated by the
merger agreement. As a result of the merger, CorporateFamily Solutions, Inc. and
Bright Horizons, Inc. will merge with newly formed subsidiaries of Bright
Horizons Family Solutions, becoming wholly owned subsidiaries of Bright Horizons
Family Solutions.
CORPORATEFAMILY SOLUTIONS, INC.
209 Tenth Avenue South, Suite 300
Nashville, TN 37203-4173
(615) 256-9915
CorporateFamily Solutions, Inc. is a leading national provider of services
for the corporate market that support families and business success.
CorporateFamily works with more than 100 employers seeking to create a "family
friendly" work environment by providing workplace child care, education, family
support programs and consulting services. CorporateFamily currently manages 100
employer-sponsored Family Centers for 74 corporate clients in 29 states and the
District of Columbia.
BRIGHT HORIZONS, INC.
One Kendall Square, Building 200
Cambridge, MA 02139
(617) 577-8020
Bright Horizons, Inc. is the nation's largest provider of early childhood
education and family support services for the corporate market, operating 155
centers in 29 states and the District of Columbia. Bright Horizons partners with
145 corporate and institutional sponsors to provide care and education to more
than 15,000 children and their families.
OUR REASONS FOR THE MERGER (SEE PAGES 27 AND 34)
We believe that the combination of our two companies will create one of the
largest national worklife and early childhood education companies and, as such,
we expect (1) to better serve our clients in building family-friendly work
environments; (2) to improve the quality and availability of early childhood
education for young children; and (3) to create more value for you and other
stockholders. We will be combining CorporateFamily's strengths in the Southeast
and Midwest with Bright Horizons' strengths in the Northeast, Midwest and West.
The combined company will work with over 220 clients, will manage over 250
employer-sponsored early education centers in 35 states and will have the
capacity to serve over 31,000 children and their families.
THE SPECIAL MEETINGS
THE CORPORATEFAMILY SPECIAL MEETING (SEE PAGE 23)
There will be a special meeting of shareholders of CorporateFamily at the
offices of CorporateFamily, 209 Tenth Avenue South, Suite 300, Nashville,
Tennessee on Friday, July 24, 1998, at 9:00 (CDT). At this meeting,
CorporateFamily shareholders will be asked to approve and adopt the merger
agreement.
THE BRIGHT HORIZONS SPECIAL MEETING (SEE PAGE 25)
There will be a special meeting of stockholders of Bright Horizons at the
offices of Ropes & Gray, One International Plaza, Boston, Massachusetts on
Friday, July 24, 1998, at 10:00 (EDT). At this meeting, Bright Horizons
stockholders will be asked to approve and adopt the merger agreement.
2
<PAGE> 9
THE RECORD DATE FOR VOTING
CorporateFamily Shareholders (SEE PAGE 23)
The close of business on June 10, 1998 was the record date for determining
which holders of CorporateFamily common stock are entitled to vote at the
CorporateFamily special meeting. At the record date, there were 4,728,275 shares
of CorporateFamily common stock entitled to vote at the CorporateFamily special
meeting.
Bright Horizons Stockholders (SEE PAGE 25)
The close of business on June 10, 1998 was the record date for determining
which holders of Bright Horizons common stock are entitled to vote at the Bright
Horizons special meeting. At the record date, there were 5,608,518 shares of
Bright Horizons common stock entitled to vote at the Bright Horizons special
meeting.
VOTING (SEE PAGES 23 AND 25)
You will have one vote for each share of common stock that you owned on the
record date. In order to approve and adopt the merger agreement and the merger,
a majority of the outstanding shares of common stock of each of CorporateFamily
and Bright Horizons must vote in favor of approving and adopting the merger
agreement.
As of June 10, 1998, the directors and executive officers of
CorporateFamily and their affiliates collectively held or shared power to vote
with respect to approximately 15.5% of the outstanding CorporateFamily common
stock. As of June 10, 1998, the directors and executive officers of Bright
Horizons and their affiliates collectively held or shared power to vote with
respect to approximately 9.2% of the outstanding Bright Horizons common stock.
All directors and executive officers of CorporateFamily and Bright Horizons and
their affiliates have expressed their intent to vote to approve and adopt the
merger agreement.
BOARD RECOMMENDATIONS
CorporateFamily (SEE PAGE 27)
The members of the CorporateFamily Board who were present at the meeting
have unanimously determined that the merger agreement, and the transactions
contemplated thereby, are fair to, and in the best interests of, CorporateFamily
and its shareholders and recommend that the shareholders of CorporateFamily vote
to approve and adopt the merger agreement.
Bright Horizons (SEE PAGE 34)
The members of the Bright Horizons Board who were present at the meeting
have unanimously determined that the merger agreement, and the transactions
contemplated thereby, are fair to, and in the best interests of, Bright Horizons
and its stockholders and recommend that the stockholders of Bright Horizons vote
to approve and adopt the merger agreement.
THE MERGER
The merger agreement is attached as Annex I to this Joint Proxy
Statement/Prospectus. We encourage you to read the merger agreement, as it is
the legal document that governs the merger.
WHAT YOU WILL RECEIVE IN THE MERGER (SEE PAGE 47)
Bright Horizons Stockholders
In the merger, each share of Bright Horizons common stock will be
cancelled. In exchange, you will receive 1.15022 shares of the combined company,
Bright Horizons Family Solutions, Inc. Bright Horizons Family Solutions will not
issue fractional shares of its common stock. You will instead be paid cash equal
to the value of any fractional shares of Bright Horizons Family Solutions common
stock you would have otherwise received.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL INSTRUCTED TO DO SO
AFTER THE MERGER IS COMPLETED.
CorporateFamily Shareholders
In the merger, each share of CorporateFamily common stock will be
cancelled. In exchange, you will receive one share of common stock of the
combined company, Bright Horizons Family Solutions, Inc.
YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES UNTIL INSTRUCTED TO DO SO
AFTER THE MERGER IS COMPLETED.
3
<PAGE> 10
OWNERSHIP OF BRIGHT HORIZONS FAMILY SOLUTIONS FOLLOWING THE MERGER
On a fully diluted basis, CorporateFamily shareholders will own
approximately 43.2% of the stock of Bright Horizons Family Solutions after the
merger, and Bright Horizons stockholders will own approximately 56.8%.
WHAT WILL HAPPEN TO OUTSTANDING EMPLOYEE STOCK OPTIONS. (SEE PAGE 48)
All options to purchase shares of CorporateFamily common stock will vest
and become exercisable at the time of the merger and will become options to
purchase the same number of shares of Bright Horizons Family Solutions common
stock at the same exercise prices. While options to purchase shares of Bright
Horizons common stock held by certain officers will vest at the time of the
merger, options held by other Bright Horizons employees will not. All options to
purchase shares of Bright Horizons common stock will become options to purchase
shares of Bright Horizons Family Solutions common stock, with the number of
shares subject to options adjusted to reflect the 1.15022 exchange ratio, and
the exercise price adjusted downward to be the quotient of the current exercise
price divided by the 1.15022 exchange ratio.
MANAGEMENT AND BOARD OF DIRECTORS OF BRIGHT HORIZONS FAMILY SOLUTIONS FOLLOWING
THE MERGER (SEE PAGE 104)
If the merger is completed, management will be as follows:
- Linda A. Mason, the current President of Bright Horizons, will become
Chairman of the Board of Bright Horizons Family Solutions.
- Marguerite W. Sallee, the current President and Chief Executive Officer
of CorporateFamily, will become Chief Executive Officer of Bright
Horizons Family Solutions.
- Roger H. Brown, the current Chairman of the Board and Chief Executive
Officer of Bright Horizons, will become President of Bright Horizons
Family Solutions.
- Mary Ann Tocio, the current Chief Operating Officer of Bright Horizons,
will become Chief Operating Officer of Bright Horizons Family Solutions.
- Michael E. Hogrefe, the current Executive Vice President, Chief Financial
Officer and Secretary of CorporateFamily, will become Chief Financial
Officer of Bright Horizons Family Solutions.
- Stephen I. Dreier, the current Chief Administrative Officer and Secretary
of Bright Horizons, will become Chief Administrative Officer and
Secretary of Bright Horizons Family Solutions.
Pursuant to employment contracts to be entered into in connection with the
merger, it is currently anticipated that thirty months following the effective
time of the merger, Ms. Sallee will be named Chairman of the Board, Mr. Brown
will be named Chief Executive Officer and Ms. Mason will be named Vice Chairman
and President, all such appointments subject to the Board of Directors of Bright
Horizons Family Solutions exercising its fiduciary duty.
The Board of Directors of Bright Horizons Family Solutions will consist of
11 members -- 5 chosen by CorporateFamily, 5 chosen by Bright Horizons and 1
chosen jointly by CorporateFamily and Bright Horizons.
BACKGROUND OF THE MERGER (SEE PAGE 27)
Representatives of Bright Horizons and CorporateFamily have discussed a
possible combination or strategic alliance from time to time over the past
several years. After signing a confidentiality agreement on February 25, 1998,
the two parties met several times without being able to reach an agreement with
respect to any material terms. Beginning on April 15, 1998, the two parties
began serious discussions to resolve their differences and began to conduct due
diligence reviews of each other's operations. From April 15, 1998 until April
26, 1998, the parties negotiated the terms of a merger agreement. Both parties
held board meetings at which they respectively concluded the merger was fair and
in the best interests of the company and its stockholders. Following these
meetings, a definitive merger agreement was entered into on April 26, 1998 and a
public announcement was made on April 27, 1998.
4
<PAGE> 11
OPINIONS OF FINANCIAL ADVISORS (SEE PAGES 30 AND 36)
At Board meetings held on April 26, 1998 to consider the merger, the Boards
of both companies received the opinions of their respective financial advisors.
- The CorporateFamily Board received the opinion of its financial advisor,
NationsBanc Montgomery Securities LLC, to the effect that, as of April
26, 1998 and subject to certain matters stated in such opinion, the
CorporateFamily exchange ratio provided for in the merger agreement was
fair, from a financial point of view, to the holders of CorporateFamily
common stock.
- The Bright Horizons Board received the opinion of its financial advisor,
BT Alex. Brown Incorporated, to the effect that, as of April 26, 1998 and
subject to certain matters stated in such opinion, the Bright Horizons
exchange ratio provided for in the merger agreement was fair, from a
financial point of view, to the holders of Bright Horizons common stock.
The full text of the written opinions of NationsBanc Montgomery Securities
LLC and BT Alex. Brown Incorporated are attached to the back of this document as
Annexes IV and V, respectively, and should be read carefully in their entirety.
THESE OPINIONS ARE DIRECTED TO THE RESPECTIVE BOARD OF DIRECTORS, ADDRESS ONLY
THE FAIRNESS OF THE EXCHANGE RATIOS FROM A FINANCIAL POINT OF VIEW, AND DO NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD
VOTE ON THE MERGER.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 40)
In considering the recommendation that you vote to approve and adopt the
merger agreement, you should be aware that a number of officers and directors of
CorporateFamily and Bright Horizons have interests in the merger that are
different from or in addition to yours. For example, some officers have
severance agreements that entitle them to compensation if they are terminated
without cause or quit for good reason during a specified period of time
following the merger. All officers and directors of CorporateFamily and certain
officers of Bright Horizons also have stock options which will vest as a result
of the merger. The aggregate value of stock options that will fully vest as a
result of the merger is approximately $5.0 million for executive officers and
directors of CorporateFamily and approximately $7.4 million for executive
officers of Bright Horizons, based on the difference between the prices of the
respective common stock on June 10, 1998 and the exercise prices of the
respective stock options.
In addition, several of the executive officers of CorporateFamily and
Bright Horizons will receive new employment contracts that may provide such
officers significant compensation if the merger is consummated and rights to
severance compensation if they are terminated following the merger.
The respective boards of directors recognized these interests and
determined that they neither supported nor detracted from the fairness of the
merger to the respective companies and their stockholders.
CONDITIONS TO THE MERGER (SEE PAGE 52)
The completion of the merger depends upon meeting a number of conditions,
including, but not limited to, the following:
- the approval of the holders of a majority of the common stock of each of
CorporateFamily and Bright Horizons;
- no law being enacted or injunction entered which prohibits the merger;
- the approval for listing of the Bright Horizons Family Solutions common
stock on The Nasdaq National Market;
- the receipt of legal opinions regarding certain tax consequences of the
merger;
- the receipt of letters from independent accountants for each company
relating to the pooling of interests accounting treatment; and
- no material adverse change to either party.
5
<PAGE> 12
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 54)
Bright Horizons and CorporateFamily can mutually agree to terminate the
merger agreement at any time, and either Bright Horizons or CorporateFamily can
terminate the merger agreement for several reasons, including, but not limited
to, the following:
- if the merger is not completed by November 30, 1998;
- if a governmental authority, such as a court, permanently prohibits the
merger or refuses to grant an approval that is required;
- if the other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the merger agreement;
- if the Board of Directors of the other party (A) withdraws or modifies in
any adverse manner its approval or recommendation in favor of the merger,
(B) recommends a significant transaction with a third party or (C) does
not recommend that its stockholders not tender their shares in a tender
or exchange offer for a significant portion of the company's shares; or
- if its stockholders or the other party's stockholders fail to approve the
merger agreement.
TERMINATION FEES (SEE PAGE 55)
The merger agreement obligates CorporateFamily or Bright Horizons to pay to
the other party a termination fee of $4.0 million if an actual takeover of such
company occurred during the term, or within 12 months after the termination, of
the merger agreement and:
- such company's stockholders failed to approve the merger agreement;
- such company breached or materially failed to comply with any of its
representations or warranties or obligations under the merger agreement;
or
- such company's Board of Directors (A) withdrew or modified in any adverse
manner its approval or recommendation in favor of the merger, (B)
recommended a significant transaction with a third party or (C) did not
recommend that its stockholders not tender their shares in a tender or
exchange offer for a significant portion of the company's shares.
RECIPROCAL STOCK OPTION AGREEMENTS (SEE PAGE 55)
Bright Horizons and CorporateFamily have both signed reciprocal stock
option agreements under which each has issued an option to the other party to
purchase approximately 10% of its outstanding common stock which will become
exercisable if the issuer is the subject of a publicly announced third party
takeover proposal.
The holder of an option or stock acquired pursuant to the option may
require the issuer to repurchase the option or stock if a takeover of the issuer
occurs within twelve months after the option becomes exercisable.
The termination fees and stock option agreements may make it more difficult
and expensive for Bright Horizons or CorporateFamily to consummate an
alternative transaction.
ACCOUNTING TREATMENT (SEE PAGE 42)
We expect the merger to qualify as a pooling of interests, which means that
both companies will be treated as if they had always been combined for
accounting and financial reporting purposes. We have conditioned the merger upon
the receipt of letters from the accountants of both companies relating to the
pooling of interests accounting treatment.
NO APPRAISAL RIGHTS (SEE PAGE 43)
Under Tennessee and Delaware law, CorporateFamily and Bright Horizons
stockholders have no right to an appraisal of the value of their shares in
connection with the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 43)
We have structured the merger so that no gain or loss generally should be
recognized for federal income tax purposes on the exchange of shares of
CorporateFamily and Bright Horizons common stock for shares of Bright Horizons
Family Solutions common stock. We have conditioned the merger on the receipt of
legal opinions regarding certain tax consequences of the merger.
6
<PAGE> 13
TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (SEE PAGE 16)
CorporateFamily and Bright Horizons have made forward-looking statements in
this document that are subject to certain risks and uncertainties.
Forward-looking statements include the information concerning possible or
assumed future results of operations of CorporateFamily, Bright Horizons and
Bright Horizons Family Solutions as well as statements preceded by, followed by
or that include the words "believes," "expects," "anticipates," "intends," or
similar expressions. You should understand that certain important factors, in
addition to those discussed elsewhere in this document, could affect the future
results of CorporateFamily, Bright Horizons and Bright Horizons Family Solutions
and could cause those results to differ materially from those expressed in our
forward-looking statements. See "Risk Factors."
7
<PAGE> 14
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Set forth on the following pages are summary historical financial
information of Bright Horizons and CorporateFamily, and summary unaudited pro
forma combined financial information of Bright Horizons and CorporateFamily. The
historical data with respect to Bright Horizons and CorporateFamily is based
upon the respective historical financial statements of Bright Horizons and
CorporateFamily and should be read in conjunction with the financial statements
and notes thereto of Bright Horizons and CorporateFamily included in this Joint
Proxy Statement/Prospectus on pages F-1 to F-38.
The summary unaudited pro forma combined financial information should be
read in conjunction with the unaudited pro forma financial statements, including
the notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "Bright Horizons Family Solutions Unaudited Pro Forma Combined Financial
Information."
BRIGHT HORIZONS
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996(1) 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 23,812 $ 32,012 $ 43,693 $ 64,181 $ 85,001 $ 61,765 $77,360
Cost of services(2)............................ 20,611 27,592 37,209 55,615 72,675 53,032 65,720
-------- -------- -------- -------- -------- -------- -------
Gross profit................................... 3,201 4,420 6,484 8,566 12,326 8,733 11,640
Selling, general and administrative
expenses(2).................................. 3,034 3,578 5,174 6,376 9,007 6,429 8,504
Amortization of non-compete agreements(2)(3)... -- -- 80 1,680 560 420 210
Transaction costs(4)........................... -- -- -- -- 543 -- --
-------- -------- -------- -------- -------- -------- -------
Income from operations......................... 167 842 1,230 510 2,216 1,884 2,926
Interest income (expense), net................. (14) (17) 21 (194) (275) (226) 86
-------- -------- -------- -------- -------- -------- -------
Income before income taxes..................... 153 825 1,251 316 1,941 1,658 3,012
Income tax benefit (provision)(5).............. -- 319 382 1,005 (794) (678) (1,235)
-------- -------- -------- -------- -------- -------- -------
Net income before preferred stock dividends and
accretion on redeemable common stock......... 153 1,144 1,633 1,321 1,147 980 1,777
-------- -------- -------- -------- -------- -------- -------
Preferred stock dividends and accretion on
redeemable common stock...................... 1,101 1,099 1,098 1,098 1,098 824 348
-------- -------- -------- -------- -------- -------- -------
Net income (loss) applicable to common
stockholders................................. $ (948) $ 45 $ 535 $ 223 $ 49 $ 156 $ 1,429
======== ======== ======== ======== ======== ======== =======
Net income (loss) per share -- basic........... $ (1.82) $ 0.09 $ 1.00 $ 0.41 $ 0.09 $ 0.28 $ 0.45
======== ======== ======== ======== ======== ======== =======
Net income per share -- diluted(6)............. $ N/A $ 0.07 $ 0.40 $ 0.20 $ 0.04 $ 0.13 $ 0.34
======== ======== ======== ======== ======== ======== =======
SELECTED OPERATING DATA (AT END OF PERIOD):
Number of clients.............................. 53 70 85 119 134 130 145
Number of centers.............................. 54 72 87 124 140 134 155
Licensed capacity(7)........................... 4,625 6,318 7,607 12,642 14,156 13,580 16,612
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $ 802 $ 544 $ 900 $ 2,412 $ 87 $ 2,065 $ 4,770
Total assets................................... 8,104 10,467 12,970 24,535 28,519 28,614 51,469
Long-term debt and capital lease obligations,
including current maturities................. 775 713 874 4,733 4,275 4,483 762
Mandatorily redeemable convertible preferred
stock........................................ 15,311 16,410 17,508 18,607 19,705 19,430 --
Stockholders' equity (deficit)(8).............. (12,031) (11,983) (11,447) (11,215) (11,160) (11,053) 26,765
</TABLE>
- - ---------------
(1) Effective December 1, 1995, Bright Horizons acquired the business and some
of the assets and liabilities of GreenTree Child Care Services, Inc.
("GreenTree"). Fiscal 1996 results include seven months of GreenTree
operating results. If the GreenTree acquisition had occurred on July 1,
1995, Bright Horizons' pro forma net revenues, gross profit and net income
for fiscal 1996 would have been $70.4 million, $8.8 million and $988,000,
respectively.
8
<PAGE> 15
(2) Total depreciation and amortization is comprised of (i) center depreciation
included in cost of services, (ii) corporate facility depreciation and
amortization of goodwill included in selling, general and administrative
expenses and (iii) amortization of non-compete agreements discussed in Note
3 below. Total depreciation and amortization was approximately $517,000,
$652,000, $871,000, $2.8 million, $2.2 million, $1.6 million and $1.8
million in fiscal 1993, 1994, 1995, 1996, 1997 and the nine months ended
March 31, 1997 and 1998, respectively.
(3) In connection with the acquisitions of Burud & Associates, Inc. ("Burud") in
fiscal 1995 and GreenTree in fiscal 1996, Bright Horizons received, in each
case, an agreement from the seller not to compete with Bright Horizons for a
certain future period. Bright Horizons recorded intangible assets for the
non-compete agreements of $600,000 in fiscal 1995 and $2.0 million in fiscal
1996. These amounts are being amortized over the estimated period of
benefit. The remaining $70,000 in amortization expense associated with these
non-compete agreements will be recorded in the quarter ended June 30, 1998.
(4) In fiscal 1997, Bright Horizons incurred costs of $543,000 associated with a
proposed public offering of securities. Because the offering was delayed,
the amounts incurred were treated as a period cost.
(5) In each of fiscal 1994, 1995 and 1996 Bright Horizons recorded an income tax
benefit on pre-tax earnings. These benefits include $652,000, $1.0 million
and $1.4 million for fiscal 1994, 1995 and 1996, respectively, representing
decreases in the tax valuation allowance, net of $1.1 million applied to
reduce goodwill in 1996. In fiscal 1997, Bright Horizons recorded an income
tax provision which was not materially affected by changes in the valuation
allowance net of amounts applied to reduce goodwill.
(6) Diluted earnings per share was not presented for fiscal 1993 because the
effect of considering the additional dilution related to preferred stock,
options and warrants would have been anti-dilutive. The conversion of
preferred stock was not assumed in the diluted earnings per share
calculations for fiscal 1994, 1996 and 1997 and for the nine months ended
March 31, 1997 as the results would have been anti-dilutive.
(7) Represents the total capacity permitted under applicable state licenses.
(8) In November 1997, Bright Horizons completed an initial public offering of
2,970,000 shares of common stock, of which 1,350,000 shares were issued and
sold by Bright Horizons and the remainder were sold by selling stockholders,
at an offering price of $13.00 per share.
9
<PAGE> 16
CORPORATEFAMILY
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR(1) THREE MONTHS ENDED
------------------------------------------------- ------------------------------
1993 1994 1995(2) 1996 1997 MARCH 28, 1997 APRIL 3, 1998
------- ------- ------- ------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue....................... $16,967 $24,513 $36,920 $62,926 $77,722 $17,479 $21,248
Operating expenses............ 14,458 21,092 32,708 55,588 68,734 15,341 18,758
Selling, general and
administrative expenses..... 3,344 2,958 3,525 4,659 5,822 1,416 1,570
Special charge(4)............. -- -- -- -- 297 -- --
Depreciation and
amortization................ 239 387 520 759 784 200 208
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... (1,074) 76 167 1,920 2,085 522 712
Interest income (expense),
net......................... 9 (50) (86) (343) 109 (72) 172
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (1,065) 26 81 1,577 2,194 450 884
Income tax benefit
(expense)................... -- -- 460 1,159 (1,090) (221) (370)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $(1,065) $ 26 $ 541 $ 2,736 $ 1,104 $ 229 $ 514
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share -- basic.............. $ (0.72) $ 0.02 $ 0.34 $ 1.44 $ 0.39 $ 0.12 $ 0.11
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share --
diluted..................... N/A(3) $ 0.01 $ 0.19 $ 0.85 $ 0.28 $ 0.07 $ 0.10
======= ======= ======= ======= ======= ======= =======
SELECTED OPERATING DATA (AT
END OF PERIOD):
Family Center clients(5)...... 29 41 58 65 70 65 74
Family Centers(6)............. 33 48 75 85 95 85 100
Licensed Capacity(7).......... 5,279 6,361 10,487 12,440 14,402 12,835 14,843
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ 998 $ 939 $ 407 $ 1,769 $12,816 $ 1,818 $13,683
Total assets.................. 4,774 5,265 17,055 20,378 30,217 19,071 32,202
Long-term debt, including
current maturities.......... 758 883 5,064 4,416 -- 4,193 --
Shareholders' equity(8)....... 2,067 1,724 4,015 6,975 20,807 7,207 21,658
</TABLE>
- - ---------------
(1) CorporateFamily's fiscal year ends on the Friday closest to December 31.
Fiscal 1997 consisted of a 53 week year.
(2) In October 1995, CorporateFamily acquired all of the outstanding capital
stock of Resources for Child Care Management, Inc. ("RCCM"), an operator of
21 employer-sponsored child care centers. The transaction was accounted for
as a purchase, and accordingly, the results of operations include RCCM from
the date of the acquisition.
(3) Not presented because the effect of considering the additional dilution
related to preferred stock, options and warrants would have been
anti-dilutive.
(4) Non-cash compensation costs related to removing the restrictions on common
stock held by an officer of CorporateFamily.
(5) A Family Center client is defined as an entity that as of the applicable
date was under contract with CorporateFamily for the management of one or
more open and operating Family Centers.
(6) Family Centers are defined as the facilities that CorporateFamily is engaged
to manage and operate on behalf of its Family Center Clients.
(7) Represents the total capacity permitted under applicable state licenses.
(8) On August 12, 1997, CorporateFamily completed an initial public offering of
2,702,500 shares of common stock, of which 1,401,386 shares were issued and
sold by CorporateFamily and the remainder by selling stockholders, at an
offering price of $10.00 per share.
10
<PAGE> 17
BRIGHT HORIZONS FAMILY SOLUTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma combined financial information
gives effect to the Merger of Bright Horizons and CorporateFamily under the
pooling of interests method of accounting. This summary pro forma financial
information is presented for illustrative purposes only and therefore is not
necessarily indicative of the operating results and financial position that
might have been achieved had the Merger occurred as of an earlier date, nor is
it necessarily indicative of operating results and financial position which may
occur in the future.
A pro forma combined balance sheet is provided as of March 31, 1998 for
Bright Horizons and April 3, 1998 for CorporateFamily, giving effect to the
Merger. Summary Pro forma combined statements of operations are provided for the
three month periods ended March 31, 1997 and 1998 for Bright Horizons and for
the three month periods ended March 28, 1997 and April 3, 1998 for
CorporateFamily, respectively, and for the years ended June 30, 1995, 1996 and
1997 for Bright Horizons and for the years ended December 29, 1995, December 27,
1996 and January 2, 1998 for CorporateFamily, respectively, giving effect to the
Merger.
Bright Horizons has a fiscal year ending on June 30 and CorporateFamily has
a fiscal year ending on the Friday closest to December 31. If the Merger is
consummated, the fiscal year of Bright Horizons Family Solutions will end
December 31, and it is Bright Horizons' intention to restate its 1997 results to
conform to a calendar year presentation. As such, a summary unaudited pro forma
combined statement of operations combining Bright Horizons' results for the
twelve months ended December 31, 1997 with CorporateFamily's results for the
year ended January 2, 1998 has also been presented. The results of Bright
Horizons for the six months ended June 30, 1997, resulting in net revenues and
net income of $45.1 million and $741,000, respectively, have been included in
the summary pro forma statements of operations for both the calendar and fiscal
years ended 1997.
The summary unaudited combined pro forma information does not purport to
represent what the financial position or results of operations would have
actually been had the Merger occurred at the beginning of the earliest period
presented or to project the financial position or results of operations for any
future date or period. The results of operations do not include nonrecurring
Merger-related costs estimated to be $7.5 million, nor do they incorporate any
benefits from any potential cost savings or synergies following the Merger. The
summary unaudited pro forma combined information assumes the exchange of each
outstanding share of CorporateFamily Common Stock for one share of Bright
Horizons Family Solutions Common Stock and each outstanding share of Bright
Horizons Common Stock for 1.15022 shares of Bright Horizons Family Solutions
Common Stock. The summary unaudited pro forma combined financial information
should be read in conjunction with, and is qualified by reference to, the
Unaudited Pro Forma Combined Financial Information, Management's Discussion and
Analysis of Financial Condition and Results of Operations and the historical
financial statements and notes thereto of Bright Horizons and CorporateFamily
Solutions included elsewhere in this Joint Proxy Statement/Prospectus.
11
<PAGE> 18
BRIGHT HORIZONS FAMILY SOLUTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) CALENDAR THREE MONTHS ENDED(3)
------------------------------------ YEAR ENDED -------------------------------
1995 1996 1997 1997(2) MARCH 31, 1997 MARCH 31, 1998
---------- ---------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................... $ 80,613 $ 127,107 $ 162,723 $172,555 $ 39,336 $ 48,868
Center operating expenses..... 69,989 111,351 141,583 149,312 33,677 42,015
---------- ---------- ---------- -------- ---------- -----------
Gross profit................ 10,624 15,756 21,140 23,243 5,659 6,853
Selling, general and
administrative.............. 8,757 11,097 14,851 16,299 3,786 4,530
Amortization.................. 470 2,229 1,148 1,056 299 263
Other charges(4).............. -- -- 840 840 -- --
---------- ---------- ---------- -------- ---------- -----------
Income from operations.... 1,397 2,430 4,301 5,048 1,574 2,060
Interest income (expense)..... (65) (537) (166) (44) (154) 280
---------- ---------- ---------- -------- ---------- -----------
Income before income
taxes................... 1,332 1,893 4,135 5,004 1,420 2,340
Income tax (expense)
benefit..................... 842 2,164 (1,884) (2,243) (618) (966)
---------- ---------- ---------- -------- ---------- -----------
Net income before
preferred stock
dividends............... 2,174 4,057 2,251 2,761 802 1,374
Preferred stock dividends..... 1,098 1,098 1,098 897 275 --
---------- ---------- ---------- -------- ---------- -----------
Net income available to common
stockholders................ $ 1,076 $ 2,959 $ 1,153 $ 1,864 $ 527 $ 1,374
========== ========== ========== ======== ========== ===========
Pro forma net income per
share -- basic(5)........... $ 0.48 $ 1.17 $ 0.33 $ 0.43 $ 0.21 $ 0.13
Pro forma net income per
share -- diluted(5)......... $ 0.28 $ 0.66 $ 0.21 $ 0.30 $ 0.10 $ 0.11
SELECTED OPERATING DATA (AT
END OF PERIOD):
Number of clients........... 143 184 204 211 195 219
Number of centers........... 162 209 235 245 219 255
Licensed capacity(6)........ 18,094 25,082 28,558 30,232 26,415 31,455
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................................................................... $ 10,953
Total assets...................................................................................... 83,670
Long-term debt and capital lease obligations...................................................... 762
Total stockholders' equity........................................................................ 40,923
</TABLE>
- - ---------------
(1) Represents the combined historical results of Bright Horizons for the fiscal
years ended June 30, 1995, 1996 and 1997 and the historical results of
CorporateFamily for the fiscal years ended December 29, 1995, December 27,
1996 and January 2, 1998.
(2) Represents the combined results of Bright Horizons for the twelve months
ended December 31, 1997 and the results of CorporateFamily for the fiscal
year ended January 2, 1998.
(3) Represents the combined historical results of Bright Horizons for the
quarters ended March 31, 1997 and 1998 and the historical results of
CorporateFamily for the quarters ended March 28, 1997 and April 3, 1998.
(4) Other expenses in fiscal and calendar 1997 include $543,000 of costs
incurred by Bright Horizons associated with a proposed public offering of
securities. Because the offering was delayed, the amounts incurred were
treated as a period cost. Other expenses in fiscal and calendar 1997 also
include non-cash compensation costs incurred by CorporateFamily related to
removing the restrictions on common stock held by an officer of
CorporateFamily.
(5) The pro forma net income per share is based on the weighted average number
of common stock and common stock equivalents outstanding of Bright Horizons
and CorporateFamily for each period assuming
12
<PAGE> 19
BRIGHT HORIZONS FAMILY SOLUTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
that each outstanding share of CorporateFamily Common Stock is exchanged for
one share of Bright Horizons Family Solutions Common Stock and each
outstanding share of Bright Horizons Common Stock is exchanged for 1.15022
shares of Bright Horizons Family Solutions Common Stock. Historical earnings
per share for Bright Horizons does not assume the conversion of preferred
stock in periods where the results would have been anti-dilutive.
(6) Represents the total capacity permitted under applicable state licenses.
13
<PAGE> 20
COMPARATIVE PER SHARE DATA OF BRIGHT HORIZONS AND CORPORATEFAMILY
The following table sets forth certain earnings and book value per share
data for CorporateFamily and Bright Horizons on historical and pro forma bases.
Neither CorporateFamily nor Bright Horizons has ever declared or paid any cash
dividends on its common stock. The pro forma earnings and book value data are
derived from the Bright Horizons Family Solutions Unaudited Pro Forma Combined
Financial Information appearing elsewhere herein, which gives effect to the
merger as a pooling of interests as if the merger had been consummated at the
beginning of the earliest period presented. The information set forth below
should be read in conjunction with the historical consolidated financial
statements of CorporateFamily and of Bright Horizons and the Bright Horizons
Family Solutions Unaudited Pro Forma Combined Financial Information, including
the notes thereto, appearing elsewhere in this Joint Proxy Statement/Prospectus.
See "Where You Can Find More Information" and "Bright Horizons Family Solutions
Unaudited Pro Forma Combined Financial Information."
The pro forma data does not purport to be indicative of the results of
future operations or the results that would have occurred had the Merger been
consummated at the beginning of the periods presented.
<TABLE>
<CAPTION>
THREE
MONTHS
FISCAL YEAR ENDED(1) CALENDAR ENDED
--------------------------- YEAR ENDED MARCH 31,
1995 1996 1997 DEC. 31, 1997(2) 1998(3)
------ ------ ------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Unaudited Pro Forma Combined(4)
Earnings per share basic........... $ 0.48 $ 1.17 $ 0.33 $0.43 $ 0.13
Earnings per share diluted......... 0.28 0.66 0.21 0.30 0.11
Book value per share............... 0.42 3.61 3.70
Bright Horizons Per Share
Equivalents(5)
Earnings per share basic........... 0.55 1.35 0.38 0.49 0.15
Earnings per share diluted......... 0.32 0.76 0.24 0.35 0.13
Book value per share............... 0.48 4.15 4.26
CorporateFamily Historical
Earnings per share basic........... 0.34 1.44 0.39 0.39 0.11
Earnings per share diluted......... 0.19 0.85 0.28 0.28 0.10
Book value per share............... 4.63 4.63 4.70
Bright Horizons Historical
Earnings per share basic........... 1.00 0.41 0.09 0.59 0.15
Earnings per share diluted......... 0.40 0.20 0.04 0.36 0.14
Book value (deficit) per share..... (20.05) 4.67 4.78
</TABLE>
- - ---------------
(1) Data is presented based on the respective fiscal year ends of Bright
Horizons and CorporateFamily.
(2) Data is presented on a calendar basis for both Bright Horizons and
CorporateFamily.
(3) Data for the three months ended March 31, 1998 is for the three month period
ended March 31, 1998 for Bright Horizons and for the three month period
ended April 3, 1998 for CorporateFamily.
(4) The CorporateFamily Per Share Equivalents are equal to the Unaudited Pro
Forma Combined per share amounts, as the exchange ratio of CorporateFamily
Common Stock to Bright Horizons Family Solutions Common Stock is 1 to 1.
(5) The Bright Horizons Per Share Equivalents were calculated by multiplying the
Unaudited Pro Forma Combined per share amounts by the Bright Horizons
Exchange Ratio to reflect the conversion of 1.15022 shares of Bright
Horizons Family Solutions Common Stock for each share of Bright Horizons
Common Stock pursuant to the Merger Agreement.
14
<PAGE> 21
MARKET PRICE AND DIVIDEND INFORMATION
There is no established trading market for the Bright Horizons Family
Solutions common stock. Upon consummation of the Merger, it is expected that it
will trade on The Nasdaq National Market under the symbol "BFAM." The
CorporateFamily common stock has been traded since August 13, 1997 on The Nasdaq
National Market under the symbol "CFAM." Prior to that time, there was no public
market for the CorporateFamily common stock. The Bright Horizons common stock
has been traded since November 7, 1997 on The Nasdaq National Market under the
symbol "BRHZ." Prior to that time, there was no public market for the Bright
Horizons common stock. The following table sets forth the range of high and low
closing sale prices for the common stock as reported on The Nasdaq National
Market during each of the quarters presented.
<TABLE>
<CAPTION>
CORPORATEFAMILY
COMMON STOCK
---------------
HIGH LOW
---- ---
<S> <C> <C>
1997
Quarter Ended September 30 (from August 13, 1997*).......... $18 1/4 $12 1/4
Quarter Ended December 31................................... $22 3/8 $14
1998
Quarter Ended March 31...................................... $26 5/8 $19
Quarter Ended June 30 (through June 16, 1998)............... $31 3/4 $22 3/4
</TABLE>
<TABLE>
<CAPTION>
BRIGHT HORIZONS
COMMON STOCK
---------------
HIGH LOW
---- ---
<S> <C> <C>
1997
Quarter Ended December 31 (from November 7, 1997*).......... $20 1/8 $13 3/4
1998
Quarter Ended March 31...................................... $28 1/2 $16 1/8
Quarter Ended June 30 (through June 16, 1998)............... $31 1/4 $25
</TABLE>
- - ---------------
* First trading date following the initial public offering.
As of June 10, 1998, there were approximately 133 holders of record of
CorporateFamily common stock and 199 holders of record of Bright Horizons common
stock.
Neither CorporateFamily nor Bright Horizons has ever declared or paid any
cash dividends on its common stock. It is the present policy of the
CorporateFamily Board of Directors and the Bright Horizons Board of Directors to
retain all earnings to support operations and to finance expansion of their
respective businesses; therefore, neither CorporateFamily nor Bright Horizons
anticipates that Bright Horizons Family Solutions will declare or pay dividends
on its common stock in the foreseeable future. The declaration and payment of
cash dividends in the future will be at the Bright Horizons Family Solutions
Board of Directors' discretion and will depend on earnings, financial condition,
capital needs and other factors deemed pertinent by the Bright Horizons Family
Solutions Board of Directors.
Set forth below are the last reported sale prices of CorporateFamily common
stock and Bright Horizons common stock on April 24, 1998, the last trading day
prior to the public announcement of the execution of the Merger Agreement, and
on June 16, 1998, the latest practicable trading day prior to the date of this
Joint Proxy Statement/Prospectus, as reported on The Nasdaq National Market.
<TABLE>
<CAPTION>
APRIL 24, 1998 JUNE 16, 1998
-------------- -------------
<S> <C> <C>
CorporateFamily Common Stock................................ $30 1/8 $24 3/16
Bright Horizons Common Stock................................ $27 1/4 $26 3/4
</TABLE>
15
<PAGE> 22
CAUTIONARY STATEMENT
The following statements are or may constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995:
(i) certain statements, including possible or assumed future results of
operations of CorporateFamily Solutions, Inc., a Tennessee corporation
("CorporateFamily"), Bright Horizons, Inc., a Delaware corporation ("Bright
Horizons"), and Bright Horizons Family Solutions, Inc., a Delaware corporation
("Bright Horizons Family Solutions"), contained in "Summary," "Risk Factors,"
"The Merger -- Background of the Merger," "The Merger -- CorporateFamily's
Reasons for the Merger; Recommendations of the CorporateFamily Board of
Directors," "The Merger -- Opinion of CorporateFamily's Financial Advisor," "The
Merger -- Bright Horizons' Reasons for the Merger; Recommendations of the Bright
Horizons Board of Directors," "The Merger -- Opinion of Bright Horizons'
Financial Advisor," "Bright Horizons Family Solutions Unaudited Pro Forma
Combined Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Bright Horizons," "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
CorporateFamily" and "Information Concerning Bright Horizons Family Solutions,"
including any statements contained herein regarding the prospects for Bright
Horizons Family Solutions' services and products, the impact of competition on
Bright Horizons Family Solutions, the proposed integration of the business and
management structure for Bright Horizons Family Solutions and the effects of the
merger of CFAM Acquisition, Inc. ("CorporateFamily Merger Sub") into
CorporateFamily (the "CorporateFamily Merger") and BRHZ Acquisition, Inc.
("Bright Horizons Merger Sub") into Bright Horizons (the "Bright Horizons
Merger," together with the CorporateFamily Merger, the "Merger"); (ii) any
statements preceded by, followed by or that include the words "believes,"
"expects," "anticipates," "intends" or similar expressions; and (iii) other
statements contained herein regarding matters that are not historical facts.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements; factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors." CorporateFamily and Bright Horizons stockholders are cautioned not to
place undue reliance on such statements, which speak only as of the date
thereof.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that may be issued by CorporateFamily or Bright Horizons or persons
acting on its or their behalf. Neither CorporateFamily nor Bright Horizons
undertakes any obligation to release any revisions to or to update publicly any
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
16
<PAGE> 23
RISK FACTORS
The following risk factors should be considered carefully in evaluating the
proposals to be considered and voted upon at each of the Special Meetings. Set
forth below are certain risk factors, among others, with respect to the Merger
and Bright Horizons Family Solutions.
RISK FACTORS WITH RESPECT TO THE MERGER
Risks Associated With the Integration of Two Companies
The Merger involves the integration of two companies that have previously
operated independently. There can be no assurance that the management of Bright
Horizons Family Solutions will be able to effectively and efficiently integrate
the respective operations of Bright Horizons and CorporateFamily without
encountering significant operational or financial difficulties. Such
difficulties could include integrating different marketing approaches to
clients, the use of different contract models and the emphasis on different
services, integrating different business strategies with respect to owning and
leasing work-site child care center properties, and integrating and reallocating
duties among personnel with disparate business backgrounds and corporate
cultures, while maintaining two principal offices. In addition, there is no
assurance that the senior management of the combined companies will effectively
work together or that the contemplated succession planning scheduled for 30
months following the Effective Time (as defined below) of the Merger will result
in a smooth transition or that the Board, in carrying out its fiduciary duty,
will effect the currently anticipated succession plan. Bright Horizons Family
Solutions may also experience the loss of key personnel. There can be no
assurance that the benefits expected from integration will be realized by Bright
Horizons Family Solutions or that the process of integration will not have an
adverse short-term effect on operating results.
Risks Associated With Fixed Exchange Ratios
Upon completion of the Merger, each share of common stock of
CorporateFamily, no par value per share (the "CorporateFamily Common Stock"),
will be converted into the right to receive one share (the "CorporateFamily
Exchange Ratio") of common stock of Bright Horizons Family Solutions, $0.01 par
value per share (the "Bright Horizons Family Solutions Common Stock"), and each
share of common stock of Bright Horizons, $0.01 par value per share (the "Bright
Horizons Common Stock"), will be converted into the right to receive 1.15022
shares (the "Bright Horizons Exchange Ratio," and together with the
CorporateFamily Exchange Ratio, the "Exchange Ratios") of Bright Horizons Family
Solutions Common Stock. The exchange ratios for both CorporateFamily and Bright
Horizons are fixed numbers and will not be adjusted in the event of any increase
or decrease in the prices of either CorporateFamily Common Stock or Bright
Horizons Common Stock. As a result, the value of the shares of Bright Horizons
Family Solutions Common Stock received by CorporateFamily and Bright Horizons
stockholders in the Merger will vary depending on fluctuations in the value of
CorporateFamily Common Stock or Bright Horizons Common Stock. Such fluctuations
may be the result of changes in business, operations or prospects of
CorporateFamily, Bright Horizons or Bright Horizons Family Solutions, market
assessments of the likelihood that the Merger will be consummated, the timing
thereof, general market and economic conditions and other factors. Accordingly,
there can be no assurance that the value of the Merger consideration on the date
of this Joint Proxy Statement/Prospectus will be the same as on the date of the
Special Meetings of the stockholders of CorporateFamily and Bright Horizons or
the Effective Time.
Incurrence of Significant Transaction Charges
Bright Horizons and CorporateFamily expect to incur aggregate charges to
operations currently estimated to be $7.5 million in the quarter ending
September 30, 1998, the quarter in which the Merger is expected to be
consummated, to reflect direct transaction costs, primarily for investment
banking, legal and accounting fees, and costs associated with combining the
operations of the two companies. This amount is a preliminary estimate and is
therefore subject to change. Additional unanticipated expenses may be incurred
relating to the integration of the businesses of Bright Horizons and
CorporateFamily. Although it is expected that the elimination of duplicative
expenses as well as other efficiencies related to the integration of the
businesses of
17
<PAGE> 24
Bright Horizons and CorporateFamily may offset additional expenses over time,
there can be no assurance that such net benefit will be achieved in the near
term, or at all. Finally, as the Merger will constitute a change in control for
purposes of certain agreements providing severance compensation, further charges
may be incurred by Bright Horizons Family Solutions if certain officers are
terminated without cause or resign for good reason within contractual time
periods after the Merger. See "The Merger -- Interests of Certain Persons in the
Merger" and "Information Concerning Bright Horizons Family
Solutions -- Management -- Employment Contracts and Termination of Employment
and Change-in-Control Arrangements."
Potential Effect of Anti-Takeover Provisions
Bright Horizons Family Solutions' Certificate of Incorporation and Bylaws
contain certain provisions that could make more difficult the acquisition of
Bright Horizons Family Solutions by means of a tender offer, a proxy contest or
otherwise. These provisions establish staggered terms for members of Bright
Horizons Family Solutions' Board of Directors and include advance notice
procedures for stockholders to nominate candidates for election as directors of
Bright Horizons Family Solutions and for stockholders to submit proposals for
consideration at stockholders' meetings. In addition, Bright Horizons Family
Solutions will be subject to Section 203 of the Delaware General Corporation Law
("DGCL") which limits transactions between a publicly held company and
"interested stockholders" (generally, those stockholders who, together with
their affiliates and associates, own 15% or more of a company's outstanding
capital stock). This provision of the DGCL may have the effect of deterring
certain potential acquisitions of Bright Horizons Family Solutions. Bright
Horizons Family Solutions' Certificate of Incorporation provides for 5,000,000
authorized but unissued shares of preferred stock (the "Preferred Stock"), the
rights, preferences, qualifications, limitations and restrictions of which may
be fixed by the Bright Horizons Family Solutions Board of Directors without any
further action by stockholders. See "Description of Bright Horizons Family
Solutions Capital Stock."
Possible Volatility of Stock Price
The prices at which Bright Horizons Family Solutions Common Stock will
trade will be determined by the marketplace and may be influenced by many
factors, including the liquidity of the market for the Bright Horizons Family
Solutions Common Stock, investor perception of Bright Horizons Family Solutions
and of the worklife industry generally, and general economic and market
conditions. In addition, the stock market historically has experienced
volatility which has affected the market price of securities of many companies
and which has sometimes been unrelated to the operating performance of such
companies. In addition, factors such as announcements of new services or offices
or acquisitions by Bright Horizons Family Solutions or its competitors or third
parties, as well as market conditions in Bright Horizons Family Solutions'
industry, may have a significant impact on the market price of the Bright
Horizons Family Solutions Common Stock. The market price may also be affected by
movements in prices of stocks in general. In addition, the exercise of options
to purchase shares of Bright Horizons Family Solutions Common Stock may cause
dilution to existing stockholders. Immediately prior to the Effective Time of
the Merger, all outstanding options to purchase CorporateFamily Common Stock and
certain officers' options to purchase Bright Horizons Common Stock will fully
vest and become exercisable. All outstanding options to purchase Common Stock of
both companies, whether vested or unvested, will become options to purchase
shares of Bright Horizons Family Solutions Common Stock. It is not known when,
or if, such options will be exercised after the Merger.
RISK FACTORS WITH RESPECT TO BRIGHT HORIZONS FAMILY SOLUTIONS
Management of Growth
CorporateFamily and Bright Horizons have experienced substantial growth
during the past several years through internal growth and by acquisition. Bright
Horizons Family Solutions' 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 Bright Horizons Family Solutions, the maintenance of
high quality services and programs and the hiring and training of qualified
management, center directors and other personnel. Bright Horizons Family
Solutions may experience difficulty in attracting and retaining qualified
personnel in various markets necessary to meet
18
<PAGE> 25
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 Bright Horizons Family Solutions'
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 Bright Horizons Family Solutions' ability to expand its
sales and marketing force. There can be no assurance that Bright Horizons Family
Solutions 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 Bright Horizons Family Solutions'
business, results of operations and financial condition.
Competition
Each of CorporateFamily and Bright Horizons competes for enrollment as well
as corporate sponsorship in a market that is highly fragmented and competitive.
In the competition for enrollment, each competes with family child care
(operated out of the caregiver's home) and center-based child care (residential
and work-site child care centers, full and part-time nursery schools, and
church-affiliated and other not-for-profit providers). In addition, substitutes
for organized child care, such as relatives, nannies, and the option of one
parent caring for a child, compete with CorporateFamily and Bright Horizons.
Management believes Bright Horizons Family Solutions' ability to compete
successfully depends on a number of factors, including quality, locational
convenience and price. Each of CorporateFamily and Bright Horizons often is, and
it is expected that Bright Horizons Family Solutions will be, at a price
disadvantage with respect to family child care providers, who operate with
little or no rental expense and generally do not comply or are not required to
comply with the same health, safety, insurance and operational regulations as
CorporateFamily and Bright Horizons. Many of their competitors in the
center-based segment also offer child care at a substantially lower price than
CorporateFamily and Bright Horizons, or than Bright Horizons Family Solutions
expects to, and some have substantially greater financial resources than
CorporateFamily or Bright Horizons or have greater name recognition. There can
be no assurance that Bright Horizons Family Solutions will be able to compete
successfully against current and future competitors, or that competitive
pressures faced by Bright Horizons Family Solutions will not have a material
adverse effect on its business, results of operations and financial condition.
In the competition for corporate sponsorship, each of CorporateFamily and
Bright Horizons competes with residential center-based child care chains, some
of which have divisions which compete for corporate sponsorship opportunities
and with other organizations that focus exclusively on the work-site segment of
the child care market. Management believes there are fewer than ten companies
that currently operate work-site child care centers on a national basis, but
there are numerous regional and local providers. CorporateFamily and Bright
Horizons compete against each other and against other large child care chains
which primarily operate residential child care centers, including KinderCare
Learning Centers, Children's World, La Petite Academy and Children's Discovery
Centers. Many of these competitors are able to offer child care at a lower price
than Bright Horizons Family Solutions expects to offer by utilizing lower
faculty-child ratios and/or offering their staff lower compensation, enabling
them to operate profitably with lower levels of corporate sponsorship. Some of
these competitors for corporate sponsorship also have greater penetration in
certain geographic regions and multiple relationships with corporate sponsors,
and some have substantially greater financial resources than Bright Horizons
Family Solutions will have after the Merger. Increased competition for corporate
sponsorships on a national or local basis could result in increased pricing
pressure and/or loss of market share, thereby materially adversely affecting
Bright Horizons Family Solutions' business, results of operations and financial
condition, as well as its ability to attract and retain qualified center
directors and faculty and to successfully pursue its growth strategy. See
"Information Concerning Bright Horizons -- Competition" and "Information
Concerning CorporateFamily -- Competition."
Market Acceptance of Work and Family Services
Bright Horizons Family Solutions' 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
employer-sponsored or work-site family services as cost-effective or beneficial
to their work forces.
19
<PAGE> 26
Any negative change in current corporate acceptance of financially supported
child care could have a material adverse effect on Bright Horizons Family
Solutions' business, results of operations, and financial condition. 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.
Dependence on Relationships; Customer Concentration
The majority of CorporateFamily's business and a significant portion of
Bright Horizons' business is derived from corporate sponsors for which they
provide work-site child care services pursuant to management contracts. While
the specific terms of such contracts vary, management contracts generally range
from three to five year terms and, in some instances, are subject to early
termination by the corporate sponsor without cause. Each of CorporateFamily and
Bright Horizons also maintains relationships with corporate sponsors for which
it operates multiple work-site child care centers. A significant number of the
two companies' clients are concentrated in the pharmaceutical, entertainment,
financial services and hospital industries and the federal government. The early
termination or nonrenewal of a significant number of corporate sponsorships, the
termination of any multiple-site sponsor relationship, or the downturn in
economic conditions in any sponsor industry or the economy in general would have
a material adverse effect on Bright Horizons Family Solutions' business, results
of operations and financial condition. See "-- Competition."
Risks Associated with Acquisitions
Bright Horizons Family Solutions 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 each of CorporateFamily and Bright
Horizons reviews acquisition candidates in the ordinary course of its business,
neither Bright Horizons nor CorporateFamily Solutions is 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 Bright Horizons Family Solutions
capital 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 Bright Horizons Family Solutions in identifying, executing and assimilating
acquisitions in the future. See "Information Concerning Bright Horizons Family
Solutions -- Business and Strategy."
Dependence on Key Management
The long-term success and growth strategy of Bright Horizons Family
Solutions 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
Bright Horizons Family Solutions' business, results of operations and financial
condition. Bright Horizons Family Solutions' 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 each of
CorporateFamily and Bright Horizons historically has been successful in
retaining the services of its senior management, there can be no assurance that
Bright Horizons Family Solutions will be able to do so in the future. The
succession of certain officers of Bright Horizons Family Solutions has been
determined, subject to the exercise of fiduciary duty by the Bright Horizons
Family Solutions Board of Directors. It is anticipated that thirty months after
the Effective Time of the Merger, Marguerite Sallee will become Chairman of the
Board of Directors, Roger Brown will become Chief Executive Officer and Linda
Mason will become Vice Chairman and President. There can be no assurance that
the combination of the management teams will be effectively integrated for the
operation of Bright Horizons Family Solutions nor that prior to or following the
anticipated succession plan, the members of senior management will be able to
effectively manage Bright Horizons Family Solutions on a going forward basis.
See "Information Concerning Bright Horizons Family Solutions -- Management."
20
<PAGE> 27
Ability to Obtain and Maintain Insurance; Adverse Publicity
CorporateFamily and Bright Horizons currently maintain, and it is expected
that Bright Horizons Family Solutions will maintain, the following types of
insurance policies: workers' compensation, commercial general liability,
automobile liability, commercial property liability, student accident coverage,
directors' and officers' liability 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, each of CorporateFamily and
Bright Horizons has been able to obtain insurance in amounts it believes to be
appropriate. There can be no assurance that Bright Horizons Family Solutions'
insurance premiums will not increase in the future as a consequence of
conditions in the insurance business generally or Bright Horizons Family
Solutions' 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 Bright Horizons Family Solutions, could
result in decreased enrollment at Bright Horizons Family Solutions' 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 Bright Horizons Family Solutions' business, results
of operations, and financial condition.
Litigation
Due to the nature of its business, Bright Horizons Family Solutions 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 children. In addition, claimants may seek damages from
Bright Horizons Family Solutions for child abuse, sexual abuse and other
criminal acts allegedly committed by Bright Horizons Family Solutions'
employees. Each of CorporateFamily and Bright Horizons has occasionally been
sued for claims relating to injuries to children in its care. There can be no
assurance that additional suits will not be filed, that Bright Horizons Family
Solutions' insurance will be adequate to cover liabilities resulting from any
claim or that any such claim or the adverse publicity resulting from it will not
have a material adverse effect on Bright Horizons Family Solutions' 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 Bright Horizons Family Solutions' services from
corporate sponsors and parents. See "-- Ability to Obtain and Maintain
Insurance; Adverse Publicity," "Information Concerning Bright Horizons -- Legal
Proceedings" and "Information Concerning CorporateFamily -- Legal Proceedings."
Seasonality and Quarterly Fluctuations
Each of CorporateFamily's and Bright Horizons' revenues and results of
operations fluctuate with the seasonal demands for child care and typically
decline during the summer months due to decreased enrollments in centers as
parents take family vacations and/or remove their older children in preparation
for grade school. There can be no assurance that Bright Horizons Family
Solutions will be able to adjust its expenses on a short-term basis to minimize
the effect of these fluctuations in revenues. Bright Horizons Family Solutions'
quarterly results of operations may also fluctuate based upon the number and
timing of center openings and/or acquisitions, the length of time required for
new centers to achieve profitability, the performance of existing centers, the
timing and level of sponsorship payments, center closings, refurbishments or
relocations, the sponsorship model mix of new and existing centers, competitive
factors and general economic conditions. Under certain contract models, Bright
Horizons' and CorporateFamily's experiences have been that newly opened
employer-sponsored centers can take up to one year to achieve profitability. The
inability of existing centers to maintain their current profitability or the
failure of newly opened centers to contribute to profitability could result in
additional fluctuations in the future operating results of Bright Horizons
Family Solutions on a quarterly or annual basis. See "Management's Discussion
and Analysis of Financial Condition
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and Results of Operations of Bright Horizons -- Quarterly Results and
Seasonality," "Management's Discussion and Analysis of Financial Condition and
Results of Operations of CorporateFamily -- Overview" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
CorporateFamily -- Unaudited Selected Quarterly Operating Results."
General Economic Conditions
CorporateFamily's and Bright Horizons' revenues depend, in part, on the
number of dual-income families and working single parents who require child care
services. A deterioration of general economic conditions may adversely impact
Bright Horizons Family Solutions because of the tendency of out-of-work parents
to discontinue utilization of child care services. In addition, a significant
percentage of Bright Horizons Family Solutions child development facilities are
sponsored by real estate developers offering on-site child care as an amenity to
attract tenants to their buildings. Changes in the supply and demand of real
estate could adversely affect real estate developers' willingness to subsidize
child care operations at new developments or their ability to obtain financing
for developments offering developer-sponsored child care services. A general
economic downturn could cause corporate sponsors to eliminate or reduce the
level of child care services they provide to their employees. Any of the
foregoing events could have a material adverse effect on Bright Horizons Family
Solutions' business, results of operations and financial condition. See
"-- Dependence on Relationships; Customer Concentration."
Impact of Governmental Regulation
Child care centers are subject to numerous state, federal 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. Bright
Horizons Family Solutions also will be required to comply with the Americans
with Disabilities Act (the "ADA"), which prohibits discrimination on the basis
of disability in public accommodations and employment. Failure of a center to
comply with applicable regulations or the ADA 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 Bright Horizons Family Solutions to bring
Bright Horizons Family Solutions' centers into compliance. There can be no
assurance that governmental agencies will not impose additional restrictions on
Bright Horizons Family Solutions' operations which could adversely affect Bright
Horizons Family Solutions' business, results of operations and financial
condition. In addition, under the Internal Revenue Code (the "Code"), certain
tax incentives are available to parents utilizing child care programs. Any
change in such incentives could cause a number of parents to remove their
children from Bright Horizons Family Solutions' centers, which would adversely
affect Bright Horizons Family Solutions' business, results of operations and
financial condition. Although Bright Horizons Family Solutions' expects to pay
employees at rates above the minimum wage, increases in the federal minimum wage
could result in a corresponding increase in the wages paid to Bright Horizons
Family Solutions' employees, which could adversely affect Bright Horizons Family
Solutions' business, results of operations and financial condition. See
"Information Concerning Bright Horizons -- Regulation" and "Information
Concerning CorporateFamily -- Regulation."
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<PAGE> 29
THE CORPORATEFAMILY SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of CorporateFamily in connection with the solicitation of proxies
on behalf of the CorporateFamily Board of Directors for use at the Special
Meeting to be held on Friday, July 24, 1998, at the time and place specified in
the accompanying Notice of Special Meeting of Shareholders, and at any
adjournment or postponement thereof. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve and adopt the Amended and Restated
Agreement and Plan of Merger dated June 17, 1998 by and between CorporateFamily,
Bright Horizons, Bright Horizons Family Solutions, CorporateFamily Merger Sub
and Bright Horizons Merger Sub, and the transactions contemplated thereby (the
"Merger Agreement") and to transact such other business as may properly come
before the Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
CorporateFamily Common Stock is accompanied by a form of proxy for use at the
Special Meeting. This Joint Proxy Statement/ Prospectus is also furnished to
Bright Horizons stockholders as a prospectus in connection with the issuance to
them of shares of Bright Horizons Family Solutions Common Stock upon
consummation of the Merger.
THE BOARD OF DIRECTORS OF CORPORATEFAMILY HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE; QUORUM
The CorporateFamily Board of Directors has fixed the close of business on
June 10, 1998 as the record date for the determination of the holders of
CorporateFamily Common Stock entitled to receive notice of and to vote at the
Special Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of CorporateFamily Common Stock entitled to
vote at the Special Meeting is necessary to constitute a quorum.
VOTE REQUIRED
As of the record date for the Special Meeting, there were 4,728,275 shares
of CorporateFamily Common Stock outstanding, each of which is entitled to one
vote on the Merger Agreement and each other matter properly submitted at the
Special Meeting. Holders of CorporateFamily Common Stock as of the record date
of the Special Meeting are entitled to one vote per share of CorporateFamily
Common Stock on each matter to be considered at the Special Meeting. Approval
and adoption of the Merger Agreement by the shareholders of CorporateFamily
requires the affirmative vote of the holders of a majority of the outstanding
shares of CorporateFamily Common Stock.
VOTING OF PROXIES
Shares of CorporateFamily Common Stock represented by a proxy properly
signed and received at or prior to the Special Meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon. If a proxy
is signed and returned without indicating any voting instructions, shares of
CorporateFamily Common Stock represented by the proxy will be voted FOR the
proposal to approve and adopt the Merger Agreement.
Shareholders of CorporateFamily will not be entitled to present any matter
for consideration at the Special Meeting, and no business is to be acted upon at
the Special Meeting other than as set forth in the Notice of Special Meeting of
Shareholders accompanying this Joint Proxy Statement/Prospectus.
Shares of CorporateFamily Common Stock represented at the Special Meeting
by a properly executed, dated and returned proxy will be treated as present at
the Special Meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining. For voting purposes
at the Special Meeting, only shares affirmatively voted in favor of approval and
adoption of the Merger Agreement will be counted as favorable votes for such
approval and adoption. Any broker non-votes and
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<PAGE> 30
abstaining votes will not be counted in favor of approval and adoption of the
Merger Agreement. Since applicable law requires a majority of the outstanding
shares, broker non-votes and abstentions will have the same effect as votes cast
against the proposal.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the Special Meeting to permit further solicitations of
proxies in favor of approval and adoption of the Merger Agreement; however, no
proxy that is voted against the approval and adoption of the Merger Agreement
will be voted in favor of any such adjournment. An adjournment proposal requires
the affirmative vote of a majority of the votes cast by holders of
CorporateFamily Common Stock and, therefore, broker non-votes and abstentions
will have no effect.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form does not preclude a shareholder
from voting in person. A shareholder may revoke a proxy at any time prior to its
exercise by submitting a signed written revocation to the Secretary of
CorporateFamily, by submitting a signed proxy bearing a later date or by
appearing at the Special Meeting and voting in person at the Special Meeting. No
special form of revocation is required. Attendance at the Special Meeting will
not, in and of itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
CorporateFamily will bear the cost of the solicitation of proxies from its
shareholders, including the costs of preparing, filing, printing and
distributing this Joint Proxy Statement/Prospectus and any other solicitation
materials that are used. In addition to solicitation by mail, the directors,
officers and employees of CorporateFamily may solicit proxies from shareholders
of CorporateFamily by telephone or telegram or by other means of communication.
Such directors, officers and employees will not be additionally compensated but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and
CorporateFamily will reimburse such custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in connection therewith.
In addition, CorporateFamily has retained D.F. King & Co., Inc. to assist
in the solicitation of proxies by CorporateFamily for a fee of not more than
$4,000 plus reasonable out-of-pocket costs and expenses. Any questions or
requests regarding proxies or related materials may be directed to D.F. King &
Co., Inc. at 1-800-755-3105.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE CORPORATEFAMILY SHAREHOLDERS. ACCORDINGLY, CORPORATEFAMILY SHAREHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
SHAREHOLDERS SHOULD NOT SEND CORPORATEFAMILY COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER AGREEMENT IS APPROVED BY THE SHAREHOLDERS AND
THE MERGER IS CONSUMMATED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT FOR
THE EXCHANGE OF SHARES OF CORPORATEFAMILY COMMON STOCK FOR BRIGHT HORIZONS
FAMILY SOLUTIONS COMMON STOCK.
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<PAGE> 31
THE BRIGHT HORIZONS SPECIAL MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Bright Horizons in connection with the solicitation of proxies
on behalf of the Bright Horizons Board of Directors for use at the Special
Meeting to be held on Friday, July 24, 1998, at the time and place specified in
the accompanying Notice of Special Meeting of Stockholders, and at any
adjournment or postponement thereof. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve and adopt the Merger Agreement and
to transact such other business as may properly come before the Special Meeting.
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Bright Horizons Common Stock is accompanied by a form of proxy for use at the
Special Meeting. This Joint Proxy Statement/ Prospectus is also furnished to
CorporateFamily shareholders as a prospectus in connection with the issuance to
them of shares of Bright Horizons Family Solutions Common Stock upon
consummation of the Merger.
THE BOARD OF DIRECTORS OF BRIGHT HORIZONS HAS APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE; QUORUM
The Bright Horizons Board of Directors has fixed the close of business on
June 10, 1998 as the record date for the determination of the holders of Bright
Horizons Common Stock entitled to receive notice of and to vote at the Special
Meeting. The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Bright Horizons Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum.
VOTE REQUIRED
As of the record date for the Special Meeting, there were 5,608,518 shares
of Bright Horizons Common Stock outstanding, each of which is entitled to one
vote on the Merger Agreement and each other matter properly submitted at the
Special Meeting. Holders of Bright Horizons Common Stock as of the record date
of the Special Meeting are entitled to one vote per share of Bright Horizons
Common Stock on each matter to be considered at the Special Meeting. Approval
and adoption of the Merger Agreement by the stockholders of Bright Horizons
requires the affirmative vote of the holders of a majority of the outstanding
shares of Bright Horizons Common Stock.
VOTING OF PROXIES
Shares of Bright Horizons Common Stock represented by a proxy properly
signed and received at or prior to the Special Meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon. If a proxy
is signed and returned without indicating any voting instructions, shares of
Bright Horizons Common Stock represented by the proxy will be voted FOR the
proposal to approve and adopt the Merger Agreement.
Shares of Bright Horizons Common Stock represented at the Special Meeting
by a properly executed, dated and returned proxy will be treated as present at
the Special Meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining. For voting purposes
at the Special Meeting, only shares affirmatively voted in favor of approval and
adoption of the Merger Agreement will be counted as favorable votes for such
approval and adoption. Any broker non-votes and abstaining votes will not be
counted in favor of approval and adoption of the Merger Agreement. Since
applicable law requires a majority of the outstanding shares, broker non-votes
and abstentions will have the same effect as votes cast against the proposal.
The persons named as proxies by a stockholder may propose and vote for one
or more adjournments of the Special Meeting to permit further solicitations of
proxies in favor of approval and adoption of the Merger Agreement and Merger;
however, no proxy that is voted against the approval and adoption of the Merger
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<PAGE> 32
Agreement will be voted in favor of any such adjournment. An adjournment
proposal requires the affirmative vote of a majority of the votes cast by
holders of Bright Horizons Common Stock and, therefore, broker non-votes and
abstentions will have no effect.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form does not preclude a stockholder
from voting in person. A stockholder may revoke a proxy at any time prior to its
exercise by submitting a signed written revocation to the Secretary of Bright
Horizons, by submitting a signed proxy bearing a later date or by appearing at
the Special Meeting and voting in person at the Special Meeting. No special form
of revocation is required. Attendance at the Special Meeting will not, in and of
itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Bright Horizons will bear the cost of the solicitation of proxies from its
stockholders, including the costs of preparing, filing, printing and
distributing this Joint Proxy Statement/Prospectus and any other solicitation
materials that are used. In addition to solicitation by mail, the directors,
officers and employees of Bright Horizons may solicit proxies from stockholders
of Bright Horizons by telephone or telegram or by other means of communication.
Such directors, officers and employees will not be additionally compensated but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of stock held of record by such persons, and Bright
Horizons will reimburse such custodians, nominees and fiduciaries for their
reasonable out-of-pocket expenses in connection therewith.
In addition, Bright Horizons has retained D.F. King & Co., Inc. to assist
in the solicitation of proxies by Bright Horizons for a fee of not more than
$4,000 plus reasonable out-of-pocket costs and expenses. Any questions or
requests regarding proxies or related materials may be directed to D.F. King &
Co., Inc. at 1-800-755-3105.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE BRIGHT HORIZONS STOCKHOLDERS. ACCORDINGLY, BRIGHT HORIZONS STOCKHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PRE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND BRIGHT HORIZONS COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS. IF THE MERGER AGREEMENT IS APPROVED BY THE STOCKHOLDERS AND
THE MERGER IS CONSUMMATED, TRANSMITTAL FORMS AND INSTRUCTIONS WILL BE SENT FOR
THE EXCHANGE OF SHARES OF BRIGHT HORIZONS COMMON STOCK FOR BRIGHT HORIZONS
FAMILY SOLUTIONS COMMON STOCK.
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THE MERGER
BACKGROUND OF THE MERGER
On a number of occasions during the last several years, representatives of
CorporateFamily and Bright Horizons have had preliminary discussions regarding a
possible combination or strategic alliance. None of these prior discussions
resulted in any detailed discussions or in any agreement between the two
companies on price or other essential terms of a merger or strategic alliance.
The two companies continued to pursue their independent business strategies, and
each company went public during 1997, CorporateFamily in August 1997 and Bright
Horizons in November 1997.
On February 5, 1998, representatives of CorporateFamily and Bright Horizons
met for the first time since each became a public company. These discussions
were general in nature and focused on the merits of a possible strategic
combination of the two organizations and how a combined entity would be governed
and managed in order to maximize the strengths of the two companies. These
discussions led to the execution of a confidentiality agreement on February 25,
1998 pursuant to which the two companies agreed to exchange certain non-public
information. From February 25, 1998 through the early part of March 1998,
representatives of CorporateFamily and Bright Horizons held numerous discussions
regarding the strategic rationale and the corporate management and governance
structure for a proposed transaction but were unable to reach any agreement with
respect to any material terms, including the exchange ratio and issues relating
to the management and governance of the combined company, and no further
material discussions occurred until April 15, 1998.
On April 15, 1998, representatives of CorporateFamily and Bright Horizons
met to begin discussions to resolve the differences between the parties. During
the period April 15, 1998 through April 26, 1998, the parties conducted due
diligence reviews of each other's respective operations and a draft Merger
Agreement and related documents were circulated between the parties. During the
week of April 20, 1998, the parties commenced negotiation of the terms of the
Merger Agreement and the related documents. These negotiations continued through
April 26, 1998. On April 25, 1998, as well as on April 26, 1998, the
CorporateFamily Board of Directors and the Bright Horizons Board of Directors
held separate meetings to review and consider the proposed transaction and the
terms of the definitive Merger Agreement and the related documents. At the
meeting of the CorporateFamily Board of Directors on April 26, 1998, NationsBanc
Montgomery Securities LLC ("NationsBanc Montgomery") reviewed with the
CorporateFamily Board of Directors the financial analyses performed by
NationsBanc Montgomery in connection with its evaluation of the CorporateFamily
Exchange Ratio and delivered to the CorporateFamily Board its opinion to the
effect that, as of such date and based upon and subject to certain matters
stated in such opinion, the CorporateFamily Exchange Ratio was fair from a
financial point of view to the holders of CorporateFamily Common Stock.
Similarly, at the meetings of the Bright Horizons Board of Directors on April
25, 1998 and April 26, 1998, BT Alex. Brown Incorporated ("BT Alex. Brown")
reviewed with the Bright Horizons Board of Directors the financial analyses
performed by BT Alex. Brown in connection with its evaluation of the Bright
Horizons Exchange Ratio and at the April 26, 1998 meeting BT Alex. Brown
delivered to the Bright Horizons Board its opinion to the effect that, as of
such date and based upon and subject to certain matters stated in such opinion,
the Bright Horizons Exchange Ratio was fair from a financial point of view to
the holders of Bright Horizons Common Stock. Following the April 26, 1998
meetings of the CorporateFamily Board and the Bright Horizons Board, the Merger
Agreement and related documents were executed by the parties. On the morning of
April 27, 1998, the parties issued a joint press release announcing the
execution of the definitive Merger Agreement.
CORPORATEFAMILY'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE CORPORATEFAMILY
BOARD OF DIRECTORS
The CorporateFamily Board of Directors believes that the terms of the
Merger are fair to, and in the best interests of, CorporateFamily and its
shareholders. Accordingly, the Board of Directors has approved the Merger
Agreement and recommends approval and adoption by the shareholders of
CorporateFamily.
The CorporateFamily Board of Directors believes that the Merger represents
the best strategic alternative for CorporateFamily. It also believes that by
combining CorporateFamily's strengths with Bright Horizons'
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<PAGE> 34
strengths it will create one of the largest national worklife and early
childhood education companies, which will allow Bright Horizons Family Solutions
to offer to its clients and shareholders significant strategic opportunities and
the critical mass and economies of scale that will permit it to grow its
business and the services provided to its clients.
In reaching the determination to approve the Merger Agreement and recommend
approval and adoption of the Merger Agreement to CorporateFamily shareholders,
the CorporateFamily Board of Directors considered the information presented to
it by CorporateFamily's management, as well as CorporateFamily's financial and
legal advisors, and weighed the positive and countervailing factors associated
with the transaction. The factors considered by the CorporateFamily Board of
Directors included, without limitation, the following:
(i) Review of CorporateFamily's Business
The CorporateFamily Board of Directors considered historical and
prospective information concerning the business, results of operations and
financial condition of CorporateFamily, as well as the current state of,
and prospects for, the worklife and early childhood education industry
generally. The CorporateFamily Board of Directors considered the strategic
alternatives available to CorporateFamily in lieu of the transaction,
including maintaining the status quo and seeking to grow through
alternative transactions. The Board of Directors of CorporateFamily also
considered that the Merger is expected to be essentially non-dilutive to
CorporateFamily's net earnings in fiscal 1998 and fiscal 1999, without
taking into account any synergies which the business combination may
provide.
(ii) Review of Bright Horizons' Business
The CorporateFamily Board of Directors considered the operational,
financial and legal due diligence regarding the business of Bright Horizons
provided to it by CorporateFamily's management and professional advisors.
Such due diligence included historical and prospective information
regarding the business, results of operations and financial condition of
Bright Horizons. Factors considered in evaluating the business of Bright
Horizons included, among other things, (a) the geographic concentration of
Bright Horizons' business, (b) the material terms and conditions of Bright
Horizons' contracts and leases, (c) the profitability of Bright Horizons'
contract models, (d) the internal management support available to Bright
Horizons, (e) the quality of the existing centers and the quality and
quantity of existing Bright Horizons clients, and (f) Bright Horizons'
recent growth trends and its future prospects for growth.
(iii) Strategic Merits of the Merger
The Board of Directors of CorporateFamily considered the strategic
rationale for the Merger, including its view that the combined companies
could capitalize on certain strategic elements that may not be available
otherwise to CorporateFamily. These elements included, among others, the
following:
(a) The belief that the Merger will combine a commitment to quality
services as well as similar corporate histories, culture and core
values;
(b) The belief that the Merger will capitalize on the complementary
geographic strengths of each company in order to provide a more
comprehensive national worklife company;
(c) The belief that the business models of CorporateFamily and
Bright Horizons complement each other by providing a variety of contract
models to meet client needs and differing operational styles to support
these contract models;
(d) The belief that the Merger will allow the combined company to
bring greater resources to the sales efforts of the combined company
with an ability to leverage overhead to produce growth in a more
efficient manner than could be achieved otherwise;
(e) The belief that the combined companies will be better
positioned to compete with other existing and prospective competition in
the worklife and early childhood education industry;
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<PAGE> 35
(f) The belief that the Merger will create opportunities to
cross-sell each company's business strengths to the combined company's
clients;
(g) The belief that the CorporateFamily and Bright Horizons
management teams will complement each other, and that a management
succession plan would be established;
(h) The belief that the combined company's board of directors, made
up of members selected by each of CorporateFamily and Bright Horizons
and additional members jointly agreed upon by CorporateFamily and Bright
Horizons, and a management team drawn from both companies, will provide
a continuity of leadership for the combined company; and
(i) The belief that the combined company would continue to trade on
The Nasdaq National Market but would have greater liquidity than
currently exists for either CorporateFamily or Bright Horizons as a
result of the increased float available for trading.
(iv) Opinion of NationsBanc Montgomery
The CorporateFamily Board of Directors considered the presentation,
and oral opinion, delivered by NationsBanc Montgomery on April 26, 1998,
that as of such date, the CorporateFamily Exchange Ratio was fair, from a
financial point of view, to the shareholders of CorporateFamily.
NationsBanc Montgomery's oral opinion was subsequently confirmed in
writing. See "-- Opinion of CorporateFamily's Financial Advisor." A copy of
NationsBanc Montgomery's written opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken is
attached as Annex IV to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
(v) Structure of Merger; Terms of Merger Agreement
The Board of Directors of CorporateFamily considered the terms and
conditions of the Merger Agreement, including the CorporateFamily Exchange
Ratio and the Bright Horizons Exchange Ratio. The CorporateFamily Board of
Directors considered the "merger of equals" transaction structure which
permits the CorporateFamily shareholders to participate in the value that
may be generated by the strategic combination of the two companies. The
Board of Directors of CorporateFamily considered the circumstances under
which CorporateFamily could engage in discussions with other parties
regarding alternative transactions, the rights of termination of both
parties, the size of the termination fee payable, in certain circumstances,
by either party under the Merger Agreement and the terms and conditions of
the Option Agreements (as defined below). The Board of Directors of
CorporateFamily considered that the Merger is expected to be accounted for
as a pooling of interests transaction and is generally not expected to
result in federal income taxes. The Board of Directors also considered the
fact that the CorporateFamily Exchange Ratio is a fixed number and will not
be adjusted in the event there are any increases or decreases in the price
of either the CorporateFamily Common Stock or the Bright Horizons Common
Stock.
(vi) Countervailing Considerations
The Board of Directors of CorporateFamily considered certain factors which
may be characterized as countervailing considerations, including:
(a) The fact that, based on the closing prices for CorporateFamily
Common Stock and Bright Horizons Common Stock on April 24, 1998, the
Bright Horizons Exchange Ratio resulted in an implied premium of 27.2%
for Bright Horizons stockholders. While the CorporateFamily Board of
Directors would have preferred that the Merger not involve a premium or
discount for either side, the Board recognized that the closing prices
on April 24, 1998 did not necessarily reflect the underlying actual
values of Bright Horizons or CorporateFamily and felt that Bright
Horizons would not agree to the transaction without a premium, and that
the amount of the premium, when viewed in the context of the
transaction, was not inappropriate;
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<PAGE> 36
(b) The risks inherent in attempting to successfully integrate the
management of CorporateFamily and Bright Horizons into an effective
leadership organization and in implementing a successful succession plan
and the difficulties that may be encountered in integrating the
businesses of the two companies;
(c) The concern over the combined company having two principal
offices, one in Nashville and one in Cambridge, and the possibility that
organizational and management difficulty will be encountered as a result
of the two offices, including the possibility that key employees and
members of the management of CorporateFamily or Bright Horizons may
leave the companies; and
(d) The voting power dilution of the Merger to CorporateFamily
shareholders, resulting in CorporateFamily's shareholder ownership of
approximately 43.2% (on a fully diluted basis) of the shares of the
combined company after the consummation of the Merger (as compared to
100% prior thereto). This factor was not viewed as being as significant
as those referred to above.
In addition, the CorporateFamily Board of Directors reviewed the severance
arrangements of the executive officers of CorporateFamily, the terms of the
CorporateFamily Stock Options (as defined below) which provide that all unvested
options will vest and become exercisable at the time of the Merger, and the
proposed new employment agreements for certain of the executive officers of
CorporateFamily and the other employee benefit provisions of the Merger
Agreement and related documents described below under "-- Interests of Certain
Persons in the Merger." The CorporateFamily Board of Directors was aware that
such arrangements would give certain individuals interests in the Merger that
were in addition to their interest as shareholders of CorporateFamily generally.
The foregoing discussion of the information and factors considered and
given weight by CorporateFamily's Board of Directors is not intended to be
exhaustive but is believed to include all material factors considered by the
Board of Directors of CorporateFamily. In addition, in reaching the
determination to approve and recommend approval and adoption of the Merger
Agreement, in view of the wide variety of factors considered in connection with
its evaluation thereof, the Board of Directors of CorporateFamily did not assign
any relative or specific weights to the foregoing factors, and individual
directors may have given different weights to the various factors. The
CorporateFamily Board did not attempt to analyze the fairness of the
CorporateFamily Exchange Ratio in isolation from other considerations to the
combination of the businesses of CorporateFamily and Bright Horizons, the
strategic merits of the Merger or the other considerations referred to above.
The CorporateFamily Board did, however, take into account, and placed reliance
upon, the analyses performed by, and the opinion rendered by, NationsBanc
Montgomery as to the fairness, from a financial point of view, of the
CorporateFamily Exchange Ratio. The Board of Directors of CorporateFamily also
did not distinguish between factors that supported the determination that the
Merger is fair and those that supported the determination the Merger is in the
best interests of CorporateFamily's shareholders.
THE CORPORATEFAMILY BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, CORPORATEFAMILY AND ITS SHAREHOLDERS. THE CORPORATEFAMILY BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF CORPORATEFAMILY'S FINANCIAL ADVISOR
CorporateFamily retained NationsBanc Montgomery to act as its financial
advisor in connection with a transaction or related series or combination of
transactions whereby CorporateFamily's business or assets would be combined with
the business or assets of Bright Horizons. On April 26, 1998, NationsBanc
Montgomery delivered to the Board of Directors of CorporateFamily its oral
opinion, subsequently confirmed in writing as of the same date, that, as of such
date, the CorporateFamily Exchange Ratio was fair to the shareholders of
CorporateFamily from a financial point of view. The CorporateFamily Exchange
Ratio was determined through negotiations between CorporateFamily and Bright
Horizons and is part of the Merger
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Agreement approved by the Board of Directors of CorporateFamily. NationsBanc
Montgomery provided advice to CorporateFamily during the course of such
negotiations. No limitations were imposed by the Board of CorporateFamily on
NationsBanc Montgomery with respect to the investigations made or procedures
followed in rendering its opinion. In connection with the preparation of its
opinion, NationsBanc Montgomery was not requested to solicit, nor did it assist
CorporateFamily in soliciting, indications of interest from third parties for
all or any part of CorporateFamily.
THE FULL TEXT OF NATIONSBANC MONTGOMERY'S WRITTEN OPINION TO THE BOARD OF
CORPORATEFAMILY IS ATTACHED HERETO AS ANNEX IV AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH
THIS PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF NATIONSBANC
MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION. NATIONSBANC MONTGOMERY'S OPINION IS DIRECTED TO THE BOARD OF
CORPORATEFAMILY AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS
TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. NATIONSBANC
MONTGOMERY'S OPINION ADDRESSES ONLY THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE CORPORATEFAMILY EXCHANGE RATIO TO THE HOLDERS OF CORPORATEFAMILY COMMON
STOCK AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION OF THE BOARD OF
CORPORATEFAMILY TO PROCEED WITH OR EFFECT THE MERGER OR ANY OTHER ASPECT OF THE
MERGER. IN FURNISHING ITS OPINION, NATIONSBANC MONTGOMERY DID NOT ADMIT THAT IT
IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES
ACT, NOR DID IT ADMIT THAT ITS OPINION CONSTITUTES A REPORT OR VALUATION WITHIN
THE MEANING OF THE SECURITIES ACT, AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN
THE NATIONSBANC MONTGOMERY OPINION.
In connection with its opinion, NationsBanc Montgomery, among other things:
(i) reviewed publicly available financial and other data with respect to Bright
Horizons and CorporateFamily, including the consolidated financial statements
for recent years and interim periods to April 3, 1998 and certain other relevant
financial and operating data relating to Bright Horizons and CorporateFamily
made available to NationsBanc Montgomery from published sources and from the
internal records of Bright Horizons and CorporateFamily; (ii) reviewed the
financial terms and conditions of the Merger Agreement and the Option Agreements
(as defined below); (iii) reviewed certain publicly available information
concerning the trading of, and the trading market for, Bright Horizons Common
Stock and CorporateFamily Common Stock; (iv) compared Bright Horizons and
CorporateFamily from a financial point of view with certain other companies
which NationsBanc Montgomery deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies which NationsBanc Montgomery deemed to be comparable,
in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Bright Horizons and CorporateFamily the
strategic rationale for the Merger and certain information of a business and
financial nature regarding Bright Horizons and CorporateFamily furnished to
NationsBanc Montgomery by them, including financial forecasts and related
assumptions of Bright Horizons and CorporateFamily; (vii) participated in
discussions and negotiations among representatives of CorporateFamily and Bright
Horizons and their financial and legal advisors; (viii) analyzed the pro forma
impact of the Merger on CorporateFamily's earnings per share; and (ix) performed
such other analyses and examinations as NationsBanc Montgomery deemed
appropriate.
In connection with its review, NationsBanc Montgomery did not assume any
obligation independently to verify the foregoing information and relied on such
information being accurate and complete in all material respects. With respect
to the financial forecasts for Bright Horizons and CorporateFamily provided to
NationsBanc Montgomery by their respective managements, upon their advice and
with CorporateFamily's consent, NationsBanc Montgomery assumed for purposes of
its opinion that the forecasts were reasonably prepared on bases reflecting the
best available estimates and judgments of their respective managements at the
time of preparation as to the future financial performance of Bright Horizons
and CorporateFamily and that NationsBanc Montgomery may rely on the accuracy and
completeness of such information without independent verification and was
authorized to make appropriate use of such information. NationsBanc Montgomery
also assumed that there were no material changes in Bright Horizons' or
CorporateFamily's assets, financial condition, results of operations, business
or prospects since the respective dates of their last financial statements made
available to NationsBanc Montgomery and the information provided to NationsBanc
Montgomery by Bright Horizons and CorporateFamily. NationsBanc Montgomery
assumed that
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the Merger will be consummated in accordance with the terms set forth in the
Merger Agreement, (including the Merger's qualification as a pooling of
interests business combination for accounting purposes and qualification as a
tax-free reorganization for federal income tax purposes) without any amendments
thereto and without waiver by CorporateFamily of any of the conditions to its
obligations. NationsBanc Montgomery noted that CorporateFamily and Bright
Horizons represented in the Merger Agreement that the Joint Proxy
Statement/Prospectus and the Registration Statement on Form S-4 used in
connection with the Merger will comply as to form in all material respects with
the Exchange Act (as defined below) and Securities Act (as defined below) and
the respective rules and regulations promulgated thereunder. In addition,
NationsBanc Montgomery did not assume responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or liabilities
(contingent or otherwise) of Bright Horizons or CorporateFamily, nor was
NationsBanc Montgomery furnished with any such appraisals. Finally, NationsBanc
Montgomery's opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to NationsBanc
Montgomery as of, the date of its opinion. Accordingly, although subsequent
developments may affect its opinion, NationsBanc Montgomery has not assumed any
obligation to update, revise or reaffirm its opinion. Set forth below is a brief
summary of all material analyses presented by NationsBanc Montgomery to the
Board of Directors of CorporateFamily on April 26, 1998 in connection with the
rendering of its opinion.
Contribution Analysis
Using estimates and forecasts prepared by CorporateFamily and NationsBanc
Montgomery with respect to CorporateFamily and by Bright Horizons with respect
to Bright Horizons, NationsBanc Montgomery reviewed the estimated contribution
of each of CorporateFamily and Bright Horizons to estimated calendar 1998 and
1999 revenue, gross profit, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings before interest and taxes ("EBIT") and net
income for Bright Horizons Family Solutions. NationsBanc Montgomery then
compared such contributions to the pro forma share ownership of Bright Horizons
Family Solutions to be owned by the shareholders of each of CorporateFamily and
Bright Horizons, assuming consummation of the Merger as described in the Merger
Agreement. The Merger Agreement indicated that CorporateFamily's shareholders
would own approximately 43.2% of Bright Horizons Family Solutions on a fully
diluted basis. The analysis indicated that, based on such forecasts,
CorporateFamily would contribute (1) based on 1998 estimates, approximately
44.6% of Bright Horizons Family Solutions' revenue, 38.1% of gross profit, 37.6%
of EBITDA, 41.4% of EBIT and 43.5% of net income, respectively, and (2) based on
1999 estimates, approximately 45.4% of revenue, 38.6% of gross profit, 37.5% of
EBITDA, 40.8% of EBIT and 43.4% of net income, respectively.
Comparable Company Analysis
Based on public and other available information, NationsBanc Montgomery
calculated the multiples of aggregate value (defined as equity value plus debt
less cash and cash equivalents) to last twelve months ("LTM") revenues, EBIT and
EBITDA, for selected companies deemed to be comparable. Such analysis indicated
the following multiples: a range of 1.6x to 16.7x LTM revenues, with a mean of
8.6x; a range of 25.5x to 52.8x LTM EBIT, with a mean of 44.9x; and a range of
22.0x to 39.3x LTM EBITDA, with a mean of 34.3x. This analysis implied a
valuation range for Bright Horizons of $26.34 per share to $37.14 per share.
NationsBanc Montgomery noted that the CorporateFamily Exchange Ratio in
connection with the Merger implied multiples of 2.0x LTM revenues, 52.3x LTM
EBIT, and 31.8x LTM EBITDA for Bright Horizons.
Comparable Transaction Analysis
NationsBanc Montgomery calculated the multiples of aggregate value to LTM
revenues, LTM EBIT and LTM EBITDA for the target company implied in selected
comparable transactions that have been announced since June 29, 1995. Such
analysis yielded the following multiples: a range of 0.4x to 9.7x LTM revenues,
with a mean of 2.8x; a range of 7.0x to 55.6x LTM EBIT, with a mean of 24.0x; a
range of 5.9x to 78.1x LTM EBITDA, with a mean of 21.0x. This analysis implied a
valuation range for Bright Horizons of $15.70 per
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share to $47.66 per share. NationsBanc Montgomery noted that aggregate value of
Bright Horizons implied by the Merger yielded multiples of 2.0x LTM revenues,
52.3x LTM EBIT and 31.8x LTM EBITDA.
No other company or merger used in the comparable company or comparable
transaction analysis as a comparison is identical to CorporateFamily or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of
CorporateFamily and the companies to which CorporateFamily and the Merger are
being compared.
Discounted Cash Flow Analysis
NationsBanc Montgomery applied a discounted cash flow analysis to the
financial cash flow forecasts for Bright Horizons for calendar years 1998
through 2002, as estimated by Bright Horizons management. In conducting this
analysis, NationsBanc Montgomery first calculated the present values of the
forecasted cash flows. Second, NationsBanc Montgomery estimated the present
value of the aggregate value of Bright Horizons at the end of 2002 by applying
exit multiples to Bright Horizons' estimated 2002 EBITDA, which multiples ranged
from 18.0x to 22.0x. Such cash flows and aggregate values were discounted to
present values using discount rates ranging from 13.0% to 15.0%, based on an
analysis of the weighted average cost of capital for comparable companies. This
analysis indicated a range of imputed per share values of Bright Horizons from
$28.86 per share to $37.39 per share.
Premiums Paid Analysis
NationsBanc Montgomery reviewed the consideration paid in a number of
comparable pooling of interests transactions involving aggregate value paid
between $10 million and $500 million announced since January 1, 1997.
NationsBanc Montgomery calculated the premiums paid or offered in these
transactions over the applicable stock price of the target company one day, one
week and four weeks prior to the announcement of the acquisition offer. Such
analysis indicated median and mean premiums, respectively, of 23.3% and 31.3%,
29.2% and 36.7%, and 31.8% and 42.3%. This analysis implied a valuation range
for Bright Horizons of $32.95 to $38.28 per share. NationsBanc Montgomery noted
that the premiums implied by the Merger were 27.2% 23.8% and 38.6% for the
period one day, one week and four weeks prior to the date of NationsBanc
Montgomery's opinion.
Pro Forma Analysis
NationsBanc Montgomery analyzed the pro forma effects of the Merger on the
earnings per share of CorporateFamily in fiscal years 1998 and 1999 based on
internal estimates of CorporateFamily and Bright Horizons before taking into
account potential synergies and other cost savings that might result from the
Merger. This analysis indicated that for the CorporateFamily shareholders, the
Merger would result in 0.8% dilution for 1998, and 0.1% accretion for 1999. The
actual operating or financial results achieved by the combined company may vary
from projected results and variations may be material as a result of business
and operational risks and other factors.
The implied premiums derived pursuant to the comparable company, comparable
transaction, discounted cash flow and premiums paid analyses generally reflect
transactions in which control was being acquired and do not necessarily reflect
the underlying value of either CorporateFamily Common Stock or Bright Horizons
Common Stock or how the CorporateFamily Common Stock, the Bright Horizons Common
Stock or the common stock of the combined company may trade in the future.
While the foregoing summary describes all analyses and examinations that
NationsBanc Montgomery deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by NationsBanc
Montgomery. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. NationsBanc Montgomery believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process
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underlying the analyses set forth in its presentation to the Board of
CorporateFamily. In addition, NationsBanc Montgomery may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be NationsBanc Montgomery's view of the
actual value of CorporateFamily or Bright Horizons.
In performing its analyses, NationsBanc Montgomery made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of
CorporateFamily and Bright Horizons. The analyses performed by NationsBanc
Montgomery are not necessarily indicative of strategic or actual values or
actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as part of
NationsBanc Montgomery's analysis of whether the CorporateFamily Exchange Ratio
is fair from a financial point of view to the holders of CorporateFamily Common
Stock and were provided to the Board of Directors of CorporateFamily in
connection with the delivery of NationsBanc Montgomery's opinion. The analyses
do not purport to be appraisals or to reflect the prices at which
CorporateFamily or Bright Horizons might actually be sold or the prices at which
any securities may trade at any time in the future.
As described above, NationsBanc Montgomery's opinion and presentation to
the Board of CorporateFamily were among the many factors taken into
consideration by the Board of CorporateFamily in making its determination to
approve, and to recommend that CorporateFamily's shareholders approve and adopt,
the Merger Agreement.
NationsBanc Montgomery is a nationally recognized investment banking firm
and, as part of its activities, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
CorporateFamily selected NationsBanc Montgomery as its financial advisor on the
basis of NationsBanc Montgomery's experience and expertise in transactions
similar to the Merger and its reputation in the education and worklife industry
segments and investment community and its historical investment banking
relationship with CorporateFamily.
CorporateFamily agreed to pay NationsBanc Montgomery a fee of $800,000
contingent and payable on the consummation of a Transaction with Bright Horizons
or if the acquisition of a minority interest in Bright Horizons is consummated
at any time during the engagement or one year from the termination of the
engagement. In addition, if the Merger is not consummated, NationsBanc
Montgomery will receive a fee equal to fifty percent of any consideration
payable to CorporateFamily as a result of termination of the Merger Agreement,
up to the amount of the fee that would be payable to NationsBanc Montgomery if
the transaction had been consummated. The Board of CorporateFamily was aware of
this fee structure and took it into account in considering NationsBanc
Montgomery's opinion and in approving the Merger Agreement. Pursuant to the
engagement agreement, CorporateFamily agreed to reimburse NationsBanc Montgomery
for its reasonable out-of-pocket expenses. CorporateFamily has also agreed to
indemnify NationsBanc Montgomery and certain related persons against certain
liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, NationsBanc Montgomery actively
trades the equity securities of CorporateFamily and Bright Horizons for its own
account and for the accounts of customers and, accordingly, may at any time hold
a long or short position in such securities. NationsBanc Montgomery also acted
as a managing underwriter in connection with the initial public offering of
CorporateFamily Common Stock.
BRIGHT HORIZONS' REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BRIGHT HORIZONS
BOARD OF DIRECTORS
The Bright Horizons Board of Directors believes that the terms of the
Merger are fair to, and in the best interests of, Bright Horizons and its
stockholders. Accordingly, the Bright Horizons Board of Directors has approved
the Merger Agreement and recommends its approval and adoption by the
stockholders of Bright Horizons.
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The Bright Horizons Board of Directors believes that the Merger represents
the best strategic alternative for Bright Horizons. It also believes that by
combining Bright Horizons' strengths with CorporateFamily's strengths it will
create one of the largest national worklife and early childhood education
companies, which will allow Bright Horizons Family Solutions to offer to its
clients and shareholders significant strategic opportunities and the critical
mass and economies of scale that will permit it to grow its business and the
services provided to its clients.
In reaching the determination to approve the Merger Agreement and recommend
approval and adoption of the Merger Agreement to Bright Horizons' shareholders,
the Bright Horizons Board of Directors considered the information presented to
it by Bright Horizons' management, as well as Bright Horizons' financial and
legal advisors, and weighed the positive and countervailing factors associated
with the transaction. The factors considered by the Bright Horizons Board of
Directors included, without limitation:
(i) Historical and prospective information concerning Bright Horizons'
financial condition, results of operation and business, as well as the work-site
early education and family support services industry generally.
(ii) The strategic alternatives available to Bright Horizons in lieu of the
Merger, including continued growth though acquisitions of smaller local and
regional child care operators.
(iii) The operational, financial and legal due diligence regarding the
business of CorporateFamily provided to it by Bright Horizons' management and
professional advisors, including historical and prospective information
regarding the business, results of operation and financial condition of
CorporateFamily, the predictability of CorporateFamily's revenues in future
quarters due to the management contract model employed by CorporateFamily in
most of its centers, the high quality and reputation of CorporateFamily's
management, the strength of CorporateFamily's customer base and the number of
centers CorporateFamily had under development for the current fiscal year.
(iv) Its conclusion that the Merger would further Bright Horizons' mission
to be a quality leader in the education and care of young children while
simultaneously providing the financial resources and economies of scale that
would permit Bright Horizons to grow at a rate and in a more efficient manner
than otherwise could be achieved.
(v) Its conclusion that the complementary strengths of Bright Horizons and
CorporateFamily, in terms of their respective management, business models and
geographic concentrations, would position the combined company to compete more
effectively against other child care providers.
(vi) The proposed plan for Marguerite W. Sallee, CorporateFamily's Chief
Executive Officer, to serve as Chief Executive Officer of the combined company
for thirty (30) months after consummation of the Merger and for Roger H. Brown,
Bright Horizons' Chief Executive Officer, to then succeed her as Chief Executive
Officer.
(vii) The terms and conditions of the Merger Agreement, including the
amount and form of the consideration to be received by the Bright Horizons
stockholders. In particular, the Board of Directors considered that its
stockholders would have the opportunity to receive Bright Horizons Family
Solutions Common Stock and, accordingly, to participate in the value that may be
generated through the combination of the two companies. Without limiting the
foregoing, the Bright Horizons Board of Directors also considered the
circumstances after the signing of the Merger Agreement under which Bright
Horizons could engage in discussions with other parties regarding potential
alternative transactions, the rights of both Bright Horizons and CorporateFamily
to terminate the Merger Agreement, and the size of the termination fees payable
to CorporateFamily by Bright Horizons, or by CorporateFamily to Bright Horizons,
under certain circumstances. The Bright Horizons Board of Directors also
considered the terms and conditions of the reciprocal Option Agreements,
including the size of the option, the exercise price and the terms upon which
either option could be exercised or put to the issuer.
(viii) The fact that the Bright Horizons Family Solutions Common Stock
would be traded on The Nasdaq National Market and that the larger market
capitalization of Bright Horizons Family Solutions could be expected to provide
improved liquidity for Bright Horizons stockholders subsequent to the Merger.
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(ix) The fact that the Bright Horizons Exchange Ratio represented a premium
of approximately 20% over the historical ratio of daily closing prices of Bright
Horizons Common Stock and CorporateFamily Common Stock during the sixty (60)
days prior to the execution and announcement of the Merger Agreement and a
premium of approximately 27% over the relative closing price ratio on April 24,
1998, the last trading day prior to the execution and announcement of the Merger
Agreement.
(x) The oral opinion (subsequently confirmed by delivery of a written
opinion dated April 26, 1998) of BT Alex. Brown to the effect that as of April
26, 1998, and based upon and subject to certain matters stated in such opinion,
the Bright Horizons Exchange Ratio was fair, from a financial point of view, to
the holders of Bright Horizons Common Stock. A copy of BT Alex. Brown's written
opinion, which sets forth the matters considered, assumptions made and
limitations on the review undertaken is attached as Annex V to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference.
(xi) The expectation that the Merger would be treated as a tax-free
transaction to Bright Horizons and its stockholders and would be accounted for
as a pooling of interests.
The Bright Horizons Board of Directors also considered a number of
potential risks relating to the Merger, including (i) the difficulty and
distraction to management inherent in integrating Bright Horizons and
CorporateFamily, (ii) the risks associated with the plan for Ms. Sallee to be
Chief Executive Officer of the combined company for thirty (30) months and for
Mr. Brown to become Chief Executive Officer at the end of such term, (iii) the
risks associated with operating two principal offices, (iv) the substantial
charges expected to be incurred in connection with the Merger, including the
cost of integrating Bright Horizons and CorporateFamily, (v) the acceleration of
the vesting of all options held by CorporateFamily employees and of options held
by certain senior executives of Bright Horizons, (vi) the fact that the Merger
will trigger the change of control provisions under existing severance
agreements, thereby obligating Bright Horizons Family Solutions to make
significant future payments under certain circumstances, (vii) the fact that the
combined company would enter into employment contracts with key executives that
could increase the cost of replacing such executives, (viii) the risk that the
Merger may not be consummated following the public announcement thereof or that
the benefits sought in the Merger may not be fully achieved, (ix) the risks of
Bright Horizons and CorporateFamily suffering employee attrition and failing to
retain key personnel due to uncertainties associated with the Merger and the
acceleration of employee stock options and (x) the other risks described under
"Risk Factors."
The foregoing discussion of the information and factors considered by the
Bright Horizons Board of Directors is not intended to be exhaustive, but is
believed to include all material factors considered by the Bright Horizons Board
of Directors. In view of the wide variety of information and factors, both
positive and negative, considered, the Bright Horizons Board of Directors did
not find it practical to, and did not, quantify or otherwise assign any relative
or specific weights to the foregoing factors. Rather, the Bright Horizons Board
of Directors viewed their position and recommendation as being based on the
totality of the information presented to and considered by them, and individual
directors may have given differing weights to different factors.
THE BRIGHT HORIZONS BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT
AND BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS
OF, BRIGHT HORIZONS AND ITS STOCKHOLDERS. THE BRIGHT HORIZONS BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF BRIGHT HORIZONS' FINANCIAL ADVISOR
Bright Horizons engaged BT Alex. Brown to act as its exclusive financial
advisor in connection with the Merger. On April 26, 1998, at a meeting of the
Bright Horizons Board of Directors held to evaluate the proposed Merger, BT
Alex. Brown rendered to the Bright Horizons Board of Directors an oral opinion
(which opinion was subsequently confirmed by delivery of a written opinion dated
April 26, 1998) to the effect that, as of such date and based upon and subject
to certain matters stated in such opinion, the Bright Horizons Exchange Ratio
was fair, from a financial point of view, to the holders of Bright Horizons
Common Stock.
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The full text of the written opinion of BT Alex. Brown dated April 26,
1998, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Annex V to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. BT ALEX. BROWN'S
OPINION IS DIRECTED TO THE BRIGHT HORIZONS BOARD OF DIRECTORS, ADDRESSES ONLY
THE FAIRNESS OF THE BRIGHT HORIZONS EXCHANGE RATIO FROM A FINANCIAL POINT OF
VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE BRIGHT HORIZONS SPECIAL MEETING. The summary of
the opinion of BT Alex. Brown in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In connection with its opinion, BT Alex. Brown reviewed certain publicly
available financial information and other information concerning Bright Horizons
and CorporateFamily and certain internal analyses and other information
furnished to BT Alex. Brown by the management of Bright Horizons and
CorporateFamily. BT Alex. Brown also held discussions with the members of the
senior management of Bright Horizons and CorporateFamily regarding the business
and prospects of their respective companies and the joint prospects of Bright
Horizons Family Solutions. In addition, BT Alex. Brown (i) reviewed the reported
prices and trading activity for Bright Horizons Common Stock and CorporateFamily
Common Stock, (ii) compared certain financial and stock market information for
Bright Horizons and CorporateFamily with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which BT Alex. Brown deemed
comparable in whole or in part, (iv) reviewed the terms of the Merger Agreement
and certain related documents, and (v) performed such other studies and analyses
and considered such other factors as BT Alex. Brown deemed appropriate.
As described in its opinion, BT Alex. Brown assumed and relied upon,
without independent verification, the accuracy, completeness and fairness of the
information furnished to or otherwise reviewed by or discussed with BT Alex.
Brown for purposes of its opinion. With respect to financial forecasts and other
information relating to Bright Horizons, CorporateFamily and the pro forma
combined company, including estimates of the operating synergies and other
benefits achievable as a result of the Merger, BT Alex. Brown assumed that such
information was reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Bright Horizons and
CorporateFamily as to the matters covered thereby. In addition, BT Alex. Brown
did not make nor was it provided with an independent evaluation or appraisal of
the assets or liabilities of Bright Horizons or CorporateFamily. BT Alex. Brown
did not express an opinion as to the price at which Bright Horizons Family
Solutions Common Stock actually may trade at any time. BT Alex. Brown assumed,
with the consent of the Bright Horizons Board of Directors, that the Merger will
qualify for pooling-of-interests accounting treatment and as a tax-free
reorganization for federal income tax purposes. With the consent of the Bright
Horizons Board of Directors, BT Alex. Brown also assumed that the Merger will be
consummated in all material respects on the terms and conditions described in
the Merger Agreement and that all material conditions to the consummation of the
Merger contained in the Merger Agreement will be satisfied without waiver of
such conditions, and further assumed that all necessary governmental and
regulatory approvals and consents of third parties will be obtained on terms and
conditions that will not have a material adverse effect on Bright Horizons or
CorporateFamily. In connection with its engagement, BT Alex. Brown was not
authorized to, and did not, solicit third party indications of interest with
respect to the acquisition of all or a part of Bright Horizons, nor did BT Alex.
Brown review with Bright Horizons or its Board of Directors any potential
transactions in lieu of the Merger. No other limitations were imposed by the
Bright Horizons Board of Directors upon BT Alex. Brown with respect to the
investigations made or the procedures followed by it in rendering its opinion.
BT Alex. Brown's opinion was based on market, economic and other conditions as
they existed and could be evaluated as of the date of its opinion.
The following is a summary of certain financial analyses performed and
factors considered by BT Alex. Brown in connection with its opinion to the
Bright Horizons Board of Directors dated April 26, 1998:
Contribution Analysis
BT Alex. Brown analyzed the relative contributions of Bright Horizons and
CorporateFamily to, among other things, the estimated revenues, gross profit,
EBITDA, EBIT and net income of the pro forma combined company for the latest 12
months and calendar years 1998 and 1999 based on internal estimates of the
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<PAGE> 44
management of Bright Horizons and CorporateFamily, and compared such
contributions to the pro forma ownership of the current holders of Bright
Horizons Common Stock in the pro forma combined company. This analysis indicated
that (i) for the latest 12 months, Bright Horizons would have contributed
approximately 55.0% of the revenues, 61.6% of the gross profit, 64.6% of EBITDA,
59.5% of EBIT and 60.7% of the net income of the pro forma combined company;
(ii) in calendar year 1998, Bright Horizons would contribute approximately 55.4%
of the revenues, 61.9% of the gross profit, 63.9% of EBITDA, 58.6% of EBIT and
56.5% of the net income of the pro forma combined company; and (iii) in calendar
year 1999, Bright Horizons would contribute approximately 54.6% of the revenues,
61.4% of the gross profit, 62.2% of EBITDA, 59.2% of EBIT and 56.6% of the net
income of the pro forma combined company. BT Alex. Brown also analyzed the
relative contributions of Bright Horizons and CorporateFamily to the current
assets, total assets and shareholder's equity of the pro forma combined company,
based on certain balance sheet information of Bright Horizons and
CorporateFamily dated December 31, 1997 and January 2, 1998, respectively. This
analysis indicated that, as of such dates, Bright Horizons would have
contributed approximately 51.6% of current assets, 60.7% of total assets and
55.4% of shareholder's equity of the pro forma combined company. In addition, BT
Alex. Brown analyzed the relative contributions of Bright Horizons and
CorporateFamily to the estimated market capitalization and enterprise value
(market capitalization, plus net debt) of the pro forma combined company over
the 10-day, 30-day and 60-day periods prior to April 24, 1998 (the last trading
day prior to public announcement of the Merger) and during the periods January
1, 1998 to April 24, 1998 and November 7, 1997 (the date of Bright Horizons's
initial public offering of Bright Horizons Common Stock (the "Bright Horizons
IPO")) to April 24, 1997. The average market capitalization contributions for
Bright Horizons during such periods were approximately 51.0%, 53.0%, 52.3%,
51.5% and 52.0%, respectively, and the average enterprise value contributions
for Bright Horizons during such periods were approximately 51.1%, 53.3%, 52.6%,
51.7% and 52.3%, respectively. Based on the Bright Horizons Exchange Ratio,
current holders of Bright Horizons Common Stock would own approximately 56.8% of
the pro forma combined company on a fully diluted basis upon consummation of the
Merger.
Pro Forma Merger Analysis
BT Alex. Brown analyzed, among other things, the pro forma effects of the
Merger on the earnings per share (the "EPS") of Bright Horizons in calendar
years 1998 and 1999 based on internal estimates of the management of Bright
Horizons and CorporateFamily. This analysis indicated that the Merger would be
non-dilutive to the EPS of Bright Horizons in calendar years 1998 and 1999,
before taking into account certain potential synergies and other cost savings
that might result from the Merger. The actual operating or financial results
achieved by the pro forma combined company may vary from projected results and
variations may be material as a result of business and operational risks, the
timing and amount of synergies, the costs associated with achieving such
synergies and other factors.
Historical Exchange Ratio Analysis
BT Alex. Brown compared the Bright Horizons Exchange Ratio with the
historical ratio of the daily closing prices of Bright Horizons Common Stock and
CorporateFamily Common Stock (the "Market Exchange Ratio") over the 10-day,
30-day and 60-day periods ending April 24, 1998 and during the periods January
1, 1998 to April 24, 1998 and November 7, 1997 to April 24, 1998. The average
Market Exchange Ratios during such periods were 0.910, 0.985, 0.959, 0.931 and
0.947, respectively, as compared to the Bright Horizons Exchange Ratio of
1.15022. The implied premiums obtained by dividing the Bright Horizons Exchange
Ratio by the Market Exchange Ratio over such periods were 26.4%, 16.7%, 19.9%,
23.5% and 21.5%, respectively. The implied premiums derived by comparing the
Market Exchange Ratios to the Bright Horizons Exchange Ratio do not necessarily
reflect the underlying market value of either Bright Horizons Common Stock or
CorporateFamily Common Stock or how the Bright Horizons Common Stock,
CorporateFamily Common Stock or the Bright Horizons Family Solutions Common
Stock may trade in the future.
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Other Factors
In rendering its opinion, BT Alex. Brown also reviewed and considered,
among other things: (i) historical and projected financial data for Bright
Horizons and CorporateFamily; (ii) historical market prices and trading volumes
for Bright Horizons Common Stock and CorporateFamily Common Stock and the
relationship between movements in Bright Horizons Common Stock, CorporateFamily
Common Stock, the common stock of Childtime Learning Centers and movements in
the Nasdaq Index; (iii) certain financial and stock market information for
selected publicly traded companies in the childcare development services and
educational services industries (Childtime Learning Centers, Apollo Group, DeVRY
Inc., ITT Educational Services, Inc. and Sylvan Learning Systems Inc.); (vi)
selected mergers and acquisitions transactions announced in the childcare
development services industry and selected merger of equal transactions; (v) the
current shareholder profiles of Bright Horizons and CorporateFamily; and (vi)
the existing senior management and board composition of Bright Horizons and
CorporateFamily and the proposed senior management and board composition of the
pro forma combined company.
The summary set forth above does not purport to be a complete description
of the opinion of BT Alex. Brown to the Bright Horizons Board of Directors or
the financial analyses performed and factors considered by BT Alex. Brown in
connection with its opinion. The preparation of a fairness opinion is a complex
analytic process involving various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. BT Alex. Brown believes that its analyses
and the summary set forth above must be considered as a whole and that selecting
portions of its analyses, without considering all analyses, or selecting
portions of the above summary, without considering all factors and analyses,
could create a misleading or incomplete view of the processes underlying such
analyses and opinion. In performing its analyses, BT Alex. Brown made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Bright Horizons and CorporateFamily. No company, transaction or
business used in such analyses as a comparison is identical to Bright Horizons,
CorporateFamily, the pro forma combined company or the proposed Merger, nor is
an evaluation of the results of such analyses entirely mathematical; rather,
such analyses involve complex considerations and judgments concerning financial
and operating characteristics and other factors that could affect the merger,
public trading or other values of the companies, business segments or
transactions being analyzed. The estimates contained in such analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. In addition, analyses
relating to the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
The type and amount of consideration payable in the Merger was determined
through negotiation between Bright Horizons and CorporateFamily. Although BT
Alex. Brown provided financial advice to Bright Horizons during the course of
these negotiations, the decision to enter into the Merger was solely that of the
Board of Directors of Bright Horizons. BT Alex. Brown's opinion and financial
analyses were only one of many factors considered by the Board of Directors of
Bright Horizons in its evaluation of the proposed Merger and should not be
viewed as determinative of the views of the Board of Directors or management of
Bright Horizons with respect to the Bright Horizons Exchange Ratio or the
Merger.
Pursuant to the terms of BT Alex. Brown's engagement, Bright Horizons has
agreed to pay BT Alex. Brown upon consummation of the Merger an aggregate
financial advisory fee of $900,000. In addition, Bright Horizons has agreed to
reimburse BT Alex. Brown for its reasonable travel and other out-of-pocket
expenses, including reasonable fees and disbursements of counsel, and to
indemnify BT Alex. Brown and certain related parties against certain
liabilities, including certain liabilities under the federal securities laws,
relating to, or arising out of, its engagement.
BT Alex. Brown is an internationally recognized investment banking firm
and, as a customary part of its investment banking business, is engaged in the
valuation of businesses and their securities in connection with
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mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. Bright Horizons selected BT
Alex. Brown based on BT Alex. Brown's reputation, expertise and familiarity with
Bright Horizons and its business. BT Alex. Brown previously served as lead
managing underwriter in connection with the Bright Horizons IPO, for which
services BT Alex. Brown has received compensation. BT Alex. Brown maintains a
market in Bright Horizons Common Stock and regularly publishes research reports
regarding the child development services industry and the businesses and
securities of Bright Horizons and other publicly owned companies in such
industry. In the ordinary course of business, BT Alex. Brown may actively trade
or hold the securities of both Bright Horizons and CorporateFamily for its own
account and the account of customers and, accordingly, may at any time hold a
long or short position in securities of Bright Horizons and CorporateFamily.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Boards with respect to the
Merger, stockholders should be aware that certain of the officers and directors
of CorporateFamily and Bright Horizons have interests in the Merger in addition
to their interests as stockholders. The Boards were aware of these interests and
took these interests into account in approving the Merger Agreement and the
transactions contemplated thereby. These interests include, among other things,
provisions in the Merger Agreement relating to the management of Bright Horizons
Family Solutions following the Merger, indemnification, eligibility for certain
Bright Horizons Family Solutions employee benefits and the assumption of
outstanding employee stock options with respect to Bright Horizons Family
Solutions Common Stock held by directors, officers and employees of
CorporateFamily and Bright Horizons, respectively. For a period of up to six
years after the Effective Time, Bright Horizons Family Solutions has agreed to
maintain certain indemnities and policies of insurance in favor of
CorporateFamily's and Bright Horizons' directors and officers prior to the
Effective Time. See "The Merger Agreement -- Indemnification; Insurance."
Employment Agreements
At the Effective Time of the Merger, Bright Horizons Family Solutions will
enter into employment agreements with each of Linda Mason as Chairman of the
Board, Marguerite Sallee as Chief Executive Officer, Roger Brown as President,
Michael Hogrefe as Chief Financial Officer and Mary Ann Tocio as Chief Operating
Officer. The employment agreements of Ms. Mason, Ms. Sallee and Mr. Brown will
each have a term of 54 months from the Effective Time, with an annual base
salary of $200,000 for each of Marguerite Sallee and Roger Brown and an annual
base salary of $160,000 for Linda Mason, prorated if she works on a less than
full-time basis. Under each of such agreements, the employee will agree that
during the term of the agreement and for a period of 24 months following the
termination of employment with Bright Horizons Family Solutions, such employee
will not, without the express approval of the Board of Directors, engage in any
business directly or indirectly competitive with the business of Bright Horizons
Family Solutions anywhere in the continental United States. In the event of
termination without cause or resignation for good reason (as defined therein),
Bright Horizons Family Solutions will pay as severance compensation a lump sum
equal to (i) 2.99 times such employee's base salary at the time of termination
and (ii) accrued incentive bonus compensation and accrued benefits through the
date of termination. In addition, subject to the Bright Horizons Family
Solutions Board of Directors exercising its fiduciary duty on behalf of its
stockholders, Ms. Sallee's employment agreement provides that she will be named
Chairman of the Board 30 months following the Effective Time, Mr. Brown's
employment agreement provides that he will named Chief Executive Officer at such
time, and Ms. Mason's employment agreement provides that she will be named Vice
Chairman and President at such time. In addition, if (i) Ms. Sallee is not
appointed Chairman of the Board of Bright Horizons Family Solutions or (ii) Mr.
Brown is not appointed Chief Executive Officer of Bright Horizons Family
Solutions, 30 months after the Effective Time, she or he, respectively, may
resign for good reason and receive the severance compensation described above.
The employment agreements of each of Mr. Hogrefe and Ms. Tocio will have a term
of two years from the Effective Time, with a base salary of $160,000 for each of
Mr. Hogrefe and Ms. Tocio. Under each of such agreements, the employee will
agree that during the term of the agreement and for a period of one year
following the termination of employment with Bright Horizons Family Solutions,
such employee will not, without the express approval of the Board of
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Directors, engage in any business directly or indirectly competitive with the
business of Bright Horizons Family Solutions anywhere in the continental United
States. In the event of termination without cause or resignation for good reason
(as defined therein), Bright Horizons Family Solutions will pay as severance
compensation a lump sum equal to such employee's base salary at the time of
termination, accrued incentive bonus compensation and accrued benefits through
the date of termination. If Mr. Hogrefe relocates his residence to Boston upon
request, the term of his agreement will be extended by two years from the date
of relocation, and his severance compensation will be increased to two times his
base salary if a severance payment is triggered within two years after
relocating. Under each of the employment agreements, if a severance payment
alone, or together with other payments, would constitute a "parachute payment"
(as defined in Section 280G of the Code), such severance payment will be reduced
to result in no portion of the severance payment being subject to the excise tax
under Section 4999 of the Code.
Severance Agreements
CorporateFamily has agreements with three other officers (Dana Friedman,
James Greenman and Sandy Schrader) whereby, upon the termination of such
person's employment by CorporateFamily without cause or resignation for good
reason (as defined therein) within one year following a change in control of
CorporateFamily (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, such persons each agreed not to compete with
CorporateFamily's business during the term of employment and for one year
following the termination of such person's employment. The Merger will
constitute a change in control under these agreements and, therefore,
termination of any such employee by CorporateFamily without cause or resignation
for good reason within one year of the Effective Time would require such cash
payment.
Bright Horizons has severance agreements (the "Severance Agreements") with
each of Stephen Dreier, Elizabeth Boland, David Lissy, Michael Day, Melanie Ray,
and Nancy Rosenzweig (the "Key Executives"). The Severance Agreements provide
that if within twenty-four months following a change of control (as defined
therein), the Key Executive's employment is terminated for any reason other than
cause (as defined therein) or death or disability, or if a Key Executive resigns
voluntarily for good reason (as defined therein), Bright Horizons is obligated
to provide the Key Executive with severance pay for a period equal to the number
of months that such Key Executive had been employed by Bright Horizons (not to
exceed twenty-four months) or until such time as the Key Executive secures other
employment, whichever is less. The monthly severance pay equals one
twenty-fourth of the total base salary and cash bonus compensation paid to such
Key Executive for the last two years of employment or, if employed by Bright
Horizons for less than two years, the quotient of (i) the total base salary and
cash bonus compensation paid to such Key Executive during his or her employment
with Bright Horizons and (ii) the total number of months that such Key Executive
had been employed by Bright Horizons. Finally, the Severance Agreements provide
for the continuation of group health benefits and that any stock options owned
by the Key Executive will vest immediately prior to a change of control, subject
to certain limitations. The Merger will constitute a change of control under
these agreements and, therefore, termination of any such employee by Bright
Horizons without cause or resignation for good reason within twenty-four months
of the Effective Time would require such cash payment.
Agreements providing severance compensation to Marguerite W. Sallee and
Michael E. Hogrefe from CorporateFamily and Linda A. Mason, Roger H. Brown and
Mary Ann Tocio from Bright Horizons will be terminated in connection with the
execution of the employment agreements described above, although Ms. Mason, Mr.
Brown and Ms. Tocio will have the unvested portion of their options accelerated
as provided in their severance agreements.
Stock Options
At the Effective Time, Bright Horizons Family Solutions will assume each of
the stock incentive plans and option agreements of CorporateFamily and Bright
Horizons. Pursuant to the terms of CorporateFamily's option agreements, the
Merger will constitute a change of control that will accelerate the vesting of
all options to purchase common stock. Each outstanding option to purchase shares
of CorporateFamily Common Stock will become fully vested and immediately
exercisable upon the Effective Time and will become an option to
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purchase (at the current exercise price) the same number of shares of Bright
Horizons Family Solutions Common Stock. Options to purchase approximately
452,725 shares of CorporateFamily Common Stock, including options to purchase
301,080 shares held by executive officers and directors, will be subject to
accelerated vesting upon the Merger. Options to purchase approximately 1,245,690
shares of CorporateFamily Common Stock are outstanding as of the date of the
Joint Proxy Statement/Prospectus. Pursuant to the Severance Agreements, options
held by certain executives of Bright Horizons will become fully vested and
immediately exercisable at the Effective Time. All options to purchase shares of
Bright Horizons Common Stock will, upon the Effective Time, remain outstanding
and will become options to purchase shares of Bright Horizons Family Solutions
Common Stock (i) with the number of shares adjusted for the Bright Horizons
Exchange Ratio (rounded down to the nearest whole share) and (ii) the exercise
price adjusted to be the quotient obtained by dividing the existing exercise
price by the Bright Horizons Exchange Ratio (rounded down to the nearest whole
cent). The other terms and conditions, including vesting provisions with respect
to those options that are not accelerated, will remain unchanged. Options to
purchase approximately 635,733 shares of Bright Horizons Common Stock, including
options to purchase 523,328 shares held by executive officers, will be
exercisable immediately prior to the Effective Time. Of these exercisable
options, options to purchase 452,893 shares, including options for 424,130
shares held by executive officers, will be subject to accelerated vesting upon
the Merger. Options to purchase approximately 792,691 shares of Bright Horizons
Common Stock are outstanding as of the date of the Joint Proxy
Statement/Prospectus.
The Horizons Initiative Commitment
In 1988, Bright Horizons founded The Horizons Initiative, a non-profit
organization that develops and implements programs to enrich the lives of
homeless children in the Boston area. To address the uncertainty about its
continued commitment to support The Horizons Initiative as a result of its
decision to pursue a strategic combination with CorporateFamily and in
recognition of Mr. Brown's leadership and important role in its past support of
The Horizons Initiative, Bright Horizons has committed to contribute $400,000 to
The Horizons Initiative if Mr. Brown does not become Chief Executive Officer of
Bright Horizons Family Solutions thirty (30) months after the two companies are
combined.
Indemnification
For six years after the Effective Time, Bright Horizons Family Solutions
has agreed to maintain, and will cause the surviving corporations to maintain,
certain rights to indemnification in favor of each present and former director,
officer, employee or agent of CorporateFamily or Bright Horizons and to maintain
each such company's existing director's and officer's liability insurance policy
or provide a similar policy, subject to certain limitations. See "Merger
Agreement -- Indemnification; Insurance." In addition, former directors and
officers of CorporateFamily will have contractual rights under Indemnification
Agreements, which obligate CorporateFamily or its successor to indemnify them
against certain claims in their capacities as agents of CorporateFamily,
including claims arising from a merger or business combination involving
CorporateFamily.
Composition of Bright Horizons Family Solutions' Board Following the Merger
In connection with the Merger, Ms. Sallee, Robert Lurie, E. Townes Duncan
and JoAnne Brandes, current members of the CorporateFamily Board of Directors,
R. Brad Martin, a former member of the CorporateFamily Board of Directors, Ms.
Mason, Mr. Brown, Joshua Bekenstein, William H. Donaldson and Sara
Lawrence-Lightfoot, current members of the Bright Horizons Board of Directors,
and Fred K. Foulkes will become members of the Bright Horizons Family Solutions
Board of Directors at the Effective Time.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a pooling of interests in
accordance with generally accepted accounting principles. Under this accounting
method, Bright Horizons Family Solutions historical financial information will
reflect the combined financial position and operations of CorporateFamily and
Bright Horizons. It is a condition to each company's obligation to consummate
the Merger that
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(1) CorporateFamily receives an opinion from its independent auditors stating
the Merger will be treated as a pooling of interests, and (2) Bright Horizons
receives an opinion from its independent auditors stating that Bright Horizons
is a poolable entity.
FISCAL YEAR
CorporateFamily's fiscal year is the 52-53 week period ending on the Friday
nearest to December 31. Bright Horizon's fiscal year ends on June 30. Bright
Horizons Family Solutions will have a fiscal year ending on December 31.
REGULATORY MATTERS
Both CorporateFamily and Bright Horizons hold licenses under various state
and local regulations of family services operations (primarily child care).
Regulations may limit the transferability of such licenses, including in
transactions effecting a change of control of the licensed entity, such as the
Merger. CorporateFamily and Bright Horizons may determine that, for certain
centers, transfers of such licenses or new licenses may be required before or
after the Merger. The Merger Agreement provides that each party's obligation to
effect the Merger is conditioned on the other party's obtaining required
consents or approvals of third parties, except where the failure to obtain such
consent or approval would not have a material adverse effect.
NO APPRAISAL RIGHTS
Under the applicable provisions of the Tennessee Business Corporation Act
("TBCA"), holders of CorporateFamily Common Stock will not be entitled to
dissenters' rights or appraisal in connection with the Merger. Under the
applicable provisions of the DGCL, holders of Bright Horizons Common Stock will
not be entitled to dissenters' rights or appraisal in connection with the
Merger.
THE NASDAQ NATIONAL MARKET LISTING
A listing application will be filed with The Nasdaq National Market to list
the shares of Bright Horizons Family Solutions Common Stock to be issued to
CorporateFamily and Bright Horizons stockholders in connection with the Merger
under the symbol "BFAM." Although no assurance can be given that the shares of
Bright Horizons Family Solutions Common Stock so issued will be accepted for
listing, Bright Horizons Family Solutions anticipates that these shares will
qualify for listing on The Nasdaq National Market upon official notice of
issuance thereof. It is a condition to the Merger that such shares of Bright
Horizons Family Solutions Common Stock be approved for listing upon official
notice of issuance at the Effective Time.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general summary of the material federal
income tax consequences of the Merger and is based on the Code, the final,
proposed and temporary Treasury regulations promulgated thereunder,
administrative rulings and interpretations, and judicial decisions, in each case
as in effect as of the date hereof. All of the foregoing are subject to change
at any time, possibly with retroactive effect. The discussion set forth below
does not address all aspects of federal income taxation that may be relevant to
a stockholder in light of such stockholder's particular circumstances or to
stockholders subject to special rules under the federal income tax laws, such as
non-United States persons, financial institutions, tax-exempt organizations,
insurance companies, dealers in securities or stockholders who acquired their
shares of CorporateFamily Common Stock or Bright Horizons Common Stock pursuant
to the exercise of employee stock options or otherwise as compensation, nor any
consequences arising under the laws of any state, locality or foreign
jurisdiction. This discussion assumes that holders of CorporateFamily Common
Stock and holders of Bright Horizons Common Stock hold their respective shares
of stock as capital assets within the meaning of Section 1221 of the Code.
None of CorporateFamily, Bright Horizons or Bright Horizons Family
Solutions intends to secure a ruling from the Internal Revenue Service with
respect to the tax consequences of the Merger. It is a condition
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to the obligation of CorporateFamily to consummate the Merger that
CorporateFamily shall have received an opinion from Bass, Berry & Sims PLC to
the effect that no gain or loss will be recognized by Bright Horizons Family
Solutions, CorporateFamily or CorporateFamily Merger Sub as a result of the
CorporateFamily Merger and that no gain or loss will be recognized by holders of
CorporateFamily Common Stock as a result of the CorporateFamily Merger. It is a
condition to the obligation of Bright Horizons to consummate the Merger that
Bright Horizons shall have received an opinion from Ropes & Gray to the effect
that no gain or loss will be recognized by Bright Horizons Family Solutions,
Bright Horizons or Bright Horizons Merger Sub as a result of the Bright Horizons
Merger and no gain or loss will be recognized by holders of Bright Horizons
Common Stock as a result of the Bright Horizons Merger except gain or loss may
be recognized with respect to the cash received in lieu of fractional shares.
The opinions of Bass, Berry & Sims PLC and Ropes & Gray referred to in this
section will be based on facts existing at the date hereof and at the Effective
Time. In rendering the opinions of counsel referred to in this section, Bass,
Berry & Sims PLC and Ropes & Gray assume the absence of changes in existing
facts and will rely on representations and covenants made by Bright Horizons
Family Solutions, CorporateFamily, Bright Horizons and others.
Tax Implications to CorporateFamily Shareholders
As will be set forth in the opinion of Bass, Berry & Sims PLC referred to
above, no gain or loss will be recognized for federal income tax purposes by
holders of CorporateFamily Common Stock who exchange their CorporateFamily
Common Stock for Bright Horizons Family Solutions Common Stock pursuant to the
CorporateFamily Merger.
The aggregate tax basis of Bright Horizons Family Solutions Common Stock
received as a result of the CorporateFamily Merger will be the same as the
shareholder's aggregate tax basis in the CorporateFamily Common Stock
surrendered in the exchange. For federal income tax purposes, the holding period
of the Bright Horizons Family Solutions Common Stock held by former holders of
CorporateFamily Common Stock as a result of the exchange will include the period
during which such shareholders held the CorporateFamily Common Stock exchanged.
Tax Implications to Bright Horizons Stockholders
As will be set forth in the opinion of Ropes & Gray referred to above, no
gain or loss will be recognized for federal income tax purposes by holders of
Bright Horizons Common Stock as a result of the Bright Horizons Merger except
gain or loss may be recognized with respect to cash received in lieu of
fractional shares as discussed below.
In the Bright Horizons Merger, cash received in lieu of fractional share
interests will be treated as received in exchange for a fractional share of
Bright Horizons Family Solutions Common Stock. Gain or loss recognized on such
exchange will be measured by the difference between the amount of cash received
and the portion of the tax basis in the shares of the Bright Horizons Common
Stock surrendered that is allocable to such fractional share. Such gain or loss
will be capital gain or loss and, if such deemed exchanged fractional share of
Bright Horizons Family Solutions Common Stock is considered to have been held
for more than 18 months at the Effective Time, any gain will be adjusted net
capital gain taxed at a maximum rate of 20 percent. If such deemed exchanged
fractional share of Bright Horizons Family Solutions Common Stock is considered
to have been held for more than one year but not more than 18 months at the
Effective Time, any gain will be "mid-term gain" and would be taxed at a maximum
rate of 28 percent.
The aggregate tax basis of Bright Horizons Family Solutions Common Stock
received as a result of the Bright Horizons Merger will be the same as the
stockholder's aggregate tax basis in the Bright Horizons Common Stock
surrendered in the exchange, decreased by the basis allocable to fractional
shares for which cash is received in the Bright Horizons Merger and increased by
the amount of gain recognized on the exchange. For federal income tax purposes,
the holding period of the Bright Horizons Family Solutions Common Stock held by
former holders of Bright Horizons Common Stock as a result of the exchange will
include the period during which such stockholder held the Bright Horizons Common
Stock exchanged.
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Tax Implications to Bright Horizons Family Solutions, CorporateFamily, Bright
Horizons, CorporateFamily Merger Sub and Bright Horizons Merger Sub
No gain or loss will be recognized for federal income tax purposes by
Bright Horizons Family Solutions, CorporateFamily, Bright Horizons,
CorporateFamily Merger Sub or Bright Horizons Merger Sub as a result of the
formation of Bright Horizons Family Solutions, Bright Horizons Merger Sub and
CorporateFamily Merger Sub and the Merger.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF
FOREIGN, STATE, LOCAL AND OTHER TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
CERTAIN RESTRICTIONS ON RESALE OF BRIGHT HORIZONS FAMILY SOLUTIONS COMMON STOCK
All shares of Bright Horizons Family Solutions Common Stock issued in
connection with the Merger will be freely transferable, except that any shares
of Bright Horizons Family Solutions Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
Bright Horizons or CorporateFamily prior to the Merger may be sold by them only
in transactions permitted by the resale provisions of Rule 145 under the
Securities Act with respect to affiliates of Bright Horizons or CorporateFamily,
or Rule 144 under the Securities Act with respect to persons who are or become
affiliates of Bright Horizons Family Solutions, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of Bright
Horizons or CorporateFamily generally include individuals or entities that
control, are controlled by or are under common control with Bright Horizons or
CorporateFamily and generally include the executive officers and directors of
Bright Horizons or CorporateFamily.
Affiliates may not sell their shares of Bright Horizons Family Solutions
Common Stock acquired in connection with the Merger, except pursuant to an
effective registration under the Securities Act covering such shares or in
compliance with Rule 145 under the Securities Act (or Rule 144 under the
Securities Act in the case of persons who become affiliates of Bright Horizons
Family Solutions) or another applicable exemption from the registration
requirements of the Securities Act. In general, Rule 145 under the Securities
Act provides that, for one year following the Effective Time, an affiliate
(together with certain related persons) would be entitled to sell shares of
Bright Horizons Family Solutions Common Stock acquired in connection with the
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an affiliate
(together with certain related persons and certain persons acting in concert)
within any three-month period for purposes of Rule 145 under the Securities Act
may not exceed the greater of 1% of the outstanding shares of Bright Horizons
Family Solutions Common Stock or the average weekly trading volume of such
shares during the four calendar weeks preceding such sale. Rule 145 under the
Securities Act will remain available to affiliates if Bright Horizons Family
Solutions remains current with its informational filings with the Securities and
Exchange Commission (the "Commission") under the Securities Exchange Act of
1934, as amended ("Exchange Act"). One year after the Effective Time, an
affiliate will be able to sell such shares of Bright Horizons Family Solutions
Common Stock without being subject to such manner of sale or volume limitations
provided that Bright Horizons Family Solutions is current with its Exchange Act
informational filings and such affiliate is not then an affiliate of Bright
Horizons Family Solutions. Two years after the Effective Time, an affiliate will
be able to sell such shares of Bright Horizons Family Solutions Common Stock
without any restrictions so long as such affiliate had not been an affiliate of
Bright Horizons Family Solutions for at least three months prior to the date of
such sale.
Bright Horizons and CorporateFamily have agreed to use all reasonable
efforts to obtain written undertakings ("Affiliate Letters") from each person
who may be at the Effective Time or was on the date of the Merger Agreement an
"affiliate" of Bright Horizons and CorporateFamily for purposes of Rule 145
under the Securities Act to the effect that, among other things, such person
will not sell, transfer or otherwise dispose of, or direct or cause the sale,
transfer or other disposition of, any shares of Bright Horizons Common Stock and
CorporateFamily Common Stock beneficially owned by such person during the 30
days prior to the
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Effective Time and will not sell, transfer or otherwise dispose of, or direct or
cause the sale, transfer or other disposition of, shares of Bright Horizons
Family Solutions Common Stock beneficially owned by such person as a result of
the Merger or otherwise until after such time as Bright Horizons Family
Solutions shall have publicly released a report in the form of a quarterly
earnings report, registration statement filed with the Commission, a report
filed with the Commission or any other public filing, statement or announcement
which includes the combined financial results of Bright Horizons and
CorporateFamily for a period of at least 30 days of combined operations of
Bright Horizons and CorporateFamily following the Effective Time.
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THE MERGER AGREEMENT
The following description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which (exclusive of exhibits and schedules) is attached herein as
Annex I.
Pursuant to the Merger Agreement, (1) CorporateFamily Merger Sub will merge
with and into CorporateFamily and (2) Bright Horizons Merger Sub will merge with
and into Bright Horizons, with CorporateFamily and Bright Horizons surviving the
Merger as wholly owned subsidiaries of Bright Horizons Family Solutions. The
stockholders of CorporateFamily and Bright Horizons will receive the
consideration described below. The Merger will become effective at the date and
time specified in the Articles of Merger and Certificate of Merger to be filed
with the Secretary of State of Tennessee and Secretary of State of Delaware,
respectively (the "Effective Time"). The filing of the Articles of Merger and
Certificate of Merger is anticipated to take place as soon as practicable after
the last of the conditions precedent to the Merger set forth in the Merger
Agreement have been satisfied or, where permissible, waived, which is expected
to occur shortly after the Special Meetings.
EXCHANGE RATIOS; EXCHANGE OF CERTIFICATES
Upon consummation of the Merger, each outstanding share of CorporateFamily
Common Stock will be converted into one share of Bright Horizons Family
Solutions Common Stock and each outstanding share of Bright Horizons Common
Stock will be converted into 1.15022 shares of Bright Horizons Family Solutions
Common Stock. The Exchange Ratios were determined through arm's length
negotiations between CorporateFamily and Bright Horizons after consideration of
all relevant factors. On a fully diluted basis, former CorporateFamily
shareholders will hold approximately 43.2% of the outstanding shares of Bright
Horizons Family Solutions Common Stock and former Bright Horizons stockholders
will hold approximately 56.8% of the outstanding shares of Bright Horizons
Family Solutions Common Stock immediately after the Effective Time. Each share,
if any, of CorporateFamily Common Stock held by Bright Horizons and each share,
if any, of Bright Horizons Common Stock held by CorporateFamily prior to the
Effective Time shall by virtue of the Merger be canceled and retired and shall
cease to exist and no payment shall be made with respect thereto. See "The
Merger -- Background of the Merger."
Promptly after the Effective Time, the exchange agent will mail written
transmittal materials concerning exchange of stock certificates to each record
holder of outstanding shares of CorporateFamily Common Stock and Bright Horizons
Common Stock. The transmittal materials will contain instructions with respect
to the proper method of surrender of certificates formerly representing shares
of CorporateFamily Common Stock or Bright Horizons Common Stock, respectively,
in exchange for certificates representing shares of Bright Horizons Family
Solutions Common Stock. Upon surrender to the exchange agent by a
CorporateFamily or Bright Horizons stockholder of certificates formerly
representing shares of CorporateFamily Common Stock or Bright Horizons Common
Stock, as the case may be, for cancellation, together with properly completed
transmittal materials, such stockholder will be entitled to receive a
certificate representing the number of whole shares of Bright Horizons Family
Solutions Common Stock into which the stockholder's shares of CorporateFamily
Common Stock or Bright Horizons Common Stock, as the case may be, have been
converted, and, if applicable, a check representing the cash consideration to
which such holder may be entitled on account of a fractional share of Bright
Horizons Family Solutions Common Stock. Such transmittal forms will be
accompanied by instructions specifying other details of the exchange.
No fractional shares of Bright Horizons Family Solutions Common Stock shall
be issued in the Merger but in lieu thereof each holder of shares of Bright
Horizons Common Stock otherwise entitled to a fractional share of Bright
Horizons Family Solutions Common Stock shall, upon surrender of its, his or her
certificate or certificates, be entitled to receive an amount of cash rounded up
to the nearest cent (without interest) determined by multiplying the fair market
value of a share of Bright Horizons Family Solutions Common Stock as determined
by the Bright Horizons Family Solutions Board of Directors by the fractional
share interest to which such holder would otherwise be entitled.
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STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A
TRANSMITTAL FORM.
After the Effective Time, each certificate that evidenced CorporateFamily
Common Stock or Bright Horizons Common Stock immediately prior to the Effective
Time, until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive a certificate representing the number of
shares of Bright Horizons Family Solutions Common Stock into which such holder's
shares were converted in the Merger. The holder of such unexchanged certificate
will not be entitled to receive any dividends or other distributions payable by
Bright Horizons Family Solutions until the certificate is surrendered. Subject
to applicable laws, such dividends and distributions, if any, will be
accumulated and, at the time of such surrender, all such unpaid dividends and
distributions will be paid without interest.
TREATMENT OF OUTSTANDING STOCK OPTIONS OF CORPORATEFAMILY AND BRIGHT HORIZONS
At the Effective Time, each outstanding option to purchase shares of
CorporateFamily Common Stock (a "CorporateFamily Stock Option" or collectively,
"CorporateFamily Stock Options") shall be assumed by Bright Horizons Family
Solutions (all of such plans or agreements pursuant to which any CorporateFamily
Stock Option has been issued or may be issued are referred to collectively as
the "CorporateFamily Plans"). Each CorporateFamily Stock Option shall be deemed
to constitute an option to acquire, on the same terms and conditions as were
applicable under such CorporateFamily Stock Option, the same number of shares of
Bright Horizons Family Solutions Common Stock as the holder of such
CorporateFamily Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time, at a price per share equal to the current exercise price;
provided, however, that in the case of any option to which section 421 of the
Code applies by reason of its qualification under section 422 of the Code
("incentive stock options" or "ISOs"), the option price, the number of shares
purchasable pursuant to such option and the terms and conditions of exercise of
such option shall be determined in compliance with the requirements of section
424(a) of the Code. All CorporateFamily Stock Options shall fully vest
immediately prior to the Effective Time pursuant to the terms of the applicable
stock option agreements.
At the Effective Time, each outstanding option to purchase Bright Horizons
Common Stock (a "Bright Horizons Stock Option" or collectively, "Bright Horizons
Stock Options") shall be assumed by Bright Horizons Family Solutions (all of
such plans or agreements pursuant to which any Bright Horizons Stock Option has
been issued or may be issued are referred to collectively as the "Bright
Horizons Plans"). Each Bright Horizons Stock Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Bright Horizons Stock Option, the same number of shares
(rounded down to the nearest whole number) of Bright Horizons Family Solutions
Common Stock as the holder of such Bright Horizons Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, at a price per share equal to
the exercise price adjusted to be the quotient obtained by dividing the existing
exercise price by the Bright Horizons Exchange Ratio; provided, however, that in
the case of any ISOs, the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in compliance with the requirements of section 424(a) of the
Code. Bright Horizons Stock Options held by Roger Brown, Linda Mason, Mary Ann
Tocio, Stephen Dreier, Elizabeth Boland, David Lissy, Michael Day, Melanie Ray
and Nancy Rosenzweig shall fully vest immediately prior to the Effective Time
pursuant to the terms of their Severance Agreements.
Stockholder approval of the Merger Agreement will constitute authorization
of Bright Horizons Family Solutions to assume the existing CorporateFamily Plans
and Bright Horizons Plans and the options and awards outstanding thereunder.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
each of Bright Horizons and CorporateFamily (which representations and
warranties are subject, in certain cases, to specified exceptions)
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relating to matters including: (a) its corporate organization, existence and
good standing and similar corporate matters; (b) its capitalization; (c) the
authorization, execution, delivery and enforceability of the Merger Agreement
and the recommendation of such party's Board with respect to the Merger
Agreement; (d) the documents and reports filed with the Commission and the
accuracy and completeness of the information contained therein; (e) the accuracy
and completeness of the information supplied for this Joint Proxy
Statement/Prospectus; (f) the absence of required permits, consents, approvals,
orders, or authorizations of, or filings with, certain governmental entities
relating to the Merger and the absence of conflicts, violations and defaults
under its certificate of incorporation, charter or by-laws and certain other
agreements and documents caused by the execution of the Merger Agreement or the
Merger; (g) the absence of defaults under material contracts; (h) the absence of
a Material Adverse Effect (as defined below) on such party or certain other
material changes or events since the end of such party's most recent fiscal
year; (i) the absence of material pending or threatened litigation; (j)
compliance with applicable laws and the existence of necessary permits or
approvals from certain governmental entities; (k) labor matters and benefit
plans and other matters relating to the Employee Retirement Income Security Act
of 1974; (l) environmental matters; (m) filing of tax returns and payment of
taxes; (n) owned and leased real property matters; (o) intellectual property;
(p) insurance; (q) provision of material contracts; (r) the shareholder vote
required to approve the Merger; (s) tax and accounting treatment; (t) brokers'
fees and expenses; and (u) the receipt of an opinion of a financial advisor.
As used in the Merger Agreement and this Joint Proxy Statement/Prospectus,
the term "Material Adverse Effect" means, when used in connection with either
CorporateFamily or Bright Horizons, any change or effect, (i) that is, or is
reasonably likely to be, materially adverse to the business, results of
operations, condition (financial or otherwise) of such party and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which such party and
its subsidiaries are engaged, or (ii) that may impair the ability of such party
to perform its obligations under the Merger Agreement or the transactions
contemplated thereby.
CONDUCT OF BUSINESS PENDING THE MERGER
Subject to certain exceptions, Bright Horizons has agreed, pending the
Effective Time, to conduct its business in the ordinary and usual course of
business and consistent with past practice, and with no less diligence and
effort than would be applied in absence of the Merger Agreement, seek to
preserve intact its business organization, to keep available the services of its
current officers and employees and to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses shall be unimpaired at the Effective Time. Bright
Horizons has agreed that, except as expressly provided in the Merger Agreement
or consented to in writing by CorporateFamily, it will not, prior to the
Effective Time: (a) amend its Certificate of Incorporation or Bylaws (or other
similar governing instrument); (b) authorize for issuance, issue, sell, deliver
or agree or commit to issue, sell or deliver any stock of any class or any other
securities (except bank loans) or equity equivalents, except for (i) the
issuance and sale of Bright Horizons Common Stock pursuant to options previously
granted under the Bright Horizons Plans, and (ii) the granting of stock options
to employees in the ordinary course of business and consistent with past
practices of Bright Horizons, provided that the aggregate number of shares of
Bright Horizons Common Stock issuable pursuant to such options shall not exceed
25,000; (c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, make any other actual, constructive or deemed distribution in
respect of its capital stock or otherwise make any payments to stockholders in
their capacity as such, or redeem or otherwise acquire any of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of Bright
Horizons (other than the Merger); (e)(i) incur or assume any long-term or
short-term debt other than in the ordinary course or issue any debt securities;
(ii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person; (iii) make any loans, advances or capital contributions to, or
investments in, any other person other than in the ordinary course; (iv) pledge
or otherwise encumber shares of capital stock of Bright Horizons or its
subsidiaries; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material lien thereupon (other than
tax liens for taxes not yet due or liens in the ordinary course of business
consistent with past practice); (f) except as may be required by law,
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take certain actions regarding employee compensation; (g) acquire, sell, lease
or dispose of any assets in any single transaction or series of related
transactions outside of the ordinary course of business; (h) except as may be
required as a result of a change in law or in generally accepted accounting
principles, change any of the accounting principles or practices used by it; (i)
revalue in any material respect any of its assets, including without limitation,
writing down the value of inventory or writing-off notes or accounts receivable
other than in the ordinary course of business; (j) (i) acquire, in any manner,
any corporation, partnership or other business organization or division thereof
or any equity interest therein which individually is in excess of $750,000; (ii)
enter into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to Bright
Horizons, or (iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $250,000 or, in the aggregate, are in excess of
$1,000,000, provided, however, that none of the foregoing shall limit any
capital expenditure required pursuant to existing contracts; (k) make any tax
election or settle or compromise any income tax liability material to Bright
Horizons and its subsidiaries taken as a whole; (l) settle or compromise any
pending or threatened suit, action, or claim which either relates to the Merger
Agreement or the settlement or compromise of which could have a Material Adverse
Effect on Bright Horizons; (m) make any amendments (other than such amendments
effected in the ordinary course of business that will not materially adversely
affect the contractual arrangement in question) or cause any breach of any
CorporateFamily contract; or (n) take or agree to take any of the actions
described above or take any action which would make any of the representations
or warranties of Bright Horizons contained in the Merger Agreement untrue or
incorrect.
Subject to certain exceptions, CorporateFamily has agreed, pending the
Effective Time, to conduct its business in the ordinary and usual course of
business and consistent with past practice, and with no less diligence and
effort than would be applied in absence of the Merger Agreement, seek to
preserve intact its business organization, to keep available the services of its
current officers and employees and to preserve its relationships with customers,
suppliers and others having business dealings with it to the end that goodwill
and ongoing businesses will be unimpaired at the Effective Time. CorporateFamily
has agreed that, except as expressly provided in the Merger Agreement or
consented to in writing by Bright Horizons, it will not, prior to the Effective
Time: (a) amend its Charter or Bylaws (or other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to issue,
sell or deliver any stock of any class or any other securities (except bank
loans) or equity equivalents, except for (i) the issuance and sale of
CorporateFamily Common Stock pursuant to options previously granted under the
CorporateFamily Plans, and (ii) the granting of stock options to employees in
the ordinary course of business and consistent with past practices of
CorporateFamily, provided that the aggregate number of shares of CorporateFamily
Common Stock issuable pursuant to such options shall not exceed 25,000; (c)
split, combine or reclassify any shares of its capital stock, declare, set aside
or pay any dividend or other distribution in respect of its capital stock, make
any other actual, constructive or deemed distribution in respect of its capital
stock or otherwise make any payments to stockholders in their capacity as such,
or redeem or otherwise acquire any of its securities; (d) adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of CorporateFamily
(other than the Merger); (e) (i) incur or assume any long-term or short-term
debt other than in the ordinary course or issue any debt securities; (ii)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person;
(iii) make any loans, advances or capital contributions to, or investments in,
any other person other than in the ordinary course; (iv) pledge or otherwise
encumber shares of capital stock of CorporateFamily or its subsidiaries; or (v)
mortgage or pledge any of its material assets, tangible or intangible, or create
or suffer to exist any material lien thereupon (other than tax liens for taxes
not yet due or liens in the ordinary course of business consistent with past
practice); (f) except as may be required by law, take certain actions regarding
employee compensation; (g) acquire, sell, lease or dispose of any assets in any
single transaction or series of related transactions outside of the ordinary
course of business; (h) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it; (i) revalue in any material respect any of
its assets, including without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business; (j) (i) acquire, in any manner, any corporation, partnership or other
business organization or division thereof or any equity interest therein which
individually is in excess of $750,000,
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(ii) enter into any contract or agreement other than in the ordinary course of
business consistent with past practice which would be material to
CorporateFamily, or (iii) authorize any new capital expenditure or expenditures
which, individually, is in excess of $250,000 or, in the aggregate, are in
excess of $1,000,000, provided, however, that none of the foregoing shall limit
any capital expenditure required pursuant to existing contracts; (k) make any
tax election or settle or compromise any income tax liability material to
CorporateFamily or its subsidiaries taken as a whole; (l) settle or compromise
any pending or threatened suit, action, or claim which either relates to the
Merger Agreement or the settlement or compromise of which could have a Material
Adverse Effect on CorporateFamily; (m) make any amendments (other than such
amendments effected in the ordinary course of business that will not materially
adversely affect the contractual arrangement in question) or cause any breach of
any CorporateFamily contract; or (n) take or agree to take any of the actions
described above or take any action which would make any of the representations
or warranties of CorporateFamily contained in the Merger Agreement untrue or
incorrect.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither CorporateFamily nor Bright
Horizons shall, nor shall they permit any of their subsidiaries to, nor shall
they authorize or permit any of their directors, officers or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by them or any of their subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes any
Takeover Proposal (as defined below) or (ii) participate in any discussions or
negotiations regarding any Takeover Proposal; provided, however, that if, at any
time, the Board of Directors of either party determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its respective fiduciary duties to its stockholders under applicable
law, CorporateFamily or Bright Horizons may, in response to a Superior Proposal
(as defined below) and subject to providing prior written notice of its decision
to take such action to the other party ("Notice"), and keeping the other party
reasonably informed of the status of any request for information or of any
Takeover Proposal, following delivery of the Notice (x) furnish information with
respect to the party and its subsidiaries to any person making a Superior
Proposal pursuant to a customary confidentiality agreement (as determined by the
party after consultation with its outside counsel) and (y) participate in
discussions or negotiations regarding such Superior Proposal. For purposes of
the Merger Agreement, "Takeover Proposal" means any inquiry, proposal or offer
from any person relating to any Takeover Event, and "Takeover Event" means any
(w) direct or indirect acquisition or purchase of a business that constitutes
30% or more of the net revenues, net income or the assets of a party and its
subsidiaries, taken as a whole, (x) direct or indirect acquisition or purchase
of 30% or more of any class of equity securities of a party or any of its
subsidiaries whose business constitutes 30% or more of the net revenues, net
income or assets of a party and its subsidiaries, taken as a whole, (y) tender
offer or exchange offer that if consummated would result in any person
beneficially owning 30% or more of any class of equity securities of a party or
any of its subsidiaries whose business constitutes 30% or more of the net
revenues, net income or assets of a party and its subsidiaries, taken as a
whole, or (z) merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving a party or any of its
subsidiaries whose business constitutes 30% or more of the net revenues, net
income or assets of a party and its subsidiaries, taken as a whole, other than
the transactions contemplated by the Merger Agreement.
The Merger Agreement also provides that, except as expressly permitted
below, neither the Board of Directors of either party nor any committee thereof
shall (i) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to the other party, the approval or recommendation by such Board
of Directors or such committee of the Merger or the Merger Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend, any Takeover
Proposal or (iii) cause such party to enter into any letter of intent, agreement
in principle, acquisition agreement or other similar agreement (each, an
"Acquisition Agreement") related to any Takeover Proposal. Notwithstanding the
foregoing, in the event that the Board of Directors of either party determines
in good faith, after consultation with outside counsel, that in light of a
Superior Proposal it is necessary to do so in order to act in a manner
consistent with its fiduciary duties to its respective stockholders under
applicable law, the Board of Directors of either party may (subject to this and
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the following sentences) enter into an Acquisition Agreement with respect to any
Superior Proposal, but only after the fifth business day following the other
party's receipt of written notice advising such other party that the Board of
Directors of such notifying party is prepared to accept a Superior Proposal and
only if, during such five-day period, such notifying party and its advisors
shall have negotiated in good faith with the other party to make such
adjustments in the terms and conditions of the Merger Agreement as would enable
the other party to proceed with the transactions contemplated therein on such
adjusted terms; it being understood and agreed that should the other party not
seek to proceed with the transactions contemplated herein on such adjusted
terms, such party may solicit additional Takeover Proposals, including by
conducting an auction. For purposes of the Merger Agreement, a "Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of common stock then
outstanding or all or substantially all the assets of a party and otherwise on
terms which the Board of Directors of the party determines in its good faith
judgment to be more favorable to its stockholders than the Merger and for which
financing, to the extent required, is then committed or which, in the good faith
judgment of the Board of Directors of such party, is reasonably capable of being
obtained by such third party.
INDEMNIFICATION; INSURANCE
Bright Horizons Family Solutions will to the fullest extent permitted by
applicable law and to the extent not covered under CorporateFamily's or Bright
Horizons' directors' and officers' liability insurance, from and after the
Effective Time, indemnify each person who is or has been or becomes prior to the
Effective Time, a director, officer or employee of CorporateFamily, Bright
Horizons or Bright Horizons Family Solutions or any subsidiary thereof, against
all losses, expenses (including reasonable attorney fees and expenses), claims,
damages or liabilities and amounts paid in settlement arising out of certain
matters and shall provide rights to indemnification no less favorable then those
rights to indemnification provided for in CorporateFamily's Charter, Bright
Horizons' Certificate or Incorporation, CorporateFamily's Bylaws and Bright
Horizons' Bylaws as in effect on the date of the Merger Agreement for a period
of not less than six years. For a period of six years from the Effective Time,
Bright Horizons Family Solutions will maintain in effect the policies of
directors' and officers' liability insurance maintained by CorporateFamily and
Bright Horizons for the benefit of those persons who are covered by such
policies at the Effective Time (unless such insurance is not available at
reasonable commercial rates, in which case Bright Horizons Family Solutions may
substitute therefor policies of at least the same coverage as those persons who
are then serving as directors of Bright Horizons Family Solutions).
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of CorporateFamily and Bright Horizons to
consummate the transactions contemplated by the Merger Agreement are subject to
the satisfaction or, where permissible, waiver at or prior to the Effective Time
of the following conditions: (a) approval and adoption of the Merger Agreement
and the transactions contemplated thereby by the requisite vote of the
stockholders of CorporateFamily and Bright Horizons, respectively; (b) the
absence of any statute, rule, regulation, ruling, order, decree, or injunction
enacted or issued by any United States court or United States governmental
authority prohibiting, restraining, enjoining or restricting consummation of the
Merger; (c) expiration or early termination of all applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the
"HSR Act"), and filing or receipt of any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
thereby; (d) effectiveness of the Registration Statement on Form S-4 containing
this Joint Proxy Statement/Prospectus under the Securities Act, which shall not
be the subject of any stop order or proceeding seeking a stop order and
obtaining all state securities laws or "blue sky" permits and authorizations
necessary to issue shares of Bright Horizons Family Solutions Common Stock in
exchange for CorporateFamily Common Stock and Bright Horizons Common Stock in
the Merger; and (e) Bright Horizons shall have received the opinion of Price
Waterhouse LLP, Bright Horizons' independent auditors, dated the closing date
and addressed to Bright Horizons and available for use by CorporateFamily and
its representatives, to the effect that Bright Horizons is a poolable entity,
and CorporateFamily shall have
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received the opinion of Arthur Andersen LLP, CorporateFamily's independent
auditors, dated the closing date and addressed to CorporateFamily and available
for use by Bright Horizons and its representatives, to the effect that the
Merger will be treated as a "pooling of interests" in accordance with Generally
Accepted Accounting Principles ("GAAP") and all published rules, regulations and
policies of the Commission.
The obligation of CorporateFamily to consummate the transactions
contemplated by the Merger Agreement is subject to the satisfaction or waiver at
or prior to the Effective Time of the following conditions: (a) the
representations of Bright Horizons and Bright Horizons Family Solutions
contained in the Merger Agreement or in any other document delivered pursuant
thereto shall be true and correct (except to the extent that the breach thereof
would not have a Material Adverse Effect on Bright Horizons or Bright Horizons
Family Solutions), and at the closing, each of Bright Horizons and Bright
Horizons Family Solutions shall have delivered to CorporateFamily a certificate
to that effect; (b) each of the covenants and obligations of Bright Horizons and
Bright Horizons Family Solutions to be performed at or before the Effective Time
pursuant to the terms of the Merger Agreement shall have been duly performed in
all material respects at or before the Effective Time, and at the closing each
of Bright Horizons and Bright Horizons Family Solutions shall have delivered to
CorporateFamily a certificate to that effect; (c) the Bright Horizons Family
Solutions Common Stock issuable to the CorporateFamily shareholders pursuant to
the Merger Agreement and such other shares required to be reserved for issuance
in connection with the Merger shall have been authorized for listing on The
Nasdaq National Market upon official notice of issuance; (d) the opinion of
Bass, Berry & Sims PLC, counsel to CorporateFamily, dated the closing date and
addressed to CorporateFamily to the effect that (i) the merger of
CorporateFamily Merger Sub into CorporateFamily will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code; (ii) each of CorporateFamily Merger Sub and CorporateFamily will be a
party to the reorganization within the meaning of Section 368(b) of the Code;
and (iii) no gain or loss for federal income tax purposes will be recognized by
Bright Horizons Family Solutions, CorporateFamily Merger Sub, CorporateFamily or
a shareholder of CorporateFamily as a result of the Merger other than with
respect to cash received by a stockholder in lieu of a fractional share of
Bright Horizons Family Solutions Common Stock; (e) Bright Horizons shall have
obtained the consent or approval of each person whose consent or approval shall
be required in order to permit the succession by Bright Horizons Family
Solutions pursuant to the Merger to any obligation, right or interest of Bright
Horizons under any loan or credit agreement, note, mortgage, indenture, lease or
other agreement or instrument, except those for which failure to obtain such
consents and approvals would not, in the reasonable opinion of CorporateFamily,
individually or in the aggregate, have a Material Adverse Effect on Bright
Horizons; and (f) there shall have been no events, changes or effects with
respect to Bright Horizons or its subsidiaries having a Material Adverse Effect
on Bright Horizons.
The obligation of Bright Horizons to consummate the transactions
contemplated by the Merger Agreement is subject to the satisfaction or waiver at
or prior to the Effective Time of the following conditions: (a) the
representations of CorporateFamily and Bright Horizons Family Solutions
contained in the Merger Agreement or in any other document delivered pursuant
thereto shall be true and correct (except to the extent that the breach thereof
would not have a Material Adverse Effect on CorporateFamily or Bright Horizons
Family Solutions), and at the closing, each of CorporateFamily and Bright
Horizons Family Solutions shall have delivered to Bright Horizons a certificate
to that effect; (b) each of the covenants and obligations of CorporateFamily and
Bright Horizons Family Solutions to be performed at or before the Effective Time
pursuant to the terms of the Merger Agreement shall have been duly performed in
all material respects at or before the Effective Time, and at the closing, each
of CorporateFamily and Bright Horizons Family Solutions shall have delivered to
Bright Horizons a certificate to that effect; (c) the Bright Horizons Family
Solutions Common Stock issuable to the Bright Horizons stockholders pursuant to
the Merger Agreement and such other shares to be reserved for issuance in
connection with the Merger shall have been authorized for listing on The Nasdaq
National Market upon official notice of issuance; (d) the opinion of Ropes &
Gray, counsel to Bright Horizons, dated the closing date and addressed to Bright
Horizons, to the effect that (i) the merger of Bright Horizons Merger Sub into
Bright Horizons will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii) each of
Bright Horizons Merger Sub and Bright Horizons will be a party to the
reorganization within the meaning of Section 368(b) of the Code; and (iii) no
gain or loss for federal income tax purposes will be recognized by Bright
Horizons Family
53
<PAGE> 60
Solutions, Bright Horizons Merger Sub, Bright Horizons or a stockholder of
Bright Horizons as a result of the Merger other than with respect to cash
received by a stockholder in lieu of a fractional share of Bright Horizons
Family Solutions Common Stock; (e) CorporateFamily shall have obtained the
consent or approval of each person whose consent or approval shall be required
in order to permit the succession by Bright Horizons Family Solutions pursuant
to the Merger to any obligation, right or interest of CorporateFamily under any
loan or credit agreement, note, mortgage, indenture, lease or other agreement or
instrument, except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of Bright Horizons, individually
or in the aggregate, have a Material Adverse Effect on CorporateFamily; and (f)
there shall have been no events, changes, or effects with respect to
CorporateFamily or its subsidiaries having a Material Adverse Effect on
CorporateFamily.
TERMINATION; AMENDMENT AND WAIVER
The Merger Agreement may be terminated and the Merger abandoned at any time
before the Effective Time, whether before or after approval by the Bright
Horizons stockholders or the CorporateFamily shareholders: (a) by mutual written
consent of Bright Horizons and CorporateFamily; (b) by either Bright Horizons or
CorporateFamily if (i) any court of competent jurisdiction or other competent
governmental authority has issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Merger and such
action has become final and nonappealable, (ii) the Merger has not been
consummated on or before November 30, 1998, unless the failure to consummate the
Merger is due to the failure of the party seeking to terminate the Merger
Agreement to fulfill any of its obligations thereunder, (iii) there has been a
material breach by the other party of any of its representations, warranties,
covenants or agreements materially adversely affecting the consummation of the
Merger or materially adversely affecting one of the other parties that is not
cured within 20 business days after receipt by the party alleged to be in breach
of written notice thereof, (iv) the CorporateFamily Board of Directors or the
Bright Horizons Board of Directors has recommended to its stockholders a
Superior Proposal, or (v) either party's stockholders have voted on the Merger
Agreement and the transactions contemplated thereby and the requisite vote in
favor is not obtained; (c) by Bright Horizons if the CorporateFamily Board shall
have withdrawn, modified or changed its approval or recommendation or shall have
failed to call, give notice of, convene or hold a shareholder's meeting; (d) by
CorporateFamily if the Bright Horizons Board shall have withdrawn, modified or
changed its approval or recommendation or shall have failed to call, give notice
of, convene or hold a stockholder's meeting; (e) by Bright Horizons if a tender
or exchange offer for outstanding shares of CorporateFamily Common Stock then
representing 30% or more of the combined power to vote generally for the
election of CorporateFamily directors is commenced, and the CorporateFamily
Board of Directors does not recommend that shareholders not tender their shares
into such tender or exchange offer; or (f) by CorporateFamily if a tender or
exchange offer for outstanding shares of Bright Horizons Common Stock then
representing 30% or more of the combined power to vote generally for the
election of Bright Horizons directors is commenced, and the Bright Horizons
Board of Directors does not recommend that stockholders not tender their shares
into such tender or exchange offer.
CorporateFamily and Bright Horizons may amend the Merger Agreement either
before or after approval by the CorporateFamily shareholders of the Merger
Agreement and approval by the Bright Horizons stockholders of the Merger
Agreement, except that after such approval, no amendment may be made that, under
Tennessee or Delaware law, requires further approval by the CorporateFamily or
Bright Horizons stockholders, as the case may be, without such further approval.
At any time prior to the Effective Time, either Bright Horizons or
CorporateFamily may extend the time specified in the Merger Agreement for the
performance of any of the obligations of the other party, waive any inaccuracies
in the representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto or waive compliance by
any other party with any of the agreements or conditions of such other party
contained in the Merger Agreement.
54
<PAGE> 61
FEES AND EXPENSES
Each party shall bear its own expenses in connection with the Merger
Agreement and the transactions contemplated thereby except that (a) Bright
Horizons shall pay to CorporateFamily by wire transfer $4.0 million (the "Bright
Horizons Termination Fee"), upon demand, if any of (i) through (v) occur and
(vi) occurs: (i) Bright Horizons shall have convened a meeting of its
stockholders to vote upon the Merger and shall have failed to obtain the
requisite vote of its stockholders, or (ii) there has been a material breach by
Bright Horizons of any of its representations, warranties, covenants or
agreements materially adversely affecting the consummation of the Merger or
materially adversely affecting Bright Horizons that is not cured within 20
business days after receipt by Bright Horizons of written notice thereof, or
(iii) the Bright Horizons Board of Directors has recommended to its stockholders
a Superior Proposal, or (iv) the Bright Horizons Board of Directors shall have
withdrawn, modified or changed its approval or recommendation or shall have
failed to call, give notice of, convene or hold a stockholder's meeting, or (v)
a tender or exchange offer for outstanding shares of Bright Horizons Common
Stock then representing 30% or more of the combined power to vote generally for
the election of Bright Horizons directors is commenced, and the Bright Horizons
Board of Directors does not recommend that stockholders not tender their shares
into such tender or exchange offer, and (vi) prior to the time the Merger
Agreement is terminated or the time of the Bright Horizons Special Meeting, a
Bright Horizons Takeover Proposal shall have been publicly announced or shall
have become publicly known, and during the term of the Merger Agreement or
within twelve months after the termination of the Merger Agreement a Bright
Horizons Takeover Event shall occur; and (b) CorporateFamily shall pay to Bright
Horizons by wire transfer $4.0 million (the "CorporateFamily Termination Fee"),
upon demand, if any of (i) through (v) occur and (vi) occurs: (i)
CorporateFamily shall have convened a meeting of its shareholders to vote upon
the Merger and shall have failed to obtain the requisite vote of its
shareholders, or (ii) there has been a material breach by CorporateFamily of any
of its representations, warranties, covenants or agreements materially adversely
affecting the consummation of the Merger or materially adversely affecting
CorporateFamily that is not cured within 20 business days after receipt by
CorporateFamily of written notice thereof, or (iii) the CorporateFamily Board of
Directors has recommended to its shareholders a Superior Proposal, or (iv) the
CorporateFamily Board of Directors shall have withdrawn, modified or changed its
approval or recommendation or shall have failed to call, give notice of, convene
or hold a shareholder's meeting, or (v) a tender or exchange offer for
outstanding shares of CorporateFamily Common Stock then representing 30% or more
of the combined power to vote generally for the election of CorporateFamily
directors is commenced, and the CorporateFamily Board of Directors does not
recommend that shareholders not tender their shares into such tender or exchange
offer, and (vi) prior to the time the Merger Agreement is terminated or the time
of the CorporateFamily Special Meeting, a CorporateFamily Takeover Proposal
shall have been publicly announced or shall have become publicly known, and
during the term of the Merger Agreement or within twelve months after the
termination of the Merger Agreement a CorporateFamily Takeover Event shall
occur.
STOCK OPTION AGREEMENTS
The following description of the CorporateFamily Stock Option Agreement and
the Bright Horizons Stock Option Agreement (collectively, the "Option
Agreements") does not purport to be complete and is qualified in its entirety by
reference to the Option Agreements, copies of which are attached hereto as
Annexes II and III.
As a condition to each party's willingness to enter into the Merger
Agreement, each of Bright Horizons and CorporateFamily entered into the Option
Agreements, whereby each party, as Issuer, granted to the other, as Grantee, the
irrevocable right to purchase ten percent of its outstanding shares of common
stock as of April 26, 1998 (constituting 460,828 shares of CorporateFamily
Common Stock and 560,073 shares of Bright Horizons Common Stock, respectively)
at an exercise price equal to the average of the daily last sale price of such
common stock on The Nasdaq National Market during the ten day trading period
ending on May 1, 1998 (equaling $28.56 per share for CorporateFamily Common
Stock or $28.19 per share for Bright Horizons Common Stock), in each case an
"Option Price."
55
<PAGE> 62
A party may exercise its option only upon the occurrence of a Triggering
Event (as defined in the Option Agreements) prior to an Option Termination
Event. An Option Termination Event means any of the following events: (i)
immediately prior to the Effective Time of the Merger; (ii) termination of the
Merger Agreement (other than upon or during the continuance of a Triggering
Event); or (iii) 180 days following any termination of the Merger Agreement upon
or during the continuance of a Triggering Event (or if, at the expiration of
such 180-day period the Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, ten business days after such
impediment to exercise shall have been removed or shall have become final and
not subject to appeal). Notwithstanding the foregoing, the option may not be
exercised if the Grantee is in material breach of its representation or
warranties, or in material breach of any of its covenants or agreements
contained in the Option Agreement or the Merger Agreement. A Triggering Event
shall occur as to CorporateFamily or Bright Horizons when a CorporateFamily
Takeover Proposal (as defined in the Option Agreements) or a Bright Horizons
Takeover Proposal (as defined in the Option Agreements), respectively, shall
have been publicly announced or shall have become publicly known prior to the
time the Merger Agreement is terminated or the time of the Special Meetings. No
Triggering Event has occurred as of the date of this Joint Proxy
Statement/Prospectus.
If a Triggering Event occurs before an Option Termination Event and an
Issuer Takeover Event (as defined in the Option Agreements) occurs within twelve
months after the Triggering Event, a "Repurchase Event" shall be deemed to have
occurred. Within ten business days following the occurrence of a Repurchase
Event, the Grantee will have a right to require Issuer to repurchase the Option
from Grantee at a price (the "Option Repurchase Price") equal to the amount by
which (A) the Alternative Proposal Price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which the Option may then
be exercised, and to repurchase the Option Shares (as defined in the Option
Agreements) from each owner of Option Shares (excluding such Option Shares as
have been publicly distributed) from time to time (each, an "Owner") at a price
(the "Option Share Repurchase Price") equal to the Alternative Proposal Price
multiplied by the number of Option Shares then held by such Owner. The term
"Alternative Proposal Price" shall mean, as of any date for the determination
thereof, the price per share of common stock paid pursuant to the Issuer
Takeover Event or, in the event of a sale of assets of Issuer, the last
per-share sale price of common stock on the fourth trading day following the
announcement of such sale. If the consideration paid or received in the Issuer
Takeover Event shall be other than in cash, the value of such consideration
shall be determined by a nationally recognized investment banking firm selected
by Grantee.
After the first occurrence of an Issuer Triggering Event and prior to the
later of 18 months immediately following the first purchase of shares pursuant
to the option or the Option Termination Date, the Grantee must give the Issuer a
right of first refusal prior to transferring the option or any Option Shares.
The Issuer may purchase the shares under the terms of the proposed transfer by
accepting the offer within ten business days of the Grantee's notice to the
Issuer and settling the purchase within ten business days of the acceptance. The
Issuer will have no right of refusal as to (i) any disposition as a result of
which the proposed transferee would own beneficially not more than 2% of the
outstanding voting power of Issuer, (ii) any disposition of common stock or
other securities by a person to whom Grantee has assigned its rights under the
option with the consent of Issuer, (iii) any sale by means of a public offering
registered under the Securities Act in which steps are taken to reasonably
assure that no purchaser will acquire securities representing more than 2% of
the outstanding voting power of Issuer, or (iv) any transfer to a wholly owned
subsidiary of Grantee which agrees in writing to be bound by the terms hereof.
If a Triggering Event occurs prior to an Option Termination Event, the
Grantee may require the Issuer to file a shelf registration statement covering
shares issued or issuable pursuant to the option, and may demand a second such
registration within 18 months after the first request if reasonably necessary to
effect sales or other dispositions of such shares.
The parties entered into the Option Agreements in an effort to increase the
likelihood that the Merger will be consummated in accordance with the terms of
the Merger Agreement. Therefore, certain aspects of the Option Agreements may
have the effect of discouraging persons who now, or prior to the Effective Time,
may be interested in acquiring all of or a significant interest in
CorporateFamily or Bright Horizons or proposing such an acquisition. Exercise of
an option by either company as Grantee in the event such option became
56
<PAGE> 63
exercisable would provide the Grantee with the right to vote approximately ten
percent of the Issuer's Common Stock now outstanding, but would have no economic
benefit unless another proposal involved consideration in excess of the
applicable exercise price. In addition, the grant of the option may be deemed to
cause either company as Issuer to be ineligible to participate in a pooling of
interests transaction with another party if the Merger does not occur.
57
<PAGE> 64
BRIGHT HORIZONS FAMILY SOLUTIONS UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the Merger of Bright Horizons and CorporateFamily under the pooling of
interests method of accounting. This pro forma financial information is
presented for illustrative purposes only and therefore is not necessarily
indicative of the operating results and financial position that might have been
achieved had the Merger occurred as of an earlier date, nor is it necessarily
indicative of operating results and financial position which may occur in the
future.
A pro forma combined balance sheet is provided as of March 31, 1998 for
Bright Horizons and April 3, 1998 for CorporateFamily, giving effect to the
Merger. Pro forma combined statements of operations are provided for the three
month periods ended March 31, 1997 and 1998 for Bright Horizons and for the
three month periods ended March 28, 1997 and April 3, 1998 for CorporateFamily,
respectively, and for the years ended June 30, 1995, 1996 and 1997 for Bright
Horizons and for the years ended December 29, 1995, December 27, 1996 and
January 2, 1998 for CorporateFamily, respectively, giving effect to the Merger.
Bright Horizons has a fiscal year ending on June 30 and CorporateFamily has
a fiscal year ending on the Friday closest to December 31. If the Merger is
consummated, the fiscal year of Bright Horizons Family Solutions will end
December 31, and it is Bright Horizons' intention to restate its 1997 results to
conform to a calendar year presentation. As such, an unaudited pro forma
combined statement of operations combining Bright Horizons' results for the
twelve months ended December 31, 1997 with CorporateFamily's results for the
year ended January 2, 1998 has also been presented. The results of Bright
Horizons for the six months ended June 30, 1997, resulting in net revenues and
net income of $45.1 million and $741,000, respectively, have been included in
the summary pro forma statements of operations for both the calendar and fiscal
years ended 1997.
The unaudited combined pro forma information does not purport to represent
what the financial position or results of operations would have actually been
had the Merger occurred at the beginning of the earliest period presented or to
project the financial position or results of operations for any future date or
period. The results of operations do not include nonrecurring Merger-related
costs estimated to be $7.5 million, nor do they incorporate any benefits from
any potential cost savings or synergies following the Merger. The unaudited pro
forma combined information assumes the exchange of each outstanding share of
CorporateFamily Common Stock for one share of Bright Horizons Family Solutions
Common Stock and each outstanding share of Bright Horizons Common Stock for
1.15022 shares of Bright Horizons Family Solutions Common Stock. The unaudited
pro forma combined financial information should be read in conjunction with, and
is qualified by reference to, Management's Discussion and Analysis of Financial
Condition and Results of Operations and the historical financial statements and
notes thereto of Bright Horizons and CorporateFamily Solutions included
elsewhere in this Joint Proxy Statement/Prospectus.
58
<PAGE> 65
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT MARCH 31, 1998 FOR BRIGHT HORIZONS AND
APRIL 3, 1998 FOR CORPORATEFAMILY
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
BRIGHT HORIZONS CORPORATEFAMILY ADJUSTMENTS COMBINED
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................. $15,414 $13,474 $ $ 28,888
Restricted cash............................ -- 178 178
Accounts receivable, net................... 3,410 6,735 10,145
Prepaid expenses and other................. 1,638 152 1,790
Deferred income taxes...................... 2,753 1,300 4,053
------- ------- -------- --------
Total current assets............... 23,215 21,839 45,054
Fixed assets, net.......................... 20,273 3,675 23,948
Deferred charges, net...................... 366 -- 366
Intangible and other assets................ 5,635 6,585 12,220
Deferred income taxes...................... 1,979 103 2,082
------- ------- -------- --------
Total assets....................... $51,468 $32,202 $ $ 83,670
======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long term debt....... $ 80 $ -- $ $ 80
Accounts payable and accrued expenses...... 10,859 6,261 7,500 24,620
Income taxes payable....................... 1,139 122 1,261
Other current liabilities.................. 425 1,141 1,566
Deferred revenue........................... 5,942 632 6,574
------- ------- -------- --------
Total current liabilities.......... 18,445 8,156 7,500 34,101
Long term debt and obligations under
capital leases, net of current
portion................................. 682 -- 682
Accrued rent............................... 1,607 -- 1,607
Other long term liabilities................ 1,350 1,555 2,905
Deferred revenue........................... 2,619 833 3,452
------- ------- -------- --------
Total liabilities.................. 24,703 10,544 7,500 42,747
------- ------- -------- --------
Stockholders' equity:
Common stock............................... 56 25,279 (25,225) 110
Additional paid in capital................. 36,512 -- 25,225 61,737
Accumulated deficit........................ (9,803) (3,621) (7,500) (20,924)
------- ------- -------- --------
Total stockholders' equity................. 26,765 21,658 (7,500) 40,923
------- ------- -------- --------
Total liabilities and stockholders'
equity........................... $51,468 $32,202 $ $ 83,670
======= ======= ======== ========
</TABLE>
See notes to unaudited pro forma combined financial information.
59
<PAGE> 66
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 FOR BRIGHT HORIZONS
AND FOR THE THREE MONTHS ENDED APRIL 3, 1998 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRIGHT HORIZONS CORPORATEFAMILY
THREE MONTHS THREE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
MARCH 31, 1998 APRIL 3, 1998 ADJUSTMENTS COMBINED
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue..................................... $ 27,620 $ 21,248 $ $ 48,868
Center operating expenses................... 23,229 18,758 28 42,015
---------- ---------- ------- ----------
Gross profit...................... 4,391 2,490 (28) 6,853
Selling, general and administrative......... 2,973 1,570 (13) 4,530
Amortization................................ 70 208 (15) 263
---------- ---------- ------- ----------
Income from operations............ 1,348 712 2,060
Interest income............................. 108 172 280
---------- ---------- ------- ----------
Income before income taxes........ 1,456 884 2,340
Income tax expense.......................... (596) (370) (966)
---------- ---------- ------- ----------
Net income........................ $ 860 $ 514 $ $ 1,374
========== ========== ======= ==========
Pro forma net income per share -- basic..... $ 0.15 $ 0.11 $ 0.13
========== ========== ==========
Pro forma weighted average number of common
shares -- basic........................... 5,564 4,541 10,940
========== ========== ==========
Pro forma net income per share -- diluted... $ 0.14 $ 0.10 $ 0.11
========== ========== ==========
Pro forma weighted average number of common
and common equivalent shares -- diluted... 6,119 5,294 12,332
========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial information.
60
<PAGE> 67
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 FOR BRIGHT HORIZONS
AND FOR THE THREE MONTHS ENDED MARCH 28, 1997 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRIGHT HORIZONS CORPORATEFAMILY
THREE MONTHS THREE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 28, 1997 ADJUSTMENTS COMBINED
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue..................................... $ 21,857 $ 17,479 $ $ 39,336
Center operating expenses................... 18,287 15,341 49 33,677
---------- ---------- ------- ----------
Gross profit...................... 3,570 2,138 (49) 5,659
Selling, general and administrative......... 2,378 1,416 (8) 3,786
Amortization................................ 140 200 (41) 299
---------- ---------- ------- ----------
Income from operations............ 1,052 522 1,574
Interest expense............................ (82) (72) (154)
---------- ---------- ------- ----------
Income before income taxes........ 970 450 1,420
Income tax expense.......................... (397) (221) (618)
---------- ---------- ------- ----------
Net income before preferred stock
dividends....................... 573 229 802
Preferred stock dividends................... 275 -- 275
---------- ---------- ------- ----------
Net income available to common
stockholders.................... $ 298 $ 229 $ $ 527
========== ========== ======= ==========
Pro forma net income per share -- basic..... $ 0.54 $ 0.12 $ 0.21
========== ========== ==========
Pro forma weighted average number of common
shares -- basic........................... 556 1,908 2,548
========== ========== ==========
Pro forma net income per share -- diluted... $ 0.13 $ 0.07 $ 0.10
========== ========== ==========
Pro forma weighted average number of common
and common equivalent shares -- diluted... 4,316 3,295 8,259
========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial information.
61
<PAGE> 68
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 FOR BRIGHT HORIZONS
AND FOR THE YEAR ENDED JANUARY 2, 1998 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CALENDAR
CALENDAR HISTORICAL PRO FORMA PRO FORMA
BRIGHT HORIZONS CORPORATEFAMILY ADJUSTMENTS COMBINED
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue..................................... $ 94,833 $ 77,722 $ $ 172,555
Center operating expenses................... 80,417 68,734 161 149,312
---------- ---------- ------- ----------
Gross profit...................... 14,416 8,988 (161) 23,243
Selling, general and administrative......... 10,490 5,822 (13) 16,299
Amortization................................ 420 784 (148) 1,056
Other charges(1)............................ 543 297 840
---------- ---------- ------- ----------
Income from operations............ 2,963 2,085 5,048
Interest income (expense)................... (153) 109 (44)
---------- ---------- ------- ----------
Income before income taxes........ 2,810 2,194 5,004
Income tax expense.......................... (1,153) (1,090) (2,243)
---------- ---------- ------- ----------
Net income before preferred stock
dividends....................... 1,657 1,104 2,761
Preferred stock dividends................... 897 -- 897
---------- ---------- ------- ----------
Net income available to common
stockholders.................... $ 760 $ 1,104 $ $ 1,864
========== ========== ======= ==========
Pro forma net income per share -- basic..... $ 0.59 $ 0.39 $ 0.43
========== ========== ==========
Pro forma weighted average number of common
shares -- basic........................... 1,297 2,841 4,333
========== ========== ==========
Pro forma net income per share -- diluted... $ 0.36 $ 0.28 $ 0.30
========== ========== ==========
Pro forma weighted average number of common
and common equivalent shares -- diluted... 4,606 3,995 9,293
========== ========== ==========
</TABLE>
- - ---------------
(1) Bright Horizons incurred costs of $543,000 associated with a proposed public
offering of securities. Because the offering was delayed, the amounts were
treated as period costs and expensed in the quarter ended June 30, 1997. In
the year ended January 2, 1998 CorporateFamily incurred a non-cash expense
(compensation) related to removing the restrictions on common stock held by
an officer of CorporateFamily.
See notes to unaudited pro forma combined financial information.
62
<PAGE> 69
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997 FOR BRIGHT HORIZONS
AND FOR THE YEAR ENDED JANUARY 2, 1998 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
BRIGHT HORIZONS CORPORATEFAMILY ADJUSTMENTS COMBINED
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue...................................... $85,001 $77,722 $ $162,723
Center operating expenses.................... 72,675 68,734 174 141,583
------- ------- ------- --------
Gross profit....................... 12,326 8,988 (174) 21,140
Selling, general and administrative.......... 9,007 5,822 22 14,851
Amortization................................. 560 784 (196) 1,148
Other charges(1)............................. 543 297 840
------- ------- ------- --------
Income from operations............. 2,216 2,085 4,301
Interest income (expense).................... (275) 109 (166)
------- ------- ------- --------
Income before income taxes......... 1,941 2,194 4,135
Income tax expense........................... (794) (1,090) (1,884)
------- ------- ------- --------
Net income before preferred stock
dividends........................ 1,147 1,104 2,251
Preferred stock dividends.................... 1,098 -- 1,098
------- ------- ------- --------
Net income available to common
stockholders..................... $ 49 $ 1,104 $ $ 1,153
======= ======= ======= ========
Pro forma net income per share -- basic...... $ 0.09 $ 0.39 $ 0.33
======= ======= ========
Pro forma weighted average number of common
shares -- basic............................ 555 2,841 3,480
======= ======= ========
Pro forma net income per share -- diluted.... $ 0.04 $ 0.28 $ 0.21
======= ======= ========
Pro forma weighted average number of common
and common equivalent shares -- diluted.... 1,208 3,995 5,389
======= ======= ========
</TABLE>
- - ---------------
(1) Bright Horizons incurred costs of $543,000 associated with a proposed public
offering of securities. Because the offering was delayed, the amounts were
treated as period costs. In addition, CorporateFamily incurred other expense
relates to a non-cash expense (compensation) related to removing the
restrictions on common stock held by an officer of CorporateFamily.
See notes to unaudited pro forma combined financial information.
63
<PAGE> 70
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996 FOR BRIGHT HORIZONS
AND FOR THE YEAR ENDED DECEMBER 27, 1996 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
BRIGHT HORIZONS CORPORATEFAMILY ADJUSTMENTS COMBINED
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue.................................... $ 64,181 $ 62,926 $ $ 127,107
Center operating expenses.................. 55,615 55,588 148 111,351
---------- ---------- ---------- ----------
Gross profit..................... 8,566 7,338 (148) 15,756
Selling, general and administrative........ 6,376 4,659 62 11,097
Amortization............................... 1,680 759 (210) 2,229
---------- ---------- ---------- ----------
Income from operations........... 510 1,920 2,430
Interest expense........................... (194) (343) (537)
---------- ---------- ---------- ----------
Income before income taxes....... 316 1,577 1,893
Income tax benefit......................... 1,005 1,159 2,164
---------- ---------- ---------- ----------
Net income before preferred stock
dividends...................... 1,321 2,736 4,057
Preferred stock dividends.................. 1,098 -- 1,098
---------- ---------- ---------- ----------
Net income available to common
stockholders................... $ 223 $ 2,736 $ $ 2,959
========== ========== ========== ==========
Pro forma net income per share -- basic.... $ 0.41 $ 1.44 $ 1.17
========== ========== ==========
Pro forma weighted average number of common
shares -- basic.......................... 538 1,903 2,522
========== ========== ==========
Pro forma net income per share --diluted... $ 0.20 $ 0.85 $ 0.66
========== ========== ==========
Pro forma weighted average number of common
and common equivalent shares --diluted... 1,108 3,227 4,501
========== ========== ==========
</TABLE>
See notes to unaudited pro forma combined financial information.
64
<PAGE> 71
UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1995 FOR BRIGHT HORIZONS
AND FOR THE YEAR ENDED DECEMBER 29, 1995 FOR CORPORATEFAMILY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO-FORMA
BRIGHT HORIZONS CORPORATEFAMILY ADJUSTMENTS COMBINED
--------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue...................................... $43,693 $36,920 $ $80,613
Center operating expenses.................... 37,209 32,708 72 69,989
------- ------- ---- -------
Gross profit....................... 6,484 4,212 (72) 10,624
Selling, general and administrative.......... 5,174 3,525 58 8,757
Amortization................................. 80 520 (130) 470
------- ------- ---- -------
Income from operations............. 1,230 167 1,397
Interest income (expense).................... 21 (86) (65)
------- ------- ---- -------
Income before income taxes......... 1,251 81 1,332
Income tax benefit........................... 382 460 842
------- ------- ---- -------
Net income before preferred stock
dividends........................ 1,633 541 2,174
Preferred stock dividends.................... 1,098 -- 1,098
------- ------- ---- -------
Net income available to common
stockholders..................... $ 535 $ 541 $ $ 1,076
======= ======= ==== =======
Pro forma net income per share -- basic...... $ 1.00 $ 0.34 $ 0.48
======= ======= =======
Pro forma weighted average number of common
shares -- basic............................ 533 1,614 2,227
======= ======= =======
Pro forma net income per share -- diluted.... $ 0.40 $ 0.19 $ 0.28
======= ======= =======
Pro forma weighted average number of common
and common equivalent shares -- diluted.... 4,123 2,923 7,665
======= ======= =======
</TABLE>
See notes to unaudited pro forma combined financial information.
65
<PAGE> 72
BRIGHT HORIZONS FAMILY SOLUTIONS
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER
Pursuant to the terms of the Merger Agreement, when the Merger becomes
effective, each outstanding share of CorporateFamily Common Stock will be
converted into one share of Bright Horizons Family Solutions Common Stock and
each outstanding share of Bright Horizons Common Stock will be converted into
1.15022 shares of Bright Horizons Family Solutions Common Stock. The pro forma
statements of operations assume that the transaction will be accounted for as a
pooling of interests. The pro forma statements of operations do not include the
estimated expenses of $7.5 million relating to the Merger expected to be
incurred in the period in which the Merger becomes effective.
The pro forma combined balance sheet assumes that the Merger took place on
the balance sheet date and combines the March 31, 1998 balance sheet for Bright
Horizons with the April 3, 1998 balance sheet for CorporateFamily.
No adjustments have been made in these pro forma financial statements to
conform the accounting policies of the combining companies. The nature and
extent of such adjustments, if any, are not expected to be significant.
Certain statement of operations reclassifications have been made to conform
to the presentation expected to be used by Bright Horizons Family Solutions.
2. PRO FORMA ADJUSTMENTS
The pro forma balance sheet has been adjusted to give effect to the
estimated expenses of $7.5 million relating to the Merger as if they have been
incurred as of the balance sheet date.
3. EARNINGS PER SHARE
The pro forma net income per share is based on the weighted average number
of shares of common stock and common stock equivalents outstanding of Bright
Horizons and CorporateFamily for each period assuming that each outstanding
share of CorporateFamily Common Stock and Common Stock Equivalent is exchanged
for one share of Bright Horizons Family Solutions Common Stock and each
outstanding share of Bright Horizons Common Stock and Common Stock Equivalent is
exchanged for 1.15022 shares of Bright Horizons Family Solutions Common Stock.
Historical diluted earnings per share for Bright Horizons does not assume
the conversion of preferred stock in periods where the results would have been
anti-dilutive.
66
<PAGE> 73
BRIGHT HORIZONS
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial data as of June 30, 1996 and 1997 and
for each of the years in the three-year period ended June 30, 1997 have been
derived from Bright Horizons' Consolidated Financial Statements, which have been
audited by Price Waterhouse LLP, independent public accountants, and are
included elsewhere in this Joint Proxy Statement/Prospectus. The selected
consolidated financial data as of March 31, 1998 and for the nine months ended
March 31, 1998 have been derived from unaudited consolidated financial
statements of Bright Horizons which have been prepared on the same basis as the
audited consolidated financial statements and which, in the opinion of the
management of Bright Horizons, include all adjustments necessary for a fair
presentation of such data. The results of operations for the nine months ended
March 31, 1998 are not necessarily indicative of the results for the full year.
The selected consolidated balance sheet data as of June 30, 1993, 1994 and 1995
and the selected consolidated statement of income data for each of fiscal years
ending June 30, 1993 and 1994 have been derived from audited consolidated
financial statements, which have also been audited by Price Waterhouse LLP, not
included herein. The selected consolidated financial and operating data set
forth below is qualified in its entirety by, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Bright Horizons" and the consolidated financial statements and
notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED MARCH 31,
----------------------------------------------------- ------------------
1993 1994 1995 1996(1) 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 23,812 $ 32,012 $ 43,693 $ 64,181 $ 85,001 $ 61,765 $77,360
Cost of services(2)............................ 20,611 27,592 37,209 55,615 72,675 53,032 65,720
-------- -------- -------- -------- -------- -------- -------
Gross profit................................... 3,201 4,420 6,484 8,566 12,326 8,733 11,640
Selling, general and administrative
expenses(2).................................. 3,034 3,578 5,174 6,376 9,007 6,429 8,504
Amortization of non-compete agreements(2)(3)... -- -- 80 1,680 560 420 210
Transaction costs(4)........................... -- -- -- -- 543 -- --
-------- -------- -------- -------- -------- -------- -------
Income from operations......................... 167 842 1,230 510 2,216 1,884 2,926
Interest income (expense), net................. (14) (17) 21 (194) (275) (226) 86
-------- -------- -------- -------- -------- -------- -------
Income before income taxes..................... 153 825 1,251 316 1,941 1,658 3,012
Income tax benefit (provision)(5).............. -- 319 382 1,005 (794) (678) (1,235)
-------- -------- -------- -------- -------- -------- -------
Net income before preferred stock dividends and
accretion on redeemable common stock......... 153 1,144 1,633 1,321 1,147 980 1,777
-------- -------- -------- -------- -------- -------- -------
Preferred stock cumulative dividends and
accretion on redeemable common stock......... 1,101 1,099 1,098 1,098 1,098 824 348
-------- -------- -------- -------- -------- -------- -------
Net income (loss) applicable to common
stockholders................................. $ (948) $ 45 $ 535 $ 223 $ 49 $ 156 $ 1,429
======== ======== ======== ======== ======== ======== =======
Net income (loss) per share-basic.............. $ (1.82) $ 0.09 $ 1.00 $ 0.41 $ 0.09 $ 0.28 $ 0.45
======== ======== ======== ======== ======== ======== =======
Net income per share-diluted(6)................ $ N/A(6) $ 0.07 $ 0.40 $ 0.20 $ 0.04 $ 0.13 $ 0.34
======== ======== ======== ======== ======== ======== =======
SELECTED OPERATING DATA (AT END OF PERIOD):
Number of clients.............................. 53 70 85 119 134 130 145
Number of centers.............................. 54 72 87 124 140 134 155
Licensed capacity(7)........................... 4,625 6,318 7,607 12,642 14,156 13,580 16,612
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $ 802 $ 544 $ 900 $ 2,412 $ 87 $ 2,065 $ 4,770
Total assets................................... 8,104 10,467 12,970 24,535 28,519 28,614 51,469
Long-term debt and capital lease obligations,
including current maturities................. 775 713 874 4,733 4,275 4,483 762
Mandatorily redeemable convertible preferred
stock........................................ 15,311 16,410 17,508 18,607 19,705 19,430 --
Stockholders' equity (deficit)(8).............. (12,031) (11,983) (11,447) (11,215) (11,160) (11,053) 26,765
</TABLE>
- - ---------------
(1) Effective December 1, 1995, Bright Horizons acquired the business and some
of the assets and liabilities of GreenTree. Fiscal 1996 results include
seven months of GreenTree operating results. If the GreenTree
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<PAGE> 74
acquisition had occurred on July 1, 1995, Bright Horizons' pro forma net
revenues, gross profit and net income for fiscal 1996 would have been $70.4
million, $8.8 million and $988,000, respectively.
(2) Total depreciation and amortization is comprised of (i) center depreciation
included in cost of services, (ii) corporate facility depreciation and
amortization of goodwill included in selling, general and administrative
expenses and (iii) amortization of non-compete agreements discussed in Note
3 below. Total depreciation and amortization was approximately $517,000,
$652,000, $871,000, $2.8 million, $2.2 million, $1.6 million and $1.8
million in fiscal 1993, 1994, 1995, 1996, 1997 and the nine months ended
March 31, 1997 and 1998, respectively.
(3) In connection with the acquisitions of Burud in fiscal 1995 and GreenTree in
fiscal 1996, Bright Horizons received, in each case, an agreement from the
seller not to compete with Bright Horizons for a certain future period.
Bright Horizons recorded intangible assets for the non-compete agreements of
$600,000 in fiscal 1995 and $2.0 million in fiscal 1996. These amounts are
being amortized over the estimated period of benefit. The remaining $70,000
in amortization expense associated with these non-compete agreements will be
recorded in the quarter ended June 30, 1998.
(4) In fiscal 1997, Bright Horizons incurred costs of $543,000 associated with a
proposed public offering of securities. Because the offering was delayed,
the amounts incurred were treated as a period cost.
(5) In each of fiscal 1994, 1995 and 1996 Bright Horizons recorded an income tax
benefit on pre-tax earnings. These benefits include $652,000, $1.0 million
and $1.4 million for fiscal 1994, 1995 and 1996, respectively, representing
decreases in the tax valuation allowance, net of $1.1 million applied to
reduce goodwill in 1996. In fiscal 1997, Bright Horizons recorded an income
tax provision which was not materially affected by changes in the valuation
allowance net of amounts applied to reduce goodwill.
(6) Diluted earnings per share was not presented for fiscal 1993 because the
effect of considering the additional dilution related to preferred stock,
options and warrants would have been anti-dilutive. The conversion of
preferred stock was not assumed in the diluted earnings per share
calculations for fiscal 1994, 1996 and 1997 and for the nine months ended
March 31, 1997 as the results would have been anti-dilutive.
(7) Represents the total capacity permitted under applicable state licenses.
(8) In November 1997, Bright Horizons completed an initial public offering of
2,970,000 shares of common stock, of which 1,350,000 shares were issued and
sold by Bright Horizons and the remainder by selling stockholders, at an
offering price of $13.00 per share.
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<PAGE> 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BRIGHT HORIZONS
OVERVIEW
Bright Horizons was founded in 1986 by current Chairman and Chief Executive
Officer Roger H. Brown and current President Linda A. Mason to provide
corporate-sponsored early education and family support services. Bright Horizons
operates the largest number of corporate-sponsored child development centers in
the United States, with 155 centers providing care and education to more than
15,000 children and their families.
Bright Horizons opened its first two centers in August 1987, and grew to 41
centers by June 30, 1992. Since 1992, Bright Horizons has grown by opening new
centers and through acquisitions of other operators of child development
centers, including Cornerstone West, Inc. in fiscal 1994, Burud in fiscal 1995,
Greentree in fiscal 1996 and The Learning Garden in July 1997. In connection
with the acquisition of The Learning Garden, Bright Horizons reorganized into a
holding company structure whose principal operations are conducted through its
wholly owned subsidiary Bright Horizon's Children's Centers, Inc. Bright
Horizons' revenue growth has been primarily due to the addition of new centers
as well as increased enrollment at existing centers. Bright Horizons serves many
of the nation's leading corporations including Allstate Insurance Company, Apple
Computer, Duke Power, DuPont, First Union National Bank, Glaxo Wellcome, IBM
(through the American Business Collaborative), Merck & Co., Inc., Motorola,
Paramount Pictures, Pfizer, Salomon Brothers, Sony Pictures Entertainment, Time
Warner Inc., Universal Studios, Inc., Warner Bros., and Xerox. In addition,
Bright Horizons provides early education services for well known institutions
such as the United Nations, New York Hospital, The George Washington University,
John F. Kennedy Airport and Beth Israel Deaconess Medical Center. Bright
Horizons operates multiple centers and services for 13 of its clients. Bright
Horizons seeks to cluster centers in geographic areas to enhance operating
efficiencies and create a leading market presence. Bright Horizons has created a
major market presence in Boston, Charlotte, Chicago, Hartford, Los Angeles, New
York, Raleigh/Durham, San Francisco, Seattle and Washington, D.C.
Sponsorship Models. Although the specifics of Bright Horizons' corporate
sponsorship arrangements vary widely, there are two basic forms -- the
corporate-sponsored model and the management contract model. Under the
corporate-sponsored model, which comprises approximately 80% of it's operating
sites, Bright Horizons operates a child development center on the premises of a
corporate sponsor, giving priority enrollment to the children of the corporate
sponsor's employees. Bright Horizons maintains profit-and-loss responsibility
for the operation of the center, and, as part of the arrangement, receives
financial support from the corporate sponsor, which can take various forms,
including reduced occupancy costs, tuition-assistance and start-up and/or
operating cost assistance. Newly opened corporate-sponsored centers generally
operate at a loss until utilization levels of approximately 60% or more are
achieved, which typically occur by the end of the first year of operations. When
Bright Horizons takes over an existing corporate-sponsored center operated by
another provider, it also generally sustains operating losses, though for a
shorter period than with newly opened centers.
Under the management contract model, which comprises approximately 20% of
Bright Horizons' operating sites, Bright Horizons operates a work-site child
development center, generally under a cost-plus agreement. These cost-plus
arrangements generally include a fixed management fee that is based on center
capacity and require that the sponsor reimburse Bright Horizons for all
operating expenses in excess of tuition revenues within an agreed upon budget.
The fixed management fees generally are not subject to adjustment if the actual
number of children enrolled is below center capacity. The sponsor is typically
responsible for all start-up costs and facility maintenance under this model.
Therefore, Bright Horizons does not sustain pre-opening or initial operating
losses under the management contract model. The management contract model
centers experience slightly lower operating margins than the corporate-sponsored
model at full maturity. At March 31, 1998, Bright Horizons operated 123 centers
under the corporate sponsored model and 32 centers under the management contract
model.
Under the corporate-sponsored model, Bright Horizons' revenues consist
primarily of tuition paid by parents, supplemented in some cases by direct
payments from corporate sponsors and, to a far lesser extent,
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<PAGE> 76
direct payment from government agencies. Under the management contract model, in
addition to tuitions, revenues also include management fees and reimbursable
expenses. In all cases, revenues are recognized as services are performed.
Tuition payments are generally received in advance and are typically payable by
parents monthly, and in some cases, weekly. Management fees payable by corporate
sponsors are generally received monthly in advance, while reimbursable expenses
are received monthly in arrears. Frequently, Bright Horizons maintains an
advance from the corporate sponsor against reimbursable expenses. Tuition,
management fees and fees for reservation of priority enrollment rights paid in
advance are recorded as deferred revenue and recognized in the appropriate
period.
Center Economics. Bright Horizons' investment in a new corporate-sponsored
child development center consists of pre-opening expenses, post-opening losses
and capital expenditures. The amount Bright Horizons is required to invest to
open a new center varies considerably, based primarily on the size of the
center, the type of sponsorship model under which the center will operate and
the specific contractual arrangements between Bright Horizons and the center
sponsor. Bright Horizons is generally not required to make a significant
investment in centers that operate under the management contract model. Since
1991, Bright Horizons' average investment in corporate-sponsored centers that
have been open at least two full fiscal years (excluding centers acquired in the
GreenTree acquisition) was approximately $100,000, and those centers achieved an
average operating profit (before center-level depreciation and any allocation of
corporate overhead and interest) of approximately $90,000 in their second full
fiscal year of operation.
Recent Acquisitions. On July 1, 1997, Bright Horizons acquired
substantially all the assets and liabilities of Pacific Preschools, Inc. dba The
Learning Garden, which, at the time of the acquisition, managed four child
development centers in the Seattle, Washington metropolitan area. The total
consideration consisted of $1.6 million in cash and 108,333 shares of Bright
Horizons Common Stock. The operating margins of The Learning Garden centers are
expected to be consistent with the historical margins of Bright Horizons'
centers. On December 1, 1995, Bright Horizons acquired all of the outstanding
common stock of GreenTree of Downers Grove, Illinois, the operator of 24
GreenTree Child Care centers. Total consideration included $6.0 million in cash
and a warrant to purchase 66,666 shares of Bright Horizons Common Stock which
has subsequently expired. To finance the GreenTree purchase, Bright Horizons
borrowed $2.0 million under its bank line of credit and $3.0 million from the
seller. Prior to their acquisition, the GreenTree centers generally experienced
operating margins below Bright Horizons' average. Since their acquisition,
however, the GreenTree centers have experienced ongoing growth in enrollment,
and the gross margin of the acquired centers has improved from 7.1% for the
eleven months preceding the acquisition on December 1, 1995 to 10.6% for fiscal
1997. Each of these acquisitions was accounted for under the purchase method.
Amortization of Non-Compete Agreements. In connection with the acquisition
of Burud and GreenTree, Bright Horizons received, in each case, an agreement
from the seller not to compete with Bright Horizons for a certain future period.
Bright Horizons recorded intangible assets for the non-compete agreements of
$600,000 in fiscal 1995 and $2.0 million in fiscal 1996, respectively. These
amounts are being amortized over the estimated period of benefit, and Bright
Horizons will expense the remaining balance of $70,000 associated with these
non-compete agreements in the quarter ended June 30, 1998.
Transaction Costs. In fiscal 1997, Bright Horizons incurred costs of
$543,000 associated with a proposed public offering of securities. Because the
offering was delayed, the amounts incurred were treated as a period cost.
Initial Public Offering. On November 7, 1997, Bright Horizons completed an
initial public offering of 2,970,000 shares of Bright Horizons Common Stock, of
which 1,350,000 shares were issued and sold by Bright Horizons and 1,620,000
were sold by the selling stockholders, at an offering price of $13.00 per share
(the "Offering"). On November 24, 1997, selling shareholders sold an additional
445,500 shares to satisfy the underwriters' overallotment option. Bright
Horizons received total proceeds of approximately $17.7 million and incurred
expenses of approximately $1.2 million for underwriting discounts and
approximately $720,000 in other expenses associated with the Offering. Bright
Horizons intends to use the balance of the net proceeds for working capital and
general corporate purposes, including the financing of potential acquisitions
and new centers currently under development.
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<PAGE> 77
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services................................... 85.2 86.7 85.5 85.9 84.9
----- ----- ----- ----- -----
Gross profit............................. 14.8 13.3 14.5 14.1 15.1
Selling, general and administrative expenses....... 11.8 9.9 10.6 10.4 11.0
Amortization of non-compete agreements............. 0.2 2.6 0.7 0.6 0.3
Transaction costs.................................. -- -- 0.6 -- --
----- ----- ----- ----- -----
Income from operations................... 2.8 0.8 2.6 3.1 3.8
Interest income (expense), net..................... -- (0.3) (0.3) (0.4) 0.1
----- ----- ----- ----- -----
Income before income taxes............... 2.8 0.5 2.3 2.7 3.9
Income tax benefit (provision)..................... 0.9 1.6 (0.9) (1.1) (1.6)
----- ----- ----- ----- -----
Net income............................... 3.7% 2.1% 1.4% 1.6% 2.3%
===== ===== ===== ===== =====
Number of centers open at end of
period................................. 87 124 140 134 155
===== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Net Revenues. Net revenues increased $15.6 million, or 25.2%, to $77.4
million for the nine months ended March 31, 1998 from $61.8 million for the nine
months ended March 31, 1997. The growth in revenues is primarily attributable to
the net addition of 21 child development centers since March 31, 1997 and
tuition increases at our existing centers of approximately 3% to 4%.
Gross Profits. Cost of services consists of center operating expenses,
including payroll and benefits for center personnel, facilities costs including
depreciation, supplies and other expenses incurred at the center level. Gross
profit increased $2.9 million, or 33.3% to $11.6 million for the nine months
ended March 31, 1998 from $8.7 million for the nine months ended March 31, 1997.
As a percentage of net revenues, gross profit increased to 15.1% for the nine
months ended March 31, 1998 compared to 14.1% for the same period in 1997.
Overall, Bright Horizons achieved higher average gross profit margins for the
nine months ended March 31, 1998 compared to the nine months ended March 31,
1997 due to the increased proportion of centers that have reached mature
operating levels as well as rapid enrollment at new centers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses consist of regional and district management personnel,
corporate management and administrative functions, and marketing and development
expenses for new and existing centers. Selling, general and administrative
expenses increased $2.1 million, or 32.3% to $8.5 million for the nine months
ended March 31, 1998 from $6.4 million for the nine months ended March 31, 1997.
As a percentage of net revenues, selling, general and administrative expenses
increased to 11.0% for the nine months ended March 31, 1998 from 10.4% for the
nine months ended March 31, 1997. The increase in selling and general
administrative expenses during the first nine months of this fiscal year is
primarily attributable to investments made in additional regional management and
sales personnel to support future long term growth, the incremental costs of
operating as a publicly traded company and, to a lesser extent, incremental
administrative costs associated with the increased number of centers in
operation.
Amortization of Non-Compete Agreements. Expenses associated with the
amortization of non-compete agreements decreased 50.0% to $210,000 for the nine
months ended March 31, 1998 from $420,000 for the nine months ended March 31,
1997. The decrease is due to the use of an accelerated method of amortization.
The Company will record the remaining balance of $70,000 in amortization expense
associated with these non-compete agreements in the last quarter of fiscal 1998.
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<PAGE> 78
Income from Operations. Income from operations increased 55.4% or $1.0
million, to $2.9 million for the nine months ended March 31, 1998 from $1.9
million for the nine months ended March 31, 1997. Excluding the amortization of
non-compete agreements, operating income would have totaled $3.1 million, an
increase of $832,000 or 36.1% for the nine months ended March 31, 1998 from $2.3
million for the nine months ended March 31, 1997.
Interest Income (Expense), Net. Net interest income of $86,000 for the
nine months ended March 31, 1998 increased $312,000 from $226,000 of net
interest expense for the nine months ended March 31, 1997. The increase in
interest income and decrease in interest expense is attributable to the
investment of the proceeds received from the initial public offering which
closed on November 7, 1997 and the repayment of approximately $4.0 million of
debt with the proceeds from the stock offering.
Income Taxes Benefit (Provision). The company's effective income tax rate
was approximately 41% for the nine months ended March 31, 1998 and March 31,
1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Net Revenues. Net revenues increased $20.8 million, or 32.4%, to $85.0
million for fiscal 1997 from $64.2 million for fiscal 1996. Of the increase,
$8.9 million is attributable to 24 GreenTree centers acquired in December 1995,
for which there was a full period of operations in fiscal 1997 as compared to
seven months in fiscal 1996. The remainder of the increase is primarily
attributable to a full period of operations from the 13 centers opened in fiscal
1996, the addition of 16 centers in fiscal 1997 (13 of which were
corporate-sponsored and three of which were management contract centers) and an
average tuition increase of 5%.
Gross Profit. Gross profit increased $3.8 million, or 43.9%, to $12.3
million in fiscal 1997 from $8.5 million in fiscal 1996. As a percentage of net
revenues, gross profit increased to 14.5% in fiscal 1997 from 13.3% in fiscal
1996. The improved gross margin is attributable to improved performance of the
GreenTree centers after the initial period of integration and to other centers
that reached mature levels of operation in fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.6 million, or 41.3%, to $9.0 million in
fiscal 1997 from $6.4 million in fiscal 1996. The additional administrative
expenses were primarily to support the increased number of centers in operation
and to make necessary personnel investments to support future expansion.
Amortization of Non-Compete Agreements. Expenses associated with the
amortization of non-compete agreements decreased $1.1 million to $560,000 in
fiscal 1997 from $1.7 million in fiscal 1996 due to the use of an accelerated
method of amortization. See Note 1 to Notes to Consolidated Financial
Statements. Bright Horizons anticipates recording the remaining $280,000 in
amortization expense associated with the non-compete agreements in fiscal 1998.
Income from Operations. Income from operations increased $1.7 million to
$2.2 million in fiscal 1997 from $510,000 in fiscal 1996, due primarily to the
decrease in expenses associated with the amortization of non-compete agreements
and the increase in gross margin. In fiscal 1997, Bright Horizons incurred costs
of $543,000 associated with a proposed public offering of securities. Because
the offering was delayed, the amounts incurred were treated as a period cost.
Excluding this charge and the amortization of the non-compete agreements,
operating income would have increased $1.1 million to $3.3 million in fiscal
1997 from $2.2 million in fiscal 1996 and, as a percentage of net revenues,
would have increased to 3.9% in fiscal 1997 from 3.4% in fiscal 1996.
Interest Income (Expense), net. Bright Horizons' net interest expense
increased $81,000, or 41.8%, to $275,000 in fiscal 1997 from $194,000 in fiscal
1996, primarily due to a full year of interest on the principal balance of the
$3.0 million note incurred in connection with the GreenTree acquisition in
fiscal 1997 compared to seven months in fiscal 1996.
Income Tax Benefit (Provision). Bright Horizons' income tax provision was
$794,000 for fiscal 1997 compared to a benefit of $1.0 million for fiscal 1996.
The benefit recorded in fiscal 1996 included $2.5 million
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<PAGE> 79
attributable to the decrease in the valuation allowance less $1.1 million
representing the benefit of acquired deferred tax assets applied to reduce
goodwill associated with the GreenTree acquisition. The provision recorded in
fiscal 1997 was not materially affected by changes in the valuation allowance
net of amounts applied to reduce goodwill and return to provision adjustments.
As there is no valuation allowance on deferred tax assets at June 30, 1997,
Bright Horizons' future earnings are not expected to be favorably impacted by
changes in the valuation allowance.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Revenues. Net revenues increased $20.5 million, or 46.9%, to $64.2
million for fiscal 1996 from $43.7 million for fiscal 1995. Of the increase,
$10.2 million is attributable to 24 GreenTree centers acquired in December 1995,
for which there was no comparable revenue amount in fiscal 1995. The remainder
of the increase is primarily attributable to a full period of operations from
the 15 centers opened in fiscal 1995, the addition of 13 centers by Bright
Horizons in fiscal 1996 (seven of which were corporate-sponsored and six of
which were management contract centers) and an average tuition increase of
approximately 5%.
Gross Profit. Gross profit increased $2.1 million, or 32.1%, to $8.6
million in fiscal 1996 from $6.5 million in fiscal 1995. As a percentage of net
revenues, gross profit declined to 13.3% in fiscal 1996 from 14.8% in fiscal
1995. The decrease is primarily attributable to the lower gross margins of the
acquired GreenTree centers during the initial period of integration.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.2 million, or 23.2%, to $6.4 million in
fiscal 1996 from $5.2 million in fiscal 1995, primarily to support the larger
number of centers. As a percentage of net revenues, selling, general and
administrative expenses decreased to 9.9% in fiscal 1996 from 11.8% in fiscal
1995, due primarily to Bright Horizons' ability to increase net revenues without
a commensurate increase in selling, general and administrative expenses.
Amortization of Non-Compete Agreements. Expenses associated with the
amortization of non-compete agreements increased to $1.7 million in fiscal 1996
from $80,000 in fiscal 1995. This increase was due to the recording of a $2.0
million intangible asset for the non-compete agreement in connection with the
GreenTree acquisition in December 1995 and a full period of amortization for the
Burud non-compete agreements.
Income from Operations. Income from operations decreased to $510,000 in
fiscal 1996 from $1.2 million in fiscal 1995, due primarily to the increased
expenses associated with the amortization of non-compete agreements. Excluding
expenses related to amortization of non-compete agreements, income from
operations would have increased $880,000, or 67.2%, to $2.2 million in fiscal
1996 from $1.3 million in fiscal year 1995 and, as a percentage of net revenues,
would have increased to 3.4% in fiscal 1996 from 3.0% in fiscal 1995.
Interest Income (Expense), net. Bright Horizons' net interest expense
increased $215,000 to $194,000 in fiscal 1996 from net interest income of
$21,000 in fiscal 1995, due to the $5.0 million of debt incurred in connection
with the GreenTree acquisition in December 1995 and the addition of $978,000 in
mortgage notes during fiscal 1996.
Income Tax Benefit (Provision). Bright Horizons' provision for income
taxes was a benefit of $1.0 million for fiscal 1996 compared to a benefit of
$382,000 for fiscal 1995. This benefit includes $1.0 million and $2.5 million
attributable to changes in the valuation allowance in 1995 and 1996,
respectively, less $1.1 million in 1996 representing the benefit of acquired
deferred tax assets applied to reduce goodwill associated with the GreenTree
acquisition. The change in the valuation allowance reflects the benefit of net
operating loss carryforwards.
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QUARTERLY RESULTS AND SEASONALITY
The following table sets forth certain unaudited quarterly results of
operations data of Bright Horizons for each of the four quarters in each of
fiscal 1997 and fiscal 1996 and for the nine months ended March 31, 1998. Bright
Horizons believes that this information has been prepared on the same basis as
the audited consolidated financial statements and that all necessary
adjustments, consisting only of the normal recurring adjustments, have been
included to present fairly the selected quarterly information when read in
conjunction with the audited consolidated financial statements and the notes
thereto included elsewhere in the Joint Proxy Statement/Prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------- -------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
--------- -------- -------- --------- --------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues......... $11,932 $14,232 $18,271 $19,746 $19,713 $20,195 $21,857 $23,236
Cost of services..... 10,467 12,254 15,946 16,948 17,215 17,530 18,287 19,639
------- ------- ------- ------- ------- ------- ------- -------
Gross profit..... 1,465 1,978 2,325 2,798 2,498 2,665 3,570 3,597
Selling, general and
administrative
expenses............ 1,259 1,496 1,660 1,961 2,049 2,003 2,378 2,581
Amortization of non-
compete agreements.. 87 277 658 658 140 140 140 140
Transaction costs.... -- -- -- -- -- -- -- 543
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations...... 119 205 7 179 309 522 1,052 333
Interest income
(expense), net...... 16 (14) (48) (148) (68) (75) (82) (49)
------- ------- ------- ------- ------- ------- ------- -------
Income before
income taxes.... 135 191 (41) 31 241 447 970 284
Income tax benefit
(provision)......... 430 604 (127) 98 (99) (183) (397) (116)
------- ------- ------- ------- ------- ------- ------- -------
Net income
(loss).......... $ 565 $ 795 $ (168) $ 129 $ 142 $ 264 $ 573 $ 168
======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
THREE MONTHS ENDED
-------------------------------
SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1998
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenues......... $24,168 $25,572 $27,620
Cost of services..... 20,819 21,672 23,229
------- ------- -------
Gross profit..... 3,349 3,900 4,391
Selling, general and
administrative
expenses............ 2,667 2,864 2,973
Amortization of non-
compete agreements.. 70 70 70
Transaction costs.... -- -- --
------- ------- -------
Income from
operations...... 612 966 1,348
Interest income
(expense), net...... (78) 57 108
------- ------- -------
Income before
income taxes.... 534 1,023 1,456
Income tax benefit
(provision)......... (220) (420) (596)
------- ------- -------
Net income
(loss).......... $ 314 $ 603 $ 860
======= ======= =======
</TABLE>
Bright Horizons' business is subject to seasonal and quarterly
fluctuations. Bright Horizons' experience has been that the demand for child
development services decreases during the summer months. During this season,
families are often on vacation or have alternative child care arrangements. In
addition, children who will begin primary school in the fall often leave Bright
Horizons' programs over the summer. Demand for Bright Horizons' services
generally increases in September upon the beginning of the new school year and
remains relatively stable throughout the rest of the year. The reduction in
summer enrollment generally results in lower revenue and gross profit in the
first quarter of Bright Horizons' fiscal year. During the summer, Bright
Horizons reduces staffing levels and offers summer programs to retain children
and attract new children. Bright Horizons' results of operations may also
fluctuate from quarter to quarter as a result of, among other things, the
performance of existing centers, the number and timing of new center openings
and/or acquisitions, the length of time required for new centers to achieve
profitability, center closings, refurbishment or relocation, the sponsorship
model mix of new and existing centers, the timing and level of sponsorship
payments, competitive factors and general economic conditions. See "Risk
Factors -- Risk Factors with Respect to Bright Horizons Family
Solutions -- Seasonality and Quarterly Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
Bright Horizons' primary cash requirements are the ongoing operations of
its existing centers and the addition of new centers through development or
acquisition. Bright Horizons' primary source of liquidity has been cash flow
from operations, supplemented by borrowings under its revolving line of credit
with Fleet National Bank and equity raised by Bright Horizons' initial public
offering in November 1997.
Bright Horizons has a $10.0 million revolving line of credit with Fleet
National Bank, $4.0 million of which may be used for working capital and general
corporate purposes and $6.0 million of which may be used
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<PAGE> 81
for real estate loans to be secured by mortgages. The revolving line of credit
has a maturity date of October 31, 1999, and bears interest at a variable rate
per annum equal to the bank's prime rate or the LIBOR rate as specified by
Bright Horizons.
Cash provided from operations was $9.6 million for the nine months ended
March 31, 1998 and $5.6 million for the nine months ended March 31, 1997, $7.4
million in fiscal 1997, $4.9 million in fiscal 1996 and $1.5 million in fiscal
1995. The increase for the nine month period of fiscal 1998 was principally due
to the $3.1 million increase in deferred revenue associated with (i) fees paid
in advance during the nine months ended March 31, 1998 for long term priority
enrollment rights in certain centers and (ii) for parent tuition paid in
advance. Such advances increased $1.4 million in the same period of fiscal 1997.
Cash provided in fiscal 1997 included $1.1 million of net income, $2.2 million
of depreciation and amortization (of which $560,000 represented amortization of
non-compete agreements), a $2.5 million increase in accounts payable and accrued
expenses (primarily related to the growth in operations and, to a lesser extent,
increases in incentive compensation associated with operating performance at the
center level), and $1.4 million of increases in deferred revenue; these
increases were partially offset by an $866,000 increase in deferred income
taxes. The fiscal 1996 amount included $1.3 million of net income, $2.8 million
of depreciation and amortization (of which $1.7 million represents amortization
of non-compete agreements arising from the Burud and GreenTree acquisitions),
$1.3 million of increases in deferred revenue, and $1.5 million of increases in
other current and long-term liabilities (related to deposits received under
management contracts), partially offset by a $2.4 million increase in deferred
income taxes.
Cash used in investing activities increased to $12.0 million for the nine
months ended March 31, 1998, from $3.0 million for the nine months ended March
31, 1997. This increase relates to the cash payment of $1.7 million for the
acquisition of the four Learning Garden centers on July 1, 1997 and to $10.2
million of fixed asset additions and leasehold improvements in new and existing
centers. Cash used in investing activities was $4.9 million during fiscal 1997,
$4.8 million during fiscal 1996 and $2.0 million during fiscal 1995. The fiscal
1997 amount was primarily used to purchase fixed assets and leasehold
improvements in new and existing centers. The fiscal 1996 amount included $3.1
million used in the GreenTree acquisition and $1.7 million used to purchase
fixed assets, primarily for new child care centers. The fiscal 1995 amount
included $510,000 used in the Burud acquisition and $1.8 million used for
purchases of fixed assets.
Cash provided by financing activities totalled $11.8 million for the nine
months ended March 31, 1998 compared to $744,000 used in the same 1997 period.
Financing activities used cash of $1.0 million in fiscal 1997, provided cash of
$363,000 in fiscal 1996 and used $87,000 in fiscal 1995. Bright Horizons
received $15.6 million in net proceeds from the initial public offerings in
November 1997 and repaid debt of $4.0 million with proceeds. During fiscal 1997,
Bright Horizons repaid $500,000 borrowed in 1996 under its bank line of credit
and made $543,000 of principal payments on the GreenTree note and other
mortgages and capital leases. The fiscal 1996 amount consisted of amounts
borrowed to finance the GreenTree acquisition, including $2.0 million borrowed
under Bright Horizons' bank line of credit, offset by $1.6 million in principal
payments on outstanding debt, including Bright Horizons' bank line of credit.
Bright Horizons makes capital expenditures primarily to build and equip new
child development centers or to refurbish existing centers. Bright Horizons is
generally not required to make capital expenditures for centers that operate
under the management contract model. In contrast, Bright Horizons may bear
anything from all to none of the capital expenditures for centers that operate
under the corporate-sponsored model depending on the nature of the subsidies
provided by the center sponsor. The sponsor generally will provide for the
construction of the center, and at times will pay for other real estate related
costs such as architectural and design fees and real estate broker fees. The
construction costs for a typical Bright Horizons center range from approximately
$100 to $150 per square foot, though such costs may be considerably higher
depending upon the size and amenities of the center. Bright Horizons has
occasionally paid a portion of the costs for leasehold improvements and
construction of its centers, which expenses have ranged from approximately
$20,000 to $1.0 million per center. At times, the corporate sponsor will also
pay for the center's capital equipment and initial supplies, the costs of which
may range from approximately $75,000 to $150,000. Although individual
arrangements vary widely, a typical arrangement would call for a sponsor to pay
all costs of construction and one-half of the capital equipment and initial
supplies, with Bright Horizons paying for the balance of the
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<PAGE> 82
capital equipment and initial supplies. Any capital expenditures for equipment
which are either paid for directly or reimbursed by the corporate sponsor are
excluded from the accounts of Bright Horizons. Bright Horizons may purchase or
construct centers when it is able to obtain favorable purchase terms, or when a
sponsor agrees to pay fees in advance for long-term priority enrollment rights
in the center or for other guarantees. These arrangements guarantee a sponsor
first priority enrollment in the center for a designated number of spaces and
impose certain quality standards on Bright Horizons. These fees, generally paid
during the construction period, are included in deferred revenue on the balance
sheet when received and revenue related to such fees is recognized over the
rights period, typically ten years or more. Capital expenditures totaled $4.7
million in fiscal 1997, of which $2.4 million related to the construction of
centers where Bright Horizons had secured long-term priority enrollment rights
contracts or other sponsor guarantees. Capital expenditures are expected to
approximate $12.0 million in fiscal 1998, of which approximately $6.5 million
will relate to the construction of centers where Bright Horizons has secured
long-term priority enrollment rights contracts or other sponsor guarantees.
Bright Horizons believes that funds provided by operations, borrowings
available under the line of credit and the net proceeds from the initial public
offering will be adequate to meet planned operating and capital expenditure
needs for at least the next 18 months. However, if Bright Horizons were to make
any significant acquisitions or make significant investments in the purchase of
facilities for new or existing centers for corporate sponsors, it may be
necessary for Bright Horizons to obtain additional debt or equity financing.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS 131)
which is required to be adopted by Bright Horizons in its fiscal 1999 financial
statements. SFAS 131 establishes standards for reporting information on
operating segments and for related disclosures about products and services,
geographic areas, and major customers. Bright Horizons is currently reviewing
the impact of SFAS 131 on its financial statements.
INFLATION
Bright Horizons does not believe that inflation has had a material effect
on its results of operations. There can be no assurance, however, that Bright
Horizons' business will not be affected by inflation in the future.
YEAR 2000 CONVERSION
Bright Horizons is coordinating the identification, evaluation, and
implementation of changes to computer systems and applications necessary to
achieve a year 2000 date conversion with no effect on customers or disruption to
business operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond. Bright
Horizons is also evaluating non-system issues relative to the year 2000 and
beyond. As appropriate, Bright Horizons is communicating with suppliers,
customers, financial institutions and others with which it does business to
coordinate year 2000 conversion. Management does not anticipate the total cost
of compliance will have a significant impact on Bright Horizons' consolidated
financial statements or results of operations.
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<PAGE> 83
CORPORATEFAMILY
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The selected consolidated financial data of CorporateFamily for each of the
five years ended January 2, 1998, are derived from the audited financial
statements of CorporateFamily. The selected consolidated financial and operating
data of CorporateFamily for the three months ended April 3, 1998 and March 28,
1997 is derived from unaudited financial statements which, in the opinion of
management, include all adjustments consisting of normal recurring accruals
adjustments, necessary for a fair presentation of the financial condition and
the results of operations. Operating results for the three months ended April 3,
1998 are not indicative of results of 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 of CorporateFamily" and the
consolidated financial statements, including the notes thereto, included in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR(1) THREE MONTHS ENDED
------------------------------------------------- ------------------------------
1993 1994 1995(2) 1996 1997 MARCH 28, 1997 APRIL 3, 1998
------- ------- ------- ------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue....................... $16,967 $24,513 $36,920 $62,926 $77,722 $17,479 $21,248
Operating expenses............ 14,458 21,092 32,708 55,588 68,734 15,341 18,758
Selling, general and
administrative expenses..... 3,344 2,958 3,525 4,659 5,822 1,416 1,570
Special charge(4)............. -- -- -- -- 297 -- --
Depreciation and
amortization................ 239 387 520 759 784 200 208
------- ------- ------- ------- ------- ------- -------
Operating income (loss)....... (1,074) 76 167 1,920 2,085 522 712
Interest income (expense),
net......................... 9 (50) (86) (343) 109 (72) 172
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (1,065) 26 81 1,577 2,194 450 884
Income tax benefit
(expense)................... -- -- 460 1,159 (1,090) (221) (370)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $(1,065) $ 26 $ 541 $ 2,736 $ 1,104 $ 229 $ 514
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share -- basic.............. $ (0.72) $ 0.02 $ 0.34 $ 1.44 $ 0.39 $ 0.12 $ 0.11
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share --
diluted..................... N/A(3) $ 0.01 $ 0.19 $ 0.85 $ 0.28 $ 0.07 $ 0.10
======= ======= ======= ======= ======= ======= =======
SELECTED OPERATING DATA (AT
END OF PERIOD):
Family Center clients(5)...... 29 41 58 65 70 65 74
Family Centers(6)............. 33 48 75 85 95 85 100
Licensed Capacity(7).......... 5,279 6,361 10,487 12,440 14,402 12,835 14,843
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ 998 $ 939 $ 407 $ 1,769 $12,816 $ 1,818 $13,683
Total assets.................. 4,774 5,265 17,055 20,378 30,217 19,071 32,202
Long-term debt, including
current maturities.......... 758 883 5,064 4,416 -- 4,193 --
Shareholders' equity(8)....... 2,067 1,724 4,015 6,975 20,807 7,207 21,658
</TABLE>
- - ---------------
(1) CorporateFamily's fiscal year ends on the Friday closest to December 31.
Fiscal 1997 consisted of a 53 week year.
(2) In October 1995, CorporateFamily 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 accordingly, the results of
operations include RCCM from the date of the acquisition.
(3) Not presented because the effect of considering the additional dilution
related to preferred stock, options and warrants would have been
anti-dilutive.
(4) Non-cash compensation costs related to removing the restrictions on common
stock held by an officer of CorporateFamily.
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<PAGE> 84
(5) A Family Center client is defined as an entity that as of the applicable
date was under contract with CorporateFamily for the management of one or
more open and operating Family Centers.
(6) Family Centers are defined as the facilities that CorporateFamily is engaged
to manage and operate on behalf of its Family Center Clients.
(7) Represents the total capacity permitted under applicable state licenses.
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<PAGE> 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CORPORATEFAMILY
OVERVIEW
CorporateFamily is a leading national provider of services for the
corporate market that support families and business success. CorporateFamily
works with more than 100 employers seeking to create a "family friendly" work
environment by providing work place child care, education, family support
programs and consulting services. CorporateFamily 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. As of May 7, 1998, CorporateFamily managed 100 Family Centers,
representing 74 corporate clients, in 29 states and the District of Columbia.
Additionally, CorporateFamily had 16 Family Centers under development, including
nine for new corporate clients. Ten of CorporateFamily's corporate clients
operate multiple Family Centers. In addition, CorporateFamily 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
CorporateFamily include feasibility studies, work/life strategic planning,
return on investment analyses and development of work/life programs and
policies. During 1997, CorporateFamily provided consulting services to 31
corporate clients. CorporateFamily 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; (v) developing new services; and (vi) pursuing strategic
acquisitions.
CorporateFamily's revenue is derived from (i) the operation of Family
Centers and (ii) other services, including 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 CorporateFamily's revenue, are generally
comparable to prevailing market rates for similar services offered by centers
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, CorporateFamily 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 1997, no single client accounted for more than 8% of
CorporateFamily'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 approximately 85% of Family Center operating
expenses. Consulting operating expenses are comprised primarily of (i) staff
salaries, taxes and benefits; (ii) contract labor; and (iii) other direct
operating expenses. Selling, general and administrative expenses are comprised
primarily of (i) salaries, taxes and benefits for non-center personnel,
including corporate, regional and business development personnel; (ii)
accounting and legal fees; (iii) insurance; and (iv) general corporate expenses.
Depreciation and amortization expense consists of the depreciation of two
company-owned Family Center facilities, the personalty owned by CorporateFamily
and amortization of goodwill primarily related to the acquisition of RCCM.
CorporateFamily's Family Center contracts are typically three to five years
in length, with automatic annual renewals. CorporateFamily 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 CorporateFamily 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.
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<PAGE> 86
Cost-Plus Contract. Under a cost-plus contract, revenue consists of: (i)
parent fees; (ii) Client Operating Financial Support paid to CorporateFamily for
reimbursement of any of a Family Center's operating expenses and allocated
corporate overhead that are in excess of parent fees; and (iii) management fees.
The cost-plus contract model provides that all operating costs of a Family
Center are paid from parent fees and Client Operating Financial Support. As of
January 2, 1998, 45 of CorporateFamily's 95 Family Centers were operated under
cost-plus contracts, generating 53% of Family Center revenue.
Partnership Contract. Under a partnership contract, revenue typically
consists of: (i) parent fees; (ii) a fixed amount of Client Operating Financial
Support; and (iii) management fees. To the extent that the parent fees and
Client Operating Financial Support do not cover the Family Center operating
expenses, CorporateFamily 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 CorporateFamily'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 (typically in the 12
months following the opening of a Family Center). As of January 2, 1998, 37 of
CorporateFamily's Family Centers were operated under partnership contracts,
generating 32% of Family Center revenue.
Profit/Loss Contract. Under a profit/loss contract, revenue is generated
primarily from parent fees, and CorporateFamily may receive limited Client
Operating Financial Support. CorporateFamily 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 CorporateFamily. Initial
operating losses may range from $50,000 to $125,000 per center. As of January 2,
1998, 13 of CorporateFamily's Family Centers were operated under profit/loss
contracts, generating 15% of Family Center revenue.
Management believes CorporateFamily's 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.
CorporateFamily measures profitability at the client level based on the
combined results of Family Center operations and consulting services from a
client. CorporateFamily'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
1997, CorporateFamily's 70 mature Family Centers (defined as those open as of
December 29, 1995 and remaining open as of January 2, 1998) averaged
approximately $89,000 in Operating Contribution. An additional component of
client profitability is consulting revenue for services performed. During 1997,
CorporateFamily provided consulting services through 45 consulting engagements
to 31 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 CorporateFamily must allocate to
complete the engagement. Consulting engagements are quoted on a fixed-fee basis
per engagement. In general, management believes that the operating margin
generated from the consulting business will be greater than that attained from
its Family Center operations.
During 1997, CorporateFamily opened 13 Family Centers and closed three. In
addition, at January 2, 1998, CorporateFamily had 16 Family Centers under
development. The 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 November 1997, CorporateFamily acquired certain assets of MAW
Enterprises, Inc. d/b/a Schools at Work for a total purchase price of $300,000.
The acquisition has been accounted for as a purchase. MAW Enterprises, Inc.
d/b/a Schools at Work provides consulting and facilitating services to
organizations interested in educational opportunities for employees and their
children.
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In August 1997, CorporateFamily completed an initial public offering of
2,702,500 shares of its common stock, of which 1,401,386 shares were issued and
sold by CorporateFamily, at a public offering price of $10.00 per share (the
"Offering"). CorporateFamily received net proceeds of approximately $12.1
million (after deducting underwriting discounts and expenses). Approximately
$3.7 million was used to repay all of CorporateFamily's then outstanding bank
borrowings. CorporateFamily 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. Additionally, as a result of the
Offering, all 1,125,000 shares of CorporateFamily's issued and outstanding
Series A preferred stock were converted into 1,169,935 shares of common stock.
In October 1995, CorporateFamily 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.
CorporateFamily 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 consisted of 53 weeks, and the fourth quarter of 1997
consisted of 14 weeks.
CorporateFamily's revenue and results of operations fluctuate with the
seasonal demands for child care. CorporateFamily'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 CorporateFamily's costs are fixed costs,
CorporateFamily'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.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data for CorporateFamily expressed as a percentage of revenue:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR --------------------
----------------------- MARCH 28, APRIL 3,
1995 1996 1997 1997 1998
----- ----- ----- --------- --------
<S> <C> <C> <C> <C> <C>
Revenue..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses.......................... 88.6 88.3 88.4 87.8 88.3
Selling, general and administrative
expenses.................................. 9.5 7.4 7.5 8.1 7.4
Special charge.............................. -- -- 0.4 -- --
Depreciation and amortization............... 1.4 1.2 1.0 1.1 1.0
----- ----- ----- ----- -----
Operating income............................ 0.5 3.1 2.7 3.0 3.3
Interest income (expense), net.............. (0.2) (0.6) 0.1 (0.4) 0.8
----- ----- ----- ----- -----
Income before income taxes.................. 0.3 2.5 2.8 2.6 4.1
Income tax benefit (expense)................ 1.2 1.8 (1.4) (1.3) (1.7)
----- ----- ----- ----- -----
Net income.................................. 1.5% 4.3% 1.4% 1.3% 2.4%
===== ===== ===== ===== =====
Operating income before special charge...... 0.5% 3.1% 3.1% 3.0% 3.3%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED APRIL 3, 1998 COMPARED TO THREE MONTHS ENDED MARCH 28, 1997
Revenue. Revenue increased $3.7 million, or 21.1%, to $21.2 million for
the quarter ended April 3, 1998 from $17.5 million for the quarter ended March
28, 1997. The revenue increase was primarily the result of
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(i) the operation of net 15 new Family Centers opened since the first quarter of
1997; (ii) the operation of net 10 Family Centers opened during 1996; and (iii)
internal growth generated at mature Family Centers.
Operating Expenses. Operating expenses increased $3.5 million, or 22.9%,
to $18.8 million for the quarter ended April 3, 1998 from $15.3 million for the
quarter ended March 28, 1997. Operating expenses as a percentage of revenue
increased to 88.3% in the first quarter of 1998 from 87.8% for the comparable
period in 1997. This increase was attributable to (i) the net 15 new Family
Centers opened since the first quarter of 1997, which were in an
enrollment-building period (typically the 12 months following the opening of a
Family Center), with level expenses but lower revenues in early months after
opening; and (ii) an increase in consulting expense as CorporateFamily expanded
its consulting capabilities in anticipation of growth in this area.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $154,000, or 10.9%, to $1.6 million for the
quarter ended April 3, 1998 from $1.4 million for the quarter ended March 28,
1997. This increase is primarily the result of CorporateFamily increasing its
sales and marketing personnel during the second half of 1997 in order to expand
its market penetration and enhance its responsiveness to client requests and
proposals. Selling, general and administrative expenses as a percentage of
revenue decreased to 7.4% in first quarter of 1998 from 8.1% for the comparable
period in 1997. This decrease is attributable to economies of scale as a result
of a larger revenue base. Management 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.
Deprecation and Amortization. Depreciation and amortization expense
increased $8,000 to $208,000 for the quarter ended April 3, 1998 from $200,000
for the quarter ended March 28, 1997. Management anticipates that depreciation
expense in the future will increase at a higher rate than experienced in 1997;
however, as a percentage of revenue such expense is expected to remain
comparable.
Operating Income. Operating income increased $190,000, or 36.4%, to
$712,000 for the quarter ended April 3, 1998 from $522,000 for the quarter ended
March 28, 1997.
Net Interest Income/Expense. For the quarter ended April 3, 1998
CorporateFamily recorded net interest income of $172,000 as compared to net
interest expense of $72,000 for the quarter ended March 28, 1997. The increase
in investment income and decrease in interest expense was primarily the result
of (i) repayment of all of CorporateFamily's outstanding bank borrowings in
August 1997 using approximately $3.7 million of the net proceeds received from
its initial public offering; and (ii) the investment of the remaining net
proceeds, approximately $8.4 million, primarily in high quality commercial
paper.
Income Taxes. The provision for income taxes was $370,000 for the quarter
ended April 3, 1998 as compared to $221,000 for the comparable period in 1997.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Revenue. Revenue increased $14.8 million, or 23.5%, to $77.7 million in
1997 from $62.9 million in 1996. The revenue increase was primarily the result
of (i) a full year of operation at centers opened in 1996; (ii) internal growth
generated at mature centers; and (iii) the operation of net 10 new centers in
1997. In 1997, CorporateFamily opened 13 new centers for 11 clients and closed
three centers. Consulting revenue increased to $952,000 in 1997 from $415,000 in
1996. The increase in consulting revenue resulted from CorporateFamily's
expansion of its consulting capabilities during the latter half of 1996.
Operating Expenses. Operating expenses increased $13.1 million, or 23.6%,
to $68.7 million in 1997 from $55.6 million in 1996. Operating expenses as a
percentage of revenue increased to 88.4% in 1997 from 88.3% in 1996. There were
no unusual fluctuations or trends in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.1 million, or 23.4%, to $5.8 million in
1997 from $4.7 million in 1996. Selling, general and administrative expenses as
a percentage of revenue increased to 7.5% in 1997 from 7.4% in 1996. This
increase is primarily the result of (i) CorporateFamily increasing its sales and
marketing personnel during the second half of 1997
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<PAGE> 89
to expand its market penetration and enhance its responsiveness to client
requests and proposals and (ii) to a lesser extent, general and administrative
expenses necessary to open and support the net 10 new Family Centers opened in
1997.
Special Charge. Concurrent with its initial public offering,
CorporateFamily removed the restrictions, as set forth in the restricted stock
agreement, on 32,500 shares of common stock held by an officer of
CorporateFamily. As a result, CorporateFamily recorded a non-recurring, non-cash
compensation charge of $297,000, or $0.07 per share, assuming dilution, (for
which CorporateFamily received no tax deduction) in 1997.
Depreciation and Amortization. Depreciation and amortization expense
increased $25,000, or 3.3%, to $784,000 in 1997 from $759,000 in 1996.
Management anticipates that depreciation expense in the future will increase at
a higher rate than experienced in 1997, however, as a percentage of revenue such
expense is expected to remain comparable.
Operating Income. Operating income increased to $2.1 million in 1997 from
$1.9 million in 1996. Excluding the $297,000 special charge, operating income
would have increased $462,000, or 24.1%, to $2.4 million in 1997.
Net Interest Income/Expense. In 1997 CorporateFamily recorded net interest
income of $109,000 as compared to net interest expense of $343,000 in 1996. The
increase in interest income and decrease in interest expense was primarily the
result of (i) in August 1997, CorporateFamily's use of approximately $3.7
million of the net proceeds received from the Offering to repay all of its then
outstanding bank borrowings and (ii) the investment of the remaining net
proceeds, approximately $8.4 million, primarily in high quality commercial
paper.
Income Taxes. The provision for income taxes was $1.1 million in 1997. In
1996, CorporateFamily recorded an income tax benefit of $1.2 million as a result
of a reduction of valuation allowances in order to utilize net operating loss
carryforwards. CorporateFamily's effective tax rate for 1997 was 49.7% due to
the non-deductibility of (i) approximately $325,000 of goodwill amortization and
(ii) the special charge of $297,000 related to the removal of restrictions on
certain shares of common stock.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 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 10 new centers in 1996. In 1996, CorporateFamily 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 CorporateFamily'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 CorporateFamily 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. CorporateFamily does not
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<PAGE> 90
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 $239,000, or 46.0%, to $759,000 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 to 3.1% in 1996 from 0.5%
in 1995.
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, CorporateFamily recorded 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, CorporateFamily recorded an income tax benefit of
$460,000.
UNAUDITED SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly operating
information for the nine quarters ended April 3, 1998. 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
CorporateFamily'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>
1996 1997 1998
------------------------------------- ------------------------------------- -------
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.................. $14,435 $15,644 $15,984 $16,863 $17,479 $18,900 $19,755 $21,588 $21,248
Operating Income......... 418 439 417 646 522 649 227 687 712
Income before taxes...... 285 378 340 574 450 596 276 872 884
Income tax benefit
(expense).............. (7) (20) (22) 1,208 (221) (279) (245) (345) (370)
Net Income............... 278 358 318 1,782 229 317 31 527 514
</TABLE>
CorporateFamily's revenue and results of operations fluctuate with the
seasonal demands for child care. CorporateFamily'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 CorporateFamily's costs are fixed costs,
CorporateFamily'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. The effects of seasonality have historically
been obscured by CorporateFamily's growth. CorporateFamily anticipates that
these seasonal trends will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
CorporateFamily has primarily provided its services under management
contracts which require little or no capital investment by CorporateFamily for
growth of its operations. Corporate clients typically assume financial
responsibility for construction costs and ongoing facility expenses. Prior to
August 1997, CorporateFamily had financed its operating needs and acquisitions
from investments from stockholders, funded debt and cash flow from operations.
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<PAGE> 91
In August 1997, CorporateFamily completed the Offering of 2,702,500 shares
of its common stock, of which 1,401,386 shares were issued and sold by
CorporateFamily, at a public offering price of $10.00 per share. CorporateFamily
received net proceeds of approximately $12.1 million, of which approximately
$3.7 million were used to repay all of CorporateFamily's then outstanding bank
borrowings. CorporateFamily 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.
CorporateFamily had working capital of $13.7 million and $12.8 million as
of April 3, 1998 and January 2, 1998, respectively. During the quarter ended
April 3, 1998, net cash provided by operating activities was $1.4 million as
compared to cash used in operating activities of $275,000 for the comparable
period in 1997. The increase in cash provided by operations was primarily the
result of increased net income and the timing of vendor payments in accounts
payable and accrued expenses. Cash used in investing activities during the
quarter ended April 3, 1998 totaled $189,000, as compared to $29,000 for the
comparable period in 1997. Cash used in financing activities during the quarter
ended April 3, 1998 totaled $115,000 as compared to $220,000 for the comparable
period in 1997. During the quarter ended April 3, 1998, CorporateFamily utilized
$1.1 million of its capital resources to purchase 48,750 shares of its common
stock which were subsequently reissued during the quarter to fulfill warrant and
stock option exercises. In addition, in January 1998, CorporateFamily approved
an agreement that reflected the understanding it had reached with David Gleason,
an Executive Vice President of CorporateFamily, in October 1997 regarding the
terms of such officer's retirement. Pursuant to his retirement agreement, during
the quarter ended April 3, 1998, CorporateFamily paid $27,000 as a severance
payment, vested options consistent with the terms of the plans pursuant to which
the options were granted and agreed to a three year non-compete agreement.
CorporateFamily considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of high quality commercial paper. The carrying value of these
instruments approximates market value due to their short maturities.
CorporateFamily has entered into a $5.0 million revolving credit facility
to be used for working capital and other general corporate purposes. Borrowings
under the credit facility, which is subject to renewal on an annual basis, will
bear interest at the lender's prime rate. No amounts were outstanding under this
credit facility at April 3, 1998.
Management believes that funds provided by operations, available borrowing
under the credit facility and the net proceeds from the initial public offering
will be sufficient to meet CorporateFamily's needs for working capital, capital
expenditures and CorporateFamily's anticipated needs to fund future growth
through the end of 1998. CorporateFamily does not anticipate material increases
in the level of capital expenditures in 1998. An element of CorporateFamily's
strategy is to pursue strategic acquisitions. CorporateFamily may be required to
seek external financing sources to pursue such acquisitions. There can be no
assurance that CorporateFamily would be able to obtain such financing on
reasonable terms, if at all.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 requires that all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, be reported in a
financial statement for the period in which they are recognized. For the
quarters ended April 3, 1998 and March 28, 1997, respectively, CorporateFamily
has no additional components of comprehensive income, other than net income, in
accordance with SFAS 130.
In April 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants (AICPA) issued Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5").
SOP 98-5 requires that costs of start-up activities and organization costs, as
defined, be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998; CorporateFamily will adopt SOP 98-5 during
the first quarter of fiscal 1999. Management anticipates that the initial
application of SOP 98-5 will be reported as a cumulative change in accounting
principle, in accordance
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with SOP 98-5. Management does not expect the adoption to have a material impact
on result of operations, financial condition or cash flows.
INFLATION
CorporateFamily does not believe that inflation has had a material effect
on its results of operations. There can be no assurance, however, that
CorporateFamily's business will not be affected by inflation in the future.
YEAR 2000 CONVERSION
CorporateFamily is coordinating the identification, evaluation, and
implementation of changes to computer systems and applications necessary to
achieve a year 2000 date conversion with no effect on customers or disruption to
business operations. These actions are necessary to ensure that the systems and
applications will recognize and process the year 2000 and beyond.
CorporateFamily is also evaluating non-system issues relative to the year 2000
and beyond. As appropriate, CorporateFamily is communicating with suppliers,
customers, financial institutions and others with which it does business to
coordinate year 2000 conversion. Management does not anticipate the total cost
of compliance will have a significant impact on CorporateFamily's consolidated
financial statements or results of operations.
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INFORMATION CONCERNING BRIGHT HORIZONS
OVERVIEW
Bright Horizons is the nation's largest provider of early education and
family support services for the corporate market, operating 155 child
development centers for 145 clients. Bright Horizons serves more than 15,000
children and their families in 29 states and the District of Columbia. With the
changing demographics of today's workforce and the prevalence of dual career
families, a growing number of corporations are creating family benefits to
attract and retain employees and support them as parents. Bright Horizons
provides early childhood education, full and part-time child care, emergency
backup care, before and after school care for school age children, summer camps,
vacation care, elementary school (kindergarten through third grade), and other
family support services. Bright Horizons partners with corporate sponsors to
provide these services.
Bright Horizons serves many of the nation's leading corporations including
Allstate Insurance Company, Apple Computer, Duke Power, DuPont, First Union
National Bank, Glaxo Wellcome, IBM (through the American Business
Collaborative), Merck & Co., Inc., Motorola, Paramount Pictures, Pfizer, Salomon
Brothers, Sony Pictures Entertainment, Time Warner, Inc., Universal Studios,
Inc., Warner Bros., and Xerox. Six of the top ten companies selected by
WorkingMother magazine as 1997's "Top 100 Companies for Working Mothers" are
clients of Bright Horizons. In addition, Bright Horizons provides early
education services for well known institutions such as the United Nations, New
York Hospital, The George Washington University, John F. Kennedy Airport and
Beth Israel Deaconess Medical Center. Bright Horizons operates multiple centers
for 13 of its clients.
BUSINESS STRATEGY
Bright Horizons has gained nationwide recognition as a quality service
provider and is well-positioned to serve corporate sponsors due to its national
scale, track record of serving major corporate sponsors, established reputation,
and position as a quality leader. The major elements of its business strategy
are the following:
Corporate Sponsorship. Corporate sponsorship enables Bright Horizons
to address simultaneously the three most important criteria used by parents
to evaluate and select an early education provider: quality of care,
convenience and cost. By reducing Bright Horizons' start-up and operating
costs, corporate sponsorship enables Bright Horizons to concentrate its
investment in those areas that directly translate into high quality care,
including faculty compensation, teacher-child ratios, curricula, continuing
faculty education, facilities and equipment. Bright Horizons'
corporate-sponsored work-site facilities are conveniently located at or
near the parents' place of employment, and generally conform their hours of
operation to the work schedule of the corporate sponsor. Work-site child
development centers allow parents to spend more time with their children,
both while commuting and during the work day, and to participate in and
monitor their child's ongoing care and education. Finally, because
corporate support generally defrays a portion of Bright Horizons' start-up
and/or operating costs, Bright Horizons is able to offer its customers high
quality early childhood education at competitive tuition levels. Some
corporations offer subsidized tuition to their employees as part of their
overall family benefits package.
Quality Leadership. The critical elements of Bright Horizons' quality
leadership focus include:
- NAEYC Accreditation. Bright Horizons operates its centers to
qualify for accreditation by the NAEYC, a national organization
dedicated to improving the quality of care and developmental education
provided for young children. Bright Horizons believes that its
commitment to meeting NAEYC accreditation is an advantage in the
competition for corporate sponsorship opportunities, due to Bright
Horizons' experience with an increasing number of potential corporate
sponsors that are requiring adherence to NAEYC criteria. NAEYC
accreditation criteria cover a wide range of quantitative and
qualitative factors, including, among others, faculty qualifications and
development, staffing ratios, physical environment, and health and
safety. NAEYC criteria generally are more stringent than state
regulatory requirements. The majority of child care centers are not
NAEYC-accredited, and Bright Horizons has more NAEYC-accredited
work-site child development centers than any other provider.
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- High Teacher-Child Ratios. High teacher-child ratios are a
critical factor in providing quality early education, facilitating more
focused care and enabling teachers to forge relationships with children
and their parents. Under Bright Horizons' approach, each child has a
teacher who is designated as the child's primary caregiver. This teacher
is responsible for monitoring a child's developmental progress and
tailoring programs to meet the child's individual needs, while engaging
parents in establishing and achieving goals. Bright Horizons is
committed to maintaining the NAEYC-recommended teacher-child ratios for
all age groups. Many Bright Horizons centers exceed the NAEYC
recommended minimum ratios. By contrast, most center-based child care
providers conform only to the minimum teacher-child ratios mandated by
applicable governmental regulations, which are generally less intensive
than NAEYC standards and vary widely from state to state.
- Above-Average Compensation. Bright Horizons believes that its
above-average compensation, comprehensive and affordable benefits
package and opportunities for internal career advancement enable Bright
Horizons to attract highly qualified, well-educated, experienced and
committed center directors and faculty. Based on data provided by the
1995 Cost, Quality and Child Outcomes in Child Care Centers Study,
Bright Horizons' average center director compensation is more than 30%
above the industry average. Bright Horizons believes that its benefits
package, which includes medical, dental and disability insurance, paid
vacation and sick leave, a 401(k) savings plan, incentive stock options,
tuition reimbursement and child care discounts, is unusually
comprehensive and affordable to the employee by industry standards.
These benefits are an important recruitment and retention tool for
Bright Horizons in the relatively low-paying child care industry.
- Highly Qualified Center Directors and Faculty. Bright Horizons
believes its faculty's education and experience are exceptional when
compared to other national child care organizations. The typical Bright
Horizons center director has more than ten years of child care
experience and a college degree in an education-related field, with many
center directors holding advanced degrees. Because Bright Horizons
considers ongoing training essential to maintaining high quality
service, centers have training budgets for their faculty that provide
for in-center training, attendance at selected outside conferences and
seminars and partial tuition reimbursement for continuing education.
- Innovative Curricula. Bright Horizons' innovative,
age-appropriate curricula distinguish it in an industry typically
lacking educational programs. Bright Horizons is committed to improving
upon the typical early education experience by creating a dynamic and
interactive environment that stimulates learning and development. As
part of its comprehensive curricula, Bright Horizons has developed the
proprietary !Language Works! preschool curriculum which facilitates
mastery of language by early exposure to words and symbols, extensive
use of language in all activity areas, composition of books and
immersion in literature. Bright Horizons seeks to involve parents in the
center's activities and supports the extension of learning into the
home. Bright Horizons is currently advised by several education experts.
Dr. T. Berry Brazelton, a well known pediatrician, and Dr. Sharon Lynn
Kagan of Yale University serve on its Advisory Board. Dr. Sara Lawrence-
Lightfoot of the Harvard School of Education serves on its Board of
Directors.
- Attractive, Child-Friendly Facilities. Bright Horizons believes
that attractive, spacious, child-friendly facilities are an important
element in fostering high quality learning environments for children.
Bright Horizons' centers are custom-built and are designed to be open
and bright and to maximize visibility throughout the center. Bright
Horizons devotes considerable effort to equipping its centers with
child-sized amenities, indoor and outdoor play areas with
age-appropriate materials and design, family hospitality areas and
computer centers.
In recognition of its quality leadership, Bright Horizons and its
management were selected by BusinessWeek as one of 1997's "Best Entrepreneurs."
In addition, co-founders Roger Brown and Linda Mason were selected by Ernst &
Young and The Nasdaq National Market to be the 1996 national winners of the
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"Entrepreneur of the Year" in the service category. Bright Horizons is the only
early education company to be selected as one of the WorkingMother magazine's
"100 Best Companies for Working Mothers."
Leading Market Presence. Bright Horizons' strategy has been to gain a
leading market presence by clustering its centers in selected metropolitan
markets. Strong market presence allows Bright Horizons to leverage its
reputation in on-going marketing and to increase its market penetration.
Clustering permits Bright Horizons to strengthen quality, develop local
recruiting networks, and efficiently allocate its faculty among nearby centers
in cases of illness, vacation or leave. Clustering also provides Bright Horizons
with economies of scale in management, purchasing and recruiting. Bright
Horizons believes that regional clustering serves as a competitive advantage in
developing its reputation within geographic regions and securing new corporate
sponsorships in those areas. Bright Horizons currently has a major market
presence in Boston, Charlotte, Chicago, Hartford, Los Angeles, New York,
Raleigh/Durham, San Francisco, Seattle and Washington, D.C.
GROWTH STRATEGY
The key elements of Bright Horizons' growth strategy are as follows:
Open Centers for New Corporate Sponsors. Bright Horizons' senior
management, as well as Bright Horizons' regional and home office sales
force, actively pursue potential new corporate sponsors, particularly in
industries that provide work-site early education and family support
services as a standard benefit. Bright Horizons believes that its national
scale, quality leadership and track record of serving corporate sponsors
give it a competitive advantage in securing new corporate sponsorship
relationships. As a result of Bright Horizons' national visibility as a
high quality provider of work-site early education and family support
services, sponsors regularly contact Bright Horizons requesting proposals
for operating a child care center.
Expand Relationships with Existing Corporate Sponsors. Bright
Horizons aims to increase revenue from its existing corporate sponsor
relationships by developing new centers for sponsors who have multiple
corporate sites and offering additional services at its existing centers.
Bright Horizons' experience has been that corporate sponsors are more
inclined to employ Bright Horizons on a multi-site basis following the
successful operation of an initial center. Bright Horizons currently
operates child care centers at multiple sites for 13 sponsors.
Assume Management of Existing Child Care Centers. Assuming the
management of existing centers enables Bright Horizons to serve an existing
customer base with little start-up investment. As corporations reduce their
involvement in non-core business activities, Bright Horizons has assumed
the management of a number of work-site child care centers previously
managed by a corporate sponsor. Bright Horizons has also assumed the
management of work-site early education and family support centers formerly
operated by other providers. Many such providers have experienced operating
difficulties because they lack the management expertise or financial depth
needed to provide high quality child care services to corporate sponsors.
Bright Horizons assumed the management of 20 centers from employers and
other child care providers over the last four fiscal years.
Pursue Strategic Acquisitions. Bright Horizons seeks to acquire
existing work-site child development centers and local and regional
networks to expand quickly and efficiently into new markets and increase
its presence in existing geographic clusters. The fragmented nature of the
work-site segment of the early education and family support services market
continues to provide acquisition opportunities. Bright Horizons believes
that many of the smaller regional chains and individual providers seek
liquidity and/or lack the professional management and financial resources
that sponsors increasingly demand. In July 1997, Bright Horizons acquired
four child development centers in the Seattle, Washington area operating
under the name The Learning Garden. In December 1995, Bright Horizons
purchased from ServiceMaster 24 centers in the Midwest operating under the
GreenTree name. In November 1994, Bright Horizons acquired Burud, which
manages five work-site child development centers in California.
Develop and Market Additional Services. Bright Horizons plans to
continue to develop and market additional early childhood education and
family support services, full and part-time child care, emergency
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back-up work-site child care (serving parents when their primary child care
options are unavailable), seasonal services (extending hours at existing
centers to serve sponsors with highly seasonal work schedules), school
vacation clubs, summer programs, elementary school programs (kindergarten
through third grade), before and after school care for school age children,
vacation care, special event child care, and to add residential child
development centers in areas where tuition levels can support Bright
Horizons' quality standards.
SPONSORSHIP MODELS
Although the specifics of Bright Horizons' corporate sponsorship
arrangements vary widely, they generally can be classified into two forms: (i)
the corporate-sponsored model, where Bright Horizons operates a child
development center on the premises of a corporate sponsor, gives priority
enrollment to the corporate sponsor, receives some form of start-up and/or
operating financial support from the corporate sponsor and maintains
profit-and-loss responsibility, and (ii) the management contract model, where
Bright Horizons manages a work-site child development center under a cost-plus
agreement.
The Corporate-Sponsored Model. Corporate-sponsored model centers currently
represent approximately 80% of Bright Horizons' child development centers.
Bright Horizons typically designs and operates a work-site child development
center in exchange for some form of financial or operating support from the
corporate sponsor. This sponsorship can take a variety of forms, including
reduced occupancy costs, tuition assistance, payment of pre-opening expenses and
assistance with start-up costs, such as architectural and design fees, real
estate broker fees, as well as capital equipment and initial supplies.
Historically, Bright Horizons has received the greatest support in the form of
reduced occupancy costs. Bright Horizons maintains profit-and-loss
responsibility for corporate-model child development centers. The corporate
model can be classified into two subcategories: (i) employer-sponsored, where
Bright Horizons provides child care on a priority enrollment basis for employees
of a single employer sponsor, and (ii) developer-sponsored, where Bright
Horizons provides priority child care to the employees of multiple employers
located within a developer's property.
The Employer-Sponsored Model. The employer-sponsored model is
typically characterized by a single employer (corporation, hospital,
government agency or university), or occasionally a consortium of employers
entering into a contract with Bright Horizons to provide early education at
a facility located in or near the sponsor's offices. The sponsor generally
provides for the construction of the center and on an ongoing basis pays
for maintenance and repairs. In some cases, the sponsor also provides
tuition assistance and enrollment guarantees. Children of the sponsors'
employees typically are granted priority enrollment at the center.
Operating contracts under the employer-sponsored model have terms that
generally range from three to ten years, require ongoing reporting and, in
some cases, limit annual tuition increases.
The Developer-Sponsored Model. A developer-sponsored center is
located in a real estate developer's office building or office park. The
center serves as an amenity to the developer's tenants, giving the
developer an advantage in attracting quality tenants to its site. In return
for leasing the facility to Bright Horizons at a discounted rent, Bright
Horizons offers priority enrollment to the children of the site's
employees. Bright Horizons typically negotiates lease terms of ten to 25
years, including the initial term and renewal options. Under the
developer-sponsored model, Bright Horizons' typically operates its child
development centers with few ongoing operating restrictions or reporting
requirements.
The Management Contract Model. Management contract centers currently
represent approximately 20% of Bright Horizons' child development centers. Under
the management contract model, Bright Horizons receives a management fee and is
reimbursed for any expenses in excess of tuition revenues within an agreed upon
budget. The sponsor is typically responsible for all start-up costs and facility
maintenance. The management contract model enables the corporate sponsor to have
a greater degree of control with respect to budgeting, spending and operations.
Management contracts require Bright Horizons to satisfy certain periodic
reporting requirements and generally range in length from one to five years,
with some terminable by the sponsor without cause or financial penalty. Bright
Horizons is responsible for maintenance of quality
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standards, recruitment of center directors and faculty, implementation of
curricula and programs and interaction with parents.
OPERATIONS
General. Consistent with its strategy of establishing a leading market
presence, Bright Horizons is organized into four operational regions -- the
Northeast, Southeast, Midwest and West. Each region is managed by a Regional
Vice President and is divided into three to six districts, each headed by a
District Manager responsible for supervising the quality and operating
performance of six to ten centers. A typical center is managed by a director
with a staff ranging from 20 to 25 faculty and administrative personnel. A
center director has operating responsibility and is responsible for supervising
local marketing, hiring new teachers and performing administrative tasks such as
payroll and tuition collection. Bright Horizons' home office handles most
finance, human resources, administration, business development and marketing
functions.
Center hours of operation are designed to match the schedules of the
employer or developer sponsor. Most centers are open ten to twelve hours a day,
Monday through Friday. Typical hours of operation are from 7:00 a.m. to 6:00
p.m. Bright Horizons offers a variety of enrollment options, ranging from
full-time (40-50 hours per week) to part-time options. Over 60% of children who
attend Bright Horizons' centers are enrolled on a full-time basis. The majority
of children enrolled in Bright Horizons' child development centers are those of
the employer-sponsor or those of employees of the developer-sponsor's tenants.
The remaining enrolled children come from the general public.
Monthly tuition depends upon the age of the child, geographic location and
the extent to which tuition is subsidized by a corporate sponsor. In fiscal
1997, average full-time monthly tuition was $853 for infants, $690 for toddlers
and $640 for preschoolers. Tuition at most of Bright Horizons' centers is
payable in advance and is due monthly. In some cases, parents can pay tuition
through payroll deduction.
Facilities. Bright Horizons' child development centers are primarily
operated in work-site locations and vary in design and capacity in accordance
with sponsor needs and state and federal regulatory requirements. A prototypical
Bright Horizons center is approximately 7,000 to 8,000 square feet, and has a
capacity for 16 infants, 40 toddlers and 60 preschoolers. There are typically
two infant rooms, four toddler rooms and three preschool rooms. As of March
31,1998, Bright Horizons' centers had a total licensed capacity of approximately
16,612 children, with the smallest having a capacity of 6 children and the
largest having a capacity of over 250 children.
Bright Horizons believes that attractive, spacious, child friendly
facilities are an important element in fostering a high quality learning
environment for children. Bright Horizons' centers are designed to be open and
bright and to maximize visibility throughout the center. Bright Horizons devotes
considerable resources to equipping its centers with child-sized amenities,
indoor and outdoor play areas of age-appropriate materials and design, family
hospitality areas and computer centers. Commercial kitchens are present in those
centers which require hot meals to be prepared on site.
Health and Safety. The safety and well-being of the children in its care
is a high priority for Bright Horizons. Bright Horizons employs a variety of
security measures at its centers, which may include electronic access systems,
security guards, or other site-specific procedures. In addition, Bright
Horizons' high ratio of teachers to children, together with the presence of
center directors and other management personnel, leads to enhanced supervision.
Centers are designed to minimize the risk of injury to small children by
incorporating such features as child-size amenities, rounded corners on
furniture and fixtures, age-appropriate toys and equipment and cushioned
fall-zones surrounding play structures.
Bright Horizons conducts ongoing training of personnel in the areas of
health, safety and emergency protocol. Bright Horizons requires CPR and first
aid certification of center management personnel, and offers such certification
to all center faculty. Bright Horizons conforms to federal OSHA requirements
with respect to annual blood-born pathogen training of all center personnel.
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CURRICULA
Bright Horizons' dynamic and interactive age-appropriate curricula focuses
on hands-on learning activities for children. Early childhood experts and
educators believe that children learn best through exploration and play-oriented
learning. Children grow and acquire skills at their own pace, taking advantage
of age-appropriate activities to challenge themselves, build feelings of
success, develop school competence and reach higher levels of learning. Bright
Horizons' programs are built on this developmental approach and the belief that
learning is fun. Programs vary but typically share the following
characteristics: consistent responsiveness to children's needs; a balance of
structure and flexibility in daily schedules to accommodate individual
interests; connection of routine, daily tasks such as eating or dressing to
opportunities for social interaction and learning; respect for and celebration
of cultural diversity; and encouragement of parental participation. In addition,
Bright Horizons' educational programs feature !Language Works! a learning
process that helps children learn about language in ways that are meaningful to
them, experiencing language as part of every curriculum activity throughout the
day.
The teacher's role in the Bright Horizons classroom is to plan and prepare
a rich environment in which children are stimulated to learn, to provide a
variety of activity choices and to facilitate the child's hands-on engagement in
chosen activities. A Bright Horizons teacher strives to supplement the primary
role of parents in providing care, and faculty encourage parents to become
involved in the center's activities and support the extension of learning into
the home.
MARKETING
Bright Horizons markets its services to two constituencies: corporate
sponsors and parents. Bright Horizons' senior management, as well as Bright
Horizons' regional and home office sales force, maintains relationships with
larger customers and actively pursues potential new corporate sponsors,
particularly in industries that provide work-site child care as a standard
benefit in order to recruit and retain talented employees. Bright Horizons'
sales force is organized on a regional basis and is responsible for identifying
potential corporate sponsors and managing the overall sales process, which
generally ranges from three to nine months from initial contact to execution of
the sponsorship agreement. In order to execute its growth strategy, Bright
Horizons has expanded its sales force from four to six people and has hired a
Vice President of Development to lead these efforts. In addition, Bright
Horizons' sales effort is focused on identifying potential corporate clients,
targeting real estate developers and identifying potential acquisitions. As a
result of Bright Horizons' national visibility as a high quality child care
provider, potential sponsors regularly contact Bright Horizons requesting
proposals. Bright Horizons competes for most employer sponsorship opportunities
via a request for proposal process.
At the center level, directors are responsible for marketing to parents.
Bright Horizons seeks to develop a local reputation by promoting its high
quality faculty, facilities, programs, and interactive, hands-on curricula.
Bright Horizons' pre-opening and ongoing local marketing efforts include open
houses, local direct mail, parent referrals and community outreach. Many centers
have parent advisory organizations, which assist in marketing and also act as a
sounding board for developments in the education program. Center directors
typically receive assistance from corporate sponsors, who often advertise the
center in internal publications, provide mailing lists, answer questions and
facilitate interaction between Bright Horizons and parents. Bright Horizons also
has an established corporate marketing department that acts as a central
resource for center-level marketing programs, including the preparation of
promotional materials.
Bright Horizons has found that the parents it serves generally are well
compensated, highly educated and willing to bear the cost of high quality early
childhood education. Bright Horizons' 1995 and 1996 parent surveys found that
73% of the mothers who use Bright Horizons' services hold bachelor degrees and
86% work more than 31 hours per week. The same surveys indicate that
approximately 70% of the parents who use Bright Horizons child development
centers are engaged in professional or managerial occupations and average annual
household income exceeds $90,000. Bright Horizons is also able to serve a broad
range of parents due to corporate sponsor support, which reduces tuition costs
and sometimes takes the form of partial tuition subsidies to lower-income
families.
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COMPETITION
The market for early education services is highly fragmented and
competitive. Bright Horizons experiences competition for enrollment and for
corporate sponsorship.
Bright Horizons believes that the key factors in the competition for
enrollment are quality of service, locational convenience and cost. Bright
Horizons competes for enrollment with nannies, relatives, family child care and
center-based child care providers. Corporate sponsor support enables Bright
Horizons to limit its start-up and operating costs and concentrate its
investment in those areas that directly translate into high quality early
education, specifically faculty compensation, teacher-child ratios, curricula,
continuing faculty education, facilities and equipment. Bright Horizons believes
that many center-based child care providers are able to offer care at a lower
price than Bright Horizons by utilizing lower faculty-child ratios, and offering
their staff lower pay and limited or unaffordable benefits. While Bright
Horizons' tuition levels are generally above those of its competitors, Bright
Horizons believes it is able to compete effectively, particularly for well-
educated parents, by offering the convenience of a work-site location and a
higher quality of care. See "Risk Factors -- Risk Factors with Respect to Bright
Horizons Family Solutions -- Competition."
Bright Horizons believes its ability to compete successfully for corporate
sponsorship depends on a number of factors, including reputation, quality of
service, cost, the ability to customize sponsorship arrangements and national
scale. Many residential center-based child care chains either have divisions
that compete for corporate sponsorship opportunities or are larger and have
substantially greater financial or other resources that could permit them to
compete successfully against Bright Horizons in the work-site segment. Other
child care organizations focus exclusively on the work-site segment of the child
care market. Bright Horizons believes there are fewer than 10 companies that
currently operate work-site child care centers on a national basis.
CorporateFamily is Bright Horizons' primary competitor for work-site child care,
although Bright Horizons also competes, to a lesser extent, against other large
child care chains which primarily operate residential child care centers,
including KinderCare Learning Centers, Children's World, La Petite Academy, and
Children's Discovery Centers. Bright Horizons believes it is well-positioned to
attract corporate sponsors who wish to outsource the management of new or
existing work-site early education centers due to Bright Horizons' national
scale, established reputation, position as a quality leader and track record of
serving major corporate sponsors. In addition, an increasing number of potential
corporate sponsors are requiring adherence to NAEYC criteria. Bright Horizons
believes that its commitment to NAEYC accreditation is an advantage in the
competition for corporate sponsorship opportunities. See "Risk Factors -- Risk
Factors with Respect to Bright Horizons Family Solutions -- Competition."
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PROPERTIES
The following table summarizes the locations of Bright Horizons' centers by
state as of March 31, 1998:
<TABLE>
<CAPTION>
LOCATION NUMBER
- - -------- ------
<S> <C>
California.......................... 22
Colorado............................ 1
Connecticut......................... 13
Delaware............................ 2
District of Columbia................ 4
Florida............................. 3
Georgia............................. 1
Illinois............................ 18
Iowa................................ 5
Maine............................... 1
Maryland............................ 3
Massachusetts....................... 25
Michigan............................ 1
Missouri............................ 2
Nevada.............................. 1
</TABLE>
<TABLE>
<CAPTION>
LOCATION NUMBER
- - -------- ------
<S> <C>
New Hampshire....................... 1
New Jersey.......................... 5
New Mexico.......................... 1
New York............................ 9
North Carolina...................... 18
Ohio................................ 2
Pennsylvania........................ 2
Rhode Island........................ 2
South Carolina...................... 1
Tennessee........................... 1
Texas............................... 2
Utah................................ 1
Virginia............................ 1
Washington.......................... 5
Wisconsin........................... 2
</TABLE>
As of March 31, 1998, Bright Horizons operated 155 centers in 29 states and
the District of Columbia, of which, eight were owned and the remaining were
operated under leases or operating agreements. One of Bright Horizons' owned
centers in Orange, Connecticut is subject to a mortgage of $480,000. Bright
Horizons' centers in Raleigh, North Carolina, Tampa, Florida, Glastonbury and
Orange, Connecticut, Quincy, Massachusetts and Apex, North Carolina are not
subject to mortgages. The leases have terms ranging from five to 20 years, often
with renewal options, with most leases having an initial term of five to 10
years. Some of the leases provide for contingent payments if the center's
operating revenues, profits or enrollment exceed a specified level.
Although Bright Horizons' corporate sponsorship arrangements vary widely,
they generally are classified as either a corporate-sponsored model or
management contract model. See "--Sponsorship Models." Approximately 80% of
Bright Horizons' child care centers are operated under the corporate-sponsored
model. The remaining 20% of Bright Horizons' child development centers are
operated under the management contract model. These arrangements are generally
of short duration and, in some instances, are subject to termination by the
corporate sponsor without cause.
Bright Horizons also leases approximately 10,000 square feet for its home
office in Cambridge, Massachusetts under an operating lease that expires August
31, 2002, and a total of approximately 4,700 square feet for its two
administrative offices in El Segundo, CA and Downers Grove, Illinois under
operating leases that expire December 2001 and October 1998, respectively.
EMPLOYEES
As of March 31, 1998, Bright Horizons employed approximately 4,700
employees (including part-time and substitute teachers), of whom 96 were
employed at Bright Horizons home and regional offices, 28 were employed as
district or regional managers and the remainder were employed at Bright
Horizons' child development centers. Center employees include faculty and
administrative personnel. Bright Horizons does not have an agreement with any
labor union and believes that its relations with its employees are good. All of
Bright Horizons' personnel are paid above the Federal minimum wage.
REGULATION
Child care centers are subject to numerous federal, state and local
regulations and licensing requirements. Although these regulations vary from
jurisdiction to jurisdiction, government agencies generally review,
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among other things, the adequacy of buildings and equipment, licensed capacity,
the ratio of teacher to children, faculty training, record keeping, the dietary
program, the daily curriculum 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 some
jurisdictions, regulations have been enacted which establish requirements for
employee background checks or other clearance procedures for employees of child
development centers. Center directors and district managers are responsible for
monitoring each center's compliance with such regulations. Repeated failures by
a center to comply with applicable regulations can subject it to sanctions,
which can include fines, corrective orders, being placed on probation or, in
more serious cases, suspension or revocation of the center's license to operate.
Bright Horizons also is required to comply with the ADA, which prohibits
discrimination on the basis of disability in public accommodations and
employment. Costs incurred to date by Bright Horizons to comply with ADA have
not been significant. Bright Horizons believes it is in substantial compliance
with all material regulations applicable to its business.
There are currently certain tax incentives for parents utilizing child care
programs. Section 21 of the Internal Revenue Code provides a federal income tax
credit ranging from 20% to 30% of certain child care expenses for "qualifying
individuals" (as defined therein). The fees paid to Bright Horizons for child
care services by eligible taxpayers qualify for the tax credit, subject to the
limitations of Section 21. The amount of the qualifying child care expenses is
limited to $2,400 for one child and $4,800 for two or more children and,
therefore, the maximum credit ranges from $480 to $720 for one child and from
$960 to $1,440 for two or more children.
INSURANCE
Bright Horizons currently maintains the following types of insurance
policies: workers' compensation, commercial general liability, automobile
liability, commercial property liability, professional liability and excess
"umbrella" liability. The policies provide for a variety of coverages, are
subject to various limitations and exclusions, and deductibles. The commercial
general liability policy provides for annual coverage of $2.0 million per
location and $1.0 million per occurrence, although the policy specifically
limits coverage for child sexual abuse to an annual aggregate limit of $1.0
million per site and per person. Bright Horizons' excess "umbrella" coverage,
relating to general liabilities other than those related to child sexual abuse
claims, includes coverage in the amount of $25.0 million per year. Management
believes that Bright Horizons' current insurance coverages are adequate to meet
its needs. See "'Risk Factors -- Risk Factors with Respect to Bright Horizons
Family Solutions -- Litigation."
Bright Horizons 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 Bright Horizons' current coverage will
protect it against all possible claims. See "Risk Factors -- Risk Factors with
Respect to Bright Horizons Family Solutions -- Ability to Obtain and Maintain
Insurance; Adverse Publicity."
THE HORIZONS INITIATIVE
To complement its mission to improve the care and development of young
children, in 1988, Bright Horizons founded The Horizons Initiative, a non-profit
organization that develops and implements programs to enrich the lives of
homeless children in the Boston area. In 1994, The Horizons Initiative opened
the Community Children's Center, the first child development center in Boston
specifically for homeless children. The Horizons Initiative is an independent
entity, and while Bright Horizons provided some start-up resources, such as
office space and administrative support, The Horizons Initiative is now entirely
supported by charitable gifts and public funding.
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LEGAL PROCEEDINGS
Bright Horizons has been and is from time to time subject to claims and
suits incidental to the conduct of its business. While there can be no assurance
that Bright Horizons' insurance will be adequate to cover all liabilities that
may arise out of such claims, Bright Horizons does not believe that any claim of
which it is currently aware will have a material adverse effect to its business,
financial condition or results of operation. See "Risk Factors -- Risk Factors
with Respect to Bright Horizons Family Solutions -- Litigation" and "Risk
Factors -- Risk Factors with Respect to Bright Horizons Family
Solutions -- Ability to Obtain and Maintain Insurance; Adverse Publicity."
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INFORMATION CONCERNING CORPORATEFAMILY
OVERVIEW
CorporateFamily is a leading national provider of services for the
corporate market that support families and business success. CorporateFamily
works with more than 100 employers seeking to create a "family friendly" work
environment by providing work place child care, education, family support
programs and consulting services. CorporateFamily 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. As of May 7, 1998, CorporateFamily managed 100 Family Centers,
representing 74 corporate clients, in 29 states and the District of Columbia.
Additionally, CorporateFamily had 16 Family Centers under development, including
nine for new corporate clients. Ten of CorporateFamily's corporate clients
operate multiple Family Centers. In addition, CorporateFamily 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
CorporateFamily include feasibility studies, work/life strategic planning,
strategic planning related to the development of public and private worksite
schools, return on investment analyses and development of work/life programs and
policies. During 1997, CorporateFamily provided consulting services to 31
corporate clients.
SERVICES
CorporateFamily 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
CorporateFamily providing consulting services to an employer, and progresses to
the planning, development and management of a Family Center, where
CorporateFamily 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. CorporateFamily emphasizes operational
excellence, client service and program leadership, and requires that each Family
Center be operated at NAEYC standards.
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. 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
CorporateFamily's Family Centers include:
Early Childhood Education. CorporateFamily offers early childhood
education at each of its 100 Family Centers. CorporateFamily's proprietary
program for learning, entitled "The World at Their Fingertips," includes
educational programs for infants, toddlers, and preschoolers and creates
developmentally appropriate experiences for every child. "The World at
Their Fingertips" includes many components designed to promote physical,
cognitive, emotional, and language development and provides a
developmentally appropriate educational curriculum enabling teachers to
provide individualized, responsive care and affection for each child. The
infant and toddler program provides an 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. CorporateFamily'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. CorporateFamily operates 95 child care
programs in its Family Centers. At the end of 1997, the program capacity at
CorporateFamily's Family Centers exceeded 12,500 children. Consistent,
reliable child care is an essential service for working families. Family
Centers
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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. CorporateFamily operates summer camps in conjunction
with 38 Family Centers and as a stand-alone service for one corporate
client. During 1997, CorporateFamily provided this service to approximately
2,000 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. CorporateFamily operates 39 back-up care
programs. Five centers exclusively offer back-up care programs, while other
back-up care programs are offered in designated rooms within a larger
Family Center. CorporateFamily has approximately 6,700 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.
CorporateFamily'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. CorporateFamily operates 29 Family Center
kindergartens, all of which meet or exceed the standards set by NAECP.
During 1997, CorporateFamily's kindergarten programs served approximately
600 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. CorporateFamily 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. CorporateFamily operates 26 school-age programs
in Family Centers for children ages six to 12 years. During 1997,
CorporateFamily provided these services to approximately 2,300 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. CorporateFamily offers get-well care in 16 Family
Centers. These programs serve mildly ill children recovering from various
illnesses and injuries and are typically staffed with a registered nurse or
licensed practical nurse.
Parent Support. All Family Centers include support programs for
parents, including parent education programs, seminars, support groups and
resource libraries. Parent education programs include family resource rooms
(serving as a library for parents and a site for parent seminars),
scheduled family counseling, "lunch and learns," evening programs with
presentations and round table discussions on topics of concern to parents
such as child behavior, time management, first-aid and CPR training.
Support services include meals-to-go, laundry pick-up and carpooling
coordination. CorporateFamily's parent support services are developed and
implemented with the involvement of a parent advisory group established at
each Family Center.
CorporateFamily offers a 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 CorporateFamily 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;
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- 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.
During 1997, CorporateFamily provided consulting services for 31 corporate
clients, 13 of which are clients for which CorporateFamily operates one or more
Family Centers.
OPERATIONS
CorporateFamily is organized into two integrated operating units consisting
of Family Center operations and consulting services. CorporateFamily's
management philosophy promotes a commitment to excellence for children, parents,
clients and staff. Corporate operations are coordinated from CorporateFamily'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 are organized into three operational divisions,
each managed by a Senior Vice President who reports to CorporateFamily's Chief
Executive Officer. Senior Vice Presidents, regional managers and divisional
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 worksite, either in converted space, or free-standing
structures designed specifically for use as a Family Center. Currently, 81
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 two properties owned by CorporateFamily.
CorporateFamily's consulting services are provided through a division of
CorporateFamily titled The Resource Group. The Resource Group provides
consulting services to corporate clients including feasibility studies,
work/life strategic planning, strategic planning related to the development of
public and private worksite schools, benchmark studies, policy and practice
alignment, return on investment analysis and community investment. In addition
to consulting services, The Resource Group supports CorporateFamily's Family
Center programs, ensuring such programs remain state of the art and of the
highest quality, and conducts research and development of new services. The
Resource Group is staffed by seven full-time employees with additional contract
consultants depending on the workload and expertise needed to complete a
particular project.
CorporateFamily has developed a training program for its employees. 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. Management training is provided on an ongoing basis to all
Center Directors and includes human resource management, risk management,
financial management, customer service, and program implementation.
CorporateFamily 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 facility design and 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.
CorporateFamily schedules emergency drills for fire safety and other
emergencies, and requires current CPR and first aid certification for center
management personnel.
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CorporateFamily has an information, communication and financial reporting
system which links every Family Center to CorporateFamily's divisional, regional
and corporate offices. This system provides timely financial information on such
items as revenue, expenses, enrollments, payroll and staff hours.
CorporateFamily seeks to improve its operating efficiencies by providing
management with more timely information through its information systems.
MARKETING
Management believes that CorporateFamily's operations in 29 states and the
District of Columbia with 100 Family Centers and the expertise and reputation of
its management team in working with many of the nation's leading companies have
created name recognition within the work and family services industry.
CorporateFamily'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.
CorporateFamily'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
CorporateFamily's business development group, with assistance provided by
executive officers, Senior Vice Presidents, Center Directors, The Resource Group
and support personnel. CorporateFamily has four business development officers
who generally cover distinct geographic territories within the continental
United States.
CorporateFamily 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 CorporateFamily. With existing clients,
CorporateFamily maintains regular contact through its business development
personnel and operations management. 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 CorporateFamily to develop and market additional
services to existing clients as well as to new corporate clients.
COMPETITION
Depending on the services provided, CorporateFamily competes with a variety
of companies in each segment of its operations. CorporateFamily's largest
competitors for employer-sponsored child care services include Bright Horizons,
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. Many of these competitors are able to offer child care at a lower price
than CorporateFamily offers by utilizing lower faculty-child ratios and/or
offering their staff lower compensation, enabling them to operate profitably
with lower levels of corporate sponsorship. Some of these competitors for
corporate sponsorship also have greater penetration and multiple relationships
with corporate sponsors in certain geographic regions than CorporateFamily.
Management believes that CorporateFamily is distinguished from these competitors
by its exclusive focus on corporate clients and commitment to accreditation
standards. Management believes that CorporateFamily 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.
CorporateFamily also faces competition for enrollment from a variety of
for-profit, not-for-profit and government-based providers.
CorporateFamily 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 CorporateFamily. Management believes that
CorporateFamily 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.
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CorporateFamily'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 CorporateFamily.
Management believes that CorporateFamily's 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, management believes
CorporateFamily 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. Management believes, however, that client employees perceive greater
value, convenience and flexibility associated with CorporateFamily's services.
REGULATION
CorporateFamily's child care operations are subject to a variety of
federal, state and local regulations and licensing requirements. CorporateFamily
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, record keeping, 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. Failure 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
CorporateFamily to bring CorporateFamily's centers into compliance.
In addition, state and local licensing regulations often provide that the
license held by CorporateFamily 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 CorporateFamily would not have to incur material expenditures to relicense
centers it may acquire in the future. Management believes CorporateFamily is in
substantial compliance with all material regulations applicable to its business.
EMPLOYEES
As of May 1, 1998, CorporateFamily employed approximately 3,100 full-time
employees. In addition, at May 1, 1998, CorporateFamily had approximately 750
part-time employees and 900 substitutes on its payroll. Management believes its
relationship with its employees is good.
INSURANCE
CorporateFamily'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 CorporateFamily's current insurance
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coverages are adequate to meet its needs. CorporateFamily 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
CorporateFamily's current coverage will protect it against all possible claims.
There is no assurance that claims in excess of, or not included within,
CorporateFamily's insurance coverage will not be asserted, which could have an
adverse effect on CorporateFamily.
TRADEMARKS
CorporateFamily 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 Center(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
CorporateFamily's executive offices are located in Nashville, Tennessee,
and consist of approximately 14,000 square feet leased through July 30, 2000,
with an option to renew the lease for two additional five-year terms. In
addition, CorporateFamily (i) owns two child care facilities and (ii) leases
certain real property for use at three Family Centers. Three of the
above-mentioned leases have agreements whereby the client becomes contractually
responsible for the lease obligation in the event CorporateFamily no longer
operates a Family Center for such client at the location. CorporateFamily also
leases other facilities at various locations, which are not material to its
business.
LEGAL PROCEEDINGS
CorporateFamily 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 other legal
matters will not have a material effect on CorporateFamily'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 CorporateFamily's insurance will be adequate to cover all liabilities that
may arise out of claims brought against CorporateFamily.
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INFORMATION CONCERNING BRIGHT HORIZONS FAMILY SOLUTIONS
As a result of the Merger, Bright Horizons and CorporateFamily will become
wholly owned subsidiaries of Bright Horizons Family Solutions, which will
succeed to the businesses currently conducted by Bright Horizons and
CorporateFamily. Bright Horizons Family Solutions will have its principal
offices in Cambridge, Massachusetts and Nashville, Tennessee. The executive
management of Bright Horizons Family Solutions will be comprised of members of
the existing executive management of CorporateFamily and Bright Horizons. The
Board of Directors of Bright Horizons Family Solutions will consist of 11
persons (with CorporateFamily selecting five directors, Bright Horizons
selecting five directors, and CorporateFamily and Bright Horizons jointly
selecting one director).
Management of CorporateFamily and Bright Horizons are jointly reviewing the
two companies' operations in order to develop plans and proposals regarding the
integration and combination of all functional areas of the combined business.
The goal of management of CorporateFamily and Bright Horizons is to complete its
transition plan prior to the consummation of the Merger, so that the plan may be
implemented as soon thereafter as possible.
BUSINESS AND STRATEGY
As a result of the Merger, Bright Horizons Family Solutions will be the
largest provider of employer-sponsored childcare and family support services in
the U.S. with as of March 31, 1998 on a pro forma basis, 255 family centers for
219 clients in 35 states and the District of Columbia. Bright Horizons Family
Solutions on a pro forma basis as of March 31, 1998 had the capacity to serve
31,500 children in its family centers and had approximately 8,600 employees and
41 centers under development. For the calendar year ended December 31, 1997 on a
pro forma basis, Bright Horizons Family Solutions had revenues of $172.6
million, operating income of $5.0 million and net income before preferred stock
dividends of $2.8 million.
Bright Horizons Family Solutions' principal business strategy will be to
provide high quality family support services for the corporate market including
childcare, education, parenting support and worklife consulting services. The
key elements in implementing this strategy include:
- Focus on Corporate Clients. Bright Horizons Family Solutions will seek
to maintain its predecessors' leadership position in the early childhood
education market by continuing to focus primarily on the
employer-sponsored segment of the worklife industry, which is expected to
enable Bright Horizons Family Solutions to operate with greater resources
and deliver better quality services than other childcare and family
services providers.
- Quality Leadership. Bright Horizons Family Solutions will focus on
delivering high quality services and the hiring and development of
exceptional professionals. This focus on quality includes operating its
family centers at accreditation standards set forth by the NAEYC, high
teacher-child ratios, highly qualified faculty and innovative curricula.
Bright Horizons Family Solutions believes that its focus on delivering
high quality services distinguishes it from its competitors and creates a
marketing differentiation among corporate clients and families who use
its services.
- Leading Market Presence. The combined company will have a leading market
presence in the corporate-sponsored segment of the early childhood
education market. Bright Horizons Family Solutions will seek to leverage
its reputation and the visibility of its client relationships to enhance
its marketing and market penetration. In addition, Bright Horizons Family
Solutions believes that its clustering of centers in selected
metropolitan markets will provide operating advantages and will serve as
a competitive advantage in furthering its reputation and securing new
corporate clients.
- Creativity and Innovation. Bright Horizons Family Solutions will seek to
continue the traditions shared by both predecessor companies of creating
tailored, innovative solutions to respond to its clients' and families'
changing needs. Bright Horizons Family Solutions will in addition seek to
assist its clients in sustaining a productive, committed work force by
providing creative consulting services.
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- Employer of Choice. Bright Horizons Family Solutions will focus on
maintaining its reputation as a premier employer in the early childhood
education market by continuing its above-average compensation,
industry-leading benefits package and comprehensive training programs as
important recruitment and retention tools.
Bright Horizons Family Solutions' growth strategy will focus on four key
areas: (a) securing new corporate clients; (b) expanding existing client
relationships; (c) developing new services; and (d) pursuing strategic
acquisitions.
Management of Bright Horizons and CorporateFamily believe that the Merger
will strengthen the two companies' competitive position and will create several
benefits, including:
- Bright Horizons Family Solutions will bring together two proven
management teams and business models with complementary strengths.
CorporateFamily operates a majority of its family centers on a management
fee basis and has been successful in developing new services to deliver
to corporate clients. Bright Horizons has developed other
corporate-sponsored childcare models that primarily generate
profitability on a profit and loss basis. The managements of
CorporateFamily and Bright Horizons believe that the combination of these
models will allow the combined company to grow in a variety of ways and
will effectively meet the diverse needs of prospective clients.
- With its greater national presence, Bright Horizons Family Solutions will
be able to meet the needs of its existing clients in ways neither company
has been able to as independent companies. The combined company will
offer a broader array of services, will be better able to serve its
multi-site clients and will have enhanced cross-selling opportunities,
specifically in the area of multiple employer family centers, consulting
services, elementary schools and family support services.
- Bright Horizons and CorporateFamily both have extensive collegial
relationships with other providers of worklife services and will pursue
strategic alliances and acquisitions to enhance Bright Horizons Family
Solutions' growth strategies.
- Bright Horizons Family Solutions will be the largest provider of
employer-sponsored early childhood education. Management believes the
company will be in a strong position to leverage the significant growth
opportunity and corporate demand for early childhood education and
worklife services. The combined company's sales force and support
infrastructure will be designed to exploit this market opportunity and
its national reputation and client list will enhance its marketing
presence.
MANAGEMENT
Directors and Executive Officers
It is expected that the Bright Horizons Family Solutions Board, at the
Effective Time, will consist of eleven persons: Marguerite W. Sallee, Robert D.
Lurie, E. Townes Duncan, JoAnne Brandes and R. Brad Martin (the "CorporateFamily
Designees"); Roger H. Brown, Linda A. Mason, Joshua Bekenstein, William H.
Donaldson and Sara Lawrence-Lightfoot (the "Bright Horizons Designees"); and
Fred K. Foulkes (the "Joint Designee"). The Bright Horizons Family Solutions
Board of Directors will be divided into three classes, with the initial term of
office of the first, second and third classes expiring at the first, second and
third annual meetings of the stockholders of Bright Horizons Family Solutions,
respectively. The first class of directors will consist of JoAnne Brandes,
Joshua Bekenstein, Roger H. Brown and Robert D. Lurie, the second class will
consist of E. Townes Duncan, Sara Lawrence-Lightfoot and Marguerite W. Sallee,
and the third class will consist of William H. Donaldson, Fred K. Foulkes, R.
Brad Martin and Linda A. Mason. If any of CorporateFamily's Designees or Bright
Horizons' Designees, respectively, declines or is unable to serve as a director
prior to the Effective Time, CorporateFamily (if such person was a
CorporateFamily Designee), Bright Horizons (if such person was a Bright Horizons
Designee) or both CorporateFamily and Bright Horizons (if such person was a
Joint Designee), as the case may be, will nominate another person to serve in
such person's stead, subject to the other party's approval. If any of the
CorporateFamily Designees, Bright Horizons Designees or Joint Designee declines
or becomes unable to serve as a director during his or her initial term
following the Effective Time, the remaining CorporateFamily Designees (if such
person was a
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CorporateFamily Designee), Bright Horizons Designees (if such person was a
Bright Horizons Designee) or the remaining members of the Bright Horizons Family
Solutions Board of Directors (if such person was a Joint Designee), as the case
may be, shall nominate another person to serve in such person's stead, which
such person will be subject to the other party's designees' approval.
The following persons are expected to be named the directors and executive
officers of Bright Horizons Family Solutions as of the Effective Time.
Additional persons may be designated as executive officers of Bright Horizons
Family Solutions prior to the consummation of the Merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Linda A. Mason............................. 43 Director, Chairman of the Board
Marguerite W. Sallee....................... 52 Director, Chief Executive Officer
Roger H. Brown............................. 41 Director, President
Mary Ann Tocio............................. 50 Chief Operating Officer
Michael E. Hogrefe......................... 38 Chief Financial Officer
Stephen I. Dreier.......................... 55 Chief Administrative Officer and Secretary
Joshua Bekenstein.......................... 40 Director
JoAnne Brandes............................. 44 Director
William H. Donaldson....................... 67 Director
E. Townes Duncan........................... 45 Director
Fred K. Foulkes............................ 56 Director
Sara Lawrence-Lightfoot.................... 53 Director
Robert D. Lurie............................ 52 Director
R. Brad Martin............................. 46 Director
</TABLE>
Linda A. Mason co-founded Bright Horizons and has served as a director and
President of Bright Horizons since its inception in 1986. From its inception
until September 1994, Ms. Mason also acted as Bright Horizons' Treasurer. Prior
to founding Bright Horizons, Ms. Mason was co-director of the Save the Children
relief and development effort in Sudan and worked as a program officer with CARE
in Thailand. Prior to 1986, Ms. Mason worked as a management consultant with
Booz, Allen and Hamilton. Ms. Mason also is a director of The Horizons
Initiative and Whole Foods Market, Inc., which owns and operates retail food
stores, is a Fellow of the Yale Corporation and serves on the Advisory Board for
the Yale School of Management. Ms. Mason is a graduate of the Yale School of
Management and Cornell University. Ms. Mason is the wife of Roger H. Brown.
Marguerite W. Sallee is a founder of CorporateFamily 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 Tennessee
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. ("Proffitt's"), an owner and operator of
department stores; and MagneTek, Inc., a manufacturer of integrated electrical
products; 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.
Roger H. Brown co-founded Bright Horizons and has served as Chairman and
Chief Executive Officer of Bright Horizons since its inception in 1986. Prior to
1986, he worked as a management consultant for Bain & Company, Inc. Mr. Brown
currently serves as a director on the Governing Board of the NAEYC, the Child
Care Action Campaign, a not-for-profit organization which promotes quality child
care, The Horizons Initiative, an organization that provides support for
homeless children and their families, and Advantage Schools, Inc., a charter
school management company. Mr. Brown is a graduate of the Yale School of
Management and Davidson College. Mr. Brown is the husband of Linda A. Mason.
Mary Ann Tocio joined Bright Horizons in 1992 as Vice President and General
Manager of Child Care Operations. She was appointed Chief Operating Officer in
November 1993. From 1983 to 1992, Ms. Tocio held several positions with
Wellesley Medical Management, Inc., including Senior Vice President of
Operations, where she managed more than 100 ambulatory care centers nationwide.
Prior to that time,
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Ms. Tocio held various management positions with several Boston-area hospitals.
Ms. Tocio is a graduate of the Simmons College Graduate School of Management.
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. Prior to that, Mr. Hogrefe served as Assistant
Treasurer of Financial Management for Equicor -- Equitable HCA Corporation from
1988 to 1990 and in a variety of positions for The Equitable Companies, Inc.,
from 1982 to 1988, culminating his employment as Assistant Treasurer. 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.
Stephen I. Dreier joined Bright Horizons as Vice President and Chief
Financial Officer in 1988 and became its Secretary in November 1988 and
Treasurer in September 1994. Mr. Dreier served as Chief Financial Officer and
Treasurer until September, 1997, at which time he was appointed to the position
of Chief Administrative Officer. From 1976 to 1988, Mr. Dreier was Senior Vice
President of Finance and Administration for the John S. Cheever/Paperama
Company. Prior to that time, Mr. Dreier served as Manager of Financial Control
for the Westinghouse Worldwide Construction Product Group. Mr. Dreier is a
graduate of the Massachusetts Institute of Technology and has a Master's Degree
from the Sloan School of Management.
Joshua Bekenstein has been a director of Bright Horizons since 1986. Since
1993, Mr. Bekenstein has been a Managing Director of Bain Capital, Inc. and has
been a general partner of Bain Venture Capital since its inception in 1987. Mr.
Bekenstein also serves as a director of Waters Corporation, a manufacturer and
distributor of high performance liquid chromatography instruments, and The
Horizons Initiative.
JoAnne Brandes has served as a director of CorporateFamily since December
1995. Ms. Brandes has served as Senior Vice President, General Counsel and
Secretary for S.C. Johnson Commercial Markets, Inc., a manufacturer and marketer
of cleaning and sanitation products and services since October 1997. From
October 1996 to October 1997, Ms. Brandes served as Vice President and General
Counsel for S.C. Johnson Commercial Marketing Inc. Prior to that time, Ms.
Brandes served as Vice President of Corporate Communication Worldwide for S.C.
Johnson & Son, Inc., a manufacturer of cleaning and personal care products, from
May 1992 to October 1996. Prior thereto, Mr. 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.
William H. Donaldson has been a director of Bright Horizons since January
1998. Mr. Donaldson currently serves as Senior Advisor at the international
investment banking firm he co-founded in 1959, Donaldson, Lufkin & Jenrette,
Inc. ("DLJ"). He served as Chairman and Chief Executive Officer at DLJ until
1973, when he became Undersecretary of State under Dr. Henry Kissinger and later
counsel to Vice President Nelson Rockefeller. Mr. Donaldson served as chairman
and chief executive officer of the New York Stock Exchange from 1990 until 1995.
He was the founding dean of the Yale University School of Management and held
the tenured chair as the William S. Beinecke Professor of Management Studies.
Mr. Donaldson serves on the boards of directors of Aetna, Inc. and Philip Morris
Companies, Inc. He is a graduate of Yale University and received an MBA with
distinction from the Harvard Graduate School of Business Administration.
E. Townes Duncan has been a director of CorporateFamily 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. Mr. Duncan was a director of Comptronix
Corporation, a provider of electronics contract manufacturing services and
served as Chairman of the Board and Chief Executive Officer from November 1993
to May 1997. Comptronix Corporation filed a petition for Chapter 11 protection
on August 9, 1996. From 1985 to November 1993, Mr. Duncan was a Vice President
and principal of Massey Burch Investment Group, Inc., a venture capital
corporation. Mr. Duncan is a director
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of J. Alexander's Corporation, an owner and operator of restaurants, and Sirrom
Capital Corporation, a specialty finance company.
Professor Fred K. Foulkes has been the Director of the Human Resources
Policy Institute for Boston University School of Management since 1981 and he
has taught courses in human resource management and strategic management at
Boston University since 1980. From 1968 to 1980, Professor Foulkes was a member
of the Harvard Business School faculty. His principal publications include
Personnel Policies in Large Nonunion Companies and Executive Compensation: A
Strategic Guide for the 1990's. Professor Foulkes is a recipient of the
Employment Management Association Award and the Fellow Award, the National
Academy of Human Resources award of distinction for outstanding achievement in
the human resource profession. Professor Foulkes received his undergraduate
degree from Princeton University and received his masters of business
administration and doctorate of business administration from Harvard University.
Dr. Sara Lawrence-Lightfoot has been a director of Bright Horizons since
1993. Since 1972, Dr. Lawrence-Lightfoot has been a professor of education at
Harvard University. In addition to serving as a director of Bright Horizons, Dr.
Lawrence-Lightfoot is also a director of the Boston Globe Company. Dr.
Lawrence-Lightfoot has received honorary degrees from 16 universities and
colleges including Bank Street College and Wheelock College, two of the nation's
foremost schools of early childhood education.
Robert D. Lurie has served as a director and Chairman of CorporateFamily
since December 1995 and as Director of Research and Development since January
1998. He was President of The Resource Group, a division of CorporateFamily
focused on providing consulting and resource support to work/life center
operations, from October 1995 to December 1997. From 1984 to 1995, Mr. Lurie
served as President and Chief Executive Officer of RCCM, which was acquired by
CorporateFamily 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.
R. Brad Martin has served as Chief Executive Officer of Proffitt's since
1989, Chairman of the Board of Proffitt's since 1987, and President from July
1989 until March 1994 and from September 1994 to March 1995. Mr. Martin serves
on the Boards of Directors of First Tennessee National Corporation and Harrah's
Entertainment, Inc.
Directors' Compensation
Each non-employee member of the Board of Directors of Bright Horizons
Family Solutions (an "Outside Director") will receive $2,000 for each regularly
scheduled Board meeting attended in person or by conference call, and $500 for
each specially scheduled meeting attended in person or by conference call. Each
Outside Director that is a member of the Audit Committee or Compensation
Committee will receive $500 for each committee meeting attended. Each Outside
Director that is a member of the Nominating Committee will receive $1,000 when a
new director is added to the Board of Directors.
Additionally, each Outside Director will receive a one-time grant of an
option to purchase 5,000 shares of Bright Horizons Family Solutions Common
Stock, and each Outside Director who has missed no more than one of the regular
meetings of the Board of Directors in the previous year, will receive on the
date of each Annual Meeting of Stockholders of Bright Horizons Family Solutions
a grant of an option to purchase 1,000 shares of Bright Horizons Family
Solutions Common Stock. The exercise price of the options will be the closing
market price of the Bright Horizons Family Solutions Common Stock on the date of
grant. The options shall vest in one-third increments with one-third vesting
equally on the first, second and third anniversary dates of the initial grant,
so long as the Outside Director continues to serve as a director of Bright
Horizons Family Solutions.
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<PAGE> 114
Committees of the Board of Directors
It is currently anticipated that the following will constitute the standing
committees of the Bright Horizons Family Solutions Board of Directors:
Nominating Committee. The Nominating Committee will develop general
criteria concerning the qualifications and selection of Board members and
recommend candidates for such positions to the Board of Directors. It is
expected that the members of the Nominating Committee will be Sara
Lawrence-Lightfoot (chair), Fred K. Foulkes and R. Brad Martin.
Audit Committee. The Audit Committee will make recommendations to the
Board of Directors concerning the Bright Horizons Family Solutions'
financial statements and the appointment of independent accountants, review
significant audit and accounting policies and practices, meet with the
Bright Horizons Family Solutions's independent accountants concerning,
among other things, the scope of audits and reports, and review the
performance of the overall accounting and financial controls of Bright
Horizons Family Solutions. It is expected that the members of the Audit
Committee will be Joshua Bekenstein (chair) and JoAnne Brandes.
Compensation Committee. The Compensation Committee will have 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 Bright Horizons Family Solutions' employee stock incentive
plan. It is expected that the members of the Compensation Committee will be
E. Townes Duncan (chair) and William H. Donaldson, neither of which is an
executive officer of Bright Horizons Family Solutions.
Compensation Committee Interlocks and Insider Participation
Ms. Sallee, who is anticipated to be the Chief Executive Officer and a
director of Bright Horizons Family Solutions at the Effective Time, serves on
the Human Resources/Option Committee, which acts as the compensation committee,
of Proffitt's. Mr. Martin, who is anticipated to be a director of Bright
Horizons Family Solutions at the Effective Time, is the Chairman of the Board
and Chief Executive Officer of Proffitt's.
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<PAGE> 115
Executive Compensation
The following table sets forth the total compensation paid to or accrued by
certain executive officers of CorporateFamily and Bright Horizons who have been
named executive officers (including Chief Executive Officer) of Bright Horizons
Family Solutions (the "Bright Horizons Family Solutions Named Executive
Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS (2)
-------------------------
ANNUAL COMPENSATION NUMBER OF
------------------------------ RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION WITH BRIGHT FISCAL BONUS STOCK UNDERLYING COMPENSATION
HORIZONS FAMILY SOLUTIONS YEAR SALARY($)(3) ($)(4) AWARD(S)($) OPTIONS(5) ($)(6)
- - --------------------------------------- ------ ------------ ------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Linda A. Mason(7)+..................... 1997 83,065 12,900 -- 83,333 1,395
Chairman of the Board
Marguerite W. Sallee++................. 1997 150,563 45,000 -- -- 2,166
Chief Executive Officer 1996 126,855 10,000 -- 188,500
Roger H. Brown+........................ 1997 163,077 65,200 -- 160,000 2,008
President
Michael E. Hogrefe++................... 1997 134,356 38,729 -- 26,000 2,009
Chief Financial Officer 1996 124,808 25,000 325,000(8) 6,500
Mary Ann Tocio+........................ 1997 137,923 35,000 -- 66,666 8,924
Chief Operating Officer
Stephen I. Dreier+..................... 1997 139,077 30,000 -- 33,333 2,613
Chief Administrative Officer and
Secretary
</TABLE>
- - ---------------
+ Executive Officer of Bright Horizons
++ Executive Officer of CorporateFamily
(1) The compensation of Ms. Sallee and Mr. Hogrefe, executive officers of
CorporateFamily, has been provided for CorporateFamily's fiscal year 1997
and fiscal year 1996 (the last full fiscal year prior to CorporateFamily's
initial public offering) and includes options for shares of CorporateFamily
Common Stock granted in such years, and the compensation of Ms. Mason, Mr.
Brown, Ms. Tocio and Mr. Dreier, executive officers of Bright Horizons, has
been provided for Bright Horizons' fiscal year 1997 (the last full fiscal
year prior to Bright Horizons' initial public offering) and includes options
for shares of Bright Horizons Common Stock granted in fiscal 1997.
(2) Except for the restricted stock award granted to Mr. Hogrefe, neither
CorporateFamily nor Bright Horizons made restricted stock awards, granted
any stock appreciation rights or made any long-term incentive plan payouts
during the following periods.
(3) Includes amounts deferred by the employee under the applicable company's
401(k) plan.
(4) Bonuses paid to Ms. Mason, Mr. Brown, Ms. Tocio and Mr. Dreier were paid in
fiscal 1997 and were based upon the officer's performance in fiscal 1996.
(5) In this and the following tables the number of shares issuable upon the
exercise of outstanding options for Ms. Mason, Mr. Brown, Ms. Tocio and Mr.
Dreier have not been adjusted for the Bright Horizons Exchange Ratio.
(6) Consists of company matching contributions to the CorporateFamily and Bright
Horizons employee's 401(k) plan account and contributions made by Bright
Horizons for car allowances to Ms. Mason, Mr. Brown, Ms. Tocio and Mr.
Dreier.
(7) Ms. Mason was on maternity leave and worked part-time during fiscal 1997.
(8) Mr. Hogrefe received a restricted stock grant for 32,500 shares of
CorporateFamily Common Stock under CorporateFamily's 1996 Stock Incentive
Plan, subject to the terms of the Restricted Stock Award Agreement,
including (i) a permanent restriction on transfer in the form of a permanent
right of first refusal in favor of CorporateFamily to repurchase the shares
at the then book value and (ii) forfeiture in
109
<PAGE> 116
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 were terminated by CorporateFamily's Board
of Directors upon the closing of CorporateFamily's initial public offering
on August 12, 1997. Because there was no trading market for the
CorporateFamily Common Stock on the date of grant (April 18, 1996), the
value of the shares has been presented as the value of the shares at the
initial public offering price ($10.00) per share.
The following table sets forth certain information concerning stock options
granted during fiscal year 1997 to each of the Bright Horizons Family Solutions
Named Executive Officers. No stock appreciation rights ("SARs") were granted
during fiscal year 1997.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK APPRECIATION FOR
SECURITIES GRANTED TO EXERCISE OPTION TERMS
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) 1997 (%) ($/SHARE) DATE 5% ($) 10% ($)
- - ---- ------------------ ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Linda A. Mason............... 83,333(1) 20.2 9.00 01/07/07 268,100 871,100
Marguerite W. Sallee......... -- -- -- -- -- --
Roger H. Brown............... 160,000(1) 38.9 9.00 01/07/07 514,700 1,672,500
Michael E. Hogrefe........... 13,000(2) 8.3 7.69 01/01/07 62,871 159,326
13,000(2) 8.3 10.00 08/12/07 81,756 207,187
Mary Ann Tocio............... 66,666(1) 16.2 9.00 01/07/07 214,400 696,900
Stephen E. Dreier............ 33,333(1) 8.1 9.00 01/07/07 107,200 348,400
</TABLE>
- - ---------------
(1) Consists of options to purchase Bright Horizons Common Stock. Each of these
options vests forty percent (40%) in January 1999 and an additional twenty
percent (20%) each year thereafter. If the Merger is consummated, the
options will fully vest immediately prior to the Effective Time.
(2) Consists of options to purchase CorporateFamily Common Stock. Options will
vest annually over five years in one-fifth increments. If the Merger is
consummated, the options will fully vest immediately prior to the Effective
Time.
The following table sets forth certain information with respect to stock
options exercised or held during fiscal year 1997 by the Bright Horizons Family
Solutions Named Executive Officers. None of the Bright Horizons Family Solutions
Named Executive Officers exercised any options during fiscal year 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND 1997 FISCAL YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 1997 OPTIONS AT 1997
FISCAL YEAR END(#) FISCAL YEAR END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Linda A. Mason......................................... 70,000 88,333 865,000 383,333
Marguerite W. Sallee................................... 206,511 126,360 2,663,676 1,497,007
Roger H. Brown......................................... 92,000 173,333 1,130,000 803,333
Michael E. Hogrefe..................................... 5,200 27,300 61,412 292,383
Mary Ann Tocio......................................... 38,667 77,000 466,167 382,000
Stephen E. Dreier...................................... 41,067 41,267 503,067 219,266
</TABLE>
- - ---------------
(1) If the Merger is consummated, all options will fully vest immediately prior
to the Effective Time. Options listed for Ms. Mason, Mr. Brown, Ms. Tocio
and Mr. Dreier are options to purchase Bright Horizons Common Stock. Options
listed for Ms. Sallee and Mr. Hogrefe are options to purchase
CorporateFamily Common Stock.
110
<PAGE> 117
(2) For Ms. Sallee and Mr. Hogrefe, the aggregate dollar value of the options
held at year end is calculated as the difference between the fair market
value of the CorporateFamily Common Stock ($19.50 as reported on The Nasdaq
National Market on January 2, 1998) and the applicable exercise price of the
stock options. For Ms. Mason, Mr. Brown, Ms. Tocio and Mr. Dreier, the
aggregate dollar value of the options held at year end is calculated as the
difference between the initial public offering price of $13.00 per share and
the applicable exercise price (since there was no public market for the
Bright Horizons Common Stock as of June 30, 1997).
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Employment Agreements
At the Effective Time of the Merger, Bright Horizons Family Solutions will
enter into employment agreements with each of Linda A. Mason as Chairman of the
Board, Marguerite W. Sallee as Chief Executive Officer, Roger H. Brown as
President, Michael E. Hogrefe as Chief Financial Officer and Mary Ann Tocio as
Chief Operating Officer. The employment agreements are more fully described
above in "The Merger --Interests of Certain Persons in the Merger."
Severance Agreements
The Merger will constitute a change in control under the terms of contracts
with certain employees of each of Bright Horizons and CorporateFamily which will
obligate Bright Horizons Family Solutions to pay severance compensation to such
employee upon termination without cause by the company or resignation for good
reason within contractual time periods after the Effective Time of the Merger.
The severance agreements are more fully described above in "The
Merger -- Interests of Certain Persons in the Merger."
Certain Relationships and Related Transactions
CorporateFamily has 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 1997, CorporateFamily
received management fees from S.C. Johnson & Son, Inc. with respect to operation
of its Family Center totaling $50,000, and CorporateFamily received consulting
fees totaling $35,000. JoAnne Brandes, a member of the Board of Directors of
CorporateFamily who is anticipated to be a director of Bright Horizons Family
Solutions at the Effective Time, is Senior Vice President, General Counsel and
Secretary for S.C. Johnson Commercial Markets, Inc.
111
<PAGE> 118
OWNERSHIP OF BRIGHT HORIZONS
The following table sets forth information with respect to the beneficial
ownership of Bright Horizons Common Stock as of June 10, 1998 and the pro forma
beneficial ownership of the Bright Horizons Family Solutions Common Stock,
giving effect to the Merger, by: (i) each director of Bright Horizons; (ii)
certain executive officers of Bright Horizons; (iii) each person known by Bright
Horizons to own beneficially more than 5% of any class of voting securities of
Bright Horizons; and (iv) all directors and executive officers of Bright
Horizons as a group. Information on beneficial owners other than officers or
directors is based on the most recent information filed by such beneficial
owners with the Commission. The number of shares beneficially owned by each
director or executive officer is determined under rules promulgated by the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Bright Horizons believes that each of the
beneficial owners of Bright Horizons Common Stock listed below who is an
executive officer or director of Bright Horizons, based on information furnished
by such owner, has sole voting and investment power (or shares such power with
his or her spouse or in the case of an entity, with its affiliates) with respect
to such shares, subject to the information contained in the notes to the table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------------
PRE-MERGER POST-MERGER
----------------- -------------------
PERCENT PERCENT
NAME NUMBER % NUMBER %
- - ---- ------- ------- --------- -------
<S> <C> <C> <C> <C>
Essex Investment Management Company(2)..................... 665,120 11.9 1,322,109 11.8
Roger H. Brown(3)+*........................................ 416,442 7.4 670,703 5.9
Linda A. Mason(4)+*........................................ 389,443 6.9 547,630 4.9
Joshua Bekenstein(5)+...................................... 58,707 1.0 67,525 **
Mary Ann Tocio(6)*......................................... 43,000 ** 133,040 1.2
Stephen I. Dreier(7)*...................................... 44,199 ** 94,699 **
John M. Reynolds+.......................................... 26,815 ** 30,843 **
Robert S. Benson(8)+....................................... 17,999 ** 20,702 **
Dr. Sara Lawrence-Lightfoot(9)+............................ 8,333 ** 9,584 **
Rebecca Haag(10)+.......................................... 2,778 ** 3,195 **
William H. Donaldson+...................................... -- -- -- --
David H. Lissy*(11)........................................ 2,000 ** 52,142 **
Elizabeth J. Boland*(12)................................... 1,000 ** 20,319 **
All Directors and Executive Officers as a Group (12
persons)(13)............................................. 626,273 10.9 1,208,188 10.2
</TABLE>
- - ---------------
+ Director of Bright Horizons
* Executive Officer
** Less Than One Percent
(1) Shares subject to options held by the persons shown in the table which are
exercisable within 60 days of June 10, 1998 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. The percentages shown
are based upon 5,608,518 shares of Bright Horizons Common Stock outstanding
as of June 10, 1998 and 11,179,305 shares of Bright Horizons Family
Solutions Common Stock estimated to be outstanding after the Merger.
(2) Post-Merger number includes 557,075 shares of CorporateFamily Common Stock
owned by Essex Investment Management Company, based upon a Schedule 13G/A
filed on May 8, 1998, which will be converted into Bright Horizons Family
Solutions Common Stock in the Merger. Essex Investment Management Company's
principal address is 125 High Street, Boston, MA 02110.
(3) Includes 31,999 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options, 190,832 shares of Bright Horizons Common
Stock owned by Linda A. Mason and 2,779 shares held in joint tenancy with
Linda A. Mason. Post-Merger number includes 228,509 shares of Bright
Horizons Family Solutions Common Stock issuable upon exercise of stock
options after the Merger,
112
<PAGE> 119
giving effect to the Bright Horizons Exchange Ratio and the accelerated
vesting of options in connection with the Merger pursuant to existing
severance agreements.
(4) Includes 5,000 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options, 190,832 shares of Bright Horizons Common
Stock owned by Roger H. Brown and 2,779 shares held in joint tenancy with
Roger H. Brown. Post-Merger number includes 105,436 shares of Bright
Horizons Family Solutions Common Stock issuable upon exercise of stock
options after the Merger, giving effect to the Bright Horizons Exchange
Ratio and the accelerated vesting of options in connection with the Merger
pursuant to existing severance agreements.
(5) Includes 56,753 shares of Bright Horizons Common Stock owned by Bain
Capital Partners, L.P., with which the named stockholder is affiliated by
virtue of being a general partner or principal of the general partner, and
as to whose shares he disclaims beneficial interest of, except to the
extent of any individual interest in such entity.
(6) Includes 43,000 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 133,040 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio and the accelerated vesting of options in connection with
the Merger pursuant to existing severance agreements.
(7) Includes 19,199 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 65,944 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio and the accelerated vesting of options in connection with
the Merger pursuant to existing severance agreements.
(8) Includes 2,666 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 3,066 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio.
(9) Includes 8,333 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 9,584 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio.
(10) Includes 2,778 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 3,195 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio.
(11) Post-Merger number includes 49,842 shares of Bright Horizons Family
Solutions Common Stock issuable upon exercise of stock options after the
Merger, giving effect to the Bright Horizons Exchange Ratio and the
accelerated vesting of options in connection with the Merger pursuant to
existing severance agreements.
(12) Post-Merger number includes 19,169 shares of Bright Horizons Family
Solutions Common Stock issuable upon exercise of stock options after the
Merger, giving effect to the Bright Horizons Exchange Ratio and the
accelerated vesting of options in connection with the Merger pursuant to
existing severance agreements.
(13) Includes 112,975 shares of Bright Horizons Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 617,788 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options after the Merger, giving effect to the Bright Horizons
Exchange Ratio and the accelerated vesting of options in connection with
the Merger pursuant to existing severance agreements.
113
<PAGE> 120
OWNERSHIP OF CORPORATEFAMILY
The following table sets forth information with respect to the beneficial
ownership of CorporateFamily Common Stock as of June 10, 1998 and the pro forma
beneficial ownership of Bright Horizons Family Solutions Common Stock, giving
effect to the Merger, by: (i) each director of CorporateFamily; (ii) certain
executive officers of CorporateFamily; (iii) each person known by
CorporateFamily to own beneficially more than 5% of any class of voting
securities of CorporateFamily; and (iv) all directors and executive officers of
CorporateFamily as a group. Information on beneficial owners other than officers
or directors is based on the most recent information filed by such beneficial
owners with the Commission. The number of shares beneficially owned by each
director or executive officer is determined under rules promulgated by the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. CorporateFamily believes that each of the
beneficial owners of CorporateFamily Common Stock listed below who is an
executive officer or director of CorporateFamily, based on information furnished
by such owner, has sole voting and investment power (or shares such power with
his or her spouse or in the case of an entity, with its affiliates) with respect
to such shares, subject to the information contained in the notes to the table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-------------------------------------------
PRE-MERGER POST-MERGER
------------------- -------------------
PERCENT PERCENT
NAME NUMBER % NUMBER %
- - ---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Essex Investment Management Company(2).............. 557,075 11.8 1,322,109 11.8
Robert D. Lurie(3)(4)+.............................. 489,151 9.9 619,151 5.4
Marriott Management Services Corp.(5)............... 468,302 9.9 469,082 4.2
Janus Capital Corporation(6)........................ 463,025 9.8 463,025 4.1
Marguerite W. Sallee(4)(7)+*........................ 301,119 6.2 422,019 3.7
David J. Gleason(8)................................. 217,650 4.5 217,650 1.9
Lamar Alexander(9)+................................. 187,212 3.9 197,222 1.8
E. Townes Duncan(10)+............................... 93,334 2.0 96,454 **
Michael E. Hogrefe(11)*............................. 37,700 ** 65,000 **
Thomas G. Cigarran(12)+............................. 32,246 ** 35,366 **
JoAnne Brandes(13)+................................. 1,170 ** 3,900 **
Joseph J. Guzzo(14)+................................ -- ** 1,950 **
Jerry L. Calhoun(14)+............................... -- ** 1,950 **
All Directors and Executive Officers as a Group (9
persons)(15)...................................... 1,141,932 22.2 1,443,012 12.1
</TABLE>
- - ---------------
+ Director of CorporateFamily.
* Executive Officer.
** Less than one percent.
(1) Shares subject to options held by the persons shown in the table which are
exercisable within 60 days of June 10, 1998 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. The percentages shown
are based upon 4,728,275 shares of CorporateFamily Common Stock outstanding
as of June 10, 1998 and 11,179,305 shares of Bright Horizons Family
Solutions Common Stock estimated to be outstanding after the Merger.
(2) This information is based upon a Schedule 13G/A filed on May 8, 1998. Essex
Investment Management Company is an investment advisor registered under
section 203 of the Investment Advisors Act of 1940 and reports sole voting
power as to 417,175 shares of CorporateFamily Common Stock and sole
dispositive power as to 557,075 shares of CorporateFamily Common Stock.
Post-Merger number includes 665,120 shares (converted to 765,034 shares
pursuant to the Bright Horizons Exchange Ratio) of Bright Horizons Common
Stock owned by Essex Investment Management Company and converted to Bright
Horizons Family Solutions Common Stock in the Merger. Essex Investment
Management Company's principal address is 125 High Street, Boston, MA
02110.
114
<PAGE> 121
(3) Includes (a) 195,000 shares of CorporateFamily Common Stock issuable upon
the exercise of outstanding options, and (b) 1,651 shares owned by Jane
Kyle-Lurie, his wife. Mr. Lurie disclaims beneficial ownership of the
shares held by his wife. Post-Merger number includes 325,000 shares of
Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options, giving effect to the accelerated vesting of all options upon
the Merger.
(4) The principal address of such person is c/o CorporateFamily Solutions,
Inc., 209 10th Avenue South, Suite 300, Nashville, Tennessee 37203.
(5) Includes 1,170 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options. The principal address for Marriott
Management Services Corp. is One Marriott Drive, Washington, D.C. 20058.
Post-Merger number includes 1,950 shares of Bright Horizons Family
Solutions Common Stock issuable upon exercise of stock options, giving
effect to the accelerated vesting of all options upon the Merger.
(6) This information is based upon a Schedule 13G filed by Janus Capital
Corporation, Thomas H. Bailey, and Janus Olympus Fund on February 9, 1998.
Janus Olympus Fund is an investment company holding 395,425 shares of
CorporateFamily Common Stock. Janus Capital Corporation may be deemed to be
a beneficial owner as to 463,025 shares of CorporateFamily Common Stock
because it furnishes investment advice to several individual and
institutional clients holding shares of CorporateFamily Common Stock,
including Janus Olympus Fund. Mr. Bailey may be deemed to be a beneficial
owner as to 463,025 shares of CorporateFamily Common Stock due to his
position as President and Chairman of the Board of and stock ownership in
Janus Capital Corporation. Janus Capital Corporation and Mr. Bailey
disclaim beneficial ownership of such shares of CorporateFamily Common
Stock. The principal address of each of the above is: 100 Fillmore Street,
Denver, Colorado 80206-4923.
(7) Includes 136,571 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options and 3,998 shares owned by Ms. Sallee's
husband, Arthur Knox Patterson, as custodian for Dr. Patterson's children.
Ms. Sallee disclaims beneficial ownership of the shares held as custodian
by Dr. Patterson. Post-Merger number includes 257,471 shares of Bright
Horizons Family Solutions Common Stock issuable upon exercise of stock
options, giving effect to the accelerated vesting of all options upon the
Merger.
(8) Includes 153,579 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options.
(9) Includes (a) 26,780 shares and 260 shares of CorporateFamily Common Stock
issuable upon the exercise of outstanding options held by Mr. Alexander and
Mr. Alexander's wife, Leslee B. Alexander, respectively, and (b) 85,638
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 options and shares held of record and as trustee by Mrs.
Alexander. Post-Merger number includes 36,400 shares and 650 shares of
Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options held by Mr. Alexander and Mr. Alexander's wife, respectively,
giving effect to the accelerated vesting of all options upon the Merger.
(10) Includes 12,480 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options and 75,794 shares of CorporateFamily Common
Stock owned by Solidus, LLC of which Mr. Duncan is the president and a
significant shareholder. Mr. Duncan disclaims beneficial ownership of the
shares held by Solidus, LLC, except to the extent of his pecuniary interest
in Solidus, LLC. Post-Merger number includes 15,600 shares of Bright
Horizons Family Solutions Common Stock issuable upon exercise of stock
options, giving effect to the accelerated vesting of all options upon the
Merger.
(11) Includes 5,200 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 32,500 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options, giving effect to the accelerated vesting of all options upon
the Merger.
(12) Includes 31,980 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 35,100 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options, giving effect to the accelerated vesting of all options upon
the Merger.
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(13) Includes 1,170 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 3,900 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options, giving effect to the accelerated vesting of all options upon
the Merger.
(14) Post-Merger number includes 1,950 shares of Bright Horizons Family
Solutions Common Stock issuable upon exercise of stock options giving
effect to the accelerated vesting of all options upon the Merger.
(15) Includes 409,441 shares of CorporateFamily Common Stock issuable upon the
exercise of outstanding options. Post-Merger number includes 710,521 shares
of Bright Horizons Family Solutions Common Stock issuable upon exercise of
stock options giving effect to the accelerated vesting of all options upon
the Merger.
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BRIGHT HORIZONS FAMILY SOLUTIONS STOCK INCENTIVE PLAN
CorporateFamily has historically granted options for the purchase of
CorporateFamily Common Stock pursuant to the 1987 Stock Option Plan, the 1996
Stock Incentive Plan and other contractual grants. As of May 29, 1998, options
for the purchase of 1,245,690 shares of CorporateFamily Common Stock were
outstanding at a weighted average exercise price per share of $7.40. Bright
Horizons has historically granted options for the purchase of Bright Horizons
Common Stock pursuant to the 1987 Stock Option and Incentive Plan, the 1996
Equity Incentive Plan and the 1997 Equity Incentive Plan. As of June 10, 1998,
options for the purchase of 792,691 shares of Bright Horizons Common Stock
(which will convert into options exercisable for 911,769 shares of Bright
Horizons Family Solutions Common Stock at the Effective Time) were outstanding
at a weighted average exercise price per share of $7.66 (or $6.66 per share of
Bright Horizons Family Solutions Common Stock). Bright Horizons Family Solutions
will assume each plan listed above, and outstanding options will become options
to purchase shares of Bright Horizons Family Solutions Common Stock at the
Effective Time. See "Merger Agreement -- Stock Options." Bright Horizons Family
Solutions does not intend to make further grants pursuant to those plans.
Instead, Bright Horizons Family Solutions plans to make grants pursuant to the
1998 Stock Incentive Plan.
Under the 1998 Stock Incentive Plan, the Compensation Committee has the
authority to grant to officers, key employees and consultants of Bright Horizons
Family Solutions the following types of awards: (1) stock options; (2)
restricted stock; and/or (3) other stock-based awards. Pursuant to the 1998
Stock Incentive Plan, 1,500,000 shares of Bright Horizons Family Solutions
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
1998 Stock Incentive Plan will terminate on, and no award may be granted later
than, the tenth anniversary of the Effective Time, 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 addition to, or in tandem with other awards under the 1998
Stock Incentive Plan or cash awards outside the 1998 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% stockholders). The option price for an ISO will not
be less than 100% (110% in the case of certain 10% stockholders) of the fair
market value of the Bright Horizons Family Solutions 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. Except as provided by the committee,
stock options granted under the 1998 Stock Incentive Plan may not be assigned or
transferred other than by will or by the laws of descent and distribution or to
certain family members or trusts.
Restricted stock awards may be granted alone, in addition to, or in tandem
with, other awards under the 1998 Stock Incentive Plan or cash awards made
outside the 1998 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, exchangeable
securities and Bright Horizons Family Solutions Common Stock awards or options
that are valued by reference to earnings per share or subsidiary performance.
These awards may be granted alone, in addition to, or in tandem with, stock
options, restricted stock, or cash awards outside of the 1998 Stock Incentive
Plan. Awards will be made upon such terms and conditions as the Committee may
determine.
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BRIGHT HORIZONS FAMILY SOLUTIONS
EMPLOYEE STOCK PURCHASE PLAN
Bright Horizons Family Solutions has adopted an employee stock purchase
plan (the "Stock Purchase Plan") that is anticipated to be implemented following
the Effective Time. An aggregate of 200,000 shares of Bright Horizons Family
Solutions 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 Bright Horizons Family Solutions or its
subsidiaries 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 Bright Horizons Family Solutions Common Stock. Notwithstanding the foregoing,
no employee who is a 5% or greater shareholder of Bright Horizons Family
Solutions'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 Bright Horizons Family Solutions Common Stock at a
purchase price per share equal to the lesser of (a) 85% of the closing market
price of the Bright Horizons Family Solutions Common Stock on the Exercise Date,
or (b) 85% of the closing market price of the Bright Horizons Family Solutions
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
Code.
DESCRIPTION OF BRIGHT HORIZONS FAMILY SOLUTIONS CAPITAL STOCK
GENERAL
Effective upon the closing of the Merger, the authorized capital stock of
Bright Horizons Family Solutions will consist of 30,000,000 shares of Common
Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock, par
value $.01 per share. Based on the number of shares outstanding as of June 10,
1998, there will be 11,179,305 shares of Bright Horizons Family Solutions Common
Stock outstanding upon the consummation of the Merger. There will be no shares
of Preferred Stock outstanding upon the consummation of the Merger.
Each holder of Bright Horizons Family Solutions Common Stock is entitled to
one vote per share for the election of directors and for all other matters to be
voted on by Bright Horizons Family Solutions' stockholders. Subject to
preferences that may be applicable to any outstanding series of Preferred Stock,
the holders of Bright Horizons Family Solutions Common Stock are entitled to
share ratably in such dividends, if any, as may be declared from time to time by
the Bright Horizons Family Solutions Board of Directors from funds legally
available therefor. Upon liquidation or dissolution of Bright Horizons Family
Solutions, subject to preferences that may be applicable to any outstanding
series of Preferred Stock, the holders of Bright Horizons Family Solutions
Common Stock are entitled to share ratably in all assets available for
distribution to stockholders. There are no preemptive or other subscription
rights, conversion rights, or redemption or sinking fund provisions with respect
to shares of Bright Horizons Family Solutions Common Stock. All of the
outstanding shares of Bright Horizons Family Solutions Common Stock are fully
paid and nonassessable.
Bright Horizons Family Solutions' Certificate of Incorporation provides
that Bright Horizons Family Solutions may, by vote of its Board of Directors,
designate the numbers, relative rights, preferences and limitations of one or
more series of Preferred Stock and issue the securities so designated. Such
provisions may discourage or preclude certain transactions, whether or not
beneficial to stockholders, and could discourage certain types of tactics that
involve an actual or threatened acquisition or change of control of Bright
Horizons Family Solutions. Bright Horizons Family Solutions has no current
intention to issue any of its unissued, authorized shares of Preferred Stock.
However, the issuance of any shares of Preferred Stock in the future could
adversely affect the rights of the holders of Bright Horizons Family Solutions
Common Stock. The Certificate of Incorporation provides that no director of
Bright Horizons Family Solutions shall be liable to Bright Horizons Family
Solutions or its stockholders for monetary damages for any breach of fiduciary
duty, except to the extent otherwise required by Delaware General Corporation
Law. This provision does not
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prevent stockholders from obtaining injunctive or other relief against the
directors nor does it shield directors from liability under federal or state
securities laws.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Bright Horizons Family Solutions is subject to the provisions of section
203 of the DGCL. Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A "business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock.
The Bright Horizons Family Solutions Certificate of Incorporation and
Bylaws provide for the division of the Bright Horizons Family Solutions Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. In addition, the Bright Horizons Family Solutions Certificate
of Incorporation and Bylaws provide that directors may be removed only for cause
by the affirmative vote of the holders of two-thirds of the shares of capital
stock of Bright Horizons Family Solutions entitled to vote. Under the Bright
Horizons Family Solutions Certificate of Incorporation and the Bylaws, any
vacancy on the Bright Horizons Family Solutions Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Bright Horizons Family Solutions Board of Directors and
the limitations on the removal of directors and filling of vacancies could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of Bright Horizons Family
Solutions.
The Bright Horizons Family Solutions Certificate of Incorporation and
Bylaws also provide that any action required or permitted to be taken by the
stockholders of Bright Horizons Family Solutions at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. The Bright
Horizons Family Solutions Certificate of Incorporation and the Bylaws further
provide that special meetings of the stockholders may only be called by the
Chairman of the Bright Horizons Family Solutions Board of Directors, the Chief
Executive Officer, the President of Bright Horizons Family Solutions or by the
Bright Horizons Family Solutions Board of Directors acting by majority vote of
the directors then in office. Under Bright Horizons Family Solutions' Bylaws, in
order for any matter to be considered "properly brought" before a meeting, a
stockholder must comply with certain requirements regarding advance notice to
Bright Horizons Family Solutions. The foregoing provisions could have the effect
of delaying until the next stockholders' meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of
Bright Horizons Family Solutions. These provisions may also discourage another
person or entity from making a tender offer for the Bright Horizons Family
Solutions Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of Bright Horizons Family
Solutions, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders' meeting,
and not by written consent. Bright Horizons Family Solutions Bylaws provide that
they may be amended (i) by the affirmative vote of a majority of the directors
present at any regular or special meeting of the Board at which a quorum is
present or (ii) the affirmative vote of the holders of at least 66 2/3% of the
shares of the capital stock of Bright Horizons Family Solutions issued and
outstanding and entitled to vote.
The Bright Horizons Family Solutions Bylaws require an affirmative vote of
at least 66 2/3% of the directors then in office to (i) alter or amend the plan
of succession to the position of Chief Executive Officer as described above
under "The Merger -- Interests of Certain Persons in the Merger -- Employment
Agreements" or (ii) alter, amend or repeal such section of the Bylaws.
Bright Horizons Family Solutions' Certificate of Incorporation contains
certain provisions permitted under the Delaware General Corporation Law relating
to the liability of directors. The provisions eliminate a director's liability
to Bright Horizons Family Solutions or its stockholders for monetary damages for
a breach
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of fiduciary duty, except in circumstances involving certain wrongful acts, such
as the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. The Bright Horizons Family
Solutions Certificate of Incorporation also contains provisions obligating
Bright Horizons Family Solutions to indemnify its directors to the fullest
extent permitted by the DGCL. Bright Horizons Family Solutions believes that
these provisions will assist Bright Horizons Family Solutions in attracting and
retaining qualified individuals to serve as directors.
COMPARISON OF STOCKHOLDERS' RIGHTS
CorporateFamily is a Tennessee corporation subject to the provisions of the
TBCA. Bright Horizons is a Delaware corporation subject to the provisions of the
DGCL. Bright Horizons Family Solutions is a Delaware corporation subject to the
provisions of the DGCL. Stockholders of CorporateFamily and Bright Horizons
will, upon consummation of the Merger, become stockholders of Bright Horizons
Family Solutions whose rights will then be governed by the Certificate of
Incorporation and Bylaws of Bright Horizons Family Solutions and by the DGCL.
The Certificate of Incorporation and Bylaws of Bright Horizons Family Solutions
are substantially the same as those of Bright Horizons currently. The following
is a summary of the material differences in the rights of stockholders of Bright
Horizons Family Solutions and the rights of stockholders of CorporateFamily and
Bright Horizons and is qualified in its entirety by reference to the governing
law and the Certificate of Incorporation or Charter and Bylaws of each of Bright
Horizons Family Solutions, CorporateFamily and Bright Horizons. Unless
specifically referenced, there is no material difference in the governing
documents of Bright Horizons Family Solutions and Bright Horizons. Certain
topics discussed below are also subject to federal law and the regulations
promulgated thereunder.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The DGCL provides that the recommendation of a corporation's board of
directors and the approval of a majority of the outstanding shares of a
corporation's common stock entitled to vote thereon is required (i) to effect a
merger or consolidation in certain cases, (ii) to amend the certificate of
incorporation in most instances, and (iii) to sell, lease or exchange all or
substantially all of a corporation's assets. With respect to a merger, no vote
of the corporation's stockholders would be required if the corporation were the
surviving corporation and (i) the related agreement of merger did not amend the
corporation's certificate of incorporation, (ii) each share of common stock
outstanding immediately before the merger was an identical outstanding or
treasury share of common stock after the merger and (iii) the number of shares
of common stock to be issued in the merger (or to be issuable upon conversion of
any convertible instruments to be issued in the merger) did not exceed 20% of
the shares of the common stock outstanding immediately before the merger.
The TBCA provides that the approval of a corporation's board of directors
and of a majority of the outstanding shares of common stock entitled to vote
thereon would generally be required to approve a merger, share exchange, or to
sell, lease, exchange or otherwise dispose of substantially all of a
corporation's assets. In accordance with the TBCA, submission by a corporation's
board of directors of any such action may be conditioned on any basis, including
without limitation, conditions regarding a super-majority voting requirement or
that no more than a certain number of shares indicate that they will seek
dissenters' rights, if such rights are otherwise available.
With respect to a merger or share exchange, the TBCA provides that no vote
of the shareholders of a corporation would be required if the corporation were
the surviving corporation and (i) the charter would remain unchanged after the
transaction, subject to certain exceptions; (ii) each shareholder of the
corporation immediately before the transaction would hold an identical number of
shares, with identical rights and preferences, after the transaction; (iii) the
number of voting shares outstanding immediately after the transaction plus the
number of voting shares issuable as a result of the transaction (either by
conversion of securities issued pursuant to the transaction or the exercise of
rights and warrants issued pursuant to the transaction), will not exceed by more
than 20% the number of voting shares of the surviving corporation outstanding
immediately before the transaction; and (iv) the number of participating shares
outstanding
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immediately after the transaction, plus the number of participating shares
issuable as a result of the transaction (either by conversion of securities
issued pursuant to the transaction or the exercise of rights and warrants issued
pursuant to the transaction), will not exceed by more than 20% the total number
of participating shares outstanding immediately before the transaction.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of a corporation, no vote of the shareholders of
the corporation would be required if such transfer were conducted in the regular
course of business or if such transfer were made to a wholly-owned subsidiary of
the corporation.
The Bright Horizons Family Solutions Bylaws require an affirmative vote of
at least 66 2/3% of the directors then in office to (i) alter or amend the plan
of succession to the position of Chief Executive Officer as described in section
1.6(d) of the Merger Agreement or (ii) alter, amend or repeal such section of
the Bylaws.
NUMBER OF DIRECTORS; FILLING OF VACANCIES ON THE BOARD
The number of members of Bright Horizons Family Solutions' Board of
Directors shall initially be 11 directors and each director shall serve until
the expiration of the term of the class of directors to which such director
shall be elected and until his or her successor is elected and qualified.
Thereafter, except as otherwise provided in the Merger Agreement, any vacancies
on Bright Horizons Family Solutions' Board of Directors shall be filled by the
affirmative vote of a majority of the remaining directors entitled to vote
although less than a quorum of the Board of Directors. See "Information
Concerning Bright Horizons Family Solutions -- Management -- Directors and
Executive Officers." In addition, the DGCL provides that if, at the time of
filling any vacancy or newly created directorship, the directors then in office
constitute less than a majority of the whole Board of Directors (as constituted
immediately prior to such increase), the Court of Chancery may, upon the
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of outstanding shares having the right to vote for
such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office. A director elected to fill a vacancy by the
directors of Bright Horizons Family Solutions shall serve until the next annual
meeting of the stockholders and until his or her successor shall be elected and
qualifies. The terms and conditions set forth above (except relating to the
number of directors) currently apply for the Bright Horizons Board of Directors.
Currently, the number of members of CorporateFamily's Board of Directors
may be increased or decreased from time to time by CorporateFamily's Board;
provided, however, that the number shall be not less than three or more than
eleven. Any vacancies on CorporateFamily's Board shall be filled by the
affirmative vote of a majority of the remaining directors entitled to vote
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy on CorporateFamily's Board shall be elected for the unexpired
term of his predecessor in office.
COMMITTEES OF THE BOARD OF DIRECTORS
Bright Horizons Family Solutions' Bylaws provide that the Board may
establish committees. The Board intends to establish an Audit Committee,
Compensation Committee and Nominating Committee. Bright Horizons' and
CorporateFamily's Bylaws provide that the Boards may establish committees.
Currently, each has an Audit Committee, a Compensation Committee and a
Nominating Committee.
INSPECTION OF BOOKS AND RECORDS
Under the DGCL, any stockholder of record, either in person or by attorney
or other agent, upon written demand under oath stating the purpose thereof, has
the right to inspect certain of a corporation's records during the corporation's
usual business hours. This right is limited, however, to inspection for "a
proper purpose," which is defined as "a purpose reasonably related to such
person's interest as a stockholder."
Under the TBCA, a corporation's shareholders are entitled to inspect and
copy, during regular business hours at the corporation's principal office, the
minutes of shareholder meetings, the charter, the bylaws, annual reports, and
certain other records of the corporation, provided the shareholder gives the
corporation written
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notice of his or her demand at least five business days before the date on which
he or she wishes to inspect and copy the records. In addition, a shareholder who
makes a demand in good faith, for a proper purpose, and describes with
reasonable particularity his or her purpose and the records he or she desires to
inspect, and if the records are directly connected with this purpose, may also,
upon five days' written notice, inspect and copy: (i) accounting records of the
corporation; (ii) the records of shareholders and excerpts from minutes of any
meeting of the corporation's board of directors; (iii) records of any action of
a committee of the corporation's board of directors while acting in place of the
board of directors on behalf of the corporation; (iv) minutes of any meeting of
the shareholders; and (v) records of action taken by the shareholders or board
of directors without a meeting.
ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
The DGCL allows stockholders to act by written consent in lieu of a
stockholders meeting by the affirmative vote of not less than the minimum number
of votes that would be necessary to authorize or take the action at a
stockholders meeting called for the purpose. The Bright Horizons Family
Solutions Certificate of Incorporation provides that stockholders may not take
action by written consent in lieu of a meeting.
The TBCA provides that any action that may be taken at a shareholders
meeting may be taken without a meeting only if a unanimous written consent
setting forth the matter is signed by each shareholder entitled to vote on the
matter. A unanimous written consent, however, is unattainable by a public
company in most circumstances.
DIVIDENDS AND OTHER DISTRIBUTIONS
Under the DGCL, dividends may be paid out of the surplus (as defined in the
DGCL) of the corporation or, if there is no surplus, out of net profits for the
year in which the dividend is declared and/or the preceding fiscal year
(provided that if paid out of net profits, the amount of capital of the
corporation is not less than the aggregate amount of the capital represented by
outstanding stock of all classes having a preference upon the distribution of
assets). The DGCL also prohibits the purchase or redemption of stock when the
capital of the corporation is impaired or if such redemption would impair the
capital of the corporation; however, shares entitled to a preference upon any
distribution of assets may be purchased or redeemed out of capital if they are
to be retired.
The TBCA provides that a corporation generally may make dividends or other
distributions to its shareholders unless after the distribution either (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) the corporation's assets would be less than the sum
of its liabilities plus the amount that would be needed to satisfy the
preferential dissolution rights of its preferred stock.
VOLUNTARY DISSOLUTION
The DGCL permits the dissolution of a corporation if (i) the board of
directors, by resolution adopted by a majority of the whole board, deems such
dissolution advisable and (ii) a majority of the outstanding stock of the
corporation votes for the proposed dissolution at a stockholders meeting called
for the purpose of acting upon such resolution. The DGCL also permits
dissolution without action by the board of directors if all stockholders
entitled to vote thereon shall consent thereto in writing.
The TBCA provides that a corporation may be dissolved if the corporation's
board of directors proposes dissolution and a majority of the outstanding shares
of the corporation's common stock entitled to vote thereon approves. In
accordance with the TBCA, the corporation's board of directors may condition its
submission of a proposal for dissolution on any basis, including a greater
shareholder vote requirement.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both the DGCL and the TBCA provide in certain situations for mandatory and
permissive indemnification of directors and officers in substantially the same
manner. Both the DGCL and the TBCA provide that
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statutory indemnification is not to be deemed exclusive of any other rights to
which a director or officer seeking indemnification may be entitled; provided,
however, that the TBCA states that no indemnification may be made if a final
adjudication adverse to the director or officer establishes his or her liability
(i) for any breach of loyalty to the corporation or its shareholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; or (iii) for unlawful distributions. The Certificate
of Incorporation of Bright Horizons Family Solutions also contains provisions
obligating Bright Horizons Family Solutions to indemnify its directors to the
fullest extent permitted by the DGCL.
The DGCL permits a corporation to include in its certificate of
incorporation a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of the fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for violating section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. Bright Horizons Family Solutions has adopted such a provision which
eliminates director liability to Bright Horizons Family Solutions and its
stockholders for damages for breach of fiduciary duty to the fullest extent
permitted by the DGCL. The TBCA does not contain a similar provision.
DISSENTERS' AND APPRAISAL RIGHTS
The DGCL provides that stockholders of a Delaware corporation do not have
appraisal rights when a Delaware corporation listed on a national securities
exchange, or with more than 2,000 stockholders of record, merges or consolidates
with another corporation, and consideration satisfying certain requirements is
paid to the Delaware corporation's stockholders (generally, stock of the
surviving corporation or stock of another public corporation). The Bright
Horizons Family Solutions Common Stock will be listed on The Nasdaq National
Market prior to the Effective Time. Consequently, appraisal rights are not
available to stockholders of Bright Horizons Family Solutions assuming the
consideration satisfies the requirements under the DGCL.
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in respect
of a dissenter's shares. Dissenters' rights are not available as to any shares
which are listed on an exchange registered under section 6 of the Exchange Act
or are "national market system" securities as defined in rules promulgated
pursuant to the Exchange Act. The CorporateFamily Common Stock is listed on The
Nasdaq National Market. Consequently, dissenters' rights are not available to
shareholders of CorporateFamily.
BUSINESS COMBINATION STATUTE
Section 203 of the DGCL prohibits a publicly held Delaware corporation like
Bright Horizons Family Solutions from engaging in a "business combination" with
an "interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless (i)
prior to such date either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder is approved by
the board of directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock (excluding certain shares), or (iii) on or after such date, the
business combination is approved by the board and by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" as defined in the DGCL includes
a merger, asset sale and other transactions resulting in a financial benefit to
the stockholder. An "interested stockholder" as defined in the DGCL is a person
who, together with affiliates and associates, owns (or within three years, did
own) 15% or more of the corporation's voting stock. Bright Horizons is, and
Bright Horizons Family Solutions will be, subject to Section 203 of the DGCL.
The Tennessee Business Combination Act (the "Tennessee Business Combination
Act") provides that party owning 10% or more of stock in a "resident domestic
corporation" is an "interested shareholder" and
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cannot engage in a business combination with the resident domestic corporation
unless the combination (i) takes place at least five years after the interested
shareholder first acquired 10% or more of the resident domestic corporation, and
(ii) either (A) is approved by at least 2/3 of the noninterested voting shares
of the resident domestic corporation or (B) satisfies certain fairness
conditions specified in the Tennessee Business Combination Act. These provisions
apply unless one of two events occurs. A business combination with an entity can
proceed without delay when approved by the target corporation's board of
directors before that entity becomes an interested shareholder, or the resident
corporation may enact a charter amendment or bylaw to remove itself entirely
from the Tennessee Business Combination Act. This charter amendment or bylaw
must be approved by a majority of the shareholders who have held shares for more
than one year prior to the vote. It may not take effect for at least two years
after the vote. CorporateFamily has not adopted a provision in its Charter or
Bylaws removing it from coverage under the Tennessee Business Combination Act.
The Tennessee Business Combination Act further provides an exemption from
liability for officers and directors of resident domestic corporations who do
not approve proposed business combinations or charter amendments and bylaws
removing their corporations from the Tennessee Business Combination Act's
coverage as long as the officers and directors act in "good faith belief" that
the proposed business combination would adversely affect their corporation's
employees, customers, suppliers, or the communities in which their corporation
operates and such factors are permitted to be considered by the board of
directors under the charter.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional to the extent that it
applies to target corporations organized under the laws of states other than
Tennessee.
CONTROL SHARE ACQUISITION ACT
The Tennessee Control Share Acquisition Act ("TCSAA") strips a purchaser's
shares of voting rights any time an acquisition of shares in a covered Tennessee
corporation brings the purchaser's voting power to one-fifth, one-third or a
majority of all voting power. The purchaser's voting rights can be established
only by a majority vote of the other shareholders. The purchaser may demand a
special meeting of shareholders to conduct such a vote. The purchaser can demand
such a meeting before making a control share acquisition only if it holds at
least 10% of outstanding shares and announces a good faith intention to make the
control share acquisition. A target corporation may or may not redeem the
purchaser's shares if the shares are not granted voting rights. The TCSAA
applies only to a corporation that has adopted a provision in its charter or
bylaws expressly declaring that the TCSAA will apply. CorporateFamily has not
adopted any provision in its Charter or Bylaws electing protection under the
TCSAA.
The United States Court of Appeals for the Sixth Circuit has held that the
TCSAA is unconstitutional as it applies to target corporations organized under
the laws of states other than Tennessee.
The DGCL contains no similar provisions with respect to control share
acquisitions.
INVESTOR PROTECTION ACT
Tennessee's Investor Protection Act ("TIPA") applies to tender offers
directed at corporations (called "offeree companies") that have "substantial
assets" in Tennessee and that are either incorporated in or have a principal
office in Tennessee. The TIPA requires an offeror making a tender offer for an
offeree company to file with the Commissioner of Commerce and Insurance (the
"Commissioner") a registration statement. When the offeror intends to gain
control of the offeree company, the registration statement must indicate any
plans the offeror has for the offeree. The Commissioner may require additional
information material to the takeover offer and may call for hearings. The TIPA
does not apply to an offer that the offeree company's board of directors
recommends to shareholders.
In addition to requiring the offeror to file a registration statement with
the Commissioner, the TIPA requires the offeror and the offeree company to
deliver to the Commissioner all solicitation materials used in connection with
the tender offer. The TIPA prohibits "fraudulent, deceptive, or manipulative
acts or
124
<PAGE> 131
practices" by either side, and gives the Commissioner standing to apply for
equitable relief to the Chancery Court of Davidson County, Tennessee, or to any
other chancery court having jurisdiction whenever it appears to the Commissioner
that the offeror, the offeree company, or any of its respective affiliates has
engaged in or is about to engage in a violation of the TIPA. Upon proper
showing, the Chancery Court may grant injunctive relief. The TIPA further
provides civil and criminal penalties for violations.
The United States Court of Appeals for the Sixth Circuit has held that the
TIPA is unconstitutional to the extent that it applies to target corporations
organized under the laws of states other than Tennessee.
The DGCL contains no similar provisions with respect to investor
protection.
LEGAL MATTERS
The validity of the Bright Horizons Family Solutions Common Stock to be
issued to CorporateFamily shareholders and Bright Horizons shareholders in the
Merger is being passed upon by Bass, Berry & Sims PLC.
Certain of the tax consequences of the Merger will be passed upon as of the
Effective Time, as a condition to the Merger, by Bass, Berry & Sims PLC, as
counsel to CorporateFamily, and Ropes & Gray, as counsel to Bright Horizons.
EXPERTS
The consolidated financial statements of CorporateFamily included herein
including the consolidated balance sheets of CorporateFamily and its
subsidiaries as of January 2, 1998 and December 27, 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended January 2, 1998 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 Bright Horizons and its
subsidiaries as of June 30, 1997 and 1996, and for each of the three years in
the period ended June 30, 1997 have been audited by Price Waterhouse LLP,
independent auditors, as set forth in their report thereon and included herein.
Such consolidated financial statements are included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
A proper proposal submitted by a shareholder in accordance with applicable
rules and regulations for presentation at CorporateFamily's 1999 Annual Meeting
of Shareholders and received at CorporateFamily's executive offices no later
than December 11, 1998, will be included in CorporateFamily's Proxy Statement
and form of proxy relating to such annual meeting.
A proper proposal submitted by a stockholder in accordance with applicable
rules and regulations for presentation at Bright Horizons' 1998 Annual Meeting
of Stockholders and received at Bright Horizons' executive offices no later than
June 15, 1998, will be included in Bright Horizons' Proxy Statement and form of
proxy relating to such annual meeting.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus (i) CorporateFamily
management knows of no business that will be presented for consideration at the
CorporateFamily Meeting other than as specified in the CorporateFamily notice,
and (ii) Bright Horizons management knows of no business that will be presented
for consideration at the Bright Horizons Meeting other than that stated in the
Bright Horizons notice. As to other business, if any, and matters incident to
the conduct of the CorporateFamily Meeting or the Bright Horizons
125
<PAGE> 132
Meeting, as the case may be, that may properly come before such meeting, it is
intended that proxies in the accompanying forms will be voted in respect thereof
in accordance with the recommendations of the CorporateFamily Board and the
Bright Horizons Board, respectively.
WHERE YOU CAN FIND MORE INFORMATION
CorporateFamily and Bright Horizons file annual, quarterly and current
reports, proxy statements and other information with the Commission. You may
read and copy any reports, statements or other information that the companies
file at the Commission's public reference rooms in Washington, D.C., New York,
New York and Chicago, Illinois. Please call the Commission at (800) SEC-0330 for
further information on the public reference rooms. CorporateFamily and Bright
Horizons public filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the Commission at "http://www.sec.gov." Reports, proxy statements, and other
information concerning CorporateFamily and Bright Horizons also may be inspected
at the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.
Bright Horizons Family Solutions has filed a Registration Statement on Form
S-4 to register with the Commission the shares of Bright Horizons Family
Solutions Common Stock to be issued to CorporateFamily shareholders and Bright
Horizons stockholders in the Merger. This Joint Proxy Statement/Prospectus is a
part of the Registration Statement and constitutes a prospectus of Bright
Horizons Family Solutions, as well as a proxy statement of CorporateFamily and
Bright Horizons for the Special Meetings.
The information contained in this Joint Proxy Statement/Prospectus with
respect to CorporateFamily and its affiliates has been supplied by
CorporateFamily, the information with respect to Bright Horizons and its
affiliates has been supplied by Bright Horizons, and the information with
respect to Bright Horizons Family Solutions has been supplied by both
CorporateFamily and Bright Horizons.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED
JUNE 17, 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
JOINT PROXY STATEMENT/ PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN JUNE 17,
1998, AND NEITHER THE MAILING OF THE JOINT STATEMENT/PROSPECTUS TO STOCKHOLDERS
NOR THE ISSUANCE OF BRIGHT HORIZONS FAMILY SOLUTIONS COMMON STOCK IN THE MERGER
SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
126
<PAGE> 133
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BRIGHT HORIZONS, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of June 30, 1996, June 30,
1997 and March 31, 1998 (unaudited)....................... F-3
Consolidated Statements of Income for each of the three
years ended June 30, 1995, June 30, 1996 and June 30, 1997
and for each of the nine month periods ended March 31,
1997 (unaudited) and March 31, 1998 (unaudited)........... F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for each of the three years ended June 30, 1995,
June 30, 1996 and June 30, 1997 and for the nine month
periods ended March 31, 1998 (unaudited).................. F-5
Consolidated Statements of Cash Flows for the three years
ended June 30, 1995, June 30, 1996 and June 30, 1997 and
each of the nine month periods ended March 31, 1997
(unaudited) and March 31, 1998 (unaudited)................ F-6
Notes to Consolidated Financial Statements.................. F-8
CORPORATEFAMILY SOLUTIONS, INC.
Report of Independent Public Accountants.................... F-21
Consolidated Balance Sheets as of December 27, 1996, January
2, 1998 and April 3, 1998 (unaudited)..................... F-22
Consolidated Statements of Income for each of the three
years ended December 29, 1995, December 27, 1996 and
January 2, 1998 and for each of the three month periods
ended March 28, 1997 (unaudited) and April 3, 1998
(unaudited)............................................... F-23
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 29, 1995, December 27, 1996
and January 2, 1998 and the three month period ended April
3, 1998 (unaudited)....................................... F-24
Consolidated Statements of Cash Flows for the three years
ended December 29, 1995, December 27, 1996 and January 2,
1998 and each of the three month periods ended March 28,
1997 (unaudited) and April 3, 1998 (unaudited)............ F-25
Notes to Consolidated Financial Statements.................. F-26
</TABLE>
F-1
<PAGE> 134
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Bright Horizons, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Bright Horizons, Inc. and its subsidiaries at June 30, 1996 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
August 1, 1997, except for the stock split
described in Note 8, which is as of
October 8, 1997, and the adoption of
SFAS 128 described in Note 1, which is
as of May 14, 1998
F-2
<PAGE> 135
BRIGHT HORIZONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
--------------------------- MARCH 31,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,583,257 $ 6,059,349 $15,414,076
Accounts receivable, trade, net of allowance for doubtful
accounts of $307,458 and $316,637 at June 30, 1996 and
1997, respectively, and $571,355 at March 31, 1998
(unaudited)............................................. 3,468,341 2,766,997 3,409,884
Prepaid expenses and other current assets................. 1,000,415 1,253,008 1,637,769
Deferred income taxes..................................... 2,284,000 2,753,000 2,753,000
------------ ------------ -----------
Total current assets............................... 11,336,013 12,832,354 23,214,729
Fixed assets, net........................................... 7,762,863 11,250,311 20,273,065
Deferred charges, net....................................... 443,210 315,227 366,308
Goodwill, net............................................... 2,185,202 1,321,611 4,136,847
Other intangible assets, net................................ 1,782,334 1,121,649 850,401
Other assets................................................ 131,471 386,476 648,365
Deferred income taxes....................................... 894,000 1,291,000 1,979,000
------------ ------------ -----------
$ 24,535,093 $ 28,518,628 $51,468,715
============ ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 500,000 $ -- $ --
Current portion of long-term debt and obligations under
capital leases.......................................... 485,250 834,481 80,172
Accounts payable and accrued expenses..................... 4,771,808 7,282,694 10,858,749
Income taxes payable...................................... 87,856 41,214 1,138,581
Other current liabilities................................. -- 490,344 425,195
Deferred revenue.......................................... 3,079,340 4,096,336 5,942,458
------------ ------------ -----------
Total current liabilities.......................... 8,924,254 12,745,069 18,445,155
Long-term debt and obligations under capital leases......... 4,247,559 3,440,132 681,948
Accrued rent................................................ 1,665,279 1,540,886 1,607,111
Other long-term liabilities................................. 1,464,749 1,005,880 1,349,821
Deferred revenue............................................ 841,666 1,241,666 2,619,344
------------ ------------ -----------
17,143,507 19,973,633 24,703,379
------------ ------------ -----------
Mandatorily redeemable convertible preferred stock, $.01 par
value; 1,860,330 shares authorized, issued and
outstanding, at issuance cost plus accumulated dividends
of $7,732,455 and $8,830,679 at June 30, 1996 and 1997,
respectively, none outstanding pro forma.................. 18,606,736 19,704,960 --
------------ ------------ -----------
Stockholders' equity (deficit):
Common stock, $.01 par value; 15,000,000 shares,
authorized; 550,710, and 556,732 shares issued and
outstanding at June 30, 1996 and 1997, respectively, and
5,600,738 shares issued and outstanding at March 31,
1998 (unaudited)........................................ 5,507 5,567 56,007
Additional paid-in capital................................ 60,333 65,986 36,511,956
Accumulated deficit....................................... (11,280,990) (11,231,518) (9,802,627)
------------ ------------ -----------
Total stockholders' equity (deficit)............... (11,215,150) (11,159,965) 26,765,336
------------ ------------ -----------
Commitments (Note 13)....................................... -- -- --
------------ ------------ -----------
$ 24,535,093 $ 28,518,628 $51,468,715
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 136
BRIGHT HORIZONS, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
--------------------------------------- ---------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................... $43,693,026 $64,181,377 $85,000,892 $61,765,170 $77,359,888
Cost of services................ 37,208,535 55,614,948 72,675,157 53,032,847 65,719,480
----------- ----------- ----------- ----------- -----------
Gross profit.................. 6,484,491 8,566,429 12,325,735 8,732,323 11,640,408
Selling, general and
administrative expenses....... 5,174,518 6,376,212 9,006,726 6,429,027 8,504,664
Amortization of non-compete
agreements.................... 80,000 1,680,031 560,004 420,003 210,002
Transaction costs............... -- -- 542,882 -- --
----------- ----------- ----------- ----------- -----------
Income from operations........ 1,229,973 510,186 2,216,123 1,883,293 2,925,742
Interest income................. 99,210 97,544 107,415 56,189 253,909
Interest expense................ (78,549) (291,899) (382,042) (281,900) (167,468)
----------- ----------- ----------- ----------- -----------
Income before income taxes.... 1,250,634 315,831 1,941,496 1,657,582 3,012,183
Income tax benefit
(provision)................... 382,000 1,005,000 (793,800) (677,950) (1,235,000)
----------- ----------- ----------- ----------- -----------
Net income before preferred
stock dividends............ 1,632,634 1,320,831 1,147,696 979,632 1,777,183
Preferred stock cumulative
dividends..................... 1,098,201 1,098,201 1,098,224 823,670 348,292
----------- ----------- ----------- ----------- -----------
Net income applicable to common
stockholders.................. $ 534,433 $ 222,630 $ 49,472 $ 155,962 $ 1,428,891
=========== =========== =========== =========== ===========
Net income per share -- basic... $ 1.00 $ 0.41 $ 0.09 $ 0.28 $ 0.45
=========== =========== =========== =========== ===========
Weighted average number of
common shares -- basic........ 533,000 538,000 555,000 554,000 3,196,000
=========== =========== =========== =========== ===========
Net income per
share -- diluted.............. $ 0.40 $ 0.20 $ 0.04 $ 0.13 $ 0.34
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares -- diluted............. 4,123,000 1,108,000 1,208,000 1,207,000 5,293,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 137
BRIGHT HORIZONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- ADDITIONAL STOCKHOLDERS'
NUMBER OF PAR PAID-IN ACCUMULATED EQUITY
SHARES VALUE CAPITAL DEFICIT (DEFICIT)
--------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994........... 532,794 $ 5,328 $ 49,947 $(12,038,053) $(11,982,778)
Exercise of stock options........ 1,772 18 1,060 -- 1,078
Accretion of mandatorily
redeemable convertible
preferred stock dividends..... -- -- -- (1,098,201) (1,098,201)
Net income....................... -- -- -- 1,632,634 1,632,634
--------- ------- ----------- ------------ ------------
Balance at June 30, 1995........... 534,566 5,346 51,007 (11,503,620) (11,447,267)
Exercise of stock options........ 16,144 161 9,326 -- 9,487
Accretion of mandatorily
redeemable convertible
preferred stock dividends..... -- -- -- (1,098,201) (1,098,201)
Net income....................... -- -- -- 1,320,831 1,320,831
--------- ------- ----------- ------------ ------------
Balance at June 30, 1996........... 550,710 5,507 60,333 (11,280,990) (11,215,150)
Exercise of stock options........ 6,022 60 5,653 -- 5,713
Accretion of mandatorily
redeemable convertible
preferred stock dividends..... -- -- -- (1,098,224) (1,098,224)
Net income....................... -- -- -- 1,147,696 1,147,696
--------- ------- ----------- ------------ ------------
Balance at June 30, 1997........... 556,732 5,567 65,986 (11,231,518) (11,159,965)
--------- ------- ----------- ------------ ------------
Unaudited activity:
Exercise of stock options........ 181,237 1,813 102,384 -- 104,197
Exercise of warrants............. 303,924 3,039 165,612 -- 168,651
Proceeds from public stock
offering...................... 1,350,000 13,500 15,588,060 -- 15,601,560
Redemption of preferred stock for
common stock.................. 3,100,512 31,005 19,948,063 -- 19,979,068
Expiration of redemption feature
on redeemable common stock.... 108,333 1,083 641,851 -- 642,934
Accretion of mandatorily
redeemable preferred stock
dividends..................... -- -- -- (274,108) (274,108)
Accretion of redeemable common
stock......................... -- -- -- (74,184) (74,184)
Net income....................... -- -- -- 1,777,183 1,777,183
--------- ------- ----------- ------------ ------------
Balance, March 31, 1998
(unaudited)...................... 5,600,738 $56,007 $36,511,956 $ (9,802,627) $ 26,765,336
========= ======= =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 138
BRIGHT HORIZONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
--------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................... $ 1,632,634 $ 1,320,831 $ 1,147,696 $ 979,632 $ 1,777,183
Adjustments to reconcile net income to net cash
provided by operating activities, net of
acquired amounts:
Depreciation and amortization................. 871,320 2,831,208 2,204,069 1,593,420 1,818,778
Loss (gain) on disposal of fixed assets....... 100,123 (23,448) (24,660) 8,642 53,347
Write-down of impaired assets................. 160,923 -- -- -- --
Decrease in goodwill from utilization of
acquired tax benefits....................... -- 1,142,000 737,000 -- --
Changes in assets and liabilities:
Deferred income taxes......................... (470,000) (2,358,000) (866,000) 96,972 (600,000)
Accounts receivable, trade.................... (895,360) (1,005,128) 701,344 313,151 (631,595)
Prepaid expenses and other current assets..... (139,164) (351,312) (252,593) (1,273,690) (144,595)
Accounts payable and accrued expenses......... 215,200 663,921 2,510,886 2,532,002 2,841,259
Income taxes payable.......................... 18,452 54,404 (46,642) 14,827 1,097,367
Deferred revenue.............................. 10,144 1,257,032 1,416,996 1,402,812 3,092,169
Accrued rent.................................. (9,475) (68,252) (124,393) (104,603) 9,580
Other current and long-term liabilities....... (2,666) 1,457,832 31,475 (1,689) 278,792
----------- ----------- ----------- ----------- ------------
Total adjustments......................... (140,503) 3,600,257 6,287,482 4,581,844 7,815,102
----------- ----------- ----------- ----------- ------------
Net cash provided by operating
activities.............................. 1,492,131 4,921,088 7,435,178 5,561,476 9,592,285
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of short-term
investments................................. 400,000 -- -- -- --
Additions to fixed assets, net of acquired
amounts..................................... (1,839,384) (1,646,991) (4,730,355) (2,801,413) (10,241,520)
Proceeds from disposal of fixed assets........ 58,777 32,725 80,544 39,800 148,401
Increase in deferred charges.................. (71,327) (68,586) (17,017) -- (88,871)
(Increase) decrease in other assets........... 209 (39,204) (255,005) (254,258) (194,129)
Payment for acquisition, net of acquired
cash........................................ (509,874) (3,067,089) -- -- (1,671,948)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities..... (1,961,599) (4,789,145) (4,921,833) (3,015,871) (12,048,067)
----------- ----------- ----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock........ 1,078 9,487 5,713 5,713 15,874,408
Net borrowings under line of credit........... -- 500,000 --
Payments on the line of credit................ -- -- (500,000) (500,000) --
Principal payment of long-term debt and
obligations under capital leases............ (87,607) (146,112) (542,966) (249,467) (4,063,899)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities.............................. (86,529) 363,375 (1,037,253) (743,754) 11,810,509
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents............................. (555,997) 495,318 1,476,092 1,801,851 9,354,727
Cash and cash equivalents, beginning of period.... 4,643,936 4,087,939 4,583,257 4,583,257 6,059,349
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents, end of period.......... $ 4,087,939 $ 4,583,257 $ 6,059,349 $6,385,108 $ 15,414,076
=========== =========== =========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $ 78,549 $ 81,521 $ 382,042 $ 300,446 $ 190,098
=========== =========== =========== =========== ============
Cash paid for income taxes........................ $ 70,284 $ 156,596 $ 989,450 $ 623,236 $ 738,650
=========== =========== =========== =========== ============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
The Company acquired certain centers by entering into mortgages of
approximately $978,000 in fiscal 1996 (Note 6).
F-6
<PAGE> 139
During fiscal years 1996 and 1997, capital lease obligations of $27,264 and
$84,770, respectively, were incurred in connection with lease agreements for
automobiles and office equipment.
The Company purchased child care management companies during the fiscal
year 1995, 1996 and 1998. In conjunction with these acquisitions, liabilities
were assumed as follows:
<TABLE>
<CAPTION>
1995 1996 1998
---------- ---------- -----------
<S> <C> <C> <C>
Fair value of assets acquired......... $1,186,939 $8,577,717 $ 3,691,438
Cash paid............................. (509,874) (3,067,089) (1,671,948)
Redeemable common stock issued........ -- -- (568,750)
---------- ---------- -----------
Liabilities assumed, including note
payable............................. $ 677,065 $5,510,628 $ 1,450,740
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 140
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Bright Horizons, Inc. (the "Company") is a provider of early childhood
education and family support services throughout the United States. The Company
operates its centers under various types of arrangements, which generally can be
classified into two forms: (i) the corporate-sponsored model, where Bright
Horizons operates a child development center on the premises of a corporate
sponsor and gives priority enrollment to the corporate sponsor's employees and
(ii) the management contract model, where Bright Horizons manages a work-site
child development center under a cost-plus arrangement, typically for a single
employer. The Company's primary customers are large corporations as well as
individual customers. The Company receives tuition and management fees for its
services. The following is a summary of significant accounting policies employed
by the Company in the preparation of the accompanying consolidated financial
statements.
On November 13, 1997, the Company completed an initial public offering of
2,970,000 shares of its common stock, of which 1,350,000 shares were issued and
sold by the Company and 1,620,000 of which were sold by the Selling
Shareholders, at an offering price of $13.00 per share (the "Offering"). On
November 24, 1997, Selling Shareholders sold an additional 445,500 shares to
satisfy the underwriters' over allotment option. The Company received net
proceeds of approximately $15.6 million (after deducting underwriting discounts
and expenses). Approximately $4.0 million was used to repay outstanding debt.
The Company intends to use the balance of the net proceeds for working capital
and general corporate purposes, including the financing of potential
acquisitions and new centers currently under development.
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The principal
operations of the Company are conducted through its wholly owned subsidiary,
Bright Horizons Children's Centers, Inc., which was incorporated in 1986. All
significant intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to the 1996 and 1995 financial statements to
conform to the 1997 presentation. These reclassifications had no effect on net
income.
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 and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from these estimates.
Cash and Cash Equivalents -- For purposes of the statement of cash flows,
the Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. The Company invests excess cash in
money market accounts, repurchase agreements, and certificates of deposit.
Accordingly, the investments are subject to minimal credit and market risk. All
of the Company's investments are classified as available-for-sale. The carrying
amount approximates fair value because of the short maturity of the instruments.
The Company at June 30, 1997 and periodically throughout the year has
maintained cash balances in various operating accounts in excess of federally
insured limits. The Company limits the amount of credit exposure with any one
financial institution by evaluating the creditworthiness of the financial
institutions with which it invests.
F-8
<PAGE> 141
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
Fair Value of Financial Instruments:
Long-term Debt -- The carrying amount approximates fair value. The fair
value is estimated based on the current rates offered to the Company for debt of
the same remaining maturities.
Mandatorily Redeemable Convertible Preferred Stock -- In connection with
the Company's initial public offering, all outstanding shares of the Company's
Series A Mandatorily Redeemable Convertible Preferred Stock, Series B
Mandatorily Redeemable Convertible Preferred Stock, and Series C Mandatorily
Redeemable Convertible Preferred Stock (collectively, the "Convertible Preferred
Stock") were converted into an aggregate of 3,100,512 shares of Common Stock,
and outstanding warrants which otherwise would have expired upon the closing of
the offering were converted into 303,924 shares of Common Stock. The mandatorily
redeemable preferred stock was initially recorded at fair value. From the date
of issuance to the date of the mandatory redemption for common stock, $9.1
million in accretion and dividends were recorded as charges to retained earnings
and as increases to the carrying value of preferred stock. Upon the redemption
of these securities for common stock, the carrying value of the preferred stock
was recorded as a credit to common stock and paid-in capital.
Revenue Recognition -- Revenues are recognized as services are performed.
In both the corporate-sponsored model and the management contract model,
revenues consist primarily of tuition paid by parents, supplemented in some
cases by tuition payments from corporate sponsors and, to a lesser extent, by
payments from government agencies. Revenues also include management fees paid by
corporate sponsors which are not material. In the management contract model, in
addition to tuition and management fee revenues, revenue is also recognized for
reimbursable expenses paid either in lieu of, or to supplement, tuitions. The
reimbursable expenses are not material.
Fixed Assets -- Fixed assets are recorded at cost and are depreciated over
their estimated useful lives using the straight-line method. Maintenance and
repairs are expensed as incurred.
Intangibles -- Goodwill is amortized on a straight-line basis over the
estimated period of benefit, not exceeding twenty-five years. Other intangible
assets, primarily comprised of contract rights, unfavorable leases and
non-compete agreements are amortized on a straight-line basis or accelerated
basis over the estimated period of benefit which ranges from 3 to 10 years.
Amortization periods do not exceed the stated terms of the respective
agreements. At June 30, 1996 and 1997, accumulated amortization of intangible
assets was approximately $1,923,361 and $2,672,599, respectively.
Advertising Costs -- Advertising costs are expensed as incurred.
Impairment Write-downs -- Impairment losses are recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. The impairment write-down represents the net book
value at the time of write-down of goodwill and other assets recorded in
connection with an acquisition that occurred in fiscal 1994.
Start up costs -- Start up costs are costs incurred prior to the opening of
a center facility which include pre-opening operating expenses, which are
expensed as incurred; architectural and design fees, legal fees and real estate
broker fees specifically attributable to a center's facility, which are
classified as deferred charges and capitalized and amortized on a straight-line
basis over the lesser of the lease term or the estimated useful life of the
center; and capital equipment and initial supplies, which are capitalized and
depreciated over their estimated useful lives using the straight-line method.
Start up costs that are either paid by the Company and reimbursed by a sponsor
or paid directly by a sponsor are not capitalized.
F-9
<PAGE> 142
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
Other Liabilities -- Other current liabilities consist primarily of
advanced payments from clients pursuant to certain management contracts. Other
long-term liabilities consist primarily of deposits held pursuant to certain
management contracts which expire beyond one year. The deposits will be remitted
to the clients upon termination of the respective contracts.
Income Taxes -- The Company utilizes the liability method of accounting for
income taxes, as set forth in Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). FAS 109 prescribes an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting and tax basis of assets and liabilities.
Deferred tax assets are recognized, net of any valuation allowance, for the
estimated future tax effects of deductible temporary differences and tax
operating loss carryforwards.
Stock Compensation -- The Company's employee stock option plans are
accounted for in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". In fiscal 1997, the Company adopted
the disclosure requirements of Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation" (Note 9).
Net Income Per Share -- The Company adopted the provisions of Statement of
Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS 128) for the
quarter ended December 31, 1997. SFAS 128 replaces Accounting Principles Board
Opinion No. 15 (APB 15), "Earnings Per Share" and requires the presentation of
basic earnings per share (EPS) and diluted EPS. Basic EPS is computed by
dividing net income applicable to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an entity
using the treasury stock method.
2. ACQUISITIONS
Effective December 1, 1995, the Company acquired the business and some of
the assets and liabilities of GreenTree Child Care Services, Inc. ("GreenTree"),
a child care management company, for approximately $6,000,000, including a
$3,000,000 note payable (see Note 6). The purchase price has been allocated
based on the estimated fair value of the assets and liabilities acquired at the
date of acquisition; $2,000,000 of the purchase price ascribed to a non-compete
agreement between the Company and The ServiceMaster Company, L.P. (the prior
owner of GreenTree) and $1,000,000 of the purchase price ascribed to contract
rights acquired, resulting in goodwill of approximately $3,000,000, which was
reduced by approximately $1,200,000 in fiscal 1996 due to the benefit of
acquired deferred tax assets, and which is being amortized over 25 years. In
1997, goodwill was further reduced by approximately $740,000 due to additional
benefits of acquired deferred tax assets. The Company also issued a common stock
purchase warrant for 66,666 shares of the Company's common stock at an exercise
price of $10.50 per share, which were forfeited by The ServiceMaster Company
L.P. in December, 1997. The acquisition was accounted for by the purchase
method. Accordingly, the operating results of the acquired company have been
included from the date of the acquisition.
The following unaudited pro forma summary presents the consolidated results
of operations assuming that the acquisition of GreenTree had occurred on July 1,
1994 and July 1, 1995. No adjustments are required to conform the accounting
policies of the Company and GreenTree. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what would have occurred had the transaction been effected on the date indicated
above or of results which may occur in the future. Pro
F-10
<PAGE> 143
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
forma net income per share and weighted average shares are calculated on the
basis described in Note 1 to Consolidated Financial Statements.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net revenues................................................ $56,271,787 $70,440,949
Net income (loss)........................................... $ (505,387) $ 987,862
Net income per share -- basic............................... $ (0.95) $ 1.84
Weighted average number of common shares -- basic........... 533,000 538,000
Net income per share -- diluted............................. $ (0.95) $ 0.89
Weighted average number of common and common equivalent
shares -- diluted......................................... 533,000 1,108,000
</TABLE>
Effective July 1, 1997, the Company acquired the business and substantially
all the assets and liabilities of Pacific Preschools, Inc. dba The Learning
Garden for approximately $1,600,000 in cash and 108,333 shares of common stock
and was accounted for by the purchase method. These shares were redeemable at
the option of the holder upon the occurrence of certain events or subsequent to
June 1999; however, the redemption feature of those shares terminated upon the
Company's initial public offering. The purchase price was allocated based on the
estimated fair value of the assets and liabilities acquired at the date of
acquisition.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
DEPRECIABLE -------------------------
LIVES (YEARS) 1996 1997
--------------- ----------- -----------
<S> <C> <C> <C>
Land......................................... -- $ 821,938 $ 1,509,778
Buildings.................................... 40 1,233,772 3,206,700
Furniture and fixtures....................... 10 2,604,747 2,804,096
Equipment.................................... 3 - 15 4,868,159 5,627,386
Leasehold improvements....................... 3/Life of lease 1,663,570 2,229,021
Construction in Progress..................... -- 588,520
----------- -----------
11,192,186 15,965,501
Less -- accumulated depreciation and
amortization............................... 3,429,323 4,715,190
----------- -----------
$ 7,762,863 $11,250,311
=========== ===========
</TABLE>
Fixed assets at June 30, 1996 and 1997 include automobiles and office
equipment of $228,417 and $311,572, respectively, held under capital leases.
Amortization expense relating to fixed assets under capital leases was $18,440,
$26,459 and $45,602 for the years ended June 30, 1995, 1996 and 1997,
respectively. Accumulated amortization relating to fixed assets under capital
leases totaled $164,603 and $210,205 at June 30, 1996 and 1997, respectively.
F-11
<PAGE> 144
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Accounts payable............................................ $ 379,212 $ 487,645
Accrued payroll and employee benefits....................... 2,867,750 4,465,631
Accrued other expenses...................................... 1,524,846 2,329,418
---------- ----------
$4,771,808 $7,282,694
========== ==========
</TABLE>
5. LINE OF CREDIT
In December 1997, the Company obtained a $10,000,000 unsecured line of
credit with a bank, which bears interest at either (i) the bank's prime rate, or
(ii) LIBOR plus a spread based on the Company's funded debt levels, as defined.
There was no outstanding balance at March 31, 1998 (unaudited). An unused fee of
.125%, adjusted for certain increases in debt borrowings, per annum is payable
quarterly. The credit line expires on October 31, 1999. The agreement requires
the Company to comply with certain covenants which include, among other things,
the maintenance of specified financial ratios.
In December 1996, the Company obtained a $5,000,000 unsecured line of
credit with a bank, which bears interest at the bank's prime rate (8.50% at June
30, 1997). At June 30, 1997, there was no outstanding balance. An unused fee of
1/4% per annum is paid quarterly for the first $2,000,000 of the revolver. The
credit line expires on September 30, 1998. The agreement requires the Company to
comply with certain covenants which include, among other things, the maintenance
of specified financial ratios and limitations on the redemption and repayment of
preferred stock with credit line proceeds.
6. DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Long-term debt and obligations under capital leases are summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Note payable -- sixteen quarterly installments including
interest at the variable prime lending rate (8.25% and
8.5% at June 30, 1996 and 1997, respectively) with a final
installment of $187,500 due in November 2000.............. $3,000,000 $2,625,000
Mortgage payable to bank in monthly installments of
approximately $5,940 including interest at the bank's
prime lending rate plus 1/4% (8.5% and 8.75% at June 30,
1996 and 1997, respectively), with a final installment of
approximately $2,200 in June 2016; collateralized by
related real estate....................................... 528,000 501,600
Mortgage payable to bank in monthly installments of
approximately $4,057 including interest of 9%, with the
payment in full due in October 2000; collateralized by
related real estate....................................... 388,693 374,186
Mortgage payable -- monthly installments of approximately
$507 including interest of 9%, paid in full as of July
1996...................................................... 48,775 --
</TABLE>
F-12
<PAGE> 145
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Mortgage payable to bank in monthly installments of
approximately $6,000 including interest at the bank's
prime lending rate plus 1% (9.25% and 9.5% at June 30,
1996 and 1997, respectively), with a final installment of
approximately $645,000 in November 1999; collateralized by
related real estate....................................... $ 658,583 $ 650,359
Notes payable -- three semiannual installments including
interest of 8% with a final installment of $42,280 paid in
December 1996............................................. 42,280 --
Obligations under capital leases at rates of 8% to 10.24%,
collateralized by automobiles and certain office
equipment; due in 2001.................................... 66,478 123,468
---------- ----------
4,732,809 4,274,613
Less -- current portion..................................... 485,250 834,481
---------- ----------
$4,247,559 $3,440,132
========== ==========
</TABLE>
Concurrent with the initial public offering, the Company repaid $4.0
million in long term debt in November 1997.
Future minimum lease payments as of June 30, 1997 under capitalized leases
are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 47,415
1999........................................................ 46,245
2000........................................................ 26,589
2001........................................................ 22,049
--------
Total minimum lease payments................................ 142,298
Less -- imputed interest.................................... 18,830
--------
$123,468
========
</TABLE>
Total interest expense on these leases was approximately $1,569, $6,875 and
$11,260 for the years ended June 30, 1995, 1996 and 1997, respectively.
F-13
<PAGE> 146
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Concurrent with the Company's initial public offering, the outstanding
shares of the Convertible Preferred Stock were converted into an aggregate of
3,100,512 shares of common stock. Upon redemption of these securities for common
stock, the carrying value of the preferred stock was recorded as a credit to
common stock and additional paid in capital. Historical information was as
follows.
<TABLE>
<CAPTION>
JUNE 30,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Series A mandatorily redeemable convertible preferred stock,
600,000 shares authorized, issued and outstanding, at
issuance cost plus accumulated dividends of $1,783,980 and
$1,983,180 at June 30, 1996 and 1997, respectively........ $ 3,751,698 $ 3,950,898
Series B mandatorily redeemable convertible preferred stock,
600,000 shares authorized, issued and outstanding, at
issuance cost plus accumulated dividends of $3,069,989 and
$3,468,389 at June 30, 1996 and 1997, respectively........ 7,056,379 7,454,779
Series C mandatorily redeemable convertible preferred stock,
660,330 shares authorized, issued and outstanding, at
issuance cost plus accumulated dividends of $2,878,486 and
$3,379,110 at June 30, 1996 and 1997, respectively........ 7,798,659 8,299,283
----------- -----------
$18,606,736 $19,704,960
=========== ===========
</TABLE>
Each share of Series A, Series B and Series C preferred stock was
convertible into 1.67 shares of common stock. The preferred stockholders were
entitled to a liquidation preference of $3.33 per share of Series A preferred
stock, $6.67 per share of Series B preferred stock and $7.50 per share of Series
C preferred stock.
Dividends on the preferred stock were cumulative and accrued at a quarterly
rate of $.083 per share of Series A preferred stock, $.166 per share of Series B
preferred stock and $.1875 per share of Series C preferred stock on issued and
outstanding shares for which full payment had been made.
The Company was required to redeem all of the outstanding shares of Series
A preferred stock, Series B preferred stock, and Series C preferred stock on
October 1, 1999 at a price of $3.33, $6.67 and $7.50 per share, respectively,
plus any accrued and unpaid dividends. The Company had recorded charges of
$1,098,201, $1,098,201 and $1,098,224 to accumulated deficit for the years ended
June 30, 1995, 1996 and 1997, respectively, to reflect the accretion of
preferred stock dividends.
8. COMMON STOCK
On October 8, 1997, the Board of Directors authorized a 1-for-3 reverse
stock split of the Company's common stock. All shares of common stock, common
stock options and warrants, preferred stock conversion ratios and per share
amounts included in the accompanying financial statements have been adjusted to
give retroactive effect to the reverse stock split for all periods presented.
Certain shares of the Company's common stock, issued under the 1987 stock
option plan, were issued pursuant to restricted stock purchase agreements
providing the Company with a right of first refusal to repurchase any shares
offered for sale.
F-14
<PAGE> 147
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
In connection with the issuance of the Series C redeemable convertible
preferred stock and the issuance of convertible debt, which was subsequently
retired, to stockholders in fiscal 1991, the Company issued warrants for the
purchase of 305,045 shares of common stock. The warrants were exercisable at
$.60 per share and were exercised concurrent with the initial public offering.
No value was ascribed to the warrants upon issuance as such value was
considered immaterial. All warrants previously issued were outstanding at June
30, 1995, 1996 and 1997, respectively.
In connection with the acquisition of GreenTree, the Company issued a
common stock purchase warrant for 66,666 shares of the Company's common stock at
an exercise price of $10.50 per share, which were to expire on November 30,
1998. The common stock warrant was forfeited by The ServiceMaster Company L.P.
in December, 1997.
9. STOCK OPTION PLAN
In May 1987, the Company adopted a stock option plan (the 1987 Plan) which
provides for the granting of both incentive stock options and nonqualified stock
options. In August 1996, the Company adopted a new stock option plan (the 1996
Plan) which also provides for the granting of both incentive stock options and
nonqualified options. The Board of Directors approved 666,666 common shares
available under the 1987 Plan and 333,333 common shares available under the 1996
plan. As of June 30, 1997, there were no shares available for grant under the
1987 Plan or the 1996 Plan. On July 1, 1997 the Company established a new stock
option plan (the 1997 Plan) and approved 666,666 common shares available to the
1997 Plan.
The option price for each incentive stock option granted under any of the
above plans shall not be less than the fair market value per share of common
stock on the date of grant. The option price for each nonqualified option
granted under any of the above plans is typically not less than the lesser of
(i) the book value per share of common stock as of the end of the immediately
preceding fiscal year or (ii) 50% of the fair market value per share of common
stock on the date of grant. Options under the plans become exercisable over
periods determined by the Board of Directors at a rate generally not to exceed
20% per year beginning with the first anniversary of the date of grant. Options
held by certain officers immediately vest upon a change in control of the
Company. Stock options expire on the tenth anniversary of the grant.
The following is a summary of the stock option plan activity:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1996 JUNE 30, 1997
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year............ 359,168 $ .60 443,735 $1.02 461,529 $1.38
Granted.................................. 103,433 2.58 65,800 4.20 411,680 8.76
Exercised................................ (1,771) .60 (16,144) .60 (6,022) .96
Forfeited................................ (17,095) 1.71 (31,862) 2.61 (14,215) 5.07
------- ----- ------- ----- ------- -----
Outstanding end of year.................. 443,735 $1.02 461,529 $1.38 852,972 $4.89
======= ===== ======= ===== ======= =====
Options exercisable at end of year....... 268,374 290,681 341,496
======= ======= =======
</TABLE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation," issued in October 1995. The Company continues to measure
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion 25. If the Company had elected to recognize
compensation cost based on the fair
F-15
<PAGE> 148
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
value of the options granted at grant date as prescribed by SFAS No. 123, net
income would have been reduced to $1,300,261 and $1,074,475 in 1996 and 1997,
respectively, compared to reported net income of $1,320,831 and $1,147,696,
respectively.
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following weighted average
assumptions for fiscal years 1996 and 1997: risk free interest rate of 6.76% and
6.42% in fiscal 1996 and 1997, respectively, and expected option term of 7.0 and
7.5 years for 1996 and 1997, respectively. An assumption for the expected
volatility of the Company's common stock was not considered in the fair value
calculation given the lack of historical data available to support such an
assumption. The weighted average fair value per option for options granted with
option exercise prices equal to the fair value of the underlying common stock in
fiscal years 1996 and 1997 was $3.39 and $3.00, respectively. The weighted
average exercise price of options granted with exercise prices equal to the fair
value of the underlying common stock in fiscal 1997 was $7.50. The weighted
average exercise price and weighted average fair value per option for options
granted with exercise prices above the fair value of the underlying common stock
in fiscal year 1997 was $9.00 and $2.13, respectively.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected to
be made each year, the above pro forma disclosures are not representative of pro
forma effects of reported net income for future periods.
In the event of termination of the optionee's relationship with the
Company, options not yet exercised terminate at the earlier of ninety days or
the end of the exercise period.
10. INCOME TAXES
The components of the income tax benefit (provision) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1995 1996 1997
-------- ----------- ---------
<S> <C> <C> <C>
Current:
Federal........................................... $(32,000) $ (45,000) $(585,000)
State............................................. (56,000) (166,000) (337,800)
-------- ----------- ---------
(88,000) (211,000) (922,800)
-------- ----------- ---------
Benefit of acquired deferred tax assets applied to
reduce goodwill................................... -- (1,142,000) (737,000)
-------- ----------- ---------
Deferred:
Federal........................................... 353,000 2,159,000 669,000
State............................................. 117,000 199,000 197,000
-------- ----------- ---------
470,000 2,358,000 866,000
-------- ----------- ---------
Income tax benefit (provision)...................... $382,000 $ 1,005,000 $(793,800)
======== =========== =========
</TABLE>
F-16
<PAGE> 149
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $1,229,000 $ 603,000
Accrued rent.............................................. 643,000 262,000
Deferred revenue.......................................... 411,000 981,000
Accrued employee benefits................................. 275,000 736,000
Amortization.............................................. 750,000 897,000
Other..................................................... 286,000 565,000
---------- ----------
Gross deferred tax asset.................................... 3,594,000 4,044,000
Deferred tax asset valuation allowance...................... (416,000) --
---------- ----------
Net deferred tax asset...................................... $3,178,000 $4,044,000
========== ==========
</TABLE>
The benefit (provision) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory federal income tax rate
to pretax income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------
1995 1996 1997
AMOUNT % AMOUNT % AMOUNT %
---------- --- ----------- ---- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at federal statutory
rate.............................. $ (425,000) (34)% $ (107,000) (34)% $(660,100) (34)%
Change in valuation allowance....... 1,000,000 80 2,530,000 801 416,000 21
Benefit of acquired deferred tax
assets applied to reduce
goodwill.......................... -- -- (1,142,000) (361) (737,000) (38)
Return to provision adjustments
impacting deferred tax assets..... -- -- -- -- 420,300 22
State income taxes, net of federal
benefit........................... (93,000) (7) (210,000) (66) (198,000) (10)
Meals and entertainment............. -- -- (21,000) (7) -- --
Goodwill amortization............... -- -- (24,000) (8) -- --
Permanent differences............... (34,000) (3) -- -- (35,000) (2)
Other............................... (66,000) (5) (21,000) (7) -- --
---------- --- ----------- ---- --------- ---
Income tax benefit
(provision)............. $ 382,000 31% $ 1,005,000 318% $(793,800) (41)%
========== === =========== ==== ========= ===
</TABLE>
At June 30, 1997 the Company has net operating loss carryforwards of
approximately $1,562,000 which expire at various dates through 2007. These net
operating loss carryforwards are subject to limitation and may only be used to
offset future income generated by GreenTree on a separate company basis. In
fiscal 1997, the Company released a deferred tax asset valuation allowance that
was recorded at June 30, 1996 because the Company's history of sustained
profitability, and projections of continued profitability and successful
absorption of the operations of GreenTree, led management to believe that it is
more likely than not that the remaining deferred tax assets will be realized
prior to the expiration of any net operating loss carryforwards.
Subsequent ownership changes could limit the amount of net operating loss
and tax credit carryforwards that can be utilized to offset future taxable
income or tax liability in future years.
F-17
<PAGE> 150
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
11. EMPLOYEE RETIREMENT PLAN AND INCENTIVE COMPENSATION PLAN
The Company has an employee retirement plan which meets the requirements of
Section 401(k) of the Internal Revenue Code. The plan allows employees meeting
certain requirements to contribute up to 15% of their salary. The Company will
contribute 25% of amounts contributed by employees, up to a maximum of 8% of
their salary, with a vesting period of six years. Employees are vested in their
contributions at all times. The Company also has incentive compensation plans
for certain directors and faculty of the child care centers. These employees are
rewarded financially for achieving performance milestones, as outlined in each
plan. The expense for the 401(k) plan and the incentive compensation plan for
the years ended June 30, 1995, 1996 and 1997, was approximately $198,000,
$381,000 and $811,000, respectively.
12. TRANSACTION COSTS
In fiscal 1997, the Company incurred costs of $542,882 associated with a
public offering of securities. Because the offering was delayed, the amounts
incurred were treated as a period cost.
13. COMMITMENTS
The Company has noncancellable operating leases for its office and center
facilities. Many of the leases contain renewal options for various periods.
Certain leases contain provisions which include additional payments based upon
revenue performance, enrollment or the level of the Consumer Price Index at a
future date. Future minimum rental commitments as of June 30, 1997 under these
leases are summarized as follows:
<TABLE>
<CAPTION>
FISCAL
- - ------
<S> <C>
1998........................................................ $ 4,253,549
1999........................................................ 4,101,497
2000........................................................ 3,814,015
2001........................................................ 3,223,201
2002........................................................ 2,503,569
Thereafter.................................................. 12,444,772
-----------
$30,340,603
===========
</TABLE>
Total rent expense was $2,404,386, $3,663,265 and $4,461,803 for the years
ended June 30, 1995, 1996 and 1997, respectively.
F-18
<PAGE> 151
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
14. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
1995 1996 1997
----------------------- ----------------------- -----------------------
INCOME SHARES INCOME SHARES INCOME SHARES
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Income........................... $ 1,632,634 $ 1,320,831 $ 1,147,696
Preferred Stock Dividends............ $(1,098,201) $(1,098,201) $(1,098,224)
BASIC EPS:
Income available to common
stockholders....................... $ 534,433 533,000 $ 222,630 538,000 $ 49,472 555,000
Net Income Per Share................. $ 1.00 $ 0.41 $ 0.09
Effect of Dilutive Securities:
Convertible Preferred Stock.......... 3,101,000 (a) (a)
Employee Stock Options............... 489,000 570,000 653,000
DILUTED EPS:
Net Income before preferred dividends
and accretion on redeemable
stock.............................. $ 1,632,634 4,123,000 $ 222,630 1,108,000 $ 49,472 1,208,000
Net Income Per share................. $ 0.40 $ 0.20 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31,
----------------------------------------------
1997 1998
--------------------- ----------------------
INCOME SHARES INCOME SHARES
--------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Income.................................................. $ 979,632 $1,777,183
Preferred Stock Dividends................................... $(823,670) $ (348,292)
BASIC EPS:
Income available to common stockholders..................... $ 155,962 554,000 $1,428,891 3,196,000
Net Income Per Share........................................ $ 0.28 $ 0.45
Effect of Dilutive Securities:
Convertible Preferred Stock................................. (a) 1,542,000
Employee Stock Options...................................... 653,000 555,000
DILUTED EPS:
Net Income before preferred dividends
and accretion on redeemable stock......................... $ 155,962 1,207,000 $1,777,183 5,293,000
Net Income Per share........................................ $ 0.13 $ 0.34
</TABLE>
- - ---------------
(a) The conversion of preferred stock was not assumed in certain periods as the
effect would have been anti-dilutive.
15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 1998 and the consolidated
statements of operations and cash flows for the nine month periods ended March
31, 1997 and March 31, 1998 have been prepared by the Company in accordance with
the accounting policies described in its annual financial statements for the
year ended June 30, 1997 and should be read in conjunction with the notes
thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial positions,
results of operations and changes in cash flows at March 31, 1998 and for all
periods presented have been made. The results of operations for the period ended
March 31, 1998 are not necessarily indicative of the operating results for the
full year.
F-19
<PAGE> 152
BRIGHT HORIZONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information subsequent to August 1, 1997 is unaudited, except for the
stock split described in Note 8, which is as of October 8, 1997, and the
adoption of SFAS 128 described in Note 1, which is as of May 14, 1998.)
16. SUBSEQUENT EVENTS (UNAUDITED)
On April 26, 1998, the Company and CorporateFamily Solutions, Inc., a
Tennessee corporation ("CorporateFamily"), entered into an Agreement and Plan of
Merger (the "Merger Agreement"). In accordance with the terms of the Merger
Agreement, Bright Horizons and CorporateFamily will form Bright Horizons Family
Solutions, Inc. a Delaware corporation ("BHFS"). Each issued and outstanding
share of common stock of Bright Horizons will be converted into the right to
receive 1.15022 shares of common stock of BHFS ("BHFS Common Stock") and each
issued and outstanding share of common stock of CorporateFamily will be
converted into the right to receive one share of BHFS Common Stock. Each
outstanding option of Bright Horizons and CorporateFamily will be converted into
an option to purchase shares of BHFS Common Stock at the same conversion ratios
referenced above. The Merger Agreement also provides for the payment of a
break-up fee equal to $4.0 million under certain circumstances. Concurrently
with the execution of the Merger Agreement, Bright Horizons and CorporateFamily
entered into reciprocal Stock Option Agreements, granting each other the right
to purchase ten percent (10%) of the issued and outstanding shares of Common
Stock of the other entity upon the occurrence of certain events.
The Company expects to complete the merger, subject to regulatory review
and shareholder approval, by August 1998. The transaction will be accounted for
as a pooling of interests and tax free reorganization.
F-20
<PAGE> 153
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 subsidiaries as of
December 27, 1996 and January 2, 1998 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended January 2, 1998. 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 subsidiaries as of December 27, 1996 and
January 2, 1998 and the results of their operations and their cash flows for
each of the three years in the period ended January 2, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 13, 1998
F-21
<PAGE> 154
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 27, JANUARY 2, APRIL 3,
1996 1998 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 2,913,000 $12,349,000 $13,474,000
Restricted cash....................................... 169,000 176,000 178,000
Accounts receivable, less allowance of $123,000,
$125,000 and $131,000, respectively................ 5,390,000 6,115,000 6,735,000
Prepaid expenses...................................... 103,000 143,000 152,000
Deferred income taxes................................. 970,000 1,014,000 1,300,000
----------- ----------- -----------
Total current assets.......................... 9,545,000 19,797,000 21,839,000
Property and equipment, net............................. 3,757,000 3,593,000 3,675,000
Intangible assets, net.................................. 5,753,000 5,651,000 5,550,000
Deferred income taxes................................... 1,012,000 175,000 103,000
Other assets............................................ 311,000 1,001,000 1,035,000
----------- ----------- -----------
Total Assets.................................. $20,378,000 $30,217,000 $32,202,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................. $ 911,000 $ -- $ --
Trade accounts payable................................ 1,289,000 801,000 806,000
Income tax payable.................................... 138,000 51,000 122,000
Accrued expenses:
Payroll and related benefits....................... 3,343,000 3,914,000 4,380,000
Other.............................................. 1,257,000 1,097,000 1,075,000
Deferred revenue, current portion..................... 332,000 479,000 632,000
Other current liabilities............................. 337,000 463,000 963,000
Amounts held in escrow................................ 169,000 176,000 178,000
----------- ----------- -----------
Total current liabilities..................... 7,776,000 6,981,000 8,156,000
Long-term debt, net of current portion.................. 3,505,000 -- --
Deferred revenue, net of current portion................ 979,000 862,000 833,000
Other long-term liabilities............................. 1,143,000 1,567,000 1,555,000
----------- ----------- -----------
Total liabilities............................. 13,403,000 9,410,000 10,544,000
----------- ----------- -----------
Commitments, Contingencies and Guarantees (See Note 9)
SHAREHOLDERS' EQUITY:
Series A preferred stock, no par value; authorized,
issued and outstanding, 1,125,000 shares, none and
none, respectively.................................... 4,480,000 -- --
Preferred stock, no par value; authorized, 3,875,000,
10,000,000 and 10,000,000 shares, respectively; issued
and outstanding none.................................. -- -- --
Common stock, no par value; authorized, 10,000,000,
100,000,000 and 100,000,000 shares, respectively;
issued and outstanding 1,866,203 shares, 4,491,104
shares and 4,608,280 shares, respectively............. 6,906,000 24,134,000 25,279,000
Accumulated deficit..................................... (4,411,000) (3,327,000) (3,621,000)
----------- ----------- -----------
Total shareholders' equity.................... 6,975,000 20,807,000 21,658,000
----------- ----------- -----------
Total liabilities and shareholders' equity.... $20,378,000 $30,217,000 $32,202,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-22
<PAGE> 155
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ -------------------------
DECEMBER 29, DECEMBER 27, JANUARY 2, MARCH 28, APRIL 3,
1995 1996 1998 1997 1998
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue......................... $36,920,000 $62,926,000 $77,722,000 $17,479,000 $21,248,000
Expenses:
Operating..................... 32,708,000 55,588,000 68,734,000 15,341,000 18,758,000
Selling, general and
administrative............. 3,525,000 4,659,000 5,822,000 1,416,000 1,570,000
Special charge................ -- -- 297,000 -- --
Depreciation and
amortization............... 520,000 759,000 784,000 200,000 208,000
----------- ----------- ----------- ----------- -----------
Operating income................ 167,000 1,920,000 2,085,000 522,000 712,000
Interest income (expense),
net........................... (86,000) (343,000) 109,000 (72,000) 172,000
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 81,000 1,577,000 2,194,000 450,000 884,000
----------- ----------- ----------- ----------- -----------
Income tax benefit (expense):
Current....................... (8,000) (142,000) (297,000) (18,000) (584,000)
Deferred...................... 468,000 1,301,000 (793,000) (203,000) 214,000
----------- ----------- ----------- ----------- -----------
460,000 1,159,000 (1,090,000) (221,000) (370,000)
----------- ----------- ----------- ----------- -----------
Net income...................... $ 541,000 $ 2,736,000 $ 1,104,000 $ 229,000 $ 514,000
=========== =========== =========== =========== ===========
Earnings per share:
Basic......................... $ 0.34 $ 1.44 $ 0.39 $ 0.12 $ 0.11
=========== =========== =========== =========== ===========
Diluted....................... $ 0.19 $ 0.85 $ 0.28 $ 0.07 $ 0.10
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-23
<PAGE> 156
CORPORATEFAMILY SOLUTIONS, INC.
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 30, 1994....... 1,125,000 $ 4,422,000 1,493,023 $ 4,931,000 $(7,630,000) $ 1,723,000
Acquisition of RCCM.............. -- -- 324,995 1,750,000 -- 1,750,000
Accretion of preferred stock..... -- 29,000 -- -- (29,000) --
Net income.............. -- -- -- -- 541,000 541,000
---------- ----------- --------- ----------- ----------- -----------
Balance, December 29, 1995....... 1,125,000 4,451,000 1,818,018 6,681,000 (7,118,000) 4,014,000
Issuance of stock options........ -- -- -- 100,000 -- 100,000
Stock options exercised.......... -- -- 15,685 97,000 -- 97,000
Common stock issued.............. -- -- 32,500 28,000 -- 28,000
Accretion of preferred stock..... -- 29,000 -- -- (29,000) --
Net income.............. -- -- -- -- 2,736,000 2,736,000
---------- ----------- --------- ----------- ----------- -----------
Balance, December 27, 1996....... 1,125,000 4,480,000 1,866,203 6,906,000 (4,411,000) 6,975,000
Stock options exercised.......... -- -- 53,580 346,000 -- 346,000
Accretion of preferred stock..... -- 20,000 -- -- (20,000) --
Conversion of preferred stock.... (1,125,000) (4,500,000) 1,169,935 4,500,000 -- --
Common stock restriction
removed........................ -- -- -- 297,000 -- 297,000
Common stock issued.............. -- -- 1,401,386 12,085,000 -- 12,085,000
Net income.............. -- -- -- -- 1,104,000 1,104,000
---------- ----------- --------- ----------- ----------- -----------
Balance, January 2, 1998......... -- -- 4,491,104 24,134,000 (3,327,000) 20,807,000
Purchase of common stock
(Unaudited).................... -- -- (48,750) (326,000) (808,000) (1,134,000)
Stock options exercised
(Unaudited).................... -- -- 139,926 1,311,000 -- 1,311,000
Stock purchase warrant exercised
(Unaudited).................... -- -- 26,000 160,000 -- 160,000
Net income
(Unaudited)........... -- -- -- -- 514,000 514,000
---------- ----------- --------- ----------- ----------- -----------
Balance, April 3, 1998
(Unaudited).................... -- $ -- 4,608,280 $25,279,000 $(3,621,000) $21,658,000
========== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-24
<PAGE> 157
CORPORATEFAMILY SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ------------------------
DECEMBER 29, DECEMBER 27, JANUARY 2, MARCH 28, APRIL 3,
1995 1996 1998 1997 1998
------------ ------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $ 541,000 $ 2,736,000 $ 1,104,000 $ 229,000 $ 514,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 520,000 759,000 784,000 200,000 208,000
Other noncash expense................... -- 68,000 297,000 -- --
Loss on disposal of assets.............. 159,000 69,000 -- -- --
Changes in assets and liabilities:
Accounts receivable................... (543,000) (1,826,000) (725,000) 663,000 (620,000)
Prepaid expenses...................... (73,000) 37,000 (40,000) (14,000) (9,000)
Deferred income taxes................. (468,000) (1,301,000) 793,000 203,000 (214,000)
Other noncurrent assets............... (44,000) 37,000 (690,000) (133,000) (34,000)
Accounts payable and accrued
expenses............................ 596,000 1,575,000 (77,000) (1,294,000) 449,000
Income taxes payable.................. -- -- (87,000) (107,000) 522,000
Other current liabilities............. 162,000 142,000 126,000 -- 500,000
Deferred revenue...................... (27,000) (43,000) 30,000 (53,000) 124,000
Other long-term liabilities........... (53,000) (204,000) 424,000 31,000 (11,000)
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in)
operating activities........... 770,000 2,049,000 1,939,000 (275,000) 1,429,000
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........ (514,000) (169,000) (507,000) (29,000) (189,000)
Increase in intangible assets............. (35,000) -- -- -- --
Proceeds from sale of property and
equipment, net.......................... -- -- 289,000 -- --
Purchase of assets of Schools at Work..... -- -- (300,000) -- --
Purchase of capital stock of RCCM......... (3,613,000) -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities..................... (4,162,000) (169,000) (518,000) (29,000) (189,000)
----------- ----------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.... -- 97,000 12,431,000 -- --
Purchase of treasury stock................ -- -- -- -- (1,134,000)
Proceeds from exercise of stock options
and warrants............................ -- -- -- 2,000 1,019,000
Payments on long-term debt................ (439,000) (648,000) (4,416,000) (222,000) --
Debt financing related to acquisition..... 3,500,000 -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash provided by (used in)
financing activities........... 3,061,000 (551,000) 8,015,000 (220,000) (115,000)
----------- ----------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. (331,000) 1,329,000 9,436,000 (524,000) 1,125,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................. 1,915,000 1,584,000 2,913,000 2,913,000 12,349,000
----------- ----------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 1,584,000 $ 2,913,000 $12,349,000 $2,389,000 $13,474,000
=========== =========== =========== ========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-25
<PAGE> 158
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash Equivalents -- The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. Cash
equivalents consist primarily of high quality commercial paper. The carrying
value of these instruments approximates market value due to their short
maturities.
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.
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 15 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.
F-26
<PAGE> 159
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 -- 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. 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.
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 fair market value at the date of grant. See Note 7 for further
discussion.
Earnings Per Share -- In the fourth quarter of 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", ("SFAS 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. 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. The Company's year ended January 2, 1998
consisted of 53 weeks and the fourth quarter of 1997 consisted of 14 weeks.
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.
F-27
<PAGE> 160
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
New Pronouncements -- In February 1997, the Financial Accounting Standards
Board 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 adopted SFAS 129 in the fourth quarter of 1997. The adoption of SFAS 129
did not have a material impact on the Company's financial position, results of
operations or cash flows.
Reclassifications -- Certain reclassifications have been made in the 1995
and 1996 consolidated financial statements to conform to the 1997 presentation.
2. ACQUISITIONS
In November 1997, the Company purchased the assets of MAW Enterprises, Inc.
d/b/a Schools at Work for $300,000. The transaction was accounted for as a
purchase.
Effective October 2, 1995, the Company acquired, through a reverse
subsidiary merger, RCCM. The transaction was accounted for as a purchase. The
merger was consummated by the exchange of 324,995 shares of the Company's common
stock and $3,373,000 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
results of RCCM's operations since the date of the acquisition have been
reflected in the accompanying consolidated financial statements. Effective
December 31, 1997, RCCM was merged with and into the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Furniture and equipment..................................... $ 1,075,000 $ 1,311,000
Buildings and improvements.................................. 3,834,000 3,472,000
Land........................................................ 54,000 --
----------- -----------
4,963,000 4,783,000
Less accumulated depreciation............................... (1,206,000) (1,190,000)
----------- -----------
Property and equipment, net....................... $ 3,757,000 $ 3,593,000
=========== ===========
</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 $78,000, $117,000 and
$117,000 during 1995, 1996 and 1997, respectively, and at December 27, 1996 and
January 2, 1998, $1,096,000 and $862,000 of the original funding remains in
deferred revenue on the Company's consolidated balance sheets.
F-28
<PAGE> 161
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Goodwill, net of amortization of $481,000 and $826,000,
respectively.............................................. $5,614,000 $5,569,000
Management contracts, net of amortization of $152,000 and
$169,000, respectively.................................... 57,000 40,000
Noncompete agreements, net of amortization of $99,000 and
$129,000, respectively.................................... 51,000 21,000
Other....................................................... 31,000 21,000
---------- ----------
Total............................................. $5,753,000 $5,651,000
========== ==========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Bank term loan, bearing interest at 9.75%, repaid in 1997... $3,033,000 $ --
Promissory notes to banks, bearing interest at rates ranging
from 8% to 9.875%, repaid in 1997......................... 1,313,000 --
Notes payable to shareholder, bearing interest at 10%,
repaid in 1997............................................ 70,000 --
---------- ----------
Total............................................. 4,416,000 --
Less current maturities..................................... (911,000) --
---------- ----------
Long-term debt......................................... $3,505,000 $ --
========== ==========
</TABLE>
The Company has entered into a $5,000,000 revolving credit facility with a
bank to be used for working capital and other general corporate purposes.
Borrowings under the credit facility, which is subject to renewal on an annual
basis, will bear interest at the lender's prime rate 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 facility as of January 2, 1998.
6. INCOME TAXES
Income tax expense (benefit) consisted of the following for fiscal years
1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----------- ----------
<S> <C> <C> <C>
Current tax expense............................... $ 8,000 $ 142,000 $ 297,000
Deferred tax expense.............................. 102,000 624,000 793,000
Reduction in valuation allowance.................. (570,000) (1,925,000) --
--------- ----------- ----------
Income tax expense (benefit), net....... $(460,000) $(1,159,000) $1,090,000
========= =========== ==========
</TABLE>
A reconciliation of the U.S. Federal statutory rate to the effective rate
is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ----------- ----------
<S> <C> <C> <C>
U. S. Federal statutory rate...................... $ 27,000 $ 536,000 $ 746,000
State taxes on income............................. 3,000 85,000 88,000
Expenses not deductible........................... 80,000 145,000 256,000
Change in valuation allowance..................... (570,000) (1,925,000) --
--------- ----------- ----------
Income tax expense (benefit), net....... $(460,000) $(1,159,000) $1,090,000
========= =========== ==========
</TABLE>
F-29
<PAGE> 162
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax liabilities and
assets, using a tax rate of 38%, are as follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Current assets:
Reserve on assets......................................... $ 47,000 $ 48,000
Liabilities not yet deductible............................ 923,000 966,000
---------- ----------
Total current assets.............................. 970,000 1,014,000
---------- ----------
Noncurrent assets:
Net operating loss carryforwards.......................... 945,000 152,000
Other..................................................... 67,000 23,000
---------- ----------
Noncurrent asset.......................................... 1,012,000 175,000
---------- ----------
Total net deferred tax asset...................... $1,982,000 $1,189,000
========== ==========
</TABLE>
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.
7. SHAREHOLDERS' EQUITY
COMMON STOCK
In August 1997, the Company completed an initial public offering of
2,702,500 shares of its common stock, of which 1,401,386 shares were issued and
sold by the Company, at a public offering price of $10.00 per share (the
"Offering"). The Company received net proceeds of approximately $12.1 million
(after deducting underwriting discounts and expenses). Approximately $3.7
million was used to repay all of the Company's then outstanding bank 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.
In connection with the Offering, the Company effected a .65 to 1 reverse
stock split. Accordingly, all references in the accompanying consolidated
financial statements to common share or per common share information have been
restated to reflect the reverse stock split. Additionally, as a result of the
Offering, all 1,125,000 shares of the Company's issued and outstanding Series A
preferred stock were converted into 1,169,935 shares of common stock.
Concurrent with the Offering, the Company removed the restrictions, set
forth in the restricted stock agreement, on 32,500 shares of common stock held
by an officer of the Company. As a result, the Company recorded a non-recurring,
non-cash stock compensation charge of $297,000, or $0.07 per share, assuming
dilution, (for which the Company received no tax deduction) in the third quarter
of fiscal 1997.
During fiscal 1997, the Company adopted the 1997 Outside Directors'
Incentive Plan (the "1997 Directors' Plan") which provides for restricted stock
grants to outside directors. Under the terms of the 1997 Directors' Plan, 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. Restricted stock granted
under the 1997 Directors' Plan will vest at the rate of one-third each year
beginning on the date of grant and the remainder on the first and second annual
meetings of shareholders following the annual meeting at which the restricted
stock was granted, provided that the grantee is still serving as a Director of
the
F-30
<PAGE> 163
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. At January 2, 1998, no restricted stock had been granted under the 1997
Directors' Plan and there were 25,000 shares of unissued common stock reserved
for issuance under the 1997 Directors' Plan.
STOCK OPTIONS
During fiscal 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Plan") which provides for qualified and non-qualified incentive stock
option grants and other stock-based awards for which options may be granted to
officers, key employees, and consultants as designated by the Board of
Directors. The option price per share under the 1997 Plan must be at least 100%
of the fair market value of a share of common stock at grant, in the case of
incentive stock options and at least 50% of the fair market value of a share of
common stock at grant, in the case of a non-qualified stock option. At January
2, 1998, no options had been granted under the 1997 Plan and there were 450,000
shares of unissued common stock reserved for issuance under the 1997 Plan.
Prior to the adoption of the 1997 Plan, the Company had two stock incentive
plans, the 1987 Stock Option Plan and the 1996 Stock Incentive Plan, which
provided 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 unless
otherwise determined by the Compensation Committee. The exercise prices on stock
options granted to date range from $4.62 to $10.00 per share. Subsequent to the
adoption of the 1997 Plan, no further grants may be made under the 1987 Stock
Option Plan or the 1996 Stock Incentive Plan.
Prior to the adoption of the 1997 Directors' Plan, the Company periodically
issued 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 have been granted with exercise prices equal to
or greater than the fair value of the Company's common stock on the date of
grant. As a result, no compensation cost has been recognized.
F-31
<PAGE> 164
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 123 established 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 stock option plans. Had compensation cost for the stock option
plans been determined based on the fair value at the grant date for awards in
fiscal 1995, 1996 and 1997 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, 1996 and 1997 fiscal years:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported....................................... $541,000 $2,736,000 $1,104,000
======== ========== ==========
Pro forma......................................... $434,000 $2,432,000 $ 593,000
======== ========== ==========
Earnings per common share:
As reported....................................... $ 0.34 $ 1.44 $ 0.39
======== ========== ==========
Pro forma......................................... $ 0.27 $ 1.28 $ 0.21
======== ========== ==========
Earnings per common share assuming dilution:
As reported....................................... $ 0.19 $ 0.85 $ 0.28
======== ========== ==========
Pro forma......................................... $ 0.15 $ 0.75 $ 0.15
======== ========== ==========
</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 1997
------- -------- --------
<S> <C> <C> <C>
Expected dividend yield................................... 0.0% 0.0% 0.0%
Expected stock price volatility........................... 0.0 0.0 35.0
Risk free interest rate................................... 7.8 5.6 5.7
10
Expected life of options.................................. years 10 years 5 years
Weighted-average fair value per share of options granted
during the year......................................... $4.18 $3.29 $10.71
</TABLE>
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 1995, 1996
and 1997 fiscal years:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period............................ 469,697 $5.65 650,397 $6.57 1,093,046 $6.98
Granted........................... 206,700 7.69 490,425 7.69 156,000 8.06
Exercised......................... -- -- (15,685) 6.20 (53,580) 5.84
Canceled.......................... (26,000) 6.66 (32,091) 6.68 (23,370) 7.57
------- ----- --------- ----- --------- -----
Outstanding at end of period........ 650,397 $6.57 1,093,046 $6.98 1,172,096 $7.18
======= ===== ========= ===== ========= =====
Exercisable......................... 363,245 $5.78 446,513 $6.11 723,921 $6.80
======= ===== ========= ===== ========= =====
Available for future grant.......... 60,704 318,994 450,000
======= ========= =========
</TABLE>
F-32
<PAGE> 165
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average contractual life remaining on options outstanding
under the above plans at January 2, 1998 is 6.9 years.
In addition to the above plans, the Company issued 32,500 options during
1996 to its vice chairman in exchange for consulting services. The options have
an exercise price of $7.69 per share and expire in 2005. At the grant date,
13,000 of the options vested and the remainder vests ratably over a three year
period. 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 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.
The Company recognizes a tax deduction upon exercise of non-qualified stock
options in an amount equal to the difference between the option price and the
fair market value of the common stock. These tax benefits are credited to common
stock.
STOCK PURCHASE WARRANTS
Prior to 1994, the Company issued 78,000 stock purchase warrants to a
shareholder. Warrants outstanding at January 2, 1998 and December 27, 1996,
total 26,000 and 52,000 respectively, and have exercise prices ranging from
$5.77 to $7.69 per share. The warrants were exercised in January 1998.
8. EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of SFAS
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. All periods presented have been restated to reflect the
adoption of SFAS 128.
The following tables present information necessary to calculate earnings
per share for fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders.......... $541,000 1,614,454 $0.34
=====
Effect of dilutive securities:
Options and warrants............................. -- 138,155
Convertible preferred stock...................... -- 1,169,935
-------- ---------
Diluted earnings per share......................... $541,000 2,922,544 $0.19
======== ========= =====
</TABLE>
F-33
<PAGE> 166
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders.......... $2,736,000 1,903,278 $1.44
=====
Effect of dilutive securities:
Options and warrants............................. -- 153,859
Convertible preferred stock...................... -- 1,169,935
---------- ---------
Diluted earnings per share......................... $2,736,000 3,227,072 $0.85
========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders.......... $1,104,000 2,841,434 $0.39
=====
Effect of dilutive securities:
Options and warrants............................. -- 418,827
Convertible preferred stock...................... -- 734,766
---------- ---------
Diluted earnings per share......................... $1,104,000 3,995,027 $0.28
========== ========= =====
</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 $895,000, $735,000, and $814,000 in 1995, 1996 and 1997,
respectively. Future minimum payments under non-cancelable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- - -----------
<S> <C>
1998........................................................ $ 690,000
1999........................................................ 555,000
2000........................................................ 231,000
2001........................................................ 112,000
2002........................................................ 32,000
Thereafter.................................................. 214,000
----------
Total............................................. $1,834,000
==========
</TABLE>
Future minimum lease payments include approximately $920,000 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, 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.
F-34
<PAGE> 167
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
The Company is a defendant in certain legal matters in the ordinary course
of business. Management believes the resolution of such 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 PLANS
The Company maintains a 401(k) Retirement Savings Plan (the "Plan") for all
employees with more than 1,000 hours of credited service annually and who have
been with the Company one or more years. The Plan is funded by elective employee
contributions of up to 15% of their compensation, and the Company matches 25% of
employee contributions for each participant up to 6% of the employee's
compensation. Expense under the Plan, consisting of Company contributions and
Plan administrative expenses paid by the Company, was $8,000, $71,000 and
$190,000 in 1995, 1996 and 1997, respectively.
During 1997, the Company adopted an employee stock purchase plan (the
"Stock Purchase Plan"). The Stock Purchase Plan allows eligible employees the
right to purchase common stock on a semi-annual basis at the lower of 85% of the
market price at the beginning or end of each six-month offering period. At
January 2, 1998, no shares had been issued under the Stock Purchase Plan and
there were 100,000 shares of unissued common stock reserved for issuance under
the Stock Purchase Plan.
11. RELATED PARTY TRANSACTIONS
During 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 $61,000 in 1995.
The Company purchases food for use in several Company managed Family
Centers from an affiliate of a shareholder, Marriott Management Services Corp.
Total food purchases from such affiliate during 1995, 1996 and 1997 were
approximately $420,000, $417,000, and $532,000, respectively.
The Company has agreements with the employers of two members of its Board
of Directors and an affiliate of a shareholder, Marriott Management Services
Corp., to operate and manage a Family Center. In return for its services under
these agreements, the Company received management fees of $66,000, $108,000, and
$181,000, respectively for fiscal 1995, 1996 and 1997. Additionally, the Company
provided consulting services for such employers in 1996 and 1997 and received
consulting fees of $65,000 and $68,000, respectively.
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.
F-35
<PAGE> 168
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STATEMENT OF CASH FLOW INFORMATION
The following table presents supplemental disclosure of cash flow
information for fiscal years 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---------- -------- ----------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash payments of interest......................... $ 136,000 $456,000 $ 312,000
========== ======== ==========
Cash payments of income taxes..................... $ -- $ -- $ 350,000
========== ======== ==========
Noncash financing activities:
Issuance of options in exchange for consulting
services....................................... $ -- $100,000 $ --
========== ======== ==========
Conversion of 1,125,000 Series A preferred shares
into 1,169,935 common shares................... $ -- $ -- $4,500,000
========== ======== ==========
Restriction removed on common stock............... $ -- $ -- $ 297,000
========== ======== ==========
Issuance of restricted common shares.............. $ -- $ 28,000 $ --
========== ======== ==========
Accretion of preferred stock...................... $ 29,000 $ 29,000 $ 20,000
========== ======== ==========
Issuance of common stock in connection with
acquisition of RCCM............................ $1,750,000 $ -- $ --
========== ======== ==========
</TABLE>
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1996 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996:
Revenue..................................... $14,435,000 $15,644,000 $15,984,000 $16,863,000
Operating income............................ 418,000 439,000 417,000 646,000
Income before income taxes.................. 285,000 378,000 340,000 574,000
Net income.................................. 278,000 358,000 318,000 1,782,000
Basic earnings per share.................... 0.15 0.19 0.17 0.93
Diluted earnings per share.................. 0.09 0.11 0.10 0.55
1997:
Revenue..................................... $17,479,000 $18,900,000 $19,755,000 $21,588,000
Operating income............................ 522,000 649,000 227,000 687,000
Income before income taxes.................. 450,000 596,000 276,000 872,000
Net income.................................. 229,000 317,000 31,000 527,000
Basic earnings per share.................... 0.12 0.17 0.01 0.12
Diluted earnings per share.................. 0.07 0.10 0.01 0.10
</TABLE>
15. INTERIM FINANCIAL INFORMATION (UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of April 3, 1998 and the consolidated
statements of income and cash flows for the three month periods ended March 28,
1997 and April 3, 1998 have been prepared by the Company in accordance with the
accounting policies described in its annual financial statements for the year
F-36
<PAGE> 169
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended January 2, 1998, included in the Company's Annual Report on Form 10-K, 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 position,
results of operations and changes in cash flows at April 3, 1998 and for all
periods presented have been made. The results of operations for the period ended
April 3, 1998 are not necessarily indicative of the operating results for the
full year.
INITIAL PUBLIC OFFERING
In August 1997, the Company completed an initial public offering of
2,702,500 shares of its common stock, of which 1,401,386 shares were issued and
sold by the Company, at a public offering price of $10.00 per share (the
"Offering"). The Company received net proceeds of approximately $12.1 million
(after deducting underwriting discounts and expenses). Approximately $3.7
million was used to repay all of the Company's then outstanding bank 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.
In connection with the Offering, the Company effected a .65 to 1 reverse
stock split. Accordingly, all references in the accompanying financial
statements to common share or per common share information have been restated to
reflect the reverse stock split. Additionally, as a result of the Offering, all
1,125,000 shares of the Company's issued and outstanding Series A preferred
stock were converted into 1,169,935 shares of common stock.
EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
("SFAS 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. All periods presented have been restated to reflect
the adoption of SFAS 128.
The following tables present information necessary to calculate earnings
per share for the three months ended March 28, 1997 and April 3, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 28, 1997
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders.................. $229,000 1,908,221 $0.12
=====
Effect of dilutive securities:
Options and warrants..................................... -- 216,813
Convertible preferred stock.............................. -- 1,169,935
-------- ---------
Diluted earnings per share................................. $229,000 3,294,969 $0.07
======== ========= =====
</TABLE>
F-37
<PAGE> 170
CORPORATEFAMILY SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 3, 1998
---------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share:
Income available to common shareholders.................. $514,000 4,540,812 $0.11
=====
Effect of dilutive securities:
Options and warrants..................................... -- 752,827
-------- ---------
Diluted earnings per share................................. $514,000 5,293,639 $0.10
======== ========= =====
</TABLE>
STATEMENT OF CASH FLOW INFORMATION
The following table presents supplemental disclosure of cash flow
information for the three months ended March 28, 1997 and April 3, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 28, APRIL 3,
1997 1998
--------- --------
<S> <C> <C>
Supplemental cash flow information:
Cash payments of interest................................. $101,000 $ --
======== ========
Cash payment of income taxes.............................. $160,000 $ 62,000
======== ========
Noncash financing activities:
Tax benefit related to stock option exercise.............. $ -- $451,000
======== ========
</TABLE>
SUBSEQUENT EVENT
On April 26, 1998, the Company entered into a definitive Agreement and Plan
of Merger (the "Merger Agreement") with Bright Horizons, Inc., a Delaware
corporation ("BRHZ"). Pursuant to the Merger Agreement, the Company and BRHZ
will form Bright Horizons Family Solutions, Inc., a Delaware corporation
("Newco"), and each of the Company and BRHZ will merge with two newly formed
subsidiaries of Newco (the "Merger"). In the Merger, each outstanding share of
the Company's common stock shall be converted into one share of Newco common
stock, par value $0.01 per share ("Newco Common Stock") and each outstanding
share of BRHZ common stock shall be converted into 1.15022 shares of Newco
Common Stock. The transaction, which is expected to be completed in the third
quarter of 1998, is intended to be treated as a tax-free reorganization and
shall be accounted for as a pooling of interests. Closing under the Merger
Agreement is subject to a number of conditions, including shareholder and
regulatory approval.
F-38
<PAGE> 171
ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
Annex I -- AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER DATED JUNE 17, 1998
Annex II -- COMPANY STOCK OPTION AGREEMENT BETWEEN BRIGHT
HORIZONS, AS GRANTEE, AND CORPORATEFAMILY, AS
ISSUER
Annex III -- COMPANY STOCK OPTION AGREEMENT BETWEEN
CORPORATEFAMILY, AS GRANTEE, AND BRIGHT
HORIZONS, AS ISSUER
Annex IV -- OPINION OF NATIONSBANC MONTGOMERY SECURITIES LLC
Annex V -- OPINION OF BT ALEX. BROWN INCORPORATED
</TABLE>
<PAGE> 172
ANNEX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED JUNE 17, 1998
BY AND AMONG
CORPORATEFAMILY SOLUTIONS, INC.,
BRIGHT HORIZONS, INC.,
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.,
CFAM ACQUISITION, INC.,
AND
BRHZ ACQUISITION, INC.
<PAGE> 173
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated June 17, 1998, is by and among CorporateFamily Solutions, Inc., a
Tennessee corporation ("CFAM"), Bright Horizons, Inc., a Delaware corporation
("BRHZ") Bright Horizons Family Solutions, Inc., a Delaware corporation
("Newco"), CFAM Acquisition, Inc., a Tennessee corporation ("Merger Sub A"), and
BRHZ Acquisition, Inc., a Delaware corporation ("Merger Sub B"), and amends and
restates the Agreement and Plan of Merger dated as of April 26, 1998 by and
between CFAM and BRHZ.
WHEREAS, the Boards of Directors of CFAM, BRHZ, Newco, Merger Sub A and
Merger Sub B each have, in light of and subject to the terms and conditions set
forth herein, (i) determined that the Merger (as defined below) is fair to their
respective stockholders and in the best interests of such stockholders and (ii)
approved the Merger in accordance with this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement, as
a condition and inducement to CFAM's and BRHZ's willingness to enter into this
Agreement, CFAM and BRHZ have each entered into a Stock Option Agreement dated
as of the date hereof in the form of Exhibit A (collectively, the "Stock Option
Agreements"), pursuant to which CFAM has granted to BRHZ an option to purchase
CFAM Shares (as defined below) and pursuant to which BRHZ has granted to CFAM an
option to purchase BRHZ Shares (as defined below);
WHEREAS, it is intended that the Merger be treated as (i) a reorganization,
for Federal income tax purposes, under the provisions of Section 368(a)(2)(E)
the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) a "pooling
of interests" for accounting purposes.
WHEREAS, CFAM and BRHZ desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, CFAM, BRHZ, Newco, Merger Sub A and Merger Sub B hereby
agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time (as defined below) and upon the
terms and subject to the conditions of this Agreement and in accordance with the
Tennessee Business Corporation Act (the "TBCA") and the General Corporation Law
of the State of Delaware (the "DGCL"), two wholly owned subsidiaries, Merger Sub
A, a Tennessee corporation and wholly owned subsidiary of Newco, and Merger Sub
B, a Delaware corporation and wholly owned subsidiary of Newco, shall be merged
with and into CFAM (the "CFAM Merger") and BRHZ (the "BRHZ Merger", collectively
the CFAM Merger and BRHZ Merger shall be referred to herein as the "Merger"),
respectively, with each of CFAM and BRHZ continuing as the surviving
corporations (each, a "Surviving Corporation"), wholly owned by Newco, and the
separate corporate existence of each of Merger Sub A and Merger Sub B shall
cease. Newco shall continue as the parent corporation, shall continue to be
governed by the laws of the State of Delaware and shall be called "Bright
Horizons Family Solutions, Inc." The Merger is intended to qualify as a tax-free
reorganization under Section 368(a)(2)(E) of the Code.
1.2 Effective Time. Subject to the terms and conditions set forth in this
Agreement, Articles of Merger (the "Articles of Merger") and Certificates of
Merger (each, a "Merger Certificate") shall be duly executed and acknowledged by
each of CFAM, BRHZ, Merger Sub A and Merger Sub B, as applicable and thereafter
the Articles of Merger reflecting the CFAM Merger shall be delivered to the
Secretary of State of the State of Tennessee for filing pursuant to the TBCA on
the Closing Date and the Merger Certificates reflecting the BRHZ Merger shall be
delivered to the Secretary of State of the State of Delaware for filing pursuant
to the DGCL on the Closing Date (as defined in Section 1.3). The Merger shall
become effective at such time as a
<PAGE> 174
properly executed and certified copy of the Articles of Merger are duly filed by
the Secretary of State of the State of Tennessee in accordance with the TBCA and
the Merger Certificate is duly filed by the Secretary of State of the State of
Delaware in accordance with the DGCL or such later time as the parties may agree
upon and set forth in the Articles of Merger and the Merger Certificate (the
time at which the Merger becomes effective shall be referred to herein as the
"Effective Time").
1.3 Closing of the Merger. The closing of the Merger (the "Closing") will
take place at a time and on a date to be specified by the parties, which shall
be no later than the second business day after satisfaction of the latest to
occur of the conditions set forth in Article 5 (the "Closing Date"), at the
offices of Bass, Berry & Sims PLC, 2700 First American Center, Nashville, TN,
unless another time, date or place is agreed to in writing by the parties
hereto.
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the TBCA and the DGCL. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of each of Merger Sub A and Merger Sub B shall vest in the
respective Surviving Corporations, and all debts, liabilities and duties of each
of Merger Sub A and Merger Sub B shall become the debts, liabilities and duties
of the respective Surviving Corporations.
1.5 Formation of Newco and Merger Subs; Certificate of Incorporation and
Bylaws. (a) Prior to the Effective Time, CFAM and BRHZ agree to take such
action as is necessary to (i) form a new corporation under the laws of the State
of Delaware ("Newco") that will be owned equally by CFAM and BRHZ; (ii) form two
new corporations that are wholly owned subsidiaries of Newco to be Merger Sub A
and Merger Sub B; and (iii) amend this Agreement to add each of Newco, Merger
Sub A and Merger Sub B as a party. CFAM and BRHZ agree to take such action as is
necessary to cause Newco, Merger Sub A and Merger Sub B to perform the various
covenants and agreements contained herein which are contemplated herein to be
performed by Newco, Merger Sub A and Merger Sub B. Any covenants or agreements
of Newco, Merger Sub A and Merger Sub B contained herein shall be binding on
such entity as of the time such entity becomes a party to this Agreement.
(b) The Certificate of Incorporation, in substantially the form attached
hereto as Exhibit B, shall be the Certificate of Incorporation of Newco as of
the Effective Time.
(c) The Bylaws of Newco, in substantially the form attached hereto as
Exhibit C, shall be the Bylaws of Newco after the Effective Time.
(d) The Charter of Merger Sub A and the Certificate of Incorporation of
Merger Sub B as in effect immediately prior to the Effective Time shall be the
Charter and Certificate of Incorporation of the Surviving Corporations,
respectively.
(e) The Bylaws of Merger Sub A and Merger Sub B immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporations, respectively.
1.6 Board of Directors and Officers of Newco, Merger Sub A and Merger Sub
B. (a) At or prior to the Effective Time, each of CFAM and BRHZ agrees to take
such action as is necessary (i) to cause the number of directors comprising the
full Board of Directors of Newco to be eleven (11) persons, (ii) to cause
Marguerite W. Sallee and Robert D. Lurie (collectively, the "CFAM Designees")
and Roger H. Brown and Linda A. Mason (collectively, the "BRHZ Designees") to be
elected as directors of Newco (iii) to allow the CFAM and BRHZ Boards of
Directors to respectively designate three director nominees, such nominees
subject to the approval of the other party's Board of Directors, to be elected
as directors of Newco (the "Board Designees") and (iv) to mutually agree to the
selection of one person to be elected as a director of Newco (the "Joint
Designee"). In addition, CFAM and BRHZ, as the stockholders of Newco prior to
the Effective Time, shall take all action necessary to cause, to the greatest
extent practicable, the CFAM Designees, the BRHZ Designees, the Board Designees
and the Joint Designees to serve in equal numbers in each of Newco's three
classes of directors until the 1999 Annual Meeting, 2000 Annual Meeting and 2001
Annual Meeting. If any of the CFAM Designees, the BRHZ Designees or the Board
Designees, respectively, shall decline or be unable to serve as a director prior
to the Effective Time, CFAM (if such person was a CFAM Designee or a CFAM
selected Board Designee) or BRHZ (if such person was a BRHZ Designee or a BRHZ
selected
I-2
<PAGE> 175
Board Designee), as the case may be, shall nominate another person to serve in
such person's stead which such person shall be subject to approval of the other
party. If the Joint Designee shall decline or be unable to serve as a director
prior to the Effective Time, both CFAM and BRHZ shall mutually agree upon
another person to serve in such person's stead, such agreement to be in writing
executed by an executive officer of each of CFAM and BRHZ. If any of the CFAM
Designees, the BRHZ Designees, the Board Designees or the Joint Designee,
respectively, shall decline or be unable to serve as a director during his or
her initial term following the Effective Time, the remaining CFAM Designees (if
such person was a CFAM Designee or a CFAM selected Board Designee), the BRHZ
Designees (if such person was a BRHZ Designee or a BRHZ selected Board
Designee), or the remaining members of the Board of Directors (if such person
was a Joint Designee), as the case may be, shall nominate another person to
serve in such person's stead, which such person shall be subject to the approval
of the other party's designees.
(b) Prior to or at the Effective Time, the Newco Board shall take action to
establish a Compensation Committee, an Audit Committee and a Nominating
Committee of Newco as mutually proposed by the CFAM Designees and BRHZ Designees
and approved by the Board of Directors of Newco.
(c) From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable law, (i) the directors of
CFAM and BRHZ shall be the same as those of Newco, and (ii) the directors of
subsidiaries of BRHZ and CFAM shall be such persons who were serving in such
capacities immediately prior to the Effective Time.
(d) From and after the Effective Time, and until successors are duly
elected or appointed and qualified in accordance with applicable law, Linda A.
Mason shall be Chairman of Newco, Marguerite W. Sallee shall be Chief Executive
Officer of Newco, Roger H. Brown shall be President of Newco, Mary Ann Tocio
shall be Chief Operating Officer of Newco, Michael E. Hogrefe shall be Chief
Financial Officer of Newco and Steve Dreier shall be Chief Administrative
Officer and Secretary of Newco. The above shall also hold such offices in Merger
Sub A and Merger Sub B. The officers of Merger Sub A and Merger Sub B shall be
the officers of the Surviving Corporations. Subject to the exercise of the
fiduciary duties of the directors of Newco, Marguerite Sallee shall serve as the
Chief Executive Officer for two and one-half years after the Effective Time, at
which time Roger Brown will be named Chief Executive Officer, Marguerite Sallee
shall continue to serve as a senior executive in the position of Chairman of the
Board of Directors and Linda Mason will be named President and Vice Chairman.
(e) From and after the Effective Time, the existing officers of the
subsidiaries of the surviving corporations shall continue to serve in such
capacities at the pleasure of their respective boards of directors.
1.7 Conversion of Shares. (a) At the Effective Time, each share of common
stock, no par value per share of CFAM (individually a "CFAM Share" and
collectively, the "CFAM Shares") issued and outstanding immediately prior to the
Effective Time shall, by virtue of the CFAM Merger and without any action on the
part of CFAM, BRHZ, Newco or the holder thereof, be converted into and shall
become 1.0 fully paid and nonassessable share of common stock, par value $0.01
per share, of Newco (individually a "Newco Share" and collectively, the "Newco
Shares").
(b) At the Effective Time, each share of common stock, par value $.01 per
share, of BRHZ (individually a "BRHZ Share" and collectively, the "BRHZ Shares")
issued and outstanding immediately prior to the Effective Time (other than BRHZ
Shares held in BRHZ's treasury) shall, by virtue of the BRHZ Merger and without
any action on the part of CFAM, Newco, BRHZ or the holder thereof, be converted
into and shall become 1.15022 fully paid and nonassessable Newco Shares. CFAM
Shares and BRHZ Shares are sometimes referred to collectively herein as
"Shares."
(c) At the Effective Time, each outstanding share of the common stock of
any subsidiaries of CFAM and BRHZ shall remain outstanding.
(d) At the Effective Time, each BRHZ Share held in the treasury of BRHZ and
each Newco Share held by CFAM or BRHZ immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Newco, CFAM
or BRHZ be canceled, retired and cease to exist and no payment shall be made
with respect thereto.
I-3
<PAGE> 176
(e) At the Effective Time, (i) each share of common stock, no par value per
share, of Merger Sub A issued and outstanding immediately prior to the Effective
Time shall, by virtue of the CFAM Merger and without any action on the part of
Newco, CFAM or Merger Sub A, be converted into and shall become 1.0 fully paid
and nonassessable CFAM Share and (ii) each share of common stock, par value $.01
per share, of Merger Sub B issued and outstanding immediately prior to the
Effective Time shall, by virtue of the BRHZ Merger and without any action on the
part of Newco, BRHZ or Merger Sub B, be converted into and shall become 1.0
fully paid and nonassessable BRHZ Share.
1.8 Exchange of Certificates. (a) Prior to the Effective Time, Newco shall
enter into an agreement with, and shall deposit with such agent or agents as may
be satisfactory to CFAM and BRHZ (the "Exchange Agent"), for the benefit of the
holders of CFAM Shares and BRHZ Shares, for exchange through the Exchange Agent
in accordance with this Article 1: (i) certificates representing the appropriate
number of Newco Shares to be issued to holders of CFAM Shares and to holders of
BRHZ Shares and (ii) cash to be paid in lieu of fractional Newco Shares (such
Newco Shares and such cash is hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 1.7 in exchange for outstanding CFAM Shares and
BRHZ Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding CFAM Shares or BRHZ Shares (the "Certificates") whose shares were
converted into the right to receive Newco Shares pursuant to Section 1.7: (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as CFAM and BRHZ may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing Newco Shares. Upon surrender of a Certificate to the Exchange
Agent, together with such letter of transmittal, duly executed, and any other
required documents, the holder of such Certificate shall be entitled to receive
in exchange therefor a certificate representing that number of whole Newco
Shares and, if applicable, a check representing the cash consideration to which
such holder may be entitled on account of a fractional Newco Share, which such
holder has the right to receive pursuant to the provisions of this Article 1,
and the Certificate so surrendered shall forthwith be canceled. In the event of
a transfer of ownership of CFAM Shares or BRHZ Shares which is not registered in
the transfer records of either CFAM or BRHZ, a certificate representing the
proper number of Newco Shares may be issued to a transferee if the Certificate
representing such CFAM Shares or BRHZ Shares is presented to the Exchange Agent,
accompanied by all documents required by the Exchange Agent or Newco to evidence
and effect such transfer and by evidence that any applicable stock transfer or
other taxes have been paid. Until surrendered as contemplated by this Section
1.8, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing Newco Shares and cash in lieu of any fractional Newco Shares as
contemplated by this Section 1.8.
(c) No dividends or other distributions declared or made after the
Effective Time with respect to Newco Shares with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the Newco Shares represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.8(f)
until the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Newco Shares issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of any cash payable in lieu of a
fractional Newco Share to which such holder is entitled pursuant to Section
1.8(f) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole Newco
Shares, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole Newco Shares.
(d) In the event that any Certificate for CFAM Shares or BRHZ Shares shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
therefor, upon the making of an affidavit of that fact by the holder thereof
such Newco Shares and cash in lieu of fractional Newco Shares, if any, as may be
required
I-4
<PAGE> 177
pursuant to this Agreement; provided, however, that Newco or the Exchange Agent,
may, in its respective discretion, require the delivery of a suitable bond,
opinion or indemnity.
(e) All Newco Shares issued upon the surrender for exchange of CFAM Shares
or BRHZ Shares in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8(c) or 1.8(f)) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such CFAM Shares or BRHZ Shares.
There shall be no further registration of transfers on the stock transfer books
of either of CFAM or BRHZ of the CFAM Shares or BRHZ Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to Newco for any reason, they shall be canceled
and exchanged as provided in this Article 1.
(f) No fractional Newco Shares shall be issued in the Merger, but in lieu
thereof each holder of CFAM Shares or BRHZ Shares otherwise entitled to a
fractional Newco Share shall, upon surrender of its, his or her Certificate or
Certificates, be entitled to receive an amount of cash rounded to the nearest
cent (without interest) determined by multiplying the fair market value of a
Newco Share as determined by the Newco Board of Directors by the fractional
share interest to which such holder would otherwise be entitled. The parties
acknowledge that payment of the cash consideration in lieu of issuing fractional
shares was not separately bargained for consideration but merely represents a
mechanical rounding off for purposes of simplifying the corporate and accounting
complexities which would otherwise be caused by the issuance of fractional
shares.
(g) Any portion of the Exchange Fund which remains undistributed to the
stockholders of either CFAM or BRHZ for six months after the Effective Time
shall be delivered to Newco, upon demand, and any stockholders of either CFAM or
BRHZ who have not theretofore complied with this Article 1 shall thereafter look
only to Newco for payment of their claim for Newco Shares, any cash in lieu of
fractional Newco Shares and any applicable dividends or distributions with
respect to Newco Shares, as the case may be.
(h) Neither Newco, CFAM nor BRHZ shall be liable to any holder of CFAM
Shares, BRHZ Shares or Newco Shares, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.9 Stock Options. (a) At the Effective Time, each outstanding option to
purchase CFAM Shares (a "CFAM Stock Option" or collectively, "CFAM Stock
Options") issued pursuant to the CFAM 1987 Stock Option Plan, the CFAM 1996
Stock Incentive Plan, the CFAM 1997 Stock Incentive Plan, the CFAM 1997 Outside
Directors' Stock Incentive Plan and all other contractual grants, whether vested
or unvested, shall be assumed by Newco (all of such plans or agreements pursuant
to which any CFAM Stock Option has been issued or may be issued are referred to
collectively as the "CFAM Plans"). Each CFAM Stock Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such CFAM Stock Option, the same number of Newco Shares as the
holder of such CFAM Stock Option would have been entitled to receive pursuant to
the Merger had such holder exercised such option in full immediately prior to
the Effective Time, at a price per share equal to (y) the aggregate exercise
price for the CFAM Shares otherwise purchasable pursuant to such CFAM Stock
Option divided by (z) the number of Newco Shares deemed purchasable pursuant to
such CFAM Stock Option; provided, however, that in the case of any option to
which section 421 of the Code applies by reason of its qualification under
section 422 of the Code ("incentive stock options" or "ISOs"), the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with section 424(a) of the Code.
(b) At the Effective Time, each outstanding option to purchase BRHZ Shares
(a "BRHZ Stock Option" or collectively, "BRHZ Stock Options") issued pursuant to
the BRHZ 1987 Stock Option and Incentive Plan, the BRHZ 1996 Equity Incentive
Plan and the BRHZ 1997 Equity Incentive Plan, whether vested or unvested, shall
be assumed by Newco (all of such plans or agreements pursuant to which any BRHZ
Stock Option has been issued or may be issued are referred to collectively as
the "BRHZ Plans"). Each BRHZ Stock Option shall be deemed to constitute an
option to acquire, on the same terms and conditions as were applicable under
such BRHZ Stock Option, the same number of Newco Shares (rounded down to the
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<PAGE> 178
nearest whole share) as the holder of such BRHZ Stock Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, at a price per share (rounded
down to the nearest whole cent) equal to (y) the aggregate exercise price for
the BRHZ Shares otherwise purchasable pursuant to such BRHZ Stock Option divided
by (z) the number of full Newco Shares deemed purchasable pursuant to such BRHZ
Stock Option; provided, however, that in the case of any ISO, the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with section 424(a) of the Code.
(c) As soon as practicable after the Effective Time, Newco shall deliver to
the holders of CFAM Stock Options and BRHZ Stock Options appropriate notices
setting forth such holders' rights pursuant to the respective CFAM Plans and
BRHZ Plans and the agreements evidencing the grants of such CFAM Options and
BRHZ Options shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 1.9 after giving effect to the
Merger). Newco shall comply with the terms of the CFAM Plans and BRHZ Plans and
ensure, to the extent required by, and subject to the provisions of, such Plans,
that CFAM Stock Options and BRHZ Stock Options which qualified as incentive
stock options immediately prior to the Effective Time continue to qualify as
incentive stock options of Newco after the Effective Time.
(d) Newco shall take all corporate action necessary to reserve for issuance
a sufficient number of Newco Shares for delivery upon exercise of CFAM Stock
Options and BRHZ Stock Options assumed in accordance with this Section 1.9. As
soon as practicable after the Effective Time, Newco shall file a registration
statement on Form S-8 (or any successor or other appropriate forms) with respect
to the Newco Shares subject to any CFAM Stock Options and BRHZ Stock Options
held by persons who are or were directors, officers or employees of CFAM or BRHZ
or their subsidiaries and shall use its best efforts to maintain the
effectiveness of such registration statement or registration statements (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), where applicable, Newco shall administer CFAM
Plans and BRHZ Plans assumed pursuant to this Section 1.9 in a manner that
complies with Rule 16b-3 promulgated under the Exchange Act, as it may be
amended from time to time, to the extent the applicable CFAM Plan and BRHZ Plan
complied with such rule immediately prior to the Merger.
1.10 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, Newco, CFAM or BRHZ reasonably determines that any deeds,
assignments, or instruments or confirmations of transfer are necessary or
desirable to carry out the purposes of this Agreement and to vest Newco with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of CFAM or BRHZ, the officers and directors of Newco, CFAM
and BRHZ are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary or desirable
action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF BRHZ
Except as set forth on the Disclosure Schedule delivered by BRHZ to CFAM
(the "BRHZ Disclosure Schedule"), BRHZ hereby represents and warrants to CFAM as
follows:
2.1 Organization and Qualification. (a) Each of BRHZ and its subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Material Adverse Effect (as defined below) on BRHZ. When used in connection
with BRHZ, the term "Material Adverse Effect" means any change or effect (i)
that is or is reasonably likely to be materially adverse to the business,
results of operations, condition (financial or otherwise) or prospects of BRHZ
and its subsidiaries, taken as a whole, other than any change or effect arising
out of general economic conditions unrelated to any businesses in which BRHZ and
its subsidiaries are engaged, or (ii) that may impair the ability of BRHZ to
perform its obligations hereunder or to consummate the transactions contemplated
hereby.
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(b) BRHZ has heretofore delivered to CFAM accurate and complete copies of
the Certificate of Incorporation and Bylaws (or similar governing documents), as
currently in effect, of BRHZ. Each of BRHZ and its subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
in such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a Material Adverse Effect on BRHZ. Section 2.1
of the BRHZ Disclosure Schedule sets forth a list of the BRHZ subsidiaries.
2.2 Capitalization of BRHZ. (a) As of March 31, 1998, the authorized
capital stock of BRHZ consists of: (i) Twelve Million (12,000,000) BRHZ Shares,
of which 5,600,738 BRHZ Shares were issued and outstanding and (ii) Three
Million (3,000,000) shares of Preferred Stock, par value $.01 per share, no
shares of which are outstanding. All of the outstanding BRHZ Shares have been
duly authorized and validly issued, and are fully paid, nonassessable and free
of preemptive rights. As of March 31, 1998, 793,340 BRHZ Shares were reserved
for issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding BRHZ Stock Options issued pursuant to the BRHZ Plans.
(b) BRHZ is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of its subsidiaries.
(c) Between March 31, 1998 and the date hereof, no shares of BRHZ's capital
stock have been issued other than pursuant to BRHZ Stock Options already in
existence on such date, and, between March 31, 1998 and the date hereof, no BRHZ
Stock Options have been granted. Except as set forth in Section 2.2(a) above, as
of the date hereof, there are no outstanding (i) shares of capital stock or
other voting securities of BRHZ, (ii) securities of BRHZ convertible into or
exchangeable for shares of capital stock or voting securities of BRHZ, (iii)
options or other rights to acquire from BRHZ or its subsidiaries, or obligations
of BRHZ or its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of BRHZ, or (iv) equity equivalents, interests in the ownership or
earnings of BRHZ or its subsidiaries or other similar rights (collectively,
"BRHZ Securities"). As of the date hereof there are no outstanding obligations
of BRHZ or any of its subsidiaries to repurchase, redeem or otherwise acquire
any BRHZ Securities or stockholder agreements, voting trusts or other agreements
or understandings to which BRHZ is a party or by which it is bound relating to
the voting or registration of any shares of capital stock of BRHZ.
(d) There are no securities of BRHZ convertible into or exchangeable for,
no options or other rights to acquire from BRHZ, and no other contract,
understanding, arrangement or obligation (whether or not contingent) providing
for the issuance or sale, directly or indirectly, of any capital stock or other
ownership interests in, or any other securities of, any subsidiary of BRHZ.
(e) The BRHZ Shares constitute the only class of equity securities of BRHZ
registered or required to be registered under the Exchange Act.
(f) BRHZ does not own directly or indirectly more than fifty percent (50%)
of the outstanding voting securities or interests (including membership
interests) of any entity other than the BRHZ subsidiaries reflected in Section
2.1 of the BRHZ Disclosure Schedule.
2.3 Authority Relative to this Agreement; Recommendation. (a) BRHZ has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of BRHZ
(the "BRHZ Board"), and no other corporate proceedings on the part of BRHZ are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, except, as referred to in Section 2.18, the approval and
adoption of this Agreement by the holders of at least a majority of the then
outstanding BRHZ Shares. This Agreement has been duly and validly executed and
delivered by BRHZ and constitutes a valid, legal and binding agreement of BRHZ,
enforceable against BRHZ in accordance with its terms.
(b) The BRHZ Board has resolved to recommend that the stockholders of BRHZ
approve and adopt this Agreement.
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2.4 SEC Reports; Financial Statements. (a) BRHZ has filed all required
forms, reports and documents with the Securities and Exchange Commission (the
"SEC") since November 7, 1997, each of which has complied in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act (and the rules and
regulations promulgated thereunder, respectively), each as in effect on the
dates such forms, reports and documents were filed. BRHZ has heretofore
delivered or promptly will deliver prior to the Effective Date to Newco and
CFAM, in the form filed with the SEC (including any amendments thereto but
excluding any exhibits), (i) all definitive proxy statements relating to BRHZ's
meetings of stockholders (whether annual or special) held since November 7, 1997
and (ii) all other reports or registration statements filed by BRHZ with the SEC
since November 7, 1997 (all of the foregoing, collectively, the "BRHZ SEC
Reports"). None of such BRHZ SEC Reports, including, without limitation, any
financial statements or schedules included or incorporated by reference therein,
contained, when filed, any untrue statement of a material fact or omitted to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of BRHZ included in the BRHZ SEC Reports were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto), and fairly present the
consolidated financial position of BRHZ and its consolidated subsidiaries as of
the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended, subject in the case of interim
financial statements to the absence of footnotes and to normal year-end audit
adjustments. All material agreements, contracts and other documents required to
be filed as exhibits to any of the BRHZ SEC Reports have been so filed. These
representations shall be deemed to be made with respect to the BRHZ SEC Reports
filed subsequent to the date hereof at the time of their filing.
(b) BRHZ has heretofore made available or promptly will make available to
Newco and CFAM a complete and correct copy of any amendments or modifications,
which are required to be filed with the SEC but have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by BRHZ with the SEC pursuant to the Exchange Act.
2.5 Information Supplied. None of the information supplied or to be
supplied by BRHZ for inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the SEC by Newco in
connection with the issuance of Newco Shares in the Merger (the "S-4") will, at
the time the S-4 is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (ii) the proxy statement
relating to the meeting of BRHZ's stockholders and the meeting of CFAM's
stockholders to be held in connection with the Merger (the "Proxy Statement")
will, at the date mailed to stockholders of BRHZ and CFAM and at the times of
the meeting or meetings of stockholders of BRHZ and CFAM to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement, insofar as it relates to the
meeting of BRHZ's stockholders to vote on the Merger, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, and the S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder.
2.6 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), the rules of the National Association of
Securities Dealers, Inc. ("NASD"), the filing and recordation of the Merger
Certificate, the Articles of Merger as required by the DGCL and TBCA and state
and/or local governmental entities regarding licensure for child care
operations, respectively, no filing with or notice to, and no permit,
authorization, consent or approval of, any court or tribunal or administrative,
governmental or regulatory body, agency or authority (a "Governmental Entity")
is necessary for the execution and delivery by BRHZ of this Agreement or the
consummation by BRHZ of the
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transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on BRHZ.
Neither the execution, delivery and performance of this Agreement by BRHZ
nor the consummation by BRHZ of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of BRHZ
or any of BRHZ's subsidiaries, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien (as defined below)) under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which BRHZ or any of BRHZ's subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound, or (iii) violate any order, writ, injunction, decree, law,
statute, rule or regulation applicable to BRHZ or any of BRHZ's subsidiaries or
any of their respective properties or assets, except in the case of (ii) or
(iii) for violations, breaches or defaults listed on Schedule 2.6 to the BRHZ
Disclosure Schedule or which would not have a Material Adverse Effect on BRHZ.
For purposes of this Agreement, "Lien" means, with respect to any asset
(including, without limitation, any security) any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
2.7 No Default. None of BRHZ or any of its subsidiaries is in breach,
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its Certificate of Incorporation or Bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which BRHZ or
any of its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to BRHZ, its
subsidiaries or any of their respective properties or assets, except in the case
of (ii) or (iii) for violations, breaches or defaults that would not have a
Material Adverse Effect on BRHZ. Each note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which BRHZ or
any of its subsidiaries is now a party or by which any of them or any of their
respective properties or assets may be bound that is material to BRHZ and its
subsidiaries, taken as a whole, and that has not expired is in full force and
effect and is not subject to any material default thereunder of which BRHZ is
aware by any party obligated to BRHZ or any subsidiary thereunder.
2.8 No Undisclosed Liabilities; Absence of Changes. Except as and to the
extent publicly disclosed by BRHZ in the BRHZ SEC Reports filed prior to the
date hereof, as of June 30, 1997, none of BRHZ or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of BRHZ and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on BRHZ. Except as publicly disclosed by BRHZ in the BRHZ SEC
Reports filed prior to the date hereof, since June 30, 1997, none of BRHZ or its
subsidiaries has incurred any liabilities of any nature, whether or not accrued,
contingent or otherwise, which could reasonably be expected to have, and there
have been no events, changes or effects with respect to BRHZ or its subsidiaries
having or which could reasonably be expected to have, a Material Adverse Effect
on BRHZ. Except as and to the extent publicly disclosed by BRHZ in the BRHZ SEC
Reports filed prior to the date hereof, since June 30, 1997, there has not been
(i) any material change by BRHZ in its accounting methods, principles or
practices (other than as required after the date hereof by concurrent changes in
generally accepted accounting principles), (ii) any revaluation by BRHZ of any
of its assets having a Material Adverse Effect on BRHZ, including, without
limitation, any write-down of the value of any assets other than in the ordinary
course of business or (iii) any other action or event that would have required
the consent of any other party hereto pursuant to Section 4.1 of this Agreement
had such action or event occurred after the date of this Agreement.
2.9 Litigation. Except as publicly disclosed by BRHZ in the BRHZ SEC
Reports filed prior to the date hereof, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of BRHZ, threatened
against BRHZ or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on BRHZ or could
reasonably be expected to prevent or delay the consummation of the
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transactions contemplated by this Agreement. Except as publicly disclosed by
BRHZ in the BRHZ SEC Reports filed prior to the date hereof, none of BRHZ or its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen in the future, could reasonably be
expected to have a Material Adverse Effect on BRHZ or could reasonably be
expected to prevent or delay the consummation of the transactions contemplated
hereby.
2.10 Compliance with Applicable Law. Except as publicly disclosed by BRHZ
in the BRHZ SEC Reports filed prior to the date hereof, BRHZ and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "BRHZ Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which would not
have a Material Adverse Effect on BRHZ. Except as publicly disclosed by BRHZ in
the BRHZ SEC Reports filed prior to the date hereof, BRHZ and its subsidiaries
are in compliance with the terms of the BRHZ Permits, except where the failure
so to comply would not have a Material Adverse Effect on BRHZ. Except as
publicly disclosed by BRHZ in the BRHZ SEC Reports filed prior to the date
hereof, the businesses of BRHZ and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity and
except for violations or possible violations which do not, and, insofar as
reasonably can be foreseen, in the future cannot reasonably be expected to, have
a Material Adverse Effect on BRHZ. Except as publicly disclosed by BRHZ in the
BRHZ SEC Reports filed prior to the date hereof, no investigation or review by
any Governmental Entity with respect to BRHZ or its subsidiaries is pending or,
to the knowledge of BRHZ, threatened, nor, to the knowledge of BRHZ, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which BRHZ reasonably believes will not have a Material Adverse
Effect on BRHZ.
2.11 Employee Benefit Plans; Labor Matters. (a) The BRHZ Disclosure
Schedule lists each employment, bonus, deferred compensation, pension, stock
option, stock appreciation right, profit-sharing or retirement plan, arrangement
or practice, each medical, vacation, retiree medical, severance pay plan, and
each other agreement or fringe benefit plan, arrangement or practice, of BRHZ,
whether formal or informal, which affects one or more of its employees,
including all "employee benefit plans" as defined by Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, the "BRHZ Plans").
(b) Copies of each such BRHZ Plan requested by CFAM have heretofore been
delivered to CFAM. For each BRHZ Plan which is an "employee benefit plan" under
Section 3(3) of ERISA, BRHZ has made available to CFAM correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report (including all applicable schedules), and all related
trust agreements, insurance contracts and funding agreements which implement
each such BRHZ Plan.
(c) BRHZ does not have any commitment, whether formal or informal, (i) to
create any additional such BRHZ Plan; (ii) to modify or change any such BRHZ
Plan; or (iii) to maintain for any period of time any such BRHZ Plan.
(d) There are no BRHZ Plans which are subject to Title IV of ERISA or the
minimum funding standards of Section 412 of the Code. Neither BRHZ nor any BRHZ
Plan nor any trustee, administrator, fiduciary or sponsor of any BRHZ Plan has
engaged in any prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code for which there is no statutory exemption in Section
408 of ERISA or Section 4975 of the Code; all filings, reports and descriptions
as to such BRHZ Plans (including Form 5500 Annual Reports, Summary Plan
Descriptions, PBCG-1's and Summary Annual Reports) required to have been made or
distributed to participants, the Internal Revenue Service, the United States
Department of Labor and other governmental agencies have been made in a timely
manner or will be made on or prior to the Closing Date; there is no material
litigation, disputed claim, governmental proceeding or investigation pending or
threatened with respect to any of such BRHZ Plans, the related trusts, or any
fiduciary, trustee, administrator or sponsor of such BRHZ Plans; such BRHZ Plans
have been established, maintained and administered in all material respects in
accordance with their governing documents and applicable provisions of ERISA and
the Code and Treasury Regulations promulgated thereunder; there has been no
"Reportable
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Event" as defined in Section 4043 of ERISA with respect to any BRHZ Pension plan
that has not been waived by the Pension Benefit Guaranty Corporation; and each
BRHZ Pension plan and each BRHZ Plan which is intended to be a qualified plan
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service.
(e) The consummation of the transactions on the part of BRHZ contemplated
by this Agreement will not (i) result in the payment or series of payments by
BRHZ to any employee or other person of an "excess parachute payment" within the
meaning of Section 280G of the Code, (ii) entitle any employee or former
employee of BRHZ to severance pay, unemployment compensation or any other
payment, and (iii) accelerate the time of payment or vesting of any stock
option, stock appreciation right, deferred compensation or other employee
benefits under any BRHZ Plan (including vacation and sick pay).
(f) None of the BRHZ Plans which are "welfare benefit plans," within the
meaning of Section 3(1) of ERISA, provide for continuing benefits or coverage
after termination or retirement from employment, except for COBRA rights under a
"group health plan" as defined in Code Section 4980B(g) and ERISA Section 607.
(g) Neither BRHZ nor any other entity required to be aggregated with BRHZ
under Code Section 414(b), (c), (m) or (n) ("ERISA Affiliate") has ever
participated in or withdrawn from a multi-employer plan as defined in Section
4001(a)(3) of Title IV of ERISA, and neither BRHZ nor any ERISA Affiliate has
incurred and does not presently owe any liability as a result of any partial or
complete withdrawal by any employer from such a multi-employer plan as described
under Sections 4201, 4203, or 4205 of ERISA.
(h) There are no collective bargaining agreements in effect between BRHZ
and labor unions or organizations representing any of BRHZ's employees. During
the past seven years, there has been no request for collective bargaining or for
an employee election from any employee, union or the National Labor Relations
Board. In addition, (i) BRHZ is in compliance with all federal, state and local
laws, rules and regulations relating to employees' employment and/or employment
relationships, including, without limitation, wage related laws,
anti-discrimination laws, employee safety laws and COBRA (defined herein to mean
the requirements of Code Section 4980B, Proposed Treasury Regulation Section
1.162-26 and Part 6 of Subtitle B of Title I of ERISA), and is not engaged in
any unfair labor practice; (ii) there is no unfair labor practice complaint
against BRHZ pending or threatened before the National Labor Relations Board or
the United States Department of Labor; (iii) there is no labor strike, dispute,
slowdown or stoppage in progress or threatened against or involving BRHZ; (iv)
no question concerning representation has been raised or is threatened
respecting the employees of BRHZ; (v) no grievance or arbitration proceeding is
pending and no claim therefor exists; (vi) no private agreement restricts BRHZ
from relocating, closing or terminating any of its operations or facilities; and
(vii) BRHZ has not in the past five years experienced any labor strike, dispute,
slowdown, stoppage or other labor difficulty.
2.12 Environmental Laws and Regulations. (a) Except as publicly disclosed
by BRHZ in the BRHZ SEC Reports filed prior to the date hereof, (i) BRHZ is in
material compliance with all applicable federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
except for non-compliances that would not reasonably be expected to have a
Material Adverse Effect on BRHZ, which compliance includes, but is not limited
to, the possession by BRHZ of all material permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof; (ii) BRHZ has not received written notice of,
or, to the knowledge of BRHZ, is the subject of, any action, cause of action,
claim, investigation, demand or notice by any person or entity alleging
liability under or non-compliance with any Environmental Law (an "Environmental
Claim") that could reasonably be expected to have a Material Adverse Effect on
BRHZ; and (iii) to the knowledge of BRHZ, there are no circumstances that are
reasonably likely to prevent or interfere with such material compliance in the
future.
(b) Except as publicly disclosed by BRHZ, there are no Environmental Claims
which could reasonably be expected to have a Material Adverse Effect on BRHZ
that are pending or, to the knowledge of BRHZ,
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threatened against BRHZ or, to the knowledge of BRHZ, against any person or
entity whose liability for any Environmental Claim BRHZ has or may have retained
or assumed either contractually or by operation of law.
(c) BRHZ is not presently and has not in the past owned any real property
on which any above ground or underground storage tanks are located, on which any
such tanks were located during BRHZ's ownership of such real property.
(d) To the knowledge of BRHZ, no materials listed in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. ss.ss. 9601 et seq. ("CERCLA"), nor any other substance,
material or waste defined as toxic or hazardous under any Environmental Law,
including, but not limited to asbestos ("Hazardous Materials"), have been
disposed on any real property or affixed to any improvements on any real
property owned or operated by BRHZ.
(e) BRHZ does not and has not at any time generated, used, treated, or
otherwise handled any Hazardous Materials except for de minimis amounts of
Hazardous Materials handled in the normal course of a typical office operation.
2.13 Tax Matters. (a) (i) BRHZ and each of its subsidiaries has filed or
has had filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns (as defined herein) with respect to Taxes (as defined herein) of
BRHZ and each of its subsidiaries, and all Tax Returns were in all material
respects true, complete and correct; (ii) all material Taxes with respect to
BRHZ and each of its subsidiaries have been paid in full or have been provided
for in accordance with GAAP on BRHZ's most recent balance sheet which is part of
the BRHZ SEC Documents; (iii) there are no outstanding agreements or waivers
extending the statutory period of limitations applicable to any federal, state,
local or foreign income or other material Tax Returns required to be filed by or
with respect to BRHZ or its subsidiaries; (iv) to the knowledge of BRHZ none of
the Tax Returns of or with respect to BRHZ or any of its subsidiaries is
currently being audited or examined by any Governmental Entity; (v) no
deficiency for any income or other material Taxes has been assessed with respect
to BRHZ or any of its subsidiaries which has not been abated or paid in full;
(vi) no claim has ever been made by an authority in a jurisdiction where any of
BRHZ or its subsidiaries does not file Tax Returns that it is or may be subject
to taxation by such jurisdiction; and (vii) each of BRHZ and its subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
stockholder, or other third party.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, sales, use, ad valorem, goods and services, capital,
transfer, franchise, profits, license, withholding, payroll, employment,
employer health, excise, estimated, severance, stamp, occupation, property or
other taxes, customs duties, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority and (ii) "Tax Return" shall
mean any report, return, documents, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction with respect to
Taxes.
2.14 Title to Property. BRHZ and each of its subsidiaries have good and
defensible title to all of its properties and assets, free and clear of all
liens, charges and encumbrances except liens for taxes not yet due and payable
and such liens or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby or which, individually or in the aggregate, would not have a
Material Adverse Effect on BRHZ; and, to BRHZ's knowledge, all leases pursuant
to which BRHZ or any of its subsidiaries lease from others real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of BRHZ, under any of such
leases, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default and in
respect of which BRHZ or such subsidiary has not taken adequate steps to prevent
such a default from occurring) except where the lack of such good standing,
validity and effectiveness, or the existence of such default or event of default
would not have a Material Adverse Effect on BRHZ.
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2.15 Intellectual Property. (a) All of BRHZ's and its subsidiaries'
interests in all of BRHZ's and its subsidiaries' rights, title and interest in
and to all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets, know how, methods or processes and
other intellectual properties and proprietary information and any applications
therefor that are material to its business as currently conducted (the "BRHZ
Intellectual Property Rights") are free and clear of all liens and encumbrances
(except for such liens and encumbrances that would not result in a BRHZ Material
Adverse Effect) and the validity of the BRHZ Intellectual Property Rights and
the title thereto of BRHZ or any subsidiary, as the case may be, is not being
questioned in any litigation or administrative proceeding before any court or
government agency.
(b) The conduct of the business of BRHZ and its subsidiaries as now
conducted does not, to BRHZ's knowledge, infringe any valid patents, trademarks,
trade names, service marks or copyrights or makes any unauthorized use of any
trade secret, know how, methods or processes and any other intellectual
properties or proprietary information of others. The consummation of the
transactions completed hereby will not result in the loss or impairment of any
BRHZ Intellectual Property Rights.
(c) Each of BRHZ and its subsidiaries has taken steps it believes
appropriate to protect and maintain its trade secrets, know how, methods or
processes as such, except in cases where BRHZ has elected to rely on patent or
copyright protection in lieu of trade secret protection.
(d) No current licenses for the use of any BRHZ Intellectual Property
Rights have been granted by BRHZ or any of its subsidiaries, as the case may be,
to any third parties.
2.16 Insurance. BRHZ and its subsidiaries maintain general liability and
other business insurance that BRHZ believes to be reasonably prudent for its
business.
2.17 Material Contracts. (a) BRHZ has delivered or otherwise will make
available to CFAM true, correct and complete copies of all contracts and
agreements (and all amendments, modifications and supplements thereto and all
side letters to which BRHZ is a party affecting the obligations of any party
thereunder) to which BRHZ or any of its subsidiaries is a party or by which any
of their properties or assets are bound that are, material to the business,
properties or assets of BRHZ and its subsidiaries taken as a whole, including,
without limitation, to the extent any of the following are, individually or in
the aggregate, material to the business, properties or assets of BRHZ and its
subsidiaries taken as a whole, all: (i) Material Contracts as set forth in Item
601(b)(10) of Regulation S-K of the SEC; (ii) written and oral agreements,
contracts and commitments to which BRHZ is a party, together with all amendments
thereto, for the operation and/or management of child care centers (the
"Management Contracts"); and (iii) written and oral agreements, contacts and
commitments to which BRHZ is a party, together with all amendments thereto, to
provide consulting services, technical or other activities (other than
Management Contracts) (collectively, together with any such contracts entered
into in accordance with Section 4.1 hereof, the "BRHZ Contracts"). Neither BRHZ
nor any of its subsidiaries is a party to or bound by any severance, golden
parachute or other agreement with any employee or consultant pursuant to which
such person would be entitled to receive any additional compensation or an
accelerated payment of compensation as a result of the consummation of the
transactions contemplated hereby.
(b) Each of the BRHZ Contracts is valid and enforceable in accordance with
its terms, and there is no default under any BRHZ Contract so listed either by
BRHZ or, to the knowledge of BRHZ, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by BRHZ or, to the knowledge of BRHZ, any other
party, in any such case in which such default or event could reasonably be
expected to have a Material Adverse Effect on BRHZ.
(c) No party to any such BRHZ Contract has given notice to BRHZ of or made
a claim against BRHZ with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to have a
Material Adverse Effect on BRHZ.
2.18 Vote Required. The affirmative vote of the holders of at least a
majority of the outstanding BRHZ Shares is the only vote of the holders of any
class or series of BRHZ's capital stock necessary to approve and adopt this
Agreement and the Merger.
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2.19 Tax and Accounting Treatment. Neither BRHZ nor, to the knowledge of
BRHZ, any of its affiliates has taken or agreed to take any action that would
prevent the Merger from (i) constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code, or (ii) being accounted for as a
pooling of interests in accordance with Accounting Principles Board Opinion No.
16, the interpretive releases issued pursuant thereto, and the pronouncements of
the SEC. Price Waterhouse LLP has delivered to BRHZ a letter confirming that
BRHZ is a poolable entity.
2.20 Affiliates. Except for the directors and executive officers of BRHZ,
there are no persons who, to the knowledge of BRHZ, may be deemed to be
affiliates of BRHZ under Rule 1-02(b) of Regulation S-X of the SEC (the "BRHZ
Affiliates").
2.21 Certain Business Practices. None of BRHZ, any of its subsidiaries or
any directors, officers, agents or employees of BRHZ or any of its subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended (the "FCPA"), or (iii) made any other
unlawful payment.
2.22 Insider Interests. No officer, director or other affiliate of BRHZ
has any interest in any material property, real or personal, tangible or
intangible, including without limitation, any computer software or BRHZ
Intellectual Property Rights, used in or pertaining to the business of BRHZ or
any subsidiary, except for the ordinary rights of a stockholder or employee
stock option holder.
2.23 Opinion of Financial Adviser. BT Alex. Brown Incorporated (the "BRHZ
Financial Adviser") has delivered to the BRHZ Board its written opinion, dated
as of the date of this Agreement, to the effect that, as of such date, the
exchange ratio contemplated by the Merger is fair to the holders of BRHZ Shares
from a financial point of view.
2.24 Brokers. No broker, finder or investment banker (other than the BRHZ
Financial Adviser, a true and correct copy of whose engagement agreement has
been provided to CFAM) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of BRHZ.
2.25 Disclosure. No representation or warranty of BRHZ in this Agreement
or any certificate, schedule, document or other instrument furnished or to be
furnished to CFAM pursuant hereto or in connection herewith contains, as of the
date of such representation, warranty or instrument, or will contain any untrue
statement of a material fact or, at the date thereof, omits or will omit to
state a material fact necessary to make any statement herein or therein, in
light of the circumstances under which such statement is or will be made, not
misleading.
2.26 No Existing Discussions. As of the date hereof, BRHZ is not engaged,
directly or indirectly, in any discussions or negotiations with any other party
with respect to any BRHZ Takeover Proposal (as defined in Section 4.4).
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF CFAM
Except as set forth on the Disclosure Schedule delivered by CFAM to BRHZ
(the "CFAM Disclosure Schedule"), CFAM hereby represents and warrants to BRHZ as
follows:
3.1 Organization and Qualification. (a) Each of CFAM and its subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite power
and authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a Material Adverse Effect (as defined below) on CFAM. When used in connection
with CFAM, the term "Material Adverse Effect" means any change or effect (i)
that is or is
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reasonably likely to be materially adverse to the business, results of
operations, condition (financial or otherwise) or prospects of CFAM and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any businesses in which CFAM and its
subsidiaries are engaged, or (ii) that may impair the ability of CFAM to perform
its obligations hereunder or to consummate the transactions contemplated hereby.
(b) CFAM has heretofore delivered to BRHZ accurate and complete copies of
the Charter and Bylaws (or similar governing documents), as currently in effect,
of CFAM. Each of CFAM and its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not
have a Material Adverse Effect on CFAM. Section 3.1 of the CFAM Disclosure
Schedule sets forth a list of the CFAM subsidiaries.
3.2 Capitalization of CFAM. (a) As of April 3, 1998, the authorized
capital stock of CFAM consists of (i) One Hundred Million (100,000,000) CFAM
Shares, of which 4,608,280 CFAM Shares were issued and outstanding, and (ii) Ten
Million (10,000,000) shares of Preferred Stock, no par value per share, no
shares of which are outstanding. All of the outstanding CFAM Shares have been
duly authorized and validly issued, and are fully paid, nonassessable and free
of preemptive rights. As of April 3, 1998, 1,368,935 CFAM Shares were reserved
for issuance and issuable upon or otherwise deliverable in connection with the
exercise of outstanding CFAM Stock Options issued pursuant to the CFAM Plans. As
of April 3, 1998, 100,000 CFAM Shares were reserved for issuance pursuant to the
CFAM Employee Stock Purchase Plan.
(b) CFAM is the record and beneficial owner of all of the issued and
outstanding shares of capital stock of its subsidiaries.
(c) Between April 3, 1998 and the date hereof, no shares of CFAM's capital
stock have been issued other than pursuant to CFAM Stock Options already in
existence on such date, and, between April 3, 1998 and the date hereof, no CFAM
Stock Options have been granted. Except as set forth in Section 3.2(a) above, as
of the date hereof, there are no outstanding (i) shares of capital stock or
other voting securities of CFAM, (ii) securities of CFAM convertible into or
exchangeable for shares of capital stock or voting securities of CFAM, (iii)
options or other rights to acquire from CFAM or its subsidiaries, or obligations
of CFAM or its subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of CFAM, or (iv) equity equivalents, interests in the ownership or
earnings of CFAM or its subsidiaries or other similar rights (collectively,
"CFAM Securities"). As of the date hereof there are no outstanding obligations
of CFAM or any of its subsidiaries to repurchase, redeem or otherwise acquire
any CFAM Securities or stockholder agreements, voting trusts or other agreements
or understandings to which CFAM is a party or by which it is bound relating to
the voting or registration of any shares of capital stock of CFAM.
(d) There are no securities of CFAM convertible into or exchangeable for,
no options or other rights to acquire from CFAM, and no other contract,
understanding, arrangement or obligation (whether or not contingent) providing
for the issuance or sale, directly or indirectly, of any capital stock or other
ownership interests in, or any other securities of, any subsidiary of CFAM.
(e) The CFAM Shares constitute the only class of equity securities of CFAM
registered or required to be registered under the Exchange Act.
(f) CFAM does not own directly or indirectly more than fifty percent (50%)
of the outstanding voting securities or interests (including membership
interests) of any entity other than the CFAM subsidiaries reflected in Section
3.1 of the CFAM Disclosure Schedule.
3.3 Authority Relative to this Agreement; Recommendation. (a) CFAM has all
necessary corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors of CFAM
(the "CFAM Board"), and no other corporate proceedings on the part of CFAM are
necessary to authorize this Agreement or to
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consummate the transactions contemplated hereby, except, as referred to in
Section 3.18, the approval and adoption of this Agreement by the holders of at
least a majority of the then outstanding CFAM Shares. This Agreement has been
duly and validly executed and delivered by CFAM and constitutes a valid, legal
and binding agreement of CFAM, enforceable against CFAM in accordance with its
terms.
(b) The CFAM Board has resolved to recommend that the stockholders of CFAM
approve and adopt this Agreement.
3.4 SEC Reports; Financial Statements. (a) CFAM has filed all required
forms, reports and documents with the SEC since August 13, 1997, each of which
has complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act (and the rules and regulations promulgated
thereunder, respectively), each as in effect on the dates such forms, reports
and documents were filed. CFAM has heretofore delivered or promptly will deliver
prior to the Effective Date to Newco and BRHZ, in the form filed with the SEC
(including any amendments thereto but excluding any exhibits), (i) its Annual
Report on Form 10-K for the fiscal year ended January 2, 1998, (ii) all
definitive proxy statements relating to CFAM's meetings of stockholders (whether
annual or special) held since August 13, 1997 and (iii) all other reports or
registration statements filed by CFAM with the SEC since August 13, 1997 (all of
the foregoing, collectively, the "CFAM SEC Reports"). None of such CFAM SEC
Reports, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained, when filed, any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of CFAM included in the
CFAM SEC Reports were prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto), and fairly present the consolidated financial position of CFAM
and its consolidated subsidiaries as of the dates thereof and their consolidated
results of operations and changes in financial position for the periods then
ended, subject in the case of interim financial statements to the absence of
footnotes and to normal year-end audit adjustments. All material agreements,
contracts and other documents required to be filed as exhibits to any of the
CFAM SEC Reports have been so filed. These representations shall be deemed to be
made with respect to the CFAM SEC Reports filed subsequent to the date hereof at
the time of their filing.
(b) CFAM has heretofore made available or promptly will make available to
Newco and BRHZ a complete and correct copy of any amendments or modifications,
which are required to be filed with the SEC but have not yet been filed with the
SEC, to agreements, documents or other instruments which previously had been
filed by CFAM with the SEC pursuant to the Exchange Act.
3.5 Information Supplied. None of the information supplied or to be
supplied by CFAM for inclusion or incorporation by reference in (i) the S-4
will, at the time the S-4 is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and (ii) the Proxy
Statement will, at the date mailed to stockholders of CFAM and BRHZ and at the
times of the meeting or meetings of stockholders of CFAM and BRHZ to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement, insofar as it relates to the
meeting of CFAM's stockholders to vote on the Merger, will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, and the S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder.
3.6 Consents and Approvals; No Violations. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the HSR Act, the rules of the NASD, and the filing
and recordation of the Merger Certificate and the Articles of Merger as required
by the DGCL and TBCA and state and/or local governmental entities regarding
licensure for child care operations, respectively, no filing with or notice to,
and no permit, authorization, consent or approval of, any Governmental Entity is
necessary for the execution and
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delivery by CFAM of this Agreement or the consummation by CFAM of the
transactions contemplated hereby, except where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings or give
such notice would not have a Material Adverse Effect on CFAM.
Neither the execution, delivery and performance of this Agreement by CFAM
nor the consummation by CFAM of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective Charter
or Bylaws (or similar governing documents) of CFAM or any of CFAM's
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which CFAM or any of CFAM's subsidiaries is a party or by which any of them
or any of their respective properties or assets may be bound or (iii) violate
any order, writ, injunction, decree, law, statute, rule or regulation applicable
to CFAM or any of CFAM's subsidiaries or any of their respective properties or
assets, except in the case of (ii) or (iii) for violations, breaches or defaults
listed on Schedule 3.6 to the CFAM Disclosure Schedule or which would not have a
Material Adverse Effect on CFAM.
3.7 No Default. None of CFAM or any of its subsidiaries is in breach,
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its Charter or Bylaws (or similar governing
documents), (ii) any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which CFAM or any of its
subsidiaries is now a party or by which any of them or any of their respective
properties or assets may be bound or (iii) any order, writ, injunction, decree,
law, statute, rule or regulation applicable to CFAM, its subsidiaries or any of
their respective properties or assets, except in the case of (ii) or (iii) for
violations, breaches or defaults that would not have a Material Adverse Effect
on CFAM. Each note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which CFAM or any of its
subsidiaries is now a party or by which any of them or any of their respective
properties or assets may be bound that is material to CFAM and its subsidiaries
taken as a whole and that has not expired is in full force and effect and is not
subject to any material default thereunder of which CFAM is aware by any party
obligated to CFAM or any subsidiary thereunder.
3.8 No Undisclosed Liabilities; Absence of Changes. Except as and to the
extent publicly disclosed by CFAM in the CFAM SEC Reports filed prior to the
date hereof, as of January 2, 1998, none of CFAM or its subsidiaries had any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that would be required by generally accepted accounting principles to
be reflected on a consolidated balance sheet of CFAM and its consolidated
subsidiaries (including the notes thereto) or which would have a Material
Adverse Effect on CFAM. Except as publicly disclosed by CFAM in the CFAM SEC
Reports filed prior to the date hereof, since January 2, 1998, none of CFAM or
its subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, which could reasonably be expected to have,
and there have been no events, changes or effects with respect to CFAM or its
subsidiaries having or which could reasonably be expected to have, a Material
Adverse Effect on CFAM. Except as and to the extent publicly disclosed by CFAM
in the CFAM SEC Reports filed prior to the date hereof, since January 2, 1998,
there has not been (i) any material change by CFAM in its accounting methods,
principles or practices (other than as required after the date hereof by
concurrent changes in generally accepted accounting principles), (ii) any
revaluation by CFAM of any of its assets having a Material Adverse Effect on
CFAM, including, without limitation, any write-down of the value of any assets
other than in the ordinary course of business or (iii) any other action or event
that would have required the consent of any other party hereto pursuant to
Section 4.2 of this Agreement had such action or event occurred after the date
of this Agreement.
3.9 Litigation. Except as publicly disclosed by CFAM in the CFAM SEC
Reports filed prior to the date hereof, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of CFAM, threatened
against CFAM or any of its subsidiaries or any of their respective properties or
assets before any Governmental Entity which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on CFAM or could
reasonably be expected to prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as publicly disclosed by CFAM in the CFAM
SEC
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Reports filed prior to the date hereof, none of CFAM or its subsidiaries is
subject to any outstanding order, writ, injunction or decree which, insofar as
can be reasonably foreseen in the future, could reasonably be expected to have a
Material Adverse Effect on CFAM or could reasonably be expected to prevent or
delay the consummation of the transactions contemplated hereby.
3.10 Compliance with Applicable Law. Except as publicly disclosed by CFAM
in the CFAM SEC Reports filed prior to the date hereof, CFAM and its
subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "CFAM Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which would not
have a Material Adverse Effect on CFAM. Except as publicly disclosed by CFAM in
the CFAM SEC Reports filed prior to the date hereof, CFAM and its subsidiaries
are in compliance with the terms of the CFAM Permits, except where the failure
so to comply would not have a Material Adverse Effect on CFAM. Except as
publicly disclosed by CFAM in the CFAM SEC Reports filed prior to the date
hereof, the businesses of CFAM and its subsidiaries are not being conducted in
violation of any law, ordinance or regulation of any Governmental Entity and
except for violations or possible violations which do not, and, insofar as
reasonably can be foreseen, in the future cannot reasonably be expected to, have
a Material Adverse Effect on CFAM. Except as publicly disclosed by CFAM in the
CFAM SEC Reports filed prior to the date hereof, no investigation or review by
any Governmental Entity with respect to CFAM or its subsidiaries is pending or,
to the knowledge of CFAM, threatened, nor, to the knowledge of CFAM, has any
Governmental Entity indicated an intention to conduct the same, other than, in
each case, those which CFAM reasonably believes will not have a Material Adverse
Effect on CFAM.
3.11 Employee Benefit Plans; Labor Matters. (a) The CFAM Disclosure
Schedule lists each employment, bonus, deferred compensation, pension, stock
option, stock appreciation right, profit-sharing or retirement plan, arrangement
or practice, each medical, vacation, retiree medical, severance pay plan, and
each other agreement or fringe benefit plan, arrangement or practice, of CFAM,
whether formal or informal, which affects one or more of its employees,
including all "employee benefit plans" as defined by Section 3(3) of ERISA
(collectively, the "CFAM Plans"). All CFAM Plans which are subject to Title IV
of ERISA or the minimum funding standards of Section 412 of the Code shall be
referred to as the "CFAM Pension Plans."
(b) Copies of each such CFAM Plan requested by BRHZ have heretofore been
delivered to BRHZ. For each CFAM Plan which is an "employee benefit plan" under
Section 3(3) of ERISA, CFAM has made available to BRHZ correct and complete
copies of the plan documents and summary plan descriptions, the most recent
determination letter received from the Internal Revenue Service, the most recent
Form 5500 Annual Report (including all applicable schedules), and all related
trust agreements, insurance contracts and funding agreements which implement
each such CFAM Plan.
(c) CFAM does not have any commitment, whether formal or informal, (i) to
create any additional such CFAM Plan; (ii) to modify or change any such CFAM
Plan; or (iii) to maintain for any period of time any such CFAM Plan. The CFAM
Disclosure Schedule contains an accurate and complete description of the funding
policies (and commitments, if any) of CFAM with respect to each such existing
CFAM Plan.
(d) CFAM has no unfunded past service liability in respect of any of its
CFAM Plans; the actuarially computed value of vested benefits under any CFAM
Pension Plan (determined in accordance with methods and assumptions utilized by
the Pension Benefit Guaranty Corporation ("PBGC") applicable to a plan
terminating on the date of determination) does not exceed the fair market value
of the fund assets relating to such CFAM Pension Plan; neither CFAM nor any CFAM
Plan nor any trustee, administrator, fiduciary or sponsor of any CFAM Plan has
engaged in any prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code for which there is no statutory exemption in Section
408 of ERISA or Section 4975 of the Code; all filings, reports and descriptions
as to such CFAM Plans (including Form 5500 Annual Reports, Summary Plan
Descriptions, PBCG-1's and Summary Annual Reports) required to have been made or
distributed to participants, the Internal Revenue Service, the United States
Department of Labor and other governmental agencies have been made in a timely
manner or will be made on or prior to the Closing Date; there is no material
litigation, disputed claim, governmental proceeding or investigation pending or
threatened
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with respect to any of such CFAM Plans, the related trusts, or any fiduciary,
trustee, administrator or sponsor of such CFAM Plans; such CFAM Plans have been
established, maintained and administered in all material respects in accordance
with their governing documents and applicable provisions of ERISA and the Code
and Treasury Regulations promulgated thereunder; there has been no "Reportable
Event" as defined in Section 4043 of ERISA with respect to any CFAM Pension Plan
that has not been waived by the Pension Benefit Guaranty Corporation; and each
CFAM Pension Plan and each CFAM Plan which is intended to be a qualified plan
under Section 401(a) of the Code has received a favorable determination letter
from the Internal Revenue Service.
(e) The consummation of the transactions on the part of CFAM contemplated
by this Agreement will not (i) result in the payment or series of payments by
CFAM to any employee or other person of an "excess parachute payment" within the
meaning of Section 280G of the Code, (ii) entitle any employee or former
employee of CFAM to severance pay, unemployment compensation or any other
payment, and (iii) accelerate the time of payment or vesting of any stock
option, stock appreciation right, deferred compensation or other employee
benefits under any CFAM Plan (including vacation and sick pay).
(f) None of the CFAM Plans which are "welfare benefit plans," within the
meaning of Section 3(1) of ERISA, provide for continuing benefits or coverage
after termination or retirement from employment, except for COBRA rights under a
"group health plan" as defined in Code Section 4980B(g) and ERISA Section 607.
(g) Neither CFAM nor any ERISA Affiliate has ever participated in or
withdrawn from a multi-employer plan as defined in Section 4001(a)(3) of Title
IV of ERISA, and neither CFAM nor any ERISA Affiliate has incurred and does not
presently owe any liability as a result of any partial or complete withdrawal by
any employer from such a multi-employer plan as described under Sections 4201,
4203, or 4205 of ERISA.
(h) No CFAM Pension Plan has been completely or partially terminated, nor
to the knowledge of CFAM has any proceeding been instituted by the PBGC to
terminate any such CFAM Pension Plan; neither CFAM nor any ERISA Affiliate has
incurred, or presently owes, any liability to the PBGC or the Internal Revenue
Service with respect to any CFAM Pension Plan including, but not by way of
limitation, any liability for PBGC premiums or excise taxes under Code Section
4971.
(i) There are no collective bargaining agreements in effect between CFAM
and labor unions or organizations representing any of CFAM's employees. During
the past seven years, there has been no request for collective bargaining or for
an employee election from any employee, union or the National Labor Relations
Board. In addition, (i) CFAM is in compliance with all federal, state and local
laws, rules and regulations relating to employees' employment and/or employment
relationships, including, without limitation, wage related laws,
anti-discrimination laws, employee safety laws and COBRA, and is not engaged in
any unfair labor practice; (ii) there is no unfair labor practice complaint
against CFAM pending or threatened before the National Labor Relations Board or
the United States Department of Labor; (iii) there is no labor strike, dispute,
slowdown or stoppage in progress or threatened against or involving CFAM; (iv)
no question concerning representation has been raised or is threatened
respecting the employees of CFAM; (v) no grievance or arbitration proceeding is
pending and no claim therefor exists; (vi) no private agreement restricts CFAM
from relocating, closing or terminating any of its operations or facilities; and
(vii) CFAM has not in the past five years experienced any labor strike, dispute,
slowdown, stoppage or other labor difficulty.
3.12 Environmental Laws and Regulations. (a) Except as publicly disclosed
by CFAM in the CFAM SEC Reports filed prior to the date hereof, (i) CFAM is in
material compliance with all applicable Environmental Laws, except for
non-compliances that would not reasonably be expected to have a Material Adverse
Effect on CFAM, which compliance includes, but is not limited to, the possession
by CFAM of all material permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (ii) CFAM has not received written notice of, or, to the
knowledge of CFAM, is the subject of, any Environmental Claim that could
reasonably be expected to have a Material Adverse Effect on CFAM; and (iii) to
the knowledge of CFAM, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future.
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(b) Except as publicly disclosed by CFAM, there are no Environmental Claims
which could reasonably be expected to have a Material Adverse Effect on CFAM
that are pending or, to the knowledge of CFAM, threatened against CFAM or, to
the knowledge of CFAM, against any person or entity whose liability for any
Environmental Claim CFAM has or may have retained or assumed either
contractually or by operation of law.
(c) CFAM is not presently and has not in the past owned any real property
on which any above ground or underground storage tanks are located, or on which
any such tanks were located during CFAM's ownership of such real property.
(d) To the knowledge of CFAM, no Hazardous Materials have been disposed on
any real property or affixed to any improvements on any real property owned or
operated by CFAM.
(e) CFAM does not and has not at any time generated, used, treated, or
otherwise handled any Hazardous Materials except for de minimis amounts of
Hazardous Materials handled in the normal course of a typical office operation.
3.13 Tax Matters. (i) CFAM and each of its subsidiaries has filed or has
had filed on its behalf in a timely manner (within any applicable extension
periods) with the appropriate Governmental Entity all income and other material
Tax Returns with respect to Taxes of CFAM and each of its subsidiaries, and all
Tax Returns were in all material respects true, complete and correct; (ii) all
material Taxes with respect to CFAM and each of its subsidiaries have been paid
in full or have been provided for in accordance with GAAP on CFAM's most recent
balance sheet which is part of the CFAM SEC Documents; (iii) there are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any federal, state, local or foreign income or other material Tax
Returns required to be filed by or with respect to CFAM or its subsidiaries;
(iv) to the knowledge of CFAM none of the Tax Returns of or with respect to CFAM
or any of its subsidiaries is currently being audited or examined by any
Governmental Entity; (v) no deficiency for any income or other material Taxes
has been assessed with respect to CFAM or any of its subsidiaries which has not
been abated or paid in full; (vi) no claim has ever been made by an authority in
a jurisdiction where any of CFAM or its subsidiaries does not file Tax Returns
that it is or may be subject to taxation by such jurisdiction; and (vii) each of
CFAM and its subsidiaries has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, stockholder, or other third party.
3.14 Title to Property. CFAM and each of its subsidiaries have good and
defensible title to all of its properties and assets, free and clear of all
liens, charges and encumbrances except liens for taxes not yet due and payable
and such liens or other imperfections of title, if any, as do not materially
detract from the value of or interfere with the present use of the property
affected thereby or which, individually or in the aggregate, would not have a
Material Adverse Effect on CFAM; and, to CFAM's knowledge, all leases pursuant
to which CFAM or any of its subsidiaries lease from others real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, to the knowledge of CFAM, under any of such
leases, any existing material default or event of default (or event which with
notice or lapse of time, or both, would constitute a material default and in
respect of which CFAM or such subsidiary has not taken adequate steps to prevent
such a default from occurring) except where the lack of such good standing,
validity and effectiveness, or the existence of such default or event of default
would not have a Material Adverse Effect on CFAM.
3.15 Intellectual Property. (a) All of CFAM's and its subsidiaries'
interests in all of CFAM's and its subsidiaries' rights, title and interest in
and to all existing United States and foreign patents, trademarks, trade names,
service marks, copyrights, trade secrets, know how, methods or processes and
other intellectual properties and proprietary information and any applications
therefor that are material to its business as currently conducted (the "CFAM
Intellectual Property Rights") are free and clear of all liens and encumbrances
(except for such liens and encumbrances that would not result in a CFAM Material
Adverse Effect) and the validity of the CFAM Intellectual Property Rights and
the title thereto of CFAM or any subsidiary, as the case may be, is not being
questioned in any litigation or administrative proceeding before any court or
government agency.
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(b) The conduct of the business of CFAM and its subsidiaries as now
conducted does not, to CFAM's knowledge, infringe any valid patents, trademarks,
trade names, service marks or copyrights or makes any unauthorized use of any
trade secret, know how, methods or processes and any other intellectual
properties or proprietary information of others. The consummation of the
transactions completed hereby will not result in the loss or impairment of any
CFAM Intellectual Property Rights.
(c) Each of CFAM and its subsidiaries has taken steps it believes
appropriate to protect and maintain its trade secrets, know how, methods or
processes as such, except in cases where CFAM has elected to rely on patent or
copyright protection in lieu of trade secret protection.
(d) No current licenses for the use of any CFAM Intellectual Property
Rights have been granted by CFAM or any of its subsidiaries, as the case may be,
to any third parties.
3.16 Insurance. CFAM and its subsidiaries maintain general liability and
other business insurance that CFAM believes to be reasonably prudent for its
business.
3.17 Material Contracts. (a) CFAM has delivered or otherwise will make
available to BRHZ true, correct and complete copies of all contracts and
agreements (and all amendments, modifications and supplements thereto and all
side letters to which CFAM is a party affecting the obligations of any party
thereunder) to which CFAM or any of its subsidiaries is a party or by which any
of their properties or assets are bound that are, material to the business,
properties or assets of CFAM and its subsidiaries taken as a whole, including,
without limitation, to the extent any of the following are, individually or in
the aggregate, material to the business, properties or assets of CFAM and its
subsidiaries taken as a whole, all: (i) Material Contracts as set forth in Item
601(b)(10) of Regulation S-K of the SEC; (ii) Management Contracts; and (iii)
written and oral agreements, contacts and commitments to which CFAM is a party,
together with all amendments thereto, to provide consulting services, technical
or other activities (other than Management Contracts) (collectively, together
with any such contracts entered into in accordance with Section 4.2 hereof, the
"CFAM Contracts"). Neither CFAM nor any of its subsidiaries is a party to or
bound by any severance, golden parachute or other agreement with any employee or
consultant pursuant to which such person would be entitled to receive any
additional compensation or an accelerated payment of compensation as a result of
the consummation of the transactions contemplated hereby.
(b) Each of the CFAM Contracts is valid and enforceable in accordance with
its terms, and there is no default under any CFAM Contract so listed either by
CFAM or, to the knowledge of CFAM, by any other party thereto, and no event has
occurred that with the lapse of time or the giving of notice or both would
constitute a default thereunder by CFAM or, to the knowledge of CFAM, any other
party, in any such case in which such default or event could reasonably be
expected to have a Material Adverse Effect on CFAM.
(c) No party to any such CFAM Contract has given notice to CFAM of or made
a claim against CFAM with respect to any breach or default thereunder, in any
such case in which such breach or default could reasonably be expected to have a
Material Adverse Effect on CFAM.
3.18 Vote Required. The affirmative vote of the holders of at least a
majority of the outstanding CFAM Shares is the only vote of the holders of any
class or series of CFAM's capital stock necessary to approve and adopt this
Agreement and the Merger.
3.19 Tax and Accounting Treatment. Neither CFAM nor, to the knowledge of
CFAM, any of its affiliates has taken or agreed to take any action that would
prevent the Merger from (i) constituting a reorganization qualifying under the
provisions of Section 368(a) of the Code, or (ii) being accounted for as a
pooling of interests in accordance with Accounting Principles Board Opinion No.
16, the interpretive releases issued pursuant thereto, and the pronouncements of
the SEC. Arthur Andersen LLP has delivered to CFAM a letter confirming the
transaction being accounted for as a pooling of interests.
3.20 Affiliates. Except for the directors and executive officers of CFAM,
there are no persons who, to the knowledge of CFAM, may be deemed to be
affiliates of CFAM under Rule 1-02(b) of Regulation S-X of the SEC (the "CFAM
Affiliates").
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3.21 Certain Business Practices. None of CFAM, any of its subsidiaries or
any directors, officers, agents or employees of CFAM or any of its subsidiaries
has (i) used any funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns or violated any provision of the FCPA,
or (iii) made any other unlawful payment.
3.22 Insider Interests. No officer, director or other affiliate of CFAM
has any interest in any material property, real or personal, tangible or
intangible, including without limitation, any computer software or CFAM
Intellectual Property Rights, used in or pertaining to the business of CFAM or
any subsidiary, except for the ordinary rights of a stockholder or employee
stock option holder.
3.23 Opinion of Financial Adviser. NationsBanc Montgomery Securities LLC
(the "CFAM Financial Adviser") has delivered to the CFAM Board its written
opinion, dated as of the date of this Agreement, to the effect that, as of such
date, the exchange ratio contemplated by the Merger is fair to the holders of
CFAM Shares from a financial point of view.
3.24 Brokers. No broker, finder or investment banker (other than the CFAM
Financial Adviser, a true and correct copy of whose engagement agreement has
been provided to BRHZ) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of CFAM.
3.25 Disclosure. No representation or warranty of CFAM in this Agreement
or any certificate, schedule, document or other instrument furnished or to be
furnished to BRHZ pursuant hereto or in connection herewith contains, as of the
date of such representation, warranty or instrument, or will contain any untrue
statement of a material fact or, at the date thereof, omits or will omit to
state a material fact necessary to make any statement herein or therein, in
light of the circumstances under which such statement is or will be made, not
misleading.
3.26 No Existing Discussions. As of the date hereof, CFAM is not engaged,
directly or indirectly, in any discussions or negotiations with any other party
with respect to any CFAM Takeover Proposal (as defined in Section 4.5).
ARTICLE 4
COVENANTS
4.1 Conduct of Business of BRHZ. Except as contemplated by this Agreement
or as described in Section 4.1 of the BRHZ Disclosure Schedule, during the
period from the date hereof to the Effective Time, BRHZ will conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, seek to preserve intact its current
business organization, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement or as
described in Section 4.1 of the BRHZ Disclosure Schedule, prior to the Effective
Time, BRHZ will not, without the prior written consent of CFAM:
(a) amend its Certificate of Incorporation or Bylaws (or other similar
governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (except bank
loans) or equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for (i) the issuance and sale
of BRHZ Shares pursuant to options previously granted under the BRHZ Plans;
and (ii) the granting of stock options to employees in the ordinary course
of business and consistent with past practices of BRHZ, provided that the
aggregate number of BRHZ Shares issuable pursuant to such options shall not
exceed 25,000;
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(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of BRHZ (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt other than in
the ordinary course or issue any debt securities; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iii)
make any loans, advances or capital contributions to, or investments in,
any other person other than in the ordinary course; (iv) pledge or
otherwise encumber shares of capital stock of BRHZ or its subsidiaries; or
(v) mortgage or pledge any of its material assets, tangible or intangible,
or create or suffer to exist any material Lien thereupon (other than tax
Liens for taxes not yet due or Liens in the ordinary course of business
consistent with past practice);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation (except for salary
adjustments for nonofficer employees in the ordinary course), severance,
termination, stock option (except as contemplated by Section 4.1(b) above),
stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment (except for entering into employment-at-will
relationships for nonofficer employees), severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit
or welfare of any director, officer or employee in any manner, or increase
in any manner the compensation or fringe benefits of any director, officer
or employee or pay any benefit not required by any plan and arrangement as
in effect as of the date hereof (including, without limitation, the
granting of stock appreciation rights or performance units);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary
course of business);
(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off
notes or accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein which, individually, is in
excess of $750,000; (ii) enter into any contract or agreement, other than
in the ordinary course of business consistent with past practice, which
would be material to BRHZ; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $250,000 or, in the
aggregate, are in excess of $1,000,000, except for such planned capital
expenditures set forth on Schedule 4.1(j); provided, however that none of
the foregoing shall limit any capital expenditure required pursuant to
existing contracts;
(k) make any tax election or settle or compromise any income tax
liability material to BRHZ and its subsidiaries taken as a whole;
(l) settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
BRHZ;
(m) make any amendments (other than such amendments effected in the
ordinary course of business that will not materially adversely affect the
contractual arrangement in question) or cause any breach of any BRHZ
Contract; or
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(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(m) or any action which would make
any of the representations or warranties of BRHZ contained in this
Agreement untrue or incorrect.
4.2 Conduct of Business of CFAM. Except as contemplated by this Agreement
or as described in Section 4.2 of the CFAM Disclosure Schedule, during the
period from the date hereof to the Effective Time, CFAM will conduct its
operations in the ordinary course of business consistent with past practice and,
to the extent consistent therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, seek to preserve intact its current
business organization, keep available the service of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it to the end that goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, except as otherwise expressly provided in this Agreement or as
described in Section 4.2 of the CFAM Disclosure Schedule, prior to the Effective
Time, CFAM will not, without the prior written consent of BRHZ:
(a) amend its Charter or Bylaws (or other similar governing
instrument);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities (except bank
loans) or equity equivalents (including, without limitation, any stock
options or stock appreciation rights), except for (i) the issuance and sale
of CFAM Shares pursuant to options previously granted under the CFAM Plans
and (ii) the granting of stock options to employees in the ordinary course
of business and consistent with past practices of CFAM, provided that the
aggregate number of CFAM Shares issuable pursuant to such options shall not
exceed 25,000;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, make any other actual, constructive or deemed distribution
in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any
of its securities;
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of CFAM (other than the Merger);
(e) (i) incur or assume any long-term or short-term debt other than in
the ordinary course or issue any debt securities; (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; (iii)
make any loans, advances or capital contributions to, or investments in,
any other person other than in the ordinary course; (iv) pledge or
otherwise encumber shares of capital stock of CFAM or its subsidiaries; or
(v) mortgage or pledge any of its material assets, tangible or intangible,
or create or suffer to exist any material Lien thereupon (other than tax
Liens for taxes not yet due or Liens in the ordinary course of business
consistent with past practice);
(f) except as may be required by law, enter into, adopt or amend or
terminate any bonus, profit sharing, compensation (except for salary
adjustments for nonofficer employees in the ordinary course), severance,
termination, stock option (except as contemplated by Section 4.2(b) above),
stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment (except for entering into employment-at-will
relationships for nonofficer employees), severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit
or welfare of any director, officer or employee in any manner, or increase
in any manner the compensation or fringe benefits of any director, officer
or employee or pay any benefit not required by any plan and arrangement as
in effect as of the date hereof (including, without limitation, the
granting of stock appreciation rights or performance units);
(g) acquire, sell, lease or dispose of any assets in any single
transaction or series of related transactions (other than in the ordinary
course of business);
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(h) except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off
notes or accounts receivable other than in the ordinary course of business;
(j) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein which, individually, is in
excess of $750,000; (ii) enter into any contract or agreement, other than
in the ordinary course of business consistent with past practice, which
would be material to CFAM; (iii) authorize any new capital expenditure or
expenditures which, individually, is in excess of $250,000 or, in the
aggregate, are in excess of $1,000,000; provided, however that none of the
foregoing shall limit any capital expenditure required pursuant to existing
contracts;
(k) make any tax election or settle or compromise any income tax
liability material to CFAM and its subsidiaries taken as a whole;
(l) settle or compromise any pending or threatened suit, action or
claim which (i) relates to the transactions contemplated hereby or (ii) the
settlement or compromise of which could have a Material Adverse Effect on
CFAM;
(m) make any amendments (other than such amendments effected in the
ordinary course of business that will not materially adversely affect the
contractual arrangement in question) or cause any breach of any CFAM
Contract; or
(n) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.2(a) through 4.2(m) or any action which would make
any of the representations or warranties of CFAM contained in this
Agreement untrue or incorrect.
4.3 Preparation of S-4 and the Proxy Statement. CFAM and BRHZ shall
promptly prepare and file with the SEC the Proxy Statement, and the parties
shall prepare and file with the SEC the S-4, in which the Proxy Statement will
be included as a prospectus. Each of the parties shall use its best efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing. The parties shall also use all reasonable efforts
to take any action (other than qualifying to do business in any jurisdiction in
which it is now not so qualified) required to be taken under any applicable
state securities laws in connection with the issuance of Newco Shares in the
Merger and upon the exercise of CFAM Stock Options and BRHZ Stock Options. Each
party shall furnish all information concerning such party and the stockholders
and holders of stock options of such party as may be reasonably requested in
connection with any such action. CFAM and BRHZ agree that the information
supplied or to be supplied by it for inclusion or incorporation by reference in
the Proxy Statement and each amendment or supplement thereto at the time of
mailing thereof and at the time of the respective meetings of shareholders of
CFAM and BRHZ, or, in the case of the Form S-4 and each amendment or supplement
thereto, at the time it is filed or becomes effective, will not include 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, in light of
circumstances under which they were made, not misleading.
4.4 No Solicitation by BRHZ. (a) BRHZ shall not, nor shall it permit any
of its subsidiaries to, nor shall it authorize or permit any of its directors,
officers or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes any BRHZ Takeover Proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding any BRHZ Takeover Proposal; provided,
however, that if, at any time, the Board of Directors of BRHZ determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to BRHZ's stockholders under
applicable law, BRHZ may, in response to a BRHZ Superior Proposal (as defined in
Section 4.4(b)) and subject to providing prior written notice of its decision to
take such action to CFAM (the "BRHZ Notice") and compliance with Sec-
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tion 4.4(c), following delivery of the BRHZ Notice (x) furnish information with
respect to BRHZ and its subsidiaries to any person making a BRHZ Superior
Proposal pursuant to a customary confidentiality agreement (as determined by
BRHZ after consultation with its outside counsel) and (y) participate in
discussions or negotiations regarding such BRHZ Superior Proposal. For purposes
of this Agreement, "BRHZ Takeover Proposal" means any inquiry, proposal or offer
from any person relating to any BRHZ Takeover Event, and "BRHZ Takeover Event"
means any (w) direct or indirect acquisition or purchase of a business that
constitutes 30% or more of the net revenues, net income or the assets of BRHZ
and its subsidiaries, taken as a whole, (x) direct or indirect acquisition or
purchase of 30% or more of any class of equity securities of BRHZ or any of its
subsidiaries whose business constitutes 30% or more of the net revenues, net
income or assets of BRHZ and its subsidiaries, taken as a whole, (y) tender
offer or exchange offer that if consummated would result in any person
beneficially owning 30% or more of any class of equity securities of BRHZ or any
of its subsidiaries whose business constitutes 30% or more of the net revenues,
net income or assets of BRHZ and its subsidiaries, taken as a whole, or (z)
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving BRHZ or any of its subsidiaries
whose business constitutes 30% or more of the net revenues, net income or assets
of BRHZ and its subsidiaries, taken as a whole, other than the transactions
contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.4, neither the Board of
Directors of BRHZ nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to CFAM, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any BRHZ Takeover Proposal or (iii) cause BRHZ to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "BRHZ Acquisition Agreement") related to any
BRHZ Takeover Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of BRHZ determines in good faith, after consultation with
outside counsel, that in light of a BRHZ Superior Proposal it is necessary to do
so in order to act in a manner consistent with its fiduciary duties to BRHZ's
stockholders under applicable law, the Board of Directors of BRHZ may (subject
to this and the following sentences) enter into a BRHZ Acquisition Agreement
with respect to any BRHZ Superior Proposal, but only after the fifth business
day following CFAM's receipt of written notice advising CFAM that the Board of
Directors of BRHZ is prepared to accept a BRHZ Superior Proposal and only if,
during such five-day period, BRHZ and its advisors shall have negotiated in good
faith with CFAM to make such adjustments in the terms and conditions of this
Agreement as would enable CFAM to proceed with the transactions contemplated
herein on such adjusted terms; it being understood and agreed that should CFAM
not seek to proceed with the transactions contemplated herein on such adjusted
terms, BRHZ may solicit additional BRHZ Takeover Proposals, including by
conducting an auction. For purposes of this Agreement, a "BRHZ Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of BRHZ Common Stock
then outstanding or all or substantially all the assets of BRHZ and otherwise on
terms which the Board of Directors of BRHZ determines in its good faith judgment
to be more favorable to BRHZ's stockholders than the merger and for which
financing, to the extent required, is then committed or which, in the good faith
judgment of the Board of Directors of BRHZ, is reasonably capable of being
obtained by such third party.
(c) In addition to the obligations of BRHZ set forth in paragraphs (a) and
(b) of this Section 4.4, BRHZ shall immediately advise CFAM orally and in
writing of any request for information or of any BRHZ Takeover Proposal. BRHZ
will keep CFAM reasonably informed of the status of any such request or BRHZ
Takeover Proposal.
(d) Nothing contained in this Section 4.4 shall prohibit BRHZ from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to BRHZ's
stockholders if, in the good faith judgment of the Board of Directors of BRHZ,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that,
except in connection with a BRHZ Superior Proposal, neither BRHZ
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nor its Board of Directors nor any committee thereof shall withdraw or modify,
or propose publicly to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose publicly to approve
or recommend, a BRHZ Takeover Proposal.
4.5 No Solicitation by CFAM. (a) CFAM shall not, nor shall it permit any
of its subsidiaries to, nor shall it authorize or permit any of its directors,
officers or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or take any other action
designed to facilitate, any inquiries or the making of any proposal which
constitutes any CFAM Takeover Proposal (as defined below) or (ii) participate in
any discussions or negotiations regarding any CFAM Takeover Proposal; provided,
however, that if, at any time, the Board of Directors of CFAM determines in good
faith, after consultation with outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to CFAM's stockholders under
applicable law, CFAM may, in response to a CFAM Superior Proposal (as defined in
Section 4.5(b)) and subject to providing prior written notice of its decision to
take such action to BRHZ (the "CFAM Notice") and compliance with Section 4.5(c),
following delivery of the CFAM Notice (x) furnish information with respect to
CFAM and its subsidiaries to any person making a CFAM Superior Proposal pursuant
to a customary confidentiality agreement (as determined by CFAM after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such CFAM Superior Proposal. For purposes of this
Agreement, "CFAM Takeover Proposal" means any inquiry, proposal or offer from
any person relating to any CFAM Takeover Event, and "CFAM Takeover Event" means
any (w) direct or indirect acquisition or purchase of a business that
constitutes 30% or more of the net revenues, net income or the assets of CFAM
and its subsidiaries, taken as a whole, (x) direct or indirect acquisition or
purchase of 30% or more of any class of equity securities of CFAM or any of its
subsidiaries whose business constitutes 30% or more of the net revenues, net
income or assets of CFAM and its subsidiaries, taken as a whole, (y) tender
offer or exchange offer that if consummated would result in any person
beneficially owning 30% or more of any class of equity securities of CFAM or any
of its subsidiaries whose business constitutes 30% or more of the net revenues,
net income or assets of CFAM and its subsidiaries, taken as a whole, or (z)
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving CFAM or any of its subsidiaries
whose business constitutes 30% or more of the net revenues, net income or assets
of CFAM and its subsidiaries, taken as a whole, other than the transactions
contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.5, neither the Board of
Directors of CFAM nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to BRHZ, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any CFAM Takeover Proposal or (iii) cause CFAM to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "CFAM Acquisition Agreement") related to any
CFAM Takeover Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of CFAM determines in good faith, after consultation with
outside counsel, that in light of a CFAM Superior Proposal it is necessary to do
so in order to act in a manner consistent with its fiduciary duties to CFAM's
stockholders under applicable law, the Board of Directors of CFAM may (subject
to this and the following sentences) enter into a CFAM Acquisition Agreement
with respect to any CFAM Superior Proposal, but only after the fifth business
day following BRHZ's receipt of written notice advising BRHZ that the Board of
Directors of CFAM is prepared to accept a CFAM Superior Proposal and only if,
during such five-day period, CFAM and its advisors shall have negotiated in good
faith with BRHZ to make such adjustments in the terms and conditions of this
Agreement as would enable BRHZ to proceed with the transactions contemplated
herein on such adjusted terms; it being understood and agreed that should BRHZ
not seek to proceed with the transactions contemplated herein on such adjusted
terms, CFAM may solicit additional CFAM Takeover Proposals, including by
conducting an auction. For purposes of this Agreement, a "CFAM Superior
Proposal" means any proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of CFAM Common Stock
then outstanding or all or substantially all the assets of
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CFAM and otherwise on terms which the Board of Directors of CFAM determines in
its good faith judgment to be more favorable to CFAM's stockholders than the
merger and for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of CFAM, is
reasonably capable of being obtained by such third party.
(c) In addition to the obligations of CFAM set forth in paragraphs (a) and
(b) of this Section 4.5, CFAM shall immediately advise BRHZ orally and in
writing of any request for information or of any CFAM Takeover Proposal. CFAM
will keep BRHZ reasonably informed of the status of any such request or CFAM
Takeover Proposal.
(d) Nothing contained in this Section 4.5 shall prohibit CFAM from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to CFAM's
stockholders if, in the good faith judgment of the Board of Directors of CFAM,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that,
except in connection with a CFAM Superior Proposal, neither CFAM nor its Board
of Directors nor any committee thereof shall withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to this Agreement or
the Merger or approve or recommend, or propose publicly to approve or recommend,
a CFAM Takeover Proposal.
4.6 Meetings of Stockholders. Each of CFAM and BRHZ shall take all action
necessary, in accordance with the TBCA and DGCL, respectively, and its
respective Charter/Certificate of Incorporation and Bylaws, to duly call, give
notice of, convene and hold a meeting of its stockholders as promptly as
practicable, to consider and vote upon the adoption and approval of this
Agreement and the transactions contemplated hereby. The stockholder votes
required for the adoption and approval of the transactions contemplated by this
Agreement shall be the vote required by the TBCA and its Charter and Bylaws, in
the case of CFAM, and the DGCL and its Certificate of Incorporation and Bylaws,
in the case of BRHZ. CFAM and BRHZ will, through their respective Boards of
Directors, recommend to their respective stockholders approval of such matters;
provided, however, that the CFAM Board or the BRHZ Board may withdraw its
recommendation if (i) CFAM or BRHZ, as the case may be, receives a CFAM Superior
Proposal or a BRHZ Superior Proposal, respectively, and (ii) after complying
with the provisions of Section 4.4, and Section 4.5 above, respectively, the
CFAM Board or the BRHZ Board by a majority vote determines in its good faith
judgment, after consultation with and based upon the advice of independent legal
counsel, that it is required, in order to comply with its fiduciary duties, to
recommend the CFAM Superior Proposal or BRHZ Superior Proposal; provided
further, however, that neither CFAM nor BRHZ, respectively, if such party shall
have received a CFAM Superior Proposal or BRHZ Superior Proposal, shall, in any
event, be permitted to terminate this Agreement as a result of the occurrence of
the events described in clauses (i) and (ii) of this sentence. CFAM and BRHZ
shall coordinate and cooperate with respect to the timing of such meetings and
shall use their best efforts to hold such meetings on the same day and as soon
as practicable after the date hereof.
4.7 Nasdaq Listing. The parties shall use all reasonable efforts to cause
the Newco Shares to be issued in the Merger and the Newco Shares to be reserved
for issuance upon exercise of CFAM Stock Options or BRHZ Stock Options to be
approved for listing on the Nasdaq National Market ("Nasdaq"), subject to
official notice of issuance, prior to the Effective Time.
4.8 Access to Information. (a) Between the date hereof and the Effective
Time, BRHZ will give CFAM and its authorized representatives, and CFAM will give
BRHZ and its authorized representatives, reasonable access to all employees,
offices, family centers, and other facilities and to all books and records of
itself and its subsidiaries, will permit the other party to make such
inspections as such party may reasonably require and will cause its officers and
those of its subsidiaries to furnish the other party with such financial and
operating data and other information with respect to the business and properties
of itself and its subsidiaries as the other party may from time to time
reasonably request.
(b) Each of the parties hereto will hold and will cause its consultants and
advisers to hold in confidence all confidential documents and information
furnished to it in connection with the transactions contemplated by this
Agreement pursuant to the terms of that certain Confidentiality Agreement
entered into between CFAM and BRHZ dated February 25, 1998.
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4.9 Additional Agreements; Reasonable Efforts. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation, (i)
cooperating in the preparation and filing of the Proxy Statement and the S-4,
any filings that may be required under the HSR Act, and any amendments to any
thereof; (ii) obtaining consents of all third parties and Governmental Entities
necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement; (iii) obtaining consents of all client companies
that are parties to contracts with CFAM and/or BRHZ; (iv) contesting any legal
proceeding relating to the Merger and (v) the execution of any additional
instruments necessary to consummate the transactions contemplated hereby.
Subject to the terms and conditions of this Agreement, CFAM, Newco and BRHZ
agree to use all reasonable efforts to cause the Effective Time to occur as soon
as practicable after the stockholder votes with respect to the Merger. In case
at any time after the Effective Time any further action is necessary to carry
out the purposes of this Agreement, the proper officers and directors of each
party hereto shall take all such necessary action.
4.10 Employee Benefit Plans. (a) It is the parties' present intent to
provide after the Effective Time to employees of CFAM and BRHZ and their
subsidiaries employee benefit plans (other than stock option or other plans
involving the potential issuance of securities of Newco) which, in the
aggregate, are not less favorable than those currently provided by CFAM and
BRHZ, respectively. Notwithstanding the foregoing, nothing contained herein
shall be construed as requiring the parties to continue any specific employee
benefit plans.
(b) The parties agree to work together prior to the Effective Time to
develop and design such plans, programs and arrangements and to prepare for the
implementation of such plans, programs and arrangements described in this
Section 4.10 following the Effective Time.
4.11 Public Announcements. CFAM and BRHZ will consult with one another
before issuing any press release or otherwise making any public statements with
respect to the transactions contemplated by this Agreement, including, without
limitation, the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable law or by obligations pursuant to any listing agreement with the
Nasdaq as determined by CFAM or BRHZ.
4.12 Indemnification. (a) To the extent, if any, not provided by an
existing right under one of the parties' directors and officers liability
insurance policies, from and after the Effective Time, Newco shall, to the
fullest extent permitted by applicable law, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director, officer or employee of the
parties hereto or any subsidiary thereof (each an "Indemnified Party" and,
collectively, the "Indemnified Parties") against all losses, expenses (including
reasonable attorneys' fees and expenses), claims, damages or liabilities or,
subject to the proviso of the next succeeding sentence, amounts paid in
settlement, arising out of actions or omissions occurring at or prior to the
Effective Time and whether asserted or claimed prior to, at or after the
Effective Time) that are in whole or in part (i) based on, or arising out of the
fact that such person is or was a director, officer or employee of such party or
a subsidiary of such party or (ii) based on, arising out of or pertaining to the
transactions contemplated by this Agreement. In the event of any such loss,
expense, claim, damage or liability (whether or not arising before the Effective
Time), (i) Newco shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
Newco, promptly after statements therefor are received and otherwise advance to
such Indemnified Party upon request reimbursement of documented expenses
reasonably incurred, in either case to the extent not prohibited by the DGCL or
its Certificate of Incorporation or Bylaws, (ii) Newco will cooperate in the
defense of any such matter and (iii) any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under the DGCL and Newco's Certificate of Incorporation or Bylaws
shall be made by independent counsel mutually acceptable to Newco and the
Indemnified Party; provided, however, that Newco shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm with respect to each related matter except to the
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extent there is, in the opinion of counsel to an Indemnified Party, under
applicable standards of professional conduct, a conflict on any significant
issue between positions of any two or more Indemnified Parties.
(b) For a period of six years after the Effective Time, Newco shall cause
to be maintained in effect the policies of directors' and officers' liability
insurance maintained by CFAM and BRHZ for the benefit of those persons who are
covered by such policies at the Effective Time (or Newco may substitute therefor
policies of at least the same coverage with respect to matters occurring prior
to the Effective Time) unless such coverage is not available at commercially
reasonable rates in which case Newco shall purchase such coverage as (i) may be
obtained at commercially reasonable rates and (ii) is no less broad than
coverage purchased for persons who are then serving as directors and/or officers
of Newco.
(c) In the event Newco or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity or such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in either such case, proper provision shall be made so that the
successors and assigns of Newco shall assume the obligations set forth in this
Section 4.12.
(d) To the fullest extent permitted by law, from and after the Effective
Time, all rights to indemnification now existing in favor of the employees,
agents, directors or officers of CFAM and BRHZ and their subsidiaries with
respect to their activities as such prior to the Effective Time, as provided in
CFAM's and BRHZ's Charter/Certificate of Incorporation or Bylaws, in effect on
the date thereof or otherwise in effect on the date hereof, shall survive the
Merger and shall continue in full force and effect for a period of not less than
six years from the Effective Time.
(e) The provisions of this Section 4.12 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
his or her representatives.
4.13 Notification of Certain Matters. The parties hereto shall give prompt
notice to the other parties, of (i) the occurrence or nonoccurrence of any event
the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time, (ii) any
material failure of such party to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, (iii) any notice
of, or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by such party or any of
its subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any contract or agreement material to the financial
condition, properties, businesses or results of operations of such party and its
subsidiaries taken as a whole to which such party or any of its subsidiaries is
a party or is subject, (iv) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, or (v) any
material adverse change in their respective financial condition, properties,
businesses, results of operations or prospects, taken as a whole, other than
changes resulting from general economic conditions; provided, however, that the
delivery of any notice pursuant to this Section 4.13 shall not cure such breach
or non-compliance or limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
4.14 Affiliates. (a) CFAM and BRHZ shall use all reasonable efforts to
obtain from any CFAM Affiliate or BRHZ Affiliate who has not previously executed
such letter agreement and from any person who may be deemed to have become a
CFAM Affiliate or BRHZ Affiliate after the date of this Agreement and on or
prior to the Effective Time, a letter agreement substantially in the form of
Exhibit D hereto as soon as practicable.
(b) Newco shall not be required to maintain the effectiveness of the S-4
for the purpose of resale of Newco Shares by stockholders of CFAM or BRHZ who
may be affiliates of CFAM or BRHZ or Newco pursuant to Rule 145 under the
Securities Act.
4.15 Tax and Accounting Treatment. From and after the date hereof and
until the Effective Time, neither CFAM nor BRHZ shall (i) take any action, or
fail to take any action, that it knows would jeopardize the treatment of the
Merger as a "pooling of interests" for accounting purposes; (ii) take any
action, or fail to
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take any action, that it knows would jeopardize qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code; or (iii) enter
into any contract, agreement, commitment or arrangement with respect to either
of the foregoing.
4.16 Employment Agreements. Newco will offer to enter into employment
agreements with each of the persons set forth on Schedule 4.16 at or prior to
the Closing Date. The forms of employment agreements shall be substantially in
the forms attached hereto as Exhibits E-1 through E-5.
4.17 Pooling of Interests. Each of BRHZ and CFAM shall use best efforts to
cause the transactions contemplated by this Agreement, including the Merger, to
be accounted for as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and such accounting
treatment to be accepted by the SEC, and each of BRHZ and CFAM agrees that it
shall take no action that would cause such accounting treatment not to be
obtained.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
5.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party hereto to effect the Merger are subject to
the satisfaction at or prior to the Effective Time of the following conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of CFAM and BRHZ;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States court or United States governmental authority which
prohibits, restrains, enjoins or restricts the consummation of the Merger;
(c) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired, and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received; and
(d) the S-4 shall have become effective under the Securities Act and
shall not be the subject of any stop order or proceedings seeking a stop
order, and all state securities laws or "blue sky" permits and
authorizations necessary to issue Newco Shares in exchange for CFAM Shares
and BRHZ Shares in the Merger shall have been obtained.
(e) BRHZ and CFAM shall have received from Price Waterhouse LLP,
BRHZ's independent auditors, and Arthur Andersen, LLP, CFAM's independent
auditors, "comfort" letters, in form and substance satisfactory to each of
them, the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement") with respect to the
procedures undertaken by them through a date which is not earlier than five
business days prior to the dates specified in (i) and (ii) below relating
to the financial statements of BRHZ and CFAM, respectively, contained in
the S-4 and the other matters contemplated by the AICPA statement and
customarily included in comfort letters relating to transactions similar to
the Merger, (i) dated immediately prior to the date of mailing of the Proxy
Statement, and (ii) dated immediately prior to the Closing Date, a
bringdown of the letter provided in subparagraph (i).
(f) BRHZ shall have received the opinion of Price Waterhouse LLP,
BRHZ's independent auditors, dated the Closing Date and addressed to BRHZ
and available for use by CFAM and its representatives, to the effect that
BRHZ is a poolable entity, and CFAM shall have received the opinion of
Arthur Andersen LLP, CFAM's independent auditors, dated the Closing Date
and addressed to CFAM and available for use by BRHZ and its
representatives, to the effect that the Merger will be treated as a
"pooling of interests" in accordance with Generally Accepted Accounting
Principles ("GAAP") and all published rules, regulations and policies of
the SEC.
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5.2 Conditions to the Obligations of BRHZ. The obligation of BRHZ to
effect the Merger is subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) the representations of CFAM and Newco contained in this Agreement
or in any other document delivered pursuant hereto shall be true and
correct (except to the extent that the breach thereof would not have a
Material Adverse Effect on CFAM or Newco) at and as of the Effective Time
with the same effect as if made at and as of the Effective Time (except to
the extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the Closing CFAM and Newco shall have delivered to
BRHZ a certificate to that effect;
(b) each of the covenants and obligations of CFAM and Newco to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time, and at the Closing CFAM and Newco shall have
delivered to BRHZ a certificate to that effect;
(c) the Newco Shares issuable to the BRHZ stockholders pursuant to
this Agreement and such other shares required to be reserved for issuance
in connection with the Merger shall have been authorized for listing on the
Nasdaq upon official notice of issuance;
(d) the opinion of Ropes & Gray, counsel to BRHZ, dated the Closing
Date and addressed to BRHZ, to the effect that (i) the merger of Merger Sub
B into BRHZ will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii) each
of Merger Sub B and BRHZ will be a party to the reorganization within the
meaning of Section 368(b) of the Code; and (iii) no gain or loss for
Federal income tax purposes will be recognized by Newco, Merger Sub B, BRHZ
or a stockholder of BRHZ as a result of the Merger (other than with respect
to cash received by a stockholder in lieu of a fractional Newco Share), and
such opinion shall not have been withdrawn or modified in any material
respect. Such opinion may be conditioned upon the receipt of
representations of BRHZ, CFAM and Newco, all in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions
set forth therein;
(e) CFAM shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the
succession by Newco pursuant to the Merger to any obligation, right or
interest of CFAM under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except those for which
failure to obtain such consents and approvals would not, in the reasonable
opinion of BRHZ, individually or in the aggregate, have a Material Adverse
Effect on CFAM; and
(f) there shall have been no events, changes or effects with respect
to CFAM or its subsidiaries having a Material Adverse Effect on CFAM.
5.3 Conditions to the Obligations of CFAM. The respective obligations of
CFAM to effect the Merger are subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations of BRHZ and Newco contained in this Agreement
or in any other document delivered pursuant hereto shall be true and
correct (except to the extent that the breach thereof would not have a
Material Adverse Effect on BRHZ or Newco) at and as of the Effective Time
with the same effect as if made at and as of the Effective Time (except to
the extent such representations specifically related to an earlier date, in
which case such representations shall be true and correct as of such
earlier date), and at the Closing BRHZ and Newco shall have delivered to
CFAM a certificate to that effect;
(b) each of the covenants and obligations of BRHZ and Newco to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or
before the Effective Time and at the Closing BRHZ and Newco shall have
delivered to CFAM a certificate to that effect;
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(c) the Newco Shares issuable to the CFAM stockholders pursuant to
this Agreement and such other shares to be reserved for issuance in
connection with the Merger shall have been authorized for listing on Nasdaq
upon official notice of issuance;
(d) the opinion of Bass, Berry & Sims PLC, counsel to CFAM, dated the
Closing Date and addressed to CFAM, to the effect that (i) the merger of
Merger Sub A into CFAM will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code; (ii) each
of Merger Sub A and CFAM will be a party to the reorganization within the
meaning of Section 368(b) of the Code; and (iii) no gain or loss for
Federal income tax purposes will be recognized by Newco, Merger Sub A, CFAM
or a stockholder of CFAM as a result of the Merger (other than with respect
to cash received by a stockholder of CFAM in lieu of a fractional Newco
Share), and such opinion shall not have been withdrawn or modified in any
material respect. Such opinion may be conditioned upon the receipt of
representations of BRHZ, CFAM and Newco, all in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions
set forth therein;
(e) BRHZ shall have obtained the consent or approval of each person
whose consent or approval shall be required in order to permit the
succession by Newco pursuant to the Merger to any obligation, right or
interest of BRHZ under any loan or credit agreement, note, mortgage,
indenture, lease or other agreement or instrument, except for those for
which failure to obtain such consents and approvals would not, in the
reasonable opinion of CFAM, individually or in the aggregate, have a
Material Adverse Effect on BRHZ; and
(f) there shall have been no events, changes or effects with respect
to BRHZ or its subsidiaries having a Material Adverse Effect on BRHZ.
ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
6.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
approval and adoption of this Agreement by CFAM's or BRHZ's stockholders:
(a) by mutual written consent of CFAM and BRHZ;
(b) by CFAM or BRHZ if (i) any court of competent jurisdiction in the
United States or other United States Governmental Entity shall have issued
a final order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger has not been consummated by November 30, 1998; provided,
however, that no party may terminate this Agreement pursuant to this clause
(ii) if such party's failure to fulfill any of its obligations under this
Agreement shall have been the reason that the Effective Time shall not have
occurred on or before said date;
(c) by BRHZ if (i) there shall have been a breach of any
representation or warranty on the part of CFAM or Newco set forth in this
Agreement, or if any representation or warranty of CFAM or Newco shall have
become untrue, in either case such that the conditions set forth in Section
5.2(a) would be incapable of being satisfied by November 30, 1998 (or as
otherwise extended), (ii) there shall have been a breach by CFAM or Newco
of any of their respective covenants or agreements hereunder having a
Material Adverse Effect on CFAM or Newco or materially adversely affecting
(or materially delaying) the consummation of the Merger, and CFAM or Newco,
as the case may be, has not cured such breach within twenty business days
after notice by BRHZ thereof, provided that BRHZ has not breached any of
its obligations hereunder, (iii) the CFAM Board shall have recommended to
CFAM's stockholders a CFAM Superior Proposal, (iv) the CFAM Board shall
have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger or shall have failed to call, give notice of,
convene or hold a stockholders' meeting to vote upon the Merger, or shall
have adopted any resolution to effect any of the foregoing, (v) CFAM shall
have convened a meeting of its stockholders to vote upon the Merger
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and shall have failed to obtain the requisite vote of its stockholders;
(vi) BRHZ shall have convened a meeting of its stockholders to vote upon
the Merger and shall have failed to obtain the requisite vote of its
stockholders; or (vii) a tender or exchange offer for outstanding
shares of capital stock of CFAM then representing 30% or more of the
combined power to vote generally for the election of CFAM directors is
commenced, and the Board of Directors of CFAM does not recommend that
shareholders not tender their shares into such tender or exchange offer.
(d) by CFAM if (i) there shall have been a breach of any
representation or warranty on the part of BRHZ or Newco set forth in this
Agreement, or if any representation or warranty of BRHZ or Newco shall have
become untrue, in either case such that the conditions set forth in Section
5.3(a) would be incapable of being satisfied by November 30, 1998 (or as
otherwise extended), (ii) there shall have been a breach by BRHZ or Newco
of any of their respective covenants or agreements hereunder having a
Material Adverse Effect on BRHZ or Newco or materially adversely affecting
(or materially delaying) the consummation of the Merger, and BRHZ or Newco,
as the case may be, has not cured such breach within twenty business days
after notice by CFAM thereof, provided that CFAM has not breached any of
its obligations hereunder, (iii) the BRHZ Board shall have recommended to
BRHZ's stockholders a BRHZ Superior Proposal, (iv) the BRHZ Board shall
have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger or shall have failed to call, give notice of,
convene or hold a stockholders' meeting to vote upon the Merger, or shall
have adopted any resolution to effect any of the foregoing, (v) CFAM shall
have convened a meeting of its stockholders to vote upon the Merger and
shall have failed to obtain the requisite vote of its stockholders, (vi)
BRHZ shall have convened a meeting of its stockholders to vote upon the
Merger and shall have failed to obtain the requisite vote of its
stockholders, or (vii) a tender offer or exchange offer for outstanding
shares of capital stock of BRHZ then representing 30% or more of the
combined power to vote generally for the election of BRHZ directors is
commenced, and the Board of Directors of BRHZ does not recommend that
stockholders not tender their shares into such tender or exchange offer.
6.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 6.1, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party hereto
or its affiliates, directors, officers or stockholders, other than the
provisions of this Section 6.2 and Sections 4.8(b) and 6.3 hereof. Nothing
contained in this Section 6.2 shall relieve any party from liability for any
breach of this Agreement.
6.3 Fees and Expenses. Each party shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby except
that:
(a) BRHZ shall pay to CFAM by wire transfer $4.0 million (the "BRHZ
Termination Fee"), upon demand, if (i) this Agreement is terminated
pursuant to Section 6.1(c)(vi) or any subsection of Section 6.1(d) (other
than Section 6.1(d)(v)), (ii) prior to the time this Agreement is
terminated or the time of the BRHZ Special Meeting, a BRHZ Takeover
Proposal shall have been publicly announced or shall have become publicly
known and (iii) during the term of this Agreement or within twelve months
after the termination of this Agreement a BHRZ Takeover Event shall occur.
Such payment shall be made in immediately available funds.
(b) CFAM shall pay to BRHZ by wire transfer $4.0 million (the "CFAM
Termination Fee"), upon demand, if (i) this Agreement is terminated
pursuant to Section 6.1(d)(v) or any subsection of Section 6.1(c) (other
than Section 6.1(c)(vi)), (ii) prior to the time this Agreement is
terminated or the time of the CFAM Special Meeting, a CFAM Takeover
Proposal shall have been publicly announced or shall have become publicly
known and (iii) during the term of this Agreement or within twelve months
after the termination of this Agreement a CFAM Takeover Event shall occur.
Such payment shall be made in immediately available funds.
6.4 Amendment. This Agreement may be amended by action taken by CFAM and
BRHZ at any time before or after approval of the Merger by the stockholders of
CFAM and BRHZ (if required by applicable law) but, after any such approval, no
amendment shall be made which requires the approval of such
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stockholders under applicable law without such approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of the parties
hereto.
6.5 Extension; Waiver. At any time prior to the Effective Time, each party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party, (ii) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by any other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 7
MISCELLANEOUS
7.1 Nonsurvival of Representations and Warranties. The representations and
warranties made herein shall not survive beyond the Effective Time or a
termination of this Agreement. This Section 7.1 shall not limit any covenant or
agreement of the parties hereto which by its terms requires performance after
the Effective Time.
7.2 Entire Agreement; Assignment. This Agreement (a) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.
7.3 Validity. If any provision of this Agreement, or the application
thereof to any person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
7.4 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail (postage prepaid, return receipt requested),
to each other party as follows:
If to CFAM: CorporateFamily Solutions, Inc.
209 Tenth Avenue South, Suite 300
Nashville, Tennessee 37203-4173
Attention: Marguerite W. Sallee
Telecopy: (615) 254-3766
with a copy to: Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Attention: James H. Cheek, III, Esq.
Telecopy: (615) 742-6298
if to BRHZ: Bright Horizons, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
Attention: Roger H. Brown
Telecopy: (617) 577-8967
with a copy to: Ropes & Gray
One International Place
Boston, Massachusetts
Attention: Alfred O. Rose, Esq.
Telecopy: (617) 951-7050
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or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
7.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of law thereof.
7.6 Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
7.7 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and except as provided in Section 4.12 nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
7.8 Certain Definitions. For the purposes of this Agreement, the term:
(a) "affiliate" means (except as otherwise provided in Sections 2.20,
3.20 and 4.13) a person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person;
(b) "business day" means any day other than a day on which Nasdaq is
closed;
(c) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(d) "knowledge" or "known" means, with respect to any matter in
question, if an executive officer of CFAM or BRHZ or their respective
subsidiaries, as the case may be, has actual knowledge of such matter;
(e) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(f) "subsidiary" or "subsidiaries" of Newco, CFAM, BRHZ or any other
person, means any corporation, partnership, limited liability company,
association, trust, unincorporated association or other legal entity of
which Newco, CFAM, BRHZ or any such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the capital stock, the holders of
which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal
entity.
7.9 Personal Liability. This Agreement shall not create or be deemed to
create or permit any personal liability or obligation on the part of any direct
or indirect stockholder of CFAM, BRHZ or Newco or any officer, director,
employee, agent, representative or investor of any party hereto.
7.10 Specific Performance. The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the Merger, will cause irreparable injury to the other parties
for which damages, even if available, will not be an adequate remedy.
Accordingly, each party hereby consents to the issuance of injunctive relief by
any court of competent jurisdiction to compel performance of such party's
obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
7.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
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In Witness Whereof, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Name: Marguerite W. Sallee
Title: President and Chief
Executive Officer
BRIGHT HORIZONS, INC.
By: /s/ ROGER H. BROWN
------------------------------------
Name: Roger H. Brown
Title: Chief Executive Officer
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Name: Marguerite W. Sallee
Title: Chief Executive Officer
CFAM ACQUISITION, INC.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Name: Marguerite W. Sallee
Title: Chief Executive Officer
BRHZ ACQUISITION, INC.
By: /s/ ROGER H. BROWN
------------------------------------
Name: Roger H. Brown
Title: President
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ANNEX II
COMPANY STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of April 26, 1998,
is by and between Bright Horizons, Inc., a Delaware corporation ("Grantee"), and
CorporateFamily Solutions, Inc., a Tennessee corporation ("Issuer").
RECITALS
A. Grantee and Issuer have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), which has been executed in
connection with this Agreement (each capitalized term used herein without
definition shall have the meaning specified in the Merger Agreement).
B. As a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
460,828 shares of fully paid and nonassessable common stock of the Issuer, no
par value per share ("Common Stock"), which is equal to 10.0% of the number of
shares of Common Stock issued and outstanding on the date hereof, at a purchase
price equal to the Option Price, as adjusted in accordance with the provisions
of Section 5 of this Agreement (such price, as adjusted if applicable, the
"Option Price"). The "Option Price" shall mean the average of the daily last
sale price of the Common Stock on The Nasdaq Stock Market during the ten
business day trading period ending on the earlier of (i) May 1, 1998 or (ii) the
day prior to the date that a CFAM Takeover Proposal shall have been publicly
announced or shall have become publicly known.
2. Exercise of Option. (a) Exercise. Grantee may exercise the Option, in
whole or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Option
Termination Event (as hereinafter defined).
(b) Option Termination Events. The term "Option Termination Event" shall
mean any of the following events: (i) immediately prior to the Effective Time of
the Merger; (ii) termination of the Merger Agreement (other than upon or during
the continuance of a Triggering Event); or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a
Triggering Event (or if, at the expiration of such 180-day period the Option
cannot be exercised by reason of any applicable judgment, decree, order, law or
regulation, 10 business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal). Notwithstanding
the foregoing, the Option may not be exercised if the Grantee is in material
breach of its representation or warranties, or in material breach of any of its
covenants or agreements contained in this Agreement or the Merger Agreement.
(c) Triggering Events. The term "Triggering Event" shall mean a CFAM
Takeover Proposal shall have been publicly announced or shall have become
publicly known prior to the time the Merger Agreement is terminated or the time
of the CFAM Special Meeting.
(d) Notice of Triggering Event. Issuer shall notify Grantee promptly in
writing of the occurrence of any Triggering Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option or for a Triggering Event to have occurred.
(e) Notice of Exercise; Closing. In the event Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 10 business
days (or, in the event approval under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is required, 60 calendar days) from the
<PAGE> 211
Notice Date for the closing of such purchase (the "Closing Date"); provided,
that if the closing of the purchase and sale pursuant to the Option (the
"Closing") cannot be consummated, in the reasonable opinion of Grantee, by
reason of any applicable judgment, decree, order, law or regulation, the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which restriction on consummation has expired or been
terminated; and provided further, without limiting the foregoing, that if, in
the reasonable opinion of Grantee, prior notification to or approval of any
regulatory agency is required in connection with such purchase, Grantee shall
promptly file the required notice or application for approval and shall
expeditiously process the same, and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which any required
notification periods have expired or been terminated or such approvals have been
obtained and any requisite waiting period or periods shall have passed. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto. Notwithstanding this subsection (e), in no event shall any Closing Date
be more than 18 months after the related Notice Date, and if the Closing Date
shall not have occurred within 18 months after the related Notice Date due to
the failure to obtain any such required approval, the exercise of the Option
effected on the Notice Date shall be deemed to have expired.
(f) Purchase Price. At the Closing referred to in subsection (e) above,
Grantee shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude Grantee from exercising the Option.
(g) Issuance of Common Stock. At the Closing, simultaneously with the
delivery of immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock purchased by the Grantee and,
if the Option is exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares purchasable hereunder, and
the Grantee shall deliver to Issuer a copy of this Agreement and a letter
agreeing that Grantee will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(h) Legend. Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate are subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Grantee shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to Issuer, to
the effect that such legend is not required for purposes of the Securities Act;
(ii) the reference to the provisions of this Agreement in the above legend shall
be removed by delivery of substitute certificate(s) without such reference if
the shares have been sold or transferred in compliance with the provisions of
this Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Record Grantee; Expenses. Upon the giving by Grantee to Issuer of the
written notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in immediately
available funds, Grantee shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
Grantee or the Issuer shall have failed or refused to designate the bank account
described in subsection (f) of this Section 2. Issuer shall pay all expenses and
any and all United States federal, state and local taxes and other
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charges that may be payable in connection with the preparation, issuance and
delivery of stock certificates under this Section 2 in the name of Grantee or
its assignee, transferee or designee.
3. Reservation Shares. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5(a)) so that the Option may be exercised without additional
authorization of Common Stock (or such other securities) after giving effect to
all other options, warrants, convertible securities and other rights to purchase
Common Stock (or such other securities); (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including without limitation complying with
all premerger notification, reporting and waiting periods under the HSR Act) in
order to permit Grantee to exercise the Option and Issuer duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of Grantee against dilution.
4. Division of Option; Lost Options. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any Stock Option Agreements and related Options for which
this Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustment Upon Changes in Capitalization. The number of shares of
Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock, or any rights,
options, warrants, subscriptions, calls, convertible securities or other
agreements or commitments obligating Issuer to issue any shares of Common Stock,
are issued or otherwise become outstanding after the date hereof (an
"Increase"), the number of shares of Common Stock subject to the Option shall be
increased so that the number of shares issuable upon exercise of the Option
shall be equal to the product of (A) the percentage of the outstanding Common
Stock for which the Option was exercisable immediately prior to the Increase and
(B) the number of shares of Common Stock outstanding immediately after the
Increase; provided that the number of shares of Common Stock subject to the
Option shall in no event exceed 10.0% of the issued and outstanding shares of
Common Stock immediately prior to exercise.
(b) In the event of any change in Common Stock by reason of stock
dividends, splits, mergers, recapitalization, combinations, subdivisions,
conversions, exchanges of shares or other similar transactions and no adjustment
is required pursuant to the terms of Section 5(a), then the type and number of
shares of Common Stock purchasable upon exercise hereof shall be appropriately
adjusted so that Grantee shall receive upon exercise of the Option and payment
of the aggregate Option Price hereunder the number and class of shares or other
securities or property that Grantee would have received in respect of Common
Stock if the Option had been exercised in full immediately prior to such event,
or the record date therefor, as applicable.
(c) Whenever the number of shares of Common Stock subject to this Agreement
on a fully diluted basis changes after the date hereof, the Option Price shall
be adjusted by multiplying the Option Price by a fraction, the numerator of
which shall be equal to the aggregate number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the aggregate number of shares of Common Stock purchasable immediately after
the adjustment.
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6. Registration Rights. Upon the occurrence of a Triggering Event that
occurs prior to an Option Termination Event (or as otherwise provided in the
last sentence of Section 2(e)), Issuer shall, at the request of Grantee, deliver
at any time on or prior to the Option Termination Date (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the Securities Act
covering any shares issued and issuable pursuant to this Option and shall use
its best efforts to cause such registration statement to become effective and
remain current in order to permit the sale or other disposition of any shares of
Common Stock issued upon total or partial exercise of this Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee. Issuer
will use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 120 days
from the day such registration statement first becomes effective or such shorter
time as may be reasonably necessary to effect such sales or other dispositions.
Grantee for a period of 18 months following such first request shall have the
right to demand a second such registration if reasonably necessary to effect
such sales or dispositions. The foregoing notwithstanding, if, at the time of
any request by Grantee for registration of Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Grantee's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and, provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of Grantee shall constitute at
least 25% of the total number of shares to be sold by Grantee and Issuer in the
aggregate; and provided further, however, that if such reduction occurs, then
the Issuer shall file a registration statement for the balance as promptly as
practicable and no reduction shall thereafter occur (and such registration shall
not be charged against Grantee). Grantee shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any Grantee in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from Grantee, Issuer agrees to send a
copy thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7. Repurchase of Option and Option Shares. (a) Within ten business days
following the occurrence of a Repurchase Event (as defined below), Issuer shall
(i) deliver an offer (a "Repurchase Offer") to repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Alternative Proposal Price (as deemed below) exceeds (B) the Option
Price, multiplied by the number of shares for which the Option may then be
exercised, and (ii) deliver an offer (also, a "Repurchase Offer") to repurchase
the Option Shares from each owner of Option Shares (excluding such Option Shares
as have been publicly distributed) from time to time (each, an "Owner") at a
price (the "Option Share Repurchase Price") equal to the Alternative Proposal
Price multiplied by the number of Option Shares then held by such Owner. The
term "Alternative Proposal Price" shall mean, as of any date for the
determination thereof, the price per share of Common Stock paid pursuant to the
CFAM Takeover Event or, in the event of a sale of assets of Issuer, the last
per-share sale price of Common Stock on the fourth trading day following the
announcement of such sale. If the consideration paid or received in the CFAM
Takeover Event shall be other than in cash, the value of such consideration
shall be determined by a nationally recognized investment banking firm selected
by Grantee, which determination shall be conclusive for all purposes of this
Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer
shall have made a Repurchase Offer under Section 7(a), (i) at the request (the
date of such request being the "Option Repurchase Request Date") of Grantee
delivered prior to the Option Termination Date, Issuer shall repurchase the
Option from Grantee at the Option Repurchase Price, and (ii) at the request (the
date of such request being the "Option Share Repurchase Request Date") of any
Owner delivered prior to the Option
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Termination Date, Issuer shall repurchase such number of the Option Shares from
the Owner as the Owner shall designate at the Option Share Repurchase Price.
(c) Grantee and/or the Owner, as the case may be, may accept Issuer's
Repurchase Offer under Section 7(a) or may exercise its right to require Issuer
to repurchase the Option and/or any Option Shares pursuant to Section 7(b) by a
written notice or notices stating that Grantee or the Owner, as the case may be,
elects to accept such offer or to require Issuer to repurchase the Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days, after the
surrender to it of this Agreement and/or Certificates for Option Shares, as
applicable, following receipt of a notice under this Section 7(c) and the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to Grantee the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price and/or the portion thereof that Issuer is not then prohibited
from so delivering under applicable law.
(d) Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish any repurchase contemplated by this Section
7. Nonetheless, to the extent that Issuer is prohibited under applicable law,
from repurchasing the Option and/or any Option Shares in full, Issuer shall
immediately so notify Grantee and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to Grantee and/or the Owner, as appropriate,
the portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering, within
five business days after the date on which Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to Section 7(c) is prohibited under applicable law, from
delivering to Grantee and/or the Owner, as appropriate, the Option Repurchase
Price or the Option Share Repurchase Price, respectively, in full, Grantee or
the Owner, as appropriate, may revoke its notice of repurchase of the Option or
the Option Shares either in whole or in part whereupon, in the case of a
revocation in part, Issuer shall promptly (i) deliver to Grantee and/or the
Owner, as appropriate, that portion of the Option Repurchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering after
taking into account any such revocation and (ii) deliver, as appropriate, either
(a) to Grantee, a new Agreement evidencing the right of Grantee to purchase that
number of shares of Common Stock equal to the number of shares of Common Stock
purchasable immediately prior to the delivery of the notice of repurchase less
the number of shares of Common Stock covered by the portion of the Option
repurchased or (b) to the Owner, a certificate for the number of Option Shares
covered by the revocation. If an Option Termination Event shall have occurred
prior to the date of the notice by Issuer described in the first sentence of
this subsection (d), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, Grantee
shall nonetheless have the right to exercise the Option until the expiration of
such 30-day period.
(e) The term "Repurchase Event" shall mean the occurrence of a Triggering
Event prior to the occurrence of an Option Termination Event followed by the
occurrence of a CFAM Takeover Event within twelve months after such Triggering
Event.
8. Substitute Option in the Event of Corporate Change. (a) In the event
that prior to an Option Termination Event, Issuer shall enter into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and shall not be the continuing or surviving corporation of
such consolidation or merger, (ii) to permit any person, other than Grantee or
one of its subsidiaries, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other person or cash or any other property or
the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
Grantee, of either (x) the Acquiring Corporation (as hereinafter defined) or (y)
any person that controls the Acquiring Corporation.
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(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Alternative Proposal Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided, that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as Grantee may
elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The issuer of the Substitute Option shall
also enter into an agreement with Grantee in substantially the same form as this
Agreement, which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 10.0% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 10.0% of the
shares of the Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. Extension of Time for Regulatory Approvals. The 18-month period for
exercise of certain rights under Sections 2, 6, 7, 13 and 14 shall be extended:
(i) to the extent necessary to obtain all regulatory approvals for the exercise
of such rights, and for the expiration of all statutory waiting periods; and
(ii) to the extent necessary to avoid liability under Section 10(b) of the
Exchange Act by reason of such exercise.
10. Representations and Warranties of the Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
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<PAGE> 216
duly and validly executed and delivered by Issuer. This Agreement is the
valid and legally binding obligation of Issuer, enforceable against Issuer
in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests, and not subject to
any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provisions of the Charter
or Bylaws of Issuer or any Issuer subsidiary, subject to obtaining any
approvals or consents contemplated hereby, result in any violation of any
loan or credit agreement, note, mortgage, indenture, lease, plan, or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Issuer or any Issuer subsidiary or their respective
properties or assets which violation would have, individually or in the
aggregate, a Material Adverse Effect on the Issuer.
11. Assignment of Option by Grantee. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the other party.
12. First Refusal. At any time after the first occurrence of a Triggering
Event and prior to the later of:
(a) the expiration of 18 months immediately following the first
purchase of shares of Common Stock pursuant to the Option; and
(b) the Option Termination Date, if Grantee shall desire to sell,
assign, transfer or otherwise dispose of all or any of the Option or the
shares of Common Stock or other securities acquired by it pursuant to the
Option, it shall give Issuer written notice of the proposed transaction (an
"Offeror's Notice"), identifying the proposed transferee, accompanied by a
copy of a binding offer to purchase the Option or such shares or other
securities signed by such transferee and setting forth the terms of the
proposed transaction. An Offeror's Notice shall be deemed an offer by
Grantee to Issuer, which may be accepted within 10 business days of the
receipt of such Offeror's Notice, on the same terms and conditions and at
the same price at which Grantee is proposing to transfer the Option or such
shares or other securities to such transferee. The purchase of the Option
or any such shares or other securities by Issuer shall be settled within 10
business days of the date of the acceptance of the offer and the purchase
price shall be paid to Grantee in immediately available funds; provided
that, if prior notification to or approval of any regulatory authority is
required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process
the same (and Grantee shall cooperate with Issuer in the filing of any such
notice or application and the obtaining of any such approval) and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be,
(1) required notification period has expired or been terminated, or
(2) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
In the event of the failure or refusal of Issuer to purchase all of the
Option or all of the shares or other securities covered by an Offeror's Notice
or if any regulatory authority disapproves Issuer's proposed purchase of any
portion of the Option or such shares or other securities, Grantee may, within 60
days from the date of the Offeror's Notice (subject to any necessary extension
for regulatory notification, approval or waiting periods), sell all, but not
less than all, of such portion of the Option or such shares or other securities
to the proposed transferee at no less than the price specified and on terms no
more favorable than those set forth in
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<PAGE> 217
the Offeror's Notice. The requirements of this Section 12 shall not apply to (w)
any disposition as a result of which the proposed transferee would own
beneficially not more than 2% of the outstanding voting power of Issuer, (x) any
disposition of Common Stock or other securities by a person to whom Grantee has
assigned its rights under the Option with the consent of Issuer, (y) any sale by
means of a public offering registered under the Securities Act in which steps
are taken to reasonably assure that no purchaser will acquire securities
representing more than 2% of the outstanding voting power of Issuer, or (z) any
transfer to a wholly owned subsidiary of Grantee which agrees in writing to be
bound by the terms hereof.
13. Application for Regulatory Approval. Each of Grantee and Issuer will
use its best efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on Nasdaq's
National Market System upon official notice of issuance.
14. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
15. Separability of Provisions. If any term, provision, covenant, or
restriction, contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
16. Notices. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier, or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
shall constitute one and the same agreement.
19. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the benefits of such provision. This Agreement may not be modified,
amended, altered, or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
21. Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise. Nothing contained
in this Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
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<PAGE> 218
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers hereunto duly authorized, all as of the date
first written above.
<TABLE>
<S> <C> <C> <C>
BRIGHT HORIZONS, INC.
By: /s/ Roger H. Brown
---------------------------------------------
Name: Roger H. Brown
---------------------------------------------
Title: Chief Executive Officer
---------------------------------------------
Attest:
Name: /s/ Howard H. Lamar III
---------------------------------------
Title:
---------------------------------------
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ Marguerite W. Sallee
---------------------------------------------
Name: Marguerite W. Sallee
---------------------------------------------
Title: President and Chief Executive Officer
---------------------------------------------
Attest:
Name: /s/ Lori B. Morgan
---------------------------------------
Title:
---------------------------------------
</TABLE>
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<PAGE> 219
ANNEX III
COMPANY STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of April 26, 1998,
is by and between CorporateFamily Solutions, Inc., a Tennessee corporation
("Grantee"), and Bright Horizons, Inc., a Delaware corporation ("Issuer").
RECITALS
A. Grantee and Issuer have entered into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), which has been executed in
connection with this Agreement (each capitalized term used herein without
definition shall have the meaning specified in the Merger Agreement).
B. As a condition to Grantee's entering into the Merger Agreement and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. Grant of Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
560,073 shares of fully paid and nonassessable common stock of the Issuer, $.01
par value per share ("Common Stock"), which is equal to 10.0% of the number of
shares of Common Stock issued and outstanding on the date hereof, at a purchase
price equal to the Option Price, as adjusted in accordance with the provisions
of Section 5 of this Agreement. The "Option Price" shall mean the average of the
daily last sale price of the Common Stock on The Nasdaq Stock Market during the
ten business day trading period ending on the earlier of (i) May 1, 1998 or (ii)
the day prior to the date that a BRHZ Takeover Proposal shall have been publicly
announced or shall have become publicly known.
2. Exercise of Option. (a) Exercise. Grantee may exercise the Option, in
whole or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Option
Termination Event (as hereinafter defined).
(b) Option Termination Events. The term "Option Termination Event" shall
mean any of the following events: (i) immediately prior to the Effective Time of
the Merger; (ii) termination of the Merger Agreement (other than upon or during
the continuance of a Triggering Event); or (iii) 180 days following any
termination of the Merger Agreement upon or during the continuance of a
Triggering Event (or if, at the expiration of such 180-day period the Option
cannot be exercised by reason of any applicable judgment, decree, order, law or
regulation, 10 business days after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal). Notwithstanding
the foregoing, the Option may not be exercised if the Grantee is in material
breach of its representation or warranties, or in material breach of any of its
covenants or agreements contained in this Agreement or the Merger Agreement.
(c) Triggering Events. The term "Triggering Event" shall mean a BRHZ
Takeover Proposal shall have been publicly announced or shall have become
publicly known prior to the time the Merger Agreement is terminated or the time
of the BRHZ Special Meeting.
(d) Notice of Triggering Event. Issuer shall notify Grantee promptly in
writing of the occurrence of any Triggering Event, it being understood that the
giving of such notice by Issuer shall not be a condition to the right of Grantee
to exercise the Option or for a Triggering Event to have occurred.
(e) Notice of Exercise; Closing. In the event Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 10 business
days (or, in the event approval under the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended, is required, 60 calendar days) from the
Notice Date for the closing of such purchase (the "Closing Date"); provided,
that if the closing of the
<PAGE> 220
purchase and sale pursuant to the Option (the "Closing") cannot be consummated,
in the reasonable opinion of Grantee, by reason of any applicable judgment,
decree, order, law or regulation, the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which restriction
on consummation has expired or been terminated; and provided further, without
limiting the foregoing, that if, in the reasonable opinion of Grantee, prior
notification to or approval of any regulatory agency is required in connection
with such purchase, Grantee shall promptly file the required notice or
application for approval and shall expeditiously process the same, and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the Option shall be deemed
to occur on the Notice Date relating thereto. Notwithstanding this subsection
(e), in no event shall any Closing Date be more than 18 months after the related
Notice Date, and if the Closing Date shall not have occurred within 18 months
after the related Notice Date due to the failure to obtain any such required
approval, the exercise of the Option effected on the Notice Date shall be deemed
to have expired.
(f) Purchase Price. At the Closing referred to in subsection (e) above,
Grantee shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude Grantee from exercising the Option.
(g) Issuance of Common Stock. At the Closing, simultaneously with the
delivery of immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock purchased by the Grantee and,
if the Option is exercised in part only, a new Option evidencing the rights of
Grantee thereof to purchase the balance of the shares purchasable hereunder, and
the Grantee shall deliver to Issuer a copy of this Agreement and a letter
agreeing that Grantee will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(h) Legend. Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate are subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Grantee shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to Issuer, to
the effect that such legend is not required for purposes of the Securities Act;
(ii) the reference to the provisions of this Agreement in the above legend shall
be removed by delivery of substitute certificate(s) without such reference if
the shares have been sold or transferred in compliance with the provisions of
this Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Record Grantee; Expenses. Upon the giving by Grantee to Issuer of the
written notice of exercise of the Option provided for under subsection (e) of
this Section 2 and the tender of the applicable purchase price in immediately
available funds, Grantee shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
Grantee or the Issuer shall have failed or refused to designate the bank account
described in subsection (f) of this Section 2. Issuer shall pay all expenses and
any and all United States federal, state and local taxes and other charges that
may be payable in connection with the preparation, issuance and delivery of
stock certificates under this Section 2 in the name of Grantee or its assignee,
transferee or designee.
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<PAGE> 221
3. Reservation Shares. Issuer agrees: (i) that it shall at all times
maintain, free from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock (and other securities issuable pursuant to
Section 5(a)) so that the Option may be exercised without additional
authorization of Common Stock (or such other securities) after giving effect to
all other options, warrants, convertible securities and other rights to purchase
Common Stock (or such other securities); (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including without limitation complying with
all premerger notification, reporting and waiting periods under the HSR Act) in
order to permit Grantee to exercise the Option and Issuer duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of Grantee against dilution.
4. Division of Option; Lost Options. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any Stock Option Agreements and related Options for which
this Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustment Upon Changes in Capitalization. The number of shares of
Common Stock purchasable upon the exercise of the Option shall be subject to
adjustment from time to time as provided in this Section 5.
(a) In the event that any additional shares of Common Stock, or any rights,
options, warrants, subscriptions, calls, convertible securities or other
agreements or commitments obligating Issuer to issue any shares of Common Stock,
are issued or otherwise become outstanding after the date hereof (an
"Increase"), the number of shares of Common Stock subject to the Option shall be
increased so that the number of shares issuable upon exercise of the Option
shall be equal to the product of (A) the percentage of the outstanding Common
Stock for which the Option was exercisable immediately prior to the Increase and
(B) the number of shares of Common Stock outstanding immediately after the
Increase; provided that the number of shares of Common Stock subject to the
Option shall in no event exceed 10.0% of the issued and outstanding shares of
Common Stock immediately prior to exercise.
(b) In the event of any change in Common Stock by reason of stock
dividends, splits, mergers, recapitalization, combinations, subdivisions,
conversions, exchanges of shares or other similar transactions and no adjustment
is required pursuant to the terms of Section 5(a), then the type and number of
shares of Common Stock purchasable upon exercise hereof shall be appropriately
adjusted so that Grantee shall receive upon exercise of the Option and payment
of the aggregate Option Price hereunder the number and class of shares or other
securities or property that Grantee would have received in respect of Common
Stock if the Option had been exercised in full immediately prior to such event,
or the record date therefor, as applicable.
(c) Whenever the number of shares of Common Stock subject to this Agreement
on a fully diluted basis changes after the date hereof, the Option Price shall
be adjusted by multiplying the Option Price by a fraction, the numerator of
which shall be equal to the aggregate number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the aggregate number of shares of Common Stock purchasable immediately after
the adjustment.
6. Registration Rights. Upon the occurrence of a Triggering Event that
occurs prior to an Option Termination Event (or as otherwise provided in the
last sentence of Section 2(e)), Issuer shall, at the request
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<PAGE> 222
of Grantee, deliver at any time on or prior to the Option Termination Date
(whether on its own behalf or on behalf of any subsequent holder of this Option
(or part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
any shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 120 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary to effect such
sales or other dispositions. Grantee for a period of 18 months following such
first request shall have the right to demand a second such registration if
reasonably necessary to effect such sales or dispositions. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the
Grantee's Option or Option Shares would interfere with the successful marketing
of the shares of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced in the manner set forth in Section 8.04 of the Series C Convertible
Preferred Stock Purchase Agreement dated October 12, 1990, as amended; and
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of Grantee shall
constitute at least 25% of the total number of shares to be sold by Grantee and
Issuer in the aggregate; and provided further, however, that if such reduction
occurs, then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur (and such
registration shall not be charged against Grantee). Grantee shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any Grantee in connection with
such registration, Issuer shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating itself
in respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for the Issuer. Upon
receiving any request under this Section 6 from Grantee, Issuer agrees to send a
copy thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7. Repurchase of Option and Option Shares. (a) Within ten business days
following the occurrence of a Repurchase Event (as defined below), Issuer shall
(i) deliver an offer (a "Repurchase Offer") to repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Alternative Proposal Price (as deemed below) exceeds (B) the Option
Price, multiplied by the number of shares for which the Option may then be
exercised, and (ii) deliver an offer (also, a "Repurchase Offer") to repurchase
the Option Shares from each owner of Option Shares (excluding such Option Shares
as have been publicly distributed) from time to time (each, an "Owner") at a
price (the "Option Share Repurchase Price") equal to the Alternative Proposal
Price multiplied by the number of Option Shares then held by such Owner. The
term "Alternative Proposal Price" shall mean, as of any date for the
determination thereof, the price per share of Common Stock paid pursuant to the
BRHZ Takeover Event or, in the event of a sale of assets of Issuer, the last
per-share sale price of Common Stock on the fourth trading day following the
announcement of such sale. If the consideration paid or received in the BRHZ
Takeover Event shall be other than in cash, the value of such consideration
shall be determined by a nationally recognized investment banking firm selected
by Grantee, which determination shall be conclusive for all purposes of this
Agreement.
(b) Upon the occurrence of a Repurchase Event and whether or not Issuer
shall have made a Repurchase Offer under Section 7(a), (i) at the request (the
date of such request being the "Option Repurchase Request Date") of Grantee
delivered prior to the Option Termination Date, Issuer shall repurchase the
Option from Grantee at the Option Repurchase Price, and (ii) at the request (the
date of such request being the "Option Share Repurchase Request Date") of any
Owner delivered prior to the Option Termination Date, Issuer shall repurchase
such number of the Option Shares from the Owner as the Owner shall designate at
the Option Share Repurchase Price.
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(c) Grantee and/or the Owner, as the case may be, may accept Issuer's
Repurchase Offer under Section 7(a) or may exercise its right to require Issuer
to repurchase the Option and/or any Option Shares pursuant to Section 7(b) by a
written notice or notices stating that Grantee or the Owner, as the case may be,
elects to accept such offer or to require Issuer to repurchase the Option and/or
the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within five business days, after the
surrender to it of this Agreement and/or Certificates for Option Shares, as
applicable, following receipt of a notice under this Section 7(c) and the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be delivered
to Grantee the Option Repurchase Price and/or to the Owner the Option Share
Repurchase Price and/or the portion thereof that Issuer is not then prohibited
from so delivering under applicable law.
(d) Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish any repurchase contemplated by this Section
7. Nonetheless, to the extent that Issuer is prohibited under applicable law,
from repurchasing the Option and/or any Option Shares in full, Issuer shall
immediately so notify Grantee and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to Grantee and/or the Owner, as appropriate,
the portion of the Option Repurchase Price and the Option Share Repurchase
Price, respectively, that it is no longer prohibited from delivering, within
five business days after the date on which Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to Section 7(c) is prohibited under applicable law, from
delivering to Grantee and/or the Owner, as appropriate, the Option Repurchase
Price or the Option Share Repurchase Price, respectively, in full, Grantee or
the Owner, as appropriate, may revoke its notice of repurchase of the Option or
the Option Shares either in whole or in part whereupon, in the case of a
revocation in part, Issuer shall promptly (i) deliver to Grantee and/or the
Owner, as appropriate, that portion of the Option Repurchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering after
taking into account any such revocation and (ii) deliver, as appropriate, either
(a) to Grantee, a new Agreement evidencing the right of Grantee to purchase that
number of shares of Common Stock equal to the number of shares of Common Stock
purchasable immediately prior to the delivery of the notice of repurchase less
the number of shares of Common Stock covered by the portion of the Option
repurchased or (b) to the Owner, a certificate for the number of Option Shares
covered by the revocation. If an Option Termination Event shall have occurred
prior to the date of the notice by Issuer described in the first sentence of
this subsection (d), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, Grantee
shall nonetheless have the right to exercise the Option until the expiration of
such 30-day period.
(e) The term "Repurchase Event" shall mean the occurrence of a Triggering
Event prior to the occurrence of an Option Termination Event followed by the
occurrence of a BRHZ Takeover Event within twelve months after such Triggering
Event.
8. Substitute Option in the Event of Corporate Change. (a) In the event
that prior to an Option Termination Event, Issuer shall enter into an agreement
(i) to consolidate with or merge into any person, other than Grantee or one of
its subsidiaries, and shall not be the continuing or surviving corporation of
such consolidation or merger, (ii) to permit any person, other than Grantee or
one of its subsidiaries, to merge into Issuer and Issuer shall be the continuing
or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other person or cash or any other property or
the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
Grantee, of either (x) the Acquiring Corporation (as hereinafter defined) or (y)
any person that controls the Acquiring Corporation.
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<PAGE> 224
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Alternative Proposal Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided, that if Issuer is the issuer
of the Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer or by
any company which controls or is controlled by such person, as Grantee may
elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Grantee. The issuer of the Substitute Option shall
also enter into an agreement with Grantee in substantially the same form as this
Agreement, which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 10.0% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 10.0% of the
shares of the Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option shall make a cash payment to
Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee.
(f) Issuer shall not enter into any transaction described in subsection (a)
of this Section 8 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder.
9. Extension of Time for Regulatory Approvals. The 18-month period for
exercise of certain rights under Sections 2, 6, 13 and 14 shall be extended: (i)
to the extent necessary to obtain all regulatory approvals for the exercise of
such rights, and for the expiration of all statutory waiting periods; and (ii)
to the extent necessary to avoid liability under Section 10(b) of the Exchange
Act by reason of such exercise.
10. Representations and Warranties of the Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been
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<PAGE> 225
duly and validly executed and delivered by Issuer. This Agreement is the
valid and legally binding obligation of Issuer, enforceable against Issuer
in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common
Stock at any time and from time to time issuable hereunder, and all such
shares, upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and clear of
all claims, liens, encumbrances and security interests, and not subject to
any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation pursuant to any provisions of the
Certificate of Incorporation or Bylaws of Issuer or any Issuer subsidiary,
subject to obtaining any approvals or consents contemplated hereby, result
in any violation of any loan or credit agreement, note, mortgage,
indenture, lease, plan, or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Issuer or any Issuer subsidiary
or their respective properties or assets which violation would have,
individually or in the aggregate, a Material Adverse Effect on the Issuer.
11. Assignment of Option by Grantee. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the other party.
12. First Refusal. At any time after the first occurrence of a Triggering
Event and prior to the later of:
(a) the expiration of 18 months immediately following the first
purchase of shares of Common Stock pursuant to the Option; and
(b) the Option Termination Date, if Grantee shall desire to sell,
assign, transfer or otherwise dispose of all or any of the Option or the
shares of Common Stock or other securities acquired by it pursuant to the
Option, it shall give Issuer written notice of the proposed transaction (an
"Offeror's Notice"), identifying the proposed transferee, accompanied by a
copy of a binding offer to purchase the Option or such shares or other
securities signed by such transferee and setting forth the terms of the
proposed transaction. An Offeror's Notice shall be deemed an offer by
Grantee to Issuer, which may be accepted within 10 business days of the
receipt of such Offeror's Notice, on the same terms and conditions and at
the same price at which Grantee is proposing to transfer the Option or such
shares or other securities to such transferee. The purchase of the Option
or any such shares or other securities by Issuer shall be settled within 10
business days of the date of the acceptance of the offer and the purchase
price shall be paid to Grantee in immediately available funds; provided
that, if prior notification to or approval of any regulatory authority is
required in connection with such purchase, Issuer shall promptly file the
required notice or application for approval and shall expeditiously process
the same (and Grantee shall cooperate with Issuer in the filing of any such
notice or application and the obtaining of any such approval) and the
period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which, as the case may be,
(1) required notification period has expired or been terminated, or
(2) such approval has been obtained and, in either event, any
requisite waiting period shall have passed.
In the event of the failure or refusal of Issuer to purchase all of the
Option or all of the shares or other securities covered by an Offeror's Notice
or if any regulatory authority disapproves Issuer's proposed purchase of any
portion of the Option or such shares or other securities, Grantee may, within 60
days from the date of the Offeror's Notice (subject to any necessary extension
for regulatory notification, approval or waiting periods), sell all, but not
less than all, of such portion of the Option or such shares or other securities
to the proposed transferee at no less than the price specified and on terms no
more favorable than those set forth in
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<PAGE> 226
the Offeror's Notice. The requirements of this Section 12 shall not apply to (w)
any disposition as a result of which the proposed transferee would own
beneficially not more than 2% of the outstanding voting power of Issuer, (x) any
disposition of Common Stock or other securities by a person to whom Grantee has
assigned its rights under the Option with the consent of Issuer, (y) any sale by
means of a public offering registered under the Securities Act in which steps
are taken to reasonably assure that no purchaser will acquire securities
representing more than 2% of the outstanding voting power of Issuer, or (z) any
transfer to a wholly owned subsidiary of Grantee which agrees in writing to be
bound by the terms hereof.
13. Application for Regulatory Approval. Each of Grantee and Issuer will
use its best efforts to make all filings with, and to obtain consents of, all
third parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including without limitation making
application to list the shares of Common Stock issuable hereunder on Nasdaq's
National Market System upon official notice of issuance.
14. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
15. Separability of Provisions. If any term, provision, covenant, or
restriction, contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated.
16. Notices. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier, or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
18. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
shall constitute one and the same agreement.
19. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, except as expressly provided herein. Any provision of
this Agreement may be waived only in writing at any time by the party that is
entitled to the benefits of such provision. This Agreement may not be modified,
amended, altered, or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
21. Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise. Nothing contained
in this Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
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<PAGE> 227
IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers "hereunto duly authorized, all as of the
date first written above.
CORPORATEFAMILY SOLUTIONS, INC.
By: /s/ MARGUERITE W. SALLEE
----------------------------------
Name: Marguerite W. Sallee
----------------------------------
Title: President and Chief Executive
Officer
----------------------------------
Attest:
Name: /s/ LORI B. MORGAN
--------------------------------
Title:
--------------------------------
BRIGHT HORIZONS, INC.
By: /s/ ROGER H. BROWN
----------------------------------
Name: Roger H. Brown
----------------------------------
Title: Chief Executive Officer
----------------------------------
Attest:
Name: /s/ HOWARD H. LAMAR III
--------------------------------
Title:
--------------------------------
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<PAGE> 228
ANNEX IV
[LETTERHEAD OF NATIONSBANC MONTGOMERY SECURITIES LLC]
April 26, 1998
Board of Directors
CorporateFamily Solutions, Inc.
209 Tenth Avenue South, Suite 300
Nashville, TN 37203-4173
Ladies and Gentlemen:
We understand that CorporateFamily Solutions, Inc., a Tennessee corporation
("CFS"), and Bright Horizons, Inc., a Delaware corporation ("BHI"), propose to
enter into an Agreement and Plan of Merger, a draft of which has been provided
to us by management of CFS dated April 26, 1998 (the "Merger Agreement")
pursuant to which two subsidiaries, Merger Sub A, a Tennessee corporation and
wholly owned subsidiary of Bright Horizons Family Solutions, Inc., a Delaware
corporation ("Newco"), and Merger Sub B, a Delaware corporation and wholly owned
subsidiary of Newco, shall each be merged with and into CFS and BHI,
respectively, with each of CFS and BHI continuing as the surviving corporations,
wholly owned by Newco (the "Merger"). Pursuant to the Merger, as more fully
described in the Merger Agreement and as further described to us by management
of CFS, we understand that (i) each outstanding share of the common stock, no
par value per share, of CFS will be converted into and exchangeable for one
share of the common stock $0.01 par value per share ("Newco Common Stock"), of
Newco (the "CFS Exchange Ratio") and (ii) each outstanding share of the common
stock, $.01 par value per share, of BHI will be converted into and exchangeable
for 1.15022 shares of Newco Common Stock. The terms and conditions of the Merger
are set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the CFS
Exchange Ratio contemplated by the Merger is fair to the shareholders of CFS
from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to BHI and CFS,
including the consolidated financial statements for recent years and interim
periods to April 3, 1998 and certain other relevant financial and operating data
relating to BHI and CFS made available to us from published sources and from the
internal records of BHI and CFS; (ii) reviewed the financial terms and
conditions of the Merger Agreement and the related Option Agreements; (iii)
reviewed certain publicly available information concerning the trading of, and
the trading market for, BHI Common Stock and CFS Common Stock, (iv) compared BHI
and CFS from a financial point of view with certain other companies which we
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies which
we deemed to be comparable, in whole or in part, to the Merger; (vi) reviewed
and discussed with representatives of the management of BHI and CFS the
strategic rationale for the Merger and certain information of a business and
financial nature regarding BHI and CFS furnished to us by them, including
financial forecasts and related assumptions of BHI and CFS; (vii) participated
in discussions and negotiations among representatives of CFS and BHI and their
financial and legal advisors; (viii) analyzed the pro forma impact of the Merger
or CFS's earnings per share; and (ix) performed such other analyses and
examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on such
information being accurate and complete in all material respects. With respect
to the financial forecasts for BHI and CFS provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to the future financial performance of
BHI and CFS and that NationsBanc Montgomery could rely on the accuracy and
completeness of such information without independent verification and was
authorized to make appropriate use of such information. We have also assumed
that there have been no material changes in BHI's or CFS's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to
<PAGE> 229
Board of Directors
CorporateFamily Solutions, Inc.
April 26, 1998
Page Two
us and the information provided to us by BHI and CFS. We have assumed that the
Merger will be consummated (i) in accordance with the terms set forth in the
Merger Agreement (including the Merger's qualification as a pooling of interest
business combination for accounting purposes and qualification as a tax-free
reorganization for federal income tax purposes) without any further amendments
thereto, and without waiver by CFS of any of the conditions to its obligations
thereunder. We note that each of CFS and BHI have represented in the Merger
Agreement that the proxy statement used in connection with the Merger will
comply as to form in all material respects with the Securities Exchange Act of
1934 and the rules and regulations promulgated thereunder insofar as it relates
to the meetings of the stockholders of CFS and BHI, respectively, to vote on the
Merger and the Form S-4 filed in connection with the Merger will comply as to
form in all material respects with the Securities Act of 1933 (the "Securities
Act") and the rules and regulations promulgated thereunder. In addition, we have
not assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of BHI or CFS, nor have we been furnished with any such appraisals.
Finally, our opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise or reaffirm this
opinion.
We have acted as financial advisor to CFS in connection with the Merger and
will receive a fee for our services, including rendering this opinion, which is
contingent upon the consummation of the Merger. In addition, if the Merger is
not consummated, NationsBanc Montgomery will receive a fee equal to fifty
percent of any consideration payable to CFS as a result of termination of the
Merger Agreement, up to the amount of the fee that would be payable to
NationsBanc Montgomery if the transaction had been consummated. In the ordinary
course of our business, we actively trade the equity securities of BHI and CFS
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities. We have also acted as
a managing underwriter in connection with the initial public offering of CFS
Common Stock.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the CFS Exchange Ratio contemplated by the Merger is
fair to the shareholders of CFS from a financial point of view, as of the date
hereof.
We are not expressing an opinion regarding the price at which Newco Common
Stock may trade at any future time. The CFS Exchange Ratio contemplated by the
Merger is a fixed exchange ratio and, accordingly, the market value of the Newco
Common Stock to be received by the shareholders of CFS may vary significantly.
This opinion is directed to the Board of Directors of CFS in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the CFS Exchange Ratio and does
not address the merits of the underlying decision of the CFS Board of Directors
to proceed with or effect the Merger or any other aspect of the Merger. This
opinion may not be used or referred to by CFS, or quoted or disclosed to any
person in any manner, without our prior written consent, which consent is hereby
given to the inclusion of this opinion in any proxy statement or prospectus
filed with the Securities and Exchange Commission in connection with the Merger.
In furnishing this opinion, we do not admit that we are experts within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
/s/ NATIONSBANC MONTGOMERY SECURITIES
LLC
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<PAGE> 230
ANNEX V
[LETTERHEAD OF BT ALEX. BROWN INCORPORATED]
April 26, 1998
Board of Directors
Bright Horizons, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
Members of the Board:
Bright Horizons, Inc., a Delaware corporation ("BRHZ"), and CORPORATEFAMILY
Solutions, Inc., a Tennessee corporation ("CFAM"), have proposed to enter into
an Agreement and Plan of Merger dated as of April 26, 1998 (the "Merger
Agreement"). Pursuant to the Merger Agreement, the implementation of which is
contingent on approval by the stockholders of BRHZ and CFAM, Merger Sub A, a
Tennessee corporation and wholly owned subsidiary of Bright Horizons Family
Solutions, Inc., a corporation to be jointly formed by CFAM and BRHZ ("Newco"),
will be merged with and into CFAM, and Merger Sub B, a Delaware corporation and
wholly owned subsidiary of Newco, will be merged with and into BRHZ
(collectively, the "Merger") and (i) each outstanding share of the common stock,
no par value per share, of CFAM (the "CFAM Common Stock") will be converted into
the right to receive 1.0 share of the common stock, par value $0.01 per share,
of Newco (the "Newco Common Stock") and (ii) each outstanding share of the
common stock, par value $0.01 per share, of BRHZ (the "BRHZ Common Stock") will
be converted into the right to receive 1.15022 (the "BRHZ Exchange Ratio")
shares of Newco Common Stock. You have requested our opinion as to whether the
BRHZ Exchange Ratio is fair, from a financial point of view, to the holders of
BRHZ Common Stock.
BT Alex. Brown Incorporated ("BT" Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of BRHZ
in connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent upon the consummation of the Merger
and a portion of which is payable upon delivery of this opinion. We previously
have served as lead managing underwriter in connection with BRHZ's initial
public offering of BHRZ Common Stock in November 1997, for which services we
have received compensation. BT Alex. Brown maintains a market in BRHZ Common
Stock and regularly publishes research reports regarding the child development
services industry and the businesses and securities of BRHZ and other publicly
owned companies in such industry. In the ordinary course of business, BT Alex.
Brown and its affiliates may actively trade or hold the securities of both BRHZ
and CFAM for their own account and the account of customers and, accordingly,
may at any time hold a long or short position in securities of BRHZ and CFAM.
In connection with this opinion, we have reviewed certain publicly
available financial information and other information concerning BRHZ and CFAM
and certain internal analyses and other information furnished to us by
management of BRHZ and CFAM. We have also held discussions with the members of
the senior management of BRHZ and CFAM regarding the business and prospects of
their respective companies and the joint prospects of Newco. In addition, we
have (i) reviewed the reported prices and trading activity for BRHZ Common Stock
and CFAM Common Stock, (ii) compared certain financial and stock market
information for BRHZ and CFAM with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which we deemed comparable in
whole or in part, (iv) reviewed the terms of the Merger Agreement and certain
related documents, and (iv) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
<PAGE> 231
Board of Directors
Bright Horizons, Inc.
April 26, 1998
Page Two
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to financial forecasts and other information relating to
BRHZ, CFAM and Newco, including estimates of the operating synergies and other
benefits achievable as a result of the Merger, we have assumed that such
information has been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of BRHZ and CFAM as to the
matters covered thereby. In addition, we have not made an independent evaluation
or appraisal of the assets or liabilities of BRHZ or CFAM, nor have we been
furnished with any such evaluations or appraisals. We are expressing no opinion
as to the price at which Newco Common Stock actually may trade at any time. We
have assumed, with your consent, that the Merger will qualify for pooling-
of-interests accounting treatment and as tax-free reorganization for federal
income tax purposes. With your consent, we also have assumed that the Merger
will be consummated in all material respects on the terms and conditions
described in the Merger Agreement and that all material conditions to the
consummation of the Merger contained in the Merger Agreement will be satisfied
without the waiver of such conditions, and have further assumed that all
necessary governmental and regulatory approvals and consents of third parties
will be obtained on terms and conditions that will not have a material adverse
effect on BRHZ or CFAM. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
In connection with our engagement, we were not authorized to, and did not,
solicit third party indications of interest with respect to the acquisition of
all or a part of BRHZ, nor have we reviewed with BRHZ or its Board of Directors
any potential transactions in lieu of the Merger.
Our advisory services and the opinion expressed herein are for the use of
the Board of Directors of BRHZ and do not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to matters
relating to the proposed Merger. We hereby consent, however, to the inclusion of
this opinion letter in its entirety as an exhibit to the proxy or registration
statement of BRHZ and CFAM relating to the proposed Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the BRHZ Exchange Ratio is fair, from a financial point of view,
to the holders of BRHZ Common Stock.
Very truly yours,
BT ALEX. BROWN INCORPORATED
V-2
<PAGE> 232
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The General Corporation Law of the State of Delaware ("DGCL") provides
that a corporation may indemnify any person made party to an action by reason of
such person's status as a director, officer, employee or agent of the
corporation against expenses, judgments, fines and settlements provided such
person acted (i) in good faith, (ii) in a manner reasonably believed to be in or
not opposed to the best interests of the corporation and (iii) with respect to a
criminal action, had no reasonable cause to believe such person's conduct was
unlawful. The termination of an action by a judgment, order, settlement,
conviction or plea of nolo contendere shall not create a presumption that a
person did not meet the standard of conduct set forth above. In actions brought
by or in the right of the corporation, however, the DGCL provides that no
indemnification may be made if the person was adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. To the extent that a person is
successful, on the merits or otherwise, in the defense of any proceeding
instigated because of his or her status as a director, officer, employee or
agent of a corporation, the DGCL mandates that the corporation indemnify such
person against reasonable expenses incurred in the proceeding. A corporation may
advance litigation expenses, including attorneys' fees, to a person who is a
party to a proceeding upon such person undertaking to repay such amount if it
shall ultimately be determined that such person is not entitled to
indemnification. The indemnification and advancement of expenses under the DGCL
are not deemed exclusive of any other rights to which a person may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
(b) Article IX of the Registrant's Certificate of Incorporation provides as
follows:
Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the corporation shall be personally
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
II-1
<PAGE> 233
ITEM 21. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger dated June
17, 1998 by and among CorporateFamily Solutions, Inc.,
Bright Horizons, Inc., Bright Horizons Family Solutions,
Inc., CFAM Acquisition, Inc. and BRHZ Acquisition, Inc. (as
directed by Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to this document are omitted from
this filing, and the Registrant agrees to furnish
supplementally a copy of any omitted schedule or exhibit to
the Commission upon request) (Included herein as Annex I).
3.1 -- Bright Horizons Family Solutions, Inc. Certificate of
Incorporation
3.2 -- Bright Horizons Family Solutions, Inc. Bylaws
4.1 -- Specimen Common Stock Certificate
4.2 -- Article IV of Bright Horizons Family Solutions, Inc.'s
Certificate of Incorporation (Included in Exhibit 3.1)
5.1 -- Opinion of Bass, Berry & Sims PLC
8.1 -- Opinion of Bass, Berry & Sims PLC
8.2 -- Opinion of Ropes & Gray
10.1 -- Form of Bright Horizons Family Solutions, Inc. 1998 Stock
Incentive Plan
10.2 -- Form of Bright Horizons Family Solutions, Inc. 1998 Employee
Stock Purchase Plan
10.3 -- Bright Horizons, Inc. 1987 Stock Option and Incentive Plan
(Incorporated by Reference to Exhibit 10.1 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.4 -- Bright Horizons, Inc. 1996 Equity Incentive Plan
(Incorporated by Reference to Exhibit 10.2 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.5 -- Bright Horizons, Inc. 1997 Equity Incentive Plan
(Incorporated by Reference to Exhibit 10.4 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.6 -- CorporateFamily Solutions, Inc. Amended and Restated 1987
Stock Option Plan (Incorporated by Reference to Exhibit 4.3
of the Registration Statement on Form S-8 of CorporateFamily
Solutions, Inc. (Registration No. 333-38185))
10.7 -- CorporateFamily Solutions, Inc. 1996 Stock Incentive Plan
(Incorporated by Reference to Exhibit 10.4 of the
Registration Statement on Form S-1 of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.8 -- CorporateFamily Solutions, Inc. 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 of the
Registration Statement on Form S-1 of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.9 -- Form of Employment Agreement of Linda A. Mason
10.10 -- Form of Employment Agreement of Marguerite W. Sallee
10.11 -- Form of Employment Agreement of Roger H. Brown
10.12 -- Form of Employment Agreement of Michael E. Hogrefe
10.13 -- Form of Employment Agreement of Mary Ann Tocio
10.14 -- CorporateFamily Solutions, Inc. Form of Severance Agreement
for Dana Friedman, James Greenman and Sandy Schrader
(Incorporated by Reference to Exhibit 10.8 of the
Registration Statement on Form S-1, of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.15 -- Bright Horizons, Inc. Severance Agreement for Stephen I.
Dreier (Incorporated by Reference to Exhibit 10.8 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
</TABLE>
II-2
<PAGE> 234
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
10.16 -- Bright Horizons, Inc. Severance Agreement for Elizabeth J.
Boland (Incorporated by Reference to Exhibit 10.9 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.17 -- Bright Horizons, Inc. Severance Agreement for David H. Lissy
(Incorporated by Reference to Exhibit 10.11 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.18 -- Bright Horizons, Inc. Severance Agreement for Melanie Ray.
10.19 -- Bright Horizons, Inc. Severance Agreement for Michael Day.
10.20 -- Bright Horizons, Inc. Severance Agreement for Nancy
Rosenzweig.
10.21 -- Form of Indemnification Agreement
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Price Waterhouse LLP
99.1 -- Form of CorporateFamily Solutions, Inc. Proxy Card
99.2 -- Form of Bright Horizons, Inc. Proxy Card
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULE PAGE
- - ---------------------------- ----
<S> <C>
Report of Independent Public Accountants of
CorporateFamily........................................... S-1
Schedule II -- Valuation and Qualifying
Accounts -- CorporateFamily............................... S-2
Schedule II -- Valuation and Qualifying Accounts -- Bright
Horizons.................................................. S-3
</TABLE>
ITEM 22. UNDERTAKINGS.
(a)(1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party which is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment 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.
(b) 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 foregoing provisions, 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, the Registrant will, unless in the opinion of its counsel the matter
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.
II-3
<PAGE> 235
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b) or 11 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
(d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 236
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Nashville, Tennessee on
June 17, 1998.
Bright Horizons Family Solutions, Inc.
By: /s/ MARGUERITE W. SALLEE
------------------------------------
Marguerite W. Sallee
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael E. Hogrefe, his or her
attorney-in-fact, with the power of substitution, for him or her in any and all
capacities, to sign any amendments to this Registration Statement, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ LINDA A. MASON Director, Chairman June 17, 1998
- - ----------------------------------------------------- of the Board
Linda A. Mason
/s/ MARGUERITE W. SALLEE Director, Chief Executive Officer June 17, 1998
- - ----------------------------------------------------- (Principal Executive Officer)
Marguerite W. Sallee
/s/ ROGER H. BROWN Director, President June 16, 1998
- - -----------------------------------------------------
Roger H. Brown
/s/ MICHAEL E. HOGREFE Chief Financial Officer June 17, 1998
- - ----------------------------------------------------- (Chief Accounting Officer)
Michael E. Hogrefe
/s/ JOSHUA BEKENSTEIN Director June 17, 1998
- - -----------------------------------------------------
Joshua Bekenstein
Director June , 1998
- - -----------------------------------------------------
JoAnne Brandes
/s/ WILLIAM H. DONALDSON Director June 17, 1998
- - -----------------------------------------------------
William H. Donaldson
/s/ E. TOWNES DUNCAN Director June 17, 1998
- - -----------------------------------------------------
E. Townes Duncan
/s/ FRED K. FOULKES Director June 17, 1998
- - -----------------------------------------------------
Fred K. Foulkes
/s/ SARA LAWRENCE-LIGHTFOOT Director June 17, 1998
- - -----------------------------------------------------
Sara Lawrence-Lightfoot
</TABLE>
II-5
<PAGE> 237
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT D. LURIE Director June 17, 1998
- - -----------------------------------------------------
Robert D. Lurie
/s/ R. BRAD MARTIN Director June 17, 1998
- - -----------------------------------------------------
R. Brad Martin
</TABLE>
II-6
<PAGE> 238
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 January 2, 1998 and have issued our
report thereon dated February 13, 1998. 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 21 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
February 13, 1998
S-1
<PAGE> 239
CORPORATEFAMILY SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Period Expenses(1) (Charge Offs)(1) Period
------ ----------- ---------------- ------
<S> <C> <C> <C> <C>
Year ended January 2, 1998:
Allowance for doubtful accounts $123,000 $ 11,000 $ 9,000 $125,000
======== ======== ======== ========
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
======== ======== ======== ========
</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> 240
SCHEDULE II
BRIGHT HORIZONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
------------------------------
Balance at Charged to Charged Deductions Balance at
Beginning of Costs and to Other and End of
Description Period Expenses Accounts(1) Write-offs Period
- - ----------- ------------ ---------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended June 30, 1994 .............. $ 60,000 $69,821 $ 0 $ (50,821) $ 79,000
Year ended June 30, 1995 .............. 79,000 72,177 0 (39,541) 111,636
Year ended June 30, 1996 .............. 111,636 95,854 165,996 (66,028) 307,458
Deferred tax asset valuation allowance
Year ended June 30, 1994 .............. $3,041,000 $ 0 $ 0 $ (652,000) $2,389,000
Year ended June 30, 1995 .............. 2,389,000 0 0 (1,000,000) 1,389,000
Year ended June 30, 1996 .............. 1,389,000 0 1,557,000 (2,530,000) 416,000
</TABLE>
- - ------------------------------------------------
(1) Amounts were acquired from the acquisition of GreenTree Child Care
Services, Inc.
S-3
<PAGE> 241
EXHIBIT INDEX
The following is a list of exhibits to the Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger dated June
17, 1998 by and among CorporateFamily Solutions, Inc.,
Bright Horizons, Inc., Bright Horizons Family Solutions,
Inc., CFAM Acquisition, Inc. and BRHZ Acquisition, Inc. (as
directed by Item 601(b)(2) of Regulation S-K, certain
schedules and exhibits to this document are omitted from
this filing, and the Registrant agrees to furnish
supplementally a copy of any omitted schedule or exhibit to
the Commission upon request) (Included herein as Annex I).
3.1 -- Bright Horizons Family Solutions, Inc. Certificate of
Incorporation
3.2 -- Bright Horizons Family Solutions, Inc. Bylaws
4.1 -- Specimen Common Stock Certificate
4.2 -- Article IV of Bright Horizons Family Solutions, Inc.'s
Certificate of Incorporation (Included in Exhibit 3.1)
5.1 -- Opinion of Bass, Berry & Sims PLC
8.1 -- Opinion of Bass, Berry & Sims PLC
8.2 -- Opinion of Ropes & Gray
10.1 -- Form of Bright Horizons Family Solutions, Inc. 1998 Stock
Incentive Plan
10.2 -- Form of Bright Horizons Family Solutions, Inc. 1998 Employee
Stock Purchase Plan
10.3 -- Bright Horizons, Inc. 1987 Stock Option and Incentive Plan
(Incorporated by Reference to Exhibit 10.1 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.4 -- Bright Horizons, Inc. 1996 Equity Incentive Plan
(Incorporated by Reference to Exhibit 10.2 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.5 -- Bright Horizons, Inc. 1997 Equity Incentive Plan
(Incorporated by Reference to Exhibit 10.4 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.6 -- CorporateFamily Solutions, Inc. Amended and Restated 1987
Stock Option Plan (Incorporated by Reference to Exhibit 4.3
of the Registration Statement on Form S-8 of CorporateFamily
Solutions, Inc. (Registration No. 333-38185))
10.7 -- CorporateFamily Solutions, Inc. 1996 Stock Incentive Plan
(Incorporated by Reference to Exhibit 10.4 of the
Registration Statement on Form S-1 of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.8 -- CorporateFamily Solutions, Inc. 1997 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 of the
Registration Statement on Form S-1 of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.9 -- Form of Employment Agreement of Linda A. Mason
10.10 -- Form of Employment Agreement of Marguerite W. Sallee
10.11 -- Form of Employment Agreement of Roger H. Brown
10.12 -- Form of Employment Agreement of Michael E. Hogrefe
10.13 -- Form of Employment Agreement of Mary Ann Tocio
10.14 -- CorporateFamily Solutions, Inc. Form of Severance Agreement
for Dana Friedman, James Greenman and Sandy Schrader
(Incorporated by Reference to Exhibit 10.8 of the
Registration Statement on Form S-1, of CorporateFamily
Solutions, Inc. (Registration No. 333-29523))
10.15 -- Bright Horizons, Inc. Severance Agreement for Stephen I.
Dreier (Incorporated by Reference to Exhibit 10.8 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
</TABLE>
<PAGE> 242
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
<C> <C> <S>
10.16 -- Bright Horizons, Inc. Severance Agreement for Elizabeth J.
Boland (Incorporated by Reference to Exhibit 10.9 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.17 -- Bright Horizons, Inc. Severance Agreement for David H. Lissy
(Incorporated by Reference to Exhibit 10.11 of the
Registration Statement on Form S-1 of Bright Horizons, Inc.
(Registration No. 333-14981))
10.18 -- Bright Horizons, Inc. Severance Agreement for Melanie Ray.
10.19 -- Bright Horizons, Inc. Severance Agreement for Michael Day.
10.20 -- Bright Horizons, Inc. Severance Agreement for Nancy
Rosenzweig.
10.21 -- Form of Indemnification Agreement
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Price Waterhouse LLP
99.1 -- Form of CorporateFamily Solutions, Inc. Proxy Card
99.2 -- Form of Bright Horizons, Inc. Proxy Card
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
(THE "CORPORATION")
ARTICLE I
The name of this corporation is Bright Horizons Family Solutions, Inc.
ARTICLE II
The registered office of this corporation in the State of Delaware is
located at 1013 Centre Road, in the City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is Corporation
Service Company.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the
corporation shall have authority to issue is 35,000,000 shares, consisting of
(i) 30,000,000 shares of Common Stock, par value $.01 per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the corporation.
-1-
<PAGE> 2
1. Common Stock.
A. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series. The holders of the
Common Stock shall have no preemptive rights to subscribe for any shares of any
class of stock of this corporation whether now or hereafter authorized.
B. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
C. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
D. Liquidation. Upon the dissolution or liquidation of the corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2. Preferred Stock.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the corporation
may be reissued except as otherwise provided by law or this Certificate of
Incorporation. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series,
-2-
<PAGE> 3
by resolution or resolutions providing for the issue of the shares thereof, to
determine and fix such voting powers, full or limited, or no voting powers, and
such designations, preferences and relative participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
including without limitation thereof, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter permitted
by the General Corporation Law of Delaware. Without limiting the generality of
the foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by law
and this Certificate of Incorporation. Except as otherwise provided in this
Certificate of Incorporation, no vote of the holders of the Preferred Stock or
Common Stock shall be a prerequisite to the designation or issuance of any
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock of
the corporation.
ARTICLE V
The corporation shall have a perpetual existence.
ARTICLE VI
Unless and except to the extent that the By-Laws of this corporation
shall so require, the election of directors need not be by written ballot.
ARTICLE VII
In furtherance of and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of this corporation, subject to the right of the stockholders
entitled to vote with respect thereto to alter and repeal the By-Laws adopted or
amended by the Board of Directors.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
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application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class or creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
ARTICLE IX
Except to the extent that the General Corporation Law of the State of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the corporation shall be personally
liable to the corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
ARTICLE X
1. Action, Suits and Proceedings other than by or in the Right of the
Corporation. The corporation shall indemnify each person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the corporation, or is or was serving, or has agreed to serve, at the
request of the corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection
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with such action, suit or proceeding and any appeal therefrom, if he acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in, or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Notwithstanding anything to the contrary in this Article, except as set forth in
Section 6 below, the corporation shall not indemnify an Indemnitee seeking
indemnification in connection with any action, suit, proceeding, claim or
counterclaim (or part thereof) initiated by the Indemnitee unless the initiation
thereof was approved by the Board of Directors of the corporation.
2. Actions of Suits by or in the Right of the Corporation. The corporation shall
indemnify any Indemnitee who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was, or has agreed to become, a director or officer of the corporation,
or is or was serving, or has agreed to serve, at the request of the corporation,
as a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees) and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of such liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses (including attorneys' fees) which the Court of
Chancery of Delaware or such other court shall deem proper.
3. Indemnification For Expenses of Successful Party. Notwithstanding the other
provisions of the Article, to the extent that an Indemnitee has been successful,
on the merits or otherwise, in defense of any action, suit or proceeding
referred to in Sections 1 and 2 of this Article, or in defense of any claim,
issue or matter therein, or on appeal from any such action, suit or proceeding,
he shall be indemnified against all expenses (including attorneys' fees)
actually and
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reasonably incurred by him or on his behalf in connection therewith. Without
limiting the foregoing, if any action, suit or proceeding is disposed of, on the
merits or otherwise (including a disposition without prejudice), without (i) the
disposition being adverse to the Indemnitee, (ii) an adjudication that the
Indemnitee was liable to the corporation, (iii) a plea of guilty or nolo
contendere by the Indemnitee, (iv) an adjudication that the Indemnitee did not
act in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, and (v) with respect to any criminal
proceeding, an adjudication that the Indemnitee had reasonable cause to believe
his conduct was unlawful, the Indemnitee shall be considered for the purposes
hereof to have been wholly successful with respect thereto.
4. Notification And Defense of Claim. As a condition precedent to his right to
be indemnified, the Indemnitee must notify the corporation in writing as soon as
practicable of any action, suit, proceeding or investigation involving him for
which indemnity will or could be sought. With respect to any action, suit,
proceeding or investigation of which the corporation is so notified, the
corporation will be entitled to participate therein at its own expense and/or to
assume the defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee. After notice from the corporation to the
Indemnitee of its election so to assume such defense, the corporation shall not
be liable to the Indemnitee for any legal or other expenses subsequently
incurred by the Indemnitee in connection with such claim, other than as provided
below in this Section 4. The Indemnitee shall have the right to employ his own
counsel in connection with such claim, but the fees and expenses of such counsel
incurred after notice from the corporation of its assumption of the defense
thereof shall be at the expense of the Indemnitee unless (i) the employment of
counsel by the Indemnitee has been authorized by the corporation, (ii) counsel
to the Indemnitee shall have reasonably concluded that there may be a conflict
of interest or position on any significant issue between the Corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the corporation
shall not in fact have employed counsel to assume the defense of such action, in
each of which cases the fees and expenses of counsel for the Indemnitee shall be
at the expense of the corporation, except as otherwise expressly provided by
this Article. The corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any claim brought by or in the right of the
corporation or as to which counsel for the Indemnitee shall have reasonably made
the conclusion provided for in clause (ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in the
event that the corporation does not assume the defense pursuant to Section 4 of
this Article of any action, suit, proceeding or investigation of which the
corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
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action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expense incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the corporation as authorized in this Article.
Such undertaking may be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure For Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet the applicable standard of conduct set
forth in Section 1 or 2, as the case may be. Such determination shall be made in
each instance by (a) a majority vote of the directors of the corporation who are
not at that time parties to the action, suit or proceeding in question
("disinterested directors") even though less than a quorum, (b) a majority vote
of a quorum of the outstanding shares of stock of all classes entitled to vote
for directors, voting as a single class, which quorum shall consist of
stockholders who are not at that time parties to the action, suit or proceeding
in question, (c) independent legal counsel (who may be regular legal counsel to
the corporation), or (d) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this Article
shall be enforceable by the Indemnitee in any court of competent jurisdiction if
the corporation denies such request, in whole or in part, or if no disposition
thereof is made within the 60-day period referred to above in Section 6. Unless
otherwise provided by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advance of expenses under this Article shall be
on the corporation. Neither the failure of the corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the corporation pursuant to
Section 6 that the Indemnitee has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the Indemnitee has
not met the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred
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in connection with successfully establishing his right to indemnification, in
whole or in part, in any such proceeding shall also be indemnified by the
corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this Article or
of the relevant provisions of the General Corporation Law of Delaware or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification under the provisions hereof with respect to any
action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided by
this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
corporation or other persons serving the corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any provision of
this Article to indemnification by the corporation for some or a portion of the
expenses (including attorneys' fees), judgments, fines or amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom, but not, however, for the total amount thereof, the corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of
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his status as such, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the corporation is merged into or consolidated
with another corporation and the corporation is not the surviving corporation,
the surviving corporation shall assume the obligations of the corporation under
this Article with respect to any action, suit, proceeding or investigation
arising out of or relating to any actions, transactions or facts occurring prior
to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the corporation shall
nevertheless indemnify each Indemnitee as to any expenses (including attorneys'
fees) judgments, fines and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the corporation, to
the fullest extent permitted by any applicable portion of this Article that
shall not have been invalidated and to the fullest extent permitted by
applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and Section
145(i) of the General Corporation Law of Delaware shall have the respective
meanings assigned to such terms in such Section 145(h) and Section 145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
ARTICLE XI
The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE XII
This Article is inserted for the management of the business and for the
conduct of the affairs of the corporation.
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1. Number of Directors. The number of directors of the corporation shall not be
less than three. The exact number of directors within the limitations specified
in the preceding sentence shall be fixed from time to time by, or in the manner
provided in, the corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided into
three classes: Class I, Class II and Class III. No one class shall have more
than one director more than any other class. If a fraction is contained in the
quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class III, and if such fraction is two-thirds, one of the extra directors shall
be a member of Class III and one of the extra directors shall be a member of
Class II, unless otherwise provided from time to time by resolution adopted by
the Board of Directors.
3. Election of Directors. Elections of directors need not be by written ballot
except as and to the extent provided in the By-Laws of the corporation.
4. Terms of Office. Except as provided in Section 8 of this Article XII, each
director shall serve for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected; provided, that
each initial director in Class I shall serve for a term ending on the date of
the annual meeting in 1999; each initial director in Class II shall serve for a
term ending on the date of the annual meeting in 2000; and each initial director
in Class III shall serve for a term ending on the date of the annual meeting in
2001; and provided further, that the term of each director shall be subject to
the election and qualification of his successor and to his earlier death,
resignation or removal.
5. Allocation of Directors Among Classes in The Event of Increases or Decreases
in The Number of Directors. In the event of any increase or decrease in the
authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member and
(ii) the newly created or eliminated directorships resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
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6. Quorum; Action at Meeting. A majority of the total number of directors shall
constitute a quorum for the transaction of business. In the event one or more of
the directors shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each director so disqualified, provided that
in no case shall less than one-third of the number of directors fixed pursuant
to Section 1 above constitute a quorum. If at any meeting of the Board of
Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-Laws of the corporation or by this
Certificate of Incorporation.
7. Removal. Directors of the corporation may be removed only for cause by the
affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote
generally in the election of directors cast at a meeting of the stockholders
called for that purpose.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance notice of
stockholder nominations for election of directors and other business to be
brought by stockholders before either an annual or special meeting of
stockholders shall be given in the manner provided by the By-Laws of this
corporation.
10. Amendment to Article. Notwithstanding any other provisions of law, this
Certificate of Incorporation or the By-Laws, each as amended, and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-Laws of the Corporation, the affirmative
vote of least sixty-six and two-thirds percent (66 2/3%) of the then outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors shall be required to amend or repeal, or to adopt any
provisions inconsistent with the purpose or intent of, this Article XII.
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ARTICLE XIII
The books of this corporation may (subject to any stationary
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or by the By-Laws of this corporation.
ARTICLE XIV
Stockholders of the corporation may not take any action by written
consent in lieu of a meeting. Notwithstanding any other provisions of law, this
Certificate of Incorporation or the ByLaws, each as amended, and notwithstanding
the fact that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation, the affirmative vote of
sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors shall be required to amend or repeal, or to adopt any provisions
inconsistent with the purpose or intent of, this Article XIV.
ARTICLE XV
Special meetings of stockholders may be called at any time by only the
Chairman of the Board of Directors, the Chief Executive Officer, the President
or the Board of Directors acting by majority vote of the directors then in
office. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provisions of law, this Certificate of
Incorporation or the ByLaws, each as amended, and notwithstanding the fact that
a lesser percentage may be specified by law, this Certificate of Incorporation
or the By-Laws of the Corporation, the affirmative vote of sixty-six and
two-thirds percent (66 2/3%) of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors shall be
required to amend or repeal, or to adopt any provisions inconsistent with the
purpose or intent of, this Article XV.
ARTICLE XVI
The Board of Directors of this Corporation, when evaluating any offer
of another party (a) to make a tender or exchange offer for any equity security
of the Corporation or (b) to effect a "business combination," as defined in
Section 203 of the General Corporation Law of Delaware, shall, in connection
with the exercise of its judgment in determining what is in the best interests
of the Corporation as a whole, be authorized to give due consideration to any
such factors as the
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Board of Directors determines to be relevant, including without limitation: (i)
the interests of the Corporation's stockholders; (ii) whether the proposed
transaction might violate federal or state laws; (iii) not only the
consideration being offered in the proposed transaction, in relation of the then
current market price for the outstanding capital stock of the Corporation, but
also to the market price for the capital stock of the Corporation over a period
of years, the estimated price that might be achieved in a negotiated sale of the
Corporation as a whole or in part or through orderly liquidation, the premiums
over market price for the securities of other corporations in similar
transactions, current political, economic and other factors bearing on
securities prices and the Corporation's financial condition and future
prospects; and (iv) the social, legal and economic effects upon employees,
suppliers, customers and others having similar relationships with the
Corporation, and the communities in which the Corporation conducts its business.
In connection with any such evaluation, the Board of Directors is
authorized to conduct such investigations and to engage in such legal
proceedings as the Board of Directors may determine.
ARTICLE XVII
The name and mailing address of the sole incorporator is R. Bryan
Woodard, One International Place, Boston, MA 02110.
THE UNDERSIGNED, being the sole incorporator named above, hereby
certifies that the facts stated above are true as of this 27th day of April,
1998.
/s/ R. Bryan Woodard
----------------------------------
R. Bryan Woodard
c/o Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE 1 - STOCKHOLDERS..........................................................................................1
1.1 Place of Meetings......................................................................1
1.2 Annual Meeting.........................................................................1
1.3 Special Meeting........................................................................1
1.4 Notice of Meetings.....................................................................1
1.5 Voting List............................................................................1
1.6 Quorum.................................................................................2
1.7 Adjournments...........................................................................2
1.8 Voting and Proxies.....................................................................2
1.9 Action at Meeting......................................................................2
1.10 Nomination of Directors................................................................2
1.11 Notice of Business at Annual Meetings..................................................3
1.12 Action without Meeting.................................................................4
1.13 Organization...........................................................................4
ARTICLE 2 - DIRECTORS.............................................................................................4
2.1 General Powers.........................................................................4
2.2 Number; Election and Qualification.....................................................4
2.3 Classes of Directors...................................................................4
2.4 Terms of Office........................................................................5
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors...................................................5
2.6 Vacancies..............................................................................5
2.7 Resignation............................................................................5
2.8 Regular Meetings.......................................................................6
2.9 Special Meetings.......................................................................6
2.10 Notice of Special Meetings.............................................................6
2.11 Meetings by Telephone Conference Calls.................................................6
2.12 Quorum.................................................................................6
2.13 Action at Meeting......................................................................6
2.14 Action by Consent......................................................................6
2.15 Removal................................................................................7
2.16 Committees.............................................................................7
2.17 Compensation of Directors..............................................................7
ARTICLE 3 - OFFICERS..............................................................................................7
3.1 Enumeration............................................................................7
3.2 Election...............................................................................7
3.3 Qualification..........................................................................8
</TABLE>
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<TABLE>
<S> <C> <C>
3.4 Tenure.................................................................................8
3.5 Resignation and Removal................................................................8
3.6 Vacancies..............................................................................8
3.7 Chairman of the Board and Vice Chairman of the Board...................................8
3.8 Chief Executive Officer................................................................8
3.9 President..............................................................................8
3.10 Vice Presidents........................................................................9
3.11 Secretary and Assistant Secretaries....................................................9
3.12 Treasurer and Assistant Treasurers.....................................................9
3.13 Salaries..............................................................................10
3.14 Plan of Succession....................................................................10
ARTICLE 4 - CAPITAL STOCK........................................................................................10
4.1 Issuance of Stock.....................................................................10
4.2 Certificates of Stock.................................................................10
4.3 Transfers.............................................................................10
4.4 Lost, Stolen or Destroyed Certificates................................................11
4.5 Record Date...........................................................................11
ARTICLE 5 - GENERAL PROVISIONS...................................................................................11
5.1 Fiscal Year...........................................................................11
5.2 Corporate Seal........................................................................11
5.3 Waiver of Notice......................................................................11
5.4 Voting of Securities..................................................................12
5.5 Evidence of Authority.................................................................12
5.6 Certificate of Incorporation..........................................................12
5.7 Transactions with Interested Parties..................................................12
5.8 Severability..........................................................................13
5.9 Pronouns..............................................................................13
ARTICLE 6 - AMENDMENTS...........................................................................................13
6.1 By the Board of Directors.............................................................13
6.2 By the Stockholders...................................................................13
</TABLE>
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ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors, the Chief Executive Officer or the
President or, if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at 10:00 a.m. on the second Tuesday in
May each year (unless that day be a legal holiday in the place where the meeting
is to be held in which case the meeting shall be held at the same hour on the
next succeeding day not a legal holiday) or at such other date and time as shall
be fixed by the Board of Directors, the Chief Executive Officer or the President
and stated in the notice of the meeting. If no annual meeting is held in
accordance with the foregoing provisions, the Board of Directors shall cause the
meeting to be held as soon thereafter as convenient. If no annual meeting is
held in accordance with the foregoing provisions, a special meeting may be held
in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of stockholders
shall be deemed to refer to such special meeting.
1.3 Special Meeting. Special meetings of stockholders may be called at
any time by the Chairman of the Board of Directors, the Chief Executive Officer,
the President or the Board of Directors acting by majority vote of the directors
then in office. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and
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place of the meeting during the whole time of the meeting, and may be inspected
by any stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at a
meeting of stockholders may vote or express such consent or dissent in person or
may authorize another person or persons to vote or act for him by written proxy
executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election of directors by stockholders shall
be determined by a plurality of the votes cast by the stockholders entitled to
vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by
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notice in writing delivered or mailed by first class United States mail, postage
prepaid, to the Secretary, and received not less than 60 days, nor more than 90
days prior to such meeting; provided, however, that if less than 70 days' notice
or prior public disclosure of the date of the meeting is given to stockholders,
such nomination shall have been mailed or delivered to the Secretary not later
than the close of business on the 10th day following the date on which the
notice of the meeting was mailed or such public disclosure was made, whichever
occurs first. Such notice shall set forth (a) as to each proposed nominee (i)
the name, age, business address and, if known, residence address of each such
nominee, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of stock of the corporation which are beneficially owned by
each such nominee, and (iv) any other information concerning the nominee that
must be disclosed as to nominees in proxy solicitations pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including such
person's written consent to be named as a nominee and to serve as a director if
elected); and (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder, (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder and (iii) a description of all arrangements or
understandings or material interests between the stockholder and each nominee
and any other person pursuant to which the nomination is to be made by the
stockholder. The corporation may require any proposed nominee to furnish such
other information as may reasonably be required by the corporation to determine
the eligibility of such proposed nominee to serve as a director of the
corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be deemed out of order and
disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, 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, (c) otherwise properly brought
before an annual meeting by a stockholder. For business to be properly brought
before an annual meeting by a stockholder, if such business relates to the
election of directors of the corporation, the procedures in Section 1.10 must be
complied with. If such business relates to any other matter, the stockholder
must have given timely notice thereof in writing to the Secretary. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than 60 days nor more
than 90 days prior to the meeting; provided, however, that in the event that
less than 70 days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the 10th day following the
date on which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever occurs first. A stockholder's notice to the
Secretary shall set forth as to each matter the
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stockholder proposes to bring before the annual meeting (a) a brief description
of the business 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 stockholder proposing such
business, (c) the class and number of shares of the corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in these By-Laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 1.11 and except that
any stockholder proposal which complies with Rule 14a-8 of the proxy rules (or
any successor provision) promulgated under the Securities Exchange Act of 1934,
as amended, and is to be included in the corporation's proxy statement for an
annual meeting of stockholders shall be deemed to comply with the requirements
of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
1.12 Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
1.13 Organization. The Chairman of the Board, or in his or her absence
the Vice Chairman of the Board, the Chief Executive Officer or the President, in
the order named, shall call meetings of the stockholders to order, and act as
chairman of such meeting; provided, however, that the Board of Directors may
appoint any stockholder to act as chairman of any meeting in the absence of the
Chairman of the Board. The Secretary of the corporation shall act as secretary
at all meetings of the stockholders; but in the absence of the Secretary at any
meeting of the stockholders, the presiding officer may appoint any person to act
as secretary of the meeting.
ARTICLE 2 - DIRECTORS
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these ByLaws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such
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stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class III and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.4 Terms of Office. Except as otherwise provided in the Certificate of
Incorporation or these By-Laws, each director shall serve for a term ending on
the date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1999; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2000; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2001; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office,
and a director chosen to fill a position resulting from an increase in the
number of directors shall hold office until the next election of the class for
which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
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2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chief Executive
Officer or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided, that any director who is absent when such a determination is made
shall be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, the Chief Executive Officer, two or more
directors, or by one director in the event that there is only a single director
in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours in
advance of the meeting. A notice or waiver of notice of a special meeting of the
Board of Directors need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number of directors so fixed constitute a quorum. In the absence of
a quorum at any such meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice, other than announcement at
the meeting, until a quorum shall be present.
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2.13 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - OFFICERS
3.1 Enumeration. The officers of the corporation shall consist of a
Chief Executive Officer, President, a Secretary, a Treasurer and such other
officers with such other titles as the Board of Directors shall determine,
including a Chairman of the Board, a Vice Chairman of the
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Board, a Chief Financial Officer and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The Chief Executive Officer, President, Treasurer and
Secretary shall be elected annually by the Board of Directors at its first
meeting following the annual meeting of stockholders. Other officers may be
appointed by the Board of Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the Chief
Executive Officer, the President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event. Any officer may be removed at any
time, with or without cause, by vote of a majority of the entire number of
directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of Chief Executive
Officer, President, Treasurer and Secretary. Each such successor shall hold
office for the unexpired term of his predecessor and until his successor is
elected and qualified, or until his earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors. Unless otherwise provided
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by the Board of Directors, the Chairman of the Board, or in his absence the Vice
Chairman of the Board, the Chief Executive Officer or the President, in the
order named, shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors.
3.8 Chief Executive Officer. The Chief Executive Officer shall, subject
to the direction of the Board of Directors, have direct charge of all business
operations of the corporation. The Chief Executive Officer shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
3.9 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless the Board of Directors has designated the Chairman of the
Board or another person as Chief Executive Officer, the President shall be the
Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Board of Directors may from
time to time prescribe.
3.10 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.11 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
Secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
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In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.12 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
Treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation. Unless the Board of Directors has designated another officer as
Chief Financial Officer, the Treasurer shall be the Chief Financial Officer of
the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.13 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
3.14 Plan of Succession. The plan of succession to the position of Chief
Executive Officer as described and set forth in Section 1.6(d) of the Agreement
and Plan of Merger dated as of April 26, 1998, as amended, by and between
CORPORATEFAMILY Solutions, Inc. and Bright Horizons, Inc. shall not be altered
or otherwise amended in any manner without the affirmative vote of sixty-six and
two-thirds percent (66 2/3%) of the directors then in office. Notwithstanding
any other provision of these By-Laws, the affirmative vote of at least sixty-six
and two-thirds percent (66 2/3%) of the directors then in office shall be
required to alter, amend or repeal this Section 3.14 of these By-Laws.
ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
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4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
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If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - GENERAL PROVISIONS
5.1 Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall, as to all persons who rely on the certificate in good faith,
be conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended or restated and in effect from time
to time.
12
<PAGE> 16
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - AMENDMENTS
6.1 By the Board of Directors. Except as otherwise provided herein,
these By-Laws may be altered, amended or repealed or new By-Laws may be adopted
by the affirmative vote of a majority of the directors present at any regular or
special meeting of the Board of Directors at which a quorum is present.
6.2 By the Stockholders. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be
13
<PAGE> 17
specified by law, the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
alter, amend or repeal any provision of these By-Laws or to adopt new By-Laws.
14
<PAGE> 1
EXHIBIT 4.1
[LOGO OF BRIGHT HORIZONS FAMILY SOLUTIONS APPEARS HERE]
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK COMMON STOCK
NUMBER SHARES
-------------- ----------------
-------------- ----------------
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP [__________]
- - -------------------------------------------------------------------------------
THIS CERTIFIES THAT
IS THE OWNER OF
- - ------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE OF ONE CENT
($.01) EACH OF THE COMMON STOCK OF
BRIGHT HORIZONS FAMILY SOLUTIONS, INC., transferable on the books of the
Corporation by the holder 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 the laws of the State
of Delaware and the Certificate of Incorporation and By-laws of the Corporation,
as the same may be from time to time amended, to all of which the holder by
acceptance hereof assents. This certificate is not valid unless countersigned by
the Transfer Agent and Registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
the duly authorized officers.
Dated:
COUNTER SIGNED AND REGISTERED:
[ ]
--------------------
TRANSFER AGENT AND REGISTRAR
BY:
-------------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
1998
DELAWARE
/s/ [SIGNATURE APPEARS HERE] /s/ [SIGNATURE APPEARS HERE]
TREASURER PRESIDENT
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
The Corporation has more than one class of stock authorized to be issued. The
Corporation will furnish without charge to each stockholder upon request a copy
of the full text of the powers, designations, preferences and relative,
participating, optional or other rights of the shares of each class of stock
(and any series thereof) authorized to be issued by the Corporation and the
qualifications, limitations or restrictions of such preferences and/or rights,
all as set forth in the Certificate of Incorporation and amendments thereto
filed with the Secretary of State of the State of Delaware.
The following abbreviations, when used in the inscription on the face
of the certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________________________
TEN ENT - as tenants by the entireties (Cust)
JT TEN - as joint tenants with right Custodian
as Survivorship and not ____________________________________
as tenants in common (Minor)
under Uniform Gifts to Minors Act
---------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns
and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
<PAGE> 3
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 the
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 THIS CERTIFICATE, IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature (s) Guaranteed;
By
---------------------------------------------------
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 5.1
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
June 17, 1998
Bright Horizons Family Solutions, Inc.
209 10th Ave. South
Suite 300
Nashville, TN 37203
Re: Registration Statement on Form S-4
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") to be filed by
you with the Securities and Exchange Commission on June 17, 1998, covering the
shares of common stock, $0.01 par value (the "Common Stock"), of Bright Horizons
Family Solutions, Inc., a Delaware corporation (the "Company"), to be issued by
the Company pursuant to and in accordance with the Amended and Restated Merger
Agreement dated June 17, 1998 (the "Merger Agreement") by and among the Company,
CorporateFamily Solutions, Inc., Bright Horizons, Inc., CFAM Acquisition, Inc.
and BRHZ Acquisition, Inc.
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 upon the foregoing and such other matters as we have deemed
relevant, we are of the opinion that the shares of Common Stock to be issued by
the Company, when issued and delivered in the manner and on the terms set forth
in the Merger Agreement and as described in the Registration Statement (after
the Registration Statement 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.
Sincerely,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
EXHIBIT 8.1
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
June 17, 1998
Board of Directors
CorporateFamily Solutions, Inc.
209 Tenth Avenue, South
Suite 300
Nashville, Tennessee 37203
RE: CORPORATEFAMILY SOLUTIONS, INC.
REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel to CorporateFamily Solutions, Inc., a
Tennessee corporation ("CorporateFamily"), in connection with a proposed
reorganization to be effected through (i) a merger (the "Merger") of CFAM
Acquisition, Inc., a Tennessee corporation ("Subsidiary") and wholly owned
subsidiary of Bright Horizons Family Solutions, Inc., a Delaware corporation
("BHFS"), into CorporateFamily, with CorporateFamily being the surviving
corporation, and (ii) a merger (the "Bright Horizons Merger") of BRHZ
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of BHFS,
with and into Bright Horizons, Inc., a Delaware corporation ("Bright Horizons"),
with Bright Horizons being the surviving corporation pursuant to the terms of
the Agreement and Plan of Merger dated as of April 26, 1998 between
CorporateFamily and Bright Horizons (the "Merger Agreement") and as described in
the Registration Statement on Form S-4 to be filed with the Securities and
Exchange Commission today (the "Registration Statement"). This opinion is being
rendered pursuant to the requirements of Item 21(a) of Form S-4 under the
Securities Act of 1933, as amended.
In connection with this opinion, we have examined and are familiar with
originals or copies of (i) the Merger Agreement, (ii) the facts set forth in the
Registration Statement, and (iii) such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinions below.
This opinion is subject to the receipt by us prior to the Effective Date of
certain written representations and covenants of CorporateFamily, BHFS and
Subsidiary.
Based upon and subject to the foregoing, in our opinion the discussion
contained in the prospectus included as part of the Registration Statement (the
"Prospectus") under the captions "Summary -- Certain Federal Income Tax
Consequences" and "Certain Federal Income Tax Consequences," subject to the
conditions and limitations set forth therein, sets forth the material Federal
income tax consequences generally applicable to the Merger.
<PAGE> 2
Board of Directors
Page 2
June 17, 1998
The opinions expressed herein are expressly premised and conditioned
upon the consummation of the Merger pursuant to the terms and conditions of the
Merger Agreement. Our opinions are also based upon the application of existing
law to the instant transaction. You should note that future legislative changes,
administrative pronouncements and judicial decisions could materially alter the
conclusions reached herein. There can be no assurance that contrary positions
may not be taken by the Internal Revenue Service or by the courts.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the use of our name in the
Registration Statement and to the filing of this letter as an exhibit to the
Registration Statement. In giving such consent, we do not thereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
We have rendered the foregoing opinion for the sole benefit and use of
CorporateFamily, its Board of Directors and the CorporateFamily shareholders and
the views herein may not be relied upon or furnished to any other person without
our prior written consent.
Sincerely,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
EXHIBIT 8.2
OPINION OF ROPES & GRAY
June 17, 1998
Bright Horizons, Inc.
One Kendall Square, Building 200
Cambridge, MA 02137
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (the
"Registration Statement") being filed by Bright Horizons Family Solutions, Inc.,
a Delaware corporation ("BHFS"), with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of shares of BHFS common stock, par value $0.01 per share, to be issued incident
to the merger described in the Registration Statement (the "Bright Horizons
Merger") of BRHZ Acquisition, Inc., a Delaware corporation and a wholly owned
subsidiary of BHFS, with and into Bright Horizons, Inc., a Delaware corporation,
in our opinion the discussion under the caption "The Merger - Certain Federal
Income Tax Consequences -- Tax Implications to Bright Horizons Stockholders" in
the Registration Statement, subject to the conditions and limitations set forth
in the Registration Statement, sets forth the material United States federal
income tax considerations generally applicable to the Bright Horizons Merger.
We hereby consent to the filing of this opinion as Exhibit 8.2 to the
Registration Statement and to the use of our name in the Registration Statement.
Very truly yours,
/s/ Ropes & Gray
<PAGE> 1
EXHIBIT 10.1
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Bright Horizons Family Solutions, Inc. 1998 Stock
Incentive Plan (the "Plan") is to enable Bright Horizons Family Solutions, Inc.
(the "Company") to attract, retain and reward key employees of and consultants
to the Company and its Subsidiaries and Affiliates, and directors who are not
also employees of the Company, and to strengthen the mutuality of interests
between such key employees, consultants, and directors by awarding such key
employees, consultants, and directors 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, par value $.01 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 Bright Horizons Family Solutions, Inc., a
corporation organized under the laws of the State of Delaware or any successor
corporation.
<PAGE> 2
J. "Disability" means disability as determined under the Company's
Group Long Term Disability Insurance Plan.
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 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 with respect to the Common Stock, as of
any given date or dates, unless otherwise determined by the Committee in good
faith, the reported closing price of a share of Common Stock on the
NASDAQ-National Market or such other market or exchange as is the principal
trading market for the Common Stock, or, if no such sale of a share of Common
Stock is reported on the NASDAQ-National Market or other exchange or principal
trading market on such date, the fair market value of a share of Common 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. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships.
Q. "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.
R. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
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 7 below that
is valued in whole or in part by reference to, or is otherwise based on, the
Common Stock.
2
<PAGE> 3
U. "Outside Director" means a member of the Board who is not an officer
or employee of the Company or any Subsidiary or Affiliate of the Company.
V. "Outside Director Option" means an award to an Outside Director
under Section 8 below.
W. "Plan" means this Bright Horizons Family Solutions, Inc. 1998 Stock
Incentive Plan, as amended from time to time.
X. "Restricted Stock" means an award of shares of Common Stock that is
subject to restrictions under Section 6 of the Plan.
Y. "Restriction Period" has the meaning provided in Section 6 of the
Plan.
Z. "Retirement" means Normal or Early Retirement.
AA. "Section 162(m) Maximum" has the meaning provided in Section 3(a)
hereof.
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, Outside Directors and consultants
eligible under Section 4: (i) Stock Options,(ii) Restricted Stock, and/or (iii)
Other Stock-Based Awards; provided, however, that the power to grant and
establish the terms and conditions of awards to Outside Directors under the Plan
other than pursuant to Section 8 shall be reserved to the Board.
3
<PAGE> 4
In particular, the Committee, or the Board, as the case may be, shall
have the authority, consistent with the terms of the Plan:
(a) to select the officers, key employees and Outside
Directors of and consultants to the Company and its Subsidiaries and
Affiliates to whom Stock Options, Restricted Stock, and/or Other
Stock-Based Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Stock Options,
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(k) or
(l), as applicable, instead of Common Stock;
(f) to determine whether, to what extent, and under what
circumstances Option grants and/or other awards under the Plan are to
be made, and operate, on a tandem basis vis-a-vis other awards under
the Plan and/or cash awards made outside of the Plan, or on an additive
basis;
(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 of tax withholding
requirements in shares of Common Stock subject to the award; and
(i) to impose any holding period required to satisfy Section
16 under the Exchange Act.
4
<PAGE> 5
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 1,500,000 shares. Of the total
number of shares that may be issued under the Plan, an aggregate of 100,000
shares shall be reserved for issuance under Section 8 hereof, subject to
increases at the discretion of the Board. 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 officer of the Company or other person whose
compensation may be subject to the limitations on deductibility under Section
162(m) of the Code shall be eligible to receive awards pursuant to this Plan
relating to in excess of 200,000 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, in the number of shares
underlying Outside Director Options to be granted under Section 8 hereof, 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.
5
<PAGE> 6
SECTION 4. ELIGIBILITY.
Officers, other key employees and Outside Directors of 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. Outside Directors are eligible to receive awards pursuant to
Section 8 and as otherwise determined by the Board.
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.
Subject to the foregoing, the Committee shall have the authority to
grant to any optionee Incentive Stock Options, Non-Qualified Stock Options, or
both types of Stock Options.
Options granted to officers, key employees, Outside Directors 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 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(f) and (g), Section 8
6
<PAGE> 7
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.
(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 shares of Common Stock already owned by the optionee and held
by the optionee for at least six months or, in the case of a
Non-Qualified Stock Option, shares of Restricted Stock or shares
subject to such Option or another award hereunder (in each case valued
at the Fair Market Value of the Common Stock on the date the Option is
exercised). 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. Except as provided by the
Committee, no Non-Qualified Stock Option shall be transferable by the
optionee other than (i) transfers by the Optionee to a member of his or
her Immediate Family or a trust for the benefit of the optionee or a
member of his or her Immediate Family, or (ii) transfers by will or by
the laws of descent and distribution. No Incentive 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.
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(f) Termination by Death. Subject to Section 5(j), 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.
(g) Termination by Reason of Disability. Subject to Section
5(j), 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 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) two 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 NonQualified Stock Option.
(h) Termination by Reason of Retirement. Subject to Section
5(j), 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
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<PAGE> 9
accordance with procedures established by the Committee), for a period
of (i) one year (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.
(i) Other Termination. Subject to Section 5(j), 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, (a) 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, or (b) if an optionee
voluntarily terminates employment (except for Disability, Normal or
Early Retirement) with the Company and any Subsidiary or (except in the
case of an Incentive Stock Option) Affiliate, 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, but with respect to an
involuntary termination, only 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 Company or any Subsidiary or Affiliate.
(j) 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
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$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(f), (g) or (h), 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 NonQualified 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.
(k) 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.
(l) 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.
(m) Termination of Consultant. The Committee shall have
discretion in determining when a termination under Sections 5(f), (g),
(h) or (i) above shall occur with respect to a consultant's
relationship with the Company.
SECTION 6. 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 6(b)),
the time or times within which such
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awards may be subject to forfeiture, and the other terms, restrictions
and conditions of the awards in addition to those set forth in Section
6(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 6(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 6 shall be subject to the
following restrictions and conditions:
(i) In accordance with the provisions of this
Plan and the award agreement, during a period set by the
Committee commencing with the date of such award (the
"Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge, assign, or otherwise encumber
shares of Restricted Stock awarded under the Plan. Within
these limits, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or in
part, based on service, performance, such other factors or
criteria as the Committee may determine in its sole
discretion.
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(ii) Except as provided in this paragraph (ii)
and Section 6(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 6, 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 7. 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, 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 pursuant to Section 422 of the Code. Subject to
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<PAGE> 13
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 7
and the award agreement referred to in Section 7(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 7 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 Section 7 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 7.
(v) Each award under this Section 7 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 7 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 7 shall
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be priced at least 85% of the Fair Market Value of the Common
Stock on the date of grant.
SECTION 8. AWARDS TO OUTSIDE DIRECTORS.
(a) The provisions of this Section 8 shall apply only to
awards to Outside Directors in accordance with this Section 8. The
Committee shall have no authority to determine the timing of or the
terms or conditions of any award under this Section 8.
(b) Each Outside Director who is serving on the Board of
Directors on the date of the first meeting of the Board of Directors on
or after the Effective Date of this Plan or who is first elected to the
Board of Directors thereafter, will receive an automatic grant of a
non-qualified stock option to purchase 5,000 shares of Common Stock on
the earlier of the date of the first meeting of the Board of Directors
after the Effective Date of this Plan or the date of election. On the
date of each Annual Meeting of Stockholders of the Company, each
Outside Director will receive an automatic grant of a non-qualified
stock option to purchase 1,000 shares of Common Stock, but only if such
Outside Director failed to attend no more than one regularly scheduled
meeting of the Board of Directors in the preceding twelve (12) months.
The exercise price of each option granted pursuant to this Section 8(b)
shall equal the Fair Market Value of such Common Stock on the date of
grant.
(c) Each Outside Director Option shall vest and become
exercisable with respect to one-third of such shares on the date of
grant, and with respect to an additional one-third of such shares on
each of the first and second anniversaries of the date of grant, but
shall not be exercisable prior to such vesting. Each Outside Director
Option shall expire, if unexercised, on the tenth anniversary of the
date of grant. The exercise price may be paid in cash or in shares of
Common Stock, including shares of Common Stock subject to the Outside
Director Option.
(d) Outside Director Options shall not be transferable without
the prior written consent of the Board other than (i) transfers by the
optionee to a member of his or her Immediate Family or a trust for the
benefit of optionee or a member of his or her Immediate Family, or (ii)
transfers by will or by the laws of descent and distribution.
(e) Grantees of Outside Director Options shall enter into a
stock option agreement with the Company setting forth the exercise
price and other terms as provided herein.
(f) The termination of Outside Director Options shall be
governed by the provisions of Sections 5(f), 5(h) and 5(i) hereof as if
Outside Directors were employees of
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<PAGE> 15
the Company, except that any determination to accelerate the vesting of
an Outside Director Option will be made by the Board and not by the
Committee.
(g) Outside Director Options shall be subject to Section 9.
The number of shares and the exercise price per share of each Outside
Director Option shall be adjusted automatically in the same manner as
the number of shares and the exercise price for Stock Options under
Section 3 hereof at any time that Stock Options are adjusted as
provided in Section 3.
(h) Any applicable withholding taxes shall be paid in shares
of Common Stock subject to the Outside Director Option valued as the
Fair Market Value of such shares unless the Company agrees to accept a
payment in cash in the amount of such withholding taxes.
SECTION 9. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. In the event of:
(1) a "Change in Control" as defined in Section
9(b); or
(2) a "Potential Change in Control" as defined in
Section 9(c), but only if and to the extent so determined by
the Committee or the Board at or after grant (subject to any
right of approval expressly reserved by the Committee or the
Board at the time of such determination),
(i) Subject to the limitations set forth below in
this Section 9(a), the following acceleration provisions shall
apply:
(a) Any Stock Option or Outside Director
Option awarded under the Plan not previously
exercisable and vested shall become fully
exercisable and vested.
(b) 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.
(ii) Subject to the limitations set forth below
in this Section 9(a), the value of all outstanding Stock
Options, Restricted Stock, Outside Director Options 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
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<PAGE> 16
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; provided,
however, that this section (a)(ii) shall have no effect if its
effect would preclude the pooling method of accounting for the
specific transaction that resulted in a Change in Control (if
the pooling method of accounting is proposed for such
transaction).
(iii) 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
(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 stockholders, of each director of
the Company first elected during such period was approved by a
vote of at least two-thirds of the directors of the Company
then still in office who were directors of the Company at the
beginning of any such period.
(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:
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(i) The approval by stockholders of an agreement
by the Company, the consummation of which would result in a
Change in Control of the Company as defined 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, such price shall be based
only on transactions reported for the date on which a cash out occurs
under Section 9(a)(ii).
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 stockholders, 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 the Code,
or (c) make any change for which applicable law or regulatory authority
(including the regulatory authority of the NYSE 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, Restricted Stock,
Other Stock-Based Award or Outside Director Option 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
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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. Solely for purposes of computing the Section 162(m) Maximum, if
any Stock Options or other awards previously granted to a participant are
canceled and new Stock Options or other awards having a lower exercise price or
other more favorable terms for the participant are substituted in their place,
both the initial Stock Options or other awards and the replacement Stock Options
or other awards will be deemed to be outstanding (although the canceled Stock
Options or other awards will not be exercisable or deemed outstanding for any
other purposes).
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.
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(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.
(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
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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, 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,
or, in the case of an Outside Director, the Board, other than (i)
transfers by an optionee to a member of his or her Immediate Family or
a trust for the benefit of the optionee or a member of his or her
Immediate Family or (ii) 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.
SECTION 13. EFFECTIVE DATE OF PLAN.
The Plan shall be effective as of ______, 1998 provided that it must be
approved by a majority of the votes cast by the holders of the Company's Common
Stock.
SECTION 14. TERM OF PLAN.
No Stock Option, Restricted Stock award, Other Stock-Based Award or
Outside Director Option 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.
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EXHIBIT 10.2
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 ESTABLISHMENT OF PLAN.
Bright Horizons Family Solutions, Inc., a Delaware corporation (the
"Company") adopts the following employee stock purchase plan for its eligible
employees, effective on January 1, 1999 (unless a different date is hereafter
determined by the Board of Directors). This Plan shall be known as the 1998
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 Bright Horizons
Family 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.
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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, 1999, 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.
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2.16 Plan. Bright Horizons Family Solutions, Inc. 1998 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, $0.01 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 Delaware 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.
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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 two hundred thousand (200,000) 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 Delaware, 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, 1999 (or such other date as may be determined by the Board of
Directors).
Date: __________, 1998 BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: ________________________________________
Title: _____________________________________
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between Bright
Horizons Family Solutions, Inc., a Delaware corporation ("Company"), and Linda
A. Mason ("Employee"), entered into as of _________________ (the "Effective
Date"). The Company and the Employee are sometimes referred to herein as the
"Parties".
WHEREAS, Employee is a founder of Bright Horizons, Inc. ("Bright
Horizons") and has served as its President; and
WHEREAS, subsidiaries of the Company have been merged with and into
CorporateFamily Solutions, Inc. ("CorporateFamily") and Bright Horizons (the
"Merger"), and the Company desires to employ the Employee as Chairman of the
Board of the Company, and Employee is willing to continue to serve the Company
on the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts employment with the Company upon terms and conditions set forth herein.
2. Duties and Responsibilities.
2.1 Extent of Service. The Employee shall, during the term of this
Agreement, devote such of her entire time, attention, energies and business
efforts ("Business Efforts") to her duties as an employee of the Company as are
reasonably necessary to carry out her duties specified in Paragraph 2.2 below.
The Employee shall not, during the term of this Agreement, engage in any other
business activity if such business activity would impair in any material respect
the Employee's ability to carry out her duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Employee from investing her
personal assets as a passive investor.
2.2 Position and Duties. The Employee shall serve the Company as
Chairman of the Board and shall perform the services and functions relating to
such office or otherwise reasonably incident to such office as may be designated
from time to time by the Board of Directors of the Company. In the event that
during the term of this Agreement Employee is no longer serving as Chairman of
the Board, the Employee shall continue to be employed hereunder as Vice Chair so
long as she remains a member of the Board of Directors of the Company and as
President and as Vice Chair and President shall have such powers and duties as
may be prescribed by the Board.
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3. Salary and Other Benefits.
3.1 Salary. As compensation for her services as Chairman of the Board
during the term of her employment under this Agreement, the Employee shall be
paid an annual salary of not less than $160,000, but such amount shall be
pro-rated during any period when the Employee works less than full-time, payable
in accordance with the then current payroll policies of the Company. Such salary
shall be subject to increase by the Board of Directors of the Company (or the
appropriate committee thereof) from time to time. In the event that she serves
as Vice Chair and President, she shall be paid an annual salary as shall be
comparable to executives performing similar tasks and as shall be approved by
the Board of Directors (or any appropriate committee thereof) but in no event
less than $160,000. The annual salary being paid to Employee hereunder at any
given point of time is hereafter referred to as her "Base Salary".
3.2 Other Benefits. As long as the Employee is employed by the Company
under the terms of this Agreement, the Employee shall be entitled to receive the
following benefits in addition to her Base Salary:
(a) The Employee shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) available to senior executives of the Company.
(b) The Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by her in the
course of the performance of her duties hereunder, including all
expenses associated with travel to the Company's offices in Nashville.
(c) Employee shall be entitled to participate in incentive
compensation programs available to senior executives of the Company,
including stock option and restricted stock plans and annual bonus
incentive programs and plans.
(d) The Employee shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are available to senior
executives of the Company.
(e) The Employee shall be provided with an office and
secretary during her employment hereunder in Boston and appropriate
work space and assistance in Nashville.
4. Term. The term of this Agreement shall be for a period ending fifty-four (54)
months from the Effective Date.
5. Termination and Resignation. The Company shall have the right to terminate
the Employee's employment hereunder at any time and for any reason. Upon any
termination by the Company, the Employee shall be entitled to receive from the
Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 6 below. The Employee shall have the right to
terminate her employment hereunder at any time by resignation, and she
2
<PAGE> 3
shall thereupon be entitled to receive from the Company prompt payment of the
amount determined pursuant to the applicable subparagraph of Paragraph 6 below.
6. Payments Upon Termination and Resignation.
6.1 Payments Upon Termination for Cause, Death, Disability or Voluntary
Resignation. If (a) the Company at any time terminates the Employee's employment
for Cause or (b) the Employee voluntarily resigns for any reason other than for
Good Reason as defined in Paragraph 6.4, then in each case the Employee shall be
entitled to receive only her Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2 on a pro rata basis to the date of
termination plus reimbursement of expenses through the date of termination in
accordance with Paragraph 3.2(b). If the Employee at any time dies or becomes
disabled (being defined as the inability of the Employee to perform her normal
employment duties for a consecutive six (6) month period during the term of this
Agreement because of either physical or mental incapacity), the Employee shall
be entitled to receive only her Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2, any incentive bonus compensation on a
pro rata basis and reimbursement of expenses in accordance with Paragraph 3.2(b)
to the date of termination. For purposes of this Paragraph 6.1, "pro rata" shall
mean the product of the Employee's annual Base Salary and any incentive bonus
compensation that would have been payable had the Employee's employment not
terminated multiplied by a fraction the denominator of which is 365 and the
numerator of which is the number of days during the calendar year that have
passed through the date of the termination of the Employee's employment.
6.2 Payments Upon Termination Without Cause or Resignation for Good
Reason. If the Company terminates the Employee's employment without Cause or the
Employee resigns for Good Reason, then in each case the Employee shall be
entitled to receive a lump sum equal to (i) 2.99 times her Base Salary plus (ii)
any incentive bonus compensation and any other accrued benefits due Employee in
accordance with Paragraph 3.2 on a pro rata basis through date of termination as
determined in accordance with Paragraph 6.1 provided, however, that if the
payments under this Paragraph 6.2, either alone or together with other payments
which the Employee has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), such severance payment shall be reduced to the
largest amount as will result in no portion of the severance payment under this
Paragraph 6.2 being subject to the excise tax imposed by Section 4999 of the
Code.
6.3 Definition of "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination due to (a) Employee's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company which is directly and materially harmful to the Company; or (b)
Employee's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Employee's part
shall be considered "willful" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that the Employee's
action or omission was in the best interest of the Company.
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<PAGE> 4
6.4 Definition of "Good Reason". For purposes of this Agreement, "Good
Reason" shall mean any of the following (without the Employee's express written
consent):
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employee's position, duties, responsibilities and
status set forth in this Agreement;
(b) the failure of the Board of Directors of the Company to
elect Employee as Chairman of the Board for the first thirty (30)
months of the term of this Agreement or as Vice Chair and President
thereafter or action by the Board to remove her from either position,
except in connection with the termination of her employment for Cause,
disability, death or voluntary resignation for reasons other than a
"Good Reason" as defined herein;
(c) the failure to be elected, or reelected, as a member of
the Board of Directors of the Company;
(d) a reduction by the Company in the Employee's Base Salary
while serving as Chairman of the Board or in the initial Base Salary
established at the time she is elected Vice Chair and President;
(e) a material breach by the Company of any provision of this
Agreement;
(f) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(g) a relocation of the Employee to any place other than the
metropolitan area of Boston, Massachusetts, except for required travel
by Employee on Company business to an extent substantially consistent
with normal business travel obligations.
7. Restrictive Covenants.
7.1 Covenants Against Competition. Employee acknowledges that (a) the
business of the Company and its affiliates is as described in the annual report
of CorporateFamily on Form 10-K as filed with the Securities and Exchange
Commission for its fiscal year ended January 2, 1998, and in the prospectus of
Bright Horizons dated November 7, 1997, and thereafter as described in each
successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Employee's work relating to Company Business will bring her
into close contact with many confidential matters not readily available to the
public.
7.2 Non-Compete. During the term of this Agreement and for a period of
twenty-four (24) months following the termination of Employee's employment with
the Company, whether Employee's employment terminates pursuant to the provisions
of Paragraph 5 of this Agreement or otherwise (collectively, the "Restricted
Period"), Employee covenants and agrees that she will not, without the express
approval of the Board of Directors, anywhere in the continental United
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<PAGE> 5
States engage in any business directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee, consultant
or in any other relationship or capacity, if such business is competitive with
the Company Business; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity if Employee (a) is
not a controlling person with respect to such entity and (b) does not, directly
or indirectly, own five percent or more of any class of the securities of such
entity.
7.3 Trade Secrets; Confidential Information. Employee covenants and
agrees that at all times during and after the Restricted Period, she shall keep
secret and not disclose to others or appropriate to her own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company, including
without limitation trade know-how, trade secrets, consultant contracts, customer
lists, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
inventions and research projects. Information shall not be deemed confidential
or secret for purposes of this Agreement if it is generally known in the
industry.
7.4 Employees of the Company. During the Restricted Period, Employee
shall not directly or indirectly hire away or solicit to hire away from the
Company any employee of the Company.
7.5 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee relating
to the Company Business or made available to Employee during her employment by
the Company concerning the business or affairs of the Company Business other
than any of such which may also pertain personally to Employee, shall be the
exclusive property of the Company and shall be delivered to the Company promptly
upon the termination of Employee's employment with the Company or at any other
time on request by the Board of Directors of the Company.
7.6 Rights and Remedies Upon Breach. If Employee breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 7.2 through 7.5 of
this Agreement (collectively, the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction, it being hereby acknowledged and
agreed by Employee that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and (b) the right and remedy to require Employee
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Employee as a
result of any transactions constituting a breach of any of the Restrictive
Covenants, and Employee shall account for and pay over such benefits to the
Company.
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<PAGE> 6
7.7 Severability of Restrictive Covenants. If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the court making such determination shall have the power to reduce
the duration, area or scope of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Notice. All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person, by facsimile or other electronic transmission or when
mailed, by certified mail (return receipt requested), postage prepaid, addressed
as follows (or to such other address as a party may specify by notice pursuant
to this provision):
(a) To the Company:
Bright Horizons Family Solutions, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(b) To Employee:
Linda A. Mason
73 Somerset Street
Belmont, Massachusetts 02178
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
10. Payment of Legal Fees. In the event of any litigation instituted by the
Company or the Employee to enforce any rights or obligations hereunder, the
Company will reimburse Employee for all reasonable expenses incurred in
connection therewith, including counsel fees, except in the circumstances where
a final judgment is entered in favor of the Company.
11. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement also supercedes the
Severance Agreement dated October 31, 1997 between the
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<PAGE> 7
Employee and Bright Horizons with respect to severance compensation, which shall
have no further effect, except that the vesting of certain options to purchase
shares of Bright Horizons Common Stock held by the Employee shall be accelerated
thereunder upon the Merger in accordance with the terms of such Severance
Agreement. This Agreement may be changed only by an agreement in writing signed
by the Party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
13. Severability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of or decree of a court of last resort, the
Parties shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable to preserve the original intent of
this Agreement to the extent legally possible, but all other provisions of this
Agreement shall remain in full force and effect.
14. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Employee, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Employee under this Agreement are
personal to her, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15. Effect of Agreement. Subject to the provisions of Paragraph 14 with respect
to assignments, this Agreement shall be binding upon the Employee and her heirs,
executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
16. Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
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<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement on this
___ day of ____________________, 1998.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title: ___________________________________
EMPLOYEE:
LINDA A. MASON
------------------------------------------
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<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between Bright
Horizons Family Solutions, Inc., a Delaware corporation ("Company"), and
Marguerite W. Sallee ("Employee"), entered into as of _________________ (the
"Effective Date"). The Company and the Employee are sometimes referred to herein
as the "Parties".
WHEREAS, Employee is a founder of CorporateFamily Solutions, Inc.
("CorporateFamily") and has served as its President and Chief Executive Officer
since 1987; and
WHEREAS, subsidiaries of the Company have been merged with and into
CorporateFamily and Bright Horizons, Inc. and the Company desires to employ the
Employee as Chief Executive Officer of the Company, and Employee is willing to
continue to serve the Company on the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts employment with the Company upon terms and conditions set forth herein.
2. Duties and Responsibilities.
2.1 Extent of Service. The Employee shall, during the term of this
Agreement, devote such of her entire time, attention, energies and business
efforts ("Business Efforts") to her duties as an employee of the Company as are
reasonably necessary to carry out her duties specified in Paragraph 2.2 below.
The Employee shall not, during the term of this Agreement, engage in any other
business activity if such business activity would impair in any material respect
the Employee's ability to carry out her duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Employee from investing her
personal assets as a passive investor.
2.2 Position and Duties. The Employee shall serve the Company as Chief
Executive Officer and shall perform the services and functions relating to such
office or otherwise reasonably incident to such office as may be designated from
time to time by the Board of Directors of the Company. In the event that during
the term of this Agreement Employee is no longer serving as Chief Executive
Officer, the Employee shall continue to be employed hereunder as Chairman of the
Board so long as she remains a member of the Board of Directors of the Company
and as Chairman of the Board shall have such powers and duties as may be
prescribed by the Board.
<PAGE> 2
3. Salary and Other Benefits.
3.1 Salary. As compensation for her services as Chief Executive Officer
during the term of her employment under this Agreement, the Employee shall be
paid an annual salary of not less than $200,000, payable in accordance with the
then current payroll policies of the Company. Such salary shall be subject to
increase by the Board of Directors of the Company (or the appropriate committee
thereof) from time to time. In the event that she serves as Chairman of the
Board, she shall be paid an annual salary as shall be comparable to executives
performing similar tasks and as shall be approved by the Board of Directors (or
any appropriate committee thereof), but in no event less that $200,000. The
annual salary being paid to Employee hereunder at any given point of time is
hereafter referred to as her "Base Salary".
3.2 Other Benefits. As long as the Employee is employed by the Company
under the terms of this Agreement, the Employee shall be entitled to receive the
following benefits in addition to her Base Salary:
(a) The Employee shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) available to senior executives of the Company.
(b) The Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by her in the
course of the performance of her duties hereunder, including all
expenses associated with travel to the Company's offices in Boston.
(c) Employee shall be entitled to participate in incentive
compensation programs available to senior executives of the Company,
including stock option and restricted stock plans and annual bonus
incentive programs and plans.
(d) The Employee shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are available to senior
executives of the Company.
(e) The Employee shall be provided with an office and
secretary during her employment hereunder in Nashville and appropriate
work space and assistance in Boston.
4. Term. The term of this Agreement shall be for a period ending fifty-four (54)
months from the Effective Date.
5. Termination and Resignation. The Company shall have the right to terminate
the Employee's employment hereunder at any time and for any reason. Upon any
termination by the Company, the Employee shall be entitled to receive from the
Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 6 below. The Employee shall have the right to
terminate her employment hereunder at any time by resignation, and she
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<PAGE> 3
shall thereupon be entitled to receive from the Company prompt payment of the
amount determined pursuant to the applicable subparagraph of Paragraph 6 below.
6. Payments Upon Termination and Resignation.
6.1 Payments Upon Termination for Cause, Death, Disability or Voluntary
Resignation. If (a) the Company at any time terminates the Employee's employment
for Cause or (b) the Employee voluntarily resigns for any reason other than for
Good Reason as defined in Paragraph 6.4, then in each case the Employee shall be
entitled to receive only her Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2 on a pro rata basis to the date of
termination plus reimbursement of expenses through the date of termination in
accordance with Paragraph 3.2(b). If the Employee at any time dies or becomes
disabled (being defined as the inability of the Employee to perform her normal
employment duties for a consecutive six (6) month period during the term of this
Agreement because of either physical or mental incapacity), the Employee shall
be entitled to receive only her Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2, any incentive bonus compensation on a
pro rata basis and reimbursement of expenses in accordance with Paragraph 3.2(b)
to the date of termination. For purposes of this Paragraph 6.1, "pro rata" shall
mean the product of the Employee's annual Base Salary and any incentive bonus
compensation that would have been payable had the Employee's employment not
terminated multiplied by a fraction the denominator of which is 365 and the
numerator of which is the number of days during the calendar year that have
passed through the date of the termination of the Employee's employment.
6.2 Payments Upon Termination Without Cause or Resignation for Good
Reason. If the Company terminates the Employee's employment without Cause or the
Employee resigns for Good Reason, then in each case the Employee shall be
entitled to receive a lump sum equal to (i) 2.99 times her Base Salary plus (ii)
any incentive bonus compensation and any other accrued benefits due Employee in
accordance with Paragraph 3.2 on a pro rata basis through date of termination as
determined in accordance with Paragraph 6.1 provided, however, that if the
payments under this Paragraph 6.2, either alone or together with other payments
which the Employee has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), such severance payment shall be reduced to the
largest amount as will result in no portion of the severance payment under this
Paragraph 6.2 being subject to the excise tax imposed by Section 4999 of the
Code.
6.3 Definition of "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination due to (a) Employee's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company which is directly and materially harmful to the Company; or (b)
Employee's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Employee's part
shall be considered "willful" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that the Employee's
action or omission was in the best interest of the Company.
3
<PAGE> 4
6.4 Definition of "Good Reason". For purposes of this Agreement, "Good
Reason" shall mean any of the following (without the Employee's express written
consent):
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employee's position, duties, responsibilities and
status set forth in this Agreement;
(b) the failure of the Board of Directors of the Company to
elect Employee as Chief Executive Officer for the first thirty (30)
months of the term of this Agreement or as Chairman of the Board
thereafter or action by the Board to remove her from either position,
except in connection with the termination of her employment for Cause,
disability, death or voluntary resignation for reasons other than a
"Good Reason" as defined herein;
(c) the failure to be elected, or reelected, as a member of
the Board of Directors of the Company;
(d) a reduction by the Company in the Employee's Base Salary
while serving as CEO or in the initial Base Salary established at the
time she is elected Chairman of the Board;
(e) a material breach by the Company of any provision of this
Agreement;
(f) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(g) a relocation of the Employee to any place other than the
metropolitan area of Nashville, Tennessee, except for required travel
by Employee on Company business to an extent substantially consistent
with normal business travel obligations.
7. Restrictive Covenants.
7.1 Covenants Against Competition. Employee acknowledges that (a) the
business of the Company and its affiliates is as described in the annual report
of CorporateFamily on Form 10-K as filed with the Securities and Exchange
Commission for its fiscal year ended January 2, 1998, and in the prospectus of
Bright Horizons, Inc. dated November 7, 1997, and thereafter as described in
each successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Employee's work relating to Company Business will bring her
into close contact with many confidential matters not readily available to the
public.
7.2 Non-Compete. During the term of this Agreement and for a period of
twenty-four (24) months following the termination of Employee's employment with
the Company, whether Employee's employment terminates pursuant to the provisions
of Paragraph 5 of this Agreement or otherwise (collectively, the "Restricted
Period"), Employee covenants and agrees that she will not, without the express
approval of the Board of Directors, anywhere in the continental United
4
<PAGE> 5
States engage in any business directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee, consultant
or in any other relationship or capacity, if such business is competitive with
the Company Business; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity if Employee (a) is
not a controlling person with respect to such entity and (b) does not, directly
or indirectly, own five percent or more of any class of the securities of such
entity.
7.3 Trade Secrets; Confidential Information. Employee covenants and
agrees that at all times during and after the Restricted Period, she shall keep
secret and not disclose to others or appropriate to her own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company, including
without limitation trade know-how, trade secrets, consultant contracts, customer
lists, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
inventions and research projects. Information shall not be deemed confidential
or secret for purposes of this Agreement if it is generally known in the
industry.
7.4 Employees of the Company. During the Restricted Period, Employee
shall not directly or indirectly hire away or solicit to hire away from the
Company any employee of the Company.
7.5 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee relating
to the Company Business or made available to Employee during her employment by
the Company concerning the business or affairs of the Company Business other
than any of such which may also pertain personally to Employee, shall be the
exclusive property of the Company and shall be delivered to the Company promptly
upon the termination of Employee's employment with the Company or at any other
time on request by the Board of Directors of the Company.
7.6 Rights and Remedies Upon Breach. If Employee breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 7.2 through 7.5 of
this Agreement (collectively, the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction, it being hereby acknowledged and
agreed by Employee that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and (b) the right and remedy to require Employee
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Employee as a
result of any transactions constituting a breach of any of the Restrictive
Covenants, and Employee shall account for and pay over such benefits to the
Company.
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<PAGE> 6
7.7 Severability of Restrictive Covenants. If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the court making such determination shall have the power to reduce
the duration, area or scope of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Notice. All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person, by facsimile or other electronic transmission or when
mailed, by certified mail (return receipt requested), postage prepaid, addressed
as follows (or to such other address as a party may specify by notice pursuant
to this provision):
(a) To the Company:
Bright Horizons Family Solutions, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(b) To Employee:
Marguerite W. Sallee
102 Bellebrook Circle
Nashville, Tennessee 37205
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the laws of the State of
Tennessee.
10. Payment of Legal Fees. In the event of any litigation instituted by the
Company or the Employee to enforce any rights or obligations hereunder, the
Company will reimburse Employee for all reasonable expenses incurred in
connection therewith, including counsel fees, except in the circumstances where
a final judgment is entered in favor of the Company.
11. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This agreement also supercedes the
Agreement between the Employee and CorporateFamily with respect to severance
compensation, which shall have no further effect. This Agreement may be
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<PAGE> 7
changed only by an agreement in writing signed by the Party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
13. Severability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of or decree of a court of last resort, the
Parties shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable to preserve the original intent of
this Agreement to the extent legally possible, but all other provisions of this
Agreement shall remain in full force and effect.
14. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Employee, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Employee under this Agreement are
personal to her, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15. Effect of Agreement. Subject to the provisions of Paragraph 14 with respect
to assignments, this Agreement shall be binding upon the Employee and her heirs,
executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
16. Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
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<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement on this
___ day of ____________________, 1998.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title: ___________________________________
EMPLOYEE:
MARGUERITE W. SALLEE
------------------------------------------
8
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between Bright
Horizons Family Solutions, Inc., a Delaware corporation ("Company"), and Roger
H. Brown ("Employee"), entered into as of _________________ (the "Effective
Date"). The Company and the Employee are sometimes referred to herein as the
"Parties".
WHEREAS, Employee is a founder of Bright Horizons, Inc. ("Bright
Horizons") and has served as its Chairman and Chief Executive Officer; and
WHEREAS, subsidiaries of the Company have been merged with and into
CorporateFamily Solutions, Inc. ("CorporateFamily") and Bright Horizons (the
"Merger"), and the Company desires to employ the Employee as President of the
Company, and Employee is willing to continue to serve the Company on the
following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts employment with the Company upon terms and conditions set forth herein.
2. Duties and Responsibilities.
2.1 Extent of Service. The Employee shall, during the term of this
Agreement, devote such of his entire time, attention, energies and business
efforts ("Business Efforts") to his duties as an employee of the Company as are
reasonably necessary to carry out his duties specified in Paragraph 2.2 below.
The Employee shall not, during the term of this Agreement, engage in any other
business activity if such business activity would impair in any material respect
the Employee's ability to carry out his duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Employee from investing his
personal assets as a passive investor.
2.2 Position and Duties. The Employee shall serve the Company as
President and shall perform the services and functions relating to such office
or otherwise reasonably incident to such office as may be designated from time
to time by the Board of Directors of the Company. In the event that during the
term of this Agreement Employee is no longer serving as President, the Employee
shall continue to be employed hereunder as Chief Executive Officer and as Chief
Executive Officer shall have such powers and duties as may be prescribed by the
Board.
<PAGE> 2
3. Salary and Other Benefits.
3.1 Salary. As compensation for his services as President during the
term of his employment under this Agreement, the Employee shall be paid an
annual salary of not less than $200,000, payable in accordance with the then
current payroll policies of the Company. Such salary shall be subject to
increase by the Board of Directors of the Company (or the appropriate committee
thereof) from time to time. In the event that he serves as Chief Executive
Officer, he shall be paid an annual salary as shall be comparable to executives
performing similar tasks and as shall be approved by the Board of Directors (or
any appropriate committee thereof) but in no event less than $200,000. The
annual salary being paid to Employee hereunder at any given point of time is
hereafter referred to as his "Base Salary".
3.2 Other Benefits. As long as the Employee is employed by the Company
under the terms of this Agreement, the Employee shall be entitled to receive the
following benefits in addition to his Base Salary:
(a) The Employee shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) available to senior executives of the Company.
(b) The Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by him in the
course of the performance of his duties hereunder, including all
expenses associated with travel to the Company's offices in Nashville.
(c) Employee shall be entitled to participate in incentive
compensation programs available to senior executives of the Company,
including stock option and restricted stock plans and annual bonus
incentive programs and plans.
(d) The Employee shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are available to senior
executives of the Company.
(e) The Employee shall be provided with an office and
secretary during his employment hereunder in Boston and appropriate
work space and assistance in Nashville.
4. Term. The term of this Agreement shall be for a period ending fifty-four (54)
months from the Effective Date.
5. Termination and Resignation. The Company shall have the right to terminate
the Employee's employment hereunder at any time and for any reason. Upon any
termination by the Company, the Employee shall be entitled to receive from the
Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 6 below. The Employee shall have the right to
terminate his employment hereunder at any time by resignation, and he shall
2
<PAGE> 3
thereupon be entitled to receive from the Company prompt payment of the amount
determined pursuant to the applicable subparagraph of Paragraph 6 below.
6. Payments Upon Termination and Resignation.
6.1 Payments Upon Termination for Cause, Death, Disability or Voluntary
Resignation. If (a) the Company at any time terminates the Employee's employment
for Cause or (b) the Employee voluntarily resigns for any reason other than for
Good Reason as defined in Paragraph 6.4, then in each case the Employee shall be
entitled to receive only his Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2 on a pro rata basis to the date of
termination plus reimbursement of expenses through the date of termination in
accordance with Paragraph 3.2(b). If the Employee at any time dies or becomes
disabled (being defined as the inability of the Employee to perform his normal
employment duties for a consecutive six (6) month period during the term of this
Agreement because of either physical or mental incapacity), the Employee shall
be entitled to receive only his Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2, any incentive bonus compensation on a
pro rata basis and reimbursement of expenses in accordance with Paragraph 3.2(b)
to the date of termination. For purposes of this Paragraph 6.1, "pro rata" shall
mean the product of the Employee's annual Base Salary and any incentive bonus
compensation that would have been payable had the Employee's employment not
terminated multiplied by a fraction the denominator of which is 365 and the
numerator of which is the number of days during the calendar year that have
passed through the date of the termination of the Employee's employment.
6.2 Payments Upon Termination Without Cause or Resignation for Good
Reason. If the Company terminates the Employee's employment without Cause or the
Employee resigns for Good Reason, then in each case the Employee shall be
entitled to receive a lump sum equal to (i) 2.99 times his Base Salary plus (ii)
any incentive bonus compensation and any other accrued benefits due Employee in
accordance with Paragraph 3.2 on a pro rata basis through date of termination as
determined in accordance with Paragraph 6.1 provided, however, that if the
payments under this Paragraph 6.2, either alone or together with other payments
which the Employee has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), such severance payment shall be reduced to the
largest amount as will result in no portion of the severance payment under this
Paragraph 6.2 being subject to the excise tax imposed by Section 4999 of the
Code.
6.3 Definition of "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination due to (a) Employee's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company which is directly and materially harmful to the Company; or (b)
Employee's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Employee's part
shall be considered "willful" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that the Employee's
action or omission was in the best interest of the Company.
3
<PAGE> 4
6.4 Definition of "Good Reason". For purposes of this Agreement, "Good
Reason" shall mean any of the following (without the Employee's express written
consent):
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employee's position, duties, responsibilities and
status set forth in this Agreement;
(b) the failure of the Board of Directors of the Company to
elect Employee as President for the first thirty (30) months of the
term of this Agreement or as Chief Executive Officer thereafter or
action by the Board to remove him from either position, except in
connection with the termination of his employment for Cause,
disability, death or voluntary resignation for reasons other than a
"Good Reason" as defined herein;
(c) the failure to be elected, or reelected, as a member of
the Board of Directors of the Company;
(d) a reduction by the Company in the Employee's Base Salary
while serving as President or in the initial Base Salary established at
the time he is elected Chief Executive Officer;
(e) a material breach by the Company of any provision of this
Agreement;
(f) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(g) a relocation of the Employee to any place other than the
metropolitan area of Boston, Massachusetts, except for required travel
by Employee on Company business to an extent substantially consistent
with normal business travel obligations.
7. Restrictive Covenants.
7.1 Covenants Against Competition. Employee acknowledges that (a) the
business of the Company and its affiliates is as described in the annual report
of CorporateFamily on Form 10-K as filed with the Securities and Exchange
Commission for its fiscal year ended January 2, 1998, and in the prospectus of
Bright Horizons dated November 7, 1997, and thereafter as described in each
successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Employee's work relating to Company Business will bring him
into close contact with many confidential matters not readily available to the
public.
7.2 Non-Compete. During the term of this Agreement and for a period of
twenty-four (24) months following the termination of Employee's employment with
the Company, whether Employee's employment terminates pursuant to the provisions
of Paragraph 5 of this Agreement or otherwise (collectively, the "Restricted
Period"), Employee covenants and agrees that he will not, without the express
approval of the Board of Directors, anywhere in the continental United States
engage in any business directly or indirectly, as an individual, partner,
shareholder, officer,
4
<PAGE> 5
director, principal, agent, employee, trustee, consultant or in any other
relationship or capacity, if such business is competitive with the Company
Business; provided, however, that Employee may own, directly or indirectly,
solely as an investment, securities of any entity if Employee (a) is not a
controlling person with respect to such entity and (b) does not, directly or
indirectly, own five percent or more of any class of the securities of such
entity.
7.3 Trade Secrets; Confidential Information. Employee covenants and
agrees that at all times during and after the Restricted Period, he shall keep
secret and not disclose to others or appropriate to his own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company, including
without limitation trade know-how, trade secrets, consultant contracts, customer
lists, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
inventions and research projects. Information shall not be deemed confidential
or secret for purposes of this Agreement if it is generally known in the
industry.
7.4 Employees of the Company. During the Restricted Period, Employee
shall not directly or indirectly hire away or solicit to hire away from the
Company any employee of the Company.
7.5 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee relating
to the Company Business or made available to Employee during his employment by
the Company concerning the business or affairs of the Company Business other
than any of such which may also pertain personally to Employee, shall be the
exclusive property of the Company and shall be delivered to the Company promptly
upon the termination of Employee's employment with the Company or at any other
time on request by the Board of Directors of the Company.
7.6 Rights and Remedies Upon Breach. If Employee breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 7.2 through 7.5 of
this Agreement (collectively, the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction, it being hereby acknowledged and
agreed by Employee that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and (b) the right and remedy to require Employee
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Employee as a
result of any transactions constituting a breach of any of the Restrictive
Covenants, and Employee shall account for and pay over such benefits to the
Company.
5
<PAGE> 6
7.7 Severability of Restrictive Covenants. If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the court making such determination shall have the power to reduce
the duration, area or scope of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Notice. All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person, by facsimile or other electronic transmission or when
mailed, by certified mail (return receipt requested), postage prepaid, addressed
as follows (or to such other address as a party may specify by notice pursuant
to this provision):
(a) To the Company:
Bright Horizons Family Solutions, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(b) To Employee:
Roger H. Brown
73 Somerset Street
Belmont, Massachusetts 02178
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
10. Payment of Legal Fees. In the event of any litigation instituted by the
Company or the Employee to enforce any rights or obligations hereunder, the
Company will reimburse Employee for all reasonable expenses incurred in
connection therewith, including counsel fees, except in the circumstances where
a final judgment is entered in favor of the Company.
11. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement also supercedes the
Severance Agreement dated October 31, 1997 between the
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<PAGE> 7
Employee and Bright Horizons with respect to severance compensation, which shall
have no further effect, except that the vesting of certain options to purchase
shares of Bright Horizons Common Stock held by the Employee shall be accelerated
thereunder upon the Merger in accordance with the terms of such Severance
Agreement. This Agreement may be changed only by an agreement in writing signed
by the Party against whom enforcement of any waiver, change, modification,
extension or discharge is sought.
13. Severability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of or decree of a court of last resort, the
Parties shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable to preserve the original intent of
this Agreement to the extent legally possible, but all other provisions of this
Agreement shall remain in full force and effect.
14. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Employee, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Employee under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15 Effect of Agreement. Subject to the provisions of Paragraph 14 with respect
to assignments, this Agreement shall be binding upon the Employee and his heirs,
executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
16 Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
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<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement on this
___ day of ____________________, 1998.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title: ___________________________________
EMPLOYEE:
ROGER H. BROWN
------------------------------------------
8
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between Bright
Horizons Family Solutions, Inc., a Delaware corporation ("Company"), and Michael
E. Hogrefe ("Employee"), entered into as of _________________ (the "Effective
Date"). The Company and the Employee are sometimes referred to herein as the
"Parties".
WHEREAS, Employee has served as Executive Vice President and Chief
Financial Officer of CorporateFamily Solutions, Inc. ("CorporateFamily"); and
WHEREAS, subsidiaries of the Company have been merged with and into
CorporateFamily and Bright Horizons, Inc. and the Company desires to employ the
Employee as Chief Financial Officer of the Company, and Employee is willing to
continue to serve the Company on the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts employment with the Company upon terms and conditions set forth herein.
2. Duties and Responsibilities.
2.1 Extent of Service. The Employee shall, during the term of this
Agreement, devote such of his entire time, attention, energies and business
efforts ("Business Efforts") to his duties as an employee of the Company as are
reasonably necessary to carry out his duties specified in Paragraph 2.2 below.
The Employee shall not, during the term of this Agreement, engage in any other
business activity if such business activity would impair in any material respect
the Employee's ability to carry out his duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Employee from investing his
personal assets as a passive investor.
2.2 Position and Duties. The Employee shall serve the Company as Chief
Financial Officer and shall perform the services and functions relating to such
office or otherwise reasonably incident to such office as may be designated from
time to time by the Board of Directors of the Company.
3. Salary and Other Benefits.
3.1 Salary. As compensation for his services as Chief Financial Officer
during the term of his employment under this Agreement, the Employee shall be
paid an annual salary of not less than $160,000, payable in accordance with the
then current payroll policies of the Company. Such
<PAGE> 2
salary shall be subject to increase by the Board of Directors of the Company (or
the appropriate committee thereof) from time to time. The annual salary being
paid to Employee hereunder at any given point of time is hereafter referred to
as his "Base Salary".
3.2 Other Benefits. As long as the Employee is employed by the Company
under the terms of this Agreement, the Employee shall be entitled to receive the
following benefits in addition to his Base Salary:
(a) The Employee shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) available to senior executives of the Company.
(b) The Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by him in the
course of the performance of his duties hereunder, including all
expenses associated with travel to the Company's offices in Boston.
(c) Employee shall be entitled to participate in incentive
compensation programs available to senior executives of the Company,
including stock option and restricted stock plans and annual bonus
incentive programs and plans.
(d) The Employee shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are available to senior
executives of the Company.
(e) The Employee shall be provided with an office and
secretary during his employment hereunder in Nashville and appropriate
work space and assistance in Boston and, after any relocation to
Boston, shall be provided with an office and secretary during his
employment hereunder in Boston and appropriate work space and
assistance in Nashville.
4. Term. The term of this Agreement shall be for a period ending twenty-four
(24) months from the Effective Date. However, if during the term of this
Agreement the Company requests the relocation of the Employee to Boston, the
term of this Agreement shall be extended for a period ending twenty-four (24)
months after the date of relocation.
5. Termination and Resignation. The Company shall have the right to terminate
the Employee's employment hereunder at any time and for any reason. Upon any
termination by the Company, the Employee shall be entitled to receive from the
Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 6 below. The Employee shall have the right to
terminate his employment hereunder at any time by resignation, and he shall
thereupon be entitled to receive from the Company prompt payment of the amount
determined pursuant to the applicable subparagraph of Paragraph 6 below.
2
<PAGE> 3
6. Payments Upon Termination and Resignation.
6.1 Payments Upon Termination for Cause, Death, Disability or Voluntary
Resignation. If (a) the Company at any time terminates the Employee's employment
for Cause or (b) the Employee voluntarily resigns for any reason other than for
Good Reason as defined in Paragraph 6.4, then in each case the Employee shall be
entitled to receive only his Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2 on a pro rata basis to the date of
termination plus reimbursement of expenses through the date of termination in
accordance with Paragraph 3.2(b). If the Employee at any time dies or becomes
disabled (being defined as the inability of the Employee to perform his normal
employment duties for a consecutive six (6) month period during the term of this
Agreement because of either physical or mental incapacity), the Employee shall
be entitled to receive only his Base Salary and any other accrued benefits due
Employee in accordance with Paragraph 3.2, any incentive bonus compensation on a
pro rata basis and reimbursement of expenses in accordance with Paragraph 3.2(b)
to the date of termination. For purposes of this Paragraph 6.1, "pro rata" shall
mean the product of the Employee's annual Base Salary and any incentive bonus
compensation that would have been payable had the Employee's employment not
terminated multiplied by a fraction the denominator of which is 365 and the
numerator of which is the number of days during the calendar year that have
passed through the date of the termination of the Employee's employment.
6.2 Payments Upon Termination Without Cause or Resignation for Good
Reason. If the Company terminates the Employee's employment without Cause or the
Employee resigns for Good Reason, then in each case the Employee shall be
entitled to receive a lump sum equal to (i) his Base Salary plus (ii) any
incentive bonus compensation and any other accrued benefits due Employee in
accordance with Paragraph 3.2 on a pro rata basis through date of termination as
determined in accordance with Paragraph 6.1. However, if the Company terminates
the Employee's employment without Cause or the Employee resigns for Good Reason
within twenty-four (24) months of the relocation of the Employee as described in
Paragraph 4, then in each case the Employee shall be entitled to receive a lump
sum equal to (i) two times his Base Salary plus (ii) any incentive bonus
compensation and other accrued benefits due Employee in accordance with
Paragraph 3.2 on a pro rata basis through date of termination as determined in
accordance with Paragraph 6.1; provided, however, that if the payments under
this Paragraph 6.2, either alone or together with other payments which the
Employee has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), such severance payment shall be reduced to the
largest amount as will result in no portion of the severance payment under this
Paragraph 6.2 being subject to the excise tax imposed by Section 4999 of the
Code.
6.3 Definition of "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination due to (a) Employee's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company which is directly and materially harmful to the Company; or (b)
Employee's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Employee's part
shall be considered "willful" unless done, or omitted to be done, by the
Employee
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<PAGE> 4
not in good faith and without reasonable belief that the Employee's action or
omission was in the best interest of the Company.
6.4 Definition of "Good Reason". For purposes of this Agreement, "Good
Reason" shall mean any of the following (without the Employee's express written
consent):
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employee's position, duties, responsibilities and
status set forth in this Agreement;
(b) the failure of the Board of Directors of the Company to
elect Employee as Chief Financial Officer for the term of this
Agreement or action by the Board to remove him from his position,
except in connection with the termination of his employment for Cause,
disability, death or voluntary resignation for reasons other than a
"Good Reason" as defined herein;
(c) a reduction by the Company in the Employee's Base Salary
while serving as Chief Financial Officer;
(d) a material breach by the Company of any provision of this
Agreement;
(e) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(f) a relocation of the Employee to any place other than the
metropolitan area of Nashville, Tennessee, or greater Boston,
Massachusetts, except for required travel by Employee on Company
business to an extent substantially consistent with normal business
travel obligations.
7. Restrictive Covenants.
7.1 Covenants Against Competition. Employee acknowledges that (a) the
business of the Company and its affiliates is as described in the annual report
of CorporateFamily on Form 10-K as filed with the Securities and Exchange
Commission for its fiscal year ended January 2, 1998, and in the prospectus of
Bright Horizons, Inc. dated November 7, 1997, and thereafter as described in
each successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Employee's work relating to Company Business will bring him
into close contact with many confidential matters not readily available to the
public.
7.2 Non-Compete. During the term of this Agreement and for a period of
twelve (12) months following the termination of Employee's employment with the
Company, whether Employee's employment terminates pursuant to the provisions of
Paragraph 5 of this Agreement or otherwise (collectively, the "Restricted
Period"), Employee covenants and agrees that he will not, without the express
approval of the Board of Directors, anywhere in the continental United States
engage in any business directly or indirectly, as an individual, partner,
shareholder, officer,
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<PAGE> 5
director, principal, agent, employee, trustee, consultant or in any other
relationship or capacity, if such business is competitive with the Company
Business; provided, however, that Employee may own, directly or indirectly,
solely as an investment, securities of any entity if Employee (a) is not a
controlling person with respect to such entity and (b) does not, directly or
indirectly, own five percent or more of any class of the securities of such
entity.
7.3 Trade Secrets; Confidential Information. Employee covenants and
agrees that at all times during and after the Restricted Period, he shall keep
secret and not disclose to others or appropriate to his own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company, including
without limitation trade know-how, trade secrets, consultant contracts, customer
lists, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical processes, designs and design projects,
inventions and research projects. Information shall not be deemed confidential
or secret for purposes of this Agreement if it is generally known in the
industry.
7.4 Employees of the Company. During the Restricted Period, Employee
shall not directly or indirectly hire away or solicit to hire away from the
Company any employee of the Company.
7.5 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee relating
to the Company Business or made available to Employee during his employment by
the Company concerning the business or affairs of the Company Business other
than any of such which may also pertain personally to Employee, shall be the
exclusive property of the Company and shall be delivered to the Company promptly
upon the termination of Employee's employment with the Company or at any other
time on request by the Board of Directors of the Company.
7.6 Rights and Remedies Upon Breach. If Employee breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 7.2 through 7.5 of
this Agreement (collectively, the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction, it being hereby acknowledged and
agreed by Employee that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and (b) the right and remedy to require Employee
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Employee as a
result of any transactions constituting a breach of any of the Restrictive
Covenants, and Employee shall account for and pay over such benefits to the
Company.
5
<PAGE> 6
7.7 Severability of Restrictive Covenants. If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the court making such determination shall have the power to reduce
the duration, area or scope of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Notice. All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person, by facsimile or other electronic transmission or when
mailed, by certified mail (return receipt requested), postage prepaid, addressed
as follows (or to such other address as a party may specify by notice pursuant
to this provision):
(a) To the Company:
Bright Horizons Family Solutions, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(b) To Employee:
Michael E. Hogrefe
1518 Wesley Court
Brentwood, Tennessee 37027
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the laws of the State of
Tennessee.
10. Payment of Legal Fees. In the event of any litigation instituted by the
Company or the Employee to enforce any rights or obligations hereunder, the
Company will reimburse Employee for all reasonable expenses incurred in
connection therewith, including counsel fees, except in the circumstances where
a final judgment is entered in favor of the Company.
11. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This agreement also supercedes the
Agreement between the Employee and CorporateFamily Solutions,
6
<PAGE> 7
Inc. with respect to severance compensation, which shall have no further effect.
This Agreement may be changed only by an agreement in writing signed by the
Party against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
13. Severability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of or decree of a court of last resort, the
Parties shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable to preserve the original intent of
this Agreement to the extent legally possible, but all other provisions of this
Agreement shall remain in full force and effect.
14. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Employee, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Employee under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15. Effect of Agreement. Subject to the provisions of Paragraph 14 with respect
to assignments, this Agreement shall be binding upon the Employee and his heirs,
executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
16 Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
7
<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement on this
___ day of ____________________, 1998.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title: ___________________________________
EMPLOYEE:
MICHAEL E. HOGREFE
------------------------------------------
8
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into between Bright
Horizons Family Solutions, Inc., a Delaware corporation ("Company"), and Mary
Ann Tocio ("Employee"), entered into as of _________________ (the "Effective
Date"). The Company and the Employee are sometimes referred to herein as the
"Parties".
WHEREAS, Employee has served as Chief Operating Officer of Bright
Horizons, Inc.("Bright Horizons"); and
WHEREAS, subsidiaries of the Company have been merged with and into
CorporateFamily Solutions, Inc. ("CorporateFamily") and Bright Horizons (the
"Merger"), and the Company desires to employ the Employee as Chief Operating
Officer of the Company, and Employee is willing to continue to serve the Company
on the following terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and intending to be legally bound,
the parties hereby agree as follows:
1. Employment. The Company hereby employs the Employee and the Employee hereby
accepts employment with the Company upon terms and conditions set forth herein.
2. Duties and Responsibilities.
2.1 Extent of Service. The Employee shall, during the term of this
Agreement, devote such of her entire time, attention, energies and business
efforts ("Business Efforts") to her duties as an employee of the Company as are
reasonably necessary to carry out her duties specified in Paragraph 2.2 below.
The Employee shall not, during the term of this Agreement, engage in any other
business activity if such business activity would impair in any material respect
the Employee's ability to carry out her duties hereunder. This Paragraph 2.1,
however, shall not be construed to prevent the Employee from investing her
personal assets as a passive investor.
2.2 Position and Duties. The Employee shall serve the Company as Chief
Operating Officer and shall perform the services and functions relating to such
office or otherwise reasonably incident to such office as may be designated from
time to time by the Board of Directors of the Company.
3. Salary and Other Benefits.
3.1 Salary. As compensation for her services as Chief Operating Officer
during the term of her employment under this Agreement, the Employee shall be
paid an annual salary of not less than $160,000, payable in accordance with the
then current payroll policies of the Company.
<PAGE> 2
Such salary shall be subject to increase by the Board of Directors of the
Company (or the appropriate committee thereof) from time to time. The annual
salary being paid to Employee hereunder at any given point of time is hereafter
referred to as her "Base Salary".
3.2 Other Benefits. As long as the Employee is employed by the Company
under the terms of this Agreement, the Employee shall be entitled to receive the
following benefits in addition to her Base Salary:
(a) The Employee shall have the right to participate in all
group benefit plans of the Company (including without limitation,
disability, accident, medical, life insurance, hospitalization and
pension) available to senior executives of the Company.
(b) The Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by her in the
course of the performance of her duties hereunder, including all
expenses associated with travel to the Company's offices in Nashville.
(c) Employee shall be entitled to participate in incentive
compensation programs available to senior executives of the Company,
including stock option and restricted stock plans and annual bonus
incentive programs and plans.
(d) The Employee shall be entitled to such vacation, holidays
and other paid or unpaid leaves of absence as are available to senior
executives of the Company.
(e) The Employee shall be provided with an office and
secretary during her employment hereunder in Boston and appropriate
work space and assistance in Nashville.
4. Term. The term of this Agreement shall be for a period ending twenty-four
(24) months from the Effective Date.
5. Termination and Resignation. The Company shall have the right to terminate
the Employee's employment hereunder at any time and for any reason. Upon any
termination by the Company, the Employee shall be entitled to receive from the
Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 6 below. The Employee shall have the right to
terminate her employment hereunder at any time by resignation, and she shall
thereupon be entitled to receive from the Company prompt payment of the amount
determined pursuant to the applicable subparagraph of Paragraph 6 below.
6. Payments Upon Termination and Resignation.
6.1 Payments Upon Termination for Cause, Death, Disability or Voluntary
Resignation. If (a) the Company at any time terminates the Employee's employment
for Cause or (b) the Employee voluntarily resigns for any reason other than for
Good Reason as defined in Paragraph 6.4, then in each case the Employee shall be
entitled to receive only her Base Salary and any other
2
<PAGE> 3
accrued benefits due Employee in accordance with Paragraph 3.2 on a pro rata
basis to the date of termination plus reimbursement of expenses through the date
of termination in accordance with Paragraph 3.2(b). If the Employee at any time
dies or becomes disabled (being defined as the inability of the Employee to
perform her normal employment duties for a consecutive six (6) month period
during the term of this Agreement because of either physical or mental
incapacity), the Employee shall be entitled to receive only her Base Salary and
any other accrued benefits due Employee in accordance with Paragraph 3.2, any
incentive bonus compensation on a pro rata basis and reimbursement of expenses
in accordance with Paragraph 3.2(b) to the date of termination. For purposes of
this Paragraph 6.1, "pro rata" shall mean the product of the Employee's annual
Base Salary and any incentive bonus compensation that would have been payable
had the Employee's employment not terminated multiplied by a fraction the
denominator of which is 365 and the numerator of which is the number of days
during the calendar year that have passed through the date of the termination of
the Employee's employment.
6.2 Payments Upon Termination Without Cause or Resignation for Good
Reason. If the Company terminates the Employee's employment without Cause or the
Employee resigns for Good Reason, then in each case the Employee shall be
entitled to receive a lump sum equal to (i) her Base Salary plus (ii) any
incentive bonus compensation and any other accrued benefits due Employee in
accordance with Paragraph 3.2 on a pro rata basis through date of termination as
determined in accordance with Paragraph 6.1 provided, however, that if the
payments under this Paragraph 6.2, either alone or together with other payments
which the Employee has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), such severance payment shall be reduced to the
largest amount as will result in no portion of the severance payment under this
Paragraph 6.2 being subject to the excise tax imposed by Section 4999 of the
Code.
6.3 Definition of "Cause". Termination by the Company of the Employee's
employment for "Cause" shall mean termination due to (a) Employee's willful
dishonesty, fraud, or misconduct with respect to the business or affairs of the
Company which is directly and materially harmful to the Company; or (b)
Employee's conviction of a felony or other crime involving moral turpitude. For
purposes of this definition, no act, or failure to act, on the Employee's part
shall be considered "willful" unless done, or omitted to be done, by the
Employee not in good faith and without reasonable belief that the Employee's
action or omission was in the best interest of the Company.
6.4 Definition of "Good Reason". For purposes of this Agreement, "Good
Reason" shall mean any of the following (without the Employee's express written
consent):
(a) the assignment to the Employee by the Company of duties
inconsistent with the Employee's position, duties, responsibilities and
status set forth in this Agreement;
(b) the failure of the Board of Directors of the Company to
elect Employee as Chief Operating Officer for the term of this
Agreement or action by the Board to remove her from her position,
except in connection with the termination of her employment for
3
<PAGE> 4
Cause, disability, death or voluntary resignation for reasons other
than a "Good Reason" as defined herein;
(c) a reduction by the Company in the Employee's Base Salary
while serving as Chief Operating Officer;
(d) a material breach by the Company of any provision of this
Agreement;
(e) any failure by the Company to obtain the assumption of
this Agreement by any successor or assign of the Company; or
(f) a relocation of the Employee to any place other than the
metropolitan area of Boston, Massachusetts, except for required travel
by Employee on Company business to an extent substantially consistent
with normal business travel obligations.
7. Restrictive Covenants.
7.1 Covenants Against Competition. Employee acknowledges that (a) the
business of the Company and its affiliates is as described in the annual report
of CorporateFamily on Form 10-K as filed with the Securities and Exchange
Commission for its fiscal year ended January 2, 1998, and in the prospectus of
Bright Horizons dated November 7, 1997, and thereafter as described in each
successive annual report on Form 10-K filed by the Company (the "Company
Business"); and (b) Employee's work relating to Company Business will bring her
into close contact with many confidential matters not readily available to the
public.
7.2 Non-Compete. During the term of this Agreement and for a period of
twelve (12) months following the termination of Employee's employment with the
Company, whether Employee's employment terminates pursuant to the provisions of
Paragraph 5 of this Agreement or otherwise (collectively, the "Restricted
Period"), Employee covenants and agrees that she will not, without the express
approval of the Board of Directors, anywhere in the continental United States
engage in any business directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee, consultant
or in any other relationship or capacity, if such business is competitive with
the Company Business; provided, however, that Employee may own, directly or
indirectly, solely as an investment, securities of any entity if Employee (a) is
not a controlling person with respect to such entity and (b) does not, directly
or indirectly, own five percent or more of any class of the securities of such
entity.
7.3 Trade Secrets; Confidential Information. Employee covenants and
agrees that at all times during and after the Restricted Period, she shall keep
secret and not disclose to others or appropriate to her own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company, including
without limitation trade know-how, trade secrets, consultant contracts, customer
lists, pricing policies, operational methods, marketing plans or strategies,
product development techniques or plans, business acquisition plans, new
personnel acquisition plans, technical
4
<PAGE> 5
processes, designs and design projects, inventions and research projects.
Information shall not be deemed confidential or secret for purposes of this
Agreement if it is generally known in the industry.
7.4 Employees of the Company. During the Restricted Period, Employee
shall not directly or indirectly hire away or solicit to hire away from the
Company any employee of the Company.
7.5 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Employee relating
to the Company Business or made available to Employee during her employment by
the Company concerning the business or affairs of the Company Business other
than any of such which may also pertain personally to Employee, shall be the
exclusive property of the Company and shall be delivered to the Company promptly
upon the termination of Employee's employment with the Company or at any other
time on request by the Board of Directors of the Company.
7.6 Rights and Remedies Upon Breach. If Employee breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 7.2 through 7.5 of
this Agreement (collectively, the "Restrictive Covenants"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction, it being hereby acknowledged and
agreed by Employee that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and (b) the right and remedy to require Employee
to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Employee as a
result of any transactions constituting a breach of any of the Restrictive
Covenants, and Employee shall account for and pay over such benefits to the
Company.
7.7 Severability of Restrictive Covenants. If it is determined that any
of the Restrictive Covenants, or any part thereof, is invalid or unenforceable,
the remainder of the Restrictive Covenants shall not thereby be affected and
shall be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the court making such determination shall have the power to reduce
the duration, area or scope of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
8. Notice. All notices, requests, demands and other communications given under
or by reason of this Agreement shall be in writing and shall be deemed given
when delivered in person, by facsimile or other electronic transmission or when
mailed, by certified mail (return receipt requested), postage prepaid, addressed
as follows (or to such other address as a party may specify by notice pursuant
to this provision):
5
<PAGE> 6
(a) To the Company:
Bright Horizons Family Solutions, Inc.
One Kendall Square, Building 200
Cambridge, Massachusetts 02139
(b) To Employee:
Mary Ann Tocio
1490 South County Road
Osterville, Massachusetts 02655
9. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
10. Payment of Legal Fees. In the event of any litigation instituted by the
Company or the Employee to enforce any rights or obligations hereunder, the
Company will reimburse Employee for all reasonable expenses incurred in
connection therewith, including counsel fees, except in the circumstances where
a final judgment is entered in favor of the Company.
11. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
12. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement also supercedes the
Severance Agreement dated October 31, 1997 between the Employee and Bright
Horizons with respect to severance compensation, which shall have no further
effect, except that the vesting of certain options to purchase shares of Bright
Horizons Common Stock held by the Employee shall be accelerated thereunder upon
the Merger in accordance with the terms of such Severance Agreement. This
Agreement may be changed only by an agreement in writing signed by the Party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
13. Severability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of or decree of a court of last resort, the
Parties shall promptly meet and negotiate substitute provisions for those
rendered or declared illegal or unenforceable to preserve the original intent of
this Agreement to the extent legally possible, but all other provisions of this
Agreement shall remain in full force and effect.
6
<PAGE> 7
14. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Employee, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Employee under this Agreement are
personal to her, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
15. Effect of Agreement. Subject to the provisions of Paragraph 14 with respect
to assignments, this Agreement shall be binding upon the Employee and her heirs,
executors, administrators, legal representatives and assigns and upon the
Company and its respective successors and assigns.
16. Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
17. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
7
<PAGE> 8
IN WITNESS WHEREOF, the Parties have executed this Agreement on this
___ day of ____________________, 1998.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By:_______________________________________
Name:_____________________________________
Title: ___________________________________
EMPLOYEE:
MARY ANN TOCIO
------------------------------------------
8
<PAGE> 1
EXHIBIT 10.18
BRIGHT HORIZONS, INC.
SEVERANCE AGREEMENT
Ms. Melanie Ray
One Kendall Square, Suite 200
Cambridge, MA 02139
Dear Ms. Ray:
WHEREAS the Board of Directors (the "Board") of Bright Horizons, Inc.
(the "Company") has determined that it is in the best interests of the Company
and its stockholders for the Company to agree to provide benefits to those
members of management, including yourself, who are responsible for the
policy-making functions of the Company and the overall viability of the
Company's business, in the event that you should leave the employ of the Company
under the circumstances described below;
WHEREAS the Board recognizes that the possibility of a change of
control of the Company is unsettling to such members of management, including
yourself, and desires to make these arrangements at this time to help assure a
continuing dedication by you and your fellow members of management to your
duties to the Company and its stockholders, notwithstanding the occurrence
hereafter of attempts to gain control of the Company and the resultant
disruptive effects on the management of the Company's business;
WHEREAS the Board believes it important, should the Company receive
proposals from third parties with respect to its future, to enable you, without
being influenced by the uncertainties of your own employment situation and in
addition to your regular duties, to assess and advise the Board whether such
proposals would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposals as the Board might determine
to be appropriate; and
WHEREAS the Board also wishes to demonstrate to executives of the
Company that the Company is concerned with the welfare of its executives and
intends to see that loyal executives are treated fairly;
NOW, THEREFORE, to assure the Company that it will have your continued
dedication and the availability of your advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control of the Company,
and to induce you to remain in the employ of the Company, and for other good and
valuable consideration, the Company and you agree as follows:
1. Employee's Undertaking. You agree that, in the event that any Person begins a
tender or exchange offer, circulates a proxy to the Company's stockholders or
takes other steps to effect a
<PAGE> 2
Change of Control, you will not voluntarily leave the employ of the Company and
will faithfully and diligently render the services contemplated in the recitals
to this Agreement until such Person has abandoned or terminated his efforts to
effect a Change of Control or until a Change of Control has occurred.
2. Severance Benefits. In the event that, within twenty-four (24) months after a
Change of Control, your employment with the Company is terminated for any reason
other than for Cause or death or disability or you terminate your employment for
Good Reason, the Company will provide you the following severance pay and
benefits, subject to your continued performance under this Agreement and to the
further provisions of this Agreement:
2.1 Within thirty (30) days of such termination of employment, the
Company will pay your annual base salary accrued through the date of such
termination to the extent not theretofore paid and a prorated portion of any
bonus payable for the fiscal year in which the date of termination occurs.
2.2 So long as you are not in breach of any provision of this
Agreement, the Company will provide you severance pay following the termination
of your employment (i) for a period equal to the number of months that you have
been employed by the Company, not to exceed twenty four (24) months or (ii)
until you secure other employment, whichever is less (the "Severance Payment
Period"). Monthly severance pay shall equal one twenty-fourth (1/24) of your
total base salary and cash bonus compensation for the last two years of your
employment, provided, however, that if you have been employed by the Company for
less than two years, such monthly severance pay shall equal the quotient of (i)
the total base salary and cash bonus compensation paid to you during your
employment with the Company and (ii) the total number of months that you have
been employed by the Company, which for purposes hereof shall include the month
of termination. Severance payments shall be made in accordance with the
Company's regular payroll practices and shall be reduced by taxes and all other
legally-required deductions.
2.3 If you elect to continue your participation and that of your
eligible dependents in the Company's group health plans in accordance with
applicable federal law following termination of your employment, then, for a
period of twenty-four (24) months from the date your employment terminates or
until you become eligible for coverage under the group health plans of another
employer, whichever is less, the Company will pay the premiums for such
participation ; provided , however, that if your continued participation in the
Company's group health plans is not possible under the terms of those plans, the
Company shall instead arrange to provide you and your dependents substantially
similar benefits upon comparable terms or pay you an amount equal to the full
cash value thereof in cash. Your participation in all other employee benefits
plans will cease on the date your employment terminates, in accordance with the
terms of those plans.
3. Stock Options. Notwithstanding any provision of any stock option or
comparable plan of the Company or option agreements thereunder, all options
granted you under such plans and not then exercised, expired, surrendered or
canceled shall vest immediately prior to a Change in
-2-
<PAGE> 3
Control, except in the event that such vesting would preclude the pooling method
of accounting for the specific transaction that resulted in such Change in
Control.
4. Competitive Activities and Other Claims.
4.1 You agree that at any time during the Severance Payment Period, you
will not, directly or indirectly, whether as owner, partner, investor,
consultant, agent, employee or otherwise, compete with the business of the
Company or any of its subsidiaries or affiliates or undertake any active
planning for any business competitive with that of the Company or any of its
subsidiaries or affiliates in any geographic area in which the Company does
business or is formally planning at any time prior to the termination of your
employment to do business, without the prior written consent of the Board.
4.2 In the event of termination of your employment under the
circumstances described herein, the arrangements provided for by this Agreement,
by any stock option or other written agreement between you and the Company in
effect at that time and by any applicable employee benefit plans of the Company
in effect at that time (in each case as modified by this Agreement) will
constitute the entire obligation of the Company to you and performance by the
Company will constitute full settlement of any claim that you might otherwise
assert against the Company or any of its subsidiaries or affiliates on account
of such termination.
5. Confidentiality.
You acknowledge that the Company and its subsidiaries and affiliates
continually develop Confidential Information, that you may develop Confidential
Information for the Company or its subsidiaries and affiliates, and that you may
learn of Confidential Information during the course of employment. You agree
that all Confidential Information that you create or to which you have access as
a result of your employment is and shall remain the sole and exclusive property
of the Company and that you will comply with the policies and procedures of the
Company and its subsidiaries and affiliates for protecting Confidential
Information. You further agree that, except as required for the proper
performance of your duties for the Company or as required by applicable law (and
then only to the extent required), you will not, directly or indirectly, use for
your own benefit or gain, or assist others in the application of or disclose any
Confidential Information. You understand and agree that these restrictions will
continue to apply after your employment terminates, regardless of the reason for
termination and regardless of whether you are receiving or are entitled to
receive any payments or other benefits under this Agreement.
6. Enforceability and Remedies.
6.1 You agree that the restrictions on, and other provisions relating
to, your activities contained in this Agreement are fully reasonable and
necessary to protect the goodwill, Confidential Information and other legitimate
interests of the Company. You also acknowledge and agree that, were you to
breach the provisions of this Agreement, the harm to the Company
-3-
<PAGE> 4
would be irreparable. You therefore agree that in the event of such a breach or
threatened breach the Company shall, in addition to any other remedies available
to it, have the right to obtain preliminary and permanent injunctive relief
against any such breach without having to post bond. You further agree that, in
addition to any other relief awarded to the Company as a result of your breach
of any of the provisions of this Agreement, the Company shall be entitled to
recover all payments made to you or on your behalf hereunder.
6.2 You hereby agree that in the event any provision of this Agreement
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its being extended over too long a time, too large a geographic
area or too great a range of activities, such provision shall be deemed to be
modified to permit its enforcement to the maximum extent permitted by law.
7. Definitions. Words or phrases which are initially capitalized or within
quotation marks shall have the meanings provided in this Section 7 and as
provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
7.1 "Cause" shall mean (i) the commission of fraud, embezzlement, theft
or other dishonesty in the performance of your duties for, or responsibilities
to, the Company and (ii) willful, or repeated and negligent, failure to
adequately perform your duties for, or responsibilities to, the Company after
reasonable notice from the Board setting forth in reasonable detail the nature
of such failure and you shall not have remedied such failure within ten (10)
days of receiving such notice. Any act, or failure to act, based on authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be done, by
you in good faith and in the best interest of the Company.
7.2. Change of Control" shall be deemed to take place if hereafter (i)
any Person (other than any Person which is a holder of the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock on the date hereof) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act) of securities of the Company representing more than
50% of the combined voting power of the Company's then-outstanding securities,
(ii) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iii) individuals who, at the date
hereof, constitute the Board (the "Continuing Directors") cease for any reason
to constitute a majority thereof, provided, however, that any director who is
not in office at the date hereof but whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the date hereof or whose election or nomination for election was
previously so approved shall be deemed to be a Continuing Director for purposes
of this Agreement. Notwithstanding the foregoing provisions of this paragraph, a
"Change of Control" will not be deemed to have occurred solely because of (i)
the
-4-
<PAGE> 5
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employment benefit plan maintained by the Company
for its employees or (ii) the occurrence of leveraged buy-out or
recapitalization of the Company in which Executive participates as an equity
investor.
7.3 "Confidential Information" means any and all information of the
Company, its subsidiaries and affiliates that is not generally known by others
with whom they compete or do business, or with whom they plan to compete or do
business and any and all information, publicly known in whole or in part or not,
which, if disclosed by the Company or any of its subsidiaries or affiliates,
would assist in competition against any of them. Confidential Information
includes without limitation such information relating to (i) the financial
performance and strategic plans of the Company, its subsidiaries and affiliates,
(ii) the identity and special needs of their customers and the structure of any
contractual relationship with such customers and (iii) the people and
organizations with whom they have business relationships and those
relationships. Confidential Information also includes any and all information
that the Company or any of its subsidiaries or affiliates has received from
others with any understanding that it would not be disclosed.
7.4 "Good Reason" means any substantial diminution in your base salary
or position or nature or scope of responsibilities (other than by inadvertence)
as to which you have provided written notice to the Board within thirty (30)
days of the date on which you knew or reasonably should have known of such
diminution, which notice shall set forth in reasonable detail the nature of such
Good Reason and the Board shall not have remedied such diminution within ten
(10) days of receiving such written notice.
7.5 "Person" means an individual, a corporation, an association, a
partnership, an estate, a trust or other entity or organization (including a
"group" as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended), other than the Company or any of its subsidiaries or
affiliates.
8. Assignment. Neither the Company nor you may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without your consent in
the event that the Company shall hereafter affect a reorganization, or
consolidate with, or merge into any Person or other entity or transfer all or
substantially all of its property or assets to any Person. This Agreement shall
inure to the benefit of and be binding upon the Company, its successors
(including without limitation any transferee of all or substantially all of its
assets) and permitted assigns and upon you, your executors, administrators,
heirs and permitted assigns.
In the event of any merger, consolidation, or sale of assets as
described above, nothing contained in this Agreement will detract from or
otherwise limit your right to participate or privilege of participation in any
stock option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or arrangement
which
-5-
<PAGE> 6
may be or become applicable to executives of the corporation resulting from such
merger or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation or sale of assets as
described above, references to the Company in this Agreement, shall unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
All payments required to be made, or other benefits required to be
provided, by the Company hereunder to you or your dependents, beneficiaries, or
estate will be subject to the withholding of such amounts relating to tax and/or
other payroll deductions as may be required by law.
9. Notices. Any and all notices, requests, demands, acceptances, appointments
and other communications provided for by this Agreement shall be in writing
(including telex, telecopy or similar tele-transmission) and shall be effective
when actually delivered in person or, if mailed, five (5) days after having been
deposited in the United States mail, postage prepaid, registered or certified
and addressed to you at your last known address on the books of the Company or,
in the case of the Company, addressed to its principal place of business,
attention of Chief Executive Officer, or to such other address as either party
may specify by notice to the other.
10. Miscellaneous. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement. This Agreement may not be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you and such officer as may be specifically designated by the
Board. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of The Commonwealth of Massachusetts.
This Agreement may be executed in two or more counterparts, each of which shall
be an original and all of which together constitute one and the same instrument.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
-6-
<PAGE> 7
If you are in agreement with the foregoing, please so indicate by
signing and returning to me the original of this Agreement, whereupon this
Agreement shall constitute a binding agreement between you and the Company.
The second copy is for your records.
Very truly yours,
BRIGHT HORIZONS, INC.
/s/ Roger H. Brown
------------------------------------
Name: Roger H. Brown
Title: Chief Executive Officer
ACCEPTED AND AGREED:
Signature: /s/ Melanie Ray
----------------
Date: February 9, 1998
-7-
<PAGE> 1
EXHIBIT 10.19
BRIGHT HORIZONS, INC.
SEVERANCE AGREEMENT
Mr. Michael Day
One Kendall Square, Suite 200
Cambridge, MA 02139
Dear Mr. Day:
WHEREAS the Board of Directors (the "Board") of Bright Horizons, Inc.
(the "Company") has determined that it is in the best interests of the Company
and its stockholders for the Company to agree to provide benefits to those
members of management, including yourself, who are responsible for the
policy-making functions of the Company and the overall viability of the
Company's business, in the event that you should leave the employ of the Company
under the circumstances described below;
WHEREAS the Board recognizes that the possibility of a change of
control of the Company is unsettling to such members of management, including
yourself, and desires to make these arrangements at this time to help assure a
continuing dedication by you and your fellow members of management to your
duties to the Company and its stockholders, notwithstanding the occurrence
hereafter of attempts to gain control of the Company and the resultant
disruptive effects on the management of the Company's business;
WHEREAS the Board believes it important, should the Company receive
proposals from third parties with respect to its future, to enable you, without
being influenced by the uncertainties of your own employment situation and in
addition to your regular duties, to assess and advise the Board whether such
proposals would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposals as the Board might determine
to be appropriate; and
WHEREAS the Board also wishes to demonstrate to executives of the
Company that the Company is concerned with the welfare of its executives and
intends to see that loyal executives are treated fairly;
NOW, THEREFORE, to assure the Company that it will have your continued
dedication and the availability of your advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control of the Company,
and to induce you to remain in the employ of the Company, and for other good and
valuable consideration, the Company and you agree as follows:
1. Employee's Undertaking. You agree that, in the event that any Person begins a
tender or exchange offer, circulates a proxy to the Company's stockholders or
takes other steps to effect a
<PAGE> 2
Change of Control, you will not voluntarily leave the employ of the Company and
will faithfully and diligently render the services contemplated in the recitals
to this Agreement until such Person has abandoned or terminated his efforts to
effect a Change of Control or until a Change of Control has occurred.
2. Severance Benefits. In the event that, within twenty-four (24) months after a
Change of Control, your employment with the Company is terminated for any reason
other than for Cause or death or disability or you terminate your employment for
Good Reason, the Company will provide you the following severance pay and
benefits, subject to your continued performance under this Agreement and to the
further provisions of this Agreement:
2.1 Within thirty (30) days of such termination of employment, the
Company will pay your annual base salary accrued through the date of such
termination to the extent not theretofore paid and a prorated portion of any
bonus payable for the fiscal year in which the date of termination occurs.
2.2 So long as you are not in breach of any provision of this
Agreement, the Company will provide you severance pay following the termination
of your employment (i) for a period equal to the number of months that you have
been employed by the Company, not to exceed twenty four (24) months or (ii)
until you secure other employment, whichever is less (the "Severance Payment
Period"). Monthly severance pay shall equal one twenty-fourth (1/24) of your
total base salary and cash bonus compensation for the last two years of your
employment, provided, however, that if you have been employed by the Company for
less than two years, such monthly severance pay shall equal the quotient of (i)
the total base salary and cash bonus compensation paid to you during your
employment with the Company and (ii) the total number of months that you have
been employed by the Company, which for purposes hereof shall include the month
of termination. Severance payments shall be made in accordance with the
Company's regular payroll practices and shall be reduced by taxes and all other
legally-required deductions.
2.3 If you elect to continue your participation and that of your
eligible dependents in the Company's group health plans in accordance with
applicable federal law following termination of your employment, then, for a
period of twenty-four (24) months from the date your employment terminates or
until you become eligible for coverage under the group health plans of another
employer, whichever is less, the Company will pay the premiums for such
participation ; provided , however, that if your continued participation in the
Company's group health plans is not possible under the terms of those plans, the
Company shall instead arrange to provide you and your dependents substantially
similar benefits upon comparable terms or pay you an amount equal to the full
cash value thereof in cash. Your participation in all other employee benefits
plans will cease on the date your employment terminates, in accordance with the
terms of those plans.
3. Stock Options. Notwithstanding any provision of any stock option or
comparable plan of the Company or option agreements thereunder, all options
granted you under such plans and not then exercised, expired, surrendered or
canceled shall vest immediately prior to a Change in
-2-
<PAGE> 3
Control, except in the event that such vesting would preclude the pooling method
of accounting for the specific transaction that resulted in such Change in
Control.
4. Competitive Activities and Other Claims.
4.1 You agree that at any time during the Severance Payment Period, you
will not, directly or indirectly, whether as owner, partner, investor,
consultant, agent, employee or otherwise, compete with the business of the
Company or any of its subsidiaries or affiliates or undertake any active
planning for any business competitive with that of the Company or any of its
subsidiaries or affiliates in any geographic area in which the Company does
business or is formally planning at any time prior to the termination of your
employment to do business, without the prior written consent of the Board.
4.2 In the event of termination of your employment under the
circumstances described herein, the arrangements provided for by this Agreement,
by any stock option or other written agreement between you and the Company in
effect at that time and by any applicable employee benefit plans of the Company
in effect at that time (in each case as modified by this Agreement) will
constitute the entire obligation of the Company to you and performance by the
Company will constitute full settlement of any claim that you might otherwise
assert against the Company or any of its subsidiaries or affiliates on account
of such termination.
5. Confidentiality.
You acknowledge that the Company and its subsidiaries and affiliates
continually develop Confidential Information, that you may develop Confidential
Information for the Company or its subsidiaries and affiliates, and that you may
learn of Confidential Information during the course of employment. You agree
that all Confidential Information that you create or to which you have access as
a result of your employment is and shall remain the sole and exclusive property
of the Company and that you will comply with the policies and procedures of the
Company and its subsidiaries and affiliates for protecting Confidential
Information. You further agree that, except as required for the proper
performance of your duties for the Company or as required by applicable law (and
then only to the extent required), you will not, directly or indirectly, use for
your own benefit or gain, or assist others in the application of or disclose any
Confidential Information. You understand and agree that these restrictions will
continue to apply after your employment terminates, regardless of the reason for
termination and regardless of whether you are receiving or are entitled to
receive any payments or other benefits under this Agreement.
6. Enforceability and Remedies.
6.1 You agree that the restrictions on, and other provisions relating
to, your activities contained in this Agreement are fully reasonable and
necessary to protect the goodwill, Confidential Information and other legitimate
interests of the Company. You also acknowledge and agree that, were you to
breach the provisions of this Agreement, the harm to the Company
-3-
<PAGE> 4
would be irreparable. You therefore agree that in the event of such a breach or
threatened breach the Company shall, in addition to any other remedies available
to it, have the right to obtain preliminary and permanent injunctive relief
against any such breach without having to post bond. You further agree that, in
addition to any other relief awarded to the Company as a result of your breach
of any of the provisions of this Agreement, the Company shall be entitled to
recover all payments made to you or on your behalf hereunder.
6.2 You hereby agree that in the event any provision of this Agreement
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its being extended over too long a time, too large a geographic
area or too great a range of activities, such provision shall be deemed to be
modified to permit its enforcement to the maximum extent permitted by law.
7. Definitions. Words or phrases which are initially capitalized or within
quotation marks shall have the meanings provided in this Section 7 and as
provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
7.1 "Cause" shall mean (i) the commission of fraud, embezzlement, theft
or other dishonesty in the performance of your duties for, or responsibilities
to, the Company and (ii) willful, or repeated and negligent, failure to
adequately perform your duties for, or responsibilities to, the Company after
reasonable notice from the Board setting forth in reasonable detail the nature
of such failure and you shall not have remedied such failure within ten (10)
days of receiving such notice. Any act, or failure to act, based on authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be done, by
you in good faith and in the best interest of the Company.
7.2. Change of Control" shall be deemed to take place if hereafter (i)
any Person (other than any Person which is a holder of the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock on the date hereof) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act) of securities of the Company representing more than
50% of the combined voting power of the Company's then-outstanding securities,
(ii) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iii) individuals who, at the date
hereof, constitute the Board (the "Continuing Directors") cease for any reason
to constitute a majority thereof, provided, however, that any director who is
not in office at the date hereof but whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the date hereof or whose election or nomination for election was
previously so approved shall be deemed to be a Continuing Director for purposes
of this Agreement. Notwithstanding the foregoing provisions of this paragraph, a
"Change of Control" will not be deemed to have occurred solely because of (i)
the
-4-
<PAGE> 5
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employment benefit plan maintained by the Company
for its employees or (ii) the occurrence of leveraged buy-out or
recapitalization of the Company in which Executive participates as an equity
investor.
7.3 "Confidential Information" means any and all information of the
Company, its subsidiaries and affiliates that is not generally known by others
with whom they compete or do business, or with whom they plan to compete or do
business and any and all information, publicly known in whole or in part or not,
which, if disclosed by the Company or any of its subsidiaries or affiliates,
would assist in competition against any of them. Confidential Information
includes without limitation such information relating to (i) the financial
performance and strategic plans of the Company, its subsidiaries and affiliates,
(ii) the identity and special needs of their customers and the structure of any
contractual relationship with such customers and (iii) the people and
organizations with whom they have business relationships and those
relationships. Confidential Information also includes any and all information
that the Company or any of its subsidiaries or affiliates has received from
others with any understanding that it would not be disclosed.
7.4 "Good Reason" means any substantial diminution in your base salary
or position or nature or scope of responsibilities (other than by inadvertence)
as to which you have provided written notice to the Board within thirty (30)
days of the date on which you knew or reasonably should have known of such
diminution, which notice shall set forth in reasonable detail the nature of such
Good Reason and the Board shall not have remedied such diminution within ten
(10) days of receiving such written notice.
7.5 "Person" means an individual, a corporation, an association, a
partnership, an estate, a trust or other entity or organization (including a
"group" as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended), other than the Company or any of its subsidiaries or
affiliates.
8. Assignment. Neither the Company nor you may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without your consent in
the event that the Company shall hereafter affect a reorganization, or
consolidate with, or merge into any Person or other entity or transfer all or
substantially all of its property or assets to any Person. This Agreement shall
inure to the benefit of and be binding upon the Company, its successors
(including without limitation any transferee of all or substantially all of its
assets) and permitted assigns and upon you, your executors, administrators,
heirs and permitted assigns.
In the event of any merger, consolidation, or sale of assets as
described above, nothing contained in this Agreement will detract from or
otherwise limit your right to participate or privilege of participation in any
stock option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or arrangement
which
-5-
<PAGE> 6
may be or become applicable to executives of the corporation resulting from such
merger or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation or sale of assets as
described above, references to the Company in this Agreement, shall unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
All payments required to be made, or other benefits required to be
provided, by the Company hereunder to you or your dependents, beneficiaries, or
estate will be subject to the withholding of such amounts relating to tax and/or
other payroll deductions as may be required by law.
9. Notices. Any and all notices, requests, demands, acceptances, appointments
and other communications provided for by this Agreement shall be in writing
(including telex, telecopy or similar tele-transmission) and shall be effective
when actually delivered in person or, if mailed, five (5) days after having been
deposited in the United States mail, postage prepaid, registered or certified
and addressed to you at your last known address on the books of the Company or,
in the case of the Company, addressed to its principal place of business,
attention of Chief Executive Officer, or to such other address as either party
may specify by notice to the other.
10. Miscellaneous. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement. This Agreement may not be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you and such officer as may be specifically designated by the
Board. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of The Commonwealth of Massachusetts.
This Agreement may be executed in two or more counterparts, each of which shall
be an original and all of which together constitute one and the same instrument.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
-6-
<PAGE> 7
If you are in agreement with the foregoing, please so indicate by
signing and returning to me the original of this Agreement, whereupon this
Agreement shall constitute a binding agreement between you and the Company.
The second copy is for your records.
Very truly yours,
BRIGHT HORIZONS, INC.
/s/ Roger H. Brown
------------------------------------
Name: Roger H. Brown
Title: Chief Executive Officer
ACCEPTED AND AGREED:
Signature: /s/ Michael Day
----------------
Date: February 9, 1998
-7-
<PAGE> 1
EXHIBIT 10.20
BRIGHT HORIZONS, INC.
SEVERANCE AGREEMENT
Ms. Nancy Rosenzweig
One Kendall Square, Suite 200
Cambridge, MA 02139
Dear Ms. Rosenzweig:
WHEREAS the Board of Directors (the "Board") of Bright Horizons, Inc.
(the "Company") has determined that it is in the best interests of the Company
and its stockholders for the Company to agree to provide benefits to those
members of management, including yourself, who are responsible for the
policy-making functions of the Company and the overall viability of the
Company's business, in the event that you should leave the employ of the Company
under the circumstances described below;
WHEREAS the Board recognizes that the possibility of a change of
control of the Company is unsettling to such members of management, including
yourself, and desires to make these arrangements at this time to help assure a
continuing dedication by you and your fellow members of management to your
duties to the Company and its stockholders, notwithstanding the occurrence
hereafter of attempts to gain control of the Company and the resultant
disruptive effects on the management of the Company's business;
WHEREAS the Board believes it important, should the Company receive
proposals from third parties with respect to its future, to enable you, without
being influenced by the uncertainties of your own employment situation and in
addition to your regular duties, to assess and advise the Board whether such
proposals would be in the best interests of the Company and its stockholders and
to take such other action regarding such proposals as the Board might determine
to be appropriate; and
WHEREAS the Board also wishes to demonstrate to executives of the
Company that the Company is concerned with the welfare of its executives and
intends to see that loyal executives are treated fairly;
NOW, THEREFORE, to assure the Company that it will have your continued
dedication and the availability of your advice and counsel notwithstanding the
possibility, threat or occurrence of a bid to take over control of the Company,
and to induce you to remain in the employ of the Company, and for other good and
valuable consideration, the Company and you agree as follows:
1. Employee's Undertaking. You agree that, in the event that any Person begins a
tender or exchange offer, circulates a proxy to the Company's stockholders or
takes other steps to effect a
<PAGE> 2
Change of Control, you will not voluntarily leave the employ of the Company and
will faithfully and diligently render the services contemplated in the recitals
to this Agreement until such Person has abandoned or terminated his efforts to
effect a Change of Control or until a Change of Control has occurred.
2. Severance Benefits. In the event that, within twenty-four (24) months after a
Change of Control, your employment with the Company is terminated for any reason
other than for Cause or death or disability or you terminate your employment for
Good Reason, the Company will provide you the following severance pay and
benefits, subject to your continued performance under this Agreement and to the
further provisions of this Agreement:
2.1 Within thirty (30) days of such termination of employment, the
Company will pay your annual base salary accrued through the date of such
termination to the extent not theretofore paid and a prorated portion of any
bonus payable for the fiscal year in which the date of termination occurs.
2.2 So long as you are not in breach of any provision of this
Agreement, the Company will provide you severance pay following the termination
of your employment (i) for a period equal to the number of months that you have
been employed by the Company, not to exceed twenty four (24) months or (ii)
until you secure other employment, whichever is less (the "Severance Payment
Period"). Monthly severance pay shall equal one twenty-fourth (1/24) of your
total base salary and cash bonus compensation for the last two years of your
employment, provided, however, that if you have been employed by the Company for
less than two years, such monthly severance pay shall equal the quotient of (i)
the total base salary and cash bonus compensation paid to you during your
employment with the Company and (ii) the total number of months that you have
been employed by the Company, which for purposes hereof shall include the month
of termination. Severance payments shall be made in accordance with the
Company's regular payroll practices and shall be reduced by taxes and all other
legally-required deductions.
2.3 If you elect to continue your participation and that of your
eligible dependents in the Company's group health plans in accordance with
applicable federal law following termination of your employment, then, for a
period of twenty-four (24) months from the date your employment terminates or
until you become eligible for coverage under the group health plans of another
employer, whichever is less, the Company will pay the premiums for such
participation ; provided , however, that if your continued participation in the
Company's group health plans is not possible under the terms of those plans, the
Company shall instead arrange to provide you and your dependents substantially
similar benefits upon comparable terms or pay you an amount equal to the full
cash value thereof in cash. Your participation in all other employee benefits
plans will cease on the date your employment terminates, in accordance with the
terms of those plans.
3. Stock Options. Notwithstanding any provision of any stock option or
comparable plan of the Company or option agreements thereunder, all options
granted you under such plans and not then exercised, expired, surrendered or
canceled shall vest immediately prior to a Change in
-2-
<PAGE> 3
Control, except in the event that such vesting would preclude the pooling method
of accounting for the specific transaction that resulted in such Change in
Control.
4. Competitive Activities and Other Claims.
4.1 You agree that at any time during the Severance Payment Period, you
will not, directly or indirectly, whether as owner, partner, investor,
consultant, agent, employee or otherwise, compete with the business of the
Company or any of its subsidiaries or affiliates or undertake any active
planning for any business competitive with that of the Company or any of its
subsidiaries or affiliates in any geographic area in which the Company does
business or is formally planning at any time prior to the termination of your
employment to do business, without the prior written consent of the Board.
4.2 In the event of termination of your employment under the
circumstances described herein, the arrangements provided for by this Agreement,
by any stock option or other written agreement between you and the Company in
effect at that time and by any applicable employee benefit plans of the Company
in effect at that time (in each case as modified by this Agreement) will
constitute the entire obligation of the Company to you and performance by the
Company will constitute full settlement of any claim that you might otherwise
assert against the Company or any of its subsidiaries or affiliates on account
of such termination.
5. Confidentiality.
You acknowledge that the Company and its subsidiaries and affiliates
continually develop Confidential Information, that you may develop Confidential
Information for the Company or its subsidiaries and affiliates, and that you may
learn of Confidential Information during the course of employment. You agree
that all Confidential Information that you create or to which you have access as
a result of your employment is and shall remain the sole and exclusive property
of the Company and that you will comply with the policies and procedures of the
Company and its subsidiaries and affiliates for protecting Confidential
Information. You further agree that, except as required for the proper
performance of your duties for the Company or as required by applicable law (and
then only to the extent required), you will not, directly or indirectly, use for
your own benefit or gain, or assist others in the application of or disclose any
Confidential Information. You understand and agree that these restrictions will
continue to apply after your employment terminates, regardless of the reason for
termination and regardless of whether you are receiving or are entitled to
receive any payments or other benefits under this Agreement.
6. Enforceability and Remedies.
6.1 You agree that the restrictions on, and other provisions relating
to, your activities contained in this Agreement are fully reasonable and
necessary to protect the goodwill, Confidential Information and other legitimate
interests of the Company. You also acknowledge and agree that, were you to
breach the provisions of this Agreement, the harm to the Company
-3-
<PAGE> 4
would be irreparable. You therefore agree that in the event of such a breach or
threatened breach the Company shall, in addition to any other remedies available
to it, have the right to obtain preliminary and permanent injunctive relief
against any such breach without having to post bond. You further agree that, in
addition to any other relief awarded to the Company as a result of your breach
of any of the provisions of this Agreement, the Company shall be entitled to
recover all payments made to you or on your behalf hereunder.
6.2 You hereby agree that in the event any provision of this Agreement
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its being extended over too long a time, too large a geographic
area or too great a range of activities, such provision shall be deemed to be
modified to permit its enforcement to the maximum extent permitted by law.
7. Definitions. Words or phrases which are initially capitalized or within
quotation marks shall have the meanings provided in this Section 7 and as
provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
7.1 "Cause" shall mean (i) the commission of fraud, embezzlement, theft
or other dishonesty in the performance of your duties for, or responsibilities
to, the Company and (ii) willful, or repeated and negligent, failure to
adequately perform your duties for, or responsibilities to, the Company after
reasonable notice from the Board setting forth in reasonable detail the nature
of such failure and you shall not have remedied such failure within ten (10)
days of receiving such notice. Any act, or failure to act, based on authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer or based on the advice of counsel of
the Company shall be conclusively presumed to be done, or omitted to be done, by
you in good faith and in the best interest of the Company.
7.2. Change of Control" shall be deemed to take place if hereafter (i)
any Person (other than any Person which is a holder of the Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock or Series C Convertible
Preferred Stock on the date hereof) becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Act) of securities of the Company representing more than
50% of the combined voting power of the Company's then-outstanding securities,
(ii) the Company is a party to a merger, consolidation, sale of assets or other
reorganization, or a proxy contest, as a consequence of which members of the
Board in office immediately prior to such transaction or event constitute less
than a majority of the Board thereafter, or (iii) individuals who, at the date
hereof, constitute the Board (the "Continuing Directors") cease for any reason
to constitute a majority thereof, provided, however, that any director who is
not in office at the date hereof but whose election by the Board or whose
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the date hereof or whose election or nomination for election was
previously so approved shall be deemed to be a Continuing Director for purposes
of this Agreement. Notwithstanding the foregoing provisions of this paragraph, a
"Change of Control" will not be deemed to have occurred solely because of (i)
the
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<PAGE> 5
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employment benefit plan maintained by the Company
for its employees or (ii) the occurrence of leveraged buy-out or
recapitalization of the Company in which Executive participates as an equity
investor.
7.3 "Confidential Information" means any and all information of the
Company, its subsidiaries and affiliates that is not generally known by others
with whom they compete or do business, or with whom they plan to compete or do
business and any and all information, publicly known in whole or in part or not,
which, if disclosed by the Company or any of its subsidiaries or affiliates,
would assist in competition against any of them. Confidential Information
includes without limitation such information relating to (i) the financial
performance and strategic plans of the Company, its subsidiaries and affiliates,
(ii) the identity and special needs of their customers and the structure of any
contractual relationship with such customers and (iii) the people and
organizations with whom they have business relationships and those
relationships. Confidential Information also includes any and all information
that the Company or any of its subsidiaries or affiliates has received from
others with any understanding that it would not be disclosed.
7.4 "Good Reason" means any substantial diminution in your base salary
or position or nature or scope of responsibilities (other than by inadvertence)
as to which you have provided written notice to the Board within thirty (30)
days of the date on which you knew or reasonably should have known of such
diminution, which notice shall set forth in reasonable detail the nature of such
Good Reason and the Board shall not have remedied such diminution within ten
(10) days of receiving such written notice.
7.5 "Person" means an individual, a corporation, an association, a
partnership, an estate, a trust or other entity or organization (including a
"group" as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended), other than the Company or any of its subsidiaries or
affiliates.
8. Assignment. Neither the Company nor you may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without your consent in
the event that the Company shall hereafter affect a reorganization, or
consolidate with, or merge into any Person or other entity or transfer all or
substantially all of its property or assets to any Person. This Agreement shall
inure to the benefit of and be binding upon the Company, its successors
(including without limitation any transferee of all or substantially all of its
assets) and permitted assigns and upon you, your executors, administrators,
heirs and permitted assigns.
In the event of any merger, consolidation, or sale of assets as
described above, nothing contained in this Agreement will detract from or
otherwise limit your right to participate or privilege of participation in any
stock option or purchase plan or any bonus, profit sharing, pension, group
insurance, hospitalization, or other incentive or benefit plan or arrangement
which
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<PAGE> 6
may be or become applicable to executives of the corporation resulting from such
merger or consolidation or the corporation acquiring such assets of the Company.
In the event of any merger, consolidation or sale of assets as
described above, references to the Company in this Agreement, shall unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
All payments required to be made, or other benefits required to be
provided, by the Company hereunder to you or your dependents, beneficiaries, or
estate will be subject to the withholding of such amounts relating to tax and/or
other payroll deductions as may be required by law.
9. Notices. Any and all notices, requests, demands, acceptances, appointments
and other communications provided for by this Agreement shall be in writing
(including telex, telecopy or similar tele-transmission) and shall be effective
when actually delivered in person or, if mailed, five (5) days after having been
deposited in the United States mail, postage prepaid, registered or certified
and addressed to you at your last known address on the books of the Company or,
in the case of the Company, addressed to its principal place of business,
attention of Chief Executive Officer, or to such other address as either party
may specify by notice to the other.
10. Miscellaneous. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement. This Agreement may not be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in a
writing signed by you and such officer as may be specifically designated by the
Board. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of The Commonwealth of Massachusetts.
This Agreement may be executed in two or more counterparts, each of which shall
be an original and all of which together constitute one and the same instrument.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the fullest extent possible.
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<PAGE> 7
If you are in agreement with the foregoing, please so indicate by
signing and returning to me the original of this Agreement, whereupon this
Agreement shall constitute a binding agreement between you and the Company.
The second copy is for your records.
Very truly yours,
BRIGHT HORIZONS, INC.
/s/ Roger H. Brown
------------------------------------
Name: Roger H. Brown
Title: Chief Executive Officer
ACCEPTED AND AGREED:
Signature: /s/ Nancy Rosenzweig
---------------------
Date: February 9, 1998
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<PAGE> 1
EXHIBIT 10.21
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into as of the ____ day of
_____________, 1998, by and between BRIGHT HORIZONS FAMILY SOLUTIONS, INC., a
Delaware corporation (the "Company"), and the undersigned (the "Indemnitee").
RECITALS
WHEREAS, it is essential to the Company that it attract and retain as
directors and officers the most capable persons available; and
WHEREAS, both the Company and Indemnitee recognize the increased risk
of litigation and other claims being asserted against directors and officers of
public companies in the current environment; and
WHEREAS, the Indemnitee currently is serving as a director or officer
of the Company, and the Company desires that the Indemnitee continue to serve in
such capacity. The Indemnitee is willing to continue to serve in such capacity
if the Indemnitee is adequately protected against the risks associated with such
service; and
WHEREAS, the Company and the Indemnitee have concluded that the
indemnities available under the Company's certificate of incorporation, bylaws
and any insurance now or hereafter in effect need to be supplemented to more
fully protect the Indemnitee against the risks associated with the Indemnitee's
service to the Company; and
WHEREAS, in recognition of Indemnitee's need for additional protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and in order to induce Indemnitee to
continue to provide services to the Company as a director or officer thereof,
the Company wishes to provide in this Agreement for the indemnification of
Indemnitee to the fullest extent permitted by law and as set forth in this
Agreement.
NOW THEREFORE, in consideration of the foregoing, the covenants
contained herein and Indemnitee's continued service to the Company, the Company
and Indemnitee, intending to be legally bound, hereby agree as follows:
Section 1. Definitions. The following terms, as used herein, shall have
the following respective meanings:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings relative to the
foregoing.
"Change in Control" shall be deemed to have taken place if: (i)any
person or entity, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, other than the Company or a wholly-owned
subsidiary thereof or any employee benefit plan of the Company or any of its
subsidiaries, becomes the beneficial owner of the Company securities having 35%
or more of the combined voting power
<PAGE> 2
of the then outstanding securities of the Company that may be cast for the
election of directors of the Company (other than as a result of an issuance of
securities initiated by Company in the ordinary course of business); or (ii) as
the result of, or in connection with, any cash tender or exchange offer, merger
or other business combination, sale of substantially all of the assets or
contested election, or any combination of the foregoing transactions less than a
majority of the combined voting power of the then-outstanding securities of the
Company or any successor corporation or entity entitled to vote generally in the
election of the directors of the Company or such other corporation or entity
after such transaction is held in the aggregate by the holders of the Company
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or (iii) during any period of two
consecutive years, individuals who at the beginning of any such period
constitute the Board of Directors of the Company cease for any reason to
constitute at least a majority thereof, unless the election, or the nomination
for election by the Company's stockholders, of each director of the Company
first elected during such period was approved by a vote of at least two-thirds
of the directors of the Company then still in office who were directors of the
Company at the beginning of any such period.
"Claim" means (a) any threatened, pending or completed action, suit,
proceeding or arbitration or other alternative dispute resolution mechanism, or
(b) any inquiry, hearing or investigation, whether conducted by the Company or
any other Person, that Indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or arbitration or other
alternative dispute resolution mechanism, in each case whether civil, criminal,
administrative or other (whether or not the claims or allegations therein are
groundless, false or fraudulent) and includes, without limitation, those brought
by or in the name of the Company or any director or officer of the Company.
"Company Agent" means any director, officer, partner, employee, agent,
trustee or fiduciary of the Company, any Subsidiary or any Other Enterprise.
"Covered Event" means any event or occurrence on or after the date of
this Agreement related to the fact that Indemnitee is or was a Company Agent or
related to anything done or not done by Indemnitee in any such capacity, and
includes, without limitation, any such event or occurrence (a) arising from
performance of the responsibilities, obligations or duties imposed by ERISA or
any similar applicable provisions of state or common law, or (b) arising from
any merger, consolidation or other business combination involving the Company,
any Subsidiary or any Other Enterprise, including without limitation any sale or
other transfer of all or substantially all of the business or assets of the
Company, any Subsidiary or any Other Enterprise.
"D&O Insurance" means the directors' and officers' liability insurance
described on Exhibit l to this Agreement and any replacement or substitute
policies issued by one or more reputable insurers providing in all respects
coverage at least comparable to and in the same amount as that provided under
the insurance described on Exhibit 1.
"Determination" means a determination made by (a) a majority vote of
Disinterested Directors even if less than a quorum; (b) Independent Legal
Counsel, in a written opinion addressed to the Company and Indemnitee; (c) the
stockholders of the Company; or (d) a decision by a court of competent
jurisdiction not subject to further appeal.
"Disinterested Director" shall be a director of the Company who is not
or was not a party to the Claim giving rise to the subject matter of a
Determination.
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<PAGE> 3
"Expenses" includes attorneys' fees and all other costs, travel
expenses, fees of experts, transcript costs, filing fees, witness fees,
telephone charges, postage, copying costs, delivery service fees and other
expenses and obligations of any nature whatsoever paid or incurred in connection
with investigating, prosecuting or defending, being a witness in or
participating in (including on appeal), or preparing to prosecute or defend, be
a witness in or participate in any Claim, for which Indemnitee is or becomes
legally obligated to pay.
"Independent Legal Counsel" shall mean a law firm or a member of a law
firm that (a) neither is nor in the past five years has been retained to
represent in any material matter the Company, any Subsidiary, Indemnitee or any
other party to the Claim, (b) under applicable standards of professional conduct
then prevailing would not have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights to
indemnification under this Agreement and (c) is reasonably acceptable to the
Company and Indemnitee.
"Loss" means any amount which Indemnitee is legally obligated to pay as
a result of any Claim, including, without limitation (a) all judgments,
penalties and fines, and amounts paid or to be paid in settlement, (b) all
interest, assessments and other charges paid or payable in connection therewith
and (c) any federal, state, local or foreign taxes imposed (net of the value to
Indemnitee of any tax benefits resulting from tax deductions or otherwise as a
result of the actual or deemed receipt of any payments under this Agreement,
including the creation of the Trust).
"Other Enterprise" means any corporation (other than the Company or any
Subsidiary), partnership, joint venture, association, employee benefit plan,
trust or other enterprise or organization to which Indemnitee renders service at
the request of the Company or any Subsidiary.
"Parent" shall have the meaning set forth in the regulations of the
Securities and Exchange Commission under the Securities Act of 1933, as amended;
provided the term "Parent" shall not include the board of directors of a
corporation in its capacity as a board of directors, and provided further that
if the other party to any transaction referred to in Section 12.1.2 has no
Parent as so defined above, "Parent" shall mean such other party.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (or any subdivision, department, commission or agency thereof), and
includes without limitation any "person", as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended.
"Potential Change in Control" shall be deemed to have occurred if (a)
the Company enters into an agreement or arrangement the consummation of which
would result in the occurrence of a Change in Control, (b) any Person (including
the Company) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change in Control or (c) the
Board of Directors of the Company adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
"Subsidiary" means any corporation of which more than 50% of the
outstanding stock having ordinary voting power to elect a majority of the board
of directors of such corporation is now or hereafter owned, directly or
indirectly, by the Company.
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<PAGE> 4
"Trust" has the meaning set forth in Section 9.2.
"Voting Securities" means any securities of the Company which vote
generally in the election of directors.
Section 2. Indemnification
2.1. General Indemnity Obligation.
2.1.1. Subject to the remaining provisions of this Agreement,
the Company hereby indemnifies and holds Indemnitee harmless for any Losses or
Expenses arising from any Claims relating to (or arising in whole or in part out
of) any Covered Event, including without limitation, any Claim the basis of
which is any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or attempted by Indemnitee in
the capacity as a Company Agent, whether or not Indemnitee is acting or serving
in such capacity at the date of this Agreement, at the time liability is
incurred or at the time the Claim is initiated.
2.1.2. The obligations of the Company under this Agreement
shall apply to the fullest extent authorized or permitted by the provisions of
applicable law, as presently in effect or as changed after the date of this
Agreement, whether by statute or judicial decision (but, in the case of any
subsequent change, only to the extent that such change permits the Company to
provide broader indemnification than permitted prior to giving effect thereto).
2.1.3. Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by Indemnitee
against the Company or any director or officer of the Company, unless the
Company has joined in or consented to the initiation of such Claim; provided,
the provisions of this Section 2.1.3 shall not apply (i) following a Change in
Control to Claims seeking enforcement of this Agreement, the Certificate of
Incorporation or Bylaws of the Company or any other agreement now or hereafter
in effect relating to indemnification for Covered Events or (ii) absent a Change
in Control, to Claims seeking enforcement of this Agreement, the Certificate of
Incorporation or Bylaws of the Company or any other agreement now or hereafter
in effect relating to indemnification for Covered Events, but only if the
Indemnitee is ultimately determined to be entitled to indemnification.
2.1.4. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the Losses
or Expenses paid with respect to a Claim but not, however, for the total amount
thereof, the Company shall nevertheless indemnify and hold Indemnitee harmless
against the portion thereof to which Indemnitee is entitled.
2.1.5. Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating to (or arising in whole or in part out of)
a Covered Event or in defense of any issue or matter therein, including
dismissal without prejudice, the Company shall indemnify and hold Indemnitee
harmless against all Expenses incurred in connection therewith.
2.2. Indemnification for Serving as Witness and Certain Other Claims.
Notwithstanding any other provision of this Agreement, the Company hereby
indemnifies and holds Indemnitee harmless for all Expenses in connection with
(a) the preparation to serve or service as a witness in any Claim in which
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<PAGE> 5
Indemnitee is not a party, if such actual or proposed service as a witness arose
by reason of Indemnitee having served as a Company Agent on or after the date of
this Agreement and (b) any Claim initiated by Indemnitee on or after the date of
this Agreement (i) for recovery under any directors' and officers' liability
insurance maintained by the Company; (ii) following a Change in Control, for
enforcement of the indemnification obligations of the Company under this
Agreement, the Certificate of Incorporation or Bylaws of the Company or any
other agreement now or hereafter in effect relating to indemnification for
Covered Events, regardless of whether Indemnitee ultimately is determined to be
entitled to such insurance recovery or indemnification, as the case may be; or
(iii) absent a Change in Control, for enforcement of this Agreement, the
Certificate of Incorporation or Bylaws of the Company or any other agreement now
or hereafter in effect relating to indemnification for Covered Events, but only
if the Indemnitee is ultimately determined to be entitled to indemnification.
Section 3. Limitation on Indemnification.
3.1. Coverage Limitations. No indemnification is available pursuant to
the provisions of this Agreement:
3.1.1. If such indemnification is not lawful;
3.1.2. If Indemnitee's conduct giving rise to the Claim with
respect to which indemnification is requested was knowingly fraudulent, a
knowing violation of law, deliberately dishonest or in bad faith or constituted
willful misconduct;
3.1.3. In respect of any Claim based upon or attributable to
Indemnitee gaining in fact any personal profit or advantage to which Indemnitee
was not legally entitled;
3.1.4. In respect of any Claim based upon or in connection
with a proceeding by or in the right of the Company in which Indemnitee was
adjudged liable to the Company; or
3.1.5. In respect of any Claim for an accounting of profits
made from the purchase or sale by Indemnitee of securities of the Company within
the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended.
3.2. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment otherwise due and payable to the extent
Indemnitee has otherwise actually received payment (whether under the
Certificate of Incorporation or the Bylaws of the Company, the D&O Insurance or
otherwise) of any amounts otherwise due and payable under this Agreement.
Section 4. Payments and Determinations.
4.1. Advancement and Reimbursement of Expenses. If requested by
Indemnitee, the Company shall advance to Indemnitee, no later than two business
days following any such request, any and all Expenses for which indemnification
is available under Section 2. In order to obtain such advancement or
reimbursement, the Indemnitee must also furnish to the Company a written
affirmation of his good faith belief that he has conducted himself in good faith
and that he reasonably believed that: (1) In the case of conduct in his official
capacity with the corporation, that his conduct was in its best interest; and
(2) in all other cases, that his conduct was at least not opposed to its best
interests; and (3) in the case of any criminal proceeding, he had
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<PAGE> 6
no reasonable cause to believe his conduct was unlawful. In addition, Indemnitee
must furnish to the Company a written undertaking, executed personally or on his
behalf, to repay the advance if it is ultimately determined that he is not
entitled to indemnification. Upon any Determination that Indemnitee is not
permitted to be indemnified for any Expenses so advanced, Indemnitee hereby
agrees to reimburse the Company (or, as appropriate, any Trust established
pursuant to Section 9.2) for all such amounts previously paid. Such obligation
of reimbursement shall be unsecured and no interest shall be charged thereon.
4.2. Payment and Determination Procedures.
4.2.1. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, together with such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
4.2.2. Upon written request by Indemnitee for indemnification
pursuant to Section 4.2.1, a Determination with respect to Indemnitee's
entitlement thereto shall be made in the specific case (a) if a Change in
Control shall have occurred, as provided in Section 9.1; and (b) if a Change in
Control shall not have occurred, by (i) the Board of Directors by a majority
vote of Disinterested Directors, (ii) Independent Legal Counsel, if either (A)
there are no Disinterested Directors or (B) a majority vote of Disinterested
Directors otherwise so directs or (iii) the stockholders of the Company (if
submitted by the Board of Directors) but shares of stock owned by or voted under
the control of any Indemnitee who is at the time party to the proceeding may not
be voted. If a Determination is made that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within 10 days after such
Determination.
4.2.3. If no Determination is made within 60 days after
receipt by the Company of a request for indemnification by Indemnitee pursuant
to Section 4.2.1, a Determination shall be deemed to have been made that
Indemnitee is entitled to the requested indemnification (and the Company shall
pay the related Losses and Expenses no later than 10 days after the expiration
of such 60-day period), except where such indemnification is not lawful;
provided, however, that (a) such 60-day period may be extended for a reasonable
time, not to exceed an additional 30 days, if the Person or Persons making the
Determination in good faith require such additional time for obtaining or
evaluating the documentation and information relating thereto; and (b) the
foregoing provisions of this Section 4.2.3 shall not apply (i) if the
Determination is to be made by the stockholders of the Company and if (A) within
15 days after receipt by the Company of the request by Indemnitee pursuant to
Section 4.2.1 the Board of Directors has resolved to submit such Determination
to the stockholders at an annual meeting of the stockholders to be held within
75 days after such receipt, and such Determination is made at such annual
meeting, or (B) a special meeting of stockholders is called within 15 days after
such receipt for the purpose of making such Determination, such meeting is held
for such purpose within 60 days after having been so called and such
Determination is made at such special meeting, or (ii) if the Determination is
to be made by Independent Legal Counsel.
Section 5. D & O Insurance.
5.1. Current Policies. The Company hereby represents and warrants to
Indemnitee that Exhibit 1 contains a complete and accurate description of the
D&O Insurance and that such insurance is in full force and effect.
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<PAGE> 7
5.2. Continued Coverage. The Company shall maintain, to the extent
practicable, the D&O Insurance for so long as this Agreement remains in effect.
The Company shall cause the D&O Insurance to cover Indemnitee, in accordance
with its terms and at all times such insurance is in effect, to the maximum
extent of the coverage provided thereby for any director or officer of the
Company.
5.3. Indemnification. In the event of any reduction in, or cancellation
of, the D&O Insurance (whether voluntary or involuntary on behalf of the
Company), the Company shall, and hereby agrees to, indemnify and hold Indemnitee
harmless against any Losses or Expenses which Indemnitee is or becomes obligated
to pay as a result of the Company's failure to maintain the D&O Insurance in
effect in accordance with the provisions of Section 5.2, to the fullest extent
permitted by applicable law, notwithstanding any provision of the Certificate of
Incorporation or the Bylaws of the Company, or any other agreement now or
hereafter in effect relating to indemnification for Covered Events. The
indemnification available under this Section 5.3 is in addition to all other
obligations of indemnification of the Company under this Agreement and shall be
the only remedy of Indemnitee for a breach by the Company of its obligations set
forth in Section 5.2.
Section 6. Subrogation. In the event of any payment under this
Agreement to or on behalf of Indemnitee, the Company shall be subrogated to the
extent of such payment to all of the rights of recovery of Indemnitee against
any Person other than the Company or Indemnitee in respect of the Claim giving
rise to such payment. Indemnitee shall execute all papers reasonably required
and shall do everything reasonably necessary to secure such rights, including
the execution of such documents reasonably necessary to enable the Company
effectively to bring suit to enforce such rights.
Section 7. Notification and Defense of Claims.
7.1. Notice by Indemnitee. Indemnitee shall give notice in writing to
the Company as soon as practicable after Indemnitee becomes aware of any Claim
with respect to which indemnification will or could be sought under this
Agreement; provided the failure of Indemnitee to give such notice, or any delay
in giving such notice, shall not relieve the Company of its obligations under
this Agreement except to the extent the Company is actually prejudiced to any
such failure or delay.
7.2. Insurance. The Company shall give prompt notice of the
commencement of any Claim relating to Covered Events to the insurers on the D&O
Insurance, if any, in accordance with the procedures set forth in the respective
policies in favor of Indemnitee. The Company shall thereafter take all necessary
action to cause such insurers to pay, on behalf of Indemnitee, all amounts
payable as a result of such Claims in accordance with the terms of such
policies.
7.3. Defense.
7.3.1. In the event any Claim relating to Covered Events is by
or in the right of the Company, Indemnitee may, at the option of Indemnitee,
either control the defense thereof or accept the defense provided under the D&O
Insurance; provided, however, that Indemnitee may not control the defense if
such decision would jeopardize the coverage provided by the D&O Insurance, if
any, to the Company or the other directors and officers covered thereby, and
also provided that the amounts expended by the Company shall be reimbursed to
the Company by the Indemnitee if the standards and requirements of Section 145
of the Delaware General Corporation Law so require.
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<PAGE> 8
7.3.2. In the event any Claim relating to Covered Events is
other than by or in the right of the Company, Indemnitee may, at the option of
Indemnitee, either control the defense thereof, require the Company to defend or
accept the defense provided under the D&O Insurance; provided, however, that
Indemnitee may not control the defense or require the Company to defend if such
decision would jeopardize the coverage provided by the D&O Insurance to the
Company or the other directors and officers covered thereby. In the event that
Indemnitee requires the Company to so defend, or in the event that Indemnitee
proceeds under the D&O Insurance but Indemnitee determines that such insurers
under the D&O Insurance are unable or unwilling to adequately defend Indemnitee
against any such Claim, the Company shall promptly undertake to defend any such
Claim, at the Company's sole cost and expense, utilizing counsel of Indemnitee's
choice who has been approved by the Company. If appropriate, the Company shall
have the right to participate in the defense of any such Claim.
7.3.3. In the event the Company shall fail, as required by any
election by Indemnitee pursuant to Section 7.3.2, timely to defend Indemnitee
against any such Claim, Indemnitee shall have the right to do so, including
without limitation, the right (notwithstanding Section 7.3.4) to make any
settlement thereof, and to recover from the Company, to the extent otherwise
permitted by this Agreement, all Expenses and Losses paid as a result thereof.
7.3.4. The Company shall have no obligation under this
Agreement with respect to any amounts paid or to be paid in settlement of any
Claim without the express prior written consent of the Company to any related
settlement. In no event shall the Company authorize any settlement imposing any
liability or other obligations on Indemnitee without the express prior written
consent of Indemnitee. Neither the Company nor Indemnitee shall unreasonably
withhold consent to any proposed settlement.
Section 8. Determinations and Related Matters.
8.1. Presumptions.
8.1.1. If a Change in Control shall have occurred, Indemnitee
shall be entitled to a rebuttable presumption that Indemnitee is entitled to
indemnification under this Agreement and the Company shall have the burden of
proof in rebutting such presumption.
8.1.2. The termination of any claim by judgment, order,
settlement (whether with or without court approval) or conviction, or upon a
plea of nolo contendere or its equivalent, shall not adversely affect either the
right of Indemnitee to indemnification under this Agreement or the presumptions
to which Indemnitee is otherwise entitled pursuant to the provisions of this
Agreement nor create a presumption that Indemnitee did not meet any particular
standard of conduct or have a particular belief or that a court has determined
that indemnification is not permitted by applicable law.
8.2. Appeals; Enforcement.
8.2.1. In the event that (a) a Determination is made that
Indemnitee shall not be entitled to indemnification under this Agreement, (b)
any Determination to be made by Independent Legal Counsel is not made within 90
days of receipt by the Company of a request for indemnification pursuant to
Section 4.2.1 or (c) the Company fails to otherwise perform any of its
obligations under this Agreement (including, without limitation, its obligation
to make payments to Indemnitee following any Determination made or deemed to
have been made that such payments are appropriate), Indemnitee shall have the
right to commence
8
<PAGE> 9
a Claim in any court of competent jurisdiction, as appropriate, to seek a
Determination by the court, to challenge or appeal any Determination which has
been made, or to otherwise enforce this Agreement. If a Change of Control shall
have occurred, Indemnitee shall have the option to have any such Claim conducted
by a single arbitrator pursuant to the rules of the American Arbitration
Association. Any such judicial proceeding challenging or appealing any
Determination shall be deemed to be conducted de novo and without prejudice by
reason of any prior Determination to the effect that Indemnitee is not entitled
to indemnification under this Agreement. Any such Claim shall be at the sole
expense of Indemnitee except as provided in Section 9.3.
8.2.2. If a Determination shall have been made or deemed to
have been made pursuant to this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such Determination in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2,
except if such indemnification is unlawful.
8.2.3. The Company shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section 8.2 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement. The Company
hereby consents to service of process and to appear in any judicial or
arbitration proceedings and shall not oppose Indemnitee's right to commence any
such proceedings.
8.3. Procedures. Indemnitee shall cooperate with the Company and with
any Person making any Determination with respect to any Claim for which a claim
for indemnification under this Agreement has been made, as the Company may
reasonably require. Indemnitee shall provide to the Company or the Person making
any Determination, upon reasonable advance request, any documentation or
information reasonably available to Indemnitee and necessary to (a) the Company
with respect to any such Claim or (b) the Person making any Determination with
respect thereto.
Section 9. Change in Control Procedures.
9.1. Determinations. If there is a Change in Control, any Determination
to be made under Section 4 shall be made by Independent Legal Counsel selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). The Company shall pay the reasonable fees of the
Independent Legal Counsel and indemnify fully such Independent Legal Counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or the engagement of
Independent Legal Counsel pursuant hereto.
9.2. Establishment of Trust. Following the occurrence of any Potential
Change in Control, the Company, upon receipt of a written request from
Indemnitee, shall create a Trust (the "Trust") for the benefit of Indemnitee,
the trustee of which shall be a bank or similar financial institution with trust
powers chosen by Indemnitee. From time to time, upon the written request of
Indemnitee, the Company shall fund the Trust in amounts sufficient to satisfy
any and all Losses and Expenses reasonably anticipated at the time of each such
request to be incurred by Indemnitee for which indemnification may be available
under this Agreement. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be determined by mutual
agreement of Indemnitee and the Company or, if the Company and Indemnitee are
unable to reach such an agreement, or, in any event, a Change in Control has
occurred by Independent Legal
9
<PAGE> 10
Counsel (selected pursuant to Section 9.1). The terms of the Trust shall provide
that, except upon the prior written consent of Indemnitee and the Company, (a)
the Trust shall not be revoked or the principal thereof invaded, other than to
make payments to unsatisfied judgment creditors of the Company, (b) the Trust
shall continue to be funded by the Company in accordance with the funding
obligations set forth in this Section, (c) the Trustee shall promptly pay or
advance to Indemnitee any amounts to which Indemnitee shall be entitled pursuant
to this Agreement, and (d) all unexpended funds in the Trust shall revert to the
Company upon a Determination by Independent Legal Counsel (selected pursuant to
Section 9.1) or a court of competent jurisdiction that Indemnitee has been fully
indemnified under the terms of this Agreement. All income earned on the assets
held in the trust shall be reported as income by the Company for federal, state,
local and foreign tax purposes.
9.3. Expenses. Following any Change in Control, the Company shall be
liable for, and shall pay the Expenses paid or incurred by Indemnitee in
connection with the making of any Determination (irrespective of the
determination as to Indemnitee's entitlement to indemnification) or the
prosecution of any Claim pursuant to Section 8.2, and the Company hereby agrees
to indemnify and hold Indemnitee harmless therefrom. If requested by counsel for
Indemnitee, the Company shall promptly give such counsel an appropriate written
agreement with respect to the payment of its fees and expenses and such other
matters as may be reasonably requested by such counsel.
Section 10. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or in the right of the Company, any
Subsidiary, any Other Enterprise or any Affiliate of the Company against
Indemnitee or Indemnitee's spouse, heirs, executors, administrators or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company, any Subsidiary, any Other Enterprise or any Affiliate of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such two-year period; provided, however, that if any
shorter period of limitations, whether established by statute or judicial
decision, is otherwise applicable to any such cause of action such shorter
period shall govern.
Section 11. Contribution. If the indemnification provisions of this
Agreement should be unenforceable under applicable law in whole or in part or
insufficient to hold Indemnitee harmless in respect of any Losses and Expenses
incurred by Indemnitee, then for purposes of this Section 11, the Company shall
be treated as if it were, or was threatened to be made, a party defendant to the
subject Claim and the Company shall contribute to the amounts paid or payable by
Indemnitee as a result of such Losses and Expenses incurred by Indemnitee in
such proportion as is appropriate to reflect the relative benefits accruing to
the Company on the one hand and Indemnitee on the other and the relative fault
of the Company on the one hand and Indemnitee on the other in connection with
such Claim, as well as any other relevant equitable considerations. For purposes
of this Section 11 the relative benefit of the Company shall be deemed to be the
benefits accruing to it and to all of its directors, officers, employees and
agents (other than Indemnitee) on the one hand, as a group and treated as one
entity, and the relative benefit of Indemnitee shall be deemed to be an amount
not greater than the Indemnitee's yearly base salary or Indemnitee's
compensation from the Company during the first year in which the Covered Event
forming the basis for the subject Claim was alleged to have occurred. The
relative fault shall be determined by reference to, among other things, the
fault of the Company and all of its directors, officers, employees and agents
(other than Indemnitee) on the one hand, as a group and treated as one entity,
and Indemnitee's and such group's relative intent, knowledge, access to
information and opportunity to have altered or prevented the Covered Event
forming the basis for the subject Claim.
10
<PAGE> 11
Section 12. Miscellaneous Provisions.
12.1. Successors and Assigns, Etc.
12.1.1. This Agreement shall be binding upon and inure to the
benefit of (a) the Company, its successors and assigns (including any direct or
indirect successor by merger, consolidation or operation of law or by transfer
of all or substantially all of its assets) and (b) Indemnitee and the heirs,
personal and legal representatives, executors, administrators or assigns of
Indemnitee.
12.1.2. The Company shall not consummate any consolidation,
merger or other business combination, nor will it transfer 50% or more of its
assets (in one or a series of related transactions), unless the ultimate Parent
of the successor to the business or assets of the Company shall have first
executed an agreement, in form and substance satisfactory to Indemnitee, to
expressly assume all obligations of the Company under this Agreement and agree
to perform this Agreement in accordance with its terms, in the same manner and
to the same extent that the Company would be required to perform this Agreement
if no such transaction had taken place; provided that, if the Parent is not the
Company, the legality of payment of indemnity by the Parent shall be determined
by reference to the fact that such indemnity is to be paid by the Parent rather
than the Company.
12.2. Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held by any court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
deemed to be modified to the minimum extent necessary to avoid a violation of
law and, as so modified, such provision and the remaining provisions shall
remain valid and enforceable in accordance with their terms to the fullest
extent permitted by law.
12.3. Rights Not Exclusive; Continuation of Right of Indemnification.
Nothing in this Agreement shall be deemed to diminish or otherwise restrict
Indemnitee's right to indemnification pursuant to any provision of the
Certificate of Incorporation or Bylaws of the Company, any agreement, vote of
stockholders or Disinterested Directors, applicable law or otherwise. This
Agreement shall be effective as of the date first above written and continue in
effect until no Claims relating to any Covered Event may be asserted against
Indemnitee and until any Claims commenced prior thereto are finally terminated
and resolved, regardless of whether Indemnitee continues to serve as a director
of the Company, any Subsidiary or any Other Enterprise.
12.4. No Employment Agreement. Nothing contained in this Agreement
shall be construed as giving Indemnitee any right to be retained in the employ
of the Company, any Subsidiary or any Other Enterprise.
12.5. Subsequent Amendment. No amendment, termination or repeal of any
provision of the Certificate of Incorporation or Bylaws of the Company, or any
respective successors thereto, or of any relevant provision of any applicable
law, shall affect or diminish in any way the rights of Indemnitee to
indemnification, or the obligations of the Company, arising under this
Agreement, whether the alleged actions or conduct of Indemnitee giving rise to
the necessity of such indemnification arose before or after any such amendment,
termination or repeal.
12.6. Notices. Notices required under this Agreement shall be given in
writing and shall be deemed given when delivered in person or sent by certified
or registered mail, return receipt requested, postage
11
<PAGE> 12
prepaid. Notices shall be directed to the Company at Bright Horizons Family
Solutions, Inc., 209 Tenth Avenue South, Suite 300, Nashville TN 37203-4173,
Attention: Chief Executive Officer, and to Indemnitee at ___________________
_________________________________________________________________________ (or
such other address as either party may designate in writing to the other).
12.7. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and performed in such state without giving effect to the
principles of conflict of laws.
12.8. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to discriminate part of
this Agreement or to affect the construction thereof.
12.9. Counterparts. This Agreement may be executed in any number of
counterparts all of which taken together shall constitute one instrument.
12.10. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall constitute, or be deemed to constitute, a waiver of any other provisions
hereof (whether or not similar) nor shall any such waiver constitute a
continuing waiver.
The parties hereto have caused this Agreement to be duly executed as of
the day and year first above written.
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
By: _____________________________________
Title: __________________________________
INDEMNITEE
----------------------------------------
12
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 13, 1998 included in or made a part of this
registration statement on Form S-4 and to all references made to our Firm.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
June 17, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Joint Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4 of Bright Horizons
Family Solutions, Inc. of our report dated August 1, 1997, except for the stock
split described in Note 8, which is as of October 8, 1997, and the adoption of
SFAS 128 described in Note 1, which is as of May 14, 1998 relating to the
financial statements of Bright Horizons, Inc., which appear in such Joint
Proxy Statement/Prospectus. We also consent to the application of our report
dated August 1, 1997, except for the stock split described in Note 8, which is
as of October 8, 1997, and the adoption of SFAS 128 described in Note 1, which
is as of May 14, 1998 to the Financial Statement Schedule for the three years
ended June 30, 1997 listed under Item 21 of this Registration Statement when
such schedule is read in conjunction with the financial statements referred to
in our report. The audits referred to in our report dated August 1, 1997,
except for the stock split described in Note 8, which is as of October 8, 1997,
and the adoption of SFAS 128 described in Note 1, which is as of May 14, 1998
also included this schedule. We also consent to the references to us under the
headings "Experts" and "Selected Consolidated Financial and Operating Data" in
such Joint Proxy Statement/Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Consolidated
Financial and Operating Data."
PRICE WATERHOUSE LLP
Boston, MA
June 17, 1998
<PAGE> 1
Exhibit 99.1
PROXY CORPORATEFAMILY SOLUTIONS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1998
The undersigned hereby appoints Marguerite W. Sallee and Michael E. Hogrefe,
or either of them, with full power of substitution, as proxies, and hereby
authorizes them to represent and to vote, as designated, all of the shares of
voting stock of CorporateFamily Solutions, Inc. ("CorporateFamily") held by the
undersigned on June 10, 1998, at the Special Meeting of Shareholders to be held
at CorporateFamily's corporate headquarters, 209 Tenth Avenue South, Suite 300,
Nashville, Tennessee, on Friday, July 24, 1998 at 9:00 a.m. (CDT) and any
adjournment(s) or postponement(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. To approve and adopt the Amended and Restated Agreement and Plan of Merger
dated June 17, 1998 by and between CorporateFamily, Bright Horizons, Inc.
("Bright Horizons"), Bright Horizons Family Solutions, Inc. ("Bright Horizons
Family Solutions"), CFAM Acquisition, Inc. and BRHZ Acquisition, Inc., and
the transactions contemplated thereby (the "Merger Agreement"). Pursuant to
the Merger Agreement, (i) CorporateFamily and Bright Horizons will form
Bright Horizons Family Solutions, a Delaware corporation, (ii) BRHZ
Acquisition, Inc., a Delaware corporation and newly formed wholly owned
subsidiary of Bright Horizons Family Solutions, will merge with and into
Bright Horizons (the "Bright Horizons Merger"), with Bright Horizons being
the surviving corporation, and (iii) CFAM Acquisition, Inc., a Tennessee
corporation and newly formed wholly owned subsidiary of Bright Horizons
Family Solutions, will merge with and into CorporateFamily (the
"CorporateFamily Merger"), with CorporateFamily being the surviving
corporation (the "Bright Horizons Merger," together with the CorporateFamily
Merger, the "Merger"). As a result of the Merger, CorporateFamily and Bright
Horizons will become wholly owned subsidiaries of Bright Horizons Family
Solutions. Upon the consummation of the Merger, each outstanding share of
CorporateFamily common stock shall be converted into one share of Bright
Horizons Family Solutions common stock, par value $0.01 per share, and each
outstanding share of Bright Horizons common stock shall be converted into
1.15022 shares of Bright Horizons Family Solutions common stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such business as
may properly come before this meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEM 1.
Dated: , 1998
---------------------
Signature
-----------------------
Signature if Held Jointly
-------
Please sign exactly as name
appears on your share
certificates. Each joint owner
must sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name as authorized. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE
<PAGE> 1
Exhibit 99.2
PROXY BRIGHT HORIZONS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 24, 1998
The undersigned hereby appoints Roger H. Brown and Elizabeth Boland, or
either of them, with full power of substitution, as proxies, and hereby
authorizes them to represent and to vote, as designated, all of the shares of
voting stock of Bright Horizons, Inc. ("Bright Horizons") held by the
undersigned on June 10, 1998, at the Special Meeting of Stockholders to be held
at the offices of Ropes & Gray, One International Place, Boston, Massachusetts,
on Friday, July 24, 1998 at 10:00 a.m. (EDT) and any adjournment(s) or
postponement(s) thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEM 1.
1. To approve and adopt the Amended and Restated Agreement and Plan of Merger
dated June 17, 1998 by and between Bright Horizons, CorporateFamily
Solutions, Inc. ("CorporateFamily"), Bright Horizons Family Solutions, Inc.
("Bright Horizons Family Solutions"), CFAM Acquisition, Inc. and BRHZ
Acquisition, Inc., and the transactions contemplated thereby (the "Merger
Agreement"). Pursuant to the Merger Agreement, (i) Bright Horizons and
CorporateFamily will form Bright Horizons Family Solutions, a Delaware
corporation, (ii) BRHZ Acquisition, Inc., a Delaware corporation and newly
formed wholly owned subsidiary of Bright Horizons Family Solutions, will
merge with and into Bright Horizons (the "Bright Horizons Merger"), with
Bright Horizons being the surviving corporation, and (iii) CFAM Acquisition,
Inc., a Tennessee corporation and newly formed wholly owned subsidiary of
Bright Horizons Family Solutions, will merge with and into CorporateFamily
(the "CorporateFamily Merger"), with CorporateFamily being the surviving
corporation (the "Bright Horizons Merger," together with the CorporateFamily
Merger, the "Merger"). As a result of the Merger, Bright Horizons and
CorporateFamily will become wholly owned subsidiaries of Bright Horizons
Family Solutions. Upon the consummation of the Merger, each outstanding share
of CorporateFamily common stock shall be converted into one share of Bright
Horizons Family Solutions common stock, par value $0.01 per share, and each
outstanding share of Bright Horizons common stock shall be converted into
1.15022 shares of Bright Horizons Family Solutions common stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such business as
may properly come before this meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEM 1.
Dated: , 1998
--------------------
Signature
-----------------------
Signature if Held Jointly
-------
Please sign exactly as name
appears on your share
certificates. Each joint owner
must sign. When signing as
attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation,
please sign in full corporate
name as authorized. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE
