<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Bright Horizons Family Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 20, 1999
--------------------
The 1999 annual meeting of stockholders of Bright Horizons Family
Solutions, Inc. will be held at 10:00 a.m., local time, on Thursday, May 20,
1999, at the Company's corporate offices, One Kendall Square, Building 200,
Cambridge, Massachusetts. At the meeting, stockholders will act on the following
matters:
1. Election of four directors, each for a term of three years;
2. Approval of the Company's 1998 Stock Incentive Plan, as
amended; and
3. Any other matters that may properly come before the meeting.
Stockholders of record at the close of business on April 1, 1999 are
entitled to vote at the meeting or any postponement or adjournment.
Your vote is important. Please COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY, in order that as many shares as possible will be represented.
By order of the Board of Directors,
Stephen I. Dreier
Chief Administrative Officer and
Secretary
Cambridge, Massachusetts
April 19, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ABOUT THE MEETING.....................................................................................................1
What is the purpose of the annual meeting?...................................................................1
Who is entitled to vote?.....................................................................................1
What constitutes a quorum?...................................................................................1
How do I vote?...............................................................................................1
Can I change my vote after I return my proxy card?...........................................................2
What are the Board's recommendations?........................................................................2
What vote is required to approve each item?..................................................................2
STOCK OWNERSHIP.......................................................................................................3
Who are the largest owners of the Company's stock?...........................................................3
How much stock do the Company's directors and executive officers own?........................................3
ITEM 1--ELECTION OF DIRECTORS.........................................................................................4
Directors Standing for Election..............................................................................4
Directors Continuing in Office...............................................................................6
How are directors compensated?...............................................................................7
How often did the Board meet during 1998?....................................................................8
What committees has the Board established?...................................................................8
Executive Compensation.......................................................................................9
Employment Agreements.......................................................................................11
Compensation Committee Interlocks and Insider Participation.................................................12
Report of the Compensation Committee on Executive Compensation..............................................12
Performance Graph...........................................................................................15
ITEM 2--APPROVAL OF THE 1998 STOCK INCENTIVE PLAN, AS AMENDED, FOR THE PURPOSES
OF SECTION 162(m) OF THE INTERNAL REVENUE CODE...............................................................16
Summary of the Material Provisions of the Plan..............................................................16
Options Granted Under the Plan..............................................................................18
Certain U.S. Federal Income Tax Consequences................................................................18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..............................................................20
INDEPENDENT PUBLIC ACCOUNTANTS.......................................................................................20
ADDITIONAL INFORMATION...............................................................................................21
EXHIBIT A - 1998 Stock Incentive Plan
</TABLE>
ii
<PAGE> 4
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
209 TENTH AVENUE SOUTH, SUITE 300 ONE KENDALL SQUARE, BUILDING 200
NASHVILLE, TENNESSEE 37203-4173 CAMBRIDGE, MASSACHUSETTS 02139
--------------------
PROXY STATEMENT
--------------------
The Board of Directors is soliciting proxies to be used at the 1999
annual meeting. This proxy statement and the enclosed proxy will be mailed to
stockholders on or about April 19, 1999.
The Company was incorporated in Delaware in April 1998. On July 24,
1998, two publicly traded companies, CorporateFamily Solutions, Inc. and Bright
Horizons, Inc., were merged into two wholly owned subsidiaries of the Company.
Pursuant to the merger, each share of common stock of CorporateFamily Solutions
was exchanged for one share of the Company's common stock, and each share of
common stock of Bright Horizons was exchanged for 1.15022 shares of the
Company's common stock. The Company also assumed all outstanding options to
purchase CorporateFamily Solutions and Bright Horizons common stock. Unless the
context otherwise requires, references in this proxy statement to the Company
for periods prior to July 24, 1998 refer to one or both of the Company's
predecessors, CorporateFamily Solutions and Bright Horizons, as appropriate.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Company's annual meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors and the approval of the Company's 1998 Stock Incentive Plan. In
addition, the Company's management will report on the performance of the Company
during fiscal 1998 and respond to questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record
date, April 1, 1999, are entitled to receive notice of the annual meeting, and
to vote the shares of common stock that they held on that date at the meeting,
or any postponement or adjournment of the meeting. Each outstanding share
entitles its holder to cast one vote on each matter to be voted upon.
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 12,073,964 shares of common stock of the Company were outstanding.
Proxies received but marked as abstentions and broker non-votes will be included
in the calculation of the number of shares considered to be present at the
meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and
return it to the Company, it will be voted as you direct. If you are a
registered stockholder and attend the meeting, you may deliver your completed
proxy card in person. "Street name" stockholders who wish to vote at the meeting
will need to obtain a proxy form from the institution that holds their shares.
<PAGE> 5
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. You can revoke your proxy at any time before it is exercised in
any of three ways:
- by submitting written notice of revocation to the Secretary;
- by submitting another proxy that is later dated and properly
signed; or
- by voting in person at the meeting.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Unless you give other instructions on your proxy card, the persons
named as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this proxy statement. In
summary, the Board recommends a vote:
- for election of the nominated slate of directors (see page 4);
and
- for approval of the Company's 1998 Stock Incentive Plan, as
amended (see page 16).
With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board of Directors
or, if no recommendation is given, in their own discretion.
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast by the stockholders entitled to vote at the meeting is required for the
election of directors. A properly executed proxy marked "WITHHOLD AUTHORITY"
with respect to the election of one or more directors will not be voted with
respect to the director or directors indicated, although it will be counted for
purposes of determining whether there is a quorum.
APPROVAL OF 1998 STOCK INCENTIVE PLAN; OTHER ITEMS. To approve the 1998
Stock Incentive Plan and any other item, the affirmative vote of the holders of
a majority of the shares present in person or represented by proxy and entitled
to vote on the item will be required for approval. A properly executed proxy
marked "ABSTAIN" with respect to any such item will not be voted, although it
will be counted for purposes of determining whether there is a quorum.
Accordingly, an abstention will have the effect of a negative vote.
If you hold your shares in "street name" through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to the approval of the 1998 Stock Incentive Plan or
another item to be acted upon. Thus, if you do not give your broker or nominee
specific instructions, your shares may not be voted on those items and will not
be counted in determining the number of shares necessary for approval. Shares
represented by such "broker non-votes" will, however, be counted in determining
whether there is a quorum.
2
<PAGE> 6
STOCK OWNERSHIP
WHO ARE THE LARGEST OWNERS OF THE COMPANY'S STOCK?
The following table shows those stockholders, other than directors and
executive officers, who beneficially own more than 5% of the Company's common
stock.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AGGREGATE NUMBER PERCENT OF
OF SHARES SHARES
NAME BENEFICIALLY OWNED OUTSTANDING
<S> <C> <C>
John McStay Investment Counsel (1)..................... 1,149,182 9.5%
Essex Investment Management Company (2)................ 1,146,878 9.5%
Capital Research and Management Company (3)............ 1,050,000 8.7%
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) This information is based upon information provided to the Company on
March 22, 1999 by John McStay Investment Counsel. Its principal address
is 5949 Sherry Lane, Suite 1560, Dallas, Texas 75225.
(2) This information is based upon a Schedule 13G/A filed on February 5,
1999. 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 862,973 shares and sole dispositive
power as to 1,146,878 shares of the Company's common stock. Its
principal address is 125 High Street, Boston, MA 02110.
(3) This information is based upon a Schedule 13G filed on February 11,
1999. Capital Research and Management Company is an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940 and
reports sole dispositive power as to 1,050,000 shares of the Company's
common stock. Its principal address is 333 South Hope Street, Los
Angeles, CA 90071.
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The following table shows the amount of common stock of the Company
beneficially owned (unless otherwise indicated) by the Company's directors, the
executive officers of the Company named in the Summary Compensation Table below
and the directors and executive officers of the Company as a group. Except as
otherwise indicated, all information is as of the record date, April 1, 1999.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
AGGREGATE NUMBER RIGHT TO ACQUIRE PERCENT OF
OF OUTSTANDING SHARES WITHIN 60 SHARES
NAME BENEFICIALLY OWNED(1) DAYS(2) OUTSTANDING(3)
<S> <C> <C> <C>
Roger H. Brown............................................. 464,858 297,604 6.2%
Linda A. Mason............................................. 464,858 297,604 6.2%
Robert D. Lurie............................................ 613,151 -- 5.1%
Marguerite W. Sallee....................................... 206,864 191,155 3.2%
Mary Ann Tocio............................................. 20,000 114,438 1.1%
E. Townes Duncan........................................... 114,404 13,650 1.1%
Stephen I. Dreier.......................................... 47,773 46,924 *
Michael E. Hogrefe......................................... 27,500 33,500 *
William H. Donaldson....................................... 1,000 28,755 *
Sara Lawrence-Lightfoot.................................... -- 9,584 *
Fred K. Foulkes............................................ 9,201 -- *
Joshua Bekenstein.......................................... 7,906 -- *
JoAnne Brandes............................................. -- 3,900 *
Ian M. Rolland............................................. 1,000 -- *
Directors and executive officers as a group (14 persons) 1,513,657 748,510 17.6%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents less than 1% of the Company's outstanding common stock
3
<PAGE> 7
(1) The number of shares shown includes shares that are individually or
jointly owned, as well as shares over which the individual has either
sole or shared investment or voting authority. Certain of the Company's
directors and executive officers disclaim beneficial ownership of some
of the shares included in the table, as follows:
- Mr. Brown - 250,763 shares held by Mr. Brown and Linda A.
Mason, his wife, as co-trustees of the Roger H. Brown Trust,
213,261 shares held by Ms. Mason and Mr. Brown, as co-trustees
of the Linda A. Mason Trust and 834 shares held by Mr. Brown's
minor daughter. North American Management Corp., the
investment advisor of the Roger H. Brown Trust and Linda A.
Mason Trust, has discretionary authority to dispose of the
shares held in the trusts.
- Ms. Mason - 213,261 shares held by Ms. Mason and Roger H.
Brown, her husband, as co-trustees of the Linda A. Mason
Trust, 250,763 shares held by Mr. Brown and Ms. Mason as
co-trustees of the Roger H. Brown Trust and 834 shares held by
Ms. Mason's minor daughter. North American Management Corp.,
the investment advisor of the Roger H. Brown Trust and Linda
A. Mason Trust, has discretionary authority to dispose of the
shares held in the trusts.
- Mr. Lurie - 1,651 shares held by Jane Kyle-Lurie, his wife.
- Ms. Sallee - 3,998 shares held by Dr. Arthur Knox Patterson,
her husband, as custodian for Dr. Patterson's children.
- Mr. Duncan - 106,794 shares held by Solidus, LLC, of which Mr.
Duncan is the president and a significant interest holder,
except to the extent of his pecuniary interest in Solidus,
LLC, 400 shares held by his children, 100 shares held by his
wife and 56 shares held in several trusts of which his wife is
trustee.
(2) Reflects the number of shares that could be purchased upon exercise of
options available at April 1, 1999 or within 60 days thereafter under
the Company's stock option plans. Certain of the Company's directors
and executive officers disclaim beneficial ownership of shares
purchasable upon exercise of options included in the table, as follows:
- Mr. Brown - 106,435 shares issuable upon exercise of options
held by Linda A. Mason, his wife.
- Ms. Mason - 191,169 shares issuable upon exercise of options
held by Roger H. Brown, her husband.
(3) Based on the number of shares outstanding at, or that could be
purchased upon exercise of options within 60 days of, April 1, 1999.
ITEM 1--ELECTION OF DIRECTORS
DIRECTORS STANDING FOR ELECTION
The Board of Directors of the Company is divided into three classes
(Class I, Class II, and Class III). At each annual meeting of stockholders,
directors constituting one class are elected for a three-year term. The
Company's Certificate of Incorporation provides that each class shall consist,
as nearly as possible, of one-third of the total number of directors
constituting the entire Board of Directors. The current Board of Directors is
comprised of eleven members, four of whom will be elected at the annual meeting.
The Board of Directors has nominated and recommends to the stockholders JoAnne
Brandes, Joshua Bekenstein, Roger H. Brown and Robert D. Lurie, each of whom is
an incumbent Class I director, for election as Class I directors to serve until
the annual meeting of stockholders in 2002 and until such time as their
respective successors are duly elected and qualified.
If any of the nominees should become unable to accept election, the
persons named in the proxy may vote for such other person or persons as may be
designated by the Board of Directors. Management has no reason to believe that
any of the nominees named above will be unable to serve. Certain information
with respect to the nominees for election as Class I directors and with respect
to Class II and Class III directors (who are not nominees for election at the
annual meeting) is set forth below.
4
<PAGE> 8
CLASS I DIRECTORS
(TO BE ELECTED; TERMS EXPIRE IN 2002)
- --------------------------------------------------------------------------------
JoAnne Brandes Age 45
JoAnne Brandes has served as a director of the Company since the merger. From
December 1995 until the merger, Ms. Brandes served as a director of
CorporateFamily Solutions. 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 Markets, 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 director of JohnsonFamily Funds, Inc.; a Regent in
the University of Wisconsin System Board of Regents; Director of Child Care
Action Campaign, a not-for-profit organization which promotes quality child
care; and a member of the State of Wisconsin's Governor's Child Care Council.
- --------------------------------------------------------------------------------
Joshua Bekenstein Age 40
Joshua Bekenstein has served as a director of the Company since the merger. From
1986 until the merger, Mr. Bekenstein served as a director of Bright Horizons.
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, Sealy Mattress Company, the leading conventional bedding
manufacturer in North America, and The Horizons Initiative, a non-profit
organization that provides support for homeless children and their families.
- --------------------------------------------------------------------------------
Roger H. Brown Age 42
Roger H. Brown has served as a director and President of the Company since the
merger. Mr. Brown co-founded Bright Horizons and served as Chairman and Chief
Executive Officer of Bright Horizons from its inception in 1986 until the
merger. 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, The Horizons Initiative and Advantage
Schools, Inc., a charter school management company. Mr. Brown is the husband of
Linda A. Mason.
- --------------------------------------------------------------------------------
Robert D. Lurie Age 53
Robert D. Lurie has served as a director of the Company since the merger. Prior
to the merger, Mr. Lurie served as a director and Chairman of CorporateFamily
Solutions since December 1995 and as Director of Research and Development since
January 1998. He was President of The Resource Group, a division of
CorporateFamily Solutions 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 Resources for
Child Care Management, Inc., which was acquired by CorporateFamily Solutions in
October 1995.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THESE
NOMINEES.
5
<PAGE> 9
DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS
(TERMS EXPIRE IN 2000)
- --------------------------------------------------------------------------------
E. Townes Duncan Age 45
E. Townes Duncan has served as a director of the Company since the merger. From
April 1988 until the merger, Mr. Duncan served as a director of CorporateFamily
Solutions. 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 of J. Alexander's Corporation, an owner
and operator of restaurants.
- --------------------------------------------------------------------------------
Sara Lawrence-Lightfoot Age 54
Dr. Sara Lawrence-Lightfoot has served as a director of the Company since the
merger. From 1993 until the merger, Dr. Lawrence-Lightfoot served as a director
of Bright Horizons. 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 Globe Newspaper
Company, a subsidiary of The New York Times 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.
- --------------------------------------------------------------------------------
Marguerite W. Sallee Age 53
Marguerite W. Sallee has served as a director and Chief Executive Officer of the
Company since the merger. Ms. Sallee is a founder of CorporateFamily Solutions
and served as President, Chief Executive Officer and a director of
CorporateFamily Solutions from February 1987 until the merger. Prior thereto,
Ms. Sallee served as Commissioner of Human Services in former Tennessee Governor
Lamar Alexander's cabinet. She is a director of Saks Incorporated, an owner and
operator of department stores, a director of 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.
- --------------------------------------------------------------------------------
CLASS III DIRECTORS
(TERMS EXPIRE IN 2001)
- --------------------------------------------------------------------------------
William H. Donaldson Age 67
William H. Donaldson has served as a director of the Company since the merger.
From January 1998 until the merger, Mr. Donaldson served as a director of Bright
Horizons. Mr. Donaldson currently serves as Senior Advisor at the investment
banking firm he co-founded in 1959, Donaldson, Lufkin & Jenrette, Inc. He served
as Chairman and Chief Executive Officer at Donaldson, Lufkin & Jenrette, Inc.
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.
- --------------------------------------------------------------------------------
6
<PAGE> 10
- --------------------------------------------------------------------------------
Fred K. Foulkes Age 57
Professor Fred K. Foulkes has served as a director of the Company since the
merger. Mr. Foulkes has been the Director of the Human Resources Policy
Institute for Boston University School of Management since 1981 and 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.
- --------------------------------------------------------------------------------
Linda A. Mason Age 44
Linda A. Mason has served as a director and Chairman of the Board of the Company
since the merger. Ms. Mason co-founded Bright Horizons and served as a director
and President of Bright Horizons from its inception in 1986 until the merger.
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 the
wife of Roger H. Brown.
- --------------------------------------------------------------------------------
Ian M. Rolland Age 65
Ian M. Rolland has served as a director of the Company since September 1998. Mr.
Rolland is a director of Lincoln National Corporation, which provides life
insurance and annuities, property-casualty insurance and related services
through its subsidiary companies. Mr. Rolland was Chairman and Chief Executive
Officer of Lincoln National Corporation from 1992 until July 1998 and President
and Chief Executive Officer from 1975 to 1992. Mr. Rolland is also a director of
Wells Fargo & Co., a nationwide financial services company, NIPSCO Industries,
Inc., a holding company for various utility companies, and Tokheim Corporation,
a manufacturer and servicer of electronic and mechanical petroleum dispensing
systems.
- --------------------------------------------------------------------------------
HOW ARE DIRECTORS COMPENSATED?
BASE COMPENSATION. Each non-employee director receives $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 non-employee director that is a member of the Audit Committee,
Compensation Committee, or Nominating Committee also receives $500 for each
committee meeting attended. Directors who are also employees of the Company
receive no additional compensation for service as directors.
OPTIONS. On the date of each annual meeting of stockholders, each
non-employee director will be granted an option to purchase 1,000 shares of the
Company's common stock, so long as he or she has missed no more than one of the
regular meetings of the Board of Directors in the previous year. The exercise
price of the options will be the closing market price of the Company's 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 non-employee director continues to serve as a
director of the Company. In 1998, each non-employee director also received a
one-time grant of an option to purchase 5,000 shares of the Company's common
stock, which vests in one-third increments with one-third vesting equally on the
first, second and third anniversary dates of the grant.
7
<PAGE> 11
HOW OFTEN DID THE BOARD MEET DURING 1998?
During 1998 following the merger, the Board of Directors met twice.
Each director attended more than 75% of the total number of meetings of the
Board and Committees on which he or she served, except for Ms. Brandes and Mr.
Donaldson who each attended 50% of the meetings.
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board of Directors has standing Audit, Compensation and Nominating
Committees.
AUDIT COMMITTEE. The Audit Committee is responsible for making
recommendations to the Board of Directors concerning the Company's financial
statements and the appointment of independent accountants, reviewing significant
audit and accounting policies and practices, meeting with the Company's
independent accountants concerning, among other things, the scope of audits and
reports, and reviewing the performance of the overall accounting and financial
controls of the Company. The members of the Audit Committee are Ian Rolland
(chair) and JoAnne Brandes. The Audit Committee did not meet in 1998.
COMPENSATION COMMITTEE. The Compensation Committee is charged with
reviewing and approving salaries, bonuses, and other compensation and benefits
of executive officers, advising management regarding benefits and other terms
and conditions of compensation, and administering the Company's employee stock
incentive plan. The members of the Compensation Committee are E. Townes Duncan
(chair) and Joshua Bekenstein. The Compensation Committee met one time in 1998.
NOMINATING COMMITTEE. The Nominating Committee is responsible for
developing general criteria concerning the qualifications and selection of Board
members and recommending candidates for such positions to the Board of
Directors. The Nominating Committee considers director nominees from
stockholders for election at each annual meeting of stockholders if a written
nomination is received by the Company's Secretary not less than 60 days nor more
than 90 days prior to the meeting (nomination procedures are discussed in
greater detail in our bylaws which will be provided upon written request). The
members of the Nominating Committee are Dr. Sara Lawrence-Lightfoot (chair),
William H. Donaldson and Fred K. Foulkes. The Nominating Committee did not meet
in 1998.
8
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning total
compensation earned or paid to the Chief Executive Officer and certain other
executive officers of the Company who served in such capacities as of December
31, 1998 (the "named executive officers") for services rendered to the Company,
or to one of its predecessors prior to the merger.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------- --------------------------
NUMBER OF
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS STOCK UNDERLYING COMPENSATION
POSITION YEAR ($) (2) ($) (3) AWARD(S)($) OPTIONS ($) (4)
-------- ---- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Linda A. Mason (5) .............. 1998 86,107 37,500 -- 25,000 2,027
Chairman of the Board ........ 1997 92,381 37,500 -- 95,851 1,154
Marguerite W. Sallee ............ 1998 160,993 45,000 -- 25,000 2,455
Chief Executive Officer ...... 1997 150,563 45,000 -- -- 2,166
1996 126,855 10,000 -- 188,500 --
Roger H. Brown .................. 1998 175,000 72,500 -- 25,000 2,500
President .................... 1997 167,875 92,500 -- 184,035 2,065
Michael E. Hogrefe .............. 1998 145,928 40,000 -- 25,000 6,684
Chief Financial Officer ...... 1997 129,556 38,729 -- 26,000 6,809
1996 120,008 25,000 325,000(6) 6,500 4,800
Mary Ann Tocio .................. 1998 159,231 45,000 -- 27,000 9,075
Chief Operating Officer ...... 1997 142,596 45,000 -- 76,680 9,181
Stephen I. Dreier ............... 1998 148,923 30,000 -- 18,000 2,013
Chief Administrative Officer 1997 142,192 32,500 -- 38,340 2,375
and Secretary
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The above table reports the compensation for the named executive officers
earned during calendar years 1998, 1997 and 1996, excluding compensation
received in 1996 by Ms. Mason, Mr. Brown, Ms. Tocio and Mr. Dreier, former
executive officers of Bright Horizons (not required by Item 402(b) of
Regulation S-K under the Securities Exchange Act of 1934 because fiscal
1997 was Bright Horizons' last completed fiscal year prior to it becoming a
reporting company).
(2) Includes amounts deferred by the employee under the Company's 401(k) plan.
(3) Bonuses earned by Ms. Mason, Mr. Brown, Ms. Tocio and Mr. Dreier during
calendar 1998 represent $25,000, $50,000, $20,000 and $15,000,
respectively, paid by Bright Horizons, Inc. and $12,500, $22,500, $25,000
and $15,000, respectively, earned as a result of their service to the
Company in 1998.
(4) Consists of company matching contributions to the employee's 401(k) plan
account and contributions made by the Company for car allowances to Ms.
Tocio and Mr. Hogrefe.
(5) Ms. Mason worked part-time during fiscal 1997 and fiscal 1998, and,
accordingly, the compensation payable under her employment agreement was
adjusted to reflect the services she performed.
(6) Mr. Hogrefe received a restricted stock grant for 32,500 shares of common
stock under CorporateFamily Solutions' 1996 Stock Incentive Plan, subject
to certain restrictions, which restrictions were terminated by
CorporateFamily Solutions' Board of Directors upon the closing of
CorporateFamily Solutions' initial public offering on August 12, 1997.
Because there was no trading market for the CorporateFamily Solutions
common stock on the date of grant,
9
<PAGE> 13
the value of the shares has been presented as the value of the shares at
the initial public offering price per share of the CorporateFamily
Solutions common stock ($10.00).
OPTION GRANTS FOR 1998
The table below sets forth the following information with respect to
option grants to the named executive officers during 1998 under the Company's
1998 Stock Incentive Plan:
- the number of shares of common stock underlying options
granted during the year;
- the percentage that such options represent of all options
granted to employees during the year;
- the exercise price;
- the expiration date; and
- the potential realizable value of the options assuming both a
5% and 10% annual return on the underlying common stock for
the remaining term of the options.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
------------------------------------------------------------------
NUMBER OF PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS GRANTED EXERCISE ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS TO EMPLOYEES IN PRICE EXPIRATION STOCK APPRECIATION FOR OPTION
NAME GRANTED(#)(1) 1998(%) ($/SHARE) DATE TERMS
---- ------------------ ---------------- --------- ---------- -----------------------------
5%($) 10%($)
-------- -------
<S> <C> <C> <C> <C> <C> <C>
Linda A. Mason........... 5,000(1) 0.86 19.00 10/14/08 59,745 151,406
20,000(2) 3.46 19.00 10/14/08 238,980 605,622
Marguerite W. Sallee..... 5,000(1) 0.86 19.00 10/14/08 59,745 151,406
20,000(2) 3.46 19.00 10/14/08 238,980 605,622
Roger H. Brown........... 5,000(1) 0.86 19.00 10/14/08 59,745 151,406
20,000(2) 3.46 19.00 10/14/08 238,980 605,622
Michael E. Hogrefe....... 5,000(1) 0.86 19.00 10/14/08 59,745 151,406
20,000(2) 3.46 19.00 10/14/08 238,980 605,622
Mary Ann Tocio........... 7,000(1) 1.21 19.00 10/14/08 83,643 211,968
20,000(2) 3.46 19.00 10/14/08 238,980 605,622
Stephen I. Dreier........ 5,000(1) 0.86 19.00 10/14/08 59,745 151,406
13,000(2) 2.25 19.00 10/14/08 155,337 393,654
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Options will vest annually over five years in one-fifth increments
beginning January 1, 1999.
(2) Options will vest annually over five years in one-fifth increments
beginning July 24, 1999.
OPTION EXERCISES AND VALUES FOR 1998
The table below sets forth the following information with respect to
option exercises during 1998 by each of the named executive officers and the
status of their options at December 31, 1998:
- the number of shares of common stock acquired upon exercise of
options during 1998;
- the aggregate dollar value realized upon the exercise of such
options;
- the total number of shares of common stock underlying
exercisable and non-exercisable stock options held at December
31, 1998; and
- the aggregate dollar value of in-the-money exercisable options
at December 31, 1998.
10
<PAGE> 14
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED UPON REALIZED DECEMBER 31, 1998(#) DECEMBER 31, 1998($)2)
EXERCISE OF UPON --------------------------- ---------------------------
NAME OPTIONS (#) (1) EXERCISE($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Linda A. Mason............ 21,246 383,294 105,435 25,000 2,072,272 200,000
Marguerite W. Sallee...... 105,400 1,973,236 227,471 25,000 4,533,577 200,000
Roger H. Brown............ 21,246 383,294 228,509 25,000 4,689,720 200,000
Michael E. Hogrefe........ -- -- 32,500 25,000 597,545 200,000
Mary Ann Tocio............ 20,000 364,500 113,038 27,000 2,410,067 216,000
Stephen I. Dreier......... 29,030 433,035 63,942 18,000 1,405,625 144,000
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) Certain of the shares acquired upon exercise were shares of Bright
Horizons common stock or CorporateFamily Solutions common stock
acquired upon exercise of options prior to the merger and converted
into shares of the Company's common stock, as follows:
- Ms. Mason - 18,472 shares of Bright Horizons common stock were
converted into 21,246 shares of the Company's common stock
- Ms. Sallee - 75,400 shares of CorporateFamily Solutions common
stock were converted into 75,400 shares of the Company's
common stock
- Mr. Brown -18,472 shares of Bright Horizons common stock were
converted into 21,246 shares of the Company's common stock
- Mr. Dreier - 23,500 shares of Bright Horizons common stock
were converted into 27,030 shares of the Company's common
stock
(2) The aggregate dollar value of the options held at year-end are
calculated as the difference between the fair market value of the
common stock ($27 as reported on The Nasdaq National Market on December
31, 1998) and the respective exercise prices of the stock options.
EMPLOYMENT AGREEMENTS
In connection with the closing of the merger on July 24, 1998, the
Company entered into employment agreements with Ms. Mason, Ms. Sallee, Mr.
Brown, Ms. Tocio and Mr. Hogrefe. The terms and conditions of the employment
agreements are summarized below:
COMPENSATION
- The employment agreements provide a base salary for each of
the named executive officers for a set term, as set forth
below:
<TABLE>
<CAPTION>
-----------------------------------------------------
BASE SALARY TERM
----------- ----
<S> <C> <C>
Linda A. Mason ..... $160,000 54 months
Marguerite W. Sallee $200,000(1) 54 months
Roger H. Brown ..... $200,000(1) 54 months
Mary Ann Tocio ..... $160,000(1) 24 months
Michael E. Hogrefe . $160,000 24 months(2)
-----------------------------------------------------
</TABLE>
(1) For 1998, Ms. Sallee, Mr. Brown and Ms. Tocio agreed
to an adjusted base salary of $175,000, $175,000 and
$165,000, respectively.
(2) If Mr. Hogrefe relocates to Boston upon the request
of the Company during the term of his employment
agreement, the term will be extended for a period of
24 months following the date of relocation.
11
<PAGE> 15
- The named executive officers are also eligible to receive
certain benefits and incentive bonus compensation including
cash bonuses and stock-based awards.
TERMINATION AND RESIGNATION
- The employment agreements may be terminated by the Company or
the employee may resign at any time.
- If the Company terminates the employee's employment for
"cause" (as defined in the employment agreements) or the
employee resigns for any reason other than for "good reason"
(as defined in the employment agreements), the employee will
receive all accrued salary and benefits due as of the date of
termination or resignation.
- If the employee dies or becomes disabled, the employee will
receive all accrued salary, benefits and incentive bonus
compensation as of the date of death or disability.
- If the Company terminates the employee's employment without
"cause" or the employee resigns for "good reason", the
employee will receive a lump sum payment of (i) 2.99 times his
or her base salary (in the case of Ms. Mason, Ms. Sallee and
Mr. Brown) or his or her base salary (in the case of Mr.
Hogrefe and Ms. Tocio) plus (ii) all accrued benefits and
incentive bonus compensation.
- If Mr. Hogrefe relocates to Boston and is terminated without
"cause" or resigns for "good reason" within 24 months of such
relocation, he will receive two times his base salary plus all
accrued benefits and incentive bonus compensation.
RESTRICTIVE COVENANTS
- Among other things, the employment agreements prohibit each
employee from competing against the Company, divulging any
trade secrets or other confidential information of the
Company, hiring away any employees of the Company and taking
any property (memoranda, notes, lists, records, etc.) relating
to the Company's business made or compiled by, or made
available to, the employee during the term of his or her
employment.
- These restrictive covenants will apply for 24 months (in the
case of Ms. Mason, Ms. Sallee and Mr. Brown) or 12 months (in
the case of Mr. Hogrefe and Ms. Tocio) following such
employee's termination or resignation from the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ms. Sallee, the Chief Executive Officer and a director of the Company,
serves on the Human Resources/Option Committee, which acts as the compensation
committee, of Saks Incorporated. R. Brad Martin, who resigned as a director of
the Company in September 1998, is the Chairman of the Board and Chief Executive
Officer of Saks Incorporated.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Decisions concerning the compensation of the Company's executive
officers are made by the Compensation Committee of the Board of Directors. Each
member of the Compensation Committee is a non-employee director. The
Compensation Committee has the responsibility for reviewing and approving
salaries, bonuses, and other compensation and benefits of executive officers,
advising management regarding benefits and other terms and conditions of
compensation, and administering the Company's stock incentive plans.
WHAT IS THE COMPANY'S PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICER
COMPENSATION?
The Compensation Committee believes that the primary objectives of the
Company's executive compensation policy should be:
- to attract and retain talented executives by providing a
compensation program that is competitive with the compensation
provided to executives at companies of comparable size and
position in service
12
<PAGE> 16
businesses, while maintaining compensation within levels that
are consistent with the Company's business plan, financial
objectives and operating performance;
- to provide appropriate incentives for executives to work
towards the achievement of the annual performance goals
established by the Company; and
- to more closely align the interests of its executives with
those of stockholders by providing long-term incentive
compensation in the form of stock option awards and other
equity-based, long-term incentive compensation.
The Compensation Committee believes that the Company's executive
compensation policies should be reviewed during the first half of the fiscal
year after the financial results of the prior fiscal year become available. The
policies should be reviewed in light of their consistency with the Company's
financial performance, its operating plan and its position within the child care
and education industry, as well as the compensation policies of similar
companies in the child care and education business and other service businesses.
The compensation of individual executive officers is then reviewed annually by
the Compensation Committee in light of its executive compensation policies for
that year.
In setting and reviewing compensation for the executive officers, the
Compensation Committee considers a number of different factors designed to
assure that compensation levels are properly aligned with the Company's business
strategy, corporate culture and operating performance. Among the factors
considered are the following:
- Comparability--The Compensation Committee considers the
compensation packages of similarly situated executives at
companies deemed to be most comparable to the Company. The
objective is to maintain competitiveness in the marketplace in
order to attract and retain the highest quality executives.
This is a principal factor in setting base levels of
compensation.
- Pay for Performance--The Compensation Committee believes that
compensation should be in part directly linked to operating
performance. To achieve this link with regard to short-term
performance, the Compensation Committee has relied on cash
bonuses which have been determined on the basis of certain
objective and subjective factors after receiving the
recommendations of senior management.
- Equity Ownership--The Compensation Committee believes that an
integral part of the executive compensation program at the
Company is equity-based compensation plans which encourage and
create ownership of the Company's stock by its executives,
thereby more closely aligning executives' long-term interests
with those of the stockholders. These long-term incentive
programs are principally reflected in the Company's
stock-based incentive plans. The Compensation Committee
believes that significant stock ownership is a major incentive
in building stockholder value and reviews awards of
equity-based incentives with that goal in mind.
- Qualitative Factors--The Compensation Committee believes that
in addition to corporate performance and specific division
performance, it is appropriate to consider in setting and
reviewing executive compensation the personal contributions
that a particular individual may make to the success of the
corporate enterprise. Such qualitative factors as leadership
skills, planning initiatives development skills, public
affairs and civic involvement have been deemed to be important
qualitative factors to take into account in considering levels
of compensation.
HOW WAS BASE COMPENSATION DETERMINED IN 1998?
The Compensation Committee did not review and approve the base
compensation for the Company's executive officers in 1998. Instead, the
compensation and employment agreements for the executive officers, including the
Chief Executive Officer, were negotiated in connection with the merger and
approved by the boards of directors of the Company and the Company's
predecessors in connection with the approval of the merger agreement. A summary
of those employment agreements is provided above under "Employment Agreements."
Two of the executive officers, including the Chief Executive Officer, agreed to
reduce the base salary set forth in their employment agreements for 1998 as set
forth above under "Employment Agreements."
13
<PAGE> 17
HOW WAS INCENTIVE COMPENSATION DETERMINED IN 1998?
Annual Incentive Compensation. For 1998, the Compensation Committee
reviewed the Company's executive officer performance in terms of achieving
pre-tax profitability targets, the successful integration of the Company
following the merger and each executive officer's contribution to the
achievement of these objectives. The Committee considered the fact that the
former executive officers of Bright Horizons (Ms. Mason, Mr. Brown, Ms. Tocio
and Mr. Dreier) received incentive compensation payments for Bright Horizon's
fiscal 1998 ended June 30, 1998 and therefore would only be eligible for
incentive compensation for the second half of calendar year 1998. The former
executive officers of CorporateFamily Solutions (Ms. Sallee and Mr. Hogrefe)
were eligible for the full year. Based on its review of the performance goals
and on subjective factors taken into consideration, the Compensation Committee
approved incentive payments aggregating $160,000 for 1998, including $45,000 for
the Chief Executive Officer. No factors in addition to the ones discussed above
were considered in setting the incentive compensation of the Chief Executive
Officer.
Long-Term Incentive Compensation. The Compensation Committee believes
the Company as a part of its regular executive compensation policies should
grant awards of long-term, equity-based incentives to executive officers as part
of the compensation package that is reviewed annually for each executive
officer. In making these awards, the Compensation Committee establishes
guidelines at the time of the annual review and takes into account the
recommendations of the Chief Executive Officer and the President prior to
approving awards of long-term, equity-based incentive compensation to the other
executive officers.
During 1998, the Compensation Committee reviewed the amount of stock
option holdings by the Company's executive officers and the terms of these
options. Based on the Compensation Committee's desire to encourage and create
ownership of the Company's common stock by its executive officers and to use
equity-based incentives as a retention tool, the Compensation Committee
determined to grant stock options for an aggregate of 145,000 shares with an
exercise price based on the fair market value of the common stock on the date of
the grant to the executive officers, including option grants for an aggregate of
25,000 shares to the Chief Executive Officer. These options generally vest
annually over five years in one-fifth increments. See "Option Grants for 1998."
HOW IS THE COMPANY ADDRESSING INTERNAL REVENUE CODE LIMITS ON DEDUCTIBILITY OF
COMPENSATION?
Section 162(m) of the Internal Revenue Code of 1986, enacted as part of
the Omnibus Budget Reconciliation Act in 1993, generally disallows a tax
deduction to public companies for compensation over $1,000,000 paid to the
Company's Chief Executive Officer and four other most highly compensated
executive officers. Compensation paid to these officers in excess of $1,000,000
that is not performance-based cannot be claimed by the Company as a tax
deduction. The Compensation Committee believes it is appropriate to take into
account the $1,000,000 limit on the deductibility of executive compensation and
to seek to qualify executive compensation awards as performance-based
compensation excluded from the $1,000,000 limit. Stock options and other
equity-based incentives granted under the Company's stock incentive plans
qualify as performance-based compensation. None of the executive officers
received compensation in 1998 that would exceed the $1,000,000 limit on
deductibility. The Committee has not determined whether it will approve any
compensation arrangements that will cause the $1,000,000 limit to be exceeded in
the future.
E. Townes Duncan, Chairman
Joshua Bekenstein
14
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on its common stock from July 27, 1998 (when the Company's common stock
commenced public trading following the merger) through December 31, 1998 with
the cumulative total return of the following:
- the University of Chicago Graduate School of Business Center
for Research in Security Prices ("CRSP") Index for Nasdaq
Stock Market (U.S. Companies) ("Nasdaq - U.S.") and
- the CRSP Total Return Index for Standard Industrial
Classification ("SIC") Codes 8350 to 8359 ("Nasdaq SIC
8350-8359"), which includes Child Daycare Services (8350 and
8351).
The graph assumes that $100 was invested on July 27, 1998 in the
Company's common stock and each index, and that all dividends, if any, were
reinvested.
[GRAPH]
- --------------------------------------------------------------------------------
7/27/98 12/31/98
- --------------------------------------------------------------------------------
Bright Horizons Family Solutions $ 100.0 107.5
- --------------------------------------------------------------------------------
Nasdaq - U.S. $ 100.0 115.1
- --------------------------------------------------------------------------------
Nasdaq SIC 8350-8359 $ 100.0 93.4
- --------------------------------------------------------------------------------
15
<PAGE> 19
ITEM 2--APPROVAL OF THE 1998 STOCK INCENTIVE PLAN, AS AMENDED, FOR THE
PURPOSES OF SECTION 162(M) OF THE INTERNAL REVENUE CODE
An item will be presented at the annual meeting to approve the
Company's 1998 Stock Incentive Plan, as amended. The plan was originally adopted
by the Board of Directors of the Company on June 16, 1998 and approved by the
Company's two stockholders at the time, CorporateFamily Solutions and Bright
Horizons, on July 8, 1998, prior to the merger. On September 18, 1998, the plan
was amended by the Board of Directors.
Section 162(m) of the Internal Revenue Code generally disallows a
corporate deduction for compensation over $1.0 million paid to a company's chief
executive officer and any of the four other most highly compensated officers.
The $1.0 million limitation applies to amounts realized on the exercise of stock
options, unless, among other conditions, the options are granted pursuant to a
plan that has been approved by the company's public stockholders. Although the
1998 Stock Incentive Plan was approved by the Company's two stockholders prior
to the merger, the plan has not been approved by the Company's public
stockholders. The Board of Directors is submitting the 1998 Stock Incentive
Plan, as amended, for approval by the Company's stockholders to ensure
compliance with Section 162(m) of the Internal Revenue Code.
If the amended plan is not approved by the Company's stockholders, the
plan and options previously granted or granted in the future under the plan will
not be affected. The Company will not, however, be permitted to deduct
compensation over $1.0 million realized by certain employees in connection with
their exercise of certain options granted under the plan. The Board of Directors
believes that it is in the best interest of the Company and its stockholders to
approve the plan, as amended. THE BOARD OF DIRECTORS RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THIS ITEM.
SUMMARY OF THE MATERIAL PROVISIONS OF THE PLAN
The following summary of the material provisions of the 1998 Stock
Incentive Plan, as amended, is qualified in its entirety by reference to the
text of the plan, which is attached to this proxy statement as Exhibit A.
GENERALLY. Under the 1998 Stock Incentive Plan, the Compensation
Committee of the Board of Directors of the Company has the authority to grant to
officers, other key employees, outside directors (directors who are not officers
or employees of the Company) and consultants of the Company the following types
of awards: (1) stock options; (2) restricted stock; and/or (3) other stock-based
awards.
The aggregate number of shares of common stock that may be issued under
the plan is 1,500,000 shares. Of that number, only 100,000 shares may be issued
pursuant to the exercise of options granted to outside directors. The maximum
number of shares of common stock for which awards may be made under the plan to
any officer of the Company or other person whose compensation may be subject to
the limitations on deductibility under Section 162(m) of the Internal Revenue
Code is 200,000 during any single fiscal year. As of April 1, 1999, options to
purchase an aggregate of 548,333 shares were outstanding under the plan, and
options relating to an aggregate of 30,120 shares of common stock had been
exercised. Accordingly, 921,457 shares of common stock are currently available
for issuance under the plan.
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 plan will terminate on, and no award may be granted
later than, July 26, 2008, but the exercise date of awards granted prior to such
tenth anniversary may extend beyond such date.
AUTOMATIC GRANTS TO OUTSIDE DIRECTORS. The plan also provides for
automatic grants of non-qualified stock options to outside directors of the
Company. Options to purchase 5,000 shares of common stock were automatically
granted to each person serving as an outside director at the first board meeting
following the merger. Additionally, each director who is first elected to the
Board of Directors will automatically receive an option to purchase 5,000 shares
of common stock. On the date of each annual meeting of stockholders, each
outside director will receive an option to
16
<PAGE> 20
purchase 1,000 shares of common stock, so long as the director did not miss more
than one board meeting in the preceding twelve months.
All options automatically granted to an outside director will enable
the optionee to purchase shares of common stock at the fair market value of the
common stock on the date of grant. Outside directors will not be able to
transfer or assign their options without the prior written consent of the Board
of Directors of the Company 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. Options automatically granted to outside directors
will have a term of ten years from the date of grant. The exercise price may be
paid in cash, shares of common stock, or a combination thereof.
STOCK OPTIONS. Incentive stock options and non-qualified stock options
may be granted for such number of shares as the Compensation Committee may
determine and may be granted alone, in addition to, or in tandem with other
awards under the plan or cash awards outside the plan. A stock option will be
exercisable at such times and subject to such terms and conditions as the
Compensation Committee will determine. The term may not be more than ten years
after the date of grant (five years in the case of incentive stock options for
certain 10% stockholders). The option price for an incentive stock option will
not be less than 100% (110% in the case of certain 10% stockholders) of the fair
market value of 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. Incentive stock options granted under the plan may not be transferred
or assigned other than by will or by the laws of descent and distribution.
Non-qualified stock options may not be transferred or assigned without the prior
written consent of the Compensation Committee 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.
RESTRICTED STOCK. Restricted stock awards may be granted alone, in
addition to, or in tandem with other awards under the plan or cash awards made
outside the plan. The provisions attendant to a grant of restricted stock may
vary from participant to participant. In making an award of restricted stock,
the Compensation 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 value for such stock. The Compensation Committee
may also impose such other conditions and restrictions on the shares of
restricted stock as it deems appropriate, including the attainment of specified
performance goals or such other factors as the Compensation Committee may
determine. The Compensation Committee may provide that such restrictions will
lapse with respect to specified percentages of the awarded shares of restricted
stock on successive future dates. During the restriction 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 Compensation Committee, cash or deferred dividends.
OTHER STOCK-BASED AWARDS. The Compensation Committee also may grant
other types of awards, such as performance shares, convertible preferred stock,
convertible debentures, exchangeable securities and common stock awards or
options valued by reference to earnings by share or performance of the Company's
subsidiaries. These awards may be granted alone, in addition to, or in tandem
with, stock options, restricted stock, or cash awards outside of the plan.
Awards will be made upon such terms and conditions as the Compensation Committee
may determine.
EFFECTS OF A CHANGE IN CONTROL. If there is a change of control or a
potential change of control of the Company, any stock options that are not then
exercisable, will become fully exercisable and vested and the restrictions and
deferral limitations applicable to restricted stock and other stock-based awards
may lapse and such shares and awards will be deemed fully vested. For purposes
of the plan, a change of control is defined generally to include
- any person or entity, other than the Company or a wholly-owned
subsidiary of the Company, becoming the beneficial owner of
the Company's securities having 35% or more of the combined
voting power of the then outstanding securities that may be
cast for the election of directors;
- in connection with a cash tender, exchange offer, merger, or
other business combination, sale of assets, or contested
election, less than 40% of the combined voting power of the
then outstanding securities of the Company entitled to vote
generally in the election of directors being held in the
aggregate by the
17
<PAGE> 21
holders of the Company's securities entitled to vote generally
in the election of directors of the Company immediately prior
to such transaction; and
- during any period of two consecutive years, individuals who at
the beginning of any such period constitute the Board of
Directors ceasing to constitute at least a majority thereof,
unless the election of each director 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.
Stock options, restricted stock, and other stock-based awards will,
unless otherwise determined by the Compensation Committee in its sole
discretion, be cashed out on the basis of the change in control price (as
defined in the plan and as described below). The change of control price will be
the highest price per share paid in any transaction reported on The Nasdaq
National Market or paid or offered to be paid in any bona fide transaction
relating to a change in control or potential change in control at any time
during the immediately preceding 60-day period, as determined by the
Compensation Committee.
AMENDMENTS AND TERMINATION. The Board of Directors of the Company may
amend, alter, or discontinue the plan, provided that no amendment may be made
that would impair the rights of an optionee or participant under an award made
under the plan without the participant's consent.
OPTIONS GRANTED UNDER THE PLAN
Because awards under the plan are at the discretion of the Compensation
Committee, the benefits that will be awarded under the plan to persons other
than outside directors are not currently determinable. The following table shows
as to each of the named executive officers, as to all executive officers of the
Company as a group, as to all outside directors as a group, and as to all other
employees as a group, the aggregate number of shares of common stock subject to
options granted under the plan, excluding options that have been canceled or
forfeited unexercised, and the weighted average per share exercise price. As of
April 1, 1999, the market value of a share of common stock based on the closing
price for such stock on The Nasdaq National Market was $21.6875.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Average Exercise
Name Options(#) Price Per Share($)
- ----------------------------------------------- ---------- ------------------
<S> <C> <C>
Linda A. Mason, Chairman of the Board ......... 25,000 19.0
Marguerite W. Sallee, Chief Executive Officer . 25,000 19.0
Roger H. Brown, President ..................... 25,000 19.0
Michael E. Hogrefe, Chief Financial Officer ... 25,000 19.0
Mary Ann Tocio, Chief Operating Officer ....... 27,000 19.0
Stephen I. Dreier, Chief Administrative Officer
and Secretary.................................. 18,000 19.0
All executive officers as a group (6 persons) . 145,000 19.0
Current outside directors (8 persons) ......... 30,000 21.625
All other employees as a group ................ 403,453 18.36
- ----------------------------------------------------------------------------------------
</TABLE>
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain U.S. Federal income tax
aspects of options awarded under the plan based upon the federal income tax laws
in effect on the date hereof. This summary is not intended to be exhaustive and
the exact tax consequences to any grantee will depend upon his or her particular
circumstances and other facts. The plan participants must consult their tax
advisors with respect to any state, local, and foreign tax considerations or
particular federal tax implications of options granted under the plan.
INCENTIVE STOCK OPTIONS. Neither the grant nor the exercise of an
incentive stock option will result in taxable income to the employee. The tax
treatment on sale of shares of common stock acquired upon exercise of an
incentive
18
<PAGE> 22
stock option depends on whether the holding period requirement is satisfied. The
holding period is met if the disposition of the employee occurs (i) at least two
years after the date of grant of the option; (ii) at least one year after the
date the shares were transferred to the employee; and (iii) while the employee
remains employed by the Company or not more than three months after his or her
termination of employment (or not more than one year in the case of a disabled
employee). In the case of a deceased employee, the incentive stock option may be
exercised by the deceased employee's legal representative or heir provided the
option was an incentive stock option in the hands of the deceased employee and
the deceased employee was employed at the Company for at least three months
before his or her death. However, the plan limits the right of the legal
representative of any deceased employee to exercise an option to one year
following death. If the holding period requirement is satisfied, the excess of
the amount realized upon sale of the shares of common stock acquired upon the
exercise of the incentive stock option over the price paid for these shares will
be treated as a capital gain. If the employee disposes of the common stock
acquired upon the exercise of the incentive stock option before the holding
period requirement is met (a "disqualifying disposition"), the excess of the
fair market value of the shares on the date of exercise or, if less, the fair
market value on the date of disposition, over the exercise price will be taxable
as ordinary compensation income to the employee at the time of disposition, and
the Company will be entitled to a corresponding deduction. The balance of the
gain, if any, will be a capital gain for the employee. Any capital gain
recognized by the employee will be a long-term capital gain if the employee's
holding period for the shares of common stock at the time of disposition is more
than one year; otherwise it will be short-term.
Although the exercise of an incentive stock option will not result in
taxable income to the employee, the excess of the fair market value of the
common stock on the date of exercise over the exercise price will be included in
the employee's "alternative minimum taxable income" under the Internal Revenue
Code. This inclusion might subject the employee to, or increase his or her
liability for, the alternative minimum tax under Section 55 of the Internal
Revenue Code.
NONQUALIFIED STOCK OPTIONS. There will be no federal income tax
consequences to the Company or to the grantee upon the grant of non-qualified
stock options under the plan. However, upon the exercise of a non-qualified
stock option under the plan, the grantee will recognize ordinary compensation
income for federal income tax purposes in an amount equal to the excess of the
fair market value of the shares of common stock purchased over the exercise
price. The Company will generally be entitled to a tax deduction at such time
and in the same amount that the employee realizes ordinary income. If the shares
of common stock so acquired are later sold or exchanged, the difference between
the amount realized from such sale or exchange and the fair market value of such
stock on the date of exercise of the option is generally taxable as long-term or
short-term capital gain or loss depending upon the length of time the common
stock has been held after such date.
EXERCISE WITH SHARES. A grantee who pays the exercise price upon
exercise of an incentive stock option or non-qualified stock option, in whole or
in part, by delivering shares of common stock already owned by him or her will
realize no gain or loss for federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above.
Shares of common stock acquired upon exercise that are equal in number to the
shares surrendered will have a tax basis equal to the tax basis of the shares
surrendered, and (except as noted below with respect to disqualifying
dispositions) the holding period of such shares will include the holding period
of shares surrendered. In the case of an non-qualified stock option, the basis
of additional shares received upon exercise of the non-qualified stock option
will be equal to the fair market value of such shares on the date of exercise,
and the holding period for such additional shares will commence on the date the
option is exercised. In the case of an incentive stock option, the tax basis of
the additional shares received will be zero, and the holding period of such
shares will commence on the date of the exchange. If any of the shares received
upon exercise of the incentive stock option are disposed of within two years of
the date of the grant of the incentive stock option or within one year after
exercise, the shares with the lowest basis (i.e., zero basis) will be deemed to
be disposed of first, and such disposition will be a disqualifying disposition
giving rise to ordinary income as previously discussed above.
RESTRICTED STOCK. A participant receiving restricted stock generally
will recognize ordinary income in the amount of the fair market value of the
restricted stock at the time the stock is no longer subject to forfeiture, less
the consideration paid for the stock. However, a participant may elect, under
Section 83(b) of the Internal Revenue Code within 30 days of the grant of the
stock, to recognize taxable ordinary income on the date of grant equal to the
excess of the fair market value of the shares of restricted stock (determined
without regard to the restrictions) over the purchase
19
<PAGE> 23
price of the restricted stock. Thereafter, if the shares are forfeited, the
participant will be entitled to a deduction, refund, or loss, for tax purposes
only, in an amount equal to the purchase price of the forfeited shares
regardless of whether she or he made a Section 83(b) election. With respect to
the sale of shares after the forfeiture period has expired, the holding period
to determine whether the participant has long-term or short-term capital gain or
loss generally begins when the restriction period expires and the tax basis for
such shares will generally be based on the fair market value of such shares on
such date. If the participant makes an election under Section 83(b), however,
the holding period will commence on the date of grant, the tax basis will be
equal to the fair market value of shares on such date (determined without regard
to restrictions), and the Company generally will be entitled to a deduction
equal to the amount that is taxable as ordinary income to the participant in the
year that such income is taxable.
DIVIDENDS AND DIVIDEND EQUIVALENTS. Dividends paid on restricted stock
generally will be treated as compensation that is taxable as ordinary income to
the participant, and will be deductible by the Company. If the participant makes
a Section 83(b) election, however, the dividends will be taxable as ordinary
income to the participant but will not be deductible by the Company.
OTHER STOCK-BASED AWARDS. The federal income tax treatment of other
stock-based awards will depend on the nature of any such award and the
restrictions applicable to such award. Such an award may, depending on the
conditions applicable to the award, be taxable as an option, an award of
restricted stock, or in a manner not described herein.
The plan is not intended to be a "qualified plan" under Section 401(a)
of the Internal Revenue Code.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the Company's directors and
executive officers, and persons who own more than 10% of the Company's capital
stock, to file initial reports of ownership and reports of changes in ownership
of any securities of the Company with the SEC, The Nasdaq National Market and
the Company.
Based solely upon a review of filings with the SEC and written
representations that no other reports were required, the Company believes that
all of the Company's directors and executive officers complied during 1998 with
their reporting requirements, with the exception of a late filing made by Mr.
Duncan in mid-August 1998 relating to a transaction in July 1998. Additionally,
the Company has not received any filings from, and is not aware of any filings
made by, Essex Investment Management Company or John McStay Investment Counsel,
each of which has reported beneficial ownership of more than 10% of the
Company's common stock from time to time.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has appointed Arthur Andersen LLP as the Company's
independent public accountants for 1999. Arthur Andersen LLP has audited the
accounts of the Company since the merger and served as independent public
accountants to CorporateFamily Solutions since 1994. A representative of Arthur
Andersen LLP is expected to be present at the annual meeting to respond to
appropriate questions and to make such statements as they may desire.
20
<PAGE> 24
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING. Pursuant to Rule
14a-8(e) of the Securities Exchange Act of 1934, stockholder proposals submitted
in accordance with applicable rules and regulations for presentation at the
Company's next annual meeting and received at the Company's executive offices no
later than December 21, 1999 will be considered for inclusion in the Company's
proxy statement and form of proxy relating to such annual meeting.
For other stockholder proposals to be timely (but not considered for
inclusion in the Company's proxy statement), a stockholder's notice must be
received at the Company's executive offices not less than 60 days nor more than
90 days prior to the date of the next annual meeting and should otherwise comply
with the advance notice provisions of the Company's bylaws. For proposals that
are not timely filed, the Company retains discretion to vote proxies it
receives. For proposals that are timely filed, the Company retains discretion to
vote proxies it receives provided (1) the Company includes in its proxy
statement advice on the nature of the proposal and how it intends to exercise
its voting discretion and (2) the proponent does not issue a proxy statement.
PROXY SOLICITATION COSTS. The proxies being solicited hereby are being
solicited by the Company. The cost of soliciting proxies in the enclosed form
will be borne by the Company. Officers and regular employees of the Company may,
but without compensation other than their regular compensation, solicit proxies
by further mailing or personal conversations, or by telephone, telex, facsimile
or electronic means. The Company will, upon request, reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation material to
the beneficial owners of stock.
FINANCIAL STATEMENTS AVAILABLE. A copy of the Company's 1998 Annual
Report to Stockholders containing audited financial statements accompanies this
Proxy Statement. The 1998 Annual Report does not constitute a part of the proxy
solicitation material.
Upon written request to the Company's Chief Financial Officer, Bright
Horizons Family Solutions, Inc., 209 Tenth Avenue South, Suite 300, Nashville,
Tennessee 37027, the Company will provide, without charge, copies of the
Company's annual report to the Securities and Exchange Commission on Form 10-K.
21
<PAGE> 25
EXHIBIT A
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.
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,
<PAGE> 26
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.
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.
<PAGE> 27
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.
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.
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
<PAGE> 28
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.
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
<PAGE> 29
as provided in Section 5(f) and (g), Section 8 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.
(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
<PAGE> 30
such optionee shall thereafter be exercisable to the extent to which it
was exercisable at the time of death for a period of twelve months from
the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is shorter. In the event of
termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise period
applicable to Incentive Stock Options, but before the expiration of any
period that would apply if such Stock Option were a Non-Qualified Stock
Option, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(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 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 $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"
<PAGE> 31
during such post-termination period under Section
422, such excess shall be treated as a Non-Qualified
Stock Option; and
(ii) if the exercise of an Incentive Stock
Option is accelerated by reason of a Change in
Control, any portion of such Option that is not
exercisable as an Incentive Stock Option by reason of
the $100,000 limitation contained in Section 422(d)
of the Code shall be treated as a Non-Qualified Stock
Option.
(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 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.
<PAGE> 32
(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.
(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
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:
<PAGE> 33
(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 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
<PAGE> 34
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 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 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:
<PAGE> 35
(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:
(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
<PAGE> 36
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 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.
(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.
<PAGE> 37
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or other types of Plan
awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Common Stock are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options
and other Plan awards).
(f) The Plan and all awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
State of Tennessee.
(g) The members of the Committee and the Board shall not be
liable to any employee or other person with respect to any
determination made hereunder in a manner that is not inconsistent with
their legal obligations as members of the Board. In addition to such
other rights of indemnification as they may have as directors or as
members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection
with the Plan or any option granted thereunder, and against all amounts
paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid
by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such Committee member
is liable for negligence or misconduct in the performance of his
duties; provided that within 60 days after institution of any such
action, suit or proceeding, the Committee member shall in writing offer
the Company the opportunity, at its own expense, to handle and defend
the same.
(h) In addition to any other restrictions on transfer that may
be applicable under the terms of this Plan or the applicable award
agreement, no Stock Option, 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 July 27, 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.
<PAGE> 38
FIRST AMENDMENT TO
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN
This First Amendment (this "Amendment") to the 1998 Stock Incentive
Plan (the "Plan") is hereby established by Bright Horizons Family Solutions,
Inc., a Delaware corporation (the "Company"), and adopted by its Board of
Directors as of the 18th day of September, 1998 (the "Effective Date").
RECITALS
A. The Board of Directors of the Company (the "Board") previously
approved, and the shareholders of the Company previously approved and adopted,
the Plan.
B. The Board has deemed that it is in the best interests of the Company
to amend the Plan.
AMENDMENT
A. Section 8(c) of the Plan is hereby amended by replacing the first
sentence of such section with the following sentence, "Each Outside Director
Option shall vest and become exercisable with respect to one-third of such
shares on the first anniversary of the date of grant, with respect to one-third
on the second anniversary of the date of grant, and with respect to one-third on
the third anniversary of the date of grant".
B. Section 9(b)(ii) of the Plan is hereby amended by replacing the
phrase "a majority" on the third line with "40%".
C. Section 13 of the Plan is hereby amended by deleting the phrase
"provided that it must be approved by a majority of the votes cast by the
holders of the Company's common stock".
Date approved by the Board: September 18, 1998
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Appendix A
BRIGHT HORIZONS FAMILY SOLUTIONS, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
May 20, 1999
PROXY
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS:
The undersigned hereby appoints Marguerite W. Sallee and Stephen I. Dreier, 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 Family Solutions, Inc. held by the undersigned
on April 1, 1999, at the Annual Meeting of Stockholders to be held at the
Company's corporate offices, One Kendall Square, Building 200, Cambridge,
Massachusetts, on Thursday, May 20, 1999 at 10:00 a.m. (EST) and any
adjournment(s) thereof.
See reverse for voting instructions.
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-- Please detach here --
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1. Election of Directors.
/ / FOR all nominees listed below (except as marked to the contrary below.)
Class I (2002)
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Joshua Bekenstein
JoAnne Brandes
Roger H. Brown
Robert D. Lurie
To withhold authority to vote for any individual nominee, write that
nominee's name in the space below:
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/ / WITHHOLD AUTHORITY to vote for all nominees.
2. Approval of the Company's 1998 Stock Incentive Plan, as amended.
/ / 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 PROPOSALS 1 AND 2.
DATED: ------------------- 1999
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Signature(s) in Box
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.
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PROXY # ACCOUNT # ISSUE OR ISSUER #
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