<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>
CHILDREN'S COMPREHENSIVE SERVICES
- --------------------------------------------------------------------------------
(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):
[X] 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
(CHILDREN'S COMPREHENSIVE SERVICES LOGO)
3401 West End Avenue, Suite 400
Nashville, Tennessee 37203
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 17, 1999
--------------
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Children's Comprehensive Services, Inc. (the "Company"),
will be held at the Loews Vanderbilt Plaza, located at 2100 West End Avenue,
Nashville, Tennessee, on Wednesday, November 17, 1999, at 9:00 a.m., local time,
for the following purposes:
(1) To elect six directors to serve until the next Annual Meeting and
until their successors are duly elected and qualified;
(2) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the 2000 fiscal year; and
(3) To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on September 28,
1999 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this
notice for a more complete statement regarding matters to be acted upon at the
meeting.
By Order of the Board of Directors
/s/ John C. Edmunds
-------------------------------------
John C. Edmunds
Secretary
Nashville, Tennessee
October 22, 1999
YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD. SHOULD YOU DESIRE TO REVOKE YOUR
PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT, AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 3
CHILDREN'S COMPREHENSIVE SERVICES, INC.
3401 West End Avenue, Suite 400
Nashville, Tennessee 37203
--------------
PROXY STATEMENT
--------------
The accompanying proxy is solicited by the Board of Directors of
Children's Comprehensive Services, Inc. (the "Company ") for use at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held on November 17, 1999,
at 9:00 a.m., local time, at the Loews Vanderbilt Plaza, and any adjournments
thereof, notice of which is attached hereto.
This Proxy Statement and the Company's Annual Report to shareholders
for the fiscal year ended June 30, 1999 (the "Annual Report") have been mailed
on or about October 22, 1999, to all shareholders of record on September 28,
1999.
The purposes of the Annual Meeting are: to elect six directors; to
ratify the selection of Ernst & Young LLP as the Company's independent auditors
for the next fiscal year; and to transact such other business as may properly be
brought before the meeting.
A shareholder who signs and returns a proxy in the accompanying form
may revoke it at any time before the shares subject to it are voted by attending
the Annual Meeting and electing to vote in person, by filing with the Secretary
of the Company a written revocation or by duly executing a proxy bearing a later
date. Unless so revoked, the shares represented by the proxy will be voted at
the Annual Meeting. Where a choice is specified on the proxy, the shares
represented thereby will be voted in accordance with such specifications. If no
specification is made, such shares will be voted FOR the election of all
director nominees and FOR the approval of Ernst & Young LLP.
The Board of Directors knows of no other matters which are to be
brought to a vote at the Annual Meeting. However, if any other matter does come
before the meeting, the persons appointed in the proxy or their substitutes will
vote in accordance with their best judgment on such matters.
The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling and mailing this
Proxy Statement. Such solicitation will be made by mail, and also may be made by
the Company's regular officers or employees personally or by telephone or
facsimile. The Company does not anticipate paying any compensation to any party
other than its regular employees for the solicitation of proxies, but may
reimburse brokers, custodians and nominees for their expenses in sending proxies
and proxy material to beneficial owners.
VOTING STOCK OUTSTANDING AND SHAREHOLDERS
The Board of Directors has fixed the close of business on September 28,
1999 as the record date for the Annual Meeting (the "Record Date"). The
Company's only outstanding class of securities is its $.01 par value common
stock ("Common Stock"). On the Record Date, the Company had outstanding
7,271,476 shares of Common Stock. Only shareholders of record at the close of
business on the Record Date will be entitled to vote at the Annual Meeting.
Shareholders will be entitled to one vote for each share of Common Stock so
held, which may be given in person or by proxy authorized in writing.
1
<PAGE> 4
VOTING
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote, present in person or represented by proxy,
will constitute a quorum for the transaction of business at the Annual Meeting.
An affirmative vote of a plurality of the shares represented and voting in
person or by proxy at the meeting is required for the election of directors. The
ratification of the Company's selection of independent auditors, and any other
business as may properly come before the meeting or any adjournments thereof,
will be approved if the votes cast in favor of such proposal exceed the votes
cast against such proposal.
Under applicable securities laws, Tennessee law and the Company's
Restated Charter and Bylaws, an abstention or withholding of authority to vote
will have no effect on the election of directors or the ratification of the
Company's selection of independent auditors, since each of these matters is
determined by the number of votes cast. With regard to such matters, however,
shares represented at the meeting by proxies containing instructions to abstain,
or withholding authority to vote, will nonetheless be counted as present for
purposes of determining whether a quorum exists.
A broker non-vote occurs when a broker holding shares registered in
street name is permitted to vote, in the broker's discretion, on routine matters
without receiving instructions from the client, but is not permitted to vote
without instructions on non-routine matters, and the broker returns a proxy card
with no vote (the "non-vote") on the non-routine matter. Under Tennessee law and
the Company's Restated Charter and Bylaws, broker non-votes will have no impact
on the election of directors or the ratification of the Company's selection of
independent auditors. Shares represented by a proxy card marked with a non-vote
will be counted as present for purposes of determining the existence of a
quorum.
2
<PAGE> 5
PROPOSAL 1. ELECTION OF DIRECTORS
Directors are elected each year to hold office until the next Annual
Meeting and until their successors are duly elected and qualified. The Company's
Bylaws provide for a minimum of three (3) and a maximum of fifteen (15)
directors, the exact number to be set by the Board of Directors. The current
Board of Directors consists of six (6) members, all of whom are nominees to be
elected as directors at the Annual Meeting. Unless contrary instructions are
received, shares represented by proxies will be voted in favor of the election
as directors of all the nominees named below. If for any reason any of such
nominees is unable to serve, the persons voting the proxy have advised the
Company that they will vote for such substitute nominees as the Board of
Directors of the Company may propose. The Board of Directors has no reason to
expect that any of these nominees will be unable to be candidates at the Annual
Meeting, and therefore, does not at this time have any substitute nominees under
consideration. The information relating to the six nominees set forth below has
been furnished to the Company by the individuals named.
The directors shall be elected by a plurality of the votes cast in the
election by holders of the Common Stock represented and entitled to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
NOMINEES LISTED BELOW.
DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY DIRECTOR SINCE
- --------------------------- -------- ------------------------------------- ---------------------
<S> <C> <C> <C>
William J Ballard 57 Chairman, Chief Executive Officer May 1993
and Director
Amy S. Harrison 49 Vice Chairman, President May 1988
and Director
Martha A. Petrey, Ph.D. 56 Executive Vice President and May 1988
Director
Thomas B. Clark 57 Director September 1994
Joseph A. Fernandez, Ed.D. 63 Director September 1994
David L. Warnock 41 Director September 1994
</TABLE>
- ---------------------------
Mr. Ballard has served as Chief Executive Officer of the Company since
March 1993, as a director since May 1993, and as Chairman of the Board since
September 1994. Mr. Ballard also served as President of the Company from March
1993 to February 1996. From May 1992 through March 1993, Mr. Ballard served as
Vice President of Cumberland Health Systems, Inc., in connection with its
proposed merger with the Company. From June 1990 through May 1992, Mr. Ballard
served as Vice President - Finance and Treasurer of the Company. Prior to such
time, Mr. Ballard served as President of Paladin Capital, Inc. from March 1988
through May 1990 and as president of Major Safe Co., Inc. from 1973 through
1987.
Ms. Harrison has served as Vice Chairman of the Company since May 1990,
as President since February 1996 and as a director of the Company since May
1988. From March 1988 through September 1994, Ms. Harrison served as an
Executive Vice President of the Company. In 1977 Ms. Harrison founded a group of
corporations collectively known as Advocate Schools, and served as an executive
officer and a director of those corporations until their acquisition by the
Company in March 1988. Ms. Harrison also currently serves as a consultant to the
California State Department of Education and has had numerous state and county
appointments.
Dr. Petrey has served as an Executive Vice President of the Company
since March 1988 and as a director since May 1988. Dr. Petrey served as an
executive officer and a director of Advocate Schools from 1980 until their
acquisition by the Company in March 1988. Dr. Petrey holds a Ph.D. in clinical
psychology from the University of South Carolina and is a licensed clinical
psychologist with experience in both public and private practice.
3
<PAGE> 6
Mr. Clark is President of Pinkerton Consulting & Investigations
Division, a division of Pinkerton's, Inc., a security services firm. From
October 1994 until July 1997, Mr. Clark was an attorney-at-law in private
practice. From January 1994 until October 1994, he served as Executive Vice
President-Administration and General Counsel of Genesco Inc., a footwear and
apparel manufacturer and retailer headquartered in Nashville, Tennessee. Prior
to assuming that position, Mr. Clark served as a partner in the law firm of
Boult, Cummings, Conners & Berry in Nashville, Tennessee from 1987 to 1994.
Dr. Fernandez has served as President of Joseph A. Fernandez &
Associates, Inc., an education consulting firm since June 1993. From June 1993
until June 1996, Dr. Fernandez also served as President and Chief Executive
Officer of School Improvement Services, Inc., a provider of consulting services
related to school improvement at the state, district or school level. From June
1993 until July 1994, Dr. Fernandez also served as the President of the Council
of Great City Schools, a Washington, D.C. based organization representing fifty
of the largest urban school districts in the United States. Prior to assuming
such positions in 1993, Dr. Fernandez served as Chancellor of the New York City
Public Schools from 1990 to 1993 and as Superintendent of the Dade County Public
Schools in Miami, Florida from 1987 to 1990. Dr. Fernandez serves as a director
of Touchstone Applied Science Associates, Inc. Dr. Fernandez holds an Ed.D.
from Nova University.
Mr. Warnock has been a partner at Cahill, Warnock & Company, an
investment management company, since June 1995. Prior to joining Cahill, Warnock
& Company, Mr. Warnock served as President of T. Rowe Price Strategic Partners
II, L.P., the general partner of T. Rowe Price Strategic Partners Fund II, L.P.,
a principal shareholder of the Company, and as a Vice President of T. Rowe Price
Associates, Inc. See "Security Ownership of Certain Beneficial Owners and
Management - Certain Beneficial Owners." Mr. Warnock serves as a director on the
boards of Environmental Safeguards, Inc., California Culinary Academy, Inc. and
Concorde Career Colleges, Inc.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Compensation Committee (the "Compensation Committee") is
currently composed of Messrs. Clark and Warnock and Dr. Fernandez. The
Compensation Committee, which met three times during the fiscal year ended June
30, 1999, is responsible for review and approval of the Company's executive
compensation policies and administers the Company's stock incentive plans. See
"Executive Compensation - Compensation Committee Report."
The Company's Audit Committee (the "Audit Committee") is currently
composed of Messrs. Clark and Warnock and Dr. Fernandez. The Audit Committee,
which met three times during the fiscal year ended June 30, 1999, reviews the
Company's internal accounting controls and systems, the results of the Company's
annual audit and the Company's accounting policies and any changes therein.
The Nominating Committee, which did not formally meet during the fiscal
year ended June 30, 1999, is currently composed of all the members of the Board
of Directors. The primary function of the Nominating Committee is to recommend
persons to be considered for election to the Board of Directors. In making such
recommendation, the Nominating Committee will consider nominations submitted by
shareholders to the Secretary of the Company prior to the deadline for
shareholder proposals as further described under "Proposals of Shareholders"
below.
During the fiscal year ended June 30, 1999, the Company's Board of
Directors met seven times. Every incumbent director attended at least
seventy-five percent (75%) of the combined total meetings of the Board of
Directors and committees of the Board of Directors on which the director served
at any time during the fiscal year ended June 30, 1999.
DIRECTOR COMPENSATION
The Company's non-employee directors receive an annual retainer of
$12,000 and reimbursement for expenses. In addition, under the provisions of the
Company's 1997 Stock Incentive Plan, the Company's non-employee directors each
receive an automatic annual stock option grant to purchase 5,000 shares of
Common Stock with an exercise price equal to the fair market value of the Common
Stock on the date of grant. The Board of Directors may, in the future, adjust
the compensation of directors as it deems advisable and consistent with the best
interests of the Company and its shareholders and the financial abilities of the
Company.
4
<PAGE> 7
EXECUTIVE OFFICERS
The following are the current executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- ------------------------- ------- ------------------------------------------------
<S> <C> <C>
William J Ballard 57 Chairman, Chief Executive Officer and Director
Amy S. Harrison 49 Vice Chairman, President and Director
Martha A. Petrey, Ph.D. 56 Executive Vice President and Director
H. Neil Campbell 45 Executive Vice President
Vicki M. Agee, Ph.D. 60 Vice President
Kathryn Behm Celauro 51 Vice President Customer Relations
John C. Edmunds 45 Vice President, Secretary and Treasurer
Barbara M. Lonardi 46 Vice President Corporate Resources and Compliance
Francis M. Sauvageau 39 Vice President Business Development
Mary P. Trainor 53 Vice President
Donald B. Whitfield 47 Vice President Finance and Chief Financial Officer
</TABLE>
The following background information relates to those executive
officers who are not also directors. For information regarding the executive
officers who are also directors, see "Directors."
Mr. Campbell has served as an Executive Vice President of the Company
since June 1997. Since December 1995 Mr. Campbell has served as the President
and Chief Executive Officer of Vendell Healthcare, Inc. and from December 1993
until December 1995 he served as Executive Vice President and Chief Financial
Officer of Vendell Healthcare, Inc. Mr. Campbell served as Senior Vice President
of the Medical Markets Group of General Electric Capital Corporation from
December 1992 until December 1993 and as Vice President Finance for OrNda
Healthcorp from December 1990 until December 1992.
Dr. Agee has served as a Vice President of the Company since September
1995. From July 1991 through September 1995, Dr. Agee served as Senior Vice
President and Clinical Director for Youth Services International, Inc. Prior to
July 1991, Dr. Agee served as Director of Correctional Services for New Life
Youth Services, Inc. Dr. Agee holds a Ph.D. in clinical psychology from the
University of Texas and is a licensed clinical psychologist.
Ms. Celauro has served as a Vice President since November 1993. From
April 1993 through October 1993, Ms. Celauro served as a Vice President of
Cumberland Health Systems, Inc. From January 1987 through March 1993, Ms.
Celauro served in various capacities with the Company, including Senior Vice
President, Vice President and Secretary. From September 1985 to January 1987,
Ms. Celauro served as Commissioner of Revenue for the State of Tennessee. Prior
to that time, she served as legal counsel to the Commissioner of Finance and
Administration.
Mr. Edmunds has served as Vice President, Secretary and Treasurer of
the Company since November 1997. From June 1997 to November 1997, he served the
Company as a divisional Vice President and Controller. From January 1992 until
June 1997, he was employed by Vendell Healthcare, Inc., where he served as Vice
President, Secretary and Controller. Mr. Edmunds served as Vice President and
Controller for Southlife Holding Company from April 1988 through January 1992.
Mr. Edmunds is a certified public accountant.
Ms. Lonardi has served as Vice President Corporate Resources and
Compliance since June 1997, and served as Regional Vice President of Human
Resources and Training for the Company from September 1996 through May 1997.
From 1992 to 1996 Ms. Lonardi served as an Assistant Administrator with First
Hospital Corporation, and from 1985 to 1992 Ms. Lonardi served as Director of
Personnel and Training for the Company.
5
<PAGE> 8
Mr. Sauvageau has served as a Vice President of the Company since
September 1998 and served as a divisional vice president from June 1997 to
September 1998. Mr. Sauvageau was previously employed by Vendell Healthcare,
Inc., where he served as Vice President-Development from April 1997 to June 1997
and as a facility administrator from January 1996 to March 1997. From 1994 to
1996 he was President of Pracmanix, a behavioral practice management company.
Ms. Trainor has served as a Vice President of the Company since 1989.
Ms. Trainor served as Administrative Director of Advocate Schools from 1985 to
1988 and joined the Company as Director of Operations, Advocate Schools and
Group Homes in March 1988 following the Company's acquisition of Advocate
Schools.
Mr. Whitfield has served as Vice President Finance and Chief Financial
Officer of the Company since November 1997. From 1993 to 1997, he served as Vice
President Finance, Secretary and Treasurer of the Company. Mr. Whitfield has
been employed by the Company since March 1988 in various other capacities,
including Controller, Assistant Secretary and Assistant Treasurer. Mr. Whitfield
is a certified public accountant.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of September 28,
1999 with respect to those persons known to the Company to be the beneficial
owners of more than five percent (5%) of the Common Stock. Unless otherwise
noted, the Company has been advised that all of the shares listed below are
beneficially owned, and the sole investment and voting power is held, by the
person or entity named.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------------------------------- ------------------------- ------------------
<S> <C> <C>
Goldman Sachs Asset Management(1) 793,546 10.91%
1 New York Plaza
New York, New York 10004
T. Rowe Price Associates, Inc.(2) 734,000 10.09%
100 East Pratt Street
Baltimore, Maryland 21202
Wellington Management Company, LLP 631,000 8.68%
75 State Street, 19th Floor
Boston, Massachusetts 02109
Dimensional Fund Advisors, Inc. 549,250 7.55%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Fleet Financial Group, Inc. 511,600 7.04%
One Federal Street
Boston, Massachusetts 02110
Heartland Advisors 460,000 6.33%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
Amy S. Harrison 414,912(3) 5.64%
11980 S. Mt. Vernon
Grand Terrace, California 92324
</TABLE>
- -----------------
6
<PAGE> 9
(1) Based on information included in Form 13G filed with the Securities and
Exchange Commission (the "SEC") on 7/10/99.
(2) Based on information included in Form 13G filed with the SEC on 3/17/99.
(3) Includes 90,333 shares issuable upon exercise of outstanding stock options
granted to Ms. Harrison. The shares issuable to Ms. Harrison upon the
exercise of these options are deemed to be outstanding for the purpose of
computing the percentage of outstanding Common Stock beneficially owned by
her, but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of September 28,
1999 with respect to the Common Stock beneficially owned by each director, each
of the executive officers named in the Summary Compensation Table, and by all
directors and executive officers as a group. Unless otherwise noted, the Company
has been advised that all of the shares listed below are beneficially owned, and
the sole investment and voting power is held, by the person named.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------- --------------------------- ------------------
<S> <C> <C>
Amy S. Harrison(2)(3) 414,912 5.64%
Martha A. Petrey, Ph.D.(2)(3) 337,413 4.62%
William J Ballard(2)(3) 145,558 1.97%
Thomas B. Clark(2) 21,000(4) *
Joseph A. Fernandez, Ed.D.(2) 27,328(5) *
David L. Warnock(2) 51,904 *
H. Neil Campbell(3) 57,127 *
Francis M. Sauvageau (3) 2,730 *
All Executive Officers and Directors as 1,150,597 14.97%
a Group (14 persons)
</TABLE>
- ------------------------------
* Less than one percent
(1) Pursuant to rules of the Securities and Exchange Commission, the shares
indicated include the following shares issuable upon exercise of
outstanding stock options:
<TABLE>
<S> <C>
Amy S. Harrison 90,333
Martha A. Petrey, Ph.D. 32,834
William J Ballard 100,333
Thomas B. Clark 20,000
Joseph A. Fernandez, Ed.D. 20,000
David L. Warnock 20,000
H. Neil Campbell 29,999
Francis M. Sauvageau 2,667
All Executive Officers and
Directors as a Group 383,501
</TABLE>
The shares issuable to each of these persons and to all executive officers
and directors as a group upon the exercise of these options are deemed to
be outstanding for the purpose of computing the percentage of outstanding
Common Stock beneficially owned by that person and for all executive
officers and directors as a group, but are not deemed to be outstanding for
the purposes of computing the percentage ownership of any other person.
7
<PAGE> 10
(2) Director.
(3) Named Officer.
(4) Includes 1,000 shares of Common Stock held by the spouse of Mr. Clark, of
which Mr. Clark disclaims beneficial ownership.
(5) The shares indicated also include a warrant to purchase 3,858 shares of
Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to rules promulgated under the Securities Exchange Act of 1934, as
amended, the Company's directors, executive officers and any person holding more
than ten percent (10%) of the Common Stock are required to report their
ownership of the Common Stock and any changes in that ownership to the SEC.
These persons also are required by SEC regulations to furnish the Company with
copies of these reports. Specific due dates for these reports have been
established and the Company is required to report any failure to file by these
dates. Based solely on a review of the reports furnished to the Company and
written representations from the Company's directors and executive officers, the
Company believes that all of these filing requirements were satisfied by the
Company's directors, executive officers and ten percent (10%) holders during the
1999 fiscal year, except that (i) Ms. Harrison, Dr. Petrey and Mr. Sauvageau
each filed one late report relating to an option grant, (ii) Mr. Campbell filed
one late report relating to one transaction and (iii) Mr. Warnock has failed to
timely report one transaction.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below shows information concerning the annual and long-term
compensation for services in all capacities to the Company for the past three
fiscal years for the Chief Executive Officer and the Company's other four most
highly compensated executive officers who were serving as executive officers at
June 30, 1999 (collectively, the "Named Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------- ------------
Awards
------------
Securities
Name and Principal Underlying
Position Year Salary ($) Bonus ($) Options(#)
- ---------------------------- ----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
William J Ballard 1999 221,707 25,000 150,000
Chairman, Chief 1998 200,000 95,000 --
Executive Officer and 1997 165,000 91,015 50,000
Director
Amy S. Harrison 1999 221,707 50,000 150,000
Vice Chairman, 1998 200,000 100,000 10,000
President and Director 1997 165,000 91,015 25,000
Martha A. Petrey, Ph.D. 1999 130,000 33,750 10,000
Executive Vice 1998 130,000 45,000 5,000
President and Director 1997 130,000 37,264 7,000
H. Neil Campbell 1999 175,000 37,500 35,000
Executive Vice 1998 175,000 70,000 20,000
President 1997(1) 14,722 -- 35,000
Francis M. Sauvageau 1999(2) 123,569 12,500 9,000
Vice President
</TABLE>
- ----------------------------
(1) Employment commenced in June 1997.
(2) Assumed current position September 1998.
9
<PAGE> 12
OPTIONS GRANTS IN LAST FISCAL YEAR
The table below shows information concerning the grants of stock
options pursuant to the 1997 Stock Incentive Plan during the fiscal year ended
June 30, 1999 to the Named Officers. No stock appreciation rights have ever been
granted by the Company.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation For
Individual Grants Option Term
- ------------------------------------------------------------------------------------------ ----------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- -------------------------- ----------- ------------ -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William J Ballard 125,000 21.0% 10.85 8/19/08 852,938 2,161,513
25,000 4.2% 5.85 5/25/09 92,007 233,165
Amy S. Harrison 125,000 21.0% 10.85 8/19/08 852,938 2,161,513
25,000 4.2% 5.85 5/25/09 92,007 233,165
Martha A. Petrey, Ph.D. 5,000 0.8% 10.85 8/19/08 34,118 86,461
5,000 0.8% 5.85 5/25/09 18,401 46,633
H. Neil Campbell 20,000 3.4% 10.85 8/19/08 136,470 345,842
15,000 2.5% 5.85 5/25/09 55,204 139,899
Francis M. Sauvageau 1,000 0.2% 10.85 8/19/08 6,824 17,292
5,000 0.8% 11.26 10/23/08 35,407 89,728
3,000 0.5% 5.85 5/25/09 11,041 27,980
</TABLE>
10
<PAGE> 13
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The table below provides information as to the number of shares
acquired during the fiscal year ended June 30, 1999 upon the exercise of
outstanding options and the value realized upon exercise. Also reported are the
number of shares covered by both exercisable and unexercisable stock options as
of June 30, 1999 and the values for the "in-the-money" options, which represent
the spread between the exercise price of any such existing stock options and the
fiscal year-end price of the Common Stock of 6 15/16.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money
Shares Options at Options at
Acquired Fiscal Year-End (#) Fiscal Year-End ($)
on -------------------- --------------------
Exercise Value Exercisable (E)/ Exercisable (E)/
Name (#) Realized($) Unexercisable (U) Unexercisable (U)
- ------------------------- -------- ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
William J Ballard -- -- 100,333 E 94,000 E
141,667 U 27,138 U
Amy S. Harrison 20,000 113,750 90,333 E 94,000 E
136,667 U 27,138 U
Martha A. Petrey, Ph.D. 20,000 113,750 32,834 E 61,438 E
10,666 U 5,428 U
H. Neil Campbell -- -- 29,999 E -- E
40,001 U 16,283 U
Francis M. Sauvageau -- -- 2,667 E -- E
7,333 U 3,257 U
</TABLE>
- -----------------------------
The Company has no long-term incentive plans or defined benefit or
actuarial plans covering any employees of the Company as is defined in SEC
regulations.
11
<PAGE> 14
REPORT ON REPRICING OF OPTIONS
On August 19, 1998, the Compensation Committee determined that, in
light of the recent reductions in the Company's stock price that resulted from
market volatility, and in order to provide a greater incentive to management of
the Company to increase the value of the Common Stock for all shareholders,
options to purchase 62,500 shares of Common Stock issued on May 21, 1998 to
executive officers would be cancelled and new options issued to the same
officers with an exercise price equal to the fair market value on the date of
such re-issuance. The following table sets forth certain information concerning
the cancellation and re-issuance of options to the Named Officers.
Ten Year Option Repricing
<TABLE>
<CAPTION>
Market Length of
price of Exercise original
Securities stock at price at time option
underlying time of of repricing New term
options repricing or or exercise remaining
repriced or amendment amendment price at date of
Name and Position Date amended (#) ($) ($) ($) repricing
- ------------------------- --------- ------------- ------------ -------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Martha A. Petrey, Ph.D. 8/19/98 5,000 10.85 17.638 10.85 9.75 years
Executive Vice
President and Director
H. Neil Campbell 8/19/98 20,000 10.85 17.638 10.85 9.75 years
Executive Vice
President
Francis M. Sauvageau 8/19/98 1,000 10.85 17.638 10.85 9.75 years
Vice President
</TABLE>
- ------------------------
The re-issued options are exercisable for a term of ten years and vest ratably
over a three year period.
Thomas B. Clark
Joseph A. Fernandez, Ed.D.
David L. Warnock
EMPLOYMENT CONTRACTS
The Company's Chief Executive Officer, William J Ballard, has a four
year employment agreement, effective August 1998, with the Company which
provides for an annual base salary of $225,000 for fiscal 1999. His salary level
is reviewed annually. The agreement renews for successive one year terms on the
anniversary date subject to prior written notice of cancellation. The agreement
also provides for a severance arrangement in the amount of two years'
compensation plus certain other benefits in the event of termination. Mr.
Ballard is also eligible for an incentive bonus based on the attainment of
certain personal goals and the Company's operating performance in fiscal 2000.
The Company's President, Amy S. Harrison, has a four year employment
agreement, effective August 1998, with the Company which provides for an annual
base salary of $225,000 for fiscal 1999. Her salary level is reviewed annually.
The agreement renews for successive one year terms on the anniversary date
subject to prior written notice of cancellation. The agreement also provides for
a severance arrangement in the amount of two years' compensation plus certain
other benefits in the event of termination. Ms. Harrison is also eligible for an
incentive bonus based on the attainment of certain personal goals and the
Company's operating performance in fiscal 2000.
12
<PAGE> 15
CERTAIN TRANSACTIONS
Amy S. Harrison and Martha A. Petrey, Ph.D., who serve as executive
officers and directors of the Company, lease certain operating properties to the
Company. Payments to Ms. Harrison and Dr. Petrey under these month-to-month
rental arrangements totaled $115,000 for the fiscal year ended June 30, 1999.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for review and approval of
the Company's executive compensation policies and administers the Company's
stock incentive plans. The Company's executive compensation policies are
designed to provide competitive levels of compensation, while integrating total
compensation with Company performance. Accordingly, the Company's executive
compensation program has three primary components: base salary, annual bonus,
and stock option awards.
The Compensation Committee approves salary and bonus ranges. Bonus
awards are tied directly to the achievement of certain personal goals and
specified operating results. The specific criteria for awarding bonuses and the
amounts of such bonuses, based on the attainment of a combination of personal
goals and targeted levels of earnings, are determined by the Compensation
Committee. For the fiscal year ended June 30, 1999, the executive officers of
the Company received performance bonuses which aggregated $197,188 based on the
achievement of personal and divisional goals. As the targeted level of overall
corporate earnings was not met, related bonuses based on this criteria were not
paid.
The Compensation Committee believes that stock options are an excellent
means for compensating employees because options tend to reward their holders
for long-term market performance of the Common Stock. The Company generally
grants options with exercise prices equal to the market price on the date of the
grant and the options are exercisable over a ten-year period. In the fiscal year
ended June 30, 1999, the Company granted options to purchase an aggregate of
408,500 shares of Common Stock to executive officers in recognition of their
prior service to the Company and as an incentive to such officers to more
closely align their interests with the Company's shareholders and promote the
Company's long-term success.
The Company's Chief Executive Officer, William J Ballard, has a
four-year employment agreement with the Company. Effective with the execution of
the agreement in August 1998, the Company awarded Mr. Ballard options to
purchase 125,000 shares of Common Stock. The Compensation Committee believes
that Mr. Ballard's base salary of $225,000 for fiscal 1999 is competitive with
the base salary of other chief executive officers of comparably sized companies.
Mr. Ballard's fiscal 1999 bonus reflected the attainment of certain personal
goals, but did not reflect any amount related to the attainment of the targeted
level of overall corporate earnings. Mr. Ballard is eligible for an incentive
bonus based on the attainment of certain personal goals and the Company's
operating performance in fiscal 2000. In May 1999, the Compensation Committee
awarded Mr. Ballard additional options to purchase 25,000 shares of Common
Stock. The Compensation Committee believes that the compensation package offered
to Mr. Ballard is appropriate in relation to compensation packages for similarly
situated officers of publicly held companies.
The Compensation Committee believes it is appropriate to take into
account the $1,000,000 limit on the deductibility of executive compensation for
federal income tax purposes enacted as part of the 1993 Omnibus Budget
Reconciliation Act ("OBRA") and to seek to qualify the Company's long-term
compensation awards as performance-based compensation excluded from the
$1,000,000 limit. Under the regulations, executive compensation pursuant to the
1997 Stock Incentive Plan should qualify as performance-based compensation and
therefore be excluded from the $1,000,000 limit. The Company currently
anticipates that the compensation of its executive officers will be deductible
under Section 162(m) because executive officer compensation is presently below
the $1,000,000 limit and because the Company intends to continue to utilize
performance based compensation in future periods.
The tables set forth under "Executive Compensation" and the
accompanying narrative and footnotes reflect the decisions covered by the above
discussion.
Thomas B. Clark
Joseph A. Fernandez, Ed.D.
David L. Warnock
13
<PAGE> 16
STOCK PERFORMANCE GRAPH
The following graph demonstrates the cumulative total return to
shareholders of the Common Stock during the previous five years in comparison to
the cumulative total return on the Nasdaq Stock Market (U.S. Companies) and a
select peer group of companies. The peer group consists of companies whose
primary business includes providing education, treatment or juvenile justice
services to at-risk and troubled youth, specifically: Cornell Companies, Inc.,
Correctional Services Corporation, Ramsay Youth Services, Inc. and ResCare, Inc.
(collectively, "New Peer Group"). The New Peer Group consists of those companies
against which the Company's performance is generally compared in industry
analyst reports. The Company believes that this New Peer Group more accurately
represents the Company's peers than did the peer group used in prior years ("Old
Peer Group"), which consisted of all of the companies in Standard Industrial
Classification 8200, Educational Services, whose shares were listed on the
Nasdaq Stock Market. The cumulative total return basis assumes reinvestment of
dividends.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD Children's Comprehensive
(FISCAL YEAR COVERED) Services, Inc. Nasdaq Stock Market Old Peer Group New Peer Group
<S> <C> <C> <C> <C>
6/30/94 100.0 100.0 100.0 100.0
6/30/95 118.2 133.5 153.1 102.2
6/28/96 521.2 171.4 377.0 165.8
6/30/97 342.4 208.4 525.3 138.1
6/30/98 360.6 274.4 616.7 180.6
6/30/99 168.2 393.6 487.8 173.1
</TABLE>
* Peer Group index was prepared by the Center for Research in Securities
Prices, The University of Chicago Graduate School of Business.
14
<PAGE> 17
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors of the Company for the 2000 fiscal year, subject to approval by the
shareholders. Ernst & Young LLP has served as the Company's independent auditors
since its inception in July 1985. A representative of Ernst & Young LLP is
expected to be present at the Annual Meeting with the opportunity to make a
statement if such representative so desires, and will be available to respond to
appropriate questions.
This proposal will be adopted if the number of votes cast in favor of
the proposal exceeds the number of votes cast against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
PROPOSAL 2.
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at the
fiscal 2000 Annual Meeting of the Company and inclusion in the proxy statement
and form of proxy for such meeting should forward such proposals to John C.
Edmunds, Secretary, Children's Comprehensive Services, Inc., 3401 West End
Avenue, Suite 400, Nashville, Tennessee 37203. Proposals must be in writing,
must be received by the Company prior to June 24, 2000 and must satisfy the
other requirements of the federal securities laws. In the event that a proposal
intended to be presented for action at the 2000 Annual Meeting by any
shareholder of the Company is not received prior to September 2, 2000, then the
management proxies will be permitted to use their discretionary voting authority
with respect to that proposal, whether or not the proposal is discussed in the
Proxy Statement. Proposals should be sent to the Company by certified mail
return receipt requested.
By Order of the Board of Directors
/s/ John C. Edmunds
-------------------------------------------
John C. Edmunds
Secretary
15
<PAGE> 18
CHILDREN'S COMPREHENSIVE SERVICES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 17, 1999
The undersigned hereby appoints William J Ballard and John C. Edmunds and
each of them, as proxies, with full power of substitution, to vote all shares of
the undersigned as shown below on this proxy at the Annual Meeting of
Shareholders of Children's Comprehensive Services, Inc. (the "Company"), to be
held on Wednesday, November 17, 1999, at the Loews Vanderbilt Plaza, located at
2100 West End Avenue, Nashville, Tennessee, at 9:00 a.m., local time, and any
adjournments thereof.
(1) ELECTION OF DIRECTORS:
[ ] FOR all of the following nominees (except as indicated to the contrary
below):
William J Ballard, Amy S. Harrison, Martha A. Petrey, Ph.D., Thomas B.
Clark, Joseph A. Fernandez, Ed.D., and David L. Warnock.
[ ] AGAINST the following nominee(s); (please print name(s)):
----------------------------------------------------------------------------
[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for the following nominee(s);
(please print name(s)):
----------------------------------------------------------------------------
[ ] AGAINST all nominees
[ ] WITHHOLD AUTHORITY (ABSTAIN) to vote for all nominees.
(2) To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the 2000 fiscal year.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(3) In their discretion on any other matter which may properly come before the
meeting or any adjournment thereof.
(PLEASE DATE AND SIGN THIS PROXY BELOW.)
Your shares will be voted in accordance with your instructions. If no choice
is specified, your shares will be voted FOR the nominees in the election of
directors and FOR the ratification of the selection of Ernst & Young LLP as the
Company's independent auditors for the 2000 fiscal year.
Date: , 1999
-------------------
PLEASE SIGN HERE AND RETURN
PROMPTLY
-------------------------------
-------------------------------
Please sign exactly as your
name appears at left. If
registered in the names of two
or more persons, each should
sign. Executors,
administrators, trustees,
guardians, attorneys, and
corporate officers should show
their full titles.
- --------------------------------------------------------------------------------
If you have changed your address, please PRINT your new address on this line.
