1
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:
[ ] 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
Children's Comprehensive Services, 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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
[X] 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:
2
[Logo]
CHILDREN'S COMPREHENSIVE SERVICES, INC.
805 South Church Street
Murfreesboro, Tennessee 37130
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, AUGUST 14, 1996
---------------
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 offices of the Company located at 805 South Church Street,
Murfreesboro, Tennessee, on Wednesday, August 14, 1996 at 10:00 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 consider and act upon a proposal to amend the Company's
Restated Charter to increase the number of authorized shares
of the Company's Common Stock, par value $.01 per share, from
10,000,000 to 50,000,000 shares;
(3) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the 1997 fiscal year; and
(4) 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 July 15,
1996 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/ Donald B. Whitfield
-----------------------
Donald B. Whitfield
Secretary
Murfreesboro, Tennessee
July 22, 1996
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.
3
CHILDREN'S COMPREHENSIVE SERVICES, INC.
805 South Church Street
Murfreesboro, Tennessee 37130
-------------------
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 August 14, 1996,
at 10:00 a.m., local time, at the offices of the Company, 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 March 31, 1996 (the "Annual Report") have been mailed
on or about July 22, 1996, to all shareholders of record on July 15, 1996.
The purposes of the Annual Meeting are: to elect six directors; to
consider and act upon a proposal to amend the Company's Restated Charter to
increase the number of authorized shares of the Company's Common Stock, $.01
par value per share (the "Common Stock"), from 10,000,000 to 50,000,000 shares
(the "Charter Amendment"); 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, for the Charter Amendment 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 Board of Directors has fixed the close of business on July 15,
1996 as the record date for the Annual Meeting (the "Record Date"). The
Company's only outstanding class of securities is its Common Stock. On the
Record Date, the Company had outstanding 5,499,160 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.
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
telegram. 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.
1
4
PROPOSAL 1. ELECTION OF DIRECTORS
Directors are elected each year to hold office until the next Annual
Meeting of Shareholders and until their successors are duly elected and
qualified. The Company's By-laws 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
NAME AGE POSITION(S) WITH COMPANY DIRECTOR SINCE
- ------------------------------ ----- --------------------------------- --------------------
William J Ballard 54 Chairman, Chief Executive Officer May 1993
and Director
Amy S. Harrison 46 Vice Chairman, President May 1988
and Director
Martha A. Petrey, Ph.D. 53 Executive Vice President and May 1988
Director
Thomas B. Clark 54 Director September 1994
Joseph A. Fernandez, Ed.D.(1) 60 Director September 1994
David L. Warnock(1) 38 Director September 1994
- ------------------------------------
(1) Pursuant to an agreement dated September 20, 1993 between the Company,
T. Rowe Price Strategic Partners Fund II, L.P. ("T. Rowe Price"), Ms.
Harrison and Dr. Petrey, such persons have agreed to vote their shares
in accordance with the pro rata ownership of T. Rowe Price so that T.
Rowe Price has representation on the Board of Directors approximately
equal to its percentage ownership in the Company. See "Executive
Compensation - Certain Transactions." Mr. Warnock and Dr. Fernandez
are the designated representatives of T. Rowe Price.
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.
2
5
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. Ms. Harrison founded a group of
corporations collectively known as Advocate Schools ("Advocate Schools") in
1977, and served as an executive officer and a director of those corporations
until their acquisition by the Company in March 1988 and February 1990. 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 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 and February 1990. 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.
Mr. Clark is 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 is President of Joseph A. Fernandez & Associates, Inc.,
an education consulting firm. From June 1993 until June 1996, Dr. Fernandez
served as President and Chief Executive Officer of School Improvement Services,
Inc., a Winter Park, Florida organization which provides consulting services
related to school improvement at the state, district or school level. Prior to
assuming such position 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
received his Doctor of Education from Nova University in 1985.
Mr. Warnock is a partner at Cahill, Warnock & Company, an investment
management company, as well as a consultant to the Advisory Committee of T.
Rowe Price, a principal shareholder of the Company. See "Security Ownership of
Certain Beneficial Owners and Management - Certain Beneficial Owners" and
"Executive Compensation - Certain Transactions." Until July 1995, Mr. Warnock
served as President of T. Rowe Price Strategic Partners II, L.P., the general
partner of T. Rowe Price, and as a Vice President of T. Rowe Price
Associates, 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
March 31, 1996, 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 twice during the fiscal year ended March 31, 1996, 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 change
therein.
The Nominating Committee, which did not formally meet during the
fiscal year ended March 31, 1996, 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.
3
6
During the fiscal year ended March 31, 1996, the Company's Board of
Directors met five 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 year.
DIRECTOR COMPENSATION
The Company's directors receive an annual retainer of $4,000 and
reimbursement for expenses. In addition, the Company has adopted the 1989 Stock
Option Plan for Non-Employee Directors, as amended, pursuant to which each non-
employee director of the Company receives an automatic annual stock option
grant to purchase 3,750 shares of Common Stock with an exercise price per share
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.
EXECUTIVE OFFICERS
The following are the current executive officers of the Company.
NAME Age Position(s) with Company
- ----------------------------------- ----- -------------------------------------------------
William J Ballard 54 Chairman, Chief Executive Officer and Director
Amy S. Harrison 46 Vice Chairman, President and Director
Martha A. Petrey, Ph.D. 53 Executive Vice President and Director
Stephen H. Norris 51 Executive Vice President
Vicki M. Agee, Ph.D. 57 Vice President
Kathryn Behm Celauro 48 Vice President - Business Development
Mary P. Trainor 50 Vice President
Donald B. Whitfield 44 Vice President - Finance, Secretary and Treasurer
- -----------------------------------
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. Norris has served as Executive Vice President of the Company since
April 1993. From June 1990 through March 1993, Mr. Norris served as President
of the Company. From December 1988 to May 1990, Mr. Norris served as Executive
Director of the Tennessee Business Roundtable and, from 1985 to 1988, Mr.
Norris served as Commissioner of the Tennessee Department of Correction.
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 Vice President - Business Development 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 and was an Assistant Attorney
General for the State of Tennessee for four years.
Ms. Trainor has served as a Vice President of the Company since 1989.
Ms. Trainor served as Administrative Director of Advocate Schools/Group Homes
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
three of the four Advocate Schools corporations.
Mr. Whitfield has served as Vice President - Finance, Secretary and
Treasurer of the Company since March 1993. Mr. Whitfield has been employed by
the Company since March 1988 in various capacities, including Controller,
Assistant Secretary and Assistant Treasurer. Mr. Whitfield is a certified
public accountant.
4
7
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of the Record
Date 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.
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
- ------------------------------------------------------ ------------------------ ------------------
T. Rowe Price Strategic Partners Fund II, L.P. 1,834,280 33.4%
100 East Pratt Street
Baltimore, MD 21202
Amy S. Harrison 348,579(1) 6.3%
11980 S. Mt. Vernon
Grand Terrace, CA 92324
Martha A. Petrey, Ph.D. 340,246(2) 6.1%
11980 S. Mt. Vernon
Grand Terrace, CA 92324
- -------------------------------
(1) Includes 44,000 stock options granted to Ms. Harrison pursuant to the
Company's 1987 Employee Stock Option Plan (the "Employee Plan"). 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.
(2) Includes 35,667 stock options granted to Dr. Petrey pursuant to the
Employee Plan. The shares issuable to Dr. Petrey 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.
5
8
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of the Record
Date with respect to the Common Stock beneficially owned by each director, each
of the executive officers named in the Summary Compensation Table
(collectively, the "Named Officers"), 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.
Amount and Nature of Beneficial
Name Ownership(1) Percent of Class
- -------------------------------------- --------------------------------- ------------------
Amy S. Harrison(2)(3) 348,579 6.3%
Martha A. Petrey, Ph.D.(2)(3) 340,246 6.1%
William J Ballard(2)(3) 115,000 2.0%
Thomas B. Clark(2) 7,250(4) *
Joseph A. Fernandez, Ed.D.(2) 19,336(5) *
David L. Warnock(2) 6,500(6) *
Stephen H. Norris(3) 17,767 *
Donald B. Whitfield(3) 16,733
All Executive Officers and Directors as 893,685 15.5%
a Group (11 persons)
- -------------------------------------
* Less than one percent
(1) Pursuant to rules of the Securities and Exchange Commission (the
"SEC"), the shares indicated include the following shares issuable
upon exercise of outstanding stock options:
William J. Ballard 114,000
Amy S. Harrison 44,000
Martha A. Petrey, Ph.D. 35,667
Stephen H. Norris 17,667
Donald B. Whitfield 16,500
Thomas B. Clark 6,250
Joseph A. Fernandez, Ed.D. 6,250
David L. Warnock 6,250
All Executive Officers and 262,368
Directors as a Group
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.
(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 9,616 shares
of Common Stock issued to School Improvement Services, Inc., of which
Dr. Fernandez is a principal shareholder and served as President and
Chief Executive Officer until June 1996.
6
9
(6) Does not include 1,834,280 shares of Common Stock owned by T. Rowe
Price. Mr. Warnock serves as a consultant to the Advisory Committee of
T. Rowe Price and is the former President of T. Rowe Price Strategic
Partners II, L.P., the general partner of T. Rowe Price. In such
capacity, Mr. Warnock may be deemed to share voting and investment
power with respect to such shares. Mr. Warnock disclaims beneficial
ownership of such shares.
REPORTS OF BENEFICIAL OWNERSHIP UNDER SECTION 16(a) OF THE EXCHANGE ACT
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 1996 fiscal year.
7
10
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
March 31, 1996 (collectively, the "Named Officers"):
Long-Term
Annual Compensation Compensation
-------------------------------------- ----------------------------
Awards Payouts
---------------------------- ---------
Restricted Options/ LTIP All Other
Name and Principal Stock SARs Payouts Compen-
Position Year Salary($) Bonus ($) Awards($) (#) ($) sation($)
- ------------------------ ------ ----------- ----------- ------------ ---------- --------- -----------
William J Ballard 1996 160,000 94,429 -- 12,000 -- --
Chairman, Chief 1995 160,000 67,403 -- 20,000 -- --
Executive Officer and 1994 100,000 105,007 -- -- -- --
Director
Amy S. Harrison 1996 160,000 94,429 -- 12,000 -- 90,000(1)
Vice Chairman, 1995 160,000 67,403 -- 20,000 -- --
President and Director 1994 100,000 63,004 -- 10,000 -- --
Martha A. Petrey, Ph.D. 1996 130,000 47,214 -- 8,000 -- 90,000(1)
Executive Vice 1995 130,000 31,294 -- 13,000 -- --
President and Director 1994 100,000 52,503 -- 10,000 -- --
Stephen H. Norris 1996 96,557 35,411 -- 8,000 -- --
Executive Vice 1995 96,000 24,072 -- 10,000 -- --
President 1994 90,000 21,002 -- 10,000 -- --
Donald B. Whitfield(2) 1996 77,083 25,181 -- 4,500 -- --
Vice President -
Finance, Secretary and
Treasurer
- ------------------------------
(1) Consists of supplemental compensation paid to Ms. Harrison and Dr.
Petrey.
(2) Amounts for fiscal 1995 and 1994 are not reported as total salary and
bonus paid to Mr. Whitfield did not exceed $100,000 for such periods.
8
11
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The table below shows information concerning the grants of stock
options pursuant to the Employee Plan during the fiscal year ended March 31,
1996 to the Named Officers. No Stock Appreciation Rights ("SARs") have ever
been granted by the Company.
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation For
Individual Grants Option Term
- ------------------------------------------------------------------------------------------- ------------------------
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted(1) in Price Expiration
Name (#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ------------------------ ------------ ------------- ---------- ------------ -------- ---------
William J Ballard 12,000 15.4% 5.25 05/17/05 39,627 100,422
Amy S. Harrison 12,000 15.4% 5.25 05/17/05 39,627 100,422
Martha A. Petrey, Ph.D. 8,000 10.3% 5.25 05/17/05 26,418 66,948
Stephen H. Norris 8,000 10.3% 5.25 05/17/05 26,418 66,948
Donald B. Whitfield 4,500 5.8% 5.25 05/17/05 14,860 37,658
- ------------------------------------
(1) These options become exercisable over a three-year period ending May
17, 1998, with one-third of the options vesting on May 17 of each year.
9
12
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The table below provides information as to the number of shares
covered by both exercisable and unexercisable stock options pursuant to the
Employee Plan as of March 31, 1996. Also reported are the values for the
"in-the-money" options, which represent the positive spread between the
exercise price of any such existing stock options and the year-end price of
the Common Stock. No options were exercised by the Named Officers during the
fiscal year ended March 31, 1996.
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money
Shares Options/SARs at Options/SARs at
Acquired Year End (#) Year End ($)
on ------------------------ ----------------------
Exercise Value Exercisable (E)/ Exercisable (E)/
Name (#) Realized($) Unexercisable (U) Unexercisable (U)
- ------------------------ ---------- ------------- ------------------------ ----------------------
William J Ballard -- -- 124,000 E 1,185,000 E
8,000 U 44,000 U
Amy S. Harrison -- -- 54,000 E 339,500 E
8,000 U 44,000 U
Martha A. Petrey, Ph.D. -- -- 45,667 E 279,668 E
5,333 U 29,332 U
Stephen H. Norris -- -- 22,667 E 182,168 E
5,333 U 29,332 U
Donald B. Whitfield -- -- 22,375 E 155,906 E
3,000 U 16,500 U
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.
DISCLOSURE OF COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. Clark and
Warnock and Dr. Fernandez. See "Certain Transactions."
CERTAIN TRANSACTIONS
Amy S. Harrison and Martha A. Petrey, Ph.D. are the former
shareholders of Advocate Schools and are now executive officers and directors
of the Company. After acquiring Advocate Schools, the Company continued
payments under several real property leases between Ms. Harrison and Dr. Petrey
and Advocate Schools on real property owned by Ms. Harrison and Dr. Petrey.
These leases expired during fiscal 1994. However, the Company continues to
lease certain of the subject properties on a month-to-month basis under the
same payment terms and conditions as in the original leases. Payments to Ms.
Harrison and Dr. Petrey under these month-to-month rental arrangements during
fiscal 1996 totaled $101,000.
In September 1993, the Company received $1,500,000 from T. Rowe Price
under a twelve percent (12%), one-year term loan. This loan had equity
components through which T. Rowe Price received 344,401 shares of the Common
Stock upon closing and a warrant to increase its ownership position to up to
one-third of the total outstanding Common Stock. In July 1994, T. Rowe Price
exercised its warrant, receiving 3,324,159 shares of Common Stock for a total
consideration of $1,848,000. A portion of the proceeds from the warrant
exercised, $500,000, was used to reduce the balance outstanding under the term
loan to $1,000,000. In September 1994, T. Rowe Price renewed the $1,000,000
balance outstanding under this loan for a term of five years. During fiscal
1996, the Company made unscheduled principal payments of approximately $708,000
toward the T. Rowe Price term loan, resulting in the retirement of the
remaining obligation under such loan. In connection with this loan, the Company
also entered into a registration rights agreement pursuant to which T. Rowe
Price has contractual rights with respect to the registration of shares of
Common Stock under the Securities Act of 1933, as amended. In addition, T. Rowe
Price obtained the right, for as long as T. Rowe Price owns Common Stock with
voting power
10
13
equal to at least 33% of the aggregate voting power of all outstanding Common
Stock, to designate two representatives for nomination to the Company's Board
of Directors. Mr. Warnock and Dr. Fernandez are the designated representatives
of T. Rowe Price.
In June 1996, the Company entered into a one-year agreement with
Joseph A. Fernandez & Associates, Inc., of which Dr. Fernandez serves as
President, for the provision of certain marketing and consulting services to
the Company. Pursuant to the terms of this agreement, Joseph A. Fernandez &
Associates, Inc. will be paid a monthly fee of $4,167 and will receive warrants
for 20,000 shares of Common Stock for each new Company program obtained as a
result of services provided under the agreement that meet specified annual
operating income criteria.
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. See "Meetings and Committees of the Board of Directors."
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 specified operating results. The
specific criteria for awarding bonuses and the amounts of such bonuses are
determined by the Compensation Committee, and are based on the attainment of
targeted levels of earnings. In fiscal 1996, the Company exceeded the targeted
level of earnings and, consequently, the executive officers of the Company
received performance bonuses which aggregated $362,763.
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
fiscal 1996, the Company granted an aggregate of 55,500 stock options 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, does not
have an employment agreement with the Company; however, the Company's
employment relationship with Mr. Ballard is reviewed annually. The Compensation
Committee believes that Mr. Ballard's base salary of $160,000 is competitive
with the base salary of other chief executive officers of comparably sized
companies. Mr. Ballard is also eligible for an incentive bonus based on the
Company's operating performance in fiscal 1997. The specific criteria for the
awarding of such bonus is approved by the Compensation Committee. 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, especially in light of the record
financial performance of the Company in fiscal 1996.
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. Because the Company is in no immediate danger of losing any
deduction, the Company has not yet taken any action to qualify its stock
incentive plans as performance-based compensation.
The tables set forth under "Executive Compensation," and accompanying
narrative and footnotes, reflect the decisions covered by the above discussion.
Thomas B. Clark
Joseph A. Fernandez, Ed.D.
David L. Warnock
11
14
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 cumulative total return basis assumes
reinvestment of dividends.
CRSP TOTAL RETURNS INDEX
Children's Comprehensive Nasdaq Stock Market NYSE/AMEX/NASDAQ Stocks
Services, Inc. (US Companies) (SIC 8200-8299 US Companies)
------------------------ ------------------- ----------------------------
03/28/91 100.0 100.0 100.0
03/31/92 35.5 127.5 117.8
03/31/93 8.9 146.5 92.8
03/31/94 41.9 158.1 90.9
03/31/95 67.7 175.9 108.8
03/29/96 138.7 238.8 187.3
* Peer Group index includes Companies in SIC 8200, Educational Services.
The index was prepared by the center for Research in Securities
Prices, The University of Chicago Graduate School of Business.
12
15
PROPOSAL 2: INCREASE IN THE AUTHORIZED SHARES OF COMMON STOCK
On June 24, 1996, the Board of Directors approved and directed that
the shareholders consider an amendment to the Company's Restated Charter to
increase the number of authorized shares of Common Stock from 10,000,000 to
50,000,000 shares. The following description is qualified in its entirety to
the complete text of the proposed Charter Amendment, which is set forth as
Exhibit A to this Proxy Statement.
As of the Record Date, there were 5,499,160 shares of Common Stock
issued and outstanding, and an additional 924,432 shares reserved for issuance
under the Company's stock option plans and an outstanding warrant. Accordingly,
as of the Record Date, a balance of 3,576,408 authorized shares of Common Stock
were available for future issuance. In addition, on July 18, 1996, the Company
filed a registration statement with the SEC relating to the public offering by
the Company (the "Offering") of up to 1,775,000 shares of Common Stock
(including an option granted to the underwriters to purchase up to 225,000
additional shares to cover over-allotments, if any). If the Offering is
completed (including the exercise in full by the underwriters of the
over-allotment option), a balance of 1,801,408 authorized shares of Common
Stock would be available for future issuance.
The Board of Directors believes that it is in the best interest of the
Company and all of its shareholders to approve the Charter Amendment because it
would give the Company the necessary flexibility to issue Common Stock in
connection with stock dividends and splits, acquisitions, equity financings
(such as the Offering), employee benefit plans, and for other general
corporate purposes. These future issuances would be at the discretion of the
Board of Directors without the expense and delay incidental to obtaining
shareholder approval, except as may be required by applicable law or by the
rules of any stock exchange or over-the-counter market on which the Company's
securities may then be listed. For example, the Nasdaq National Market, on
which the Common Stock is authorized for quotation, currently requires
shareholder approval as a prerequisite to the issuance of securities in several
instances, including in connection with acquisitions where the present or
potential issuance of shares of Common Stock could result in an increase in the
number of shares of Common Stock outstanding by twenty percent (20%) or more.
Except as set forth above, the Company currently has no definitive
understanding, arrangement or agreement with respect to the issuance of
additional shares of Common Stock.
The proposed increase in the number of authorized shares of Common
Stock could enable the Board of Directors to render more difficult or
discourage an attempt by another person or entity to obtain control of the
Company. Such additional shares could be issued by the Board of Directors in a
public or private sale, merger, or similar transaction, thereby increasing the
number of outstanding shares and diluting the equity interest and voting power
of a party attempting to gain control of the Company. Holders of Common Stock
have no preemptive rights to subscribe for any additional securities of any
class that the Company may issue. The Board of Directors has no present
intention, however, of issuing additional shares of Common Stock for such
purposes and the Charter Amendment is not being proposed in response to any
effort known by management to acquire control of the Company.
The affirmative vote of a majority of the shares of Common Stock
present and voting thereon is required to approve the Charter Amendment. If
this proposal is approved by the requisite number of shareholders at the Annual
Meeting, the Charter Amendment will become effective upon the filing of
Articles of Amendment to the Restated Charter with the Secretary of State of
the State of Tennessee, which filing is expected to take place shortly after
the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2.
13
16
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors of the Company for the 1997 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.
The affirmative vote of a majority of the shares of Common Stock
present and voting thereon is required for adoption of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 3.
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentations at the
fiscal 1997 Annual Meeting of Shareholders of the Company and inclusion in the
proxy statement and form of proxy for such meeting should forward such
proposals to Donald B. Whitfield, Secretary, Children's Comprehensive Services,
Inc., 805 South Church Street, Murfreesboro, Tennessee 37130. Proposals must be
in writing and must be received by the Company prior to March 25, 1997.
Proposals should be sent to the Company by certified mail return receipt
requested.
METHOD OF COUNTING VOTES
Pursuant to rules promulgated by the SEC, boxes and a designated blank
space are provided on the proxy card for shareholders to mark if they wish to
vote "for," "against" or "withhold authority (or abstain)" on matters submitted
to the shareholders. Under applicable securities laws, Tennessee law and the
Restated Charter and By-laws, an abstention or withholding of authority to vote
will have no effect on the outcome of any of the matters to be submitted to the
shareholders. Shares represented at the Annual 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 at the
Annual Meeting.
A broker non-vote occurs when a broker holding shares registered in a
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 matters. Under
Tennessee law and the Restated Charter and By-laws, broker non-votes will have
no impact on any of the matters submitted to the shareholders, but shares
represented by a proxy card marked with a non-vote would be counted as present
for purposes of determining the existence of a quorum.
By Order of the Board of Directors
/s/ Donald B. Whitfield
-----------------------
Donald B. Whitfield
Secretary
14
17
EXHIBIT A
ARTICLES OF AMENDMENT TO THE RESTATED CHARTER
OF
CHILDREN'S COMPREHENSIVE SERVICES, INC.
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendment (the "Articles of Amendment") to its Restated Charter, as
amended (the "Restated Charter"):
1. Name of Corporation. The name of the Corporation is Children's
Comprehensive Services, Inc.
2. Section 6 of the Restated Charter is hereby deleted in its
entirety and replaced with the following:
6. The maximum number of shares of capital stock the
Corporation shall have the authority to issue is
sixty million (60,000,000) shares, of which fifty
million (50,000,000) shares are designated Common
Stock, par value One One-Hundredth of a Dollar
($.01) per share, and ten million (10,000,000) shares
are designated Preferred Stock, par value One Dollar
($1.00) per share.
3. Adoption. These Articles of Amendment were duly adopted by the
Board of Directors on June 24, 1996, and by the Shareholders of the Corporation
on August 14, 1996.
4. Effective Date. These Articles of Amendment will be effective
when filed with the Secretary of State.
Date: August __, 1996
CHILDREN'S COMPREHENSIVE SERVICES, INC.
By:
-------------------------------------
Donald B. Whitfield, Secretary
15
18
APPENDIX A
CHILDREN'S COMPREHENSIVE SERVICES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON WEDNESDAY, AUGUST 14, 1996.
The undersigned hereby appoints William J Ballard and Donald B.
Whitfeld, and either of them, as proxies, with full power of substitution, to
vote all shares of the undersigned as shown on the reverse of this proxy at the
Annual Meeting of Shareholders of Children's Comprehensive Services, Inc. (the
"Company"), to be held on Wednesday, August 14, 1996, at the offices of the
Company at 805 South Church Street, Murfreesboro, Tennessee at 10:00 a.m., local
time, and any adjournments thereof.
(change of address):
----------------------------------------
----------------------------------------
----------------------------------------
IMPORTANT: PLEASE DATE AND SIGN THIS PROXY ON THE REVERSE SIDE.
[X] PLEASE MARK YOUR VOTES AS INDICATED IN THIS EXAMPLE
1. ELECTION OF DIRECTORS
William J Ballard, Amy S. Harrison, Martha A. Petrey, Ph.D, Thomas B. Clark,
Joseph A. Fernandez, Ed.D, and David L. Warnock
[ ] FOR all nominees listed (except as indicated to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed.
(INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write the nominee's name(s) on the line below.)
- ------------------------------------------------------------------------------
2. APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED CHARTER TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE 1997 FISCAL YEAR.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. IN THEIR DISCRETION ON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PLEASE CHECK BOX IF YOU HAVE A CHANGE OF ADDRESS. [ ]
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, FOR the increase in the authorized shares of common stock, and FOR
the ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the 1997 fiscal year.
Date:______________________________, 1996
PLEASE SIGN HERE AND RETURN PROMPTLY
- -----------------------------------------
- -----------------------------------------
Please sign exactly as your name appears at left. If shares are registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys should show their full titles. If a
corporation is shareholder, the corporate officer should sign in full corporate
name and title, such as President or other officer. If a partnership or limited
liability company is shareholder, please sign in such organization's name by an
authorized person.