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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:
[ ] 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):
[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:
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[LOGO]
3401 West End Avenue, Suite 500
Nashville, Tennessee 37203
--------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 11, 1998
--------------
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 11, 1998 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 a proposal to approve the Company's Employee Stock
Purchase Plan;
(3) To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the 1999 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 September 18,
1998 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 19, 1998
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.
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CHILDREN'S COMPREHENSIVE SERVICES, INC.
3401 West End Avenue, Suite 500
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 11, 1998,
at 10:00 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, 1998 (the "Annual Report") have been mailed
on or about October 19, 1998, to all shareholders of record on September 18,
1998.
The purposes of the Annual Meeting are: to elect six directors; to
consider a proposal to approve the Company's Employee Stock Purchase Plan; 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 approval of the Company's Employee Stock Purchase Plan
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 18,
1998 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 7,340,608 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.
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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. 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 affirmative vote of a
majority of the shares represented and voting in person or by proxy at the
meeting is required for approval of the Employee Stock Purchase Plan. 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 Restated
Charter and Bylaws, an abstention or withholding of authority to vote will have
no effect on the election of directors, approval of the Employee Stock Purchase
Plan 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 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 matter. Under Tennessee law and
the Company's Charter and Bylaws, broker non-votes will have no impact on the
election of directors, approval of the Employee Stock Purchase Plan, 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.
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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 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
Name Age Position(s) with Company Director Since
- ----------------------------- --- --------------------------------- -----------------------
William J Ballard 56 Chairman, Chief Executive Officer May 1993
and Director
Amy S. Harrison 48 Vice Chairman, President May 1988
and Director
Martha A. Petrey, Ph.D. 55 Executive Vice President and May 1988
Director
Thomas B. Clark 56 Director September 1994
Joseph A. Fernandez, Ed.D. 62 Director September 1994
David L. Warnock 40 Director September 1994
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.
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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 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. 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 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 Alliance National, Inc., Environmental Safeguards, 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 3 times during the fiscal year ended June 30,
1998, 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 2 times during the fiscal year ended June 30, 1998, 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, 1998, 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, 1998, 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 fiscal year ended June 30, 1998.
DIRECTOR COMPENSATION
The Company's non-employee directors receive an annual retainer of
$4,000 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.
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EXECUTIVE OFFICERS
The following are the current executive officers of the Company.
NAME AGE POSITION(S) WITH COMPANY
- ----------------------- --- ----------------------------------------------------
William J Ballard 56 Chairman, Chief Executive Officer and Director
Amy S. Harrison 48 Vice Chairman, President and Director
Martha A. Petrey, Ph.D. 55 Executive Vice President and Director
H. Neil Campbell 44 Executive Vice President
Stephen H. Norris 53 Executive Vice President
Vicki M. Agee, Ph.D. 59 Vice President
Kathryn Behm Celauro 50 Vice President Business Development
John C. Edmunds 44 Vice President, Secretary and Treasurer
Barbara M. Lonardi 45 Vice President Corporate Resources and Compliance
Mary P. Trainor 52 Vice President
Donald B. Whitfield 46 Vice President Finance and Chief Financial Officer
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 November 1990 until December 1992.
Mr. Norris has served as an 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.
Mr. Edmunds has served as Vice President, Secretary and Treasurer of
the Company since November 1997. Prior to joining the Company in June 1997, Mr.
Edmunds was employed by Vendell Healthcare from January 1992 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.
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Ms. Lonardi has served as Vice President Corporate Resources and
Compliance since June 1997, and 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.
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 October 14,
1998 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
- --------------------------------------------------- -------------------- ----------------
The Kaufmann Fund, Inc. (1) 500,000 6.81%
140 East 45th Street, 43rd Floor
New York, New York 10017
T. Rowe Price Strategic Partners Fund II, L.P. (2) 500,000 6.81%
100 East Pratt Street
Baltimore, Maryland 21202
Equitable Asset Management, Inc. (3) 401,547 5.47%
511 Union Street, Suite 800
Nashville, Tennessee 37219
Amy S. Harrison 374,914 (4) 5.06%
11980 S. Mt. Vernon
Grand Terrace, California 92324
- ----------
(1) Based on information included in Form 13G filed by The Kaufmann Fund, Inc.
with the Securities and Exchange Commission on January 29, 1998.
(2) Based on discussions with T. Rowe Price Strategic Partners Fund II, L.P.
(3) Based on information included in Form 13G filed by Equitable Asset
Management, Inc. with the Securities and Exchange Commission on March 19,
1998.
(4) Includes 70,335 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.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of October 14,
1998 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
NAME BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- -------------------------------------- ----------------------- ----------------
Amy S. Harrison(2)(3) 374,914 5.06%
Martha A. Petrey, Ph.D.(2)(3) 331,580 4.49%
William J Ballard(2)(3) 96,334 1.30%
Thomas B. Clark(2) 16,000(4) *
Joseph A. Fernandez, Ed.D.(2) 22,328(5) *
David L. Warnock(2) 51,450(6) *
H. Neil Campbell(3) 28,267 *
Stephen H. Norris (3) 30,601
All Executive Officers and Directors as 1,027,145 13.41%
a Group (14 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 55,334
Amy S. Harrison 70,335
Martha A. Petrey, Ph.D 47,001
Stephen H. Norris 25,001
H. Neil Campbell 11,667
Thomas B. Clark 15,000
Joseph A. Fernandez, Ed.D 15,000
David L. Warnock 15,000
All Executive Officers and
Directors as a Group 315,717
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 3,858 shares of
Common Stock.
(6) Includes 13,000 shares held by Camden Partners, L. P. ("Camden") of which
Mr. Warnock is a responsible person. Mr. Warnock is a 50% owner of Cahill
Warnock & Co., LLC, which is the General Partner of Camden, and which also
owns 13.2% of Camden. Mr. Warnock is also a limited partner of Camden,
owning a 6.6% interest for his
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personal IRA. Mr. Warnock disclaims beneficial ownership of any shares in
which he does not have an actual pecuniary interest.
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
1998 fiscal year.
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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, and for the three months ended June 30, 1996 (see note 1 below),
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, 1998 (collectively, the "Named Officers").
Long-Term
Annual Compensation Compensation
-------------------------------------------------- ------------
Awards
------------
Name and Principal Year or Options/ All Other
Position Period Salary ($) Bonus ($) SARs (#) Compensation($)
-------- ------ ---------- --------- -------- ---------------
William J Ballard 1998 200,000 95,000 ---
Chairman, Chief 1997 165,000 91,015 50,000
Executive Officer and 1996(1) 40,000 26,059 10,000
Director 1996 160,000 94,429 12,000 --
Amy S. Harrison 1998 200,000 100,000 10,000
Vice Chairman, 1997 165,000 91,015 25,000
President and Director 1996(1) 40,000 26,059 10,000
1996 160,000 94,429 12,000 90,000(2)
Martha A. Petrey, Ph.D. 1998 130,000 45,000 5,000
Executive Vice 1997 130,000 37,264 7,000
President and Director 1996(1) 32,500 13,029 5,500
1996 130,000 47,214 8,000 90,000(2)
H. Neil Campbell 1998 175,000 70,000 20,000
Executive Vice 1997(3) 14,722 --- 35,000
President
Stephen H. Norris 1998 125,000 50,000 5,000
Executive Vice 1997 103,125 46,166 10,000
President 1996(1) 25,000 10,858 5,500
1996 96,557 35,411 8,000 --
- ----------------------------
(1) In March 1997, the Company's Board of Directors voted to change the
fiscal year end from March 31 to June 30, effective with the three
month period ended June 30, 1996. These reported amounts reflect
compensation for the three month period ended June 30, 1996.
(2) Consists of supplemental compensation paid to Ms. Harrison and
Dr. Petrey.
(3) Assumed current position June 1997.
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OPTIONS/SAR 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, 1998 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 Total
of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise
SARs in or Base
Granted Fiscal Price Expiration
Name (#) Year ($/Sh) Date 5%($) 10%($)
- ----------------------- ---------- ---------- ------ -------- ------- -------
William J Ballard -- -- -- -- -- --
Amy S. Harrison 10,000 6.4% 18.25 8/13/07 114,773 290,058
Martha A. Petrey, Ph.D 5,000 3.2% 17.64 5/21/08 55,461 140,548
Stephen H. Norris 5,000 3.2% 17.64 5/21/08 55,461 140,548
H. Neil Campbell 20,000 12.9% 17.64 5/21/08 221,843 562,193
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AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES
The table below provides information as to the number of shares
acquired during the fiscal year ended June 30, 1998 upon the exercise of
outstanding options and the value realized upon exercise. Also reported are the
number of shares covered by both exercisable and unexercisable stock options as
of June 30, 1998 and the values for the "in-the-money" options, which represent
the spread between the exercise price of any such existing stock options and the
fiscal year end price of the Common Stock.
Number of Securities Value of Unexercised
Underlying Unexercised In-the Money
Shares Options/SARs at Options/SARs at
Acquired Year End (#) Year End ($)
on --------------------------- -------------------------
Exercise Value Exercisable (E)/ Exercisable (E)/
Name (#) Realized($) Unexercisable (U) Unexercisable (U)
- ----------------------------- ----------- ------------ --------------------------- -------------------------
William J Ballard 40,000 $710,200 $ 55,334 E $ 395,918 E
36,666 U 95,832 U
Amy S. Harrison -- -- 70,335 E 529,460 E
26,665 U 47,915 U
Martha A. Petrey, Ph.D. -- -- 47,001 E 392,335 E
11,499 U 13,415 U
H. Neil Campbell -- -- 11,667 E --
-- -- 43,333 U --
Stephen H. Norris 5,000 100,000 25,001 E 202,835 E
13,499 U 19,165 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., 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, 1998.
In June 1996, the Company entered into a one-year agreement with Joseph
Fernandez and Associates, Inc. for marketing and consulting services. Dr.
Fernandez serves as President of Joseph Fernandez and Associates, Inc. This
Agreement was continued on a month to month basis from July 1997 through March
1998. Payments under this Agreement during fiscal 1998, including reimbursable
expenses, totaled $33,000.
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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. For the fiscal year ended June 30, 1998, the
Company exceeded the targeted level of earnings and, consequently, the executive
officers of the Company received performance bonuses which aggregated $488,250.
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, 1998, the Company granted an aggregate of 72,500 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. Subsequent
to year-end, the Compensation Committee determined that, in light of 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 Company's Common Stock for all shareholders, the
options to purchase 62,500 shares of Common Stock issued on May 21, 1998 to
executive officers would be canceled 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 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 $200,000 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 1999. 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 1998.
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 the
accompanying narrative and footnotes reflect the decisions covered by the above
discussion.
Thomas B. Clark
Joseph A. Fernandez, Ed.D.
David L. Warnock
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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.
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Children's Comprehensive Services, Inc. 100.0 440.0 520.0 2293.3 1506.7 1586.7
Nasdaq Stock Market 100.0 101.0 134.8 173.0 210.4 277.6
Peer Group Index 100.0 90.3 121.3 207.2 266.6 328.2
* 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.
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PROPOSAL 2: APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company believes in providing the opportunity for its employees to
obtain a proprietary interest in the Company. To that end, on November 12, 1997
the Board of Directors voted to adopt, subject to shareholder approval, the
Children's Comprehensive Services, Inc. Employee Stock Purchase Plan (the "Stock
Purchase Plan"). A summary of the Stock Purchase Plan is set forth below.
The Stock Purchase Plan provides eligible employees of the Company and
its subsidiaries the opportunity to purchase shares of Common Stock at a
discounted price through accumulated payroll deductions. The purpose of the
Stock Purchase Plan is to attract and retain individuals with a high degree of
training, experience, expertise and ability, to provide an opportunity for such
individuals to acquire a proprietary interest in the success of the Company and
to more closely align their interests with those of the Company's shareholders.
ELIGIBILITY
In order to be eligible to participate in the Stock Purchase Plan, an
individual must be an employee of the Company or one of its subsidiaries and
must have been employed in such capacity for a period of at least six continuous
months prior to the first day of any Option Period (as defined below); provided,
however, any employee whose customary employment is twenty hours per week or
less or whose customary employment is for not more than five months in any
calendar year is not eligible to participate in the Stock Purchase Plan. Also,
any employee who is a five percent or greater shareholder of the Company's
voting stock is not eligible to participate in the Stock Purchase Plan.
If the Company acquires or creates a new subsidiary, employees of such
subsidiary will automatically become eligible to participate in the Stock
Purchase Plan, unless otherwise determined by the Board of Directors. Where a
subsidiary is acquired, its employees may be given credit for service with the
acquired subsidiary prior to the acquisition for purposes of satisfying the
requirement of six months continuous employment. As of August 31, 1998, the
Company had approximately 1,600 full-time employees, and estimates that in
excess of three-fourths of such employees would have been eligible to
participate in the Stock Purchase Plan.
PARTICIPATION
Participation in the Stock Purchase Plan is voluntary and eligible
employees may enroll by specifying the amount of compensation to be deducted
during each payroll period for the purchase of shares of Common Stock. The Stock
Purchase Plan operates on the basis of successive three month periods commencing
on (i) January 1 and ending on March 31; (ii) April 1 and ending on June 30;
(iii) July 1 and ending on September 30; and (iv) October 1 and ending on
December 31 (each of which is hereinafter referred to as an "Option Period").
Assuming shareholder approval is obtained, the first Option Period will begin on
January 1, 1999.
Pursuant to the terms of the Stock Purchase Plan, eligible employees of
the Company may elect to deduct during each bi-weekly or monthly payroll period
not less than $10.00 or $20.00, respectively, and up to fifteen percent (15%) of
their base pay (subject to the limitations set forth below). The dollar amount
deducted each pay period shall be credited to the Participant's Contribution
Account. No interest will accrue on any contributions or on the balance in a
Participant's Contribution Account. On the last trading day of each Option
Period (the "Exercise Date"), the amount deducted from each participant's salary
over the course of the Option Period will be used to purchase shares of Common
Stock at a purchase price equal to the lesser of (i) 85% of the closing market
price of the Common Stock on the Exercise Date or (ii) 85% of the closing market
price of the Common Stock on the first trading date of each Option Period (the
"Grant Date"). Purchases by each participant are limited to $25,000 of market
value of Common Stock in any calendar year. If the total number of shares of
Common Stock to be purchased by all participants on an Exercise Date exceeds the
number of shares of Common Stock remaining authorized for issuance under the
Stock Purchase Plan, a pro-rata allocation of the shares of Common Stock
available for issuance will be made among participants.
To be eligible or to change the amount of withholding for an Option
Period, a participant must have completed an enrollment form specifying the
amount to be withheld no later than fifteen (15) days prior to the commencement
of an
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Option Period. An employee may at any time, in writing, elect to withdraw from
the Stock Purchase Plan and to have the employee's contributions returned to him
or her, unless such withdrawal request is within fifteen (15) days of the
Exercise Date in an Option Period. In such a case, the employees's contributions
during such Option Period will be used to purchase shares on the Exercise Date
for the benefit of the participant.
Upon termination of employment as a result of death, disability or
retirement (at or after age 65) during an Option Period, no further
contributions will be made to a participant's account. In such an event, the
participant or his or her legal representative may elect to withdraw the balance
of the participant's account, but if no such request is made, the balance will
be used to purchase shares of Common Stock on the next Exercise Date. In the
event of a termination of a participant's employment for a reason other than
death, disability or retirement during an Option Period, no further
contributions will be made and the remaining balance will be paid in cash to the
former employee.
FEDERAL INCOME TAX CONSEQUENCES
The Stock Purchase Plan is intended to qualify for favorable tax
treatment under Section 423 of the Code. Pursuant to the Code, participants
generally would not immediately recognize income for federal tax purposes of the
amount of the initial discount when shares of Common Stock are purchased. If the
recipient of Common Stock under the Stock Purchase Plan disposes of the shares
before the end of the holding period (two years after the Grant Date), he or she
generally will recognize ordinary income in the year of disposition in an amount
equal to the difference between his or her purchase price and the market value
of the Common Stock on the Exercise Date. The excess (if any) of the amount
received upon disposition over the market value on the Exercise Date will be
taxed as capital gain. If a disposition does not occur until after the
expiration of the holding period, the recipient generally will recognize
ordinary income in the year of disposition equal to the lesser of (i) the
original discount on the shares of Common Stock assuming the shares had been
purchased on the Grant Date or (ii) the excess of the fair market value of such
shares on the date of disposition over the price paid by the recipient on the
Exercise Date. The excess (if any) of the amount received upon disposition over
the tax basis (i.e., purchase price plus amount taxed as ordinary income) will
be taxed as capital gain. The Company generally will not be entitled to a tax
deduction for compensation expense of the original sales to participants, but
may be entitled to a deduction if a participant disposes of Common Stock
received under the Stock Purchase Plan prior to the expiration of the applicable
holding periods.
ADMINISTRATION
A committee composed of one or more individuals to whom authority is
delegated by the Board of Directors (the "Plan Administrator") will administer
the Stock Purchase Plan. The Plan Administrator will administer the Stock
Purchase Plan and keep records of the contribution account balance of each
participant, interpret the Stock Purchase Plan, and determine all questions
arising as to eligibility, contributions, determination of the Exercise Price
and all other matters of administration. The Plan Administrator may delegate any
or all of the foregoing duties. The initial Plan Administrator shall be the
Compensation Committee. All costs and expenses of administering the Stock
Purchase Plan shall be paid by the Company. No brokerage commissions will be
charged on a participant's purchase of Common Stock.
AMENDMENT
The Board of Directors may at any time amend the Stock Purchase Plan in
any respect, including termination of the Stock Purchase Plan, without notice to
participants. If the Stock Purchase Plan is terminated, all options outstanding
at the time of termination shall become null and void and the balance in each
participant's contribution account shall be paid to that participant. Without
the approval of the shareholders of the Company, however, the Stock Purchase
Plan may not be amended to increase the number of shares reserved under the
Stock Purchase Plan (except pursuant to certain changes in the capital structure
of the Company).
NUMBER OF SHARES RESERVED UNDER STOCK PURCHASE PLAN
The Company has reserved, subject to shareholder approval, 350,000
shares of Common Stock for issuance under the Stock Purchase Plan. The aggregate
number of shares of Common Stock reserved under the Stock Purchase Plan and the
calculation of the Exercise Price shall be adjusted by the Plan Administrator
(subject to direction by the Board of Directors) in an equitable manner to
reflect changes in the capitalization of the Company, including, but not limited
to, such changes as result from merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other
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18
than cash, stock split, combination of shares, exchange of shares and change in
corporate structure. If any such adjustment would create a fractional share of
Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares available under
the Stock Purchase Plan and the number of shares covered under any options
granted pursuant to the Stock Purchase Plan shall be the next lower number of
shares, rounding all fractions downward.
RIGHT AS A SHAREHOLDER
At the time funds are used to purchase Common Stock under the Stock
Purchase Plan, a participant shall have all the rights and privileges of a
shareholder of the Company with respect to whole shares purchased under the
Stock Purchase Plan, whether or not certificates representing such shares have
been issued.
RESTRICTIONS ON SALE
Participants in the Stock Purchase Plan may not sell, transfer, or
otherwise dispose of any shares of Common Stock obtained under the Stock
Purchase Plan until the earlier of (i) one year from the Exercise Date for such
shares of Common Stock or (ii) Participant's termination of employment with
Employer for any reason, including death, retirement or disability. In the event
that a Participant requests the issuance of a certificate representing Common
Stock issued to such Participant pursuant to the Stock Purchase Plan, such
certificate will contain an appropriate legend describing the holding period
under the Stock Purchase Plan.
NEW PLAN BENEFITS
It is not possible to determine how many eligible employees will
participate in the Stock Purchase Plan in the future. Therefore, it is not
possible to determine with certainty the dollar value or number of shares of
Common Stock that will be distributed under the Stock Purchase Plan.
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 believes it is in the best interests of the
Company and its shareholders to adopt the Stock Purchase Plan. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 2.
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors of the Company for the 1999 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 exceed the number of votes cast against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
PROPOSAL 3.
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PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at the
fiscal 1999 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 John C. Edmunds, Secretary, Children's Comprehensive Services, Inc., 3401
West End Avenue, Suite 500, Nashville, Tennessee 37203. Proposals must be in
writing, must be received by the Company prior to June 18, 1999 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 1999 Annual Meeting of
Shareholders by any shareholder of the Company is not received prior to
September 3, 1999, 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
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APPENDIX A
CHILDREN'S COMPREHENSIVE SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.1 Establishment of Plan.
Children's Comprehensive Services, Inc., a Tennessee corporation
("CCS") with principal offices located in Nashville, Tennessee, adopts the
following employee stock purchase plan for its eligible employees, effective on
January 1, 1999. This Plan shall be known as the Children's Comprehensive
Services, Inc. Employee Stock Purchase Plan.
1.2 Purpose.
The purpose of this Plan is to provide an opportunity for eligible
employees of the Employer to become stockholders of CCS. It is believed that
broad-based employee participation in the ownership of the business will help to
achieve the unity of purpose conducive to the continued growth of the Employer
and to the mutual benefit of its employees and shareholders.
1.3 Qualification.
This Plan is intended to be an employee stock purchase plan which
qualifies for favorable Federal income tax treatment under Section 423 of the
Code.
1.4 Rule 16b-3 Compliance.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934, and should be interpreted in accordance therewith.
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below:
2.1 Board of Directors. The Board of Directors of CCS.
2.2 Closing Market Price. The last sale price of the Stock as reported
in the Nasdaq National Market System (or other over-the-counter market or an
exchange, if applicable) on the date specified; or if no sales occurred on such
day, at the mean between the closing "bid" and "asked" prices on such day; but
if there should be any material alteration in the present system of
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reporting sales prices of such Stock, or if such Stock should no longer be
listed on Nasdaq's National Market System (or other over-the-counter market or
an exchange), the market value of the Stock as of a particular date shall be
determined in such a method as shall be specified by the Plan Administrator.
2.3 Code. The Internal Revenue Code of 1986, as amended from time to
time.
2.4 Commencement Date. The first day of each Option period. The first
Commencement Date shall be January 1, 1999.
2.5 Contribution Account. As set forth in Article V, the account
established on behalf of a Participant to which shall be credited the amount of
the Participant's contribution.
2.6 Effective Date. January 1, 1999.
2.7 Employee. Each employee of an Employer except:
(i) any employee whose customary employment is twenty
(20) hours per week or less, or
(ii) any employee whose customary employment is for not
more than five months in any calendar year.
2.8 Employer. CCS and any corporation which is a Subsidiary of CCS
(except for a Subsidiary which by resolution of the Board of Directors is
expressly not authorized to become a participating Employer). The term
"Employer" shall include any corporation into which an Employer may be merged or
consolidated or to which all or substantially all of its assets may be
transferred, provided such corporation does not affirmatively disavow this Plan.
2.9 Exercise Date. The last trading date of each Option Period on the
Nasdaq National Market System.
2.10 Exercise Price. The price per share of the Stock to be charged to
Participants at the Exercise Date, as determined in Section 6.3.
2.11 Five-Percent Shareholder. An Employee who owns five percent (5%)
or more of the total combined voting power or value of all classes of stock of
CCS or any Subsidiary thereof. In determining this five percent test, shares of
stock which the Employee may purchase under outstanding options, warrants or
other convertible securities, as well as stock attributed to the Employee from
members of his family or otherwise under Section 424(d) of the Code, shall be
treated as stock owned by the Employee in the numerator, but shares of stock
which may be issued under options, warrants or other convertible securities
shall not be counted in the total of outstanding shares in the denominator.
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22
2.12 Grant Date. The first trading date of each Option Period on the
Nasdaq National Market System (or other over-the-counter market or an exchange,
if applicable).
2.13 Nasdaq. The National Association of Securities Dealers Automated
Quotation System.
2.14 Option Period. Successive periods of three (3) months (i)
commencing on January 1 and ending on March 31; (ii) commencing on April 1 and
ending on June 30; (iii) commencing on July 1 and ending on September 30; and
(iv) commencing on October 1 and ending on December 31.
2.15 Participant. Any Employee of an Employer who has met the
conditions for eligibility as provided in Article IV and who has elected to
participate in the Plan.
2.16 Plan. Children's Comprehensive Services, Inc. Employee Stock
Purchase Plan.
2.17 Plan Administrator. The committee composed of one or more
individuals to whom authority is delegated by the Board of Directors to
administer the Plan. The initial committee shall be the Compensation Committee
of the Board of Directors.
2.18 Stock. Those shares of common stock, par value $.01 per share, of
CCS which are reserved pursuant to Section 6.1 for issuance upon the exercise of
options granted under this Plan.
2.19 Subsidiary. Any corporation in an unbroken chain of corporations
beginning with CCS each of which (other than the last corporation in the chain)
owns stock possessing fifty percent (50%) or more of the combined voting power
of all classes of stock in one of the other corporations in such chain.
ARTICLE III
SHAREHOLDER APPROVAL
3.1 Shareholder Approval Required.
Without the approval of the shareholders of CCS, no amendment to this
Plan shall increase the number of shares reserved under the Plan, other than as
provided in Section 10.3. Approval by shareholders must comply with applicable
provisions of the corporate charter and bylaws of CCS and with Tennessee law
prescribing the method and degree of shareholder approval required for issuance
of corporate stock or options.
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ARTICLE IV
ELIGIBILITY AND PARTICIPATION
4.1 Conditions.
Each Employee shall become eligible to become a Participant for each
Option Period on its Commencement Date if such Employee has been employed by the
Employer for a continuous period at least six (6) months prior to the
Commencement Date. No Employee who is a Five-Percent Shareholder shall be
eligible to participate in the Plan. Notwithstanding anything to the contrary
contained herein, no individual who is not an Employee shall be granted an
option to purchase Stock under the Plan.
4.2 Application for Participation.
Each Employee who becomes eligible to participate shall be furnished a
summary of the Plan and an enrollment form. If such Employee elects to
participate hereunder, Employee shall complete such form and file it with
Employer no later than fifteen (15) days prior to the next Commencement Date or,
in the case of the first Commencement Date, no later than December 15, 1998. The
completed enrollment form shall indicate the amount of Employee contribution
authorized by the Employee. If no new enrollment form is filed by a Participant
in advance of any Option Period after the initial Option Period, that
Participant shall be deemed to have elected to continue to participate with the
same contribution previously elected (subject to the limit of fifteen percent
(15%) of base pay specified in Section 5.1). If any Employee does not elect to
participate in any given Option Period, such Employee may elect to participate
on any future Commencement Date so long as such Employee continues to meet the
eligibility requirements.
4.3 Date of Participation.
All Employees who elect to participate shall be enrolled in the Plan
commencing with the first pay date after the Commencement Date following their
submission of the enrollment form. Upon becoming a Participant, the Participant
shall be bound by the terms of this Plan, including any amendments whenever
made.
4.4 Acquisition or Creation of Subsidiary.
If the stock of a corporation is acquired by CCS or another Employer so
that the acquired corporation becomes a Subsidiary, or if a Subsidiary is
created, the Subsidiary in either case shall automatically become an Employer
and its Employees shall become eligible to participate in the Plan on the first
Commencement Date after the acquisition or creation of the Subsidiary, as the
case may be. In the case of an acquisition, credit shall be given to Employees
of the acquired Subsidiary for service with such corporation prior to the
acquisition for purposes of satisfying the requirement of Section 4.1 of six (6)
months continuous employment. Notwithstanding the
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foregoing, the Board of Directors may by appropriate resolutions (i) provide
that the acquired or newly created Subsidiary shall not be a participating
Employer, (ii) specify that the acquired or newly created Subsidiary will become
a participating Employer on a date other than the first Commencement Date after
the acquisition or creation, or (iii) attach any condition whatsoever (including
denial of credit for prior service) to eligibility of the employees of the
acquired or newly created Subsidiary.
ARTICLE V
CONTRIBUTION ACCOUNT
5.1 Employee Contributions.
The enrollment form signed by each Participant shall authorize the
Employer to deduct from the Participant's compensation an after-tax amount in an
exact number of dollars during each payroll period not less than ten dollars
($10.00) for a bi-weekly payroll period, not less than Twenty Dollars ($20.00)
for a monthly payroll period, nor more than an amount which is fifteen percent
(15%) of the Participant's base pay on the Commencement Date. The dollar amount
deducted each payday shall be credited to the Participant's Contribution
Account. Participant contributions will not be permitted to commence at any time
during the Option Period other than on a Commencement Date. No interest will
accrue on any contributions or on the balance in a Participant's Contribution
Account.
5.2 Modification of Contribution Rate.
No change shall be permitted in a Participant's amount of withholding
except upon a Commencement Date, and then only if the Participant files a new
enrollment form with the Employer at least fifteen (15) days in advance of the
Commencement Date designating the desired withholding rate. Notwithstanding the
foregoing, a Participant may notify the Employer at any time that the
Participant wishes to discontinue the Participant's contributions (except during
the last 15 days of the Option Period). This notice shall be in writing and on
such forms as provided by the Employer and shall become effective as of a date
provided on the form not more than thirty (30) days following its receipt by the
Employer. The Participant shall become eligible to recommence contributions on
the next Commencement Date.
5.3 Withdrawal of Contributions.
A Participant may elect to withdraw the balance of his Contribution
Account at any time during the Option Period prior to the Exercise Date (except
during the last 15 days of the Option Period). The option granted to a
Participant shall be canceled upon his withdrawal of the balance in his
Contribution Account. This election to withdraw must be in writing on such forms
as may be provided by the Employer. If contributions are withdrawn in this
manner, further contributions
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during that Option Period will be discontinued in the same manner as provided in
Section 5.2, and the Participant shall become eligible to recommence
contributions on the next Commencement Date.
ARTICLE VI
ISSUANCE AND EXERCISE OF OPTIONS
6.1 Reserved Shares of Stock.
CCS shall reserve Three Hundred and Fifty Thousand (350,000) shares of
Stock for issuance upon exercise of the options granted under this Plan.
6.2 Issuance of Options.
On the Grant Date each Participant shall be deemed to receive an option
to purchase Stock with the number of shares and Exercise Price determined as
provided in this Article VI, subject to the maximum limit specified in Section
6.6(a). All such options shall be automatically exercised on the following
Exercise Date, except for options which are canceled when a Participant
withdraws the balance of his Contribution Account or which are otherwise
terminated under the provisions of this Plan.
6.3 Determination of Exercise Price.
The Exercise Price of the options granted under this Plan for any
Option Period shall be the lesser of
(i) eighty-five percent (85%) of the Closing Market Price
of the Stock on the Exercise Date;
(ii) eighty-five percent (85%) of the Closing Market Price
of the Stock on the Grant Date.
6.4 Purchase of Stock.
On an Exercise Date, all options shall be automatically exercised,
except that the options of a Participant who has terminated employment pursuant
to Section 7.1 or who has withdrawn all his contribution shall expire. The
Contribution Account of each Participant shall be used to purchase the maximum
number of shares of Stock (including fractional shares) determined by dividing
the Exercise Price into the balance of the Participant's Contribution Account.
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26
6.5 Terms of Options.
Options granted under this Plan shall be subject to such amendment or
modification as the Employer shall deem necessary to comply with any applicable
law or regulation, including but not limited to Section 423 of the Code, and
shall contain such other provisions as the Employer shall from time to time
approve and deem necessary.
6.6 Limitations on Options.
The options granted hereunder are subject to the following limitations:
(a) No Participant shall be permitted to purchase during any
calendar year Stock under this Plan (and any other plan of the Employer
or Subsidiary which is qualified under Section 423 of the Code) having
a market value in excess of $25,000 (as determined on the Grant Date
for the Option Period during which each such share of Stock is
purchased).
(b) No option may be granted to a Participant if the
Participant immediately after the option is granted would be a
Five-Percent Shareholder.
(c) No Participant may assign, transfer or otherwise alienate
any options granted to him under this Plan, otherwise than by will or
the laws of descent and distribution, and such options must be
exercised during the Participant's lifetime only by the Participant.
6.7 Pro-Rata Reduction of Optioned Stock.
If the total number of shares of Stock to be purchased under option by
all Participants on an Exercise Date exceeds the number of shares of Stock
remaining authorized for issuance under Section 6.1, a pro-rata allocation of
the shares of Stock available for issuance will be made among Participants in
proportion to their respective Contribution Account balances on the Exercise
Date, and any money remaining in the Contribution Accounts shall be returned to
the Participants.
6.8 State Securities Laws.
Notwithstanding anything to the contrary contained herein, the Company
shall not be obligated to issue shares of Stock to any Participant if to do so
would violate any State securities law applicable to the sale of Stock to such
Participant. In the event that the Company refrains from issuing shares of Stock
to any Participant in reliance on this Section, the Company shall return to such
Participant the amount in such Participant's Contribution Account that would
otherwise have been applied to the purchase of Stock.
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ARTICLE VII
TERMINATION OF PARTICIPATION
7.1 Termination of Employment.
Any Employee whose employment with the Employer is terminated during
the Option Period prior to the Exercise Date for any reason except death,
disability or retirement at or after age 65 shall cease being a Participant
immediately. The balance of that Participant's Contribution Account shall be
paid to such Participant as soon as practical after his termination. The option
granted to such Participant shall be null and void.
7.2 Death.
If a Participant should die while employed by the Employer, no further
contributions on behalf of the deceased Participant shall be made. The legal
representative of the deceased Participant may elect to withdraw the balance in
said Participant's Contribution Account by notifying the Employer in writing
prior to the Exercise Date in the Option Period during which the Participant
died. In the event no election to withdraw is made prior to the Exercise Date,
the balance accumulated in the deceased Participant's Contribution Account shall
be used to purchase shares of Stock in accordance with Section 6.4. Any money
remaining which is insufficient to purchase a whole share shall be paid to the
legal representative.
7.3 Retirement.
If a Participant shall retire from the employment of the Employer at or
after attaining age 65, no further contributions on behalf of the retired
Participant shall be made. The Participant may elect to withdraw the balance in
his Contribution Account by notifying the Employer in writing prior to the
Exercise Date in the Option Period during which the Participant retired. In the
event no election to withdraw is made prior to the Exercise Date, the balance
accumulated in the retired Participant's Contribution Account shall be used to
purchase shares of Stock in accordance with Section 6.4, and any money remaining
which is insufficient to purchase a whole share shall be paid to the retired
Participant.
7.4 Disability.
If a Participant should terminate employment with the Employer on
account of disability, as determined by reference to the definition of
"disability" in the Employer's long-term disability plan, no further
contributions on behalf of the disabled Participant shall be made. The
Participant may elect to withdraw the balance in his Contribution Account by
notifying the Employer in writing prior to the Exercise Date in the Option
Period during which the Participant became disabled. In the event no election to
withdraw is made prior to the Exercise Date, the balance accumulated in the
disabled Participant's Contribution Account shall be used to purchase shares
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of Stock in accordance with Section 6.4, and any money remaining which is
insufficient to purchase a whole share shall be paid to the disabled
Participant.
ARTICLE VIII
OWNERSHIP OF STOCK
8.1 Stock Certificates.
Stock purchased through exercise of the options granted hereunder shall
be uncertificated. However, certificates will be issued as soon as practical at
the written request of the Participant, in the name of the Participant, jointly
in the name of the Participant and a member of the Participant's family, or to
the Participant as custodian for the Participant's child under the applicable
jurisdiction's Gifts to Minors Act.
8.2 Premature Sale of Stock.
If a Participant (or former Participant) sells or otherwise disposes of
any shares of Stock obtained under this Plan
(i) prior to two (2) years after the Grant Date of the
option under which such shares were obtained; or
(ii) prior to one (1) year after the Exercise Date on
which such shares were obtained,
that Participant (or former Participant) must notify the Employer immediately in
writing concerning such disposition.
8.3 Restrictions on Sale. Participants may not sell, transfer, or
otherwise dispose of any shares of Stock obtained under this Plan until the
earlier of (i) one year from the Exercise Date for such shares of Stock or (ii)
Participant's termination of employment with Employer for any reason, including
death, retirement or disability. In the event that a Participant requests the
issuance of a certificate pursuant to Section 8.1, such certificate will contain
the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE WERE ISSUED
PURSUANT TO THE CHILDREN'S COMPREHENSIVE SERVICES, INC. EMPLOYEE STOCK
PURCHASE PLAN (THE "PLAN") AND MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF BY THE HOLDER HEREOF UNTIL THE EARLIER OF (i) ONE
YEAR FROM THE EXERCISE DATE (AS SUCH TERM IS DEFINED IN THE PLAN) OR
(ii) THE HOLDER'S TERMINATION OF EMPLOYMENT WITH EMPLOYER (AS SUCH TERM
IS
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DEFINED IN THE PLAN) FOR ANY REASON, INCLUDING DEATH,
RETIREMENT OR DISABILITY.
ARTICLE IX
ADMINISTRATION AND AMENDMENT
9.1 Administration.
The Plan Administrator shall (i) administer the Plan and keep records
of the Contribution Account balance of each Participant, (ii) interpret the
Plan, and (iii) determine all questions arising as to eligibility to
participate, amount of contributions permitted, determination of the Exercise
Price, and all other matters of administration. The Plan Administrator shall
have such duties, powers and discretionary authority as may be necessary to
discharge the foregoing duties, and may delegate any or all of the foregoing
duties to any individual or individuals (including officers or other Employees
who are Participants). The Board of Directors shall have the right at any time
and without notice to remove or replace any individual or committee of
individuals serving as Plan Administrator. All determinations by the Plan
Administrator shall be conclusive and binding on all persons. Any rules,
regulations, or procedures that may be necessary for the proper administration
or functioning of this Plan that are not covered in this Plan document shall be
promulgated and adopted by the Plan Administrator.
9.2 Amendment.
The Board of Directors of the Employer may at any time amend the Plan
in any respect, including termination of the Plan, without notice to
Participants. If the Plan is terminated, all options outstanding at the time of
termination shall become null and void and the balance in each Participant's
Contribution Account shall be paid to that Participant. Notwithstanding the
foregoing, no amendment of the Plan as described in Section 3.1 shall become
effective until and unless such amendment is approved by the shareholders of
CCS.
ARTICLE X
MISCELLANEOUS
10.1 Expenses.
The Employer will pay all expenses of administering this Plan that may
rise in connection with the Plan.
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10.2 No Contract of Employment.
Nothing in this Plan shall be construed to constitute a contract of
employment between an Employer and any Employee or to be an inducement for the
employment of any Employee. Nothing contained in this Plan shall be deemed to
give any Employee the right to be retained in the service of an Employer or to
interfere with the right of an Employer to discharge any Employee at any time,
with or without cause, regardless of the effect which such discharge may have
upon him as a Participant of the Plan.
10.3 Adjustment Upon Changes in Stock.
The aggregate number of shares of Stock reserved for purchase under the
Plan as provided in Section 6.1, and the calculation of the Exercise Price as
provided in Section 6.3, shall be adjusted by the Plan Administrator (subject to
direction by the Board of Directors) in an equitable manner to reflect changes
in the capitalization of CCS, including, but not limited to, such changes as
result from merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, combination of
shares, exchange of shares and change in corporate structure. If any adjustment
under this Section 10.3 would create a fractional share of Stock or a right to
acquire a fractional share of Stock, such fractional share shall be disregarded
and the number of shares available under the Plan and the number of shares
covered under any options granted pursuant to the Plan shall be the next lower
number of shares, rounding all fractions downward.
10.4 Employer's Rights.
The rights and powers of any Employer shall not be affected in any way
by its participation in this Plan, including but not limited to the right or
power of any Employer to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
10.5 Limit on Liability.
No liability whatever shall attach to or be incurred by any past,
present or future shareholders, officers or directors, as such, of CCS or any
Employer, under or by reason of any of the terms, conditions or agreements
contained in this Plan or implied therefore, and any and all liabilities of any
and all rights and claims against CCS, an Employer, or any shareholder, officer
or director as such, whether arising at common law or in equity or created by
statute or constitution or otherwise, pertaining to this Plan, are hereby
expressly waived and released by every Participant as a part of the
consideration for any benefits under this plan; provided, however, no waiver
shall occur, solely by reason of this Section 10.5, of any right which is not
susceptible to advance waiver under applicable law.
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10.6 Gender and Number.
For the purposes of the Plan, unless the contrary is clearly indicated,
the use of the masculine gender shall include the feminine, and the singular
number shall include the plural and vice versa.
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IN WITNESS WHEREOF, the Employer has adopted this Plan effective
January 1, 1999.
Date: ____________, 1998 CHILDREN' COMPREHENSIVE SERVICES, INC.
By:
-------------------------------
Title:
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APPENDIX B
CHILDREN'S COMPREHENSIVE SERVICES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, NOVEMBER 11, 1998
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 11, 1998, at the Loews Vanderbilt Plaza, located at
2100 West End Avenue, Nashville, Tennessee, at 10:00 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) For approval of the Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(3) To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the 1999 fiscal year.
[ ] FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY (ABSTAIN)
(4) 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, FOR approval of the Employee Stock Purchase Plan and FOR the
ratification of the selection of Ernst & Young LLP as the Company's independent
auditors for the 1999 fiscal year.
Date: , 1998
--------------------
PLEASE SIGN HERE AND RETURN
PROMPTLY
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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.