SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|_| Preliminary Proxy Statement
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|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
COMMISSION FILE NO. 0-27780
NEW HORIZON KIDS QUEST, 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
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amount on which the filing fee is calculated and state how it
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|_| 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
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NEW HORIZON KIDS QUEST, INC.
April 28, 1997
Dear Shareholder of New Horizon Kids Quest, Inc.
I am pleased to invite you to attend the annual meeting of shareholders
of New Horizon Kids Quest, Inc. to be held at the Radisson Hotel and Conference
Center, 3131 Campus Drive, Plymouth, Minnesota on June 5, 1997, at 4:00 p.m.
At the annual meeting, you will be asked to vote for the election of
directors and to approve an amendment to the Company's 1994 Long-Term Incentive
and Stock Option Plan. The accompanying material contains the Notice of annual
meeting of shareholders and a Proxy Statement, which includes information about
the matters to be acted upon at the annual meeting.
I sincerely hope you will be able to attend the Company's annual meeting.
Whether or not you are able to attend the annual meeting in person, I also urge
you to sign and date the enclosed proxy card and return it promptly in the
enclosed envelope. If you do attend the meeting in person, you may withdraw your
proxy and vote personally on any matters properly brought before the meeting.
Very truly yours,
NEW HORIZON KIDS QUEST, INC.
/s/ William M. Dunkley
William M. Dunkley
Chairman and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
NEW HORIZON KIDS QUEST, INC.
--------------------
The annual meeting of the shareholders of New Horizon Kids Quest, Inc.
(the "Company") will be held at 4:00 p.m. Minneapolis time, on June 5, 1997, at
the Radisson Hotel and Conference Center, 3131 Campus Drive, Plymouth,
Minnesota, for the following purposes:
1. To elect five directors for a term of one year and until their
successors shall be elected and duly qualified.
2. To consider and vote upon an amendment to the Company's 1994
Long-Term Incentive and Stock Option Plan.
3. To transact such other business as may properly come before
the meeting.
Only shareholders of record at the close of business on April 16, 1997
are entitled to notice of and to vote at the meeting.
Whether or not you expect to attend the meeting in person, please
complete, date and sign the enclosed proxy exactly as your name appears thereon
and promptly return it in the envelope provided, which requires no postage if
mailed in the United States. Proxies may be revoked at any time and if you
attend the meeting in person, your executed proxy will be returned to you upon
request.
By Order of the Board of Directors
/s/ Kevin M. Greer
Kevin M. Greer, Secretary
Dated: April 28, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE
PROXY CARD EXACTLY AS YOUR NAME(S) APPEAR(S) THEREON AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
NEW HORIZON KIDS QUEST, INC.
13705 First Avenue North
Plymouth, Minnesota 55441
-------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
JUNE 5, 1997
----------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of New Horizon Kids Quest, Inc. (the
"Company") for use at the annual meeting of the shareholders to be held at the
Radisson Hotel and Conference Center, 3131 Campus Drive, Plymouth, Minnesota, on
June 5, 1997, at 4:00 p.m., and at any adjournment thereof.
All shares represented by properly executed proxies received in time
will be voted at the meeting and, where the manner of voting is specified on the
proxy, will be voted in accordance with such specifications. Shares represented
by properly executed proxies on which no specification has been made will be
voted FOR the election of the nominees for director named herein and FOR an
amendment to the Company's 1994 Long-Term Incentive and Stock Option Plan, and
will be deemed to grant discretionary authority to vote upon any other matters
properly coming before the meeting.
Any shareholder who executes and returns a proxy may revoke it at any
time prior to the voting of the proxies by giving written notice to the
Secretary of the Company, by executing a later-dated proxy, or by attending the
meeting and giving oral notice to the Secretary of the Company.
The Board of Directors of the Company has fixed the close of business
on April 16, 1997 as the record date for determining the holders of outstanding
shares of Common Stock entitled to notice of, and to vote at, the annual
meeting. On that date, there were 3,293,300 shares of Common Stock issued and
outstanding. Each such share of Common Stock is entitled to one vote at the
meeting. The Notice of annual meeting, this Proxy Statement and the form of
proxy are first being mailed to shareholders of the Company on or about April
28, 1997.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINATIONS
Five persons have been nominated for election as directors at the
annual meeting, all of whom currently serve as directors of the Company.
Directors of the Company are elected annually to serve until the next annual
meeting of shareholders or until their successors are duly elected and
qualified.
INFORMATION ABOUT NOMINEES
The names of the nominees, their principal occupations, and certain
other information regarding the nominees set forth below is based upon
information furnished to the Company by the respective nominees.
WILLIAM M. DUNKLEY, age 48, has been Chief Executive Officer and
Chairman of the Board for the Company since its inception in 1992 and is a
shareholder of New Horizon Enterprises, Inc., which he co-founded in 1971 with
his wife, Susan K. Dunkley. Mr. Dunkley is also the Chief Executive Officer and
Chairman of the Board of New Horizon Child Care, Inc., Building Block Child
Care, Inc. and the entities that own Kinderberry Hill Child Development centers.
Mr. Dunkley is concurrently a senior partner in the Minneapolis law firm of
Dunkley, Bennett & Christensen, P.A. and serves on the Board of Directors of
Rasmussen College System, Inc. Mr. Dunkley devotes no less than 50% of his time
to the affairs of the Company.
SUSAN K. DUNKLEY, age 47, has been the President and a director of the
Company since its inception in 1992 and is a shareholder in New Horizon
Enterprises, Inc., which she co-founded in 1971. She is also a board member and
President of New Horizon Child Care, Inc., Building Block Child Care, Inc. and
the entities that own Kinderberry Hill Child Development centers. Ms. Dunkley
serves on the boards of the National Child Care Association, Success at Six,
Rule 17 Advisory Committee, Rule 3 Task Force, Early Childhood News, Boys and
Girls Club of Minneapolis and the Minnesota Child Care Advocates. Ms. Dunkley is
on the Advisory Board of Rasmussen Business College's Child Care Specialist
Program. Ms. Dunkley devotes no less than 50% of her time to the affairs of the
Company.
JAY L. BENNETT, age 48, has been a director of the Company since its
inception in 1992 and is also a director and corporate counsel for New Horizon
Enterprises, Inc., New Horizon Child Care, Inc., Building Block Child Care, Inc.
and the entities that own Kinderberry Hill Child Development centers. Mr.
Bennett is the Chief Executive Officer of Dunkley, Bennett & Christensen, P.A.
LYLE BERMAN, age 55, has been a director of the Company since May 1994.
Mr. Berman is the Chief Executive Officer and Chairman of the Board of Grand
Casinos, Inc. and Rainforest Cafe, Inc., is the Chairman of the Board of Grand
Gaming Corp., and is a director of G-III Apparel Group Ltd., Innovative Gaming
Corporation of America and Stratosphere Corporation. Since July 1989, Mr. Berman
has also been Chairman of the Board of Berman Consulting Corporation.
STANLEY M. TAUBE, age 60, was a founder and has been a director and
Executive Vice President of Grand Casinos, Inc. since its inception in 1991. Mr.
Taube was involved in the development and management of real estate projects for
over 20 years and is a licensed attorney. Mr. Taube is also a director of Stuart
Entertainment, Spielo Manufacturing and Stratosphere Corporation.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of (a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the election of directors or (b) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum for the
transaction of business at the meeting, is required for election to the Board of
each of the nominees named above. A shareholder who abstains with respect to the
election of directors is considered to be present and entitled to vote on the
election of directors at the meeting, and is in effect casting a negative vote,
but a shareholder (including a broker) who does not give authority to a Proxy to
vote, or who withholds authority to vote, on the election of directors, shall
not be considered present and entitled to vote on the election of directors.
All shares represented by proxies will be voted FOR the election of the
foregoing nominees unless otherwise specified; provided however, that if any
such nominee should withdraw or otherwise become unavailable for reasons not
presently known, such shares may be voted for another person in place of such
nominee in accordance with the best judgment of the persons named in the proxy.
THE BOARD AND ITS COMMITTEES
The Board of Directors met twice during the fiscal year ended December
31, 1996, and all members of the Board attended both meetings. The Company
maintains an Audit Committee to review the results and scope of the audit and
other accounting related services, and a Compensation Committee to provide
recommendations concerning salaries, stock options and incentive compensation
for officers and employees of the Company. Messrs. Berman, Bennett and Taube
constitute the Compensation Committee and Mr. Taube is the sole member of the
Audit Committee. In March 1997, the Audit Committee reviewed the results of the
audit for the Company's 1996 fiscal year.
The Company has not paid any cash compensation to a director in such
person's capacity as a director but may pay directors' fees in the future. In
September 1995, the Company adopted its 1995 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides for automatic grants of
non-qualified stock options to purchase 5,000 shares of Common Stock to
non-employee directors as of the date such individuals become directors of the
Company and on each subsequent annual shareholders meeting date provided that
the director has served since the previous annual shareholders meeting. The
Company has reserved 50,000 shares of Common Stock for issuance under the
Directors' Plan. The exercise price per share for each option is equal to the
fair market value of a share of Common Stock as of the date of grant. Pursuant
to the Directors' Plan, Messrs. Bennett, Berman and Taube each received options
in 1996 to purchase up to 5,000 shares of the Company's Common Stock, and will
receive an additional grant on the date of this annual meeting.
PRINCIPAL SHAREHOLDERS
The following table contains certain information as of the record date
(except as noted otherwise) as to the number and percentage of shares of Common
Stock beneficially owned by (i) each person known by the Company to own
beneficially more than 5% of the Company's Common Stock, (ii) each director and
nominee for director of the Company and (iii) all officers and directors as a
group. Any shares which are subject to an option exercisable within 60 days are
reflected in the following table and are deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by the option holder
but are not deemed to be outstanding for the purpose of computing the percentage
of Common Stock owned by any other person. Unless otherwise noted, each person
identified below possesses sole voting and investment power with respect to such
shares.
Number of Shares Percent of
Name(1) Beneficially Owned Outstanding Shares
- ---- ------------------ ------------------
William M. Dunkley 393,750 (2)(4) 12.0
Susan K. Dunkley 393,750 (3)(4) 12.0
Jay L. Bennett 330,428 (4)(5) 9.9
Grand Casinos, Inc. 875,000 (6) 26.6
Lyle Berman 56,000 (6)(7) 1.6
Stanley M. Taube 23,000 (6)(8) *
All executive officers and directors
as a group (6 persons) 2,241,128 (6)(9) 65.4
- -----------------------------
* Less than 1%
(1) The address of each person is 13705 First Avenue North, Plymouth,
Minnesota 55441, except for Grand Casinos, Inc., Lyle Berman and
Stanley M. Taube, each of whom have the following address: 130 Cheshire
Lane, Plymouth, Minnesota 55305-1062.
(2) Includes 193,750 shares held directly and 200,000 shares held by a
family trust (which shares Mr. Dunkley has the power to vote). Mr.
Dunkley's total does not include and he disclaims beneficial ownership
of: 195,750 shares owned by Ms. Dunkley, and 198,000 shares held
directly by Mr. Dunkley but over which Ms. Dunkley has voting power
(and which are included in Ms. Dunkley's beneficial ownership).
(3) Includes 195,750 shares held directly and 198,000 shares owned by Mr.
Dunkley over which Ms. Dunkley has voting power. Ms. Dunkley's total
does not include, and she disclaims beneficial ownership of, the
remaining 193,750 held by Mr. Dunkley and 200,000 shares held by a
family trust over which Mr. Dunkley has voting power.
(4) Does not include, and the named person disclaims beneficial ownership
of, an option to purchase 100,000 shares exercisable by New Horizon
Enterprises, Inc., of which William M. Dunkley, Susan K. Dunkley and
Jay L. Bennett own a majority of the stock. See "Certain Transactions."
(5) Includes 3,000 shares held by Mr. Bennett's children and a director
stock option to purchase 5,000 shares.
(6) Mr. Berman is the Chief Executive Officer and Chairman of the Board of
Grand Casinos, Inc., and Mr. Taube is an Executive Vice President and a
director of Grand Casinos, Inc. Therefore, both Mr. Berman and Mr.
Taube may be deemed to beneficially own the Common Stock held by Grand
Casinos, Inc.
(7) Includes: (i) 41,000 shares held by the Lyle Berman Consultant Profit
Sharing Plan, (ii) a director stock option to purchase 5,000 shares,
and (iii) 10,000 shares held by Mr. Berman's wife. However, Mr. Berman
disclaims beneficial ownership of the shares owned by his wife.
(8) Includes a director stock option to purchase 5,000 shares.
(9) Includes shares held by Grand Casinos, Inc. and an option to purchase
100,000 shares exercisable by New Horizon Enterprises, Inc.
COMPENSATION OF EXECUTIVE OFFICERS
None of the Company's executive officers earned total annual salary and
bonus from the Company in excess of $100,000 in any of the last three fiscal
years. The Company entered into employment agreements with William M. Dunkley,
the Company's Chief Executive Officer, and Susan K. Dunkley, the Company's
President, for a four-year period each of which commenced on January 1, 1996.
Under their employment agreements, Mr. Dunkley and Ms. Dunkley are each entitled
to receive 2.5% of the Company's annual pre-tax income. The following table
discloses the compensation received in each of the last three fiscal years by
William M. Dunkley. Neither Mr. nor Ms. Dunkley has received a stock option
grant from the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation ($)
-------------------------------------
Other
Name and annual
principal position Year Salary Bonus compensation
------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
William M. Dunkley, 1996 0 0 0
Chief Executive Officer 1995 75,000 0 0
1994 49,039 0 0
</TABLE>
CERTAIN TRANSACTIONS
GRAND CASINOS, INC. Since 1992, Grand Casinos, Inc. (a shareholder of
the Company) has entered into three separate agreements with the Company
pursuant to which the Company's Kids Quest activity centers have been developed
and are being operated at three casinos owned by Grand Casinos. The Company also
operates, pursuant to agreements with various tribes, four additional Kids Quest
centers at casinos which are managed by Grand Casinos. Although the precise
terms of each of the agreements with Grand Casinos and the tribes vary by
location, each provide for a profit sharing arrangement in which the Company
manages and operates a Kids Quest center and pays a percentage of the center's
pre-tax gross operating profits and other reimbursements to Grand Casinos or the
tribe. Under these agreements, the Company paid an aggregate of $1,352,723 in
1995 and $1,079,443 in 1996, of which $523,642 in 1995 and $387,719 in 1996 was
paid to Grand Casinos. The agreements also typically provide for a minimum
guaranteed management fee to be paid to the Company, which also varies by
location, as well as a child care rate subsidy of up to $2 per hour. In
addition, the agreements provide a guaranty by Grand Casinos or the tribe
against Company operating losses at the particular location. Under the subsidy
provisions, the Company received an aggregate of $1,647,160 in 1995 and
$1,406,290 in 1996, of which Grand Casinos paid $658,013 in 1995 and $638,722 in
1996. Under the guaranty provisions, the Company received nothing in 1995 and
$200,240 in 1996, all of which was paid by Grand Casinos.
In May 1994, the Company issued 1,000,000 shares of its $.01 par value
Series A Convertible Preferred Stock to Grand Casinos, Inc. at a purchase price
of $1,000,000. Under the terms of the purchase agreement, these shares of
Preferred Stock were mandatorily converted at $2 per share into 500,000 shares
of Common Stock upon the completion of the Company's initial public offering in
1995. In conjunction with the Preferred Stock issuance, the Company also entered
into a debenture agreement with Grand Casinos pursuant to which Grand Casinos
advanced $2,000,000 to the Company at an interest rate of 10%. Upon completion
of the Company's public offering in November 1995, $1,500,000 of this
indebtedness was converted at $4 per share into 375,000 shares of Common Stock
and the remaining $500,000 was repaid from the proceeds of the offering.
NEW HORIZON ENTERPRISES, INC. The Company has entered into an office
sharing agreement with New Horizon Enterprises, Inc. and related entities that
operate child care centers in Minnesota. William M. Dunkley, Susan K. Dunkley
and Jay L. Bennett own a majority of the stock in New Horizon Enterprises and
the related entities. New Horizon Enterprises subleases from Grand Casinos the
office space currently utilized for the corporate offices of New Horizon
Enterprises and the Company. Pursuant to the office sharing agreement between
the Company and New Horizon Enterprises, the salaries of various administrative
personnel and other overhead expenses (including rent) are allocated between the
Company, New Horizon Enterprises and the related entities that own the Minnesota
child care centers. Under this agreement, the Company may make payments to New
Horizon Enterprises for various marketing, accounting and personnel services
provided by the employees of New Horizon Enterprises, including certain family
members of William M. Dunkley and Susan K. Dunkley. The office sharing agreement
became effective January 1, 1996, and the Company paid New Horizon Enterprises
an aggregate of $80,998 pursuant to the agreement in 1996. Any overhead
allocations or changes in the office sharing agreement must be approved by a
majority of the Company's disinterested directors. Prior to the office sharing
arrangement, the Company paid New Horizon Enterprises a monthly management fee,
which fees totalled $90,000 in 1995.
Upon completion of the Company's initial public offering, the Company
issued to New Horizon Enterprises an option to purchase 100,000 shares of Common
Stock at a purchase price of $5.00 per share, exercisable for a period of five
years. The option was issued in exchange for an agreement by New Horizon
Enterprises to allow the Company to use the name "New Horizon" as well as the
Company's right of first refusal to develop or acquire New Horizon centers
outside the state of Minnesota.
OTHER. On August 2, 1995, New Horizon Child Care-Idaho, Inc.
("NHCC-Idaho"), a newly formed entity that was then owned by William M. Dunkley,
Susan K. Dunkley and Jay L. Bennett, acquired six licensed child care centers in
Boise, Idaho. NHCC-Idaho borrowed approximately $495,000 from New Horizon
Enterprises, which loan proceeds were used to make a $385,000 down payment and
to upgrade and refurbish the facilities and convert them to New Horizon centers.
On September 11, 1995, the Company acquired these six centers by acquiring all
of the stock of NHCC-Idaho for $1,000. In September 1995, the Company loaned
approximately $495,000 to NHCC-Idaho, which loan proceeds were used to repay the
amounts owed to New Horizon Enterprises by NHCC-Idaho.
Jay L. Bennett (a director of the Company) is the Chief Executive
Officer, and William M. Dunkley (an officer and director of the Company) is a
senior partner of the Minneapolis law firm of Dunkley, Bennett & Christensen,
P.A., which provides legal services to the Company. Fees paid to Dunkley,
Bennett & Christensen totalled $260,842 in 1995 and $389,303 in 1996.
Building Environments, a company owned primarily by William M. Dunkley
and Jay L. Bennett, provided contracting services to the Company in connection
with the development and renovation of Kids Quest centers and New Horizon
centers. The Company paid Building Environments fees of $205,552 in 1995.
Building Environments no longer provides services to the Company.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO THE 1994
LONG-TERM INCENTIVE AND STOCK OPTION PLAN
On May 13, 1994, the Board of Directors of the Company adopted the 1994
Long-Term Incentive and Stock Option Plan (the "Plan") and authorized the
issuance of options to purchase up to 800,000 shares of Common Stock reserved
for issuance under the Plan. On September 11, 1995, the Board of Directors
approved a reverse stock split and an amendment to the Plan decreasing the
number of shares authorized for issuance pursuant to options under the Plan. The
combined effect of the reverse stock split and the amendment resulted in a
decrease from 800,000 to 300,000 of the number of shares available under the
Plan. Subject to shareholder approval, on April 15, 1997, the Board of Directors
further amended the Plan to increase the number of shares of Common Stock
reserved for issuance pursuant to the Plan to 750,000 shares. The description
herein of the material terms of the Plan is qualified in its entirety by
reference to the full text of the Plan, a copy of which is attached to this
Proxy Statement as Exhibit A.
GENERAL
The purpose of the Plan is to increase shareholder value and to advance
the interests of the Company by providing economic incentives designed to
attract, retain and motivate employees and other individuals who are key to the
Company's growth and development.
The Plan provides for the granting of stock options, restricted stock
awards and performance awards to officers, directors, employees, consultants and
independent contractors of the Company and its subsidiaries. The Plan is
administered by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee has discretion to select the recipients of options
and awards and to establish the terms and conditions of each option and award,
subject to the provisions of the Plan and the applicable provisions of the
Internal Revenue Code. Options and awards granted under the Plan are
nontransferable except by will or by the laws of descent and distribution, and
are subject to various other conditions and restrictions.
The Plan provides for the granting of both incentive stock options
intended to qualify for preferential treatment under Section 422 of the Internal
Revenue Code of 1986, as amended ("incentive options"), and nonqualified options
that do not qualify for such treatment ("non-statutory options"). The option
price of an incentive option granted under the Plan must not be less than the
fair market value of the Company's Common Stock on the date of the grant, and
the term of an incentive option must not exceed ten years. For an incentive
option granted under the Plan to an optionee who owns capital stock representing
more than 10% of the voting rights of the capital stock of the Company and its
subsidiaries, however, the option price must be at least 110% of the fair market
value of the Company's Common Stock on the date of the grant, and the term must
not exceed five years. Incentive options may only be granted to full or
part-time employees of the Company and its subsidiaries, including officers and
directors.
At the time of an award of restricted stock under the Plan, a
restricted period will be established. During the restricted period, the
restricted stock may not be transferred, encumbered or sold unless the Committee
may otherwise determine. The participant, as owner of such shares, will have the
rights of a shareholder, including the right to receive cash dividends and to
vote.
Performance awards under the Plan may be payable in cash, shares of
Common Stock (including restricted stock), other securities, other awards or
other property. The value of each award will be determined by the Committee and
will be payable to, or exercisable by, the holder of the performance award upon
his or her achievement of the performance goals during the performance periods
established by the terms of the award.
The Plan will expire in May 2004, unless terminated earlier by the
Board of Directors. No option or award may be granted after such termination,
but termination of the Plan shall not, without the consent of the optionee or
grantee, alter or impair any rights or obligations under any option or award
previously granted.
As of the date hereof, the Company has granted only non-statutory stock
options under the Plan. No incentive options, restricted stock awards or
performance awards have been granted. Non-statutory options to purchase an
aggregate of 297,100 shares are currently outstanding at exercise prices ranging
from $2.625 to $7.75 per share. The Compensation Committee has awarded two
additional stock options, subject to shareholder approval of the amendment to
the Plan, for 2,000 shares each to two non-executive employees of the Company.
The Compensation Committee is currently evaluating the Company's executive and
non-executive compensation and may grant certain additional stock options, or
restricted stock or performance awards. Any additional options or awards prior
to the annual meeting would be subject to shareholder approval of the proposed
amendment to the Plan increasing the number of authorized shares available.
While the Committee has made no specific determination as of the date hereof,
stock options may be granted to the Company's Chief Executive Officer and to the
Company's President, neither of whom has received any prior stock option grant
from the Company.
TAX INFORMATION REGARDING STOCK OPTIONS
The following discussion sets forth certain United States income tax
considerations relevant to the grant and exercise of options under the Plan and
the subsequent sale of shares. These tax considerations are stated in general
terms, and considerations will vary depending upon the optionee's particular
status. Moreover, this discussion does not address state, local or foreign
income tax considerations.
An optionee will not incur any federal income tax liability as a result
of the grant of an incentive stock option or a non-statutory stock option. Upon
the exercise of a non-statutory option, the optionee will generally recognize
ordinary income for federal income tax purposes in an amount equal to the
difference between the fair market value of the shares at the time of exercise
and the exercise price. The income recognized by the optionee will be subject to
tax withholding by the Company, and the Company will be entitled to a tax
deduction in an amount equal to the amount of ordinary income recognized by the
optionee. Upon resale of such shares by the optionee, any difference between the
sale price and the adjusted basis of the shares at the time of the subsequent
sale will be treated as capital gain or loss.
Generally, an optionee will not incur federal income tax liability as
the result of an exercise of an incentive stock option. However, except in the
case of death or disability, if an incentive stock option is exercised more than
three months after an optionee's termination of employment (a "disqualifying
exercise"), the optionee will recognize ordinary income in an amount equal to
the difference between the fair market value of the shares on the date of
exercise and the exercise price. In addition, for purposes of calculating an
optionee's alternative minimum tax, if any, the difference between the fair
market value of the shares at the time the incentive stock option is exercised
and the exercise price is included in the optionee's alternative minimum taxable
income. When the shares acquired upon exercise of an incentive stock option are
sold, the optionee will be taxed on the difference between the sale price and
the adjusted basis. If such a sale does not occur within two years of the date
the incentive stock option was granted or within one year of the date it was
exercised, then the gain, if any, will be treated as long-term capital gain. If
such a sale occurs within either of the time periods specified in the preceding
sentence ( a "disqualifying disposition"), then the portion of the optionee's
gain equal to the difference between the fair market value of the stock on the
date of exercise (or, if less, the selling price) and the exercise price will be
treated as ordinary compensation income, while the balance of any gain would be
treated as capital gain. The Company is generally not entitled to a deduction as
the result of the grant or exercise of an incentive stock option. However, if
the optionee recognizes ordinary income as the result of a disqualifying
exercise or disposition, the Company is entitled to a deduction in an equivalent
amount in the taxable year of the Company in which the disqualifying event
occurs.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of (a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the proposed amendment to the Plan or (b) a majority of the voting power
of the minimum number of shares entitled to vote that would constitute a quorum
for transaction of business at the meeting, is required to approve the proposal
to increase the number of shares of Common Stock reserved for issuance under the
Plan. A shareholder who abstains with respect to the proposed Plan amendment is
considered to be present and entitled to vote at the meeting, and is in effect
casting a negative vote, but a shareholder (including a broker) who does not
give authority to a Proxy to vote, or who withholds authority to vote, on the
proposed Plan amendment, shall not be considered present and entitled to vote
with respect to such matter.
All shares represented by proxies will be voted FOR the amendment to
the Plan unless otherwise specified.
VOTING OF PROXIES AND EXPENSES
The Board of Directors recommends that an affirmative vote be cast in
favor of each of the proposals listed on the proxy card.
The Board of Directors knows of no other matters that may be brought
before the meeting which require submission to a vote of the shareholders. If
any other matters are properly brought before the meeting, however, the persons
named in the enclosed proxy or their substitutes will vote in accordance with
their best judgment on such matters.
Expenses incurred in connection with the solicitation of proxies will
be paid by the Company. The proxies are being solicited principally by mail. In
addition, directors, officers and regular employees of the Company may solicit
proxies personally or by telephone, for which they will receive no consideration
other than their regular compensation. The Company will also request brokerage
houses, nominees, custodians and fiduciaries to forward soliciting material to
the beneficial owners of Common Stock of the Company and will reimburse such
persons for their expenses so incurred.
SHAREHOLDER PROPOSALS
Shareholders wishing to present proposals for action by the
shareholders at the 1998 annual meeting must present such proposals at the
principal offices of the Company not later than December 29, 1997. Due to the
complexity of the respective rights of the shareholders and the Company in this
area, any shareholder desiring to propose such an action is advised to consult
with his or her legal counsel with respect to such rights. It is suggested that
any such proposals be submitted by certified mail, return receipt requested.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William M. Dunkley
William M. Dunkley
Chairman of the Board
and Chief Executive Officer
Dated: April 28, 1997
Minneapolis, Minnesota
EXHIBIT A
NEW HORIZON'S KID QUEST, INC.
1994 LONG-TERM INCENTiVE
AND
STOCK OPTION PLAN
1. Purpose of Plan.
This Plan shall be known as the "NEW HORIZON'S KID QUEST, INC. 1994
LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred to as
the "Plan." The purpose of the Plan is to aid in maintaining and developing
personnel capable of assuring the future success of New Horizon's Kid Quest,
Inc., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options and performance awards as provided herein.
Options granted under this Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986 (the "Code"), or options which do not qualify as Incentive
Stock Options.
2. Stock Subject to Plan.
Subject to the provisions of Section 13 hereof, the stock to be subject
to options or other awards under the Plan shall be the Company's authorized
Common Stock, par value $.01 per share. Such shares may be either authorized but
unissued shares, or issued shares which have been reacquired by the Company.
Subject to adjustment as provided in Section 13 hereof, the maximum number of
shares on which options may be exercised or other awards issued under this Plan
shall be 750,000 shares. If an option or award under the Plan expires, or for
any reason is terminated or unexercised with respect to any shares, such shares
shall again be available for options or awards thereafter granted during the
term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by the Board of Directors or a
committee appointed by the Board of Directors (the "Committee") of the Company.
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stork covered by each option or award, (ii) to determine the
employees to whom and the time or times at which such options and awards shall
be granted and the number of shares to be subject to each, (iii) to determine
the form of payment to be made in connection with performance awards, either
cash, Common Stock of the Company or a combination thereof, (iv) to determine
the terms of exercise of each option and award, (v) to accelerate the time at
which all or any part of an option or award may be exercised, (vi) to amend or
modify the terms of any option or award with the consent of the optionee, (vii)
to interpret the Plan, (viii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (ix) to determine the terms and provisions of
each option and award agreement under the Plan (which agreements need not be
identical), including the designation of those options intended to be Incentive
Stock Options, and (x) to make all other determinations necessary or advisable
for the administration of the Plan, subject to the exclusive authority of the
Board of Directors under Section 14 herein to amend or terminate the Plan.
(c) All determinations of the Committee shall be made by not less than
a majority of its members, provided that if the Committee is comprised of no
more than two members, such determinations may not be made by less than all of
its members. Any decision or determination reduced to writing and signed by all
of the members of the Committee shall be fully effective as if it had been made
by a majority vote at a meeting duly called and held. The grant of an option or
award shall be effective only if a written agreement shall have been duly
executed and delivered by and on behalf of the Company following such grant. The
Committee may appoint a Secretary and may make such rules and regulations for
the conduct of its business as it shall deem advisable.
4. Eligibility.
Incentive Stock Options may only be granted under this Plan to any full
or part-time employee (which term as used herein includes, but is not limited
to, officers and directors who are also employees) of the Company and of its
present and future subsidiary corporations within the meaning of Section 424(f)
of the Code (herein called "subsidiaries"). Full or part-time employees,
directors, consultants or independent contractors to the Company or one of its
subsidiaries shall be eligible to receive options which do not qualify as
Incentive Stock Options and awards. In determining the persons to whom options
and awards shall be granted and the number of shares subject to each, the
Committee may take into account the nature of services rendered by the
respective employees or consultants, their present and potential contributions
to the success of the Company and such other factors as the Committee in its
discretion shall deem relevant. A person who has been granted an option or award
under this Plan may be granted additional options or awards under the Plan if
the Committee shall so determine; provided, however, that for Incentive Stock
Options granted after December 31, 1986, to the extent the aggregate Fair Market
Value (as defined in Section 5 below) (determined at the time the Incentive
Stock Option is granted) of the Common Stock with respect to which all Incentive
Stock Options are exercisable for the first time by an employee during any
calendar year (under all plans described in subsection (d) of Section 422 of the
Code of his employer corporation and its parent and subsidiary corporations)
exceeds $100,000, such options shall be treated as options which do not qualify
as Incentive Stock Options. Nothing in the Plan or in any agreement thereunder
shall confer on any employee any right to continue in the employ of the Company
or any of its subsidiaries or affect, in any way, the right of the Company or
any of its subsidiaries to terminate his or her employment at any time.
5. Price.
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the Fair
Market Value of the Common Stock at the date of grant of such option. The option
price for options granted under the Plan which do not qualify as Incentive Stock
Options and, if applicable, the price for all awards shall be determined by the
Committee. For purposes of the preceding sentence and for all other valuation
purposes under the Plan, the "Fair Market Value" of shares of Common Stock shall
be (i) the closing price of the Common Stock as reported for composite
transactions if the Common Stock is then traded on a national securities
exchange, (ii) the last sale price of the Common Stock is then quoted on the
Nasdaq National Market, or (iii) the average of the closing representative bid
and asked prices of the Common Stock as reported on Nasdaq on the date as of
which the Fair Market Value is being determined. If on the date of grant of any
option or award hereunder the Common Stock is not traded on an established
securities market, the Committee shall make a good faith attempt to satisfy the
requirements of this Section 5 and in connection therewith shall take such
action as it deems necessary or advisable.
6. Term.
Each option and award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the option or
award agreement. The Committee shall be under no duty to provide terms of like
duration for options or awards granted under the Plan, but the term of an
Incentive Stock Option may not extend more than ten (10) years from the date of
grant of such option and the term of options granted under the Plan which do not
qualify as Incentive Stock Options may not extend more than fifteen (15) years
from the date of granting of such option.
7. Exercise of Option or Award.
(a) The Committee shall have full and complete authority to determine
whether an option or award will be exercisable in full at any time or from time
to time during the term thereof, or to provide for the exercise thereof in such
installments, upon the occurrence of such events (such as termination of
employment for any reason) and at such times during the term of the option as
the Committee may determine and specify in the option or award agreement.
(b) The exercise of any option or award granted hereunder shall only be
effective at such time that the sale of Common Stock pursuant to such exercise
will not violate any state or federal securities or other laws.
(c) An optionee or grantee electing to exercise an option or award
shall give written notice to the Company of such election and of the number of
shares subject to such exercise. The full purchase price shall be tendered with
such notice of exercise. Payment shall be made to the Company in cash (including
bank check, certified check, personal check, or money order), or, at the
discretion of the Committee and as specified by the Committed, (i) by delivering
certificates for the Company's Common Stock already owned by the optionee or
grantee having a Fair Market Value as of the date of grant equal to the full
purchase price of the shares, or (ii) by delivering the optionee's or grantee's
promissory note, which shall provide for interest at a rate not less than the
minimum rate required to avoid the imputation of income, original issue discount
or a below-market-rate loan pursuant to Sections 483,1274 or 7872 of the Code or
any successor provisions thereto, or (iii) a combination of cash and such
shares. The Fair Market Value of such tendered shares shall be determined as
provided in Section 5 herein. Until such person has been issued the shares
subject to such exercise, he or she shall possess no rights as a shareholder
with respect to such shares.
8. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer restrictions
may be granted by the Committee. Any restricted stock award shall be evidenced
by an agreement in such form as the Committee shall from time to time approve,
which agreement shall comply with and be subject to the following terms and
conditions and any additional terms and conditions established by the Committee
that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted stock award made
under the Plan shall be for such number of shares of Common Stock as shall be
determined by the Committee and set forth in the agreement containing the terms
of such restricted stock award. Such agreement shall set forth a period of time
during which the grantee must remain in the continuous employment of the Company
in order for the forfeiture and transfer restrictions to lapse. If the Committee
so determines, the restrictions may lapse during such restricted period in
installments with respect to specified portions of the shares covered by the
restricted stock award. The agreement may also, in the discretion of the
Committee, set forth performance or other conditions that will subject the
Common Stock to forfeiture and transfer restrictions. The Committee may, at its
discretion, waive all or any part of the restrictions applicable to any or all
outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the time of a
restricted stock award, a certificate representing the number of shares of
Common Stock awarded thereunder shall be registered in the name of the grantee.
Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee, in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common Stock, including the
right to receive dividends and the right to vote such shares, subject to the
following restrictions: (i) the grantee shall not be entitled to delivery of the
stock certificate until the expiration of the restricted period and the
fulfillment of any other restrictive conditions set forth in the restricted
stock agreement with respect to such Common Stock; (ii) none of the shares of
Common Stock may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until after
the fulfillment of any such other restrictive conditions; and (iii) except as
otherwise determined by the Committee, all of the Common Stock shall be
forfeited and all rights of the grantee to such Common Stock shall terminate,
without further obligation on the part of the Company, unless the grantee
remains in the continuous employment of the Company for the entire restricted
period in relation to which such shares of Common Stock were granted and unless
any other restrictive conditions relating to the restricted stock award are met.
Any Common Stock, any other securities of the Company and any other property
(except for cash dividends) distributed with respect to the Common Stock subject
to restricted stock awards shall be subject to the same restrictions, terms and
conditions as such restricted Common Stock.
(c) Termination of Restrictions. At the end of the restricted period
and provided that any other restrictive conditions of the restricted stock award
are met, or at such earlier time as otherwise determined by the Committee, all
restrictions set forth in the agreement relating to the restricted stock award
or in the Plan shall lapse as to the restricted Common Stock subject thereto,
and a stock certificate for the appropriate number of shares of Common Stock,
free of the restrictions and the restricted stock legend, shall be delivered to
the grantee or his beneficiary or estate, as the case may be.
9. Performance Awards.
(a) The Committee is further authorized to grant performance awards
("Performance Awards"). Subject to the terms of this Plan and any applicable
award agreement, a Performance Award granted under the Plan (i) may be
denominated or payable in cash, Common Stock (including without limitation,
restricted stock), other securities, other awards, or other property and (ii)
shall confer on the holder thereof rights valued as determined by the Committee,
in its discretion, and payable to, or exercisable by, the holder of the
Performance Award, in whole or in part, upon the achievement of such performance
goals during such performance periods as the Committee, in its discretion, shall
establish. Subject to the terms of this Plan and any applicable award agreement,
the performance goals to be achieved during any performance period, the length
of any performance period, the amount of any Performance Award granted, and the
amount of any payment or transfer to be made by the grantee and by the Company
under any Performance Award shall be determined by the Committee.
(b) For purposes of this Section 9, (i) if a Performance Award entitles
the holder thereof to receive or purchase the Company's Common Stock, the number
of shares covered by such Performance Award or to which such Performance Award
relates shall be counted on the date of grant of such Performance Award against
the Aggregate number of shares available for granting Performance Awards under
the Plan, and (ii) if a Performance Award entitles the holder to receive cash
payments but the amount of such payments are denominated in or based on a number
of shares of the Company's Common Stock, the number of shares shall be counted
on the date of grant of such Performance Award against the aggregate number of
shares available for granting Performance Awards under the Plan; provided,
however, that Performance Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are substituted for,
other Performance Awards may be counted or not counted under procedures adopted
by the Committee in order to avoid double counting.
10. Income Tax Withholding and Tax Bonuses.
(a) In order to comply with all applicable federal or state income tax
laws or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal or state payroll, withholding income or other
taxes, which are the sole and absolute responsibility of an optionee or grantee
under the Plan, are withheld or collected from such optionee or grantee. In
order to assist an optionee or grantee in paying all federal and state taxes to
be withheld or collected upon exercise of an option or award which does not
qualify as an Incentive Stock Option hereunder, the Committee, in its absolute
discretion and subject to such additional terms and conditions as it may adopt,
shall permit the optionee or grantee to satisfy such tax obligation by (i)
electing to have the Company withhold a portion of the shares otherwise to be
delivered upon exercise of such option or award with a Fair Market Value,
determined in accordance with Section 5 herein, equal to such taxes or (ii)
delivering to the Company Common Stock other than the shares issuable upon
exercise of such option or award with a Fair Market Value, determined in
accordance with Section 5, equal to such taxes.
(b) The Committee shall have the authority, at the time of grant of an
option under the Plan or at any time thereafter, to approve tax bonuses to
designated optionees or grantees to be paid upon their exercise of options or
awards granted hereunder. The amount of any such payments shall be determined by
the Committee. The Committee shall have full authority in its absolute
discretion to determine the amount of any such tax bonus and the terms and
conditions affecting the vesting and payment thereafter.
11. Additional Restrictions.
The Committee shall have full and complete authority to determine
whether all or any part of the Common Stock of the Company acquired upon
exercise of any of the options or awards granted under the Plan shall be subject
to restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options or awards.
12. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the time an
option is otherwise to be granted pursuant to the Plan the optionee owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Common
Stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of the
Code), then any Incentive Stock Option to be granted to such optionee pursuant
to the Plan shall satisfy the requirements of Section 422(c)(5) of the Code, and
the option price shall be not less than 110% of the Fair Market Value of the
Common Stock of the Company determined as described herein, and such option by
its terms shall not be exercisable after the expiration of five (5) years from
the date such option is granted.
13. Non-Transferability.
No option or award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option shall be exercisable
only by such optionee or grantee.
14. Dilution or other Adjustments.
If there shall be any change in the Common Stock through merger,
consolidation, reorganization, recapitalization, dividend in the form of stock
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options and awards shall be
made by the Committee. In the event of any such changes, adjustments shall
include, where appropriate, changes in the aggregate number of shares subject to
the Plan, the number of shares and the price per share subject to outstanding
options and awards and the amount payable upon exercise of outstanding awards,
in order to prevent dilution or enlargement of option or award rights.
15. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of Section 14 no amendment of the Plan, however, shall
without shareholder approval: (i) increase the maximum number of shares under
the Plan as provided in Section 2 herein, (ii) decrease the maximum price
provided in Section 5 herein, (iii) extend the maximum term under Section 6, or
(iv) modify the eligibility requirements for participation in the Plan. The
Board of Directors shall not alter or impair any option or award theretofore
granted under the Plan without the consent of the holder of the option.
16. Time of Granting.
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and no
action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option or award agreement), shall constitute the
granting of an option or award hereunder.
17. Effective Date and Termination of Plan.
(a) The Plan was approved by the Board of Directors and shareholders of
the Company on May 13, 1994.
(b) Unless the Plan shall have been discontinued as provided in Section
15 hereof, the Plan shall terminate May 13, 2004. No option or award may be
granted after such termination, but termination of the Plan shall not, without
the consent of the optionee or grantee, alter or impair any rights or
obligations under any option or award theretofore granted.
PROXY
NEW HORIZON KIDS QUEST, INC.
ANNUAL MEETING OF SHAREHOLDERS -- JUNE 5, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned having duly received the Notice of Annual Meeting and the
Proxy Statement, dated April 28, 1997, hereby appoints William M. Dunkley and
Susan K. Dunkley, or either of them, proxies or proxy, with full power of
substitution, to vote all shares of Common Stock of New Horizon Kids Quest, Inc.
(the "Company") which the undersigned is entitled to vote at the 1997 Annual
Meeting of Shareholders to be held at the Radisson Hotel and Conference Center,
3131 Campus Drive, Plymouth, Minnesota, on June 5, 1997 at 4:00 p.m. Central
Daylight Time, and at any adjournment thereof, as directed below with respect to
the proposals set forth below, all as more fully described in the Proxy
Statement, and upon any other matter that may properly come before the meeting
or any adjournment thereof.
1. ELECTION OF DIRECTORS:
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed below
contrary below)
WILLIAM M. DUNKLEY SUSAN K. DUNKLEY JAY L. BENNETT
LYLE BERMAN STANLEY M. TAUBE
(INSTRUCTION: To withhold authority for any individual nominee, write that
nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. APPROVAL OF AN AMENDMENT TO THE NEW HORIZON KIDS QUEST, INC. 1994 LONG-TERM
INCENTIVE AND STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE PURSUANT TO THE PLAN TO 750,000 SHARES.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
(CONTINUED FROM OTHER SIDE)
The power to vote granted by this Proxy may be exercised by William M.
Dunkley and Susan K. Dunkley, jointly or singly, or their substitute(s), who are
present and acting at said Annual Meeting or any adjournment of said Annual
Meeting. The undersigned hereby revokes any and all prior proxies given by the
undersigned to vote at this Annual Meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SHAREHOLDERS' INSTRUCTIONS. IF
THE SHAREHOLDER(S) WHO EXECUTE THIS PROXY DO NOT WITHHOLD THEIR VOTES FOR THE
ELECTION OF DIRECTORS AND DO NOT VOTE AGAINST OR ABSTAIN FROM VOTING ON PROPOSAL
NO. 2, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE PROPOSED DIRECTORS AND
FOR PROPOSAL NO. 2.
It is urgent that each shareholder complete, date, sign and
mail this Proxy as soon as possible. Your vote is important!
Dated:___________________________, 1997
_______________________________________
Signature of Shareholder(s)
_______________________________________
Signature of Shareholder(s)
When shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
title as such. If signer is a
corporation, partnership or other
entity, please sign full entity name by
authorized person.
PLEASE DO NOT FORGET TO DATE THIS PROXY.
