SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
NEW HORIZON KIDS QUEST, INC.
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(Name of Registrant as Specified In Its Charter)
---------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:_______
2) Aggregate number of securities to which transaction applies:__________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:__________
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:
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3) Filing Party:
4) Date Filed:
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NEW HORIZON KIDS QUEST, INC.
April 28, 1999
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 Company's new
corporate headquarters, 16355 36th Avenue North, Plymouth, Minnesota on May 27,
1999, 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 1995 Directors' 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
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.
William M. Dunkley
Chairman and Chief Executive Officer
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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 May 27, 1999, at
the Company's new corporate headquarters, 16355 36th Avenue North, 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 1995
Directors' 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 26, 1999
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
Patrick R. Cruzen, Secretary
Dated: April 28, 1999
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.
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NEW HORIZON KIDS QUEST, INC.
16355 36th Avenue North
Plymouth, Minnesota 55447
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MAY 27, 1999
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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
Company's new corporate headquarters, 16355 36th Avenue North, Plymouth,
Minnesota, on May 27, 1999, 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 1995 Directors' 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 26, 1999 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, 1999.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
Five directors are to be elected at the meeting, each director to serve
until the next annual meeting of shareholders or until his successor is duly
elected and qualified. All nominees are currently serving as directors of the
Company and have consented to serve if elected. The Board of Directors proposes
for election the following nominees:
WILLIAM M. DUNKLEY, age 50, 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 approximately 50 percent of
his time to the Company.
SUSAN K. DUNKLEY, age 49, 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 approximately 50 percent of her time to the
Company.
JAY L. BENNETT, age 50, 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 of each of 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 57, has been a director of the Company since May 1994.
Mr. Berman is the Chairman of the Board of Lakes Gaming, Inc. Mr. Berman served
as Chief Executive Officer of Grand Casinos, Inc. from October 1991 to March
1998 and as its Chairman of the Board until December 1998. Mr. Berman is also
the Chairman of the Board and Chief Executive Officer of Rainforest Cafe, Inc.,
and is a director of G-III Apparel Group Ltd., Innovative Gaming Corporation of
America and Wilsons -- The Leather Experts, Inc. Mr. Berman was a member of the
Board of Directors of Stratosphere Corporation from July 1994 to July 1997, and
served as its Chairman from July 1996 to July 1997. From July 1994 through
October 1996, Mr. Berman was Stratosphere's Chief Executive Officer.
Stratosphere filed for reorganization under Chapter 11 of the Bankruptcy Code on
January 27, 1997.
KENNETH W. BRIMMER, age 43, joined the Company's Board of Directors in
March 1998. Mr. Brimmer has been a director of Rainforest Cafe, Inc. since
August 1996, and has served as President of Rainforest Cafe, Inc. since April
1997. Mr. Brimmer was previously employed by Grand Casinos, Inc. as Special
Assistant to the Chairman. Mr. Brimmer is also a director of Oxboro Medical
International, Inc.
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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 once during the fiscal year ended December
31, 1998, and all members of the Board attended this meeting. 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 Brimmer
constitute the Compensation Committee and Messrs Berman and Brimmer are the
members of the Audit Committee. In April 1999, the Audit Committee reviewed the
results of the audit for the Company's 1998 fiscal year.
DIRECTOR COMPENSATION
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. For a
discussion of stock options granted to directors, see "Proposal No. 2 - Approval
of an Amendment to the 1995 Directors' Stock Option Plan."
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PRINCIPAL SHAREHOLDERS
The following table contains certain information as of April 10, 1999
(except as noted otherwise) as to the number and percentage of shares of the
Company's Common Stock beneficially owned by (i) each person known by the
Company to own beneficially more than five percent 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 413,750 (2)(4) 12.5
Susan K. Dunkley 413,750 (3)(4) 12.5
Jay L. Bennett 334,700 (4)(5) 10.1
Lakes Gaming, Inc. 875,000 26.6
Lyle Berman 66,000 (6) 2.0
Kenneth W. Brimmer 5,000 (7) *
All executive officers and directors
as a group (6 persons) 2,208,200 (8) 65.6
- -------------------
* Less than 1%
(1) The address of each person is 16355 36th Avenue North, Plymouth,
Minnesota 55447, except as follows: for Lakes Gaming, Inc. and Lyle
Berman: 130 Cheshire Lane, Plymouth, MN 55305; for Kenneth W. Brimmer:
c/o Rainforest Cafe, Inc., 720 South Fifth Street, Hopkins, MN 55343.
(2) Includes 193,750 shares held directly, 20,000 shares which Mr. Dunkley
has the right to purchase pursuant to vested stock options, 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, 20,000 shares which Ms. Dunkley
has the right to purchase pursuant to vested stock options, 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 9,000 shares held by Mr. Bennett's children and director stock
options to purchase 15,000 shares.
(6) Includes: (i) 41,000 shares held by the Lyle Berman Consultant Profit
Sharing Plan, (ii) director stock options to purchase 15,000 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. Mr.
Berman is the Chairman of the Board of Lakes Gaming, Inc., and also may
be deemed to beneficially own the Common Stock held by Lakes Gaming,
Inc.
(7) Includes a director stock option to purchase 5,000 shares.
(8) Includes shares held by Lakes Gaming, Inc. and an option to purchase
100,000 shares exercisable by New Horizon Enterprises, Inc.
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EXECUTIVE COMPENSATION
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's employment agreements with William M. Dunkley, the
Company's Chief Executive Officer, and Susan K. Dunkley, the Company's
President, provide that Mr. Dunkley and Ms. Dunkley are each entitled to receive
2.5% of the Company's annual pre-tax income. Under these employment agreements,
neither Mr. nor Mrs. Dunkley received any salary for fiscal 1996, 1997 or 1998.
The employment agreements expire December 31, 1999.
CERTAIN TRANSACTIONS
Seven of the Company's Kids Quest centers were previously operated in
conjunction with casinos owned or managed by Grand Casinos, Inc. ("Grand
Casinos") in Minnesota, Mississippi and Louisiana. In 1998, Grand Casinos
concluded its management of casinos in Mille Lacs and Hinckley, Minnesota, with
the Mille Lacs Band of Ojibwe assuming management of the casinos. In December
1998, Grand Casinos transferred its two Louisiana casinos to newly formed Lakes
Gaming, Inc., now a publicly held corporation, and Grand Casinos was then merged
into Park Place Entertainment Corporation, combining Grand Casinos's remaining
properties with the gaming operations previously held by Hilton Hotels. As a
result of these transactions, the Company now operates two Kids Quest centers in
Minnesota casinos owned and managed by the Mille Lacs Band (both of which are
governed by new contracts directly with the Tribe), two Kids Quest centers in
Louisiana casinos operated by Lakes Gaming, Inc., and three Kids Quest centers
in Mississippi casinos owned and managed by Park Place Entertainment
Corporation, all of which casinos continue to operate using the Grand Casinos
name. Grand Casinos held 875,000 shares of the Company's Common Stock, all of
which shares are now held by Lakes Gaming, Inc.
Although the precise terms of each of the agreements for the seven
locations previously owned or managed by Grand Casinos 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 the property manager or the tribe.
Under these agreements for the three casinos previously owned by Grand Casinos,
the Company paid an aggregate of $200,045 in 1997 and $211,796 in 1998 to Grand
Casinos. The agreements also typically provide for a minimum guaranteed
management fee to be paid to the Company, which fee varies by location. The
agreements also allow the casino operators to establish a discounted rate below
the fair market value for the Company's services to be charged by the Company to
the public in order to attract customers to the Company and ultimately to the
casinos. The casino operator must reimburse the Company for the difference
between such amount charged and the fair market value for the Company's
services. Pursuant to these provisions, the Company received $663,602 in 1997
and $642,936 in 1998 from Grand Casinos as reimbursement for rate discounts at
the casinos previously owned by Grand Casinos. In addition, the agreements with
Grand Casinos and the tribes provide a guaranty by the manager or the tribe
against Company operating losses at the particular location. Under the guaranty
provisions for the casinos previously owned by Grand Casinos, the Company
received $194,909 in 1997 and $20,036 in 1998, all of which was paid by Grand
Casinos.
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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.
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 Company paid New Horizon
Enterprises an aggregate of $152,766 pursuant to the agreement in 1997 and
$157,676 in 1998.
In February 1999, Kevin M. Greer resigned as the Company's Chief
Financial Officer. Mr. Greer is continuing to provide services to the Company on
a consulting basis. Additionally, the Company has retained Patrick R. Cruzen as
its Interim Chief Financial Officer. Mr. Cruzen, previously served as the
President and Chief Operating Officer of Grand Casinos and, prior thereto, held
executive positions with MGM Grand, the Flamingo Hilton in Reno, Nevada, and the
Sands Hotel and Casino as well as Caesars Palace in Las Vegas, Nevada. Mr.
Cruzen is also the Chief Executive Officer of Cruzen and Associates, a company
that offices at New Horizon Enterprises. Cruzen and Associates provides
consulting and executive placement services for casinos, and has provided
consulting services to the Company regarding strategic development. To date, no
fees have been paid by the Company to Cruzen and Associates.
The Minneapolis law firm of Dunkley, Bennett & Christensen, P.A., of
which Messrs. William M. Dunkley and Jay L. Bennett are members, provides legal
services to the Company. Fees paid to Dunkley, Bennett & Christensen, P.A.
totalled $322,878 in 1997 and $337,692 in 1998.
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE
1995 DIRECTORS' STOCK OPTION PLAN
In September 1995, the Company adopted the New Horizon Kids Quest, Inc.
1995 Directors' Stock Option Plan (the "Directors' Plan"). A copy of the
Directors' Plan, as proposed to be amended, is attached to this Proxy Statement
as Exhibit A.
The Directors' Plan provides for automatic grants of options to
purchase the Company's Common Stock to non-employee directors according to fixed
terms. Specifically, non-qualified stock options to purchase 5,000 shares of
Common Stock are granted 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. As originally adopted and approved by the
shareholders, 50,000 shares of Common Stock were reserved for issuance under the
Directors' Plan.
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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. Each option has
a term of five years and becomes exercisable six months after the date of grant.
No option granted under the Directors' Plan may be transferred other than by
will or by the laws of descent and distribution, and all options are
exercisable, during the lifetime of the non-employee director, only by the
non-employee director. If an optionee ceases to serve as a director or dies
while serving as a director, the option may be exercised at any time within
seven months following the date the director ceases to be a non-employee
director of the Company or at any time within seven months following the date of
death by the personal representative or heir, as the case may be, but only to
the extent such director had the right to exercise the option at the time such
director ceased to serve as such or at the date of death, as the case may be.
Pursuant to the Directors' Plan, Messrs. Bennett and Berman each
received automatic option grants for 5,000 shares in each of 1996, 1997 and
1998, with exercise prices of $8.75, $4.25 and $2.63. Mr. Brimmer received an
initial grant of an option for 5,000 shares at an exercise price of $2.875 on
March 13, 1998, the day that he became a director. Each of Messrs. Berman,
Bennett and Brimmer will each receive an additional grant on the date of this
annual meeting, regardless of whether the proposed amendment to the Directors'
Plan is approved by the shareholders. After this year's grants, however, there
will be no additional reserved shares available for grant under the Directors'
Plan. The purpose of the proposed amendment is, therefore, to increase the
number of shares available for grant under the Directors' Plan to 200,000.
Approval of the amendment will not result in any additional grants this year,
but will allow for continued automatic grants.
The purpose of this amendment is to allow the Company to continue to
compensate its non-employee directors so that the Company benefits from their
participation on the Board of Directors, and to allow the Company to attract
qualified individuals to serve as directors if necessary.
The Board of Directors recommends a vote FOR approval of the amendment
to the Directors' Plan. Approval requires the affirmative vote of the holders of
a majority of the shares of Common Stock represented at the Annual Meeting.
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
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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.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent public accountants for fiscal 1999. Arthur Andersen LLP
has been the independent public accountants for the Company since 1994. A
representative of Arthur Andersen LLP is expected to attend the meeting and to
have an opportunity to make a statement and respond to appropriate questions
from shareholders.
SHAREHOLDER PROPOSALS
Shareholders wishing to present proposals for action by the
shareholders at the year 2000 annual meeting must present such proposals at the
principal offices of the Company not later than December 28, 1999. 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
William M. Dunkley
Chairman of the Board
and Chief Executive Officer
Dated: April 28, 1999
Minneapolis, Minnesota
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EXHIBIT A
NEW HORIZON KIDS QUEST, INC.
1995 DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of this New Horizon Kids Quest,
Inc. 1995 Directors' Stock Option Plan is to attract and retain the best
available individuals for service as Directors of the Company and provide
additional incentive to the Outside Directors of the Company to serve as
Directors.
None of the options granted hereunder shall be "incentive stock
options" within the meaning of Section 422 of the Code (as hereinafter defined).
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean New Horizon Kids Quest, Inc., a Minnesota
corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
Directors, employed by the Company or any parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an Employee.
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(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1995 Directors' Stock Option Plan.
(o) "Shares" shall mean shares of the Common Stock, as adjusted in
accordance with the terms of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to Plan. Subject to the provisions of Section 10 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares of Common Stock. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this Section
4(b) shall not be amended more than once every six months, other than to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options hereunder shall be
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option (an "Initial Grant") to purchase 5,000 Shares upon the date on which such
person first becomes a Director, whether through election by the shareholders of
the Company or appointment by the Board of Directors to fill a vacancy. Options
granted under this Section 4(b)(ii) shall become exercisable six months after
the date of such Initial Grant.
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(iii) Each Outside Director shall automatically receive, on the
date of each Annual Meeting of Shareholders, an Option to purchase 5,000 Shares
of the Company's Common Stock, such Option to become exercisable six months
subsequent to the date of grant; provided however, that such Option shall only
be granted to Outside Directors who have served since the date of the last
Annual Meeting of Shareholders and will continue to serve after the date of
grant of such Option.
(iv) The terms of an Option granted hereunder shall be as
follows:
(A) the term of the Option shall be five (5) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth
in Section 8 hereof.
(C) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of the Option.
(D) to the extent necessary to comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act
("Rule 16b-3"), no Option will be exercisable until a date more
than six months subsequent to the date of the grant of that
Option.
(c) Powers of the Board. Subject to the provisions and restrictions
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
7(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 7(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his directorship at any time.
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<PAGE>
6. Term of Plan. The Plan shall become effective upon the earlier of
(i) its adoption by the Board or (ii) its approval by the Shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 12 of the Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value ("Fair Market Value")
of a Share shall be determined by the Board in its discretion; provided however,
that where there is a public market for the Common Stock, the fair market value
per Share shall be the closing price of the Common Stock in the over-the-counter
market on the date of grant, as reported in The Wall Street Journal (or, if not
so reported, as otherwise reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") System) or, in the event the Common Stock
is traded on the NASDAQ National Market System or listed on a stock exchange,
the fair market value per Share shall be closing price on such system or
exchange on the date of grant of the Option, as reported in The Wall Street
Journal.
(c) Form of Consideration. Subject to compliance with applicable
provisions of Section 16(b) of the Exchange Act (or other applicable law), the
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Board and may
consist entirely of (i) cash, (ii) check, (iii) other Shares which (X) in the
case of Shares acquired upon exercise of an Option, have been owned by the
Optionee for more than six months on the date of surrender, and (Y) have a Fair
Market Value on the date of exercise equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) authorization for
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) by delivering an irrevocable subscription agreement for the Shares which
irrevocably obligates the Optionee to take and pay for the Shares not more than
twelve months after the date of delivery of the subscription agreement, (vii)
any combination of the foregoing methods of payment or (viii) such other
consideration and method of payment for the issuance of Shares as may be
permitted under applicable laws. In making its determination as to the type of
consideration to accept, the Board shall consider whether acceptance of such
consideration may be reasonably expected to benefit the Company.
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<PAGE>
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as set forth in Section
4(b) hereof; provided however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7(c) of the Plan and as determined by the Board. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 10 of the Plan.
Exercise of an Option for a certain number of Shares shall result in
a decrease in the number of Shares which thereafter are available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he may, but only within seven (7) months after
the date he ceases to be a Director of the Company, exercise his Option to the
extent that he was entitled to exercise it at the date of such termination. To
the extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 8(b) above, in the event an Optionee is unable to continue his service
as a Director with the Company as a result of his total and permanent disability
(as defined in Section 22(e)(3) of the Code) he may, but only with seven (7)
months from the date of termination, exercise his Option to the extent he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise the Option at the date of termination, or if he
does not exercise such Option (which he was entitled to exercise) within the
time specified herein, the Option shall terminate.
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<PAGE>
(d) Death of Optionee. Notwithstanding the provisions of Section
8(b) above, in the event of the death of an Optionee:
(i) provided that the Optionee was at the time of his death a
Director of the Company and had been in Continuous Status as a Director since
the date of grant of the Option, the Option may be exercised, subject to the
term of the Option, at any time within seven (7) months following the date of
death, by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as a Director for six (6) months after the date of
death; or
(ii) within thirty (30) days after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within seven (7)
months following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
9. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution or Merger.
(a) In the event that the number of outstanding shares of Common
Stock of the Company is changed by a stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company without consideration, the number of Shares available under this
Plan and the number of Shares subject to outstanding Options and the exercise
price per share of such Options shall be proportionately adjusted, subject to
any required action by the Board or shareholders of the Company and compliance
with applicable securities laws; provided however, that no certificate or scrip
representing fractional shares shall be issued upon exercise of any Option and
any resulting fractions of a Share shall be ignored. Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive.
(b) In the event of a dissolution or liquidation of the Company, a
merger in which the Company is not the surviving corporation, a transaction or
series of related transactions in which 100% of the then outstanding voting
stock is sold or otherwise transferred, or the sale of substantially all of the
assets of the Company, any or all outstanding Options shall, notwithstanding any
contrary terms of the written agreement governing such Option, accelerate and
become exercisable in full at least ten days prior to (and shall expire on) the
consummation of such dissolution, liquidation, merger or sale of stock or sale
of assets on such conditions as the Board shall determine unless the successor
corporation assumes the outstanding Options or substitutes substantially
equivalent options.
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<PAGE>
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
12. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuance shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act (or any other applicable law or regulation), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares available for
issuance pursuant to this Plan as shall be sufficient to satisfy the
requirements of the Plan.
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<PAGE>
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval.
(a) The Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months of its adoption by the Board. If such
shareholder approval is obtained at a duly held shareholder's meeting, it may be
obtained by the affirmative vote of the holders of a majority of the outstanding
shares of the Company present or represented and entitled to vote thereon. If
shareholder approval is obtained by written consent, it may be obtained by the
written consent of the holders of a majority of the outstanding shares of the
Company.
(b) Any required approval of the shareholders of the Company shall
be solicited substantially in accordance with Section 14(a) of the Exchange Act
and the rules and regulations promulgated thereunder.
17. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports to shareholders, proxy statements and
other information provided to all shareholders of the Company.
8
<PAGE>
PROXY NEW HORIZON KIDS QUEST, INC.
ANNUAL MEETING OF SHAREHOLDERS -- MAY 27, 1999
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, 1999, 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 1999 Annual
Meeting of Shareholders to be held at the Company's new corporate headquarters,
16355 36th Avenue North, Plymouth, Minnesota, on May 27, 1999 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
KENNETH BRIMMER
(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. 1995
Directors' Stock Option Plan to increase the number of shares of common
stock reserved for issuance pursuant to the plan to 200,000 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)
<PAGE>
(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, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE PROPOSED
DIRECTORS AND FOR A PROPOSED AMENDMENT TO THE COMPANY'S 1995 DIRECTORS' STOCK
OPTION PLAN TO INCREASE THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE THEREUNDER
TO 200,000 SHARES.
It is urgent that each shareholder
complete, date, sign and mail this Proxy
as soon as possible. Your vote is
important!
Dated: ___________________________, 1999
________________________________________
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.
