<PAGE> 1
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 Section 240.14a-11(c) or Section
240.14a-12
KAYE KOTTS ASSOCIATES INC.
(Name of Registrant as Specified in its Charter)
KAYE KOTTS ASSOCIATES INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form Schedule or Registration Statement Number:
3) Filing Party:
4) Date Filed:
<PAGE> 2
KAYE KOTTS ASSOCIATES INC.
Kaye Kotts Associates Inc.
15490 Ventura Boulevard
Sherman Oaks, California 91403
May 20, 1996
Dear Stockholder:
On behalf of the Board of Directors of KAYE KOTTS ASSOCIATES INC., I
cordially invite you to attend the 1996 Annual Meeting of Stockholders which
will be held on Thursday, June 20, 1996, beginning at 9:00 a.m. at Radisson
Valley Center Hotel, 15433 Ventura Boulevard, Sherman Oaks, California 91403,
(818) 981-8400.
As described in the accompanying Notice of Annual Meeting of
Shareholders and Proxy Statement, shareholders will be asked to vote on the
election of directors, to approve an amendment to the Kaye Kotts Associates
Inc. 1995 Stock Incentive Plan, and to ratify the appointment of the
independent auditors for KAYE KOTTS ASSOCIATES INC.
This package contains the Special Financial Report of KAYE KOTTS
ASSOCIATES INC. Pursuant to the rules and regulations of the Securities and
Exchange Commission, this Special Financial Report is being provided to
shareholders to give shareholders audited financial information in this first
year as a public company. Also included is a Proxy/Voting Instruction Card and
postage paid return envelope.
It is important that your shares be represented at the meeting.
Whether or not you plan to attend, we hope that you will complete and return
your Proxy/Voting Instruction Card in the enclosed envelope as promptly as
possible. The Board of Directors greatly appreciates your interest and
participation in the affairs of the Company.
Sincerely,
DAVID KAYE
-----------------------------
David Kaye
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
KAYE KOTTS ASSOCIATES INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 20, 1996
The Annual Meeting of stockholders of Kaye Kotts Associates Inc. will
be held at Radisson Valley Center Hotel, 15433 Ventura Boulevard, Sherman Oaks,
California 91403, (818) 981-8400 on Thursday, June 20, 1996, at 9:00 a.m.
Pacific Daylight Savings Time, for the following purposes:
1. To elect five directors to hold office for one year and until
their respective successors are elected and qualified. The
Board of Directors intends to nominate as directors the
persons identified in the accompanying Proxy Statement.
2. To consider and act upon a proposal to amend the Kaye Kotts
Associates Inc. 1995 Stock Incentive Plan.
3. To consider and act upon a proposal to ratify the appointment
of Feldman Radin & Co., P.C. as auditors for the fiscal year
ending December 31, 1996.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed May 6, 1996 as the record date for
determining the stockholders entitled to receive notice of and to vote at the
meeting.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
PLEASE COMPLETE, SIGN, AND DATE THE ACCOMPANYING PROXY/VOTING INSTRUCTION CARD
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors,
SUSAN E. PHILLIPS
--------------------------------
Susan E. Phillips
Secretary
<PAGE> 4
KAYE KOTTS ASSOCIATES INC.
______________
PROXY STATEMENT
MAY 20, 1996
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of Kaye Kotts Associates Inc. (the "Company" or "Kaye
Kotts Associates") 15490 Ventura Boulevard, Sherman Oaks, California 91403, of
your proxy for use at the Annual Meeting of Stockholders of the Company
("Annual Meeting") to be held June 20, 1996 or at any adjournment thereof.
This proxy statement and the accompanying Proxy/Voting Instruction
Card are being mailed to all stockholders on or about May 20, 1996.
The Company is making this solicitation and will bear the expenses of
preparing, printing and mailing proxy materials to the Company's stockholders.
In addition, proxies may be solicited personally or by telephone or fax by
officers or employees of the Company, none of whom will receive additional
compensation therefor.
VOTING AT THE MEETING
On May 6, 1996, the record date fixed by the Board of Directors, the
Company had outstanding 2,387,400 shares of Common Stock. A majority of the
outstanding shares of Common Stock will constitute a quorum at the Annual
Meeting. Proxies marked as abstentions will not be counted as votes cast. In
addition, shares held in street name which have been designated by brokers on
proxy cards as not voted will not be counted as votes cast. Proxies marked as
abstentions or as broker nonvotes, however, will be treated as shares present
for purposes of determining whether a quorum is present.
Stockholders have one vote for each share on all business of the
meeting. Stockholders have the right to cumulate their votes with respect to
voting on any matter before the Annual Meeting, including the election of
directors. A stockholder may, however, only cumulate his or her votes if the
stockholder gives notice at the Annual Meeting, prior to voting, of his or her
intention to cumulate votes. In no event may a stockholder cumulate votes for
a candidate for director if such candidate was not placed in nomination prior
to voting. If any one stockholder has given such notice, all stockholders may
cumulate their votes for the candidates in nomination. If the voting for
directors is conducted by cumulative voting, each share will be entitled to a
number of votes equal to the number of directors to be elected, which votes may
be cast for a single candidate or may be distributed among two or more
candidates in such proportions as the stockholder directs. The five candidates
receiving the highest number of affirmative votes will be
<PAGE> 5
elected. If no such notice is given, there will be no cumulative voting, which
means a simple majority of the shares voting may elect all of the directors.
REVOCABILITY OF PROXY
A proxy may be revoked by a stockholder prior to the voting at the
Annual Meeting by written notice to the Secretary of the Company, by submission
of another proxy bearing a later date or by voting in person at the Annual
Meeting. Such notice or later proxy will not affect a vote taken on any matter
prior to the receipt thereof by the Company. The mere presence at the Annual
Meeting of the stockholder who has appointed a proxy will not revoke the prior
appointment. If not revoked, a properly executed proxy will be voted at the
Annual Meeting in accordance with the instructions indicated on the Proxy Card
by the stockholders or, if no instructions are indicated, wholly voted FOR the
slate of directors described herein, FOR the amendment to the Kaye Kotts
Associates Inc. 1995 Stock Incentive Plan, FOR the approval of Feldman Radin &
Co. P.C. as independent auditors for the fiscal year ending December 31, 1996,
and as to any other matter that may be properly brought before the Annual
Meeting, in accordance with the judgment of the proxy.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of April 30, 1996,
concerning the shares of Kaye Kotts Associates Common Stock beneficially owned
by each Director of Kaye Kotts Associates, by each Executive Officer named in
the summary compensation table and by all Directors and Executive Officers of
Kaye Kotts Associates as a group. All shares listed are shares of Common Stock
except as otherwise specifically indicated. The address for the Executive
Officers and Directors of Kaye Kotts Associates is 15490 Ventura Boulevard,
Sherman Oaks, California 91403, unless otherwise indicated.
SHARES BENEFICIALLY OWNED
<TABLE>
<CAPTION>
NAME NUMBER PERCENTAGE
---- ------ ----------
<S> <C> <C>
David Kaye(1) 800,000 34%
Linda Kaye(1) 800,000 34%
Robert M. Rubin(2) 180,000 8%
Lawrence Cohen(3) 25,342 1%
Susan E. Phillips 10,200 *
Michael M. Kesner 10,000 *
All officers and directors as a 1,025,542 43%
group (six persons) (1)-(3)
</TABLE>
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<PAGE> 6
----------------------
* Denotes less than 1%
(1) Includes 800,000 shares of the Company's Common Stock owned by Linda
Kaye, the wife of David Kaye. Linda Kaye is an Assistant Secretary of
the Company.
(2) Includes 159,991 shares of the Company's Common Stock owned by RK
Partners, a New York partnership, of which Robert M. Rubin is a
partner and 20,009 shares of the Company's Common Stock owned by Mr.
Rubin.
(3) Includes 25,342 shares of the Company's Common Stock owned by Ms.
Donna Cohen, the wife of Lawrence Cohen.
Persons and groups beneficially owning more than five percent of the
Common Stock are required to file certain reports with respect to such
ownership pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The following table sets forth, as of April 30, 1996, certain
information as to the Common Stock beneficially owned by any person or group of
persons, other than Management, who is known to the Company to be the
beneficial owner of more than five percent of the Company's Common Stock.
Other than as disclosed below, Management knows of no person, other than
Management, who beneficially owned more than five percent of the Common Stock
at April 30, 1996.
<TABLE>
<CAPTION>
NAME NUMBER PERCENTAGE
---- ------ ----------
<S> <C> <C>
RK Partners (4) 159,991 7%
Lawrence Kaplan (4) 159,991 7%
</TABLE>
_________________
(4) Includes 159,991 shares of the Company's Common Stock owned by RK
Partners, a New York partnership, of which Mr. Kaplan, as well as Mr.
Rubin, is a partner. The address for RK Partners and Mr. Kaplan is
150 Motor Parkway, Hauppauge, New York 11788.
ELECTION OF DIRECTORS
(PROPOSAL ONE)
Kaye Kotts Associates' Certificate of Incorporation and By-Laws
provide that the number of Directors shall be determined by resolution of the
Board of Directors, but shall be at least one. Generally, the Directors are to
be elected for terms of one year and until their successors are elected and
qualified.
-3-
<PAGE> 7
The Board of Directors presently consists of six Directors, but has
been reduced to five Directors, effective as of the Annual Meeting. The Board
of Directors has nominated for election five of the six Directors whose terms
expire at the Annual Meeting: David Kaye, Susan E. Phillips, Michael M.
Kesner, Robert M. Rubin and Lawrence Cohen. Directors elected at the 1996
Annual Meeting will hold office until the next annual meeting of stockholders
of the Company, or until their successors are duly elected and qualified,
except in the event of their death, resignation or removal. Each of the
nominees has indicated his or her willingness to serve if elected. If any
nominee becomes unable to serve, the proxies solicited hereby will be voted for
the election of such other person or persons as the Board of Directors may
select.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THE ELECTION OF DAVID KAYE, SUSAN
E. PHILLIPS, MICHAEL M. KESNER, ROBERT M. RUBIN AND LAWRENCE COHEN AS DIRECTORS
OF KAYE KOTTS ASSOCIATES.
The following table sets forth the names of and certain information
with respect to the five persons nominated by the Board of Directors for
election as Directors of Kaye Kotts Associates at the Annual Meeting.
<TABLE>
<CAPTION>
Director Term to Positions Currently Held with
Nominees for Director Age Since Expire Kaye Kotts Associates
--------------------- --- ----- ------ ---------------------
<S> <C> <C> <C> <C>
David Kaye 59 1989 1996 Chairman of the Board, Chief
Executive Officer, President,
Treasurer, Director
Susan E. Phillips 33 1995 1996 Secretary, Vice President -
Administration, Director
Michael M. Kesner 48 1995 1996 Vice President - Sales, Director
Robert M. Rubin 55 1994 1996 Director
Lawrence Cohen 50 1995 1996 Director
</TABLE>
NOMINEES FOR DIRECTOR
David Kaye has been Chairman of the Board and President of the Company
since September 1989 and Treasurer since April 1995. Mr. Kaye also served as
the Company's Secretary from September 1989 until April 1995.
Susan E. Phillips became a Director of the Company in April 1995. Ms.
Phillips joined the Company in September of 1989 as Mr. Kaye's administrative
assistant, was promoted to Mr. Kaye's executive assistant in November 1992, was
promoted to Vice-President - Administration in April 1995 and continued in that
position until assuming the additional role of Secretary in April 1996.
-4-
<PAGE> 8
Michael M. Kesner became a Director of the Company in April 1995 and
Vice-President - Sales in February 1996. Mr. Kesner joined the Company as a
general manager of its San Diego, California office in April 1993, became a
regional director in December 1993, became Vice President - Operations in April
1995 and continued in that position until being appointed Vice-President -
Sales. Prior to joining the Company in April 1993, Mr. Kesner was director of
operations for Pro-Tile, Inc., Mr. Kesner was president and chief executive
officer of Kesner Vail Concrete Const. Inc., a company engaged in the concrete
construction business. Kesner Vail Concrete Const. Inc. filed a petition under
Chapter 11 of the United States Bankruptcy Code in July 1991 and in August 1991
that petition was converted to Chapter 7. Mr. Kesner also filed a petition
under Chapter 7 of that Code in August 1992.
Robert M. Rubin has been a Director of the Company since June 1994.
Mr. Rubin has served as the chairman of the board of directors of Western Power
& Equipment Corp. ("WPEC"), a construction equipment distributor, since
November 20, 1992. Between November 20, 1992 and March 7, 1993, Mr. Rubin
served as chief executive officer of WPEC. Between October, 1990 and January
1, 1994, Mr. Rubin served as the chairman of the board and chief executive
officer of American United Global, Inc. ("AUGI"), an O-ring and sealing device
manufacturer and owner of WPEC. Since January 1, 1994, his only position at
AUGI has been chairman of the board. Mr. Rubin was the founder, president,
chief executive officer and a director of Superior Care, Inc. ("SCI") from its
inception in 1976 until May 1986. Mr. Rubin continued as a director of SCI
(now known as Olsten Corporation ("Olsten")) until the latter part of 1987.
Olsten, a New York Stock Exchange listed company, is engaged in providing home
care and institutional staffing services and health care management services.
Mr. Rubin was formerly a director and vice chairman, and is a minority
stockholder of American Complex Care, Incorporated ("ACCI"), a public company
which provided on-site health care services, including intradermal infusion
therapies. In April 1995, the principal operating subsidiaries of ACCI
petitioned in the Circuit Court of Broward County, Florida, for an assignment
for the benefit of creditors. Mr. Rubin is also a director, chairman and
minority stockholder of Universal Self Care, Inc., a public company engaged in
the sale of products used by diabetics; and Response USA, Inc., a public
company engaged in the sale and distribution of personal emergency response
systems. Mr. Rubin is a director and minority stockholder of Diplomat
Corporation, a public company engaged in the manufacture and distribution of
baby products and a director of Help At Home, Inc., a provider of homemaker and
housekeeping services to elderly and disabled persons. Mr. Rubin is also
chairman, chief executive officer and a director and a principal stockholder of
ERD Waste Corp., a public company specializing in the management and disposal
of municipal solid waste, industrial and commercial nonhazardous solid waste,
and hazardous waste. He is also a minority stockholder of STAT Health Care,
Inc., a public company which provides physician contract management services to
associations providing emergency room services to hospitals.
Lawrence Cohen was appointed a Director of the Company in April 1995.
Since 1992 to date, Mr. Cohen has been chairman of the board of Biotime Inc., a
company founded by Mr. Cohen and engaged in the artificial plasma business.
Mr. Cohen is also a director of Apollo Genetics Inc., a company founded by Mr.
Cohen and engaged in the genetic pharmaceuticals
-5-
<PAGE> 9
business, and Asha Corporation, a company engaged in the automobile design
business. From 1990 to 1991, Mr. Cohen was the president and co- founder of
Cryomedical Sciences Inc., a company which is engaged in the business of low
temperature surgery. From 1988 to 1990, Mr. Cohen as the president of Hawk
Marine Power Inc., a manufacturer of offshore powerboat race engines.
MEETINGS AND COMMITTEES
The Board of Directors of Kaye Kotts Associates did not meet during
the fiscal year ended December 31, 1995. In lieu of meetings, the Board of
Directors acted on 12 occasions through signed Unanimous Consents. The Board
of Directors does not have any standing Audit, Nominating, Compensation or
other committees, besides the Stock Incentive Committee.
EXECUTIVE COMPENSATION
Compensation Philosophy and Practices
The Company's executive compensation program is based on the belief
that the interests of executives should be closely aligned with those of Kaye
Kotts Associates' stockholders. To support this philosophy, the following
principles provide a framework for the compensation program:
_ offer compensation opportunities that attract the best talent
to Kaye Kotts Associates; motivate individuals to perform at
their highest levels; reward outstanding achievement; and
retain the leadership and skills necessary for building
long-term stockholder value;
_ maintain a significant portion of executives' total
compensation at risk tied to both the annual and long-term
financial performance of the Company, as well as to the
creation of stockholder value.
_ encourage executives to manage from the perspective of owners
with an equity stake in the Company.
While performance against financial objectives is the primary
measurement for executive officers' annual incentive compensation, non-
financial performance also can affect pay. Every executive, as well as every
employee, is expected to uphold and comply with Kaye Kotts Associates Inc.
Full-Time Employee Personnel Manual and Principles of Business Conduct, which
requires the individual to maintain Kaye Kotts Associates' discrimination-free
work place and high ethical standards and procedures regarding financial
disclosure. Upholding the Kaye Kotts Associates Inc. Full-Time Employee
Personnel Manual and Principles of Business Conduct contributes to the success
of the individual employee and Kaye Kotts Associates as a whole.
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<PAGE> 10
Executive Compensation
The following table sets forth certain summary information with
respect to the compensation paid to the Company's Chairman of the Board,
President and Treasurer for services rendered in all capacities to the Company
for the year ended December 31, 1995. The Company had no other executive
officer whose total annual salary and bonus exceeded $100,000 in 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Fiscal Year
Name and Principal Ended Other Annual All Other
Position December 31, Salary ($) Bonus ($) Compensation ($) Compensation ($)
-------- ------------ ---------- --------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
David Kaye, 1995 $150,000 (1) (1) (1)
Chairman of the Board,
President and Treasurer
</TABLE>
_________________
(1) See "Employment Agreement" below.
Employment Agreement
Since January 1, 1995, Mr. Kaye's compensation has been $150,000 per
year. The Company leases an automobile for Mr. Kaye, principally used in the
Company' business. Mr. Kaye derives a personal benefit from the use of that
automobile which the Company estimates to be less than $1,000 per year.
Additionally, the Company pays for Mr. Kaye's life insurance and provides his
family with health insurance at the approximate cost of $5,000 and $6,000 per
year, respectively.
The Company has entered into an employment agreement with Mr. Kaye
pursuant to which he will act as Chairman of the Board and Chief Executive
Officer for a five year period, at an annual salary of $150,000, subject to
annual increases as may be determined by the Board of Directors. Mr. Kaye will
be entitled to receive performance compensation equal to ten percent of the
Company's annual pretax net income. Mr. Kaye's employment agreement requires
the Company to maintain $1,100,000 in life insurance for his benefit. The
employment agreement also provides Mr. Kaye's beneficiary and Mr. Kaye,
respectively, with three months salary in the event of his death or disability
and indemnifies him to the full extent permitted under the Delaware General
Corporation Law.
STOCK OPTION PLANS
The Company maintains stock option plans that permit the grant of
options to purchase shares of Common Stock. The plans provide for the granting
of both incentive stock options ("Incentive Stock Options"), as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
options that do not qualify as options defined by Section 422 of the Code
("Non-Qualified Options"). Under the plans, Incentive Stock Options may be
granted to employees, including officers and directors who are also employees,
and Non-Qualified Options
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<PAGE> 11
may be granted to officers, directors, advisors and consultants who may or may
not be employees of the Company.
The Company's two plans are the Kaye Kotts Associates Inc. 1995 Stock
Incentive Plan ("1995 Plan") and Kaye Kotts Associates Inc. Directors Stock
Option Plan ("Directors Plan"). The 1995 Plan is administered by a stock
option committee comprised of two independent members of the Board of
Directors, who are Messrs. Rubin and Cohen. The Directors Plan is administered
by two directors of the Company. The administrators grant all options and
determine the terms of the various grants under the 1995 Plan and Directors
Plan. Under the Directors Plan, upon election to the Board of Directors,
Outside Directors automatically receive options to purchase 3,000 shares of
Common Stock, and each July 1 after election to the Board of Directors, such
Directors will receive options to purchase 1,500 shares of Common Stock.
The maximum term of any option under the plans is ten years. The
exercise price per share may not be less than the fair market value (110% of
the fair market value in the case of Incentive Stock Options granted to persons
owning more than 10% of the voting stock of the Company), which will normally
be the price at which the Common Stock is trading on the Boston Stock Exchange
or the NASDAQ Small Cap Market on the date of grant. Options are not
transferable.
The 1995 Plan originally permitted the grant of options to purchase up
to 350,000 shares of Common Stock. The Directors Plan permits the grant of
options to purchase 50,000 shares of Common Stock. A proposal to approve an
amendment to the 1995 Plan to increase the available shares of Common Stock
underlying the Options to 666,000 shares is being presented to the shareholders
concurrently with this proposal for the election of Directors. See "Amendment
of Kaye Kotts Associates Inc. 1995 Stock Incentive Plan (Proposal Two)."
No options have been granted under the 1995 Plan or the Directors
Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In November 1992, one of the principal stockholders and a founder of
the Company, John R. Kotts, died. In January 1993, David Kaye transferred
approximately $500,000, proceeds he received as beneficiary of an insurance
policy on Mr. Kotts' life, to the Company. The proceeds were used to repay Mr.
Kaye's indebtedness of approximately $200,000 to the Company and to create a
loan to the Company of approximately $280,000, which was used by the Company to
purchase Mr. Kotts' interest in the Company. The Company placed the
repurchased shares of Common Stock into its treasury. In addition, the Company
forgave $74,491 due from Mr. Kotts' estate.
As of February 26, 1993, RK Partners, a principal stockholder of the
Company, and the Company entered into a revolving credit and term loan
agreement and a related security agreement and promissory note to provide the
Company with a revolving credit facility in the principal amount of up to
$500,000 (the "Credit Facility"). A member of RK Partners, Robert M. Rubin,
became a Director of the Company in June 1994. The Credit Facility provides
for yearly
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<PAGE> 12
interest at the rate of eight percent upon all sums advanced to the Company
and, as additional consideration, the Company issued 69,898 shares of its
Common Stock to RK Partners. The shares of the Company's Common Stock issued
to RK Partners were valued at approximately fifteen cents per share, the
estimated fair market value of such shares on the date of their issuance. To
secure the Company's obligations under the Credit Facility, RK Partners was
granted a security interest in all of the Company's fixtures, tangible personal
property and receivables. The Company repaid the outstanding balance advanced
to the company by RK Partners, approximately $225,000, from a portion of the
net proceeds of the February 1996 Offering and the security interest was
released. See "Successful Initial Public Offering."
In May 1994, the Company issued 50,342 shares of its Common Stock to
Donna Cohen, the spouse of Lawrence Cohen, in consideration for Mr. Cohen then
agreeing to serve on the Company's Board of Directors. Mrs. Cohen subsequently
transferred 25,000 of said shares to two persons not otherwise affiliated with
the Company.
In June 1994 the Company issued 20,009 shares of its Common Stock to
Robert M. Rubin in consideration for his agreeing to serve as a member of the
Company's Board of Directors. In July 1994, Mr. Kaye purchased 300,000 shares
of the Company's Series A Preferred Stock in exchange for the cancellation of
the Company's $300,000 indebtedness to him. Mr. Kaye directed the Company to
issue the shares of Series A Preferred Stock to Ms. Kaye.
From July 1994 through February 1995, the Company sold an aggregate of
$350,000 of its 8% Notes, 105,000 shares of its Common Stock and 105,000 Class
B Warrants to a group of private investors for an aggregate amount of $351,050.
Mr. Rubin was included in the foregoing group of private investors and acquired
a $25,000 8% Note, 7,500 shares of Common Stock and 7,500 Class B Warrants.
Additionally, Lawrence Kaplan, a partner of RK Partners, acquired a $30,000 8%
Note, 9,000 shares of Common Stock and 9,000 Class B Warrants.
The 8% Notes were initially payable in full, with interest on the
outstanding principal, on the earlier of one year from the date of issuance or
a closing of a public offering of the Company's equity securities from which it
derives aggregate gross proceeds of $3,000,000 or more. Payment terms of the
8% Notes have been amended to require their repayment on the earlier of periods
of time ranging from eighteen to twenty months from the date of issuance or a
closing of a public offering of the Company's securities as described in the
preceding sentence. The Company repaid substantially all of the amounts owing
on the 8% Notes with a portion of the net proceeds of the February 1996
Offering. See "Successful Initial Public Offering." The Company is repaying
the 8% Notes as such notes are being presented to the Company.
In August 1994 and January 1995, Ms. Kaye exchanged with the Company
275,000 and 25,000 shares, respectively, of her Series A Preferred Stock in the
Company for 275,000 shares of the Company's Common Stock and the cancellation
of approximately $116,500 in indebtedness of Ms. Kaye and her spouse to the
Company.
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<PAGE> 13
Ms. Kaye has gifted 45,000 shares of the Company's Common Stock owned
by her to officers and other employees of the Company including 10,000 shares
each to Susan E. Phillips, the Company's Vice President-Administration and
Michael M. Kesner, the Company's Vice President-Operations. The Company has
also issued 30,000 shares of the Company's Common Stock to Steven Toscher, a
person not otherwise affiliated with the Company, in consideration for his
agreement to serve on the Board of Directors at some future time.
During the first quarter of 1995, the Company borrowed $20,000 from
Lawrence Kaplan. Such loan was used to pay certain expenses of the offering
described in the following paragraph and the Company repaid this loan from the
net proceeds of the February 1996 Offering. See "Successful Initial Public
Offering."
In August 1995, the Company sold an aggregate of $400,000 of its 4%
Notes and 1,250,000 Redeemable Class C Common Stock Purchase Warrants ("Class C
Warrants"), which have been redenominated as Class A Warrants, to a group of
private investors for aggregate gross proceeds of $500,000. Lawrence Kaplan, a
partner of RK Partners, a principal stockholder of the Company, was included in
the foregoing group of private investors and acquired a $16,000 4% Note and
50,000 Class A Warrants. The 4% Notes were repaid with a portion of the net
proceeds of the February 1996 Offering. See "Successful Initial Public
Offering."
The Company believes that its Credit Facility with RK Partners was on
terms no less favorable to the Company than terms it would have been able and
be able to receive from an unaffiliated third party. The sale by the Company
of its 8% and 4% Notes and other securities to Messrs. Rubin and Lawrence
Kaplan were on terms that were fair to the Company and no less favorable to the
Company than contemporaneous sales of said notes and securities to unaffiliated
third parties.
AMENDMENT OF KAYE KOTTS ASSOCIATES INC.
1995 STOCK INCENTIVE PLAN
(PROPOSAL TWO)
The Company has adopted the Kaye Kotts Associates Inc. 1995 Stock
Incentive Plan (the "1995 Plan"). The Board of Directors has adopted an
amendment to the 1995 Plan, subject to shareholder approval, to increase the
number of shares of Common Stock available under such plan to 666,000 from
350,000 and to limit the number of shares of Common Stock with respect to which
options may be granted during any calendar year to any person to 100,000
shares. The amendment also increases the persons eligible for participation in
the 1995 Plan by making it available to most, and not just key, employees. The
Board of Directors believes that such changes are necessary for the ongoing
viability of the 1995 Plan and, more generally, for the attraction and
retention of employees of outstanding quality at all levels of the Company.
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Stockholder approval of the amendment to the 1995 Plan requires an
affirmative vote of the holders of a majority of the shares of the Common Stock
present or represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE AMENDMENT TO THE
KAYE KOTTS ASSOCIATES INC. 1995 STOCK INCENTIVE PLAN.
GENERAL PLAN INFORMATION
The Company has adopted the Kaye Kotts Associates Inc. 1995 Stock
Incentive Plan, effective July 1, 1995 (the "Effective Date"). All statements
made herein regarding the 1995 Plan, which are only intended to summarize the
1995 Plan, are qualified in their entirety by reference to the 1995 Plan.
The Board of Directors of the Company has the power to modify, repeal,
suspend or terminate the 1995 Plan. Notwithstanding this power, no such
modification, repeal, suspension or termination shall adversely affect, in any
way, the rights of those persons who hold outstanding Options unless such
persons give their consent.
PURPOSE OF THE 1995 PLAN
The purpose of the 1995 Plan is to further the growth and development
of the Company by encouraging employees, consultants and advisors to obtain a
proprietary interest in the Company by owning its Common Stock. The Company
intends that the 1995 Plan will provide such persons with an added incentive to
continue in the employ and service of the Company and will stimulate their
efforts in promoting the growth, efficiency and profitability of the Company.
The Company also intends that the 1995 Plan will afford the Company a means of
attracting to its service persons of outstanding quality.
ADMINISTRATION OF THE 1995 PLAN
The 1995 Plan is administered by a committee (the "Committee"),
appointed by the Board of Directors, consisting of at least two Directors of
the Company who are "disinterested persons" within the meaning of Rule
16b-3(c)(2) of the Exchange Act. The Committee has the authority and sole
discretion (1) to determine those persons eligible for an award under the 1995
Plan; (2) to grant awards under the 1995 Plan; (3) to determine the form and
content of any award under the 1995 Plan (including, without limitation, the
manner and conditions under which options are exercisable); (4) to interpret
the 1995 Plan; and (5) to make all other decisions necessary or advisable for
the administration of the 1995 Plan. All decisions, determinations and
interpretations of the Committee are final and conclusive. Members of the
Committee serve for no pre-determined period of time; however, the Board of
Directors has the discretion to add members to, remove members from, or fill
vacancies in, the Committee. Members of the Committee will be indemnified for
their actions as members of the Committee, unless such actions
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<PAGE> 15
are adjudged to be made in other than good faith. The current members of the
Committee are Directors Robert M. Rubin and Lawrence Cohen.
SECURITIES TO BE OFFERED
The 1995 Plan permits the Committee to grant options to purchase
shares of the Common Stock ("Options") to certain persons. Options may be
either incentive stock options as defined in Section 422 of the Internal
Revenue Code ("ISOs") or stock options that are not ISOs ("non- ISOs"). In the
event that any part or all of an ISO granted under the 1995 Plan fails to
satisfy all of the requirements of Section 422, the portion that fails to meet
such requirements shall be split from the ISO and shall become a Non-ISO. Such
split shall be evidenced by one or more Option Agreements.
The 1995 Plan currently reserves 350,000 authorized but unissued or
treasury shares of Common Stock for issuance upon the exercise of the Options.
The Board of Directors has adopted, subject to shareholder approval, an
amendment to the 1995 Plan to increase the number of shares of Common Stock so
reserved to 666,000 and limits the number of shares of Common Stock with
respect to which options may be granted during any calendar year to any person
to 100,000 shares. In the event of recapitalization, reclassification, stock
split, combination of shares or stock dividend, the Committee will make the
appropriate adjustment in the number and kind of shares available under the
1995 Plan and the number and kind of shares as to which outstanding Options are
exercisable.
EMPLOYEES WHO MAY PARTICIPATE
Under the 1995 Plan, the Committee may grant Options to employees,
directors, consultants and advisors to the Company. ISOs are available only to
employees, including directors, consultants and advisors to the extent such
directors, consultants and advisors are employees of the Company. Non-ISOs are
available to directors, consultants and advisors to the Company without such
limitation. No director may receive Options while serving on the Committee.
As of May 6, 1996, the Company had approximately 105 employees who were
eligible to participate in the 1995 Plan.
TERMS AND CONDITIONS OF EXERCISE
The exercise of Options will be subject to such terms and conditions
as are established by the Committee in a written agreement (the "Option
Agreement") between the Company and the persons to whom Options are granted
("Optionee") within certain parameters as set forth below.
Exercise Price. The exercise price of the Options shall be determined
by the Committee; provided, however, the exercise price of any ISO may not be
less than the fair market value (as determined under the 1995 Plan; 110% of the
fair market value in the case of ISOs granted to persons owning more than ten
percent of the voting power of all classes of stock of the Company) of the
optioned shares on the date such Options are granted.
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<PAGE> 16
Exercise Consideration. The exercise price may be paid for in cash or
by delivery of shares of the Company's Common Stock, which shall be valued at
the fair market price of the Common Stock on the date of exercise.
Reload Options. At the time of granting any ISO or Non-ISO hereunder,
the Committee will designate whether such ISO or Non-ISO will be accompanied by
a "Reload Option." A Reload Option is an Option that is granted to an Optionee
who pays for exercise of all or part of such ISO or Non-ISO with shares of the
Common Stock. A Reload Option is for the same number of shares as is exchanged
in payment for the exercise of such ISO or Non-ISO and is subject to all of the
same terms and conditions as such ISO or Non-ISO, except that the Option Price
for shares subject to the Reload Option is determined on the basis of the fair
market value of such shares on the date the Reload Option is granted. In
addition, the Committee, in its discretion, may grant one or more successive
Reload Options to an Optionee who pays for exercise of a Reload Option with
shares of the Common Stock. However, the term of a Reload Option may not
extend beyond the original term of the ISO or Non-ISO with respect to which
such Reload Option was granted.
Exercise Period. The terms of the Options shall commence on the date
of the grant of such Options and shall expire on the date determined by the
Committee for each Option, but in no case shall such date be later than ten
years (five years in the case of an Optionee owning more than ten percent of
the voting power of all classes of stock of the Company) after the date the
Option is granted. In addition, no Option can be exercised within six months
of the date of its grant.
Exercise Amount. The Optionee may exercise less than the full number
shares of Common Stock covered by the Option. In the absence of a contrary
provision in the Option Agreement, such exercise of a portion of an Option will
be limited to the lesser of ten percent of the number of shares of Common Stock
covered by such Option or 200 shares, unless the Optionee is exercising all of
the remaining shares of an Option.
Effect of Reorganization or Dissolution. In the event of any
reorganization involving merger, consolidation, or acquisition of the stock or
assets of the Company, the Committee may declare (i) any or all outstanding
Options immediately exercisable and nonforfeitable to the extent permitted
under federal and state law; and (ii) any Option granted but not exercised be
applicable to the resulting corporation. In the event of dissolution and
liquidation of the Company, the Committee will give each holder of an
outstanding Option notice of such event at least ten days prior to its
effective date, and the rights of all such holders will become immediately
nonforfeitable and exercisable to the extent permitted under federal and state
law.
Effect of End of Employment. In the absence of Committee action to
the contrary, an otherwise unexpired Option will cease to be exercisable upon
(i) an Optionee's termination of employment for cause (as defined in the 1995
Plan); (ii) the date three months after the Optionee terminates service for a
reason other than cause, death or disability; (iii) the date one year after an
Optionee terminates his employment because of disability; or (iv) the date one
year after the death of an Optionee. In no event shall Options be exercisable
after their date of expiration.
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<PAGE> 17
Nontransferability. No Option shall be assignable or transferable by
the Optionee except by will or by the laws of descent or distribution. During
the lifetime of the Optionee, the Option can only be exercised by the Optionee.
FEDERAL INCOME TAX CONSEQUENCES
ISOs. An Optionee recognizes no taxable income upon the grant of ISOs
and incurs no tax liability due to the exercise unless the Optionee is subject
to the alternative minimum tax. If the Optionee holds the Option shares for at
least two years from the date the ISO is granted and one year from the date the
ISO is exercised, any gain realized on the sale of the shares received upon
exercise of such ISO is taxed as long-term capital gain. If an Optionee
disposes of the shares before the expiration of either of the special holding
periods, the disposition is a "disqualifying disposition." In this event, the
Optionee will be required, at the time of the disposition of the Common Stock,
to treat the lesser of the gain realized or the difference between the exercise
price and the fair market value of the Common Stock at the date of exercise as
ordinary income and the excess, if any, as capital gain.
The Company will not be entitled to any deduction for federal income
tax purposes as the result of the grant or exercise of an ISO, regardless of
whether the exercise of the ISO results in tax liability to the individual
under the alternative minimum tax. However, if an Optionee has ordinary income
taxable as compensation as a result of a disqualifying disposition, the Company
will be entitled to deduct an equivalent amount.
If an employee exercises an ISO and makes payment with shares of the
Company's Common Stock, generally neither the employee nor the Company will
recognize gain or loss at the time of exercise. However, if an employee
exercises an ISO and makes payment with shares acquired through a prior
exercise of a qualified stock option or an ISO, that exchange will constitute a
premature disposition of such shares unless the shares have been held for the
period required by the Internal Revenue Code.
Non-ISOs. In the case of a Non-ISO, an Optionee will recognize
ordinary income upon the exercise of the Non-ISO in the amount equal to the
difference between the fair market value of the shares on the date of exercise
and the option price. Upon a subsequent disposition of such shares, any amount
received by the Optionee in excess of the fair market value of the shares as a
result of the exercise will be taxed as a capital gain. The Company will be
entitled to a deduction for federal income tax purposes at the same time and in
the same amount as the ordinary income recognized by the Optionee in connection
with the exercise of a Non-ISO.
If an employee exercises a Non-ISO and makes payment with shares of
the Company's Common Stock, neither the employee nor the Company will recognize
gain or loss for the number of shares equally exchanged at the time of
exercise. However, the additional shares transferred to the employee will
cause him or her to realize, at the time of exercise, taxable ordinary income
in the amount equal to the fair market value of the additional shares
transferred to the employee less any cash paid by the employee. The exchange
of shares acquired by an employee through a prior
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<PAGE> 18
exercise of a qualified stock option or an ISO does not constitute a premature
disposition of such shares.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL THREE)
The Board of Directors has selected Feldman, Radin & Co., P.C. as Kaye
Kotts Associates' independent auditors for the fiscal year ending December 31,
1996, and to audit the books and accounts of Kaye Kotts Associates for that
year. A resolution to ratify and approve such selection will be offered at the
meeting. Feldman, Radin & Co., P.C., together with its predecessors, have been
independent auditors of Kaye Kotts Associates for more than three years.
Representatives of Feldman, Radin & Co., P.C. are expected to be
present at Annual Meeting and to be available to respond to appropriate
questions. The representatives will also be provided an opportunity to make a
statement, if they desire to do so.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE
SELECTION OF FELDMAN, RADIN & CO., P.C. AS THE INDEPENDENT AUDITORS FOR KAYE
KOTTS ASSOCIATES FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
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<PAGE> 19
OTHER BUSINESS
The Board of Directors does not know of any other business to be
presented for action at the Annual Meeting. If any other business is properly
presented at the Annual Meeting, shares represented by the proxies solicited
hereby will be voted on such matters in accordance with the best judgment of
the proxy holders named therein.
SHAREHOLDER PROPOSALS
Any shareholder of Kaye Kotts Associates wishing to have a proposal
considered for inclusion in the Kaye Kotts 1997 proxy solicitation materials
must, in addition to other applicable requirements, set forth such proposal in
writing and file it with the Secretary of Kaye Kotts Associates on or before
December 15, 1996. The Board of Directors of Kaye Kotts Associates will review
any proposals from shareholders received by that date and will determine
whether applicable requirements have been met for inclusion of any such
proposals in such 1997 proxy solicitation materials.
SUCCESSFUL INITIAL PUBLIC OFFERING
The Board of Directors is pleased to announce that in February 1996
the Company successfully completed the issuance of 1,150,000 shares of Common
Stock for $5.00 per share and 1,265,000 Redeemable Class A Common Stock
Purchase Warrants for $.15 per warrant (the "February 1996 Offering"). Each
warrant entitles the holder to purchase one share of the Company's Common Stock
for $6.00 per share, subject to adjustment, for five years commencing February
22, 1996. The Company raised approximately $5,857,000 in the February 1996
Offering after subtracting offering expenses and Underwriter's discounts. The
Company anticipates using most of the net proceeds from the February 1996
Offering to repay indebtedness and to expand its operations to the metropolitan
areas of Baltimore-Washington, D.C., Dallas-Fort Worth and New York City.
By Order of the Board of Directors
Date: May 20, 1996
SUSAN E. PHILLIPS
---------------------------
Susan E. Phillips,
Secretary
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<PAGE> 20
KAYE KOTTS ASSOCIATES INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 20, 1996
The undersigned shareholder of Kaye Kotts Associates Inc., a Delaware
corporation (the "Company"), hereby appoints DAVID KAYE and SUSAN PHILLIPS, as
the undersigned's proxies, each with full power of substitution, to attend and
act for the undersigned at the Annual Meeting of Shareholders of the Company to
be held on Thursday, June 20, 1996, at 9:00 a.m., Pacific Time, at Radisson
Valley Center Hotel, 15433 Ventura Boulevard, Sherman Oaks, California 91403,
(818) 981-8400, and any adjournments thereof, and to represent and vote as
designated below all of the shares of Common Stock of the Company that the
undersigned would be entitled to vote.
1. Proposal to elect five members of the Company's Board of Directors. The
following five persons have been nominated to serve on the Company's Board of
Directors: David Kaye, Susan E. Phillips, Michael M. Kesner, Robert M. Rubin
and Lawrence Cohen.
/ / FOR all nominees listed above / /WITHHOLD
AUTHORITY
to vote for all
nominees listed
above.
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(Instruction: To withhold authority for any one or more individual nominee(s),
write the name of such nominee(s) on the line provided above.)
2. Proposal to ratify the appointment of Feldman Radin & Co. as auditors for the
Company for the fiscal year ending December 31, 1996.
/ / FOR / / AGAINST / / ABSTAIN
3. Proposal to amend the Kaye Kotts Associates Inc. 1995 Stock Incentive Plan.
/ / FOR / / AGAINST / / ABSTAIN
The proxies, and each of them, shall have all the powers that the
undersigned would have if acting in person. The undersigned hereby revokes any
other proxy to vote at the above Annual Meeting and hereby ratifies and confirms
all that the proxies, and each of them, may lawfully do by virtue hereof. With
respect to matters not known at the time of solicitation of this proxy, the
proxies are authorized to vote in accordance with their best judgment.
This Proxy is solicited on behalf of the Board of Directors of the Company
<PAGE> 21
The proxies present at the Annual Meeting, either in person or by substitute
(or if only one shall be present and act, then that one) shall vote the shares
represented by this proxy in the manner indicated above. IF NO INSTRUCTIONS TO
THE CONTRARY ARE INDICATED ON THIS PROXY, IT WILL BE VOTED FOR PROPOSAL NOS. 1,
2 AND 3.
Dated: ___________, 1996
------------------------
Signature of Shareholder
------------------------
Print Name
------------------------
Signature of Shareholder
------------------------
Print Name
IMPORTANT: Please sign
your name(s) exactly as
it/they appear on the
records of the Company.
When signing as an
officer of a corporation,
partner of a partnership,
attorney-in-fact,
executor, administrator,
trustee or guardian,
please give your full
title. JOINT OWNERS MUST
EACH SIGN.
