HOLLYWOOD PRODUCTIONS, INC.
14 East 60th Street
New York, New York 10022
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS To Be Held on June 30, 1997
To the Shareholders of HOLLYWOOD PRODUCTIONS, INC.
NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of
HOLLYWOOD PRODUCTIONS, INC. (the "Corporation") will be held at the
Corporation's offices located at 14 East 60th Street, New York, New York, on
June 30, 1997, at 10:00 a.m. Eastern time, for the following purposes:
1. To elect three (3) Directors to the Corporation's Board of Directors to
hold office for a period of one year or until their successors are duly elected
and qualified;
2. To ratify an amendment to the Corporation's Senior Management Incentive
Plan to increase the number of shares of Common Stock authorized for issuance
thereunder from 250,000 to 750,000;
3. To ratify the proposal to approve the Corporation's Non-Executive
Director Stock Option Plan; and
4. To transact such other business as properly may be brought before the
meeting or an adjournment thereof.
The close of business on May 5, 1997 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
meeting and any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to attend, please complete, date, and sign the accompanying proxy, and
return it promptly in the enclosed envelope to assure that your shares are
represented at the meeting. If you do attend, you may revoke any prior proxy and
vote your shares in person if you wish to do so. Any prior proxy automatically
will be revoked if you execute the accompanying proxy or if you notify the
Secretary of the Corporation, in writing, prior to the Annual Meeting of
Shareholders.
By order of the Board of Directors
Robert DiMilia, Secretary
Dated: June 10, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND SIGN
THE ENCLOSED PROXY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
<PAGE>
HOLLYWOOD PRODUCTIONS, INC.
14 East 60th Street
New York, New York 10022
PROXY STATEMENT
FOR
Annual Meeting of Stockholders
To Be Held on June 30, 1997
This proxy statement and the accompanying form of proxy were mailed on
June 10, 1997 to the stockholders of record (as of May 5, 1997) of Hollywood
Productions, Inc., a Delaware corporation (the "Corporation"), in connection
with the solicitation of proxies by the Board of Directors of the Corporation
for use at the Annual Meeting to be held on June 30, 1997 and at any adjournment
thereof.
SOLICITATION, VOTING, AND REVOCABILITY OF PROXIES
Shares of the Corporation's common stock, par value $.001 per share
(the "Common Stock"), represented by an effective proxy in the accompanying form
will, unless contrary instructions are specified in the proxy, be voted FOR (i)
the election of three (3) persons nominated by the Board of Directors as
directors; (ii) the ratification of an amendment to the Corporation's Senior
Management Incentive Plan to increase the number of shares of Common Stock
authorized for issuance thereunder from 250,000 to 750,000 shares; and (iii) the
ratification of the proposal to approve the Corporation's Non-Executive Director
Stock Option Plan.
Any such proxy may be revoked at any time before it is voted. A
stockholder may revoke this proxy by notifying the Secretary of the Corporation,
either in writing prior to the Annual Meeting or in person at the Annual
Meeting, by submitting a proxy bearing a later date or by voting in person at
the Annual Meeting. An affirmative vote of a plurality of the shares of Common
Stock present, in person or represented by proxy at the Annual Meeting and
entitled to vote thereon is required to elect the Directors. A stockholder
voting through a proxy 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 his abstention is, in effect, a negative vote; however, a
stockholder (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. A
stockholder voting through a proxy who abstains with respect to approval of any
other matter to come before the meeting is considered to be present and entitled
to vote on that matter, and his abstention is, in effect, a negative vote;
however, a stockholder (including a broker) who does not give authority to a
proxy to vote or who withholds authority to vote on any such matter shall not be
considered present and entitled to vote thereon.
The Corporation will bear the cost of the solicitation of proxies by
the Board of Directors. The Board of Directors may use the services of its
Executive Officers and certain Directors to solicit proxies from stockholders in
person and by mail, telegram, and telephone. Arrangements may also be made with
brokers, fiduciaries, custodians, and nominees to send proxies, proxy
statements, and other material to the
<PAGE>
beneficial owners of the Common Stock held of record by such persons, and the
Corporation may reimburse them for reasonable out-of-pocket expenses incurred by
them in so doing.
The Annual Report on Form 10-KSB for the fiscal year ended December 31,
1996 including audited financial statements, accompanies this proxy statement.
The principal executive offices of the Corporation are located at 14
East 60th Street, New York, New York 10022; the Corporation's telephone number
is (212) 688-9223.
Independent Public Accountants
The Board of Directors of the Corporation has selected Scarano &
Lipton, P.C., Certified Public Accountants, as independent accountants of the
Corporation for the fiscal year ending December 31, 1997. Shareholders are not
being asked to approve such selection because such approval is not required. The
audit services provided by Scarano & Lipton, P.C. consist of examination of
financial statements, services relative to filings with the Securities and
Exchange Commission, and consultation in regard to various accounting matters.
Representatives of Scarano & Lipton, P.C. are expected to be present at the
meeting and will have the opportunity to make a statement if they so desire and
answer appropriate questions.
VOTING SECURITIES AND SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Common Stock,
par value $.01 per share. The presence, in person or by proxy, of a majority of
shares entitled to vote will constitute a quorum for the meeting. Each share of
Common Stock entitles its holder to one vote on each matter submitted to the
stockholders. The close of business on May 5, 1997 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the meeting and any adjournment thereof. At that date, 6,092,500 shares of
Common Stock were outstanding. Voting of the shares of Common Stock is on a
non-cumulative basis.
The following table sets forth information as of May 5, 1997 with
respect to the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) known by the Corporation to be the
owner of more than 5% of the outstanding shares of Common Stock; (ii) each
Director; and (iii) all Officers and Directors as a group. Except to the extent
indicated in the footnotes to the following table, each of the individuals
listed below possesses sole voting power with respect to the shares of Common
Stock listed opposite his name.
<PAGE>
<TABLE>
<CAPTION>
Name And Address of Amount and Nature Percent of
Beneficial Owner Of Beneficial Owner Class (1)
- ---------------------- ------------------- ---------
<S> <C> <C>
European Ventures Corp. (2) 6,019,000 (3) 78.6%
P.O. Box 47
Road Town, Tortolla, British
Virgin Islands
Harold Rashbaum (2) 157,500 (4) 2.5%
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Alain A. Le Guillou, M.D. (2) -- --
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Robert DiMilia 50,000 (5) *
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
All Officers and Directors 207,500 (5) 3.3%
(3 as a Group) (2)-(5)
* Less than 1%
</TABLE>
(1) Does not give effect to the issuance of (i) 4,400,000 shares of Common
Stock reserved for issuance upon the exercise of the Warrants; (ii) 240,000
shares of Common Stock reserved for issuance upon the exercise of the
underwriter's warrants and the Warrants underlying the underwriter's warrants;
and (iii) 250,000 shares of Common Stock reserved for issuance under the
Corporation's 1995 Senior Management Incentive Plan, except for the 75,000
shares issued thereunder and the 150,000 shares underlying option grant pursuant
thereto.
(2) Harold Rashbaum is the father-in-law of Ilan Arbel, the sole officer
and director of European Ventures Corp. ("EVC").
(3) Includes 1,568,000 shares of Common Stock issuable upon the exercise of
Warrants owned by EVC.
(4) Includes (i) 50,000 shares of Common Stock under the Senior Management
Incentive Plan, pursuant to a vesting schedule, none of which have vested; (ii)
100,000 shares of Common Stock pursuant to an option granted under the
Corporation's Senior Management Incentive Plan; and (iii) 7,500 shares issued to
H.B.R. Consultants Sales Corp. in September 1996. See "Executive Compensation-
Employment and Consulting Agreements" and "Senior Management Incentive Plan."
<PAGE>
(5) Includes 50,000 shares of Common Stock issuable upon the exercise of an
option granted to Robert DiMilia under the Corporation's Senior Management
Incentive Plan.
Certain Reports
No person, who during the fiscal year ended June 30, 1996 was a Director,
Officer, or beneficial owner of more than ten percent of the Corporation's
Common Stock (which is the only class of securities of the Corporation
registered under Section 12 of the Securities Exchange Act of 1934 (the "Act")
(a "Reporting Person"), failed to file on a timely basis reports required by
Section 16 of the Act during the most recent fiscal year or prior years. The
foregoing is based solely upon a review by the Corporation of (i) Forms 3 and 4
during the most recent fiscal year as furnished to the Corporation under Rule
16a-3(d) under the Act; (ii) Forms 5 and amendments thereto furnished to the
Corporation with respect to its most recent fiscal year; and (iii) any
representation received by the Corporation from any reporting person that no
Form 5 is required, except as described herein.
It is expected that the following will be considered at the meeting and
that action will be taken thereon:
I. ELECTION OF DIRECTORS
The Board of Directors currently consists of three members elected for
a term of one year or until their successors are duly elected and qualified.
An affirmative vote of a plurality of the shares of Common Stock,
present in person or represented by proxy, at the Annual Meeting and entitled to
vote thereon is required to elect the Directors. All proxies received by the
Board of Directors will be voted for the election as Directors of the nominees
listed below if no direction to the contrary is given. In the event any nominee
is unable to serve, the proxy solicited hereby may be voted, in the discretion
of the proxies, for the election of another person in his stead. The Board of
Directors knows of no reason to anticipate this will occur.
The following table sets forth, as of June 10, 1997, the three nominees
for election as Directors of the Corporation:
<TABLE>
<CAPTION>
Position with Corporation; Director
Name Principal Occupation and Age Since
<S> <C> <C>
Harold Rashbaum President, CEO and Director; 70 1996
Robert DiMilia Vice President, Secretary and 1997
Director; 51
Alain A. Le Guillou, M.D. Director; 40 1996
</TABLE>
<PAGE>
The Directors of the Corporation are elected annually by the
stockholders, and the Officers of the Corporation are appointed annually by the
Board of Directors. Vacancies on the Board of Directors may be filled by the
remaining Directors. Each current Director and Officer will hold office until
the next annual meeting of stockholders or until his successor is elected and
qualified. All outside Directors receive a Director's fee of $1,000 per month
for their participation as Directors. The sole outside Director is Alain D. Le
Guillou, M.D. (Harold Rashbaum is the father-in-law of Alain A. Le Guillou,
M.D.) The Corporation does not have key man insurance on the lives of any of its
Officers or Directors. On January 10, 1997, Robert Melillo and the Corporation
mutually agreed to the resignation of Mr. Melillo as the President, Chief
Executive Officer, and Director of the Corporation. As of that time, Mr.
Rashbaum took over as President and Chief Executive Officer of the Corporation.
Mr. Melillo remained a consultant to the Corporation, at a weekly fee of $600,
until April 1, 1997.
Harold Rashbaum has been the President, Chief Executive Officer, and a
Director of the Corporation since January 1997. He was elected President and
Chief Executive Officer when Robert Melillo, former President and Chief
Executive Officer, resigned. From May 1996 to January 1997, Mr. Rashbaum served
as Secretary and Treasurer of the Corporation. Also since May 1996, Mr. Rashbaum
has served as the Secretary, Treasurer, and a Director of D.L. Productions, Inc.
("DLP"). He became President of DLP in January 1997. Since February 1996, Mr.
Rashbaum has also been the President and a Director of H.B.R. Consultant Sales
Corp. ("HBR"), of which his wife is the sole stockholder. Mr. Rashbaum has also
been a consultant for Play Co. Toys & Entertainment Corp.("Play Co."), a
wholesaler and retailer of children's toys, since July 1995. He became Chairman
of the Board of Play Co. in September 1996. Prior thereto, from February 1992 to
June 1995, Mr. Rashbaum was a consultant to 47th Street Photo, Inc., an
electronics retailer. Mr. Rashbaum held this position at the request of the
bankruptcy court during the time 47th Street Photo, Inc. was in Chapter 11. From
January 1991 to February 1992, Mr. Rashbaum was a consultant for National
Wholesale Liquidators, Inc., a major retailer of household goods and housewares.
Robert DiMilia has been a Director, Vice President, and Secretary of
the Corporation since January 10, 1997. Prior thereto, he was a consultant to
the Corporation with respect to the production of Dirty Laundry, the
Corporation's first motion picture. From March 1995 to May 1996, Mr. DiMilia was
a media and marketing consultant in the film industry working on a variety of
projects. From 1991 to 1994, Mr. DiMilia was a Vice President for the Bon Bon
Group, a national payroll/accounting entertainment service Corporation.
Alain A. Le Guillou, M.D. has been a Director of the Corporation since May
1996. Since July 1995, Dr. Guillou has been a doctor of pediatrics at Montefiore
Medical Group. From July 1992 to June 1995, Dr. Guillou was a pediatric resident
at the University of Minnesota, Gillette Hospital, St. Paul, Minnesota. From
July 1991 to June 1992, Dr. Guillou was an intern at Montefiore Medical Center,
Bronx, New York. Dr. Guillou is the son-in-law of Harold Rashbaum.
Significant Employees
Dan Stone, 61, Chairman of the Board of Breaking Waves, Inc. from its
inception in 1991 until the consummation of the Corporation's acquisition of
Breaking Waves, Inc. in September 1996 ("the Acquisition"), became a consultant
to the Corporation in September 1996. Mr. Stone has been the President and a
Director of D. Stone Industries, Inc. and Dan Stone Industries, Inc. since their
inceptions in 1981 and 1991, respectively.
<PAGE>
Malcolm Becker, 61, has been the Vice President of design, merchandising,
and production of Breaking Waves, Inc. since its inception in 1991.
Michael Friedland, 59, has been the Vice President of design, marketing,
and sales of Breaking Waves, Inc., since its inception in 1991.
The Corporation has agreed to indemnify its Officers and Directors with
respect to certain liabilities including liabilities which may arise under the
Securities Act of 1933. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to Directors, Officers, and controlling
persons of the Corporation pursuant to any charter, provision, by-law, contract,
arrangement, statute or otherwise, the Corporation has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Corporation of expenses incurred or
paid by a Director, Officer, or controlling person of the Corporation in the
successful defense of any such action, suit, or proceeding) is asserted by such
Director, Officer, or controlling person of the Corporation in connection with
the Securities being registered, the Corporation will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act. The Corporation will be
governed by the final adjudication of such issue.
Board Meetings, Committees, and Compensation
During the fiscal year ended December 31, 1996, no meetings of the
Board of Directors were held. Actions were taken on six (6) occasions by
unanimous written consents of the Board of Directors which consents were
obtained in lieu of meetings. The Corporation does not pay its Directors for
attendance at meetings of the Board of Directors or committee meetings.
The Board of Directors recommends that you vote "FOR" the nominees for
Directors.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, or paid by the Corporation during the period ended December 31,
1996 to each of the named executive officers of the Corporation:
<TABLE>
<CAPTION>
Summary Compensation Table
Securities Restricted Securities
Name and Principal Underlying Underlying All Other
Position Year Salary($) Options/SARS ($) Award Compensation
- -------- ---- --------- ---------------- ----- ------------
<S> <C> <C> <C> <C> <C>
Harold Rashbaum 1996 (1) 26,000 100,000 (2) 50,000 (3) --
Chief Executive Officer
President
Robert Melillo 1996 (4) 69,200 -- 25,000 (5) --
Former Chief Executive Officer
</TABLE>
<PAGE>
In October 1996, Mr. Rashbaum began receiving a salary of approximately
$100,000 per annum. His salary was increased to $156,000 in March 1997. At the
closing of the Corporation's initial public offering, HBR, a Corporation
controlled by Mr. Rashbaum and owned by his wife, received 7,500 shares of
Common Stock and a consulting fee of $40,000 for services rendered prior to his
becoming an officer of the Corporation. Includes options to purchase shares of
Common Stock issued in March 1997 under the Corporation's Senior Management
Incentive Plan. Includes shares issued under the Senior Management Incentive
Plan in June 1996, subject to a vesting schedule. See "Senior Management
Incentive Plan." 1 Mr. Melillo received an annual salary of $104,000 per annum
through January 10, 1997, when he resigned as an Officer and Director of the
Corporation. He continued as a consultant until April 1997 and received a
consulting fee of $600 per week. See "Management." Mr. Melillo received 50,000
shares of Common Stock in the Corporation pursuant to the Corporation's Senior
Management Incentive Plan, subject to a vesting schedule, whereby 25,000 shares
would vest in each of June of 1997 and 1998. Upon his resignation on January 10,
1997, Mr. Melillo returned 25,000 shares to the Corporation, and the Corporation
agreed that the remaining shares should be vested.
Employment and Consulting Agreements
Prior to his becoming an Officer and Director of the Corporation, Mr.
Rashbaum provided consulting to the Corporation through HBR, a corporation of
which he is an Officer and Director and of which his wife is the sole
stockholder. HBR entered into an oral consulting agreement with the Corporation
whereby it will receive 5% of the net profits of the Motion Picture received by
the Corporation. In addition, HBR received $40,000 and 7,500 shares of the
Corporation's Common Stock at the closing of the Corporation's initial public
offering. Mr. Rashbaum receives a salary of $156,000 per annum for being an
Officer of the Corporation. In addition, Mr. Rashbaum received 50,000 shares of
Common Stock under the Corporation's Senior Management Incentive Plan. These
shares vest at the rate of 25,000 shares on each of June 1997 and 1998. Pursuant
to the restricted share agreement, the shares only vest if Mr. Rashbaum
continues to provide services to the Corporation. Shares not vested shall be
returned to the Corporation's treasury. In March 1997, the Corporation granted
Mr. Rashbaum, as Chief Executive Officer, an option to purchase 100,000 shares
at $5 1/8 per share, pursuant to the Corporation's Senior Management Incentive
Plan. See "Certain Relationships and Related Transactions."
Dan Stone entered into a two year consulting agreement with Breaking
Waves, Inc. as of January 1996, pursuant to which he oversees the operation of
Breaking Waves, Inc. in return for a yearly consulting fee of $100,000. Mr.
Stone received $50,000 from the proceeds of the Corporation's initial public
offering as payment in advance for half of the 1997 consulting fee, the balance
of which fee is being paid in weekly installments.
In November 1997, Breaking Waves, Inc. entered into 3 year employment
agreements with each of Malcolm Becker and Michael Friedland. The agreements
provide for salaries of $110,000 for the terms of employment and the granting of
shares of the Corporation's Common Stock each year. The number of shares of the
Common Stock shall be equal to a Market Value (as hereinafter defined) of
$25,000 on the date of issuance, subject to a vesting schedule. The vesting
schedule shall be as follows: (i) 1/2 of the shares received on November 27,
1996 shall vest 90 days from said date with the balance vesting 270 days from
November 27, 1996; and (ii) on each subsequent annual issuance, commencing
November 27, 1997, 1/2 of the shares shall vest six months from issuance with
the balance vesting on the following anniversary. The shares vest pursuant to
restricted share agreements. "Market Value" shall mean (i) $5.00 per share with
respect to the shares issued in November 1996; and (ii) the average of the
closing bid and asked prices for a share of Common Stock for a period of 30 days
ending five days prior to the date of issuance, as officially reported by the
principal securities exchange on which the Common Stock is quoted. The
agreements include Nondisclosure and non-compete clauses.
<PAGE>
Senior Management Incentive Plan
In May 1996, the Board of Directors adopted the Senior Management
Incentive Plan (the "Management Plan") which was adopted by stockholder consent.
The Management Plan provides for the issuance of up to 250,000 shares of the
Corporation's Common Stock in connection with the issuance of stock options and
other stock purchase rights to Executive Officers and other key employees and
consultants. The Board of Directors, subject to stockholder approval, has
adopted a proposal to increase the shares issuable under the Management Plan to
750,000 shares. See Appendix "A" for a copy of the Management Plan.
The Management Plan was adopted to provide the Board of Directors with
sufficient flexibility regarding the forms of incentive compensation which the
Corporation will have at its disposal for rewarding Executive Officers,
employees, and consultants of the Corporation (or a subsidiary of the
Corporation) who render significant services to the Corporation. The Management
Plan provides equity ownership, or the right to acquire equity ownership, in the
Corporation through the grant of stock options and other rights pursuant to the
Management Plan to enable the Corporation to attract and retain qualified
personnel without unnecessarily depleting the Corporation's cash reserves. The
Management Plan is designed to augment the Corporation's existing compensation
programs and is intended to enable the Corporation to offer a personal interest
in the Corporation's growth and success through awards of either shares of
Common Stock or rights to acquire shares of Common Stock to individuals who
provide significant services to the Corporation.
The Management Plan is intended to help the Corporation attract and
retain key executive management personnel whose performance is expected to have
a substantial impact on the Corporation's long-term profit and growth potential
by encouraging and assisting those persons to acquire equity in the Corporation.
It is contemplated that only employees who perform services of special
importance to the Corporation will be eligible to participate under the
Management Plan. It is anticipated that awards made under the Management Plan
will be subject to vesting periods, although the vesting periods are subject to
the discretion of the Board or an administrator of the Management Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1995, in connection with the incorporation of the
Corporation, European Ventures Corporation ("EVC") acquired 5,000,000 shares of
the Corporation's Common Stock and 2,000,000 Warrants for an aggregate
consideration of $1,100,000. The sale of 1,400,000 shares of Common Stock and
2,000,000 Warrants was registered for resale in the Corporation's initial public
offering. 549,000 of these shares and 432,000 Warrants have been resold to date.
Dan Stone entered into a two year consulting agreement with Breaking
Waves, Inc. as of January 1996, pursuant to which he oversees the operation of
Breaking Waves, Inc. in return for a yearly consulting fee of $100,000, which
fee is currently being paid in weekly installments. At the closing of the
Acquisition, Mr. Stone received $50,000 from the proceeds of the initial public
offering as payment in advance of half of his 1997 consulting fee.
In June 1996, the Corporation issued 50,000 shares of Common Stock to
Robert Melillo, the former Chief Executive Officer, President, and Director of
the Corporation under the Corporation Senior Management Incentive Plan. The
shares were to vest at the rate of 25,000 in each of June 1997 and 1998. On
January 10, 1997, Mr. Melillo resigned and returned 25,000 shares to the
Corporation. Pursuant to Mr. Melillo's agreement with the Corporation, the
remaining 25,000 shares became fully vested.
<PAGE>
Prior to Mr. Rashbaum's election as an Officer and Director of the
Corporation, commencing in March 1996, Mr. Rashbaum provided consulting to the
Corporation through HBR. HBR entered into an oral consulting agreement with the
Corporation whereby it would receive 5% of the net profits of the Motion Picture
received by the Corporation. In addition, HBR received $40,000 and 7,500 shares
of the Corporation's Common Stock at the closing of the Acquisition from the
Corporation. In June 1996, Mr. Rashbaum received 50,000 shares of Common Stock
under the Corporation's Senior Management Incentive Plan. These shares vest at
the rate of 25,000 shares on each of June 1997 and 1998.
See "Executive Compensation-Employment and Consulting Agreements" for a
discussion of the Corporation's employment and consulting agreements.
All transactions between the Corporation and any Officer, Director, or
5% stockholder will be on terms no less favorable than could be obtained from
independent third parties and will be approved by a majority of the independent
disinterested directors of the Corporation. The Corporation believes that all
prior affiliated transactions were made on terms no less favorable to the
Corporation than available from unaffiliated parties.
II. RATIFICATION OF AN AMENDMENT TO THE CORPORATION'S
SENIOR MANAGEMENT INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED
FOR ISSUANCE THEREUNDER FROM 250,000 TO 750,000
The Board of Directors has unanimously approved, subject to shareholder
approval, an amendment to the Management Plan to increase the number of shares
issuable under such plan from 250,000 shares to 750,000 shares. The Plan, as
originally adopted by shareholders of the Corporation is annexed hereto as
Appendix "A."
The Amendment to the Management Plan is necessary because of the
original 250,000 shares of Common Stock authorized under the Plan, 75,000 shares
have been issued pursuant to a restricted stock agreement, and 150,000 shares
are reserved for issuance pursuant to options granted under the Management Plan;
thus, there are only 25,000 shares available under the Plan. The remaining
number of shares authorized under the Plan has been deemed by the Board of
Directors as insufficient to provide for additional awards to attract and retain
key executive management personnel and to provide incentive to management
personnel to maximize the shareholder value. The Plan is designed to augment the
Corporation's existing compensation programs and is intended to enable the
Corporation to have its executives, key employees, and consultants participate
in the growth and success of the Corporation through awards under the Management
Plan in addition, and as an alternative, to cash compensation. Management
believes that equity incentives are necessary to attract, motivate, and retain
key personnel.
Management believes that the Corporation will expand its operations
during the current fiscal year and will be required to offer competitive
compensation packages to obtain and retain the qualified management which the
Corporation and its subsidiaries need in order to successfully and profitably
expand operations.
<PAGE>
The affirmative vote of the holders of a majority of the shares of the
Corporation's Common Stock issued and outstanding on the record date is required
to approve this proposal. The Directors and Officers of the Corporation and
other principal shareholders owning of record, beneficially, directly and
indirectly, an aggregate of approximately 4,458,500 shares of the Corporation's
Common Stock, constituting approximately 73.1% of such shares outstanding on the
record date, have agreed to vote in favor of approval of this proposal;
therefore, the proposal shall be approved at the meeting.
The Board of Directors recommends that you vote "FOR" this Proposal.
III. RATIFICATION OF THE PROPOSAL TO APPROVE THE CORPORATION'S
NON-EXECUTIVE DIRECTOR STOCK OPTION PLAN
General
The Corporation's Board of Directors has unanimously adopted the
Corporation's Non-Executive Director Stock Option Plan (the "Director's Plan"),
subject to approval by the Corporation's stockholders. Approval of the
Director's Plan requires the affirmative vote of a majority of the outstanding
shares of Common Stock represented and voting in person or by proxy at the
Annual Meeting or any adjournment thereof.
The following is a summary of the principal features of the Director's
Plan and is qualified by and subject to the actual provisions of the Director's
Plan, a copy of which is annexed hereto as Appendix "B."
Purpose and Eligibility
The Director's Plan provides for the grant of stock options as a means
of attracting and retaining highly qualified independent Directors for the
Corporation. The only persons eligible to participate in the Director's Plan are
Directors who are not employees of the Corporation and who have within the past
fiscal year, neither received any equity securities of the Corporation under any
plan of the Corporation, nor been an employee of the Corporation nor otherwise
been eligible to receive equity securities under any plan of the Corporation
(the "Eligible Directors").
The Corporation currently has one Eligible Director under the
Director's Plan, Dr. Le Guillou. Grants under this plan shall have exercise
prices equal to the market price on the date of grant.
Option Awards
The Director's Plan provides that each Eligible Director automatically
receives an option to purchase up to 5,000 shares of Common Stock immediately on
January 1 of each year in which the Director has been a member of the Board for
a continuous 12 month period.
All options granted under the Director's Plan are to be evidenced by
written option agreements or confirming memoranda, each of which must be
consistent with the Director's Plan but which may otherwise contain such
additional or unique features as the Corporation determines. Options granted
under the Director's Plan are not transferable.
<PAGE>
Vesting and Exercise
Options granted under the Director's Plan vest and become exercisable upon
issuance. The option exercise price may be paid in cash or in any other
consideration the Corporation deems acceptable as provided in the Director's
Plan, including shares of Common Stock surrendered by the optionee or withheld
from the shares otherwise deliverable upon exercise. The Corporation is
permitted to loan the exercise price to the optionee or to allow exercise in a
broker's transaction in which the exercise price will not be received until
after exercise and subsequent sale of the underlying Common Stock. Consideration
received by the Corporation upon exercise of options granted under the
Director's Plan will be used for general working capital purposes.
Options granted under the Director's Plan may be exercised at any time
and before the expiration of five years from the date of their grant.
Securities Subject to Directors Plan
No more than 150,000 shares of Common Stock may be issued upon exercise
of options granted under the Director's Plan. The number of shares of Common
Stock available to individual optionees or under the Director's Plan in general,
as well as the number of shares for which issued or unissued options may be
exercised, and the exercise price per share of such options, will be
proportionately adjusted to reflect stock splits, stock dividends, and similar
capital stock transactions.
Administration, Amendment, and Termination
The Director's Plan will be administered by the Corporation by two
Officers who are also Directors but who are not eligible under the plan. These
Officers will have the power to discontinue, suspend, or amend the Director's
Plan in any manner, except that the Corporation may not alter the Director's
Plan or exercise any discretion with respect to persons eligible to receive
grants of options, the number of shares of Common Stock subject to options, the
timing of such grants, the exercise price of options, or the final date upon
which options may be granted. Options may be granted under the Director's Plan
until January 1, 2007.
The affirmative vote of the holders of a majority of the shares of the
Corporation's Common Stock issued and outstanding on the record date is required
to approve this proposal. The Directors and Officers of the Corporation and
other principal shareholders owning of record, beneficially, directly and
indirectly, an aggregate of approximately 4,458,500 shares of the Corporation's
Common Stock constituting approximately 73.1% of such shares outstanding on the
record date, have agreed to vote in favor of approval of this proposal;
therefor, the proposal shall be approved at the meeting.
The Board of Directors recommends that you vote "FOR" this Proposal.
<PAGE>
FINANCIAL INFORMATION
A COPY OF THE CORPORATION'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1996 WAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AND WILL BE FURNISHED WITHOUT THE ACCOMPANYING EXHIBITS TO STOCKHOLDERS, WITHOUT
CHARGE, UPON WRITTEN REQUEST THEREFOR SENT TO ROBERT DIMILIA, SECRETARY,
HOLLYWOOD PRODUCTIONS, INC., 14 EAST 60TH TREET, NEW YORK, NEW YORK 10022. EACH
SUCH REQUEST MUST SET FORTH A GOOD FAITH REPRESENTATION THAT AS OF MAY 5, 1997,
THE PERSON MAKING THE REQUEST WAS THE BENEFICIAL OWNER OF SHARES OF THE
CORPORATION'S COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING OF
STOCKHOLDERS.
IV. OTHER BUSINESS
As of the date of this proxy statement, the only business which the
Board of Directors intends to present, and knows that others will present, at
the Annual Meeting is that herein set forth. If any other matter is properly
brought before the Annual Meeting or any adjournments thereof, it is the
intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their judgment.
Shareholder Proposals
Proposals of shareholders intended to be presented at the
Corporation's 1998 Annual Meeting of Shareholders must be received by the
Corporation on or prior to February 28, 1998 to be eligible for inclusion in the
Corporation's proxy statement and form of proxy to be used in connection with
the 1998 Annual Meeting of Shareholders.
By Order of the Board of Directors,
Robert DiMilia
Secretary
June 10, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF IT IS MAILED
IN THE UNITED STATES OF AMERICA.
<PAGE>
Appendix A
SENIOR MANAGEMENT INCENTIVE PLAN OF
HOLLYWOOD PRODUCTIONS, INC.
1. PURPOSE OF THE PLAN
The purpose of the Senior Management Incentive Plan (the "Management
Plan") of Hollywood Productions, Inc. (the "Corporation") is to provide an
incentive to key management employees whose present and potential contributions
to the Corporation and/or its Subsidiaries (as such term is defined in Section 2
below) are, or will be, important to the success of the Corporation by affording
said employees an opportunity to acquire a proprietary interest in the
Corporation. It is intended that this purpose will be effected through the
issuance of (i) incentive stock rights; (ii) stock options; (iii) stock
appreciation rights; (iv) limited stock appreciation rights; and (v) shares of
Common Stock, $.001 par value per share, of the Corporation ("Common Stock")
subject to restrictions on disposition ("restricted shares") (collectively, such
options, rights and restricted shares are referred to herein as "Awards"). Stock
options which qualify as "Incentive Stock Options" under Section 422A of the
Internal Revenue Code of 1986, as it hereafter may be amended (the "Code"), may
be granted under the Management Plan. Such options are sometimes referred to
collectively as "ISOs." Options which do not qualify as ISOs ("non-ISOs") may
also be granted under the Plan.
2. ELIGIBILITY
Awards may be made or granted to those key management employees of the
Corporation and/or its Subsidiaries who are deemed to have the potential to have
a significant effect on the future success of the Corporation (such eligible
persons being referred to herein as "Eligible Participants"). The term
"management employees" shall include executive officers, key employees, and
consultants of the Corporation and/or its Subsidiaries. A Director of the
Corporation, and/or any of its Subsidiaries, who is not also an employee of the
Corporation, and/or of one of its Subsidiaries, will not be eligible to receive
any Awards under the Management Plan. No ISO shall be granted to an employee
who, at the time the option is granted, owns stock possessing more than 10% of
the total combined voting power of all classes of capital stock of the employer
Corporation (as such term is used in the Code) or any Parent or Subsidiary of
the employer Corporation, provided, however, that an ISO may be granted to such
an employee if at the time such ISO is granted, the option price is at least one
hundred ten percent (110%) of the fair market value of stock subject to the ISO
on the date of grant (as determined pursuant to Subsection 8(a) hereof) and such
ISO is by its terms not exercisable after the expiration of five (5) years from
the date such option is granted. The exercise price of the non-ISOs may not be
less than 85% of the fair market value of the Common Stock on the date of grant.
The terms "Subsidiary" and "Parent") as used herein shall have the meanings
given them in Section 425 of the Code. Awards may be made to executive personnel
who hold, or have held, options, rights, or shares under the Management Plan or
under any other plans of the Corporation.
<PAGE>
3. STOCK SUBJECT TO THE PLAN
The shares that may be issued upon exercise of options and rights and
which may be issued as restricted shares under the Management Plan shall not
exceed in the aggregate 750,000 shares of the Common Stock, as adjusted to give
effect to the anti-dilution provisions contained in Section 12 hereof. Such
shares may be authorized and unissued shares, or shares purchased by the
Corporation and reserved for issuance under the Management Plan. If a stock
option or incentive stock right for any reason expires or is terminated without
having been exercised in full, or if shares restricted are repurchased by the
Corporation in accordance with the terms thereof, those shares relating to an
unexercised stock option or incentive stock rights or shares which have been
repurchased shall again become available for grant and/or sale under the
Management Plan.
4. AWARDS UNDER THE PLAN
Awards under the Management Plan may be of five types: "incentive stock
rights," "stock options," "stock appreciation rights," "limited stock
appreciation rights," and "restricted shares." "Incentive stock rights" are
composed of incentive stock units which give the holder the right to receive,
without payment of cash or property to the Corporation, shares of Common Stock,
subject to the terms, conditions, and restrictions described in Section 7
hereof. An option, including an ISO, is a right to purchase Common Stock in
accordance with Section 8 hereof. A "stock appreciation right" is a right given
to the holder of a stock option to receive, upon surrender of all or a portion
of his stock option without payment of cash or property to the Corporation, a
number of shares of Common Stock and/or cash determined pursuant to a formula in
accordance with Section 9 hereof. A "limited stock appreciation right" is a
right given to a holder of a stock option to receive, upon the occurrence of
certain events generally constituting a change in control of the Corporation, a
number of shares of Common Stock and/or cash upon surrender of all or a portion
of his stock option without the payment of cash or property to the Corporation,
in accordance with Section 10 hereof. "Restricted shares" are shares of Common
Stock which, following issuance, are nontransferable and subject to substantial
risk of forfeiture until specific conditions based on continuing employment or
achievement of preestablished performance objectives are met, in accordance with
Section 11 hereof. All references to "cash" herein shall mean "cash or certified
check. "
5. ADMINISTRATION
(a) Procedure. The Management Plan shall be administered by the Board
of Directors or by a Committee of the Board of Directors (the "Committee"), if
one is appointed for this purpose. Committee members shall serve for such term
as the Board of Directors may in each case determine and shall be subject to
removal at any time by the Board of Directors. Members of the Board of Directors
who are either eligible for Awards or have been granted Awards may not vote on
any matters affecting the administration of the Management Plan or the grant of
any Award pursuant to the Management Plan.
<PAGE>
(b) Powers of the Board or Committee. As used herein, except as the
Committee's powers are specifically limited in Sections 5, 6, 20, and 21 hereof,
reference to the Board of Directors shall mean such Board or the Committee,
whichever is then acting with respect to the Management Plan. Subject to the
provisions of the Management Plan, the Board of Directors shall have the
authority in its discretion: (i) to determine, upon review of relevant
information, the fair market value of the Common Stock; (ii) to determine the
exercise price per share of stock options to be granted; (iii) to determine the
Eligible Participants to whom, and time or times at which, Awards shall be
granted and the number of shares to be issuable upon exercise of each stock
option or right sold pursuant to restricted stock purchase agreements; (iv) to
construe and interpret the Management Plan; (v) to prescribe, amend, and rescind
rules and regulations relating to the Management Plan; (vi) to determine the
terms and provisions of each Award (which need not be identical); and (vii) to
make all other determinations necessary to or advisable for the administration
of the Management Plan. Notwithstanding the foregoing, in the event any employee
of the Corporation or of any of its Subsidiaries granted an Award under the
Management Plan is, at the time of such grant, a member of the Board of
Directors of the Corporation, the grant of such Award shall, in the event the
Board of Directors at the time such Award is granted is not deemed to satisfy
the requirement of Rule 16(b)-3(b)(2)(i) or (ii) promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), be subject to
the approval of an auxiliary committee consisting of not less than three persons
all of whom qualify as "disinterested persons" within the meaning of Rule
16(b)-3(d)(3) promulgated under the Exchange Act. In the event the Board of
Directors deems it impractical to form a committee of disinterested persons, the
Board of Directors is authorized to approve any award under the Management Plan.
6. DURATION OF THE PLAN
The Management Plan shall become effective upon the approval of the
requisite vote of the stockholders of the Corporation, and upon the approvals,
if required, of any other public authorities. The Management Plan shall remain
in effect for a term of ten (10) years from the date of adoption by the Board
unless sooner terminated under Section 20 hereof. Notwithstanding any of the
foregoing to the contrary, the Board of Directors (but not the Committee) shall
have the authority to amend the Management Plan pursuant to Section 20 hereof;
provided, however, that Awards already made shall remain in full force and
effect as if the Management Plan had not been amended or terminated.
7. INCENTIVE STOCK RIGHTS
The Board of Directors, in its discretion, may grant to Eligible
Participants incentive stock rights composed of incentive stock units. Incentive
stock rights shall be granted pursuant to incentive stock rights agreements in
such form, and not inconsistent with the Management Plan, as the Board of
Directors shall approve from time to time and shall include substantially the
following terms and conditions as determined by the Board of Directors:
(a) Incentive Stock Units. An incentive stock rights agreement shall
specify the number of incentive stock units to which it pertains. Each incentive
stock unit shall be equivalent to one share of Common Stock. Each incentive
stock unit shall entitle the holder thereof to receive, subject to the lapse of
the incentive periods (as hereinafter defined), without payment of cash or
property to the Corporation, one share of Common Stock in consideration for
services performed by the Eligible Participant for the Corporation or for any
one of its Subsidiaries.
<PAGE>
(b) Incentive Period. The holder of incentive stock rights shall be
entitled to receive shares of Common Stock only after the lapse of such
incentive periods and in such manner, as shall be fixed in the discretion of the
Board of Directors at the time of grant of such incentive stock rights. (Such
period so fixed is herein referred to as an "incentive period"). To the extent
the holder of incentive stock rights receives shares of Common Stock on the
lapse of an incentive period, an equivalent number of incentive stock units
subject to such rights shall be deemed to have been discharged.
(c) Termination by Reason of Death or Disability. In the event that the
recipient of incentive stock rights ceases to be employed by the Corporation
and/or by any of its Subsidiaries during an incentive period, due to death or
permanent disability (as determined by the Board of Directors), the holder of
incentive stock rights or, in the case of the death of the holder, the personal
representatives, heirs, or legatees of such holder shall be entitled to receive
a number of shares equal to an amount determined by multiplying the total number
of incentive stock units applicable to such incentive period by a fraction, the
numerator of which shall be the number of full calendar months between the date
of grant of the incentive stock rights and the date of such termination and the
denominator of which shall be the number of full calendar months between the
date of grant and the date such incentive period for such units would, but for
such termination, have lapsed. For purposes of this Subsection 7(c), this shall
constitute a lapse of the incentive period with respect to the number of
incentive stock units equal to the number of shares issued. Units upon which the
incentive period do not lapse pursuant to the foregoing sentence shall terminate
and be null and void on the date on which the recipient ceases to be employed by
the Corporation and/or by any of its Subsidiaries.
(d) Termination for Any Other Reason. In the event that the employment,
by the Corporation or by any of its Subsidiaries, of the recipient to whom
incentive stock rights have been issued under the Management Plan terminates for
any reason (including dismissal by the Corporation or by any of its
Subsidiaries, with or without cause) other than death or permanent disability,
such rights as to which the incentive period has not lapsed shall terminate and
be null and void on termination of the relationship.
(e) Issuance of Shares. Upon the lapse of an incentive period, the
Corporation shall deliver to the holder of the related incentive stock unit a
certificate or certificates representing the number of shares of Common Stock
equal to the number of incentive stock units with respect to which an incentive
period has lapsed. The Corporation shall pay all applicable transfer or issue
taxes.
8. OPTIONS
Options shall be evidenced by stock option agreements in such form, and
not inconsistent with the Management Plan, as the Board of Directors shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions:
(a) Option Price; Number of Shares. The option price, which shall be
approved by the Board of Directors, shall in no event be less than one hundred
percent (100%) in the case of ISOs, except with respect to 10% stockholders
whereby the price shall be 110%, and in the case of non-ISOs, eighty-five
percent (85%) of the fair market value of the Corporation's Common Stock at the
time the option is granted. The fair market value of the Common Stock, for the
purposes of the Management Plan, shall mean: (i) if the Common Stock is traded
<PAGE>
on a national securities exchange or on the NASDAQ National Market System
("NMS"), the per share closing price of the Common Stock on the principal
securities exchange on which it is listed or on NMS, as the case may be, on the
date of grant (or if there is no closing price for such date of grant, then the
last preceding business day on which there was a closing price); or (ii) if the
Common Stock is traded in the over-the-counter market and quotations are
published on the NASDAQ quotation system (but not on NMS), the closing bid price
of the Common Stock on the date of grant as reported by NASDAQ (or if there are
no closing bid prices for such date of grant, then the last preceding business
day on which there was a closing bid price); or (iii) if the Common Stock is
traded in the over-the-counter market but bid quotations are not published on
NASDAQ, the closing bid price per share for the Common Stock as furnished by a
broker-dealer which regularly furnishes price quotations for the Common Stock.
The option agreement shall specify the total number of shares to which
it pertains and whether such options are ISOs or are not ISOs. With respect to
ISOs granted under the Management Plan, the aggregate fair market value
(determined at the time an ISO is granted) of the shares of Common Stock with
respect to which ISOs are exercisable for the first time by such employee during
any calendar year shall not exceed $100,000 under all plans of the employer
Corporation or its Parent or Subsidiaries.
(b) Waiting Period and Exercise Dates. At the time an option is
granted, the Board of Directors will determine the terms and conditions to be
satisfied before shares may be purchased, including the dates on which shares
subject to the option may first be purchased. (The period from the date of grant
of an option until the date on which such option may first be exercised is
referred to herein as the "waiting period.") At the time an option is granted,
the Board of Directors shall fix the period within which it may be exercised
which shall not be less than one (1) year nor, for an ISO, more than ten (10)
years (not more than 5 years for 10% stockholders) from the date of grant or,
for a non-ISO, for more than thirteen (13) years from the date of grant. (Any of
such periods is referred to herein as the "exercise period.")
(c) Form and Time of Payment. Stock purchased pursuant to an option
agreement shall be paid for at the time of purchase either in (i) cash or by
certified check or, in the discretion of the Board of Directors, as set forth in
the stock option agreement; (ii) through the delivery of shares of Common Stock;
or (iii) in a combination of the methods described above. Upon receipt of
payment, the Corporation shall, without transfer or issue tax to the option
holder or other person entitled to exercise the option, delivered to the option
holder (or such other person) a certificate or certificates for the shares so
purchased.
(d) Effect of Termination or Death. In the event that an option holder
ceases to be an employee of the Corporation or of any of its Subsidiaries for
any reason other than permanent disability (as determined by the Board of
Directors) or death, any option, including any unexercised portion thereof,
which was otherwise exercisable on the date of termination, shall expire unless
exercised within a period of three months from the date on which the option
holder ceases to be so employed, but in no event after the expiration of the
exercise period, provided, however, that if the Board of Directors shall
determine that an option holder shall have been discharged for cause, options
granted and not yet exercised shall terminate immediately and be null and void
as of the date of discharge. In the event of the death of an option holder
<PAGE>
during this three month period, the option shall be exercisable by his or her
personal representatives, heirs, or legatees to the same extent that the option
holder could have exercised the option if he had not died, for the three months
from the date of death, but in no event after the expiration of the exercise
period. In the event of the permanent disability of an option holder while an
employee of the Corporation or of any of its Subsidiaries, any option granted to
such employee shall be exercisable for twelve (12) months after the date of
permanent disability, but in no event after the expiration of the exercise
period. In the event of the death of an option holder while an employee of the
Corporation or of any of its Subsidiaries, or during the twelve (12) month
period after the date of permanent disability of the option holder, that portion
of the option which had become exercisable on the date of death shall be
exercisable by his or her personal representatives, heirs, or legatees at any
time prior to the expiration of one (1) year from the date of the death of the
option holder, but in no event after the expiration of the exercise period.
Except as the Board of Directors shall provide otherwise, in the event an option
holder ceases to be an employee of the Corporation or of any of its Subsidiaries
for any reason, including death, prior to the lapse of the waiting period, his
option shall terminate and be null and void.
(e) Other Provisions. Each option granted under the Management Plan may
contain such other terms, provisions, and conditions not inconsistent with the
Management Plan as may be determined by the Board of Directors.
9. STOCK APPRECIATION RIGHTS
The Board of Directors may grant, in its discretion, stock appreciation
rights to the holder of any stock option under the Management Plan. Such rights
shall be granted pursuant to a stock appreciation rights agreement in such form,
and not inconsistent with the Management Plan, as the Board of Directors shall
approve from time to time (and which may be incorporated in the stock option
agreement governing the terms of the related option) and shall include
substantially the following terms and conditions as the Board of Directors shall
determine:
(a) Grant. Each right shall relate to a specific option granted under
the Management Plan and shall be granted to the option holder either
concurrently with the grant of such option or at such later time as determined
by the Board of Directors.
(b) Exercise. A stock appreciation right shall entitle an option holder
to receive, without payment of cash or property to the Corporation, a number of
shares of Common Stock, cash, or a combination thereof in the amount determined
pursuant to Subsection 9(c) below. The Board of Directors shall determine
whether such payment shall be made in Common Stock, cash, or a combination
thereof. Unless otherwise determined by the Board of Directors, a right shall be
exercisable to no greater extent nor upon any more favorable conditions than its
related option is exercisable under Subsection 8(b) hereof. An option holder
wishing to exercise a right in accordance with this Subsection 9(b) shall give
written notice of such exercise to the Corporation, which notice shall state
that the holder of the right elects to exercise the right and the number of
shares in respect of which the right is being exercised. The effective date of
exercise of a right shall be the date on which the Corporation shall have
received such notice. Upon receipt of such notice, the Corporation shall (i)
deliver to the option holder or other person entitled to exercise the right, a
certificate or certificates representing such shares; and/or (ii) pay cash to
the option holder or other person entitled to exercise the right. The
Corporation shall pay all applicable transfer or issue taxes. Notwithstanding
the provisions of this section, no stock appreciation right may be exercised
within a period of six months on the date of grant of such stock appreciation
right and no stock appreciation right granted with respect to an ISO may be
exercised unless the fair market value of the Common Stock on the date of
exercise exceeds the exercise price of the ISO.
<PAGE>
(c) Number of Shares or Amount of Cash. The number of shares which
shall be issued pursuant to the exercise of a stock appreciation right shall be
determined by dividing (i) that portion, as elected by the option holder, of the
total number of shares which the option holder is eligible to purchase pursuant
to Subsection 8(b) hereof (and as adjusted pursuant to Section 12 hereof),
multiplied by the amount (if any) by which the fair market value (as determined
in accordance with Subsection 8(a) hereof) of a share of Common Stock on the
exercise date exceeds the option exercise price of the related option; by (ii)
the fair market value of a share of Common Stock on the exercise date. In lieu
of issuing shares of Common Stock on the exercise of a right, the Board of
Directors may elect to pay the cash equivalent of the fair market value on the
exercise date of any or all of the shares which would otherwise be issuable on
exercise of the right. No fractional shares shall be issued under this
Subsection 9(c). In lieu of fractional shares, the option holder shall be
entitled to receive a cash adjustment equal to the same fraction of the fair
market value per share of Common Stock on the date of exercise.
(d) Effect of Exercise. Upon the exercise of stock appreciation rights,
the related option shall be considered to have been exercised to the extent of
the number of shares of Common Stock with respect to which such stock
appreciation rights are exercised and shall be considered to have been exercised
to that extent for purposes of determining the number of shares of Common Stock
available for the grant of options under the Management Plan. Upon the exercise
or termination of the related option, the stock appreciation rights with respect
to such related option shall be considered to have been exercised or terminated
to the extent of the number of shares of Common Stock with respect to which the
related option was so exercised or terminated.
(e) Effect of Termination or Death. In the event that an option holder
ceases to be an employee or consultant of the Corporation or of any of its
Subsidiaries for any reason, his stock appreciation rights shall be exercisable
only to the extent and upon the conditions that their related options are
exercisable under Subsection 8(d).
10. LIMITED STOCK APPRECIATION RIGHTS
The Board of Directors may grant, in its discretion, limited stock
appreciation rights ("Limited Rights") to the holder of any option with respect
to all or a portion of the shares subject to such option. Such Limited Rights
shall be granted pursuant to an agreement in such form, and not inconsistent
with the Management Plan, as the Board of Directors shall approve from time to
time (and which may be incorporated in the stock option agreement governing the
terms of the related option) and shall include substantially the following terms
and conditions as the Board shall determine:
(a) Grants. A Limited Right may be granted concurrently with the grant of
the related option or at such later time as determined by the Board of
Directors.
<PAGE>
(b) Exercise. Unless otherwise determined by the Board of Directors, a
Limited Right may be exercised only during the period (a) beginning on the first
day following any one of (i) the date of approval by the stockholders of the
Corporation of an Approved Transaction (as defined in Subsection 10(e) below),
(ii) the date of a Control Purchase (as defined in Subsection 10(e) below) or
(iii) the date of a Board Change (as defined in Subsection 10(e) below); and (b)
ending on the thirtieth day (or such other date specified in the stock option
agreement) following such date (such period herein referred to as the "Limited
Right Exercise Period"). Each Limited Right shall be exercisable during the
Limited Right Exercise Period only to the extent the related option is then
exercisable and in no event after the termination of the related option. Limited
Rights granted under the Management Plan shall be exercisable in whole or in
part by notice to the Corporation. Such notice shall state that the holder of
the Limited Rights elects to exercise the Limited Rights and the number of
shares in respect of which the Limited Rights are being exercised. The effective
date of exercise of a Limited Right shall be deemed to be the date on which the
Corporation shall have received such notice.
(c) Amount Paid Upon Exercise. Upon the exercise of Limited Rights, the
holder shall receive in cash an amount equal to the excess of (i) the fair
market value (as determined pursuant to Subsection 8(a) above), on the date of
exercise of such Limited Rights, of each share of Common Stock with respect to
which such Limited Right shall have been exercised; over (ii) the exercise price
per share of Common Stock subject to the related option.
(d) Effect of Exercise. Upon the exercise of Limited Rights, the
related option shall be considered to have been exercised to the extent of the
number of shares of Common Stock with respect to which such Limited Rights are
exercised and shall be considered to have been exercised to that extent for
purposes of determining the number of shares of Common Stock available for the
grant of options under the Management Plan. Upon the exercise or termination of
the related option, the Limited Rights with respect to such related option shall
be considered to have been exercised or terminated to the extent of the number
of shares of Common Stock with respect to which the related option was so
exercised or terminated.
(e) Definitions. For purposes of this Section 10:
(i) An "Approved Transaction" shall mean (A) any consolidation
or merger of the Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of Common Stock would be
converted into cash, securities, or other property, other than a merger of the
Corporation in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger; or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Corporation; or (C) the adoption of
any plan or proposal for the liquidation or dissolution of the Corporation.
(ii) A "Control Purchase" shall mean circumstances in which
any person (as such term is defined in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act), corporation, or other entity (other than the Corporation or any
employee benefit plan sponsored by the Corporation or any of its Subsidiaries)
(A) shall purchase any Common Stock of the Corporation (or securities
convertible into the Corporation's Common Stock) for cash, securities, or any
other consideration pursuant to a tender offer or exchange offer, without the
prior consent of the Board of Directors; or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding securities of
the Corporation ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of Directors (calculated
as provided in paragraph (d) of such Rule 13d-3 in the case of rights to acquire
the Corporation's securities).
<PAGE>
(iii) A "Board Change" shall mean circumstances in which,
during any period of two consecutive years or less, individuals, who at the
beginning of such period constitute the entire Board, shall cease for any reason
to constitute a majority thereof unless the election, or the nomination for
election by the Corporation's stockholders, of each new Director was approved by
a vote of at least a majority of the Directors then still in office.
11. RESTRICTED SHARES
The Board of Directors may authorize, in its discretion, the issuance
of restricted shares of Common Stock to Eligible Participants pursuant to
restricted share agreements in such form, and not inconsistent with the
Management Plan, as the Board of Directors shall approve from time to time. Any
amount of restricted shares issued shall be subject to the following terms:
(a) Restricted Period and Price. The Board of Directors shall prescribe
restrictions, terms, and conditions, including but not limited to the period
("restricted period") during which the holder must continue to render services
to the Corporation in order to retain the restricted shares, in addition to
those provided in the Management Plan. The Board shall determine the price, if
any, to be paid by the holder for the restricted shares. Upon forfeiture of any
restricted shares, any amount paid by the holder shall be repaid in full by the
Corporation.
(b) Issuance of Restricted Shares. Restricted shares, when issued, will
be represented by a stock certificate or certificates registered in the name of
the holder to whom such restricted shares shall have been awarded. During the
restricted period, certificates representing the restricted shares and any
securities constituting retained distributions (as defined below in Subsection
11(c)) shall bear a restrictive legend to the effect that ownership of the
restricted shares, and the enjoyment of all rights appurtenant thereto, are
subject to the restrictions, terms, and conditions provided in the Management
Plan and the applicable restricted shares agreement. Such certificates shall be
deposited by such holder with the Corporation, together with stock powers or
other instruments of assignment, each endorsed in blank, which will permit
transfer to the Corporation of all or any portion of the restricted shares and
any retained distributions that shall be forfeited or that shall not become
vested in accordance with the Management Plan and the applicable restricted
shares agreement.
(c) Rights With Respect to Restricted Shares. Restricted shares shall
constitute issued and outstanding shares of Common Stock for all corporate
purposes. The holder will have the right to vote such restricted shares, to
receive and retain all regular cash dividends and such other distributions as
the Board may in its sole discretion designate, pay, or distribute on such
restricted shares, and to exercise all other rights, powers, and privileges of a
holder of Common Stock with respect to such restricted shares, with the
exception that (i) the holder will not be entitled to delivery of the stock
certificate or certificates representing such restricted shares until the
restricted period shall have expired and unless all other vesting requirements
with respect thereto shall have been fulfilled; (ii) the Corporation will retain
custody of the stock certificate or certificates representing the restricted
shares during the restricted period; (iii) other than regular cash dividends and
such other distributions as the Board may in its sole discretion designate, the
Corporation will retain custody of all distributions ("retained distributions")
made or declared with respect to the restricted shares (and such retained
distributions will be subject to the same restrictions, terms, and conditions as
are applicable to the restricted shares) until such time, if ever, as the
restricted shares with respect to which such retained distributions shall have
been made, paid, or declared shall have become vested, and such retained
distributions shall not bear interest or be segregated in separate accounts;
(iv) the holder may not sell, assign, transfer, pledge, exchange, encumber, or
dispose of the restricted shares or any retained distributions during the
restricted period; and (v) a breach of any restrictions, terms, or conditions
provided in the Management Plan or established by the Board with respect to any
restricted shares or retained distributions will cause a forfeiture of such
restricted shares and any retained distributions with respect thereto.
<PAGE>
(d) Completion of Restricted Period. On the last day of the restricted
period with respect to each Award of restricted shares, and upon the
satisfaction of any other applicable restrictions, terms, and conditions, all or
part of such restricted shares shall become vested, and any retained
distributions with respect to such restricted shares shall become vested. Unless
the Administrator determines otherwise, any such restricted shares and retained
distributions that shall not have become vested upon the termination of
employment of the holder shall be forfeited to the Corporation, and the holder
shall not thereafter have any rights (including dividend and voting rights) with
respect to such restricted shares and retained distributions that shall have
been so forfeited, provided, however, that if a holder shall die, become totally
disabled, or be terminated by the Corporation without cause during a restricted
period with respect to any restricted shares, then, unless the restricted share
agreement relating to such shares provides otherwise, the restricted period
applicable to each Award of restricted shares to such holder shall be deemed to
have expired and all such restricted shares and retained distributions shall
become vested.
12. RECAPITALIZATION
In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions, or combinations of shares of Common Stock, the
number of shares available under the Management Plan shall be increased or
decreased proportionately, as the case may be, and the number of shares
delivered upon the exercise thereafter of any stock option or stock appreciation
right, upon distribution pursuant to incentive stock rights theretofore granted
or issued pursuant to restricted share agreements theretofore entered into,
shall be increased or decreased proportionately, as the case may be, without
change in the aggregate purchase price (where applicable).
13. ACCELERATION
Notwithstanding any contrary waiting period in any stock option agreement,
any incentive period in any incentive stock rights agreement, or any restricted
period with respect to any restricted shares issued pursuant to any restricted
shares agreement or in the Management Plan, but subject to any determination by
the Board of Directors to provide otherwise at the time such Award is granted or
subsequent thereto, each outstanding option granted under the Management Plan
shall, except as otherwise provided in the stock option agreement, become
exercisable in full for the aggregate number of shares covered thereby, and each
share issuable upon lapse of an incentive period or each share issued pursuant
to a restricted share agreement, except as otherwise provided in the incentive
stock rights agreement or restricted share agreement, as the case may be, shall
vest unconditionally on the first day following the occurrence of any of the
following: (a) the approval by the stockholders of the Corporation of an
Approved Transaction; (b) a Control Purchase; or (c) a Board Change.
14. CONTINUATION OF RELATIONSHIP; LEAVE OF ABSENCE
(a) Nothing in the Management Plan or any Award made hereunder shall
interfere with, or limit in any way, the right of the Corporation or of any of
its Subsidiaries to terminate any Eligible Participant's employment at any time,
nor confer upon any Eligible Participant any right to continue any such
relationship with the Corporation or any of its Subsidiaries.
<PAGE>
(b) For purposes of the Management Plan, (i) a transfer of a recipient
of options, rights, or restricted shares hereunder from the Corporation to one
of its Subsidiaries or vice versa, or from one Subsidiary to another; or (ii) a
leave of absence duly authorized by the Corporation shall not be deemed a
termination of employment or a break in the incentive, waiting, exercise, or
restricted period, as the case may be. In the case of any employee on an
approved leave of absence, the Board of Directors may make such provisions with
respect to continuance of stock rights, options, or restricted shares previously
granted while on leave from the employ of the Corporation or one of its
Subsidiaries as it may deem equitable.
15. GENERAL RESTRICTION
Each Award made under the Management Plan shall be subject to the
requirement that, if at any time the Board of Directors shall determine, in its
sole and subjective discretion, that (i) the registration, qualification, or
listing of the shares subject to such Award upon a securities exchange or under
any state or federal law; or (ii) the consent or approval of any government
regulatory body is necessary or desirable as a condition of, or in connection
with, the granting or exercise of such Award, the Corporation shall not be
required to issue such shares unless such registration, qualification, listing,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Directors. Nothing in the Management Plan or any
agreement or grant hereunder shall obligate the Corporation to effect any such
registration, qualification, or listing.
16. RIGHTS AS A STOCKHOLDER
The holder of a stock option, incentive stock right, or limited stock
appreciation right shall have no rights as a stockholder with respect to any
shares covered by the stock option, incentive stock right, stock appreciation
right, or limited stock appreciation right, as the case may be, until the date
of issuance of a stock certificate to him for such shares related to the
exercise or discharge thereof. No adjustment shall be made for the dividends or
other rights for which the record date is prior to the date such stock
certificate is issued.
17. NONASSIGNABILITY OF AWARDS
No incentive stock right, stock option, stock appreciation right, or
limited stock appreciation right shall be assignable or transferable by an
Eligible Participant except by will or by the laws of descent and distribution,
and during the lifetime of an Eligible Participant, such incentive stock rights,
stock options, stock appreciation rights, or limited stock appreciation rights
may only be exercised by him.
18. WITHHOLDING TAXES
Whenever under the Management Plan shares are to be issued in satisfaction
of stock options, incentive stock rights, stock appreciation rights, or limited
stock appreciation rights granted thereunder, or pursuant to restricted share
agreements, the Corporation shall have the right to require the Eligible
Participant to remit to the Corporation an amount sufficient to satisfy federal,
state, and local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares or at such later time as when the
Corporation may determine that such taxes are due. Whenever under the Management
Plan payments are to be made in cash, such payments shall be net of an amount
sufficient to satisfy federal, state, and local withholding tax requirements.
<PAGE>
19. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Management Plan by the Board of Directors
nor any provision of the Management Plan shall be construed as creating any
limitations on the power of the Board (but not the Committee) to adopt such
additional compensation agreements as it may deem desirable, including, without
limitation, the granting of stock options otherwise than under the Management
Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
20. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN
The Board of Directors (but not the Committee) may at any time amend,
alter, suspend, or discontinue the Management Plan, but no amendment,
alteration, suspension, or discontinuation which would impair the rights of any
recipient of a stock option, incentive stock right, limited stock appreciation
right, or restricted share under any agreement theretofore entered into
hereunder, shall be made without such recipient's consent. No amendment,
alteration, suspension, or discontinuation shall be made which, without the
requisite vote of the stockholders of the Corporation approving such action,
would:
(a) except as is provided in Section 12 of the Management Plan, increase
the total number of shares of stock reserved for the purposes of the Management
Plan; or
(b) extend the duration of the Management Plan; or
(c) materially increase the benefits accruing to participants under the
Management Plan; or
(d) change the category of persons who can be Eligible Participants under
the Management Plan. Without limiting the foregoing, the Board of Directors may,
any time or from time to time, authorize the Corporation, without the consent of
the respective recipients, to issue new options or rights in exchange for the
surrender and cancellation of any or all outstanding options or rights.
21. LIMITATIONS ON EXERCISE.
Notwithstanding anything to the contrary contained in the Management
Plan, any agreement evidencing any Award hereunder may contain such provisions
as the Board deems appropriate to ensure that the penalty provisions of Section
4999 of the Code, or any successor thereto, will not apply to any stock or cash
received by the holder from the Corporation.
22. GOVERNING LAW
The Management Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
<PAGE>
Appendix B
NON-EXECUTIVE DIRECTOR
STOCK OPTION PLAN
1. PURPOSE
The purpose of the Non-Executive Director Stock Option Plan (the
"Director Plan") is to provide a means by which the following persons will be
given an opportunity to purchase Common Stock, $.001 par value per share
("Common Stock"), of Hollywood Productions, Inc. ("the Corporation"): (a) each
Director who is not otherwise a full-time employee of the Corporation or any
subsidiary of the Corporation (each such person being hereafter referred to as a
"Non-Executive Director"); (b) each person who is not otherwise an employee of
the Corporation or any subsidiary of the Corporation but who is appointed as a
member of an Advisory Board established or maintained by the Corporation (each
such person being hereafter referred to as a "Non-Executive Director"); and (c)
each person who is not otherwise an employee of the Corporation or any
subsidiary of the Corporation or an Outside Director but who is appointed as a
member of an Advisory Board established or maintained by the Corporation (each
such person being hereinafter referred to as an "Advisor"). The Corporation, by
means of the Director Plan, seeks (i) to attract and retain the services of
qualified independent persons to serve as Non-Executive Directors of the
Corporation and as Advisors on the Corporation's various Advisory Boards; and
(ii) to provide incentives for such persons to exert maximum efforts for the
success of the Corporation.
2. ADMINISTRATION
(a) The Director Plan shall be administered by a committee ("the
Committee") which shall at all times consist of not less than two (2)
individuals who are Officers and Directors of the Corporation or other
individuals who are not entitled to participate in the Director Plan. The
Committee shall be appointed by the Board of Directors and shall serve at the
pleasure of the Board of Directors.
(b) Grants of options under the Director Plan and the amount and nature
of the awards to be granted shall be automatic as described in Section 5 hereof.
However, all questions of interpretation of the Director Plan or of any options
issued under it shall be determined by the Committee, and such determination
shall be final and binding upon all persons having an interest in the Director
Plan. A majority of the Committee's members shall constitute a quorum, and all
determinations shall be made by a majority of such quorum. Any determination
reduced to writing and signed by all of the members of the Committee shall be
fully effective as if same had been made by a majority vote at a meeting duly
called and held.
3. SHARES SUBJECT TO THE PLAN
Subject to the provisions of Section 9 hereof, the shares that may be
acquired pursuant to options granted under the Director Plan ("Options") shall
not exceed in the aggregate 150,000 shares of the Corporation's Common Stock.
<PAGE>
The Common Stock subject to the Director Plan may be, in whole or in
part, authorized and unissued shares of Common Stock or issued shares of Common
Stock which shall have been reacquired by the Corporation. If any Option shall
expire or terminate for any reason without having been exercised in full, the
unissued shares subject thereto shall again be available for purposes of the
Director Plan.
4. ELIGIBILITY
Options shall be granted only to (a) Non-Executive Directors serving on
the Board of Directors of the Corporation and (b) Advisors serving on the
Advisory Boards of the Corporation. Non-Executive Directors shall not be
entitled to receive Options also for serving as Advisors on Advisory Boards of
the Corporation.
5. NON-DISCRETIONARY GRANTS
(a) Grants to Outside Directors
(i) Commencing on January 1, 1998, an Option to purchase 5,000
shares of Common Stock on the terms and conditions set forth herein shall be
granted to each Non-Executive Director who has served for a period of twelve
months as of January 1, 1998, to each Non-Executive Director upon joining the
Board of Directors, and to each Non-Executive Director on January 1 of each year
thereafter provided such individual has continually served as a Non-Executive
Director for the twelve month period immediately preceding the date of grant.
(ii) Notwithstanding the foregoing, in no event shall the
grant amount, that is, the amount determined by multiplying the number of shares
with respect to which Options have been granted by the Fair Market Value (as
defined in Subsection 6(b) below) of the Corporation's Common Stock on the date
of grant, exceed $100,000 with respect to an annual grant to a Non-Executive
Director. To the extent the grant amount exceeds the foregoing limitations, the
number of shares subject to be granted to the Non-Executive Director shall be
reduced accordingly.
(b) Grants to Advisors
(i) Each person who is appointed as an Advisor on an Advisory
Board established or maintained by the Corporation shall, upon such appointment
and on each anniversary of the effective date of his appointment, be granted
Options to purchase 2,500 shares on the terms and conditions set forth herein.
(ii) Notwithstanding the foregoing, no Director who may serve
on an Advisory Board of the Corporation shall be entitled to receive any options
under the Director Plan for serving as an Advisor, and in no event will the
grant amount, as defined above in Section 5(a)(ii), exceed $50,000 with respect
to a grant to an Advisor on an annual basis. To the extent the grant amount
exceeds the foregoing limitations, the number of shares subject to the Option to
be granted to the Advisor will be reduced accordingly.
6. OPTION PROVISIONS
Each Option shall be evidenced by a written agreement ("Stock Option
Agreement") and shall contain the following terms and conditions:
<PAGE>
(a) The term of each Option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") five (5) years from the date of grant. The term of each Option may
terminate sooner than such Expiration Date if the optionee's service as a
Non-Executive Director or Advisor of the Corporation terminates for any reason
or for no reason. In the event of such termination of service, the Option shall
terminate, for Non-Executive Directors and Advisors, on the earlier of the
Expiration Date or the date three (3) months following the date of termination
of service, provided that if termination is due to the optionee's death, the
Option shall terminate on the earlier of the Expiration Date or twelve (12)
months following the date of the optionee's death. In any and all circumstances,
an Option may be exercised following termination of the optionee's service as a
Non-Executive Director or Advisor only as to that number of shares as to which
it was exercisable on the date of termination of such service, in accordance
with the provisions of Subsection 6(e) of the Director Plan.
(b) The exercise price of each Option shall be one hundred percent (100%)
of the Fair Market Value of the shares subject to such Option on the date such
Option is granted. "Fair Market Value" of a share of Common Stock shall mean (i)
if the Common Stock is traded on a national securities exchange or on the NASDAQ
National Market System ("NMS"), the per share closing price of the Common Stock
on the principal securities exchange on which it is listed, or on NMS, as the
case may be, on the date of grant (or if there is no closing price for such date
of grant, then the per share closing price on the last preceding business day on
which there was a closing price); or (ii) if the Common Stock is traded in the
over-the-counter market, and quotations are published on the NASDAQ quotation
system (but not on NMS), the per share closing bid price of the Common Stock on
the date of grant as reported by NASDAQ (or if there is no closing bid price for
such date of grant, then the per share closing bid price on the last preceding
business day on which there was a closing bid price); or (iii) if the Common
Stock is traded in the over-the-counter market, but bid quotations are not
published on NASDAQ, the closing bid price per share for the Common Stock as
furnished by a broker-dealer which regularly furnishes price quotations for the
Common Stock; or (iv) if the Common Stock is not traded or quoted on a national
securities exchange, NMS, the NASDAQ Quotation System, the over-the-counter
market, or the pink sheets, then the fair market value of each share of the
Corporation's Common Stock shall be determined by the Corporation's Board of
Directors or by a Committee of the Board of Directors, if one has been
appointed, subject to the applicable laws of the State of Delaware and such
other laws as in such cases shall be applicable.
(c) Subject to state law and the Corporation's By-Laws, the optionee
may elect to make payment of the exercise price under one of the following
alternatives:
(i) Payment of the exercise price per share in cash at the time of
exercise; or
(ii) Payment by the issuance of a promissory note; or
(iii) Payment by delivery of shares of Common Stock of the Corporation
already owned by the optionee, which Common Stock shall be valued at Fair Market
Value on the date of exercise; or
(iv) Payment by a combination of the methods of payment specified in
Subsections 6(c)(i) - 6(c)(iii) above.
<PAGE>
(d) An Option shall not be transferable except by will or by the laws
of descent and distribution and during the lifetime of the person to whom the
Option is granted, shall be exercisable only by such person or by his guardian
or legal representative.
(e) All Options granted under the Director Plan shall be non-qualified
stock options and shall not qualify as incentive stock options within the
meaning of Section 422A(b), or any successor section, of the Internal Revenue
Code, as amended.
7. RIGHT OF CORPORATION TO TERMINATE SERVICES
AS A NON-EXECUTIVE DIRECTOR OR ADVISOR
Nothing contained in the Director Plan or in any instrument executed
pursuant hereto shall confer upon any Non-Executive Director or Advisor any
right to continue in the service of the Corporation or of any of its
subsidiaries or to interfere in any way with the right of the Corporation or any
of its subsidiaries to terminate the service of any Non-Executive Director or
Advisor at any time, with or without cause.
8. NON-ALIENATION OF BENEFITS
No right or benefit under the Director Plan shall be subject to
alienation, sale, assignment, hypothecation, pledge, exchange, transfer,
encumbrance, or charge, and any attempt to alienate, sell, assign, hypothecate,
pledge, exchange, transfer, encumber, or charge the same shall be void. No right
or benefit hereunder shall in any manner be liable for or subject to the debts,
contracts, liabilities, or torts of the person entitled to such benefit.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
The Stock Option Agreements evidencing Options may contain such
provisions as the Committee shall determine to be appropriate for the adjustment
of the number and class of shares subject to all outstanding Options and the
Option prices thereof in the event of changes in the outstanding Common Stock of
the Corporation by reason of any stock dividend, distribution, split-up,
recapitalization, combination or exchange of shares, merger, consolidation, or
liquidation and the like, and, in the event of any such change in the
outstanding Common Stock, the aggregate number and class of shares available
under the Director Plan and the number of shares subject to non-discretionary
grants pursuant to Section 5 hereof shall be appropriately adjusted by the
Committee, whose determination shall be conclusive.
10. TERMINATION AND AMENDMENT
Unless the Director Plan shall theretofore have been terminated as
hereinafter provided, the Director Plan shall terminate on June 1, 2007. The
Board may at any time, but not more than once every six (6) months, except to
comply with changes in the Internal Revenue Code, amend, alter, suspend, or
terminate the Director Plan, provided, however, that the Board
<PAGE>
may not, without the requisite vote of the stockholders of the Corporation
approving such action (i) increase (except as provided in Section 9 hereof) the
maximum number of shares which may be issued under the Director Plan; (ii)
extend the term of the Director Plan; (iii) increase the requirements as to
eligibility for participation in the Director Plan; or (iv) increase the
benefits accruing to participants under the Director Plan. No termination,
modification, or amendment of the Director Plan or any outstanding Stock Option
Agreement may, without the consent of the Non-Executive Director or Advisor to
whom any option shall theretofore have been granted, adversely affect the rights
of such Director with respect to such Option.
11. EFFECTIVENESS OF THE PLAN
The Director Plan shall become effective upon the requisite vote of the
stockholders of the Corporation approving such action, and upon the approvals,
if required, of any other public authorities. Any grant of Options under the
Director Plan prior to such approval shall be expressly subject to the condition
that the Director Plan shall have been so approved. Unless the Director Plan
shall be so approved, the Director Plan and all Options theretofore made
thereunder shall be and become null and void.
12. GOVERNMENT AND OTHER REGULATIONS
The obligation of the Corporation with respect to Options shall be
subject to (i) all applicable laws, rules, and regulations and such approvals by
any governmental agencies as may be required, including, without limitation, the
effectiveness of a registration statement under the Securities Act of 1933; and
(ii) the rules and regulations of any securities exchange on which the Common
Stock may be listed.
13. GOVERNING LAW
The Director Plan shall be governed by, and construed in accordance
with, the laws of the State of Delaware.
<PAGE>
