HOLLYWOOD PRODUCTIONS, INC.
14 East 60th Street, Suite 402
New York, New York 10022
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on November 10, 1998
To the Shareholders of HOLLYWOOD PRODUCTIONS, INC.
NOTICE IS HEREBY GIVEN that an Annual Meeting of Shareholders of
Hollywood Productions, Inc. (the "Company") will be held at the Company's
offices located at 14 East 60th Street, Suite 402, New York, New York, on
November 10, 1998, at 10:00 a.m. EST, for the following purposes:
1. To elect four (4) Directors to the Company's Board of Directors to hold
office for a period of one year or until their successors are duly elected and
qualified;
2. To vote on the proposal to authorize the offering of up to one million
shares of the Company's Common Stock in a private placement;
3. To vote on the proposal to authorize the Company's subsidiary, Breaking
Waves, Inc. to enter into a sales agreement with Play Co. Toys & Entertainment
Corp., and authorize the purchase of up to one million four hundred thousand
shares of Playco common stock pursuant to the terms of the purchase option
included in the sales agreement;
4. To transact such other business as properly may be brought before the
meeting or any adjournment thereof.
The close of business on September 28, 1998 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 Company, in writing, prior to the Annual Meeting of
Shareholders.
By order of the Board of Directors
Robert DiMilia, Secretary
Dated: October __, 1998
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, Suite 402
New York, New York 10022
PROXY STATEMENT
FOR
Annual Meeting of Stockholders
To Be Held on November 10, 1998
This proxy statement and the accompanying form of proxy were mailed on
October __, 1998 to the stockholders of record as of September 28, 1998 of
Hollywood Productions, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting to be held on November 10, 1998 and at any
adjournment thereof.
SOLICITATION, VOTING AND REVOCABILITY OF PROXIES
Shares of the Company'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 the
proposal (i) to elect four (4) Directors to the Company's Board of Directors to
hold office for a period of one year or until their successors are duly elected
and qualified; (ii) to authorize the offering of up to one million shares of the
Company's Common Stock in a private placement; and (iii) to authorize the
Company's subsidiary, Breaking Waves, Inc. ("BWI") to enter into a sales
agreement with Play Co. Toys & Entertainment Corp. ("Playco"), and authorize the
purchase of up to one million four hundred thousand shares of Playco's common
stock pursuant to the terms of the purchase option included in the sales
agreement.
Any such proxy may be revoked at any time before it is voted. A
stockholder may revoke this proxy (i) by notifying the Secretary of the Company,
either in writing prior to the Annual Meeting or in person at the Annual
Meeting; (ii) by submitting a proxy bearing a later date; or (iii) 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 Company 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 beneficial owners of the Common Stock held
of record by such persons, and the Company may reimburse same for reasonable
out-of-pocket expenses incurred by same in so doing.
The Company's annual report on Form 10-KSB for the fiscal year ended
December 31, 1997 and quarterly report on Form 10-QSB for the quarter ended June
30, 1998 accompany this proxy statement and are incorporated herein by
reference.
<PAGE>
The principal executive offices of the Company are located at 14 East
60th Street, Suite 402, New York, New York 10022; the Company's telephone number
is (212) 688-9223.
Independent Public Accountants
The Board of Directors of the Company has not selected its auditors for
the year ended December 31, 1998. On September 9, 1998, the Securities and
Exchange Commission ("SEC"), pursuant to an investigation regarding Steven
Scarano, and allegations that he violated certain provisions of the Securities
Act of 1933, as amended and Securities Exchange Act of 1934, as amended,
accepted a settlement offer from Mr. Scarano. The settlement denies Mr. Scarano
the privilege of appearing or practicing before the SEC as an accountant, with
the right to apply for reinstatement after two years and requires the payment of
a fine. Mr. Scarano was the sole stockholder of Scarano & Tomaro, P.C. a
professional corporation, which was the Company's auditor for the year ended
December 31, 1997. The Company is currently evaluating the situation and seeking
to engage an alternate firm to be its auditor.
Shareholders shall not be asked to approve any selection made by the
Company because such approval is not required. The audit services for which the
Company is seeking a new firm shall consist of the examination of financial
statements, services relative to filings with the Securities and Exchange
Commission, and consultation in regard to various accounting matters. In the
event that a new firm is engage by the meeting date, the Company shall request
that a representative of said firm be present at the meeting.
VOTING SECURITIES AND SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The securities entitled to vote at the meeting are the Company's Common
Stock, par value $.001 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 September 28, 1998 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, 2,686,944 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 September 28, 1998
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 Company 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 Amount and Nature
Of Beneficial Owner Of Beneficial Ownership (1) Percent of Class (1)(2)
- ------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
European Ventures Corp. (3)(4) P.O. Box 47 980,350 36.5%
Road Town, Tortolla, British Virgin Islands
Harold Rashbaum (3)(5) 33,333 1.2%
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Robert DiMilia (5) 16,666 *
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Alain A. Le Guillou, M.D. (3) -- --
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
Jim Frakes -- --
c/o Hollywood Productions, Inc.
14 East 60th Street, Suite 402
New York, New York 10022
All Officers and Directors (4 as a Group) (4)(6)(7) 49,999 1.8%
</TABLE>
* Less then 1%.
<PAGE>
(footnotes from previous page)
(1) Unless otherwise noted, all shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares. Shares not outstanding but deemed beneficially owned by virtue of the
right of a person to acquire them within 60 days, whether by the exercise of
options or warrants, are deemed outstanding in determining the number of shares
beneficially owned by such person or group. Does not include shares of Common
Stock issuable upon exercise of the outstanding Warrants, exercisable at $9.00
per share or the issuance of 83,333 shares of Common Stock reserved for issuance
under the Company's 1995 Senior Management Incentive Plan, except for the 49,999
shares underlying options granted pursuant thereto.
(2) The "Percent of Outstanding Shares Owned" is calculated by dividing the
"Number of Shares Beneficially Owned" by the sum of (i) the total outstanding
shares of Common Stock of the Company and (ii) the number of shares of Common
Stock that such person has the right to acquire within 60 days, whether by
exercise of options or warrants. The "Percent of Outstanding Shares Owned" does
not reflect shares beneficially owned by virtue of the right of any person,
other than the person named (and affiliates of such person), to acquire them
within 60 days, whether by exercise of options or warrants.
(3) Harold Rashbaum is the father-in-law of both Ilan Arbel (the sole
officer and director of European Ventures Corp.) and Alain Le Guillou.
(4) Does not include 2,400 shares of Common Stock issuable on exercise of
the warrants.
(5) Constitutes shares of Common Stock issuable upon the exercise of a
vested option granted pursuant to the Company's Senior Management Incentive
Plan. See "Executive Compensation-Employment and Consulting Agreements" and
"Senior Management Incentive Plan."
Certain Reports
No person ("a Reporting Person") who during the fiscal year ended
December 31, 1997 was a Director, Officer, or beneficial owner of more than ten
percent of the Company's Common Stock [which is the only class of securities of
the Company registered under Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act")], failed to file on a timely basis reports required by
Section 16 of the Exchange Act during the most recent fiscal year or prior
years, except that European Ventures Corp. has not filed a Form 4 reflecting the
sale of share of Common Stock during 1998. The foregoing is based solely upon a
review by the Company of (i) Forms 3 and 4 filed during the most recent fiscal
year by the Company in accordance with Rule 16a-3 under the Exchange Act; and
(ii) any representation received by the Company from any reporting person that
no Form 5 is required, except as otherwise 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 four 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 reelect the current 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 proxy, for the election of another person in his stead. The
Board of Directors knows of no reason to anticipate this will occur.
<PAGE>
The following table sets forth, as of September 28, 1998, the four
nominees for election as Directors of the Company:
<TABLE>
<CAPTION>
Position with Company; Director
Name Principal Occupation and Age Since
<S> <C> <C>
Harold Rashbaum President, CEO, and Director; 71 1996
Robert DiMilia Vice President, Secretary and 1997
Director; 52
Alain A. Le Guillou, M.D. Director; 41 1996
James B. Frakes Director; 41 1998
</TABLE>
The Directors of the Company are elected annually by the stockholders, and
the Officers of the Company 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 participation as a
Director. The Company does not have key man insurance on the lives of any of its
Officers or Directors. The Company's audit committee is comprised of James
Frakes, Alain A. Le Guillou, M.D. and Harold Rashbaum.
Harold Rashbaum has been a Director of the Company since 1996. He has been
the President and Chief Executive Officer of the Company 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 Company. From May 1996
until October 1997, Mr. Rashbaum served as the Secretary, Treasurer, and a
Director of D.L. Productions, Inc. ("DLP"), the production company for the Dirty
Laundry movie: he became President of DLP in January 1997. DLP voluntarily
dissolved in October 1997 after completion of the movie. Since February 1996,
Mr. Rashbaum has also been the President and a Director of H.B.R. Consultant
Sales Corp. ("HBR"), a company of which his wife is the sole stockholder. Mr.
Rashbaum has been a consultant to Playco, a wholesaler and retailer of
children's toys, since July 1995. He became Chairman of the Board of Playco 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
Company since January 10, 1997. Prior thereto, he was a consultant to the
Company with respect to the production of Dirty Laundry, the Company'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 Company 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.
James B. Frakes has been a Director of the Company since January 1998. Mr.
Frakes was elected Chief Financial Officer of Playco in June 1997 and was
appointed as a Director of Playco to fill an existing vacancy in August 1997.
Prior thereto, from June 1990 to March 1997, Mr. Frakes was Chief Financial
Officer of Urethane Technologies, Inc. ("UTI") and two of its subsidiaries:
Polymer Development Laboratories, Inc. ("PDL") and BMC Acquisition, Inc. These
were specialty chemical companies which focused on the polyurethane segment of
the plastics industry. Mr. Frakes was also Vice President and a Director of UTI
during this period. In March 1997, three unsecured creditors of PDL filed a
petition for the involuntary bankruptcy of PDL. This matter is pending before
the United States Bankruptcy Court, Central District of California. In 1980, Mr.
Frakes obtained a Masters in Business Administration from University of Southern
California. He obtained his Bachelor of Arts degree in history from Stanford
University from which he graduated with honors in 1978.
<PAGE>
The Company 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 Company pursuant to any charter, provision, by-law, contract,
arrangement, statute, or otherwise, the Company 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 Company of expenses incurred or paid
by a Director, Officer, or controlling person of the Company in the successful
defense of any such action, suit, or proceeding) is asserted by such Director,
Officer, or controlling person of the Company in connection with the Securities
being registered, the Company 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 Company will be governed by
the final adjudication of such issue.
Board Meetings, Committees and Compensation
During the fiscal year ended December 31, 1997, no meetings of the Board of
Directors were held; rather, in lieu of same, actions were taken on seven (7)
occasions by unanimous written consent of the Board of Directors. Thus far
during fiscal 1998, the Company has held no meetings of the Board of Directors;
rather, in lieu of same, actions were taken on ten (10) occasions by unanimous
written consent of the Board of Directors. The Company does not pay its
Directors for attendance at Board of Directors meetings or committee meetings.
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, paid by the Company during the periods ended December 31, 1995, 1996,
and 1997 to each of the named executive officers of the Company.
Summary Compensation Table
<TABLE>
<CAPTION>
====================================================================================================================================
Securities Restricted All
Name and Principal Position Underlying Stock Other
Year Salary ($) Options/Sars (#) Award(s) Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Harold Rashbaum
Chief Executive Officer 1997(1) 147,000 33,333(2) -- --
and President 1996(1) 26,000 -- 100,000(3) --
- ------------------------------------------------------------------------------------------------------------------------------------
Robert DiMilia 1997 81,000 16,667(2) -- --
Vice President and Secretary 1996(4) -- -- -- --
====================================================================================================================================
</TABLE>
Commenced employment in May 1996. At the closing of the Company's initial public
offering H.B.R. Consulting Sales, Corp., a company controlled by Mr. Rashbaum
and owned by his wife received 7,500 shares of Common Stock and a consulting fee
of $40,000. Includes options to purchase shares of Common Stock issued in March
1997 under the Company's Senior Management Incentive Plan. See "Senior
Management Incentive Plan". Includes 16,667 shares issued under the Senior
Management Incentive Plan in June 1996, subject to a two year vesting schedule.
The shares were valued on issuance at $100,000. See "Senior Management Incentive
Plan".
Commenced employment in January 1997.
<PAGE>
Stock Options
The following table sets forth certain information concerning the grant
of stock options made during the year ended December 31, 1997 under the
Company's Senior Management Incentive Plan.
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
Options/SAR's
# of Securities Granted to
underlying Employees in Exercise or Base
Options/SAR's Fiscal Year Price ($/SH) (2)
Granted (1)
------------
Name Expiration Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Harold Rashbaum 33,333 67% $5.125 March 14, 2002
Robert DiMilia 16,667 33% $5.125 March 14, 2002
====================================================================================================================================
- ------------------------
</TABLE>
(1) Represents incentive stock options granted under the Company's Senior
Management Incentive Plan. Options granted under the Management Plan are
intended to qualify as incentive stock options under the Internal Revenue Code
of 1986, as amended. Under the terms of the Management Plan, the option price
per share may not be less than the fair market value of the Company's shares on
the date the option is granted. However, options granted to persons owning more
than 10% of the Company's Common Stock may not have a term in excess of five
years and may not have an option price of less than 110% of the fair market
value per share of the Company's shares on the date the option is granted.
(2) On March 10, 1998, the Board of Directors approved a revision of the
terms of the options granted to Harold Rashbaum and Robert DiMilia. The exercise
price was changed to $2.93. In accordance with the February 1998 one for three
reverse split of the Company's Common Stock, the number of shares underlying the
options was decreased to 33,333 and 16,667 for Mr. Rashbaum and Mr. DiMilia,
respectively.
<PAGE>
The following table contains information with respect to employees of the
Company concerning options held as of December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
====================================================================================================================================
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------------------------------
Value of Unexercised
Number of In-The-Money
Unexercised Options/SAR's Options/SAR's at FY
Shares Value at FY-End (#) -End ($) Exercisable/
Acquired on Exercise (#) Realized($) Exercisable/ Unexercisable /
Name Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Harold Rashbaum 0 0 33,333/0 (1) 0/0 (2)
Robert DiMilia 0 0 16,667/0 (1) 0/0 (2)
====================================================================================================================================
</TABLE>
(footnotes from previous page)
On March 10, 1998, the Board of Directors approved a revision of the terms of
the options granted to Harold Rashbaum and Robert DiMilia. The exercise price
was changed to $2.93. In accordance with the February reverse split of the
Company's Common Stock, the number of shares underlying the options was
decreased to 33,333 and 16,667 for Mr. Rashbaum and Mr. DiMilia, respectively.
The closing price on December 31, 1997 was $0.47 per pre-split share. Therefore
the options had no value.
Employment and Consulting Agreements
Prior to Harold Rashbaum becoming an officer and director of the
Company, he provided consulting to the Company through H.B.R. Consultant Sales
Corp., ("HBR"), a Company 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 Company whereby, it will receive 5% of the net profits of the Motion
Picture received by the Company. In addition, HBR received $40,000 and 7,500
shares of the Company's Common Stock at the closing of the Company's initial
public offering. From October 1996 until March 1997, Mr. Rashbaum received a
salary of $104,000 per annum for being an officer and director of the Company.
In March 1997 Mr. Rashbaum's salary was raised to $156,000 per annum. In
addition, Mr. Rashbaum received 50,000 shares of Common Stock under the
Company's Senior Management Incentive Plan which 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 Company. Shares not vested shall be returned to the Company's treasury. In
March 1997, the Company granted Mr. Rashbaum as chief executive officer an
option to purchase 100,000 shares at $5 1/8 per share, pursuant to the Company's
Senior Management Incentive Plan. The terms of this option were revised
subsequent to the February 1998 reverse split of the Company's Common Stock. See
"Executive Compensation".
Dan Stone entered into a two year consulting agreement with Breaking
Waves as of January 1996, pursuant to which he oversees the operation of
Breaking Waves in return for a yearly consulting fee of $100,000. Mr. Stone
received $50,000 from the proceeds of the Company's initial public offering, as
payment in advance of half of the 1997 consulting fee, the balance of which was
paid in weekly installments. On January 1, 1998, the term of the consulting
agreement expired and Mr. Stone's relationship with the company was terminated.
<PAGE>
In November 1997, Breaking Waves entered into three year employment
agreements with each of Malcolm Becker and Michael Friedland. The agreements
provide for a salary of $110,000 for the term of employment and the receipt of
shares of the Company's Common Stock in each year of the agreements. 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,
whereby 1/2 vest in each of November and May. In November 1997, 7,222 shares
were issued to each of Messrs. Becker and Friedland, subject to vesting. The
shares vest pursuant to restricted share agreements. "Market Value" means 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 non-disclosure and non-compete clauses.
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 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. 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) restricted shares (collectively, such options,
rights and restricted shares are referred to herein as "Awards"). 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.
In March 1997, the Company granted options to purchase 100,000 and
50,000 pre-split shares of Common Stock to Harold Rashbaum and Robert DiMilia
respectively, at $5.125 per share, 100% of the market price on the date of
grant. In March 1998, the exercise price was decreased to $2.93 and pursuant to
the February 1998 one for three reverse split of the Company's Common Stock, the
number of shares was reduced to 33,333 and 16,667, respectively. See "Certain
Relationships and Related Transactions".
Non-Executive Director Stock Option Plan
In June 1997 the shareholders adopted the Corporation's Non-Executive
Director Stock Option Plan (the "Director's Plan"). 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").
<PAGE>
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.
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. No options under this plan have been granted to
date. The first options will be granted to Dr. Le Guillou in January 1999 if he
remains a member of the board.
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. Options granted under the
Director's Plan vest and become exercisable upon issuance. 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.
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 Board of Directors recommends that you vote "FOR" the nominees for
Directors.
II. TO VOTE ON THE PROPOSAL TO AUTHORIZE THE OFFERING OF
UP TO ONE MILLION SHARES OF THE COMPANY'S COMMON STOCK
IN A PRIVATE PLACEMENT
The Company has decided to undertake to raise additional capital in a
private offering of its share of Common Stock. The use of the proceeds of the
offering are to enable the Company to continue the implementation of its
business plan by funding the expansion of the operations of its subsidiary, BWI
and to fund the production and marketing of additional films, some of which may
be to complete films in process. The Company shall offer the shares at not less
then a 10% premium to the then market price of the shares.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock issued and outstanding on the record date is required to
approve this proposal. The Directors and Officers of the Company and other
principal shareholders owning of record, beneficially, directly and indirectly,
an aggregate of 980,350 shares of the Company's Common Stock constituting
approximately 36.5% of such shares outstanding on the record date, have agreed
to vote in favor of approval of this proposal. The Board of Directors recommends
that you vote "FOR" this Proposal.
<PAGE>
III. PROPOSAL TO AUTHORIZE THE COMPANY'S SUBSIDIARY, BREAKING WAVES, INC.
TO ENTER INTO A SALES AGREEMENT WITH
PLAY CO. TOYS & ENTERTAINMENT CORP. AND AUTHORIZE
THE PURCHASE OF UP TO ONE MILLION FOUR HUNDRED
THOUSAND SHARES OF PLAYCO'S COMMON STOCK
PURSUANT TO THE TERMS OF THE PURCHASE OPTION
INCLUDED IN THE SALES AGREEMENT.
Pursuant to the terms of a sales agreement (the "Agreement") entered
into September 30, 1998 by and between the Company's subsidiary, Breaking Waves,
Inc. ("BWI"), and Play Co. Toys & Entertainment Corp. ("Playco"), BWI was
granted the right to purchase, at any time during the term of the Agreement, an
aggregate of 1,400,000 shares of Playco common stock, par value $.01 per share,
at an exercise price equal to a 50% discount of the closing bid price for a
share of common stock, as reported by the Over-the-Counter Bulletin Board ("OTC
BB"), on each date on which BWI submits to Playco its election to exercise its
right.
For the past two swimwear season Playco has been test marketing BWI's
swimwear at certain retail locations, which Playco has determined has been
successful. Playco now desires to expand its sale of BWI's swimwear to most of
its locations and therefore desires an agreement with BWI. Playco currently has
21 locations and estimates that it will have 35 locations by the end of 1999.
The Agreement was reviewed by the Company's audit committee, which is comprised
of Harold Rashbaum, the President of the Company and Chairman of the board of
Playco, James Frakes a member of the Company's board and Playco's Chief
Financial Officer and Alain A. Le Guillou, M.D., a member of the board and
son-in-law of Harold Rashbaum. The audit committee found that due to the
conflicts of interest between the related parties that it would be in the best
interests of the Company's shareholder to put the issue of the exercise of the
purchase option in accordance with the Agreement to a vote of the Company's
stockholders. The Company anticipates that the shares would be purchased by BWI
from funds generated from its operations.
Notwithstanding, the audit committee did review Playco's financial
condition, its credit line, its customer relations and it ongoing business plan.
The committee assessed that the business terms of the Sales Agreement are no
more than what could be expected in an arms length transaction, and beneficial
to the operations of the Company and its subsidiary. The committee found that
the stock purchase option is a beneficial additional term to the Agreement
providing the Company and its subsidiary BWI with an option to purchase a
substantial interest in Playco, a company that is expanding and growing and
potentially could be a long term retail partner for the Company and BWI. The
Company believes that an investment in Playco is a good decision at this time as
the shares of Playco's common stock is at a low level, notwithstanding the
continued improvement in its operations and financial condition as well as its
country wide expansion an growth plans.
The Company did submit a proposal to Nasdaq for a determination as to
whether shareholder approval with respect to the Agreement and the purchase
option therein would be required by the Nasdaq Stock Market Marketplace Rules,
and Nasdaq determined that such approval was not required. Nasdaq did, however,
recommend that the proposal be put before the shareholders for vote thereon. The
Company agreed with Nasdaq and is therefore submitting this proposal before its
stockholders.
In the event the proposal is not approved by the shareholders, the
Company shall not authorize BWI to purchase shares of Playco's common stock, and
that portion, exclusively, of the Agreement shall be stricken from the
Agreement, with all other provisions remaining in full force and effect therein.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock issued and outstanding on the record date is required to
approve this proposal. The Directors and Officers of the Company and other
principal shareholders owning of record, beneficially, directly and indirectly,
an aggregate of 980,350 shares of the Company's Common Stock constituting
approximately 36.5% of such shares outstanding on the record date, have agreed
to vote in favor of approval of this proposal. The Board of Directors recommends
that you vote "FOR" this Proposal.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a two year consulting agreement with Dan
Stone, the former president and majority stockholder of Breaking Waves, as of
January 1996, pursuant to which he oversaw the operation of Breaking Waves in
return for a yearly consulting fee of $100,000. On January 1, 1998, the term of
the consulting agreement expired and Mr. Stone's relationship with the company
was terminated.
In June 1996, the Company issued 16,667 shares of Common Stock to
Robert Melillo, the former chief executive officer, president and director of
the Company under the Company senior management incentive plan. The shares were
to vest at the rate of 8,333 in each of June 1997 and 1998. On January 10, 1997,
Mr. Melillo resigned and agreed to return 8,333 shares to the Company. Mr.
Melillo failed to comply with the terms of his resignation, therefore, all
16,667 shares have been cancelled.
Prior to Harold Rashbaum becoming an officer and director of the
Company, commencing in March 1996 he provided consulting to the Company through
H.B.R. Consultant Sales Corp., ("HBR"), a Company 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 Company whereby it will receive 5% of the net
profits of the Motion Picture received by the Company. In addition, HBR received
$40,000 and 2,500 shares of the Company's Common Stock from the Company at the
closing of the Acquisition. In June 1996 Mr. Rashbaum received 16,667 shares of
Common Stock under the Company's Senior Management Incentive Plan which shares
vest at the rate of 8,333 shares on each of June 1997 and 1998.
In March 1997, Harold Rashbaum and Bob DiMilia were granted options to
purchase shares of the Company's Common Stock pursuant to the Company's Senior
Management Incentive Plan. Mr. Rashbaum was granted an option to purchase 33,333
shares of Common Stock and Mr. DiMilia was granted an option to purchase 16,667
shares of Common Stock. All of the options are exercisable at the closing bid
price of March 14, 1998, the day of the grant ($5 1/8). The terms of these
options were revised subsequent to the February 1998 reverse split of the
Company's Common Stock. The revised terms, as approved by the Board of Directors
on March 10, 1998, provide for a reduction in the exercise price to $2.93.
The Company has consummated the raising of approximately $750,000 in
additional equity. In February 1998, the Company completed a private placement
of 300,000 shares of its Common Stock at a price of $.65 per share raising
approximately $195,000. In April 1998, the Company completed a private placement
of 350,000 shares of the Company's Common Stock at a price of $1.60 per share
raising approximately $560,000.In the February 1998 offering American Telecom
Corporation, a company of which Ilan Arbel, the son-in-law of Harold Rashbaum,
is President, Secretary, and a Director, purchased 100,000 shares.
See "Executive Compensation-Employment and Consulting Agreements" for a
discussion of the Company's employment and consulting arrangements.
FINANCIAL INFORMATION
A Copy Of The Company's Annual Report On Form 10-Ksb For The Fiscal
Year Ended December 31, 1997 Shall 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 Street,
Suite 402, New York, New York 10022.
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.
<PAGE>
Shareholder Proposals
Proposals of shareholders intended to be presented at the Company's
1999 Annual Meeting of Shareholders must be received by the Company on or prior
to June 18, 1999 to be eligible for inclusion in the Company's proxy statement
and form of proxy to be used in connection with the 1999 Annual Meeting of
Shareholders.
By Order of the Board of Directors,
Robert DiMilia
Secretary
October __, 1998
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.
