HOTEL DISCOVERY INC, DEF 14A, 1998-04-21

HOTEL DISCOVERY INC
DEF 14A, 1998-04-21
EATING PLACES

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<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant [x]
Filed by a party other than the registrant [ ]

Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, For Use of
the Commission Only (as
permitted by Rule 14a-6(e)(2))
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

HOTEL DISCOVERY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------
(5) Total fee paid:

- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:

- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:

- --------------------------------------------------------------------------------
(3) Filing Party:

- --------------------------------------------------------------------------------
(4) Date Filed:

- --------------------------------------------------------------------------------

<PAGE> 2

HOTEL DISCOVERY, INC.
4801 West 81st Street, Suite 112
Bloomington, Minnesota 55437

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998

TO THE SHAREHOLDERS OF HOTEL DISCOVERY, INC.:

Please take notice that the Annual Meeting of Shareholders of Hotel
Discovery, Inc. will be held, pursuant to due call by the Board of Directors of
the Company, at the Minnesota Room, Mall of America, Fourth Floor, Bloomington,
Minnesota, on Thursday, May 21, 1998, at 2:00 p.m., or at any adjournment or
adjournments thereof, for the purpose of considering and taking appropriate
action with respect to the following:

1. To elect five directors.

2. To approve an amendment to the Company's Articles of Incorporation
to change the name of the Company from Hotel Discovery, Inc. to
Cafe Odyssey, Inc.

3. To approve an amendment to the Company's 1997 Stock Option and
Compensation Plan to increase the number of shares of Common Stock
reserved for issuance thereunder from 750,000 to 1,250,000 shares.

4. To approve the adoption of the 1998 Director Stock Option Plan.

5. To transact any other business as may properly come before the
meeting or any adjournments thereof.

Pursuant to due action of the Board of Directors, shareholders of record on
April 7, 1998 will be entitled to vote at the meeting or any adjournments
thereof.

A PROXY FOR THE MEETING IS ENCLOSED HEREWITH. YOU ARE REQUESTED TO FILL IN
AND SIGN THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE.

By Order of the Board of Directors

Anne D. Huemme
Secretary

April 21, 1998

<PAGE> 3

HOTEL DISCOVERY, INC.
4801 WEST 81ST STREET, SUITE 112
BLOOMINGTON, MINNESOTA 55437

--------------------------------------------

PROXY STATEMENT

--------------------------------------------

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
MAY 21, 1998

VOTING AND REVOCATION OF PROXY

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Hotel Discovery, Inc. (the "Company") to be
used at the Annual Meeting of Shareholders of the Company to be held on
Thursday, May 21, 1998, at 2:00 p.m. at the Minnesota Room, Mall of America,
Fourth Floor, Bloomington, Minnesota. The approximate date on which this Proxy
Statement and the accompanying proxy were first sent or given to shareholders
was April 21, 1998. Each shareholder who signs and returns a proxy in the form
enclosed with this Proxy Statement may revoke the same at any time prior to its
use by giving notice of such revocation to the Company in writing, in open
meeting or by executing and delivering a new proxy to the Secretary of the
Company. Unless so revoked, the shares represented by each proxy will be voted
at the meeting and at any adjournments thereof. Presence at the meeting of a
shareholder who has signed a proxy does not alone revoke that proxy. Only
shareholders of record at the close of business on April 7, 1998 (the "Record
Date") will be entitled to vote at the meeting or any adjournments thereof.

VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF

The Company has outstanding one class of voting securities, Common Stock,
$0.01 par value, of which 8,000,189 shares were outstanding as of the close of
business on the Record Date. Each share of Common Stock is entitled to one vote
on all matters put to a vote of shareholders.

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the Record Date, by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table, and (iv) all executive officers and directors
as a group. Unless otherwise indicated, each of the following persons has sole
voting and investment power with respect to the shares of Common Stock set forth
opposite their respective names.

<PAGE> 4

NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT OF CLASS
- ------------------------------------------------- ------- ----------------

<S> <C> <C>
Stephen D. King.................................. 1,065,743 (2) 13.3%

Ronald K. Fuller................................. 199,333 (3) 2.4%

Anne D. Huemme................................... 50 (4) *

Michael H. Krienik............................... 10,000 (5) *
115 W. 9th Street
Cincinnati, OH 45202

Martin J. O'Dowd................................. 0 --
7701 France Avenue South, Suite 200
Edina, MN 55435

Thomas W. Orr.................................... 10,000 *
3440 W. Pepperwood Loop
Tucson, AZ 85742

All executive officers and directors
as a group (six persons)....................... 1,285,126 (6) 15.7%
</TABLE>

- ---------------

* Less than 1%.

(1) Unless otherwise indicated, the address of each person is 4801 West 81st
Street, Suite 112, Bloomington, MN 55437.

(2) Includes 165,743 shares as to which Mr. King holds options to purchase
from various individuals exercisable currently or within 60 days of the
Record Date.

(3) Includes 183,333 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date. Also includes 1,000
shares owned and 1,000 shares issuable upon exercise of warrants owned
by Mr. Fuller's wife, and 2,000 shares owned and 2,000 shares issuable
upon exercise of warrants owned by his children. Mr. Fuller disclaims
beneficial ownership of such shares.

(4) Represents shares owned by Ms. Huemme's children, as to which Ms. Huemme
disclaims beneficial ownership.

(5) Represents 10,000 shares issuable upon exercise of options exercisable
currently or within 60 days of the Record Date.

(6) Includes 362,076 shares issuable upon exercise of options and warrants
exercisable currently or within 60 days of the Record Date.

<PAGE> 5

ELECTION OF DIRECTORS
(PROPOSAL 1)

Five directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Shareholders, or until his successor is
elected and qualified. All of the persons listed below are now serving as
directors of the Company.

The names and ages of the nominees, and their principal occupations and
tenure as directors, are set forth below based upon information furnished to the
Company by such nominees. All of the persons listed below have consented to
serve as a director, if elected.

NAME POSITIONS WITH THE COMPANY AGE DIRECTOR SINCE
- ------------------------------------ -------------------------------- --- --------------
<S> <C> <C> <C>
Stephen D. King..................... Chairman of the Board 41 1994
Ronald K. Fuller.................... Chief Executive Officer, Chief 53 1997
Operating Officer and Director
Michael H. Krienik.................. Director 45 1997
Martin J. O'Dowd.................... Director 49 1997
Thomas W. Orr....................... Director 53 1997
</TABLE>

Stephen D. King is the Chairman of the Board of the Company and a
managing partner of BaryCenter Capital Management, a Cincinnati-based financial
advisor and investment firm. Mr. King also served as the Company's Chief
Executive Officer from its inception until February 1998. From 1982 to 1990, Mr.
King served in various capacities, including Chief Executive Officer, of Pizza
Hut of Cincinnati, Inc., which operates 36 Pizza Hut restaurants in the
Cincinnati, Ohio area. Mr. King has also served in various capacities with Long
John Silver, Two Pesos and Skyline Chili franchise operations. Mr. King also has
extensive real estate and financing expertise and, from 1991 to 1994, served as
managing partner of a real estate development partnership with properties valued
at approximately $60 million.

Ronald K. Fuller joined the Company as President and Chief Operating
Officer in January 1997. He also became Chief Executive Officer of the Company
in February 1998. Mr. Fuller had served since 1993 as President and Chief
Executive Officer for Leeann Chin, Inc., Minneapolis, Minnesota. From 1985 to
1993, Mr. Fuller held several executive positions with General Mills, Inc. and
General Mills Restaurants, Inc. in Minneapolis and Orlando, Florida, including
Vice President - Operations, Executive Vice President - New Concept Development,
and President/General Manager.

Michael L. Krienik became a director of the Company in September 1997
and is President of Krienik Advertising Inc., Cincinnati, Ohio, a full-service
advertising agency which he founded in 1981. Prior to founding his own
advertising agency, Mr. Krienik served in various merchandising/management roles
with Federated Department Stores from 1973 to 1977 and then served as the
National Advertising Manager for U.S. Shoe Corporation from 1977 to 1981.

Martin J. O'Dowd has been a Director of the Company since September
1997 and is the President, Chief Executive Officer and a Director of Elephant &
Castle Group, Inc. He was Chief Operating Officer for United States operations
of that Company from April 1997 to March 1998. From May 1995 to April 1997, Mr.
O'Dowd served as President and Chief Operating Officer and a Director of
Rainforest Cafe, Inc. From July 1987 to May 1995, Mr. O'Dowd was Corporate
Director, Food and Beverage Services for Holiday Inn Worldwide. Mr. O'Dowd is
also a Director of Famous Dave's of America, Inc.

<PAGE> 6

Thomas W. Orr became a Director of the Company in September 1997 and
has been a Senior Consultant since 1995 for the Delta Consulting Group,
Trumbull, Connecticut, specializing in business strategy, new business
development, marketing and sales. From 1994 to 1995, Mr. Orr was President of
the retail chicken group of ConAgra Broiler Company, with responsibility for
strategic direction, operations of five plants, sales, marketing, international
and commodity businesses. Mr. Orr had previously been associated with ConAgra
Broiler Company from 1991 to 1993 as Vice President of Sales and Vice President
of Marketing. From 1993 to 1994, Mr. Orr served as Senior Vice President for
Jennie-O Foods, Inc., a subsidiary of Hormel Foods, with responsibility for
strategy development, marketing and sales for the retail, food service and
commodity divisions.

EXECUTIVE COMPENSATION

The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by its Chairman of the
Board and its President, Chief Executive Officer and Chief Operating Officer.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
----------------------------------------------- ------------------
Other Annual Common Stock
Salary Bonus Compensation Underlying Options
Name and Principal Position Year ($) ($) ($) (#)
- --------------------------- ---- ------ ----- ------------ ------------------

<S> <C> <C> <C> <C> <C>
Stephen D. King 1997 83,333 70,000 0 0
Chairman of the Board 1996 0 0 0 0
1995 0 0 0 0

Ronald K. Fuller 1997 146,154 50,000 61,733 (1) 308,333
President, Chief Executive 1996 0 0 0 0
Officer and Chief 1995 0 0 0 0
Operating Officer
</TABLE>

(1) Includes $33,333 in consulting fees paid to Mr. Fuller prior to his
becoming an employee, $8,400 car allowance and $20,000 cafeteria
plan benefits.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth the number of individual grants of stock
options made during fiscal year 1997 to its Chairman of the Board and its
President, Chief Executive Officer and Chief Operating Officer.

<TABLE>
<CAPTION>
Number of Percent of
Shares Total Options Market Price
Underlying Granted to Exercise or on Date
Options Employees in Base Price of Grant Expiration
Name Granted (#) Fiscal Year ($/Share) ($/Share) Date
- ---- ----------- ------------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Stephen D. King........... 0 -- -- -- --
Ronald K. Fuller.......... 300,000 (1) 47.4% 3.00 3.00 1/15/2007
8,333 (2) 1.3 3.00 3.00 6/29/2007
</TABLE>

<PAGE> 7

(1) Options vest and become exercisable as follows: 50,000 on January 15,
1997, 125,000 on January 15, 1998 and 125,000 on January 15, 1999.

(2) Options vest and become exercisable on June 29, 1998.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES

The following table summarizes information with respect to options held
by the executive officers named in the Summary Compensation Table, and the value
of the options held by such persons at the end of fiscal 1997. No options were
exercised by the executive officers named in the Summary Compensation Table
during fiscal 1997.

<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised in-the-
Options at FY-End (#) Money Options at FY-End ($)(1)
-------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen D. King...................... 0 0 0 0
Ronald K. Fuller..................... 50,000 258,333 6,250 32,292
</TABLE>

(1) Based upon the difference between the option exercise price of $3.00
and the last sale price of the common stock on December 26, 1997,
which was $3.125.

EMPLOYMENT AGREEMENTS

Ronald K. Fuller, President, Chief Executive Officer and Chief
Operating Officer, has a two-year employment agreement which expires on January
6, 1999. It is subject to early termination for variety of reasons, including
voluntary termination by Mr. Fuller. Mr. Fuller's base salary is $200,000 per
year for the first year of the agreement. Such base salary may be adjusted
annually as determined by the Company's Board of Directors. Such agreement also
provides that Mr. Fuller will receive one year's severance if terminated by the
Company for a reason other than "cause," as defined therein. Mr. Fuller receives
medical, dental and other customary benefits. The employment agreement provides
that Mr. Fuller will not compete with the Company for one year if he resigns or
is terminated for cause.

Mr. Fuller has an option agreement with the Company dated January 15,
1997 pursuant to which he was granted options to purchase 300,000 shares of
Common Stock at an exercise price of $3.00 per share. The option agreement
provides that if Mr. Fuller is terminated without cause, all parts of the option
scheduled to vest thereafter shall immediately vest as of the date of
termination. Immediate vesting shall also occur in the event of (i) the sale in
one or more private transactions of 50% or more of the Company or (ii) a
majority of the members of the Board of Directors of the Company is replaced
within a period of less than six (6) months by directors not nominated and
approved by the Board. The option is currently unvested as to 125,000 shares.

Anne D. Huemme, Vice President - Finance and Chief Financial Officer,
has a three-year employment agreement which expires on January 5, 2001, subject
to early termination for a variety of reasons. Ms. Huemme will receive a base
salary of $130,000 during her first year of employment. Such base salary is
subject to annual adjustment as may be determined by the Company's Chief
Operating Officer. Ms. Huemme is eligible to receive annual bonuses at the
discretion of the Chief Operating Officer. Such agreement also provides that Ms.
Huemme will receive six months' severance if terminated by the Company for a
reason other than "cause," as defined therein. Ms. Huemme also receives medical,
dental and other

<PAGE> 8

customary benefits. The employment agreement provides that Ms. Huemme will not
compete with the Company for one year if she resigns or is terminated for cause.

The Company intends to retain other management employees pursuant to
employment and consulting agreements. The Company intends to offer stock options
to such employees.

DIRECTOR COMPENSATION

Directors receive no fees for serving as directors. The Company's three
non-management directors, Messrs. Krienik, O'Dowd and Orr, each received
ten-year options to purchase 25,000 shares of common stock when they became
members of the Board in 1997. One-third of the options vest on each of the
first, second and third anniversaries of the date of grant. The options granted
to Messrs. Orr and Krienik have an exercise price of $3.34 a share and the
options granted to Mr. O'Dowd have an exercise price of $3.75 a share. Members
of the Board who are also employees of the Company receive no options for their
services as directors.

CERTAIN TRANSACTIONS

The Company granted a five-year non-exclusive license to Eastgate
Restaurants, Inc., an Ohio corporation wholly owned by Stephen D. King, to test
the concept at a demonstration restaurant at 792 Eastgate South Drive,
Cincinnati, Ohio, which opened in June 1994. The license granted included the
right to use the Hotel Mexico name, emblems, restaurant design, furnishings,
menu and operating procedures. The license fee included an initial payment of
$2,500 to the Company and a monthly fee of $200 until the demonstration
restaurant ceased operations in August 1997.

Stephen D. King, a principal shareholder, director and executive
officer provided essentially all of the Company's working capital in the
development stage. This working capital was provided by direct advances to the
Company and reimbursement for various business costs and expenses incurred by
the principal shareholder on behalf of the Company. During the years ended
December 29, 1996 and December 31, 1995, the maximum amount of such indebtedness
outstanding at any time was $1,213,469 and $862,891, respectively. At year end
December 29, 1996 and December 31, 1995, the amount of such outstanding
indebtedness was $447,787 and $862,891, respectively. Included in these amounts
were concept development costs reimbursed to a demonstration restaurant owned
and operated by the principal shareholder in the amount of $278,101 for the year
ended December 29, 1996 and $433,996 for the year ended December 31, 1995. The
Company pays interest of 11.5% on all such advances. Subsequent to December 29,
1996, this principal shareholder has continued to provide the Company with
additional working capital advances on a revolving basis, with $348,430 and $0
outstanding on June 29, 1997 and December 28, 1997, respectively.

In December 1996, the Company borrowed $2.5 million under a term loan
from PNC Bank, Ohio, National Association, fully secured by cash collateral. The
loan accrued annual interest of 5.94% and payments of interest only were due
through January 1998, at which time the entire principal was due. The loan was
personally guaranteed by Mr. King. This loan was paid in full on January 31,
1997. In May 1997 the Company borrowed $2.0 million on a 13-month term note,
with interest only payable monthly at the rate of 7.15%. This note was
guaranteed by Mr. King and was fully secured by substantially all of the
Company's assets. This note was repaid in full in July 1997. Mr. King has also
personally guaranteed a $1,000,000 leasehold mortgage term loan from PNC Bank,
Ohio to the Company. This loan had a principal balance of $921,585 on December
28, 1997.

On June 23, 1997, the Company borrowed $800,000 from Provident Bank,
which is fully secured by substantially all of the Company's assets. The loan
bears interest at 2% over the bank's reference rate

6
<PAGE> 9

payable monthly. The loan was personally guaranteed by Mr. King. This loan was
repaid in full in July 1997. Also, on August 12, 1997, the Company borrowed
$200,000 from Provident Bank, which loan bears interest at 2% over Provident's
reference rate, is guaranteed by Mr. King, and was paid in full in November
1997.

During 1997, Krienik Advertising Inc., an Ohio corporation whose
President, Chief Executive Officer and 100% shareholder is Michael H. Krienik, a
director of the Company, provided marketing and advertising services to the
Company. Fees paid for these services (including payments for subcontracted
media, printing, production and research services) amounted to $565,287 for the
year ended December 28, 1997.

PROPOSAL TO AMEND ARTICLE I OF THE ARTICLES OF INCORPORATION
TO CHANGE THE NAME OF THE COMPANY FROM
HOTEL DISCOVERY, INC. TO CAFE ODYSSEY, INC.
(PROPOSAL 2)

BACKGROUND

On February 25, 1998, the Company changed the name of its restaurant
concept from Hotel Discovery to Cafe Odyssey. The Company believes that the
new name better reflects the concept's primary focus on award-winning food,
served in a unique environment of adventure, imagination, exploration and
innovation. In conjunction with this action, the Company's Board of Directors
approved a change in its corporate name from Hotel Discovery, Inc. to Cafe
Odyssey, Inc., subject to shareholder approval. The Cafe Odyssey name will be
used for the planned Mall of America Restaurant, and all subsequent
restaurants. The Kenwood Restaurant will retain the name "Hotel Discovery"
because of its already established and well received perception in the
marketplace.

PROPOSED RESOLUTION

The Board of Directors of the Company has approved, subject to
shareholder approval, a resolution amending Article I of the Company's Articles
of Incorporation, in its entirety, to read as follows:

The name of the Corporation is Cafe Odyssey, Inc.

The Board of Directors is requesting approval by the shareholders of
such resolution amending Article I of the Company's Articles of Incorporation
changing the name of the Company from Hotel Discovery, Inc. to Cafe Odyssey,
Inc.

REQUIRED VOTE

Approval of the resolution amending the Articles of Incorporation
requires the affirmative vote of the holders of a majority of the shares of
Common Stock represented in person or by proxy and entitled to vote at the
Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT AND RECOMMENDS A
VOTE FOR THIS PROPOSAL.

<PAGE> 10

PROPOSAL TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S 1997 STOCK OPTION AND COMPENSATION PLAN
(PROPOSAL 3)

On January 15, 1997, the Board of Directors of the Company unanimously
approved the 1997 Stock Option and Compensation Plan (the "Plan"). On September
12, 1997, the Board of Directors approved an amendment to the Plan to increase
the number of shares reserved for issuance by 250,000. On February 25, 1998, the
Board of Directors approved an amendment to the Plan to increase the number of
shares reserved for issuance by another 500,000 shares, again subject to
approval by the Company's shareholders. A complete text of the Plan is set forth
as Exhibit A to this Proxy Statement. The brief summary of the Plan which
follows is qualified in its entirety by reference to the complete text.

GENERAL

The purpose of the Plan is to increase shareholder value and to advance
the interests of the Company by furnishing a variety of economic incentives
("Incentives") designed to attract, retain and motivate employees of and
consultants to the Company.

The Plan provides that a committee (the "Committee") composed of at
least two disinterested members of the board of directors of the Company may
grant Incentives in the following forms: (a) stock options; (b) stock
appreciation rights; (c) stock awards; (d) restricted stock; (e) performance
shares; and (f) cash awards. Incentives may be granted to participants who are
employees of or consultants to the Company (including officers and directors of
the Company who are also employees of or consultants to the Company) selected
from time to time by the Committee.

The number of shares of Common Stock which may be issued under the Plan
if this amendment is approved may not exceed 1,250,000 shares, subject to
adjustment in the event of a merger, recapitalization or other corporate
restructuring. This represents approximately 15.6% of the outstanding shares of
Common Stock on April 7, 1998. On April 7, 1998, the closing sale price of the
Common Stock as reported by NASDAQ was $2.8125 per share.

STOCK OPTIONS

Under the Plan, the Committee may grant non-qualified and incentive
stock options to eligible employees to purchase shares of Common Stock from the
Company. The Plan confers on the Committee discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable. The purchase price for incentive stock
options may not be less than the fair market value of the shares subject to the
option on the date of grant. The number of shares subject to an option will be
reduced proportionately to the extent that the optionee exercises a related SAR.
The term of a non-qualified option may not exceed 10 years and one day from the
date of grant and the term of an incentive stock option may not exceed 10 years
from the date of grant. Any option shall become immediately exercisable in the
event of specified changes in corporate ownership or control. The Committee may
accelerate the exercisability of any option or may determine to cancel stock
options in order to make a participant eligible for the grant of an option at a
lower price. The Committee may approve the purchase by the Company of an
unexercised stock option for the difference between the exercise price and the
fair market value of the shares covered by such option.

<PAGE> 11

The option price may be paid in cash, check, bank draft or by delivery
of shares of Common Stock valued at their fair market value at the time of
purchase or by withholding from the shares issuable upon exercise of the option
shares of Common Stock valued at their fair market value or as otherwise
authorized by the Committee.

In the event that an optionee ceases to be an employee of or consultant
to the Company for any reason, including death, any stock option or unexercised
portion thereof which was otherwise exercisable on the date of termination of
employment shall expire at the time or times established by the Committee.

STOCK APPRECIATION RIGHTS

A stock appreciation right or a "SAR" is a right to receive, without
payment to the Company, a number of shares, cash or any combination thereof, the
amount of which is determined pursuant to the formula described below. A SAR may
be granted with respect to any stock option granted under the Plan, or alone,
without reference to any stock option. A SAR granted with respect to any stock
option may be granted concurrently with the grant of such option or at such
later time as determined by the Committee and as to all or any portion of the
shares subject to the option.

The Plan confers on the Committee discretion to determine the number of
shares as to which a SAR will relate as well as the duration and exercisability
of an SAR. In the case of a SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains will be reduced in
the same proportion that the holder exercises the related option. The term of a
SAR may not exceed ten years and one day from the date of grant. Unless
otherwise provided by the Committee, a SAR will be exercisable for the same time
period as the stock option to which it relates is exercisable. Any SAR shall
become immediately exercisable in the event of specified changes in corporate
ownership or control. The Committee may accelerate the exercisability of any
SAR.

Upon exercise of a SAR, the holder is entitled to receive an amount
which is equal to the aggregate amount of the appreciation in the shares of
Common Stock as to which the SAR is exercised. For this purpose, the
"appreciation" in the shares consists of the amount by which the fair market
value of the shares of Common Stock on the exercise date exceeds (a) in the case
of a SAR related to a stock option, the purchase price of the shares under the
option or (b) in the case of a SAR granted alone, without reference to a related
stock option, an amount determined by the Committee at the time of grant. The
Committee may pay the amount of this appreciation to the holder of the SAR by
the delivery of Common Stock, cash, or any combination of Common Stock and cash.

RESTRICTED STOCK

Restricted stock consists of the sale or transfer by the Company to an
eligible participant of one or more shares of Common Stock which are subject to
restrictions on their sale or other transfer by the employee. The price at which
restricted stock will be sold will be determined by the Committee, and it may
vary from time to time and among employees and may be less than the fair market
value of the shares at the date of sale. All shares of restricted stock will be
subject to such restrictions as the Committee may determine. Subject to these
restrictions and the other requirements of the Plan, a participant receiving
restricted stock shall have all of the rights of a shareholder as to those
shares.

<PAGE> 12

STOCK AWARDS

Stock awards consist of the transfer by the Company to an eligible
participant of shares of Common Stock, without payment, as additional
compensation for services to the Company. The number of shares transferred
pursuant to any stock award will be determined by the Committee.

PERFORMANCE SHARES

Performance shares consist of the grant by the Company to an eligible
participant of a contingent right to receive cash or payment of shares of Common
Stock. The performance shares shall be paid in shares of Common Stock to the
extent performance objectives set forth in the grant are achieved. The number of
shares granted and the performance criteria will be determined by the Committee.

CASH AWARDS

A cash award consists of a monetary payment made by the Company to an
eligible participant as additional compensation for his services to the Company.
Payment may depend on the achievement of specified performance objectives. The
amount of any monetary payment constituting a cash award shall be determined by
the Committee.

NON-TRANSFERABILITY OF MOST INCENTIVES

No stock option, SAR, performance share or restricted stock granted
under the Plan will be transferable by its holder, except in the event of the
holder's death, by will or the laws of descent and distribution. During an
employee's lifetime, an Incentive may be exercised only by him or her or by his
or her guardian or legal representative.

AMENDMENT OF THE PLAN

The Board of Directors may amend or discontinue the Plan at any time.
However, no such amendment or discontinuance may, subject to adjustment in the
event of a merger, recapitalization, or other corporate restructuring, (a)
change or impair, without the consent of the recipient thereof, an Incentive
previously granted, (b) materially increase the maximum number of shares of
Common Stock which may be issued to all employees under the Plan, (c) materially
change or expand the types of Incentives that may be granted under the Plan, (d)
materially modify the requirements as to eligibility for participation in the
Plan, or (e) materially increase the benefits accruing to participants. Certain
Plan amendments require shareholder approval, including amendments which would
materially increase benefits accruing to participants, increase the number of
securities issuable under the Plan, or change the requirements for eligibility
under the Plan.

FEDERAL INCOME TAX CONSEQUENCES

The following discussion sets forth certain United States income tax
considerations in connection with the ownership of Common Stock. These tax
considerations are stated in general terms and are based on the Internal Revenue
Code of 1986, as amended, regulations thereunder and judicial and administrative
interpretations thereof. This discussion does not address state or local tax
considerations with respect to the ownership of Common Stock. Moreover, the tax
considerations relevant to ownership of the Common Stock may vary depending on a
holder's particular status.

10
<PAGE> 13

Under existing Federal income tax provisions, a participant who
receives a stock option or performance shares or a SAR under the Plan or who
purchases or receives shares of restricted stock under the Plan which are
subject to restrictions which create a "substantial risk of forfeiture" (within
the meaning of section 83 of the Internal Revenue Code) will not normally
realize any income, nor will the Company normally receive any deduction for
federal income tax purposes in the year such Incentive is granted. A participant
who receives a stock award under the Plan consisting of shares of Common Stock
will realize ordinary income in the year of the award in an amount equal to the
fair market value of the shares of Common Stock covered by the award on the date
it is made, and the Company will be entitled to a deduction equal to the amount
the participant is required to treat as ordinary income. A participant who
receives a cash award will realize ordinary income in the year the award is paid
equal to the amount thereof, and the amount of the cash will be deductible by
the Company.

When a non-qualified stock option granted pursuant to the Plan is
exercised, the participant will realize ordinary income measured by the
difference between the aggregate purchase price of the shares of Common Stock as
to which the option is exercised and the aggregate fair market value of shares
of the Common Stock on the exercise date, and the Company will be entitled to a
deduction in the year the option is exercised equal to the amount the
participant is required to treat as ordinary income.

Options which qualify as incentive stock options are entitled to
special tax treatment. Under existing federal income tax law, if shares
purchased pursuant to the exercise of such an option are not disposed of by the
optionee within two years from the date of granting of the option or within one
year after the transfer of the shares to the optionee, whichever is longer, then
(i) no income will be recognized to the optionee upon the exercise of the
option; (ii) any gain or loss will be recognized to the optionee only upon
ultimate disposition of the shares and, assuming the shares constitute capital
assets in the optionee's hands, will be treated as long-term capital gain or
loss; (iii) the optionee's basis in the shares purchased will be equal to the
amount of cash paid for such shares; and (iv) the Company will not be entitled
to a federal income tax deduction in connection with the exercise of the option.
The Company understands that the difference between the option price and the
fair market value of the shares acquired upon exercise of an incentive stock
option will be treated as an "item of tax preference" for purposes of the
alternative minimum tax. In addition, incentive stock options exercised more
than three months after retirement are treated as non-qualified options.

The Company further understands that if the optionee disposes of the
shares acquired by exercise of an incentive stock option before the expiration
of the holding period described above, the optionee must treat as ordinary
income in the year of that disposition an amount equal to the difference between
the optionee's basis in the shares and the lesser of the fair market value of
the shares on the date of exercise or the selling price. In addition, the
Company will be entitled to a deduction equal to the amount the participant is
required to treat as ordinary income.

If the exercise price of an option is paid by surrender of previously
owned shares, the basis of the shares received in replacement of the previously
owned shares is carried over. If the option is a nonstatutory option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.

<PAGE> 14

When a stock appreciation right granted pursuant to the Plan is
exercised, the participant will realize ordinary income in the year the right is
exercised equal to the value of the appreciation which he is entitled to receive
pursuant to the formula described above, and the Company will be entitled to a
deduction in the same year and in the same amount.

A participant who receives restricted stock or performance shares
subject to restrictions which create a "substantial risk of forfeiture" (within
the meaning of section 83 of the Internal Revenue Code) will normally realize
taxable income on the date the shares become transferable or no longer subject
to substantial risk of forfeiture or on the date of their earlier disposition.
The amount of such taxable income will be equal to the amount by which the fair
market value of the shares of Common Stock on the date such restrictions lapse
(or any earlier date on which the shares are disposed of) exceeds their purchase
price, if any. A participant may elect, however, to include in income in the
year of purchase or grant the excess of the fair market value of the shares of
Common Stock (without regard to any restrictions) on the date of purchase or
grant over its purchase price. The Company will be entitled to a deduction for
compensation paid in the same year and in the same amount as income is realized
by the employee.

PROPOSAL TO ADOPT THE
1998 DIRECTOR STOCK OPTION PLAN
(PROPOSAL 4)

On February 25, 1998, the Board of Directors of the Company unanimously
approved the 1998 Director Stock Option Plan (the "Plan"), subject to approval
by the Company's shareholders. A complete text of the Plan is set forth as
Exhibit B to this Proxy Statement. The brief summary of the Plan which follows
is qualified in its entirety by reference to the complete text.

GENERAL

The purpose of the Plan is to advance the interests of the Company and
its shareholders by encouraging share ownership by members of the Board of
Directors who are not employees of the Company or any of its subsidiaries, in
order to promote long-term shareholder value through continuing ownership of the
Company's common stock.

The Plan provides that the Board of Directors may award nonqualified
stock options to purchase shares of Common Stock from the Company to members of
the Board who are not employees of the Company or any of its subsidiaries.

The number of shares of Common Stock which may be issued under the Plan
if this amendment is approved may not exceed 250,000 shares, subject to
adjustment in the event of a merger, recapitalization or other corporate
restructuring. This represents approximately 3.1% of the outstanding shares of
Common Stock on April 7, 1998.

GRANT OF STOCK OPTIONS

The Plan confers on the Board discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable. The purchase price for incentive stock
options may not be less than the fair market value of the shares subject to the
option on the date of grant. The term of an option may not exceed 10 years from
the date of grant. Any option shall become immediately exercisable

<PAGE> 15

upon the removal of the optionee from the Board without cause or in the event of
specified changes in corporate control.

The option price may be paid in cash, check, by delivery of shares of
Common Stock valued at their fair market value at the time of purchase, or by a
combination of the above.

In the event that an optionee ceases to be a non-employee director for
a reason other than death, any stock option or unexercised portion thereof which
was otherwise exercisable on the date the optionee ceases to be a non-employee
director shall expire three years after such date, but in no event after the
option would otherwise have expired under the Plan. If an optionee dies, any
stock option or unexercised portion thereof which was otherwise exercisable on
the date of death may be executed by his or her executors, administrators, heirs
or distributees within one year after the date of death, but in no event after
the option would otherwise have expired under the Plan.

NON-TRANSFERABILITY

No stock option granted under the Plan will be transferable by its
holder except, in the event of the holder's death, by will or the laws of
descent and distribution.

AMENDMENT OF THE PLAN

The Board of Directors may amend or discontinue the Plan at any time.
However, no such amendment or discontinuance shall, subject to adjustment in the
event of a merger, recapitalization, or other corporate restructuring, become
effective without shareholder approval if such approval is required by law, rule
or regulation, and in no event shall the Plan be amended more than once every
six months, other than to comport with changes in the Internal Revenue Code of
1986, as amended, or the Employee Retirement Income Security Act. In addition,
no amendment to the Plan may materially and adversely affect any right of any
optionee with respect to an outstanding option without such optionee's written
consent.

FEDERAL INCOME TAX CONSEQUENCES

Under existing Federal income tax provisions, a participant who
receives a stock option under the Plan which are subject to restrictions which
create a "substantial risk of forfeiture" (within the meaning of section 83 of
the Internal Revenue Code) will not normally realize any income, nor will the
Company normally receive any deduction for federal income tax purposes in the
year such Incentive is granted.

<PAGE> 16

If the exercise price of an option is paid by surrender of previously
owned shares, the basis of the shares received in replacement of the previously
owned shares is carried over. Since the option is a nonstatutory option, the
gain recognized on exercise is added to the basis. This gain will be added to
the basis of the shares received in replacement of the previously owned shares.

PROXIES AND VOTING

Only holders of record of the Company's Common Stock at the close of
business on April 7, 1998, the record date for the Annual Meeting, are entitled
to notice of and to vote at the Annual Meeting. On the record date, there were
8,000,189 shares of Common Stock outstanding. Each share of Common Stock
entitles the holder thereof to one vote upon each matter to be presented at the
Annual Meeting. A quorum, consisting of a majority of the outstanding shares of
the Common Stock entitled to vote at the Annual Meeting, must be present in
person or represented by proxy before action may be taken at the Annual Meeting.

Each proxy returned to the Company will be voted in accordance with the
instructions indicated thereon. The proxy will be voted FOR the election of the
nominees for the Board of Directors named in this Proxy Statement unless a
contrary choice is specified. If any nominee should withdraw or otherwise become
unavailable for reasons not presently known, the proxies which would have
otherwise been voted for such nominee will be voted for such substitute nominee
as may be selected by the Board of Directors. A shareholder who abstains with
respect to the election of directors is considered to be present and entitled to
vote on the election of directors at the meeting, and is in effect casting a
negative vote, but a shareholder (including a broker) who does not give
authority to a proxy to vote, or withholds authority to vote, on the election of
directors, shall not be considered present and entitled to vote on the election
of directors.

All shares represented by proxies will be voted for approval of the
proposed Plan amendment unless a contrary choice is specified. A shareholder who
abstains with respect to the proposed Plan amendment is considered to be present
and entitled to vote at the meeting, and is in effect casting a negative vote,
but a shareholder (including a broker) who does not give authority to a proxy to
vote on the proposed Plan amendment shall not be considered present and entitled
to vote on the proposed amendment.

While the Board of Directors knows of no other matters to be presented
at the Annual Meeting or any adjournment thereof, all proxies returned to the
Company will be voted on any such matter in accordance with the judgment of the
proxy holders.

OTHER MATTERS

BOARD OF DIRECTORS AND COMMITTEES

The Board of Directors held no meetings during 1997 and took action by
written action in lieu of a meeting 13 times.

One September 25, 1997, the Board constituted an audit committee and
appointed Messrs. Michael Krienik and Thomas Orr as members of that committee.
The audit committee reviews the financial affairs of the Company and the annual
financial statements relating to the internal and external audit of the
Company's books and accounts. There were no committee meetings of the Board in
1997.

<PAGE> 17

INDEPENDENT ACCOUNTANTS

Ernst & Young LLP acted as the Company's independent public accountants
during the fiscal years ended December 31, 1995 and December 29, 1996. On
February 4, 1998, the Company dismissed Ernst & Young LLP as its independent
accountants and engaged Arthur Andersen LLP as the Company's independent public
accountants to audit the Company's financial statements for the fiscal year
ended December 28, 1997. The audit committee of the Company's Board of Directors
participated in and approved the decision to change independent accountants.

The reports of Ernst & Young LLP on the Company's financial statements
for the most recent two fiscal years for which that firm audited such financial
statements, the most recent of which is the fiscal year ended December 29, 1996,
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Company's two most recent fiscal years and the subsequent interim period through
the date hereof, there were no disagreements with Ernst & Young LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Ernst & Young LLP would have caused them to make reference
thereto in their report on the financial statements for such years. During the
two most recent fiscal years and the subsequent interim period through the date
hereof, there have been no reportable events.

During the Company's two most recent fiscal years and the subsequent
interim period through the date hereof, the Company has not consulted with
Arthur Andersen LLP on any item regarding (1) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
or (2) the subject matter of a disagreement or reportable event with the former
independent accountants.

A representative of Arthur Andersen LLP is expected to attend this
year's Annual Meeting of Shareholders and will be available to respond to
appropriate questions from shareholders.

BENEFICIAL OWNERSHIP REPORTING COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership of such securities with the Securities and
Exchange Commission and NASDAQ. Officers, directors and greater than ten per
cent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.

Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the year ended December 31, 1996 all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten per cent
beneficial owners were complied with, except that Ronald K. Fuller did not
timely file a Form 4 which was due on December 10, 1997 to report a purchase of
securities of the Company. Mr. Fuller has since filed a Form 5 on February 10,
1998 to report such acquisition.

PROPOSALS OF SHAREHOLDERS

All proposals of shareholders intended to be presented at the 1999
Annual Meeting of Shareholders of the Company must be received by the Company at
its executive offices on or before December 21, 1998.

<PAGE> 18

SOLICITATION

The Company will bear the cost of preparing, assembling and mailing the
proxy, Proxy Statement, Annual Report and other material which may be sent to
the shareholders in connection with this solicitation. Brokerage houses and
other custodians, nominees and fiduciaries may be requested to forward
soliciting material to the beneficial owners of stock, in which case they will
be reimbursed by the Company for their expenses in doing so. Proxies are being
solicited primarily by mail but, in addition, officers and regular employees of
the Company may solicit proxies personally, by telephone, by telegram or by
special letter.

The Board of Directors does not intend to present to the meeting any
other matter not referred to above and does not presently know of any matters
that may be presented to the meeting by others. However, if other matters come
before the meeting, it is the intent of the persons named in the enclosed proxy
to vote the proxy in accordance with their best judgment.

By Order of the Board of Directors

Anne D. Huemme
Secretary

<PAGE> 19

EXHIBIT A

HOTEL DISCOVERY, INC.

1997 STOCK OPTION AND
COMPENSATION PLAN
(as amended through September 12, 1997)

a. Purpose. The purpose of this Hotel Discovery, Inc. (the "Company")
1997 Stock Option and Compensation Plan (the "Plan") is to increase stockholder
value and to advance the interests of the Company by furnishing a variety of
economic incentives ("Incentives") designed to attract, retain and motivate
employees and certain key consultants. Incentives may consist of opportunities
to purchase or receive shares of Common Stock, without par value, of the Company
("Common Stock"), monetary payments, or both, on terms determined under this
Plan.

b. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the board of directors of the Company (the
"Board"). Subject to any provisions of state law which may require that the
Committee consist of a larger number of members, if the Company stock is
privately held, the Committee shall consist of one or more directors of the
Company as shall be appointed from time to time by the Chairman of the Board. If
the Company stock becomes the subject of a public offering, the Committee shall
then consist of not less than two directors who shall be appointed from time to
time by the Board, each of which such appointees shall be a "disinterested
person" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934,
and the regulations promulgated thereunder (the "1934 Act"), and the Board may
from time to time appoint members of the Committee in substitution for, or in
addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. If more than one person is on the Committee, the
following shall apply: (a) the Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable; (b) a majority of the Committee's members shall constitute a quorum;
(c) all action of the Committee shall be taken by the majority of its members;
and (d) any action may be taken by a written instrument signed by majority of
the members and actions so taken shall be fully effective as if they had been
made by a majority vote at a meeting duly called and held. The Committee may
appoint a secretary, shall keep minutes of its meetings and shall make such
rules and regulations for the conduct of its business as it shall deem
advisable. The Committee shall have complete authority to award Incentives under
the Plan, to interpret the Plan, and to make any other determination which it
believes necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.

c. Eligible Participants. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors, but excluding
directors who are not also employees of or consultants to the Company or its
subsidiaries or affiliates), shall become eligible to receive Incentives under
the Plan when designated by the Committee. Participants may be designated
individually or by groups or categories (for example, by pay grade) as the
Committee deems appropriate. Participation by officers of the Company or its
subsidiaries or affiliates and any performance objectives relating to such
officers must be approved by the Committee. Participation by others and any
performance objectives relating to others may be approved by groups or
categories (for example, by pay grade) and authority to designate participants
who are not officers and to set or modify such targets may be delegated.

d. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e)
performance shares (section 9); and (f) cash awards (section 10).

e. Shares Subject to the Plan.

i. Number of Shares. Subject to adjustment as provided in
Section 11.6, the number of shares of Common Stock which may be issued
under the Plan shall not exceed 750,000 shares of Common Stock.

ii. Cancellation. To the extent that cash in lieu of shares of
Common Stock is delivered upon the exercise of a SAR pursuant to
Section 7.4, the Company shall be deemed, for purposes of applying the

A-1

<PAGE> 20

limitation on the number of shares, to have issued the greater of the
number of shares of Common Stock which it was entitled to issue upon
such exercise or on the exercise of any related option. In the event
that a stock option or SAR granted hereunder expires or is terminated
or canceled unexercised as to any shares of Common Stock, such shares
may again be issued under the Plan either pursuant to stock options,
SARs or otherwise. In the event that shares of Common Stock are issued
as restricted stock or pursuant to a stock award and thereafter are
forfeited or reacquired by the Company pursuant to rights reserved upon
issuance thereof, such forfeited and reacquired shares may again be
issued under the Plan, either as restricted stock, pursuant to stock
awards or otherwise. The Committee may also determine to cancel, and
agree to the cancellation of, stock options in order to make a
participant eligible for the grant of a stock option at a lower price
than the option to be canceled.

iii. Type of Common Stock. Common Stock issued under the Plan
in connection with stock options, SARs, performance shares, restricted
stock or stock awards, may be authorized and unissued shares.

f. Stock Options. A stock option is a right to purchase shares of
Common Stock from the Company. Each stock option granted by the Committee under
this Plan shall be subject to the following terms and conditions:

i. Price. The option price per share shall be determined by
the Committee, provided that such price shall not be below the Fair
Market Value of the Common Stock subject to the adjustment under
Section 11.6.

ii. Number. The number of shares of Common Stock subject to
the option shall be determined by the Committee, subject to adjustment
as provided in Section 11.6. The number of shares of Common Stock
subject to a stock option shall be reduced in the same proportion that
the holder thereof exercises a SAR if any SAR is granted in conjunction
with or related to the stock option.

iii. Duration and Time for Exercise. Subject to earlier
termination as provided in Section 11.4, the term of each stock option
shall be determined by the Committee but shall not exceed ten years and
one day from the date of grant. Each stock option shall become
exercisable at such time or times during its term as shall be
determined by the Committee at the time of grant. The Committee may
accelerate the exercisability of any stock option. Subject to the
foregoing and with the approval of the Committee, all or any part of
the shares of Common Stock with respect to which the right to purchase
has accrued may be purchased by the Company at the time of such accrual
or at any time or times thereafter during the term of the option.

iv. Manner of Exercise. A stock option may be exercised, in
whole or in part, by giving written notice to the Company, specifying
the number of shares of Common Stock to be purchased and accompanied by
the full purchase price for such shares. The option price shall be
payable in United States dollars upon exercise of the option and may be
paid by cash; uncertified or certified check; bank draft; by delivery
of shares of Common Stock in payment of all or any part of the option
price, which shares shall be valued for this purpose at the Fair Market
Value on the date such option is exercised; by instructing the Company
to withhold from the shares of Common Stock issuable upon exercise of
the stock option shares of Common Stock in payment of all or any part
of the option price, which shares shall be valued for this purpose at
the Fair Market Value or in such other manner as may be authorized from
time to time by the Committee. Prior to the issuance of shares of
Common Stock upon the exercise of a stock option, a participant shall
have no rights as a stockholder.

v. Incentive Stock Options. Notwithstanding anything in the
Plan to the contrary, the following additional provisions shall apply
to the grant of stock options which are intended to qualify as
Incentive Stock Options, as such term is defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code"):

(1) The aggregate Fair Market Value (determined as of
the time the option is granted) of the shares of Common Stock
with respect to which Incentive Stock Options are exercisable
for the first time by any participant during any calendar year
(under all of the Company's plans) shall not exceed $100,000.

A-2

<PAGE> 21

(2) Any Incentive Stock Option certificate authorized
under the Plan shall contain such other provisions as the
Committee shall deem advisable, but shall in all events be
consistent with and contain all provisions required in order
to qualify the options as Incentive Stock Options.

(3) All Incentive Stock Options must be granted
within ten years from the earlier of the date on which this
Plan was adopted by the Board or the date this Plan was
approved by the stockholders.

(4) Unless sooner exercised, all Incentive Stock
Options shall expire no later than 10 years after the date of
grant.

(5) The option price for Incentive Stock Options
shall be not less than the Fair Market Value of the Common
Stock subject to the option on the date of grant.

(6) No Incentive Stock Options shall be granted to
any participant who, at the time such option is granted, would
own (within the meaning of Section 422A of the Code) stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the employer
corporation or of its parent or subsidiary corporation.

g. Stock Appreciation Rights. A SAR is a right to receive, without
payment to the Company, a number of shares of Common Stock, cash or any
combination thereof, the amount of which is determined pursuant to the formula
set forth in Section 7.4. A SAR may be granted (a) with respect to any stock
option granted under this Plan, either concurrently with the grant of such stock
option or at such later time as determined by the Committee (as to all or any
portion of the shares of Common Stock subject to the stock option), or (b)
alone, without reference to any related stock option. Each SAR granted by the
Committee under this Plan shall be subject to the following terms and
conditions:

i. Number. Each SAR granted to any participant shall relate to
such number of shares of Common Stock as shall be determined by the
Committee, subject to adjustment as provided in Section 11.6.
In the case of a SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains shall be
reduced in the same proportion that the holder of the option exercises
the related stock option.

ii. Duration. Subject to earlier termination as provided in
Section 11.4, the term of each SAR shall be determined by the Committee
but shall not exceed ten years and one day from the date of grant.
Unless otherwise provided by the Committee, each SAR shall become
exercisable at such time or times, to such extent and upon such
conditions as the stock option, if any, to which it relates is
exercisable. The Committee may in its discretion accelerate the
exercisability of any SAR.

iii. Exercise. A SAR may be exercised, in whole or in part, by
giving written notice to the Company, specifying the number of SARs
which the holder wishes to exercise. Upon receipt of such written
notice, the Company shall, within ninety (90) days thereafter, deliver
to the exercising holder certificates for the shares of Common Stock or
cash or both, as determined by the Committee, to which the holder is
entitled pursuant to Section 7.4.

iv. Payment. Subject to the right of the Committee to deliver
cash in lieu of shares of Common Stock (which, as it pertains to
officers and directors of the Company, shall comply with all
requirements of the 1934 Act), the number of shares of Common Stock
which shall be issuable upon the exercise of a SAR shall be determined
by dividing:

(1) the number of shares of Common Stock as to which
the SAR is exercised multiplied by the amount of the
appreciation in such shares (for this purpose, the
"appreciation" shall be the amount by which the Fair Market
Value of the shares of Common Stock subject to the SAR on the
exercise date exceeds (1) in the case of a SAR related to a
stock option, the purchase price of the

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<PAGE> 22

shares of Common Stock under the stock option or (2) in the case of
a SAR granted alone, without reference to a related stock option, an
amount which shall be determined by the Committee at the time of
grant, subject to adjustment under Section 11.6); by

(2) the Fair Market Value of a share of Common Stock
on the exercise date.

In lieu of issuing shares of Common Stock upon the exercise of
a SAR, the Committee may elect to pay the holder of the SAR cash equal
to the Fair Market Value on the exercise date of any or all of the
shares which would otherwise be issuable. No fractional shares of
Common Stock shall be issued upon the exercise of a SAR; instead, the
holder of the SAR shall be entitled to receive a cash adjustment equal
to the same fraction of the Fair Market Value of a share of Common
Stock on the exercise date or to purchase the portion necessary to make
a whole share at its Fair Market Value on the date of exercise.

h. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:

i. Number of Shares. The number of shares to be transferred or
sold by the Company to a participant pursuant to a stock award or as
restricted stock shall be determined by the Committee.

ii. Sale Price. The Committee shall determine the price, if
any, at which shares of restricted stock shall be sold to a
participant, which may vary from time to time and among participants
and which may be below the Fair Market Value of such shares of Common
Stock at the date of sale.

iii. Restrictions. All shares of restricted stock transferred
or sold hereunder shall be subject to such restrictions as the
Committee may determine, including, without limitation any or all of
the following:

(1) a prohibition against the sale, transfer, pledge
or other encumbrance of the shares of restricted stock, such
prohibition to lapse at such time or times as the Committee shall
determine (whether in annual or more frequent installments, at the
time of the death, disability or retirement of the holder of such
shares, or otherwise);

(2) a requirement that the holder of shares of restricted
stock forfeit, or (in the case of shares sold to a participant)
resell back to the Company at his or her cost, all or a part of such
shares in the event of termination of his or her employment or
consulting engagement during any period in which such shares are
subject to restrictions;

(3) such other conditions or restrictions as the Committee
may deem advisable.

iv. Escrow. In order to enforce the restrictions imposed by
the Committee pursuant to Section 8.3, the participant receiving
restricted stock shall enter into an agreement with the Company setting
forth the conditions of the grant. Shares of restricted stock shall be
registered in the name of the participant and deposited, together with
a stock power endorsed in blank, with the Company. Each such
certificate shall bear a legend in substantially the following form:

The transferability of this certificate and the shares of Common
Stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1997 Stock
Option and Compensation Plan of Hotel Mexico, Inc. (the "Company"),
and an agreement entered into between the registered owner and the
Company. A copy of the Plan and the agreement is on file at the
office of the secretary of the Company.

A-4

<PAGE> 23

v. End of Restrictions. Subject to Section 11.5, at the end of
any time period during which the shares of restricted stock are subject
to forfeiture and restrictions on transfer, such shares will be
delivered free of all restrictions to the participant or to the
participant's legal representative, beneficiary or heir.

vi. Stockholder. Subject to the terms and conditions of the
Plan, each participant receiving restricted stock shall have all the
rights of a stockholder with respect to shares of stock during any
period in which such shares are subject to forfeiture and restrictions
on transfer, including without limitation, the right to vote such
shares. Dividends paid in cash or property other than Common Stock with
respect to shares of restricted stock shall be paid to the participant
currently.

i. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:

i. Performance Objectives. Each performance share will be
subject to performance objectives for the Company or one of its
operating units to be achieved by the end of a specified period. The
number of performance shares granted shall be determined by the
Committee and may be subject to such terms and conditions, as the
Committee shall determine. If the performance objectives are achieved,
each participant will be paid in shares of Common Stock or cash. If
such objectives are not met, each grant of performance shares may
provide for lesser payments in accordance with formulas established in
the award.

ii. Not Stockholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
stockholder of the Company, until the payment of shares of Common Stock
with respect to an award.

iii. No Adjustments. No adjustment shall be made in
performance shares granted on account of cash dividends which may be
paid or other rights which may be issued to the holders of Common Stock
prior to the end of any period for which performance objectives were
established.

iv. Expiration of Performance Share. If any participant's
employment or consulting engagement with the Company is terminated for
any reason other than normal retirement, death or disability prior to
the achievement of the participant's stated performance objectives, all
the participant's rights on the performance shares shall expire and
terminate unless otherwise determined by the Committee. In the event of
termination by reason of death, disability, or normal retirement, the
Committee, in its own discretion may determine what portions, if any,
of the performance shares should be paid to the participant.

j. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.

k. General.

i. Effective Date. The Plan will become effective upon its
adoption by the Board.

ii. Duration. The Plan shall remain in effect until all
Incentives granted under the Plan have either been satisfied by the
issuance of shares of Common Stock or the payment of cash or been
terminated under the terms of the Plan and all restrictions imposed on
shares of Common Stock in connection with their issuance under the Plan
have lapsed. No Incentives may be granted under the Plan after the
tenth anniversary of the date the Plan is approved by the stockholders
of the Company.

iii. Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's
death,

A-5

<PAGE> 24

by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act, or the rules thereunder,
and the Company shall not be required to recognize any attempted
assignment of such rights by any participant. Notwithstanding the
preceding sentence, stock options may be transferred by the holder
thereof to family members, trusts or charities. During a participant's
lifetime, an Incentive may be exercised only by him or her, by his or
her guardian or legal representative or, in the case of stock options,
by the transferees permitted by the preceding sentence.

iv. Effect of Termination or Death. In the event that a
participant ceases to be an employee of or consultant to the Company
for any reason, including death, any Incentives may be exercised or
shall expire at such times as may be determined by the Committee.

v. Additional Condition. Notwithstanding anything in this Plan
to the contrary: (a) the Company may, if it shall determine it
necessary or desirable for any reason, at the time of award of any
Incentive or the issuance of any shares of Common Stock pursuant to any
Incentive, require the recipient of the Incentive, as a condition to
the receipt thereof or to the receipt of shares of Common Stock issued
pursuant thereto, to deliver to the Company a written representation of
present intention to acquire the Incentive or the shares of Common
Stock issued pursuant thereto for his or her own account for investment
and not for distribution; and (b) if at any time the Company further
determines, in its sole discretion, that the listing, registration or
qualification (or any updating of any such document) of any Incentive
or the shares of Common Stock issuable pursuant thereto is necessary on
any securities exchange or under any federal or state securities or
blue sky law, or that the consent or approval of any governmental
regulatory body is necessary or desirable as a condition of, or in
connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions
imposed on such shares, such Incentive shall not be awarded or such
shares of Common Stock shall not be issued or such restrictions shall
not be removed, as the case may be, in whole or in part, unless such
listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Company.

vi. Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or
corporations, there shall be substituted for each of the shares of
Common Stock then subject to the Plan, including shares subject to
restrictions, options, or achievement of performance share objectives,
the number and kind of shares of stock or other securities to which the
holders of the shares of Common Stock will be entitled pursuant to the
transaction. In the event of any recapitalization, stock dividend,
stock split, combination of shares or other change in the Common Stock,
the number of shares of Common Stock then subject to the Plan,
including shares subject to restrictions, options or achievements of
performance shares, shall be adjusted in proportion to the change in
outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance
objectives of any Incentive, and the shares of Common Stock issuable
pursuant to any Incentive shall be adjusted as and to the extent
appropriate, in the discretion of the Committee, to provide
participants with the same relative rights before and after such
adjustment.

vii. Incentive Plans and Agreements. Except in the case of
stock awards or cash awards, the terms of each Incentive shall be
stated in a plan or agreement approved by the Committee. The Committee
may also determine to enter into agreements with holders of options to
reclassify or convert certain outstanding options, within the terms of
the Plan, as Incentive Stock Options or as non-statutory stock options
and in order to eliminate SARs with respect to all or part of such
options and any other previously issued options.

viii. Withholding.

(1) The Company shall have the right to withhold from
any payments made under the Plan or to collect as a condition of
payment, any taxes required by law to be withheld. At any time when
a participant is required to pay to the Company an amount required
to be withheld under applicable income tax laws in connection with a
distribution of Common Stock or upon exercise of an option or SAR,
the participant may satisfy this obligation in whole or in part by
electing (the "Election") to have the Company withhold from the
distribution shares of Common Stock having a

A-6

<PAGE> 25

value up to the amount required to be withheld. The value of the
shares to be withheld shall be based on the Fair Market Value of the
Common Stock on the date that the amount of tax to be withheld shall
be determined ("Tax Date").

(2) Each Election must be made prior to the Tax Date.
The Committee may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with respect
to any Incentive that the right to make Elections shall not apply to
such Incentive. An Election is irrevocable.

(3) If a participant is an officer or director of the
Company within the meaning of Section 16 of the 1934 Act, then an
Election must comply with all of the requirements of the 1934 Act.

ix. No Continued Employment. Engagement or Right to Corporate
Assets. No participant under the Plan shall have any right, because of
his or her participation, to continue in the employ of, or to continue
his or her consulting engagement for, the Company for any period of
time or to any right to continue his or her present or any other rate
of compensation. Nothing contained in the Plan shall be construed as
giving an employee, a consultant, such persons' beneficiaries, or any
other person, any equity or interests of any kind in the assets of the
Company or creating a trust of any kind or a fiduciary relationship of
any kind between the Company and any such person.

x. Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.

xi. Amendment of the Plan. The Board may amend or discontinue
the Plan at any time. However, no such amendment or discontinuance
shall, subject to adjustment under Section 11.6, (a) change or impair,
without the consent of the recipient, an Incentive previously granted,
(b) materially increase the maximum number of shares of Common Stock
which may be issued to all participants under the Plan, (c) materially
increase the benefits that may be granted under the Plan, (d)
materially modify the requirements as to eligibility for participation
in the Plan, or (e) materially increase the benefits accruing to
participants under the Plan.

xii. Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, (a) the
restrictions on all shares of restricted stock award shall lapse
immediately, (b) all outstanding options and SARs will become
exercisable immediately, and (c) all performance shares shall be deemed
to be met and payment made immediately, if subsequent to the date that
the Plan is approved by the Board of Directors of the Company, any of
the following events occur unless otherwise determined by the Board and
a majority of the Continuing Directors (as defined below).

(1) any person or group of persons becomes the beneficial
owner of thirty percent (30%) or more of any equity security of the
Company entitled to vote for the election of directors;

(2) a majority of the members of the Board is replaced within
the period of less than two (2) years by directors not nominated and
approved by the Board; or

(3) the stockholders of the Company approve an agreement to
merge or consolidate with or into another corporation or an
agreement to sell or otherwise dispose of all or substantially all
of the Company's assets (including a plan of liquidation).

For purposes of this Section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or any
similar successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial ownership of more than thirty
percent (30%) of an equity security may be established by any reasonable method,
but shall be presumed conclusively as to any person who files a Schedule 13D
report with the Securities and Exchange Commission reporting such ownership. If
the restrictions and forfeitability

A-7

<PAGE> 26

periods are eliminated by reason of provision (1), the limitations of this Plan
shall not become applicable again should the person cease to own thirty percent
(30%) or more of any equity security of the Company.

For purposes of this Section 11.12, "Continuing Directors" are
directors (a) who were in office prior to the time any of provisions (1), (2) or
(3) occurred or any person publicly announced an intention to acquire twenty
percent (20%) or more of any equity security of the Company, (b) directors in
office for a period of more than two years, and (c) directors nominated and
approved by the Continuing Directors.

xiii. Definition of Fair Market Value. Whenever "Fair Market
Value" of Common Stock shall be determined for purposes of this Plan,
it shall be determined by reference to the last sale price of a share
of Common Stock on the principal United States Securities Exchange
registered under the 1934 Act on which the Common Stock is listed (the
"Exchange"), or, on the National Association of Securities Dealers,
Inc. Automatic Quotation System (including the National Market System)
("NASDAQ") on the applicable date. If the Exchange or NASDAQ is closed
for trading on such date, or if the Common Stock does not trade on such
date, then the last sale price used shall be the one on the date the
Common Stock last traded on the Exchange or NASDAQ. If the Common Stock
is not listed on an Exchange or on NASDAQ, "Fair Market Value" shall be
determined by the Board of Directors of the Company, which such
valuation determination shall be conclusive.

A-8

<PAGE> 27

EXHIBIT B

HOTEL DISCOVERY, INC.

1998 DIRECTOR STOCK OPTION PLAN

1. PURPOSE. The purpose of the Hotel Discovery, Inc. 1998 Director
Stock Option Plan (the "Plan") is to advance the interests of Hotel Discovery,
Inc. (the "Company") and its shareholders by encouraging share ownership by
members of the Board of Directors of the Company (the "Board") who are not
employees of the Company or any of its subsidiaries, in order to promote
long-term shareholder value through continuing ownership of the Company's common
stock.

2. ADMINISTRATION. The Plan shall be administered by the Board. The
Board shall have all the powers vested in it by the terms of the Plan, such
powers to include authority (within the limitations described herein) to
prescribe the form of the agreement embodying awards of nonqualified stock
options made under the Plan ("Options"). The Board shall, subject to the
provisions of the Plan, grant Options under the Plan and shall have the power to
construe the Plan, to determine all questions arising thereunder and to adopt
and amend such rules and regulations for the administration of the Plan as it
may deem desirable. Any decisions of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Board may act only
by a majority of its members in office, except that the members thereof may
authorize any one or more of their number or any other officer of the Company to
execute and deliver documents on behalf of the Board. No member of the Board
shall be liable for anything done or omitted to be done by him or by any other
member of the Board in connection with the Plan, except for his own willful
misconduct or as expressly provided by statute.

3. PARTICIPATION. Each member of the Board who is not an employee of
the Company or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below.

4. AWARDS UNDER THE PLAN.

(a) Awards under the Plan shall include only Options, which are rights
to purchase common stock of the Company, having $.01 par value (the "Common
Stock"). Such Options are subject to the terms, conditions and restrictions
specified in Paragraph 5 below.

(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 250,000 shares of Common Stock, subject to
adjustment as provided in Paragraph 6 below. If any Option is canceled,
terminates or expires unexercised, in whole or in part, any shares of Common
Stock that would otherwise have been issuable pursuant thereto will be available
for issuance under new Options.

(c) A Non-Employee Director to whom an Option is granted (and any
person succeeding to such a Non-Employee Director's rights pursuant to the Plan)
shall have no rights as a shareholder with respect to any Common Stock issuable
pursuant to any such Option until the date of the issuance of a stock
certificate to him for such shares. Except as provided in Paragraph 6 below, no
adjustment shall be made for dividends, distributions or other rights (whether
ordinary or extraordinary, and whether in cash, securities or other property)
for which the record date is prior to the date such stock certificate is issued.

5. NONQUALIFIED STOCK OPTIONS. Each Option granted under the Plan
shall be evidenced by an agreement in such form as the Board shall prescribe
from time to time in accordance with the Plan and shall comply with the
following terms and conditions:

(a) The Option exercise price shall be the "Fair Market Value" (as
herein defined) of the Common Stock subject to such Option on the date the
Option is granted. Fair Market Value shall be the closing sales price of a share
of Common Stock on the date of grant as reported on the Nasdaq Market or, if the
Nasdaq Market is closed on that date, on the last preceding date on which the
Nasdaq Market was open for trading, but in no event will such Option exercise
price be less than the par value of the Common Stock.

B-1

<PAGE> 28

(b) The Board shall determine the number of shares of Common Stock
subject to each Option granted to Non-Employee Directors and, subject to Section
5(d) hereof, the vesting schedule of each such Option. Notwithstanding the
foregoing, once such Options become outstanding, a Non-Employee Director will
still be entitled to the anti-dilution adjustments provided for in Section 6
hereof.

(c) The Option shall not be transferable by the optionee otherwise than
by will or the laws of descent and distribution, and shall be exercisable during
his lifetime only by him.

(d) Options shall not be exercisable:

(i) except pursuant to the vesting schedule established
by the Board of Directors and after the expiration of
ten years from the date it is granted.
Notwithstanding anything to the contrary herein, an
Option shall automatically become immediately
exercisable in full: (i) upon the removal of the
Non-Employee Director from the Board without cause;
or (ii) in the event of a "change in control" of the
Company, as defined in any existing agreements
between the Company and its senior officers.

(ii) unless payment in full is made for the shares of
Common Stock being acquired thereunder at the time of
exercise, such payment shall be made in United States
dollars by cash or check, or in lieu thereof, by
tendering to the Company Common Stock owned by the
person exercising the Option and having a Fair Market
Value equal to the cash exercise price applicable to
such Option, or by a combination of United States
dollars and Common Stock as aforesaid; and

(iii) unless the person exercising the Option has been at
all times during the period beginning with the date
of grant of the Option and ending on the date of such
exercise, a Non-Employee Director of the Company,
except that

(A) if such person shall cease to be such a
Non-Employee Director for reasons other than death,
while holding an Option that has not expired and has
not been fully exercised, such person may, at any
time within three years of the date he ceased to be a
Non-Employee Director (but in no event after the
Option has expired under the provisions of
subparagraph 5(d)(i) above), exercise the Option with
respect to any Common Stock as to which he could have
exercised on the date he ceased to be such a
Non-Employee Director; or

(B) if any person to whom an Option has been granted
shall die holding an Option that has not expired and
has not been fully exercised, his executors,
administrators, heirs or distributees, as the case
may be, may, at any time within one year after the
date of such death (but in no event after the Option
has expired under the provisions of subparagraph
5(d)(i) above), exercise the Option with respect to
any shares subject to the Option.

6. DILUTION AND OTHER ADJUSTMENTS. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of substantially all of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, the number or kind of shares that may be issued
under the Plan pursuant to subparagraph 4(b) above, and the number or kind of
shares subject to, and the Option price per share under, all outstanding Options
shall be automatically adjusted so that the proportionate interest of the
participant shall be maintained as before the occurrence of such event; such
adjustment in outstanding Options shall be made without change in the total
Option exercise price applicable to the unexercised portion of such Options and
with a corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.

B-2

<PAGE> 29

7. MISCELLANEOUS PROVISIONS.

(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an Option
under the Plan. Neither the Plan nor any action taken hereunder shall be
construed as giving any Non-Employee Director any right to be retained in the
service of the Company.

(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation or
liability of such participant.

(c) Common Stock shall not be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities exchange and
other applicable laws and requirements.

(d) It shall be a condition to the obligation of the Company to issue
Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(d)(iii)(B) above) pay
to the Company, upon its demand, such amount as may be requested by the Company
for the purpose of satisfying any liability to withhold federal, state, local or
foreign income or other taxes. If the amount requested is not paid, the Company
may refuse to issue such Common Stock.

(e) The expenses of the Plan shall be borne by the Company.

(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken under the Plan by the Company or the Board.

(g) The appropriate officers of the Company shall cause to be filed any
reports, returns or other information regarding Options hereunder or any Common
Stock issued pursuant hereto as may be required by Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, or any other applicable statute,
rule or regulation.

8. AMENDMENT OR DISCONTINUANCE. The Plan may be amended at any time
and from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation, and in no
event shall the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act or the rules thereunder. No amendment of
the Plan shall materially and adversely affect any right of any participant with
respect to any Option theretofore granted without such participant's written
consent.

9. TERMINATION. This Plan shall terminate upon the earlier of the
following dates or events to occur upon the adoption of a resolution of the
Board terminating the Plan or ten years from the date the Plan is initially
approved and adopted by the shareholders of the Company. No termination of the
Plan shall materially and adversely affect any of the rights or obligations of
any person, without his consent, under any Option theretofore granted under the
Plan.

10. EFFECTIVE DATE OF PLAN. The Plan will become effective on the date
that it is approved by the affirmative vote of the holders of the greater of (a)
a majority of the outstanding shares of Common Stock of the Company present and
entitled to vote or (b) a majority of the voting power of the minimum number of
shares entitled to vote that would constitute a quorum for transaction of
business at the Company's Special Meeting of Shareholders.

B-3

<PAGE> 30

HOTEL DISCOVERY, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- MAY 21, 1998

The undersigned, a shareholder of Hotel Discovery, Inc., hereby
appoints Stephen D. King and Ronald K. Fuller, and each of them, as
proxies, with full power of substitution, to vote on behalf of the
undersigned the number of shares which the undersigned is then
entitled to vote, at the Annual Meeting of Shareholders of Hotel
Discovery, Inc. to be held at the Minnesota Room, Mall of America,
Fourth Floor, Bloomington, Minnesota, at 2:00 p.m. on Thursday, May
21, 1998, and at any and all adjournments thereof, with all the powers
which the undersigned would possess if personally present, upon:

<TABLE>
<S> <C>
1. Election of Directors:
[ ] FOR all nominees (except as marked to the [ ] WITHHOLD AUTHORITY
contrary below) to vote for all nominees listed below
</TABLE>

Ronald K. Fuller, Stephen D. King, Michael H. Krienik, Martin J.
O'Dowd, Thomas W. Orr

INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below:

----------------------------------------------------------------------

2. To approve an amendment to the Company's Articles of Incorporation
to change the name of the Company from Hotel Discovery, Inc. to
Cafe Odyssey, Inc.
[ ] FOR [ ] AGAINST [ ] ABSTAIN

3. To approve an amendment to the Company's 1997 Stock Option and
Compensation Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 500,000 shares to 1,250,000
shares.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

4. To approve the adoption of the 1998 Director Stock Option Plan.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

5. Upon such other business as may properly come before the meeting
or any adjournments thereof.

[ ] FOR [ ] AGAINST [ ] ABSTAIN

(Continued and to be COMPLETED AND SIGNED, on the reverse side)

(Continued from other side)

The Board of Directors recommends a vote FOR all nominees, FOR the
amendment to the Company's Articles of Incorporation to change the
Company's name, FOR the amendment to the 1997 Stock Option and
Compensation Plan and FOR the adoption of the 1998 Director Stock
Option Plan.

The undersigned hereby revokes all previous proxies relating to
the shares covered hereby and acknowledges receipt of the Notice and
Proxy Statement relating to the Annual Meeting of Shareholders.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. When
properly executed, this proxy will be voted on the proposals set forth
herein as directed by the shareholder, but if no direction is made in
the space provided, this proxy will be voted FOR the election of all
nominees for director, FOR the amendment to the Company's Articles of
Incorporation to change the name of the Company, FOR the proposal to
increase the number of shares reserved for issuance under the
Company's 1997 Stock Option and Compensation Plan and FOR the proposal
to adopt the 1998 Director Stock Option Plan.

Dated: , 1998
Signature

Signature if held jointly

(Shareholder must sign exactly
as the name appears at left.
When signed as a corporate
officer, executor,
administrator, trustee,
guardian, etc., please give
full title as such. Both joint
tenants must sign.)