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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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 (S) 240.14a-11(c) or (S) 240.14a-12
PRIVATE MEDIA GROUP, 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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
PRIVATE
MEDIA GROUP, INC.
May 25, 1999
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held on Monday, June 21, 1999, at 10:00 a.m. at Hotel Novotel, Plaza Xavier,
s/n, 08190 Sant Cugat, Barcelona, Spain.
The Notice of Annual Meeting and Proxy Statement which follow describe the
business to be conducted at the meeting.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Proxy Statement, I urge you to promptly complete, sign, date
and return the enclosed proxy card in the envelope provided.
Your vote is very important, and we will appreciate a prompt return of your
signed Proxy card. We hope to see you at the meeting.
Cordially,
/s/ Berth H. Milton
Berth H. Milton
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
PRIVATE MEDIA GROUP, INC.
_________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MONDAY, JUNE 21, 1999
To the Shareholders of PRIVATE MEDIA GROUP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Private
Media Group, Inc. (the "Company") will be held on Monday, June 21, 1999, at
10:00 a.m. at Hotel Novotel, Plaza Xavier, s/n, 08190 Sant Cugat, Barcelona,
Spain, for the following purposes:
1. To elect four (4) directors to hold office until the next Annual
Meeting of Shareholders and until their respective successors have
been duly elected and qualified;
2. To approve the adoption of the 1999 Employee Stock Option Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record at the close of business on April 23, 1999 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
By Order of the Board of Directors
/s/ Alfredo M. Villa
Alfredo M. Villa
Corporate Secretary
May 25, 1999
All shareholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, PLEASE COMPLETE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. The giving of
your Proxy will not affect your right to vote in person should you later decide
to attend the meeting.
<PAGE>
PRIVATE MEDIA GROUP, INC.
Carrettera De Rubi 22-26, 08190
Sant Cugat Del Valles, Barcelona, Spain
Telephone 34-93-590-7070
PROXY STATEMENT
General Information
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Private Media Group, Inc. (the "Company" or
"Private") for the Annual Meeting of Shareholders to be held on June 21, 1999
(the "Annual Meeting") and any postponements or adjournments thereof. Any
shareholder giving a Proxy may revoke it before or at the meeting by providing a
proxy bearing a later date or by attending the meeting and expressing a desire
to vote in person. All proxies will be voted as directed by the shareholder on
the Proxy card; and, if no choice is specified, they will be voted (1) "FOR" the
four directors nominated by the Board of Directors, (2) "FOR" the adoption of
the 1999 Employee Stock Option Plan, and in the discretion of the persons acting
as Proxies, for any other matters.
Your cooperation in promptly returning the enclosed Proxy will reduce the
Company's expenses and enable its management and employees to continue their
normal duties for your benefit with minimum interruption for follow-up proxy
solicitation.
Only shareholders of record at the close of business on April 23, 1999 are
entitled to receive notice of and to vote at the meeting. On that date, the
Company had outstanding 8,182,359 shares of Common Stock. The shares of Common
Stock vote as a single class. Holders of shares of Common Stock on the record
date are entitled to one vote for each share held. The presence at the Annual
Meeting, either in person or by proxy, of the holders of a majority of the
shares of Common Stock issued, outstanding and entitled to vote is necessary to
constitute a quorum for the transaction of business.
A plurality of votes by the holders of the Common Stock is required for the
election of directors, while the affirmative vote of a majority of the
outstanding shares of Common Stock is necessary to adopt the 1999 Employee Stock
Option Plan. In accordance with Nevada law, abstentions and "broker non-votes"
(i.e. proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons entitled to
vote shares as to a matter with respect to which brokers or nominees do not have
discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum. For purposes of determining approval of a
matter presented at the meeting, abstentions will be deemed present and entitled
to vote and will, therefore, have the same legal effect as a vote "against" a
matter presented at the meeting. Broker non-votes will be deemed not entitled to
vote on the matter as to which the non-vote is indicated and will, therefore,
have no legal effect on the vote on such matter.
This Proxy Statement and the accompanying Notice of Annual Meeting and form
of Proxy are being mailed or delivered to shareholders on or about May 25, 1999.
In the event that sufficient votes in favor of the proposals are not
received by the date of the Annual Meeting, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitations of proxies. Any such adjournment will require the affirmative
vote of the holders of a majority of the shares of Common Stock present in
person or by proxy at the Annual Meeting. The persons named as proxies will
vote in favor of such adjournment or adjournments.
<PAGE>
The cost of preparing, assembling, printing, and mailing the materials, the
Notice and the enclosed form of Proxy, as well as the cost of soliciting proxies
relating to the Annual Meeting, will be borne by the Company. The Company will
request banks, brokers, dealers, and voting trustees or other nominees to
forward solicitation materials to their customers who are beneficial owners of
shares, and will reimburse them for the reasonable out-of-pocket expenses of
such solicitations. The original solicitation of Proxies by mail may be
supplemented by telephone, telegram, personal solicitation or other means by
officers and other regular employees or agents of the Company, but no additional
compensation will be paid to such individuals on account of such activities.
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT AN EARLY
DATE IN THE ENCLOSED POSTAGE PREPAID RETURN ENVELOPE SO THAT, IF YOU ARE
UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
2
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PROPOSAL NO. 1
ELECTION OF FOUR NOMINEES FOR DIRECTOR
Nominees and Voting
The Bylaws of the Company authorize a Board of Directors of between three
and nine directors. The Company has currently fixed the number of directors at
four. Consequently, at the Annual Meeting four directors will be elected to
serve until the next Annual Meeting and until their successors are elected and
qualified. Proxies may not be voted for more than four persons. The Company
has nominated for election as directors the four persons named below. Each of
these nominees has indicated that they are able and willing to serve as
directors.
Under Nevada law and the Company's Articles of Incorporation, shareholders
of record on the record date will be entitled to one vote for each share held
when voting for directors.
Unless otherwise instructed, the Company's Proxy holders intend to vote the
shares of Common Stock represented by the Proxies in favor of the election of
these nominees. If for any reason any of these nominees will be unable or
unwilling to serve, the shares represented by the enclosed Proxy will be voted
for the election of the balance of those named and such other person or persons
as the Board of Directors may recommend. The Board of Directors has no reason
to believe that any such nominee will be unable or unwilling to serve.
Directors are elected by a plurality of the votes cast.
The Company's nominees and directors are listed below, together with their
ages, offices with the Company and year in which each became a director of the
Company.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE
"FOR" THE ELECTION OF THE FOUR NOMINEES FOR DIRECTOR.
Name Age Position Director Since
- ---- --- -------- --------------
Berth H. Milton 43 Chairman of the Board, 1998
Chief Executive Officer
Alfredo M. Villa 37 Director, Secretary 1996
Bo Rodebrant 45 Director 1998
Robert L. Tremont 54 Director 1998
Business Experience of Directors and Nominees During the Past Five Years
Berth H. Milton was appointed to the Board of Directors in February 1998 in
conjunction with the beginning of the final phase of due diligence process
related to the acquisition of Milcap Media Limited and
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its affiliated companies (the "Milcap Group") by the Company in June 1998, and
was the Corporate Secretary from June 1998 until February 1999. In February 1999
Mr. Milton was appointed Chairman of the Board and Chief Executive Officer of
Private. Mr. Milton is one of the most well known and reputable figures in the
adult entertainment industry, has been Administrator of Milcap Media Group S.L.
("MMG"), an affiliate of the Milcap Group, since its inception, and has acted as
an advisor to the Milcap Group since 1991. Mr. Milton is also active in several
international industry and real estate projects and developments.
Alfredo M. Villa has been a Director of the Company since December 1996,
and served as the Company's President and CEO from December 1996 until February
1999. Mr. Villa holds a Masters Degree in economics from the University of
Geneva, Switzerland and attended Bocconi University in Milan, Italy. He has over
13 years of experience with the Swiss banking industry. Mr. Villa is currently
Chairman and CEO of SCF Societa di Consulenza Finanziaria S.A., a Swiss
corporation specializing in asset management, mergers, acquisitions, and
investment banking, where he has served since 1994. Prior to that Mr. Villa was
an asset manager with several other European financial institutions. In
addition, Mr. Villa was Chairman of the Board of Alma Grafiche Srl, of Milan,
Italy, a leader in the high quality printing of books and magazines from 1995
until February 1998.
Bo Rodebrant was appointed as a Director of the Company in August 1998.
Mr. Rodebrant has operated his own accountancy and management consulting
services, R&S Ekonomiservice, since 1986. Prior thereto he co-founded an ice
cream business, Hemglass, which was the largest of its kind in Stockholm,
Sweden. The business was sold by Mr. Rodebrant in 1986. Mr. Rodebrant holds a
degree in construction engineering which he received in 1974.
Robert L. Tremont was appointed to the Board of Directors in September
1998. Since 1980 Mr. Tremont has owned and operated a number of businesses in
the adult entertainment industry. Mr. Tremont is a principal in Sundance
Associates and Private Collection International, Inc., which companies are
exclusive distributors for most of the Company's products in the United States
and Mexico. He has also been active in political and lobbying activities for
the adult entertainment industry, serving for several years as President of the
Free Speech Coalition. Mr. Tremont received a Bachelors of Arts degree from the
University of Minnesota and a Masters of Arts degree from the University of the
Americas in Mexico City.
Committees of the Board of Directors and Meetings
The Board of Directors currently has three committees: (i) an Audit
Committee, (ii) a Compensation Committee, and (iii) an Executive Committee.
The Audit Committee is currently comprised of Mr. Villa, Johan Gillborg,
the Company's Chief Financial Officer, and Javier Sanchez. The Audit Committee
reviews and recommends to the Board, as it deems necessary, the internal
accounting and financial controls for the Company and the accounting principles
and auditing practices and procedures to be employed in preparation and review
of financial statements of the Company. The Audit Committee makes
recommendations to the Board concerning the engagement of independent public
accountants and the scope of the audit to be undertaken by such accountants.
The Audit Committee did not meet during 1998.
The Compensation Committee is currently comprised of Messrs. Villa, Milton
and Sanchez. The Compensation Committee reviews and, as it deems appropriate,
recommends to the Board policies, practices and procedures relating to the
compensation of the officers and other managerial employees and the
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establishment and administration of employee benefit plans. It exercises all
authority under any employee stock option plans of the Company as the Committee
therein specified, unless the Board resolution appoints any other committee to
exercise such authority, and advises and consults with the officers of the
Company as may be requested regarding managerial personnel policies. The
Compensation Committee also has such additional powers as may be conferred upon
it from time to time by the Board. The Compensation Committee did not meet
during 1998.
The Executive Committee is comprised of Messrs. Milton, Kull and Sanchez.
The Executive Committee is authorized, subject to certain limitations, to
exercise all of the powers of the Board of Directors during periods between
Board meetings. The Executive Committee met two times during 1998.
The Company's Board of Directors met six times during 1998. No director
attended less than 75% of the aggregate of all meetings of the Board of
Directors and all Committees on which he served.
Compensation of Directors
None of the Company's directors received any compensation during the most
recent fiscal year for serving in their position as a director. No plans have
been adopted to compensate directors in the future. However, in 1999 the Board
of Directors adopted the 1999 Employee Stock Option Plan which includes a
provision for stock options to be issued to directors. Options have been granted
to certain directors under this Plan, subject to Shareholder approval of the
Plan. See "Proposed Adoption of Employee Stock Option Plan - Summary of Option
Grants."
The Company's Board of Directors may in the future, at its discretion,
compensate directors for attending Board and Committee meetings and reimburse
the directors for out-of-pocket expenses incurred in connection with attending
such meetings.
5
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MANAGEMENT
Listed below are key employees of the Company who are not directors or
nominees.
Claes Henrik Marten Kull, age 33, joined the Milcap Group in 1992 as a
sales manager, and has been Milcap Group's Marketing Manager since 1993, and was
appointed Chief Marketing Officer of Private Media Group, Inc. in August 1998,
with his main responsibilities being to identify and open up new markets and
negotiate with distributors. Since he began working for the Milcap Group in
1992, approximately 25 new countries have been opened up. From 1991 to 1992 he
operated his own business (his business partner was Johan Gillborg) which acted
as a sub-contracted sales force for Securitas Direct of Sweden, which is one of
Sweden's largest companies. From 1988 to 1991 he managed a private import and
trading corporation, which became the start of his career as an entrepreneur and
sales professional.
Javier Sanchez, age 36, was appointed as the Chief Operating Officer of
Private Media Group, Inc. in August 1998, and has been the General Manager of
MMG, member of the Board of MMG and Private France S.A., and minority
shareholder of Milcap Media Group S.L. since its incorporation in 1991. He has
been a member of the Board of Milcap Publishing Group AB, a subsidiary of the
Company, since its incorporation in 1994 until 1997. From 1988 to 1991 he was
the Operations Director of a mid-size printing company near Barcelona. From 1984
to 1987 he was the Production Manager of a major printing company in Barcelona.
Johan Gillborg, age 36, was appointed as Chief Financial Officer of Private
Media Group, Inc. in August 1998 and has been the Chairman and Managing Director
of Milcap Publishing Group AB since 1994. Mr. Gillborg joined the group in 1992
as Marketing Consultant. From 1991 to 1992 he operated his own business which
acted as sub-contracting sales force for Securitas Direct of Sweden (together
with Mr. Kull). From 1988 to 1990, Mr. Gillborg served as General Manager in
the hotel business in the United Kingdom and Portugal. Mr. Gillborg holds a
Bachelor's Degree in Business Administration from Schiller International
University in London.
Alain Araw, age 32, was appointed as Finance Director of Milcap Media Group
S.L. in September 1998. From 1996 to 1998 Mr. Araw served as the Project
Finance Director for Jameson Parker & Co. Ltd., a private company engaged in the
purchase and sale of real estate and providing financial consulting to the real
estate industry. From 1994 to 1996 Mr. Araw was a Manager at the Structured
Finance Department of HSBC Samuel Montagu & Co. Ltd., a British investment bank,
where he was responsible for the origination of senior debt lending projects in
the Spanish market, particularly in connection with leveraged acquisitions and
management buyouts. From 1990 to 1994 Mr. Araw served as Assistant Manager and
Manager for Capital & Management PLC, a British investment firm specializing in
providing venture capital to private industrial companies. Mr. Araw received a
Bachelor of Business Studies degree (with Honors) from the Dublin Business
School, Dublin City University.
No director or executive officer serves pursuant to any arrangement or
understanding between him and any other person.
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Executive Compensation
The following table summarizes all compensation paid to the Company's Chief
Executive Officer and to the Company's other most highly compensated executive
officer other than the Chief Executive Officer whose total annual salary and
bonus exceeded $100,000 (the "Named Executive Officers"), for services rendered
in all capacities to the Company during the fiscal years ended December 31,
1998, 1997 and 1996. No other executive officer of the Company earned
compensation in excess of $100,000 in each of these periods.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
---------------
Name and Securities
Principal Position During Fiscal Annual Compensation Underlying All Other
Fiscal 1998 Year Salary($) Options (#) Compensation($)
- ------------------------- -------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C>
Alfredo M. Villa................. 1998 --- --- ---
Chief Executive Officer 1997 29,073(1) --- ---
and President 1996 --- --- ---
Berth H. Milton.................. 1998 144,000 --- ---
MMG Administrator, 1997 145,000 --- ---
Corporate Secretary(2) 1996 105,500 --- ---
Javier Sanchez................... 1998 143,274 --- ---
Chief Operating Officer, Private 1997 4,000 --- ---
Media Group, Inc., General 1996 4,000 --- ---
Manager, MMG.
</TABLE>
_____________________________
(1) Represents $20,000 of fees and $9,073 of expenses paid under a Consulting
Agreement between the Company and a company affiliated with Mr. Villa.
(2) Mr. Milton was appointed as the Company's CEO in February 1999.
In June 1998 Mr. Milton received 175,000 Warrants to acquire Private
Common Stock at $4.00 per share in connection with the Company's acquisition of
Milcap Media Limited and Cinecraft Limited. No options to acquire shares of
Common Stock of the Company were granted as compensation for services or
exercised during the Company's fiscal year ended December 31, 1998.
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Certain Relationships
No Director or executive officer of the Company is related to any other
Director or executive officer. None of the Company's officers or Directors hold
any directorships in any other public entity. There are currently two outside
directors on the Company's Board of Directors.
Related Transactions
The Company has long term borrowings of SEK 723,000 and SEK 394,000 at
December 31, 1997 and 1998, respectively. The borrowings bear interest at a rate
of 10% payable annually and are due to entities controlled by Berth Milton. The
borrowings have no maturity date. The Company has a short-term loan to an entity
controlled by Mr. Milton in the amount of SEK 4,946,000 at December 31, 1998.
The loan bears interest at the rate of 10% per annum and has no maturity date.
The exchange rate of the Swedish Riksbank for Swedish Kronor ("SEK") on March
31, 1999 was 8.30 per U.S. Dollar.
On March 31, 1998, two of the Company's wholly owned subsidiaries, together
with Zebra Forvaltings AB, Sweden ("Zebra"), an affiliated company of Berth
Milton, purchased all of the outstanding capital stock of Viladalt S.L., Spain
("Viladalt") from its shareholders, none of whom are related to the Company or
Mr. Milton, for the sum of approximately $2,685,000. It was agreed that the
Company's subsidiaries would own 69% of the Viladalt shares, Zebra would own 31%
of the Viladalt shares, and that each party would be responsible for its
proportionate share of the purchase price. To avoid the appearance of a conflict
of interest Zebra has agreed to sell its interest in Viladalt to the Company at
Zebra's cost when and if the Viladalt interest is sold by the Company. The
principal asset of Viladalt is a country house in the Barcelona, Spain area
known as Casa Retol de la Sarra. The Viladalt property was acquired by the
Company as a real estate investment and is presently being utilized as a filming
location for certain of the Company's upcoming releases.
Milcap Publishing Group, a wholly owned subsidiary of the Company, is a
party to an exclusive Distribution Agreement with Sundance Associates, Inc.
("Sundance") which has been in effect since 1995. Robert Tremont, a Director of
the Company, is the sole shareholder of Sundance. Under the terms of the
Distribution Agreement Milcap granted to Sundance the exclusive rights to
distribute in the United States and Mexico specified products, including
magazines, videos and digital media such as CD-Rom's and laser discs. Royalties
are paid by Sundance to Milcap in accordance with an agreed royalty schedule.
The Distribution Agreement automatically renews for successive one year terms
and is cancellable by either party prior to the end of each one year term.
During the 12 month periods ended December 31, 1997 and December 31, 1998
Sundance paid royalties to Milcap of $2,156,000 and $2,362,000, respectively.
Milcap Media Limited, a wholly owned subsidiary of the Company, is a party
to an exclusive License Agreement with Private Collection International, Inc.
("PCI"), which has been in effect since 1995. Robert L. Tremont, a Director of
the Company, is an officer and principal shareholder of PCI. On November 30,
1995, Milcap Media Limited entered into a license agreement with Private
Collection International, Inc. ("PCI") in Los Angeles, California, and granted
the licensee exclusive worldwide rights to distribute a broad range of adult
novelty products. The term of the agreement is seven years. In consideration
for the rights granted, PCI agreed to pay a royalty equal to ten percent of the
gross product receipts. PCI also agreed to pay a guaranteed minimum royalty of
$100,000 for the first year of the term, $200,000 for the second year of the
term and $400,000 for the third year of the term. In March 1998 the Company
agreed to amend the original license agreement accepting, among other things, a
flat $175,000 fee for the 1997 calendar year and a modification in the royalty
calculation. Payment of this amount has been personally guaranteed by the owners
of PCI and is payable on or before July 30, 1999. Sales of PCI in 1996 were
$769,266; sales of PCI for 1997 were
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$1,492,044; and sales of PCI in 1998 were $2,278,908.
The foregoing transactions were approved by a majority of disinterested
directors and are believed to be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties on an arms-length basis.
9
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information as of March 31, 1999,
regarding the beneficial ownership of Common Stock by (i) each of the directors
and Named Executive Officers of the Company individually, (ii) all persons
known by the Company to be beneficial owners of five percent or more of the
Common Stock, and (iii) all directors and executive officers of the Company as a
group. Unless otherwise noted, the persons listed below have sole voting and
investment power and beneficial ownership with respect to such shares.
<TABLE>
<CAPTION>
Number Of Shares
Name and Address (1) Beneficially Owned (1) Percent Beneficially Owned
-------------------- ---------------------- --------------------------
<S> <C> <C>
Berth H. Milton (2) 7,691,049 50.7%
Senate Limited (3)
3 Bell Lane, Gibraltar 1,675,000 20.5%
Chiss Limited (4)
3 Bell Lane, Gibraltar 1,400,000 17.2%
Bajari Properties Limited (5)
7 Myrtle Street, Douglas, Isle of Man 625,000 7.7%
Pressmore Licensing Limited
P.O. Box N-341, Nassau, Bahamas 625,000 7.7%
Perrystone Trading Limited
P.O. Box 171, Providenciales, Turks & Caicos 625,000 7.7%
Solidmark (Gibraltar) Ltd.
3 Bell Lane, Gibraltar 625,000 7.7%
Churchbury Limited
3 Bell Lane, Gibraltar 625,000 7.7%
Kingston Finance Ltd.
Wickhams Cay, Road Town, Tortola, BVI 625,000 7.7%
Alfredo M. Villa (6)
Lugano, Switzerland 15,000 *
Marten Kull (7) 75,000 *
Johan Gillborg (8) 35,000 *
Javier Sanchez (9) 10,000 *
</TABLE>
10
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<TABLE>
<S> <C> <C>
Robert L. Tremont (10) 3,000 *
Bo Rodebrant (11) 2,500 *
All Executive Officers and Directors
as a group (7) 7,816,549 51.2%
</TABLE>
--------------------
* Denotes less than 1%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
which may be acquired upon exercise or conversion of warrants or Preferred
Stock which are currently exercisable or exercisable within 60 days of
March 31, 1999, are deemed outstanding for computing the beneficial
ownership percentage of the person holding such securities but are not
deemed outstanding for computing the beneficial ownership percentage of any
other person. Except as indicated by footnote, to the knowledge of the
Company, the persons named in the table above have the sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) Includes 7,000,000 shares of Common Stock issuable upon conversion of
7,000,000 of the Company's $4.00 Series A Convertible Preferred Stock and
59,049 shares of Common Stock which have accrued as dividends on the
Preferred Stock. Mr. Milton is indirectly the beneficial owner of the
7,000,000 $4.00 Series A Convertible Preferred Stock and 59,049 shares of
Common Stock owned of record by Slingsby Enterprises Limited. Also
includes (i) 625,000 shares of Common Stock owned by Bajari Properties
Limited, of which Mr. Milton is the sole shareholder, and (ii) 7,000 shares
of Common Stock issuable upon exercise of Warrants owned by Mr. Milton.
His address is c/o the Company, Carrettera de Rubi 22-26, 08190 Sant Cugat
del Valles, Barcelona, Spain.
(3) Cornelia Strehl is the sole shareholder of Senate Limited and, therefore,
may be deemed to be the beneficial owner of these shares.
(4) Andrea Armas is the sole shareholder of Chiss Limited and, therefore, may
be deemed to be the beneficial owner of these shares.
(5) Berth Milton is the sole shareholder of Bajari Properties Limited.
Therefore, these shares may be deemed to be beneficially owned by Mr.
Milton and are also reflected as being beneficially owned by Mr. Milton,
individually, in the above table.
(6) Mr. Villa's address is Corso Elvezia 4, CH-6900 Lugano, Switzerland.
(7) Includes 75,000 shares of Common Stock issuable upon exercise of Warrants
owned by Mr. Kull. His address is c/o the Company, Carrettera de Rubi 22-
26, 08190 Sant Cugat del Valles, Barcelona, Spain.
(8) Includes 35,000 shares of Common Stock issuable upon exercise of Warrants
owned by Mr. Gillborg. His address is c/o the Company, Carrettera de Rubi
22-26, 08190 Sant Cugat del Valles, Barcelona, Spain.
(9) Includes 10,000 shares of Common Stock issuable upon exercise of Warrants
owned by Mr. Sanchez. His address is c/o the Company, Carrettera de Rubi
22-26, 08190 Sant Cugat del Valles, Barcelona,
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Spain.
(10) Includes 3,000 shares of Common Stock issuable upon exercise of Warrants
owned by Mr. Tremont. His address is c/o the Company, Carrettera de Rubi
22-26, 08190 Sant Cugat del Valles, Barcelona, Spain.
(11) Includes 2,500 shares of Common Stock issuable upon exercise of Warrants
owned by Mr. Rodebrant. His address is c/o the Company, Carrettera de Rubi
22-26, 08190 Sant Cugat del Valles, Barcelona, Spain.
(12) Includes 7,000,000 shares of Common Stock issuable upon conversion of the
outstanding Series A Preferred Stock and 125,000 shares of Common Stock
issuable upon exercise of outstanding Warrants.
Change in Control
On December 19, 1997 the Company entered into acquisition agreements with
Milcap Media Limited and Cinecraft Limited to acquire all of their outstanding
capital stock in exchange for 7,500,000 shares of the Company's Common Stock,
7,000,000 shares of the $4.00 Series A Preferred Stock, and 875,000 Common Stock
purchase warrants. These acquisitions were completed on June 12, 1998. Prior
to these transactions Berth H. Milton, the Company's Chairman of the Board and
Chief Executive Officer, owned no voting securities of the Company. As a result
of these acquisitions, Mr. Milton acquired beneficial ownership of 7,000,000
shares of the $4.00 Series A Preferred Stock, 625,000 shares of Common Stock and
175,000 Common Stock purchase warrants. By reason of Mr. Milton's direct and
indirect ownership of Common Stock, and the Preferred Stock and warrants which
entitle Mr. Milton to acquire Common Stock, Mr. Milton was deemed to be the
beneficial owner of approximately 51% of the Company's Common Stock as of June
12, 1998, under S.E.C. regulations. For further information regarding Common
Stock beneficially owned by Mr. Milton, see the table contained above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and beneficial
owners of more than ten percent of the Common Stock, to file with the Securities
and Exchange Commission and The Nasdaq Stock Market reports of ownership and
changes in ownership of the Common Stock. Copies of such reports are required
to be furnished to the Company. Based solely upon a review of Forms 3 and 5
furnished to the Company covering its 1998 fiscal year filed under Section
16(a) of the Securities Exchange Act of 1934, each of the Company's directors,
officers and beneficial owners of more than 10% of the Company's Common Stock
who are identified in the table appearing above did not file the initial Form 3
on a timely basis, and Mr. Milton did not file a single Form 5 on a timely
basis.
The Board of Directors of the Company recommends that the shareholders vote
"FOR" election of the four nominees for director.
12
<PAGE>
PROPOSAL NO. 2
PROPOSED ADOPTION OF EMPLOYEE STOCK OPTION PLAN
Introduction
The Company's 1999 Employee Stock Option Plan was adopted by the Board of
Directors effective March 1, 1999, subject to shareholder approval (the "Plan").
The Plan allows the Company to grant options to purchase the Company's Common
Stock to designated employees, executive officers, directors, consultants,
advisors and other corporate and divisional officers of the Company and its
subsidiaries ("Participants"). The Board adopted the Plan to provide employee
and non-employee Participants with additional incentives to make significant and
extraordinary contributions to the long-term performance and growth of the
Company and to attract and retain employees, directors, consultants and advisors
of exceptional ability.
The Board of Directors recommends that shareholders vote "FOR" the adoption
of the Plan in order to assure that Company will have a vehicle for attracting
and retaining employees, directors, consultants and advisors of exceptional
ability.
The text of the Plan is set forth as Appendix "A" to this Proxy Statement.
The following is a summary of the principal features of the Plan and does not
purport to be complete. Shareholders are urged to read the Plan in its entirety.
This summary is subject to and qualified in its entirety by reference to
Appendix "A." Any capitalized terms which are used in this summary description
but not defined here or elsewhere in this Proxy Statement have the meanings
assigned to them in the Plan.
Principal Features of the Plan
The Plan authorizes the Committee to grant stock options exercisable for up
to an aggregate of One Million Two Hundred Thousand (1,200,000) shares of Common
Stock. Stock options granted under the Plan are non-statutory stock options and
are not eligible for the tax benefits applicable to incentive stock options. No
stock options may be granted under the Plan after March 1, 2004. If a stock
option expires, terminates or is cancelled for any reason without having been
exercised in full, the shares of Common Stock not purchased thereunder are
available for future grants.
The Plan is administered by the Committee of three or more persons
established by the Board of Directors from time to time. The current Committee
members are Villa, Milton and Sanchez. The Committee has complete authority,
subject to the express provisions of the Plan, to approve the persons nominated
by the management of Private to be granted stock options, to determine the
number of stock options to be granted to Participants, to set the terms and
conditions of stock options, to remove or adjust any restrictions and conditions
upon stock options and to adopt such rules and regulations, and to make all
other determinations, deemed necessary or desirable for the administration of
the Plan.
In selecting optionees, consideration is given to factors such as
employment position, duties and responsibilities, ability, productivity, length
of service, morale, interest in the Company and recommendations of supervisors.
Awards may be granted to the same Participant on more than one occasion. Each
stock option is evidenced by a written option agreement in a form approved by
the Committee.
The purchase price (exercise price) of option shares must be at least equal
to the fair market value of such
13
<PAGE>
shares on the date the stock option is granted or such later date as the
Committee specifies. The stock option term is for a period of ten years from the
date of grant or such shorter period as is determined by the Committee. Each
stock option may provide that it is exercisable in full or in cumulative or non-
cumulative installments, and each stock option is exercisable from the date of
grant or any later date specified therein, all as determined by the Committee.
The Committee's authority to take certain actions under the Plan includes
authority to accelerate vesting schedules and to otherwise waive or adjust
restrictions applicable to the exercise of stock options.
Each stock option may be exercised in whole or in part (but not as to
fractional shares) by delivering a notice of exercise to the Company together
with payment of the exercise price. The exercise price may be paid in cash, by
cashier's or certified check.
Except as otherwise provided below or unless otherwise provided by the
Committee, an optionee may not exercise a stock option unless from the date of
grant to the date of exercise the optionee remains continuously in the employ of
the Company. If the employment of the optionee terminates for any reason other
than death, disability or retirement at or after the age of 65, the stock
options then currently exercisable remain exercisable for a period of 90 days
after such termination of employment (except that the 90 day period is extended
to 12 months if the optionee dies during such 90 day period), subject to earlier
expiration at the end of their fixed term. If the employment of the optionee
terminates because of death, disability or retirement at or after the age of 65,
the stock options then currently exercisable remain in full force and effect and
may be exercised at any time during the option term pursuant to the provisions
of the Plan; unless otherwise provided by the Committee, all stock options to
the extent then not presently exericisable shall terminate as of the date of
termination of employment.
Each stock option granted under the Plan is exercisable during an
optionee's lifetime only by such optionee. Stock options are transferable only
by will or the laws of intestate succession unless otherwise determined by the
Committee.
The Board of Directors may at any time suspend, amend or terminate the
Plan. Shareholder approval is required, however, to materially increase the
benefits accruing to optionees, materially increase the number of securities
which may be issued (except for adjustments under anti-dilution clauses) or
materially modify the requirements as to eligibility for participation. The Plan
authorizes the Committee to include in stock options provisions which permit the
acceleration of vesting in the event of a change in control of the Company
resulting from certain occurrences. The Company intends to maintain a current
registration statement under the Securities Act of 1933 with respect to the
shares of Common Stock issuable upon the exercise of stock options granted under
the Plan.
Summary of Option Grants
There are currently 71 employees (including four executive officers) and
two non-employee directors eligible to participate in the Plan. The Plan also
allows grants of stock options to consultants and advisors. The Plan authorizes
the Committee to grant stock options exercisable for up to an aggregate of One
Million Two Hundred Thousand (1,200,000) shares of Common Stock. From the
inception of the Plan through May 1, 1999, stock options to purchase an
aggregate of 791,625 option shares were granted under the Plan, subject to
shareholder approval.
14
<PAGE>
The following table sets forth certain information with respect to stock
option grants made under the Plan to certain individuals and groups as of May
18, 1999. All of these grants were made subject to Shareholder approval of the
Plan.
New Plan Benefits
1999 Employee Stock Option Plan
<TABLE>
<CAPTION>
Number of Options Vested
Name Options Granted As of March 1, 1999
- ---- --------------- -------------------
<S> <C> <C>
Alfredo M. Villa - -
Berth H. Milton.................................. 60,000 36,250
Javier Sanchez................................... 60,000 36,250
Executive Group.................................. 235,000 140,000
Non-Executive Director Group..................... 38,250 14,500
Non-Executive Officer Employee Group............. 493,375 156,125
</TABLE>
_____________________
All outstanding stock options granted to employees and directors under the
Plan have a term of 10 years, and are subject to vesting in installments over a
five year period in accordance with a schedule determined by the Committee.
Options reflected in the table above as being vested as of March 1, 1999, have
an exercise price of $12.50 per share. Outstanding options reflected in the
table above which vest after March 1, 1999, vest in 19 equal quarterly
installments commencing June 30, 1999. The exercise price of each installment
of options which vests after March 1, 1999, is equal to the fair market value of
the Common Stock on the date each installment vests. On May 18, 1999, the last
sales price of the Common Stock, as reported on the Nasdaq National Market
System, was $18.93 per share.
In addition to the options set forth in the foregoing table, as of May 18,
1999, the Company granted stock options under the Plan exercisable for 25,000
shares of Common Stock to consultants and advisors.
Future grants under the Plan will be made at the discretion of the
Committee and are not yet determinable.
Summary of Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the Plan
is intended to be a summary of applicable U.S. federal law. State, local and
foreign tax consequences may differ. Because the federal income tax rules
governing options and related payments are complex and subject to frequent
change and because the tax treatment may be governed by laws of non-U.S.
jurisdictions, optionees are advised to consult their tax advisors prior to
exercise of options or dispositions of stock acquired pursuant to an option
exercise.
An optionee is not taxed on the grant of a stock option. On exercise,
however, the optionee recognizes ordinary income equal to the difference between
the option price and the fair market value of the shares on the date of
exercise. The Company is entitled to an income tax deduction in the year of
exercise in the amount recognized by the optionee as ordinary income. Any gain
on subsequent disposition of the shares is long-term
15
<PAGE>
capital gain if the shares are held for more than one year following exercise.
The Company does not receive a deduction for this gain.
Required Approval
The affirmative vote of the holders of a majority of shares of Common Stock
on the record date represented and voting at a duly held meeting at which a
quorum is present is required to approve the adoption of the Plan. Unless marked
to the contrary, proxies received will be voted "FOR" approval of the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSED
ADOPTION OF THE EMPLOYEE STOCK OPTION PLAN.
MISCELLANEOUS
Independent Certified Public Accountants
Ernst & Young AB has audited and reported upon the financial statements of
the Company for the fiscal year ended December 31, 1998 and has been selected to
serve as the Company's independent auditors for the fiscal year ending December
31, 1999. A representative of Ernst & Young AB is expected to be present at the
Annual Meeting with the opportunity to make a statement if he or she desires to
do so and is expected to be available to respond to appropriate questions.
Shareholder Proposals
Shareholder proposals complying with the applicable rules under the
Securities Exchange Act of 1934 intended to be presented at the 2000 Annual
Meeting of Shareholders must be received at the offices of the Company by
January 26, 2000, to be considered by the Company for inclusion in the Company's
proxy statement and form of proxy relating to that meeting. Such proposals
should be directed to the attention of the Corporate Secretary, Private Media
Group, Inc., Carrettera de Rubi 22-26, 08190 Sant Cugat del Valles, Barcelona,
Spain.
Other Matters
Neither the Company nor any of the persons named as proxies knows of
matters other than those above stated to be voted on at the Annual Meeting.
However, if any other matters are properly presented at the meeting, it is the
intention of the persons named as proxies to vote in accordance with their
judgment on such matters, subject to direction by the Board of Directors.
The 1998 Annual Report to Shareholders accompanies this Proxy Statement,
but is not to be deemed a part of the proxy soliciting material.
WHILE YOU HAVE THE MATTER IN MIND, PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY.
16
<PAGE>
APPENDIX "A"
-----------
PRIVATE MEDIA GROUP, INC.
1999 EMPLOYEE STOCK OPTION PLAN
1. Purpose.
-------
This Employee Stock Option Plan (the "Plan") is intended to allow
designated employees, executive officers, directors, consultants, advisors and
other corporate and divisional officers (all of whom are sometimes collectively
referred to herein as "Employees") of Private Media Group, Inc., a Nevada
corporation ("Private"), and its subsidiaries which it may have from time to
time (Private and such subsidiaries being together referred to herein as the
"Company") to receive certain options ("Stock Options") to purchase Private's
common stock, $.001 par value ("Common Stock"), as herein provided. The purpose
of the Plan is to provide Employees with additional incentives to make
significant and extraordinary contributions to the long-term performance and
growth of the Company and to attract and retain Employees of exceptional
ability.
2. Administration.
--------------
(a) The Plan shall be administered by a Committee of three or more
persons ("Committee") established by the Board of Directors of Private (the
"Board") from time to time, which may consist of the Compensation Committee, the
full Board of Directors or such persons as the Board shall designate. A majority
of its members shall constitute a quorum. The Committee shall be governed by the
provisions of Private's By-Laws and of Nevada law applicable to the Board,
except as otherwise provided herein or determined by the Board.
(b) The Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of the Plan: to approve the
Employees nominated by the management of the Company to be granted Stock
Options; to determine the number of Stock Options to be granted to an Employee;
to determine the time or times at which Stock Options shall be granted; to
establish the terms and conditions upon which Stock Options may be exercised; to
remove or adjust any restrictions and conditions upon Stock Options; to specify,
at the time of grant, provisions relating to the exercisability of Stock Options
and to accelerate or otherwise modify the exercisability of any Stock Options;
and to adopt such rules and regulations and to make all other determinations
deemed necessary or desirable for the administration of the Plan. All
interpretations and constructions of the Plan by the Committee, and all of its
actions hereunder, shall be binding and conclusive on all persons for all
purposes.
(c) The Company hereby agrees to indemnify and hold harmless each
Committee member and each employee of the Company, and the estate and heirs of
such Committee member or employee, against all claims, liabilities, expenses,
penalties, damages or other pecuniary losses, including legal fees, which such
Committee member or employee or his or her estate or heirs
A-1
<PAGE>
may suffer as a result of his or her responsibilities, obligations or duties in
connection with the Plan, to the extent that insurance, if any, does not cover
the payment of such items.
3. Eligibility and Participation.
-----------------------------
Employees eligible under the Plan shall be approved by the Committee
from those Employees who, in the opinion of the management of the Company, are
in positions which enable them to make significant and extraordinary
contributions to the long-term performance and growth of the Company. In
selecting Employees to whom Stock Options may be granted, consideration shall be
given to factors such as employment position, duties and responsibilities,
ability, productivity, length of service, morale, interest in the Company and
recommendations of supervisors.
4. Grants.
------
The Committee may grant Stock Options in such amounts, at such times,
and to such Employees nominated by the management of the Company as the
Committee, in its discretion, may determine. Stock Options granted under the
Plan shall constitute non-statutory stock options. Subject to the provisions of
paragraph 11 hereof, the number of shares of Common Stock issued and issuable
pursuant to the exercise of Stock Options granted hereunder shall not exceed One
Million Two Hundred Thousand (1,200,000). Each Stock Option shall be evidenced
by a written agreement (the "Option Agreement") in a form approved by the
Committee, which shall be executed on behalf of the Company and by the Employee
to whom the Stock Option is granted. If a Stock Option expires, terminates or is
cancelled for any reason without having been exercised in full, the shares of
Common Stock not purchased thereunder shall again be available for purposes of
the Plan.
5. Purchase Price.
--------------
The purchase price (the "Exercise Price") of shares of Common Stock
subject to each Stock Option ("Option Shares") shall be determined by the
Committee at the time of the grant of the Stock Option and shall be equal to or
greater than the fair market value ("Fair Market Value") of such shares on the
date of grant of such Stock Option (which date of grant may be the date the
Committee approves the issuance of the Stock Option or such later date or dates
as the Committee may specify. The Fair Market Value of a share of Common Stock
on any date shall be equal to the closing bid price of the Common Stock for the
last preceding day on which Private's shares were traded, and the method for
determining the closing bid price shall be determined by the Committee.
6. Option Period.
-------------
The Stock Option period (the "Term") shall commence on the date of
grant of the Stock Option and shall be ten (10) years or such shorter period as
is determined by the Committee. Notwithstanding the foregoing, but subject to
the provisions of paragraphs 2(b) and 11(c), Stock Options granted to Employees
who are subject to the reporting requirements of Section 16(a)
A-2
<PAGE>
of the U.S. Securities Exchange Act of 1934 ("Section 16 Reporting Persons")
shall not be exercisable until at least six months and one day from the date the
Stock Option is granted, or, if later, from the date of stockholder approval of
the Plan. If an Employee shall not in any period purchase all of the Option
Shares which the Employee is entitled to purchase in such period, the Employee
may purchase all or any part of such Option Shares at any time prior to the
expiration of the Stock Option.
7. Exercise of Options.
-------------------
(a) Each Stock Option may be exercised in whole or in part (but not as to
fractional shares) by delivering it for surrender or endorsement to the Company,
attention of the Corporate Secretary, at the principal office of the Company,
together with payment of the Exercise Price and an executed Notice and Agreement
of Exercise in the form prescribed by paragraph 7(b). Payment may be made in
cash, by cashier's or certified check.
(b) The exercise of each Stock Option is conditioned upon the agreement of
the Employee to the terms and conditions of this Plan and of such Stock Option
as evidenced by the Employee's execution and delivery of a Notice and Agreement
of Exercise in a form to be determined by the Committee in its discretion. Such
Notice and Agreement of Exercise shall set forth the agreement of the Employee
that: (a) no Option Shares will be sold or otherwise distributed in violation of
the Securities Act of 1933 (the "Securities Act") or any other applicable
federal or state securities laws, (b) each Option Share certificate may be
imprinted with legends reflecting any applicable federal and state securities
law restrictions and conditions, (c) the Company may comply with said securities
law restrictions and issue "stop transfer" instructions to its Transfer Agent
and Registrar without liability, (d) if the Employee is a Section 16 Reporting
Person, the Employee will furnish to the Company a copy of each Form 4 or Form 5
filed by said Employee and will timely file all reports required under federal
securities laws, and (e) the Employee will report all sales of Option Shares to
the Company in writing on a form prescribed by the Company.
(b) No Stock Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal and state
securities laws, and all other legal requirements, have been fully complied with
The Company will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no such
Registration Statement will be currently effective. The exercise of Stock
Options may be temporarily suspended without liability to the Company during
times when no such Registration Statement is currently effective, or during
times when, in the reasonable opinion of the Committee, such suspension is
necessary to preclude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any Stock Option
would expire for any reason, then if the exercise of such Stock Option is duly
tendered before its expiration, such Stock Option shall be exercisable and
exercised (unless the attempted exercise is withdrawn) as of the first day after
the end of such suspension. The Company shall have no obligation to file any
Registration
A-3
<PAGE>
Statement covering resales of Option Shares.
8. Continuous Employment.
---------------------
Except as provided in paragraph 10 below or unless otherwise provided
by the Committee, an Employee may not exercise a Stock Option unless from the
date of grant to the date of exercise such Employee remains continuously in the
employ of the Company. For purposes of this paragraph 8, the period of
continuous employment of an Employee with the Company shall be deemed to include
(without extending the term of the Stock Option) any period during which such
Employee is on leave of absence with the consent of the Company, provided that
such leave of absence shall not exceed three (3) months and that such Employee
returns to the employ of the Company at the expiration of such leave of absence.
If such Employee fails to return to the employ of the Company at the expiration
of such leave of absence, such Employee's employment with the Company shall be
deemed terminated as of the date such leave of absence commenced. The continuous
employment of an Employee with the Company shall also be deemed to include any
period during which such Employee is a member of the military, provided that
such Employee returns to the employ of the Company within ninety (90) days (or
such longer period as may be prescribed by law) from the date such Employee
first becomes entitled to discharge. If an Employee does not return to the
employ of the Company within ninety (90) days (or such longer period as may be
prescribed by law) from the date such Employee first becomes entitled to
discharge, such Employee's employment with the Company shall be deemed to have
terminated as of the date such Employee's military service ended.
9. Restrictions on Transfer.
------------------------
Options granted under this Plan shall be transferable only by will or the
laws of descent and distribution unless otherwise determined by the Committee at
any time at or after the date of grant of the Option, provided such transfer
does not conflict with applicable securities laws or render the Company
ineligible to use Form S-8 or any successor form to register the Options. No
interest of any Employee under the Plan shall be subject to attachment,
execution, garnishment, sequestration, the laws of bankruptcy or any other legal
or equitable process. Each Stock Option granted under this Plan shall be
exercisable during an Employee's lifetime (or in the event of the death of
Employee, by his or her legal representative) only by such Employee or such
Employee's permitted transferees or legal representative.
10. Termination of Employment.
-------------------------
(a) Upon an Employee's Retirement, Disability or death: (a) all
Stock Options to the extent then presently exercisable shall remain in full
force and effect and may be exercised pursuant to the provisions thereof,
including expiration at the end of the fixed term thereof, and (b) unless
otherwise provided by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of employment and shall not be exercisable thereafter.
A-4
<PAGE>
(b) Upon the termination of the employment of an Employee with the
Company for any reason other than the reasons set forth in paragraph 10(a)
hereof, unless otherwise provided by the Committee, (a) all Stock Options to the
extent then presently exercisable by such Employee shall remain exercisable only
for a period of ninety (90) days after the date of such termination of
employment (except that the ninety (90) day period shall be extended to twelve
(12) months if the Employee shall die during such ninety (90) day period), and
may be exercised pursuant to the provisions thereof, including expiration at the
end of the fixed term thereof, and (b) all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of employment and shall not be exercisable thereafter.
(c) For purposes of this Plan:
(i) "Retirement" shall mean an Employee's retirement from the
employ of the Company on or after the date on which such Employee attains the
age of sixty-five (65) years; and
(ii) "Disability" shall mean total and permanent incapacity of
an Employee, due to physical impairment or legally established mental
incompetence, to perform the usual duties of such Employee's employment with the
Company, which disability shall be determined on medical evidence by a licensed
physician designated by the Committee.
11. Adjustments Upon Change in Capitalization.
-----------------------------------------
(a) The number and class of shares subject to each outstanding Stock
Option, the Exercise Price thereof (but not the total price) and the maximum
number of Stock Options that may be granted under the Plan shall be
proportionately adjusted in the event of any increase or decrease in the number
of the issued shares of Common Stock which results from a split-up or
consolidation of shares, payment of a stock dividend or dividends exceeding a
total of two and one-half percent (2.5%) for which the record dates occur in any
one fiscal year, a recapitalization (other than the conversion of convertible
securities according to their terms), a combination of shares or other like
capital adjustment, so that upon exercise of the Stock Option, the Employee
shall receive the number and class of shares such Employee would have received
had such Employee been the holder of the number of shares of Common Stock for
which the Stock Option is being exercised upon the date of such change or
increase or decrease in the number of issued shares of the Company.
(b) Upon a reorganization, merger or consolidation of the Company
with one or more corporations as a result of which Private is not the surviving
corporation or in which Private survives as a wholly-owned subsidiary of another
corporation, or upon a sale of all or substantially all of the property of the
Company to another corporation, or any dividend or distribution to shareholders
of more than ten percent (10%) of the Company's assets, adequate adjustment or
other provisions shall be made by the Company or other party to such transaction
so that there shall remain and/or be substituted for the Option Shares provided
for herein, the shares, securities or assets which would have been issuable or
payable in respect of or in exchange for such Option Shares then remaining, as
if the Employee had been the owner of such Option
A-5
<PAGE>
Shares as of the applicable date. Any securities so substituted shall be subject
to similar successive adjustments.
(c) In the sole discretion of the Committee, Stock Options may
include provisions, on terms authorized by the Committee in its sole discretion,
that accelerate the Employees' rights to exercise Stock Options upon a sale of
substantially all of the Company's assets, the dissolution of Private or upon a
change in the controlling shareholder interest in Private resulting from a
tender offer, reorganization, merger or consolidation or from any other
transaction or occurrence, whether or not similar to the foregoing (each, a
"Change in Control").
12. Withholding Taxes.
-----------------
The Company shall have the right at the time of exercise of any Stock
Option to make adequate provision for any federal, state, local or foreign taxes
which it believes are or may be required by law to be withheld with respect to
such exercise ("Tax Liability"), to ensure the payment of any such Tax
Liability. The Company may provide for the payment of any Tax Liability by any
of the following means or a combination of such means, as determined by the
Committee in its sole and absolute discretion in the particular case: (i) by
requiring the Employee to tender a cash payment to the Company, (ii) by
withholding from the Employee's salary, (iii) by withholding from the Option
Shares which would otherwise be issuable upon exercise of the Stock Option that
number of Option Shares having an aggregate Fair Market Value as of the date the
withholding tax obligation arises that is equal to the Employee's Tax Liability
or (iv) by any other method deemed appropriate by the Committee. Satisfaction of
the Tax Liability of a Section 16 Reporting Person may be made by the method of
payment specified in clause (iii) above upon satisfaction of such additional
conditions as the Committee shall deem in its sole and absolute discretion as
appropriate in order for such withholding of Option Shares to qualify for the
exemption provided for in Section 16b-3 of the Exchange Act.
13. Relationship to Other Employee Benefit Plans.
--------------------------------------------
Stock Options granted hereunder shall not be deemed to be salary or
other compensation to any Employee for purposes of any pension, thrift,
profit-sharing, stock purchase or any other employee benefit plan now maintained
or hereafter adopted by the Company.
14. Amendments and Termination.
--------------------------
The Board of Directors may at any time suspend, amend or terminate
this Plan. No amendment or modification of this Plan may be adopted, except
subject to shareholder approval, which would: (a) materially increase the
benefits accruing to Employees under this Plan, (b) materially increase the
number of securities which may be issued under this Plan or (c) materially
modify the requirements as to eligibility for participation in the Plan.
A-6
<PAGE>
15. Successors in Interest.
----------------------
The provisions of this Plan and the actions of the Committee shall be
binding upon all heirs, successors and assigns of the Company and of Employees.
16. Other Documents.
---------------
All documents prepared, executed or delivered in connection with this
Plan shall be, in substance and form, as established and modified by the
Committee or by persons under its direction and supervision; provided, however,
that all such documents shall be subject in every respect to the provisions of
this Plan, and in the event of any conflict between the terms of any such
document and this Plan, the provisions of this Plan shall prevail. All Stock
Options granted under the Plan shall be evidenced by written agreements executed
by the Company and the Employees to whom the Stock Options have been granted.
17. No Obligation to Continue Employment.
------------------------------------
This Plan and grants hereunder shall not impose any obligation on the
Company to continue to employ any Employee. Moreover, no provision of this Plan
or any document executed or delivered pursuant to this Plan shall be deemed
modified in any way by any employment contract between an Employee (or other
employee) and the Company.
18. Term of Plan.
------------
This Plan was adopted by the Board effective March 1, 1999. No Stock
Options may be granted under this Plan after March 1, 2004.
19. Governing Law.
-------------
This Plan shall be construed in accordance with, and governed by, the
laws of the State of Nevada.
20. Stockholder Approval.
--------------------
No Stock Option shall be exercisable unless and until the
stockholders of the Company have approved this Plan and all other legal
requirements have been fully complied with.
A-7
<PAGE>
21. Privileges of Stock Ownership.
-----------------------------
The holder of a Stock Option shall not be entitled to the privileges
of stock ownership as to any shares of the Company common stock not actually
issued to such holder.
IN WITNESS WHEREOF, this Plan has been executed effective as of the
first day of March, 1999.
PRIVATE MEDIA GROUP, INC.
By /s/ Berth Milton
-----------------------
Berth Milton, President
A-8
<PAGE>
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PRIVATE MEDIA GROUP, INC.
Carrettera de Rubi 22-26, 08190
Sant Cugat del Valles, Barcelona, Spain
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 21, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Berth H. Milton and Alfredo M.
Villa, and each of them, Proxies, with full power of substitution in
each of them, in the name, place and stead of the undersigned, to vote
shares of Common Stock of Private Media Group, Inc. at the Annual
Meeting of Shareholders of Private Media Group, Inc. on Monday, June
21, 1999, at 10:00 a.m. at the Hotel Novotel, Plaza Xavier, s/n, 08190
Sant Cugat, Barcelona, Spain or at any adjournment or adjournments
thereof, according to the number of votes that the undersigned would
be entitled to vote if personally present, upon the following matters:
1. ELECTION OF DIRECTORS:
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below). to vote for all
nominees listed
below.
Berth H. Milton, Alfredo M. Villa, Bo Rodebrant, Robert L. Tremont
(Instruction: To withhold authority to vote for any individual
nominee, write the nominee's name in the space below.)
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(Continued on the reverse side)
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2. ADOPTION OF THE COMPANY'S 1999 EMPLOYEE STOCK OPTION PLAN.
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN
ABOVE. IF NO INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR
THOSE NOMINEES AND THE PROPOSALS LISTED ABOVE.
DATED: __________, 1999
Please sign exactly
as name appears
hereon. When shares
are held by joint
tenants, both should
sign. When signing
as attorney,
executor,
administrator,
trustee or guardian,
please give full
title as such. If a
corporation, please
sign in full
corporate name by
President or other
authorized officer.
If a partnership,
please sign in
partnership name by
authorized person.
---------------------
Signature
---------------------
Signature if held
jointly
[_] PLAN [_] DO NOT
PLAN TO ATTEND THE ANNUAL
MEETING
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
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