<PAGE>
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
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 Section240.14a-11(c) or
Section240.14a-12
PLATINUM ENTERTAINMENT, 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/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) 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>
[LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 8, 1996
------------------------
To the Stockholders of
Platinum Entertainment, Inc.:
The Annual Meeting of Stockholders of Platinum Entertainment, Inc. (the
"Company") will be held at 10:00 a.m., Chicago time, on Tuesday, October 8,
1996, at The Standard Club, 320 South Plymouth Court, Chicago, Illinois 60604,
for the following purposes:
(1) To elect three Class I directors to the Company's Board of Directors;
(2) To approve an amendment and restatement of the Platinum Entertainment,
Inc. 1995 Employee Incentive Compensation Plan;
(3) To ratify the appointment by the Board of Directors of Ernst & Young LLP
as the independent auditors of the Company's financial statements for the
fiscal year ending May 31, 1997; and
(4) To transact such other business as may properly come before the meeting
or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on September 6, 1996
as the record date for determining stockholders entitled to notice of, and to
vote at, the meeting.
By order of the Board of Directors,
Steven Devick
CHAIRMAN OF THE BOARD
Downers Grove, Illinois
September 13, 1996
ALL STOCKHOLDERS ARE URGED TO ATTEND THE MEETING IN PERSON OR BY PROXY. WHETHER
OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE FURNISHED FOR THAT PURPOSE. YOUR PROXY CAN BE WITHDRAWN AT ANY TIME
BEFORE IT IS VOTED.
<PAGE>
PLATINUM ENTERTAINMENT, INC.
2001 BUTTERFIELD ROAD
SUITE 1400
DOWNERS GROVE, ILLINOIS 60515
(630) 769-0033
------------------------
PROXY STATEMENT
------------------------
The accompanying proxy is solicited by the Board of Directors (the "Board of
Directors" or "Board") of Platinum Entertainment, Inc., a Delaware corporation
(the "Company"), for use at the Annual Meeting of Stockholders (the "Annual
Meeting") to be held at 10:00 a.m., Chicago time, Tuesday, October 8, 1996, at
The Standard Club, 320 South Plymouth Court, Chicago, Illinois 60604, and any
adjournments thereof. This Proxy Statement and accompanying form of proxy were
first released to stockholders on or about September 13, 1996.
RECORD DATE AND OUTSTANDING SHARES -- The Board of Directors has fixed the
close of business on September 6, 1996 as the record date (the "Record Date")
for the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. As of the Record Date, the Company
had outstanding 5,063,204 shares of Common Stock, par value $.001 per share
("Common Stock"). Each of the outstanding shares of Common Stock is entitled to
one vote on all matters coming before the Annual Meeting.
VOTING OF PROXIES -- Steven Devick and Douglas C. Laux, the persons named as
proxies on the proxy card accompanying this Proxy Statement, were selected by
the Board of Directors of the Company to serve in such capacity. Each of Messrs.
Devick and Laux is an officer and director of the Company. The shares
represented by each executed and returned proxy will be voted and such vote will
be in accordance with the directions indicated thereon or, if no direction is
indicated, in accordance with the recommendations of the Board of Directors
contained in this Proxy Statement. The Board of Directors does not presently
intend to bring any business before the Annual Meeting other than the specific
proposals referred to in this Proxy Statement and specified in the Notice of
Annual Meeting, and so far as is known to the Board of Directors, no other
matters are to be brought before the Annual Meeting. As to any other business
that may properly come before the Annual Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies. Each stockholder giving a
proxy has the power to revoke it at any time before the shares it represents are
voted. Revocation of a proxy is effective upon receipt by the Secretary of the
Company of either (i) an instrument revoking the proxy or (ii) a duly executed
proxy bearing a later date. Additionally, a stockholder may revoke a previously
executed proxy by voting in person at the Annual Meeting (although attendance at
the Annual Meeting will not, by itself, revoke a proxy).
REQUIRED VOTE -- A plurality of the shares voted in person or by proxy is
required to elect the nominees for directors. The affirmative vote of a majority
of the shares of Common Stock entitled to vote thereon that are present in
person or by proxy at the Annual Meeting is required to approve the amendment to
the Platinum Entertainment, Inc. Employee Incentive Compensation Plan. The
affirmative vote of a majority of the shares voted affirmatively or negatively
in person or by proxy is required to ratify the appointment of Ernst & Young LLP
as the independent auditors of the Company's financial statements for the fiscal
year ending May 31, 1997. Stockholders will not be allowed to cumulate their
votes in the election of directors.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES -- The required quorum for the
transaction of business at the Annual Meeting will be a majority of the shares
of Common Stock issued and outstanding on the Record Date. Abstentions and
broker non-votes will be included in determining the presence of a quorum.
Abstentions will be considered present and entitled to vote with respect to the
proposal to approve the amendment to the Platinum Entertainment, Inc. 1995
Employee Incentive Compensation Plan and will have the same effect as votes
against such proposals; broker non-votes will not be considered present and
<PAGE>
entitled to vote with respect to such proposals and will have no effect on the
voting on such proposals. Neither abstentions nor broker non-votes will have any
effect on the voting on the proposals to elect directors and to ratify the
appointment of the Company's independent auditors.
ANNUAL REPORT TO STOCKHOLDERS -- The Company's Annual Report to Stockholders
for the fiscal year ended May 31, 1996, containing financial and other
information pertaining to the Company, is being furnished to stockholders
simultaneously with this Proxy Statement.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Company's Board of Directors consists of ten directors. Article Six of
the Company's Third Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") provides that the Board of Directors shall be
classified with respect to the terms for which its members shall hold office by
dividing the members into three classes. At the Annual Meeting, three directors
of Class I will be elected, each to be elected for a term of three years
expiring at the 1999 Annual Meeting of Stockholders. All of the nominees are
presently serving as directors of the Company. The Board of Directors recommends
that the stockholders vote in favor of the election of the nominees named in
this Proxy Statement to serve as directors of the Company.
The seven directors whose terms of office do not expire in 1996 will
continue to serve after the Annual Meeting until such time as their respective
terms of office expire or their successors are duly elected and qualified. See
"Other Directors" below.
If at the time of the Annual Meeting any of the nominees should be unable or
decline to serve, the persons named in the proxy will vote for such substitute
nominee or nominees as the Board of Directors recommends, or vote to allow the
vacancy created thereby to remain open until filled by the Board, as the Board
recommends. The Board of Directors has no reason to believe that any nominee
will be unable or will decline to serve as a director if elected.
NOMINEES
The names of the nominees for the office of director, together with certain
information concerning such nominees, are set forth below:
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
- - --------------------------- --- ------------------------------------------------------ ---------------
<S> <C> <C> <C>
Douglas C. Laux............ 43 Chief Financial Officer, Secretary and Director 1995
Paul L. Humenansky(1)...... 39 Director 1992
Laura P. Pearl(1).......... 37 Director 1994
</TABLE>
- - ------------------------
(1) Member of the Audit Committee.
Douglas C. Laux has served the Company as Chief Financial Officer and as a
Director since September 1995 and as Secretary since February 1996. From October
1986 until he joined the Company, Mr. Laux was a partner in the accounting firm
of Ernst & Young LLP.
Paul L. Humenansky has been a Director of the Company since March 1992. Mr.
Humenansky is a founder and director of PLATINUM TECHNOLOGY, INC. (Nasdaq:
PLAT), a publicly-held software company not affiliated with the Company ("PTI"),
and was appointed Chief Operations Officer of PTI in January 1993. Mr.
Humenansky also served as PTI's Executive Vice President, Product Development
from 1987 until 1992. Mr. Humenansky also serves on the boards of two
privately-held companies.
Ms. Pearl has been a Director of the Company since June 1994. Ms. Pearl
joined Frontenac Company ("Frontenac"), a private equity investment management
partnership, in 1985 after spending four years with
2
<PAGE>
Ernst & Whinney (now known as Ernst & Young LLP). She became a general partner
of Frontenac in 1987. Ms. Pearl also serves on the boards of two privately-held
companies.
The Board of Directors recommends that stockholders vote FOR all of the
nominees for election as Class I directors.
OTHER DIRECTORS
The following persons will continue to serve as directors of the Company
after the Annual Meeting until their terms of office expire (as indicated below)
or until their successors are elected and qualified.
<TABLE>
<CAPTION>
SERVED AS TERM
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE EXPIRES
- - ------------------------------ --- -------------------------------------- --------------- -----------
<S> <C> <C> <C> <C>
Steven Devick(1).............. 44 Chairman of the Board, Chief Executive 1992 1998
Officer and President
Casey Cowell.................. 43 Director 1992 1998
Michael P. Cullinane(1)(2).... 46 Director 1992 1997
Craig Duchossois(1)(2)........ 51 Director 1994 1998
Andrew J. Filipowski(1)....... 45 Director 1992 1997
Rodney L. Goldstein(1)........ 44 Director 1994 1998
Isaac Tigrett................. 47 Director 1995 1997
</TABLE>
- - ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Steven Devick is a co-founder of the Company and has served as its Chairman
of the Board and Chief Executive Officer since January 1992. On January 1, 1996,
Mr. Devick assumed the additional office of President. Mr. Devick is also a
director of PTI and an officer and director of several privately-held companies.
See "Compensation Committee Interlocks and Insider Participation and "Executive
Compensation and Certain Transactions - Certain Transactions."
Casey Cowell has been a Director of the Company since March 1992. Mr. Cowell
is also Chairman of the Board of Directors, Chief Executive Officer and
President of U.S. Robotics, Inc. (Nasdaq: USRX), a publicly-held designer,
manufacturer and marketer of high performance data communications products and
systems which he co-founded in 1976. Mr. Cowell is also a director of PTI and
several privately-held companies.
Michael P. Cullinane has been a Director of the Company since March 1992.
Mr. Cullinane joined PTI in 1988 as Senior Vice President and Chief Financial
Officer. He has also served as PTI's Treasurer since 1989, as its Executive Vice
President since 1994 and as a Director since 1989. See "Compensation Committee
Interlocks and Insider Participation."
Craig Duchossois has been a Director of the Company since April 1994. Mr.
Duchossois has been President and Chief Executive Officer of Duchossois
Industries, Inc., a privately-held diversified manufacturing and service
organization with headquarters in Elmhurst, Illinois, since 1986. Mr. Duchossois
also serves as Chairman of the Board of Directors of a privately-held company.
Andrew J. Filipowski is a co-founder of the Company and has served as a
Director since January 1992. Mr. Filipowski is also a co-founder of PTI and has
been Chairman of the Board of Directors, President and Chief Executive Officer
of PTI since its formation in April 1987. Mr. Filipowski serves as a director of
Eagle River Interactive (Nasdaq: ERIV) ("Eagle River") and System Software
Associates (Nasdaq: SSAX), both publicly-held companies, and as a director of
several privately-held companies. See "Compensation Committee Interlocks and
Insider Participation" and "Executive Compensation and Certain Transactions --
Certain Transactions."
3
<PAGE>
Rodney L. Goldstein has been a Director of the Company since June 1994.
Since 1981, Mr. Goldstein has been the managing partner of Frontenac. Mr.
Goldstein currently serves on the boards of Eagle River and a number of
privately-held companies.
Isaac Tigrett has been a Director of the Company since September 1995. For
the last five years, Mr. Tigrett has been involved with HOB Entertainment, Inc.
("House of Blues"), as a principal founder, Chairman and Chief Executive
Officer. Mr. Tigrett was also a co-founder of the Hard Rock Cafe. See "Executive
Compensation and Certain Transactions - Certain Transactions."
DIRECTOR COMPENSATION
The Company pays a fee of $1,000 for each meeting attended by its
non-employee directors. The Company reimburses such Directors for travel
expenses incurred in connection with their activities on behalf of the Company.
Each of Messrs. Cullinane, Duchossois, Cowell and Humenansky has been granted
options for 4,000 shares of Common Stock pursuant to the Company's 1995
Directors' Stock Option Plan. Each of Messrs. Filipowski, Humenansky, Cullinane,
Tigrett, Cowell, Duchossois and Goldstein and Ms. Pearl has been granted options
for 19,000 shares of Common Stock pursuant to the Company's 1995 Employee
Incentive Compensation Plan.
MEETINGS
During the year ended May 31, 1996, the Board of Directors held seven formal
meetings. Each current Director, except Messrs. Cowell and Tigrett, attended at
least 75% of the aggregate of the number of board meetings held and the total
number of meetings of committees on which he or she served that were held during
the fiscal year ended May 31, 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee currently consists of Messrs. Cullinane,
Duchossois and Humenansky and Ms. Pearl. The Compensation Committee currently
consists of Messrs. Devick, Cullinane, Duchossois, Filipowski and Goldstein. The
Board of Directors may establish such other committees as deemed necessary and
appropriate from time to time, including, but not limited to, an Executive
Committee. The Company does not have a nominating committee.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accounts, considers the range of audit and non-audit fees and
reviews the adequacy of the Company's internal accounting controls. The Audit
Committee did not hold any formal meetings in fiscal 1996.
The Compensation Committee determines the compensation of the Company's
executive officers and the members of the Compensation Committee who are not
employees of the Company make determinations as to the grant of options to
purchase shares of the Company's stock under the Company's stock option plans.
The Compensation Committee held two formal meetings in fiscal 1996.
4
<PAGE>
EXECUTIVE OFFICERS
Set forth below is a table identifying executive officers of the Company who
are not identified in the tables entitled "Election of Directors -- Nominees" or
"-- Other Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Thomas R. Leavens............. 48 Chief Operating Officer and General Counsel
</TABLE>
Mr. Leavens has been the General Counsel and Chief Operating Officer of the
Company since September 1992. From December 1986 until he joined the Company,
Mr. Leavens was a partner in the law firm McBride, Baker & Coles.
The Board of Directors elects officers annually and such officers serve at
the discretion of the Board. Mr. Laux, however, has an employment agreement with
the Company. See "Executive Compensation -- Employment Agreement." There are no
family relationships among any of the directors or officers of the Company.
SECTION 16(a) COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's officers and directors and persons who own greater
than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "Commission") and The Nasdaq Stock Market. Based solely on a
review of the forms it has received and on written representations from certain
reporting persons that no such forms were required for them, the Company
believes that during fiscal 1996 all Section 16 filing requirements applicable
to its officers, directors and greater than 10% beneficial owners were complied
with by such persons, except that Mr. Duchossois inadvertently failed to timely
report two purchases of shares of Common Stock of the Company on Form 4.
EXECUTIVE COMPENSATION AND CERTAIN TRANSACTIONS
The following table provides information concerning the annual and long-term
compensation for services rendered to the Company during the fiscal year ended
May 31, 1996 to its chief executive officer and the other executive officers of
the Company whose total annual salary and bonus exceeded $100,000 during such
period (each, a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) ($)
- - ------------------------------------------------------------ ---------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Steven Devick............................................... $ 275,000(2) -- 200,000 --
President and Chief Executive Officer(1)
Douglas C. Laux............................................. 139,055 -- 156,300 --
Chief Financial Officer and Secretary(3)
Thomas R. Leavens........................................... 161,198 -- 40,000 --
Chief Operating Officer and General Counsel
Joseph Thomas............................................... 64,325 -- -- $ 63,342(5)
Former President(4)
</TABLE>
- - ------------------------
(1) Mr. Devick has served as Chief Executive Officer since the Company's
inception and assumed the additional office of President on January 1, 1996.
5
<PAGE>
(2) Of this amount $227,038 was paid in shares of Common Stock, valued based on
the closing price of the Common Stock on the Nasdaq National Market on May
14, 1996.
(3) Mr. Laux joined the Company on September 11, 1995.
(4) Mr. Thomas resigned as President of the Company effective January 1, 1996.
(5) Of this amount, $54,000 represents producer fees paid by the Company's
wholly-owned subsidiaries and the remainder is automobile lease expenses.
OPTION GRANTS IN LAST FISCAL YEAR -- The following table provides
information on grants of stock options during the fiscal year ended May 31, 1996
to the Named Executive Officers. No stock appreciation rights were granted to
the Named Executive Officers during fiscal 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- - ---------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(3)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
- - -------------------------------------- ----------- --------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven Devick......................... 200,000(4) 47% 11.625 4/29/06 1,462,180 3,705,451
117,300(4) 11.625 4/29/06 857,569 2,173,247
39,000(5) 8.25 7/25/05 202,347 512,787
Douglas C. Laux....................... 37%
Thomas R. Leavens..................... 40,000(4) 9% 11.625 4/29/06 292,436 741,090
</TABLE>
- - ------------------------
(1) Each of these options was granted pursuant to the 1995 Employee Incentive
Compensation Plan and is subject to the terms of such plan as described
below. All options were granted at an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant as
determined by the Compensation Committee of the Board of Directors of the
Company.
(2) Does not include the grant of options to purchase 124,000 shares of Common
Stock to non-employee directors under the 1995 Employee Incentive
Compensation Plan.
(3) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the hypothetical gains or "option spreads" that
would exist for the respective options. These gains are based on assumed
rates of annual compounded stock price appreciation of 5% and 10% from the
date the option was granted over the full option term of ten years. The 5%
and 10% assumed rates of appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection for
future increases in the price of its Common Stock.
(4) One third of these options become exercisable annually beginning on 4/29/97.
(5) One third of these options become exercisable annually beginning on 7/25/96.
Upon the exercise of these options, Mr. Laux will receive a cash bonus equal
to the exercise price.
6
<PAGE>
FISCAL YEAR-END OPTION VALUES -- The following table sets forth for the
Named Executive Officers information concerning the value of unexercised stock
options at May 31, 1996. No stock options were exercised during the fiscal year
ended May 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END(1)($)
----------------------- -----------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- - --------------------------------------------------------------- ----------------------- -----------------------
<S> <C> <C>
Steven Devick.................................................. 208,300/200,000 1,770,550/1,025,000
Douglas C. Laux................................................ 0/156,300 0/932,663(2)
Thomas R. Leavens.............................................. 40,000/40,000 570,000/205,000
</TABLE>
- - ------------------------
(1) The value per option is calculated by subtracting the exercise price from
the closing price of the Common Stock on the Nasdaq National Market on May
31, 1996 of $16.75 per share.
(2) Upon exercise of certain of these options (exercisable for 39,000 shares of
Common Stock at an exercise price of $8.25 per share), Mr. Laux will receive
a cash bonus equal to the exercise price.
CERTAIN TRANSACTIONS
Prior to December 1, 1995 the Company paid rent, on a pass-through basis, in
the amount of approximately $6,000 per month, directly to the landlord for its
corporate offices located at 2001 Butterfield Road, Suite 1400, Downers Grove,
Illinois. The tenant under the lease for the leased property was Platinum
Development, Inc., ("PDI") a company jointly owned by Messrs. Devick and
Filipowski. PDI derived no economic benefit from this arrangement and is
otherwise unaffiliated with the Company. Effective December 1, 1995, the Company
became the tenant under the lease.
River North Studios, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Company ("River North"), and the Company entered an agreement
(the "Studio Agreement") on December 4, 1995 with River North Studios II, Ltd.
("Buyer") (an entity jointly owned by Joseph Thomas and Ira Antelis), and Mr.
Thomas and Mr. Antelis, pursuant to which Buyer acquired certain of the assets
and assumed certain of the ongoing operating liabilities of the Studio in
consideration of the payment of one dollar. Mr. Thomas served as an executive
officer of the Company until January 1, 1996 and as a Director of the Company
until April 22, 1996. As part of the sale of the Studio assets, the Company
repayed approximately $4.0 million of debt secured by, among other things, such
assets. Pursuant to the Studio Agreement, River North subleases to each of Buyer
and Mr. Antelis certain portions of the Studio space and offices leased by River
North at 247 East Ontario Street, Chicago, Illinois. The subleases are
co-extensive with the underlying lease and require each of Buyer and Mr. Antelis
to pay their pro rata share of the rent and related expenses under the
underlying lease. Pursuant to the Studio Agreement, the Company was entitled to
use the Studio at no cost to the Company for a five-year period. However, under
an agreement dated May 31, 1996, the Company sold its rights to use of the
Studio to Mr. Thomas for $850,000.
The Company and Mr. Thomas entered an agreement, effective January 1, 1996,
pursuant to which the Company engaged the services of Mr. Thomas, as an
independent contractor, as a producer, arranger and performer in connection with
the production of recording masters. Mr. Thomas is entitled to receive an annual
advance of $240,000 against royalties payable under the agreement, and $35,000
per year for business expenses. Royalty rates range from one percent to two
percent of the net sales for which payment has been received by the Company,
subject to certain limitations, depending upon the type of record and where it
is sold. Mr. Thomas is also entitled to 50% of the publisher's share of the
amounts derived from compositions recorded under the agreement which are
written, published or controlled by him ("Controlled Compositions"). In
addition, the Company is obligated to pay writer royalties to Mr. Thomas for
Controlled Compositions ranging from 10% of the wholesale selling price for each
copy of arrangements
7
<PAGE>
to 50% of amounts received by the Company under publishing, licensing or other
agreements covering the Controlled Compositions. The term of the agreement is
five years.
In fiscal 1996 and prior periods, Messrs. Devick and Filipowski made various
loans to the Company which totalled approximately $4.9 million at March 12,
1996. The Company repayed this indebtedness in full from the proceeds of its
initial public offering.
In fiscal 1996 and prior periods, Messrs. Devick and Filipowski guaranteed
certain amounts owed by the Company to American National Bank and Trust Company
of Chicago. Of the $9.0 million of indebtedness outstanding at March 12, 1996,
approximately $4.0 million was personally guaranteed by Messrs. Devick and
Filipowski and an additional $2.0 million was personally guaranteed by Mr.
Devick. The Company repayed such bank borrowing in full from the proceeds of its
initial public offering.
The Company has entered two joint venture agreements, dated September 1,
1994, and September 11, 1995, with subsidiaries of House of Blues under which
the Company produces, markets and distributes compilations of Blues and Gospel
music on the House of Blues record label. Under the September 1994 agreement,
the parties co-produced ESSENTIAL BLUES, VOLUMES I AND II, as well as a
television ad featuring Dan Ackroyd. The Company is responsible, among other
things, for distributing the records, and is required to pay House of Blues 50%
of the net profits (as defined in the agreement) from the records. Under the
September 1995 agreement, the parties agreed to produce a musical video series
entitled ESSENTIAL GOSPEL FROM THE HOUSE OF BLUES, and sound recordings. The
Company made an initial contribution of $60,000 cash as capital to the joint
venture which is recoupable by the Company and is to be expended to develop the
videos and recordings. The Company has the exclusive right to manufacture,
distribute, perform, exhibit and sell the recordings under its CGI label, and
the videos under both its CGI label and House of Blues label. Isaac Tigrett, the
Chairman, Chief Executive Officer and principal founder of House of Blues, is a
member of the Company's Board of Directors.
The Company has adopted a policy that all future transactions with
affiliated entities or persons will be on terms no less favorable than could be
obtained from unrelated parties and all future transactions between the Company
and its officers, directors, principal stockholders and affiliates will be
approved by a majority of the Company's independent directors.
EMPLOYMENT AGREEMENT
The Company has entered an employment agreement with Douglas C. Laux,
pursuant to which Mr. Laux became the Chief Financial Officer of the Company
effective September 11, 1995. Mr. Laux's employment agreement provides for an
annual base salary of $250,000. In addition, Mr. Laux was granted options to
purchase 39,000 shares of Common Stock at an exercise price of $8.25 per share,
with options for 13,000 shares becoming exercisable on each of July 25, 1996,
1997 and 1998. The agreement further provides that upon the exercise by Mr. Laux
of any of such options, he will be entitled to receive a cash bonus equal to the
exercise price. The term of Mr. Laux's employment agreement is three years.
No other executive officer has an employment agreement with the Company.
8
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors sets and administers
the policies that govern the annual and long-term compensation of executive
officers of the Company. The non-employee members of the Compensation Committee
(the "Incentive Plan Committee"), based in part on recommendations by Mr.
Devick, make all decisions concerning awards of stock options under the
Company's stock option plans, except the non-discretionary plan for non-employee
directors. Mr. Devick does not participate in the Compensation Committee's
determinations with respect to his own compensation.
COMPENSATION POLICIES TOWARD EXECUTIVE OFFICERS
The Compensation Committee aims to provide competitive levels of
compensation that relate compensation with the Company's annual and long-term
performance goals, reward above average corporate performance, recognize
individual initiative and achievements, and assist the Company in attracting and
retaining qualified executives. The Compensation Committee attempts to achieve
these objectives through a combination of base salary, stock options, and cash
bonus awards. In making its determination, the Compensation Committee utilizes
outside information to obtain compensation information concerning comparable
companies in the entertainment industry.
BASE SALARY
The base salary for Mr. Laux is governed by the terms of his employment
agreement with the Company. See "Executive Compensation -- Employment
Agreement." The base salaries for fiscal 1996 reported herein for the other
Named Executive Officers were determined by the Compensation Committee based on
subjective evaluations of each individual officer's performance, the Company's
performance, and a comparison to salary ranges for executives of other companies
in the entertainment industry.
INCENTIVE STOCK OPTIONS
Stock options are granted to executive officers and other employees of the
Company as a means of providing long-term incentives. The Compensation Committee
believes that stock options encourage increased performance by the Company's
employees, including its officers, and align the interests of the Company's
employees with the interests of the Company's stockholders. Stock options were
granted to Messrs. Devick, Laux and Leavens utilizing the same criteria as were
used for setting base salaries.
CASH BONUS AWARDS
The Compensation Committee considers on an annual basis whether to pay cash
bonuses to some or all of the Company's employees, including the Company's
executive officers. None of the Named Executive Officers received cash bonuses
for fiscal 1996.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Devick's annual base salary was set at $275,000 effective in fiscal
1996. Prior to such time, Mr. Devick had not received an annual base salary from
the Company. The Incentive Plan Committee granted a large stock option award to
Mr. Devick to recognize fully his contributions and to provide him with
sufficient incentives to continue his efforts. This stock option award to Mr.
Devick was also based on the overall performance of the Company.
COMPLIANCE WITH SECTION 162(m)
The Compensation Committee currently intends for all compensation paid to
the Named Executive Officers to be tax deductible to the Company pursuant to
Section 162(m) ("Section 162(m)") of the Code. Section 162(m) provides that
compensation paid to the Named Executive Officers in excess of $1,000,000
9
<PAGE>
cannot be deducted by the Company for Federal income tax purposes unless, in
general, such compensation is performance based, is established by a committee
of outside directors and is objective and the plan or agreement providing for
such performance-based compensation has been approved in advance by
stockholders. Consistent with this intention, the Company submitted the
Incentive Plan for stockholder approval last year, and the Compensation
Committee made all stock option awards to the Named Executive Officers for
fiscal 1996 pursuant to the Incentive Plan. In the future, however, the Board
may determine to adopt a compensation program that does not satisfy the
conditions of Section 162(m) if in the Board's judgement, after considering the
additional costs of not satisfying 162(m), such program is appropriate.
COMPENSATION COMMITTEE
Steven Devick
Michael P. Cullinane
Craig Duchossois
Andrew J. Filipowski
Rodney L. Goldstein
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Devick, Cullinane, Duchossois, Filipowski and Goldstein are the
members of the Company's Compensation Committee. Mr. Devick serves on the
Compensation Committee of PTI, of which Mr. Filipowski is Chairman and Chief
Executive Officer and Mr. Cullinane is Executive Vice President, Chief Financial
Officer and Treasurer.
10
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for the
Company, a Peer Group Index described below and the NASDAQ - U.S. Index during
the period commencing on March 12, 1996, the date of the Company's initial
public offering, and ending on May 31, 1996. The comparison assumes $100 was
invested on March 12, 1996 in the Common Stock, the NASDAQ - U.S. Index and the
Peer Group Index and assumes the reinvestment of all dividends, if any.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PLATINUM ENTERTAINMENT, INC. PEER GROUP NASDAQ STOCK MARKET-U.S.
<S> <C> <C> <C>
3/12/96 100 100 100
3/96 96 99 103
4/96 95 98 111
5/96 129 98 116
</TABLE>
<TABLE>
<CAPTION>
3/12/96 3/31/96 4/30/96 5/31/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Platinum Entertainment, Inc................................................... 100 96 95 129
Peer Group.................................................................... 100 99 98 98
NASDAQ-U.S. Index............................................................. 100 103 111 116
</TABLE>
The Peer Group Index includes the stock performance of the following
entertainment companies: BET Holdings, Inc., Gaylord Entertainment Company,
International Family Entertainment, Inc., Polygram N.V., 7th Level, Inc., Time
Warner Inc. and IMAX Corporation.
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of August 31, 1996, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) each Company director, (iii) each of
the Named Executive Officers and (iv) all Company executive officers and
directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP(1) CLASS
- - ------------------------------------------------------------------------------ ---------------------- -------------
<S> <C> <C>
Steven Devick(2).............................................................. 674,939 13.3%
Frontenac VI Limited Partnership(3)........................................... 644,522 12.7
Andrew J. Filipowski(4)....................................................... 548,600 10.8
Craig Duchossois(5)........................................................... 120,333 *
Thomas R. Leavens(6).......................................................... 40,000 *
Casey Cowell(5) (7)........................................................... 35,333 *
Douglas C. Laux(8)............................................................ 13,100 *
Paul L. Humenansky(5)......................................................... 11,333 *
Michael P. Cullinane(5)....................................................... 11,333 *
Rodney L. Goldstein(9)........................................................ 1,333 *
Laura P. Pearl(9)............................................................. 1,333 *
Isaac Tigrett(10)............................................................. 1,333 *
All Executive Officers and Directors as a Group (11
persons)(2)(4)(5)(6)(7)(8)(9)(10)........................................... 1,458,970 27.3
</TABLE>
- - ------------------------
* Less than one percent
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares shown as beneficially
owned by them.
(2) On September 9, 1996, Mr. Devick is transferring 224,100 of such shares to
an individual who is not a director, officer or 5% stockholder of the
Company. Includes 208,300 shares underlying stock options that are currently
exercisable. The address of Mr. Devick is c/o Platinum Entertainment, Inc.,
2001 Butterfield Road, Downers Grove, Illinois 60515.
(3) The address of Frontenac VI Limited Partnership is c/o Frontenac Company,
135 South LaSalle Street, Suite 3800, Chicago, Illinois 60604.
(4) Includes 99,067 shares held by Platinum Venture Partners I, L.P. ("Platinum
Venture"). Mr. Filipowski is the President, Chief Executive Officer and a
shareholder of the general partner of Platinum Venture and in such
capacities may be deemed to have voting and investment power with respect to
shares held by this entity. Mr. Filipowski disclaims beneficial ownership of
such shares. The address of Mr. Filipowski is c/o PLATINUM technology, inc.,
1815 South Meyers Road, Oakbrook Terrace, Illinois 60181. Includes 1,333
shares underlying stock options that are currently exercisable.
(5) Includes 5,333 shares underlying stock options that are currently
exercisable.
(6) Such 40,000 shares consist of shares underlying stock options that are
currently exercisable.
(7) Includes 30,000 shares held by MKW Partners, L.P. ("MKW"). The sole general
partner of MKW is RPL Management, Inc. Mr. Cowell is the sole shareholder of
RPL and the sole limited partner of MKW.
(8) Includes 13,000 shares underlying stock options that are currently
exercisable.
(9) Includes 1,333 shares for each non-employee director which consists of
shares underlying stock options that are currently exercisable. Excludes
644,522 shares held by Frontenac VI Limited Partnership. Mr. Goldstein and
Ms. Pearl are general partners of Frontenac Company, the general partner of
Frontenac VI Limited Partnership, and in such capacity they share voting and
investment power with respect to shares held by this entity.
(10) Such 1,333 shares underlie options that are currently exercisable.
12
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE
COMPANY'S 1995 EMPLOYEE INCENTIVE COMPENSATION PLAN
Subject to the approval of the Company's stockholders at the Annual Meeting,
the Board of Directors approved an amendment and restatement of the Company's
1995 Employee Incentive Compensation Plan (the "Incentive Plan") which (i)
authorizes the issuance of up to 5,000,000 shares of Common Stock thereunder and
(ii) further provides that in any fiscal year, (a) the maximum aggregate number
of shares of Common Stock as to which awards under the Incentive Plan may be
granted shall be equal to the greater of 500,000 shares of Common Stock or 10.0%
of the total number of shares of Common Stock outstanding as of the date of the
Annual Meeting of Shareholders of the Company held during such fiscal year, (b)
options and SARs (as hereinafter defined) to purchase no more than 500,000
shares of Common Stock shall be granted to any one participant and (c) the
maximum cash incentive award payable to any one participant shall not exceed
3.0% of the Company's gross revenues for such fiscal year.
Prior to such amendment and restatement, the Incentive Plan authorizes the
issuance of up to 800,000 shares of Common Stock in connection with awards
thereunder, limits options and SARs granted to any one participant in a calendar
year to 200,000 shares of Common Stock and caps the cash incentive award payable
to any one participant in a calendar year at 8.1% of the Company's operating
income before payment of executive bonuses. There currently are options to
purchase 785,000 shares of Common Stock outstanding under the Incentive Plan and
15,000 shares of Common Stock remain available for grant thereunder. The Company
has not granted any options pursuant to the Incentive Plan that are conditioned
upon the Company's stockholders approving the amendment proposed hereby.
The following is a brief summary of certain features of the Incentive Plan,
as amended and restated.
TERMS OF THE INCENTIVE PLAN, AS AMENDED AND RESTATED
GENERAL
The Incentive Plan is a flexible plan permitting the issuance of awards in a
variety of forms, including: (i) non-qualified and incentive stock options for
the purchase of Common Stock, (ii) stock appreciation rights ("SARs"), (iii)
restricted stock ("Restricted Stock"), (iv) deferred stock ("Deferred Stock"),
(v) bonus stock and awards in lieu of obligations, (vi) dividend equivalents,
(vii) other stock-based awards, and (viii) performance awards and cash incentive
awards.
The persons eligible to participate in the Incentive Plan are directors,
officers, employees and consultants of the Company or any subsidiary of the
Company who, in the opinion of the Incentive Plan Committee, contribute to the
growth and success of the Company or its subsidiaries. On March 1, 1996, each
non-employee director of the Company was granted an option to purchase 15,000
shares of Common Stock, and such directors are not eligible for additional
grants under the Incentive Plan. The Incentive Plan is administered by the
Incentive Plan Committee.
The purpose of the Incentive Plan is to promote the overall financial
objectives of Company and its stockholders by motivating eligible participants
to achieve long-term growth in shareholder equity in the Company and to retain
the association of these individuals. The Company intends to grant options under
the Incentive Plan to certain artists as an inducement to sign with the Company.
The Company expects that these options will have vesting schedules tied to the
achievement of identified sales and other performance milestones.
Pursuant to the amendment and restatement proposed hereby, the Incentive
Plan provides that in any fiscal year, the maximum aggregate number of shares of
Common Stock as to which awards may be granted under the Incentive Plan shall be
equal to the greater of 500,000 shares of Common Stock or 10% of the total
number of shares of Common Stock outstanding as of the date of the Annual
Meeting of
13
<PAGE>
Shareholders of the Company held during such fiscal year. In the discretion of
the Incentive Plan Committee, shares of Common Stock subject to an award under
the Incentive Plan that remain unissued upon termination of such award, are
forfeited or are received by the Company as consideration for the exercise or
payment of an award shall become available for additional awards under the
Incentive Plan.
In the event of a stock dividend, stock split, recapitalization, sale of
substantially all of the assets of the Company, reorganization or other similar
event, the Incentive Plan Committee will adjust the aggregate number of shares
of Common Stock subject to the Incentive Plan, the number of shares available
for awards and subject to outstanding awards and the exercise price per share,
performance conditions and other terms of outstanding awards.
The Board of Directors or the Incentive Plan Committee may amend, modify or
discontinue the Incentive Plan at any time, except if such amendment (i) impairs
the rights of a participant without the participant's consent, or (ii) in any
manner would disqualify the Incentive Plan from the exemption provided by Rule
16b-3 under the 1934 Act. Any amendment is subject to stockholder approval, if
required by applicable law. Any amendment by the Incentive Plan Committee is
subject to approval of the Board of Directors. The Incentive Plan Committee may
amend the terms of any award granted under the Incentive Plan (other than, in
the case of a stock option, to decrease the option price), subject to the
consent of a participant if such amendment impairs the rights of such
participant unless such amendment is necessary for the Company to obtain pooling
of interest accounting treatment in a transaction.
AWARDS UNDER THE INCENTIVE PLAN
STOCK OPTIONS. Pursuant to the amendment and restatement proposed hereby,
options to purchase no more than 500,000 shares of Common Stock shall be granted
to any one participant in any fiscal year. Subject to such limitation, the
Incentive Plan Committee shall determine the number of shares of Common Stock
subject to the options to be granted to each participant. The Incentive Plan
Committee may grant non-qualified stock options, incentive stock options, or a
combination thereof, to the participants. Only persons who on the date of the
grant are employees of the Company or any parent or subsidiary of the Company
may be granted options which qualify as incentive stock options. Options granted
under the Incentive Plan will provide for the purchase of Common Stock at prices
determined by the Incentive Plan Committee, but in no event less than fair
market value on the date of grant. When incentive stock options are granted to
an individual who owns Common Stock possessing more than 10% of the combined
voting power of all classes of stock of the Company or any parent or subsidiary
of the Company, the option price shall not be less than 110% of fair market
value. No stock option shall be exercisable later than the tenth anniversary
date of its grant. In the case of an incentive stock option granted to a
participant who owns more than 10% of the combined voting power of all classes
of stock of the Company or any parent or subsidiary of the Company, such option
shall not be exercisable later than the fifth anniversary date of its grant. No
incentive stock option shall be granted later than the tenth anniversary date of
the adoption of the Incentive Plan.
Options granted under the Incentive Plan shall be exercisable at such times
and subject to such terms and conditions set forth in the Incentive Plan and as
the Incentive Plan Committee shall determine or provide in an option agreement.
Except as provided in any option agreement, options may only be transferred
under the laws of descent and distribution or if such transfer is permitted by
Rule 16b-3 without liability under applicable law and is consistent with the use
of Commission Form S-8. Otherwise, options shall be exercisable only by the
participant during such participant's lifetime. The option exercise price is
payable by the participant (i) in cash, (ii) in shares of Common Stock having a
fair market value equal to the exercise price, (iii) by delivery of evidence of
a note or other indebtedness, (iv) by authorizing the Company to retain shares
of Common Stock having a fair market value equal to the exercise price, (v) by
"cashless exercise" as permitted under the Federal Reserve Board's Regulation T,
or (vi) by any combination of the foregoing. Unless otherwise provided in an
option agreement or determined by the Incentive Plan Committee, upon termination
of a participant's employment with the Company due to
14
<PAGE>
death or disability, all of such participant's options shall be exercisable for
the shorter of their remaining term or 90 days after termination of employment,
and a disabled participant's subsequent death shall not affect the foregoing.
Unless otherwise provided in an option agreement or determined by the Incentive
Plan Committee, if a participant retires or involuntarily ceases to be an
employee of the Company (other than due to death, disability or as a result of
termination for cause), all of such participant's options shall terminate,
except that, to the extent such options are then exercisable, such options may
be exercised for the shorter of their remaining terms or 90 days after
termination of employment. Unless otherwise provided in an option agreement or
determined by the Incentive Plan Committee, if a participant voluntarily ceases
to be an employee at the Company (other than due to retirement) or is terminated
for cause, all of such participant's options shall terminate immediately.
Upon receipt of a notice from a participant to exercise an option, the
Incentive Plan Committee may elect to cash out all or part of any such option by
paying the participant, in cash or shares of Common Stock, the following amount:
(i) the excess of the fair market value of the Common Stock subject to the
unexercised option over the exercise price of the option, multiplied by (ii) the
number of shares for which the option is to be exercised.
STOCK APPRECIATION RIGHTS. An SAR shall entitle a participant to receive
Common Stock, cash or a combination thereof. If granted in conjunction with an
option, the exercise of an SAR shall require the cancellation of the
corresponding portion of the option. SARs may be granted on or after the
corresponding grant of non-qualified stock options, but only at the same time as
the corresponding grant of incentive stock options. Pursuant to the amendment
and restatement proposed hereby, SARs with respect to no more than 500,000
shares of Common Stock shall be granted to any one participant in any fiscal
year. Subject to such limitation, the Incentive Plan Committee in its discretion
shall determine the number of SARs awarded to a participant. The Incentive Plan
Committee shall determine the terms and conditions of any SAR. The terms and
conditions shall be confirmed in and be subject to an agreement between the
Company and the participant. If granted in conjunction with options, an SAR
shall be exercisable for and during the same period as the corresponding
options. Upon exercise of an SAR, a participant shall receive an amount in cash,
shares of Common Stock or both equal to (i) the excess of the fair market value
of the Common Stock over the option price per share (if the SAR is granted in
conjunction with an option), multiplied by (ii) the number of shares of Common
Stock subject to the SAR. In the case of an SAR granted on a stand alone basis,
the Incentive Plan Committee shall determine in its discretion the value to be
used in lieu of the option price. In no event shall an SAR granted in tandem
with an incentive stock option be exercised unless the fair market value of the
Common Stock at the time of the exercise exceeds the option price. With respect
to participants who are subject to Section 16(b) of the 1934 Act (generally
officers and directors of the Company) ("16(b) Persons"), the Incentive Plan
Committee may require that the SARs be exercised in compliance with Rule 16b-3,
including the requirement that an SAR not be exercisable within the first six
months of its term. The transferability and termination provisions of an SAR are
as set forth above with respect to stock options.
RESTRICTED STOCK. Restricted Stock awards are grants of shares of Common
Stock that are subject to certain restrictions and to a risk of forfeiture. The
Incentive Plan Committee in its discretion shall determine the persons to whom
Restricted Stock shall be granted, the number of shares of Restricted Stock to
be granted to each participant, the periods for which Restricted Stock is
restricted, and any other restrictions to which the Restricted Stock is subject.
The Incentive Plan Committee may condition the award of Restricted Stock on such
performance goals and other criteria as it may determine. The terms and
conditions of the Restricted Stock shall be confirmed in and subject to an
agreement between the Company and the participant. During the restriction
period, the Incentive Plan Committee may require that the certificates
evidencing the Restricted Stock be held by the Company. During the restriction
period, the Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered. Other than the foregoing restrictions imposed by the
Incentive Plan Committee, the participant shall have all the rights of a holder
of Common Stock. If a participant's employment terminates during the restriction
period
15
<PAGE>
due to death or disability, the restrictions on the Restricted Stock shall
lapse. If a participant's employment shall terminate for any other reason,
unless otherwise agreed by the Incentive Plan Committee, the remaining
Restricted Stock shall be forfeited by the participant to the Company.
DEFERRED STOCK. Deferred Stock awards are grants of rights to receive
shares of Common Stock, cash or a combination thereof at the end of a specified
deferral period. The Incentive Plan Committee in its discretion shall determine
the persons to whom Deferred Stock shall be granted, the number of shares of
Deferred Stock to be granted to each participant, the duration of the period
prior to which Common Stock will be delivered, the conditions under which
receipt of the Common Stock will be deferred, and any other terms and conditions
of the granting of the award. The terms and conditions of the Deferred Stock
shall be confirmed in and subject to an agreement between the Company and the
participant. The Incentive Plan Committee may condition the award of Deferred
Stock on such performance goals and criteria that it may determine. During the
deferral period, the Deferred Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered. At the expiration of the deferral period, the
Incentive Plan Committee may deliver to the participant Common Stock, cash equal
to the fair market value of such Common Stock or a combination thereof for the
shares covered by the Deferred Stock awards. Cash dividends on Common Stock
subject to Deferred Stock awards shall be automatically deferred and reinvested
in Deferred Stock and stock dividends on Common Stock subject to Deferred Stock
awards shall be paid in the form of Deferred Stock. If a participant's
employment terminates during the deferral period due to death or disability, the
deferral restrictions shall lapse. If a participant's employment terminates for
any other reason, unless otherwise agreed by the Incentive Plan Committee, the
rights to the shares still covered by Deferred Stock awards shall be forfeited
by the participant.
BONUS STOCK AND AWARDS IN LIEU OF CASH OBLIGATIONS. The Incentive Plan
Committee is authorized to grant shares of Common Stock as a bonus free of
restrictions, or to grant shares of Common Stock or other awards in lieu of
Company obligations to pay cash under other plans or compensatory arrangements,
subject to such terms as the Incentive Plan Committee may specify.
DIVIDEND EQUIVALENTS. The Incentive Plan Committee is authorized to grant
dividend equivalents conferring on participants the right to receive, currently
or on a deferred basis, cash, shares of Common Stock, other awards or other
property equal in value to dividends paid on a specified number of shares of
Common Stock. Dividend equivalents may be granted on a free-standing basis or in
connection with another award, may be paid currently or on a deferred basis,
and, if deferred, may be deemed to have been reinvested in additional shares of
Common Stock, awards or other investment vehicles specified by the Incentive
Plan Committee.
OTHER STOCK-BASED AWARDS. The Incentive Plan authorizes the Incentive Plan
Committee to grant awards that are denominated or payable in, valued by
reference to, or otherwise based on or related to the Common Stock. Such awards
might include convertible or exchangeable debt securities, other rights
convertible or exchangeable into shares, purchase rights for shares, awards with
value and payment contingent upon performance of the Company or any other
factors designated by the Incentive Plan Committee, and awards valued by
reference to the book value of shares of Common Stock or the value of securities
of or the performance of specified subsidiaries. The Incentive Plan Committee
shall determine the terms and conditions of such awards, including consideration
to be paid to exercise awards in the nature of purchase rights, the period
during which awards will be outstanding and forfeiture conditions and
restrictions on awards.
PERFORMANCE AWARDS, INCLUDING CASH INCENTIVE AWARDS. The right of a
participant to exercise or receive a grant or settlement of an award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Incentive Plan Committee. In addition, the Incentive Plan
authorizes specific cash incentive awards, which represent a conditional right
to receive cash upon achievement of preestablished performance goals during
calendar years, quarters or other periods specified by the Incentive Plan
Committee. Performance awards and cash incentive awards granted to persons the
Incentive Plan
16
<PAGE>
Committee expects will, for the year in which a deduction arises, be among the
Named Executive Officers, will, if so intended by the Incentive Plan Committee,
be subject to provisions that should qualify such awards as "performance-based
compensation" not subject to the limitation on tax deductibility by the Company
under Section 162(m).
The performance goals to be achieved as a condition or payment or settlement
of a performance award or annual incentive award will consist of (i) one or more
business criteria and (ii) a targeted level or levels of performance with
respect to each business criteria. In the case of performance awards intended to
meet the requirements of Section 162(m), the business criteria used must be one
of those specified in the Incentive Plan, although for other participants the
Incentive Plan Committee may specify any other criteria. The business criteria
specified in the Incentive Plan are (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis) of a
publicly available index such as, but not limited to, the Standard & Poor's 500
or the Nasdaq-U.S. Index; (3) net income; (4) pre-tax earnings; (5) EBITDA; (6)
pre-tax operating earnings after interest expense and before bonuses, service
fees and extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on investment;
(12) operating income before payment of executive bonuses; (13) earnings per
share before payment of executive bonuses; (14) working capital; and (15) total
revenues.
In granting cash incentive awards, the Incentive Plan Committee may grant
awards on an individual basis or may establish an unfunded cash incentive award
"pool," in either case, the amount of which will be based upon the achievement
of a performance goal or goals based on one or more of the business criteria
described in the preceding paragraph. During the period required by Section
162(m), the Incentive Plan Committee will determine who will potentially receive
cash incentive awards for the specified performance period, either individually
or out of the pool or otherwise. After the end of the specified performance
period, the Incentive Plan Committee will determine the amount, if any, of the
maximum amount of any potential individual cash incentive award payable to a
participant or the maximum amount of potential cash incentive awards payable to
each participant in the pool. Pursuant to the amendment and restatement proposed
hereby, the maximum cash incentive award payable to any one participant in any
fiscal year shall not exceed 3.0% of the Company's gross revenues for such
fiscal year. The Incentive Plan Committee may, in its discretion, determine that
the amount payable as a final cash incentive award will be increased or reduced
from the amount of any potential award, but may not exercise discretion to
increase any such amount intended to qualify under Section 162(m).
Subject to the requirements of the Incentive Plan, the Incentive Plan
Committee will determine other performance award and cash incentive award terms,
including the required levels of performance with respect to the business
criteria, the corresponding amounts payable upon achievement of such levels of
performance, termination and forfeiture provisions and the form of settlement.
All determinations by the Incentive Plan Committee relating to performance
awards and cash incentive awards will be made in writing with respect to any
award intended to qualify under Section 162(m).
OTHER TERMS OF AWARDS. Awards may be settled in the form of cash, shares,
other awards or other property, in the discretion of the Incentive Plan
Committee. The Incentive Plan Committee may accelerate the settlement of any
award. The Incentive Plan Committee may also require or permit participants to
defer the settlement of all or part of an award in accordance with such terms
and conditions as the Incentive Plan Committee may establish, including payment
or crediting of interest or dividend equivalents on deferred amounts, and the
crediting of earnings, gains and losses based on deemed investment of deferred
amounts in specified investment vehicles. The Incentive Plan Committee is
authorized to place cash, shares of Common Stock or other property in trusts or
make other arrangements to provide for payment of the Company's obligations
under the Incentive Plan. The Incentive Plan Committee may condition any payment
relating to an award on the withholding of taxes and may provide that a portion
of any shares of Common Stock or other property to be distributed will be
withheld (or previously acquired shares of Common Stock or other property
surrendered by the participant) to satisfy withholding and other
17
<PAGE>
tax obligations. Awards granted under the Incentive Plan generally may not be
pledged or otherwise encumbered and are not transferable except by will or by
the laws of descent and distribution, or to a designated beneficiary upon the
participant's death.
CHANGES IN CONTROL
Upon the occurrence of a Change in Control (as hereinafter defined), the
following shall occur: (i) all unexercised stock options and SARs shall become
immediately exercisable, (ii) all restrictions on the Restricted Stock and
deferral limitations on the Deferred Stock shall lapse and (iii) the performance
goals and other conditions with respect to any outstanding performance award or
cash incentive award shall be deemed satisfied in full, and such award shall be
fully distributable, to the extent provided by the Incentive Plan Committee in
an award agreement or otherwise. In addition, unless the Incentive Plan
Committee provides otherwise in an option agreement, after the Change in Control
a participant shall have the right to surrender all or part of the outstanding
awards and receive in cash from the Company the following amount for each award:
(i) the excess of the Change in Control Price over the exercise price of the
award, multiplied by (ii) the number of shares of Common Stock subject to the
award. The "Change in Control Price" is the higher of (i) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on the Nasdaq Stock Market
during the 60-day period prior to the Change of Control, or (ii) if the Change
in Control event is a tender offer, merger or other reorganization, the highest
price to be paid per share of Common Stock in such transaction.
For purposes of the Incentive Plan, a "Change in Control" shall be deemed to
have occurred if (i) any corporation, person or other entity (other than the
Company, a majority-owned subsidiary of the Company or any of its subsidiaries,
or an employee benefit plan (or related trust) sponsored or maintained by the
Company), including a "group" as defined in Section 13(d)(3) of the 1934 Act,
becomes the beneficial owner of stock representing more than the greater of (a)
25% of the combined voting power of the Company's then outstanding securities or
(b) the percentage of the combined voting power of the Company's then
outstanding securities which equals (1) 10% plus (2) the percentage of the
combined voting power of the Company's outstanding securities held by such
corporation, person or entity on the effective date of the Incentive Plan;
(ii)(a) the stockholders of the Company approve a definitive agreement to merge
or consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (b) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (iii) the stockholders of the Company approve a
plan of liquidation of the Company; or (iv) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24-month period by or upon the recommendation of persons who were
members of the Board of Directors of the Company immediately prior to such
24-month period and who constituted a majority of the Board of Directors of the
Company at the time of such election, cease to constitute a majority of the
Board.
DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following summary of Federal income tax consequences with respect to
awards under the Incentive Plan is not comprehensive and is based upon laws and
regulations currently in effect. Such laws and regulations are subject to
change.
STOCK OPTIONS. There are generally no Federal income tax consequences
either to the participant or to the Company upon the grant of a stock option. On
exercise of an incentive stock option, the participant will not recognize any
income and the Company will not be entitled to a deduction for tax purposes,
18
<PAGE>
although such exercise may give rise to liability for the participant under the
alternative minimum tax provisions of the Code. Generally, if the participant
disposes of shares acquired upon exercise of an incentive stock option within
two years of the date of grant or one year of the date of exercise, the
participant will recognize compensation income and the Company will be entitled
to a deduction for tax purposes in the amount of the excess of the fair market
value of the shares on the date of exercise over the option exercise price (or
the gain on sale, if less). Otherwise, the Company will not be entitled to any
deduction for tax purposes upon disposition of such shares, and the entire gain
for the participant will be treated as a capital gain. On exercise of a
non-qualified stock option, the amount by which the fair market value of the
shares on the date of exercise exceeds the option exercise price (the "spread")
will generally be taxable to the participant as compensation income and will
generally be deductible for tax purposes by the Company. In determining the
amount of the spread or the amount of consideration paid to the participant, the
fair market value of the Common Stock on the date of exercise generally is used.
However, in the case of a 16(b) Person, the fair market value will be determined
six months after the date on which the option was granted if such date is later
than the exercise date, unless such participant elects to be taxed based on the
fair market value at the date of exercise. Any such election, a "Section 83(b)
Election", must be made and filed with the IRS within 30 days after exercise in
accordance with the regulations under Section 83(b) of the Code. The Company, in
computing its Federal income tax, will be entitled to a deduction in an amount
equal to the compensation taxable to the participant.
STOCK APPRECIATION RIGHTS. Upon the grant of an SAR, the participant will
not recognize any taxable income and the Company will not be entitled to a
deduction. Upon the exercise of an SAR, the consideration paid to the
participant upon exercise of the SAR will constitute compensation taxable to the
participant as ordinary income. In determining the amount of the consideration
paid to the participant upon the exercise of an SAR for Common Stock, the fair
market value of the shares on the date of exercise generally is used. However,
in the case of a 16(b) Person, the fair market value will be determined six
months after the date on which the SAR was granted if such date is later than
the exercise date, unless such participant makes a Section 83(b) Election to be
taxed based on the fair market value at the date of exercise. The Company, in
computing its Federal income tax, generally will be entitled to a deduction in
an amount equal to the compensation taxable to the participant.
OTHER AWARDS. With respect to awards granted under the Incentive Plan that
result in the payment or issuance of cash or shares of Common Stock or other
property that is either not restricted as to transferability or not subject to a
substantial risk of forfeiture, the participant must generally recognize
ordinary income equal to the cash or the fair market value of shares or other
property received. Thus, deferral of the time of payment or issuance will
generally result in the deferral of the time at which the participant will be
liable for income taxes with respect to such payment or issuance. The Company
generally will be entitled to a deduction in an amount equal to the ordinary
income received by the participant. With respect to awards involving the
issuance of shares of Common Stock or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the first time the shares or other property
becomes transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier. The Company will be entitled to a deduction in an
amount equal to the ordinary income received by the participant. A participant
may make a Section 83(b) Election to be taxed at the time of receipt of shares
or other property rather than upon lapse of restrictions on transferability or
the substantial risk of forfeiture. However, if the participant subsequently
forfeits such shares or property, such participant would not be entitled to any
tax deduction, including as a capital loss, for the value of the shares or
property on which such participant previously paid tax. The participant must
file the Section 83(b) Election with the Internal Revenue Service within 30 days
of the receipt of the shares or other property.
SECTION 162(m) OF THE CODE. Section 162(m) of the Code generally disallows
a public company's tax deduction for compensation to the Named Officers in
excess of $1,000,000 in any tax year. Compensation
19
<PAGE>
that qualifies as "performance-based compensation" is excluded from the
$1,000,000 deductibility cap, and therefore remains fully deductible by the
company that pays it.
The Company intends that options, SARs granted with an exercise price equal
to at least 100% of fair market value of the underlying shares at the date of
grant, and annual incentive awards and certain long-term performance-based
awards granted to employees whom the Incentive Plan Committee expects to be
Named Executive Officers at the time a deduction arises in connection with such
awards, qualify as "performance-based compensation." Accordingly, such awards
should not be subject to the Section 162(m) deductibility cap of $1,000,000.
Other awards may be granted under the Incentive Plan which do not qualify as
"performance-based compensation" that is fully deductible by the Company under
Section 162(m), so that compensation paid to persons who are Named Executive
Officers in connection with such awards will, to the extent such compensation
and other compensation subject to the Section 162(m) deductibility cap in a
given year exceeds $1,000,000, be subject to the Section 162(m) deductibility
cap.
PARACHUTE PAYMENTS. In the event any payments or rights accruing to a
participant upon a Change in Control, or any other payments awarded or
accelerated under the Incentive Plan, constitute "parachute payments" under
Section 280G of the Code, depending upon the amount of such payments accruing
and the other income of the participant from the Company, the participant may be
subject to a 20% excise tax (in addition to ordinary income tax) and the Company
may be disallowed a deduction for the amount of any excess parachute payment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT AND RESTATEMENT OF THE COMPANY'S 1995 EMPLOYEE INCENTIVE COMPENSATION
PLAN.
20
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF AUDITORS
The Company's Board of Directors, upon the recommendation of the Company's
Audit Committee, has appointed Ernst & Young LLP, independent certified public
accountants, as auditors of the Company's financial statements for the fiscal
year ending May 31, 1997. Ernst & Young LLP has acted as auditors for the
Company since 1991.
The Board has determined to afford stockholders the opportunity to express
their opinions on the matter of auditors, and, accordingly, is submitting to the
stockholders at the Annual Meeting a proposal to ratify the Board's appointment
of Ernst & Young LLP. If a majority of the shares voted affirmatively or
negatively at the Annual Meeting, in person or by proxy, are not voted in favor
of the ratification of the appointment of Ernst & Young LLP, the Board of
Directors will interpret this as an instruction to seek other auditors.
It is expected that representatives of Ernst & Young LLP will be present at
the meeting and will be available to respond to questions. They will be given an
opportunity to make a statement if they desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS
OF THE COMPANY'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDING MAY 31, 1997.
MISCELLANEOUS MATTERS
SOLICITATION -- The cost of this proxy solicitation will be borne by the
Company. The Company has engaged its transfer agent, American Stock Transfer and
Trust Company LLP, to assist in the required search for beneficial owners of the
Company's Common Stock and in the distribution of proxy materials. The Company
may also request banks, brokers, fiduciaries, custodians, nominees and certain
other record holders to send proxies, proxy statements and other materials to
their principals at the Company's expense. Such banks, brokers, fiduciaries,
custodians, nominees and other record holders will be reimbursed by the Company
for their reasonable out-of-pocket expenses of solicitation. The Company does
not anticipate that costs and expenses incurred in connection with this proxy
solicitation will exceed an amount normally expended for a proxy solicitation
for an election of directors in the absence of a contest.
PROPOSALS OF STOCKHOLDERS -- Proposals of stockholders intended to be
considered at the 1997 Annual Meeting of Stockholders must be received by the
Secretary of the Company not less than 120 days nor more than 150 days prior to
September 13, 1997.
ADDITIONAL INFORMATION -- The Company will furnish, without charge, a copy
of its Annual Report on Form 10-K for its fiscal year ended May 31, 1996, as
filed with the Commission, upon the written request of any person who is a
stockholder as of the Record Date. Requests for such materials should be
directed to Platinum Entertainment, Inc., 2001 Butterfield Road, Suite 1400,
Downers Grove, Illinois 60515, Attention: Douglas C. Laux.
By order of the Board of Directors
Steven Devick
CHAIRMAN OF THE BOARD
Downers Grove, Illinois
September 13, 1996
21
<PAGE>
PLATINUM ENTERTAINMENT, INC.
1995 EMPLOYEE INCENTIVE COMPENSATION PLAN
AS AMENDED AND RESTATED EFFECTIVE JUNE 1, 1996
P-1
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
ESTABLISHMENT...............................................................P-6
1.1 PURPOSE..........................................................P-6
ARTICLE II
DEFINITIONS.................................................................P-6
2.1 "AFFILIATE"......................................................P-6
2.2 "AGREEMENT" or "AWARD AGREEMENT".................................P-6
2.3 "AWARD"..........................................................P-7
2.4 "BENEFICIARY"....................................................P-7
2.5 "BOARD OF DIRECTORS" or "BOARD"..................................P-7
2.6 "CASH INCENTIVE AWARD"...........................................P-7
2.7 "CAUSE"..........................................................P-7
2.8 "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE"................P-7
2.9 "CODE" or "INTERNAL REVENUE CODE"................................P-7
2.10 "COMMISSION".....................................................P-7
2.11 "COMMITTEE"......................................................P-8
2.12 "COMMON STOCK"...................................................P-8
2.13 "COMPANY"........................................................P-8
2.14 "COVERED EMPLOYEE"...............................................P-8
2.15 "DEFERRED STOCK".................................................P-8
2.16 "DISABILITY".....................................................P-8
2.17 "DISINTERESTED PERSON"...........................................P-8
2.18 "DIVIDEND EQUIVALENT"............................................P-8
2.19 "EFFECTIVE DATE".................................................P-8
2.20 "EXCHANGE ACT"...................................................P-9
2.21 "FAIR MARKET VALUE"..............................................P-9
2.22 "GRANT DATE".....................................................P-9
2.23 "INCENTIVE STOCK OPTION".........................................P-9
2.24 "NASDAQ".........................................................P-9
2.25 "NON-EMPLOYEE DIRECTOR"..........................................P-9
2.26 "NON-QUALIFIED STOCK OPTION".....................................P-9
2.27 "OPTION".........................................................P-9
2.28 "OPTION PERIOD"..................................................P-9
2.29 "OPTION PRICE"...................................................P-9
2.31 "PARTICIPANT"....................................................P-9
2.32 "PERFORMANCE AWARD".............................................P-10
2.33 "PLAN"..........................................................P-10
2.34 "REPRESENTATIVE"................................................P-10
2.35 "RESTRICTED STOCK"..............................................P-10
2.36 "RETIREMENT"....................................................P-10
P-2
<PAGE>
PAGE
2.37 "RULE 16b-3"and "RULE 16a-1(c)(3)"..............................P-10
2.38 "SECURITIES ACT"................................................P-10
2.39 "STOCK APPRECIATION RIGHT"......................................P-10
2.40 "STOCK OPTION" .................................................P-11
2.41 "TERMINATION OF EMPLOYMENT".....................................P-11
ARTICLE III
ADMINISTRATION.............................................................P-11
3.1 COMMITTEE STRUCTURE AND AUTHORITY...............................P-11
ARTICLE IV
STOCK SUBJECT TO PLAN......................................................P-14
4.1 NUMBER OF SHARES................................................P-14
4.2 RELEASE OF SHARES...............................................P-14
4.3 RESTRICTIONS ON SHARES..........................................P-14
4.4 STOCKHOLDER RIGHTS..............................................P-15
4.5 BEST EFFORTS TO REGISTER........................................P-15
4.6 ANTI-DILUTION...................................................P-15
ARTICLE V
ELIGIBILITY................................................................P-16
5.1 ELIGIBILITY.....................................................P-16
ARTICLE VI
STOCK OPTIONS..............................................................P-16
6.1 GRANT OF STOCK OPTIONS TO PARTICIPANTS WHO ARE NOT NON-EMPLOYEE
DIRECTORS.......................................................P-16
6.2 GRANT OF DIRECTOR OPTIONS.......................................P-17
6.3 TERMS AND CONDITIONS............................................P-17
6.4 TERMINATION BY REASON OF DEATH..................................P-20
6.5 TERMINATION BY REASON OF DISABILITY.............................P-20
6.6 OTHER TERMINATION...............................................P-20
6.7 CASHING OUT OF OPTION...........................................P-21
ARTICLE VII
STOCK APPRECIATION RIGHTS..................................................P-21
7.1 GENERAL.........................................................P-21
7.2 GRANT...........................................................P-21
7.3 TERMS AND CONDITIONS............................................P-22
P-3
<PAGE>
PAGE
ARTICLE VIII
RESTRICTED STOCK...........................................................P-23
8.1 GENERAL.........................................................P-23
8.2 AWARDS AND CERTIFICATES.........................................P-24
8.3 TERMS AND CONDITIONS............................................P-24
ARTICLE IX
DEFERRED STOCK.............................................................P-25
9.1 GENERAL.........................................................P-25
9.2 TERMS AND CONDITIONS............................................P-25
ARTICLE X
OTHER AWARDS...............................................................P-26
10.1 BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS...................P-27
10.2 DIVIDEND EQUIVALENTS............................................P-27
10.3 OTHER STOCK-BASED AWARDS........................................P-27
10.4 PERFORMANCE AWARDS..............................................P-27
ARTICLE XI
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN.....................P-30
11.1 LIMITED TRANSFER DURING OFFERING................................P-31
11.2 COMMITTEE DISCRETION............................................P-31
11.3 NO COMPANY OBLIGATION...........................................P-31
ARTICLE XII
CHANGE IN CONTROL PROVISIONS...............................................P-31
12.1 IMPACT OF EVENT.................................................P-31
12.3 CHANGE IN CONTROL PRICE.........................................P-33
ARTICLE XIII
MISCELLANEOUS..............................................................P-33
13.1 AMENDMENTS AND TERMINATION......................................P-33
13.2 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS..........P-34
13.3 FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS..............P-35
13.4 STATUS OF AWARDS UNDER CODE SECTION 162(m)......................P-35
13.5 UNFUNDED STATUS OF PLAN; LIMITS ON TRANSFERABILITY..............P-35
13.6 GENERAL PROVISIONS..............................................P-35
13.7 MITIGATION OF EXCISE TAX........................................P-37
13.8 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT................P-38
P-4
<PAGE>
PAGE
13.9 AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER
CORPORATIONS....................................................P-38
13.10 PROCEDURE FOR ADOPTION..........................................P-38
13.11 PROCEDURE FOR WITHDRAWAL........................................P-38
13.12 DELAY...........................................................P-39
13.13 HEADINGS........................................................P-39
13.14 SEVERABILITY....................................................P-39
13.15 SUCCESSORS AND ASSIGNS..........................................P-39
13.16 ENTIRE AGREEMENT................................................P-39
P-5
<PAGE>
PLATINUM ENTERTAINMENT, INC.
1995 EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT
1.1 PURPOSE.
The Platinum Entertainment, Inc. 1995 Employee Incentive Compensation Plan
("Plan") previously established by Platinum Entertainment, Inc. ("Company") and
amended and restated effective as of January 1, 1996 is hereby amended and
restated in its entirety, effective as of June 1, 1996. The purpose of the Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. The Plan is intended to qualify certain compensation awarded under the
Plan for tax deductibility under Section 162(m) of the Code (as defined herein)
to the extent deemed appropriate by the Committee (as defined herein). The Plan
as amended and restated and the grant of awards thereunder, to the extent
affected by the amendment and restatement or granted after the effective date of
the amendment and restatement, are expressly conditioned upon the Plan's
approval by the stockholders of the Company. If such approval is not obtained,
then this Plan and all Awards (as defined herein) to the extent affected by the
amendment and restatement or granted after the effective date of the amendment
and restatement hereunder shall be null and void AB INITIO. The Plan as amended
and restated is adopted, subject to stockholder approval, effective as of June
1, 1996.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "AFFILIATE" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "AGREEMENT" or "AWARD AGREEMENT" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
P-6
<PAGE>
2.3 "AWARD" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock, Dividend Equivalent, Other Stock-Based Award, Performance Award or Cash
Incentive Award, together with any other right or interest granted to a
Participant under the Plan.
2.4 "BENEFICIARY" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted hereunder. If, upon a Participant's
death, there is no designated Beneficiary or surviving designated Beneficiary,
then the term Beneficiary means the person, persons, trust or trusts entitled by
will or the laws of descent and distribution to receive such benefits.
2.5 "BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the
Company.
2.6 "CASH INCENTIVE AWARD" means a conditional right granted to a
Participant under Section 10.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.
2.7 "CAUSE" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or act of omission which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or act of omission of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.
2.8 "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the meanings
set forth in Sections 12.2 and 12.3, respectively.
2.9 "CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.10 "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
P-7
<PAGE>
2.11 "COMMITTEE" means the person or persons appointed to administer this
Plan, as further described herein.
2.12 "COMMON STOCK" means the shares of the regular voting Common Stock,
$.001 par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.13 "COMPANY" means Platinum Entertainment, Inc., a Delaware
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.14 "COVERED EMPLOYEE" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.15 "DEFERRED STOCK" means a right, granted to a Participant under
Section 9.1 hereof, to receive Common Stock, cash or a combination thereof at
the end of a specified deferral period.
2.16 "DISABILITY" means a mental or physical illness that entitles the
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or incurred
while participating in a criminal offense. The determination of Disability
shall be made by the Committee. The determination of Disability for purposes of
this Plan shall not be construed to be an admission of disability for any other
purpose.
2.17 "DISINTERESTED PERSON" shall have the meaning set forth in Rule 16b-
3, or any successor definition adopted by the Commission, and shall mean a
person who is also an "outside director" under Section 162(m) of the Code.
2.18 "DIVIDEND EQUIVALENT" means a right, granted to a Participant under
Section 10.2, to receive cash, Common Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Common Stock.
2.19 "EFFECTIVE DATE" means as to the Plan's amendment and restatement,
June 1, 1996.
P-8
<PAGE>
2.20 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.21 "FAIR MARKET VALUE" means the fair market value of Common Stock,
Awards, or other property as determined by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee and
in the event of grants of Directors Options under Section 6.2, the Fair Market
Value per share of Common Stock as of any given date shall be the closing sale
price per share reported on a consolidated basis for stock listed on the
principal stock exchange or market on which Common Stock is traded on the date
as of which such value is being determined or, if there is no sale on that date,
then on the last previous day on which a sale was reported.
2.22 "GRANT DATE" means the date as of which an Award is granted pursuant
to the Plan.
2.23 "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.24 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.25 "NON-EMPLOYEE DIRECTOR" means each and any director who serves on the
Board and who is not an officer or employee of the Company or any of its
Affiliates.
2.26 "NON-QUALIFIED STOCK OPTION" means an Option to purchase Common
Stock in the Company granted under the Plan, the taxation of which is pursuant
to Section 83 of the Code.
2.27 "OPTION" means a right, granted to a Participant under Section 6.1
hereof, to purchase Common Stock or other Awards at a specified price during
specified time periods.
2.28 "OPTION PERIOD" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.29 "OPTION PRICE" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.30 "OTHER STOCK BASED AWARDS" means Awards granted to a Participant
under Section 10.3 hereof.
2.31 "PARTICIPANT" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such
P-9
<PAGE>
Representative. The term shall also include a trust for the benefit of the
Participant, a partnership the interest of which is held by or for the benefit
of the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with Rule 16b-3. Notwithstanding the foregoing, the term
"Termination of Employment" shall mean the Termination of Employment of the
person to whom the Award was originally granted.
2.32 "PERFORMANCE AWARD" means a right, granted to a Participant under
Section 10.4 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.33 "PLAN" means the Platinum Entertainment, Inc. 1995 Employee
Incentive Compensation Plan, as herein set forth and as may be amended from time
to time.
2.34 "REPRESENTATIVE" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been transferred with the permission of the
Committee; provided that only one of the foregoing shall be the Representative
at any point in time as determined under applicable law and recognized by the
Committee.
2.35 "RESTRICTED STOCK" means Common Stock granted to a Participant under
Section 8.1 hereof, that is subject to certain restrictions and to a risk of
forfeiture.
2.36 "RETIREMENT" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.37 "RULE 16b-3"and "RULE 16a-1(c)(3)" mean Rule 16b-3 and Rule 16a-
1(c)(3), as from time to time in effect and applicable to the Plan and
Participants, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act.
2.38 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.39 "STOCK APPRECIATION RIGHT" means a right granted under Article VII.
P-10
<PAGE>
2.40 "STOCK OPTION" means a right, granted to a Participant under
Sections 6.1 or 6.2 hereof, to purchase Common Stock.
2.41 "TERMINATION OF EMPLOYMENT" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, independent contractor, director or employee of the Company or
of any Affiliate of the Company, or to be an officer, independent contractor,
director or employee of any entity that provides services to the Company or a
Affiliate of the Company, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee with
respect to the Company or a Affiliate of the Company, the Agreement shall
establish what act or event shall constitute a Termination of Employment for
purposes of the Plan. A transfer of employment from the Company to a Affiliate,
or from a Affiliate to the Company, will not be a Termination of Employment,
unless expressly determined by the Committee. A Termination of Employment shall
occur for an employee who is employed by a Affiliate of the company if the
Affiliate shall cease to be a Affiliate and the Participant shall not
immediately thereafter become an employee of the Company or a Affiliate of the
Company.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 COMMITTEE STRUCTURE AND AUTHORITY. Prior to the date of the first
registration of an equity security of the Company under the Exchange Act (the
"Registration Date"), the Plan shall be administered by the Board of Directors.
From and after the Registration Date, the Plan shall be administered by the
Committee which shall be comprised of one or more persons. The Committee shall
be the Compensation Committee of the Board of Directors, unless such committee
does not exist or the Board establishes or identifies another committee whose
purpose is the administration of this Plan; provided that only those members of
the Committee who participate in the decision relative to Awards under this Plan
shall be deemed to be the "Committee" for purposes of this Plan. The Committee
shall be comprised of such number of Disinterested Persons as is required for
application of Rule 16b-3 and the deduction of compensation under Section 162(m)
of the Code. In the absence of an appointment, the Board or the portion thereof
that is a Disinterested Person shall be the Committee. A majority of the
Committee shall constitute a quorum at any meeting thereof (including by
telephone conference) and the acts of a majority of the members present, or acts
approved in writing by a majority of the entire Committee
P-11
<PAGE>
without a meeting, shall be the acts of the Committee for purposes of this Plan.
The Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member
of the Committee shall not exercise any discretion respecting himself or herself
under the Plan. The Board shall have the authority to remove, replace or fill
any vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
Board. The Committee may allocate among one or more of its members, or may
delegate to one or more of its agents, such duties and responsibilities as it
determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan and the limitation of section (c)(2)(ii) of Rule 16b-3 so that
the Plan is described in that section:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Awards or any
combination thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each stock-based Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Award, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);
(e) to adjust the terms and conditions, at any time or from time
to time, of any Award, subject to the limitations of Section 13.1;
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall be
deferred;
(g) to determine under what circumstances an Award may be
settled in cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable
to the Plan, Awards and the issuance of shares of Common Stock under the
Plan and
P-12
<PAGE>
to require of a Participant that appropriate action be taken with respect
to such requirements;
(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to
the remaining number of shares of Common Stock available under this Plan;
(m) to require, as a condition of the exercise of an Award or
the issuance or transfer of a certificate of Common Stock, the withholding
from a Participant of the amount of any Federal, state or local taxes as
may be necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock from a Participant and, if so,
the terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer
of Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion, and in the case of any determination
relating
P-13
<PAGE>
to an Award, may be made at the time of the grant of the Award or, unless in
contravention of any express term of the Plan or an Agreement, at any time
thereafter. All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to DE NOVO review if challenged
in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 5,000,000 shares of Common Stock
authorized for issuance on the Effective Date (after taking into account the 1-
for-25 reverse stock split effected on March 4, 1996 (the "Reverse Split"). In
any one fiscal year, shares of Common Stock covered by Awards issued during such
year shall not exceed the greater of (i) 500,000 shares (after taking into
account the Reverse Split and subject to adjustment under Section 4.6) and (ii)
ten percent (10%) of the shares of Common Stock outstanding at the date of the
Annual Meeting of the Stockholders of the Company held during such fiscal year.
Such shares may consist, in whole or in part, of authorized and unissued shares
or treasury shares.
4.2 RELEASE OF SHARES. The Committee shall have full authority to
determine the number of shares of Common Stock available for Award, and in its
discretion may include (within limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to an Award, any shares of
Common Stock subject to any Award that are forfeited, any Award that otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of an Award, including
the satisfaction of any tax liability or the satisfaction of a tax withholding
obligation. If any shares could not again be available for Options to a
particular Participant under applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.
4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. The Company
shall not be required to issue or deliver any certificates for shares of Common
Stock, cash or other property prior to (i) the listing of such shares on any
stock exchange or NASDAQ (or other public market) on which the Common Stock may
then be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain
P-14
<PAGE>
a deduction with respect to the exercise of an Award. The Company may cause any
certificate for any share of Common Stock to be delivered to be properly marked
with a legend or other notation reflecting the limitations on transfer of such
Common Stock as provided in this Plan or as the Committee may otherwise require.
The Committee may require any person exercising an Award to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the shares of Common Stock in
compliance with applicable law or otherwise. Fractional shares shall not be
delivered, but shall be rounded to the next lower whole number of shares.
4.4 STOCKHOLDER RIGHTS. No person shall have any rights of a
stockholder as to shares of Common Stock subject to an Award until, after proper
exercise of the Award or other action required, such shares shall have been
recorded on the Company's official stockholder records as having been issued and
transferred. Upon exercise of the Award or any portion thereof, the Company
will have thirty (30) days in which to issue the shares, and the Participant
will not be treated as a stockholder for any purpose whatsoever prior to such
issuance. No adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date such shares are recorded as issued
and transferred in the Company's official stockholder records, except as
provided herein or in an Agreement.
4.5 BEST EFFORTS TO REGISTER. The Company will register under the
Securities Act the Common Stock delivered or deliverable pursuant to Awards on
Commission Form S-8 if available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon after stockholder approval of the Plan
as the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its best efforts to cause the registration
statement to become effective and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting company under the Exchange Act and (c) the date all
Participants have disposed of all shares delivered pursuant to any Award.
4.6 ANTI-DILUTION. In the event of any Company stock dividend, stock
split, reverse stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, a partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee shall adjust or substitute,
as the case may be, the number of shares of Common Stock available for Awards
under the Plan, the number of shares of Common Stock covered by outstanding
Awards, the maximum number of Awards available for grant to any
P-15
<PAGE>
Participant for a stated period of time (including the maximum number of Stock
Appreciation Rights), the number of Director Options granted pursuant to Section
6.2, the exercise price per share of outstanding Awards, and performance
conditions and any other characteristics or terms of the Awards as the Committee
shall deem necessary or appropriate to reflect equitably the effects of such
changes to the Participants; provided, however, that the Committee may limit any
such adjustment so as to maintain the deductibility of the Awards under Section
162(m) of the Code and that any fractional shares resulting from such adjustment
shall be eliminated by rounding to the next lower whole number of shares with
appropriate payment for such fractional shares as shall reasonably be determined
by the Committee.
ARTICLE V
ELIGIBILITY
5.1 ELIGIBILITY. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
subsidiary of the Company, who shall be in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its Subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Award
with respect to Participants, the Committee may give consideration to the
person's functions and responsibilities, the person's contributions to the
Company and its Subsidiaries, the value of the individual's service to the
Company and its Subsidiaries and such other factors deemed relevant by the
Committee. The Committee may designate in writing any person who is not
eligible to participate in the Plan if such person would otherwise be eligible
to participate in this Plan (and members of the Committee, except as provided in
Section 6.2, are expressly excluded to the extent such persons are intended to
be Disinterested Persons).
ARTICLE VI
STOCK OPTIONS
6.1 GRANT OF STOCK OPTIONS TO PARTICIPANTS WHO ARE NOT NON-EMPLOYEE
DIRECTORS. The Committee shall have authority to grant Stock Options under the
Plan at any time or from time to time, to Participants who are not Non-Employee
Directors. The grant of a Stock Option to such Participants shall occur as of
the date the Committee determines. Stock Options to such Participants may be
granted alone or in addition to other Awards and may be either Incentive Stock
Options or Non-Qualified Stock Options. An Option shall entitle such
Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction
P-16
<PAGE>
in full of any conditions, restrictions or limitations imposed in accordance
with the Plan or an Agreement (the terms and provisions of which may differ from
other Agreements), including, without limitation, payment of the Option Price.
During any fiscal year, and subject to the limitation set forth in Section 4.1,
Options to purchase no more than 500,000 shares of Common Stock (after taking
into account the Reverse Split, and subject to adjustment under Section 4.6)
shall be granted to any Participant.
Each Option granted under this Plan shall be evidenced by an Agreement, in
a form approved by the Committee, which shall embody the terms and conditions of
such Option and which shall be subject to the express terms and conditions set
forth in the Plan. Such Agreement shall become effective upon execution by the
Participant. Only a person who is a common-law employee of the Company, any
parent corporation of the Company or a subsidiary (as such terms are defined in
Section 424 of the Code) on the date of grant shall be eligible to be granted an
Option which is intended to be and is an Incentive Stock Option. To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Non-Qualified Stock Option. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be exercised, so as to disqualify the Plan under
Section 422 of the Code or, without the consent of the Participant affected, to
disqualify any Incentive Stock Option under such Section 422.
6.2 GRANT OF DIRECTOR OPTIONS. On March 1, 1996, subject to
availability of shares of Common Stock under the Plan, each Non-Employee
Director who is still a Non-Employee Director on such date shall be granted an
option ("Director Option") to purchase 375,000 shares of Common Stock without
further action by the Board or the Committee. Such Directors Options shall vest
in three equal increments on each of the first three anniversaries of the
closing of the initial public offering of the Company's Common Stock subject to
the Non-Employee Director continuing to be a Non-Employee Director on the
vesting date. If the number of shares of Common Stock available to grant under
the Plan on the scheduled date of grant is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each Non-
Employee Director shall receive a Director Option to purchase a pro rata number
of the remaining shares of Common Stock available under the Plan; provided
further, however, that if such proration results in fractional shares of Common
Stock, then such Director Option shall be rounded down to the nearest number of
whole shares of Common Stock. In all events, the price at which the Common
Stock may be purchased under the Director Option shall be the per share price to
the public as set forth in the Prospectus delivered in connection with the
initial public offering of the Company's Common Stock. Each Director Option
granted under this Plan shall be evidenced by an Agreement, in a form approved
by the Committee, which shall embody the terms and conditions of such Director
Option and which shall be subject to the express terms and conditions set forth
in the Plan. Such Agreement shall become effective upon execution by the Non-
Employee Director.
P-17
<PAGE>
6.3 TERMS AND CONDITIONS. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) OPTION PERIOD. The Option Period of each Stock Option shall
be fixed by the Committee; provided that no Stock Option shall be
exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an individual
who owns more than ten percent (10%) of the combined voting power of all
classes of stock of the Company, a corporation which is a parent
corporation of the Company or any subsidiary of the Company (each as
defined in Section 424 of the Code), the Option Period shall not exceed
five (5) years from the date of grant. No Option which is intended to be
an Incentive Stock Option shall be granted more than ten (10) years from
the date the Plan is adopted by the Company or the date the Plan is
approved by the stockholders of the Company, whichever is earlier.
(b) OPTION PRICE. The Option Price per share of the Common
Stock purchasable under an Option shall be determined by the Committee;
provided, however, that the Option Price per share shall be not less than
the Fair Market Value per share on the date the Option is granted. If such
Option is intended to qualify as an Incentive Stock Option and is granted
to an individual who owns or who is deemed to own stock possessing more
than ten percent (10%) of the combined voting power of all classes of stock
of the Company, a corporation which is a parent corporation of the Company
or any subsidiary of the Company (each as defined in Section 424 of the
Code), the Option Price per share shall not be less than one hundred ten
percent (110%) of such Fair Market Value per share.
(c) EXERCISABILITY. Subject to Section 12.1, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee
provides that any Stock Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part. In addition, the Committee may at any time accelerate
the exercisability of any Stock Option. If the Committee intends that an
Option be an Incentive Stock Option, the Committee may, in its discretion,
provide that the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock as to which such Incentive Stock Option which is
exercisable for the first time during any calendar year shall not exceed
$100,000.
(d) METHOD OF EXERCISE. Subject to the provisions of this
Article VI, a Participant may exercise Stock Options, in whole or in part,
at any time during the Option Period by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Except when waived by the Committee, such
notice shall be accompanied by payment in full of the purchase price by
cash or check or such other form of payment as the Company may accept. If
approved by the
P-18
<PAGE>
Committee (including approval at the time of exercise), payment in full or
in part may also be made (i) by delivering Common Stock already owned by
the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by the execution and delivery of a
note or other evidence of indebtedness (and any security agreement
thereunder) satisfactory to the Committee and permitted in accordance with
Section 6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option having
a total Fair Market Value on the date of delivery equal to the Option
Price; (iv) by the delivery of cash or the extension of credit by a broker-
dealer to whom the Participant has submitted a notice of exercise or
otherwise indicated an intent to exercise an Option (in accordance with
Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-
called "cashless" exercise); or (v) by any combination of the foregoing or
by any other method permitted by the Committee. If payment of the Option
Price of a Stock Option is made in whole or in part in the form of
Restricted Stock or Deferred Stock, the number of shares of Common Stock to
be received upon such exercise that is equal to the number of shares of
Restricted Stock or Deferred Stock used for payment of the Option Price
shall be subject to the same forfeiture restrictions or deferral
limitations to which such Restricted Stock or Deferred Stock was subject,
unless otherwise determined by the Committee. In the case of an Incentive
Stock Option, the right to make a payment in the form of already owned
shares of Common Stock of the same class as the Common Stock subject to the
Stock Option may be authorized only at the time the Stock Option is
granted. No shares of Common Stock shall be issued until full payment
therefor, as determined by the Committee, has been made. Subject to any
forfeiture restrictions or deferral limitations that may apply if a Stock
Option is exercised using Restricted Stock or Deferred Stock, a Participant
shall have all of the rights of a stockholder of the Company holding the
class of Common Stock that is subject to such Stock Option (including, if
applicable, the right to vote the shares and the right to receive
dividends), when the Participant has given written notice of exercise, has
paid in full for such shares and such shares have been recorded on the
Company's official stockholder records as having been issued or
transferred.
(e) COMPANY LOAN OR GUARANTEE. Upon the exercise of any Option
and subject to the pertinent Agreement and the discretion of the Committee,
the Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion
of the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of
P-19
<PAGE>
credit or guarantee shall obligate the Company for an amount to exceed the
lesser of the aggregate Fair Market Value per share of the Common Stock on
the date of exercise, less the par value of the shares of Common Stock to
be purchased upon the exercise of the Award, or the amount permitted under
applicable laws or the regulations and rules of the Federal Reserve Board
and any other governmental agency having jurisdiction.
(f) NON-TRANSFERABILITY OF OPTIONS. Except as provided herein
or in an Agreement and then only consistent with the intent that the Option
be an Incentive Stock Option, no Stock Option or interest therein shall be
transferable by the Participant other than by will or by the laws of
descent and distribution or by a designation of beneficiary effective upon
the death of the Participant, and all Stock Options shall be exercisable
during the Participant's lifetime only by the Participant. If and to the
extent transferability is permitted by Rule 16b-3 or does not result in
liability to any Participant and except as otherwise provided herein or by
an Agreement, every Option granted hereunder shall be freely transferable,
but only if such transfer does not result in liability under Section 16 of
the Exchange Act to the Participant or other Participants and is consistent
with registration of the Option and sale of Common Stock on Form S-8 (or a
successor form) or is consistent with the use of Form S-8 (or the
Committee's waiver of such condition) and consistent with an Award's
intended status as an Incentive Stock Option (as applicable).
6.4 TERMINATION BY REASON OF DEATH. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.
6.5 TERMINATION BY REASON OF DISABILITY. Unless otherwise provided in
an Agreement or determined by the Committee, if a Participant incurs a
Termination of Employment due to a Disability, any unexpired and unexercised
Stock Option held by such Participant shall thereafter be fully exercisable by
the Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
6.6 OTHER TERMINATION. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the
P-20
<PAGE>
Participant (but is not due to death or Disability or with Cause), any Stock
Option held by such Participant shall thereupon terminate, except that such
Stock Option, to the extent then exercisable, may be exercised for the lesser of
the ninety (90) day period commencing with the date of such Termination of
Employment or until the expiration of the Option Period. Unless otherwise
provided in an Agreement or determined by the Committee, if the Participant
incurs a Termination of Employment which is either (a) voluntary on the part of
the Participant (and is not due to Retirement) or (b) with Cause, the Option
shall terminate immediately. Unless otherwise provided in an Agreement or
determined by the Committee, the death or Disability of a Participant after a
Termination of Employment otherwise provided herein shall not extend the time
permitted to exercise an Option.
6.7 CASHING OUT OF OPTION. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option with respect to which Option at least six months have elapsed since the
Grant Date (provided that such limitation shall not apply to an Option granted
to a Participant who has subsequently died) to be exercised by paying the
Participant an amount, in cash or Common Stock, equal to the excess of the Fair
Market Value of the Common Stock that is subject to the Option over the Option
Price times the number of shares of Common Stock subject to the Option on the
effective date of such cash-out. Cash-outs relating to Options held by
Participants who are actually or potentially subject to Section 16(b) of the
Exchange Act shall comply with the "window period" provisions of Rule 16b-3, to
the extent applicable, and, in the case of cash-outs of Non-Qualified Stock
Options held by such Participants, the Committee may determine Fair Market Value
under the pricing rule set forth in Section 7.3(b).
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 GENERAL. The Committee shall have authority to grant Stock
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 GRANT. Stock Appreciation Rights may be granted in conjunction with
all or part of any Stock Option granted under the Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of grant of such Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the
time of grant of such Stock Option. A Stock Appreciation Right
P-21
<PAGE>
may also be granted on a stand-alone basis. The grant of a Stock Appreciation
Right shall occur as of the date the Committee determines. Each Stock
Appreciation Right granted under this Plan shall be evidenced by an Agreement,
which shall embody the terms and conditions of such Stock Appreciation Right and
which shall be subject to the terms and conditions set forth in this Plan.
During any fiscal year, and subject to the limitation set forth in Section 4.1,
Stock Appreciation Rights covering no more than 500,000 shares of Common Stock
(after taking into account the Reverse Split, and subject to adjustment under
Section 4.6) shall be granted to any Participant.
7.3 TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(a) PERIOD AND EXERCISE. The term of a Stock Appreciation Right
shall be established by the Committee. If granted in conjunction with a
Stock Option, the Stock Appreciation Right shall have a term which is the
same as the Option Period and shall be exercisable only at such time or
times and to the extent the related Stock Options would be exercisable in
accordance with the provisions of Article VI. A Stock Appreciation Right
which is granted on a stand-alone basis shall be for such period and shall
be exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the portion of the Stock Appreciation
Right to be exercised.
(b) AMOUNT. Upon the exercise of a Stock Appreciation Right
granted in conjunction with a Stock Option, a Participant shall be entitled
to receive an amount in cash, shares of Common Stock or both as determined
by the Committee or as otherwise permitted in an Agreement equal in value
to the excess of the Fair Market Value per share of Common Stock over the
Option Price per share of Common Stock specified in the related Agreement
multiplied by the number of shares in respect of which the Stock
Appreciation Right is exercised. In the case of a Stock Appreciation Right
granted on a stand-alone basis, the Agreement shall specify the value to be
used in lieu of the Option Price per share of Common Stock. The aggregate
Fair Market Value per share of the Common Stock shall be determined as of
the date of exercise of such Stock Appreciation Right.
(c) SPECIAL RULES. In the case of Stock Appreciation Rights
relating to Stock Options held by Participants who are actually or
potentially subject to Section 16(b) of the Exchange Act:
(i) The Committee may require that such Stock Appreciation
Rights be exercised only in accordance with the applicable "window
period" provisions of Rule 16b-3;
P-22
<PAGE>
(ii) The Committee may provide that the amount to be paid
upon exercise of such Stock Appreciation Rights (other than those
relating to Incentive Stock Options) during a Rule 16b-3 "window
period" shall be based on the highest mean sales price of the Common
Stock on the principal exchange on which the Common Stock is traded,
NASDAQ or other relevant market for determining value on any day
during such "window period"; and
(iii) No Stock Appreciation Right shall be exercisable during
the first six months of its term, except that this limitation shall
not apply in the event of death or Disability of the Participant
prior to the expiration of the six-month period.
(d) NON-TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Stock
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under the Plan unless otherwise
provided in an Agreement.
(e) TERMINATION. A Stock Appreciation Right shall terminate at
such time as a Stock Option would terminate under the Plan, unless
otherwise provided in an Agreement.
(f) EFFECT ON SHARES UNDER THE PLAN. Upon the exercise of a
Stock Appreciation Right, the Stock Option or part thereof to which such
Stock Appreciation Right is related shall be deemed to have been exercised
for the purpose of the limitation set forth in Section 4.2 on the number of
shares of Common Stock to be issued under the Plan, but only to the extent
of the number of shares of Common Stock covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(g) INCENTIVE STOCK OPTION. A Stock Appreciation Right granted
in tandem with an Incentive Stock Option shall not be exercisable unless
the Fair Market Value of the Common Stock on the date of exercise exceeds
the Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
ARTICLE VIII
RESTRICTED STOCK
8.1 GENERAL. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which
P-23
<PAGE>
grants of Restricted Stock will be awarded, the number of shares of Restricted
Stock to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture and any other terms and conditions of the
Awards. Each Award shall be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee shall determine. The provisions
of Restricted Stock Awards need not be the same with respect to any Participant.
8.2 AWARDS AND CERTIFICATES. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall be issued a certificate
in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Award as
determined by the Committee. The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
8.3 TERMS AND CONDITIONS. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions
of the Plan and the Agreement, during a period set by the Committee
commencing with the date of such Award (the "Restriction Period"), the
Participant shall not be permitted to sell, assign, transfer, pledge or
otherwise encumber any interest in shares of Restricted Stock.
(b) RIGHTS. Except as provided in Section 8.3(a), the
Participant shall have, with respect to the shares of Restricted Stock, all
of the rights of a stockholder of the Company holding the class of Common
Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any cash
dividends. Unless otherwise determined by the Committee and subject to the
Plan, cash dividends on the class of Common Stock that is the subject of
the Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as the Common
Stock on which such dividend was paid.
(c) ACCELERATION. Based on service, performance by the
Participant or by the Company or an Affiliate, including any division or
department for which the Participant is employed, or such other factors or
criteria as the Committee
P-24
<PAGE>
may determine, the Committee may provide for the lapse of restrictions in
installments and may accelerate the vesting of all or any part of any Award
and waive the restrictions for all or any part of such Award.
(d) FORFEITURE. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period other than death or
Disability, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant, except the Committee shall have the
discretion to waive in whole or in part any or all remaining restrictions
with respect to any or all of such Participant's shares of Restricted
Stock.
(e) DELIVERY. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, unlegended certificates for such shares shall be
delivered to the Participant.
(f) ELECTION. A Participant may elect to further defer receipt
of the Restricted Stock for a specified period or until a specified event,
subject in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to completion of
the Restriction Period.
ARTICLE IX
DEFERRED STOCK
9.1 GENERAL. The Committee shall have authority to grant Deferred Stock
under the Plan at any time or from time to time. Shares of Deferred Stock may
be awarded either alone or in addition to other Awards granted under the Plan.
The Committee shall determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "Deferral Period")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award shall be confirmed by, and be subject to
the terms of, an Agreement. The Committee may condition the grant of Deferred
Stock upon the attainment of specified performance goals by the Participant or
by the Company or an Affiliate, including a division or department of the
Company or an Affiliate for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine. The provisions of Deferred Stock Awards need not be the same with
respect to any Participant.
P-25
<PAGE>
9.2 TERMS AND CONDITIONS. Deferred Stock Awards shall be subject to the
following terms and conditions:
(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions
of the Plan and the Agreement, Deferred Stock Awards, or any interest
therein, may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the Deferral
Period (or Elective Deferral Period as defined in Section 9.2(e), where
applicable), the Committee may elect to deliver Common Stock, cash equal to
the Fair Market Value of such Common Stock or a combination of cash and
Common Stock to the Participant for the shares covered by the Deferred
Stock Award.
(b) RIGHTS. Unless otherwise determined by the Committee and
subject to the Plan, cash dividends on the Common Stock that is the subject
of the Deferred Stock Award shall be automatically deferred and reinvested
in additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividend was paid.
(c) ACCELERATION. Based on service, performance by the
Participant or by the Company or the Affiliate, including any division or
department for which the Participant is employed, or such other factors or
criteria as the Committee may determine, the Committee may provide for the
lapse of deferral limitations in installments and may accelerate the
vesting of all or any part of any Award and waive the deferral limitations
for all or any part of such Award.
(d) FORFEITURE. Unless otherwise provided in an Agreement or
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) ELECTION. A Participant may elect further to defer receipt
of the Deferred Stock payable under an Award (or an installment of an
Award) for a specified period or until a specified event (an "Elective
Deferral Period"), subject in each case to the Committee's approval and to
such terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made at least one (1) year
prior to completion of the Deferral Period for the Award (or of the
applicable installment thereof).
P-26
<PAGE>
ARTICLE X
OTHER AWARDS
10.1 BONUS STOCK AND AWARDS IN LIEU OF OBLIGATIONS. The Committee is
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisition of Common Stock or other Awards are exempt from
liability under Section 16(b) of the Exchange Act. Common Stock or Awards
granted hereunder shall be subject to such other terms as shall be determined by
the Committee.
10.2 DIVIDEND EQUIVALENTS. The Committee is authorized to grant Dividend
Equivalents to a Participant, entitling the Participant to receive cash, Common
Stock, other Awards, or other property equal in value to dividends paid with
respect to a specified number of shares of Common Stock. Dividend Equivalents
may be awarded on a free-standing basis or in connection with another Award.
The Committee may provide that Dividend Equivalents will be paid or distributed
when accrued or will be deemed to have been reinvested in additional Common
Stock, Awards, or other investment vehicles, and subject to such restrictions on
transferability and risks of forfeiture, as the Committee may specify.
10.3 OTHER STOCK-BASED AWARDS. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Common Stock, purchase rights for Common Stock,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
book value of Common Stock or the value of securities of or the performance of
specified Subsidiaries. The Committee shall determine the terms and conditions
of such Awards. Common Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 10.3 shall be purchased for such
consideration, paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 10.3.
10.4 PERFORMANCE AWARDS.
(a) PERFORMANCE CONDITIONS. The right of a Participant to
exercise or receive a grant or settlement of any Award, and its timing, may
be subject to performance conditions specified by the Committee. The
Committee may use
P-27
<PAGE>
business criteria and other measures of performance it deems appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce or increase the amounts payable under any Award subject to
performance conditions, except as limited under Sections 10.4(b) and
10.4(c) hereof in the case of a Performance Award intended to qualify under
Code Section 162(m).
(b) PERFORMANCE AWARDS GRANTED TO DESIGNATED COVERED EMPLOYEES.
If the Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant and/or settlement of such Performance Award shall
be contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 10.4(b).
(i) PERFORMANCE GOALS GENERALLY. The performance goals for
such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with respect
to such criteria, as specified by the Committee consistent with this
Section 10.4(b). Performance goals shall be objective and shall
otherwise meet the requirements of Code Section 162(m), including
the requirement that the level or levels of performance targeted by
the Committee result in the performance goals being "substantially
uncertain." The Committee may determine that more than one
performance goal must be achieved as a condition to settlement of
such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to different
Participants.
(ii) BUSINESS CRITERIA. One or more of the following
business criteria for the Company, on a consolidated basis, and/or
for specified Affiliates or business units of the Company (except
with respect to the total stockholder return and earnings per share
criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance Awards: (1)
total stockholder return; (2) such total stockholder return as
compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Standard & Poor's
500 or the Nasdaq-U.S. Index; (3) net income; (4) pre-tax earnings;
(5) EBITDA; (6) pre-tax operating earnings after interest expense
and before bonuses, service fees, and extraordinary or special
items; (7) operating margin; (8) earnings per share; (9) return on
equity; (10) return on capital; (11) return on investment; (12)
operating income, before payment of executive bonuses; and (13)
working capital. The foregoing business criteria shall also be
exclusively used in establishing performance goals for Cash
Incentive Awards granted under Section 10.4(c) hereof.
P-28
<PAGE>
(iii) PERFORMANCE PERIOD: TIMING FOR ESTABLISHING PERFORMANCE
GOALS. Achievement of performance goals in respect of such
Performance Awards shall be measured over such periods as may be
specified by the Committee. Performance goals shall be established
on or before the dates that are required or permitted for
"performance-based compensation" under Code Section 162(m).
(iv) SETTLEMENT OF PERFORMANCE AWARDS; OTHER TERMS.
Settlement of Performance Awards may be in cash or Common Stock, or
other Awards, or other property, in the discretion of the Committee.
The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such Performance
Awards, but may not exercise discretion to increase any such amount
payable in respect of a Performance Award subject to this
Section 10.4(b). The Committee shall specify the circumstances in
which such Performance Awards shall be forfeited or paid in the
event of a Termination of Employment or a Change in Control prior to
the end of a performance period or settlement of Performance Awards,
and other terms relating to such Performance Awards.
(c) CASH INCENTIVE AWARDS GRANTED TO DESIGNATED COVERED
EMPLOYEES. The Committee may grant Cash Incentive Awards to Participants
including those designated by the Committee as likely to be Covered
Employees, which Awards shall represent a conditional right to receive a
payment in cash, unless otherwise determined by the Committee, after the
end of a specified fiscal year or fiscal quarter or other period specified
by the Committee, in accordance with this Section 10.6(c). With respect to
any fiscal year, the maximum Cash Incentive Award payable to any
Participant shall not exceed three percent (3.0%) of the Company's gross
revenues for such fiscal year.
(i) CASH INCENTIVE AWARD. The Cash Incentive Award for
Participants the Committee regards as likely to be regarded as
Covered Employees shall be based on achievement of a performance
goal or goals based on one or more of the business criteria set
forth in Section 10.4(b), and may be based on such criteria for any
other Participant. The Committee may specify the amount of the
individual Cash Incentive Award as a percentage of any such business
criteria, a percentage thereof in excess of a threshold amount, or
another amount which need not bear a strictly mathematical
relationship to such relationship criteria. The Committee may
establish an Cash Incentive Award pool that includes Participants
the Committee regards likely to be regarded as Covered Employees,
which shall be an unfunded pool, for purposes of measuring Company
performance in connection with Cash Incentive Awards. The amount of
the Cash Incentive Award pool shall be based upon the achievement of
a performance goal or goals based on one or more of the business
criteria set forth in Section 10.4(b) hereof in the given
performance period, as specified by the Committee. The
P-29
<PAGE>
Committee may specify the amount of the Cash Incentive Award pool as
a percentage of any of such business criteria, a percentage thereof
in excess of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business criteria.
(ii) POTENTIAL CASH INCENTIVE AWARDS. Not later than the
date required or permitted for "qualified performance-based
compensation" under Code Section 162(m), the Committee shall
determine the Participants who will potentially receive Cash
Incentive Awards for the specified fiscal year, fiscal quarter or
other period, either as individual Cash Incentive Awards or out of
an Cash Incentive Award pool established by such date and the amount
or method for determining the amount of the individual Cash
Incentive Award or the amount of such Participant's portion of the
Cash Incentive Award pool or the individual Cash Incentive Award.
(iii) PAYOUT OF CASH INCENTIVE AWARDS. After the end of the
specified fiscal year, fiscal quarter or other period, as the case
may be, the Committee shall determine the amount, if any, of
potential individual Cash Incentive Award otherwise payable to a
Participant, the Cash Incentive Award pool and the maximum amount of
potential Cash Incentive Award payable to each Participant in the
Cash Incentive Award pool. The Committee may, in its discretion,
determine that the amount payable to any Participant as a final Cash
Incentive Award shall be increased or reduced from the amount of his
or her potential Cash Incentive Award, including a determination to
make no final Award whatsoever, but may not exercise discretion to
increase any such amount in the case of an Cash Incentive Award
intended to qualify under Code Section 162(m). The Committee shall
specify the circumstances in which an Cash Incentive Award shall be
paid or forfeited in the event of Termination of Employment by the
Participant or a Change in Control prior to the end of the period
for measuring performance or the payout of such Cash Incentive
Award, and other terms relating to such Cash Incentive Award in
accordance with the Plan. Upon the completion of the measuring
period and the determination of the right to payment and the amount,
the Committee shall direct the Committee to make payment.
(d) WRITTEN DETERMINATIONS. All determinations by the Committee
as to the establishment of performance goals and the potential Performance
Awards or Cash Incentive Awards related to such performance goals and as to
the achievement of performance goals relating to such Awards, the amount of
any Cash Incentive Award pool and the amount of final Cash Incentive
Awards, shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Cash Incentive
Awards.
P-30
<PAGE>
ARTICLE XI
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
11.1 LIMITED TRANSFER DURING OFFERING. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Award.
11.2 COMMITTEE DISCRETION. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article X shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article X, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
11.3 NO COMPANY OBLIGATION. None of the Company, an Affiliate or the
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XII
CHANGE IN CONTROL PROVISIONS
12.1 IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 12.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding
as of the date such Change in Control and not then exercisable shall become
fully exercisable to the full extent of the original grant;
P-31
<PAGE>
(b) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock or other Award shall lapse, and such
Restricted Stock, Deferred Stock or other Award shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
(c) The performance goals and other conditions with respect to
any outstanding Performance Award or Cash Incentive Award shall be deemed
to have been satisfied in full, and such Award shall be fully
distributable, if and to the extent provided by the Committee in the
Agreement relating to such Award or otherwise, notwithstanding that the
Award may not be fully deductible to the Company under Section 162(m) of
the Code.
(d) The Committee shall have full discretion, notwithstanding
anything herein or in an Award Agreement to the contrary, to do any or all
of the following with respect to an outstanding Award:
(1) To cause any Award to be cancelled, provided notice of
at least 15 days thereof is provided before the date of
cancellation;
(2) To provide that the securities of another entity be
substituted hereunder for the Common Stock and to make
equitable adjustment with respect thereto;
(3) To grant the Participant by giving notice during a pre-
set period to surrender all or part of a stock-based
Award to the Company and to receive cash in an amount
equal to the amount by which the "Change in Control
Price" (as defined in Section 12.3) per share of Common
Stock on the date of such election shall exceed the
amount which the Participant must pay to exercise the
Award per share of Common Stock under the Award (the
"Spread") multiplied by the number of shares of Common
Stock granted under the Award;
(4) To require the assumption of the obligation of the
Company under the Plan subject to appropriate
adjustment; and
(5) To take any other action the Committee determines to
take.
12.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than the greater of (i) twenty-
five percent (25%) of the combined
P-32
<PAGE>
voting power of the Company's then outstanding securities or (ii) the percentage
of the combined voting power of the Company's then outstanding securities which
equals (A) ten percent (10%) plus (B) the percentage of the combined voting
power of the Company's outstanding securities held by such corporation, person
or entity on the Effective Date; (b)(i) the stockholders of the Company approve
a definitive agreement to merge or consolidate the Company with or into another
corporation other than a majority-owned subsidiary of the Company, or to sell or
otherwise dispose of all or substantially all of the Company's assets, and (ii)
the persons who were the members of the Board of Directors of the Company prior
to such approval do not represent a majority of the directors of the surviving,
resulting or acquiring entity or the parent thereof; (c) the stockholders of the
Company approve a plan of liquidation of the Company; or (d) within any period
of 24 consecutive months, persons who were members of the Board of Directors of
the Company immediately prior to such 24-month period, together with any persons
who were first elected as directors (other than as a result of any settlement of
a proxy or consent solicitation contest or any action taken to avoid such a
contest) during such 24-month period by or upon the recommendation of persons
who were members of the Board of Directors of the Company immediately prior to
such 24-month period and who constituted a majority of the Board of Directors of
the Company at the time of such election, cease to constitute a majority of the
Board.
12.3 CHANGE IN CONTROL PRICE. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer, merger, consolidation, liquidation or sale
of all or substantially all of the assets of the Company (in each case a
"Corporate Transaction"), the highest price per share of Common Stock paid in
such Corporate Transaction, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option or Stock Appreciation Right is exercised. To the
extent that the consideration paid in any such Corporate Transaction consists
all or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
ARTICLE XIII
MISCELLANEOUS
13.1 AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would (a) impair the rights of a Participant
under a Stock Option, Stock Appreciation Right, Restricted Stock Award or
Deferred Stock Award theretofore granted without the Participant's consent,
except such an amendment (a)
P-33
<PAGE>
made to avoid an expense charge to the Company or an Affiliate, (b) made to
cause the Plan to qualify for the exemption provided by Rule 16b-3 or (c) to
prevent the Plan from being disqualified from the exemption provided by Rule
16b-3. In addition, no such amendment shall be made without the approval of the
Company's stockholders to the extent such approval is required by law or
agreement. Notwithstanding the foregoing, the Plan may not be amended more than
once every six (6) months to change the Plan provisions listed in section
(c)(2)(ii)(A) of Rule 16b-3, other than to comport with changes in the Code or
Rule 16b-3.
The Committee may amend the Plan at any time provided that (a) no amendment
shall impair the rights of any Participant under any Award theretofore granted
without the Participant's consent, (b) no amendment shall disqualify the Plan
from the exemption provided by Rule 16b-3, and (c) any amendment shall be
subject to the approval or rejection of the Board (d) an amendment may be made
to avoid an expense charge to the Company or an Affiliate. Notwithstanding the
foregoing, the Plan may not be amended more than once every six (6) months to
change the Plan provisions listed in section (c)(2)(ii)(A) of Rule 16b-3, other
than to comport with changes in the Code or Rule 16b-3.
The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent or reduce an Option
Price, except such an amendment made to cause the Plan or Award to qualify for
the exemption provided by Rule 16b-3 or to avoid an expense charge to the
Company or an Affiliate. The Committee's discretion to amend the Plan or
Agreement shall be limited to the Plan's constituting a plan described in
section (c)(2)(ii) of Rule 16b-3.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the right which
caused the transaction to be ineligible for pooling of interest accounting.
13.2 STAND-ALONE, ADDITIONAL, TANDEM, AND SUBSTITUTE AWARDS. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the
P-34
<PAGE>
Committee shall require the surrender of such other Award or award in
consideration for the grant of the new Award. In addition, Awards may be
granted in lieu of cash compensation, including in lieu of cash amounts payable
under other plans of the Company or any subsidiary, in which the Fair Market
Value of Common Stock subject to the Award is equivalent in value to the cash
compensation, or in which the exercise price, grant price or purchase price of
the Award in the nature of a right that may be exercised is equal to the Fair
Market Value of the underlying Common Stock minus the value of the cash
compensation surrendered.
13.3 FORM AND TIMING OF PAYMENT UNDER AWARDS; DEFERRALS. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Common
Stock in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee
(subject to Section 13.1 of the Plan) or permitted at the election of the
Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of Dividend Equivalents in respect of installment
or deferred payments denominated in Common Stock.
13.4 STATUS OF AWARDS UNDER CODE SECTION 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
13.5 UNFUNDED STATUS OF PLAN; LIMITS ON TRANSFERABILITY. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation.
The Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Award shall be subject to the claims of Participant's creditors and no Award
may be transferred, assigned, alienated or encumbered in any way other than by
will or the laws of descent and distribution or to a Representative upon the
death of the Participant.
13.6 GENERAL PROVISIONS.
P-35
<PAGE>
(a) REPRESENTATION. The Committee may require each person
purchasing or receiving shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) NO ADDITIONAL OBLIGATION. Nothing contained in the Plan
shall prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) WITHHOLDING. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. Unless otherwise determined by the Committee,
withholding obligations may be settled with Common Stock, including Common
Stock that is part of the Award that gives rise to the withholding
requirement provided that any applicable requirements under Section 16 of
the Exchange Act are satisfied. The obligations of the Company under this
Plan shall be conditional on such payment or arrangements, and the Company
and its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
If the Participant disposes of shares of Common Stock acquired pursuant to
an Incentive Stock Option in any transaction considered to be a
disqualifying transaction under the Code, the Participant must give written
notice of such transfer and the Company shall have the right to deduct any
taxes required by law to be withheld from any amounts otherwise payable to
the Participant. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Award that gives rise to the withholding requirement,
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant.
(d) REINVESTMENT. The reinvestment of dividends in additional
Deferred or Restricted Stock at the time of any dividend payment shall be
permissible only if sufficient shares of Common Stock are available under
the Plan for such reinvestment (taking into account then outstanding
Options and other Awards).
P-36
<PAGE>
(e) REPRESENTATION. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) CONTROLLING LAW. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with the
laws of the State of Illinois (other than its law respecting choice of law)
except to the extent the General Corporation Law of the State of Delaware
would be mandatorily applicable. The Plan shall be construed to comply
with all applicable law and to avoid liability to the Company, an Affiliate
or a Participant, including, without limitation, liability under
Section 16(b) of the Exchange Act.
(g) OFFSET. Any amounts owed to the Company or an Affiliate by
the Participant of whatever nature may be offset by the Company from the
value of any shares of Common Stock, cash or other thing of value under
this Plan or an Agreement to be transferred to the Participant, and no
shares of Common Stock, cash or other thing of value under this Plan or an
Agreement shall be transferred unless and until all disputes between the
Company and the Participant have been fully and finally resolved and the
Participant has waived all claims to such against the Company or an
Affiliate.
(h) FAIL SAFE. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply with
all applicable conditions of Rule 16b-3 or Rule 16a-1(c)(3), as applicable.
To the extent any provision of the Plan or action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. Moreover, in the event the Plan
does not include a provision required by Rule 16b-3 or Rule 16a-1(c)(3) to
be stated herein, such provision (other than one relating to eligibility
requirements or the price and amount of Awards) shall be deemed to be
incorporated by reference into the Plan with respect to Participants
subject to Section 16.
(i) The grant of an Award shall in no way affect the right of
the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidation, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
13.7 MITIGATION OF EXCISE TAX. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 13.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights
P-37
<PAGE>
or payments under this Plan is to apply shall be made by the Committee in good
faith after consultation with the Participant, and such determination shall be
conclusive and binding on the Participant. The Participant shall cooperate in
good faith with the Committee in making such determination and providing the
necessary information for this purpose. The foregoing provisions of this
Section 13.7 shall apply with respect to any person only if, after reduction for
any applicable Federal excise tax imposed by Section 4999 of the Code and
Federal income tax imposed by the Code, the Total Payments accruing to such
person would be less than the amount of the Total Payments as reduced, if
applicable, under the foregoing provisions of the Plan and after reduction for
only Federal income taxes.
13.8 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or
an Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
13.9 AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER CORPORATIONS.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this Plan at the time of such grant as the
majority of the members of the Committee may deem appropriate to conform, in
whole or in part, to the provisions of the awards in substitution for which they
are granted.
13.10 PROCEDURE FOR ADOPTION. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
13.11 PROCEDURE FOR WITHDRAWAL. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
P-38
<PAGE>
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
13.12 DELAY. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, or the period for exercise of a Stock Appreciation Right as provided in
the Agreement, whichever is shorter. The Company shall have the right to
suspend or delay any time period described in the Plan or an Agreement if the
Committee shall determine that the action may constitute a violation of any law
or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
shall not constitute a violation of law or result in liability to the Company,
an Affiliate or a stockholder of the Company. The Committee shall have the
discretion to suspend the application of the provisions of the Plan required
solely to comply with Rule 16b-3 if the Committee shall determine that Rule 16b-
3 does not apply to the Plan.
13.13 HEADINGS. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
13.14 SEVERABILITY. If any provision of this Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
13.15 SUCCESSORS AND ASSIGNS. This Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
13.16 ENTIRE AGREEMENT. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
P-39
<PAGE>
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan shall control.
Executed this day of , 19 , effective June 1, 1996.
PLATINUM ENTERTAINMENT, INC.
By:
-------------------------------------
P-40
<PAGE>
PLATINUM ENTERTAINMENT, INC.
2001 BUTTERFIELD ROAD
DOWNERS GROVE, ILLINOIS 60515
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 8, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder(s) hereby appoint(s) Steven Devick and Douglas
C. Laux, and each of them, with full power of substitution, as attorneys and
proxies for and in the name and place of the undersigned, and hereby
authorizes each of them to represent and to vote all of the shares of Common
Stock of Platinum Entertainment, Inc. ("Platinum"), held of record by the
undersigned as of September 6, 1996, which the undersigned is entitled to vote
at the Annual Meeting of Stockholders to be held on October 8, 1996, at The
Standard Club, 320 S. Plymouth Court, Chicago, Illinois 60604 at 10:00 a.m.,
Chicago time, and at any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED IN A TIMELY MANNER, WILL
BE VOTED AT THE ANNUAL MEETING AND AT ANY ADJOURNMENT THEREOF IN THE MANNER
DESCRIBED HEREIN. IF NO CONTRARY INDICATION IS MADE THE PROXY WILL BE VOTED
FOR ALL NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSALS 2 AND 3, AND IN
ACCORDANCE WITH THE JUDGMENT OF THE PERSONS NAMED AS PROXIES HEREIN ON ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
SEE REVERSE SIDE
CONTINUED AND TO BE SIGNED AND DATED ON THE REVERSE SIDE
X
- - ---- PLEASE MARK YOUR VOTE AS IN THIS EXAMPLE
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ALL NOMINEES
LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3.
1. ELECTION OF DIRECTORS.
For all nominees listed at right (except as marked to the contrary below)
-----
Withhold Authority to vote for all nominees listed at right
-----
NOMINEES:
(TERM TO EXPIRE IN 1999)
Douglas C. Laux
Paul L. Humenansky
Laura P. Pearl
(instruction: to withhold authority to vote for any individual nominee, strike
a line through the nominee's name at right)
2. Proposal to approve the Amended and Restated Platinum Entertainment, Inc.
1995 Employee Incentive Compensation Plan.
-----FOR -----AGAINST -----ABSTAIN
3. Proposal to ratify the appointment of Ernst & Young LLP as the independent
auditors of Platinum's financial statements.
-----FOR -----AGAINST -----ABSTAIN
4. Each of the persons named as proxies herein are authorized, in such
person's discretion, to vote upon such other matters as may properly come
before the Annual Meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT __________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Signature(s) ______________________________ Date_____________________, 1996
Note: This Proxy must be signed exactly as your name appears hereon. When
shares are held by joint tenants, both should sign. Attorneys, executors,
administrators, trustees and guardians should indicate their capacities. If
the signer is a corporation, please print full corporate name and indicate
capacity of duly authorized officer executing on behalf of the corporation.
If the signer is a partnership, please print full partnership name and
indicate capacity of duly authorized person executing on behalf of the
partnership.
