DIRECTRIX INC, SB-2/A, 1998-12-01

DIRECTRIX INC
SB-2/A, 1998-12-01
ALLIED TO MOTION PICTURE PRODUCTION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1998

REGISTRATION NO. 333-64485

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO

FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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DIRECTRIX, INC.

(Name of small business issuer in its charter)

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DELAWARE 7819 13-4015248
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(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or Classification Code Number)
organization) Number)
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536 BROADWAY, 10TH FLOOR, NEW YORK, NEW YORK 10012
(Address and telephone number of principal executive offices)

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J. ROGER FAHERTY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
536 BROADWAY, 10TH FLOOR
NEW YORK, NEW YORK 10012
(212) 941-1434
(Name, address and telephone number of agent for service)

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COPIES TO:

PETER S. KOLEVZON, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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PROSPECTUS 2,074,785 SHARES
DIRECTRIX, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE) [LOGO]
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This Prospectus is being furnished to the stockholders of Spice
Entertainment Companies, Inc. ("Spice") in connection with the transfer (the
"Share Transfer") by Spice to its stockholders of the capital stock of
Directrix, Inc. (the "Company") as part of the consideration for the Merger, as
defined below. Directrix, Inc. is a Delaware corporation formed by Spice that
will own all of the assets of, and will be responsible for certain liabilities
associated with, Spice's Operations Facility (as defined herein), an option to
acquire Emerald Media, Inc., a provider of explicit adult programming, and
certain rights to Spice's library of adult films. Pursuant to the Share
Transfer, all of the issued and outstanding shares of the common stock, par
value $.01 per share, of the Company (the "Company Common Stock") will be
transferred to holders of record of the Common Stock, par value $.01 per share,
of Spice (the "Spice Common Stock"), the Convertible Preferred Stock Series
1997-A, par value $.01 per share, of Spice (the "Spice Preferred Stock," and
together with the Spice Common Stock, the "Spice Capital Stock") and the
outstanding stock options and warrants of Spice as of the Closing Date. The
Closing Date shall be the date of consummation of the Merger (as defined below).
Each holder of Spice Capital Stock will receive 0.125 of one share of Company
Common Stock in partial exchange for each share of Spice Common Stock (and Spice
Preferred Stock as if such Spice Preferred Stock had been converted into Spice
Common Stock immediately prior to the Share Transfer) held on the Closing Date.
Each holder of stock options or warrants of Spice will be entitled to receive
0.125 of one share of Company Common Stock for each share of Spice Common Stock
for which a stock option or warrant was exercisable, upon payment of the
exercise price for such stock option or warrant. Fractional shares of Company
Common Stock will not be issued. Any fractional share of Company Common Stock
will be rounded up to one whole share. See "The Contribution and the Share
Transfer."

There currently is no public market for the Company Common Stock. The
Company expects that the Company Common Stock will be traded on the National
Association of Securities Dealers, Inc. OTC Bulletin Board (the "OTC Bulletin
Board") under the symbol "DRTX."

The Share Transfer is a condition to, and part of the consideration for, the
merger of Spice and Playboy Enterprises, Inc. ("Playboy"). Pursuant to an
Agreement and Plan of Merger dated as of May 29, 1998, as amended, on the
Closing Date, (i) Spice Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of New Playboy, Inc. ("New Playboy"), a Delaware
corporation which will become the parent of Playboy, will be merged with and
into Spice and Spice will become a wholly-owned subsidiary of New Playboy (the
"Merger"); (ii) in the Merger, (a) each stockholder of Spice will receive, in
exchange for each share of Spice Common Stock held by such stockholder, a
fractional equity interest in New Playboy, $3.60 in cash, subject to increase,
and 0.125 of one share of Company Common Stock or, in exchange for each share of
Spice Preferred Stock held by such stockholder, the consideration that such
stockholder would have received had such stockholder converted such shares of
Spice Preferred Stock into shares of Spice Common Stock immediately prior to the
Merger and (b) each holder of stock options or warrants of Spice shall be
entitled to receive such merger consideration (less the exercise price of the
stock option or warrant) for each share of Spice Common Stock for which a stock
option or warrant is exercisable; (iii) prior to the consummation of the Merger,
Spice and its subsidiaries will contribute (the "Contribution") certain assets
to the Company, including all of the assets of, and certain liabilities relating
to, its Operations Facility, its option to acquire an ownership interest in
Emerald Media, Inc. and certain rights to Spice's library of adult films; and
(iv) in connection with the Merger, the Share Transfer will be consummated. See
"The Contribution and the Share Transfer--The Merger." Following the Merger, the
business of New Playboy will be comprised of the businesses currently conducted
by Spice and Playboy, other than the portion of Spice's business to be
contributed to the Company and the Spice Hot network which will be sold to
Califa Entertainment Group, Inc. under the terms and conditions of a separate
agreement. Consummation of the Merger is subject to various conditions,
including the approval and adoption of the Merger Agreement and the Merger by
the holders of a majority of the outstanding shares of Spice Common Stock. If
the Merger is not consummated, neither the Contribution nor the Share Transfer
will be consummated. In connection with the Merger, New Playboy has filed a
registration statement on Form S-4 which includes a Proxy Statement/Prospectus
(the "Proxy Statement/ Prospectus") prepared by Spice, Playboy and New Playboy
regarding the Merger and the transactions contemplated thereby. A copy of the
Proxy Statement/Prospectus is being provided by Spice with this Prospectus. The
information provided or incorporated by reference in such Proxy
Statement/Prospectus is solely the responsibility of Spice, Playboy and New
Playboy and the Company takes no responsibility therefor.

IN REVIEWING THIS PROSPECTUS, STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 7.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
ANY
OFFER TO BUY ANY SECURITIES.

The date of this Prospectus is December 1, 1998

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. STOCKHOLDERS SHOULD READ
THIS PROSPECTUS IN ITS ENTIRETY. THIS PROSPECTUS SHOULD BE READ IN CONJUNCTION
WITH THE PROXY STATEMENT/PROSPECTUS DELIVERED CONCURRENTLY. UNLESS THE CONTEXT
REQUIRES OTHERWISE, REFERENCES HEREIN TO (I) SPICE AND THE COMPANY SHALL INCLUDE
THEIR RESPECTIVE SUBSIDIARIES AND (II) THE COMPANY PRIOR TO THE DATE OF THE
SHARE TRANSFER SHALL REFER TO THE OPERATIONS FACILITY. PORTIONS OF THIS
PROSPECTUS MAY CONSTITUTE FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE "RISK
FACTORS--FORWARD-LOOKING STATEMENTS."

THE COMPANY

Directrix, Inc. (the "Company") is a Delaware corporation formed by Spice
that will own all the assets of, and will be responsible for certain liabilities
associated with, Spice's master control and digital playback center (the
"Operations Facility"), and will also own an option (the "Emerald Media Option")
to acquire all of the assets or all of the capital stock of Emerald Media, Inc.
and certain rights to Spice's library of adult films. The Company is a provider
of television production and delivery and Internet hosting services. If the
Company exercises the Emerald Media Option, the Company will also be a provider
of explicit adult television entertainment. See "Risk Factors--Risks Associated
with Exercise of the Emerald Media Option." The Company currently has no intent
to exercise the Emerald Media Option.

The Company is a provider of technical and creative services for television
and Internet programming. The Company provides services which integrate and
apply a variety of systems and processes to enhance the creation and
distribution of such content through various channels, including cable, fiber,
satellite delivery and file server systems and the Internet. The Company edits
and assembles television and Internet programming into various formats, creates
interstitial and promotional graphics, animation and other material to support
the brand identity of such programming, provides automated systems to originate
such programming via its state-of-the-art playback facilities and also provides
library storage and media archival and duplication services.

Emerald Media, Inc. ("EMI") owns and operates four of the leading C-Band
explicit adult programming television networks and an explicit adult content
Internet site. The Company provides post-production, playback, transponder and
Internet hosting services for EMI.

The Company was formed on July 20, 1998 in contemplation of the
Contribution, the Share Transfer and the Merger. The Company is operated under
the direction of J. Roger Faherty, Chairman of the Board and Chief Executive
Officer, Donald McDonald, President, and Richard Kirby, Executive Vice
President. Mr. Faherty has been Chairman of the Board, Chief Executive Officer
and President of Spice; Mr. McDonald has been President of Spice Direct, Inc., a
subsidiary of Spice; and Mr. Kirby has been Senior Vice President, Network
Operations, and Chief Technology Officer of Spice. See "Management." Messrs.
Faherty, McDonald and Kirby have a combined 36 years experience in the
programming industry.

BUSINESS STRATEGY

The key elements of the Company's business strategy are to:

(i) expand delivery of individual television production and delivery
services to other television networks. After the Merger, the Company will
provide playback services to EMI, Playboy Entertainment Group, Inc. ("PEGI")
and Califa Entertainment Group, Inc. ("Califa"). In addition, the Company
will provide transponder services to EMI and Black Entertainment Television,
Inc. The Company will rely on the business contacts and experience of
Messrs. Faherty, McDonald and Kirby to attempt to attract additional
customers and market the Company's services.

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(ii) leverage its strengths and capabilities in playback services and
its available transponder capacity to develop a market for television
production and delivery services. As a result of its experience in providing
playback, production and transponder services for Spice and EMI, the Company
can deliver programming via cable, satellite, fiber optics, regionally
deployed video file servers and the Internet. By offering a comprehensive
range of creative, technical and transmission services ("network-in-a-box
services"), the Company intends to become a "one-stop-shop" for the creation
and distribution of television networks.

(iii) leverage its experience in developing Spice's and EMI's Internet
sites into providing web hosting and Internet broadcasting services to other
Internet sites. The Company currently can host a website that averages
access by 650,000 subscribers daily and provide web authoring, web-based
database publishing, creation of graphics and animation. In addition, the
Company can simultaneously "web-cast" programming on a pay-per-view or
monthly subscription basis by way of its hybrid digital/ analog switching
center. The Company will rely on the business contacts and experience of
Messrs. Faherty, McDonald and Kirby to attempt to attract customers and
market the Company's Internet services.

(iv) invest in or acquire additional businesses in which management of
the Company has experience or can add value. The Company has not identified
a specific industry or business on which it initially intends to focus and
has no present plans, proposals, arrangements or understandings with respect
to the acquisition of, or investment in, any specific business. Any such
investment or acquisition by the Company would present certain risks to
stockholders. See "Risk Factors--Risks Related to Investment and Acquisition
Strategy." In connection with this strategy and with the intent to maximize
the value of the Company to stockholders, the Company may deem it necessary
or in its best interests to sell some or all of its assets or the assets
relating to EMI. The Company currently has no intent to divest any portion
of its business. The Company is prohibited by the Playboy Non-Competition
Agreement (as defined herein) from entering into certain areas of adult
entertainment and will not be able to invest in or acquire businesses which
operate in such areas of the adult entertainment industry. See "Arrangements
After the Merger--Relationship with New Playboy-- Terms of the Playboy
Non-Competition Agreement."

(v) assess whether to exercise the Emerald Media Option, including
analyzing the ability to increase subscriptions to its adult programming
networks.

The Company's principal corporate headquarters are located at 536 Broadway,
10th Floor, New York, New York 10036. The Company's telephone number currently
is (212) 941-1434; after the Share Transfer and the Merger, the telephone number
will be (212) 941-7750.

THE CONTRIBUTION AND THE SHARE TRANSFER

The Share Transfer........... Shares of common stock, par value $.01 per share, of the
Company (the "Company Common Stock") will, subject to
certain conditions, be transferred (the "Share Transfer") to
the stockholders of record of Spice Entertainment Companies,
Inc. ("Spice") on the date of consummation of the Merger
(the "Closing Date") in partial exchange for their shares of
Spice Common Stock and Spice Preferred Stock. The Share
Transfer is a condition to, and part of the consideration
for, the merger of Spice and Playboy Enterprises, Inc.
("Playboy") pursuant to the terms of the Agreement and Plan
of Merger dated as of May 29, 1998, as amended (the "Merger
Agreement"), among Spice, Playboy, New Playboy, Inc. ("New

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Playboy"), Playboy Acquisition Corp. and Spice Acquisition
Corp. Pursuant to the terms of the Merger Agreement, on the
Closing Date (i) Spice Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of New Playboy,
will be merged with and into Spice and Spice will become a
wholly-owned subsidiary of New Playboy (the "Merger"); (ii)
in the Merger, (a) each stockholder of Spice will receive,
in exchange for each share of Spice Common Stock held by
such stockholder, a fractional equity interest in New
Playboy, $3.60 in cash, subject to increase, and a number of
shares of Company Common Stock in accordance with the
Exchange Ratio (as defined below) or, in exchange for each
share of Spice Preferred Stock held by such stockholder, the
consideration such stockholder would have received had such
stockholder converted such shares of Spice Preferred Stock
into shares of Spice Common Stock immediately prior to the
Merger and (b) each holder of stock options or warrants of
Spice shall be entitled to receive such merger consider-
ation (less the exercise price of the stock option or
warrant) for each share of Spice Common Stock for which a
stock option or warrant is exercisable; (iii) prior to the
consummation of the Merger, Spice will contribute to the
Company (the "Contribution") all of the assets of, and
certain liabilities relating to, its Operations Facility,
the Emerald Media Option and certain rights to Spice's
library of adult films; and (iv) in connection with the
Merger, the Share Transfer will be consummated. See "The
Contribution and the Share Transfer--The Merger" and the
Proxy Statement/Prospectus. Following the Merger, the busi-
ness of New Playboy will be comprised of the businesses
currently conducted by Spice and Playboy, other than the
portion of Spice's business to be contributed to the Company
and the Spice Hot network which will be sold to Califa.

Reasons for the Contribution
and the Share Transfer....... Because New Playboy wants to acquire only certain assets of
Spice, Spice intends to transfer the assets described above
to its stockholders, by means of the Contribution and the
Share Transfer, in connection with the Merger. Consummation
of the Merger is subject to various conditions, including
the approval and adoption of the Merger Agreement and the
Merger by the holders of a majority of the outstanding
shares of Spice Common Stock. If the Merger is not
consummated, the Contribution and Share Transfer will not be
consummated. See "The Contribution and the Share Transfer."

Shares to be Transferred..... Based on the number of shares of Spice Common Stock and
Spice Preferred Stock and the number of stock options and
warrants of Spice outstanding on October 31, 1998 and the
Exchange Ratio set forth below, approximately 2,075,000
shares of Company Common Stock will be transferred to
stockholders of Spice in the Share Transfer.

Exchange Ratio............... Each holder of shares of Spice Common Stock will be entitled
to receive 0.125 of one share of Company Common Stock in
partial exchange for each share of Spice Common Stock held
on the Record Date. Each holder of shares of Spice Preferred
Stock will be entitled to receive the number of shares of
Company Common Stock that such
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holder would have been entitled to receive had such holder
converted such shares of Spice Preferred Stock into shares
of Spice Common Stock immediately prior to the Share
Transfer. Each holder of stock options or warrants of Spice
will be entitled to receive 0.125 of one share of Company
Common Stock for each share of Spice Common Stock for which
a stock option or warrant was exercisable, upon payment of
the exercise price for such stock option or warrant.

Fractional Shares............ No fractional shares of Company Common Stock will be issued
pursuant to the Share Transfer. Any fractional share of
Company Common Stock will be rounded up to one whole share.

Closing Date................. The date of consummation of the Merger.

Distribution Date............ Certificates representing the Company Common Stock will be
distributed with the Playboy Consideration (as defined
herein) upon surrender of certificates representing Spice
Capital Stock. See "The Contribution and the Share
Transfer--The Merger." Holders of stock options or warrants
will receive their shares of Company Common Stock upon
exercise of such stock options or warrants.

Exchange Agent............... Harris Trust and Savings Bank

Tax Consequences............. For U.S. federal income tax purposes, the Share Transfer
should be treated as a taxable transaction to Spice and its
stockholders. See "The Contribution and the Share
Transfer--U.S. Federal Income Tax Consequences of the Share
Transfer."

The Contribution............. On or prior to the date of the Share Transfer, Spice and the
Company will enter into an agreement (the "Transfer and
Redemption Agreement") pursuant to which, among other
things, (i) Spice will transfer all of the assets of its
Operations Facility, the Emerald Media Option and certain
rights to Spice's library of adult films to the Company,
(ii) certain liabilities will be allocated between Spice and
the Company, and (iii) Spice and the Company will indemnify
each other for liabilities allocated pursuant to the
Transfer and Redemption Agreement.

Spice and the Company will also enter into a series of
agreements (the "Explicit Rights Agreements") pursuant to
which the Company will receive a portion of Spice's rights
to, and assume a portion of Spice's obligations under,
certain of its adult motion picture license agreements,
subject to the consent of the applicable licensors. The Com-
pany will be granted the right to broadcast via C-Band
satellite transmission in certain defined territories and
via the Internet the explicit version of the adult films
which Spice currently licenses. Spice Productions, Inc., a
wholly owned subsidiary of Spice ("Spice Productions"), and
the Company will enter into a similar agreement (the "Owned
Rights Agreement") with respect to the adult motion pic-
tures owned by Spice Productions. See "The Contribution and
the Share Transfer" and "Business."

Arrangements after
the Merger................... Playboy Entertainment Group, Inc., a wholly owned subsidiary
of New Playboy ("PEGI"), and the Company will enter into an
agreement
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(the "Playboy Mandatory Services Agreement") pursuant to
which the Company will provide complete transmission service
for at least two of New Playboy's networks. In addition, New
Playboy and the Company will enter into an agreement (the
"Playboy Non-Competition Agreement") pursuant to which New
Playboy will agree not to engage in the business of
providing explicit adult programming via C-Band satellite
and the Company will agree not to engage in the Playboy
Business (as defined in "Arrangements after the
Merger--Relationship with New Playboy--Terms of the
Non-Competition Agreement"), except that the Company may
provide explicit adult programming via C-Band satellite in
certain defined territories and via the Internet, may engage
in the Playback and Uplink Business (as defined in
"Arrangements after the Merger--Relationship with New
Playboy-- Terms of the Non-Competition Agreement"), and may
engage in certain other activities. See "Arrangements after
the Merger--Relationship with New Playboy" and "Business."

Califa and the Company will enter into a non-competition
agreement for the benefit of the Company similar to the
Playboy Non-Competition Agreement and a services agreement
for one network similar to the Playboy Mandatory Services
Agreement. See "Arrangements after the Merger--Relationship
with Califa."
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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
MATERIAL RISKS AND UNCERTAINTIES. SEE "--FORWARD-LOOKING STATEMENTS." THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK
FACTORS AND ELSEWHERE IN THIS PROSPECTUS.

ABSENCE OF HISTORY AS A STAND-ALONE COMPANY

The Company was formed on July 20, 1998 in contemplation of the
Contribution, the Share Transfer and the Merger. The Company's future
performance will depend on its ability to function as a stand-alone entity and
to finance and expand its operations. There is no assurance that the Company's
intended activities will be successful or result in significant revenue or
generate profits for the Company. The Company faces all risks which are
associated with any new business, such as under-capitalization, cash flow
problems and personnel, financial and resource limitations. The likelihood of
the success of the Company must be considered in light of the expenses,
complications and delays frequently encountered in connection with the formation
of a new business. The Company has limited resources and assets. See "Business,"
"Selected Historical Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY

The Operations Facility was operated by Spice as a separate internal
department and a substantial portion of its revenues were derived from Spice.
The Company's principal customers immediately after the Merger will be EMI, PEGI
and Califa. See "--Reliance on Limited Number of Customers." There can be no
assurance that the Company will be able to generate sufficient revenue to
achieve profitability in the future. See "--History of Net Operating Losses."
The Company's ability to achieve and maintain profitability depends on its
ability to retain its existing customers and to attract and maintain new
customers for its services. There can be no assurance that it will be able to do
so. The Company currently intends to rely on the business contacts and
experience of its management to develop new business. There can be no assurance
that management will be successful in developing new business. See "--Dependence
on Senior Management and Other Key Employees."

HISTORY OF NET OPERATING LOSSES

The Company incurred a net loss of $2,094,000 in the nine months ended
September 30, 1998 and a net loss of $859,000 in the year ended December 31,
1997. As of September 30, 1998, the Company had an accumulated deficit of
$7,629,000. See "--Limited Operating History; Uncertainty of Future
Profitability," and the Company's financial statements included elsewhere in
this Prospectus.

LIMITED FINANCIAL RESOURCES; CAPITAL NEEDS

The Company's capital requirements will depend on many factors, including
the cost of operations and marketing activities, its ability to market its
services successfully, the length of time required to collect accounts
receivable and competing technological and market developments. Changes in the
Company's business or business plan could materially increase the Company's
capital requirements. There can be no assurance that the Company will perform
according to its business plan. Three directors have committed to provide a
revolving line of credit of $1.5 million to the Company. See "Certain
Transactions." The Company has no other capital resources or working capital.
There can be no assurance that this financing will be sufficient to meet the
Company's operating needs. If the Company requires additional funds and cannot
obtain such financing, it may be required to cease its operations.

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CONTRACTUAL LIMITATIONS ON MARKETS AND EXPANSION

Pursuant to the Playboy Non-Competition Agreement, the Company cannot
provide its playback services for certain types of programming unless certain
conditions are satisfied. The Company cannot provide playback and uplink
services for any adult programming unless the arrangements with the cable
program service providing such adult programming were negotiated on an arm's
length basis, provide for the payment for such services in cash and provide for
service rates no more favorable than the payment terms offered by the Company to
Playboy for similiar services; provided that the Company cannot provide playback
and uplink services for any adult programming other than (a) via satellite
delivery or (b) if the adult programming is for Playboy or Califa, via file
servers. In addition, the Playboy Non-Competition Agreement prohibits the
Company from entering into certain areas of the adult entertainment industry.
See "--Risks Associated with Exercise of Emerald Media Option--Contractual
Limitation on Markets and Expansion" and "Arrangements After the
Merger--Relationship with New Playboy--Terms of the Playboy Non-Competition
Agreement." The restrictions contained in the Playboy Non-Competition Agreement
could prevent the Company from expanding its business, revenues and customers
and could have a material and adverse effect on the results of operations and
financial condition of the Company. See "Arrangements After the
Merger--Relationship with New Playboy."

RELIANCE ON LIMITED NUMBER OF CUSTOMERS

The Company will provide post-production, facilities, playback and
transponder services for the four EMI networks, Eurotica, XXXcite, The X!
Channel and Rogue TV. Historically, EMI has operated at a loss; there can be no
assurance that EMI will be able to pay for the services provided by the Company.
See "--Risks Associated with Exercise of the Emerald Media Option--Limited
Operating History; Uncertainty of Future Profitability." Based on discussions
with EMI's management, the Company believes that certain operating improvements
implemented by EMI in the first nine months of 1998 will provide EMI with
sufficient liquidity and capital resources to meet EMI's anticipated cash
obligations to the Company; however, there can be no assurance that this will be
the case. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations." The total balance due to the
Company from EMI at September 30, 1998 was appproximately $3.4 million; the
Company has reserved $2.7 million against this receivable. To the extent the
Company cannot obtain payment from EMI, the results of operations and financial
condition of the Company could be materially and adversely affected.

In connection with the Contribution, the Share Transfer and the Merger, the
Company and PEGI will enter into the Playboy Mandatory Services Agreement and
may negotiate an agreement for additional services. If PEGI elects to engage a
third party to provide additional services, including (i) traffic, library and
quality control services, (ii) satellite security, (iii) network integration and
scheduling, (iv) creative services, (v) duplication, editing and encoding or
(vi) all services relating to the distribution of the Spice networks (other than
the Spice Hot network) or other adult programming via regionally deployed video
file servers linked to cable systems or multichannel video programming
providers, PEGI shall retain the Company to provide such services; provided that
the Company can provide such services at the same price and quality as such
third party. PEGI and the Company are currently in negotiation for the provision
of closed captioning services but have not yet reached definitive agreement. In
addition, the Company and Califa will enter into the Califa Mandatory Services
Agreement (as defined herein) and may negotiate an agreement for additional
services. If Califa elects to engage a third party to provide additional
services, including (i) traffic, library and quality control services, (ii)
satellite security, (iii) network integration and scheduling, (iv) creative
services, (v) duplication, editing and encoding or (vi) all services relating to
the distribution of the Spice Hot network or other adult programming via
regionally deployed video file servers linked to cable systems or multichannel
video programming providers, Califa shall retain the Company to provide such
services; provided that the Company can provide such services at the same price
and quality as such third party. Califa and the Company are currently in
negotiation for the provision of closed captioning services but have not yet
reached definitive agreement. Pursuant to the Playboy

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Mandatory Services Agreement, the Company will provide playback, uplink and
compressed transponder services for a minimum of two of New Playboy's networks.
Pursuant to the Califa Mandatory Services Agreement, the Company will provide
playback, uplink and compressed transponder services for one network. If PEGI or
Califa terminates or fails to renew such services agreements, the results of
operations and financial condition of the Company could be materially and
adversely affected. If PEGI and the Company, or Califa and the Company, fail to
enter into an agreement for additional services on terms satisfactory to the
Company, the results of operations and financial condition of the Company could
be adversely affected. See "Arrangements After the Merger--Relationship with New
Playboy" and "Arrangements After the Merger--Relationship with Califa."

DEPENDENCE ON TECHNOLOGY

The Company is dependent upon the successful operation and maintenance of
its own technological infrastructure, including its Operations Facility, as well
as technological operations provided by third parties, such as terrestrial
connectivity to the uplink facility, uplink services and the transponder
services. While the Company has not experienced any material disruption of these
operations in the past, its business and operations could be adversely affected
by the extended failure of any of these operations.

RISK OF TECHNOLOGICAL OBSOLESCENCE

Technology in the entertainment and programming industry is continuously
changing as new technologies and developments continue to be introduced. There
can be no assurance that future technological advances will not result in
improved equipment or software systems that could adversely affect the Company's
competitive position. In order to remain competitive, the Company must maintain
the programming enhancements, engineering and technical capability and
flexibility to respond to customer demands for new or improved versions of its
systems and new technological developments. There can be no assurance that the
Company will have the financial or technological resources to be able to do so.

PROVISION OF SERVICES FOR ADULT PROGRAMMING

The Company will provide playback and uplink services to EMI, Califa and
PEGI, providers of adult programming. In addition, the Company will license its
rights to Spice's library of adult films to EMI. Many people may regard the
adult entertainment business as unwholesome, and the Company's involvement with
such businesses may negatively taint the Company and the Company's attempts to
enter into new businesses. Certain investors, investment banking entities,
market makers, lenders, and others in the investment community may refuse to
participate in the Company's public market, finance or other activities due to
the nature of any of its businesses or the business of its customers. Such
refusal may negatively impact the value of the securities of the Company, and
the Company's opportunities to attract market support.

RISKS RELATED TO INVESTMENT AND ACQUISITION STRATEGY

One of the Company's strategies is to invest in or acquire other businesses
in which management of the Company has experience or can add value. The Company
has not identified a specific industry or business on which it initially intends
to focus and has no present plans, proposals, arrangements or understandings
with respect to the acquisition of, or investment in, any specific business.
There can be no assurance that the Company can expand into other businesses. The
Company may not be successful in identifying, attracting or acquiring desirable
acquisition or investment candidates. Even if the Company is successful in
identifying and acquiring another business, there can be no assurance that the
Company will successfully integrate such candidates into the Company or will
realize profits from any acquisition or investment. The Company is prohibited by
the Playboy Non-Competition Agreement from entering into certain areas of adult
entertainment and will not be able to invest in or acquire businesses which
operate in

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such areas of the adult entertainment industry. See "--Contractual Limitations
on Markets and Expansion" and "Arrangements After the Merger--Relationship with
New Playboy--Terms of the Playboy Non-Competition Agreement."

The Company may acquire a business through acquisition, merger,
consolidation or reorganization. Such transaction could result in the incurrence
by the Company of substantial indebtedness which could materially and adversely
change the capital structure and the financial condition of the Company. Any
acquisition, merger, consolidation or reorganization could also involve the
issuance of additional securities of the Company, which would result in
immediate, and possibly substantial, dilution to the Company's then current
stockholders.

The failure to complete acquisitions or investments or to operate the
acquired companies profitably could materially and adversely affect the Company.

TAX MATTERS

Although not free from doubt, the Share Transfer is intended to qualify as a
partial redemption of Spice Capital Stock and holders of Spice Capital Stock on
the Record Date receiving Company Common Stock should generally recognize
capital gain or loss equal to the difference between the fair market value of
the Company Common Stock received and the tax basis in the portion of the shares
of Spice Capital Stock redeemed thereby. It is possible that the Internal
Revenue Service could treat the Share Transfer as a dividend which would be
taxable to the holders of Spice Capital Stock at ordinary income tax rates to
the extent of Spice's current or accumulated earnings and profits. None of
Spice, New Playboy, Playboy or the Company will be obligated to indemnify Spice
stockholders for any such tax. See "The Contribution and the Share
Transfer--U.S. Federal Income Tax Consequences of the Share Transfer."

DEPENDENCE ON SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES

The Company's success depends to a significant extent upon its senior
management and certain other key employees of the Company. The Company has
entered into employment agreements with J. Roger Faherty, Donald J. McDonald,
Richard Kirby and John Sharpe. The employment agreements with Messrs. McDonald
and Kirby terminate on December 31, 2001. The employment agreement with Mr.
Sharpe terminates on December 31, 2000. The employment agreement with Mr.
Faherty has a six-year term; in each year that such agreement is not terminated,
the term is extended for five years from such anniversary date. However,
notwithstanding such agreements, the loss of the service of any of these
individuals, other members of senior management or other key employees could
have a material adverse effect on the Company. Also, there can be no assurance
that this management team will be successful in managing the operations of the
Company or be able to effectively implement the Company's business strategy.
Furthermore, the Company believes that its future success will depend to a
significant extent upon its ability to attract, train and retain highly skilled
technical and management personnel. Competition for such personnel is intense,
and the Company expects that such competition will continue for the foreseeable
future. There can be no assurance that the Company will be successful in
attracting or retaining such personnel; the failure to attract or retain such
personnel could have a material adverse effect on the Company's results of
operations and financial condition. See "Management."

YEAR 2000 COMPLIANCE

The Company is implementing a Year 2000 program to ensure that the Company's
computer systems and applications will function properly beyond 1999. The
Company believes that adequate resources have been allocated for this purpose
and expects its Year 2000 date conversion program to be completed on a timely
basis. The Company does not believe that the cost of implementing its Year 2000
program will have a material effect on the Company's financial condition or
results of operations. However, there can be no assurance that the Company will
identify all Year 2000 problems in its computer systems in advance of

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their occurrence or that the Company will be able to successfully remedy any
problems that are discovered. The expenses of the Company's efforts to address
such problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse effect on
the Company's results of operations and financial condition. In addition, the
revenue stream and financial ability of existing suppliers, service providers or
customers may be adversely impacted by Year 2000 problems, which could cause
fluctuations in the Company's revenues and operating profitability.

The Company has investigated Year 2000 compatibility with its major
customers and service providers. Logix Development Corp., which operates the
call center for EMI's networks, has analyzed its software and believes that its
systems are Year 2000 compliant. Playboy is addressing its Year 2000 issues
through a combination of modifications to existing programs and conversions to
Year 2000 compliant software. See "Risk Factors--Year 2000" in the Proxy
Statement/Prospectus. The Company has not been able to adequately assess
Califa's compliance with Year 2000 issues because Califa has only recently been
organized and is in the process of establishing its computer systems and
applications; however, the Company intends to work with Califa to address any
Year 2000 issues that may arise.

Except as described above, the Company has not developed a contingency plan
for the reasonably likely worst case scenario concerning the Year 2000. If a
Year 2000 problem were to occur that the Company could not successfully resolve,
it could have a material adverse effect on the results of operations and
financial condition of the Company.

NO PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Share Transfer, there has been no public market for the Company
Common Stock, and there can be no assurance that an active trading market will
develop or, if one does develop, that it will continue. Until an orderly market
in Company Common Stock develops, the price at which such stock trades may
fluctuate significantly and may be higher or lower than the price that would be
expected for a fully distributed issue. The price of Company Common Stock will
be determined in the marketplace and may be influenced by many factors,
including (i) the depth and liquidity of the market for the Company Common
Stock; (ii) developments affecting the Company's business generally; (iii) the
Company's dividend policy; (iv) investor perception of the Company's business
and the adult programming industry generally; and (v) general economic and
market conditions.

The Company expects that the Company Common Stock will be traded on the OTC
Bulletin Board. Risks associated with trading on the OTC Bulletin Board include
limited release of market prices of the Company Common Stock and limited news
coverage of the Company. Unless and until there is a more established trading
market for the Company Common Stock, holders of Company Common Stock could find
it difficult to dispose of, or to obtain accurate quotations as to the price of,
the Company Common Stock.

In addition to these risks, stocks which have very low prices are subject to
the risks of additional federal and state regulatory requirements. Brokers or
dealers who sell "penny stocks" are subject to additional sales practice
requirements, including delivery of a disclosure schedule regarding the penny
stock market, making a suitability determination with respect to the purchaser,
receipt from the purchaser of written consent to the transaction and disclosure
of commissions payable to the broker or dealer and the registered
representative. A penny stock is defined as any equity security with a market
price of less than $5 per share, subject to certain exceptions. Penny stocks do
not include, among other exceptions, (i) securities of a company with net
tangible assets in excess of $5 million, if the company has been in continuous
operation for less than three years, or $2 million, if the company has been in
continuous operation for at least three years, or (ii) securities of a company
with average annual revenues of $6 million for the last three years. If the
Company Common Stock were to be deemed a penny stock, the additional regulatory
requirements could severely limit the liquidity of the Company Common Stock and
the ability of investors to sell Company Common Stock in the secondary market.

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RISKS ASSOCIATED WITH EXERCISE OF THE EMERALD MEDIA OPTION

The Company currently has no intent to exercise the Emerald Media Option.
If, however, the Company were to exercise such option, the following are certain
material risks associated with EMI.

LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY

EMI has a limited operating history and is in the early stage of marketing
its channels. As of September 30, 1998, EMI had incurred cumulative net losses
of approximately $6,100,000. The losses resulted principally from the deferral,
for accounting purposes, of the unearned portion of subscription revenues and
expenses of operations while building a subscriber base during the initial
phases of EMI's operations.

EMI's ability to achieve and maintain profitability depends in part on its
ability to successfully market and sell its services. There can be no assurance
when, or if, any of EMI's current or future services will be commercially
successful.

LOSS OF MARKET SHARE TO DIRECT BROADCAST SATELLITE

In the past several years, the market for C-Band systems has been
contracting, primarily as a result of the introduction and rapid proliferation
of DBS systems, such as DirecTV, Dish Network and PrimeStar. The Company
believes that the number of C-band system owners decreased 3.7% in 1996 and 7.2%
in 1997. All of EMI's revenues are generated in the C-band market. Consequently,
it will be difficult to develop additional sales revenue growth from this
business, and the growth of DBS systems may reduce future sales revenue from the
C-Band market, which could have a material adverse effect on the results of
operations and financial condition of EMI.

NEED TO DEVELOP INTERNET BUSINESS

EMI is beginning to provide its programming via the Internet. Currently, EMI
receives no revenues from its Internet services. There can be no assurance that
EMI will develop a subscriber Internet site and that, if implemented, such
Internet site will be profitable. If EMI cannot develop a subscriber Internet
site, the results of operations and financial condition of EMI could be
materially and adversely affected. If the C-Band market continues to decline and
Internet services are not expanded, EMI could be required to cease its
operations.

CONTRACTUAL LIMITATIONS ON MARKETS AND EXPANSION

Pursuant to the Playboy Non-Competition Agreement, the Company is limited to
providing explicit adult programming via C-Band "big dish" satellite in certain
defined territories or via the Internet. The Company is prohibited from
expanding the current EMI programming base into cable television or the Ku-Band
(small dish) direct broadcast satellite ("DBS") system. Although the Company
would not be prohibited from expanding the current EMI programming base into the
Internet, there can be no assurance that the Company would be successful in such
expansion. The restrictions contained in the Playboy Non-Competition Agreement
could prevent the Company from expanding its business, revenues and customers
and could have a material and adverse effect on the results of operations and
financial condition of the Company. If the Company were to exercise the Emerald
Media Option, EMI would be subject to the restrictions in the Playboy
Non-Competition Agreement. Such restrictions could prevent EMI from expanding
its business, revenues and customers and could have a material and adverse
effect on the results of operations and financial condition of EMI. See
"Arrangements After the Merger-- Relationship with New Playboy."

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COMPETITION

There is currently no explicit adult programming in the cable television or
the Ku-Band markets. EMI's principal competitor recently attempted to provide
explicit adult programming to the Ku-Band market, but was not successful. The
Extasy network, an explicit adult television network distributed by New Frontier
Media, Inc. ("New Frontier"), was launched on EchoStar, a DBS system, in August,
1998, but carriage of the network was discontinued soon thereafter. To the
extent New Frontier or a new competitor can succeed in providing explicit adult
programming via Ku-Band satellite or cable television, the C-Band market could
erode, which would have a material adverse effect on EMI.

PROVISION OF SEXUALLY EXPLICIT CONTENT

If the Company were to exercise the Emerald Media Option, it would engage in
the business of providing sexually explicit programming to adult television
subscribers in the C-Band market and via the Internet. Many people may regard
EMI's business as unwholesome. The nature of EMI may negatively taint the
Company and the Company's attempts to enter into new businesses. Certain
investors, investment banking entities, market makers, lenders, and others in
the investment community may refuse to participate in the Company's public
market, finance or other activities due to the nature of EMI's business. Such
refusal may negatively impact the value of the Company's stock, and its
opportunities to attract market support.

Various advocacy groups may file lawsuits against providers of adult
entertainment, encourage boycotts against such providers and mount negative
publicity campaigns against companies whose businesses involve adult
entertainment. The Company may be subjected to such adverse publicity and
litigation. The Company may incur substantial costs defending itself against
such actions, which may negatively impact the Company's financial condition and
results of operations. Negative publicity, boycotts and litigation could also
discourage institutional and other investors from investing in the Company, to
the detriment of the Company's stockholders. Because of this risk, the Company
may not be able to attract as large a base of investors as a similarly situated
company in a business not involving "adult entertainment."

SATELLITE SERVICES AGREEMENTS; REFUSAL OF SERVICE OR TERMINATION OF
AGREEMENTS

EMI currently provides some of its adult satellite programming to
subscribers via a subleasing arrangement with Logix Development Corporation,
which leases one transponder from each of Network Teleports, Inc. and B&P The
SpaceConnection, Inc. The transponder lease with B&P The SpaceConnection, Inc.
expires November 30, 1998 and will not be replaced.

These transponder agreements contain provisions that allow the service
providers to refuse to provide the service (defined as service on pre-emptible
transponders on Telstar 402R) or terminate the agreements under certain
circumstances, including (i) if the programming being transmitted by EMI does
not, in the service provider's sole judgment, adhere to generally accepted
community broadcast standards in the United States, including the encryption of
"sexually explicit conduct" or (ii) if EMI is indicted or is otherwise charged
as a defendant in a criminal proceeding, or is convicted under any obscenity
law, or has been found by any governmental authority to have violated such law.
EMI has operated its adult networks under these terms since its inception
without disruption or refusal of service; nonetheless, EMI will be subject to
arbitrary refusal of service by the service providers if a service provider
determines that the content being transmitted by EMI is harmful to the service
provider's name or business. Any such service disruption would have a material
adverse effect on the results of operations and financial condition of EMI.

GOVERNMENT REGULATION

If the Company were to exercise the Emerald Media Option, it could become a
leading provider of explicit adult programming via direct-to-home C-Band
satellite. Federal and state governments, along with

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various advocacy groups, consistently propose and support legislation aimed at
restricting the provision of, access to, and content of adult entertainment. The
Company could be subjected to such adverse legislation.

Recently, federal and state government officials have targeted "sin
industries," such as tobacco, alcohol and adult entertainment for special tax
treatment and legislation. In 1996, Congress passed the Communications Decency
Act (the "CDA"), a subsection of the Telecommunications Act of 1996. Recently,
the U.S. Supreme Court, in ACLU V. RENO, held certain substantive provisions of
the CDA unconstitutional. Businesses in the adult entertainment and programming
industries expended millions of dollars in legal and other fees in overturning
such provisions of the CDA. The adult entertainment industry may continue to be
a target for legislation. In the event the Company must defend itself and/or
join with other companies in the adult programming business to defend against
such legislation, the Company may incur significant expenses that could have a
material adverse effect on the Company's results of operations and financial
condition.

ANTI-TAKEOVER PROVISIONS

The Company's Certificate of Incorporation requires that any action required
or permitted to be taken by the stockholders of the Company must be effected at
a duly called annual or special meeting of stockholders and may not be effected
by any consent in writing. Pursuant to the Company's By-Laws, special meetings
of stockholders may be called only by the Chairman of the Board, the Chief
Executive Officer or the President of the Company or upon the written request of
a majority of the Board of Directors. The Certificate of Incorporation provides
for a classified Board of Directors, and members of the Board of Directors may
be removed only for cause upon the affirmative vote of holders of at least two-
thirds of the shares of capital stock of the Company entitled to vote. In
addition, shares of the Company's preferred stock may be issued in the future
without further stockholder approval and upon such terms and conditions, at a
price and having such rights, privileges and preferences, as the Board of
Directors may determine. The rights of the holders of Company Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of shares of
preferred stock, while potentially providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no present intent to
issue any shares of preferred stock. The Company is also subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which could have the effect of delaying or preventing a change of control of the
Company. The foregoing provisions, and other provisions of the Certificate of
Incorporation, may have the effect of deterring hostile takeovers or delaying or
preventing changes in control or management of the Company, including
transactions in which stockholders might otherwise receive a premium for their
shares over then current market prices. In addition, these provisions may limit
the ability of stockholders to approve transactions that they may deem to be in
their best interests. See "Description of Securities--Delaware Law and Certain
Provisions of the Company's Certificate of Incorporation and By-Laws." The
employment agreements between the Company and each of J. Roger Faherty, Donald
J. McDonald, Richard Kirby and John Sharpe provide that each executive will be
entitled to a severance payment if the Company terminates his employment within
18 months following a change in control of the Company. These provisions could
have the effect of preventing a change in control of the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Immediately following the Separation Date, approximately 2,075,000 shares of
Company Common Stock will be freely tradeable, except for shares received by any
persons who may be deemed to be "affiliates" of the Company as that term is
defined in Rule 144 promulgated under the Securities Act. See "The Contribution
and the Share Transfer--Restrictions on Transfer." The sale of substantial
amounts of

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Company Common Stock could have an adverse effect on the price of the Company
Common Stock prevailing from time to time.

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this Prospectus may constitute
forward-looking statements for purposes of the Securities Act and the Exchange
Act, and as such involve risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements include those
preceded by, followed by or that include, the words "believes," "expects,"
"anticipates" or similar expressions. Important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from the Company's expectations are disclosed in this Prospectus ("Cautionary
Statements"), including, without limitation, in this "Risk Factors" section. All
written forward-looking statements attributable to the Company are expressly
qualified in their entirety by the Cautionary Statements.

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THE CONTRIBUTION AND THE SHARE TRANSFER

This section of the Prospectus describes the material terms of the proposed
Contribution and Share Transfer. The following descriptions do not purport to be
complete and are qualified in their entirety by reference to the Transfer and
Redemption Agreement or the applicable related agreement, as the case may be.
Copies of the Transfer and Redemption Agreement and the related agreements have
been filed as exhibits to the Registration Statement. All Spice stockholders are
urged to read the Transfer and Redemption Agreement and the related agreements
in their entirety.

BACKGROUND OF AND REASONS FOR THE CONTRIBUTION AND THE SHARE TRANSFER

Because Playboy wants to acquire only certain assets of Spice, Spice intends
to transfer certain of its assets to its stockholders, by means of the
Contribution and the Share Transfer, as part of the consideration for the
Merger. Playboy already has access to playback and uplink facilities and Playboy
is not, and chooses not to be, in the business of producing or distributing the
explicit versions of adult films. Playboy and Spice agreed that these assets
would be transferred to a new subsidiary of Spice and that, upon consummation of
the Merger, the capital stock of such subsidiary would be distributed to Spice's
stockholders. As a result, the stockholders of Spice will continue after the
Merger to hold a direct or indirect interest in all of Spice's current assets,
other than those to be sold to Califa, as described under "--Related
Transactions." The combination of the Contribution, the Share Transfer and the
Merger will allow Spice's stockholders to receive consideration with a value in
excess of the market price of Spice Common Stock prior to the announcement of
the Merger. In addition, the Contribution and the Share Transfer will allow the
Company to adopt strategies and pursue objectives that are more appropriate to
its markets.

THE TRANSACTIONS

Prior to consummation of the Merger, Spice and the Company will enter into
the Transfer and Redemption Agreement, pursuant to which the following
transactions will be effected:

1. Spice will contribute certain assets, including the Operations
Facility and the Emerald Media Option, to the Company in exchange for the
Company Common Stock and the assumption by the Company of certain
liabilities related to the contributed assets. The Company and Spice will
also enter into the Explicit Rights Agreements and the Owned Rights
Agreement, which will grant the Company certain rights to Spice's library of
adult films. See "--Terms of the Transfer and Redemption Agreement."

2. Spice will transfer the Company Common Stock to the Exchange Agent to
be distributed to Spice stockholders, as described below, as part of the
consideration for the Merger.

3. In connection with the Contribution, the Share Transfer and the
Merger, the Company and New Playboy will enter into the Playboy
Non-Competition Agreement and the Company and PEGI will enter into the
Playboy Mandatory Services Agreement. See "Arrangements After the Merger."

Each holder of shares of Spice Common Stock of record as of the Closing Date
will be entitled to receive 0.125 of one share of Company Common Stock in
partial exchange for each share of Spice Common Stock held on the Closing Date.
Each holder of shares of Spice Preferred Stock as of the Closing Date will be
entitled to receive the number of shares of Company Common Stock that such
holder would have been entitled to receive had such holder converted such shares
of Spice Preferred Stock into shares of Spice Common Stock immediately prior to
the Share Transfer. Each holder of stock options or warrants of Spice as of the
Closing Date will be entitled to receive 0.125 of one share of Company Common
Stock for each share of Spice Common Stock for which a stock option or warrant
was exercisable upon payment of the applicable exercise price. No certificates
or scrip representing fractional shares of Company Common Stock will be issued.
Any fractional share of Company Common Stock will be rounded up to one whole
share. The Company Common Stock to be received by the Spice stockholders in the
Share Transfer will

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<PAGE>
also constitute part of the Merger Consideration (as defined in "--The Merger").
Certificates representing the Company Common Stock will be distributed with the
Playboy Consideration (as defined in "--The Merger") upon surrender of
certificates representing Spice Common Stock or Spice Preferred Stock.

After the Contribution and immediately prior to the Share Transfer, Spice
will hold all the issued and outstanding shares of Company Common Stock. Based
on the number of shares of Spice Capital Stock and the number of stock options
and warrants of Spice outstanding on October 31, 1998 and on an Exchange Ratio
of 0.125 of one share of Company Common Stock transferred in partial exchange
for each share of Spice Common Stock (and Spice Preferred Stock as if such Spice
Preferred Stock had been converted into Spice Common Stock immediately prior to
the Share Transfer), approximately 2,075,000 shares of Company Common Stock will
be transferred to stockholders of Spice in the Share Transfer. As a result of
the Share Transfer, the stockholders of record of Spice on the Closing Date will
own all of the outstanding capital stock of the Company and Spice will retain no
ownership interest in the Company.

TERMS OF THE TRANSFER AND REDEMPTION AGREEMENT

Pursuant to the terms of the Transfer and Redemption Agreement, immediately
prior to the Share Transfer, Spice will contribute certain assets to the
Company, including (a) all of the equipment and facilities relating to Spice's
master control and digital playback center (the "Operations Facility"), (b) an
option (the "Emerald Media Option") to acquire all of the assets or all of the
stock of EMI, a provider of subscriber-based and pay-per-view explicit adult
content premium programming via direct to home C-Band satellite and the
Internet, and (c) certain rights to Spice's library of adult films to be granted
to the Company under the Explicit Rights Agreements and the Owned Rights
Agreement. The Company currently has no intent to exercise the Emerald Media
Option.

Pursuant to the Transfer and Redemption Agreement, Spice and the Company
will divide up certain existing agreements of Spice. Spice's transponder
services agreement will be replaced by separate agreements, one of which will
provide for Spice to continue to lease one transponder and the other of which
will provide for the Company to lease the remaining three transponders. Spice
will assign to the Company an agreement to provide transponder services to Black
Entertainment Television, Inc. ("BET"), and will make space available to the
Company on its retained transponder without charge so that the Company can
perform the obligations under such agreement. One of Spice's equipment leases
will be replaced by separate agreements, one of which will provide for Spice to
retain certain decoding equipment and the other of which will provide for the
Company to lease an encoding system. The leases for Spice's corporate
headquarters will be divided between Spice and the Company. The lease for the
floor on which the Operations Facility is located will be assigned to the
Company.

In connection with the Contribution, the Company will issue to Spice the
Company Common Stock and will assume the Assumed Liabilities, subject to the
indemnification obligations of Spice described below. The "Assumed Liabilities"
include (a) all of the liabilities relating to the Playback and Uplink Business,
but only to the extent they arise after the Closing Date, (b) those liabilities
and obligations arising out of the assets being contributed to the Company and
(c) all of the liabilities relating to EMI, the Explicit C-Band Business and the
Explicit Internet Business. The Company will not assume any of EMI's liabilities
unless and until it exercises the Emerald Media Option. Prior to the exercise of
the Emerald Media Option, the Company will be responsible for any claims against
Spice for liabilities relating to EMI. For definitions of "Playback and Uplink
Business," "Explicit C-Band Business," and "Explicit Internet Business," see
"Arrangements After the Merger--Relationship with New Playboy--Terms of the
Playboy Non-Competition Agreement."

After the Contribution, Spice will deliver the Company Common Stock to the
Exchange Agent and will instruct the Exchange Agent to transfer the Company
Common Stock to the stockholders in accordance with the Exchange Ratio, as
described above, as part of the Merger Consideration. Upon

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consummation of the Share Transfer, any shares of Company Common Stock owned by
Spice shall be canceled.

Pursuant to the Transfer and Redemption Agreement, the Company will offer
employment to certain employees of Spice. The Company intends to do so on
substantially the same terms and conditions of their employment by Spice and
intends to establish new employee benefit plans substantially similar to the
benefit plans maintained by Spice prior to the Closing Date.

In the Transfer and Redemption Agreement, the Company will make certain
representations and warranties to Spice with respect to (a) its due organization
and good standing, (b) its corporate power to execute the Transfer and
Redemption Agreement, the Explicit Rights Agreements, the Owned Rights
Agreement, the Playboy Non-Competition Agreement and the Playboy Mandatory
Services Agreement (collectively, the "Transaction Agreements"), (c) the
enforceability of the Transfer and Redemption Agreement and the related
agreements to which it will be a party and (d) the noncontravention of
agreements, laws and the Company's organizational documents.

Conditions to the consummation of the Contribution and the Share Transfer
include the execution and delivery of the Explicit Rights Agreements, the Owned
Rights Agreement and the Mandatory Services Agreement, the execution of new
transponder agreements and new equipment lease agreements, the assignment and
amendment of Spice's office leases, the execution of the Califa Non-Competition
Agreement and the Califa Mandatory Services Agreement, obtaining all necessary
third party consents and waivers and other customary closing conditions. If the
Merger Agreement is terminated and the Merger is not consummated, the
Contribution and Share Transfer will not be consummated.

Pursuant to the Transfer and Redemption Agreement, Spice and the Company
will indemnify each other for losses, claims, damages, expenses or other
liabilities or obligations (including, without limitation, interest, penalties
and reasonable fees and expenses of attorneys, experts and consultants)
(collectively, "Losses") arising from certain matters. The indemnification will
also apply to the indemnified parties' respective directors, representatives,
officers, employees, affiliates, subsidiaries and assigns.

Specifically, Spice will agree to indemnify the Company for Losses arising
from (a) any breach by Spice of any covenant or agreement in the Transfer and
Redemption Agreement and the other Transaction Agreements to be performed by it
after the Closing Date, (b) any liability not to be assumed by the Company and
(c) any misstatement of a material fact in the Proxy Statement/Prospectus, the
registration statement that includes the Proxy Statement/Prospectus or the
Registration Statement (as defined under "Additional Information") or any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, but only in each case with respect to
information provided by or on behalf of Playboy relating to Playboy and
contained in or omitted from the Proxy Statement/Prospectus, the registration
statement that includes the Proxy Statement/Prospectus or the Registration
Statement. In addition, Spice will indemnify the Company for liability for taxes
imposed on (x) Spice that the Company pays or otherwise satisfies and (y) the
Company on or prior to the Closing Date, including any taxes arising as a result
of the transactions contemplated by the Transfer and Redemption Agreement, the
other Transaction Agreements and the Merger Agreement.

The Company will agree to indemnify Spice for Losses arising from (a) any
breach by the Company of any representation, warranty, certificate, covenant or
agreement in the Transfer and Redemption Agreement, the other Transaction
Agreements and any document delivered pursuant thereto, (b) any breach by Spice
of any covenant or agreement in the Transfer and Redemption Agreement and the
other Transaction Agreements to be performed by it prior to the Closing Date,
(c) any Assumed Liabilities, and (d) any misstatement of a material fact in the
Proxy Statement/Prospectus, the registration statement that includes the Proxy
Statement/Prospectus and the Registration Statement or any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, but only in each case with respect to information provided by

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or on behalf of the Company or Spice relating to the Company and contained in or
omitted from the Proxy Statement/Prospectus, the registration statement that
includes the Proxy Statement/Prospectus and the Registration Statement. In
addition, the Company will indemnify Spice for liability for all taxes of the
Company for which Spice is not required to indemnify the Company.

TERMS OF THE EXPLICIT RIGHTS AGREEMENTS

An Explicit Rights Agreement will be entered into as of the Closing Date by
and between the Company and Spice with respect to each licensor which licenses
adult films to Spice (the "Licensed Pictures") pursuant to license agreements
(the "Licensed Agreements"), and which has consented, as necessary, to the
transactions contemplated by such Explicit Rights Agreement. Pursuant to each
Explicit Rights Agreement, Spice will assign to the Company all of its C-Band
Defined Rights and Internet Defined Rights in and to the Licensed Pictures. The
Company will grant Spice a non-exclusive royalty-free sublicense in and to the
Internet Defined Rights in and to the Licensed Pictures. The Company will assume
all of Spice's obligations and liabilities other than license fees relating to
the C-Band Defined Rights and the Internet Defined Rights in and to the Licensed
Pictures. Spice will remain responsible for the payment of license fees. The
Company will not receive any rights in and to any adult films licensed to
Spice's international subsidiary.

For purposes of the Explicit Rights Agreements, the term "C-Band Defined
Rights" means the right to transmit, and to sublicense and distribute for
transmission, via C-Band satellite in certain defined territories the Explicit
Version of a Licensed Picture and the Explicit Still Images with respect to such
Explicit Version, including the right to edit, reproduce, advertise, promote and
market such Explicit Version or Explicit Still Images, and to engage in such
other incidental activities reasonably necessary to exploit such rights. The
term "Internet Defined Rights" means the right to transmit, and to sublicense
and distribute for transmission, worldwide via the Internet the Explicit Version
of a Licensed Picture and the Explicit Still Images with respect to such
Explicit Version, including the right to edit, reproduce, advertise, promote and
market such Explicit Version or Explicit Still Images, and to engage in such
other incidental activities reasonably necessary to exploit such rights. The
term "Explicit Version" means the version of a Licensed Picture, the content of
which would generally be considered in the adult industry to be that of
"explicit" adult motion pictures and more explicit than the "hot cable" or
"cable" version of such Licensed Picture, and which is otherwise substantially
similar in content and degree of explicitness to the programming currently
featured by EMI. The term "Explicit Still Images" means all of the still images
included with or within the Explicit Version, the content of which would
generally be considered in the adult industry to be that of "adult" still images
and equally as explicit as, or more explicit than, "hot cable" still images, and
which are otherwise substantially similar in content and degree of explicitness
to the still images currently featured on the Internet sites maintained by EMI.

Pursuant to each Explicit Rights Agreement, the Company will not be entitled
to any rights in and to any motion pictures licensed to Spice pursuant to any
renewals, extensions, amendments or other modifications of any License Agreement
made after the Closing Date. However, prior to the execution of each Explicit
Rights Agreement, Spice will solicit from each licensor a consent to such
Explicit Rights Agreement, which consent will provide that in consideration of
the license fee to be paid by Spice in connection with any renewal, extension,
amendment or other modification of any License Agreement, the licensor will
grant to the Company a royalty-free license of and to the C-Band Defined Rights
and a royalty-free, non-exclusive license of and to the Internet Defined Rights
in and to the motion pictures otherwise licensed to Spice under such renewal,
extension, amendment or other modification of the License Agreement. In
addition, Spice will agree that it will not acquire C-Band Defined Rights to any
Explicit Programming or Explicit Still Images (as such terms are defined in the
Playboy Non-Competition Agreement) and will not acquire an exclusive license to
any Internet Defined Rights for seven years following the Closing Date.

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TERMS OF THE OWNED RIGHTS AGREEMENT

The Owned Rights Agreement will be entered into as of the Closing Date by
and between the Company and Spice Productions. Pursuant to the Owned Rights
Agreement, Spice Productions will assign to the Company all of its right, title
and interest in and to the C-Band Defined Rights and the Internet Defined Rights
in and to Spice Productions's existing library of owned adult films (the "Owned
Pictures"). The Company will grant Spice Productions a non-exclusive
royalty-free sublicense in and to the Internet Defined Rights in and to the
Owned Pictures. The terms "C-Band Defined Rights," "Internet Defined Rights,"
"Explicit Version" and "Explicit Still Images" will have the same meanings as
such terms have in the Explicit Rights Agreements except that such terms will
refer to the Owned Pictures.

THE MERGER

The Contribution and the Share Transfer will occur in connection with the
Merger. If the Merger is not consummated, the Contribution and the Share
Transfer will not be consummated.

The Merger Agreement, the Merger and all transactions related thereto were
approved by the Board of Directors of Spice on May 29, 1998. Spice, Playboy, New
Playboy, Playboy Acquisition Corp. and Spice Acquisition Corp. entered into the
Merger Agreement on May 29, 1998 and an amendment to the Merger Agreement on
November 16, 1998. The Merger and the Merger Agreement are subject to approval
and adoption by the stockholders of Spice at a special meeting of the
stockholders. A copy of the Proxy Statement/Prospectus relating to such special
meeting is being provided by Spice with this Prospectus.

Pursuant to the Merger Agreement, as amended, and subject to its terms and
conditions, Spice Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of New Playboy, will be merged with and into Spice and Spice will
become a wholly-owned subsidiary of New Playboy. Upon the consummation of the
Merger, each stockholder of Spice will receive, in exchange for each share of
Spice Common Stock held by such stockholder, the Spice Consideration and the
Playboy Consideration (together with the Spice Consideration, the "Merger
Consideration"). The "Spice Consideration" will consist of 0.125 of one share of
Company Common Stock, in accordance with the Share Transfer, in partial
redemption of one share of Spice Common Stock. The "Playboy Consideration" will
consist of (x) $3.60 in cash, subject to increase if the Average Closing Price
of New Playboy Class B Common Stock is less than $13.00, and (y) 0.1371 of one
share of Class B Common Stock, par value $.01 per share of New Playboy (the "New
Playboy Class B Common Stock"), subject to adjustment if the Average Closing
Price of New Playboy Class B Common Stock is either greater than $20.488 or less
than $16.042. If the Average Closing Price of New Playboy Class B Common Stock
is greater than $20.488, each share of Spice Common Stock will be converted into
a floating number of shares of New Playboy Class B Common Stock equal to $2.81
per share of Spice Common Stock. If the Average Closing Price of New Playboy
Class B Common Stock is less than $16.042, each share of Spice Common Stock will
be converted into a floating number of shares of New Playboy Class B Common
Stock equal to $2.20 per share of Spice Common Stock. If the Average Closing
Price of New Playboy Class B Common Stock is less than $13.00, New Playboy may
elect to deliver the value of any shares of New Playboy Class B Common Stock in
excess of those it would have had to deliver had the Average Closing Price been
equal to $13.00 in either cash, New Playboy Class B Common Stock or a
combination thereof. The "Average Closing Price" of New Playboy Class B Common
Stock is defined as the average of the reported closing price per share of the
Class B Common Stock, par value $.01 per share, of Playboy on the New York Stock
Exchange for the twenty consecutive trading days immediately preceding the fifth
business day prior to the consummation of the Merger.

Upon consummation of the Merger, each share of Spice Preferred Stock, other
than shares held in the treasury of Spice or shares as to which dissenters'
rights are exercised and perfected, will be converted into the right to receive
the amount of Merger Consideration that the holder of such share would have been
entitled to receive had such share been converted into shares of Spice Common
Stock. Upon consummation of the Merger, each outstanding stock option and
warrant of Spice will be deemed to have been

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exercised by its holder, subject to the agreement of its holder, and will be
converted into the right to receive the Merger Consideration; provided that the
exercise price of the stock option or warrant shall be offset first against the
cash portion of the Merger Consideration and then against the New Playboy Class
B Common Stock portion of the Merger Consideration. If the exercise price of any
stock options or warrants is greater than the aggregate cash portion of the
Merger Consideration payable to the holder of such stock options or warrants
(such excess being referred to as the "Excess Amount"), then such holder may
elect to pay to Spice an amount equal to the Excess Amount in cash in order to
receive the full amount of the stock portion of the Merger Consideration to
which such holder is entitled without any reduction of such stock portion.

Harris Trust and Savings Bank will act as Exchange Agent for the Merger.
Immediately prior to consummation of the Merger, Spice will deposit with the
Exchange Agent the Spice Consideration and New Playboy will deposit with the
Exchange Agent the Playboy Consideration. New Playboy will also make available
to the Exchange Agent from time to time as needed cash sufficient to pay cash in
lieu of fractional shares of New Playboy Class B Common Stock and any dividends
and other distributions pursuant to the Merger Agreement. As soon as reasonably
practicable after the effective time of the Merger (the "Effective Time"), the
Exchange Agent shall mail to each holder of Spice Common Stock or Spice
Preferred Stock (other than those holders who have exercised appraisal rights
pursuant to Section 262 of the Delaware General Corporation Law) a letter of
transmittal and instructions to effect the surrender of the certificates
representing Spice Common Stock or Spice Preferred Stock in exchange for the
Merger Consideration. Upon surrender of a certificate representing Spice Common
Stock for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to such instructions, the holder of such certificate will be
entitled to receive in exchange (i) $3.60 in cash, subject to increase, (ii)
certificates evidencing that number of whole New Playboy Class B Common Stock
which such holder has the right to receive in the Merger, (iii) any dividends or
other distributions on the New Playboy Class B Common Stock declared or made
after the Effective Time, (iv) cash in respect of fractional shares of New
Playboy Class B Common Stock and (v) certificates evidencing that number of
whole shares of Company Common Stock which such holder has the right to receive
in the Share Transfer and the Merger. The certificate so surrendered will be
canceled. Upon surrender of a certificate representing Spice Preferred Stock for
cancellation to the Exchange Agent together with the letter of transmittal, duly
executed, and other customary documents as may be required by the instructions,
the holder of such certificate will be entitled to receive in exchange the
Merger Consideration that such holder would have been entitled to receive had
such holder converted its shares of Spice Preferred Stock into shares of Spice
Common Stock immediately prior to the Merger. The certificate so surrendered
will be canceled.

In the event of a transfer of ownership of Spice Common Stock or Spice
Preferred Stock which is not registered in the transfer records of Spice as of
the Effective Time, cash, New Playboy Class B Common Stock, dividends and other
distributions and Company Common Stock may be issued and paid to a transferee if
the certificate evidencing such shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. No
dividends or other distributions declared or made after the Effective Time with
respect to New Playboy Class B Common Stock will be paid to the holder of an
unsurrendered certificate representing shares of Spice Common Stock or Spice
Preferred Stock. Subject to applicable law, following surrender of any
certificate formerly representing shares of Spice Common Stock or Spice
Preferred Stock, there will be paid to the record holder of the certificates
representing New Playboy Class B Common Stock issued in exchange, without
interest, at the time of surrender, the amount of dividends or other
distributions with a record date after the Effective Time previously paid with
respect to such New Playboy Class B Common Stock.

If any certificates for New Playboy Class B Common Stock and Company Common
Stock are to be issued in a name other than that in which the certificate
representing shares of Spice Common Stock or

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Spice Preferred Stock surrendered in exchange is registered, it will be a
condition of issuance that the certificate surrendered be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange have paid to New Playboy or any designated agent any transfer or other
taxes required by reason of the issuance of certificates for New Playboy Class B
Common Stock, cash and Company Common Stock in any name other than that of the
registered holder of the certificate surrendered, or established to the
satisfaction of New Playboy or any designated agent that such tax has been paid
or is not payable.

In the event any certificates representing shares of Spice Common Stock or
Spice Preferred Stock have been lost, stolen or destroyed, the Exchange Agent
will issue New Playboy Class B Common Stock, cash and Company Common Stock in
exchange for such lost, stolen or destroyed certificates upon the making of an
affidavit of that fact by the owner of such certificates; provided, however,
that New Playboy may, in its discretion, require the holder of such lost, stolen
or destroyed certificates to deliver a bond in a reasonable sum as indemnity
against any claim that may be made against New Playboy or the Exchange Agent
with respect to the certificates alleged to have been lost, stolen or destroyed.

Neither New Playboy nor Spice will be liable to any holder of Spice Common
Stock or Spice Preferred Stock for any Merger Consideration delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law. New Playboy or the Exchange Agent will be entitled to deduct and
withhold from the Merger Consideration paid to any Spice stockholder such
amounts as New Playboy or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under any provision of federal,
state, local or foreign tax law.

The obligations of Playboy and Spice to consummate the Merger are subject to
certain conditions, including the following: (i) the approval of the Merger
Agreement and the other agreements contemplated thereby by the stockholders of
Spice, (ii) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint order with respect to the Merger Agreement or the transactions
contemplated thereby being in effect, (iii) all waiting periods applicable to
the consummation of the Spice Merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have expired or terminated, (iv) the
effectiveness of the Registration Statement of which this Prospectus is a part
and the effectiveness of the registration statement of which the Proxy
Statement/Prospectus is a part, (v) the filing or receipt of all governmental or
regulatory notices or approvals required with respect to the Merger, the
Contribution, the Share Transfer and the transactions contemplated thereby and
(vi) the execution and delivery of the Transaction Agreements and the
consummation of the Contribution and the Share Transfer.

The obligation of Spice to consummate the Merger is also subject to
additional conditions, including the following: (i) the accuracy of the
representations and warranties of Playboy set forth in the Merger Agreement,
(ii) the receipt by Playboy of all necessary consents, approvals or waivers
required by Playboy in order for it to consummate the Merger and the
transactions related thereto, (iii) the performance in all material respects by
Playboy of all obligations required to be performed by it under the Merger
Agreement, (iv) the receipt by Spice of a satisfactory opinion of its tax
counsel to the effect that the Merger will be treated for federal income tax
purposes as an exchange governed by the provisions of Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"), (v) the receipt by Spice
of a secretary's certificate of Playboy certifying the due authorization and
approval of the Merger Agreement and the Transaction Agreements, (vi) the
listing of the New Playboy Class B Common Stock on the New York Stock Exchange,
(vii) the receipt by Spice of an opinion of a nationally recognized solvency
firm as to the solvency of the Company after consummation of the Contribution,
the Share Transfer and the Merger, (viii) the repayment of all indebtedness of
Spice under its existing credit facility, and (ix) the absence of any change or
event which has had or could reasonably be expected to have a material adverse
effect on Playboy.

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The obligation of Playboy to consummate the Merger is also subject to
certain additional conditions, including the following: (i) the accuracy of the
representations and warranties of Spice set forth in the Merger Agreement, (ii)
the performance in all material respects by Spice of all obligations required to
be performed by it under the Merger Agreement and the Transaction Agreements,
(iii) the receipt by Playboy of a satisfactory opinion of its tax counsel to the
effect that the reorganization of Playboy, effected at the same time as the
Merger, will be treated for federal income tax purposes as an exchange governed
by the provisions of Section 351 of the Code, (iv) the receipt by Spice of all
necessary consents, approvals or waivers required by Spice in order for it to
consummate the Merger and the transactions related thereto, (v) the receipt by
Playboy of a secretary's certificate of Spice certifying the due authorization
and approval of the Merger Agreement and the Transaction Agreements, (vi) the
absence of any change or event which has had or could reasonably be expected to
have a material adverse effect on Spice, (vii) the Average Closing Price of New
Playboy Class B Common Stock being equal to or greater than $13.00; or if the
Closing Date occurs after December 31, 1998, then the Average Closing Price of
New Playboy Class B Common Stock being equal to or greater than $11.00, (viii)
the receipt of certain agreements from Spice affiliates, (ix)(A) the execution
of the Transaction Agreements in a form satisfactory to Playboy, (B) the waiver
by Playboy or satisfaction of all of the conditions to closing of the
transactions contemplated by the Transfer and Redemption Agreement and (C) the
consummation to Playboy's satisfaction of the transactions contemplated by the
Transaction Agreements, (x) the amendment of Spice's stock option plans to
permit the cancellation or acceleration of Spice stock options, (xi) the holders
of no more than 5% of the outstanding shares of Spice Common Stock having
asserted dissenters' rights with respect to the Merger and (xii) the receipt by
Spice of certain agreements from the holders of options and warrants to purchase
Spice Common Stock.

The Merger Agreement contemplates that the Contribution and the Share
Transfer will occur in connection with the Merger. The date of consummation of
the Contribution, the Share Transfer and the Merger is referred to herein as the
"Closing Date."

The approval of the Merger Agreement and the Merger by the stockholders of
Spice is required in order to consummate the Merger. Neither the Contribution
nor the Share Transfer is subject to separate stockholder approval. However, the
Contribution and the Share Transfer will not be effected unless the Merger is
approved.

After consummation of the transactions contemplated by the Merger Agreement,
the business of New Playboy will be comprised of the businesses currently
conducted by Playboy and Spice, other than those portions of Spice's business to
be contributed prior to the Merger to the Company in the Contribution and to be
sold to Califa.

RELATED TRANSACTIONS

Because New Playboy wants to acquire only certain assets of Spice,
contemporaneously with the execution of the Merger Agreement, Spice and Califa
entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with
respect to the sale by Spice and the purchase by Califa of the Spice Hot network
(the "Spice Hot Transaction"). Califa is a newly formed corporation which is
owned by two individuals, each of whom is a principal of Vivid Video, Inc., a
producer of adult movies and related programming.

Pursuant to the Asset Purchase Agreement, immediately prior to the Merger,
Spice will sell certain assets relating to the Spice Hot network to Califa and
Califa will assume certain related liabilities. The obligations of Spice and
Califa to consummate the Spice Hot Transaction are subject to certain
conditions, including the execution of a Non-Competition Agreement with the
Company (the "Califa Non-Competition Agreement") and a services agreement for
one of Califa's networks substantially similar to the Playboy Mandatory Services
Agreement with the Company (the "Califa Mandatory Services Agreement").

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Consummation of the Spice Hot Transaction is not a condition to consummation
of the Contribution, the Share Transfer or the Merger. However, if the Merger is
not consummated, the Spice Hot Transaction will not be consummated.

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE TRANSFER

The following discussion describes the material U.S. federal income tax
consequences of the Share Transfer by Spice to holders of Spice Capital Stock on
the Closing Date. This discussion is based on the Code and applicable Treasury
regulations, current administrative rulings, and judicial decisions as of the
date hereof, all of which may be repealed, revoked, or modified so as to result
in U.S. federal income tax consequences different from those described below.
Such changes could be applied retroactively in a manner that could adversely
affect a holder of Spice Capital Stock. In addition, the authorities on which
this summary is based are subject to various interpretations. It is therefore
possible that the U.S. federal income tax treatment of the Share Transfer and of
the holding and disposition of the Company Common Stock may differ from the
treatment described below.

This discussion assumes that the Spice Capital Stock will be held as a
capital asset at the time of the Share Transfer. This discussion does not
address all aspects of federal income taxation that may be important to
particular taxpayers in light of their personal investment circumstances or to
taxpayers subject to special treatment under the federal income tax laws,
including dealers in securities or currencies, financial institutions, insurance
companies, foreign persons, tax-exempt entities and holders who acquired their
Spice Capital Stock upon exercise of employee stock options or otherwise as
compensation.

This discussion does not address all aspects of U.S. federal income taxation
that may be relevant to holders of Spice Capital Stock in light of their
particular circumstances, nor does it address any tax consequences arising under
the laws of any state, local, or foreign taxing jurisdiction. Holders of Spice
Common Stock should consult their tax advisors about the particular U.S. federal
income tax consequences to them of the Share Transfer, or the holding and
disposition of the Company Common Stock, as well as any tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.

TREATMENT OF SPICE. Spice will recognize gain on the Share Transfer in an
amount equal to the difference between the fair market value of the Company
Common Stock and Spice's tax basis in the assets contributed to the Company in
the Contribution (net of the Assumed Liabilities). Other than such gain
recognized by Spice, no gain or loss will be recognized by Spice as a result of
the Merger.

RECEIPT OF COMPANY COMMON STOCK PURSUANT TO THE SHARE TRANSFER. Although
the matter is not free from doubt and there is no authority directly on point,
the Share Transfer should be treated as a partial redemption of the Spice
Capital Stock. Accordingly, a holder should be treated as having received
Company Common Stock in exchange for a portion of such holder's Spice Capital
Stock (the "Redeemed Shares") in a taxable transaction. The portion of the Spice
Capital Stock treated as so exchanged should bear the same proportion to such
holder's total Spice Capital Stock as the fair market value of the Company
Common Stock received bears to the total fair market value of the Merger
Consideration received by such holder in the Share Transfer and the Merger. Any
gain or loss recognized with respect to such partial redemption should generally
be capital gain or loss. The amount of the gain or loss should be equal to the
difference between the ratable portion of the tax basis of the Spice Capital
Stock that is allocable to the Redeemed Shares and the fair market value of the
Company Common Stock received. Any capital gain or loss will constitute
long-term capital gain or loss if the Spice Capital Stock has been held by the
holder for more than one year at the time of the consummation of the Share
Transfer. For holders who are individuals, net long-term capital gain is
generally taxed at lower rates than ordinary income.

It is possible that the Internal Revenue Service could treat the Share
Transfer as a dividend which would be taxable to the holders of Spice Capital
Stock at ordinary income tax rates to the extent of Spice's current or
accumulated earnings and profits. None of Spice, New Playboy, Playboy or the
Company will be obligated to indemnify Spice stockholders for any such tax. If
the Share Transfer were treated as a

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dividend, however, certain corporate holders could be eligible for a dividends
received deduction with respect to such dividend.

The tax basis of the Company Common Stock received will equal their fair
market value. The holding period of the Company Common Stock will begin on the
day after the Closing Date.

THE FOREGOING DISCUSSION OF THE ANTICIPATED MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS OF SPICE CAPITAL STOCK DOES NOT PURPORT TO COVER ALL
U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MIGHT APPLY TO EVERY HOLDER OF SPICE
CAPITAL STOCK. ALL HOLDERS OF SPICE CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE PARTICULAR U.S. FEDERAL, FOREIGN, STATE AND LOCAL TAX
CONSEQUENCES OF THE SHARE TRANSFER TO THEM.

RESTRICTIONS ON TRANSFER

The Company Common Stock distributed to the Spice stockholders pursuant to
the Share Transfer and the Merger will be freely transferable under the
Securities Act, except for Company Common Stock received by any persons who may
be deemed to be "affiliates" of Spice prior to the Merger as that term is
defined in Rule 144 promulgated under the Securities Act. The Company Common
Stock received by persons who are deemed to be affiliates of Spice prior to the
Merger may be sold by them only in transactions permitted by the resale
provisions of Rule 145 under the Securities Act, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of Spice
generally include individuals or entities that control, are controlled by, or
are under common control with, Spice and may include certain officers and
directors of Spice as well as principal stockholders of Spice.

In general, under Rule 145, for one year following the Closing Date, an
affiliate of Spice (together with certain related persons) would be entitled to
sell Company Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144. Additionally, the number of
shares to be sold by an affiliate (together with certain related persons and
certain persons acting in concert) within any three-month period for purposes of
Rule 145 may not exceed the greater of 1% of the outstanding Company Common
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would only be available, however,
if the Company remained current with its informational filings with the
Commission under the Exchange Act. After the end of one year from the Closing
Date, an affiliate of Spice would be able to sell Company Common Stock received
in the Merger without such manner-of-sale or volume limitations, provided that
the Company was current with its Exchange Act informational filings and such
person was not then an affiliate of the Company. Two years after the Closing
Date, an affiliate of Spice would be able to sell such Company Common Stock
without any restrictions so long as such person had not been an affiliate of the
Company for at least three months prior thereto.

Persons who are affiliates of the Company will be permitted to sell their
shares of Company Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemptions provided for private
transactions or Rule 144 under the Securities Act.

EXPENSES OF THE CONTRIBUTION, THE SHARE TRANSFER AND THE MERGER

Except for expenses of printing and filing the Proxy Statement/Prospectus
and this Prospectus, which will be shared equally by Playboy and Spice, Playboy
and Spice will pay their own costs and expenses relating to the Contribution,
the Share Transfer and the Merger and the transactions related thereto; provided
that if Spice incurs more than $2.4 million in fees and expenses in connection
therewith, the costs and expenses in excess of $2.4 million shall be borne by
the Company. Playboy has also agreed to pay an additional $500,000 in fees and
expenses on behalf of Spice and the Company. Upon request, Spice will pay the
reasonable expenses of brokerage firms, custodians, nominees and fiduciaries who
are record holders of Spice Common Stock for forwarding this Prospectus to the
beneficial owners of such shares.

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<PAGE>
ARRANGEMENTS AFTER THE MERGER

This section of the Prospectus describes certain transactions related to the
proposed Contribution and Share Transfer. The following descriptions do not
purport to be complete and are qualified in their entirety by reference to the
applicable agreements. Copies of the agreements described below have been filed
as exhibits to the Registration Statement. All Spice stockholders are urged to
read the following agreements in their entirety.

RELATIONSHIP WITH SPICE

Immediately following the Merger, Spice will be a subsidiary of New Playboy.
Spice and the Company will operate independently, and neither will have any
stock ownership, beneficial or otherwise, in the other.

RELATIONSHIP WITH NEW PLAYBOY

Immediately following the Share Transfer and the Merger, New Playboy and the
Company will operate independently, and neither will have any stock ownership,
beneficial or otherwise, in the other. For the purposes of governing certain of
the ongoing relationships between New Playboy and the Company after the Merger,
on or before the Closing Date, New Playboy and the Company will enter into the
Playboy Non-Competition Agreement and PEGI and the Company will enter into the
Playboy Mandatory Services Agreement.

TERMS OF THE PLAYBOY NON-COMPETITION AGREEMENT

On the Closing Date, New Playboy and the Company will enter into a Playboy
Non-Competition Agreement, which will have a term of seven years from the
Closing Date (the "Playboy Restricted Period"). Pursuant to the Playboy
Non-Competition Agreement, during the Playboy Restricted Period New Playboy will
not, directly or indirectly, engage in the Explicit C-Band Business and will not
engage in certain other activities which would involve New Playboy in the
Explicit C-Band Business in certain defined territories. The Company will not
directly or indirectly, engage in the Playboy Business and will not engage in
certain other activities which would involve the Company in the Playboy
Business; provided that the Company will be able to engage in the Explicit
C-Band Business, the Explicit Internet Business, the Playback and Uplink
Business and the Additional Permitted Activities, subject to certain
geographical restrictions and restrictions on modes of transmission detailed in
the Playboy Non-Competition Agreement. If the Company were to exercise the
Emerald Media Option, the Company would cause EMI to comply with these
restrictions.

For purposes of the Playboy Non-Competition Agreement, the term "Playboy
Business" means the business of (i) producing, licensing, distributing,
marketing and otherwise acquiring any rights or conducting any other activity
with respect to any kind of adult programming (which includes Explicit
Programming, Explicit Still Images, non-Explicit Programming and non-Explicit
Still Images), (ii) providing transmission of adult programming to all
destinations, (iii) creating and distributing multimedia products which feature
non-Explicit Programming and non-Explicit Still Images, and (iv) publishing and
distributing adult magazines, books, calendars and similar materials which
feature non-Explicit Still Images.

The term "Explicit C-Band Business" means the business of providing
transmission of Explicit Programming and/or Explicit Still Images via C-Band
satellite and licensing and distributing Explicit Programming and Explicit Still
Images for transmission via C-Band satellite, including editing, reproducing,
advertising, promoting and marketing Explicit Programming and/or Explicit Still
Images, and engaging in such other incidental activities reasonably necessary to
exploit such business. The term "Explicit Programming" means any movies and
other programming, the content of which would generally be considered in the
adult industry to be that of "explicit" adult movies or programming and more
explicit than "hot cable" or "cable" programming and which are otherwise
substantially similar in content and

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<PAGE>
degree of explicitness to the movies and programming currently featured by EMI.
The term "Explicit Still Images" means any still images, the content of which
would generally be considered in the adult industry to be that of "adult" still
images and equally as explicit as, or more explicit than "hot cable" still
images, and which are otherwise substantially similar in content and degree of
explicitness to the still images currently featured on the Internet sites
maintained by EMI.

The term "Explicit Internet Business" means the business of providing
transmission worldwide of Explicit Programming and Explicit Still Images via the
Internet and licensing and distributing Explicit Programming and Explicit Still
Images for transmission worldwide via the Internet, including editing,
reproducing, advertising, promoting and marketing such Explicit Programming and
Explicit Still Images, and engaging in such other incidental activities
reasonably necessary to exploit such business. The term "Playback and Uplink
Business" means the business of providing playback and uplink services (as such
terms are generally understood in the cable television business) to any cable
program service in any medium used by such cable program service; provided that
the Company cannot provide playback and uplink services for any adult
programming unless the arrangements with the cable program service providing
such adult programming were negotiated on an arm's length basis, provide for the
payment for such services in cash and provide for service rates no more
favorable than the payment terms offered by the Company to Playboy for similar
services; provided further that the Company cannot provide playback and uplink
services for any adult programming other than (a) via satellite delivery or (b)
if the adult programming is for Playboy or Califa, via file servers linked to
cable systems or multi-channel video programming providers. The term "Additional
Permitted Activities" means (i) creating and distributing interactive adult
multimedia products, (ii) maintaining adult 900-number audiotext and similar
telephone services, (iii) creating and marketing adult industry-related
merchandise, and (iv) publishing and distributing adult magazines, books,
calendars and similar materials which feature Explicit Still Images.

The Playboy Non-Competition Agreement has the effect of limiting the
Company's participation in the adult television industry to the distribution of
explicit television networks (such as the EMI networks, if the Company were to
exercise the Emerald Media Option) solely in the C-Band market in the United
States, Canada and the Caribbean (the "Permitted Territory"). If the Company
were to exercise the Emerald Media Option and own and operate the EMI networks,
the Company could not (i) expand its distribution to include the cable or DBS
markets, (ii) expand distribution outside the Permitted Territory or (iii)
change the programming format of such networks to a less explicit network.

Pursuant to the Playboy Non-Competition Agreement, for the five years after
the Closing Date, neither Playboy nor the Company will interfere with the other
party's employee relationships and neither party will solicit the other party's
employees. In addition, Playboy will not directly or indirectly enter into any
agreement or other arrangement to acquire any licensing, distribution or
transmission rights with respect to Explicit Programming or Explicit Still
Images for transmission during the Playboy Restricted Period via C-Band
satellite in certain defined territories and the Company will not directly or
indirectly enter into any agreement or other arrangement to acquire any
licensing, distribution or transmission rights with respect to Explicit
Programming or Explicit Still Images for transmission during the Playboy
Restricted Period other than via C-Band satellite in certain defined
territories, via the Internet or for Additional Permitted Activities. If the
Company were to exercise the Emerald Media Option, the Company would cause EMI
to comply with these restrictions.

TERMS OF THE PLAYBOY MANDATORY SERVICES AGREEMENT

On the Closing Date, PEGI and the Company will enter into the Playboy
Mandatory Services Agreement, which will have a term of two years from the
Closing Date. Pursuant to the Playboy Mandatory Services Agreement, the Company
will provide complete transmission service for at least two of New Playboy's
networks, including (i) compression and encryption of the networks' signals,
(ii) playback of the networks 24 hours per day, seven days per week, (iii) fiber
optic terrestrial connectivity from the Operations Facility to an uplink
facility, (iv) uplink services 24 hours per day, seven days per week, and

27
<PAGE>
(v) subject to earlier termination by PEGI, authorization and deauthorization
for the transmission of the networks to cable head ends, direct to home
platforms and any other users designated by PEGI. PEGI may increase the number
of networks subject to this agreement for which the Company will provide
services. In addition, if PEGI elects to engage a third party to provide
additional services, including (i) traffic, library and quality control
services, (ii) satellite security, (iii) network integration and scheduling,
(iv) creative services, (v) duplication, editing and encoding for the networks
or (vi) all services relating to the distribution of the Spice networks (other
than the Spice Hot network) or other adult programming via regionally deployed
video file servers linked to cable systems or multichannel video programming
providers, PEGI shall retain the Company to provide such services; provided that
the Company can provide such services at the same price and quality as such
third party.

The Playboy Mandatory Services Agreement specifies the fees that PEGI will
pay the Company for uplink, playback, compression and encryption and
authorization services. The fee to be paid by PEGI for encryption services will
equal the amount of the Company's lease payments for the encoding system
described in the Transfer and Redemption Agreement. PEGI will also be obligated
to pay the Company an amount equal to the Company's costs of obtaining
terrestrial connectivity for the networks. In the event PEGI retains the Company
for additional services, a separate agreement will specify the fees for such
services.

In the Playboy Mandatory Services Agreement, each of the Company and PEGI
will make certain representations and warranties to the other party with respect
to its corporate power to execute such agreement and the enforceability of such
agreement. In addition, PEGI will represent and warrant to the Company that PEGI
will use its best efforts to ensure that the networks will not contain libelous
or slanderous material and will not violate any third party intellectual
property right.

In the event the Company transfers all or a substantial portion of the
assets relating to the Playback and Uplink Business (as defined in the Playboy
Non-Competition Agreement), the Playboy Mandatory Services Agreement may not be
assigned by the Company without the prior written consent of PEGI, which shall
not be unreasonably withheld. If PEGI does not consent to such assignment and
transfer, PEGI may terminate the Playboy Mandatory Services Agreement. In
addition, either party may terminate the Playboy Mandatory Services Agreement in
the event the other party materially breaches any of its obligations thereunder
and does not cure such breach within 10 days of notification of such breach. In
the event PEGI terminates the Playboy Mandatory Services Agreement for any
reason other than the Company's breach or assignment, PEGI will be required to
pay the Company the fees under the Playboy Mandatory Services Agreement on a
monthly basis for the remainder of the term thereof.

RELATIONSHIP WITH CALIFA

Immediately following the Merger, Califa and the Company will operate
independently, and neither will have any stock ownership, beneficial or
otherwise, in the other. For the purposes of governing certain of the ongoing
relationships between Califa and the Company after the Spice Hot Transaction and
the Share Transfer, on or before the Closing Date, Califa and the Company will
enter into the Califa Non-Competition Agreement and the Califa Mandatory
Services Agreement.

TERMS OF THE CALIFA NON-COMPETITION AGREEMENT

On the Closing Date, the Company and Califa will enter into the Califa
Non-Competition Agreement, which will have a term of seven years from the
Closing Date (the "Califa Restricted Period"). Pursuant to the Califa
Non-Competition Agreement, during the Califa Restricted Period Califa will not
engage in the Explicit C-Band Business in certain defined territories and will
not engage in certain other activities which would involve Califa in the
Explicit C-Band Business. For the five years after the Closing Date, Califa will
not interfere with the Company's relationships with its employees and will not
solicit any of the Company's employees. In addition, Califa will not acquire any
rights with respect to the transmission of Explicit

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<PAGE>
Programming or Explicit Still Images during the Califa Restricted Period via
C-Band satellite in certain defined territories.

For purposes of the Califa Non-Competition Agreement, the terms "Explicit
C-Band Business," "Explicit Programming" and "Explicit Still Images" will have
the same meanings as such terms have in the Playboy Non-Competition Agreement.

TERMS OF THE CALIFA MANDATORY SERVICES AGREEMENT

On the Closing Date, the Company and Califa will enter into the Califa
Mandatory Services Agreement, which will have a term of two years from the
Closing Date. Pursuant to the Califa Mandatory Services Agreement, the Company
will provide complete transmission service for one network, including (i)
compression and encryption of the network's signal, (ii) playback of the network
24 hours per day, seven days per week, (iii) fiber optic terrestrial
connectivity from the Operations Facility to an uplink facility, (iv) uplink
services 24 hours per day, seven days per week, and (v) authorization and
deauthorization for the transmission of the network to cable head ends, direct
to home platforms and any other users designated by Califa. In addition, if
Califa elects to engage a third party to provide additional services, including
(i) traffic, library and quality control services, (ii) satellite security,
(iii) network integration and scheduling, (iv) creative services, (v)
duplication, editing and encoding for the network or (vi) all services relating
to the distribution of the network or other adult programming via regionally
deployed video file servers linked to cable systems or multichannel video
programming providers, Califa shall retain the Company to provide such services;
provided that the Company can provide such services at the same price and
quality as such third party.

The Califa Mandatory Services Agreement specifies the fees that Califa will
pay the Company for uplink, playback, compression and encryption and
authorization services. Califa will also be obligated to
pay the Company an amount equal to the Company's costs of obtaining terrestrial
connectivity for the networks. In the event Califa retains the Company for
additional services, a separate agreement will specify the fees for such
services.

In the Califa Mandatory Services Agreement, each of the Company and Califa
will make certain representations and warranties to the other party with respect
to its corporate power to execute such agreement and the enforceability of such
agreement. In addition, Califa will represent and warrant to the Company that
Califa will use its best efforts to ensure that the network will not contain
libelous or slanderous material and will not violate any third party
intellectual property right.

In the event the Company transfers all or a substantial portion of the
assets relating to the Playback and Uplink Business (as defined in the Playboy
Non-Competition Agreement), the Califa Mandatory Services Agreement may not be
assigned by the Company without the prior written consent of Califa, which shall
not be unreasonably withheld. If Califa does not consent to such assignment and
transfer, Califa may terminate the Califa Mandatory Services Agreement. In
addiion, either party may terminate the Califa Mandatory Services Agreement in
the event the other party materially breaches any of its obligations thereunder
and does not cure such breach within 10 days of notification of such breach. In
the event Califa terminates the Califa Mandatory Services Agreement for any
reason other than the Company's breach or assignment, Califa will be required to
pay the Company the fees under the Califa Mandatory Services Agreement for the
remainder of the term thereof.

DIVIDEND POLICY

The Company does not anticipate paying any cash dividends in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. Payment of future dividends, if any,
will be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's results of operations,
financial condition, current and anticipated cash needs and plans for expansion.

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<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION

The following table sets forth selected historical financial information for
the Company. The historical financial information of the Company as of and for
the years ended December 31, 1996 and 1997 have been derived from the financial
statements of the Company which are included elsewhere in this Prospectus. The
interim historical financial information set forth below at September 30, 1997
and 1998 and for the nine-month periods ended September 30, 1997 and 1998 have
been derived from the unaudited financial statements included elsewhere in this
Prospectus. The unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of the financial position and results of
operations for those periods. Operating results for the nine-month period ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the entire fiscal year ending December 31, 1998. The following
historical financial information should be read in conjunction with the
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
prospectus.

The financial statements of the Company reflect the results of operations,
financial position and cash flows of the business to be contributed to the
Company by Spice. As a result, the financial statements of the Company have been
carved out from the financial statements of Spice using the historical results
of operations and historical basis of the assets and liabilities of such
business. Additionally, the financial statements of the Company include certain
assets, liabilities, revenues and expenses which were not historically recorded
at the level of, but are primarily associated with, such business. The Company
believes the assumptions underlying its financial statements to be reasonable.

The historical financial information may not be indicative of the Company's
future performance and does not necessarily reflect what the financial position
and results of operations of the Company would have been had the Company
operated as a separate stand-alone entity during the periods covered. Per share
data for net income/(loss) and dividends have not been presented because the
Company's business was operated through various divisions and subsidiaries of
Spice for the periods presented.

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
------------ ------------ ----------- ------------
STATEMENT OF OPERATIONS DATA:
Revenues: $ 10,329,000 $ 10,658,000 $ 8,028,000 $ 7,489,000
------------ ------------ ----------- ------------
Operating expenses:
Salaries, wages and benefits.......................... 1,356,000 2,198,000 1,562,000 1,971,000
Library amortization.................................. 296,000 378,000 290,000 247,000
Satellite costs....................................... 901,000 4,834,000 3,454,000 4,929,000
Selling, general and administrative expenses.......... 1,517,000 3,459,000 3,225,000 1,592,000
Depreciation of fixed assets.......................... 5,956,000 1,906,000 1,600,000 746,000
------------ ------------ ----------- ------------
Total operating expenses................................ 10,026,000 12,775,000 10,131,000 9,485,000
------------ ------------ ----------- ------------
Total income (loss) from operations................. 303,000 (2,117,000) (2,103,000) (1,996,000)
Interest expense........................................ 4,979,000 1,090,000 1,058,000 98,000
Gain from transponder lease amendment................... -- (2,348,000) (2,348,000) --
------------ ------------ ----------- ------------
Net income (loss)................................... $ (4,676,000) $ (859,000) $ (813,000) $ (2,094,000)
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------

BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................ $ 58,615,000 $ 5,839,000 $ 5,742,000 $ 5,948,000
Current portion of obligations under capital leases..... $ 4,549,000 $ 522,000 $ 489,000 $ 541,000
Obligations under capital leases less current portion... $ 53,126,000 $ 552,000 $ 681,000 $ 141,000
Stockholder's equity.................................... $ (403,000) $ 4,324,000 $ 3,886,000 $ 4,938,000
</TABLE>

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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Financial Statements and notes thereto, and the other financial information
included elsewhere in this Prospectus. The Company's actual results or future
events could differ materially from those discussed in the forward-looking
statements contained in this Prospectus as a result of a number of factors,
including, without limitation, those discussed under "Risk Factors" above.

OVERVIEW

The Company is a subsidiary of Spice that, following the Closing Date, will
own all the assets of, and will be responsible for certain liabilities
associated with, the Operations Facility, the Emerald Media Option and certain
rights to Spice's library of adult films. The Company is a provider of technical
and creative services for television and Internet programming.

The Company was formed on July 20, 1998 in contemplation of the
Contribution, the Share Transfer and the Merger and as such has no operating
history. The Company's future performance will depend on its ability to function
as a stand-alone entity and to finance and manage expanding operations. There
can be no assurance that the Company's intended activities will be successful or
result in significant revenue or generate profits for the Company. See "Risk
Factors--Absence of History as a Stand-Alone Company," "Risk Factors--Limited
Operating History; Uncertainty of Future Profitability" and "Risk Factors--
History of Net Operating Losses."

After the Merger, the Company's customers will initially be EMI, PEGI,
Califa and BET. See "Risk Factors--Reliance on Limited Number of Customers." The
Company's ability to achieve and maintain profitability depends on its ability
to retain its existing customers and to attract and maintain new customers for
its services. There can be no assurance that it will be able to do so. The
Company currently intends to rely on the business contacts and experience of its
management to develop new business. There can be no assurance that management
will be successful in developing new business. See "Risk Factors-- Dependence on
Senior Management and Other Key Employees."

The Company utilized satellite transponder services pursuant to a
Transponder Services Agreement (the "Transponder Agreement") dated February 7,
1995 between Spice and AT&T Corp. ("AT&T"). On March 31, 1997, Spice and Loral
SpaceCom Corporation d/b/a Loral Skynet ("Loral"), as successor to AT&T, amended
the Transponder Agreement by changing the expiration date to October 31, 2004,
reducing the term by approximately four years. As a result of this amendment,
the Transponder Agreement was reclassified for accounting purposes (the
"Reclassification") as an operating lease rather than a capital lease commencing
on March 31, 1997. As a result of the Reclassification, the Company recorded a
one-time gain of approximately $2.3 million in the first quarter of 1997. On the
Closing Date, the Company will enter into a new agreement with Loral for
satellite transponder services, which will replace a portion of the Transponder
Agreement. See "The Contribution and the Share Transfer--Terms of the Transfer
and Redemption Agreement."

RESULTS OF OPERATIONS

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<PAGE>
The financial information included herein, however, may not necessarily
reflect the results of operations, financial position and cash flows of the
Company in the future or what the results of operations, financial position and
cash flows would have been had the Company been a separate stand-alone entity
during the periods presented. The financial information included herein does not
reflect the many changes that will occur in the funding and operations of the
Company as a result of the Contribution, the Share Transfer and the Merger.

Revenues were earned principally from services provided to two customers,
EMI and Spice. Revenues attributable to EMI were recorded based upon contractual
amounts for playback and transponder services. Revenues attributable to Spice
relate to network operations, post-production and technical services provided
internally. These revenues have been recorded based on either (i) services
provided to unrelated third party customers or (ii) costs associated with an
applicable service plus an appropriate markup based on a reasonable assessment
of a market-based charge. Management believes that the methods used to record
revenues are reasonable.

THE EMERALD MEDIA RECEIVABLE. The Company established a reserve against the
receivable from EMI to the Company (the "EMI Receivable") at the end of the
fourth quarter of 1996, the first quarter in which the Company provided services
to EMI, because of the uncertainty of EMI's ability to meet its obligations to
the Company on a timely basis. Since establishing the reserve, the Company has
adjusted its reserve against the EMI Receivable each quarter so that the net
realizable value of the EMI Receivable equals the exercise price of the Emerald
Media Option. The Company has determined that the minimum net realizable value
of the EMI Receivable is equal to the exercise price of the Emerald Media Option
because the Company could exercise the Emerald Media Option and acquire EMI by
forgiving an amount of the EMI Receivable equal to such exercise price. The
Company continues to assess the collectibility of the EMI Receivable on a
quarterly basis.

The aggregate amount of the EMI Receivable at September 30, 1998 was
approximately $3.4 million; the Company has reserved $2.7 million against the
EMI Receivable.

The Company carefully monitors EMI's financial position to determine EMI's
ability to pay its current obligations to the Company and to pay down the EMI
Receivable. Based on the Company's discussions with EMI's management, EMI
instituted a series of operating adjustments during the first nine months of
1998 to improve its results, including changes in the programming, promotion and
branding of its networks and improvements in the call center which processes
orders for the EMI networks. Cash received from EMI in the first nine months of
1998 has increased from the cash received from EMI in the corresponding period
of 1997. Based on discussions with EMI's management, the Company believes that
these operating improvements will provide EMI with sufficient liquidity and
capital resources to meet EMI's anticipated cash obligations to the Company.

NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997

NET INCOME (LOSS). The Company reported a net loss of $2.1 million for the
nine months ended September 30, 1998 as compared to a net loss of $0.8 million
for the nine months ended September 30, 1997. The decline in net income was
primarily attributable to the Reclassification which resulted in a gain of
approximately $2.3 million in the nine months ended September 30, 1997.
Offsetting this decline was a reduction in bad debt expense relating to the EMI
Receivable in the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997.

REVENUES. The Company reported total revenue of $7.5 million for the nine
months ended September 30, 1998 as compared to total revenue of $8.0 million for
the nine months ended September 30, 1997. The decline in total revenue was
primarily attributable to a decrease in sales of transponder capacity.

SALARIES, WAGES AND BENEFITS. The Company reported salaries, wages and
benefits of $2.0 million for the nine months ended September 30, 1998 as
compared to $1.6 million for the nine months ended

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<PAGE>
September 30, 1997. Approximately $0.2 million of this increase was attributable
to the commencement of playback services from the Operations Facility and
expansions in the post-production department.

LIBRARY AMORTIZATION. The Company reported library amortization for the
nine months ended September 30, 1998 of approximately $0.2 million, which was
substantially the same for the nine months ended September 30, 1997.

SATELLITE, PLAYBACK AND UPLINK EXPENSES. The Company reported satellite,
playback and uplink expenses of $4.9 million for the nine months ended September
30, 1998 as compared to $3.5 million for the nine months ended September 30,
1997. Approximately $1.6 million of this increase was primarily attributable to
the Reclassification. Offsetting this increase was a decline of $0.2 million in
playback expenses which resulted from lower third party costs associated with
the Company's providing playback services internally.

In the nine months ended September 30, 1997, the Company treated $1.6
million of transponder lease payments as principal and interest payments under a
capital lease obligation. Had the Transponder Agreement been classified as an
operating lease for the entire nine months ended September 30, 1997 the Company
would have reported additional satellite expense of $1.6 million and a decrease
in depreciation and interest expense of $1.0 million and $0.9 million,
respectively, for such period.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company reported selling,
general and administrative expenses of $1.6 million for the nine months ended
September 30, 1998 as compared to $3.2 million for the nine months ended
September 30, 1997. The decrease was primarily attributable to a decline of $1.2
million in bad debt expense associated with the EMI Receivable. The remainder of
the decrease was primarily attributable to reductions in post-production
expenses.

DEPRECIATION OF FIXED ASSETS. The Company reported depreciation of fixed
assets of $0.7 million for the nine months ended September 30, 1998 as compared
to $1.6 million for the nine months ended September 30, 1997. The decline in
depreciation expense was primarily attributable to the Reclassification.

INTEREST EXPENSE. The Company reported interest expense of $98,000 for the
nine months ended September 30, 1998 as compared to $1.1 million for the nine
months ended September 30, 1997. The decline in interest expense was primarily
due to the Reclassification.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

NET INCOME (LOSS). The Company reported a net loss of $0.9 million for the
year ended December 31, 1997 as compared to a net loss of $4.7 million for the
year ended December 31, 1996. The reduction in net loss was primarily
attributable to the Reclassification. Had the Transponder Agreement been
classified as an operating lease in both 1997 and 1996 the Company would have
reported net losses in those years of $2.9 million and $2.7 million,
respectively.

REVENUES. The Company reported total revenue of $10.7 million for the year
ended December 31, 1997, as compared to total revenue of $10.3 million for the
year ended December 31, 1996. The increase in total revenue was primarily due to
additional revenue of $4.4 million from EMI for the sale of excess transponder
capacity (which resulted from the digital compression of Spice's domestic
networks onto one transponder) bundled with playback and other related services
and additional revenue of $0.4 million from Internet hosting services and other
sales of transponder capacity. Partially offsetting this increase was a decline
in revenues of $4.5 million from the sale of transponder capacity to Spice due
to the digital compression.

On February 1, 1997, the Company began providing to Spice playback and
uplink services originating from the Operations Facility for Spice's domestic
networks. Prior to February 1997, the Company acquired playback and uplink
services for Spice from a third party. The Company reported a decline in revenue

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from its provision of playback and uplink services to Spice of $0.7 million for
the year ended December 31, 1997 as compared with the year ended December 31,
1996 as a result of lower costs from the use of the Operations Facility to
provide playback services. Offsetting the decline in revenues from playback and
uplink services was an increase in post-production revenue from Spice totaling
$0.6 million.

SALARIES, WAGES AND BENEFITS. The Company reported salaries, wages and
benefits of $2.2 million for the year ended December 31, 1997 as compared to
$1.4 million for the year ended December 31, 1996. Approximately $0.6 million of
this increase was attributable to the costs of hiring additional employees to
operate the Operations Facility and the expansion of the post-production
department.

LIBRARY AMORTIZATION. The Company reported library amortization of $0.4
million for the year ended December 31, 1997, which was comparable to library
amortization of $0.3 million for the year ended December 31, 1996.

SATELLITE, PLAYBACK AND UPLINK EXPENSES. The Company reported satellite,
playback and uplink expenses of $4.8 million for the year ended December 31,
1997 as compared to $0.9 million for the year ended December 31, 1996. The
increase was primarily attributable to the Reclassification. Offsetting this
increase was a decline of $0.9 million in playback expenses which resulted from
the decision to provide playback services internally.

In 1997, the Company included $4.4 million of transponder lease payments as
satellite expense. In 1996 the Company included $7.6 million of transponder
lease payments as principal and interest expenses on the Transponder Agreement
which was treated at that time as a capital lease. Had the Transponder Agreement
been classified as an operating lease from its inception, the Company would have
reported additional satellite expense of approximately $1.6 million and $7.6
million in 1997 and 1996, respectively. In addition, the Company would have
reported a decrease in depreciation of $1.0 million and $5.3 million, as well as
a decrease in interest expense of $0.9 million and $5.0 million, in 1997 and
1996, respectively.

On January 11, 1997, AT&T permanently pre-empted one of Spice's unprotected
transponders. This resulted in the reduction of the Company's satellite
transponder costs from $635,000 to $520,000 per month.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company reported selling,
general and administrative expenses of $3.5 million for the year ended December
31, 1997 as compared to $1.5 million for the year ended December 31, 1996. The
increase was primarily attributable to an increase of $1.3 million in bad debt
expense associated with the EMI Receivable in 1997 and an increase of $0.3
million in expenses associated with the expansion of the post-production
department and the Operations Facility. See "-- Results of Operations--The
Emerald Media Receivable."

DEPRECIATION OF FIXED ASSETS. The Company reported depreciation of fixed
assets of $1.9 million for the year ended December 31, 1997 as compared to $6.0
million for the year ended December 31, 1996. The decline in depreciation
expense was primarily attributable to the Reclassification.

INTEREST EXPENSE. The Company reported interest expense of $1.1 million for
the year ended December 31, 1997 as compared to $5.0 million for the year ended
December 31, 1996. The decline in interest expense was primarily attributable to
the Reclassification.

LIQUIDITY AND CAPITAL RESOURCES

Spice uses a centralized approach to cash management and the financing of
its operations. As a result, Spice funded all of the Company's activities. For
the years ended December 31, 1996 and 1997, Spice provided funding of $1.3
million and $5.6 million, respectively, to the Company. The increase in funding
provided by Spice in 1997 was primarily attributable to the payment in 1997 of
$1.9 million relating to certain transponder lease payments that had been due in
1996. Also contributing to the Company's cash

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requirements in the years ended December 31, 1996 and 1997 were net losses
adjusted for non-cash gain associated with the Reclassification of $2.7 million
and $2.9 million, respectively, investments of $0.3 million and $0.5 million,
respectively, in a film library, and investments of $0.8 million in each period
in property and equipment. For the nine months ended September 30, 1997 and
1998, Spice provided funding of $5.1 million and $2.7 million, respectively, to
the Company. The decline in funding provided by Spice was primarily attributable
to the payment of $1.9 million relating to deferred transponder lease
obligations in the nine months ended September 30, 1997, as compared to the
payment of $0.5 million relating to deferred transponder lease obligations in
the nine months ended September 30, 1998. Also contributing to the Company's
cash requirements in the nine months ended September 30, 1997 and 1998 were net
losses adjusted for non-cash gain associated with the Reclassification of $2.8
million and $2.1 million, respectively, investments of $0.3 million and $0.3
million, respectively, in a film library, and investments of $0.5 million and
$0.3 million, respectively, in property and equipment. In addition, an increase
of $0.5 million in the EMI Receivable contributed to the Company's cash
requirements in the nine months ended September 30, 1997. Offsetting these cash
requirements were non-cash expenses associated with depreciation and
amortization of $0.9 million and $1.0 million in the nine months ended September
30, 1997 and 1998, respectively.

The Company's primary source of liquidity following the Closing Date will be
a $1.5 million revolving credit facility (the "Credit Facility") that will be
provided by certain officers and directors of the Company (the "Lenders").
Advances under the Credit Facility will bear interest at 11% per annum and the
Credit Facility will mature on the second anniversary of the Closing Date. In
consideration of the Lenders providing the Credit Facility, the Company will
grant the Lenders an aggregate of 45,000 warrants. See "Certain Transactions."
The Company anticipates increased payments from EMI under its service agreements
with the Company as a result of EMI's modification of its agreements with one of
its major service providers and other reductions in its cost structure. The
Company also hopes to realize revenues from the marketing of network operations,
technical and creative services and sales of its excess transponder capacity.
The Company believes it can provide the playback and transponder services with
minimal incremental costs. There can be no assurance that the Company will be
successful in marketing these services or that, if successful, it can do so at a
profit.

The Company believes that cash generated by operations for fiscal 1999 will
be in excess of $1.0 million. The Company believes that the increase in cash
generated by operations will result from the following: (i) improvements in
EMI's operations which would enable EMI to pay fees when due for transponder,
playback and other services on a timely basis and (ii) the sale of playback and
transponder services by the Company to new customers. If the Company requires
additional cash to fund its operations, the Credit Facility will be available.
The Company believes that the combination of cash generated by operations and
the Credit Facility will be sufficient to meet the Company's operating cash flow
needs, planned capital expenditures and debt service requirements for the next
12 months.

YEAR 2000 COMPLIANCE

The Company is implementing a Year 2000 program to ensure that its computer
systems and applications will function properly beyond the year 1999. The
Company believes that adequate resources have been allocated for this purpose
and expects its Year 2000 date conversion program to be completed on a timely
basis. The Company does not believe that the cost of implementing its Year 2000
program will have a material effect on the Company's financial condition or
results of operations. However, there can be no assurance that the Company has
or will identify all Year 2000 problems in its computer systems in advance of
their occurrence or that the Company will be able to successfully remedy any
problems that are discovered. The expenses of the Company's efforts to address
such problems, or the expenses or liabilities to which the Company may become
subject as a result of such problems, could have a material adverse affect on
the Company's results of operations and financial condition. In addition, the
revenue stream and

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financial ability of existing suppliers, service providers or customers may be
adversely impacted by Year 2000 problems, which could cause fluctuations in the
Company's revenues and operating profitability.

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BUSINESS

Directrix, Inc. (the "Company") is a Delaware corporation formed by Spice
that will own all of the assets of, and will be responsible for certain
liabilities associated with, the Operations Facility and will also own the
Emerald Media Option and certain rights to Spice's library of adult films. The
Company is a provider of television production and delivery and Internet hosting
services. If the Company exercises the Emerald Media Option, the Company will
also be a provider of explicit adult television entertainment. The Company
currently has no intent to exercise the Emerald Media Option.

EMI owns and operates four of the leading C-Band explicit adult programming
television networks and an explicit adult content Internet site. The Company
provides post-production, playback, transponder and Internet hosting services
for EMI.

BUSINESS STRATEGY

The key elements of the Company's business strategy are to:

(i) expand delivery of individual television production and delivery
services to other television networks. After the Merger, the Company will
provide playback services to EMI, PEGI and Califa. In addition, the Company
will provide transponder services to EMI and BET. The Company will rely on
the business contacts and experience of Messrs. Faherty, McDonald and Kirby
to attempt to attract additional customers and market the Company's
services.

(ii) leverage its strengths and capabilities in playback services and
its available transponder capacity to develop a market for television
production and delivery services. As a result of its experience in providing
playback, production and transponder services for Spice and EMI, the Company
can deliver programming via cable, satellite, fiber optics, regionally
deployed video file servers and the Internet. By offering a comprehensive
range of creative, technical and transmission services ("network-in-a-box
services"), the Company intends to become a "one-stop-shop" for the creation
and distribution of television networks.

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Messrs. Faherty, McDonald and Kirby to attempt to attract customers and
market the Company's Internet services.

(iv) invest in or acquire additional businesses in which management of
the Company has experience or can add value. The Company has not identified
a specific industry or business on which it initially intends to focus and
has no present plans, proposals, arrangements or understandings with respect
to the acquisition of, or investment in, any specific business. Any such
investment or acquisition by the Company would present certain risks to
stockholders. See "Risk Factors--Risks Related to Investment and Acquisition
Strategy." In connection with this strategy and with the intent to maximize
the value of the Company to stockholders, the Company may deem it necessary
or in its best interests to sell some or all of its assets or the assets
relating to EMI. The Company currently has no intent to divest any portion
of its business. The Company is prohibited by the Playboy Non-Competition
Agreement from entering into certain areas of adult entertainment and will
not be able to invest in or acquire businesses which operate in such areas
of the adult entertainment industry. See "Arrangements After the
Merger--Relationship with New Playboy--Terms of the Playboy Non-Competition
Agreement."

(v) assess whether to exercise the Emerald Media Option, including
analyzing the ability to increase subscriptions to its adult programming
networks. See "--Emerald Media Option."

GENERAL

The Company is a provider of technical and creative services to owners,
producers and distributors of television and Internet programming. The Company
provides post-production, facilities, network operations and engineering
services, all of which are necessary to create, assemble and distribute
television programming via satellite or the Internet. Post-production and
facility services include video editing, library storage and media duplication.
Network operations and engineering services include assembling television
programming provided by the customer into a 24-hour "network" format, creating
interstitial and promotional graphics, animation and other material that support
the brand identity of the television programming, and providing automated
systems to deliver the programming to air via playback facilities. The Company
believes that it operates one of the larger digital technology playback systems
in the United States.

OVERVIEW OF PROGRAMMING

In North America, television programming is delivered to the viewer via
over-the-air broadcast, cable television and satellite delivery systems. The
demand for entertainment content has increased significantly as a result of the
introduction of new broadcast networks, direct broadcast satellite systems, pay
television, increased cable penetration and the growth of home video. The number
of television networks continues to increase primarily as a result of the
increase in the channel capacity of cable television and direct broadcast
satellite systems due to the ability to deliver digitally compressed television
channels to the home. Digital compression expands a cable television system's
channel capacity by a factor of 10 to 16 times that achievable in an
uncompressed analog environment. In addition, digital compression has
dramatically reduced transponder costs, the largest cost component of operating
a satellite-delivered television network, since a single transponder can
transmit up to 16 digitally compressed television channels. The new television
networks have created a need for more hours of programming, which should
increase demand for network services, such as those provided by the Company. The
Company's services support the delivery of television programming through
various channels of distribution, including cable, fiber, satellite delivery and
file server systems and the Internet.

Satellite delivery of video programming is accomplished as follows: The
video programming is assembled and played back at a playback facility. The
program signal is then encoded so that the signal is unintelligible unless it is
passed through the proper decoding devices and is transmitted from the playback

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facility over fiber optic lines to an uplink facility for delivery via
satellite. The signal may be transmitted to the satellite as an analog signal or
digitally compressed and combined with other signals and transmitted (uplinked)
from an earth station to a designated transponder on a communications satellite.

The transponder receives the analog or digitally compressed program signal
uplinked by the earth station, amplifies the signal and broadcasts (downlinks)
it to satellite dishes located within the satellite's area of signal coverage.
Each transponder can retransmit up to sixteen complete digitally compressed
color television signals or one analog color television signal. For cable
systems, the encrypted digitally compressed signal received by the cable
system's satellite dish is then decoded and decompressed. The cable system then
rescrambles the signal using scrambling technology compatible with the
addressable set top boxes deployed in its system and then distributes the signal
throughout its cable system. For direct-to-home subscribers, their satellite
receivers contain the descrambling equipment to decode and decompress the
encrypted, digitally compressed signal. To offer premium or pay-per-view
services, the set top boxes and satellite receivers must have an electronic
"address" and the cable system or satellite service provider must be able to
remotely control each customer's set top box or satellite receiver and cause it
to descramble the television signal for a specific period of time after the
customer has made a purchase of a premium service or pay-per-view feature. The
ability to control the scrambling and descrambling of a signal is essential for
marketing and delivery of premium and pay-per-view services.

TECHNOLOGY

Spice began construction of the Operations Facility in the second quarter of
1995. Approximately $1.5 million of the Operations Facility was financed by a
capital lease with IBM Credit Corporation ("ICC"), which was later renegotiated.
Under the terms of the revised capital lease, ICC provided additional financing,
which Spice used to acquire video file servers and tape archives, and ICC agreed
to reduce the monthly lease payments. The Operations Facility went into service
in the first quarter of 1997.

Although the Operations Facility integrates both analog (videotape) and
digital (data files) technologies to accomplish the objectives of its customers,
the Company primarily uses its digital infrastructure. Digital information is
easier to store, easier to manipulate and provides higher quality transmissions.
In addition, videotape can wear out, in contrast to digitized information. The
Company believes that the television programming industry is moving toward an
entirely digital platform and that, due to its advanced digital equipment, it is
well positioned to provide efficient and effective playback services.

Utilizing the Operations Facility, the Company can offer network-in-a-box
services to multiple programming networks. The Company believes that it can
increase the number of channels for which it provides playback services at
little extra cost in order to meet any increased demand. However, there can be
no assurance that this will be the case.

The Company believes that its Operations Facility is state-of-the-art. In
addition, as new and upgraded technologies develop, the Company believes it can
easily adapt to such changes, and can increase the capacity of the Operations
Facility, at little extra cost; however, there can be no assurance that this
will be the case.

SERVICES

The Company will be able to provide all or a portion of the technical and
creative services necessary to create and distribute a television network over
any one of the several available delivery methods including cable, DBS, the
Internet and video-on-demand regional file servers.

POST-PRODUCTION AND FACILITIES

The Company operates two large analog linear edit facilities. One edit room
performs the majority of the "creative" or higher-end post production, utilizing
switchers, editors, character generators and Beta SP

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and digital beta equipment, as well as a voice-over booth. The second edit room
is used to perform most of the long-form feature airmastering and promotional
reel compilation. In addition, the Company has a third editing facility for
digital non-linear editing and two graphic suites used to produce
three-dimensional graphics, animation and various forms of content encoding and
decoding. The Company also supplies music from its production music libraries.
Interstitial pre-compilation is performed in the Company's editing facilities,
using software which permits the efficient assembly of high production value
visual effects.

The Company also maintains duplication facilities for both analog and
digital tape. An average of 110 75-minute features and 120 minutes of
interstitial material is digitized monthly. The Company utilizes primarily two
MPEG-2 encoders (the industry standard for the digital encoding of programming),
which are capable of taking source material from either analog or digital tape
and creating digitized files for video file servers. At the same time, the
Company can generate such material in RealVideo and Microsoft NetShow formats
(currently the most popular methods of encoding Internet video streams) for
full-motion video transmission via the Internet. The duplication facilities are
equipped to digitize materials in digital-video-disc format and in alternative
formats such as AVI, MPEG-1 and QuickTime. In addition, the Company currently
provides one-to-one analog tape dubbing. The analog tape duplication facilities
can be expanded to accommodate mass simultaneous tape duplication in various
tape formats, including Beta SP, DigiBeta, VHS and SVHS.

The Company provides library services for storage and traffic of broadcast
master tapes. Approximately 15,000 tapes, consisting of studio masters, air
tapes and edit materials, are housed in storage. The Company's high-density
storage facility can expand its capacity to include an additional 21,700
betacam-sized tapes or an equivalent number of digital linear tapes and CD-ROMs.
The Company also maintains a library of still images on slides and photo CDs.
The Company offers trafficking services to keep track of analog and digital
content by maintaining a traffic database which monitors the location and format
of all programming within its facilities. Trafficking information is available
to customers 24 hours per day, seven days per week. The Company's barcode system
loads and stores both analog tape and digitized programming in the memory of its
video file servers.

Approximately 74 hours per month are spent on mastering (rendering suitable
as to format and quality for playback or streaming (as defined herein))
materials for the two Spice networks: 50 hours for features and 24 hours for
interstitial programming. In addition, the Company provides full post-production
services for two originally-produced Spice movies per month, including editing,
graphics, titling, music and duplication. In addition, approximately sixty
explicit movies are mastered each month for the four EMI networks, encompassing
80 hours per month.

NETWORK OPERATIONS AND ENGINEERING

The Company also provides videotape playback and origination services. Prior
to broadcast, program and interstitial material are checked for quality control
and may be pre-compiled into final broadcast form prior to on-air playback.
Control procedures are used to ensure on-air reliability. A variety of movie and
show formatting and time compression services are available to prepare
programming for distribution. Commercial, promotional, billboard, warning, logo
and other integration, as well as source identification encoding, is performed.
The Company also provides program log and traffic support to programmers and
affiliate relations and station coordination to aid their ordering and billing
services. The Company accepts daily program schedules, programs, promotions and
advertising, and delivers 24 hours of seamless daily programming to home
satellite subscribers. The Company uses automated robotics systems for broadcast
playback. Playback systems are both videotape (analog) and video file
server-based (digital), and subtitling and "local avail" (commercial
advertisement insertion) are supported.

The Company currently uses its facilities to service seven channels, the
four EMI Networks, the Spice network, the Adam & Eve network and the Spice Hot
network. Three channels are digital, originating

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from MPEG-2 video file servers, and four channels are from analog tape. The
Company protects all channels with at least one layer of analog tape back-up.
The Company's playback capacity can be expanded to accommodate up to sixteen
channels.

The Company operates industry-standard encryption and/or compression systems
as needed for customer satellite distribution. The Company owns one Digicipher
II digital encryption and encoding system and three VideoCipher II analog
systems, and leases an additional three VideoCipher systems as a back-up. The
Company uses a customized approach to satisfy each customer's timeliness,
flexibility and reliability requirements. Utilizing automated software control,
the programming is then "streamed" from the video file servers and transmitted
either to an Internet site or over fiber optic lines to an uplink facility for
delivery via satellite. The Company has a contract with Atlantic Satellite
Communications, Inc. ("ASC") for uplink services for the Spice Hot network and
the other Spice networks. ASC provides an uplink facility which receives
programming signals from the Company via fiber optic cable and sends such
signals to the transponders leased by the Company. ASC is equipped with the
necessary satellite equipment, power supplies and other equipment necessary to
provide 24-hour transmission of programming. ASC is currently the Company's sole
uplink source; however, there are other providers of uplink facilities. If the
Company's agreement with ASC were canceled or terminated, the Company believes
that it could replace such services without a material interruption or adverse
effect on its results of operations or business, although no assurance can be
given with respect thereto. The Company will secure additional uplink services
from ASC for new customers; alternatively, customers may arrange to have their
signal delivered directly to ASC or another uplink facility, affording customers
greater flexibility.

The Company utilizes satellite transponder services pursuant to the
Transponder Agreement. After the Closing Date, the Company will have entered
into two new agreements with Loral pursuant to which the Company will lease four
transponders, one "platinum" transponder and three "bronze" transponders,
directly from Loral. One agreement with Loral for a bronze transponder will
expire at the end of 1999; the other agreement with Loral for three transponders
will expire in 2004. Platinum service refers to protected non-pre-emptible
transponder services. With "platinum" service, the transponder service provider
is required to broadcast a signal on the requisite number of transponders,
regardless of problems with any specific transponder or satellite. Bronze
service refers to non-protected pre-emptible transponder services. With "bronze"
service, the transponder service provider is not required to continue to
broadcast a signal (although it will do so if there is an available transponder)
if there is trouble with the specific transponder or satellite, and may pre-empt
such signal in order to provide non-preemptible service to another party.

The Company believes it can expand its broadcasting services by taking
advantage of this transponder capacity. As a result of new technology, up to
sixteen digitally compressed signals or two digitally compressed signals plus
one analog signal can be broadcast from a single transponder. By expanding and
subleasing the excess transponder capacity for ad hoc or other occasional use
and bundling this transponder capacity with its other broadcast services, the
Company can offer a complete broadcast package at a fixed price. The Company
intends to acquire Scientific Atlanta's PowerVu digital compression system,
which will allow it to add two digitally compressed signals to each analog
signal, at a cost of approximately $180,000 per system. At current market prices
for digitally compressed transponder services, the Company believes it can
recover this investment in approximately six months. In addition, the Company is
negotiating an agreement with EMI whereby EMI will grant the Company the right
to insert two digitally compressed television channels onto EMI's transponder
(and any replacement thereof). As a result, using the Company's transponders and
the capacity to be provided by EMI, the Company will be able to provide
digitally compressed transponder services for an additional ten television
channels. The Company plans to monitor the marketplace for transponder services
with a view to putting its transponder capacity to the most profitable use.

Using the Operations Facility as a hub for the distribution of digitized
video content, Spice pioneered the use of regionally deployed video file servers
to deliver video programming. Video file servers are computers which store and
distribute compressed digitized programming. Regionally deployed video file

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servers allow a distributor to tailor the programming distributed to the local
demographic audience and provide near-video-on-demand and video-on-demand which
cannot be effected by traditional satellite distribution. The Company believes
it can leverage the experience of its personnel and management to provide
services in connection with the use of video file servers including digitization
of content, turnkey refresh of file servers (the ability to replace the video
content of the file server) and remote file server management (maintenance of
the replacement of video, scheduling of the delivery of content and distribution
of content). Because the use of video file servers is in an early developmental
stage, the Company cannot accurately assess the market for these services.

INTERNET HOSTING

The Company will offer Internet hosting services on a 24 hours per day,
seven days per week basis. The Company currently is capable of hosting a website
averaging access by 650,000 subscribers daily and can provide web authoring,
web-based database publishing, creation of graphics and animation. The Company
can "stream" (originating a live video/audio feed) live video or play back upon
demand pre-recorded or digitized video over the Internet. In addition, live
web-casting of programming can be generated simultaneously with its distribution
via satellite.

The Company currently hosts EMI's free Internet site, SXTV.com, providing
promotional materials and adult movie clips for the EMI networks. Approximately
400,000 Internet users access SXTV.com per month. The Company is currently
testing for EMI a simultaneous "web-cast" of the EMI networks (broadcasting
which can be viewed by a subscriber over the Internet) and in the future plans
to make web-casts available to the Internet visitors on a pay-per-view or
monthly subscription basis. The Company is also developing for EMI a database
accessible library of video clips, which can be selected and downloaded by
subscribers for a fee. Once the web-casting and library have been fully
developed, the Company may convert parts of SXTV.com to pay sites for EMI.

SALES AND MARKETING

The Company plans to position itself as a video service firm that in one
location can store, catalog and distribute video content in any medium,
including analog video, digital video, internet streaming video and digital
video disc. By offering network-in-a-box services, the Company intends to become
a "one-stop-shop" for the creation and distribution of television networks and
Internet programming. The Company will rely on the business contacts and
experience of Messrs. Faherty, McDonald and Kirby to attract customers and
market the Company's business. There can be no assurance that the Company will
be able to attract and maintain additional customers. In the event the Company
does not acquire new customers, it will be materially and adversely affected.
Once the Company has developed additional clients, the Company intends to hire
sales personnel.

CUSTOMERS

The Company's customers are currently comprised of Spice, EMI and BET. After
the Merger, the Company's customers will be comprised of EMI, PEGI, Califa and
BET. The Company will provide complete post-production, facilities, network
operations, engineering and transponder services for the four EMI networks for a
monthly fee. In addition, the Company will provide Internet hosting services for
EMI and will license its rights to Spice's library of adult films to EMI.
Pursuant to the Playboy Mandatory Services Agreement, the Company will provide
network operations and engineering services for a minimum of two networks for
two years, which period may be extended at PEGI's request, subject to
negotiation of services and prices. At PEGI's request, the Company may also
provide playback and uplink services for additional Playboy channels. In
addition, if PEGI elects to engage a third party to provide additional services,
including (i) traffic, library and quality control services, (ii) satellite
security, (iii) network integration and scheduling, (iv) creative services, (v)
duplication, editing and encoding for the networks or (vi) all services relating
to the distribution of the Spice networks (other than the Spice Hot

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network) or other adult programming via regionally deployed video file servers
linked to cable systems or multichannel video programming providers, PEGI shall
retain the Company to provide such services; provided that the Company can
provide such services at the same price and quality as such third party. See
"Arrangements After the Merger--Relationship with New Playboy." Pursuant to the
Califa Mandatory Services Agreement, the Company will provide network operations
and engineering services for one network for two years, which period may be
extended at Califa's request, subject to negotiation of services and prices. In
addition, if Califa elects to engage a third party to provide additional
services, including (i) traffic, library and quality control services, (ii)
satellite security, (iii) network integration and scheduling, (iv) creative
services, (v) duplication, editing and encoding for the network or (vi) all
services relating to the distribution of the network or other adult programming
via regionally deployed video file servers linked to cable systems or
multichannel video programming providers, Califa shall retain the Company to
provide such services; provided that the Company can provide such services at
the same price and quality as such third party. See "Arrangements After the
Merger--Relationship with Califa." In addition, the Company provides digitally
compressed transponder services to BET using a channel on the transponder to be
retained by Spice. Spice will permit the Company to continue to use this channel
at no charge, subject to Spice's right to recapture the channel upon prior
notice to the Company. See "The Contribution and the Share Transfer--Terms of
the Transfer and Redemption Agreement."

The Company believes it can build a customer base for its playback services
by providing state-of-the-art equipment and technology and superior customer
service at competitive prices. The Company will offer its services in a single
package, for one price, or on an a la carte basis, with the price per service
determined pursuant to a rate card. The Company believes that a la carte
services will be attractive to potential customers who would use the Company to
provide basic network operational services.

Potential customers of the Company may include television and Internet
programmers, producers of original programming, owners of television and film
libraries, creators of visual effects and television and film studios. As
reported by the National Cable Television Association, more than 50 new channels
are expected to be launched in 1998, many of which will be unaffiliated with
existing networks. These new networks will be the Company's principal target
customers. See "--Sales and Marketing."

COMPETITION

The broadcast services segment of the entertainment services industry is
highly fragmented with no single participant having a dominant share.
Competitors include independent service providers, such as Four Media Company
and Speer Communications, Ltd., and television programmers who perform such
services in-house. The Company's current and potential competitors are likely to
have substantially greater financial, technical, marketing or other resources
than the Company.

EMERALD MEDIA OPTION

In an effort to productively utilize available transponder capacity, Spice
began providing transponder services to EMI in the fourth quarter of 1996. As
part of these arrangements, EMI granted Spice the Emerald Media Option. Prior to
consummation of the Merger, Spice will contribute the Emerald Media Option to
the Company. See "The Contribution and the Share Transfer." The Emerald Media
Option currently provides that the Company may acquire all of the assets or
capital stock of EMI for $755,000. The Emerald Media Option has no expiration
date and the Company plans to hold the Emerald Media Option indefinitely.

The Company currently has no intent to exercise the Emerald Media Option. In
assessing whether to exercise the Emerald Media Option, the Company will review
the results of EMI's operations and whether combining EMI's results with the
Company's results of operations will positively impact the Company's net income.
The Company will weigh against any positive effect on net income the risks
associated with

43
<PAGE>
operating the EMI networks and any potential adverse impact on the Company's
other businesses. See "Risk Factors--Risks Associated with Exercise of the
Emerald Media Option."

EMI is a leading provider of explicit adult programming via "direct to the
home" service to households with large satellite dishes receiving a C-Band low
power analog signal and owns and operates the three leading C-Band adult
programming networks: Eurotica, XXXcite and The X! Channel. In addition, EMI has
recently launched a fourth C-Band adult programming network, Rogue TV (the four
networks being referred to herein as the "EMI Networks"). EMI sells its network
programming on a subscription basis and on a pay-per-view basis. Customers of
EMI purchase a block of programming for a period of time--one day, one month,
three months, six months, one year, etc.--for a fixed fee. As of September 30,
1998, EMI had approximately 179,000 subscriptions for the EMI Networks. For the
nine months ended September 30, 1998, EMI had net subscription revenue of
approximately $12.0 million. In addition, EMI has a free Internet site,
SXTV.com, which provides promotional materials and adult movie clips for the EMI
Networks. Approximately 400,000 Internet users access SXTV.com per month.

The Company provides playback and other broadcasting services for the EMI
Networks. For a description of such playback services, see "--Services."

EMPLOYEES

Upon consummation of the Merger, the Company expects to employ approximately
34 persons, all of whom are expected to be full-time employees. None of the
Company's employees will be covered by collective bargaining agreements. The
Company believes that its relationship with its employees will be satisfactory.

PROPERTY

The Company currently occupies a portion of the premises leased by Spice at
536 Broadway, New York, New York. The Company is negotiating with the landlord
of the building to split up Spice's office lease so that, commencing on the
consummation of the Merger, the Company will lease approximately 8,250 square
feet of space, comprising the 10th floor, directly from the landlord. The
Company does not expect its annual rent to exceed $25 per square foot or
approximately $206,000, subject to standard escalations, plus $30,000 for use of
the roof of the building. The landlord has proposed that the Company's new lease
expire May 31, 2003.

LEGAL PROCEEDINGS

The Company is not currently involved in any legal proceedings. From time to
time, the Company may become a party to legal actions in the normal course of
its business. See "Risk Factors--Risks Associated with Exercise of the Emerald
Media Option--Provision of Sexually Explicit Content" and "Risk Factors-- Risks
Associated with Exercise of the Emerald Media Option--Government Regulation."

44
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>

J. Roger Faherty.................... 59 Chairman of the Board of Directors and
Chief Executive Officer

Donald J. McDonald, Jr. ............ 46 President and Director

John R. Sharpe...................... 34 Vice President, Chief Financial Officer and Treasurer

Richard Kirby....................... 38 Executive Vice President and Secretary

Richard Cohen....................... 47 Director

Rudy R. Miller...................... 51 Director

Leland H. Nolan..................... 52 Director
</TABLE>

J. ROGER FAHERTY has been Chairman of the Board and Chief Executive Officer
of the Company since its incorporation. Mr. Faherty has been Chairman of the
Board and a director of Spice since December 1991. In 1991 he was elected as the
Chief Executive Officer of Spice and became President of Spice in 1996. At the
Closing Date, Mr. Faherty will resign from Spice and from the Spice board of
directors. See"--CERTAIN PROCEEDINGS."

DONALD J. MCDONALD, JR. has been President and a director of the Company
since its incorporation. Mr. McDonald has been president of Spice Direct, Inc.
since 1996. Spice Direct, Inc. is a wholly-owned subsidiary of Spice and is
principally engaged in marketing Spice's products and services directly to
consumers. From 1990 to 1995, Mr. McDonald was President of Summit Corporate
Group, a venture capital fund involved in the video production and television
programming industries. At the Closing Date, Mr. McDonald will resign from Spice
Direct, Inc.

JOHN R. SHARPE has been Vice President, Chief Financial Officer and
Treasurer of the Company since its incorporation. Mr. Sharpe has been an
employee of Spice since 1995. In 1997, he was appointed Vice President,
Controller and Chief Accounting Officer of Spice. From 1991 through 1994, Mr.
Sharpe was a Divisional Controller for U.S. Services, Inc., a publicly traded
software development company. At the Closing Date, Mr. Sharpe will resign from
Spice.

RICHARD KIRBY has been Executive Vice President and Secretary of the Company
since its incorporation. Mr. Kirby has been an executive officer of Spice since
1988 and is currently Senior Vice President, Network Operations, and Chief
Technology Officer of Spice. At the Closing Date, Mr. Kirby will resign from
Spice.

RICHARD COHEN has been a director of the Company since its incorporation.
Since 1996, he has been President of Richard M. Cohen Consultants, Inc. From
1993 through 1995, Mr. Cohen was President of General Media, Inc., an adult
media company. From 1988 through 1993, Mr. Cohen was Director of Investment
Banking at Furman Selz, Inc.

RUDY R. MILLER has been a director of the Company since its incorporation.
He has served as Chairman, President and Chief Executive Officer of Miller
Management Corp., a financial consulting firm, since 1972 and of Miller Capital
Corp., a venture capital, financial services and investor relations firm, since
1993. Mr. Miller has been a Director of Spice since July 1996. Mr. Miller was
also a member of the board of directors of America West Airlines from 1982 to
1986 and a member of the board of directors of Jacor Communications Inc., one of
the largest radio broadcasting groups in the United States, from 1979 to 1989.
At the Closing Date, Mr. Miller will resign from the Spice board of directors.

45
<PAGE>
LELAND H. NOLAN has been a director of the Company since its incorporation.
Mr. Nolan has been a director of Spice since 1988 and from that time until the
end of 1995, held various executive positions with Spice, most recently as Vice
Chairman, International Initiatives. From 1996 to 1998, Mr. Nolan was a
consultant to Infoglobal, S.A., a telecommunications, engineering and consulting
firm based in Madrid, Spain. Mr. Nolan is currently pursuing international
opportunities in businesses which provide high speed internet access and
interactive services. At the Closing Date, Mr. Nolan will resign from the Spice
board of directors.

The Company's Board of Directors is divided into three classes. Mr. Cohen
serves in the class whose term expires in 1999; Messrs. Miller and Nolan serve
in the class whose term expires in 2000; and Messrs. Faherty and McDonald serve
in the class whose term expires in 2001. Upon the expiration of the term of a
class of directors, directors within such class will be elected for a three-year
term at the annual meeting of stockholders in the year in which such term
expires. Directors will hold office until the expiration of their term and until
that director's successor has been duly elected and qualified.

Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the next annual meeting of the Board of
Directors and until their successors have been duly elected and qualified. There
are no family relationships among any of the executive officers or directors of
the Company.

CERTAIN PROCEEDINGS

Recently, the National Adjudicatory Council of the National Association of
Securities Dealers, Inc. (the "NASD") (the self-regulatory organization for
broker-dealers) reversed in part and affirmed in part a decision of the NASD
Market Surveillance Committee regarding Mr. Faherty's activities as a corporate
finance consultant to a now defunct brokerage firm, Hibbard Brown & Co. Inc., by
dismissing two of three remaining causes of action against Mr. Faherty and
rejecting findings that he had violated NASD Conduct Rules 2110, 2120 and 2440,
as well as Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. These activities occurred prior to Mr. Faherty's becoming the Chief
Executive Officer and Chairman of Spice in 1991 and were unrelated to Spice. The
decision of the National Adjudicatory Council (the "Decision") did, however,
hold that his activities with the brokerage firm gave rise to aider-and-abettor
liability for such firm's violation of Section 15(c) of the Exchange Act, which
prohibits the purchase or sale of securities by brokers or dealers involving
manipulative, deceptive or fraudulent devices or contrivances, and Rule 15c1-2
promulgated thereunder, which defines such conduct. The Decision affirmed the
imposition on Mr. Faherty of a censure and a bar from association with any
member firm of the NASD, but reduced the fine assessed to $150,000. Mr. Faherty
has appealed the Decision to the Securities and Exchange Commission. As a result
of the appeal, enforcement of the sanctions has been stayed.

BOARD COMMITTEES

The Company's Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee is responsible for selecting the Company's
independent accountants for approval by the Board of Directors; reviewing the
scope, results and costs of the audit with the Company's independent
accountants; and reviewing the financial statements and accounting and control
practices of the Company. The Compensation Committee is responsible for
recommending compensation and benefits for the executive officers of the Company
to the Board of Directors and for administering the Company's 1998 Stock
Incentive Plan.

DIRECTOR COMPENSATION

The Company pays $1,000 per meeting, plus expenses, and $250 per telephone
conference to non-officer directors serving on the Board of Directors. In
addition, at the end of each fiscal year, each non-

46
<PAGE>
employee director will receive options to purchase 1,250 shares of Company
Common Stock. See "--Benefit Plans--1998 Stock Incentive Plan for Outside
Directors."

EXECUTIVE COMPENSATION

No executive officer of the Company was paid any compensation by the Company
during 1997 or in the nine months ended September 30, 1998. None of the
executive officers of the Company is expected to earn more than $100,000 in
total compensation in 1998. The annual salary for the executive officers is
described below under "--Employment Agreements." Executive officers of the
Company may be granted stock options and other benefits as described below under
"--Benefit Plans."

EMPLOYMENT AGREEMENTS

On or before the Closing Date, the Company will enter into an employment
agreement with Mr. Faherty providing for his employment as Chairman of the Board
and Chief Executive Officer of the Company. The agreement provides for a
six-year term; in each year that the agreement is not terminated, the term is
extended for five years from that anniversary date. The agreement provides for
an annual base salary of $367,500 to be adjusted annually as determined by the
Company. In addition, pursuant to the agreement, the Company will reimburse Mr.
Faherty for automobile costs.

On or before the Closing Date, the Company will enter into employment
agreements with each of Messrs. McDonald, Kirby and Sharpe providing for the
employment of Mr. McDonald as President of the Company, Mr. Kirby as Executive
Vice President of the Company and Mr. Sharpe as Vice President and Chief
Financial Officer of the Company. The employment agreements of Messrs. McDonald
and Kirby provide for a term ending on December 31, 2001. The employment
agreement of Mr. Sharpe provides for a term ending on December 31, 2000. The
agreements provide for an annual base salary of $185,000, $183,750 and $115,000
for Messrs. McDonald, Kirby and Sharpe, respectively, to be adjusted annually as
determined by the Company in its sole discretion. Each agreement other than Mr.
Faherty's also contains a non-competition covenant pursuant to which the
executive is prohibited from competing with the Company during his employment by
the Company and for one year thereafter. The agreements further provide that in
the event that employment is terminated by the Company without cause (as defined
therein) or by the executive for good reason (as defined therein), the executive
is entitled to receive an amount equal to base salary, payable in monthly
installments through the longer of (i) the applicable termination date or (ii)
nine months. In the event of the disability or death of the executive, the
Company will continue to make base salary payments to the executive or his
estate for twelve months following such death or disability. In addition, the
agreements provide that the executive will be entitled to a severance payment if
the Company terminates the executive's employment within 18 months following a
change in control of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee of the Company will serve as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers or directors serving as a member of the
Company's Board of Directors or Compensation Committee.

BENEFIT PLANS

401(K) PLAN. On or before the Closing Date, the Company will establish a
401(k) retirement savings plan (the "401(k) Plan"), in which all qualified
employees, including executive officers, are eligible to participate. The 401(k)
Plan provides that each participant may contribute up to 15% of his or her
pre-tax salary (up to a statutorily prescribed annual limit, $10,000 in 1998) to
the 401(k) Plan, although the percentage elected by certain highly compensated
participants may be required to be lower. All amounts contributed to the 401(k)
Plan by employee participants and earnings on these contributions are fully
vested at all times. The Company at the discretion of the Board of Directors,
may match employee

47
<PAGE>
contributions. Contributions to the 401(k) Plan shall be invested as determined
by the 401(k) Plan trustees, Messrs. Faherty and Sharpe. The trustees intend to
retain Morgan Stanley Dean Witter Discover to invest and administer the 401(k)
Plan.

1998 STOCK INCENTIVE PLAN.

On July 25, 1998, the Board of Directors adopted the Directrix, Inc. Stock
Incentive Plan (the "Plan"). The Plan is designed to promote the interests of
the Company and its stockholders by providing the Company's key employees with
appropriate incentives and rewards to encourage them to continue in the employ
of the Company and to maximize their performance. The following is a summary of
the material features of the Plan.

GENERAL. The Plan provides for the issuance of a total of up to 200,000
authorized and unissued shares of Company Common Stock or treasury shares of
Company Common Stock, at the discretion of the Compensation Committee or such
other committee of the Board of Directors as the Board of Directors appoints to
administer the Plan.

The Plan specifically provides for the grant of (i) non-qualified stock
options, (ii) incentive stock options ("ISOs"), (iii) limited stock appreciation
rights, (iv) tandem stock appreciation rights, (v) dividend equivalent rights,
(vi) stand-alone stock appreciation rights, (vii) shares of restricted stock,
(viii) shares of phantom stock, (ix) stock bonuses and (x) cash bonuses
(collectively, "Incentive Awards"). The Plan also provides that the Compensation
Committee may grant other types of stock-based awards in such amounts and
subject to such terms and conditions as the Compensation Committee, in its
discretion, determines.

The exercise price per share of each ISO granted under the Plan must be the
fair market value of a share of Company Common Stock on the date on which such
ISO is granted. An ISO granted to any holder of stock representing more than ten
percent of the total combined voting power of all classes of stock of the
Company is subject to the following additional limitations: (i) the exercise
price per share of the ISO must be at least 110% of the fair market value of a
share of Company Common Stock at the time any such ISO is granted and (ii) the
ISO cannot be exercisable after the expiration of five years after the grant
date. The aggregate fair market value of shares of Company Common Stock for
which ISOs are exercisable (as determined on the grant date) by a participant
during any calendar year under the Plan, or any other plan of the Company or its
subsidiaries, may not exceed $100,000.

In general, no Incentive Award is transferable other than by will or the
laws of descent and distribution (except to the extent an agreement evidencing
an Incentive Award permits certain transfers to certain members of a
participant's family or to certain trusts).

GRANTS UNDER THE PLAN. Key employees, including officers of the Company and
its affiliates, will be eligible to receive grants of Incentive Awards. The
Compensation Committee will determine which key employees receive grants of
Incentive Awards, the type of Incentive Awards granted and the number of shares
subject to each Incentive Award. Subject to the terms of the Plan, the
Compensation Committee also will determine the prices, expiration dates and
other material features of Incentive Awards granted under the Plan. The maximum
number of shares of Company Common Stock with respect to which any individual
may be granted Incentive Awards during any one year is 20,000 shares. No
Incentive Award may be granted under the Plan after July 25, 2008. The Company
expects that at the Closing Date approximately 50,000 options will be granted to
officers and other key employees.

ADMINISTRATION. The Compensation Committee will administer the Plan and has
the authority to interpret and construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it deems necessary or
appropriate. All decisions and determinations of the Compensation Committee are
final and binding on all parties.

The Compensation Committee may, in its absolute discretion, without
amendment to the Plan, (i) accelerate the date on which any option or stock
appreciation right granted under the Plan becomes

48
<PAGE>
exercisable or otherwise adjust any of the terms of such option or stock
appreciation right, (ii) accelerate the date on which any Incentive Award vests,
(iii) waive any condition imposed under the Plan with respect to any Incentive
Award or (iv) otherwise adjust any of the terms of any Incentive Award.

The Board of Directors may, at any time, suspend, discontinue, revise or
amend the Plan; PROVIDED, HOWEVER, that stockholder approval shall be obtained
for any amendment for which such approval is required under Section 422 of the
Code (related to the grant of ISOs) or required to treat some or all of the
Incentive Awards as "performance-based compensation" within the meaning of
Section 162(m) of the Code. No amendment or modification may, without the
consent of a participant, reduce the participant's rights under any previously
granted and outstanding Incentive Award except to the extent that the Board of
Directors determines that such amendment is necessary or appropriate to prevent
such Incentive Awards from constituting "applicable employee remuneration"
within the meaning of Section 162(m) of the Code.

OTHER FEATURES OF THE PLAN. Incentive Awards granted under the Plan and
shares acquired pursuant thereto will be subject to a number of rights and
restrictions, including provisions relating to a change in control of the
Company and the termination of employment or service of the grantee.

1998 STOCK INCENTIVE PLAN FOR OUTSIDE DIRECTORS.

On November 6, 1998, the Board of Directors adopted the Directrix, Inc.
Stock Incentive Plan for Outside Directors (the "Directors Plan"). The Directors
Plan is designed to promote the interests of the Company and its stockholders by
providing the Company's non-employee directors with appropriate incentives and
rewards to encourage them to take a long-term outlook when formulating Company
policy and to encourage such individuals to remain on the Board of Directors.
The following is a summary of the material features of the Directors Plan.

GENERAL. The Directors Plan provides for the issuance of a total of up to
20,000 authorized and unissued shares of Company Common Stock or treasury shares
of Company Common Stock, at the discretion of the Compensation Committee or such
other committee of the Board of Directors as the Board of Directors appoints to
administer the Directors Plan. The Directors Plan specifically provides for the
grant of non-qualified stock options and limited stock appreciation rights
(together, "Directors Incentive Awards").

In general, no Directors Incentive Award is transferable other than by will
or the laws of descent and distribution (except to the extent an agreement
evidencing a Directors Incentive Award permits certain transfers to certain
members of a participant's family or to certain trusts).

GRANTS UNDER THE DIRECTORS PLAN. Only members of the Board of Directors who
are not employees of the Company or its affiliates will be eligible to receive
grants of Directors Incentive Awards. There are currently three non-employee
directors of the Company. Directors Incentive Awards under the Directors Plan
are granted automatically on the last trading day of each fiscal year of the
Company to each director who is, on such date, eligible to participate in the
Directors Plan. The Directors Incentive Awards will be in the form of
non-qualified stock options to purchase 1,250 shares of Company Common Stock and
may include limited stock appreciation rights with respect to the same number of
shares. Subject to the terms of the Directors Plan, the Compensation Committee
will determine the expiration dates and other material features of Directors
Incentive Awards granted under the Directors Plan. No Directors Incentive Award
may be granted under the Directors Plan after November 6, 2003.

ADMINISTRATION. The Compensation Committee will administer the Directors
Plan and has the authority to interpret and construe any provision of the
Directors Plan and to adopt such rules and regulations for administering the
Directors Plan as it deems necessary or appropriate. All decisions and
determinations of the Compensation Committee are final and binding on all
parties.

49
<PAGE>
The Compensation Committee may, in its absolute discretion, without
amendment to the Directors Plan, (i) accelerate the date on which any option or
stock appreciation right granted under the Directors Plan becomes exercisable or
otherwise adjust any of the terms of such option or stock appreciation right,
(ii) accelerate the date on which any Directors Incentive Award vests, (iii)
waive any condition imposed under the Directors Plan with respect to any
Directors Incentive Award or (iv) otherwise adjust any of the terms of any
Directors Incentive Award.

The Board of Directors may, at any time, suspend, discontinue, revise or
amend the Directors Plan; PROVIDED, HOWEVER, that stockholder approval shall be
obtained for any amendment for which such approval is required under Rule 16b-3
promulgated under the Exchange Act. No amendment or modification may, without
the consent of a participant, reduce the participant's rights under any
previously granted and outstanding Directors Incentive Award except to the
extent that the Board of Directors determines that such amendment is necessary
or appropriate to prevent such Directors Incentive Awards from constituting
"applicable employee remuneration" within the meaning of Section 162 (m) of the
Code.

OTHER FEATURES OF THE DIRECTORS PLAN. Directors Incentive Awards granted
under the Directors Plan and shares acquired pursuant thereto will be subject to
a number of rights and restrictions, including provisions relating to a change
in control of the Company and the termination of service of a grantee.

OTHER PLANS. The Company is currently considering the implementation of a
cash incentive plan for executive officers and key employees pursuant to which
bonuses will be granted based upon the Company's performance.

50
<PAGE>
CERTAIN TRANSACTIONS

J. Roger Faherty, Leland H. Nolan and Donald J. McDonald have agreed to
provide the Company a revolving line of credit of up to an aggregate of $1.5
million at the Closing Date (the "Credit Facility"). Messrs. Faherty, Nolan and
McDonald will provide 60.0%, 26.67% and 13.33%, respectively, of each extension
of credit under the Credit Facility. Interest will be payable monthly in arrears
at a rate of 11% per annum. Total borrowings under the Credit Facility will have
a final maturity date of the second anniversary of the Closing Date. The Credit
Facility will be secured by accounts receivable, equipment, intellectual
property, certain intangibles and the proceeds from the sale of accounts
receivable and equipment.

In consideration of providing the Credit Facility, on the Closing Date,
Messrs. Faherty, Nolan and McDonald will receive 27,000, 12,000 and 6,000
warrants to purchase Company Common Stock (collectively, the "Lenders
Warrants"), respectively. The Company has reserved the right to replace the
Credit Facility with financing from an alternative source. If the Company
replaces the Credit Facility with alternative financing prior to borrowing any
amount under the Credit Facility, Messrs. Faherty, Nolan and McDonald will
receive only half of the number of Lenders Warrants they would have otherwise
received. Each Lenders Warrant will entitle the holder thereof to purchase, at
any time until the tenth anniversary of the Closing Date, one share of Company
Common Stock at an exercise price of $.01. In addition, Messrs. Faherty, Nolan
and McDonald will have the right to (a) request the Company to register their
Lenders Warrants and the Company Common Stock for which such Lenders Warrants
are exercisable and (b) include their Lenders Warrants and the Company Common
Stock for which such Lenders Warrants are exercisable in certain registration
statements filed by the Company.

The Company believes that the terms of the Credit Facility are no less
favorable than those that could be negotiated with an independent third party on
an arm's length basis.

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<PAGE>
PRINCIPAL STOCKHOLDERS OF THE COMPANY

Based on ownership of Spice Common Stock as of October 31, 1998 (see the
Proxy Statement/ Prospectus) and assuming an Exchange Ratio of 0.125 for one,
the following table sets forth the number and percentage of outstanding shares
of the Company Common Stock that are expected to be beneficially owned,
following the Share Transfer, by (i) each person who, to the knowledge of the
Company, will own beneficially more than 5% of the outstanding shares of Company
Common Stock, (ii) each director and executive officer of the Company and (iii)
all directors and executive officers of the Company as a group. Using the
Exchange Ratio of 0.125 for one, the number of shares of Company Common Stock
beneficially owned by the following stockholders on the Closing Date will be
equal to 12.5% of the number of shares of Spice Common Stock owned by them on
the Closing Date. Unless otherwise indicated below, to the knowledge of the
Company, all persons listed below will have sole voting and investment power
with respect to their shares of Company Common Stock, except to the extent
authority is shared by spouses under applicable law.

<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY SHARES
NAME AND ADDRESS OWNED(1) OUTSTANDING(2)
- ---------------------------------------------------------------- -------------------------- -------------------
<S> <C> <C>

J. Roger Faherty(3)(4).......................................... 192,365 9.16%
536 Broadway, 10th Floor
New York, New York 10012

Donald J. McDonald, Jr. (4)..................................... 17,250 0.83%
536 Broadway, 10th Floor
New York, New York 10012

Richard Kirby................................................... 22,125 1.07%
536 Broadway, 10th Floor
New York, New York 10012

John Sharpe..................................................... 2,225 0.11%
536 Broadway, 10th Floor
New York, New York 10012

Richard Cohen................................................... 11,250 0.54%
630 Fifth Avenue, Suite 601
New York, New York 10111

Rudy R. Miller.................................................. 8,750 0.42%
4909 East McDowell Road
Phoenix, Arizona 85008

Leland H. Nolan (4)............................................. 138,899 6.66%
17 Thompson Street
New York, New York 10012

Lindemann Capital Advisors LLC (5).............................. 209,752 10.12%
767 Fifth Avenue
New York, New York 10153

T. Rowe Price New Horizons Fund Inc. (6)........................ 81,250 3.92%
P.O. Box 17218
Baltimore, Maryland 21202

All directors and executive officers as a group
(7 persons)................................................... 392,864 18.54%
</TABLE>

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<PAGE>
- ------------------------

(1) Assumes exercise of all Spice options and warrants held by such persons
immediately prior to the Merger and the distribution of the shares of the
Company Common Stock issuable upon exercise of such options and warrants as
part of the Merger Consideration.

(2) Assumes exercise of all outstanding options and warrants of Spice.

(3) Mr. Faherty's shares do not include 1,657 shares owned by his wife or 1,350
shares owned by his children. Mr. Faherty does not have or share voting or
investment power over the shares owned by his wife or his children and
disclaims beneficial ownership of such shares.

(4) Includes the shares of Company Common Stock issuable upon exercise of the
Lenders Warrants.

(5) The information concerning beneficial ownership of Spice Common Stock by
Lindemann Capital Advisors, LLC was obtained from a Schedule 13G and a Form
3 and Form 4 filed with the Commission by such stockholder. Pursuant to such
Form 3 and Form 4, the stockholder reported that the securities are held in
accounts managed by Lindemann Capital Advisors, LLC. Adam M. Lindemann, as
Managing Member of the Lindemann Capital Advisors, LLC, may be deemed to
have a pecuniary interest in all or portion of such securities.

(6) The information concerning beneficial ownership of Spice Common Stock by T.
Rowe Price New Horizons Fund, Inc. ("New Horizons Fund") was obtained from a
Schedule 13G filed with the Commission by such stockholder. Pursuant to such
Schedule 13G, the securities are owned by various individual and
institutional investors including New Horizons Fund. T. Rowe Price
Associates, Inc. serves as investment advisor to New Horizons Fund and has
the power to direct investments and/or sole power to vote the securities.

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<PAGE>
DESCRIPTION OF SECURITIES

At the Closing Date, the authorized capital stock of the Company will
consist of 25,000,000 shares of Company Common Stock and 2,000,000 shares of
preferred stock, $.01 par value per share (the "Preferred Stock"). At the
Closing Date, the Company is expected to have outstanding approximately
2,074,785 shares of Company Common Stock and no shares of Preferred Stock. Set
forth below is a description of the Company's capital stock.

COMMON STOCK

Holders of Company Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Company
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election (other than those directors, if any, who are to
be elected by the holders of any series of preferred stock, if any). Holders of
Company Common Stock are entitled to receive ratably such dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding Preferred
Stock. See "Dividend Policy." Upon the liquidation, dissolution or winding up of
the Company, the holders of Company Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of the Company Common Stock have no preemptive, subscription, redemption
or conversion rights. All of the shares of Company Common Stock to be
distributed pursuant to the Share Transfer will be fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors is authorized, without further stockholder approval,
subject to certain limitations prescribed by law, to issue from time to time up
to an aggregate of 2,000,000 shares of Preferred Stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares of Preferred Stock constituting
any series of Preferred Stock. The Company has no present plans to issue any
shares of Preferred Stock.

The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The rights, preferences
and privileges of holders of Company Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future. At the
Closing Date, there will be no shares of Preferred Stock outstanding. See "Risk
Factors--Anti-Takeover Provisions."

WARRANTS

For a description of the Lenders Warrants, see "Certain Transactions."

DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS

The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the Delaware Law prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A

54
<PAGE>
"business combination" includes mergers, asset sales and certain other
transactions. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. The existence of this
provision would be expected to have an anti-takeover effect, including attempts
that might result in a premium over the market price for the shares of Company
Common Stock held by stockholders. A corporation may, at its option, exclude
itself from the coverage of Section 203 of the Delaware Law by amending its
certificate of incorporation or bylaws, by action of its stockholders, to exempt
itself from coverage; provided that such bylaws or certificate of incorporation
amendment shall not become effective until 12 months after the date it is
adopted. The Company has not adopted such an amendment to its Certificate of
Incorporation or By-laws.

The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Company's By-Laws, any vacancy on
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
The classification of the Board of Directors and the limitations on the removal
of directors and filing of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual meeting or
special meeting of stockholders may only be taken if it is properly brought
before such meeting and may not be taken by written action in lieu of a meeting.
The By-Laws provide that a special meeting of the stockholders may only be
called by the Chairman of the Board of Directors or by the Board of Directors
pursuant to a resolution adopted by 75% of the members of the Board of Directors
then in office. Under the By-Laws, in order for any matter to be considered
"properly brought" before a meeting of stockholders, a stockholder must comply
with certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholders actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Company
Common Stock, because such person or entity, even if it acquired a majority of
the outstanding voting securities of the Company, would be able to take action
as a stockholder (such as electing new directors or approving a merger) only at
a duly called stockholders' meeting, and not by written consent.

The Certificate of Incorporation contains certain provisions permitted under
the Delaware Law relating to the liability of directors. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors. The Certificate of Incorporation
includes a provision eliminating a director's liability for monetary damages for
a breach of fiduciary duty, except for the breach of a directory's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
any transaction from which the director derived any improper personal benefit
and for certain other actions. In addition, the Certificate of Incorporation
provides for the indemnification of directors, officers, employees and agents of
the Company to the fullest extent permitted by the Delaware Law. This
indemnification shall not be exclusive of any other rights by which a director,
officer, employee or agent may be entitled to under any by-law, arrangement, or
vote of stockholders or disinterested directors.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.

55
<PAGE>
TRANSFER AGENT AND REGISTRAR

Harris Trust and Savings Bank will act as transfer agent for the Company
Common Stock in connection with the Share Transfer and the Merger. The transfer
agent and registrar for the Company Common Stock will be the American Stock
Transfer & Trust Company.

LEGAL MATTERS

The validity of the shares of Company Common Stock will be passed upon for
the Company by Kramer Levin Naftalis & Frankel LLP, New York, New York.

EXPERTS

The financial statements of the Company as of December 31, 1997 and for the
years ended December 31, 1996 and December 31, 1997 have been included herein
and in the registration statement in reliance upon the report of Grant Thornton
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Company Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained in the Registration Statement. For further
information with respect to the Company and the Company Common Stock offered
hereby, reference is hereby made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this Prospectus
regarding the contents of any agreement or other document filed as an exhibit to
the Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.

56
<PAGE>
DIRECTRIX, INC.
INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants......................................................... F-2

Balance Sheets as of December 31, 1997 and September 30, 1998 (unaudited).................................. F-3

Statements of Operations for the years ended December 31, 1996 and 1997 and the nine months ended September
30, 1997 and 1998 (unaudited)............................................................................ F-4

Statement of Stockholder's Equity for the years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998 (unaudited)........................................................................... F-5

Statements of Cash Flows for the years ended December 31, 1996 and 1997 and the nine months ended September
30, 1997 and 1998 (unaudited)............................................................................ F-6

Notes to Financial Statements.............................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors
Directrix, Inc.

We have audited the accompanying balance sheet of Directrix, Inc. (a
Delaware corporation) as of December 31, 1997, and the related statements of
operations, stockholder's equity and cash flows for the years ended December 31,
1996 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Directrix, Inc. as of
December 31, 1997, and the results of its operations and cash flows for the
years ended December 31, 1996 and 1997, in conformity with generally accepted
accounting principles.

Grant Thornton LLP

New York, New York
July 10, 1998 (except for Notes 1, 5, 6 and
10, as to which the date is July 25, 1998)

F-2
<PAGE>
DIRECTRIX, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Current assets:
Accounts receivable, less allowance for doubtful accounts of $1,753,000 in 1997
and $1,753,000 in 1998.......................................................... $ 772,000 $ 755,000
Prepaid expenses and other current assets......................................... 73,000 577,000
------------- -------------
Total current assets............................................................ 845,000 1,332,000
Property and equipment............................................................ 4,134,000 3,668,000
Library of movies, net............................................................ 809,000 897,000
Other assets...................................................................... 51,000 51,000
------------- -------------
$ 5,839,000 $ 5,948,000
------------- -------------
------------- -------------

LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Current portion of obligations under capital leases............................... $ 522,000 $ 541,000
Accounts payable.................................................................. 252,000 220,000
Accrued expenses and other current liabilities.................................... 80,000 108,000
Deferred income................................................................... 109,000 --
------------- -------------
Total current liabilities....................................................... 963,000 869,000
Obligations under capital leases.................................................. 552,000 141,000
------------- -------------
Total liabilities............................................................... 1,515,000 1,010,000

Commitments and contingencies

Stockholder's equity
Contributed equity................................................................ 9,859,000 12,567,000
Accumulated deficit............................................................... (5,535,000) (7,629,000)
------------- -------------
Total stockholder's equity...................................................... 4,324,000 4,938,000
------------- -------------
$ 5,839,000 $ 5,948,000
------------- -------------
------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>
DIRECTRIX, INC.

STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
-------------- -------------- -------------- -------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:......................................... $ 10,329,000 $ 10,658,000 $ 8,028,000 $ 7,489,000
-------------- -------------- -------------- -------------
Operating expenses:
Salaries, wages and benefits.................... 1,356,000 2,198,000 1,562,000 1,971,000
Library amortization............................ 296,000 378,000 290,000 247,000
Satellite costs................................. 901,000 4,834,000 3,454,000 4,929,000
Selling, general and administrative expenses.... 1,517,000 3,459,000 3,225,000 1,592,000
Depreciation of fixed assets.................... 5,956,000 1,906,000 1,600,000 746,000
-------------- -------------- -------------- -------------
Total operating expenses.......................... 10,026,000 12,775,000 10,131,000 9,485,000
-------------- -------------- -------------- -------------
Total income (loss) from operations......... 303,000 (2,117,000) (2,103,000) (1,996,000)
Interest expense.................................. 4,979,000 1,090,000 1,058,000 98,000
Gain from transponder lease amendment............. -- (2,348,000) (2,348,000) --
-------------- -------------- -------------- -------------
Net income (loss)........................... $ (4,676,000) $ (859,000) $ (813,000) $ (2,094,000)
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
UNAUDITED PRO FORMA
NET INCOME (LOSS) PER COMMON
SHARE (Note 2).................................. $ (2.25) $ (0.41) $ (0.39) $ (1.01)
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>
DIRECTRIX, INC.

STATEMENT OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>
CONTRIBUTED ACCUMULATED
EQUITY DEFICIT TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
Balance at January 1, 1996........................................... $ 2,976,000 $ 0 $ 2,976,000
Net loss for the year................................................ (4,676,000) (4,676,000)
Net transfers from Spice............................................. 1,297,000 1,297,000
------------- ------------- -------------
Balance at December 31, 1996......................................... 4,273,000 (4,676,000) (403,000)
Net loss for the year................................................ (859,000) (859,000)
Net transfers from Spice............................................. 5,586,000 5,586,000
------------- ------------- -------------
Balance at December 31, 1997......................................... 9,859,000 (5,535,000) 4,324,000
Net loss for the period (unaudited).................................. (2,094,000) (2,094,000)
Net transfers from Spice (unaudited)................................. 2,708,000 2,708,000
------------- ------------- -------------
Balance at September 30, 1998 (unaudited)............................ $ 12,567,000 $ (7,629,000) $ 4,938,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-5
<PAGE>
DIRECTRIX, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
1996 1997 1997 1998
-------------- -------------- -------------- --------------

<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (4,676,000) $ (859,000) $ (813,000) $ (2,094,000)
-------------- -------------- -------------- --------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization of fixed
assets....................................... 5,956,000 1,906,000 1,600,000 746,000
Gain on transponder lease amendment............ -- (2,348,000) (2,348,000) --
Amortization of library of movies.............. 296,000 378,000 290,000 247,000
Provision for bad debts........................ 300,000 1,453,000 1,453,000 --
Changes in assets and liabilities:
Increase in accounts receivable.............. (576,000) (1,949,000) (1,932,000) 17,000
Increase in prepaid expenses and other
current assets............................. (11,000) (52,000) (74,000) (504,000)
Decrease (increase) in other assets.......... 2,000 (3,000) -- --
Increase (decrease) in accounts payable and
accrued expenses........................... 1,193,000 (1,011,000) (875,000) (4,000)
Increase (decrease) in deferred income....... -- 109,000 218,000 (109,000)
-------------- -------------- -------------- --------------
Total adjustments.......................... 7,160,000 (1,517,000) (1,668,000) 393,000
-------------- -------------- -------------- --------------
Net cash provided by (used in) operating
activities............................... 2,484,000 (2,376,000) (2,481,000) (1,701,000)
-------------- -------------- -------------- --------------
Cash flows from investment activities:
Purchase of property and equipment............. (793,000) (750,000) (462,000) (280,000)
Purchase of rights to movies................... (289,000) (549,000) (344,000) (335,000)
-------------- -------------- -------------- --------------
Net cash used in investing activities...... (1,082,000) (1,299,000) (806,000) (615,000)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Repayment of long-term debt and capital lease
obligations.................................. (2,699,000) (1,911,000) (1,815,000) (392,000)
Net transfers from Spice....................... 1,297,000 5,586,000 5,102,000 2,708,000
-------------- -------------- -------------- --------------
Net cash (used in) provided by financing
activities............................... (1,402,000) 3,675,000 3,287,000 2,316,000
-------------- -------------- -------------- --------------
Net decrease in cash and cash
equivalents.............................. -- -- -- --
Cash and cash equivalents, beginning of period... -- -- -- --
-------------- -------------- -------------- --------------
Cash and cash equivalents, end of the
period................................... $ -- $ -- $ -- $ --
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest................................... $ 3,470,000 $ 2,216,000 $ 2,172,000 $ 92,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Income taxes............................... $ -- $ -- $ -- $ --
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Supplemental schedule of non-cash investing and
financing activities:
Capital lease obligations...................... $ 498,000 $ (52,342,000) $ (52,342,000) $ --
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

1. BACKGROUND AND BASIS OF PRESENTATION.

BACKGROUND. Directrix, Inc. (the "Company") is a Delaware corporation
formed by Spice Entertainment Companies, Inc. ("Spice") in contemplation of the
merger ("Merger") of Spice with a wholly-owned subsidiary of Playboy
Enterprises, Inc. ("Playboy"). Prior to the closing ("Closing") of the Merger,
Spice and the Company will enter into a Transfer and Redemption Agreement (the
"Transfer Agreement") pursuant to which Spice will contribute to the Company,
among other things, all of the assets and liabilities associated with Spice's
master control and digital playback center (the "Operations Facility"), an
option (the "EMI Option") to acquire all of the assets or capital stock of
Emerald Media, Inc. ("EMI") and the rights to distribute the explicit version of
certain of Spice's adult films in the domestic C-Band direct to home market
("DTH") and the Internet ("Library Rights").

Spice will also assign other agreements and assets to the Company. (See Note
10.) Pursuant to the Transfer Agreement, the Company intends to enter into a
separate transponder services agreement with Loral SpaceCom Corporation
("Loral") for services on three transponders which will replace a portion of
Spice's agreement with Loral.

BUSINESS. Management plans to use the Operations Facility and its
transponder capacity to provide a complete range of technical and creative
services required to create and distribute a television network over a variety
of delivery methods including cable, direct broadcast satellite system ("DBS")
and the Internet. The Company plans to offer uplink services through a third
party vendor, playback services through its Operations Facility and transponder
services, both analog and digitally compressed, through its agreement with
Loral. The Company also plans to offer post-production services, including
creation of interstitial and promotional segments, animation and graphics,
quality control, library services for masters tapes and facilities, network
operations and engineering services. There can be no assurances that the Company
will be successful in marketing some or all of these services.

Under the Transfer Agreement, Spice will assign to the Company its
agreements with EMI. The Company will provide programming, playback and
transponder services to EMI. EMI provides subscriber based and pay-per-view
explicit adult programming distributed in the DTH market, operating four
explicit DTH television networks.

The Company has no operating history on a stand-alone basis. The Company has
incurred significant losses for the years ended December 31, 1996 and 1997 and
for the nine months ended September 30, 1998 on the basis of the presentation
described below. The Company's ability to achieve and maintain profitability
depends on its ability to attract and maintain customers for its services. The
Company currently intends to rely on the business contacts and expertise of its
management to develop new business.

On July 21, 1998, the Company secured a $1.5 million revolving line of
credit facility ("Credit Facility") to be provided by three directors of the
Company. The Credit Facility will be used for general corporate purposes. (See
Note 10.) Management believes the Credit Facility and cash generated by
operations will provide sufficient working capital to implement management's
plans for the next 12 months. There can be no assurance, however, that the
Company will successfully implement its plans.

BASIS OF PRESENTATION.

The financial statements reflect the results of operations, financial
position, changes in stockholder's equity and cash flows that were directly
related to the Operations Facility, to the Emerald Media Option and the Library
Rights that will be contributed to the Company by Spice as if the Company were a
separate entity for all periods presented. The financial statements have been
prepared using the historical basis in

F-7
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

1. BACKGROUND AND BASIS OF PRESENTATION. (CONTINUED)
the assets and liabilities and historical results of operations related to the
Company's business. Changes in stockholder's equity represents the net income
(loss) of the Company plus net cash transfers from Spice.

The financial statements include allocations of certain Spice corporate
headquarters assets, liabilities, revenues and expenses relating to the business
that Spice will transfer to the Company. In addition, Spice will transfer the
Library Rights to the Company, the value of which has been allocated based on
the relative value of the rights to distribute the explicit versions of the
adult films to the domestic DTH and Internet market to the value of all rights
to the adult films held by Spice prior to the contribution of the Library
Rights. Management believes this method of allocation is reasonable.

Revenues were earned principally from services provided to two customers,
EMI and Spice. (See Note 8.) EMI revenues were recorded based upon contractual
amounts for playback and transponder services. Spice revenues relate to network
operations, post-production services and technical services. These revenues have
been recorded based on either (i) services provided to other non-related
customers or (ii) the costs associated with the service plus an appropriate
markup based on a reasonable assessment of a market-based charge. Management
believes that the methods used to record revenues are reasonable.

The liabilities of the Company include capital lease obligations and the
amounts of debt and related interest expense associated with these liabilities
assumed by the Company pursuant to the Merger Agreement.

General corporate overhead related to Spice's corporate headquarters and
common support divisions has been allocated to the Company based on the ratio of
the Company's direct labor costs and expenses to Spice's direct labor costs and
expenses. Management believes that these allocations are reasonable and are not
materially different from the costs that the Company would have incurred for
these services if the Company were a stand-alone entity. Subsequent to the
Closing, the Company will perform these functions using its own resources or
purchased services and will be responsible for the costs and expenses associated
with the management of a public corporation.

The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in stockholder's equity and
cash flows of the Company in the future or what they would have been had it been
a separate, stand-alone entity during the periods presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of accounts
receivable, accounts payable and accrued expenses reflected in the financial
statements approximate fair value because of the short maturity of these items.
See Note 4 for a discussion of the fair value of the Company's capitalized lease
obligations.

CONCENTRATION OF CREDIT RISK. Financial instruments which subject the
Company to concentrations of risk consist primarily of trade accounts
receivables. Receivables arising from sales to customers are not

F-8
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
collateralized and, as a result, management continuously monitors the financial
condition of its customers to reduce the risk of loss. See Note 8.

VALUATION OF LONG-TERM ASSETS. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," during the year
ended December 31, 1996. The statement requires that the Company recognize and
measure impairment losses of long-lived assets, such as equipment and certain
identifiable intangibles. The Company periodically assesses the possible
impairment of its long-lived assets. The Company determined that no provision
was necessary for the impairment of long-lived assets at December 31, 1996 and
1997 and at September 30, 1998.

PROPERTY AND EQUIPMENT. Property and equipment, including major capital
improvements, are recorded at cost. The cost of maintenance and repairs is
charged against results of operations as incurred. Depreciation is charged
against results of operations using the straight-line method over the estimated
useful lives of the related assets. Equipment leased under capital leases and
leasehold improvements are amortized over the shorter of the estimated useful
life or the lease term. Sales and retirements of depreciable property and
equipment are recorded by removing the related cost and accumulated depreciation
from the accounts. Gains or losses on sales and retirements of property and
equipment are reflected in results of operations.

REVENUE RECOGNITION. Revenues from the sale of transponder, playback and
other related services are recognized in the period the service is performed.

AMORTIZATION OF LIBRARY OF MOVIES. The Company capitalizes the acquisition
costs for the rights to movie titles purchased or licensed. The acquisition
costs are amortized on a straight-line basis over the shorter of the useful life
or the license period, ranging from one to five years. Amortization of library
of movies was allocated to the Company using the same ratio used to allocate
library of movies, as described in Note 1.

UNAUDITED PRO FORMA INCOME (LOSS) PER SHARE. Historical earnings per share
have not been presented because they would not be meaningful. Pro forma income
(loss) per share is calculated after giving effect to the distribution of the
Company's Common Stock as described in Note 5. Net income (loss) per share is
calculated in accordance with SFAS No. 128, "Earnings Per Share." Basic earnings
per share excludes dilution and is computed by dividing income attributable to
common shareholders by the weighted-average common shares outstanding for the
period. Diluted earnings per share reflects the weighted-average common shares
outstanding plus the potential dilutive effect of securities or contracts which
are convertible to common shares, such as options and warrants. The warrants
described in Notes 5 and 10 were excluded from the calculation of diluted
earnings per share because their effect was anti-dilutive.

INCOME TAXES. Since the Company was a division of Spice, it did not file
separate income tax returns. The Company's operations were included in the
income tax returns filed by Spice and its subsidiaries. For purposes of the
financial statements, the Company was not allocated any income tax provision or
benefit associated with the net losses based on the Company's past earnings
history and use of NOL carryforwards.

The Company uses the liability method of accounting for income taxes, as set
forth in SFAS No. 109, "Accounting for Income Taxes". Under this method,
deferred income taxes, when required, are provided on the basis of the
difference between the financial reporting and income tax bases of assets and
liabilities at the statutory rates enacted for future periods.

F-9
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
INTERIM REPORTING. The accompanying financial information as of March 31,
1998 and the nine months ended September 30, 1997 and 1998, including such
information in the notes to financial statements, is unaudited. In the opinion
of Management, the Company has made all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial condition
of the Company as of September 30, 1998 and the results of operations and cash
flows for the nine months ended September 30, 1997 and 1998.

3. PROPERTY AND EQUIPMENT.

Property and equipment consists of the following:

<TABLE>
<CAPTION>
USEFUL LIVES DECEMBER 31, SEPTEMBER 30,
IN YEARS 1997 1998
--------------- ------------ -------------
<S> <C> <C> <C>
Equipment...................................... 5 $6,519,000 $ 6,923,000
Furniture and Fixtures......................... 7 163,000 165,000
Life of lease
Leasehold Improvements......................... or shorter 1,114,000 1,122,000
--------------- ------------ -------------
7,796,000 8,210,000
Less Accumulated Depreciation and
Amortization................................. 3,662,000 4,542,000
------------ -------------
$4,134,000 $ 3,668,000
------------ -------------
------------ -------------
</TABLE>

A portion of the aforementioned equipment having a net book value of $1.3
million and $1.1 million is collateral for the equipment loans and capital
leases at December 31, 1997 and September 30, 1998, respectively.

4. OBLIGATION UNDER CAPITAL LEASES.

Minimum annual rentals under capital leases, are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 638,000
1999............................................................................ 563,000
2000............................................................................ 37,000
------------
Net minimum lease payments...................................................... 1,238,000
Less amount representing interest............................................... 164,000
------------
Present value of minimum lease obligations...................................... 1,074,000
Current portion of lease obligations............................................ 522,000
------------
Long-term portion of lease obligations.......................................... $ 552,000
------------
------------
</TABLE>

a. In 1995, Spice entered into a equipment lease agreement with IBM
Credit Corporation ("ICC") which provided financing of $2,078,00 which the
Company used to construct the Operations Facility. The equipment lease was
accounted for as a capital lease. As a result of certain delays, changes in
equipment requirements and other factors, the original lease agreement was
superseded in the fourth quarter of 1996 by a new lease which requires 36
payments of approximately $37,000, commencing on February 1, 1997. The lease
obligation at December 31, 1997 and 1996 was $794,000

F-10
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

4. OBLIGATION UNDER CAPITAL LEASES. (CONTINUED)
and $1,083,000, respectively. Prior to the Closing, the Company will assume
Spice's obligations under the equipment lease agreement and will operate the
Operations Facility.

b. On August 14, 1996, Spice entered into an equipment lease agreement
with Vendor Capital Group ("VCG") for equipment with a cost of approximately
$1.8 million: $0.5 million was attributable to Digicipher encoding equipment
and approximately $1.3 million was attributable to 1,300 decoders. This
lease was accounted for as a capital lease. This equipment enabled Spice to
digitally compress its domestic television networks onto one transponder.
Prior to the Closing, the equipment lease will be replaced with two leases:
one between the Company and VCG, relating to the encoder which the Company
will retain and another between VCG and Playboy, relating to the decoders.
The lease obligation attributable to the encoder at December 31, 1997 and
September 30, 1998 was $256,000 and $151,000, respectively.

5. CAPITAL STRUCTURE.

The Company was incorporated on July 20, 1998 and has authorized capital of
25 million shares of common stock, $.01 par value per share (the "Common
Stock"), and 2 million shares of preferred stock, $.01 par value per share.
Spice will be the Company's sole stockholder prior to the Closing.

In connection with the Merger, Spice will transfer approximately 2,075,000
shares of Common Stock to the Spice stockholders on the basis of 0.125 of one
share of Common Stock in partial exchange for each share of Spice common stock
owned prior to the Merger. Fractional shares will not be issued; any fractional
share of Common Stock will be rounded up to one whole share.

All Spice employee stock options outstanding on the Closing will be deemed
to be exercised on that date. Holders of Spice employee stock options will be
entitled to receive (in addition to the other consideration for the Merger less
the exercise price) Common Stock on the basis of 0.125 of one share of Common
Stock for each share of Spice common stock into which the Spice employee stock
options were exercised on the Closing.

Upon Closing, Spice will retain no interest in the Company and the
stockholders of Spice will own all of the capital stock and other ownership
interests of the Company.

6. EMPLOYEE STOCK OPTION PLAN.

The Company adopted an employee stock option plan covering 200,000 shares of
Common Stock on July 25, 1998. The Company's Board of Directors is expected to
grant options covering 50,000 shares of Common Stock at the time of the Closing.
It is anticipated that options granted under the plan will have an exercise
price per share equal to the market price on the date of grant, with other terms
to be determined by the Company's Board of Directors. The Company will be
required to disclose in the footnotes of the financial statements the impact of
the compensation expenses associated with options to be granted on a pro forma
basis in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."

Prior to Closing, certain employees of the Company participated in Spice's
Employee Stock Option Plans. Spice granted 886,500 and 1,235,918 options to
Company employees under the various plans during fiscal 1997 and 1996,
respectively. Spice accounted for these options in accordance with APB Opinion
No. 25. Accordingly, because the exercise prices of the options equaled the
market price on the date of grant, no compensation expense was recognized for
the options granted. Had compensation expense been recognized by Spice based
upon the fair value of the stock options on the grant date under the

F-11
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

6. EMPLOYEE STOCK OPTION PLAN. (CONTINUED)
methodology prescribed by SFAS No. 123, and allocated to the Company based on
its proportionate share of total compensation, the Company's net loss for the
year ended December 31, 1996 and 1997 would have been increased by $0.3 million
and $0.2 million, respectively. See Note 5 for a discussion of the exercise of
Spice employee stock options outstanding on the Closing.

7. COMMITMENTS AND CONTINGENCIES.

LITIGATION. Spice was, from time to time, a party to litigation arising in
the normal course of its business. The Company will not assume any liability for
litigation to which Spice is currently a party. The Company may be, from time to
time, a party to litigation arising in the normal course of business.

EMPLOYMENT AGREEMENTS. The Company will enter into employment agreements
with its Chief Executive Officer, President, Executive Vice President and Chief
Financial Officer. The employment agreements will have terms and provisions
substantially similar to the employment agreements between Spice and each of
these officers.

LEASES AND SERVICE CONTRACTS. The Company leases its office facilities,
satellite transponders and uplink, and certain equipment. As of December 31,
1997, the aggregate minimum rental commitments under non-cancelable operating
leases were approximately as follows:

<TABLE>
<CAPTION>
OFFICE SATELLITE
FACILITIES TRANSPONDER
YEARS ENDING DECEMBER 31, TOTAL AND EQUIPMENT AND UPLINK
- ----------------------------- ------------- -------------- -------------
<S> <C> <C> <C>

1998......................... $ 6,700,000 $ 160,000 $ 6,540,000
1999......................... 6,680,000 140,000 6,540,000
2000......................... 6,410,000 145,000 6,265,000
2001......................... 6,389,000 149,000 6,240,000
2002......................... 6,385,000 145,000 6,240,000
Thereafter................... 11,502,000 62,000 11,440,000
------------- -------------- -------------
Total.................. $ 44,066,000 $ 801,000 $ 43,265,000
------------- -------------- -------------
------------- -------------- -------------
</TABLE>

Total expense under operating leases amounted to $5,108,000 for the year
ended December 31, 1997 and $4,869,000 for the nine months ended September 30,
1998.

Effective December 1995, Spice entered into a Skynet Transponder Services
Agreement (the "Transponder Agreement") with AT&T Corp. ("AT&T"). The
Transponder Agreement provides for services on five transponders on the AT&T
satellite Telstar 402R for a monthly payment of $635,000. Two of the
transponders were protected and three were pre-emptible. (Transponder services
on a protected transponder will not be interrupted in the event of a transponder
or satellite failure.) The original term of the Transponder Agreement was for
the useful life of the satellite's geo-stationary orbit, estimated to be twelve
years.

On January 11, 1997, as a result of AT&T losing contact with and declaring
Telstar 401 permanently out of service, AT&T pre-empted one of Spice's
pre-emptible transponders and transferred it to another AT&T customer. On March
31, 1997, Spice and Loral (which acquired AT&T's satellite business) amended the
Transponder Agreement and shortened the term by approximately four years. In
consideration of the amendment, Spice granted Loral the right to pre-empt one of
the Company's transponders after

F-12
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES. (CONTINUED)
September 1, 1997. As a result of the amendment, the Transponder Agreement has
been classified as an operating lease commencing on March 31, 1997. As a result
of the two events described above, a non-recurring gain of approximately $2.3
million was realized in 1997.

As a result of the Transponder Agreement being classified as a capital lease
until March 31, 1997, the transponder payments totaling approximately $1.6
million and $7.6 million for 1997 and 1996, were reported as a reduction of
capital lease obligations. Had the Transponder Agreement been classified as an
operating lease from its inception, the Company would have reported additional
satellite expenses of approximately $1.6 million and $7.6 million in 1997 and
1996. In addition, the Company would have reported a decrease in depreciation of
$1.0 million and $5.3 million and a decrease in interest expense of $0.9 million
and $5.0 million for the years ended December 31, 1997 and 1996, respectively.

Prior to the Closing, the Transponder Agreement will be replaced with two
agreements: the Company will enter into an agreement with Loral for services on
three transponders, one protected and two pre-emptible, and Spice will enter
into an agreement for one protected transponder.

8. SIGNIFICANT CUSTOMERS.

EMI. On September 1, 1996, pursuant to short-term agreements, the Company
began providing transponder services bundled with playback, programming and
other related services to EMI. EMI currently owns and operates four premium
television networks featuring explicit version adult movies which are
distributed to the domestic DTH market. EMI also granted the Company an option
to acquire its stock or business for $755,000 ("EMI Option"). The Company
currently provides transponder services for three of EMI's networks and playback
and other services for four of EMI's networks from the Operations Facility. The
agreements with EMI expire on December 31, 1998. Prior to the expiration of the
agreements, either party may request a one year renewal subject to the other
party's right to require termination at the end of the then current term.

The Company recognized revenues from EMI of approximately $0.3 million and
$4.7 million for the years ended December 31, 1996 and 1997, respectively, and
$3.4 million and $2.9 million for the nine months ended September 30, 1997 and
1998, respectively. At December 31, 1997 and September 30, 1998, the Company has
a net trade receivable from EMI of $755,000.

SPICE. The Company recognized revenue from Spice of approximately $9.9
million and $5.4 million for the years ended December 31, 1996 and 1997,
respectively, and $4.3 million and $4.0 million for the nine months ended
September 30, 1997 and 1998, respectively. Revenues were related to the playback
of the Spice networks from the Company's Operations Facility commencing in
February 1997 as well as the transmission to and use of the Company's
transponders.

The Company expects that a significant portion of its future revenues will
continue to be generated by a limited number of customers. The loss of any of
these customers or any substantial reduction in orders by any of these customers
could materially adversely affect the Company's operating results.

9. RETIREMENT PLAN.

Prior to the Closing, certain of the Company's employees participated in
Spice's 401(k) retirement plan. The Company plans to adopt a 401(k) retirement
plan on the Closing which will be substantially the same as the 401(k) plan
maintained by Spice prior to the Merger. The plan will allow employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The plan will provide for

F-13
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

9. RETIREMENT PLAN. (CONTINUED)
discretionary matching of employee contributions by the Company. On the Closing,
Company employees who were participants in the Spice 401(k) retirement plan will
have the option of rolling over their account balances to the Company's 401(k)
retirement plan.

10. SUBSEQUENT EVENTS.

REVOLVING LOAN COMMITMENT. On July 21, 1998, the Chairman of the Board and
Chief Executive Officer, the President and a Director of the Company (the
"Lenders") agreed to provide the Company a revolving credit facility ("Credit
Facility") to be used for general corporate purposes. The Credit Facility will
be in the maximum principal amount of $1.5 million and will terminate two years
after the date of the Closing. The initial advance will be available on the
Closing. Advances under the Credit Facility will accrue interest daily at the
rate of 11% per annum and interest will be payable monthly. In consideration of
the Lenders providing the Credit Facility, the Company will grant the Lenders an
aggregate of 45,000 warrants which will have an exercise price of $.01 per share
and will be exercisable for 10 years following the date of the Closing. The fair
value of the warrants will be treated as additional interest expense over the
term of the Credit Facility.

TRANSFER AND REDEMPTION AGREEMENT. As a condition to the Merger, Spice and
the Company will enter into a Transfer Agreement and certain related agreements,
pursuant to which Spice will contribute certain assets to the Company in
exchange for the assumption of certain related liabilities and the issuance of
Common Stock. In connection with the Merger, Spice will transfer the Common
Stock to the stockholders of Spice as part of the consideration for the Merger.
The Transfer Agreement, certain agreements related to or contemplated by the
Transfer Agreement, and other agreements to be entered into in connection with
the Merger are summarized below.

Pursuant to the terms of the Transfer Agreement, immediately prior to the
Share Transfer, Spice will contribute certain assets to the Company, including
(a) all of the equipment and facilities relating to the Operations Facility, (b)
the EMI Option and (c) certain rights to Spice's library of adult films to be
granted to the Company under the Explicit Rights Agreements and the Owned Rights
Agreement. The Company currently has no intent to exercise the EMI Option.

In connection with the contribution, the Company will issue to Spice the
Common Stock and will assume certain liabilities (the "Assumed Liabilities"),
subject to the indemnification obligations of Spice described below. The Assumed
Liabilities include (a) all of the liabilities relating to EMI, (b) all of the
liabilities relating to or arising from the Operations Facility, but only to the
extent they arise after consummation of the Merger, and (c) those liabilities
and obligations arising out of the assets being transferred to the Company. The
Transfer Agreement provides, among other things, that the Company will indemnify
Spice for the Assumed Liabilities.

The Company and Spice will enter into an Explicit Rights Agreement with each
licensor which licenses adult films to Spice, excluding the films licensed by
Spice's international subsidiaries, subject to the consent of such licensor.
Pursuant to each Explicit Rights Agreement, Spice will assign to the Company
certain broadcast and transmission rights in and to the films licensed by each
such licensor. Spice will remain responsible for the payment of license fees. In
addition, the Company and Spice will enter into the Owned Rights Agreement
pursuant to which Spice will assign to the Company certain broadcast and
transmission rights in and to Spice's existing library of owned adult films.

F-14
<PAGE>
DIRECTRIX, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION RELATING TO SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)

10. SUBSEQUENT EVENTS. (CONTINUED)
In connection with the Merger, Playboy and the Company will enter into a
Satellite Services Agreement, pursuant to which the Company will provide
playback, uplink and compressed transponder services for at least two networks.
In addition, the Company and Califa Entertainment Group, Inc. will enter into a
Satellite Services Agreement, pursuant to which the Company will provide
playback, uplink and compressed transponder services for one network.

F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE DISTRIBUTION OF COMMON STOCK COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES, OR AN OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------

<S> <C>
Prospectus Summary............................. 2
Risk Factors................................... 7
The Contribution and the Share Transfer........ 16
Arrangements After the Merger.................. 26
Dividend Policy................................ 29
Selected Historical Financial Information...... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 31
Business....................................... 37
Management..................................... 45
Certain Transactions........................... 51
Principal Stockholders of the Company.......... 52
Description of Securities...................... 54
Legal Matters.................................. 56
Experts........................................ 56
Additional Information......................... 56
Index to Financial Statements.................. F-1
</TABLE>

UNTIL DECEMBER 26, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

2,074,785 SHARES

DIRECTRIX, INC.

[LOGO]

COMMON STOCK
(PAR VALUE $.01 PER SHARE)

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

PROSPECTUS

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

DECEMBER 1, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article ELEVENTH of the Registrant's Certificate of Incorporation (the
"Certificate of Incorporation") provides that no director of the Registrant
shall be personally liable for any monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.

Article TENTH of the Registrant's Certificate of Incorporation provides that
the Registrant shall to the fullest extent permitted by the Delaware General
Corporation Law, as the same may be amended and supplemented, or by any
successor thereto, indemnify any and all persons whom it shall have power to
indemnify under such law. Such right to indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such a
person.

Article TENTH of the Registrant's Certificate of Incorporation also provides
that the Corporation shall advance expenses to the fullest extent permitted by
the Delaware General Corporation Law.

Article TENTH of the Registrant's Certificate of Incorporation further
provides that the indemnification and advancement of expenses provided for
therein shall not be deemed exclusive of any other rights of which those seeking
indemnification may be entitled under any By-Law, arrangement, vote of
stockholders or disinterested directors or otherwise.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made by a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

As of the Closing Date, the Company will have obtained directors and
officers liability insurance for the benefit of its directors and certain of its
officers.

II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses payable in connection
with the Share Transfer. All the amounts shown are estimates except the
Securities and Exchange Commission registration fee.

<TABLE>
<S> <C>
SEC Registration fee............................................... $ 6,121
Printing and engraving expenses.................................... 61,500
Legal fees and expenses............................................ 500,000
Accounting fees and expenses....................................... 350,000
Blue Sky fees and expenses (including legal fees).................. 15,000
Transfer agent and registrar fees and expenses..................... 5,000
Miscellaneous...................................................... 22,379
---------
Total.......................................................... 960,000
---------
---------
</TABLE>

The Registrant will bear all expenses shown above.

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

None.

ITEM 27. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <C> <S>

2.1 -- Form of Transfer and Redemption Agreement between Directrix, Inc. (the "Registrant") and Spice
Entertainment Companies, Inc. ("Spice").*
3.1 -- Certificate of Incorporation of the Registrant.*
3.2 -- By-Laws of the Registrant.*
4.1 -- Form of certificate representing shares of the Registrant's Common Stock.*
5.1 -- Opinion of Kramer Levin Naftalis & Frankel LLP as to legality of securities being offered.*
10.1 -- Form of Satellite Services Agreement between the Registrant and Playboy Entertainment Group, Inc.*
10.2 -- Form of Explicit Rights Agreement between the Registrant and Spice.*
10.3 -- Form of Owned Rights Agreement between the Registrant and Spice.*
10.4 -- Form of Non-Competition Agreement between the Registrant and New Playboy, Inc.*
10.5 -- Form of Satellite Services Agreement between the Registrant and Califa Entertainment Group, Inc.*
10.6 -- Form of Non-Competition Agreement between the Registrant and Califa Entertainment Group, Inc.*
10.7 -- Form of Employment Agreement between the Registrant and J. Roger Faherty.*
10.8 -- Form of Employment Agreement between the Registrant and Donald McDonald.*
10.9 -- Form of Employment Agreement between the Registrant and John Sharpe.*
10.10 -- Form of Employment Agreement between the Registrant and Richard Kirby.*
10.11 -- 1998 Stock Incentive Plan of the Registrant.*
10.12 -- 1998 Stock Incentive Plan for Outside Directors of the Registrant.*
10.13 -- Commitment Letter Agreement dated July 20, 1998 among the Registrant, J. Roger Faherty, Leland Nolan
and Donald McDonald.*
10.14 -- Form of Loan and Security Agreement among the Registrant, J. Roger Faherty, Leland Nolan and Donald
McDonald.*
23.1 -- Consent of Grant Thornton LLP.
23.2 -- Consent of Kramer Levin Naftalis & Frankel LLP (included in Exhibit 5.1).*
24.1 -- Power of Attorney (see page II-5).*
27.1 -- Financial Data Schedule.*
</TABLE>

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

* Previously filed.

II-2
<PAGE>
ITEM 28. UNDERTAKINGS.

(a) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to provisions described in Item 24 above, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

II-3
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of New York,
State of New York, on December 1, 1998.

<TABLE>
<S> <C> <C>
DIRECTRIX, INC.

By: /s/ J. ROGER FAHERTY
-----------------------------------------
J. Roger Faherty
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
</TABLE>

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>

/s/ J. ROGER FAHERTY Chairman of the Board and Chief
------------------------------------------- Executive Officer (Principal December 1, 1998
J. Roger Faherty Executive Officer)

*
------------------------------------------- President and Director December 1, 1998
Donald J. McDonald

Vice President, Chief Financial
* Officer and Treasurer
------------------------------------------- (Principal Financial and December 1, 1998
John R. Sharpe Accounting Officer)

*
------------------------------------------- Director December 1, 1998
Richard Cohen

*
------------------------------------------- Director December 1, 1998
Rudy R. Miller

*
------------------------------------------- Director December 1, 1998
Leland H. Nolan
</TABLE>

* Executed by J. Roger Faherty by power of attorney

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -------------------------------------------------------------------------------------------------
<C> <C> <S>

2.1 -- Form of Transfer and Redemption Agreement between Directrix, Inc. (the "Registrant") and Spice
Entertainment Companies, Inc. ("Spice").*

3.1 -- Certificate of Incorporation of the Registrant.*

3.2 -- By-Laws of the Registrant.*

4.1 -- Form of certificate representing shares of the Registrant's Common Stock.*

5.1 -- Opinion of Kramer Levin Naftalis & Frankel LLP as to legality of securities being offered.*

10.1 -- Form of Satellite Services Agreement between the Registrant and Playboy Entertainment Group,
Inc.*

10.2 -- Form of Explicit Rights Agreement between the Registrant and Spice.*

10.3 -- Form of Owned Rights Agreement between the Registrant and Spice.*

10.4 -- Form of Non-Competition Agreement between the Registrant and New Playboy, Inc.*

10.5 -- Form of Satellite Services Agreement between the Registrant and Califa Entertainment Group, Inc.*

10.6 -- Form of Non-Competition Agreement between the Registrant and Califa Entertainment Group, Inc.*

10.7 -- Form of Employment Agreement between the Registrant and J. Roger Faherty.*

10.8 -- Form of Employment Agreement between the Registrant and Donald McDonald.*

10.9 -- Form of Employment Agreement between the Registrant and John Sharpe.*

10.10 -- Form of Employment Agreement between the Registrant and Richard Kirby.*

10.11 -- 1998 Stock Incentive Plan of the Registrant.*

10.12 -- 1998 Stock Incentive Plan for Outside Directors of the Registrant.*

10.13 -- Commitment Letter Agreement dated July 20, 1998 among the Registrant, J. Roger Faherty, Leland
Nolan and Donald McDonald.*

10.14 -- Form of Loan and Security Agreement among the Registrant, J. Roger Faherty, Leland Nolan and
Donald McDonald.*

23.1 -- Consent of Grant Thornton LLP.

23.2 -- Consent of Kramer Levin Naftalis & Frankel LLP (included in Exhibit 5.1).*

24.1 -- Power of Attorney (see page II-5).*

27.1 -- Financial Data Schedule.*
</TABLE>

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* Previously filed.

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated July 10, 1998, (except for Notes 1,
5, 6 and 10, as to which the date is July 25, 1998) accompanying the
financial statements of Directrix, Inc. contained in the Form SB-2
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Form SB-2 Registration Statement and Prospectus
and to the use of our name as it appears under the caption "Experts."

/s/ Grant Thornton LLP

New York, New York
December 1, 1998