<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 1, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
NEW PLAYBOY, INC.
(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2721 36-4249478
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation Classification
or Organization) Code Number)
</TABLE>
680 NORTH LAKE SHORE DRIVE
CHICAGO, ILLINOIS 60611
(312) 751-8000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
------------------------------
HOWARD SHAPIRO, ESQ.
EXECUTIVE VICE PRESIDENT,
LAW AND ADMINISTRATION, GENERAL COUNSEL AND SECRETARY
PLAYBOY ENTERPRISES, INC.
680 NORTH LAKE SHORE DRIVE
CHICAGO, ILLINOIS 60611
(312) 751-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. HOWARD J. ROTHMAN, ESQ.
JOHN P. MCENROE, ESQ. PAUL S. PEARLMAN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON KRAMER LEVIN NAFTALIS & FRANKEL LLP
1285 AVENUE OF THE AMERICAS 919 THIRD AVENUE
NEW YORK, NEW YORK 10019-6064 NEW YORK, NEW YORK 10022
(212) 373-3000 (212) 715-9100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement and after
all other conditions to the transactions described in the enclosed Proxy
Statement/Prospectus have been satisfied or waived.
------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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 registration statement for the same
offering. / /
- ---------
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED (1) SHARE (2) PRICE (3)
<S> <C> <C> <C> <C>
Class A Common Stock, par value $.01 per share.... 4,748,954 $12.3125 $58,471,496 $16,255
Class B Common Stock, par value $.01 per share.... 18,967,440 $13.8125 $261,987,765 $72,833
</TABLE>
(1) Based upon the maximum number of shares of each series of capital stock
expected to be issued in connection with the transactions described in this
Registration Statement.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). Pursuant to Rule 457(f)(1), the proposed
maximum offering price per share of the Class A Common Stock of the
Registrant is based upon the average of the high and low prices per share of
the Class A Common Stock, par value $.01 per share, of Playboy Enterprises,
Inc. on November 24, 1998 on the New York Stock Exchange. Pursuant to Rule
457(f)(1), the proposed maximum offering price per share of the Class B
Common Stock of the Registrant is based upon the average of the high and low
prices per share of the Class B Common Stock, par value $.01 per share, of
Playboy Enterprises, Inc. on November 24, 1998 on the New York Stock
Exchange.
(3) Pursuant to Rule 457(b), the required fee of $89,088 is reduced by the fee
of $19,958 previously paid at the time of filing of the preliminary proxy
statement materials in connection with this transaction on July 29, 1998,
resulting in a net payment of $69,130.
------------------------------
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, AS AMENDED, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
SPICE ENTERTAINMENT COMPANIES, INC.
536 BROADWAY
NEW YORK, NEW YORK 10012
December 1, 1998
Dear Stockholder:
On May 29, 1998, the Board of Directors of Spice Entertainment Companies,
Inc. ("Spice") approved, and Spice entered into, a Merger Agreement, as amended
as of November 16, 1998 (the "Merger Agreement") with New Playboy, Inc. ("New
Playboy"), Playboy Enterprises, Inc. ("Playboy"), Playboy Acquisition Corp. and
Spice Acquisition Corp. The Board of Directors of Spice is seeking your approval
of this important transaction.
If the merger is effected, Spice will become a subsidiary of New Playboy,
Playboy will become a subsidiary of New Playboy and Spice stockholders will
become stockholders of New Playboy. As more fully set forth in the accompanying
Proxy Statement/Prospectus, in the merger, each share of Spice's common stock
will be converted into the right to receive the "Merger Consideration." The
Merger Consideration will be comprised of (a) $3.60 in cash (subject to increase
if the average closing price of the Class B Common Stock of Playboy on the New
York Stock Exchange during a 20 consecutive day trading period ending five days
prior to the consummation of the merger (the "Average Closing Price") is less
than $13.00), (b) 0.1371 of one share of Class B Common Stock of New Playboy
(subject to adjustment if the Average Closing Price is less than $16.042 or
greater than $20.488), and (c) 0.125 of one share of common stock, par value
$.01 per share ("Directrix Common Stock"), of Directrix, Inc., a recently formed
Delaware corporation and wholly owned subsidiary of Spice ("Directrix").
Immediately after the merger, Spice will not retain any ownership interest in
Directrix, and the stockholders of Spice will own all of the capital stock of
Directrix.
As more fully set forth in the accompanying Proxy Statement/Prospectus, the
Merger Agreement contemplates that, prior to the merger, Spice and its
subsidiaries will contribute certain assets to Directrix, including (i) Spice's
master control and digital playback facility, (ii) an option to acquire Emerald
Media, Inc., a provider of explicit adult television networks, and (iii) certain
rights to Spice's library of adult films, and that Directrix will assume certain
liabilities related to these contributed assets. Following the merger, the
business of New Playboy will be comprised of the businesses currently conducted
by Playboy and Spice, other than the portion of Spice's business to be
contributed to Directrix and the Spice Hot network which will be sold to Califa
Entertainment Group, Inc., a recently formed California corporation, under the
terms and conditions of a separate agreement entered into by Spice
contemporaneously with the execution of the Merger Agreement as described in the
accompanying Proxy Statement/Prospectus.
As a Spice stockholder, you are being asked, at a special meeting of Spice's
stockholders, to approve the merger of a wholly owned subsidiary of New Playboy
into Spice and to adopt the Merger Agreement. The Board of Directors of Spice
has unanimously determined that the merger and the Merger Agreement are in your
best interests and the best interests of Spice, has approved the merger and the
Merger Agreement and unanimously recommends that you vote "FOR" the approval of
the merger and the adoption of the Merger Agreement. More detailed descriptions
of the Merger Agreement, the related agreements and the transactions
contemplated by them are set forth in the accompanying Proxy Statement/
Prospectus, which you should read carefully.
<PAGE>
The Directrix Common Stock is being issued by Directrix pursuant to a
registration statement on Form SB-2. A copy of the prospectus contained within
the registration statement on Form SB-2 (the "Directrix Prospectus") has been
provided along with the accompanying Proxy Statement/Prospectus. The Directrix
Prospectus describes Directrix and the Directrix Common Stock and provides
certain other information required by the Securities Act of 1933, as amended. I
encourage you to read the Directrix Prospectus carefully.
Whether or not you plan to attend the special meeting, please take the time
to vote on the merger and the Merger Agreement proposal submitted to Spice's
stockholders by completing and mailing the enclosed proxy card. As a holder of
Spice common stock, you have certain dissenters' rights of appraisal with
respect to the proposed merger. In order to exercise such rights, you must vote
against approval of the merger or abstain from voting for or against the merger.
If you sign, date and mail your proxy card without indicating how you wish to
vote, your proxy will be counted as a vote in favor of the merger. If you fail
to return a properly executed proxy card, it will have the same effect as a vote
against the merger. Your dissenters' rights of appraisal are governed by
specific legal provisions contained in Section 262 of the Delaware General
Corporation Law, which is described in the accompanying Proxy
Statement/Prospectus.
The date, time and place of the special meeting is:
Wednesday, December 30, 1998
10:00 a.m., local time
The Penn Club
10th Floor Banquet Room
30 West 44th St.
New York, New York 10036
The Proxy Statement/Prospectus provides you with detailed information about
the proposed merger and related transactions. I encourage you to read the
accompanying documents carefully. Should you have any questions about the merger
or any of the related transactions, please contact Daniel J. Barsky at Spice
Entertainment Companies, Inc., (212) 941-1434.
Sincerely,
/s/ J. Roger Faherty
J. Roger Faherty
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 30, 1998
------------------------
Notice is hereby given that a Special Meeting of the Stockholders (the
"Spice Special Meeting") of Spice Entertainment Companies, Inc., a Delaware
corporation ("Spice"), will be held starting at 10:00 a.m., local time, on
Wednesday, December 30, 1998, at The Penn Club, 10th Floor Banquet Room, 30 West
44th St., New York, New York 10036 for the following purposes:
1. To approve and adopt (a) an Agreement and Plan of Merger, dated as
of May 29, 1998, as amended as of November 16, 1998 (the "Merger
Agreement"), by and among Spice, Playboy Enterprises, Inc., a Delaware
corporation ("Playboy"), New Playboy, Inc., a Delaware corporation and
wholly owned subsidiary of Playboy ("New Playboy"), Playboy Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of New Playboy
("Playboy Merger Corp."), and Spice Acquisition Corp., a Delaware
corporation and wholly owned subsidiary of New Playboy ("Spice Merger
Corp."), under which, among other things, Spice will merge with Spice Merger
Corp. (the "Spice Merger"), and (b) the Spice Merger; and
2. To transact such other business as may properly come before the
Spice Special Meeting or any adjournment or postponement of it.
As more fully set forth in the accompanying Proxy Statement/Prospectus, the
Merger Agreement provides that, in the Spice Merger, each outstanding share of
Common Stock, par value $.01 per share, of Spice ("Spice Common Stock"), other
than shares with respect to which appraisal rights are properly exercised, will
be converted into the right to receive (a) $3.60 in cash (subject to increase if
the average closing price of the Class B Common Stock of Playboy on the New York
Stock Exchange during a 20 consecutive trading day period ending five days prior
to the consummation of the Spice Merger (the "Average Closing Price") is less
then $13.00), (b) 0.1371 of one share of Class B Common Stock of New Playboy
(subject to adjustment if the Average Closing Price is less than $16.042 or
greater than $20.488), and (c) 0.125 of one share of Common Stock, par value
$.01 per share ("Directrix Common Stock"), of Directrix, Inc., a recently formed
Delaware corporation and a wholly owned subsidiary of Spice ("Directrix").
Immediately after the Spice Merger, Spice will not retain any ownership interest
in Directrix, and the stockholders of Spice will own all of the capital stock of
Directrix.
As more fully set forth in the accompanying Proxy Statement/Prospectus, the
Merger Agreement also contemplates that, prior to the Spice Merger, Spice and
its subsidiaries will contribute certain assets to Directrix, including (i)
Spice's master control and digital playback facility, (ii) an option to acquire
Emerald Media, Inc., a provider of explicit adult television networks, and (iii)
certain rights to Spice's library of adult films, and that Directrix will assume
certain liabilities related to these contributed assets. Following the Spice
Merger, the business of New Playboy will be comprised of the businesses
currently conducted by Playboy and Spice, other than the portion of Spice's
business to be contributed to Directrix and the Spice Hot network which will be
sold to Califa Entertainment Group, Inc., a recently formed California
corporation, under the terms and conditions of a separate agreement entered into
by Spice contemporaneously with the execution of the Merger Agreement as
described in the accompanying Proxy Statement/Prospectus.
The terms of the Merger Agreement and the transactions contemplated by it,
as well as the Class B Common Stock to be issued by New Playboy as provided in
the Merger Agreement, are described in detail in the accompanying Proxy
Statement/Prospectus. Directrix and the Directrix Common Stock are described in
detail in a separate prospectus provided along with the accompanying Proxy
Statement/ Prospectus.
To ensure that your vote will be counted, please complete, sign and date the
enclosed proxy card or voting instruction and return it promptly in the enclosed
postage prepaid envelope, whether or not you plan to attend the Spice Special
Meeting. You may revoke your proxy in the manner described in the
<PAGE>
accompanying Proxy Statement/Prospectus at any time before the Merger Agreement
and the Spice Merger are voted on at the Spice Special Meeting.
Only stockholders of record of Spice at the close of business on November
19, 1998, the record date for the Spice Special Meeting (the "Spice Record
Date"), are entitled to notice of and to vote at the Spice Special Meeting or at
any postponement or adjournment of it. Attendance at the Spice Special Meeting
will be limited to stockholders of record on the Spice Record Date, or their
proxies, beneficial owners having evidence of ownership on that date and invited
guests of Spice.
By Order of the Board of Directors,
/s/ Daniel J. Barsky
Daniel J. Barsky
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
New York, New York
December 1, 1998
IMPORTANT
Whether or not you plan to attend the Spice Special Meeting in person,
please complete, sign, date and return the enclosed proxy card as soon as
possible. A return envelope is provided for your convenience. You may revoke
your proxy at any time before it is voted by delivering to the Secretary of
Spice at 536 Broadway, 7th Floor, New York, New York 10012, Attention:
Secretary, a signed notice of revocation or a later dated signed proxy card, or
by attending the Spice Special Meeting and voting in person.
DO NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXY CARD.
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC.
PROXY STATEMENT
FOR A SPECIAL MEETING OF
STOCKHOLDERS OF SPICE ENTERTAINMENT COMPANIES, INC.
TO BE HELD ON DECEMBER 30, 1998
------------------------
NEW PLAYBOY, INC.
(TO BE RENAMED "PLAYBOY ENTERPRISES, INC." UPON CONSUMMATION OF THE TRANSACTIONS
DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS)
PROSPECTUS
------------------------
This Proxy Statement/Prospectus is being furnished to holders of Common
Stock, par value $.01 per share ("Spice Common Stock"), of Spice Entertainment
Companies, Inc., a Delaware corporation ("Spice"), in connection with the
solicitation of proxies by the Board of Directors of Spice (the "Spice Board")
for use at the Special Meeting of Stockholders of Spice to be held on December
30, 1998, or any adjournment or postponement of it (the "Spice Special
Meeting").
The Spice Special Meeting has been called to approve and adopt (a) an
Agreement and Plan of Merger, dated as of May 29, 1998, as amended as of
November 16, 1998 (the "Merger Agreement"), by and among Spice, Playboy
Enterprises, Inc., a Delaware corporation ("Playboy"), New Playboy, Inc., a
Delaware corporation and a wholly owned subsidiary of Playboy ("New Playboy"),
Playboy Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of New Playboy ("Playboy Merger Corp."), and Spice Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of New Playboy ("Spice Merger Corp."),
under which Spice Merger Corp. will merge into Spice (the "Spice Merger") and
Playboy Merger Corp. will merge into Playboy (the "Playboy Merger" and, together
with the Spice Merger, the "Mergers"), and (b) the Spice Merger.
The Playboy Merger, the Spice Merger and the other transactions contemplated
by the Merger Agreement, as described in this Proxy Statement/Prospectus
(including the Contribution and the Share Transfer described below), are
collectively referred to in this Proxy Statement/Prospectus as the
"Transactions." As a result of the Mergers, Playboy and Spice will each become
wholly owned subsidiaries of New Playboy.
The Merger Agreement contemplates, among other things, that, prior to the
Spice Merger, Spice and its subsidiaries will contribute (the "Contribution")
certain assets to Directrix, Inc., a recently formed Delaware corporation and a
wholly owned subsidiary of Spice ("Directrix"), including (a) Spice's master
control and digital playback facility, (b) an option to acquire Emerald Media,
Inc. ("EMI"), a provider of explicit adult television networks, and (c) certain
rights to Spice's library of adult films. As consideration for the contributed
assets, Directrix will assume certain liabilities related to the contributed
assets and will issue shares of Common Stock, par value $.01 per share, of
Directrix ("Directrix Common Stock").
Immediately after the Contribution and as part of the consideration to be
given in the Spice Merger, Spice will transfer (the "Share Transfer") to its
stockholders, in partial exchange for their shares of capital stock, all of the
Directrix Common Stock it received in the Contribution. Upon consummation of the
Share Transfer, Spice will retain no ownership interest in Directrix, and the
stockholders of Spice will own all of the capital stock of Directrix.
Consummation of the Contribution and the Share Transfer are conditions to the
Mergers.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE DIRECTRIX COMMON STOCK IS BEING ISSUED UNDER THE DIRECTRIX PROSPECTUS
AND NOT UNDER THIS PROXY STATEMENT/PROSPECTUS.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 1, 1998.
<PAGE>
In the Spice Merger, each outstanding share of Spice Common Stock will be
converted into the right to receive (a) $3.60 in cash (subject to increase if
the average closing price of the Class B Common Stock of Playboy on the New York
Stock Exchange during a 20 consecutive trading day period ending five days prior
to consummation of the Mergers (the "Average Closing Price") is less than
$13.00), (b) 0.1371 of one share of Class B Common Stock of New Playboy (subject
to adjustment if the Average Closing Price is less than $16.042 or greater than
$20.488), and (c) 0.125 of one share of Directrix Common Stock. If the Average
Closing Price is less than $13.00, Playboy has the option to deliver a portion
of the value of the Class B Common Stock of New Playboy in cash. If the Average
Closing Price is less than $16.042, each share of Spice Common Stock will be
converted into that number of shares of Class B Common Stock of New Playboy
equal to $2.20 and, if the Average Closing Price is greater than $20.488, each
share of Spice Common Stock will be converted into that number of shares of
Class B Common Stock of New Playboy equal to $2.81. See "The Merger
Agreement--Conversion of Spice Common Stock."
Following the Transactions, 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 to Directrix in the Contribution
and to be sold to Califa Entertainment Group, Inc. as described under "Business
of Spice--Spice Hot Asset Purchase Agreement."
This Proxy Statement/Prospectus also constitutes the prospectus of New
Playboy with respect to (a) the shares of Class A Common Stock, par value $.01
per share, of New Playboy ("New Playboy Class A Common Stock") into which the
outstanding shares of Class A Common Stock, par value $.01 per share, of Playboy
("Playboy Class A Common Stock") will be converted upon consummation of the
Playboy Merger, (b) the shares of Class B Common Stock, par value $.01 per
share, of New Playboy ("New Playboy Class B Common Stock" and, collectively with
the New Playboy Class A Common Stock, "New Playboy Capital Stock"), into which
the outstanding shares of Class B Common Stock, par value $.01 per share, of
Playboy ("Playboy Class B Common Stock" and, collectively with the Playboy Class
A Common Stock, "Playboy Capital Stock") will be converted upon consummation of
the Playboy Merger, and (c) the shares of New Playboy Class B Common Stock that
will be issued in connection with the Spice Merger.
The Directrix Common Stock is being issued by Directrix under a registration
statement on Form SB-2. A copy of the prospectus included in that registration
statement (the "Directrix Prospectus") has been provided along with this Proxy
Statement/Prospectus to each holder of Spice Common Stock. The Directrix
Prospectus provides a description of Directrix and the Directrix Common Stock,
as well as certain other information required by the Securities Act of 1933, as
amended (the "Securities Act"). Each holder of Spice Common Stock is urged to
read the Directrix Prospectus in its entirety. THE INFORMATION PROVIDED IN THE
DIRECTRIX PROSPECTUS IS THE SOLE RESPONSIBILITY OF DIRECTRIX. NO PERSONS HAVE
BEEN AUTHORIZED BY NEW PLAYBOY, PLAYBOY OR SPICE TO GIVE ANY INFORMATION OR MAKE
ANY REPRESENTATION REGARDING THE DIRECTRIX COMMON STOCK AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY NEW PLAYBOY, PLAYBOY OR SPICE. SPICE EXPECTS THAT THE DIRECTRIX
COMMON STOCK WILL BE TRADED ON THE NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. ("NASD") OTC BULLETIN BOARD.
This Proxy Statement/Prospectus, accompanying forms of proxy and voting
instructions, and the Directrix Prospectus are first being mailed to the
stockholders of Spice on or about December 1, 1998.
Playboy Class A Common Stock and Playboy Class B Common Stock are traded on
the New York Stock Exchange, Inc. ("NYSE") under the symbols "PLAA" and "PLA,"
respectively, and are also traded on the Pacific Exchange, Inc. ("PE"). On
November 30, 1998, the closing prices on the NYSE for Playboy Class A Common
Stock and Playboy Class B Common Stock were $13 7/16 and $15 7/16 per share,
respectively. Spice Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") Small-Cap Market under
the symbol "SPZE." On November 30, 1998, the closing price for Spice Common
Stock was $5 9/32 per share.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS
AND THE DIRECTRIX PROSPECTUS. THE STOCKHOLDERS OF SPICE ENTERTAINMENT COMPANIES,
INC. ARE URGED TO READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/ PROSPECTUS
IN ITS ENTIRETY, INCLUDING THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS PROXY
STATEMENT/PROSPECTUS UNDER "RISK FACTORS," AND THE DIRECTRIX PROSPECTUS IN ITS
ENTIRETY, INCLUDING THE RISK FACTORS BEGINNING ON PAGE 7 OF THE DIRECTRIX
PROSPECTUS UNDER "RISK FACTORS."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION...................................................................................... 1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
SUMMARY.................................................................................................... 4
RISK FACTORS............................................................................................... 16
Risks Arising From the Transactions...................................................................... 16
Controlling Stockholder and Liquidity.................................................................... 17
Voting Rights............................................................................................ 17
Government Regulation.................................................................................... 17
Access to Distribution................................................................................... 18
Paper Prices and Postal Rates............................................................................ 20
Historical Performance No Indication..................................................................... 20
Forward-Looking Statements............................................................................... 20
Year 2000................................................................................................ 20
Playboy's Option to Not Consummate the Mergers........................................................... 21
THE SPICE MEETING.......................................................................................... 22
Date, Time and Place; Purpose of Meeting................................................................. 22
Record Date.............................................................................................. 22
Proxies; Voting and Revocation........................................................................... 22
Quorum................................................................................................... 23
Required Votes; Principal Stockholders................................................................... 23
Solicitation of Proxies.................................................................................. 24
THE TRANSACTIONS........................................................................................... 25
Background of the Transactions........................................................................... 25
Recommendation of the Spice Board; Spice's Reasons for the Spice Merger.................................. 27
Opinion of Spice's Financial Advisor..................................................................... 29
Purpose and Certain Effects of the Transactions.......................................................... 35
Interests of Certain Persons in the Transactions......................................................... 35
Federal Income Tax Consequences.......................................................................... 38
Regulatory Approvals..................................................................................... 41
Accounting Treatment..................................................................................... 41
Certain Fees and Expenses................................................................................ 41
Stock Exchange Listing................................................................................... 41
Federal Securities Laws Consequences..................................................................... 42
Appraisal and Dissenters' Rights......................................................................... 42
THE MERGER AGREEMENT....................................................................................... 45
The Mergers.............................................................................................. 45
Conversion of Playboy Capital Stock...................................................................... 45
Conversion of Spice Common Stock......................................................................... 45
Treatment of Playboy Options............................................................................. 46
Treatment of Spice Options and Warrants.................................................................. 47
Treatment of Spice Convertible Preferred Stock........................................................... 47
Exchange of Certificates................................................................................. 47
Representations and Warranties........................................................................... 48
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Certain Covenants........................................................................................ 49
Conditions to the Mergers................................................................................ 51
Termination of the Merger Agreement...................................................................... 52
Fees and Expenses........................................................................................ 53
Effects of Termination................................................................................... 53
OTHER TRANSACTION AGREEMENTS............................................................................... 54
The Transfer and Redemption Agreement (the Contribution and the Share Transfer).......................... 54
The Non-Competition Agreements........................................................................... 58
The Mandatory Services Agreement......................................................................... 59
BUSINESS OF PLAYBOY........................................................................................ 60
Publishing............................................................................................... 61
Entertainment............................................................................................ 61
Product Marketing........................................................................................ 62
Catalog.................................................................................................. 62
Casino Gaming............................................................................................ 63
Playboy Online........................................................................................... 63
BUSINESS OF SPICE.......................................................................................... 64
Spice Networks........................................................................................... 64
Spice International...................................................................................... 64
Spice Direct............................................................................................. 65
Spice Productions........................................................................................ 65
Network Delivery......................................................................................... 66
Spice Hot Asset Purchase Agreement....................................................................... 67
BUSINESS OF NEW PLAYBOY.................................................................................... 68
BUSINESS OF DIRECTRIX...................................................................................... 68
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION................................................ 69
Possible Delisting of Spice Common Stock if the Mergers are Not Consummated.............................. 70
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................................................ 71
MANAGEMENT OF NEW PLAYBOY.................................................................................. 81
DESCRIPTION OF NEW PLAYBOY CAPITAL STOCK................................................................... 81
DESCRIPTION OF DIRECTRIX CAPITAL STOCK..................................................................... 84
SHARE OWNERSHIP OF SPICE COMMON STOCK BY DIRECTORS, PRINCIPAL STOCKHOLDERS AND MANAGEMENT.................. 84
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW PLAYBOY AND PLAYBOY............................................ 86
COMPARISON OF RIGHTS OF STOCKHOLDERS OF NEW PLAYBOY AND SPICE.............................................. 86
Comparison of the Organizational Documents............................................................... 86
Spice Rights Agreement................................................................................... 88
CERTAIN BUSINESS RELATIONSHIPS............................................................................. 90
LEGAL MATTERS.............................................................................................. 90
EXPERTS.................................................................................................... 90
</TABLE>
<TABLE>
<S> <C> <C>
Appendix A-1 -- Merger Agreement
Appendix A-2 -- Amendment to the Merger Agreement
Appendix A-3 -- Transfer and Redemption Agreement
Appendix B -- Amended and Restated Certificate of Incorporation of New Playboy
Appendix C-1 -- Opinion of ING Barings Furman Selz LLC
Appendix C-2 -- Reaffirmation of Opinion of ING Barings Furman Selz LLC
Appendix D -- Section 262 of the General Corporation Law of the State of Delaware
</TABLE>
ii
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS PROXY
STATEMENT/PROSPECTUS AND, IF SO GIVEN OR MADE, THE INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NEW PLAYBOY, PLAYBOY OR
SPICE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR THE SALE OF ANY SECURITIES UNDER IT SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF NEW PLAYBOY, PLAYBOY OR SPICE SINCE ITS DATE OR THAT THE INFORMATION
IN IT IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Playboy and Spice are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance with the Exchange Act file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
reports, proxy statements and other information filed with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549 and at the following Regional Offices of the Commission: (a) 7 World
Trade Center, Suite 1300, New York, New York 10048, and (b) Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the filed
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed
rates. The Commission maintains a Web Site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
The Playboy Class A Common Stock and Playboy Class B Common Stock are listed
on the NYSE, and the filed material relating to Playboy may also be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005. The Spice
Common Stock is listed on the NASDAQ Small-Cap Market, and the filed material
relating to Spice may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C.
20006. After consummation of the Transactions, Playboy and Spice may no longer
file reports, proxy statements or other information with the Commission.
Instead, that information would be provided, to the extent required, in filings
made by New Playboy.
New Playboy has filed with the Commission a registration statement on Form
S-4 (together with all amendments, exhibits and schedules to it, the "S-4
Registration Statement") under the Securities Act, relating to (a) the shares of
New Playboy Class A Common Stock into which shares of Playboy Class A Common
Stock will be converted upon consummation of the Playboy Merger, (b) the shares
of New Playboy Class B Common Stock into which shares of Playboy Class B Common
Stock will be converted upon consummation of the Playboy Merger, and (c) the
shares of the New Playboy Class B Common Stock which will be issued in
connection with the Spice Merger. See "The Merger Agreement." This Proxy
Statement/Prospectus does not contain all of the information set forth in the
S-4 Registration Statement, certain portions of which are omitted in accordance
with the rules and regulations of the Commission. The additional information is
available for inspection and copying at the offices of the Commission.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference into this Proxy Statement/Prospectus, relating to the
contents of any other document referred to in this Proxy Statement/ Prospectus
or those other incorporated documents, are not necessarily complete. In each
instance, reference is made to the copy of that other document filed as an
exhibit to the S-4 Registration Statement or other incorporated document, each
statement being qualified in all respects by that reference.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in this Proxy Statement/Prospectus or
incorporated by reference that are not related to historical results are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act and involve risks and uncertainties.
Although New
<PAGE>
Playboy believes that the assumptions on which these forward-looking statements
are based are reasonable, there can be no assurance that the assumptions will
prove to be accurate and actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to differences include, but are not limited to:
- those discussed under the captions "Risk Factors," "The
Transactions--Background of the Transactions," "Business of Playboy" and
"Business of Spice;"
- government actions or initiatives, including those attempting to limit or
otherwise regulate (a) the sale of adult-oriented materials, including
print, video and on-line materials, (b) businesses such as casino gaming,
or (c) the advertisement of tobacco products;
- substantive changes in postal regulations or rates;
- increases in paper prices;
- changes in distribution technology and/or unforeseen delays in the
implementation of that technology by the cable and satellite industries,
which might affect New Playboy's plans and assumptions regarding carriage
of its program services;
- increased competition for advertisers from other publications and media or
any significant decrease in spending by advertisers generally or with
respect to the adult male market;
- increased competition for transponders and channel space and any decline
in New Playboy's access to, and acceptance by, cable systems and
direct-to-home satellite systems;
- the effects of consolidation taking place nationally in the single-copy
magazine distribution system;
- new competition in the adult cable television market;
- uncertainty of market acceptance of the Internet as a medium for
information, entertainment, e-commerce and advertising, an increasingly
competitive environment for advertising sales, the impact of competition
from other content and merchandise providers, as well as Playboy's
reliance on third parties for technology and distribution for its online
business; and
- potential adverse effects of unresolved Year 2000 problems including
external key suppliers.
All forward-looking statements contained in this Proxy Statement/Prospectus
are qualified in their entirety by this cautionary statement. New Playboy does
not intend to update or otherwise revise the forward-looking statements to
reflect events or circumstances after the date of this Proxy Statement/
Prospectus or to reflect the occurrence of unanticipated events.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
On November 6, 1997, the Board of Directors of Playboy (the "Playboy Board")
approved a change in Playboy's fiscal year end from June 30 to December 31. The
six-month transition period from July 1, 1997 through December 31, 1997 precedes
the start of the 1998 calendar and fiscal year. The following documents
previously filed by Playboy with the Commission under the Exchange Act are
incorporated by reference:
(a) Playboy's Transition Report on Form 10-K for the transition period ended
December 31, 1997, as amended (the "Playboy Form 10-K");
(b) Playboy's Quarterly Report on Form 10-Q for each of the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998 (the "Playboy Forms 10-Q");
and
(c) Playboy's Current Reports on Forms 8-K filed with the Commission on
February 5, 1998 and June 29, 1998 (the "Playboy Forms 8-K" and, collectively
with the Playboy Form 10-K and the Playboy Forms 10-Q, the "Playboy Reports").
2
<PAGE>
The following documents previously filed by Spice with the Commission under
the Exchange Act are incorporated by reference:
(a) Spice's Annual Report on Form 10-K for the year ended December 31, 1997
(the "Spice Form 10-K");
(b) Spice's Quarterly Report on Form 10-Q for each of the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998 (the "Spice Forms 10-Q");
and
(c) Spice's Current Reports on Forms 8-K filed with the Commission on
February 6, 1998 and June 11, 1998 (the "Spice Forms 8-K" and, collectively with
the Spice Form 10-K and the Spice Forms 10-Q, the "Spice Reports").
This Proxy Statement/Prospectus is accompanied by the Spice Form 10-K and
Spice's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.
All documents filed by Playboy or Spice as provided in Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the Spice Special Meeting shall be deemed to
be incorporated by reference into this Proxy Statement/Prospectus and to be a
part of it from the date of filing of those documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Proxy Statement/Prospectus shall be deemed to
be modified or superseded to the extent that a statement contained in it (or in
any other subsequently filed document that is or is deemed to be incorporated by
reference) modifies or supersedes the previous statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus except as so modified or superseded.
All information contained or incorporated by reference in this Proxy
Statement/Prospectus relating to Playboy, New Playboy, Playboy Merger Corp. and
Spice Merger Corp. has been supplied by Playboy, and all information relating to
Spice and Directrix has been supplied by Spice.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN IT OR DELIVERED WITH IT. THESE DOCUMENTS ARE AVAILABLE,
WITHOUT CHARGE, UPON ORAL OR WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS HAS BEEN DELIVERED, IN THE CASE OF DOCUMENTS RELATING TO
NEW PLAYBOY OR PLAYBOY, FROM PLAYBOY ENTERPRISES, INC., 680 NORTH LAKE SHORE
DRIVE, CHICAGO, ILLINOIS 60611, ATTENTION: INVESTOR RELATIONS DEPARTMENT,
TELEPHONE NUMBER (312) 751-8000, AND, IN THE CASE OF DOCUMENTS RELATING TO SPICE
OR DIRECTRIX, FROM SPICE ENTERTAINMENT COMPANIES, INC., 536 BROADWAY, 7TH FLOOR,
NEW YORK, NEW YORK 10012, ATTENTION: DANIEL J. BARSKY, TELEPHONE NUMBER (212)
941-1434. IN ORDER TO ENSURE TIMELY DELIVERY OF DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY DECEMBER 20, 1998.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS INTENDED ONLY TO HIGHLIGHT CERTAIN INFORMATION
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT
INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, ITS
APPENDICES AND THE DOCUMENTS INCORPORATED BY REFERENCE OR OTHERWISE REFERRED TO
IN IT. STOCKHOLDERS OF SPICE ARE URGED TO REVIEW THIS ENTIRE PROXY
STATEMENT/PROSPECTUS CAREFULLY, INCLUDING THE APPENDICES AND OTHER DOCUMENTS.
SPICE STOCKHOLDERS ARE ALSO URGED TO REVIEW THE ENTIRE DIRECTRIX PROSPECTUS.
INTRODUCTION AND OVERVIEW OF THE TRANSACTIONS
As a result of the Transactions, Playboy and Spice will each become wholly
owned subsidiaries of New Playboy, which will be renamed "Playboy Enterprises,
Inc.," and the capital stock of Directrix, a recently formed Delaware
corporation and a wholly owned subsidiary of Spice, will be distributed to the
former stockholders of Spice. Former stockholders of Playboy and former
stockholders of Spice will become stockholders of New Playboy. In the Playboy
Merger, (a) each outstanding share of Playboy Class A Common Stock will be
converted into one share of New Playboy Class A Common Stock, and (b) each
outstanding share of Playboy Class B Common Stock will be converted into one
share of New Playboy Class B Common Stock. In the Spice Merger, each outstanding
share of Spice Common Stock will be converted into the right to receive (i)
$3.60 in cash (subject to increase if the Average Closing Price is less than
$13.00), (ii) 0.1371 of one share of New Playboy Class B Common Stock (subject
to adjustment if the Average Closing Price is less than $16.042 or greater than
$20.488), and (iii) 0.125 of one share of Directrix Common Stock (collectively,
the "Merger Consideration"). Each outstanding share of Convertible Preferred
Stock Series 1997-A, par value $.01 per share, of Spice ("Spice Convertible
Preferred Stock" and, collectively with Spice Common Stock, "Spice Capital
Stock") will be converted into the right to receive the amount of Merger
Consideration that the holder of that share would have been entitled to receive
had that share been converted into shares of Spice Common Stock immediately
prior to consummation of the Mergers.
The Merger Agreement contemplates that, prior to the Spice Merger, Spice and
its subsidiaries will contribute certain assets to Directrix, including (a)
Spice's master control and digital playback facility, (b) an option to acquire
EMI, and (c) certain rights to Spice's library of adult films. Directrix will
also assume certain liabilities related to the contributed assets. Following the
Transactions, 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 to Directrix in the Contribution and to be sold to
Califa Entertainment Group, Inc., as described under "Business of Spice--Spice
Hot Asset Purchase Agreement."
In this Proxy Statement/Prospectus, the Merger Agreement and the other
agreements described under "Other Transaction Agreements" are referred to
collectively as the "Transaction Agreements." STOCKHOLDERS OF SPICE ARE URGED TO
REVIEW CAREFULLY THE DESCRIPTIONS OF THE TRANSACTION AGREEMENTS SET FORTH UNDER
"THE MERGER AGREEMENT" AND "OTHER TRANSACTION AGREEMENTS," AND IN THE DIRECTRIX
PROSPECTUS. Copies of the Merger Agreement, the Amendment to the Merger
Agreement and the Transfer and Redemption Agreement (as defined under "Other
Transaction Agreements") are attached as Appendices A-1, A-2 and A-3,
respectively, and are incorporated by reference.
The diagrams set forth below illustrate the ownership of New Playboy,
Playboy, Spice and Directrix both before and after consummation of the
Transactions.
4
<PAGE>
[Chart illustrating ownership structure of Playboy,
New Playboy, Playboy Merger Corp., Spice
Merger Corp., Spice and Directrix before and after
consummation of the Transactions]
5
<PAGE>
<TABLE>
<S> <C>
THE COMPANIES
Playboy Enterprises, Inc................ Playboy is an international multi-media
680 North Lake Shore Drive entertainment company with one of the most
Chicago, Illinois 60611 recognized brands in the world. PLAYBOY magazine
(312) 751-8000 is the world's best-selling men's magazine and has
facilitated Playboy's expansion into other lines
of business such as television programming and
networks, home videos, product marketing and
direct mail catalogs, casino gaming and on-line
services.
Spice Entertainment Companies, Inc...... Spice is one of the leading international
536 Broadway, 7th Floor providers of adult television entertainment.
New York, New York 10012 Formed in 1987, the Spice networks and programming
(212) 941-1434 are available in more than 50 countries and on the
Internet. Spice operates through four business
units: (a) Spice Networks--domestic adult
pay-per-view networks; (b) Spice International--
international adult networks and programming; (c)
Spice Direct--direct to the consumer products and
services; and (d) Spice Productions--adult film
production and licensing.
New Playboy, Inc........................ New Playboy is currently a wholly owned subsidiary
680 North Lake Shore Drive of Playboy that does not conduct any substantial
Chicago, Illinois 60611 business activities. As a result of the
(312) 751-8000 Transactions, Playboy and Spice will each become
wholly owned subsidiaries of New Playboy.
Accordingly, after consummation of the
Transactions, 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 to Directrix in
the Contribution and to be sold to Califa
Entertainment Group, Inc. as described under
"Business of Spice--Spice Hot Asset Purchase
Agreement."
Directrix, Inc.......................... Directrix will be the successor in interest to
536 Broadway, 10th Floor certain assets of Spice and will assume certain of
New York, New York 10012 the liabilities related to those assets. Directrix
is a newly formed subsidiary of Spice that will,
upon consummation of the Transactions, own (a)
Spice's master control and digital playback
facility, (b) an option to acquire EMI, and (c)
certain rights to Spice's library of adult films.
See "Business of Spice," "Other Transaction
Agreements" and the Directrix Prospectus.
THE SPICE SPECIAL MEETING
Time, Place and Date.................... The Spice Special Meeting will be held at The Penn
Club, 10th Floor Banquet Room, 30 West 44th St.,
New York, New York 10036 on Wednesday, December
30, 1998, starting at 10:00 a.m. local time.
Record Date, Shares Entitled to Vote.... Holders of record of Spice Common Stock at the
close of business on November 19, 1998, are
entitled to notice of
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
and to vote at the Spice Special Meeting. At the
close of business on that date, there were
12,243,395 shares of Spice Common Stock
outstanding and entitled to vote.
Approval of the Merger Agreement and
the Spice Merger...................... Under the Certificate of Incorporation of Spice,
as amended, and the General Corporation Law of the
State of Delaware, the affirmative vote, in person
or by proxy, of the holders of a majority in
voting power of all of the outstanding shares of
Spice Common Stock is required to approve the
Merger Agreement and the Spice Merger.
Recommendations of the Spice Board...... The Spice Board has unanimously approved the
Merger Agreement and the Spice Merger and
determined that the Spice Merger is fair to and in
the best interests of Spice and its stockholders.
The Spice Board unanimously recommends that
stockholders of Spice vote FOR the Merger
Agreement and the Spice Merger.
Opinion of Financial Advisor to Spice... On May 29, 1998, ING Barings Furman Selz LLC ("ING
Barings"), financial advisor to Spice, delivered
an oral opinion to the board of directors of
Spice, which was subsequently confirmed in writing
as of that date, that, based upon and subject to
the matters set forth in its written opinion, the
cash and shares of New Playboy Class B Common
Stock to be received from Playboy by the holders
of Spice Capital Stock as part of the Merger
Consideration was fair from a financial point of
view to the holders of Spice Capital Stock. On
November 16, 1998, ING Barings reaffirmed its
opinion in light of the Amendment to the Merger
Agreement. The full text of the opinion of ING
Barings, which sets forth the assumptions made,
matters considered and limits of the review
undertaken by ING Barings, is attached as Appendix
C-1 and the full text of the reaffirmation of the
opinion of ING Barings is attached as Appendix
C-2, and should be read carefully in its entirety
by Spice stockholders. THE OPINION OF ING BARINGS
IS DIRECTED TO THE SPICE BOARD AND RELATES ONLY TO
THE MATTERS DESCRIBED ABOVE. THE OPINION OF ING
BARINGS DOES NOT ADDRESS THE CONTRIBUTION, THE
SHARE TRANSFER, THE OTHER TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT OR ANY OTHER
ASPECT OF THE TRANSACTIONS, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS
TO HOW THAT STOCKHOLDER SHOULD VOTE AT THE SPICE
SPECIAL MEETING. See "The Transactions--Opinion of
Spice's Financial Advisor."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
THE TRANSACTIONS
Purpose of the Transactions............. The purpose of the Transactions is (a) to combine
Playboy and Spice, (b) to create a new company,
Directrix, which will contain certain of the
existing assets and liabilities of Spice, and (c)
to distribute the Directrix Common Stock to the
stockholders of Spice.
Effect of the Transactions upon
Playboy............................... Upon consummation of the Playboy Merger, (a)
Playboy Merger Corp. will have merged into
Playboy, (b) each issued and outstanding share of
Playboy Class A Common Stock, other than shares
held directly or indirectly by Playboy, will be
converted into one share of a substantially
identical series of New Playboy Class A Common
Stock and, upon conversion, all the shares of
Playboy Class A Common Stock will be canceled and
retired and will cease to exist, and (c) each
issued and outstanding share of Playboy Class B
Common Stock, other than shares held directly or
indirectly by Playboy, will be converted into one
share of a substantially identical series of New
Playboy Class B Common Stock and, upon conversion,
all the shares of Playboy Class B Common Stock
will be canceled and retired and will cease to
exist. As a result of the Playboy Merger, Playboy
will become a wholly owned subsidiary of New
Playboy.
Effect of the Transactions upon Spice... Upon consummation of the Spice Merger, (a) Spice
Merger Corp. will have been merged into Spice, and
(b) each issued and outstanding share of Spice
Common Stock, other than shares held in the
treasury of Spice and shares with respect to which
appraisal rights are exercised and perfected, will
be converted into the right to receive: (i) $3.60
in cash (subject to increase if the Average
Closing Price is less than $13.00); (ii) 0.1371 of
one share of New Playboy Class B Common Stock
(subject to adjustment if the Average Closing
Price is either less than $16.042 or greater than
$20.488); and (iii) 0.125 of one share of
Directrix Common Stock. Upon conversion, all the
shares of Spice Common Stock will be canceled and
retired and will cease to exist. As a result of
the Spice Merger, Spice will become a wholly owned
subsidiary of New Playboy. See "The Merger
Agreement--Conversion of Spice Common Stock."
Treatment of Playboy Options............ At the Effective Time of the Mergers (as defined
under "The Merger Agreement--The Mergers"), each
outstanding option to purchase shares of Playboy
Class A Common Stock or Playboy Class B Common
Stock will be assumed by New Playboy and converted
into an option to purchase shares of New Playboy
Class A Common Stock or New Playboy Class B Common
Stock, respectively, on substantially the same
terms and conditions as in effect immediately
prior to the Effective Time of the Mergers.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
See "The Merger Agreement--Treatment of Playboy
Options."
Treatment of Spice Options and
Warrants.............................. At the Effective Time of the Mergers, each option
or warrant to purchase shares of Spice Common
Stock will be deemed to have been 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 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. See "The Merger
Agreement--Treatment of Spice Options and
Warrants."
Treatment of Spice Convertible Preferred
Stock................................. At the Effective Time of the Mergers, each
outstanding share of Spice Convertible 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 that share would
have been entitled to receive had that share been
converted into shares of Spice Common Stock.
Interests of Certain Persons in the
Mergers............................... In considering the recommendations of the Spice
Board with respect to the Merger Agreement and the
Spice Merger, stockholders should be aware that
certain members of Spice's management, some of
whom are members of the Spice Board, have certain
interests in the Transactions that are in addition
to the interests of stockholders of Spice
generally. Certain of these persons will receive
substantial cash payments in connection with the
Transactions. The Spice Board was aware of these
interests and considered them, among other
matters, in approving the Merger Agreement and the
Spice Merger. See "The Transactions--Interests of
Certain Persons in the Transactions."
Conditions to the Mergers............... See "The Merger Agreement--Conditions to the
Mergers."
Material Differences between Rights of
New Playboy Stockholders and
Spice Stockholders.................... See "Comparison of Rights of Stockholders of New
Playboy and Spice."
Appraisal and Dissenters' Rights........ Holders of shares of Playboy Capital Stock are not
entitled to appraisal or dissenters' rights in
connection with the Playboy Merger.
Holders of shares of Spice Common Stock who do not
vote in favor of the Merger Agreement and the
Spice Merger and who otherwise comply with the
applicable procedures in Section 262 of the
General Corporation Law of the State of Delaware
will be entitled to appraisal
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
rights. Holders of shares of Spice Convertible
Preferred Stock will also be entitled to appraisal
rights under Section 262. See "The
Transactions--Appraisal and Dissenters' Rights."
Federal Income Tax Consequences......... It is a condition to the consummation of the
Playboy Merger that Playboy receive an opinion
from Paul, Weiss, Rifkind, Wharton & Garrison,
counsel to Playboy, to the effect that the Playboy
Merger will be treated for U.S. Federal income tax
purposes as a transfer of property governed by
Section 351 of the Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, except as
described below and subject to the qualifications
set forth under "The Transactions--Federal Income
Tax Consequences--Playboy Merger," no gain or loss
will be recognized as a result of the Playboy
Merger by (a) New Playboy, (b) Playboy, (c) a
holder of Playboy Class A Common Stock, or (d) a
holder of Playboy Class B Common Stock. See "The
Transactions--Federal Income Tax
Consequences--Playboy Merger."
It is a condition to the consummation of the Spice
Merger that Spice receive an opinion from Kramer
Levin Naftalis & Frankel LLP, counsel to Spice, to
the effect that the Spice Merger will be treated
for U.S. Federal income tax purposes as a transfer
of property governed by Section 351 of the Code.
Accordingly, except as described below and subject
to the qualifications set forth under "The
Transactions--Federal Income Tax
Consequences--Share Transfer and Spice Merger," no
gain or loss will be recognized as a result of the
Spice Merger by (a) New Playboy, (b) Spice, or (c)
a holder of Spice Common Stock to the extent of
the portion of the Merger Consideration received
that is New Playboy Class B Common Stock. The
Share Transfer will be a taxable transaction to
Spice and Spice's stockholders. See "The
Transactions--Federal Income Tax
Consequences--Share Transfer and Spice Merger."
Regulatory Approvals.................... The consummation of the Transactions is subject to
certain regulatory requirements, including
expiration or termination of the applicable
waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). The HSR Act provides that certain
merger and acquisition transactions (including the
Mergers) may not be consummated until
notifications and certain information have been
given to the Antitrust Division of the Department
of Justice (the "Antitrust Division") and the
Federal Trade Commission ("FTC") and certain
waiting period requirements have been satisfied.
The waiting period under the HSR Act expired on
March 29, 1998. At any time before or after
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
the consummation of the Transactions, the
Antitrust Division, the FTC or another third party
could seek to enjoin or rescind the Transactions
on antitrust grounds. In addition, at any time
before or after the consummation of the
Transactions, and notwithstanding that the waiting
period under the HSR Act has expired, any state
could take action under state antitrust laws that
it deems necessary or desirable in the public
interest.
Accounting Treatment.................... The Mergers will be accounted for by New Playboy
under the purchase method of accounting for
business combinations. See "The
Transactions--Accounting Treatment."
Risk Factors............................ See "Risk Factors" beginning on page 16 for a
discussion of certain information that should be
carefully considered by the Spice stockholders.
</TABLE>
11
<PAGE>
SPICE SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
data for Spice as of and for each of the five years in the period ended December
31, 1997, and for the nine-month periods ended September 30, 1998 and 1997. The
data as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, have been derived from, and should be read in
conjunction with, the audited consolidated financial statements, including the
notes to them, and other financial information contained in the Spice Form 10-K,
incorporated by reference in this Proxy Statement/Prospectus. The data as of
September 30, 1998 and 1997, and for the nine-month periods ended September 30,
1998 and 1997, have been derived from, and should be read in conjunction with,
the unaudited consolidated interim financial statements contained in the Spice
Forms 10-Q, including the notes to them, incorporated in this Proxy
Statement/Prospectus. See "Available Information" and "Incorporation of Certain
Documents by Reference." The data as of December 31, 1995, 1994 and 1993, and
for each of the two years in the period ended December 31, 1994, have been
derived from audited consolidated financial statements, including the notes to
them, not incorporated by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales................................. $ 23,262 $ 25,939 $ 33,596 $ 33,213 $43,292 $ 43,232 $ 20,528
Operating Expenses........................ 21,206 23,810 31,172 33,904 54,973 38,182 22,891
Operating Income (Loss)................... 2,056 2,129 2,424 (691) (11,681) 5,050 (2,363)
Net Income (Loss) Attributable to
Common Shares........................... 193 4,390 4,250 (7,900) (15,126) 3,166 (2,369)
Diluted Net Income (Loss) Per Common
Share................................... 0.02 0.36 0.36 (0.70) (1.29) 0.27 (0.26)
Cash Dividends Declared Per
Common Share............................ $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets............................... $ 31,474 $ 32,631 $ 31,138 $ 89,312 $ 99,199 $ 37,458 $ 21,221
Long-term Financing Obligations............ 141 11,446 11,232 68,411 71,311 1,049 1,608
Stockholders' Equity....................... $ 13,229 $ 9,587 $ 8,956 $ 2,294 $ 8,069 $ 23,460 $ 8,583
Diluted Weighted Average Number of Common
Shares Outstanding....................... 13,782 12,091 12,237 11,351 11,747 11,909 8,954
</TABLE>
12
<PAGE>
NEW PLAYBOY SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The following table sets forth selected unaudited pro forma condensed
combined financial data for New Playboy as of and for the year ended June 30,
1997, as of and for the six-month transition period ended December 31, 1997, and
as of and for the nine months ended September 30, 1998, which are presented to
reflect the estimated impact of the Transactions on the historical consolidated
financial statements of Playboy. The income statement data assume that the
Transactions had been consummated at the beginning of the earliest period
presented. The balance sheet data assume that the Transactions had been
consummated on September 30, 1998. The unaudited pro forma condensed combined
financial data are not necessarily indicative of the results of operations or
the financial position which would have occurred had the Transactions been
consummated at the beginning of the earliest period presented, nor are they
necessarily indicative of Playboy's future results of operations or financial
position. The unaudited pro forma condensed combined financial data should be
read in conjunction with the historical consolidated financial statements of
Playboy and Spice and the Unaudited Pro Forma Condensed Combined Financial
Statements, including the notes to them, incorporated by reference or appearing
elsewhere in this Proxy Statement/Prospectus. See "Available Information,"
"Incorporation of Certain Documents by Reference" and "Unaudited Pro Forma
Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
SIX-MONTH
NINE MONTHS TRANSITION PERIOD
ENDED ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997 JUNE 30, 1997
------------------ ----------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
OPERATIONS:
Revenue........................................................ $ 243,528 $ 162,574 $ 327,497
Cost of Sales.................................................. (198,832) (130,578) (258,568)
-------- -------- -------------
Gross Margin................................................... 44,696 31,996 68,929
Selling and Administrative..................................... (39,213) (25,465) (51,344)
-------- -------- -------------
Operating Income............................................... 5,483 6,531 17,585
Nonoperating Income (Expense)
Investment Income............................................ 70 50 73
Interest Expense............................................. (5,541) (3,343) (8,294)
Minority Interest............................................ -- -- 1,279
Gain on sale of majority interest of DSTV.................... -- 352 --
Gain on Nethold settlement................................... -- 740 --
Gain related to disposition of AGN........................... -- 1,712 --
Other, net................................................... (535) 70 (3,198)
-------- -------- -------------
Total Nonoperating Expense................................. (6,006) (419) (10,140)
Income Before Taxes............................................ (523) 6,112 7,445
Income Taxes................................................... (1,747) (3,745) (5,578)
-------- -------- -------------
Net Income (Loss) applicable to common stock................... $ (2,270) $ 2,367 $ 1,867
-------- -------- -------------
-------- -------- -------------
FINANCIAL POSITION (END OF PERIOD):
Total Assets................................................... $ 329,063
Total Liabilities.............................................. 218,023
Total Long-Term Debt........................................... 93,604
Stockholders' Equity........................................... $ 111,040
</TABLE>
13
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are basic earnings per share, diluted earnings per share and
book value per share data of Playboy and Spice, and unaudited pro forma combined
per share data of New Playboy. The data set forth below should be read in
conjunction with the Playboy and Spice audited consolidated financial statements
and unaudited interim consolidated financial statements, including the notes to
them, which are incorporated by reference in this Proxy Statement/Prospectus.
The data should also be read in conjunction with the unaudited pro forma
condensed combined financial information included elsewhere in this Proxy
Statement/Prospectus. The pro forma data does not reflect all cost savings and
other synergies or merger-related expenses anticipated by Playboy management as
result of the Transactions.
<TABLE>
<CAPTION>
NEW
PLAYBOY
UNAUDITED
PLAYBOY SPICE PRO FORMA
HISTORICAL HISTORICAL COMBINED
PER SHARE PER SHARE PER SHARE
DATA DATA DATA
----------- ----------- -----------
<S> <C> <C> <C>
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
Basic earnings per common share outstanding.................................. $ (.03) $ .02 $ (0.10)
Diluted earnings per common share outstanding................................ $ (.03) $ .02 $ (0.10)
Book value per common share outstanding...................................... $ 3.81 $ 1.08 $ 5.40
AT OR FOR THE SIX-MONTH TRANSITION PERIOD ENDED
DECEMBER 31, 1997:
Basic earnings per common share outstanding.................................. $ 0.10 -- $ 0.10
Diluted earnings per common share outstanding................................ $ 0.10 -- $ 0.10
Book value per common share outstanding...................................... $ 3.77 -- --
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997:
Basic earnings per common share outstanding.................................. -- $ 0.40 --
Diluted earnings per common share outstanding................................ -- $ 0.36 --
Book value per common share outstanding...................................... -- $ 0.84 --
AT OR FOR THE YEAR ENDED JUNE 30, 1997:
Basic earnings per common share outstanding.................................. $ 1.05 -- $ 0.07
Diluted earnings per common share outstanding................................ $ 1.03 -- $ 0.07
Book value per common share outstanding...................................... $ 3.66 -- --
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Playboy Class A Common Stock and Playboy Class B Common Stock are listed on
the NYSE and the PE under the symbols "PLAA" and "PLA," respectively. The Spice
Common Stock is listed on the NASDAQ Small-Cap Market under the symbol "SPZE."
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Playboy Class A Common Stock, Playboy
Class B Common Stock and Spice Common Stock, in each case based on published
financial sources. Neither Playboy nor Spice has declared any cash dividends
during the calendar quarters indicated.
<TABLE>
<CAPTION>
PLAYBOY CLASS A PLAYBOY CLASS B SPICE
COMMON STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH LOW HIGH LOW HIGH LOW
--------- --------- --------- --------- ----- ---
<CAPTION>
(IN DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
CALENDAR 1996
First Quarter........................ 11 8 3/8 11 1/8 7 1/2 5 3 1/8
Second Quarter....................... 15 3/4 10 16 1/2 9 7/8 3 3/4 2 1/2
Third Quarter........................ 14 7/8 12 1/4 15 1/4 12 1/8 3 7/16 2
Fourth Quarter....................... 12 1/2 9 5/8 12 3/4 9 1/2 2 5/8 1
CALENDAR 1997
First Quarter........................ 15 5/8 9 1/2 16 3/8 9 3/8 2 3/8 1 7/16
Second Quarter....................... 15 10 7/8 16 11 1/4 3 11/16 2 1/8
Third Quarter........................ 13 7/8 10 3/8 15 3/8 10 3/4 3 7/8 2 7/8
Fourth Quarter....................... 15 1/8 12 3/16 16 11/16 13 1/2 4 1/8 3 3/8
CALENDAR 1998
First Quarter........................ 16 11/16 13 1/2 17 13/16 14 5/8 6 3 7/8
Second Quarter....................... 18 3/8 15 3/4 19 11/16 17 6 11/16 5 3/4
Third Quarter........................ 17 11 1/8 18 3/4 12 3/16 6 3/16 4 1/2
Fourth Quarter (through November 30,
1998).............................. 14 11/16 11 16 5/16 11 7/8 5 3/4 4 1/2
</TABLE>
On February 3, 1998, the last full trading day preceding the joint public
announcement by Playboy and Spice that they had entered into a letter of intent
regarding a possible business combination, the closing price of Playboy Class A
Common Stock and Playboy Class B Common Stock on the NYSE was $13 15/16 and
$14 13/16 per share, respectively, and the closing price of Spice Common Stock
on the NASDAQ Small-Cap Market was $5 5/16, in each case based on published
financial sources. On November 30, 1998, the most recent practicable date prior
to the printing of this Proxy Statement/Prospectus, the closing price of Playboy
Class A Common Stock and Playboy Class B Common Stock on the NYSE was $13 7/16
and $15 7/16 per share, respectively, and the closing price of Spice Common
Stock on the NASDAQ Small-Cap Market was $5 9/32. HOLDERS OF SPICE CAPITAL STOCK
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER AGREEMENT AND THE SPICE MERGER. For a description of the
possibility that Spice Common Stock may be delisted from the NASDAQ Small-Cap
Market if the Mergers are not consummated, see "Comparative Per Share Market
Price and Dividend Information."
The Merger Agreement contemplates that the New Playboy Class A Common Stock
and New Playboy Class B Common Stock will be listed on the NYSE, and Playboy
currently expects that the New Playboy Class A Common Stock and New Playboy
Class B Common Stock will also be listed on the PE.
New Playboy currently does not intend to make regular dividend
distributions. The payment of future dividends on New Playboy Capital Stock will
be at the discretion of the Board of Directors of New Playboy (the "New Playboy
Board") and will depend upon the results of operations and financial condition
of New Playboy and those other factors as the New Playboy Board considers
relevant.
15
<PAGE>
RISK FACTORS
RISKS ARISING FROM THE TRANSACTIONS
UNCERTAINTIES IN INTEGRATING PLAYBOY AND SPICE AND REALIZING MERGER
BENEFITS. Playboy and Spice have entered into the Merger Agreement with the
expectation that the Transactions will result in benefits including, without
limitation, operating efficiencies, cost savings and other synergies. See "The
Transactions--Recommendation of the Spice Board; Spice's Reasons for the Spice
Merger." Achieving the benefits of the Transactions will depend in part upon the
integration of the businesses of Playboy and Spice in an efficient manner. In
addition, the consolidation of operations will require substantial attention
from management. The diversion of management attention and any difficulties
encountered in the transition and integration process could have a material
adverse effect on the revenues, levels of expenses and operating results of the
combined company. No assurance can be given that New Playboy will succeed in
integrating the operations of Spice without encountering difficulties or that
the expected operating efficiencies, cost savings, synergies and other benefits
from the integration will be realized.
VALUE OF MERGER CONSIDERATION DEPENDS ON PRICE OF SHARES OF PLAYBOY CLASS B
COMMON STOCK. Upon consummation of the Spice Merger, each share of Spice Common
Stock will be converted into the right to receive, among other things, a number
of shares of New Playboy Class B Common Stock whose value will depend on the
value of Playboy Class B Common Stock, as described under "The Merger
Agreement-- Conversion of Spice Common Stock." As a result, the aggregate value
of the consideration received by the Spice stockholders in the Spice Merger will
vary depending on fluctuations in the value of Playboy Class B Common Stock.
Such fluctuations may be the result of changes in the business, operations or
prospects of Playboy, the timing of the consummation of the Spice Merger,
regulatory considerations, general market and economic conditions and other
factors. Accordingly, there is no assurance that the value of the consideration
to be received by the Spice stockholders upon consummation of the Spice Merger
will be the same as on the date on which the Merger Agreement was signed or on
the date of this Proxy Statement/ Prospectus.
SALES OF SUBSTANTIAL AMOUNTS OF SHARES OF NEW PLAYBOY CLASS B COMMON STOCK
MAY NEGATIVELY AFFECT SHARE PRICE. New Playboy will issue approximately
2,500,000 shares of New Playboy Class B Common Stock in connection with the
Spice Merger. No prediction can be made as to the effect, if any, that future
sales, or the availability of shares of New Playboy Class B Common Stock for
future sale, will have on the market price of shares of New Playboy Class B
Common Stock prevailing from time to time. Sales of substantial amounts of
shares of New Playboy Class B Common Stock (including those shares issued in
connection with the Spice Merger), or the perception that such sales could
occur, could adversely affect prevailing market prices for the shares of New
Playboy Class B Common Stock.
TAX TREATMENT. The Mergers are intended to be treated as transfers of
property to New Playboy governed by Section 351 of the Code. It is a condition
to the obligations of Playboy and Spice to consummate the Mergers that they
receive opinions from their respective counsel that each of the Playboy Merger
and the Spice Merger will be treated as a transfer of property to New Playboy by
the holders of Playboy Capital Stock and Spice Capital Stock, respectively,
under Section 351 of the Code. In rendering their opinions, counsel to Playboy
and Spice will rely upon certain representations of Playboy and Spice, made as
of the date of consummation of the Mergers. If those representations are untrue,
incorrect or incomplete, the Playboy Merger and the Spice Merger may not be
treated as transfers of property to New Playboy under Section 351 of the Code
and the receipt of New Playboy Capital Stock in the Mergers by the holders of
Playboy Capital Stock and Spice Capital Stock may be taxable. The Share Transfer
is intended to qualify as a partial redemption of Spice Capital Stock resulting
in capital gain or loss to the holders of Spice Capital Stock. It is possible
that the Internal Revenue Service ("IRS") 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 and accumulated
earnings and profits. See "The Transactions--Federal Income Tax Consequences."
16
<PAGE>
CONTROLLING STOCKHOLDER AND LIQUIDITY
The Hugh M. Hefner 1991 Trust (the "Hefner Trust"), which was established
by, and for the benefit of, Hugh M. Hefner, the founder of Playboy and
Editor-in-Chief, will continue to own 69.95% of the outstanding voting New
Playboy Class A Common Stock and will own approximately 43% of the outstanding
non-voting New Playboy Class B Common Stock after the completion of the Mergers.
As a result of his New Playboy Class A Common Stock ownership, Mr. Hefner,
through the Hefner Trust, will be able to elect the entire New Playboy Board and
to take any other action requiring a stockholder vote without the affirmative
vote of any other stockholder.
After completion of the Mergers, there will be approximately 10,350,000
shares of New Playboy Class B Common Stock available for trading on the NYSE and
PE by stockholders other than Mr. Hefner. The average daily number of shares of
Playboy Class B Common Stock traded during the six-month period ended November
13, 1998 was approximately 17,000. Because of the large percentage of shares
controlled by Mr. Hefner and the low average daily trading volume, any
significant position in the New Playboy Class B Common Stock may not be as
liquid as a comparable investment in some other companies listed on the NYSE.
VOTING RIGHTS
The New Playboy Class B Common Stock has no voting rights, except as
provided in the Amended and Restated Certificate of Incorporation of New Playboy
(the "New Playboy Certificate of Incorporation") and by Delaware law. Holders of
New Playboy Class B Common Stock have no right to vote in the election of
directors. New Playboy Class A Common Stock and New Playboy Class B Common Stock
have equal rights with respect to dividends, and the New Playboy Certificate of
Incorporation includes certain provisions intended for the benefit of holders of
the New Playboy Class B Common Stock. For information concerning the relative
rights of the New Playboy Class A Common Stock and the New Playboy Class B
Common Stock, see "Description of New Playboy Capital Stock."
GOVERNMENT REGULATION
TELECOMMUNICATIONS ACT OF 1996. Playboy and Spice believe that the
Telecommunications Act of 1996 (the "Telecommunications Act"), discussed in more
detail below, has slowed growth in cable access for their domestic pay
television businesses. Additionally, Playboy and Spice believe that the growth
has slowed in recent years due to the effects of cable reregulation by the
Federal Communications Commission ("FCC"), including the "going-forward rules"
which provide cable operators with incentives to add basic services. As cable
operators have utilized available channel space to comply with "must-carry"
provisions, mandated retransmission consent agreements and "leased access"
provisions, competition for channel space has increased. Further, the delay of
new technology, primarily digital set top converters which would dramatically
increase channel capacity, has contributed to the slowdown. The major reason for
this delay has been the unexpected engineering problems and expenses associated
with developing an affordable digital set top converter. Playboy and Spice
believe that growth will continue to be slow in the next two to three years as
the cable television industry responds to the FCC's rules and subsequent
modifications, and develops new technology. As digital technology (which is
unaffected by the relevant sections of the Telecommunications Act) becomes more
available, however, Playboy and Spice believe that ultimately their pay
television networks will be available to the majority of cable households on a
24-hour basis. Approximately 28% of cable households are currently addressable
by adult pay-per-view programming.
SECTION 505. In February 1996, the Telecommunications Act was enacted.
Certain provisions of the Telecommunications Act are directed exclusively at
cable programming in general and adult cable programming in particular. In some
cable systems, audio or momentary bits of video of premium or pay-per-view
channels may accidentally become available to non-subscribing cable customers.
This is called "bleeding." The practical effect of Section 505 of the
Telecommunications Act ("Section 505") is to require
17
<PAGE>
many existing cable systems to employ additional blocking technology in every
household in every cable system that offers adult programming to prevent any
possibility of bleeding, or to restrict the period during which adult
programming is transmitted from 10:00 p.m. to 6:00 a.m. Penalties for violation
of the Telecommunications Act are significant and include fines and
imprisonment. Based on the limited information received, Playboy and Spice
believe that most of the cable operators that were not in compliance with
Section 505 have complied by restricting the hours of transmission.
On February 26, 1996, one of Playboy's subsidiaries filed a civil suit in
the United States District Court in Wilmington, Delaware (the "Delaware District
Court") challenging Section 505 on constitutional grounds. The suit names as
defendants The United States of America, The United States Department of
Justice, Attorney General Janet Reno and the FCC. On March 7, 1996, Playboy was
granted a Temporary Restraining Order ("TRO") staying the implementation and
enforcement of Section 505. In granting the TRO, the Delaware District Court
found that Playboy had demonstrated it was likely to succeed on the merits of
its claim that Section 505 is unconstitutional. On November 8, 1996, eight
months after the TRO was granted, a three-judge panel in the Delaware District
Court denied Playboy's request for preliminary injunction against enforcement of
Section 505 and, in so denying, found that Playboy was not likely to succeed on
the merits of its claim. Playboy appealed the Delaware District Court's decision
to the United States Supreme Court (the "Supreme Court") and enforcement of
Section 505 was stayed pending that appeal. On March 24, 1997, without opinion,
the Supreme Court summarily affirmed the Delaware District Court's denial of
Playboy's request for a preliminary injunction. On July 22, 1997, Playboy filed
a motion for summary judgment on the ground that Section 505 is
unconstitutionally vague based on the Supreme Court's decision on June 26, 1997
that certain provisions of the Telecommunications Act regulating speech on the
Internet were invalid for numerous reasons, including vagueness. On October 31,
1997, the Delaware District Court denied the motion on the grounds that further
discovery in the case was necessary to assist it in resolving the issues posed
in the motion.
Playboy and Spice believe that revenues attributable to their domestic pay
television cable services may continue to be materially adversely affected as a
result of enforcement of Section 505, which commenced May 18, 1997, due to
reduced buy rates from the systems that roll back carriage to a 10:00 p.m. start
time, subscriber declines and reduced carriage from cable operators due to
aggressive competition for carriage from all program suppliers. Playboy has
estimated that calendar year 1998 revenues from its Entertainment Group will be
reduced by approximately $3.5 million, and approximately $25 million (discounted
to present value at a rate of 6%) over the next ten years, due to Section 505.
These amounts do not take into account the loss of revenues due to the slowing
of access to new homes and of upgrading of old homes from ten to 24 hours.
Playboy is pursuing in the Delaware District Court its case challenging on
constitutional grounds the validity of Section 505 and is seeking a permanent
injunction against the enforcement of Section 505. Playboy's full case on the
merits was heard by the Delaware District Court in March 1998. Playboy is
currently waiting for the Delaware District Court to render a decision.
SECTION 713. Section 713 of the Telecommunications Act directed the FCC to
adopt rules requiring that video programming be accessible via closed
captioning. Playboy and Spice believe that compliance with these rules will not
have a material adverse effect on the business of New Playboy.
ACCESS TO DISTRIBUTION
New Playboy's ability to operate successfully is dependent on its ability to
obtain and maintain distribution channels and outlets for its products. From
time to time, certain private groups have sought to exclude Playboy programming
from local pay television distribution because of the adult-oriented content of
the programming. In addition, from time to time, PLAYBOY magazine and certain of
its distribution outlets and advertisers, have been the target of groups who
seek to limit the magazine's availability because of its adult-oriented content.
Playboy does not believe that any of those attempts will materially affect its
access to cable systems or distribution outlets, but the nature and impact of
any limitations in the future cannot be determined.
18
<PAGE>
Members of the magazine publishing industry, including Playboy, receive a
significant portion of their advertising revenues from companies selling tobacco
products. Significant legislative or regulatory limitations on the ability of
those companies to advertise in magazines could materially adversely affect New
Playboy's operating performance. In August 1996, the Food and Drug
Administration (the "FDA") announced a regulation which prohibits the
publication of tobacco advertisements containing drawings, colors or pictures.
The regulation does not apply to a magazine which is demonstrated to be an
"adult publication," which means a publication (a) whose readers younger than 18
years of age constitute no more than 15% of total readership, and (b) which is
read by fewer than two million persons younger than 18 years of age, in each
case as measured by competent and reliable survey evidence. Based on information
available to Playboy on its readership, Playboy believes that PLAYBOY magazine
qualifies as an "adult publication" and that the regulation is not applicable to
the magazine. If, however, PLAYBOY magazine was not deemed an "adult
publication," compliance with the regulation would have a material adverse
effect on New Playboy. On April 25, 1997, the Federal District Court for the
Middle District of North Carolina ruled that the FDA has no authority under
existing law to restrict the advertising and promotion of tobacco products and
ordered the FDA not to implement any of the advertising and promotion
restrictions contained in the regulation. The Government has appealed this
ruling and a decision is pending.
New Playboy's cable television operations will require continued access to
satellite transponders for transmitting programming to cable operators.
Playboy's and Spice's current transponder leases contain protections typical in
the industry against transponder failure, including access to spare
transponders. Access to transponders may be denied in certain circumstances.
Playboy's access to transponders may be denied if: (a) Playboy or the satellite
owner is indicted or otherwise charged as a defendant in a criminal proceeding;
(b) the FCC issues an order initiating a proceeding to revoke the satellite
owner's authorization to operate the satellite; (c) the satellite owner is
ordered by a court or governmental authority to deny Playboy access to the
transponder; or (d) it becomes illegal to operate, transmit, distribute or sell
Playboy's television services in the United States. There have been no instances
in the last three years in which Playboy has been denied access to the
transponders it leases. Spice's access to transponders may be denied if: (i)
Spice is indicted or otherwise charged as a defendant in a criminal proceeding;
(ii) the material being transmitted by Spice is, in the satellite owner's
reasonable judgment, harmful to the satellite owner's name or business; or (iii)
Spice is convicted under, or found by a governmental authority to have violated,
any obscenity law. None of the Spice Networks has been denied access to a
satellite transponder in the past three years. In January 1997, however, one of
the "bronze" service transponders, which Spice did not use for its own networks
but subleased to two other companies, was pre-empted by the satellite owner due
to the loss of another satellite operated by the same owner. The two companies
switched their signals to another transponder. Bronze service refers to
non-protected pre-emptible transponder services. With bronze service, the
satellite owner 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 that signal in order to
provide "platinum" service to another party. Platinum service refers to
protected, non pre-emptible transponder services. With platinum service, the
satellite owner is required to broadcast a signal on the requisite number of
transponders, regardless of problems with any specific transponder or satellite.
The Spice Networks currently use one platinum service transponder. Material
limitations on New Playboy's access to cable systems or satellite transponder
capacity could materially adversely affect New Playboy's operating performance.
Playboy's and Spice's products are sold internationally and are therefore
subject to diverse and evolving regulations. The governments of certain
countries have sought to limit the influence of other cultures by restricting
the distribution of products deemed to represent foreign or "immoral"
influences. New Playboy's ability to sell products in those markets may be
severely restricted. For example, New Playboy will not be able to sell or
license its magazine or television programming in certain major international
markets such as China or India due to the nudity contained in the magazine and
programming. In the case of China, however, these restrictions have not
prevented Playboy, and will not prevent New Playboy, from selling or licensing
Playboy-branded merchandise. Expansion into foreign markets will
19
<PAGE>
also be dependent on New Playboy's ability to continue to obtain, maintain and
protect its trademarks in those markets.
PAPER PRICES AND POSTAL RATES
Paper costs are a substantial component of the manufacturing expenses of
PLAYBOY magazine. The market for paper has historically been cyclical, resulting
in volatility in paper prices. For the 1997 fiscal year, average paper prices
were 15% lower than the prior year. Average paper prices for the last six months
of calendar 1997 were 18% lower as compared to the last six months of 1996. In
calendar 1998, Playboy expects to be materially adversely impacted by an
approximate 5% increase in paper prices. Playboy's catalog operations are also
impacted by paper prices. There can be no assurance that paper prices will not
continue to increase in the future. New Playboy's operating performance could be
materially adversely affected by any future paper price increases unless and
until such increases can be passed through to the consumer.
The profitability of PLAYBOY magazine and the operations of Playboy's
Catalog Group are also affected by the cost of postage, and could be materially
adversely affected to the extent that any increase in postage rates cannot be
passed through to the consumer. The last general postal rate increase occurred
in January 1995. The U.S. Postmaster General has filed for a general postal rate
increase that will be effective in January 1999.
HISTORICAL PERFORMANCE NO INDICATION
The historical share and earnings performance of Playboy and Spice are not
necessarily indicative of New Playboy's future share price and earnings results.
FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus contains "forward-looking statements,"
including statements as to expectations, beliefs, plans, objectives and future
financial performance, and assumptions underlying or concerning them. The
forward-looking statements involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. See "Cautionary Statement Regarding Forward-Looking
Information."
YEAR 2000
In response to the Year 2000 problem, Playboy has begun to identify,
evaluate and implement changes to its existing computerized business systems.
Playboy is addressing the issue through a combination of modifications to
existing programs and conversions to Year 2000 compliant software. In addition,
Playboy is communicating with its vendors and other service providers to ensure
that their products and business systems will be Year 2000 compliant. If
modifications and conversions by Playboy and those it conducts business with
were not made in a timely manner, the Year 2000 problem could have a material
adverse affect on New Playboy's business, financial condition and results of
operations. Certain key systems of Playboy have already been identified as Year
2000 compliant, including financial applications and Playboy Online operations.
Although Playboy is still quantifying the impact, the current estimate of the
total costs associated with the required modifications and conversions are
expected to be approximately $1.0 million, of which approximately $0.7 million
is expected to be expensed in calendar year 1998. These costs are being expensed
as incurred.
As a contingency plan for the most reasonably likely worst case scenario,
Playboy has addressed all major elements related to this issue. Playboy believes
its technology systems will be ready for the Year 2000, but Playboy may
experience isolated incidences of non-compliance. Playboy plans to allocate
internal resources and retain dedicated consultants and vendor representatives
to be ready to take action if these events occur. Although Playboy values its
established relationships with key vendors and other service
20
<PAGE>
providers, if certain vendors are unable to perform on a timely basis due to
their own Year 2000 issues, Playboy believes that substitute products or
services are obtainable from other vendors. Playboy also recognizes the risks if
other key suppliers in utilities, communications, transportation, banking and
government are not ready for the Year 2000, and is approaching this issue in the
same manner.
Spice has implemented Year 2000 compliance programs designed to ensure that
its computer systems and applications will function properly beyond 1999. New
Playboy will continue to address any Year 2000 compliance issues that remain
after the Transactions in the same manner as described above.
PLAYBOY'S OPTION TO NOT CONSUMMATE THE MERGERS
Under the terms of the Merger Agreement, Playboy is not obligated to
consummate the Mergers if (i) on or before December 31, 1998, the Average
Closing Price is less than $13.00, or (ii) after December 31, 1998, the Average
Closing Price is less than $11.00. On November 17, 1998, the closing price of
the Class B Common Stock of Playboy on the NYSE was $14.875 and the average
closing price of the Class B Common Stock of Playboy on the NYSE during the 20
consecutive trading day period ending November 17, 1998 was $14.544. There is no
assurance that Playboy will choose to consummate the Mergers if this condition
is not met.
21
<PAGE>
THE SPICE MEETING
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Proxy Statement/Prospectus is being furnished to stockholders of Spice
as part of the solicitation of proxies by the Spice Board for use at the Spice
Special Meeting. The Spice Special Meeting will be held on Wednesday, December
30, 1998 at 10:00 a.m., local time, at The Penn Club, 10th Floor Banquet Room,
30 West 44th St., New York, New York 10036. The Spice Special Meeting will be
held for the purpose of (a) considering and voting upon proposals to approve and
adopt the Merger Agreement and the Spice Merger, and (b) transacting any other
business as may properly come before the Spice Special Meeting.
Management of Spice knows of no matters to be brought before the Spice
Special Meeting other than those referred to in this Proxy Statement/Prospectus.
If any business other than that referred to in this Proxy Statement/Prospectus
should properly come before the Spice Special Meeting, the persons named in the
proxy will vote in accordance with their best judgment.
THE SPICE BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE
SPICE MERGER ARE IN THE BEST INTERESTS OF SPICE AND ITS STOCKHOLDERS. THE SPICE
BOARD HAS APPROVED THE MERGER AGREEMENT AND THE SPICE MERGER AND UNANIMOUSLY
RECOMMENDS THAT SPICE STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE SPICE MERGER AT THE SPICE SPECIAL MEETING. SEE "THE
TRANSACTIONS--BACKGROUND OF THE TRANSACTIONS" AND "--RECOMMENDATION OF THE SPICE
BOARD; SPICE'S REASONS FOR THE SPICE MERGER."
RECORD DATE
The Spice Board has fixed the close of business on November 19, 1998 as the
record date (the "Spice Record Date"). Only the holders of record of the
outstanding shares of Spice Common Stock on the Spice Record Date will be
entitled to notice of, and to vote at, the Spice Special Meeting. At the Spice
Record Date, 12,243,395 shares of Spice Common Stock were outstanding, each of
which entitles the registered holder to one vote. At the Spice Record Date,
there were no shares held by Spice in its treasury.
PROXIES; VOTING AND REVOCATION
Shares of Spice Common Stock, represented by a properly executed proxy
received prior to the vote at the Spice Special Meeting and not revoked, will be
voted at the Spice Special Meeting as directed in the proxy. If a proxy is
submitted and no directions are given, the proxy will be voted for the approval
and adoption of the Merger Agreement and the Spice Merger. Spice intends to
count shares of Spice Common Stock present in person at the Spice Special
Meeting but not voting, and shares of Spice Common Stock for which it has
received proxies but with respect to which holders of shares have abstained on
any matter, as present at the Spice Special Meeting for purposes of determining
the presence or absence of a quorum for the transaction of business. Because the
affirmative vote of the holders of a majority of the outstanding shares of Spice
Common Stock entitled to vote is required to approve and adopt the Merger
Agreement and the Spice Merger, non-voting shares and abstentions will have the
effect of a vote against the approval and adoption of the Merger Agreement and
the Spice Merger. In addition, under the rules of the NYSE, brokers who are
members of the NYSE and hold shares in street name for customers who are the
beneficial owners of the shares are prohibited from giving a proxy to vote
shares held for the customers with respect to the approval and adoption of the
Merger Agreement and the Spice Merger without special instructions from the
customers.
Each share of Spice Common Stock is entitled to one vote with respect to the
proposal to approve and adopt the Merger Agreement and the Spice Merger. The
persons named as proxies by a stockholder may propose and vote for one or more
adjournments or postponements of the Spice Special Meeting to permit
22
<PAGE>
further solicitation of proxies in favor of the proposal; provided, however,
that no proxy that is voted against the proposal to approve and adopt the Merger
Agreement and the Spice Merger will be voted in favor of any adjournment or
postponement. Votes will be tabulated at the Spice Special Meeting by inspectors
of election.
A stockholder of record may revoke a proxy at any time prior to its being
voted by filing an instrument of revocation with Daniel J. Barsky, Secretary of
Spice (Spice Entertainment Companies, Inc., 536 Broadway, New York, 7th Floor,
New York 10012), by filing a duly executed proxy bearing a later date, or by
appearing at the Spice Special Meeting in person, notifying the Secretary, and
voting by ballot at the Spice Special Meeting. Any stockholder of record
attending the Spice Special Meeting may vote in person whether or not a proxy
has been previously given, but the mere presence (without notifying the
Secretary of Spice) of a stockholder at the Spice Special Meeting will not
constitute revocation of a previously given proxy. In addition, stockholders who
hold shares of Spice Common Stock that are not registered in their own name will
need additional documentation from the record holder of the shares to vote
personally at the Spice Special Meeting.
QUORUM
The presence, in person or by proxy, of a majority of the aggregate number
of shares of Spice Common Stock outstanding and entitled to vote on the Spice
Record Date is necessary to constitute a quorum at the Spice Special Meeting.
REQUIRED VOTES; PRINCIPAL STOCKHOLDERS
The affirmative vote of the holders of a majority in voting power of shares
of Spice Common Stock issued, outstanding and entitled to vote at the Spice
Special Meeting is necessary to approve and adopt the Merger Agreement and the
Spice Merger. Approval by holders of Spice Common Stock is a condition to the
consummation of the Mergers.
As of the Spice Record Date, 12,243,395 shares of Spice Common Stock were
issued, outstanding and entitled to vote. Of such shares, 722,349, or
approximately 5.9%, were held by directors and executive officers of Spice, its
subsidiaries and their respective affiliates, all of which they have advised
Spice that they intend to vote for approval and adoption of the Merger Agreement
and the Spice Merger.
Information with respect to beneficial ownership of Spice Common Stock by
entities owning more than 5% of the Spice Common Stock and more detailed
information with respect to beneficial ownership of Spice Common Stock by Spice
directors and executive officers is set forth under "Share Ownership of Spice
Common Stock By Directors, Principal Stockholders and Management."
Spice stockholders are being asked to vote on only the Merger Agreement and
the Spice Merger and are not being asked to vote separately on the Contribution,
the Share Transfer or any other transaction. The Directrix Common Stock to be
received by Spice stockholders in the Share Transfer, however, will constitute a
part of the consideration to be received in the Spice Merger, and the Share
Transfer will not be effected unless the Merger Agreement and the Spice Merger
are approved.
THE MATTERS TO BE CONSIDERED AT THE SPICE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF SPICE. ACCORDINGLY, SPICE STOCKHOLDERS ARE
URGED TO READ THIS PROXY STATEMENT/PROSPECTUS AND THE DIRECTRIX PROSPECTUS AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS
AND THE DIRECTRIX PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN
THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
23
<PAGE>
SOLICITATION OF PROXIES
The expense of printing and mailing this Proxy Statement/Prospectus and the
material used in the solicitation of proxies will be borne equally by Playboy
and Spice. In addition to solicitation by mail, proxies may be solicited in
person by officers, directors and regular employees of Spice and by telephone,
telegram, teletype, facsimile or similar methods. Spice will reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to the beneficial owners
of Spice Common Stock.
24
<PAGE>
THE TRANSACTIONS
BACKGROUND OF THE TRANSACTIONS
In May 1997, representatives of Playboy contacted representatives of Spice
to determine whether Spice would have any interest in a transaction whereby
Playboy would acquire Spice. Executives from Playboy and Spice met on several
occasions from May 1997 to September 1997 to engage in preliminary discussions
relating to a possible combination of Playboy and Spice. On July 16, 1997,
Playboy and Spice signed a confidentiality agreement (the "Confidentiality
Agreement").
Between September 1997 and December 1997, Spice also engaged in periodic
discussions with Milcap Media Ltd., an international publisher of adult
magazines and producer and distributor of adult films ("Milcap"), regarding the
potential acquisition of Milcap by Spice. Discussions with Milcap terminated in
December 1997 primarily due to pricing issues.
In September 1997, Playboy retained Bear Stearns & Co., Inc. ("Bear
Stearns") under an oral agreement to serve as a financial advisor to assist
Playboy in considering various strategic alternatives as well as to provide
financial advice in connection with Playboy's consideration of the possible
acquisition of Spice. On February 2, 1998, Playboy and Bear Stearns executed a
formal engagement letter. In October 1997, Spice retained ING Barings under an
oral agreement to serve as its financial advisor in connection with Spice's
consideration of a possible combination with Playboy. On December 8, 1997, Spice
and ING Barings executed a formal engagement letter.
In September 1997, Playboy and Spice engaged in further discussions relating
to a possible combination of Playboy and Spice which would, to the extent of the
Playboy stock received, be tax-free to the stockholders of Spice. Anthony J.
Lynn, Executive Vice President of Playboy, advised J. Roger Faherty, Chairman,
Chief Executive Officer and President of Spice, in a letter dated September 19,
1997, that, subject to due diligence investigation, Playboy would consider
making a proposal to acquire Spice at a price of $5.25 per share of Spice Common
Stock, which would be comprised of $2.63 in cash and the equivalent of $2.62 in
Playboy Class B Common Stock. Spice advised Playboy that it would not accept
Playboy's proposal unless the price was increased.
As discussions developed, the creation of a new holding company appeared
attractive as a way to permit Playboy to acquire Spice in a transaction intended
to be tax-free to the stockholders of Spice to the extent of the Playboy Class B
Common Stock received by them. In a letter from Anthony J. Lynn to J. Roger
Faherty dated December 7, 1997, Playboy revised its proposal to increase the
price to $6.00 per share of Spice Common Stock, comprised of $4.00 in cash and
the equivalent of $2.00 in Playboy Class B Common Stock. In addition, Playboy
proposed that Spice's stockholders retain certain of Spice's assets which
Playboy did not wish to acquire.
In December 1997, representatives of Playboy and Spice agreed to negotiate
the terms of a merger transaction which would also provide for the distribution
of certain of Spice's assets to the Spice stockholders, and began to work on a
letter of intent (the "Original Letter of Intent"). Thereafter, representatives
of the two companies began exchanging drafts of the Original Letter of Intent
outlining the terms of the proposed transactions.
The first major point of negotiation involved the amount of cash and New
Playboy Class B Common Stock to be received by the Spice stockholders. Playboy
and Spice eventually agreed on a price of $6.00 per share of Spice Common Stock,
with a 60%-40% split between cash and New Playboy Class B Common Stock, and a
collar on the stock portion of the consideration designed to provide a minimum
value of $5.71 and a maximum value of $6.29 per share of Spice Common Stock.
The second major point of negotiation involved the treatment of certain of
Spice's assets that Playboy did not wish to acquire, such as the playback and
uplink facility, the option to acquire EMI and certain rights to Spice's
existing library of adult films. Playboy already has access to playback and
uplink facilities
25
<PAGE>
and Playboy is not, and chooses not to be, in the business of producing or
distributing the explicit versions of adult films. For these reasons, Playboy
and Spice eventually agreed that these assets would be transferred to a new
subsidiary of Spice, and that, upon consummation of the Mergers, the capital
stock of that subsidiary would be distributed to the stockholders of Spice as
part of the merger consideration.
Negotiations were completed on February 3, 1998. The terms of the Original
Letter of Intent provided, among other things, that Spice stockholders would
receive, for each share of Spice Common Stock, (a) $3.60 in cash, and (b) 0.1524
of one share of New Playboy Class B Common Stock, subject to a collar designed
to provide a minimum value of $2.11 and a maximum value of $2.69, and subject to
certain other purchase price adjustments. The terms of the Original Letter of
Intent also provided that Spice would contribute certain of its assets
(including its master control and digital playback facility, the option to
acquire EMI, and certain rights to its existing library of adult films) to a
newly formed subsidiary, and that the capital stock of that subsidiary would be
allocated on a pro rata basis to the Spice stockholders. In addition, the terms
of the Original Letter of Intent provided that consummation of the contemplated
transactions would be subject to execution of definitive documentation, approval
by the boards of directors of both companies and the stockholders of Spice,
satisfactory completion of due diligence and other customary closing conditions.
The Playboy Board and the Spice Board met separately and approved the Original
Letter of Intent on February 3, 1998, and it was signed later that day. The
terms of the Original Letter of Intent were announced publicly on February 4,
1998.
Beginning in February 1998, each of Playboy and Spice undertook a due
diligence investigation of the other's business, and representatives of the two
companies began preparing the Merger Agreement and the other Transaction
Agreements embodying the terms of the Original Letter of Intent.
After completion of their due diligence investigation, representatives of
Playboy contacted Spice to request that certain changes be made to the structure
of the transactions contemplated by the Original Letter of Intent.
Representatives of Playboy and Spice met to discuss these changes and, on April
15, 1998, the two companies agreed on a revised letter of intent (the "Final
Letter of Intent"), which, after being approved by the Spice Board, was signed
by Playboy and Spice. The terms of the Final Letter of Intent were generally the
same as those of the Original Letter of Intent, but provided, among other
things, that the stockholders of Spice would receive for each share of Spice
Common Stock and in addition to the capital stock of the newly formed subsidiary
as described above, (a) $3.60 in cash, and (b) 0.1371 of one share of New
Playboy Class B Common Stock, subject to a collar designed to provide a minimum
value of $2.20 and a maximum value of $2.88. As part of these modifications, all
purchase price adjustments, except for the collar, were eliminated.
Representatives of Playboy and Spice revised the drafts of the Merger
Agreement and the other Transaction Agreements to reflect the terms of the Final
Letter of Intent. On May 8, 1998, the Spice Board held a special meeting to
review, with the advice and assistance of Spice's management and Spice's
financial and legal advisors, the proposed Merger Agreement and the transactions
contemplated by it. At this meeting, Spice's management and Spice's financial
and legal advisors made presentations concerning the proposed transactions. On
May 29, 1998, the Spice Board held another special meeting concerning the
proposed transaction. Spice's financial and legal advisors updated the
presentations made at the May 8 meeting and ING Barings delivered an oral
opinion to the Spice Board, which was subsequently confirmed in writing as of
May 29, 1998, that, based on and subject to the matters set forth in its written
opinion, the cash and shares of New Playboy Class B Common Stock to be received
from Playboy by the holders of Spice Capital Stock as part of the Merger
Consideration was fair from a financial point of view to the holders of Spice
Capital Stock. See "--Opinion of Spice's Financial Advisor." After deliberation,
the Spice Board unanimously approved the proposed Merger Agreement and the Spice
Merger. See "--Recommendation of the Spice Board; Spice's Reasons for the Spice
Merger."
26
<PAGE>
On May 29, 1998, Playboy and Spice executed the Merger Agreement. On June
15, 1998, the Playboy Board met and reviewed the Merger Agreement and the
transactions contemplated by it. After deliberation, the Playboy Board
unanimously approved the proposed Merger Agreement and the transactions
contemplated by it, and ratified the execution of the Merger Agreement.
On November 16, 1998, Playboy and Spice amended the Merger Agreement to
account for several recent developments. First, Spice had originally planned to
offer warrants to purchase shares of Directrix Common Stock along with shares of
Directrix Common Stock as part of the Merger Consideration. Spice later decided
to offer only shares of Directrix Common Stock as part of the Merger
Consideration, so Playboy and Spice agreed to delete all references in the
Merger Agreement to these warrants. Second, Playboy requested, and Spice agreed,
that the time and date of the closing specified in the Merger Agreement be
changed from within five business days following satisfaction or waiver of the
conditions contained in the Merger Agreement to (i) at any time and date of
Playboy's choosing following satisfaction or waiver of those conditions if the
closing occurs on or prior to March 1, 1999, (ii) five business days following
satisfaction or waiver of those conditions if the closing occurs after March 1,
1999, or (iii) at any other time and date as the parties may mutually agree.
Third, Playboy requested, and Spice agreed to, a reduction in the top of the
collar on the New Playboy Class B Common Stock portion of the Merger
Consideration from a maximum value of $2.88 per Spice share to $2.81 per Spice
share. Fourth, Spice requested, and Playboy agreed, that the closing condition
which would have permitted Playboy not to close the Mergers if the Average
Closing Price were less than $13.00 be amended so that after December 31, 1998,
Playboy may choose not to close the Mergers if the Average Closing Price is less
than $11.00. Fifth, Playboy and Spice agreed to certain other changes regarding
the termination provisions and fees and expenses.
On November 14, 1998, the Spice Board met, reviewed and unanimously approved
the terms of the Merger Agreement as amended. On November 18, 1998, the Playboy
Board met, reviewed and unanimously approved the terms of the Merger Agreement
as amended.
Playboy has received a financing commitment from a major financial
institution which provides that, subject to satisfaction of customary conditions
contained in the commitment letter, Playboy will be entitled to draw upon the
commitment from and after February 12, 1999. The financing commitment also
provides that the financial institution will use reasonable efforts, but is not
obligated, to provide the financing on or before December 31, 1998.
RECOMMENDATION OF THE SPICE BOARD; SPICE'S REASONS FOR THE SPICE MERGER
The Spice Board believes that the Spice Merger offers its stockholders an
opportunity to realize a significant premium on their shares of Spice Common
Stock and to participate, through their ownership of New Playboy Class B Common
Stock, in an organization that possesses an internationally recognizable brand
name and is one of the leaders in adult television entertainment in the United
States. The Spice Board determined that the Spice Merger is fair to, and in the
best interests of, Spice and its stockholders and, by unanimous vote, approved
the Merger Agreement and the Spice Merger. The Spice Board unanimously
recommends that holders of Spice Common Stock vote FOR the approval and adoption
of the Merger Agreement and the Spice Merger.
At board meetings held on May 8, 1998 and May 29, 1998, the Spice Board,
with the assistance of its legal advisors and ING Barings, considered and
discussed the terms of the Merger Agreement and the Spice Merger and reviewed
various business, financial and legal considerations related to the
Transactions. In reaching its decision to approve the Merger Agreement and the
Spice Merger and to recommend that Spice stockholders vote for the Merger
Agreement and the Spice Merger, the Spice Board considered, among other things,
the following factors:
27
<PAGE>
(a) the opportunity to receive cash and New Playboy Class B Common Stock
with a value in excess of the market price of Spice Common Stock prior to the
announcement of the Transactions (9.5% over the closing market price on the last
day of trading prior to public announcement of the Original Letter of Intent,
9.5% over the closing market price one week prior to public announcement of the
Original Letter of Intent, and 36.9% over the closing market price four weeks
prior to public announcement of the Original Letter of Intent). Holders of Spice
Common Stock should obtain current market quotations, however, prior to making
any decision with respect to the Merger Agreement and the Spice Merger;
(b) the Spice stockholders' ability to receive the New Playboy Class B
Common Stock component of the Merger Consideration on a tax-free basis;
(c) the opinion of ING Barings that the amount and value of cash and New
Playboy Class B Common Stock to be received by the Spice stockholders in the
Spice Merger were fair from a financial point of view to the Spice stockholders;
(d) information concerning the financial condition, results of operations,
business and growth prospects of Spice and, to a more limited extent, Playboy,
on both a historical and prospective basis and current industry, economic and
market conditions, including the financial analysis and presentation of ING
Barings;
(e) the historical market price and trading information of Spice Common
Stock and Playboy Capital Stock;
(f) the ability of Spice's stockholders to participate, as New Playboy
stockholders, in a larger, more strategically balanced enterprise that will have
greater financial and operational resources and is expected to produce a
stronger competitor, both domestically and internationally, in the adult
television entertainment industry than Spice would be on a stand-alone basis;
(g) the potential for operational efficiencies by combining duplicative
operational functions after the Spice Merger. Playboy and Spice expect to
integrate operations in the licensing, distribution and marketing of
programming, to combine corporate functions and to consolidate certain operating
locations;
(h) the high degree of compatibility and geographic fit of the businesses
of Playboy and Spice, which provides the holders of Spice Common Stock with a
significant continuing interest in the adult television entertainment industry;
(i) the potential adverse effect on Spice's operating results of
competition in its market segment and increased concentration in the ownership
of cable systems by large multiple system operators. The Spice Board believes
that increased competition resulting from (i) new entrants in adult
entertainment broadcasting, (ii) the proliferation of adult websites on the
Internet, (iii) technological developments such as the development of regional
video file servers which will allow cable systems to deliver films directly to
customers, and (iv) Playboy's efforts to increase its domestic market share
through the distribution of a second pay television network, AdulTVision, may
have an adverse effect on Spice's operating results. The Spice Board believes
that, following the Spice Merger, the combined entity will be better able to
meet competitive challenges and to take advantage of new opportunities than
Spice would be able to do on a stand-alone basis by availing itself of the
greater financial and operational resources available to the combined company;
(j) the potential risk, as a result of the adult content of the Spice
Networks (as defined under "Business of Spice"), of further governmental
regulation or legal challenges to the distribution of the Spice Networks. The
Spice Board believes that the combined company will be better able to withstand
further governmental regulation of adult content broadcasts than Spice would as
a stand-alone entity due to the greater geographic, asset and line-of-business
diversification of the combined company. The Spice Board recognized that
Playboy's business, in addition to the broadcasting of adult programming,
includes other businesses such as publishing, consumer products and accessories,
video tapes and catalogs;
28
<PAGE>
(k) the structure of the Spice Merger and the terms of the Merger Agreement
which were negotiated at arm's length and include provisions which permit the
Spice Board, in the exercise of its fiduciary duties and subject to certain
conditions, (i) to respond to inquiries from, provide information to, and
negotiate with a third party making an unsolicited proposal to acquire Spice,
and (ii) to terminate the Merger Agreement if the Spice Board decides to
recommend an alternative business combination transaction; and
(l) alternatives to the Spice Merger that might be available to Spice and
its stockholders. The Spice Board considered the Spice Merger as an opportunity
to participate in a business enterprise having greater financial and operational
resources and long-term growth potential than alternatives such as maintaining
Spice as an independent company or combining with a smaller, less diversified
company.
The Spice Board considered that there are certain risks associated with the
Spice Merger, including those set forth under "Risk Factors," that some of the
potential benefits set forth above may not be realized at all or only at a
significant cost, and that there can be no assurance that the actual benefits of
engaging in the Spice Merger will be realized by Spice. See "Cautionary
Statement Regarding Forward-Looking Information" and "Risk Factors." The Spice
Board also considered the loss of independence which would result from being a
wholly-owned subsidiary of New Playboy. The Spice Board concluded, however, that
the benefits of the Spice Merger to Spice and its stockholders outweighed the
loss of independence.
The foregoing discussion of the information and factors considered and given
weight by the Spice Board is not intended to be exhaustive but includes all
material factors considered by the Spice Board. The Spice Board found that each
of the factors specified in paragraphs (a) through (l) above supported its
recommendation and conclusions. Because of the variety of factors considered,
however, the Spice Board did not find it practicable to quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Spice Board may have given
different weights to different factors. For a discussion of the interests of
certain members of Spice's management and the Spice Board in the Transactions,
see "--Interests of Certain Persons in the Transactions."
OPINION OF SPICE'S FINANCIAL ADVISOR
FAIRNESS OPINION
ING Barings was retained by Spice as its financial advisor to assist Spice
in the merger negotiations and to render a fairness opinion in respect of the
Spice Merger because of ING Barings' qualifications and expertise in providing
financial advice to companies in the media industry, as well as its reputation
as an internationally recognized investment banking firm.
At the request of Spice, on May 29, 1998, ING Barings delivered an oral
opinion to the Spice Board, which was subsequently confirmed in writing as of
that date, that, based upon and subject to the matters set forth in its written
opinion, the $3.60 in cash (the "Cash Consideration") and the 0.1371 (as may be
adjusted in accordance with the Merger Agreement) of one share of New Playboy
Class B Common Stock (the "Playboy Stock Consideration" and, together with the
Cash Consideration, the "Cash and Playboy Stock Consideration") per share of
Spice Common Stock, to be received from Playboy by the holders of Spice Capital
Stock as part of the Merger Consideration was fair from a financial point of
view to the holders of Spice Capital Stock. ING Barings' opinion addresses only
the fairness, from a financial point of view, of the Cash and Playboy Stock
Consideration to be received by holders of Spice Common Stock and does not
constitute a recommendation to any holder of Spice Capital Stock as to how such
holder should vote with respect to the approval of the Merger Agreement and the
Spice Merger.
On November 16, 1998, ING Barings, based on and subject to its written
opinion and related analyses, as outlined in that opinion, as supplemented by
the Amendment to the Merger Agreement, reaffirmed its
29
<PAGE>
written opinion that the Cash and Playboy Stock Consideration to be received
from Playboy was fair from a financial point of view to the holders of Spice
Capital Stock.
THE FULL TEXT OF ING BARINGS' WRITTEN OPINION IS ATTACHED AS APPENDIX C-1
AND THE FULL TEXT OF THE REAFFIRMATION OF ITS OPINION IS ATTACHED AS APPENDIX
C-2 TO THIS PROXY STATEMENT/PROSPECTUS AND BOTH ARE INCORPORATED BY REFERENCE.
SPICE STOCKHOLDERS SHOULD READ THE ING BARINGS OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY ING
BARINGS.
In connection with rendering its opinion dated as of May 29, 1998, ING
Barings: (a) reviewed the Merger Agreement and certain related documents and the
financial terms of the Spice Merger set forth in them; (b) reviewed the Playboy
Reports and certain other filings with the Commission made by Playboy, including
proxy statements; (c) the Spice Reports and certain other filings with the
Commission made by Spice, including proxy statements; (d) reviewed certain other
publicly available information concerning Playboy and the trading market for the
Playboy Class A Common Stock and the Playboy Class B Common Stock; (e) reviewed
certain other publicly available information concerning Spice and the trading
market for the Spice Common Stock; (f) reviewed certain non-public information
relating to Spice and Playboy, including financial forecasts and projections for
each, furnished to ING Barings by Spice and Playboy; (g) reviewed certain
publicly available information, including research reports, concerning certain
other companies engaged in businesses which ING Barings believed to be
comparable to Spice and Playboy and the trading markets for those companies'
securities; (h) reviewed the financial terms of certain recent mergers and
acquisitions which ING Barings believed to be relevant; (i) conducted
discussions with certain members of senior management of Spice and Playboy
concerning their respective businesses, operations, assets, present condition
and future prospects; and (j) performed such other analyses, examinations and
procedures, reviewed such other agreements and documents, and considered such
other factors, as ING Barings deemed to be necessary, appropriate or relevant to
render an opinion.
In reaching its opinion, ING Barings assumed and relied upon the accuracy
and completeness of the financial and other information obtained from public
sources or provided by Spice or Playboy and did not assume responsibility for
any independent verification of such information or undertake any obligation to
verify such information. In addition, with respect to the financial forecasts
and projections of Spice or Playboy used in ING Barings' analysis, the
management of Spice or Playboy informed ING Barings that such forecasts and
projections represent the best current judgment of the management of Spice or
Playboy as to the future financial performance of Spice or Playboy on a
stand-alone basis, and ING Barings assumed that the projections had been
reasonably prepared based on such current judgment. ING Barings assumed no
responsibility for, and expressed no view as to, such forecasts and projections
or the assumptions on which they were based. For purposes of its opinion, ING
Barings was not requested to, and did not, solicit third party indications of
interest in acquiring all or any part of Spice.
ING Barings also took into account its assessment of general economic,
market and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in general. ING Barings' opinion
necessarily is based upon market, business and other conditions as of May 29,
1998, and can only be evaluated as of such date, and does not represent an
opinion as to the value of the Spice Capital Stock or Playboy Capital Stock or
the impact of the Spice Merger or its announcement on the trading price of the
Spice Common Stock or the Playboy Capital Stock.
TRANSACTION VALUATION ANALYSIS
ING Barings calculated the nominal Cash and Playboy Stock Consideration to
be received by the holders of Spice Capital Stock based on the range of prices
of Playboy Class B Common Stock set forth in the Merger Agreement of $16.042 to
$20.988 (the "Collar Prices"). The nominal Cash and Playboy Stock Consideration
to be received by the holders of Spice Capital Stock is $5.88 to $6.48,
respectively, per share
30
<PAGE>
of Spice Common Stock. ING Barings calculated a range of "Transaction Values,"
defined as the transaction value of equity, which is based on the range of
nominal Cash and Playboy Stock Consideration defined by the Collar Prices
multiplied by the number of fully diluted shares of Spice Common Stock
outstanding plus the net value of options and warrants and non-operating
adjustments, including total debt. The range of Transaction Values was analyzed
as a multiple of current (1997 actual) and forward (1998) year earnings before
interest, taxes, depreciation and amortization ("EBITDA") exclusive of the
EBITDA of the businesses to be transferred to Directrix (the "Spice Merger
EBITDA"). The Transaction Value multiples of current and forward year Spice
Merger EBITDA associated with the Spice Merger ranged from 16.1x to 18.0x, and
15.7x to 17.6x, respectively. ING Barings calculated EBITDA multiples based on
Transaction Values in order to compare those multiples to the multiples
calculated in the comparable company trading analysis and comparable transaction
analysis discussed below.
COMPARABLE COMPANY TRADING ANALYSIS
ING Barings prepared a comparable company trading analysis that consisted of
reviewing financial market and operating performances of selected
publicly-traded cable network companies which were considered to be comparable
companies ("Selected Comparable Cable Network Companies") to Spice. ING Barings
noted that each of the Selected Comparable Cable Network Companies is
distinguishable from Spice, and that, accordingly, an analysis of the results of
those companies necessarily involves complex considerations and judgments
concerning differences in the financial and operating characteristics of the
companies and other factors to which they are being compared. The multiples and
ratios for each of the Selected Comparable Cable Network Companies were based on
the most recent publicly available information and published estimates of
research analysts.
The Selected Comparable Cable Network Companies included: TCI Music, Inc.;
Liberty Media Group; LodgeNet Entertainment Corporation; NTN Communications,
Inc.; On Command Corporation; Shop at Home, Inc.; United Video Satellite Group,
Inc.; and ValueVision International, Inc. With respect to the Selected
Comparable Cable Network Companies, ING Barings considered, among other
analyses, "Total Enterprise Values," defined as the market value of equity plus
the net value of options and warrants and non-operating adjustments, as a
multiple of current and forward year EBITDA. ING Barings' analysis of the
Selected Comparable Cable Network Companies indicated Total Enterprise Value
multiples of current and forward year EBITDA ranging from 8.8x to 60.8x, with a
median of 12.3x and a mean of 22.8x, and 7.4x to 29.2x, with a median of 10.1x
and a mean of 15.6x, respectively. ING Barings noted that the range of
Transaction Value multiples of current and forward year EBITDA calculated for
the Spice Merger (see "--Transaction Valuation Analysis") compared favorably
with the multiples derived in the comparable company trading analysis.
COMPARABLE TRANSACTION ANALYSIS
ING Barings prepared a comparable transaction analysis that consisted of
reviewing financial aspects of selected acquisitions of assets, businesses or
interests in businesses in the cable network industry, which were considered
comparable to the Spice Merger ("Selected Comparable Transactions"). ING Barings
noted that no such transactions took place under directly comparable market
conditions, competitive conditions or circumstances and that, accordingly,
qualitative judgments must be made concerning the difference between the
characteristics of these transactions and other factors and issues which would
affect the price an acquiror is willing to pay in an acquisition.
Selected Comparable Transactions included (acquiror/target): Liberty Media
Group--The News Corporation Limited--Fox/Speedvision Network, LLC; Liberty Media
Group--The News Corporation Limited--Fox/Outdoor Life Network; Founder--Liberty
Media Group/BET Holdings, Inc.; HSN, Inc./ USA Networks, Inc.; The Seagram
Company, Ltd.--Universal Studios/USA Networks, Inc.--Sci-Fi Channel; Discovery
Communications, Inc./Travel Channel, L.L.C.; ESPN (The Walt Disney
Company--ABC)/
31
<PAGE>
Classic Sports Network; Fox--Liberty Media Group/Rainbow Sports Network; The
News Corporation Limited--Fox Kids/International Family Entertainment, Inc.;
Paxson Communications Corporation/Travel Channel, L.L.C.; Comcast
Corporation--The Walt Disney Company/E! Entertainment Television, Inc.;
Westinghouse Electric Company/TNN & CMT; Silver King Communications, Inc./Home
Shopping Network, Inc.; The Providence Journal Company/The Television Food
Network, G.P.; The News Corporation Limited/fX; Time Warner Inc./Turner
Broadcasting System, Inc. (included CNN/HN, CNN International, WTBS, TNT,
TOON/Hanna Barbera, TCM and TOON/TNT Intl.); National Broadcasting Company,
Inc./ Courtroom Television Network (Cablevision Systems Corporation); Comcast
Corporation--TCI Communications, Inc./QVC, Inc.; Capital Cities-- Hearst
Communications, Inc./Lifetime Entertainment; Cablevision Systems
Corporation/American Movie Classics Company; Rockefeller Group/A&E Networks;
Liberty Media Group/Home Shopping Network, Inc.; USA Networks, Inc. (Paramount
Communications Inc./ MCA)/Sci-Fi Channel; Landmark Communications, Inc./Travel
Channel; Viacom, Inc./MTV Europe; CNBC/FNN; Liberty Broadcasting/The Family
Network Channel; Discovery Channel/Learning Channel; Hearst Communications,
Inc./ESPN; TCI Communications, Inc./Video Jukebox; Opryland USA/Country Music
TV; Cerullo/Inspirational Network; The Nostalgia Network/Marcovsky; TCI
Communications, Inc./ Family Channel; and Cox Communications--NewsChannels--TCI
Communications, Inc./Discovery Channel. ING Barings' analysis of the Selected
Comparable Transactions yielded a range of Transaction Value multiples of
current and forward year EBITDA of 2.6x to 55.5x, with a median of 15.8x and a
mean of 18.7x, and 5.1x to 60.0x, with a median of 12.2x and a mean of 14.3x,
respectively. ING Barings noted that the Transaction Value multiples of current
and forward year EBITDA calculated for the Spice Merger (see "--Transaction
Valuation Analysis") compared favorably with the multiples derived in the
comparable transaction analysis.
DISCOUNTED CASH FLOW ANALYSIS
In order to estimate an overall implied pre-tax value per share at which
Spice (exclusive of the value of the assets to be contributed to Directrix in
the Contribution) could be valued, ING Barings prepared a segment valuation
analysis based on discounted cash flows. At the request of Spice's management,
ING Barings relied upon forecasted financial information for Spice provided by
management, without independent verification.
The segment valuation analysis consisted of (a) calculating a range of net
present values for the projected unleveraged free cash flows in the forecast for
each of the following segments of Spice - Spice Networks, Spice Direct, Spice
International and Corporate Overhead - using various discount rates reflecting
the weighted average cost of capital which ING Barings deemed appropriate, and
(b) combining those values with terminal values for each segment calculated by
multiplying each segment's projected EBITDA in 2003 by a range of EBITDA
terminal value multiples which ING Barings deemed appropriate and discounting
the values using the same discount rates utilized for the unleveraged free cash
flows of the respective segment. ING Barings applied (i) discount rates ranging
from 10.0% to 20.0% and EBITDA terminal value multiples ranging from 5.0x to
7.0x to the Spice Networks segment, (ii) discount rates ranging from 15.0% to
25.0% and EBITDA terminal value multiples ranging from 6.0x to 8.0x to the Spice
Direct segment, (iii) discount rates ranging from 15.0% to 25.0% and EBITDA
terminal value multiples ranging from 6.0x to 8.0x to the Spice International
segment, and (iv) a discount rate of 10.0% and an EBITDA terminal value multiple
of 6.0x to the Corporate Overhead segment. The aggregate of each segment's net
present value of projected free cash flows combined with the net present value
of the terminal values yielded a range of implied segment values. In order to
derive a range of implied equity values per share for Spice, ING Barings made
adjustments to the range of implied segment values for the net value of options
and warrants and non-operating adjustments and then divided by the number of
fully diluted shares outstanding of Spice Common Stock. Based on such analysis,
ING Barings derived a range of implied equity values per share of Spice Common
Stock of $5.67 to $13.09. The range of nominal Cash and Playboy Stock
Consideration to be offered in the Spice Merger (see "--Transaction Valuation
Analysis") compared favorably with the range of implied equity values per share
of Spice Common Stock.
32
<PAGE>
PLAYBOY ANALYSIS
ING Barings analyzed a range of Total Enterprise Values for Playboy (the
"Playboy Total Enterprise Value"), based on the range of Collar Prices defined
in the Merger Agreement, as multiples of current and forward year revenue and
EBITDA. The Playboy Total Enterprise Value analysis also included a calculation
of Playboy Total Enterprise Values less an adjustment for the value of Playboy's
on-line business (the "Adjusted Playboy Total Enterprise Value"). The range of
Adjusted Playboy Total Enterprise Values were analyzed as multiples of current
and forward year revenue and EBITDA excluding the results of the operations of
Playboy's on-line business ("Adjusted Revenue" and "Adjusted EBITDA,"
respectively). A summary of the Playboy Total Enterprise Value multiples and the
Adjusted Playboy Total Enterprise Value multiples is presented in the table
below:
<TABLE>
<CAPTION>
CURRENT YEAR FORWARD YEAR
-------------- --------------
<S> <C> <C>
Playboy Total Enterprise Value Multiples of:
Revenue......................................................................... 1.08x--1.45x 0.99x--1.32x
EBITDA.......................................................................... 25.3x--33.9x 26.6x--35.7x
Adjusted Playboy Total Enterprise Value Multiples of:
Adjusted Revenue................................................................ 0.76x--1.13x 0.70x--1.04x
Adjusted EBITDA................................................................. 12.8x--19.1x 12.7x--18.9x
</TABLE>
ING Barings prepared a comparable company trading analysis that consisted of
reviewing financial market and operating performances of selected
publicly-traded companies which were considered to be comparable ("Selected
Comparable Diversified Entertainment Companies," "Selected Comparable Cable
Network Companies," "Selected Comparable Magazine Companies," "Selected
Comparable Catalog Marketing Companies" and "Selected Comparable Internet
Companies," collectively, the "Selected Playboy Comparable Companies") to
Playboy's operating segments. ING Barings noted that each of the Selected
Playboy Comparable Companies is distinguishable from Playboy, and that,
accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgements concerning differences in the financial
and operating characteristics of the companies and other factors to which they
are being compared. The multiples and ratios for each of the Selected Playboy
Comparable Companies were based on the most recent publicly available
information and published estimates of research analysts.
The Selected Comparable Diversified Entertainment Companies included: The
Walt Disney Company; IMAX Corporation; King World Productions, Inc.;
Metro-Goldwyn-Mayer, Inc.; The News Corporation Limited; USA Networks, Inc.; The
Seagram Company, Ltd.; Time Warner Inc.; and Viacom Inc. With respect to the
Selected Diversified Entertainment Companies, ING Barings considered, among
other analyses, Total Enterprise Value as a multiple of current and forward year
EBITDA. ING Barings' analysis of the Selected Diversified Entertainment
Companies indicated Total Enterprise Value multiples of current and forward year
EBITDA ranging from 6.9x to 17.5x, with a median of 13.2x and a mean of 13.5x,
and 6.7x to 35.8x, with a median of 12.3x and a mean of 14.8x, respectively.
The Selected Comparable Cable Network Companies included: TCI Music, Inc.;
Liberty Media Group; LodgeNet Entertainment Corporation; NTN Communications,
Inc.; On Command Corporation; Shop at Home, Inc.; United Video Satellite Group,
Inc.; and ValueVision International, Inc. With respect to the Selected
Comparable Cable Network Companies, ING Barings considered, among other
analyses, Total Enterprise Value as a multiple of current and forward year
EBITDA. ING Barings' analysis of the Selected Comparable Cable Network Companies
indicated Total Enterprise Value multiples of current and forward year EBITDA
ranging from 8.8x to 60.8x, with a median of 12.3x and a mean of 22.8x, and 7.4x
to 29.2x, with a median of 10.1x and a mean of 15.6x, respectively.
The Selected Comparable Magazine Companies included: The McGraw-Hill
Companies, Inc.; CMP Media Inc.; Primedia Inc.; The Petersen Companies, Inc.;
Reader's Digest Association, Inc.; and Scholastic Corporation. With respect to
the Selected Magazine Companies, ING Barings considered, among other
33
<PAGE>
analyses, Total Enterprise Value as a multiple of current and forward year
EBITDA. ING Barings' analysis of the Selected Magazine Companies indicated Total
Enterprise Value multiples of current and forward year EBITDA ranging from 9.8x
to 22.0x, with a median of 13.4x and a mean of 15.5x, and 7.1x to 15.9x, with a
median of 12.6x and a mean of 11.7x, respectively.
The Selected Comparable Catalog Marketing Companies included: Lillian Vernon
Corporation; Micro Warehouse, Inc.; Spiegel, Inc.; Coldwater Creek, Inc.;
Fingerhut Companies, Inc.; and Lands' End, Inc. With respect to the Selected
Catalog Marketing Companies, ING Barings considered, among other analyses, Total
Enterprise Value as a multiple of current and forward year EBITDA. ING Barings'
analysis of the Selected Catalog Marketing Companies indicated Total Enterprise
Value multiples of current and forward year EBITDA ranging from 8.1x to 12.6x,
with a median of 9.5x and a mean of 10.0x, and 6.9x to 6.9x, with a median of
6.9x and a mean of 6.9x, respectively.
The Selected Comparable Internet Companies included: Preview Travel, Inc.;
Sportsline USA, Inc.; Amazon.com, Inc.; Onsale, Inc.; and N2K, Inc. With respect
to the Selected Internet Companies, ING Barings considered, among other
analyses, Total Enterprise Value as a multiple of current and forward year
revenue. ING Barings' analysis of the Selected Internet Companies indicated
Total Enterprise Value multiples of current and forward year revenue ranging
from 3.91x to 26.73x, with a median of 11.28x and a mean of 14.44x, and 2.57x to
15.00x, with a median of 5.89x and a mean of 8.05x, respectively.
ING Barings noted that the range of Playboy Total Enterprise Value multiples
of current and forward year revenue and EBITDA and the range of Adjusted Playboy
Total Enterprise Value multiples of current and forward year Adjusted Revenue
and Adjusted EBITDA calculated for the range of Collar Prices compared favorably
with the multiples derived for the Selected Playboy Comparable Companies.
The foregoing is a summary of the material aspects of the financial analyses
used by ING Barings in connection with rendering its opinion. The preparation of
a fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Selecting portions of the analyses or
of the summary set forth above, without considering the analyses as a whole,
could create an incomplete view of the processes underlying ING Barings'
opinion. In reaching its opinion, ING Barings considered the results of all such
analyses. The analyses were prepared solely for the purposes of ING Barings
providing its opinion as to the fairness of the Cash and Playboy Stock
Consideration to be received by the holders of Spice Capital Stock, from a
financial point of view, and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
those suggested by such analyses. The estimates used by ING Barings were
developed solely for purposes of its analyses and the presentations to the Spice
Board and reflected computations of the potential values through the application
of various generally accepted valuation techniques. ING Barings' opinion and the
related presentation to the Spice Board on May 29, 1998 was one of many factors
taken into consideration by the Spice Board in making its determination to
approve the Merger Agreement and the Spice Merger. The foregoing summary does
not purport to be a complete description of the analyses performed by ING
Barings.
ING Barings' opinion is for the use and benefit of the Spice Board in its
consideration of the Spice Merger. This opinion is not intended to be and does
not constitute a recommendation to any stockholder as to how that stockholder
should vote with respect to the Merger Agreement and the Spice Merger. ING
Barings was not requested to opine as to, and its opinion does not in any manner
address, Spice's underlying business decision to proceed with or effect the
Spice Merger, or the relative merits of the Spice Merger as compared to any
alternative business strategies which might exist for Spice or the effect of any
other transaction in which Spice might engage or any agreements which might be
concluded between Spice and Playboy after the date of ING Barings' opinion.
34
<PAGE>
In the ordinary course of its business, ING Barings may actively trade the
securities of Spice and Playboy for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
In a letter agreement dated December 8, 1997, Spice agreed to pay ING
Barings a total consideration of no less than $1,000,000 payable as follows: (a)
a cash fee equal to $200,000 for the delivery of the opinion relating to the
Spice Merger payable upon delivery of the opinion, irrespective of the
conclusions reached by ING Barings in that opinion or whether the Spice Merger
is consummated; (b) a cash fee equal to $200,000 on the date of the mailing of
any proxy statement/prospectus or similar document relating to the Spice Merger;
and (c) a cash fee equal to $600,000, plus any unpaid amounts (including any
unpaid amounts because no opinion was requested) under clauses (a) and (b)
above, at the closing of the Spice Merger. In addition, Spice agreed to pay ING
Barings a cash fee of $100,000 on a pro rata basis for each $0.50 per share
increment determined on a fully diluted basis above a purchase price of $6.00
per share. The purchase price will be determined based on the average of the
closing sale prices for the Spice Common Stock for the 20 consecutive trading
day period ending five days prior to the closing of the Spice Merger or as
mutually agreed upon by ING Barings and Spice. ING Barings was paid a $100,000
non-refundable retainer upon the execution of its engagement letter with Spice
which will be credited toward any fee owed to ING Barings upon consummation of
the Transactions. Furthermore, Spice has agreed to reimburse ING Barings for
certain out-of-pocket expenses and to indemnify ING Barings for certain
liabilities arising in connection with ING Barings' opinion.
PURPOSE AND CERTAIN EFFECTS OF THE TRANSACTIONS
The purpose of the Transactions is (a) to combine Playboy and Spice, (b) to
create a new company, Directrix, which will contain certain of the existing
assets and liabilities of Spice, and (c) to distribute the Directrix Common
Stock to the stockholders of Spice. As a result of the Transactions, Playboy and
Spice will each become wholly owned subsidiaries of New Playboy, and the former
stockholders of Spice will receive all of the Directrix Common Stock pro rata
based on their ownership of, and in partial exchange for, their shares of Spice
Capital Stock. New Playboy will derive the sole benefit of Spice's brand name,
trademarks, net earnings and net book value, and the former holders of Spice
Capital Stock will have no direct interests in Spice or be able to vote with
respect to the future affairs of Spice. Although former holders of Spice Capital
Stock will no longer enjoy the possibility of a direct interest in any future
appreciation in their equity interests in Spice after the Transactions, they
will enjoy the possibility of future appreciation of their equity interests in
New Playboy. The former holders of Spice Capital Stock will also enjoy the
possibility of future appreciation of their equity interests in Directrix.
Registration of the Spice Common Stock under the Exchange Act may be
terminated upon application by Spice to the Commission if the Spice Common Stock
is neither listed on a national securities exchange nor held by more than 300
holders of record. Following consummation of the Transactions, Spice will be a
wholly owned subsidiary of New Playboy and the Spice Common Stock will be
delisted from the NASDAQ Small-Cap Market and will no longer trade publicly.
Spice expects that the Spice Common Stock will continue to be listed and traded
on the NASDAQ Small-Cap Market until the consummation of the Transactions.
Following consummation of the Transactions, neither Playboy nor Spice
expects to continue to file financial information or other reports under the
Exchange Act; however, New Playboy intends to include summarized financial
information regarding Playboy and Spice in its financial statements, to the
extent required by the rules of the Commission.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
In considering the recommendation of the Spice Board that the stockholders
approve the Merger Agreement and the Spice Merger, Spice stockholders should be
aware that certain directors and officers of
35
<PAGE>
Spice have interests in the Transactions in addition to their interests solely
as stockholders of Spice, as described below. The Spice Board was aware of these
interests when it considered and approved and the Merger Agreement and the Spice
Merger.
EXECUTIVE EMPLOYMENT AGREEMENTS
Spice and its subsidiaries entered into employment agreements with the
following executive officers effective as of the dates indicated: J. Roger
Faherty, Chairman of the Spice Board, Chief Executive Officer and President
(June 1, 1992, as amended); Daniel J. Barsky, Senior Vice President, Secretary
and General Counsel (January 1, 1997); James Cofer, Senior Vice President,
National Accounts (January 1, 1997); Steven J. Nolfi, Senior Vice President,
Affiliate Sales and Marketing (January 1, 1997); Andrew Trentacosta, Senior Vice
President, Programming and Production (January 1, 1997); Donald J. McDonald,
President of Spice Direct, Inc. (January 1, 1997); Richard Kirby, Senior Vice
President, Operations (January 1, 1997); Steve Saril, Senior Vice President,
Sales and Marketing (January 1, 1997); Jeffrey Q. Mortensen, Vice President,
Regional Sales (January 1, 1997); Shirley Rohn-Saito, Vice President, Western
Region (January 1, 1997); John R. Sharpe, Vice President and Controller (January
1, 1997); and Tom Wheling, Vice President, Great Lakes Region (January 1, 1997);
and Spice entered into a consulting agreement with Harlyn C. Enholm, Chief
Financial Officer, on February 1, 1997, as amended (collectively, the
"Employment Agreements"). Spice entered into the Employment Agreements in order
to retain senior management and sales personnel who Spice believed were critical
to the growth of the Spice Networks.
The Employment Agreements provide that the respective executive officers are
entitled to receive certain severance benefits described below if, within 18
months following a change in control of Spice, Spice terminates the employment
of the executive officer. In addition, the employment agreements with Messrs.
Faherty and Saril permit them to receive such severance benefits if they
terminate their employment for any reason within 18 months following a change in
control in Spice. In each case, the amount of the parachute payment is equal to
four times the executive officer's then current salary (including any bonuses
paid over the preceding 12 months) grossed up by the amount equal to the excise
tax on any portion of the severance benefit treated as an "excess parachute
payment" under the Code and the incremental income taxes payable on the grossed
up amount.
If triggered, the severance payments (without regard to any excise taxes or
gross-ups) payable under the Employment Agreements would be approximately as
follows: Mr. Faherty--$1,470,000; Mr. Barsky-- $735,000; Mr. Cofer--$673,000;
Mr. Nolfi--$648,000; Mr. Trentacosta--$558,000; Mr. McDonald-- $630,000; Mr.
Kirby--$735,000; Mr. Saril--$1,050,000; Mr. Mortensen--$434,000; Ms.
Rohn-Saito-- $434,000; Mr. Sharpe--$387,000; Mr. Wehling--$413,000; and Mr.
Enholm--$1,050,000. Approximately $8,512,000 of the aggregate severance payments
being made to these Spice officers will not be deductible for Federal income tax
purposes.
After the Spice Merger, it is anticipated that none of the executive
officers will continue to be employed by New Playboy, Playboy or Spice, and that
all will be entitled to the severance payments described above.
Mr. Faherty and Spice entered into a deferred compensation agreement under
which Spice is obligated to provide Mr. Faherty with retirement benefits after
he reaches the age of 65 and also provides for early retirement benefits.
Spice's obligations under this deferred compensation agreement are funded, in
part, by life insurance policies on Mr. Faherty's life. As a result of the Spice
Merger, New Playboy will assume responsibility under this agreement and will
become the owner of the life insurance policies.
DIRECTRIX EMPLOYMENT AGREEMENTS
To provide experienced and consistent management for Directrix after the
Contribution and the Share Transfer, Directrix anticipates entering into
employment agreements with Messrs. Faherty, McDonald, Kirby and Sharpe. These
employment agreements will provide for (a) annual salaries consistent with the
36
<PAGE>
individual's responsibilities and in accordance with industry standards, and (b)
certain non-competition and non-solicitation restrictions on the activities of
the individuals. The Directrix employment agreements will provide for an annual
salary of $367,500, $185,000, $183,750 and $115,000 for Messrs. Faherty,
McDonald, Kirby and Sharpe, respectively. These executive officers will be
entitled to receive the severance payments described under "--Executive
Employment Agreements" even though they will be entering into employment
agreements with Directrix, and they may also be granted stock options and other
benefits under Directrix's benefit plans.
STOCK OPTIONS
The Merger Agreement provides that, upon consummation of the Mergers, each
outstanding option granted under the various Spice employee and directors stock
option plans and those granted to executive officers outside of the plans
(collectively, "Spice Stock Options") shall, subject to the agreement of its
holder, be deemed to have been exercised and each option holder will be entitled
to receive the Merger Consideration reduced by the exercise price and applicable
withholding taxes due on exercise of the option. The following table sets forth
the number of outstanding options for (a) each executive officer, (b) the
non-employee Spice directors, and (c) all executive officers and directors of
Spice as a group, in each case as of September 30, 1998.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
(INCLUDING EMPLOYEE DIRECTORS) NUMBER OF OPTIONS
- ------------------------------ ------------------
<S> <C>
J. Roger Faherty........................................................ 1,027,416
Harlyn C. Enholm........................................................ 57,462
Steve Saril............................................................. 336,000
Daniel J. Barsky........................................................ 86,000
Richard Kirby........................................................... 141,000
John R. Sharpe.......................................................... 17,800
NON-EMPLOYEE DIRECTORS
- ----------------------
Leland H. Nolan......................................................... 722,916
Dean R. Ericson......................................................... 50,000
Rudy R. Miller.......................................................... 20,000
Stephen K. Liebmann..................................................... 10,000
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (10 PERSONS)............ 2,468,594
</TABLE>
RESTRICTED STOCK INCENTIVE PLAN
In 1995, Spice established a restricted stock plan. Messrs. Saril, Kirby and
Barsky were granted 40,000, 36,000 and 27,000 shares, respectively, of
restricted Spice Common Stock under this plan. Under the restricted stock plan,
the restricted stock vests in the fifth year after grant if Spice continues to
employ the executive. Vesting is accelerated upon a change in control of Spice,
which will occur as a result of the Spice Merger. The shares of restricted Spice
Common Stock held by Messrs. Saril, Kirby and Barsky will vest upon consummation
of the Mergers and those officers will be entitled to receive the Merger
Consideration with respect to those shares without any payment by them.
WARRANTS
Spice issued warrants to acquire 50,000 shares of Spice Common Stock to
affiliates of each of Dean Ericson, Rudy R. Miller and Stephen K. Liebmann,
Directors of Spice. The Merger Agreement provides that, upon consummation of the
Mergers, each of these warrants shall, subject to the agreement of its holder,
be deemed to have been exercised and each warrant holder will be entitled to
receive the Merger Consideration reduced by the exercise price and applicable
withholding taxes due on exercise of the warrant.
37
<PAGE>
INDEMNIFICATION
Under the Merger Agreement and subject to certain limitations, Spice, as the
surviving corporation following the Spice Merger, will indemnify each person who
was an officer, director, employee or agent of Spice against certain
liabilities. In addition, New Playboy will cause to be maintained, with certain
limitations, directors' and officers' liability insurance policies comparable to
those currently maintained by Spice for a period of six years from consummation
of the Mergers. See "The Merger Agreement--Certain Covenants--Indemnification
and Insurance."
FEDERAL INCOME TAX CONSEQUENCES
PLAYBOY MERGER
The discussion set forth below describes the material Federal income tax
consequences of the Playboy Merger. This discussion is based upon the provisions
of the Code, applicable Treasury Regulations, judicial decisions and current
administrative rulings, any of which may be changed at any time with retroactive
effect. The 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 life insurance companies, foreign persons,
tax-exempt entities and holders who acquired their Playboy Capital Stock upon
exercise of employee stock options or otherwise as compensation) and does not
address any aspect of state, local or foreign taxation. The discussion also
assumes that Playboy Capital Stock will be held as a capital asset at the time
of the consummation of the Playboy Merger. No rulings have been or will be
requested from the IRS with respect to any of the matters discussed. There can
be no assurance that future legislation, regulations, administrative rulings or
court decisions would not alter the tax consequences set forth below.
Based upon representation letters, which will be confirmed by Playboy and
Spice prior to the consummation of the Mergers, it is the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison that the Playboy Merger will be treated as a
tax-free transfer of property to New Playboy by the holders of Playboy Capital
Stock governed by Section 351 of the Code. The opinion is based on current law
and assumes that the Mergers will be consummated as described in this Proxy
Statement/Prospectus and in accordance with the Merger Agreement and the other
Transaction Agreements in their current form. The opinion is not binding on the
IRS. It is a condition to the obligations of Playboy to consummate the Playboy
Merger that it shall have received confirmation, dated as of the consummation of
the Mergers, of the opinion contained in this paragraph.
TREATMENT OF NEW PLAYBOY, PLAYBOY AND PLAYBOY MERGER CORP. No gain or loss
will be recognized by New Playboy, Playboy or Playboy Merger Corp. as a result
of the Playboy Merger.
CONVERSION OF PLAYBOY CAPITAL STOCK INTO NEW PLAYBOY CAPITAL STOCK. A
holder of Playboy Capital Stock whose shares of Playboy Capital Stock are
converted in the Playboy Merger into shares of New Playboy Capital Stock will
not recognize gain or loss upon such conversion. The tax basis of the New
Playboy Capital Stock received by the holder will be equal to the tax basis of
the Playboy Capital Stock so converted, and the holding period of the New
Playboy Capital Stock will include the holding period of the Playboy Capital
Stock so converted.
REPORTING REQUIREMENTS. Each holder of Playboy Capital Stock that receives
New Playboy Capital Stock in the Playboy Merger will be required to retain
records and file with the holder's Federal income tax return a statement setting
forth certain facts relating to the Playboy Merger.
SHARE TRANSFER AND SPICE MERGER
The discussion set forth below describes the material Federal income tax
consequences of the Share Transfer and the Spice Merger. This discussion is
based upon the provisions of the Code, applicable
38
<PAGE>
Treasury Regulations, judicial decisions and current administrative rulings, any
of which may be changed at any time with retroactive effect. The 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 life 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) and does not address any aspect of state,
local or foreign taxation. The discussion also assumes that Spice Capital Stock
will be held as a capital asset at the time of the consummation of the Spice
Merger. No rulings have been or will be requested from the IRS with respect to
any of the matters discussed. There can be no assurance that future legislation,
regulations, administrative rulings or court decisions would not alter the tax
consequences set forth below.
Based upon representation letters, which will be confirmed by Playboy and
Spice prior to the consummation of the Mergers, it is the opinion of Kramer,
Levin, Naftalis & Frankel that the Spice Merger will be treated as a tax-free
transfer of property to New Playboy by the holders of Spice Capital Stock
governed by Section 351 of the Code. The opinion is based on current law and
assumes that the Mergers will be consummated as described in this Proxy
Statement/Prospectus and in accordance with the Merger Agreement and the other
Transaction Agreements in their current form. The opinion is not binding on the
IRS. It is a condition to the obligation of Spice to consummate the Spice Merger
that it shall have received confirmation, dated as of the consummation of the
Mergers, of the opinion contained in this paragraph. No opinion has been sought
as to the tax consequences of the Share Transfer.
TREATMENT OF NEW PLAYBOY, SPICE AND SPICE MERGER CORP. Spice will recognize
gain on the Share Transfer in an amount equal to the difference between the fair
market value of the Directrix Common Stock and Spice's tax basis in the assets
contributed to Directrix in the Contribution (net of the liabilities assumed by
Directrix). Other than such gain recognized by Spice, no gain or loss will be
recognized by Spice, New Playboy or Spice Merger Corp. as a result of the Spice
Merger.
RECEIPT OF DIRECTRIX COMMON STOCK IN 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 Directrix
Common Stock in exchange for a portion of that 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 that holder's
total Spice Capital Stock as the fair market value of the Directrix Common Stock
received bears to the total fair market value of the Merger Consideration
received by that holder in the Share Transfer and the Spice 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
Directrix 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 IRS 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 New Playboy, Playboy, Spice or Directrix will be obligated to indemnify
Spice stockholders for any such tax. If the Share Transfer were treated as a
dividend, however, certain corporate holders could be eligible for a dividends
received deduction with respect to such dividend.
The tax basis of the Directrix Common Stock received will equal its fair
market value. The holding period of the Directrix Common Stock will begin on the
day after consummation of the Share Transfer.
EXCHANGE OF SPICE STOCK FOR MERGER CONSIDERATION. With respect to the
portion of the Spice Capital Stock that is not treated as redeemed in the Share
Transfer (the "Converted Shares"), except as discussed
39
<PAGE>
below under "--Cash in Lieu of Fractional Shares" and "--Transfer Taxes," a
holder whose shares of Spice Capital Stock are converted in the Spice Merger
into the right to receive the Merger Consideration will recognize any capital
gain realized in the transaction, to the extent discussed below, but will not
recognize any loss realized in the transaction. The amount of capital gain that
is recognized will be calculated separately for each portion of each block
(i.e., shares of Spice Capital Stock acquired at the same time in a single
transaction) of Spice Capital Stock treated as Converted Shares. The amount of
gain recognized, if any, will be an amount equal to the lesser of (a) the amount
of gain realized in respect of the Converted Share portion of that block (i.e.,
the excess of (i) the sum of the amount of cash and the fair market value of New
Playboy Class B Common Stock received that is allocable to the Converted Share
portion of that block of Spice Capital Stock over (ii) the tax basis of the
Converted Share portion of that block), and (b) the sum of the amount of cash
received that is allocable to the Converted Share portion of that block. For
this purpose, all of the cash and New Playboy Class B Common Stock received by a
holder will be allocated proportionately among the Converted Share portions of
the blocks of Spice Capital Stock. Any gain recognized will be capital gain and
will be long-term capital gain if the holder has held the block of Spice Capital
Stock for more than one year. For holders who are individuals, net long-term
capital gain is generally taxed at lower rates than ordinary income.
The aggregate tax basis of the New Playboy Class B Common Stock received by
a holder in exchange for a Converted Share portion of a block of Spice Capital
Stock will be equal to the aggregate tax basis allocable to that portion of the
block of Spice Capital Stock, increased by the amount of any gain recognized by
the holder in the Spice Merger (but not in the Share Transfer) with respect to
such Converted Share portion of that block, and decreased by the amount of cash
received. The holding period of the New Playboy Class B Common Stock received in
exchange for a block of Spice Capital Stock will include the holding period of
that block of Spice Capital Stock.
CASH IN LIEU OF FRACTIONAL SHARES. A holder of Spice Capital Stock who
receives cash in lieu of fractional shares of New Playboy Class B Common Stock
will be treated as having received the fractional shares in the Spice Merger and
then as having exchanged the fractional share for cash in a redemption by New
Playboy. Any gain or loss attributable to fractional shares will generally be
capital gain or loss. The amount of the gain or loss will be equal to the
difference between the ratable portion of the tax basis of the Spice Capital
Stock converted in the Spice Merger that is allocated to the fractional share
and the cash received in lieu of it. Any capital gain or loss will constitute
long-term capital gain or loss if Spice Capital Stock has been held by the
holder for more than one year at the time of the consummation of the Spice
Merger. For holders who are individuals, net long-term capital gain is generally
taxed at lower rates than ordinary income.
DISSENTING HOLDERS OF SPICE STOCK. A holder of Spice Capital Stock that
receives solely cash in exchange for that stock in the Spice Merger by virtue of
the exercise of dissenter's rights will recognize capital gain or loss at the
time of the consummation of the Spice Merger equal to the difference between the
tax basis of the Spice Capital Stock surrendered in the Spice Merger and the
amount of cash received for it. The 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 Spice
Merger. For holders who are individuals, net long-term capital gain is generally
taxed at lower rates than ordinary income. See "--Transfer Taxes" below.
TRANSFER TAXES. It is possible that Spice may pay certain state and local
real property transfer taxes ("Transfer Taxes") that arise as a result of the
Spice Merger. Any such payments could be considered for Federal income tax
purposes to be additional consideration paid to each holder of Spice Capital
Stock. In that event, each holder would be treated as if it received cash equal
to the amount of Transfer Taxes paid on its behalf, which could result in
additional taxable gain to the holder and a corresponding increase in tax basis
of the holder's shares of New Playboy Class B Common Stock.
40
<PAGE>
REPORTING REQUIREMENTS. Each holder of Spice Capital Stock that receives
New Playboy Class B Common Stock in the Spice Merger will be required to retain
records and file with the holder's Federal income tax return a statement setting
forth certain facts relating to the Spice Merger.
THIS FEDERAL INCOME TAX DISCUSSION IS A GENERAL DESCRIPTION AND MAY NOT
APPLY TO ALL HOLDERS OF PLAYBOY CAPITAL STOCK OR SPICE CAPITAL STOCK. THE
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE TRANSACTIONS.
REGULATORY APPROVALS
The consummation of the Transactions is subject to certain regulatory
requirements, including expiration or termination of the applicable waiting
periods under the HSR Act. The HSR Act provides that certain merger and
acquisition transactions (including the Mergers) may not be consummated until
notifications and certain information have been given to the Antitrust Division
and the FTC and certain waiting period requirements have been satisfied. The
waiting period under the HSR Act expired on March 29, 1998. At any time before
or after the consummation of the Transactions, the Antitrust Division, the FTC
or another third party could seek to enjoin or rescind the Transactions on
antitrust grounds. In addition, at any time before or after the consummation of
the Transactions, and notwithstanding that the waiting period under the HSR Act
has expired, any state could take action under state antitrust laws that it
deems necessary or desirable in the public interest.
ACCOUNTING TREATMENT
The Transactions will be accounted for by New Playboy under the purchase
method of accounting for business combinations. See "Unaudited Pro Forma
Combined Financial Statements."
CERTAIN FEES AND EXPENSES
Playboy retained Bear Stearns under the terms of a letter agreement as its
financial advisor to provide financial analyses and advice. Playboy agreed to
pay Bear Stearns, as compensation for its services, a fee of $1 million, $50,000
of which was payable upon execution of a letter of intent, $100,000 of which was
payable upon execution of the Merger Agreement, and $850,000 of which is payable
upon consummation of the Transactions, and to reimburse Bear Stearns for certain
out-of-pocket expenses incurred in connection with its services to Playboy.
Playboy also agreed to indemnify Bear Stearns, its affiliates, the respective
directors, officers, partners, agents and employees of Bear Stearns and its
affiliates, and each person, if any, controlling Bear Stearns or any of its
affiliates, against certain liabilities, including liabilities under the Federal
securities laws.
Spice engaged ING Barings as its financial advisor to provide financial
analyses and advice and to render an opinion to the Spice Board as to the
fairness to the holders of Spice Capital Stock, from a financial point of view,
of the consideration to be received by the stockholders under the terms of a
potential business combination between Playboy and Spice. The terms of the
engagement were set forth in a letter agreement described under "--Opinion of
Spice's Financial Advisor."
STOCK EXCHANGE LISTING
New Playboy will apply for the listing of New Playboy Class A Common Stock
and New Playboy Class B Common Stock under the symbols PLAA and PLA,
respectively, on both the NYSE and the PE. It is a condition to the consummation
of the Mergers that the shares of New Playboy Class B Common Stock to be issued
in connection with the Mergers will have been approved for listing on the NYSE,
subject only to official notice of issuance.
41
<PAGE>
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of New Playboy Capital Stock received by Playboy and Spice
stockholders in the Mergers will be freely transferable under the Federal
securities laws, except that shares of New Playboy Capital Stock and the
Directrix Common Stock received by persons who are deemed to be "affiliates" (as
defined under the Securities Act) of Playboy or Spice prior to the consummation
of the Mergers may be resold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act (or Rule 144 in the case
of persons who become affiliates of New Playboy) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of Playboy, Spice
or New Playboy generally include individuals or entities that control, are
controlled by, or are under common control with, those parties.
APPRAISAL AND DISSENTERS' RIGHTS
Holders of record of Spice Common Stock who do not vote in favor of the
Merger Agreement and the Spice Merger and who otherwise comply with the
applicable statutory procedures summarized in the Proxy Statement/Prospectus
will be entitled to appraisal rights under Section 262 ("Section 262") of the
General Corporation Law of the State of Delaware ("DGCL"). Holders of record of
Spice Convertible Preferred Stock who otherwise comply with the applicable
statutory procedures summarized in the Proxy Statement/ Prospectus will also be
entitled to appraisal rights under Section 262. A person having a beneficial
interest in shares of Spice Capital Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect appraisal rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX D. ALL
REFERENCES IN SECTION 262 AND IN THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE
TO THE RECORD HOLDER OF THE SHARES OF SPICE CAPITAL STOCK AS TO WHICH APPRAISAL
RIGHTS ARE ASSERTED.
Under the DGCL, holders of shares of Spice Capital Stock who follow the
procedures set forth in Section 262 (collectively, "Appraisal Shares") will be
entitled to have their Appraisal Shares appraised by the Delaware Chancery Court
and to receive payment in cash of the "fair value" of the Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Spice Merger, together with a fair rate of interest, if any, as
determined by the court.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, must notify each of its stockholders who was a stockholder on the
record date for the meeting of shares for which appraisal rights are available,
that appraisal rights are so available, and must include in the notice a copy of
Section 262.
This Proxy Statement/Prospectus constitutes notice to the Spice stockholders
and the applicable statutory provisions of the DGCL are attached to this Proxy
Statement/Prospectus as Appendix D. Any stockholder who wishes to exercise
appraisal rights or who wishes to preserve his, her or its right to do so should
review the following discussion and Appendix D carefully, because failure to
timely and properly comply with the procedures specified will result in the loss
of appraisal rights under the DGCL.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE APPRAISAL RIGHTS (A) MUST
DELIVER TO SPICE PRIOR TO THE VOTE ON THE MERGER AGREEMENT AND THE SPICE MERGER
AT THE SPICE SPECIAL MEETING TO BE HELD ON DECEMBER 30, 1998, A WRITTEN DEMAND
FOR APPRAISAL OF THE HOLDER'S APPRAISAL SHARES, AND (B) MUST NOT VOTE IN FAVOR
OF THE MERGER AGREEMENT AND THE SPICE MERGER. A HOLDER OF APPRAISAL SHARES
WISHING TO EXERCISE APPRAISAL RIGHTS MUST BE
42
<PAGE>
THE RECORD HOLDER OF THE APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE AND MUST CONTINUE TO HOLD THE APPRAISAL SHARES OF RECORD UNTIL
THE CONSUMMATION OF THE SPICE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES
WHO IS THE RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR
APPRAISAL IS MADE, BUT WHO TRANSFERS THE APPRAISAL SHARES PRIOR TO THE
CONSUMMATION OF THE SPICE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF
THE APPRAISAL SHARES.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as the holder's name appears on the holder's stock certificates. If
Appraisal Shares are owned of record in a fiduciary capacity, as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity
and, if Appraisal Shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for the
owner or owners. A record holder such as a broker who holds Appraisal Shares as
nominee for several beneficial owners may exercise appraisal rights with respect
to the Appraisal Shares held for one or more beneficial owners while not
exercising those rights with respect to the Appraisal Shares held for other
beneficial owners. In that case, the written demand should set forth the number
of Appraisal Shares as to which appraisal is sought. When no number of Appraisal
Shares is expressly mentioned, the demand will be presumed to cover all
Appraisal Shares held in the name of the record owner. Stockholders who hold
their Appraisal Shares in brokerage accounts or other nominee forms and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
the nominee.
ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO SPICE AT
536 BROADWAY, 7TH FLOOR, NEW YORK, NEW YORK 10012, ATTENTION: SECRETARY.
Within ten days after the consummation of the Spice Merger, Spice will
notify each stockholder who has properly asserted appraisal rights under Section
262 and has not voted in favor of the Merger Agreement and the Spice Merger of
the date that the Spice Merger became effective.
Within 120 days after the consummation of the Spice Merger, but not
thereafter, Spice or any stockholder who had complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery Court
demanding a determination of the fair value of Appraisal Shares. Spice is under
no obligation and has no present intention to file a petition with respect to
the appraisal of the fair value of Appraisal Shares. Accordingly, it is the
obligation of the stockholders to initiate all necessary action to perfect their
appraisal rights within the time prescribed in Section 262.
Within 120 days after the consummation of the Spice Merger, any stockholder
who has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from Spice a statement setting forth
the aggregate number of Appraisal Shares not voted in favor of adoption of the
Merger Agreement and the Spice Merger and with respect to which demands for
appraisal have been received and the aggregate number of holders of the
Appraisal Shares. The statements must be mailed within ten days after a written
request for them has been received by Spice.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Chancery Court will determine the stockholders entitled
to appraisal rights and will appraise the "fair value" of their Appraisal
Shares, exclusive of any element of value arising from the accomplishment or
expectation of the Spice Merger, together with a fair rate of interest, if any,
to be paid upon the amount determined to be the
43
<PAGE>
fair value. Stockholders considering seeking appraisal should be aware that the
fair value of their Appraisal Shares as determined under Section 262 could be
more than, the same as or less than the value of the consideration they would
receive under the Merger Agreement if they did not seek appraisal of their
Appraisal Shares and that investment banking opinions as to fairness from a
financial point of view are not necessarily opinions as to fair value under
Section 262. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and expenses and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who has duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Spice
Merger, be entitled to vote Appraisal Shares subject to the demand for any
purpose or be entitled to the payment of dividends or other distributions on
those Appraisal Shares (except dividends or other distributions payable to
holders of record of Appraisal Shares as of a record date prior to the
consummation of the Spice Merger).
If a stockholder who properly demands appraisal of his, her or its Appraisal
Shares under Section 262 fails to perfect, or effectively withdraws or loses,
his, her or its right to appraisal, as provided in the DGCL, Appraisal Shares of
that stockholder will be converted into the right to receive the Merger
Consideration with respect to those Appraisal Shares. A stockholder will fail to
perfect, or effectively withdraw or lose, his, her or its right to appraisal if,
among other things, no petition for appraisal is filed within 120 days after the
consummation of the Spice Merger, or if the stockholder delivers to Spice a
written withdrawal of the demand for appraisal. Any attempt to withdraw an
appraisal demand more than 60 days after the consummation of the Spice Merger
will require the written approval of Spice.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING APPRAISAL
RIGHTS MAY RESULT IN THE LOSS OF THOSE RIGHTS, IN WHICH EVENT A STOCKHOLDER WILL
BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH RESPECT TO APPRAISAL
SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT.
44
<PAGE>
THE MERGER AGREEMENT
The following summarizes the material terms of the Merger Agreement, a copy
of which is attached as Appendix A-1, as amended by the Amendment to the Merger
Agreement, a copy of which is attached as Appendix A-2, and both of which are
incorporated by reference. The following summary is qualified in its entirety by
reference to the complete text of the Merger Agreement. All Spice stockholders
are urged to read the Merger Agreement in its entirety.
THE MERGERS
In the Mergers and under the terms and subject to the conditions set forth
in the Merger Agreement, Playboy Merger Corp. will be merged with and into
Playboy in the Playboy Merger, and Spice Merger Corp. will be merged with and
into Spice in the Spice Merger. Following the Playboy Merger and the Spice
Merger, Playboy and Spice will each be wholly-owned subsidiaries of New Playboy.
The Merger Agreement also contemplates certain other transactions included in
the Transactions, such as the Contribution and the Share Transfer, which are
described under "Other Transaction Agreements."
Subject to the conditions set forth in the Merger Agreement, the closing of
the Mergers (the "Closing") will take place on a date following satisfaction or
waiver of the conditions described under "-- Conditions to the Merger" below,
(i) if on or prior to March 1, 1999, at a time and date specified by Playboy,
(ii) if after March 1, 1999, on the fifth business day following satisfaction or
waiver of those conditions, or (iii) at any other time or date as the parties
may mutually agree (the "Closing Date"). Each of the Playboy Merger and the
Spice Merger will become effective at the time specified in its respective
certificate of merger filed with the Secretary of State of the State of
Delaware. The time at which the Playboy Merger and the Spice Merger become
effective is referred to as the "Effective Time of the Mergers."
CONVERSION OF PLAYBOY CAPITAL STOCK
At the Effective Time of the Mergers, (a) each issued and outstanding share
of Playboy Class A Common Stock, other than shares held directly or indirectly
by Playboy, will be converted into one share of a substantially identical series
of New Playboy Class A Common Stock and, upon conversion, all shares of Playboy
Class A Common Stock will be canceled and retired and will cease to exist and
(b) each issued and outstanding share of Playboy Class B Common Stock, other
than shares held directly or indirectly by Playboy, will be converted into one
share of a substantially identical series of New Playboy Class B Common Stock
and, upon conversion, all shares of Playboy Class B Common Stock will be
canceled and retired and will cease to exist.
AT THE EFFECTIVE TIME OF THE MERGERS, (A) EACH CERTIFICATE REPRESENTING
OUTSTANDING SHARES OF PLAYBOY CLASS A COMMON STOCK WILL, WITHOUT ANY ACTION ON
THE PART OF ITS HOLDER, BE DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES OF NEW
PLAYBOY CLASS A COMMON STOCK, AND (B) EACH CERTIFICATE REPRESENTING OUTSTANDING
SHARES OF PLAYBOY CLASS B COMMON STOCK WILL, WITHOUT ANY ACTION ON THE PART OF
ITS HOLDER, BE DEEMED TO REPRESENT AN EQUAL NUMBER OF SHARES OF NEW PLAYBOY
CLASS B COMMON STOCK.
HOLDERS OF PLAYBOY CAPITAL STOCK SHOULD NOT SUBMIT CERTIFICATES REPRESENTING
THEIR SHARES OF PLAYBOY CAPITAL STOCK FOR EXCHANGE.
CONVERSION OF SPICE COMMON STOCK
At the Effective Time of the Mergers, each issued and outstanding share of
Spice Common Stock, other than shares held in the treasury of Spice and shares
with respect to which appraisal rights are exercised and perfected, will be
converted into the right to receive (a) $3.60 in cash (subject to increase if
45
<PAGE>
the Average Closing Price is less than $13.00), (b) 0.1371 of one share of New
Playboy Class B Common Stock (subject to adjustment if the Average Closing Price
is either less than $16.042 or greater than $20.488), and (c) 0.125 of one share
of Directrix Common Stock (collectively, the "Merger Consideration"). See, in
connection with the Directrix Common Stock, "Other Transaction Agreements." If
the Average Closing Price is less than $16.042, each share of Spice Common Stock
will be converted into that number of shares of New Playboy Class B Common Stock
equal to $2.20 per Spice share and, if the Average Closing Price is greater than
$20.488, each share of Spice Common Stock will be converted into that number of
shares of New Playboy Class B Common Stock equal to $2.81 per Spice share. If
the Average Closing Price is less than $13.00, then 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 any combination of cash and
New Playboy Class B Common Stock. Upon conversion, all shares of Spice Common
Stock will be canceled and retired and will cease to exist.
The following numerical examples illustrate the Merger Consideration to be
received by the stockholders of Spice:
- If the Average Closing Price were equal to $21.00, each share of Spice
Common Stock would be converted into the right to receive (a) $3.60 in
cash, (b) 0.1338 of one share of New Playboy Class B Common Stock
(obtained by dividing $2.81 by $21.00), and (c) 0.125 of one share of
Directrix Common Stock;
- If the Average Closing Price were equal to $16.00, each share of Spice
Common Stock would be converted into the right to receive (a) $3.60 in
cash, (b) 0.1375 of one share of New Playboy Class B Common Stock
(obtained by dividing $2.20 by $16.00), and (c) 0.125 of one share of
Directrix Common Stock; and
- If the Average Closing Price were equal to $12.00, each share of Spice
Common Stock would be converted into the right to receive (a) $3.60 in
cash, (b) 0.1833 of one share of New Playboy Class B Common Stock
(obtained by dividing $2.20 by $12.00), and (c) 0.125 of one share of
Directrix Common Stock. Because the Average Closing Price is less than
$13.00, Playboy would have the option to deliver all or any portion of the
value of the New Playboy Class B Common Stock in excess of 0.1692 of one
share of New Playboy Class B Common Stock (obtained by dividing $2.20 by
$13.00) in cash. In this example, therefore, Playboy could elect to
increase the amount of cash to be delivered by up to $0.17 (obtained by
multiplying the excess of 0.1833 over 0.1692 by $12.00), and reduce the
New Playboy Class B Common Stock portion of the Merger Consideration to be
delivered to as low as 0.1692 of one share of New Playboy Class B Common
Stock, per share of Spice Common Stock.
HOLDERS OF SPICE CAPITAL STOCK SHOULD NOT SEND ANY CERTIFICATES REPRESENTING
SHARES OF SPICE CAPITAL STOCK WITH THE ENCLOSED PROXY CARD. IF THE MERGER
AGREEMENT AND THE SPICE MERGER ARE APPROVED, A LETTER OF TRANSMITTAL WILL BE
MAILED AFTER THE EFFECTIVE TIME OF THE MERGERS TO EACH PERSON WHO WAS A HOLDER
OF RECORD OF OUTSTANDING SHARES OF SPICE CAPITAL STOCK IMMEDIATELY PRIOR TO THE
EFFECTIVE TIME OF THE MERGERS. SPICE STOCKHOLDERS SHOULD SEND CERTIFICATES
REPRESENTING SPICE CAPITAL STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE,
AND IN ACCORDANCE WITH THE INSTRUCTIONS CONTAINED IN, THE LETTER OF TRANSMITTAL.
TREATMENT OF PLAYBOY OPTIONS
At the Effective Time of the Mergers, each outstanding option to purchase
shares of Playboy Class A Common Stock or Playboy Class B Common Stock will be
assumed by New Playboy and converted into an option to purchase shares of New
Playboy Class A Common Stock or New Playboy Class B Common
46
<PAGE>
Stock, respectively. Following the Effective Time of the Mergers, each option
will continue to have, and will be subject to, substantially the same terms and
conditions as in effect immediately prior to the Effective Time of the Mergers.
TREATMENT OF SPICE OPTIONS AND WARRANTS
At the Effective Time of the Mergers, each outstanding Spice Stock Option or
warrant to acquire shares of Spice Common Stock will be deemed to have been
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 Spice 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 Spice Stock Options or warrants is greater than the
aggregate cash portion of the Merger Consideration payable to the holder of
those Spice Stock Options (such excess being referred to as the "Excess
Amount"), then that 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 that holder is entitled without any
reduction of such stock portion.
TREATMENT OF SPICE CONVERTIBLE PREFERRED STOCK
At the Effective Time of the Mergers, each share of Spice Convertible
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 that
share would have been entitled to receive had that share been converted into
shares of Spice Common Stock.
EXCHANGE OF CERTIFICATES
Harris Trust and Savings Bank will act as Exchange Agent for the
Transactions. Immediately prior to consummation of the Mergers, Spice will
deposit with the Exchange Agent, in trust for the benefit of Spice stockholders,
certificates representing the shares of Directrix Common Stock issuable as part
of the Merger Consideration, and Playboy will deposit with the Exchange Agent,
in trust for the benefit of Spice stockholders, the aggregate amount of cash
payable as part of the Merger Consideration and certificates representing the
New Playboy Class B Common Stock issuable as part of the Merger Consideration.
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 provided for in
the Merger Agreement. As soon as reasonably practicable after the Effective Time
of the Mergers, the Exchange Agent shall mail to each holder of Spice Capital
Stock (other than those holders who have exercised appraisal rights under
Section 262 of the DGCL), a letter of transmittal and instructions to effect the
surrender of the certificates representing Spice Capital Stock in exchange for
the Merger Consideration.
Upon surrender of a certificate representing shares of Spice Common 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 that certificate will be entitled to receive in
exchange (a) $3.60 in cash (subject to increase), (b) certificates evidencing
that number of whole shares of New Playboy Class B Common Stock which the holder
has the right to receive in the Mergers, (c) cash in respect of fractional
shares of New Playboy Class B Common Stock, (d) any dividends or other
distributions on the New Playboy Class B Common Stock declared or made after the
Effective Time of the Mergers, and (e) certificates evidencing that number of
whole shares of Directrix Common Stock which the holder has the right to receive
in the Share Transfer. Upon surrender of a certificate representing shares of
Spice Convertible 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 that certificate
will be entitled to receive in exchange the Merger Consideration that the holder
would have been entitled to receive had that holder converted its shares of
Spice Convertible Preferred Stock into
47
<PAGE>
shares of Spice Common Stock immediately prior to the Mergers. Any certificates
representing shares of Spice Capital Stock so surrendered will be canceled.
In the event of a transfer of ownership of Spice Capital Stock which is not
registered in the transfer records of Spice as of the Effective Time of the
Mergers, cash, New Playboy Class B Common Stock, dividends and other
distributions, and Directrix Common Stock may be issued and paid to a transferee
if the certificate evidencing the shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect the 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 of the Mergers
with respect to New Playboy Class B Common Stock will be paid to the holder of
an unsurrendered certificate representing shares of Spice Capital Stock. Subject
to applicable law, following surrender of any certificate formerly representing
shares of Spice Capital 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 of the Mergers
previously paid with respect to the New Playboy Class B Common Stock.
If any certificates for New Playboy Class B Common Stock and Directrix
Common Stock are to be issued in a name other than that in which the certificate
representing shares of Spice Capital 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 the 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 and Directrix 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 the
tax has been paid or is not payable.
In the event any certificates representing shares of Spice Capital Stock
have been lost, stolen or destroyed, the Exchange Agent will issue cash, New
Playboy Class B Common Stock and Directrix Common Stock in exchange for the
lost, stolen or destroyed certificates upon the making of an affidavit of that
fact by the owner of the certificates; provided, however, that New Playboy may,
in its discretion, require the holder of the 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, Playboy nor Spice will be liable to any holder of Spice
Capital Stock for any Merger Consideration delivered to a public official as
required by 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 those amounts as Playboy or
the Exchange Agent is required to deduct and withhold with respect to the making
of any payment under any provision of federal, state, local or foreign tax law.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
SPICE STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME OF THE MERGERS AS TO
THE METHOD OF EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF SPICE
CAPITAL STOCK. SPICE STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING
THEIR SHARES TO THE EXCHANGE AGENT PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
Playboy, New Playboy, Playboy Merger Corp. and Spice Merger Corp., on the one
hand, and Spice on the other hand, as to, among other things: (a) due
organization, good standing and absence of violations of organizational
documents; (b) capital structure; (c) ownership of subsidiaries; (d) requisite
corporate power and authority to enter into the Merger Agreement and the other
Transaction Agreements and to consummate the
48
<PAGE>
transactions provided for in them; (e) due authorization, execution and delivery
of the Merger Agreement; (f) validity and enforceability of the Merger
Agreement; (g) the disclosure contained in documents filed with the Commission;
(h) required filings and approvals; (i) absence of defaults; (j) absence of
certain undisclosed liabilities and certain material changes; (k) absence of
certain litigation; (l) compliance with applicable laws; (m) tax matters; (n)
matters relating to brokers; and (o) matters relating to the Investment Company
Act of 1940, as amended.
In addition, the Merger Agreement contains representations and warranties of
Spice to Playboy as to, among other things: (a) employee benefit plans; (b)
compliance with environmental laws and regulations; (c) rights to Spice's
library of films; (d) marks and patents; (e) material contracts; (f) title to
properties and real estate; (g) receipt of an opinion of Spice's financial
advisor; (h) necessity of the vote of only the holders of Spice Common Stock;
(i) tangible personal property; (j) insurance; (k) absence of certain
transactions with affiliates; and (l) corporate records.
CERTAIN COVENANTS
CONDUCT OF BUSINESS PENDING THE MERGERS
Under the Merger Agreement, Spice has agreed that, prior to the Effective
Time of the Mergers, Spice will, and will cause its subsidiaries to, conduct
operations in the ordinary course of business consistent with past practice.
Specifically, prior to the Effective Time of the Mergers, Spice has agreed,
among other things and without the prior consent of Playboy, not to: (a) amend
its Certificate of Incorporation or Bylaws (or those of its subsidiaries); (b)
authorize for issuance, issue, sell or deliver any securities (except in certain
limited circumstances); (c) split, combine or reclassify any shares of its
capital stock, or declare any dividend or make any distribution in respect of
shares of its capital stock; (d) adopt a plan of liquidation, merger,
consolidation or other reorganization (other than in connection with the
Transactions); (e) alter in any fashion its corporate structure (other than in
connection with the Transactions); (f)(i) incur any indebtedness (subject to
certain exceptions), (ii) become liable for the obligations of any other person,
(iii) make any loans or investments (subject to certain exceptions), (iv)
encumber shares of its capital stock or those of its subsidiaries, or (v)
mortgage, pledge or create liens upon any of its or its subsidiaries' material
assets other than in the ordinary course of business; (g) adopt, amend or
terminate any employee benefit arrangement or increase any compensation
arrangement (subject to certain exceptions); (h) acquire, sell, lease or dispose
of any assets outside the ordinary course of business or with a value in excess
of $100,000 in the aggregate; (i) change any of its accounting principles or
practices (other than as may be required by law or generally accepted accounting
principles); (j) revalue any of its assets (subject to certain exceptions);
(k)(i) acquire any equity interest in or indebtedness of any other entity, (ii)
enter into any contract, other than in the ordinary course of business
consistent with past practice, that is not terminable at the sole option of
Spice upon six months' notice or less, or (iii) authorize any new capital
expenditures above certain amounts; (l) make or revoke any tax election or
settle or compromise any tax liability (subject to certain exceptions); (m) pay,
discharge or satisfy any obligations other than in accordance with the Merger
Agreement or in the ordinary course of business; (n) enter into or modify any
arrangement with an affiliate of Spice; (o) settle any claim against Spice
relating to the Transactions; (p) pay more than $2.4 million in fees and
expenses in connection with the Transactions; or (q) take or agree to take any
of the foregoing actions.
Under the Merger Agreement, Playboy has agreed that, prior to the Effective
Time of the Mergers, Playboy will, and will cause its subsidiaries to, conduct
operations in the ordinary course of business consistent with past practice.
Specifically, prior to the Effective Time of the Mergers, Playboy has agreed not
to: (a) amend its Certificate of Incorporation or Bylaws in any manner that
would be materially adverse to the holders of Playboy Class B Common Stock; (b)
declare any extraordinary dividends; (c) delist any of its securities from any
exchange; or (d) take or agree to take any of the foregoing actions.
49
<PAGE>
Under the Merger Agreement, Playboy and Spice have each agreed not to take
any action that would result in: (a) any of its representations and warranties
set forth in the Merger Agreement that are qualified as to materiality becoming
untrue or incorrect; (b) any of its representations and warranties that are not
qualified as to materiality becoming untrue or incorrect in any material
respect; (c) any of the conditions to the consummation of the Transactions not
being satisfied; or (d) the Mergers failing to qualify as exchanges under
Section 351 of the Code.
SOLICITATION OF TRANSACTION PROPOSALS
Under the Merger Agreement, Spice has agreed that it will not, nor will it
permit any of its subsidiaries to, nor will it authorize or permit any of its
officers, directors, employees, investment bankers, attorneys, accountants,
agents or any other advisors or representatives to directly or indirectly (a)
solicit, initiate, encourage or take any other action to facilitate the
submission of any Transaction Proposal (as defined below) or (b) propose, enter
into or participate in any discussions or negotiations regarding any Transaction
Proposal or inquiry, or furnish to any person any information with respect to
its business, properties or assets. Notwithstanding the foregoing, clauses (a)
and (b) will not apply if the Spice Board receives a Qualified Transaction
Proposal (as defined below) and concludes in good faith on the basis of advice
from outside counsel, that such action is necessary in order for the Spice Board
to act in a manner consistent with its fiduciary obligations under applicable
law. Spice has also agreed to notify Playboy of any Transaction Proposal or any
inquiry which could lead to any Transaction Proposal and the identity of the
person making any Transaction Proposal or inquiry. For purposes of the Merger
Agreement, "Transaction Proposal" means any proposal for any acquisition or
purchase of a substantial amount of assets of Spice or its subsidiaries or any
tender offer, exchange offer, merger, consolidation, business combination, sale
of substantially all its assets, sale of securities, recapitalization,
liquidation, dissolution or similar transaction involving Spice or any of its
subsidiaries or any other material corporate transaction the consummation of
which would or could reasonably be expected to impede, interfere with, prevent
or materially delay the Transactions. For purposes of the Merger Agreement,
"Qualified Transaction Proposal" means a Transaction Proposal which the Spice
Board has determined in good faith, after consultation with its outside
financial advisor, is reasonably capable of being consummated and is not subject
to any material contingencies relating to financing or, if it is subject to any
such material contingencies, the Spice Board has determined in good faith, after
consultation with its outside financial advisor, that financing is likely to be
obtained.
OTHER ACTIONS
Under the Merger Agreement, each party has agreed to use its reasonable
commercial efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Transactions.
INDEMNIFICATION AND INSURANCE
Under the Merger Agreement, Playboy has agreed that all rights to
indemnification for acts or omissions occurring at or prior to the Effective
Time of the Mergers and, as provided in the Certificate of Incorporation of
Spice (the "Spice Certificate of Incorporation") or the Bylaws of Spice (the
"Spice Bylaws"), in favor of the current or former directors or officers of
Spice or otherwise in effect as of May 29, 1998, shall survive the Spice Merger
and shall continue in full force and effect in accordance with their terms. New
Playboy has agreed to cause to be maintained for a period of not less than six
years from the Effective Time of the Mergers, directors' and officers' liability
insurance covering those persons who were covered by Spice's directors' and
officers' liability insurance policies as of May 29, 1998, to the extent that it
provides coverage for events occurring prior to the Effective Time of the
Mergers, so long as the annual premium for such coverage would not be in excess
of 175% of the annual premium currently paid by Spice
50
<PAGE>
(the "Maximum Premium"). If the policy expires, is terminated or canceled during
the six-year period, Playboy will use its reasonable efforts to cause to be
obtained as much of the insurance coverage as can be obtained for the remainder
of the six-year period for an annualized premium not in excess of the Maximum
Premium.
ACCESS TO INFORMATION; CONFIDENTIALITY
Under the Merger Agreement, Spice has agreed to afford to Playboy and its
authorized representatives reasonable access prior to the Effective Time of the
Mergers to all its respective properties, books, contracts, commitments,
personnel and records. Playboy has agreed to afford to Spice and its authorized
representatives reasonable access prior to the Effective Time of the Mergers to
certain of Playboy's executive officers and records. Except as required by law
or otherwise permitted by the Confidentiality Agreement, each of Playboy and
Spice has agreed to hold any non-public information in confidence.
CERTAIN OTHER COVENANTS
The Merger Agreement also contains customary covenants applicable to
transactions like the Mergers, including covenants relating to: (a) the delivery
of "comfort" letters relating to financial information included in this Proxy
Statement/Prospectus; (b) consultation prior to the issuance of any press
release or other public statement; (c) the listing on the NYSE of the shares of
New Playboy Class B Common Stock to be issued in the Mergers; (d) the execution
and delivery of closing documentation; and (e) use of reasonable best efforts to
cause the Mergers to qualify as a tax-free exchange under Section 351 of the
Code.
CONDITIONS TO THE MERGERS
The obligations of Playboy and Spice to consummate the Mergers are subject
to certain conditions, including the following: (a) the Merger Agreement and
other Transaction Agreements having been approved by the boards of directors of
the parties to the Merger Agreement and the stockholders of Spice; (b) no TRO,
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 being in effect; (c) all waiting periods
applicable to the consummation of the Mergers under the HSR Act having expired
or terminated; (d) the S-4 Registration Statement and the registration statement
containing the Directrix Prospectus having become effective under the Securities
Act and not being the subject of any stop order or proceedings seeking a stop
order; (e) all governmental or regulatory notices or approvals required with
respect to the Transactions having either been filed or received; and (f) the
other Transaction Agreements having been executed and delivered and the
transactions contemplated by them (including the Contribution and the Share
Transfer) having been consummated in accordance with the terms of the other
Transaction Agreements (see "Other Transaction Agreements").
The obligation of Playboy to consummate the Mergers is also subject to
additional conditions, including the following: (a) the accuracy of the
representations and warranties of Spice set forth in the Merger Agreement; (b)
Spice having performed in all material respects all obligations required to be
performed by Spice under the Merger Agreement at or prior to the Effective Time
of the Mergers; (c) the receipt by Playboy of a satisfactory opinion of its tax
counsel to the effect that the Playboy Merger will be treated for Federal income
tax purposes as an exchange governed by the provisions of Section 351 of the
Code; (d) the receipt by Spice of all necessary consents, approvals and waivers
required by Spice in order for it to consummate the Transactions; (e) the
receipt by Playboy of a secretary's certificate of Spice certifying the due
authorization and approval of the Merger Agreement and the other Transaction
Agreements by Spice; (f) the absence of any change or event which has had or
could reasonably be expected to have a material adverse effect on Spice; (g) the
Average Closing Price being equal to or greater than $13.00, or if the Closing
Date occurs after December 31, 1998, the Average Closing Price being equal to or
greater than $11.00; (h) the receipt of certain letters from each Spice
affiliate; (i) each of
51
<PAGE>
the other Transaction Agreements being duly executed and delivered in a form
satisfactory to Playboy, each of the conditions to the closing of the
transactions contemplated by the Transfer and Redemption Agreement (as defined
under "Other Transaction Agreements") being waived or satisfied to the
satisfaction of Playboy, and the transactions contemplated by the other
Transaction Agreements being otherwise consummated to the satisfaction of
Playboy; (j) the amendment by Spice of its stock option plans in such a manner
as to permit the cancellation or acceleration of Spice's options; (k)
dissenters' rights not having been asserted with respect to shares of Spice
Common Stock representing more than 5% of the outstanding shares of Spice Common
Stock; and (l) the receipt by Spice of certain agreements from the holders of
Spice Stock Options permitting the cancellation or acceleration of those
options.
The obligation of Spice to consummate the Mergers is also subject to
additional conditions, including the following: (a) the accuracy of the
representations and warranties of Playboy set forth in the Merger Agreement; (b)
the receipt by Playboy of all necessary consents, approvals or waivers required
by Playboy in order for it to consummate the Transactions; (c) Playboy having
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Effective Time of the Mergers;
(d) the receipt by Spice of a satisfactory opinion of its tax counsel to the
effect that the Spice Merger will be treated for Federal income tax purposes as
an exchange governed by the provisions of Section 351 of the Code; (e) the
receipt by Spice of a secretary's certificate of Playboy certifying the due
authorization and approval of the Merger Agreement and the other Transaction
Agreements by Playboy; (f) the listing of the New Playboy Class B Common Stock
on the NYSE; (g) the receipt by Spice of a solvency opinion with respect to
Directrix; (h) the repayment contemporaneously with the Effective Time of the
Mergers of all indebtedness of Spice under its existing credit facility; and (i)
the absence of any change or event which has had or could reasonably be expected
to have a material adverse effect on Playboy.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time of the Mergers by the mutual written consent of Playboy and Spice. Either
Playboy or Spice may also terminate the Merger Agreement if: (a) the Mergers
have not been consummated on or before March 1, 1999, unless the failure to
consummate the Mergers is the result of a willful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement; (b) at
the Spice Special Meeting, the approval of the stockholders of Spice of the
Merger Agreement and the Spice Merger is not obtained; (c) any court or other
governmental agency has issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action has become final and
nonappealable; (d) in the event of a material breach of the Merger Agreement by
Spice or Playboy, respectively (subject to certain cure provisions); or (e) any
event happens which could reasonably be expected to result in a material adverse
effect on the business of Spice or Playboy, respectively.
In addition, the Merger Agreement may be terminated at the option of Spice
if the Spice Board determines that a Transaction Proposal is a Qualified
Transaction Proposal and more favorable to the stockholders of Spice than the
Transactions, and Spice concurrently enters into a definitive agreement
providing for the implementation of the transactions contemplated by that
Transaction Proposal. In order to terminate the Merger Agreement under this
provision, Spice must give Playboy at least two business days' notice of its
intention to terminate and the Spice Board is required to take into account the
terms of any revised proposal made by Playboy during such two business day
period. Any termination under this provision will obligate Spice to pay to
Playboy a termination fee of $3 million, plus Playboy's fees and expenses
incurred in connection with the Transactions, upon execution of a definitive
agreement with respect to any Transaction Proposal or consummation of a
Transaction Proposal within 18 months after termination. If no definitive
agreement is executed with respect to a Transaction Proposal and no
52
<PAGE>
Transaction Proposal is consummated within 18 months of Spice's termination
under this provision, Spice would still be obligated to pay to Playboy a
termination fee equal to Playboy's fees and expenses.
FEES AND EXPENSES
Except for printing expenses and filing expenses, which will be shared
equally, Playboy and Spice will each pay their own costs and expenses; provided
that if Spice incurs more than $2.4 million in fees and expenses in connection
with the Transactions, its costs and expenses in excess of $2.4 million shall be
borne by Directrix. Playboy has agreed to pay an additional $500,000 in fees and
expenses on behalf of Spice. If the Merger Agreement is terminated for any
reason other than a breach by Playboy of one of its representations, warranties
or covenants, then Spice will pay a termination fee of $500,000 to Playboy.
EFFECTS OF TERMINATION
In the event of termination of the Merger Agreement, the Merger Agreement
will become void and have no effect, without any liability or obligation on the
part of Playboy or Spice, other than: (a) liability with respect to termination
payments and reimbursement of fees and expenses; (b) each party's obligation to
pay its own fees and expenses (except with respect to reimbursement of fees and
expenses); (c) certain obligations regarding indemnification of officers and
directors; and (d) liability resulting from any willful and material breach of
the Merger Agreement.
53
<PAGE>
OTHER TRANSACTION AGREEMENTS
This section of the Proxy Statement/Prospectus describes the material terms
of the Contribution, the Share Transfer and the other transactions contemplated
by the Transaction Agreements other than the Merger Agreement, the consummation
of which are conditions to the consummation of the Mergers. For more detailed
information, please refer to the Directrix Prospectus. The following
descriptions do not purport to be complete and are qualified in their entirety
by reference to the Transaction Agreements. A copy of the Transfer and
Redemption Agreement (as defined below) is attached as Appendix A-2 to this
Proxy Statement/Prospectus and is incorporated by reference. Copies of the
remaining Transaction Agreements have been filed as exhibits to the Directrix
Prospectus. All Spice stockholders are urged to read the Transfer and Redemption
Agreement and the remaining Transaction Agreements in their entirety.
Spice stockholders are being asked to vote on only the Merger Agreement and
the Spice Merger and are not being asked to vote separately on the Contribution
and the Share Transfer. If, however, the Merger Agreement is terminated and the
Closing does not occur for any reason, the Contribution, the Share Transfer and
the other transactions contemplated by the Transaction Agreements will not be
consummated.
THE TRANSFER AND REDEMPTION AGREEMENT (THE CONTRIBUTION AND THE SHARE TRANSFER)
Prior to the Effective Time of the Mergers, Spice and Directrix will enter
into the Transfer and Redemption Agreement (the "Transfer and Redemption
Agreement"), under which the following transactions, constituting the
Contribution and the Share Transfer, will be effected:
1. THE CONTRIBUTION. On the Closing Date, immediately prior to the Share
Transfer, Spice will contribute certain assets to Directrix in exchange for
Directrix Common Stock and the assumption by Directrix of certain liabilities
related to the contributed assets, as described below. Directrix and Spice will
also enter into the Explicit Rights Agreements and the Owned Rights Agreement,
as defined below.
2. THE SHARE TRANSFER. Immediately after the Contribution, Spice will
transfer all of the Directrix Common Stock to the Exchange Agent for
distribution to the Spice stockholders as part of the Merger Consideration, as
described below.
In connection with the Contribution, the Share Transfer and the Spice
Merger, Directrix and New Playboy will enter into a Non-Competition Agreement
(the "Non-Competition Agreement") and Directrix and Playboy Entertainment Group,
Inc., a wholly owned subsidiary of Playboy ("PEGI"), will enter into a Satellite
Services Agreement (the "Mandatory Services Agreement") described below.
BACKGROUND OF AND REASONS FOR THE CONTRIBUTION AND THE SHARE
TRANSFER. Because Playboy wants to acquire only certain assets of Spice in the
Transactions, Spice intends to transfer certain of its assets to its
stockholders, by means of the Contribution and the Share Transfer, as part of
the Merger Consideration. 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 Directrix, a new
subsidiary of Spice, and that, upon consummation of the Mergers, the capital
stock of Directrix would be distributed to the stockholders of Spice as part of
the Merger Consideration. As a result, the stockholders of Spice will continue
after the Spice Merger to hold a direct or indirect interest in all of Spice's
current assets, other than those to be sold to Califa Entertainment Group, Inc.
as described under "Business of Spice--Spice Hot Asset Purchase Agreement." See
also "The Transactions--Purpose and Certain Effects of the Transactions." In
addition, the Contribution and the Share Transfer will allow Directrix to adopt
strategies and pursue objectives that are more appropriate to its markets. For a
description of the business and management of Directrix and to review the
financial statements of Directrix, see the Directrix Prospectus.
THE CONTRIBUTION. In the Contribution, Spice and its subsidiaries will
contribute to Directrix on the Closing Date, immediately prior to the Share
Transfer, certain assets, including (a) all of the equipment
54
<PAGE>
and facilities relating to Spice's master control and digital playback center
(the "Operations Facility"), which has an estimated value of approximately $5.0
million, (b) an 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
programming via direct-to-home C-band satellite and the Internet, for $755,000,
and (c) in accordance with the terms of the Explicit Rights Agreements (the
"Explicit Rights Agreements") and Owned Rights Agreement (the "Owned Rights
Agreement") described below, certain rights to Spice's library of adult films.
Directrix currently has no intent to exercise the option to acquire EMI. In
addition, Spice and Directrix 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 Directrix to lease the
remaining three transponders. Spice will assign to Directrix an agreement to
provide transponder services to Black Entertainment Television, Inc., and will
make space available to Directrix on its retained transponder without charge so
that Directrix can perform the obligations under that 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 Directrix to lease an encoding system. The leases for Spice's
corporate headquarters will be divided between Spice and Directrix. The lease
for the floor on which the Operations Facility is located will be assigned by
Spice to Directrix.
In connection with the Contribution, Directrix will issue the Directrix
Common Stock to Spice 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 Directrix, and
(c) all of the liabilities relating to EMI, the Explicit C-Band Business and the
Explicit Internet Business. With respect to the liabilities relating to EMI,
while Directrix will not assume any of EMI's liabilities unless and until it
exercises the option to acquire EMI, prior to the exercise of that option,
Directrix 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 "--The Non-Competition
Agreements."
THE SHARE TRANSFER. In the Share Transfer, 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 Directrix Common Stock in partial exchange for each share of
Spice Common Stock held on the Closing Date. Each holder of shares of Spice
Convertible Preferred Stock as of the Closing Date will be entitled to receive
the number of shares of Directrix Common Stock that the holder would have been
entitled to receive had the holder converted those shares of Spice Convertible
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 Directrix Common Stock
for each share of Spice Common Stock for which a Spice Stock Option was
exercisable upon payment of the applicable exercise price. No certificates or
scrip representing fractional shares of Directrix Common Stock will be issued.
Any fractional share of Directrix Common Stock will be rounded up to one whole
share of Directrix Common Stock. The Directrix Common Stock to be received by
the Spice stockholders in the Share Transfer will also constitute part of the
Merger Consideration. Certificates representing the Directrix Common Stock will
be distributed with the other Merger Consideration upon surrender of
certificates representing shares of Spice Capital Stock. See "The Merger
Agreement--Exchange of Certificates."
After the Contribution and immediately prior to the Share Transfer, Spice
will hold all the issued and outstanding shares of Directrix Common Stock. Based
on the number of shares of Spice Capital Stock, 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 Directrix Common Stock for each share of Spice Common
Stock (and Spice Convertible Preferred Stock as if the shares of Spice
Convertible Preferred Stock had been converted into Spice Common Stock
immediately prior to the Share Transfer), approximately 2,075,000 shares of
Directrix Common Stock will be transferred to stockholders of Spice in the Share
Transfer. As a result of
55
<PAGE>
the Share Transfer, the stockholders of record of Spice as of the Closing Date
will own all of the outstanding capital stock of Directrix and Spice will retain
no ownership interest in Directrix.
OTHER TERMS OF THE TRANSFER AND REDEMPTION AGREEMENT. In the Transfer and
Redemption Agreement, Directrix 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 and the other
Transaction Agreements to which it will be a party, (c) the enforceability of
the Transfer and Redemption Agreement and the other Transaction Agreements to
which it will be a party, and (d) the noncontravention of agreements, laws and
Directrix'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 and
delivery of a services agreement and a non-competition agreement between
Directrix and Califa Entertainment Group, Inc., the execution of new transponder
agreements and new equipment lease agreements, the assignment and amendment of
Spice's office leases, obtaining all necessary third party consents and waivers,
and other customary closing conditions. Furthermore, if the Merger Agreement is
terminated and the Closing does not occur for any reason, the Contribution and
the Share Transfer will not be consummated.
The Transfer and Redemption Agreement provides that Spice and Directrix 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, successors and assigns.
Specifically, Spice will agree to indemnify Directrix for Losses arising
from (a) any breach by Spice of any covenant or agreement in the Transaction
Agreements to be performed by it after the Closing Date, (b) any liability not
to be assumed by Directrix under the Transfer and Redemption Agreement, and (c)
any misstatement of a material fact in the S-4 Registration Statement, this
Proxy Statement/Prospectus or the registration statement that includes the
Directrix Prospectus, or any omission to state a material fact required to be
stated in them 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 S-4 Registration Statement, this
Proxy Statement/Prospectus or the registration statement that includes the
Directrix Prospectus. In addition, Spice will indemnify Directrix for liability
for taxes imposed on (i) Spice that Directrix pays or otherwise satisfies, and
(ii) Directrix in respect of any period on or prior to the Closing Date,
including any taxes arising as a result of the Transactions.
Directrix will agree to indemnify Spice for Losses arising from (a) any
breach by Directrix of any representation, warranty, certificate, covenant or
agreement in the Transaction Agreements and any document delivered under any of
those agreements, (b) any breach by Spice of any covenant or agreement in the
Transaction Agreements (other than the Merger Agreement) to be performed by it
prior to the Closing Date, (c) any Assumed Liabilities, and (d) any misstatement
of a material fact in the S-4 Registration Statement, this Proxy
Statement/Prospectus or the registration statement that includes the Directrix
Prospectus, or any omission to state a material fact required to be stated in
them or necessary to make the statements in them, 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 Directrix or Spice relating to
Directrix and contained in or omitted from the S-4 Registration Statement, this
Proxy Statement/ Prospectus or the registration statement that includes the
Directrix Prospectus. In addition, Directrix will indemnify Spice for liability
for all taxes of Directrix for which Spice is not required to indemnify
Directrix as described above.
THE EXPLICIT RIGHTS AGREEMENTS. On the Closing Date, a separate Explicit
Rights Agreement will be entered into by and between Directrix and Spice with
respect to each licensor (a "Licensor") which
56
<PAGE>
licenses adult films to Spice ("Licensed Pictures") under license agreements
(the "License Agreements") and which has consented, as necessary, to the
transactions contemplated by the Explicit Rights Agreement. Under each Explicit
Rights Agreement, Spice will assign to Directrix all of Spice's C-Band Defined
Rights and Internet Defined Rights in and to the Licensed Pictures under the
License Agreements. Directrix will grant Spice a non-exclusive royalty-free
sublicense in and to the Internet Defined Rights in and to the Licensed
Pictures. Directrix will assume all of Spice's obligations and liabilities,
other than license fees, relating to the C-Band Defined Rights and Internet
Defined Rights in and to the Licensed Pictures. Spice will remain responsible
for the payment of license fees. Directrix will not receive any rights in and to
any adult films licensed to Spice's international subsidiary.
In the Explicit Rights Agreements, "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 the Explicit Version,
including the right to engage in certain incidental activities reasonably
necessary to exploit such rights. "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 the Explicit Version, including the right to engage in
certain incidental activities reasonably necessary to exploit the rights.
"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 that Licensed Picture and which is otherwise substantially similar in content
and degree of explicitness to the programming currently featured by EMI.
"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.
Under the Explicit Rights Agreements, Directrix will not be entitled to any
rights in and to any motion pictures licensed to Spice by virtue of any
renewals, extensions, amendments or other modifications of any License Agreement
made after the Closing Date. Prior to the execution of each Explicit Rights
Agreement, however, Spice will solicit from each Licensor a consent to its
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 Directrix 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 that renewal,
extension, amendment or other modification of that License Agreement. In
addition, Spice will agree not to acquire (a) an exclusive license in and to the
Internet Defined Rights in and to those motion pictures licensed pursuant to any
such renewals, extensions, amendments or other modifications, or (b) any C-Band
Defined Rights in and to any Explicit Programming or Explicit Still Images (as
defined under "--The Non-Competition Agreements") during the seven years
immediately following the Closing Date.
THE OWNED RIGHTS AGREEMENT. On the Closing Date, the Owned Rights Agreement
will be entered into between Directrix and Spice Productions, Inc., a wholly
owned subsidiary of Spice ("Spice Productions"), under which Spice Productions
will assign to Directrix all of its right, title and interest in and to the
C-Band Defined Rights and the Internet Defined Rights in and to the adult films
owned by Spice Productions (the "Owned Pictures"). Directrix will grant Spice a
non-exclusive royalty-free sublicense in and to the Internet Defined Rights in
and to the Owned Pictures. "C-Band Defined Rights," "Internet Defined Rights,"
"Explicit Version" and "Explicit Still Images" will have the same meanings as
those terms have in the Explicit Rights Agreements, except that those terms will
refer to the Owned Pictures (instead of the Licensed Pictures).
57
<PAGE>
THE NON-COMPETITION AGREEMENTS
On the Closing Date, New Playboy and Directrix will enter into the
Non-Competition Agreement which will have a term of seven years from the Closing
Date. During the term of the Non-Competition Agreement, 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, and Directrix will not,
directly or indirectly, engage in the Playboy Business and will not engage in
certain other activities which would involve Directrix in the Playboy Business.
Directrix will, however, 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 Non-Competition Agreement.
In addition, New 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 term of the Non-Competition Agreement via
C-Band satellite in certain defined territories, and Directrix 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 term of the
Non-Competition Agreement other than via C-Band satellite in certain defined
territories, via the Internet or for Additional Permitted Activities. Directrix
currently has no intent to exercise the option to acquire EMI. If Directrix were
to exercise the option, Directrix would cause EMI to comply with these
restrictions.
In the Non-Competition Agreement, "Playboy Business" means the business of
(a) producing, licensing, distributing, marketing and otherwise acquiring any
rights or conducting any other activity with respect to any kind of adult
programming (including Explicit Programming and Explicit Still Images), (b)
providing transmission of adult programming to all destinations, (c) creating
and distributing multimedia products which feature adult programming (other than
Explicit Programming or Explicit Still Images), and (d) publishing and
distributing adult magazines, books, calendars and similar materials which
feature adult still images (other than Explicit Still Images).
"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 certain incidental activities
reasonably necessary to exploit that business. "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 certain incidental activities reasonably necessary to
exploit that business. "Playback and Uplink Business" means the business of
providing playback and uplink services (as those terms are generally understood
in the cable television business) to any cable program service in any medium
used by that cable program service; provided that Directrix cannot provide
playback and uplink services for any adult programming unless the arrangements
with the cable program service providing the adult programming were negotiated
on an arm's length basis, provide for the payment for the services in cash and
provide for service rates no more favorable than the payment terms offered by
Directrix to New Playboy for similar services in the Mandatory Services
Agreement; provided further that Directrix 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 Entertainment Group, Inc., via
file servers linked to cable systems or multi-channel video programming
providers. "Additional Permitted Activities" means (a) creating and distributing
interactive adult multimedia products, (b) maintaining adult 900-number
audiotext and similar telephone services, (c) creating and marketing adult
industry-related merchandise, and (d) publishing and distributing adult
magazines, books, calendars and similar materials which feature Explicit Still
Images.
"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
58
<PAGE>
content and degree of explicitness to the movies and programming currently
featured by EMI. "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 Non-Competition Agreement also provides that, during the first five
years of its term, neither New Playboy nor Directrix will interfere with the
other party's employee relationships and neither party will solicit the other
party's employees.
On the Closing Date, J. Roger Faherty, the current Chairman of the Spice
Board and Chief Executive Officer and President of Spice, will enter into a
separate non-competition agreement with New Playboy under which Mr. Faherty will
be subject to substantially similar restrictions as those to which Directrix
will be subject under the Non-Competition Agreement; provided, however, that the
term of the non-competition agreement with Mr. Faherty will be limited to three
years.
THE MANDATORY SERVICES AGREEMENT
On the Closing Date, PEGI and Directrix will enter into the Mandatory
Services Agreement, which will have a term of two years from the Closing Date.
Under the Mandatory Services Agreement, Directrix will provide certain
transmission services for at least two of New Playboy's networks, including (a)
compression and encryption of the networks' signals, (b) playback of the
networks 24 hours per day, seven days per week, (c) fiber optic terrestrial
connectivity from the Operations Facility to an uplink facility, (d) uplink
services 24 hours per day, seven days per week, and (e) subject to certain
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 Directrix will provide services. In
addition, if PEGI elects to engage outside service suppliers to provide (i)
traffic, library and quality control services, (ii) satellite security, (iii)
network integration and scheduling, (iv) creative services, or (v) duplication,
editing and encoding for the networks, it has agreed to retain Directrix for
those services, provided that Directrix can supply those services at the same
prices and quality as PEGI could obtain from other outside service suppliers.
The Mandatory Services Agreement specifies the fees that PEGI will pay
Directrix for uplink, playback, compression and encryption and authorization
services. PEGI will also be obligated to pay Directrix an amount equal to
Directrix's costs of obtaining terrestrial connectivity for the networks. If
PEGI retains Directrix for additional services, a separate agreement will
specify the fees for those services.
In the Mandatory Services Agreement, each of Directrix 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 the
agreement. In addition, PEGI will represent and warrant to Directrix 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 rights.
If Directrix transfers all or a substantial portion of the assets relating
to the Playback and Uplink Business (as defined under "--The Non-Competition
Agreements"), the Mandatory Services Agreement may not be assigned by Directrix
without the prior written consent of PEGI, which shall not be unreasonably
withheld. If PEGI does not consent to that assignment and transfer, PEGI may
terminate the Mandatory Services Agreement. In addition, either party may
terminate the Mandatory Services Agreement in the event the other party
materially breaches any of its obligations thereunder and does not cure the
breach within ten days of notification of that breach. If PEGI terminates the
Mandatory Services Agreement for any reason other than Directrix's breach or
assignment, PEGI will be required to pay Directrix the fees under the Mandatory
Services Agreement, on a monthly basis, for the remainder of the term of that
agreement.
59
<PAGE>
BUSINESS OF PLAYBOY
Playboy is an international multi-media and entertainment company with one
of the most recognized brand names in the world. PLAYBOY magazine is the world's
best-selling men's magazine and has been recognized for 45 years for its
high-quality editorial material, interviews and pictorial features. The
magazine's success has facilitated Playboy's expansion into a variety of other,
higher growth media and entertainment business lines which leverage the Playboy
brand and create new brands for Playboy to manage. Playboy's operations are
organized into six industry segments:
PUBLISHING. PLAYBOY magazine's circulation rate base at December 31, 1997,
according to the Audit Bureau of Circulations, an independent audit agency,
ranked 12th among major U.S. consumer publications, is larger than each of
NEWSWEEK and COSMOPOLITAN and also is greater than the combined circulation rate
bases of ROLLING STONE, ESQUIRE and GQ. The Publishing Group also encompasses
Playboy's 16 international editions of PLAYBOY magazine, newsstand specials,
calendars and books.
ENTERTAINMENT. Playboy currently creates over 100 hours of high-quality
original programming each year and amortizes its programming cost against three
revenue streams: Playboy TV, home video worldwide and international television.
The Playboy TV network currently reaches approximately 19.8 million U.S. cable
addressable and satellite direct-to-home ("DTH") households. Playboy-branded
programming is sold to television networks in approximately 150 countries and
territories worldwide. Playboy has also launched international networks in the
United Kingdom, Japan, Latin America and Iberia through joint ventures and has
recently announced its intention to launch a network in Germany and other
countries through joint ventures. Playboy's programming is sold through Playboy
Home Video, one of the best selling lines of home videos in the United States.
PRODUCT MARKETING. Playboy leverages worldwide recognition and appeal of
the Playboy brand name and Rabbit Head Design by licensing the right to
manufacture, sell and distribute Playboy-branded and other related branded
consumer lifestyle products globally.
CATALOG. Playboy operates a direct mail business through four catalogs:
CRITICS' CHOICE VIDEO, COLLECTORS' CHOICE MUSIC, PLAYBOY and SPICE catalogs.
CASINO GAMING. In fiscal year 1996, Playboy announced plans to reenter the
casino gaming business as a result of its successful bid for an exclusive casino
gaming license on the island of Rhodes, Greece. Playboy, together with a
consortium of Greek investors, executed the contract with the government in
October 1996 and is renovating the historic Hotel des Roses to be the Playboy
Casino and Beach Hotel, which is expected to open by the end of calendar year
1998 or the first quarter of calendar year 1999. Although, as discussed below,
Playboy has entered into an agreement to sell its equity interest in this
project, Playboy continues to explore other gaming opportunities.
PLAYBOY ONLINE. Playboy operates a network of sites and currently derives
revenues from several sources: advertising on PLAYBOY.COM, Playboy's free site
on the Internet; subscription sales to PLAYBOY CYBER CLUB, Playboy's pay site on
the Internet; and e-commerce currently from three of Playboy's catalogs.
Playboy seeks to expand its operations' profitability by: (a) increasing
market penetration of its entertainment products worldwide, principally by
increasing the number of addressable pay television households in which Playboy
TV is available primarily through cable and satellite; (b) expanding
internationally through growth of existing products and also through the
establishment of other Playboy television networks, new international editions
and additional territories for product marketing; (c) growing its catalog
operations by expanding circulation and by acquiring or launching complementary
catalogs; (d) leveraging the Playboy brand name and position as the pre-eminent
supplier of adult entertainment through Playboy's print and video archives and
through its expansion of Playboy Online; and (e) leveraging the Playboy brand
name into casino gaming, one of the fastest-growing categories of entertainment
60
<PAGE>
worldwide. Where appropriate, Playboy intends to continue to implement such
expansion through licensing agreements and strategic alliances to minimize
capital risk.
Playboy is regularly involved in discussions with various potential
strategic partners about transactions and ventures which could expand Playboy's
business. In recent months, each of the Entertainment, Playboy Online, Casino
Gaming, Catalog and Product Marketing divisions have been involved in
discussions of this kind, some of which are ongoing.
PUBLISHING
Playboy's Publishing Group includes the publication of PLAYBOY magazine,
newsstand specials and other related products, such as calendars and books, and
licensing of international editions of PLAYBOY magazine. Playboy uses PLAYBOY
magazine to maintain and promote the Playboy brand and quality image. PLAYBOY
magazine continues to dominate the adult male market, with worldwide monthly
circulation of approximately 4.5 million copies. The U.S. edition of PLAYBOY
magazine has a monthly circulation of approximately 3.2 million copies and
domestic readership of approximately 10 million. International sales of the U.S.
edition of PLAYBOY magazine and 16 international editions produced by local
publishers extend the magazine's reach to approximately 50 countries worldwide.
ENTERTAINMENT
Playboy's Entertainment Group produces programming for Playboy TV, home
video worldwide and international television. Playboy's programming includes
feature films, magazine-format shows, dramatic series, hosted series,
anthologies of sexy short stories and celebrity and Playmate features. Playboy
has co-produced with Zalman King Entertainment, Inc. episodes of RED SHOE
DIARIES and three feature films. Playboy's programming is designed to be adapted
easily into a number of formats, enabling Playboy to spread its relatively fixed
programming costs over multiple product lines. Playboy owns a library of
exclusive, quality Playboy-style programming totaling approximately 1,200 hours
as of December 31, 1997. Playboy invested $14.4 million and $30.7 million in
entertainment programming in the six-month transition period ended December 31,
1997 and fiscal year 1997, respectively, resulting in 96 and 166 hours,
respectively, of original programming. In calendar year 1998, Playboy expects to
invest approximately $26.6 million in Playboy-produced and licensed programming,
which would result in the production of approximately 150 hours of original
programming. These amounts could vary based on the timing of completion of
productions.
Management of Playboy believes that, as the leading producer and marketer of
branded entertainment for adults around the world, Playboy is well positioned to
capitalize on the growth in the pay-per-view television industry. Pay-per-view
television enables a subscriber with an addressable set top decoder or satellite
receiver to purchase a block of programming, an individual movie or an event,
for a set fee. Pay-per-view programming can be delivered through any number of
delivery methods including by cable television, DTH to households with large
satellite dishes receiving a C-band low power analog or digital signal or with
small satellite dishes receiving a Ku-band medium or high power digital signal
(such as those currently offered by DirecTV, PrimeStar and EchoStar), wireless
cable systems and by new technologies such as cable modem and the Internet. In
the twelve months ended December 31, 1997, net access to Playboy TV through
cable and DTH in the United States rose 9% to approximately 18.4 million
addressable pay-per-view households. In July 1995, Playboy launched a second pay
television network, AdulTVision, as a flanker network to Playboy TV. As of
December 31, 1997, AdulTVision was available domestically to approximately 5.9
million cable addressable and DTH households.
Cable operators have begun to introduce digital programming as a means of
upgrading their cable systems and to counteract competition from the DTH
operators. Playboy TV and AdulTVision are currently available on a digital
platform delivered by Tele-Communications, Inc. Digital cable television has
several advantages over analog cable television, including more channels, better
audio and video
61
<PAGE>
quality and advanced set top boxes that are addressable, provide a secure fully
scrambled signal and have integrated program guides and advanced ordering
technology.
Internationally, Playboy programming is available in approximately 150
countries and territories, either on a tier or program-by-program basis or, in
the United Kingdom, Japan, Latin America and Iberia, through a local Playboy
network. Playboy owns a minority equity interest in each of the international
networks, which pay Playboy licensing fees for programming and the use of the
Playboy brand name. In the United Kingdom, Playboy, in partnership with
Flextech, plc, a U.K. entertainment company controlled by a subsidiary of
Tele-Communications, Inc., and British Sky Broadcasting Ltd., launched the
Playboy TV network in June 1995. In October 1995, Playboy also launched a
network in Japan with Tohokushinsha Film Corp. In the fall of 1996, Playboy
launched a third international Playboy TV network and the first international
AdulTVision network in Latin America through a partnership with an affiliate of
the Cisneros Group of Companies, one of Latin America's most prominent
conglomerates and broadcasters. The two Latin American networks are transmitted
on Galaxy Latin America, a DTH service majority-owned by Hughes Electronics,
which owns DirecTV in the United States. Playboy's partnership with Cisneros has
been expanded to encompass Playboy TV and AdulTVision networks. Playboy TV
launched in Iberia in May 1998, and plans to launch in Germany and Scandinavia.
In March 1997, Playboy also announced that it will launch a Playboy TV network
in South Korea. The launch has been temporarily delayed, however, due to the
poor economic conditions in that country. At this point, Playboy expects that
the network will not be launched in South Korea until sometime during calendar
year 1999. Playboy continues to explore opportunities for additional
international networks.
Playboy Home Video, which was named one of BILLBOARD magazine's "Top Video
Sales Labels" for the third consecutive year, distributes Playboy's programming
via videocassettes, laserdiscs and digital video discs that are sold or rented
in video stores, music and other retail outlets and through direct mail.
Playboy intends to continue to invest in Playboy-style, original quality
programming while increasing revenues from Playboy TV by capitalizing on
anticipated growth in: (a) new competitive distribution services, such as DTH,
(b) channel capacity in existing cable systems as a result of system upgrades
and improved technology, such as digital compression, (c) the number of
addressable households as pay-per-view technology becomes more widespread and
easier to use, and (d) privatization and proliferation of international pay
television networks. Given the relatively fixed cost nature of the pay
television programming business, management believes that the Entertainment
Group will continue to generate attractive margins on incremental revenues.
PRODUCT MARKETING
Playboy's Product Marketing Group licenses the Playboy name, Rabbit Head
Design and other trademarks and images for the worldwide manufacture, sale and
distribution of a variety of consumer products, including men's clothing,
accessories, watches, jewelry, small leather goods, stationery, eyewear, home
fashions and cigars. Playboy-branded products are available globally. In Hong
Kong and China, Playboy's licensee operates approximately 420 freestanding
Playboy stores and boutiques within department stores. Playboy is also
developing other brands. Playboy licenses art-related products, including
posters and prints, art watches, art ties and collectibles, based on Playboy's
extensive collection of artwork by prominent artists, including Salvador Dali,
Keith Haring and LeRoy Neiman. Because Playboy invests no capital in its
licensees or in manufacturing activities, the Product Marketing Group generates
high-margin revenues.
CATALOG
Playboy's Catalog Group operates a direct mail business through its four
catalogs. The CRITICS' CHOICE VIDEO catalog direct markets theatrically released
motion pictures and special-interest videos and is one of the
largest-circulation catalogs of pre-recorded videocassettes in the United
States. The COLLECTORS' CHOICE
62
<PAGE>
MUSIC catalog offers over 1,500 titles from every musical variety on CDs and
cassettes. The PLAYBOY catalog markets many of Playboy's products, including
back issues of PLAYBOY magazine, CD-ROM products, Playboy Home Video titles and
Playboy-branded fashions and accessories. In October 1997, CRITICS' CHOICE VIDEO
launched the first THE BIG BOOK OF MOVIES ("BIG BOOK"), a 324-page,
perfect-bound oversize catalog featuring 10,000 in-stock videos, of which over
2,000 are offered at a 25% discount. The BIG BOOK will be revised on an annual
basis, with the second edition at 374 pages released in the fall of 1998. Under
license from Spice, Playboy launched the SPICE catalog in July containing adult
videos. See "Certain Business Relationships."
CASINO GAMING
In fiscal year 1996, Playboy announced plans to reenter the casino gaming
business. Playboy, with a consortium of Greek investors, bid for and won a
12-year exclusive casino gaming license on the island of Rhodes, Greece.
Playboy's consortium executed the contract with the government in October 1996
and is renovating the historic Hotel des Roses to be the Playboy Casino and
Beach Hotel, which is expected to open by the end of calendar year 1998 or the
first quarter of calendar year 1999. As of September 30, 1998, Playboy, through
an indirectly wholly owned subsidiary, owned 12.1% of the consortium. On
November 13, 1998, Playboy entered into an agreement to sell its equity in the
casino. This agreement allows Playboy to fully recoup its investments and
expenses in this project while providing a continuing revenue stream to Playboy
in the form of licensing payments. Consummation of the transaction is subject to
receipt of the necessary Greek government approvals and satisfaction of other
closing conditions. Closing of this transaction is expected to occur during the
first quarter of calendar year 1999.
PLAYBOY ONLINE
In August 1994, PLAYBOY was one of the first national magazines to launch a
site (http:// www.playboy.com) on the Internet. PLAYBOY.COM is one of the most
popular destination sites on the Internet, averaging over 1.7 million page views
per day and a total of over 53 million page views were served during the month
of August 1998. PLAYBOY.COM features approximately 2,000 editorial, pictorial
and merchandising pages, including excerpts from each new issue of PLAYBOY
magazine, archival material, original content developed by Playboy and content
developed by other parties, and Playboy TV schedules. Starting in fiscal 1996,
Playboy began to generate revenue from the sale of advertising on the site.
Advertising revenues for the site nearly tripled in fiscal year 1997 and
experienced modest revenue growth in the six-month transition period ended
December 31, 1997 as compared to the prior year six-month period. During the
first five months of calendar year 1998, total revenue for Playboy Online, which
now also includes e-commerce, almost doubled over the comparable period in
calendar year 1997. Advertising is sold by a direct sales force employed by
Playboy and a third party contractor. In July 1997, Playboy launched a pay site
on the Internet, PLAYBOY CYBER CLUB, with content that is distinct from, and
significantly greater in scope than, that found on PLAYBOY.COM. For example,
while PLAYBOY.COM contains approximately 2,000 pages of material, PLAYBOY CYBER
CLUB contains over 38,000 pages, including a more extensive selection of
material from the archives of PLAYBOY magazine. PLAYBOY CYBER CLUB also offers
daily chats, newsgroups, up-to-the-minute sports scores and Playmate personal
pages and fan club areas. PLAYBOY CYBER CLUB, which is currently offered on a
subscription basis for $60 per year, has already attracted over 29,000
subscribers. In calendar 1998, Playboy began investing more heavily in
technology, staffing and content, which should result in higher revenues and
costs.
63
<PAGE>
BUSINESS OF SPICE
Spice is a leading international provider of adult television entertainment.
Formed in 1987, the Spice networks and programming are available in more than 50
countries and on the Internet. Spice leverages its portfolio of adult
entertainment content through brand equity management and intellectual property
enforcement, particularly trademark and tradename protection.
Spice operates through four business units: (a) Spice Networks--domestic
adult pay-per-view networks; (b) Spice International--international adult
networks and programming; (c) Spice Direct--direct to the consumer products and
services; and (d) Spice Productions--adult film production and licensing.
SPICE NETWORKS
Approximately 50% of Spice's gross revenues for 1997 were derived from its
three domestic, adult pay-per-view television networks: Spice, Adam & Eve
Channel ("Adam & Eve") and Spice Hot (collectively, the "Spice Networks"). The
Spice Networks are currently distributed by cable television, DTH satellite
television, wireless cable systems and the Internet, and the Spice network is
available on the digital platform delivered by Tele-Communications, Inc.
The Spice Networks are available to more than 15 million addressable cable
households and more than 3.3 million addressable DTH households. The Spice and
Adam & Eve networks feature cable version adult movies and related programming.
Spice Hot, the newest network, offers more erotic content than the cable
versions featured on the Spice and Adam & Eve networks. From its launch in
October 1997, Spice Hot is now carried by more than 100 cable systems and, as of
November 1, 1998, was available nationwide in more than 7.0 million addressable
cable and DTH households. See "--Spice Hot Asset Purchase Agreement."
SPICE INTERNATIONAL
Spice International is responsible for expanding the global distribution of
Spice's adult television networks and programming. In Europe, Spice
International owns and distributes two networks, The Adult Channel and The Home
Video Channel, through The Home Video Channel Limited ("HVC"), which Spice
acquired in 1994. Spice also distributes the Spice and Spice Hot networks
throughout Latin America and Spice programming in Japan.
The Adult Channel is a satellite delivered subscription service originating
from the United Kingdom that features cable version adult movies and related
programming similar to those exhibited on the Spice network. The Adult Channel,
which is broadcast four hours a day commencing at midnight, is available to
approximately two million cable households and approximately four million DTH
households in the United Kingdom. The Adult Channel is also available to DTH
households in more than 40 countries in Europe.
HVC also operates a cable exclusive movie service, featuring action and
horror movies, called The Home Video Channel, which began digital satellite
delivery in the second quarter of 1996. The Home Video Channel is offered during
the evening hours and is programmed during the pre-midnight hours to segue into
The Adult Channel. The two services are offered to cable operators as a seamless
8:00 P.M. to 4:00 A.M. programming service at a package price.
HVC has expanded its distribution of The Adult Channel throughout the rest
of Europe. HVC has authorized agents in Western Europe that distribute DTH
subscriptions to The Adult Channel through sales of "smart cards." HVC has
entered into an agency agreement with Nuevas Estructuras Televisivas which has
secured affiliation agreements for The Adult Channel in more than 30 Spanish
cable systems. The Adult Channel is now carried on the Canal Digital AS platform
which serves subscribers in Scandinavia and on the Canal Plus digital platform
serving subscribers in the Benelux countries. HVC has
64
<PAGE>
also entered into affiliation agreements for The Adult Channel in Eastern
Europe, securing carriage in cable systems located in Russia, Lithuania, Estonia
and Slovenia.
SPICE DIRECT
Spice Direct focuses on products and services marketed directly to
consumers. Spice Direct, through agreements with third parties, provides
audiotext services (adult-oriented pay-per-call telephone lines) promoted on the
Spice Networks. Spice Direct also operates Cyberspice, an adult Internet
website, and is responsible for the productive utilization of satellite
transponder capacity and the provision of network playback and programming
services to third parties.
Spice Direct manages the audiotext services promoted on the Spice Networks.
Under agreements with audiotext service providers, Spice receives a percentage
of revenues from the audiotext services. The telephone lines feature
computerized audio programs and live operators on both 800 and 900 telephone
lines. The audiotext service providers employ the operators and administrators
of the telephone lines advertised on the Spice Networks.
In 1994, Spice began Cyberspice as an on-line bulletin board service which
utilized adult programming and cross-promoted the Spice Networks. Cyberspice was
converted to a website on the Internet in the second quarter of 1995. In June
1997, Spice transferred hosting of Cyberspice to Media on Demand, Inc., ("MOD").
Under its agreement with MOD, Spice shares revenues generated by Cyberspice from
pay services such as audiotext services and merchandise sales. In addition, MOD
encodes Spice Hot and transmits a simultaneous webcast of Spice Hot (a broadcast
of Spice Hot which can be viewed by a subscriber from the Internet) which is
offered on a pay-per-view or monthly subscription basis.
Spice began to digitally compress the Spice Networks in September 1996 which
made three transponders available for productive utilization. In an effort to
use available transponder capacity, Spice began providing transponder services
to EMI in the fourth quarter of 1996. EMI is a provider of explicit adult
television networks distributed in the domestic C-band DTH market. Spice has
provided transponder services for three of EMI's networks since February 1997
and provides digital compressed transponder services for another television
network. Spice also provides playback services for the EMI networks, in addition
to the three Spice Networks, from its Operations Facility. As part of the
transponder and playback arrangements, EMI granted to Spice an option to acquire
all of EMI's stock or assets for a formula-determined amount.
The Operations Facility utilizes video file servers. This application of new
technology loads and stores digitized programming in the memory of the video
file servers. Under automated software control, the programming is then
"streamed" from the video file servers and transmitted, over fiber optic cable,
to an uplink facility.
SPICE PRODUCTIONS
Spice Productions is responsible for licensing and producing adult movies
for use on the Spice Networks and for other program licensing arrangements.
Spice Productions licenses adult movies from the leading producers of adult
movies both in the United States and abroad. Spice has an extensive library of
adult movies with worldwide rights in perpetuity in more than 450 titles and
more limited rights in more than 250 titles for a more limited period of time.
Spice licenses rights to adult films under two general categories of license
agreements: agreements under which Spice acquires most of the rights to the
adult movie (referred to as "production agreements") and agreements under which
Spice acquires more limited rights (referred to as "license agreements").
Under its production agreements, Spice generally acquires worldwide
television rights (pay-per-view, subscription, premium and broadcast television
rights) in perpetuity for delivery using all known and to be developed methods
of delivery, including via the Internet, for both the cable and explicit version
of each
65
<PAGE>
movie. Spice also has the right to edit the movies and create the hot cable
version featured on Spice Hot. Spice has numerous production agreements with
domestic adult film producers. Spice has also entered into production agreements
with foreign producers as part of Spice's strategy to internationalize its
sources of programming and to meet local content requirements.
Under the terms of its license agreements, Spice will typically license the
cable and explicit versions of adult films in the U.S. and/or Europe for between
one and three years. The license agreements permit unlimited exhibitions in
return for a flat license fee. Most of the movies exhibited on Adam & Eve are
licensed under these arrangements.
Most adult films are produced for sale in the home video market which has a
different target audience than the Spice Networks. To more directly meet the
special demands of Spice's broadcast-based television network business, Spice
started to produce its own adult movies in 1997. Spice Productions currently
makes, on average, two adult movies per month. Spice hires adult film producers
and stars to make these productions. As of July 1, 1998, Spice had completed 13
movies.
NETWORK DELIVERY
Spice delivers its video programming to cable systems and DTH customers via
digitally compressed satellite transmission. Satellite delivery of video
programming is accomplished in several steps. First, the video programming
(movies and interstitial programming) is played back at a facility such as
Spice's Operations Facility. Then, the program signal is encrypted so that the
signal is unintelligible unless it is passed through the proper decoding
devices. The signal may be transmitted (uplinked) to the satellite as an analog
signal or digitally compressed and combined with other signals. By digitally
compressing several channels, Spice can spread the cost of a transponder over
several networks. The signal is uplinked from an earth station to a designated
transponder on a communications satellite. Spice has contracted with third
parties for uplink services.
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.
The signal coverage of the domestic satellite utilized by Spice is the
Continental United States, portions of Mexico, the Caribbean and Canada. The
signal coverage of the satellite utilized by The Adult Channel is Continental
Europe and portions of North Africa. Each transponder can retransmit four or
more 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 using, for
Spice's domestic television networks, General Instrument Digicipher II decoders.
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 DTH subscribers, their
set top box contains the descrambling equipment.
To offer pay-per-view services, the set top boxes 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 and cause it to descramble the
television signal for a specified period of time after the customer has made a
purchase of a premium service or a pay-per-view event. The ability to control
the scrambling and descrambling of a signal from a cable system's
facilities--known as addressability--is essential for the marketing and delivery
of pay-per-view programming services.
In Europe, DTH subscribers purchase "smart cards" from distributors,
including appliance and electronics stores. These smartcards are programmed to
permit reception of a premium programming service. The smart cards are then
inserted into the satellite receiver or set top box which descrambles the signal
for a specified period of time.
66
<PAGE>
SPICE HOT ASSET PURCHASE AGREEMENT
Because Playboy wants to acquire only certain assets of Spice, Spice and
Califa Entertainment Group, Inc., a recently formed California corporation
("Califa"), entered into an Asset Purchase Agreement (the "Asset Purchase
Agreement") contemporaneously with the execution of the Merger Agreement, under
which Spice agreed to sell to Califa its Spice Hot network business. Califa is
owned by two individuals who are principals of Vivid Video, Inc., a producer of
adult movies and related programming.
Under the Asset Purchase Agreement, subject to certain terms and conditions,
on the Closing Date and immediately prior to the Effective Time of the Mergers,
Spice and its subsidiaries will sell and assign to Califa certain assets
relating to the operation of the Spice Hot network, consisting primarily of (a)
all of the affiliation agreements relating to the Spice Hot network, and (b)
certain rights to Spice's library of adult films which are related to or used in
the conduct of the Spice Hot network (the "Califa Transferred Assets"). Califa
will not acquire any proprietary rights in any of the trademarks, servicemarks,
tradenames or logos currently associated with the Spice Hot network.
In exchange for the Califa Transferred Assets, Califa will (a) assume all
liabilities and obligations incurred as of any time following the Closing which
relate to the Califa Transferred Assets or the operation by Califa of an adult
programming service substantially similar to the Spice Hot network (the "Califa
Network"), (b) pay Spice $500,000 in cash in two installments no later than
March 31, 1999, and (c) pay Spice $10,000,000 in the form of a promissory note
due on the seventh anniversary of the Closing Date, which accrues interest at an
annual rate of 18%, payable quarterly (collectively, the "Purchase Price").
Califa will not assume any liabilities or obligations of Spice arising with
respect to any time prior to the Closing Date.
Under the Asset Purchase Agreement, Spice will be bound during the ten years
immediately following the Closing Date (the "Spice/Califa Restricted Period") by
certain non-competition covenants which primarily restrict Spice from continuing
to conduct any adult television service, in the United States or Canada
(including their territories and possessions), that is substantially similar in
format, content and degree of explicitness to, and thus competes with, the Spice
Hot network as currently operated. These covenants, however, will not restrict
Spice from conducting adult programming services, like the Spice and Adam & Eve
networks, which, based on the foregoing criteria, are not substantially similar
to the Spice Hot network. In exchange for the benefit of these non-competition
covenants, Califa will pay Spice, in addition to the Purchase Price, an amount
equal to $13,300,000, $200,000 of which is payable in the first year immediately
following the Closing Date, $1,200,000 of which is payable in the second year
immediately following the Closing Date, and $1,700,000 of which is payable in
each year thereafter through the end of the Spice/Califa Restricted Period (the
"Non-Competition Payments"). Califa also agrees to be bound by certain
non-competition covenants during the Spice/Califa Restricted Period which
primarily restrict Califa from competing with Spice (and its successors and
affiliates) in any business or activity related to the adult industry (other
than the operation of the Califa Network), including the operation of any adult
television service substantially similar in content, format and degree of
explicitness to the Spice and Adam & Eve networks.
The obligations of Califa under the Asset Purchase Agreement, including
payment of the Purchase Price and the Non-Competition Payments, will be secured
by a first priority security interest in principally all of the assets of Califa
and a pledge of the capital stock of Califa.
Under the Asset Purchase Agreement, Califa granted to Spice, effective as of
the Closing Date: (a) the option, exercisable at any time by written notice to
Califa, to license from Califa the satellite signal of the Califa Network for
sublicense, distribution and marketing of the Califa Network in Central America,
South America and certain specified islands of the Caribbean, upon terms
mutually agreed upon by Spice and Califa; and (b) the option (the "Buy Back
Option"), exercisable at any time by written notice to Califa after the third
anniversary of the Closing Date, to purchase from Califa all rights, title,
interests, assets and obligations relating to the Califa Network at fair market
value as mutually agreed by Spice and Califa (or,
67
<PAGE>
if Spice and Califa cannot agree, as determined by a nationally recognized
valuation firm mutually agreed upon by Spice and Califa). Subject to a ten
business day notice period and obligation to negotiate with Califa in good faith
during the notice period, Spice may assign its Buy Back Option to any person, at
any time, and on any terms, without the consent or approval of Califa.
The obligations of Spice and Califa to consummate the sale and assignment of
the Califa Transferred Assets are subject to certain conditions contained in the
Asset Purchase Agreement customary to this type of transaction and to the
execution of a non-competition agreement and a satellite services agreement
between Califa and Directrix as described below.
Consummation of the transactions contemplated by the Asset Purchase
Agreement is not a condition to the closing of the Transactions. The Asset
Purchase Agreement will terminate automatically if the Merger Agreement is
terminated and the Transactions are abandoned.
NON-COMPETITION AGREEMENT. Subject to the satisfaction of the conditions
contained in the Asset Purchase Agreement, on the Closing Date, Califa will
enter into a non-competition agreement (the "Califa Non-Competition Agreement")
for the benefit of Directrix, which will have a term of seven years from the
Closing Date. Under the Califa Non-Competition Agreement, Califa will not,
directly or indirectly, engage in the Explicit C-Band Business and will not
engage in certain other activities which would involve Califa in the Explicit
C-Band Business in certain defined territories. The term "Explicit C-Band
Business" will have the same meaning as that term has in the Non-Competition
Agreement. See "Other Transaction Agreements--The Non-Competition Agreements."
SATELLITE SERVICES AGREEMENT. Subject to the satisfaction of the conditions
contained in the Asset Purchase Agreement, on the Closing Date, Califa and
Directrix will enter into a satellite services agreement having substantially
the same terms as the Mandatory Services Agreement. See "Other Transaction
Agreements--The Mandatory Services Agreement."
BUSINESS OF NEW PLAYBOY
New Playboy is currently a wholly owned subsidiary of Playboy that does not
conduct any substantial business activities. As a result of the Transactions,
Playboy and Spice will each become wholly owned subsidiaries of New Playboy.
Accordingly, the business of New Playboy will be the businesses currently
conducted by Playboy and Spice, other than those portions of the business of
Spice to be transferred to Directrix in the Contribution and to be sold to
Califa as described under "Business of Spice--Spice Hot Asset Purchase
Agreement". See "Business of Playboy," "Business of Spice" and "Other
Transaction Agreements."
BUSINESS OF DIRECTRIX
Please refer to the Directrix Prospectus.
68
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Playboy Class A Common Stock and Playboy Class B Common Stock are listed on
the NYSE and the PE under the symbols "PLAA" and "PLA," respectively. The Spice
Common Stock is listed on the NASDAQ Small-Cap Market under the symbol "SPZE."
The table below sets forth, for the calendar quarters indicated, the
reported high and low sales prices of Playboy Class A Common Stock, Playboy
Class B Common Stock and Spice Common Stock, in each case based on published
financial sources. Neither Playboy nor Spice has declared any cash dividends
during the calendar quarters indicated.
<TABLE>
<CAPTION>
PLAYBOY CLASS A PLAYBOY CLASS B SPICE
COMMON STOCK COMMON STOCK COMMON STOCK
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------- ------- -------
<CAPTION>
(IN DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
CALENDAR 1996
First Quarter..... 11 8 3/8 11 1/8 7 1/2 5 3 1/8
Second Quarter.... 15 3/4 10 16 1/2 9 7/8 3 3/4 2 1/2
Third Quarter..... 14 7/8 12 1/4 15 1/4 12 1/8 3 7/16 2
Fourth Quarter.... 12 1/2 9 5/8 12 3/4 9 1/2 2 5/8 1
CALENDAR 1997
First Quarter..... 15 5/8 9 1/2 16 3/8 9 3/8 2 3/8 1 7/16
Second Quarter.... 15 10 7/8 16 11 1/4 3 11/16 2 1/8
Third Quarter..... 13 7/8 10 3/8 15 3/8 10 3/4 3 7/8 2 7/8
Fourth Quarter.... 15 1/8 12 3/16 16 11/16 13 1/2 4 1/8 3 3/8
CALENDAR 1998
First Quarter..... 16 11/16 13 1/2 17 13/16 14 5/8 6 3 7/8
Second Quarter.... 18 3/8 15 3/4 19 11/16 17 6 11/16 5 3/4
Third Quarter..... 17 11 1/8 18 3/4 12 3/16 6 3/16 4 1/2
Fourth Quarter
(through
November 30,
1998)........... 14 11/16 11 16 5/16 11 7/8 5 3/4 4 1/2
</TABLE>
On February 3, 1998, the last full trading day preceding the joint public
announcement by Playboy and Spice that they had entered into a letter of intent
regarding a possible business combination, the closing price of Playboy Class A
Common Stock and Playboy Class B Common Stock on the NYSE was $13 15/16 and
$14 13/16 per share, respectively, and the closing price of Spice Common Stock
on the NASDAQ Small-Cap Market was $5 5/16, in each case based on published
financial sources. On November 30, 1998, the most recent practicable date prior
to the printing of this Proxy Statement/Prospectus, the closing price of Playboy
Class A Common Stock and Playboy Class B Common Stock on the NYSE was $13 7/16
and $15 7/16 per share, respectively, and the closing price of Spice Common
Stock on the NASDAQ Small-Cap Market was $5 9/32. HOLDERS OF SPICE CAPITAL STOCK
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS PRIOR TO MAKING ANY DECISION WITH
RESPECT TO THE MERGER AGREEMENT AND THE SPICE MERGER.
The Merger Agreement contemplates that the New Playboy Class A Common Stock
and New Playboy Class B Common Stock will be listed on the NYSE, and Playboy
currently expects that the New Playboy Class A Common Stock and New Playboy
Class B Common Stock will also be listed on the PE.
New Playboy currently does not intend to make regular dividend
distributions. The payment of future dividends on New Playboy Class A Common
Stock and Class B Common Stock will be at the discretion of the New Playboy
Board and will depend upon the results of operations and financial condition of
New Playboy and those other factors as the New Playboy Board considers relevant.
69
<PAGE>
POSSIBLE DELISTING OF SPICE COMMON STOCK IF THE MERGERS ARE NOT CONSUMMATED
Spice recently received oral advice from the NASDAQ Stock Market that, if
the Spice Merger is not consummated in a timely fashion, it may seek to delist
Spice Common Stock from the NASDAQ Small-Cap Market as a result of a recent
decision (the "Decision") of the National Adjudicatory Council of the NASD (the
self-regulatory organization for broker-dealers) regarding Roger Faherty's
activities as a corporate finance consultant to a now defunct brokerage firm,
Hibbard Brown & Co. Inc. These activities were unrelated to Spice and occurred
prior to Mr. Faherty's becoming the Chief Executive Officer and Chairman of
Spice in 1991. The Decision reversed substantial portions of an earlier decision
of the NASD Market Surveillance Committee 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. The Decision did, however, hold that
his activities with the brokerage firm gave rise to aider-and-abettor liability
for the brokerage 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. In the event that
the Spice Merger is not consummated and the NASDAQ Stock Market seeks to delist
Spice Common Stock from the NASDAQ Small-Cap Market, Spice has indicated that it
will contest such delisting, although there can be no assurance that Spice would
be successful in so doing. If Spice Common Stock is delisted from the NASDAQ
Small-Cap Market, such delisting could have a material adverse effect on the
liquidity and trading market for Spice Common Stock. Following a delisting,
Spice would expect the Spice Common Stock to be traded on the NASD OTC Bulletin
Board. Risks associated with trading on the OTC Bulletin Board include limited
release of market prices of Spice Common Stock and limited news coverage of
Spice. As a result, holders of Spice Common Stock could find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, Spice Common
Stock.
70
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Transactions using the purchase method of accounting after
giving effect to the pro forma adjustments and assumptions described in the
accompanying notes. The unaudited pro forma condensed combined financial
statements are based on the historical consolidated financial statements of
Playboy and Spice. The financial information of Spice has been derived from the
audited consolidated financial statements as of and for the year ended December
31, 1997 and the unaudited interim consolidated financial statements as of and
for the quarterly periods ended in 1996, 1997 and 1998. Certain Spice financial
information has been reclassified to conform with the Playboy presentation.
Intercompany transactions between Spice and Directrix have been eliminated in
the unaudited pro forma condensed combined financial statements. The unaudited
pro forma condensed combined statements of income have been prepared as if the
Transactions occurred on July 1, 1996. The unaudited pro forma condensed
combined balance sheet has been prepared as if the Transactions occurred on
September 30, 1998. The unaudited pro forma adjustments described in the
accompanying notes are based upon preliminary estimates and certain assumptions
that Playboy management believes are reasonable. The unaudited pro forma
condensed combined financial statements are not necessarily indicative of actual
or future financial position or results of operations that would have occurred
or will occur upon consummation of the Transactions, and should be read in
conjunction with the audited historical consolidated financial statements,
including the notes to them, of Playboy and Spice incorporated by reference in
this Proxy Statement/Prospectus.
Playboy has plans in place which it believes will result in cost savings not
reflected in the Unaudited Pro Forma Condensed Combined Financial Statements of
New Playboy. Playboy is finalizing a transaction which is expected to reduce
certain of Spice's distribution expenses. Currently, Spice incurs the cost to
lease a transponder which has been digitally compressed to create four digital
streams. These four digital streams are used for the transmission of the Spice,
Adam & Eve and Spice Hot networks, with the fourth digital stream being
available for subleasing to third parties. As Spice has agreed to sell the Spice
Hot network business to Califa, Playboy anticipates that the cost of the
transponder will be shared by Califa and New Playboy. Additionally, Spice
currently incurs costs associated with the uplink, playback and compression of
the Spice Hot network. Due to Spice's sale of this network concurrently with the
Transactions, these costs will not transfer to New Playboy. As a result,
distribution expenses are expected to be reduced by $1 million annually.
71
<PAGE>
NEW PLAYBOY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS ADJUSTED PRO FORMA
PLAYBOY SPICE CONSOLIDATED DIRECTRIX (3) ELIMINATION CONSOLIDATED ADJUSTMENTS
--------- --------- ------------ ----------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue.................. $ 225,237 $ 23,262 $ 248,499 $ 7,489 $ 4,001 $ 245,011 $ (1,633)(5d)
150(5j)
Cost of Sales............ (191,786) (13,542) (205,328) (8,562) (4,001) (200,767) 135(5e)
1,800(5f)
--------- --------- ------------ ------- ------ ------------ -------------
Gross Margin............. 33,451 9,720 43,171 (1,073) -- 44,244 452
Selling and
Administrative......... (30,658) (7,664) (38,322) (923) -- (37,399) (4,346)(5b)
2,532(5g)
--------- --------- ------------ ------- ------ ------------ -------------
Operating Income (Loss).. 2,793 2,056 4,849 (1,996) -- 6,845 (1,362)
Nonoperating Income
(Expense)
Investment Income...... 70 -- 70 -- -- 70 --
Interest Income
(Expense)............ (989) (1,728) (2,717) (98) -- (2,619) (5,052)(5a)
780(5h)
1,350(5i)
Other, net............. (535) -- (535) -- -- (535) --
--------- --------- ------------ ------- ------ ------------ -------------
Total Nonoperating
Expense................ (1,454) (1,728) (3,182) (98) -- (3,084) (2,922)
--------- --------- ------------ ------- ------ ------------ -------------
Income (Loss) Before
Taxes.................. 1,339 328 1,667 (2,094) -- 3,761 (4,284)
Income Taxes (8)......... (1,889) -- (1,889) -- -- (1,889) 142(5c)
--------- --------- ------------ ------- ------ ------------ -------------
Net Income (Loss)........ (550) 328 (222) (2,094) -- 1,872 (4,142)
Preferred Dividend....... -- (135) (135) -- -- (135) 135(5k)
--------- --------- ------------ ------- ------ ------------ -------------
Net Income (Loss)
applicable to common
stock.................. $ (550) $ 193 $ (357) $ (2,094) $ -- $ 1,737 $ (4,007)
--------- --------- ------------ ------- ------ ------------ -------------
--------- --------- ------------ ------- ------ ------------ -------------
NET INCOME (LOSS) PER
COMMON SHARE
Basic EPS.............. $ (0.03) $ 0.02 $ -- $ -- $ -- $ -- $ --
Diluted EPS............ $ (0.03) $ 0.02 $ -- $ -- $ -- $ -- $ --
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
Basic.................. 20,541 11,596 -- -- -- -- --
Diluted................ 20,541 13,782 -- -- -- -- --
<CAPTION>
NEW
PLAYBOY
------------
<S> <C>
Revenue.................. $ 243,528
Cost of Sales............ (198,832)
------------
Gross Margin............. 44,696
Selling and
Administrative......... (39,213)
------------
Operating Income (Loss).. 5,483
Nonoperating Income
(Expense)
Investment Income...... 70
Interest Income
(Expense)............ (5,541)
Other, net............. (535)
------------
Total Nonoperating
Expense................ (6,006)
------------
Income (Loss) Before
Taxes.................. (523)
Income Taxes (8)......... (1,747)
------------
Net Income (Loss)........ (2,270)
Preferred Dividend....... --
------------
Net Income (Loss)
applicable to common
stock.................. $ (2,270)
------------
------------
NET INCOME (LOSS) PER
COMMON SHARE
Basic EPS.............. $ (0.10) (2)
Diluted EPS............ $ (0.10) (2)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
Basic.................. 22,815(2)
Diluted................ 22,815(2)
</TABLE>
See accompanying notes.
72
<PAGE>
NEW PLAYBOY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS ADJUSTED PRO FORMA
PLAYBOY SPICE CONSOLIDATED DIRECTRIX (3) ELIMINATION CONSOLIDATED ADJUSTMENTS
--------- --------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $ 149,541 $ 16,021 $ 165,562 $ 4,656 $ 1,820 $ 162,726 $ (252)(6d)
100(6j)
Cost of Sales............... (126,658) (8,518) (135,176) (5,128) (1,820) (131,868) 90(6e)
1,200(6f)
--------- --------- ------------ ------------- ------ ------------ -------------
Gross Margin................ 22,883 7,503 30,386 (472) -- 30,858 1,138
Selling and
Administrative............ (18,424) (7,003) (25,427) (712) -- (24,715) (2,898)(6b)
2,148(6g)
--------- --------- ------------ ------------- ------ ------------ -------------
Operating Income (Loss)..... 4,459 500 4,959 (1,184) -- 6,143 388
Nonoperating Income
(Expense)
Investment Income......... 50 -- 50 -- -- 50 --
Interest Income
(Expense)............... (289) (1,453) (1,742) (82) -- (1,660) (3,368)(6a)
785(6h)
900(6i)
Gain on sale of majority
interest of DSTV........ -- 352 352 -- -- 352 --
Gain on Nethold
settlement.............. -- 740 740 -- -- 740 --
Gain related to
disposition of AGN...... -- 1,712 1,712 -- -- 1,712 --
Other, net................ 70 -- 70 -- -- 70 --
--------- --------- ------------ ------------- ------ ------------ -------------
Total Nonoperating
Income (Expense)...... (169) 1,351 1,182 (82) -- 1,264 (1,683)
--------- --------- ------------ ------------- ------ ------------ -------------
Income (Loss) Before
Taxes..................... 4,290 1,851 6,141 (1,266) -- 7,407 (1,295)
Income Taxes (8)............ (2,148) (96) (2,244) -- -- (2,244) (1,501)(6c)
--------- --------- ------------ ------------- ------ ------------ -------------
Net Income (Loss)........... 2,142 1,755 3,897 (1,266) -- 5,163 (2,796)
Preferred Dividend.......... -- (84) (84) -- -- (84) 84(6k)
--------- --------- ------------ ------------- ------ ------------ -------------
Net Income (Loss) applicable
to common stock........... $ 2,142 $ 1,671 $ 3,813 $ (1,266) $ -- $ 5,079 $ (2,712)
--------- --------- ------------ ------------- ------ ------------ -------------
--------- --------- ------------ ------------- ------ ------------ -------------
NET INCOME PER COMMON SHARE
Basic EPS................. $ 0.10 $ 0.16 $ -- $ -- $ -- $ -- $ --
Diluted EPS............... $ 0.10 $ 0.13 $ -- $ -- $ -- $ -- $ --
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic..................... 20,487 10,633 -- -- -- -- --
Diluted................... 20,818 12,557 -- -- -- -- --
<CAPTION>
NEW
PLAYBOY
---------
<S> <C>
Revenue..................... $ 162,574
Cost of Sales............... (130,578)
---------
Gross Margin................ 31,996
Selling and
Administrative............ (25,465)
---------
Operating Income (Loss)..... 6,531
Nonoperating Income
(Expense)
Investment Income......... 50
Interest Income
(Expense)............... (3,343)
Gain on sale of majority
interest of DSTV........ 352
Gain on Nethold
settlement.............. 740
Gain related to
disposition of AGN...... 1,712
Other, net................ 70
---------
Total Nonoperating
Income (Expense)...... (419)
---------
Income (Loss) Before
Taxes..................... 6,112
Income Taxes (8)............ (3,745)
---------
Net Income (Loss)........... 2,367
Preferred Dividend.......... --
---------
Net Income (Loss) applicable
to common stock........... $ 2,367
---------
---------
NET INCOME PER COMMON SHARE
Basic EPS................. $ 0.10(2)
Diluted EPS............... $ 0.10(2)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Basic..................... 22,761(2)
Diluted................... 23,092(2)
</TABLE>
See accompanying notes.
73
<PAGE>
NEW PLAYBOY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
LESS ADJUSTED PRO FORMA
PLAYBOY SPICE CONSOLIDATED DIRECTRIX (3) ELIMINATION CONSOLIDATED ADJUSTMENTS
--------- --------- ------------ ----------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 296,623 $ 33,632 $ 330,255 $ 11,425 $ 8,667 $ 327,497 $ --
Cost of Sales........... (245,023) (18,068) (263,091) (11,390) (8,667) (260,368) 1,800(7d)
--------- --------- ------------ ------- ------------- ------------ -----------
Gross Margin............ 51,600 15,564 67,164 35 -- 67,129 1,800
Selling and
Administrative........ (35,855) (14,465) (50,320) (803) -- (49,517) 3,968(7e)
(5,795)(7b)
--------- --------- ------------ ------- ------------- ------------ -----------
Operating Income
(Loss)................ 15,745 1,099 16,844 (768) -- 17,612 (27)
Nonoperating Income
(Expense)
Investment Income..... 73 -- 73 -- -- 73 --
Interest Income
(Expense)........... (427) (5,303) (5,730) (3,478) -- (2,252) (6,736)(7a)
694(7f)
Minority Interest..... -- 1,279 1,279 -- -- 1,279 --
Gain from transponder
lease amendment..... -- 2,348 2,348 2,348 -- -- --
Other, net............ (640) (2,558) (3,198) -- -- (3,198) --
--------- --------- ------------ ------- ------------- ------------ -----------
Total Nonoperating
Expense........... (994) (4,234) (5,228) (1,130) -- (4,098) (6,042)
--------- --------- ------------ ------- ------------- ------------ -----------
Income (Loss) Before
Taxes................. 14,751 (3,135) 11,616 (1,898) -- 13,514 (6,069)
Income Taxes (8)........ 6,643 (393) 6,250 -- -- 6,250 (11,828)(7c)
--------- --------- ------------ ------- ------------- ------------ -----------
Net Income (Loss)....... 21,394 (3,528) 17,866 (1,898) -- 19,764 (17,897)
Preferred Dividend...... -- (108) (108) -- -- (108) 108(7g)
--------- --------- ------------ ------- ------------- ------------ -----------
Net Income (Loss)
applicable to common
stock................. $ 21,394 $ (3,636) $ 17,758 $ (1,898) $ -- $ 19,656 $ (17,789)
--------- --------- ------------ ------- ------------- ------------ -----------
--------- --------- ------------ ------- ------------- ------------ -----------
NET INCOME (LOSS) PER
COMMON SHARE
Basic EPS............. $ 1.05 $ (0.33) $ -- $ -- $ -- $ -- $ --
Diluted EPS........... $ 1.03 $ (0.33) $ -- $ -- $ -- $ -- $ --
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
Basic................. 20,318 11,062 -- -- -- -- --
Diluted............... 20,694 11,062 -- -- -- -- --
<CAPTION>
NEW
PLAYBOY
------------
<S> <C>
Revenue................. $ 327,497
Cost of Sales........... (258,568)
------------
Gross Margin............ 68,929
Selling and
Administrative........ (51,344)
------------
Operating Income
(Loss)................ 17,585
Nonoperating Income
(Expense)
Investment Income..... 73
Interest Income
(Expense)........... (8,294)
Minority Interest..... 1,279
Gain from transponder
lease amendment..... --
Other, net............ (3,198)
------------
Total Nonoperating
Expense........... (10,140)
------------
Income (Loss) Before
Taxes................. 7,445
Income Taxes (8)........ (5,578)
------------
Net Income (Loss)....... 1,867
Preferred Dividend...... --
------------
Net Income (Loss)
applicable to common
stock................. $ 1,867
------------
------------
NET INCOME (LOSS) PER
COMMON SHARE
Basic EPS............. $ 0.08(2)
Diluted EPS........... $ 0.08(2)
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING
Basic................. 22,592(2)
Diluted............... 22,968(2)
</TABLE>
See accompanying notes.
74
<PAGE>
NEW PLAYBOY, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
LESS
DIRECTRIX ADJUSTED PRO FORMA NEW
PLAYBOY SPICE CONSOLIDATED (3) CONSOLIDATED ADJUSTMENTS PLAYBOY
-------- ------- ------------ ------------ ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..... $ 2,150 $ 1,646 $ 3,796 $ -- $ 3,796 $ 500 (10f) $ 3,796
(500)(10g)
Marketable securities......... 441 -- 441 -- 441 -- 441
Accounts receivable, net...... 37,518 5,315 42,833 755 42,078 (1,370)(10e) 40,708
Inventories................... 28,496 -- 28,496 -- 28,496 -- 28,496
Programming costs............. 45,415 -- 45,415 -- 45,415 -- 45,415
Deferred subscription
acquisition costs........... 12,848 -- 12,848 -- 12,848 -- 12,848
Prepaid expenses and other
current assets.............. 14,450 2,557 17,007 577 16,430 -- 16,430
Due from related parties and
officers.................... -- 409 409 -- 409 -- 409
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Current Assets............ 141,318 9,927 151,245 1,332 149,913 (1,370) 148,543
Property and equipment, net..... 9,014 5,660 14,674 3,668 11,006 -- 11,006
Programming costs............... 5,906 -- 5,906 -- 5,906 -- 5,906
Library of movies............... -- 5,102 5,102 897 4,205 (765)(10e) 3,440
Net deferred tax assets......... 13,247 -- 13,247 -- 13,247 -- 13,247
Deferred refinancing costs...... -- 190 190 -- 190 (190)(10b) --
Other noncurrent assets......... 18,697 835 19,532 51 19,481 -- 19,481
Intangible and other assets
(11).......................... 16,364 9,760 26,124 -- 26,124 101,316 (10a 127,440
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Assets.................... $204,546 $31,474 $236,020 $ 5,948 $230,072 $98,991 $ 329,063
-------- ------- ------------ ------------ ----------- --------------- -----------
-------- ------- ------------ ------------ ----------- --------------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilites
Current portion of obligations
under capital leases........ $ -- $ 895 $ 895 $ 541 $ 354 $-- $ 354
Short term borrowings/Current
portion of long term debt... 29,000 11,245 40,245 -- 40,245 (40,245)(10b) --
Accounts payable.............. 30,892 2,468 33,360 220 33,140 -- 33,140
Accrued salaries, wages and
employee benefits........... 4,860 2,248 7,108 108 7,000 -- 7,000
Reserves for losses on
disposals of discontinued
operations.................. 607 -- 607 -- 607 -- 607
Income taxes payable.......... 558 -- 558 -- 558 -- 558
Deferred revenues/subscription
revenue (UK)................ 41,958 748 42,706 -- 42,706 -- 42,706
Other liabilities and accrued
expenses.................... 9,819 -- 9,819 -- 9,819 -- 9,819
Current portion of accrued
restructuring costs......... -- 21,476(9) 21,476 -- 21,476 -- 21,476
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Current Liabilities....... 117,694 39,080 156,774 869 155,905 (40,245) 115,660
Obligations under capital
leases-- long term............ -- 141 141 141 -- -- --
New long term debt.............. -- -- -- -- -- 93,604 (10c 93,604
Other noncurrent liabilities.... 8,435 -- 8,435 -- 8,435 -- 8,435
Deferred compensation/other..... -- 324 324 -- 324 -- 324
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Liabilities............... 126,129 39,545 165,674 1,010 164,664 53,359 218,023
Common Stock.................... 221 122 343 -- 343 (99)(10d) 244
Capital in excess of par
value......................... 44,207 29,273 73,480 -- 73,480 3,327 (10d 76,807
Unearned Compensation........... (3,901) (280) (4,181) -- (4,181) 280 (10d (3,901)
Retained Earnings/(Accumulated
Deficit)...................... 44,707 (38,195) 6,512 (7,629) 14,141 32,701 (10d 44,707
(2,135)(10h)
Contributed capital from
Spice......................... -- -- -- 12,567 (12,567) 12,567 (10d --
Cumulative translation
adjustment.................... (168) 1,009 841 -- 841 (1,009)(10d) (168)
Unrealized loss on marketable
securities.................... (59) -- (59) -- (59) -- (59)
Less cost of treasury stock..... (6,590) -- (6,590) -- (6,590) -- (6,590)
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Stockholders' Equity...... 78,417 (8,071) 70,346 4,938 65,408 45,632 111,040
-------- ------- ------------ ------------ ----------- --------------- -----------
Total Liabilities and
Stockholders' Equity.......... $204,546 $31,474 $236,020 $ 5,948 $230,072 $98,991 $ 329,063
-------- ------- ------------ ------------ ----------- --------------- -----------
-------- ------- ------------ ------------ ----------- --------------- -----------
</TABLE>
See accompanying notes.
75
<PAGE>
NOTES TO THE NEW PLAYBOY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--PERIODS COMBINED
The Playboy condensed consolidated statements of income before extraordinary
item and cumulative effect of accounting change for the nine months ended
September 30, 1998 (unaudited), the six-month transition period ended December
31, 1997, and the fiscal year ended June 30, 1997, have been combined with the
Spice condensed consolidated statements of income for the nine months ended
September 30, 1998 (unaudited), the six months ended December 31, 1997
(unaudited), and the year ended June 30, 1997 (unaudited). Playboy's September
30, 1998 unaudited condensed consolidated balance sheet has been combined with
Spice's September 30, 1998 unaudited condensed consolidated balance sheet.
The purpose of the Transactions is (a) to combine Playboy and Spice, (b) to
create a new company, Directrix, which will contain certain of the existing
assets and liabilities of Spice, and (c) to distribute the Directrix Common
Stock to the stockholders of Spice. As a result of the Transactions, Playboy and
Spice will each become wholly owned subsidiaries of New Playboy, and the former
stockholders of Spice will receive all of the Directrix Common Stock based on
their ownership of, and in partial exchange for, their shares of Spice Capital
Stock.
NOTE 2--PRO FORMA NET EARNINGS PER SHARE
The unaudited pro forma basic and diluted net income (loss) per share is
based upon the weighted average number of common shares (basic) and common
shares including dilutive effect of options outstanding (diluted) of Playboy and
the common shares to be issued to Spice for each period presented. The pro forma
weighted average number of common shares outstanding has been calculated
assuming the conversion of all Spice common and common equivalent shares
outstanding as of September 30, 1998 for shares in New Playboy as described
elsewhere in this Proxy Statement/Prospectus.
NOTE 3--CONTRIBUTION OF CERTAIN ASSETS AND RELATED LIABILITIES TO DIRECTRIX BY
SPICE
The unaudited pro forma condensed combined financial information has been
presented reflecting that, prior to the Spice Merger, Spice and its subsidiaries
will contribute certain assets to Directrix, including (a) Spice's master
control and digital playback facility, (b) an option to acquire Emerald Media,
Inc., a provider of explicit adult television networks, and (c) certain rights
to Spice's library of adult films, and that Directrix will assume certain
liabilities related to the contributed assets. Net assets with a book value of
$4,938 were contributed to Directrix.
Under the Asset Purchase Agreement, Spice will sell and assign to Califa
certain assets relating to the operation of the Spice Hot network, consisting
primarily of (a) all of the affiliation agreements relating to the operation of
the Spice Hot network, and (b) certain rights to Spice's library of adult films
which are related to or used in the conduct of the Spice Hot network. As part of
the agreement, Califa is required to pay Spice an aggregate of $500 in cash in
two installments no later than March 31, 1999. In addition, in exchange for
certain non-competition convenants, Califa will pay Spice certain amounts as
described elsewhere in this Proxy Statement/Prospectus. The gains related to the
Asset Purchase Agreement have been deferred in accordance with Staff Accounting
Bulletin 81 due to the capitalization and leverage levels of Califa.
NOTE 4--NATURE AND FINANCIAL IMPACT RELATED TO THE ENACTMENT OF SECTION 505 OF
THE TELECOMMUNICATIONS ACT
In February 1996, Playboy filed suit challenging Section 505 which, among
other things, regulates the cable transmission of adult programming, such as
Playboy's and Spice's domestic pay television programs.
76
<PAGE>
NOTE 4--NATURE AND FINANCIAL IMPACT RELATED TO THE ENACTMENT OF SECTION 505 OF
THE TELECOMMUNICATIONS ACT (CONTINUED)
New Playboy's revenues attributable to its domestic pay television cable
services may continue to be materially adversely affected as a result of
enforcement of Section 505, which commenced May 18, 1997, due to reduced buy
rates from cable systems that roll back carriage to a 10:00 p.m. start time,
subscriber declines and reduced carriage from cable operators due to aggressive
competition for carriage from all program suppliers.
At the commencement date of Section 505, management of both Playboy and
Spice did not have information systems in place to enable them to reasonably
estimate the financial impact of Section 505 on the financial results of New
Playboy for the year ended June 30, 1997. Furthermore, the management of New
Playboy does not believe that any adequate financial information exists that
would allow them to reasonably estimate a range of values which would give an
indication of the financial impact of Section 505 on the results of New Playboy
for that period.
NOTE 5--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED STATEMENT OF INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
The following pro forma adjustments are incorporated in the pro forma
condensed combined statement of income for the nine months ended September 30,
1998 as a result of the Transactions.
<TABLE>
<S> <C>
(a) An additional $74,849 of debt is required to fund the Transactions. Interest
expense has been adjusted to give effect to the additional amount of debt. The
interest rate utilized is 9% based on prevailing market conditions............. $ (5,052)
(b) Amortization expense relating to acquired intangible and other assets using
recovery periods of four to 40 years........................................... (4,346)
(c) Adjustment of income tax provision based on pre-tax income plus nondeductible
goodwill....................................................................... 142
(d) Revenues associated with operations transferred to Califa..................... (1,633)
(e) Playback costs associated with operations transferred to Califa............... 135
(f) Extinguishment of lease costs associated with the operation of a transponder,
terminated on the Closing Date................................................. 1,800
(g) Net reduction in salary expense due to the factually supportable head count
reduction of employees of Spice who either (1) are no longer employed by Spice,
or (2) have been notified that they will no longer be employed by Spice once
the Transactions are consummated. The cost savings related to this head count
reduction have been offset by the hiring of significantly fewer employees by
Playboy........................................................................ 2,532
(h) Net reduction in interest costs related to the refinancing of previous Spice
debt on the Closing Date....................................................... 780
(i) Interest income contractually due to New Playboy from Califa.................. 1,350
(j) Income contractually due to New Playboy from Califa under the non-competition
agreement established at time of Transactions.................................. 150
(k) Assumes conversion of Spice Convertible Preferred Stock....................... 135
---------
$ (4,007)
---------
---------
(l) For each 1/4% change in the interest rate utilized in 5(a) above, the effect
on the interest expense and net income (loss) would amount to $140 and $84
respectively.
</TABLE>
77
<PAGE>
NOTE 6--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED STATEMENT OF INCOME FOR THE
SIX MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1997
The following pro forma adjustments are incorporated in the pro forma
condensed combined statement of income for the six months ended December 31,
1997 as a result of the Transactions.
<TABLE>
<S> <C>
(a) An additional $74,849 of debt is required to fund the Transactions. Interest
expense has been adjusted to give effect to the additional amount of debt. The
interest rate utilized is 9% based on prevailing market conditions............. $ (3,368)
(b) Amortization expense relating to acquired intangible and other assets using
recovery periods of four to 40 years........................................... (2,898)
(c) Adjustment of income tax provision based on pre-tax income plus nondeductible
goodwill....................................................................... (1,501)
(d) Revenues associated with operations transferred to Califa..................... (252)
(e) Playback costs associated with operations transferred to Califa............... 90
(f) Extinguishment of lease costs associated with the operation of a transponder,
terminated on the Closing Date................................................. 1,200
(g) Net reduction in salary expense due to the factually supportable head count
reduction of employees of Spice who either (1) are no longer employed by Spice,
or (2) have been notified that they will no longer be employed by Spice once
the Transactions are consummated. The cost savings related to this head count
reduction have been offset by the hiring of significantly fewer employees by
Playboy........................................................................ 2,148
(h) Net reduction in interest costs related to the refinancing of previous Spice
debt on the Closing Date....................................................... 785
(i) Interest income contractually due to New Playboy from Califa.................. 900
(j) Income contractually due to New Playboy from Califa under the non-competition
agreement established at time of Transactions.................................. 100
(k) Assumes conversion of Spice Convertible Preferred Stock....................... 84
---------
$(2,712)
---------
---------
(l) For each 1/4% change in the interest rate utilized in 6(a) above, the effect
on the interest expense and net income (loss) would amount to $94 and $56
respectively.
</TABLE>
NOTE 7--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED STATEMENT OF INCOME FOR THE
YEAR ENDED JUNE 30, 1997
The following pro forma adjustments are incorporated in the pro forma
condensed combined statement of income for the year ended June 30, 1997 as a
result of the Transactions.
<TABLE>
<S> <C>
(a) An additional $74,849 of debt is required to fund the Transactions. Interest
expense has been adjusted to give effect to the additional amount of debt. The
interest rate utilized is 9% based on prevailing market conditions............. $ (6,736)
(b) Amortization expense relating to acquired intangible and other assets using
recovery periods of four to 40 years........................................... (5,795)
(c) Adjustment of income tax provision based on pre-tax income plus nondeductible
goodwill....................................................................... (11,828)
(d) Extinguishment of lease costs associated with the operation of a transponder,
terminated on the Closing Date................................................. 1,800
</TABLE>
78
<PAGE>
NOTE 7--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED STATEMENT OF INCOME FOR THE
YEAR ENDED JUNE 30, 1997 (CONTINUED)
<TABLE>
<S> <C>
(e) Net reduction in salary expense due to the factually supportable head count
reduction of employees of Spice who either (1) are no longer employed by Spice,
or (2) have been notified that they will no longer be employed by Spice once
the Transactions are consummated. The cost savings related to this head count
reduction have been offset by the hiring of significantly fewer employees by
Playboy........................................................................ 3,968
(f) Net reduction in interest costs related to the refinancing of previous Spice
debt on the Closing Date....................................................... 694
(g) Assumes conversion of Spice Convertible Preferred Stock....................... 108
---------
$ (17,789)
---------
---------
(h) For each 1/4% change in the interest rate utilized in 7(a) above, the effect
on the interest expense and net income (loss) would amount to $187 and $112
respectively.
</TABLE>
NOTE 8--INCOME TAX EXPENSE
Effective tax rates are higher than the statutory federal income tax rates
primarily due to state income taxes, net of federal benefit, and the inability
to deduct certain amounts of intangible amortization for tax purposes.
NOTE 9--MERGER RELATED EXPENSES
$6,700 of merger related expenses (excluding severance costs) have been
incurred by Playboy and are directly attributable to the Transactions. The
remaining $21,300 of merger related expenses (including $18,100 of severance
costs) have been incurred by Spice. These expenses of Spice are also directly
attributable to the Transactions and have been accrued in Spice and reflected as
a reduction to the retained earnings of Spice.
NOTE 10--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED BALANCE SHEET AT SEPTEMBER
30, 1998
The following pro forma adjustments are incorporated in the pro forma
condensed combined balance sheet at September 30, 1998 as a result of the
Transactions:
<TABLE>
<S> <C>
(a) Purchase price of outstanding shares
Value of shares issued......................................................... $ 32,623
Cash paid...................................................................... 59,720
Net transaction proceeds....................................................... (6,171)
---------
Purchase price................................................................. 86,172
Net liabilities assumed....................................................... 15,144
---------
Fair value adjustments: Record intangible and other assets acquired............ 101,316
(b) Previous Playboy and Spice debt is refinanced as part of the Transactions.... 40,055
(c) Reflects new debt issued (refer to 10(b) above) stated net of deferred
financing fees of $190 and includes $18,100 of severance payments that will be
made to the executive officers and staff of Spice, none of whom will continue
to be employed by New Playboy after the Transactions, together with $3,200 of
merger related expenses directly attributable to the Transactions, which
amounts have been accrued in Spice and will need to be funded as part of the
Transactions.................................................................. (93,604)
---------
(d) Net change in combined Stockholders' equity as a result of the
Transactions.................................................................. $ 47,767
---------
---------
</TABLE>
79
<PAGE>
NOTE 10--PRO FORMA ADJUSTMENTS--CONDENSED COMBINED BALANCE SHEET AT SEPTEMBER
30, 1998 (CONTINUED)
<TABLE>
<S> <C>
(e) Net assets transferred under the Asset Purchase Agreement to Califa.......... $ (2,135)
(f) Payments received from Califa under the Asset Purchase Agreement............. 500
(g) Elimination of payments noted in 10(f) which will form part of the assets
contributed to
Directrix.................................................................... (500)
---------
(h) Net change in combined Retained Earnings/(Accumulated Deficit)............... $ (2,135)
---------
---------
</TABLE>
NOTE 11--INTANGIBLE AND OTHER ASSETS
Intangible and other assets are comprised of film libraries, covenants not
to compete, trademarks, goodwill, going concern and other nonidentifiable
intangible assets, with lives ranging from four to 40 years. The estimated
amounts allocated to each intangible and other asset, and the respective
amortization period for each are:
<TABLE>
<CAPTION>
DESCRIPTION OF ASSET ESTIMATED AMOUNT ALLOCATED AMORTIZATION PERIOD
- ------------------------------- --------------------------- -------------------------------
<S> <C> <C>
Goodwill, going concern, and
other nonidentifiable
intangible assets............ $ 57,516 40 years
Trade Name..................... 26,700 40 years
Non-Competition Agreements..... 11,700 5 years
Film Library................... 5,400 4 years
--------
$ 101,316
--------
--------
</TABLE>
80
<PAGE>
MANAGEMENT OF NEW PLAYBOY
Each of the directors and executive officers of Playboy will continue to
serve as directors and executive officers of New Playboy. New Playboy has not
yet paid any compensation to any person anticipated to become a director or an
executive officer, and the form and amount of compensation to be paid to
directors and executive officers of New Playboy in any future period is expected
to be substantially identical to the form and amount of the compensation that
Playboy would have paid to those directors and executive officers in that
period.
DESCRIPTION OF NEW PLAYBOY CAPITAL STOCK
GENERAL. New Playboy's authorized capital stock consists of 7,500,000
shares of New Playboy Class A Common Stock and 30,000,000 shares of New Playboy
Class B Common Stock. All shares of New Playboy Class A Common Stock into which
shares of Playboy Class A Common Stock will be converted in connection with the
Playboy Merger, when so converted as contemplated by this Proxy Statement/
Prospectus, will be validly issued, fully paid and non-assessable. All shares of
New Playboy Class B Common Stock into which shares of Playboy Class B Common
Stock will be converted into connection with the Playboy Merger and to be issued
to the holders of Spice Capital Stock in connection with the Spice Merger, when
so converted or issued as contemplated by this Proxy Statement/Prospectus, will
be validly issued, fully paid and non-assessable.
VOTING. Each share of New Playboy Class A Common Stock entitles its holder
to one vote on all matters submitted to the stockholders, including the election
of directors. Each share of New Playboy Class B Common Stock has no voting
rights, other than those as described below or as required by law. Under the
DGCL, holders of New Playboy Class B Common Stock are entitled to vote on
proposals to increase or decrease the number of authorized shares of New Playboy
Class B Common Stock, to change the par value of the New Playboy Class B Common
Stock or to alter or change the powers, preferences or special rights of the
shares of New Playboy Class B Common Stock which may affect them adversely.
DIVIDENDS AND OTHER DISTRIBUTIONS (INCLUDING DISTRIBUTIONS UPON LIQUIDATION
OR SALE OF NEW PLAYBOY). Each share of New Playboy Class A Common Stock and New
Playboy Class B Common Stock is equal with respect to dividends and other
distributions in cash, stock or property (including distributions upon
liquidation, dissolution or winding up of New Playboy), except as described
below. Dividends or other distributions payable on the New Playboy Capital Stock
in shares of stock will be made to all holders of New Playboy Capital Stock and
may be made either (a) in shares of New Playboy Class B Common Stock or any
security other than New Playboy Class A Common Stock to the record holders of
both New Playboy Class A Common Stock and New Playboy Class B Common Stock, or
(b) in shares of New Playboy Class A Common Stock to the record holders of New
Playboy Class A Common Stock and shares of New Playboy Class B Common Stock to
the record holders of New Playboy Class B Common Stock. In no event will either
New Playboy Class A Common Stock or New Playboy Class B Common Stock be split,
divided or combined unless the other is proportionately split, divided or
combined.
NON-CONVERTIBILITY. Neither the New Playboy Class A Common Stock nor the
New Playboy Class B Common Stock is convertible into another class of common
stock or any other security of New Playboy.
MINORITY PROTECTION TRANSACTIONS. If any person or group acquires
beneficial ownership of additional New Playboy Class A Common Stock (other than
upon original issuance by New Playboy, by operation of law, by will or the laws
of descent and distribution, by gift or by foreclosure of a bona fide loan), or
any persons holding New Playboy Class A Common Stock form a group, and the
acquisition or formation results in that person or group owning 10% or more of
the New Playboy Class A Common Stock then outstanding (a "Related Person"), and
the Related Person does not then own an equal or greater percentage of all
outstanding shares of New Playboy Class B Common Stock, the Related Person must,
within a 90-day period beginning the day after becoming a Related Person, make a
public tender offer to
81
<PAGE>
acquire additional shares of New Playboy Class B Common Stock (a "Minority
Protection Transaction"). For purposes of this provision, "beneficial ownership"
and "group" have the respective meanings of those terms as used in Rule 13d-3
and Rule 15d-5(b) under the Exchange Act or any successor regulations.
In a Minority Protection Transaction, the Related Person must offer to
acquire from the holders of New Playboy Class B Common Stock that number of
shares of additional New Playboy Class B Common Stock (the "Additional Shares")
determined by (a) multiplying the percentage of outstanding New Playboy Class A
Common Stock beneficially owned by the Related Person by the total number of
shares of New Playboy Class B Common Stock outstanding on the date the person or
group became a Related Person, and (b) subtracting therefrom the total number of
shares of New Playboy Class B Common Stock beneficially owned by that Related
Person on such date (including shares acquired on that date at or prior to the
time the person or group became a Related Person). The Related Person must
acquire all shares validly tendered or, if the number of shares tendered exceeds
the number determined under the formula, a pro rata amount from each tendering
holder.
The offer price for any shares required to be purchased by the Related
Person in a Minority Protection Transaction is the greater of (a) the highest
price per share paid by the Related Person for any share of New Playboy Class A
Common Stock in the six month period ending on the date the person or group
became a Related Person, or (b) the highest bid price of a share of the New
Playboy Class A Common Stock or New Playboy Class B Common Stock on the NYSE on
the date the person or group became a Related Person.
A Minority Protection Transaction will also be required by any Related
Person, and any other person or group beneficially owning 10% or more of the
outstanding New Playboy Class A Common Stock (an "Interested Common
Stockholder"), that acquires additional New Playboy Class A Common Stock (other
than upon issuance or sale by New Playboy, by operation of law, by will or the
laws of descent and distribution, by gift or by foreclosure of a bona fide loan)
or joins with other persons to form a group, whenever an additional acquisition
or formation results in the Related Person or Interested Common Stockholder
owning the next highest integral multiple of 5% (e.g. 15%, 20%, 25%, etc.) of
the outstanding New Playboy Class A Common Stock and the Related Person or
Interested Common Stockholder does not own an equal or greater percentage of all
outstanding shares of New Playboy Class B Common Stock. The Related Person or
Interested Common Stockholder will be required to extend an offer to buy that
number of Additional Shares prescribed by the formula set forth above, and must
acquire all shares validly tendered or a pro rata portion as specified above at
the price determined above, even if a previous offer resulted in fewer shares of
New Playboy Class B Common Stock being tendered than the previous offer
included.
The requirement to engage in a Minority Protection Transaction is satisfied
by making the requisite offer and purchasing validly tendered shares, even if
the number of shares tendered is less than the number of shares included in the
required offer. The penalty applicable to any Related Person or Interested
Common Stockholder that fails to make a required offer, or to purchase shares
validly tendered (after proration, if any), is to suspend automatically the
voting rights of the shares of New Playboy Class A Common Stock owned by the
Related Person or Interested Common Stockholder until consummation of the
required offer or until divestiture of the shares of New Playboy Class A Common
Stock that triggered the offer requirement. Neither the Minority Protection
Transaction requirement nor the related penalty apply to any increase in
percentage ownership of New Playboy Class A Common Stock resulting solely from a
change in the total amount of New Playboy Class A Common Stock outstanding.
Similar requirements apply to any purchases by New Playboy, except that
treasury shares will be included in the calculations. All calculations are based
upon numbers of shares reported by New Playboy in its most recent annual or
quarterly report filed pursuant to the Exchange Act, or Current Report filed on
Form 8-K, if any.
82
<PAGE>
This provision of the New Playboy Certificate of Incorporation may be
amended in a manner adversely affecting the holders of New Playboy Class B
Common Stock (including amendments effected in any merger or consolidation
involving New Playboy) only if the amendment is approved by a majority vote of
holders of New Playboy Class B Common Stock who are not Related Persons or
Interested Common Stockholders.
PREEMPTIVE RIGHTS. The New Playboy Capital Stock does not carry any
preemptive rights enabling a holder to subscribe for or receive shares of any
class of capital stock of New Playboy or any other securities convertible into
shares of any class of capital stock of New Playboy.
MERGERS AND ACQUISITIONS. Each holder of New Playboy Class B Common Stock
will be entitled to receive the same per share consideration as the per share
consideration, if any, received by any holder of the New Playboy Class A Common
Stock in a merger or consolidation of New Playboy (whether or not New Playboy is
the surviving corporation). Any issuance of shares of New Playboy Class A Common
Stock in a merger or other acquisition transaction must be approved by the
holders of a majority of the shares of New Playboy Class A Common Stock unless
shares of New Playboy Class B Common Stock are also issued in the transaction
and the quotient determined by dividing the number of shares of New Playboy
Class B Common Stock to be so issued by the number of shares of New Playboy
Class A Common Stock to be so issued is at least equal to the quotient
determined, immediately prior to the transaction, by dividing the total number
of outstanding shares of New Playboy Class B Common Stock by the total number of
outstanding shares of New Playboy Class A Common Stock.
Section 203 of the DGCL generally prohibits certain Delaware corporations
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the person became an interested stockholder, unless
(a) prior to the time the board approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder,
(b) upon consummation of the transaction that resulted in the person becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares
outstanding, shares owned by certain directors or certain employee stock plans),
or (c) on or after the time the stockholder became an interested stockholder,
the business combination is approved by the board of directors and authorized by
the affirmative vote (and not by written consent) of at least two-thirds of the
outstanding voting stock excluding any stock owned by the interested
stockholder. A "business combination" includes a merger, asset sale and certain
other transactions resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who (other than
the corporation and any direct or indirect majority owned subsidiary of the
corporation), together with affiliates and associates, owns (or, is an affiliate
or associate of the corporation and, within three years prior, did own) 15% or
more of the corporation's outstanding voting stock. A Delaware corporation may
"opt out" from the application of Section 203 of the DGCL through a provision in
its certificate of incorporation. The New Playboy Certificate of Incorporation
does not contain such a provision and New Playboy has not "opted out" from the
application of Section 203 of the DGCL.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the New
Playboy Capital Stock is Harris Trust and Savings Bank.
83
<PAGE>
DESCRIPTION OF DIRECTRIX CAPITAL STOCK
Please refer to the Directrix Prospectus.
SHARE OWNERSHIP OF SPICE COMMON STOCK BY
DIRECTORS, PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Spice Common Stock as of September 30, 1998 (a) by each person
who is known by Spice to own beneficially more than 5% of the outstanding shares
of Spice Common Stock, (b) each of Spice's directors, (c) each of Spice's named
executive officers, and (d) all executive officers and directors of Spice as a
group.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
EXECUTIVE OFFICERS, BENEFICIALLY SHARES
DIRECTORS AND 5% STOCKHOLDERS ADDRESS OWNED(1) OUTSTANDING(1)
- ----------------------------------- ----------------------------------- ------------ --------------
<S> <C> <C> <C>
J. Roger Faherty Spice Entertainment Companies, Inc. 1,322,922(2)(3) 7.51%
536 Broadway, 7th Floor
New York, NY 10012
Leland H. Nolan 17 Thompson Street 1,015,192(4) 5.86
New York, NY 10012
Dean R. Ericson 5429 South Krameria Street 100,000(5) 0.60
Englewood, CO 80111
Rudy R. Miller 4909 East McDowell Road 70,000(6) 0.42
Phoenix, AZ 85008
Steve Saril Spice Entertainment Companies, Inc. 397,567(7) 2.35
536 Broadway, 7th Floor
New York, NY 10012
Stephen K. Liebmann 351 East 84th Street 70,000(8) 0.42
New York, NY 10028
Harlyn C. Enholm Spice Entertainment Companies, Inc. 57,462(9) 0.34
536 Broadway, 7th Floor
New York, NY 10012
Daniel J. Barsky Spice Entertainment Companies, Inc. 113,000(10) 0.68
536 Broadway, 7th Floor
New York, NY 10012
Richard Kirby Spice Entertainment Companies, Inc. 177,000(11) 1.06
536 Broadway, 7th Floor
New York, NY 10012
John R. Sharpe Spice Entertainment Companies, Inc. 17,800(12) 0.11
536 Broadway, 7th Floor
New York, NY 10012
Lindemann Capital 767 Fifth Avenue 1,678,016(13)(14) 10.04
Advisors, LLC New York, NY 10153
T. Rowe Price New P.O. Box 17218 650,000(15) 3.92
Horizons Fund, Inc. Baltimore, MD 21202
All executive officers and
directors as a group
(10 persons) 3,340,943 17.39
</TABLE>
- ------------------------
(1) Assumes that all options and warrants will vest as a result of the Mergers.
See "The Merger Agreement--Treatment of Spice Options and Warrants."
(2) Includes 1,027,416 shares issuable upon exercise of outstanding options.
84
<PAGE>
(3) Does not include 13,250 options owned by Mr. Faherty's wife or 10,800 shares
owned by Mr. Faherty's children. Mr. Faherty does not have or share voting
or investment power over the options owned by his wife or the shares owned
by his children and disclaims beneficial ownership of such shares.
(4) Includes 722,916 shares issuable upon exercise of outstanding options.
(5) Consists of 50,000 shares issuable upon exercise of options and 50,000
shares issuable upon exercise of warrants.
(6) Consists of 20,000 shares issuable upon exercise of options and 50,000
shares issuable upon exercise of warrants.
(7) Includes 336,000 shares issuable upon exercise of options and 40,000 shares
of Restricted Stock.
(8) Includes 10,000 shares issuable upon exercise of options and 50,000 shares
issuable upon exercise of warrants.
(9) Consists of 57,462 shares issuable upon exercise of options.
(10) Consists of 86,000 shares issuable upon exercise of options and 27,000
shares of Restricted Stock.
(11) Consists of 141,000 shares issuable upon exercise of options and 36,000
shares of Restricted Stock.
(12) Consists of 17,800 shares issuable upon exercise of outstanding options.
(13) The information concerning beneficial ownership of Lindemann Capital
Advisors, LLC was obtained from a Schedule 13G, a Form 3 and a Form 4 filed
by that stockholder. According to the Form 3 and the Form 4, the stockholder
reported that the shares 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
a portion such shares.
(14) Includes 110,000 shares issuable upon exercise of warrants.
(15) The information concerning beneficial ownership of T. Rowe Price New
Horizons Fund, Inc. was obtained from a Schedule 13G filed by that
stockholder. According to this Schedule 13G, these securities are owned by
various individual and institutional investors, including T. Rowe Price New
Horizon Fund, Inc., as to which T. Rowe Price Associates, Inc. (Price
Associates) serves as investment advisor with power to direct investments
and/or sole power to vote the securities.
85
<PAGE>
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF NEW PLAYBOY AND PLAYBOY
New Playboy and Playboy are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of Playboy
Capital Stock and New Playboy Capital Stock would arise primarily from
differences in the two corporations' respective certificates of incorporation
and bylaws. The New Playboy Certificate of Incorporation and the Amended and
Restated Bylaws of New Playboy (the "New Playboy Bylaws") are substantially
identical to the Playboy Certificate of Incorporation and the Playboy Bylaws,
respectively, except for the difference in the names of the corporations.
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF NEW PLAYBOY AND SPICE
Both New Playboy and Spice are incorporated under the laws of the State of
Delaware and, accordingly, the rights of Spice stockholders and New Playboy
stockholders are governed by the DGCL. The rights of Spice stockholders and New
Playboy stockholders are also governed by their respective certificates of
incorporation and bylaws. In accordance with the Merger Agreement, at the
Effective Time of the Mergers, Spice stockholders will become New Playboy
stockholders and, as such, their rights will be governed by the New Playboy
Certificate of Incorporation and New Playboy Bylaws. Although it is not
practical to compare all the differences between the Spice Certificate of
Incorporation and the Spice Bylaws, on the one hand, and the New Playboy
Certificate of Incorporation and the New Playboy Bylaws, on the other hand, the
following is a summary of certain material differences which may affect the
rights of Spice stockholders.
COMPARISON OF THE ORGANIZATIONAL DOCUMENTS
AUTHORIZED CAPITAL. The total number of authorized shares of capital stock
of Spice is 35,000,000, consisting of 25,000,000 shares of Spice Common Stock
and 10,000,000 shares of preferred stock, par value $.01 per share. The
authorized capital of New Playboy is as set forth under "Description of New
Playboy Capital Stock." As of the Spice Record Date, 12,243,395 shares of Spice
Common Stock were issued and outstanding. The Spice Certificate of Incorporation
provides that the Spice Board has the authority to issue any authorized shares
of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or actions by the Spice
stockholders. The New Playboy Certificate of Incorporation does not contain a
comparable provision.
SPECIAL MEETINGS. The Spice Bylaws provide that either the Chairman of the
Spice Board or the Spice Board by a resolution adopted by 75% of its members may
call a special meeting of the Spice stockholders. A special meeting of the New
Playboy stockholders may be called by the Chief Executive Officer of New Playboy
and shall be called by the Chief Executive Officer or Secretary upon the written
request of either a majority of the members of the New Playboy Board or the
holders of a majority of the issued and outstanding shares of capital stock of
New Playboy entitled to vote.
BOARD OF DIRECTORS. The Spice Bylaws provide that the initial number of
directors shall be seven and that the number of directors may be increased or
decreased from time to time by resolution adopted by 80% of the members of the
Spice Board. Currently, the Spice Board consists of seven members. The New
Playboy Bylaws provide that the number of directors shall be not less than five
nor more than ten. The New Playboy Bylaws provide that the number of directors
shall be determined from time to time by resolution duly adopted by the New
Playboy Board.
REMOVAL OF DIRECTORS. The Spice Bylaws do not contain any provision with
respect to the removal of Spice directors. Under the DGCL, members of the Spice
Board may be removed, with or without cause, by the affirmative vote of the
holders of a majority of the shares of stock of Spice then entitled to vote at
an election of directors. The New Playboy Bylaws provide that a director may be
removed, with or without
86
<PAGE>
cause, by the affirmative vote of the holders of a majority of the shares of New
Playboy stock then entitled to vote at an election of directors.
COMPROMISE OR ARRANGEMENT WITH CREDITORS OR STOCKHOLDERS. As permitted by
the DGCL, the Spice Certificate of Incorporation provides that a Delaware court
of equitable jurisdiction may, upon application of Spice, its creditors or
stockholders or certain receivers appointed for the benefit of Spice, order a
meeting of creditors of Spice and/or Spice stockholders for the purpose of
considering and voting upon any proposed compromise or arrangement between Spice
on the one hand and its creditors and/or stockholders on the other. If a
majority in number representing three-fourths in value of the affected creditors
and/ or stockholders agrees to the proposed compromise or arrangement and to any
reorganization resulting from it, and if the court approves, the transaction
will be binding on all affected creditors and/or stockholders as well as Spice
for all purposes. The New Playboy Certificate of Incorporation does not contain
a similar provision.
ACTIONS OF STOCKHOLDERS WITHOUT A MEETING. The New Playboy Bylaws provide
that any action required or permitted to be taken at any meeting of the
stockholders may be taken without a meeting, without prior written notice and
without a vote, if the written consent of the minimum number of votes that would
be necessary to authorize or take such action at a meeting is obtained. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous consent is required to be given to those stockholders who have not
consented in writing to it. The Spice Certificate of Incorporation and Spice
Bylaws contain no comparable provisions. Under the DGCL, any action required or
permitted to be taken at any meeting of the Spice stockholders may be taken
without a meeting, without prior written notice and without a vote, if the
written consent of the minimum number of votes that would be necessary to
authorize or take such action at a meeting is obtained.
OFFICERS. The New Playboy Bylaws specifically provide that the Chief
Executive Officer of New Playboy shall be a director of New Playboy and shall be
the Chairman of the New Playboy Board. The New Playboy Bylaws also provide that
the Editor-in-Chief of New Playboy shall be entitled to attend all meetings of
the New Playboy Board whether or not he is a director of New Playboy. The Spice
Bylaws do not contain similar provisions.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Section 242 of the
DGCL provides that stockholders may amend their corporation's certificate of
incorporation if a majority of the outstanding stock entitled to vote on it, and
a majority of the outstanding stock of each class entitled to vote on it as a
class, has been voted in favor of the amendment. The DGCL also provides that
after a corporation has received any payment for its stock, the power to adopt,
amend or repeal bylaws resides with the stockholders entitled to vote. A
corporation may, however, grant to its board of directors in its certificate of
incorporation concurrent power to adopt, amend or repeal bylaws. Each of Spice
and New Playboy has granted such power to its respective board of directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under the DGCL, a corporation
may indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him or her if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification will be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless the court in which the action or suit was
brought or, the Delaware Court of Chancery determines that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for the expenses as the
87
<PAGE>
court shall deem proper. Each of the Spice Bylaws and the New Playboy Bylaws
provide that its respective officers, directors, employees and agents shall be
indemnified to the full extent authorized by the DGCL.
SECTION 203 OF THE DGCL. Section 203 of the DGCL generally prohibits
certain Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the person became an
interested stockholder, unless (a) prior to the time the board approved either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
that resulted in the person becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by certain directors
or certain employee stock plans), or (c) on or after the time the stockholder
became an interested stockholder, the business combination is approved by the
board of directors and authorized by the affirmative vote (and not by written
consent) of at least two-thirds of the outstanding voting stock excluding any
stock owned by the interested stockholder. A "business combination" includes a
merger, asset sale and certain other transactions resulting in a financial
benefit to the interested stockholder. In general, an "interested stockholder"
is a person who (other than the corporation and any direct or indirect majority
owned subsidiary of the corporation), together with affiliates and associates,
owns (or, is an affiliate or associate of the corporation and, within three
years prior, did own) 15% or more of the corporation's outstanding voting stock.
A Delaware corporation may "opt out" from the application of Section 203 of the
DGCL through a provision in its certificate of incorporation. Neither the New
Playboy Certificate of Incorporation nor the Spice Certificate of Incorporation
contains any such provision, and neither New Playboy nor Spice has "opted out"
from the application of Section 203 of the DGCL.
SPICE RIGHTS AGREEMENT
In June 1997, the Spice Board adopted a "poison pill" or rights agreement
(the "Spice Rights Agreement"). In connection with the adoption of the Spice
Rights Agreement, the Spice Board declared a dividend distribution of one right
to purchase preferred stock ("Right") for each outstanding share of Spice Common
Stock owned by stockholders of record as of the close of business on June 27,
1997. Each Right entitles the registered holder to purchase from Spice one
one-hundredth of a share (a "Fractional Share") of Series B Junior Participating
Preferred Stock, par value $.01 per share, at a purchase price of $12.50 per
Fractional Share, subject to adjustment.
The Rights are attached to all certificates representing outstanding shares
of Spice Common Stock and have not been distributed in a separate certificate.
The Rights will separate from the Spice Common Stock and a "Distribution Date"
will occur, with certain exceptions, upon the earlier of (i) ten days following
a public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Spice Common
Stock, or (ii) ten business days following the commencement of a tender offer or
exchange offer that would result in a person becoming an Acquiring Person. In
certain circumstances, the Distribution Date may be deferred by the Spice Board.
Certain inadvertent acquisitions will not result in a person becoming an
Acquiring Person if the person promptly divests itself of sufficient Spice
Common Stock. If, at the time of the adoption of the Spice Rights Agreement, any
person or group of affiliated or associated persons is the beneficial owner of
15% or more of the outstanding shares of Spice Common Stock, the person shall
not become an Acquiring Person unless and until certain increases in the
person's beneficial ownership occur or are deemed to occur.
The Rights are not exercisable until the Distribution Date and expire on
June 12, 2007, unless earlier redeemed or exchanged by Spice.
In the event (a "Flip-In Event") that a person becomes an Acquiring Person
(except by virtue of a tender or exchange offer for all outstanding shares of
Spice Common Stock at a price and on terms that a
88
<PAGE>
majority of the independent Continuing Directors determines to be fair to and
otherwise in the best interests of Spice and its stockholders (a "Permitted
Offer")), each holder of a Right will thereafter have the right to receive, upon
exercise of the Right, a number of shares of Spice Common Stock (or, in certain
circumstances, cash, property or other securities of Spice) having a current
market price equal to two times the exercise price of the Right. Notwithstanding
the foregoing, following the occurrence of any Flip-In Event, all Rights that
are, or (under certain circumstances specified in the Spice Rights Agreement)
were, beneficially owned by or transferred to an Acquiring Person (or by certain
related parties) will be null and void in the circumstances set forth in the
Spice Rights Agreement. Rights are not exercisable following the occurrence of
any Flip-In Event, however, until the Rights are no longer redeemable by Spice.
The Spice Board may, at its option, cause Spice to redeem all of the outstanding
Rights at a redemption price of $.01 per Right at any time prior to the earlier
of (a) the close of business on the tenth day following public announcement of a
Flip-In Event, and (b) the expiration date of the Rights.
In the event (a "Flip-Over Event") that, at any time from and after the time
an Acquiring Person becomes such, (a) Spice is acquired in a merger or other
business combination transaction (other than certain mergers that follow a
Permitted Offer), or (b) 50% or more of Spice's assets or earning power is sold
or transferred, each holder of a Right (except Rights that are voided) shall
thereafter have the right to receive, upon exercise, a number of shares of
common stock of the acquiring company having a current market price equal to two
times the exercise price of the Right. Flip-In Events and Flip-Over Events are
collectively referred to as "Triggering Events."
At any time until ten days following the first date of public announcement
of the occurrence of a Flip-In Event, Spice may redeem the Rights in whole, but
not in part, at a price of $.01 per Right, payable, at the option of Spice, in
cash, shares of Spice Common Stock or other consideration as the Spice Board may
determine. Under certain circumstances set forth in the Spice Rights Agreement,
the decision to redeem shall require the concurrence of a majority of the
Continuing Directors. Immediately upon the effectiveness of the action of the
Spice Board ordering redemption of the Rights, with, where required, the
concurrence of the Continuing Directors, the Rights will terminate and the only
right of the holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Director" means any member of the Spice Board, while he
or she is a member of the Spice Board, who is not an officer or employee of
Spice or any subsidiary of Spice and who is not an Acquiring Person, or an
affiliate or associate of an Acquiring Person, or a nominee or representative of
an Acquiring Person or of any affiliate or associate of the Acquiring Person, if
(i) the person was a member of the Spice Board prior to the time a person
becomes an Acquiring Person or (ii) the person's nomination for election or
election to the Spice Board is recommended or approved by a majority of the then
Continuing Directors.
At any time after the occurrence of a Flip-In Event and prior to a person's
becoming the beneficial owner of 50% or more of the shares of Spice Common Stock
then outstanding or the occurrence of a Flip-Over Event, Spice (with the
concurrence of a majority of the Continuing Directors) may exchange the Rights
(other than Rights owned by an Acquiring Person or an affiliate or an associate
of an Acquiring Person, which will have become void), in whole or in part, at an
exchange ratio of one share of Spice Common Stock, and/or other equity
securities deemed to have the same value as one share of Spice Common Stock, per
Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Spice, including, without limitation, the right to vote or
to receive dividends. While the distribution of the Rights should not be taxable
to Spice stockholders or to Spice, Spice stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Spice Common Stock (or other consideration of Spice) or for the
common stock of the acquiring company or are exchanged.
89
<PAGE>
The Spice Rights Agreement is designed to encourage any person or entity
interested in acquiring Spice to negotiate with the Spice Board by enabling the
existing stockholders of Spice to substantially dilute the acquiror's equity
interest by exercising the Rights.
The Spice Merger is a Permitted Offer under the Spice Rights Agreement and
upon consummation of the Spice Merger all Rights will expire.
While New Playboy does not have a "poison pill" or stockholder rights plan,
the New Playboy Certificate of Incorporation does contain certain anti-takeover
provisions. See "Description of New Playboy Capital Stock--Minority Protection
Transactions."
CERTAIN BUSINESS RELATIONSHIPS
On June 10, 1998, Spice granted Playboy a royalty-free license to use the
SPICE name in connection with Playboy's launch of a SPICE catalog, as described
under "Business of Playboy--Catalogs." If the Transactions are not consummated,
Playboy will be obligated to pay Spice a royalty of ten percent of net sales
generated by the SPICE catalog.
LEGAL MATTERS
The validity of the New Playboy Class A Common Stock and the New Playboy
Class B Common Stock to be issued in connection with the Mergers will be passed
upon by Paul, Weiss, Rifkind, Wharton & Garrison.
Paul, Weiss, Rifkind, Wharton & Garrison, counsel for Playboy, and Kramer
Levin Naftalis & Frankel LLP, counsel for Spice, will pass on certain Federal
income tax consequences of the Merger Agreement and other Transaction Agreements
for Playboy and Spice, respectively.
EXPERTS
The consolidated balance sheets of Playboy and its subsidiaries as of
December 31, 1997, June 30, 1997 and June 30, 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the six-month
transition period ended December 31, 1997, and for each of the three fiscal
years in the period ended June 30, 1997, appearing in Playboy's Transition
Report on Form 10-K, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Spice appearing in the Spice Form 10-K for the
years ended December 31, 1996 and December 31, 1997 have been audited by Grant
Thornton LLP, independent accountants, and for the year ended December 31, 1995
by PricewaterhouseCoopers LLP, independent accountants, as set forth in their
reports thereon and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firms as experts in accounting and auditing.
It is expected that representatives of Grant Thornton LLP will be present at
the Spice Special Meeting where they will have an opportunity to respond to
appropriate questions of stockholders and to make a statement if they so desire.
Playboy expects to engage ING Barings to provide investment banking and
financial advisory services on matters unrelated to the Transactions. ING
Barings will receive customary fees and commissions for these services.
90
<PAGE>
APPENDIX A-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PLAYBOY ENTERPRISES, INC.,
NEW PLAYBOY, INC.,
PLAYBOY ACQUISITION CORP.,
SPICE ACQUISITION CORP.,
AND
SPICE ENTERTAINMENT COMPANIES, INC.
DATED AS OF MAY 29, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
ARTICLE 1 THE MERGERS................................................................................ 2
SECTION 1.1 The Mergers.......................................................................... 2
SECTION 1.2 Closing; Effective Time.............................................................. 3
SECTION 1.3 Effects of the Mergers............................................................... 3
SECTION 1.4 Certificate of Incorporation......................................................... 3
SECTION 1.5 By-laws.............................................................................. 4
SECTION 1.6 Directors............................................................................ 4
SECTION 1.7 Officers............................................................................. 4
ARTICLE 2 CONVERSION OF CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS............................................................................... 4
SECTION 2.1 P Merger............................................................................. 4
SECTION 2.2 S Merger............................................................................. 6
SECTION 2.3 Exchange of Certificates............................................................. 9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................. 15
SECTION 3.1 Organization and Qualification; Subsidiaries......................................... 15
SECTION 3.2 Capitalization of the Company and its Subsidiaries................................... 16
SECTION 3.3 Authority Relative to this Agreement; Board Action................................... 17
SECTION 3.4 SEC Filings; Financial Statements.................................................... 18
SECTION 3.5 Information Supplied................................................................. 19
SECTION 3.6 Consents and Approvals; No Violations................................................ 20
SECTION 3.7 No Default........................................................................... 21
SECTION 3.8 No Undisclosed Liabilities; Absence of Changes....................................... 21
SECTION 3.9 Litigation........................................................................... 22
SECTION 3.10 Compliance with Applicable Law....................................................... 22
SECTION 3.11 Employees; Employee Plans............................................................ 23
SECTION 3.12 Environmental Laws and Regulations................................................... 25
SECTION 3.13 Tax Matters.......................................................................... 26
SECTION 3.14 Library Rights....................................................................... 26
SECTION 3.15 Marks and Patents.................................................................... 27
SECTION 3.16 Material Contracts................................................................... 28
SECTION 3.17 Title to Properties; Real Estate..................................................... 29
SECTION 3.18 Opinion of Financial Advisor......................................................... 30
SECTION 3.19 Brokers.............................................................................. 30
SECTION 3.20 Vote Required........................................................................ 30
SECTION 3.21 Tangible Personal Property........................................................... 30
SECTION 3.22 Insurance............................................................................ 31
SECTION 3.23 Transactions with Affiliates......................................................... 31
SECTION 3.24 Corporate Records.................................................................... 31
SECTION 3.25 Investment Company Act............................................................... 31
SECTION 3.26 Transaction Fees and Expenses........................................................ 31
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PLAYBOY ENTITIES..................................... 32
SECTION 4.1 Organization and Qualification; Subsidiaries......................................... 32
SECTION 4.2 Capitalization of Playboy and its Subsidiaries....................................... 33
SECTION 4.3 Authority Relative to this Agreement................................................. 34
SECTION 4.4 SEC Filings; Financial Statements.................................................... 35
SECTION 4.5 Information Supplied................................................................. 36
</TABLE>
A-1-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
SECTION 4.6 Consents and Approvals; No Violations................................................ 37
SECTION 4.7 No Default........................................................................... 37
SECTION 4.8 No Undisclosed Liabilities; Absence of Changes....................................... 38
SECTION 4.9 Litigation........................................................................... 39
SECTION 4.10 Compliance with Applicable Law....................................................... 39
SECTION 4.11 Tax Matters.......................................................................... 39
SECTION 4.12 Brokers.............................................................................. 40
SECTION 4.13 Investment Company Act............................................................... 40
SECTION 4.14 Ownership of Holdco, Merger Sub P and Merger Sub S; No Prior
Activities................................................................................. 40
ARTICLE 5 COVENANTS.................................................................................. 41
SECTION 5.1 Conduct of Business of the Company................................................... 41
SECTION 5.2 Conduct of Business of Playboy....................................................... 44
SECTION 5.3 Other Actions........................................................................ 45
SECTION 5.4 Preparation of the S-4 Registration Statement and Proxy Statement;
Preparation of the S-1 Registration Statement;
Company Stockholders Meeting............................................................... 45
SECTION 5.5 No Solicitation of Transactions by the Company....................................... 46
SECTION 5.6 Letters of the Company's Accountants................................................. 47
SECTION 5.7 Access to Information; Confidentiality............................................... 47
SECTION 5.8 Reasonable Commercial Efforts........................................................ 49
SECTION 5.9 Public Announcements................................................................. 50
SECTION 5.10 Indemnification...................................................................... 50
SECTION 5.11 Notification of Certain Matters...................................................... 51
SECTION 5.12 Tax Treatment........................................................................ 52
SECTION 5.13 Company Affiliates................................................................... 52
SECTION 5.14 SEC and Other Governmental Filings................................................... 52
SECTION 5.15 Related Transactions; Related Agreements............................................. 53
SECTION 5.16 Emerald Media Option................................................................. 53
SECTION 5.17 Tax Treatment of Related Transactions................................................ 54
SECTION 5.18 Employee Benefit Plans............................................................... 54
SECTION 5.19 Optional Services Agreement.......................................................... 54
ARTICLE 6 CONDITIONS TO CONSUMMATION OF THE MERGERS.................................................. 54
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Mergers......................... 54
SECTION 6.2 Conditions to the Obligations of the Company......................................... 55
SECTION 6.3 Conditions to the Obligations of Playboy............................................. 57
ARTICLE 7 TERMINATION; AMENDMENT; WAIVER............................................................. 59
SECTION 7.1 Termination.......................................................................... 59
SECTION 7.2 Effect of Termination................................................................ 61
SECTION 7.3 Procedure for Termination............................................................ 62
SECTION 7.4 Amendment; Extension; Waiver......................................................... 62
SECTION 7.5 Fees and Expenses.................................................................... 63
ARTICLE 8 MISCELLANEOUS.............................................................................. 63
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements........................... 63
SECTION 8.2 Entire Agreement; Assignment......................................................... 63
SECTION 8.3 Validity............................................................................. 64
SECTION 8.4 Notices.............................................................................. 64
SECTION 8.5 Parties in Interest.................................................................. 65
</TABLE>
A-1-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
SECTION 8.6 Severability......................................................................... 65
SECTION 8.7 Specific Performance................................................................. 65
SECTION 8.8 Brokers.............................................................................. 65
SECTION 8.9 Counterparts......................................................................... 65
SECTION 8.10 Interpretation....................................................................... 65
SECTION 8.11 Certain Definitions.................................................................. 66
SECTION 8.12 Governing Law and Venue.............................................................. 67
SECTION 8.13 Waiver of Jury Trial................................................................. 67
</TABLE>
A-1-iii
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A Transfer and Redemption Agreement
EXHIBIT B Mandatory Services Agreement
EXHIBIT C-1 Subco Non-Compete Agreement
EXHIBIT C-2 Faherty Non-Compete Agreement
SCHEDULES
SCHEDULE 3.2(a) Capitalization of the Company and the Company Subsidiaries;
Company Option Holders
SCHEDULE 3.2(b) Company Liens on Capital Stock
SCHEDULE 3.4(a) Company Filed SEC Reports
SCHEDULE 3.6 Company Consents and Approvals; Violations
SCHEDULE 3.7 Company Defaults
SCHEDULE 3.8 Company Undisclosed Liabilities; Absence of Changes
SCHEDULE 3.9 Company Material Litigation
SCHEDULE 3.11 Company Employees; Employee Benefit Plans
SCHEDULE 3.14(a) Library Pictures of the Company
SCHEDULE 3.14(b) Copyrights of the Company
SCHEDULE 3.15(a) Marks and Patents of the Company
SCHEDULE 3.15(b) Liens and Litigation Relating to the Marks and Patents of the Company
SCHEDULE 3.16(a) Company Material Contracts
SCHEDULE 3.16(b) Company Defaults under Material Contracts
SCHEDULE 3.17(a) Permitted Title Encumbrances
SCHEDULE 3.17(b) Real Property Leases
SCHEDULE 3.19 Company Financial Advisor Fees and Commissions
SCHEDULE 3.21 Tangible Personal Property of the Company
SCHEDULE 3.22 Insurance of the Company
SCHEDULE 3.23 Transactions with Affiliates of the Company
SCHEDULE 3.26 Company Transaction Fees and Expenses
SCHEDULE 4.2(a) Capitalization of Playboy and the Playboy Subsidiaries
SCHEDULE 4.6 Playboy Consents and Approvals
SCHEDULE 4.7 Playboy Defaults or Violations
SCHEDULE 4.8 Playboy Undisclosed Liabilities; Absence of Changes
SCHEDULE 4.9 Playboy Material Litigation
SCHEDULE 5.13 Company Affiliates
</TABLE>
A-1-iv
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM CROSS REFERENCE
- ---- IN AGREEMENT
------------------
<S> <C>
Affiliate..................................................................................... Section 8.11
Affiliate Letter.............................................................................. Section 5.13
Aggregate Cash Consideration.................................................................. Section 2.3(a)
Aggregate Company Option Consideration........................................................ Section 2.2(f)
Agreement..................................................................................... Preamble
Average Playboy Stock Price................................................................... Section 2.2(d)
Cash Consideration............................................................................ Section 2.2(b)
Certificate of Incorporation of the S Surviving Corporation................................... Section 1.4(b)
Certificates of Merger........................................................................ Section 1.2
Claim......................................................................................... Section 5.10
Closing....................................................................................... Section 1.2
Closing Date.................................................................................. Section 1.2
Code.......................................................................................... Recitals
Commonly Controlled Entity.................................................................... Section 3.11(c)
Company....................................................................................... Preamble
Company Affiliate............................................................................. Section 5.13
Company Balance Sheet......................................................................... Section 3.17(a)
Company Board................................................................................. Section 3.3(a)
Company Certificates.......................................................................... Section 2.3(b)
Company Charter Documents..................................................................... Section 3.1(b)
Company Common Stock.......................................................................... Section 3.2(a)
Company Convertible Preferred................................................................. Section 3.2(a)
Company Filed SEC Reports..................................................................... Section 3.4(a)
Company Financial Advisor..................................................................... Section 3.18
Company Material Adverse Effect............................................................... Section 3.1(a)
Company Material Contracts.................................................................... Section 3.16(a)
Company Option................................................................................ Section 2.2(f)
Company Options............................................................................... Section 2.2(f)
Company Option Holder......................................................................... Section 2.2(f)
Company Permits............................................................................... Section 3.10
Company Plans................................................................................. Section 3.11(a)
Company Preferred Stock....................................................................... Section 3.2(a)
Company SEC Reports........................................................................... Section 3.4(a)
Company Securities............................................................................ Section 3.2(a)
Company Stockholders Meeting.................................................................. Section 5.4(b)
Company Stock Option Plans.................................................................... Section 8.11
Company Subsidiaries.......................................................................... Section 3.1(a)
Confidentiality Agreement..................................................................... Section 5.7(a)
Control....................................................................................... Section 8.11
Conversion Ratio.............................................................................. Section 2.2(c)
DGCL.......................................................................................... Recitals
Dissenting Shares............................................................................. Section 2.3(j)
Effective Time of the Mergers................................................................. Section 1.2
Environmental Claim........................................................................... Section 3.12(a)
Environmental Laws............................................................................ Section 3.12(a)
ERISA......................................................................................... Section 3.11(a)
Excess Amount................................................................................. Section 2.2(f)
</TABLE>
A-1-v
<PAGE>
<TABLE>
<CAPTION>
TERM CROSS REFERENCE
------- IN AGREEMENT
------------------
<S> <C>
Exchange Act.................................................................................. Section 3.2(c)
Exchange Agent................................................................................ Section 2.3(a)
Exchange Fund................................................................................. Section 2.3(a)
GAAP.......................................................................................... Section 3.4(a)
Governmental Entity........................................................................... Section 3.6
Holdco........................................................................................ Preamble
HSR Act....................................................................................... Section 5.8
Indemnified Parties........................................................................... Section 5.10(b)
Investment Company Act........................................................................ Section 3.25
Junior Preferred.............................................................................. Section 3.2(a)
Leases........................................................................................ Section 3.17(a)
Library Pictures.............................................................................. Section 8.11
Liens......................................................................................... Section 3.2(b)
Mandatory Services Agreement.................................................................. Recitals
Mark.......................................................................................... Section 8.11
Mergers....................................................................................... Recitals
Merger Sub P.................................................................................. Preamble
Merger Sub S.................................................................................. Preamble
Merger Consideration.......................................................................... Section 2.2(b)
NASDAQ........................................................................................ Section 5.9
Newco Agreements.............................................................................. Section 8.11
Newco Transactions............................................................................ Section 5.15(b)
New Playboy Class A Common Stock.............................................................. Section 4.2(b)
New Playboy Class B Common Stock.............................................................. Section 4.2(b)
New Playboy Common Stock...................................................................... Section 4.2(b)
Non-Compete Agreements........................................................................ Recitals
NYSE.......................................................................................... Section 2.2(d)
Old Playboy Class A Common Stock.............................................................. Section 4.2(a)
Old Playboy Class B Common Stock.............................................................. Section 4.2(a)
Old Playboy Common Stock...................................................................... Section 4.2(a)
Optional Services Agreement................................................................... Recitals
P Merger...................................................................................... Recitals
P Surviving Corporation....................................................................... Section 1.1(a)
Patent........................................................................................ Section 8.11
Person........................................................................................ Section 8.11
Playboy....................................................................................... Preamble
Playboy Board................................................................................. Section 4.3
Playboy Charter Documents..................................................................... Section 4.1(b)
Playboy Entities.............................................................................. Preamble
Playboy Filed SEC Filings..................................................................... Section 4.4(a)
Playboy Financial Advisor..................................................................... Section 4.12
Playboy Material Adverse Effect............................................................... Section 4.1(a)
Playboy Option................................................................................ Section 2.1(d)
Playboy Options............................................................................... Section 2.1(d)
Playboy Permits............................................................................... Section 4.10
Playboy SEC Filings........................................................................... Section 4.4(a)
Playboy Securities............................................................................ Section 4.2(a)
Playboy Stock Option Plans.................................................................... Section 8.11
Playboy Subsidiaries.......................................................................... Section 4.1(a)
</TABLE>
A-1-vi
<PAGE>
<TABLE>
<CAPTION>
TERM CROSS REFERENCE
------- IN AGREEMENT
------------------
<S> <C>
Preferred Certificate......................................................................... Section 2.2(h)
Proxy Statement............................................................................... Section 3.5(a)
Qualified Transaction Proposal................................................................ Section 5.5
Redemption Ratio.............................................................................. Section 8.11
Related Agreements............................................................................ Recitals
Related Transactions.......................................................................... Section 5.15(a)
Restated Certificate of Incorporation......................................................... Section 1.4(a)
S Merger...................................................................................... Recitals
S Merger Securities........................................................................... Section 2.3(a)
S Surviving Corporation....................................................................... Section 1.1(b)
S-1........................................................................................... Section 3.5(b)
S-4........................................................................................... Section 3.5(a)
Scheduled Marks and Patents................................................................... Section 3.15(a)
SEC........................................................................................... Section 3.4(a)
Securities Act................................................................................ Section 3.4(a)
Services Agreements........................................................................... Recitals
Stock Consideration........................................................................... Section 2.2(b)
Subco......................................................................................... Recitals
Subco Common Stock............................................................................ Section 2.2(b)
Subco Consideration........................................................................... Section 2.2(b)
Subco Warrants................................................................................ Section 2.2(b)
Tangible Personal Property.................................................................... Section 3.21(a)
Taxes......................................................................................... Section 3.13(c)
Tax Returns................................................................................... Section 3.13(c)
Terminating Company Breach.................................................................... Section 7.1(e)
Terminating Playboy Breach.................................................................... Section 7.1(f)
Transaction Litigation........................................................................ Section 3.9
Transaction Proposals......................................................................... Section 5.5
Transfer and Redemption Agreement............................................................. Recitals
</TABLE>
A-1-vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 29, 1998 (this "AGREEMENT"),
by and among Playboy Enterprises, Inc., a Delaware corporation ("PLAYBOY"), New
Playboy, Inc., a Delaware corporation and a wholly-owned subsidiary of Playboy
("HOLDCO"), Playboy Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Holdco ("MERGER SUB P"), Spice Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Holdco ("MERGER SUB S" and,
together with Playboy, Holdco and Merger Sub P, the "PLAYBOY ENTITIES"), and
Spice Entertainment Companies, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the respective boards of directors of Playboy, Holdco and Merger
Sub P have approved this Agreement pursuant to which, among other things, Merger
Sub P will be merged with and into Playboy (the "P MERGER") on the terms and
conditions contained herein and in accordance with the General Corporation Law
of the State of Delaware (the "DGCL");
WHEREAS, the respective boards of directors of Holdco, Merger Sub S and the
Company have approved this Agreement pursuant to which, among other things,
Merger Sub S will be merged with and into the Company (the "S MERGER" and,
together with the P Merger, the "MERGERS") on the terms and conditions contained
herein and in accordance with the DGCL;
WHEREAS, the Playboy Entities and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Mergers and to prescribe various conditions to the Mergers;
WHEREAS, pursuant to the Mergers, as part of the Merger Consideration, each
holder of shares of Company Common Stock shall be entitled to receive Cash
Consideration, Stock Consideration and Subco Consideration in exchange for each
share of Company Common Stock held by such holder;
WHEREAS, pursuant to the Mergers, as part of the Merger Consideration, each
holder of shares of Company Convertible Preferred shall be entitled to receive
Cash Consideration, Stock Consideration and Subco Consideration for each share
of Company Convertible Preferred held by such holder as if such share had been
converted into Company Common Stock immediately prior to the Effective Time of
the Mergers;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition to the willingness of each of the Playboy Entities and the
Company to enter into this Agreement, the Company and certain of the Company
Subsidiaries have agreed to enter into, and to cause a to-be-formed Delaware
corporation that shall be a wholly-owned subsidiary of the Company ("SUBCO"), to
enter into, on or prior to the Closing Date, the Transfer and Redemption
Agreement, a copy of which is attached hereto as Exhibit A (the "TRANSFER AND
REDEMPTION AGREEMENT"), the Satellite Services Agreement, a copy of which is
attached hereto as Exhibit B (the "MANDATORY SERVICES AGREEMENT"), and an
Optional Services Agreement, referred to in Section 5.19, to be negotiated (the
"OPTIONAL SERVICES AGREEMENT," and together with the Mandatory Services
Agreement, "SERVICES AGREEMENTS"); and
WHEREAS, for Federal income tax purposes, the transactions contemplated by
the Transfer and Redemption Agreement are intended to be treated as a redemption
of Company Common Stock under Section 302(b) of the Internal Revenue Code of
1986, as amended (the "CODE"), and the Mergers are intended to qualify as
exchanges under Section 351 of the Code;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition to the willingness of the Playboy Entities to enter into this
Agreement, the Playboy Entities, the Company and J. Roger Faherty have agreed to
enter into the non-competition agreements, in the forms attached hereto as
Exhibits C-1 and C-2 (the "NON-COMPETE AGREEMENTS" and, collectively with the
Transfer and Redemption Agreement, the Services Agreements, and all other
agreements and documents included as exhibits to the foregoing or otherwise
contemplated to be delivered thereunder or in connection with the closing of the
transactions contemplated thereby, the "RELATED AGREEMENTS");
A-1-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Playboy Entities and the Company hereby agree as
follows:
ARTICLE 1
THE MERGERS
SECTION 1.1 THE MERGERS. (a) Upon the terms and subject to the conditions of
this Agreement, at the Effective Time of the Mergers and in accordance with the
DGCL, Merger Sub P shall be merged with and into Playboy. Following the P
Merger, the separate corporate existence of Merger Sub P shall cease and Playboy
shall continue as the surviving corporation (the "P SURVIVING CORPORATION") and
shall succeed to and assume all rights, properties, liabilities and obligations
of Merger Sub P in accordance with the DGCL.
(b) Upon the terms and subject to the conditions of this Agreement, at the
Effective Time of the Mergers and in accordance with the DGCL, Merger Sub S
shall be merged with and into the Company. Following the S Merger, the separate
corporate existence of Merger Sub S shall cease and the Company shall continue
as the surviving corporation (the "S SURVIVING CORPORATION") and shall succeed
to and assume all rights, properties, liabilities and obligations of the Company
in accordance with the DGCL.
SECTION 1.2 CLOSING; EFFECTIVE TIME. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.1 and subject to the satisfaction or waiver of the
conditions set forth in Article 6, the closing of the Mergers (the "CLOSING")
shall take place in New York City at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, as soon as practicable, but in no event later than 10:00
a.m. New York City time on the fifth Business Day after the date on which the
conditions set forth in Article 6 have been satisfied or waived by the party or
parties entitled to the benefit of such conditions, or at such other place, at
such other time or on such other date as the parties may mutually agree. The
date on which the Closing actually occurs is hereinafter referred to as the
"CLOSING DATE". At the Closing, the parties shall cause to be filed with the
Secretary of State of the State of Delaware such certificates of merger or other
appropriate documents (such certificates and other documents being hereinafter
referred to as the "CERTIFICATES OF MERGER") executed in accordance with the
relevant provisions of the DGCL, and shall make all other filings, recordings or
publications required by the DGCL in connection with the Mergers. Each of the
Mergers shall become effective at the time specified in the Certificates of
Merger, which specified time shall be the same in each Certificate of Merger
(the time the Mergers become effective being the "EFFECTIVE TIME OF THE
MERGERS").
SECTION 1.3 EFFECTS OF THE MERGERS. The Mergers shall have the effects set
forth in Section 259 of the DGCL, the Certificates of Merger and this Agreement.
SECTION 1.4 CERTIFICATE OF INCORPORATION. (a) The Restated Certificate of
Incorporation of Playboy, as in effect immediately prior to the Effective Time
of the Mergers (the "RESTATED CERTIFICATE OF INCORPORATION"), shall become, from
and after the Effective Time of the Mergers, the certificate of incorporation of
the P Surviving Corporation, until thereafter altered, amended or repealed as
provided therein and in accordance with applicable law, except that the first
article of such Restated Certificate of Incorporation shall be amended to read
"THE NAME OF THE CORPORATION IS PLAYBOY ENTERPRISES INTERNATIONAL, INC."
(b) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time of the Mergers (the "CERTIFICATE OF
INCORPORATION OF THE S SURVIVING CORPORATION"), shall become, from and after the
Effective Time of the Mergers, the Certificate of Incorporation of the S
Surviving Corporation, until thereafter altered, amended or repealed as provided
therein and in accordance with applicable law.
SECTION 1.5 BY-LAWS. (a) The By-laws of Playboy, as in effect immediately
prior to the Effective Time of the Mergers, shall become, from and after the
Effective Time of the Mergers, the By-laws of the P
A-1-2
<PAGE>
Surviving Corporation, until thereafter altered, amended or repealed as provided
therein, in the Restated Certificate of Incorporation of the P Surviving
Corporation and in accordance with applicable law.
(b) The By-laws of the Company, as in effect immediately prior to the
Effective Time of the Mergers, shall become, from and after Effective Time of
the Mergers, the By-laws of the S Surviving Corporation, until thereafter
altered, amended or repealed as provided therein, in the Certificate of
Incorporation of the S Surviving Corporation and in accordance with applicable
law.
SECTION 1.6 DIRECTORS. The directors of Playboy and Merger Sub S at the
Effective Time of the Mergers shall be the directors of the P Surviving
Corporation and the S Surviving Corporation, respectively, until the earlier of
their death, resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
SECTION 1.7 OFFICERS. The officers of Playboy and Merger Sub S at the
Effective Time of the Mergers shall be the officers of the P Surviving
Corporation and the S Surviving Corporation, respectively, until the earlier of
their death, resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
ARTICLE 2
CONVERSION OF CAPITAL STOCK OF
THE CONSTITUENT CORPORATIONS
SECTION 2.1 P MERGER. As of the Effective Time of the Mergers, by virtue of
the P Merger and without any action on the part of the holder of any shares of
Old Playboy Common Stock or any shares of capital stock of Merger Sub P:
(a) CONVERSION OF CAPITAL STOCK OF MERGER SUB P. Each share of common
stock, par value $.01 per share, of Merger Sub P issued and outstanding
immediately prior to the Effective Time of the Mergers shall be converted
into one (1) fully paid and non-assessable share of common stock, par value
$.01 per share, of the P Surviving Corporation.
(b) CONVERSION OF OLD PLAYBOY CLASS A COMMON STOCK. Each share of Old
Playboy Class A Common Stock issued and outstanding immediately prior to the
Effective Time of the Mergers shall be converted into one (1) fully paid and
nonassessable share of New Playboy Class A Common Stock. As of the Effective
Time of the Mergers, all such shares of Old Playboy Class A Common Stock
shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist. As of the Effective Time of the Mergers,
each certificate theretofore representing such shares of Old Playboy Class A
Common Stock, without any action on the part of Holdco, Playboy, Merger Sub
P or the holders thereof, shall be deemed to represent a number of shares of
New Playboy Class A Common Stock equivalent to that number of shares of Old
Playboy Class A Common Stock formerly represented by such certificate and
shall cease to represent any rights in any shares of Old Playboy Class A
Common Stock.
(c) CONVERSION OF OLD PLAYBOY CLASS B COMMON STOCK. Each share of Old
Playboy Class B Common Stock issued and outstanding immediately prior to the
Effective Time of the Mergers shall be converted into one (1) fully paid and
nonassessable share of New Playboy Class B Common Stock. As of the Effective
Time of the Mergers, all such shares of Old Playboy Class B Common Stock
shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist. As of the Effective Time of the Mergers,
each certificate theretofore representing such shares of Old Playboy Class B
Common Stock, without any action on the part of Holdco, Playboy, Merger Sub
P or the holders thereof, shall be deemed to represent a number of shares of
New Playboy Class B Common Stock equivalent to that number of shares of Old
Playboy Class B Common Stock formerly represented by such certificate and
shall cease to represent any rights in any shares of Old Playboy Class B
Common Stock.
A-1-3
<PAGE>
(d) EXCHANGE OF PLAYBOY OPTIONS. (i) At the Effective Time of the
Mergers, each holder of an issued and outstanding option exercisable for
shares of either Old Playboy Class A Common Stock or Old Playboy Class B
Common Stock (each a "PLAYBOY OPTION" and, collectively, the "PLAYBOY
OPTIONS") will receive, by virtue of the P Merger and without any action on
the part of the holder thereof, options exercisable for shares of New
Playboy Class A Common Stock or New Playboy Class B Common Stock,
respectively, with substantially similar terms and conditions as Playboy
Options, immediately prior to the Effective Time of the Mergers.
(ii) As of the Effective Time of the Mergers, Holdco shall enter into an
assumption agreement with respect to each Playboy Option which shall provide
for Holdco's assumption of the obligations of Playboy under the relevant
Playboy Stock Option Plans (and any related agreement pursuant to which
options may have been granted). Prior to the Effective Time of the Mergers,
Playboy shall make such amendments, if any, to the Playboy Stock Option
Plans as shall be necessary to permit such assumption in accordance with
this Section 2.1(d).
(iii) It is the intention of the Playboy Entities that, to the extent
that any of the Playboy Options constitutes an "incentive stock option"
(within the meaning of Section 422 of the Code) immediately prior to the
Effective Time of the Mergers, such Playboy Option shall continue to qualify
as an incentive stock option to the maximum extent permitted by Section 422
of the Code, and that the assumption of the Playboy Option provided by this
Section 2.1 shall satisfy the conditions of Section 424(a) of the Code.
(e) CONVERSION OF CERTAIN NEW PLAYBOY COMMON STOCK HELD BY PLAYBOY. At
the Effective Time of the Mergers, each share of New Playboy Common Stock
held by Playboy shall be converted to the right to receive $1.00 per share
payable to Playboy upon surrender of the certificate representing each such
share of New Playboy Common Stock to Holdco, and no shares of stock or other
securities of Holdco, or any other corporation shall be issuable, and no
other payment or other consideration shall be made, with respect thereto.
(f) TREASURY SHARES OF PLAYBOY. Each share of Old Playboy Common Stock
held in treasury by Playboy immediately prior to the Effective Time of the
Mergers shall, by virtue of the P Merger, be cancelled and retired and cease
to exist, without any conversion thereof.
SECTION 2.2 S MERGER. As of the Effective Time of the Mergers, by virtue of
the S Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of the capital stock of Merger Sub S:
(a) CONVERSION OF CAPITAL STOCK OF MERGER SUB S. Each share of common
stock of Merger Sub S, par value $.01 per share, issued and outstanding
immediately prior to the Effective Time of the Mergers shall be converted
into one (1) fully paid and nonassessable share of common stock, par value
$.01 per share, of the S Surviving Corporation.
(b) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common
Stock (other than shares of Company Common Stock as to which dissenters'
rights are exercised and perfected under Section 262 of the DGCL and Section
2.3(j) or are cancelled pursuant to Section 2.2(g)) issued and outstanding
immediately prior to the Effective Time of the Mergers shall be converted
into and represent the right to receive in exchange therefor (X) from
Holdco, (i) the Cash Consideration (as defined below), and (ii) the number
of fully paid and nonassessable shares of New Playboy Class B Common Stock
equal to the Conversion Ratio (as such Conversion Ratio may be adjusted in
accordance with Section 2.2(c)) (the "STOCK CONSIDERATION"), and (Y) from
the Company (as described in the Transfer and Redemption Agreement), (i) the
number of fully paid and non-assessable shares of common stock of Subco, par
value $.01 per share ("SUBCO COMMON STOCK"), equal to the Redemption Ratio
and (ii) warrants to purchase additional shares of Subco Common Stock (such
warrants to be in such amounts and on such terms as shall be determined by
the Company) (the "SUBCO WARRANTS", and together with the Subco Common
Stock, the "SUBCO CONSIDERATION"), payable to the holder thereof,
A-1-4
<PAGE>
without, in the case of the Cash Consideration, interest thereon, upon
surrender of the certificate representing such share of Company Common Stock
to the S Surviving Corporation; PROVIDED, HOWEVER, that each holder of
Company Common Stock shall receive, in lieu of any fractional shares of New
Playboy Class B Common Stock that such holder would otherwise receive
pursuant to this Section 2.2(b), cash equal to the proportionate liquidation
value of any such fractional shares pursuant to terms set forth in Section
2.3; AND FURTHER PROVIDED, that in any event, if, between the date of this
Agreement and the Effective Time of the Mergers, the outstanding shares of
Old Playboy Class B Common Stock shall have been changed, reclassified or
converted into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization,
split, combination, conversion or exchange of shares, the Conversion Ratio
shall be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination,
conversion or exchange of shares. The aggregate consideration provided to
holders of Company Common Stock pursuant to this Section 2.2(b) shall be
referred to as the "MERGER CONSIDERATION". At the Effective Time of the
Mergers, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each certificate which immediately prior to the Effective Time
of the Mergers evidenced any such shares shall thereafter represent the
right to receive, upon surrender of such certificate in accordance with the
provisions of Section 2.3, the Merger Consideration into which such shares
have been converted in accordance herewith. The holders of certificates
previously evidencing shares of Company Common Stock outstanding immediately
prior to the Effective Time of the Mergers shall cease to have any rights
with respect thereto (including, without limitation, any rights to vote or
to receive dividends and distributions in respect of such shares), except as
otherwise provided herein or by law. For purposes of this Agreement, the
term "CASH CONSIDERATION" shall mean $3.60.
(c) CONVERSION RATIO. For purposes of this Agreement, the term
"CONVERSION RATIO" shall mean 0.1371 or such number as may be calculated by
the next succeeding sentence. In the event that the Average Playboy Stock
Price is either less than $16.042 or greater than $20.988, the Conversion
Ratio shall be subject to adjustment as follows:
(i) if the Average Playboy Stock Price is less than $16.042, then
the Conversion Ratio shall be equal to the quotient obtained by dividing
$2.20 by the Average Playboy Stock Price; and
(ii) if the Average Playboy Stock Price is greater than $20.988, the
Conversion Ratio shall be equal to the quotient obtained by dividing
$2.88 by the Average Playboy Stock Price.
(d) AVERAGE PLAYBOY STOCK PRICE. For purposes of this Agreement, the
"AVERAGE PLAYBOY STOCK PRICE" shall mean the average of the reported closing
sales prices per share of the Old Playboy Class B Common Stock quoted on the
New York Stock Exchange (the "NYSE"), as reported by Bloomberg L.P., for the
twenty (20) consecutive trading days immediately preceding the fifth
business day prior to the Effective Time of the Mergers; PROVIDED, HOWEVER,
that if the Old Playboy Class B Common Stock does not trade on any day in
such period, the closing price per share for such day shall mean the average
of the closing bid and asked prices of Old Playboy Class B Common Stock on
such day.
(e) JOINT PRESS RELEASE. Promptly after the close of trading on the NYSE
on the twentieth day of the twenty trading days referred to in the
immediately preceding paragraph, Playboy and the Company shall issue a joint
press release, in a form approved by Playboy and the Company, publicly
announcing the Conversion Ratio and the amount of the Cash Consideration.
(f) CONVERSION OF OPTIONS. (i) At the Effective Time of the Mergers,
each outstanding option, warrant, call, subscription, stock appreciation
right or other right or agreement obligating the Company to issue, transfer
or sell shares of Company Common Stock (each a "COMPANY OPTION" and,
collectively, the "COMPANY OPTIONS"), shall, subject to the agreement of the
holder thereof (the "COMPANY OPTION HOLDER"), be deemed to have been
exercised and each such Company Option Holder shall receive from Holdco
against surrender of the Company Option and in settlement and cancellation
of each such Company Option, an amount of consideration per Company Option
calculated as follows:
A-1-5
<PAGE>
(A) if the exercise price of such Company Option is less than the
Cash Consideration, (x) an amount of cash equal to the Cash Consideration
less the exercise price of such Company Option, and (y) the Stock
Consideration; and
(B) if the exercise price of such Company Option is greater than or
equal to the Cash Consideration, an amount of shares of New Playboy Class
B Common Stock equal to (x) the Stock Consideration less (y) the amount
by which the exercise price of such Company Option exceeds the value of
the Cash Consideration.
Notwithstanding the foregoing, (1) if any Person holds Company Options,
certain of which have an exercise price that is less than the aggregate Cash
Consideration payable to such holder with respect to such Company Options and
certain of which have an exercise price that is more than the aggregate Cash
Consideration payable to such holder with respect to such Company Options, the
aggregate exercise price of all of such Company Option Holder's Company Options
shall first be applied to reduce the aggregate Cash Consideration payable to
such holder pursuant to this Section 2.2(f) prior to the reduction, if any, of
the Stock Consideration payable to such holder and (2) if the exercise price of
a Company Option is greater than the aggregate Cash Consideration (such excess
being referred to as the "EXCESS AMOUNT"), the holder of such Company Option may
elect to pay to the Company an amount equal to the Excess Amount in cash in
order to receive the full amount of the Stock Consideration to which such holder
is entitled pursuant to this Section 2.2(f) without any reduction thereof
pursuant to clause (B) of this Section 2.2(f)(i).
(ii) In addition, each Company Option Holder shall receive from the
Company with respect to each share of Company Common Stock subject to
such Company Option against receipt of the Company Option, the number of
fully paid and non-assessable shares of Subco Common Stock equal to the
Redemption Ratio and such number of Subco Warrants to be issued in
accordance with Section 2.2(b) with respect to each share of Company
Common Stock. The aggregate consideration provided to all Company Option
Holders pursuant to this Section 2.2(f) shall be referred to as the
"AGGREGATE COMPANY OPTION CONSIDERATION".
(iii) With respect to those Company Option Holders who do not agree
to the exercise of any Company Options, such Company Options shall, upon
exercise thereof and against receipt of the Company Option, receive in
settlement and cancellation therefor an amount of consideration
calculated pursuant to clauses (i) and (ii) of this Section 2.2(f).
(g) TREASURY SHARES. Each share of Company Common Stock and Company
Convertible Preferred held in treasury by the Company and each share of
Company Common Stock and Company Convertible Preferred owned by any of the
Playboy Entities or any direct or indirect wholly-owned subsidiary of any of
the Playboy Entities immediately prior to the Effective Time of the Mergers
shall, by virtue of the S Merger and without any action on the part of the
holder thereof, be cancelled and retired and cease to exist without any
conversion thereof.
(h) CONVERSION OF COMPANY CONVERTIBLE PREFERRED. Each share of Company
Convertible Preferred (other than shares of Company Convertible Preferred as
to which dissenters' rights are exercised and perfected under Section 262 of
the DGCL and Section 2.3(j) or are cancelled pursuant to Section 2.2(g))
issued and outstanding immediately prior to the Effective Time of the
Mergers shall be converted into and represent the right to receive in
exchange therefor the amount of Merger Consideration pursuant to Section
2.2(b) as such holder would have been entitled to receive had such shares of
Company Convertible Preferred been converted into shares of Company Common
Stock immediately prior to the Effective Time of the Mergers.
SECTION 2.3 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time of the Mergers, Playboy
shall appoint Harris Trust and Savings Bank to act as exchange agent in the
Mergers (the "EXCHANGE AGENT") pursuant to an exchange agent agreement on
terms reasonably satisfactory to each of Playboy and the Company,
A-1-6
<PAGE>
for purposes of effecting the exchange for the Merger Consideration. At the
Effective Time of the Mergers, Holdco shall deposit with the Exchange Agent,
for the benefit of the holders of shares of Company Common Stock and Company
Convertible Preferred, for exchange in accordance with this Article 2,
through the Exchange Agent: (i) cash in the aggregate amount equal to the
product of (x) the Cash Consideration multiplied by (y) the number of shares
of Company Common Stock outstanding immediately prior to the Effective Time
of the Mergers (including such number of shares of Company Common Stock as
the holders of Company Convertible Preferred would have been entitled to
receive if such shares of Company Convertible Preferred had been converted
into Company Common Stock immediately prior to the Effective Time of the
Merger) (the "AGGREGATE CASH CONSIDERATION"), and (ii) certificates
representing the aggregate number of shares of New Playboy Class B Common
Stock as determined pursuant to Section 2.2 and (iii) cash in lieu of
fractional shares pursuant to Section 2.3(e)(i). At the Effective Time of
the Mergers, the Company shall deposit with the Exchange Agent, for the
benefit of the holders of the shares of Company Common Stock and Company
Convertible Preferred, for exchange in accordance with this Article 2,
through the Exchange Agent, certificates representing shares of Subco Common
Stock in an amount equal to the aggregate number of shares of Company Common
Stock multiplied by the Redemption Ratio and certificates representing the
Subco Warrants to be issued pursuant to Section 2.2(b). For purposes of this
Agreement, the Cash Consideration, such shares of New Playboy Class B Common
Stock, cash in lieu of fractional shares of New Playboy Class B Common
Stock, such shares of Subco Common Stock, together with any dividends or
distributions with respect thereto, and such Subco Warrants are hereinafter
referred to as the "EXCHANGE FUND" and such shares of New Playboy Class B
Common Stock and Subco Common Stock and such Subco Warrants are hereinafter
collectively referred to as the "S MERGER SECURITIES". The Exchange Agent
shall, pursuant to irrevocable instructions, make the payments provided for
in Section 2.2(b) out of the Exchange Fund. The Exchange Agent shall deliver
the S Merger Securities out of the Exchange Fund as directed by Playboy or
Holdco.
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time of the
Mergers, Playboy or Holdco shall instruct the Exchange Agent to mail to each
holder of record of (i) a certificate or certificates which immediately
prior to the Effective Time of the Mergers represented outstanding shares of
the Company Common Stock and (ii) a certificate or certificates which
immediately prior to the Effective Time of the Mergers represented
outstanding shares of Company Convertible Preferred (collectively, the
"COMPANY CERTIFICATES") (other than those holders who have exercised
dissenters' rights pursuant to Section 262 of the DGCL and have not
subsequently withdrawn or lost such rights) whose shares were converted into
the right to receive the Merger Consideration pursuant to Section 2.2(b),
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Company Certificates shall pass,
only upon delivery of the Company Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Playboy or Holdco
may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Company Certificates in exchange for the Merger
Consideration. Upon surrender of a Company Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed,
and such other documents as reasonably may be required by the Exchange Agent
pursuant to such instructions, and acceptance thereof by the Exchange Agent,
each holder of a Company Certificate shall be entitled to receive in
exchange therefor, (A) the Cash Consideration that such holder has the right
to receive pursuant to Section 2.2(b) or 2.2(h), (B) certificates
representing the S Merger Securities that such holder has the right to
receive pursuant to the provisions of this Article 2, (C) any dividends or
other distributions to which such holder is entitled pursuant to Section
2.3(c) and (D) cash in respect of fractional shares of New Playboy Class B
Common Stock as provided in Section 2.3(e)(i), and the Company Certificate
so surrendered shall forthwith be cancelled. The Exchange Agent shall accept
such Company Certificate upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective
Time of the Mergers, there shall be no further transfer on the books and
records of the Company or its transfer agent of Company Certificates, and if
such Company
A-1-7
<PAGE>
Certificates are presented to the Company or its transfer agent for
transfer, they shall be cancelled against delivery of the Cash
Consideration, certificates representing the S Merger Securities and cash in
respect of fractional shares of New Playboy Class B Common Stock. If any
certificates for S Merger Securities are to be issued in a name other than
that in which the Company Certificate surrendered for exchange is
registered, it shall be a condition of such exchange that the Company
Certificate so surrendered shall be properly endorsed, with the signature
guaranteed, or otherwise in proper form for transfer and that the Person
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the issuance of certificates
representing such S Merger Securities in the name other than that of the
registered holder of the Company Certificate surrendered, or establish to
the satisfaction of the Company or its transfer agent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.3, each Company Certificate shall be deemed at any time after the
Effective Time of the Mergers to represent only the right to receive upon
such surrender the Cash Consideration, certificates representing the S
Merger Securities to which such holder is entitled, cash in respect of
fractional shares of New Playboy Class B Common Stock and other dividends,
distributions or payments as contemplated by this Article 2 or to perfect
such holder's right to receive payment for such holder's shares pursuant to
Section 262 of the DGCL and Section 2.3(j) hereof if such holder has validly
exercised and not withdrawn or lost such holder's right to receive payment
for such holder's shares pursuant to Section 262 of the DGCL. Subject to
applicable law, following surrender of any such Company Certificate, there
shall be paid to the record holder thereof, the Cash Consideration and the
certificates representing the shares of the S Merger Securities issued in
exchange therefor, as well as, (x) at the time of such surrender, the amount
of any cash payable in lieu of a fractional share of New Playboy Class B
Common Stock to which such holder is entitled pursuant to Section 2.3(e)(i),
(y) at the time of such surrender, the amount of dividends or other
distributions or payments with a record date after the Effective Time of the
Mergers theretofore paid with respect to such shares of S Merger Securities,
and (z) at the appropriate payment date, the amount of dividends or other
distributions or payments with a record date after the Effective Time of the
Mergers but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of S Merger Securities. In no
event shall Persons entitled to receive such dividends, distributions or
payments be entitled to receive any interest thereon.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES OF COMPANY COMMON
STOCK. No dividends or other distributions or payments declared or made
after the Effective Time of the Mergers with respect to shares of New
Playboy Class B Common Stock with a record date after the Effective Time of
the Mergers shall be paid to the holder of any unsurrendered Company
Certificate with respect to the shares of New Playboy Class B Common Stock
represented thereby and no cash payment in lieu of fractional shares shall
be paid to any such holder pursuant to this Section 2.3 until the holder of
record of such Company Certificate shall surrender such Company Certificate.
(d) FURTHER OWNERSHIP RIGHTS. The Cash Consideration and the S Merger
Securities comprising the Merger Consideration issued upon the surrender for
exchange of Company Certificates in accordance with the terms of this
Article 2, together with any dividends, distributions or payments
contemplated by Section 2.3(b) and any cash in lieu of fractional shares as
contemplated by Section 2.3(e)(i), shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the shares of Company
Common Stock or Company Convertible Preferred theretofore represented by
such Company Certificates. If, after the Effective Time of the Mergers,
Company Certificates are presented to the S Surviving Corporation or the
Exchange Agent for any reason, they shall be cancelled and exchanged as
provided in this Article 2.
(e) NO FRACTIONAL SHARES. (i) No certificates or scrip evidencing
fractional shares of New Playboy Class B Common Stock shall be issued upon
the surrender for exchange of the Company Certificates, and such fractional
share interests will not entitle the owner thereof to vote or to any rights
of a stockholder of the S Surviving Corporation. In lieu of any such
fractional share, each holder of shares
A-1-8
<PAGE>
of Company Common Stock or Company Convertible Preferred who would otherwise
have been entitled to a fraction of a share of New Playboy Class B Common
Stock upon surrender of Company Certificates for exchange shall be paid upon
such surrender cash (without interest) in an amount equal to such fraction
multiplied by the closing price per share of Old Playboy Class B Common
Stock on the date of the Effective Time of the Mergers.
(ii) No certificates or scrip evidencing fractional shares of Subco
Common Stock or fractional Subco Warrants shall be issued upon the
surrender for exchange of the Company Certificates, and such fractional
interests will not entitle the owner thereof to vote or to any rights of
a stockholder of Subco. In lieu of any such fractional share, any
fractional interest of a share of Subco Common Stock or a Subco Warrant
shall be rounded up to one (1) share of Subco Common Stock or one (1)
Subco Warrant, respectively, and each holder of shares of Company Common
Stock or Company Convertible Preferred who would otherwise have been
entitled to a fraction of a share of Subco Common Stock upon surrender of
Company Certificates for exchange shall be entitled to one (1) share of
Subco Common Stock or one (1) Subco Warrant, respectively, on the date of
the Effective Time of the Mergers.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the former stockholders of the Company for twelve
months after the Effective Time of the Mergers shall be delivered to
Playboy, upon demand, and any former stockholders of the Company who have
not theretofore complied with this Article 2 shall thereafter look only to
Playboy for payment of their claim for any Merger Consideration and any
dividends or distributions or other payments with respect to Company Common
Stock or any payments pursuant to Section 262 of the DGCL.
(g) WITHHOLDING RIGHTS. Playboy or the Exchange Agent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of shares of Company Common Stock, Company
Convertible Preferred or Company Options such amounts as Playboy or the
Exchange Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of applicable state, local
or foreign tax law; PROVIDED, that (i) any such deduction and withholding
shall first be made from the Cash Consideration payable to such holder and
(ii) to the extent that the aggregate amount of such deduction and
withholding exceeds the aggregate amount of the Cash Consideration payable
to such holder, such deduction and withholding shall then be made from the
Stock Consideration payable to such holder (except to the extent that such
holder makes a cash payment to the Company to be applied to such deduction
and withholding in lieu of deducting and withholding from the Stock
Consideration). A schedule of deductions and withholdings pursuant to this
Section 2.3(g) shall be prepared by the Company and delivered to Playboy for
Playboy's review and comments; PROVIDED, that the final determination of
such deductions and withholdings shall be made by Playboy. To the extent
that amounts are so withheld by Playboy or the Exchange Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been
paid to the holder of the shares of Company Common Stock or Company
Convertible Preferred in respect of which such deduction and withholding was
made by the S Surviving Corporation or the Exchange Agent.
(h) NO LIABILITY. None of the Playboy Entities, the Company, or the
Exchange Agent shall be liable to any Person in respect of any Cash
Consideration or the S Merger Securities comprising the Merger Consideration
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(i) LOST, STOLEN OR DESTROYED CERTIFICATES. If any Company
Certificate shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Company
Certificate, upon the making of an affidavit of that fact by the holder
thereof, such shares of New Playboy Class B Common Stock as may be
required pursuant to Section 2.2; provided, however, that Playboy may, in
its discretion and as a condition precedent to the
A-1-9
<PAGE>
issuance thereof, require the owner of such lost, stolen or destroyed
Company Certificate to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Playboy or
the Exchange Agent with respect to the Company Certificate alleged to
have been lost, stolen or destroyed.
(j) DISSENTERS' RIGHTS. Notwithstanding any provision of this Agreement
to the contrary, any shares of Company Common Stock or Company Convertible
Preferred outstanding immediately prior to the Effective Time of the Mergers
held by a holder who has demanded and perfected the right, if any, for
appraisal of those shares in accordance with the provisions of Section 262
of the DGCL and as of the Effective Time of the Mergers has not withdrawn or
lost such right to such appraisal ("DISSENTING SHARES") shall not be
converted into or represent a right to receive the Merger Consideration
pursuant to Section 2.2, but the holder shall only be entitled to such
rights as are granted by the DGCL. If a holder of shares of Company Common
Stock who demands appraisal of those shares under the DGCL shall effectively
withdraw or lose (through failure to perfect or otherwise) the right to
appraisal, then, as of the Effective Time of the Mergers or the occurrence
of such event, whichever last occurs, those shares shall be converted into
and represent only the right to receive the Merger Consideration as provided
in Section 2.2, without interest, upon compliance with the provisions, and
subject to the limitations, of Section 2.3. The Company shall give Playboy
(i) prompt notice of any written demands for appraisal of any shares of
Company Common Stock or Company Convertible Preferred, attempted withdrawals
of such demands, and any other instruments served pursuant to the DGCL and
received by the Company relating to stockholders' rights of appraisal, and
(ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall not, except with
the prior written consent of Playboy, voluntarily make any payment with
respect to any demands for appraisal of Company Common Stock or Company
Convertible Preferred, offer to settle or settle any such demands or approve
any withdrawal of any such demands.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Playboy Entities as
follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of the Company and each of the Persons in which the Company owns or
controls, directly or indirectly, at least a fifty percent voting or economic
interest (collectively, the "COMPANY SUBSIDIARIES") has been duly organized, and
is validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, as the case may be, and has the requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals could not reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect. Each of the Company and the
Company Subsidiaries is duly qualified or licensed to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect. For purposes of this
Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means any change, event or effect
(i) in, on or relating to the business of the Company and the Company
Subsidiaries that is, or is reasonably likely to be, materially adverse to the
business, assets (including intangible assets), liabilities (contingent or
otherwise), condition (financial or otherwise), prospects or results of
operations of the Company and the Company Subsidiaries taken as a whole, other
than (A) any change or effect arising out of general economic conditions in the
United States or (B) a change in the market price of the Company Common Stock
not accompanied by one or more other changes, events or effects of the type
described above in this clause (i); or (ii) that may
A-1-10
<PAGE>
prevent or materially delay the performance of this Agreement or the Related
Agreements by the Company or any of the Company Subsidiaries or the consummation
of the transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions).
(b) The copies of the Company's Certificate of Incorporation, as amended to
the date hereof, and the Company's Amended and Restated By-laws, as amended to
the date hereof (collectively, the "COMPANY CHARTER DOCUMENTS"), that are
exhibits to the Company's annual report on Form 10-K for the year ended December
31, 1997, are complete and correct copies thereof. The Company Charter Documents
and all comparable organizational documents of the Company Subsidiaries are in
full force and effect.
SECTION 3.2 CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES.
(a) The authorized capital stock of the Company consists of (i) 25,000,000
shares of common stock, par value $.01 per share ("COMPANY COMMON STOCK"), of
which, as of April 30, 1998, approximately 11,666,438 shares were issued and
outstanding, and (ii) 10,000,000 shares of preferred stock, par value $.01 per
share (the "COMPANY PREFERRED STOCK"), 50,000 of which have been designated
Convertible Preferred Stock Series 1997-A (the "COMPANY CONVERTIBLE PREFERRED")
and 300,000 of which have been designated Series B Junior Participating
Preferred Stock (the "JUNIOR PREFERRED") and, of which, as of April 30, 1998,
approximately 26,850 shares of Company Convertible Preferred were issued and
outstanding and no shares of Junior Preferred were issued and outstanding. All
of the issued and outstanding shares of Company Common Stock and Company
Preferred Stock have been duly authorized, validly issued and are fully paid,
nonassessable and free of preemptive rights. As of April 30, 1998, approximately
4,457,528 shares of Company Common Stock were reserved for issuance and issuable
upon or otherwise deliverable in connection with the exercise of outstanding
Company Options issued pursuant to the Company Stock Option Plans. Schedule
3.2(a) to this Agreement sets forth, as of the date hereof, (i) the Persons to
whom Company Options have been granted, (ii) the exercise price for the Company
Options held by each such Person and (iii) the number of vested and unvested
Company Options. Except as disclosed in the Company Filed SEC Reports and as set
forth on Schedule 3.2(a) to this Agreement, since April 1, 1998, no shares of
the Company's capital stock have been issued other than pursuant to the exercise
of Company Options already in existence on such date, and, since April 1, 1998,
no stock options have been granted by the Company to any Person. Except as set
forth above, as set forth on Schedule 3.2(a) to this Agreement, or as
contemplated in the Related Transactions, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company or any Company Subsidiary convertible
into or exchangeable for shares of capital stock or voting securities of the
Company, (iii) no options, warrants or other rights to acquire from the Company
or any Company Subsidiary, and no obligations of the Company or any Company
Subsidiary to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, (iv) no equity equivalents, interests in the ownership or earnings of
the Company or any Company Subsidiary or other similar rights (including stock
appreciation rights) (the items listed in subclauses (i), (ii), (iii) and (iv)
being referred to, collectively, as "COMPANY SECURITIES") and (v) no obligations
of the Company or any Company Subsidiary to repurchase, redeem or otherwise
acquire any Company Securities. Except as set forth on Schedule 3.2(a) to this
Agreement, there are no stockholder agreements, voting trusts or other
agreements or understandings to which the Company is a party or by which it is
bound relating to the voting or registration of any shares of capital stock of
the Company.
A-1-11
<PAGE>
(b) Each outstanding share of capital stock of each Company Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and each such
share owned by the Company or a Company Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever (collectively, "LIENS"), except as set forth on Schedule 3.2(b) to
this Agreement or where failure to own such shares free and clear could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. There are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock or other ownership interests in or make any
other investment (in the form of a loan, capital contribution of otherwise) in
any Company Subsidiary or any other Person.
(c) The Company Common Stock constitutes the only class of securities of the
Company or any Company Subsidiary registered or required to be registered under
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT; BOARD ACTION.
(a) The Company has, or will have, all necessary corporate power and
authority to execute and deliver this Agreement and the Related Agreements to
which it is a party and to consummate the transactions contemplated by this
Agreement or the Related Agreements (including, without limitation, the Mergers
and the Related Transactions). The execution and delivery of this Agreement and
the Related Agreements to which it is a party and the consummation of the
transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions) have
been duly and unanimously approved by the board of directors of the Company (the
"COMPANY BOARD"), and no other corporate proceedings on the part of the Company
are, or will be, necessary to authorize this Agreement or the Related Agreements
to which it is a party or to consummate the transactions contemplated by this
Agreement or the Related Agreements (including, without limitation, the Mergers
and the Related Transactions) (other than, with respect to the Mergers, the
approval and adoption of this Agreement by the holders of a majority of the then
outstanding shares of Company Common Stock). This Agreement and the Related
Agreements to which it is a party have been, or will be, assuming the due
authorization, execution and delivery of the same by each of the other parties
hereto or thereto, duly and validly executed and delivered by the Company
constitute, or will constitute, valid, legal and binding agreements of the
Company, enforceable against the Company in accordance with their respective
terms, subject to (i) bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether considered in a proceeding at law or
in equity).
(b) The Company Board has recommended that the stockholders of the Company
approve and adopt this Agreement.
SECTION 3.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since December 31, 1994, the Company has filed all forms, reports and
documents (including all exhibits thereto) (the "COMPANY SEC REPORTS") required
to be filed with the Securities and Exchange Commission (the "SEC") each of
which has complied in all material respects with all applicable requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange
Act, each as in effect on the dates such forms, reports and documents were filed
other than as set forth on Schedule 3.4(a). The Company has heretofore delivered
to or made available to Playboy, in the form filed with the SEC (including any
amendments and all exhibits thereto) the following (the "COMPANY FILED SEC
REPORTS"): (i) its Annual Reports on Form 10-K for each of the fiscal years
ended December 31, 1995, December 31, 1996, and December 31, 1997, (ii) all
definitive proxy statements relating to the Company's meetings of stockholders
(whether annual or special) held since December 31, 1994 and prior to the date
of this Agreement and (iii) all other reports or registration statements filed
prior to the date of this
A-1-12
<PAGE>
Agreement by the Company with the SEC since December 31, 1994 (other than
reports on Form 10-Q or on Form 8-K filed before May 15, 1998). None of the
Company SEC Reports contained, when filed, any untrue statement of a material
fact or omitted to state a material fact required to be stated or incorporated
by reference therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included or incorporated by
reference in the Company SEC Reports complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto and all of such financial statements
fairly present, in all material respects, in conformity with generally accepted
accounting principles applied on a consistent basis ("GAAP") (except as may be
indicated in the notes thereto and except that the unaudited financial
statements may not include all notes thereto required by GAAP), the consolidated
financial position of the Company and the Company Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments), except as set forth on Schedule
3.4(a). Since March 31, 1998, there has not been any change, or any application
or request for any change, by the Company or any Company Subsidiary in
accounting principles, methods or policies for financial accounting or tax
purposes.
(b) The Company has heretofore made available to Playboy a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
prior to the date of this Agreement had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
SECTION 3.5 INFORMATION SUPPLIED.
(a) None of the information supplied or to be supplied by the Company
concerning the Company, Subco or the Company Subsidiaries for inclusion or
incorporation by reference in (i) the Registration Statement on Form S-4 to be
filed with the SEC by Playboy in connection with the issuance of shares of New
Playboy Class B Common Stock in the Mergers and the prospectus contained therein
(the "S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the proxy
statement, including the prospectus referred to in clause (i) above, relating to
the Company Stockholders Meeting to be held in connection with the transactions
contemplated by this Agreement and the Related Agreements (the "PROXY
STATEMENT") will, at the date mailed to stockholders and at the time of the
Company Stockholders Meeting to be held in connection with such transactions,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Effective Time of the Mergers, any
event with respect to the Company, the Company Subsidiaries or any of their
respective officers and directors should occur which is required to be described
in an amendment of, or a supplement to, the S-4 or the Proxy Statement, the
Company shall promptly so advise Playboy and such event shall be so described,
and such amendment or supplement (which Playboy shall have a reasonable
opportunity to review and comment upon) shall be promptly filed with the SEC
and, as required by law, disseminated to the stockholders of the Company. The
Proxy Statement, insofar as it relates to the Company Stockholders Meeting to
vote on the Mergers and, if necessary, the Related Transactions, will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information supplied by
any of the Playboy Entities which is contained or incorporated by reference in,
or furnished in connection with the preparation of, the S-4 or the Proxy
Statement.
(b) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the registration statement on Form
S-1, or any other appropriate form, to be filed with the SEC by the Company in
connection with the registration of shares of Subco (the "S-1") will, at the
time the
A-1-13
<PAGE>
S-1 is filed with the SEC and at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading. If at any time prior to the Effective Time of
the Mergers, any event with respect to the Company, the Company Subsidiaries,
Subco or any of their respective officers and directors should occur which is
required to be described in an amendment of, or a supplement to, the S-1, the
Company shall promptly so advise Playboy and such event shall be so described,
and such amendment or supplement (which Playboy shall have a reasonable
opportunity to review and approve) shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company.
SECTION 3.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, the filing and recordation of the Certificates of
Merger as required by the DGCL, or as set forth on Schedule 3.6 to this
Agreement, no filing, registration or submission with or notice to, and no
permit, authorization, consent or approval of or with, any court or tribunal or
administrative, governmental or regulatory body, agency or authority (each a
"GOVERNMENTAL ENTITY") is, or will be, necessary for the execution and delivery
by the Company of this Agreement or the Related Agreements to which the Company
is a party, or the consummation by the Company of the transactions contemplated
by this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions), except consents or approvals the failure
of which to obtain could not reasonably be expected to have a Company Material
Adverse Effect. Except as set forth on Schedule 3.6 to this Agreement, no
consent or approval of any third party is, or will be, necessary for the
execution and delivery by the Company of this Agreement or the Related
Agreements to which the Company or any of the Company Subsidiaries is a party or
the consummation by the Company of the transactions contemplated by this
Agreement or the Related Agreements (including, without limitation, the Mergers
and the Related Transactions). Except as set forth on Schedule 3.6 to this
Agreement, none of the execution, delivery and performance by the Company of
this Agreement or the Related Agreements to which the Company or any of the
Company Subsidiaries is a party, or the consummation by the Company or any of
the Company Subsidiaries of the transactions contemplated by this Agreement or
the Related Agreements (including, without limitation, the Mergers and the
Related Transactions) will (a) conflict with or result in any breach of any
provision of the Company Charter Documents or any comparable organizational
document of any Company Subsidiary, (b) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, amendment, cancellation or acceleration
or Lien) under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or any of the Company Subsidiaries is a party or
by which any of them or any of their respective properties or assets may be
bound, or (c) assuming that all consents, permits, approvals, authorizations and
other actions described in the preceding sentence have been obtained and all
filings described in the preceding sentence have been made, violate any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company or any of the Company Subsidiaries or any of their respective properties
or assets, except in the case of clause (b) or (c) for violations, breaches or
defaults which could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 3.7 NO DEFAULT. Except as set forth on Schedule 3.7 to this
Agreement, none of the Company or any Company Subsidiary is in default or
violation (and no event has occurred which with due notice or the lapse of time
or both would constitute a default or violation) of any term, condition or
provision of (i) the Company Charter Documents or comparable organizational
documents of any Company Subsidiary, (ii) any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any Company Subsidiary is now a party or by which any of them or
any of their respective properties or assets may be bound or (iii) any order,
writ, injunction, decree, law, statute, rule or regulation applicable to the
Company, any Company Subsidiary or any of their respective
A-1-14
<PAGE>
properties or assets, except in the case of clause (ii) or (iii) for violations,
breaches or defaults that could not reasonably be expected to have, individually
or in the aggregate, a Company Material Adverse Effect.
SECTION 3.8 NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as and to
the extent disclosed in the Company Filed SEC Reports or on Schedule 3.8 to this
Agreement, as of March 31, 1998, neither the Company nor any Company Subsidiary
had any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, which would be required by GAAP to be reflected in, reserved against
or otherwise described in the consolidated balance sheet of the Company
(including the notes thereto) as of such date or which could reasonably be
expected to have a Company Material Adverse Effect. Except as disclosed by the
Company in the Company Filed SEC Reports or on Schedule 3.8 to this Agreement,
since March 31, 1998, the business of the Company and the Company Subsidiaries
has been carried on only in the ordinary and usual course and in a manner
consistent with past practice, neither the Company nor any Company Subsidiary
has incurred any liabilities of any nature, whether or not accrued, contingent
or otherwise and whether due or to become due or asserted or unasserted, which
could reasonably be expected to have, and there have been no events, changes or
effects with respect to the Company or any Company Subsidiary having or which
could reasonably be expected to have, a Company Material Adverse Effect. Except
as disclosed in the Company Filed SEC Reports or on Schedule 3.8 to this
Agreement, since March 31, 1998, there has not been (i) any material change by
the Company in its accounting methods, principles or practices, (ii) any
declaration, setting aside or payment of any dividend or distribution in respect
of shares of the capital stock of the Company or any redemption, purchase or
other acquisition of any of the Company Securities or (iii) any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of the
Company or any Company Subsidiary except in the ordinary course of business
consistent with past practice or except as required by applicable law.
SECTION 3.9 LITIGATION. Except as disclosed in the Company Filed SEC Reports
or on Schedule 3.9, 3.14(b) or 3.15(b) to this Agreement, there is no suit,
claim, action, proceeding or investigation pending or, to the knowledge of the
Company, threatened against the Company or any Company Subsidiary or any of
their respective properties or assets which (a) if adversely determined, could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, or (b) questions the validity of this Agreement or any
of the Related Agreements or any action to be taken by the Company in connection
with the consummation of the transactions contemplated by this Agreement or the
Related Agreements (including, without limitation, the Mergers and the Related
Transactions) or could otherwise prevent or delay the consummation of such
transactions (any suit, claim, action, proceeding or investigation described in
this clause (b) being herein referred to as "TRANSACTION LITIGATION"). Except as
disclosed by the Company, neither the Company nor any Company Subsidiary is
subject to any outstanding order, writ, injunction or decree which, to the
knowledge of the Company or any Company Subsidiary, could reasonably be expected
to have a Company Material Adverse Effect.
SECTION 3.10 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the
Company Filed SEC Reports, the Company and all Company Subsidiaries have made or
have obtained and hold all registrations, filings, submissions, certificates,
determinations, permits, licenses, variances, exemptions, orders and approvals
of all Governmental Entities necessary for the lawful conduct of their
respective businesses (collectively, the "COMPANY PERMITS"), except where the
failure to obtain any such Company permit would not have a Company Material
Adverse Effect. Except as disclosed in the Company Filed SEC Reports, the
Company and all Company Subsidiaries are in compliance, in all material
respects, with the terms of the Company Permits. To the knowledge of the
Company, no material deficiencies have been asserted by any Governmental Entity
with respect to such registrations, filings or submissions. Except as disclosed
by the Company in the Company Filed SEC Reports, the businesses of the Company
and the Company Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental
A-1-15
<PAGE>
Entity and except for violations or possible violations which could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in the Company Filed SEC Reports, no material investigation or review
by any Governmental Entity with respect to the Company or any Company Subsidiary
is pending or, to the knowledge of the Company, threatened, nor, to the
knowledge of the Company, has any Governmental Entity indicated an intention to
conduct the same.
SECTION 3.11 EMPLOYEES; EMPLOYEE PLANS.
(a) Schedule 3.11 to this Agreement contains a true and complete list of
each "employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including, without
limitation, multiemployer plans within the meaning of ERISA Section 3(37)),
stock purchase, stock option, severance, employment, change-in-control, fringe
benefit, welfare benefit, collective bargaining, bonus, incentive, deferred
compensation and all other employee benefit plans, agreements, programs,
policies or other arrangements, whether or not subject to ERISA (including any
funding mechanism therefor now in effect or required in the future as a result
of the transactions contemplated by this Agreement or the Related Agreements or
otherwise), whether formal or informal, oral or written, under which any
employee or former employee of the Company or any Company Subsidiary has any
present or future right to benefits or under which the Company has any present
or future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "COMPANY PLANS".
(b) With respect to each Company Plan, the Company has delivered or made
available to Playboy a current, accurate and complete copy (or, to the extent no
such copy exists, an accurate description) thereof and, to the extent
applicable: (i) any related trust agreement or other funding instrument; (ii)
the most recent determination letter, if applicable; (iii) any summary plan
description and other written communications (or a description of any oral
communications) by the Company or any Company Subsidiary to its employees
concerning the extent of the benefits provided under a Company Plan; and (iv)
for the three most recent years (A) the Form 5500 and attached schedules, (B)
audited financial statements, (C) actuarial valuation reports and (D) attorneys'
response or responses to an auditor's request for information.
(c) Except as disclosed on Schedule 3.11 to this Agreement, (i) each Company
Plan has been established and administered in all material respects (A) in
accordance with its terms, and (B) in compliance with the applicable provisions
of ERISA, the Code and other applicable laws, rules and regulations; (ii) each
Company Plan which is intended to be qualified within the meaning of Code
Section 401(a) is so qualified and has received a favorable determination letter
as to its qualification, and, to the Company's knowledge, nothing has occurred,
whether by action or failure to act, that could reasonably be expected to cause
the loss of such qualification; (iii) for each Company Plan that is a "welfare
plan" within the meaning of ERISA Section 3(1), neither the Company nor any
Company Subsidiary has nor will have any material liability or obligation under
any plan which provides medical or death benefits with respect to current or
former employees of the Company beyond their termination of employment (other
than coverage mandated by law); (iv) to the Company's knowledge, no event has
occurred and no condition exists that would subject the Company, either directly
or by reason of its affiliation with any Commonly Controlled Entity (as defined
below), to any material tax, fine, lien, penalty or other liability imposed by
ERISA, the Code or other applicable laws, rules and regulations; (v) for each
Company Plan with respect to which a Form 5500 has been filed, no change has
occurred with respect to the matters covered by the most recent Form since the
date thereof other than such change as would not be reasonably likely to result
in a material liability to the Company; and (vi) no "reportable event" (as such
term is defined in ERISA Section 4043), "prohibited transaction" (as such term
is defined in ERISA Section 406 and Code Section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA Section 302 and Code Section 412
(whether or not waived)) has occurred with respect to any Company Plan. For the
purposes of this Section 3.11, "COMMONLY CONTROLLED ENTITY" means any entity
(whether or not incorporated) other than the Company that, together with the
Company, is or was a member of a controlled group of corporations
A-1-16
<PAGE>
or organizations within the meaning of Section 414(b) of the Code, of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code, or of an affiliated service group within the meaning of Section
414(m) of the Code.
(d) Except as disclosed on Schedule 3.11 to this Agreement, with respect to
each Company Plan that is not a multiemployer plan within the meaning of Section
4001(a)(3) of ERISA but is subject to Title IV of ERISA, no material adverse
change has occurred subsequent to the most recent actuarial valuation report.
(e) Except as disclosed on Schedule 3.11 to this Agreement, with respect to
any multiemployer plan (within the meaning of ERISA Section 4001(a)(3)) to which
the Company or any Commonly Controlled Entity has any liability or contributes
(or has contributed or had an obligation to contribute within the past five
years): (i) no Commonly Controlled Entity has incurred within the past five
years any withdrawal liability under Title IV of ERISA or would be subject to
such liability if, as of the date of the Closing, any Commonly Controlled Entity
were to engage in a complete withdrawal (as defined in ERISA section 4203) or
partial withdrawal (as defined in ERISA section 4205) from any such
multiemployer plan; and (ii) no such multiemployer plan is in reorganization or
insolvent (as those terms are defined in ERISA sections 4241 and 4245,
respectively).
(f) Except as disclosed on Schedule 3.11 to this Agreement or as would not
be reasonably likely to result in a material liability to the Company, with
respect to any Company Plan that is not a multiemployer plan within the meaning
of section 4001(a)(3) of ERISA, (i) no actions, suits or claims (other than
routine claims for benefits in the ordinary course) are pending or, to the
knowledge of the Company, threatened, (ii) no facts or circumstances exist that
could give rise to any such actions, suits or claims, and (iii) no written or
oral communication has been received from the PBGC in respect of any Company
Plan subject to Title IV of ERISA concerning the funded status of any such plan
or any transfer of assets and liabilities from any such plan in connection with
the transactions contemplated herein.
(g) Except as disclosed on Schedule 3.11 to this Agreement, no Company Plan
exists that could result in the payment to any present or former employee of the
Company or any Company Subsidiary of any money or other property or accelerate
or provide any other rights or benefits to any present or former employee of the
Company or any Company Subsidiary as a result of the transactions contemplated
by this Agreement whether or not such payment would constitute a parachute
payment within the meaning of Code section 280G.
(h) Except as disclosed on Schedule 3.11 to this Agreement, neither the
Company nor any Company Subsidiary is a party to any collective bargaining or
other labor union contract applicable to employees of the Company or any Company
Subsidiary and no collective bargaining agreement or other labor union contract
is being negotiated by the Company or any Company Subsidiary. As of the date of
this Agreement, there is no labor dispute, strike or work stoppage against the
Company or any Company Subsidiary pending or threatened in writing which will
materially interfere with the respective business activities of the Company or
any Company Subsidiary. As of the date of this Agreement, none among the
Company, any Company Subsidiary, or their respective representatives or
employees, has committed within the past five years any unfair labor practices
in connection with the operation of the respective businesses of the Company or
any Company Subsidiary, and there is no charge or complaint against the Company
or any Company Subsidiary by the National Labor Relations Board or any
comparable state or foreign agency pending or threatened in writing.
(i) Except as disclosed on Schedule 3.11 to this Agreement, as of the
Effective Time of the Mergers, none among the Company or the Company
Subsidiaries has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act, as it may be amended from time to
time, and, to the Company's knowledge, within the 90-day period immediately
following the Effective Time of the Mergers will not incur any such liability or
obligation if, during such 90-day period, only terminations of employment in the
normal course of operations occur.
A-1-17
<PAGE>
SECTION 3.12 ENVIRONMENTAL LAWS AND REGULATIONS.
(a) Except as disclosed in the Company Filed SEC Reports, (i) each of the
Company and each Company Subsidiary is in compliance, in all material respects,
with all applicable federal, state and local laws and regulations relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata) (collectively, "ENVIRONMENTAL LAWS"), which compliance includes, but is
not limited to, the possession by the Company and the Company Subsidiaries of
all material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof; (ii) neither the Company nor any Company Subsidiary has received
written notice of, or, to the knowledge of the Company, is the subject of, any
material action, cause of action, claim, investigation, demand or notice by any
Person or entity alleging liability under or non-compliance with any
Environmental Law (an "ENVIRONMENTAL CLAIM"); and (iii) to the knowledge of the
Company, there are no circumstances that are reasonably likely to prevent or
interfere with such material compliance in the future.
(b) Except as disclosed in the Company Filed SEC Reports, to the knowledge
of the Company, there are no material Environmental Claims that are pending or
threatened against any Person whose liability for any Environmental Claim the
Company or any Company Subsidiary has or may have retained or assumed either
contractually or by operation of law.
SECTION 3.13 TAX MATTERS.
(a) The Company and each Company Subsidiary have timely filed (or have had
timely filed on their behalf), or will timely file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by or with
respect to any of them prior to or as of the Effective Time of the Mergers. All
such Tax Returns are, or will be at the time of filing, true, correct and
complete in all material respects.
(b) The Company and each Company Subsidiary have paid (or have had paid on
their behalf), or where payment is not yet due have established (or have had
established on their behalf) or will establish or cause to be established, on or
prior to the Effective Time of the Mergers, an adequate accrual for the payment
of, all material Taxes due with respect to any period ending prior to or as of
the Effective Time of the Mergers.
(c) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "TAXES" shall mean all federal, state, local and foreign taxes, and
other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax or penalties
applicable thereto.
(ii) "TAX RETURNS" shall mean all federal, state, local and foreign
returns, declarations, statements, reports, schedules, forms and information
returns and any amended returns relating to Taxes.
SECTION 3.14 LIBRARY RIGHTS.
(a) Schedule 3.14(a) sets forth a list of all Library Pictures, which is
true and complete in all material respects. The Company or one or more of the
Company Subsidiaries owns, is licensed or otherwise possesses any part or all of
the copyrights therein or otherwise has exploitative rights in the Library
Pictures in the territories, for the terms and in the forms of media reflected
in Schedule 3.14(a).
(b) Schedule 3.14(b) sets forth a true and complete list in all material
respects of the following information as of the date hereof with respect to
copyrights registered (or for which application for registration has been filed)
with the United States Copyright Office relating to the Library Pictures owned
by the Company or any of the Company Subsidiaries: (i) owner(s) of record; (ii)
year of copyright registration (or filing date of the application for
registration if registration is not yet complete) and, if applicable, renewal;
and (iii) copyright registration numbers and, if applicable, renewal numbers.
All copyrights owned by the Company or the Company Subsidiaries with respect to
the Library Pictures have been duly registered or applied for, as the case may
be, in the United States Copyright Office and are valid
A-1-18
<PAGE>
and subsisting in the United States, except where the failure to be so valid and
subsisting would not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect. With respect to all of the Library
Pictures as to which rights of exploitation have been licensed to the Company or
any of the Company Subsidiaries, (x) to the best of the Company's knowledge, the
Person granting the respective license thereof to the Company or any of the
Company Subsidiaries holds or has applied for, as the case may be, a duly
registered copyright on such Library Picture and (y) to the best of the
Company's knowledge, all of the copyrights referred to in clause (x) above are
valid and subsisting, except where the failure to be so valid and subsisting
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. There are no Liens or lawsuits, whether pending
or, to the best of the Company's knowledge, threatened, involving or against any
of the copyrights identified on Schedule 3.14(b) which would, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
To the best knowledge of the Company and the Company Subsidiaries, there are no
registrations for copyright that conflict with the copyrights identified in
Schedule 3.14(b), nor any infringement or potential infringement of such
copyrights by a third party, nor third party claims against such copyrights
which would, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect. To the best knowledge of the Company and the
Company Subsidiaries, none of the Library Pictures is in the public domain in
the United States.
SECTION 3.15 MARKS AND PATENTS.
(a) Each Mark and each Patent that currently is registered or applied for in
the United States Patent and Trademark Office or other similar office in any
foreign jurisdiction and owned by the Company or a Company Subsidiary is
identified in Schedule 3.15(a) (the "SCHEDULED MARKS AND PATENTS"). All
Scheduled Marks and Patents are valid and subsisting except where the failure to
be so valid and subsisting, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. Other than as
set forth in Schedule 3.15(a), the Company and the Company Subsidiaries own or
license all Marks and Patents used in connection with the Company's business.
(b) Except as set forth on Schedule 3.15(b) or as would not reasonably be
expected to have a Company Material Adverse Effect, there are no Liens or
lawsuits, whether pending or, to the best of the Company's knowledge,
threatened, involving or against any of the Scheduled Marks and Patents. To the
best knowledge of the Company and the Company Subsidiaries, there are no Marks
or Patents that infringe on the Scheduled Marks and Patents or third party
claims against the Scheduled Marks and Patents which would, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.16 MATERIAL CONTRACTS.
(a) Set forth on Schedule 3.16(a) is a correct and complete list of each of
the following contracts and agreements (and all amendments, modifications and
supplements thereto and all related letters to which the Company is a party
affecting the obligations of any party thereunder) to which the Company or any
Company Subsidiaries is a party or by which any of its or their properties or
assets are bound, true and correct copies of which have been delivered or
otherwise made available to Playboy: (i) each employment, consulting,
non-competition, severance, golden parachute or indemnification contract
(including, without limitation, any contract to which the Company is a party
involving employees of the Company) which contemplates payments equal to or in
excess of $50,000; (ii) each licensing (including each license, sublicense or
other agreement under which the Company or any of the Company Subsidiaries is
either licensor or licensee of any Marks or Patents), production, output,
merchandising, distribution, affiliation or service agreement, except for
licensing agreements (x) no one of which contemplates payments of more than
$2,000 and (y) for which payments do not, in the aggregate, exceed $100,000;
(iii) contracts granting a right of first refusal or first negotiation; (iv)
each partnership or joint venture agreement; (v) each agreement for the
acquisition, sale or lease of properties or assets of the Company (by merger,
purchase or sale of assets or stock or otherwise) in which the aggregate amount
to be paid or received by the Company and the Company Subsidiaries is equal to
or in excess of $50,000; (vi) each material contract or agreement
A-1-19
<PAGE>
with any Governmental Entity; (vii) each agreement relating to indebtedness of
the Company or any Company Subsidiary or guarantees of indebtedness by the
Company or any Company Subsidiary in excess of $50,000; (viii) each
noncompetition, exclusivity or other agreement restricting the ability of the
Company or any Company Subsidiary to operate its business as now, or
contemplated to be, conducted, except for any such agreement which could not
reasonably be expected to have a Company Material Adverse Effect; (ix) each
material agreement between the Company and any of its officers, its directors,
holders of 5% of the outstanding Company Common Stock or other Affiliates of the
Company or any Company Subsidiary; and (x) all commitments and agreements to
enter into any of the foregoing, or, with respect to affiliation agreements, all
material commitments and agreements to enter into any affiliation agreements
(collectively, the "COMPANY MATERIAL CONTRACTS").
(b) Except as set forth on Schedule 3.16(b) to this Agreement:
(i) Each Company Material Contract is in full force and effect and there
is no default under any Company Material Contract either by the Company or,
to the knowledge of the Company, by any other party thereto, except as set
forth on Schedule 3.7, 3.9 or 3.15(b), and no event has occurred that with
the lapse of time or the giving of notice or both would constitute a default
thereunder by the Company or, to the knowledge of the Company, any other
party, in any such case in which such default or event could reasonably be
expected to have a Company Material Adverse Effect.
(ii) No party to any such Company Material Contract has given notice to
the Company of or made a claim against the Company with respect to any
breach or default thereunder, in any such case in which such breach or
default could reasonably be expected to have a Company Material Adverse
Effect.
SECTION 3.17 TITLE TO PROPERTIES; REAL ESTATE.
(a) The Company and each Company Subsidiary has valid leasehold title to all
real property leased by it, and good title to its owned properties and assets,
tangible and intangible, including, without limitation, the properties and
assets reflected in the December 31, 1997 balance sheet previously delivered to
Playboy (the "COMPANY BALANCE SHEET") (except personal properties since sold or
otherwise disposed of in the ordinary course of business and except for personal
properties and assets not material to the operation of its business), free and
clear of all Liens whatsoever, except as set forth on Schedule 3.17(a) to this
Agreement or (i) as reflected in the Company Balance Sheet, (ii) Liens in
respect of pledges or deposits under workmen's compensation, unemployment
insurance, social security and pubic liability laws and other similar
legislation, (iii) Liens imposed by law, such as carriers', warehousemen's or
mechanics' liens incurred in good faith in the ordinary course of business, (iv)
Liens for taxes not yet due and payable, and (v) such imperfections of title and
other Liens, if any, which do not individually or in the aggregate materially
interfere with the value or the use of such properties or assets or otherwise
could not reasonably be expected to have a Company Material Adverse Effect. The
Company does not own any real property.
(b) The Company has previously made available to Playboy correct and
complete copies of all leases or agreements under which the Company or any
Company Subsidiary is lessee of, or holds or operates, any real property owned
by any third party which is material to the operation of its business, which
leases are set forth on Schedule 3.17(b) to this Agreement (the "LEASES"). The
Leases have not been modified or amended (orally or in writing) except as set
forth on Schedule 3.17(b). The Leases are in full force and effect and neither
the Company nor any Company Subsidiary is in default under the terms of any such
lease or agreement. The Company or the applicable Company Subsidiary and, to the
knowledge of the Company, each lessor, have in all material respects performed
all the obligations required to be performed by it or them to date under the
Leases. The Company or any applicable Company Subsidiary has not given any
notice of default to any lessor under the Leases and, to the knowledge of the
Company or the applicable Company Subsidiary, there are no defaults by any
lessor under the Leases.
(c) All structures and other improvements located on such real property are
in sufficient condition to enable the Company to conduct its business as now
being conducted.
A-1-20
<PAGE>
SECTION 3.18 OPINION OF FINANCIAL ADVISOR. Furman Selz LLC (the "COMPANY
FINANCIAL ADVISOR") has delivered to the Company its opinion to the effect that,
as of the date of this Agreement, the Cash Consideration and Stock Consideration
is fair to the Company's stockholders from a financial point of view, which
opinion has been confirmed in writing and accompanied by an authorization to
include a copy of such opinion in the Proxy Statement. The Company has delivered
a signed copy of such written opinion to Playboy.
SECTION 3.19 BROKERS. Except as set forth on Schedule 3.19 to this
Agreement, no broker, finder or investment banker other than the Company
Financial Advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Mergers or the other transactions contemplated
by this Agreement or the Related Agreements (including, without limitation, the
Related Transactions) based upon arrangements made by or on behalf of the
Company. The Company has heretofore made available to Playboy a complete and
correct copy of all agreements between the Company and the Company Financial
Advisor pursuant to which the Company Financial Advisor would be entitled to any
payment relating to the Mergers or such other transactions.
SECTION 3.20 VOTE REQUIRED. The affirmative vote of at least a majority of
the outstanding shares of Company Common Stock is the only vote of the holders
of any class or series of the Company's capital stock necessary (under
applicable law or otherwise) to approve this Agreement and the Related
Agreements and the transactions contemplated by this Agreement or the Related
Agreements (including, without limitation, the Mergers and the Related
Transactions).
SECTION 3.21 TANGIBLE PERSONAL PROPERTY. (a) The machinery, equipment,
furniture, fixtures and other tangible personal property ("TANGIBLE PERSONAL
PROPERTY") owned, leased or used by the Company or any of the Company
Subsidiaries (including, without limitation, the Company's studio and uplinking
facilities and assets) is in the aggregate sufficient and adequate to carry on
their respective businesses as currently conducted and is, in the aggregate, in
good operating condition and repair, normal "wear and tear" excepted.
SECTION 3.22 INSURANCE. Schedule 3.22 to this Agreement sets forth a list of
all policies or binders of fire, liability, workmen's compensation or other
insurance held by or on behalf of the Company or any of the Company Subsidiaries
(specifying the insurer, the policy number or covering note number with respect
to binders). Correct and complete copies of such policies or binders have been
delivered or made available to Playboy. None of the Company or any of the
Company Subsidiaries (i) is in default with respect to any material provision
contained in any such policy or binder, or (ii) has received a notice of
cancellation or non-renewal of any such policy or binder. All of such insurance
is in full force and effect and all premiums due and payable thereon have been
paid.
SECTION 3.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule
3.23 to this Agreement or the Company SEC Reports, since April 1, 1998, no event
has occurred that would be required to be reported as a Certain Relationship or
Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 3.24 CORPORATE RECORDS. The minute books of the Company and each of
the Company Subsidiaries heretofore have been made available to Playboy for its
inspection and contain true and complete, in all material respects, records of
all meetings and consents in lieu of meetings of the Company Board (or any
committee of the Company Board), stockholders of the Company and the board of
directors of each of the Company Subsidiaries.
SECTION 3.25 INVESTMENT COMPANY ACT. Neither the Company nor any of the
Company Subsidiaries is an "investment company" or to the Company's knowledge a
company "controlled" by, or an "affiliated company" with respect to, an
"investment company" required to register under the Investment Company Act of
1940, as amended (the "INVESTMENT COMPANY ACT").
A-1-21
<PAGE>
SECTION 3.26 TRANSACTION FEES AND EXPENSES. Set forth on Schedule 3.26 is a
correct and complete list of all fees and expenses paid by the Company, the
Company Subsidiaries and Subco in connection with the transactions contemplated
by this Agreement and by the Related Agreements as of the date of this
Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF THE PLAYBOY ENTITIES
The Playboy Entities, jointly and severally, hereby represent and warrant to
the Company as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Playboy and each of the Persons in which Playboy owns or
controls directly or indirectly at least a fifty percent voting or economic
interest (collectively, the "PLAYBOY SUBSIDIARIES"), has been duly organized and
is validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, as the case may be, and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals could not
reasonably be expected to have, individually or in the aggregate, a Playboy
Material Adverse Effect (as defined below). Each of Playboy and the Playboy
Subsidiaries is duly qualified or licensed to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that could not reasonably be expected to have, individually
or in the aggregate, a Playboy Material Adverse Effect. For purposes of this
Agreement, "PLAYBOY MATERIAL ADVERSE EFFECT" means any change, event or effect
(i) in, on or relating to the business of Playboy and the Playboy Subsidiaries
that is, or is reasonably likely to be, materially adverse to the business,
assets (including intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise), prospects or results of operations of
Playboy and the Playboy Subsidiaries taken as a whole, other than (A) any change
or effect arising out of general economic conditions in the United States or (B)
a change in the market price of the Old Playboy Class B Common Stock not
accompanied by one or more other changes, events or effects of the type
described above in this clause (i); or (ii) that may prevent or materially delay
the performance of this Agreement or the Related Agreements by any of the
Playboy Entities or the consummation of the transactions contemplated by this
Agreement or the Related Agreements (including, without limitation, the Mergers
and the Related Transactions).
(b) The copies of Playboy's Certificate of Incorporation and By-laws
(collectively, the "PLAYBOY CHARTER DOCUMENTS") that are set forth as Exhibits
to Playboy's Transitional Report on Form 10-K dated December 31, 1997, and the
Certificate of Incorporation and By-laws of Holdco, Merger Sub P and Merger Sub
S in the forms previously delivered to the Company, are complete and correct
copies thereof. The Playboy Charter Documents and all comparable organizational
documents of the Playboy Subsidiaries are in full force and effect. Playboy is
not in violation of any of the provisions of the Playboy Charter Documents.
Simultaneously with the Closing, Holdco will amend its Certificate of
Incorporation to change its name to "Playboy Enterprises, Inc."
A-1-22
<PAGE>
SECTION 4.2 CAPITALIZATION OF PLAYBOY AND ITS SUBSIDIARIES.
(a) The authorized capital stock of Playboy consists of (i) 7,500,000 shares
of Playboy Class A Common Stock, par value $.01 per share ("OLD PLAYBOY CLASS A
COMMON STOCK"), of which, as of April 30, 1998, approximately 4,748,954 shares
were issued and outstanding, and (ii) 30,000,000 shares of Class B Common Stock,
par value $.01 per share ("OLD PLAYBOY CLASS B COMMON STOCK" and, together with
the Playboy Class A Common Stock, "OLD PLAYBOY COMMON STOCK"), of which, as of
April 30, 1998, approximately 15,792,588 shares were issued and outstanding. All
of the issued and outstanding shares of Old Playboy Common Stock have been duly
authorized and validly issued, and are fully paid, nonassessable and free of
preemptive rights. As of April 30, 1998, approximately 2,066,500 shares of Old
Playboy Common Stock were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding options and warrants.
Except as disclosed in the Playboy Filed SEC Filings and as set forth on
Schedule 4.2(a) to this Agreement, since March 31, 1998, no shares of Playboy's
capital stock have been issued other than pursuant to the exercise of stock
options already in existence on such date, and, since March 31, 1998, no stock
options have been granted by Playboy to any Person. Except as disclosed in the
Playboy Filed SEC Filings, as set forth above and as contemplated by this
Agreement and the Related Agreements, as of the date hereof, there are
outstanding (i) no shares of capital stock or other voting securities of
Playboy, (ii) no securities of Playboy or any Playboy Subsidiaries convertible
into or exchangeable for shares of capital stock or voting securities of
Playboy, (iii) no options, warrants or other rights to acquire from Playboy or
any Playboy Subsidiary, and no obligations of Playboy or any Playboy Subsidiary
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Playboy, (iv) no equity
equivalents, interests in the ownership or earnings of Playboy or any Playboy
Subsidiary or other similar rights (including stock appreciation rights) (the
items listed in subclauses (i), (ii), (iii) and (iv) being referred to,
collectively, as "PLAYBOY SECURITIES") and (v) no obligations of Playboy or any
Playboy Subsidiary to repurchase, redeem or otherwise acquire any Playboy
Securities. Except as set forth on Schedule 4.2(a), there are no stockholders
agreements, voting trusts or other agreements or understandings to which Playboy
is a party or to which it is bound relating to the voting or registration of any
shares of capital stock of Playboy.
(b) The authorized capital stock of Holdco consists (i) of 7,500,000 shares
of Class A common stock, par value $.01 per share ("NEW PLAYBOY CLASS A COMMON
STOCK"), none of which are issued and outstanding, and (ii) 30,000,000 shares of
Class B common stock, par value $.01 per share ("NEW PLAYBOY CLASS B COMMON
STOCK" and, together with the New Playboy Common Stock, "NEW PLAYBOY COMMON
STOCK"), 100 of which have been validly issued, are fully paid and
non-assessable and owned by Playboy, free and clear of any Liens, other than
Liens imposed by Federal and state securities laws. The shares of New Playboy
Class B Common Stock that will be issued as part of the Merger Consideration,
will be, when issued in accordance with the terms of this Agreement, duly
authorized, validly issued, fully paid and non-assessable and listed for trading
on the NYSE. The authorized capital stock of Merger Sub P consists of 100 shares
of common stock, par value $.01 per share, all of which have been validly
issued, are fully paid and nonassessable and owned by Holdco free and clear of
any Liens, other than Liens imposed by Federal or state securities laws. The
authorized capital stock of Merger Sub S consists of 100 shares of common stock,
par value $.01 per share, all of which have been validly issued and are fully
paid and non-assessable and owned by Holdco free and clear of any Liens, other
than Liens imposed by Federal and state securities laws.
(c) Each outstanding share of capital stock of each Playboy Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and each such
share owned by Playboy or a Playboy Subsidiary is free and clear of any Lien or
any other limitation or restriction (including any restriction on the right to
vote or sell the same, except as may be provided as a matter of law) except
where failure to own such shares free and clear could not reasonably be expected
to have, individually or in the aggregate, a Playboy Material Adverse Effect.
There are no securities of Playboy or any Playboy Subsidiary convertible into or
exchangeable for, no options or other rights to acquire from Playboy or any
Playboy Subsidiary, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance
A-1-23
<PAGE>
or sale, directly or indirectly, of, any capital stock or other securities of,
or other ownership interests in, any Playboy Subsidiary. There are no
outstanding contractual obligations of Playboy or any Playboy Subsidiary to
repurchase, redeem or otherwise acquire any outstanding shares of capital stock
or other ownership interests in any Playboy Subsidiary.
(d) The Old Playboy Class B Common Stock constitutes the only class of
equity securities of Playboy or any Playboy Subsidiary registered or required to
be registered under the Exchange Act.
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Playboy
Entities has, or will have, all necessary corporate or other power and authority
to execute and deliver this Agreement and the Related Agreements to which it is
a party and to consummate the transactions contemplated by this Agreement or the
Related Agreements (including, without limitation, the Mergers and the Related
Transactions). The execution and delivery of this Agreement and the Related
Agreements to which each of the Playboy Entities is a party and the consummation
of the transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions) have
been duly and validly authorized by the Board of Directors of Playboy (the
"PLAYBOY BOARD"), the Board of Directors of each of Holdco, Merger Sub P and
Merger Sub S and the sole stockholder of each of Merger Sub P and Merger Sub S,
and no other corporate or other proceedings on the part of Playboy or any of the
other Playboy Entities are, or will be, necessary to authorize this Agreement
and the Related Agreements to which any of them is a party or to consummate the
transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions). Each
of this Agreement and the Related Agreements to which any of the Playboy
Entities is a party has been, or will be, assuming the due authorization,
execution and delivery of the same by each of the other parties hereto or
thereto, duly and validly executed and delivered by the Playboy Entities and
constitutes a valid, legal and binding agreement of each of the Playboy
Entities, enforceable against such parties in accordance with its terms, subject
to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium and other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally and (ii) general principles of
equity (regardless of whether considered in a proceeding at law or in equity).
SECTION 4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Since December 31, 1994, Playboy has filed all forms, reports and
documents (including all exhibits thereto) (the "PLAYBOY SEC FILINGS") required
to be filed with the SEC, each of which has complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act,
each as in effect on the dates such forms, reports and documents were filed.
Playboy has heretofore delivered to or made available to the Company, in the
form filed with the SEC (including any amendments and all exhibits thereto), the
following (the "PLAYBOY FILED SEC FILINGS"): (i) the Annual Reports on Form 10-K
for each of the fiscal years ended June 30, 1995, June 30, 1996 and June 30,
1997, (ii) the Transitional Report on Form 10-K for the six months ended
December 31, 1997, (iii) all definitive proxy statements relating to Playboy's
meetings of stockholders (whether annual or special) held since December 31,
1994 and prior to the date of this Agreement and (iv) all other forms, reports
or registration statements filed prior to the date of this Agreement by Playboy
with the SEC since December 31, 1994 (other than reports on Form 10-Q or on Form
8-K filed before May 15, 1998). None of the Playboy SEC Filings or documents,
including, without limitation, any financial statements or schedules included or
incorporated by reference therein, contained, when filed, any untrue statement
of a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstance under which they were made, not
misleading. The consolidated financial statements of Playboy included or
incorporated by reference in the Playboy SEC Filings complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto and all of such financial
statements fairly present in all material respects, in conformity with GAAP
(except as may be indicated in the notes thereto and except that the unaudited
financial statements may not include all notes thereto required by GAAP), the
A-1-24
<PAGE>
consolidated financial position of Playboy and the Playboy Subsidiaries as of
the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments). Since March 31, 1998,
there has not been any change, or any application or request for any change, by
Playboy or any Playboy Subsidiary in accounting principles, methods or policies
for financial accounting or tax purposes.
(b) Playboy has heretofore made available to the Company a complete and
correct copy of any material amendments or modifications, which have not yet
been filed with the SEC, to agreements, documents or other instruments which
prior to the date of this Agreement had been filed by Playboy with the SEC
pursuant to the Securities Act or the Exchange Act.
SECTION 4.5 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by Playboy concerning any of the Playboy Entities for inclusion or
incorporation by reference in (a) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (b) the Proxy Statement will, at the date mailed to
stockholders and at the time of the Company Stockholders Meeting to be held in
connection with the transactions contemplated hereby, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If, at any time
prior to the Effective Time of the Mergers, any event with respect to Playboy or
any Playboy Subsidiary or any of their respective officers and directors should
occur which is required to be described in an amendment of, or a supplement to,
the S-4 or the Proxy Statement, Playboy shall promptly so advise the Company and
such event shall be so described, and such amendment or supplement (which the
Company shall have a reasonable opportunity to review) shall be promptly filed
with the SEC and, as required by law, disseminated to the stockholders of the
Company and Playboy. The S-4 will comply as to form in all material respects
with the provisions of the Securities Act and the rules and regulations
thereunder. Notwithstanding the foregoing, Playboy makes no representation or
warranty with respect to any information supplied by the Company or the Company
Subsidiaries which is contained in or incorporated by reference in, or furnished
in connection with the preparation of, the S-4 or the Proxy Statement.
SECTION 4.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or blue sky laws, and the filing and recordation of the Certificates
of Merger as required by the DGCL or as set forth on Schedule 4.6, no filing,
registration or submission with or notice to, and no permit, authorization,
consent or approval of, any Governmental Entity is, or will be, necessary for
the execution and delivery by any of the Playboy Entities of this Agreement or
any of the Related Agreements to which any of them are a party or the
consummation by any of the Playboy Entities of the transactions contemplated by
this Agreement or the Related Agreements to which it is a party (including,
without limitation, the Mergers and the Related Transactions), except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice could not reasonably be expected to have a
Playboy Material Adverse Effect nor prevent or materially delay the performance
of this Agreement by any of the Playboy Entities or the consummation of the
transactions contemplated by this Agreement or the Related Agreements. Except as
set forth on Schedule 4.6 to this Agreement, no consent or approval of any third
party is, or will be, necessary for the execution and delivery by any of the
Playboy Entities of this Agreement or any of the Related Agreements to which it
is a party or consummation by any of the Playboy Entities of the transactions
contemplated by this Agreement or any of the Related Agreements to which it is a
party (including, without limitation, the Mergers and the Related Transactions).
Except as set forth on Schedule 4.6 to this Agreement, none of the execution,
delivery and performance of this Agreement or any of the Related Agreements to
which any of the Playboy Entities are a party, or the consummation by any of the
Playboy Entities of the transactions contemplated by this Agreement or the
Related Agreements to which it is a party (including, without limitation, the
Mergers and the Related Transactions) will (a) conflict with or result in any
breach of any provision of the Playboy
A-1-25
<PAGE>
Charter Documents or any comparable organizational documents of any of the
Playboy Entities, (b) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which any of the Playboy Entities is a party or by which any of the Playboy
Entities or any of their respective properties or assets may be bound or (c)
assuming that all consents, permits, approvals, authorizations and other actions
described in the preceding sentence have been made and all filings in the
preceding sentence have been made, violate any order, writ, injunction, decree,
law, statute, rule or regulation applicable to any of the Playboy Entities or
any of their respective properties or assets, except in the case of clause (b)
or (c) for violations, breaches or defaults which could not reasonably be
expected to have, individually or in the aggregate, a Playboy Material Adverse
Effect.
SECTION 4.7 NO DEFAULT. Except as set forth on Schedule 4.7 to this
Agreement, none of Playboy or any Playboy Subsidiary is in default or violation
(and no event has occurred which with due notice or the lapse of time or both
would constitute a default or violation) of any term, condition or provision of
(i) the Playboy Charter Documents or comparable organizational documents of any
Playboy Subsidiary, (ii) any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which Playboy or any
Playboy Subsidiary is now a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any order, writ,
injunction, decree, law, statute, rule or regulation applicable to Playboy, any
Playboy Subsidiary or any of their respective properties or assets, except in
the case of clause (ii) or (iii) for violations, breaches or defaults that could
not reasonably be expected to have, individually or in the aggregate, a Playboy
Material Adverse Effect nor prevent or materially delay the performance of this
Agreement by Playboy or any of the other Playboy Entities, the performance of
the Related Agreements by Playboy or any of the other Playboy Entities or the
consummation of the transactions contemplated by this Agreement and the Related
Agreements (including, without limitation, the Mergers and the Related
Transactions).
SECTION 4.8 NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES. Except as and to
the extent disclosed in the Playboy Filed SEC Reports or on Schedule 4.8 to this
Agreement, as of March 31, 1998, neither Playboy nor any Playboy Subsidiary had
any liabilities or obligations of any nature, whether or not accrued, contingent
or otherwise, and whether due or to become due or asserted or unasserted, which
would be required by GAAP to be reflected in, reserved against or otherwise
described in the consolidated balance sheet of Playboy (including the notes
thereto) as of such date or which could reasonably be expected to have a Playboy
Material Adverse Effect. Except as disclosed in the Playboy Filed SEC Reports,
since March 31, 1998, the business of Playboy and the Playboy Subsidiaries has
been carried on only in the ordinary and usual course and in a manner consistent
with past practice, neither Playboy nor any Playboy Subsidiary has incurred any
liabilities of any nature, whether or not accrued, contingent or otherwise and
whether due or to become due or asserted or unasserted, which could reasonably
be expected to have, and there have been no events, changes or effects with
respect to Playboy or any Playboy Subsidiary having or which could reasonably be
expected to have, a Playboy Material Adverse Effect. Except as disclosed in the
Playboy Filed SEC Reports, since March 31, 1998, there has not been (i) any
material change by Playboy in its accounting methods, principles or practices,
(ii) any declaration, setting aside or payment of any dividend or distribution
in respect of shares of the capital stock of Playboy or any redemption, purchase
or other acquisition of any of the Playboy Securities or (iii) any increase in
the compensation or benefits or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of Playboy
or any Playboy Subsidiary except in the ordinary course of business consistent
with past practice or except as required by applicable law.
SECTION 4.9 LITIGATION. Except as disclosed in the Playboy Filed SEC Reports
or on Schedule 4.9 to this Agreement, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of
A-1-26
<PAGE>
Playboy, threatened against Playboy or any Playboy Subsidiary or any of their
respective properties or assets which (a) if adversely determined, could
reasonably be expected to have, individually or in the aggregate, a Playboy
Material Adverse Effect, or (b) questions the validity of this Agreement or any
of the Related Agreements or any action to be taken by any of the Playboy
Entities in connection with the consummation of the transactions contemplated by
this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions) or could otherwise prevent or delay the
consummation of such transactions. Except as disclosed by Playboy, neither
Playboy nor any Playboy Subsidiary is subject to any outstanding order, writ,
injunction or decree which, to the knowledge of Playboy or any Playboy
Subsidiary, could reasonably be expected to have a Playboy Material Adverse
Effect or would prevent or delay the consummation of the transactions
contemplated by this Agreement or the Related Agreements (including, without
limitation, the Mergers and the Related Transactions).
SECTION 4.10 COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the
Playboy Filed SEC Reports, Playboy and all Playboy Subsidiaries have made or
have obtained and hold all material registrations, filings, submissions,
certificates, determinations, permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (collectively, the "PLAYBOY PERMITS"). Except as
disclosed in the Playboy Filed SEC Reports, Playboy and all Playboy Subsidiaries
are in compliance, in all material respects, with the terms of the Playboy
Permits. To the knowledge of Playboy, no material deficiencies have been
asserted by any Governmental Entity with respect to such registrations, filing
or submissions. Except as disclosed by Playboy in the Playboy Filed SEC Reports,
the businesses of Playboy and the Playboy Subsidiaries are not being conducted
in violation of any law, ordinance or regulation of any Governmental Entity and
except for violations or possible violations which could not reasonably be
expected to have a Playboy Material Adverse Effect. Except as disclosed in the
Playboy Filed SEC Reports, no material investigation or review by any
Governmental Entity with respect to Playboy or any Playboy Subsidiary is pending
or, to the knowledge of Playboy, threatened, nor, to the knowledge of Playboy,
has any Governmental Entity indicated an intention to conduct the same.
SECTION 4.11 TAX MATTERS. (a) Playboy and each Playboy Subsidiary have
timely filed (or have had timely filed on their behalf), or will timely file or
cause to be timely filed, all material Tax Returns required by applicable law to
be filed by or with respect to any of them prior to or as of the Effective Time
of the Mergers. All such Tax Returns are, or will be at the time of filing,
true, correct and complete in all material respects.
(b) Playboy and each Playboy Subsidiary have paid (or have had paid on their
behalf), or where payment is not yet due have established (or have had
established on their behalf) or will establish or cause to be established, on or
prior to the Effective Time of the Mergers, an adequate accrual for the payment
of, all material Taxes due with respect to any period ending prior to or as of
the Effective Time of the Mergers.
SECTION 4.12 BROKERS. No broker, finder or investment banker, other than
Bear, Stearns & Co., Inc. (the "PLAYBOY FINANCIAL ADVISOR"), is entitled to any
brokerage, finder's or other fee or commission in connection with the Mergers or
the other transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions) based
upon arrangements made by or on behalf of Playboy.
SECTION 4.13 INVESTMENT COMPANY ACT. Neither Playboy nor any of the Playboy
Subsidiaries is an "investment company" or to Playboy's knowledge a company
"controlled" by, or an "affiliated company" with respect to, an "investment
company" required to register under the Investment Company Act.
SECTION 4.14 OWNERSHIP OF HOLDCO, MERGER SUB P AND MERGER SUB S; NO PRIOR
ACTIVITIES. (a) Holdco is a direct, wholly-owned subsidiary of Playboy and each
of Merger Sub P and Merger Sub S is a direct, wholly-owned subsidiary of Holdco.
Each of Holdco, Merger Sub P and Merger Sub S was formed solely for the purpose
of engaging in the transactions contemplated by this Agreement.
A-1-27
<PAGE>
(b) As of the date hereof and the Effective Time of the Mergers, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and the Related
Agreements and except for this Agreement and the Related Agreements, each of
Holdco, Merger Sub P and Merger Sub S has not and will not have incurred,
directly or indirectly, through any subsidiary or Affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any Person.
ARTICLE 5
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement, the Related Agreements and the Newco Agreements, during the
period from the date hereof and continuing until the earlier of the termination
of this Agreement and the abandonment of the transactions herein contemplated
pursuant to Section 7.1 or the Effective Time of the Mergers, the Company will,
and will cause each of the Company Subsidiaries to, conduct its operations in
the ordinary course of business consistent with past practice and, to the extent
consistent herewith, other than actions taken by the Company or any of the
Company Subsidiaries in order to facilitate the negotiation and execution of
this Agreement, the Related Agreements or the Newco Agreements and the
consummation of the transactions contemplated hereunder or thereunder which
actions would not breach any of the Company's representations, warranties,
covenants or agreements herein, with no less diligence and effort than would be
applied in the absence of this Agreement, seek to preserve substantially intact
its reputation and current business organizations, keep available the service of
its current officers and employees and preserve its relationships with
customers, suppliers, and others having significant business dealings with it to
the end that goodwill and ongoing businesses shall be unimpaired at the
Effective Time of the Mergers. Without limiting the generality of the foregoing,
and except as otherwise expressly provided in or contemplated by this Agreement,
the Related Agreements or the Newco Agreements (including, without limitation,
the Mergers, the Related Transactions and the Newco Transactions), during the
period from the date of this Agreement and prior to the earlier of the
termination of this Agreement and the abandonment of the transactions herein
contemplated pursuant to Section 7.1 or the Effective Time of the Mergers, the
Company will not and will cause the Company Subsidiaries not to, without the
prior consent of Playboy:
(a) amend the Company Charter Documents or the comparable organizational
documents of any Company Subsidiary;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase (whether or not
contingent) or otherwise) any stock of any class or any other securities or
equity equivalents (including, without limitation, any stock options or stock
appreciation rights), except for the issuance or sale of shares of Company
Common Stock pursuant to the exercise of (i) options granted to employees or
consultants under the Company Stock Option Plans (in the ordinary course of
business and consistent with past practice) or (ii) warrants outstanding on the
date of this Agreement;
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock (other than
dividends or distributions made by wholly-owned Company Subsidiaries), make any
other actual, constructive or deemed distribution in respect of any shares of
its capital stock or otherwise make any payments to stockholders in their
capacity as such (other than dividends or distributions made by wholly-owned
Company Subsidiaries), or redeem or otherwise acquire any of its securities;
A-1-28
<PAGE>
(d) other than pursuant to the Related Transactions, adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
Company Subsidiaries;
(e) other than pursuant to the Related Transactions, alter through merger,
liquidation, recapitalization, restructuring or in any other fashion the
corporate structure or ownership of any Company Subsidiary; (f) (i) incur or
assume any long-term or short-term debt or issue any debt securities except for
borrowings under existing lines of credit in the ordinary course of business and
not in excess of $250,000; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other Person except in the ordinary course of business
consistent with past practice and in amounts not material to the Company and the
Company Subsidiaries, taken as a whole, except for obligations of the
wholly-owned Company Subsidiaries; (iii) make any loans, advances or capital
contributions to, or investments in, any other Person (other than to the
wholly-owned Company Subsidiaries and other than pursuant to the Newco
Transactions); (iv) pledge or otherwise encumber shares of capital stock of the
Company or any Company Subsidiary; or (v) mortgage or pledge any of the Company
Subsidiaries' material assets, tangible or intangible, or create or suffer to
exist any material Lien thereupon other than in the ordinary course of business;
(g) except as may be required by law or as contemplated by this Agreement,
any of the Related Agreements or any of the Newco Agreements, enter into, adopt
or amend (other than to accelerate the vesting of the Company Options and to
provide for the deemed exercise of them contemplated by Section 2.2(f)) or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund, award or other arrangement for the benefit or welfare of any
director, officer, employee or consultant in any manner, or (except for normal
increases in the ordinary course of business consistent with past practice that,
in the aggregate, do not result in a material increase in benefits or
compensation expense to the Company or the Company Subsidiaries, or as required
under existing agreements or in the ordinary course of business generally
consistent with past practice) increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any plan and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock options, warrants or stock appreciation
rights);
(h) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or with a value in excess of $100,000 in the aggregate, or
enter into any commitment or transaction outside the ordinary course of business
consistent with past practice (other than pursuant to the Related Transactions
and the Newco Transactions);
(i) except as may be required as a result of a change in law or in GAAP,
change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business, except in connection
with Emerald Media, Inc. or as may be required by the SEC, the Financial
Accounting Standards Board or GAAP;
(k) (i) acquire (by merger, consolidation, or acquisition of stock, debt
securities or assets) any Person or any division thereof, any equity interest
therein or indebtedness thereof; (ii) enter into any contract, agreement or
understanding, other than in the ordinary course of business consistent with
past practice, unless such contract or agreement is terminable at the sole
option of the Company, without penalty or premium, on less than six months'
notice; (iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $25,000 or, in the aggregate, are in excess of
$100,000; or (iv) otherwise enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action that would be
prohibited by this Section 5.1(k);
A-1-29
<PAGE>
(l) make (inconsistent with past practice) or revoke any tax election or
settle (except to the extent any such settlement has been reserved for in the
financial statements contained in the Company SEC Reports) or compromise any tax
liability material to the Company and the Company Subsidiaries taken as a whole
or change (or make a request to any taxing authority to change) any material
aspect of its method of accounting for tax purposes;
(m) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
as is required to satisfy the condition set forth in Section 6.2(h) and other
than the payment, discharge or satisfaction in the ordinary course of business
of liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and the
Company Subsidiaries or incurred in the ordinary course of business consistent
with past practice;
(n) enter into or amend or otherwise modify any agreement or arrangement
with Persons that are Affiliates of the Company or any Company Subsidiary;
(o) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated by this Agreement, the Related
Agreements or the Newco Agreements (including, without limitation, the Mergers,
the Related Transactions and the Newco Transactions);
(p) pay more than an aggregate of $2.5 million in fees and expenses in
connection with the transactions contemplated by this Agreement and the Related
Agreements; or
(q) take, propose to any third party to take or agree in writing or
otherwise to take, any of the actions described in Sections 5.1(a) through
5.1(p) or any action which would make any of the representations or warranties
of the Company or the Company Subsidiaries contained in this Agreement untrue or
incorrect.
SECTION 5.2 CONDUCT OF BUSINESS OF PLAYBOY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the abandonment of the transactions herein contemplated pursuant
to Section 7.1 or the Effective Time of the Mergers, Playboy covenants and
agrees that Playboy shall conduct its business, and cause the businesses of the
Playboy Subsidiaries to be conducted only in, and Playboy and the Playboy
Subsidiaries shall not take any action except in the ordinary course of business
and consistent with past practice, except for actions taken by Playboy or the
Playboy Subsidiaries in order to facilitate the negotiation and execution of
this Agreement and the consummation of the transactions contemplated hereunder
which actions would not breach any of the representations, warranties, covenants
and agreements of any of the Playboy Entities herein, and shall not directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Company:
(a) amend or otherwise change Playboy's Restated Certificate of
Incorporation or By-Laws in such a manner as to negatively affect the rights of
the holders of Old Playboy Class B Common Stock;
(b) declare, set aside, make or pay any extraordinary dividend in respect of
any of its capital stock;
(c) take any action to delist a security of Playboy from any securities
exchange; or
(d) take or agree in writing or otherwise to take any action described in
Sections 5.2(a) through (c).
SECTION 5.3 OTHER ACTIONS. Each of Company and Playboy shall not and shall
cause its respective subsidiaries not to take any action or agree in writing or
otherwise to take any action that would result in (i) any of the representations
and warranties of such party (without giving effect to any "knowledge"
qualification) set forth in this Agreement that are qualified as to materiality
becoming untrue or incorrect, (ii) any of such representations and warranties
(without giving effect to any "knowledge" qualification) that are not so
qualified becoming untrue or incorrect in any material respect, (iii) any of the
conditions to the consummation the Mergers set forth in Article 6 and the
transactions contemplated by the Related Agreements (including, without
limitation, the Related Transactions) not being satisfied, or (iv) the Mergers
failing to qualify as exchanges under Section 351 of the Code.
A-1-30
<PAGE>
SECTION 5.4 PREPARATION OF THE S-4 REGISTRATION STATEMENT AND PROXY
STATEMENT; PREPARATION OF THE S-1 REGISTRATION STATEMENT; COMPANY STOCKHOLDERS
MEETING. (a) As soon as practicable following the date of this Agreement, the
Company and Playboy shall prepare and file with the SEC a preliminary Proxy
Statement in form and substance reasonably satisfactory to each of Playboy and
the Company, Playboy shall prepare and file with the SEC the S-4, in form and
substance reasonably satisfactory to each of Playboy and the Company, in which
the Proxy Statement will be included as a prospectus, and the Company shall
prepare and file with the SEC the S-1, in form and substance reasonably
satisfactory to Playboy. Each of the Company and Playboy shall use its
reasonable commercial efforts to (i) respond to any comments of the SEC and (ii)
have the S-4 and the S-1 declared effective under the Securities Act and the
rules and regulations promulgated thereunder as promptly as practicable after
such filing or filings, and to keep the S-4 and the S-1 effective as long as is
necessary to consummate the Mergers and the Related Transactions. Each of the
Company and Playboy will use its reasonable commercial efforts to cause the
Proxy Statement to be mailed to the Company's stockholders as promptly as
practicable after the S-4 is declared effective under the Securities Act. Each
party will notify the other promptly of the receipt of any comments from the SEC
and of any request by the SEC for amendments or supplements to the S-4, the S-1
or the Proxy Statement or for additional information and will supply the other
with copies of all correspondence between such party or any of its
representatives and the SEC, with respect to the S-4, the S-1 or the Proxy
Statement. The S-4, the S-1 and the Proxy Statement shall comply in all material
respects with all requirements of applicable law. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the S-4, the
S-1 or the Proxy Statement, Playboy or the Company, as the case may be, shall
promptly inform the other of such occurrences and cooperate in filing with the
SEC or mailing to stockholders of the Company such amendment or supplement. The
Proxy Statement shall include the recommendations of the Company Board in favor
of this Agreement and the Related Agreements and the transactions contemplated
by this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions). Playboy shall also take any action
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of New Playboy Class B Common Stock pursuant to the
Mergers and the Company shall furnish all information concerning the Company and
the holders of the Company Common Stock and rights to acquire Company Common
Stock pursuant to the Company Stock Option Plans as may be reasonably requested
in connection with any such action.
(b) The Company will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "COMPANY STOCKHOLDERS MEETING") for the purpose of obtaining
the requisite approval by such stockholders of this Agreement and the
transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers, but excluding the Related
Transactions). The Company shall, through the Company Board, recommend to its
stockholders approval of this Agreement and all of such transactions.
SECTION 5.5 NO SOLICITATION OF TRANSACTIONS BY THE COMPANY. From the date
hereof until the earlier of the termination of this Agreement and the
abandonment of the transactions herein contemplated pursuant to Section 7.1 or
the Effective Time of the Mergers, neither the Company nor any Company
Subsidiaries shall, nor shall it or any of its subsidiaries authorize or permit
any of their respective officers, directors, employees, attorneys, accountants,
investment bankers, financial advisors, representatives, agents or other
authorized Persons to directly or indirectly (i) solicit, initiate, encourage
(including by way of furnishing information) or take any other action to
facilitate any inquiry or the making of any proposal which constitutes, or may
reasonably be expected to lead to, any acquisition or purchase of a substantial
amount of assets of, or any equity interest (other than pursuant to the exercise
of existing stock options and warrants) in, the Company or any Company
Subsidiaries or any tender offer (including a self tender offer) or exchange
offer, merger, consolidation, business combination, sale of substantially all
assets, sale of securities, recapitalization, liquidation, dissolution or
similar transaction involving the Company or any Company Subsidiaries (other
than the transactions contemplated by this Agreement) or any other material
corporate transaction the consummation of which would or could reasonably be
expected to impede,
A-1-31
<PAGE>
interfere with, prevent or materially delay the transactions contemplated by
this Agreement, the Related Agreements and the Newco Agreements (collectively,
"TRANSACTION PROPOSALS") or agree to or endorse any Transaction Proposal, or
(ii) propose, enter into or participate in any discussions or negotiations
regarding any of the foregoing, or furnish to any other Person any information
with respect to its business, properties or assets or any of the foregoing, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to do or seek any of the
foregoing; provided, however, that the foregoing clauses (i) and (ii) shall not
apply to the extent that the Company Board shall receive a Qualified Transaction
Proposal and shall conclude in good faith on the basis of advice from outside
counsel, that such action is necessary in order for the Company Board to act in
a manner which is consistent with its fiduciary obligations under applicable
law. The Company shall notify Playboy in writing (as promptly as practicable but
within two business days) of all of the relevant details relating to all
inquiries and proposals (including, without limitation, the identity of the
Person making the Qualified Transaction Proposal and the steps it is taking in
response to such proposal) which it or any Company Subsidiary or any such
officer, director, employee, agent, investment banker, financial advisor,
attorney, accountant, broker, finder or other representative may receive
relating to any of such matters and if such inquiry or proposal is in writing,
the Company shall deliver to Playboy a copy of such inquiry or proposal. For
purposes of this Agreement, the term "QUALIFIED TRANSACTION PROPOSAL" means a
Transaction Proposal that (x) the Company Board determines in good faith, after
consultation with its outside financial advisor, is reasonably capable of being
consummated and (y) is not subject to any material contingencies relating to
financing, or, if it is subject to any such material contingencies, the Company
Board determines in good faith, after consultation with its outside financial
advisor, that such financing is likely to be obtained.
SECTION 5.6 LETTERS OF THE COMPANY'S ACCOUNTANTS.
(a) The Company shall use its best efforts to cause to be delivered to
Playboy a "comfort" letter of Grant Thorton L.L.P., the Company's independent
auditors, dated a date within two business days before the date on which the S-4
shall become effective and addressed to Playboy, in form and substance
reasonably satisfactory to Playboy and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the S-4.
(b) Playboy shall use its best efforts to cause to be delivered to the
Company a "comfort letter" of Coopers & Lybrand L.L.P., Playboy's independent
auditors, dated as of a date within two business days before the date on which
the S-4 shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
SECTION 5.7 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Upon reasonable notice during normal business hours and subject to the
restrictions contained in confidentiality agreements to which such party is
subject, between the date hereof and the Effective Time of the Mergers, the
Company will give Playboy and its authorized representatives reasonable access
to all employees, offices and other facilities and to all books and records of
the Company and the Company Subsidiaries, will permit Playboy to make such
inspections as Playboy may reasonably require and will cause the Company's
officers and those of the Company Subsidiaries to furnish Playboy with such
financial and operating data and other information with respect to the business,
properties and personnel of the Company and the Company Subsidiaries as Playboy
may from time to time reasonably request; provided, however, that no
investigation pursuant to this Section 5.7(a) shall affect or be deemed to
modify any of the representations or warranties made by the Company in this
Agreement or by any executive officer of the Company in any certificate required
to be delivered pursuant to Section 6.3(a). Playboy shall keep such information
confidential in accordance with the terms of the confidentiality agreement dated
July 16, 1997 between Playboy and the Company (the "CONFIDENTIALITY AGREEMENT").
A-1-32
<PAGE>
(b) Upon reasonable notice during normal business hours and subject to the
restrictions contained in confidentiality agreements to which such party is
subject, between the date hereof and the Effective Time of the Mergers, Playboy
will give the Company and its authorized representatives reasonable access to
Christie Hefner, Linda Havard and Anthony J. Lynn, and to the organizational
documents of Playboy and the Playboy Subsidiaries, will permit the Company to
make such inspections as the Company may reasonably require and will cause
Playboy's officers and those of the Playboy Subsidiaries to furnish the Company
with such financial and operating data with respect to the business of Playboy
and the Playboy Subsidiaries as the Company may from time to time reasonably
request; PROVIDED, HOWEVER, that no investigation pursuant to this Section
5.7(b) shall affect or be deemed to modify any of the representations or
warranties made by Playboy in this Agreement or by any executive officer of
Playboy in any certificate required to be delivered pursuant to Section 6.2(a).
The Company shall keep such information confidential in accordance with the
terms of the Confidentiality Agreement.
(c) Between the date hereof and the Closing Date, the Company shall furnish
to Playboy within 45 days after the end of each fiscal quarter, an unaudited
balance sheet, income statement and statement of cash flows of the Company on a
consolidated basis, prepared in accordance with GAAP in conformity with the
practices consistently applied by the Company with respect to its quarterly
financial statements. All the foregoing in all material respects, subject to
year-end adjustments, shall be in accordance with the books and records of the
Company and fairly present the consolidated financial position of the Company as
of the last day of the period then ended.
(d) Between the date hereof and the Closing Date, Playboy shall furnish to
the Company within 45 days after the end of each fiscal quarter, an unaudited
balance sheet, income statement and statement of cash flows of Playboy on a
consolidated basis, prepared in accordance with GAAP in conformity with the
practices consistently applied by Playboy with respect to its quarterly
financial statements. All the foregoing in all material respects, subject to
year-end adjustments, shall be in accordance with the books and records of
Playboy and fairly present the consolidated financial position of Playboy as of
the last day of the period then ended.
(e) Between the date hereof and the Closing Date, the Company shall, upon
Playboy's request, furnish to Playboy a list, to be certified at Closing by an
executive officer of the Company, of each item and all information that would,
on the date of this Agreement, have been required to be disclosed to Playboy on
the Schedules to this Agreement if such item had existed or such information had
been available on such date; PROVIDED, HOWEVER, that no disclosure pursuant to
this Section 5.7(e) shall affect or be deemed to modify any of the
representations or warranties made by the Company or the Company Subsidiaries in
this Agreement.
(f) Between the date hereof and the Closing Date, Playboy shall, upon the
Company's request, furnish to the Company a list, to be certified at Closing by
an executive officer of Playboy, of each item and all information that would, on
the date of this Agreement, have been required to be disclosed to the Company on
the Schedules to this Agreement if such item had existed or such information had
been available on such date; provided, however, that no disclosure pursuant to
this Section 5.7(f) shall affect or be deemed to modify any of the
representations or warranties made by the Playboy Entities in this Agreement.
SECTION 5.8 REASONABLE COMMERCIAL EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties hereto agrees to use
its reasonable commercial efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to fulfill all
conditions applicable to such party pursuant to this Agreement, the Related
Agreements and the Newco Agreements and to consummate and make effective, in the
most expeditious manner practicable, the Mergers, the Related Transactions, the
Newco Transactions and the other transactions contemplated by this Agreement,
the Related Agreements and the Newco Agreements, including, but not limited to,
(i) the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations
A-1-33
<PAGE>
and filings (including filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), and all other filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to obtain an approval, waiver or exemption from, or to avoid an action
or proceeding by, any Governmental Entity; (ii) the obtaining of all necessary
consents, approvals, waivers or exemption from non-governmental third parties;
(iii) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement, any Related Agreement, any Newco
Agreement or the consummation of the transactions contemplated by this
Agreement, the Related Agreements or the Newco Agreements, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed; and (iv) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of, this Agreement, the Related
Agreements and the Newco Agreements.
SECTION 5.9 PUBLIC ANNOUNCEMENTS. Playboy and the Company, as the case may
be, will consult with one another before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated by
this Agreement, the Related Agreements or the Newco Agreements (including,
without limitation, the Mergers, the Related Transactions and the Newco
Transactions) and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or by obligations pursuant to any listing agreement with the NYSE or the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ"), as determined by Playboy or the Company, as the case may be, but
only upon the advice of its independent counsel.
SECTION 5.10 INDEMNIFICATION. (a) Playboy agrees that all rights to
indemnification or exculpation now existing in favor of each present and future
director, officer, employee or agent of the Company or any of the Company
Subsidiaries as provided in their respective charters or by-laws (or other
comparable organizational documents) or otherwise in effect as of the date
hereof against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, administrative or investigative, arising out of or
pertaining to the transactions contemplated by this Agreement or otherwise, with
respect to matters occurring at or prior to the Effective Time of the Mergers
shall survive the Mergers and shall continue in full force and effect for a
period of six (6) years from the Effective Time of the Mergers and shall not be
amended or otherwise modified in any manner that would adversely affect such
rights; PROVIDED, HOWEVER, that all rights to indemnification in respect of any
claim (a "CLAIM") asserted or made within such period shall continue until the
disposition of such Claim. To the maximum extent permitted by the DGCL, such
indemnification shall be mandatory rather than permissive and the S Surviving
Corporation shall advance expenses in connection with such indemnification to
the fullest extent permitted under applicable law; PROVIDED, HOWEVER, that the
Person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification.
(b) The provisions of this Section 5.10 shall survive the consummation of
the Mergers at the Effective Time of the Mergers, are intended to benefit the
Company, the S Surviving Corporation and each present and former director,
officer, employee or agent of the Company or any of the Company Subsidiaries
(collectively, the "INDEMNIFIED PARTIES"), shall be binding on all successors
and assigns of the S Surviving Corporation and shall be enforceable by the
Indemnified Parties.
(c) For a period of six (6) years after the Effective Time of the Mergers,
Playboy shall cause the S Surviving Corporation to maintain in effect, if
available, directors' and officers' liability insurance covering those Persons
who are currently covered by the Company's directors' and officers' liability
insurance policy (a correct and complete copy of which has been made available
to Playboy) on terms comparable to those now applicable to directors and
officers of the Company; PROVIDED, HOWEVER, that in no event shall the S
Surviving Corporation be required to expend in excess of 175% of the annual
premium currently paid by
A-1-34
<PAGE>
the Company for such coverage; and PROVIDED FURTHER, that if the premium for
such coverage exceeds such amount, Playboy or the S Surviving Corporation shall
purchase a policy with the greatest coverage available for such 175% of such
annual premium.
(d) Playboy shall indemnify and hold harmless the Company from and against
any losses, claims (including, without limitation, any third party claims),
damages, expenses or other liabilities or obligations (including, without
limitation, interest, penalties and reasonable fees and expenses (including
costs of investigation and preparation) of attorneys, experts and consultants
incurred in any cause of action, proceeding or arbitration) arising out of or in
connection with the Newco Transactions (including, without limitation, the Newco
Agreements); PROVIDED, HOWEVER, that such losses, claims, damages, expenses or
other liabilities or obligations shall not includes fees and expenses incurred
by the Company in connection with the preparation of the Newco Agreements.
SECTION 5.11 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Playboy and Playboy shall give prompt notice to the Company, of (i)
the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time of the Mergers, (ii) any material failure of the Company or any
of the Playboy Entities, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or any Related Agreement, (iii) any notice of, or other
communication relating to, a default or event which, with notice or lapse of
time or both, would become a default, received by it or any of its subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time of the
Mergers, under any contract or agreement material to the financial condition,
properties, businesses, prospects or results of operations of it and its
subsidiaries taken as a whole to which it or any of its subsidiaries is a party
or is subject, (iv) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement or the Related
Agreements (including, without limitation, the Mergers and the Related
Transactions), or (v) any Playboy Material Adverse Effect (in the case of
Playboy) or Company Material Adverse Effect (in the case of the Company);
PROVIDED, HOWEVER, that the delivery of any notice pursuant to this Section 5.10
shall not cure such breach or non-compliance or limit or otherwise affect the
remedies, if any, available hereunder to the party receiving such notice.
SECTION 5.12 TAX TREATMENT. Each of Playboy, Holdco, Merger Sub P, Merger
Sub S and the Company shall use its reasonable best efforts to cause the Mergers
to qualify as exchanges governed by Section 351 of the Code and to obtain the
opinions of counsel referred to in Sections 6.2(d) and 6.3(c). The Company and
Playboy shall execute and deliver to each of Kramer, Levin, Naftalis & Frankel,
counsel to the Company, and Paul, Weiss, Rifkind, Wharton & Garrison, counsel to
Playboy, certificates executed by authorized officers of the Company and
Playboy, as applicable, as to tax matters in form reasonably satisfactory to
each of Kramer, Levin, Naftalis & Frankel and Paul, Weiss, Rifkind, Wharton &
Garrison, respectively, at such time or times as reasonably requested by such
law firm in connection with its delivery of its opinion referred to in Section
6.2(d) or 6.3(c), as the case may be, and the Company and Playboy shall each
provide a copy thereof to the other party. Prior to the Effective Time of the
Mergers, neither the Company nor Playboy shall take or cause to be taken any
action which would cause to be untrue (or fail to take or cause not to be taken
any action which would cause to be untrue) any of the representations in the
certificates. Following the Effective Time of the Mergers, no party shall, nor
shall any party permit any of its subsidiaries to, take any actions which would,
or would be reasonably likely to, adversely affect the ability of the Mergers to
qualify as exchanges under Section 351 of the Code including, but not limited
to, the liquidation or merger of P Surviving Corporation or S Surviving
Corporation or the issuance of additional shares of Holdco resulting in a "loss
of control" (as defined in Section 368(c) of the Code) by the stockholders of
the Company and the stockholders of Playboy.
SECTION 5.13 COMPANY AFFILIATES. The Company has identified to Playboy on
Schedule 5.13 to this Agreement each Person (each a "COMPANY AFFILIATE") who is,
as of the date hereof, an "affiliate" of the
A-1-35
<PAGE>
Company for the purposes of Rule 145 under the Securities Act. The Company shall
use its best efforts to cause each Company Affiliate to deliver prior to the
Effective Time of the Mergers to Playboy a written agreement (the "AFFILIATE
LETTER") that such Company Affiliate will not sell, pledge, transfer or
otherwise dispose of any shares of New Playboy Class B Common Stock issued to
such Company Affiliate pursuant to the Mergers, except in compliance with Rule
145 promulgated under the Securities Act or an exemption from the registration
requirements of the Securities Act.
SECTION 5.14 SEC AND OTHER GOVERNMENTAL FILINGS. Each of Playboy and the
Company shall promptly provide the other party (or its counsel) with copies of
all filings made by it or any of its subsidiaries with the SEC or any other
local, state, Federal or foreign Governmental Entity in connection with this
Agreement or any of the Related Agreements and the transactions contemplated by
this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions).
SECTION 5.15 RELATED TRANSACTIONS; RELATED AGREEMENTS. (a) The Company shall
(i) take all action necessary to effect (and to cause Subco and the Company
Subsidiaries to effect) the Related Transactions prior to the Effective Time of
the Mergers, and (ii) use its commercially reasonable best efforts to obtain all
consents, approvals, waivers and agreements of Governmental Entities and
nongovernmental third parties necessary or desirable to effect the Related
Transactions. "RELATED TRANSACTIONS" means (X) the contribution by the Company
and, as necessary, one or more Company Subsidiaries, to Subco, of certain assets
and liabilities of the Company or Company Subsidiaries as contemplated by the
Transfer and Redemption Agreement and the other Related Agreements, and (Y) the
distribution by the Company to the holders of outstanding shares of Company
Common Stock and Company Preferred Stock on the date of such distribution of all
of the capital stock of Subco, allocated to each such share of Company Common
Stock on a PRO RATA basis in accordance with the terms of this Agreement and the
Transfer and Redemption Agreement.
(b) The Company shall (i) take all action necessary to enter into the Newco
Agreements and effect the Newco Transactions on the Closing Date prior to the
Effective Time of the Mergers, and (ii) use its commercially reasonable best
efforts to obtain all consents, approvals, waivers and agreements of
Governmental Entities and nongovernmental third parties necessary or desirable
to effect the Newco Transactions. "NEWCO TRANSACTIONS" means the transactions
contemplated by the Newco Agreements.
(c) Prior to the Effective Time of the Mergers, none of the Company, Subco
or the other Company Subsidiaries shall take any action under or as contemplated
by the Related Agreements or the Newco Agreements or otherwise in connection
with the Related Transactions or the Newco Transactions without the prior
consent of Playboy, including, without limitation, taking any action to amend or
otherwise modify any Related Agreement or Newco Agreement or waive any provision
thereof. The Company furthermore agrees that Playboy may, in its sole
discretion, cause the Company to waive any condition of the Company to close the
transactions contemplated by the Related Agreements or the Newco Agreements;
provided that nothing in this Section 5.15(c) shall permit Playboy to cause any
action to be taken by Subco; PROVIDED, FURTHER, that nothing in this Section
5.15(c) shall prevent Subco or the Company on behalf of Subco (in each case
without the consent of Playboy) from waiving any conditions of Subco to close
the transactions contemplated by the Related Agreements.
SECTION 5.16 EMERALD MEDIA OPTION. Neither the Company nor any of the
Company Subsidiaries shall exercise the Company's option to purchase the
outstanding capital stock or assets of Emerald Media, Inc.; provided, however,
that Subco may exercise such option following, and only following, the
consummation of the Related Transactions.
SECTION 5.17 TAX TREATMENT OF RELATED TRANSACTIONS. The Related Transactions
are intended to be treated as (i) a transfer of assets to, and the assumption of
liabilities by, Subco and (ii) a distribution of Subco by the Company that is
taxable both to the Company and to the holders of Company Common Stock that
receive shares of Subco pursuant to the Related Transactions.
A-1-36
<PAGE>
SECTION 5.18 EMPLOYEE BENEFIT PLANS. Playboy agrees that employees of the
Company or any of the Company Subsidiaries shall be given credit under each
employee benefit plan, program, policy or arrangement of the Playboy Entities
(or the S Surviving Corporation) in which the employees are eligible to
participate for all service with the Company and any of the Company Subsidiaries
(to the extent such credit was given by the Company or any of the Company
Subsidiaries) for purposes of eligibility and vesting.
SECTION 5.19 OPTIONAL SERVICES AGREEMENT. Playboy and the Company agree to
use their commercially reasonable efforts to negotiate in good faith the terms
of the Optional Services Agreement referred to in the Mandatory Services
Agreement, as contemplated by Section 12 of the Mandatory Services Agreement.
ARTICLE 6
CONDITIONS TO CONSUMMATION OF THE MERGERS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGERS.
The respective obligations of each party hereto to effect the Mergers and the
other transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Related Transactions) are subject to the
satisfaction at or prior to the Effective Time of the Mergers of the following
conditions:
(a) this Agreement and the Related Agreements shall have been approved and
adopted by the requisite vote of the boards of directors of the Playboy
Entities, the Company Board, the board of directors of any of the Company
Subsidiaries which is a party to any of the Related Agreements, and the
stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restrains, enjoins or restricts the
consummation of the transactions contemplated by this Agreement or the Related
Agreements (including, without limitation, the Mergers and the Related
Transactions) or which subjects any party to substantial damages as a result of
the consummation of the transactions contemplated by this Agreement or the
Related Agreements (including, without limitation, the Mergers and the Related
Transactions);
(c) any Person required in connection with the transactions contemplated by
this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions) to file a notification and report form in
compliance with the HSR Act shall have filed such form and any applicable
waiting period with respect to each such form (including any extension thereof
by reason of a request for additional information) shall have terminated or
expired;
(d) the S-4 and the S-1 shall have become effective under the Securities Act
and shall not be the subject of any stop order or proceedings seeking a stop
order;
(e) all governmental or regulatory notices (other than those in connection
with the HSR Act) or approvals required with respect to the transactions
contemplated by this Agreement or the Related Agreements shall have been either
filed or received; and
(f) the Related Agreements shall have been executed and delivered and the
Related Transactions shall have been consummated in accordance with the terms of
the Related Agreements.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation of
the Company to effect the Mergers and the other transactions contemplated by
this Agreement or the Related Agreements (including, without limitation, the
Related Transactions) is subject to the satisfaction at or prior to the
Effective Time of the Mergers of the following conditions:
(a) the representations and warranties of Playboy, Holdco, Merger Sub P and
Merger Sub S set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and
A-1-37
<PAGE>
warranties of Playboy, Holdco, Merger Sub P and Merger Sub S set forth in this
Agreement that are not so qualified shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Effective
Time of the Mergers, as though made on and as of the Effective Time of the
Mergers, except to the extent the representation or warranty is expressly
limited by its terms to another date or except for changes contemplated by this
Agreement, and the Company shall have received a certificate (which certificate
may be qualified by knowledge to the same extent as the representations and
warranties of Playboy, Holdco, Merger Sub P and Merger Sub S contained herein
are so qualified) signed on behalf of Playboy by an executive officer of Playboy
or signed on behalf of Holdco by an executive officer of Holdco, to such effect;
(b) each of the Playboy Entities shall have obtained the consent, approval
or waiver of each non-governmental Person whose consent, approval or waiver
shall be required in order for such Playboy Entity to consummate the
transactions contemplated by this Agreement or the Related Agreements, except
those for which the failure to obtain such consent, approval or waiver,
individually or in the aggregate, is not reasonably likely to have, a Playboy
Material Adverse Effect and is not reasonably likely to adversely affect the
ability of Playboy to consummate the transactions contemplated by this Agreement
or the Related Agreements;
(c) each of the obligations of the Playboy Entities to be performed at or
before the Effective Time of the Mergers pursuant to the terms of this Agreement
and the Related Agreements shall have been duly performed in all material
respects at or before the Effective Time of the Mergers and at the Closing,
Playboy shall have delivered to the Company a certificate of an executive
officer of Playboy to such effect;
(d) the Company shall have received the opinion of Kramer, Levin, Naftalis &
Frankel, counsel to the Company, dated the Closing Date, to the effect that the
Mergers will be treated for federal income tax purposes as exchanges governed by
the provisions of Section 351 of the Code;
(e) the Company shall have received a certificate, in form and substance
reasonably satisfactory to it, signed by the Secretary of Playboy, certifying
(i) that full and complete copies of the following are attached thereto: (X)
resolutions or similar documents evidencing the authorization and approval by
the Playboy Board and the boards of directors of the other Playboy Entities of
this Agreement and the Related Agreements and the transactions contemplated by
this Agreement or the Related Agreements (including, without limitation, the
Mergers and the Related Transactions), (Y) the Restated Certificate of
Incorporation of Playboy and the Certificates of Incorporation (or other
organizational documents) of each of the Playboy Entities, each as amended to
the date hereof and (Z) such other documents or instruments as the Company may
reasonably request in connection with the transactions contemplated by this
Agreement or the Related Agreement (including, without limitation, the Mergers
and the Related Transactions); and (ii) as to the incumbency and specimen
signature of each representative of Playboy and the other Playboy Entities
signing this Agreement, the Related Agreements and any other document in
connection herewith or therewith;
(f) the New Playboy Class B Common Stock shall be listed for trading on the
NYSE;
(g) the Company shall have received the opinion of a nationally recognized
solvency firm, dated the Closing Date and in form and substance satisfactory to
the Company, to the effect that Subco will be solvent upon consummation of the
Mergers and the Related Transactions;
A-1-38
<PAGE>
(h) contemporaneously with the Closing, all outstanding amounts due under
the Loan and Security Agreement dated as of January 15, 1997, as amended,
between the Company and Darla L.L.C. shall have been repaid; and
(i) since December 31, 1997, no change or event shall have occurred which
has had or could reasonably be expected to result in a Playboy Material Adverse
Effect.
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF PLAYBOY. The obligation of
Playboy to effect the Mergers and the other transactions contemplated by this
Agreement or the Related Agreements (including, without limitation, the Related
Transactions) is subject to the satisfaction at or prior to the Effective Time
of the Mergers of the following conditions:
(a) the representations and warranties of the Company and the Company
Subsidiaries set forth in this Agreement that are qualified as to materiality
shall be true and correct, and the representations and warranties of the Company
set forth in this Agreement that are not so qualified shall be true and correct
in all material respects, in each case as of the date of this Agreement and as
of the Effective Time of the Mergers, as though made on and as of the Effective
Time of the Mergers, except to the extent the representation or warranty is
expressly limited by its terms to another date, and Playboy shall have received
a certificate (which certificate may be qualified by knowledge to the same
extent as the representations and warranties of the Company contained herein are
so qualified) signed on behalf of the Company by an executive officer of the
Company or signed on behalf of a Company Subsidiary, to such effect;
(b) each of the obligations of the Company to be performed at or before the
Effective Time of the Mergers pursuant to the terms of this Agreement and the
obligations of the Company and each other party (other than the Playboy
Entities) to each of the Related Agreements to be performed at or before the
Effective Time of the Mergers pursuant to the terms of each such Related
Agreement shall have been duly performed in all material respects at or before
the Effective Time of the Mergers and at the Closing, the Company shall have
delivered to Playboy a certificate of an executive officer of the Company to
such effect;
(c) Playboy shall have received the opinion of Paul, Weiss, Rifkind, Wharton
& Garrison, counsel to Playboy, dated the Closing Date, to the effect that the
Mergers will be treated for federal income tax purposes as exchanges governed by
the provisions of Section 351 of the Code;
(d) the Company shall have obtained the consent, approval or waiver of each
non-governmental Person whose consent, approval or waiver shall be required in
order for the Company to consummate the transactions contemplated hereby and by
the Related Agreements (including, without limitation, all consents required by
lessors under the Leases and all consents required by either the Company or any
of the Company Subsidiaries under any transponder service agreement, including,
without limitation, the Transponder Services Agreement, dated February 7, 1995,
between the Company and Loral Skynet (as successor to AT&T Corp.), as amended),
except those for which the failure to obtain such consent, approval or waiver,
individually or in the aggregate, is not reasonably likely to have, a Company
Material Adverse Effect (and Playboy shall have received evidence thereof
satisfactory to it);
(e) Playboy shall have received a certificate, in form and substance
reasonably satisfactory to it, signed by the Secretary of the Company,
certifying (i) that full and complete copies of the following are attached
thereto: (X) resolutions or similar documents evidencing the authorization and
approval by the Company Board and the board of directors of the Company
Subsidiaries of this Agreement and the Related Agreements and the transactions
contemplated by this Agreement or the Related Agreements (including, without
limitation, the Mergers and the Related Transactions), (Y) the Certificate of
Incorporation of the Company and the Company Subsidiaries (or other
organizational documents), each as amended to the date hereof and (Z) such other
documents or instruments as Playboy may reasonably request in connection with
the transactions contemplated by this Agreement or the Related Agreement
(including, without limitation, the Mergers and the Related Transactions); and
(ii) as to the incumbency and specimen
A-1-39
<PAGE>
signature of each representative of the Company and the Company Subsidiaries
signing this Agreement, the Related Agreements and any other document in
connection herewith or therewith.
(f) since December 31, 1997, no change or event shall have occurred which
has had or could reasonably be expected to result in a Company Material Adverse
Effect;
(g) the Average Playboy Stock Price shall be equal to or greater than
$13.00;
(h) Playboy shall have received an Affiliate Letter from each of the Company
Affiliates set forth on Schedule 5.13 to this Agreement;
(i) (X) each of the Related Agreements (including, without limitation, all
of the documents to be exercised and delivered in connection with the closing of
the transactions contemplated by the Transfer and Redemption Agreement) shall be
in form and substance satisfactory to Playboy and shall have been duly executed
and delivered; (Y) all of the conditions to the closing of the transactions
contemplated by the Transfer and Redemption Agreement shall have been waived or
satisfied to the satisfaction of Playboy; and (Z) all of the transactions
contemplated by the Related Agreements shall have otherwise been consummated to
the satisfaction of Playboy.
(j) the Company shall have amended, to the extent necessary, the Company
Stock Option Plans and any agreements entered into in connection therewith to
permit the Company to cancel or accelerate all Company Options solely for the
payment provided herein;
(k) the aggregate number of shares of Company Common Stock at the Effective
Time of the Mergers that constitute Dissenting Shares shall be less than 5% of
the shares of Company Common Stock outstanding as of the Effective Time of the
Mergers; and
(l) the Company shall have received the agreements contemplated by Section
2.2(f), and shall have delivered to Playboy evidence of such agreements
satisfactory to Playboy, (i) of all of the holders of Company Options granted
outside the Company Option Plans and (ii) of the holders of at least 95% of the
Company Options granted under the Company Option Plans.
ARTICLE 7
TERMINATION; AMENDMENT; WAIVER; FEES AND EXPENSES
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Mergers
may be abandoned at any time, but prior to the Effective Time of the Mergers,
notwithstanding approval thereof by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Playboy Board and the
Company Board;
(b) by either Playboy or the Company, if the Effective Time of the Mergers
shall not have occurred on or before December 31, 1998; PROVIDED, HOWEVER, that
(i) if the Effective Time of the Mergers has not occurred prior to such date
solely as a result of any Transaction Litigation or suit, action, or proceeding
pending or threatened which could reasonably be expected to result in material
damages to Playboy, the Company, Holdco, the P Surviving Corporation or the S
Surviving Corporation or any of their subsidiaries or Affiliates if the
transactions contemplated hereby (including the Mergers and Related
Transactions) were consummated, then the Company's right to terminate this
Agreement under this Section 7.1(b) shall not be available unless and until the
Effective Time of the Mergers shall not have occurred on or before December 31,
1998; (ii) the Company's right to terminate this Agreement under this Section
7.1(b) shall not be available if the failure of the Company (or any Company
Subsidiary) to effect the Related Transactions shall have been the cause of, or
resulted in, the failure of the Effective Time of the Mergers to occur before
December 31, 1998, other than due to events or circumstances which are beyond
the control of the Company; and (iii) the right to terminate this Agreement
under this Section 7.1(b) shall not be available to the party whose failure to
fulfill any obligation under this Agreement shall have been the cause
A-1-40
<PAGE>
of, or resulted in, the failure of the Effective Time of the Mergers to occur on
or before December 31, 1998;
(c) by either Playboy or the Company, if any final order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement or the Related Agreements
(including, without limitation, the Mergers and the Related Transactions) shall
have been entered by any court of competent jurisdiction or Governmental Entity
and shall have become final and nonappealable;
(d) by either Playboy or the Company, if this Agreement shall fail to
receive the requisite vote for adoption at the Company Stockholders Meeting or
any adjournment or postponement thereof;
(e) by Playboy, upon a breach by the Company of any material representation
or warranty of the Company set forth in this Agreement, or if any such
representation or warranty shall have become untrue (either, a "TERMINATING
COMPANY BREACH"), in either case such that the conditions set forth in Section
6.3(a) could not be satisfied within 30 days of such Terminating Company Breach
upon the Company's exercise of its reasonable best efforts or such breach has
not in any event been cured within 30 days of such Terminating Company Breach;
(f) by the Company, upon breach by Playboy of any material representation or
warranty of Playboy set forth in this Agreement, or if any such representation
or warranty shall have become untrue (either, a "TERMINATING PLAYBOY BREACH"),
in either case such that the conditions set forth in Section 6.2(a) could not be
satisfied within 30 days of such Terminating Playboy Breach upon Playboy's
exercise of its reasonable best efforts or such Terminating Playboy Breach has
not in any event been cured within 30 days of such Terminating Playboy Breach;
(g) by Playboy, upon the breach by the Company of any material covenant or
agreement of the Company set forth in this Agreement which is not able to be
cured within 30 days of such breach upon the Company's exercise of its
reasonable best efforts or has not, in any event, been cured within 30 days of
such breach;
(h) by the Company, upon the breach by Playboy of any material covenant or
agreement of Playboy set forth in this Agreement which is not able to be cured
within 30 days of such breach upon Playboy's exercise of its reasonable best
efforts or has not, in any event, been cured within 30 days of such breach;
(i) by Playboy, if any event happens which could reasonably be expected to
result in a Company Material Adverse Effect;
(j) by the Company, if any event happens which could reasonably be expected
to result in a Playboy Material Adverse Effect; and
(k) by the Company, if the Company Board shall concurrently approve, and the
Company shall concurrently enter into, a definitive agreement providing for the
implementation of the transactions contemplated by a Transaction Proposal;
PROVIDED, HOWEVER, that (i) the Company is not then in breach of Section 5.1,
(ii) the Company Board shall have complied with Section 7.3 in connection with
such Transaction Proposal, and (iii) no termination pursuant to this Section
7.1(k) shall be effective unless the Company shall simultaneously make the
payment required by Section 7.2.
SECTION 7.2 EFFECT OF TERMINATION. (a) In the event that any Person shall
make a Transaction Proposal and thereafter (i) this Agreement is terminated
pursuant to Section 7.1(k), and (ii) a definitive agreement with respect to a
Transaction Proposal is executed, or a Transaction Proposal is consummated, at
or within eighteen months after such termination, then the Company shall pay to
Playboy a fee of $3,000,000, plus the fees and expenses incurred by the Playboy
Entities in connection with the transactions contemplated by this Agreement and
the Related Agreements, which amounts shall be payable by wire transfer of same
day funds on the date such agreement is executed, or such Transaction Proposal
is consummated, as applicable. In the event that any Person shall make a
Transaction Proposal and thereafter (i) this Agreement is
A-1-41
<PAGE>
terminated pursuant to Section 7.1(k), and (ii) no definitive agreement with
respect to a Transaction Proposal is executed, and no Transaction Proposal is
consummated, at or within eighteen months after such termination, then the
Company shall pay to Playboy an amount equal to the fees and expenses incurred
by the Playboy Entities in connection with the transactions contemplated by this
Agreement and the Related Agreements, which amount shall be payable promptly in
cash. The Company acknowledges that the agreements contained in this Section
7.2(a) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Playboy would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 7.2(a), and, in order to obtain such payment, Playboy commences a
suit which results in a judgment against the Company for the fee set forth in
this Section 7.2(a), the Company shall also pay to Playboy its costs and
expenses (including reasonable attorneys' fees, disbursements and other charges)
in connection with such suit.
(b) Except as provided in Sections 7.2(a) and 7.5, in the event of
termination of this Agreement pursuant to Section 7.1, this Agreement, except
for the provisions of Sections 7.2, 7.5 and Article 8, shall forthwith become
void, there shall be no liability under this Agreement on the part of any of
Playboy, any Playboy Subsidiary, the Company or any Company Subsidiary, and all
rights and obligations of each party hereto shall cease, subject to the remedies
of the parties set forth in Section 7.5; PROVIDED, HOWEVER, that nothing herein
shall relieve any party from liability for the wilful breach of any of its
representations and warranties or the breach of any of its covenants or
agreements set forth in this Agreement.
SECTION 7.3 PROCEDURE FOR TERMINATION. The Company shall provide to Playboy
written notice prior to any termination of this Agreement pursuant to Section
7.1(k) advising Playboy (i) that the Company Board, after receipt of advice of
outside legal counsel and a nationally recognized investment banking firm, in
the exercise of its good faith judgment as to its fiduciary duties to the
stockholders of the Company under applicable law, has determined (on the basis
of such Transaction Proposal and the terms of this Agreement, as then in effect)
that such termination is required in connection with a Transaction Proposal that
is more favorable to the stockholders of the Company than the transactions
contemplated by this Agreement (taking into account all terms of such
Transaction Proposal and this Agreement, including all conditions) and (ii) as
to the material terms of any such Transaction Proposal. At any time after two
business days following receipt of such notice, the Company may terminate this
Agreement as provided in Section 7.1(k) only if the Company Board determines
that such proposal is a Qualified Transaction Proposal and is more favorable to
the stockholders of the Company than the transactions contemplated by this
Agreement (taking into account all terms of such Transaction Proposal and this
Agreement, including all conditions, and which determination shall be made in
light of any revised proposal made by Playboy prior to the expiration of such
two business day period) and concurrently enters into a definitive agreement
providing for the implementation of the transactions contemplated by such
Transaction Proposal.
SECTION 7.4 AMENDMENT; EXTENSION; WAIVER. (a) This Agreement may be amended
by action taken by the Company and the Playboy Entities at any time before or
after approval of the Mergers by the stockholders of the Company but, after any
such approval, no amendment shall be made which requires the approval of such
stockholders under applicable law without such approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of the parties
hereto.
(b) At any time prior to the Effective Time of the Mergers, each party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
SECTION 7.5 FEES AND EXPENSES. Except as specifically provided in Sections
7.2 and 7.5, Playboy shall bear its own and, in an amount not in excess of $2.5
million, the Company shall bear its own, the Company Subsidiaries' and Subco's
expenses in connection with this Agreement and the transactions contemplated
A-1-42
<PAGE>
hereby; PROVIDED, HOWEVER, that expenses incurred by the Company, the Company
Subsidiaries and Subco in excess of $2.5 million shall be (as specifically
provided in the Transfer and Redemption Agreement) borne by Subco; PROVIDED
FURTHER, HOWEVER, that if this Agreement is terminated pursuant to any of
Section 7.1(a) through 7.1(i), each of Playboy and the Company shall bear its
own expenses in connection with this Agreement and the Related Agreements and
the transactions contemplated hereby and thereby (including, without limitation,
the Related Transactions). Notwithstanding anything to the contrary contained
herein, (i) the cost of printing and filing the S-4 and the Proxy Statement
shall be borne equally by the Company and Playboy, and (ii) any expenses, other
than legal fees, incurred by the Company in fulfilling its obligations under any
of the Newco Agreements shall be borne by Playboy.
ARTICLE 8
MISCELLANEOUS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall terminate at the Effective Time of
the Mergers or upon the termination of this Agreement pursuant to Section 7.1,
as the case may be, except that the agreements set forth in Article 1, Section
5.9 and Article 7 shall survive the Effective Time of the Mergers, those set
forth in Sections 5.10(d), 7.2 and 7.5 and this Article 8 shall survive
termination of this Agreement and those set forth in Sections 5.10(a), 5.10(b)
and 5.10(c) shall survive for a period of one year after termination of this
Agreement. Each party agrees that, except for the representations and warranties
contained in this Agreement, any Certificate delivered pursuant hereto and the
respective disclosure schedules of Playboy and the Company, no party hereto has
made any other representations and warranties, and each party hereby disclaims
any other representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated hereby, notwithstanding the delivery of disclosure
to any other party or any party's representatives of any documentation or other
information with respect to any one or more of the foregoing.
SECTION 8.2 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a) constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings (other than
the Confidentiality Agreement), both written and oral, between the parties with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise; PROVIDED, HOWEVER, that the Playboy Entities may assign any
or all of their respective rights and obligations under this Agreement to any
wholly-owned Playboy Subsidiary; provided that no such assignment shall relieve
the assigning party of its obligations hereunder. Playboy guarantees the full
and punctual performance by each of the other Playboy Entities of all the
obligations hereunder of the other Playboy Entities, the S Surviving Corporation
and any such assignees.
SECTION 8.3 VALIDITY. If any provision of this Agreement, or the application
thereof to any Person or circumstance, is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
Persons or circumstances, shall not be affected thereby, and, to such end, the
provisions of this Agreement are agreed to be severable.
SECTION 8.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in Person, by cable,
telegram, facsimile or telex, or by registered or certified mail (postage
prepaid, return receipt requested), to the other party as follows:
A-1-43
<PAGE>
<TABLE>
<S> <C>
if to the Playboy Entities: Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
Attention: Howard Shapiro, Esq.
General Counsel
Facsimile: (312) 266-2042
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
Facsimile: (212) 757-3990
if to the Company to: Spice Entertainment Companies, Inc.
536 Broadway
New York, New York 10012
Attention: Daniel Barsky, Esq.
General Counsel
Facsimile: (212) 226-6354
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman, Esq.
Facsimile: (212) 715-8000
</TABLE>
or to such other address as the Person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 8.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and, except as provided in Sections 5.10 and 8.2, nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other Person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 8.6 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party.
SECTION 8.7 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
irreparable damage would result if this Agreement were not specifically
enforced, and they therefore consent that the rights and obligations of the
parties under this Agreement may be enforced by a decree of specific performance
issued by a court of competent jurisdiction. Such remedy shall, however, not be
exclusive and shall be in addition to any other remedies which any party may
have under this Agreement or otherwise.
SECTION 8.8 BROKERS. Except as otherwise provided in Section 7.5, the
Company agrees to indemnify and hold harmless Playboy and Playboy agrees to
indemnify and hold harmless the Company, from and against any and all liability
to which Playboy, on the one hand, or the Company, on the other hand, may be
subjected by reason of any brokers, finders or similar fees or expenses with
respect to the transactions contemplated by this Agreement or any Related
Agreement to the extent such similar fees and expenses are attributable to any
action undertaken by or on behalf of the Company or Playboy, as the case may be.
SECTION 8.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
A-1-44
<PAGE>
SECTION 8.10 INTERPRETATION. The table of contents and headings herein are
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section, schedule, exhibit or
annex, such reference shall be to a Section of or schedule, exhibit or annex to
this Agreement unless otherwise indicated. Where the reference "hereby" or
"herein" appears in this Agreement, such reference shall be deemed to be a
reference to this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
SECTION 8.11 CERTAIN DEFINITIONS. For purposes of this Agreement:
An "AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
"COMPANY STOCK OPTION PLANS" means, collectively, the stock option plans set
forth on Schedule 3.11(a).
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH") means the possession, directly or indirectly or as trustee or executor,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of stock, as trustee or executor, by
contract or credit arrangement or otherwise.
"LIBRARY PICTURES" means any and all audio, visual and/or audio-visual works
of any kind or character, including without limitation motion pictures,
television programs, series, mini-series, pilots, specials, video games,
documentaries, compilations, promotional films, trailers and shorts, whether
animated, live action or both, whether produced for theatrical, non-theatrical,
home video, multi-media, interactive, computer, videogame set, pay-per-view,
television, pay or basic cable, direct broadcast satellite, internet or any
other form of exhibition or distribution now known or hereafter devised,
completed as of the date hereof in which the Company or any of the Company
Subsidiaries owns, is licensed or otherwise possesses any part or all of the
copyrights therein or otherwise has exploitative rights.
"MARK" means a brand name, service mark, trademark, tradename, logo, design
or other word or symbol used to identify the source of goods or services,
whether registered or unregistered, and all registrations and applications for
registration and renewals of any of the foregoing.
"NEWCO" means Califa Entertainment Group, Inc., a California corporation.
"NEWCO AGREEMENTS" means the Asset Purchase Agreement between the Company
and Newco dated the date hereof, and each of the Stock Pledge Agreement and
Guarantee in favor of the Company, the Security Agreement between Newco and the
Company, the Promissory Note made by Newco in favor of the Company, the Services
Agreement (and the Optional Services Agreement, if any) between Newco and Subco,
and the Non-Competition Agreement between Newco and Subco, in each case
substantially in the form of the draft of such document dated May 29, 1998
delivered to the Company and Playboy.
"PATENT" means a patent or patent application, including any divisions,
continuations, continuations-in-part, substitutions or reissues thereof, whether
or not patents are issued on such applications and whether or not such
applications are modified, withdrawn or resubmitted.
"PERSON" means an individual, corporation, partnership, limited liability
company, limited liability partnership, joint venture, association, trust,
unincorporated organization or other entity.
"PLAYBOY STOCK OPTION PLANS" means, collectively, the Playboy Enterprises,
Inc. 1989 Stock Option Plan, the Playboy Enterprises, Inc. 1991 Non-Qualified
Stock Option Plan for Non-Employee Directors, the Playboy Enterprises, Inc. 1995
Stock Incentive Plan, and the 1997 Equity Plan for Non-Employee Directors of
Playboy Enterprises, Inc.
A-1-45
<PAGE>
"REDEMPTION RATIO" means such number as is determined by Subco to be the
number of shares of Subco Common Stock to be issued for each share of Company
Common Stock as part of the Merger Consideration.
SECTION 8.12 GOVERNING LAW AND VENUE. THIS AGREEMENT SHALL BE DEEMED TO BE
MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICT OF LAW PRINCIPLES THEREOF, EXCEPT THAT DELAWARE LAW SHALL APPLY TO THE
EXTENT REQUIRED IN CONNECTION WITH THE EFFECTUATION OF THE MERGERS.
SECTION 8.13 WAIVER OF JURY TRIAL. EACH OF THE PLAYBOY ENTITIES AND THE
COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY.
A-1-46
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C> <C>
PLAYBOY ENTERPRISES, INC.
By /s/ ANTHONY J. LYNN
------------------------------------------------
Name: Anthony J. Lynn
Title: Executive Vice President
NEW PLAYBOY, INC.
By /s/ HOWARD SHAPIRO
------------------------------------------------
Name: Howard Shapiro
Title: Secretary
PLAYBOY ACQUISITION CORP.
By /s/ HOWARD SHAPIRO
------------------------------------------------
Name: Howard Shapiro
Title: Secretary
SPICE ACQUISITION CORP.
By /s/ HOWARD SHAPIRO
------------------------------------------------
Name: Howard Shapiro
Title: Secretary
SPICE ENTERTAINMENT COMPANIES, INC.
By /s/ J. ROGER FAHERTY
------------------------------------------------
Name: J. Roger Faherty
Title: Chairman, Chief Executive Officer and
President
</TABLE>
A-1-47
<PAGE>
APPENDIX A-2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AMENDMENT, dated as of November 16, 1998 (the "AMENDMENT"), to the Agreement
and Plan of Merger, dated as of May 29, 1998 (the "MERGER AGREEMENT"), by and
among Playboy Enterprises, Inc., a Delaware corporation, New Playboy, Inc., a
Delaware corporation, Playboy Acquisition Corp., a Delaware Corporation, and
Spice Acquisition Corp., a Delaware corporation, (collectively, the "PLAYBOY
ENTITIES"), and Spice Entertainment Companies, Inc., a Delaware corporation,
(the "COMPANY").
WHEREAS, the Playboy Entities and the Company have each requested that
certain provisions of the Merger Agreement be amended as provided herein;
WHEREAS, the Playboy Entities and the Company are willing to so amend the
Merger Agreement; and
WHEREAS, all capitalized terms not otherwise defined in this Amendment shall
have the meanings assigned to them in the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and intending to be legally bound hereby, the parties agree as
follows:
1. The sixth WHEREAS clause of the Recitals to the Merger Agreement is
hereby amended by deleting the phrase "a to-be-formed Delaware corporation that
shall be a wholly-owned subsidiary of the Company" and replacing it with the
phrase "Directrix, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company".
2. The Table of Defined Terms to the Merger Agreement is hereby amended by
deleting the term "Subco Warrants".
3. Section 1.2 of the Merger Agreement is hereby amended by deleting the
first sentence thereof and replacing it with the following:
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 7.1 and
subject to the satisfaction or waiver of the conditions set forth in Article
6, the closing of the Mergers (the "CLOSING") shall take place in New York
City at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, (i) on or
prior to March 1, 1999, at such time and date after the date on which the
conditions set forth in Article 6 have been satisfied or waived by the party
or parties entitled to the benefit of such conditions, as Playboy decides in
its sole discretion, (ii) after March 1, 1999, five business days after the
date on which the conditions set forth in Article 6 have been satisfied or
waived by the party or parties entitled to the benefit of such conditions,
or (iii) at such other place, at such other time or date as the parties may
mutually agree.
4. Section 2.2(b) of the Merger Agreement is hereby amended by deleting the
first sentence thereof and replacing it with the following:
Each share of Company Common Stock (other than shares of Company Common
Stock as to which dissenters' rights are exercised and perfected under
Section 262 of the DGCL and Section 2.3(j) or are cancelled pursuant to
Section 2.2(g)) issued and outstanding immediately prior to the Effective
Time of the Mergers shall be converted into and represent the right to
receive in exchange therefor (X) from Holdco, (i) the Cash Consideration (as
defined below), and (ii) the number of fully paid and nonassessable shares
of New Playboy Class B Common Stock equal to the Conversion Ratio (as such
Conversion Ratio may be adjusted in accordance with Section 2.2(c)) (the
"STOCK CONSIDERATION"), and (Y) from the Company (as described in the
Transfer and Redemption Agreement), the number of fully paid and
nonassessable shares of common stock of Subco, par value $.01 per share
("SUBCO COMMON STOCK"), equal to the Redemption Ratio (the "SUBCO
CONSIDERATION"), payable to the holder thereof, without, in the case of the
Cash Consideration, interest thereon, upon surrender of the certificate
representing such share of Company Common Stock to the S Surviving
Corporation;
<PAGE>
PROVIDED, HOWEVER, that each holder of Company Common Stock shall receive,
in lieu of any fractional shares of New Playboy Class B Common Stock that
such holder would otherwise receive pursuant to this Section 2.2(b), cash
equal to the proportionate liquidation value of any such fractional shares
pursuant to terms set forth in Section 2.3; AND FURTHER PROVIDED, that each
holder of Company Common Stock shall receive, in lieu of any fractional
shares of Subco Common Stock that such holder would otherwise receive
pursuant to this Section 2.2(b), one whole share of Subco Common Stock
pursuant to the terms set forth in Section 2.3; AND FURTHER PROVIDED, that
in any event, if, between the date of this Agreement and the Effective Time
of the Mergers, the outstanding shares of Old Playboy Class B Common Stock
shall have been changed, reclassified or converted into a different number
of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination,
conversion or exchange of shares, the Conversion Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, conversion or
exchange of shares.
5. Section 2.2(b) of the Merger Agreement is hereby amended by deleting the
last sentence thereof and replacing it with the following:
For purposes of this Agreement, the term "CASH CONSIDERATION" shall mean
$3.60, plus any additional amount as may be elected by Holdco as provided in
Section 2.2(c)(i).
6. Section 2.2(c) of the Merger Agreement is hereby amended by deleting that
Section 2.2(c) in its entirety and replacing it with the following:
(c) CONVERSION RATIO. For purposes of this Agreement, the term
"CONVERSION RATIO" shall mean 0.1371 or such number as may be calculated by
the next succeeding sentence. In the event that the Average Playboy Stock
Price is either less than $16.042 or greater than $20.488, the Conversion
Ratio shall be subject to adjustment as follows:
(i) if the Average Playboy Stock Price is less than $16.042, then the
Conversion Ratio shall be equal to the quotient obtained by dividing $2.20
by the Average Playboy Stock Price; PROVIDED, HOWEVER, that if the Average
Playboy Stock Price is less than $13.00, then Holdco may, in its sole
discretion, elect to deliver the value of the portion of the Stock
Consideration calculated by multiplying (X) the excess of the Conversion
Ratio over 0.1692 by (Y) the Average Playboy Stock Price by (Z) the
aggregate of the number of shares of Company Common Stock and Company
Convertible Preferred outstanding on the Closing Date and the number of
shares of Company Common Stock subject to Company Options on the Closing
Date, in either shares of New Playboy Class B Common Stock (valued at the
Average Playboy Stock Price) or cash, or any combination thereof; PROVIDED,
that Holdco shall deliver the same amount of shares of New Playboy Class B
Common Stock or cash, or combination thereof, with respect to each share of
Company Common Stock; and
(ii) if the Average Playboy Stock Price is greater than $20.488, the
Conversion Ratio shall be equal to the quotient obtained by dividing $2.81
by the Average Playboy Stock Price.
7. Section 2.2(f)(ii) of the Merger Agreement is hereby amended by deleting
the first sentence thereof and replacing it with the following:
In addition, each Company Option Holder shall receive from the Company
with respect to each share of Company Common Stock subject to such Company
Option against receipt of the Company Option, the number of fully paid and
nonassessable shares of Subco Common Stock equal to the Redemption Ratio, to
be issued in accordance with Section 2.2(b) with respect to each share of
Company Common Stock.
8. Section 2.3(a) of the Merger Agreement is hereby amended by deleting the
third and fourth sentences thereof and replacing them with the following:
A-2-2
<PAGE>
At the Effective Time of the Mergers, the Company shall deposit with the
Exchange Agent, for the benefit of the holders of the shares of Company
Common Stock and Company Convertible Preferred, for exchange in accordance
with this Article 2, through the Exchange Agent, certificates representing
shares of Subco Common Stock in an amount equal to the aggregate number of
shares of Company Common Stock multiplied by the Redemption Ratio, to be
issued pursuant to Section 2.2(b). For purposes of this Agreement, the Cash
Consideration, such shares of New Playboy Class B Common Stock, cash in lieu
of fractional shares of New Playboy Class B Common Stock and such shares of
Subco Common Stock, together with any dividends or distributions with
respect thereto, are hereinafter referred to as the "EXCHANGE FUND" and such
shares of New Playboy Class B Common Stock and Subco Common Stock are
hereinafter collectively referred to as the "S MERGER SECURITIES."
9. Section 2.3(e) of the Merger Agreement is hereby amended by deleting
clause (ii) thereof and replacing it with the following:
(ii) No certificates or scrip evidencing fractional shares of Subco
Common Stock shall be issued upon the surrender for exchange of the Company
Certificates, and such fractional interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Subco. In lieu of any
such fractional share, any fractional interest of a share of Subco Common
Stock shall be rounded up to one (1) share of Subco Common Stock and each
holder of shares of Company Common Stock or Company Convertible Preferred
who would otherwise have been entitled to a fraction of a share of Subco
Common Stock upon surrender of Company Certificates for exchange shall be
entitled to one (1) share of Subco Common Stock on the date of the Effective
Time of the Mergers.
10. Section 5.1(p) of the Merger Agreement is hereby amended by deleting the
figure "$2.5 million" and replacing it with the figure "$2.4 million".
11. Section 6.3(g) of the Merger Agreement is hereby amended by deleting
that Section 6.3(g) in its entirety and replacing it with the following:
(g) the Average Playboy Stock Price shall be equal to or greater than
$13.00; PROVIDED, HOWEVER, that if the Closing Date occurs after December
31, 1998, then the Average PlayBoy Stock Price shall be equal to or greater
than $11.00;
12. Section 7.1(b) of the Merger Agreement is hereby amended by deleting
that Section 7.1(b) in its entirety and replacing it with the following:
(b) by either Playboy or the Company, if the Effective Time of the
Mergers shall not have occurred on or before March 1, 1999; PROVIDED,
HOWEVER, that (i) the Company's right to terminate this Agreement under this
Section 7.1(b) shall not be available if the failure of the Company (or any
Company Subsidiary) to effect the Related Transactions shall have been the
cause of, or resulted in, the failure of the Effective Time of the Mergers
to occur before March 1, 1999, other than due to events or circumstances
which are beyond the control of the Company; and (ii) the right to terminate
this Agreement under this Section 7.1(b) shall not be available to the party
whose failure to fulfill any obligation under this Agreement shall have been
the cause of, or resulted in, the failure of the Effective Time of the
Mergers to occur on or before March 1, 1999;
13. Sections 7.1(e), (f), (g) and (h) of the Merger Agreement are hereby
amended by deleting those Sections in their entirety and replacing them with the
following:
(e) by Playboy, upon a breach by the Company of any material
representation or warranty of the Company set forth in this Agreement, or if
any such representation or warranty shall have become untrue (either, a
"TERMINATING COMPANY BREACH"), in either case such that the conditions set
forth in Section 6.3(a) could not be satisfied by the earlier of (i) 30 days
after such Terminating Company Breach and (ii) March 1, 1999, upon the
Company's exercise of its reasonable best efforts or such
A-2-3
<PAGE>
breach has not in any event been cured by the earlier of (i) 30 days after
such Terminating Company Breach and (ii) March 1, 1999;
(f) by the Company, upon breach by Playboy of any material
representation of warranty of Playboy set forth in this Agreement, or if any
such representation or warranty shall have become untrue (either, a
"TERMINATING PLAYBOY BREACH"), in either case such that the conditions set
forth in Section 6.2(a) could not be satisfied by the earlier of (i) 30 days
after such Terminating Playboy Breach and (ii) March 1, 1999, upon Playboy's
exercise of its reasonable best efforts or such Terminating Playboy Breach
has not in any event been cured by the earlier of (i) 30 days after such
Terminating Playboy Breach and (ii) March 1, 1999;
(g) by Playboy, upon the breach by the Company of any material covenant
or agreement of the Company set forth in this Agreement which is not able to
be cured by the earlier of (i) 30 days after such breach and (ii) March 1,
1999, upon the Company's exercise of its reasonable best efforts or has not,
in any event, been cured by the earlier of (i) 30 days after such breach and
(ii) March 1, 1999;
(h) by the Company, upon the breach by Playboy of any material covenant
or agreement of Playboy set forth in this Agreement which is not able to be
cured by the earlier of (i) 30 days after such breach and (ii) March 1,
1999, upon Playboy's exercise of its reasonable best efforts or has not, in
any event, been cured by the earlier of (i) 30 days after such breach and
(ii) March 1, 1999;
14. Section 7.2(b) of the Merger Agreement is hereby amended by deleting the
phrase "subject to the remedies of the parties set forth in Section 7.5".
15. Section 7.5 of the Merger Agreement is hereby amended by deleting that
Section 7.5 in its entirety and replacing it with the following:
(a) Except as specifically provided in Sections 7.2 and 7.5, Playboy
shall bear its own and, in an amount not in excess of $2.4 million, the
Company shall bear its own, the Company Subsidiaries' and Subco's expenses
in connection with this Agreement and the transactions contemplated hereby;
PROVIDED, HOWEVER, that expenses incurred by the Company, the Company
Subsidiaries and Subco in excess of $2.4 million shall be (as specifically
provided in the Transfer and Redemption Agreement) borne by Subco; PROVIDED
FURTHER, HOWEVER, that if this Agreement is terminated pursuant to any of
Sections 7.1(a) through 7.1(i), each of Playboy and the Company shall bear
its own expenses in connection with this Agreement and the Related
Agreements and the transactions contemplated hereby and thereby (including,
without limitation, the Related Transactions). Notwithstanding anything to
the contrary contained herein, (i) the cost of printing and filing the S-4,
the S-1 and the Proxy Statement shall be borne equally by the Company and
Playboy, and (ii) any expenses, other than legal fees, incurred by the
Company in fulfilling its obligations under any of the Newco Agreements
shall be borne by Playboy. Playboy shall, on or before December 30, 1998,
pay to the law firm of Kramer, Levin, Naftalis & Frankel, counsel to the
Company, the amount of $500,000, on behalf of the Company as partial payment
of the legal fees incurred by the Company in connection with the
transactions contemplated by this Agreement and the Related Agreements;
PROVIDED, HOWEVER, that such amount shall not be included when calculating
the aggregate amount of fees and expenses paid or incurred by the Company
for the purposes of Section 5.1(p) or this Section 7.5.
(b) If this Agreement is terminated for any reason, other than solely
pursuant to Section 7.1(f) or Section 7.1(h), then the Company shall pay a
termination fee in the amount of $500,000 to Playboy as soon as possible
after such termination using the first $500,000 in revenues received by the
Company; AND FURTHER PROVIDED, that the Company shall, if requested by
Playboy in its sole discretion and to the extent not violative of any other
agreement to which the Company is a party, establish, on reasonable terms
and conditions specified by Playboy, a "lock-box" account to facilitate such
repayment.
16. Other than as expressly set forth herein, the Merger Agreement is hereby
ratified and confirmed and shall remain unchanged in all other respects.
A-2-4
<PAGE>
17. The Company Financial Advisor has advised the Company that it will not
change its fairness opinion as a result of the changes made to the Merger
Agreement by this Amendment, and that such advice will be confirmed in writing
and accompanied by an authorization to include a copy of such confirmation in
the Proxy Statement. The Company shall, promptly after receipt, deliver a signed
copy of such confirmation to Playboy.
18. Set forth on Schedule 3.26 is a correct and complete list of all fees
and expenses paid by the Company, the Company Subsidiaries and Subco in
connection with the transactions contemplated by the Merger Agreement and by the
Related Agreements as of the date of this Amendment.
19. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which taken together shall
constitute one and the same instrument.
A-2-5
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be duly
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C> <C>
PLAYBOY ENTERPRISES, INC.
By /s/ HOWARD SHAPIRO
----------------------------------------
Name: Howard Shapiro
Title: Executive Vice President, Law and
Administration, General Counsel and
Secretary
NEW PLAYBOY, INC.
By /s/ HOWARD SHAPIRO
----------------------------------------
Name: Howard Shapiro
Title: Executive Vice President, Law and
Administration, General Counsel and
Secretary
PLAYBOY ACQUISITION CORP.
By /s/ HOWARD SHAPIRO
----------------------------------------
Name: Howard Shapiro
Title: Secretary
SPICE ACQUISITION CORP.
By /s/ HOWARD SHAPIRO
----------------------------------------
Name: Howard Shapiro
Title: Secretary
SPICE ENTERTAINMENT COMPANIES, INC.
By /s/ J. ROGER FAHERTY
----------------------------------------
Name: J. Roger Faherty
Title: Chairman, Chief Executive Officer and
President
</TABLE>
A-2-6
<PAGE>
APPENDIX A-3
FORM OF TRANSFER AND REDEMPTION AGREEMENT
TRANSFER AND REDEMPTION AGREEMENT, dated as of , 1998 (this
"AGREEMENT"), between Spice Entertainment Companies, Inc., a Delaware
corporation ("SPICE", and, collectively with all subsidiaries of Spice other
than Subco, "Transferor"), and Directrix, Inc., a Delaware corporation and
wholly owned subsidiary of Transferor as of the date hereof ("SUBCO").
WHEREAS, Playboy Enterprises, Inc., a Delaware corporation ("PLAYBOY"), and
Spice have entered into an Agreement and Plan of Merger, dated as of May 29,
1998 (the "MERGER AGREEMENT"), wherein, among other things, they have agreed to
merge in accordance with the terms and conditions contained therein.
WHEREAS, all capitalized terms used but not otherwise defined herein shall
have the meanings ascribed to them in the Merger Agreement, or, if not defined
therein, in the Non-Competition Agreement.
WHEREAS, the Merger Agreement provides that Spice distribute, at the
Effective Time of the Mergers, (i) to the holders of shares of common stock, par
value $.01 per share, of Spice (the "SPICE COMMON STOCK") and (ii) to the
holders of shares of Convertible Preferred Stock Series 1997-A of Spice (the
"CONVERTIBLE PREFERRED"), as if such shares of Convertible Preferred had been
converted into shares of Spice Common Stock immediately prior to the Effective
Time of the Mergers, and (iii) the holders of stock options or warrants of
Spice, for each share of Spice Common Stock for which a stock option or warrant
is exercisable, shall be entitled to receive, as part of the Merger
Consideration and in partial exchange therefor, the outstanding common stock,
par value $.01 per share, of Subco (the "SUBCO COMMON STOCK") and, if any,
warrants to purchase shares of Subco Common Stock (the "SUBCO WARRANTS") as part
of the consideration to be given in connection with the Mergers (the
"REDEMPTION").
WHEREAS, for Federal income tax purposes it is intended that the Mergers
qualify as exchanges under Section 351 of the Internal Revenue Code of 1986, as
amended (the "CODE"), and as a redemption under Section 302(b) of the Code.
WHEREAS, it is further contemplated by the Merger Agreement that, prior to
the Redemption, Transferor shall transfer certain assets and liabilities to
Subco in accordance with the terms of this Agreement and the other Related
Agreements.
WHEREAS, accordingly, the Boards of Directors of Spice and Subco have
approved this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto hereby agree as follows:
1. TRANSFER AND ASSIGNMENT OF TRANSFERRED ASSETS.
(a) (i) On the Closing Date immediately prior to the Redemption, subject to
the conditions of this Agreement, Transferor shall transfer, assign, convey and
deliver to, and vest in (collectively, "transfer"), Subco, its successors and
assigns, all of Transferor's right, title and interest with respect to the items
listed on Schedule 1(a)(1) hereto, all as the same shall exist on the Closing
Date, subject to the disposition of any such right, title or interest by
Transferor prior to the Closing Date in accordance with the terms of the Merger
Agreement (collectively, the "Transferred Assets"). For purposes of this
Agreement, the term "Transferred Assets" shall also include the items listed on
Schedule 1(a)(2) hereto, which items shall be transferred to Subco separately
from this Agreement in accordance with the terms of the documents referenced in
such Schedule.
(ii) Notwithstanding anything herein to the contrary, no Transferred
Asset (which is a contract or agreement or any part thereof or any rights or
interests thereunder, other than the Explicit Rights Agreements or the License
Agreements in connection therewith (as such terms are defined in Section 6(a)))
which pursuant to its terms or otherwise by law may not be transferred without
the consent of any party thereto shall be deemed transferred pursuant to this
Agreement unless and until such consent or a
<PAGE>
waiver therefrom is given. If any such consent or waiver is not reasonably
likely to be obtained before the Closing Date, each of Transferor and Subco
agrees (subject to its continuing obligation to attempt to obtain such consents
or waivers prior to Closing in accordance with the terms of the Merger Agreement
and the Related Agreements) to use its reasonable commercial efforts to enter
into any reasonable arrangement (such as subcontracting, sublicensing or
subleasing) designed to provide for Subco as of the Closing Date, on terms at
least as favorable as those Subco would have been entitled to receive had such
consents or waivers been obtained, the benefits under the applicable Transferred
Asset (such rights, title and interests of Subco under such arrangement with
respect to such Transferred Asset, the "REPLACEMENT ASSET"), including, without
limitation, enforcement, at the cost and for the benefit of Subco, of any and
all rights of Transferor against any other party thereto arising out of the
breach or cancellation thereof by such party; PROVIDED that Subco agrees to
assume all liabilities and obligations relating to, or arising out of, such
Replacement Asset ("REPLACEMENT LIABILITIES") (PROVIDED, HOWEVER, that Subco
will not assume any liabilities or obligations in excess of the liabilities or
obligations that would have been assumed had the applicable Transferred Asset
actually been transferred) and to indemnify and hold harmless Transferor (and
any Indemnitees covered by Section 10(b)) for all Losses (as defined in Section
10(a)) arising out of such Replacement Liabilities to the same extent as if such
Replacement Liabilities were included on SCHEDULE 2 as Assumed Liabilities and
were duly assumed by Subco in accordance with the terms hereof (other than for
the costs and expenses incurred by Transferor in order to obtain such consent or
waiver or negotiate such arrangements), including, without limitation, for any
loss or other liability of Transferor arising out of the direct or indirect use
or other exploitation of such Replacement Asset by Subco.
(b) Notwithstanding anything in Section 1(a) to the contrary, there shall be
excluded from the Transferred Assets all of Transferor's right, title or
interest with respect to the items listed on SCHEDULE 1(B) hereto and all other
items not expressly set forth on SCHEDULE 1(A)(1) or SCHEDULE 1(A)(2), which
right, title and interest shall not be transferred to Subco hereunder.
(c) Subco acknowledges that all of the Transferred Assets shall be
transferred to and accepted by Subco in accordance with this Agreement and the
other Related Agreements on the Closing Date in an "as is" condition, free of
any and all warranties or representations by Transferor, express or implied, and
subject to any liens of the Vendor Capital Group (with respect to the portion of
Vendor Capital Lease Agreement included in the Transferred Assets), IBM Credit
Corporation (with respect to the IBM related contracts and agreements included
in the Transferred Assets), or any other liens, encumbrances or agreements
(including sublicenses) in existence on the Closing Date, with respect thereto,
other than the liens of Darla L.L.C. which shall be released in accordance with
Section 6.2 of the Merger Agreement by the Closing Date.
(d) Each of Spice and Subco shall use its reasonable commercial efforts to
cause a Licensor Consent (as defined in the Explicit Rights Agreement) to be
duly executed, prior to Closing, in connection with the Explicit Rights
Agreements for each License Agreement.
1A. CONSIDERATION. In consideration of the transfer of the Transferred
Assets, Subco will (a) assume certain liabilities as described in Section 2
below and (b) issue to Spice, in an amount and on such terms as shall be
determined by Spice, shares of Subco Common Stock, and if so determined by
Spice, Subco Warrants.
2. ASSUMPTION OF LIABILITIES. In connection with the transfer of the
Transferred Assets, on the Closing Date immediately prior to the Redemption,
Subco shall unconditionally assume and undertake to pay, perform and satisfy,
when due, all of the debts, liabilities, commitments and obligations of
Transferor, whether fixed, absolute or contingent, direct or indirect, accrued
or not accrued, monetary or non-monetary, known or unknown, matured or
unmatured, whenever or however arising and whether or not the same would be
required by generally accepted accounting principles to be reflected in
financial statements or disclosed in the notes thereto (each a "LIABILITY" and,
collectively, "LIABILITIES"), set forth on SCHEDULE 2 hereto (collectively, the
"ASSUMED LIABILITIES"). Other than the Assumed Liabilities and subject
A-3-2
<PAGE>
to Section 1(c) and the indemnification provisions contained in Section 1(a)(ii)
and Section 10, Subco shall have no obligation to pay, perform or satisfy any
Liability of Transferor.
3. EMPLOYEES AND EMPLOYEE BENEFIT PLANS.
(a) EMPLOYMENT. Subco will, as of the Closing Date, offer employment to the
employees of Transferor set forth on SCHEDULE 3(A) hereto (the "SUBCO
EMPLOYEES"). Subco shall be entitled to offer employment to any other Person at
any time, subject to certain restrictions set forth in Section 1(d) of the Non-
Competition Agreement.
(b) 401(K) PLANS. Effective as of the Closing Date, Transferor will take
steps necessary to initiate termination of Transferor's 401(k) Plan.
(c) BONUSES. Effective as of the Closing Date, Subco shall assume all
liability for the pro rata portion of the 1998 bonuses payable to Subco
Employees attributable to the period commencing immediately after the Closing
Date and continuing through the end of such year pursuant to the Transferor's
bonus plan.
(d) WORKER'S COMPENSATION. Effective as of the Closing Date, Subco shall
assume all liability for workers' compensation claims by Subco Employees arising
out of events occurring after the Closing Date. Transferor shall continue to be
responsible for all liability for (i) workers' compensation claims by Subco
employees arising out of events occurring on or prior to the Closing Date and
(ii) all workers' compensation claims by all Non-Subco Employees without regard
to the date on which such claims arise.
(e) PRESERVATION OF EMPLOYEE PLANS. No provision of this Agreement shall be
construed as a limitation on the right of Transferor or Subco to amend or
terminate any employee plan which Transferor or Subco would otherwise have under
the terms of such employee plan or otherwise.
(f) SEVERANCE PAYMENTS. Transferor shall retain liability for all (i)
non-contractual severance obligations (other than with respect to former
Transferor employees who are employed by Subco (or EM) at any time within six
months following the Closing) arising in connection with or as a result of the
Mergers and (ii) the other severance obligations set forth on SCHEDULE 3(G)
hereto.
3A. SPECIAL PROVISIONS REGARDING BET AND VENDOR CAPITAL GROUP.
(a) BET. On the Closing Date and as part of the Transferred Assets,
Transferor shall assign to Subco the Agreement for Compressed Transponder
Services effective as of January 1, 1998 between Black Entertainment Television,
Inc. ("BET") and Transferor, as renewed pursuant to a letter dated May 26, 1998
(as extended, the "BET AGREEMENT"), subject to BET's consent to such assignment.
Transferor shall provide one compressed digital stream for the BET service in
accordance with the BET Agreement for the balance of the term of the BET
Agreement at no charge to Subco, PROVIDED, Subco shall be responsible for any
out-of-pocket costs incurred by Transferor in connection with such assignment,
including any costs Transferor may incur for compression of an additional
channel, if any. The BET Agreement expires on November 30, 1998, subject to
BET's rights to extend the term for an additional six months. Notwithstanding
the foregoing, should Transferor wish to use the compressed transponder stream
used by BET for any other purpose, Transferor shall send Subco no less than 60
days prior written notice of its desired use of the compressed transponder
stream. Subco shall cause BET to terminate its use of Transferor's compressed
transponder services on the termination date in accordance with the prior
written notice and Subco shall provide BET with a compressed transponder stream
for BET's use. Subco shall indemnify Transferor for any Losses (as defined in
Section 10(a)) incurred in connection with the BET Agreement in accordance with
the indemnification provision of this Agreement.
(b) VENDOR CAPITAL LEASE GROUP EQUIPMENT LEASE. On the Closing Date and as
part of the Transferred Assets, Transferor shall transfer to Subco the General
Instruments Digicipher II Integrated Encoder System ("ENCODER SYSTEM") leased
from Vendor Capital Group ("VCG") under an equipment lease dated June 24, 1996
("VENDOR CAPITAL LEASE AGREEMENT"). The Vendor Capital Lease Agreement shall be
replaced with two lease agreements, one for the Encoder System and one for the
decoders, with the lease payments
A-3-3
<PAGE>
prorated based on the relative original costs of the Encoder System and the
decoders. Transferor shall retain the entire benefit of the advance lease
payments under the Vendor Capital Lease Agreement and the C/D assigned to VCG as
additional security thereunder. As provided for in the Mandatory Services
Agreement, Transferor shall make service payments for Compression and Encryption
Services (as those terms are defined in the Mandatory Services Agreement) in an
amount equal to the lease payments otherwise payable by Subco for the Encoder
System in accordance with the Vendor Capital Lease Agreement, as modified as
provided for herein. At Subco's election, Subco may exercise the purchase option
for the Encoder System as provided for in the Vendor Capital Lease Agreement in
which event Transferor shall pay Subco an amount equal to the amount which Subco
shall pay to VCG pursuant to the purchase option, and upon exercise of such
purchase option and payment thereunder Subco shall own all right, title and
interest in and to the Encoder System. From the date of Subco's purchase of such
Encoder System until the expiration of the initial term under the Mandatory
Services Agreement, Subco shall continue to provide Compression and Encryption
Services to Transferor, and Transferor shall not be obligated to make any
payments for such Compression and Encryption Services. If Transferor desires to
have Subco provide Compression and Encryption Services after the initial term of
the Mandatory Services Agreement, Subco shall provide such services for a fair
market value service fee to be mutually agreed to by the parties.
4. CLOSING.
(a) CLOSING AND CLOSING DATE. Subject to Section 6, the closing of the
transactions contemplated in this Agreement (the "CLOSING") shall take place in
New York City at the offices of Paul, Weiss, Rifkind, Wharton & Garrison on the
Closing Date, on or prior to the Effective Time of the Mergers.
(b) SPICE DELIVERIES. At the Closing, Spice shall execute and deliver to
Subco the following:
(i) one or more bills of sale and instruments of assignment with respect
to the Transferred Assets in form and substance reasonably satisfactory to
the parties hereto, duly executed by Transferor;
(ii) a transfer agency agreement (the "TRANSFER AGENCY AGREEMENT")
between Spice and Spice's transfer agent (the "TRANSFER AGENT") relating to
the distribution of Subco Common Stock in the Mergers in form and substance
reasonably satisfactory to the parties thereto duly executed by Spice and
the Transfer Agent;
(iii) an assignment and assumption of the Tenth Floor Lease (as defined
below) in form and substance reasonably satisfactory to the parties hereto,
duly executed by Transferor; and
(iv) all such other conveyances, assignments, confirmations, powers of
attorney, and other instruments, duly executed by Transferor, as the parties
hereto shall reasonably determine are necessary, expedient or proper in
order to effectuate the transfer and assignment of the Transferred Assets as
contemplated hereby.
(c) SUBCO DELIVERIES. At the Closing, Subco shall execute and deliver to
Spice the following:
(i) an instrument of assumption with respect to the Assumed Liabilities
in form and substance reasonably satisfactory to the parties hereto, duly
executed by Subco;
(ii) an assignment and assumption of the Tenth Floor Lease (as defined
below) in form and substance reasonably satisfactory to the parties hereto,
duly executed by Subco;
(iii) a certificate or certificates representing shares of common stock
of Subco and warrants, if any, to purchase shares of common stock of Subco,
in the number determined in accordance with Section 5(b)(v), for delivery to
the Exchange Agent; and
A-3-4
<PAGE>
(iv) all such other instruments of assumptions, duly executed by Subco,
as the parties hereto shall reasonably determine are necessary, expedient or
proper in order to effectuate the assumption of the Assumed Liabilities as
contemplated hereby.
5. THE REDEMPTION.
(a) COOPERATION PRIOR TO THE REDEMPTION. As promptly as practicable after
the date hereof, Spice and Subco shall take all such action as may be necessary
or appropriate to fulfill all of the conditions set forth in Section 6 and to
effect the Redemption, including without limitation the specific actions set
forth in clauses (b) and (c) of this Section 5, as applicable.
(b) THE REDEMPTION
(i) Spice and Subco shall prepare and Subco shall file with the SEC a
registration statement on Form S-1 or any other appropriate form (the "S-1")
to effect the registration of the Subco Common Stock and Subco Warrants, if
any, pursuant to the Securities Act and they shall use their best efforts to
cause such registration statement to be declared effective under the
Securities Act.
(ii) Spice and Subco shall cooperate in preparing, filing with the SEC
and causing to become effective any registration statements or amendments
thereto which are appropriate to reflect the establishment of, or amendments
to, any employee benefit and other plans contemplated in this Agreement to
be in effect for Subco.
(iii) Spice and Subco shall take all such action as may be necessary or
appropriate under any applicable state securities or blue sky laws or other
applicable laws in connection with the transactions contemplated in this
subsection (b).
(iv) Spice and Subco shall prepare, and Subco shall file and seek to
make effective, an application to permit listing or quotation of the Subco
Common Stock and the Subuco Warrants, if any, on the Nasdaq Small Cap
Market.
(v) Subject to Section 6, on the Closing Date, Spice shall deliver to
the Exchange Agent one or more share certificates representing the
outstanding shares of Subco Common Stock (and Subco Warrants, if any) to be
distributed as part of the Merger Consideration in the Mergers and shall
instruct the Exchange Agent, in accordance with the terms of the Merger
Agreement, to distribute to each holder of Spice Common Stock (other than
those whose shares shall be canceled pursuant to Section 2.2(g) of the
Merger Agreement or those who have exercised and perfected dissenters'
rights under Section 262 of the DGCL and Section 2.3(j) of the Merger
Agreement), as of the Effective Time of the Mergers, and for each share of
Spice Common Stock held, the number of shares of Subco Common Stock equal to
the Redemption Ratio and the number of Subco Warrants, if any, to be
delivered pursuant to Section 2.2 of the Merger Agreement with respect to
each such share of Spice Common Stock. Spice shall also deliver to the
Exchange Agent the number of shares of Subco Common Stock (and Subco
Warrants, if any) that each holder of Convertible Preferred would be
entitled to receive if the shares of Convertible Preferred were converted
into Spice Common Stock immediately prior to the Effective Time of the
Mergers. Spice shall also deliver to the Exchange Agent the number of shares
of Subco Common Stock and Subco Warrants, if any, that each holder of stock
options or warrants of Spice would be entitled to receive if the stock
options or warrants were exercised for Spice Common Stock, and the exercise
price for such stock options or warrants were paid, immediately prior to the
Effective Time of the Mergers. Subco agrees to provide all share
certificates that the Exchange Agent shall require in order to effect such
Redemption. All shares of Subco Common Stock issued in the Mergers shall be
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Such distribution of Subco Common Stock (and Subco
Warrants, if any,) in the Mergers shall be in partial exchange for such
shares of Spice Common Stock and the Convertible Preferred, shall constitute
part of the Merger Consideration under the Merger
A-3-5
<PAGE>
Agreement, and shall be considered a redemption of such Spice Common Stock
and the Convertible Preferred for tax purposes.
(vi) Immediately upon consummation of the Redemption, each share of
Subco Common Stock owned by Spice shall automatically and without any action
on the part of Spice, be canceled and retired and cease to exist, so that
Spice shall not hold or beneficially own directly or indirectly any shares
of Subco Common Stock or any other capital stock or securities of Subco.
(c) SPICE APPROVAL OF CERTAIN SUBCO ACTIONS. Unless otherwise provided in
this Agreement, Spice shall cooperate with Subco in effecting, and, if so
requested by Subco, Spice shall, as the sole stockholder of Subco, ratify any
actions that are reasonably necessary or desirable to be taken by Subco to
effectuate, prior to the Closing Date, the transactions contemplated in this
Agreement in a manner consistent with the terms of this Agreement, including,
without limitation, the following: (i) the preparation and approval of the
Certificate of Incorporation and By-laws of Subco to be in effect at the Closing
Date; (ii) the election or appointment of directors and officers of Subco to
serve in such capacities commencing on the Closing Date; and (iii) the
registration under applicable securities laws of any securities of Subco issued
or distributed pursuant to subsection (b) above.
6. CONDITIONS.
(a) GENERAL CONDITIONS. The respective obligations of the parties hereto to
consummate the Redemption and to perform all other obligations set forth herein
are subject to the satisfaction or waiver of the following conditions:
(i) an Explicit Rights Agreement, substantially in the form of EXHIBIT
6(A)(I) hereto (an "EXPLICIT RIGHTS AGREEMENT"), with respect to the license
agreements listed on SCHEDULE 6(A)(I) hereto (the "LICENSE AGREEMENTS"),
other than such License Agreements for which a Licensor Consent has not been
duly executed, shall have been duly executed by all of the parties thereto;
(ii) the Owned Rights Agreement, substantially in the form of EXHIBIT
6(A)(II) hereto (the "OWNED RIGHTS AGREEMENT") shall have been duly executed
by all of the parties thereto; and
(iii) if the Newco Transactions shall have been consummated, the
Mandatory Services Agreement shall have been duly executed by the parties
thereto, and if the Newco Transactions shall not have been consummated, the
Mandatory Services Agreement, as modified to provide that Subco shall
provide the Satellite Services (as defined in the Mandatory Services
Agreement) for a minimum of three (3), rather than two (2), networks, shall
have been duly executed by the parties thereto.
(b) CONDITIONS TO THE OBLIGATIONS OF SPICE. The obligations of Spice to
consummate the Redemption and to perform all other obligations set forth herein
are subject to the satisfaction or waiver of the following conditions:
(i) Subco shall have effected its assumption of the Assumed Liabilities,
as contemplated in Section 2;
(ii) Playboy shall have received a certificate in form and substance
reasonably satisfactory to Playboy, executed as of the Effective Time of the
Mergers by the President of Subco on behalf of Subco, certifying that all of
the conditions to be performed by Subco or Transferor contained in this
Section 6 and all of the covenants and agreements to be performed prior to
or at Closing by Subco or Transferor, shall have been duly satisfied,
performed or waived in accordance with the terms of this Agreement, and that
the covenants and agreements contained in Section 5.15(b) of the Merger
Agreement shall have been duly performed in accordance with the terms of
such Section;
(iii) effective as of the Closing Date, Transferor shall have received
all reasonably necessary or desirable releases (including, without
limitation, releases of any liens or other encumbrances on the assets to be
retained by Transferor under the Related Agreements) in connection with any
debt, financing or other similar obligations to be transferred to Subco
pursuant to the Related Agreements,
A-3-6
<PAGE>
a complete and accurate list of which is set forth by Subco on SCHEDULE
6(B)(III) hereto, including, without limitation, such releases duly executed
and delivered by IBM Credit Corporation and the Vendor Capital Group;
(iv) [intentionally omitted];
(v) effective as of the Closing Date, Transferor shall have been removed
as guarantor of or obligor for any indebtedness or other obligations for
which Subco would be primarily liable after giving effect to the
transactions contemplated hereby, a complete and accurate list of all such
guaranties or other obligations being set forth by Subco on SCHEDULE 6(B)(V)
hereto;
(vi) (A) effective as of the Closing Date, all of the contracts and
agreements made solely between Transferor and EM (or any of its subsidiaries
or affiliates), a complete and accurate list of which is set forth by Subco
on SCHEDULE 6(B)(VI)(A)hereto, shall have been terminated or assigned in
their entirety (including all rights, interests and obligations thereunder)
from Transferor to Subco;
(B) effective as of the Closing Date, all of the contracts and
agreements among EM (or any of its subsidiaries or affiliates), Transferor
and any third party, a complete and accurate list of which is set forth by
Subco on SCHEDULE 6(B)(VI)(B)hereto, shall have been terminated or assigned
in their entirety (including all rights, interests and obligations
thereunder) from Transferor to Subco; and
(C) effective as of the Closing Date, all of the contracts and
agreements solely among EM and third parties and all other contracts and
agreements of EM referred to in clauses (A) and (B) of this Section 6(b)(vi)
which would violate the Non-Competition Agreement (including through the
performance of any obligation thereunder), a complete and accurate list of
which is set forth by Subco on SCHEDULE 6(B)(VI)(C) hereto, shall have been
terminated (including all rights, interests and obligations thereunder) or
amended to the extent necessary so that such contracts or agreements would
no longer be in violation of the Non-Competition Agreement;
(vii) effective as of the Closing Date, all contracts and agreements
which obligate Transferor to provide any programming, services or other
obligations, the content of which would generally be considered "explicit"
in the adult industry (including, without limitation, any obligations to
provide any programming which is similar in content and degree of
explicitness to the movies and related programming currently featured on the
C-Band channels maintained by EM) (collectively, "EXPLICIT OBLIGATIONS"), a
complete and accurate list of which is set forth by Subco on SCHEDULE
6(B)(VII) hereto, shall have been (x) terminated or assigned in their
entirety (including all rights, interests and obligations thereunder) to
Subco pursuant to the Related Agreements, or (y) terminated or assigned
(including all rights, interests and obligations thereunder) insofar as they
relate to the provision of such Explicit Obligations to Subco pursuant to
the Related Agreements;
(viii) effective as of the Closing Date, the Transponder Services
Agreement, dated as of February 7, 1995 (including any amendments thereto),
between Loral Skynet (as successor in interest to AT&T) and Transferor (the
"TRANSPONDER SERVICES AGREEMENT") shall have been terminated and replaced by
two new similar and separate agreements between Loral Skynet and Spice (or,
if the Newco Transactions shall have been consummated, Newco), on the one
hand, with respect to the "platinum" transponder 7 which had been covered by
the Transponder Services Agreement (the "NEWCO TRANSPONDER"), and Loral
Skynet and Subco, on the other hand, with respect to the remaining
transponders which had been covered by the Transponder Services Agreement,
in each case in a manner satisfactory to Spice, so that, among other things,
following the Closing Date Transferor (or if the Newco Transactions shall
have been consummated, Transferor and Newco) shall have no liabilities or
other obligations with respect to such remaining transponders and Subco
shall have no liabilities or other obligations with respect to the Newco
Transponder;
(ix) effective as of the Closing Date, the Vendor Capital Lease, shall
have been terminated and replaced by two new similar and separate agreements
between Vendor Capital Group and Transferor,
A-3-7
<PAGE>
on the one hand, with respect to the "decoders" which had been covered by
the Vendor Capital Lease Agreement, and Vendor Capital Group and Subco, on
the other hand, with respect to the Encoder System in accordance with
Section 3A(b) hereof;
(x) effective as of the Closing Date, (a) the Lease, dated February 13,
1995 (including any amendments thereto), between Transferor, as tenant, and
Schack & Schack Real Estate Co., as landlord, covering the Tenth (10th)
Floor of the building known as 536 Broadway, New York, New York (the "Tenth
Floor Lease") shall have been amended, so that Paragraph 75 of the Tenth
Floor Lease (which provides for a cross-default between the Tenth Floor
Lease and any other lease between Transferor and the landlord under the
Tenth Floor Lease) shall be deleted in its entirety, and (b) all other
leases of space by Transferor, as tenant, in the buildings known as 532
Broadway and 536 Broadway, shall have been amended so that the cross default
provision which is set forth in Paragraph 75 of the Tenth Floor Lease and
which is deemed included in any other lease previously signed by Transferor
and the landlord under the Tenth Floor Lease, shall be deleted from such
other leases, in each case, in a manner satisfactory to Spice;
(xi) all other consents, approvals and other items referenced in Section
7(c) shall have been duly obtained, including those listed on SCHEDULE 7(C)
hereto, and all waiting periods shall have expired or otherwise terminated
without any adverse effect upon any of the parties hereto;
(xii) the representations and warranties of Subco set forth in this
Agreement shall be true and correct as of the date of this Agreement and as
of the Closing Date, as though made on and as of the Closing Date; and
(xiii) Subco shall have delivered to Transferor a certificate (in form and
substance reasonably satisfactory to Transferor), dated the Closing Date and
signed by the Secretary of Subco, certifying (A) that full and complete
copies of the following documents are attached thereto: (x) the Certificate
of Incorporation and By-laws of Subco as in effect on the Closing Date and
(y) resolutions of the Board of Directors of Subco authorizing and approving
this Agreement, the Related Agreements and the transaction contemplated
thereby; and (B) as to the incumbency and specimen signature of each officer
of Subco signing this Agreement and the Related Agreements.
(c) CONDITIONS TO THE OBLIGATIONS OF SUBCO. The obligations of Subco to
consummate the transactions contemplated herein and to perform all other
obligations set forth herein are subject to the satisfaction or waiver of the
following conditions:
(i) that Transferor shall have transferred to Subco the Transferred
Assets, as contemplated in Sections 1(a)(i), (b) and (c);
(ii) that any failures to obtain any consents or waivers, or to make any
arrangements, in each case, which were contemplated in Section 1(a)(ii), by
the Closing Date is not reasonably likely to have, individually or in the
aggregate, an effect in, on or relating to the business of Subco that is, or
is reasonably likely to be, materially adverse to the business, assets
(including intangible assets), liabilities (contingent or otherwise),
condition (financial or otherwise), prospects or results of operations of
Subco, other than (A) any effect arising out of general economic conditions
in the United States or (B) a change in the market price of Subco Common
Stock not accompanied by one or more other effects of the type described
above in this clause (ii) (a "SUBCO MATERIAL ADVERSE EFFECT");
(iii) that any failure to obtain any Licensor Consents is not reasonably
likely to have, individually or in the aggregate, a Subco Material Adverse
Effect;
(iv) that all liens imposed in connection with the Darla L.L.C. credit
facility of Transferor shall have been released in connection with the
satisfaction of such facility contemplated by Section 6.2 of the Merger
Agreement; and
A-3-8
<PAGE>
(v) if the Newco Transactions shall have been consummated, the
Non-Competition Agreement (as defined in the Asset Purchase Agreement
included in the Newco Agreements) shall have been duly executed and
delivered by the parties thereto.
7. REPRESENTATIONS AND WARRANTIES OF SUBCO. Subco represents and warrants
as follows:
(a) CORPORATE EXISTENCE AND POWER. Subco is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and it has the requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement and each Related Agreement to which
it is or will be a party. Subco was organized on July 20, 1998, and since such
date has engaged in no business other than activities relating to its
organization and the transactions contemplated by this Agreement and the other
Related Agreements.
(b) AUTHORIZATION; NO CONTRAVENTION. The execution, delivery and performance
by Subco of this Agreement, the other Related Agreements to which it is or will
be a party and the transactions contemplated hereby and thereby (x) have been
duly authorized by all necessary corporate action of Subco, (y) do not
contravene the terms of the certificate of incorporation or by-laws of Subco or
any note, bond, lease, license, contract, agreement or other instrument or
obligation to which Subco is a party or by which it or any of its respective
properties or assets may be bound, and (z) do not violate any judgment,
injunction, writ, award, decree or order of any nature of any Governmental
Entity against, or binding upon, Subco or any law or regulation applicable to
Subco.
(c) GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Schedule 7(c) sets
forth each approval, consent, compliance, exemption, permit, license,
authorization or other action by, or notice to, or filing with, any Governmental
Entity or any other Person, and each waiting period under any applicable law or
otherwise, which is necessary or required in connection with the execution,
delivery and performance by Transferor or Subco of this Agreement, the other
Related Agreements and the transactions contemplated hereby and thereby.
(d) BINDING EFFECT. This Agreement has been, and each other Related
Agreement to which Subco is or will be a party will be, duly executed and
delivered by Subco; and this Agreement constitutes, and each other Related
Agreement to which Subco is or will be a party will constitute, the legal, valid
and binding obligation of Subco enforceable against Subco in accordance with its
terms.
8. LITIGATION.
(a) With respect to any action, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal (collectively,
any "ACTION") now pending or which may hereafter be commenced or threatened
relating to or arising from the Assumed Liabilities which may result in
liability for Transferor (and/or its successors in interest, affiliates and
employees, as the case may be), Transferor and Subco shall each use its best
efforts to have Subco or a Subco subsidiary substituted as parties to such
Action in the place of and for Transferor (and/or such other parties, as the
case may be) and to have Transferor (and/or such other parties, as the case may
be) removed as parties to such Action following the Closing Date.
(b) With respect to all Actions now pending or which may hereafter be
commenced or threatened relating to or arising from any liabilities or
obligations of Transferor not assumed by Subco pursuant to Section 2 hereof
which may result in liability for Subco (and/or its successors in interest,
affiliates and employees, as the case may be), Transferor and Subco shall each
use its best efforts to have Transferor substituted as a party to such Action in
the place of and for Subco (and/or such other parties, as the case may be) and
to have Subco (and/or such other parties, as the case may be) removed as parties
to such Action following the Closing Date.
(c) At all times from and after the Closing Date, each of the parties hereto
shall use reasonable efforts to make available to the other upon written request
its and its subsidiaries' officers, directors, employees and agents as witnesses
to the extent that such persons may reasonably be required in
A-3-9
<PAGE>
connection with any Actions in which the requesting party may from time to time
be involved without reimbursement for such persons' salaries (but with
reimbursement for such persons' reasonable travel and other similar expenses
incurred pursuant to this Section 8(c)), and which relate to the business of
Transferor as it existed prior to the Closing.
9. ADMINISTRATIVE MATTERS.
(a) PROVISION OF CORPORATE RECORDS. Each of the parties hereto shall use its
best efforts to arrange, as soon as practicable following the Closing Date, for
the delivery to the other party of the Transferor Documents or Subco Documents
(each, as defined in the Schedules hereto), as the case may be. Except as
otherwise required by law or agreed to in writing, each of Transferor and Subco
shall retain all information relating to the business, assets or liabilities of
Transferor or Subco as they existed prior to the Closing in its possession or
under its control until such information is at least five years old except that
if, prior to the expiration of such period, any of them wishes to destroy or
dispose of any such information that is at least three years old, prior to
destroying or disposing of any of such information, (i) Transferor or Subco
shall provide no less than 30 days prior written notice to the other party,
specifying the information proposed to be destroyed or disposed of, and (ii) if,
prior to the scheduled date for such destruction or disposal, the other party
requests in writing that any of the information proposed to be destroyed or
disposed of be delivered to such other party, such party promptly shall arrange
for the delivery of the requested information to a location specified by, and at
the expense of, the requesting party. For purposes of this Section 9,
"information" shall mean all records, books, subscriptions, contracts,
instruments, computer data and other data and information.
(b) ACCESS TO INFORMATION. From and after the Closing Date, each of the
parties hereto shall afford to the other and its authorized accountants, counsel
and other designated representatives reasonable access and duplication rights
(at the requesting party's expense) during normal business hours and upon
reasonable advance notice, subject to appropriate restrictions for classified
information, to all information within the possession or control of such party
and its subsidiaries, to the extent relating to the business, assets or
liabilities of Transferor or Subco as it existed prior to the Closing, insofar
as such access is reasonably required by the other party. Without limiting the
foregoing, information may be requested under this Section 9(b) for audit,
accounting, claims, litigation and tax purposes, as well as for purpose of
fulfilling disclosure and reporting obligations.
(c) COOPERATION WITH RESPECT TO GOVERNMENT FILINGS AND REPORTS. Each of the
parties hereto agrees to provide the other party with such cooperation and
information as may be reasonably requested by the other in connection with the
preparation or filing of any government report or other government filing, or in
conducting any other government proceeding, relating to events prior to the
Closing Date. Such cooperation and information shall include, without
limitation, promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any government authority to the
appropriate party. Each party shall make its employees and facilities available
during normal business hours and on reasonable prior notice to provide
explanation of any documents or information provided hereunder.
(d) CORRESPONDENCE. Spice hereby authorizes Subco, on and after the Closing
Date, to receive and open mail addressed to Transferor and to deal with the
contents thereof in a responsible manner, provided that such mail relates (or
reasonably appears to relate) to the Subco Business, the Transferred Assets or
the Assumed Liabilities. Subco shall deliver to Spice any mail which relates to
any other matter addressed to Transferor which is delivered to and received by
Subco. Subco hereby authorizes Transferor, on and after the Closing Date, to
receive and open mail addressed to Subco and to deal with the contents thereof
in a responsible manner, provided that such mail relates (or reasonably appears
to relate) to such other matters. Transferor shall deliver to Subco any mail
which relates to the Subco Business, the Transferred Assets or the Assumed
Liabilities addressed to Subco which is delivered to and received by Transferor.
A-3-10
<PAGE>
(e) SETTLEMENT FOR CASH COLLECTIONS AND DISBURSEMENTS. For each calendar
month, commencing with the month in which the Closing occurs and continuing
until determined by the parties no longer to be necessary, each of Subco and
Spice shall cause all cash collections and cash disbursements received by Subco
for the benefit of Transferor, or by Transferor for the benefit of Subco, as the
case may be, during the relevant month to be remitted to the party entitled to
the benefit thereof as promptly as reasonably possible after the receipt
thereof. Subject to the foregoing sentence, each of Transferor and Subco shall
pay to the other, if and when received, any amounts which shall be received
after the Closing Date for the benefit of such other party.
10. INDEMNIFICATION.
(a) OBLIGATION OF SPICE TO INDEMNIFY. Spice shall indemnify, defend and hold
harmless Subco (and any of its directors, representatives, officers, employees,
affiliates, subsidiaries, successors and assigns) from and against any losses,
claims (including, without limitation, any third party claims), damages,
expenses or other liabilities or obligations ("LOSSES") (including, without
limitation, interest, penalties and reasonable fees and expenses (including
costs of investigation and preparation) of attorneys, experts and consultants
incurred by any such indemnified party in any action or proceeding between such
indemnified party and such indemnifying party or between such indemnified party
and any third party) arising out of or in connection with (i) a breach by Spice
of any covenant or agreement to be performed by it after Closing contained in
this Agreement, any other Related Agreement to which it is a party or in any
document or other writing delivered pursuant hereto or thereto, (ii) any
Liability of Transferor not intended to be assumed by Subco pursuant to Section
2, and (iii) any untrue statement or alleged untrue statement of a material fact
contained in the S-1, S-4 or in the Proxy Statement, or any omission or alleged
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 S-1, S-4 or the Proxy Statement.
(b) OBLIGATION OF SUBCO TO INDEMNIFY. Subco shall indemnify, defend and hold
harmless Spice (and any of its directors, representatives, officers, employees,
affiliates, successors (including the S Surviving Corporation), subsidiaries and
assigns) from and against any Losses (including, without limitation, interest,
penalties and reasonable fees and expenses (including costs of investigation and
preparation) of attorneys, experts and consultants incurred by any such
indemnified party in any action or proceeding between such indemnified party and
such indemnifying party or between such indemnified party and any third party)
arising out of or in connection with (i) a breach by Subco of any
representation, warranty, certification, covenant or agreement contained in this
Agreement, any other Related Agreement to which it is a party, or in any
document or other writing delivered pursuant hereto or thereto (including,
without limitation, any certificate delivered pursuant to this Agreement or any
other Related Agreement), (ii) a breach by Spice of any covenant or agreement to
be performed by it at or prior to Closing contained in this Agreement, any other
Related Agreement to which it is a party, or in any document or other writing
delivered pursuant hereto or thereto, (iii) any Assumed Liabilities, and (iv)
any untrue statement or alleged untrue statement of a material fact contained in
the S-1, S-4 or in the Proxy Statement, or any omission or alleged 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 Subco or Transferor relating to Subco and contained in or
omitted from the S-1, S-4 or the Proxy Statement.
(c) NOTICE TO INDEMNIFYING PARTY. If any Person entitled to indemnification
hereunder (the "INDEMNITEE") receives written notice of any third party claim or
potential claim or the commencement of any action or proceeding that could give
rise to an obligation on the part of any other Person (the "INDEMNIFYING PARTY")
pursuant to Section 10(a) or 10(b), the Indemnitee shall promptly give the
Indemnifying Party notice thereof (the "INDEMNIFICATION NOTICE"); PROVIDED,
HOWEVER, that the failure to give the Indemnification Notice promptly shall not
impair the Indemnitee's right to indemnification in respect of such claim,
A-3-11
<PAGE>
action or proceeding unless, and only to the extent that, the lack of prompt
notice results in the Indemnifying Party's forfeiture of substantive rights or
defenses. The Indemnification Notice shall contain factual information
describing the asserted claim, action or proceeding in reasonable detail (to the
extent known to the Indemnitee) and shall include copies of any notice or other
document received from any third party in respect of any such asserted claim,
action or proceeding. The Indemnifying Party shall have the right to assume the
defense of a third party claim, action or proceeding described in this Section
10(c) at its own cost and expense and with counsel of its own choosing;
provided, however, that the Indemnifying Party acknowledges in writing (at the
time it elects to assume the defense of such claim, action or proceeding, which
shall be not later than thirty (30) days after the date of the Indemnification
Notice) its obligation under this Section 10(c) to indemnify the Indemnitee with
respect to such claim, action or proceeding; such counsel is reasonably
satisfactory to the Indemnitee; the Indemnitee is kept reasonably informed of
all developments and is furnished copies of all papers; the Indemnitee is given
the opportunity, at its option, to participate in, but not control, at its own
cost and expense and with counsel of its own choosing the defense of such claim,
action or proceeding; and the Indemnifying Party diligently prosecutes the
defense of such claim, action or proceeding. In the event that all of the
conditions of the foregoing provision are not satisfied, the Indemnitee shall
have the right, without impairing any of its rights to indemnification as
provided herein, to assume and control the defense of such claim, action or
proceeding and to settle such claim, action or proceeding. No settlement of any
such third party claim, action or proceeding shall be made by the Indemnifying
Party without the prior written consent of the Indemnitee (which shall not be
unreasonably withheld or delayed). No settlement of any such third party claim,
action or proceeding shall be made by the Indemnitee if the Indemnifying Party
shall have assumed the defense thereof and shall be in compliance with its
obligations with respect thereto as set forth above in this Section 10(c). If
the Indemnifying Party chooses to defend any claim, the Indemnitee shall make
available to the Indemnifying Party any books, records or other documents within
its control that are necessary or appropriate for such defense. Notwithstanding
the foregoing, the Indemnitee shall have the right to employ separate counsel at
the Indemnifying Party's expense and to control its own defense of such asserted
liability if in the opinion of counsel to such Indemnitee a conflict or
potential conflict exists between the Indemnifying Party and such Indemnitee
that would make such separate representation advisable.
(d) CERTAIN LIMITATIONS. The amount of any Losses for which indemnification
is provided under this Agreement shall be net of any amounts actually recovered
by the Indemnitee from third parties (including, without limitation, amounts
actually recovered under insurance policies other than pursuant to retrospective
or other self-insurance type policies) with respect to such Losses. Any
Indemnifying Party hereunder shall be subrogated to the rights of the Indemnitee
upon payment in full of the amount of the relevant Loss. An insurer who would
otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto. If any
Indemnitee recovers an amount from a third party in respect of any Loss for
which indemnification is provided under this Agreement after the full amount of
such Loss has been paid by an Indemnifying Party or after an Indemnifying Party
has made a partial payment of such Loss and the amount received from the third
party exceeds the remaining unpaid balance of such Loss, then the Indemnitee
shall promptly remit to the Indemnifying Party the excess (if any) of (i) the
sum of the amount theretofore paid by the Indemnifying Party in respect of such
Loss plus the amount received from the third party in respect thereof, less (ii)
the full amount of such Loss.
11. TAX MATTERS.
(a) Except as may otherwise be agreed by the parties, Transferor shall be
liable for, and shall indemnify and hold Subco harmless from and against, all
liability for Taxes imposed by any governmental authority (i) on Transferor that
Subco pays, otherwise satisfies in whole or in part, or results in liens or
encumbrances on any assets of Subco, and (ii) on Subco in respect of its income,
business, property or operations or for which Subco may otherwise be liable, for
taxable years ending on or prior to the Closing Date, including without
limitation any Taxes arising as a result of the transactions contemplated hereby
and
A-3-12
<PAGE>
under the Merger Agreement and other Related Agreements. All Taxes of Subco for
which Transferor is not required to indemnify Subco pursuant to the foregoing
sentence shall be the obligation of Subco, and Subco shall be liable for, and
shall indemnify and hold Transferor and its subsidiaries harmless from and
against, all such liabilities. The parties hereto agree to take all actions
necessary to ensure that there are no taxable years of Subco that include, but
do not end on, the Closing Date. As used herein, the term "TAXES" means all
federal, state, local and foreign taxes, including, without limitation, income,
profits, franchise, employment, transfer, withholding, property, excise, sales
and use taxes (including interest and penalties thereon and additions thereto).
(b) Any refunds of taxes or any credit against Taxes of Subco with respect
to any taxable years or portions thereof ending on or prior to the Closing Date
shall be for the account of Transferor. Subco shall promptly forward to, or
reimburse Transferor for, any such refunds or credits and interest due
Transferor after receipt thereof. Each party hereto shall cooperate with the
other party as reasonably requested in making such filings as may be necessary
and appropriate to seek any such refunds or credits.
(c) Transferor shall prepare any returns relating to Taxes to be filed by or
with respect to Subco which relates to any period ending on or prior to the
Closing Date. Subco shall promptly respond to all reasonable requests by
Transferor for information necessary to prepare and file any such Tax returns.
(d) Transferor shall have the right, at its own expense, to negotiate,
settle or contest any asserted Tax liability or refund claim of Subco to the
extent that Transferor is required to indemnify against such asserted Tax
liability pursuant to Section 11(a) or is entitled to such refund or credit
pursuant to Section 11(b).
(e) If Subco receives any written communication from a taxing authority
regarding any actual or proposed assessment, official inquiry or proceeding that
could give rise to an official determination with respect to any Tax liability
or Tax refund claim for any period for which Transferor may be liable (in the
case of a liability) or may be entitled (in the case of a refund claim) pursuant
to this Agreement, Subco (i) shall within 15 days of receipt of such written
communication so notify Transferor in writing, and (ii) shall, prior to and for
at least 30 days after so notifying Transferor (or, if less, within a period
ending 5 days prior to the date, including extensions, on which Subco is
required to take action pursuant to such written communication), refrain from
making any payment of any Tax claimed and forbear from any settlement
negotiations or compromises with respect to such proposed adjustment. Transferor
agrees to notify Subco in writing within such 30 (or shorter) day period if it
intends to exercise its contest rights hereunder with respect to the asserted
Tax liabilities or the refund claim. The parties hereto agree to cooperate with
each other in connection with any examination process with respect to any
asserted Tax liability or refund claim and shall make available on a reasonable
basis to each other any personnel, books, records or other documents necessary
or appropriate for participation in such process.
12. CERTAIN TRANSACTION COSTS AND EXPENSES. The parties hereto hereby
agree that all of the costs and expenses of Subco and Transferor incurred in
connection with the development, negotiation, preparation and execution of this
Agreement, the other Related Agreements and all documents contemplated hereby or
thereby, and otherwise in connection with the consummation of the transactions
contemplated hereby and thereby, shall be paid in accordance with the terms of
Section 7.5 of the Merger Agreement.
13. MUTUAL RELEASE. Effective as of the Closing, each of Transferor, on
the one hand, and Subco, on the other hand, releases and forever discharges the
other and its affiliates, and its directors, officers, employees and agents of
and from all debts, demands, actions, causes of action, suits, accounts,
covenants, contracts, agreements, damages, and any and all claims, demands and
liabilities whatsoever of every name and nature, both in law and in equity,
against such other party or any of its assigns, which the releasing party has or
ever had, which arise out of or relate to events, circumstances or actions taken
by such other party prior to the Closing; provided, however, that the foregoing
general release shall not apply to this Agreement, the Merger Agreement, the
other Related Agreements or the transactions contemplated
A-3-13
<PAGE>
hereby or thereby and shall not affect either party's right to enforce this
Agreement, the other Related Agreements or any other agreement contemplated
hereby or thereby in accordance with its terms.
14. TERMINATION. The Agreement (a) may be terminated at any time prior to
the Closing Date by mutual written consent of Spice and Playboy, or (b) shall
terminate upon termination of the Merger Agreement and abandonment of the
transactions therein contemplated prior to the Effective Time of the Mergers.
15. FURTHER ASSURANCES. Transferor and Subco shall cooperate with one
another and shall execute and deliver, or cause to be executed and delivered,
such documents and other papers, and take such further actions, as may be
reasonably requested or desirable to carry out the provisions hereof and to
consummate the transactions contemplated hereby.
16. WAIVER AND AMENDMENTS; REMEDIES; THIRD PARTY BENEFICIARIES. This
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by each of the
parties hereto, or, in the case of a waiver, by the party waiving compliance. No
delay on the part of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any such right, power or privilege, nor any single or partial
exercise of any such right, power or privilege, preclude any further exercise
thereof or the exercise of any other such right, power or privilege. The rights
and remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity. The parties
hereby agree that Playboy (and each of its subsidiaries and affiliates) shall be
a third-party beneficiary of this Agreement. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any Person other than
the parties hereto, any Indemnitee under Section 10 and Playboy (and each of its
subsidiaries and affiliates) and their respective successors and assigns any
legal or equitable right, remedy or claim under or in or in respect of this
Agreement or any provision herein contained.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICTS OF
LAW PRINCIPLES THEREOF.
18. WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER RELATED
AGREEMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
19. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and shall inure to the benefit of the parties and their respective successors,
assigns and legal representatives. This Agreement shall not be assigned by
either party hereto, except that either party may assign this Agreement with the
prior written consent of Playboy.
20. ENTIRE AGREEMENT. This Agreement, the other Related Agreements, the
Merger Agreement and all other documents in connection with the foregoing
(including the exhibits and schedules hereto and thereto) contain the entire
agreement among the parties with respect to the transactions contemplated hereby
and thereby and supersede all prior agreements, written or oral, with respect
thereto.
21. SEVERABILITY. If any provision of this Agreement shall be declared to
be invalid, illegal or unenforceable, such provision shall survive to the extent
it is not so declared, and the validity, legality and enforceability of the
other provisions hereof shall not in any way be affected or impaired thereby,
unless such action would substantially impair the benefits to either party of
the remaining provisions of this Agreement.
A-3-14
<PAGE>
22. TABLE OF CONTENTS AND HEADINGS. The table of contents and headings in
this Agreement are solely for convenience of reference and shall not affect the
interpretation or construction of any of the provisions hereof.
23. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed given on
the date delivered if delivered personally (including by courier), on the date
transmitted if sent by telecopy (which is confirmed) or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses:
<TABLE>
<S> <C>
If to Transferor prior to the Closing Date:
Spice Entertainment Companies, Inc.
536 Broadway
New York, New York 10012
Attention: Daniel Barsky, Esq.
General Counsel
Facsimile: (212) 226-6354
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman, Esq.
Facsimile: (212) 715-8000
If to Transferor on or after the Closing Date or to Playboy:
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, IL 60611
Attention: Howard Shapiro, Esq.
General Counsel
Facsimile: (312) 266-2042
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
Facsimile: (212) 757-3990
</TABLE>
or to such other Person or address (or facsimile number) as Playboy shall
furnish to Subco in writing.
<TABLE>
<S> <C>
If to Subco to: Directrix, Inc.
536 Broadway, 10th Floor
New York, New York 10012
Attention: J. Roger Faherty
Facsimile: [ ]
with a copy to: Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman, Esq.
Facsimile: (212) 715-8000
</TABLE>
or to such other Person or address (or facsimile number) as Subco shall
furnish to Transferor in writing.
A-3-15
<PAGE>
Prior to the Effective Time of the Mergers, Playboy shall receive copies of
all notices or other communications given hereunder by any party at the address
set forth above.
24. COUNTERPARTS. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, but both of which together shall
constitute one and the same original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
<TABLE>
<S> <C> <C>
SPICE ENTERTAINMENT COMPANIES, INC.
BY:
-------------------------------
NAME:
TITLE:
</TABLE>
DIRECTRIX, INC.
<TABLE>
<S> <C> <C>
BY:
-------------------------------
NAME:
TITLE:
</TABLE>
A-3-16
<PAGE>
APPENDIX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEW PLAYBOY, INC.
The undersigned, being the Executive Vice President, Law and Administration,
and General Counsel and the Secretary of NEW PLAYBOY, INC. (the "Corporation"),
a corporation organized and existing under the laws of the State of Delaware, do
hereby certify as follows:
1. The name of the Corporation is NEW PLAYBOY, INC. The date of filing
its original Certificate of Incorporation with the Secretary of State was
April 30, 1998.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware. This Amended and Restated
Certificate of Incorporation restates and integrates and further amends the
provisions of the Corporation's Certificate of Incorporation as heretofore
amended or supplemented.
3. The text of the Amended and Restated Certificate of Incorporation,
as amended or supplemented heretofore, is hereby restated to read as herein
set forth in full:
FIRST: The name of the corporation is NEW PLAYBOY, INC.
SECOND: Its principal office in the State of Delaware is located at 1013
Centre Road, Wilmington. The name and address of its resident agent is
Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805 in the
County of New Castle.
THIRD: The nature of the business, or objects or purposes to be transacted,
promoted or carried on are:
To engage in the business of: publishing of all kinds; all phases of
entertainment and communications, including motion pictures, plays, radio,
television; the operation of hotels and resorts; and the operation of
establishments featuring food, beverage and entertainment.
To engage in any lawful act or activity, or engage in any business, for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
In general, to carry on any other business in connection with the foregoing,
and to have and exercise all the powers conferred by the laws of Delaware upon
corporations formed under the General Corporation Law of the State of Delaware,
and to do any or all of the things hereinbefore set forth to the same extent as
natural persons might or could do.
FOURTH: The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is Thirty Seven Million Five Hundred
Thousand (37,500,000) shares of Common Stock, consisting of Seven Million Five
Hundred Thousand (7,500,000) shares of Class A Common Stock of the par value of
One Cent ($.01) per share and Thirty Million (30,000,000) shares of Class B
Common Stock of the par value of One Cent ($.01) per share.
A. TERMS OF COMMON STOCK
Except as otherwise required by law or as otherwise provided in this
certificate, each share of Class A Common Stock and each share of Class B Common
Stock shall have identical powers, preferences, qualifications, limitations and
other rights.
Subject to all of the rights of any class of stock authorized after the
effective date of this provision of Article FOURTH ranking senior to the Common
Stock as to dividends, dividends may be paid upon the Common Stock as and when
declared by the Board of Directors out of funds and other assets legally
available for the payment of dividends. The Board of Directors may declare a
dividend or distribution upon both classes of the Common Stock in shares of any
authorized class or series of capital stock of the
<PAGE>
corporation only if such dividend or distribution is declared and paid
proportionately to all holders of both classes of Common Stock as follows: (i)
in Class A Common Stock to the holders of Class A Common Stock and in Class B
Common Stock to the holders of Class B Common Stock, (ii) in Class B Common
Stock to the holders of Class A Common Stock and Class B Common Stock, or (iii)
in any other authorized class or series of capital stock to the holders of both
classes of Common Stock.
In the event of any liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, and after the holders of any
class of stock authorized after the effective date of this provision of Article
FOURTH ranking senior to the Common Stock as to assets shall have been paid in
full the amounts to which such holders shall be entitled, or an amount
sufficient to pay the aggregate amount to which such holders shall be entitled
shall have been set aside for the benefit of the holders of such stock, the
remaining net assets of the corporation shall be distributed pro rata to the
holders of both classes of the Common Stock.
In the event of a merger or consolidation of the corporation with or into
another entity (whether or not the corporation is the surviving entity), the
holders of Class B Common Stock shall be entitle to receive the same per share
consideration as the per share consideration, if any, received by any holder of
the Class A Common Stock in such merger or consolidation.
Except as otherwise expressly provided with respect to any other class of
stock and except as otherwise may be required by law or this certificate, the
Class A Common Stock shall have the exclusive right to vote for the election of
directors and for all other purposes and each holder of Class A Common Stock
shall be entitled to one vote for each share of Class A Common Stock held.
Except as expressly provided in this certificate and except as otherwise
required by law, the Class B Common Stock shall have no voting rights.
The corporation may not split, divide or combine the shares of either class
of Common Stock unless, at the same time, the corporation splits, divides or
combines, as the case may be, the shares of the other class of Common Stock in
the same proportion and manner.
B. ISSUANCE OF CLASS A COMMON STOCK IN MERGERS AND ACQUISITIONS
Class A Common Stock may be issued as consideration in a merger or other
transaction involving the acquisition of or exchange for securities, assets,
properties or other interests of any person or entity by the corporation, only
if such issuance is approved by the holders, as of a date not more than thirty
days prior to the effective date of such merger or other transaction, of a
majority of the outstanding shares of Class A Common Stock, unless (i) Class B
Common Stock is also issued as consideration in such merger or other
transaction, and (ii) the quotient determined by dividing the number of shares
of Class B Common Stock to be so issued by the number of shares of Class A
Common Stock to be so issued is greater than or equal to the quotient
determined, immediately prior to the effective time of such merger or other
transaction, by dividing the total number of outstanding shares of Class B
Common Stock by the total number of outstanding shares of Class A Common Stock.
C. MINORITY PROTECTION TRANSACTIONS
(i) If any person or group acquires beneficial ownership of additional Class
A Common Stock, or if any group of persons is formed, after the effective date
of this provision of Article FOURTH, and such acquisition (other than upon
original issuance by the corporation, by operation of law, by will or the laws
of descent and distribution, by gift or by foreclosure of a bona fide loan) or
formation results in such person or group owning 10% or more of the issued and
outstanding Class A Common Stock, and such person or group (a "Related Person")
does not then own an equal or greater percentage of the Class B Common Stock,
such person or group must, within a 90-day period beginning the day after
becoming a Related Person, make a public tender offer in compliance with all
applicable laws and regulations to acquire
B-2
<PAGE>
additional Class B Common Stock as provided in this subsection C of Article
FOURTH (a "Minority Protection Transaction").
(ii) In each Minority Protection Transaction, the Related Person must make a
public tender offer to acquire that number of shares of Class B Common Stock
determined by (a) multiplying the percentage of outstanding Class A Common Stock
beneficially owned by such Related Person by the total number of shares of Class
B Common Stock outstanding on the date such person or group became a Related
Person, and (b) subtracting therefrom the total number of shares of Class B
Common Stock beneficially owned by such Related Person on such date (including
shares acquired on such date at or prior to the time such person or group became
a Related Person). The Related Person must acquire all of such shares validly
tendered; provided, however, that if the number of shares of Class B Common
Stock tendered to the Related Person exceeds the number of shares required to be
acquired pursuant to the formula set forth in this clause (ii), the number of
shares of Class B Common Stock acquired from each tendering holder shall be pro
rata in proportion to the total number of shares or Class B Common Stock
tendered by all tendering holders.
(iii) The offer price for any shares of Class B Common Stock required to be
purchased by the Related Person pursuant to this provision shall be the greater
of (a) the highest price per share paid by the Related Person for any share of
Class A Common Stock in the six month period ending on the date such person or
group became a Related Person or (b) the highest bid price of a share of Class A
Common Stock or Class B Common Stock on the New York Stock Exchange (or such
other exchange or quotation system as is then the principal trading market for
such shares) on the date such person or group became a Related Person. For
purposes of clause (iv) below, the applicable date for the calculations required
by the preceding sentence shall be the date on which the Related Person or
Interested Stockholder (as defined therein), became required to engage in a
Minority Protection Transaction. In the event that the Related Person has
acquired Class A Common Stock in the six month period ending on the date such
person or group becomes a Related Person for consideration other than cash, the
value of such consideration per share of Class A Common Stock shall be as
determined in good faith by the Board of Directors.
(iv) A Minority Protection Transaction shall also be required to be effected
by any Related Person, and any other person or group that beneficially owns 10%
or more of the outstanding shares of Class A Common Stock on the effective date
of this provision of Article FOURTH (an "Interested Stockholder"), that acquires
beneficial ownership of additional shares of Class A Common Stock (other than
upon issuance or sale by the corporation, by operation of law, by will or the
laws of descent and distribution, by gift, or by foreclosure of a bona fide
loan) or joins with other persons to form a group, whenever such additional
acquisition or formation results in such Related Person or Interested
Stockholder owning the next higher integral multiple or 5% (e.g. 15%, 20%, 25%,
etc.) of the outstanding shares of Class A Common Stock and such Related Person
or Interested Stockholder does not own an equal or greater percentage of the
shares of Class B Common Stock. Such Related Person or Interested Stockholder
shall be required to make a public tender offer to acquire that number or shares
of Class B Common Stock prescribed by the formula set forth in clause (ii)
above, and must acquire all shares validly tendered or a pro rata portion
thereof, as specified in said clause (ii), at the price determined pursuant to
clause (iii) above.
(v) If any Related Person or Interested Stockholder fails to make an offer
required by this subsection C of Article FOURTH, or to purchase shares validly
tendered and not withdrawn (after proration, if any), such Related Person or
Interested Stockholder shall not be entitled to vote any shares of Class A
Common Stock beneficially owned by such Related Person or Interested Stockholder
unless and until such requirements are complied with or unless and until all
shares of Class A Common Stock causing such offer requirement to be effective
are no longer beneficially owned by such Related Person or Interested
Stockholder.
B-3
<PAGE>
(vi) The Minority Protection Transaction requirement shall not apply to any
increase in percentage ownership of Class A Common Stock resulting solely from a
change in the total amount of Class A Common Stock outstanding, provided that
any acquisition by any person or group owning 10% or more of the Class A Common
Stock occurring after such change shall be subject to any Minority Protection
Transaction requirement that would be imposed with respect to a Related Person
or Interested Stockholder pursuant to clause (iv) of this Subsection C of
Article FOURTH.
(vii) If the person acquiring Class A Common Stock is the corporation,
treasury shares will be considered issued and outstanding for purposes of
determining the corporation's obligations hereunder.
(viii) All calculations with respect to percentage ownership of issued and
outstanding shares of either class of Common Stock will be based upon the
numbers of issued and outstanding shares reported by the corporation on the last
filed of (a) the corporation's most recent annual report on Form 10-K, (b) its
most recent Quarterly Report on Form 10-Q, or (c) if any, its most recent
Current Report on Form 8-K.
(ix) For purposes of this subsection C of this Article FOURTH, the term
"person" means a natural person, company, government, or political subdivision,
agency or instrumentality of a government, or other entity. "Beneficial
ownership" shall be determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
regulation. The formation or existence of a "group" shall be determined pursuant
to Rule 13d-5(b) under the 1934 Act or any successor regulation.
(x) The corporation shall not take any corporate action, including, without
limitation, any amendment to this certificate (including any amendment effected
by merger or consolidation), which will adversely affect the rights of the
holders of the Class B Stock under this subsection C of Article FOURTH, unless
such action shall have been approved by the holders of a majority of the
outstanding shares of Class B Stock who are not Related Persons or Interested
Stockholders.
D. NO PRE-EMPTIVE RIGHTS
No stockholder of this corporation shall by reason of his holding shares of
any class have any pre-emptive or preferential right to purchase or subscribe to
any shares of any class of this corporation, now or hereafter to be authorized,
or any notes, debentures, bonds, or other securities convertible into or
carrying options or warrants to purchase shares of any class, now or hereafter
to be authorized whether or not the issuance of any such shares, or such notes,
debentures, bonds or other securities, would adversely affect the dividend or
voting rights of such stockholder, other than such rights, if any, as the Board
of Directors, in its discretion from time to time may grant and at such price as
the Board of Directors in its discretion may fix; and the Board of Directors may
issue shares of any class of this corporation, or any notes, debentures, bonds,
or other securities convertible into or carrying options or warrants to purchase
shares of any class, without offering any such shares of any class, either in
whole or in part, to the existing stockholders of any class.
FIFTH: The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH: The corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
B-4
<PAGE>
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By resolution passed by a majority of the whole board, to designate one or
more committees, each committee to consist of two or more of the directors of
the corporation, which, to the extent provided in the resolution or in the
by-laws of the corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be stated in the by-laws of the corporation or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting-power, given at a
stockholders' meeting duly called for that purpose, or when authorized by the
written consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its Board of Directors shall deem expedient and for the best
interests of the corporation.
NINTH: In the absence of fraud, no contract or other transaction between
this corporation and any other corporation or any partnership or association
shall be affected or invalidated by the fact that any director or officer of
this corporation is pecuniarily or otherwise interested in or is a director,
member or officer of such other corporation or of such firm, association or
partnership or is a party to or is pecuniarily or otherwise interested in such
contract or other transaction or in any way connected with any person or
persons, firm, association, partnership or corporation pecuniarily or otherwise
interested therein; any director may be counted in determining the existence of
a quorum at any meeting of the Board of Directors of this corporation for the
purpose of authorizing any such contract or transaction with like force and
effect as if he were not so interested, or were not a director, member or
officer of such other corporation, firm, association or partnership.
TENTH: Meetings of stockholders may be held outside the State of Delaware,
if the by-laws so provide. The books of the corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the by-laws of the corporation. Elections of directors need not be by
ballot unless the by-laws of the corporation shall so provide.
ELEVENTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH: Directors shall not be personally liable to the corporation or its
stockholders for monetary damages for breaches of fiduciary duty as a director,
except for liability (i) for 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 an improper personal benefit.
B-5
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed and attested this
certificate this 5th day of August, 1998.
[Seal] /s/ HOWARD SHAPIRO
-----------------------------
Howard Shapiro
Executive Vice President,
Law and Administration,
General Counsel and Secretary
ATTEST:
/s/ ROBERT D. CAMPBELL
- -----------------------
Robert D. Campbell
Assistant Secretary
B-6
<PAGE>
APPENDIX C-1
May 29, 1998
The Board of Directors
Spice Entertainment Companies, Inc.
536 Broadway
New York, NY 10012
Gentlemen:
We understand that Spice Entertainment Companies, Inc. ("Spice" or the
"Company") will enter into an Agreement and Plan of Merger, substantially in the
form of the draft dated as of May 28, 1998, by and among Playboy Enterprises,
Inc. ("Playboy"), New Playboy, Inc. ("Holdco"), Playboy Acquisition Corp., a
wholly-owned subsidiary of Holdco, Spice Acquisition Corp., a wholly-owned
subsidiary of Holdco, and Spice Entertainment Companies, Inc. (the "Agreement"),
which has been furnished to us, whereby, among other things, Spice Acquisition
Corp. will be merged with and into the Company (the "Merger"). In connection
with the Merger, among other things:
(a) Each share of Company common stock, par value $0.01 per share (the
"Company Common Stock") (other than shares of the Company Common Stock as to
which dissenters' rights are exercised and perfected under section 262 of the
DGCL or are canceled pursuant to the Agreement), shall be converted into and
represent the right to receive in exchange therefor (x) from Holdco (i) $3.60 in
cash (the "Cash Consideration"), and (ii) the number of fully paid and
nonassessable shares of New Playboy Class B common stock equal to the Conversion
Ratio (as defined in and as may be adjusted in accordance with the Agreement)
(the "Stock Consideration") and (y) from the Company (i) fully paid and
nonassessable shares of common stock of a to-be-formed Delaware corporation that
shall be a wholly-owned subsidiary of the Company ("Subco"), par value $0.01 per
share (the "Subco Common Stock"), equal to the Redemption Ratio (as defined in
the Agreement) and (ii) warrants to purchase additional shares of Subco Common
Stock (such warrants to be in such amounts and on such terms as shall be
determined by the Company) (the "Subco Warrants", and together with the Subco
Common Stock, the "Subco Consideration") payable to the holder thereof.
(b) Each outstanding option and warrant of the Company will be deemed to
have been exercised immediately prior to the effective time of the Merger and
entitled to receive:
(i) if the exercise price of such option or warrant is less than the
Cash Consideration, (x) an amount of cash equal to the Cash Consideration
less the exercise price of such option or warrant, and (y) the Stock
Consideration; and
(ii) if the exercise price of such option or warrant is greater than or
equal to the Cash Consideration, an amount of shares of New Playboy Class B
common stock equal to (x) the Stock Consideration less (y) the amount by
which the exercise price of such option or warrant exceeds the value of the
Cash Consideration; and
(iii) from the Company shares of Subco Common Stock and Subco Warrants.
(c) If the holder of such option or warrant does not consent to such deemed
exercise, such option or warrant will, upon exercise, be entitled to receive the
consideration set forth above in this paragraph (b) clauses (i), (ii) and (iii).
(d) Each share of Company Convertible Preferred Stock Series 1997-A (other
than shares of the Company Convertible Preferred Stock as to which dissenters'
rights are exercised and perfected under section 262 of the DGCL or are canceled
pursuant to the Agreement) shall be converted into and represent the right to
receive in exchange therefor the Cash Consideration, the Stock Consideration and
<PAGE>
the Subco Consideration as if such Company Convertible Preferred Stock were
converted into Company Common Stock immediately prior to the effective time of
the Merger.
(e) As part of the Merger, the Company will effect a transfer of certain
assets and liabilities to Subco. The shareholders of the Company will receive
the Subco Consideration.
The terms and conditions of the Merger are set forth in more detail in the
Agreement.
You have requested our opinion, as investment bankers, as to the fairness
from a financial point of view to the stockholders of the Company of the Cash
Consideration and Stock Consideration to be received from Playboy as set forth
in the Agreement.
In connection with rendering our opinion as set forth below, we have, among
other things:
(i) reviewed the Agreement and certain related documents and the
financial terms of the Merger set forth therein;
(ii) reviewed Playboy's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998 and certain other filings with the Securities
and Exchange Commission made by Playboy, including proxy statements and
Forms 8-K;
(iii) reviewed the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998 and certain other filings with the Securities
and Exchange Commission made by the Company, including proxy statements and
Forms 8-K;
(iv) reviewed certain other publicly available information concerning
Playboy and the trading market for Playboy's Class A and Class B Common
Stock;
(v) reviewed certain other publicly available information concerning the
Company and the trading market for the Company Common Stock;
(vi) reviewed certain non-public information relating to the Company and
Playboy, including financial forecasts and projections for each, furnished
to us by the Company and Playboy;
(vii) reviewed certain publicly available information, including research
reports, concerning certain other companies engaged in businesses which we
believe to be comparable to the Company's and Playboy's and the trading
markets for certain of such companies' securities;
(viii) reviewed the financial terms of certain recent mergers and
acquisitions, which we believe to be relevant;
(ix) conducted discussions with certain members of senior management of
the Company and Playboy concerning their respective businesses and
operations, assets, present condition and future prospects; and
(x) performed such other analyses, examinations and procedures, reviewed
such other agreements and documents, and considered such other factors, as
we have deemed, in our sole judgment, to be necessary, appropriate or
relevant to render an opinion.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information obtained from public sources
or provided to us by the Company or Playboy and we have not assumed
responsibility for any independent verification of such information or
undertaken any obligation to verify such information. In addition, with respect
to the financial forecasts and projections of the Company or Playboy used in our
analysis, the management of the Company or Playboy has informed us that such
forecasts and projections represent the best current judgment of the management
of the Company or Playboy as to the future financial performance of the Company
or Playboy on a
C-1-2
<PAGE>
stand-alone basis, and we have assumed that the projections have been reasonably
prepared based on such current judgment. We assume no responsibility for and
express no view as to such forecasts and projections or the assumptions on which
they are based. For purposes of our opinion, we were not requested to, and did
not, solicit third party indications of interest in acquiring all or any part of
the Company.
In arriving at our opinion, we made limited physical inspections of the
properties and facilities of the Company or Playboy and have not made, obtained
or assumed any independent evaluations or appraisals of any such properties and
facilities or of the assets or liabilities of the Company or Playboy.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us, as of the date hereof, and does not
represent an opinion as to the value of the Company or Playboy or the trading
price of either the Company's or Playboy's securities or the impact of the
Merger or its announcement on such trading prices.
Furman Selz is acting as financial advisor to the Company in connection with
the Merger and has received a fee for its services to the Board of Directors in
connection with this opinion and other services pursuant to an engagement letter
dated December 8, 1997 entered into between Furman Selz and the Company. In
addition, the Company has agreed to reimburse Furman Selz for certain
out-of-pocket expenses and to indemnify Furman Selz for certain liabilities
arising in connection with this opinion. In the ordinary course of our business,
we may actively trade in the equity securities of the Company and Playboy for
our own account and for the accounts of our customers and, accordingly, may at
any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company in its consideration of the Merger. This opinion is not intended to be
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote with respect to or whether to accept the consideration
to be offered to such stockholder in connection with the proposed Merger. We
were not requested to opine as to, and this opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Merger, or the relative merits of the Merger as compared to any alternative
business strategies which might exist for the Company or the effect of any other
transaction in which the Company might engage. This opinion may be included in
its entirety in any proxy statement/prospectus with respect to the Merger, but
it may not be summarized, excerpted from or otherwise publicly referred to
without our prior written consent.
Based upon and subject to the foregoing, as investment bankers, it is our
opinion as of the date hereof that the Cash Consideration and Stock
Consideration to be received in the Merger is fair, from a financial point of
view, to the stockholders of the Company. Very truly yours,
/s/ ING BARINGS FURMAN SELZ LLC
C-1-3
<PAGE>
APPENDIX C-2
[LETTERHEAD OF ING BARINGS]
November 16, 1998
The Board of Directors
Spice Entertainment Companies, Inc.
536 Broadway
New York, NY 10012
Ladies and Gentlemen:
Reference is made to our opinion, dated May 29, 1998, (the "Opinion")
delivered with respect to the Agreement and Plan of Merger, dated May 29, 1998,
(the "Agreement") by and among Playboy Enterprises, Inc., New Playboy, Inc.,
Playboy Acquisition Corp. and Spice Acquisition Corp., and Spice Entertainment
Companies, Inc. We understand that you have amended the Agreement (the
"Amendment") to, among other things, (i) reduce the maximum Average Playboy
Stock Price (as defined in the Agreement) for which the Conversion Ratio (as
defined in the Agreement) remains fixed to $20.488 from $20.988, (ii) as a
condition to closing, require the Average Playboy Stock Price to be equal to or
greater than $13.00 or, if the Closing (as defined in the Agreement) occurs
after December 31, 1998, require the Average Playboy Stock Price to be equal to
or greater than $11.00, and (iii) extend the termination date of the Agreement
to March 1, 1999 from December 31, 1998.
Based on and subject to the matters referred to in the Opinion as
supplemented by the Amendment and related analyses as outlined in the Opinion,
we hereby reaffirm the Opinion as of the date of this letter.
Very truly yours,
/s/ ING Barings Furman Selz LLC
<PAGE>
APPENDIX D
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
SECTION262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title, Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only to be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
D-2
<PAGE>
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given, provided,
that if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the next day preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion,
D-3
<PAGE>
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the surviving
or resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a provision in the certificate of incorporation of each corporation
organized under the DGCL, eliminating or limiting, with certain exceptions, the
personal liability of a director to the corporation or its stockholders for
monetary damages for certain breaches of fiduciary duty as a director. The
Amended and Restated Certificate of Incorporation of the Registrant eliminates
the personal liability of directors to the fullest extent permitted by the DGCL.
Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any suit or proceeding other than by or on behalf of the
corporation, if they acted in good faith and in a manner reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to a criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided that
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where that
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves the indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Article Twelfth of the Amended and Restated Certificate of Incorporation and
Section 6 of Article VII of the Bylaws of the Registrant provides for the
indemnification of officers and directors and certain other parties (the
"Indemnitees") of the Registrant to the fullest extent permitted under the DGCL.
The Registrant maintains officers' and directors' insurance covering certain
liabilities that may be incurred by officers and directors in the performance of
their duties. Pursuant to the Merger Agreement, the Registrant has agreed for
six years after the Effective Time of the Mergers to indemnify all current and
former directors, officers, employees and agents of the Registrant and will,
subject to certain limitations, maintain for six years a directors' and
officers' insurance and indemnification policy containing terms and conditions
that are not less advantageous than any such policy that may be in effect prior
to the Effective Time of the Mergers.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- ----------------- -------------------------------------------------------------------------------------------------
<S> <C>
2.1 The Agreement and Plan of Merger, dated as of May 29, 1998, by and among Playboy Enterprises,
Inc., the Registrant, Playboy Acquisition Corp., Spice Acquisition Corp. and Spice Entertainment
Companies, Inc. (attached as Appendix A-1 to the Proxy Statement/Prospectus included in this
Registration Statement)
2.2 Amendment to the Agreement and Plan of Merger, dated as of November 16, 1998, by and among
Playboy Enterprises, Inc., the Registrant, Playboy Acquisition Corp., Spice Acquisition Corp. and
Spice Entertainment Companies, Inc. (attached as Appendix A-2 to the Proxy Statement/Prospectus
included in this Registration Statement)
3.1 Amended and Restated Certificate of Incorporation of the Registrant (attached as Appendix B to
the Proxy Statement/Prospectus included in this Registration Statement)
3.2 Amended and Restated Bylaws of the Registrant
5 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to the legality of the securities
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding tax matters
8.2 Opinion of Kramer Levin Naftalis & Frankel LLP regarding tax matters
11 Statement regarding computation of earnings per share (contained in the Transition Report on Form
10-K for the transition period ended December 31, 1997 of Playboy Enterprises, Inc.)
23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (contained in Exhibits 5.1 and 8.1 to this
Registration Statement)
23.2 Consent of Kramer Levin Naftalis & Frankel LLP (contained in Exhibit 8.2 to this Registration
Statement)
23.3 Consent of PricewaterhouseCoopers LLP with respect to Playboy Enterprises, Inc.
23.4 Consent of PricewaterhouseCoopers LLP with respect to Spice Entertainment Companies, Inc.
23.5 Consent of Grant Thornton LLP with respect to Spice Entertainment Companies, Inc.
23.6 Consent of ING Barings Furman Selz LLC
24 Powers of Attorney (included on page II-4 of this Registration Statement)
99.1 Fairness Opinion of ING Barings Furman Selz LLC (attached as Appendix C-1 to the Proxy
Statement/Prospectus included in this Registration Statement)
99.2 Reaffirmation of Fairness Opinion of ING Barings Furman Selz LLC (attached as Appendix C-2 to the
Proxy Statement/Prospectus included in this Registration Statement)
99.3 Form of Proxy Card to the Stockholders of Spice Entertainment Companies, Inc.
</TABLE>
(b) Report, Opinion or Appraisal
The opinion of ING Barings Furman Selz LLC, financial advisor to Spice
Entertainment Companies, Inc., is attached as Appendix C-1 to the Proxy
Statement/Prospectus included in this Registration Statement, and the
reaffirmation of that opinion is attached as Appendix C-2 to the Proxy
Statement/ Prospectus included in this Registration Statement.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and (iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement. The
undersigned Registrant hereby undertakes that, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof. The undersigned
Registrant hereby undertakes to remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus that is a part of this Registration Statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration with respect to reofferings by persons who
may be deemed to be underwriters, in addition to the information called for by
the other Items of the applicable form. The Registrant undertakes that every
prospectus (i) that is filed pursuant to the immediately preceding sentence or
(ii) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act and is used in connection with an offering of securities subject
to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(g) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that such a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
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 Registrant 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 Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on December 1, 1998.
<TABLE>
<S> <C> <C>
NEW PLAYBOY, INC.
BY /S/ CHRISTIE A. HEFNER
-----------------------------------------
Christie A. Hefner
Chairman of the Board,
Chief Executive Officer and Director
</TABLE>
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christie Hefner and Howard Shapiro and each of
them, with full power to act without the other, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments, including post-effective amendments,
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he or she might or
could do in person thereby ratifying and confirming all that said attorney-
in-fact and agents of any of them, or their or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ CHRISTIE A. HEFNER Chairman of the Board, December 1, 1998
---------------------------- Chief Executive Officer and
Christie A. Hefner Director (Principal
Executive Officer)
/s/ DENNIS S. BOOKSHESTER Director December 1, 1998
----------------------------
Dennis S. Bookshester
/s/ DAVID I. CHEMEROW Director December 1, 1998
----------------------------
David I. Chemerow
/s/ DONALD G. DRAPKIN Director December 1, 1998
----------------------------
Donald G. Drapkin
/s/ LINDA HAVARD Executive Vice President, December 1, 1998
---------------------------- Finance and Operations and
Linda Havard Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ RICHARD S. ROSENZWEIG Executive Vice President December 1, 1998
---------------------------- and Director
Richard S. Rosenzweig
/s/ SOL ROSENTHAL Director December 1, 1998
----------------------------
Sol Rosenthal
/s/ SIR BRIAN WOLFSON Director December 1, 1998
----------------------------
Sir Brian Wolfson
</TABLE>
II-6
<PAGE>
Exhibit 3.2
NEW PLAYBOY, INC.
-----------------
AMENDED AND RESTATED BY-LAWS
-----------------
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The Corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of the stockholders for the election of directors
shall be held at such place, either within or without the State of Delaware, as
may be fixed from time to time, by the Board of Directors, and as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual meetings of stockholders shall be held on a date and
time designated by the Board of Directors consistent with the Delaware General
Corporation Law, at which meetings they shall elect a Board of Directors by the
vote set forth in Section 8 of this Article II, and transact such other business
as may properly be brought before the meeting.
Section 3. The officer who has charge of the stock ledger of the
Corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
election, either at a place within the city, town or village where the election
is to be held and which place shall be specified in the notice of the meeting,
or, if not specified, at the place where said meeting is to be held, and the
list shall be produced and kept at the time and place of election during
<PAGE>
the whole time thereof, and subject to the inspection of any stockholder, for
any purpose germane to the meeting, who may be present.
Section 4. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chief Executive Officer and shall be called
by the Chief Executive Officer or Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of stockholders
owning a majority in amount of the entire capital stock of the Corporation
issued and outstanding and entitled to vote. Such request shall state the
purpose or purposes of the proposed meeting.
Section 5. Whenever stockholders are required or permitted to take any
action at a meeting, a written notice of the meeting shall be given, which
notice shall state the place, date and hour of the meeting, and, in the case of
a special meeting, the purpose or purposes for which the meeting is called. The
written notice of any meeting shall be given to each stockholder entitled to
vote at any such meeting not less than ten nor more than sixty days before the
date of the meeting. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation.
Section 6. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 7. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
except for the election of directors of the Corporation, unless the question is
one upon which by express provision of the statutes or of the Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question. Each nominee for
director, in order to be elected at a meeting, must receive the vote of the
holders of a majority of the stock having power to vote in the election of the
Board of Directors and present in person or represented by proxy at such
meeting.
2
<PAGE>
Section 9. Each stockholder shall at every meeting of the stockholders
be entitled to one vote in person or by proxy for each share of capital stock
having voting power held by such stockholder, but no proxy shall be valid unless
it provides that it may only be voted on at a specific meeting of stockholders
or any adjournment or adjournments thereof; except where the transfer books of
the Corporation have been closed or a date has been fixed as a record date for
the determination of its stockholders entitled to vote, no share of stock shall
be voted on at any election for directors which has been transferred on the
books of the Corporation within twenty days next preceding such election for
directors.
Section 10. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or to an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
Board shall be such number, not less than five nor more than ten, as may be
determined from time to time by resolution duly adopted by the Board of
Directors. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2. of this Article, and each
director elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the Corporation shall be managed by its
Board of Directors which may exercise all such powers of the Corporation and do
all
3
<PAGE>
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
Section 4. Unless otherwise provided by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares then
entitled to vote at an election of directors.
MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 6. The first meeting of each newly elected Board of Directors
shall be held without other notice than this Bylaw, immediately after, and at
the same place, as the annual meeting of stockholders.
Section 7. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 8. Special meetings of the Board may be called by the Chief
Executive Officer on twenty-four hours' notice to each director, either
personally, by telegram or by facsimile, or on five days' notice by mail;
special meetings shall be called by the Chief Executive Officer or Secretary in
like manner and on like notice on the written request of two directors.
Section 9. At all meetings of the Board, a majority of the number of
directors who have been elected and are then serving in such capacity, but in no
event less than one-third of the total number of authorized directors, shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation.
If a quorum shall not be present at any meeting of the Board
of Directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if prior to such action a written consent thereto is signed
by all members of the Board or of such committee as the case may be, and such
written consent is filed with the minutes of proceeding of the Board or
committee.
4
<PAGE>
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors or of any
committee thereof may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
Section 12. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which, to the extent
provided in the resolution and permitted by law, shall have and may exercise the
powers of the Board of Directors in the management of the business and affairs
of the Corporation and may authorize the seal of the Corporation to be affixed
to all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 13. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 14. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid such
compensation as the Board may by resolution determine, including without
limitation a fixed sum for attendance at each meeting of the Board of Directors
and a stated salary as director. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed such
compensation for attending committee meetings as the Board may by resolution
determine.
ARTICLE IV
NOTICES
Section 1. Notice to directors and stockholders shall be in writing
and delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a
5
<PAGE>
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the
Board of Directors and shall be the Chairman Emeritus/Editor in Chief, the
Chairman of the Board, the Chief Executive Officer, a Vice President, a
Secretary and a Treasurer. The Board of Directors may also choose additional
Vice Presidents, and one or more Assistant Secretaries and Assistant Treasurers.
Two or more offices may be held by the same person.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose the Editor in Chief, the Chairman of
the Board, Chief Executive Officer, a Vice President, a Secretary and a
Treasurer, and may choose one or more additional Vice Presidents and one or more
Assistant Secretaries and Assistant Treasurers.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
Section 4. The Board of Directors shall be responsible for
establishing the compensation and employee benefit policies and programs of the
Corporation.
Section 5. The officers of the Corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
EDITOR IN CHIEF
Section 6. The Editor in Chief shall direct senior editorial and video
production personnel on creative matters and editorial policy. He will consult
with senior management of the Corporation and advise regarding major strategic
business decisions and direction. He shall be entitled to attend all meetings of
the Board whether or not he shall be a director of the Corporation. He shall be
actively involved in promoting the Corporation and its products and shall be
available for publicity, promotional events and charitable affairs sponsored by
the Corporation.
6
<PAGE>
THE CHIEF EXECUTIVE OFFICER
Section 7. The Chief Executive Officer shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business and officers of the Corporation, shall see that all orders and
resolutions of the Board of Directors are carried into effect and shall have the
general powers and duties of management usually vested in the chief executive
officer of corporations. The Chief Executive Officer shall be a director of the
Corporation, shall be Chairman of the Board of Directors and as such shall
preside at all meetings of the Board of Directors and stockholders.
THE VICE PRESIDENTS
Section 8. In the election of officers, the Board of Directors may
designate one of the Vice Presidents as the Executive Vice President and one or
more of the Vice Presidents as Senior Vice Presidents. In the absence or
inability or refusal to act of the Chief Executive Officer, the duties of such
office shall be performed by one of the Vice Presidents, acting singly in the
following order in the absence or inability or refusal to act of their
respective designated predecessors:
(a) The Executive Vice President, if any;
(b) The Senior Vice Presidents, if any, in the
order designated by the Board of Directors or, in the absence of any
designation, then in the order of their election;
(c) All other Vice Presidents in the order
designated by the Board of Directors or, in the absence of any designation, then
in the order of their election.
Each Vice President when performing the duties of the Chief
Executive Officer shall have all the powers of and be subject to all the
restrictions upon the Chief Executive Officer. Each Vice President may sign,
with the Secretary or an Assistant Secretary, certificates for shares of the
Corporation and shall perform such other duties as may be assigned to him from
time to time by the Chief Executive Officer or by the Board of Directors.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the Corporation and of the Board of Directors in a book to be
kept for the purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
Chief Executive Officer, under whose
7
<PAGE>
supervision he shall be. He shall have custody of the corporate seal of the
Corporation and he, or an Assistant Secretary, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
his signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
Section 10. The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, shall,
in the absence or disability of the Secretary, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 12. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation.
Section 13. If required by the Board of Directors, he shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 14. The Assistant Treasurer, or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors,
shall, in the absence or disability of the Treasurer, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
8
<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled
to have a certificate, signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors, the Chief Executive Officer or Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary of the Corporation, certifying the number of shares
represented by such certificate owned by him in the Corporation.
Section 2. The signatures on any stock certificate of any such
Chairman of the Board of Directors, Chief Executive Officer, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may be
facsimile. In case any officer or officers who have signed, or whose facsimile
signature or signatures have been used on, any such certificate or certificates
shall cease to be such officer or officers of the Corporation, whether because
of death, resignation or otherwise, before such certificate or certificates have
been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
9
<PAGE>
RECORD DATES
Section 5. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall be not more than sixty nor less than ten days before the
date of any such meeting, which shall be not earlier than, nor more than ten
days after, the date of adoption of any resolution fixing a record date with
respect to a written consent, and which shall not be more than sixty days prior
to any dividend payment or other such action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of capital
stock, subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
10
<PAGE>
CHECKS
Section 3. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The corporate seal shall be circular in form with the name
"NEW PLAYBOY, INC." at top, "Delaware" at the bottom and the words "Corporate
Seal" in the center. Pursuant to the General Corporation Law of Delaware, the
Corporation may use such seal by causing it or a facsimile thereof to be
impressed or affixed, or reproduced, or otherwise, and which corporate seal may
be altered at pleasure.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6. (a) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such 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
his or her heirs, executors and administrators; provided, however, that except
as provided in Paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
11
<PAGE>
indemnification conferred in this section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise.
(b) Right of Claimant to Bring Suit. If a claim
under Paragraph (a) of this Section is not paid in full by the Corporation
within ninety days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to
indemnification and payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this section shall not be
exclusive of any other right which any person may have or hereafter acquired
under any statute, provision of the Certificate of Incorporation, Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain
insurance, at its expense, to protect itself and any director, officer, employee
or agent of the Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss, whether
or not the Corporation
12
<PAGE>
would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered or repealed at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
13
<PAGE>
EXHIBIT 5
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
December 1, 1998
New Playboy, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
Re: New Playboy, Inc.
Registration Statement on Form S-4
File No. 333-
Ladies and Gentlemen:
We have acted as counsel for New Playboy Inc., a Delaware
corporation (the "Company"), in connection with (a) the execution and
delivery by the Company of the Agreement and Plan of Merger, dated as of
May 29, 1998, as amended as of November 16, 1998, by and among the Company,
Playboy Enterprises, Inc., Playboy Acquisition Corp., Spice Acquisition Corp.
and Spice Entertainment Companies, Inc. (the "Merger Agreement"), and (b) the
registration under the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations under the Act (the "Rules"), of shares of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), and shares of its Class B Common Stock, par value $.01 per share
(the "Class B Common Stock" and, together with the Class A Common Stock, the
"Shares"), which registration is to be effected under a Registration
Statement on Form S-4 (the "Registration Statement") filed today.
We have examined those corporate records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In this examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the originals of all documents submitted to us as copies, and the
legal capacity of all individuals who have executed any of the documents
reviewed by us. In rendering our opinion set forth below, we have relied as to
factual matters upon information obtained from the Company, its officers and
representatives and public officials.
Based on this examination, we are of the opinion that (a) the Company
has the corporate power and authority under the General Corporation Law of the
State of Delaware and under its Amended and Restated Certificate of
Incorporation and By-Laws to issue the Shares, (b) the Shares are validly
authorized, and (c) the Shares, when issued as contemplated by the Merger
Agreement, will be validly issued, fully paid and nonassessable shares of the
Common Stock of the Company.
<PAGE>
2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" contained in the prospectus included in the Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
EXHIBIT 8.1
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
December 1, 1998
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
Ladies and Gentlemen:
You have requested our opinion as to whether (i) the proposed merger
of Playboy Acquisition Corp., a Delaware corporation ("Merger Sub P") and a
wholly-owned subsidiary of New Playboy, Inc. ("Holdco"), with and into Playboy
Enterprises, Inc., a Delaware corporation ("Playboy"), with Playboy being the
surviving corporation (the "P Merger") and (ii) the proposed merger of Spice
Acquisition Corp., a Delaware corporation ("Merger Sub S") and a wholly-owned
subsidiary of Holdco, with and into Spice Entertainment Companies, Inc., a
Delaware corporation ("Spice"), with Spice being the surviving corporation (the
"S Merger" and, together with the P Merger, the "Mergers") will be treated for
United States federal income tax purposes as exchanges governed by the
provisions of Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code").
In reaching the opinions expressed below, we have reviewed and
relied on (i) the Agreement and Plan of Merger ("the Merger Agreement"),
dated as of May 29, 1998, as amended as of November 16, 1998, by and among
Playboy, Holdco, Merger Sub P, Merger Sub S and Spice, (ii) the Proxy
Statement/Prospectus (the "Proxy Statement") of Spice filed with the
Securities and Exchange Commission on July 29, 1998, as amended, (iii) the
representation letters dated today addressed to us in connection with the
opinion set forth below from Playboy and Spice, and (iv) such other
information and materials as we have deemed appropriate.
We have assumed, without any independent investigation, that the
Merger Agreement has been duly authorized, executed and delivered by the parties
to it and constitutes the valid and legally binding obligation of the parties,
that the Merger Agreement has not been further amended or modified, that the
representations and warranties in the Merger Agreement are accurate, that
parties to the Merger Agreement will act in accordance with it, and that there
are no other agreements or understandings among the parties in connection with
the subject matter of the Merger Agreement.
<PAGE>
2
We have examined those corporate records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In this examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to the originals of all documents submitted to us as copies, and the
legal capacity of all individuals who have executed any of the documents
reviewed by us. In rendering our opinion set forth below, we have relied as to
factual matters upon information obtained from Playboy and Spice, their officers
and representatives and public officials.
Based upon and subject to the foregoing, it is our opinion that the
Mergers will be treated for United States federal income tax purposes as
exchanges governed by the provisions of Section 351 of the Internal Revenue
Code.
We express no opinion concerning any United States, state, local or
foreign tax matter relating to the Mergers and the other transactions described
in the Proxy Statement, except as expressly set forth above.
The above opinion is based on the current provisions of the Code and
the regulations under it, and on current interpretations of the Code and the
regulations. The Code, the regulations and the interpretations described above
are subject to change at any time, possibly with retroactive effect. Any change
could affect the continuing validity of the opinion set forth above. We assume
no responsibility to advise you of any subsequent changes in existing law or
facts, nor do we assume any responsibility to update this opinion with respect
to any matters expressly set forth and no opinions are to be implied or may be
inferred beyond the matters expressly so stated. No ruling has been (or will
be) sought from the Internal Revenue Service (the "IRS") as to the federal
income tax consequences of any aspect of the Mergers, and there can be no
assurance that the IRS or any court of competent jurisdiction will not disagree
with the opinions expressed herein.
This letter is furnished by us solely for your benefit and the benefit
of holders of outstanding Playboy stock and may not be relied on in any manner
or for any purpose by any other person or entity without our prior written
consent.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
<PAGE>
Exhibit 8.2
[LETTERHEAD OF KRAMER LEVIN NAFTALIS & FRANKEL LLP]
December 1, 1998
Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, NY 10012
Ladies and Gentlemen:
You have requested our opinion as to whether (i) the proposed merger
of Playboy Acquisition Corp., a Delaware corporation ("Merger Sub P") and a
wholly-owned subsidiary of New Playboy, Inc. ("Holdco"), with and into Playboy
Enterprises, Inc., a Delaware corporation ("Playboy"), with Playboy being the
surviving corporation (the "P Merger") and (ii) the proposed merger of Spice
Acquisition Corp., a Delaware corporation ("Merger Sub S") and a wholly-owned
subsidiary of Holdco, with and into Spice Entertainment Companies, Inc., a
Delaware corporation ("Spice"), with Spice being the surviving corporation (the
"S Merger" and, together with the P Merger, the "Mergers") will be treated for
United States federal income tax purposes as exchanges governed by the
provisions of Section 351 of the Internal Revenue Code of 1986, as amended (the
"Code").
In reaching the opinions expressed below, we have reviewed and
relied on (i) the Agreement and Plan of Merger ("the Merger Agreement"),
dated as of May 29, 1998, as amended as of November 16, 1998, by and among
Playboy, Holdco, Merger Sub P, Merger Sub S and Spice, (ii) the Proxy
Statement/Prospectus (the "Proxy Statement") of Spice filed with the
Securities and Exchange Commission on July 29, 1998, as amended, (iii) the
representation letters dated today addressed to us in connection with the
opinion set forth below from Playboy and Spice, and (iv) such other
information and materials as we have deemed appropriate.
We have assumed, without any independent investigation, that the
Merger Agreement has been duly authorized, executed and delivered by the parties
to it and constitutes the valid and legally binding obligation of the parties,
that the Merger Agreement has not been further amended or modified, that the
representations and warranties in the Merger Agreement are accurate, that the
parties to the Merger Agreement will act in accordance with it, and that there
are no other agreements or understandings among the parties in connection with
the subject matter of the Merger Agreement.
We have examined those corporate records, certificates and other
documents as we have considered necessary or appropriate for the purposes of
this opinion. In this examination, we have assumed the genuineness of all
signatures, the authenticity of all
<PAGE>
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies, and the legal capacity of all individuals
who have executed any of the documents reviewed by us. In rendering our opinion
set forth below, we have relied as to factual matters upon information obtained
from Playboy and Spice, their officers and representatives and public officials.
Based upon and subject to the foregoing, it is our opinion that the
Mergers will be treated for United States federal income tax purposes as
exchanges governed by the provisions of Section 351 of the Code.
We express no opinion concerning any United States, state, local or
foreign tax matter relating to the Mergers and the other transactions described
in the Proxy Statement, except as expressly set forth above.
The above opinion is based on the current provisions of the Code and
the regulations under it, and on current interpretations of the Code and the
regulations. The Code, the regulations and the interpretations described above
are subject to change at any time, possibly with retroactive effect. Any change
could affect the continuing validity of the opinion set forth above. We assume
no responsibility to advise you of any subsequent changes in existing law or
facts, nor do we assume any responsibility to update this opinion with respect
to any matters expressly set forth and no opinions are to be implied or may be
inferred beyond the matters expressly so stated. No ruling has been (or will
be) sought from the Internal Revenue Service (the "IRS") as to the federal
income tax consequences of any aspect of the Mergers, and there can be no
assurance that the IRS or a court of competent jurisdiction will not disagree
with the opinions expressed herein.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement on Form S-4 (the "Registration Statement") and to the use
of our name under the heading "Legal Matters" contained in the prospectus
included in the Registration Statement.
This letter is furnished by us solely for your benefit and the benefit
of holders of outstanding Spice stock and may not be relied on in any matter or
for any purpose by any other person or entity without our prior written consent.
Very truly yours,
/s/ Kramer Levin Naftalis & Frankel LLP
KRAMER LEVIN NAFTALIS & FRANKEL LLP
-2-
<PAGE>
EXHIBIT 23.3
CONSENT OF THE INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-4 (Registration No. 333- ) of our report dated February 4,
1998, on our audit of the financial statements of Playboy Enterprises, Inc.
We also consent to the reference to our firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
December 1, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Proxy Statement/Prospectus
constituting part of this registration statement on Form S-4 (Registration
No. 333- ) of our report dated March 8, 1996 and April 3, 1996,
respectively, on our audit of the consolidated financial statements and
financial statement Schedule II of Spice Entertainment Companies, Inc. as of
December 31, 1995, and for the year then ended, which report is included in
the Annual Report on Form 10-K of Spice Entertainment Companies, Inc. for the
year ended December 31, 1997. We also consent to the reference to our firm
under the caption "Experts" in such Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
New York, New York
December 1, 1998
<PAGE>
Exhibit 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 26, 1998 accompanying the consolidated
financial statements and schedule included in the Annual Report on Form 10-K
of Spice Entertainment Companies, Inc. for the year ended December 31, 1997.
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of the aforementioned report 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
<PAGE>
Exhibit 23.6
CONSENT OF ING BARINGS FURMAN SELZ LLC
We hereby consent to the inclusion of our opinion dated May 29, 1998 and
the reaffirmation letter dated November 16, 1998 reaffirming the opinion in
the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 of New Playboy, Inc. In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ ING BARINGS FURMAN SELZ LLC
New York, New York
December 1, 1998
<PAGE>
PROXY Exhibit 99.3
SPICE ENTERTAINMENT COMPANIES, INC.
SPECIAL MEETING OF STOCKHOLDERS
HELD DECEMBER 30, 1998
This Proxy is Solicited on Behalf of the Board of Directors
-----------------------------------------------------------
The undersigned hereby appoints J. Roger Faherty and Steve Saril as Proxies,
each with the power to appoint his substitute, and hereby authorizes them, and
each of them, to represent and vote, as designated on the reverse, all the
shares of Common Stock of Spice Entertainment Companies, Inc. ("Company") which
the undersigned is entitled to vote at the Special Meeting of Stockholders to be
held on December 30, 1998 at The Penn Club, 10th Floor Banquet Room, 30 West
44th Street, New York, NY 10036, 10:00 a.m., local time, and at any adjournment
thereof.
(Continued and to be signed on the other side)
<PAGE>
<TABLE>
<S> <C> <C>
A /X/
A Please mark your votes as in this example.
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C>
1. To approve the merger of a wholly owned subsidiary of New Playboy, Inc.
("New Playboy") into the Company with the result that the Company will
become a wholly owned subsidiary of New Playboy and to adopt the Agreement
and Plan of Merger dated May 29, 1998, as amended as of November 16, 1998,
by and among the Company, Playboy Enterprises, Inc., New Playboy, Playboy
Acquisition Corp. and Spice Acquisition Corp., a copy of which is attached
as an appendix to the accompanying Proxy Statement/Prospectus.
/ / FOR / / AGAINST / / ABSTAIN
2. To transact such other business as may properly come before the meeting
</TABLE>
If no direction is made, this proxy will be voted FOR Proposal 1.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
The undersigned hereby revokes any proxy previously given and acknowledges
receipt of written notice of, and the Proxy Statement/ Prospectus for, the
Special Meeting of Stockholders.
_____________________________________
(Signature)
_____________________________________
(Co-Signature, if Applicable)
_____________________________________
(Title of Applicable)
Date:__________________________, 1998
Note: Please sign above exactly as your name(s) appear(s) on your stock
certificate and/or proxy. If signing for an estate, trust, corporation, or
partnership, title or capacity should be stated. If shares are held
jointly each holder should sign.
