<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1999
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
PRELIMINARY COPY
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PLAYBOY ENTERPRISES, INC.
- - -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X]No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
[PLAYBOY LETTERHEAD]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------------
MAY 12, 1999
As a stockholder of Playboy Enterprises, Inc. (the "Company"), you are
notified of and cordially invited to attend the Annual Meeting of Stockholders
of the Company to be held at the Company's New York offices located at 730
Fifth Avenue, New York, New York 10019, on Wednesday, May 12, 1999 at 9:30
a.m., local time, for the following purposes:
1. To elect seven directors for the ensuing year, or until their successors
are elected and qualified;
2. To approve amendments to and the restatement of the Company's 1995 Stock
Incentive Plan, as amended and restated;
3. To approve amendments to the Company's Employee Stock Purchase Plan, as
amended;
4. To approve an amendment to the Restated Certificate of Incorporation of
Playboy Enterprises International, Inc., a subsidiary of the Company;
5. To ratify the selection of PricewaterhouseCoopers LLP as independent
auditors for the current fiscal year; and
6. To transact any other business that may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 22, 1999 as
the record date for the determination of the holders of Class A Common Stock
entitled to notice of and to vote at the meeting. An alphabetical list of
those stockholders, their addresses and number of shares owned shall be on
display for all purposes germane to the meeting during ordinary business hours
starting at 10:00 a.m. on April 30, 1999 and ending at the close of business
on May 11, 1999 in the Company's New York offices. The list shall be available
in the office of the Company's Director of Security. The list shall also be on
display at the meeting.
We hope that you will be present at the meeting. If you cannot attend and
you are a holder of Class A Common Stock, please date and sign the enclosed
proxy card and return it at your earliest convenience in the envelope provided
so that your shares will be represented. The envelope requires no postage if
mailed in the United States.
April , 1999
By Order of the Board of Directors
Howard Shapiro
Secretary
<PAGE>
PLAYBOY ENTERPRISES, INC.
680 NORTH LAKE SHORE DRIVE
CHICAGO, ILLINOIS 60611
----------------
PROXY STATEMENT
----------------
SOLICITATION OF PROXIES
This Proxy Statement is being mailed by Playboy Enterprises, Inc. (the
"Company") to all holders of Class A Common Stock, par value $0.01 per share
(the "Class A Stock"), and Class B Common Stock, par value $0.01 per share
(the "Class B Stock" and, together with the Class A Stock, the "Common Stock")
of the Company on or about April , 1999 in connection with the solicitation
by the Board of Directors of the Company of proxies to be used at the annual
meeting of stockholders to be held May 12, 1999. Each proxy duly executed and
received prior to the meeting will be voted according to its terms. At any
time before the proxy is voted, it may be revoked either by giving a later
proxy, by written notification to the Secretary of the Company, or by
appearing at the meeting and voting the shares. Under the Company's Amended
and Restated Certificate of Incorporation (the "Playboy Charter"), the Class B
Stock has no voting rights with respect to the matters to be presented at the
annual meeting.
The solicitation of proxies will be primarily by mail. Proxies may also be
solicited personally and by telephone by officers and full-time employees of
the Company, none of whom will receive any additional compensation for this
activity. The expenses of solicitation will be borne by the Company. These
expenses may also include ordinary charges and expenses of brokerage houses
and other fiduciaries for forwarding documents to beneficial owners.
Only stockholders of record as of the close of business on March 22, 1999
will be entitled to vote at the meeting or any adjournment of the meeting. As
of that date, the Company had outstanding 4,748,954 shares of Class A Stock,
having one vote per share and constituting the Company's only class of voting
securities.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of February 28, 1999, the only party known to the Company to be the
beneficial owner of 5% or more of the Company's voting securities was:
<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OF
NAME AND ADDRESS OF CLASS A STOCK CLASS
- - ---------------- ---------------- -------
<S> <C> <C>
Hugh M. Hefner, Trustee
The Hugh M. Hefner 1991 Trust(1)
9242 Beverly Boulevard
Beverly Hills, CA 90210................................ 3,321,836 69.95%
</TABLE>
- - --------
(1) Mr. Hefner, founder of the Company and Editor-in-Chief, owns these shares
through The Hugh M. Hefner 1991 Trust. Mr. Hefner has sole investment and
voting power over these shares of Class A Stock.
Mr. Hefner intends to vote his shares in accordance with the recommendations
made in this Proxy Statement by the Board of Directors.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the meeting, seven directors will be elected to serve until the next
ensuing annual meeting of stockholders or until their respective successors
are duly elected and qualified. The Company's bylaws allow for the election of
not fewer than five and not more than 10 directors and, within this
limitation, allow the number of directors to be fixed by the Board of
Directors of the Company (the "Board") from time to time. The Board is
currently comprised of seven directors. The affirmative vote of the holders of
a majority of the Class A Stock represented in person or by proxy is required
to elect each of the nominees. Each nominee is currently a director of the
Company. If, for any reason, any nominee is not a candidate at the time of
election (which is not expected to occur), it is intended that the proxies
will be voted for the election of the other nominees named and may be voted
for any substituted nominees. Proxies may not be voted for more than seven
persons.
THE BOARD RECOMMENDS THAT HOLDERS OF THE COMPANY'S CLASS A STOCK VOTE "FOR"
EACH OF THE NOMINEES LISTED BELOW.
The following information is provided with respect to each of the nominees
for director:
CHRISTIE A. HEFNER
Director since 1979
Age 46
Ms. Hefner was appointed Chairman of the Board and Chief Executive Officer
of the Company in November 1988. From September 1986 to November 1988, she was
Vice Chairman of the Board, President and Chief Operating Officer. From
February 1984 to September 1986, she was President and Chief Operating
Officer; she had been President since April 1982. From January 1978 to April
1982, she was a Corporate Vice President. She joined the Company in 1975 as
Special Assistant to the Chairman of the Board. Ms. Hefner is the daughter of
Hugh M. Hefner, Editor-in-Chief.
DENNIS S. BOOKSHESTER
Director since 1990
Age 60
Mr. Bookshester has been Chairman of the Board of Cutanix Corporation, a
company principally engaged in scientific skin research, since November 1997.
Prior to his current position, Mr. Bookshester was an
3
<PAGE>
independent business consultant. From December 1990 to May 1991, he served as
Chief Executive Officer of Zale Corporation, a company principally involved in
the retail sale of jewelry. Mr. Bookshester was Corporate Vice Chairman,
Chairman and Chief Executive Officer of the Retail Group of Carson Pirie Scott
& Co., positions he held from 1984 to 1989. In addition, Mr. Bookshester is a
member of the Board of Directors of Evans, Inc., Fruit of the Loom, Inc.,
Sundance Homes and Arthur Treachers, Inc. Mr. Bookshester is on the Visiting
Committee of the University of Chicago Graduate School of Business. Mr.
Bookshester is Chairman of the Audit Committee of the Board and is a member of
the Compensation Committee of the Board.
DAVID I. CHEMEROW
Director since 1996
Age 47
Mr. Chemerow has been President and Chief Operating Officer of GT
Interactive Software Corp., a company principally engaged in publishing
computer games, since April 1998; he was Executive Vice President and Chief
Operating Officer from May 1997 to April 1998. Prior to that, he was Executive
Vice President and Chief Financial Officer of ENTEX Information Services,
Inc., a company principally involved in personal computer systems integration,
from April 1996. Prior to joining ENTEX, he was Executive Vice President,
Finance and Operations, and Chief Financial Officer of the Company from 1990.
From 1988 to 1990, he served as President of Beechwood Capital Corporation, an
investment company involved in acquiring and operating businesses. Mr.
Chemerow is also a member of the Board of Directors of Dunham's Athleisure
Corporation. Mr. Chemerow is a member of the Audit Committee of the Board.
DONALD G. DRAPKIN
Director since 1997
Age 51
Mr. Drapkin has been Vice Chairman and Director of MacAndrews & Forbes
Holdings Inc. and various affiliates since 1987. Prior to his current
position, Mr. Drapkin was a partner in the New York law firm of Skadden, Arps,
Slate, Meagher & Flom from 1977 to 1987. In addition, Mr. Drapkin serves as
Director of Algos Pharmaceutical Corporation, Anthracite Capital, Inc.,
BlackRock Asset Investors, Cardio Technologies, Inc., The Molson Companies
Limited, Revlon Consumer Products Corporation, Revlon, Inc., VIMRx
Pharmaceuticals Inc., and Weider Nutritional International, Inc. Mr. Drapkin
is a member of the Compensation Committee of the Board.
SOL ROSENTHAL
Director since 1985
Age 64
Mr. Rosenthal has been Of Counsel to the Los Angeles law firm of Blanc
Williams Johnston & Kronstadt, L.L.P. since May 1996. Prior to that, he was a
senior partner in the law firm of Buchalter, Nemer, Fields & Younger from 1974
through April 1996. He has served as an Arbitrator in entertainment industry
disputes since 1977 and as the Writers Guild-Association of Talent Agents
Negotiator since 1978. Mr. Rosenthal is a former member of the Board of
Governors, Academy of Television Arts & Sciences, on which he served from 1990
to 1992; he is a former President of the Beverly Hills Bar Association and a
former President of the Los Angeles Copyright Society. In addition, Mr.
Rosenthal serves as Director of Artista Management, A.G. Mr. Rosenthal is
Chairman of the Compensation Committee of the Board.
RICHARD S. ROSENZWEIG
Director since 1973
Age 63
Mr. Rosenzweig has been Executive Vice President of the Company since
November 1988. From May 1982 to November 1988, he was Executive Vice
President, Office of the Chairman, and from July 1980 to May 1982, he was
Executive Vice President, Corporate Affairs. Before that, from January 1977 to
June 1980, he had been
4
<PAGE>
Executive Vice President, West Coast Operations. His other positions with the
Company have included Executive Vice President, Publications Group, and
Associate Publisher, Playboy magazine. He has been with the Company since
1958.
SIR BRIAN WOLFSON
Director since 1996
Age 63
Sir Brian Wolfson served as Chairman of Global Health Alternatives Inc., a
company principally involved in health products, from October 1995 to February
1998. From January 1986 to June 1995, he served as Chairman of Wembley plc., a
company engaged in the sports and entertainment industry. From 1967 to 1970,
he served as joint managing director of Granada Group. He is currently a
Director of Fruit of the Loom, Inc., Kepner-Tregoe Inc., and Autotote Inc.,
Chairman of Natural Health Trends, and a governor of the Joseph H. Lauder
Institute of the University of Pennsylvania. Sir Brian Wolfson is a member of
the Audit Committee of the Board.
COMMITTEES AND COMPENSATION
The Company has a standing Audit Committee of the Board currently comprised
of Messrs. Bookshester (who is the Chairman) and Chemerow and Sir Brian
Wolfson. The principal functions of the Audit Committee are to consider and
recommend the selection of independent public accountants to audit the
Company's financial statements, to review the Company's internal accounting
policies and controls, to review with the independent accountants the scope of
their audit and their recommendations and comments with respect to internal
controls and accounting systems, and to reinforce the independence of the
independent accountants. During fiscal year 1998, the Audit Committee held one
meeting.
The Company has a standing Compensation Committee of the Board currently
comprised of Messrs. Rosenthal (who is the Chairman), Bookshester and Drapkin.
The functions of the Compensation Committee include approving compensation,
salary or termination arrangements and all proposed contracts and transactions
with employees whose salaries and bonuses are more than $250,000 and less than
$400,000 per year (except employees who are corporate officers). The
Compensation Committee is also responsible for reviewing and making
recommendations to the Board concerning employee benefit programs,
compensation, salary or termination arrangements and all proposed contracts
and transactions with any employee (including Mr. Hefner) whose salary and
bonus equals or exceeds $400,000 per year, and those individuals mentioned as
exceptions immediately above in regard to the approval authority of the
Compensation Committee. The Compensation Committee administers the 1995 Stock
Incentive Plan, as amended and restated (the "1995 Plan") for the Company's
key employees and has the authority to determine which employees are "key
employees" and thereby eligible to participate in the 1995 Plan. The
Compensation Committee also administers the Company's Employee Stock Purchase
Plan, as amended (the "Purchase Plan"). During fiscal year 1998, the
Compensation Committee held five meetings.
The Company does not have a standing Nominating Committee of the Board. From
time to time, the Board creates other committees to address Company matters.
During fiscal year 1998, the Board held seven meetings. Every member of the
Board attended 75% or more of the aggregate of the total number of all
meetings held during the fiscal year by the Board and the committees on which
that member served during that period.
Non-employee directors receive an annual fee of $25,000 prorated from the
effective date of their election and paid quarterly. They can elect to receive
this annual fee in cash and/or in Class B Stock. An additional fee of $1,000
worth of Class B Stock is paid for each in-person Board meeting attended by a
non-employee director. In addition, from time to time the Board compensates
members of committees for extra time and effort expended
5
<PAGE>
on the Company's affairs. Accordingly, for fiscal year 1998, Messrs.
Bookshester, Chemerow, Drapkin and Rosenthal and Sir Brian Wolfson earned
compensation of $30,000, $30,000, $29,000, $30,000 and $30,000, respectively.
Since October 1992, non-employee directors have also been eligible to
participate in the Company's Deferred Compensation Plan for non-employee
directors, under which they may elect to defer portions of their annual fees
and per-meeting payments. All amounts deferred and interest credited are 100%
vested immediately and are general unsecured obligations of the Company.
Each non-employee director is also a participant in the Playboy Enterprises,
Inc. 1991 Non-Qualified Stock Option Plan for Non-Employee Directors (the
"1991 Plan"). Under the 1991 Plan, each director is granted a non-qualified
stock option to purchase shares of Class B Stock. An aggregate of 80,000
shares of Class B Stock were available for grant under the 1991 Plan. Each
option is exercisable in four equal annual installments, beginning on the
first anniversary of the date that options were initially granted, unless
accelerated under certain circumstances set forth in the 1991 Plan. All
installments are cumulative and may be exercised in whole or in part. Options
granted under the 1991 Plan generally expire 10 years after the date of grant,
though they may expire earlier. Shares issued upon the exercise of options
granted under the 1991 Plan may be either treasury shares or newly issued
shares.
EXECUTIVE OFFICERS
The following information is provided with respect to the executive officers
of the Company, other than Ms. Hefner and Mr. Rosenzweig for whom the
information is provided above under the caption "ELECTION OF DIRECTORS".
LINDA G. HAVARD
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
Age 44
Ms. Havard was appointed to her present position in May 1997. From August
1982 to May 1997, she held various financial and management positions at
Atlantic Richfield Company ("ARCO"). From October 1996 to May 1997, Ms. Havard
served as ARCO's Senior Vice President in the Global Energy Ventures division.
She also served as ARCO's Vice President of Corporate Planning from January
1994 to December 1996. Her other positions with ARCO included Vice President,
Finance, Planning and Control, ARCO Transportation Co. and President, ARCO
Pipe Line Co.
HUGH M. HEFNER
Editor-in-Chief
Age 72
Mr. Hefner founded the Company in 1953. He was appointed to his present
position in November 1988. From October 1976 to November 1988, Mr. Hefner
served as Chairman of the Board and Chief Executive Officer, and before that
he served as Chairman, President and Chief Executive Officer. Mr. Hefner is
the father of Christie A. Hefner, Chairman of the Board and Chief Executive
Officer.
HELEN ISAACSON
Senior Vice President and
President, Product Marketing Group
Age 52
Ms. Isaacson was appointed to her present position in October 1997. From
January 1997 to October 1997, she served as Executive Vice President of
worldwide licensing at the Marvel Comics Group, an entertainment
6
<PAGE>
company. From November 1991 to December 1996, Ms. Isaacson served as Senior
Vice President of international licensing and merchandising at Turner Home
Entertainment, a wholly-owned subsidiary of Time Warner, Inc.
HERBERT M. LANEY
Executive Vice President and
President, Catalog Group
Age 54
Mr. Laney was promoted to his present position in December 1996, having been
Senior Vice President and President, Catalog Group from September 1995 to
December 1996. In June 1993, he was named President, Catalog Group, having
been Senior Vice President, Catalog Group from August 1990 to June 1993. From
June 1988 to August 1990, he served as Senior Vice President, Direct
Marketing. In May 1987, Mr. Laney started Critics' Choice Video Inc. From July
1984 to May 1987, he served as Vice President, Sales, at Cosmetique, Inc. From
November 1976 to July 1984, he served first as Merchandising Manager, then as
Marketing Manager and, lastly, as General Manager, Speciality Catalogs, of
Spiegel Holdings Inc.
MARTHA O. LINDEMAN
Senior Vice President, Corporate
Communications and
Investor Relations
Age 48
Ms. Lindeman was appointed to her present position in September 1998. From
1992 to 1998, she served as Vice President, Corporate Communications and
Investor Relations. From 1986 to 1992, she served as Manager of Communications
at the Tribune Company, a leading information and entertainment company.
ANTHONY J. LYNN
Executive Vice President and
President, Entertainment Group
Age 46
Mr. Lynn was appointed to his present position in June 1992. From 1991 to
1992, he served as President of international television distribution and
worldwide pay television at MGM-Pathe Communications Co., where he was
Executive Vice President from 1987 to 1991. During 1987, he served as
President of Cable, Pay T.V. and Home Video at Coca Cola Telecommunications,
Inc.
ALEX MIRONOVICH
Executive Vice President and
President, Publishing Group
Age 46
Mr. Mironovich was appointed to his present position in February 1999. From
1998 to 1999, he was employed at Meredith Corporation where he served as Group
Publisher. From 1993 to 1998, he served as Associate Publisher and then
Publisher of Better Homes and Gardens.
GARRY W. SAUNDERS
Executive Vice President and
President, Casino Gaming Group
Age 47
Mr. Saunders was appointed to his present position in March 1998 after
serving as an independent consultant to the Company from October 1997. From
July 1995 to July 1997, he served as Executive Vice President and Director of
Gaming Operations at ITT Caesars World, a casino resort corporation. From
February 1994 to July 1995, he served as Executive Vice President and Director
of Gaming Operations of ITT Sheraton, a
7
<PAGE>
hotel and casino company. From 1987 to 1993, he served as Executive Vice
President of the Sands Hotel and Casino in Atlantic City.
HOWARD SHAPIRO
Executive Vice President,
Law and Administration,
General Counsel and Secretary
Age 51
Mr. Shapiro was appointed to his present position in May 1996. From
September 1989 to May 1996, he served as Executive Vice President, Law and
Administration, and General Counsel. From May 1985 to September 1989, Mr.
Shapiro served as Senior Vice President, Law and Administration, and General
Counsel. From July 1984 to May 1985, he served as Senior Vice President and
General Counsel. From September 1983 to July 1984, he served as Vice President
and General Counsel. From May 1981 to September 1983, he served as Corporate
Counsel. From June 1978 to May 1981, he served as Division Counsel. From
November 1973 to June 1978, he served as Staff Counsel.
BUFORD SMITH
Senior Vice President and
President, Playboy Online Group
Age 56
Mr. Smith was appointed to his present position in March 1998. From November
1996 until March 1998, Mr. Smith was President of Baywood Enterprises, Inc., a
management consulting company. From November 1986 to November 1996, he held
various management positions at Reuters America, a leading news and
information company, including President of Reuters New Media.
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of February 28, 1999, the number and
percentage of shares of Common Stock beneficially owned by each Director, by
each Executive Officer named in the Summary Compensation Table on page 12 and
by all Directors and Executive Officers as a Group. As used in this Proxy
Statement, "beneficially owned" means the sole or shared power to vote or
direct the voting of a security and/or the sole or shared power to dispose or
direct the disposition of a security.
<TABLE>
<CAPTION>
SHARES OF PERCENT OF SHARES OF PERCENT OF
NAME OF DIRECTOR OR CLASS A CLASS A CLASS B CLASS B
NAMED EXECUTIVE OFFICER(1) STOCK(2) STOCK STOCK(2) STOCK
- - -------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Dennis S. Bookshester(3)(4).......... 3,000 * 24,063 *
David I. Chemerow(3)(4).............. 800 * 39,700 *
Donald G. Drapkin(3)(4).............. 0 * 7,500 *
Linda G. Havard(3)(4)................ 0 * 38,750 *
Christie A. Hefner(3)(4)............. 72,274 1.50 566,428 3.46
Hugh M. Hefner....................... 3,321,836 69.95 7,965,508 50.17
Anthony J. Lynn(3)(4)................ 600 * 216,418 1.35
Sol Rosenthal(3)(4).................. 252 * 23,108 *
Richard S. Rosenzweig(3)(4).......... 25,365 * 116,230 *
Sir Brian Wolfson(3)(4).............. 2,500 * 12,852 *
All Directors and Executive Officers
as a Group (17 persons)(3)(4)....... 3,461,692 71.17 9,372,525 54.81
</TABLE>
8
<PAGE>
- - --------
*Less than 1% of the total shares outstanding.
(1) For fiscal year 1998, in addition to Ms. Havard, Ms. Hefner, Mr. Hefner,
Mr. Lynn and Mr. Rosenzweig, the Company's executive officers were: Helen
Isaacson, Herbert M. Laney, Martha O. Lindeman, Alex Mironovich, Garry W.
Saunders, Howard Shapiro and Buford Smith
(2) In each case, beneficial ownership consists of sole voting and investment
power, with the exception of Mr. Rosenthal, who owns two shares of Class A
Stock and six shares of Class B Stock as custodian for his son. Mr.
Rosenthal disclaims beneficial ownership of these shares. As of February
28, 1999, all Directors and Executive Officers as a Group shared voting
and investment power over 52 shares of Class A Stock and 31,886 shares of
Class B Stock.
(3) Includes the following shares of Common Stock which are subject to
installments of stock option grants made under the Company's 1989 Stock
Option Plan (the "1989 Plan"), the 1995 Plan and the 1991 Plan, which were
either exercisable on February 28, 1999, or are exercisable within 60 days
of February 28, 1999.
<TABLE>
<CAPTION>
CLASS A CLASS B
DIRECTOR OR NAMED EXECUTIVE OFFICER STOCK STOCK
----------------------------------- ------- ---------
<S> <C> <C>
Dennis S. Bookshester..................................... 0 15,000
David I. Chemerow......................................... 0 5,000
Donald G. Drapkin......................................... 0 2,500
Linda G. Havard........................................... 0 18,750
Christie A. Hefner........................................ 55,000 447,500
Anthony J. Lynn........................................... 0 183,750
Sol Rosenthal............................................. 0 15,000
Richard S. Rosenzweig..................................... 25,000 95,000
Sir Brian Wolfson......................................... 0 7,500
All Directors and Executive Officers as a Group (15 per-
sons).................................................... 115,000 1,026,250
</TABLE>
(4) Includes the following shares of Class B Stock which are subject to the
vesting of restricted stock awards made under the 1995 Plan and the 1997
Equity Plan for Non-Employee Directors of Playboy Enterprises, Inc., as
amended.
<TABLE>
<CAPTION>
INITIAL UNVESTED
DIRECTOR OR NAMED EXECUTIVE OFFICER GRANT PORTION
----------------------------------- ------- --------
<S> <C> <C>
Dennis S. Bookshester...................................... 5,000 5,000
David I. Chemerow.......................................... 5,000 5,000
Donald G. Drapkin.......................................... 5,000 5,000
Linda G. Havard............................................ 20,000 20,000
Christie A. Hefner......................................... 75,000 37,500
Anthony J. Lynn............................................ 26,250 13,124
Sol Rosenthal.............................................. 5,000 5,000
Richard S. Rosenzweig...................................... 20,000 10,000
Sir Brian Wolfson.......................................... 5,000 5,000
All Directors and Executive Officers as a Group (16 per-
sons)..................................................... 288,750 194,374
</TABLE>
9
<PAGE>
EXECUTIVE COMPENSATION
The following tables set forth information regarding the compensation
received by the Company's Chief Executive Officer and the other four most
highly compensated executive officers, determined by reference to fiscal year
1998 (the "Named Executive Officers"). The first table ("Compensation Earned
During and With Respect to Fiscal Years and Transition Period") reflects
salary and bonus, as well as the value of restricted stock awards and stock
options granted in prior years but which vested with respect to or through the
indicated fiscal year or transition period. The second and third tables
("Summary Compensation Table" and "Aggregated Option Exercises in Last Fiscal
Year and FY-End Option Values") are in the format dictated by the applicable
rules of the Securities and Exchange Commission ("SEC"). The Summary
Compensation Table reflects salary, bonus and other compensation earned in the
designated fiscal years and transition period as well as stock options and
restricted stock awards granted (without regard to vesting) in those fiscal
years and transition period. The third table reflects certain information
regarding vested and unvested stock options held as of December 31, 1998 and
the value of those options as of that date. No Named Executive Officer
exercised any stock options during fiscal year 1998.
COMPENSATION EARNED DURING AND WITH RESPECT TO
FISCAL YEARS AND TRANSITION PERIOD
<TABLE>
<CAPTION>
ANNUAL COMPENSATION VESTING OF LONG-TERM COMPENSATION
--------------------------- ------------------------------------------------------
FISCAL YEAR- FISCAL YEAR-
VALUE OF ESTIMATED END VALUE OF END VALUE OF
VESTED TAX LIABILITY CLASS A CLASS B
OTHER CLASS B WITH RESPECT STOCK STOCK
ANNUAL RESTRICTED TO VESTING OF UNDERLYING UNDERLYING
COMPEN- STOCK RESTRICTED EXERCISABLE EXERCISABLE
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION AWARDS STOCK OPTIONS(2)(3) OPTIONS(2)(3)
- - --------------------------- ------- -------- --------- -------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christie A. Hefner....... 1998 $499,989 $ 198,197 $680,625 $3,187,538
Chairman of the Board
and 1997.5 249,990 391,875 1,706,849
Chief Executive Officer 1997 499,980 178,781 $217,969(6) $70,731(6) 261,250 855,546
1996 450,008 337,506 248,438(7) 80,618(7) 446,875 1,410,507
Anthony J. Lynn.......... 1998 524,996 1,190,750 2,356,484
Executive Vice President
and 1997.5 262,496 340,800 1,295,415
President, Entertainment
Group 1997 524,992 757,700 76,295(6) 27,047(6) 582,561
1996 499,982 380,000 86,960(7) 30,827(7) 1,047,274
Hugh M. Hefner........... 1998 749,998 118,918
Editor-in-Chief 1997.5 374,995
1997 419,978 106,792
1996 399,986 160,000
Linda G. Havard(4)....... 1998 304,493 72,421 137,109
Executive Vice
President, 1997.5 149,994
Finance and Operations,
and 1997 36,922 $243,691(5)
Chief Financial Officer
Richard S. Rosenzweig.... 1998 299,994 59,459 310,938 1,242,188
Executive Vice President 1997.5 149,994 179,688 738,125
1997 259,420 82,452 58,125(6) 20,605(6) 120,313 387,500
1996 254,800 127,400 66,250(7) 23,486(7) 204,688 631,563
</TABLE>
- - --------
(1) The transition period for the six months ending December 31, 1997 is
identified as 1997.5 for purposes of this table and included 13 pay
periods.
(2) Value of stock options under the 1989 Plan and the 1995 Plan that were
exercisable as of the respective year-end and transition period-end are
based on the difference between the closing price of Class A Stock or
Class B Stock, as applicable, on December 31 of fiscal year 1998 and of
the transition period and on June 30 (or the last business day) of fiscal
years 1997 and 1996, and the exercise price of the option. The closing
price of the Class A Stock was $19 1/8 at December 31, 1998, $13 7/8 at
December 31, 1997, $11 1/2 at
10
<PAGE>
June 30, 1997 and $14 7/8 at June 28, 1996. The closing price of the Class
B Stock was $20 15/16 at December 31, 1998, $15 11/16 at December 31, 1997,
$11 9/16 at June 30, 1997 and $14 3/4 at June 28, 1996.
(3) The period-to-period increase or decrease in value of stock underlying
exercisable options is a function of both fluctuations in the market price
of Class A Stock and Class B Stock underlying options and the vesting or
exercise of options. The following tables reflect, for period-to-period
fluctuations in the value of Class A Stock and Class B Stock underlying
options, the amount of the fluctuation attributable to appreciation or
depreciation in the market value of the stock and the amount of any
increase attributable to the vesting of additional options. No Named
Executive Officer exercised any stock options during fiscal year 1998.
CLASS A STOCK
<TABLE>
<CAPTION>
1997.5 TO 1998 INCREASE IN VALUE 1997 TO 1997.5 INCREASE IN VALUE 1996 TO 1997 DECREASE IN VALUE
-------------------------------- -------------------------------- ---------------------------------
APPRECIATION VESTING APPRECIATION VESTING DEPRECIATION VESTING
NAME OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL
- - ---- ------------ ---------- -------- ------------ ---------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ms. Hefner......... $288,750 $ 0 $288,750 $130,625 $ 0 $130,625 $(185,625) $ 0 $(185,625)
Mr. Rosenzweig..... 131,250 0 131,250 59,375 0 59,375 (84,375) 0 (84,375)
</TABLE>
CLASS B STOCK
<TABLE>
<CAPTION>
1997.5 TO 1998 INCREASE IN VALUE 1997 TO 1997.5 INCREASE IN VALUE 1996 TO 1997 DECREASE IN VALUE
---------------------------------- -------------------------------- ---------------------------------
APPRECIATION VESTING APPRECIATION VESTING DEPRECIATION VESTING
NAME OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL
- - ---- ------------ ---------- ---------- ------------ ---------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ms. Hefner....... $1,348,627 $132,062 $1,480,689 $835,313 $15,990 $851,303 $(645,469) $90,508 $(554,961)
Mr. Lynn......... 964,687 96,382 1,061,069 712,854 0 712,854 (550,842) 86,129 (464,713)
Ms. Havard....... 0 137,109 137,109
Mr. Rosenzweig... 472,500 31,563 504,063 350,625 0 350,625 (270,938) 26,875 (244,063)
</TABLE>
- - --------
(4) Ms. Havard joined the Company in May 1997. Accordingly, compensation
information is not provided for periods prior to her employment with the
Company.
(5) Represents amounts paid by the Company for Ms. Havard to relocate to
Chicago and for tax gross-ups related to those amounts.
(6) Values of vested restricted stock awards are based on the closing price of
Class B Stock on August 7, 1997, the date on which restrictions lapsed
with respect to 25% of the shares because the Company's annual operating
income for fiscal year 1997 exceeded $10.0 million. As a result of that
vesting, each of the indicated Named Executive Officers became liable for
payment of taxes owed on the value of those vested shares. The Company did
not withhold shares of restricted stock to satisfy, or otherwise fund, the
tax obligations related to vesting.
(7) Values of vested restricted stock awards are based on the closing price of
Class B Stock on August 5, 1996, the date on which restrictions lapsed
with respect to 25% of the shares because the Company's annual operating
income for fiscal year 1996 exceeded $7.5 million. As a result of that
vesting, each of the indicated Named Executive Officers became liable for
payment of taxes owed on the value of those vested shares. The Company did
not withhold shares of restricted stock to satisfy, or otherwise fund, tax
obligations related to vesting.
11
<PAGE>
SUMMARY COMPENSATION TABLE
The following table reflects salary, bonus and other compensation earned in
the last three fiscal years and the six-month transition period ended December
31, 1997, as well as stock options and restricted stock awards granted
(without regard to vesting) in those fiscal years and that transition period.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------- ---------------------
SECURITIES
OTHER CLASS B UNDERLYING
ANNUAL RESTRICTED OPTIONS ALL OTHER
COMPEN- STOCK CLASS B COMPEN-
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS SATION AWARDS(2) STOCK SATION
- - --------------------------- ------- -------- --------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Christie A. Hefner....... 1998 $499,989 $ 198,197 $19,587(7)
Chairman of the Board
and 1997.5 249,990 3,709
Chief Executive Officer 1997 499,980 178,781 75,000(5) 11,007
1996 450,008 337,506 7,721
Anthony J. Lynn.......... 1998 524,996 1,190,750 7,688(7)
Executive Vice President
and 1997.5 262,496 340,800 2,834
President, Entertainment
Group 1997 524,992 757,700 11,315
1996 499,982 380,000 7,683
Hugh M. Hefner........... 1998 749,998 118,918 7,688(7)
Editor-in-Chief 1997.5 374,995 2,389
1997 419,978 106,792 11,057
1996 399,986 160,000 8,075
Linda G. Havard(3)....... 1998 304,493 72,421 12,745(7)
Executive Vice Presi-
dent, 1997.5 149,994
Finance and Operations,
and 1997 36,922 $243,691(4) $272,500 75,000(6)
Chief Financial Officer
Richard S. Rosenzweig.... 1998 299,994 59,459 6,888(7)
Executive Vice President 1997.5 149,994 2,155
1997 259,420 82,452 9,250
1996 254,800 127,400 7,668
</TABLE>
- - --------
(1) The transition period for the six months ending December 31, 1997 is
identified as 1997.5 for purposes of this table and included 13 pay
periods.
(2) Values of restricted stock awards under the 1995 Plan shown in the Summary
Compensation Table are based on the closing price of Class B Stock on the
date of grant. As of December 31, 1998, Ms. Havard held 20,000 shares of
restricted Class B Stock, valued at $418,750. The restrictions on the
stock awards granted to Ms. Havard lapse in increments of 38% and 62% of
the shares at the end of any fiscal year during which annual operating
income first equals or exceeds $15 million and $20 million, respectively,
in each case after deducting expenses related to the vesting of restricted
shares at that income level. Dividends are not paid on restricted Class B
Stock.
(3) Ms. Havard joined the Company in May 1997. Accordingly, compensation
information is not provided for periods prior to her employment with the
Company.
(4) Represents amounts paid by the Company for Ms. Havard to relocate to
Chicago and for tax gross-ups related to those amounts.
(5) Represents two stock options granted in fiscal year 1997 under the 1995
Plan. The first option is an incentive stock option for 6,779 shares of
Class B Stock, with an exercise price of $16.225 (110% of fair market
value on the date of grant), and an expiration date of July 1, 2001. The
second option is a non-qualified stock option for 68,221 shares of Class B
Stock, with an exercise price of $14.75 (100% of fair market value on the
date of grant), and an expiration date of July 1, 2006. Both options are
exercisable in equal annual increments over a four-year period beginning
July 1, 1997.
(6) Represents an incentive stock option granted in fiscal year 1997 under the
1995 Plan that is exercisable in equal annual increments over a four-year
period beginning May 16, 1998. The option expires on May 16, 2007.
12
<PAGE>
(7) The amounts disclosed include:
(a) Company profit-sharing contributions of $2,088 on behalf of Ms. Hefner,
Mr. Lynn, Mr. Hefner, Ms. Havard and Mr. Rosenzweig in fiscal year 1998
under the Company's Employees Investment Savings Plan.
(b) Company 401(k) matching contributions of $5,600 on behalf of Ms.
Hefner, Mr. Lynn, Mr. Hefner and Ms. Havard and $4,800 on behalf of Mr.
Rosenzweig in fiscal year 1998 under the Company's Employees Investment
Savings Plan.
(c) Company deferred compensation matching contributions of $11,899 on
behalf of Ms. Hefner and $5,057 on behalf of Ms. Havard in fiscal year
1998 under the Company's Deferred Compensation Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
-------------------------------------------- ------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------- -------------------- ------------------- ----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
---------- ----------- --------- ---------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christie A. Hefner
Fiscal year 1990 grant. 50,000 150,000 $621,875 $2,137,500
Fiscal year 1992 grant. 5,000 15,000 58,750 203,438
Fiscal year 1995 grant. 56,250 18,750 619,568 $206,524
Fiscal year 1997 grant. 37,500 37,500 227,032 227,031
Anthony J. Lynn
Fiscal year 1992 grant. 140,000 1,741,250
Fiscal year 1994 grant. 43,750 615,234
Linda G. Havard
Fiscal year 1997 grant. 18,750 56,250 137,109 411,328
Richard S. Rosenzweig
Fiscal year 1990 grant. 25,000 75,000 310,938 1,068,750
Fiscal year 1995 grant. 15,000 5,000 173,438 57,813
</TABLE>
- - --------
(1) Based on a closing price for Class A Stock of $19 1/8 per share and for
Class B Stock of $20 15/16 per share on December 31, 1998 as reported in
the New York Stock Exchange Composite Listing.
13
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report by the Compensation Committee and the Performance Graph on page
16 shall not be deemed to be incorporated by reference by any general
statement which incorporates by reference this Proxy Statement into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act
of 1934, as amended (the "Acts"), and they shall not otherwise be deemed filed
under the Acts.
The Company's executive compensation programs are administered by the
Compensation Committee of the Board of Directors (the "Committee"). Messrs.
Rosenthal (who is the Chairman), Bookshester and Drapkin served as members of
the Committee during the entire fiscal year 1998. None of these three
directors has ever served as an officer of the Company.
The Company's executive compensation programs are designed to help the
Company achieve its business objectives by:
. setting levels of compensation designed to attract and retain superior
executives in a highly competitive environment;
. providing incentive compensation that varies directly with both Company
financial performance and individual contribution to that performance;
and
. linking compensation to elements which affect short- and long-term share
performance.
Consequently, the Committee considers its primary mission to structure and
administer a range of compensation programs designed to enable the Company to
attract and retain executive talent in a highly competitive marketplace, well-
known for its individually tailored packages. The Committee periodically
evaluates the competitiveness of its executive compensation programs, using
information drawn from a variety of sources, including published survey data,
information supplied by consultants and the Company's own experience in
recruiting and retaining executives. Following are the criteria considered by
the Committee in establishing compensation programs and the factors considered
in determining the compensation of executives.
BASE SALARY
The base salaries and salary ranges for executives are determined in
relation to competitive market data and level of responsibility and are
subject to periodic review by outside executive compensation consultants.
Salary ranges are reviewed on an annual basis taking into consideration, among
other things, the financial performance of the Company, and are adjusted as
the Committee deems necessary. Executives' salaries are reviewed on an annual
basis, and salary changes are based upon individual performance with
consideration given to each executive's total compensation package and
external market data. While some of the companies in the peer group chosen for
comparison of shareholder returns in the Performance Graph on page 16 may be
included in the surveys and information considered by the Committee in setting
executives' salaries, there is no set peer group against which those salaries
are measured. Instead, the Committee reviews broad-based industry salary data,
which typically exclude financial services and not-for-profit companies, and,
when available, will examine industry-specific data relative to a particular
position. For fiscal year 1998, the Company continued the practice of
restraining base salaries and salary grade ranges. This is consistent with the
Company's current philosophy of focusing less on fixed compensation and more
on variable performance-based compensation in the form of short- and long-term
incentives.
SHORT-TERM INCENTIVES
Executives are eligible for annual bonuses under the Company's Executive
Incentive Compensation Program (the "Program"). For fiscal year 1998,
participants could earn 30% to 150% of their respective January 1, 1998 base
salaries. These percentages were enhanced for fiscal year 1998, as compared to
previous fiscal years, to account for the fact that the Program year was
expanded to 18 months to accommodate the
14
<PAGE>
six-month transition period ended December 31, 1997. No non-contractual
bonuses were paid under the Program for that six-month transition period. The
total bonus amount earned was calculated based on consolidated profitability
and may also be based in part on group or individual segment profitability
and/or cash flows, with a threshold level of performance required before
payments would be made. Under these compensation arrangements, certain
executives, including all Named Executive Officers except Mr. Lynn, were
entitled to, and did receive, payouts under the Program. Additionally,
consistent with a frequently observed practice in the highly competitive
entertainment, online and catalog industries, certain top executive officers'
compensation arrangements include participation by the executive in the
incremental profits above a fixed base of the business for which he or she is
responsible. Mr. Lynn has a special compensation plan under which he receives
profit-sharing remuneration and he does not participate in the Program. See
"EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS AND INCENTIVE COMPENSATION
PLANS".
LONG-TERM INCENTIVES
Long-term incentive awards are provided by the 1995 Plan. The 1995 Plan is
administered by members of the Committee who, subject to the terms of the 1995
Plan, designate "key employees" of the Company to whom options and other
awards may be granted, the number of shares of Class B Stock to be covered by
each option or other stock award, the time or times at which the options may
be exercised, the vesting of awards, and other administrative functions. Thus
far, the Committee has granted incentive stock options, non-qualified stock
options and restricted stock awards under the 1995 Plan. The grants are
designed to further the growth, development and financial success of the
Company by providing additional incentives to key employees and assisting them
to become owners of capital stock of the Company and thus to benefit directly
from its growth, development and financial success. Stock option grants and
restricted stock awards also enable the Company to attract and retain the
services of executives considered essential to the long-range success of the
Company by providing them with a competitive compensation package and an
opportunity to become owners of capital stock of the Company.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal year 1998, the Compensation Committee, at Ms. Hefner's
request, did not increase Ms. Hefner's salary. Effective January 1, 1999, her
salary was increased to $555,000. In making these decisions, the Committee
considered, among other things, the Company's overall financial and
operational performance over the last few fiscal years. The Compensation
Committee also reviewed competitive market data and, consistent with its
general approach to salaries, attempted to place Ms. Hefner's salary slightly
above the median of the data reported in relevant compensation surveys and
other information considered by the Committee.
Ms. Hefner's bonus payout of $198,197 was calculated according to the
Program. Ms. Hefner's maximum bonus opportunity was 150% of her base salary.
Her bonus was based on achievement of profitability targets for fiscal year
1998. The Company achieved only some of its targets and, therefore, only a
portion of the maximum bonus was paid to her.
DEDUCTIBILITY OF COMPENSATION
In 1993, changes were made to the federal corporate income tax law to limit
the ability of public companies to deduct compensation in excess of $1 million
paid annually to the five most highly compensated executive officers. There
are exemptions from this limit, including compensation that is based on the
attainment of performance goals that are established by the Committee and
approved by the Company's stockholders and forms of current compensation
provided under a binding contract pre-dating the new tax law. It is the
Committee's policy to seek to qualify executive compensation for deductibility
to the extent that this policy is consistent with the Company's overall
objectives in attracting, motivating and retaining its executives. The
Committee believes that grants of stock options under the 1995 Plan and grants
of restricted stock made to executive officers under the 1995 Plan during
fiscal year 1998 qualify as stockholder-approved performance-based
compensation and, therefore, will be fully deductible when an option is
exercised or the restricted stock vests. Grants of restricted
15
<PAGE>
stock made under the 1995 Plan prior to fiscal year 1997, however, do not
qualify as stockholder-approved performance-based compensation and, therefore,
will not be fully deductible to the extent that the compensation, when added
to other non-exempt compensation for a particular executive, exceeds the limit
in any tax year. The Committee believes that, based upon current compensation
levels, compensation paid in fiscal year 1998 should be fully deductible.
Submitted by the
Compensation Committee:
Sol Rosenthal, Chairman
Dennis S. Bookshester
Donald G. Drapkin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1998 were Sol
Rosenthal, Chairman, Dennis S. Bookshester and Donald G. Drapkin, none of whom
has served at any time as an officer or employee of the Company or any of its
subsidiaries.
PERFORMANCE GRAPH
The following graph is a comparison of the yearly percentage change in the
Company's total shareholder return on its Class B Stock, with the cumulative
total return of the Russell 2000 Stock Index and an index of peer companies
selected by the Company consisting of companies engaged in lines of business
similar to its own. In addition to the Company, these companies are: McGraw-
Hill Inc., Meredith Corporation, Time Warner Inc., Tribune Company and The
Walt Disney Company.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PLAYBOY ENTERPRISES, INC., THE RUSSELL 2000 INDEX
AND A PEER GROUP
[THE TABLE BELOW WAS REPRESENTED IN THE PRINTED MATERIAL BY A LINE GRAPH]
------------------------------------------------
12/93 12/94 12/95 12/96 12/97 12/98
- - --------------------------------------------------------------------------------
PLAYBOY ENTERPRISES, INC. $100 $ 81 $ 64 $ 75 $121 $161
- - --------------------------------------------------------------------------------
PEER GROUP $100 $ 97 $119 $135 $205 $259
- - --------------------------------------------------------------------------------
RUSSELL 2000 $100 $ 98 $126 $147 $180 $179
- - --------------------------------------------------------------------------------
- - ---------
* $100 invested on 12/31/93 in stock or index - including reinvestment of
dividends.
Fiscal year ending December 31.
16
<PAGE>
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
AND INCENTIVE COMPENSATION PLANS
To aid the Company in retaining its most senior executives and certain other
officers, the Board approved Change in Control Agreements (the "Agreements"),
which provide for the payment of specified benefits to selected officers if
their employment terminates after a "change in control" (defined below) of the
Company. Christie A. Hefner, Anthony J. Lynn, Linda G. Havard and Richard S.
Rosenzweig are beneficiaries of this program. Each Agreement provides that:
. a lump-sum cash payment will be made within 10 days following
termination, equal to 300% of the sum of the officer's annual base
salary in effect immediately prior to the occurrence of the change in
control and the maximum bonus for the officer's position under the
Program established for the then applicable fiscal year;
. the amount of the lump-sum cash payment would be subject to reduction so
that no portion would be subject to the excise tax provision of the
Internal Revenue Code of 1986, as amended (the "Code"), but only if the
officer would obtain a net after-tax benefit from this reduction;
. the officer will be allowed to continue his or her participation in then
existing welfare benefit plans, such as medical insurance, for up to a
year from the effective date of termination;
. the Agreement will have an initial five-year term, automatically
extended on each anniversary of its execution unless the Company or the
officer gives notice that it or the officer does not wish to extend the
Agreement; and
. payments become due and benefits are provided if, within 18 months after
a change in control, the employee is involuntarily terminated for
reasons other than death, disability or "cause" (defined below), or
voluntarily terminates employment for certain reasons.
A "change in control" is defined as (1) any liquidation or dissolution of
the Company; (2) a sale, exchange or other disposition of Playboy magazine;
(3) any occurrence by which The Hugh M. Hefner 1991 Trust and Christie A.
Hefner (who is deemed to hold shares beneficially owned by the Trust to the
extent Ms. Hefner has sole voting power with respect to those shares) cease,
collectively, to hold at least 50% of the Company's stock entitled to vote
generally in the election of Company directors; and (4) the merger,
consolidation or reorganization of the Company, or sale of all or
substantially all of the Company's assets, unless the transaction is initiated
by the Company and, as a result of the transaction, not less than a majority
of the combined voting power of the securities of the surviving or transferee
corporation is held by persons who held not less than a majority of the
combined voting power of the outstanding voting stock of the Company
immediately prior to the transaction.
Under the Agreements, "cause" is defined as conviction of a crime involving
dishonesty, fraud or breach of trust, or willful engagement in conduct
materially injurious to the Company. The Agreements also provide that the
reasons for which the officer may voluntarily terminate employment without
forfeiture of benefits include failure to maintain the officer in the position
held prior to the change in control, removal of the officer from the Board,
assignment to the officer of duties materially inconsistent with the
authorities and responsibilities exercised prior to the change in control, an
aggregate reduction in the officer's cash compensation, a termination or
reduction in scope or value of the officer's employee benefits, a good-faith
determination by the officer that, as a result of a change in circumstances
following a change in control, the officer is unable to carry out the
authorities or responsibilities of the officer's position, or requiring the
officer to perform duties beyond a 50-mile radius from the place of the
officer's employment immediately prior to the change in control, or to travel
at least 50% more than was previously required in any of the three years prior
to the change in control.
Effective June 1, 1992, the Company hired Anthony J. Lynn, under an
employment contract, as President of its Entertainment Group. Mr. Lynn is
charged with the responsibility of managing the Entertainment Group's
television, home video and international operations. Mr. Lynn's employment
contract, as amended, extends
17
<PAGE>
through June 30, 2000, unless terminated earlier under its terms and
conditions. Mr. Lynn is to receive "Base Compensation" ranging from $525,000
(for fiscal year 1998) to a maximum of $550,000 per year (beginning with
fiscal year 1999) during the amended term plus all benefits otherwise accorded
to senior executives of the Company in similar positions other than the
Program. During the term of the contract, management shall also recommend to
the Compensation Committee the grant of further options to Mr. Lynn should
grants be made generally to other members of senior management. Upon
termination of his employment, Mr. Lynn is entitled to receive all or a
portion of his Base Compensation and benefits, depending on the date and
circumstances of termination. If the Company terminates Mr. Lynn without
cause, he is entitled to receive a one-time payment equal to his Base
Compensation in the year in which the termination occurs.
Mr. Lynn may also receive compensation under the Playboy Enterprises, Inc.
Incentive Compensation Plan for Anthony J. Lynn (the "Lynn Plan"), which
provides Mr. Lynn with the opportunity to receive compensation based on the
performance of the Company's Entertainment Group. The Lynn Plan also provides
Mr. Lynn with a cash bonus in the event of certain dispositions of the equity
or assets of the Entertainment Group.
The Lynn Plan entitles Mr. Lynn to receive contingent compensation for each
fiscal year ("Contingent Compensation") equal to 5% of the amount by which the
Entertainment Group's Pre-tax Profits for the fiscal year exceed $2.35
million; provided that, if the sum of his base salary plus that fiscal year's
Contingent Compensation equals $2,000,000, any additional Contingent
Compensation payable to Mr. Lynn for that fiscal year will equal 2.5% of the
amount by which the Entertainment Group's Pre-tax Profits exceed $2.35
million. The Entertainment Group's Pre-tax Profits is defined under the Lynn
Plan as the amount, if any, by which the total net revenues of the
Entertainment Group exceeds all reasonable and applicable operating expenses
attributable to them, in accordance with Generally Accepted Accounting
Principles computed consistent with methods utilized by the Company and the
Company's outside auditors in the preparation of the Company's audited
financial statements. In computing the Pre-tax Profits of the Entertainment
Group for any fiscal year, there shall be allowed all fair and reasonable
allocation of items of revenue and expenses between divisions, subsidiaries
and affiliates of the Company, including, but not limited to, intercompany
sales, expenses such as rent, occupancy, general administrative and personnel
salaries, technology, insurance, employee benefits costs, security, payroll
processing, legal and tax advisory fees, depreciation, profit sharing and
auditing expenses. In addition, the effect of any One Time Gain or Loss
(defined below) accounted for as part of the Entertainment Group shall be
amortized evenly over four years, beginning in the month of occurrence, for
purposes of calculating Pre-tax Profits for any fiscal year, regardless of how
the transaction is accounted for under Generally Accepted Accounting
Principles. A "One Time Gain or Loss" is a gain or loss resulting from a
transaction not in the ordinary course of business and which does not result
in an Equity Bonus (as described below). Profits or losses from any other
fiscal year shall not, except as described above for One Time Gains or Losses,
be carried over or back to any other fiscal year or otherwise be taken into
consideration in computing the Pre-tax Profits of a particular fiscal year.
The Lynn Plan entitles Mr. Lynn to receive Contingent Compensation for fiscal
year 1997, the six-month transition period ended December 31, 1997, fiscal
year 1998, fiscal year 1999 and the first half of fiscal year 2000, and for
each fiscal year after June 30, 2000 unless notice is given by the
Compensation Committee to Mr. Lynn that the provisions of the Lynn Plan
pertaining to Contingent Compensation will not apply to the specified fiscal
year after fiscal year 2000. Mr. Lynn's Contingent Compensation with respect
to fiscal year 1998 was $1,190,750.
If Mr. Lynn's employment is terminated "for cause," Mr. Lynn will receive
all Contingent Compensation payable with respect to all periods prior to the
fiscal year during which the Company notifies Mr. Lynn that his employment is
terminated. If Mr. Lynn's employment is terminated because of Mr. Lynn's death
or disability, he (or his estate or personal representative, as applicable)
will receive all unpaid Contingent Compensation payable with respect to all
periods prior to the fiscal year during which death or disability occurs plus
a prorated percentage of the Contingent Compensation for that fiscal year. If
Mr. Lynn's employment is terminated by the Company without cause, he will
receive 100% of the Contingent Compensation to which Mr. Lynn would have been
entitled for and only for the year in which the termination occurs, reduced by
amounts payable to Mr. Lynn under Mr. Lynn's Change in Control Agreement
(described above).
18
<PAGE>
If the Company directly or indirectly sells, transfers or otherwise disposes
of an equity interest in Playboy Entertainment Group, Inc. ("PEGI") or all or
a portion of the assets comprising the Playboy Entertainment Group operations
(except sales of assets or operations that contributed less than 25% of the
Group's total Pre-tax Profits in the immediately preceding fiscal year or less
than a 25% equity interest) to a third party (including a sale to the public)
during Mr. Lynn's employment or within three (3) months following the
termination of Mr. Lynn's employment (an "Equity Disposition Transaction"),
then Mr. Lynn will receive a one-time Equity Bonus equal to the product of EB
Pre-tax Profits times the Remaining Term. "EB Pre-tax Profits" is defined in
the Lynn Plan as (i) in the case of the sale, transfer or other disposition of
an equity interest in PEGI entitling Mr. Lynn to an Equity Bonus, the total
Pre-tax Profits of PEGI for the fiscal year immediately preceding the Equity
Disposition Transaction times the fully-diluted percentage equity interest in
PEGI acquired by the third party, and (ii) in the case of a sale, transfer or
other disposition of all or a portion of the assets comprising the
Entertainment Group entitling Mr. Lynn to an Equity Bonus, that portion of the
Pre-tax Profits of the Entertainment Group generated or attributable to the
assets for the fiscal year immediately preceding the Equity Disposition
Transaction. "Remaining Term" is defined in the Lynn Plan as the lesser of (i)
three (3) or (ii) the number arrived at by dividing by 12 the number of full
months remaining in Mr. Lynn's employment term. The payment of the Equity
Bonus, if any, will be in addition to any Contingent Compensation payable to
Mr. Lynn under the Lynn Plan. The Equity Bonus will be payable only in
connection with an Equity Distribution which constitutes a bona fide transfer
of an equity interest in PEGI or a bona fide sale of assets and will not be
payable in connection with any other transaction (whether in the form of joint
ventures, co-productions or otherwise) which represents a financing
transaction. The Company is prohibited from structuring a transaction which
would otherwise qualify as a sale or distribution of any equity interest in
PEGI or a sale of assets of the Entertainment Group as a financing transaction
for the purpose of frustrating the provisions of the Lynn Plan.
Effective May 16, 1997, Linda G. Havard joined the Company as its Executive
Vice President, Finance and Operations, and Chief Financial Officer. Under an
employment agreement, Ms. Havard receives an annual base salary of $304,500
and is entitled to participate in the Program at a maximum level for fiscal
year 1998 of 90% of her base salary earned. Under this agreement, she is
entitled to receive a full year's severance (based on her salary at that time)
if her employment is terminated for any reason other than cause, which is
described as conviction of a crime involving dishonesty, fraud or breach of
trust, or engaging in conduct materially injurious to the Company.
TRANSACTIONS WITH MANAGEMENT
The Company owns a 29-room mansion (the "Mansion") located on 5 1/2 acres in
Los Angeles, which is used for various corporate activities, including serving
as a valuable location for video production and magazine photography, business
meetings, enhancing the Company's image, charitable functions and a wide
variety of promotional and marketing purposes. The Mansion generates
substantial publicity and recognition which increase public awareness of the
Company and its products and services. Facilities at the Mansion include a
tennis court, swimming pool, gymnasium and other recreational facilities as
well as extensive film, video, sound and security systems. The Mansion also
includes accommodations for guests and serves as Hugh M. Hefner's office and
residence (the "Hefner Residence"). The Mansion has a full-time staff which
maintains it, serves in various capacities at the functions held there and
provides Mr. Hefner, his guests and the Company's guests with meals, beverages
and other services.
Under a 1979 lease entered into with the Company, the annual rent for Mr.
Hefner's basic Mansion accommodations, and the Mansion's facilities, utilities
and attendant services is to be determined by independent expert appraisals
based on comparable hotel accommodations. In addition, Mr. Hefner is required
to pay the sum of the per unit value of nonbusiness meals, beverages and other
benefits received by Mr. Hefner and any of his personal guests. Standard food
and beverage unit values are determined by independent expert appraisals based
on fair market values. Valuations for both basic accommodations and standard
food and beverage units are to be reappraised every three years, with annual
adjustments made on the basis of appropriate consumer price index
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figures in other years. Mr. Hefner is also responsible for the cost of all
improvements in any Hefner Residence accommodations, including capital
expenditures, that are in excess of normal maintenance for those areas.
Usage of services and benefits is recorded through a system initially
developed by the auditing and consulting firm of PricewaterhouseCoopers LLP
and now administered (with appropriate modifications approved by the Audit and
Compensation Committees of the Board) by the Company. The lease, effective as
of July 1, 1979, had an initial term ending June 30, 1981, and continues for
ensuing 12-month periods unless terminated by either party. To accommodate the
change in fiscal years, Mr. Hefner's lease continued for only a six month
period through December 31, 1998. At December 31, 1998, the lease renewed
automatically and will continue to renew automatically for 12 month periods
per the terms of the lease described above. The rent charged during fiscal
year 1998 included the appraised rent and the per unit value of other benefits
described above. Within 120 days after the end of the Company's fiscal year,
the actual charge for all benefits is finally determined for the fiscal year.
Mr. Hefner pays or receives credit for any difference between the amount
finally determined and the amount he paid over the course of the year. The sum
of the actual rent and other benefits payable for fiscal year 1998 was
estimated by the Company to be $620,000, and Mr. Hefner paid that amount
during fiscal year 1998.
The Company purchased the Mansion in 1971 for $1,050,000 and in the
intervening years has made substantial capital improvements at a cost of
approximately $12,750,000 through fiscal year 1998 (including approximately
$2,470,000 to bring the Hefner Residence accommodations to a standard similar
to the Mansion's common areas). The Mansion is included in the Company's
financial statements as of December 31, 1998 at a cost, including all
improvements and after accumulated depreciation, of approximately $2,540,000.
The Company receives rent from Mr. Hefner (see above) and pays all operating
costs of the Mansion, which were approximately $4,285,000 in fiscal year 1998
(net of rent received from Mr. Hefner), including depreciation, taxes and
security charges related to the protection of the Mansion, employees located
there, business guests, the Hefner Residence and other visitors.
In June 1993, William A. Marovitz, Ms. Hefner's spouse since July 1995,
brought an opportunity to the Company to participate in one or more
applications for gaming licenses in Greece. Since then, Mr. Marovitz has
actively pursued that and other gaming opportunities on the Company's behalf.
In June 1994, the independent members of the Board, in recognition of Mr.
Marovitz' substantial time and effort on gaming matters, approved a
compensation arrangement for all of his gaming-related activities to that time
and all of his future activities relating to gaming opportunities in Greece.
In consideration for past and future services, the Company paid Mr. Marovitz
$125,000 in February 1995. In addition, should the Greek-gaming initiatives
result in the opening of a gaming operation in which the Company has an
interest, the independent members of the Board agreed to pay Mr. Marovitz a
success fee of: (1) $25,000 on the date of opening; and (2) $100,000 on each
of the first, second and third anniversaries of the opening date, provided
that gaming operations are ongoing on the date of payment. The Company was
part of a consortium (the "Consortium"), which Mr. Marovitz was instrumental
in putting together, that applied for a gaming license on the island of
Rhodes, Greece in June 1995. In November 1995, the Greek government notified
the Consortium that the application for the gaming license had been granted.
The Company has sold its minority interest in the Consortium, booked a gain of
$1.7 million and received a guaranteed licensing deal from the Consortium. The
Consortium is currently renovating the property that will be the Playboy
Casino at Hotel des Roses and expects to open the casino in the next few
weeks. Mr. Marovitz has continued to be very involved in government regulatory
negotiations and to travel to Greece to assist in the project, for which he
has received reimbursement of his expenses.
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PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO AND THE RESTATEMENT OF
THE PLAYBOY ENTERPRISES, INC. 1995 STOCK INCENTIVE PLAN
In January 1999, the Board unanimously approved and adopted, subject to
stockholder approval, amendments to and the restatement of the Playboy
Enterprises, Inc. 1995 Stock Incentive Plan, as previously amended and
restated in 1996, to (i) increase by 1,900,000 the maximum number of shares of
Class B Stock available under the 1995 Plan, and (ii) make other technical
amendments. The affirmative vote of a majority of the shares of Class A Stock
represented in person or by proxy is required for approval of the amendments
to and the restatement of the 1995 Plan. The following summary of the
principal provisions of the 1995 Plan is not intended to be exhaustive and is
qualified in its entirety by the terms of that plan.
GENERAL DESCRIPTION OF THE 1995 PLAN
The principal purposes of the 1995 Plan are to provide incentives for key
employees of the Company and its subsidiaries through the grant or issuance of
options, restricted stock and other awards, thereby giving them incentives to
enhance the Company's growth, development and financial success, and to remain
in the Company's employ. Under the current 1995 Plan, not more than 1,803,000
shares of Class B Stock are authorized for issuance upon exercise of options
and other awards, or upon issuance of restricted or deferred stock awards.
Under the proposed amendments to the 1995 Plan, not more than 3,703,000 shares
of Class B Stock would be authorized for issuance. The maximum number of
shares which may be subject to options, rights or other awards granted under
the 1995 Plan to any individual in any calendar year cannot exceed 250,000. If
any portion of an option, restricted stock grant or other award terminates or
lapses unexercised or unvested, or is cancelled, the shares which were subject
to the unexercised portion of option, restricted stock or other award, will
again be available for issuance under the 1995 Plan. The 1995 Plan also
provides that an employee may not be granted during any calendar year Section
162(m) Performance Awards, as described below, in an amount in excess of $1
million if those Section 162(m) Performance Awards are cash bonuses or other
types of performance or incentive awards expressed as cash awards.
The shares available under the 1995 Plan upon exercise of options, and other
awards, and for issuance as restricted or deferred stock, may be either
previously authorized but unissued shares or treasury shares. The 1995 Plan
provides that the Committee shall make appropriate and equitable adjustments
in the number and kind of shares subject to the 1995 Plan, to maximum share
amounts included in the 1995 Plan and to outstanding grants under the 1995
Plan in the event of a stock split, stock dividend or certain other types of
recapitalizations or reclassifications.
ELIGIBILITY
Options, restricted stock and other awards under the 1995 Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Notwithstanding the foregoing, Hugh M. Hefner
is not eligible to receive options under the 1995 Plan. The number of
individuals eligible to receive awards under the 1995 Plan cannot be
determined because the Compensation Committee determines whether an employee
is eligible to receive an award. Through February 28, 1999, approximately 66
individuals had received awards under the 1995 Plan. More than one option,
restricted stock grant or other award may be granted to a key employee.
ADMINISTRATION
The 1995 Plan is administered by the Compensation Committee which is
comprised of persons who are both non-employee directors within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and outside
directors within the meaning of Section 162(m) of the Code. The Compensation
Committee is authorized to determine which employees are key employees to whom
options, restricted stock
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and other awards are to be granted and to determine the number of shares to be
subject to those options, restricted stock and other awards and the related
terms and conditions, consistent with the terms of the 1995 Plan. The
Compensation Committee is also authorized to adopt, amend and revoke rules
relating to the administration of the 1995 Plan.
AWARDS UNDER THE 1995 PLAN
The 1995 Plan provides that the Compensation Committee may grant or issue
stock options, restricted stock, deferred stock, performance awards, stock
payments and other stock-related benefits, or any combination of them. Each
grant or issuance will be set forth in a separate agreement with the person
receiving the award and will indicate the type, amount, terms and conditions
of the award. As a condition to the grant of an option, the Compensation
Committee may require a key employee to surrender for cancellation another
award previously granted to the employee.
Nonqualified stock options ("NQSOs") provide for the right to purchase Class
B Stock at a specified price which may not be less than fair market value of
that stock at the end of the business day immediately preceding the day the
option is granted, and usually will become exercisable (in the discretion of
the Compensation Committee) in one or more installments after the grant date.
NQSOs may be granted for any term specified by the Compensation Committee,
provided that the term of any NQSOs cannot exceed 10 years.
Incentive stock options ("ISOs") are designed to comply with the provisions
of the Code, and will be subject to restrictions contained in the Code,
including exercise prices equal to at least 100% of fair market value of the
Class B Stock on the grant date and a 10 year restriction on their term. ISOs
granted to holders of 10% or more of the Company's voting capital stock must
have an exercise price equal to at least 110% of fair market value of the
Class B Stock on the grant date and cannot extend beyond five years. ISOs may
be subsequently modified to disqualify them from treatment as an incentive
stock option. ISOs that first become exercisable in any year may not exceed
$100,000 in value of underlying stock, measured at the grant date, and any
excess amount will be considered NQSOs.
Restricted stock may be granted to participants subject to restrictions as
may be determined by the Compensation Committee. Restricted stock may not be
sold, or otherwise transferred or pledged, until restrictions are removed or
expire. Restrictions may be based on duration of employment, Company
performance, individual performance or other factors. Recipients of restricted
stock awards, unlike recipients of options, may have voting rights and receive
dividends prior to the time when the restrictions lapse. Unless provided
otherwise by the Compensation Committee, if no consideration (other than
services) was paid by the restricted stockholder upon issuance, a restricted
stockholder's rights in unvested restricted stock shall lapse upon termination
of employment for any reason at any time or prior to any date the Compensation
Committee may establish. If a participant gives consideration other than
services for restricted stock, the Company will generally have a right to
repurchase the shares of restricted stock upon termination of employment at a
price equal to the participant's purchase price. The amendments to the 1995
Plan will provide that a restricted stockholder's rights in unvested
restricted stock shall lapse upon a Change of Control (as defined under
"Acceleration of Vesting and Expiration of Options" below).
Deferred stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Compensation Committee. Like
restricted stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested, and recipients of deferred stock generally will have no
voting or dividend rights prior to the time when vesting conditions are
satisfied.
Performance awards may be granted by the Compensation Committee to
participants. These awards may be paid in cash or in Class B Stock or in a
combination of cash and Class B Stock. Performance awards may include
"phantom" stock awards that provide for payments based upon increases in the
price of the Class B Stock over
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a predetermined period. Performance awards may also include bonuses which may
be granted by the Compensation Committee and which may be payable in cash or
in Class B Stock or in a combination of cash and Class B Stock.
Stock payments may be granted by the Compensation Committee in the form of
shares of Class B Stock or an option or other right to purchase shares of
Class B Stock as part of a deferred compensation arrangement in lieu of all or
any part of compensation, including salary, bonuses and commissions, that
would otherwise be payable to a key employee in cash.
The 1996 amendments to the 1995 Plan established four new categories of
awards which may be granted under the 1995 Plan: Section 162(m) Restricted
Stock, Section 162(m) Deferred Stock, Section 162(m) Performance Awards and
Section 162(m) Stock Payments. Each of these awards is similar to its
"generic" category described above except that none of these awards may vest
unless one or more specified performance criteria established by the
Compensation Committee has been achieved.
DELIVERY OF EXERCISE PRICE OF OPTIONS
The exercise or purchase price for all options and other rights to acquire
Class B Stock, together with any applicable tax required to be withheld, may
be paid (a) in cash or by certified or cashier's check at the time of exercise
or purchase; or (b) in shares of Class B Stock owned by the optionee;
provided, however, that the optionee may use Class B Stock in payment of the
exercise price only if the shares so used are considered "mature" for purposes
of generally accepted accounting principles, i.e., (x) they have been held by
the optionee free and clear for at least six months prior to the use of those
options or other rights to pay part of an option exercise price, (y) they have
been purchased by the optionee in other than a compensatory transaction, or
(z) they meet any other requirements for "mature" shares as may exist on the
date of the use of those options or other rights to pay part of an option
exercise price, as determined by the Committee; further provided, however,
that the optionee may use Common Stock in payment of the exercise price by
means of attestation to the Company of his ownership of sufficient shares in a
manner reasonably acceptable to the Committee. Shares actually delivered to
the Company (i.e., shares for which the attestation mechanism is not used)
must be duly endorsed for transfer to the Company. Shares used to pay all or
part of the option exercise price as contemplated by this provision will be
credited at their fair market value on the date of delivery; or (c) with the
approval of the Committee, by delivery of a full recourse promissory note; or
(d) any combination of them. The Committee may also permit the use of a
"cashless exercise" procedure which permits the optionee to deliver an
exercise notice to a broker-dealer, which then sells the option shares,
delivers the exercise price and withholding taxes to the Company and delivers
the excess funds, less commission and withholding taxes, to the optionee.
ACCELERATION OF VESTING AND EXPIRATION OF OPTIONS
Options granted under the 1995 Plan, unless otherwise provided under the
terms of a stock option agreement, will generally expire (i) 10 years from the
date the option was granted or (ii) three months from the employee's
termination of employment as a result of the employee's retirement, or the
employee's being discharged not for cause unless the employee dies within the
three-month period; or (iii) the effective date of (x) a termination of
employment for cause, (y) the employee's resignation, or (z) a Change of
Control specified in clause (iii) of the definition of that term; or (iv) one
year from the employee's termination of employment as a result of the
employee's disability, unless the optionee dies within the one-year period; or
(v) one year from the date of the optionee's death. The Committee may provide
for different expiration terms for any option.
The amendment to the 1995 Plan provides that, in the event of a Change of
Control of the Company, options that are unvested on the effective date of the
Change of Control will become immediately exercisable. The 1995 Plan currently
provides that in the event of a Change of Control of the Company specified in
clause (iii) of the definition of that term, all vested installments of the
option, and the next installment (if any) of the option that is unvested on
the effective date of the Change of Control will become immediately
exercisable as of the date specified by the Committee.
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For purposes of the 1995 Plan, a "Change of Control" means the occurrence of
any of the following events: (i) except in a transaction described in clause
(iii) below, Hugh M. Hefner, Christie A. Hefner, the Hugh M. Hefner 1991 Trust
(for so long as Hugh M. Hefner and Christie A. Hefner are joint trustees or
one of them is sole trustee), and the Hugh M. Hefner Foundation (for so long
as Hugh M. Hefner and Christie A. Hefner are joint trustees or one of them is
sole trustee) cease collectively to own a majority of the total number of
votes that may be cast for the election of directors of the Company; or (ii) a
sale of Playboy magazine by the Company; or (iii) the liquidation or
dissolution of the Company, or any merger, consolidation or other
reorganization is initiated by the Company, and (y) is one in which the
stockholders of the Company immediately prior to the reorganization become the
majority stockholders of a successor or ultimate parent corporation of the
Company resulting from the transaction and (z) in connection with the event,
provision is made for an assumption of outstanding options and rights or a
substitution for them of a new option or right in the successor or ultimate
parent of substantially equivalent value.
AMENDMENT AND TERMINATION
The 1995 Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board,
provided that (i) no amendment or modification will be effective if it would
cause the 1995 Plan to fail to meet the applicable requirements of Rule 16(b)-
3, and (ii) no amendment or modification which would require stockholder
approval under Rule 16(b)-3 will be effective until stockholder approval is
obtained. The 1995 Plan may be wholly or partially amended, modified,
suspended or terminated at any time or from time to time by the Board,
provided that no amendment or modification may increase the maximum number of
shares available for issuance under the 1995 Plan (except for adjustments
described above) or change the types of employees eligible to participate in
it. Neither the amendment, suspension nor termination of the 1995 Plan shall,
without consent of the holder of an option, restricted stock or award, alter
or impair any rights or obligations under any option, restricted stock or
award. No option, restricted stock or other award may be granted during any
period of suspension nor after termination of the 1995 Plan, and in no event
may any option be granted under the 1995 Plan after the expiration of 10 years
from the date the 1995 Plan is approved by the Company's stockholders.
TRANSFER RESTRICTIONS
The options, restricted stock awards, deferred stock awards, performance
awards and stock payments under the 1995 Plan may not be transferred under any
circumstances, and any attempted disposition of them shall be null and void
and of no effect; provided that the restriction on transferability shall not
prevent transfers by will or by the applicable laws of descent and
distribution or under a qualified domestic relations order as defined by the
Code or Title I of ERISA, or the rules under it, and transfers of shares
acquired upon exercise of any option, award or right under the 1995 Plan will
be permitted to the extent permitted by Rule 16(b)-3 as then in effect. The
1995 Plan leaves the transferability of all awards to the discretion of the
Committee.
MISCELLANEOUS PROVISIONS
The Plan specifies that the Company may make loans to 1995 Plan participants
to enable them to exercise options, purchase shares or realize the benefits of
other awards granted under the 1995 Plan. The terms and conditions of loans,
if any are made, are to be set by the Committee and approved by the Company.
The dates on which options or other awards under the 1995 Plan first become
exercisable or vest will be set forth in individual stock option agreements or
other agreements setting forth the terms of the awards.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the 1995 Plan based on federal
income tax laws in effect on March 22, 1999. This summary is not intended to
be exhaustive and does not describe state or local tax consequences.
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TAX CONSEQUENCES TO PARTICIPANTS
Nonqualified Stock Options. In general: (i) no income will be recognized by
an optionee at the time an NQSO is granted; (ii) at the time of exercise of an
NQSO, ordinary income will be recognized by the optionee in an amount equal to
the difference between the option price paid for the shares and the fair
market value of the shares if they are nonrestricted on the date of exercise;
and (iii) at the time of sale of shares acquired pursuant to the exercise of
an NQSO, any appreciation (or depreciation) in the value of the shares after
the date of exercise will be treated as either short-term or long-term capital
gain (or loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an ISO. If shares of Class B Stock are
issued to an optionee upon the exercise of an ISO and no disqualifying
disposition of the shares is made by the optionee within two years after the
date of grant or within one year after the transfer of the shares to the
optionee, then upon the sale of the shares any amount realized in excess of
the option price will be taxed to the optionee as long-term capital gain and
any loss sustained will be a long-term capital loss.
If shares acquired upon the exercise of an ISO are disposed of prior to the
expiration of either holding period described above, the optionee generally
will recognize ordinary income in the year of disposition in an amount equal
to any excess of the fair market value of the shares at the time of exercise
(or, if less, the amount realized on the disposition of the shares if a sale
or exchange) over the option price paid for the shares. Any further gain (or
loss) realized by the optionee generally will be taxed as short-term or long-
term capital gain (or loss) depending on the holding period.
Restricted Stock. A recipient of restricted stock (including Section 162(m)
Restricted Stock) generally will be subject to tax at ordinary income rates on
the fair market value of the shares of restricted stock (reduced by any amount
paid by the recipient for the shares) at the time as the shares are no longer
subject to a risk of forfeiture or restrictions on transfer for purposes of
Section 83 of the Code. A recipient who so elects under Section 83(b) of the
Code within 30 days of the date of transfer of the shares will recognize
ordinary income at the time in an amount equal to the excess of the fair
market value of the shares (determined without regard to the risk of
forfeiture or restrictions on transfer) over any purchase price paid for the
shares. If a Section 83(b) election has not been made, any dividends received
with respect to shares of restricted stock that are subject at that time to a
risk of forfeiture or restrictions on transfer generally will be treated as
compensation that is taxable as ordinary income to the recipient.
Deferred Stock. No income generally will be recognized upon the grant of
deferred stock (including Section 162(m) Deferred Stock). The recipient of a
deferred stock grant generally will be subject to tax at ordinary income rates
on the fair market value of nonrestricted shares of Class B Stock on the date
that the shares are transferred to the participant under the grant, reduced by
any amount paid by the participant, and the capital gains/loss holding period
for the shares will also commence on that date.
Performance Awards. No income generally will be recognized upon the grant of
deferred stock (including Section 162(m) Performance Award). Upon payment in
respect of the earn-out of performance awards, the recipient generally will be
required to include as taxable ordinary income in the year of receipt an
amount equal to the amount of cash received and the fair market value of any
nonrestricted shares of Class B Stock received.
Stock Payment and Section 162(m) Stock Payment. A participant who elects to
receive shares of Class B Stock in lieu of other compensation generally will
recognize ordinary income at the time the shares are received in an amount
equal to the fair market value of the shares. A participant who elects to
receive NQSOs in lieu of other compensation generally will be taxed as
described above in the case of a recipient of NQSOs.
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TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that an employee recognizes ordinary income in the
circumstances described above, the Company or the subsidiary for which the
employee performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not an
"excess parachute payment" within the meaning of Section 280G of the Code and
is not disallowed by Section 162(m) of the Code.
1995 PLAN BENEFITS DURING FISCAL YEAR 1998
The types of awards which may be granted in the future are subject to the
discretion of the Committee and, therefore, cannot be determined. Two
executive officers received awards under the 1995 Plan during fiscal year
1998. Other employees received under the 1995 Plan during fiscal year 1998
stock options to purchase 42,500 shares of Class B Stock and restricted stock
awards covering 16,250 shares of Class B Stock.
THE BOARD RECOMMENDS THAT HOLDERS OF THE COMPANY'S CLASS A STOCK VOTE "FOR"
APPROVAL OF THE AMENDMENTS TO AND THE RESTATEMENT OF THE PLAYBOY ENTERPRISES,
INC. 1995 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED.
PROPOSAL NO. 3
APPROVAL OF AMENDMENTS TO THE PLAYBOY ENTERPRISES, INC.
EMPLOYEE STOCK PURCHASE PLAN
In April 1996, the Board adopted, subject to stockholder approval, which was
received in November 1996, the Playboy Enterprises, Inc. Employee Stock
Purchase Plan, as amended, which authorized the purchase by certain employees
of the Company of up to 50,000 shares of Class B Stock. In October 1996, the
Board adopted amendments to and restatement of the Purchase Plan which
modified certain participation mechanics and made technical revisions prompted
by changes to Rule 16b-3 under the Securities Exchange Act of 1934, as
amended. On March 10, 1999, the Board approved additional amendments to the
Purchase Plan, primarily to increase the number of shares thereunder by
90,000, for a total of 140,000. The affirmative vote of a majority of the
shares of Class A Stock represented in person or by proxy is required for the
approval of the amendments to the Purchase Plan. All subscriptions for, and
purchases of, Class B Stock under the Purchase Plan above 50,000 shares will
be null and void unless the amendment increasing the shares authorized under
the Purchase Plan is approved by the Company's stockholders by March 2000. The
following summary of the principal provisions of the Purchase Plan is not
intended to be exhaustive and is qualified in its entirety by the terms of the
Purchase Plan.
PURPOSE
The Purchase Plan is intended to advance the interests of the Company and
its stockholders by allowing employees of the Company and certain of its
subsidiaries the opportunity to purchase shares of the Company's Class B
Stock. The Purchase Plan is intended to constitute an "employee stock purchase
plan" within the meaning of Section 423 of the Code. See "Federal Income Tax
Consequences".
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of the Board
of Directors (the "Committee"). The Committee has the authority to (i)
interpret and construe the Purchase Plan and any subscriptions under it, (ii)
establish policies, procedures and rules related to the operation and
administration of the Purchase Plan, (iii) designate from time to time the
subsidiaries of the Company whose employees will be eligible to participate in
the Purchase Plan, (iv) make adjustments in the price and the number and kind
of shares which may be purchased under the Purchase Plan under the
circumstances described below under "Adjustments," and (v) subject to certain
limitations, amend the provisions of the Purchase Plan. The
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interpretation and construction by the Committee of any provision of the
Purchase Plan or of any subscription under it will be final.
RULES
The Committee may adopt rules applicable to the administration of the
Purchase Plan. Those rules may address minimum payroll deductions and other
matters, including the delivery of reports to participants related to the
operation of the Purchase Plan.
AGGREGATE SHARES AVAILABLE FOR PURCHASE
Subject to adjustment as described below, currently up to 50,000 and, as
amended, up to 140,000 aggregate shares of Class B Stock may be purchased
under the Purchase Plan. If the number of shares which may be purchased on any
Purchase Date exceeds the number of shares available to be purchased under the
Purchase Plan, the shares available to be purchased will be made available for
purchase on a pro rata basis among subscriptions. Shares of Class B Stock sold
under the Purchase Plan shall be authorized but unissued or reacquired shares.
ELIGIBILITY
Each employee of the Company (or a subsidiary designated by the Committee)
who works customarily 20 or more hours per week may participate in the
Purchase Plan by subscribing to purchase shares of Class B Stock.
Notwithstanding the foregoing, no employee may subscribe to purchase shares
if, immediately after such subscription, the employee would own stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company. For
purposes of making this determination, an employee is considered as owning the
stock owned, directly or indirectly, by or for the employee's brothers and
sisters, spouse, ancestors, and lineal descendants. Also, stock owned,
directly or indirectly, by or for a corporation, partnership, estate, or that
is considered as being owned proportionately by or for its shareholders,
partners, or beneficiaries is considered as owned by the employee. In
addition, an employee is considered as owning stock which the employee may
purchase under outstanding options. A "subsidiary" is defined under the
Purchase Plan as any corporation in which the Company directly or indirectly
owns or controls more than 50% of the total combined voting power of all
classes of stock issued by the corporation. As of February 28, 1999,
approximately 840 employees were eligible to participate in the Purchase Plan.
Shares of Class B Stock may be purchased only by subscribing employees who
have legal capacity as determined under applicable state law or, in the event
of the employee's legal incapacity, by his or her guardian or legal
representative acting in a fiduciary capacity on behalf of the employee under
state law or court supervision.
TERMS OF SUBSCRIPTIONS
Beginning with July 1, 1996, each eligible employee may subscribe to
purchase shares of Class B Stock by completing a written agreement (a
"Subscription") provided by the Committee and submitting it as directed by the
Committee. Under a Subscription, an eligible employee designates any whole
dollar amount to be withheld from the employee's compensation in each pay
period and used to purchase shares of Class B Stock on the next Purchase Date,
provided that (i) the whole dollar amount cannot exceed 10% of his or her
gross regular earnings (on a bi-weekly basis), (ii) the maximum number of
shares of Class B Common Stock which can be purchased by any one employee on
any Purchase Date cannot exceed 1,000 shares of Class B Stock, and (iii) the
Committee may establish minimum payroll deductions. Notwithstanding the
foregoing, no Subscription will permit the rights of an employee to purchase
(under all of the Company's employee stock purchase plans) shares of the
Company's stock to accrue at a rate which exceeds $25,000 of fair market value
(determined on the Subscription Date, which is generally defined as the first
business day of each fiscal quarter or, if later, the date a participant first
becomes an employee) in any calendar year. Once an employee submits a
Subscription, the employee will
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remain a participant in the Purchase Plan in accordance with the provisions
described below. The form of Subscription may contain other terms which do not
conflict with the terms of the Purchase Plan.
PURCHASE OF STOCK; PRICE AND PAYMENT
The purchase of shares of Class B Stock will take place automatically on the
last business day of each fiscal quarter during which the Purchase Plan is in
effect (the "Purchase Date"). Unless a participant has withdrawn from the
Purchase Plan, shares of Class B Stock shall be purchased to the extent of
amounts withheld from the participant's compensation. The purchase price of
shares purchased under the Purchase Plan will be an amount equal to 85% of the
fair market value of the stock on the applicable Purchase Date. During such
time as the Class B Stock is traded on the NYSE, the fair market value per
share shall be the closing price of the Class B Stock (as reported in the
record of Composite Transactions for NYSE-listed securities and printed in The
Wall Street Journal) on the Purchase Date or on the next regular business day
on which the Class B Stock is traded if no shares of Class B Stock are traded
on the Purchase Date. As of February 28, the closing price of the Class B
Stock on the NYSE was $20 15/16. Fractional shares may be purchased under the
Purchase Plan and credited to participant accounts; however, the Company shall
have the right to pay cash in lieu of any fractional shares of Common Stock to
be distributed from an employee's account.
The purchase price will be payable in full in U.S. dollars derived by
withholdings from participants' compensation. A participant can terminate
withholdings related to the Purchase Plan at any time. In addition, a
participant may, once each quarter, change the amount withheld from his or her
compensation by submitting a written request to the Company at least 15
business days before any Purchase Date.
CANCELLATION AND WITHDRAWAL
A participant may cancel any Subscription in whole and obtain a refund of
amounts withheld from his or her compensation by submitting a written request
to the Company at least 15 business days before a Purchase Date. All unused
payments credited to his or her account will be refunded within a reasonable
time after the Company's receipt of such notice. Any cancellation of a
subscription in whole will constitute a withdrawal under the Purchase Plan.
TERMINATION OF EMPLOYMENT
If a participant retires or becomes disabled, accumulated payments in his or
her account upon retirement or disability will be used to purchase shares of
Class B Stock on the next Purchase Date, unless the Company is otherwise
notified in writing. In addition, he or she may elect to continue making
payments equal to the rate of payroll deductions made before retirement or
disability until the first Purchase Date following retirement or disability.
If a participant dies, the participant's designated beneficiary or legal
representative may exercise the same elections available to a participant who
retires or becomes disabled. If a participant ceases to be employed by the
Company or a participating subsidiary for any other reason, the participant
may elect in writing to have all accumulated payments in his or her account at
the time of termination applied to purchase shares of Class B Stock on the
next Purchase Date following termination. In the absence of such written
election, all unused payments credited to his or her account will be refunded
within a reasonable period of time.
NO INTEREST
No interest will accrue on any amounts withheld from an employee's
compensation.
TRANSFERABILITY
Neither payments credited to an employee's account nor any rights to
subscribe to purchase shares of Class B Stock under the Purchase Plan may be
transferred by a participant except by the laws of descent and
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distribution. Any such attempted transfer will be ineffective; however, the
Company may choose to treat an attempted transfer as an election to withdraw
from participation in the Purchase Plan.
ADJUSTMENTS
The Committee may make or provide for adjustments in the purchase price and
in the number and kind of shares of Class B Stock or other securities covered
by outstanding subscriptions or the maximum shares specified above in "Terms
of Subscriptions" as the Committee in its sole discretion exercised in good
faith, may determine is equitably required to prevent dilution or enlargement
of the rights of employees which would otherwise result from any stock
dividend, stock split, combination of shares, recapitalization, or other
change in the capital structure of the Company, any merger, consolidation,
spin-off, split-off, spin-out, split-up, separation, reorganization, partial
or complete liquidation, or other distribution of assets, issuance of rights
or warrants to purchase stock or any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any
transaction or event having an effect similar to the foregoing, the Committee,
in its discretion, may also provide in substitution for any or all outstanding
Subscriptions under the Purchase Plan alternative consideration as it, in good
faith, may determine to be equitable in the circumstances.
RIGHTS AS A STOCKHOLDER
An employee shall have no rights as a stockholder with respect to any Class
B Stock covered by his or her Subscription until the Purchase Date following
payment in full. Except as described in "Adjustments" above, no adjustment
will be made to the Purchase Plan or to outstanding Subscriptions for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), or distributions or other rights for which the record date occurs
prior to purchase.
AMENDMENT
The Committee may from time to time amend the Purchase Plan. Except for the
adjustments described above, without the approval of the stockholders of the
Company, no amendment can (i) increase the total number of shares available
for issuance under the Purchase Plan, or (ii) materially modify the
requirements as to eligibility for participation in the Purchase Plan.
DURATION
Employees may subscribe for shares under the Purchase Plan until April 25,
2006. Notwithstanding the foregoing, the Committee may terminate or suspend
the Purchase Plan if at any time less than 5% of the eligible employees are
participating in the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the federal income tax consequences that
may occur based on the federal income tax laws in effect on March 22, 1999.
This summary is not intended to be exhaustive and does not describe state or
local tax consequences.
TAX CONSEQUENCES TO EMPLOYEES
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Assuming the Purchase
Plan qualifies under Section 423 of the Code, participants will not recognize
income for federal income tax purposes either upon subscriptions under the
Purchase Plan or upon purchases of shares under it. All tax consequences of
purchasing shares under the Purchase Plan are deferred until the participant
sells or otherwise disposes of the shares or dies.
If the shares are held more than two years from the applicable Subscription
Date and more than one year from the applicable Purchase Date, the participant
will be taxed on the sale of shares at long-term capital gains
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rates, except to the extent that the participant realizes ordinary income
under Section 423(c) of the Code in an amount equal to the lesser of (i) 15%
of the fair market value of the shares on the Subscription Date or (ii) the
amount by which the fair market value of the shares at the time of the sale
exceeds the purchase price.
If a participant should die owning shares acquired under the Purchase Plan,
he or she will be deemed to have disposed of his or her shares on the date of
death and will realize ordinary income to the extent of the ordinary income
component described in the preceding paragraph, but no capital gain will
result until the time of a subsequent sale, when the amount of gain will
typically be equal to the excess of the selling price over the fair market
value of the shares on the date of death or the alternative valuation date for
federal estate tax purposes.
If shares acquired under the Purchase Plan are sold, exchanged or otherwise
disposed of before the end of the required holding periods described above,
the participant will, in the usual case, realize ordinary income at the time
of disposition equal to the excess of the fair market value of the shares on
the applicable Purchase Date over the purchase price of the shares. Any
additional gain on the sale or disposition should be taxable as capital gains,
long-term or short-term, depending on the holding period.
TAX CONSEQUENCES TO THE COMPANY
To the extent that an employee of the Company or any subsidiary realizes
ordinary income because he or she did not hold the stock more than two years
from the applicable Subscription Date and more than one year from the
applicable Purchase Date, the Company or its subsidiary generally will be
entitled to a corresponding deduction in the year in which the disposition
occurs. Otherwise, no deduction is allowable to the Company with respect to
shares acquired under the Purchase Plan.
PURCHASE PLAN BENEFITS
The number of shares of Class B Stock which may be purchased in the future
by employees is dependent on each employee's decision as to the extent, if
any, to participate in the Purchase Plan and, therefore, cannot be determined.
THE BOARD RECOMMENDS THAT HOLDERS OF THE COMPANY'S CLASS A STOCK VOTE "FOR"
APPROVAL OF THE AMENDMENTS TO THE PLAYBOY ENTERPRISES, INC. EMPLOYEE STOCK
PURCHASE PLAN, AS AMENDED.
PROPOSAL NO. 4
APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION OF PLAYBOY ENTERPRISES INTERNATIONAL, INC.
On March 15, 1999, the Company completed its acquisition (the "Spice
Acquisition") of Spice Entertainment Companies, Inc. ("Spice") under the terms
of an Agreement and Plan of Merger, dated as of May 29, 1998, as amended (the
"Merger Agreement"), by and among Playboy Enterprises, Inc. ("Old Playboy"),
New Playboy, Inc., formerly a wholly-owned subsidiary of Old Playboy ("New
Playboy"), Playboy Acquisition Corp., formerly a wholly-owned subsidiary of
New Playboy ("PAC"), Spice Acquisition Corp., formerly a wholly-owned
subsidiary of New Playboy ("SAC") and Spice. At the closing of the Spice
Acquisition, (i) Old Playboy merged with PAC (the "Playboy Merger"), (ii)
Spice merged with SAC (the "Spice Merger"), and (iii) as a result of the
Playboy Merger and the Spice Merger, Old Playboy and Spice each became wholly-
owned subsidiaries of New Playboy. New Playboy, the new publicly traded
holding company created by the Playboy Merger and the Spice Merger, was
renamed "Playboy Enterprises, Inc." and Old Playboy was renamed "Playboy
Enterprises International, Inc."
The Playboy Merger was effected under the terms of (S) 251(g) of the
Delaware General Corporation Law (the "DGCL") which permits the merger of a
corporation into one of its direct or indirect wholly-owned
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subsidiaries without the approval of the stockholders of either corporation,
provided that a variety of conditions specified in (S) 251(g) are satisfied.
One of these conditions required that, in the Playboy Merger, the Restated
Certificate of Incorporation of Old Playboy (the "Old Playboy Charter") be
amended to add a new Article THIRTEENTH. Article THIRTEENTH provides that any
act or transaction by or involving Old Playboy that, under the DGCL, would
require the approval of the stockholders of Old Playboy, shall now also
require the approval of the stockholders of New Playboy (i.e., the approval of
a majority of the holders of Class A Stock of the Company).
The Board has determined that an amendment to the Old Playboy Charter is
advisable and has unanimously voted to recommend the proposed amendment to the
holders of the Company's Class A Stock for adoption. The proposed amendment
would delete Article THIRTEENTH of the Old Playboy Charter. With Article
THIRTEENTH, the holders of the Class A Stock and specifically The 1991 Hugh M.
Hefner Trust, none of which are subject to fiduciary duties, would have veto
power over any major corporate transaction involving Old Playboy, a subsidiary
of the Company, regardless of the fact that the transaction may have been
approved by the Board, which is subject to fiduciary duties. The proposed
amendment would put the Company in the same position with respect to its
subsidiaries, including Old Playboy, as it was in prior to the Spice
Acquisition. Hugh M. Hefner, as trustee of The 1991 Hugh M. Hefner Trust, has
agreed to vote as directed by the Board on matters pertaining to Old Playboy
until Article THIRTEENTH of the Old Playboy charter is deleted.
THE BOARD RECOMMENDS THAT THE HOLDERS OF THE COMPANY'S CLASS A STOCK VOTE
"FOR" APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION
OF PLAYBOY ENTERPRISES INTERNATIONAL, INC.
PROPOSAL NO. 5
INDEPENDENT AUDITORS
The Board, upon the recommendation of the Audit Committee, has determined
that PricewaterhouseCoopers LLP should continue to serve as auditors for the
Company for the fiscal year ending December 31, 1999.
THE BOARD RECOMMENDS THAT THE HOLDERS OF THE COMPANY'S CLASS A STOCK VOTE
"FOR" RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT AUDITORS FOR THE CURRENT FISCAL YEAR.
A representative of PricewaterhouseCoopers LLP will be present at the annual
meeting and will be available to respond to appropriate questions from
stockholders. The representative will be allowed to make a statement regarding
appropriate issues, should he or she wish to do so. The fees and expenses
incurred by the Company for the fiscal year 1998 annual audit as performed by
PricewaterhouseCoopers LLP are estimated to be approximately $235,000. The
final cost of the audit for the six-month transition period ended December 31,
1997 performed by PricewaterhouseCoopers LLP was approximately $223,000 with
all expenses included.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the SEC and the New York Stock
Exchange and Pacific Exchange. Officers, directors and greater than 10%
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. Based solely on the Company's
review of the copies of the forms received by it, or written representations
from certain reporting persons that no other reports were required during the
fiscal year 1998, all of the Company's officers, directors and greater than
10% beneficial owners complied with all Section 16(a) filing requirements
except that Ms. Hefner filed a late Form 4 reporting one transaction through
no fault of her own.
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STOCKHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 2000 annual
meeting must be received by the Company no later than March 15, 2000 to be
considered for inclusion in its proxy statement and form of proxy relating to
that meeting. Proposals should be addressed to the Secretary, Playboy
Enterprises, Inc., 680 North Lake Shore Drive, Chicago, Illinois 60611, and,
while not required, should be submitted by Certified Mail Return Receipt
Requested to confirm the date of receipt.
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's Annual Report to Stockholders and the Company's
Annual Report on Form 10-K for fiscal year 1998, including financial
statements, was mailed to each stockholder on March 31, 1999.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other
business that will be presented for consideration at the annual meeting. If,
however, other proper matters are presented at the meeting, it is the
intention of the proxy holders named in the enclosed form of proxy to take the
action as shall be in accordance with their best judgment. All matters to be
voted upon by stockholders require a majority vote of the shares of Class A
Stock represented in person or by proxy. The quorum requirement for convening
the meeting is a majority of the outstanding Class A Stock. Properly executed
proxies that are marked "withheld" (in the case of director elections) or
"abstain" or are held in street name by brokers that are not voted on one or
more particular proposals (if otherwise voted on at least one proposal) will
be counted for purposes of determining whether a quorum is present at the
meeting. "Withhelds" (in the case of director elections) and abstentions (with
respect to all other matters) will have the same effect as a vote against the
proposal to which it applies. Broker non-votes will be treated neither as a
vote for nor as a vote against any of the proposals to which those broker non-
votes apply.
By Order of the Board of Directors
Chicago, Illinois
April , 1999
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PROXY PROXY
PLAYBOY ENTERPRISES, INC.
This Proxy is Solicited on Behalf of The Board of Directors for the
Annual Meeting of Stockholders to be held on May 12, 1999
The undersigned hereby constitutes and appoints CHRISTIE A. HEFNER and
HOWARD SHAPIRO, and each of them, as Proxies, each with full power of
substitution, to vote for the undersigned all of the shares of Class A Common
Stock of PLAYBOY ENTERPRISES, INC. registered in the name of the undersigned, as
of March 22, 1999, at the annual meeting of stockholders of Playboy Enterprises,
Inc. to be held May 12, 1999 and at any and all adjournments of that meeting,
upon the following matters, which are more fully described in the Proxy
Statement.
The right to revoke this proxy at any time before it is voted is
reserved. When properly executed, this proxy will be voted or withheld in
accordance with the specifications made in this proxy. IF NOT OTHERWISE
SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF MS. HEFNER AND MESSRS.
BROOKSHESTER, CHEMEROW, DRAPKIN, ROSENTHAL, ROSENZWEIG AND WOLFSON; "FOR"
APPROVAL OF AMENDMENTS TO AND THE RESTATEMENT OF THE 1995 STOCK INCENTIVE PLAN;
"FOR: APPROVAL OF AMENDMENTS TO THE EMPLOYEE STOCK PURCHASE PLAN; "FOR" APPROVAL
OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF PLAYBOY
ENTERPRISES INTERNATIONAL, INC.; AND "FOR" RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side)
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<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
<TABLE>
<S> <C> <C> <C>
1. Election of Directors: Nominees: For All 3. To approve amendments to For Against Abstain
D. Bookshester, D. Chemerow, D. Drapkin, For Withheld Except the Employee Stock [ ] [ ] [ ]
C. Hefner, S. Rosenthal, R. Rosenzweig, [ ] [ ] [ ] Purchase Plan, as amended,
B. Wolfson. To withhold authority to vote of Playboy Enterprises, Inc.
for one or more (but less than all)
nominees, write such nominee(s) name 4. To approve an amendment to For Against Abstain
below and mark "For All Except". the Restated Certificate of [ ] [ ] [ ]
Incorporation of Playboy
----------------------------------------- Enterprises International,
Inc., a subsidiary of
2. To approve amendments to and the For Against Abstain Playboy Enterprises, Inc.
restatement of the 1995 Stock [ ] [ ] [ ]
Incentive Plan, as amended and 5. To ratify the selection of
restated, of Playboy Enterprises, PricewaterhouseCoopers
Inc. LLP as independent auditors For Against Abstain
of Playboy Enterprises, Inc. [ ] [ ] [ ]
for the current fiscal year.
</TABLE>
Signature(s): Dated: , 1999
------------------------------- ------------------
The signature to this proxy should conform exactly to the name as shown. When
shares are held by joint tenant, all such tenants must sign.
The Proxies are authorized to vote in their discretion upon such other matters
as may properly come before the meeting.
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