<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 12, 2000.
REGISTRATION NO. 333-94295
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PLAYBOY.COM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7375 36-4276278
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
------------------------
730 FIFTH AVENUE
NEW YORK, NY 10019
TELEPHONE: (212) 261-5000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
KEVIN MAYER
CHIEF EXECUTIVE OFFICER AND PRESIDENT
PLAYBOY.COM, INC.
730 FIFTH AVENUE
NEW YORK, NY 10019
TELEPHONE: (212) 261-5000
FACSIMILE: (212) 957-2900
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ELLEN B. CORENSWET, ESQ. JAY K. HACHIGIAN, ESQ.
ALAN N. SHAPIRO, ESQ. RICHARD R. HESP, ESQ.
BROBECK, PHLEGER & HARRISON LLP MICHAEL B. AVON, ESQ.
1633 BROADWAY, 47TH FLOOR GUNDERSON DETTMER STOUGH VILLENEUVE
NEW YORK, NY 10019 FRANKLIN & HACHIGIAN, LLP
(212) 581-1600 225 WYMAN STREET
WALTHAM, MA 02451
(781) 890-8800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / / _________
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 12, 2000
Shares
[LOGO]
Playboy.com, Inc.
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We will make application to list our common
stock on The Nasdaq Stock Market's National Market under the symbol "PBYI."
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 5.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Playboy.com
------------- ------------- -------------
<S> <C> <C> <C>
Per
Share... $ $ $
Total... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
The date of this prospectus is , 2000.
<PAGE>
[INSIDE FRONT COVER]
[COLOR ARTWORK TO FOLLOW]
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
PROSPECTUS SUMMARY................... 1
RISK FACTORS......................... 5
FORWARD-LOOKING STATEMENTS........... 19
USE OF PROCEEDS...................... 20
DIVIDEND POLICY...................... 20
CAPITALIZATION....................... 21
DILUTION............................. 22
SELECTED FINANCIAL DATA.............. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS...................... 24
BUSINESS............................. 31
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
MANAGEMENT........................... 47
TRANSACTIONS WITH PLAYBOY
ENTERPRISES........................ 53
PRINCIPAL STOCKHOLDERS............... 59
DESCRIPTION OF CAPITAL STOCK......... 60
SHARES ELIGIBLE FOR FUTURE SALE...... 63
UNDERWRITING......................... 65
NOTICE TO CANADIAN RESIDENTS......... 67
LEGAL MATTERS........................ 68
EXPERTS.............................. 68
WHERE YOU CAN FIND ADDITIONAL
INFORMATION........................ 68
INDEX TO FINANCIAL STATEMENTS........ F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
i
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION
THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING
"RISK FACTORS" AND THE FINANCIAL STATEMENTS AND THE NOTES TO THE FINANCIAL
STATEMENTS, BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. INFORMATION CONTAINED
ON OUR ONLINE SITES DOES NOT CONSTITUTE PART OF THIS PROSPECTUS. REFERENCES IN
THIS PROSPECTUS TO "PLAYBOY.COM," "WE," "OUR" AND "US" REFER TO
PLAYBOY.COM, INC. REFERENCES IN THIS PROSPECTUS TO "PLAYBOY ENTERPRISES" REFER
TO PLAYBOY ENTERPRISES, INC. AND ITS SUBSIDIARIES, OTHER THAN PLAYBOY.COM, INC.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
PLAYBOY.COM, INC.
OUR BUSINESS
We are a leading Internet company dedicated to the adult entertainment
interests of young men around the world. We are uniquely positioned to
capitalize on the Playboy brand, which is one of the most recognized in the
world, to provide a compelling Playboy online entertainment experience. We
believe we are also able to exploit Playboy Enterprises' editorial, pictorial
and video libraries in a variety of exciting new ways, including broadband
interactive programming. Our network of sites combines Playboy's distinct
attitude and vast libraries with extensive and original content, a large
community of loyal users and a wealth of e-commerce offerings. Our business
model is based on monetizing the growing traffic on our sites through multiple
revenue streams, including e-commerce, advertising and sponsorships,
subscriptions and pay-per-view.
Our PLAYBOY.COM Web site offers original content focusing on topics such as
love and sex, gaming, pop culture, campus life, travel and nightlife, Playboy
Playmates and celebrities and sports. We also offer pay-per-view events such as
Mardi Gras, lingerie fashion shows and parties at the Playboy Mansion. Our
Playboy Cyber Club, a subscription-based Web site designed to address the
privacy and security concerns of our users, offers services such as VIP access
to over 45,000 photos, live Playmate chats, video clips and free online
backstage passes to events and pay-per-view specials. As of February 29, 2000,
we had 43,958 subscribers to the Playboy Cyber Club.
Our e-commerce business is driven by the Playboy Store, which is the primary
source for purchasing over 2,000 high margin Playboy-branded products, including
apparel, videos, jewelry and collectibles. Additionally, our Playboy Marketplace
enables us to receive commissions from the sale of a wide range of third party
products tailored to the Playboy user such as videos, music, books, software,
games, cigars, wine, consumer electronics and travel packages. In addition, in
December 1999, we launched the Playboy Auctions Web site to capitalize on the
thriving market for Playboy collectibles.
We also offer a separately branded online adult entertainment site located
at CYBERSPICE.COM. This site capitalizes on Playboy Enterprises' acquisition of
Spice Entertainment Companies, a leading provider of adult television
entertainment throughout the world. We currently generate revenues from the sale
of various items in our Spice Store, including adult videos, lingerie and
sensual products.
For the month of February 2000, we had over 120 million page views and over
19 million visits to our Web sites, as audited by ABC Interactive. Our Web sites
also generate significant international traffic and, in February 2000,
approximately 25% of our traffic originated outside of the United States.
OUR OPPORTUNITY
We believe that we are uniquely positioned to provide the leading online
site addressing the adult entertainment interests of young men around the world.
By using the power of the Playboy brand and leveraging the libraries and other
assets of Playboy Enterprises, we believe we will be able to grow our
1
<PAGE>
online businesses more successfully than our competitors, many of which must
incur significant expenses to build brand awareness. Our relationship with
Playboy Enterprises provides us the following key competitive advantages:
- online use of leading trademarks, including Playboy, Playmate and the
Rabbit Head Design;
- an extensive array of articles, interviews and cartoons from PLAYBOY
magazine, as well as a photo library of more than nine million images;
- access to over 1,500 hours of Playboy television and video programming and
various exclusive rights to develop interactivity for such programming;
- access to millions of subscribers and customers around the world; and
- promotional space in PLAYBOY magazine and on the Playboy television
networks and the ability to cross-promote the Playboy brand through
multiple media.
OUR STRATEGY
To be the leading online adult entertainment site for young men around the
world, we intend to:
- leverage our strong brand recognition;
- maximize revenues from multiple current and future revenue streams,
including e-commerce, advertising and sponsorships, subscription and
pay-per-view and Playboy-branded online gaming;
- enhance and expand adult entertainment content offerings and services,
including increased broadband interactive programming; and
- expand our international presence through joint ventures and other
alliances.
RECENT DEVELOPMENTS
On February 15, 2000, we purchased substantially all of the assets of Rouze
Media, Inc., which operated a free Web site located at ROUZE.COM. Launched in
September 1999, ROUZE.COM offers cutting-edge entertainment content targeted to
young men, including articles, pictorials, interviews with celebrities and
sports stars, interactive games and an online emporium that features trendy
gifts and gadgets. As part of the transaction, a majority of the employees of
Rouze Media, Inc., including its two founders, joined us. We expect to continue
to operate ROUZE.COM as a separate Web site as well as to incorporate some of
the ROUZE.COM content into PLAYBOY.COM and the Playboy Cyber Club.
OUR ADDRESS
Our principal executive offices are located at 730 Fifth Avenue, New York,
NY 10019. Our telephone number at that location is (212) 261-5000. Our Web sites
are located at WWW.PLAYBOY.COM, WWW.ROUZE.COM and WWW.CYBERSPICE.COM.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. We intend to use the net proceeds of this
offering to develop, enhance and expand our
Web sites, including the creation of original
content, to pursue e-commerce opportunities,
to increase our sales and marketing
activities, to enhance our technology
infrastructure, to explore potential
acquisitions and for other purposes. We also
intend to use approximately $1.0 million of
the net proceeds of this offering to repay a
loan from Playboy Enterprises that was used
to fund our acquisition of Rouze Media, Inc.
Proposed Nasdaq National Market symbol....... PBYI
</TABLE>
The outstanding share information is based on our shares outstanding as of
April 10, 2000, all of which were owned by Playboy Enterprises. This information
excludes shares of common stock issuable upon the exercise of stock
options outstanding under our option plan as of April 10, 2000 with a weighted
average exercise price of $ per share.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1996 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenues............................ $ 1,566 $ 3,391 $ 5,561 $ 13,601
Total cost of revenues, related party......... 393 1,407 2,597 7,165
---------- ---------- ---------- ----------
Gross profit.................................. 1,173 1,984 2,964 6,436
Total operating expenses, related party....... 2,494 4,663 8,652 15,390
---------- ---------- ---------- ----------
Operating loss................................ (1,321) (2,679) (5,688) (8,954)
---------- ---------- ---------- ----------
Net loss...................................... $ (1,674) $ (3,318) $ (6,917) $ (11,359)
========== ========== ========== ==========
Basic and diluted net loss per share.......... $ (0.08) $ (0.16) $ (0.34) $ (0.56)
========== ========== ========== ==========
Weighted average shares used in computing
basic and diluted net loss per share........ 20,312,500 20,312,500 20,312,500 20,312,500
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $
Working capital............................................. 517
Total assets................................................ 5,852
Total stockholders' equity.................................. 1,402
</TABLE>
- ------------------------
As adjusted amounts reflect the sale of shares of common stock in
this offering, assuming an initial public offering price of $ and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING EVENTS ACTUALLY OCCURS, OUR
BUSINESS AND FINANCIAL RESULTS MAY SUFFER. IN THIS CASE, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT IN
OUR COMMON STOCK.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT WILL BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.
We launched a free site on the Internet at WWW.PLAYBOY.COM in 1994 and
launched the Playboy Cyber Club in 1997. We began generating revenues from the
sale of advertising on PLAYBOY.COM in 1995, and first offered an extensive array
of Playboy-branded products in 1996. In early 1999, we began operating
WWW.CYBERSPICE.COM, which provides adult-oriented content and products. In
February 2000, we purchased Rouze Media, Inc.
Because we have a limited operating history, it will be difficult for you to
evaluate our business and prospects. We may fail to successfully implement our
business model and strategy or successfully revise our business model and
strategy should industry and competitive conditions change. You should also
consider the risks and uncertainties we may encounter in the new and rapidly
evolving Internet, online advertising, e-commerce, broadband and gaming markets.
We cannot assure you that we will be successful in addressing these risks and
uncertainties. Our failure to do so could cause our business, financial
condition and operating results to suffer.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT TO INCUR SIGNIFICANT LOSSES FOR
THE FORESEEABLE FUTURE.
We have not achieved profitability and expect to continue to incur
significant losses and negative cash flow from operations for the foreseeable
future. Failure to achieve or maintain profitability may negatively affect the
market price of our common stock. We incurred net losses of approximately
$6.9 million in 1998 and $11.4 million in 1999. As of December 31, 1999, our
accumulated net losses totaled approximately $25.2 million.
We intend to invest heavily to further develop our Web sites and technology
infrastructure, develop original content and increase our level of marketing and
promotional expenditures. In addition, we expect to incur increased expenses in
connection with licensing and other fees payable to Playboy Enterprises pursuant
to intercompany agreements to be entered into between us and Playboy Enterprises
prior to the closing of this offering. As a result, we will need to achieve
significant revenue increases to become profitable. In addition, even if we
become profitable, we may not sustain or increase our profits on a quarterly or
annual basis in the future.
WE HAVE RELIED ON PLAYBOY ENTERPRISES TO FINANCE OUR OPERATIONS IN THE PAST, AND
WE MAY NOT BE ABLE TO RELY ON PLAYBOY ENTERPRISES TO DO SO IN THE FUTURE.
Since inception, we have not been able to fund our operations through the
cash we generate from operating activities. As a result, we have relied on
Playboy Enterprises to finance our ongoing operations. Following this offering,
however, we may not be able to rely on Playboy Enterprises to finance our
activities in whole or in part. Specifically, Playboy Enterprises' recently
renegotiated credit agreement restricts Playboy Enterprises from advancing in
excess of $10 million to us beginning January 1, 2000, of which approximately
$4.0 million had been advanced as of February 29, 2000. We cannot be sure that
this credit agreement will not be revised to further restrict Playboy
Enterprises' ability to advance funds to us. Accordingly, we may need to seek
other sources of financing in the event that we need additional financing in the
future. We cannot be assured that other sources of financing will be available
on terms favorable to us, or at all. Our business, financial condition and
5
<PAGE>
results of operations would be harmed if we were unable to secure additional
sources of financing to satisfy our capital needs.
OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS,
WHICH MAY CAUSE VOLATILITY OR A DECLINE IN THE PRICE OF OUR STOCK.
Our revenues, expenses and operating results have varied from period to
period and may fluctuate significantly in the future. If our operating results
do not meet the expectations of securities analysts or investors, the share
price of our common stock is likely to decline. The many factors that could
cause our quarterly results to fluctuate include:
- the number of Internet users on, and the frequency of their use of, our
Web sites, because our advertising, e-commerce and subscription revenues
are typically related to user traffic;
- our ability to attract and retain advertisers, sponsors and e-commerce
partners;
- our ability to attract and retain subscribers to any of our subscription
services and our pay-per-view events;
- seasonal trends relating to the number of visitors to our Web sites and
the demand for our products;
- the impact of possible acquisitions both on our operations and on our
operating results; and
- the timing and effectiveness of any e-commerce arrangements or other
strategic alliances into which we enter.
Due to all the factors listed above and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our revenues
and results of operations as an indication of future performance.
WE FACE INTENSE COMPETITION FOR USERS AND SUBSCRIBERS, AND SUCH COMPETITION IS
LIKELY TO INCREASE IN THE FUTURE.
We currently face intense competition for users and subscribers from
numerous types of Web sites, including sites targeted at men, and from
publishers and distributors of traditional media. Competition could result in
less traffic to PLAYBOY.COM, CYBERSPICE.COM and ROUZE.COM, price reductions for
advertising and sponsorships on our Web sites and decreased revenues from the
sale of products, subscription services and pay-per-view events. Any of these
results could harm our business, financial condition and operating results.
Our ability to compete for users and subscribers depends on many factors,
some of which are outside of our control. These factors include the quality and
appeal of our competitors' content, the technology utilized by our competitors,
the effectiveness of their sales and marketing efforts and the attractiveness of
their product offerings.
Our existing competitors, as well as potential new competitors, may have
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their free Web sites and/or subscription and pay-per-view
services. These competitors may also engage in more extensive technology
research and development and adopt more aggressive pricing policies for their
subscription based content. As we expand internationally, we may face additional
competition. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to promote their Web sites and/or services or better serve the needs of their
users or subscribers. As a result, it is possible that we may have difficulty
competing for users and subscribers. Additionally, increased competition could
result in price reductions, lower margins and negatively impact our financial
results.
6
<PAGE>
IF WE ARE UNABLE TO GENERATE SIGNIFICANT REVENUES FROM ADVERTISING AND
SPONSORSHIPS, OR IF WE WERE TO LOSE ONE OF OUR LARGE ADVERTISERS OR SPONSORS,
OUR BUSINESS WOULD BE HARMED.
If companies perceive PLAYBOY.COM or ROUZE.COM to be a limited or
ineffective advertising medium, they may be reluctant to advertise or be a
sponsor on these Web sites.
We derive, and expect to continue to derive in the foreseeable future, a
substantial portion of our revenues from the sale of advertising and
sponsorships on PLAYBOY.COM. For example, approximately 43% of our revenues in
1998 and approximately 38% of our revenues in 1999 were from advertising and
sponsorships. In addition, we depend on a limited number of companies for a
significant part of our total advertising and sponsorship revenues.
Consequently, the loss or termination of any of our large advertisers or
sponsors could cause our revenues to decline.
Our ability to generate significant advertising and sponsorship revenues and
to attract a large number of advertisers and sponsors depends upon several
factors, including, among others, the following:
- the continued development of a large, demographically attractive user base
on PLAYBOY.COM and ROUZE.COM;
- our ability to maintain and increase our advertising rates given the
growing number of advertising outlets on the Internet;
- our ability to attract advertisers and sponsors from traditional media;
and
- our ability to provide effective advertising delivery and measurement
systems.
We compete with other Web sites, television, radio and print media for a
share of advertisers' total advertising budgets. We also compete for advertisers
with various online advertising networks and agencies. To a limited extent, we
compete with PLAYBOY magazine and the television networks operated by Playboy
Enterprises. Our existing competitors, as well as potential new competitors, may
have significantly greater financial, technical and marketing resources than we
do. These companies may be able to undertake more extensive marketing campaigns,
adopt aggressive advertising pricing policies and devote substantially more
resources to attracting advertising customers.
WE FACE INTENSE COMPETITION FROM INTERNET AND RETAIL BUSINESSES IN SELLING
PRODUCTS DIRECTLY TO CONSUMERS.
Since the introduction of e-commerce, the number of Web sites that sell
products directly to consumers has increased rapidly. We expect this number to
increase in the future given the relative ease with which new Web sites can be
developed. The nature of the Internet as an electronic marketplace may make it
more competitive than traditional retailing environments, and increased online
competition may result in reduced operating margins and loss of market share. We
believe that the primary competitive factors for e-commerce are brand
recognition, Web site content, ease of use, price, fulfillment speed, customer
service and support and reliability. We believe that our success will depend
heavily on our ability to provide a compelling and satisfying shopping
experience.
On our Web sites, we sell Playboy-branded and Spice-branded products, such
as videos, clothing, jewelry and collectibles. Our success depends, in part, on
our ability to offer merchandise that appeals to our customers' preferences. If
we misjudge the selection of our merchandise, our image and reputation with our
customers could be harmed. As a result, our sales growth could be harmed and our
business, financial condition and operating results could suffer.
We also sell numerous other third-party products on PLAYBOY.COM and
ROUZE.COM, including books, music, computer software and electronics equipment.
With respect to these products, we compete with numerous e-commerce merchants
and the Web sites of companies that manufacture the gifts we offer. In selling
products over the Internet, we also compete with stores and companies that do
not distribute their products through the Internet. Many of our Internet and
non-Internet competitors are larger than
7
<PAGE>
we are, enjoy greater economies of scale than are available to us, have
substantially greater resources than we have and may be able to offer more
products or more attractive prices than we can.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO MAINTAIN OR ENHANCE AWARENESS OF THE
PLAYBOY, SPICE AND ROUZE BRANDS ONLINE OR IF WE INCUR EXCESSIVE EXPENSES
ATTEMPTING TO PROMOTE THESE BRANDS.
If we fail to effectively promote and maintain the Playboy, Spice and Rouze
brands online, or incur excessive expenses attempting to promote and maintain
these brands, our business, financial condition and operating results may
suffer. Although we will depend heavily on the Playboy brand developed by
Playboy Enterprises, we will need to devote significant resources following this
offering to promoting and strengthening Playboy's reputation on the Internet. We
cannot assure you that Playboy Enterprises will not take actions that harm the
value of its Playboy and Spice brands which would harm our business. Likewise,
while we will be able to rely on Playboy Enterprises' promotion of the Spice
brand, we will also need to independently develop and promote Spice's Internet
presence. In order to promote the Playboy, Spice and Rouze brands online, we may
need to increase our marketing budget, hire additional marketing and public
relations personnel or otherwise increase our financial commitment to creating
and maintaining an online brand presence for Playboy, Spice and Rouze.
OUR BUSINESS MAY SUFFER IF WE HAVE DIFFICULTY ACQUIRING OR RETAINING SUBSCRIBERS
TO THE PLAYBOY CYBER CLUB AND OUR PAY-PER-VIEW EVENTS.
We may not succeed in attracting a significant subscriber base for the
Playboy Cyber Club and the various pay-per-view events that we intend to offer.
If we are unable to acquire or retain subscribers to the Playboy Cyber Club and
our pay-per-view events, our business, financial condition and operating results
may suffer. We believe that there is intense competition on the Internet for
providing adult targeted materials and that this competition has caused, and may
continue to cause, some of our subscribers to switch to other services. In
addition, some individuals may decide to use our pay sites, or view one of our
pay-per-view events, out of curiosity and may later discontinue such
subscription, or decide not to view other pay-per-view events. Also, we
presently offer a substantial amount of content on our free Web site and this
may reduce our ability to acquire or retain subscribers to our Playboy Cyber
Club and our pay-per-view events.
WE DEPEND ON THIRD PARTIES FOR SOME OF THE CONTENT AND FEATURES ON PLAYBOY.COM
AND ROUZE.COM, AND OUR BUSINESS COULD SUFFER IF ANY OF THESE RELATIONSHIPS ARE
TERMINATED OR IF WE ARE UNABLE TO ENTER INTO ADDITIONAL RELATIONSHIPS.
We have entered into various agreements with third parties, such as
Telescan, Dark Horse and Dr. Pepper Schwartz, Ph.D., to provide original content
and features which can be displayed to visitors of PLAYBOY.COM. Our ability to
continue to offer compelling content on PLAYBOY.COM and ROUZE.COM will depend,
in part, on agreements with third parties, and we expect to continue to enter
into such agreements in the future. If any of these relationships are
terminated, we cannot assure you that we will be able to replace the terminated
relationship with an equally beneficial relationship, if at all. We also cannot
assure you that we will be able to renew any of our current agreements when they
expire, or, if we are, that we will be able to do so on acceptable terms. We
also do not know whether we will be successful in entering into additional
relationships, or that any additional relationships, if entered into, will be on
terms favorable to us. In addition, the success of these relationships may also
be dependent on factors which are beyond our control, such as the quality of the
content or services provided by third parties.
SOME OF OUR MANAGEMENT PERSONNEL WILL BE HIRED IN THE NEAR FUTURE, AND WE WILL
DEPEND ON THEM FOR OUR FUTURE SUCCESS.
Our success will depend in large part on the contributions of our senior
management team. We recently hired a new chief executive officer and senior vice
president of sales and marketing and expect to hire a new chief financial
officer in the near future. Accordingly, we cannot assure you that our
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management team will be able to work effectively or successfully to manage our
operations. In addition, the loss of the services of any of our management
personnel, particularly our chief executive officer, could harm our business,
financial condition and operating results. We do not carry key person life
insurance on any of our personnel.
WE COULD FACE ADDITIONAL RISKS AND CHALLENGES AS WE EXPAND INTERNATIONALLY AND
MAY FACE UNEXPECTED COSTS IN DEVELOPING INTERNATIONAL REVENUES.
We plan to focus on increasing the localized content and products we provide
to our international audiences. As part of this strategy, we intend to enter
into joint venture and licensing arrangements. Expansion into new geographical
territories will require considerable management and financial resources and may
harm our business, financial condition and operating results. Expanding
internationally could subject us to numerous challenges and risks, including,
but not limited to, the following:
- the availability of attractive joint venture and licensing partners;
- political and economic conditions in various jurisdictions;
- fluctuations in currency exchange rates;
- the potential need for opening and managing distribution centers abroad;
and
- difficulties in protecting intellectual property rights in foreign
countries.
We cannot assure you that one or more of these factors would not harm any
current or future international operations and our business as a whole.
WE MAY NOT BE SUCCESSFUL IN DEVELOPING OR IMPLEMENTING ONLINE GAMING ON OUR WEB
SITE, AND THIS COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND OPERATING
RESULTS.
We cannot predict whether we will be able to succesfully develop or
implement online gaming on our Web sites. Expanding our business may require us
to expend significant amouts of capital to be able to contend with competitors
that have more online gaming experience than we do and may also have greater
resources to devote to online gaming. Also, as specified in the intercompany
agreements entered into between us and Playboy Enterprises, if online gaming on
our Web sites inhibits Playboy Enterprises' ability to obtain a license for a
Playboy-branded gaming casino, we will be obligated to terminate online gaming
on our Web sites. In addition, online gaming on our Web sites will be limited to
users located in jurisdictions where online gaming is legal, which currently
excludes the United States among other countries. We cannot assure you that we
will be successful in implementing or marketing our online gaming activities to
this international audience.
In addition, even if we are able to successfully implement online gaming on
our Web sites, we may incur significant losses if users win unanticipated
amounts of prize money. We cannot assure you that we will be able to accurately
predict the amounts of money that may be won by users of our potential online
gaming sites, and we may not have enough capital to cover these winnings. We may
also not be able to obtain an insurance policy to adequately protect us against
unanticipated losses on our potential online gaming sites. If we are unable to
develop or implement online gaming, if we are forced to terminate online gaming
on our Web sites or if users win unanticipated amounts of money, our financial
results may suffer and our stock price could decline.
WE MAY NOT EFFECTIVELY MANAGE OUR GROWTH, AND THIS COULD HARM OUR BUSINESS.
Our historical growth has placed, and any further growth is likely to place,
a significant strain on our resources. We expect that the number of our
employees, including management-level employees, content developers and sales
representatives, will continue to increase for the foreseeable future. As we
grow, we may need to implement new operational and financial systems and
managerial controls and procedures. In addition, we will need to continually
train and manage our growing workforce. If we do not manage our growth
effectively, our business, financial condition and operating results will be
harmed.
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THERE IS INTENSE COMPETITION FOR HIRING PERSONNEL IN THE INTERNET INDUSTRY, AND
WE MAY NOT BE ABLE TO HIRE AND RETAIN QUALIFIED EMPLOYEES.
Our business, financial condition and operating results depend in part on
our ability to attract, retain and motivate highly skilled employees.
Competition for employees in the Internet industry is intense, and many other
Internet companies have substantially greater financial resources than we do to
attract and retain qualified personnel from this limited pool of attractive
candidates. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining highly
skilled employees with appropriate qualifications. In addition, some people that
we may attempt to hire could be subject to non-competition agreements which
could impede our recruitment efforts. As a result, we cannot be sure that we
will be able to hire and retain the appropriate personnel in the future.
IF WE FAIL TO EFFICIENTLY MANAGE OUR PRODUCT SALES, OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS COULD BE HARMED.
Our business depends in part on our continued ability to sell a variety of
products on our Web sites, including Playboy-branded and Spice-branded
merchandise. We currently fulfill, and provide customer service for, the
Playboy-branded and Spice-branded merchandise, as well as other products offered
on CYBERSPICE.COM, pursuant to an agreement with Playboy Enterprises. Playboy
Enterprises has announced that it is exploring strategic alternatives for its
operations in Itasca, Illinois, which currently provides us with various product
fulfillment and customer service functions. If these operations are sold, and we
are unable to provide for product fulfillment and customer service through a
third party, our business would be harmed. With respect to the sale of other
products, we depend on the willingness of other companies to allow us to offer
their products on our Web sites, as well as on the quality and availability of
these products. In addition, we depend upon a number of third parties, including
mail and shipping companies, to deliver goods purchased on our Web sites.
Strikes or other service interruptions affecting these vendors could hinder our
ability to deliver merchandise on a timely basis.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE AND INTEGRATE ACQUISITIONS OF OTHER
BUSINESSES, PRODUCTS OR TECHNOLOGIES.
We recently acquired ROUZE.COM and may acquire additional new and
complementary businesses, products or technologies instead of developing them
ourselves. Some of the risks attendant to these acquisitions include the
following:
- the difficulties of integrating the operations, content and personnel of
acquired companies into our operations;
- the additional financial resources that may be needed to fund the
operations of acquired companies;
- the potential disruption of our ongoing business;
- the potential loss of key employees of acquired companies;
- the difficulty of maintaining uniform standards, controls, procedures and
policies;
- expenses associated with the transactions;
- the impairment of relationships with employees and vendors as a result of
changes in management; and
- the potential unknown liabilities associated with acquired businesses.
Any of the above risks could prevent us from realizing significant benefits
from our recent acquisitions or from successfully completing future
acquisitions. In addition, the issuance of our common stock in acquisitions will
dilute our stockholder interests, while the use of cash or debt will deplete or
harm our cash reserves. In addition, we may incur significant one-time
write-offs and, if we are unable to account for our acquisitions under the
"pooling of interests" method of accounting, amortization charges. These
write-offs and charges could decrease our future earnings, if any, or increase
our future losses.
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WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY, AND WE MAY BE LIABLE
FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. In addition, we rely on
Playboy Enterprises to take appropriate steps to protect our intellectual
property rights, and we cannot be sure that it will take all necessary steps or
take action in a timely manner. Effective trademark, copyright and trade secret
protection may not be available in every country in which we operate to the
extent available in the United States.
We may be unable to detect the unauthorized use of our intellectual property
or take appropriate steps to enforce our intellectual property rights. Defending
our intellectual property rights could also result in the expenditure of
significant financial and managerial resources, which could harm our business,
financial condition and operating results.
Third parties may assert claims against us that we have misappropriated a
trade secret or infringed a patent, copyright, trademark or other proprietary
right belonging to them. Any infringement or related claims, even if not
meritorious, may be costly and time consuming to litigate, may distract
management from other tasks of operating the business and may result in the loss
of significant rights and the loss of our ability to operate our business.
Please see "Business--Intellectual Property and Proprietary Rights" on
page 44.
WE MAY BE LIABLE FOR THE CONTENT WE MAKE AVAILABLE ON THE INTERNET.
Because of the content on our Web sites, including adult-oriented material,
we may be subject to claims for defamation, obscenity, negligence, copyright or
trademark infringement or other legal claims. We could also be subjected to
claims based upon the content that is accessible from our Web sites through
links to other sites or through content and materials that may be posted in chat
rooms. It is possible that our business, financial condition and operating
results could be harmed if we were found liable for content that we make
available. Implementing measures to reduce our exposure to this liability may
require us to spend substantial resources or take steps that would limit the
attractiveness of our Web sites. Furthermore, our insurance may not adequately
protect us against all of these types of claims.
WORKPLACE AND OTHER RESTRICTIONS ON ACCESS TO THE INTERNET MAY LIMIT USER
TRAFFIC ON OUR WEB SITES.
Many offices, businesses and educational institutions restrict employee and
student access to the Internet. Because our revenues are dependent on user
traffic on our sites, an increase in these types of restrictions, or other
similar policies, could harm our business, financial condition and operating
results. In addition, access to our Web sites outside the United States may be
restricted by governmental authorities or Internet service providers. If these
restrictions become more prevalent, our growth could be hindered. Please see
"Business--Government Regulation and Legal Uncertainties" on page 45.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS BECAUSE OF PRODUCTS THAT WE
SELL.
Consumers may sue us if any of the products that we sell are defective, fail
to perform properly or injure the user. Although our agreements with
manufacturers typically contain provisions intended to limit our exposure to
liability claims, these limitations may not prevent all potential claims.
Liability claims could require us to spend significant time and money in
litigation and to pay damages if we fail to prevail.
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DISRUPTION OF OUR INTERNET SERVICES DUE TO SECURITY BREACHES AND SYSTEM FAILURES
COULD RESULT IN FEWER VISITORS TO OUR WEB SITES AND SUBSCRIBER CANCELLATIONS.
The continuing and uninterrupted performance of our computer systems is
critical to our success. Our computer systems are vulnerable to fire, floods,
earthquakes, power loss, telecommunications failures and other similar events.
In addition, we may have to interrupt, delay or cease access to our Web sites to
alleviate problems caused by computer viruses, system failures, security
breaches or other failures of network security. Our advertisers and sponsors,
visitors and subscribers may become dissatisfied by any systems disruption or
failure that interrupts our ability to provide our content, services and
products. Substantial or repeated system disruptions or failures could reduce
the attractiveness of our Web sites significantly. Any network malfunction or
security breach could also hinder or prevent commercial transactions. Our
customers or e-commerce partners may assert liability claims against us as a
result of this type of failure.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Our sites have, on occasion, experienced slower
response times and network failures. These types of occurrences in the future
could cause users to perceive our Web sites as not functioning properly and
therefore cause them to use another online site for entertainment, information
or products. In addition, our users depend on Internet service providers, online
service providers and other site operators for access to our Web sites. Many of
them have experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system disruptions or failures
unrelated to our systems.
Our insurance policies may not adequately compensate us for any losses that
may occur due to any failures in our or our service providers' systems or
interruptions in our Internet services.
WE ARE DEPENDENT ON THIRD PARTIES TO OPERATE OUR WEB SITES, AND ANY LOSS OF
THESE TECHNOLOGIES AND SERVICES COULD DISRUPT THE OPERATION OF OUR WEB SITES.
We are dependent on various third party providers of technology and services
that enable us to operate our Web sites. We currently rely primarily on Frontier
Global Center for the hosting of our Web sites. We recently entered into an
additional Internet hosting agreement with Level 3 Communications. If we
experience disruptions in the Internet access provided by Frontier Global Center
or Level 3 Communications, our business, financial condition and operating
results could be harmed. We are also dependent on various other third parties
for software, systems and related services in connection with our hosting
software, data transmission and security systems. Several of the third parties
that provide software or services to us have a limited operating history and
have relatively new technology. These third parties are also dependent on
reliable delivery of services from others. To date, we have not experienced
significant problems with the services that these third parties provide to us.
If our current providers were to experience prolonged systems failures or delays
or were to terminate our agreements for any reason, we would need to pursue
alternative sources of services. Although alternative sources of these services
are currently available, we may be unable to secure such services on a timely
basis or on terms favorable to us.
RISKS RELATED TO OUR RELATIONSHIP WITH PLAYBOY ENTERPRISES
WE WILL CONTINUE TO BE CONTROLLED BY PLAYBOY ENTERPRISES, WHOSE INTERESTS MAY
DIFFER FROM OTHER STOCKHOLDERS.
Upon completion of this offering, Playboy Enterprises will own approximately
% of our outstanding common stock, or % if the underwriters'
over-allotment option is exercised in full. Accordingly, Playboy Enterprises
will be able to control matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. This concentration of ownership could have
the effect of delaying or preventing a change
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in our control or discouraging a potential acquiror from attempting to obtain
control of us, which could cause the market price of our stock to fall or
prevent you from receiving a premium in such a transaction.
OUR RELATIONSHIP WITH PLAYBOY ENTERPRISES, INCLUDING MUTUAL OFFICERS AND
DIRECTORS, MAY PRESENT POTENTIAL CONFLICTS OF INTEREST AND MAY CAUSE US TO TAKE
ACTIONS THAT DISPROPORTIONATELY BENEFIT PLAYBOY ENTERPRISES.
Service as a director or officer of both us and Playboy Enterprises would
create conflicts of interest if such directors or officers are faced with
decisions that could have materially different implications for us and for
Playboy Enterprises.
After this offering, three members of our board of directors will also serve
as officers or directors of Playboy Enterprises. Christie Hefner, the chairman
of our board of directors, also serves as the chief executive officer of Playboy
Enterprises and the chairman of its board of directors. In addition, Linda
Havard, one of our directors, currently serves as chief financial officer of
Playboy Enterprises, and Donald Drapkin, one of our directors, also serves as a
member of the board of directors of Playboy Enterprises.
Conflicts of interest may arise in a number of areas, including:
- tax matters;
- financial commitments;
- the election of new or additional directors;
- licensing and service arrangements;
- payment of dividends;
- incurrence of indebtedness;
- potential acquisitions;
- marketing activities;
- potential competitive business activities;
- issuances of our capital stock;
- sales or distributions by Playboy Enterprises of its remaining shares of
our common stock; and
- the exercise by Playboy Enterprises of control over our management and
affairs.
If and when such a conflict arises, we believe our directors and officers
intend to take all actions necessary to comply with their fiduciary duties to
our stockholders, including, where appropriate, abstaining from voting on
matters that present a conflict of interest. However, these conflicts of
interest, or the perception among investors that conflicts of interest could
arise, could harm our business and cause our stock price to fall.
WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY AND, FOLLOWING THIS OFFERING, WE
WILL CONTINUE TO RELY ON PLAYBOY ENTERPRISES TO PROVIDE US WITH VARIOUS
INTELLECTUAL PROPERTY, GOODS AND SERVICES.
We have always operated as a wholly-owned subsidiary or unit of Playboy
Enterprises. As a result, we do not have an operating history as an independent
company. The historical financial statements contained in this prospectus
include allocations for administrative and other expenses incurred by Playboy
Enterprises for services rendered to us. While we believe such allocations to be
reasonable, they are not necessarily indicative of our expenses had we been
operating as an independent company.
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Prior to the closing of this offering, we will enter into a series of
intercompany agreements with Playboy Enterprises. These agreements will be key
to the success of our business. If any of these intercompany agreements are
terminated or not renewed upon expiration, or if Playboy Enterprises fails to
perform its obligations under any of these agreements, our business, financial
condition and operating results would be harmed.
WE WILL DEPEND ON PLAYBOY ENTERPRISES AS A LICENSOR OF CONTENT AND
INTELLECTUAL PROPERTY. Pursuant to an agreement to be entered into between us
and Playboy Enterprises, we license a variety of trademarks, domain names and
content from Playboy Enterprises for use in connection with online and
interactive media, e-commerce and other activities. If this agreement were to be
terminated or not renewed, we would need to change much of the focus of our
business, including the domain names of most of our Web sites, and devote
substantial resources toward developing new content and building new brand
names.
WE WILL DEPEND ON PLAYBOY ENTERPRISES FOR A VARIETY OF SERVICES. Pursuant
to intercompany agreements to be entered into between us and Playboy
Enterprises, Playboy Enterprises will provide us with merchandising, technical,
marketing, cash management, human resources, tax and accounting, administrative,
investor relations, legal, facilities, security and other services. If these
agreements were terminated or not renewed or if Playboy Enterprises fails to
provide these services satisfactorily, we would be required to perform these
services internally or obtain these services from another provider. In such
case, we may incur substantial costs in order to obtain these services and we
may be unable to obtain these services on favorable terms, if at all. If we
decide to perform any of these functions internally, we may not be able to
perform them adequately.
WE WILL DEPEND ON PLAYBOY ENTERPRISES FOR ADVERTISING AND PROMOTIONAL
SERVICES. Pursuant to an agreement to be entered into between us and Playboy
Enterprises, Playboy Enterprises has agreed to provide us with advertising in
PLAYBOY magazine and its other media properties. Our success will depend, in
part, on our ability to promote our Web sites and products to the subscribers of
Playboy Enterprises' media properties, including PLAYBOY magazine and Playboy
TV. If we are unable to advertise our Internet products and services through
Playboy Enterprises' print and media properties, the growth of our company may
be hindered.
Please see "Transactions With Playboy Enterprises" on page 53 for specific
details relating to the intercompany agreements between us and Playboy
Enterprises.
THE PRICE OF OUR COMMON STOCK MAY BE HARMED AS A RESULT OF THE FINANCIAL OR
OPERATING PERFORMANCE OF PLAYBOY ENTERPRISES.
The price of our common stock may be harmed as a result of the financial or
operating performance of Playboy Enterprises. For example, fluctuations in
operating and financial results, litigation, fluctuations in Playboy
Enterprises' stock price and senior management changes could cause the price of
our common stock to fall or otherwise adversely affect our business.
WE DO NOT OWN THE PLAYBOY AND SPICE TRADEMARKS AND WE DO NOT HAVE TOTAL CONTROL
OVER THEIR USE.
The Playboy and Spice trademarks and associated logos are owned by Playboy
Enterprises and licensed to us for specific uses. In addition, the agreement
pursuant to which we license these trademarks and logos includes various
restrictions on our ability to use these trademarks and logos. Accordingly, we
may not be able to capitalize on these trademarks and logos in exactly the
manner in which we may desire. For a description of our rights with respect to
the Playboy and Spice trademarks and logos, see "Transactions With Playboy
Enterprises" on page 53.
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WE MAY BECOME LIABLE FOR THE TAX OBLIGATIONS OF PLAYBOY ENTERPRISES, AND THIS
COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS.
So long as Playboy Enterprises continues to own 80% or more of the voting
power and economic value of our capital stock, we will be included in its
consolidated group for federal income tax purposes. If Playboy Enterprises or
other members of its consolidated group fails to make any federal income tax
payments required by law, we would be liable for the shortfall. Similar
principles apply for state income tax purposes in many states.
Under the tax allocation agreement to be entered into between us and Playboy
Enterprises, for so long as we are included in Playboy Enterprises' consolidated
group, we will pay our proportionate share of Playboy Enterprises' income tax
liability computed as if we were a separate taxpayer. Under the tax allocation
agreement, for so long as we are included in Playboy Enterprises' consolidated
group, it will have sole authority to respond to and conduct all tax
proceedings, including tax audits, relating to us, to file all income tax
returns on our behalf and to determine the amount of our liability to, or
entitlement to payment from, Playboy Enterprises. Notwithstanding the tax
allocation agreement, federal law provides that each member of a consolidated
group is liable for the group's entire tax obligation. Although the tax
allocation agreement provides that Playboy Enterprises will indemnify us for
various tax obligations resulting from our relationship with it, we cannot
assure you Playboy Enterprises will be able to fulfill its obligations under
such agreement.
Please see "Transactions With Playboy Enterprises" on page 53 for more
information relating to the tax allocation agreement.
RISKS RELATED TO THE INTERNET INDUSTRY
IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW, OUR BUSINESS WILL BE HARMED.
Our business would be harmed if Internet usage does not continue to grow.
Internet usage may be inhibited for any of the following reasons:
- inadequate Internet infrastructure;
- security and privacy concerns;
- the lack of compelling content; and
- the unavailability of cost-effective, high-speed service.
OUR BUSINESS MAY BE HARMED IF THE MARKET FOR INTERNET ADVERTISING DOES NOT
CONTINUE TO GROW.
We are dependent on the use of the Internet as an advertising medium.
Internet-based advertising still accounts for only a small fraction of all
advertising expenditures, and we cannot be sure that Internet-based advertising
will ever grow to account for a substantial percentage of total advertising
spending or when an increase might occur. Our business may suffer if the market
for Internet-based advertising does not continue to develop or develops more
slowly than expected.
Different pricing models are used to sell Internet-based advertising. Our
revenues could suffer if we are unable to adapt to new forms of, and new pricing
models for, Internet-based advertising. It is difficult to predict which, if
any, forms of Internet-based advertising will emerge as the industry standard.
This makes it difficult to predict our future advertising rates and revenues. In
addition, "filter" software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this type of software could harm the commercial viability of
Internet-based advertising and, as a result, harm our business, financial
condition and operating results.
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COMPANIES MAY NOT ADVERTISE ON PLAYBOY.COM AND ROUZE.COM, OR MAY PAY LESS FOR
ADVERTISING ON PLAYBOY.COM AND ROUZE.COM, IF THEY CANNOT RELIABLY MEASURE THE
DEMOGRAPHICS OF OUR USER BASE AND THE DELIVERY OF ADVERTISEMENTS.
In order to measure the demographics of our user base and the delivery of
advertisements on PLAYBOY.COM and ROUZE.COM, we use both internal and third
party measurements. If these third parties are unable to continue to provide
these services, we would have to perform them ourselves or obtain them from
another provider. This could cause us to incur additional costs or cause
interruptions in our business while we are replacing these services. If we do
not successfully implement our internal measurement systems or the measurement
systems of third parties, we may not be able to accurately evaluate the
demographic characteristics of our users.
WE DEPEND ON CONTINUED GROWTH OF E-COMMERCE.
The continued development and acceptance of e-commerce is uncertain. The
failure of the Internet to become a viable commercial marketplace would harm our
sales growth and our business, financial condition and operating results. A
number of factors could prevent such continued development and acceptance,
including the following:
- the unwillingness of companies and consumers to shift their purchasing
from traditional vendors to online vendors;
- concerns about transaction security;
- difficulties in fulfilling customer orders;
- increased government regulation, including restrictions on the sale of
specific products; and
- problems relating to the development of the necessary technological
infrastructure.
INCREASED GOVERNMENT REGULATION IN THE UNITED STATES AND ABROAD COULD IMPEDE OUR
ABILITY TO DELIVER OUR CONTENT AND EXPAND OUR BUSINESS.
A new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the growth in the use of the
Internet or our Web sites, prevent us from delivering our content in various
parts of the world, increase our costs of selling products or otherwise have a
material adverse effect on our business, financial condition and operating
results. There are, and will be, an increasing number of laws and regulations
pertaining to the Internet in the United States and abroad. These laws or
regulations may relate to liability for information retrieved from or
transmitted over the Internet, user privacy, taxation and the quality of
products and services. Moreover, the application to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
pornography, obscenity, libel, employment and personal privacy is uncertain and
developing.
Please see "Business--Government Regulation and Legal Uncertainties" on page
45.
DOMESTIC AND INTERNATIONAL GAMING REGULATIONS MAY PREVENT US FROM DEVELOPING
ONLINE GAMING OR MAY SUBJECT US TO CIVIL OR CRIMINAL PENALTIES.
We currently intend to develop online gaming services only in jurisdictions
in which such activity is legal. Although we intend to take all reasonable
measures to restrict our online gaming services to residents of jurisdictions in
which online gaming is lawful, we cannot be sure that a user located in a
jurisdiction in which online gaming is illegal will not access our services.
We may have to obtain a license from a governmental or regulatory body
before being able to offer online gaming in a specific jurisdiction. There can
be no assurance that any such license could be
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obtained. In addition, if it were to be determined that we were operating online
gaming operations in a jurisdiction without a license, our officers and
directors may become subject to criminal and civil penalties imposed by such
jurisdiction. The occurrence of any of these events could harm our business, and
we could be forced to cease all gaming operations.
Future government regulations could also hinder our ability to offer online
gaming activities. For example, the U.S. Congress and some individual states are
currently considering legislation that seeks to ban Internet gambling. Such
legislation could subject those who engage in unlawful online gambling activity
to criminal penalties. Although we do plan to offer online gaming only to
residents of jurisdictions in which such activities are lawful and our online
gambling would be operated by a wholly-owned foreign subsidiary, pending
legislation may impose liability on U.S. companies that are deemed to assist in
the operation of offshore illegal gambling sites. Although we would take all
reasonable measures to comply with such legislation, it is possible that we
could be deemed liable and would have to pay civil or criminal penalties.
WE MUST BE ABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY OR
WE WILL NOT BE COMPETITIVE.
Our failure to respond in a timely and effective manner to new and evolving
technologies, including broadband and video technology, could harm our business,
financial condition and operating results. The Internet industry is
characterized by rapidly changing technology, evolving industry standards,
changes in consumer needs and frequent new service and product introductions.
Our business, financial condition and operating results will depend, in part, on
our ability to develop the technical expertise to address these rapid changes
and to use leading technologies effectively. We may experience difficulties that
could delay or prevent the successful development, introduction or
implementation of new features or services. We could also incur substantial
costs if we need to modify our Web sites or our infrastructure to adapt to
technological changes.
RISKS RELATED TO THIS OFFERING
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, including shares issued upon exercise of
then outstanding options, the market price of our common stock could fall. After
the closing of this offering, there will be approximately shares of
common stock outstanding. The shares of common stock sold in this
offering will be freely tradeable, except for any shares purchased by our
"affiliates," as defined in Rule 144 under the Securities Act of 1933. The
remaining shares will be held by Playboy Enterprises, and these shares
will be "restricted securities" under Rule 144 and will become eligible for sale
subject to the limitations of Rule 144 and the expiration of a lock-up agreement
with the underwriters.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, AND OUR COMMON STOCK MAY
EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS.
The stock market has experienced extreme price and volume fluctuations. The
market prices of the securities of Internet-related companies have been
especially volatile. Prior to this offering, there has been no public market for
our capital stock. We cannot predict the extent to which investor interest in
Playboy.com will lead to the development of an active trading market or how
liquid that market might become. The market price of our common stock may
decline below the initial public offering price. In the past, companies that
have experienced volatility in the market price of their stock have been the
object of securities class action litigation. If we were the object of
securities class action litigation, it could result in substantial costs and a
diversion of our management's attention and resources.
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WE WILL HAVE BROAD DISCRETION AS TO THE USE OF THE PROCEEDS OF THIS OFFERING,
WHICH WE MAY NOT USE EFFECTIVELY.
We intend to use the net proceeds of this offering to develop, enhance and
expand our Web sites, including the addition of broadband interactive
programming, to pursue e-commerce opportunities, including online gaming, to
increase our sales and marketing activities, to enhance our technology
infrastructure, to explore potential acquisitions and for other purposes, as
well as to repay approximately $1 million owed to Playboy Enterprises. Other
than the repayment of debt, our management will have broad discretion over the
allocation of the net proceeds from this offering as well as over the timing of
our expenditures. You may not agree with the way our management decides to spend
these proceeds.
WE CANNOT PREDICT OUR FUTURE CAPITAL NEEDS, AND WE MAY NOT BE ABLE TO SECURE
ADDITIONAL FINANCING.
We may need to raise additional funds in the future to fund our operations,
to expand or enhance the range of products and services we offer or to respond
to competitive pressures and perceived opportunities. We cannot be sure that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available when required or on acceptable terms, we may be
forced to scale back or cease our operations, and even if we are able to
continue our operations, our business and financial results may suffer.
WE HAVE ANTI-TAKEOVER PROVISIONS WHICH MAY MAKE IT DIFFICULT FOR A THIRD PARTY
TO ACQUIRE US.
Provisions of our certificate of incorporation, our bylaws and Delaware law
could make it more difficult for a third party to acquire us, even if doing so
might be beneficial to our stockholders. This could prevent you from receiving a
premium for your shares during an acquisition.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION.
Investors purchasing shares in this offering will suffer immediate and
substantial dilution in net tangible book value per share. To the extent that
options to purchase shares of common stock are exercised in the future, there
will be further dilution.
WE DO NOT PLAN TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE, AND, AS A RESULT,
STOCKHOLDERS WILL NEED TO SELL SHARES TO REALIZE A RETURN ON THEIR INVESTMENT.
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future. As a result, stockholders will need to sell shares of common
stock in order to realize a return on their investment, if any.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future business or financial performance. In some cases,
you can identify forward-looking statements by terminology--for instance, may,
will, should, expect, plan, anticipate, believe, estimate, predict, potential or
continue, the negative of these terms, or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks outlined in the risk factors section. These factors
may cause our actual results to differ materially from any forward-looking
statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assume responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform these statements to actual results
or to changes in our expectations.
19
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of the shares of
common stock in this offering of $ million, assuming an initial public
offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses. If the underwriters
exercise their over-allotment option in full, we estimate that our net proceeds
will be $ million.
We intend to use approximately $1.0 million of the net proceeds of this
offering to repay a loan from Playboy Enterprises that bears interest at 12% per
annum and matures on the earlier of the consummation of this offering and
December 31, 2000 that was used to fund our acquisition of Rouze Media, Inc.
As of the date of this prospectus, we have not made any specific expenditure
plans with respect to the remaining proceeds of this offering. Therefore, we
cannot specify with certainty the particular uses for the net proceeds to be
received upon completion of this offering. Accordingly, our management will have
significant flexibility in applying the net proceeds of this offering.
We currently intend to use the remaining net proceeds of this offering over
time to:
- develop, enhance and expand our Web sites, including the creation of
original content and broadband interactive programming;
- pursue e-commerce opportunities, including Playboy-branded online gaming;
- increase our sales and marketing activities;
- enhance our technology infrastructure;
- explore potential acquisitions; and
- for other general corporate purposes.
Pending any such uses, we intend to invest the net proceeds in interest bearing
securities.
The principal purposes of this offering are to obtain additional capital, to
create a public market for our common stock and to facilitate future access to
public equity markets.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently anticipate that we will retain any future earnings for the development
and operation of our business. Accordingly, we do not anticipate declaring or
paying any cash dividends in the foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the $1.0 million owed by us to Playboy
Enterprises for the acquisition of Rouze Media, Inc.; and
- on a pro forma as adjusted basis to reflect the sale of shares of
common stock by us in this offering at an assumed initial public offering
price of $ per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, and the
repayment of the $1.0 million owed by us to Playboy Enterprises. Please
see "Use of Proceeds" on page 20.
The following table should be read in conjunction with our financial
statements and the notes to those statements included in this prospectus.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ -- $
======== ======== ========
Due to Playboy Enterprises.................................. -- 1,000 --
Stockholders' equity:
Preferred stock $0.01 par value; authorized 5,000,000
shares; no shares issued and outstanding actual, pro
forma and pro forma as adjusted......................... -- --
Common stock, $0.01 par value; authorized 100,000,000
shares; 20,312,500 shares issued and outstanding actual
and pro forma and shares issued and
outstanding pro forma as adjusted....................... 203 203
Capital in excess of par value............................ 26,402 26,602
Accumulated deficit....................................... (25,203) (25,203)
-------- -------- --------
Total stockholders' equity.................................. 1,402 1,602
-------- -------- --------
Total capitalization.................................... $ 1,402 $ 2,602 $
======== ======== ========
</TABLE>
As of December 31, 1999, no options to purchase shares of common stock were
outstanding. This table excludes shares of common stock issuable upon
the exercises of stock options outstanding under our option plan as of
April 10, 2000.
21
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was approximately
$ million, or $ per share of common stock. Pro forma net tangible book value
per share is determined by dividing the amount of our total tangible assets less
total liabilities by the pro forma number of shares of common stock outstanding
at that date. Dilution in net tangible book value per share represents the
difference between the assumed initial public offering price and the net
tangible book value per share of common stock immediately after the completion
of this offering.
After giving effect to the issuance and sale of the shares of common
stock offered by us at an assumed initial public offering price of $ per
share, after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, and after giving effect to the
application of the estimated net proceeds from this offering, our pro forma net
tangible book value as of December 31, 1999 would have been $ million or $
per share.
At the assumed initial public offering price of $ per share, purchasers
of shares of common stock in this offering will pay a price per share
substantially greater than the pro forma net tangible book value as of
December 31, 1999 would have been $ million, or $ per share. In addition, as
a result of this offering, our existing stockholder, Playboy Enterprises, will
experience a substantial increase in pro forma net tangible book value from $
to $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1999.... $
Increase per share attributable to new investors.......... $
Pro forma net tangible book value per share after this
offering.................................................. $
------
Dilution per share to new investors......................... $
======
</TABLE>
This table excludes shares of common stock subject to
outstanding options as of April 10, 2000. The exercise of outstanding options
having an exercise price less than the assumed initial public offering price
would increase the dilutive effect to new investors.
Purchasers of shares of our common stock in this offering will contribute
% of the total consideration paid to us for our shares of common stock, but
will own only % of our outstanding common stock. The following table
summarizes, on a pro forma basis as of December 31, 1999, the differences
between the number of shares of common stock purchased from us, the aggregate
cash consideration paid to us and the average price per share paid by Playboy
Enterprises and purchasers of shares of common stock in this offering. The
calculation below is based on an assumed initial public offering price of $
per share, before deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholder................... % $ % $
New investors.......................... $
----------- ----- ----------- ------
Total................................ % $ %
=========== ===== =========== ======
</TABLE>
As of December 31, 1999, no options to purchase common stock were
outstanding.
22
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
years ended December 31, 1997, 1998 and 1999, and the balance sheet data at
December 31, 1998 and 1999, are derived from our financial statements, which
have been audited by PricewaterhouseCoopers LLP, independent accountants, and
are included elsewhere in this prospectus. The statement of operations data for
the year ended December 31, 1996 and the balance sheet data at December 31, 1997
have been audited by PricewaterhouseCoopers LLP, independent accountants and
have not been included in this prospectus. The statement of operations data for
the year ended December 31, 1995, and the balance sheet data at December 31,
1995 and 1996 have been derived from our unaudited financial statements not
included in this prospectus. The unaudited financial statements include all
normal recurring adjustments that we consider necessary for a fair presentation
of our financial position and operating results.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
E-commerce............................. $ 2 $ 388 $ 1,044 $ 1,298 $ 5,956
Advertising and sponsorships........... 171 1,178 1,857 2,371 5,161
Subscriptions.......................... -- -- 490 1,892 2,484
---------- ---------- ---------- ---------- ----------
Total net revenues................... 173 1,566 3,391 5,561 13,601
Cost of revenues, related party:
E-commerce............................. 1 269 595 756 4,715
Advertising and sponsorships........... 70 124 328 397 630
Subscriptions.......................... -- -- 484 1,444 1,820
---------- ---------- ---------- ---------- ----------
Total cost of revenues, related party.... 71 393 1,407 2,597 7,165
Gross profit............................. 102 1,173 1,984 2,964 6,436
Operating expenses, related party:
Sales and marketing.................... 24 219 497 1,853 5,034
Content and product development........ 1,010 1,469 1,797 3,939 7,262
General and administrative............. 440 806 2,369 2,860 3,094
---------- ---------- ---------- ---------- ----------
Total operating expenses............. 1,474 2,494 4,663 8,652 15,390
---------- ---------- ---------- ---------- ----------
Operating loss........................... (1,372) (1,321) (2,679) (5,688) (8,954)
Interest expense, related party.......... 242 353 639 1,229 2,405
---------- ---------- ---------- ---------- ----------
Net loss................................. $ (1,614) $ (1,674) $ (3,318) $ (6,917) $ (11,359)
========== ========== ========== ========== ==========
Basic and diluted net loss per share..... $ (0.08) $ (0.08) $ (0.16) $ (0.34) $ (0.56)
========== ========== ========== ========== ==========
Weighted average shares used in computing
basic and diluted net loss per share... 20,312,500 20,312,500 20,312,500 20,312,500 20,312,500
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents............... $ -- $ -- $ -- $ -- $ --
Working capital (deficit)............... 82 158 (287) (579) 517
Total assets............................ 139 501 626 1,415 5,852
Due to related party.................... (2,017) (3,867) (6,789) (13,743) --
Total stockholder's equity (deficit).... (1,935) (3,609) (6,927) (13,641) 1,402
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF PLAYBOY.COM SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. PLAYBOY.COM'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, SUCH AS THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
We are a leading Internet company dedicated to the adult entertainment
interests of young men around the world. In August 1994, Playboy Enterprises
launched PLAYBOY.COM. In August 1995, we began generating revenues from the sale
of advertising on PLAYBOY.COM, and in April 1996, we began offering an extensive
array of Playboy-branded merchandise. In July 1997, we launched a subscription
service called the Playboy Cyber Club, which offers premium content and
community features for Playboy fans around the world. In August 1999, we
launched a re-designed PLAYBOY.COM Web site including the Playboy Marketplace,
which allows consumer goods companies to sell products targeted at our visitors.
In December 1999, we launched the Playboy Auctions Web site to capitalize on the
thriving market for Playboy collectibles.
In March 1999, Playboy Enterprises completed the acquisition of Spice
Entertainment Companies, Inc., a leading provider of adult television
entertainment. This acquisition included CYBERSPICE.COM, an adult entertainment
Web site. Through the Spice Store located at CYBERSPICE.COM, we offer for sale
adult videos, lingerie and sensual products.
On February 15, 2000, we purchased substantially all of the assets of Rouze
Media, Inc., which operated a free Web site located at ROUZE.COM that targets
young men. The consideration to Rouze Media, Inc. consisted of $1.2 million and
the assumption of liabilities incurred in the ordinary course of business since
December 17, 1999. One million dollars of the cash consideration is a minimum
guarantee against a three year share of revenues generated by ROUZE.COM. We
expect to continue to operate ROUZE.COM as a separate Web site as well as to
incorporate some of the ROUZE.COM content into PLAYBOY.COM and the Playboy Cyber
Club.
Since inception, our business model has been based on monetizing the growing
traffic to our sites through multiple revenue streams. Our revenues consist of
revenues from sales of advertising and sponsorships, e-commerce and fees from
subscription services and pay-per-view events.
We derive advertising revenues principally from agreements with terms of
between one month and a year, under which advertisers generally receive a
guaranteed number of minimum impressions at a fixed rate. Advertisements
generally consist of banner advertisements, bottom advertisements or other
links. Advertising rates depend on the size and placement of the advertisement
and the number of guaranteed impressions, if any. Sponsorship revenues are
derived principally from sponsorship arrangements that allow companies to
sponsor PLAYBOY.COM, a content category on PLAYBOY.COM or an event featured on
the site in exchange for cash payments. The sponsorship arrangements for
PLAYBOY.COM or its content categories are currently either one year or two year
agreements.
Advertising revenues are recognized ratably in the period in which the
advertisement is displayed, provided that no significant obligations remain and
collection of the resulting receivable is probable. To the extent minimum
guaranteed impressions levels are not met, we defer recognition of the
corresponding revenues until the guaranteed levels are achieved. Payments
received from advertisers prior to displaying their advertisements are recorded
as deferred revenues. Revenues from sponsorship arrangements are recognized
ratably over the contract term provided that no significant obligations remain.
To promote our brand on the Internet and to generate traffic to our sites,
we have entered into reciprocal advertising arrangements where we receive
advertising on third-party Web sites in exchange
24
<PAGE>
for advertising on our Web sites. We do not recognize revenues with respect to
these transactions and we do not receive cash payments for these barter
arrangements.
E-commerce revenues consist of the selling price of merchandise plus
shipping and handling charges, net of returns and credits, and commissions from
the sale of third-party products. E-commerce revenues from the sale of
Playboy-branded products through the Playboy Store and all products on
CYBERSPICE.COM are recognized upon shipment of the order. Product fulfillment
and customer service for these products is currently conducted through our
arrangement with Playboy Enterprises. Commissions from the sale of third-party
products through the Playboy Marketplace, which are fulfilled by the sellers of
the merchandise, are recognized upon notification of sales by these third-party
merchants. We also receive commissions from Playboy Enterprises from the sale of
non-Playboy branded videos and music through PLAYBOY.COM. Playboy Enterprises
has recently announced that it is exploring strategic alternatives for these
non-Playboy branded video and music businesses, which may result in a sale of
these businesses. In future periods, e-commerce revenues will include auction
revenues, which will consist of our sales of Playboy-branded merchandise and
access to Playboy events and commissions to us from merchandise sold by third
parties.
Subscription revenues are derived principally from monthly, quarterly and
annual subscriptions to the Playboy Cyber Club and fees for various pay-per-view
events offered on PLAYBOY.COM. In the case of subscriptions to the Playboy Cyber
Club, we recognize revenues ratably over the period of the subscription.
Revenues from our pay-per-view events are recognized in the month the event
occurs. Deferred revenues relate to subscription fees for which amounts have
been collected but for which revenue has not yet been recognized. Substantially
all our subscribers pay by credit card and subscriptions to the Playboy Cyber
Club are automatically renewed.
We have incurred significant net losses and negative cash flows from
operations since our inception. At December 31, 1999, we had an accumulated
deficit of $25.2 million. These losses had been funded by borrowings from
Playboy Enterprises and subsequently contributed as capital on December 31,
1999. We intend to continue to invest heavily in the development of our Web
sites, including the creation of original content, and increased marketing and
product sales activities. As a result, we believe that we will continue to incur
net losses and negative cash flows from operations for the foreseeable future.
Moreover, the rate at which these losses will be incurred may increase from
current levels.
We are a subsidiary of Playboy Enterprises and, prior to the closing of this
offering, Playboy Enterprises will own all of our outstanding capital stock.
Historically, we have been dependent on Playboy Enterprises for working capital,
trademarks and content, advertising and promotion, product fulfillment and
administrative services. In connection with establishing ourselves as an
independent operating entity, we will enter into a series of agreements with
Playboy Enterprises prior to the closing of this offering relating to the
license of trademarks and content, the delivery of various administrative
services and other matters. Please see "Transactions With Playboy Enterprises"
on page 53 for more information regarding the intercompany arrangements between
us and Playboy Enterprises.
We have only a limited operating history upon which you can evaluate our
business and prospects. Our limited operating history and the rapidly changing
nature of our business makes predicting our future operating results difficult.
As a result, we believe that period-to-period comparisons of our operating
results may not be good indications of our future performance, nor would our
results for any particular period be indicative of future operating results. In
addition, the financial information included herein may not necessarily be
indicative of the financial position, results of operation and cash flows had we
been operating as a separate stand-alone company during the periods presented.
25
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the years ended
December 31, 1996, 1997 and 1998 and the nine months ended September 30, 1998
and 1999, expressed as a percentage of total net revenues:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
E-commerce............................................... 24.8% 30.8% 23.3% 43.8%
Advertising and sponsorships............................. 75.2 54.7 42.7 37.9
Subscriptions............................................ 0.0 14.5 34.0 18.3
------- ------ ------- ------
Total net revenues..................................... 100.0 100.0 100.0 100.0
Cost of revenues, related party:
E-commerce............................................... 17.2 17.5 13.6 34.7
Advertising.............................................. 7.9 9.7 7.1 4.6
Subscriptions............................................ -- 14.3 26.0 13.4
------- ------ ------- ------
Total cost of revenues, related party...................... 25.1 41.5 46.7 52.7
------- ------ ------- ------
Gross profit............................................... 74.9 58.5 53.3 47.3
Operating expenses, related party:
Sales and marketing...................................... 14.0 14.7 33.3 37.0
Content and product development.......................... 93.8 53.0 70.8 53.4
General and administrative............................... 51.5 69.9 51.4 22.8
------- ------ ------- ------
Total operating expenses............................... 159.3 137.5 155.6 113.2
------- ------ ------- ------
Operating loss............................................. (84.4) (79.0) (102.3) (65.8)
Interest expense, related party............................ 22.5 18.8 22.1 17.7
------- ------ ------- ------
Net loss................................................... (106.9)% (97.8)% (124.4)% (83.5)%
======= ====== ======= ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUES
Total net revenues increased by $8.0 million, from $5.6 million for the year
ended December 31, 1998 to $13.6 million for the year ended December 31, 1999,
an increase of 144.6%.
E-COMMERCE. E-commerce revenues increased by $4.7 million, from $1.3
million for the year ended December 31, 1998 to $6.0 million for the year ended
December 31, 1999, an increase of 358.9%. This increase was due primarily to
higher sales volume from the Playboy Store combined with revenues of $3.6
million from the Playboy and Spice direct commerce businesses. These businesses
were reconfigured from the catalog group of Playboy Enterprises into our
e-commerce business, effective October 1, 1999.
ADVERTISING AND SPONSORSHIPS. Advertising and sponsorships revenues
increased by $2.8 million, from $2.4 million for the year ended December 31,
1998 to $5.2 million for the year ended December 31, 1999, an increase of
117.7%. This increase was due primarily to an increase in the number of
advertisers combined with revenues of $1.6 million from our initial sale of
sponsorships.
SUBSCRIPTIONS. Subscriptions revenues increased by $0.6 million, from $1.9
million for the year ended December 31, 1998 to $2.5 million for the year ended
December 31, 1999, an increase of 31.3%. This increase was due primarily to a
higher average number of subscribers to the Playboy Cyber Club.
26
<PAGE>
COST OF REVENUES, RELATED PARTY
Total cost of revenues, related party increased by $4.6 million, from $2.6
million for the year ended December 31, 1998 to $7.2 million for the year ended
December 31, 1999, an increase of 175.9%.
E-COMMERCE. E-commerce cost of revenues consists primarily of the cost of
merchandise sold and delivery expenses. These expenses increased by $4.0
million, from $0.8 million for the year ended December 31, 1998 to $4.7 million
for the year ended December 31, 1999, an increase of 523.7%. This increase
primarily due to increased costs related to higher sales of Playboy branded
merchandise combined with cost of revenues of $3.5 million resulting from the
reconfiguration of the Playboy and Spice direct commerce businesses into our
e-commerce business.
ADVERTISING AND SPONSORSHIPS. Advertising and sponsorships cost of revenues
consists primarily of the costs of technology infrastructure and hosting
services. These expenses increased $0.2 million, from $0.4 million for the year
ended December 31, 1998 to $0.6 million for the year ended December 31, 1999, an
increase of 58.7%. This increase was due primarily to increased hosting and
infrastructure costs to support the addition of new features on PLAYBOY.COM.
SUBSCRIPTIONS. Subscriptions cost of revenues consists primarily of
acquired content, editorial staff payroll and related expenses for the Playboy
Cyber Club. These expenses increased $0.4 million, from $1.4 million for the
year ended December 31, 1998 to $1.8 million for the year ended December 31,
1999, an increase of 26.1%. This increase was primarily due to increased
editorial costs and expenses associated with customer service, principally due
to increased staffing, for the Playboy Cyber Club.
OPERATING EXPENSES, RELATED PARTY
SALES AND MARKETING. Sales and marketing expenses consist primarily of
payroll and related expenses for the advertising sales and marketing staffs and
expenditures for advertising and promotional activities. These expenses
increased by $3.2 million, from $1.9 million for the year ended December 31,
1998 to $5.0 million for the year ended December 31, 1999, an increase of
171.7%. This increase was due primarily to higher costs associated with
increased staffing levels in the advertising sales and marketing departments.
We believe that additional sales and marketing personnel and programs are
required to remain competitive and to continue to build our brands both online
and offline. Therefore, we expect that our sales and marketing expenses will
continue to increase in absolute dollars for the foreseeable future.
CONTENT AND PRODUCT DEVELOPMENT. Content and product development expenses
consist primarily of payroll and related expenses for creative and information
technology personnel, acquired content and expenses for third-party software
developers. These expenses increased by $3.3 million, from $3.9 million for the
year ended December 31, 1998 to $7.3 million for the year ended December 31,
1999, an increase of 84.4%. This increase was due primarily to higher staffing
levels in the current period combined with increased costs for third party
software developers and acquired editorial and graphic content in 1999.
We believe that significant investments in content and product development
are required to remain competitive. Therefore, we expect that our content and
product development expenses will continue to increase in absolute dollars for
the foreseeable future.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of payroll and related expenses for management, finance and
administrative personnel, legal, accounting, and consulting fees and facilities
costs. These expenses increased by $0.2 million, from $2.9 million for the year
ended December 31, 1998 to $3.1 million for the year ended December 31, 1999, an
increase of 8.2%. This increase was due primarily to increased finance and human
resource services provided by Playboy Enterprises in 1999.
We expect our general and administrative expenses to increase in absolute
dollars for the foreseeable future as we continue to hire personnel and incur
expenses to build our infrastructure to support the growth of our business and
our operations as a public company.
27
<PAGE>
INTEREST EXPENSE, RELATED PARTY
Interest expense, related party consists of interest charges on our
indebtedness to Playboy Enterprises. This expense increased by $1.2 million,
from $1.2 million for the year ended December 31, 1998 to $2.4 million for the
year ended December 31, 1999, an increase of 94.1%. This increase was due
primarily to an increased level of indebtedness to Playboy Enterprises as a
result of funding our working capital requirements.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUES
Total net revenue increased by $2.2 million, from $3.4 million for the year
ended December 31, 1997 to $5.6 million for the year ended December 31, 1998, an
increase of 64.0%.
E-COMMERCE. E-commerce revenues increased by $0.3 million, from
$1.0 million for the year ended December 31, 1997 to $1.3 million for the year
ended December 31, 1998, an increase of 24.3%. This increase was due primarily
to higher commissions from Playboy Enterprises from the increase in sales of
non-Playboy branded videos and music through PLAYBOY.COM.
ADVERTISING AND SPONSORSHIPS. Advertising and sponsorships revenues
increased by $0.5 million, from $1.9 million for the year ended December 31,
1997 to $2.4 million for the year ended December 31, 1998, an increase of 27.7%.
This increase was due primarily to increased sales of banner advertising.
SUBSCRIPTIONS. Subscriptions revenues increased by $1.4 million, from
$0.5 million for the year ended December 31, 1997 to $1.9 million for the year
ended December 31, 1998, an increase of 286.1%. This increase was due primarily
to a higher average number of subscribers to the Playboy Cyber Club, which was
launched in July 1997.
COST OF REVENUES, RELATED PARTY
Total cost of revenues, related party increased by $1.2 million from
$1.4 million for the year ended December 31, 1997 to $2.6 million for the year
ended December 31, 1998, an increase of approximately 84.7%.
E-COMMERCE. E-commerce cost of revenues increased $0.2 million from
$0.6 million for the year ended December 31, 1997 to $0.8 million for the year
ended December 31, 1998, an increase of 27.0%. This increase was primarily due
to increased costs associated with higher sales of Playboy-branded merchandise.
ADVERTING AND SPONSORSHIPS. Advertising and sponsorships cost of revenues
increased by $0.1 million from $0.3 million for the year ended December 31, 1997
to $0.4 million for the year ended December 31, 1998, an increase of 21.0%. This
increase was primarily due to increased hosting and infrastructure costs.
SUBSCRIPTIONS. Subscriptions cost of revenues increased by $0.9 million
from $0.5 million for the year ended December 31, 1997 to $1.4 million for the
year ended December 31, 1998, an increase of 198.3%. This increase was primarily
due to increased editorial costs and expenses associated with customer service,
principally due to increased staffing, for the Playboy Cyber Club, which was
launched in July 1997.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased by
$1.4 million, from $0.5 million for the year ended December 31, 1997 to
$1.9 million for the year ended December 31, 1998, an increase of 272.8%. This
increase was due primarily to higher costs associated with increased staffing
levels in the advertising sales and marketing departments.
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CONTENT AND PRODUCT DEVELOPMENT. Content and product development expenses
increased by $2.1 million, from $1.8 million for the year ended December 31,
1997 to $3.9 million for the year ended December 31, 1998, an increase of
119.2%. This increase was due primarily to higher staffing levels and increased
software amortization in 1998 related to the addition of new features on
PLAYBOY.COM.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $0.5 million, from $2.4 million for the year ended December 31, 1997 to
$2.9 million for the year ended December 31, 1998, an increase of 20.7%. This
increase was due primarily to higher consulting expenses primarily related to
business development activities.
INTEREST EXPENSE, RELATED PARTY
Interest expense, related party increased by $0.6 million for the year ended
December 31, 1997 to $1.2 million for the year ended December 31, 1998, an
increase of 92.3%. This increase was due primarily to an increased level of
indebtedness to Playboy Enterprises as a result of funding our working capital
requirements.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight quarters ended December 31, 1999. In our
opinion, this unaudited information has been prepared substantially on the same
basis as the audited financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations data. The quarterly data should be
read in conjunction with the financial statements and the notes to such
statements appearing elsewhere in this prospectus. The operating results for any
quarter are not necessarily indicative of the operating results for any future
period.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
E-commerce...................... $ 292 $ 243 $ 327 $ 436 $ 409 $ 397
Advertising and sponsorships.... 520 526 554 771 882 1,249
Subscriptions................... 436 457 484 515 549 595
------- ------- ------- ------- ------- -------
Total net revenues.......... 1,248 1,226 1,365 1,722 1,840 2,241
Cost of revenues, related party:
E-commerce...................... 187 156 175 238 173 158
Advertising..................... 92 97 118 90 132 143
Subscriptions................... 339 361 386 358 443 449
------- ------- ------- ------- ------- -------
Total cost of revenues, related
party........................... 618 614 679 686 748 750
------- ------- ------- ------- ------- -------
Gross profit...................... 630 612 687 1,035 1,092 1,491
Operating expenses, related party:
Sales and marketing............. 203 353 562 735 739 1,008
Content and product
development................... 525 773 1,202 1,439 1,752 1,605
General and administrative...... 524 756 781 799 634 589
------- ------- ------- ------- ------- -------
Total operating expenses.... 1,252 1,882 2,545 2,973 3,125 3,202
------- ------- ------- ------- ------- -------
Operating loss.................... (622) (1,270) (1,858) (1,938) (2,033) (1,711)
Interest expense, related party... 218 259 361 391 444 517
------- ------- ------- ------- ------- -------
Net loss.......................... $ (840) $(1,529) $(2,219) $(2,329) $(2,477) $(2,228)
======= ======= ======= ======= ======= =======
<CAPTION>
QUARTERS ENDED
----------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1999
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
E-commerce...................... $ 510 $ 4,640
Advertising and sponsorships.... 1,449 1,581
Subscriptions................... 629 711
------- -------
Total net revenues.......... 2,588 6,932
Cost of revenues, related party:
E-commerce...................... 239 4,145
Advertising..................... 177 178
Subscriptions................... 466 462
------- -------
Total cost of revenues, related
party........................... 882 4,785
------- -------
Gross profit...................... 1,706 2,147
Operating expenses, related party:
Sales and marketing............. 1,076 2,211
Content and product
development................... 1,792 2,113
General and administrative...... 716 1,155
------- -------
Total operating expenses.... 3,584 5,479
------- -------
Operating loss.................... (1,878) (3,332)
Interest expense, related party... 643 801
------- -------
Net loss.......................... $(2,521) $(4,133)
======= =======
</TABLE>
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Our quarterly results are subject to seasonal fluctuations. We believe that
our e-commerce sales are positively affected in the fourth calendar quarter due
to the year-end holiday buying season. In addition, we believe that we
experience decreased traffic during the summer months. We cannot assure you that
these seasonal trends will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 1999, we have financed our activities
exclusively through funding from Playboy Enterprises totalling approximately
$26.4 million. As of December 31, 1999, these amounts were contributed to our
capital and, as of such date, we had no outstanding obligations to Playboy
Enterprises.
Net cash used in operating activities was $11.3 million for the year ended
December 31, 1999, $6.0 million for the year ended December 31, 1998 and
$2.7 million for the year ended December 31, 1997. Net cash used in operating
activities resulted primarily from our net operating losses.
Net cash used in investing was $1.3 million for the year ended December 31,
1999, $1.2 million for the year ended December 31, 1998 and $0.2 million for the
year ended December 31, 1997. Net cash used in investing activities resulted
primarily from increased costs related to purchased software and related Web
development costs.
Net cash provided by financing activities was $12.7 million for the year
ended December 31, 1999, $7.2 million for the year ended December 31, 1998 and
$2.9 million for the year ended December 31, 1997. Net cash provided by
financing activities consisted of proceeds from Playboy Enterprises.
Our principal commitments consist of obligations outstanding under operating
leases. As of December 31, 1999, we have spent approximately $2.8 million on
capital expenditures.
We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception, which is consistent with the
growth in our operations and staffing. We expect our capital expenditures will
increase significantly in the future as we make technological improvements to
our systems and technical infrastructure. Additionally, we intend to continue to
evaluate possible investments in new businesses, products and technologies,
expand our sales and marketing programs and conduct more aggressive brand
promotions.
We anticipate that our liquidity needs over the next 12 months will be met
with the net proceeds generated from this offering. If cash generated from
operations is insufficient to satisfy our liquidity requirements, we may seek to
sell additional equity or debt securities or obtain a credit facility. The sale
of additional equity or convertible debt securities could result in additional
dilution to our stockholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that would
restrict our operations. We cannot assure you that financing will be available
in amounts or on terms acceptable to us, if at all.
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<PAGE>
BUSINESS
OVERVIEW
We are a leading Internet company dedicated to the adult entertainment
interests of young men around the world. We are uniquely positioned to
capitalize on the Playboy brand, which is one of the most recognized in the
world, to provide a compelling Playboy online entertainment experience. We
believe we are also able to exploit Playboy Enterprises' editorial, pictorial
and video libraries in a variety of exciting new ways. Our network of sites
combines Playboy's distinct attitude and vast libraries with extensive and
original content, a large community of loyal users and a wealth of e-commerce
offerings. Our business model is based on monetizing the growing traffic on our
sites through multiple revenue streams, including e-commerce, advertising and
sponsorships, subscriptions and pay-per-view.
For the month of February 2000, we had over 120 million page views and over
19 million visits to our Web sites, as audited by ABC Interactive. Our Web sites
also generate significant international traffic and, in February 2000,
approximately 25% of our traffic originated outside of the United States.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET
The Internet has quickly emerged as a global medium that allows hundreds of
millions of people worldwide to obtain information, communicate and conduct
business electronically. In its June 1999 report, International Data
Corporation, or IDC, estimates that the number of Web users worldwide will grow
from approximately 142 million users in 1998 to 502 million by the end of 2003.
Additionally, IDC projects the number of Web users outside the U.S. to increase
from 79.4 million in 1998 to 325.4 million by 2003.
THE GROWTH OF E-COMMERCE AND ONLINE ADVERTISING
As the number of Internet users continues to expand, the value of the
Internet as a commerce channel will continue to increase as more merchants move
onto the Internet to market and sell an ever-increasing variety of products and
services. According to IDC, worldwide commerce revenues on the Web are expected
to grow from approximately $50 billion at the end of 1998 to approximately
$1.3 trillion by the end of 2003. As e-commerce continues to expand, vendors are
increasingly relying on extensive advertising campaigns to identify customers,
build online brand awareness and increase product sales online. Forrester
Research estimates that the dollar volume of online advertising will increase
from $2.8 billion in 1999 to over $17.2 billion in 2003. The interactive nature
of the Internet provides vendors, advertisers and content providers with the
ability to gather and evaluate valuable demographic, Web use and transactional
data on consumers. This data provides online marketers and businesses with a
significant new opportunity to increase the effectiveness of their direct
marketing campaigns by targeting their messages to specific groups of consumers,
as well as by frequently changing their advertisements in response to market
factors, current events and consumer feedback.
THE ECONOMIC IMPORTANCE OF MEN BETWEEN THE AGES OF 18 AND 34
According to Jupiter Communications, the number of male U.S. online buyers
is expected to grow from approximately 11 million in 1998 to 39 million in 2003.
The amount men spend online is expected to grow from $5.2 billion in 1998 to
$37.1 billion in 2003. In addition, men between the ages of 18 and 34 represent
a critical demographic group for online advertisers and merchants. College
students, in particular, are an attractive demographic group for Internet
advertisers and merchants. According to Jupiter Communications, 90% of U.S.
college students are currently online, representing the highest Internet
penetration rate of any age group. College students are also expected to
increasingly use the
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Internet to purchase goods and services. According to Jupiter Communications,
college students will spend $2.5 billion in 2002 to purchase goods and services
over the Internet.
PREMIUM CONTENT ATTRACTS LOYAL USERS
Some premium online content providers have successfully attracted a loyal
base of customers by providing exclusive, high-quality content to individuals
that register and subscribe to their Web site. As a result, content providers
can generate revenues from subscription fees, gain valuable personal information
through the registration process and collect specific Web usage information as
users navigate through their Web site. This information enables content
providers to tailor content on the Web site to improve the entertainment value
of the user's experience. Additionally, we believe advertisers and online
merchants optimize the value of their marketing campaigns by designing
promotions to address the specific preferences of these registered users. As
broadband technology, which allows for faster access to the Internet, continues
to advance, content providers will be able to more easily offer a wider range of
premium content including live Web events, streaming audio and video and other
multimedia or interactive features.
THE ONLINE MARKET FOR ADULT ENTERTAINMENT
Adult entertainment in the United States is a $10 billion industry,
according to Forrester Research. The Internet has helped the adult entertainment
industry experience tremendous growth in usage and revenues. According to the
Spring 1999 Jupiter/NFO Consumer Survey, men spend, on average, 33% of their
time online viewing adult content. Forrester Research estimates that adult
e-commerce will generate between $750 million and $1 billion in revenues in
1998, with rapid growth in the years that follow. Adult content dominates the
paid online content market, which includes subscription and pay-on-demand
services, according to Datamonitor. Datamonitor estimates that $1.4 billion of
the $2.0 billion in paid online content in 1999 will be attributable to adult
content and $3.1 billion of the projected $5.4 billion of paid online content
projected for 2003 will be attributable to adult content.
OUR OPPORTUNITY
We believe that we are uniquely positioned to provide the leading online
site addressing the adult entertainment interests of young men around the world.
By using the power of the Playboy brand and leveraging the libraries and other
assets of Playboy Enterprises, we believe we will be able to grow our online
businesses more successfully than our competitors, many of which must incur
significant expenses to build brand awareness.
Since 1953, when Hugh M. Hefner published the first issue of PLAYBOY
magazine, Playboy Enterprises has successfully expanded from a domestic
publishing company into a global, brand-driven, multi-media company. Playboy
Enterprises, which launched Playboy TV in 1982, has grown to become a mainstream
distributor of Playboy-branded programming throughout the world through its
television networks, arrangements with international distributors and the sale
of videocassettes, laserdiscs and DVDs. In addition, Playboy-branded fashions,
gifts, jewelry, home accessories and collectibles, such as calendars, back
issues of PLAYBOY magazine and newsstand specials, are currently sold globally.
The popularity of Playboy as a worldwide brand is evidenced by the following:
- PLAYBOY magazine is currently the best-selling men's monthly magazine in
the world and worldwide monthly readership, including the 16 international
editions, is over 15 million. The U.S. edition of PLAYBOY magazine is read
by approximately one in every seven men in the United States aged 18 to
34, according to Fall 1999 data published by Mediamark Research, Inc.
- Playboy television programming is available in over 100 countries and
territories around the world. Playboy TV is currently available in over
25 million U.S. cable and direct-to-home households.
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- Many Playboy videos have been best-sellers and Playboy Home Video has been
named one of Billboard magazine's "Top Video Sales Labels" for each
calendar year since 1994.
- More than 5,000 Playboy-branded products are sold in almost one hundred
countries.
We intend to leverage the powerful Playboy brand. Our relationship with
Playboy Enterprises provides us the following key competitive advantages:
- online use of leading trademarks, including Playboy, Playmate and the
Rabbit Head Design which use will be exclusive to us with very few
exceptions;
- an extensive array of articles, interviews and cartoons from PLAYBOY
magazine, as well as a photo library of more than nine million images;
- access to over 1,500 hours of Playboy television and video programming and
the exclusive right to add interactivity to such programming;
- access to millions of subscribers and customers; and
- promotional space in PLAYBOY magazine and on the Playboy television
networks and the ability to cross-promote the Playboy brand through
multiple media.
The Spice brand also offers us an excellent opportunity to create an online
destination featuring premium adult entertainment and e-commerce. Most of the
Web sites offering adult entertainment are not linked to an established brand
identity and do not have access to an already-established loyal base of
subscribers and customers. In addition, privacy is a major concern for Internet
users of these types of sites. Many Web sites cannot assure online privacy.
CYBERSPICE.COM offers the user e-commerce offerings from an established brand
and in a manner that is designed to address privacy concerns.
ROUZE.COM offers us an additional opportunity to attract 18 to 24 year old
males by providing cutting-edge entertainment.
OUR STRATEGY
Our objective is to be the leading online adult entertainment site for young
men around the world and to benefit from additional advertising and sponsorship
opportunities, expanded e-commerce offerings, a variety of subscription and
pay-per-view services and online gaming. Key elements of our strategy include
the following:
LEVERAGE OUR STRONG BRAND RECOGNITION. We intend to capitalize on the
worldwide recognition of the Playboy brand to continue developing a unique and
compelling online site for men who appreciate the Playboy lifestyle and
attitude. We believe this will allow us to attract additional users and
customers for our Web sites, e-commerce offerings, subscription and pay-per-view
services. In order to promote our products and services, we recently initiated
an extensive online, magazine, newspaper and outdoor advertising campaign as
well as select television and radio advertising. We also intend to utilize
Playboy Enterprises' extensive subscriber and customer lists to commence direct
marketing designed to increase our Web traffic and sales of Playboy-branded
merchandise. We plan to continue to advertise in Playboy Enterprises' other
media properties in order to take advantage of the numerous cross-promotional
and marketing opportunities around the world. We also intend to capitalize on
the familiarity of the Spice brand to build a leading Web site featuring premium
adult products.
MAXIMIZE REVENUES FROM MULTIPLE REVENUE STREAMS. We believe that leveraging
the power of the Playboy and Spice brands will allow us to generate increasing
revenues from e-commerce sales, advertising and sponsorships, subscription and
pay-per-view opportunities and online gaming.
E-Commerce. We intend to significantly increase our revenues from online
product sales through increased marketing, including an extensive direct
mail campaign, expanding the range of
33
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Playboy-branded and Spice-branded products that we offer and entering into
additional alliances with third parties. Our direct mail campaign, targeted
at Playboy Enterprises' current customer base, will position the Playboy
Store as the primary online source for purchasing over 2,700 different
Playboy-branded fashions, videos, gifts and collectibles. We intend to
continue expanding our product lines and e-commerce offerings, including
auctions, targeted at, and particularly appealing to, our customer base.
Advertising and Sponsorships. We intend to significantly increase our
revenues from advertising and sponsorships by capitalizing on the attractive
demographics of our expanding user base. We intend to increase the number of
sponsorship arrangements that enable companies to sponsor specific content
areas, special promotions or events. We also expect to increase our sales of
advertising, as we increase our Web traffic and expand our specific content
offerings. We also expect to offer companies attractive options to advertise
across a range of Playboy media, including magazines and online.
Subscription and Pay-Per-View. We intend to aggressively grow our number of
subscribers. We expect to offer an increasing array of content and events on
a subscription and pay-per-view basis. We also intend to offer premier
events, parties at the Playboy Mansion, Mardi Gras, lingerie and swimsuit
fashion shows and spring break specials on a more frequent pay-per-view
basis. We also plan to increase our marketing of the Playboy Cyber Club and
our pay-per-view events to the current Playboy audiences, including through
direct mail. We believe that these plans will convert current and new
visitors to PLAYBOY.COM into subscribers to the Playboy Cyber Club. As
broadband technology advances, our online access to the extensive Playboy
television and video library will enable us to expand our pay-per-view
offerings.
Online Gaming. We intend to develop a Playboy-branded online gaming site
for users solely in countries and jurisdictions where online gaming is
legal. Currently, approximately 25% of our traffic originates outside the
United States. We expect that this business will be based and operated
exclusively in a location outside of the United States where the operation
of online gaming is legal. By capitalizing on Playboy's strong brand
recognition and large base of international users, we believe that we will
have a significant advantage over other online gaming sites. In addition, we
intend to capitalize on Playboy Enterprises' experience in operating
Playboy-branded casinos in the United States and Europe.
ENHANCE AND EXPAND CONTENT ADULT ENTERTAINMENT OFFERINGS AND SERVICES,
INCLUDING INCREASED BROADBAND INTERACTIVE PROGRAMMING. We believe that we will
grow our loyal user base by providing compelling original content in many
different areas of interest to our target audience. While we currently offer
content on a wide range of topics, including sex and relationships, travel,
nightlife and sports, we intend to continue to expand our range of topics as
well as the depth of coverage on our current offerings. We will continue to
update content on a daily basis and, in the process, create an impressive online
content library. In addition, while we currently offer a variety of interactive
features, including Playmate chats and discussion groups, we expect to expand
these features in the future. For example, we intend to offer increased
interactive and broadband programming, including multi-user games and
interactive television programming. To achieve these objectives, we will
continue to expand our ability to develop original content internally and expect
to hire additional writers and editors. We will also continue to enter into
arrangements with third parties to provide us with exciting content and features
and to utilize Playboy Enterprises' extensive archival materials and video
library.
EXPAND OUR INTERNATIONAL PRESENCE THROUGH JOINT VENTURES AND OTHER
ALLIANCES. We intend to enter into joint ventures and/or licensing arrangements
in foreign countries to provide compelling content specifically tailored to
those audiences, including content in other languages. Playboy Enterprises'
numerous international relationships, including its partners for the
international editions of PLAYBOY magazine, its international partners for
Playboy TV and its product licensees around the world, will
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enable us to expand our promotional activities, original content and e-commerce
offerings that would appeal to foreign consumers. We intend to initially focus
our efforts on large markets where Playboy Enterprises already has significant
business operations, namely Germany, Spanish-speaking Latin America, Brazil and
Japan.
OUR SITES
We currently offer the following Web sites:
- Playboy-branded Web sites targeting the adult entertainment interests of
young men, including PLAYBOY.COM, the Playboy Store, Playboy Auctions, the
Playboy Marketplace and the Playboy Cyber Club;
- CYBERSPICE.COM, a site featuring premium e-commerce opportunities under
the Spice brand; and
- ROUZE.COM, a site offering cutting-edge entertainment targeted to young
men.
In the month of February 2000, we had over 120 million page views and over
19 million visits to our Web sites, as audited by ABC Interactive. In addition,
as of February 29, 2000, we had 43,958 subscribers to the Playboy Cyber Club.
Our Web sites also generate significant international traffic and, in
February 2000, approximately 25% of our traffic originated outside of the United
States.
PLAYBOY.COM
PLAYBOY.COM is a leading men's adult entertainment site featuring original
content, live events programming, e-commerce opportunities and user
interactivity. Our home page, located at WWW.PLAYBOY.COM, offers a guide to each
of the content areas, highlighting new original articles, links to the
e-commerce and auction sites, the Playboy Cyber Club and our special features
and events. Our home page also offers as well as a search function to allow
users to easily navigate the site.
CONTENT OFFERINGS
Our goal is to continue the Playboy legacy and become the definitive online
source for information and advice about sex, a trendsetter in travel, nightlife
and pop culture, and the ultimate source for fun on college campuses.
PLAYBOY.COM, which currently includes over 60,000 pages, contains extensive
original content developed by our growing staff of writers and editors, content
licensed from third-party providers for which we maintain editorial and quality
control and editorial and pictorial materials created and/or developed by
Playboy Enterprises. Our sites contain pictures of beautiful women, some of
which contain nudity which is clearly identified.
As of February 29, 2000, we employed a total of 53 editors, writers,
designers and producers to create and develop our original content for
PLAYBOY.COM. We also contract with free-lance writers who provide us with
specialized content for PLAYBOY.COM. We add new content and features to
PLAYBOY.COM on a daily basis and expect that we will continue to increase the
amount of content that we develop internally. We utilize a variety of methods,
including online surveys and input from our college representatives, to identify
and develop topics and features that will appeal to our target audience. Our
editors also contract with third parties that provide us with high-quality
content and special features which are appealing to PLAYBOY.COM visitors. For
example, we currently have arrangements with Telescan to provide comprehensive
financial information, with Internet Sports Network to offer sports fantasy/
rotisserie leagues and with Dark Horse Comics to provide erotic comics.
Additionally, our relationship with Playboy Enterprises will provide us with
online access to an extensive archive of editorial, pictorial and video content
targeted at adult males. We will continue to selectively utilize this content in
various areas on PLAYBOY.COM, including Playboy in Print, Playboy Live
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and Playmates. As broadband technology advances, we expect that we will be able
to exploit Playboy Enterprises' television programming and pictorial libraries
in a variety of exciting new ways.
We currently divide the content on PLAYBOY.COM into the following content
channels:
<TABLE>
<S> <C>
LOVE & SEX Covers sex and sexuality, dating, romance and gender
politics. Features items from the Playboy Advisor and
Playboy TV's "Sexcetera."
TRAVEL AND NIGHTLIFE Covers travel, leisure activities and nightlife. Features
advice on dining, nightlife, hotel and adult entertainment
offerings.
DIGITAL CULTURE Covers technology and new media trends, gadgets and
personalities. Features include weekly video and computer
game reviews and "Editor's Picks" from PLAYBOY.COM.
ARTS & ENTERTAINMENT Covers popular culture and show business, ranging from
music and movies to books and TV. Features include music
and video reviews, celebrity interviews and profiles. Also
offers streaming video, audio clips and e-commerce
opportunities.
COMEDY CLUB Contains adult-oriented jokes, humor and risque cartoons.
Also includes profiles of comedy celebrities.
INTERNATIONAL PLAYBOY Covers the events and personalities associated with
Playboy's 16 international print editions. Highlights new
pictorials and content. Includes coverage of launch
parties, Playmate searches and other international events.
CASINOS & GAMING Covers the world of casinos, gaming, games of chance and
the lifestyle that surrounds them. Offers articles on
casino games, movies and the high-roller lifestyle.
LIVING IN STYLE Covers the "Playboy lifestyle," with topics ranging from
fashion and dining to grooming and cars. Weekly columns
review beers, wines and cigars. Also features "Guy 101," a
frequently updated primer on the basics of being a Playboy
man.
ON CAMPUS Covers campus life and entertainment. Contains features on
campus trends, nightlife and events, as well as pictorials
of college coeds.
SPORTS Covers sporting news and events from the Playboy point of
view. Includes articles, interviews and reviews, as well
as in-depth coverage of Playboy magazine's Pigskin Preview
Special and Playboy's All-America Team.
NEWS DESK Covers current events from a Playboy perspective. Columns
highlight daily news stories of interest to the Playboy
man.
PLAYBOY INVESTOR Offers a comprehensive financial information service.
Features news, stock quotes, market and business
commentary, graphs and reports. Also features a
personalized portfolio for daily financial management.
PLAYBOY LIVE Hosts PLAYBOY.COM's live, real-time, interactive Webcasts.
Offers streaming video and audio, as well as photo
galleries, of events such as parties at the Playboy
Mansion, chats with celebrities, lingerie fashion shows
and an annual Mardi Gras special.
</TABLE>
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<TABLE>
<S> <C>
PLAYBOY MAGAZINE Includes excerpts from the current issue of PLAYBOY
magazine and selected historical issues. Regular features
on the new centerfold and celebrity interviews. Also
includes a "Contributor Profile," which highlights an
author, editor or celebrity from the current issue.
PLAYBOY TV Includes daily program information for Playboy TV. Also
highlights news and features about Playboy TV stars and
projects.
PLAYBOY HOME VIDEO Includes information on home video titles and upcoming
releases, as well as information on, and links for,
purchasing Playboy videos.
SPECIAL EDITIONS Includes pictorial features from current issues of
Playboy's Special Editions, as well as "teasers" for
upcoming issues. Contains intimate profiles of current
Playboy models.
PLAYMATES Contains coverage of Playboy Playmates. Regular features
include pictorials of recent Playmates and links to
Playmate personal pages. Also includes information about
upcoming Playmate appearances, product releases and
events.
</TABLE>
THE PLAYBOY STORE
The Playboy Store, which can be accessed through PLAYBOY.COM or directly at
WWW.PLAYBOYSTORE.COM, allows us to capitalize on Playboy Enterprises' strong
marketing experience and the worldwide recognition of the Playboy brand and
Rabbit Head Design. The Playboy Store is the largest source for Playboy-branded
apparel, jewelry, cigars and gifts, Playboy videos, DVDs and CD-ROMs, back
issues of PLAYBOY magazine and newsstand specials and collectibles such as
trading cards and posters. The home page of the Playboy Store highlights special
offers and seasonal gifts and offers a search function to find specific
merchandise quickly. Playboy Enterprises currently handles all of the
fulfillment and customer service functions relating to our products sold through
the Playboy Store.
Our affiliates program allows us to promote the Playboy Store on numerous
other Web sites. Our affiliate Web sites place Playboy logos and links to the
Playboy Store on their sites and earn commissions based on the revenues we
generate from any referred sales. We currently have affiliate relationships with
over 6,200 sites. In addition, our affiliates can earn discounts on products
sold in the Playboy Store as well as other incentives for driving traffic and
customers to our Web sites.
The Playboy Store is heavily promoted throughout PLAYBOY.COM, and many of
the pages on PLAYBOY.COM provide direct links to the Playboy Store. We are also
initiating an extensive direct mail campaign targeted at over one million recent
purchasers of Playboy-branded products and positioning the Playboy Store as the
sole online source for most Playboy-branded merchandise. We believe that this
direct mail campaign will serve as an effective way to drive traffic to the
Playboy Store and to increase our sales of Playboy-branded products.
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We currently offer the following product categories in the Playboy Store:
<TABLE>
<S> <C>
MEN'S APPAREL Playboy-branded, high-quality men's apparel, including
shirts, hats, pants and other accessories.
WOMEN'S APPAREL Playboy-branded casual and sexy apparel, including tops,
pants, dresses and other accessories for young women.
INTIMATES LINGERIE Playboy-branded sexy lingerie.
COLLECTIBLES Playboy autographed and limited edition products, books,
posters, cigars, lighters, pool cues and trading cards.
VIDEOS Playboy videos, DVDs and CD-ROMs featuring Playmates and
celebrities, as well as other sexy movies.
MUSIC Music targeted at young men.
PLAYBOY MAGAZINE Current and back issues of PLAYBOY magazine.
PLAYBOY IN PRINT Playboy-branded books, calendars, posters, art and other
accessories.
SPECIAL EDITIONS Current and back issues of Playboy's Special Editions.
HOME Playboy-branded products, including bar ware and body
products, smoking products and other accessories.
JEWELRY Playboy-branded men's and women's jewelry products.
PLAYMATE PRODUCTS Products featuring Playboy Playmates including PLAYBOY
magazines, video features, collectors' cards and
calendars.
</TABLE>
THE PLAYBOY MARKETPLACE
We created the Playboy Marketplace to offer our PLAYBOY.COM visitors a wide
selection of entertainment and apparel products from third-party vendors that
would appeal to the Playboy lifestyle. The Playboy Marketplace, which can be
accessed through PLAYBOY.COM, features thousands of products, including
electronics, books, music, posters, innovative gifts, clothing and accessories.
While we receive a commission for each of the items purchased through the
Playboy Marketplace, the merchants are directly responsible for shipping,
inventory and fulfillment services. The Playboy Marketplace currently features a
number of popular merchants, including Amazon.com, Sharper Image,
Fashionmall.com, Gourmet Market and CNET. Through affiliate arrangements with
these merchants, we generate commission revenues through the sale of all
products originated through the Playboy Marketplace. Like the Playboy Store, we
heavily promote the Playboy Marketplace throughout PLAYBOY.COM and many of the
pages on the site provide direct links to the Playboy Marketplace. We intend to
increase the quantity and range of products offered through the Playboy
Marketplace by creating further alliances with high-quality merchandisers and
retailers.
PLAYBOY AUCTIONS
There is currently a thriving online auction market for Playboy
collectibles. In December 1999, we launched Playboy Auctions to capitalize on
this market and to allow people to auction their Playboy collectibles to other
Playboy fans. In addition, Playboy Auctions, which can be accessed through
PLAYBOY.COM or directly at AUCTIONS.PLAYBOY.COM, allows us to auction high-end,
autographed and limited edition products as well as overstocked or discontinued
items. We have retained FairMarket, a leading provider of private-label auction
solutions, to co-produce and host our auction services.
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THE PLAYBOY CYBER CLUB
Playboy Cyber Club is a premium subscription service which is designed as an
online Playboy fan club and contains extensive Playboy and Playmate-related
editorial and pictorial content. The Playboy Cyber Club, which can be accessed
through PLAYBOY.COM or directly at CYBER.PLAYBOY.COM, capitalizes on our
relationship with Playboy Enterprises and provides us with access to a large
archive of editorial, pictorial and video content targeted at adult males. These
archives include articles and interviews from PLAYBOY magazine, which has been
published for over 45 years, and its international editions, a nine-million
image photo library and over 1,500 hours of Playboy television programming and
movies.
The Playboy Cyber Club offers our subscribers VIP access to over 45,000
photos of Playboy Playmates and models, many of which have never been published,
every Playboy interview published in the magazine, Playboy Advisor columns and
video clips from our home videos and Playboy TV shows. In addition, the Playboy
Cyber Club also offers erotic fiction and features subscriber chat rooms and
daily chats with Playmates. Subscribers to the Playboy Cyber Club also have free
access to some of our pay-per-view specials, such as the lingerie fashion show
and the Mardi Gras special.
The Playboy Cyber Club is currently offered on a monthly basis for $6.95, a
quarterly basis for $17.95 and an annual basis for $59.95. As of February 29,
2000, we had 43,958 subscribers. The Playboy Cyber Club is promoted throughout
PLAYBOY.COM and there are extensive links to attract potential subscribers who
may be interested in the extensive archival materials available at the site.
PAY-PER-VIEW
We have the unique opportunity to showcase on PLAYBOY.COM a variety of
Playboy parties, events and videos which can be accessed exclusively online on a
pay-per-view basis. To date, we have offered four pay-per-view events, including
a "Midsummer Night's Dream" party at the Playboy Mansion, a lingerie fashion
show and a Mardi Gras special. Our goal is to offer quarterly and then monthly
specials featuring Playboy Playmates and celebrities, holiday parties at the
Playboy Mansion, awards shows and other live events. Our planned pay-per-view
specials, fashion shows and model searches. We expect our pay-per-view specials
to attract subscribers to the Playboy Cyber Club because we offer these
subscribers free access to some of our pay-per-view specials. As broadband
technology advances and more people become able to access the Internet at higher
speeds, we will be able to offer our visitors the opportunity to view thousands
of Playboy movies and specials on a pay-per-view basis and develop new
interactive programs.
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CYBERSPICE.COM
In March 1999, Playboy Enterprises completed the acquisition of Spice
Entertainment Companies, Inc., a leading provider of adult television
entertainment throughout the world. Spice primarily obtains television rights to
adult movies from third parties and offers these movies on a pay-per-view basis
on television networks in the United States and abroad. Through an arrangement
with Playboy Enterprises, we have the online rights to the Spice brand, as well
as access to television content and the online rights to sell Spice-branded
merchandise.
The Spice Web site, located at WWW.CYBERSPICE.COM, currently consists of the
Spice Store and a section promoting the Spice television networks and
highlighting upcoming events, synopses of Spice movies and network schedules.
The Spice Store was launched in May 1999 and features a broad range of
high-quality adult-oriented products, including over 2,400 videos and DVDs,
lingerie and sensual products. Like the Playboy Store, Playboy Enterprises
currently handles all of the fulfillment and customer service functions relating
to the products sold through the Spice Store. In order to further increase our
online customer base, we intend to initiate a direct mail campaign positioning
the Spice Store as a convenient source for purchasing a large number of
adult-oriented products.
In the future, particularly as broadband technology advances, we may offer
videos and special events to our visitors on a pay-per-view basis and develop
new interactive programs.
ROUZE.COM
In February 2000, we purchased substantially all of the assets of Rouze
Media, Inc., which operated a free Web site located at WWW.ROUZE.COM. ROUZE.COM
is focused on attracting 18 to 24 year-old males by offering cutting-edge
content, advertising and e-commerce opportunities.
ROUZE.COM contains several sections targeted specifically at the interests
of young men including sex and dating news, celebrity, movie, music and TV
reviews, sports, fitness and financial news, Internet games and travel and night
life reviews. In addition, ROUZE.COM offers on online emporium featuring a
variety of third-party electronic media and consumer and other products.
ROUZE.COM also contains compelling celebrity and technology-focused articles.
ADVERTISING AND SPONSORSHIP
The demographics of our user base are highly concentrated among younger
upscale consumers. According to a Fall 1999 study by @Plan, 53.3% of the
PLAYBOY.COM visitors are between 18 and 34. Furthermore, according to @Plan,
61.6% of the PLAYBOY.COM users have a household income of $50,000 or more, and
18.8% of the PLAYBOY.COM users have a household income of $100,000 or more. In
addition, according to @Plan, 48.0% of the visitors to PLAYBOY.COM have attended
college and 40.2% are professionals or hold managerial positions. As a result,
we believe that our network provides a highly-targeted platform for advertisers
and sponsors to reach our highly attractive demographic user base. Anonymous
demographic information relating to our users and subscribers is shared with
advertisers, sponsors and market researchers on an aggregate basis.
We currently derive, and expect to continue to derive, a substantial portion
of our revenues from advertising on our Web sites. Our advertisers typically
enter into agreements with terms of between one month and a year, under which
they generally receive a guaranteed number of impressions at a fixed rate. We
offer numerous sizes and types of advertising placement, including banner
advertisements, button advertisements and other links. Our advertisers include
large and small companies in the entertainment, media, travel, sports, consumer
products, retail, Internet and financial services industries.
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The following advertisers accounted for approximately 54% of our advertising
and sponsorship revenues during the year ended December 31, 1999:
CNET
theglobe.com
BUY.COM
Universal Studios
Columbia Tristar
Xandria
NetRadio.com
CMP Media Inc.
SportsLineUSA
NewsEdge
Our largest advertisers vary from period to period and investors should not
rely on this list as representative of our largest advertisers in any future
period.
We also offer sponsorship opportunities that enable advertisers to promote
their corporate messages to the PLAYBOY.COM users, as well as sponsorships for
our pay-per-view events and the other special events that we produce. For
example, K-Tel sponsors the PLAYBOY.COM home page and Captain Morgan, Real
Networks and Gathering of Developers sponsored our recent Mardi Gras
pay-per-view event. These sponsorship arrangements typically generate higher
revenues for us than individual advertising contracts. We intend to aggressively
promote sponsorships in other content areas on PLAYBOY.COM as well as for all of
the pay-per-view events that we offer.
Our relationship with Playboy Enterprises also allows us to offer
advertisers and sponsors the ability to promote themselves through a number of
different distribution channels, including online, print and television, as well
as through event sponsorships. Our sales representatives work very closely with
the sales and marketing personnel at Playboy Enterprises to structure attractive
packages across different media properties. We believe that the potential for
cross-marketing is very attractive to many of our advertisers and sponsors, and
we intend to continue to promote multimedia advertising packages in the future.
Our in-house sales force develops and implements our advertising and
sponsorship strategies, including identifying strategic accounts and developing
presentations and promotional materials. We currently have sales personnel
located in New York, Chicago, Los Angeles and San Francisco. We expect to
significantly increase our advertising sales capabilities, including the number
of sales representatives, in the future. In addition, we currently use online
advertising networks for the sale of some of our advertising inventory,
including 24/7 Media for advertising sales in foreign countries.
MARKETING AND BRAND AWARENESS
We believe that our marketing and promotional efforts will increase traffic
on our Web sites, generate additional memberships to our subscription services
and pay-per-view events and attract a wide range of advertisers, sponsors and
e-commerce partners. To date, our marketing and promotional activities have
capitalized on the strong Playboy brand and the current customers and
subscribers to Playboy Enterprises' other media properties, including PLAYBOY
magazine, Playboy TV and the Spice networks. We recently began promoting
PLAYBOY.COM on the cover and in each issue of PLAYBOY magazine, which has a
worldwide monthly readership of over 15 million.
Our future marketing and promotional activities will continue to capitalize
on our relationship with Playboy Enterprises. For example, we have begun to
implement an extensive direct mail campaign positioning the Playboy Store and
the Spice Store as the primary source for the great majority of Playboy-branded
and Spice-branded merchandise. This direct mail campaign has initially been
targeted at the recent purchasers of Playboy and Spice products. In addition, we
will continue to take advantage
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of the cross-promotional opportunities that we have with Playboy Enterprises,
such as Playboy Playmate events, parties at the Playboy Mansion, conventions,
awards shows, trade shows and other special events. For example, the
November 1999 lingerie fashion show, which had Playboy Playmates and models
wearing Playboy-branded products, was also broadcast on Playboy TV. Visitors to
PLAYBOY.COM could watch a live broadcast of the show, obtain a behind the scenes
view of the dressing room on a pay-per-view basis and purchase the lingerie at
the Playboy Store.
We also have recently initiated a variety of new marketing and promotional
activities designed to drive traffic to PLAYBOY.COM, generate increased product
sales and attract subscribers to the Playboy Cyber Club. These marketing and
promotional activities will include traditional and Internet advertising,
parties and special events and strategic alliances to build traffic and attract
customers and subscribers. We are pursuing a wide-ranging advertising campaign
that will include television, radio, print and outdoor advertising. Our print
and outdoor advertising campaign features our unique "RabbitHeadLogo.com" spots.
We also intend to expand our online advertising to promote our Web sites and
specific merchandising opportunities on sites targeted at our 18 to 34 male
demographic. We plan to increase our efforts specifically targeted at college
campuses, including radio advertisements and events and parties organized by our
over 300 campus representatives around the country.
CUSTOMER SERVICE AND FULFILLMENT
Our customer service department, which currently consists of nine full-time
employees, handles e-mail and phone inquiries relating to content on PLAYBOY.COM
and CYBERSPICE.COM. In addition, our customer service department handles
customer support for Playboy Cyber Club subscribers, including questions
concerning billing, content and programming and technical support. We currently
rely on third party technology such as Internet Message Center for e-mail
management and LivePerson for online person-to-person chat.
We currently rely on Playboy Enterprises to provide fulfillment and customer
service for products purchased through the Playboy Store and the Spice Store.
Playboy Enterprises currently processes and fulfills our customer orders at a
facility in Itasca, Illinois. A shipping and handling fee is charged on each
customer order, based on the total price of the order. Playboy Enterprises'
customer service personnel are responsible for taking product orders, handling
general customer inquiries, answering customer questions about the ordering
process and investigating the status of orders, shipments and payments. Customer
orders are currently received via toll-free telephone calls, fax, e-mail and
regular mail. The call center operates 24 hours a day, seven days a week.
Playboy Enterprises has announced that it is exploring strategic
alternatives for its operations in Itasca, Illinois. If Playboy Enterprises
decides to sell its operations at this facility, we would seek to provide
product fulfillment and customer service through the purchaser or a third party.
TECHNOLOGY INFRASTRUCTURE
We believe we have an advanced technology platform which is built and
maintained for reliability, security and flexibility. In addition, our
infrastructure is scalable, allowing it to grow with our business.
We operate our Web sites through multiple Web server computing systems,
including a variety of models from Sun Microsystems. We primarily use Solaris
for our operating systems and Netscape and Apache for our Web server software.
Our internal programming is written using a broad spectrum of programming
languages depending on the intended application. We also utilize a variety of
technologies to provide the features on our Web sites, including chat technology
from Koz.com, search capabilities from Infoseek, streaming audio and video from
Real Networks and newsgroup functionality from Infopop. In addition, we utilize
the Transact System from Open Market for handling user authentication, customer
management, billing and renewals for the Playboy Cyber Club and our pay-per-view
events. Our advertising serving, management and reporting is conducted with the
Open
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AdStream system from Real Media. We also use Oracle databases for data
management and the Vignette StoryServer for content management on portions of
our Web sites. We believe that alternative sources for each of these services
are currently available.
Our Web sites are currently hosted at Frontier Global Center in Sunnyvale,
California. In August 1999, we also entered into an Internet-hosting agreement
with Level 3 Communications to maintain production servers at Level 3
Communications' center in Chicago, Illinois. Frontier Global Center and Level 3
Communications provide comprehensive facilities management services, including
human and technical monitoring of all production servers 24 hours a day, seven
days a week. Any disruption in the Internet access provided by Frontier Global
Center or Level 3 Communications could disrupt our business and cause our
revenues to fall.
We also have entered into other agreements with the following third party
providers of technology and services:
- What'sHotNow.com for some of our e-commerce programs,
- FairMarket for hosting auctions,
- LinkShare for our e-commerce affiliate programs and
- Akamai Technologies for image caching.
We intend to continue to invest in technologies that will improve and expand our
e-commerce capabilities and the functionality of our Web sites.
We use several layers of security in order to protect the transmission of
data as well as to prevent unauthorized access to our systems. All critical
systems including our databases are behind firewalls for protection. Access to
all our systems is through special secure channels, and we follow strict
password management procedures. From time to time, we use third party expert
services to assess and improve our security. All e-commerce transactions and
browser-based system administration screens use secure socket layer encryption
to protect data transmissions. We do not share with third parties customer
credit card information which we obtain from e-commerce transactions,
subscription and pay per view payments. We also provide customers with the
ability to place orders via fax or toll-free number as alternatives to
completing a transaction online.
COMPETITION
Many Web sites compete with us for visitors, subscribers, advertisers and
e-commerce partners and we expect this competition to increase in the future. We
believe that the primary competitive factors in our markets include brand
recognition, the quality of content and products, technology, pricing, ease of
use, sales and marketing efforts and user demographics. We believe that we
compete favorably with respect to each of these factors. In addition, we believe
that we distinguish ourselves from our competitors as a result of our
relationship with Playboy Enterprises, which provides us with many advantages,
including the following:
- worldwide brand recognition;
- an extensive collection of editorial, pictorial and video content;
- marketing, promotions and merchandising expertise; and
- a loyal audience comprised of young, upscale professionals.
We currently face intense competition for users, subscribers, advertisers
and sponsors from numerous types of Web sites, as well as from publishers and
distributors of traditional media. These competitors include:
- Web sites focused on sports, entertainment and online gaming;
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- Web sites containing adult-oriented content, many of which offer all or a
portion of their content on a subscription basis; and
- domestic and international publishers and distributors of traditional
media, such as television, home videos, radio and print.
To a limited extent, we compete for users and subscribers with PLAYBOY magazine
and the television networks operated by Playboy Enterprises.
Many of the sites we compete with focus on particular topics, such as sports
and music, and are unable to satisfy the wide variety of entertainment needs of
Internet users in our targeted male demographic. In addition, many other sites,
such as search engines and portals, offer limited original content. As a result,
we believe that PLAYBOY.COM is one of the few sites that provides high-quality
original content for young men across a wide spectrum of entertainment
categories.
While much of the merchandise offered in the Playboy Store and the Spice
Store is unavailable elsewhere online, there is intense competition on the
Internet with respect to the sale of products. We compete with numerous
Internet-based merchants, including companies selling books, music, clothing and
other gift items, as well as sites offering adult-oriented products. In
addition, we compete directly with the Web sites of companies that manufacture
the non-Playboy-branded gifts we offer, such as cameras and other electronics
equipment. Furthermore, we also compete with stores and companies that do not
distribute their products through the Internet.
Many of our competitors and potential new competitors may have greater
financial, technical, marketing and distribution resources. As a result, these
competitors may be able to:
- adopt more aggressive pricing policies;
- undertake more extensive marketing and promotional campaigns;
- more quickly develop online gaming operations; and
- make more attractive offers to potential employees, e-commerce partners,
advertisers and
third-party content providers.
As a result, we cannot assure you that we will be able to compete
effectively against current and future competitors.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Effective trademark, copyright and trade secret protection may not be
available in every country in which we operate to the extent available in the
United States.
To protect our intellectual property, we rely on a combination of trademark
and copyright law, trade secret protections and confidentiality agreements and
other contractual arrangements with our employees and third parties. Pursuant to
agreements with our parent company, we have certain exclusive and non-exclusive
rights to Playboy and Spice content, a variety of trademarks, including the
Playboy and Spice names and the Rabbit Head Design, and numerous domain names.
If this agreement were terminated and, as a result, we lost the benefits of
using the content, trademarks, names and logos, our ability to operate our
business would be severely harmed. In addition, we rely on Playboy Enterprises
to take appropriate steps to protect our intellectual property rights, and we
cannot be sure that Playboy Enterprises will take all necessary steps or take
action in a timely manner.
We may license in the future some of our proprietary rights, such as
trademarked or copyrighted material, to third parties. Some of our licensees may
take or omit to take actions that would adversely affect the value of our
proprietary rights or reputation, and this could have a material adverse effect
on our business and financial results.
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Although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert claims against
us that we have misappropriated a trade secret or infringed a patent, copyright,
trademark or other proprietary right belonging to them. For example, we cannot
be sure that we have the online rights to all editorial and pictorial content
that was developed many years ago and is contained in the Playboy archives. Any
infringement or related claims, even if not meritorious, could be costly and
time consuming to litigate, may distract management from other tasks of
operating the business and may result in the loss of significant rights and the
loss of our ability to operate our business.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There are an increasing number of laws and regulations in the United States
and abroad pertaining to communications and commerce on the Internet. In
addition, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governments. Laws or
regulations may be adopted with respect to the Internet relating to liability
for information retrieved from or transmitted over the Internet, user privacy,
taxation and the quality of products and services. Moreover, the application to
the Internet of existing laws governing issues such as intellectual property
ownership and infringement, pornography, obscenity, libel, gaming, employment
and personal privacy is uncertain and developing. Any such legislation or
regulation, or the application or interpretation of existing laws, may decrease
the growth in the use of the Internet in general, prevent us from delivering our
content in different parts of the world and increase our costs of selling
products or otherwise operating our business.
ONLINE CONTENT AND COMMERCE REGULATIONS. Several federal, state and foreign
statutes prohibit the transmission and sale of indecent, pornographic, obscene
or offensive content and products over the Internet to particular groups or
persons, and some private legal actions have been brought or threatened against
libraries and various public facilities that offer unfiltered Internet access.
If these statutes are deemed to apply to us and our activities, if new laws or
regulations are adopted which are found to apply to our activities, or if
caselaw establishes broad limitations on distribution, we may be limited in the
types of content and advertisements we make available on our Web sites, as well
as the product that we offer. In addition, some foreign countries, such as
Singapore and China, entirely restrict access to our Web sites throughout their
countries. If other countries decide to adopt similar policies, our business and
financial results may be harmed. Furthermore, legislation regulating online
content could limit the growth in use of the Internet generally and decrease the
acceptance of the Internet as an advertising and e-commerce medium.
PRIVACY CONCERNS. Web sites typically place identifying data, or cookies,
on a user's hard drive without the user's knowledge or consent. Our company and
many other Internet companies use cookies for a variety of different reasons,
including the collection of data derived from the user's Internet activity. Any
reduction or limitation in the use of cookies could limit the effectiveness of
our sales and marketing efforts. Most currently available Web browsers allow
users to remove cookies at any time or to prevent cookies from being stored on
their hard drive. Some privacy advocates and governmental bodies have suggested
limiting or eliminating the use of cookies. In addition, the European Union and
many countries within the E.U. have adopted privacy directives or laws that
strictly regulate the collection and use of information regarding Internet users
that is identifiable to particular individuals. Privacy legislation has been
proposed in the U.S. as well, and the U.S. Federal Trade Commission has taken
action against Web site operators that do not comply with state privacy
policies. These and other governmental efforts may limit our ability to target
advertising or collect and use information regarding the use of our Web sites.
Fears relating to a lack of privacy could also result in a reduction in the
number of our users and subscribers which could harm our business and financial
results.
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INTERNET TAXATION. A number of legislative proposals have been made at the
federal, state and local levels, and by various foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet, and
some states have taken measures to tax Internet-related activities. Although
Congress placed a three-year moratorium in 1998 on new state and local taxes on
Internet access or e-commerce, existing state and local laws were expressly
excepted from this moratorium. It is possible this moratorium may not be
renewed. As a result, some federal and/or state taxes may be imposed on Internet
commerce. Legislation in this area, or other attempts at regulating commerce
over the Internet both in the United States and abroad may impede the growth of
our product sales and adversely affect our business.
DOMAIN NAMES. The acquisition and maintenance of domain names, or Internet
addresses, generally are regulated by governmental agencies and their designees.
Pursuant to an agreement with Playboy Enterprises, we have the right to use
various .com Web domain names that are important to the operation of our
business. We cannot assure you that third parties will not be able to acquire
domain names that are similar to, infringe upon or otherwise decrease the value
of our proprietary rights. In addition, changes in the system for registering
domain names may result in the loss of or change in our domain names and a
reduction in brand awareness among our users.
ONLINE GAMING. We currently intend to develop online gaming services only
in jurisdictions in which such activity is legal. Although we intend to take all
reasonable measures to restrict our online gaming services to residents of
jurisdictions in which online gaming is lawful, we cannot be sure that a user
located in a jurisdiction in which online gaming is illegal will not access our
services. In addition, we may have to obtain a license from a governmental or
regulatory body before being able to offer online gaming in a specific
jurisdiction and there can be no assurance that any such license could be
obtained. Future regulation could also hinder our ability to offer online
gambling activities. For example, the U.S. Congress and some individual states
are currently considering legislation that seeks to ban online gambling
activities. One pending bill has already been approved by the Senate that would
prohibit a gambling-related business from using the Internet to facilitate
wagering. If enacted into law in its current form, this bill would likely
subject those who engage in unlawful online gambling activity to criminal
penalties. Although we currently anticipate that any plans to offer online
gambling would involve a wholly-owned foreign subsidiary, pending legislation
may impose liability on U.S. companies that are deemed to assist in the
operation of offshore illegal gambling sites. Although we would take all
reasonable measures to comply with such legislation, it is possible that we
could be deemed liable and would have to pay civil or criminal penalties. Other
countries may also decide to adopt laws or regulations that ban or curtail
online gaming.
EMPLOYEES
We had 148 full-time employees as of February 29, 2000, of which we had 53
in content development, 37 in product sales and customer service, 28 in sales,
marketing and business development, 15 in technology and operations and 15 in
management and administration. We also utilize the employees of Playboy
Enterprises on a limited basis and pay for these services pursuant to our
intercompany arrangements. Our employees are not represented by any collective
bargaining organization and we consider our relations with our employees to be
good. Competition for qualified personnel in our industry is intense. We believe
that we will need to continue to attract, hire and retain qualified personnel to
be successful in the future.
FACILITIES
Our principal executive office is located in New York, New York, where we
currently occupy approximately 9,000 square feet in space leased by Playboy
Enterprises. In addition, we occupy additional office space leased by Playboy
Enterprises in Chicago, Illinois, Los Angeles, California and San Francisco,
California. We believe that our existing facilities are adequate for our near
term requirements.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
OUR EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and key employees, and their ages and
positions, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Kevin Mayer*.............................. 37 Chief Executive Officer, President and
Director
Paul D. Kallis*........................... 36 Executive Vice President and Acting Chief
Financial Officer
George E. Williams*....................... 36 Senior Vice President, Business
Development
Michael J. Bacco*......................... 43 Senior Vice President, Sales and Marketing
Jay Boersma............................... 52 Creative Director
Rodger Brown.............................. 41 Editorial Director
Christie Hefner........................... 47 Chairman of the Board of Directors
Edward Mullen............................. 46 Vice Chairman of the Board of Directors
Donald G. Drapkin......................... 51 Director
Linda G. Havard........................... 45 Director
</TABLE>
- ------------------------
* Denotes executive officer
KEVIN MAYER has served as our Chief Executive Officer, President and one of
our directors since February 2000. From November 1999 to February 2000, he
served as Executive Vice President and General Manager of the GO Network, part
of Go.com, a subsidiary of The Walt Disney Company. From February 1999 to
November 1999, he was Executive Vice President, Television Network Product and
International for the Buena Vista Internet Group, The Walt Disney Company's
online unit. From April 1993 to February 1999, he served in strategic planning
at The Walt Disney Company, most recently as Senior Vice President. From
September 1990 to April 1993, he was a Management Consultant for The LEK
Partnership.
PAUL D. KALLIS has served as our Executive Vice President since
September 1999 and as our Acting Chief Financial Officer since March 2000. He
also served as our Acting President from April 1999 to February 2000. Between
April 1998 and August 1999, Mr. Kallis served as Senior Vice President and Chief
Technology Officer of Playboy Enterprises. From December 1996 to April 1998, he
served as Senior Vice President of Marvel Interactive, a division of Marvel
Entertainment Group, Inc. From April 1996 to December 1996, he served as Vice
President, Online Entertainment of Marvel Entertainment Group. Prior to working
at Marvel Entertainment Group, Mr. Kallis held a variety of computer science and
new media positions at Philips Media, a division of Philips Electronics, N.V.,
and AT&T Bell Laboratories. Between January 1992 and May 1995, Mr. Kallis served
as an Adjunct Professor at Stevens Institute of Technology in Hoboken, New
Jersey.
GEORGE E. WILLIAMS has been our Senior Vice President of Business
Development since October 1999. From March 1998 to October 1999, Mr. Williams
was the Senior Vice President and General Manager of Ameritrade Holdings
Corporation's OnMoney subsidiary. From April 1997 to March 1998, Mr. Williams
served as a Director in Prodigy Services Corporation's Money and Investment
Services Division. Mr. Williams served as a Manager in Prodigy's Money and
Investment Services Division from October 1996 to April 1997 and as a Product
Manager from November 1995 to October 1996. Mr. Williams was a Regional Manager
for Globalview Software, Inc. from February 1995 to November 1995. From
March 1994 to February 1995, Mr. Williams served as a Capital Markets Officer
with Chemical Bank Corporation.
MICHAEL J. BACCO has been our Senior Vice President, Sales and Marketing
since March 2000. From December 1999 to March 2000, he provided consulting
services for a variety of high-tech internet/companies. From June 1997 to
December 1999, Mr. Bacco served as the Marketing Manager,
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Absolut Vodka for Seagrams America. From December 1996 to May 1997, he was the
Consumer Communications Manager for the House of Seagram. From January 1994 to
November 1996, he was the Marketing Manager, Absolut Vodka for the House of
Seagram.
JAY BOERSMA has served as our Creative Director since May 1998. From
August 1996 to May 1998, he served as our Art Director. From September 1979 to
June 1996, Mr. Boersma was a Professor of Art at Governors State University in
University Park, Illinois. From January 1994 to August 1996, Mr. Boersma also
worked as an independent computer graphics consultant. From September 1977 to
June 1979, he was a Visiting Assistant Professor at University of Illinois at
Champaign.
RODGER BROWN has served as our Editorial Director since November 1999. From
April 1997 to November 1999, Mr. Brown served as an Editor for us. From
May 1994 to April 1997, he served as Associate Director of Online Services for
Eason Publications. Prior to joining Eason Publications, Mr. Brown was a
freelance writer with regular contributions to THE ATLANTA JOURNAL-CONSTITUTION,
THE NEW YORK TIMES MAGAZINE, THE VILLAGE VOICE and CREATIVE LOAFING NEWSPAPER.
CHRISTIE HEFNER has served as the Chairman of our Board of Directors since
November 1998 and as our Acting Chief Executive Officer from December 1999 to
February 2000. She has also served as Chairman of the Board and Chief Executive
Officer of Playboy Enterprises since November 1988. From September 1986 to
November 1988, she was Vice Chairman of the Board, President and Chief Operating
Officer of Playboy Enterprises. From February 1984 to September 1986, she was
President and Chief Operating Officer of Playboy Enterprises; she had been
President since April 1982. From January 1978 to April 1982, she was a Corporate
Vice President of Playboy Enterprises. She joined Playboy Enterprises in 1975 as
Special Assistant to the Chairman of the Board.
DONALD G. DRAPKIN has served as one of our directors since December 1999. He
has also served as Vice Chairman and Director of MacAndrews & Forbes
Holdings Inc. and various of its affiliates since 1987. From 1977 to 1987,
Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher and
Flom in New York. In addition, Mr. Drapkin serves as Director of Algos
Pharmaceutical Corporation, Anthracite Capital, Inc., BlackRock Asset Investors,
The Molson Companies Limited, Nexell Thereapeutics Inc., Playboy Enterprises
Inc., Revlon Consumer Products Corporation, Revlon, Inc., Wedcom, Inc. and
Weider Nutritional International, Inc.
LINDA G. HAVARD has served as one of our directors since December 1999 and
as our Acting Chief Financial Officer from December 1999 to March 2000. She has
also served as Executive Vice President, Finance and Operations and Chief
Financial Officer of Playboy Enterprises since May 1997. From October 1996 to
May 1997, she served as Atlantic Richfield Company's Senior Vice President in
the Global Energy Ventures division. From January 1994 to December 1996, she was
Atlantic Richfield Company's Vice President of Corporate Planning. From
August 1982 to January 1994, Ms. Havard held a variety of financial and
management positions at Atlantic Richfield Company.
EDWARD MULLEN has served as Vice Chairman of our Board of Directors since
February 2000. From May 1999 to February 2000, he served as President and a
Director of Marketing Services Group, Inc. From April 1999 to February 2000, he
also served as Chief Executive Officer of CMG Direct Corporation. From
December 1995 to April 1997, Mr. Mullen was President and Director of the
Massachusetts Interactive Media Council. In addition, Mr. Mullen serves as a
Director of WiredEmpire, Digital Bitcasting and BeNext.com. Mr. Mullen is
currently an Adjunct Professor at Boston College's Graduate School of
Management.
COMPOSITION OF THE BOARD
Upon the completion of this offering, we intend to file an amended and
restated certificate of incorporation which will provide for a board of
directors consisting of between one and eleven
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directors. Each director is to be elected for a period of one year at our annual
meeting of stockholders and to serve until the next annual meeting or until his
or her successor is duly elected.
BOARD COMMITTEES
The Audit Committee of the board of directors will be established prior to
the closing of this offering and will review, act on and report to the board of
directors with respect to various auditing and accounting matters, including the
recommendation of our auditors, the scope of the annual audits, fees to be paid
to the auditors, the performance of our independent auditors and our accounting
practices.
The Compensation Committee of the board of directors will be established
prior to the closing of this offering and will recommend, review and oversee the
salaries, benefits and stock option plans for our employees, consultants,
directors and other individuals compensated by us. The Compensation Committee
will also administer our compensation plans.
DIRECTOR COMPENSATION
We have granted Edward Mullen options to purchase shares of our
common stock at an exercise price of $ per share. We have also granted Donald
Drapkin options to purchase shares of our common stock at an exercise
price of $ per share.
Other than reimbursing directors for customary and reasonable expenses of
attending board of directors or committee meetings, we do not currently
compensate our directors. Under our 2000 Stock Incentive Plan, each individual
who first joins the Playboy.com board after the effective date of this offering
as a non-employee board member may be granted an option on that date to purchase
shares of our common stock. Please see "--2000 Stock Incentive Plan" on
page 52.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Kevin Mayer, dated
February 21, 2000, governing his employment as Chief Executive Officer and
President of Playboy.com. Under the four-year agreement, Mr. Mayer will receive
an annual base salary of $350,000 and will be eligible to receive an annual
bonus based on the company's performance during the previous fiscal year. In
addition, we have agreed to grant Mr. Mayer options to purchase
shares of common stock at an exercise price of $ . In the event that
Mr. Mayer is involuntarily terminated or constructively terminates his
employment following a change of control, all of his unvested stock options will
immediately vest and become fully exercisable. In addition, in the event that,
during his first year of employment, Mr. Mayer is terminated without cause or
constructively terminates his employment, all of his unvested stock options will
immediately vest and become fully exercisable.
We have entered into an employment agreement with Paul D. Kallis, dated
February 21, 2000, governing his employment as Executive Vice President of
Playboy.com, Inc. Under the agreement, Mr. Kallis will receive an annual base
salary of $210,000. In addition, we have agreed to grant Mr. Kallis options to
purchase shares of common stock at an exercise price of $ . In the
event that Mr. Kallis is terminated without cause, he shall be entitled to
receive six months guaranteed severance and up to an additional three months if
he remains unemployed.
Other than our agreements with Mr. Mayer and Mr. Kallis, we do not currently
have any employment agreements with any of our employees.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for our
former Acting Chief Executive Officer and our other executive officer who, based
on employment with Playboy Enterprises
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<PAGE>
and Playboy.com, were the most highly compensated for the year ended
December 31, 1999. In addition, this table sets forth information concerning
options granted by Playboy Enterprises to purchase its common stock. While this
compensation is indicative of the historical compensation paid by Playboy
Enterprises and Playboy.com to these individuals, it is not necessarily
indicative of the compensation which we will pay to our executive officers going
forward.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION NUMBER OF SHARES ALL OTHER
------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS ($)
- --------------------------- -------- -------- ---------------- -------------
<S> <C> <C> <C> <C>
Christie Hefner(2)(3)..................... $550,000 $ 55,000 650,000(4) $ 30,151(6)
Acting Chief Executive Officer and
Chairman of the Board of Directors
Paul D. Kallis(3)......................... $199,616 $ 20,000 10,000(5) $ 9,564(6)
Executive Vice President and Acting
President
</TABLE>
- ------------------------
(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in that column. The aggregate amount
of perquisites and other personal benefits provided to each executive
officer above is less than the lesser of $50,000 and 10% of the total amount
of salary and bonus of that officer.
(2) Ms. Hefner, who is employed by Playboy Enterprises, served as our Acting
Chief Executive Officer from December 1999 to February 2000.
(3) Prior to April 1999, Mr. Kallis was employed by Playboy Enterprises.
(4) Represents a non-qualified stock option granted in fiscal year 1999 under
the Amended and Restated Playboy Enterprises, Inc. 1995 Stock Incentive Plan
(the "1995 Plan") with differing exercise prices, ranging from $21.00 to
$31.50 (100% to 150% of fair market value on the date of grant). The option
expires on January 19, 2009. Of the 650,000 options granted, 170,000 were
immediately exercisable. The remaining 480,000 options will become
exercisable in 25% increments annually, beginning January 19, 2000.
(5) Represents a non-qualified stock option granted in fiscal year 1999 under
the 1995 Plan. The option has an exercise price of $21.00 (100% of fair
market value on the date of grant), an expiration date of January 19, 2009,
and is exercisable in equal annual increments over a two-year period
beginning January 19, 2000.
(6) The amounts disclosed include:
(a) Playboy Enterprises' profit-sharing contributions of $3,964 on behalf of
Ms. Hefner and Mr. Kallis in fiscal year 1999 under Playboy Enterprises'
Employees Investment Savings Plan.
(b) Playboy Enterprises' 401(k) matching contributions of $5,600 on behalf
of Ms. Hefner and Mr. Kallis in fiscal year 1999 under Playboy
Enterprises' Employees Investment Savings Plan.
(c) Playboy Enterprises' deferred compensation matching contributions of
$20,587 on behalf of Ms. Hefner under Playboy Enterprises' Deferred
Compensation Plan.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding options granted by
Playboy Enterprises to purchase its common stock to the named executive officers
during the year ended December 31, 1999. Playboy Enterprises did not grant any
stock appreciation rights during 1999. We did not issue any options to purchase
any shares of our common stock during the year ended December 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES
SHARES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS IN FISCAL PRICE PER EXPIRATION ----------------------------
NAME GRANTED YEAR SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Christie Hefner................ 308,000 30.56 21.00 1/19/09 4,074,840 10,284,120
170,000 16.87 26.25 1/19/09 1,356,600 4,783,800
172,000 17.06 31.50 1/19/09 469,560 3,937,080
Paul D. Kallis................. 10,000 0.99 21.00 1/19/09 132,300 333,900
</TABLE>
- ------------------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 5% and
10% assumed annual rates of compounded stock price appreciation are mandated
by rules of the Securities and Exchange Commission and do not represent our
estimate or projection of our future common stock prices. These amounts
represent certain assumed rates of appreciation in the value of our common
stock from the fair market value on the date of grant. Actual gains, if any,
on stock option exercise depend on the future performance of the common
stock. The amounts reflected in the table may not necessarily be achieved.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED DECEMBER 31, 1999 AND
YEAR-END OPTION VALUES
The following table sets forth information concerning options granted by
Playboy Enterprises to purchase its common stock exercised by the named
executive officers during the year ended December 31, 1999. The table also sets
forth the number and value of unexercised options to purchase Playboy
Enterprises common stock held by the named executive officers at December 31,
1999. We did not issue any options to purchase any shares of our common stock
during the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED
SHARES OPTIONS AT DECEMBER 31, 1999
ACQUIRED VALUE -----------------------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE(2)
------------------- --------------------- ------------------- -------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
NAME STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
- ---- -------- -------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christie Hefner:
Fiscal year 1990 grant....... 50,000 150,000 $564,063 $2,273,438 -- -- -- --
Fiscal year 1992 grant....... -- -- -- -- 5,000 15,000 -- --
Fiscal year 1995 grant....... -- -- -- -- -- 75,000 -- --
Fiscal year 1997 grant....... -- -- -- -- -- 56,250 -- 18,750
Fiscal year 1999 grant....... -- -- -- -- -- 170,000 -- 138,000
Fiscal year 1999 grant....... -- -- -- -- -- -- -- 342,000
Paul D. Kallis:
Fiscal year 1998 grant....... -- -- -- -- -- 1,875 -- 5,625
Fiscal year 1999 grant....... -- -- -- -- -- -- -- 10,000
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1999(1)
--------------------------------------------
EXERCISABLE UNEXERCISABLE
-------------------- ---------------------
CLASS A CLASS B CLASS A CLASS B
NAME STOCK STOCK STOCK STOCK
- ---- -------- --------- -------- ----------
<S> <C> <C> <C> <C>
Christie Hefner:
Fiscal year 1990 grant....... -- -- -- --
Fiscal year 1992 grant....... 65,625 254,063 -- --
Fiscal year 1995 grant....... -- 1,079,217 -- --
Fiscal year 1997 grant....... -- 530,392 -- 176,797
Fiscal year 1999 grant....... 563,125 -- 457,125
Fiscal year 1999 grant....... -- -- -- (3)
Paul D. Kallis:
Fiscal year 1998 grant....... -- 12,422 -- 37,266
Fiscal year 1999 grant....... -- -- -- 33,125
</TABLE>
- ------------------------
(1) The values of the unexercised in-the-money options have been calculated on
the basis of the fair market value of the Class A and Class B common stock
at December 31, 1999, which equaled $20.5000 and $24.3125, respectively,
less the applicable exercise price, multiplied by the number of shares
acquired on exercise.
(2) Shares are unexercisable due to vesting provisions.
(3) Option exercise price exceeded closing price as of December 31, 1999.
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<PAGE>
2000 STOCK INCENTIVE PLAN
The 2000 Stock Incentive Plan has been adopted by the board of directors and
approved by our stockholder. The 2000 Stock Incentive Plan will be administered
by our compensation committee.
5,000,000 shares of common stock have been authorized for issuance under the
2000 Stock Incentive Plan. The share reserve will automatically increase on the
first trading day in January of each calendar year, beginning in January 2001,
by an amount equal to 3% of the total number of shares of common stock
outstanding on the last trading day in December of the preceding calendar year,
but in no event will this annual increase exceed 750,000 shares. In addition, in
no event may one participant in the 2000 Stock Incentive Plan receive option
grants or direct stock issuances for more than 1,250,000 shares in the aggregate
per calendar year.
The 2000 Stock Incentive Plan will be divided into two separate programs:
- the discretionary option grant program under which eligible individuals in
the employ of Playboy.com or Playboy Enterprises may be granted options to
purchase shares of common stock at an exercise price determined by the
plan administrator; and
- the stock issuance program under which eligible individuals may be issued
shares of common stock directly, through the purchase of these shares at a
price determined by the plan administrator or as a bonus tied to the
performance of services.
The 2000 Stock Incentive Plan will include the following features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program in return for the
grant of new options for the same or different number of option shares
with an exercise price per share based upon the fair market value of
common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. Such rights will provide the holders with the election to
surrender their outstanding options for an appreciation distribution from
Playboy.com equal to the fair market value of the vested shares of common
stock subject to the surrendered option less the exercise price payable
for those shares. Playboy.com may make the payment in cash or in shares of
common stock.
The 2000 Stock Incentive Plan will include change in control provisions that
may result in the accelerated vesting of outstanding option grants and stock
issuances:
- In the event that Playboy.com is acquired by merger or asset sale or a
board-approved sale of more than 50% of Playboy.com's capital stock, each
outstanding option under the discretionary option grant program that is
not assumed or continued by the successor corporation will immediately
become exercisable for all the option shares, and all unvested shares will
immediately vest, except to the extent our repurchase rights with respect
to those shares are to be assigned to the successor corporation.
- The plan administrator may grant options which vest immediately upon an
acquisition of Playboy.com or upon a hostile change of control or upon the
individual's termination of service following an acquisition that results
in a change in control.
The board will be able to amend or modify the 2000 Stock Incentive Plan at
any time, subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than February 20, 2010.
52
<PAGE>
TRANSACTIONS WITH PLAYBOY ENTERPRISES
HISTORICAL RELATIONSHIP
As a subsidiary of Playboy Enterprises, we have historically received
various services from Playboy Enterprises, including finance, accounting, tax,
administrative, legal, technical, human resources, marketing, creative,
merchandising, fulfillment and customer service and facilities services. Playboy
Enterprises has also provided us with the services of a number of its executives
and employees. Prior to the closing of this offering, our financial statements
have reflected allocations, though not formalized in written agreements, for
these services rendered to us by Playboy Enterprises. We believe those
allocations have been made on a reasonable and consistent basis. However, they
are not necessarily indicative of, nor is it practical for us to estimate, the
level of expenses we would have otherwise incurred had we operated as a
separate, stand-alone company.
We received commissions totaling $239,000 in 1998 and $460,000 in 1999 from
Playboy Enterprises for the sale of non-Playboy branded videos and music through
PLAYBOY.COM. We received $480,000 in 1998 and 1999 for advertising these
non-Playboy branded videos and music on PLAYBOY.COM.
Since 1995, we have paid Playboy Enterprises $1 million annually for access
to its editorial and pictorial libraries.
From inception through December 31, 1999, we have financed our activities
exclusively through funding from Playboy Enterprises totalling approximately
$26.4 million. As of December 31, 1999, these amounts were contributed to our
capital and, as of such date, we had no outstanding obligations to Playboy
Enterprises.
INTERCOMPANY AGREEMENTS
We intend to enter into a series of intercompany agreements with Playboy
Enterprises prior to the closing of this offering. We have summarized below the
anticipated material terms of these agreements. These agreements have been
negotiated on an arms-length basis. We believe the terms of these agreements are
no less favorable to us than those that could have been obtained from an
unaffiliated third party. The material terms of the intercompany agreements
cannot be amended or waived without the approval of a majority of our directors
who are not affiliated with Playboy Enterprises.
MASTER INTERCOMPANY AGREEMENT
We will enter into a master intercompany agreement that sets default terms
for various of the intercompany agreements and provides for the following:
- Trademark and Content License Royalties. We will pay Playboy Enterprises
an annual license fee equal to ten percent of annual net revenues for the
first $50,000,000 of net revenues and seven percent of net revenues for
annual net revenues in excess of $50,000,000 up to $100,000,000. We will
not pay royalties for any net revenues in excess of $100,000,000.
Regardless of actual revenues, the minimum license fee that we pay to
Playboy Enterprises shall be $2,800,000 for 2000, $5,200,000 for 2001, and
$7,500,000 thereafter. In addition, we will pay Playboy Enterprises a 50%
share of net revenues derived through pay-per-view programming of Playboy
Enterprises' video content.
- Indemnification by Playboy.com. We will indemnify Playboy Enterprises and
its officers, directors, employees and affiliates from all losses on
claims arising out of our failure to pay or perform all liabilities or
obligations arising from or in connection with our business following the
date of this agreement or any breach by us of our agreements with Playboy
Enterprises.
- Indemnification by Playboy Enterprises. Playboy Enterprises will
indemnify us and our officers, directors, employees and affiliates from
all losses or claims arising out of Playboy Enterprises' failure to pay or
perform all liabilities or obligations arising from or in connection with
its
53
<PAGE>
business before the date of this agreement, other than our liabilities or
obligations, and any breach by Playboy Enterprises of their agreements
with us.
- Dispute Resolution. We will attempt to resolve disputes by referring
controversial matters to senior management representatives of the parties.
If these efforts are not successful, either party may submit the
disagreement or question to mediation. In the event either party is
dissatisfied with the resolution determined by the mediator, either party
may commence binding arbitration proceedings. The agreement contains
procedures that are intended to expedite dispute resolution, including the
selection of an arbitrator and limitations on discovery.
ASSET TRANSFER AGREEMENT
Prior to the closing of this offering, we will enter into an asset transfer
agreement with Playboy Enterprises. Pursuant to this agreement, Playboy
Enterprises will transfer and assign to us various assets and contracts used in
connection with our business, or allocate costs associated with our use. These
assets and contracts shall include all computer files and data that constitute
our Web sites, Web site operating agreements, the current inventory of the
direct commerce business and all Playboy and Spice customer databases.
Generally, where the agreement only impacts our business and no other units of
Playboy Enterprises, it is being assigned to us.
TRADEMARK LICENSE AGREEMENT
We will enter into a trademark license agreement with Playboy Enterprises
prior to the closing of this offering. Under this agreement, with limited
exceptions, we will have the exclusive right to use the Playboy and Spice
trademarks in connection with online and interactive media, e-commerce,
multi-user interactivity and direct commerce.
The exclusive right to the marks for use in e-commerce is subject to certain
limitations. Specifically, Playboy Enterprises may license to third party
product manufacturers or distributors the right to manufacture, promote, sell
and distribute Playboy and Spice branded products, including video media,
provided that such products may not be sold online by any party other than us
unless (i) Playboy and Spice Branded products constitute less than twenty
percent (20%) of such party's online product offerings and (ii) the target
audience and positioning of such party's site does not compete directly with our
web sites. In return for this limited exception to our exclusivity, Playboy
Enterprises has agreed to use commercially reasonable efforts to:
- prevent its distributors from setting up competing web sites whereby
Playboy and Spice branded products would constitute twenty percent (20%)
or more of such web site's online product offerings;
- prevent its distributors from using any of the Playboy or Spice trademarks
in their metatags or HTML code, including hidden text;
- require that its distributors include a link to Playboy.com; and
- prevent the sale of Playboy and Spice branded products by a direct
competitor of ours.
In addition, our exclusivity as to e-commerce will not prevent Playboy
Enterprises' international joint venture partners from engaging in the
promotion, but not the sale, of international edition print publications, video
media and television/pay-per-view programming on foreign Web sites operated for
the sole purpose of promoting such offerings, provided that Playboy Enterprises
will use commercially reasonable efforts to provide that such foreign web sites
link to and promote PLAYBOY.COM and/or the applicable domain name for their
respective country.
The exclusivity as to direct commerce is subject to offline direct marketing
by Playboy Enterprises divisions, provided that we shall have the exclusive
right to publish a stand alone print catalog of Playboy or Spice branded
products.
54
<PAGE>
Playboy Enterprises was not able to cancel various pre-existing commitments
which grant third parties certain rights covered by our exclusivity. Playboy
Enterprises has agreed, however, that as the term of these pre-existing
commitments expire or come up for renewal, it will either terminate such
agreements or use commercially reasonable efforts to modify their terms so they
no longer infringe upon our exclusive rights.
We will be required to follow Playboy Enterprises' standards and practices
regarding the proper use of the trademarks. Furthermore, Playboy Enterprises
shall receive post-use audit rights to monitor our use of the trademarks. If
Playboy Enterprises determines that we have improperly used the trademarks in
any advertising or promotional material, or in connection with any of our goods
and services, then we must correct or cease such use as soon as reasonably
practicable. In addition, we will have to get approval for certain uses of
promotional or consumer goods branded with the trademarks.
The term of this agreement will be perpetual, although either party may
terminate this agreement earlier in the event of a repeated, continuing
egregious breach by the other party followed by dispute resolution and a ruling
by an arbitration panel that the only suitable remedy for the non-breaching
party is termination of both the Trademark License Agreement and Content Supply
and License Agreement. In addition, Playboy Enterprises may terminate this
agreement earlier in the event (1) that a competitor of Playboy Enterprises
acquires a controlling interest in our business, (2) that we become subject to a
bankruptcy proceeding that is not dismissed within 60 days or (3) a qualified
auditor acceptable to us refuses to issue an audited financial statement without
adding in its opinion that it declines to assume that we will be able to
continue as a going concern and Playboy Enterprises reasonably believes that we
are no longer viable as a going concern.
CONTENT SUPPLY AND LICENSE AGREEMENT
We will enter into a content supply and license agreement with Playboy
Enterprises prior to the closing of this offering. Under this agreement, we will
receive an exclusive license to use content owned by Playboy Enterprises,
including all text, articles, features, photographs, graphics, images, audio,
video, data, software, and other copyright protected works, in connection with
online and interactive media, e-commerce and multi-user interactivity. We will
also receive the same rights as to content licensed by Playboy Enterprises from
third parties, but only to the maximum extent of Playboy Enterprises' rights in
such licensed content. This supply and license agreement includes not only
content which Playboy Enterprises presently owns or licenses but also content
which Playboy Enterprises will own or license in the future. As each of Playboy
Enterprises and us develops new content, we will license this content for use by
the other party in their respective business.
Playboy Enterprises shall retain the right to transmit non-interactive, long
form programming of 30 minutes or more over a non-standard television platform
but not over the Internet or its successors. We will also have the rights to
transmit long form programming and, in addition, we will have the exclusive
rights to:
- program and display interactive programming based on Playboy Enterprises'
content, with limited exceptions; and
- transmit Playboy Enterprises' video content which is less than 30 minutes
in length.
Playboy Enterprises will take certain measures to protect our exclusivity,
including the use of contractual limitations in its agreements with distributors
and licensees. To the extent possible, Playboy Enterprises agrees to take
necessary measures to enforce restrictions that are intended to protect our
rights.
We are subject to limited holdbacks on certain Playboy Enterprises' content.
Specifically, we will have the right to publish certain parts of the then
current issue of PLAYBOY Magazine and the international editions but will not
have the right to publish the entire contents of such issue until one day after
the next successive issue is available for retail sale in the United States, or
in the case of an
55
<PAGE>
international edition, the applicable country. We will be subject to a holdback
of between nine and 18 months on video programming initially released on video
media or shown on Playboy Television.
The term of this agreement will be 50 years, although either party may
terminate this agreement earlier in the event of a repeated, continuing
egregious breach by the other party followed by dispute resolution and a ruling
by an arbitration panel that the only suitable remedy for the non-breaching
party is termination of both the Trademark License Agreement and Content Supply
and License Agreement. In addition, Playboy Enterprises may terminate this
agreement earlier in the event (1) that a competitor of Playboy Enterprises
acquires a controlling interest in our business, (2) that we become subject to a
bankruptcy proceeding that is not dismissed within 60 days or (3) a qualified
auditor acceptable to us refuses to issue an audited financial statement without
adding in its opinion that it declines to assume that Playboy.com will be able
to continue as a going concern and Playboy Enterprises reasonably believes that
we are no longer viable as a going concern.
ADVERTISING AND CO-PROMOTION AGREEMENT
We will enter into an advertising and co-promotion agreement with Playboy
Enterprises prior to the closing of this offering that will cover the
cross-promotional rights and responsibilities of each party. In general, this
agreement will grant us advertising space in PLAYBOY magazine and other media
properties of Playboy Enterprises in exchange for the promotion of Playboy
Enterprises on our Web sites. We and Playboy Enterprises will also offer links
to each other's Web sites. We will receive from Playboy Enterprises a 50%
commission on all subscriptions of Playboy Enterprises publications that we sell
through our Web site. Playboy Enterprises will also pay us 15% of the net
revenues generated by our promotion of Playboy Enterprises' Collectors' Choice
Music and Critics' Choice Video Web sites as well as a monthly fee.
This agreement has an initial term of ten years and will renew for
additional terms upon our mutual agreement unless either of us provides written
notice to the other 180 days prior to the expiration of the initial term or any
subsequent term. Either of us may terminate this agreement for reason of uncured
breach by the other party or if the other party becomes subject to a bankruptcy
proceeding that is not dismissed within 60 days. In addition, Playboy
Enterprises may terminate this agreement if a competitor of Playboy Enterprises
acquires a controlling interest in our business.
ADMINISTRATIVE SERVICES AGREEMENT
Following the closing of this offering, Playboy Enterprises shall continue
to provide administrative services to us, including legal, investor relations,
corporate communications, facilities, human resources, treasury and accounting.
We will pay Playboy Enterprises for their services under this agreement on
either an estimated or actual cost reimbursement basis, although some of these
costs will be capped. In the event we request additional services from Playboy
Enterprises, we will negotiate in good faith any fees payable to Playboy
Enterprises for these services. Additionally, we will provide hosting services
to Playboy Enterprises, and we will pass any related costs through to Playboy
Enterprises.
This agreement has an initial term of ten years and will renew for
additional terms upon our mutual agreement unless either of us provides written
notice to the other 180 days prior to the expiration of the initial term or any
subsequent term. Either of us may terminate this agreement for reason of uncured
breach by the other party or if the other party becomes subject to a bankruptcy
proceeding that is not dismissed within 60 days. In addition, Playboy
Enterprises may terminate this agreement if a competitor of Playboy Enterprises
acquires a controlling interest in our business.
SUPPLY AND FULFILLMENT SERVICES AGREEMENT
Playboy Enterprises has announced that it is exploring strategic
alternatives for its operations in Itasca, Illinois, which currently handles the
fulfillment and customer service responsibilities for the products we sell
through the Playboy Store and the Spice Store. If Playboy Enterprises does not
sell its
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<PAGE>
operations at this facility prior to the closing of this offering, we will enter
into a fulfillment and customer service agreement with Playboy Enterprises
relating to the sale of products on the Playboy Store and Spice Store. This
agreement will cover services to be provided by Playboy Enterprises regarding
direct mail and e-commerce sales. These services include the supply, storage and
fulfillment of our direct mail and e-commerce orders, as well as customer
service responsibilities. We will pay Playboy Enterprises on an annual basis for
warehousing services, and on a per order basis for customer services and order
fulfillment services. Pricing of products will be at cost as mutually agreed
upon by us and Playboy Enterprises.
This agreement has an initial term of ten years and will renew for an
additional period upon our mutual agreement unless either of us provides written
notice to the other 180 days prior to the expiration of the initial term or any
subsequent term. Either of us may terminate this agreement for reason of uncured
breach by the other party or if the other party becomes subject to a bankruptcy
proceeding that is not dismissed within 60 days. In addition, Playboy
Enterprises may terminate this agreement if a competitor of Playboy Enterprises
acquires a controlling interest in our business.
ONLINE GAMING AGREEMENT
We will enter into an online gaming agreement with Playboy Enterprises prior
to the closing of this offering. Pursuant to the agreement, Playboy Enterprises
will provide us with regulatory compliance services and exclusive access to
Playboy Gaming, Inc.'s customer database and its locations for promotion of
gaming events, shows and concerts for Webcasting. We will manage the online
gaming business and will have sole discretion over choice of games offered, how
they are promoted, advertising sponsorship, and strategy for international
expansion. We will pay Playboy Enterprises annual service fees based on a
percentage of net revenues generated by online gaming. Specifically, we will pay
Playboy Enterprises 10% of the first $25 million of annual net revenues, 5% on
the annual net revenues between $25 and $50 million and 2.5% on annual net
revenues over $50 million.
This agreement has an initial term of ten years and will renew for an
additional period upon our mutual agreement unless either of us provides written
notice to the other 180 days prior to the expiration of the initial term or any
subsequent term. Either of us may terminate this agreement for reason of uncured
breach by the other party or if the other party becomes subject to a bankruptcy
proceeding that is not dismissed within 60 days. In addition, Playboy
Enterprises may terminate this agreement if a competitor of Playboy Enterprises
acquires a controlling interest in our business.
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
We will enter into a registration rights agreement with Playboy Enterprises
prior to the closing of this offering that will cover our common stock owned by
Playboy Enterprises.
Under that agreement, at any time after 180 days following the date of this
prospectus, Playboy Enterprises may demand that we file a registration statement
under the Securities Act of 1933 covering all or a portion of our securities
held by Playboy Enterprises. However, the securities to be registered must have
a reasonably anticipated aggregate public offering price of at least
$10 million. Playboy Enterprises can effect no more than one demand registration
per year. If and when we become eligible to utilize a Form S-3 registration
statement to register an offering of our securities, Playboy Enterprises may
request that we file a registration statement on Form S-3 covering all or a
portion of our securities held by Playboy Enterprises, provided that the
aggregate public offering price is at least $2.5 million. In addition, pursuant
to the registration rights agreement, Playboy Enterprises will be entitled to
piggyback registration rights with respect to the registration of its shares
under the Securities Act of 1933.
These registration rights are subject to various conditions and limitations,
including, in the case of piggyback registration rights, the right of the
underwriters to restrict the number or shares of common
57
<PAGE>
stock held by Playboy Enterprises to be included in a registration. We are
generally required to bear all of the expenses of these registrations, except
underwriting discounts and selling commissions.
The registration rights of Playboy Enterprises under the registration rights
agreement will terminate when Playboy Enterprises may sell all its shares in a
three-month period under Rule 144 under the Securities Act of 1933.
TAX ALLOCATION AGREEMENT
Upon or prior to the completion of this offering, we will enter into a tax
allocation agreement with Playboy Enterprises to allocate responsibilities,
liabilities and benefits relating to taxes. We will be required to pay our share
of income taxes shown as due on any consolidated, combined or unitary tax
returns filed by Playboy Enterprises for tax periods ending on or before or
including the date as of which we will no longer be a member of Playboy
Enterprises' group for federal, state or local tax purposes, as the case may be.
Playboy Enterprises will indemnify us against liability for all taxes in respect
of consolidated, combined or unitary tax returns for periods as to which Playboy
Enterprises is filing group returns that include us. Accordingly, any
redetermined tax liabilities for those periods will be the responsibility of
Playboy Enterprises, and any refunds or credits attributable to us in respect of
consolidated, combined or unitary tax returns for those periods will be for the
account of Playboy Enterprises. We will be responsible for filing any separate
tax returns for any taxable period and will be responsible for any tax
liabilities, and entitled to any refunds or credits of taxes, with respect to
any separately filed tax returns. We will indemnify Playboy Enterprises against
liability for any federal, state or local taxes for which we file separate tax
returns.
Tax payments will be made by us to Playboy Enterprises quarterly based on
pro forma consolidated, combined or unitary tax returns prepared by Playboy
Enterprises that reflect the methods and elections used by Playboy Enterprises
in filing such returns. Within a reasonable period of time following the filing
of any consolidated, combined or unitary tax return by Playboy Enterprises that
includes us, we shall pay to Playboy Enterprises the difference between our
allocated share of the tax liability shown on such consolidated, combined or
unitary tax return and the amount of the estimated tax payments we made with
respect to the period covered by such tax returns.
Playboy Enterprises will have all the rights of a parent of a consolidated,
combined or unitary group, will be the sole and exclusive agent for us in any
and all matters relating to our taxes reported as part of Playboy Enterprises'
consolidated, combined or unitary group, will have the sole and exclusive
responsibility for the preparation and filing of such consolidated, combined or
unitary tax returns, and will have the power, in its sole discretion, to contest
or compromise any asserted tax adjustment or deficiency and to file, litigate or
compromise any claim for refund on our behalf related to such return. Any
dispute concerning the calculation or basis of determination of any payment
provided under the tax allocation agreement will be resolved by a law firm or
"big five" accounting firm selected and paid jointly by the parties.
We will be included in Playboy Enterprises' consolidated group for federal,
state and local income tax purposes for so long as Playboy Enterprises
beneficially owns at least 80% of the total voting power and value of our
outstanding common stock. Each member of a consolidated, combined or unitary
group generally is jointly and severally liable for the income tax liability of
each other member of the group. Accordingly, although the tax allocation
agreement will allocate tax liabilities between us and Playboy Enterprises,
during the period in which we are included in Playboy Enterprises' consolidated,
combined or unitary group, we could be liable for taxes of another member of the
group in the event that any tax liability is incurred, but not discharged, by
any other member of Playboy Enterprises' consolidated group.
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<PAGE>
PRINCIPAL STOCKHOLDERS
As of April 10, 2000, 20,312,500 shares of our common stock were
outstanding, all of which were owned by Playboy Enterprises. Upon completion of
this offering, Playboy Enterprises will own approximately % of our
outstanding common stock and approximately % if the underwriters exercise
their over-allotment option in full. The address for Playboy Enterprises is 680
North Lake Shore Drive, Chicago, Illinois 60611. For a description of certain
transactions and arrangements between us and Playboy Enterprises, please see
"Transactions With Playboy Enterprises" on page 53.
In addition to the shares held by Playboy Enterprises, Kevin Mayer, our
Chief Executive Officer and President, was granted options to purchase
shares of our common stock. Although all of these options are currently
exercisable, and therefore deemed to be beneficially owned by Mr. Mayer, the
shares issuable upon exercise are subject to repurchase by us if Mr. Mayer's
services with us are terminted prior to vesting. Other than the shares held by
Playboy Enterprises, and the shares issuable upon the exercise of stock options
by Mr. Mayer, none of our directors, officers or employees beneficially own any
of our outstanding common stock. The following table set forth information as of
April 10, 2000 with respect to the outstanding securities of Playboy Enterprises
beneficially owned by each of our directors and executive officers, and all of
our directors and executive officers as a group. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting and investment power with respect to shares.
Unless otherwise indicated, the persons named in the table below have sole
voting and sole investment control with respect to the shares beneficially
owned.
PLAYBOY ENTERPRISES, INC.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF NUMBER OF PERCENTAGE OF
SHARES OF SHARES OF SHARES OF SHARES OF
CLASS A CLASS A CLASS B CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Christie Hefner(1)........... 72,274 1.5% 704,178 3.6%
Linda G. Havard(2)........... -- * 83,750 *
Paul D. Kallis(3)............ -- * 13,750 *
Donald G. Drapkin(4)......... -- * 10,000 *
Michael J. Bacco............. -- * -- *
Kevin Mayer.................. -- * -- *
Edward Mullen................ -- * -- *
George E. Williams........... -- * -- *
All directors and executive
officers as a group
(8 persons)................ 72,274 1.5% 811,678 4.1%
</TABLE>
- ------------------------
* Less than 1%
(1) Includes options to purchase 392,415 shares of Class B common stock and
5,000 shares of Class A common stock of Playboy Enterprises. In addition,
this number includes 37,500 restricted shares of Class B common stock which
have not vested.
(2) Includes options to purchase 63,750 shares of Class B common stock of
Playboy Enterprises. In addition, this number includes 20,000 restricted
shares of Class B common stock which have not vested.
(3) Includes options to purchase 8,750 shares of Class B common stock of Playboy
Enterprises. Includes 5,000 restricted shares of Class B common stock which
have not vested.
(4) Includes options to purchase 5,000 shares of Class B common stock of Playboy
Enterprises. In addition, this number includes 5,000 restricted shares of
Class B common stock which have not vested.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our common stock and preferred stock and the
relevant provisions of our amended and restated certificate of incorporation and
amended and restated bylaws as will be in effect upon the closing of this
offering are summaries thereof and are qualified by reference to our amended and
restated certificate of incorporation and the amended and restated bylaws,
copies of which have been filed with the Securities and Exchange Commission as
exhibits to our registration statement, of which this prospectus forms a part.
Upon closing of this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share.
COMMON STOCK
Upon closing of this offering, and giving effect to the issuance of
shares of common stock in this offering, there will be shares of
common stock outstanding. Holders of common stock are entitled to one vote for
each share held on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of common stock entitled to vote in any election of directors may elect all of
the directors standing for election. Holders of common stock are entitled to
receive ratably those dividends, if any, as may be declared by the board of
directors out of funds legally available therefor, subject to any preferential
dividend rights of any outstanding preferred stock. Upon the liquidation,
dissolution or winding up of Playboy.com, the holders of common stock are
entitled to receive ratably the net assets of Playboy.com available after the
payment of all debts and other liabilities and subject to the prior rights of
any outstanding preferred stock. Holders of the common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares offered by us in this offering will be, when issued in
consideration for payment thereof, fully paid and nonassessable. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future. Upon the closing
of this offering, there will be no shares of preferred stock outstanding.
PREFERRED STOCK
Upon the closing of this offering, there will be no shares of preferred
stock outstanding. Upon the closing of this offering, the board of directors
will be authorized, without further stockholder approval, to issue from time to
time up to an aggregate of 5,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption, including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designation of series. We have no present plans to
issue any shares of preferred stock. See "--Anti-Takeover Effects of Provisions
of Delaware Law and Playboy.com's Certificate of Incorporation and Bylaws" on
page 61.
OPTIONS
Options to purchase a total of 5,000,000 shares of common stock may be
granted under the 2000 Stock Incentive Plan. As of April 10, 2000, there were
outstanding options under the 2000 Stock Incentive Plan. We intend to
file a registration statement on Form S-8 as soon as practicable following the
closing of this offering. As a result, any shares issued upon exercise of
options granted
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<PAGE>
under the 2000 Stock Incentive Plan will be immediately available for sale in
the public market, subject to the terms of any lock-up agreements entered into
with the underwriters.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND PLAYBOY.COM'S
CERTIFICATE OF INCORPORATION AND BYLAWS
Playboy.com is subject to the provisions of Section 203 of the Delaware
General Corporation Law. Subject to some exceptions, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
interested stockholder attained that status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to Playboy.com and, accordingly, may discourage attempts to acquire
Playboy.com.
In addition, various provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws, which provisions will be in
effect upon the closing of the offering and are summarized in the following
paragraphs, may be deemed to have an anti-takeover effect and may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including those attempts that might result in a premium
over the market price for the shares held by stockholders.
BOARD OF DIRECTORS VACANCIES. Playboy.com's amended and restated
certificate of incorporation authorizes the board of directors to fill vacant
directorships or increase the size of the board of directors. This may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies created by this removal with
its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. Playboy.com's amended
and restated certificate of incorporation provides that stockholders may not
take action by written consent, but only at duly called annual or special
meetings of stockholders. The amended and restated certificate of incorporation
further provides that special meetings of stockholders of Playboy.com may be
called only by the chairman of the board of directors, the chief executive
officer or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS
NOMINATIONS. Playboy.com's amended and restated bylaws provide that stockholders
seeking to bring business before an annual meeting of stockholders, or to
nominate candidates for election as directors at an annual meeting of
stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of Playboy.com, not less than 120 days nor more than
150 days prior to the first anniversary of the date of Playboy.com's notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders; provided, that if no annual meeting of stockholders was held in
the previous year or the date of the annual meeting of stockholders has been
changed to be more than 30 calendar days earlier than or 60 calendar days after
this anniversary, notice by the stockholder, to be timely, must be so received
not more than 90 days nor later than the later of:
- 60 days prior to the annual meeting of stockholders; or
- the close of business on the 10th day following the date on which notice
of the date of the meeting is given to stockholders or made public,
whichever occurs first.
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Our amended and restated bylaws also specify certain requirements as to the
form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to various limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could make
more difficult or discourage an attempt to obtain control of Playboy.com by
means of a proxy context, tender offer, merger or otherwise.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
requires a greater percentage.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is LaSalle National
Bank, Chicago, Illinois.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Upon the closing
of this offering, we will have outstanding an aggregate of shares of our
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, all shares sold in this
offering will be freely tradeable without restriction or further registration
under the Securities Act unless such shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act.
The remaining shares outstanding, all of which are held by Playboy
Enterprises, are "restricted securities" within the meaning of Rule 144.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
promulgated under the Securities Act. As a result of the contractual
restrictions described below and the provisions of Rule 144, the shares of
common stock outstanding prior to this offering will be available for sale in
the public market 180 days following the closing of this offering, in accordance
with the volume limitations and other conditions of Rule 144.
LOCK-UP AGREEMENTS
Playboy Enterprises and our directors and officers signed lock-up agreements
under which they agreed not to transfer or dispose of, directly or indirectly,
any shares of our common stock or any securities convertible into or exercisable
or exchangeable for shares of our common stock for 180 days after the date of
this prospectus, without the prior written consent of Credit Suisse First Boston
Corporation. After the expiration of the lock-up agreements, Playboy Enterprises
will be allowed to sell shares of our common stock in accordance with Rule 144.
Sales of substantial amounts of common stock in the public market after this
restriction lapses could harm the prevailing market price and our ability to
raise equity capital in the future.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding, which will equal
shares immediately after the offering, or the average weekly trading volume of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to various manner-of-sale provisions, notice
requirements and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years, including the holding period of any
prior owner other than an affiliate, is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell such shares 90 days after the effective date of this offering
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in reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Pursuant to an agreement between us and Playboy Enterprises, Playboy
Enterprises will be entitled to certain rights with respect to the registration
of our shares under the Securities Act. See "Transactions With Playboy
Enterprises" on page 53. After such registration, these shares of our common
stock will be freely tradeable without restriction under the Securities Act. Any
such sales could cause the trading price of our common stock to fall.
STOCK OPTIONS
As of April 10, 2000, we had outstanding stock options. As soon as
practicable following the closing of this offering, we intend to file a
registration statement under the Securities Act covering 5,000,000 shares of
common stock reserved for issuance under our 2000 Stock Incentive Plan. Shares
issued under this plan will be eligible for sale in the public market from time
to time, subject to vesting provisions, Rule 144 volume limitations applicable
to our affiliates and, in the case of some options, the expiration of lock-up
agreements.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Bear, Stearns &
Co. Inc. and Banc of America Securities LLC are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<S> <C>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------ ---------
Credit Suisse First Boston Corporation......................
Bear, Stearns & Co. Inc.....................................
Banc of America Securities LLC..............................
---------
Total...................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price less the
underwriter discounts and commissions. The option may be exercised only to cover
any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $ $ $ $
Expenses payable by us................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and Playboy Enterprises have agreed that we
and they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, or file with the Securities and Exchange Commission a
registration statement under the Securities Act relating to, any additional
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<PAGE>
shares of our common stock or securities convertible into or exchangeable or
exercisable for any of our common stock, or publicly disclose the intention to
make any offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus, subject to limited exceptions.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for some of our employees, friends
and other people and entities with whom we maintain business relationships who
have expressed an interest in purchasing common stock in the offering. The
number of shares available for sale to the general public in the offering will
be reduced to the extent these persons purchase the reserved shares. Any
reserved shares not purchased will be offered by the underwriters to the general
public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to have our shares of common stock approved for listing on
The Nasdaq National Market under the symbol "PBYI."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between the
representatives and us. The principal factors to be considered in determining
the public offering price include:
- the information in this prospectus or available to the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our developments and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in compliance with
Regulation M under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would be in the
absence of these transactions. These transactions may be effected on The Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the Web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters
that will make Internet distribution on the same basis as other allocations.
66
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. As result, any resale of the common stock
in Canada must comply with applicable securities laws, which will vary depending
on the relevant jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice before any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be considered to represent to us and the dealer from which the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under those securities laws, (ii) where
required by law, the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION--ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer of these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. The report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95/17, a copy of which may be obtained from us. Only one report must be filed
for common stock acquired on the same date and under the same prospectus
exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchasers under relevant Canadian
legislation.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, New York, New York. Certain legal matters in
connection with the offering will be passed upon for the underwriters by
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Waltham,
Massachusetts.
EXPERTS
The balance sheets of Playboy.com, Inc. as of December 31, 1998 and 1999 and
the related statements of operations, of cash flows and of stockholder's deficit
for each of the three years in the period ended December 31, 1999 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in auditing and accounting.
The balance sheet of Rouze Media, Inc. as of December 31, 1999 and the
related statement of operations, of cash flows and of stockholders' deficit for
the period February 17, 1999 to December 31, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of that firm as experts in
auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits, schedules and amendment filed with
the registration statement, under the Securities Act with respect to the common
stock to be sold in this offering. This prospectus does not contain all of the
information set forth in this registration statement. For further information
about Playboy.com and the shares of common stock to be sold in the offering,
please refer to this registration statement. For additional information, please
refer to the exhibits that have been filed with our registration statement on
Form S-1.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C., 20549. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our Securities and Exchange Commission filings, including the
registration statement, will also be available to you on the Securities and
Exchange Commission's Web site (http://www.sec.gov).
We intend to furnish our stockholders with annual reports containing audited
financial statements and to make available quarterly reports containing
unaudited financial information.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------------
<S> <C>
PLAYBOY.COM, INC.
Report of Independent Accountants........................... F-2
Financial Statements:
Balance Sheets as of December 31, 1998 and 1999........... F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999..................................... F-4
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999..................................... F-5
Statements of Stockholder's Equity (Deficit) for the years
ended December 31, 1997, 1998 and 1999.................. F-6
Notes to Financial Statements............................. F-7
ROUZE MEDIA, INC.
Report of Independent Accountants........................... F-14
Financial Statements:
Balance Sheet as of December 31, 1999..................... F-15
Statement of Operations for the period February 17, 1999
to December 31, 1999.................................... F-16
Statement of Cash Flows for the period February 17, 1999
to December 31, 1999.................................... F-17
Statement of Stockholders' Deficit for the period February
17, 1999 to December 31, 1999........................... F-18
Notes to Financial Statements............................. F-19
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Information........ F-26
Unaudited Pro Forma Combined Balance Sheet as of
December 31, 1999....................................... F-27
Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1999........................ F-28
Notes to Unaudited Pro Forma Combined Financial
Statements.............................................. F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Playboy.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of cash flows and of stockholder's equity (deficit) present
fairly, in all material respects, the financial position of Playboy.com, Inc. at
December 31, 1998 and 1999 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 10, 2000
F-2
<PAGE>
PLAYBOY.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets:
Accounts receivable, net of allowance for doubtful
accounts of $320 and $476............................... $ 426 $ 1,440
Inventories............................................... -- 1,582
Prepaid expenses and other current assets................. 308 1,945
-------- --------
Total current assets.................................. 734 4,967
-------- --------
Capitalized software, net of accumulated amortization of
$775 and $1,889......................................... 681 885
-------- --------
Total assets.......................................... $ 1,415 $ 5,852
======== ========
Liabilities:
Accounts payable.......................................... $ 695 $ 3,212
Accrued salaries, wages and employee benefits............. 204 325
Deferred revenues......................................... 365 659
Other liabilities and accrued expenses.................... 49 254
-------- --------
Total current liabilities............................. 1,313 4,450
-------- --------
Due to related party...................................... 13,743 --
-------- --------
Total liabilities..................................... 15,056 4,450
-------- --------
Commitments and contingencies
Stockholder's equity (deficit):
Preferred stock, $0.01 par value; authorized 5,000,000
shares; no shares issued and outstanding................ -- --
Common stock, $0.01 par value; authorized 100,000,000
shares; 20,312,500 shares issued and outstanding........ 203 203
Capital in excess of par value............................ -- 26,402
Accumulated deficit....................................... (13,844) (25,203)
-------- --------
Total stockholder's equity (deficit).................. (13,641) 1,402
-------- --------
Total liabilities and stockholder's equity
(deficit)........................................... $ 1,415 $ 5,852
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PLAYBOY.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
E-commerce.......................................... 1,044 1,298 5,956
Advertising and sponsorships........................ $ 1,857 $ 2,371 $ 5,161
Subscriptions....................................... 490 1,892 2,484
----------- ----------- -----------
Total net revenues.............................. 3,391 5,561 13,601
----------- ----------- -----------
Cost of revenues, related party:
E-commerce.......................................... 595 756 4,715
Advertising and sponsorships........................ 328 397 630
Subscriptions....................................... 484 1,444 1,820
----------- ----------- -----------
Total cost of revenues, related party........... 1,407 2,597 7,165
----------- ----------- -----------
Gross profit.......................................... 1,984 2,964 6,436
----------- ----------- -----------
Operating expenses, related party:
Sales and marketing................................. 497 1,853 5,034
Content and product development..................... 1,797 3,939 7,262
General and administrative.......................... 2,369 2,860 3,094
----------- ----------- -----------
Total operating expenses, related party......... 4,663 8,652 15,390
----------- ----------- -----------
Operating loss........................................ (2,679) (5,688) (8,954)
Interest expense, related party....................... 639 1,229 2,405
----------- ----------- -----------
Net loss.............................................. $ (3,318) $ (6,917) $ (11,359)
=========== =========== ===========
Weighted average number of common
shares outstanding:
Basic............................................... 20,312,500 20,312,500 20,312,500
=========== =========== ===========
Diluted............................................. 20,312,500 20,312,500 20,312,500
=========== =========== ===========
Basic and diluted loss per share...................... $ (0.16) $ (0.34) $ (0.56)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PLAYBOY.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,318) $(6,917) $(11,359)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Amortization of capitalized software.................... 137 638 1,114
Increase (decrease) in cash
attributable to changes in
assets and liabilities:
Accounts receivable................................... (46) 20 (1,014)
Inventories........................................... -- -- (1,582)
Prepaid expenses and other
current assets...................................... (31) (277) (1,637)
Accounts payable...................................... 319 233 2,517
Accrued salaries, wages and
employee benefits................................... 14 183 121
Deferred revenues..................................... 184 171 294
Other liabilities and accrued
expenses............................................ 4 (38) 205
------- ------- --------
Net cash used for operating
activities........................................ (2,737) (5,987) (11,341)
------- ------- --------
Cash flows from investing activities:
Software development costs capitalized.................... (185) (1,170) (1,318)
------- ------- --------
Net cash used in investing
activities........................................ (185) (1,170) (1,318)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... -- 203 --
Proceeds from related party............................... 2,922 6,954 12,659
------- ------- --------
Net cash provided by financing
activities........................................ 2,922 7,157 12,659
------- ------- --------
Net change in cash and cash
equivalents -- -- --
Cash and cash equivalents
beginning of year......................................... -- -- --
------- ------- --------
Cash and cash equivalents
end of year............................................... $ -- $ -- $ --
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PLAYBOY.COM, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK CAPITAL STOCKHOLDER'S
---------------------- IN EXCESS OF ACCUMULATED EQUITY
SHARES PAR VALUE PAR VALUE DEFICIT (DEFICIT)
---------- --------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997........... -- (3,609) (3,609)
Net loss............................. -- (3,318) (3,318)
---------- ---- ------- -------- --------
Balance at December 31, 1997......... -- (6,927) (6,927)
Common stock issued on
incorporation...................... 20,312,500 $203 -- -- 203
Net loss............................. -- (6,917) (6,917)
---------- ---- ------- -------- --------
Balance at December 31, 1998......... 20,312,500 203 -- (13,844) (13,641)
Contributed Capital.................. -- -- 26,402 -- 26,402
Net loss............................. -- (11,359) (11,359)
---------- ---- ------- -------- --------
Balance at December 31, 1999......... 20,312,500 $203 26,402 $(25,203) $ 1,402
========== ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS
Playboy.com, Inc. (the "Company") is an Internet company dedicated to the
adult entertainment interests of young men around the world. The Company was
incorporated on November 25, 1998 in the state of Delaware as a wholly-owned
subsidiary of Playboy Enterprises, Inc. ("Playboy Enterprises"). From the launch
of the PLAYBOY.COM Web site in August 1994 to November 25, 1998, the Company was
operated as a division of Playboy Enterprises.
The Company has sustained significant net losses and negative cash flows
from operations since its inception. The Company's ability to meet its
obligations in the ordinary course of business is dependent upon its ability to
establish profitable operations or raise additional financing through public or
private equity financing, bank financing, or other sources of capital.
Since inception, Playboy Enterprises has provided the funds to finance the
Company's operations. These funds have been advanced bearing an interest rate of
12%. At December 31, 1999, the Company owed Playboy Enterprises approximately
$26.4 million, which Playboy Enterprises contributed to the Company on
December 31, 1999.
Playboy Enterprises has represented its intention to continue to fund the
Company up to $10 million until the public offering described in Note 3 is
completed. The Company currently anticipates that the net proceeds from the
public offering will be sufficient to meet the anticipated needs for working
capital and capital expenditures for at least the next 12 months. If the
offering is not completed, the Company has the ability to revise its business
plan to reduce operating costs, including deferring new hiring and reducing
discretionary expenditures, so that cash on hand, coupled with cash flow from
operations, will be sufficient to satisfy the Company's anticipated capital
needs for at least the next twelve months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the results of operations,
financial position and cash flows of the Company as a component of Playboy
Enterprises prior to the public offering contemplated in Note 3. The financial
information included herein may not necessarily reflect the financial position,
results of operations, or cash flows of the Company in the future or what the
financial position, results of operations, or cash flows of the Company would
have been if it had been a separate, stand-alone publicly-held corporation
during the periods presented.
For all periods presented, operating expenses reflected in the financial
statements are based on allocations of expenses from Playboy Enterprises. These
allocations take into consideration headcount, square footage, volume of
transactions, or other appropriate bases and generally include administrative
expenses related to general management, insurance, information management, and
other services provided to the Company by Playboy Enterprises. It is
management's opinion that the methods used to allocate such expenses charged to
the Company are reasonable.
F-7
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Since the Company's inception, Playboy Enterprises has funded its working
capital. The Company participates in Playboy Enterprises' cash management
system. As a part of the Company's central cash management system, all cash
generated from and cash required to support the Company's operations are
deposited and received through Playboy Enterprises' corporate operating cash
accounts. Accordingly, the amounts represented by the caption "Proceeds from
related party" in the Company's statements of cash flows represent the net
effect of all cash transactions between the Company and Playboy Enterprises.
REVENUE RECOGNITION: Revenues are derived from the sale of advertising and
sponsorships, e-commerce and fees from subscription services and pay-per-view
events.
ADVERTISING AND SPONSORSHIPS: Revenues from the sale of advertising and
sponsorships are recognized ratably over the period in which the advertising or
sponsorships are displayed, provided that no significant obligations remain and
collection of the resulting receivable is probable. The Company's obligations
typically include a guaranteed minimum number of impressions, or number of times
that a sponsorship banner appears in pages viewed by users of the Company's
network of Web sites. To the extent minimum guaranteed impressions are not met,
revenue is deferred and is recognized as the required impressions are delivered.
The Company has not included advertising revenues resulting from barter
transactions in these financial statements. Such revenue is primarily derived
from barter transactions with other Internet-related companies. The Company does
not have a historical practice of receiving or paying cash for similar
advertising barter transactions and has, therefore, not recorded barter
transaction revenues in accordance with the provisions of Emerging Issues Task
Force Abstract 99-17.
E-COMMERCE: E-commerce revenue consists of merchandise revenue and
commission revenue.
Merchandise revenue consists of product sales to customers and is recognized
upon the shipment of the merchandise, which occurs only after credit card
authorization is obtained. For sales of merchandise, the Company is responsible
for establishing prices, processing the orders, and forwarding the information
to the manufacturer, distributor or third-party warehouse for shipment. For
these transactions, the Company assumes credit risk and is responsible for
processing returns. The Company provides for estimated returns at the time of
shipment based on historical data.
Commission revenue is earned by the Company from e-commerce partners for
transactions processed through the Company's Web sites. Revenue is recognized
when the order is transmitted to such partner. In commission sales, the Company
processes orders in exchange for a commission on the sale of the vendor's
merchandise. At the conclusion of the sale, the Company forwards the order
information to the vendor, which then charges the customer's credit card and
ships the merchandise directly to the customer. In a commission sale
transaction, the Company does not take title or possession of the merchandise,
and the vendor assumes all the risk of credit card chargebacks.
SUBSCRIPTION: Revenues from the sale of Playboy Cyber Club subscriptions
are recognized ratably over the term of the subscription agreements.
Subscription periods currently range from one to 12 months.
F-8
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS: Financial instruments, including
accounts receivable, accounts payable, and other liabilities and accrued
expenses, approximate fair value based on the short-term maturity of these
items.
ACCOUNTS RECEIVABLE: The allowance for doubtful accounts was $100, $320 and
$476 at December 31, 1997, December 31, 1998 and December 31, 1999,
respectively.
Provisions for doubtful accounts charged to operating expenses amounted to
$100 in 1997, $320 in 1998 and $476 in 1999, and amounts written off against the
allowance amounted to $0 for each of the years ended December 31, 1997 and 1998,
and $72 for the year ended December 31, 1999.
CAPITALIZED SOFTWARE: In accordance with Statement of Position 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, it is the Company's policy to capitalize all internal use software.
Capitalized software primarily consists of purchased software, outsourcing costs
and internal staff costs incurred to develop the Company's Web sites. The
Company's policy is to amortize these costs over one to three years.
INCOME TAXES: The Company is included in the consolidated U.S. income tax
return of Playboy Enterprises. Pursuant to a tax allocation agreement effective
prior to or upon the consummation of the offering described in Note 3, the
provision for income taxes of the Company has been calculated as if the Company
was a stand-alone corporation filing separate tax returns.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
CONCENTRATION OF CREDIT RISK: Financial instruments that potentially
subject the Company to a concentration of credit risk principally consist of
accounts receivable. The Company's accounts receivable are derived from revenue
earned from customers located primarily in the United States and are denominated
in U.S. dollars. Management believes its credit policies are prudent and reflect
normal industry terms and business risk.
COMPREHENSIVE INCOME: Under the provisions of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income", the Company is
required to report comprehensive income or losses. Comprehensive losses comprise
net losses as well as certain other changes in assets and liabilities recorded
in stockholder's deficit in the financial statements. There were no components
of comprehensive losses other than net losses reported in the statement of
operations.
F-9
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED LOSS PER SHARE: Basic and diluted earnings per share have
been computed for all periods using 20,312,500 which is the number of shares
after the 5:4 stock split described in Note 3.
TECHNOLOGY COSTS: Technology costs consist principally of costs associated
with the maintenance of the features, content and functionality of the Company's
Web sites, transaction-processing systems, telecommunications infrastructure and
network operations.
ADVERTISING COSTS: In accordance with Statement of Position 93-7,
"Reporting on Advertising Costs," advertising costs are expensed as incurred.
Advertising expenses were $35, $89 and $801 for the years ended December 31,
1997, 1998 and 1999, respectively.
3. EQUITY TRANSACTIONS
On November 25, 1998, the Company was incorporated as a wholly-owned
subsidiary of Playboy Enterprises and was capitalized through the authorization
and issuance of common stock to Playboy Enterprises.
On September 23, 1999, Playboy Enterprises' board of directors approved the
sale of common stock of the Company through a public equity offering.
On December 14, 1999, the Company effected a 250,000-for-one common stock
split.
On February 23, 2000, the Company effected a 0.65:1 reverse common stock
split.
On April 10, 2000 the Company effected a 5:4 common stock split. All shares
and per-share amounts have been retroactively restated to reflect this stock
split.
4. ARRANGEMENTS WITH PLAYBOY ENTERPRISES
These financial statements have been prepared for inclusion in a
registration statement relating to the public offering of a portion of the
common stock of the Company, and Playboy Enterprises will continue to
beneficially own more than 50% of the outstanding shares of common stock of the
Company after the offering.
The Company's relationship with Playboy Enterprises following the offering
and separation will be governed by a number of intercompany agreements,
including an asset transfer agreement; an administrative services agreement; a
trademark and content license agreement; an advertising and co-promotions
agreement; a fulfillment and customer services agreement; a production services
agreement; a common stock registration rights agreement; and a tax allocation
agreement. These agreements will become effective prior to the public offering
of the Company's common stock.
F-10
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
5. RELATED PARTY TRANSACTIONS
The Company engages in transactions with Playboy Enterprises in the normal
course of its business. These transactions include purchases of corporate
services, facility rental and content usage fees, among various other
transactions. Playboy Enterprises allocates these costs based on appropriate
methodologies such as headcount, square footage, and the volume of transactions.
For the years ended December 31, 1997, 1998 and 1999, the services provided by
Playboy Enterprises amounted to $6,709, $12,478, and $24,960, respectively. In
management's opinion, the methods to identify and allocate costs to the Company
for these services provided by Playboy Enterprises are reasonable. However, the
charges may not approximate the costs of these services if the Company was a
stand-alone company for the periods reported.
6. INCOME TAXES
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to losses before income tax expense as a
result of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Computed expected tax benefit........................... $ 1,161 $ 2,421 $ 3,976
Increase (decrease) in tax benefit resulting from:
Change in valuation allowance......................... (1,294) (2,698) (4,430)
State and local income taxes, net of federal
benefit............................................. 133 277 454
------- ------- -------
Income tax expense (benefit)............................ $ -- $ -- $ --
======= ======= =======
</TABLE>
No deferred income tax expense (benefit) was recognized, because the net
benefit resulting from temporary differences in the recognition of income and
expense for income tax and financial reporting purposes, was offset by a
valuation allowance. The sources and tax effects of those temporary differences
are prescribed below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses.................................. $ 2,549 $ 5,274 $ 9,607
Allowance for doubtful accounts....................... 10 125 186
Deferred revenue...................................... 76 142 257
------- ------- -------
Total deferred tax assets......................... 2,635 5,541 10,050
Deferred tax liabilities:
Capitalized software.................................. 58 266 345
------- ------- -------
Net deferred tax assets............................... 2,577 5,275 9,705
Valuation allowance................................... (2,577) (5,275) (9,705)
------- ------- -------
Total deferred tax assets......................... $ -- $ -- $ --
======= ======= =======
</TABLE>
Net deferred tax assets, as determined on a separate company basis, have
been fully offset by a valuation allowance because realization is not considered
more likely than not.
At December 31, 1999, the Company had net operating losses of $11.4 million
which will expire between 2010 and 2019.
F-11
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. SEGMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
E-commerce.......................................... $ 1,044 $ 1,298 $ 5,956
Advertising and sponsorships........................ 1,857 2,371 5,161
Subscriptions....................................... 490 1,892 2,484
----------- ----------- -----------
Total net revenues.............................. 3,391 5,561 13,601
----------- ----------- -----------
Cost of revenues, related party:
E-commerce.......................................... 595 756 4,715
Advertising and sponsorships........................ 326 397 630
Subscriptions....................................... 484 1,444 1,820
----------- ----------- -----------
Total cost of revenues, related party........... 1,407 2,597 7,165
----------- ----------- -----------
Gross profit:
E-commerce.......................................... 450 542 1,241
Advertising and sponsorships........................ 1,529 1,974 4,531
Subscriptions....................................... 5 448 664
----------- ----------- -----------
Total gross profit.............................. 1,984 2,964 6,436
----------- ----------- -----------
Operating expenses, related party:
Sales and marketing................................. 497 1,853 5,034
Content and product development..................... 1,797 3,939 7,262
General and administrative.......................... 2,369 2,860 3,094
----------- ----------- -----------
Total operating expenses........................ 4,663 8,652 15,390
----------- ----------- -----------
Operating loss........................................ (2,679) (5,688) (8,954)
Interest expense, related party....................... 639 1,229 2,405
----------- ----------- -----------
Net loss.............................................. $ (3,318) $ (6,917) $ (11,359)
=========== =========== ===========
</TABLE>
The Company currently operates three segments: E-commerce; Advertising and
sponsorships; and Subscriptions. The chief operating decision maker assesses the
performance of these segments at the gross margin level. No segmental analysis
of operating expenses or assets is performed by the Company and therefore has
appropriately not been presented.
8. SUBSEQUENT EVENTS
On February 15, 2000, the Company purchased substantially all of the assets
and assumed certain liabilities of Rouze Media, Inc., which operated a Web site
located at WWW.ROUZE.COM. A majority of the employees of Rouze Media, Inc.,
including its two founders, also joined the Company as part of the transaction.
The aggregate purchase price consisted of $1,200 in cash, certain assumed
liabilities plus direct costs of the transaction. $1,000 of the cash
consideration represents the minimum amount
F-12
<PAGE>
PLAYBOY.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. SUBSEQUENT EVENTS (CONTINUED)
payable to the former owners of Rouze under a three year earn-out based on
future revenues generated by ROUZE.COM.
9. 2000 STOCK INCENTIVE PLAN
On February 21, 2000, the 2000 Stock Incentive Plan was adopted by the board
of directors and approved by the Company stockholder.
5,000,000 shares of common stock have been authorized for issuance under the
2000 Stock Incentive Plan. The share reserve will automatically increase on the
first trading day in January of each calendar year, beginning in January 2001,
by an amount equal to 3% of the total number of shares of common stock
outstanding on the last trading day in December of the preceding calendar year,
but in no event will this annual increase exceed 750,000 shares. In addition, in
no event may one participant in the 2000 Stock Incentive Plan receive option
grants or direct stock issuances for more than 1,250,000 shares in the aggregate
per calendar year.
The 2000 Stock Incentive Plan will be divided into two separate programs:
- the discretionary option grant program under which eligible individuals in
the employ of Playboy.com or Playboy Enterprises may be granted options to
purchase shares of common stock at an exercise price determined by the
plan administrator; and
- the stock issuance program under which eligible individuals may be issued
shares of common stock directly, through the purchase of these shares at a
price determined by the plan administrator or as a bonus tied to the
performance of services.
The board will be able to amend or modify the 2000 Stock Incentive Plan at
any time, subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than February 20, 2010.
F-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Playboy.com, Inc.
In our opinion, the accompanying balance sheet and the related statement of
operation, of cash flows, and of stockholders' deficit present fairly, in all
material respects, the financial position of Rouze Media, Inc. (the "Company")
at December 31, 1999 and the results of its operations and its cash flows for
the period from February 17, 1999 to December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 10, 2000
F-14
<PAGE>
ROUZE MEDIA, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 45,528
Accounts receivable....................................... 7,698
Prepaid assets............................................ 2,327
----------
Total current assets................................ 55,553
----------
Furniture and equipment, net................................ 98,271
Capitalized software, net................................... 39,285
----------
Total assets........................................ $ 193,109
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 70,218
Accrued salaries, wages and employee benefits............. 24,798
Deposit................................................... 100,000
Short-term debt (related party of $626,259)............... 774,850
----------
Total current liabilities........................... 969,866
Long-term debt, related party............................. 84,633
----------
Total liabilities................................... 1,054,499
----------
Commitments and contingencies
Stockholders' deficit:
Preferred stock, no par value; authorized 1,600,000;
no shares issued or outstanding......................... --
Common stock, no par value; authorized 15,000,000;
4,500,000 shares issued and outstanding................. --
Accumulated deficit....................................... (861,390)
----------
Total stockholders' deficit......................... (861,390)
----------
Total liabilities and stockholders' deficit......... $ 193,109
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
ROUZE MEDIA, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 17, 1999 TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Revenues.................................................... $ 10,070
Operating expenses:
Sales and marketing....................................... 308,282
Content and product development........................... 354,227
General and administrative................................ 185,729
----------
Total operating expenses.............................. 848,238
----------
Operating loss (838,168)
Interest expense, net (related party of $11,878)............ (23,222)
----------
Net loss.............................................. $ (861,390)
==========
Weighted average number of common shares outstanding:
Basic..................................................... 4,500,000
==========
Diluted................................................... 4,500,000
==========
Basic and diluted loss per share............................ $ (0.19)
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
ROUZE MEDIA, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 17, 1999 TO DECEMBER 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(861,390)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 38,970
Interest expense........................................ 23,470
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable................................... (7,698)
Prepaid assets........................................ (2,327)
Accounts payable...................................... 70,218
Accrued salaries, wages and employee benefits......... 24,798
---------
Net cash used in operating activities................. (713,959)
---------
Cash flows from investing activities:
Proceeds from deposit..................................... 100,000
Capital expenditures...................................... (107,507)
Software development costs capitalized.................... (69,019)
---------
Net cash used in investing activities................. (76,526)
Cash flows from financing activities:
Proceeds from issuance of debt............................ 836,013
---------
Net cash provided by financing activities............. 836,013
---------
Net increase in cash and cash equivalents................... 45,528
Cash and cash equivalents, beginning of period.............. --
---------
Cash and cash equivalents, end of period.................... $ 45,528
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
ROUZE MEDIA, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM FEBRUARY 17, 1999 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE DEFICIT DEFICIT
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Common stock issued on incorporation............. 4,500,000 $ -- $ -- $ --
Net loss......................................... -- -- (861,390) (861,390)
--------- ---- --------- ---------
Balance at December 31, 1999..................... 4,500,000 $ -- $(861,390) $(861,390)
========= ==== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Rouze Media, Inc. (the "Company") operates a free Web site located at
ROUZE.COM. Launched in September 1999, ROUZE.COM offers entertainment content
targeted to young men, including articles, pictorials, interviews with
celebrities and sports stars, interactive games and an online emporium that
features gifts and gadgets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company was incorporated on February 17, 1999 as a California
corporation. These financial statements reflect the operations of the Company
since its date of inception.
REVENUE RECOGNITION
Revenues are derived from the sale of advertising and e-commerce.
Revenue from the sale of advertising is recognized ratably over the period
in which the advertising is displayed, provided that no significant obligations
remain and collection of the resulting receivable is probable. The Company's
obligations typically include a guaranteed minimum number of impressions based
upon pages viewed by users of the Company's Web site. To the extent minimum
guaranteed impressions are not met, revenue is deferred and is recognized as the
required impressions are delivered.
The Company has not included advertising revenues resulting from barter
transactions in these financial statements. Such revenue is primarily derived
from barter transactions with other Internet-related companies. The Company does
not have a historical practice of receiving or paying cash for similar
advertising barter transactions and has, therefore, not recorded barter
transaction revenues in accordance with the provisions of Emerging Issues Task
Force Abstract 99-17.
E-commerce revenue consists of commission revenue and is earned by the
Company from e-commerce partners for transactions processed through the
Company's Web sites. Revenue is recognized when the order is transmitted to such
partner. In commission sales, the Company processes orders in exchange for a
commission on the sale of the vendor's merchandise. At the conclusion of the
sale, the Company forwards the order information to the vendor, which then
charges the customer's credit card and ships the merchandise directly to the
customer. In a commission sale transaction, the Company does not take title or
possession of the merchandise, and the vendor assumes all the risk of credit
card chargebacks.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including accounts receivable, accounts payable, and
other liabilities and accrued expenses, approximate fair value based on the
short-term maturity of these items.
CASH AND CASH EQUIVALENTS
Cash equivalents are temporary cash investments with a maturity of three
months or less at date of purchase and are stated at cost, which approximates
market value.
F-19
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
The Company's fixed assets consist of furniture, computer hardware and
telephone equipment, stated at cost. The Company computes depreciation using the
straight-line method over the estimated useful lives of the assets.
<TABLE>
<S> <C>
Furniture................................................... 8 years
Computer hardware........................................... 5 years
Telephone equipment......................................... 3 years
</TABLE>
CAPITALIZED SOFTWARE
In accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", it is the Company's
policy to capitalize all internal use software. Capitalized software primarily
consists of purchased software, outsourcing costs and internal staff costs
incurred to develop the Company's Web sites. The Company's policy is to amortize
these costs over one year.
INCOME TAXES
The Company applies the asset and liability approach to accounting for
income taxes. Deferred tax assets and liabilities are established for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities, using enacted tax rates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk pricipally consist of accounts receivable. The
Company's accounts receivable are derived from revenue earned from customers
located primarily in the United States and are denominated in U.S. dollars.
Management believes its credit policies are prudent and reflect normal industry
terms and business risks.
COMPREHENSIVE INCOME
Under the provisions of Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income", the Company is required to report
comprehensive income or losses. Comprehensive losses comprise net losses as well
as certain other changes in assets and liabilities recorded in stockholders'
deficit in the financial statements. There were no components of comprehensive
losses other than net losses reported in the statement of operations.
F-20
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information", requires that management
identify operating segments based on the way that management disaggregates the
entity for making internal operating decisions. The Company currently operates
under the definition of one segment.
BASIC AND DILUTED LOSS PER SHARE
In connection with its incorporation on February 17, 1999 the Company issued
90,000 common shares. On July 22, 1999, the Company effected a stock split,
which increased the number of outstanding common shares to 4,500,000. Basic and
diluted loss per share for all periods presented have been calculated using the
4,500,000 common shares.
STOCK-BASED COMPENSATION
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", in accounting for its
stock-based employee compensation arrangements and discloses pro forma net
income and earnings per share information on its footnotes as if the fair value
method suggested in Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123") had applied.
TECHNOLOGY COSTS
Technology costs, which are included in content and product development
expenses, consist principally of costs associated with the maintenance of the
features, content and functionality of the Company's Web sites,
transaction-processing systems, telecommunications infrastructure and network
operations.
ADVERTISING COSTS
In accordance with Statement of Position 93-7, "Reporting on Advertising
Costs", advertising costs, which are included in sales and marketing expenses,
are expensed as incurred. Advertising expenses were $5,000 for the period
February 17, 1999 to December 31, 1999.
3. EQUITY TRANSACTIONS
On February 17, 1999, the Company was incorporated in the State of
California and was capitalized through the authorization and issuance of common
stock.
On July 2, 1999, the Company effected a 50:1 common stock split. All shares
and per-share amounts have been retroactively restated to reflect this stock
split.
F-21
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG AND SHORT-TERM DEBT
The Company issued a series of promissory notes payable to the founders of
the Company, Allen and Lauren Blankenship. The principal and accrued interest
amounts are payable on the due dates. A summary of the terms of the notes is as
follows:
<TABLE>
<CAPTION>
DATE OF ISSUANCE PRINCIPAL INTEREST RATE DUE DATE
- ---------------- --------- ------------- --------------
<S> <C> <C> <C>
May 21, 1999........................................... $ 80,000 9.50% May 20, 2001
June 30, 1999.......................................... 20,000 0.00% Upon Demand
August 5, 1999......................................... 4,013 0.00% Upon Demand
August 20, 1999........................................ 135,000 5.43% Upon Demand
September 22, 1999..................................... 155,000 5.42% Upon Demand
September 23, 1999..................................... 10,000 5.57% Upon Demand
November 5, 1999....................................... 165,000 5.57% Upon Demand
November 30, 1999...................................... 5,000 0.00% Upon Demand
December 27, 1999...................................... 125,000 5.74% Upon Demand
--------
Total, related party................................... $699,013
========
</TABLE>
On November 8, 1999 the Company issued a convertible note in the principal
amount of $137,000 which bears interest at 8%. Principal and accrued interest
are payable on December 1, 2000 unless the Company receives equity financing of
no less than $500,000, in which case the note converts into shares of the
Company's common stock. The number of shares of stock to be issued upon the
conversion equals the amount of principal and interest outstanding at that time
divided by the price per share of the stock sold in the financing.
In addition, other short-term borrowings include a $10,000 obligation.
Debt is reflected on the balance sheet as follows:
<TABLE>
<S> <C>
SHORT-TERM DEBT
Principal................................................... $756,013
Other....................................................... 10,000
Accrued interest............................................ 8,837
--------
Balance at December 31, 1999................................ $774,850
========
LONG-TERM DEBT
Principal................................................... $ 80,000
Accrued interest............................................ 4,633
--------
Balance at December 31, 1999................................ $ 84,633
========
</TABLE>
F-22
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 35% to losses before income tax expense as a
result of the following:
<TABLE>
<S> <C>
Computed expected tax benefit............................... $ 266,253
Increase (decrease) in tax benefit resulting from:
Change in valuation allowance............................. (296,682)
State and local income taxes, net of federal benefit...... 30,429
---------
Income tax expense (benefit)............................ $ --
=========
</TABLE>
No deferred income tax expense (benefit) was recognized because the net
benefit resulting from temporary differences in the recognition of income and
expense for income tax and financial reporting purposes, was offset by a
valuation allowance. The sources and tax effects of those temporary differences
are prescribed below:
<TABLE>
<S> <C>
Deferred tax asset:
Net operating losses...................................... $ 344,000
---------
Total deferred tax asset................................ 344,000
Deferred tax liabilities:
Fixed assets.............................................. 38,000
Capitalized software...................................... 15,000
---------
Net deferred tax assets..................................... 291,000
Valuation allowance......................................... (291,000)
---------
Total deferred tax assets............................... $ --
=========
</TABLE>
Net deferred tax assets have been fully offset by a valuation allowance
because realization is not considered more likely than not.
At December 31, 1999, the Company had net operating losses of approximately
$861,000 all expiring in 2019.
6. STOCK OPTIONS
Options are issued to certain employees to purchase shares of common stock
at not less than the fair market value of the shares on the grant date. The
options vest over 4 years and expire 10 years from the grant date.
Stock options are accounted for under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, no compensation expense has been recognized related to these
options as the exercise price equaled the fair market value of the stock at the
date of the grant. Under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123"), compensation
expense is measured at the grant date based on the fair value of the award and
is recognized over the vesting period. The Company has adopted the
disclosure-only provisions of Statement 123.
F-23
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
For purposes of Statement 123 pro forma net income and earnings per share
calculations, the fair value of each option grant is estimated as of the date of
grant utilizing the Black-Scholes option pricing model with assumptions as
follows:
<TABLE>
<S> <C>
Exercise price.............................................. $ 0.15
Weighted average risk free interest rate.................... 5.9031%
Expected term............................................... 4 years
Dividend yield.............................................. 0%
Price volatility............................................ 0.01%
Weighted average fair value................................. $ 0.03
</TABLE>
The stock option activity for the period February 17, 1999 to December 31,
1999 was:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTION SHARES PER SHARE
------------- ------------
<S> <C> <C>
Outstanding, February 17, 1999...................... -- --
Granted............................................. 590,750 $0.15
Canceled............................................ (135,000) 0.15
-------- -----
Outstanding, December 31, 1999...................... 455,750 $0.15
======== =====
</TABLE>
Had compensation expense for these options been determined consistent with
Statement 123, the Company's net income and basic and diluted EPS would have
been reduced to the following pro forma amounts (in thousands, except per share
amounts):
<TABLE>
<S> <C>
Net income:
As reported............................................... $(861,390)
Pro forma................................................. (864,894)
=========
Basic EPS:
As reported............................................... $ (0.19)
Pro forma................................................. (0.19)
=========
Diluted EPS:
As reported............................................... $ (0.19)
Pro forma................................................. (0.19)
=========
</TABLE>
F-24
<PAGE>
ROUZE MEDIA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
WEIGHTED
NET LOSS AVERAGE SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- -------------- ---------
<S> <C> <C> <C>
Period from February 17, 1999 to December 31, 1999:
Basic EPS:
Loss available to common stockholders................... $(861,390) $4,500,000 $(0.19)
========= ========== ======
Effect of dilutive options
Diluted EPS:
Loss available to common stockholders plus assumed
conversions........................................... $(861,390) $4,500,000 $(0.19)
========= ========== ======
</TABLE>
8. SUBSEQUENT EVENTS
On February 15, 2000, Playboy.com, Inc. purchased substantially all of the
assets and assumed certain liabilities of the Company. A majority of the
employees of the Company, including its two founders, also joined Playboy.com,
Inc, as part of the transaction. The aggregate purchase price consisted of
$1,200,000 in cash, certain assumed liabilities plus direct costs of the
transaction. $100,000 of the $1,200,000 cash consideration was received by the
Company as a no-shop payment prior to year end. This payment has been reflected
as a deposit as of December 31, 1999.
Prior to the close of the Playboy.com, Inc. transaction, all stock options
outstanding were canceled as a condition of closing. In addition, outstanding
debt (see Note 4), amounting to $865,937, was paid off as a condition of
closing.
F-25
<PAGE>
UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma combined financial information assumes the
acquisition of Rouze Media, Inc. ("Rouze") by Playboy.com, Inc. ("Playboy.com")
accounted for using the purchase method of accounting and is based on the
respective historical financial statements and the notes thereto, which are
included in this Registration Statement. The unaudited pro forma combined
balance sheet gives effect to this acquisition as if it had occurred on
December 31, 1999 and combines Playboy.com's December 31, 1999 audited balance
sheet with the December 31, 1999 audited balance sheet of Rouze. The unaudited
pro forma statement of operations gives effect to the acquisition as if it had
occurred on February 17, 1999, the inception date of Rouze.
The unaudited pro forma information included herein is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the acquisition been
consummated at the beginning of the period presented, nor is it necessarily
indicative of future operating results or financial position.
These pro forma financial statements are based on, and should be read in
conjunction with, the historical financial statements and the related notes
thereto of Playboy.com and Rouze included in this registration statement.
F-26
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
PLAYBOY.COM, ROUZE PRO FORMA PRO FORMA
INC. MEDIA, INC. ADJUSTMENTS COMBINED
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents..................... $ -- $ 46 $ -- $ 46
Accounts receivable, net...................... 1,440 8 -- 1,448
Inventories................................... 1,582 -- -- 1,582
Prepaid expenses and other current assets..... 1,945 2 -- 1,947
-------- ------ ------ --------
Total current assets.................... 4,967 56 -- 5,023
Furniture and equipment, net.................. -- 98 -- 98
Capitalized software, net..................... 885 39 -- 924
Goodwill...................................... -- -- 1,102(2a) 1,102
-------- ------ ------ --------
Total assets............................ $ 5,852 $ 193 $1,102 $ 7,147
======== ====== ====== ========
Liabilities:
Accounts payable.............................. $ 3,212 $ 70 $ -- $ 3,282
Accrued salaries, wages and employee
benefits.................................... 325 25 -- 350
Deposit....................................... -- 100 (100)(2b) --
Deferred revenues............................. 659 -- -- 659
Other liabilities and accrued expenses........ 254 -- -- 254
Short-term debt............................... -- 774 (774)(2c) 1,000
1,000 (2d)
-------- ------ ------ --------
Total current liabilities............... 4,450 969 126 5,545
Long-term debt, related party................. -- 85 (85)(2c) --
-------- ------ ------ --------
Total liabilities....................... 4,450 1,054 41 5,545
-------- ------ ------ --------
Commitments and contingencies
Stockholders' deficit:
Preferred stock............................... -- -- -- --
Common stock.................................. 203 -- -- 203
Capital in excess of par value................ 26,402 -- 200 (2e) 26,602
Accumulated deficit........................... (25,203) (861) 861 (2f) (25,203)
-------- ------ ------ --------
Total stockholders' deficit............. 1,402 (861) 1,061 1,602
-------- ------ ------ --------
Total liabilities and stockholders'
deficit............................... $ 5,852 $ 193 $1,102 $ 7,147
======== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PLAYBOY.COM, ROUZE PRO FORMA PRO FORMA
INC. MEDIA, INC. ADJUSTMENTS COMBINED
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Revenues:
E-commerce............................... $ 5,956 $ 10 $ -- $ 5,966
Advertising and sponsorships............. 5,161 -- -- 5,161
Subscriptions............................ 2,484 -- -- 2,484
----------- ---------- ----------- -----------
Total net revenues................... 13,601 10 -- 13,611
----------- ---------- ----------- -----------
Cost of revenues, related party:
E-commerce............................... 4,715 -- -- 4,715
Advertising and sponsorships............. 630 -- -- 630
Subscriptions............................ 1,820 -- -- 1,820
----------- ---------- ----------- -----------
Total cost of revenues, related
party.............................. 7,165 -- -- 7,165
----------- ---------- ----------- -----------
Gross profit......................... 6,436 10 -- 6,446
----------- ---------- ----------- -----------
Operating expenses:
Sales and marketing...................... 5,034 308 -- 5,342
Content and product development.......... 7,262 354 -- 7,616
General and administrative............... 3,094 186 367 (3a) 3,647
----------- ---------- ----------- -----------
Total operating expenses............. 15,390 848 367 16,605
----------- ---------- ----------- -----------
Operating loss....................... (8,954) (838) (367) (10,159)
Interest expense........................... 2,405 23 120 (3b) 2,548
----------- ---------- ----------- -----------
Net loss................................... $ (11,359) $ (861) $ (487) $ (12,707)
=========== ========== =========== ===========
Weighted average number of common shares
outstanding:
Basic.................................... 20,312,500 4,500,000 (4,500,000) 20,312,500
=========== ========== =========== ===========
Diluted.................................. 20,312,500 4,500,000 (4,500,000) 20,312,500
=========== ========== =========== ===========
Basic and diluted net loss per share....... $ (0.56) $ (0.19) $ 0.11 $ (0.63)
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1--These unaudited pro forma combined financial statements give effect to
acquisition of Rouze by Playboy.com as if it had occurred on the date or at the
beginning of the period presented, reflecting the payment of $1,200,000 cash by
Playboy.com for substantially all of the assets of Rouze, together with the
assumption of certain liabilities of Rouze. The unaudited pro forma combined
balance sheet gives effect to the combination as if it had occurred on
December 31, 1999 and combines Playboy.com's December 31, 1999 audited balance
sheet with the December 31, 1999 audited balance sheet of Rouze. The unaudited
pro forma statement of operations gives effect to the acquisition as if it had
occurred at February 17, 1999, the inception of Rouze.
NOTE 2--The adjustments to the unaudited pro forma combined balance sheet are as
follows:
(a) Reflects $1,102 goodwill which represents the $1,200 cash consideration
less the $98 net assets assumed. The goodwill is amortized over three
years.
(b) Elimination of the $100 no-shop payment made by Playboy.com to Rouze in
connection with the Rouze acquisition.
(c) Repayment of $774 long-term and $85 short-term Rouze debt concurrent
with the Rouze acquisition.
(d) Reflects $1,000 short-term debt to Playboy Enterprises, Inc. in
connection with the cash consideration provided for the purpose of the
Rouze acquisition.
(e) Reflects a $200 contribution to Playboy.com's capital by
Playboy Enterprises, Inc. in association with the consideration provided
in the Rouze acquisition.
(f) Elimination of Rouze's accumulated deficit in connection with the Rouze
acquisition.
NOTE 3--The adjustments to the unaudited pro forma combined statement of
operations are as follows:
(a) Reflects one year of amortization expense of the goodwill generated in
the Rouze acquisition.
(b) Reflects one year of interest expense on the $1,000 note payable to
Playboy Enterprises, Inc. in connection with the Rouze acquisition which
bears interest at 12%.
NOTE 4--The pro forma combined per share amounts in the unaudited pro forma
combined statement of operations have been computed using the 20,312,500 shares
of common stock of Playboy.com resulting from the stock split effected on
April 7, 2000, as noted in Note 3 of the financial statements of Playboy.com
outstanding during each period presented. Pro forma basic and diluted net loss
per share are the same because all common stock equivalents outstanding during
the periods presented were anti-dilutive.
NOTE 5--There were no material differences between the accounting policies of
Playboy.com and Rouze.
F-29
<PAGE>
[BACK COVER]
[COLOR ARTWORK TO FOLLOW]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses, other
than the underwriting discounts and commissions, payable by the Registrant in
connection with the issuance and distribution of the common stock being
registered.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 13,200
NASD fee.................................................... 5,500
NASDAQ listing fee.......................................... 95,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 400,000
Printing expenses........................................... 250,000
Blue sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees and expenses.............. 12,500
Miscellaneous............................................... 93,800
----------
Total................................................... $1,380,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The registrant's certificate of incorporation in effect as of the date
hereof, and the registrant's amended and restated certificate of incorporation
to be in effect upon the closing of this offering (collectively, the
"Certificate") provides that, except to the extent prohibited by the Delaware
General Corporation Law, as amended (the "DGCL"), the registrant's directors
shall not be personally liable to the registrant or its stockholders for
monetary damages for any breach of fiduciary duty as directors of the
registrant. Under the DGCL, the directors have a fiduciary duty to the
registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
registrant intends to obtain liability insurance for its officers and directors
prior to the closing of this offering.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or
(iv) for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding
II-1
<PAGE>
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the registrant, or is or was
serving at the request of the registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In November 1998, 100 shares of common stock were issued to Playboy
Enterprises in connection with the formation of Playboy.com, a transaction
exempt from Section 5 of the Securities Act pursuant to Section 4(2) thereof. In
December 1999, pursuant to a stock split, these shares were converted into a
total of 25,000,000 shares of common stock. In February 2000, pursuant to a
reverse stock split, the 25,000,000 shares of common stock were converted into a
total of 16,250,000 shares of common stock. In April 2000, pursuant to a stock
split, the 16,250,000 shares of common stock were converted into a total of
20,312,500 shares of common stock.
During 2000, the registrant has granted options to purchase shares of
our common stock at an exercise price of $ per share. These grants were made
in reliance upon exemption from registration pursuant to either
(i) Section 4(2) of the Securities Act of 1933, as amended or (ii) Rule 701
promulgated under the Securities Act of 1933, as amended.
No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of underwriting agreement.
3.1** Certificate of incorporation.
3.2** Amendment to certificate of incorporation.
3.3 Amendment to certificate of incorporation
3.4* Form of amended and restated certificate of incorporation to
be in effect upon the closing of this offering.
3.5** Bylaws.
3.6* Form of amended and restated bylaws to be in effect upon the
closing of this offering.
4.1* Specimen common stock certificate.
4.2 Please see Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 for
provisions of the certificate of incorporation and bylaws of
the registrant defining the rights of holders of common
stock of the registrant.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 2000 Stock Incentive Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.2 Employment Agreement between the registrant and Kevin Mayer.
10.3 Employment Agreement between the registrant and Paul Kallis.
10.4 Registration Rights Agreement between the registrant and
Playboy Enterprises.
10.5* Master Intercompany Agreement.
10.6* Trademark License Agreement.
10.7* Content Supply and License Agreement.
10.8* Asset Transfer Agreement.
10.9* Advertising and Co-Promotion Agreement.
10.10* Administrative Services Agreement.
10.11* Supply and Fulfillment Services Agreement.
10.12* Online Gaming Agreement.
10.13* Tax Allocation Agreement.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1** Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Supplied previously as an exhibit to Form S-1 filed on January 10, 2000.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424
(b) (1) or (4) or 497 (h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on this 12th day of April, 2000.
<TABLE>
<S> <C> <C>
PLAYBOY.COM, INC.
By: /s/ KEVIN MAYER
-----------------------------------------
Name: Kevin Mayer
Title: Chief Executive Officer and
President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons in
the capacities indicated below on April 12, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<C> <S>
/s/ KEVIN MAYER Chief Executive Officer, President and
------------------------------------------- Director
Kevin Mayer (Principal Executive Officer)
/s/ PAUL D. KALLIS
------------------------------------------- Acting Chief Financial Officer
Paul D. Kallis (Principal Financial and Accounting Officer)
/s/ CHRISTIE HEFNER
------------------------------------------- Chairman of the Board of Directors
Christie Hefner
/s/ EDWARD MULLEN
------------------------------------------- Vice Chairman of the Board of Directors
Edward Mullen
*
------------------------------------------- Director
Donald G. Drapkin
*
------------------------------------------- Director
Linda G. Havard
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ CHRISTIE HEFNER
--------------------------------------
Christie Hefner
Attorney-in-fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
1.1* Form of underwriting agreement.
3.1** Certificate of incorporation.
3.2** Amendment to certificate of incorporation
3.3 Amendment to certificate of incorporation
3.4* Form of amended and restated certificate of incorporation to
be in effect upon the closing of this offering.
3.5** Bylaws.
3.6* Form of amended and restated bylaws to be in effect upon the
closing of this offering.
4.1* Specimen common stock certificate.
4.2 Please see Exhibits 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 for
provisions of the certificate of incorporation and bylaws of
the Registrant defining the rights of holders of common
stock of the Registrant.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
10.1 2000 Stock Incentive Plan.
10.2 Employment Agreement between the registrant and Kevin Mayer.
10.3 Employment Agreement between the registrant and Paul Kallis.
10.4 Registration Rights Agreement between the registrant and
Playboy Enterprises.
10.5* Master Intercompany Agreement.
10.6* Trademark License Agreement.
10.7* Content Supply and License Agreement.
10.8* Asset Transfer Agreement.
10.9* Advertising and Co-Promotion Agreement.
10.10* Administrative Services Agreement.
10.11* Supply and Fulfillment Services Agreement.
10.12* Online Gaming Agreement.
10.13* Tax Allocation Agreement.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1** Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Supplied previously as an exhibit to Form S-1 filed on January 10, 2000.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION OF
PLAYBOY.COM, INC.
(Pursuant to Sections 228 and 242 of the
General Corporation Law of the State of Delaware)
Playboy.com, Inc. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"DGCL"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name Playboy Online, Inc., and the date of filing of its original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was November 25, 1998. On December 14, 1999, the Corporation filed a
Certificate of Amendment to the Certificate of Incorporation with the
Secretary of State of the State of Delaware. On February 23, 2000, the
Corporation filed a second Certificate of Amendment to the Certificate of
Incorporation with the Secretary of State of the State of Delaware.
SECOND: That this Certificate of Amendment to the Certificate of
Incorporation was duly adopted, in accordance with Sections 228 and 242 of
the DGCL, by the consent of the Board of Directors.
THIRD: That Article FOURTH, of the Certificate of Incorporation, stating
the total number of shares the Corporation is authorized to issue, is hereby
amended to include the following paragraph:
"Each share of the Corporation's Common Stock, par value $0.01 per
share, issued and outstanding immediately prior to 6:00 P.M. on April 6,
2000, shall be reclassified automatically effective as of such date at 6:00
P.M., Delaware time, into 1.25 shares, par value $0.01 per share, of the
Corporation's Common Stock, so that each share of the Corporation's Common
Stock issued and outstanding is hereby converted and reclassified."
FOURTH: That the foregoing amendments have been duly adopted in
accordance with the provisions of Section 242 of the DGCL.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Kevin Mayer, its President and Chief Executive Officer, this 6th
day of April 2000.
By: /s/ Kevin Mayer
-------------------------------------
Kevin Mayer
President and Chief Executive Officer
2
<PAGE>
Exhibit 5.1
February 22, 2000
Playboy.com, Inc.
680 North Lake Shore Drive
Chicago, IL 60611
Re: Playboy.com, Inc. -- Registration Statement on
Form S-1 (File No. 333-94295)
----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Playboy.com, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 3,105,000 shares of the Company's Common Stock (the
"Shares") pursuant to the Company's Registration Statement on Form S-1 (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 16(a) of Form S-1.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus which is part of the Registration
Statement. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the Act,
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
<PAGE>
Playboy.com Inc Page 2
September 2, 1999
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
/s/ BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exhibit 10.1
PLAYBOY.COM, INC.
2000 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Incentive Plan is intended to promote the interests of
Playboy.com, Inc., a Delaware corporation, by providing eligible persons with
the opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into two separate equity incentive
programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Committee, be granted
options to purchase shares of Common Stock, and
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Committee, be issued shares of Common
Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or
Subsidiary).
B. The provisions of Articles One and Four shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Committee.
B. The Committee shall have full power and authority subject to the
provisions of the Plan:
(i) to establish such rules as it may deem appropriate for
proper administration of the Plan, to make all factual determinations,
to construe and interpret the provisions of the Plan and the awards
thereunder and to resolve any and all ambiguities thereunder;
<PAGE>
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible
persons are to receive such awards, the time or times when such awards
are to be made, the number of shares to be covered by each such award,
the vesting schedule (if any) applicable to the award, the status of a
granted option as either an Incentive Option or a Non-Statutory Option
and the maximum term for which the option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with
the consent of the holder or accelerate the vesting of such award; and
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of the Committee within the scope of its administrative functions
under the Plan shall be final and binding on all parties.
C. Members of the Committee shall serve for such period of time as the
Board may determine and may be removed by the Board at any time.
D. Service on the Committee shall constitute service as a Board member,
and members of the Committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their service on such
committee. No member of the Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any options or stock issuances
under the Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed Four
Million (4,000,000) shares.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with the calendar year
2001, by an amount equal to three percent (3%) of the total number of shares of
Common Stock outstanding on the last trading day in
2
<PAGE>
December of the immediately preceding calendar year, but in no event shall such
annual increase exceed Six Hundred Thousand (600,000) shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than One Million (1,000,000) shares of Common Stock in the aggregate per
calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance. Shares of Common Stock
underlying one or more stock appreciation rights exercised under the Plan shall
not be available for subsequent issuance.
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities by which the share reserve is
to increase each calendar year pursuant to the automatic share increase
provisions of the Plan, (iii) the number and/or class of securities for which
any one person may be granted options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Committee shall be final, binding and conclusive.
3
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Committee; provided, however, that each such document shall
comply with the terms specified below. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the Plan applicable
to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Committee at the
time of the option grant and may be less than, equal to or greater than the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section II of Article Four and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Following the Section 12 Registration Date, the exercise price
may be paid also in one or more of the following forms:
(i) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise
Date, or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Committee and set forth in the documents evidencing the
option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
4
<PAGE>
C. CESSATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
outstanding at the time of the Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Committee and
set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or
her Beneficiary.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct while his or her
options are outstanding, then all such options shall terminate
immediately and cease to be outstanding.
2. The Committee shall have complete discretion, exercisable either at
the time an option is granted or at any time while the option remains
outstanding:
(i) to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service to
such period of time as the Committee shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more additional
installments in which the Optionee would have vested had the Optionee
continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Committee shall have the discretion to grant
options which are exercisable for unvested shares of Common Stock. Should the
Optionee cease Service while holding such unvested shares, the Corporation shall
have the right to repurchase, at
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the exercise price paid per share, any or all of those unvested shares. The
terms upon which such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Committee and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of
inheritance following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-Statutory Option may, to the
extent permitted by the Committee, be assigned in whole or in part during the
Optionee's lifetime (i) as a gift to one or more members of the Optionee's
immediate family, to a trust in which Optionee and/or one or more such family
members hold more than fifty percent (50%) of the beneficial interest or to an
entity in which more than fifty percent (50%) of the voting interests are owned
by one or more such family members or (ii) pursuant to a domestic relations
order. The terms applicable to the assigned portion shall be the same as those
in effect for the option immediately prior to such assignment and shall be set
forth in such documents issued to the assignee as the Committee may deem
appropriate.
Notwithstanding the foregoing, the Optionee may also designate one or
more persons as the beneficiary or beneficiaries of his or her outstanding
options, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Six shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
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D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but not
otherwise fully-vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not so accelerate
if and to the extent: (i) such option is, in connection with the Change in
Control, assumed or otherwise continued in full force and effect by the
successor corporation (or parent thereof) pursuant to the terms of the Change in
Control, (ii) such option is replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Change in Control on the shares of Common Stock for which the option is not
otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Committee at the time of the option grant. Each option outstanding at the
time of the Change in Control shall terminate as provided in Section III.C. of
this Article Two.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Committee at the time the
repurchase right is issued.
C. Immediately following the consummation of the Change in Control, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of the
Plan and (iii) the maximum number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances under the Plan per calendar year. To the extent the
actual holders of the outstanding Common Stock receive cash consideration for
their Common Stock in consummation of the Change in Control, the successor
corporation may,
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in connection with the assumption of the outstanding options, substitute one or
more shares of its own common stock with a fair market value equivalent to the
cash consideration paid per share of Common Stock in such Change in Control.
E. The Committee may at any time provide that one or more options will
automatically accelerate in connection with a Change in Control, whether or not
those options are assumed or otherwise continued in full force and effect
pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Committee may at any time provide that
one or more of the Corporation's repurchase rights shall not be assignable in
connection with such Change in Control and shall terminate upon the consummation
of such Change in Control.
F. The Committee may at any time provide that one or more options will
automatically accelerate upon an Involuntary Termination of the Optionee's
Service within a designated period (not to exceed eighteen (18) months)
following the effective date of any Change in Control in which those options do
not otherwise accelerate. Any options so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1) year period measured from the
effective date of the Involuntary Termination. In addition, the Committee may at
any time provide that one or more of the Corporation's repurchase rights shall
immediately terminate upon such Involuntary Termination.
G. The Committee may at any time provide that one or more options will
automatically accelerate in connection with a Hostile Take-Over. Any such option
shall become exercisable, immediately prior to the effective date of such
Hostile Take-Over, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Committee may at any time provide that
one or more of the Corporation's repurchase rights shall terminate automatically
upon the consummation of such Hostile Take-Over. Alternatively, the Committee
may condition such automatic acceleration and termination upon an Involuntary
Termination of the Optionee's Service within a designated period (not to exceed
eighteen (18) months) following the effective date of such Hostile Take-Over.
Each option so accelerated shall remain exercisable for fully-vested shares
until the expiration or sooner termination of the option term.
H. The portion of any Incentive Option accelerated in connection with a
Change in Control or Hostile Take Over shall remain exercisable as an Incentive
Option only to the extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Committee may, subject to such conditions as it may determine,
grant to selected Optionees stock appreciation rights which will allow the
holders of those rights to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of
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that option in exchange for a distribution from the Corporation in an amount
equal to the excess of (a) the Option Surrender Value of the number of shares
for which the option is surrendered over (b) the aggregate exercise price
payable for such shares. The distribution may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or partly in
shares and partly in cash, as the Committee shall in its sole discretion deem
appropriate.
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ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options. Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements. Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.
A. Purchase Price.
1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Committee and may be less than, equal to or
greater than the Fair Market Value per share of Common Stock on the issue date.
2. Subject to the provisions of Section II of Article Four, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Committee may deem appropriate in
each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. VESTING/ISSUANCE PROVISIONS.
1. The Committee may issue shares of Common Stock which are fully and
immediately vested upon issuance or which are to vest in one or more
installments over the Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the Committee may issue share
right awards which shall entitle the recipient to receive a specified number of
vested shares of Common Stock upon the attainment of one or more performance
goals or Service requirements established by the Committee.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Committee shall deem appropriate.
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3. The Participant shall have full stockholder rights with respect to
the issued shares of Common Stock, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock, or should the performance objectives
not be attained with respect to one or more such unvested shares of Common
Stock, then those shares shall be immediately surrendered to the Corporation for
cancellation, and the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares were previously
issued to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money indebtedness), the Corporation shall
repay to the Participant the cash consideration paid for the surrendered shares
and shall cancel the unpaid principal balance of any outstanding purchase-money
note of the Participant attributable to the surrendered shares.
5. The Committee may waive the surrender and cancellation of one or
more unvested shares of Common Stock (or other assets attributable thereto)
which would otherwise occur upon the cessation of the Participant's Service or
the non-attainment of the performance objectives applicable to those shares.
Such waiver shall result in the immediate vesting of the Participant's interest
in the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards shall automatically terminate, and no
shares of Common Stock shall actually be issued in satisfaction of those awards,
if the performance goals or Service requirements established for such awards are
not attained. The Committee, however, shall have the authority to issue shares
of Common Stock in satisfaction of one or more outstanding share right awards as
to which the designated performance goals or Service requirements are not
attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Committee
at the time the repurchase right is issued.
B. The Committee may at any time provide for the automatic termination
of one or more of those outstanding repurchase rights and the immediate vesting
of the shares of Common Stock subject to those terminated rights upon (i) a
Change in Control or Hostile Take-Over or (ii) an Involuntary Termination of the
Participant's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control or
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Hostile Take-Over in which those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Committee's discretion, be held in escrow
by the Corporation until the Participant's interest in such shares vests or may
be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
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ARTICLE FOUR
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
II. FINANCING
The Committee may permit any Optionee or Participant to pay the option
exercise price under the Discretionary Option Grant Program or the purchase
price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Committee in its sole
discretion. In no event may the maximum credit available to the Optionee or
Participant exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares (less the par value of such
shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
III. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Committee may, in its discretion, provide any or all holders of
Non-Statutory Options or unvested shares of Common Stock under the Plan with the
right to use shares of Common Stock in satisfaction of all or part of the
Withholding Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at the time
the Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other than in connection with
the option exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Taxes (not to exceed
one hundred percent (100%)) designated by the holder.
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IV. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan Effective
Date. Options may be granted under the Discretionary Option Grant Program at any
time on or after the Plan Effective Date. However, no options granted under the
Plan may be exercised, and no shares shall be issued under the Plan, until the
Plan is approved by the Corporation's stockholders. If such stockholder approval
is not obtained within twelve (12) months after the Plan Effective Date, then
all options previously granted under this Plan shall terminate and cease to be
outstanding, and no further options shall be granted and no shares shall be
issued under the Plan.
B. The Plan shall terminate upon the earliest of (i) February 20,
2010, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such grants or issuances.
V. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VI. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
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VII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VIII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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APPENDIX
The following definitions shall be in effect under the Plan:
A. BENEFICIARY shall mean, in the event the Committee implements a
beneficiary designation procedure, the person designated by an Optionee or
Participant, pursuant to such procedure, to succeed to such person's rights
under any outstanding awards held by him or her at the time of death. In the
absence of such designation or procedure, the Beneficiary shall be the personal
representative of the estate of the Optionee or Participant or the person or
persons to whom the award is transferred by will or the laws of inheritance.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than
fifty percent (50%) of the total combined voting power of the voting
securities of the successor corporation are immediately thereafter
beneficially owned, directly or indirectly and in substantially the
same proportion, by the persons who beneficially owned the
Corporation's outstanding voting securities immediately prior to such
transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
recommends such stockholders accept.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMITTEE shall mean the committee of two (2) or more non-employee
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs and select the individuals eligible to
participate in the Salary Investment Option Grant Program.
F. COMMON STOCK shall mean the Corporation's common stock.
G. CORPORATION shall mean Playboy.com, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Playboy.com, Inc. which shall by appropriate action adopt the Plan.
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H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
such price is reported on the Nasdaq National Market or any successor
system and in The Wall Street Journal. If there is no closing selling
price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding
date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Committee to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of
transactions on such exchange and reported in The Wall Street Journal.
If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(iii) For purposes of any options made prior to the Section 12
Registration Date, the Fair Market Value shall be determined by the
Committee, after taking into account such factors as it deems
appropriate.
L. HOSTILE TAKE-OVER shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders which the Board
does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be
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comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause
(A) who were still in office at the time the Board approved such
election or nomination.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation or Parent or
Subsidiary employing the individual which materially reduces his or her
duties and responsibilities or the level of management to which he or
she reports, (B) a reduction in his or her level of compensation
(including base salary, fringe benefits and target bonus under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected by the Corporation without
the individual's consent.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. OPTION SURRENDER VALUE shall mean the Fair Market Value per share of
Common Stock on the date the option is surrendered to the Corporation or, in the
event of a Hostile Take-Over, effected through a tender offer, the highest
reported price per share of Common Stock paid by the tender offeror in effecting
such Hostile Take-Over, if greater. However, if the surrendered option is an
Incentive Option, the Option Surrender Value shall not exceed the Fair Market
Value per share.
S. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant Program.
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T. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. PLAN shall mean the Corporation's 2000 Stock Incentive Plan, as set
forth in this document.
W. PLAN EFFECTIVE DATE shall mean February 21, 2000, the date on
which the Plan was adopted by the Board.
X. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12(g) of the 1934 Act.
Y. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
Z. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AA. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
BB. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
CC. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
DD. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding tax liabilities to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.
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EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 21st day of February, 2000 by and
between Playboy.com, Inc., a Delaware company (the "Company"), and Kevin Mayer
(the "Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive and to enter into an
agreement embodying the terms of such employment (this "Agreement") and the
Executive desires to enter into this Agreement and to accept such employment,
subject to the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
mutually acknowledged, the Company and the Executive (individually a "Party" and
together the "Parties") agree as follows:
1. DEFINITIONS.
(a) "Base Salary" shall mean the salary provided for in section 4.
below.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause" shall mean that the Executive shall have:
(i) been convicted of a criminal violation involving
dishonesty, fraud or breach of trust; or
(ii) willfully engaged in misconduct in the performance of
Executive's duties that materially injures the
Company or "Affiliate" of the Company. Affiliate
shall mean any company directly or indirectly through
one or more intermediaries, controlling the Company
or controlled by, or under common control with the
Company. For purposes of the foregoing, "control"
(and "controlled" and "controlling"
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respectively), as used in the immediately preceding
sentence, means the possession, direct or indirect,
of the power to direct or cause the direction of the
management and policies of the specified
company/Company (whether by the holding of shares or
other equity interests, the possession of voting or
contract rights or otherwise).
(d) "Constructive Termination without Cause" shall mean
termination by the Executive of his employment following
occurrence of any of the following events without his written
consent:
(i) a reduction in the Executive's compensation (Base
Salary or equity opportunity); or
(ii) a material diminution in the Executive's duties or
the assignment to the Executive of duties which are
materially inconsistent with his current duties.
2. TERM OF EMPLOYMENT.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts such employment, for the period commencing
February 21, 2000 and ending February 20, 2004, subject to
earlier termination, as provided in section 10. below ("Term
of Employment").
(b) Anything herein to the contrary notwithstanding, the Company
shall have the right to terminate Executive's employment
hereunder with or without cause at any time.
3. POSITION, DUTIES AND RESPONSIBILITIES.
(a) During the Term of Employment, the Executive shall be employed
as President and Chief Executive Officer of the Company and
shall also serve on the Company's Board. The Executive, in
carrying out his duties under this Agreement, shall report to
the
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Company's Board. The Executive's responsibilities and
authority will be commensurate with his position.
(b) Anything herein to the contrary notwithstanding, nothing shall
preclude the Executive from serving, subject to approval of
the Company's Board, on the boards of a reasonable number of
other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations, provided
that such activities do not interfere with the proper
performance of his duties and responsibilities on behalf of
the Company.
(c) The Executive will be based in New York City, New York with
offices there and in Los Angeles, California and Chicago,
Illinois.
4. BASE SALARY.
The Executive shall be paid an annualized Base Salary, payable in
accordance with the regular payroll practices of the Company, of three
hundred fifty thousand dollars ($350,000).
5. ANNUAL INCENTIVE COMPENSATION.
The Executive shall participate in an incentive compensation plan with
a maximum annual target award opportunity of twenty-five percent (25%)
of Base Salary tied to the Company's performance against budget and
paid as soon after fiscal year-end as the financial objectives can be
measured and the Company's outside auditors have closed the Company's
books. For fiscal year 2000 (January 1 through December 31, 2000),
Executive will be treated as if he were employed for the entire fiscal
year for purposes of computing any such incentive compensation payable
to him.
6. EQUITY PARTICIPATION.
Effective as of February 21, 2000, the Company shall grant the
Executive, pursuant to the Company's 2000 Incentive Stock Plan (which
is to be approved by the
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Company's Board and sole shareholder), an option (the "Stock Option")
to purchase those number of shares (the "Option Shares") of the
Company's common stock which represents five percent (5%) of the
Company's outstanding pre-Initial Public Offering ("IPO") equity based
on an enterprise valuation by the Company's lead investment bankers,
which valuation in no event shall be more than one hundred ninety-five
million dollars ($195,000,000). The strike price for such shares shall
be calculated by taking said referenced enterprise valuation and
dividing it by the number of the Company's outstanding pre-IPO equity
shares.
(a) The Option Shares will vest in the following manner:
(i) twenty percent (20%) of the Option Shares will vest
on the first (1st) anniversary of the Effective Date;
(ii) sixty percent (60%) of the Option Shares will vest in
equal monthly installments in each twelve (12) month
period (i.e., one-thirty-sixth (1/36th) each month)
after the first (1st) anniversary of the Effective
Date; and
(iii) The remaining twenty percent (20%) of the Option
Shares will vest in equal increments on each December
31, for the years ending in 2000, 2001, 2002 and
2003, provided that the Company's Performance, as
defined, for any such year exceeds the Dow Jones
Internet Index Performance, as defined, in such year
by a minimum of fifteen percent (15%). Each year will
be considered separately for purposes of determining
if such vesting has occurred. (Solely for purposes of
illustrating the foregoing, if the Dow Jones Internet
Index increases from the effective date of the
Company's IPO to the end of the year 2000 by ten
percent (10%), then the Company's Performance from
its initial sales price to underwriters on its IPO
must increase by eleven and one-half percent (11.5%)
(i.e., 115% of 10%) in order for Executive to
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qualify for vesting in the year 2000. Also, for
purposes of illustration only, if the Dow Jones
Internet Index decreases by twenty percent (20%) in
any such year, the Company's performance must
decrease by seventeen percent (17%) or less in order
for Executive to vest the Option Shares for such
year.)
Playboy.com's Performance shall be defined as
follows: for the year ending December 31, 2000 it
shall be the percentage change in the share price to
underwriters from the date of the Company's initial
public offering to the current year-end price, which
shall be defined as the average of the closing prices
of Playboy.com on the ten (10) trading days preceding
the next January 1. For each subsequent year, it
shall be measured by calculating the percentage
change in the previous year-end price and the current
year-end price.
Dow Jones Internet Index Performance shall be defined
as follows: for the year ending December 31, 2000 it
shall be the percentage change in the Index from the
date of the IPO to the current year-end price, which
shall be defined as the average of the closing prices
of the Dow Jones Internet Index on the ten (10)
trading days preceding the next January 1. For each
subsequent year, it shall be measured by calculating
the percentage change in the previous year-end price
and the current year-end price.
(b) In the event there is a Change of Control and the Company
terminates the Executive's employment during the Term of
Employment other than pursuant to section 10.(c), or if
Executive terminates his employment pursuant to section
10.(d), all unvested Stock Options granted to Executive
hereunder will immediately vest. "Change of Control" shall
mean a change in ownership or control of the Company effected
through any of the following transactions:
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(i) a merger, consolidation or reorganization approved by
the Company's stockholders, UNLESS securities
representing more than fifty percent (50%) of the
total combined voting power of the voting securities
of the successor corporation are immediately
thereafter beneficially owned, directly or indirectly
and in substantially the same proportion, by the
persons who beneficially owned the Company's
outstanding voting securities immediately prior to
such transaction;
(ii) any stockholder-approved transfer or other
disposition of all or substantially all of the
Company's assets; or
(iii) the acquisition, directly or indirectly by any person
or related group of persons (other than the Company
or a person or company that directly or indirectly
controls, is controlled by, or is under common
control with, the Company), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of
securities possession more than fifty percent (50%)
of the total combined voting power of the Company's
outstanding securities pursuant to a tender or
exchange offer made directly to the Company's
stockholders which the Board recommends such
stockholders accept.
For purposes of this section 6.(b) only, the "Company" shall
include its ultimate parent, Playboy Enterprises, Inc.
7. EMPLOYEE BENEFIT PROGRAMS.
The Executive shall be eligible to participate in any employee benefit
programs of the Company applicable to other senior level executives. In
addition, the Executive shall be entitled to four (4) weeks per annum
vacation.
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8. PERQUISITES.
The Executive shall be entitled to perquisites on the same basis as
made available to other senior executives of the Company and:
(a) during the Term of Employment, in recognition of the
substantial amount of time required to be spent in New York on
Company business, the Company shall reimburse the Executive up
to fifty thousand dollars ($50,000) annually of the cost of a
New York apartment lease in lieu of hotel accommodations; and
(b) expensing the cost of airline upgrade certificates or coupons.
9. REIMBURSEMENT OF BUSINESS AND OTHER EXPENSES.
Executive shall be reimbursed for all necessary travel, entertainment
and miscellaneous expenses reasonably incurred by Executive in the
performance of his duties hereunder in accordance with the Company
travel and entertainment policy applicable to other members of senior
management of the Company upon submission of documentation reasonably
satisfactory to the Company of such expenses.
10. TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH.
In the event the Executive's employment is terminated due to
his death, his estate or his beneficiaries, as the case may
be, shall be entitled to:
(i) Base Salary through the date of death;
(ii) the right to exercise any Stock Option which was
exercisable at the date of the Executive's death for
a period of one (1) year following the Executive's
death;
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(iii) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(iv) other benefits in accordance with applicable plans
and programs of the Company.
(b) TERMINATION DUE TO DISABILITY.
In the event the Executive becomes totally disabled or
disabled such that he is rendered unable to perform
substantially all of his usual duties for the Company, and if
such disability shall persist for a continuous period in
excess of three (3) months, or an aggregate period in excess
of four (4) months in any one (1) fiscal year, the Company
shall have the right at any time after the end of such period
to terminate the Executive's employment under this Agreement
by delivering a thirty (30) day prior written notice to him.
For purposes of this Agreement, if the Executive and the
Company shall disagree as to whether he is totally disabled,
or disabled such that he is rendered unable to perform
substantially all of his usual duties for the Company, the
decision of a doctor, mutually agreed upon by the parties,
shall be binding as to both questions. If the parties cannot
agree upon a doctor, the Executive and the Company shall each
select a doctor. The two (2) doctors so selected shall select
a third (3rd) doctor, who shall resolve either or both of the
questions referred to above.
In the event the Executive's employment is terminated due to
disability, he shall be entitled to:
(i) Base Salary through the effective date of his
termination due to disability;
(ii) the right to exercise any Stock Option which is
exercisable on the date of termination for a period
of one (1) year;
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(iii) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(iv) disability and other benefits in accordance with the
applicable plans and programs of the Company.
(c) TERMINATION BY THE COMPANY FOR CAUSE.
In the event the Company terminates the Executive's employment
for Cause, he shall be entitled to:
(i) Base Salary through the date of such termination;
(ii) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(iii) other benefits, if any, in accordance with applicable
plans and programs of the Company.
(d) TERMINATION WITHOUT CAUSE OR CONSTRUCTIVE TERMINATION WITHOUT
CAUSE.
In the event the Executive's employment is terminated without
cause or in the event there is a Constructive Termination
Without Cause, the Executive shall be entitled to:
(i) Base Salary through the date of such termination;
(ii) Base Salary, at the annualized rate in effect on the
date of termination of the Executive's employment for
a period of twelve (12) months; payable lump sum
immediately after such termination;
(iii) if termination occurs prior to the end of the
Executive's first (1st) year of employment, the
immediate vesting of all unvested Stock Options
granted to Executive under section 6.(a)(i);
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(iv) any amounts earned, accrued or owing to the Executive
but not yet paid; and
(v) other benefits in accordance with applicable plans
and programs of the Company.
(e) VOLUNTARY TERMINATION.
Same consequences as Termination for Cause.
(f) NO MITIGATION.
In the event of any termination of employment, the Executive
shall be under no obligation to seek other employment and
there shall be no offset against amounts due him under the
Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain.
11. TERMINATION OF DISPUTES.
Any disputes arising under or in connection with this Agreement shall,
at the election of the Executive or the Company, be resolved by binding
arbitration, to be held in New York City, New York in accordance with
the rules and procedures of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator(s) may be entered in
any court having jurisdiction thereof. Costs of the arbitration or
litigation, including, without limitation, reasonable attorneys' fees
of both Parties, shall be borne by the Company. Pending the resolution
of any arbitration or court proceeding, the Company shall continue
payment of all amounts due the Executive under this Agreement and all
benefits to which the Executive is entitled at the time the dispute
arises.
12. INDEMNIFICATION.
(a) The Executive shall be entitled to indemnification by the
Company in accordance with the provisions of the Company's
bylaws and the implementing Board resolutions as in effect on
the date of this Agreement
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or, if more favorable to Executive, the provisions of such
bylaws as in effect at the time indemnification is requested.
(b) The Company shall include Executive as an additional insured
under its directors' and officers' liability insurance which
shall be maintained by the Company during the Term of
Employment.
13. EFFECT OF AGREEMENT ON OTHER BENEFITS.
Except as specifically provided in this Agreement, the existence of
this Agreement shall not prohibit or restrict the Executive's
entitlement to full participation in the employee benefit and other
plans or programs in which senior executives of the Company are
eligible to participate.
14. ASSIGNABILITY; BINDING NATURE.
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors, heirs (in the case of the
Executive) and assigns. Without the prior written consent of the
Company, no rights or obligations of the Executive under this Agreement
may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in section 23. below.
15. CONFLICTS OF INTEREST.
(a) It is hereby acknowledged that Executive is aware of Company's
Affiliates' conflict of interest policy (a copy of which is
attached hereto as Exhibit "A" and by this reference made a
part hereof), and understands that compliance therewith is of
the essence of and is material to this Agreement. Company
agrees that Executive shall have a period of sixty (60) days
from commencement of services hereunder during which to divest
himself of ownership of any firms, corporation, stock or
similar items which are in violation of said conflict of
interest policy.
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(b) Executive recognizes and acknowledges that a breach of the
provisions of this paragraph would result in immeasurable and
irreparable harm to Company. Executive accordingly agrees that
in addition to, and not in lieu of, all other remedies
available to Company against Executive by reason of such
breach, Company shall be entitled to temporary and permanent
injunctive relief to prevent the occurrence or continuation
thereof.
16. CONFIDENTIALITY, DISCLOSURE OF INFORMATION.
(a) The Executive recognizes and acknowledges that he will have
access to Confidential Information (as defined below) relating
to the business or interest of the Company or of persons with
whom the Company may have business relationships. Except as
permitted herein or as may be approved by the Company from
time to time, the Executive will not during the Term of
Employment or at any time thereafter, use, disclose or permit
to be known by any other person or entity, any Confidential
Information of the Company (except as required by applicable
law or in connection with the performance of the Executive's
duties and responsibilities hereunder). If Executive is
requested or becomes legally compelled to disclose any of the
Confidential Information, he will give prompt notice of such
request or legal compulsion to the Company. The Company may
waive compliance with this section 16.(a) or will provide
Executive with legal counsel at no cost to Executive to seek
an appropriate remedy. The term "Confidential Information"
means information relating to the Company's business affairs,
proprietary technology, trade secrets, patented processes,
research and development data, know-how, market studies and
forecasts, competitive analyses, pricing policies, employee
lists, employment agreements (other than this Agreement),
personnel policies, the substance of agreements with
customers, suppliers and others, marketing arrangements,
customer lists, commercial arrangements, or any other
information relating to the Company's business that is not
generally known
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to the public or to actual or potential competitors of the
Company (other than through a breach of this Agreement). This
obligation shall continue until such Confidential Information
becomes publicly available, other than pursuant to a breach of
this section 16. by the Executive, regardless of whether the
Executive continues to be employed by the Company.
(b) It is further agreed and understood by and between the parties
to this Agreement that all "Company Materials," which include,
but are not limited to, computers, computer software, computer
disks, tapes, printouts, source, HTML and other code,
flowcharts, schematics, designs, graphics, drawings,
photographs, charts, graphs, notebooks, customer lists, sound
recordings, other tangible or intangible manifestation of
content, and all other documents whether printed, typewritten,
handwritten, electronic, or stored on computer disks, tapes,
hard drives, or any other tangible medium, as well as samples,
prototypes, models, products and the like, shall be the
exclusive property of the Company and, upon termination of
Executive's employment with the Company, and/or upon the
request of the Company, all Company Materials, including
copies thereof, as well as all other Company property then in
the Executive's possession or control, shall be returned to
and left with the Company. Anything in this section 16.(b) to
the contrary notwithstanding, Executive shall be entitled to
retain his personal rolodex and any Company Materials
contained in his personal computer so long as he does not
disclose any Company Materials to any third parties.
17. INVENTIONS DISCOVERED BY EXECUTIVE
The Executive shall promptly disclose to the Company any invention,
improvement, discovery, process, formula or method or other
intellectual property, whether or not patentable or copyrightable
(collectively, "Inventions"), conceived or first reduced to practice by
the Executive, either alone or jointly with others, while performing
services
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hereunder (or, if based on any Confidential Information, within one (1)
year after the Term):
(a) which pertain to any line of business activity of the Company,
if then conducted or then being actively planned by the
Company, with which the Executive was or is involved,
(b) which is developed using time, material or facilities of the
Company, whether or not during working hours or on the Company
premises, or
(c) which directly relates to any of the Executive's work during
the Term, whether or not during normal working hours.
The Executive hereby quitclaims to the Company all of the Executive's
right, title and interest in and to any such Inventions. During and
after the Term, the Executive shall execute any documents necessary to
perfect the quitclaim of such Inventions to the Company and to enable
the Company to apply for, obtain and enforce patents, trademarks and
copyrights in any and all countries on such Inventions, including,
without limitation, the execution of any instruments and the giving of
evidence and testimony, without further compensation beyond the
Executive's agreed compensation during the course of the Executive's
employment. Without limiting the foregoing, the Executive further
acknowledges that all original works of authorship by the Executive,
whether created alone or jointly with others, relating to the
Executive's employment with the Company, and which are protectable by
copyright, are "works made for hire" within the meaning of the United
States Copyright Act, 17 U.S.C. Section 101, as amended, and the
copyright of which shall be owned solely, completely and exclusively by
the Company. If any Invention is considered to be a work not included
in the categories of work covered by the United States Copyright Act,
17 U.S.C. Section 101, as amended, such work is hereby conveyed and
transferred completely and exclusively to the Company. The Executive
hereby irrevocably designates counsel to the Company as the Executive's
agent and attorney-in-fact to do all lawful acts necessary to apply for
and obtain patents and copyrights and to enforce
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the Company's rights under this section. This section 17. shall survive
the termination of this Agreement. Any conveyance of copyright
hereunder includes all rights of paternity, integrity, disclosure and
withdrawal and any other rights that may be known as or referred to as
"moral rights" (collectively "Moral Rights"). To the extent such Moral
Rights cannot be conveyed under applicable law and to the extent the
following is allowed by the laws in the various countries where Moral
Rights exist, the Executive hereby waives such Moral Rights and
consents to any action of the Company that would violate such Moral
Rights in the absence of such consent. The Executive agrees to confirm
any such waivers and consents from time to time as requested by the
Company.
18. NON-COMPETITION AND NON-SOLICITATION
The Executive acknowledges that the Company has invested substantial
time, money and resources in the development and retention of its
Inventions, Confidential Information (including trade secrets),
customers, accounts and business partners, and further acknowledges
that during the course of the Executive's employment with the Company
the Executive has had and will have access to the Company's Inventions
and Confidential Information (including trade secrets), and will be
introduced to existing and prospective customers, accounts and business
partners of the Company. The Executive acknowledges and agrees that any
and all "goodwill" associated with any existing or prospective
customer, account or business partner belongs exclusively to the
Company, including, but not limited to, any goodwill created as a
result of direct or indirect contacts or relationships between the
Executive and any existing or prospective customers, accounts or
business partners. Additionally, the parties acknowledge and agree that
Executive possesses skills that are special, unique or extraordinary
and that the value of the Company depends upon his use of such skills
on its behalf.
In recognition of this, the Executive covenants and agrees that:
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(a) During the Executive's employment with the Company, and for a
period of one (1) year thereafter, the Executive may not,
without the prior written consent of the Company, (whether as
an employee, agent, servant, owner, partner, consultant,
independent contractor, representative, stockholder, or in any
other capacity whatsoever) perform any work directly
competitive in any way to the content driven men's
entertainment internet business of the Company or a
substantially planned business that the Executive is aware of
during the Executive's employment with the Company on behalf
of any entity or person other than the Company (including the
Executive).
(b) During the Executive's employment with the Company, and for a
period of one (1) year thereafter, the Executive may not
entice, solicit or encourage any Company employee (except for
Executive's Los Angeles based executive assistant) to leave
the employ of the Company or any independent contractor to
sever its engagement with the Company, absent prior written
consent from the Company.
(c) During the Executive's employment with the Company, and for a
period of one (1) year thereafter, the Executive may not,
directly or indirectly, entice, solicit or encourage any
customer or prospective customer of the Company to cease doing
business with the Company, reduce its relationship with the
Company or refrain from establishing or expanding a
relationship with the Company.
19. NON-DISPARAGEMENT; NON-DISCLOSURE.
(a) The Executive hereby agrees that during the Term of Employment
and at all times thereafter, the Executive will not make any
public statement, or engage in any conduct, that is
disparaging to the Company, any of its officers, directors, or
shareholders known to Executive, including, but not limited
to, any statement that disparages the products, services,
finances, financial condition, capabilities or other aspect of
the business of the Company. Notwithstanding
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any term to the contrary herein, the Executive shall not be
in breach of this section 19. for the making of any truthful
statements under oath.
(b) The Executive will not directly or indirectly disclose,
discuss, disseminate, be the source of or otherwise publish or
communicate in any manner to any person or entity any
Confidential Information concerning the personal, social or
business activities of the Company, its Affiliates or the
executives and principals and the officers, directors, agents
and employees of all of the foregoing during or at any time
after the termination of Executive's employment. In addition,
the Executive agrees that without Employer's express written
approval in each case, Executive will not:
(i) write, be the source of or contribute to any
articles, stores, books, screenplays or any other
communication or publicity of any kind (written or
otherwise) or deliver lectures in any way regarding
or concerning the Confidential Information, or
(ii) grant any interviews regarding or concerning the
Confidential Information during or at any time after
the termination of his employment.
20. PROVISIONS NECESSARY AND REASONABLE.
(a) The Executive agrees that:
(i) the provisions of sections 16., 17., 18. and 19. of
this Agreement are necessary and reasonable to
protect the Company's Confidential Information,
Inventions and goodwill;
(ii) the specific temporal, geographic and substantive
provisions set forth in section 18. of this Agreement
are reasonable and necessary to protect the Company's
business interests; and
(iii) in the event of any breach of any of the covenants
set forth in sections 16., 17., 18. and 19.
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herein, the Company would suffer substantial
irreparable harm and would not have an adequate
remedy at law for such breach.
In recognition of the foregoing, the Executive agrees that in
the event of a breach or threatened breach of any of these
covenants, in addition to such remedies as the Company may
have at law, without posting any bond or security, the Company
shall be entitled to seek and obtain equitable relief, in the
form of specific performance, and/or temporary, preliminary or
permanent injunctive relief, or any other equitable remedy
which then may be available. The seeking of such injunction or
order shall not affect the Company's right to seek and obtain
damages or other equitable relief on account of any such
actual or threatened breach.
(b) If any of the covenants contained in sections 16., 17., 18. and
19. hereof, or any part thereof, are hereafter construed to be
invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given
full effect without regard to the invalid portions.
(c) If any of the covenants contained in sections 16., 17., 18. and
19. hereof, or any part thereof, are held to be unenforceable
by a court of competent jurisdiction because of the temporal or
geographic scope of such provision or the area covered thereby,
the parties agree that the court making such determination
shall have the power to reduce the duration and/or geographic
area of such provision and, in its reduced form, such provision
shall be enforceable.
21. REPRESENTATIONS REGARDING PRIOR WORK AND LEGAL OBLIGATIONS.
(a) The Executive represents that the Executive has no agreement
or other legal obligation with any prior employer, or any
other person or entity, that restricts the Executive's ability
to accept employment with, or to perform any function for, the
Company.
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(b) The Executive has been advised by the Company that at no time
should the Executive divulge to or use for the benefit of the
Company any trade secret or confidential or proprietary
information of any previous employer. The Executive expressly
acknowledges that the Executive has not divulged or used any
such information for the benefit of the Company.
(c) The Executive acknowledges that the Company is basing
important business decisions on these representations, and
affirms that all of the statements included herein are true.
22. ENTIRE AGREEMENT.
This Agreement contains the entire understanding and agreement between
the Parties concerning the subject matter hereof and supersedes all
prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect
thereto.
23. AMENDMENT OR WAIVER.
No provision in this Agreement may be amended unless such amendment is
agreed to in writing and signed by the Executive and an authorized
officer of the Company. No waiver by either Party of any breach by the
other Party of any condition or provision contained in this Agreement
to be performed by such other Party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior
or subsequent time. Any waiver must be in writing and signed by the
Executive or an authorized officer of the Company, as the case may be.
24. SEVERABILITY.
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or
in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
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25. SURVIVORSHIP.
The respective rights and obligations of the Parties hereunder shall
survive any termination of the Executive's employment to the extent
necessary to the intended preservation of such rights and obligations.
26. BENEFICIARIES/REFERENCES.
The Executive shall be entitled to select (and change, to the extent
permitted under any applicable law) a beneficiary or beneficiaries to
receive any compensation or benefit payable hereunder following the
Executive's death by giving the Company written notice thereof. In the
event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be
deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative.
27. GOVERNING LAW.
This Agreement shall be governed by and construed and interpreted in
accordance with the laws of New York without reference to principles of
conflict of laws.
28. NOTICES.
Any notice given to a Party shall be in writing and shall be deemed to
have been given when delivered personally or sent by registered mail,
postage prepaid, return receipt requested, duly addressed to the Party
concerned at the address indicated below or to such changed address as
such Party may subsequently give such notice of:
If to the Company: Playboy.com, Inc.
680 North Lake Shore Drive
Chicago, IL 60611
Attention: General Counsel
If to the Executive: Kevin Mayer
2321 Achilles Drive
Los Angeles, CA 90046
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With a copy to: Ken Ziffren
Ziffren Brittenham Branca &
Fischer, LLP
1801 Century Park West
Los Angeles, CA 90067-6406
29. HEADINGS.
The headings of the sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
30. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first written above.
PLAYBOY.COM, INC.
By /s/ Christie Hefner
-----------------------------------
Christie Hefner
Chairman and Acting Chief Executive Officer
/s/ Kevin Mayer
-------------------------------------
Kevin Mayer
21
<PAGE>
Exhibit 10.3
PLAYBOY.COM, INC.
February 21, 2000
Apostolos D. Kallis
5811 South Garfield Avenue
Hinsdale, IL 60521
Dear Paul:
This letter confirms (i) that as of October 1, 1999 you are an employee of
Playboy.com, Inc. and (ii) your appointment as of that date to the position
of Executive Vice President, Playboy.com, Inc. You will report to the CEO of
Playboy.com.
Your base salary will remain at its current level, two hundred ten thousand
dollars ($210,000), with increases to be considered annually, consistent with
policy. You will be entitled to participate in any annual incentive plan that
is made generally available to other Playboy.com executives at your
management level.
You will be entitled to keep and PEI stock options that have already been
granted to you (vested or unvested) although PEI options will not be granted
to you going forward. You will, however, be entitled to participate in
Playboy.com equity programs that may be put in place for executives at your
management level.
You will be granted options to purchase one hundred thirty-five thousand
(135,000) shares of Playboy.com. The strike price of the options is twelve
dollars ($12). Your options will vest in thirty-three and one-third percent
(33-1/3%) annual Increments each February 21. Assuming the successful
completion of Playboy.com's Initial public offering, this means that a year
from now, you can buy up to one-third (1/3) of your shares at twelve dollars
($12), no matter how high the stock may actually be trading on the NASDAQ.
While you can exercise your options at any time after they are vested, you
can also wait as long as ten (10) years to exercise at this price.
<PAGE>
February 21, 2000
Apostolos D. Kallis
Page Two
If, after two (2) years from the effective date of the grant of such options
(and presuming you are still employed by Playboy.com), an IPO of all or part
of Playboy.com does not take place, the equity value of all such vested
Playboy.com options may be converted, at PEI's option, to PEI Class B stock
and/or cash based on a fair market appraisal of the Playboy.com business.
You will still be entitled to the severance summarized in the letter dated
March 27, 1998.
Very truly yours,
/s/ Howard Shapiro
------------------------------
Howard Shapiro
ACCEPTED AND AGREED TO:
/s/ Apostolos D. Kallis
- ---------------------------------
Apostolos D. Kallis
Date 2/28/00
----------------------------
<PAGE>
[LETTERHEAD]
March 27, 1998
Mr. Paul Kallis
549 Colonial Road
River Vale, NJ 07675
Dear Paul:
It is with great pleasure that I offer you the position of Senior Vice
President/Chief Technology Officer for Playboy Enterprises, Inc.
You will be reporting directly to me. You will be domiciled at the
Playboy offices in Chicago, although you will be expected to do such
traveling as may be necessary and appropriate for the performance of your
duties.
You will be paid a base salary of $180,000 per year, to be paid on a biweekly
basis on our normal payroll dates. In addition, you are entitled to
participate in a Board approved incentive plan with a maximum potential of
40% of your base salary based upon Company financial performance (prorated in
'98 based on start date).
You will be a member of the Executive Committee of the Company. You will be
entitled to four weeks' paid vacation (prorated in '98 based on start date).
In Fiscal years 1998 and 1999 you are guaranteed to receive no less than
$20,000 in incentive compensation.
You will also be granted an option to purchase 7,500 shares of Playboy's
Class B stock and the right to receive up to 5,000 shares of Class B stock
under the Company's restricted stock plan, vesting 2,500 shares upon the
Company's achieving operating income of $15 million and 2,500 shares on the
Company's achieving operating income of $20 million according to the terms
and conditions of the 1995 Playboy Enterprises, Inc. Stock Incentive Plan.
<PAGE>
March 27, 1998
Paul Kallis
Page Two
You will be entitled to the Company's health benefits plans (effective on the
first day of your employment) as well as participation in the Company's
executive vacation policy (four weeks), matching 401k plan, deferred
compensation plan employee stock purchase plan and profit-sharing plan.
Details of all of these plans/benefits will be sent to you.
If you should be terminated at any time not for cause (as defined below), you
will be entitled to receive six months guaranteed severance and up to an
additional three months if you remain unemployed. "For cause" is defined as
conviction of a crime involving dishonesty, fraud or breach of trust, or
engaging in conduct materially injurious to Playboy.
To facilitate your relocation to Chicago, the Company will reimburse or
prepay reasonable and customary moving expenses, in accordance with the
Company's relocation policy.
If the above is acceptable, please sign, date and return the enclosed copy of
this letter.
Once again, welcome to the Playboy family. We look forward to working with
you.
Sincerely,
/s/ Linda Havard
-------------------------------
Linda Havard
ACCEPTED:
/s/ Apostolos D. Kallis
- ----------------------------------
Paul Kallis (Apostolos D. Kallis)
4/1/98
- ----------------------------------
Date
<PAGE>
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
as of this ____ day of _____ 2000, by and between Playboy.com, Inc., a Delaware
corporation (the "Company"), and Playboy Enterprises, Inc., a Delaware
corporation ("PEI").
RECITALS
WHEREAS, the Company desires to undertake an initial public
offering of its Common Stock; and
WHEREAS, in order to induce PEI to approve such offering, the
Company has agreed to provide for certain arrangements with respect to the
registration of shares of Common Stock of the Company under the Securities Act
of 1933.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement, the parties hereto agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1. DEFINITIONS. For purposes of this Section 1:
(a) The term "Common Stock" means the common stock, $0.01 par
value per share, of the Company.
(b) The term "Effective Date" means the date on which the
Company's registration statement relating to its Initial Public Offering is
declared effective by the SEC.
(c) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the SEC which permits inclusion or incorporation
of substantial information by reference to other documents filed by the
Company with the SEC.
(d) The term "Initial Public Offering" means the closing of the
first sale of securities pursuant to an effective registration statement
filed by the Company under the Securities Act (as hereinafter defined) in
connection with a firm commitment underwritten offering of its securities to
the general public.
(e) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(f) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
<PAGE>
(g) The term "Registrable Securities" means the Common Stock of
the Company held as of the Effective Date by PEI and all other securities of
the Company which may be issued in exchange for or in respect of such shares.
(h) The term "SEC" means the Securities and Exchange Commission.
(i) The term "Securities Act" means the Securities Act of 1933,
as amended.
(j) The term "Stockholders" means PEI and any person or entity
owning Registrable Securities in accordance with Section 1.12 hereof.
1.2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive at any time after 180 days
following the Effective Date of the Initial Public Offering (other than a
registration statement relating either to the sale of securities to employees
of the Company pursuant to a stock option, stock purchase or similar plan or
a SEC Rule 145 transaction), a written request from Stockholders holding a
majority of the Registrable Securities then outstanding, that the Company
file a registration statement under the Securities Act covering the
registration of Registrable Securities owned by such Stockholders having an
aggregate value of at least $10,000,000 (based on the then current public
market price) pursuant to this Section 1.2, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Stockholders; and
(ii) file as soon as practicable, at the Company's expense,
and in any event within sixty (60) days of the receipt of such request,
a registration statement under the Securities Act of all Registrable
Securities which the Stockholders request to be registered, subject to
the limitations of Section 1.2(b).
(b) If the Stockholders initiating the registration request
hereunder (the "Initiating Stockholders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
Section 1.2(a) and the Company shall include such information in the written
notice referred to in Section 1.2(a). The underwriter will be selected with
the mutual consent of the Company and a majority in interest of the
Initiating Stockholders. In such event, the right of any Stockholder to
include his Registrable Securities in such registration shall be conditioned
upon such Stockholder's participation in such underwriting and the inclusion
of such Stockholder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating
Stockholders) to the extent provided herein. All Stockholders proposing to
distribute their securities through such underwriting shall enter (together
with the Company as provided in Section 1.4(e)) into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of this Section 1.2,
if the underwriter advises the Initiating Stockholders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Stockholders shall so advise all
Stockholders of Registrable Securities, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Stockholders thereof, including the Initiating
Stockholders, in proportion (as nearly as
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<PAGE>
practicable) to the amount of Registrable Securities of the Company owned by
each Stockholder; provided, however, that the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting.
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 1.2 in any 12-month period. The Company
shall not be deemed to have effected a registration pursuant to this Section
1.2 unless a registration statement in respect thereof shall have been
declared effective by the SEC and remains effective for 120 days or such
earlier time at which all Registrable Securities registered under such
registration statement have been sold (or withdrawn from such registration at
the request of the Stockholders).
(d) Notwithstanding the foregoing, if the Company shall furnish
to Stockholders requesting a registration statement pursuant to this Section
1.2 a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer taking action with respect to such filing for a period of not
more than ninety (90) days after receipt of the request of the Initiating
Holders; provided, however, that the Company may not utilize this right more
than once in any one year period.
(e) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 1.2:
(i) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.3 hereof; provided that the
Company is actively employing in good faith all reasonable efforts to
cause such registration statement to become effective; or
(ii) If the Initiating Stockholders proposed to dispose of
shares of Registrable Securities that may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 1.11 below.
1.3. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Stockholders) any of its stock or
other securities under the Securities Act in connection with the public offering
of such securities solely for cash (other than an Initial Public Offering or a
registration statement relating either to the sale of securities to employees of
the Company pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction), the Company shall, at such time, promptly give each
Stockholder at least thirty (30) days written notice of such registration. Upon
the written request of each Stockholder given within twenty (20) days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 1.7, cause to be registered under the Securities Act all
of the Registrable Securities that each such Stockholder has requested to be
registered.
3
<PAGE>
1.4. OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Stockholders of a majority of the Registrable Securities registered thereunder,
keep such registration statement effective for a period of up to one hundred
twenty (120) days or until the distribution contemplated in the Registration
Statement has been completed; provided, however, that (i) such one hundred
twenty (120) day period shall be extended for a period of time equal to the
period a Stockholder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such one hundred twenty (120) day period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold, provided that Rule 415, or any successor
rule under the Securities Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Securities Act or (II) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or Section 15(d) of the 1934 Act in the
registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Stockholders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by the
Stockholders; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and
except as may be required by the Securities Act.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Stockholder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
4
<PAGE>
(f) Notify each Stockholder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5. FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Stockholder that such Stockholder shall
furnish to the Company in writing such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such
Stockholder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.11 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.11(b)(2), whichever is applicable.
1.6. EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings
or qualifications pursuant to Section 1.2 or Section 1.3, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Stockholders
shall be borne by the Company; provided, however, that the Company shall not
be required to pay for any expenses of any registration proceeding begun
pursuant to Section 1.2 or Section 1.3 if the registration request is
subsequently withdrawn at the request of the Stockholders of a majority of
the Registrable Securities to be registered (in which case all participating
stockholders shall bear such expenses), unless the Stockholders of a majority
of the Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 1.2.
1.7. UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the
Stockholder's securities in such underwriting unless such Stockholders accept
the terms of the underwriting as agreed upon between the Company and the
5
<PAGE>
underwriters selected by the Company (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Stockholders
according to the total amount of securities entitled to be included therein
owned by each selling stockholder or in such other proportions as shall mutually
be agreed to by such selling Stockholders) but in no event shall the amount of
securities of the selling Stockholders included in the offering be reduced below
twenty percent (20%) of the total amount of securities included in such
offering. For purposes of the preceding parenthetical concerning apportionment,
for any selling Stockholder which is a holder of Registrable Securities and
which is a partnership or corporation, the partners, retired partners and
stockholders of such holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling Stockholder", and any
pro-rata reduction with respect to such "selling Stockholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling Stockholder", as defined in
this sentence.
1.8. DELAY OF REGISTRATION. No Stockholder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect
to the interpretation or implementation of this Section 1.
1.9. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Stockholder, any underwriter (as defined in the
Securities Act) for such Stockholder and each person, if any, who controls
such Stockholder or underwriter within the meaning of the Securities Act or
the 1934 Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively, a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law, and the Company will pay to
each such Stockholder, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 1.9(a) shall not apply to amounts paid in settlement of any such loss,
6
<PAGE>
claim, damage, liability, or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out of
or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Stockholder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Stockholder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Stockholder selling securities in such registration statement and any
controlling person of any such underwriter or other Stockholder, against any
losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Stockholder expressly for use in connection with such
registration; and each such Stockholder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this Section 1.9(b), in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 1.9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Stockholder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this Section 1.9(b) exceed the gross proceeds from the offering
received by such Stockholder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall assume and, to the extent the indemnifying party so
desires, jointly assume with any other indemnifying party similarly noticed, the
defense thereof; provided, however, that an indemnified party (together with all
other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss,
7
<PAGE>
liability, claim, damage, or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party hereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering
are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) The obligations of the Company and Stockholders under this
Section 1.9 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Stockholders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Stockholder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Stockholders to utilize Form S-3 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act; and
(d) furnish to any Stockholder, so long as the Stockholder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it
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<PAGE>
so qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any
Stockholder of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such form.
1.11. FORM S-3 REGISTRATION. In case the Company shall receive from any
Stockholder or Stockholders a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such
Stockholder or Stockholders, the Company will:
(a) promptly give at least twenty (20) days written notice of the
proposed registration, and any related qualification or compliance, to all other
Stockholders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Stockholder's or Stockholders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Stockholder or Stockholders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to this Section 1.11: (1) if Form S-3 is not available for such offering by the
Stockholders; (2) if the Stockholders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $2,500,000; or (3) if the Company shall furnish to the Stockholders a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than sixty (60) days after receipt of the request of the
Stockholder or Stockholders under this Section 1.11; provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Stockholders. All expenses incurred in
connection with a registration requested pursuant to Section 1.11, including
(without limitation) all registration, filing, qualification, printer's and
accounting fees and the reasonable fees and disbursements of counsel for the
selling Stockholder or Stockholders and counsel for the Company, but
excluding any underwriters' discounts or commissions associated with
Registrable Securities, shall be borne by the Company. Registrations effected
pursuant to this Section 1.11 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.12. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned (but
only with all related obligations) by a Stockholder to a transferee or assignee
of such securities, provided: (a) the
9
<PAGE>
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (b) such
transferee or assignee acquires at least ten percent (10%) of the shares of
Registrable Securities (as adjusted for stock splits or combinations); (c) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.14 below; and (d) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Securities Act.
1.13. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Stockholders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder to include such securities in any registration filed under Section 1.2
hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the
extent that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Stockholders which is included.
1.14. "MARKET STAND-OFF" AGREEMENT. Each Stockholder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the date of the first
sale to the public pursuant to a registration statement of the Company filed
under the Securities Act, it shall not, to the extent requested by the Company
and such underwriter, directly or indirectly sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that:
(a) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(b) such market stand-off time period shall not exceed one hundred
eighty (180) days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities
of a Stockholder (and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.14 shall not apply to a registration relating solely to employee
benefit plans on Form S-8 or similar forms which may be promulgated in the
future, or a registration relating solely to a SEC Rule 145 transaction on
Form S-4 or similar forms which may be promulgated in the future.
1.15. TERMINATION OF REGISTRATION RIGHTS. The rights relating to the
registration of Registrable Securities set forth herein shall terminate with
respect to any Stockholder on the date which is the earliest of (i) the fifth
anniversary of the closing of the Company's Initial Public
10
<PAGE>
Offering and (ii) when such Stockholder would be entitled to sell within a
single three-month period all of the Registrable Securities then held by such
Stockholder, under the provisions of Rule 144 (or subsequent similar rule) under
the Securities Act.
2. MISCELLANEOUS.
2.1. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Illinois.
2.3. COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4. TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5. NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
2.6. EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements
in addition to any other relief to which such party may be entitled.
2.7. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Stockholders in possession of a majority of the shares of Registrable
Securities. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities
then outstanding, each future holder of all such Registrable Securities, and
the Company.
2.8. SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as
if such provision were so excluded and shall be enforceable in accordance
with its terms.
11
<PAGE>
2.9. ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto, if
any) constitutes the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
PLAYBOY.COM, INC.
By:___________________________
Name:
Title:
PLAYBOY ENTERPRISES, INC.
By:___________________________
Name:
Title:
13
<PAGE>
EXHIBIT 23.1
CONSENT OF THE INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 10, 2000, relating to the financial statements of
Playboy.com, Inc. and our report dated April 10, 2000, relating to the financial
statements of Rouze Media, Inc. which appear in such Registration Statement. We
also consent to the reference to us under the headings "Selected Financial Data"
and "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
April 10, 2000
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 1,916 746
<ALLOWANCES> 476 320
<INVENTORY> 1,582 0
<CURRENT-ASSETS> 4,967 734
<PP&E> 885 681
<DEPRECIATION> 1,889 775
<TOTAL-ASSETS> 5,852 1,415
<CURRENT-LIABILITIES> 4,450 1,313
<BONDS> 0 0
0 0
0 0
<COMMON> 203 203
<OTHER-SE> 1,199 (13,847)
<TOTAL-LIABILITY-AND-EQUITY> 5,852 1,415
<SALES> 0 0
<TOTAL-REVENUES> 13,601 5,561
<CGS> 7,165 2,597
<TOTAL-COSTS> 15,390 8,652
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,405 1,229
<INCOME-PRETAX> (11,359) (6,917)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (11,359) (6,917)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (11,359) (6,917)
<EPS-BASIC> (0.56) (0.34)
<EPS-DILUTED> (0.56) (0.34)
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