<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from .................... to ....................
COMMISSION FILE NUMBER 1-6813
PLAYBOY ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2258830
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
680 NORTH LAKE SHORE DRIVE, CHICAGO, IL 60611
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (312) 751-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock, par value $.01 per share ... New York Stock Exchange
Pacific Stock Exchange
Class B Common Stock, par value $.01 per share ... New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. YES [X] NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Class A Common Stock, par value $.01 per share,
held by nonaffiliates (based upon the closing sale price on the New York Stock
Exchange) on August 31, 1995 was $12,787,003.
As of August 31, 1995, there were 4,713,954 shares of Class A Common Stock, par
value $.01 per share and 15,275,849 shares of Class B Common Stock, par value
$.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Documents Form 10-K Reference
- --------- -------------------
<S> <C>
Annual Report to Shareholders for the Part I, Item 1, to the extent indicated
fiscal year ended June 30, 1995 under such item
Part II, Item 5, to the extent
indicated under such item, and Items 6-8
Notice of Annual Meeting of Stockholders and Part III, Items 10-13, to the extent
Proxy Statement dated September 28, 1995 described therein
</TABLE>
<PAGE>
PLAYBOY ENTERPRISES, INC.
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Business..................................................... 3
Item 2. Properties................................................... 17
Item 3. Legal Proceedings............................................ 18
Item 4. Submission of Matters to a Vote of Security Holders.......... 18
</TABLE>
PART II
<TABLE>
<CAPTION>
<S> <C>
Item 5. Market for Registrant's Common Stock and Related
Stockholder Matters......................................... 21
Item 6. Selected Financial Data...................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 21
Item 8. Financial Statements and Supplementary Data.................. 21
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 21
</TABLE>
PART III
<TABLE>
<CAPTION>
<S> <C>
Item 10. Directors and Executive Officers of the Registrant........... 22
Item 11. Executive Compensation....................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 22
Item 13. Certain Relationships and Related Transactions............... 22
</TABLE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.................................................... 22
2
<PAGE>
PART I
Item 1. Business
Playboy Enterprises, Inc. was organized in 1953 to publish Playboy
magazine. The term "Company" means Playboy Enterprises, Inc., together with its
subsidiaries, unless the context otherwise requires. Since its inception, the
Company has expanded its publishing operations and has engaged in entertainment
businesses that are related to the content and style of Playboy magazine.
Additionally, the Company operates a direct marketing business and licenses its
trademarks for use on various consumer products.
The Company's businesses are classified into four industry segments:
Publishing, Catalog, Entertainment and Product Marketing. The net revenues,
income (loss) from continuing operations before income taxes and cumulative
effect of change in accounting principle, and identifiable assets of each
industry segment are set forth in the section "Financial Information Relating to
Industry Segments" on page 24 of the Company's fiscal 1995 Annual Report to
Shareholders ("fiscal 1995 Annual Report") and are incorporated herein by
reference.
The Company's trademarks are vital to the success and future growth of all
of the Company's businesses. The trademarks, which are renewable indefinitely,
include Playboy, Playmate, Rabbit Head Design, Sarah Coventry, Critics' Choice
Video and Collectors' Choice Music.
PUBLISHING GROUP
The Company's Publishing Group operations currently include the publication
of Playboy magazine; Playboy-related businesses, including newsstand specials
and calendars, foreign editions of Playboy magazine and ancillary businesses
which includes the Company's new media efforts; and the production of the
Playboy Jazz Festival.
The revenues and operating income of the Publishing Group were as follows
for the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Revenues Operating Income
--------------------- -------------------------
Years Ended June 30, Years Ended June 30,
---------------------- --------------------------
1995 1994 1993 1995 1994 1993
------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
Playboy Magazine.................. $104.4 $104.0 $102.9 $ 7.1 $ 3.5 $ 7.6
Playboy-related Businesses........ 22.9 19.4 22.0 7.6 5.2 8.4
------ ------ ------ ----- ----- -----
SUBTOTAL........................ 127.3 123.4 124.9 14.7 8.7 16.0
Administrative Expenses, New
Magazine Development and Other.. - - 0.2 (4.0) (5.0) (5.6)
------ ------ ------ ----- ----- -----
TOTAL........................... $127.3 $123.4 $125.1 $10.7 $ 3.7 $10.4
====== ====== ====== ===== ===== =====
</TABLE>
Playboy Magazine
Founded by Hugh M. Hefner in 1953, Playboy magazine today is the world's
best-selling magazine aimed at the adult male audience. Worldwide monthly
circulation, which includes licensed foreign editions, is approximately 4.5
million copies; approximately 3.4 million copies of the U.S. edition are sold
monthly.
Playboy magazine is a general-interest magazine for men and offers a
balanced variety of features. It has gained a loyal customer base and a
reputation for excellence by providing quality entertainment and informative
articles on current issues and trends. Each issue of Playboy magazine includes
an in-depth, candid interview with a well-known, thought-provoking personality.
Over the magazine's 42-year history, exclusive interviews have included
prominent public figures, business leaders, entertainers, authors and sports
figures. The magazine also regularly publishes the works of leading
journalists, authors and other prominent individuals. It has long been known
for its graphic excellence and features, and publishes the works of top artists
and photographers. Playboy magazine also features lifestyle and service
articles on consumer products, fashion, automobiles and consumer electronics and
covers the worlds of sports and entertainment. It is renowned for its
pictorials of beautiful women and frequently features celebrities on its cover
and in exclusive pictorials.
3
<PAGE>
According to recent data published by Mediamark Research, Inc. ("MRI"), in
the United States Playboy magazine is read by approximately one in every six men
aged 18 to 34.
The net circulation revenues of the U.S. edition of Playboy magazine for
the years ended June 30, 1995, 1994 and 1993 were $73.4 million, $72.3 million
and $68.4 million, respectively. Net circulation revenues are gross revenues
less provisions for newsstand returns and unpaid subscriptions and subscription
agency commissions. Circulation revenue comparisons may be materially impacted
with respect to any fiscal year which includes one or more issues of unusually
high public interest.
For the six months ended June 30, 1995, as reported by the Audit Bureau of
Circulations ("ABC"), an independent audit agency, Playboy magazine was the 12th
largest major consumer publication, in terms of circulation per issue. Also
according to ABC, Playboy magazine's monthly circulation rate base (the total
newsstand and subscription circulation guaranteed to advertisers) for the six
months ended June 30, 1995 was larger than People, Sports Illustrated, and
Newsweek, and also greater than the combined circulation rate bases of Rolling
Stone, GQ and Esquire, which have substantial adult male audiences.
For the last nine years, the U.S. edition of Playboy magazine has
maintained its monthly circulation rate base of 3.40 million, which is averaged
over the first and second six months of each fiscal year, except for the six-
month period ended December 31, 1993, which averaged 3.34 million. Effective
with the January 1996 issue, the Company is reducing the rate base 7% to 3.15
million. This change will enable the Company to focus its subscription efforts
and to manage circulation more profitably. While the Company does not plan to
raise newsstand or subscription prices in fiscal 1996, a two percent advertising
page rate increase will be implemented with the January 1996 issue. This rate
base maintains the magazine's circulation leadership, tied as the best-selling
men's magazine with Sports Illustrated.
Playboy magazine currently generates over two-thirds of its revenues from
subscription and newsstand circulation, with the remainder primarily from
advertising. Set forth below is certain information related to subscription and
newsstand circulation of the U.S. edition of Playboy magazine.
<TABLE>
<CAPTION>
(In thousands, except newsstand cover prices)
Years Ended June 30,
---------------------------------------------
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Subscription Revenues............. $48,500 $46,400 $44,900
Average Monthly Subscribers....... 2,806 2,795 2,816
Newsstand Revenues................ $24,900 $25,900 $23,500
Average Monthly Newsstand Copies.. 583 653 565
Average Newsstand Cover Price..... $ 5.10 $ 5.11 $ 5.04
</TABLE>
Subscription copies as a percentage of total copies sold were approximately
79% for the year ended June 30, 1995. The Company believes that managing
Playboy's circulation to be primarily subscription driven, like most major
magazines, provides a stable and desirable circulation base, which is also
attractive to advertisers. According to the MRI data previously mentioned, the
median age of male Playboy subscribers is 33, with a median annual household
income of $40,900.
The price of a one-year subscription ranges from $19.97 to $34.96,
depending on the source of the subscription and the length of time the
subscription has been held. The Company from time to time tests a variety of
subscription pricing strategies. The Company attracts new subscribers to the
magazine through its own direct mail and television advertising campaigns and
through agent-operated direct mail campaigns.
The Company recognizes revenues from magazine subscriptions over the terms
of the subscriptions. Subscription copies of the magazine are delivered through
the U.S. Postal Service as second class mail. The Company attempts to contain
these costs through presorting and other methods. The Company experienced a
postal rate increase of 14% during the second half of fiscal 1995 and has
implemented programs to reduce other expenses to offset such increase.
4
<PAGE>
Distribution of the magazine to newsstands and other retail outlets is
accomplished through Warner Publisher Services, a national distributor that
maintains a network of approximately 350 wholesale distributors. Copies of the
magazine are shipped in bulk to the wholesalers, who are responsible for local
retail distribution. The Company receives a substantial cash advance from its
national distributor at the time each issue goes on sale. The Company
recognizes revenues from newsstand sales based on estimated copy sales at the
time each issue goes on sale, and adjusts for actual sales upon settlement with
its national distributor. These revenue adjustments generally are not material.
Retailers return unsold copies to the wholesalers who count and then shred the
returned magazines and report the returns via affidavit. The Company then
settles with its national distributor based on the number of magazines that
actually were sold compared to the number that initially were projected to sell.
The number of issues sold on newsstands varies from month to month, depending in
part on the cover, the pictorials and the editorial features.
In fiscal 1991, the Company began to roll out a $1.00 increase in the basic
newsstand cover price to $4.95 ($5.95 for holiday issues), which was completed
by September 30, 1992. No price increases are planned for copies sold in the
U.S. in fiscal 1996. Based on test results, the Company increased the Canadian
cover price to $5.95 in fiscal 1995 ($6.95 for holiday issues).
Advertising by category for fiscal 1995 was as follows:
<TABLE>
<CAPTION>
Advertising Category % of Ad Pages
-------------------- -------------
<S> <C>
Retail/Direct Mail............ 31%
Tobacco....................... 20
Beer/Wine/Liquor.............. 18
Toiletries/Cosmetics.......... 9
Automotive.................... 4
Apparel/Footwear/Accessories.. 4
Drugs/Remedies................ 4
Home Electronics.............. 4
Jewelry/Optical/Photo......... 3
All Other..................... 3
---
100%
===
</TABLE>
Playboy magazine has been aggressively targeting a wide range of
advertisers and continues to focus on securing new advertisers from
underdeveloped categories. In fiscal 1995, the Company utilized information
from its database of approximately 12 million names, including Playboy magazine
subscribers, catalog customers and pay television viewers, to create a Playboy
marketing system, which offered advertisers new ways to reach Playboy readers.
In fiscal 1993, Playboy's advertising pages increased by 2% from the prior
year to 660 pages, while advertising revenues remained stable as a result of a
2% decline in average net revenue per page. Average net revenue per page
declined in fiscal 1993 despite the impact of a 5% cost per thousand ("CPM")
increase in advertising rates effective with the January 1993 issue due to more
supplied inserts, which resulted in lower revenues but also reduced
manufacturing costs.
In fiscal 1994, Playboy's advertising pages decreased by 10% from the prior
year to 595 pages, while advertising revenues declined by only 8%, reflecting
the effect of a 5% CPM increase in advertising rates effective with the January
1994 issue.
In fiscal 1995, Playboy's advertising pages remained stable compared to the
prior year at 595 pages, advertising revenues declined by 1% based on the net
effect of a 5% CPM increase in advertising rates effective with the January 1995
issue plus higher frequency discounts, special pricing and a change in the mix
of advertising pages sold, and net advertising income increased by 8%.
Advertising sales for the first quarter fiscal 1996 issues of the magazine are
closed, and the Company will report a 4% increase in advertising pages over the
fiscal 1995 first quarter.
5
<PAGE>
The Company publishes the U.S. edition of Playboy magazine in 15
advertising editions: eight regional, two state, four metro and one upper income
zip-coded edition. All contain the same editorial material but provide
targeting opportunities for advertisers. The net advertising revenues of the
U.S. edition of Playboy magazine for the years ended June 30, 1995, 1994 and
1993 were $27.6 million, $28.0 million and $30.4 million, respectively. Net
advertising revenues are gross revenues less advertising agency commissions,
frequency and cash discounts and rebates. Levels of advertising revenues may be
affected by, among other things, general economic activity and governmental
regulation of advertising content, if any.
In fiscal 1995, the Playboy Jazz Festival continued to offer advertisers
sponsorship and advertising opportunities through the festival program, free
community concerts, and a national public radio broadcast. The Company has
produced this music event on an annual basis in Los Angeles at the Hollywood
Bowl since 1979.
The Company also derives meaningful income from the rental of Playboy
magazine's subscriber list, which consists of the subscriber's name, address and
other information maintained by the Company.
Playboy magazine and newsstand specials are printed at Quad/Graphics, Inc.,
located in Wisconsin. The actual print run varies each month and is determined
with input from the Company's national distributor. Paper is the principal raw
material used in the production of Playboy magazine. The Company uses a variety
of types of high-quality coated paper that is purchased from a number of
suppliers. Manufacturing costs for the year ended June 30, 1995 decreased 5%
compared to the prior year principally due to the increased size of the January
1994 40th anniversary issue of the magazine in the prior year, partially offset
by 1% higher paper prices in the current year. These higher paper prices began
impacting the Company in the second half of fiscal 1995, though most
dramatically in the fourth quarter as average paper prices increased 18%
compared to the fourth quarter of the prior year. In fiscal 1996, paper prices
are expected to increase approximately 50% compared to fiscal 1995. The Company
plans to offset some of this increase via reduced spending and lowering the
advertising rate base as previously discussed.
Magazine publishing companies face intense competition for both readers and
advertising. Magazines primarily aimed at men are Playboy magazine's principal
competitors. In addition, other types of media that carry advertising, such as
newspapers, radio and television, compete for advertising revenues with Playboy
magazine.
From time to time, Playboy magazine, and certain of its distribution
outlets and advertisers, have been the target of certain groups who seek to
limit its availability because of its content. In its 42-year history, the
Company has never sold a product that has been judged to be obscene or illegal
in any jurisdiction.
Playboy-related Businesses
The Publishing Group has also created media extensions, taking advantage of
the magazine's reputation for quality and its libraries of art, photography and
editorial text. These products include photo newsstand specials and calendars,
which are primarily sold in newsstand outlets, bookstores and through direct
mail. Specials are thematic presentations that use both original photographs
and photographs from the Company's library of approximately eight million
images. In fiscal 1993 and 1994, 16 specials were published. The group
increased the number of specials published to 18 in fiscal 1995, including the
introduction of a digest-sized book of Playmate pictorials called Playboy's
Pocket Playmates, and expects to publish 21 specials in fiscal 1996, of which
three will be Playboy's Pocket Playmates. The Company began implementing
programs in fiscal 1995 to help to offset some of the previously mentioned
higher paper prices, including reducing the number of pages in each special, and
increasing the newsstand cover price to $6.95 in most of the country.
6
<PAGE>
The Company licenses the right to publish 15 foreign editions of Playboy
magazine in the following countries: Argentina, Australia, Brazil, the Czech
Republic, France, Germany, Greece, Italy, Japan, Mexico, the Netherlands,
Poland, Russia, South Africa and Spain. In June 1995, the Company launched an
edition of the magazine in Russia with Independent Media Magazines Publishing
B.V., and as a result of the implementation of more stringent financial
performance and quality criteria, in fiscal 1995 the Company suspended
publication of the foreign edition in Turkey. The Company will relaunch this
and other previously suspended editions if conditions warrant and appropriate
licensees are secured. The Polish and Czech editions, which started publication
in November 1992 and May 1991, respectively, were the first Western general-
interest consumer titles to be published in these countries after the fall of
communism in Eastern Europe. The Polish edition is the first in which the
Company has an equity interest. Combined circulation of the 15 foreign editions
is approximately 1.1 million copies monthly. Local publishing licensees tailor
their foreign editions by mixing the work of their national writers and artists
with editorial and pictorial material from the U.S. edition. The Company
oversees the content of the foreign editions so that they retain the distinctive
style, look and quality of the U.S. edition, while meeting the needs of their
respective markets. The terms of the license agreements for Playboy magazine's
foreign editions vary, but in general are for a term of at least five years and
carry a guaranteed minimum royalty as well as a formula for computing earned
royalties in excess of the minimum. Royalty computations are generally based on
both circulation and advertising revenues. In fiscal 1995, the three largest-
selling editions -- Brazil, Germany and Japan -- accounted for approximately 55%
of the total licensing revenues from foreign editions.
In fiscal 1990, the Publishing Group introduced 900-number Playboy-related
audiotext services. These services use 900-number technologies to profitably
expand upon features from the magazine.
In fiscal 1992, the Company introduced Playboy Collectible Trading Cards,
and during fiscal 1993 signed an agreement with a new distributor to market a
second set of trading cards, featuring famous Playboy magazine covers and
Playmates. In fiscal 1994, the Company signed an agreement with a third
distributor to continue the roll out of the Collectors Centerfold Series of
trading cards and to issue a series featuring images from Playboy magazine
covers, and in fiscal 1995 introduced a series of chromium cover cards.
In February 1992, the Company signed an agreement with Sarah Lazin Books to
act as its agent in marketing a series of books, including anthologies and
compilations that relate to Playboy magazine, which will capitalize on existing
resources. Under this agreement, Alex Haley: The Playboy Interviews, which
consists of a collection of works by Alex Haley that have appeared in Playboy,
including famous interviews and personal essays, was published in fiscal 1993,
and Playboy Stories, a compendium of some of the best works of fiction ever to
appear in Playboy magazine, was published in fiscal 1994.
During fiscal 1994, the Company entered into an agreement with General
Publishing Group, Inc. ("GPG"), whereby The Playboy Book: Forty Years, a
pictorial history that documents the birth of the world's most celebrated men's
magazine and its influence on American culture, was published. In fiscal 1995,
nearly 140,000 copies of the book were sold in the United States and in selected
European and Asian markets. Also in conjunction with GPG, the Company released
Fore Play: The Very Best of Playboy's Classic Golf Humor, a softcover book that
includes Playboy golf cartoons, Party Jokes, humorous interviews and stories
from our editorial archives in fiscal 1995.
In fiscal 1994, the Publishing Group released two new multimedia products
that utilize photographs, artwork and text from the Company's library as source
material. The first product, The Playboy Electronic Datebook, is a daily
planner on PC diskette that features high-resolution graphics of Playmates,
celebrities and classic illustrations by artists commissioned by Playboy. The
second product, The Playboy Interview: Three Decades, was produced by IBM's
Multimedia Publishing Studio. This CD-ROM title contains the complete text of
more than 350 in-depth Playboy Interviews, as well as select audio clips from
archived recordings and photographs of the interview subjects.
7
<PAGE>
The Company released one CD-ROM title in fiscal 1995, The Women of Playboy
Multimedia Screen Saver. Produced in conjunction with Sony Imagesoft, the
utility software allows users to develop customized screen savers by mixing
Playboy images and video with special effects and audio files. Also in fiscal
1995, the Company launched a home page on the World Wide Web which became one of
the Internet's top-visited sites, currently averaging more than one million
"hits" per day. Taking full advantage of the technological capabilities of the
medium, the Web page contains popular editorial features from Playboy magazine,
such as excerpts of Playboy Interviews, articles and Playboy Advisor columns,
and select photos from Playmate pictorials. The Company also uses the site to
promote new products, advertise Playboy Television's monthly programming
schedule and sell Playboy subscriptions and other branded merchandise.
In fiscal 1996, the Company will issue two new titles, PlanIt Playboy, a
state-of-the-art personal information manager developed with Anamoly
Corporation, and a new Playboy Interview CD-ROM with IBM Multimedia Studio that
will include Playboy Interviews through July 1995.
Other Publications
In fiscal 1989, the Company purchased a 20% interest in duPont Publishing,
Inc. ("duPont"), publisher of duPont Registry, A Buyers Gallery of Fine
Automobiles and, beginning in July 1995, duPont Registry, A Buyers Gallery of
Fine Homes. During fiscal 1993, the Company renegotiated certain provisions of
the purchase agreement, under which it now has an option to acquire the
remaining 80% interest in duPont at a price based on fair market value as of
December 31, 1999. This investment is accounted for on the equity method and
the Company's proportionate share of duPont's net income or loss is included in
nonoperating income or expense and is not reflected in the results of the
Publishing Group.
CATALOG GROUP
The revenues and operating income of the Catalog Group, formerly included
in the Publishing Group, were as follows for the periods indicated in the
following table (in millions):
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------
1995 1994 1993
------ ----- -----
<S> <C> <C> <C>
REVENUES $61.4 $48.5 $39.4
===== ===== =====
OPERATING INCOME $ 5.2 $ 4.1 $ 4.1
===== ===== =====
</TABLE>
In fiscal 1989, the Company acquired an 80% interest in Critics' Choice
Video, Inc. ("Critics' Choice Video"), a national direct marketer of
theatrically released motion pictures and special-interest videos. The Critics'
Choice Video catalog, one of the largest-circulation catalogs of prerecorded
videocassettes, is published quarterly and features more than 2,000 video
titles, including movies from all of the major film studios and hundreds of
special-interest videos. Critics' Choice Video's rapid growth has been aided by
the overall growth in the video sell-through market and the Company's emphasis
on superior customer service. Under the terms of its purchase agreement, the
Company paid $125,000 for its 80% interest and purchased the remaining 20%
interest in Critics' Choice Video effective July 1, 1993, for $3.0 million,
which consisted of $1.5 million in cash and one-year promissory notes totaling
$1.5 million, which were paid July 1, 1994.
In fiscal 1992, the Company acquired the inventories, customer lists,
licensing agreements and related assets of two competing videocassette catalogs,
Blackhawk Films and Postings (previously titled Publishers Central Bureau) for a
combined purchase price of $4.2 million.
Playboy catalog products include Playboy-brand fashions, watches and gifts,
Playboy's home video line, Playboy collectibles, such as calendars, back issues
and newsstand specials, and CD-ROM products. The Playboy catalog is published
three times annually.
In fiscal 1994, the Company launched a new catalog, Collectors' Choice
Music. It offers more than 1,300 titles from all music genres on CDs and
cassettes. In fiscal 1995, the Company successfully increased the circulation
and product offerings of the catalog. The Collectors' Choice Music catalog is
published three times annually.
8
<PAGE>
In fiscal 1995, all three of the Company's catalogs were impacted by paper
price and postage rate increases. The Company will attempt to mitigate the
higher paper prices in fiscal 1996 by testing a lower-weight grade of paper in
the fall mailings. Despite these expected higher costs, the Company plans to
increase the circulation for all of the catalogs in fiscal 1996 in order to
maintain sales growth and profitably expand market share.
During fiscal 1993, the Catalog Group operations facility was relocated to
a larger office and warehouse facility to meet additional space requirements
resulting from growth in the business. The facility houses fulfillment,
customer service and administrative operations.
The catalog business is subject to competition from other catalogs and
distributors and retail outlets selling similar merchandise. The Company is
interested in reviewing other potential catalog acquisitions and joint ventures
to publish catalogs that would offer products, especially entertainment
software, that would appeal to customers who buy the Company's other
merchandise.
ENTERTAINMENT GROUP
The revenues and operating income (loss) of the Entertainment Group were as
follows for the periods indicated in the following table (in millions):
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUES
Playboy Television:
Pay-Per-View................................. $ 11.9 $ 9.0 $ 8.0
Monthly Subscription......................... 7.0 7.4 8.6
Satellite Direct-to-Home and Other........... 10.0 6.5 4.7
------ ------ ------
Total Playboy Television................... 28.9 22.9 21.3
Domestic Home Video............................. 9.5 7.0 10.1
International Television and Home Video......... 11.2 9.9 9.8
Movies and Other................................ 2.1 0.3 1.4
------ ------ ------
Total Revenues............................. $ 51.7 $ 40.1 $ 42.6
====== ====== ======
OPERATING INCOME (LOSS)
Profit Contribution Before Programming Expense.. $ 21.1 $ 10.9 $ 15.9
Programming Expense............................. (20.1) (18.2) (14.1)
------ ------ ------
Total Operating Income (Loss).............. $ 1.0 $ (7.3) $ 1.8
====== ====== ======
</TABLE>
Programming
The Entertainment Group develops, produces and distributes programming for
the domestic pay television, international television and worldwide home video
markets. Its productions include feature-length films, magazine-format shows,
dramatic series, game shows, a hosted series with reenactments of erotic
situations, and anthologies of sexy short stories and erotic vignettes as well
as music and other specials.
The Company is investing aggressively in Playboy-style, quality programming
to support the planned expansion of its domestic pay television, international
television and worldwide home video businesses. The Company invested $21.3
million, $17.2 million and $23.0 million in entertainment programming in fiscal
1995, 1994 and 1993, respectively. These amounts, which also include
expenditures for licensed programming, resulted in 86, 71 and 91 hours of
original programming being produced in fiscal 1995, 1994 and 1993, respectively.
In fiscal 1996, the Company expects to invest approximately $27.0 million in
Company-produced and licensed programming, which would result in approximately
136 hours of original programming being produced. The increase in investments
in entertainment programming in fiscal 1995 and planned for fiscal 1996 are
primarily due to the production of more movies, which, because of the strong
demand for this genre of programming, the Company is able to presell
distribution rights and earn a faster rate of return.
9
<PAGE>
The following tables list the series, each containing 26 episodes, and
movies produced by the Company (except one of the Playboy Films which was
produced in association with Motion Picture Corporation of America ("MPCA")) and
certain information related to each:
<TABLE>
<CAPTION>
FISCAL YEAR
TITLE OF SERIES FIRST SOLD LENGTH OF EPISODES GENRE
- --------------- ----------- ------------------ -----
<S> <C> <C> <C>
Playboy Late Night
Series I.................................. 1990 60 minutes magazine-format
Series II................................. 1991 30 minutes magazine-format
Series III................................ 1992 30 minutes magazine-format
Series IV................................. 1995 30 minutes magazine-format
Inside Out.................................. 1991 30 minutes anthology
Eden........................................ 1993 30 minutes dramatic series
Playboy's Secret Confessions and Fantasies.. 1993 30 minutes hosted series
Playboy's Love & Sex Test................... 1992 30 minutes game show
Erotic Fantasies............................ 1994 30 minutes anthology
FISCAL YEAR NUMBER
MOVIES FIRST SOLD OF RELEASES
- ------ ----------- -----------
Playboy Films............................... 1995 Three
The Eros Collection......................... 1995 Six
</TABLE>
In fiscal 1990, the Company introduced Playboy Late Night, a weekly
magazine-format program that used footage from the Company's library and was
produced in a modular format for use in programs of up to 60 minutes. In fiscal
1991, the Company began selling a second series of 26 30-minute episodes of
Playboy Late Night, which also used substantial amounts of library material.
Additionally, a third and fourth series of 26 30-minute episodes, composed
primarily of original programming, became available in fiscal 1992 and fiscal
1995, respectively. Also in fiscal 1991, the Company introduced Inside Out, an
anthology of sexy short stories.
In fiscal 1992, the Company began production of three new series: Eden, a
30-minute dramatic series filmed on location in Mexico; Playboy's Secret
Confessions and Fantasies, a 30-minute hosted show in which real people describe
their most erotic experiences and fantasies that are recreated on film; and
Playboy's Love & Sex Test, a 30-minute variety game show combining
entertainment, information and celebrity guests. In fiscal 1994, the Company
completed production of another series, Erotic Fantasies, a 30-minute anthology
of erotic vignettes. These productions are being marketed internationally and
air domestically on the Company's pay television service, Playboy Television.
Additionally, some episodes have been released as Playboy Home Video titles. In
fiscal 1994, the Company licensed its anthology of short stories, Inside Out, to
Viewer's Choice, and in fiscal 1993 licensed an edited version of Eden to USA
Network.
In fiscal 1995, the Company, under a production and distribution agreement
with MPCA, released three made-for-TV movies in the $1 million to $2 million
range. Two of these movies, Temptress and Playback, were produced by the
Company and one, Cover Me, was produced by MPCA. The Company and MPCA are equal
profit participants in all of the movies. The distribution rights of the films
were sold to Paramount Home Video to distribute in the rental segment of the
domestic home video market. Certain of the international television rights have
been sold and are continuing to be sold in additional markets. These films will
also air on Playboy Television in fiscal 1996.
In fiscal 1995, the Company created and began marketing a new line of
small-budget non-Playboy branded movies under the label The Eros Collection,
which were distributed domestically through home video and aired on Playboy
Television in fiscal 1995, and will be released internationally in fiscal 1996
through home video and television.
The Company's programming is available in the United States through Playboy
Television, on both a monthly subscription and a pay-per-view basis, and
internationally through foreign broadcasters and pay television services. In
the fourth quarter of fiscal 1995, the first overseas Playboy Television channel
was launched in the United Kingdom, and the Company plans to launch a second
overseas channel in Japan in early fiscal 1996. Additionally, the Company
distributes programming on videocassettes, primarily through its Playboy Home
Video line, which are sold or rented through retail outlets and sold through
direct mail in domestic and foreign markets. The Company also licenses footage
from its extensive film library, for which it receives royalty payments.
10
<PAGE>
The Company's programming for television and home video features stylized
eroticism in a variety of entertaining formats for men and women, with an
increased emphasis on programming for couples. The programming does not contain
depictions of explicit sex or scenes that link sexuality with violence, and is
consistent with the level of taste and quality established by Playboy magazine
over its 42-year history.
Domestic Pay Television
In May 1994, the Company expanded its national pay cable network, Playboy
Television, from a ten-hour per night schedule to 24-hour availability. This
change has enabled the Company to increase revenues through maximum utilization
of its transponder on Hughes Communications' Galaxy V satellite by offering more
blocks of programming to the consumer. As a result of the 24-hour rollout, the
incremental pay television revenues generated in fiscal 1995 were sufficient to
offset the loss of approximately $0.1 million in monthly sublease income that it
had been receiving for unused capacity on its satellite transponder.
When the Company introduced its pay cable service in 1982, it was available
only through monthly subscriptions. In December 1989, the Company began to
focus on the then-emerging pay-per-view market by promoting the pay-per-view
option in addition to the monthly subscription option. Pay-per-view services
are available in cable systems that are equipped with addressable hardware that
allows cable subscribers to order specific programs.
The following table illustrates certain information regarding cable
households in general, and Playboy Television (in thousands):
<TABLE>
<CAPTION>
CABLE HOUSEHOLDS(A) PLAYBOY TELEVISION
------------------------------- ---------------------------------
TOTAL CABLE ADDRESSABLE PAY-PER-VIEW MONTHLY
HOUSEHOLDS CABLE HOUSEHOLDS HOMES(B) SUBSCRIBERS(C)
------------ ----------------- ------------ --------------
<S> <C> <C> <C> <C>
June 30, 1993 56,200 19,950 9,100 232
June 30, 1994 58,450 21,700 9,600 205
June 30, 1995 60,350 23,450 10,600 201
Compound Annual Growth
Rate (1993-1995) 3.6% 8.4% 7.9% (6.9)%
- --------
</TABLE>
(a) Source: Estimated by the Company based on information reported in 1995 by
Paul Kagan Associates, Inc. for December 31 of each respective year. Kagan
projects 1% and 12% average annual increases in total cable households and
addressable cable households, respectively, through calendar 1998.
(b) Represents the number of addressable homes to which Playboy Television was
available as of the end of the fiscal year.
(c) Represents the number of monthly subscribers to Playboy Television in the
last month of the fiscal year.
Most cable service in the United States is distributed through large
multiple system operators ("MSOs"). At June 30, 1995, the Company had
arrangements with 18 of the nation's 20 largest MSOs. These 18 MSOs, through
affiliated cable systems ("Cable Affiliates"), controlled access to (i)
approximately 47.3 million, or 78%, of the 60.4 million total cable households,
and (ii) approximately 15.7 million, or 67%, of the 23.5 million addressable
cable households. Once arrangements are made with an MSO, the Company is able
to negotiate channel space for Playboy Television with the Cable Affiliates
controlled by that MSO, and acceptance by Cable Affiliates provides the basis
for expanding the Company's access to individual cable households. The Cable
Affiliates of these 18 MSOs that are not yet carrying Playboy Television provide
the Company with potential access to an estimated 6.1 million additional
addressable homes. Three of these 18 MSOs served approximately 5.7 million, or
54%, of the 10.6 million addressable households to which Playboy Television was
available on June 30, 1995.
At June 30, 1995, the cable systems in which Playboy Television was offered
included approximately 20.8 million cable households. Of these households, 11.7
million could purchase Playboy Television on a monthly basis, 4.1 million could
purchase only on a pay-per-view basis and 6.5 million could purchase the
programming both ways.
11
<PAGE>
Beginning in the fourth quarter of fiscal 1993, growth of the Company's
domestic pay television business slowed, management believes, due to the effects
of cable reregulation by the Federal Communications Commission ("FCC"), which
has resulted in a slowdown in the industry's rollout of addressability.
Additionally, competition for channel space has contributed to the slower growth
as cable operators have utilized available channel space for new cable networks
in connection with mandated retransmission consent agreements and for other new
services, including adult movie pay television services. Management believes
that growth will continue to be affected in the near term as the cable
television industry responds to the FCC's initial rules and to subsequent
modifications, including the "going-forward rules" announced in fiscal 1995.
Over the coming months, management expects to continue to be impacted by the
slower growth of addressable homes related to these "going-forward rules," as a
result of cable operators being provided with incentives to add basic services.
Nevertheless, management believes that ultimately reregulation should benefit
pay-per-view services as cable operators seek unregulated sources of revenue,
such as pay-per-view.
Growth in the pay-per-view market is expected to result in part from cable
systems upgrades, utilizing fiber-optic, compression technologies or other
bandwidth expansion methods that provide cable operators additional channel
capacity. When implemented, compression technology, where employed, will
dramatically increase channel capacity to as many as 500 channels. Industry
analysts expect a large percentage of this additional channel capacity to be
dedicated to pay-per-view programming. The timing and extent of these
developments and their impact on the Company cannot yet be determined.
Pay-per-view permits customers to purchase only as much of the Company's
programming as they wish and only when they are in the mood to watch the
programming. Pay-per-view also permits customers to control the viewing of the
programming within their households. In addition, the relatively low price of
an evening of pay-per-view programming is very competitive with many other forms
of entertainment. Individual cable system operators determine the retail price
of the pay-per-view service, although most range from $3.95 to $6.95 for an
evening of programming. Fee structures vary, but generally the Company receives
approximately 40% of the retail price.
The number of monthly subscribers has declined as the Company's marketing
focus has shifted to systems that have pay-per-view technology. As of June 30,
1995, Playboy Television had approximately 201,000 monthly subscribing
households, down from 205,000 at June 30, 1994 and 232,000 at June 30, 1993.
The Company has used its pay-per-view service to gain access to additional MSOs
and Cable Affiliates, some of which were unwilling to carry Playboy Television
on a subscription basis. Management believes that, to the extent these MSOs and
Cable Affiliates develop successful experience with Playboy Television on a pay-
per-view basis, they will also be willing to market Playboy Television on a
monthly subscription basis.
The performance of Playboy Television in individual cable systems varies
based principally on the ordering technology and the quantity and quality of
marketing done by the Cable Affiliates. Individual Cable Affiliates determine
the retail price of the monthly subscription service, although most range from
$5 to $13, largely dependent on the number of premium services to which a
household subscribes. Fee structures vary, but generally the Company receives
approximately 30% of the retail price.
The Company also provides Playboy Television via encrypted signal, on both
a pay-per-view and subscription basis, to home satellite dish viewers. As of
June 30, 1995, 1994 and 1993, Playboy Television was available on a monthly
subscription and pay-per-view basis to approximately 3,282,000, 1,926,000 and
197,000 viewers, respectively. At the end of fiscal 1994, Playboy Television
became one of the first networks to be launched on DirecTV, the first commercial
digital broadcast satellite service. This service provides exceptional
improvements in program delivery and consumer interface to households equipped
with Digital Satellite System receiving units, consisting of an 18-inch
satellite antenna, a digital receiver box and a remote control. At the end of
fiscal 1995, Playboy Television was added to a second digital broadcast
satellite service, PrimeStar. These small satellite dishes became one of the
fastest new product launches in the history of the electronics industry. Growth
in selling directly to home satellite dish viewers, distribution by commercial
retailers of satellite programming and increased emphasis on consumer marketing
have also improved Playboy Television's market share in the home satellite dish
industry.
12
<PAGE>
Playboy Television's programming is delivered primarily through a
communications satellite transponder. The Company's current transponder lease,
effective January 1, 1993, contains protections typical in the industry against
transponder failure, including access to spare transponders on the same
satellite as well as transponders on another satellite currently in operation.
Access to the transponder may be denied under certain narrowly defined
circumstances relating to violations of law or threats to revoke the license of
the satellite owner to operate the satellite based on programming content.
However, the Company has the right to challenge any such denial and believes
that the transponder will continue to be available to it through the end of the
expected life of the satellite (currently estimated to be in 2004).
Effective April 1, 1986, the Company terminated its agreement with the
former distributor of its pay television service. The termination agreement
provided for the assignment to the Company of all distribution contracts with
cable system operators and others that carried the Company's pay television
service. On April 30, 1996, the Company will no longer be obligated to make
monthly royalty payments, equal to 5% of North American pay television revenues
(including subscription, pay-per-view and satellite direct-to-home), that the
Company has paid under the termination agreement since 1986. Profit
contribution of the domestic pay television business and operating performance
of the Entertainment Group will be favorably impacted by the termination of such
royalty payments.
While the Company's television programming is unique, its pay television
products compete with other services, including those offering adult-oriented
programming, for cable channel space and viewer spending. Competition among pay
cable services involves pricing to both consumers and Cable Affiliates, viewer
perceived value and effectiveness of programming distribution.
In July 1995, the Company launched a second domestic pay television
channel, AdulTVision, to complement the Playboy Television service and to
protect the Company against competitive pressures from other adult channels.
AdulTVision is being offered on a pay-per-view basis and is sold in combination
with Playboy Television through cable operators, and to the direct-to-home
market. The channel is expected to be at least break even in fiscal 1996, its
first year of operation.
The Company's ability to operate profitably and expand its pay television
business is dependent in part on continued access to and continued acceptance by
cable systems in the United States. From time to time, certain groups have
sought to exclude Playboy programming from local pay television distribution
because of the adult-oriented content of the programming. Management does not
believe that any such attempts will materially affect the Company's access to
cable systems, but the nature and impact of any such limitations in the future
cannot be determined.
Domestic Home Video
The Company also distributes its original programming domestically via
videocassettes that are sold or rented in video stores, record and other retail
outlets and through direct mail, including two of the Company's catalogs. The
Company sells its product primarily to the sell-through market, which is growing
more rapidly than the rental market. Playboy Home Video is one of the largest-
selling brands of nontheatrically released special-interest videos in the U.S.
The format of Playboy Home Videos is consistent with the style, quality and
focus of Playboy magazine.
During fiscal 1993, the Company released 25 core Playboy Home Video titles,
including the first celebrity video centerfold, which featured Jessica Hahn.
Also released in fiscal 1993 were Hugh Hefner: Once Upon a Time, a documentary
on the life of the Company's founder Hugh M. Hefner, and three titles that
previously had been released exclusively through The Sharper Image. Management
believed that the cost of releasing 25 new core titles, as in fiscal 1993, was
too high compared to total revenues generated, and as a result reduced the
number of new core titles released in fiscal 1994 to 14. The Company also
released three titles in fiscal 1994 that previously had been released
exclusively through The Sharper Image. The Company also released 14 new core
titles in fiscal 1995, as management believes that this level of releases,
combined with planned efforts to increase distribution outlets, is the
appropriate strategy to optimize performance. Included in the fiscal 1995 core
titles was the release of The Best of Pamela Anderson in June 1995, which became
the first Playboy Home Video title ever to reach the number one spot on
Billboard magazine's weekly Top Video Sales Chart ("Sales Chart") on August 5,
1995, a position that it has maintained for the last eight weeks ending
September 23, 1995.
13
<PAGE>
Additionally, three other fiscal 1995 releases were in the top five on the
Sales Chart. Also released in fiscal 1995 were Bix, a documentary following the
career of jazz great Bix Beiderbecke, and two titles that had been previously
released exclusively through The Sharper Image. Lastly, the Company also
released in fiscal 1995 a workout video O.J. Simpson: Minimum Maintenance
Fitness for Men ("Minimum Maintenance"). In December 1994, the distribution
rights and the remaining inventory of Minimum Maintenance were sold, which
resulted in an immaterial profit contribution. The Company plans to release 12
new core titles in fiscal 1996.
In 1990, the Company entered into a strategic alliance with The Sharper
Image to sell a "For Couples Only" video series. With the success of the first
production, Playboy's Art of Sensual Massage, 12 additional productions have
been completed through June 30, 1995, including in fiscal 1995, Making Love
Series with Dr. Ruth Westheimer Arousal, Foreplay & Orgasm and Making Love
Series with Dr. Barbara Keesling Volume II: Tantric Lovemaking. In fiscal
1996, the Company plans to release two additional titles through The Sharper
Image. The tapes will then roll out to retail distribution in fiscal 1997. The
Sharper Image guarantees a certain level of sales through its catalog and retail
outlets in exchange for an exclusive distribution window. During that window,
the Company may also sell the videocassettes through the Critics' Choice Video
and Playboy catalogs. Following that period, the "For Couples Only" videos may
be distributed by the Company through other distribution channels, including
national retail outlets and other catalogs.
In fiscal 1995, two new product lines were launched, a direct-response
continuity series with Warner Music Enterprises, Inc. to attract new customers
and encourage regular purchases of Playboy titles, and The Eros Collection, a
small-budget Playboy-produced line of movies.
The Company's Playboy Home Video products have been distributed in the U.S.
and Canada by Uni Distribution Corp. ("Uni"), an MCA Entertainment Group
company, whereby, until the fourth quarter of fiscal 1995, the Company was
responsible for manufacturing the video product and for certain marketing and
sales functions. The Company's new release titles are still distributed in this
manner, however, in the fourth quarter the Company entered into a three-year
licensing agreement with Uni related to catalog titles (titles in release for
longer than a year). The Company now receives an annual guarantee for the
catalog titles, subject to certain earn-out provisions in the final year, and
the manufacturing and marketing is the responsibility of Uni.
The Company also distributes its video programming via laser discs. In May
1992, the Company entered into an agreement with Image Entertainment, Inc.
("Image") under which Image will release all of the Company's videocassettes on
laser discs. This agreement replaces an earlier agreement under which the
Company's former videocassette distributor also distributed the Company's
programming on laser discs. The current agreement gives the Company more
control over the selling and marketing of its laser discs.
International Television and Home Video
The Company also markets its programming to foreign broadcasters and pay
television services. As appropriate, the licensees then customize, dub or
subtitle the programming to meet the needs of individual markets. At the end of
fiscal 1995, the Company's programming was available in 105 countries. While
continuing to sell individual series, the Company has expanded its existing
foreign network relationships by entering into exclusive multiyear multiproduct
output agreements with overseas pay television distributors. These agreements
enable the Company to have an ongoing branded presence in international markets
and are expected to generate higher and more consistent revenues than selling
programs on a show-by-show basis. As previously mentioned, in the fourth
quarter of fiscal 1995 the Company launched the first international Playboy
Television channel in the United Kingdom in partnership with Flextech plc, an
entertainment company that is majority owned by a subsidiary of TCI, and British
Sky Broadcasting Ltd. The Company will own 19% of the new channel, retaining an
option to acquire additional equity, and will receive license fees for
programming and the use of the Playboy brand name. A second international
channel is planned to launch in Japan in early fiscal 1996, in which the Company
will have a 20% interest.
Through separate distribution agreements, the Company also distributes its
U.S. home video products to countries in Latin America, Europe, Australia, Asia
and Africa. These products are based on the videos produced for the U.S.
market, with dubbing or subtitling into the local language where necessary.
14
<PAGE>
PRODUCT MARKETING GROUP
The revenues and operating income of the Product Marketing Group were as
follows for the periods indicated in the following table (in millions):
Years Ended June 30,
-----------------------
1995 1994 1993
----- ----- -----
REVENUES $ 6.8 $ 7.0 $ 7.8
===== ===== =====
OPERATING INCOME $ 3.4 $ 2.5 $ 1.7
===== ===== =====
The Product Marketing Group is primarily responsible for the management of
agreements for the worldwide manufacture, marketing and distribution of consumer
products bearing one or more of the Company's trademarks and/or images. These
include the Playboy, Playmate, Rabbit Head Design and Sarah Coventry trademarks,
and images from the Company's extensive art collection.
Product Marketing
The Company's licensed product lines consist primarily of men's and women's
clothing, accessories, watches, jewelry, fragrances, small leather goods,
stationery, eyewear and home fashions. These products are marketed in North
America, Europe, Asia, Australia and Africa, primarily through retail outlets,
including department and specialty stores and through retail mail order catalogs
by licensees under exclusive license agreements that authorize the manufacture,
sale and distribution of products in a designated territory.
Royalties are based on a fixed or variable percentage of the licensee's
total net sales, in many cases against a guaranteed minimum. In fiscal 1995,
approximately 74% of the royalties earned from licensing the Company's
trademarks was derived from licensees in the Far East, 13% from licensees in the
United States, and the remainder from Europe, Australia, Canada and other
territories.
To capitalize on its international name recognition, the Company is
increasing its overseas product marketing activities and is focusing on the
rapidly developing consumer markets in China and other Far East countries.
During fiscal 1995, the Company's Hong Kong-based apparel licensee continued to
expand by increasing the number of freestanding Playboy shops and Playboy
boutiques within department stores in China. During fiscal 1993, the licensee
opened an apparel factory in the Peoples Republic of China and, in fiscal 1994
expanded the factory. In fiscal 1995, this licensee began building a larger
factory to manufacture Playboy apparel.
In fiscal 1993, the Company signed a licensing agreement with a
multinational Malaysian-based conglomerate to produce and market a line of
Playboy-branded condoms for initial sale in the Far East and, as a result,
Playboy condoms were successfully introduced in Taiwan in fiscal 1994. The
Company and its licensee continued to expand distribution in fiscal 1995 to Hong
Kong, Singapore, Pakistan, Mexico, Peru and Venezuela, and expects to further
penetrate Latin America and enter Russia, Spain and Portugal during fiscal 1996.
The Company maintains control of the design and quality specifications of
its licensed products to ensure that products are consistent with the quality of
the Playboy image. To project a consistent image for Playboy-brand products
throughout the world, the Company discontinued certain domestic products and
low-end distribution in fiscal 1994, and, in fiscal 1995, launched a global
advertising campaign and brand strategy to integrate all of the marketing
efforts of the product licensees and to control the brand more effectively.
On October 30, 1987, a subsidiary of the Company acquired substantially all
of the assets of Sarah Coventry, Inc. The assets acquired were product license
agreements with licensees in the United States and Canada and all of the
trademarks and service marks of Sarah Coventry, Inc.
15
<PAGE>
To protect the success and potential future growth of the Company's product
marketing and other businesses, the Company actively defends its trademarks
throughout the world and monitors the marketplace for counterfeit products.
Consequently, it initiates legal proceedings from time to time to prevent
unauthorized use of the trademarks. In fiscal 1995, the Company developed and
commenced use of a hologram on Playboy packaging as a mark of authenticity.
While the trademarks differentiate the Company's products, the marketing of
apparel and jewelry is an intensely competitive business that is extremely
sensitive to shifts in consumer buying habits and fashion trends, as well as
changes in the retail sales environment.
Art Products
Through its wholly owned subsidiary, Special Editions, Ltd. ("Special
Editions"), the Company develops and oversees the manufacture and distribution
of art-related products based on the Company's extensive collection of artworks,
many of which were commissioned as illustrations for Playboy magazine and for
use in the Company's other businesses. These include posters, limited-edition
prints, art watches, art ties, clocks and collectibles. Prominent artists
represented have included Salvador Dali, Keith Haring, Leroy Neiman, Patrick
Nagel, Alberto Vargas, Ed Paschke, Andy Warhol, Bas Van Reek, Karl Wirsum and
Roger Brown. In an effort to increase product distribution and improve
profitability of the art-related products, Special Editions is shifting its
marketing approach from direct sales to licensing.
GAMING
The Company is exploring opportunities to re-enter the gaming business.
The Company's image, international appeal and successful history in gaming makes
this a logical extension into a fast growing field of adult entertainment. The
Company, with a consortium of Greek investors, bid in June 1995 for an exclusive
gaming license on the island of Rhodes, Greece. The Company expects to be
notified whether its consortium won the competitive bid for this license by the
end of September 1995. If a license is awarded to the consortium it is
anticipated that the casino will open next summer. The Company is also
exploring other gaming ventures. The Company's strategy will be to enter into
joint-venture agreements with strong local partners in which it would consider
taking equity positions as well as receiving license fees for the use of the
Playboy name and trademarks.
SEASONALITY
The Company's businesses are generally not seasonal in nature. However,
second quarter revenues and operating income are typically impacted by higher
newsstand cover prices of holiday issues. This, coupled with higher sales of
subscriptions of Playboy magazine, also results in an increase in accounts
receivable.
PROMOTIONAL AND OTHER ACTIVITIES
The Company believes that its sales of products and services are enhanced
by the public recognition of Playboy as a lifestyle. To establish such public
recognition, the Company, among other activities, acquired in 1971, a mansion in
Holmby Hills, California known as the "Playboy Mansion" where the Company's
founder, Hugh M. Hefner, lives. The Playboy Mansion is used for various
corporate activities, including serving as a valuable location for video
production and magazine photography, business meetings, enhancing the Company's
image, charitable functions and a wide variety of promotional and marketing
purposes. The Playboy Mansion generates substantial publicity and recognition
which increase public awareness of the Company and its products and services.
As indicated in Item 13, Mr. Hefner pays rent to the Company for that portion of
the Playboy Mansion used exclusively for his and his family's residence as well
as the value of meals and other benefits received by him, his family and
personal guests. The total Playboy Mansion operating expenses (including
depreciation, taxes and security), net of rent received from Mr. Hefner,
attributable to the above-mentioned activities were approximately $3,865,000,
$3,950,000 and $3,996,000 for the years ended June 30, 1995, 1994 and 1993,
respectively.
16
<PAGE>
Through the Playboy Foundation, the Company supports not-for-profit
organizations and projects concerned with issues historically of importance to
Playboy magazine and its readers, including anti-censorship efforts, civil
rights, AIDS education, prevention and research, and reproductive freedom. The
Playboy Foundation provides financial support to many of these organizations and
also donates public service advertising space in Playboy magazine and in-kind
printing and design services.
EMPLOYEES
At August 31, 1995, the Company employed 593 full-time employees compared
to 583 at August 31, 1994. While there are employment disputes occurring from
time to time, including actions before state and federal agencies, no material
interruptions of services or activities have occurred due to individual
employment disputes.
Item 2. Properties
The Company leases office space at the following locations:
The Company is lessee under a fifteen-year lease effective September 1,
1989 of approximately 100,000 square feet of corporate headquarters space
located at 680 North Lake Shore Drive, Chicago, Illinois. The Company's initial
base rental was approximately $900,000 per year. This rate is to be increased
two percent per year until the tenth year of the term, after which the rent will
be further adjusted to reflect the then-existing market conditions. The
Company was granted a rent abatement for the first two years of the lease.
However, rent expense is being charged to operations on a straight-line basis
over the term of the lease. Additionally, the lease requires the Company to pay
its proportionate share of the building's real estate taxes and operating
expenses. The majority of this space is used by all of the Company's operating
groups, primarily Publishing.
In fiscal 1993, the Company relocated its Publishing Group headquarters in
New York City to approximately 50,000 square feet of space in the Crown
Building, 730 Fifth Avenue, Manhattan. The Crown Building lease expires in
2004, has an average annual base rental expense of approximately $1,379,000, and
is subject to periodic increases to reflect rising real estate taxes and
operating expenses. The Company was granted a rent abatement under this lease;
however, rent expense is being charged to operations on a straight-line basis
over the term of the lease. Additionally, a limited amount of space is utilized
by the Entertainment and Product Marketing Groups and executive and
administrative personnel.
The Company's principal Entertainment Group offices are located at 9242
Beverly Boulevard, Beverly Hills, California ("Beverly Building"). The Company
holds a lease for approximately 40,000 square feet in the Beverly Building
through March 2002, with an average annual base rental expense of approximately
$1,551,000 per year, which is subject to annual increases calculated on a
formula involving tax and operating expense increases. The Company was granted
a partial rent abatement for the first two years of the lease. However, rent
expense is being charged to operations on a straight-line basis over the term of
the lease. Additionally, a limited amount of space is utilized by the
Publishing Group and executive and administrative personnel.
The Company leases space for its operations facilities at the following
locations:
In fiscal 1993, the Company entered into a five-year lease, which includes
a purchase option, for a 64,000 square foot warehouse facility in Itasca,
Illinois, which is used by its Catalog Group for order fulfillment and related
activities for its operations. The warehouse also houses a portion of the
Company's data processing operation and serves as a storage facility for the
entire Company. The average annual base rental expense under this lease is
approximately $300,000. The Company previously housed these operations in a
warehouse it owned in Elk Grove Village, Illinois, that was sold in fiscal 1993.
The Company's West Coast photography studio was relocated in March 1994 to
Santa Monica, California, under terms of a ten-year lease, which commenced
January 1, 1994. The lease is for approximately 9,800 square feet of space,
with an average annual base rental expense of approximately $182,000. The
Company was granted a rent abatement under this lease; however, rent expense is
being charged to operations on a straight-line basis over the term of the lease.
Additionally, the lease requires the Company to pay its proportionate share of
the building's real estate taxes and operating expenses.
17
<PAGE>
In June 1995, the Company entered into a two-year lease effective July 1,
1995 for a motion picture production facility to be used by its Entertainment
Group located in Los Angeles, California. The lease is for 11,600 square feet,
with an annual base rental expense of approximately $104,000.
The Company owns a Holmby Hills, California mansion property comprised of 5-1/2
acres. See also "Promotional and Other Activities" under Item 1.
Item 3. Legal Proceedings
The Company is from time to time a defendant in suits for defamation and
violation of rights of privacy, many of which allege substantial or unspecified
damages, which are vigorously defended by the Company. The Company is presently
engaged in other litigation, most of which is generally incidental to the normal
conduct of its business and which is either immaterial in amount, expected to be
covered by the Company's insurance carriers, reserved against, or which
management believes to be without merit. Management believes that its reserves
are adequate and that no such action will have a material adverse impact on the
Company's financial condition. However, there can be no assurance that the
Company's ultimate liability will not exceed its reserves. See Note U of Notes
to Consolidated Financial Statements.
On August 14, 1990, a purported class action for unspecified damages was
filed by a stockholder in the Circuit Court of Cook County, Illinois, on behalf
of an alleged class composed of those persons who are owners of shares of the
common stock of the Company. The suit names as defendants the Company and the
following present and former directors: Christie Hefner, Hugh M. Hefner,
William A. Emerson, John R. Purcell, Robert Kamerschen, Mark H. McCormack,
Richard S. Rosenzweig and Sol Rosenthal. During the third quarter of fiscal
1991, the plaintiffs agreed to dismiss the action against one of the Company's
former directors, Mark H. McCormack. The suit alleges that the individual
defendants violated their fiduciary duty to the class by approving the Company's
stock recapitalization plan, which became effective on June 7, 1990. The suit
also requests that the recapitalization plan be reversed. The Company and most
of the individual defendants have been served and have filed an answer denying
all substantive complaint allegations. In February 1995, the Court granted the
Company's motion for summary judgment and the case was dismissed. Plaintiffs
have filed an appeal. Management believes that the action is without merit and
will continue to defend such action vigorously. In accordance with the
Company's bylaws and Delaware law, the Company has agreed with all individual
defendants to advance the fees and costs they might incur prior to the final
disposition of the case, on the condition that such individuals shall repay the
amounts advanced if it is finally determined that any respective individual is
not entitled under Delaware law to be indemnified by the Company for such
expenses.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal 1995.
18
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information with respect to the Company's
executive officers:
Name, Age and Position Business Experience During Past 5 Years
- ---------------------- ---------------------------------------
Hugh M. Hefner, 69 Founded the Company in 1953. Has been Chairman
Chairman Emeritus and Emeritus and Editor-in-Chief since November
Editor-in-Chief 1988. From October 1976 to November 1988 served
as Chairman of the Board and Chief Executive
Officer, and before that served as Chairman,
President and Chief Executive Officer.
Christie Hefner, 42 Appointed to present position in November 1988.
Chairman of the Board From September 1986 to November 1988 served as
and Chief Executive Officer Vice Chairman of the Board, President and Chief
Operating Officer. From February 1984 to
September 1986 served as President and Chief
Operating Officer; had been President since
April 1982. From January 1978 to April 1982 was
a Corporate Vice President. She joined the
Company in 1975 as Special Assistant to the
Chairman of the Board.
David I. Chemerow, 44 Appointed to present position in October 1990.
Executive Vice President, From 1988 to 1990 served as President of
Finance and Operations, Beechwood Capital Corporation, an investment
and Chief Financial Officer company involved in acquiring and operating
businesses. From 1975 to 1988 held various
executive positions at Primerica Corporation,
including Senior Vice President and Corporate
Controller and Senior Vice President of
Operations.
Richard S. Rosenzweig, 60 Appointed to present position in November 1988.
Executive Vice President From May 1982 to November 1988 served as
Executive Vice President, Office of the
Chairman. From July 1980 to May 1982 served as
Executive Vice President, Corporate Affairs.
From January 1977 to June 1980 he was Executive
Vice President for West Coast Operations. His
other positions with the Company have included
Executive Vice President, Publications Group,
and Associate Publisher, Playboy magazine. He
has been with the Company since 1958.
Howard Shapiro, 48 Appointed to present position in September
Executive Vice President, 1989. From May 1985 to September 1989 served as
Law and Administration and Senior Vice President, Law and Administration
General Counsel and General Counsel. From July 1984 to May 1985
served as Senior Vice President and General
Counsel. From September 1983 to July 1984
served as Vice President and General Counsel.
From May 1981 to September 1983 served as
Corporate Counsel. From June 1978 to May 1981
served as Division Counsel. From November 1973
to June 1978 served as Staff Counsel.
19
<PAGE>
Name, Age and Position Business Experience During Past 5 Years
- ---------------------- ---------------------------------------
Anthony J. Lynn, 43 Appointed to present position in June 1992.
Executive Vice President and From 1991 to 1992 served as President of
President, Entertainment Group international television distribution and
worldwide pay television at MGM-Pathe
Communications Co., where he was Executive Vice
President since 1987.
Robert B. Beleson, 44 Appointed to present position in May 1991. From
Senior Vice President and 1989 to 1991 served as President of RB
Chief Marketing Officer International Ltd., a marketing consulting
company that specialized in niche marketing and
image development. From 1982 to 1989 served as
President of Remy Martin Amerique, a domestic
and international distributor of alcoholic
beverages.
Rebecca S. Maskey, 47 Appointed to present position in April 1993.
Senior Vice President, From April 1993 to June 1995 also served as
Finance Treasurer. From January 1990 to April 1993
served as Vice President, Financial Services
and Treasurer. From August 1988 to January 1990
served as Vice President and Treasurer. From
January 1987 to August 1988 served as
Treasurer. From January 1985 to January 1987
served as Assistant Treasurer.
Martha O. Lindeman, 44 Appointed to present position in March 1992.
Vice President, Corporate From 1986 to 1992 served as Manager of
Communications and Communications at the Tribune Company, a
Investor Relations leading information and entertainment company.
20
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The stock price information, as reported in the New York Stock Exchange
Composite Listing, set forth in Note V of Notes to Consolidated Financial
Statements in the fiscal 1995 Annual Report is incorporated herein by reference.
The registrant's securities are traded on the exchanges listed on the cover page
of this Form 10-K Report. As of August 31, 1995, there were 8,563 and 9,045
record holders of Class A Common Stock and Class B Common Stock, respectively.
There were no cash dividends declared during either of the two fiscal years in
the period ended June 30, 1995.
Item 6. Selected Financial Data
The net revenues, income (loss) from continuing operations before
extraordinary item and cumulative effect of change in accounting principle,
total assets, long-term financing obligations, income (loss) from continuing
operations before extraordinary item and cumulative effect of change in
accounting principle per common share and cash dividends declared per common
share for each of the five fiscal years in the period ended June 30, 1995, set
forth under the caption "Selected Financial and Operating Data" on page 23 of
the fiscal 1995 Annual Report are incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 25 - 31
of the fiscal 1995 Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant and
report of independent accountants set forth on pages 32 - 43 of the fiscal 1995
Annual Report are incorporated herein by reference:
Consolidated Statements of Operations - Years ended June 30, 1995, 1994 and
1993.
Consolidated Balance Sheets - June 30, 1995 and 1994.
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1995, 1994 and 1993.
Consolidated Statements of Cash Flows - Years ended June 30, 1995, 1994 and
1993.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
Report of Management.
The supplementary data regarding quarterly results of operations set forth
in Note V of Notes to Consolidated Financial Statements on pages 41 and 42 of
the fiscal 1995 Annual Report is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
21
<PAGE>
PART III
Information required by Items 10, 11, 12 and 13 is contained in the
registrant's Notice of Annual Meeting of Stockholders and Proxy Statement dated
September 28, 1995, which will be filed within 120 days after the close of the
registrant's fiscal year ended June 30, 1995, and is incorporated herein by
reference. Information regarding executive officers is contained on pages 19
and 20 of this Form 10-K Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Certain Documents Filed as Part of the Form 10-K
Financial Statements of the registrant and report of independent
accountants following as set forth under Item 8 of this Form 10-K Report
and which have been incorporated by reference from pages 32-43 of the
fiscal 1995 Annual Report:
Consolidated Statements of Operations - Years ended June 30, 1995,
1994 and 1993
Consolidated Balance Sheets - June 30, 1995 and 1994
Consolidated Statements of Shareholders' Equity - Years ended June 30,
1995, 1994 and 1993
Consolidated Statements of Cash Flows - Years ended June 30, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants*
Report of Management
The supplementary data regarding quarterly results of operations as
set forth in Note V of Notes to Consolidated Financial Statements on
pages 41 and 42 of the fiscal 1995 Annual Report and which have been
incorporated by reference.
Financial Statement Schedule of the registrant not included in the fiscal
1995 Annual Report but filed herewith:
Page
----
Schedule II - Valuation and Qualifying Accounts 31
* The report of the registrant's independent accountants with respect to
the Financial Statement Schedule appears on page 30 of this Form 10-K
Report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth
quarter of fiscal 1995
(c) Exhibits
(1) Restated Certificate of Incorporation of the Company
(2) Restated bylaws of the Company (incorporated by reference to Exhibit
3.2 from the Company's annual report on Form 10-K for the year ended
June 30, 1994 (the "1994 Form 10-K"))
(3) Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for Non-Qualified
Stock Options which may be granted under the Plan
c Form of Incentive Stock Option Agreement for Incentive Stock
Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted Stock issued
under the Plan
22
<PAGE>
(incorporated by reference to Exhibits 4.2, 4.3, 4.4 and 4.5 from the
Registration Statement No. 33-58145 on Form S-8 dated March 20, 1995)
(4) Playboy Channel Cable Distribution Agreement dated as of March 14,
1986 between Playboy Enterprises, Inc. and Rainbow Programming
Services Company (incorporated by reference to Exhibit 10.8 from the
Company's annual report on Form 10-K for the year ended June 30, 1991
(the "1991 Form 10-K"))
(5) Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises, Inc. and
Quad/Graphics, Inc. regarding printing of Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
(6) Playboy Magazine Distribution Agreement dated as of June 6, 1994
between Playboy Enterprises, Inc. and Warner Publisher Services, Inc.
(incorporated by reference to Exhibit 10.9 from the 1994 Form 10-K)
(7) Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication Data Services, Inc.
and Playboy Enterprises, Inc. (incorporated by reference to
Exhibit 10.12(a) from the Company's annual report on Form 10-K
for the year ended June 30, 1992 (the "1992 Form 10-K"))
b Amendments to said Fulfillment Agreement dated as of September 1,
1987 and June 1, 1988 (incorporated by reference to Exhibit
10.12(b) from the Company's annual report on Form 10-K for the
year ended June 30, 1993 (the "1993 Form 10-K"))
c Amendment dated as of July 1, 1990 to said Fulfillment Agreement
(incorporated by reference to Exhibit 10.12(c) from the 1991 Form
10-K)
d Amendment dated as of November 21, 1994 to said Fulfillment
Agreement
(8) Distribution License to Exploit Home Video Rights effective October 1,
1991 between Playboy Video Enterprises, Inc. and Uni Distribution
Corp. (incorporated by reference to Exhibit 10.16 from the 1991 Form
10-K)
(9) Transponder Lease Agreement dated as of December 31, 1992 between
Playboy Entertainment Group, Inc. and General Electric Capital
Corporation (incorporated by reference to Exhibit 10.3 from the
Company's quarterly report on Form 10-Q for the quarter ended December
31, 1992 (the "Second Quarter 1993 Form 10-Q"))
(10) Distribution Agreement dated as of March 24, 1995 between Playboy
Entertainment Group, Inc. and Uni Distribution Corp. regarding
licensing and sale of domestic home video product
(11) Agreement effective January 12, 1995 between Playboy Entertainment
Group, Inc., Continental Shelf 16 Limited and Playboy TV UK/Benelux
Limited regarding the establishment of a Playboy TV pay television
service in the United Kingdom
(12) Warner Home Video/Critics' Choice Direct Marketing License Agreement
dated February 22, 1994 regarding purchase of Turner product
(13) Warner Home Video/Critics' Choice Direct Marketing License Agreement
dated February 22, 1994 regarding purchase of non-Turner product
(14) Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by and among
Playboy Enterprises, Inc., Harris Trust and Savings Bank and
LaSalle National Bank
b Amendment to February 10, 1995 Credit Agreement dated March 31,
1995
(15) Playboy Mansion West Lease Agreement, as amended, between Playboy
Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease (incorporated by reference to
Exhibit 10.3(a) from the 1991 Form 10-K)
b Agreement of lease (incorporated by reference to Exhibit 10.3(b)
from the 1991 Form 10-K)
(16) Los Angeles Office Lease dated as of July 25, 1991 between Playboy
Enterprises, Inc. and Beverly Mercedes Place, Ltd. (incorporated by
reference to Exhibit 10.6(c) from the 1991 Form 10-K)
(17) Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between Playboy
Enterprises, Inc. and LaSalle National Bank as Trustee under
Trust No. 112912 (incorporated by reference to Exhibit 10.7(a)
from the 1993 Form 10-K)
b Amendment to April 7, 1988 lease dated October 26, 1989
c Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the Second
Quarter 1993 Form 10-Q)
d Amendment to April 7, 1988 lease dated August 30, 1993
23
<PAGE>
(18) New York Office Lease Agreement dated August 11, 1992 between Playboy
Enterprises, Inc. and Lexington Building Co. (incorporated by
reference to Exhibit 10.9(b) from the 1992 Form-K)
(19) Itasca Warehouse Lease Agreement dated as of October 20, 1992 between
Teachers' Retirement System of the State of Illinois and Playboy
Enterprises, Inc. (incorporated by reference to Exhibit 10.4 from the
Second Quarter 1993 Form 10-Q)
(20) Selected Company Remunerative Plans
a Executive Car Lease Program dated June 11, 1993
b Administrative Statement for the Executive Car Lease Program
dated March 1, 1992 (incorporated by reference to Exhibit 10.2(b)
from the 1992 Form 10-K)
c Executive Protection Program dated March 1, 1990
d Deferred Compensation Plan for Employees
e Deferred Compensation Plan for Nonemployee Directors
(items (d) and (e) incorporated by reference to Exhibits 10.2(g) and
(h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for Employees
(incorporated by reference to Exhibit 10.1(f) from the 1994 Form
10-K)
(21) Selected Employment, Termination and Other Agreements
a Undertaking regarding indemnification in Lewis v. Playboy
Enterprises, Inc. civil action
b Playboy Enterprises, Inc. 1989 Stock Option Plan, as amended, For
Key Employees (the "1989 Option Plan")(incorporated by reference
to Exhibit 10.4 (mm) from the 1991 Form 10-K)
c Playboy Enterprises, Inc. 1989 Stock Option Agreement
d Letter dated July 18, 1990 pursuant to the June 7, 1990
recapitalization regarding adjustment of options
e Consent and Amendment dated March 19, 1991 regarding the 1989
Option Plan
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock Option Plan
for Non-Employee Directors
g Employment Agreement dated October 15, 1990 between Playboy
Enterprises, Inc. and David Chemerow
(items (e), (f) and (g) incorporated by reference to Exhibits
10.4(aa), (nn) and (ss), respectively, from the 1991 Form 10-K)
h Playboy Enterprises, Inc. Severance Agreement dated March 1, 1991
(incorporated by reference to Exhibit 10.4(vv) from the 1991 Form
10-K)
i Employment Agreement dated May 21, 1992 between Playboy
Enterprises, Inc. and Anthony J. Lynn (incorporated by reference
to Exhibit 10.4(bbb) from the 1992 Form 10-K)
j Amendment dated September 12, 1994 regarding the Employment
Agreement dated May 21, 1992 between Playboy Enterprises, Inc.
and Anthony J. Lynn
k Amendment dated June 28, 1995 regarding the Employment Agreement
dated May 21, 1992 between Playboy Enterprises, Inc. and Anthony
J. Lynn
l Memorandum regarding reimbursement to Hugh M. Hefner of expenses
incurred in connection with the Company's secondary offering
(incorporated by reference to Exhibit 10.4(ggg) from the 1992
Form 10-K)
(22) Computation of Net Income (Loss) Per Share
(23) Annual Report to Security Holders
Herewith filed as an exhibit only with respect to the parts
incorporated by reference in this Form 10-K. The report, except for
portions expressly incorporated by reference, is furnished for the
information of the Commission only and is not to be deemed "filed" as
part of the filing.
(24) Parent and Subsidiaries
(25) Consent of Independent Public Accountants
(26) Financial Data Schedule
(d) Financial Statement Schedules
Not applicable
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PLAYBOY ENTERPRISES, INC.
September 22, 1995 By s/David I. Chemerow
-------------------------
David I. Chemerow
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
s/Christie Hefner September 19, 1995
- ---------------------------------------
Christie Hefner
Chairman of the Board,
Chief Executive Officer and Director
s/Richard S. Rosenzweig September 20, 1995
- ---------------------------------------
Richard S. Rosenzweig
Executive Vice President and Director
s/Dennis S. Bookshester September 20, 1995
- ---------------------------------------
Dennis S. Bookshester
Director
s/Robert Kamerschen September 20, 1995
- ---------------------------------------
Robert Kamerschen
Director
s/John R. Purcell September 20, 1995
- ---------------------------------------
John R. Purcell
Director
s/Sol Rosenthal September 20, 1995
- ---------------------------------------
Sol Rosenthal
Director
s/David I. Chemerow September 22, 1995
- ---------------------------------------
David I. Chemerow
Executive Vice President,
Finance and Operations,
and Chief Financial Officer
s/Rebecca S. Maskey September 19, 1995
- ---------------------------------------
Rebecca S. Maskey
Senior Vice President,
Finance
25
<PAGE>
All agreements listed below may have additional exhibits which are not attached.
All such exhibits are available upon request, provided the requesting party
shall pay a fee for copies of such exhibits, which fee shall be limited to the
Company's reasonable expenses incurred in furnishing these documents.
Exhibit
Number Description
- ------ -----------
* 3.1 Restated Certificate of Incorporation of the Company
3.2 Restated bylaws of the Company (incorporated by
reference to Exhibit 3.2 from the 1994 Form 10-K)
10.1 Stock Incentive Plan
a Playboy Enterprises, Inc. 1995 Stock Incentive Plan
b Form of Non-Qualified Stock Option Agreement for Non-
Qualified Stock Options which may be granted under
the Plan
c Form of Incentive Stock Option Agreement for
Incentive Stock Option granted under the Plan
d Form of Restricted Stock Agreement for Restricted
Stock issued under the Plan
(incorporated by reference to Exhibits 4.2, 4.3, 4.4
and 4.5 from the Registration Statement No. 33-58145
on Form S-8 dated March 20, 1995)
10.2 Playboy Channel Cable Distribution Agreement dated
as of March 14, 1986 between Playboy Enterprises,
Inc. and Rainbow Programming Services Company
(incorporated by reference to Exhibit 10.8 from the
1991 Form 10-K)
*10.3 Playboy Magazine Printing and Binding Agreements
a May 15, 1990 agreement between Playboy Enterprises,
Inc. and Quad/Graphics, Inc. regarding printing of
Playboy Magazine
b Letter agreement dated April 11, 1990 between Playboy
Enterprises, Inc. and Quad/Graphics, Inc.
10.4 Playboy Magazine Distribution Agreement dated as of
June 6, 1994 between Playboy Enterprises, Inc. and
Warner Publisher Services, Inc. (incorporated by
reference to Exhibit 10.9 from the 1994 Form 10-K)
10.5 Playboy Magazine Subscription Fulfillment Agreement
a July 1, 1987 agreement between Communication
Data Services, Inc. and Playboy Enterprises, Inc.
(incorporated by reference to Exhibit 10.12(a) from
the 1992 Form 10-K)
b Amendments to said Fulfillment Agreement dated as of
September 1, 1987 and June 1, 1988 (incorporated by
reference to Exhibit 10.12(b) from the 1993 Form 10-K)
c Amendment dated as of July 1, 1990 to said Fulfillment
Agreement (incorporated by reference to Exhibit
10.12(c) from the 1991 Form 10-K)
*d Amendment dated as of November 21, 1994 to said
Fulfillment Agreement
10.6 Distribution License to Exploit Home Video Rights
effective October 1, 1991 between Playboy Video
Enterprises, Inc. and Uni Distribution Corp.
(incorporated by reference to Exhibit 10.16 from the
1991 Form 10-K)
26
<PAGE>
10.7 Transponder Lease Agreement dated as of December 31,
1992 between Playboy Entertainment Group, Inc. and
General Electric Capital Corporation (incorporated by
reference to Exhibit 10.3 from the Second Quarter
1993 Form 10-Q)
*10.8 Distribution Agreement dated as of March 24, 1995
between Playboy Entertainment Group, Inc. and Uni
Distribution Corp. regarding licensing and sale of
domestic home video product
*10.9 Agreement effective January 12, 1995 between Playboy
Entertainment Group, Inc., Continental Shelf 16
Limited and Playboy TV UK/Benelux Limited regarding
the establishment of a Playboy TV pay television
service in the United Kingdom
*10.10 Warner Home Video/Critics' Choice Direct Marketing
License Agreement dated February 22, 1994 regarding
purchase of Turner product
*10.11 Warner Home Video/Critics' Choice Direct Marketing
License Agreement dated February 22, 1994 regarding
purchase of non-Turner product
*10.12 Revolving Line of Credit
a Credit Agreement dated as of February 10, 1995 by
and among Playboy Enterprises, Inc., Harris Trust
and Savings Bank and LaSalle National Bank
b Amendment to February 10, 1995 Credit Agreement
dated March 31, 1995
10.13 Playboy Mansion West Lease Agreement, as amended,
between Playboy Enterprises, Inc. and Hugh M. Hefner
a Letter of Interpretation of Lease (incorporated by
reference to Exhibit 10.3(a) from the 1991 Form 10-K)
b Agreement of lease (incorporated by reference to
Exhibit 10.3(b) from the 1991 Form 10-K)
10.14 Los Angeles Office Lease dated as of July 25, 1991
between Playboy Enterprises, Inc. and Beverly Mercedes
Place, Ltd. (incorporated by reference to Exhibit
10.6(c) from the 1991 Form 10-K)
10.15 Chicago Office Lease Documents
a Office Lease dated April 7, 1988 by and between
Playboy Enterprises, Inc. and LaSalle National Bank
as Trustee under Trust No. 112912 (incorporated by
reference to Exhibit 10.7(a) from the 1993 Form 10-K)
*b Amendment to April 7, 1988 lease dated October 26, 1989
c Amendment to April 7, 1988 lease dated June 1, 1992
(incorporated by reference to Exhibit 10.1 from the
Second Quarter 1993 Form 10-Q)
*d Amendment to April 7, 1988 lease dated August 30, 1993
27
<PAGE>
10.16 New York Office Lease Agreement dated August 11, 1992
between Playboy Enterprises, Inc. and Lexington
Building Co. (incorporated by reference to Exhibit 10.9(b)
from the 1992 Form 10-K)
10.17 Itasca Warehouse Lease Agreement dated as of October 20,
1992 between Teachers' Retirement System of the State of
Illinois and Playboy Enterprises, Inc. (incorporated by
reference to Exhibit 10.4 from the Second Quarter 1993
Form 10-Q)
10.18 Selected Company Remunerative Plans
*a Executive Car Lease Program dated June 11, 1993
b Administrative Statement for the Executive Car Lease
Program dated March 1, 1992 (incorporated by reference
to Exhibit 10.2(b) from the 1992 Form 10-K)
*c Executive Protection Program dated March 1, 1990
d Deferred Compensation Plan for Employees
e Deferred Compensation Plan for Nonemployee Directors
(items (d) and (e) incorporated by reference to Exhibits
10.2(g) and (h), respectively, from the 1992 Form 10-K)
f First Amendment to Deferred Compensation Plan for
Employees (incorporated by reference to Exhibit 10.1(f)
from the 1994 Form 10-K)
10.19 Selected Employment, Termination and Other Agreements
*a Undertaking regarding indemnification in Lewis v. Playboy
Enterprises, Inc. civil action
b Playboy Enterprises, Inc. 1989 Stock Option Plan, as
amended, For Key Employees (the "1989 Option Plan")
(incorporated by reference to Exhibit 10.4(mm) from
the 1991 Form 10-K)
*c Playboy Enterprises, Inc. 1989 Stock Option Agreement
*d Letter dated July 18, 1990 pursuant to the June 7,
1990 recapitalization regarding adjustment of options
e Consent and Amendment dated March 19, 1991 regarding
the 1989 Option Plan
f Playboy Enterprises, Inc. 1991 Non-Qualified Stock
Option Plan for Non-Employee Directors
g Employment Agreement dated October 15, 1990
between Playboy Enterprises, Inc. and David Chemerow
(items (e), (f) and (g) incorporated by reference to
Exhibits 10.4(aa), (nn) and (ss), respectively, from the
1991 Form 10-K)
h Playboy Enterprises, Inc. Severance Agreement
dated March 1, 1991 (incorporated by reference to
Exhibit 10.4(vv) from the 1991 Form 10-K)
i Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
(incorporated by reference to Exhibit 10.4(bbb) from
the 1992 Form 10-K)
*j Amendment dated September 12, 1994 regarding the
Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
*k Amendment dated June 28, 1995 regarding the
Employment Agreement dated May 21, 1992 between
Playboy Enterprises, Inc. and Anthony J. Lynn
28
<PAGE>
l Memorandum regarding reimbursement to Hugh M. Hefner
of expenses incurred in connection with the Company's
secondary offering (incorporated by reference to
Exhibit 10.4(ggg) from the 1992 Form 10-K)
*11. Computation of Net Income (Loss) Per Share
*13. Annual Report to Security Holders
Herewith filed as an exhibit only with respect to
the parts incorporated by reference in this Form
10-K. The report, except for portions expressly
incorporated by reference, is furnished for the
information of the Commission only and is not to be
deemed "filed" as part of the filing.
*21. Parent and Subsidiaries
*23. Consent of Independent Public Accountants
*27. Financial Data Schedule
- --------------
* Filed herewith
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
ON FINANCIAL STATEMENT SCHEDULES
--------------------------------
To the Shareholders and Board of Directors
Playboy Enterprises, Inc.
Our report on the consolidated financial statements of Playboy Enterprises,
Inc. and its Subsidiaries has been incorporated by reference in this Form 10-K
from page 43 of the fiscal 1995 Annual Report to Shareholders of Playboy
Enterprises, Inc. and its Subsidiaries. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on page 22 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 2, 1995
30
<PAGE>
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
=======================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- ---------- ---------------------- ------------ -----------
Additions
-----------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Net End
Description of Period Expenses Revenues Deductions of Period
- ----------------------------------------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance deducted in the balance sheet
from the asset to which it applies:
Year ended June 30, 1995:
Allowance for doubtful accounts $ 3,155 $3,751 $ - $ 2,069(a) $ 4,837
======= ====== ======== ======= =======
Allowance for returns $18,612 $ - $57,057(b) $54,717(c) $20,952
======= ====== ======= ======= =======
Year ended June 30, 1994:
Allowance for doubtful accounts $ 2,843 $3,210 $ - $ 2,898(a) $ 3,155
======= ====== ======= ======= =======
Allowance for returns $21,631 $ - $53,486(b) $56,505(c) $18,612
======= ====== ======= ======= =======
Year ended June 30, 1993:
Allowance for doubtful accounts $ 1,903 $2,891 $ - $ 1,951(a) $ 2,843
======= ====== ======= ======= =======
Allowance for returns $19,375 $ - $57,381(b) $55,125(c) $21,631
======= ====== ======= ======= =======
</TABLE>
Notes:
(a) Represents uncollectible accounts less recoveries. Also included in fiscal
1994 amount was $66 related to a discount for early payment of a
receivable.
(b) Represents provisions for estimated returns of Playboy magazine, other
Playboy publications and domestic home video.
(c) Represents settlements on provisions previously recorded.
31
<PAGE>
STATE OF DELAWARE
[ART]
OFFICE OF SECRETARY OF STATE
------------------
I, MICHAEL HARKINS, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RESTATED
CERTIFICATE OF INCORPORATION OF PLAYBOY ENTERPRISES, INC. FILED IN THIS OFFICE
ON THE TWENTY-SEVENTH DAY OF JUNE, A.D. 1990, AT 9 O'CLOCK A.M.
: : : : : : : : : :
RECEIVED FOR RECORD
June 29 A.D. 1990
-------- ----
[SEAL] /s/ Michael T. Scuse /s/ Michael Harkins
----------------------------- -----------------------------------
RECORDER Michael Harkins, Secretary of State
$3.00 STATE DOCUMENT FEE PAID AUTHENTICATION: 12707560
901735199 DATE: 06/27/1990
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/27/1990
901785190 - 611512
RESTATED CERTIFICATE OF INCORPORATION
OF
PLAYBOY ENTERPRISES, INC.
The undersigned, being the Executive Vice President, Law
and Administration, and General Counsel and the Secretary of PLAYBOY
ENTERPRISES, INC. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, do hereby certify
as follows:
1. The name of the Corporation is PLAYBOY ENTERPRISES, INC.
The Corporation was originally incorporated under the name HMH
Corporation. The date of filing its original Certificate of
Incorporation with the Secretary of State was May 27, 1964.
2. This Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Section 245 of the
General Corporation Law of the State of Delaware. This Restated
Certificate of Incorporation only restates and integrates and does
not further amend the provisions of the Corporation's Restated
Certificate of Incorporation as heretofore amended or supplemented,
and there is no discrepancy between those provisions and the
provisions of this Restated Certificate of Incorporation.
3. The text of the Restated Certificate of Incorporation,
as amended or supplemented heretofore, is hereby restated to read as
herein set forth in full:
<PAGE>
FIRST: THE NAME OF THE CORPORATION IS PLAYBOY ENTERPRISES, INC.
SECOND: Its principal office in the State of Delaware is located
at 39 Loockerman Square, Suite L-100, in the City of Dover, County
of Kent. The name and address of its resident agent is The Prentice-
Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100,
Dover, Kent County, Delaware 19901.
THIRD: The nature of the business, or objects or purposes to be
transacted, promoted or carried on are:
To engage in the business of: publishing of all kinds; all
phases of entertainment and communications, including motion
pictures, plays, radio, television; the operation of hotels and
resorts; and the operation of establishments featuring food,
beverage and entertainment.
To engage in any lawful act or activity, or engage in any
business, for which corporations may be organized under the
General Corporation Law of the State of Delaware.
In general, to carry on any other business in connection
with the foregoing, and to have and exercise all the powers
conferred by the laws of Delaware upon corporations formed under
the General Corporation Law of the State of Delaware, and to do
any or all of the things
2
<PAGE>
hereinbefore set forth to the same extent as natural persons
might or could do.
FOURTH: The total number of shares of all classes of capital
stock which the corporation shall have authority to issue is Thirty
Seven Million Five Hundred Thousand (37,500,000) shares of Common
Stock, consisting of Seven Million Five Hundred Thousand (7,500,000)
shares of Class A Common Stock of the par value of One Cent ($.01)
per share and Thirty Million (30,000,000) shares of Class B Common
Stock of the par value of One Cent ($.01) per share.
A. Terms of Common Stock
---------------------
Except as otherwise required by law or as otherwise provided in
this certificate, each share of Class A Common Stock and each share
of Class B Common Stock shall have identical powers, preferences,
qualifications, limitations and other rights.
Subject to all of the rights of any class of stock authorized
after the effective date of this provision of Article FOURTH ranking
senior to the Common Stock as to dividends, dividends may be paid
upon the Common Stock as and when declared by the Board of Directors
out of funds and other assets legally available for the payment of
dividends. The Board of Directors may declare a dividend or
distribution upon both classes of the Common Stock in shares of any
authorized class or series of capital stock of the
3
<PAGE>
corporation only if such dividend or distribution is declared and
paid proportionately to all holders of both classes of Common Stock
as follows: (i) in Class A Common Stock to the holders of Class A
Common Stock and in Class B Common Stock to the holders of Class B
Common Stock, (ii) in Class B Common Stock to the holders of Class A
Common Stock and Class B Common Stock, or (iii) in any other
authorized class or series of capita1 stock to the holders of both
classes of Common Stock.
In the event of any liquidation, dissolution or winding up of
the corporation, whether voluntary or involuntary, and after the
holders of any class of stock authorized after the effective date of
this provision of Article FOURTH ranking senior to the Common Stock
as to assets shall have been paid in full the amounts to which such
holders shall be entitled, or an amount sufficient to pay the
aggregate amount to which such holders shall be entitled shall have
been set aside for the benefit of the holders of such stock, the
remaining net assets of the corporation shall be distributed pro
rata to the holders of both classes of the Common Stock.
In the event of a merger or consolidation of the corporation
with or into another entity (whether or not the corporation is the
surviving entity), the holders of Class B Common Stock shall be
entitle to receive the same per share consideration as the per share
consideration, if any,
4
<PAGE>
received by any holder of the Class A Common Stock in such merger or
consolidation.
Except as otherwise expressly provided with respect to any other
class of stock and except as otherwise may be required by law or
this certificate, the Class A Common Stock shall have the exclusive
right to vote for the election of directors and for all other
purposes and each holder of Class A Common Stock shall be
entitled to one vote for each share of Class A Common Stock held.
Except as expressly provided in this certificate and except as
otherwise required by law, the Class B Common Stock shall have no
voting rights.
The corporation may not split, divide or combine the shares of
either class of Common Stock unless, at the same time, the
corporation splits, divides or combines, as the case may be, the
shares of the other class of Common Stock in the same proportion
and manner.
B. Issuance of Class A Common Stock in Mergers and Acquisitions
------------------------------------------------------------
Class A Common Stock may be issued as consideration in a merger
or other transaction involving the acquisition of or exchange for
securities, assets, properties or other interests of any person or
entity by the corporation, only if such issuance is approved by the
holders, as of a date not more than thirty days prior to the
5
<PAGE>
effective date of such merger or other transaction, of a majority
of the outstanding shares of Class A Common Stock, unless (i) Class
B Common Stock is also issued as consideration in such merger or
other transaction, and (ii) the quotient determined by dividing the
number of shares of Class B Common Stock to be so issued by the
number of shares of Class A Common Stock to be so issued is greater
than or equal to the quotient determined, immediately prior to the
effective time of such merger or other transaction, by dividing
the total number of outstanding shares of Class B Common Stock by
the total number of outstanding shares of Class A Common Stock.
C. Minority Protection Transactions
--------------------------------
(i) If any person or group acquires beneficial ownership of
additional Class A Common Stock, or if any group of persons is
formed, after the effective date of this provision of Article
FOURTH, and such acquisition (other than upon original issuance by
the corporation, by operation of law, by will or the laws of
descent and distribution, by gift or by foreclosure of a bona fide
loan) or formation results in such person or group owning 10% or
more of the issued and outstanding Class A Common Stock, and such
person or group (a "Related Person") does not then own an equal
or greater percentage of the Class B Common Stock, such person or
group must, within a 90-day period beginning the day
6
<PAGE>
after becoming a Related Person, make a public tender offer in
compliance with all applicable laws and regulations to acquire
additional Class B Common Stock as provided in this subsection C of
Article FOURTH (a "Minority Protection Transaction").
(ii) In each Minority Protection Transaction, the Related Person
must make a public tender offer to acquire that number of shares of
Class B Common Stock determined by (a) multiplying the percentage
of outstanding Class A Common Stock beneficially owned by such
Related Person by the total number of shares of Class B Common Stock
outstanding on the date such person or group became a Related
Person, and (b) subtracting therefrom the total number of shares
of Class B Common Stock beneficially owned by such Related Person
on such date (including shares acquired on such date at or prior to
the time such person or group became a Related Person). The Related
Person must acquire all of such shares validly tendered; provided,
however, that if the number of shares of Class B Common Stock
tendered to the Related Person exceeds the number of shares required
to be acquired pursuant to the formula set forth in this clause
(ii), the number of shares of Class B Common Stock acquired from
each tendering holder shall be pro rata in proportion to the total
number of shares or Class B Common Stock tendered by all
tendering holders.
7
<PAGE>
(iii) The offer price for any shares of Class B Common Stock
required to be purchased by the Related Person pursuant to this
provision shall be the greater of (a) the highest price per share
paid by the Related Person for any share of Class A Common Stock in
the six month period ending on the date such person or group became
a Related Person or (b) the highest bid price of a share of Class A
Common Stock or Class B Common Stock on the New York Stock Exchange
(or such other exchange or quotation system as is then the principal
trading market for such shares) on the date such person or group
became a Related Person. For purposes of clause (iv) below, the
applicable date for the calculations required by the preceding
sentence shall be the date on which the Related Person or Interested
Stockholder (as defined therein), became required to engage in a
Minority Protection Transaction. In the event that the Related
Person has acquired Class A Common Stock in the six month period
ending on the date such person or group becomes a Related Person for
consideration other than cash, the value of such consideration per
share of Class A Common Stock shall be as determined in good faith
by the Board of Directors.
(iv) A Minority Protection Transaction shall also be required to
be effected by any Related Person, and any other person or group
that beneficially owns 10% or more of the outstanding shares
8
<PAGE>
of Class A Common Stock on the effective date of this provision of
Article FOURTH (an "Interested Stockholder"), that acquires
beneficial ownership of additional shares of Class A Common Stock
(other than upon issuance or sale by the corporation, by operation
of law, by will or the laws of descent and distribution, by gift, or
by foreclosure of a bona fide loan) or joins with other persons to
form a group, whenever such additional acquisition or formation
results in such Related Person or Interested Stockholder owning the
next higher integral multiple or 5% (e.g. 15%, 20%, 25%, etc.) of
the outstanding shares of Class A Common Stock and such Related
Person or Interested Stockholder does not own an equal or greater
percentage of the shares of Class B Common Stock. Such Related
Person or Interested Stockholder shall be required to make a public
tender offer to acquire that number or shares of Class B Common
Stock prescribed by the formula set forth in clause (ii) above, and
must acquire all shares validly tendered or a pro rata portion
thereof, as specified in said clause (ii), at the price determined
pursuant to clause (iii) above.
(v) if any Related Person or Interested Stockholder fails to
make an offer required by this subsection C of Article FOURTH, or
to purchase shares validly tendered and not withdrawn (after
proration, if any), such Related Person or Interested Stockholder
shall not be entitled to vote any shares of Class A Common Stock
beneficially owned by such Related
9
<PAGE>
Person or Interested Stockholder unless and until such requirements are
complied with or unless and until all shares of Class A Common Stock causing
such offer requirement to be effective are no longer beneficially owned by such
Related Person or Interested Stockholder.
(vi) The Minority Protection Transaction requirement shall not apply to any
increase in percentage ownership of Class A Common Stock resulting solely from a
change in the total amount of Class A Common Stock outstanding, provided that
any acquisition by any person or group owning 10% or more of the Class A Common
Stock occurring after such change shall be subject to any Minority Protection
Transaction requirement that would be imposed with respect to a Related Person
or Interested Stockholder pursuant to clause (iv) of this Subsection C of
Article FOURTH.
(vii) If the person acquiring Class A Common Stock is the corporation,
treasury shares will be considered issued and outstanding for purposes of
determining the corporation's obligations hereunder.
(viii) All calculations with respect to percentage ownership of issued and
outstanding shares of either class of Common Stock will be based upon the
numbers of issued and outstanding shares reported by the corporation on the last
filed of (a) the corporation's most recent annual report on Form 10-K (b) its
most
10
<PAGE>
recent (Quarterly Report on Form 10-Q, or (c) if any, its most recent Current
Report on Form 8-K.
(ix) For purposes of this subsection C of this Article FOURTH, the term
"person" means a natural person, company, government, or political subdivision,
agency or instrumentality of a government, or other entity. "Beneficial
ownership" shall be determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
regulation. The formation or existence of a "group" shall be determined pursuant
to Rule 13d-5(b) under the 1934 Act or any successor regulation.
(x) The corporation shall not take any corporate action, including, without
limitation, any amendment to this certificate (including any amendment effected
by merger or consolidation), which will adversely affect the rights of the
holders of the Class B Stock under this subsection C of Article FOURTH, unless
such action shall have been approved by the holders of a majority of the
outstanding shares of Class B Stock who are not Related Persons or Interested
Stockholders.
D. No Pre-emptive Rights
No stockholder of this corporation shall by reason of his holding shares of
any class have any pre-emptive or preferential
11
<PAGE>
right to purchase or subscribe to any shares of any class of this corporation,
now or hereafter to be authorized, or any notes, debentures, bonds, or other
securities convertible into or carrying options or warrants to purchase shares
of any class, now or hereafter to be authorized whether or not the issuance of
any such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such stockholder, other than
such rights, if any, as the Board of Directors, in its discretion from time to
time may grant and at such price as the Board of Directors in its discretion
may fix; and the Board of Directors may issue shares of any class of this
corporation, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, without
offering any such shares of any class, either in whole or in part, to the
existing stockholders of any class.
FIFTH: The minimum amount of capital with which the corporation will
commence business is One Thousand Dollars ($1,000.00).
SIXTH: The corporation is to have perpetual existence.
SEVENTH: The private property of the stockholders shall not be subject to
the payment of corporate debts to any extent whatever.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make alter or repeal the by-laws of the corporation.
12
<PAGE>
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By resolution passed by a majority of the whole board, to designate one or
more committees, each committee to consist of two or more of the directors of
the corporation, which, to the extent provided in the resolution or in the by-
laws of the corporation, shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
stated in the by-laws of the corporation or as may be determined from time to
time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting-power, given at stockholders'
meeting duly called for that purpose, or when authorized by the written consent
of the holders of a majority of the voting stock issued and outstanding, to
sell, lease or exchange all of the property and assets of the corporation,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part shares
of stock in, and/or other
13
<PAGE>
securities of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the corporation.
NINTH: In the absence of fraud, no contract or other transaction between
this corporation and any other corporation or any partnership or association
shall be affected or invalidated by the fact that any director or officer of
this corporation is pecuniarily or otherwise interested in or is a director,
member or officer of such other corporation or of such firm, association or
partnership or is a party to or is pecuniarily or otherwise interested in such
contract or other transaction or in any way connected with any person or
persons, firm, association, partnership or corporation pecuniarily or otherwise
interested therein: any director may be counted in determining the existence of
a quorum at any meeting of the Board of Directors of this corporation for the
purpose of authorizing any such contract or transaction with like force and
effect as if were not so interested, or were not a director, member or officer
of such other corporation, firm, association or partnership.
TENTH: Meetings of stockholders may be held outside the State of Delaware, if
the by-laws so provide. The books of the corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the by-laws of the corporation.
14
<PAGE>
Elections of directors need not be by ballot unless the by-laws of the
corporation shall so provide.
ELEVENTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
TWELFTH: Directors shall not be personally liable to the corporation or its
stockholders for monetary damages for breaches of fiduciary duty as a director,
except for liability (i) for breach of the director's duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the director derived an improper personal benefit.
15
<PAGE>
BK C - 129 PG 160
IN WITNESS WHEREOF, the undersigned have signed and attested this
certificate this 25th day of June, 1990.
/s/ Howard Shapiro
-----------------------
Howard Shapiro
[Seal] Executive Vice President,
Law and Administration,
and General Counsel
ATTEST:
/s/ Dale C. Gordon
- -----------------------
Dale C. Gordon
Secretary
16
<PAGE>
STATE OF DELAWARE )
) INDEXED
KENT COUNTY )
RECORDED In the Office for the Recording of Deeds, Etc. at
Dover, In and for the said County of Kent, In Corp. Record C
Vol. 129 Page 144 Etc. the 29th day of June A.D. 1990. WITNESS
my Hand and Seal of said office.
/s/ Michael T. Scuse, Recorder
<PAGE>
AGREEMENT
---------
AGREEMENT MADE AS OF THE 15TH DAY OF MAY `90 BETWEEN PLAYBOY ENTERPRISES,
INC., a corporation organized and existing under the laws of the State of
Delaware, having its principal place of business at 680 N. Lake Shore Drive,
Chicago, Illinois 60611 (hereinafter called "Publisher"), and QUAD/GRAPHICS,
INC., a corporation organized and existing under the laws of the State of
Wisconsin, having its principal place of business at Du Plainville Road,
Pewaukee, Wisconsin 53072 (hereinafter called "Printer")
WITNESSETH
----------
Publisher and Printer hereby mutually agree as follows:
ARTICLE 1 - EXHIBITS
- --------------------
1.01 This Agreement includes the following Exhibits which are attached
hereto and made a part hereof:
EXHIBIT A - Contract
EXHIBIT B - Manufacturing Specifications
EXHIBIT C - Pricing Specifications
EXHIBIT D - Paper Requirements
EXHIBIT E - Pro Forma
EXHIBIT F - Holiday and Production Schedule
EXHIBIT G - Paper Specifications / Shipping
EXHIBIT H - Sample Issues of Magazines
page 1 April 18, 1990
<PAGE>
ARTICLE 2 - TERM AND TERMINATION
- --------------------------------
2.01 This Agreement shall commence on August 1, 1990, covering "the Work"
(as hereinafter defined) on the November, 1990 issue of the "Magazine", (as
hereinafter defined) and shall continue for a term of approximately seven (7)
years (from the date of commencement through, November 1, 1996, production for
the January, 1997 issue of the "Magazine") unless terminated prior thereto
pursuant to any provisions hereof.
2.02 If Printer shall fail in any material respect to perform the Work in
accordance with the standards or schedules set forth in the Exhibits, except for
(i) any failure caused by Publisher's failure to meet any of its obligations
under the Production Schedule, or (ii) any failure caused by Publisher's
original material, the Publisher shall have the right to terminate this
Agreement, pursuant and subject to the following provisions: Publisher shall
give Printer written notice specifying in detail the failure or failures it
claims. If such failure or failures are not cured by Printer within completion
of production of the next two (2) issues after receipt of Publisher's notice and
such failure or failures are material, Publisher shall have the right to
terminate this Agreement by giving Printer written notice to that effect, in
which case this Agreement will terminate thirty (30) days thereafter. In the
event of such termination, Publisher shall be obligated to make payments to the
Printer for all undisputed amounts then due and owing and for work in process.
page 2 April 18, 1990
<PAGE>
2.03 Upon giving notice of the termination of this Agreement, Publisher
shall be entitled to remove all completed work, work in process, proofs, film,
standing type, plates, paper, and other materials and supplies of Publisher in
Printer's possession and Printer shall assist Publisher in removing same.
ARTICLE 3 - DEFINITIONS
- -----------------------
3.01 The following definition shall apply to words used in this
Agreement, unless the context specifically requires otherwise:
(a) The term "composition" means the process of preparing the copy or
text materials for other processes.
(b) The term "binding" means to gather body signatures, furnished
inserts, if any, and covers, saddle wire stitch or perfect bind them and
trim to size.
(c) The term "presswork" means printing in one (1) to five (5) colors
per page produced on offset or gravure presses with the printed pages
delivered from the press in folded sections.
(d) The term "late-closing form" means four (4) color and five (5)
color presswork printing and closing on a date to be mutually agreed upon
for the monthly issue of Magazine.
(e) The term "Printer's plant" means the existing plants operated by
Printer in Pewaukee, Sussex and Lomira, Wisconsin, including any additions
to such plants as may be mutually agreed upon.
page 3 April 18, 1990
<PAGE>
(f) The term "regular issue" means any issue of the Work which is
saddlewire stitched or perfect bound.
ARTICLE 4 - Work
- ----------------
4.01 Subject to the provisions of this Agreement, Publisher agrees to pay
Printer for, and Printer agrees to perform for Publisher at Printer's plant the
following (herein collectively referred to as "the Work"): prepress service,
subject to quality, pricing and schedule, (including four (4) color editorial
separations, stripping, ad handling, cromalins, final films) platemaking or
cylinder engraving, press work (including gravure), binding, mailing and
delivery to common carriers in connection with Publisher's magazine entitled,
PLAYBOY (herein referred to as the "Magazine") at the prices set forth in
Exhibit C.
However, Publisher shall, with the exception of minor composition performed
by Printer, arrange for composition to be done by its own employees or third
parties, provided that furnished film is delivered to the Printer in time to
meet the Production Schedule set forth by the Publisher.
4.02 Printer warrants that it has sufficient space and equipment capable
of producing the Work. It is understood that from time to time certain issues of
the Magazine may exceed Printer's press capacity; in which case Publisher, after
consulting with Printer, shall have the option to subcontract such excess to
another printer without liability to Printer under the terms of this Agreement.
page 4 April 18, 1990
<PAGE>
4.03 Printer agrees to furnish all necessary materials and supplies for
the Magazine, except those which Publisher specifically agrees to furnish under
this Agreement or in a signed amendment hereto.
4.04 Subject to the limitation of Printer's binding equipment, which
limitation does not apply to or include any of the inserts that may be specified
in Exhibit B, Publisher shall have the right to supply Printer, in a form
suitable for binding according to Printer's specifications, one (1) or more pre-
printed editorial or advertising inserts supplied by the Publisher or
Publisher's advertisers for insertion into the Magazine. Such inserts may be
furnished up to sixty (60) days prior to scheduled binding at no additional
storage fees. Additional costs resulting from the use of inserts will be billed
to Publisher in accordance with the prices in Exhibit C, or if such Prices are
not included in Exhibit C, at the prices agreed to by Printer and Publisher in
writing prior to the printing of the inserts and their delivery to Printer. Such
prices shall be developed using the same methodology and criteria as was used to
establish the prices set forth in Exhibit C.
4.05 The print size of each issue of the Magazine shall be 8-1/8 inches
by 10-7/8 inches with unrestricted bleed design. However, Publisher shall have
the right to change the print size, provided that the new print size is within
the capabilities of Printer's equipment.
page 5 April 18, 1990
<PAGE>
4.06 Printer shall have the right, with the prior written approval of
Publisher, to transfer the Work, in whole or in part, to another plant of
Printer. Publisher will give its approval if it is reasonably satisfied that
standards of quality, speed and service will be maintained or improved, and that
such transfer will not increase prices to Publisher or add to the cost or impair
the operating efficiency of Publisher's Editorial and Circulation Departments.
If the transfer or change-over of the Work from one plant to another should
result, in the exercise of Publisher's reasonable judgment, in lowering of
quality, speed or service, Printer agrees promptly to return such Work to the
plant previously producing the same, at no cost to Publisher.
ARTICLE 5 - GUARANTEE AS TO QUALITY
- -----------------------------------
5.01 Printer guarantees that the Work will be performed in a professional
manner and in accordance with the Exhibit B (Manufacturing Specifications) and
the Exhibit C (Pricing Specifications), subject to the provisions of Article 12
(Unavoidable Delays) hereof. Printer guarantees that the quality of the Work
performed by Printer shall be consistent with the highest standard of commercial
printing and shall be at least equal to the quality evidenced by the sample
issues of the Magazine attached hereto as Exhibit H. Once each calendar year
Publisher may substitute new sample issues to be attached as Exhibit H.
page 6 April 18, 1990
<PAGE>
5.02 In the event Publisher must grant a credit or forego billing to an
advertiser for advertising placed because of Printer's error or inferior
printing quality, then Publisher will receive a credit from Printer equivalent
to the cost of producing the page or pages involved. As used herein, the term
"cost" shall include Publisher's and Printer's costs for plates, cylinders,
presswork, ink, binding, labeling, mailing, packaging, postage, shipping, and
paper and Printer's charges to Publisher for composition and preparatory. In no
event shall any credit be less than the costs attributable to the portion of the
page involved and no more than the amount credited to the advertiser.
5.03 Publisher has the right from time to time to have a representative
in Printer's plant to inspect the various products that are manufactured
hereunder. Publisher's representative may inspect the quality of printing and in
conference with Printer's supervisors or others in charge may suggest for
Printer's consideration corrections in any Work which, in the opinion of such
representative, does not conform to the standards of quality established
hereunder. Publisher shall neither assume any liability nor be deemed to have
waived any default by any suggestion, or the absence thereof, of its plant
representative.
5.04 All claims for alleged defects shall be made by Publisher within
sixty (60) days of the Publisher's off sale date of the issue containing the
defect. Printer's liability
page 7 April 18, 1990
<PAGE>
shall be limited to the stated selling prices contained in Exhibit C based on a
cost per page or fractional page for paper, printing and binding, but in no
event will include special or consequential damages.
ARTICLE 6 - QUANTITIES
- ----------------------
6.01 The number of copies to be delivered by Printer shall not be less
than the quantity ordered by Publisher; however, an overrun of up to one-half of
one percent (.5%) for each issue of the Magazine shall be allowed and paid for
by Publisher at the additional per thousand cost set out in Exhibit C. There
will be no underruns.
6.02 Publisher shall furnish to Printer on or about December 1st of each
year a forecast for the following calendar year, including the number of copies,
number of pages, and the number and dates of the issues of the Magazine.
ARTICLE 7 - MANUFACTURING
- -------------------------
7.01 Printer shall perform the Work hereunder at Printer's plant in
accordance with the procedures, quality standards, and equipment specified in
the Manufacturing Specifications set forth in Exhibit B, as may be amended and
mutually agreed upon from time to time.
7.02 Printer shall produce the Work hereunder in accordance with the time
limits of the Production Schedule set forth by Publisher, as may be amended and
mutually agreed upon from time to time.
page 8 April 18, 1990
<PAGE>
7.03 Publisher shall furnish and/or return promptly all copy
specifications, artwork, dummies, sketches, proofs, copies, pasteups, films and
other material necessary for the timely performance of the Work by Printer.
Delay in furnishing or returning said materials necessary to production could
result in an extension of scheduled delivery dates or additional charges for
cost of accelerated production at regular overtime rates.
ARTICLE 8 - PAPER AND INK
- -------------------------
8.01 Publisher shall furnish F.O.B. Printer's plant in Wisconsin cover
and text paper in accordance with the paper requirements set forth in Exhibit D
in rolls, prepared and identified in accordance with the reasonable mechanical
specifications and delivery requirements of Printer as set forth in Exhibit G.
If substandard and/or defective paper is used or received by Printer which
adversely affects or, if used, might reasonably adversely affect runability or
printability, Printer will provide prompt notification to Publisher, by
telephone, upon discovery of such substandard or defective conditions,
confirming such notification to Publisher in writing within five (5) business
days. If, after such telephone notification, Publisher requests Printer to
continue using or to use said paper to perform the Work and Printer incurs extra
cost as a result thereof, said cost will be charged to and paid by Publisher.
Cores shall remain the property of Publisher and, if not damaged so as to be
page 9 April 18, 1990
<PAGE>
unusable, shall be loaded in cars and returned to the respective mills by
Printer at Publisher's direction and expense. Printer will act as Publisher's
agent in receiving paper and shall exercise the same diligence as it would in
receiving paper for its own account, including the reporting to Publisher of
apparent defects in or damage to such paper and shall file claims on behalf of
the Publisher for such apparent defects or damage.
8.02 Printer will maintain an accurate record of all paper received, used
and on hand, and shall submit a written monthly inventory to Publisher not later
than the tenth (10th) day following the invoice date for each issue of the
Magazine or sooner if possible. Once each contract year, at Printer's sole cost,
Printer will effect a physical inventory of paper and submit to Publisher a
report of said inventory. "Contract year" for the purpose of this Agreement
means the twelve (12) month period beginning with the first day of the calendar
month in which the printing of the first monthly requirement of the Magazine
commences ("Commencement Date"), pursuant to this Agreement, and each twelve
(12) month period thereafter. Printer is committed to use its best efforts to
keep the wastage of paper at a minimum.
8.03 Printer will, at the end of each contract year, pay Publisher for
its average cost of paper consumed in excess of that allowed by Exhibit D;
provided, however, that the value of underconsumption of one kind of paper will
be used as a credit against overconsumption of other kinds of
page 10 April 18, 1990
<PAGE>
paper. However, Printer shall have the option to reimburse the Publisher for
such excess in kind. If Printer consumes less paper than allowed by Exhibit D,
Publisher shall pay Printer an amount equal to fifty percent (50%) of the
average value of paper underconsumed during the contract year, and the paper
requirements set forth in Exhibit D shall be amended to reflect fifty percent
(50%) of such underconsumption in the new or revised paper requirements for the
next succeeding contract year. However, Publisher shall have the option to
settle such account in kind. Paper which is damaged, defective or does not
conform to the specifications in Exhibit G shall be excluded from the
computation of overconsumption and underconsumption. The actual basis weight of
the paper received and used for each issue of the Magazine shall be the basis
for the calculation of over and underconsumption. Within ten (10) days of
submitting each issue's invoice, Printer shall submit the calculation of under
or over consumption for the issue of the Magazine to which the invoice applies.
8.04 Printer shall purchase and store for Publisher ink in the amounts
and kinds consistent with Publisher's requirements hereunder. Printer shall
invoice Publisher in accordance with the Specimen Invoices attached hereto as
Exhibit E.
ARTICLE 9 - STORAGE
- -------------------
9.01 All paper shall be and remain the property of Publisher. Printer
shall store for Publisher, without charge
page 11 April 18, 1990
<PAGE>
to Publisher, the amount of paper required for the issue then in production plus
the two (2) following issues of the Magazine in accordance with the Paper
Requirements set forth in Exhibit D. Publisher may reasonably require Printer to
store paper in excess of the foregoing amount, in which case Printer may charge
Publisher a reasonable charge based upon comparable public warehousing rates.
9.02 Printer shall store all excess copies of past issues of the Magazine
for a period of ninety (90) days after publication, without charge to Publisher.
9.03 Printer shall store editorial material in film form for a period of
twelve (12) months after publication, without charge to Publisher. Thereafter,
Printer shall request Publisher's instructions, and in accordance with such
instructions, shall either return such materials to Publisher at Publisher's
expense, or destroy such materials, or store such materials at a mutually agreed
upon cost to Publisher.
9.04 Printer shall store advertising material in film form for possible
reuse for a period of twelve (12) months after the time of last use, without
charge to Publisher. Thereafter, Printer shall request Publisher's instructions,
and in accordance with such instructions, shall either return such materials to
Publisher at Publisher's expense, or destroy such materials, or store such
materials at a mutually agreed upon cost to Publisher.
9.05 Printer shall store preprinted advertising inserts, sub cards, and
ad cards, either blow in or bind in,
page 12 April 18, 1990
<PAGE>
furnished by Publisher in sufficient number for at least two (2) issues, without
charge to Publisher. Printer may invoice Publisher for a reasonable charge for
storage of preprinted inserts for more than two (2) issues.
ARTICLE 10 - PRICES AND TERMS
- -----------------------------
10.01 Publisher shall pay Printer for the Work at the prices in effect
from time to time in accordance with the Price Schedule set forth in Exhibit C,
as may be amended from time to time.
10.02 Printer will send Publisher a preliminary invoice in accordance
with the specimen invoices attached hereto as Exhibit E for the Work within five
(5) days after mailing or delivery to common carriers of the newsstand copies of
each issue of the Magazine and will accompany such invoice with a copy of
Printer's newsstand shipping completion notice to Publisher's Magazine
distributor. Printer will provide Publisher with a final invoice (also in
accordance with the specimen invoices attached hereto as Exhibit E) for the Work
within fifteen (15) days after mailing or delivery to common carriers of each
issue of the Magazine. The terms of payment are net cash thirty (30) days from
the date of receipt by Publisher of Printer's final invoice, or at Publisher's
option, ten (10) days after receipt of Printer's preliminary invoice in an
amount net of one and one fourth percent (1 1/4%) cash discount. Such payment
will be made by wire transfer in federal funds unless another form of payment is
mutually agreed upon. Any discrepancies between the preliminary and final
page 13 April 18, 1990
<PAGE>
invoices shall be adjusted by the parties within a reasonable time.
10.03 If Publisher shall default in the payment of any invoice which
Publisher has not disputed, and said default shall continue for a period of
thirty (30) days after written notice from Printer, Printer shall be entitled to
charge interest at the rate of one percent (1%) per month (twelve percent (12%)
per annum) on the amount of the unpaid but undisputed invoice.
10.04 There will be no increase in those manufacturing prices (excluding
ink), set forth in Exhibit C for the period from the Commencement Date until
August 1, 1991 including but not limited to increases in costs resulting from
changes in labor rates, fringe benefits, shop rules, manning requirements or
other working conditions experienced by Printer affecting the cost of performing
the Work or due to increases in the cost of materials (excluding ink),
utilities, fuel, operating supplies, service costs or any other materials or
services utilized by Printer in the performance of the Work. Changes in the cost
of ink shall be passed on as incurred. Rates for ink in the price schedule are
based on Printer's cost from its suppliers as of January 1, 1990. Printer will
supply Publisher with documentation on increases from Printer's ink supplier in
a form acceptable to both parties.
10.05 If during the period of this Agreement (or any renewal) there shall
be any change to Printer in the price of materials (excluding ink), or labor
increases or decreases (or
page 14 April 18, 1990
<PAGE>
any change in labor conditions), the prices contained in Schedule C may be
adjusted on August 1, 1991, and on each August 1st thereafter during the term of
this Agreement to reflect said change. Price increases will be limited to actual
cost not to exceed eighty five percent (85%) of the Consumer Price Index. For
purposes of this Article 10.05, the "Consumer Price Index" means the selected
areas, all items index" (1967=100) for Milwaukee, Wisconsin of the Consumer
Price Index for Urban Wage Earners and Clerical Workers (including Single
Workers) published by the Bureau of Labor Statistics, U.S. Department of Labor.
The increase in the Consumer Price Index applicable as of any August 1st shall
be the increase in the Consumer Price Index of the previous March over that of
the preceding March. (For example, the increase applicable for August 1, 1991
shall be the increase in the Consumer Price Index of March, 1991 over that of
March, 1990.) Printer will notify Publisher as soon as practical after knowledge
of any increase or decrease.
10.06 Overtime work (herein defined to include holidays as defined in
Exhibit F) is not included in the prices set forth in Exhibit C. No overtime
shall be charged unless requested by Publisher. Any overtime work which Printer
schedules to fulfill Printer's commitments per the Production Schedule shall be
at Printer's expense.
10.07 Commencing with the fifth (5th) year of this Agreement (August 1,
1995 for production of the November, 1995 issue of the magazine), a competitive
situation should arise from a reliable and qualified source capable of producing
the
page 15 April 18, 1990
<PAGE>
volume and quality produced by Printer under this Agreement for the production
of the Magazine in whole and if there is a difference in Publisher's net over-
all cost for substantially identical services of more than five percent (5%) on
such total volume and quality described above in this Article 10.07, and Printer
and Publisher cannot agree on a satisfactory settlement, Publisher shall have
the right to terminate this Agreement by written notice, effective not less than
twelve (12) months after Printer is advised of such competitive situation. In
the event of dispute between the parties hereto as to the "cost for
substantially identical services,": such dispute shall be settled by arbitration
to be held in Chicago, Illinois in accordance with the Rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
shall be entered in any court having jurisdiction.
10.08 In order to verify any increase or decrease in the wage rates or
the actual costs of materials, Printer shall provide Publisher with evidence of
such increase or decrease certified to be correct by a duly certified public
accounting firm using generally accepted accounting principles.
10.09 In the event that Publisher desires to make changes in the
Manufacturing Specifications set forth in Exhibit B or the Production Schedule
set forth by the Publisher, Printer shall use its best efforts and cooperate
with Publisher in putting such changes into effect. In the event that any such
change results in an ascertainable documented material increase or decrease in
the cost of performing the Work, the prices for the Work set forth in Exhibit C
shall be adjusted to reflect a mutually acceptable increase or decrease.
page 16 April 18, 1990
<PAGE>
10.10 Printer shall make all reasonable efforts to improve the quality
and efficiency of the Work and to keep abreast of new developments in the
printing industry. The parties recognize that new developments in the printing
industry may result in cost savings, and that Printer with the approval of
Publisher is expected to institute all possible new developments and to adjust
the Exhibit C prices in order to pass along a fair portion of realized savings
to Publisher. Adjustments in Exhibit B (Manufacturing Specifications),
Production Schedule, and Exhibit C (Price Schedule) resulting from any new
developments shall be subject to the mutual agreement of the parties.
ARTICLE 11 - TITLE AND OWNERSHIP - NO LIENS
- -------------------------------------------
11.01 All paper, film, plates, proofs, printed pages and bound copies
made or held by Printer for Publisher shall be the property of Publisher. Title
and possession to the Work shall pass to Publisher upon delivery of completed
issues of Magazine f.o.b. Printer's plant.
11.02 Printer shall not cause any property of Publisher in Printer's
possession to be subjected to any liens or encumbrances whatsoever, and shall
protect such property from any claims of Printer's creditors. Except to the
extent of unpaid and undisputed invoices as set forth in Article 10.03, Printer
shall have no lien or security interest in any property of Publisher which comes
into Printer's possession and Printer expressly waives any liens or security
interest on such property created by statute.
page 17 April 18, 1990
<PAGE>
ARTICLE 12 - UNAVOIDABLE DELAYS
- -------------------------------
12.01 Printer shall not be liable or responsible to Publisher for delays
or failures to perform the Work occasioned by causes beyond its control and not
due to its fault or negligence, including without limitation, war, natural
disaster, fires, strikes, lockouts, complete inability to obtain necessary
materials, energy, utilities or carrier space, and government acts and
regulations. Printer shall, however, use its best efforts to continue to perform
the Work at any of its plants not so affected by such causes or through
subcontracting Publisher's Work to other printers for the duration of any such
occurrence, subject to Publisher's consent, which shall not be unreasonably
withheld. In no event shall Printer be obligated to subcontract Publisher's Work
if the cost of such subcontracting exceeds the price schedule set forth in
Exhibit C unless Publisher consents to the increase in prices. During any such
period while Publisher's Work is being done under subcontract, the Exhibit C
Price Schedule shall remain in effect (subject to the foregoing) and Printer's
obligations with respect to specifications and quality, overruns and underruns
and storage shall remain in effect.
12.02 In the event of delay on the part of Printer due to causes beyond
its control, which delays shall be continuing, Publisher shall have the right
(notwithstanding any other provision of this Agreement) to place the Work
elsewhere, in whole or in part, for the duration of such causes beyond
page 18 April 18, 1990
<PAGE>
Printer's control. Publisher shall have the right to remove from Printer's plant
any and all completed work, work-in-progress, proofs, filmboards, artwork and
other material and supplies intended for use in preparing any then uncompleted
work. If Printer objects to Publisher's removal of property from Printer's plant
on the grounds that it does not consider such cause beyond its control to be
continuing, Printer shall, nevertheless, not deter, delay or impede Publisher
from such removal of property, but shall pursue its legal remedies after such
removal has taken place.
12.03 In the event of any delay due to strikes, lockouts or other labor
difficulties, Publisher shall have the right to place the Work elsewhere. If
Printer anticipates any strike, lockout or other labor difficulties which may
cause stoppages or slowdowns of the work on the Magazine, Printer shall notify
Publisher sufficiently in advance so that Publisher can make alternate
arrangements for the production of the Magazine during any such period of
strikes, lockout or other labor difficulties. In such circumstances, Printer
shall assist Publisher in making such alternate arrangements and in moving the
Work.
12.04 Printer shall resume performance hereunder and Publisher shall
return to Printer's plant all material removed pursuant to Section 12.02 or
12.03 after Printer has furnished assurances of its capacity to so resume
reasonably satisfactory to Publisher.
page 19 April 18, 1990
<PAGE>
12.05 Publisher shall not be liable or responsible to Printer for delays
or failures in furnishing materials occasioned by causes beyond its control and
not due to its fault or negligence, including, without limitation, war, natural
disaster, fires, strikes, lockouts, complete inability to obtain necessary
materials, energy, utilities or carrier space, and government acts and
regulations.
12.06 If any of the above-described causes beyond the control of Printer
continues for a period of more than one hundred twenty (120) days, Publisher
shall have the right to terminate this Agreement upon not less than thirty (30)
days prior written notice to Printer.
ARTICLE 13 - INDEMNIFICATION
- ----------------------------
13.01 Printer agrees to indemnify, defend and save Publisher harmless of
and from any and all loss, claims, damages, including reasonable attorney's
fees, which Publisher may suffer or incur based on a claim, charge or suit
instituted against Publisher as a result of any act or omission or commission of
Printer in performing its services hereunder.
13.02 The Publisher agrees to indemnify, defend, and save Printer
harmless from any and all loss, claims for damages, including reasonable
attorney's fees, which Printer may suffer or incur in the event any claim is
made against Printer by any person or corporation, by reason of libel, slander,
infringement of copyright, violation of privacy, breach of contract or any other
cause of whatsoever nature (and not due
page 20 April 18, 1990
<PAGE>
to the negligence of Printer) arising from or as a result of printing the
Magazine or any material of whatsoever nature included therein.
13.03 Notwithstanding Paragraphs 13.01 and 13.02 above, neither party
shall be liable to the other party for any such indemnification unless the party
seeking indemnification has notified the other party of said claim, action,
proceeding or demand as soon as practicable upon receipt of knowledge of same
and afforded the other party the opportunity to defend or participate in the
defense of said claim, action, proceeding or demand, and further, that no
settlement or payment of any claim, action, proceeding or demand shall be
binding on the indemnifying party unless prior approval and consent is obtained
from the indemnifying party, which said consent will not be unreasonably
withheld.
ARTICLE 14 - INSURANCE
- ----------------------
14.01 Printer shall carry fire and extended coverage insurance including
sprinkler leakage if applicable on all materials and Work in Process, Work
completed and not delivered which is still in Printer's possession and on all
material supplied by Printer and all property of the Publisher including, but
not limited to, paper, transparencies, film inserts, and the like. Such coverage
shall be at Publisher's replacement cost. On or before the commencement date of
this Agreement, Printer will provide Publisher with a certificate of insurance
naming the Printer as well as the Publisher as
page 21 April 18, 1990
<PAGE>
additional named insureds as their interests may appear. Such certificate will
evidence the insurer's agreement that such insurance will not be modified or
terminated without at least twenty (20) days' prior written notice to Publisher
of such modification or termination.
ARTICLE 15 - JOINT VENTURE
- --------------------------
15.01 Nothing contained herein shall in any way constitute a partnership
between or a joint venture by the parties hereto. Neither of the parties shall
hold itself out as the partner or joint venture of the other party, and neither
party shall be or become liable or bound by any representation, act or omission
whatsoever of the other party contrary to the provisions of this Agreement.
ARTICLE 16 - NO ASSIGNMENT
- --------------------------
16.01 Subject to the provisions of Articles 17, 18 and 19, this Agreement
shall be binding upon and inure to the benefit of the successors and assigns of
the parties hereto.
16.02 Neither party to this Agreement shall assign, mortgage or otherwise
encumber this Agreement or its rights or responsibilities hereunder without the
prior written consent of the other party, which consent shall not be
unreasonably withheld.
ARTICLE 17 - BANKRUPTCY
- -----------------------
17.01 If either party shall be adjudicated a bankrupt, shall make any
assignment for the benefit of creditors, shall institute proceedings for
voluntary bankruptcy, shall apply for
page 22 April 18, 1990
<PAGE>
or consent to the appointment of a receiver, or if an order shall be entered
approving a petition seeking its reorganization or appointing a receiver of it
or its property, then upon the happening of any one or more of such events, the
other party to this Agreement shall have the right to terminate this Agreement
by giving written notice of its intention to do so. Any termination of this
Agreement pursuant to this Article 17 shall not release either party from any
obligation hereunder due and owing to the other party up to the date of such
termination.
ARTICLE 18 - SALE OF MAGAZINE OR DISCONTINUANCE OF PUBLICATION
- --------------------------------------------------------------
18.01 If Publisher shall propose to sell the Magazine or any successor
magazine thereto, whether titled the same or not, to a person, firm, or
corporation which is not a subsidiary or affiliate of or controlled by
Publisher, Publisher shall give Printer written notice not less than ninety (90)
days prior to any contemplated sale. Thereafter, Publisher shall keep Printer
advised of the progress of any such proposed sale and Printer shall keep such
information confidential. Within thirty (30) days after receipt of such notice,
Printer shall advise Publisher in writing as to whether Printer will consent to
an assignment of Publisher's rights and obligations under this Agreement to the
prospective purchaser. If Printer is willing to consent to an assignment,
publisher shall use its best efforts to persuade the prospective purchaser to
assume all Publisher's obligations under this Agreement concurrently
page 23 April 18, 1990
<PAGE>
with the consummation of such sale by an instrument in writing satisfactory to
Printer. If Printer shall not consent to the assignment by Publisher to such
prospective purchaser or if despite its best efforts Publisher shall be unable
to persuade the prospective purchaser, upon the consummation of such sale the
rights and obligations of the parties hereunder shall terminate without
liability of any kind by either party for the unexpired term of the Agreement.
18.02 If Publisher decides to discontinue the publication of the
Magazine, Publisher shall give Printer ninety (90) days advance written notice
of such decision, specifying the effective date of discontinuance upon which
date this Agreement shall terminate without liability of any kind by either
party for the unexpired term of this Agreement.
18.03 Without limiting the provisions of Articles 18.01 and 18.02,
Publisher shall be obligated to pay all costs for Work done up to the effective
date of termination.
ARTICLE 19 - CHANGE IN CONTROL OF PRINTER
- -----------------------------------------
19.01 In the event that the ownership and management of Printer at any
time shall pass out of the majority control of its present owners and
management, by sale of stock or assets, merger or otherwise, Printer shall give
Publisher written notice not less than ninety (90) days prior to the effective
date of any change of control and Publisher shall have the right to terminate
this Agreement upon the effective date of such change of control. If Publisher
does not elect to
page 24 April 18, 1990
<PAGE>
terminate this Agreement, the new owners and management of Printer shall assume
this Agreement and carry out all of its terms and provisions.
ARTICLE 20 - DELIVERY AND DISTRIBUTION SERVICES
- -----------------------------------------------
20.01 Printer shall cause all copies of the Magazine produced by it to be
tendered for delivery F.O.B. Printer's dock, Lomira, Wisconsin, in care of such
persons, firms or corporations as Publisher may from time to time designate or
as otherwise provided herein. Delivery shall be made in accordance with the
schedule as furnished by Publisher from time to time, which delivery shall
conform to the current Production Schedule.
20.02 Printer shall perform a complete distribution service for the
Magazine which includes, but is not limited to, the maintenance of tariff files,
rate analyses, routing, preparation of shipping documents, arranging for
transportation, auditing freight bills and handling charges submitted by
carriers and breakup agents, tracing shipments, processing and collecting claims
for short or damaged shipments (but assumes no liability for same), preparation
of postal forms, prepayment of freight invoices, and prorating consolidated
shipment charges.
20.03 Printer will, at frequent and regular intervals, review the
existing postal and distribution scheme and determine any savings that might be
effected from changes in availabilities, rate structures, regulations, volume,
etc., in
page 25 April 18, 1990
<PAGE>
the consolidation of shipments and in the establishment of entry points, and
shall report on these reviews to the Publisher, with any recommendations.
20.04 Printer will provide Publisher's Magazine distributor with a
newsstand shipping completion notice not more than five (5) days after mailing
or delivery to common carriers of the newsstand copies of each issue of the
Magazine.
ARTICLE 21 - NO LIENS
- ---------------------
Subject to Article 11.02 hereof, Printer shall not cause any property of
Publisher in Printer's possession to be subject to any liens or encumbrances of
whatsoever kind or nature.
ARTICLE 22 - TITLE AND RISK OF LOSS
- -----------------------------------
22.01 Title and risk of loss or damage to finished Work shall pass to
Publisher upon delivery to a common carrier, contract carrier or U.S. Postal
service F.O.B., Printer's shipping dock.
22.02 Title to all artwork, mechanicals, proofs, film negatives,
positives, transparencies, paper (excluding waste paper), inserts, etc., and
other materials supplied or furnished by the Publisher shall remain the property
of Publisher. Title to film made or caused to be made by Printer for Publisher
and paid for by Publisher shall become the property of Publisher.
ARTICLE 23 - PROOFS
- -------------------
Prior to the press run of any issue of the Magazine, Printer shall supply
to Publisher a blueline proof. Publisher
page 26 April 18, 1990
<PAGE>
shall approve said proof by representatives designated by the Publisher in
writing, by initialing said proof with "O.K." or "O.K. With Changes". Any
changes required shall be specified by the Publisher's designated
representatives in writing. Printer shall not be responsible for any errors if
printed pursuant to such representatives' instructions as herein provided.
ARTICLE 24 - LIMITATION OF MATERIALS
- ------------------------------------
If Printer's materials or supplies shall be limited because of governmental
or supplier allocations or restrictions, such materials or supplies as Printer
shall have will be used and distributed ratably to its customers based upon the
usage of such customers when the allocations or restrictions became effective.
If the materials' shortage materially interferes with the publication of the
Magazine, then Publisher shall have the option to place the Work elsewhere
pursuant to the provisions contained in Article 12 hereof.
ARTICLE 25 - NEW EQUIPMENT
- --------------------------
It is recognized that if the parties mutually agree that the Work may be
more economically and efficiently produced on new equipment, the parties will
negotiate in good faith as to the terms for the installation of such equipment,
including prices for Work produced, the terms and conditions of contract and any
other arrangements which appear appropriate in connection with the addition of
such equipment. Costs used in
page 27 April 18, 1990
<PAGE>
establishing new prices will be computed using the same framework and criteria
as those used to establish the prices set forth in Exhibit C.
ARTICLE 26 - NEW DEVELOPMENTS IN GRAPHIC ARTS
- ---------------------------------------------
The Printer agrees to make all reasonable efforts to reduce costs and to
improve the quality and efficiency of the Work and to keep abreast of
developments in the graphic arts comprising technological improvements in
processing, methods and techniques and to advise Publisher from time to time of
its findings. The Printer shall adopt such technological or other innovations as
the parties agree (which agreement shall not be unreasonably withheld) are
necessary or desirable for production of Work hereunder, provided the parties
mutually agree with respect to the methods and conditions of manufacture which
pertain to such innovation. Upon incorporation of any such development, the
Printer shall adjust the prices to reflect as mutually agreed upon any increases
or decreases in cost resulting therefrom. Such increases or decreases in costs
will be computed using the same framework and criteria as those used to
establish the prices set forth in Exhibit C.
ARTICLE 27 - MESSENGER SERVICE
- ------------------------------
Messenger service between Publisher's offices, and Printer's plant in
Pewaukee, Wisconsin, will be provided daily by Printer at Publisher's cost.
page 28 April 18, 1990
<PAGE>
ARTICLE 28 - ADVERTISING AND EDITORIAL MATERIAL
- -----------------------------------------------
Printer agrees to a mechanical inspection of advertising and editorial film
prior to printing. Printer will promptly notify Publisher on the proofs all
apparent defects on all film received. Film is to be repaired when necessary and
charged for as set forth in Exhibit C. Printer will not unnecessarily charge for
film repairs. Printer will supply proof with description of work performed when
billing for repair work is submitted. Printer accepts full responsibility for
mechanical defects in film passed by its inspection, including those it repairs
in the event of mishaps within Printer's plant.
ARTICLE 29 - POSTAL REGULATIONS
- -------------------------------
Publisher may from time to time wish to take advantage of changes that may
occur in U.S. Postal regulations (e.g., the regulation which permits a
publication to attach certain letters [e.g., renewal notices] or other types of
mail to a magazine, thereby giving that piece of mail the benefit of the
publication's second class mailing rates). Printer agrees to make such tests as
are reasonably required by Publisher and to work with the Publisher towards
determining the benefits of such changes to Publisher.
ARTICLE 30 - CONFIDENTIAL TREATMENT
- -----------------------------------
Printer shall use its best efforts to keep confidential the editorial
contents of unpublished issue of the Magazine until the newsstand sales dates
and to keep confidential Publisher's subscriber lists and Printer shall require
its employees to maintain such confidentiality.
page 29 April 18, 1990
<PAGE>
ARTICLE 31 - GOVERNING LAW
- --------------------------
This Agreement shall be interpreted and construed in accordance with the
laws of the State of Illinois.
ARTICLE 32 - AMENDMENTS
- -----------------------
This Agreement constitutes the entire agreement and understanding between
the parties, and cannot be amended, or changed, or supplemented except by a
written instrument signed by both the parties.
ARTICLE 33 - NOTICES
- --------------------
All notices required or permitted to be given under this Agreement shall be
deemed given if sent by registered or certified mail, postage prepaid, addressed
to the parties as follows:
If to Publisher: Playboy Enterprises, Inc.
680 N. Lake Shore Drive
Chicago, Illinois 60611
Attention: John Mastro
with an exact copy sent to
the same address marked:
"Attention: Corporate Secretary"
If to Printer: Quad/Graphics, Inc.
Du Plainville Road
Pewaukee, Wisconsin 53072
Attention: Harry V. Quadracci
page 30 April 18, 1990
<PAGE>
Notices shall be deemed conclusively to have been served when actually received
or refused by the addressee or upon notification of non-deliverability by the
postal authorities, as the case may be.
ARTICLE 34 - CAPTIONS
- ---------------------
The captions to this Agreement have been placed thereon for the convenience
of the parties and shall not be considered in the interpretation or construction
of the Agreement.
ARTICLE 35 - ENTIRE AGREEMENT
- -----------------------------
This Agreement represents the entire understanding of the parties. None of
the terms of this Agreement can be waived or modified except by an express
agreement in writing signed by the parties. There are no representations,
promises, warranties, covenants or undertakings other than those contained in
this Agreement. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of its rights under this Agreement shall not be
deemed as constituting a waiver or a modification thereof and either party may,
within the time provided by applicable law, commence appropriate proceedings to
enforce any or all of such rights.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers.
PLAYBOY ENTERPRISES, INC.
By /s/ James P. Radtke
----------------------------
Its Senior Vice President
---------------------------
QUAD/GRAPHICS, INC.
By /s/ Harry V. Quadracci
----------------------------
Its President
---------------------------
August 18, 1990
<PAGE>
[LETTERHEAD OF QUAD/GRAPHICS]
April 11, 1990
Mr. John Mastro
PLAYBOY ENTERPRISES, INC.
680 North Lake Shore Drive
Chicago, IL 60611
Dear John:
The understanding reached between Quad/Graphics, Inc. and Playboy Enterprises,
Inc. relative to the printing of certain titles is as follows:
"Quad/Graphics agrees that during the first two years of the Contract to
print PLAYBOY it will not print the publication PENTHOUSE. During the
remaining term of the contract, Quad/Graphics will not print PENTHOUSE
without prior approval from Playboy Enterprises, Inc. Quad agrees that
Playboy need not be reasonable in withholding such approval and that breach
of this provision by Quad could have a material adverse effect on Playboy
and its business. Quad understands that remedies at law may be inadequate
to protect Playboy against such breach and Quad agrees to the granting of
injunctive relief in Playboy's favor should Quad breach this provision."
If this accurately reflects our understanding, please sign and return.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
QUAD/GRAPHICS, INC. PLAYBOY ENTERPRISES, INC.
By /s/ Carl L. Bennett By Howard Shapiro
------------------- -----------------------
Its VP Its Exec. V.P.
------------------- ----------------------
Date 4/11/90 Date 4/12/90
------------------ ---------------------
Sincerely,
/s/ Carl L. Bennett
- ----------------------
Carl L. Bennett
Vice President
QUAD/GRAPHICS, INC.
<PAGE>
PLAYBOY
BARBARA GUTMAN
SENIOR VICE PRESIDENT
CIRCULATION AND ANCILLARY BUSINESSES
November 21, 1994
Scott Weis
COMMUNICATIONS DATA SERVICES
112 Tenth Street
Des Moines, IA 50309
Dear Scott:
This letter, when the enclosed copy has been signed, dated and returned by you,
will evidence the agreement between Communications Data Services, Inc. ("CDS")
and Playboy Enterprises, Inc. ("Publisher") to further amend the Subscription
Fulfillment Agreement ("Agreement") dated as of July 1, 1987, as amended, as
follows:
Section 5.1 of the Agreement is hereby amended and restated in its entirety to
read as follows:
"5.1 Term
----
The Term of this Agreement shall continue until June 30, 1996, unless earlier
terminated as provided under the Agreement. When used in this Agreement, the
term "year" shall mean a consecutive twelve (12) month period commencing July
1."
If the above is acceptable to you, please sign, date and return the enclosed
copy of this letter.
Very truly yours,
PLAYBOY ENTERPRISES, INC.
/s/ Barbara Gutman
-------------------------
Barbara Gutman
ACCEPTED AND AGREED TO:
COMMUNICATIONS DATA SERVICES
By /s/ Scott Weis
--------------------------
Title Senior Vice President
-----------------------
Date 11/30/94
------------------------
<PAGE>
As of March 24, 1995
Uni Distribution Corp.
60 Universal City Plaza
Universal City, CA 91608
Attn: Mr. John Burns, Executive Vice President
Re: Playboy Entertainment Group, Inc. Distribution Agreement
--------------------------------------------------------
Supplement and Amendment
------------------------
Gentlemen:
Reference is made to that certain letter agreement dated August 22, 1991 between
Uni Distribution Corp. ("Uni") and Playboy Video Enterprises, Inc., the
predecessor in interest to Playboy Entertainment Group, Inc. ("Playboy"),
relating to the distribution of Playboy programs on VHS home videocassettes in
the United States and Canada. Such letter agreement, including all exhibits
thereto and as it may have been supplemented or amended, is referred to as the
"Agreement." All defined terms used in this letter amendment (the "Amendment")
and not defined herein are defined in the Agreement. Uni and Playboy desire to
supplement and amend the Agreement as follows:
1. Term. The term of the Agreement (the "Term") shall be extended to March 25,
1998, with no automatic renewal, so that the Term shall terminate on such date,
subject to extension pursuant to subparagraph 3(a) of 6(b)(vii) below. During
the Term, neither party shall have the right originally set forth in Section 1
of the Agreement to terminate the Agreement on six (6) months' prior written
notice. After the effective date of termination of the Term, Uni shall have no
rights of any kind or nature to any program released or distributed under the
Agreement and to which such termination applies, except that for each New
Release Program (as defined in Paragraph 3 below) released in the six (6) months
prior to the effective date of termination for the New Release Programs, Uni
shall have six (6) months from the initial release date to exploit such program
in the manner authorized under the Agreement.
2. Territory. The territory of Uni's rights under the Agreement shall be the
United States and Canada (the "Territory").
3. Product. Commencing March 26, 1995, the programs to be distributed by Uni
under the Agreement shall consist of all English-language, Playboy-branded,
non-feature film, non-television
1
<PAGE>
movie, home video programs currently in distribution in the United States on
home videocassette or released in the United States on home videocassette during
the Term for New Release Programs, and no others. Such programs are categorized
as follows:
(a) All English-language, Playboy-branded, non-feature film home video
programs initially released in the United States on home videocassette on
or after March 27, 1994 through the end of the Term for New Release
Programs. Such programs are referred to as the "New Release Programs" and
shall exclude feature films and television movies. Playboy commits to
release at least twelve (12) New Release Programs each contract year of the
Agreement, commencing March 26, 1995, subject to force majeure and other
events beyond Playboy's reasonable control. Subject to Uni's and Playboy's
respective rights at law and under the Agreement, if in any contract year
of the Agreement, Playboy does not release at least twelve (12) New Release
Programs in such contract year, then such contract year with respect only
to the New Release Programs and not to the Catalog Programs (as defined in
subparagraph 3(b) below) shall be extended to the date on which Playboy
releases the twelfth (12th) New Release Program for such contract year, and
the commencement date and the end date of each succeeding contract year and
the end date of the Term with respect only to the New Release Programs and
not to the Catalog Programs shall be correspondingly extended.
(b) All English-language, Playboy-branded, non-feature film, non-television
movie home video programs then-currently in distribution in the United
States and that have been in distribution in the United States on home
videocassette for more than twelve (12) months (including the "EDEN" and
"INSIDE OUT" programs), whether or not such twelve (12) months occur before
or during the Term for such programs (the "Catalog Programs"). In this
regard, twelve (12) months and one (1) day after the initial release in the
United States under the Agreement of a New Release Program, such New
Release Program shall automatically become a Catalog Program, if the Term
for Catalog Programs has not expired by that time.
4. Uni Fees.
---------
(a) Commencing March 26, 1995, Uni shall be entitled to retain from "gross
revenues" (as defined in Section 5 of the Agreement) for the New Release
Programs and the Catalog Programs distributed under the Agreement a sum
equal to fifteen percent (15%) of the "net invoiced sales" (as defined in
Section 5 of the Agreement) for the New Release Programs and the Catalog
Programs (the "Distribution Fees"). The Distribution Fee is inclusive of
any Uni overhead charge, shipping or freight charges from Uni's warehouse
or distribution facility, allowances or compensation for bad debts, and any
other expenses or deductions from gross revenues not specifically allowed
under the Agreement as
2
<PAGE>
amended by this Amendment. Commencing March 26, 1995, the Distribution Fee
supersedes the fees under Section 4 of the Agreement.
(b) Commencing March 26, 1995, Playboy shall have the right to purchase
from Uni for Playboy's "direct response marketing sales" under Section 11 of
the Agreement duplicated and packaged videocassette copies of any program
that is a Catalog Program at the time of purchase. Playboy's purchase price
for such copies of the applicable program shall be the cost to Uni of
purchasing copies of the applicable program for Playboy, in accordance with
Paragraph 5 below, free on board Uni's United States distribution facility,
plus a per unit processing fee of Eight Cents ($.08). Commencing March 26,
1995, Playboy also shall pay to Uni a per-unit processing fee of Eight Cents
($.08) for each unit of a New Release Program that Playboy requests Uni ship
from Uni's United States distribution facility for Playboy's direct response
marketing sales.
5. Uni Purchase of Catalog Program Inventory/Manufacturing.
--------------------------------------------------------
(a) For all Catalog Programs existing on March 26, 1995, Uni shall purchase
from Playboy (i) Playboy's inventory of finished videocassettes that are in
Uni's warehouses or other possession or control, and (ii) a portion of
Playboy's videocassette sleeve inventory already selected by Uni, both as
listed in Exhibit A to this Amendment. The purchase price for such
inventory shall be Playboy's actual out-of-pocket costs (as indicated in
Exhibit A), free on board Uni's United States distribution facility.
Playboy shall calculate its actual out-of-pocket costs for inventory under
this Amendment at the average charge to Playboy by Playboy's duplicating
facility for such inventory. Uni shall pay Playboy the total purchase price
for such inventory in two (2) equal installments, the first payable on or
before May 1, 1995, and the second payable on or before July 1, 1995. Uni
also shall pay all costs of repackaging, adding or changing logos and other
changes to any of the inventory purchased from Playboy, if any.
(b) Whenever a New Release Program becomes a Catalog Program during the
Term for Catalog Programs, Uni also shall purchase from Playboy the lesser
of (i) all copies, or (ii) a one (1) year's supply of copies based on past
sales, or Playboy's then-existing inventory of finished videocassettes and
videocassette sleeves for the applicable Catalog Program at Playboy's actual
out-of-pocket costs, free on board Uni's United States distribution
facility. In this regard, the current average unit cost to Playboy for a
finished videocassette is approximately Two Dollars and Twenty-Five Cents
($2.25) for each sixty (60) minute videocassette. Furthermore, Exhibit B to
this Amendment lists the videocassette sleeve inventory to be purchased by
Uni over
3
<PAGE>
approximately the first year of the Term for Catalog Programs, and the cost
thereof. For finished videocasettes, Playboy shall notify Uni of the amount
of such inventory to be purchased and the cost thereof at least one (1)
month prior to the date that the applicable New Release Program is scheduled
to become a Catalog Program. Uni shall pay Playboy for such Catalog Program
inventory by adding the cost thereof to the monthly payment to Playboy of
Playboy's share of gross revenues for the New Release Programs, in
accordance with subparagraph 6(a) below, for the payment due in the month
that the applicable New Release Program becomes a Catalog Program. To the
extent that Playboy's then-existing inventory for such program exceeds a one
(1) year's supply, Uni shall store the extra copies for Playboy and purchase
from Playboy such extra copies at Playboy's actual out-of-pocket costs,
prior to duplicating additional copies.
(c) For all Catalog Programs, including for a New Release Program that
becomes a Catalog Program during the Term for Catalog Programs, Uni shall
bear all costs and responsibilities of any kind in connection with the
manufacture, packaging, distribution, advertising or marketing of such
Catalog Program. In this regard, Uni shall have the right either to (i) to
manufacture and package its own copies of a Catalog Program, using the
videotape masters and other master materials furnished by Playboy, subject
to Playboy's approval of the manner and quality of duplication and
packaging, or (ii) utilize inventory copies of such Catalog Program
purchased from Playboy. For all Catalog Programs, Playboy shall furnish to
Uni the videotape masters and artwork necessary to duplicate finished
videocassettes. At the end of the Term for Catalog Programs, Uni shall
return all such materials to Playboy, at Playboy's expense.
(d) During the Term for New Release Programs, Playboy shall supply Uni,
free on board Uni's United States distribution facility, with duplicated and
packaged videocassettes suitable for bulk packaging and shipping of all New
Release Programs for so long as such program remains a New Release Program.
(e) Upon the termination of the Term for Catalog Programs, Uni will notify
Playboy of all existing inventory of videocassettes and videocassette
sleeves for the then-Catalog Programs, on a program by program basis.
Within ten (10) days of Playboy's receipt of Uni's notice, Playboy shall
notify Uni of the amount of such inventory, on a program by program basis,
that Playboy desires to purchase from Uni. Playboy's purchase price shall
be calculated based on the average unit cost for the corresponding program
or sleeve, as applicable, paid by Uni to Playboy to purchase Playboy's
inventory of the same program or sleeve, as appplicable, pursuant to
subparagraph 5(a) or 5(b) above. Playboy shall be obligated to purchase
from Uni a dollar amount of such inventory equal to the lesser of (i) the
total purchase price for all of the
4
<PAGE>
then-remaining Catalog Program and sleeve inventory, or (ii) the aggregate
of all sums paid by Uni to Playboy to purchase Playboy's inventory of
Catalog Programs and sleeves during the Term for Catalog Programs pursuant
to subparagraphs 5(a) and 5(b) above, except that for each program for which
Uni manufactures copies or sleeves in addition to purchasing Playboy's
inventory pursuant to subparagraph 5(a) or 5(b) above, Playboy's repurchase
obligation for the manufactured copies and sleeves shall be limited to such
number of copies and sleeves that Playboy has reasonably advised Uni to
manufacture. Uni shall destroy all Catalog Program inventory and sleeves
not purchased by Playboy and deliver to Playboy a certificate of destruction
for such inventory. Playboy's inventory repurchase obligation pursuant to
this subparagraph 5(e), but no other obligation under the Agreement, as
amended by this Amendment, is guaranteed by Playboy's parent corporation,
Playboy Enterprises, Inc., as evidenced by the execution of this Amendment
on behalf of Playboy Enterprises, Inc. on the signature page of this
Amendment.
6. Playboy's Share of Gross Revenues.
----------------------------------
(a) Uni shall report to Playboy on a monthly basis all gross revenues from
the New Release Programs for the previous month, and pay to Playboy all
amounts remaining after first deducting from such gross revenues the
Distribution Fee, Market Development Funds and other deductions previously
approved by Playboy in writing for the applicable units, in accordance with
Section 19 of the Agreement.
(b) Uni shall report to Playboy on a monthly basis all gross revenues from
the Catalog Programs for the previous month, and pay to Playboy all amounts
remaining after first deducting from such gross revenues the following for
the applicable units:
(i) Actual returns, in accordance with Section 19 of the Agreement.
(ii) A five percent (5%) reserve against returns, which reserve shall be
liquidated and reconciled to actual returns on a monthly basis, in
accordance with Section 19 of the Agreement.
(iii) Program and volume discounts approved by Playboy, in accordance
with the Agreement.
(iv) The cost to Uni of each unit of the Catalog Programs sold,
calculated at the unit cost for the purchase of a unit of the applicable
program from Playboy, in accordance with subparagraph 5(a) or 5(b)
above.
5
<PAGE>
(v) The actual out-of-pocket costs paid by Uni to market the Catalog
Programs for such month, such costs to be subject to Playboy's prior
written approval.
(vi) Uni's Distribution Fee.
(vii) With respect to each of the first and second contract years of the
Term for Catalog Programs, the then-unrecouped amount of the "Advance" for
the then-current contract year of the Term for Catalog Programs (but no
other contract year of the Term) paid to Playboy pursuant to Paragraph 7
below, and with respect only to the third contract year of the Term for
Catalog Programs, the then-unrecouped amount of the total "Advances" for
all contract years of the Term for Catalog Programs paid to Playboy
pursuant to Paragraph 7 below. In this regard, if by the end of the
unextended Term for Catalog Programs, Uni has not recouped the total
amount of the "Advances" for all contract years of the Term for Catalog
Programs paid to Playboy pursuant to Paragraph 7 below, then at Playboy's
election, either (A) the Term for Catalog Programs only, but not for New
Release Programs, shall be extended for three (3) months; or (B) Playboy
shall refund to Uni the then-unrecouped amount of such total "Advances"
paid to Playboy, as of the end of the unextended Term for Catalog
Programs. Playboy shall make its election within ten (10) days following
Uni's report to Playboy that Uni will be unrecouped at the end of the
unextended Term for Catalog Programs.
7. Catalog Program Advances. Uni shall pay to Playboy the following
non-returnable, but recoupable advances (the "Advances") against Playboy's share
of gross revenues for the Catalog Programs for a particular contract year of
the Term for Catalog Programs, as follows:
(a) For the first contract year of the Term for Catalog Programs, commencing
March 26, 1995, the sum of One Million Five Hundred Thousand Dollars
($1,500,000), payable on or before May 1, 1995 (the "First Year Advance").
(b) For the second contract year of the Term for Catalog Programs, commencing
March 26, 1996, the sum of One Million Five Hundred Thousand Dollars
($1,500,000), not reduced by any unrecouped portion of the First Year
Advance, payable on or before March 26, 1996 (the "Second Year Advance").
(c) For the third contract year of the Term for Catalog Programs, commencing
March 26, 1997, the sum of One Million Five Hundred Thousand Dollars
($1,500,000), reduced by the total unrecouped amount of the First Year
Advance and the Second Year Advance as of March 25, 1997, to a maximum 100%
reduction (the "Third Year Advance"). The Third Year Advance shall be payable
on or before April 30, 1997.
6
<PAGE>
No sums payable to Playboy in connection with the New Release Programs may be
used to reduce the amount of gross revenues payable to Playboy in connection
with the Catalog Programs. Similarly, no portion of any Advance may be used to
reduce the amount of gross revenues payable to Playboy in connection with the
New Release Programs or may be applied towards any payment for Playboy's
inventory.
8. Formats. Commencing March 26, 1995, Section 10 of the Agreement, regarding
formats, no longer shall apply, and instead the only authorized formats under
the Agreement shall be as follows:
(a) One-half inch (1/2") VHS videocassettes.
(b) Linear, non-interactive, digital videodiscs, including DVD (but
excluding CD-I, CD-ROM, SEGA-CD, 3DO, all analog laserdiscs and all
interactive formats that allow the consumer more interactivity than
selecting stop/start/fast forward/reverse/freeze frame/slow motion and the
like). However, prior to distribution of any New Release Program or Catalog
Program in the Toshiba DVD format, Uni and Playboy mutually shall determine
an objective standard, in terms of hardware and/or software sales or other
objective measurable criteria, to determine when the DVD format has become
a commercially viable consumer format in the industry. If during the Term
for New Release Programs or Catalog Programs the Sony DVD format reaches
such objective standard of commercial viability and Uni does not commence
to release all programs that are released in the Toshiba DVD format also in
the Sony DVD format, all of Uni's rights under the Agreement, as amended
by this Amendment, to distribute New Release Programs and Catalog Programs
in the Sony DVD format shall revert back to Playboy. Following such
reversion, Playboy shall have the unrestricted right to license to one or
more third parties the right to distribute all of such programs in the Sony
DVD format.
(c) Only following the expiration of Playboy's analog laserdisc
distribution agreement with Image Entertainment, Inc., including any
extensions or renewals thereof (the "Image Agreement"), twelve inch (12")
analog, non-interactive laserdiscs ("Analog Laserdiscs"), on the condition
that within ten (10) days of Playboy's notice to Uni of the expiration of
the Image Agreement, Uni elects in writing for a period of one (1) year,
with successive one (1) year renewal periods (or portions of a year for the
last year) by mutual agreement until the end of the Term for Catalog
Programs, to include such Analog Laserdiscs as a format under the
Agreement. If Uni makes such election, then Uni shall distribute all New
Release Programs and all Catalog Programs in the Analog Laserdisc format,
and during each one (1) year period and renewal period Uni shall pay to
Playboy a nonreturnable but recoupable advance of Fifteen Thousand Dollars
($15,000) for each program
7
<PAGE>
that is then or subsequently is released as a New Release Program. Each
advance shall be recoupable against a royalty on all unit sales of Analog
Laserdiscs of all New Release Programs and all Catalog Programs equal to
forty percent (40%) of the actual wholesale sales price of each such copy
sold, cross-collateralized among all sales during the applicable year (or
portion thereof) of Analog Laserdisc copies of all programs, but not
against any other revenue or payment or sales in any other year. All other
provisions regarding the Analog Laserdiscs shall be negotiated in good
faith.
9. Sales and Marketing Spending; Exclusive Window Deals. Section 8 of the
Agreement, regarding sales and marketing spending, and Section 12 of the
Agreement, regarding exclusive window arrangements, shall apply only to the New
Release Programs.
10. Provisions Applicable to New Release Programs and Catalog Programs. The
following Sections of the Agreement shall apply to both the New Release Programs
and the Catalog Programs:
(a) Section 7, regarding release schedule.
(b) Section 9, regarding pricing. In this regard, Uni shall sell all
programs at Playboy's suggested retail and wholesale price points, but
Playboy and Uni periodically shall agree to reduce the prices of selected
Catalog Programs in order to reduce the inventory of such Catalog Programs,
the particular titles and price reductions to be subject to mutual approval.
Similarly, after Playboy fully has exploited the sale of the "EDEN"
programs for rental distribution through Blockbuster Video, Playboy and Uni
shall agree to reduce the price of such "EDEN" programs to a mutually
approved sell-through price.
(c) Section 11, regarding direct response marketing.
(d) Section 13, regarding sponsorships and premium arrangements.
(e) Section 14, regarding newsstand accounts.
(f) Section 15, regarding marketing and sales planning and execution.
(g) Section 16, regarding physical distribution, provided that Playboy will
provide Uni with certain materials for New Release Programs only until such
programs become Catalog Programs, in accordance with subparagraph 5(d)
above.
(h) Section 17, regarding credit and collection.
(i) Section 18, regarding sales shipments reporting.
(j) Section 20, regarding the non-compete understanding, and in the event of
a cancellation thereunder, all distribution
8
<PAGE>
rights and materials associated with the New Release Programs and/or the
Catalog Programs shall fully revert to Playboy, and there shall be no sell-
off period as provided in Paragraph 1 above. Furthermore, upon such a
cancellation, (i) the provisions of subparagraph 5(a) above, regarding
Playboy's inventory repurchase obligation, shall apply, (ii) Uni shall have
no further right to recoup any of the Advances paid to Playboy, and (iii)
Uni shall have no further obligation to pay to Playboy any Advances for any
year of the Term for Catalog Programs commencing after the date of
cancellation.
(k) Section 21, regarding arbitration.
(l) Section 22, regarding trademark protection, including the Exhibit A to
the Agreement.
(m) Section 23, regarding assignment.
(n) Section 24, regarding a binding agreement and other miscellaneous
matters.
11. Inconsistencies. In the event of any inconsistencies between the provisions
of this Amendment and the Agreement, the provisions of this Amendment shall
control.
12. Precondition to Effectiveness. At Playboy's sole election, this Amendment
shall have no force or effect, and the Agreement shall terminate on June 19,
1995, pursuant to Playboy's termination notice dated December 19, 1994, unless
Uni (or a Uni affiliate) and Playboy enter into and execute a written agreement
regarding Playboy's right to "put" to Uni (or a Uni affiliate) up to three (3)
feature motion pictures for distribution by Uni (or a Uni affiliate) in the
United States, Canada and Mexico, for a non-refundable, but recoupable cash
advance of Four Hundred Fifty Thousand Dollars ($450,000) for a Playboy-branded
feature, or Three Hundred Fifty Thousand Dollars ($350,000) for a
non-Playboy-branded feature, against all gross revenues for the feature, less a
distribution fee of 17.5% and reasonable distribution costs. If the parties are
unable to conclude and execute such an agreement, then if Playboy elects in its
sole discretion, by giving Uni written notice of such election on or before
April 28, 1995, this Amendment shall be deemed null and void, and Playboy shall
be free to enter into distribution agreements for the New Release Programs
and/or the Catalog Programs with one or more third parties for the period
commencing June 20, 1995, without any obligation to Uni in connection therewith.
Except as set forth in this Amendment, the Agreement is not otherwise modified
in any respect, and the Agreement, as
9
<PAGE>
supplemented and amended by this Amendment, is ratified and confirmed.
If this Amendment accurately reflects the agreement between Uni and Playboy,
please so indicate by signing this Amendment in the appropriate space provided
below.
Very truly yours,
PLAYBOY ENTERTAINMENT GROUP, INC.
By: Myron DuBow SR. V.P. Bus. Affairs
_______________________________
By its signature below, Playboy Enterprises, Inc. hereby agrees to be
secondarily liable as a guarantor for the performance by Playboy Entertainment
Group, Inc. ("PEGI") of PEGI's inventory repurchase obligation referenced in
subparagraph 5(e) of this Amendment, subject to all of PEGI's rights and
defenses, but for no other obligation of PEGI in this Amendment or otherwise.
PLAYBOY ENTERPRISES, INC.
By: Anthony J. Lynn Executive V.P.
_______________________________
ACCEPTED AND AGREED TO:
UNI DISTRIBUTION CORP.
By: Michael Ostroff
______________________________________
Name: Michael Ostroff
______________________________________
Title: Sr. VP Business & Legal Affairs
______________________________________
<PAGE>
EXHIBIT A Page 1
PLAYBOY HOME VIDEO
CATALOG INVENTORY STATUS REPORT - Active Titles as of: 3/26/95
<TABLE>
<CAPTION>
FINISHED GOODS SLEEVES
--------------------------------- ---------------------------------
TITLE Catalog # CoG/unit Uni/Buy TTL Cost/Uni Cost/slv Uni/Buy TTL Cost/Uni
- ----- --------- -------- ------- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
1989 Video Calendar PBV0150 $1.80 1,343 $2,417.40 $0.13 200 $26.00
Sexy Lingerie PBV0156 $2.25 1,363 $3,672.00 $0.43 4,415 $1,898.45
Wet & Wild PBV0277 $1.93 1,710 $3,300.30 $0.13 7,000 $910.00
VC: Dutch Twins PBV0309 $3.61 1,837 $6,631.57 $0.13 3,873 $503.49
Playmates of Year: 80s PBV0310 $1.93 1,443 $2,784.99 $0.13 4,510 $586.30
1990 Video Calendar PBV0312 $2.15 1,608 $3,457.20 $0.13 4,000 $520.00
Secrets of EuroMassage PBV0342 $1.99 1,963 $3,906.37 $0.23 7,304 $1,679.92
Sexy Lingerie II PBV0343 $1.76 2,097 $3,690.72 $0.13 5,000 $650.00
VC: D. Driggs/K. Foster PBV0361 $2.26 1,223 $2,763.98 $0.13 3,465 $450.45
Playmates at Play PBV0362 $2.22 1,504 $3,338.88 $0.13 990 $128.70
PMOY 90: Rene Tenison PBV0389 $2.03 1,519 $3,083.57 $0.13 4,000 $520.00
Wet & Wild II PBV0390 $1.83 1,166 $2,133.78 $0.13 7,474 $971.62
VC: Kerri Kendall PBV0392 $2.18 1,304 $2,842.72 $0.42 3,800 $1,596.00
VC: Tawnni Cable PBV0424 $1.95 1,324 $2,581.80 $0.13 3,908 $508.04
Fantasies II PBV0457 $1.89 2,198 $4,154.22 $0.13 8,418 $1,094.34
Secrets of Making Love PBV0477 $1.89 1,641 $3,101.49 $0.13 11,087 $1,441.31
1991 Video Calendar PBV0520 $2.03 1,791 $3,635.73 $0.13 11,000 $1,430.00
VC: Julie Clarke PBV0591 $3.40 2,089 $7,102.60 $0.13 3,000 $390.00
Girls of Spring Break PBV0592 $2.03 2,094 $4,250.82 $0.13 6,621 $860.73
PMOY 91: Lisa Matthews PBV0601 $1.91 1,374 $2,624.34 $0.26 3,548 $922.48
Sexy Lingerie III PBV0602 $1.80 5,108 $9,194.40 $0.13 964 $125.32
VC: Morgan Fox PBV0624 $2.75 1,465 $4,028.75 $0.13 4,828 $627.64
Wet & Wild III PBV0625 $2.23 1,375 $3,066.25 $0.52 9,056 $4,709.12
PMs: Early Years PBV0701 $3.09 3,635 $11,232.15 $0.20 4,000 $800.00
1992 Video Calendar PBV0702 $1.80 1,654 $2,977.20 $0.13 2,137 $277.81
Oriental Massage PBV0703 $1.93 1,876 $3,620.68 $0.13 12,714 $1,652.82
VC: Pamela Anderson PBV0704 $1.82 1,278 $2,325.96 $0.13 2,025 $263.25
Sexy Lingerie IV PBV0705 $1.93 2,707 $5,224.51 $0.13 6,707 $871.91
Inside Out #1 (Un-Rated) PBV0706 $2.65 1,798 $4,764.70 $0.30 5,000 $1,500.00
PMOY 92; Corinna Harney PBV0707 $2.66 2,059 $5,476.94 $0.13 4,500 $585.00
1992 Playmate Review PBV0708 $1.93 1,697 $3,275.21 $0.13 4,567 $593.71
Ultimate Sensual Msg PBV0709 $1.93 5,891 $11,369.63 $0.13 3,635 $472.55
Inside Out #2 (Un-Rated) PBV0710 $2.62 1,765 $4,624.30 $0.13 0 $0.00
101 Ways to Excite Your Lover PBV0711 $2.05 1,981 $4,061.05 $0.29 10,813 $3,135.77
Erotic Fantasies PBV0712 $1.89 5,893 $11,137.77 $0.13 10,584 $1,375.92
Video Playmate 6Pk PBV0713 $2.20 2,103 $4,626.60 $0.40 5,000 $2,000.00
Wet & Wild IV PBV0714 $2.12 6,595 $13,981.40 $0.36 6,000 $2,160.00
Intimate Workout PBV0715 $1.93 1,747 $3,371.71 $0.13 3,101 $403.13
Inside Out #3 (R-Rated) PBV0716 $2.92 1,896 $5,536.32 $0.44 2,000 $880.00
Playmates in Paradise PBV0717 $2.24 1,482 $3,319.68 $0.34 7,069 $2,403.46
Playmate Bloopers PBV0718 $1.49 4,000 $5,960.00 $0.13 0 $0.00
VC: Tiffany Sloan PBV0719 $2.70 3,256 $8,791.20 $0.30 2,000 $600.00
1993 Video Calendar PBV0720 $2.18 2,079 $4,532.22 $0.38 5,340 $2,029.20
Inside Out #2 (R-Rated) PBV0721 $2.62 1,275 $3,340.50 $0.13 5,000 $650.00
Inside Out #4 (Un-Rated) PBV0725 $2.80 2,168 $6,070.40 $0.26 0 $0.00
Inside Out #4 (R-Rated) PBV0726 $2.80 1,323 $3,704.40 $0.26 0 $0.00
Sexy Lingerie V PBV0727 $2.46 12,001 $29,522.46 $0.13 4,756 $618.28
Erotic Fantasies II PBV0728 $1.93 8,759 $16,904.87 $0.13 15,246 $1,981.98
VCC: Jessica Hahn PBV0729 $1.93 3,285 $6,340.05 $0.13 7,832 $1,018.16
International Playmates PBV0730 $2.21 1,559 $3,445.39 $0.29 8,000 $2,320.00
Eden PBV0731 $3.53 5,143 $18,154.79 $0.26 0 $0.00
</TABLE>
EXHIBIT A
<PAGE>
<TABLE>
<CAPTION>
FINISHED GOODS SLEEVES
<S> <C> <C> <C> <C> <C> <C> <C>
TITLE Catalog # CoG/unit Uni/Buy TTL Cost/Uni Cost/slv Uni/Buy TTL Cost/Uni
- ------------------------------------------------------------------------------------------------------------------------------------
Hefner: Once Upon a Time PBV 0733 $3.60 2,198 $7,912.80 $0.13 0 $0.00
PMOY 93: Anna Nicole Smith PBV 0734 $1.93 16,526 $31,895.18 $0.13 3,610 $469.30
Erotic Fantasies III PBV 0735 $1.93 8,946 $17,265.78 $0.13 17,490 $2,273.70
1993 PM Review PBV 0736 $1.93 1,555 $3,001.15 $0.13 12,407 $1,612.91
Girls of Cabaret Royale PBV 0737 $2.35 2,322 $5,456.70 $0.45 800 $360.00
Eden 2 PBV 0738 $2.75 4,009 $11,024.75 $0.26 0 $ 0.00
VCC: Dian Parkinson PBV 0739 $2.07 6,500 $13,455.00 $0.17 0 $ 0.00
Wet & Wild V PBV 0740 $2.01 5,392 $10,837.92 $0.26 7,000 $1,820.00
Erotic Weekend Getaways PBV 0741 $2.15 1,769 $3,803.35 $0.38 3,198 $1,215.24
Eden 3 PBV 0742 $2.98 2,152 $6,412.96 $0.45 0 $0.00
1994 Video Playmate
Calendar PBV 0744 $1.93 3,926 $7,577.18 $0.13 22,000 $2,860.00
Secret Confessions PBV 0745 $1.92 8,372 $16,074.24 $0.17 10,000 $1,700.00
How To Reawaken Your Sexual
Powers PBV 0746 $2.12 2,307 $4,890.84 $0.36 1,076 $387.36
Eden 4 PBV 0747 $2.96 1,743 $5,159.28 $0.43 0 $0.00
40th Anniv. PM: A.M.
Goddard PBV 0748 $2.03 3,300 $6,699.00 $0.13 5,207 $676.91
Night Dreams PBV 0749 $2.08 8,000 $16,640.00 $0.18 8,578 $1,544.04
College Girls PBV 0750 $2.08 5,463 $11,363.04 $0.18 14,567 $2,622.06
Secrets GIFT BASKET PBV 0901 $7.20 207 $1,490.40 n/a n/a n/a
Oriental Massage KIT PBV 0902 $16.68 376 $6,271.68 n/a n/a n/a
Sexy Lingerie 3-Pk PBV 0904 $10.95 640 $7,008.00 n/a n/a n/a
Wet & Wild 3-Pk PBV 0905 $9.68 778 $7,531.04 n/a n/a n/a
Video Calendar 3-Pk PBV 0906 $9.95 565 $5,621.75 n/a n/a n/a
February '95 Multi-Pack PBV 0926 1,592 $0.00 n/a n/a n/a
- ------------------------------------------------------------------------------------------------------------------------------------
Carnival in Rio ADHV5002 $3.60 1,064 $3,830.40 0 $0.00
Birds in Paradise ADHV5004 $3.52 1,492 $5,251.84 0 $0.00
Dr. Yes: Hyannis Affair ADHV5005 $3.60 921 $3,315.60 0 $0.00
A Matter of Cunning ADHV5007 $3.53 1,947 $6,872.91 0 $0.00
Private Moments ADHV5009 $2.61 737 $1,923.57 0 $0.00
Candy the Stripper ADHV5010 $2.41 911 $2,195.51 0 $0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Wet & Wild
(Spanish Subtitled) PBV 6001 $1.80 277 $498.60 0 $0.00
PMOY: 80's
(Spanish Subtitled) PBV 6002 $1.93 388 $748.84 0 $0.00
Eden 2 (Spanish Subtitled) PBV 6004 $2.75 290 $797.50 0 $0.00
-------------------------------------------------------------------------------------------
TOTAL CATALOG ACTIVE: 228,378 $528,282.78 362,420 $68,684.38
</TABLE>
<PAGE>
PLAYBOY HOME VIDEO
NEW RELEASE INVENTORY STATUS REPORT - Active Titles
as of: 3/26/95
<TABLE>
<CAPTION>
NEW RELEASES INVENTORY STATUS - Active Titles
- ----------------------------- -------------
------------------------------
SLEEVES
- ------------------------------------------------------- ------------------------------
TITLE Catalog # Cost/slv Uni/Buy TTL Cost/Uni
- ------------------------------------------------------- -------- --------------------
<S> <C> <C> <C> <C>
Eden 5 PBV 0751 $0.26 0 $0.00
Secrets of Making Love..Vol. 2 PBV 0752 $0.13 3,194 $415.22
PMOY 94: Jenny McCarthy PBV 0753 $0.13 13,401 $1,742.13
Private Diaries... PBV 0754 $0.18 17,186 $3,093.48
Eden 6 PBV 0755 $0.26 0 $0.00
VCC: LaToya Jackson PBV 0756 $0.13 4,000 $520.00
Wet & Wild The Locker Room (VI) PBV 0757 $0.20 14,806 $2,961.20
Sensual Fantasy For Lovers PBV 0758 $0.21 5,541 $1,163.61
Inside Out #1 (R-Rated) PBV 0759 $0.22 0 $0.00
Eden #1 (R-Rated) PBV 0760 $0.26 0 $0.00
Eden #2 (R-Rated) PBV 0761 $0.26 0 $0.00
Love, Sex & Intimacy PBV 0762 $0.23 11,996 $2,759.08
Eden #3 (R-Rated) PBV 0763 $0.45 0 $0.00
Eden #4 (R-Rated) PBV 0764 $0.43 0 $0.00
Eden #5 (R-Rated) PBV 0765 $0.26 0 $0.00
Eden #6 (R-Rated) PBV 0766 $0.26 0 $0.00
1995 Video Playmate Calendar PBV 0767 $0.14 16,964 $2,374.96
Girls of Holders PBV 0768 $0.14 11,403 $1,596.42
Sexy Lingerie VI: Dreams & Desire PBV 0769 $0.13 9,398 $1,221.74
Fabulous Forties PBV 0770 $0.14 15,000 $2,100.00
Girls of Hawaiian Tropic... PBV 0771 $0.14 0 $0.00
Women of Color PBV 0772 $0.14 6,000 $840.00
PMOY 95: Julie Lynn Cialini PBV 0773 $0.14 0 $0.00
VCC: Patti Davis PBV 0774 $0.14 0 $0.00
Bix "Ain't None of Them..." PBV 0779 $1.50 3,000 $4,500.00
Erotic Fantasies IV: Forbidden Liaisons PBV 0780 $0.14 0 $0.00
- --------------------------------------------------- ------- --------------------
TOTAL NEW RELEASE ACTIVE: 131,889 $25,287.84
</TABLE>
EXHIBIT B
<PAGE>
MADE EFFECTIVE 12TH JANUARY 1995
--------------------------------
(1) CONTINENTAL SHELF 16 LIMITED
(2) PLAYBOY ENTERTAINMENT GROUP, INC.
(3) PLAYBOY TV UK/BENELUX LIMITED
------------------------------------
SHAREHOLDERS' AGREEMENT
Relating to the establishment of
PLAYBOY TV UK/BENELUX LIMITED
------------------------------------
[LOGO OF DENTON HALL]
FIVE CHANCERY LANE
CLIFFORD'S INN
LONDON EC4A IBU
TELEPHONE 0171 242 1212 FAX 0171 404 0087
MEMBER OF THE DENTON INTERNATIONAL
GROUP OF LAW FIRMS
<PAGE>
DENTON HALL
INDEX
-----
CLAUSE PAGE
- ------ ----
1. Definitions 1
2. Business of the Company and Launch of the Channel 12
3. Closing Arrangements 14
4. Provision of Finance 16
5. The Board and Management 20
6. Agreement to Perform 23
7. Information 23
8. Restrictions on the Company's Activities 25
9. Name 33
10. Dividend Policy 33
11. Condition Precedent 33
12. Confidentiality 33
13. Transfers of Shares and Loan Stock 35
14. Deemed Transfers 43
15. Option 45
16. Sell Down 52
17. Compulsory Purchase by Flextech 55
18. Representations and Warranties 56
19. Competition 58
20. No Assignment 58
21. Waivers, Remedies Cumulative, Amendments etc 59
22. Invalidity etc 59
23. No Partnership or Agency 60
24. Announcements 60
25. Costs 60
26. Entire Agreement 60
27. Conflict with Articles etc 61
28. Notices 61
29. Governing Law 62
<PAGE>
DENTON HALL
AGREED FORM DOCUMENTS
---------------------
1. Articles of Association
2. Resolutions
3. Loan Stock Deed and Certificate
4. Programme Supply Agreement
5. Trademark Licence
6. Legal Opinions
7. Consent Agreement
8. Initial Business Plan
<PAGE>
DENTON HALL
SCHEDULES
---------
SCHEDULE I Particulars of the Company
SCHEDULE II Details of Subscriptions by Shareholders at Closing
SCHEDULE III Deed of Adherence
SCHEDULE IV Funding
SCHEDULE V Directors
<PAGE>
DENTON HALL
THIS AGREEMENT is made effective 12th January 1995
BETWEEN
(1) CONTINENTAL SHELF 16 LIMITED registered in England under number 3,005,499
whose registered office is at The Ouadrangle, Imperial Square, Cheltenham,
Gloucester, GL50 lYX ("Flextech");
(2) PLAYBOY ENTERTAINMENT GROUP, INC. a Delaware corporation of 9242 Beverly
Boulevard, Beverly Hills, California 90210 ("Playboy")
(3) PLAYBOY TV UK/BENELUX LIMITED registered in England under number 3,000,033
whose registered office is at Five Chancery Lane, Clifford's Inn, London
EC4A lBU (for itself and, under Clauses 12 and 19, for itself and as
trustee for its Subsidiaries for the time being) ("the Company").
WHEREAS:
(A) The Shareholders wish to incorporate the Company and to procure that the
Company will establish a pay television service to be known as "Playboy TV"
based on the pay television service which is currently operated by Playboy
in the United States of America under the name "Playboy TV" ("the Channel")
in the Territory.
(B) The Shareholders are entering into this Agreement with the Company (whose
corporate details are set out in Schedule I) in order to record the basis
of their relationship as shareholders in the Company and to establish the
manner in which the business and affairs of the Company will be financed
and conducted.
NOW IT IS HEREBY AGREED as follows:
1. Definitions
-----------
1.1 In this Agreement and in the Recitals and Schedules hereto the following
words and expressions shall save as otherwise specifically provided have
the following meanings:
2.
<PAGE>
DENTON HALL
"the Act": the Companies Acts 1985 to 1989 and the Companies Consolidation
(Consequential Provisions) Act 1985 and the Company Directors Disqualification
Act 1986 and all regulations made under any of the foregoing:
"Advertising Material": audio and/or visual and/or audio visual films and/or
sound recordings which in each such case are advertising, promoting or selling
goods, services or facilities or otherwise as permitted in accordance with the
relevant codes published from time to time by the ITC;
"the Articles": the articles of association of the Company in the agreed form or
as they may subsequently be altered from time to time in a manner consistent
with the terms of this Agreement;
"Associate": in relation to any company, another company which controls, is
controlled by or is in common control with that company; and for the purposes of
this definition a company shall be deemed to control any company which is a
subsidiary or a subsidiary undertaking of such company;
"the Board": the board of directors of the Company;
"the Business": the operation of a pay television service and ancillary
businesses (known as Playboy TV) in the Territory and in such other country in
Europe as the Board may approve from time to time and in respect of which the
Company or any Subsidiary has a license to operate such a service under the
"Playboy" name;
"the Business Plan": the initial business plan and budget of the Company in the
agreed form or where the context permits any revision or amendment thereto and
any other business plan and/or budget approved pursuant to Clause 8;
"Chairman": the Chairman from time to time of the Board;
3.
<PAGE>
DENTON HALL
"the Channel": a pay television service to be known as "Playboy TV" based on the
pay television service which is currently operated by Playboy in the United
States of America under the name "Playboy TV" as such service may be developed
from time to time initially to operate as a cable channel and thereafter to be
transmitted by such other means as may be approved from time to time in
accordance with Clause 8;
"Closing": the date of completion of the matters specified in Clause
3.1;
"Consent Agreement": an agreement in the agreed form between Playboy, Playboy
Enterprises, Inc., Flextech and the Company which (inter alia) permits the
pledge of certain assets which would otherwise have been prohibited under the
Transaction Documents;
"control": the meaning ascribed thereto in Section 416 of the Taxes Act;
"Deed of Adherence": a deed of adherence in the form set out in
Schedule III;
"Directors": the directors for the time being of the Company;
"Disqualified Participant": any person all or part of whose Interest or
shareholding or interest in any other company taken alone or together with the
Interest or shareholding or interest in any other company of any other person or
persons, after taking into account any issue of any shares or securities in the
Company or any transfer of any Interest, in either case in respect of which the
relevant person has indicated in writing an intention to acquire any such shares
or securities and, has caused or would cause or be likely to cause (as
determined in accordance with this Agreement), a Licence Event;
4.
<PAGE>
DENTON HALL
"Encumbrance": means any assignment by way of security, charge, hypothecation,
lien (other than a lien arising solely by operation of law in the normal course
of trading, the aggregate amount of which is not material), mortgage, pledge,
title retention (other than arising pursuant to a third party's standard
conditions of supply of goods) right of set off, security interest, trust
arrangement and any other preferential right or agreement to confer security,
including any analogous security interest under local law.
"Europe": all countries which are situated within the geopolitical entity known
as Europe, for the avoidance of doubt, including, but without limitation all the
countries which are members of the European Union or the European Free Trade
Area.
"Fair Value":
- ------------
(a) in respect of each Share the same proportion of the fair market value of
the Company as a whole on the date of service of the Transfer Notice (or
deemed date thereof) or in the event that clauses 8.5 and 8.6 apply the
date of the Winding Up Resolution or in the event that clause 15 applies
on the date of the Option Exercise Notice as such Share bears to the whole
of the issued ordinary share capital of the Company stated as a price per
Share; and
(b) in respect of each (Pounds)1 principal amount of Loan Stock the lesser
of:--
(i) the principal amount thereof plus interest thereon which has accrued
in accordance with the terms of issue of the Loan Stock but which
remains unpaid; and
(ii) the same proportion of the fair market value thereof treating each
(Pounds)1 of Loan Stock as if it were a fully paid Share calculated in
accordance with (a) above
5.
<PAGE>
DENTON HALL
as certified (except in relation to (b)(i)) by the Referee on the basis of a
sale thereof as between a willing vendor and a willing purchaser on the
assumption that the Shares and/or Loan Stock the subject of the Transfer Notice
will be purchased in one lot by a purchaser contracting on arm's length terms,
who has no other interest in the Company and (if the Company is then continuing
as a going concern) on the assumption that all the Shares were ordinary shares
of the same class and that the Company will continue in business as a going
concern and having regard to any goodwill attaching to the Company though
taking into account of the fact (if that be the case) that the Programme Supply
Agreement and/or Trademark Licence has been terminated;
"Foreign Licence Event": an event having a legal effect analogous to that of
a Licence Event in any of the Territories (other than the United Kingdom);
"Gross Revenues": all income and other payments receivable in the normal course
of business as shown in the audited accounts of the Company from time to time
less any value added tax or other similar taxes;
"Group": in relation to a Shareholder, that Shareholder and any holding
company or subsidiary of that Shareholder and any subsidiary of such holding
company;
"Indebtedness for Borrowed Money": any loan, debt, bond, note, loan stock,
debenture or other obligation for borrowed moneys, any obligation under any
hire purchase, conditional sale or title retention agreement or lease (other
than for payment of rent and service charges not exceeding a commercial rate
under any lease of real property), any liability in respect of any acceptance
credit or note or bill discounting facility, any amount of consideration
left outstanding by way of loan or otherwise under any agreement for the sale
or purchase of assets and/or the supply of services (other than normal trade
credit) and any guarantee, indemnity or security in respect of any of the
foregoing, the amount thereof in each case
6.
<PAGE>
DENTON HALL
being taken for the purpose of this Agreement to be (a) the maximum amount
capable of being outstanding from companies in the Playboy/Flextech Group
whether or not then due or owing from or advanced to companies in the
Playboy/Flextech Group at the time of calculation but (b) to be calculated
excluding any amounts owing to other companies in the Playboy/Flextech Group;
"Interest": an interest of any person in Shares, Loan Stock or any other
securities of the Company;
"in the Agreed Proportions": where the term is used in relation to all the
Shareholders in such proportions as equal the percentage which the nominal value
of the Shares for the time being in issue and beneficially owned by each
Shareholder respectively bears to the aggregate nominal value of all the Shares
or, where the term is used in relation to some only of the Shareholders in such
proportions as equal the percentage which the nominal value of the Shares for
the time being in issue and beneficially owned by each relevant Shareholder
bears to the aggregate nominal value of all the Shares held by such relevant
Shareholders;
"in writing": includes any communication made by letter, facsimile transmission
or electronic mail;
"ITC Satellite Licence": the non-domestic satellite service licence in respect
of the Channel to be applied for by the Company from ITC in accordance with the
provisions of the Broadcasting Act 1990;
"the ITC": the Independent Television Commission;
"LIBOR": the three month London Interbank Offered Rate for Sterling Deposits,
as published in the Financial Times on the first day of each month or on the
next succeeding day on which the Financial Times is published;
7.
<PAGE>
DENTON HALL
"Licence Event": any of the following events:
(a) the ITC revoking or (in a manner which has or is reasonably likely to
have a material adverse effect on the Company) reducing the period of
the ITC Satellite Licence (and, for the avoidance of doubt, any
reduction which results in the involuntary cessation of business by the
Company shall be deemed to have such an effect); or
(b) the ITC varying the terms of the ITC Satellite Licence which variation
has or is likely to have a material adverse effect on the Company; or
(c) the ITC declining to grant to the Company a renewal licence to provide
a non-domestic satellite service on terms and conditions reasonably
acceptable to the Company upon the expiry of the ITC Satellite
Licence; or
(d) a relevant change (as defined in sub-section 5(7) of the Broadcasting
Act 1990) taking place in relation to the Company; or
(e) the Company becoming a Disqualified Person in relation to the holding
of the ITC Satellite Licence by virtue of Schedule 2 to the
Broadcasting Act l990;
"Loan Stock": unsecured floating rate loan stock of the Company l999 to be
constituted by a Loan Stock Deed, in the agreed form and/or such other loan
stock as the Company may issue to the Shareholders from time to time pursuant
to this Agreement;
"Loan Stock Certificate": a certificate in respect of Loan Stock in
the agreed form;
"the Option": the options granted to Playboy pursuant to Clause 15;
8.
<PAGE>
DENTON HALL
"the Original Shares": the number of ordinary shares of (Pounds)1 each
in the capital of the Company as have been subscribed for by the
Shareholders in accordance with clauses 3.1(b) and 4.1(b);
"person": any individual, firm, company or other incorporated or
unincorporated body;
"Playboy/Flextech Group": the Company and each of its subsidiaries from
time to time;
"plc": Flextech plc;
"Prescribed Price":
(a) in relation to a voluntary Transfer of Shares or Loan Stock in
respect of which a Transfer Notice shall have been served pursuant to
Clauses 13.5 or 13.11, the price per Share or, as the case may be,
for each (Pounds)1 principal amount of Loan Stock, offered by the
Proposed Transferee (as defined in Clause 13.5.1(a)); or
(b) in relation to a Transfer of Shares or Loan Stock in respect of
which a Transfer Notice shall be deemed to have been served pursuant
to Clauses 14 or 16.2, such price as the Shareholders may agree per
Share and, as the case may be, for each (Pounds)1 principal amount
of Loan Stock, or in default of agreement within 30 days after the
date on which the Transfer Notice is deemed to be served, following a
reference by either of the Shareholders, such price per Share and, as
the case may be, for each (Pounds)1 principal amount of Loan Stock,
as the Referee shall determine to be on the date of receipt of the
relevant Transfer Notice:
(i) in the case of Clause 14.1(a) and (b) and Clause 16.2, Fair
Value; and
9.
<PAGE>
DENTON HALL
(ii) in the case of Clause 14.1(c) the Fair Value (for the avoidance of
doubt, taking into account the breach of agreement which has given
rise to the requirement to transfer pursuant to Clause 14.1(c))
less a discount of 10%.
"Programme Service": the supply of television programmes by Playboy pursuant to
the Programme Supply Agreement;
"the Programme Supply Agreement": an agreement in the agreed form between the
Company and Playboy relating to the Programme Service on the Channel;
"Referee": such independent merchant or investment bank with acknowledged
experience of the industry in which the Company operates as the Shareholders may
agree or, in default of agreement within seven business days, as may be
nominated, on the request of either Shareholder, by the President for the time
being of the British Institute of Bankers, who shall be instructed to produce
his certificate within thirty days of this appointment and who shall act as
expert and not as arbitrator and whose certificate shall be final and binding
on the parties hereto, save in the event of manifest error;
"the Satellite": the Intelsat Satellite which is to be used for the
transmission of the Channel or any other satellite which may from time to time
be used for the transmission of the Channel in accordance with this Agreement;
"the Shareholders": Flextech and Playboy and their permitted transferees
pursuant to Clauses 13, 14, 15 and 17;
"Shares": the issued ordinary shares of (Pounds)1 each in the capital of the
Company for the time being;
"subsidiary" and "holding company": have the respective meanings attributed to
them by Section 736 of the Act;
10.
<PAGE>
DENTON HALL
"the Taxes Act": the Income and Corporation Taxes Act 1988;
"the Territories": the UK, the Republic of Ireland, Belgium, Luxembourg,
the Netherlands and such other countries and regions in which the Channel
has been launched or in which the Board subject to Clause 19.1 has
decided to launch the Channel and in respect of which any company in the
Playboy/Flextech Group has a licence pursuant to the Trademark Licence to
operate a pay television service under the "Playboy" name;
"the Trademark Licence": a licence in the agreed form between the Company
and Playboy Enterprises, Inc. granting to the Company the right to use
the name, logo and trade mark "Playboy" in connection with the
Business;
"Transaction Documents": this Agreement, the Articles, the ITC Satellite
Licence, the Trademark Licence, the Programme Supply Agreement, the
Consent Agreement and any Deed of Adherence which has been executed
pursuant to this Agreement, each as it may subsequently be amended or
altered from time to time;
"Transfer": any sale, assignment, transfer, grant of lease or other
disposition of any legal, equitable or other interest or the creation of
an Encumbrance;
"Transponder": the Transponder, as defined in the Transponder Sub Lease;
"the Transponder Sub Lease": a sub-lease of specified capacity on the
Transponder to be entered into between the Company and United Artists
European Holdings Limited;
"UK": the United Kingdom of Great Britain and Northern Ireland which
expression shall for the avoidance of doubt continue to include
Northern Ireland notwithstanding that Northern Ireland may at any time
hereafter cease to be part of the UK, the Channel Islands and the Isle
of Man.
11.
<PAGE>
DENTON HALL
1.2 All references to "the Company" in Clauses 5, 7, 8, 9 and 12 shall
include a reference to each company in the Playboy/Flextech Group so
that each provision of such clauses shall, where the context admits,
also apply to each company in the Playboy/Flextech Group.
1.3 In this Agreement, references to statutes, statutory instruments and
regulations shall include any statute statutory instruments and
regulations modifying, re-enacting, extending or made pursuant to
the same or which is modified re-enacted or extended by the same or
pursuant to which the same is made.
1.4 A document is in "the agreed form" if it is in the form of a draft
agreed between and initialled by or on behalf of the Shareholders on
or before the date hereof.
1.5 References in this Agreement to Clauses, Sub-Clauses, paragraphs and
Schedules are references to those contained in this Agreement.
1.6 The Schedules to this Agreement are an integral part of this
Agreement and references to this Agreement include references to such
Schedules.
1.7 Clause headings are for ease of reference only and shall not be taken
into account in construing this Agreement.
1.8 "day" (except where it is used in the expression "business day")
means any day and "business day" means any day other than a Saturday,
Sunday or public holiday either in England or the United States of
America.
2. Business of the Company and Launch of the Channel
-------------------------------------------------
2.1 The sole object of the Company shall be to carry on the Business and
businesses ancillary or incidental thereto, and to that end the Board
shall seek to secure such means to distribute the Channel as are, in
the Board's opinion, viable in the context of the Business
12.
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DENTON HALL
Plan and the Company's available resources. The Shareholders shall use
their reasonable endeavours to procure that the Business shall be
conducted in accordance with the Business Plan.
2.2 After Closing the Shareholders and the Company shall do all such things
as are reasonably within their respective powers as Shareholders to
ensure that the Channel is launched in the Territories (other than
Republic of Ireland) for broadcast via cable operators on or before 1st
June 1995 and in Republic of Ireland after, but not before, the first
anniversary of the launch of the Channel in the Territory and to this
end the Company shall as soon as practicable after Closing
(a) apply for any licences necessary to launch the Channel in
the Territories, including the ITC Satellite Licence; and
(b) conclude negotiations with United Artists European Holdings
Limited on the terms of, and then enter into, the Transponder Sub
Lease.
2.3 In the event that the Company is refused the ITC Satellite Licence and/or
is not awarded the ITC Satellite Licence and/or the Transponder Sub Lease
is not entered into on or before six months after Closing ("the Licence
Long Stop Date"), then
(i) the liability of the Shareholders pursuant to clause 4 shall
forthwith cease;
(ii) the Shareholders shall (to the extent they are able) procure that
the Company will promptly be wound up;
(iii) funding provided by the Shareholders pursuant to Clauses 3 and 4
shall be used to pay the liabilities of the Company;
(iv) the Loan Stock will, to the extent possible after compliance with
clause (iii), be repaid pro rata to the amounts held by the
Shareholders respectively; and
13.
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DENTON HALL
(v) the Consent Agreement, the Trade Mark Licence and the Programme
Supply Agreement shall terminate.
2.4 The provisions of clause 2.3 shall be without prejudice to any
obligations of the Shareholders to provide funding to the Company which
have accrued due but not been discharged prior to the Licence Long Stop
Date and which the Board determines are required to discharge the
obligation of the Company accrued prior to that date.
2.5 If any product using the brand name Playboy other than the Playboy
Magazine and other Playboy publications ("a Playboy Product") is
advertised on the Channel:
(a) where all the rights to use the brand name in relation to such
Playboy Product vest in any company in the Playboy Group the
Company shall have the right to sell such Playboy Product on the
Channel and shall be entitled to be paid a fee by Playboy (which
shall be negotiated and agreed by Playboy and the Company in
good faith) which will, unless otherwise agreed be calculated by
reference to an agreed percentage of the gross selling price of
sales of such Playboy Product;
(b) where the rights to use the brand name in relation to a Playboy
Product have been licensed other than to a company in the Playboy
Group, Playboy shall use its reasonable endeavours to procure
advertising of such Playboy Product on the Channel on similar terms
to those set out in relation to (a) above.
2.6 The Company shall not launch, or otherwise make available, the Channel
outside the Territory without all parties unanimous approval.
3. Closing Arrangements
---------------------
3.1 Closing shall take place on the third business day after the conditions
in Clause 11 have been satisfied or waived when:
14.
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DENTON HALL
(a) the Shareholders shall cause to be passed at a duly convened
Shareholders' meeting of the Company a resolution in the agreed
form to adopt the Articles;
(b) each Shareholder shall subscribe in cash at par for the number of
Shares and principal amount of Loan Stock set opposite its
respective name in Schedule II, provided that Associates of
Flextech and Playboy may make such Loan Stock subscriptions in
substitution for Flextech and Playboy respectively;
(c) at a meeting of the Board, the Company shall allot and issue such
Shares and Loan Stock to the Shareholders (or in respect of Loan
Stock, where the provision in paragraph (b) has been utilised, the
relevant Associates of the Shareholders) as so subscribed by them
respectively and shall enter the names of the Shareholders (or, as
appropriate their Associates in the case of Loan Stock) in the
register of members and Loan Stock holders of the Company as
registered holders of such Shares and Loan Stock, and shall issue
and deliver to the Shareholders (or an Associate of their
Associates in the case of Loan Stock) the requisite Share and Loan
Stock Certificates in the agreed form duly executed under seal by
the Company;
(d) the following officers of the Company shall be appointed:
-- Fred Vierra, Roger Luard and Mark Luiz as Flextech appointed
Directors
-- David I. Chemerow and Anthony J. Lynn as Playboy appointed
Directors;
-- Fred Vierra as first Chairman;
-- Mark Luiz as Company Secretary;
15.
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DENTON HALL
- KPMG Peat Marwick as the Company's auditors;
(e) the following Transaction Documents shall be duly executed:
- the Loan Stock Deed
- the Trademark Licence
- the Programme Supply Agreement
- the Consent Agreement;
(f) the Board shall adopt and approve the Business Plan;
(g) Playboy will deliver to Flextech a legal opinion addressed
to Flextech and the Company by Howard Shapiro (General
Counsel, Playboy Enterprises, Inc.) in the agreed form; and
(h) Flextech will deliver to Playboy a legal opinion addressed
to Playboy and the Company by Denton Hall in the agreed
form;
3.2 Any provision in Clause 3.1 to the effect that a Transaction Document shall
be "entered into and completed in accordance with its terms" shall
constitute several obligations on the parties to sign such agreement, and
duly to perform its respective obligations under the clause therein headed
"Completion" or "Closing". Where any party to such a Transaction Document
is not also a party to this Agreement, the Shareholder (if any) of whom any
such party is an Associate shall to the extent practicable, make reasonable
efforts to procure that such party so signs and performs.
3.3 The payments by the Shareholders under paragraph 3.1(b) shall each be made
for value on the date of Closing by way of bankers' drafts drawn on a London
Town Clearing Bank payable to the Company or by international wire transfer.
16.
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DENTON HALL
3.4 No party shall be obliged to complete this Agreement unless all of the
matters referred to in Clause 3.1 are completed or, as appropriate, dealt
with in accordance with that clause.
4. Provision of Finance
--------------------
4.1 The parties agree that the approved budgeted, working capital, capital
expenditure and other budgeted funding requirements of the companies in the
Playboy/Flextech Group as set out in any Business Plan and any other
funding requirements shall be met in the following order of priority:
(a) initially, out of the proceeds of the subscription for Shares and Loan
Stock pursuant to Clause 3.1;
(b) thereafter by the Shareholders (or, in the case of Loan Stock,
Shareholder's Associates) by subscription in the Agreed Proportions at
par for Shares and Loan Stock in the ratio of one Share for every
(Pounds)3 principal amount of Loan Stock (or such other ratio as the
Inland Revenue agrees is suitable for allowing all interest on such Loan
Stock to be tax deductible for UK corporation tax purposes) on such
dates and in such amounts as are set out in Schedule IV or in the event
that the Board considers funding in excess of or earlier than that
specified in Schedule IV is required, on the dates and in such amounts
as may be determined by the Board having given to the Shareholders 14
days prior written notice thereof up to a maximum principal aggregate
amount (including amounts previously advanced whether or not for the
time being outstanding) of (Pounds)11,500,000; or
(c) thereafter (subject to Clause 4.7) by borrowings (secured if necessary
by charges over the assets of any company in the Playboy/Flextech Group)
from a bank or another financial institution on terms approved pursuant
to Clause 8 provided that the Board shall approve any such borrowings
which are available on terms in all respects commercially reasonable
17.
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DENTON HALL
and further provided that any Shareholder (or in the case of Loan Stock
its Associate) may participate in such borrowings on such terms up to
such amount (including all such borrowings) as such Shareholder may
decide and if more than one in the Agreed Proportions;
(d) thereafter (subject to Clause 4.7) by subscription for Shares and/or
Loan Stock by one or more Shareholders (or, in the case of Loan Stock
their Associates) in accordance with Clause 4.5 or any third parties
nominated by a Shareholder.
4.2 If either Shareholder (or its nominated Associate in the case of Loan
Stock) fails to provide funding pursuant to Clause 4.1(b), the other
Shareholder (or its Associate) may forthwith (at its own election and
without prejudice to its other rights under this Agreement or the general
law) provide funding by the methods described in Clause 4.5 or subscribe
for new Shares/Loan Stock at par ("the Subscription Price") to meet the
resulting funding requirement deficit, in a ratio of one Share each for
every (Pounds)2 principal amount of Loan Stock (the "Default Shares/Loan
Stock") PROVIDED THAT if the Inland Revenue agrees a debt: equity ratio for
the purposes of Clause 4.1(b) other than 3:1, this 2:1 ratio shall be
adjusted pro rata.
4.3 Where any Loan Stock has been issued to a Shareholder or its Associate
pursuant to Clause 4.2 ("Clause 4.2 Loans") as a result of
the default by the other Shareholder ("the Defaulter") no outstanding Loan
Stock of the Defaulter (or interest accrued due thereon) subscribed
pursuant to Clauses 3.1 and 4.1 may be repaid or demanded for repayment
without the other Shareholders' consent until all Clauses 4.2 or 4.5 Loans
(and interest accrued thereon) have been fully discharged.
4.4 Save as specifically provided in Clause 3.1(b) and 4.1(b), neither
Shareholder shall be required to make any funding available to the Company.
18.
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DENTON HALL
4.5 Subject always to Clause 4.7 (save where funding is being provided pursuant
to Clause 4.2), if the Board determines that any company in the
Playboy/Flextech Group requires funds in excess of those currently
available to it or them (whether from Shareholders or third parties) either
Shareholder ("a Funding Shareholder") wishing to provide (and who commits
in writing within 7 business days of such determination to provide or
procure the provision of) such additional funds shall be entitled to do so.
The method(s) for such additional funding (whether by way of borrowing, or
the issue of loan capital or securities) shall be determined by the Funding
Shareholder or, in the event that more than one Shareholder so commits
(each a "Funding Shareholder") and proposes different methods of providing
additional funds, the Shareholders shall acting in good faith use their
reasonable endeavours to agree the method of funding and the amount of such
funding; failing which it shall be determined by the Funding Shareholder
who holds the largest number of Shares PROVIDED THAT (i) no such method may
provide for any Shareholder being obliged to incur any expenditure or
financial commitment without its prior agreement; (ii) in the event of
competition, unless otherwise agreed by the Funding Shareholders, the
additional funds shall be provided in the Agreed Proportions. In any event,
any opportunity to participate in any funding proposed pursuant to this
Clause 4.5 shall be offered first to the Shareholders in the Agreed
Proportions.
4.6. Subject always to Clause 4.7, for the purpose of implementing any method
of funding approved by the Board pursuant to Clause 4.5 each of the parties
agrees that any provision in this Agreement, the Loan Stock or the
Articles which requires any particular agreement of the parties or any of
them (including for the avoidance of doubt agreement to convert the Loan
Stock into Shares or to subordinate the Loan Stock to any such funding) or
a voting level or quorum or the vote of any class of Shareholder to
increase the Company's authorised capital, to issue any securities or to
create any Indebtedness for Borrowed Money shall not apply and
(notwithstanding any other provision of this Agreement or of the Articles)
the Shares held by a non-Defaulter (in the case of Clause 4.3) or a
Funding
19.
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DENTON HALL
Shareholder (in the case of clauses 4.2 and/or 4.5) shall on any vote carry
such number of votes and entitle the holder to fulfil such quorum
requirements as will enable the necessary resolution(s) to be passed as
required by the non-Defaulter or Funding Shareholder as appropriate.
4.7 Flextech undertakes to Playboy that it will exercise all voting rights and
other powers of control available to it in relation to the Company so as to
procure (in so far as it is able by the exercise of such rights) that the
Board shall not approve any annual budget or business plan for the Company
or implement any material amendment to or material departure from any of
the same which would require funding to be provided or procured pursuant
to clause 4.1(c) or (d) ("the Additional Funding") if the Directors
appointed by Playboy pursuant to clause 5.1 do not approve such Additional
Funding and
(a) the proposal and/or the approval of such Additional Funding by the
Directors appointed by Flextech pursuant to clause 5.1 is capricious;
or
(b) the Additional Funding is in excess of what is reasonably required
for the normal commercial operations of the Business for the 12 month
period covered by the then current Business Plan and annual budget
provided that this Clause 4.7 shall not apply and the Board shall be
entitled to approve funding without reference to the restrictions contained
in this clause for the purchase in any Year after the second Year (as
determined in accordance with the Programme Supply Agreement) of Acquired
Premium Movies (as defined in the Programme Supply Agreement).
4.8 In the event of any dispute as to whether Flextech has complied with its
undertaking in Clause 4.7, the matter may be referred by either party
hereto within 28 days of any proposal or approval of Additional Funding to
an independent accountant agreed between the
20.
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DENTON HALL
parties. The independent accountant shall act as expert and not as
arbitrator; and shall be instructed to determine the matter within thirty
days of such referral.
4.9 If the parties are unable to agree as to the appointment of the independent
accountant pursuant to 4.8 above within 15 days of one party serving notice
on the other calling for such appointment then the independent accountant
shall be appointed on the application of either party to the President for
the time being of the Institute of Chartered Accountants of England and
Wales.
4.10 The decision of the independent accountant appointed pursuant to Clauses
4.8 or 4.9 shall be final and binding on the parties hereto, save in the
event of manifest error. The costs of such independent accountant shall
be borne by the party whose position on the proposal for the Additional
Funding least prevails.
5. The Board and Management
------------------------
5.1 The Board shall comprise not more than eleven Directors. Each Shareholder
shall be entitled to appoint up to such number of Directors as is stated
opposite its name in Schedule V and to remove and replace any such
appointees provided that Flextech shall always be entitled to appoint a
majority of the Directors so long as it holds more than 50% of the Shares.
The right to appoint remove and/or replace a director shall be exercisable
by notice to the Company a copy of which notice shall be given to the
Shareholder not exercising or giving such notice. The Board shall act by
majority vote only.
5.2 The Chairman shall be one of the Directors appointed by Flextech and shall
not have a second or casting vote at Board or Shareholders' Meetings.
5.3 The appointment of the Chief Executive Officer, the Chief Financial Officer
and the Marketing Manager (if any) of the Company shall be made by the
Board in accordance with clause 8.1.
21.
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DENTON HALL
5.4 The Chief Financial Officer and the Marketing Manager (if any) shall report
directly to the Chief Executive Officer. Any director of the Board shall
have unrestricted direct access to such executives who shall be obliged, as
a term of their respective service agreements, to respond to any enquiries
from, and provide any information and documentation requested by, any such
director.
5.5 Without prejudice to the rights of any such persons under their respective
terms of employment to claim compensation for breach, any Shareholder
beneficially owning (or Shareholders together beneficially owning) more
than 15% of the Shares may terminate the employment of the Chief Executive
Officer, the Marketing Manager (if any) or the Chief Financial Officer.
5.6 Save as otherwise provided or contemplated in this Agreement, the Company
(so far as it is legally able) shall and the Shareholders shall exercise
their powers in relation to the Company so as to ensure that the Company
shall:
(a) convene and hold a formal meeting of the Board at least once in every
period of 4 months;
(b) procure that (save for emergency meetings) not less than fourteen
business days' prior written notice of any meeting of the Board shall
be given to the Directors, that every such notice shall be accompanied
by a written agenda specifying the business of such meeting. Directors
shall be permitted to attend board meetings by telephone;
(c) carry on and conduct its business and affairs on a commercial basis,
and in accordance with the Business Plan in force from time to time;
(d) comply with the terms and conditions of the ITC Satellite Licence and
any directions made by the ITC in relation to it and comply with the
provisions of the Broadcasting Act 1990 and any other licences;
22.
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DENTON HALL
(e) observe and duly perform its obligations under each Transaction
Document to which it is a party.
5.7 Subject to Clause 3.4 each Shareholder and each Director shall, in its
capacity as Shareholder and/or Director of the Company, be entitled to vote
in connection with the approval by the Company of any agreement,
transaction or arrangement in or to which (as applicable) that Shareholder
(or as appropriate Shareholder appointing such Director), or any of its
Associates, is an interested party and in connection with any revisions or
amendments to, or waiver of any rights under, such agreement, transaction
or arrangement PROVIDED THAT its/his interest therein has been disclosed
beforehand to the Board.
5.8 Upon a Shareholder ceasing to be entitled to appoint a director or
directors of the Company (other than by Transfer of Shares to its Associate
pursuant to Clause 13.2) it shall procure the resignation from the Board
(and from any executive position held with the Company) of some or all the
Directors (as the case may be) it has appointed to the Board without any
claim for damages or compensation for loss of office of any kind
whatsoever.
5.9 No non-executive Director shall be entitled to Directors' fees or to
reimbursement by the Company of travelling or other expenses for attending
meetings of the Board.
5.10 All references to "the Board" in Clause 5 shall include a reference to the
board of directors of each company in the Playboy/Flextech Group, so that
each provision therein shall (where the context admits) also apply to the
board of directors of each company in the Playboy/Flextech Group.
6. Agreement to Perform
--------------------
6.1 Each Shareholder shall at all times exercise its respective powers and
votes as shareholder of the Company to ensure that (to the extent that the
same is within such powers and voting rights) the
23.
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DENTON HALL
Company will comply with all of its obligations under each Transaction
Document and the Transponder Sub-Lease.
6.2 Each Shareholder undertakes with the other generally to use its reasonable
endeavours to promote the Business and the Channel.
7. Information
-----------
7.1 The Company shall:
(a) at all times keep true, accurate and up to date books and records of
all the affairs of the Company;
(b) subject to Clause 12, and subject to having received not less than 2
business days' prior notice, make available to the Shareholders and
their duly authorised representatives during working hours on
reasonable notice access to the books, records, accounts, documents and
premises of the Company; and
(c) subject to Clause 12, supply to each Shareholder such information
relating to the Company as it may reasonably require and without
prejudice to the foregoing shall keep the Shareholders fully and
promptly informed as to all material developments regarding the
Company's financial and business affairs and promptly notify the
Shareholders of any significant event (including without limitation any
litigation or arbitration) the outcome of which will or is likely to
materially affect the Company or its business, finances, assets or
affairs.
7.2 Without detracting from the provisions of Clause 7.1, the Company shall at
its own cost prepare and send to the Shareholders and each Director:
(a) within 10 business days from the end of each calendar month unaudited
management accounts of the Company for that month and cumulative
management accounts for the current
24.
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DENTON HALL
accounting period up to and including that month;
(b) within forty five business days from the end of each of its financial
years audited consolidated accounts of the Company (to be prepared,
save as required by law, in accordance with UK Accounting Standards and
certified by the auditors of the Company) and will convene and hold a
meeting of Shareholders within one month thereafter to approve the
same; and
(c) without detracting from the provisions of clause 8.2(a) it shall be the
responsibility of the Chief Executive Officer and the Chief Financial
Officer, in consultation with Mark Luiz or such other person as may be
nominated by Flextech from time to time and such person as Playboy may
nominate from time to time, to prepare a budget, business plan and
marketing plan for each fiscal year beginning after 31st December
l995 no later than the end of October in the year prior to the year to
which the budget, business plan and marketing plan relates.
7.3 The Company may at any time serve written notice upon any Shareholder
requiring it to provide the Company with any information, supported by a
declaration or by such other evidence (if any) in support as the Company
may reasonably require, for the purpose of:
(a) complying with any EC or UK merger or competition law or regulations
in relation to the issue or transfer of Shares and/or Loan Stock in
accordance with this Agreement; or
(b) deciding whether a Licence Event has occurred or is likely to occur;
or
(c) deciding whether a Shareholder is, or is likely to become, a
Disqualified Participant
and such Shareholder shall promptly comply with any such notice.
25.
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DENTON HALL
7.4 The Company undertakes to each Shareholder to keep it informed of any
matter of which the Company is aware which may lead to a Licence Event or
to any Shareholder becoming a Disqualified Participant.
7.5 Each Shareholder shall use its reasonable endeavours to ensure that all
data and information which is reasonably required by the ITC or any other
regulatory body having jurisdiction or to ensure compliance with EC or UK
merger or competition law or regulations or with the Broadcasting Act 1990
shall be duly and promptly supplied to that body.
8. Restrictions on the Company's Activities
----------------------------------------
8.1 Save as expressly provided for in any Transaction Document, the
Transponder Sub-Lease or in the initial Business Plan and subject to
clause 8.2, so long as a Shareholder (together with its Associates) is the
beneficial owner of not less than 15% of the Shares (and, additionally in
the case of Playboy and its Associates so long as Playboy is an Associate
of Playboy Enterprises, Inc., and the Trademark Licence and the Programme
Supply Agreement have not been terminated or are under notice of
termination, other than by wrongful termination by the Company) the
following matters shall require the prior written approval of such
Shareholder and if the above condition does not apply the following
matters shall require the prior approval of the Board and the Shareholders
shall exercise all voting rights and other powers of control available to
them in relation to the Company so as to ensure (in so far as they are able
by the exercise of such rights) that the Company shall not without such
approval:
(a) increase or reduce the authorised or issued share capital of the
Company (other than to permit an issue of shares conducted in
accordance with clause 4 of this Agreement) or consolidate, sub-divide,
purchase, redeem or cancel any of such share capital or alter any right
pertaining to any share or class of shares in such capital or
otherwise re-organise, restructure or reduce the share capital of the
Company;
26.
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DENTON HALL
(b) issue or allot any share or security or grant or create any option or right
to acquire any share or security in the capital of the Company other than by
way of a rights issue offered in accordance with Clause 4 of this Agreement
and the Articles;
(c) alter the Company's Memorandum of Association or the Articles;
(d) save where Clause 8.2(i) applies, take or permit the taking of any action to
have the Company wound up PROVIDED THAT nothing in this clause shall
prohibit such action, taken upon the recommendation or decision of the Board
(on the advice of the Company's auditors or legal counsel of not less than
six years standing with experience in such matters) that the Company should
cease trading in circumstances where, if the Company continued to trade,
the Directors may, under the Insolvency Act 1986, be or become personally
liable for the debts of the Company or to make a contribution to the
Company's assets;
(e) amend or assign or fail to implement or enforce any Transaction Document or
the Transponder Sub-Lease;
(f) enter into a scheme or arrangement, admit in writing its inability to pay
its debts as they fall due, commence negotiations with creditors or any
class thereof with a view to the readjustment or rescheduling of its
indebtedness, make a general assignment for the benefit of creditors, or
save where Clause 8.l(d) applies take any action for the winding-up,
administration, dissolution, liquidation or reorganisation (other than a
solvent reorganisation) of the Company, or for the adjustment, protection
or relief of the Company or its debts under any law relating to bankruptcy,
insolvency or reorganisation;
27.
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DENTON HALL
(g) enter into, renew, vary, terminate or continue after expiry
any contract which is not on bona fide arm's length terms in
all material respects;
(h) subject to Clauses 5.3 and 5.4, engage or alter the terms of
employment (including salary and benefits) of any person
fulfilling the function of Chief Executive Officer, Chief
Financial Officer, or Marketing Manager (if any);
(i) approve any secure encryption system for the Channel or make any
material change in such system such approval by Playboy not to be
unreasonably withheld or delayed;
(j) make any material change in the character of the Channel from
that set out in this Agreement;
(k) subject to Clause 15, make any determination as to (i) whether a
Licence Event has been caused or is likely to be caused, (ii)
whether a person is or is likely to become a Disqualified
Participant, or (iii) whether a Transfer Notice has been or is
deemed to be given in accordance with Clause 16 provided that:
(aa) the approval of such Shareholder shall not be required
pursuant to (i) and/or (ii) of this clause once 14 days have
elapsed after a direction or ruling in respect of the matter
has been made by the ITC (unless, during such 14 days,
such Shareholder has, at its own expense, applied to court
for a judicial review or reversal of such direction or
ruling and the application has been successful or is still
sub judice the first instance court); and
(bb) in the event that such Shareholder fails to give approval,
either such Shareholder or the Board may by notice in
writing to the other refer the matter to such legal counsel
of not less than six years
28.
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DENTON HALL
standing with experience in such matters as shall
be agreed between such Shareholder and the Board
(or, in the event of failure to agree within 7
business days of such notice, to such legal
counsel as above appointed by the President of the
Bar Counsel) who shall be instructed to determine
the matter as soon as reasonably practical, who
shall act as expert and not as arbitrator and
whose decision shall be final and binding on such
Shareholder and the Board. The costs of such
legal counsel shall be borne by such Shareholder
if their position least prevails. Otherwise such
costs shall be borne by the Company;
(l) Transfer (other than by an Encumbrance) the whole or any material
part of the undertaking, property and/or assets of the Company
(or any interest therein), or contract so to do otherwise than in
the ordinary and proper course of the Business;
(m) consolidate, merge or amalgamate with any other person;
(n) subject to clause 4 create, acquire or dispose of any subsidiary
or otherwise acquire or dispose of any shares, securities or
other interest in any company or business or incorporate or
promote any company or permit any subsidiary to issue or allot
any share or security or grant or create any option or right to
acquire any share or security except to the Company or another
wholly owned subsidiary of the Company;
(o) declare or pay any dividend or other distribution or refrain
from declaring or paying any dividend or other distribution
other than in accordance with Clause 10;
(p) incur, enter into or commit to Indebtedness for Borrowed Money
or vary any terms or conditions of any such Indebtedness other
than in accordance with clause 4;
29.
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DENTON HALL
(q) give any guarantee or indemnity or other similar undertaking or
create any Encumbrance over any of the undertaking, property, assets
or uncalled share capital of the Company except to the extent
necessary to obtain Indebtedness to be incurred pursuant to clause 4
of this agreement;
(r) make any loan or advance other than loans to another company in the
Playboy/Flextech Group and normal trade credit and season ticket
loans to employees not exceeding (Pounds)2,500 for all employees;
(s) approve the transmission of the Channel by means of a satellite
other than the Satellite, including transmission to the UK Direct to
Home Market such approval of Playboy not to be unreasonably withheld
or delayed;
(t) use (other than in emergencies) any transponder, other than the
Transponder such approval of Playboy not to be unreasonably withheld
or delayed.
8.2 Save as expressly provided for in any Transaction Document, the
Transponder Sub-Lease or the Business Plan any decision relating to any
of the following matters and any other matters of a non-routine nature
shall require the prior approval of the Board alone and the Shareholders
shall exercise all voting rights and other powers of control available to
them in relation to the Company so as to procure (in so far as they are
able by the exercise of such rights) that the Company shall not without
such approval:
(a) approve any annual budget or any business plan for the Company or
implement any amendment to or material departure from any of the same;
(b) set, amend or waive any of the charges levied by the Company to
subscribers to and/or advertisers on the Channel other than in the
normal course of business;
30.
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DENTON HALL
(c) approve the Company's audited balance sheet or profit and loss
accounts or change the Company's accounting reference date,
accounting policies or auditors;
(d) vary or terminate (other than by effluxion of time) any long term
contract or contract of material importance to the Company;
(e) except in the case of emergency for the protection of the Company's
business or assets institute or defend any litigation, arbitration
or tribunal proceedings (other than normal debt collection in the
ordinary course of business);
(f) take or agree to take any leasehold interest in or licence over any
land;
(g) approve any payment of capital or interest (including capitalised
interest) in respect of the Loan Stock;
(h) enter into any joint venture, partnership, consortium or joint
purchase arrangement;
(i) take or permit the taking of any action to have the Company wound up
if in the first Year (as defined in accordance with the Programme
Supply Agreement) and the immediately succeeding two Years (the
"Relevant Years") the aggregate of the Gross Revenues of the Company
are less than 70% (seventy per cent) of the aggregate of the projected
Gross Revenues of the Company as shown in the initial Business Plan
for the Relevant Years provided that in the event that the Board does
take any such action the provisions of Clauses 8.5 - 8.6 shall apply.
8.3 Notwithstanding the provisions of Clause 8.2, if the Board shall not have
approved the annual budget for any company in the Playboy/Flextech Group
before the commencement of the financial year to which it relates, the
Company shall continue to carry on the
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DENTON HALL
Business for a period of six months on the basis of the previous year's
approved budget in order to give the Board time in which to agree the
annual budget for the financial year in question.
8.4 The exercise of the Company's rights under the Programme Supply
Agreement (including without limitation its rights in relation to
Programme Scheduling under clause 8 and Termination under clause 10.3)
and the Trademark Agreement shall be exercised by the Company through the
directors of the Company appointed by Flextech pursuant to clause 5.1 and
not otherwise.
8.5 In the event that the Board resolves to take or permit the taking of
any action to have the Company wound up in the circumstances set
out in Clauses 8.1(d) and 8.2(i) ("the Winding Up Resolution"):-
(i) the obligations of the Shareholders pursuant to Clause 4 shall
forthwith cease save for obligations which have accrued due
prior to the date of such Winding Up Resolution;
(ii) any Shareholder may serve a notice on the other Shareholder(s)
and the Company at any time within 30 days after the
Winding Up Resolution has been passed, reguiring the
determination of Fair Value of the Shares and the Loan Stock;
(iii) any Shareholder may, within 30 days after such determination
has been made serve a notice ("the Offer Notice") on the other
Shareholder(s) offering to acquire all the Shares and Loan
Stock of the other Shareholder(s) at the price (which shall be
not less than 90% of Fair Value determined pursuant to
paragraph (ii)) per Share and per (Pounds)1 in nominal value
of Loan Stock specified by the Shareholder in the Offer
Notice;
(iv) any Shareholder may within 2 business days of service of an
Offer Notice serve on the Shareholder(s) a notice ("the
Counter Offer Notice") offering to acquire all the Shares and
Loan Stock of the other Shareholder(s) at the price per
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DENTON HALL
Share and per (Pounds)1 in nominal value of Loan Stock
specified in the Counter Offer Notice (being in each case a
price which is higher than the price specified in the Offer
Notice). If no Counter Offer Notice is served within such
timescale, the Shareholder serving the Offer Notice shall
prevail;
(v) if a Counter Offer Notice is served the procedure set out in
(iii) above shall continue and may be repeated until such time
as no further Counter Offer Notice is served within 2 business
days from the date of service of the immediately preceding
Counter Offer Notice when the Shareholder serving the last
Counter Offer Notice shall prevail.
8.6 The Shareholder who prevails and the other Shareholders shall be bound
within 14 days of service of the successful Offer Notice or Counter
Offer Notice (as the case may be) to complete the sale and purchase of
all the Shares and Loan Stock in the Company (other than the Shares
and the Loan Stock held by the prevailing Shareholder or any member of
such Shareholder's Group) at the price per Share and per (Pounds)1 in
nominal value of Loan Stock specified in the Offer Notice or Counter
Offer Notice which prevails (as the case may be) and in the event that
any of the other Shareholders fails to do so the Company may receive the
purchase money and the Directors appointed by the successful Shareholder
may authorise some person to execute a transfer as appropriate of the
Shares and Loan Stock in favour of such Shareholder and the Company shall
hold the purchase money in trust for the relevant Shareholder(s).
9. Name
----
The Company's right to use, or trade under, any name which includes
the word "Playboy" shall be governed by the Trademark Licence.
10. Dividend Policy
---------------
Subject to Clause 8.1 and except as may otherwise be agreed in
writing by the Shareholders, and subject to the provisions of the Act,
the terms of issue of any Loan Stock or other Company
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DENTON HALL
indebtedness and the Company's working capital and other capital
requirements all of the Company's profits from time to time available for
distribution shall be distributed to the Shareholders by way of dividend
as soon as practicable.
11. Condition Precedent
-------------------
This Agreement (other than Clauses 12 and 23 to 25 (inclusive)) is
conditional upon its approval by:
(a) the board of directors of plc;
(b) the board of directors of Playboy;
on or before 27th January 1995. If such conditions are not satisfied or
waived (in the case of (a) by Flextech and in the case of (b) by Playboy)
on or before that date, this Agreement (other than Clauses 12 or 23 to 25
(inclusive)) shall lapse and cease to be of further effect.
12. Confidentiality
---------------
12.1 Each Shareholder shall at all times keep confidential (and shall procure
that its Associates, officers and employees and agents shall keep
confidential) any information which it may have or acquire in relation to
the customers, business, finances, assets or affairs of the Company or the
other Shareholder and its Associates or which, in consequence of the
negotiation or operation of, or the exercise of rights under, any
Transaction Document it may have or acquire in relation to the customers,
business or affairs of the other Shareholder or its Associates, save for
any information:
(a) which is publicly available or becomes publicly available through no
act of that Shareholder;
(b) which is disclosed to that Shareholder by a third party which did not
acquire the information under an obligation of confidentiality;
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DENTON HALL
(c) which is independently acquired by that shareholder as the result
of work carried out by an employee to whom no disclosure of such
information had been made; or
(d) which is required to be disclosed by any law (including any order
of a court of competent jurisdiction) or the rules of any stock
exchange or governmental, revenue or other regulatory authority,
whether or not having the force of law.
Provided that nothing in this clause shall prevent any Shareholder or
any Associate of such Shareholder from operating their respective
businesses in the ordinary and normal course.
12.2 The Company shall, and the Company shall procure that each other
member of the Playboy/Flextech Group shall observe a similar
obligation of confidence in favour of the Shareholders.
12.3 In recognition of each Shareholder's understanding that the other
Shareholder proposes or may in the future propose to invite third
parties to participate as equity or non equity investors or
other providers of finance in or to plc or Flextech or Playboy or
Playboy Enterprises, Inc. the parties agree that such other
Shareholder may provide to such invitees copies of:
(a) the Transaction Documents:
(b) the Transponder Sub-Lease;
(c) any Business Plan,
(d) accounting and other information provided to the Shareholders
pursuant to this Agreement; and
(e) such other information as it would be reasonable in all the
circumstances for a potential investor to require in relation to
the Company and the Business
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DENTON HALL
PROVIDED THAT neither Shareholder may include in such copies any
information which is commercially sensitive, disclosure of which could
in its reasonable opinion cause harm to any company in the
Playboy/Flextech Group, any Shareholder or any company in its Group
AND PROVIDED FURTHER that before providing such copies the invitee has
signed a confidentiality agreement on terms which follow, at least,
those conventionally followed in the United Kingdom, which agreement
shall be expressed to be for the benefit of all parties to this
Agreement and all the companies in the Playboy/Flextech Group.
Furthermore, in recognition of the fact that Flextech and Playboy are
both subsidiaries of publicly-owned companies, the parties agree that
(subject to the first of the preceding provisos) each Shareholder and
its Associates may provide to institutional investors and analysts
such information concerning the Company as is conventional to assist
such investors in deciding whether to invest or such analysts to
prepare their analyst reports.
12.4 The provisions of this Clause shall survive any termination of this
Agreement.
13. Transfers of Shares and Loan Stock
----------------------------------
13.1 No Shares may be Transferred:
(a) at any time if the Transfer is to a Disqualified Person; or
(b) unless and until the terms of clause 13.4 are complied with.
13.2 Subject to Clause 13.1 a Shareholder may Transfer all, but not part
only, of its Shares to any of its Associates but on terms that
immediately upon such transferee ceasing to be the transferor's
Associate such Shares shall be transferred to the transferor or
another of its Associates.
13.3 Subject to Clause 13.1 and save for a Transfer in accordance with
Clauses 13.2, 14, 15, 16 and 17, each Shareholder undertakes that it
will not at any time Transfer any Shares except in accordance with
Clause 13.5.
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DENTON HALL
13.4 If any Shareholder ("the transferor") proposes to Transfer any Shares to
any person ("the transferee") then it shall be a condition precedent to
such Transfer and the registration thereof that the parties to this
Agreement and the transferee shall execute a Deed of Adherence and
deliver a legal opinion in a form, and from legal counsel, reasonably
acceptable to the other Shareholders concerning the issues warranted
and represented by them in Clause 3 of the Deed of Adherence.
13.5.1 Subject to Clauses 13.1 and 13.2 any Shareholder who wishes to sell any
of its Shares (a "Vendor") shall give notice in writing to the Company
and the other Shareholder(s) of such wish (a "Transfer Notice")
identifying:
(a) the person to whom it proposes to sell any of its Shares (the
"Proposed Transferee");
(b) the name of the Proposed Transferee's ultimate parent company and
controlling shareholders, if any;
(c) the Prescribed Price and other terms of the proposed sale and the
extent to which (if any) such price assumes that the Proposed
Transferee shall be entitled to receive all or any dividends or
other distributions accrued due but not paid in respect of the
Shares.
The Transfer Notice shall not be effective if it does not contain such
information unless it is a deemed Transfer Notice pursuant to Clause 14.
A Transfer Notice, once given, cannot be withdrawn without the consent
of all the Shareholders (other than the Vendor). The Transfer Notice
shall constitute the Company the Vendor's agent for the sale of all, but
not some only, of the Shares the subject of the Transfer Notice ("the
Sale Shares") to the other Shareholder(s) and/or (subject to Clause
13.5.4) any person procured or nominated by the other Shareholder(s) as
it/they may in its/their absolute discretion determine ("a Nominee") at
the Prescribed
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DENTON HALL
Price. The Transfer Notice shall be accompanied by the Vendor's share
certificates and duly executed transfers in blank in respect thereof and
(save as hereinafter provided) may not be withdrawn.
13.5.2 In any case where there is a deemed Transfer Notice and the
determination of the Prescribed Price has been referred to the Referee,
the Company shall as soon as it receives the Referee's certificate serve
a certified copy thereof on the Shareholders. The fees and expenses of
the Referee shall be borne as to one half by the purchaser(s) (if any)
and as to the balance (or the whole if there are no purchasers) by the
Vendor of the Sale Shares.
13.5.3 Within 7 business days of receipt of the Transfer Notice by the Company
or, where a Referee's certificate is required, within 7 business days of
receipt by the Company of the Referee's certificate, the Company shall
give notice in writing to the other Shareholder(s) specifying the
number of Sale Shares and the Prescribed Price therefor and offering the
Sale Shares for sale to the other Shareholder(s) and/or (subject to
Clause 13.5.4) a Nominee at the Prescribed Price. Such notice shall be
accompanied by a copy of the Transfer Notice and, if applicable, the
Referee's certificate and shall require the other Shareholder(s) within
14 days of the receipt of the notice:
(a) give notice that it and/or a Nominee is willing to purchase the
Sale Shares at the Prescribed Price; or
(b) (except in the case of a deemed Transfer Notice pursuant to Clause
14 or 16.2) give notice that it consents to the sale of all the Sale
Shares within 28 days thereof to the Proposed Transferee at the
Prescribed Price;
(c) give notice that it objects to the Transfer to the Proposed
Transferee on the grounds set out in Clause 13.5.9.
In the event that no notice or notices are received within the said
period of 14 days or notice or notices have been given pursuant to
Clause 13.5.3(a) but not in respect of all the Sale Shares then such
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DENTON HALL
other Shareholder(s) shall be deemed to have served a notice or notices
pursuant to Clause 13.5.3(b) at the end of such 14 day period.
13.5.4 In the event that a notice or notices are served pursuant to Clause
13.5.3(a) in respect of all of the Sale Shares, the other Shareholder or
Shareholder(s) or a Nominee of either or both shall within 28 days
thereafter complete the purchase from the Vendor of the Sale Shares at
the Prescribed Price provided that in the event of competition the
Shareholders (and/or their Nominees) shall complete the purchase of the
Sale Shares in the Agreed Proportions save that notwithstanding the
above no purchase pursuant to this clause may be made by a Nominee of
any Shareholder if there remains another Shareholder willing to
purchase those Sale Shares which such Nominee would otherwise have
purchased. The Vendor shall be bound to transfer the Sale Shares
comprised in the notice to the other Shareholder(s) or its/their
Nominees at the Prescribed Price, and if it makes default in so doing
the Company may receive the purchase money and the Directors
appointed to the Board by the other Shareholder(s) may authorise some
person to execute a transfer as appropriate of the Sale Shares in
favour of the other Shareholder(s) and/or their Nominee(s) ("the
Shareholder Purchasers") and the Company shall hold the purchase money
in trust for the Vendor. The receipt by the Company of the purchase
money shall be a good discharge to the Shareholder Purchaser(s) and
after its or their name has been entered in the Company's Register of
Members in exercise of the aforesaid power, the validity of the
proceedings shall not be questioned by any person. If such purchase is
not completed (for any reason other than the Vendor's delay or default)
within such period of 28 days, then the certificate and duly completed
transfer of the Sale Shares shall be returned to the Vendor and consent
shall be deemed to have been given pursuant to Clause 13.5.3(b) and the
provisions of Clause 13.5.5 shall apply.
13.5.5 In the event that a notice is given or deemed to be given by the other
Shareholder pursuant to Clause 13.5.3(b) the Vendor shall, subject to
Clause 13.6, be at liberty to sell all of the Sale Shares
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DENTON HALL
at any time within 28 days after the date of such notice (or, if no
actual notice is given pursuant to Clause 13.5.3, the expiry of the
period of 14 days provided for under Clause 13.5.3) to the Proposed
Transferee at the Prescribed Price and otherwise upon no more favourable
terms than those offered to the other Shareholder(s) and as stated in
the Transfer Notice PROVIDED THAT if prior to completion of the said
sale an event has occurred which, if any Proposed Transferee had been a
member of the Company at the date of the Transfer Notice would have
meant that a deemed Transfer Notice arose under Clause 14 then the
identity of the Proposed Transferee shall need to be re-approved and
failing such re-approval, the Transfer Notice shall be deemed to have
been withdrawn by the Vendor and such sale shall not take place. It
shall be a condition precedent of completion of any such sale that the
Proposed Transferee shall deliver to the Vendor an undertaking that
no such event has occurred.
13.5.6 The Board shall refuse to register any Transfer of any Share other
than a Transfer permitted by or under and made in accordance with
the provisions of Clauses 13, 14, 15, 16 or 17, which Transfers the
Board shall register.
13.5.7 All Shares Transferred pursuant to Clause 13.5 shall be transferred as
beneficial owner and free from all Encumbrances together with all
rights, benefits and advantages attached thereto as at the date of the
Transfer Notice or deemed Transfer Notice except the right to any
dividend declared or interest accrued but not paid prior to the date of
the relevant Transfer Notice except where the benefit to the Proposed
Transferee of such payments after the date of the Transfer Notice has
been taken into account in determining the Prescribed Price.
13.5.8 Immediately upon completion of the Transfer of any Shares by any
Shareholder pursuant to the provisions of this Agreement the Vendor
shall procure the resignation of any Director in accordance with
clause 5.8.
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13.5.9 A notice under Clause 13.5.3(c) may only be given where the Proposed
Transferee or its Associate engages in a business which has editorial
control over either:
(a) a men's sophisticate magazine which regularly features nudity;
(b) a film, television or multi-media production company which regularly
produces films or programming that features nudity; or
(c) a television programme service consisting of programming that
regularly features nudity
PROVIDED THAT such notice may not be given where the Shareholder
otherwise entitled to give it consents to the Transfer to the Proposed
Transferee, such consent not to be unreasonably withheld. When deciding
whether or not to give such consent, such Snareholder may take account
of:
(a) the value of its or its Associate's logo, trademark, brands,
image and/or reputation (in the case of Playboy, including
its reputation as a mainstream men's sophisticate publisher
and its unique position as an advertising vehicle for many
reputable businesses);
(b) Playboy's and plc's (and plc's ultimate parent company,
Tele-Communications, Inc's.) position as companies whose
stock is publicly traded.
The parties acknowledge that if the publisher of "Hustler", "Mayfair" or
"Penthouse" magazines or the producer of "Spice", "Adam and Eve" or "The
Adult Channel" television services becomes a Shareholder, the image
and/or reputation of Playboy might be impaired and that it might be
reasonable for Playboy to withhold consent to a Transfer to such an
entity. In the event that a notice is duly given under this Clause the
Vendor shall not be permitted to Transfer its Shares to the Proposed
Transferee.
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13.6 No Transfer shall be permitted pursuant to Clause 13.5.5, or Clause
13.11 read with Clause 13.5.5, by any Shareholders ("the Selling
Shareholders") who together with its Associates holds the beneficial
interest in Shares representing more than 35% of the Shares immediately
prior to such Transfer if after the proposed Transfer the Selling
Shareholder and its Associates would cease to hold the beneficial
interest in shares representing at least 15% of the Shares unless the
Selling Shareholder shall procure that the Proposed Transferee shall
irrevocably offer (in writing) to acquire that proportion of Shares and
Loan Stock held by each of the other Shareholders (and/or their
respective Associates) as the proportion of Shares and Loan Stock which
the Selling Shareholder proposes to Transfer bears to the total number of
Shares and Loan Stock held by the Selling Shareholder and/or its
Associates. Such offer shall be capable of acceptance, and shall be
irrevocable, for not less than 14 days after it is given; such offer
shall be at the Prescribed Price and otherwise on substantially no less
favourable terms than those offered to the Selling Shareholder by the
Proposed Transferee. If such offer is accepted, completion of the
purchase thereby arising shall take place simultaneously with the
completion of purchase by the Proposed Transferee from the Selling
Shareholder.
13.7 The Shareholders shall together procure that at all times during the
continuation of this Agreement the Board acts in accordance with the
provisions of Clause 13.
13.8 Each Share and Loan Stock Certificate in respect of Shares and Loan
Stock shall have typed on the face thereof the following legend:
"Transfer is subject to restriction as appears on the back".
and on the back the following legend:
"The Shares/Loan Stock represented by this certificate are held and
may only be Transferred by the registered owner subject to the terms
of a Shareholders' Agreement made effective 12th January 1995"
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13.9 The Company undertakes with each Shareholder that it will from time to
time and as necessary undertake, and each Shareholder severally
undertakes with each other Shareholder that it will vote in favour of,
any reorganisation of the Shares or Loan Stock in issue if the Company is
reasonably requested to undertake any such reorganisation by any
Shareholder and, in the Company's reasonable opinion, such a
reorganisation is necessary in order to avoid the occurrence of a Licence
Event or a Shareholder becoming a Disqualified Participant, including,
without limitation, the separation of voting and capital and income
rights, the issue of new shares to any Shareholder or to its Associates
and the sub-division or consolidation of Shares or Loan Stock held by any
Shareholder or its Associates (as the case may be) PROVIDED THAT the
Company shall not be requested to undertake any such reorganisation:
(a) if that reorganisation would or would be likely to, as determined in
accordance with the provisions of clause 16.1, cause a Licence Event
or to make any Shareholder a Disqualified Participant; or
(b) if that reorganisation would or would reasonably be likely, in the
reasonable opinion of the Board (the Board having first consulted the
auditors of the Company and considered any reasonable representation
of any Shareholder), to have a material adverse effect on the
Company or any of the other Shareholders
(c) the Shareholder making the said request bears all the Company's and
the other Shareholders' reasonable legal and other costs and
expenses in relation to the reorganisation.
13.10 Each of the Shareholders hereby irrevocably consents for the purposes of
Article 24 of the Articles to a transfer permitted by or made pursuant to
the provisions of Clauses 13, 14, 15, 16 and 17.
13.11 Clauses 13.1 to 13.5 (excluding Clause 13.5.8) shall apply to Transfers
of Loan Stock, mutatis mutandis.
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14. Deemed Transfers of Shares
--------------------------
14.1 (a) If a Shareholder becomes unable to pay its debts within Section 123
of the Insolvency Act 1986 or makes a composition or arrangement with
its creditors or puts a proposal to its creditors for a voluntary
arrangement for a composition of its debts or a scheme of arrangement
or on the presentation of a petition that it be put into liquidation
(which is not withdrawn or defeated within 28 days) or administration
or passes a resolution putting it into voluntary liquidation (other
than for the purposes of amalgamation or reconstruction reasonably
approved by the other Shareholder) or it suffers the appointment of a
provisional liquidator, a receiver, manager or a administrative
receiver or on the occurrence of an event which does result in the
crystallisation of any floating charge over its business,
undertaking, property or assets or any part thereof or is dissolved
or an event occurs which is analogous to any of the above in any
jurisdiction other than the UK in which the relevant Shareholder is
incorporated; or
(b) if Playboy ceases to own on a diluted basis at least 10% of the
Shares, or plc ceases to own on a diluted basis at least 20% of the
Shares; (ownership on a diluted basis shall mean the "see through"
percentage of such shares so that for example where a company
(Company A) owns 50% of the shares in another company (Company B) and
Company B owns 50% of the shares in another company (Company C),
Company A will be deemed to own on a diluted basis 25% of the shares
in Company C provided that in the event that Playboy exercises any of
the Options under Clause 15, whether in whole or in part, the
provisions of this Clause shall on completion of such exercise, cease
to apply either to Playboy or to Flextech); or
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DENTON HALL
(c) if a Shareholder or any of its Associates shall commit a material
breach of any material provision of this Agreement, or any other
agreement with the Company to which it or any of its Associates
is a party and shall have failed to remedy such breach, if
capable of remedy, within 30 days after the date of a notice from
the other Shareholder specifying the nature of the breach and
requiring it to be remedied
(such Shareholder (or, in the case of (b) if the event happens to
Playboy Enterprises, Inc., Playboy or if the event happens to
plc, Flextech) being hereinafter referred to as "the
Defaulter")
then in any such event (without prejudicing or in any way limiting its
other rights) the other Shareholder ("the Non-Defaulter") shall be
entitled (by notice in writing to the other and to the Company given
within 60 days of the later of the date of the event or of the date
on which the Non-Defaulter becomes aware of the event giving rise to
such rights under this Clause) in its entire discretion to treat the
occurrence of any such event as the deemed service by the Defaulter of
a Transfer Notice pursuant to Clauses 13.5 and Clause 13.11 the
provisions of which shall accordingly apply mutatis mutandis.
14.2 Where any notice is given by the Non-Defaulter pursuant to Clause 14.1
the Non-Defaulter may specify (and the parties shall give effect
thereto) that (notwithstanding any provision of the Articles) until
completion of the Transfer in accordance with Clause 13:
(a) any transfer by a Defaulter of its Shares or Loan Stock ("the
relevant Units") (other than to or at the direction of the Non-
Defaulter) shall be void;
(b) no voting rights shall be exercisable by the Defaulter in respect
of its Shares or Loan Stock;
(c) no further Shares or Loan Stock shall be issued or need be
offered to the Defaulter;
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DENTON HALL
(d) in the event that the notice is served pursuant to Clause 14.1(c)
no interest, dividend or other payment shall be made of any sums
due from the Company on the Defaulters' Shares or Loan Stock or
any other loans due from the Company (whether in respect of
capital or otherwise) to the Defaulter but such sums shall be
taken into account in determining the Prescribed Price;
(e) all the Defaulter's rights (but not its obligations) under
Clauses 4, 5, 7 and 8, 13 and 14, shall be suspended during that
period and in the event that the Defaulter is Playboy or any of
its Associates, its rights under Clause 15 of this Agreement
shall lapse.
14.3 The Non-Defaulter may by notice remove or relax such restriction in
whole or in any particular case at any time.
15. The Option
----------
15.1 Flextech hereby grants to Playboy the option:
(i) at any time during the period ending nine months after the date
of Closing to purchase up to such number of the Original Shares
as shall, following the exercise of such option and together with
all other Original Shares held by Playboy and/or its Associates
at that time, result in Playboy and/or its Associates together
holding not more than 49% of the Original Shares ("the First
Option"). The consideration payable for the Original Shares in
respect of which the First Option is exercised ("the First Option
Shares") shall be the aggregate price paid by Flextech for the
First Option Shares plus interest thereon at LIBOR + 3% from the
date of payment by Flextech therefor up to and including the date
of completion of the First Option pursuant to Clause 15.6.
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DENTON HALL
(ii) at any time during the 180 day period commencing on the third
anniversary of Closing to purchase up to such number of Original
Shares as shall represent 15% of the total number of the Original
Shares or such lesser number as shall, following the exercise of
such option and together with all other Original Shares held by
Playboy and/or its Associates at that time including for the
avoidance of doubt any Original Shares acquired pursuant to the
First Option), result in Playboy and/or its Associates together
holding not more than 49% of the Original Shares ("the Second
Option"). The consideration payable for the Original Shares in
respect of which the Second Option is exercised ("the Second
Option Shares") shall be:
(a) the Fair Value; or
(b) the aggregate price paid by Flextech for the Second Option
Shares plus interest thereon at LIBOR + 3% from the date of
payment by Flextech therefor up to and including the date of
Completion of the Second Option pursuant to clause 15.6;
whichever is the greater.
(iii) subject to clause 15.2 below, at any time during the 180 day
period commencing on the fifth anniversary of Closing to purchase
such number of Original Shares as shall, following the exercise
of such option and together with all other Original Shares held
by Playboy and/or its Associates at that time, (including for the
avoidance of doubt any Original Shares acquired pursuant to the
First Option and/or the Second Option), result in Playboy and/or
its Associates together holding not more than 49% of the Original
Shares ("the Third Option"). The consideration payable for the
Original Shares in respect of which the Third Option is exercised
("the Third Option Shares") shall be:
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DENTON HALL
(a) the Fair Value; or
(b) the aggregate price paid by Flextech for the Third Option
Shares plus interest thereon at LIBOR + 3% from the date of
payment by Flextech therefor up to and including the date of
Completion of the Third Option pursuant to clause 15.6;
whichever is the greater.
15.2 In the event that it appears to Playboy and Flextech reasonably likely
that (based on available audited accounts of the Company, management
accounts and any annual budgets and projections for future financial
years) Playboy will be entitled to receive the Bonus Licence Fee (as
defined in the Programme Supply Agreement), Flextech will on written
request from Playboy to be received on or before the day on which the
Third Option would have expired in accordance with clause 15.1(iii) above,
extend the period during which the Third Option may be exercised so that
the Third Option may be exercised at any time during the period commencing
on the date on which the Third Option would have expired in accordance
with clause 15.1(iii) and ending on 30 days after (i) the Return of
Investment Date (as defined in the Programme Supply Agreement); or (ii)
the sixth anniversary of the Launch Date as defined in the Programme
Supply Agreement, whichever is the earlier. If the Third Option is so
exercised, payment of so much of the consideration for the Third Option
Shares as equals the Board's estimate (based as aforesaid) of the Bonus
Licence Fee or any relevant part thereof may be deferred, until 3 business
days after each payment of the Bonus Licence Fee is made to Playboy so
that amounts received by way of Bonus Licence Fee may be used to satisfy
the consideration payable in respect of the Third Option Shares, provided
that:
(i) the difference between the Bonus Licence Fee and the consideration
payable for the Third Option Shares shall be payable within 3
business days after the consideration for the Third Option Shares
shall have been determined:
48.
<PAGE>
DENTON HALL
(ii) all payments of Bonus Licence Fee shall, to the extent necessary, be
used to satisfy any consideration for the Third Option Shares
which may be outstanding;
(iii) interest shall be payable on any consideration deferred pursuant to
this clause at LIBOR plus 3% from the third business day after the
date on which the consideration for the Third Option Shares is
established up to and including the date of payment of any deferred
amount pursuant to this clause;
(iv) for the purposes of Clause 15.7, Playboy shall be deemed on each
payment made in respect of the Third Option Shares to have
completed the Third Option in respect of that percentage of the
Original Shares in respect of which the Third Option has been
exercised as equals the percentage which the relevant payment
being made bears to the total consideration payable for the Third
Option Shares; and
(v) all the consideration payable in respect of the Third Option Shares
deferred pursuant to this clause (if not paid or payable before such
date) shall be paid on the second anniversary of the exercise of the
Third Option.
15.3 In calculating interest for the purposes of the above First, Second or
Third Options respectively (and for the purposes to clause 15.5(iii)),
interest shall accrue from day to day on the basis of a 365 day year and
shall be compounded at six monthly intervals.
15.4 Each of the First Option, the Second Option and the Third Option ("the
Options") may be exercised once only during the relevant periods set out
above (time being of the essence as provided in clause 15.2 save in
respect of the Third Option) by Playboy giving to Flextech not more than
21 days' nor less than 7 business days' notice ("the Option Exercise
Notice") in writing to expire on or before the last day of the relevant
option period.
49.
<PAGE>
DENTON HALL
15.5 The right to exercise each of the Options shall be conditional on:
(i) Playboy and/or its Associates being the beneficial owner and
registered holder of not less than 15% of the Shares (or not less
than 10% provided that Playboy has not disposed of Shares which have
resulted in Playboy's becoming the registered holder of less than
15% of the Shares and Playboy are not in default under any
provisions of Clause 4 of this Agreement) and Playboy being an
Associate of Playboy Enterprises, Inc. on the date on which the
Option is exercised;
(ii) such exercise not resulting in or being reasonably likely to result
in a Licence Event;
(iii) Playboy or its Associate contemporaneously with completion of the
relevant Option subscribing in cash for such principal amount of new
Loan Stock as is equal to that proportion of the Loan Stock then
held by Flextech and its Associates as equals the proportion of
Flextech's Shares to be purchased under the relevant Option; such
new Loan Stock shall be subscribed for in cash for the sum of:
(A) the par value thereof; plus
(B) an amount equal to interest on the said proportion of Loan Stock
which is accrued or due but unpaid, calculated from the date of
Flextech's or its relevant Associates subscription for such Loan
Stock to the date of completion of the relevant Option exercise;
(iv) the entire proceeds of the subscription pursuant to paragraph (iii)
being applied on the date of completion of the relevant Option
exercise to redeem the proportion of Flextech's Loan Stock referred
to in paragraph (iii) and interest due or accrued due thereon, for
which purposes (and
50.
<PAGE>
DENTON HALL
for the purposes of the calculations to be made under paragraph
(iii)(B)) the "first in, first out" principal shall be applied.
(v) no event having occurred which would mean that a Transfer Notice
has or may (whether or not such Transfer Notice is served) be
served in relation to Playboy or any of its Associates under clause
14;
(vi) no notice having been served on Playboy to terminate the
Programme Supply Agreement or the Trademark Licence
and for the avoidance of doubt if either (i), (v) or (vi) above are not
satisfied at any time when one or more Options remain available to be
exercised, that Option and any other subsisting Option shall automatically
terminate and be of no further force and effect.
15.6 Completion of the exercise of any of the Options shall take place within
3 business days after the consideration for the relevant Option Shares
has been determined.
15.7 On completion of each of the Options:
(a) Playboy shall pay or procure the payments to:
(i) Flextech (or as Flextech may direct) of the consideration for
the relevant Option; and
(ii) the Company of the subscription price in respect of the new
Loan Stock to be subscribed pursuant to Clause 15.5(iii)
(b) the Company shall, out of the proceeds of the payment under paragraph
(a)(ii), redeem the relevant proportion of Flextech's Loan Stock
pursuant to Clause 15.5(iv);
51.
<PAGE>
DENTON HALL
(c) Flextech shall deliver to Playboy transfers in respect of the
relevant Option Shares duly signed and completed in favour of Playboy
together with the certificate(s) therefor;
(d) Flextech shall use its reasonable endeavours to procure that the said
transfer shall be registered subject to (where applicable) being duly
stamped and that the certificates be sealed and issued to Playboy in
respect of the relevant Option Shares.
15.8 Any Option Shares shall be sold by Flextech as beneficial owner free from
all encumbrances and together with all rights and benefits attached
thereto on or after the date of the exercise, save that in relation to any
dividend declared and paid in respect of any fiscal year in which the
Option is exercised, Flextech and Playboy shall be entitled to that
proportion of the dividend relating to the relevant Option Shares as
equals the proportion of the fiscal year to which the dividend relates
during which they were the holder of the relevant Option Shares and
Flextech and Playboy hereby instruct the Company to make any such dividend
payments in accordance with the above provision unless an entitlement to
such proportion has been taken into account in calculating the
consideration for the relevant Option Shares.
15.9 The Option shall be personal to Playboy and shall not be assignable,
either separately or through a Deed of Adherence.
15.10 Nothing in this Clause 15 shall prevent Flextech from transferring any of
the Shares the subject of any of the Options in accordance with the
provisions of Clauses 13 or 14 provided that (save where the Transfer is
to any of its Associates pursuant to Clause 13.2):
(a) in the event that Flextech transfers all or any of its Original
Shares, immediately prior to such Transfer, the Options shall
automatically terminate and be of no further force and effect in
relation to those Original Shares and the Original Shares shall be
transferred by Flextech free from the Option; or
52.
<PAGE>
DENTON HALL
(b) in the event that after any such Transfer Flextech retains
Original Shares in excess of the maximum number of shares the
subject of the Options which are still exercisable, the Options
shall continue, subject to the other provisions of this Clause
15; or
(c) to the extent that after any such Transfer the number of Original
Shares held by Flextech is less than the number of Original
Shares the subject of any Options which are still exercisable,
the relevant Option(s) shall be deemed forthwith on such Transfer
to relate to the maximum number of Original Shares then held by
Flextech.
15.11 For the purposes of Clause 15.10 Flextech shall be deemed to dispose
first of its Original Shares and only after it has disposed of shares
equal in number to the number of Original Shares for which it has
subscribed shall it be deemed to dispose of shares which are not
Original Shares.
15.12 Notwithstanding any of the preceding provisions of this Clause 15, the
maximum number of Shares which Playboy has the right to purchase under
the Option shall be such number (when added to the other Shares for
the time being held by Playboy and its Associates) as equals 49% of
all the Shares.
16. Selldown
--------
16.1 Where any provision in this Agreement requires a determination of
whether a Licence Event has been caused or has occurred or is likely
to be caused or to occur or whether a person is, or is likely to
become, a Disqualified Participant, that matter shall be determined:
(a) if the ITC shall have made a direction or ruling in respect of
the matter, by the Board in accordance with that direction or
ruling; and
53.
<PAGE>
DENTON HALL
(b) otherwise, in the reasonable opinion of the Board, provided that:
(i) if, in the reasonable opinion of the Board, it is
appropriate in all the circumstances for the Board to
consult the ITC on the matter, the Board shall first
consult the ITC; and
(ii) the Company shall first have served a written notice of
such duration (if any) as the Board shall in its
reasonable discretion think fit on the Shareholder or
Shareholders directly concerned with or affected by the
matter specifying the grounds on which the Board
believes that:
(A) a Licence Event may have been caused or occurred
or may be likely to be caused or occur; or
(B) that a person may be a Disqualified Participant or
may be likely to become a Disqualified Participant
and shall consider any reasonable representation of the
Shareholder(s) concerned.
16.2 Where the Board (following if the Board in its reasonable opinion
considers it is appropriate so to do, consultation with the ITC) shall
determine, in its reasonable opinion and having regard to all the
relevant circumstances, that a Licence Event has been caused or has
occurred or one or more Shareholder(s) has or have become a
Disqualified Participant or Participants or there is a reasonable
likelihood that a Licence Event will occur or be caused or that one or
more Shareholders will become a Disqualified Participant or
Participants then the Shareholders agree that the Company shall be
entitled to serve notice ("a Licence Notice") upon the affected
Shareholder(s) requiring it/them within 90 days (or such other
54.
<PAGE>
DENTON HALL
period as may be specified by the ITC) of service of a Licence Notice
to reduce its/their proportionate holding of the Shares to such
maximum percentage shareholding (if any) as may be fixed pursuant to
any decision of the ITC or, in the absence of any fixed percentage, to
such percentage as the Board may reasonably consider necessary in the
circumstances ("the Reduced Percentage") the difference between the
number of Shares in the Reduced Percentage and the comparable amount
of Loan Stock and the total number of Shares and the Loan Stock held
by the Shareholder being the "Relevant Number". A Licence Notice shall
be deemed to constitute a Transfer Notice served by the affected
Shareholder(s) offering to sell within the said period the Relevant
Number of its/their holding of Shares and Loan Stock pursuant to the
provisions of Clause 13.5.1 and (as the case may be) 13.11 save that
(a) the Relevant Number of Shares and Loan Stock Units shall
constitute the Sale Shares and Sale Loan Stock and (b) the Prescribed
Price shall be determined pursuant to paragraph (b)(i) of the
definition of Prescribed Price in Clause 1.1.
16.3 In the event that the provisions of Clause 16.1 or 16.2 apply then,
with effect from the date of the Licence Notice, pending transfer of
the Shares and Loan Stock in question, the affected Shareholder(s)
shall to the extent required by the ITC be disenfranchised and lose
any right to vote or receive dividends or other distributions in
respect of the Share and Loan Stock in question. Any such dividends or
distributions shall belong to the transferee of any such Share and
Loan Stock and shall be taken into account in establishing the
Prescribed Price. To the extent operation of this Clause 16.3 would
cause any other Shareholder to be in the position where Clauses 16.1
or 16.2 applied to it then the relevant percentage of the Shares held
by such other Shareholders shall also be so disenfranchised with
effect from the same date, pending the said Transfer.
16.4 If at any time within six months after completion of a Transfer
pursuant to Clause 16.2 the ITC or other relevant regulatory authority
indicates it has changed its mind or its decision is found to be
incorrect then in consideration of the payment by the
55.
<PAGE>
purchaser thereof of the Prescribed Price paid under clause 16.2 plus
interest thereon at LIBOR + 3% from the date of Transfer to the date on
which such Shares are transferred back pursuant to this clause the Share
and Loan Stock in question shall be transferred back to the affected
Shareholder who, together with the purchaser of such Shares shall to the
extent possible be put in the same position as if such Transfer had not
taken place.
16.5 A Shareholder who reasonably believes that any other Shareholder is or
may, or would or might with the passage of time, be likely to cause a
Licence Event or become a Disqualified Participant shall forthwith notify
the Company and the other Shareholders to that effect, provided that it
has simultaneously so notified the relevant Shareholder, and the relevant
Shareholder shall provide such information to the Company and the other
Shareholders as any of them shall reasonably require.
16.6 The provisions of this Clause 1 shall apply so far as may be applicable
to a Foreign Licence Event as if references in this Clause 16 to the
ITC were deleted and reference to the analogous licensing body in the
relevant territory was substituted in its place.
16.7 The Shareholders shall themselves respectively and shall procure that the
Company shall use its reasonable endeavours to mitigate the effects on a
Disqualified Participant of the provisions of this Clause 16 provided
that nothing in this clause shall require the Company or any of the
Shareholders to take any action or omit to take any action which would in
its reasonable opinion be prejudicial to the interest of any company in
the Playboy/Flextech Group or to such Shareholders.
17. Compulsory Purchase by Flextech
-------------------------------
17.1 In the event that:
56.
<PAGE>
DENTON HALL
(a) the Company terminates the Programme Supply Agreement pursuant to
Clause 10.3(a) of that Agreement or terminates the Trade Mark Licence
other than on grounds of breach by Playboy or any of its Associates;
and
(b) Playboy and/or its Associates within 60 days of such termination
serves a notice on the Company pursuant to clause 13.5.1 in respect
of all its Shares and Loan Stock; and
(c) a purchase of all such Shares and Loan Stock is not completed in
accordance with clauses 13.5.4 or 13.5.5
Flextech on demand in writing by Playboy undertakes to purchase or
procure the purchase of all the Shares and Loan Stock held by Playboy
and/or its Associates at the lower of:
(i) the Prescribed Price (as defined in paragraph (a) of the
definition of Prescribed Price) (if any); and
(ii) the Fair Value
("the Compulsory Price")
--------------------
17.2 The Compulsory Price shall be notified to the Company and each of the
Shareholders as soon as practicable after it has been established.
Completion of the purchase shall take place not later than 14 days after
the Compulsory Price has been notified as set out above provided that any
other Shareholder who notifies Flextech in writing at any time within 7
business days after the Compulsory Price has been so notified shall,
subject to payment of the relevant purchase monies on completion, be
entitled to participate in such purchase in the Agreed Proportions.
17.3 The provisions of clause 13.5.8 shall apply to any Transfer pursuant to
this clause 17.
57.
<PAGE>
DENTON HALL
18. Representations and Warranties
------------------------------
Each Shareholder hereunder represents and warrants to the other Shareholder
that:
(a) it, and each of its Associates which is a party to any Transaction
Document, is a company duly incorporated and validly existing in all
respects under the laws of the jurisdiction of its incorporation with
full power and authority to own its assets and to carry on its business
as it is now being conducted and no action has been taken or threatened
(whether by it or any third party) for or with a view to its or their
liquidation, receivership or analogous process;
(b) the execution of any Transaction Document to which it or its relevant
Associate is a party has been validly authorised and the obligations
expressed as being assumed by it (or, as applicable, by its Associate)
under such Transaction Documents constitute its (or, as applicable, its
Associate's) valid, legal and binding obligations enforceable against
it (or, as applicable, its Associate) in accordance with its terms:
(c) neither the execution and delivery by it or its Associate of any
Transaction Document to which it is a party nor the performance or
observance of any of its or its Associate's obligations thereunder
does or will:
(i) conflict with, or result in any breach or violation of, any
judgement, order or decree, indenture, mortgage, trust deed,
agreement or other instrument, arrangement. obligation or duty by
which it or such Associate is bound; or
(ii) cause any limitation on any of its or its Associate's powers
whatsoever, howsoever imposed, or on the right
58.
<PAGE>
DENTON HALL
or ability of the directors of it or such Associate to exercise
such powers, to be exceeded.
19. Competition
-----------
19.1 If Playboy wishes to launch (alone or with others) a channel which will be
the same as or substantially similar to the Channel in any country in
Europe other than the Territories ("the New Channel") using any of the
assets of the Company, Playboy will negotiate reasonably and in good faith
with Flextech (on behalf of itself and the Company) with a view to
Flextech and/or the Company participating in the New Channel. To enable
Flextech and the Company to consider such launch, Playboy shall provide
to Flextech and the Company copies of any reports, surveys and other
information which they have obtained or prepared relating to the launch
of such New Channel.
Nothing in this Clause shall permit Playboy to launch or operate a New
Channel (other than through a wholly owned subsidiary of the Company)
using any assets of or facilities of the Company or any Company in the
Playboy/Flextech Group without the consent of Flextech.
19.2 Subject to clauses 12 and 19.1, the Programme Supply Agreement and the
Trademark Licence, no Shareholder or its Associates shall be prohibited or
restricted from participating in other ventures that compete, or do not
compete, with the Business or the businesses of any of the other
parties.
20. No Assignment
-------------
The provisions of this Agreement shall be binding on and enure to the
benefit of the successors of each party hereto provided that save as
otherwise provided in this Agreement no party may agree to assign,
transfer, charge or otherwise dispose of or subcontract any of its
rights or obligations hereunder without the prior written consent of the
other party.
59.
<PAGE>
DENTON HALL
21. Waivers, Remedies Cumulative, Amendments. etc.
----------------------------------------------
21.1 No failure or delay by any of the parties hereto in exercising any right,
power or privilege under this Agreement shall operate as a waiver thereof
nor shall any single or partial exercise by any of the parties hereto of
any right, power or privilege preclude any further exercise thereof or the
exercise of any other right, power or privilege.
21.2 The rights and remedies herein provided are cumulative and not exclusive
of any rights and remedies provided by law.
21.3 No provision of this Agreement may be amended, modified, waived,
discharged or terminated, otherwise than by the express written agreement
of the parties hereto nor may any breach of any provision of this
Agreement be waived or discharged except with the express written consent
of the parties not in breach.
22. Invalidity etc.
---------------
22.1 Should any provision of this Agreement be or become ineffective for
reasons beyond the control of the parties, the parties shall use
reasonable efforts to agree upon a new provision which shall as nearly as
possible have the same commercial effect as the ineffective provision.
22.2 Any provision contained in this Agreement or in any arrangement of which
this Agreement forms part by virtue of which this Agreement or such
arrangement is subject to registration under the Restrictive Trade
Practices Act 1976 shall not come into effect until the business day
following the date on which particulars of this Agreement and of any such
arrangement have been furnished to the Office of Fair Trading (or on such
later date as may be provided for in relation to any such provision) and
the parties hereto agree to furnish such particulars within three months
of the date of this Agreement.
60.
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DENTON HALL
23. No Partnership or Agency
------------------------
Nothing in this Agreement shall be deemed to constitute a partnership
between the parties hereto nor, save as expressly set out herein,
constitute any party the agent of another party for any purpose. In
addition, unless otherwise agreed in writing between the Shareholders,
neither of them shall enter into contracts with third parties as agent for
any member of the Playboy/Flextech Group or for the other Shareholder or
any member of its Group nor shall either Shareholder describe itself as
agent as aforesaid or in any way hold itself out as being an agent as
aforesaid.
24. Announcements
-------------
Unless specifically otherwise agreed in writing or required by law or by
The Stock Exchange no public announcement shall be made in respect of the
subject matter of any Transaction Document or the Transponder Sub-Lease
until after Closing and in no event shall any announcement in connection
herewith be made by either party without the prior written approval of the
other as to its form and content.
25. Costs
-----
Each of the parties hereto shall pay its own costs, charges and expenses
connected with the preparation and implementation of this Agreement and
the transactions contemplated by it.
26. Entire Agreement
----------------
This Agreement and the Transaction Documents and the Transponder Sub-Lease
constitute the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof and none of the parties hereto
has entered into this Agreement in reliance upon any representation or
warranty other than any such as may be set out herein.
61.
<PAGE>
DENTON HALL
27. Conflict with Articles, etc.
----------------------------
In the event of any conflict between the provisions of this Agreement and
the Articles the provisions of this Agreement shall prevail and the parties
shall exercise all voting and other rights and powers available to them so
as to give effect to the provisions of this Agreement and shall and so far
as they are able further if necessary procure any required amendment to the
Articles as may be necessary.
28. Notices
-------
28.1 Any notice or other communication given or made under this Agreement shall
be in writing and, without prejudice to the validity of any other method of
service, may be delivered personally or by courier or sent by facsimile
transmission by prepaid recorded delivery letter (airmail if overseas),
addressed as follows:
(a) if to Flextech to:
13 Albermarle Street
London W1X 3HX
Facsimile transmission number: (London 71) 499 7533
(b) if to Playboy to:
9242 Beverly Boulevard,
Beverly Hills,
California 90210
Facsimile transmission number: (Beverly Hills 310) 246 4065
(Attention President)
with a copy to
Playboy Enterprises, Inc,
680 North Lake Shore Drive,
Chicago,
Illinois 60611
Facsimile transmission number: (Chicago 312) 266 2042
(Attention General Counsel)
62.
<PAGE>
DENTON HALL
(c) if to the Company to:
Twyman House
16 Bonny Street,
London
NWl NPG
Facsimile transmission number: (London 71) 911 0145
with a copy to the other parties, other than the party giving the
notice
or to such other address, or facsimile transmission number as the relevant
addressee may hereafter by notice hereunder substitute.
28.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission one
business day after transmission.
29. Governing Law
-------------
This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the
exclusive jurisdiction of the English Courts as regards any claim or matter
arising in relation to this Agreement.
IN WITNESS whereof this Agreement has been duly executed.
63.
<PAGE>
DENTON HALL
SCHEDULE I
----------
PARTICULARS OF THE COMPANY
--------------------------
Date of Incorporation: 9th December 1994
Place of registration: England and Wales
Company Registration Number: 3,000,033
Authorised Share Capital: (Pounds)11,000,000
Issued Share Capital: (Pounds)2, both held by Flextech
Accounting Reference Date: 31st December
Director: Roger Luard
Name and address of Mark Luiz
Secretary:
Name of Auditors: KPMG Peat Marwick
64.
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DENTON HALL
SCHEDULE II
-----------
DETAILS OF SUBSCRIPTIONS BY SHAREHOLDERS AT CLOSING
---------------------------------------------------
Shareholders Ordinary Shares Loan Stock Total Subscription Price
- ------------ --------------- ---------- ------------------------
Names (Pounds) (Pounds)
- ----- -------- --------
Flextech 79 243 322
Playboy 19 57 76
---- ---- ----
98 (Pounds)300 (Pounds)398
65.
<PAGE>
DENTON HALL
SCHEDULE III
------------
DEED OF ADHERENCE
-----------------
THIS DEED is made this day of 199 .
BETWEEN:
(1) [Name of transferee] ("the New Shareholder") registered in
[ ] under number [ ] whose registered
office is at [ ]; and
(2) [INSERT DETAILS OF SHAREHOLDER [X]]; and
(3) [INSERT DETAILS OF SHAREHOLDER [Y]]; and
(4) [ ] ("the Company") registered in England under
number [ ] and having its registered office at
[ ]; and
[Any other person becoming bound by the Shareholders' Agreement];
WHEREAS:
By virtue of the Transfer referred to in the Schedule to this Deed the New
Shareholder became entitled subject, inter alia, to the execution of this
Deed, to the Shares in the capital of the Company set out in the Schedule
hereto.
NOW THIS DEED WITNESSES as follows:
1. In this Deed and the Recitals hereto:
(a) "the Shareholders' Agreement": means the agreement dated
[ ] and made between
66.
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DENTON HALL
(b) terms and expression defined in the Shareholders' Agreement shall have
the same meaning when used herein or in the Recital hereto, unless the
context requires or admits otherwise
2. In consideration of the sum of (Pounds)1 now paid by the Company (on behalf
of itself and each other party hereto) to the New Shareholder, receipt
whereof is hereby acknowledged, the New Shareholder hereby covenants with
and undertakes to each other party to this Deed and to the Company as
trustee for all other parties who hereafter become bound by the
Shareholders' Agreement pursuant to a deed in a similar form to this Deed,
entered into pursuant to the Shareholders' Agreement, to adhere to and be
bound by the provisions of the Shareholders' Agreement as if the New
Shareholder had been an original party to the Shareholders' Agreement.
3. [INSERT WARRANTIES BY ALL PARTIES SIMILAR TO CLAUSE [18] TO THE
SHAREHOLDERS' AGREEMENT]
4. Subject to the provisions of Clause 2 of this Deed, and the Shareholders'
Agreement the Company and the Shareholders hereby release the transferor
from its obligations under the Shareholders' Agreement.
5. The provisions of this document (other than those contained in this
clause) shall not have any effect until this document has been dated.
IN WITNESS whereof this Deed has been duly executed.
SCHEDULE
--------
Transferor Transferee Price
---------- ---------- -----
67.
<PAGE>
DENTON HALL
SCHEDULE IV
-----------
FUNDING
-------
68.
<PAGE>
DENTON HALL
SCHEDULE V
----------
BOARD OF DIRECTORS COMPOSITION
------------------------------
Playboy's Playboy may appoint Flextech's Flextech
- --------- ------------------- ---------- --------
Percentage up to the following Percentage May Appoint
- ---------- ------------------- ---------- -----------
Ownership of Shares number of Directors Ownership of Shares up to the
- ------------------- ------------------- ------------------- ---------
Following
---------
Number of
---------
Directors
---------
0-9.9 0 90.1-100 11
10-27.9 2 71.1-90 9
28-37.9 3 62.1-72 8
38-48.9 4 51.1-62 7
49 5 51 6
69.
<PAGE>
SIGNED by ROGER LUARD )
for and on behalf of )
CONTINENTAL SHELF 16 LIMITED )
in the presence of: )
SIGNED by Myron DuBow )
for and on behalf of PLAYBOY )
ENTERTAINMENT GROUP, INC. in )
the presence of: Sidra Sparks ) /s/ Myron DuBow
/s/ Sidra Sparks
SIGNED by ROGER LUARD )
for and on behalf of )
PLAYBOY TV UK/BENELUX )
LIMITED in the presence )
of: )
70.
<PAGE>
DENTON HALL
SIGNED by ROGER LUARD )
for and on behalf of )
CONTINENTAL SHELF 16 LIMITED )
in the presence of: ) /s/ Roger Luard
/s/ Fairlie Anderson
Fairlie Anderson
Denton Hall
5 Chancery Lane
Clifford's Inn
London
EC4A IBU
SIGNED by ANTHONY J. LYNN )
for and on behalf of PLAYBOY )
ENTERTAINMENT GROUP, INC. in )
the presence of:
SIGNED by ROGER LUARD )
for and on behalf of )
PLAYBOY TV UK/BENELUX )
LIMITED in the presence )
of: ) /s/ Roger Luard
/s/ Fairlie Anderson
Fairlie Anderson
Denton Hall
5 Chancery Lane
Clifford's Inn
London
EC4A IBU
70.
<PAGE>
DATED 1995
--------------------------------------------
(1) PLAYBOY ENTERTAINMENT GROUP, INC
(2) PLAYBOY TV UK/BENELUX LIMITED
--------------------------------------
PROGRAMME SUPPLY AGREEMENT
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[LETTERHEAD OF DENTON HALL]
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DENTON HALL
THIS AGREEMENT is made the day of 1995
BETWEEN:
(1) PLAYBOY ENTERTAINMENT GROUP, INC
of 9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
("the Licensor")
and
(2) PLAYBOY TV/UK/BENELUX LIMITED
of Twyman House
16 Bonny Street
London NW1 9PG
("the Company")
WHEREAS:
The Company wishes to licence from the Licensor and the Licensor has agreed to
licence to the Company certain television programmes upon the terms set out in
this Agreement.
NOW IT IS HEREBY AGREED as follows:
1. Definitions and Interpretation
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1.1 In this Agreement the following words and expressions shall have the
following meanings:
"Accumulated Net Losses": means as at the end of any Year commencing after
the Return of Investment Date, the amount by which the aggregate amount of
the Losses of the Company in respect of that Year and all
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preceding Years (ignoring, for the avoidance of doubt, the fact that any such
Losses may have been, or may be capable of being, surrendered by way of group
relief) exceeds the aggregate amount of the Net Profits of the Company in
respect of that Year and all preceding Years;
"Acquired Premium Movie": any full-length (i.e. with a running time of not less
than 84 minutes) motion picture (whether made for theatrical release and/or
television exhibition) which falls within the Programme Specification and which
may be acquired by the Licensor or the Company for transmission in the Service
following a notice given by the Company pursuant to Clause 8.9;
"Acquired Programme": means any television programme falling within the
Programme Specification which is not a Playboy Programme or a Third Party
Programme but (a) in or to which the Licensor or any Affiliate of the Licensor
has acquired or does at any time during the Term acquire from a third party
inter alia the Non-Standard Television Rights within the Territory and (b) which
the Licensor delivers to the Company for first transmission in the Service in
any Year and as part of the Minimum Number of Hours in respect of that Year;
"Affiliate": of any person means any other person which is from time to time
either directly or indirectly controlling, controlled by or under common control
with the first person and for this purpose "control" means in relation to a
person (the "Relevant Person") the power of another person ("the Controlling
Person") to secure, whether by the holding of shares or the possession of voting
rights in or in relation to the Relevant Person or any other person or the
provisions of any agreement or otherwise, that the affairs of the Relevant
Person are conducted in accordance with the wishes of the Controlling Person;
"the Availability Date": in respect of any Third Party Programme or Acquired
Programme means the first day of the Licence Period in respect of that Third
Party Programme or Acquired Programme and in respect of any Playboy Programme
means the later of the following:
2.
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(a) the first day of the Licence Period in respect of that Playboy Programme;
and
(b) the expiry of the earlier of:
(i) a period of twelve (12) months commencing upon the date on which the
home video release of that Playboy Programme within the Territory
takes place; and
(ii) a period of twenty-four (24) months commencing upon the date of
completion of production of that Playboy Programme;
"Available Cash Flow": means such amount of the monies received by the Company
from the conduct of its business as is available for the purpose of paying the
Bonus Licence Fee to the Licensor pursuant to this Agreement but after having
made such provision as may be necessary, having regard to the reasonably
projected income and cash flow of the Company, to pay the Company's projected
cash requirements and needs, to pay and discharge the current liabilities and
obligations of the Company and to pay and discharge the known contingent
liabilities and obligations of the Company, which amount shall be determined in
accordance with Clause 7.6;
"Available Net Profits": means as at the end of any Year commencing after the
Return of Investment Date, the amount (if any) by which the Net Profits of the
Company in respect of that Year exceeds the Accumulated Net Losses of the
Company as at the end of the immediately preceding Year;
"the Basic Licence Fee": means in respect of each Year an amount calculated in
accordance with the provisions of Schedule 3;
"Bonus Amount": means the amount (if any) by which in respect of any of the
second, third, fourth and fifth Years the total of the Basic Licence Fee and any
Programming Premium payable by the Company in respect of that Year is less than
US$2,000,000 and which shall, for
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the avoidance of doubt, be calculated on an annual basis following the end of
each such Year;
"Bonus Licence Fee": means an amount calculated by aggregating each Bonus Amount
following the end of the fifth Year;
"the Business Plan": means any plan which is from time to time in force and in
accordance with which the business of the Company is to be managed and conducted
pursuant to the Shareholders' Agreement;
"Co-Production": means any television programme falling within the Programme
Specification which was not produced solely by or under commission from the
Licensor and is not an Acquired Programme but which is co-produced by the
Licensor and/or any Affiliate of the Licensor with a third party;
"the CPI": means the US City Average Consumer Prices Index for all urban
consumers or any successor or replacement index. For the purpose of determining
any percentage increase in the CPI over the twelve months immediately preceding
the first day of any Year, reference shall be made to the published figure for
the CPI available for the month immediately preceding the first day of that Year
("the final figure") provided that, if the final figure is not available, the
latest published figure available shall apply;
"Delivery Material": means in relation to any Selected Programme, so-called
"vignette" or promotional material the master of the Selected Programme,
so-called "vignette" or promotional material in the form specified in Schedule 2
together with the other materials therein described and any dubbed or sub-titled
version of the Selected Programme, so-called "vignette" or promotional material
which the Licensor is required to deliver pursuant to Clause 5;
"the Directive": means the Directive of the Council of European Communities of
3rd October 1989 No 89/552 EEC and/or any other Directive of the Council of
European Communities which may modify, replace or supersede any of the
provisions of that Directive (including but not limited to Articles 4, 5 and 6
of that Directive);
4.
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DENTON HALL
"European Work": means a programme which complies with the definition of a
European Work contained in the Directive;
"the First Year": means the period commencing upon the Launch Date and ending
upon 31st December in the calendar year in which the Launch Date falls;
"Flextech": Continental Shelf 16 Limited, a company registered in England and
Wales under no. 3005499;
"Force Majeure": means any event or cause not within the control of the party
affected by it (other than a breach of this Agreement by the other party)
including (but not by way of limitation) accident or breakdown of any satellite
or any other facilities equipment or apparatus (caused otherwise than by the
wrongful act neglect or default of that party), act of God, flood, war, riot,
rebellion, civil commotion, strike, lock-out or other industrial dispute or
action, Act of Parliament, any act, order, direction or regulation of any
government or any public, local or regulatory authority or imposition of
government sanction, embargo or similar action, or of any law, judgment, order,
decree, embargo or blockade;
"the Growth Factor": means, for the purpose only of calculating the Minimum
Production Cost in any Year, the aggregate percentage increase in the CPI over
the twelve months immediately preceding the first day of that Year or three (3)
per cent, whichever is the greater;
"the Launch Date": means the date on which the Company commences the provision
of the Service for reception within the Territory;
"LIBOR": the three month London Interbank Offered Rate for Sterling Deposits, as
published in the Financial Times on the first day of each month or on the next
succeeding day on which the Financial Times is published;
5.
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DENTON HALL
"Licence Period": means in relation to:
(a) each Playboy Programme, the period commencing upon the date of signature of
this Agreement or (in the case of a Playboy Programme production of which
has not prior to such date been completed) the date on which production of
that Playboy Programme or the first episode of that Playboy Programme is
completed and ending upon the later of (i) the final day of the Term and
(ii) the date after the end of the Term on which any Transmission Period
relating to that Playboy Programme ends in accordance with sub-clauses
10.6.2, 10.6.3 and 10.6.4; and
(b) each Acquired Programme or Third Party Programme acquired on behalf of the
Company by the Licensor, the duration of the Playboy Licence Period
relating to that Acquired Programme or Third Party Programme;
"the Licensor's Territory": means the United States of America;
"Losses": means in respect of any Year, the losses shown by the audited profit
and loss account of the Company for that Year (which losses shall be determined
according to the Company's accounting policies but shall always take into
account the amount of any Programming Premium payable in respect of that Year
and shall in respect of the fifth Year take into account the full amount of the
Bonus Licence Fee payable by the Company) but before interest on any loans made
to the Company by its shareholders pursuant to sub-clauses 3.1(b) and 4.1(b) of
the Shareholders' Agreement of even date herewith;
"Minimum Number of Hours": means in respect of each Year the minimum number of
Programme Hours of Programmes which the Licensor is obliged to deliver to the
Company in that Year pursuant to this Agreement for first transmission in the
Service and which shall (A) in the First Year be calculated by multiplying 114
by the number of days during the First Year (including the Launch Date) and
dividing the product of that multiplication by 365 and (B) be one hundred and
fourteen (114) Programme Hours in each subsequent Year unless or until that
number is
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reduced or increased
(a) in accordance with Clause 8.6, Clause 8.7, Clause 8.8 or Clause 8.11; or
(b) following any termination of this Agreement pursuant to Clause 10.3;
"Minimum Production Cost": means an amount which shall increase during the Term
as follows:
(a) in the first Year, the sum of US$1,000,000 (one million United States
dollars); and
(b) in any subsequent Year, the sum which, by virtue of this definition,
represented the Minimum Production Cost in the immediately preceding Year
increased by the Growth Factor;
"Net Profits": means in respect of any Year, the audited, after tax profits of
the Company for that Year shown in the accounts of the Company for that Year
prepared by its auditors (which profits shall be determined according to the
Company's accounting policies but shall always take into account the amount of
any Programming Premium payable by the Company in respect of that Year and shall
in respect of the fifth Year take into account the full amount of the Bonus
Licence Fee payable by the Company) but before interest on any loans made to the
Company by its shareholders pursuant to sub-clauses 3.1(b) and 4.1(b) of the
Shareholders' Agreement of even date herewith;
"Net Revenue per Household": means an amount calculated in accordance with the
provisions of Schedule 4;
"Net Revenues": means in respect of any Year, the aggregate of all payments
which are actually received by the Company during that Year, which (after making
adequate provision for refunds, discounts, bad debts and credits) the Company is
entitled to retain and which represent charges made for the reception and/or
re-transmission of the
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DENTON HALL
Service in its entirety, or of programmes (other than Premium Movies and
Acquired Premium Movies included in the Service on a Pay-Per-View Basis), by any
third party (including but not limited to any cable operator) after deduction
of:
(i) all amounts of Value Added Tax or similar sales taxes which may form part
of such payments; and
(ii) all sales and agency commissions which may be payable to third parties as a
result of the receipt of any such payment(s) by the Company and which have
not been deducted by such third party or parties prior to the receipt of
the relevant payment(s) by the Company;
"Non-Standard Television": means all forms of television exhibition,
transmission and distribution whether now existing or developed in the future
(other than Standard Television) and however transmitted or delivered, including
but not limited to the following:
(a) basic cable and pay cable;
(b) "over the air pay" subscription television (STV), direct broadcasting by
satellite (DES), master antenna television systems (MATV), multipoint
distribution systems (MDS), satellite master antenna television systems
(SMATV), microwave transmission and video-on-demand services;
(c) transmission via Non-Standard Television delivery systems to closed circuit
television systems such as hotel, motel or hospital rooms, educational
institutions and military locations;
whether all of the foregoing (a), (b) and/or (c) are on a subscription,
pay-per-view, licence, free or other basis;
"the Non-Standard Television Rights": means the right to exhibit, or cause the
exhibition of, a Programme or a Third Party Programme by means of Non-Standard
Television;
8.
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"Payment Date": means any of the six dates specified in Clause 7.3;
"Pay-Per-View Basis": means the inclusion of a programme in the Service on terms
whereby a payment becomes due from a subscriber in consideration solely for the
right to receive and view (a) that programme or (b) a number of programmes which
are transmitted in the Service on the same day including that programme;
"Playboy Acquired Programme": means any Acquired Programme acquired by the
Licensor or any Affiliate of the Licensor pursuant to a licence:
(a) under which the Licensor or that Affiliate was also granted the Television
Rights in that Acquired Programme within the Licensor's Territory;
(b) under which all of the Television Rights in that Acquired Programme granted
to the Licensor and/or any Affiliate of the Licensor were granted on a sole
and exclusive basis;
(c) which was granted for a period of not less than five (5) years from the date
of its commencement; and
(d) under which the Television Rights in that Acquired Programme were granted
within one of the following territories (in addition to the Licensor's
Territory and the Territory): namely, Australia, Germany, France, Italy,
Mexico or Brazil;
"Playboy Licence Period": means in respect of any Acquired Programme, so-called
"vignette" or (if applicable) Third Party Programme the period for which the
Licensor or any Affiliate of the Licensor has acquired the Non-Standard
Television Rights therein within the Territory;
"Playboy Production Costs": means in respect of any Premium Movie the aggregate
of (a) all fees and other remuneration paid to the Licensor and/or any Affiliate
of the Licensor, and to any employee or officer
9.
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DENTON HALL
of the Licensor and/or any such Affiliate, in connection with the production of
that Premium Movie and (b) any part of the cost of production of that Premium
Movie which represents overhead expenditure of the Licensor and/or any Affiliate
of the Licensor that the Licensor and/or any such Affiliate would have incurred
even if that Premium Movie had never been produced, including but not limited to
expenditure incurred in paying salaries or other remuneration to employees and
in owning, operating, occupying, using and/or leasing premises, office
equipment, facilities and/or services and/or equipment customarily used in the
production of television programmes and/or motion pictures;
"Playboy Programme": means (a) any television programme falling within the
Programme Specification which is or was produced by, or under commission from,
the Licensor or any Affiliate of the Licensor or (b) a Co-Production which in
either case is not a Premium Movie;
"Premium Movie": means a full-length film or motion picture
(a) which contains at least one actor or actress with a generally recognizable
name value in the United States motion picture industry who, in the five
years immediately preceding the date on which production of that film or
motion picture was commenced, has appeared in a starring role in a motion
picture theatrically released in the United States by one or more of the
major Hollywood studios or had a starring role in a regular prime-time U.S.
network television series or movie-of-the-week.
(b) which is photographed in colour, using 35 millimeter film
(c) which has a running time of not less than eighty-four (84) minutes
(d) which is based upon a recognisable dramatic plot and/or storyline
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(e) which has a Total Production Cost in excess of the Minimum Production Cost
and
(f) whose Total Production Cost does not include Playboy Production Costs which
in the aggregate exceed an amount equal to ten (10) per cent of the Minimum
Production Cost (and to the extent that Playboy Production Costs in excess
of that amount were included in the Total Production Cost such excess
Playboy Production Costs shall be disregarded for the purposes of
determining whether the relevant film or motion picture is a "Premium Movie"
hereunder);
"Programme": means:
(a) any Playboy Programme; or
(b) any Acquired Programme (including but not limited to any Playboy Acquired
Programme) in or to which the Licensor or any Affiliate of the Licensor
acquires owns or holds or is entitled to exercise, or authorise the exercise
of, any or all of the Non-Standard Television Rights within the Territory;
or
(c) any Premium Movie but only insofar as the same may be licensed to the
Company in accordance with Clause 3.2;
and for the purposes of interpreting this definition, it is agreed and declared
that, where a television programme consists of more than one episode or group of
episodes, each series or serial of that television programme which consists of a
single or discrete group of episodes shall be treated as a separate Programme;
"Programme Duration": means in relation to any Programme or Third Party
Programme or (in the case of a Programme or Third Party Programme consisting of
more than one episode) any episode, the running time of the master of the
Programme or Third Party Programme or episode (excluding, for the avoidance of
doubt, commercial breaks, promotional material and advertisements interpolated
in any Programme
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DENTON HALL
or Third Party Programme or episode and further excluding any so-called
"vignettes") delivered to the Company by the Licensor as part of the Delivery
Material or by the licensor of the Third Party Programme (as the case may be);
"Programme Hour": means in relation to the Programme Duration of any
Programme(s) or Third Party Programme(s), a period of forty-five (45) minutes;
"the Programme Specifications": means the description of the programming which
is to be broadcast by the Company as part of the Service and is attached as
Schedule 1;
"Programming Premium": means, in respect of any Year commencing after the Year
in which the Return of Investment Date falls, the amount (if any) payable to the
Licensor in respect of that Year pursuant to sub-clause 7.1(b);
"Quarter": shall mean any three month period ending on the last day of March,
June, September and December;
"Requisite Percentage": means for the purpose of calculating the amount (if any)
of the Programming Premium payable to the Licensor:
(a) 33% (thirty-three per cent) of Available Net Profits; and
(b) 20% (twenty per cent) of Net Revenues
subject always to reduction of such percentages in accordance with the
provisions of Clause 8.6, sub-clause 8.8(d), Clause 8.11 or sub-clause 10.4.2;
"Return of Investment Date": the day on which each of the Company's shareholders
shall actually have received (by way of the repayment of all loans made, by way
of the return (by sales or repayment of shares or otherwise) of all share
capital subscribed (including share premiums), and by way of the payment of
interest or dividends thereon)
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an amount equal to the aggregate of:
(a) the principal amount of all loans made, and share capital subscribed for in
the capital of the Company, by each such shareholder pursuant to sub-clauses
3.1(b) and 4.1(b) of the Shareholders' Agreement of even date herewith (in
each case the "Initial Cost"); PLUS
(b) interest on the Initial Cost at LIBOR plus 3% (which interest shall accrue
on a daily basis from the date of the relevant loan or subscription and
shall be calculated and compounded on 30th June and 31st December of each
Year) PLUS
(c) the principal amount of all loans made, and share capital subscribed for in
the capital of the Company, by each such shareholder in addition to the
Initial Cost prior to the date on which the Initial Cost plus interest
thereon calculated in accordance with (b) above has been received by each
of the Company's shareholders in accordance with the foregoing provisions
of this definition (in each case the "Additional Cost"); PLUS
(d) interest on the Additional Cost at LIBOR plus 3% or (if higher) at the rate
of interest contractually payable on the relevant loan to the relevant
shareholder (which interest shall accrue on a daily basis from the date of
the relevant loan or subscription and shall be calculated and compounded on
30th June and 31st December of each Year)
PROVIDED THAT:
(i) where any such shares or loans are transferred to any person, including
but not limited to upon exercise of any of the Options (as defined in
Clause 15 of the Shareholders' Agreement of even date herewith), such
person shall on such transfer be deemed to have subscribed for the shares
and made the loans the subject of the transfer and there shall not be taken
into
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account for the purposes of determining the Return of Investment Date such
amount of the consideration paid by such person as exceeds the Initial
Cost to the selling shareholder of the shares and loans the subject of the
relevant transfer plus interest thereon, calculated in accordance with (b)
above; and
(ii) if any part of the Initial Cost or the Additional Cost shall be repaid to
any shareholder through the use of monies borrowed by the Company from any
third party (i.e. a person other than a shareholder in the Company or an
Affiliate of such a shareholder), the Return of Investment Date shall not
occur until all of those third party borrowings shall have been repaid by
the Company to that third party together with interest thereon at the rate
of interest contractually payable by the Company to that third party
provided, however that if the Company has the funds to repay such third
party but is not contractually permitted to prepay such third party, the
Company will establish a fund to pay such borrowings with interest and
will be deemed to have repaid such borrowings (with interest) to the
extent of the amount from time to time standing to the credit of such
fund; and
(iii) if the Company is not contractually permitted to prepay any part of the
Initial Cost or the Additional Cost which comprises (a) loan(s) made by a
shareholder, the Company will establish a fund to repay such loan(s) with
interest and will be deemed to have repaid such loan(s) (with interest) to
the extent of the amount from time to time standing to the credit of such
fund;
"the Scheduler": the individual appointed in accordance with Clause 8.1, Clause
8.4, Clause 8.5, Clause 8.11 or Clause 10.4 who is to provide the services set
out in Clause 8.2;
"Selected Programme": means any Programme, Third Party Programme or so-called
"vignette" which is selected by the Scheduler for inclusion in the Transmission
Schedule and licensed to the Company by the Licensor pursuant to or by virtue of
any provision of this Agreement;
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"the Service": means the television programme service consisting solely of:
(a) Programmes, Third Party Programmes and so-called "vignettes"; and
(b) infomercials, advertisements and promotional and publicity material
which is to be provided by the Company for reception within the Territory;
"Service Language": means any of the following languages; English, Flemish,
Dutch or any other language of any country within the Territory;
"the Shareholders' Agreement": means the agreement which is for the time being
in force between the holders of not less than ninety-five per cent (95%) in
nominal value of the issued share capital of the Company and which inter alia
regulates the management and conduct of the business of the Company;
"Standard Television": means exhibition by conventional free VHF or UHF
television broadcast stations, the video and audio portions of which are
intelligibly receivable without charge by means of a conventional home roof-top
or television set built-in antenna;
"the Standard Television Rights": means the right to exhibit, or cause the
exhibition of, a Programme or a Third Party Programme by means of Standard
Television;
"the Term": means the period commencing on the date of signature hereof and
ending on the date on which any termination of this Agreement takes effect
pursuant to Clause 10;
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"the Television Rights": means the Non-Standard Television Rights and the
Standard Television Rights;
"the Territory": means the countries of the United Kingdom, the Republic of
Ireland, Belgium, The Netherlands and Luxembourg together with any other
countries in which the Service may from time to time be provided by the Company
in accordance with the Business Plan and Shareholders' Agreement;
"Third Party Programme": means
(a) any television programme which falls within the Programme Specification and
which is not a Playboy Programme; or
(b) any Acquired Premium Movie.
in respect of which the Licensor or any Affiliate of the Licensor acquires upon
instruction from the Scheduler and/or the Company in accordance with Clause 8.6,
Clause 8.9 or 8.11 the Non-Standard Television Rights therein within the
Territory or the Company acquires the same in accordance with Clause 8.8, Clause
8.10, Clause 8.11 or Clause 10.4;
"Total Production Cost": means, in respect of each Premium Movie, the actual
cost of production of that Premium Movie (including without limitation the
aggregate of direct, out-of-pocket costs, charges and expenses paid to third
parties in connection with the acquisition of all underlying literary rights
with respect to the production of the Premium Movie, and in connection with the
preparation, production and completion of the Premium Movie including the costs
of materials, equipment, physical properties, any completion bond fee (net of
any rebate), personnel and services utilized in connection with the production
of the Premium Movie, and cost of customary production insurances and Playboy
Production Costs);
"Trademark Agreement": means the agreement between the Company and Playboy
Enterprises, Inc. of even date herewith relating to the use of the Trade Marks;
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"the Trade Marks": shall have the meaning ascribed to it in the Trademark
Agreement;
"Transmission Period": means in respect of any Programme, or any Third
Party Programme acquired on behalf of the Company by the Licensor, the
period commencing upon the Availability Date in respect of that Programme
or Third Party Programme or (as the case may be) upon the date of any
notice given by the Company pursuant to Clause 2.2 in respect of that
Programme or Third Party Programme and ending upon the date on which the
twenty-fourth (24th) transmission of that Programme or Third Party
Programme (or, in the case of a Programme or Third Party Programme (or, in
the case of a Programme or Third Party Programme consisting of more than
one episode, the final episode of that Programme or Third Party Programme)
in the Service during that period takes place or (if earlier) the final day
of the Playboy License Period in respect of an Acquired Programme or Third
Party Programme;
"the Transmission Schedule": means the schedule to be prepared by the
Scheduler in accordance with Clause 8.2 setting out the day, date and time
of transmission of each Selected Programme, each so-called "vignette" and
all interstitial material to be transmitted as part of the Service;
"the United Kingdom": means Great Britain, Northern Ireland (irrespective
of whether Northern Ireland is or remains part of the United Kingdom), the
Channel Islands and Isle of Man;
"Year": means the First Year and thereafter any calendar year.
1.2 In this Agreement references to a "programme" or "Programme" shall include
a reference to any associated sound recording comprising the soundtrack
thereto.
1.3 In this Agreement references to Clauses, sub-clauses, paragraphs and
Schedules shall be references to Clauses, sub-classes and paragraphs of and
Schedules to this Agreement.
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1.4 Whenever the Service is licensed or otherwise sold to a third party
(including but not limited to a cable operator) as part of a package of
satellite delivered television channels, then the Company shall negotiate
with that third party and/or with the providers of the other television
channels included in such package on an arm's length basis regarding the
allocation between the television channels (including but not limited to
the Service) included in such package of the revenues derived from the
relevant licence or sale.
1.5 Whenever any of the Non-Standard Television Rights in a Programme (other
than a Playboy Programme) or a Third Party Programme within the Territory
are acquired by the Licensor or any Affiliate of the Licensor pursuant to
Clause 8.6, 8.8, 8.9 or 8.11 and the relevant Television Rights are also
acquired in respect of any country or countries outside the Territory, then
for the purposes of sub-clauses 8.6(c), 8.8(c), 8.9(d) and 8.11.4(b) the
Licensor shall on a fair and equitable arm's length basis allocate the
license fee(s) paid by the Licensor or its Affiliates for those Television
Rights to the licensor of that Programme or Third Party Programme between
the Television Rights so acquired by the Licensor within the Territory and
the Television Rights so acquired by the Licensor in respect of any country
or countries outside the Territory.
1.6 Whenever a Programme (other than a Playboy Programme) or a Third Party
Programme is acquired by the Licensor or any Affiliate of the Licensor
pursuant to Clause 8.6, 8.8, 8.9 or 8.11 and that Programme or Third Party
Programme is acquired as part of a package of television programmes, then
for the purposes of sub-clauses 8.6(c), 8.8(c), 8.9(d) and 8.11.4(b) the
Licensor shall on a fair and equitable arm's length basis allocate the
licence fee(s) paid by the Licensor or its Affiliate to the licensor of
that package of television programmes between that Programme or Third Party
Programme and the other television programmes included in that package.
1.7 If so requested by the Company in writing, the Licensor shall within
fourteen (14) days after the date of such request deliver to the
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Company a certificate signed as being true and accurate by the Senior
Financial Officer of the Licensor and stating in respect of each Premium
Movie specified in such request (a) the Total Production Cost of that
Premium Movie and (b) the total amount of Playboy Production Costs included
in that Total Production Cost. At any time after delivery of that
certificate the Company may upon reasonable notice to the Licensor and
during normal business hours inspect the books and records of the Licensor
and or any Affiliate of the Licensor relating to the production of any
Premium Movie specified in that certificate for the purpose of verifying
the accuracy of that certificate. The provisions of this Clause shall not
apply to any Premium Movie in which the Television Rights within the
Territory have been granted to any third party pursuant to any legally
binding agreement entered into by the Licensor prior to the date of this
Agreement.
1.8 Whenever reference is made in this Agreement to a period of less than
fourteen (14) days, a "day" shall for the purposes of calculating the
length of that period be deemed to mean any day other than a Saturday,
Sunday or public holiday in England or the United States of America.
2. Licence
-------
2.1 The Licensor hereby grants to the Company by way of a sole and exclusive
license under copyright during the Licence Period in respect of each
Programme or Third Party Programme (as the case may be) and within the
Territory:
(a) the sole and exclusive right to exercise the Non-Standard Television
Rights in and to each Programme on not more than twenty-four (24)
occasions during any Transmission Period relating to that Programme;
and
(b) all Television Rights and all other right title and interest acquired
by the Licensor in and to each Third Party Programme
PROVIDED ALWAYS THAT the Company shall not make any transmission of any
Programme, or any Third Party Programme acquired on its behalf by
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the Licensor, otherwise than during a Transmission Period relating to that
Programme or Third Party Programme.
2.2 At any time after the end of the first Transmission Period in respect of a
Programme the Company may by notice in writing to the Licensor elect to
transmit that Programme during a further Transmission Period, then (subject
always to the proviso to this Cause and unless the Licensor notifies the
Company within seven (7) days after the date of receipt of the Company's
notice that that Programme is an Acquired Programme and that the Licensor
would be unable to perform its obligations under Clause 4.6 in relation to
that Programme during that further Transmission Period) the following
provisions shall apply:
(a) that Programme shall automatically be deemed to be a Selected
Programme during that further Transmission Period for all purposes of
this Agreement SAVE THAT that Programme shall not count towards the
Minimum Number of Hours in respect of any Year and the Company shall
pay a license fee to the Licensor in respect of that Programme in
accordance with the provisions of Clause 7.7; and
(b) (unless the then current Scheduler has been appointed by the Company
under Clause 8.4, proviso (c) to Clause 8.5, Clause 8.11.4 or Clause
10.4) the Licensor shall procure that the Scheduler shall include that
Programme in the Transmission Schedule for transmission in the Service
during the further Transmission Period in respect of that Programme
PROVIDED ALWAYS THAT, if the parties are unable to agree upon the amount of
the licence fee payable to the Licensor in respect of that Programme within
the 30 day period described in sub-clause 7.7(a), the Company may by notice
in writing to the Licensor decline to accept a further Transmission Period
of that Programme at the licence fee specified in paragraph (ii) of sub-
clause 7.7(a) and, if the Company does so decline, the provisions of sub-
clauses (a) and (b) of this Clause shall not apply to that Programme.
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DENTON HALL
2.3 The Licensor further grants to the Company by way of a sole and exclusive
licence under copyright the sole and exclusive right during the Term and
within the Territory to exercise the Non-Standard Television Rights in and
to each so-called "vignette" delivered to the Company hereunder on not more
than (subject to the provisions of Clause 4.8) twenty-four (24) occasions.
2.4 Notwithstanding the definition of the Territory, the licences granted to
the Company under Clauses 2.1 and 2.3 shall not extend to the Republic of
Ireland until the earlier of:
(a) the first anniversary of the Launch Date; and
(b) the date on which the Licensor notifies the Company that those
licences have been extended to the Republic of Ireland.
3. Supply of Programmes
--------------------
3.1 In order to assist the Company in marketing the Service and the Scheduler
in performing his duties under Clause 8, the Licensor shall:
(a) within fourteen (14) days after the date of this Agreement supply to
the Company and to the Scheduler a complete list of all of its
Programmes, which list shall include in respect of each Programme the
title, duration and number of episodes of that Programme, a brief
description of that Programme and the year in which that Programme was
produced and is attached as Schedule 5;
(b) not later than the first day of each Year supply to the Company and to
the Scheduler a list of all Programmes which have completed
production, and of all television programmes which have for any reason
become Programmes (for example, because the Licensor or any Affiliate
of the Licensor has acquired the Non-Standard Television Rights
therein), since the last such list (or the list supplied pursuant to
sub-clause 3.1(a)) was supplied, and the Licensor shall include in
that list in
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DENTON HALL
respect of each such Programme the information specified in sub-clause
(a) of this Clause;
(c) upon the Company's or the Scheduler's request, supply to the Company
and the Schedule details (if available) of audience viewing ratings
achieved by any Programme on the last broadcast of that Programme by
the Licensor or any Affiliate or licensee of the Licensor anywhere in
the world; and
(d) within 21 days after any request by the Company or the Scheduler,
provide on loan a VHS viewing cassette of any Programme which may be
requested by the Company or the Scheduler.
3.2 The Licensor shall not at any time during the Term licence any of the
Television Rights in any Premium Movie within the Territory to any third
party without first complying with the procedure set out in this Clause but
the provisions of this Clause (other than sub-clause (d)) shall not apply
to any Premium Movie in which the Television Rights within the Territory
have been granted to any third party pursuant to any legally binding
agreement entered into by the Licensor prior to the date of this Agreement.
Whenever the provisions of this Clause apply to a Premium Movie, the
Licensor shall send to the Company a viewing cassette of such Premium Movie
(if the Premium Movie is already produced at the time of sending the notice
hereunder) and a written notice (which notice shall specify the cost,
budget and storyline of the Premium Movie if the Premium Movie is not
available for viewing at the date of the notice) setting out the principal
terms on which the Licensor is proposing so to grant Television Rights
within the Territory in respect of each such Premium Movie. The following
provisions shall apply to each Premium Movie offered for licence within the
Territory by the Licensor in accordance with this Clause:
(a) the Company shall have twenty-eight (28) days from receipt of such
offer to accept such offer by notice in writing to the Licensor;
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DENTON HALL
(b) if the Company shall fail to accept such offer within that 28 day
period and if the Licensor wishes to authorise a third party exercise
the Television Rights in that Premium Movie within the Territory, the
Licensor shall be free to do so, and shall have no further obligation
to offer that Premium Movie for licence to the Company, subject always
to sub-clauses (c) and (d) of this Clause;
(c) if the Company shall fail to accept such offer within that 28 day
period and if the Licensor wishes to authorise a third party to
exercise any of the Television Rights in that Premium Movie within the
Territory, the Licensor shall not so authorise any third party upon
terms which are more favourable to that third party than the terms
offered by the Licensor to the Company pursuant to this Clause without
first offering by notice in writing to the Company to licence that
Premium Movie to the Company upon such more favourable terms. The
Company shall have fourteen (14) days from receipt of such offer in
which to accept such offer by notice in writing to the Licensor and,
if the Company fails to accept such offer within that 14 day period,
the Licensor shall (subject to sub-clause (d) of this Clause) be free
to authorise such third party to exercise the Television Rights in
that Premium Movie within the Territory;
(d) notwithstanding any failure by the Company to accept any offer made
by the Licensor pursuant to this Clause or the absence of any
obligation on the Licensor to make any offer pursuant to this Clause,
the Licensor shall not authorise or permit any third party to
broadcast, transmit or exhibit within the Territory (whether pursuant
to the Standard Television Rights or the Non-Standard Television
Rights) any Premium Movie, any excerpt from any Premium Movie or any
promotional or advertising material or announcement publicising its
transmission of any Premium Movie in any form (other than in the form
of an on-screen credit and/or the display of the
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DENTON HALL
Licensor's logo or immediately after the closing titles) which allows
or causes any of the Trade Marks, the "Playboy" name or any logo, mark
or symbol which is associated with the "Playboy" name or brand to be
seen or heard by any member of the public at any time during any
broadcast, transmission or exhibition of that Premium Movie, any such
excerpt or any such promotional or advertising material or
announcement;
(e) if the Company shall accept any offer made by the Licensor pursuant to
this Clause, that Premium Movie shall automatically become a Selected
Programme for the purposes of this Agreement and be licensed to the
Company as a Programme but on the terms of the offer accepted by the
Company.
3.3 The Licensor shall not supply any Programme or Third Party Programme
hereunder which would reasonably be designated regarded or treated as what
is popularly known as "XXX Rated" in the United States of America.
Programmes and Third Party Programmes supplied hereunder may include
material rated "NC-17" by the Motion Picture Association of America (CARA)
if the sexual content of such material is substantially similar to
programming produced by the Licensor or any Affiliate of the Licensor
itself unless such Programmes and/or Third Party Programmes will or might
in the opinion of the Company be deemed obscene for the purposes of the
Obscene Publications Act 1959 (or any modification re-enactment or
replacement thereof) or in breach of any regulatory rules guidelines or
codes applicable to the Service. In the event that the Company deems any
Programme or Third Party Programme obscene or in breach of any applicable
rule, guideline or code as aforesaid, the Company shall notify the Licensor
to that effect and give the Licensor, if so requested, an opportunity to
present arguments to the contrary to the board of directors of the Company.
3.4 The Company undertakes that, unless it is permitted to do so by virtue of
any provisions of this Agreement, it shall not any time during the Term
transmit in the Service or otherwise for reception in the Territory any
programme which is not a Programme or a Third Party Programme.
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4. Undertakings by the Licensor
----------------------------
The Licensor hereby agrees and undertakes with the Company that:
4.1 Each and every Playboy Programme will throughout the Term, and each and
every Acquired Programme will throughout the Playboy Licence Period in
respect of that Acquired Programme, be available on a sole and exclusive
basis for delivery to and transmission by the Company within the Territory
pursuant to this Agreement. Accordingly, the Licensor shall not and shall
procure that each of its Affiliates shall not exercise, and shall not and
shall procure that each of its Affiliates shall not directly or indirectly
authorise licence or permit any third party to exercise, the Non-Standard
Television Rights or the Standard Television Rights (or any of them) in or
to any Programme or Third Party Programme in any country within the
Territory at any time during the Term.
4.2 If the Licensor or any Affiliate of the Licensor is at any time during the
Term proposing or negotiating to acquire (whether by way of licence, by
operation of law or otherwise) the Non-Standard Television Rights or the
Standard Television Rights within the Licensor's Territory in any
television programme which is a Co-Production or which would, if the Non-
Standard Television Rights therein were so acquired, be an Acquired
Programme, then the Licensor shall, or shall procure that such Affiliate
shall, use its best endeavours to acquire in addition (whether by way of a
licence, by operation of law or otherwise) the Non-Standard Television
Rights in that television programme within each of the countries of the
Territory.
4.3 In each Year:
(a) the total number of Programme Hours of Programmes delivered to the
Company in that Year for first transmission in the Service shall not
be less than the Minimum Number of Hours in respect of that Year; and
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DENTON HALL
(b) the total number of Programme Hours of Playboy Programmes and of
Playboy Acquired Programmes delivered to the Company in that Year for
first transmission in the Service shall not be less than eighty (80)
per cent of the Minimum Number of Hours in that Year; and
(c) the total number of Programme Hours of Playboy Acquired Programmes
delivered to the Company for first transmission in the Service shall
not exceed sixteen (16) per cent of the Minimum Number of Hours in that
Year.
4.4 In each Year none of the Selected Programmes or so-called "vignettes"
delivered to the Company for first transmission in the Service in that Year
shall have been delivered to the Company pursuant to this Agreement in any
previous Year and neither shall any of such Selected Programmes or so-
called "vignettes" have been broadcast, transmitted or exhibited in any
country within the Territory at any time prior to their delivery hereunder
by means of any form of Standard Television or Non-Standard Television.
4.5 The standard, quality, freshness and commercial appeal of the Selected
Programmes, so-called "vignettes", promotional material and other
programming delivered to the Company pursuant to this Agreement for first
transmission in the Service shall not be inferior to the overall standard,
quality, freshness and commercial appeal of the programming included during
the period of twelve (12) months immediately preceding the Launch Date in
the television service which is known as "Playboy TV" and is provided
within the Licensor's Territory by the Licensor and/or an Affiliate of the
Licensor ("the Playboy Service") or (if higher) to the overall standard,
quality, freshness and commercial appeal of the programming from time to
time included in the Playboy Service during the Term.
4.6 No Acquired Programme, Third Party Programme or so-called "vignette" shall
be delivered to the Company by or on behalf of the Licensor for
transmission in the Service, or scheduled for transmission in the Service
by any Scheduler (other than a Scheduler appointed under
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DENTON HALL
Clause 8.4, proviso (c) or (d) to Clause 8.5, Clause 8.11.4 or Clause
10.4), unless (a) the unexpired portion of the Playboy Licence Period in
respect of that Acquired Programme, Third Party Programme or so-called
"vignette" is at least twenty-four (24) months commencing upon the first
day of the calendar month in which the first transmission by the Company of
that Acquired Programme, Third Party Programme or so-called "vignette" in
the Service takes place and (b) the Licensor has acquired the right, and
the Company is therefore entitled, to transmit that Acquired Programme,
Third Party Programme or so-called "vignette" in the Service on not less
than twenty-four (24) occasions.
4.7 Without prejudice to and in addition to its obligations under Clause 4.3,
the Licensor shall:
(a) deliver to the Company for transmission in the Service on a timely
basis such quantity and duration of "vignettes", promotional material
and other programming as may be necessary to fill each hour of
transmission time on the Service during which a Programme, or a Third
Party Programme acquired by the Licensor, is transmitted; and
(b) ensure that the total running time of the "vignettes" delivered to the
Company for first transmission in the Service in each Year shall not in
any event be less than ten (10) per cent of the Minimum Number of Hours
in respect of that Year.
4.8 In the event that the Company requests the Licensor in writing to increase
the maximum number of transmissions of so-called "vignettes" which it is
entitled to make pursuant to this Agreement above twenty-four (24), the
Licensor shall be deemed to have agreed to such request unless the Licensor
notifies the Company within seven (7) days after the date of such request
that it is unable to do so without committing a breach of any agreement
between the Licensor and any third party (other than an Affiliate of the
Licensor).
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DENTON HALL
5. Delivery Material
-----------------
5.1 Following completion of the Transmission Schedule by the Scheduler for any
Quarter in any Year, the Licensor shall deliver to the Company, at such
place as the Company may from time to time direct by notice in writing, the
Delivery Material in respect of each Selected Programme included in that
Transmission Schedule (or licensed to the Company by virtue of the
acceptance of any offer made pursuant to Clause 3.2 (as the case may be))
no later than two months before the commencement of that Quarter. In the
event that the Licensor or any Affiliate of the Licensor has in its
custody, control or possession a dubbed or sub-titled version of any
Selected Programme in any of the Service Languages, the Licensor shall
deliver that dubbed or sub-titled version to the Company as part of the
Delivery Material in respect of that Selected Programme. The costs of
delivering Delivery Material to the Company pursuant to this Clause 5.1
shall be borne as follows:
(a) the cost of the blank tapes included in the Delivery Material and the
cost of transporting the Delivery Material shall be borne by the
Company; and
(b) all other such costs (including but not limited to duplication costs
and labour costs) shall be borne by the Licensor.
5.2 It shall be the responsibility of the Company to examine any Delivery
Material made available by the Licensor for technical suitability and to
notify the Licensor in writing within 30 (thirty) days of receipt of the
Delivery Material of any defect that prevents use. The Licensor shall use
all reasonable endeavours at its expense to replace the relevant elements
of the Delivery Material within 21 (twenty-one) days of receipt of such
notice but, if no such replacement is possible within such twenty-one day
period or the Company is able to demonstrate that such replacement is also
defective to such a degree as to prevent use, the Licensor shall make
available to the Company (a) substitute Programme(s) or Third Party
Programmes(s) of comparable nature, quality and duration which shall have
been approved by the Company and upon (so far as is reasonably practicable)
all the same
28.
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DENTON HALL
terms as applied to the Programme or Third Party Programme in respect of
which the Delivery Material is defective. The Delivery Material (which term
includes any such replacement material as is referred to above) shall be
deemed to have been accepted by the Company on the expiry of the said
period of thirty (30) days unless the Licensor is so notified.
5.3 If after the Company has accepted, or is deemed pursuant to Clause 5.2 to
have accepted, any Delivery Material in relation to a Selected Programme
the Company requests further Delivery Material to replace material which
has been erased or for any other reason is not usable for the purposes of
this Agreement, the Licensor shall at the Company's cost arrange for such
further Delivery Material to be delivered to the Company.
5.4 The supply to the Company of Delivery Material shall not imply a change of
ownership in the Delivery Material or the Selected Programmes contained
therein. The Company shall take reasonable precautions consistent with
those taken for the Company's own materials to safeguard the Delivery
Material against loss or damage.
5.5 The technical quality of Delivery Material delivered to the Company
hereunder shall not be inferior to the technical quality of the
transmission tapes or other material used for the transmission of
programming in the Playboy Service (as defined in Clause 4.5) PROVIDED THAT
the Licensor shall use its reasonable efforts to ensure that the technical
quality of such Delivery Material also meets the customary standards of
technical quality from time to time prevailing in the United Kingdom
television industry.
6. Editing, Publicity, Sub-titling and Dubbing
-------------------------------------------
6.1 Subject to the provisions of Clauses 6.2, 6.3 and 6.6, the Company shall
not without the prior written consent of the Licensor edit, abridge or in
any way alter or rearrange any Selected Programme and shall (save in the
event of an unexpected lack of time) broadcast each Selected Programme in
its entirety.
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DENTON HALL
6.2 The Company may edit Selected Programmes for the purposes of:
6.2.1 meeting programme timing requirements provided that:
(a) in carrying out such editing the Company shall not impair the
technical quality, meaning or integrity of any Selected
Programme; and
(b) the Company shall not delete or fail to transmit any credits,
titles or copyright notices appearing in any Selected Programme
unless such failure is caused by unexpected lack of time;
OR
6.2.2 complying with any legislation or any rules regulations guidelines or
codes of any competent regulatory authority of any country within the
Territory having jurisdiction over the Service.
6.3 Subject to the provisions of Clause 6.8, the Company may at its own expense
interpolate advertisements in the Selected Programmes but shall only do so
during breaks in the Selected Programmes created or designated by the
Licensor provided that such breaks comply with all rules and regulations
relating to advertising which are applicable within the Territory. If the
Licensor fails to create or designate breaks in any Selected Programme
which comply with such rules and regulations, the Company shall be free to
interpolate advertisements in that Selected Programme during breaks created
by it but shall use all reasonable endeavours not to interrupt any Selected
Programme at a place or in a manner which causes its technical quality,
meaning or integrity to be impaired. The Licensor shall not supply to the
Company any Selected Programme (or any Delivery Material in relation
thereto) in which any advertisement or promotional material (other than
promotional material promoting the transmission of Programmes or Third
Party Programmes in the Service) is incorporated and, without
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DENTON HALL
prejudice to any other right or remedy of the Company, the Company shall be
entitled to delete from any Selected Programme any advertisement or
promotional material which is incorporated in that Programme or Third Party
Programme on delivery of the relevant Delivery Material.
6.4 The Company may:
(a) broadcast and authorise third parties to broadcast sequences or
excerpts from any Selected Programme for advertising and publicity
purposes provided that no sequence so broadcast shall exceed two (2)
minutes in running time and no excerpts so broadcast shall exceed
three (3) minutes in running time; and
(b) exhibit excerpts from any Selected Programme to potential investors in
the Company, advertisers and similar bodies. The Licensor shall on a
timely basis following any request by the Company make available
excerpts selected by the Company and supply materials to the Company
for this purpose.
6.5 The Company may, and may authorise third parties to, publicise its
transmission of each Selected Programme in any medium or media (including
but not limited to newspaper, magazine, billboard, direct mail, television
and radio advertising and publicity) and may for that purpose use and
authorise the use of the title of the Selected Programme, the name and
likeness (in the form of photographs which shall be supplied for that
purpose by the Licensor) of each contributor to the Selected Programme (but
not so as to endorse the use of any goods or services) and all other
publicity material comprised in the Delivery Material.
6.6 The Licensor shall incorporate at appropriate intervals (which shall be
determined by the Licensor having due regard to the need to identify and
promote the Service and to the views and requests of the Company) in the
Delivery Material relating to Selected Programmes supplied by the
Licensor under this Agreement the logo used by the Company in connection
with the Service (which logo shall be in the
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DENTON HALL
form approved by the Licensor prior to the Launch Date, such approval not
to be unreasonably withheld) but, if the Licensor shall fail to do so, the
Company shall, without prejudice to any of its other rights and remedies,
be entitled to add such logo to Selected Programmes.
6.7 Unless the Licensor shall have notified the Company prior to or
concurrently with delivery of the Delivery Material in respect of any
Selected Programme that the Licensor does not have the right to dub and/or
sub-title that Selected Programme, the Company shall also be entitled at
its own expense to, and to authorise any third party to, translate, dub
and/or sub-title the soundtrack of any Selected Programme into any or all
of the Service Languages and to produce a version of versions of any
Selected Programme in any of the Service Languages provided that the
Company shall consult in good faith with the Licensor with a view to
ensuring that the meaning or integrity of any Selected Programme is not
impaired by any such dubbing or sub-titling. Ownership of all dubbed and/or
sub-titled versions and foreign language tracks created by or on behalf of
the Company pursuant to this Clause shall remain vested in the Company
during the Term and thereafter shall be transferred to the Licensor without
payment. The Company shall also make available to the Licensor at a price
equal to 50% of the cost of dubbing or sub-titling access to and use of
such versions and tracks during the Term.
6.8 Whenever the Company includes advertisements in the Service, it shall:
(a) use all reasonable endeavours not to accept advertisements for
products and services which in any material way detract from the image
established by the overall editorial content, graphic appeal and
production qualities of the Playboy Programmes included in the Service
("the Playboy Image");
(b) not accept advertisements for:
(i) any of the categories of products and services listed in Schedule
7; or
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DENTON HALL
(ii) magazines which compete with any edition of the "Playboy"
magazine; or
(iii) related publications which are published or distributed in
printed form by any competitor of the Licensor or any Affiliate
of the Licensor (i.e. any person who is engaged in the
publication and distribution of any magazine which competes with
any edition of the "Playboy" magazine); or
(iv) any audio-visual products which compete with those produced,
sold or distributed by the Licensor or any Affiliate of the
Licensor within the Territory;
(c) if the Licensor notifies the Company that any advertisement
transmitted by the Company in the Service and specified by the Licensor
in such notice does detract in a material way from the Playboy Image,
only refuse to cease transmitting that advertisement in the Service on
reasonable grounds (having regard inter alia to its contractual
obligations to third parties in relation to that advertisement provided
that the Company shall, if it would otherwise be obliged to cease
transmitting that advertisement, use reasonable endeavours to obtain a
release from such contractual obligations).
6.9 The Company hereby grants to the Licensor without charge the right
throughout the Term to use Playboy Airtime for the purpose of advertising
"Playboy" publications, and to authorise any Permitted Advertiser to use
Playboy Airtime for the purpose of advertising any of its products and
services which such Permitted Advertiser is concurrently advertising or
committed to advertise in any edition of the "Playboy" magazine PROVIDED
THAT the Licensor shall not itself use or authorise any Affiliate of the
Licensor to use Playboy Airtime for the purpose of advertising any product
(including but not limited to any audio or audio-visual product) or any
service other than editions of the "Playboy" magazine (whether published by
or under licence from the Licensor or any Affiliate of the Licensor) and
related
33.
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DENTON HALL
publications which are published or distributed in printed form. For the
purposes of this Clause:
(a) a "Permitted Advertiser" shall mean any person who has during the
twelve (12) months immediately preceding any use of Playboy Airtime by
that person purchased or agreed to purchase advertising space in any
edition of the "Playboy" magazine for the first time; and
(c) "Playboy Airtime" shall mean in respect of each hour of transmission
time on the Service a period of thirty (30) seconds during that hour
which is reserved for the transmission of advertisements.
All advertisements which are to be transmitted during Playboy Airtime
pursuant to this Clause shall be produced and delivered to the Company at
the sole cost and expense of the Licensor. All such advertisements shall be
subject to the terms and conditions (other than the Company's ratecard and
discount policy) upon which the Company is prepared to accept
advertisements as stated from time to time by the Company within its
printed standard terms and conditions.
7. Payment
-------
7.1 In consideration of the rights granted to the Company under this Agreement
and under the Trademark Agreement, the Company shall pay to the Licensor:
(a) in each Year the Basic Licence Fee;
(b) in respect of each Year commencing after the Year in which the Return
of Investment Date falls, an amount equal to the amount by which the
lesser of:
(i) the Requisite Percentage of Available Net Profits in that Year; and
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DENTON HALL
(ii) the Requisite Percentage of Net Revenues in that Year exceed the
Basic Licence Fee payable in respect of that Year; and
(c) the Bonus Licence Fee (if any) upon the terms and subject to the
conditions detailed in Clause 7.2.
7.2 In the event that the Return of Investment Date falls before the sixth
anniversary of the Launch Date, then the Bonus Licence Fee shall be
payable to the Licensor PROVIDED THAT:
(a) if at any time after the Return of Investment Date and prior to payment
of the Bonus Licence Fee in full any of the Company's shareholders (by
whatever means and for whatever reason) provide(s) additional funding
to the Company, payment of the balance of the Bonus Licence Fee shall
be deferred until after repayment of all such funding (plus interest
thereon) has (in the manner described and calculated in the definition
of "Return of Investment Date" in Clause 1) been received by the
relevant shareholder(s) in the Company; and
(b) the Bonus Licence Fee shall only be payable to the Licensor out of
Available Cash Flow and, to the extent that the Company does not as at
the end of any Quarter have Available Cash Flow out of which to pay the
Bonus Licence Fee, the Company shall have no liability to pay the Bonus
Licence Fee on the final day of that Quarter pursuant to Clause 7.4(b)
but the Bonus Licence Fee (or any unpaid balance thereof) shall be
payable pursuant to Clause 7.4(b) as and when there is Available Cash
Flow at the end of any subsequent Quarter.
7.3 The Basic Licence Fee in respect of each Year shall be payable by the
Company in six (6) equal instalments on or before 28th February, 30th
April, 30th June, 31st August, 31st October and 31st December in that Year
(the first such instalment being payable on the first Payment Date
following the Launch Date) provided that the number of
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DENTON HALL
instalments payable in the First Year shall be equal to the number of the
Payment Dates falling during the First Year.
Not later than 30 days prior to the first day of each Licence Year the
Company shall supply to the Licensor a signed purchase order committing in
that Licence Year to pay to the Licensor the amount of the Basic Licence
Fee applicable to that Licence Year in consideration for and subject to the
Licensor delivering to the Company for that Licence Year the portion of the
Minimum Number of Hours of Programmes which is applicable to that Licence
Year for first transmission in the Service. That purchase order will also
contain a list of the Programmes to be delivered for first transmission in
that Licence Year if the Licensor has previously supplied that list to the
Company. The obligations of the Company under this paragraph of Clause 7.3
and the terms of any purchase order delivered by the Company hereunder
shall be read and construed subject to all of the other provisions of this
Agreement which shall, in the event of any conflict, prevail. For the
purposes of this paragraph a "Licence Year" shall mean any consecutive
period of 12 months during the Term commencing upon the Launch Date or any
anniversary of the Launch Date.
7.4 (a) In the event that a Programming Premium is payable to the Licensor in
respect of any Year commencing after the Year in which the Return of
Investment Date falls, the Company shall pay such Programming Premium
to the Licensor within thirty (30) days after the date on which the
amount of the Available Net Profits and the Net Revenues in that Year
have been determined by the auditors of the Company and included in
accounting statements approved by the directors of the Company.
(b) On the final day of each Quarter in each Year commencing after the
Return of Investment Date but in no event before the end of the fifth
Year, the Company shall, until it has made payment of the Bonus Licence
Fee in full, apply 100% of its Available Cash Flow in payment of the
Bonus Licence Fee to the Licensor.
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(c) Only after 100% of the Bonus Licence Fee has been paid by the Company
may the Company begin paying dividends to any shareholder in the
Company.
7.5 The licence fees payable by the Company under this Clause 7 and under
Clause 8 are exclusive of any and all amounts of Value Added Tax payable
thereon, which amounts of Value Added Tax shall be paid by the Company
provided that an appropriate invoice shall have been rendered to the
Company by the Licensor. If the Company is compelled by law or required by
any present or future law, regulation, treaty or official directive to make
any deduction or withholding from any amount of such licence fees, the
Company shall be entitled to do so and shall not be required to pay any
additional amount or amounts to the Licensor as a result of, or in order to
compensate the Licensor for, any such deduction or withholding.
7.6 The Available Cash Flow of the Company as at the end of any Quarter shall
for the purposes of sub-clause 7.2(b) be determined by the directors of the
Company on a timely basis and a copy of such determination shall be
provided to the Licensor. If the Licensor disagrees with any such
determination, the Licensor may within 30 days after receipt of a copy
thereof notify the Company to that effect whereupon the Company shall
promptly refer the matter to its auditors (acting as experts and not as
arbitrators) for their determination which shall be final and binding upon
both parties. The costs of any such referral to the auditors shall be borne
by the Licensor unless the auditors find that the determination made by the
directors of the Company was materially incorrect in which case such costs
shall be borne by the Company.
7.7 If the Company elects to transmit a Programme during a further Transmission
Period pursuant to Clause 2.2 and provided that the Company does not
subsequently decline to accept a further Transmission Period of that
Programme pursuant to the proviso to Clause 2.2:
(a) the licence fee payable by the Company in respect of that further
Transmission Period shall be:
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DENTON HALL
(i) such sum as may be agreed in writing between the parties within a
period of thirty (30) days after the date of the notice given by
the Company pursuant to Clause 2.2 in respect of that Programme;
or
(ii) in the absence of such agreement within that 30 day period, a sum
equal to forty (40) per cent of the Initial Licence Fee and for
this purpose "the Initial Licence Fee" shall be the lower of
US$13,158 per Programme Hour of that Programme and the amount
paid to the third party licensor of that Programme (in the case
of an Acquired Programme) in consideration for the right to
transmit that Programme in the Service within the Territory. Any
licence fee payable pursuant to this Clause shall be paid in six
(6) equal instalments within thirty (30) days after the final day
of every fourth month during the first two (2) years of the
further Transmission Period;
(b) the Basic Licence Fee in respect of each Year shall be increased by the
aggregate of the license fees which the Company is liable to pay and
reimburse to the Licensor in that Year pursuant to this Clause, and the
references to the Basic Licence Fee in sub-clause 7.1(b) and in the
definition of "the Bonus Amount" in Clause 1 shall, for the purpose of
calculating any Programming Premium payable to the Licensor in respect
of any Year and the Bonus Licence Fee (if any), mean the Basic Licence
Fee as increased pursuant to this sub-clause.
7.8 In relation to each payment which is due to the Licensor pursuant to this
Agreement, the Licensor shall deliver to the Company an invoice showing the
amount of such payment and the Company shall make each such payment which
is so invoiced in accordance with the relevant provision(s) of this
Agreement.
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8. The Scheduler and Scheduling
----------------------------
8.1.1 During the first four (4) Years ("the Initial Period") the Licensor
shall, after consulting with the Company in good faith regarding its
proposed choice and taking into account any comments made by the Company
in relation thereto, appoint an individual from the Licensor's staff
based in Los Angeles to be the scheduler of the Service. If the Scheduler
appointed under this Clause 8.1 is an employee of the Licensor, the
Licensor shall be free to terminate the employment of that Scheduler
based upon the Licensor's normal business practices whereupon the
Licensor shall forthwith notify the Company and the provisions of sub-
clause 8.1.2 shall apply to the appointment of a replacement Scheduler.
In addition the Company may by giving one month's notice in writing to
the Licensor expiring at any time after the first anniversary of the
Launch Date and before the final day of the Initial Period require the
Licensor to replace any Scheduler appointed under this Clause 8.1
whereupon the provisions of sub-clause 8.1.2 or Clause 8.4 (as the case
may be) shall apply to the appointment of a replacement Scheduler. The
Company may not however exercise its right under the immediately
preceding sentence of this sub-clause on more than one occasion during
any twelve (12) month period during the Initial Period.
8.1.2 If at any time during the Initial Period the Licensor terminates the
employment of any Scheduler appointed by it under this Clause 8.1 or the
Company exercises its right under sub-clause 8.1.1 to replace any such
Scheduler, the Licensor shall, after consulting with the Company in good
faith regarding its proposed choice and taking into account any comments
made by the Company in relation thereto, on a timely basis appoint one of
its employees to be the scheduler of the Service as a replacement for the
individual whose employment has been terminated by it or who is to be
replaced by virtue of the exercise by the Company of its right under sub-
clause 8.1.1.
8.2 The duties of the Scheduler shall include:
8.2.1 selecting the Programmes and Third Party Programmes for
transmission in the Service and preparing a quarterly
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DENTON HALL
Transmission Schedule for the same in compliance with the
Shareholders Agreement, the Business Plan and this Agreement
(including but not limited to Clause 4 as well as the Minimum
Number of Hours and Programme Specification). The Scheduler will
supply to the Company and to the Licensor a copy of each quarterly
Transmission Schedule not later than 75 days prior to the first day
of the relevant Quarter. The Scheduler will only procure the
acquisition of and schedule Third Party Programmes in accordance
with the terms of this Agreement;
8.2.2 ensuring that the Selected Programmes and all interstitial material
referred to in sub-clause 8.2.5 below are assembled in accordance
with the Transmission Schedule;
8.2.3 ensuring that no Selected Programme is scheduled for transmission
in the Service on more than fifteen (15) occasions during any Year
(which number shall be reduced or increased pro rata if the Minimum
Number of Hours is increased above or reduced below 114 pursuant to
Clause 8.6, 8.7, 8.8, 8.11 or 10.4);
8.2.4 supervising the design of the on-screen appearance of the Service;
8.2.5 at the cost of the Licensor procuring (a) the supply of or
commissioning where necessary all on-screen promotional and
interstitial material which is required in order to promote both
the Selected Programmes and the Service and in a form which is
suitable for transmission within the Territory and (b) the
insertion of the Company's logo in each Selected Programme.
8.3.1 Each Scheduler appointed by the Licensor under Clause 8.1 during the
Initial Period will be based in Los Angeles but the Licensor shall
procure that he or she will be available to the Company at the Company's
offices in the United Kingdom as and when reasonably required by the
Company for the proper discharge of the Scheduler's functions hereunder.
The Licensor shall also procure that each such
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DENTON HALL
Scheduler shall when not in the United Kingdom be generally readily
available for consultation with the Company and its staff.
8.3.2 All costs (including, without limitation, all remuneration, benefits and
bonuses) in connection with the engagement and provision of the services
of the Scheduler and all related support personnel and services and with
the performance of the Licensor's obligations under Clauses 8.1, 8.2 and
8.3 will be borne solely and exclusively by the Licensor (save only in
the circumstances set out in Clause 8.4, in sub-clause 8.5.3 and in
provisos (c) and (d) to Clause 8.5 and provided that all reasonable and
vouchered travelling and accommodation costs incurred by the Scheduler
in travelling to and whilst visiting the United Kingdom or elsewhere
within the Territory at the request of the Company shall be borne by the
Company).
8.3.3 The services of each Scheduler appointed under Clause 8.1, Clause 8.4 or
Clause 8.5 shall (unless the Scheduler is engaged by the Company as an
employee of the Company pursuant to Clause 8.4 or proviso (c) or (d) to
Clause 8.5) be made available by the Licensor to perform inter alia the
duties set out in Clause 8.2 on a first call basis in connection with the
Service. The Licensor shall make available the services of each such
Scheduler, together with all support personnel and office services and
facilities reasonably required by that Scheduler, for such periods, at
such times during the Licensor's normal working hours and in such a
manner as may be necessary in order to enable that Scheduler to discharge
his or her obligations effectively and efficiently hereunder. The
Licensor shall (unless the Scheduler is engaged by the Company as an
employee of the Company pursuant to Clause 8.4 or proviso (c) or (d) to
Clause 8.5) procure that the Scheduler shall at all times perform his
or her duties in accordance with the provisions of this Agreement and the
Shareholders' Agreement.
8.4 If the Company wishes to replace any Scheduler appointed under Clause
8.1 with effect from any date after the final day of the Initial Period,
it may do so upon giving not less than one month's written notice to the
Licensor expiring at any time after the final
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DENTON HALL
day of the Initial Period. If the Company gives such a notice, the Company
shall nominate in writing two or more individuals to act as Scheduler and,
in respect of each individual so nominated by it, the Company shall specify
the parameters of the financial terms on which it is proposing to engage
that individual. Within fourteen (14) days thereafter the Licensor must
choose one of the persons nominated and the Company will then engage at its
own expense in the capacity of Scheduler hereunder either the individual so
chosen by the Licensor or, if within that 14 day period the Licensor fails
to choose any of the individuals nominated, the individual chosen by the
Company. The provisions of Clause 8.5 shall apply to the replacement of any
Scheduler appointed under this Clause 8.4.
8.5 If at any time after the first anniversary of the date upon which the
appointment of the Scheduler appointed under Clause 8.4 took effect either
party wishes to replace the Scheduler appointed under Clause 8.4 or any
successor thereof appointed under this Clause 8.5, it may (subject always
to the provisions of sub-classes 8.11.4 and 10.4.4) do so upon giving three
months' written notice (a "Scheduler Replacement Notice") to the other
party in which event:
8.5.1 each party shall use its best endeavours to reach agreement with the
other party upon the appointment of a replacement Scheduler and, if
within that 3 month notice period such agreement is reached, the
agreed individual shall be appointed as the Scheduler;
8.5.2 if within that 3 month notice period the parties shall have been
unable to reach agreement, each party shall not later than the final
day of that 3 month period nominate in writing two individuals to act
as Scheduler, the name of each individual so nominated shall be
placed in a hat and the Chief Executive Officer of the Company shall
draw one name out of that hat. The individual whose name is drawn out
of the hat shall be appointed as the Scheduler;
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DENTON HALL
8.5.3 if any Scheduler appointed under sub-clause 8.5.2:
(a) was nominated by the Company; and
(b) is not an employee of the Licensor
that Scheduler shall be engaged by the Company at its expense;
8.5.4 if at any time either party wishes to replace an individual appointed
under sub-clause 8.5.1 or 8.5.2, it shall follow the procedure
hereinbefore set out in this Clause 8.5
PROVIDED ALWAYS THAT:
(a) neither party may exercise the right to replace a Scheduler appointed
under this Clause 8.5 at any time prior to the first anniversary of the
date upon which the appointment of that Scheduler took effect;
(b) the Licensor may not exercise the right to replace a Scheduler appointed
under Clause 8.4 or under this Clause 8.5 in the circumstances described
in sub-clause 8.11.4 or 10.4.4 if:
(i) at any time prior to the date of any Scheduler Replacement Notice
given under this Clause 8.5, the Company has given a notice to the
Licensor under Clause 8.6 or Clause 8.11; or
(ii) as at the date of any Scheduler Replacement Notice given under this
Clause 8.5, the Licensor holds less than fifteen (15) per cent in
nominal value of the total issued ordinary shares in the capital of
the Company
and, if either paragraph (i) or (ii) above shall apply, the relevant
Scheduler Replacement Notice given by the Licensor under this Clause 8.5
shall have no force or effect; and
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DENTON HALL
(c) if either paragraph (i) or (ii) of proviso (b) above shall apply as at
the date of any Scheduler Replacement Notice given by the Company under
this Clause 8.5 and if within the three month period specified in that
notice the parties shall have been unable to reach agreement upon a
replacement Scheduler, then the Company may nominate in writing two or
more individuals to act as Scheduler and, in respect of each individual
so nominated by it, the Company shall specify the parameters of the
financial terms on which it is proposing to engage that individual
whereupon the provisions of sub-clauses 8.5.1 to 8.5.3 shall not apply
to the appointment of the replacement Scheduler. Within fourteen (14)
days thereafter the Licensor must choose one of the persons nominated
and the Company will then engage at its own expense in the capacity of
Scheduler hereunder either the individual so chosen by the Licensor or,
if within that 14 day period the Licensor fails to choose any of the
individuals nominated, the individual chosen by the Company; and
(d) if as at the date of any Scheduler Replacement Notice given under this
Clause 8.5, the Licensor holds less than ten (10) per cent in nominal
value of the total issued ordinary shares in the capital of the
Company, the Company shall be freely entitled to replace the Scheduler
and engage at its expense a replacement Scheduler of its choice and
sub-clauses 8.5.1 to 8.5.3 and proviso (c) to this Clause 8.5 shall not
apply to the appointment of any such replacement Scheduler by the
Company.
8.6 If the Net Revenues per Household received by the Company during the fourth
Year is less than One Pound and thirty-seven pence ((Pounds)1.37) then at
any time prior to the first day of the sixth Year the Company may, or if
the Company becomes entitled to (but does not) terminate this Agreement
pursuant to sub-clause 10.2(b), then at any time thereafter the Company
may, give notice to the Licensor (with a copy to the Scheduler) stating
that the Minimum Number of Hours is with effect from a date specified in
such notice which shall not fall less than
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DENTON HALL
ninety (90) days after the date of such notice ("the Applicable Date") to be
reduced and specifying such reduced Minimum Number of Hours in respect of each
subsequent Year. If the Company gives such a notice, then the following
provisions shall apply:
(a) the aggregate Programme Duration of Programmes delivered to the Company
by the Licensor for first transmission in the Service during each Year
commencing after the Applicable Date shall comprise not less than fifty-
one (51) per cent of the aggregate Programme Duration of all Programmes
and all Third Party Programmes transmitted in the Service for the first
time during that Year;
(b) all Third Party Programmes broadcast by the Company for reception within
the Territory following the Applicable Date shall fall within the
Programme Specification;
(c) following the Applicable Date Third Party Programmes shall (subject to
the provisions of sub-clause (i) of this Clause 8.6) be acquired by the
Licensor acting upon instruction from the Scheduler or the Company and
as the agent of the Company on terms which shall first have been approved
by the Company in writing and the Company shall within 21 days of receipt
of the Licensor's invoice with respect thereto reimburse to the Licensor
all licence fees which shall actually have been paid by the Licensor to
the relevant third party with the prior written approval of the Company
in accordance with this sub-clause and in consideration for the right to
transmit the relevant Third Party Programme(s) in the Service within the
Territory;
(d) the Basic Licence Fee payable by the Company in respect of each Year
commencing after the Year in which the Applicable Date falls shall be
reduced pro rata to an amount calculated by:
(i) multiplying the reduced Minimum Number of Hours specified in such
notice by the Basic Licence Fee which
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DENTON HALL
would have been payable by the Company in respect of the relevant Year
if no notice had been given by the Company pursuant to this Clause; and
(ii) dividing the product of that multiplication by the number which would
have represented the Minimum Number of Hours in respect of the Year in
which the Applicable Date falls if no notice had been given by the
Company pursuant to this Clause;
(e) the Basic Licence Fee payable by the Company in respect of the Year in which
the Applicable Date falls shall be the aggregate of the following amounts:
(i) an amount ("the First Amount") calculated by (A) dividing by 365 the
amount of the Basic Licence Fee which would have been payable by the
Company in respect of that Year if no notice had been given by the
Company pursuant to this Clause and (B) multiplying the product of that
division by the total number of days during that Year prior to (but
excluding) the Applicable Date; and
(ii) an amount calculated by (A) subtracting the First Amount from the
amount of the Basic Licence Fee which would have been payable by the
Company in respect of that Year if no notice had been given by the
Company pursuant to this Clause, (B) dividing the figure resulting from
that subtraction by the number which would have represented the Minimum
Number of Hours in respect of that Year if no notice had been given by
the Company pursuant to this Clause and (C) multiplying the product of
that division by the reduced Minimum Number of Hours specified in such
notice in respect of each subsequent Year;
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(f) each Requisite Percentage shall with effect from the Applicable Date be
reduced pro rata to a percentage calculated in the manner detailed in
paragraphs (i) and (ii) of sub-clause (d) of this Clause save that for
the purposes of each such calculation the reference in paragraph (i) of
sub-clause (d) to "the Basic Licence Fee which would have been payable by
the Company" shall be read as a reference to the Requisite Percentage of
Available Net Profits or Net Revenues (as the case may be) which applied
for the purpose of calculating the Programming Premium (if any) payable
to the Licensor in respect of the immediately preceding Year;
(g) the Minimum Number of Hours in respect of the Year in which the
Applicable Date falls shall be the aggregate of the following numbers:
(i) a number calculated by (A) dividing by 365 the number which would
have represented the Minimum Number of Hours in respect of that
Year if no notice had been given by the Company pursuant to this
Clause and (B) multiplying the product of that division by the total
number of days during that Year prior to (but excluding) the
Applicable Date; and
(ii) a number calculated by (A) subtracting the total number of days
during that Year following (and including) the Applicable Date from
365, (B) dividing the figure resulting from that subtraction by 365
and (C) multiplying the product of that division by the reduced
Minimum Number of Hours specified in such notice in respect of each
subsequent Year;
(h) the maximum percentage (i.e. 36%) of Programme Hours of Acquired
Programmes and the maximum percentage of Playboy Acquired Programmes
(i.e. 16%) which in any Year commencing after the Applicable Date the
Licensor is entitled by virtue of sub-clauses 4.3(b) and 4.3(c) to
deliver to the Company for
47.
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first transmission in the Service shall each be reduced pro rata to a
percentage calculated in the manner detailed in paragraphs (i) and (ii) of
sub-clause (d) of this Clause save that for the purposes of this
calculation the reference in paragraph (i) of sub-clause (d) to "the Basic
Licence Fee which would have been payable by the Company" shall be read as
a reference to the maximum percentage of Programme Hours of Acquired
Programmes or (as the case may be) the maximum percentage of Playboy
Acquired Programmes which the Licensor was entitled to deliver to the
Company in the immediately preceding Year pursuant to sub-clause 4.3(b) or
4.3(c) for first transmission in the Service;
(i) in the event that the Company gives a notice pursuant to this Clause 8.6
after the Company has become entitled (but has elected not) to terminate
this Agreement pursuant to sub-clause 10.2(b), then following the
Applicable Date:
(i) the provisions of sub-clause (c) of this Clause 8.6 shall cease to
apply, the Company shall be freely entitled at the Company's expense
to licence Third Party Programmes from third parties and to schedule
and transmit such Third Party Programmes in the Service and the
Company shall assume sole responsibility for such licensing and
scheduling PROVIDED THAT all Third Party Programmes so transmitted in
the Service shall fall within the Programme Specification and the
Company shall comply with the provisions of sub-clause (a) of this
Clause 8.6 (as amended by paragraph (iii) below);
(ii) the Company shall be freely entitled to replace the Scheduler and to
engage at its expense a replacement Scheduler of its choice and
Clauses 8.1 and 8.5 shall not apply to the appointment of any such
replacement Scheduler.
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DENTON HALL
(iii) the reference to "fifty-one (51) per cent" in sub-clause (a) of
this Clause 8.6 shall be read as a reference to "fifty-one (51)
per cent or such lesser percentage as the Licensor is able to
deliver to the Company for first transmission in the Service in
compliance with the provisions of Clause 4"; and
(iv) if in any Year commencing after the Applicable Date the
aggregate Programme Duration of Programmes transmitted by the
Company in the Service during that Year shall comprise less than
twenty-five (25) per cent of the aggregate Programme Duration of
all Programmes and all Third Party Programmes transmitted in the
Service during that Year, then the Licensor may within ninety
(90) days after the final day of that Year give notice to the
Company requiring the Company to remove the word "Playboy" from
both the name of the Service and the name of the Company and the
Company shall promptly comply with any such notice.
8.7 The Company shall be entitled at any time and from time to time after the
first anniversary of the Launch Date:
(a) to notify the Licensor that in its reasonable opinion (whether based
upon the results of then current market research, feedback from
advertisers or potential advertisers, a failure to achieve the
objectives of any Business Plan and/or any other valid reason specified
in writing by the Company) the then current Minimum Number of Hours is
not sufficient and needs to be increased; and
(b) pursuant to that notice to require the Licensor to deliver to the
Company with effect from a date specified in that notice which shall
fall not less than ninety (90) days after the date of that notice and
in each subsequent Year commencing after the effective date of that
notice such higher Minimum Number of Hours as may be specified by the
Company in that notice
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DENTON HALL
PROVIDED THAT the higher Minimum Number of Hours so specified by the
Company shall not exceed two hundred and twenty-eight (228).
8.8 If the Company gives such a notice pursuant to Clause 8.7:
(a) the Licensor shall deliver such higher Minimum Number of Hours to
the Company in accordance with that notice provided that, if the
Licensor is unable to deliver such higher Minimum Number of Hours to
the Company without committing a breach of one of its other
obligations hereunder, it shall be entitled to refuse to do so by
giving notice in writing to the Company within 30 days after receipt
of such notice from the Company;
(b) if the Licensor does so refuse to deliver such higher Minimum Number
of Hours to the Company, then the Company shall be free to include
Third Party Programmes in the Service and, solely for the purpose of
calculating (i) any Programming Premium payable to the Licensor in
respect of the Year in which that notice took effect (the "Current
Year") and in respect of any subsequent Year commencing after the
Current Year, and (ii) the Bonus Licence Fee (if any), the Basic
Licence Fee in respect of the Current Year and in respect of each
such subsequent Year shall be deemed to have been increased by the
aggregate of all licence fees paid by the Company during the Current
Year or that subsequent Year (as the case may be) in consideration
for the right to include Third Party Programmes in the Service;
(c) if the Licensor does deliver such higher Minimum Number of Hours to
the Company, then with effect from the date specified in that notice
in accordance with sub-clause 8.7(b):
(i) the Company shall pay to the Licensor an additional licence fee
at the Hourly Rate (as defined in paragraph (iv) below) for
each Programme Hour in respect of those additional Playboy
Programmes which are delivered to the Company for first
transmission in the Service in
50.
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DENTON HALL
any Year (an "additional" Playboy Programme being any Playboy Programme
over and above those Playboy Programmes which are so delivered to the
Company in that Year and whose aggregate Programme Duration is ninety-one
(91) Programme Hours) and that additional licence fee will be added to
and paid as part of the Basic Licence Fee for that Year in accordance
with Clause 7.3;
(ii) the Company shall within 21 days after receipt of the Licensor's invoice
with respect thereto reimburse to the Licensor such licence fees as may
actually have been paid to third parties in consideration for the right
to transmit any Acquired Programme(s) in the Service within the Territory
and with the prior written approval of the Company provided that the
provisions of this paragraph (ii) shall only apply to those Acquired
Programmes which are delivered to the Company for first transmission in
the Service and whose aggregate Programme Duration exceeds twenty-three
(23) Programme Hours in any Year;
(iii) the Basic Licence Fee in respect of each Year shall be increased by the
aggregate of the licence fees which the Company is liable to pay and
reimburse to the Licensor in that Year pursuant to paragraphs (i) and
(ii) of this sub-clause, and in respect to the Current Year (as defined
in sub-clause (b) above) and each subsequent Year commencing after the
Current Year the references to the Basic Licence Fee in sub-clause 7.1(b)
and in the definition off "the Bonus Amount" in Clause 1 shall, for the
purpose of calculating any Programming Premium payable to the Licensor in
respect of the Current Year and any subsequent Year commencing after the
Current Year and the Bonus Licence Fee (if any), mean the Basic Licence
Fee as increased pursuant to this paragraph;
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DENTON HALL
(iv) for the purpose of paragraph (i) of this sub-clause, "the Hourly
Rate" shall mean thirteen thousand one hundred and fifty-eight
United States Dollars (US$13,158);
(d) if the Licensor does deliver such higher Minimum Number of Hours to the
Company, the Company shall be entitled at any time thereafter to give
notice to the Licensor (with a copy to the Scheduler) stating that the
Minimum Number of Hours is with effect from a date specified in such
notice which shall fall not less than ninety (90) days after the date
of such notice ("the Applicable Date") to be reduced and specifying
such reduced Minimum Number of Hours in respect of each subsequent Year
PROVIDED THAT the reduced Minimum Number of Hours so specified
pursuant to this sub-clause shall not be less than one hundred and
fourteen (114). If the Company gives such a notice, the provisions of
sub-clauses 8.6(a) to (h) shall apply as if such notice had been given
under Clause 8.6 SAVE AND EXCEPT THAT sub-clauses 8.6(c) and (h) shall
not apply.
8.9 The Company may at any time by notice in writing to the Licensor require
the Licensor to acquire and schedule for transmission in the Service a
motion picture as an Acquired Premium Movie. Any such notice shall specify
the criteria which any motion picture so acquired by the Licensor would
have to satisfy ("the Criteria") including but not limited to the maximum
amount of the licence fee which the Company is prepared to pay in order to
acquire such a motion picture. The following provisions shall apply to the
acquisition of Acquired Premium Movies:
(a) the maximum number of Acquired Premium Movies which the Licensor can
be required to acquire in any Year and the maximum amount which the
Company may expend on such acquisitions in any Year shall be as
follows:
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(i) in the First Year: one Acquired Premium Movie at a cost not
exceeding one hundred thousand pounds ((pounds)100,000);
(ii) in the second Year: such number of Acquired Premium Movies as the
directors of the Company may determine at an aggregate cost not
exceeding four hundred thousand pounds ((pounds)400,000) less
such amount as may have been expended by the Company in the First
Year on the acquisition of an Acquired Premium Movie;
(iii) in the third and each subsequent Year: such number of Acquired
Premium Movies and at such cost and aggregate cost as the
directors of the Company may determine;
(b) if the Company gives such a notice, the Licensor shall within fourteen
(14) days after the date of that notice nominate in writing the titles
of not less than three (3) motion pictures which satisfy the Criteria
and, if the Company selects one of those three (3) motion pictures (a
"Selected Title"), the Licensor shall use all reasonable endeavours to
acquire that Selected Title for transmission in the Service;
(c) the Licensor shall only acquire a Selected Title for transmission in
the Service upon terms which shall first have been approved in writing
by the Company and, after having so acquired a Selected Title, shall
promptly schedule or procure the scheduling of that Selected Title for
transmission in the Service in accordance with the reasonable
requirements of the Company;
(d) if a Selected Title is so acquired by the Licensor and scheduled for
transmission in the Service, the Company shall within 21 days of
receipt of the Licensor's invoice with respect thereto reimburse to the
Licensor all licence fees which shall actually have been paid by the
Licensor with the
53.
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DENTON HALL
prior written approval of the Company in accordance with this sub-
clause and in consideration for the right to transmit the relevant
Selected Title in the Service within the Territory;
(e) if within ninety (90) days after the date of that notice the Licensor
shall have been unable so to acquire a Selected Title for transmission
in the Service or if the Licensor shall have failed to perform its
obligations under this Clause, the provisions of Clause 8.10 shall
apply.
8.10 If at any time when the Company is entitled to include Third Party
Programmes in the Service hereunder and/or the Company requests or
instructs the Licensor to obtain such Third Party Programmes on its behalf
in accordance with the terms hereof and the Licensor refuses, fails or
neglects to obtain the same or does not obtain them in a timely fashion
and/or on terms reasonably acceptable to the Company, then the Company
shall be entitled to license or procure the licensing of the same and to
schedule and transmit such Third Party Programmes in the Service.
8.11 If at any time during the Term the Company is obliged under the laws of
any country within the Territory to transmit in the Service a certain
percentage ("the Quota Percentage") of programmes which are European
Works, then the Company shall notify the Licensor in writing to that
effect specifying the Quota Percentage and the following provisions shall
apply:
8.11.1 within thirty (30) days after the date of any such notice the
Licensor may by notice in writing to the Company elect with effect
from the date which falls sixty (60) days after the date of the
notice given by the Company ("the Applicable Date") to produce, co-
produce or acquire and supply to the Company for first transmission
in the Service in accordance with the provisions of this Agreement
(including but not limited to the provisions of Clause 4) such
number of Programme Hours of Programmes or Third Party Programmes
which are European Works as may be necessary to enable the Company
to transmit in the
54.
<PAGE>
DENTON HALL
Service the Quota Percentage of programmes which are European Works.
8.11.2 if the Licensor elects under sub-clause 8.11.1 to acquire Third Party
Programmes, the Company may give notice to the Licensor stating that the
Minimum Number of Hours is with effect from the Applicable Date to be
reduced and specifying such reduced Minimum Number of Hours in respect of
each subsequent Year whereupon the provisions of sub-clauses 8.6(a) to
(h) shall apply as if such notice had been given under Clause 8.6 SAVE
AND EXCEPT THAT:
(a) the reference in sub-clause 8.6(a) to "fifty-one (51) per cent"
shall be read as a reference to the Quota Percentage for the
purposes of this Clause; and
(b) the references in sub-clause 8.6(c) to "Third Party Programmes"
shall be read as references to "Third Party Programmes which are
European Works".
8.11.3 if the Licensor does not so elect under sub-clause 8.11.1, the provisions
of sub-clause 8.11.2 shall apply SAVE AND EXCEPT THAT sub-clauses 8.6(c)
and 8.11.2(b) shall not apply and the Company shall following the
Applicable Date (subject only to its obligations under sub-clauses 8.6(a)
and (b)) be entitled at the Company's expense to licence Third Party
Programmes which are European Works from third parties and to schedule
and transmit such Third Party Programmes in the Service and shall assume
sole responsibility for such licensing and scheduling.
8.11.4 if the Licensor does not so elect under sub-clause 8.11.1, then the
following provisions shall also apply:
(a) the Company shall be freely entitled to replace the Scheduler and to
engage at its expense a replacement Scheduler of its choice and
Clauses 8.1 and 8.5 shall not apply to the appointment of any such
replacement Scheduler; and
55.
<PAGE>
DENTON HALL
(b) if the Licensor notifies the Company that it is able to license to the
Company any Programme which is a European Work in addition to the
Programmes which the Company is obliged to transmit pursuant to Clause
8.6, then the Company shall not unreasonably refuse to licence that
Programme from the Licensor at a licence fee not exceeding (i)
US$13,158 per Programme Hour (in the case of a Playboy Programme) or
(ii) the actual amount paid to the third party licensor of that
Programme in consideration for the right to transmit that Programme in
the Service within the Territory (in the case of an Acquired
Programme).
9. Warranties
----------
9.1 The Licensor warrants to the Company in relation to each Selected Programme
that:
(a) the Licensor has obtained and paid for, all such rights in the
Selected Programme and has obtained and paid for all such releases
licences and consents in relation to the material incorporated in it
as are necessary to enable the Company to exercise the rights in the
Selected Programme granted to it under this Agreement;
(b) no material contained in the Selected Programme is or will be
libellous or otherwise defamatory of any person or obscene or
constitute an invasion of any rights of privacy;
(c) the exercise by the Company of the rights hereby granted in the
Selected Programme will not infringe the copyright, moral rights or
any other similar right of any person;
(d) the Licensor is not at the date of this Agreement aware of any legal
proceedings or any threat of legal proceedings or any claim by any
third alleging that the Selected Programme
56.
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DENTON HALL
infringes the rights (whether of copyright or otherwise) of any third
party or that the exercise of the rights hereby granted in the
Selected Programme will infringe the rights (whether of copyright or
otherwise) of any third party;
(e) there are not and will not at any time during the Term be any charges,
liens, security interests or other encumbrances over or affecting the
Selected Programme which would preclude the exercise by the Company of
the rights hereby granted in the Selected Programme;
(f) the content of the Selected Programme will comply with all censorship
regulations and all broadcasting standards, regulations, codes and
guidelines as to programme content which may be applicable to
television services such as the Service in each country within the
Territory and may have drawn up and/or imposed on such television
services by any competent regulatory authority or body in any such
country; and
(g) all music synchronisation licence and recording and performance fees
and royalties, and all residuals, use fees and other monies payable in
connection with the Selected Programme or the rights upon which it is
based or the performances incorporated in it have been or will prior
to the delivery of the Delivery Material be paid and that no fees of
any description whatsoever will be payable by the Company in respect
of the exercise in the Territory of the rights hereby granted in the
Selected Programme other than performing rights in respect of music
contained in the Selected Programme.
9.2 Each party warrants to and undertakes with the other that:
(a) it has full right title and authority to enter into this Agreement
and to perform the obligations undertaken by it hereunder and that it
has not entered into any agreement with any third party which does or
will conflict with the terms hereof; and
57.
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DENTON HALL
(b) it will indemnify the other against all actions proceedings claims
costs and expenses (including without limitation legal fees) and any
other damage suffered by the other as a direct or reasonably
foreseeable result of a breach of any of the warranties, undertakings
or agreements on its part contained or made in this Agreement.
10. Term, Termination and Extension
-------------------------------
10.1 This Agreement shall become effective upon the date hereof and shall remain
in effect throughout the Term.
10.2 In addition to and not in substitution for any other right or remedy either
party shall have the right to terminate this Agreement with immediate
effect by written notice to the other party to that effect given at any
time if:
(a) the other party shall commit a material breach of any term or
provision of this Agreement, or (subject to the provisions of Clause
10.7) any warranty made herein by the other party shall be found not
to be true and accurate in all material respects (a "default"), and
such breach or default if remediable shall not have been remedied by
the other party within twenty-eight (28) days after receipt of written
notice specifying such breach or default and requiring the same to be
remedied; or
(b) the other party shall cease to carry on business or shall be unable to
pay its debts as they fall due for payment or if under the laws of any
jurisdiction a liquidator, administrator, receiver, or similar
official is appointed of the other party or in respect of any of its
assets or undertaking or if any liquidation, insolvency, winding-up,
administration or similar proceedings are instituted against the other
party under the laws of any jurisdiction PROVIDED ALWAYS THAT the
Licensor shall not be entitled to terminate this Agreement under this
sub-clause 10.2(b) if Flextech shall notify the Licensor of its
58.
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DENTON HALL
offer to acquire the Licensor's entire shareholding in the Company
pursuant to Clause 8.5 of the Shareholder's Agreement of even date
herewith; or
(c) the other party is prevented by an event of Force Majeure from
performing its obligations, or if the party giving such notice of
termination is prevented by an event of Force Majeure from exercising
its rights, under this Agreement for a period in excess of one hundred
and eighty (180) consecutive days; or
(d) the Trademark Agreement shall be lawfully terminated by either party
thereto.
10.3 The Company shall in addition to the foregoing have the right to terminate
this Agreement by giving notice in writing to the Licensor if:
(a) the Company has given any notice pursuant to Clause 8.6 and if during
the first complete Year following the date of any such notice ("the
Relevant Year") the Net Revenue per Household received by the Company
is less than One Pound and thirty-seven pence ((pounds) 1.37)
PROVIDED THAT any such notice of termination must be given by the
Company within twenty-four (24) months after the final day of the
Relevant Year; or
(b) in any Year after the Licensor has given a notice of election pursuant
to sub-clause 8.11.1 the Licensor has been unable to licence to the
Company pursuant to this Agreement a sufficient Programme Duration of
Programmes or Third Party Programmes which are European Works in order
to enable the Company to comply with the Directive and with the laws
of each country within the Territory PROVIDED THAT any such notice of
termination must be given by the Company within twelve (12) months
after the final day of that Year; or
(c) the Licensor fails to give a notice of election under sub-clause
8.11.1 within the 30 day period referred to in that
59.
<PAGE>
DENTON HALL
sub-clause PROVIDED THAT any such notice of termination must be
given by the Company within twelve (12) months after the final day
of that 30 day period.
Any such termination shall take effect immediately upon the first
anniversary of the date of receipt by the Licensor of any such notice of
termination (such anniversary being hereinafter referred to as "the
Effective Date").
10.4 In the event that the Company terminates this Agreement in accordance with
the provisions of Clause 10.3 then:
10.4.1 the Company shall be entitled to continue to exercise its rights
under the Trademark Agreement until the Effective Date;
10.4.2 for the remaining year of this Agreement ending upon the Effective
Date, the Programme Duration of the Programmes in the Service will
comprise not less than 51% (in the case of a termination pursuant
to sub-clause 10.3(a)) or the Quota Percentage (in the case of a
termination pursuant to sub-clause 10.3(b) or (c)) of the total
Programme Duration of the Programmes and the Third Party
Programmes included in the Service during such year, and the
Programming Premium and the Basic Licence Fee payable by the
Company during or in respect of such year shall each be reduced
pro rata to the proportion which the Programme Duration of
Programmes included in the Service during the said year bears to
the aggregate Programme Duration of Programmes and Third Party
Programmes included in the Service during the said year;
10.4.3 the Company shall be freely entitled at the Company's expense to
licence Third Party Programmes from third parties and to schedule
and transmit such Third Party Programmes in the Service and shall
assume sole responsibility for such licensing and scheduling
PROVIDED THAT all Third Party Programmes so transmitted in the
Service shall fall within the Programme Specification and the
Company shall comply with the provisions of sub-clause 10.4.2;
60.
<PAGE>
DENTON HALL
10.4.4 the Company shall be freely entitled to replace the Scheduler and
to engage at its expense a replacement Scheduler of its choice and
Clauses 8.1 and 8.5 shall not apply to the appointment of any such
replacement Scheduler;
10.4.5 for a period of eighteen (18) months commencing upon the Effective
Date the Licensor:
(a) shall not use or authorise or permit any third party to use
any of the Trade Marks within the Territory; and
(b) shall not authorise or permit any third party to broadcast,
transmit or exhibit (whether pursuant to the Standard
Television Rights or the Non-Standard Television Rights)
within the Territory and Programme, any excerpt from any
Programme or any promotional or advertising material
publicising its transmission of any Programme (i) in any form
which allows or causes the word "Playboy", any of the Trade
Marks or any other logo, mark or symbol which is associated
with the "Playboy" name or brand to be seen at any time during
any broadcast, transmission or exhibition of that Programme by
any person viewing such broadcast, transmission or exhibition
or (ii) which in any way suggests or implies that the
Programme has been produced by, or licensed to that third
party by, the Licensor or any Affiliate of the Licensor.
10.5 In the event that this Agreement is terminated by the Company pursuant to
sub-clause 10.3(a) and in the event that prior to the Effective Date the
Licensor has received or has become entitled to receive licence fees
(other than amounts paid by the Licensor to third party licensors for the
right to transmit Third Party Programmes in the Service and reimbursed to
the Licensor by the Company hereunder) pursuant to any provision of Clause
7, Clause 8 or this Clause 10 (including but not limited to Clauses 7.1 to
7.4 inclusive, Clause 7.7
61.
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DENTON HALL
and Clause 8.8) amounting in the aggregate to less than US$7.5 million ("the
Minimum Amount"), then, for so long as the programming included in the Service
after the Effective Date is of the same genre as the Programmes and Third Party
Programmes delivered to the Company hereunder prior to the Effective Date, the
Company shall following the Effective Date licence from the Licensor on a sole
and exclusive basis within the Territory and the Licensor shall deliver to the
Company for first transmission in the Service such number of Programme Hours of
Playboy Programmes selected by the Company as may be determined in accordance
with the provisions of Schedule 6, upon and subject to the following terms and
conditions:
10.5.1 the Licensor may by notice in writing given to the Company within thirty
(30) days after the date of any notice of termination given by the
Company pursuant to Clause 10.3 decline to licence further Playboy
Programmes to the Company in the event that this Clause should apply
following the Effective Date and, if so, the Company will have no
obligation or liability to the Licensor pursuant to this Clause;
10.5.2 if the Licensor does not give a notice to the Company pursuant to Clause
10.5.1:
(a) the licence fees payable by the Company following the Effective Date
shall be at the rate of US$13,158 per Programme Hour or (in the case
of a Playboy Programme which the Company elects to transmit during a
further Transmission Period pursuant to Clause 2.2) determined in
accordance with Clause 7.7;
(b) the maximum period during which the provisions of this Clause 10.5
shall continue in force following the Effective Date shall be
determined in accordance with the provisions of Schedule 6 but the
provisions of this Clause shall in any event lapse once the Licensor
has received pursuant to Clause 7, Clause 8 and this Clause licence
fees amounting in the aggregate to the Minimum Amount;
62.
<PAGE>
DENTON HALL
(c) subject to the provisions of sub-clauses (a) and (b) of this
Clause and notwithstanding the termination of this Agreement,
all Playboy Programmes licensed to the Company pursuant to
this Clause shall be licensed upon and subject to the same
terms and conditions (mutatis mutandis) as those which
applied to the Programmes licensed under Clause 2 prior to
the Effective Date including under Clause 2 prior to the
Effective Date including but not limited to those terms and
conditions set out in Clause 3.3, 4.1, 4.4, 4.5 and 6.5; and
(d) the Company shall be entitled to transmit the Trade Marks
only in the form and the places in which they appear in
Playboy Programmes licensed to it pursuant to this Clause.
10.6 Following the date on which any termination of this Agreement takes
effect ("the Termination Date"):
10.6.1 subject only to Clause 10.5, the Company shall have no obligation
to licence or accept delivery of further Programmes or Third Party
Programmes from the Licensor, and the Licensor shall have no
obligation to deliver to the Company further Programmes or Third
Party Programmes, for first transmission in the Service;
10.6.2 the licence granted to the Company pursuant to Clause 2 in
relation to each Programme or Third Party Programme whose
Transmission Period has not ended prior to the Termination Date
shall (subject to sub-clauses 10.6.3 and 10.6.4) remain in force
for a period of twenty-four (24) months after the Termination Date
(in the case of a Playboy Programme) and for the full duration of
the Playboy Licence Period (in the case of an Acquired Programme
or Third Party Programme); and
10.6.3 notwithstanding the provisions of sub-clause 10.6.2, if this
Agreement was terminated by the Licensor pursuant to sub-clause
63.
<PAGE>
DENTON HALL
10.2(a), the Licensor may by giving notice in writing to the Company
within 30 days after the Termination Date terminate the licence granted
to the Company pursuant to Clause 2 in relation to each Programme, and
each Third Party Programme acquired on behalf of the Company by the
Licensor, with immediate effect whereupon the Licensor shall within seven
(7) days after the date of such notice pay to the Company an amount equal
to the aggregate of all Excess Payments. For the purposes of this sub-
clause, an "Excess Payment" shall mean in respect of each Programme, or
each Third Party Programme acquired on behalf of the Company by the
Licensor, whose Transmission Period has not ended prior to the
Termination Date an amount equal to:
(A x B) x C where:
-
D
A = US$13,158 or (in the case of a Third Party Programme) the actual
amount paid to the third party licensor of that Third Party Programme
in consideration for the right to transmit the same in the Service
within the Territory
B = the number of Programme Hour(s) of that Programme or Third Party
Programme
C = 24 (twenty-four) less the number of transmissions made by the Company
in the Service of that Programme or Third Party Programme prior to
the Termination Date
D = 24 (twenty-four).
10.6.4 notwithstanding the provisions of sub-clause 10.6.2, the Licensor may by
giving notice in writing to the Company within six (6) months after the
Termination Date terminate the licence granted to the Company pursuant to
Clause 2 in relation to each Playboy Programme with effect from the
expiry of the period of eighteen (18) months commencing upon the
Termination Date ("the Licence Termination Date") whereupon the Licensor
shall within
64.
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DENTON HALL
seven (7) days after the date of such notice pay to the Company an
amount equal to the aggregate of all Excess Payments. For the
purposes of this sub-clause, an "Excess Payment" shall mean in
respect of each Playboy Programme whose Transmission Period has not
ended prior to the Licence Termination Date an amount equal to:
(A x B) x C where:
-
D
A = US$13,158
B = the number of Programme Hour(s) of that Playboy Programme
C = 24 (twenty-four) less the number of transmissions made by the
Company in the Service of that Playboy Programme prior to the
Licence Termination Date
D = 24 (twenty-four).
10.7 In the event that:
(a) any warranty made herein by the Licensor in relation to any Selected
Programme is found not to be true and accurate in all material
aspects (a "default"); and
(b) within twenty-eight (28) days after receipt of written notice from
the Company specifying such default the Licensor has delivered to
the Company for first transmission in the Service a replacement
Playboy Programme or (if the Selected Programme in question was not
a Playboy Programme) an Acquired Programme or Third Party Programme
of comparable quality, duration and commercial appeal,
then without prejudice to any of its other rights and remedies in respect
of such default the Company shall not be entitled to terminate this
Agreement pursuant to sub-clause 10.2(a) as a result of such default.
65.
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DENTON HALL
11. Assignment
----------
Neither party may assign the whole or any part of this Agreement to any
third party without the prior written consent of the other party PROVIDED
THAT either party may assign the benefit of this Agreement to any
Associate (as defined in the Shareholders' Agreement of even date
herewith) without the consent of the other party but shall remain liable
for the performance of its obligations under this Agreement.
12. Notices
-------
12.1 Any notice or other communication given or made under this Agreement shall
be in writing and, without prejudice to the validity of any other method
of service, may be delivered personally or by courier or sent by facsimile
transmission and by prepaid airmail letter, addressed as follows:
(a) if to the Licensor to:
The President of the Licensor
9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
Facsimile transmission number: (0101 310) 246 4065
with a copy to the Senior Vice President, Legal and Business
Affairs at the same facsimile transmission number
(b) if to the Company, to:
Twyman House
16 Bonny Street
London NW1 9PG
Facsimile transmission number: (0171) 911 0145
with a copy to:
66.
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DENTON HALL
The Chief Executive
Flextech plc
13 Albemarle Street
London W1X 3HA
Facsimile transmission number: (0171) 499 7553
or to such other address, or facsimile transmission number as the relevant
addressee may hereafter by notice hereunder substitute.
12.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission on the
first business day in the country of the intended recipient after the date
of transmission.
13. Waiver and Set-Off
------------------
13.1 No express or implied waiver by either party of any provision of this
Agreement or of any breach or default of either party shall constitute a
continuing waiver or a waiver of any other provision or (subject to the
other provisions of this Agreement) prevent either party from acting on
the same or any subsequent breach or default.
13.2 In the event that the Company becomes entitled to terminate this Agreement
pursuant to sub-clause 10.2(a) and (subject to Clause 10.7) within thirty
(30) days after becoming aware of such entitlement the Company does so
terminate, then, without prejudice to any other right or remedy of the
Company and notwithstanding any other provision of this Agreement, the
Company shall be entitled without prejudice to any right or remedy of the
Licensor to withhold payment of any or all amounts which may be or may
thereafter become due to the Licensor pursuant to Clause 7 or Clause 8
and, if the Company decides to exercise such right, it shall promptly
notify the Licensor of such decision.
67.
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DENTON HALL
14. Further Assurance
-----------------
The Licensor shall at the request and cost of the Company execute and
deliver all such further documents as the Company shall reasonably request
to confirm and evidence the grant of such Television Rights as are granted
to the Company pursuant to Clause 2.
15. No Partnership
--------------
This Agreement is made between principals and does not constitute a
partnership between the parties and neither of them shall hold itself out
as the agent or partner of the other.
16. Entire Agreement
----------------
This Agreement together with the Trademark Agreement and the
Shareholders' Agreement contains the entire understanding of the parties
with regard to the licensing of Programmes to the Company and may be
changed or modified only in writing signed on behalf of both parties.
17. Force Majeure
-------------
Neither party shall be liable for any failure to perform its obligations
under this Agreement to the extent that such failure is caused by an
event of Force Majeure.
18. Severability, Registration and Notification
-------------------------------------------
18.1 Should any provision of this Agreement be held by any competent court or
authority to be invalid or unenforceable such provision shall (without
prejudice to the remaining provisions) have no effect but the parties
shall use all reasonable endeavours to replace the invalid or
unenforceable provision by a valid provision, the effect of which shall be
the closest possible to the intended effect of the invalid or
unenforceable provision.
68.
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DENTON HALL
18.2 Notwithstanding any other provision of this Agreement or any arrangement
of which this Agreement forms part, any provision which may cause this
Agreement and/or such arrangement to be registrable under the Restrictive
Trade Practices Act 1976 shall be of no effect until the day after such
day as particulars of this Agreement and/or such arrangement shall have
been furnished to the Director General of Fair Trading.
18.3 If either of the parties is advised by its lawyers that this Agreement
should be notified to the European Commission under Council Regulation
17/62, the other party shall on request co-operate in procuring such
notification as soon as practicable.
19. Headings
--------
The headings to the Clauses and sub-clauses in this Agreement are intended
to make reference easier but not to affect its construction.
20. Governing Law
-------------
20.1 This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the
exclusive jurisdiction of the English Courts as regards any claim or
matter arising in relation to this Agreement.
20.2 The Licensor hereby appoints O'Melveny & Myers of 10 Finsbury Square,
London EC2A 1LA England as its authorised agent for the purpose of
accepting service of process for all purposes in connection with this
Agreement.
AS WITNESS the hands of the duly authorised representatives of the parties the
day and year first above written
69.
<PAGE>
DENTON HALL
SCHEDULE 1
----------
The Programme Specification
---------------------------
The Service is a television program service for adults featuring programming
that is sexually oriented but of a non-pornographic nature.
Programming included in the Service will depict nudity and will allow strong or
explicit language. Playboy will not deliver and the Company will not transmit
programming containing scenes which depict violent behaviour, particularly the
glorification of violence or gratuitous violence. Generally speaking, Playboy
will not deliver and the Company will not transmit programming containing
depictions of rape, non-consensual intercourse or other non-consensual sexual
activity. Generally speaking, Playboy will not deliver and the Company will not
transmit programming containing scenes of bondage, incest, sadism or masochism,
bestiality, extreme sexual explicitness or the graphic close-up of genitals.
Child pornography is never to be shown on the Service, and, even if an actor is
over 18 years of age, if that actor is portrayed as under 18, such showing is
prohibited.
Within the above guidelines, the Programmes and Third Party Programmes delivered
to the Company by Playboy hereunder shall consist of motion pictures (including
those made initially for television exhibition, for home video or for theatrical
release), miscellaneous specials (both in the half-hour and hour length),
dramatic series, game shows, magazine shows (as that term is generally used in
American television), comedy shows, Playmate specials featuring specific
Playmates, music specials, sexual advice specials, Playboy Video Centrefold
specials and Playmate of the Year specials. The vignettes delivered by Playboy
hereunder shall also comply with the above guidelines.
No Programme or Third Party Programme delivered by the Licensor under this
Agreement will have a running time of less than 22 minutes.
70.
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DENTON HALL
SCHEDULE 2
----------
Delivery Material
-----------------
1. (a) The Licensor will supply a Beta SP master videotape for each Selected
Programme, each so-called "vignette" and all promotional and interstitial
material, together with a schedule of the running order in which these
elements are to be broadcast. The Company will at its cost assemble the
nightly programming block from these materials.
(b) Each master videotape supplied by the Licensor shall be of broadcast
quality and in either the NTSC or PAL standard. Where such a videotape is
delivered in the NTSC standard, the Company shall create the necessary
PAL transfer but the Licensor shall reimburse to the Company within 30
days after receipt of an invoice in respect thereof the actual out-of-
pocket cost incurred by the Company in doing so.
(c) If the Licensor supplies NTSC-standard materials and the Company converts
them to PAL, the Licensor shall remain the owner of such PAL-standard
materials, which shall be on loan to the Company for the Term or (if
later) until the end of the Transmission Period in respect of the
relevant Programme or Third Party Programme and shall thereafter be
returned to the Licensor.
(d) Each master videotape supplied by the Licensor shall comply with the
following specification:-
Vision
------
Line up - One minute of Colour Bars 100% luminance, 75% Chroma.
EBU(75/0/100/0)
Ten seconds of Black before Start of each Selected Programme
No pedestal on black
Each Selected Programme should start at Time Code 10:00:00:00
71.
<PAGE>
DENTON HALL
Audio
-----
Time Code should be continuous throughout the line up and programme and
for at least 30 seconds after end of programme Line up with Colour Bars -
Zero Level Tone on linear tracks ('4' PPM)
Maximum peak programme level +8dB above line up.
2. A music cue sheet in customary form and all billings information and credit
requirements.
3. All advertising and promotional material (whether audio, audio-visual or
visual material) which is available for use by the Company including but not
limited to a plot or episodic synopsis, black and white stills, colour
transparencies, a colour trailer and interstitial, "filler" and "behind the
scenes" material.
72.
<PAGE>
DENTON HALL
SCHEDULE 3
----------
Basic Licence Fees
------------------
1. In this Schedule the following expressions shall have the following meanings:
(a) "the Apportionment" means an amount calculated by:
(i) subtracting from 365 the total number of days during the First Year
(including the Launch Date);
(ii) multiplying the figure resulting from that subtraction by
US$1,000,000 (one million United States dollars);
and (iii) dividing the product of that multiplication by 365.
(b) "the Increment": means in respect of the second, third, fourth, fifth and
sixth Years an amount calculated as follows:
A x US$100,000
---
365
where A is the total number of days during the First Year (including the
Launch Date);
(c) "the Initial Amount": means in respect of each Year the amount set out
below opposite that Year:
Year Amount (US$)
---- ------------
First Year US$1,000,000 less the Apportionment
Second Year US$1,000,000)
Third Year US$1,100,000) plus in each case
Fourth Year US$1,200,000) the Increment
Fifth Year US$1,300,000) for that Year
Sixth Year US$1,400,000)
Seventh Year US$1,500,000
and each
subsequent Year
73.
<PAGE>
DENTON HALL
2. In respect of each Year the Basic Licence Fee shall be the Initial Amount
in respect of that Year subject always to:
(a) reduction in accordance with Clause 8.6, sub-clause 8.8(d) or Clause
8.11 or following any notice of termination of this Agreement given
by the Company pursuant to Clause 10.3; and
(b) increase in accordance with sub-clause 7.7(b), sub-clause 8.8(b) or
sub-clause 8.8(c).
74.
<PAGE>
DENTON HALL
SCHEDULE 4
----------
Net Revenue per Household
-------------------------
1. In this Schedule a "Household" means in respect of any Year:
(a) during which (or any part of which) the Service is being transmitted by
means of a medium-powered satellite (such as, by way of example, an Astra
satellite), any person in the United Kingdom who on 1 January or 31
December (as the case may be) in that Year is equipped with a satellite
dish and any other receiving or decoding equipment (other than viewing
cards and other decryption equipment and devices which are only available
to paying subscribers) and/or (if the Service is transmitted by means of
a compressed signal) decompression equipment which is necessary in order
to receive and view a television channel transmitted in an unencrypted
form by means of the same satellite as that by which on 1 January or 31
December (as the case may be) in that Year the Service is being
transmitted or by means of any other satellite which is compatible with
that satellite; and/or
(b) any person in the United Kingdom whose home has by 1 January or 31
December (as the case may be) in that Year been connected to a Relevant
System and for this purpose a "Relevant System" means any cable
television system in the United Kingdom by means of which the Service is
as at 1 January or 31 December in that Year (as the case may be) being
re-transmitted by any means for reception by subscribers to that cable
television system.
2. The "Net Revenue per Household" in respect of any Year shall be calculated by
dividing the Net Revenues of the Company in respect of that Year by the
average number of Households in respect of that Year. The average number of
Households shall be calculated by aggregating the total numbers of Households
on 1 January and on 31 December in that Year and by dividing the resulting
figure by two.
75.
<PAGE>
DENTON HALL
3. The number of Households which on 1 January and 31 December in each Year fall
within paragraph 1(a) of this Schedule shall be determined by reference to
the relevant figure published or provided by Broadcasters' Audience Research
Board Limited (or any replacement or successor body) as at 1 January or 31
December in that Year (as the case may be) or as at the date which is closest
to 1 January or 31 December in that Year and for which such a figure is
available by 31 March in the immediately following Year.
4. The number of Households which on 1 January and 31 December in each Year fall
within paragraph 1(b) of this Schedule shall be determined by reference to
the relevant figure(s) published or provided by the Cable Communications
Association (or any replacement or successor body or by the operators of
Relevant Systems) as at 1 January or 31 December in that Year (as the case
may be) or as at the date which is closest to 1 January or 31 December in
that Year and for which such figure(s) is or are available by 31 March in the
immediately following Year.
76.
<PAGE>
DENTON HALL
SCHEDULE 5
----------
List of existing Programmes
---------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series 350 29 30 14.5 1990-1994
America Uncovered 4 30 2 1983-1987
Archival Reel 58 60 58 1970's
The Club 8 30 3 1991
Comedy After Hours 6 30 3 1987
Consenting Adults 3 30 1.5 1984
Do it Now 3 30 1.5 1983
Dueling for Playmates 12 30 6 1983-1984
Eden 26 30 13 1992-1993
Erotic Images 5 60 5 1984-1985
Everything Goes 23 30-60 12 1982-1984
Fantasies 20 30 10 1986-1988
For a Good Time, Call... 4 30 2 1992
Friday Files 6 30-60 3.5 1983
Girls of the Comedy Store 3 80 3 1983-1985
Great American Stripoff 18 80 18 1983-1985
Hot List 3 30 1.5 1987-1988
Hot Rocks 28 30-50 15 1990-1994
Inside Out 26 30 13 1990-1991
Inside Playboy 7 30 3.5 1984
It Happened One Night 5 30-60 3 1994
Late Night I 28 60 26 1989-1990
Late Night II 28 30 13 1991
Late Night III 28 30 13 1992
Late Night IV 26 30 13 1995
Loving 5 30 2.5 1982
Pillow Previews 10 30 5 1984-1985
Playboy After Dark 52 60 52 1968-1970
Playboy Video Magazine 48 60 48 1982-1988
Playboy's Erotic Fantasies 28 30 13 1994
Playboy's Love & Sex Test 28 30 13 1992
Playmate Guide to Physical
Fitness 6 30 3 1982-1983
Prime Cuts 4 30 2 1985
Private Moments 8 30 3 1983-1984
Private Party Jokes 7 30 3.5 1987-1988
Ribald Classics 5 30-60 4.5 1983-1992
Secret Confessions & Fantasies 28 30 1.3 1992-1993
Sexcetera 64 80 64 1983-1988
Shake it, Sexy 6 30 3 1983
Who's on Top 24 30 12 1993
World of Playboy 34 30 17 1991-1995
Women on Sex 46 30 24 1983-1988
- -------------------------------------------------------------------------------------------------
Sub Total Series 539.5
- -------------------------------------------------------------------------
</TABLE>
* As is television industry practice, a "60-minute" program is typically 44-45
minutes long (to account for commercial breaks), and a "30-minute" program is
typically 22 minutes long. Similarly, throughout this document, a 60-minute
episode length will refer to 45 minutes of actual programming, and a 30-minute
episode length will refer to 22 minutes of actual programming. With respect to
movies, running times are actual.
77.
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Specials 101 Ways to Excite Your Lover 1 60 1 1991
20th Century Beauty 1 60 1 1991
Anna Goes Australian 1 30 0.5 1987
Around the World with Donna Wanna 1 30 0.5 1993
Arousal, Foreplay, and Orgasm with Dr. Ruth Westheimer 1 60 1 1994
Art of Sensual Massage 1 60 1 1986
Bedtime Stories 1 60 1 1987
Best of Playboy 2 60 2 1988
Best of Sexy Lingerie 1 60 1 1992
Best of Video Calendar 1 60 1 1992
Best of Wet & Wild 1 60 1 1992
Best of the Playboy Channel 1 90 1.5 1988
Big Ed Show 1 60 1 1990
Blonde, Brunette, and Redhead 1 30 0.5 1989
Blonde Bombshells 1 30 0.5 1989
Body Flash 1 30 0.5 1985
Bunny Memories 1 60 1 1986
Bunny of the Year 1974 1 60 1 1974
Bunny of the Year 1976 1 90 4.5 1976
Cheech and Chong Interview 1 60 1 1984
College Girls 1 60 1 1993
Comedy on Campus 1 90 1.5 1988
Comedy Roast: Don Adams 1 60 1 1985
Comedy Roast: Tommy Chong 1 60 1 1986
Comedy Theatre: The Great Lounge Commedians 1 60 1 1985
Comedy Theatre: Henny Youngman 1 60 1 1985
Comedy Theatre: Mort Sahl 1 60 1 1985
Comedy Theatre: Phyllis Diller 1 60 1 1985
Comedy Theatre: Shecky Green 1 60 1 1985
Celebrity Video Centerfold: Patti Davis 1 60 1 1995
Celebrity Video Centerfold: Jessica Hahn 1 60 1 1993
Celebrity Video Centerfold: LaToya Jackson 1 60 1 1994
Celebrity Video Centerfold: Dian Parkinson 1 60 1 1994
Dear Homes 1 30 0.5 1983
Dorothy Strattan: The Untold Story 1 60 1 1985
Eden 1 1 120 2 1992
Eden 2 1 120 2 1992
Eden 3 1 120 2 1992
Eden 4 1 120 2 1993
Eden 5 1 120 2 1993
Eden 6 1 120 2 1993
Erotic Escapades 1 30 0.5 1994
Erotic Fantasies I 1 60 1 1992
Erotic Fantasies II 1 60 1 1993
Erotic Fantasies III 1 60 1 1993
Erotic Weekend Getaways 1 60 1 1992
Fabulous Forties 1 60 1 1994
Fantasies I 1 90 1.5 1987
Fantasies II 1 60 1 1990
Farmer's Daughters 1 60 1 1987
Girls of the Cabaret Royale 1 60 1 1991
Girls of Europe I 1 30 0.5 1987
Girls of Europe II 1 30 0.5 1987
Girls of Hawaiian Tropic 1 60 1 1994
Girls of Hooters 1 60 1 1994
Girls of Jamaica 1 30 0.5 1992
- -----------------------------------------------------------------------------------------------------------------------------------
* see note
</TABLE>
78
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials, Girls of Rock 'n Roll 1 60 1 1985
continued Girls of Spring Break 1 60 1 1991
Girls of the Big West 1 30 0.5 1990
Girls of the Moulin Rouge 1 30 0.5 1985
Great American Stripoff 1994 1 60 1 1994
History of Striptease 1 60 1 1994
Hollywood Hookers 1 60 1 1983
Hot, Sexy & Safer with Suzi Landelphi 1 60 1 1993
Hot Rock in Reno 1 120 2 1983
How to Reawaken Your Sexual Powers 1 60 1 1992
Hugh M. Hefner: Birthday Footage 1 330 5.5 1979-1986
Hugh M. Hefner: Miscellaneous Footage 1 90 1.5 1974-1995
Hugh M. Hefner: Once Upon a Time 1 90 1.5 1992
Inside Out I 1 90 1.5 1992
Inside Out II 1 90 1.5 1993
Inside Out III 1 90 1.5 1993
Inside Out IV 1 90 1.5 1994
International Playmates 1 60 1 1993
Intimate Workout for Lovers 1 60 1 1991
International Beauty Pageant Promo Reel 1 30 0.5 1992
Japanese Erotica 1 30 0.5 1989
Jerry Lee Lewis in Concert 1 60 1 1985
Les Filles Fatales 1 30 0.5 1983
Lisa Lyons Lifestyles 1 30 0.5 1990
Love, Sex, and Religion 1 30 0.5 1984
Love, Sex, & Intimacy for New Relationships 1 60 1 1993
Madcap Marathon 1 60 1 1980
Making of... Girls of Cabaret Royale 1 60 1 1991
Making of... Girls of Spring Break 1 30 0.5 1991
Making of... Playmate Challenge Cup 1 30 0.5 1984
Making of... Sexy Lingerie III 1 60 1 1992
Maui Playmate Challenge 1 60 1 1994
Miss Playboy International Beauty Pageant 1987 1 60 1 1987
Nancy Friday's Interviews 1 30 0.5 1982
Nancy Friday's Private Lives 1 120 2 1983
New Year's Eve at the Mansion 1982 1 30 0.5 1982
New Year's Eve at the Mansion 1983 1 30 0.5 1983
New Year's Eve at the Mansion 1984 1 30 0.5 1984
New Year's Eve at the Mansion 1985 1 30 0.5 1985
New Year's Eve at the Mansion 1986 1 30 0.5 1986
Pat Mc Cormick Unleashed I 1 60 1 1980
Pat Mc Cormick Unleashed II 1 60 1 1980
Playboy Club's 24th Anniversary Show 1 60 1 1984
Playboy Follies I 1 60 1 1983
Playboy Follies II 1 60 1 1985
Playboy Jazz Festival 1982 1 180 3 1982
Playboy Video Centerfold: Sherry Arnett 1 60 1 1985
Playboy Video Centerfold: Teri Weigel 1 60 1 1985
Playboy Video Centerfold: Rebekka Armstrong 1 60 1 1986
Playboy Video Centerfold: Luann Lee 1 60 1 1986
Playboy Video Centerfold: Lynne Austen 1 60 1 1987
Playboy Video Centerfold: Fawna MacLaren/35th Anniv. 1 60 1 1988
Playboy Video Centerfold: Dutch Twins 1 60 1 1989
Playboy Video Centerfold: Peggy McIntaggart 1 60 1 1989
Playboy Video Centerfold: Karen Foster/Deborah Driggs 1 60 1 1990
Playboy Video Centerfold: Kerry Kendall 1 60 1 1990
Playboy Video Centerfold: Tawni Cable 1 60 1 1990
Playboy Video Centerfold: Julie Clark 1 60 1 1990
Playboy Video Centerfold: Morgan Fox 1 60 1 1991
- ---------------------------------------------------------------------------------------------------------------------
* see note
</TABLE>
79.
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials Playboy Video Centerfold: Pamala Anderson 1 60 1 1991
continued Playboy Video Centerfold: Tiffany Sloan 1 60 1 1992
Playboy Video Centerfold: Anna Marie Golldard/
40th Anniv. 1 60 1 1994
Playboy's 20th Anniversary Show 1 60 1 1974
Playboy's 25th Anniversary Show 1 60 1 1979
Playboy's 35th Anniversary Special 1 30 0.5 1989
Playboy's 35th Anniv.: World of Hugh M. Hefner 1 90 1.5 1988
Playboy's 35th Anniv.: Hugh M. Hefner's Birthday 1 90 1.5 1988
Playboy's 35th Anniv.: Midsummer Night's Dream
Parties 1 60 1 1985-1993
Playboy's 40th Anniversary Playmate Search 1 60 1 1993
Playboy's Guide to Amsterdam 1 60 1 1983
Playboy's Guide to the Land of G'Day 1 60 1 1989
Playboy's Hidden Camera 1 60 1 1994
Playboy Photographers 1 30 0.5 1989
Playmate Bloopers 1 30 0.5 1992
Playmate Party 1 60 1 1977
Playmate Playoffs 1 60 1 1986
Playmate Challenge Cup 1 60 1 1984
Playmate Guide to Physical Fitness 1 60 1 1983
Playmate Music Videos I 1 30 0.5 1989
Playmate Music Videos II 1 30 0.5 1992
Playmate of the Year 1984: Barbara Edwards 1 60 1 1984
Playmate of the Year 1987: Donna Edmondson 1 60 1 1987
Playmate of the Year 1988: India Allen 1 60 1 1988
Playmate of the Year 1989: Kimberley Conrad 1 60 1 1989
Playmate of the Year 1990: Renee Tenison 1 60 1 1990
Playmate of the Year 1991: Lisa Matthews 1 60 1 1991
Playmate of the Year 1992: Corrina Hamey 1 60 1 1992
Playmate of the Year 1993: Anna Nicole Smith 1 60 1 1993
Playmate of the Year 1994: Jenny McCarthy 1 60 1 1994
Playmate of the Year 1990 Special 1 90 1.5 1990
Playmate Profiles: You Ought to Be In Pictures 1 30 0.5 1988
Playmate Rafting Adventure 1 30 0.5 1984
Playmate Review Hotline I 1 60 1 1992
Playmate Review Hotline II 1 60 1 1993
Playmate Review Hotline III 1 60 1 1994
Playmate Review 1 60 1 1983
Playmate Review II 1 60 1 1984
Playmate Review III 1 60 1 1985
Playmate Review 1992 1 60 1 1992
Playmate Review 1993 1 60 1 1993
Playmate Six Pack 1 60 1 1992
Playmate Sneak Preview 1 30 0.5 1990
Playmate Spectacular I 1 30 0.5 1989
Playmate Spectacular II 1 30 0.5 1990
Playmate Sports Spectacular 1 60 1 1992
Playmate Video Calendar 1988 1 60 1 1987
Playmate Video Calendar 1989 1 60 1 1988
Playmate Video Calendar 1990 1 60 1 1989
Playmate Video Calendar 1991 1 60 1 1990
Playmate Video Calendar 1992 1 60 1 1991
Playmate Video Calendar 1993 1 60 1 1992
Playmate Video Calendar 1994 1 60 1 1993
Playmate Video Calendar 1995 1 60 1 1994
Playmate Video Calendar Preview Show 1 30 1 1988
Playmate Video Calendar Preview Show 1 30 1 1989
Playmate Video Calendar Preview Show 1 30 1 1990
Playmate Video Calendar Preview Show 1 30 1 1991
Playmate Video Calendar Preview Show 1 30 1 1992
Playmate Video Calendar Preview Show 1 30 1 1993
- ---------------------------------------------------------------------------------------------------------------------
* see note
</TABLE>
80.
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Specials Playmate Video Calendar Preview Show 1 30 1 1994
continued Playmates at Play 1 60 1 1989
Playmates Home Video Party 1 30 0.5 1990
Playmates in the Movies 1 30 0.5 1989
Playmates in Paradise 1 60 1 1992
Playmates of the Year: the '80's 1 60 1 1989
Playmates: the Early Years 1 60 1 1991
Playmates: Where are they Now I 1 30 0.5 1988
Playmates: Where are they Now II 1 30 0.5 1988
Private Diaries 1 60 1 1994
Private Pleasures 1 30 0.5 1993
Roller Disco and Pajama Party 1 60 1 1981
Romantic Visions I 1 30 0.5 1985
Romantic Visions I 1 30 0.5 1985
Secret Confessions I 1 60 1 1993
Secret Confessions II 1 60 1 1994
Secret Confessions III 1 60 1 1994
Secret Moment 1 30 0.5 1984
Secrets of EuroMassage 1 60 1 1989
Secrets of Making Love to the Same Person Forever I 1 60 1 1990
Secrets of Making Love to the Same Person Forever II 1 60 1 1992
Sensual Fantasy for Lovers 1 60 1 1993
Sensual Pleasures of Oriental Massage 1 60 1 1991
Sex Under Hot Lights 1 60 1 1994
Sex & Sensuality Test 1 60 1 1982
Sexy Lingerie I 1 60 1 1983
Sexy Lingerie II 1 60 1 1990
Sexy Lingerie III 1 60 1 1991
Sexy Lingerie IV 1 60 1 1991
Sexy Lingerie V 1 60 1 1992
Sexy Lingerie VI: Night Dreams 1 60 1 1993
Sexy Lingerie VII: Dreams & Desires 1 60 1 1994
Spring Break Madness 1 30 0.5 1989
Spring Fling 1 60 1 1983
Sunday's Child I 1 30 0.5 1983
Sunday's Child II 1 30 0.5 1983
Sunday's Child III 1 30 0.5 1983
Sunday's Child IV 1 30 0.5 1983
Sunday's Child V 1 30 0.5 1983
Sunday's Child VI 1 30 0.5 1983
Sunshine Girls 1 30 0.5 1988
Taking it Off 1 30 0.5 1989
Taste of Playboy 1 90 1.5 1983
Twenty-Nine Minutes 1 60 1 1990
Ultimate Sensual Massage 1 60 1 1991
Valentine Day's Footage 1990 1 60 1 1990
Valentine Day's Footage 1991 1 90 1.5 1991
The Wedding (Hugh M. Hefner/Kimberley Conrad) 1 60 1 1989
Wet & Wild I 1 60 1 1989
Wet & Wild II 1 60 1 1990
Wet & Wild III 1 60 1 1991
Wet & Wild IV 1 60 1 1992
Wet & Wild V 1 60 1 1993
Wet & Wild VI: The Locker Room 1 60 1 1994
Wet & Wild VII: On Vacation 1 60 1 1995
Windy City Comedy Blowout 1 60 1 1987
Women of Color 1 60 1 1993
Women of Radio 1 60 1 1995
- ---------------------------------------------------------------------------------------------------------------------
Sub Total Specials 233
- --------------------------------------------------------------------------------------------------
* see note
</TABLE>
81.
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Movies Affairs of the Heart 1 90 1.5 1994
After Dark I (Title TBD) 1 90 1.5 1995
After Dark II (Title TBD) 1 90 1.5 1995
After Dark III (Title TBD) 1 90 1.5 1995
After Dark IV (Title TBD) 1 90 1.5 1995
After Dark V (Title TBD) 1 90 1.5 1995
After Dark VI (Title TBD) 1 90 1.5 1995
After Dark VII (Title TBD) 1 90 1.5 1995
After Dark VIII (Title TBD) 1 90 1.5 1995
After Dark IX (Title TBD) 1 90 1.5 1995
After Dark X (Title TBD) 1 90 1.5 1995
American Blonde 1 90 1.5 1994
Animal Instinct 1 60 1 1993
Accused 1 90 1.5 1995
Birds in Paradise I 1 90 1.5 1986
Birds in Paradise II 1 90 1.5 1985
Blind Spot 1 60 1 1993
Blonde Justice III 1 90 1.5 1993
Bonnie III 1 60 1 1994
Bonnie IV 1 90 1.5 1994
Candy the Stripper 1 90 1.5 1987
Carnival in Rio 1 60 1 1987
Cheating 1 90 1.5 1995
Companion 1 90 1.5 1995
Coven I 1 90 1.5 1994
Coven II 1 90 1.5 1994
Dominoes 1 60 1 1993
Dr. Yes: The Hyannis Affair 1 120 2 1985
Erotic Showcase I 1 90 1.5 1993
Erotic Showcase II 1 90 1.5 1993
Erotic Showcase III 1 90 1.5 1993
Forever Young 1 90 1.5 1994
Hardcore 1 90 1.5 1995
Icewoman I 1 90 1.5 1993
Icewoman II 1 90 1.5 1994
I Like to Play Games 1 90 1.5 1994
Immortal Desire 1 60 1 1993
Intimate Journey 1 60 1 1995
Letting Go 1 90 1.5 1995
Love & Desire 1 60 1 1991
Lover's Leap 1 90 1.5 1994
Lusty Liaisons I 1 90 1.5 1983-1992
Lusty Liaisons II 1 90 1.5 1983-1992
Man & Women 1 90 1.5 1994
Mask 1 60 1 1993
Masseuse II 1 90 1.5 1994
Matter of Cunning 1 90 1.5 1986
Naked Reunion 1 60 1 1994
New Lovers 1 60 1 1993
Night Train 1 90 1.5 1994
On the Edge 1 90 1.5 1994
Oral Obsession 1 90 1.5 1994
Parlor Games 1 60 1 1993
Passionate Interludes I 1 90 1.5 1986-1988
Passionate Interludes II 1 90 1.5 1986-1988
Playtime 1 90 1.5 1994
Prostitutes of Paris 1 60 1 1983
Romancing of Sarah 1 90 1.5 1995
Sexual Healing 1 90 1.5 1994
Scoring 1 90 1.5 1995
- ---------------------------------------------------------------------------------------------------------------------
* see note
</TABLE>
82.
<PAGE>
DENTON HALL
PLAYBOY TV UK/BENELUX
PROGRAM LIBRARY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Program Number of Length per Total Program Completion
Type Title Episodes Episode (min.)* Hours Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Movies, Sex II 1 90 1.5 1994
continued Silent Strangers 1 90 1.5 1995
Starlet 1 60 1 1993
Steamy Windows 1 60 1 1994
Suite 18 1 90 1.5 1994
Supermodel I 1 90 1.5 1994
Supermodel II 1 60 1 1994
Swap II 1 120 2 1994
Tales of Erotica 1 120 2 1993
Tempted 1 90 1.5 1995
Undress to Thrill 1 90 1.5 1994
Vagablonde 1 90 1.5 1994
Watch Me 1 90 1.5 1995
Young Lady Chatterly II 1 90 1.5 1985
- ---------------------------------------------------------------------------------------------------------------------
Sub Total Movies 104.5
- --------------------------------------------------------------------------------------------------
TOTAL ALL PROGRAMMING 877.0
- --------------------------------------------------------------------------------------------------
</TABLE>
83.
<PAGE>
DENTON HALL
SCHEDULE 6
----------
Clause 10.5
-----------
1. In this Schedule the following expressions shall have the following
meanings:
(a) "the Annual Quota": the maximum number of Programme Hours of
Playboy Programmes which the Company shall be obliged to licence
from the Licensor in each year following the Effective Date and
which shall be fifty (50) Programme Hours per year;
(b) "the Shortfall": the amount by which the aggregate amount of the
licence fees (other than amounts paid by the Licensor to third
party licensors for the right to transmit Third Party Programmes
in the Service and reimbursed to the Licensor by the Company
hereunder) received by the Licensor prior to the Effective Date
pursuant to Clauses 7, 8 and 10 is less than the Minimum Amount.
2. The total number of Programme Hours of Playboy Programmes which is to be
licensed by the Company pursuant to Clause 10.5 ("the Total Number")
shall be calculated by dividing the Shortfall by 13,158 (thirteen
thousand one hundred and fifty-eight).
3. The maximum period during which the provisions of Clause 10.5 shall
continue in force following the Effective Date shall be determined by
dividing the Total Number by the Annual Quota.
84.
<PAGE>
DENTON HALL
SCHEDULE 7
----------
Clause 6.8
----------
Categories that are not acceptable for advertising are firearms (or
ads from any gun lobby organisation) and other weapons, explosives
or fireworks, massage parlours, telephone sex lines, sex clubs,
sexually explicit (e.g. adult bookstore, X or NC-17 or similarly
rated hardcore) audio-visual products, sex toys, materials depicting
graphic sexual conduct, violence, sadism, sadomasochism, bondage,
incest, bestiality or child pornography, classified advertising,
psychics or similar, religious organisations and cults.
85.
<PAGE>
SIGNED by )
)
for and on behalf of )
THE LICENSOR )
SIGNED by Roger Luard ) /s/ Roger Luard
)
for and on behalf of )
THE COMPANY )
79.
<PAGE>
FROM: PLAYBOY ENTERTAINMENT GROUP, INC.
of 9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
("the Licensor")
TO: PLAYBOY TV UK/BENELUX LIMITED
of Twyman House
16 Bonny Street
London NW1 9PG
("the Company")
Dated January 1995
Dear Sirs,
We refer to the Programme Supply Agreement which you are proposing to enter into
with us today ("the Agreement"). Words and expressions used in this letter
agreement and defined in the Agreement shall have the respective meanings
ascribed to them in the Agreement.
In consideration of the Company agreeing to pay to us upon signature hereof the
sum of (Pounds)1 (receipt of which is hereby acknowledged) and of the Company
hereby agreeing to enter into the Agreement today, the Licensor hereby agrees
and undertakes with the Company that the Licensor shall notwithstanding the
provisions of the Agreement:
(a) licence and deliver to the Company in the First Year and in the second Year
such number (which shall be in excess of the Minimum Number of Hours in
respect of the First Year and in respect of the second Year) of Programme
Hours of Programmes as may from time to time be required by the Scheduler
for first transmission in the Service ("the Additional Programme Hours");
and
(b) perform its obligations under paragraph (a) above at no additional cost,
charge or expense to the Company over and above (i) the Basic Licence Fee
payable under the Agreement in respect of the First Year and the second
Year and (ii) any costs and expenses of the kind payable by the Company
under Clauses 5 and 6 of the Agreement which shall during the First Year
and the second Year also be payable in relation to the Additional Programme
Hours, but otherwise it is hereby agreed by the parties that all of the
terms and conditions of the Agreement (including without limitation the
provisions of Clauses 2 and 4 of the Agreement) shall apply to the
licensing, supply and delivery by the Licensor of the Additional Programme
Hours under this letter agreement.
In the event of any conflict between the terms of this letter agreement and the
terms of the Agreement, the terms of this letter agreement shall prevail.
1
<PAGE>
This letter agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the exclusive
jurisdiction of the English Courts as regards any claim or matter arising in
relation to this letter agreement. The Licensor hereby appoints O'Melveny &
Myers of 10 Finsbury Square, London EC2A 1LA as its authorised agent for the
purpose of accepting service of process for all purposes in connection with this
letter agreement.
Please signify your agreement to and acceptance of the foregoing by signing and
returning to us the enclosed duplicate of this letter.
Yours faithfully,
.......................
for and on behalf of
PLAYBOY ENTERTAINMENT GROUP, INC
Agreed and Accepted:
.......................
for and on behalf of
PLAYBOY TV UK/BENELUX LIMITED
2
<PAGE>
DENTON HALL
Certificate No: 1 Amount (pound) 243
PLAYBOY TV UK/BENELUX LIMITED
-----------------------------
Incorporated in England No.3,000,033
Registered Office:
5 Chancery Lane, London EC4A 1BU
LOAN STOCK CERTIFICATE
----------------------
Issue of Variable Loan Stock due the 31st day of December 1999 representing a
Principal Sum of (pound) 20,000,000 under the authority of the Memorandum of
Association of the Company and pursuant to a resolution of the Board of
Directors of the Company made on 26th January 1995.
THIS IS TO CERTIFY that Flextech 1992 Plc is the registered holder of
(pound) 243 Loan Stock which is issued with the benefit of and subject to the
Conditions annexed hereto.
Interest at 3% above LIBOR, compounded semi-annually, is payable on the Loan
Stock annually on the 31st December in each year, all as more particularly
described in and subject to the said Conditions.
The Loan Stock and the Conditions annexed hereto shall be construed and take
effect in all respects in accordance with the laws of England.
IN WITNESS WHEREOF this Deed has been duly executed;
EXECUTED as a DEED )
by Playboy TV UK/Benelux Limited )
in the presence of: )
Director /s/ Mark Lewis
/s/ Fairlie Anderson
Fairlie Anderson
Denton Hall
5 Chancery Lane
Clifford's Inn Director/Secretary /s/ Roger Luard
London EC4A 1BU
Note: (1) This certificate must be surrendered at the Company's principal place
of business before any transfer of this Loan Stock will be registered
or a new Certificate issued in exchange.
1
<PAGE>
DENTON HALL
(2) Transfer of this Loan Stock is subject to restrictions.
2
<PAGE>
DENTON HALL
CONDITIONS
----------
1. Definitions
1.1 The following words and expressions shall have the following meanings:
"Company": Playboy TV UK/Benelux Limited;
"LIBOR": the three month London Interbank Offered Rate for Sterling
deposits, as published in the Financial Times on the relevant Quarter Day
on the first business day of each period in respect of which interest is to
be calculated pursuant to Condition 3.1;
"Principal Sum": the principal sum referred to on the face of the Loan
Stock Certificate to which these Conditions are attached together with the
amount of any interest which is not paid when due pursuant to condition
3.2;
"Shareholders Agreement": an agreement made effective 12th January 1995
between Continental Shelf 16 Limited, Playboy Enterprises Group, Inc. and
the Company relating to the Management and funding of the Company;
"Stockholder": the registered holder for the time being of the Loan Stock;
"Transfer": the meaning ascribed thereto in the Shareholders Agreement;
1.2 References to provisions of the Companies Act 1985 are to be construed as
references to those provisions as from time to time amended and re-enacted.
Headings are for ease of reference only and shall not affect the
construction hereof.
2. Covenant to Repay
2.1 The Company shall pay to the Stockholder the Principal Sum together with
accrued unpaid interest to that date on the earlier of:-
(i) as soon as possible after issue of this Loan Stock as the cash flow
position of the Company shall permit (as determined by the Board of
the Company in accordance with clause 8.2 of the Shareholders
Agreement); or
(ii) on the 31st December 1999 ("the Repayment Date") which date shall,
if the Board of the Company resolves in accordance with clause 8.2
of the Shareholders Agreement that the cashflow position of the
Company does not permit payment of all or any of the Principal Sum
on such date, shall in relation to any such unpaid sum, be
automatically extended to 31st December 2000 (and if another such
resolution is past, 31 December 2001) and thereafter be
3
<PAGE>
DENTON HALL
repayable on receipt by the Company of 30 days written notice from the
Stockholder; or
(iii) on such earlier date as the Principal Sum hereby covenanted to be paid
shall become payable in accordance with these Conditions.
2.2 The Company may at any time, repay any or all of the Principal Sum.
3. Interest
3.1 Subject to clause 8.2 of the Shareholders Agreement and Clause 3.2 of these
Conditions until payment in full of the Principal Sum the Company shall pay
the Stockholder interest calculated and compounded semi-annually on each
30th June and 31st December in respect of the immediately following six
calendar month period on the principal amount of the Loan Stock outstanding
from day to day at 3% (three percent) above LIBOR. Subject as hereinafter
provided interest shall be paid annually in arrears on 31st December in
each year the first such payment calculated from the date of issue of the
Loan Stock to be made on 31st December 1996.
3.2 The Company may at its discretion decide to roll up interest otherwise
payable pursuant to this clause in which case the provisions of condition
3.3 shall apply. Such non-payment shall not constitute an Event of Default.
3.3 Any interest which is rolled up in accordance with Clause 3.2 shall with
effect from the date on which such interest became due be added to and form
part of the Principal Sum and interest shall accrue thereon accordingly.
3.4 The Company hereby covenants with the Stockholders that it will pay no
dividends and make no distribution of any kind whatsoever unless and until
the entire Principal Sum together with all accrued interest thereon
(including, for the avoidance of doubt, any interest which has been
capitalised pursuant to clause 3.3) shall have been repaid to the
Stockholders.
3.5 Payment of interest and repayment of any amount of the Principal Sum shall
be made after deduction of United Kingdom taxation (where appropriate).
4. Events of Default
The Principal Sum shall immediately become repayable in full together with
all unpaid interest thereon to the date of payment on the happening of any
of the following events or any event which the lapse of time or the giving
of notice or the fulfilment of any condition might become or give rise to
such event:
(a) the Principal Sum or any interest thereon not being paid by the
Company as and when the same has become due and payable pursuant to
clause 3 provided that
4
<PAGE>
DENTON HALL
the Board of the Company shall have approved the payment of interest
pursuant to clause 8.2 of the Shareholders' Agreement and such payment
would not result in a breach of clause 3.4 of these Conditions; or
(b) any meeting of creditors of the Company being held or any
arrangement, compromise or composition with or for the benefit of its
creditors (including any voluntary arrangement as defined in the
Insolvency Act 1986) being proposed or entered into by or in relation
to the Company; or
(c) a supervisor, receiver, administrator, administrative receiver or
other encumbrancer taking possession of or being appointed over or in
relation to any distress, execution or other process being levied or
enforced (and not being discharged within seven days) upon the whole
or any substantial part of the assets of the Company;
(d) the Company ceasing to carry on business; or
(e) a meeting being convened for the purpose of considering a resolution,
for the making of an administration order, the winding-up, bankruptcy,
or dissolution of the Company;
5. Register of Loan Stock
The Company shall keep a register of Stockholders and enter therein the
issue and all transfers and changes of ownership of this Loan Stock. The
said register may be closed at such times and for such periods as the
Company may from time to time determine provided that it shall not be
closed for more than 7 days in any year.
6. Transfers
6.1 No Stockholder may Transfer any of their Loan Stock unless the Transfer
is permitted by or made in accordance with the provisions of the
Shareholders Agreement.
6.2 A Transfer of this Loan Stock shall be in writing under the hand of the
transferor. The transfer instrument shall be lodged with the Company
together with such evidence of the title of the transferor (including
production of this Loan Stock Certificate) as the Company may reasonably
require and thereupon and transferee shall be registered as the holder
hereof. The Company shall be entitled to retain the transfer instrument.
6.3 "The Loan Stock represented by this Certificate is held and may only be
transferred by the registered owner subject to the terms of the
Shareholders Agreement.
5
<PAGE>
DENTON HALL
7. Sole Holder
-----------
The Company shall recognise and treat the Stockholder as the sole absolute
owner hereof and as alone entitled to give and receive effectual discharges
for the moneys hereby covenanted to be paid. The Company shall not be bound
by or be compelled in any way to recognise (even when having notice hereof)
any equitable, contingent, future or partial interest in this Loan Stock or
any interest in any fractional part hereof or any other rights in respect
of the entirety thereof other than in the registered Stockholder.
8. Set off, etc.
-------------
Subject always to clause 6 the moneys hereby covenanted to be paid shall be
paid and this Loan Stock shall be transferable without regard to any set-
off cross-claim or equities between the Company and the original or any
intermediate Stockholder and the receipt of the Stockholder shall be a good
discharge to the Company.
9. Payment
-------
The Principal Sum and interest due and payable on this Loan Stock will be
paid at the principal place of business of the Company. Payment of such
moneys may be made, at the election of the receiving Stockholders either by
international wire transfer or by cheque to the Stockholder at its
registered address or to such other person or address as the Stockholder
may request in writing and if posted shall be sent by pre-paid letter at
the risk of the Stockholder. Payment of any such cheque shall for all
purposes be deemed to be payment and satisfaction of the Principal Sum or
interest represented thereby.
10. Replacement
-----------
If this Loan Stock Certificate is worn out, defected, lost or destroyed it
may be replaced on such terms as to evidence, identity, indemnity and
expense incurred by the Company in investigating or verifying title as the
Directors of the Company shall think fit provided that in the case of
defacement of this Loan Stock Certificate it must be surrendered before the
new Certificate is issued. Any stamp duty payable on such renewal shall be
borne by the Stockholder.
11. Notices
-------
11.1 Any notice or other communication given or made hereunder shall be in
writing and, without prejudice to the validity of any other method or
service, may be delivered personally or by courier or sent by facsimile
transmission or by prepaid recorded delivery letter (airmail if overseas),
address as follows:
(a) if to Company, at its registered office for the time being;
6
<PAGE>
DENTON HALL
(b) if to a Stockholder at its address as entered for the time being on
the register of Loan Stock.
11.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such envelope
was properly addressed, prepared, registered and posted shall be sufficient
evidence that such notice or other communication has been duly served,
given or made; or (ii) in the case of delivery, when left at the relevant
address; or (iii) in the case of facsimile transmission one business day
after transmission.
7
<PAGE>
DENTON HALL
Certificate No. 2 Amount (Pounds)57
PLAYBOY TV UK/BENELUX LIMITED
-----------------------------
Incorporated in England No. 3,000,033
Registered Office:
5 Chancery Lane, London EC4A 1BU
LOAN STOCK CERTIFICATE
----------------------
Issue of Variable Loan Stock due the 31st day of December 1999 representing a
Principal Sum of (pound)20,000,000 under the authority of the Memorandum of
Association of the Company and pursuant to a resolution of the Board of
Directors of the Company made on 26th January 1995.
THIS IS TO CERTIFY that Playboy Entertainment Group Inc is the registered holder
of (pound)57 Loan Stock which is issued with the benefit of and subject to the
Conditions annexed hereto.
Interest at 3% above LIBOR, compounded semi-annually, is payable on the Loan
Stock annually on the 31st December in each year, all as more particularly
described in and subject to the said Conditions.
The Loan Stock and the Conditions annexed hereto shall be construed and take
effect in all respects in accordance with the laws of England.
IN WITNESS WHEREOF this Deed has been duly executed;
EXECUTED as a DEED )
by Playboy TV UK/Benelux Limited )
in the presence of: )
/s/ Fairlie Anderson
Fairlie Anderson Director /s/ Mark Lewis
Denton Hall
5 Chancery Lane Director/Secretary /s/ Roger Luard
Clifford's Inn
London
EC4A 1BU
1
<PAGE>
DENTON HALL
Note: (1) This certificate must be surrendered at the Company's principal
place of business before any transfer of this Loan Stock will be
registered or a new Certificate issued in exchange.
(2) Transfer of this Loan Stock is subject to restrictions.
2
<PAGE>
DENTON HALL
CONDITIONS
----------
1. Definitions
-----------
1.1 The following words and expressions shall have the following meanings:
"Company": Playboy TV UK/Benelux Limited;
"LIBOR": the three month London Interbank Offered Rate for Sterling
deposits, as published in the Financial Times on the relevant Quarter Day
on the first business day of each period in respect of which interest is to
be calculated pursuant to Condition 3.1;
"Principal Sum": the principal sum referred to on the face of the Loan
Stock Certificate to which these Conditions are attached together with the
amount of any interest which is not paid when due pursuant to condition
3.2;
"Shareholders Agreement": an agreement made effective 12th January 1995
between Continental Shelf 16 Limited, Playboy Enterprises Group, Inc. and
the Company relating to the management and funding of the Company;
"Stockholder": the registered holder for the time being of the Loan Stock;
"Transfer": the meaning ascribed thereto in the Shareholders Agreement;
1.2 References to provisions of the Companies Act 1985 are to be construed as
references to those provisions as from time to time amended and re-enacted.
Headings are for ease of reference only and shall not affect the
construction hereof.
2. Covenant to Repay
-----------------
2.1 The Company shall pay to the Stockholder the Principal Sum together with
accrued unpaid interest to that date on the earlier of:
(i) as soon as possible after issue of this Loan Stock as the cash
flow position of the Company shall permit (as determined by the
Board of the Company in accordance with clause 8.2 of the
Shareholders Agreement), or
(ii) on the 31st December 1999 ("the Repayment Date") which date
shall, if the Board of the Company resolves in accordance with
clause 8.2 of the Shareholders Agreement that the cashflow
position of the Company does not permit payment of all or any
of the Principal Sum on such date, shall in relation to any
such unpaid sum, be automatically extended to 31st December
2000 (and if another such resolution is passed, 31 December
2001) and thereafter be
3
<PAGE>
DENTON HALL
repayable on receipt by the Company of 30 days written notice from
the Stockholder; or
(iii) on such earlier date as the Principal Sum hereby covenanted to be
paid shall become payable in accordance with these Conditions.
2.2 The Company may at any time, repay any or all of the Principal Sum.
3. Interest
3.1 Subject to clause 8.2 of the Shareholders Agreement and Clause 3.2 of these
Conditions until payment in full of the Principal Sum the Company shall pay
the Stockholder interest calculated and compounded semi-annually on each
30th June and 31st December in respect of the immediately following six
calendar month period on the principal amount of the Loan Stock outstanding
from day to day at 3% (three per cent) above LIBOR. Subject as hereinafter
provided interest shall be paid annually in arrears on 31st December in
each year the first such payment calculated from the date of issue of the
Loan Stock to be made on 31st December 1996.
3.2 The Company may at its discretion decide to roll up interest otherwise
payable pursuant to this clause in which case the provisions of condition
3.3 shall apply. Such non-payment shall not constitute an Event of Default.
3.3 Any interest which is rolled up in accordance with Clause 3.2 shall with
effect from the date on which such interest became due be added to and form
part of the Principal Sum and interest shall accrue thereon accordingly.
3.4 The Company hereby covenants with the Stockholders that it will pay no
dividends and make no distribution of any kind whatsoever unless and until
the entire Principal Sum together with all accrued interest thereon
(including, for the avoidance of doubt, any interest which has been
capitalised pursuant to clause 3.3) shall have been repaid to the
Stockholders.
3.5 Payment of interest and repayment of any amount of the Principal Sum shall
be made after deduction of United Kingdom taxation (where appropriate).
4. Events of Default
The Principal Sum shall immediately become repayable in full together with
all unpaid interest thereon to the date of payment on the happening of any
of the following events or any event which will with the lapse of time or
the giving of notice or the fulfilment of any condition might become or
give rise to such an event.
(a) the Principal Sum or any interest thereon not being paid by the
Company as and when the same has become due and payable pursuant to
clause 2 or 3 provided
4
<PAGE>
DENTON HALL
that the Board of the Company shall have approved the payment of
interest pursuant to clause 8.2 of the Shareholders' Agreement and such
payment would not result in a breach of clause 3.4 of these Conditions;
or
(b) any meeting of creditors of the Company being held or any arrangement,
compromise or composition with or for the benefit of its creditors
(including any voluntary arrangement as defined in the Insolvency Act
1986) being proposed or entered into by or in relation to the Company;
or
(c) a supervisor, receiver, administrator, administrative receiver or other
encumbrancer taking possession of or being appointed over or in
relation to any distress, execution or other process being levied or
enforced (and not being discharged within seven days) upon the whole or
any substantial part of the assets of the Company;
(d) the Company ceasing to carry on business; or
(e) a meeting being convened for the purpose of considering a resolution,
for the making of an administration order, the winding-up, bankruptcy,
or dissolution of the Company;
5. Register of Loan Stock
The Company shall keep a register of Stockholders and enter therein the
issue and all transfers and changes of ownership of this Loan Stock. The
said register may be closed at such times and for such periods as the
Company may from time to time determine provided that it shall not be closed
for more than 7 days in any year.
6. Transfers
6.1 No Stockholder may Transfer any of their Loan Stock unless the Transfer is
permitted by or made in accordance with the provisions of the Shareholders
Agreement.
6.2 A Transfer of this Loan Stock shall be in writing under the hand of the
transferor. The transfer instrument shall be lodged with the Company
together with such evidence of the title of the transferor (including
production of this Loan Stock Certificate) as the Company may reasonably
require and thereupon and transferee shall be registered as the holder
hereof. The Company shall be entitled to retain the transfer instrument.
6.3 "The Loan Stock represented by this Certificate is held and may only be
transferred by the registered owner subject to the terms of the
Shareholders Agreement.
5
<PAGE>
DENTON HALL
7. Sole Holder
-----------
The Company shall recognise and treat the Stockholder as the sole absolute
owner hereof and as alone entitled to give and receive effectual
discharges for the moneys hereby convenanted to be paid. The Company shall
not be bound by or be compelled in any way to recognise (even when having
notice hereof) any equitable, contingent, future or partial interest in
this Loan Stock or any interest in any fractional part hereof or any other
rights in respect of the entirety thereof other than in the registered
Stockholder.
8. Set off, etc.
-------------
Subject always to clause 6 the moneys hereby covenanted to be paid shall
be paid and this Loan Stock shall be transferable without regard to any
set-off cross-claim or equities between the Company and the original or
any intermediate Stockholder and the receipt of the Stockholder shall be a
good discharge to the Company.
9. Payment
-------
The Principal Sum and interest due and payable on this Loan Stock will be
paid at the principal place of business of the Company. Payment of such
moneys may be made, at the election of the receiving Stockholders either
by international wire transfer or by cheque to the Stockholder at its
registered address or to such other person or address as the Stockholder
may request in writing and if posted shall be sent by pre-paid letter at
the risk of the Stockholder. Payment of any such cheque shall for all
purposes be deemed to be payment and satisfaction of the Principal Sum or
interest represented thereby.
10. Replacement
-----------
If this Loan Stock Certificate is worn out, defected, lost or destroyed it
may be replaced on such terms as to evidence, identity, indemnity and
expense incurred by the Company in investigating or verifying title as the
Directors of the Company shall think fit provided that in the case of
defacement of this Loan Stock Certificate it must be surrendered before
the new Certificate is issued. Any stamp duty payable on such renewal
shall be borne by the Stockholder.
11. Notices
-------
11.1 Any notice or other communication given or made hereunder shall be in
writing and, without prejudice to the validity of any other method or
service, may be delivered personally or by courier or sent by facsimile
transmission or by prepaid recorded delivery letter (airmail if overseas),
address as follows:
(a) if to Company, at its registered office for the time being;
6
<PAGE>
DENTON HALL
(b) if to a Stockholder at its address as entered for the time being on
the register of Loan Stock.
11.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepared, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission one
business day after transmission.
7
<PAGE>
DENTON HALL
THIS DEED is made the 26th day of January 1995 by PLAYBOY TV UK/BENELUX LIMITED
("the Company") registered in England with number 3000033 whose registered
office is at 5 Chancery Lane, Clifford's Inn, London EC4A 1BU
WHEREAS:
By a Resolution of its Board of Directors (being duly empowered in that behalf
by the Company's Memorandum and Articles of Association) passed on 26th January
1995 the Company has created (pound)20,000,000 nominal of Variable Rate Loan
Stock 1999 to be constituted in manner hereinafter appearing.
NOW THIS DEED WITNESSES as follows:
1. Interpretation
--------------
1.1 In this Deed the following words and expressions shall have the following
meanings:
"Register": the register of Stock to be kept by the Company;
"Stock": the (pound)20,000,000 nominal of Variable Rate Loan Stock 1999 of
the Company hereby constituted or as the context may require the nominal
amount thereof for the time being issued and outstanding or a specific
portion thereof;
"this Deed": this Deed and the Schedules hereto (as from time to time
modified in accordance with the provisions herein contained) and shall
include all Deeds and Instruments supplemental to this Deed;
1.2 Words denoting the singular number include the plural and vice versa.
Words denoting natural persons include corporations.
1.3 Unless the context otherwise requires, any words and expressions defined in
the Companies Act 1985 (as amended) shall bear the same meanings in this
Deed.
1.4 Headings are for ease of reference only and shall not affect the
construction of this Deed.
2. The Stock
---------
The principal amount of the Stock is limited to (pound)20,000,000 and shall
be known as "Variable Rate Loan Stock 1999". All of the Stock shall rank
pari passu equally and rateably without discrimination or preference as an
insecured obligation of the Company.
1
<PAGE>
DENTON HALL
3. Terms of Issue
--------------
The Stock may be issued solely in accordance with the provisions of the
Agreement and of this Deed and the proceeds of issue thereof shall be
receivable by the Company and shall be applied as the Company in its
absolute discretion shall determine.
4. Certificates for Stock
----------------------
4.1 Every Stockholder from time to time shall be entitled to a Certificate
stating the number and amount of stock held by him but so that joint
holders shall be entitled to only one Certificate in respect of the Stock
held jointly by them which Certificate shall be delivered to the joint
holder whose name stands first in the Register.
4.2 The Certificates shall be in or substantially in the form set out in
Schedule 1 hereto and shall have attached thereto Conditions in or
substantially in the form also set out in that Schedule. Every such
Certificate shall be executed as a deed. The Company shall comply with the
terms of the Certificates and shall perform and observe the said Conditions
attached thereto and the Stock shall be held subject to and with the
benefit of such Conditions which Conditions shall be deemed to be
incorporated in this Instrument and shall be binding on the Company and the
holders of the Stock and all persons claiming through or under them
respectively.
5. Governing Law
-------------
This Deed shall be governed by and construed in all respects in accordance
with English law and the parties agree to submit to the non-exclusive
jurisdiction of the English Courts as regards any claim or matter arising
in relation to this Deed.
IN WITNESS whereof this Deed has been duly executed the day and year first above
written.
EXECUTED AS A DEED ) /s/ Roger Luard
by PLAYBOY TV )
UK/BENELUX LIMITED )
in the presence of: ) /s/ Mark Lewis
/s/ Fairlie Anderson
Fairlie Anderson
Denton Hall
5 Chancery Lane
Clifford's Inn
London
EC4A IBU
2
<PAGE>
DENTON HALL
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<C> <S> <C>
1. Interpretation 1
2. Licence 3
3. Quality Control 6
4. Use of the Trade Marks 7
5. Ownership of the Trade Marks 8
6. Infringements 10
7. Indemnity by Licensee 11
8. Termination 12
9. Post Termination 13
10. No Assignment 13
11. Force Majeure 14
12. Invalidity etc 14
13. Waivers, Remedies Cumulative, Amendments. etc. 14
14. Costs 15
15. Notices etc 15
16. Governing Law 16
</TABLE>
Schedule - Part 1 - Registered Trade Marks
Part 2 - Unregistered Trade Marks
<PAGE>
DENTON HALL
THIS DEED is made the day of 1995
(but with effect from 12th January 1995)
BETWEEN:
(1) PLAYBOY ENTERPRISES, INC of 680 North Lake Shore Drive Chicago Illinois
60611 United States of America ("the Licensor"); and
(2) PLAYBOY TV UK/BENELUX LIMITED ("the Licensee") registered in England with
number 3000033 whose address is Twyman House, 16 Bonny Street, London NW1
9PG.
WHEREAS:
Pursuant to the Shareholders' Agreement and the Programme Supply Agreement, the
Licensor, who is the proprietor of the Playboy trade marks, wishes to permit the
Licensee to use the Playboy trade marks in relation to a satellite delivered
television service and programmes transmitted in such service on the terms of
this Deed
NOW IT IS HEREBY AGREED as follows:
1. Interpretation
--------------
1.1 In this Deed (including the Recital hereto) the following words and
expressions shall have the following meanings:
"Flextech": Continental Shelf 16 Limited, a company registered in England
and Wales under no. 3005499;
"Permitted Licensee": any person who may be appointed by the Licensee to
market, promote, sell, distribute or manage subscribers to the Service in
any country within the Territory;
<PAGE>
DENTON HALL
"Programme": any television programme which is, or is scheduled to be, broadcast
or transmitted in the Service;
"the Programme Supply Agreement": the programme supply agreement of even date
herewith which is to be entered into between Playboy Entertainment Group, Inc.
and the Licensee;
"Promotional Material": any audio-visual, visual and/or audio material which is
intended to promote the Service or the transmission of particular Programmes in
the Service including but not limited to channel generic promotions, programme
strand generic promotions and programme specific promotions;
"the Service": the television programme service which is to be provided for
reception within the Territory by the Licensee in accordance with the
Shareholders' Agreement:
"the Shareholders' Agreement": an agreement of even date herewith between
Flextech, Playboy Entertainment Group, Inc. and the Licensee relating to the
Licensee;
"Television Service": any television service or channel (other than the
Service) which is broadcast, distributed or transmitted by any means (including
but not limited to all forms of terrestrial, satellite and cable television
transmission, broadcast and delivery) whether now known or hereafter invented
and is capable of being received in any country within the Territory (whether or
not that service or channel is primarily intended for reception outside the
Territory);
"the Territory": the United Kingdom of Great Britain and Northern Ireland
(irrespective of whether Northern Ireland remains part of the United Kingdom),
the Republic of Ireland, Belgium, Luxembourg, The Netherlands and any other
country or countries in Europe to which the scope of this Deed is extended in
accordance with Clause 2.2;
2.
<PAGE>
DENTON HALL
"the Trade Marks": the registered trade marks and any service marks listed
in Part 1 of the Schedule, the unregistered trade marks and service marks
listed in Part 2 of the Schedule together with any registered or
unregistered trade marks of the Licensor substantially similar to those
listed in the Schedule in any country to which the scope of the licence
granted under Clause 2.1 is extended pursuant to Clause 2.2;
"Transmission Period": shall have the meaning ascribed to it in the
Programme Supply Agreement.
1.2 In this Deed all words defined in the Shareholders Agreement shall when
used herein, save where otherwise expressly provided, bear the same
meaning as in the Shareholders Agreement.
1.3 References in this Deed to statutes, bye-laws, regulations and delegated
legislation shall include any statute, bye-law, regulation or delegated
legislation in force at the date hereof whether before or after the date
hereof modifying, re-enacting, extending or made pursuant to the same or
which is modified, re-enacted or extended by the same or pursuant to
which the same is made.
1.4 Clause headings in this Deed are for ease of reference only and shall not
be taken into account in construing this Deed.
1.5 References in this Deed to Clauses, sub-clauses, paragraphs and Schedules
are references to those contained in this Deed.
1.6 The Schedules to this Deed are an integral part of this Deed and reference
to this Deed includes reference thereto.
2. Licence
-------
2.1 In consideration of the Licensee hereby agreeing to pay to the Licensor
the sum of One Pound ((Pounds)1) upon signature hereof (receipt of which
is hereby acknowledged) and to enter into the Programme Supply Agreement
immediately following the signature of this Deed, the
3.
<PAGE>
DENTON HALL
Licensor grants to the Licensee, on the terms set out in this Deed, an
exclusive licence to use the Trade Marks in the Territory in relation to
the broadcast, transmission and distribution of Programmes and Promotional
Material in or as part of the Service and in relation to the promotion and
marketing of the Service and of the Programmes in any medium or media
whatsoever.
2.2 If at any time during the term of this Deed and in accordance with Clause
2.6 of the Shareholders Agreement the Licensee or any subsidiary (within
the meaning of Section 736 of the Companies Act 1985) of the Licensee
launches its television programme service in any country in Europe which
prior to such launch is not within the Territory, then with the prior
written consent of the Licensor:
(a) the licence granted under sub-clause 2.1 shall automatically be
extended to that country;
(b) all references to the Territory in this Deed shall thereafter be
deemed to include that country; and
(c) the list of trade marks set out in the Schedule shall thereafter be
deemed to include all registered or unregistered trade marks in that
country substantially similar to those listed in the Schedule.
2.3 The Licensee shall be entitled to grant sub-licences to any Permitted
Licensee of such of the rights granted under sub-clause 2.1 in respect of
any country in the Territory as may be necessary for the marketing,
promotion, sale or distribution of or management of subscribers to the
Service in that country provided that:
(a) any sub-licence contains obligations on the Permitted Licensee
relating to the use and protection of the trade marks at least
equivalent to the obligations of the Licensee under this Deed;
4.
<PAGE>
DENTON HALE
(b) the Licensee informs the Licensor within one month of the
execution of each sub-licence that it has been signed;
(c) the Licensee remains responsible for all acts and omissions of each
Permitted Licensee as though they were by the Licensee;
(d) on termination of this Deed for whatever reason any sub-licence shall,
at the option of the Licensor, either be assigned to the Licensor or
terminated by the Licensee.
2.4 The licence granted under sub-clause 2.1 shall continue in force until any
termination of this Deed in accordance with the provisions of Clause 8.
2.5 The Licensee undertakes that during the term of this Deed it will not be
involved in providing a television programme service using the Trade Marks
which is intended for general reception outside the Territory.
2.6 The Licensor undertakes that during the term of this Deed it will not
itself use or permit any other person to use the Trade Marks or any
confusingly similar designation within the Territory in relation to any
Television Service or any programmes or other items of any description
included in any Television Service provided that use of the Trade Marks or
any confusingly similar designation in relation to any Television Service,
or any programmes or other items of any description included in any
Television Service, which is intended solely for reception in any country
or countries outside the Territory but which is also received in a country
or countries within the Territory shall not constitute a breach of this
clause so long as that Television Service was transmitted in encrypted
form and decoders designed to receive and decode such encrypted
transmissions are not made available to the general public within the
Territory by or with the authority of the Licensor or any other licensee
of any of the Trade Marks.
5.
<PAGE>
DENTON HALL
2.7 During the term of this Deed, any or all of the following shall not be used
on or in connection with the Service without the Licensor's prior written
consent:
(a) permutations of any or all of the Trade Marks;
(b) secondary marks derived from any of the Trade Marks; or
(c) new words, devices, designs, slogans or symbols derived from any of the
Trade Marks.
Upon such authorisation by the Licensor and use by the Licensee, each
such permutation, secondary mark, word, device, design, slogan and symbol
derived from any of the Trade Marks shall be the property of the Licensor
and shall be included as one of the Trade Marks subject to this Deed.
2.8 In the event that at any time during the term of this Deed the Licensee
creates or develops any advertising, promotion, packaging or trade dress
which is unique to the Service (collectively "Service Packaging"), it
shall be and remain the property of the Licensee. Accordingly, the Licensee
shall be free to use such Service Packaging throughout the world
(excluding the United States of America) but the Licensee shall within
thirty (30) days after the date of this Deed enter into a royalty-free
licence with Flextech and with the Licensor entitling each of them to use
such Service Packaging in perpetuity and throughout the world excluding
the Territory and further excluding (in the case of the licence granted to
Flextech) the United States of America.
3. Quality Control
---------------
All Programmes transmitted in the Service by the Licensee under or by
reference to the Trade Marks shall comply with the Programme Specification
(as defined in the Programme Supply Agreement).
6.
<PAGE>
DENTON HALL
4. Use of the Trade Marks
----------------------
4.1 The Licensee shall use the Trade Marks in the form stipulated by the
Licensor and shall include such trademark and copyright notices as the
Licensor may request and as are necessary for the protection of the
Licensor's ownership of the Trade Marks. The Licensee shall also observe
any reasonable directions given by the Licensor as to colours and size of
the representations of the Trade Marks and their manner and disposition in
connection with the Programmes, the Promotional Material and the Service.
Any additional goodwill which may attach to the Trade Marks and which
arises out of the Licensee's use of the Trade Marks under this Deed will
inure solely to the benefit of the Licensor. Save as expressly set out in
sub-clauses 2.1 and 2.2, the Licensee has not acquired and will not acquire
any proprietary rights in the Trade Marks by reason of this Deed.
4.2 The use of the Trade Marks by the Licensee shall at all times be in keeping
with and seek to maintain their distinctiveness and reputation as
determined by the Licensor.
4.3 Licensee hereby acknowledges that the trade names "Playboy" and "Playmate"
and the Trade Marks are the sole and exclusive property of the Licensor.
Licensee shall have the right to develop and distribute advertising,
publicity and promotional materials relating to the Programmes, provided,
however, that any such materials (other than material obtained directly
from Licensor) shall:
(a) clearly identify the Trade Marks with a legible credit line with the
wording "Playboy" (or the "Rabbit Head Design" or "The Playboy
Channel" or "Playboy at Night" or "Playboy Television" or "Playmate",
as the case may be) is the mark of and used with the permission of
Playboy Enterprises Inc." or such other words as Licensor may designate
not later than 60 days prior to the first transmission of the relevant
Programme(s) in the Service; and
7.
<PAGE>
DENTON HALL
(b) in no event may any advertising, publicity or promotional material
using the names of Licensor or any person appearing in a Playboy
Programme (as defined in the Programme Supply Agreement) be used to
constitute an endorsement, express or implied of any party, sponsor,
product or service (other than the Service).
Other than as expressly set forth in this Deed, Licensee shall make no use
of the Trade Marks or any confusingly similar designation without the
prior express written consent of Licensor in each instance. Licensee shall
also make no use whatsoever of any other trademark, trade name or service
mark that is the property of Licensor without the prior express written
consent of Licensor in each instance. Licensee similarly agrees that
it will not authorise or purport to authorise any third party to make any
such use except as set out in Clause 2.3, and it will expressly provide in
any applicable third party agreements that such third parties will only be
entitled to use such names and marks on material supplied to them by
Licensee in accordance with Licensee's rights hereunder.
4.4 Licensee may publicise and advertise telecasts of the Programmes or
(unless it is notified to the contrary prior to delivery of the relevant
Programme(s)) any person appearing therein in the Territory.
5. Ownership of the Trade Marks
----------------------------
5.1 The Licensor warrants that it is the proprietor of the Trade Marks and
that it is not aware that any of the Trade Marks or the use of any of them
on or in relation to Programmes or Promotional Material in the Territory
infringes or will infringe the rights of any third party.
5.2 The Licensor shall pay all renewal fees necessary to maintain the
registrations of the registered Trade Marks on the Register of Trade Marks
("the Register") during the term of this Deed.
8.
<PAGE>
DENTON HALL
5.3 The Licensee will on request give to the Licensor or its authorised
representative any information as to its use of the Trade Marks which the
Licensor may require and will during the term of this Deed render any
assistance reasonably required by the Licensor in maintaining the
registrations of the registered Trade Marks.
5.4 The Licensee will not make any representation or do any act which may be
taken to indicate that it has any right title or interest in or to the
ownership or use of any of the Trade Marks except under the terms of this
Deed, and acknowledges that nothing contained in this Deed shall give the
Licensee any right, title or interest in or to the Trade Marks save as
granted hereby.
5.5 Each party shall at its own expense, if required by the other, do all such
acts and execute all such documents as may be necessary to confirm the
licence granted hereunder in respect of any of the Trade Marks and to
record the Licensee as a registered user of the registered Trade Marks on
the trade marks register in any country within the Territory (including
such of the applications as mature into registrations during the term of
this Deed). The Licensee hereby agrees that any such entry on any trade
mark register may be cancelled by the Licensor on termination of this
Deed, for whatever reason, and that it will assist the Licensor so far as
may be necessary to achieve such cancellation including by executing any
necessary documents.
5.6 The Licensor shall indemnify the Licensee against all costs, damages,
liabilities, fees and expenses which it may suffer or incur and all claims,
actions and proceedings which may be made or brought against it, by any
person claiming that use of the Trade Marks by the Licensee in accordance
with this Deed infringes the rights of such person. The Licensee will
notify the Licensor of any such claims promptly and allow the Licensor to
control the defence thereof PROVIDED THAT, where the Licensee reasonably
considers that it may be adversely or materially prejudiced thereby, the
Licensee may elect to continue to be separately represented in the defence
thereof and (if the Licensee shall so elect) no such claim, action
9.
<PAGE>
DENTON HALL
or proceedings may be settled by the Licensor without the prior written
consent of the Licensee. The Licensee will also provide any assistance
reasonably requested by the Licensor at the Licensor's expense.
6. Infringements
-------------
6.1 Each party shall as soon as it becomes aware thereof give the other written
particulars of any use or proposed use by any other person, firm or company
of a trade name, trade mark or get-up or mode of promotion or advertising
which amounts or might amount either to infringement in the Territory of
the Licensor's registered rights in relation to the Trade Marks or to
passing-off.
6.2 Each party shall, as soon as it becomes aware that any other person, firm
or company alleges that the Trade Marks are invalid within the Territory or
that use of the Trade Marks infringes any rights of another party or that
the Trade Marks are otherwise attacked or open to attack within the
Territory, give the other written particulars.
6.3 The Licensee will at the request of the Licensor give full co-operation to
the Licensor in any action, claim or proceedings brought or threatened in
respect of the Trade Marks within the Territory and the Licensor shall
meet any reasonable expenses incurred by the Licensee in giving such
assistance.
6.4 The Licensor shall in the first instance have the conduct of all
proceedings relating to the Trade Marks and shall in its sole discretion
decide what action (if any) to take in respect of any infringement or
alleged infringement of the Trade Marks within the Territory or passing-off
or any other claim or counter-claim brought or threatened in respect of
the use or registration of the Trade Marks within the Territory.
6.5 If the Licensor does not take any action to protect the Trade Marks under
the provisions of Clause 6.4 within two months of the circumstances giving
rise to the need for such action coming to the
10.
<PAGE>
DENTON HALL
attention of the Licensor (or earlier if the Licensor indicates that it
does not intend to take such action) and if the Licensee receives advice
from experienced trade mark counsel that proceedings could stand a
reasonable chance of success, the Licensee shall, provided it has
consulted with the Licensor as to the bringing of proceedings, have the
option to commence proceedings at its own cost relating to the Trade Marks
to which the Licensor shall lend its name and reasonable assistance
subject to the Licensee reimbursing the Licensor for all costs and
expenses that the Licensor may reasonably incur and any award of costs
against it. All sums recovered by any such action representing damages
suffered by the Licensee or unreimbursed costs of the Licensee shall
belong to the Licensee.
6.6 The provisions of sub-clauses 6.1-6.5 inclusive shall also apply in
relation to any registered or unregistered trade mark of the Licensor
within the Territory which are substantially similar to the Trade Marks.
7. Indemnity by Licensee
----------------------
The Licensee shall indemnify the Licensor against all costs, damages,
liabilities, fees and expenses which it may suffer or incur and all claims,
actions and proceedings which may be made or brought against it as a
result of any breach by the Licensee of the provisions of this Deed. The
Licensor will notify the Licensee of any such claims promptly and allow
the Licensee to control the defence thereof PROVIDED THAT, where the
Licensor reasonably considers that it may be adversely or materially
prejudiced thereby, the Licensor may elect to continue to be separately
represented in the defence thereof and (if the Licensor shall so elect) no
such claim, action or proceedings may be settled by the Licensee without
the prior written consent of the Licensor.
11.
<PAGE>
DENTON HALL
8. Termination
-----------
8.l Either party may without prejudice to its other remedies terminate this
Deed forthwith by notice in writing to the other on or after the occurrence
of any of the following:
(a) the persistent commission of material breaches of this Deed by the
other party which are not capable of remedy; or
(b) the commission of a material breach of this Deed by the other party
which is capable of remedy (a "remediable breach") which shall not have
remedied within a period of one month after the party in breach has
been given notice in writing specifying that remediable breach and
requiring it to be remedied PROVIDED ALWAYS THAT the notice of
termination may not be given if that remediable breach is incapable of
remedy within that one month period and during that one month period
the party in breach shall diligently endeavour to remedy that
remediable breach; or
(c) a supervisor, receiver, administrator, administrative receiver or other
encumbrancer taking possession of or being appointed over or any
distress, execution or other process being levied or enforced (and not
being discharged within thirty days) upon the whole or any substantial
part of the assets of the other party PROVIDED ALWAYS THAT the
Licensor shall not be entitled to terminate this Deed under this sub-
clause 8.l(c) if Flextech shall notify the Licensor of its offer to
acquire the entire shareholding of Playboy Entertainment Group, Inc.,
or any Associate of Playboy Entertainment Group, Inc. in the Licensee
pursuant to Clause 8.5 of the Shareholders' Agreement; or
(d) any event analogous to any of the foregoing occurring in any
jurisdiction in relation to the other party.
12.
<PAGE>
DENTON HALL
8.2 Subject only to clause 9.2, this Deed shall automatically terminate
on:
(a) the date on which any termination of the Programme Supply Agreement by
the Licensee pursuant to Clause 10.2 or 10.3 of the Programme Supply
Agreement takes effect; or
(b) the date on which any termination of the Programme Supply Agreement by
the Licensor pursuant to Clause 10.2 of the Programme Supply Agreement
takes effect.
9. Post Termination
----------------
9.1 The termination of this Deed for whatever reason shall not affect any
provision of this Deed which is expressed to survive or operate in the
event of its termination and shall not prejudice or affect the rights of
either party against the other in respect of any breach of this Deed or in
respect of any moneys payable by one party to the other in relation to any
period prior to termination.
9.2 Upon the date on which any termination of this Deed for whatever reason
takes effect ("the Termination Date") the Licensee shall cease to make
any use of the Trade Marks save that in relation to Programmes whose
Transmission Period has not ended prior to the Termination Date the
Licensee shall continue to be entitled to make use of the Trade Marks for
so long as the Licensee continues to be entitled to transmit those
Programmes by virtue of Clause 10.6 of the Programme Supply Agreement.
10. No Assignment
-------------
The provisions of this Deed shall be binding on and enure to the benefit
of the successors of each party hereto provided that no party may agree to
assign, transfer, charge or otherwise dispose of or subcontract any of its
rights or obligations hereunder without the prior written consent of the
other party.
13.
<PAGE>
DENTON HALL
11. Force Majeure
-------------
Either party shall be excused from performance of its obligations under
this Deed if and to the extent that such performance is hindered or
prevented (directly or indirectly) by reason of any strike, lockout,
labour disturbance, government action, riot, armed conflict, accident,
unavailability or breakdown of normal means of transport, act of God or
any other matter whatsoever beyond the reasonable control of that party
(other than a breach of the provisions of this Deed by the other party).
12. Invalidity etc.
---------------
12.1 Should any provision of this Deed be or become ineffective for reasons
beyond the control of the parties, the parties shall use reasonable
efforts to agree upon a new provision which shall as nearly as possible
have the same commercial effect as the ineffective provision.
12.2 Any provision contained in this Deed or in any arrangement of which this
Deed forms part by virtue of which this Deed or such arrangement is subject
to registration under the Restrictive Trade Practices Act 1976 shall not
come into effect until the day following the date on which particulars of
this Deed and of any such arrangement have been furnished to the Office of
Fair Trading (or on such later date as may be provided for in relation to
any such provision) and the parties hereto agree to furnish such
particulars within three months of the date of this Deed.
13. Waivers, Remedies Cumulative, Amendments, etc.
----------------------------------------------
13.1 No failure or delay by any of the parties hereto in exercising any right,
power or privilege under this Deed shall operate as a waiver thereof nor
shall any single or partial exercise by any of the parties hereto of any
right, power or privilege preclude any further exercise thereof or the
exercise of any other right, power or privilege.
14.
<PAGE>
DENTON HALL
13.2 The rights and remedies herein provided are cumulative and not
exclusive of any rights and remedies provided by law.
13.3 No provision of this Deed may be amended, modified, waived, discharged or
terminated, otherwise than by the express written agreement of the parties
hereto nor may any breach of any provision of this Deed be waived or
discharged except with the express written consent of the party not in
breach.
14. Costs
-----
Each of the parties hereto shall pay its own costs, charges and expenses
connected with the preparation and implementation of this Deed and the
transactions contemplated by it.
15. Notices
-------
15.1 Any notice or other communication given or made under this Deed shall be
in writing and, without prejudice to the validity of any other method of
service, may be delivered personally or by courier or sent by facsimile
transmission and by prepaid airmail letter, addressed as follows:
(a) if to the Licensor to:
The General Counsel of the Licensor
680 North Lake Shore Drive
Chicago IL 60611
United States of America
Facsimile transmission number: (O101 312) 266 2042
with a copy to:
The President of Playboy Entertainment, Inc.
9242 Beverly Boulevard
Beverly Hills
California 90210
United States of America
Facsimile transmission number: (0101 310) 246 4065
15.
<PAGE>
DENTON HALL
(b) if to the Licensee to:
Twyman House
16 Bonny Street
London NW1 9PG
Facsimile transmission number: (0171) 911 0145
with a copy to:
The Chief Executive
Flextech plc
13 Albemarle Street
London
W1X 3HA
Facsimile transmission number: (0171) 499 7553
or to such other address, or facsimile transmission number as the
relevant addressee may hereafter by notice hereunder substitute.
15.2 Any such notice or other communication shall be deemed to have been duly
served, given or made (i) in the case of posting, 96 hours after the
envelope containing such notice was posted and proof that any such
envelope was properly addressed, prepaid, registered and posted shall be
sufficient evidence that such notice or other communication has been duly
served, given or made; or (ii) in the case of delivery, when left at the
relevant address; or (iii) in the case of facsimile transmission on the
first business day in the country of the intended recipient after the
date of transmission.
16. Governing Law
-------------
16.1 This Deed shall be governed by and construed in all respects in accordance
with English law and the parties agree to submit to the exclusive
jurisdiction of the English Courts as regards any claim or matter arising
in relation to this Deed.
16.
<PAGE>
DENTON HALL
16.2 The Licensor hereby appoints O'Melveny & Myers of 10 Finsbury Square,
London EC2A 1LA, as its authorised agent for the purpose of accepting
service of process for all purposes in connection with this Deed.
IN WITNESS whereof this Deed has been duly executed.
17.
<PAGE>
DENTON HALL
SCHEDULE
--------
Part 1
------
Registered Trade Marks
----------------------
<TABLE>
<CAPTION>
Mark Country Reg. No Class Reg. Date Relevant
- ---- ------- ------- ----- --------- --------
Goods/Services
--------------
<S> <C> <C> <C> <C> <C>
PLAYBOY United 1286798 41 10/14/93 radio,
Kingdom television and
stage
entertainments;
all included in
this class
RABBIT United 1324768 41 10/22/87 radio,
HEAD Kingdom television and
DESIGN stage
entertainments
PLAYBOY Benelux 424544 41 1/6/87 entertainment
and amusements;
and the
production of
radio and
television
programmes
RABBIT Benelux 427684 41 1/6/87 entertainment
HEAD and
DESIGN amusements; and
the production
of radio and
television
programmes
</TABLE>
18.
<PAGE>
DENTON HALL
Part 2
------
Unregistered Trademarks
-----------------------
Country Mark or Representation or Goods/Services
- ------- ------------------------- --------------
Description of Get-up
---------------------
Republic of PLAYBOY Entertainment
Ireland services, namely,
pay television
services and pay per
view television
services
Republic of RABBIT HEAD DESIGN Entertainment
Ireland services, namely,
pay television
services and pay per
view television
services
19.
<PAGE>
EXECUTED AS A DEED by David ) /s/ David I. Chemerow
I. Chemerow and Howard )
Shapiro acting under ) Exec. Vice President
the express authority of )
PLAYBOY ENTERPRISES, INC. ) /s/ Howard Shapiro
in accordance with the laws )
of the State of Delaware ) Exec. Vice President
EXECUTED AS A DEED by )
PLAYBOY TV UK/BENELUX LIMITED )
in the presence of: )
Director
Director/Secretary
20.
<PAGE>
EXECUTED AS A DEED by )
and )
acting under )
the express authority of )
PLAYBOY ENTERPRISES, INC. )
in accordance with the laws )
of the State of Delaware )
EXECUTED AS A DEED by )
PLAYBOY TV UK/BENELUX LIMITED )
in the presence of: )
/s/ Fairlie Anderson
Fairlie Anderson Director /s/ Roger Luard
Denton Hall
5 Chancery Lane
Clifford's Inn Director/Secretary /s/ Mark Lewis
London EC4A IBU
20.
<PAGE>
THE COMPANIES ACTS 1985 TO 1989
_____________________________
COMPANY LIMITED BY SHARES
_____________________________
ARTICLES OF ASSOCIATION
of
PLAYBOY UK/BENELUX LIMITED
________________________
(Adopted by Special Resolution passed on the
26th day of January 1995)
___________________________________________
PRELIMINARY
1.1 In these Articles "the Act" means the Companies Acts 1985 to 1989 (as
amended or re-enacted at the date hereof) and "Table A" means Table A as
prescribed in the Companies (Tables A to F) Regulations 1985 (as amended at
the date hereof).
1.2 The regulations contained in Table A shall not apply to the Company.
INTERPRETATION
2. In these Articles the following words and expressions shall have the
following meanings:
"the Board": the Board of Directors of the Company present at a duly
convened meeting of the Directors at which a quorum is present;
"Associate": means in relation to any member which is a company, another
company which controls, is controlled by or is under common control with
that company and for this purpose a company shall be deemed to control any
company which is a subsidiary or a subsidiary undertaking of such company;
"the Auditors": the auditors for the time being of the Company.
SHARE CAPITAL AND SHARES
3. The authorised share capital of the Company at the date of adoption of
these Articles is (Pounds) 11,000,000 divided into 11,000,000 ordinary
shares of (Pounds)1 each ("the Ordinary Shares").
<PAGE>
4. Subject to the provisions of the Act, shares may be issued which are to be
redeemed or are to be liable to be redeemed at the option of the company or
the holder on such terms and in such manner as may be provided by the
articles.
5. The company may exercise the powers of paying commissions conferred by the
Act. Subject to the provisions of the Act, any such commission may be
satisfied by the payment of cash or by the allotment of fully or partly
paid shares or partly in one way and partly in the other.
6. Except as required by law, no person shall be recognised by the company as
holding any share upon any trust and (except as otherwise provided by the
articles or by law) the company shall not be bound by or recognise any
interest in any share except an absolute right to the entirety thereof in
the holder.
SHARE CERTIFICATES
7. Every member, upon becoming the holder of any shares, shall be entitled
without payment to one certificate for all the shares of each class held by
him (and, upon transferring a part of his holding of shares of any class,
to a certificate for the balance of such holding) or several certificates
each for one or more of his shares. Every certificate shall be sealed with
the seal and shall specify the number, class of the shares to which it
relates and the amount or respective amounts paid up thereon. The company
shall not be bound to issue more than one certificate for shares held
jointly by several persons and delivery of a certificate to one joint
holder shall be a sufficient delivery to all of them.
8. If a share certificate is defaced, worn-out, lost or destroyed, it may be
renewed on such terms (if any) as to evidence and indemnity and payment of
the expenses reasonably incurred by the company in investigating evidence
as the directors may determine but otherwise free of charge, and (in the
case of defacement or wearing-out) on delivery up of the old certificate.
LIEN
9. The company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys (whether presently payable or not)
payable at a fixed time or called in respect of that share. The directors
may at any time declare any share to be wholly or in part exempt from the
provisions of this regulation. The company's lien on a share shall extend
to any amount payable in respect of it.
10. The company may sell in such manner as the directors determine any shares
on which the company has a lien if a sum in respect of which the lien
exists is presently payable and is not paid within fourteen clear days
after notice has been given to the holder of the share or to the person
entitled to it in consequence of the death or bankruptcy of the holder,
demanding payment and stating that if the notice is not complied with the
shares may be sold.
2.
<PAGE>
11. To give effect to a sale the directors may authorise some person to execute
an instrument of transfer of the shares sold to, or in accordance with the
directions of, the purchaser. The title of the transferee to the shares
shall not be affected by any irregularity in or invalidity of the
proceedings in reference to the sale.
12. The net proceeds of the sale, after payment of the costs, shall be applied
in payment of so much of the sum for which the lien exists as is presently
payable, and any residue shall (upon surrender to the company for
cancellation of the certificate for the shares sold and subject to a like
lien for any moneys not presently payable as existed upon the shares before
the sale) be paid to the person entitled to the shares at the date of the
sale.
CALLS ON SHARES AND FORFEITURE
13. Subject to the terms of allotment, the directors may make calls upon the
members in respect of any moneys unpaid on their shares (whether in respect
of nominal value or premium) and each member shall (subject to receiving at
least fourteen clear days' notice specifying when and where payment is to
be made) pay to the company as required by the notice the amount called on
his shares. A call may be required to be paid by instalments. A call may,
before receipt by the company of any sum due thereunder, be revoked in
whole or part and payment of a call may be postponed in whole or part. A
person upon whom a call is made shall remain liable for calls made upon him
notwithstanding the subsequent transfer of the shares in respect whereof
the call was made.
14. A call shall be deemed to have been made at the time when the resolution of
the directors authorizing the call was passed.
15. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
15. If a call remains unpaid after it has become due and payable the person
from whom it is due and payable shall pay interest on the amount unpaid
from the day it became due and payable until it is paid at the rate fixed
by the terms of allotment of the share or in the notice of the call or, if
no rate is fixed, at the appropriate rate (as defined by the Act) but the
directors may waive payment of the interest wholly or in part.
16. An amount payable in respect of a share on allotment or at any fixed date,
whether in respect of nominal value or premium or as an instalment of a
call, shall be deemed to be a call and if it is not paid the provisions of
the articles shall apply as if that amount had become due and payable by
virtue of a call.
17. Subject to the terms of allotment, the directors may make arrangements on
the issue of shares for a difference between the holders in the amounts
and times of payment of calls on their shares.
18. If a call remains unpaid after it has become due and payable the directors
may give to the person from whom it is due not less than fourteen clear
days' notice requiring payment of the amount unpaid
3.
<PAGE>
together with any interest which may have accrued. The notice shall name
the place where payment is to be made and shall state that if the notice is
not complied with the shares in respect of which the call was made will be
liable to be forfeited.
19. If the notice is not complied with any share in respect of which it was
given may, before the payment required by the notice has been made, be
forfeited by a resolution of the directors and the forfeiture shall include
all dividends or other moneys payable in respect of the forfeited shares
and not paid before the forfeiture.
20. Subject to the provisions of the Act, a forfeited share may be sold, re-
allotted or otherwise disposed of on such terms and in such manner as the
directors determine either to the person who was before the forfeiture the
holder or to any other person and at any time before sale, re-allotment
or other disposition, the forfeiture may be cancelled on such terms as the
directors think fit. Where for the purposes of its disposal a forfeited
share is to be transferred to any person the directors may authorise some
person to execute an instrument of transfer of the share to that person.
21. A person any of whose shares have been forfeited shall cease to be a member
in respect of them and shall surrender to the company for cancellation
the certificate for the shares forfeited but shall remain liable to the
company for all moneys which at the date of forfeiture were presently
payable by him to the company in respect of those shares with interest at
the rate at which interest was payable on those moneys before the
forfeiture or, if no interest was so payable, at the appropriate rate (as
defined in the Act) from the date of forfeiture until payment but the
directors may waive payment wholly or in part or enforce payment without
any allowance for the value of the shares at the time of forfeiture or for
any consideration received on their disposal.
22. A statutory declaration by a director or the secretary that a share has
been forfeited on a specified date shall be conclusive evidence of the
facts stated in it as against all persons claiming to be entitled to the
share and the declaration shall (subject to the execution of an instrument
of transfer if necessary) constitute a good title to the share and the
person to whom the share is disposed of shall not be bound to see to the
application of the consideration, if any, nor shall his title to the share
be affected by any irregularity in or invalidity of the proceedings in
reference to the forfeiture or disposal of the share.
TRANSFER OF SHARES
23. The instrument of transfer of a share may be in any usual form or in any
other form which the directors may approve and shall be executed by or on
behalf of the transferor and, unless the share is fully paid, by or on
behalf of the transferee.
24. Save as set out in Article 25 below no share shall be transferred by any
Member or other person entitled thereto without the prior consent of all
the other members.
4.
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25.1 If a member ("the Defaulter") becomes unable to pay its debts within
Section 123 of the Insolvency Act 1986 or makes a composition or
arrangement with its creditors or puts a proposal to its creditors for a
voluntary arrangement for a composition of its debts or a scheme of
arrangement or on the presentation of a petition that it be put into
liquidation (which is not withdrawn or defeated within 28 days) or
administration or passes a resolution putting it into voluntary liquidation
(other than for the purposes of amalgamation or reconstruction reasonably
approved by the other members) or suffers the appointment of a provisional
liquidator, a receiver, manager or an administrative receiver or on the
occurrence of an event which does result in the crystallisation of any
floating charge over its business, undertaking, property or assets of any
part therof or is dissolved or on the occurrence of an event which is
analogous to any of the above in any jurisdiction other than the United
Kingdom in which the relevant member is incorporated, then any other member
may within 60 days of the later of the date of such event or of the date on
which such member becomes aware of that event require the Defaulter, by
notice in writing to the Defaulter and the Company to sell all its shares
in the Company ("the Transfer Notice").
25.2 The Transfer Notice shall constitute the Company the Defaulter's agent for
the sale of all, but not some only, of the shares the subject of the
Transfer Notice ("the Sale Shares") to the other members and/or any person
procured or nominated by the other members as it/they may in its/their
absolute discretion determine ("a Nominee") at the Prescribed Price (as
defined in Article 25.5). The Defaulter shall within 7 business days of
receipt of the Transfer Notice deliver to the Company the Defaulter's share
certificates and duly executed transfers in blank in respect thereof
which may not be withdrawn.
25.3 Within 7 business days of agreement or determination of the Prescribed
Price, the Company shall give notice in writing to the other members
specifying the number of Sale Shares and the Prescribed Price therefor
and offering the Sale Shares for sale to the other members and/or their
Nominees at the Prescribed Price. Such notice shall be accompanied by a
copy of the Transfer Notice and (if applicable) the Referee's certificate
of the Prescribed Price and shall require the other members to state in
waiting within 14 days of the receipt of the notice whether it and/or a
Nominee is willing to purchase the Sale Shares at the Prescribed Price.
25.4 In the event that a notice or notices are served in respect of all of the
Sale Shares, the other members or a Nominee thereof shall within 28 days
thereafter complete the purchase of the Sale Shares from the Defaulter at
the Prescribed Price provided that (i) in the event of competition the
members (and/or their Nominees) shall complete the purchase of the Sale
Shares pro rata to the number of shares held by the other members save that
notwithstanding the above no purchase pursuant to this clause shall be
made by a Nominee of any member if there remains a member or members
willing to purchase the Sale Shares to which any member who has proposed a
Nominee to purchase his/her pro rata entitlement would otherwise be
entitled to purchase. The Defaulter shall be bound to transfer the Sale
Shares
5.
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comprised in the notice to the other member(s) or its/their Nominees at the
Prescribed Price, and if it makes default in so doing the Company may
receive the purchase money and the Directors may authorise some person to
execute a transfer as appropriate of the Sale Shares in favour of the other
members and/or their Nominee(s) ("the Shareholder Purchasers") and the
Company shall hold the purchase money in trust for the Defaulter. The
receipt by the Company of the purchase money shall be a good discharge to
the Shareholder Purchaser(s) and after its or their name has been entered
in the Company's Register of Members in exercise of the aforesaid power,
the validity of the proceedings shall not be questioned by any person. If
such purchase is not completed (for any reason other than the Defaulter's
delay or default) within such period of 28 days, then the certificates and
duly completed transfer of the Sale Shares shall be returned to the
Defaulter.
25.5 The Prescribed Price shall be such price as the members may agree per share
or in default of agreement within 30 days after the date on which the
Transfer Notice is served following a reference by any member to a
Referee such price per share as the Referee shall determine to be on the
date of receipt of the Transfer Notice the Fair Value as defined in
Article 25.6.
25.6 Fair Value shall be in respect of each Sale Share the same proportion of
the fair market value of the Company as a whole on the date of service of
the Transfer Notice as such Sale Share bears to the whole of the issued
share capital in the Company stated as a price per share as certified by
the Referee on the basis of a sale thereof as between a willing vendor and
a willing purchaser on the assumption that the Sale Shares will be
purchased in one lot by a purchaser contracting on arm's length terms, who
has no other interest in the Company and (if the Company is then continuing
as a going concern) on the assumption that all the Shares were ordinary
shares of the same class and that the Company will continue in business as
a going concern and having regard to any goodwill attaching to the Company
though taking into account (if that be the case) the fact that any material
contract or licence of the Company has been terminated. For this purpose,
the Referee shall be such independent merchant or investment bank with
acknowledged experience of the industry in which the Company operates as
the members may agree or, in default of agreement within seven days, as may
be nominated, on the request of any member, by the President for the time
being of the British Institute of Bankers, who shall be instructed to
produce his certificate within thirty days of his appointment and who shall
act as expert and not as arbitrator and whose certificate shall be final
and binding on the members, save in the event of manifest error. The fees
and expenses of the Referee shall be borne as to the other half by the
purchaser(s) of the Defaulter's Shares (if any) and as to the balance (or
the whole if there are no purchasers) by the Defaulter.
25.7 In the event that no notice or notices are received in accordance with
clause 25.3 above the Defaulter shall, be at liberty to sell all of the
Sale Shares at any time within 28 days after the expiry of the period of 14
days provided for under Article 25.2 to a third party at the Prescribed
Price and otherwise upon no more favourable terms than those offered to the
members.
6.
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25.8 Where any Transfer Notice is given by a member pursuant to this Article 25
such member may specify that until completion of any transfer pursuant to
this clause:
(a) any transfer by a Defaulter of its Shares (other than to or in
accordance with this Article 25) shall be void;
(b) no voting rights shall be exercisable by the Defaulter in
respect of its Shares; and
(c) no further Shares shall be issued or need be offered to the
Defaulter.
TRANSMISSION OF SHARES
26. If a member dies the survivor or survivors where he was a joint holder,
and his personal representatives where he was a sole holder or the only
survivor of joint holders, shall be the only persons recognised by the
company as having any title to his interest; but nothing herein contained
shall release the estate of a deceased member from any liability in
respect of any share which had been jointly held by him.
25. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member may, upon such evidence being produced as the
directors may properly require, elect either to become the holder of the
share or to have some person nominated by him registered as the
transferee. If he elects to become the holder he shall give notice to the
company to that effect. If he elects to have another person registered he
shall execute an instrument of transfer of the share to that person. All
the articles relating to the transfer of shares shall apply to the notice
or instrument of transfer as if it were an instrument of transfer executed
by the member and the death or bankruptcy of the member had not occurred.
26. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member shall have the rights to which he would be
entitled if he were the holder of the share, except that he shall not,
before being registered as the holder of the share, be entitled in respect
of it to attend or vote at any meeting of the company or at any separate
meeting of the holders of any class of shares in the company.
ALTERATION OF SHARE CAPITAL
27. The company may by ordinary resolution -
(a) increase its share capital by new shares of such amount as the
resolution prescribes;
(b) consolidate and divide all or any of its share capital into shares of
larger amount than its existing shares;
(c) subject to the provisions of the Act, sub-divide its shares, or any of
them, into shares of smaller amount and the resolution may determine
that, as between the shares resulting
7.
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from the sub-division, any of them may have any preference or
advantage as compared with the others; and
(d) cancel shares which, at the date of the passing of the resolution,
have not been taken or agreed to be taken by any person and diminish
the amount of its share capital by the amount of the shares so
cancelled
28. Whenever as a result of a consolidation of shares any members would become
entitled to fractions of a share, the directors may, on behalf of those
members, sell the shares representing the fractions for the best price
reasonably obtainable to any person (including, subject to the provisions
of the Act, the company) and distribute the net proceeds of sale in due
proportion among those members, and the directors may authorise some person
to execute an instrument of transfer of the shares to, or in accordance
with the directions of, the purchaser. The transferee shall not be bound
to see to the application of the purchase money nor shall his title to the
shares be affected by any irregularity in or invalidity of the proceedings
in reference to the sale.
29. Subject to the provisions of the Act, the company may by special resolution
reduce its share capital, any capital redemption reserve and any share
premium account in any way.
PURCHASE OF OWN SERIES
30. Subject to the provisions of the Act, the company may purchase its own
shares (including any redeemable shares) and, if it is a private company,
make a payment in respect of the redemption or purchase of its own shares
otherwise than out of distributable profits of the company or the proceeds
of a fresh issue of shares.
GENERAL MEETINGS
31. All general meetings other than annual general meetings shall be called
extraordinary general meetings.
32. The directors may call general meetings and, on the requisition of members
pursuant to the provisions of the Act, shall forthwith proceed to convene
an extraordinary general meeting for a date not later than eight weeks
after receipt of the requisition. If there are not within the United
Kingdom sufficient directors to call a general meeting, any director or
any member of the company may call a general meeting.
NOTICE OF GENERAL MEETINGS
33. An annual general meeting and an extraordinary general meeting called for
the passing of a special resolution or a resolution appointing a person as
a director shall be called by at least twenty-one clear days' notice. All
other extraordinary general meetings shall be called by at least fourteen
days' notice but a general meeting may be called by shorter notice if it is
so agreed -
(a) in the case of an annual general meeting, by all the members entitled
to attend and vote thereat; and
8.
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(b) in the case of any other meeting by a majority in number of the members
having a right to attend and vote being a majority together holding not
less than ninety-five per cent in nominal value of the shares giving
that right.
The notice shall specify the time and place of the meeting and the general
nature of the business to be transacted and, in the case of an annual
general meeting, shall specify the meeting as such.
Subject to the provisions of the articles and to any restrictions imposed
on any shares, the notice shall be given to all the members, to all persons
entitled to a share in consequence of the death or bankruptcy of a member
and to the directors and auditors.
34. The accidental omission to give notice of a meeting to, or the non-receipt
of notice of a meeting by, any person entitled to receive notice shall not
invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
35. No business shall be transacted at any meeting unless a quorum of members
is present at the time when the meeting proceeds to business. The quorum
for any general meeting shall be not less than two or more members
(including each member entitled to appoint a director pursuant to Article
67) entitled to vote upon the business to be transacted or by a duly
authorised representative present in person.
36. If such a quorum is not present within half an hour from the time appointed
for the meeting, or if during a meeting such a quorum ceases to be
present, the meeting shall stand adjourned to the same day in the next week
at the same time and place or to such time and place as the directors may
determine and such meeting will be quorate provided a member or members
holding more than 50% of the shares for the one time being in issue and
carry the rights to attend and vote at the meeting are present.
37. The chairman of the board of directors or in his absence some other
director nominated by the directors shall preside as chairman of the
meeting, but if neither the chairman nor such other director (if any) be
present within fifteen minutes after the time appointed for holding the
meeting and willing to act, the directors present shall elect one of their
number to be chairman and, if there is only one director present and
willing to act, he shall be chairman.
38. If no director is willing to act as chairman or if no director is present
within fifteen minutes after the time appointed for holding the meeting,
the members present and entitled to vote shall choose one of their number
to be chairman.
39. A director shall, notwithstanding that he is not a member, be entitled to
attend and speak at any general meeting and at any separate meeting of the
holders of any class of shares in the company.
9.
<PAGE>
40. The chairman may, with the consent of a meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting from
time to time and from place to place, but no business shall be transacted
at an adjourned meeting other than business which might properly have been
transacted at the meeting had the adjournment not taken place. When a
meeting is adjourned for fourteen days or more, at least seven clear days'
notice shall be given specifying the time and place of the adjourned
meeting and the general nature of the business to be transacted. Otherwise
it shall not be necessary to give any such notice.
41. A resolution put to the vote of a meeting shall be decided on a show of
hands unless before, or on the declaration of the result of, the show of
hands a poll is duly demanded. Subject to the provisions of the Act, a poll
may be demanded -
(a) by the chairman; or
(b) by at least two members having the right to vote at the meeting; or
(c) by a member or members representing not less than one-tenth of the
total voting rights of all the members having the right to vote at
the meeting; or
(d) by a member or members holding shares conferring a right to vote at
the meeting being shares on which an aggregate sum has been paid up
equal to not less than one-tenth of the total sum paid up on all the
shares conferring that right;
and a demand by a person as proxy for a member shall be the same as a
demand by the member.
42. Unless a poll is duly demanded a declaration by the chairman that a
resolution has been carried or carried unanimously, or by a particular
majority, or lost, or not carried by a particular majority and an entry to
that effect in the minutes of the meeting shall be conclusive evidence of
the fact without proof of the number or proportion of the votes recorded in
favour of or against the resolution.
43. The demand for a poll may, before the poll is taken, be withdrawn but only
with the consent of the chairman and a demand so withdrawn shall not be
taken to have invalidated the result of a show of hands declared before the
demand was made.
44. A poll shall be taken as the chairman directs and he may appoint
scrutineers (who need not be members) and fix a time and place for
declaring the result of the poll. The result of the poll shall be deemed to
be the resolution of the meeting at which the poll was demanded.
45. A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other question
shall be taken either forthwith or at such time and place as the chairman
directs not being more than thirty days after the
10.
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poll is demanded. The demand for a poll shall not prevent the continuance
of a meeting for the transaction of any business other than the question on
which the poll was demanded. If a poll is demanded before the declaration
of the result of a show of hands and the demand is duly withdrawn,the
meeting shall continue as if the demand had not been made.
46. No notice need be given of a poll not taken forthwith if the time and
place at which it is to be taken are announced at the meeting at which it
is demanded. In any other case at least seven clear days' notice shall be
given specifying the time and place at which the poll is to be taken.
47. A resolution in writing executed by or on behalf of each member who would
have been entitled to vote upon it if it had been proposed at a general
meeting at which he was present shall be as effectual as if it had been
passed at a general meeting duly convened and held and may consist of
several instruments in the like form each executed by or on behalf of one
or more members.
VOTES OF MEMBERS
48. Subject to any rights or restrictions attached to any shares, on a show of
hands every member who (being an individual) is present in person or
(being a corporation) is present by a duly authorised representative, not
being himself a member entitled to vote, shall have one vote and on a poll
every member shall have one vote for every share of which he is the holder.
49. In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders; and seniority shall be determined by the
order in which the names of the holders stand in the register of members.
50. A member in respect of whom an order has been made by any court having
jurisdiction (whether in the United Kingdom or elsewhere) in matters
concerning mental disorder may vote, whether on a show of hands or on a
poll, by his receiver, curator bonis or other person authorised in that
behalf appointed by that court, and any such receiver, curator bonis or
other person may, on a poll, vote by proxy. Evidence to the satisfaction of
the directors of the authority of the person claiming to exercise the right
to vote shall be deposited at the office, or at such other place as is
specified in accordance with the articles for the deposit of instruments of
proxy, not less than 48 hours before the time appointed for holding the
meeting or adjourned meeting at which the right to vote is to be exercised
and in default the right to vote shall not be exercisable.
51. No member shall vote at any general meeting or at any separate meeting of
the holders of any class of shares in the company, either in person or by
proxy, in respect of any share held by him unless all moneys presently
payable by him in respect of that share have been paid.
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52. No objection shall be raised to the qualification of any voter except
at the meeting or adjourned meeting at which the vote objected to is
tendered, and every vote not disallowed at the meeting shall be valid.
Any Objection made in due time shall be referred to the chairman whose
decision shall be final and conclusive.
53. On a poll votes may be given either personally or by proxy. A member
may appoint more than one proxy to attend on the same occasion.
54. An instrument appointing a proxy shall be in writing, executed by or on
behalf of the appointor and shall be in the following form (or in a
form as near thereto as circumstances allow or in any other form which
is usual or which the directors may approve) -
" PLC/Limited
I/We, , of
, being
a member/members of the above-named company, hereby appoint
of
, or failing
him, of , as my/our proxy to vote in my/our
names[s] and on my/our behalf at the annual/extraordinary general
meeting of the company to be held on
19 , and at any adjournment thereof.
Signed on 19 ."
55. Where it is desired to afford members an opportunity of instructing
the proxy how he shall act the instrument appointing a proxy shall be
in the following form (or in a form as near thereto as circumstances
allow or in any other form which is usual or which the directors may
approve) -
" PLC/Limited
I/We, , of
,being a
member/members of the above-named company, hereby appoint
of
or failing him, of , as my/our proxy
to vote in my/our name[s] and on my/our behalf at the
annual/extraordinary general meeting of the company, to be held on
19 , and at any adjournment thereof.
This form is to be used in respect of the resolutions mentioned
below as follows:
Resolution No. 1 *for *against
Resolution No. 2 *for *against.
*Strike out whichever is not desired.
12.
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Unless otherwise instructed, the proxy may vote as he thinks fit or
abstain from voting.
Signed this day of 19 ."
56. The instrument appointing a proxy and any authority under which it is
executed or a copy of such authority certified notarially or in some
other way approved by the directors may -
(a) be deposited at the office or at such other place within the
United Kingdom as is specified in the notice convening the
meeting or in any instrument of proxy sent out by the company in
relation to the meeting not less than 48 hours before the time
for holding the meeting or adjourned meeting at which the person
named in the instrument proposes to vote;
or
(b) in the case of a poll taken more than 48 hours after it is
demanded, be deposited as aforesaid after the poll has been
demanded and not less than 24 hours before the time appointed
for the taking of the poll; or
(c) where the poll is not taken forthwith but is taken not more than
48 hours after it was demanded, be delivered at the meeting at
which the poll was demanded to the chairman or to the secretary
or to any director;
and an instrument of proxy which is not deposited or delivered in a manner so
permitted shall be invalid.
57. A vote given or poll demanded by proxy or by the duly authorised
representative of a corporation shall be valid notwithstanding the
previous determination of the authority of the person voting or
demanding a poll unless notice of the determination was received by
the company at the office or at such other place at which the
instrument of proxy was duly deposited before the commencement of the
meetings or adjourned meeting at which the vote is given or the poll
demanded or (in the case of a poll taken otherwise than on the same
day as the meeting or adjourned meeting) the time appointed for taking
the poll.
NUMBER OF DIRECTORS
58. Unless otherwise approved by special resolution, the number of
directors (other than alternate directors) shall not be less than
two nor more than eleven directors.
ALTERNATE DIRECTORS
59. Any director (other than an alternate director) may appoint any person
willing to act, to be an alternate director and may remove from office
an alternate director so appointed by him.
60. An alternate director shall be entitled to receive notice of all
meetings of directors and of all meetings of committees of directors of
which his appointor is a member, to attend and vote at any such
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meeting at which the director appointing him is not personally present, and
generally to perform all the functions of his appointor as a director in
his absence but shall not be entitled to receive any remuneration from the
company for his services as an alternate director. But it shall not be
necessary to give notice of such a meeting to an alternate director who is
absent from the United Kingdom.
61. An alternate director shall cease to be an alternate director if his
appointor ceases to be a director; but, if a director retires but is
reappointed or deemed to have been reappointed at the meeting at which he
retires, any appointment of an alternate director made by him which was in
force immediately prior to his retirement shall continue after his
reappointment.
62. Any appointment or removal of an alternate director shall be by notice to
the company signed by the director making or revoking the appointment or in
any other manner approved by the directors.
63. Save as otherwise provided in the articles, an alternate director shall be
deemed for all purposes to be a director and shall alone be responsible for
his own acts and defaults and he shall not be deemed to be the agent of the
director appointing him.
POWERS OF DIRECTORS
64. Subject to the provisions of the Act, the memorandum and the articles and
to any directions given by ordinary resolution, the business of the company
shall be managed by the directors who may exercise all the powers of the
company. No alteration of the memorandum or articles and no such direction
shall invalidate any prior act of the directors which would have been valid
if that alteration had not been made or that direction had not been given.
The powers given by this regulation shall not be limited by any special
power given to the directors by the articles and a meeting of directors at
which a quorum is present may exercise all powers exercisable by the
directors.
65. The directors may, by power of attorney or otherwise, appoint any person to
be the agent of the company for such purposes and on such conditions as
they determine, including authority for the agent to delegate all or any of
his powers.
DELEGATION OF DIRECTORS' POWERS
66. The directors may delegate any of their powers to any committee consisting
of one or more directors including at least one director appointed by each
member entitled to appoint a director pursuant to Article 67. They may also
delegate to any managing director or any director holding any other
executive office such of their powers as they consider desirable to be
exercised by him. Any such delegation may be made subject to any conditions
the directors may impose, and either collaterally with or to the exclusion
of their own powers and may be revoked or altered. Subject to any such
conditions, the proceedings of a committee with two or more members shall
be governed by the articles regulating the proceedings of directors so far
as they are capable of applying.
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APPOINTMENT OF DIRECTORS
67. Each member shall be entitled to appoint up to such number of directors as
is stated in the table below. Any member who holds more than 50% of the
issued Ordinary Shares from time to time shall be entitled to appoint a
majority of the directors and remove and replace any such directors from
time to time. The right to appoint, remove or replace a director shall be
exercisable by notice to the company a copy of which notice shall be given
to any shareholder not exercising or giving such notice.
Members's Member may appoint
Percentage Holding up to the following
of Ordinary Shares number of Directors
------------------ -------------------
0-9.9 0
10-27.9 2
28-37-9 3
38-46.9 4
49-50 5
In excess of 50% The remaining Members
of the Board
For the purpose of this table, a member shall be deemed to hold not only
Ordinary Shares in its name but also those held in the name of its
Associates.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
68. The office of a director shall be vacated if -
(a) he ceases to be a director by virtue of any provision of the Act or he
becomes prohibited by law from being a director; or
(b) he becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
(c) he is, or may be, suffering from mental disorder and either -
(i) he is admitted to hospital in pursuance of an application
for admission for treatment under the Mental Health Act
1983 or, in Scotland, an application for admission under
the Mental Health (Scotland) Act 1960, or
(ii) an order is made by a court having jurisdiction (whether in
the United Kingdom or elsewhere) in matters concerning
mental disorder for his detention or for the appointment of
a receiver, curator bonis or other person to exercise
powers with respect to his property or affairs;
or
15.
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(d) he resigns his office by notice to the company; or
(e) he shall for more than six consecutive months have been absent
without permission of the directors from meetings of directors held
during that period and the directors resolve that his office be
vacated.
REMUNERATION OF DIRECTORS
69. The directors shall be entitled to such remuneration as the company may by
ordinary resolution determine and, unless the resolution provides
otherwise, the remuneration shall be deemed to accrue from day to day.
DIRECTORS' EXPENSES
70. The directors shall not be entitled to any expenses incurred by them in
connection with their attendance at meetings of directors or committees of
directors or several meetings or separate meetings of the holders of any
class of shares or of debentures of the company or otherwise in connection
with the discharge of their duties.
DIRECTORS' APPOINTMENTS AND INTERESTS
71. Subject to the provisions of the Act, the directors may appoint one or more
of their number to the office of Managing Director to any other executive
office in the company and may enter into an agreement or arrangement with
any director for his employment by the company or for the provision by him
of any services outside the scope of the ordinary duties of a director.
Any such appointment, agreement or arrangement may be made upon such terms
as the directors determine and they may remunerate any such director for
his services as they think fit. Any appointment of a director to an
executive office shall terminate if he ceases to be a director but without
prejudice to any claim to damages for breach of the contract of service
between the director and the company.
72. Without prejudice to the obligation of any director to disclose his
interest in accordance with Section 317 of the Act, a director
notwithstanding his office -
(a) may be a party to, or otherwise interested in, any transaction or
arrangement with the company or in which the company is otherwise
interested:
(b) may be a director or other officer of, or employed by, or a party to
any transaction or arrangement with, or otherwise interested in, any
body corporate promoted by the company or in which the company is
otherwise interested: and
(c) shall not, by reason of his office, be accountable to the company for
any benefit which he derives from any such office or employment or
from any such transaction or arrangement or from any interest in any
such body corporate and no such transaction or arrangement shall be
liable to be avoided on the ground of any such interest or benefit.
16.
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DIRECTORS' GRATUITIES AND PENSIONS
73. The directors may provide benefits, whether by the payment of gratuities or
pensions or by insurance or otherwise, for any director who has held but no
longer holds any executive office or employment with the company or with
any body corporate which is or has been a subsidiary of the company or a
predecessor in business of the company or of any such subsidiary, and for
any member of his family (including a spouse and a former spouse) or any
person who is or was dependent on him, and may (as well before as after he
ceases to hold such office or employment) contribute to any fund and pay
premiums for the purchase or provision of any such benefit.
PROCEEDINGS OF DIRECTORS
74. Subject to the provisions of the articles, the directors may regulate their
proceedings as they think fit. A director may, and the secretary at the
request of a director shall, call a meeting of the directors. Questions
arising at a meeting shall be decided by a majority of votes. In the case
of an equality of votes, the chairman shall not have a second or casting
vote. A director who is also an alternate director shall be entitled in
the absence of his appointor to a separate vote on behalf of his appointor
in addition to his own vote.
75. The quorum for the transaction of the business of the directors and unless
so fixed at any other number shall be not less than two and must include
one director appointed by each Major Shareholder. A person who holds
office only as an alternate director shall, if his appointor is not
present, be counted in the quorum. If such quorum is not present within
half an hour from the time appointed for the meeting, the meeting shall
stand adjourned to the same day in the next week at the same time and place
and such meeting shall be quorate if any two directors are present.
76. A meeting of the directors may be validly held notwithstanding that all of
the directors are not present at the same place and at the same time
provided that:
(a) a quorum of the directors at the time of the meeting are in direct
communication with each other whether by way of telephone, audio-
visual link or other form of telecommunication: and
(b) a quorum of the directors entitled to attend a meeting of the
directors agree to the holding of the meeting in the manner described
herein.
77. The continuing directors or a sole continuing director may act
notwithstanding any vacancies in their number, but, if the number of
directors is less than the number fixed as the quorum, the continuing
directors or director may act only for the purpose of filling vacancies or
of calling a general meeting.
17.
<PAGE>
78. The directors may appoint one of their number to be the chairman of the
board of directors and may at any time remove him from that office. Unless
he is unwilling to do so; the director so appointed shall preside at every
meeting of directors at which he is present. But if there is no director
holding that office, or if the director holding it is unwilling to preside
or is not present within fifteen minutes after the time appointed for the
meeting, the directors present may appoint one of their number to be
chairman of the meeting.
79. All acts done by a meeting of directors, or of a committee of directors, or
by a person acting as a director shall, notwithstanding that it be
afterwards discovered that there was a defect in the appointment of any
director or that any of them were disqualified from holding office, or had
vacated office, or were not entitled to vote, be as valid as if every such
person had been duly appointed and was qualified and had continued to be a
director and had been entitled to vote.
80. A resolution in writing signed by all the directors entitled to receive
notice of a meeting of directors or of a committee of directors shall be as
valid and effectual as if it had been passed at a meeting of directors or
(as the case may be) a committee of directors duly convened and held and
may consist of several documents in the like form each signed by one or
more directors, but a resolution signed by an alternate director need not
also be signed by his appointor and, if it is signed by a director who has
appointed an alternate director, it need not be signed by the alternate
director in that capacity.
DIRECTORS' INTERESTS
81. Without prejudice to the obligation of any Director to disclose his
interest in accordance with Section 317 of the Act, a Director may vote in
regard to any contract or arrangement in which he is interested or upon any
matter arising thereat and if he shall so vote his vote shall be counted
and he shall be reckoned in ascertaining whether there is present a quorum
at any meeting at which any such contract or arrangement is considered. A
Director may act by himself or his firm in any professional capacity for
the Company and he or his firm may be entitled to remuneration for
professional services as if he were not a Director; provided that nothing
herein contained shall authorise a Director or his firm to act as auditor
to the Company.
SECRETARY
82. Subject to the provisions of the Act, the secretary shall be appointed by
the directors for such term, at such remuneration and upon such conditions
as they may think fit, and any secretary so appointed may be removed by
them.
MINUTES
83. The directors shall cause minutes to be made in books kept for the
purpose -
18.
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(a) of all appointments of officers made by the directors; and
(b) of all proceedings at meetings of the company, of the holders of any
class of shares in the company, and of the directors, and of committees
of directors, including the names of the directors present at each such
meeting.
THE SEAL
84. The seal shall only be used by the authority of the directors or of a
committee of directors authorised by the directors. The directors may
determine who shall sign any instrument to which the seal is affixed and
unless otherwise so determined it shall be signed by a director and by the
secretary or by a second director.
DIVIDENDS
85. Subject to the provisions of the Act, the company may by ordinary
resolution declare dividends in accordance with the respective rights of
the members, but no dividend shall exceed the amount recommended by the
directors.
86. Subject to the provisions of the Act, the directors may pay interim
dividends if it appears to them that they are justified by the profits of
the company available for distribution. If the share capital is divided
into different classes, the directors may pay interim dividends on shares
which confer deferred or non-preferred rights with regard to dividend as
well as on shares which confer preferential rights with regard to dividend,
but no interim dividend shall be paid on shares carrying deferred or non-
preferred rights if, at the time of payment, any preferential dividend is
in arrear. The directors may also pay at intervals settled by them any
dividend payable at a fixed rate if it appears to them that the profits
available for distribution justify the payment. Provided the directors act
in good faith they shall not incur any liability to the holders of shares
conferring preferred rights for any loss they may suffer by the lawful
payment of an interim dividend on any shares having deferred or non-
preferred rights.
87. Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid up on
the shares on which the dividend is paid. All dividends shall be
apportioned and paid proportionately to the amounts paid up on the shares
during any portion or portions of the period in respect of which the
dividend is paid; but, if any share is issued on terms providing that it
shall rank for dividend as from a particular date, that share shall rank
for dividend accordingly.
88. A general meeting declaring a dividend may, upon the recommendation of the
directors, direct that it shall be satisfied wholly or partly by the
distribution of assets and, where any difficulty arises in regard to the
distribution, the directors may settle the same and in particular may issue
fractional certificates and fix the value for distribution of any assets
and may determine that cash shall be paid to any member upon the footing of
the value so fixed in order to adjust the rights of members and may vest
any assets in trustees.
19.
<PAGE>
89. Any dividend or other moneys payable in respect of a share may be paid by
cheque sent by post to the registered address of the person entitled or, if
two or more persons are the holders of the share or are jointly entitled to
it by reason of the death or bankruptcy of the holder, to the registered
address of that one of those persons who is first named in the register of
members or to such person and to such address as the person or persons
entitled may in writing direct. Every cheque shall be made payable to the
order of the person or persons entitled or to such other person as the
person or persons entitled may in writing direct and payment of the cheque
shall be a good discharge to the company. Any joint holder or other person
jointly entitled to a share as aforesaid may give receipts for any dividend
or other moneys payable in respect of the share.
90. No dividend or other moneys payable in respect of a share shall bear
interest against the company unless otherwise provided by the rights
attached to the share.
91. Any dividend which has remained unclaimed for twelve years from the date
when it became due for payment shall, if the directors so resolve, be
forfeited and cease to remain owing by the company.
ACCOUNTS
92. No member shall (as such) have any right of inspecting any accounting
records or other book or document of the company except as conferred by
statute or authorised by the directors or by ordinary resolution of the
company.
CAPITALISATION OF PROFITS
93. The directors may with the authority of an ordinary resolution of the
company -
(a) subject as hereinafter provided, resolve to capitalise any undivided
profits of the company not required for paying any preferential
dividend (whether or not they are available for distribution) or any
sum standing to the credit of the company's share premium account or
capital redemption reserve;
(b) appropriate the sum resolved to be capitalised to the members who would
have been entitled to it if it were distributed by way of dividend and
in the same proportions and apply such sum on their behalf either in or
towards paying up the amounts, if any, for the time being unpaid on any
shares held by them respectively, or in paying up in full unissued
shares or debentures of the company of a nominal amount equal to that
sum, and allot the shares or debentures credited as fully paid to those
members, or as they may direct, in those proportions, or partly in one
way and partly in the other; but the share premium account, the capital
redemption reserve, and any profits which are not available for
distribution may, for the purposes of this regulation, only be applied
in paying up unissued shares to be allotted to members credited as
fully paid;
20.
<PAGE>
(c) make such provision by the issue of fractional certificates or by
payment in cash or otherwise as they determine in the case of shares or
debentures becoming distributable under this regulation in fractions;
and
(d) authorise any person to enter on behalf of all the members concerned
into an agreement with the company providing for the allotment to them
respectively, credited as fully paid, of any shares or debentures to
which they are entitled upon such capitalisation, any agreement made
under such authority being binding on all such members.
NOTICES
94. Any notice to be given to or by any person pursuant to the articles shall
be in writing except that a notice calling a meeting of the directors need
not be in writing.
95. The company may give any notice to a member either personally or by
sending it by post in a prepaid envelope (airmail if overseas)
addressed to the member at his registered address or by leaving it at that
address. In the case of joint holders of a share, all notices shall be
given to the joint holding and notice so given shall be sufficient notice
to all the joint holders. Notice of every general meeting of the Company
shall be given to every member of the Company who has provided the Company
with an address for such purposes, whether within or outside the United
Kingdom.
96. A member present, either in person or by proxy, at any meeting of the
company or of the holders of any class of shares in the company shall be
deemed to have received notice of the meeting and, where requisite, of
the purposes for which it was called.
97. Every person who becomes entitled to a share shall be bound by any notice
in respect of that share which, before his name is entered in the register
of members, has been duly given to a person from whom he derives his title.
98. Proof that an envelope containing a notice was properly addressed, prepaid
and posted shall be conclusive evidence that the notice was given. A notice
shall be deemed to be given at the expiration of 96 hours after the
envelope containing it was posted.
99. A notice may be given by the company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending or delivering
it, in any manner authorised by the articles for the giving of notice to a
member, addressed to them by name, or by the title of representatives of
the deceased, or trustee of the bankrupt or by any like description at the
address, if any, whether within or outside the United Kingdom supplied for
that purpose by the persons claiming to be so entitled. Until such an
address has been supplied, a notice may be given in any manner in which it
might have been given if the death or bankruptcy had not occurred.
21.
<PAGE>
WINDING UP
100. If the company is wound up, the liquidator may, with the sanction of an
extraordinary resolution of the company and any other sanction required by
the Act, divide among the members in specie the whole or any part of the
assets of the company and may, for that purpose, value any assets and
determine how the division shall be carried out as between the members or
different classes of members. The liquidator may, with the like sanction,
vest the whole or any part of the assets in trustees upon such trusts for
the benefit of the members as he with the like sanction determines, but no
member shall be compelled to accept any assets upon which there is a
liability.
INDEMNITY
101. Subject to the provisions of the Act but without prejudice to any
indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the company shall be indemnified out of the
assets of the company against any liability incurred by him in defending
any proceedings, whether civil or criminal, in which judgment is given in
his favour or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability
for negligence, default, breach of duty or breach of trust in relation to
the affairs of the company.
22.
<PAGE>
DENTON HALL
This Agreement is entered into this day of 1995,
by and between:
(1) Harris Trust and Savings Bank of 111 West Monroe Street, Chicago, Illinois
60603, United States of America ("Harris");
(2) LaSalle National Bank of 120 La Salle Street, Chicago, Illinois 60603,
United States of America ("LaSalle");
(3) Continental Shelf 16 Limited a company registered in England under no.
3005499 whose address is Twyman House, 16 Bonny Street, London NW1 9PG
("Flextech");
(4) Playboy TV UK/Benelux Limited of Twyman House, 16 Bonny Street, London
NW1 9PG ("the Joint Venture")
WHEREAS the parties are entering into this Agreement pursuant to an agreement
dated 1995 between Playboy Entertainment Group, Inc. ("Playboy"),
Playboy Enterprises, Inc. ("Playboy Enterprises"), Flextech and the Joint
Venture ("the Head Agreement").
NOW IT IS HEREBY AGREED as follows:
1. For the purposes of this Agreement:
(a) all capitalised words and expressions used but not defined in this
Agreement shall be defined as in the Head Agreement;
(b) the expression "the Lenders" shall mean each of Harris and LaSalle and
their respective assigns and successors in title under the Loan
Documents;
1.
<PAGE>
DENTON HALL
(c) the expression a "Default" shall mean any default by Playboy
Enterprises in or in respect of any of its obligations under the Loan
Documents or any other occurrence which in either case results in
action by or on behalf of either or both of the Lenders to foreclose
upon, assert control over, take possession of, sell or otherwise
enforce its or their security over the Collateral or any Part thereof;
(d) the expression "Programming Collateral" shall mean the entire right
title and interest of Playboy and each Affiliate of Playboy (including
but not limited to Playboy Enterprises), and of their successors in
title and assigns, in and to the Programmes, Third Party Programmes,
any Future Programmes, the Trade Marks and any Delivery Material in
respect of any of the Programmes, Third Party Programmes or Future
Programmes;
(e) the expression "Collateral" shall mean the Programming Collateral and
the respective Interests (as defined in the Shareholders' Agreement) of
Playboy and Playboy Enterprises in the Joint Venture;
(f) the expression "Affiliate of Playboy" shall mean any person which is
from time to time either directly or indirectly controlling, controlled
by or under common control with Playboy and for this purpose "control"
means in relation to a person the power of another person ("the
Controlling Person") to secure, whether by the holding of shares or the
possession of voting rights in or in relation to that person or any
other person or the provisions of any agreement or otherwise, that the
affairs of that person are conducted in accordance with the wishes of
the Controlling Person;
(g) the expression a "Future Programme" shall mean any Programme or Third
Party Programme which (notwithstanding the absence of an obligation on
the Lenders to fund the creation or distribution of new Programmes or
Third Party Programmes) comes into existence at any time after any
Default.
2.
<PAGE>
DENTON HALL
2. In consideration of Flextech and the Joint Venture each agreeing to observe
and comply with the provisions of the Shareholders' Agreement, The
Trademark Agreement, the Programme Agreement and/or the Head Agreement
which it is bound to observe and comply with, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, each of the Lenders hereby undertakes and covenants with
Flextech and the Joint Venture that the Lenders shall:
(a) promptly notify Flextech and the Joint Venture of the occurrence of any
Default;
(b) in the event of any Default forebear from exercising (other than in
compliance with the provisions of Clause 3) any of their rights
against, in or to the Programmes and Third Party Programmes then in
existence, any Future Programmes or the Trade Marks, or any of them,
or any Delivery Material in relation to any of the Programmes or Third
Party Programmes, or any Future Programmes;
(c) not, at any time whilst the Collateral is pledged to it, take any
action (other than in compliance with the provisions of Clause 3) which
would interfere with the performance by Playboy or Playboy Enterprises
of their respective obligations under the Programme Agreement or under
the Trademark Agreement or the exercise by the Joint Venture of any of
its rights under the Programme Agreement or under the Trademark
Agreement with respect to the Programmes and Third Party Programmes
then in existence or any Future Programmes or with respect to the Trade
Marks
provided that neither Flextech nor the Joint Venture is in default of and
shall comply with all of their respective payment obligations under the
Shareholders' Agreement and the Programme Agreement in accordance with
their terms, and subject always to the provisions of Clause 3.
3.
<PAGE>
DENTON HALL
3. Notwithstanding anything in this Agreement to the contrary:
(a) action may be taken by or on behalf of any one or more of the Lenders
to foreclose upon, assert control over, take possession of, sell or
otherwise enforce its liens or security interests on the Collateral or
any part thereof PROVIDED HOWEVER THAT (subject to the provisions of
Clause 4):
(i) any such action shall be taken subject to the terms of the sole
and exclusive license granted to the Joint Venture under the
Programme Agreement in and to each Programme and Third Party
Programme within the territory ("the Territory") of the United
Kingdom, the Republic of Ireland, Belgium, the Netherlands and
Luxembourg (and each other country to which the Lenders have
agreed with Playboy in writing) and subject also to the terms of
the exclusive license granted to the Joint Venture to use the
Trade Marks within the Territory under the Trademark Agreement;
(ii) following the taking of any such action the Lenders shall either
(A) permit and make available to the Joint Venture (or such person
as the Joint Venture may direct the Lenders in writing) access
(in each case to the extent that it is within the rights of
the Lenders to do so) to the Delivery Material required to be
furnished by Playboy to the Joint Venture under the Programme
Agreement; or
(B) (in the case of any sale or disposition of the Programming
Collateral (or any part thereof) to any person under or by
virtue of such action) require that person to permit and make
available to the Joint Venture (or such person as the Joint
Venture may direct the Lenders in writing) access to the
Delivery Material
4.
<PAGE>
DENTON HALL
required to be furnished by Playboy to the Joint Venture under
the Programme Agreement;
(b) neither the Lenders, nor any person who acquires any rights in any
Programming Collateral under or by virtue of any disposition or other
enforcement of the Lenders' rights therein, assumes liability for any
positive obligations of Playboy under the Programme Agreement including
without limitation the obligations of Playboy to provide a Scheduler,
to create or physically deliver Delivery Material to the Joint Venture,
to create or fund the creation of Programmes or Delivery Material or to
acquire or fund the acquisition of Third Party Programmes (it being
understood and agreed that in the event of a Default the Lenders have
no obligation to consent to, and shall be entitled to take steps to
prevent, the creation by Playboy (or any other person acting on behalf
of Playboy) of any Future Programmes or any Delivery Material in
relation to any Future Programmes).
4. Provisos (i) and (ii) to sub-clause 3(a) above shall continue to apply if
and so long as:
(a) all payments due and to become due (if any) to Playboy under the
Programme Agreement after the Joint Venture has been notified of any
Default by the Lenders shall (subject to laws which provide third party
priorities or otherwise provide to the contrary, to the order of any
court of competent jurisdiction, to the provisions of Clause 5 below
and to Playboy Enterprises continuing to perform its obligations under
the Trademark Agreement in accordance with its terms and to the extent
to which Playboy is continuing to perform its obligations under the
Programme Agreement in accordance with its terms) have been made
directly to the Lenders or their designee (to the extent so requested
by the Lenders in writing to the Joint Venture); and
(b) in the event that any payments made by the Joint Venture to the Lenders
or their designee pursuant to sub-clause 4(a) above are not in an
amount sufficient to reimburse the Lenders for their reasonable out-of-
pocket costs and expenses
5.
<PAGE>
DENTON HALL
(if any) of permitting access to the Delivery Material in accordance
with proviso (ii) to sub-clause 3(a) above, the Lenders shall have
received within twenty-one (21) days after having notified the Joint
Venture to that effect such additional amount as will so reimburse
them.
5. In the event that the Joint Venture pays any additional amount to the
Lenders pursuant to sub-clause 4(b) above, the Lenders agree that the Joint
Venture shall be entitled to deduct such additional amount from any
payment(s) which subsequently become(s) due to Playboy under the Programme
Agreement.
6. Except where any governmental department, agency or regulatory body
requires a Lender to assign to a governmental department, agency or
regulatory body the promissory notes evidencing that Lender's credit to
Playboy so as to maintain that Lender's liquidity, each of the Lenders
undertakes that it shall not assign any of its rights under any of the Loan
Documents to any person unless that person shall first have entered into an
agreement with Flextech and the Joint Venture which is substantially
similar in form and substance to this Agreement.
7. This Agreement shall be construed and the rights and obligations of the
parties hereunder determined in accordance with the law of the State of
Illinois, United States of America. The parties hereby consent to the non-
exclusive jurisdiction of the federal courts of the federal districts
having jurisdiction over the State of Illinois located in Cook County.
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be
entered into as of the date set forth above.
HARRIS TRUST AND SAVINGS BANK
By: R.L. Dell'Artino
--------------------------
Its: VICE PRESIDENT
6.
<PAGE>
DENTON HALL
LASALLE NATIONAL BANK
By: Robert Kastenholz
-----------------------------
Its: Senior Vice President
CONTINENTAL SHELF 16 LIMITED
By:
-----------------------------
Its:
PLAYBOY TV UK/BENELUX LIMITED
By:
------------------------------
Its:
7.
<PAGE>
DENTON HALL
AGREEMENT
This Agreement is entered into this day of 1995, by and between
Playboy Entertainment Group, Inc. ("Playboy"), Playboy Enterprises, Inc.
("Playboy Enterprises"), Continental Shelf 16 Limited ("Flextech") and Playboy
TV UK/Benelux Limited (the "Joint Venture").
WHEREAS, Playboy, Playboy Enterprises, Flextech and the Joint Venture intend to
enter into today that certain Programme Supply Agreement (the "Programme
Agreement"), that certain Shareholders' Agreement (the "Shareholders'
Agreement") and that certain Trademark Agreement (the "Trademark Agreement");
and
WHEREAS, Playboy Enterprises intends to enter into, among other things, a loan
and security agreement and related agreements (the "Loan Documents") with the
Harris Trust and Savings Bank and the LaSalle National Bank (collectively, the
"Lenders" which expression shall include their successors in title and assigns)
pursuant to which the Lenders will cause to make a loan or a series of loans and
other financial accommodations to Playboy Enterprises; and
WHEREAS, to secure Playboy Enterprises' obligations under the Loan Documents,
Playboy Enterprises intends to pledge certain assets to the Lenders as
collateral for the aforementioned loans (the "Bank Collateral"); and
WHEREAS, included among the Bank Collateral to be pledged to the Lenders in
accordance with the Loan Documents are or may be those certain "Programmes" and
"Third Party Programmes" as those terms are defined in Section 1.1 of the
Programme Agreement and the "Trade Marks" as that term is defined in Section
1.1 of the Trademark Agreement; and
WHEREAS, Flextech has sought assurances from Playboy and Playboy Enterprises as
to its rights in and to the Programmes and the Third Party Programmes as set
forth in the Programme Agreement and in and to the Trade Marks as set forth in
the Trademark
1.
<PAGE>
DENTON HALL
Agreement in the event of any default by Playboy Enterprises under the Loan
Documents or any other occurrence which results in any action by or on behalf of
the Lenders to foreclose upon or assert control over the Bank Collateral; and
WHEREAS, the parties herein deem it necessary to enter into this Agreement
immediately prior to executing the Shareholders' Agreement, the Programme
Agreement and the Trademark Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements
set forth below and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Notwithstanding the provisions of the Shareholders' Agreement, the
Programme Agreement and the Trademark Agreement but subject to the
performance by Playboy and Playboy Enterprises of their obligations under
paragraph 2 and sub-paragraph 3(a) hereof:
(a) Flextech hereby consents to the pledging to the Lenders of any or all
of the shares in the capital of, and the other Interests (as defined in
the Shareholders' Agreement) in, the Joint Venture held by Playboy
and/or Playboy Enterprises.
(b) Flextech hereby waives any rights which it might have pursuant to the
Shareholders' Agreement to treat the pledging of any such shares to the
Lenders as the deemed service by Playboy of a Transfer Notice (as
defined in the Shareholders' Agreement) provided that nothing contained
in this Agreement shall preclude Flextech from exercising any rights
which it may have, whether under the Shareholders' Agreement or
otherwise, in the event that any of the Lenders propose(s) to Transfer
(as defined in the Shareholders' Agreement) any shares in the capital
of the Joint Venture to any person.
(c) Flextech hereby undertakes that it shall not Transfer any of its shares
in the capital of the Joint Venture to any person other than Playboy or
Playboy Enterprises unless Flextech shall have obtained from any such
person (a copy
2.
<PAGE>
DENTON HALL
of which shall be delivered promptly to Playboy and Playboy Enterprises)
a consent, waiver and undertaking substantially similar in form and
substance to the consent, waiver and undertaking hereinabove given in
sub-paragraphs 1(a), (b) and (c).
(d) The Joint Venture hereby consents to the pledging to the Lenders as part
of the Bank Collateral of the following:
(i) the Programmes, the Third Party Programmes and the Trade Marks; and
(ii) the benefit of the Programme Agreement and the Trade Mark
Agreement.
2. In consideration of Flextech and the Joint Venture each agreeing today to
enter into the Shareholders' Agreement, the Trademark Agreement and/or the
Programme Agreement and of the consents and waiver given by Flextech and the
Joint Venture under paragraph 1 hereof, Playboy shall not later than 28
February 1995 obtain from each of the Lenders and deliver to Flextech and
the Joint Venture a forbearance agreement duly executed by each of the
Lenders in the form attached to this Agreement (the "Forbearance
Agreement").
3. The obligations of Playboy and Playboy Enterprises under this Agreement
shall be continuing in nature such that:
(a) in the event that Playboy Enterprises enters into any such other or
further secured lending agreements with institutions other than the
Lenders; or
(b) in the event that any of the Lenders assigns any of its rights under any
of the Loan Documents to any person (other than any governmental
department, agency or regulatory body as described in the exception to
paragraph 6 of the Forbearance Agreement)
3.
<PAGE>
DENTON HALL
Playboy and Playboy Enterprises shall promptly obtain from any such
lender(s) or assignee(s) and deliver to Flextech and the Joint Venture an
agreement substantially similar in form and substance to the Forbearance
Agreement.
4. Playboy and Playboy Enterprises hereby jointly and severally warrant and
represent to Flextech and the Joint Venture that the entry into the Loan
Documents and the pledging of the Bank Collateral to the Lenders will not
(unless any or the Lenders default in the performance of their obligations
to Flextech and the joint Venture under the Forbearance Agreement) interfere
in any material respect with the performance by Playboy or Playboy
Enterprises of their respective obligations (if any) under the Programme
Agreement or under the Trademark Agreement or the exercise by the Joint
Venture of any of its rights under the Programme Agreement or under the
Trademark Agreement with respect to the Programmes and Third Party
Programmes or with respect to the Trade Marks.
5. The obligations and liability of Playboy and Playboy Enterprises under this
Agreement shall be joint and several.
6. This Agreement shall be governed by and construed in all respects in
accordance with English law and the parties agree to submit to the exclusive
jurisdiction of the English Courts as regards any claim or matter arising in
relation to this Agreement. Playboy hereby appoints O'Melveny & Myers of
10 Finsbury Square London EC2A 1LA, England as its authorised agent for the
purpose of accepting service of process for all purposes in connection with
this Agreement.
7. In the event of any inconsistency between the provisions of this Agreement
on the one hand and the provisions of the Shareholders' Agreement, the
Programme Agreement and the Trademark Agreement on the other hand, the
provisions of this Agreement shall prevail.
IN WITNESS WHEREOF, the parties herein have caused this Agreement to be
entered into as of the date set forth above.
4.
<PAGE>
PLAYBOY ENTERTAINMENT PLAYBOY ENTERPRISES, INC.
GROUP, INC.
By: /s/ Myron DuBow By:
------------------------- -------------------------
Its: Its:
PLAYBOY TV UK/BENELUX LIMITED CONTINENTAL SHELF 16 LIMITED
By: By:
------------------------- -------------------------
Its: Its:
5.
<PAGE>
PLAYBOY ENTERTAINMENT PLAYBOY ENTERPRISES, INC.
GROUP, INC.
By: By: /s/ David I. Chemerow
------------------------- -------------------------
Its: Its: Exec. Vice President
PLAYBOY TV UK/BENELUX LIMITED CONTINENTAL SHELF 16 LIMITED
By: By:
------------------------- -------------------------
Its: Its:
6.
<PAGE>
PLAYBOY ENTERTAINMENT PLAYBOY ENTERPRISES, INC.
GROUP, INC.
By: By:
------------------------- -------------------------
Its: Its:
PLAYBOY TV UK/BENELUX LIMITED CONTINENTAL SHELF 16 LIMITED
By: /s/ Roger Luard By: /s/ Roger Luard
------------------------- -------------------------
Its: Its:
5.
<PAGE>
WARNER HOME VIDEO/CRITICS' CHOICE
---------------------------------
DIRECT MARKETING LICENSE AGREEMENT
----------------------------------
This Agreement is entered into as of February 22, 1994, by and between WARNER
HOME VIDEO, a Division of Time Warner Entertainment Company, L.P. ("WHV"),
whose address is 4000 Warner Boulevard, Burbank, California 91522 and CRITICS'
CHOICE VIDEO, INC. ("Critics' Choice"), whose address is 800 West Thorndale
Avenue, Itasca, Illinois 60143.
1. DEFINITIONS: As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Audiovisual Work(s)": A series of related images which are shown
---------------------
by the use of machines or devices, such as projectors, viewers, or electronic
equipment, together with accompanying sounds, such as films or tapes, in which
the works are embodied. "Audiovisual Works" as defined herein shall be deemed
to refer to the Video Software which is the subject matter of this Agreement.
(b) "Continuity Series": An arrangement under which programs in a
-------------------
Series are shipped to customers at intervals on a subscription basis.
(c) "Direct Marketing Distribution": The distribution of Video Devices
-------------------------------
direct to consumers for Home Video Exhibition through any direct mail or mail
order distribution method wherein the consumer uses the mail, or other direct
delivery method, to purchase or receive Video Devices, including, without
limitation, direct mail sales, mail order catalogue sales, Video Club Plan
distribution, space advertising sales, insert program sales, television and
cable and/or radio broadcast, and telephone order distribution, but specifically
excluding Continuity Series.
(d) "Home Video Exhibition": The private, non-public exhibition in
-----------------------
homes and residences of Audiovisual Works by means of Video Devices where no
exhibition, admission, viewing or other fee is charged to anyone for the
exhibition of the Video Device(s) and where there is no public performance of
any form or type. "Home Video Exhibition" as herein defined shall not include
free television exhibition, cable television exhibition, pay or subscription
television exhibition, video on demand, or theatrical exhibition.
(e) "Net Paid Revenues": The gross amounts actually invoiced by
-------------------
Critics' Choice from the sale or other distribution of Video Devices (excluding
shipping and handling charges charged to the consumer) less (i) any sales,
excise, use and value-added taxes (collectively, "taxes") incurred in connection
with the distribution of such Video Devices, (ii) any actual returns as provided
for hereunder, and (iii) any actual bad debts. The amount of such deductions for
actual bad debts and actual returns
-1-
<PAGE>
shall not, in the aggregate, exceed ten percent (10%) of the amount invoiced by
Critics' Choice in connection with the distribution of the Video Devices. It is
specifically understood and agreed that Critics' Choice shall not deduct any
sums from gross revenues as a reserve for future returns.
(f) "New Release": The initial release of a Title by WHV for Home
-------------
Video Exhibition in the Territory, or the re-release of any Title, as designated
by WHV in WHV's sole discretion for such exhibition in the Territory.
(g) "Release Date": The date of initial release or re-release, of
--------------
Video Software, as determined on a Title by Title basis, by WHV for Home Video
Exhibition in the Territory, such date to be determined by WHV in WHV's sole and
absolute discretion.
(h) "Series": A group of Audiovisual Works connected by a common plot,
--------
theme or subject matter.
(i) "Territory": The United States, its territories and possessions,
-----------
excluding Puerto Rico, and Canada.
(j) "Term of this Aqreement": The period of time commencing as of the
------------------------
date hereof, and terminating three (3) years thereafter.
(k) "Video Club Plan Distribution": Any direct response plan or
------------------------------
arrangement through which a consumer purchases Video Devices according to terms
offered by Critics' Choice including, without limitation, a Video Club Plan
whereby (i) Video Devices are shipped automatically to consumers at specific
intervals, (ii) consumers may, at their option, purchase any number of Video
Devices, by Title, from a catalog, or (iii) any combination or variation of (i)
and (ii) herein, but expressly excluding Continuity Series.
(l) "Video Device(s)": Any form of one-half inch (1/2") videocassette
-----------------
embodying the Video Software on which Audiovisual Works can be recorded which,
when used in conjunction with video hardware, can be exhibited visually (whether
or not synchronized with sound) on the screen of a television receiver or any
device comparable to a television receiver now known or hereafter known or in
existence, and is sold in its original shrink-wrapped packaging.
(m) "Video Software": All Video Devices embodying Audiovisual Works
----------------
which are licensed to MGM/UA Home Video by Turner Entertainment Company ("TEC")
pursuant to that certain August 25, 1986 Agreement entered into between TEC and
MGM/UA Home Entertainment Group, as MGM/UA Home Video's predecessor in
interest, for which WHV has Direct Marketing Distribution rights which (i) had
an initial theatrical release prior to December 31, 1986, (ii) are released by
WHV as of a specific Release Date for
-2-
<PAGE>
Home Video Exhibition in the Territory during the Term of this Agreement, (iii)
are not withdrawn by WHV pursuant to Paragraph 7, and (iii) are designated by
WHV as being covered by the terms of this Agreement; provided, however, that the
Audiovisual Work entitled "Gone With The Wind" shall not be included as an
Audiovisual Work licensed to Critics' Choice under this Agreement. Individually,
the Video Software sometimes may be referred to as a "Title".
2. GRANT OF RIGHTS:
---------------
(a) Right to Advertise, Distribute and Sell Video Devices: WHV hereby
-----------------------------------------------------
grants to Critics' Choice solely for the purpose of sale by means of Direct
Marketing Distribution, the non-exclusive right, privilege and license during
the Term of this Agreement, in the Territory, to advertise, distribute and sell
for Home Video Exhibition, those Video Devices embodying that Video Software
described herein which are purchased by Critics' Choice from WHV hereunder,
pursuant to the terms and conditions set forth in this Agreement.
(b) Riqht to Purchase Video Devices: WHV hereby grants to Critics'
-------------------------------
Choice the right to purchase Video Devices embodying that certain Video Software
which WHV releases for distribution in the Home Video market in the
Territory. The within described grant of rights shall include that Video
Software which (i) has been made available by WHV for distribution as of the
Release Date as described in this Agreement, and has not been withdrawn pursuant
to Paragraph 7, as of the date of full execution of this Agreement, and (ii) is
described in Subparagraph l.(m) above.
(c) Reservation of Rights: Any rights not specifically granted to
---------------------
Critics' Choice hereunder are hereby reserved by and to WHV. Except as
specifically set forth herein, Critics' Choice shall have no rights whatsoever
with respect to the Video Devices and the Video Software embodied thereon, and
nothing herein contained shall prohibit WHV from making use of the Video
Software and Video Devices for any purpose whatsoever.
3. TRADEMARKS, PROMOTION AND ADVERTISING RIGHTS:
--------------------------------------------
(a) Use of Trademarks, Tradenames, Logos: WHV hereby grants to
------------------------------------
Critics' Choice the non-exclusive right, during the Term, to use, at WHV's
direction and subject to WHV's prior written approval, those trademarks,
tradenames, logos, labels and artwork owned, controlled, or distributed by WHV
and MGM/UA, in connection with the promotion, advertising, distribution and sale
of the Video Devices.
(b) Use of Names/Likenesses: To the extent that WHV holds such rights,
-----------------------
WHV hereby grants to Critics' Choice, during the Term, the non-exclusive right
to use, at WHV's direction and subject to WHV's prior written approval, the
names, likenesses
-3-
<PAGE>
and voices of the performers and any other individuals who have performed
services in connection with the Video Software, including biographical material
furnished by WHV to Critics' Choice for advertising and promoting the Video
Software, in connection therewith, and on packaging therefor; provided, however,
if WHV does not have any of these rights, WHV will notify Critics' Choice in
writing no later than thirty (30) days after receipt of Critics' Choice's
initial request therefor regarding such Title.
(c) Advertising: To the extent that WHV holds such rights, WHV hereby
-----------
grants to Critics' Choice, during the Term of this Agreement, the non-exclusive
right to advertise, promote and publicize the Video Software in any medium. Such
advertising, promotion and publicity may include synopsis or excerpts limited to
two (2) minutes of the Video Software Title(s), or the pre-existing
advertisements, publicity pieces and promotional materials, in whole or in part,
related to such Video Software Title(s) as provided to Critics' Choice pursuant
to Paragraph 8 hereof.
(d) Critics' Choice Trademarks: Critics' Choice shall have the right
--------------------------
to affix any of its labels, trademarks, service marks, tradenames, logos,
designs or artwork ("Critics' Choice's Trademarks") on the outside of the
shrink-wrapped packaging for the Video Devices thereof, and on any promotional,
publicity or advertising materials used in the distribution by Critics' Choice
of such Video Devices; provided, however, that Critics' Choice's Trademarks
shall not be larger than the largest similar mark of MGM/UA or WHV, or of the
Video Software Title as mentioned by name, or of any individual mentioned
anywhere on such Video Software Packaging.
4. ADVANCE: Critics' Choice shall pay to WHV a non-returnable and non-
-------
refundable Advance which is recoupable against the royalties payable to WHV
pursuant to Paragraph 5, in the sum of Two Million Eight Hundred Thousand
Dollars ($2,800,000) as follows:
(a) Five Hundred Sixty Thousand Dollars ($560,000) shall be paid to
WHV upon execution of this Agreement by Critics' Choice;
(b) One Million One Hundred Twenty Thousand Dollars ($1,120,000)
shall be paid to WHV no later than February 1, 1995; and
(c) one Million One Hundred Twenty Thousand Dollars (S1,120,000) shall
be paid to WHV no later than February 1, 1996.
Such amounts shall be paid to WHV on the dates set forth above irrespective of
whether the royalties accrued to Critics' Choice's account exceed the advances
already paid as of such dates.
-4-
<PAGE>
5. ROYALTIES: Critics' Choice shall pay to WHV royalties based on Net
---------
Paid Revenues as follows:
(a) High List Videos: With respect to one hundred percent (100%)
----------------
of Net Paid Revenues derived from Video Devices distributed by Critics'
Choice for which WHV's suggested retail price is Twenty Dollars ($20.00)
or higher, Critics' Choice shall pay to WHV royalties as follows:
(i) For any Video Device sold by Critics' Choice at Nineteen
Dollars and Ninety-Nine Cents ($19.99) or less, Critics' Choice shall pay
to WHV a royalty of Three Dollars ($3.00) per Video Device; and
(ii) For any Video Device sold by Critics' Choice at Twenty
Dollars ($20.00) or higher, Critics' Choice shall pay to WHV a royalty of
fifteen percent (15%) of Critics' Choice's actual Net Paid Revenues per
Video Device.
(b) Low List Videos: With respect to one hundred percent (100%)
---------------
of Net Paid Revenues derived from Video Devices distributed by Critics'
Choice for which WHV's suggested list price is Nineteen Dollars and Ninety-Nine
Cents ($19.99) or less, Critics' Choice shall pay to WHV royalties as follows:
(i) For any Video Device sold by Critics' Choice at Nine Dollars
and Ninety-Nine Cents ($9.99) or less, Critics' Choice shall pay to WHV
a royalty of One Dollar and Fifty Cents ($1.50) per Video Device; and
(ii) For any Video Device sold by Critics' Choice at Ten Dollars
($10.00) or higher, Critics' Choice shall pay to WHV a royalty of fifteen
percent (15%) of Critics' Choice's actual Net Paid Revenues per Video Device.
(c) Inventory Prior to Term: Critics' Choice shall have no obligation
-----------------------
to pay royalties to WHV for Video Devices which are in Critics' Choice's
inventory on or before the commencement of the Term of this Agreement. A
complete statement of the Video Devices in Critics' Choice's inventory as
of the commencement of the Term of this Agreement, which statement is subject
to audit by WHV, is attached hereto as Schedule "B".
(d) Price Changes: WHV will use its best efforts to notify Critics'
-------------
Choice of any change in the suggested list price of a Title prior to the
effective date of such price change; provided, however, any inadvertent
breach of this Subparagraph shall not be a material breach hereof.
6. RELEASE DATES:
-------------
(a) Release Date: Subject to Subparagraph 6.(b) below, Critics'
------------
Choice shall have the right to advertise, market and distribute for Home
Video Exhibition in the Territory, Video
-5-
<PAGE>
Devices embodying any given Video Software Title at the same time and as
of the same date as WHV's published Release Date for that particular Title.
(b) New Releases: Notwithstanding the foregoing, any New Releases
------------
of a Title shall not be offered by Critics' Choice for sale, or other
distribution, at a loss, or as a "loss leader" as that term is used in consumer
advertising and marketing, or included in advertising which solicits new
members for any Video Club Plan Distribution, during the first ninety (90)
days from and after the Release Date of such Title.
7. WITHDRAWAL OF TITLE(S):
----------------------
(a) Reasons for Withdrawal: WHV shall have the right to withdraw
----------------------
any Video Software Title and terminate WHV's obligations under this Agreement
with respect to any particular Video Software ("Withdrawal") if (i) WHV's
right in such particular Title terminates, (ii) in WHV's sole judgment,
withdrawal is prudent to minimize the possible damage to WHV from any pending,
threatened, or possible lawsuit or proceeding, (iii) the payments which
WHV is required to make to third parties as a result of sales of the Video
Devices are equal to or exceed the royalties payable to WHV hereunder, unless
Critics' Choice agrees to pay to WHV the full amount of such third party
payments (in addition to any other amounts which Critics' Choice owes WHV
for such sales), in which event Critics' Choice may continue to distribute
hereunder, or (iv) WHV withdraws a Title for any other reason from all of
the Territory.
(b) Withdrawal Shall Not Constitute Breach: It is understood and
--------------------------------------
agreed that withdrawal pursuant to this Paragraph shall not constitute a
breach of WHV's obligations under this Agreement, and shall not affect any
Video Devices previously sold by Critics' Choice.
(c) Withdrawal of Titles: Upon receipt of notice from WHV regarding
--------------------
withdrawal of any Title, Critics' Choice shall cease advertising, promoting
or offering such Video Software for sale, and Critics' Choice shall return
to WHV all such Video Devices which are in Critics' Choice's inventory together
with all advertising and other materials relating to such Video Software
supplied by WHV. Critics' Choice shall also revise Critics' Choice's
advertising and promotional materials to indicate that such Video Software
is not longer available. If necessary, and upon WHV's specific written request,
Critics' Choice shall discontinue fulfilling existing orders, or orders
which may be in the process of transmittal to Critics' Choice, for those
Video Software Titles which WHV has withdrawn and which Critics' Choice
had been advertising, promoting or offering. Upon return to WHV of all such
Video Devices, WHV shall credit to Critics' Choice the manufacturing cost
of each of the Video Devices so returned, plus reasonable shipping charges.
-6-
<PAGE>
8. PHYSICAL MATERIALS IN CONNECTION WITH MANUFACTURING AND
-------------------------------------------------------
PROMOTIONAL RIGHTS:
------------------
(a) Advertising, Publicity and Promotion Materials: WHV will deliver
----------------------------------------------
to Critics' Choice at such place within the Territory as Critics' Choice
may reasonably designate, promptly after Critics' Choice's request therefor,
a reasonable quantity of pre-existing advertisements, publicity pieces and
promotion materials concerning each of the Video Software Titles as WHV
may have available, including, but not limited to:
(i) a pressbook;
(ii) a synopsis of each Title, if such is available;
(iii) color artwork in the form of slides, chromes, posters or
otherwise;
(iv) duplicate negatives and positive prints of black and
white still photographs and color transparencies of color still
photographs depicting scenes from the Video Software (on a Title by
Title basis), the majority of which depict the principal performers.
Each still photograph shall be accompanied by a notation identifying
the persons and events depicted and shall be suitable for reproduction
for advertising and publicity purposes;
(v) a synopsis of and the guidelines for the advertising
credits that are to be used for distribution of the Video Devices;
and
(vi) a list of the principal performers and their roles.
(b) Costs of Materials: Critics' Choice shall pay WHV for all
------------------
costs incurred by WHV in connection with duplicating and shipping the materials
delivered pursuant to this Paragraph 8 promptly after notice to Critics'
Choice by WHV of such costs.
9. MANUFACTURE OF VIDEO DEVICES:
----------------------------
(a) Manufacture: WHV will manufacture, or cause to have manufactured,
-----------
Video Devices during the Term of this Agreement. With WHV's consent, Critics'
Choice shall not offer for sale for Direct Marketing Distribution any Video
Device embodying the Video Software licensed hereunder which is not
manufactured or caused to be manufactured by WHV. All Video Devices shall
be sold in the original packages provided by WHV.
(b) Pricing: Critics' Choice shall pay WHV for the Video Devices
-------
which WHV manufactures or causes to have manufactured, in accordance with
the prices listed on Schedule "A" attached hereto which prices may increase
or decrease from
-7-
<PAGE>
time to time in WHV's sole discretion; provided, however, any aggregate
price increase shall be in direct proportion to those price increases incurred
by or passed back to WHV; and, provided further, WHV shall pass back to
Critics' Choice any price decrease which equals or exceeds fifteen percent
(15%) of the price(s) listed on Schedule "A".
(c) Delivery: Critics' Choice shall place orders for Video Devices
--------
in writing and WHV will attempt to deliver finished product within thirty
(30) days of receipt of Critics' Choice's order subject to the terms of
Paragraph 10. If WHV anticipates that WHV will not be able to fulfill any
such order in the quantities stated in such order, and within such thirty
(30) day time period, WHV will notify Critics' Choice of such delayed delivery,
including the approximate delivery dates, within twenty-one (21) days of
receipt of Critics' Choice's order. Any failure to deliver Video Devices
to Critics' Choice within such thirty (30) day time period shall not be
a breach hereof, and WHV shall not be obligated to fill any order for any
Video Software in a format which is not then being distributed by WHV in
that format for Home Video Exhibition.
(d) Shipment: WHV will ship the Video Devices F.O.B. Critics'
--------
Choice's warehouse located at 800 West Thorndale, Itasca, Illinois 60143.
WHV shall be obligated only to bulk ship the Video Devices to one destination
as stated herein; Critics' Choice will pay all costs of shipping. Critics'
Choice shall bear the cost of shipping, risk of loss and cost of insurance
for shipping to the destination designated by Critics' Choice as stated
above.
10. PAYMENT FOR VIDEO DEVICES: Payment for all Video Devices ordered
-------------------------
and shipped to Critics' Choice shall be made in accordance with the terms
of WHV's invoice(s) therefor, and pursuant to WHV's terms of sale in effect
at the time of invoicing. Unless otherwise stated, payment shall be made
by Critics' Choice within thirty (30) days of invoicing by WHV to Critics'
Choice. All orders are subject to Critics' Choice's maintaining good credit
as determined by WHV in WHV's sole discretion, and, in accordance therewith,
Critics' Choice shall provide to WHV credit information if so requested.
Critics' Choice shall pay all sales and other taxes, and any other costs,
associated with the sale and delivery of the Video Devices.
11. FULFILLMENT:
-----------
(a) Fulfillment Services: Critics' Choice shall be responsible
--------------------
for the fulfillment of all orders for Video Devices originating from Critics'
Choice's offer(s) to consumers to purchase the Video Software, and, in
connection therewith, Critics' Choice shall provide and be responsible for
implementing and maintaining all fulfillment services which are customary
in, and legally required by, the Direct Marketing Distribution of Video
Devices.
-8-
<PAGE>
(b) Exploitation: Except as stated to the contrary in this Agreement,
------------
Critics' Choice shall have the right to exploit the Video Devices of the
Audiovisual Works licensed hereby pursuant to the terms and conditions of
this Agreement; provided, however, Critics' Choice may use such methods,
policies and terms as it may determine, in its reasonable business judgment,
are necessary to exploit the Video Devices of the Audiovisual Works as herein
described.
(c) Indemnity for Fulfillment: Critics' Choice shall, at Critics'
-------------------------
Choice's sole expense, indemnify and hold WHV harmless from and against
any and all claims, costs, liabilities, obligations, judgments or damages
(including reasonable attorneys' fees) arising out of or in connection with
any suit, proceeding, claim or demand brought against WHV in connection with
Critics' Choice's fulfillment of, or failure to fulfill, all orders for
Video Devices embodying the Video Software.
12. ALL SALES FINAL: All sales to Critics' Choice shall be final and
---------------
Critics' Choice shall have no right to return to WHV any unsold or returned
Video Devices, except for defective Video Devices. Defective Video Devices
may be returned directly to the duplicator, West Coast Duplicating, Inc.
("West Coast") at 1961 Stearman Avenue, Hayward, California 94545, not more
frequently than semi-annually, at Critics' Choice's expense. Critics' Choice
shall provide WHV with a list of the titles returned to West Coast at the
time that the Video Devices are returned. West Coast shall check such Video
Devices which Critics' Choice believes are defective pursuant to its standard
quality control procedures. WHV will credit Critics' Choice for any Video
Device which is determined to contain a manufacturer's defect. All other
Video Devices shall be shipped back to Critics' Choice, at Critics' Choice's
expense. Critics' Choice shall pay WHV, within thirty (30) days of receipt
of an invoice, the cost of the quality control review in connection with
those Video Devices found not to contain manufacturer's defects, not to
exceed twenty five cents ($0.25) per unit.
13. TERMINATION AND POST-TERMINATION SALES:
--------------------------------------
(a) Sell Off Period: Subject to any restrictions to which Critics'
---------------
Choice may be subject, WHV agrees that during a period of six (6) months
after the expiration or earlier termination of this Agreement (the "Sell-Off
Period"), Critics' Choice may, in the same manner and to the same extent
as during the Term of this Agreement, advertise, distribute and sell Video
Software only if Critics' Choice has existing inventory of Video Devices
in excess of orders received before such termination date; provided, however,
Video Software which has been withdrawn pursuant to Paragraph 7 shall not
be subject to the terms of this Paragraph 13, or any of its subparts. With
respect to all other Video Software, Critics' Choice will continue to have
the right to purchase inventory, but only to the extent necessary to fulfill
orders received during the Term of the Agreement.
-9-
<PAGE>
(b) Payment of Royalties During Sell-Off Period: With respect
-------------------------------------------
to all Video Devices distributed during the Sell-Off Period, WHV shall be
paid royalties and rendered accounting statements with respect to such Video
Devices in the same manner and on the same dates as during the Term hereof;
provided, however, that Critics' Choice shall not be permitted to recoup
its advances from royalties payable to WHV during the Sell-Off Period (unless
the Agreement terminates as a result of WHV's breach of the Agreement).
(c) Repurchase of Inventory: Following the expiration of the Term
-----------------------
and Sell-Off Period, or earlier termination of this Agreement, Critics'
Choice shall notify WHV as to the number and type of Video Devices then
remaining on hand, and WHV may, at WHV's option, repurchase any such Video
Device(s), at the manufacturing cost paid by Critics' Choice for such Video
Devices plus reasonable shipping charges, or, at WHV's option, WHV may instruct
Critics' Choice to destroy such Video Devices. If any such Video Devices
are destroyed, Critics' Choice shall furnish to WHV an affidavit or certified
statement sworn to by an authorized officer of Critics' Choice. With respect
to any such Video Device purchased by WHV as aforesaid, notwithstanding
anything to the contrary contained in this Agreement, WHV will pay all excise
taxes and any other amounts payable in connection with the sale by Critics'
Choice to WHV of such Video Devices.
14. ROYALTY STATEMENTS:
------------------
(a) Quarterly Accounting Statements: Critics' Choice shall compute
-------------------------------
the royalties payable to WHV on a quarterly, calendar-year basis, and Critics'
Choice shall render an accounting statement to WHV within forty-five (45) days
following the end of each such quarterly accounting period, commencing on March
31, and continuing thereafter on June 30, September 30 and December 31. Each
such quarterly accounting statement shall be accompanied by payment of the
amounts due to WHV pursuant to such accounting statement. Each accounting
statement shall show, on a Title by Title basis, the number of Video Devices
distributed, the gross revenues invoiced therefor, the Net Paid Revenues,
including the amounts deducted, if any, from gross revenues, the royalties
earned, and the basis upon which the royalties have been calculated for the
immediately preceding three month period.
(b) Books and Records: Critics' Choice shall maintain accurate
-----------------
and complete books and records in accordance with generally accepted accounting
principles at Critics' Choice's principal place of business for a period
of two (2) years from and after the end of the Term of this Agreement, and
WHV shall have the right to examine such books and records at any time during
Critics' Choice's normal business hours upon reasonable notice.
-10-
<PAGE>
15. AUDIT:
-----
(a) Right of Audit: WHV shall have the right to examine such books
and records at the location described in Subparagraph 14.(b), and to make
copies thereof and extract excerpts therefrom, at any time during normal
business hours for the purpose of verifying the accuracy of the quarterly
accounting and royalty statements. This right of audit shall exist for the
period of two (2) years from and after WHV receives any such statement and
shall survive the Term of this Agreement.
(b) Statement Binding: Unless WHV objects to a statement as described
-----------------
below, all accounting statements rendered to WHV shall become conclusively
binding on WHV at the end of the two (2) year period described above. WHY
shall have the right to audit Critics' Choice's books for the period of
time covered by the statement.
(c) Objections: If WHV has any objections to a statement rendered
----------
pursuant hereto, WHV shall give Critics' Choice specific notice in writing
of the objection within two (2) years after WHV either receives the
objectionable accounting entry pursuant to a regularly conducted audit,
whichever is later. WHV shall, at WHV's option, commence an audit with respect
to any such objection within the two (2) year period referred to herein,
or within one (1) year from the notice stating the objection, whichever
is later.
(d) Underpayment: If WHV discovers an underpayment by Critics'
------------
Choice, then Critics' Choice shall immediately pay WHV all sums due and owing
with interest thereon at the prime rate of interest plus two percent (2%)
during the period of time such sums were due and owing, but were not paid,
to WHV. If there is a discrepancy in connection with such underpayment of
more than ten percent (105), then Critics' Choice shall reimburse WHV for
all costs of the audit.
16. REPRESENTATIONS AND WARRANTIES:
------------------------------
(a) WHV's Representations and Warranties: WHV warrants, represents,
------------------------------------
covenants and agrees that:
(i) WHV has the right and power to enter into and fully perform
this Agreement, including the right to grant to Critics' Choice the rights
as provided for hereunder; and
(ii) To the best of WHV's knowledge, there is no litigation,
proceeding or claim pending or threatened pertaining to the Video Software
which may materially affect WHV's rights in and to the Video Software, or
the works and performances embodied thereon, the copyrights pertaining thereto,
or the rights, licenses and privileges granted to Critics' Choice pursuant
to this Agreement.
-11-
<PAGE>
(b) Critics' Choice Representations and Warranties: Critics' Choice
----------------------------------------------
warrants, represents, covenants and agrees that:
(i) Critics' Choice has the right, power and authority to
enter into and fully perform this agreement;
(ii) Critics' Choice shall comply with all credit, trademark
and copyright obligations;
(iii) Critics' Choice shall maintain accurate books of accounts
in connection with all distribution and sales pursuant to this Agreement,
including without limitation, the information required in order to comply
with the terms of Paragraph 14;
(iv) Critics' Choice is not now, nor during the Term of this
Agreement shall Critics' Choice be, under any obligation, contractual or
otherwise, to any other person, firm, or corporation that conflicts, interferes
or is inconsistent with any of the provisions of this Agreement or any of
the rights granted to Critics' Choice hereunder;
(v) Critics' Choice shall not advertise or promote the Video
Software in a manner which is disparaging of the Titles licensed hereby,
including with limit, the persons and/or the entities associated therewith,
or of WHV, WHV's affiliated companies, or WHV's employees, officers and
directors;
(vi) to the best of Critics' Choice's knowledge, there is
no litigation, proceeding or claim pending or threatened against Critics'
Choice which may materially affect Critics' Choice's right to enter into
and perform this Agreement;
(vii) Critics' Choice shall not edit, modify or couple any
other Video software devices with any of WHV's Video Devices; and
(viii) Critics' Choice shall not pledge, mortgage or in any
way encumber, or permit any pledge, mortgage or encumbrance of this Agreement,
the Video Software or Video Devices, or any other materials delivered pursuant
to this Agreement.
17. INDEMNITY: Each party will at all times indemnify (the "Indemnitor")
---------
and hold harmless the other party (the "Indemnitee"), and any of its employees,
subsidiaries, affiliated or related companies, from and against any and
all claims, damages, liabilities, costs and expenses, including legal expenses
and reasonable attorney's fees, arising out of any breach by the Indemnitor
of any warranty, representation, covenant or agreement made by the Indemnitor
pursuant to this Agreement. Prompt notice will be given by the Indemnitee
to the Indemnitor of any claim to which this indemnity relates and the
Indemnitor shall have the right, at the Indemnitor's expense, to
-12-
<PAGE>
assume the handling, settlement or defense of such claim, including the
hiring of attorneys. The Indemnitee shall cooperate with the Indemnitor
in the defense and settlement of any such claim or litigation. The Indemnitor
will reimburse the Indemnitee on demand for any payment made at any time
after the date hereof with respect to any liability or claim to which the
Indemnitee is entitled to be indemnified, provided that no such payment
shall be made without the consent of the Indemnitor, which consent shall
not be unreasonably withheld. The warranties made pursuant to Paragraph
16, and this within mutual indemnification, shall survive the expiration
or earlier termination of this Agreement.
18. BREACH AND CURE: Neither party shall be entitled to recover damages
---------------
or terminate this Agreement by reason of any breach by the other party of
any material obligation(s) hereunder unless such other party has failed
to remedy such breach within thirty (30) days following receipt of written
notice of such breach.
19. ASSIGNMENT: WHV shall have the right to assign this Agreement
----------
in whole or in part to an affiliate of: (i) WHV, (ii) Time Warner, Inc.
or (iii) MGM/UA Home Entertainment. Critics' Choice may not assign this
Agreement without WHV's prior written consent, which shall not be unreasonably
withheld.
20. NOTICES:
-------
(a) Method of Notice: Except as otherwise specifically provided
----------------
for herein, all notices hereunder shall be in writing and shall be given
by personal delivery, registered or certified mail, or telegraph (prepaid),
or telecopier with a copy sent by mail as provided for herein, at the
respective addresses set forth below, or such other address or addresses
as may be designated by either party by notice sent in accordance with the
terms of this Paragraph. Such notices shall be deemed given when mailed,
telecopies or delivered to a telegraph office, except that notice of change
of address shall be effective only from the date of its receipt.
(b) Addresses: Each notice shall be sent to Critics' Choice at
---------
800 West Thorndale, Itasca, Illinois 60143, ATTN: Herb Laney, President,
with a copy to: Senior Vice President, General Counsel, at 680 North Lakeshore
Drive, Chicago, Illinois 60611. Each notice shall be sent to WHV at 4000
Warner Boulevard, Burbank, California 91522, ATTN: Vice President, Operations,
Warner Home Video, with a copy to: General Counsel, Warner Home Video, at
the address set forth herein.
21. FORCE MAJEURE: IF, because of acts of God, inevitable accident,
-------------
fire, lockout, strike or other labor dispute, riot or civil commotion, act
of public enemy, enactment, rule, order, or act of any governmental or
governmental instrumentality (whether federal, state, local or foreign),
failure of technical
-13-
<PAGE>
facilities, failure or delay of transportation facilities, or other cause of a
similar or different nature not reasonably with WHV's or Critics' Choice's
control, WHV or Critics' Choice is materially hampered in the manufacture,
distribution or sale of the Video Devices or otherwise in the performance of
WHV's or Critics' Choice's respective obligations hereunder, then, for the
duration of such contingency or for a period of six (6) months, whichever is
shorter, either party may suspend or terminate this Agreement by providing
written notice to the other to such effect. Nothing contained herein shall
affect Critics' Choice's obligation under this Agreement to account to WHV and
to pay royalties due to WHV pursuant to this Agreement.
22. ENTIRE AGREEMENT: This Agreement contains the entire understanding
----------------
of the parties hereto relating to the subject matter hereof and cannot be
changed or modified except by a separate written document executed by both
parties hereto.
23. WAIVER: A waiver by either party of any term or condition of this
------
Agreement in any instance shall not be deemed or construed as a waiver of
such term or condition for the future, or of any subsequent breach thereof.
All remedies, rights, undertakings, obligations and agreements contained
in this Agreement shall be cumulative, and none of them shall be in limitation
of any other remedy, right, undertaking, obligation or agreement of either
party.
24. RELATIONSHIP OF PARTIES: Each of the parties hereto shall have
-----------------------
the status of an independent contractor with respect to the other party,
and nothing stated hereinabove shall be deemed to create between the parties
a relationship of agency, employer and employee, partnership or similar
relationship.
25. GOVERNING LAW: This Agreement shall be construed by and interpreted
-------------
in accordance with the laws of the State of California applicable to agreements
executed and intended to be wholly performed in the State of California.
Any action or proceeding arising out of this Agreement shall be instituted
and tried only in the courts located in California and both parties hereby
waive any right to institute or try any action or proceeding elsewhere with
respect to the subject matter hereof.
26. HEADINGS: The Paragraph and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
27. SEVERABILITY: The invalidity or unenforceability of any provision
------------
of this Agreement shall in no way affect the validity or enforceability
of any other provision of this Agreement, to the extent such is possible
and to the extent such is not material to the performance by either party
to this Agreement.
-14-
<PAGE>
28. CONFIDENTIALITY: All the terms and conditions of this Agreement
shall remain confidential, and not public statement or other public
announcement regarding this Agreement, in whole or in part, shall be released,
issued or made without the prior mutual written approval of both Critics'
Choice and WHV, except as may be required by law.
Very truly yours,
WARNER HOME VIDEO, a Division ACCEPTED AND AGREED TO:
of Time Warner Entertainment CRITICS' CHOICE VIDEO, INC.
Company, L.P.
/s/ James Carowell /s/ Herbert M. Laney
By:__________________________ By:__________________________
James Carowell Herbert M. Laney
Name:________________________ Name:________________________
Exec. Vice President President
Its:_________________________ Its:_________________________
2/22/94 2/15/94
Date:________________________ Date:________________________
-15-
<PAGE>
EXHIBIT "A"
PRICES
(See attached)
Exhibit "A"
-1-
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV101292 MGM'S GRTST M'MTS VHS $2.31 $0.00 $0.00 $0.53 $2.84
MV200138 FEARLESS VAMPIRE KILLER VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV200195 CATLOW $3.19 $0.00 $0.00 $0.00 $3.19
MV200197 SHAFT'S BIG SCORE $3.22 $0.00 $0.00 $0.00 $3.22
MV200274 JULIUS CAESAR VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200279 PRIVATE PARTS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV200288 MARLOWE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV200306 BOYFRIEND, THE VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV200352 COMEDIANS, THE $4.70 $0.00 $0.00 $0.00 $4.70
MV200359 ALL FALL DOWN VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV200381 PRIZE VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV200389 GOODBYE MR CHIPS-'69 VHS-REDF $4.76 $0.00 $0.00 $0.00 $5.26
MV200398 THEY ONLY KILL THEIR MASTERS $3.15 $0.00 $0.00 $0.00 $3.15
MV200407 ESCAPE FROM FORT BRAVO $3.15 $0.00 $0.00 $0.00 $3.15
MV200413 KING SOLOMON MN-'50 VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV200437 HOUSE DARK SHADOWS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV200439 TARZAN & HIS MATE-RSTD VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV200441 HIT THE DECK VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV200504 LIVE A/LOVE A LITTLE VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV200509 LADY L $3.22 $0.00 $0.00 $0.00 $3.22
MV200510 LUST FOR LIFE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200513 WINGS OF EAGLES VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV200518 XX AMERICAN EMILY-B/W VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV200525 STAY AWAY JOE SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV200526 TROUBLE WITH GIRLS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV200527 WRECK OF THE MARY DEARE $3.22 $0.00 $0.00 $0.00 $3.22
MV200532 LAW AND JAKE WADE, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV200630 CAPTIAN SINBAD VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV200638 V.I.P.S, THE $3.36 $0.00 $0.00 $0.00 $3.36
MV200641 SCARAMOUCHE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV200660 TORPEDO RUN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV200665 TEAHOUSE AUGUST MOON VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200693 WONDERFUL WORLD BROS GRIM VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV200695 XX DAFFY DUCK-DUCKY VHS $2.01 $0.00 $0.00 $0.53 $2.54
MV200697 XX PORKY PIG: TOOTH VHS $2.01 $0.00 $0.00 $0.53 $2.54
MV200700 XX ELMER FUDD-AN ITCH VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200702 HORTON HEARS WHO VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV200704 POGO BIRTHDAY VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200711 CHILDREN OF DAMNED VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200718 BHOWANI JUNCTION VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV200735 EACH DAWN I DIE VHS SILVER $2.96 $0.00 $0.00 $0.45 $3.41
MV200736 BULLETS OR BALLOTS VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV200737 BROTHER ORCHID $3.01 $0.00 $0.00 $0.00 $3.01
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV200755 LOVE ME OR LEAVE ME VHS RED $3.37 $0.00 $0.00 $0.50 $3.87
MV200756 MAGNETIC MENACE VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200757 ORBOTS:WISH WORLD VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200758 ORBOTS:PREHISTORIC VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200759 ORBOTS:DREMLOKS VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200777 ALPHABET MURDERS, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200792 YANKEE DOOD DANDY-B/W SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV200793 SWEET BIRD YOUTH VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200795 HONEYMOON MACHINE, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV200797 COURTSHIP EDDIE FATHER VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV200800 FLIPPER VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200805 LITTLE WOMEN - 1949 VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200806 NOTHING BUT TROUBLE $2.73 $0.00 $0.00 $0.00 $2.73
MV200812 ORBOTS:ASTEROID VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200813 ORBOTS:RAID QUEEN VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200842 XX LOVED ONE, THE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200848 INVISIBLE BOY, THE $1.85 $0.00 $0.00 $0.00 $1.85
MV200852 TWO GIRLS & SAILOR VHS RED $3.47 $0.00 $0.00 $0.50 $3.97
MV200853 NEPTUNES DAUGHTER VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV200856 DEVIL'S BROTHER, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200858 AIR RAID WARDENS $2.73 $0.00 $0.00 $0.00 $2.73
MV200886 XX PANDAMONIUM:BEGINNING VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200887 XX GILLIGAN PLANET VHS $1.76 $0.00 $0.00 $0.53 $2.29
MV200890 CLOCK, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200895 BLACKBOARD JUNGLE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV200920 PARTY GIRL B/W VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV200930 XX BARNEY BEAR $1.91 $0.00 $0.00 $0.53 $2.44
MV200931 XX MGM MAGIC:OUTDOORS VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200949 TEA AND SYMPATHY VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200960 FURY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200965 SEA OF GRASS VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200975 ROUNDERS, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV200989 BUGS RIDING RABBIT VHS $2.01 $0.00 $0.00 $0.53 $2.54
MV200991 XX PORKY:TOM TURK VHS $2.01 $0.00 $0.00 $0.53 $2.54
MV201000 THREE GODFATHERS VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201002 BATTLEGROUND B/W VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201011 GRINCH STOLE XMAS VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV201031 WISE GUYS VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201068 SWAN VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201069 DESIGNING WOMAN $3.36 $0.00 $0.00 $0.00 $3.36
MV201084 SON OF LASSIE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201126 TORTILLA FLAT - CC $3.19 $0.00 $0.00 $0.00 $3.19
MV201128 ASK ANY ONE $3.15 $0.00 $0.00 $0.00 $3.15
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201130 CONQUEST VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201131 RHAPSODY $3.36 $0.00 $0.00 $0.00 $3.36
MV201155 STRATTON STORY, THE $3.22 $0.00 $0.00 $0.00 $3.22
MV201171 MGM CARTOON CHRISTMAS VHS $2.00 $0.00 $0.00 $0.00 $2.00
MV201182 ABOVE SUSPICION VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201184 PERIOD OF ADJUSTMENT $3.32 $0.00 $0.00 $0.00 $3.32
MV201185 GLASS SLIPPER, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201193 LAST VOYAGE, THE $3.05 $0.00 $0.00 $0.00 $3.05
MV201195 NIGHT DARK SHADOWS VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201232 DAFFY! VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201233 BUGS! VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201235 ELMER! VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201236 PORKY! VHS $2.61 $0.00 $0.00 $0.00 $2.61
MV201264 XX CASABLANCA B/W VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201279 ADV OF HUCK FINN-'60 VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201301 PLEASE DON'T EAT DAISIES VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201349 STARRING TOM/JERRY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201364 BEAU BRUMMEL $3.32 $0.00 $0.00 $0.00 $3.32
MV201365 CLARENCE CROSS EYED LION VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201375 BATHING BEAUTY RED $3.09 $0.00 $0.00 $0.50 $3.59
MV201377 ADVENTURES OF ROBIN HOOD $3.19 $0.00 $0.00 $0.00 $3.19
MV201378 BIG SLEEP, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201379 FOR ME AND MY GAL VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV201390 TARZAN ESCAPES VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201391 SINGING NUN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201437 KEY LARGO B/W SILVER $3.19 $0.00 $0.00 $0.00 $3.19
MV201451 CHRISTMAS CAROL CLR VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV201460 DATE WITH JUDY, A VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV201470 CAPTAIN BLOOD VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201473 THEY DIED BOOTS ON B/W VHS $4.30 $0.00 $0.00 $0.00 $4.39
MV201487 GIRL HAPPY VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV201488 KISSIN COUSINS $3.15 $0.00 $0.00 $0.00 $3.15
MV201489 SPINOUT VHS SILVER $2.96 $0.00 $0.00 $0.45 $3.41
MV201494 BUGS DAFFY:WARTIME VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201496 JUST PLAIN DAFFY VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201497 BUGS BUNNY CLASSICS VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201498 TWEETY & SYLVESTER VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201506 CAT'S EYE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201510 CHARGE LIGHT BRIGADE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201541 SAN FRANCISCO CLR VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201542 MALTESE FALCON CLR VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV201543 PHILADELPHIA STORY-CLR VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV201544 THEY WERE EXPENDABLE CLR VHS $4.24 $0.00 $0.00 $0.00 $4.24
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201545 YANKEE DOOD DANDY-CLR SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV201546 MALTESE FALCON B/W SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV201567 PAT G/BLY KD UNCUT VHS SILVER $3.37 $0.00 $0.00 $0.45 $3.82
MV201568 ARSENIC OLD LACE B/W VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201569 ARSENIC OLD LACE CLR VHS SILVER $3.27 $0.00 $0.00 $0.45 $3.72
MV201570 WHITE HEAT B/W $3.32 $0.00 $0.00 $0.00 $3.32
MV201571 WHITE HEAT CLR VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV201586 PUBLIC ENEMY VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201587 TREASURE SIERRA MADRE VHS SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV201588 BOOM TOWN VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201612 ROARING 20'S B/W VHS SILVER $3.13 $0.00 $0.00 $0.45 $3.58
MV201614 ROARING 20'S CLR VHS SILVER $3.13 $0.00 $0.00 $0.45 $3.58
MV201617 KEY LARGO CLR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201619 ANGELS DIRTY FACES B/W VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV201620 ANGELS DIRTY FACES CLR VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV201642 DR JEKYLL/HYDE-1932 VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201657 FASTEST GUITAR ALIVE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201664 TOM & JERRY 50TH-VOL1 VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201687 TEX AVERY SCREWBALL VOL 2 VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV201698 DODGE CITY VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201699 JUAREZ VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV201715 ANDY HARDY LOVE FINDS VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201716 ANDY HARDY LIFE BEGING 4 VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201717 ANDY HARDY DEBUTANTE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201718 ANDY HARDY PRIVATE SEC VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201719 ANDY HARDY SPRG FVR VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201720 ANDY HARDY DBLE LFE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201755 TREASURE ISLAND-CLR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201767 BUGS VS ELMER VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201768 DAFFY DUCK & COMP VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201769 PORKY PIG & COMPNY VHS $2.61 $0.00 $0.00 $0.00 $2.61
MV201773 REUNION IN FRANCE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201800 DANGEROUS VHS $2.05 $0.00 $0.00 $0.00 $2.05
MV201801 XX DECEPTION VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201802 GREAT LIE, THE VHS $3.10 $0.00 $0.00 $0.00 $3.19
MV201803 IN THIS OUR LIFE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201804 MAN WHO CAME DINNER VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201805 PETRIFIED FOREST VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201807 STOLEN LIFE, A VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201814 SMALL TOWN GIRL VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV201826 BORN TO DANCE VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV201827 MEET ST LOUIS RSTD VHS RED $3.27 $0.00 $0.00 $0.50 $3.77
MV201828 LOVELY TO LOOK AT VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201842 XX MURDER MOST FOUL $3.05 $0.00 $0.00 $0.00 $3.05
MV201843 XX MURDER AT THE GALLOP VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201844 MURDER AHOY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201845 CATERED AFFAIR, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201851 HIGH SIERRA B/W VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201852 HIGH SIERRA CLR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201853 ACROSS THE PACIFIC VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201854 DARK PASSAGE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201855 SEA HAWK B/W VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201856 SEA HAWK CLR VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201857 THEY DIED BOOTS ON CLR VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV201858 XX AMERICZN EMILY-CLR VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201865 PRINCE & PAUPER VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201866 LASSIE COME HOME VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201873 CANTERVILLE GHOST VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201874 BLOSSOMS IN DUST VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201875 NEXT VOICE YOU HEAR VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201994 XX MURDER SHE SAID VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202002 AH, WILDERNESS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202005 BATTLEGROUND CLR VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202007 DESTINATION TOKYO B/W VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV202008 DESTINATION TOKYO CLR VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV202010 PATCH OF BLUE, A VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202038 RED SONJA VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202047 TEX AVERY SCREWBALL VOL 3 VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202049 TOM & JERRY 50TH-VOL2 VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202050 TOM & JERRY 50TH-VOL3 VHS $2.30 $0.00 $0.00 $0.00 $3.30
MV202051 HERE COMES DROOPY VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202054 MADAME CURIE $3.46 $0.00 $0.00 $0.00 $3.46
MV202065 AS YOU DESIRE ME VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV202066 MATA HARI (GARBO) VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202067 SUSAN LENOX VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202068 PAINTED VEIL, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202081 HUMORESQUE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV202082 BOMBSHELL VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202083 HUCKSTERS VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202085 TOO HOT TO HANDLE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202092 VERY BEST BUGS VHS $2.10 $0.00 $0.00 $0.00 $2.10
MV202093 BUGS GREATEST HITS VHS $2.10 $0.00 $0.00 $0.00 $2.10
MV202094 BUGS FESTIVAL FUN VHS $2.10 $0.00 $0.00 $0.00 $2.10
MV202095 BUGS ON PARADE VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202097 BUGS BUNNY ZANIEST TOONS VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV202098 HERE COMES BUGS! VHS $2.30 $0.00 $0.00 $0.00 $2.30
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202009 BUGS BUNNY H.WOOD LEGEND VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV202100 BUGS BUNNY COMEDY CLASSIC VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV202101 VERY BEST TOM & JERRY VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202112 LONG LONG TRAILER VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202113 COMMAND DECISION VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202119 IT HAPPENED IN BROOKLYN VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202120 SAN ANTONIO VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202123 POSSESSED (1947) VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202134 OPPOSITE SEX, THE VHS RED $3.27 $0.00 $0.00 $0.50 $3.77
MV202135 TWO WEEKS WITH LOVE VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV202136 STUDENT PRINCE (1954) VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202139 SADIE MCKEE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202143 DISRAELI (1929) $3.01 $0.00 $0.00 $0.00 $3.01
MV202147 BANDWAGON (REMASTERED) VHS $3.23 $0.00 $0.00 $0.50 $3.73
MV202149 CHALLENGE TO LASSIE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202151 FLIPPER'S NEW ADVENTURE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202152 GENERAL SPANKY VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV202153 WATCH ON THE RHINE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202154 BEYOND THE FOREST VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202155 SATAN MET A LADY VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV202156 BRIDE CAME C.O.D. VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202158 COQUETTE $2.85 $0.00 $0.00 $0.00 $2.85
MV202207 GREEN SLIME, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202233 2001:SPACE ODYSSEY-LTBX VHS $4.39 $0.00 $0.00 $0.00 $4.47
MV202250 LADY IN THE LAKE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202252 LADY BE GOOD VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV202253 SUMMER HOLIDAY $3.05 $0.00 $0.00 $0.00 $3.05
MV202254 GIVE A GIRL A BREAK VHS RED $2.86 $0.00 $0.00 $0.50 $3.36
MV202255 MEET ME IN LAS VEGAS VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202256 I LOVE MELVIN VHS RED $2.76 $0.00 $0.00 $0.50 $3.26
MV202264 ACTION IN NORTH ATLANTIC VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV202265 THEY DRIVE BY NIGHT VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202268 LITTLE CAESAR VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202271 BROADWAY SERENADE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202302 SHOWBOAT (1951 REMASTERED) VHS $3.13 $0.00 $0.00 $0.50 $3.63
MV202319 HORN BLOWS AT MIDNIGHT, THE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202320 TOM & JERRY NIGHT XMAS VHS $2.00 $0.00 $0.00 $0.00 $2.00
MV202322 MEN OF BOYS TOWN VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202325 KISS ME KATE (REMASTERED) VHS $3.23 $0.00 $0.00 $0.50 $3.73
MV202345 FORBIDDEN PLANET (36TH ANNIV. REMASTER) VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202346 EDISON THE MAN VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202347 KEEPER OF THE FLAME VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202348 SEVENTH CROSS, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202349 UNDERCURRENT VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202350 WITHOUT LOVE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202351 LOVE CRAZY VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202352 EAST SIDE WEST SIDE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202353 ROMANCE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202354 INSPIRATION VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202358 FOREVER DARLING $3.05 $0.00 $0.00 $0.00 $3.05
MV202360 GLASS BOTTOM BOAT $3.32 $0.00 $0.00 $0.00 $3.32
MV202364 RELUCTANT DEBUTANE $3.15 $0.00 $0.00 $0.00 $3.15
MV202366 ACROSS THE WIDE MISSOURI $2.85 $0.00 $0.00 $0.00 $2.85
MV202367 XX BETRAYED (1954) $3.22 $0.00 $0.00 $0.00 $3.22
MV202368 XX CHAINED $2.85 $0.00 $0.00 $0.00 $2.85
MV202369 HONKY TONK $3.22 $0.00 $0.00 $0.00 $3.22
MV202371 MANHATTAN MELODRAMA $3.05 $0.00 $0.00 $0.00 $3.05
MV202372 TEST PILOT $3.36 $0.00 $0.00 $0.00 $3.36
MV202374 RECKLESS (1935) VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202375 SPENCER TRACY LEGACY VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202376 DEAR MR GABLE (DOCUMENTARY) VHS $2.40 $0.00 $0.00 $0.50 $2.40
MV202377 SECRET GARDEN, THE VHS $3.05 $0.00 $0.00 $0.45 $3.05
MV202378 LAST TIME I SAW PARIS, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202380 WIFE VS. SECRETARY $3.01 $0.00 $0.00 $0.00 $3.01
MV202391 PROJECT STRIGAS/NEVER NEVR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202392 GAZEBO MAZE/YUKON AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202393 DEADLY TOYS/MINUS X AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202394 GALATEA/COME CASBAH AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202395 OFF BROADWAY/TAKE ME LEADR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202396 CONCRETE OVERCOAT AFFAIR (2 PARTS) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202397 FIVE DAUGHTERS AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202398 7 WONDERS OF WORLD AFFAIR (2 PARTS) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202401 FATHERS LITTLE DIVIDEND VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202402 I DOOD IT RED $3.09 $0.00 $0.00 $0.50 $3.59
MV202404 BROADWAY MELODY-1936 VHS-RED $3.09 $0.00 $0.00 $0.50 $3.59
MV202405 PANAMA HATTIE RED $2.86 $0.00 $0.00 $0.50 $3.36
MV202409 GO FOR BROKE! VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202411 OBJECTIVE, BURMAI VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV202412 AIRFORCE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202413 MEN OF THE FIGHTING LADY $2.06 $0.00 $0.00 $0.00 $2.96
MV202418 LAUREL & H LAUGHING 20 VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202419 EASTER PARADE RED VHS $3.09 $0.00 $0.00 $0.50 $3.59
MV202422 WATCH THE BIRDIE $2.79 $0.00 $0.00 $0.00 $2.79
MV202423 A SOUTHERN YANKEE $3.05 $0.00 $0.00 $0.00 $3.05
MV202428 PRODIGAL $3.32 $0.00 $0.00 $0.00 $3.32
MV202431 LOST IN A HAREM-CC $3.01 $0.00 $0.00 $0.00 $3.01
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202434 RIO RITA (1042) $3.05 $0.00 $0.00 $0.00 $3.05
MV202435 HOLLYWOOD PARTY-CC $2.73 $0.00 $0.00 $0.00 $2.73
MV202436 NANCY GOES TO RIO RED $3.09 $0.00 $0.00 $0.50 $3.59
MV202437 THAT FORSYTHE WOMAN $3.32 $0.00 $0.00 $0.00 $3.32
MV202438 KING'S ROW VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV202439 FOUR DAUGHTERS VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202475 PASSAGE TO MARSEILLES VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202476 MAN FROM UNCLE VOL8 $3.19 $0.00 $0.00 $0.00 $3.19
MV202477 MAN FROM UNCLE VOL10 $3.19 $0.00 $0.00 $0.00 $3.19
MV202478 MAN FROM UNCLE VOL11 $3.19 $0.00 $0.00 $0.00 $3.19
MV202479 MAN FROM UNCLE VOL12 $3.19 $0.00 $0.00 $0.00 $3.19
MV202480 MAN FROM UNCLE VOL13 $3.19 $0.00 $0.00 $0.00 $3.19
MV202481 MAN FROM UNCLE VOL14 $3.19 $0.00 $0.00 $0.00 $3.19
MV202482 MAN FROM UNCLE VOL15 $3.19 $0.00 $0.00 $0.00 $3.19
MV202483 MAN FROM UNCLE VOL16 $3.19 $0.00 $0.00 $0.00 $3.19
MV202484 G-MEN B/W VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202485 CITY FOR CONQUEST VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202486 DESPERATE JOURNEY VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202490 TOM & JERRY CARTOON CAVAL VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202491 TOM & JERRY FESTIVAL FUN VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202492 TOM & JERRY COMIC CAPERS VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202493 TOM & JERRY ON PARADE VHS $3.20 $0.00 $0.00 $0.00 $2.20
MV202494 TEX AVERY SCREWBALL VOL4 VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV202495 DROOPY AND COMPANY VHS $2.20 $0.00 $0.00 $0.00 $2.20
MV202506 EVERYBODY SING RED $2.96 $0.00 $0.00 $0.50 $3.46
MV202507 LITTLE NELLIE KELLY RED $3.06 $0.00 $0.00 $0.50 $3.56
MV202508 LISTEN, DARLING RED $2.76 $0.00 $0.00 $0.50 $3.26
MV202509 THOROUGHBREDS DON'T CRY RED $2.86 $0.00 $0.00 $0.50 $3.36
MV202513 XX SEARCH $3.19 $0.00 $0.00 $0.00 $3.19
MV202516 I AM FUGITIVE CHAIN GANG VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202521 ALL THROUGH THE NIGHT $3.22 $0.00 $0.00 $0.00 $3.22
MV202522 BATTLE CIRCUS $3.05 $0.00 $0.00 $0.00 $3.05
MV202523 CHAIN LIGHTNING $3.15 $0.00 $0.00 $0.00 $3.15
MV202524 CONFLICT $3.01 $0.00 $0.00 $0.00 $3.01
MV202525 TWO MRS. CARROLLS $3.15 $0.00 $0.00 $0.00 $3.15
MV202526 VIRGINIA CITY $3.46 $0.00 $0.00 $0.00 $3.46
MV202531 BRIDE WORE RED VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202532 FLAMINGO ROAD VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202533 FORSAKING ALL OTHERS $2.96 $0.00 $0.00 $0.00 $2.96
MV202534 LAST OF MRS. CHEYNEY '37 VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202535 MANNEQUIN $3.15 $0.00 $0.00 $0.00 $3.15
MV202536 SHINING HOUR, THE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202537 SUSAN AND GOD VHS $3.36 $0.00 $0.00 $0.00 $3.36
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202538 WHEN LADIES MEET $3.22 $0.00 $0.00 $0.00 $3.22
MV202539 SINGIN' IN RAIN-40TH ANN VHS $3.27 $0.08 $0.00 $0.70 $4.05
MV202543 MIDSUMMER NIGHT'S DREAM $1.85 $0.00 $0.00 $0.00 $1.85
MV202547 TENDER TRAP, THE $3.32 $0.00 $0.00 $0.00 $3.32
MV202580 DUCHESS OF IDAHO $3.15 $0.00 $0.00 $0.00 $3.15
MV202583 JUPITER'S DARLING $3.15 $0.00 $0.00 $0.00 $3.15
MV202584 ON AN ISLAND WITH YOU $3.22 $0.00 $0.00 $0.00 $3.22
MV202585 SKIRTS AHOY $3.32 $0.00 $0.00 $0.00 $3.32
MV202586 THRILL OF A ROMANCE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202587 QUADRIPARTITE\GIUOCO PIANO AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202588 GREEN OPAL/DOVE AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202589 BRAINKILLER AFFAIR\BATCAVE AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202590 ULTIMATE COMPUTER\ADRIATIC EXPRESS AFFAIR $3.19 $0.00 $0.00 $0.00 $3.19
MV202591 VERY IMP ZOMB\DIPPY BLONDE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202592 DEADLY GOODESS\HULA DOLL AFFAIR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202593 COURAGE OF LASSIE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202594 IT'S A DOGS LIFE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202596 STORY OF SEABISCUIT, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202597 ZEBRA IN THE KITCHEN VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202598 JOURNEY FOR MARGARET VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202599 INSPECTOR GENERAL VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202610 BEAST WITH FIVE FINGERS, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202611 MAD LOVE VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV202612 MAST OF FU MANCHU, THE VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV202613 BUREAU OF MISSING PERSONS VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV202614 CABIN IN THE COTTON VHS $2.05 $0.00 $0.00 $0.00 $2.05
MV202615 EX-LADY VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV202616 JUNE BRIDE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202617 KID GALAHAD (1937) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202618 SISTERS, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202619 THAT CERTAIN WOMAN VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202620 WINTER MEETING VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202623 BLESSED EVENT $2.96 $0.00 $0.00 $0.00 $2.96
MV202624 EMPLOYEE'S ENTRANCE $2.85 $0.00 $0.00 $0.00 $2.85
MV202625 FEMALE $2.61 $0.00 $0.00 $0.00 $2.61
MV202627 OUR MODERN MAIDENS $2.85 $0.00 $0.00 $0.00 $2.85
MV202629 GEORGE WASHINGTON SLEPT HERE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202630 GUARDSMAN, THE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202631 PRIVATE LIVES VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202632 STRANGE INTERLUDE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202633 BECAUSE YOU'RE MINE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202634 CAT AND THE FIDDLE, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202635 FIREFLY, THE VHS $3.67 $0.00 $0.00 $0.00 $3.67
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202636 SWEET ADELINE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202637 THAT MIDNIGHT KISS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202641 OPERATION CROSSBOW $3.36 $0.00 $0.00 $0.00 $3.36
MV202644 UNTIL THEY SAIL VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202648 GIRL FROM MISSOURI, THE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV202649 HOLD YOUR MAN VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202650 PERSONAL PROPERTY VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202651 RIFF RAFF VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202652 SARATOGA VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202653 SUZY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202655 THREE MEN ON A HORSE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202666 RICH YOUNG AND PRETTY $3.15 $0.00 $0.00 $0.00 $3.15
MV202678 ANCHORS AWEIGH (REMASTERED) VHS $4.30 $0.00 $0.00 $0.50 $4.80
MV202688 ATHENA $3.15 $0.00 $0.00 $0.00 $3.15
MV202689 ROMEO & JULIET (1936) VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV202690 BARRETTS OF WIMPOLE ST VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202701 TEXAS CARNIVAL VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV202710 BADLANDERS, THE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202716 GORGEOUS HUSSY, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202740 ON THE TOWN (REMASTERED) RED $3.06 $0.00 $0.00 $0.50 $3.56
MV202746 I LIVE MY LIFE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202748 LADIES THEY TALK ABOUT $2.73 $0.00 $0.00 $0.00 $2.73
MV202758 JAILHOUSE ROCK (COLORIZED) VHS $3.56 $0.00 $0.00 $0.00 $3.15
MV202759 ELVIS LOST PERFORMANCES VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV202760 MGM:WHEN LION ROARS-VOL 1 VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202761 MGM:WHEN LION ROARS-VOL 2 VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202762 MGM:WHEN LION ROARS-VOL 3 VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202781 XX PICK A STAR $2.79 $0.00 $0.00 $0.00 $2.79
MV202782 YELLOW CAB MAN $2.96 $0.00 $0.00 $0.00 $2.96
MV202783 SPEAK EASILY $2.96 $0.00 $0.00 $0.00 $2.96
MV202784 DOUGHBOYS $2.96 $0.00 $0.00 $0.00 $2.96
MV202785 MGM'S BIG PARADE OF COMEDY $3.01 $0.00 $0.00 $0.00 $3.01
MV202819 ESCAPE ME NEVER $3.10 $0.00 $0.00 $0.00 $3.19
MV202820 DAWN PATROL (1938) $3.19 $0.00 $0.00 $0.00 $3.19
MV202822 EDGE OF DARKNESS $3.46 $0.00 $0.00 $0.00 $3.46
MV202823 DIVE BOMBER $3.67 $0.00 $0.00 $0.00 $3.67
MV202824 BACKGROUND TO DANGER $2.96 $0.00 $0.00 $0.00 $2.96
MV202825 GENTLEMAN JIM $3.22 $0.00 $0.00 $0.00 $3.22
MV202826 SHIP AHOY $3.15 $0.00 $0.00 $0.00 $3.15
MV202827 BROADWAY RHYTHM $3.36 $0.00 $0.00 $0.00 $3.36
MV202828 HONOLULU $3.01 $0.00 $0.00 $0.00 $3.01
MV202829 GOING HOLLYWOOD $2.96 $0.00 $0.00 $0.00 $2.96
MV202830 HOLIDAY IN MEXICO $3.67 $0.00 $0.00 $0.00 $3.67
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202831 WHISTLING IN THE DARK (1941) $2.85 $0.00 $0.00 $0.00 $2.85
MV202832 WHISTLING IN BROOKLYN $3.01 $0.00 $0.00 $0.00 $3.01
MV202833 RASPUTIN AND THE EMPRESS $3.46 $0.00 $0.00 $0.00 $3.46
MV202834 GREEN PASTURES, THE (1936) $3.05 $0.00 $0.00 $0.00 $3.05
MV202835 VIVA VILLA $3.32 $0.00 $0.00 $0.00 $3.32
MV202836 WHITE CLIFFS OF DOVER, THE $3.56 $0.00 $0.00 $0.00 $3.56
MV202837 OUR VINES HAVE TENDER GRAPES $3.22 $0.00 $0.00 $0.00 $3.22
MV202838 INTRUDER IN THE DUST $3.01 $0.00 $0.00 $0.00 $3.01
MV202839 HALLELUJAH $3.19 $0.00 $0.00 $0.00 $3.19
MV202840 SEA WOLF, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV202841 THREE COMRADES $3.15 $0.00 $0.00 $0.00 $3.15
MV202843 FORTUNE AND MEN'S EYES VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202844 ON BORROWED TIME VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202845 MERRY WIDOW, THE (1952) $3.22 $0.00 $0.00 $0.00 $3.22
MV202865 I LOVE YOU AGAIN $1.85 $0.00 $0.00 $0.00 $1.85
MV202916 GOLDEN AGE OF LOONEY TUNES VOLUME #1 $2.40 $0.00 $0.00 $0.00 $2.40
MV202917 GOLDEN AGE OF LOONEY TUNES VOLUME #2 $2.40 $0.00 $0.00 $0.00 $2.40
MV202918 GOLDEN AGE OF LOONEY TUNES VOLUME #3 $2.50 $0.00 $0.00 $0.00 $2.50
MV202919 GOLDEN AGE OF LOONEY TUNES VOLUME #4 $2.50 $0.00 $0.00 $0.00 $2.50
MV202920 GOLDEN AGE OF LOONEY TUNES VOLUME #5 $2.50 $0.00 $0.00 $0.00 $2.50
MV202922 GOLDEN AGE OF LOONEY TUNES VOLUME #6 $2.40 $0.00 $0.00 $0.00 $2.40
MV202923 GOLDEN AGE OF LOONEY TUNES VOLUME #7 $2.50 $0.00 $0.00 $0.00 $2.50
MV202924 GOLDEN AGE OF LOONEY TUNES VOLUME #8 $2.40 $0.00 $0.00 $0.00 $2.40
MV202925 GOLDEN AGE OF LOONEY TUNES VOLUME #9 $2.40 $0.00 $0.00 $0.00 $2.40
MV202926 GOLDEN AGE OF LOONEY TUNES VOLUME #10 $2.40 $0.00 $0.00 $0.00 $2.40
MV202944 BOY MEETS GIRL $1.85 $0.00 $0.00 $0.00 $1.85
MV202945 CAPTAINS OF THE CLOUDS $1.85 $0.00 $0.00 $0.00 $1.85
MV202946 CEILING ZERO $1.85 $0.00 $0.00 $0.00 $1.85
MV202947 DEVIL DOGS OF THE AIR $1.85 $0.00 $0.00 $0.00 $1.85
MV202948 FIGHTING 69TH $1.85 $0.00 $0.00 $0.00 $1.85
MV202950 DOUBLE WEDDING $1.85 $0.00 $0.00 $0.00 $1.85
MV202951 SANTA FE TRAIL $1.85 $0.00 $0.00 $0.00 $1.85
MV202952 FLIRTATION WALK $1.85 $0.00 $0.00 $0.00 $1.85
MV202953 LOVE ON THE RUN $1.85 $0.00 $0.00 $0.00 $1.85
MV202954 MRS. PARKINGTON $1.85 $0.00 $0.00 $0.00 $1.85
MV202955 MINIVER STORY, THE $1.85 $0.00 $0.00 $0.00 $1.85
MV202956 JULIA MISBEHAVES $3.19 $0.00 $0.00 $0.00 $3.19
MV202959 WHEELER DEALERS, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV202963 YOUNG TOM EDISON $3.01 $0.00 $0.00 $0.00 $3.01
MV202988 JOHNNY EAGER $3.22 $0.00 $0.00 $0.00 $3.22
MV202989 SOMEWHERE I'LL FIND YOU $3.22 $0.00 $0.00 $0.00 $3.22
MV202990 WEEKEND AT THE WALDORF $3.67 $0.00 $0.00 $0.00 $3.67
MV202991 CASS TIMBERLANE $3.36 $0.00 $0.00 $0.00 $3.36
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202992 HOMECOMING $3.32 $0.00 $0.00 $0.00 $3.32
MV202993 LATIN LOVERS $3.22 $0.00 $0.00 $0.00 $3.22
MV202994 LIFE OF HER OWN, A $3.22 $0.00 $0.00 $0.00 $3.22
MV202995 GIRL WHO HAD EVERYTHING, THE $2.79 $0.00 $0.00 $0.00 $2.79
MV202996 CONSPIRATOR $3.01 $0.00 $0.00 $0.00 $3.01
MV202997 LOVE IS BETTER THAN EVER $2.86 $0.00 $0.00 $0.00 $2.96
MV202998 BIG HANGOVER, THE $2.96 $0.00 $0.00 $0.00 $2.96
MV203016 MAN I LOVE, THE $3.05 $0.00 $0.00 $0.00 $3.05
MV203019 SMILIN' THROUGH (1932) $1.85 $0.00 $0.00 $0.00 $1.85
MV203023 MAGNIFICENT YANKEE, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV203024 ADVENTURES OF MARK TWAIN, THE $3.67 $0.00 $0.00 $0.00 $3.67
MV203025 LOOK FOR THE SILVER LINING $3.22 $0.00 $0.00 $0.00 $3.22
MV203036 WHISTLING IN DIXIE $2.79 $0.00 $0.00 $0.00 $2.79
MV203037 OPERATOR 13 $3.01 $0.00 $0.00 $0.00 $3.01
MV203038 TODAY WE LIVE $3.32 $0.00 $0.00 $0.00 $3.32
MV203041 TASK FORCE $1.85 $0.00 $0.00 $0.00 $1.85
MV203047 TUNNEL OF LOVE, THE $3.15 $0.00 $0.00 $0.00 $3.15
MV203048 MATING GAME, THE $3.15 $0.00 $0.00 $0.00 $3.15
MV203049 IT STARTED WITH A KISS $3.19 $0.00 $0.00 $0.00 $3.19
MV203050 WHERE WERE YOU/LIGHTS OUT $3.05 $0.00 $0.00 $0.00 $3.05
MV203060 TARZAN FINDS A SON $2.96 $0.00 $0.00 $0.00 $2.96
MV203061 TARZAN'S SECRET TREASURE $2.96 $0.00 $0.00 $0.00 $2.96
MV203062 TARZAN'S NEW YORK ADVENTURE $2.79 $0.00 $0.00 $0.00 $2.79
MV203081 LAUGHING SINNERS $1.05 $0.00 $0.00 $0.00 $1.85
MV203103 2001: SPACE ODYSSEY--25TH ANNIV.* $1.76 $0.00 $0.00 $0.65 $2.49
MV203104 2001: SPACE ODYSSEY--25TH ANNIV. (LBX)* $4.61 $0.00 $0.00 $0.65 $5.34
MV203165 FREE AND EASY $3.05 $0.00 $0.00 $0.00 $3.05
MV203166 WHAT! NO BEER? $2.73 $0.00 $0.00 $0.00 $2.73
MV203845 ADAMS RIB CLR VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV203846 FATHER OF BRIDE CLR VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV203851 BOYS TOWN VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV203852 TEX AVERY SCREWBALL VOL 1 VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV203853 STARRING BUGS BUNNY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV203911 GABRIEL OVER THE WHITE HOUSE $3.01 $0.00 $0.00 $0.00 $3.01
MV203929 HILLS OF HOME, THE $3.15 $0.00 $0.00 $0.00 $3.15
MV203930 PAINTED HILLS, THE $2.73 $0.00 $0.00 $0.00 $2.73
MV203931 SUN COMES UP, THE $3.05 $0.00 $0.00 $0.00 $3.05
MV203967 DIANE $3.32 $0.00 $0.00 $0.00 $3.32
MV203984 GYPSY COLT $2.79 $0.00 $0.00 $0.00 $2.79
MV203985 BUSHBABY, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV203986 MAYA $3.05 $0.00 $0.00 $0.00 $3.05
MV203987 ATLANTIS, THE LOST CONTINENT $3.05 $0.00 $0.00 $0.00 $3.05
MV203094 HIGH SOCIETY (REMAST.) $3.22 $0.00 $0.00 $0.00 $3.22
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV203995 GOOD NEWS (REMAST.) $3.15 $0.00 $0.00 $0.00 $3.15
MV203997 GREAT CARUSO (REMAST.) $3.32 $0.00 $0.00 $0.00 $3.32
MV203998 KISMET (REMASTER) $3.36 $0.00 $0.00 $0.00 $3.36
MV203999 ALEX IN WONDERLAND $3.32 $0.00 $0.00 $0.00 $3.32
MV204401 SIDEWALKS OF NEW YORK $2.85 $0.00 $0.00 $0.00 $2.85
MV204409 9 1/2 WEEKS (NEW FOOTAGE) (UNRATED) $3.36 $0.00 $0.00 $0.00 $3.36
MV300230 MGM CARTOON MAGIC VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV300272 BUTTERFIELD 8 VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300307 KISS ME KATE VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV300308 LES GIRLS VHS $3.23 $0.00 $0.00 $0.53 $3.76
MV300309 ANCHORS AWEIGH VHS RED $4.45 $0.00 $0.00 $0.50 $4.95
MV300321 BARKLEYS OF BROADWAT VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV300374 ROSE MARIE (1936) VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300375 BROTHERS KARAMAZOV VHS $4.45 $0.00 $0.00 $0.53 $4.98
MV300399 KNIGHTS ROUND TABLE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV300400 CIMARRON (1931) VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV300408 RED BADGE COURAGE* VHS $2.63 $0.00 $0.00 $0.53 $3.16
MV300472 CAMILLE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300474 SAN FRANCISCO VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV300480 NATIONAL VELVET VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV300494 WATERLOO BRIDGE* VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300500 YEARLING, THE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV300503 TAKE ME OUT BALLGAME VHS--RED F $3.06 $0.00 $0.00 $0.50 $3.56
MV300505 ANNA KARENINA VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV300507 SONG OF LOVE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV300511 NEVER SO FEW SILVER $3.37 $0.00 $0.00 $0.45 $3.82
MV300514 FAR FR MADDING CROWD VHS--COPPER F $5.70 $0.00 $0.00 $0.45 $6.15
MV300531 QUEEN CHRISTINA VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV300538 GREAT ZIEGFELD VHS $5.97 $0.00 $0.00 $0.45 $6.42
MV300558 CABIN IN THE SKY VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV300559 SMILIN' THROUGH* VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV300560 RED DUST VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV300561 CHINA SEAS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV300567 GIRL CRAZY VHS RED $3.06 $0.00 $0.00 $0.50 $3.56
MV300568 ROSALIE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV300586 ADV OF DROOPY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV300606 MIN AND BILL VHS $2.63 $0.00 $0.00 $0.53 $3.16
MV300607 POSSESSED VHS $2.05 $0.00 $0.00 $0.00 $2.85
MV300608 THIN MAN, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV300609 MAYTIME VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV300610 XX IDIOT'S DELIGHT VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300611 WOMAN'S FACE, A VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300612 CITADEL, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV300626 DEEP IN MY HEART VHS $3.50 $0.00 $0.00 $0.53 $4.11
MV300639 BAD DAY @ BLACK ROCK VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV300640 SOMEBODY UP LIKE ME VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300649 DAVID COPPERFIELD VHS $3.67 $0.00 $0.00 $0.00 $3.32
MV300650 FOUR HORSEMEN APOCALYPSE VHS $4.61 $0.00 $0.00 $0.53 $5.14
MV300651 DR JEKYLL/HYDE--'41 VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300652 THREE MUSKETEERS* VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV300653 DRAGON SEED* VHS $4 54 $0.00 $0.00 $0.00 $4.54
MV300687 GOODBYE MR CHIPS--'39 VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300689 CHRISTMAS CAROL B/W VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV300743 ANTHONY ADVERSE VHS $4.14 $0.00 $0.00 $0.53 $4.67
MV300745 OF HUMAN BONDAGE VHS $3.09 $0.00 $0.00 $0.53 $3.62
MV300746 HUMAN COMEDY, THE VHS $3.27 $0.00 $0.00 $0.53 $3.80
MV300753 OUR GANG: DON'T LIE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV300796 BILLY ROSE'S JUMBO $3.56 $0.00 $0.00 $0.00 $3.56
MV300802 HOME FROM THE HILL VHS $4.70 $0.00 $0.00 $0.00 $4.70
MV300804 MRS. MINIVER VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV300820 AFTER THIN MAN VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300827 PRESENT LILI MARS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV300841 FATHER OF BRIDE B/W VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300845 BIG STORE, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV300851 SUMMER STOCK VHS RED $3.37 $0.00 $0.00 $0.50 $3.87
MV300857 BONNIE SCOTLAND VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV300860 IN GOOD OLD SUMMERTIME VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV300861 WORDS AND MUSIC VHS $3.37 $0.00 $0.00 $0.53 $3.90
MV300862 EASY TO LOVE $3.15 $0.00 $0.00 $0.00 $3.15
MV300863 DANGEROUS WHEN WET VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV300868 ANOTHER THIN MAN VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV300877 GOOD NEWS VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV300891 ROBERTA VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV300892 LIBELED LADY VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV300893 MILLION $ MERMAID VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300909 PAGAN LOVE SONG $2.85 $0.00 $0.00 $0.00 $2.85
MV300959 BAD AND BEAUTIFUL VHS $3.36 $0.00 $0.00 $0.50 $3.36
MV300961 RANDOM HARVEST VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV300964 SOME CAME RUNNING VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV300967 SHADOW OF THIN MAN VHS $3.15 $0.00 $0.00 $0.53 $3.15
MV300969 SONG OF THIN MAN VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV300970 THIN MAN GOES HOME VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV300976 BEST FOOT FORWARD RED $2.96 $0.00 $0.00 $0.50 $3.46
MV300980 KIM (1950) VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV300983 DUBARRY WAS A LADY VHS $3.09 $0.00 $0.00 $0.53 $3.82
MV300984 THOUSANDS CHEER VHS $3.56 $0.00 $0.00 $0.00 $3.56
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV300985 GREAT WALTZ, THE (1938) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301001 POSTMAN RINGS 2X--B/W VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301003 HARVEY GIRLS, THE VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV301048 BROADWAY MELODY--1938 VHS $3.23 $0.00 $0.00 $0.53 $3.76
MV301049 YOLANDA & THIEF VHS $3.23 $0.00 $0.00 $0.53 $3.76
MV301052 THANK LUCKY STARS VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301053 ITS FAIR WEATHER VHS $3.09 $0.00 $0.00 $0.53 $3.62
MV301066 KAOS $5 09 $0.00 $0.00 $0.45 $6.44
MV301110 DANCING LADY VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV301111 BROADWAY MELODY--1940 VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV301132 NORTHWEST PASSAGE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV301148 MY DREAM IS YOURS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301149 RHAPSODY IN BLUE VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV301150 TOAST NEW ORLEANS VHS $3.09 $0.00 $0.00 $0.53 $3.62
MV301163 CHRISTMAS CONNECTICUT VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301164 SHOP AROUND CORNER VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301189 THREE LITTLE WORDS VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV301190 BELLE OF NEW YORK VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV301269 PAT AND MIKE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301308 CORN IS GREEN, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301309 MARKED WOMAN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301310 MR. SKEFFINGTON VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV301311 OLD MAID, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301312 DARK VICTORY VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV301313 JEZEBEL VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV301315 LETTER, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301316 NOW, VOYAGER VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301356 BIG PARADE (SILENT) VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV301357 CROWD, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301358 FLESH & THE DEVEL VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301359 WIND, THE VHS $2.06 $0.00 $0.00 $0.00 $2.96
MV301360 GREED VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV301380 GUY NAMED JOE, A VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301381 NEW MOON VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301400 EXECUTIVE SUITE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301468 SWEETHEARTS VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301469 LIFE OF EMILE ZOLA VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301474 BEN HUR (SILENT) VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV301484 I'LL CRY TOMORROW VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301485 BITTERSWEET VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV301492 BROADWAY MELODY--1929 VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301539 SHOW PEOPLE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV301552 TORCH SONG VHS $3.05 $0.00 $0.00 $0.00 $3.05
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV301566 CHOCOLATE SOLDIER VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301579 POSTMAN RINGS 2X CLR VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301505 ZIEGFELD GIRL VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV301589 STRANGE CARGO VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301590 MERRY WIDOW, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301591 I MARRIED AN ANGEL VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV301592 GIRL GOLDEN WEST VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV301644 PRISONER OF ZENDA (1937) VHS $3 19 $0.00 $0.00 $0.00 $3.19
MV301656 XX WIZARD OZ 50TH ANNIV VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301665 CHAMP, THE (1931) VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV301672 42ND STREET B/W VHS RED $2.96 $0.00 $0.00 $0.00 $3.46
MV301673 GOLD DIGGERS 1933 VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301674 GOLD DIGGERS 1935 VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301675 DAMES VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301676 FOOTLIGHT PARADE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301677 BABES ON BROADWAY VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV301731 42ND STREET CLR RED $2.96 $0.00 $0.00 $0.50 $3.46
MV301732 XX WIZARD OZ 50TH--SPANISH VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301742 MILDRED PIERCE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301757 SHOWBOAT (1936) VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301758 SERGEANT YORK VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301761 STORY LOUIS PASTEUR VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV301774 FOUNTAINHEAD, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301822 TWO FACED WOMAN VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV301823 MARIE ANTOINETTE VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV302069 NIGHT NURSE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV302070 BABY FACE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV302071 LADY KILLER $2.85 $0.00 $0.00 $0.00 $2.85
MV302072 THREE ON A MATCH $2.73 $0.00 $0.00 $0.00 $2.73
MV302073 BLONDE CRAZY VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV302074 RED HEADED WOMAN $2.96 $0.00 $0.00 $0.00 $2.96
MV302075 DANCE FOOLS DANCE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV302076 HEORES FOR SALE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV302137 DIVORCEE, THE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV302141 SIN OF MADELEINE CLAUDET, THE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV302142 FREE SOUL, A VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV302159 CAMERAMAN, THE VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV302160 STUDENT PRINCE HEIDEL $3.22 $0.00 $0.00 $0.00 $3.22
MV302161 WOMAN OF AFFAIRS, A VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV302162 DON JUAN '26/SHORTS VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV302209 SINGLE STANDARD, THE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV302210 OUR DANCING DAUGHTERS VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV302259 KISS, THE VHS $2.61 $0.00 $0.00 $0.00 $2.61
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV302270 NIGHT AND DAY VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV302299 MYSTERIOUS LADY, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV302300 SPITE MARRIAGE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV302308 IT'S A DATE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV302309 HOLLYWOOD CANTEEN VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV302311 IT'S A GREAT FEELING $3.01 $0.00 $0.00 $0.00 $3.01
MV302312 JAZZ SINGER, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV302313 ROMANCE ON THE HIGH SEAS VHS $3 15 $0.00 $0.00 $0.00 $3.15
MV302382 CHRISTMAS CARTOON GIFTPAK VHS $5.76 $0.00 $0.00 $3.93 $9.69
MV302609 CASABLANCA 50TH VHS $3.58 $0.08 $0.00 $0.31 $3.96
MV400115 NINOTCHKA VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV400146 TOM & JERRY II VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV400298 XX TOM AND JERRY III VHS $2.52 $0.00 $0.00 $0.43 $2.95
MV400430 TOM THUMB $2.96 $0.00 $0.00 $0.43 $3.39
MV400450 MUTINY BOUNTY--'35 GABLE VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV400473 GASLIGHT VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV400495 XX WILD ORCHIDS $3.36 $0.00 $0.00 $0.00 $3.36
MV400498 ANNA CHRISTIE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV400506 WOMEN, THE VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV400533 DINNER AT EIGHT VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV400555 KNUTE ROCKNE $3.06 $0.00 $0.00 $0.43 $3.49
MV400564 GRAND HOTEL VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV400565 STRIKE UP THE BAND VHS RED $3.37 $0.00 $0.00 $0.50 $3.87
MV400566 PICTURE DORIAN GRAY VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV400585 BABES IN ARMS VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV402283 GIGI/AMERICAN IN PARIS VHS 2-PAK $6.59 $0.00 $0.00 $0.25 $6.84
MV500009 NIGHT AT THE OPERA VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV500010 ADAM'S RIB B/W VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV500011 JAILHOUSE ROCK $3.15 $0.00 $0.00 $0.00 $3.15
MV500032 TREASURE ISLAND--B/W VHS SILVER $3.00 $0.00 $0.00 $0.45 $3.54
MV500043 TARZAN APEMAN (ORIGINAL) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV500053 ADV OF HUCK FINN VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV500058 CAPTAIN'S COURAGEOUS VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV500059 PHILADELPHIA STORY--B/W SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV500064 DAY AT RACES, A VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV500079 ABBOT/COSTELLO/HLYWD VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV500085 GO WEST VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV500103 CLOWN, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV500114 PRIDE AND PREJUDICE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV500121 AT THE CIRCUS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV500155 PHANTOM TOLLBOOTH VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV600001 WIZARD OF OZ VHS $3.19 $0.08 $0.00 $0.00 $3.27
MV600006 AMERICAN IN PARIS VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV600007 THAT'S ENTERTAINMENT 1 VHS--RED FOIL $4.14 $0.00 $0.00 $0.50 $4.64
MV600012 NETWORK VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV600013 COMA VHS $3.23 $0.00 $0.00 $0.43 $3.66
MV600014 SUNSHINE BOYS VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV600015 BLOW UP VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600034 CHAMP, THE (1979) VHS $3.27 $0.00 $0.00 $0.43 $3.70
MV600037 FORMULA, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600041 XX FORBIDDEN PLANET--OLD VHS $3 06 $0.00 $0.00 $0.45 $3.51
MV600047 XX HIDE IN PLAIN SIGHT VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV600055 MOGAMBO VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600057 ON THE TOWN VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV600060 CAT HOT TIN ROOF VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600067 GREAT CARUSO, THE VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV600068 LOLITA $4.70 $0.00 $0.00 $0.00 $4.70
MV600070 SOYLENT GREEN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV600078 TALE OF TWO CITIES VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV600080 NIGHT OF THE IGUANA VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600082 LOGAN'S RUN VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600083 ROYAL WEDDING VHS RED $3.06 $0.00 $0.00 $0.50 $3.56
MV600084 LITTLE WOMEN--1933 VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600092 IVANHOE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600093 WOMAN OF THE YEAR VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV600097 WESTWORLD VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV600102 MADAME BOVARY $3.23 $0.00 $0.00 $0.53 $3.76
MV600104 NORTH BY NORTHWEST VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV600116 VIVA LAS VEGAS VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV600120 GOOD EARTH, THE VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV600129 DEMON SEED VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV600131 PRISONER OF ZENDA VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600135 CINCINNATI KID VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV600152 TIME MACHINE, THE VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV600153 ELVIS ON TOUR $3.05 $0.00 $0.00 $0.00 $3.05
MV600158 XX VERY PRIVATE AFFAIR VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV600159 PAT GARRETT--KID VHS $3.37 $0.00 $0.00 $0.43 $3.80
MV600160 ICE STATION ZEBRA SILVER $4.45 $0.00 $0.00 $0.45 $4.90
MV600167 SHOWBOAT (1951) VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV600173 ZIEGFELD FOLLIES VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV600174 VILLAGE OF DAMNED VHS $2.76 $0.00 $0.00 $0.43 $3.19
MV600185 SINGIN' IN RAIN VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV600192 INVITATION TO DANCE VHS RED $2.96 $0.00 $0.00 $0.50 $3.46
MV600196 ZABRISKIE POINT VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV600207 XX CORVETTE SUMMER VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600220 XX HE KNOWS YOU'RE ALONE $3.05 $0.00 $0.00 $0.00 $3.05
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV600256 EASTER PARADE VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV600257 XX RISE & FALL 3RD REICH $3.22 $0.00 $0.00 $0.00 $3.22
MV600263 MAN LOVED CAT DANCING VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV600292 HIGH SOCIETY VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV600296 XX INTERNATIONAL VELVET VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV600305 WILD ROVERS VHS $4.14 $0.00 $0.00 $0.43 $4.57
MV600310 LILI $2.96 $0.00 $0.00 $0.00 $2.96
MV600316 HERO AT LARGE $3.19 $0.00 $0.00 $0.00 $3.19
MV600371 NAUGHTY MARIETTA VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600388 HEARTS OF THE WEST VHS $3.09 $0.08 $0.00 $0.43 $3.52
MV600419 WHERE THE BOYS ARE VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV600422 DEATH CENTERFOLD* VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV600429 XX MRS. BROWN DAUGHTER $3.06 $0.00 $0.00 $0.43 $3.49
MV600452 XX HYSTERIA VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV600467 AROUND WORLD/SEA $3.23 $0.00 $0.00 $0.43 $3.66
MV600475 IT HAPPEN WORLDS FAIR VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600478 SPEEDWAY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV600485 DOUBLE TROUBLE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV600486 HARUM SCARUM FHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV600520 NAKED SPUR, THE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV600578 UNSINKABLE MOLLY BROWN VHS--ED F $3.47 $0.00 $0.00 $0.50 $3.97
MV600862 WIND & THE LION, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600687 7 FACES OF DR. LAO VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600727 GREEN DOLPHIN ST VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV600747 TO HAVE & HAVE NOT VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600748 ADV OF DON JUAN--'49 VHS $3.23 $0.00 $0.00 $0.43 $3.66
MV600749 ALL THIS & HEAVEN VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV600781 JOHNNY BELINDA VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600843 FREAKS VHS $2.73 $0.00 $0.00 $0.00 $2.73
MV600847 THEY WERE EXPENDABLE B/W VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV600850 RIDE HIGH COUNTRY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV600881 STRAWBERRY BLOND VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV600883 OKLAHOMA KID, THE $2.96 $0.00 $0.00 $0.00 $2.96
MV600903 XX HAUNTING VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV600904 DEVIL DOLL, THE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV600905 MARK OF VAMPIRE VHS $2.61 $0.00 $0.00 $0.00 $2.61
MV600927 BATAAN VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600928 THIRTY SECONDS TOKYO VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV601159 DR X VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV601160 MYSTERY WAX MUSEUM VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV602751 TRACY & HEPBURN GIFT SET $9.81 $0.00 $0.00 $2.76 $12.57
MV602758 CLARK GABLE GIFT SET $10.29 $0.00 $0.00 $2.76 $13.05
MV602763 MGM: WHEN LION ROARS (3 PACK) VHS $10.29 $0.00 $0.00 $2.82 $13.11
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV700002 2001: SPACE ODYSSEY VHS $4.24 $0.00 $0.00 $0.00 $4.32
MV700008 DIRTY DOZEN, THE VHS $4.70 $0.00 $0.00 $0.00 $4.70
MV700027 FAME VHS $3.87 $0.00 $0.00 $0.00 $3.67
MV700040 BRIGADOON VHS RED $3.13 $0.00 $0.00 $0.50 $3.63
MV700050 GIGI VHS RED $3.27 $0.00 $0.00 $0.50 $3.77
MV700051 SILK STOCKINGS VHS RED $3.27 $0.00 $0.00 $0.50 $3.77
MV700063 BELLS ARE RINGING VHS RED $3.47 $0.00 $0.00 $0.50 $3.97
MV700069 GOODBYE GIRL, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV700074 CLASH OF THE TITANS VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV700075 THAT'S ENTERTAINMENT 2 VHS RED F $3.58 $0.00 $0.00 $0.50 $4.08
MV700091 SEVEN BRIDES/BROTHERS $3.19 $0.00 $0.00 $0.00 $3.19
MV700094 TILL CLOUDS ROLL BY VHS RED $4.15 $0.00 $0.00 $0.50 $4.65
MV700101 PIRATE, THE VHS RED $3.09 $0.00 $0.00 $0.50 $3.59
MV700113 BANDWAGON VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV700127 TELEFON VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV700130 KISMET VHS RED $3.23 $0.00 $0.00 $0.50 $3.73
MV700137 WHERE EAGLES DARE VHS SILVER $4.76 $0.00 $0.00 $0.45 $5.21
MV700163 RYANS DAUGHTER VHS DBLCPR $6.19 $0.00 $0.00 $0.45 $6.64
MV700168 KELLYS HEROES VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV700191 SHAFT VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV700277 SANDPIPER, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV700326 KING OF KINGS VHS DBLCPR $5.74 $0.00 $0.00 $0.45 $6.19
MV700373 ELVIS: WAY IT IS $3.22 $0.00 $0.00 $0.00 $3.22
MV700397 SHOES OF FISHERMAN VHS DBLCPR $5.72 $0.00 $0.00 $0.45 $6.17
MV700414 STRAWBERRY STATEMENT VHS $3.13 $0.00 $0.00 $0.43 $3.56
MV700468 BREWSTER MCCLOUD $3.13 $0.00 $0.00 $0.43 $3.56
MV700483 ASPHALT JUNGLE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV800109 TARZAN (BO DEREK) VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV800140 WHOSE LIFE IS IT VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV800141 SHOOT THE MOON VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV800143 CANNERY ROW VHS $3.37 $0.00 $0.00 $0.43 $3.80
MV800144 STRANGER IS WATCHING VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV800147 PENNIES FROM HEAVEN $3.22 $0.00 $0.00 $0.00 $3.22
MV800151 VICTOR/VICTORIA VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV800164 DINER VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV800165 POLTERGEIST 1 VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV800188 MY FAVORITE YEAR VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV800189 FORCED VENGEANCE VHS SILVER $2.96 $0.00 $0.00 $0.45 $3.41
MV800226 BEASTMASTER VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV800243 YEAR LIVING DANGEROUSLY VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV800278 POINT BLANK VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV800281 HUNGER, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV800314 BRAINSTORM VHS $3.22 $0.00 $0.00 $0.00 $3.22
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV800322 STRANGE BREW VHS $3.05 $0.00 $0.00 $0.53 $3.05
MV800421 RECKLESS VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800427 ICE PIRATES VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV800446 CHRISTMAS STORY, A VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV800451 MISUNDERSTOOD $3.06 $0.00 $0.00 $0.43 $3.49
MV800477 GRAND PRIX VHS DBLCPR $5.92 $0.00 $0.00 $0.45 $6.37
MV800487 ELECTRIC DREAMS $3.06 $0.00 $0.00 $0.43 $3.49
MV800570 XX JUST WAY YOU ARE $3.15 $0.00 $0.00 $0.00 $3.15
MV800591 2010:YEAR CONTACT SILVER $3.27 $0.00 $0.00 $0.45 $3.72
MV800600 MRS. SOFFEL VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV800613 THAT'S DANCING! VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV800625 DIRTY DOZEN/NEXT MISSION $3.15 $0.00 $0.00 $0.00 $3.15
MV800676 GYMKATA VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800713 YEAR OF DRAGON VHS SILVER $4.15 $0.00 $0.00 $0.45 $4.60
MV800819 DREAM LOVER $3.09 $0.00 $0.00 $0.43 $3.52
MV800874 XX WETHERBY VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV800926 MARIE:TRUE STORY VHS $3.23 $0.00 $0.00 $0.43 $3.66
MV800973 9 1/2 WEEKS VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV801065 GINGER & FRED VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV801067 XX SUNDAY IN COUNTRY VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV801502 CASABLANCA (CLR) VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV900003 DR ZHIVAGO VHS DBLCPR $6.22 $0.08 $0.00 $0.45 $6.75
MV900004 BEN HUR VHS DBLCPR $7.15 $0.08 $0.00 $0.45 $7.68
MV900031 MUTINY BOUNTY (BRANDO) VHS-COPPER $5.98 $0.00 $0.00 $0.45 $6.43
MV900276 QUO VADIS VHS GOLD $5.77 $0.00 $0.00 $0.45 $6.22
MV900356 HOW WEST WAS WON VHS DBLCPR $5.77 $0.00 $0.00 $0.45 $6.22
MV900401 RAINTREE COUNTY VHS GOLD $5.77 $0.00 $0.00 $0.45 $6.22
MV900500 YEARLING, THE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV902130 XX GONE W/WIND DELUXE $6.80 $0.08 $0.00 $2.50 $9.38
MV902671 CASABLANCA 50th ANNIV. COLLECTORS ED. $5.20 $0.08 $0.00 $27.51 $32.79
MV903990 WIZARD OF OZ (DELUXE) $6.24 $0.16 $0.00 $7.40 $13.80
</TABLE>
<PAGE>
EXHIBIT "B"
-----------
[TO BE INSERTED BY Critics' Choice]
Exhibit "B"
-----------
- 1 -
<PAGE>
WARNER HOME VIDEO/CRITICS' CHOICE
---------------------------------
DIRECT MARKETING LICENSE AGREEMENT
----------------------------------
This Agreement is entered into as of February 22, 1994, by and between WARNER
HOME VIDEO, a Division of Time Warner Entertainment Company, L.P. ("WHV"),
whose address is 4000 Warner Boulevard, Burbank, California 91522 and CRITICS'
CHOICE VIDEO, INC. ("Critics' Choice"), whose address is 800 West Thorndale
Avenue, Itasca, Illinois 60143.
1. DEFINITIONS: As used in this Agreement, the following terms shall have
-----------
the following meanings:
(a) "Audiovisual Work(s)": A series of related images which are shown
---------------------
by the use of machines or devices, such as projectors, viewers, or electronic
equipment, together with accompanying sounds, such as films or tapes, in which
the works are embodied. "Audiovisual Works" as defined herein shall be deemed
to refer to the Video Software which is the subject matter of this Agreement.
(b) "Continuity Series": An arrangement under which programs in a
-------------------
Series are shipped to customers at intervals on a subscription basis.
(c) "Direct Marketing Distribution": The distribution of Video Devices
-------------------------------
direct to consumers for Home Video Exhibition through any direct mail or mail
order distribution method wherein the consumer uses the mail, or other direct
delivery method, to purchase or receive Video Devices, including, without
limitation, direct mail sales, mail order catalogue sales, Video Club Plan
distribution, space advertising sales, insert program sales, television and
cable and/or radio broadcast, and telephone order distribution, but specifically
excluding Continuity Series.
(d) "Home Video Exhibition": The private, non-public exhibition in
-----------------------
homes and residences of Audiovisual Works by means of Video Devices where no
exhibition, admission, viewing or other fee is charged to anyone for the
exhibition of the Video Device(s) and where there is no public performance of
any form or type. "Home Video Exhibition" as herein defined shall not include
free television exhibition, cable television exhibition, pay or subscription
television exhibition, video on demand, or theatrical exhibition.
(e) "Net Paid Revenues": The gross amounts actually invoiced by
-------------------
Critics' Choice from the sale or other distribution of Video Devices (excluding
shipping and handling charges charged to the consumer) less (i) any sales,
excise, use and value-added taxes (collectively, "taxes") incurred in connection
with the distribution of such Video Devices, (ii) any actual returns as
-1-
<PAGE>
provided for hereunder, and (iii) any actual bad debts. The amount of such
deductions for actual bad debts and actual returns shall not, in the aggregate,
exceed ten percent (10%) of the amount invoiced by Critics' Choice in connection
with the distribution of the Video Devices. It is specifically understood and
agreed that Critics' Choice shall not deduct any sums from gross revenues as a
reserve for future returns.
(f) "New Release": The initial release of a Title by WHV for Home
-------------
Video Exhibition in the Territory, or the re-release of any Title, as designated
by WHV in WHV's sole discretion for such exhibition in the Territory.
(g) "Release Date": The date of initial release or re-release, of
--------------
Video Software, as determined on a Title by Title basis, by WHV for Home Video
Exhibition in the Territory, such date to be determined by WHV in WHV's sole and
absolute discretion.
(h) "Series": A group of Audiovisual Works connected by a common plot,
--------
theme or subject matter.
(i) "Territory": The United States, its territories and possessions,
-----------
excluding Puerto Rico, and Canada.
(j) "Term of this Aqreement": The period of time commencing as of the
------------------------
date hereof, and terminating three (3) years thereafter.
(k) "Video Club Plan Distribution": Any direct response plan or
------------------------------
arrangement through which a consumer purchases Video Devices according to terms
offered by Critics' Choice including, without limitation, a Video Club Plan
whereby (i) Video Devices are shipped automatically to consumers at specific
intervals, (ii) consumers may, at their option, purchase any number of Video
Devices, by Title, from a catalog, or (iii) any combination or variation of (i)
and (ii) herein, but expressly excluding Continuity Series.
(l) "Video Device(s)": Any form of one-half inch (1/2") videocassette
-----------------
embodying the Video Software on which Audiovisual Works can be recorded which,
when used in conjunction with video hardware, can be exhibited visually (whether
or not synchronized with sound) on the screen of a television receiver or any
device comparable to a television receiver now known or hereafter known or in
existence, and is sold in its original shrink-wrapped packaging.
(m) "Video Software": All Video Devices embodying Audiovisual Works
----------------
which are licensed to MGM/UA Home Video by Turner Entertainment Company ("TEC")
pursuant to that certain August 25, 1986 Agreement entered into between TEC and
MGM/UA Home Entertainment Group, as MGM/UA Home Video's predecessor in
interest, for which WHV has Direct Marketing Distribution rights which (i) had
an initial theatrical release prior to December 31, 1986, (ii) are released by
WHV as of a
-2-
<PAGE>
specific Release Date for Home Video Exhibition in the Territory during the Term
of this Agreement, (iii) are not withdrawn by WHV pursuant to Paragraph 7, and
(iii) are designated by WHV as being covered by the terms of this Agreement.
Individually, the Video Software sometimes may be referred to as a "Title".
2. GRANT OF RIGHTS:
---------------
(a) Right to Advertise, Distribute and Sell Video Devices: WHV hereby
-----------------------------------------------------
grants to Critics' Choice solely for the purpose of sale by means of Direct
Marketing Distribution, the non-exclusive right, privilege and license during
the Term of this Agreement, in the Territory, to advertise, distribute and sell
for Home Video Exhibition, those Video Devices embodying that Video Software
described herein which are purchased by Critics' Choice from WHV hereunder,
pursuant to the terms and conditions set forth in this Agreement.
(b) Riqht to Purchase Video Devices: WHV hereby grants to Critics'
-------------------------------
Choice the right to purchase Video Devices embodying that certain Video Software
which WHV releases for distribution in the Home Video market in the
Territory. The within described grant of rights shall include that Video
Software which (i) has been made available by WHV for distribution as of the
Release Date as described in this Agreement, and has not been withdrawn pursuant
to Paragraph 7, as of the date of full execution of this Agreement, and (ii) is
described in Subparagraph l.(m) above.
(c) Reservation of Rights: Any rights not specifically granted to
---------------------
Critics' Choice hereunder are hereby reserved by and to WHV. Except as
specifically set forth herein, Critics' Choice shall have no rights whatsoever
with respect to the Video Devices and the Video Software embodied thereon, and
nothing herein contained shall prohibit WHV from making use of the Video
Software and Video Devices for any purpose whatsoever.
3. TRADEMARKS, PROMOTION AND ADVERTISING RIGHTS:
--------------------------------------------
(a) Use of Trademarks, Tradenames, Logos: WHV hereby grants to
------------------------------------
Critics' Choice the non-exclusive right, during the Term, to use, at WHV's
direction and subject to WHV's prior written approval, those trademarks,
tradenames, logos, labels and artwork owned, controlled, or distributed by WHV
and MGM/UA, in connection with the promotion, advertising, distribution and sale
of the Video Devices.
(b) Use of Names/Likenesses: To the extent that WHV holds such rights,
-----------------------
WHV hereby grants to Critics' Choice, during the Term, the non-exclusive right
to use, at WHV's direction and subject to WHV's prior written approval, the
names, likenesses and voices of the performers and any other individuals who
have performed services in connection with the Video Software, including
biographical material furnished by WHV to Critics'
-3-
<PAGE>
Choice for advertising and promoting the Video Software, in connection
therewith, and on packaging therefor; provided, however, if WHV does not have
any of these rights, WHV will notify Critics' Choice in writing no later than
thirty (30) days after receipt of Critics' Choice's initial request therefor
regarding such Title.
(c) Advertising: To the extent that WHV holds such rights, WHV hereby
-----------
grants to Critics' Choice, during the Term of this Agreement, the non-exclusive
right to advertise, promote and publicize the Video Software in any medium. Such
advertising, promotion and publicity may include synopsis or excerpts limited to
two (2) minutes of the Video Software Title(s), or the pre-existing
advertisements, publicity pieces and promotional materials, in whole or in part,
related to such Video Software Title(s) as provided to Critics' Choice pursuant
to Paragraph 8 hereof.
(d) Critics' Choice Trademarks: Critics' Choice shall have the right
--------------------------
to affix any of its labels, trademarks, service marks, tradenames, logos,
designs or artwork ("Critics' Choice's Trademarks") on the outside of the
shrink-wrapped packaging for the Video Devices thereof, and on any promotional,
publicity or advertising materials used in the distribution by Critics' Choice
of such Video Devices; provided, however, that Critics' Choice's Trademarks
shall not be larger than the largest similar mark of MGM/UA or WHV, or of the
Video Software Title as mentioned by name, or of any individual mentioned
anywhere on such Video Software Packaging.
4. ADVANCE: Critics' Choice shall pay to WHV a non-returnable and non-
-------
refundable Advance which is recoupable against the royalties payable to WHV
pursuant to Paragraph 5, in the sum of One Million Two Hundred Thousand
Dollars ($1,200,000) as follows:
(a) Two Hundred and Forty Thousand Dollars ($240,000) shall be paid to
WHV upon execution of this agreement by Critics' Choice;
(b) Four Hundred and Eighty Thousand Dollars ($480,000) shall be paid
to WHV no later than February 1, 1995; and
(c) Four Hundred and Eighty Thousand Dollars ($480,000) shall be paid
to WHV no later than February 1, 1996.
Such amounts shall be paid to WHV on the dates set forth above irrespective of
whether the royalties accrued to Critics' Choice's account exceed the advances
already paid as of such dates.
-4-
<PAGE>
5. ROYALTIES: Critics' Choice shall pay to WHV royalties based on Net
---------
Paid Revenues as follows:
(a) High List Videos: With respect to one hundred percent (100%)
----------------
of Net Paid Revenues derived from Video Devices distributed by Critics'
Choice for which WHV's suggested retail price is Twenty Dollars ($20.00)
or higher, Critics' Choice shall pay to WHV royalties as follows:
(i) For any Video Device sold by Critics' Choice at Nineteen
Dollars and Ninety-Nine Cents ($19.99) or less, Critics' Choice shall pay
to WHV a royalty of Three Dollars ($3.00) per Video Device; and
(ii) For any Video Device sold by Critics' Choice at Twenty
Dollars ($20.00) or higher, Critics' Choice shall pay to WHV a royalty of
fifteen percent (15%) of Critics' Choice's actual Net Paid Revenues per
Video Device.
(b) Low List Videos: With respect to one hundred percent (100%)
---------------
of Net Paid Revenues derived from Video Devices distributed by Critics'
Choice for which WHV's suggested list price is Nineteen Dollars and Ninety-Nine
Cents ($19.99) or less, Critics' Choice shall pay to WHV royalties as follows:
(i) For any Video Device sold by Critics' Choice at Nine Dollars
and Ninety-Nine Cents ($9.99) or less, Critics' Choice shall pay to WHV
a royalty of One Dollar and Fifty Cents ($1.50) per Video Device; and
(ii) For any Video Device sold by Critics' Choice at Ten Dollars
($10.00) or higher, Critics' Choice shall pay to WHV a royalty of fifteen
percent (15%) of Critics' Choice's actual Net Paid Revenues per Video Device.
(c) Inventory Prior to Term: Critics' Choice shall have no obligation
-----------------------
to pay royalties to WHV for Video Devices which are in Critics' Choice's
inventory on or before the commencement of the Term of this Agreement. A
complete statement of the Video Devices in Critics' Choice's inventory as
of the commencement of the Term of this Agreement, which statement is subject
to audit by WHV, is attached hereto as Schedule "B".
(d) Price Changes: WHV will use its best efforts to notify Critics'
-------------
Choice of any change in the suggested list price of a Title prior to the
effective date of such price change; provided, however, any inadvertent
breach of this Subparagraph shall not be a material breach hereof.
6. RELEASE DATES:
-------------
(a) Release Date: Subject to Subparagraph 6.(b) below, Critics'
------------
Choice shall have the right to advertise, market and distribute for Home
Video Exhibition in the Territory, Video
-5-
<PAGE>
Devices embodying any given Video Software Title at the same time and as
of the same date as WHV's published Release Date for that particular Title.
(b) New Releases: Notwithstanding the foregoing, any New Releases
------------
of a Title shall not be offered by Critics' Choice for sale, or other
distribution, at a loss, or as a "loss leader" as that term is used in consumer
advertising and marketing, or included in advertising which solicits new
members for any Video Club Plan Distribution, during the first ninety (90)
days from and after the Release Date of such Title.
7. WITHDRAWAL OF TITLE(S):
----------------------
(a) Reasons for Withdrawal: WHV shall have the right to withdraw
----------------------
any Video Software Title and terminate WHV's obligations under this Agreement
with respect to any particular Video Software ("Withdrawal") if (i) WHV's
right in such particular Title terminates, (ii) in WHV's sole judgment,
withdrawal is prudent to minimize the possible damage to WHV from any pending,
threatened, or possible lawsuit or proceeding, (iii) the payments which
WHV is required to make to third parties as a result of sales of the Video
Devices are equal to or exceed the royalties payable to WHV hereunder, unless
Critics' Choice agrees to pay to WHV the full amount of such third party
payments (in addition to any other amounts which Critics' Choice owes WHV
for such sales), in which event Critics' Choice may continue to distribute
hereunder, or (iv) WHV withdraws a Title for any other reason from all of
the Territory.
(b) Withdrawal Shall Not Constitute Breach: It is understood and
--------------------------------------
agreed that withdrawal pursuant to this Paragraph shall not constitute a
breach of WHV's obligations under this Agreement, and shall not affect any
Video Devices previously sold by Critics' Choice.
(c) Withdrawal of Titles: Upon receipt of notice from WHV regarding
--------------------
withdrawal of any Title, Critics' Choice shall cease advertising, promoting
or offering such Video Software for sale, and Critics' Choice shall return
to WHV all such Video Devices which are in Critics' Choice's inventory together
with all advertising and other materials relating to such Video Software
supplied by WHV. Critics' Choice shall also revise Critics' Choice's
advertising and promotional materials to indicate that such Video Software
is not longer available. If necessary, and upon WHV's specific written request,
Critics' Choice shall discontinue fulfilling existing orders, or orders
which may be in the process of transmittal to Critics' Choice, for those
Video Software Titles which WHV has withdrawn and which Critics' Choice
had been advertising, promoting or offering. Upon return to WHV of all such
Video Devices, WHV shall credit to Critics' Choice the manufacturing cost
of each of the Video Devices so returned, plus reasonable shipping charges.
-6-
<PAGE>
8. PHYSICAL MATERIALS IN CONNECTION WITH MANUFACTURING AND
-------------------------------------------------------
PROMOTIONAL RIGHTS:
------------------
(a) Advertising, Publicity and Promotion Materials: WHV will deliver
----------------------------------------------
to Critics' Choice at such place within the Territory as Critics' Choice
may reasonably designate, promptly after Critics' Choice's request therefor,
a reasonable quantity of pre-existing advertisements, publicity pieces and
promotion materials concerning each of the Video Software Titles as WHV
may have available, including, but not limited to:
(i) a pressbook;
(ii) a synopsis of each Title, if such is available;
(iii) color artwork in the form of slides, chromes, posters or
otherwise;
(iv) duplicate negatives and positive prints of black and
white still photographs and color transparencies of color still
photographs depicting scenes from the Video Software (on a Title by
Title basis), the majority of which depict the principal performers.
Each still photograph shall be accompanied by a notation identifying
the persons and events depicted and shall be suitable for reproduction
for advertising and publicity purposes;
(v) a synopsis of and the guidelines for the advertising
credits that are to be used for distribution of the Video Devices;
and
(vi) a list of the principal performers and their roles.
(b) Costs of Materials: Critics' Choice shall pay WHV for all
------------------
costs incurred by WHV in connection with duplicating and shipping the materials
delivered pursuant to this Paragraph 8 promptly after notice to Critics'
Choice by WHV of such costs.
9. MANUFACTURE OF VIDEO DEVICES:
----------------------------
(a) Manufacture: WHV will manufacture, or cause to have manufactured,
-----------
Video Devices during the Term of this Agreement. With WHV's consent, Critics'
Choice shall not offer for sale for Direct Marketing Distribution any Video
Device embodying the Video Software licensed hereunder which is not
manufactured or caused to be manufactured by WHV. All Video Devices shall
be sold in the original packages provided by WHV.
(b) Pricing: Critics' Choice shall pay WHV for the Video Devices
-------
which WHV manufactures or causes to have manufactured, in accordance with
the prices listed on Schedule "A" attached hereto which prices may increase
or decrease from
-7-
<PAGE>
time to time in WHV's sole discretion; provided, however, any aggregate
price increase shall be in direct proportion to those price increases incurred
by or passed back to WHV; and, provided further, WHV shall pass back to
Critics' Choice any price decrease which equals or exceeds fifteen percent
(15%) of the price(s) listed on Schedule "A".
(c) Delivery: Critics' Choice shall place orders for Video Devices
--------
in writing and WHV will attempt to deliver finished product within thirty
(30) days of receipt of Critics' Choice's order subject to the terms of
Paragraph 10. If WHV anticipates that WHV will not be able to fulfill any
such order in the quantities stated in such order, and within such thirty
(30) day time period, WHV will notify Critics' Choice of such delayed delivery,
including the approximate delivery dates, within twenty-one (21) days of
receipt of Critics' Choice's order. Any failure to deliver Video Devices
to Critics' Choice within such thirty (30) day time period shall not be
a breach hereof, and WHV shall not be obligated to fill any order for any
Video Software in a format which is not then being distributed by WHV in
that format for Home Video Exhibition.
(d) Shipment: WHV will ship the Video Devices F.O.B. Critics'
--------
Choice's warehouse located at 800 West Thorndale, Itasca, Illinois 60143.
WHV shall be obligated only to bulk ship the Video Devices to one destination
as stated herein; Critics' Choice will pay all costs of shipping. Critics'
Choice shall bear the cost of shipping, risk of loss and cost of insurance
for shipping to the destination designated by Critics' Choice as stated
above.
10. PAYMENT FOR VIDEO DEVICES: Payment for all Video Devices ordered
-------------------------
and shipped to Critics' Choice shall be made in accordance with the terms
of WHV's invoice(s) therefor, and pursuant to WHV's terms of sale in effect
at the time of invoicing. Unless otherwise stated, payment shall be made
by Critics' Choice within thirty (30) days of invoicing by WHV to Critics'
Choice. All orders are subject to Critics' Choice's maintaining good credit
as determined by WHV in WHV's sole discretion, and, in accordance therewith,
Critics' Choice shall provide to WHV credit information if so requested.
Critics' Choice shall pay all sales and other taxes, and any other costs,
associated with the sale and delivery of the Video Devices.
11. FULFILLMENT:
-----------
(a) Fulfillment Services: Critics' Choice shall be responsible
--------------------
for the fulfillment of all orders for Video Devices originating from Critics'
Choice's offer(s) to consumers to purchase the Video Software, and, in
connection therewith, Critics' Choice shall provide and be responsible for
implementing and maintaining all fulfillment services which are customary
in, and legally required by, the Direct Marketing Distribution of Video
Devices.
-8-
<PAGE>
(b) Exploitation: Except as stated to the contrary in this Agreement,
------------
Critics' Choice shall have the right to exploit the Video Devices of the
Audiovisual Works licensed hereby pursuant to the terms and conditions of
this Agreement; provided, however, Critics' Choice may use such methods,
policies and terms as it may determine, in its reasonable business judgment,
are necessary to exploit the Video Devices of the Audiovisual Works as herein
described.
(c) Indemnity for Fulfillment: Critics' Choice shall, at Critics'
-------------------------
Choice's sole expense, indemnify and hold WHV harmless from and against
any and all claims, costs, liabilities, obligations, judgments or damages
(including reasonable attorneys' fees) arising out of or in connection with
any suit, proceeding, claim or demand brought against WHV in connection with
Critics' Choice's fulfillment of, or failure to fulfill, all orders for
Video Devices embodying the Video Software.
12. ALL SALES FINAL: All sales to Critics' Choice shall be final and
---------------
Critics' Choice shall have no right to return to WHV any unsold or returned
Video Devices, except for defective Video Devices. Defective Video Devices
may be returned directly to the duplicator, West Coast Duplicating, Inc.
("West Coast") at 1961 Stearman Avenue, Hayward, California 94545, not more
frequently than semi-annually, at Critics' Choice's expense. Critics' Choice
shall provide WHV with a list of the titles returned to West Coast at the
time that the Video Devices are returned. West Coast shall check such Video
Devices which Critics' Choice believes are defective pursuant to its standard
quality control procedures. WHV will credit Critics' Choice for any Video
Device which is determined to contain a manufacturer's defect. All other
Video Devices shall be shipped back to Critics' Choice, at Critics' Choice's
expense. Critics' Choice shall pay WHV, within thirty (30) days of receipt
of an invoice, the cost of the quality control review in connection with
those Video Devices found not to contain manufacturer's defects, not to
exceed twenty five cents ($0.25) per unit.
13. TERMINATION AND POST-TERMINATION SALES:
--------------------------------------
(a) Sell Off Period: Subject to any restrictions to which Critics'
---------------
Choice may be subject, WHV agrees that during a period of six (6) months
after the expiration or earlier termination of this Agreement (the "Sell-Off
Period"), Critics' Choice may, in the same manner and to the same extent
as during the Term of this Agreement, advertise, distribute and sell Video
Software only if Critics' Choice has existing inventory of Video Devices
in excess of orders received before such termination date; provided, however,
Video Software which has been withdrawn pursuant to Paragraph 7 shall not
be subject to the terms of this Paragraph 13, or any of its subparts. With
respect to all other Video Software, Critics' Choice will continue to have
the right to purchase inventory, but only to the extent necessary to fulfill
orders received during the Term of the Agreement.
-9-
<PAGE>
(b) Payment of Royalties During Sell-Off Period: With respect
-------------------------------------------
to all Video Devices distributed during the Sell-Off Period, WHV shall be
paid royalties and rendered accounting statements with respect to such Video
Devices in the same manner and on the same dates as during the Term hereof;
provided, however, that Critics' Choice shall not be permitted to recoup
its advances from royalties payable to WHV during the Sell-Off Period (unless
the Agreement terminates as a result of WHV's breach of the Agreement).
(c) Repurchase of Inventory: Following the expiration of the Term
-----------------------
and Sell-Off Period, or earlier termination of this Agreement, Critics'
Choice shall notify WHV as to the number and type of Video Devices then
remaining on hand, and WHV may, at WHV's option, repurchase any such Video
Device(s), at the manufacturing cost paid by Critics' Choice for such Video
Devices plus reasonable shipping charges, or, at WHV's option, WHV may instruct
Critics' Choice to destroy such Video Devices. If any such Video Devices
are destroyed, Critics' Choice shall furnish to WHV an affidavit or certified
statement sworn to by an authorized officer of Critics' Choice. With respect
to any such Video Device purchased by WHV as aforesaid, notwithstanding
anything to the contrary contained in this Agreement, WHV will pay all excise
taxes and any other amounts payable in connection with the sale by Critics'
Choice to WHV of such Video Devices.
14. ROYALTY STATEMENTS:
------------------
(a) Quarterly Accounting Statements: Critics' Choice shall compute
-------------------------------
the royalties payable to WHV on a quarterly, calendar-year basis, and Critics'
Choice shall render an accounting statement to WHV within forty-five (45) days
following the end of each such quarterly accounting period, commencing on March
31, and continuing thereafter on June 30, September 30 and December 31. Each
such quarterly accounting statement shall be accompanied by payment of the
amounts due to WHV pursuant to such accounting statement. Each accounting
statement shall show, on a Title by Title basis, the number of Video Devices
distributed, the gross revenues invoiced therefor, the Net Paid Revenues,
including the amounts deducted, if any, from gross revenues, the royalties
earned, and the basis upon which the royalties have been calculated for the
immediately preceding three month period.
(b) Books and Records: Critics' Choice shall maintain accurate
-----------------
and complete books and records in accordance with generally accepted accounting
principles at Critics' Choice's principal place of business for a period
of two (2) years from and after the end of the Term of this Agreement, and
WHV shall have the right to examine such books and records at any time during
Critics' Choice's normal business hours upon reasonable notice.
-10-
<PAGE>
15. AUDIT:
-----
(a) Right of Audit: WHV shall have the right to examine such books
and records at the location described in Subparagraph 14.(b), and to make
copies thereof and extract excerpts therefrom, at any time during normal
business hours for the purpose of verifying the accuracy of the quarterly
accounting and royalty statements. This right of audit shall exist for the
period of two (2) years from and after WHV receives any such statement and
shall survive the Term of this Agreement.
(b) Statement Binding: Unless WHV objects to a statement as described
-----------------
below, all accounting statements rendered to WHV shall become conclusively
binding on WHV at the end of the two (2) year period described above. WHY
shall have the right to audit Critics' Choice's books for the period of
time covered by the statement.
(c) Objections: If WHV has any objections to a statement rendered
----------
pursuant hereto, WHV shall give Critics' Choice specific notice in writing
of the objection within two (2) years after WHV either receives the
objectionable accounting entry pursuant to a regularly conducted audit,
whichever is later. WHV shall, at WHV's option, commence an audit with respect
to any such objection within the two (2) year period referred to herein,
or within one (1) year from the notice stating the objection, whichever
is later.
(d) Underpayment: If WHV discovers an underpayment by Critics'
------------
Choice, then Critics' Choice shall immediately pay WHV all sums due and owing
with interest thereon at the prime rate of interest plus two percent (2%)
during the period of time such sums were due and owing, but were not paid,
to WHV. If there is a discrepancy in connection with such underpayment of
more than ten percent (105), then Critics' Choice shall reimburse WHV for
all costs of the audit.
16. REPRESENTATIONS AND WARRANTIES:
------------------------------
(a) WHV's Representations and Warranties: WHV warrants, represents,
------------------------------------
covenants and agrees that:
(i) WHV has the right and power to enter into and fully perform
this Agreement, including the right to grant to Critics' Choice the rights
as provided for hereunder; and
(ii) To the best of WHV's knowledge, there is no litigation,
proceeding or claim pending or threatened pertaining to the Video Software
which may materially affect WHV's rights in and to the Video Software, or
the works and performances embodied thereon, the copyrights pertaining thereto,
or the rights, licenses and privileges granted to Critics' Choice pursuant
to this Agreement.
-11-
<PAGE>
(b) Critics' Choice Representations and Warranties: Critics' Choice
----------------------------------------------
warrants, represents, covenants and agrees that:
(i) Critics' Choice has the right, power and authority to
enter into and fully perform this agreement;
(ii) Critics' Choice shall comply with all credit, trademark
and copyright obligations;
(iii) Critics' Choice shall maintain accurate books of accounts
in connection with all distribution and sales pursuant to this Agreement,
including without limitation, the information required in order to comply
with the terms of Paragraph 14;
(iv) Critics' Choice is not now, nor during the Term of this
Agreement shall Critics' Choice be, under any obligation, contractual or
otherwise, to any other person, firm, or corporation that conflicts, interferes
or is inconsistent with any of the provisions of this Agreement or any of
the rights granted to Critics' Choice hereunder;
(v) Critics' Choice shall not advertise or promote the Video
Software in a manner which is disparaging of the Titles licensed hereby,
including with limit, the persons and/or the entities associated therewith,
or of WHV, WHV's affiliated companies, or WHV's employees, officers and
directors;
(vi) to the best of Critics' Choice's knowledge, there is
no litigation, proceeding or claim pending or threatened against Critics'
Choice which may materially affect Critics' Choice's right to enter into
and perform this Agreement;
(vii) Critics' Choice shall not edit, modify or couple any
other Video software devices with any of WHV's Video Devices; and
(viii) Critics' Choice shall not pledge, mortgage or in any
way encumber, or permit any pledge, mortgage or encumbrance of this Agreement,
the Video Software or Video Devices, or any other materials delivered pursuant
to this Agreement.
17. INDEMNITY: Each party will at all times indemnify (the "Indemnitor")
---------
and hold harmless the other party (the "Indemnitee"), and any of its employees,
subsidiaries, affiliated or related companies, from and against any and
all claims, damages, liabilities, costs and expenses, including legal expenses
and reasonable attorney's fees, arising out of any breach by the Indemnitor
of any warranty, representation, covenant or agreement made by the Indemnitor
pursuant to this Agreement. Prompt notice will be given by the Indemnitee
to the Indemnitor of any claim to which this indemnity relates and the
-12-
<PAGE>
Indemnitor shall have the right, at the Indemnitor's expense, to assume the
handling, settlement or defense of such claim, including the hiring of
attorneys. The Indemnitee shall cooperate with the Indemnitor in the defense and
settlement of any such claim or litigation. The Indemnitor will reimburse the
Indemnitee on demand for any payment made at any time after the date hereof with
respect to any liability or claim to which the Indemnitee is entitled to be
indemnified, provided that no such payment shall be made without the consent of
the Indemnitor, which consent shall not be unreasonably withheld. The warranties
made pursuant to Paragraph 16, and this within mutual indemnification, shall
survive the expiration or earlier termination of this Agreement.
18. BREACH AND CURE: Neither party shall be entitled to recover damages
---------------
or terminate this Agreement by reason of any breach by the other party of
any material obligation(s) hereunder unless such other party has failed
to remedy such breach within thirty (30) days following receipt of written
notice of such breach.
19. ASSIGNMENT: WHV shall have the right to assign this Agreement
----------
in whole or in part to an affiliate of: (i) WHV, (ii) Time Warner, Inc.
or (iii) MGM/UA Home Entertainment. Critics' Choice may not assign this
Agreement without WHV's prior written consent, which shall not be unreasonably
withheld.
20. NOTICES:
-------
(a) Method of Notice: Except as otherwise specifically provided
----------------
for herein, all notices hereunder shall be in writing and shall be given
by personal delivery, registered or certified mail, or telegraph (prepaid),
or telecopier with a copy sent by mail as provided for herein, at the
respective addresses set forth below, or such other address or addresses
as may be designated by either party by notice sent in accordance with the
terms of this Paragraph. Such notices shall be deemed given when mailed,
telecopies or delivered to a telegraph office, except that notice of change
of address shall be effective only from the date of its receipt.
(b) Addresses: Each notice shall be sent to Critics' Choice at
---------
800 West Thorndale, Itasca, Illinois 60143, ATTN: Herb Laney, President,
with a copy to: Senior Vice President, General Counsel, at 680 North Lakeshore
Drive, Chicago, Illinois 60611. Each notice shall be sent to WHV at 4000
Warner Boulevard, Burbank, California 91522, ATTN: Vice President, Operations,
Warner Home Video, with a copy to: General Counsel, Warner Home Video, at
the address set forth herein.
21. FORCE MAJEURE: IF, because of acts of God, inevitable accident,
-------------
fire, lockout, strike or other labor dispute, riot or civil commotion, act
of public enemy, enactment, rule, order, or act of any governmental or
governmental instrumentality (whether
-13-
<PAGE>
federal, state, local or foreign), failure of technical facilities, failure or
delay of transportation facilities, or other cause of a similar or different
nature not reasonably with WHV's or Critics' Choice's control, WHV or Critics'
Choice is materially hampered in the manufacture, distribution or sale of the
Video Devices or otherwise in the performance of WHV's or Critics' Choice's
respective obligations hereunder, then, for the duration of such contingency or
for a period of six (6) months, whichever is shorter, either party may suspend
or terminate this Agreement by providing written notice to the other to such
effect. Nothing contained herein shall affect Critics' Choice's obligation under
this Agreement to account to WHV and to pay royalties due to WHV pursuant to
this Agreement.
22. ENTIRE AGREEMENT: This Agreement contains the entire understanding
----------------
of the parties hereto relating to the subject matter hereof and cannot be
changed or modified except by a separate written document executed by both
parties hereto.
23. WAIVER: A waiver by either party of any term or condition of this
------
Agreement in any instance shall not be deemed or construed as a waiver of
such term or condition for the future, or of any subsequent breach thereof.
All remedies, rights, undertakings, obligations and agreements contained
in this Agreement shall be cumulative, and none of them shall be in limitation
of any other remedy, right, undertaking, obligation or agreement of either
party.
24. RELATIONSHIP OF PARTIES: Each of the parties hereto shall have
-----------------------
the status of an independent contractor with respect to the other party,
and nothing stated hereinabove shall be deemed to create between the parties
a relationship of agency, employer and employee, partnership or similar
relationship.
25. GOVERNING LAW: This Agreement shall be construed by and interpreted
-------------
in accordance with the laws of the State of California applicable to agreements
executed and intended to be wholly performed in the State of California.
Any action or proceeding arising out of this Agreement shall be instituted
and tried only in the courts located in California and both parties hereby
waive any right to institute or try any action or proceeding elsewhere with
respect to the subject matter hereof.
26. HEADINGS: The Paragraph and other headings contained in this
--------
Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
27. SEVERABILITY: The invalidity or unenforceability of any provision
------------
of this Agreement shall in no way affect the validity or enforceability
of any other provision of this Agreement, to the extent such is possible
and to the extent such is not material to the performance by either party
to this Agreement.
-14-
<PAGE>
28. CONFIDENTIALITY: All the terms and conditions of this Agreement
shall remain confidential, and not public statement or other public
announcement regarding this Agreement, in whole or in part, shall be released,
issued or made without the prior mutual written approval of both Critics'
Choice and WHV, except as may be required by law.
Very truly yours,
WARNER HOME VIDEO, a Division ACCEPTED AND AGREED TO:
of Time Warner Entertainment CRITICS' CHOICE VIDEO, INC.
Company, L.P.
/s/ James Carowell /s/ Herbert M. Laney
By:__________________________ By:__________________________
James Carowell Herbert M. Laney
Name:________________________ Name:________________________
Exec. Vice President President
Its:_________________________ Its:_________________________
2/22/94 2/15/94
Date:________________________ Date:________________________
-15-
<PAGE>
EXHIBIT "A"
PRICES
(See attached)
Exhibit "A"
-1-
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV200180 FOR YOUR EYES ONLY VHS GOLD $3.47 $0.00 $0.00 $0.30 $3.65
MV200181 FRENCH LTS WOMAN VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200240 MAN OF LA MANCHA VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV200249 ROCKY VHS $3.46 $0.08 $0.00 $0.00 $3.54
MV200250 ROCKY II VHS $3.46 $0.00 $0.00 $0.00 $3.54
MV200251 ANNIE HALL VHS SILVER $2.96 $0.08 $0.00 $0.45 $3.49
MV200252 PINK PANTHER STRIKES AGAIN VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV200261 CARRIE $3.15 $0.00 $0.00 $0.00 $3.15
MV200293 WARGAMES VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV200294 OCTOPUSSY VHS GOLD $3.58 $0.08 $0.00 $0.30 $3.96
MV200313 YENTL VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV200423 200 MOTELS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV200482 LAST WALTZ, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV200588 DRAUGHTSMAN'S CONTRACT, THE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV200663 HOW SUCCEED BUSINESS VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV200666 JACK GIANT KILLER VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200751 XX JOURNEY CENTER EARTH VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200752 XX ROBINSON CRUSOE-CARTOON VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200784 XX ADVENTURES OF SINBAD-CARTOON VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200785 XX MOBY DICK-CARTOON VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV200854 XX CONNECTICUT YANK-CARTOON VHS $2.70 $0.00 $0.00 $0.53 $3.23
MV200896 XX LEGEND ROBIN HOOD-CARTOON VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200898 XX PRINCE PAUPER-CARTOON VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200899 XX ORBOTS: MASTER OF WORLD VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200900 XX FROM EARTH TO MOON VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV200910 CLOUSEAU NAPOLEON VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200911 ANT FROM UNCLE VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200912 XX TIJUANA-GO CROAK VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200913 XX MISTERJAW-MONSTER VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200914 ROLAND & RATFINK VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV200946 TWO FOR THE SEESAW VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV200947 CHILDREN'S HOUR VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201044 XX MYSTERIOUS ISLAND VMS $2.21 $0.00 $0.00 $0.53 $2.74
MV201045 XX SWISS FAMILY ROBIN VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV201046 XX KIDNAPPED VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV201047 XX TRAVEL MARCO POLO VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV201077 GALAXY BEING VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201080 XX OFF ON A COMET VHS $2.31 $0.00 $0.00 $0.53 $2.84
MV201090 100 DAYS OF DRAGON VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201091 MAN WITH THE POWER VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201104 XX APE SUZETTE VHS $1.91 $0.00 $0.00 $0.53 $2.44
MV201112 XX TALES WASH IRVING VHS $2.21 $0.00 $0.00 $0.53 $2.74
MV201122 SUPPORT YOUR LOCAL GUNFIGHTER $3.05 $0.00 $0.00 $0.00 $3.05
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201167 FORMS THINGS UNKNOWN VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201168 SIXTH FINGER, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201169 INHERITORS, THE 1&2 VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201219 SEMI-TOUGH VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201245 DOGS OF WAR, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201257 GREAT ESCAPE, THE VHS DBLCPA $5.76 $0.00 $0.00 $0.45 $6.21
MV201259 MECHANIC, THE SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV201260 THOMAS CROWN AFFAIR, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201261 KEEPER PURPLE TWILIGHT VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201262 DEMON W/GLASS HND VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201263 ZANTI MISFIT, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201265 IN HEAT OF NIGHT VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201266 WESTSIDE STORY VHS $4.85 $0.08 $0.00 $0.00 $4.93
MV201268 MAGNIFICENT SEVEN VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201272 FISTFUL OF DOLLARS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201288 SMILE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201290 WHERE LILIES BLOOM VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201305 THIEF VHS SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV201306 WHO'LL STOP T/RAIN VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201307 APARTMENT, THE VHS SILVER $3.56 $0.00 $0.00 $0.00 $3.56
MV201320 FIDDLER ON THE ROOF VHS DBLCPR $5.96 $0.00 $0.00 $0.45 $6.49
MV201322 RAGING BULL VHS SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV201323 BUGS BUNNY SUPERSTAR VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201330 HAIR VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV201370 ALICES RESTAURANT VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201374 DANGER ZONE, THE VHS $2.61 $0.00 $0.00 $0.00 $2.61
MV201392 THUNDERBOLT LIGHTFOOT VHS SILVER F $3.27 $0.00 $0.00 $0.45 $3.72
MV201396 SOLDIER, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201399 HANG EM HIGH VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201401 DR NO VHS GOLD $3.23 $0.08 $0.00 $0.30 $3.61
MV201402 FROM RUSSIA W/LOVE VHS GOLD $3.27 $0.08 $0.00 $0.30 $3.65
MV201403 GOLDFINGER $3.23 $0.08 $0.00 $0.30 $3.61
MV201404 THUNDERBALL VHS GOLD $3.58 $0.00 $0.00 $0.30 $3.96
MV201405 YOU ONLY LIVE TWICE VHS GOLD $3.37 $0.00 $0.00 $0.30 $3.75
MV201406 DIAMONDS ARE FOREVER VHS GOLD $3.37 $0.08 $0.00 $0.30 $3.75
MV201409 LONG GOODBYE, THE VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201418 LIVE AND LET DIE VHS GOLD $3.47 $0.08 $0.00 $0.30 $3.85
MV201419 MAN W/GOLDEN GUN VHS GOLD $3.47 $0.08 $0.00 $0.30 $3.85
MV201420 ON MAJESTY SECRET SVCE VHS GOLD $4.30 $0.08 $0.00 $0.30 $4.68
MV201421 SPY WHO LOVED ME VHS GOLD $3.47 $0.00 $0.00 $0.30 $3.05
MV201422 MOONRAKER VHS GOLD $3.47 $0.00 $0.00 $0.30 $3.85
MV201423 INVISIBLE ENEMY, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201424 MAN WAS NEVER BORN VHS $2.40 $0.00 $0.00 $0.00 $2.40
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201429 NIGHTMARE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201444 633 SQUADRON VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201446 SHOT IN THE DARK VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201448 REVENGE PINK PANTHER VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201454 ROLLING STNE 20YRS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201457 INVISIBLES, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201461 SPECIMIN: UNKNOWN VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201462 ARCHITECTS OF FEAR VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201463 SLEEPER VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV201466 HOW MURDER YOUR WIFE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201480 FUN AND GAMES VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201481 O.B.I.T. VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201490 RUSSIANS ARE COMING VHS SILVER $3.47 $0.00 $0.00 $0.45 $3.92
MV201507 CUBA $3.46 $0.00 $0.00 $0.00 $3.46
MV201532 TOWER OF LONDON $0.00 $0.00 $0.00 $0.00 $0.00
MV201533 BRIDGE AT BEMAGEN, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201557 DEFIANT ONES SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV201559 BREAKHART PASS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201562 KING OF HEARTS--LTRBX VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201572 FEASIBILITY STUDY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201573 CORPUS EARTHLING VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201574 DO NOT OPEN DOOMSDAY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201575 BELLERO SHIELD, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201576 COLD HANDS WARM HEART VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201577 FOR FEW DOLLARS MORE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201580 LA CAGE AUX FOLLES VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV201581 COLD TURKEY VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201582 IRMA LA DOUCE VHS $4.39 $0.00 $0.00 $0.00 $4.39
MV201583 WHERE'S POPPA VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV201584 PARTY, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV201596 MUTANT, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201597 MOONSTONE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201598 BEHOLD, ECKI VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201604 BLACK STALLION, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201606 IT! TERROR FROM BEYOND VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV201618 HOLE IN THE HEAD, A VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV201630 BY LOVE POSSESSED $3.36 $0.00 $0.00 $0.00 $3.36
MV201631 WAY WEST, THE $3.46 $0.00 $0.00 $0.00 $3.46
MV201632 DAIRY OF A MADMAN $0.00 $0.00 $0.00 $0.00 $0.00
MV201636 HONEY POT, THE $3.67 $0.00 $0.00 $0.00 $3.67
MV201637 TOYS IN THE ATTIC $3.05 $0.00 $0.00 $0.00 $3.05
MV201643 MOBY DICK VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201647 CHITTY CHITTY BANG VHS $4.54 $0.00 $0.00 $0.00 $4.54
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV201649 INHERIT THE WIND VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201650 MISFITS, THE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV201701 PINK CHRISTMAS, A VHS $1.05 $0.00 $0.00 $0.00 $1.85
MV201702 YOURS, MINE & OURS VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201704 KILLING, THE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201713 CHAMELEON (OUTER LIMITS) VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201714 TOURIST ATTRACTION VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201724 RED RIVER VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV201734 MOULIN ROUGE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201750 IT CRAWLD/WOODWORK VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201764 BANANAS VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201765 LOVE AND DEATH VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV201770 BRANNIGAN VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV201771 LEGEND OF THE LOST VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV201772 HORSE SOLDIERS VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV201808 BORDERLAND, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201809 HUMAN FACTOR, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201810 MICE, THE VHS $2.40 $0.00 $0.00 $0.50 $2.40
MV201811 CONTROLLED EXPRMNT VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201829 ZZZZZZZ VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201830 CHILDREN SPIDER COUNTY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201831 SECOND CHANCE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201832 GUESTS, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201833 SPECIAL ONE, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201834 PRODUCTION/DECAY VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV201863 TOM SAWYER VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV201864 BLACK STALLION RETURNS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202000 HOUND OF THE BASKERVILLES $3.01 $0.00 $0.00 $0.00 $3.01
MV202006 CHATO'S LAND VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202009 KHARTOUM VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV202012 WHITE BUFALO, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202015 VERA CRUZ VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202031 SUPPORT LOCAL SHERIFF VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202033 SCALPHUNTERS, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202034 CRY OF SILENCE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202035 EXPANDING HUMAN VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202041 VIEW TO A KILL VHS GOLD $3.58 $0.08 $0.00 $0.30 $3.96
MV202059 MAN OF THE WEST VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202060 APACHE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202062 WOLF 359 VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202063 I ROBOT VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202078 ROAD TO HONG KONG VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202079 WHAT'S NEW PUSSYCAT VHS $3.22 $0.00 $0.00 $0.00 $3.22
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202084 ROCKY IV VHS $3.05 $0.08 $0.00 $0.53 $3.13
MV202086 ROCKY III VHS $3.19 $0.08 $0.00 $0.00 $3.27
MV202087 DUPLICATE MAN, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202088 COUNTERWEIGHT VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202106 EVERYTHING SEX VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV202115 FORTUNE COOKIE VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV202116 BAREFOOT CONTESSA VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV202117 BRAIN COLONEL BARHAM VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202118 PREMONITION, THE VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202121 PROBE (OUTER LIMITS) VHS $2.40 $0.00 $0.00 $0.00 $2.40
MV202133 RUN SILENT RUN DEEP VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202251 KISS ME DEADLY VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202258 FUNNY THING WAY FORUM VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202266 GALLANT HOURS, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202267 ON THE BEACH VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV202269 BIRDMAN OF ALCATRAZ VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV202326 BRIDE WORE BLACK VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202327 BURN VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV202328 FELLINI'S ROMA VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202329 LA CAGE AUX FOLLES II VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202330 MISSISSIPPI MERMAID VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202331 MUSIC LOVERS, THE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202332 SMALL CHANGE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV202333 STORY OF ADELE H. $3.15 $0.00 $0.00 $0.45 $3.15
MV202334 XX/NA VERONICA VOSS $3.22 $0.00 $0.00 $0.00 $3.22
MV202335 WILD CHILD $3.01 $0.00 $0.00 $0.00 $3.01
MV202359 GARBO TALKS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202361 HOSPITAL, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV202362 KISS ME STUPID $3.56 $0.00 $0.00 $0.00 $3.56
MV202363 NIGHT THEY RAIDED MINSKY'S $3.15 $0.00 $0.00 $0.00 $3.15
MV202365 THOUSAND CLOWNS, A $3.36 $0.00 $0.00 $0.00 $3.36
MV202370 KING AND FOUR QUEENS $2.96 $0.00 $0.00 $0.00 $2.96
MV202414 DEVIL'S BRIGADE, THE VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV202432 NOOSE HANGS HIGH, THE $2.85 $0.00 $0.00 $0.00 $2.85
MV200433 DANCE WITH ME-CC $2.96 $0.00 $0.00 $0.00 $2.96
MV202510 FUGITIVE KIND, THE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV202511 TRAIN, THE VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV202512 TOMORROW IS FOREVER $3.19 $0.00 $0.00 $0.00 $3.19
MV202517 WITNESS FOR PROSECUTION VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV202542 BILLIE $3.01 $0.00 $0.00 $0.00 $3.01
MV202595 MAGIC SWORD, THE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202638 DEVIL'S DISCIPLE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202639 NAKED EDGE, THE VHS $3.15 $0.00 $0.00 $0.00 $3.15
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202640 NOT AS A STRANGER VHS $4.23 $0.00 $0.00 $0.00 $4.23
MV202642 PRESSURE POINT VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV292643 RANCHO DELUXE VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202645 KENTUCKIAN, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV202646 PRIDE AND THE PASSION, THE $3.67 $0.00 $0.00 $0.00 $3.67
MV202647 TRAPEZE $3.22 $0.00 $0.00 $0.00 $3.22
MV202695 BOY DID I GET A WRONG NUMBER $3.15 $0.00 $0.00 $0.00 $3.15
MV202717 RED STAR ONE (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202718 GOLDIE GOLD SCAM (BOND JR) VHS $1.05 $0.00 $0.00 $0.00 $1.85
MV202721 BEGINNING (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202722 RACE AGAINST DISASTER (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202723 DANCE TOREADORS (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202726 DR NO (REMASTERED) VHS $3.32 $0.08 $0.00 $0.00 $3.40
MV202727 GOLDFINDER (REMASTERED) VHS $3.23 $0.08 $0.00 $0.65 $3.96
MV202728 FROM RUSSION W/LOVE (REMAST) VHS $3.36 $0.08 $0.00 $0.00 $3.44
MV202729 THUNDERBALL (REMASTERED) VHS $3.58 $0.08 $0.00 $0.65 $4.31
MV202730 YOU ONLY LIVE TWICE (REMASTERED) VHS $3.27 $0.08 $0.00 $0.65 $4.00
MV202731 ON MAJESTY SECRETS - REMAST VHS $4.30 $0.08 $0.00 $0.65 $5.03
MV202732 DIAMONDS ARE FOREVER - REMAS VHS $3.37 $0.08 $0.00 $0.65 $4.10
MV202733 LIVE AND LET DIE (REVISED) VHS $3.37 $0.08 $0.00 $0.65 $4.10
MV202734 MAN W/GOLDEN GUN (REVISED) VHS $3.47 $0.08 $0.00 $0.65 $4.20
MV202735 SPY WHO LOVED ME (REVISED) VHS $3.47 $0.08 $0.00 $0.65 $4.20
MV202736 MOONRAKER (REVISED) VHS $3.47 $0.08 $0.00 $0.65 $4.20
MV202737 FOR YOUR EYES ONLY (REVISED) VHS $3.47 $0.08 $0.00 $0.65 $4.20
MV202738 OCTOPUSSY (REVISED) VHS $3.58 $0.08 $0.00 $0.65 $4.31
MV202739 VIEW TO A KILL, A (REVISED) VHS $3.58 $0.08 $0.00 $0.65 $4.31
MV202741 EIFFEL MISSILE (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202742 NO SUCH LOCH (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202743 CHILLING AFFAIR (J BOND JR) VHS $1.85 $0.00 $0.00 $0.00 $1.85
MV202764 AMERICAN NINJA #3 VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV202765 CYBORG $3.01 $0.00 $0.00 $0.00 $3.01
MV202767 DREAMCHILD $3.05 $0.00 $0.00 $0.00 $3.05
MV202770 CRACKHOUSE $3.05 $0.00 $0.00 $0.00 $3.05
MV202772 BELLMAN AND TRUE $3.46 $0.00 $0.00 $0.00 $3.46
MV202773 FIVE CORNERS $3.05 $0.00 $0.00 $0.00 $3.05
MV202775 TRACK 29 $3.05 $0.00 $0.00 $0.00 $3.05
MV202786 PASSION OF ANNA $3.19 $0.00 $0.00 $0.00 $3.19
MV202788 SHAME $3.19 $0.00 $0.00 $0.00 $3.19
MV202789 PERSONA $2.96 $0.00 $0.00 $0.00 $2.96
MV202791 GREEN ROOM $3.15 $0.00 $0.00 $0.00 $3.15
MV202800 EMPEROR'S NEW CLOTHES VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202801 LITTLE RED RIDING HOOD VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV202802 SLEEPING BEAUTY VHS $3.05 $0.00 $0.00 $0.00 $3.05
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL. STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ----------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV202814 TEACHERS $3.22 $0.00 $0.00 $0.00 $3.22
MV202815 ROMANTIC COMEDY $3.19 $0.00 $0.00 $0.00 $3.19
MV202860 CHARLIE CHAN IN THE SECRET SERVICE $2.61 $0.00 $0.00 $0.00 $2.61
MV202861 CHARLIE CHAN-SHANGHAI COBRA $2.73 $0.00 $0.00 $0.00 $2.73
MV202862 CHARLIE CHAN-MEETING AT MIDNIGHT $2.73 $0.00 $0.00 $0.00 $2.73
MV202863 CHARLIE CHAN-JADE MASK $2.73 $0.00 $0.00 $0.00 $2.73
MV202864 CHARLIE CHAN-SCARLET CLUE $2.73 $0.00 $0.00 $0.00 $2.73
MV202876 WORLD OF HENRY ORIENT, THE $3.22 $0.00 $0.00 $0.00 $3.22
MV202910 WHAT'S THE MATTER W/HELEN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV202913 BEAUTY AND THE BEAST $2.05 $0.00 $0.00 $0.00 $2.85
MV202934 HOUR OF THE WOLF $3.01 $0.00 $0.00 $0.00 $3.01
MV202938 PINK PANTHER'S LAUGH FESTIVAL $2.20 $0.00 $0.00 $0.00 $2.20
MV202939 PINK PANTHER'S COMIC CAPERS $2.20 $0.00 $0.00 $0.00 $2.20
MV202940 PINK PANTHER'S CARTOON CALVALCADE $2.10 $0.00 $0.00 $0.00 $2.10
MV202941 PINK PANTHER ON PARADE $2.10 $0.00 $0.00 $0.00 $2.10
MV202942 PINK PANTHER'S GREATEST HITS $2.20 $0.00 $0.00 $0.00 $2.20
MV202943 PINK PANTHER'S ZANIEST ADVENTURES $2.10 $0.00 $0.00 $0.00 $2.10
MV202949 SHAKE HANDS WITH THE DEVIL $1.85 $0.00 $0.00 $0.00 $1.85
MV202957 DUEL AT DIABOLO $3.22 $0.00 $0.00 $0.00 $3.22
MV202958 INVITATION TO A GUNFIGHTER $3.05 $0.00 $0.00 $0.00 $3.05
MV202960 LAWMAN $3.15 $0.00 $0.00 $0.00 $3.15
MV202961 VALDEZ IS COMING $3.05 $0.00 $0.00 $0.00 $3.05
MV202962 MAN WHO LOVED WOMEN, THE $3.36 $0.00 $0.00 $0.00 $3.36
MV203008 RED PLANET MARS $0.00 $0.00 $0.00 $0.00 $0.00
MV203009 MONSTER THAT CHALLENGED THE WORLD $0.00 $0.00 $0.00 $0.00 $0.00
MV203010 RETURN OF DRACULA $0.00 $0.00 $0.00 $0.00 $0.00
MV203026 ONE MAN'S WAY $3.22 $0.00 $0.00 $0.00 $3.22
MV203030 CALL ME BWANA $3.19 $0.00 $0.00 $0.00 $3.19
MV203033 STARDUST MEMORIES $3.01 $0.00 $0.00 $0.00 $3.01
MV203034 AFTER THE FOX $3.19 $0.00 $0.00 $0.00 $3.19
MV203039 ALONG CAME JONES $3.05 $0.00 $0.00 $0.00 $3.05
MV203040 CASANOVA BROWN $3.05 $0.00 $0.00 $0.00 $3.05
MV203043 RETURN TO PARADISE $3.01 $0.00 $0.00 $0.00 $3.01
MV203045 BUONA SERA, MRS. CAMPBELL $3.32 $0.00 $0.00 $0.00 $3.32
MV203046 IF ITS TUE/MUST BE BELGIU $3.15 $0.00 $0.00 $0.00 $3.15
MV203056 CAST A GIANT SHADOW $4.24 $0.00 $0.00 $0.00 $4.24
MV203058 PARIS BLUES $3.15 $0.00 $0.00 $0.00 $3.15
MV203068 ACROSS 110TH STREET $3.15 $0.00 $0.00 $0.00 $3.15
MV203069 LAST EMBRACE $3.15 $0.00 $0.00 $0.00 $3.15
MV203071 MARTIN'S DAY $3.15 $0.00 $0.00 $0.00 $3.15
MV203072 HOLCROFT COVENANT, THE $3.32 $0.00 $0.00 $0.00 $3.32
MV203073 KEATON'S COP $3.15 $0.00 $0.00 $0.00 $3.15
MV203076 WILD GEESE II $3.56 $0.00 $0.00 $0.00 $3.56
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV203077 COPS AND ROBBERS $3.01 $0.00 $0.00 $0.00 $3.01
MV203079 COTTON COMES TO HARLEM $3.15 $0.00 $0.00 $0.00 $3.15
MV203087 FOXES $3.19 $0.00 $0.00 $0.00 $3.19
MV203088 FROM NOON TIL THREE $3.15 $0.00 $0.00 $0.00 $3.15
MV203102 END, THE $3.15 $0.00 $0.00 $0.00 $3.15
MV203105 FUZZ $3.05 $0.00 $0.00 $0.00 $3.05
MV203107 GERONIMO $3.19 $0.00 $0.00 $0.00 $3.19
MV203112 HAPPY BIRTHDAY, GEMINI $3.22 $0.00 $0.00 $0.00 $3.22
MV203117 HOODLUM PRIEST, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV203118 HOUR OF THE GUN $3.19 $0.00 $0.00 $0.00 $3.19
MV203122 INDIAN FIGHTER, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV203136 ORGANIZATION, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV203137 OUTSIDE MAN, THE $3.19 $0.00 $0.00 $0.00 $3.19
MV203154 SCORPIO $3.22 $0.00 $0.00 $0.00 $3.22
MV203163 STAY HUNGRY $3.15 $0.00 $0.00 $0.00 $3.15
MV203164 THEY CALL ME MR. TIBBS $3.22 $0.00 $0.00 $0.00 $3.22
MV203167 NAVAJO JOE $3.05 $0.00 $0.00 $0.00 $3.05
MV203168 NED KELLY $3.19 $0.00 $0.00 $0.00 $3.19
MV203169 WHAT DID YOU DO IN THE WAR DADDY? $3.36 $0.00 $0.00 $0.00 $3.36
MV203170 JOE $3.22 $0.00 $0.00 $0.00 $3.22
MV203171 SECRET OF THE ICE CAVE $3.22 $0.00 $0.00 $0.00 $3.22
MV203172 SLUMBER PARTY $3.01 $0.00 $0.00 $0.00 $3.01
MV203173 SWAP, THE $2.96 $0.00 $0.00 $0.00 $2.96
MV203848 SOME LIKE IT HOT VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV203849 PINK PANTHER, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV203855 POCKETFUL OF MIRACLES VHS $4.23 $0.00 $0.00 $0.00 $4.23
MV203900 CHARLIE CHAN--CHINESE CAT $2.73 $0.00 $0.00 $0.00 $2.73
MV203988 NAMU, THE KILLER WHALE $3.01 $0.00 $0.00 $0.00 $3.01
MV203989 HUCKLEBERRY FINN (1974) $3.36 $0.00 $0.00 $0.00 $3.36
MV204524 BLOOD ON SATAN'S CLAW $3.15 $0.00 $0.00 $0.00 $3.15
MV204525 CRUCIBLE OF HONOR $3.05 $0.00 $0.00 $0.00 $3.05
MV204526 DRACULA'S LAST RITES $3.01 $0.00 $0.00 $0.00 $3.01
MV204612 JACKIE ROBINSON STORY, THE $2.85 $0.00 $0.00 $0.00 $2.85
MV300262 ROLLERBALL VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV300302 XX/NA MOTOWN 25 $3.56 $0.00 $0.00 $0.00 $3.56
MV300337 F.I.S.T. SILVER $4.30 $0.00 $0.00 $0.45 $4.75
MV300481 PINK PANTHER: PINKABOO VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV300541 PINK PANTHER: FLY IN PINK VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV300542 PINK PANTHER--TICKLED PINK VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV300632 XX/NA LASSIE'S GREAT ADV VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV300643 KOOKY CLASSICS* VHS $2.31 $0.00 $0.00 $0.53 $2.84
MV300688 HOLLYWOOD CLOWNS VHS $2.21 $0.00 $0.00 $0.43 $2.64
MV300691 XX HAVE I GOT STORY* VHS $2.40 $0.00 $0.00 $0.53 $2.93
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV300710 XX/NA MITCH MILLER HOLIDAYS VHS $2.31 $0.00 $0.00 $0.43 $2.74
MV300729 XX/NA MAGIC OF LASSIE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV300734 ODDS ARE VHS $2.40 $0.00 $0.00 $0.53 $2.93
MV300744 STUDS LONIGAN VHS $3.06 $0.00 $0.00 $0.53 $3.59
MV300750 XX DR BERGER VHS $2.40 $0.00 $0.00 $0.53 $2.93
MV300859 XX/NA BOBBY SHORT VHS $2.52 $0.00 $0.00 $0.53 $3.05
MV300870 BRING ME HEAD ALFREDO VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV300871 ELECTRA GLIDE/BLUE VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV300929 XX/NA LONE RANGER: CLUE $2.70 $0.00 $0.00 $0.53 $3.23
MV301042 XX/NA LIVING INXS $2.21 $0.00 $0.00 $0.43 $2.64
MV301069 PRINCE'S TRUST CONCERT VHS $2.50 $0.00 $0.00 $0.00 $2.50
MV301093 XX/NA LASSIE IN MIRACLE VHS $2.92 $0.00 $0.00 $0.53 $3.45
MV301106 LONELY HEARTS VHS $3.09 $0.00 $0.00 $0.53 $3.62
MV301107 NIGHT OF HUNTER VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV301108 TARAS BULBA VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV301267 MARTY VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV301270 TWELVE ANGRY MEN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301294 WILBY CONSPIRACY VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV301297 REPORT COMMISSIONER VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV301298 PORK CHOP HILL VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV301303 EYE OF THE NEEDLE SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV301304 KILLER ELITE, THE VHS SILVER $3.37 $0.00 $0.00 $0.45 $3.62
MV301321 NEW YORK NEW YORK VHS DBLCPR $5.53 $0.00 $0.00 $0.45 $5.98
MV301385 FELLINI SATYRICON VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301411 STILL OF THE NIGHT VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV301427 GREAT TRAIN ROBBERY VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301428 COMING HOME VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV301431 WHITE LIGHTNING VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301434 SWEET SMELL SUCCESS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301450 REAGAN YEARS, THE VHS $2.79 $0.00 $0.00 $0.00 $2.79
MV301455 EXODUS $6.43 $0.00 $0.00 $0.45 $6.88
MV301464 HAWAII VHS GOLD $6.06 $0.00 $0.00 $0.45 $6.51
MV301465 GOOD, BAD & UGLY VHS-COPPERF $5.68 $0.00 $0.00 $0.45 $6.13
MV301522 BATTLE OF BRITAIN VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301524 TAKING PELHAM 123 $3.19 $0.00 $0.00 $0.00 $3.19
MV301527 GONE W/WIND: MAKING LEGEND VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV301536 JUDGEMENT NUREMBERG VHS DBLCPR $6.11 $0.00 $0.00 $0.45 $6.56
MV301561 ALAMO(LTRBX) VHS DBLCPR $5.88 $0.00 $0.00 $0.45 $6.33
MV301578 I COULD GO/SINGING VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301601 ELMER GANTRY VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV301623 GATOR $3.36 $0.00 $0.00 $0.00 $3.36
MV301658 GREATEST STORY TOLD VHS DBLCPR $6.22 $0.00 $0.00 $0.45 $6.67
MV301660 GEORGE WASHINGTON FORGING A NATION $6.11 $0.00 $0.00 $0.45 $6.56
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV301730 KINGS GO FORTH VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV301733 LAST TANGO "X" RATED VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV301735 PATHS OF GLORY VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV301759 SEPARATE TABLES VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301760 WOMEN IN LOVE VHS $3.67 $0.00 $0.00 $0.00 $3.67
MV301762 LILIES OF THE FIELD VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV301775 BEST MAN, THE VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV301791 LAST TANGO "R" RATED VHS $3.56 $0.00 $0.00 $0.00 $3.56
MV301824 CHILD IS WAITING VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV301838 BRIDGE TOO FAR, A VHS DBLCPR $5.89 $0.00 $0.00 $0.45 $6.34
MV302176 HALLELUJAH TRAIL, THE VHS DBLCPR $5.72 $0.00 $0.00 $0.45 $6.17
MV302193 IT'S MAD MAD WORLD VHS DBLCPR $7.37 $0.00 $0.00 $0.45 $7.82
MV302581 ALAMO, THE (RESTORED) VHS DBLCPR $7.60 $0.00 $0.00 $0.45 $8.05
MV303584 FOUR DAYS IN NOVEMBER VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV400179 XX PRINCE'S ROCK GALA VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV400187 XX/NA OPERA VOL 1 VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV400205 KIDS FROM FAME VHS $2.70 $0.00 $0.00 $0.43 $3.13
MV400212 XX/NA OPERA VOL 2 VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV400213 XX/NA OPERA VOL 3 VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV400214 XX/NA DEAR DIARY VHS $1.76 $0.00 $0.00 $0.43 $2.19
MV400268 PINK FLOYD--THE WALL VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV400299 XX/NA DOLL'S HOUSE VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV400327 XX/NA COMEDIAN, THE $2.92 $0.00 $0.00 $0.43 $3.35
MV400376 XX SOLDIER'S TALE $2.31 $0.00 $0.00 $0.43 $2.74
MV400460 XX EVERYTHING COMPUTER VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV400489 PINK FIRST SIGHT VHS $2.30 $0.00 $0.00 $0.00 $2.30
MV400584 XX/NA LONE RANGER, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV400648 XX/NA SINATRA PORTRAIT $2.40 $0.00 $0.00 $0.43 $2.83
MV401051 HOROWITZ IN MOSCOW VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV401057 XX GRT AMERICAN BASH # VHS $3.47 $0.00 $0.00 $0.53 $4.00
MV401085 HOROWITZ--ROMANTIC VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV402307 XX FISTFUL OF $/FOR FEW $ $6.66 $0.00 $0.00 $0.65 $7.31
MV500158 XX/NA GREAT SPACECOASTER VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV500176 DR SEUSS VIDEO VHS $2.31 $0.00 $0.00 $0.43 $2.74
MV500177 NUTCRACKER, THE VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV500178 XX/NA DUKE ELLINGTON VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV500218 XX/NA WASN'T THAT A TIME VHS $2.70 $0.00 $0.00 $0.43 $3.13
MV500231 THUNDERBIRDS ARE GO $2.96 $0.00 $0.00 $0.43 $3.39
MV500267 THUNDERBIRDS SIX $2.92 $0.00 $0.00 $0.43 $3.35
MV600194 GIRL GROUPS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV600219 XX/NA CAROLE KING VHS $2.40 $0.00 $0.00 $0.43 $2.83
MV600227 BRIMSTONE & TREACLE $2.92 $0.00 $0.00 $0.43 $3.35
MV600232 XX/NA START TO FINISH VHS $2.92 $0.00 $0.00 $0.43 $3.35
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV600244 TREASURE FOUR CROWNS VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV600246 XX/NA KIPPERBANG VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600297 INVASION BODY SNATCHERS VHS SILVER $3.27 $0.00 $0.00 $0.45 $3.72
MV600300 XX/NA KAMKAZI '89 $3.13 $0.00 $0.00 $0.43 $3.56
MV600303 XX OPERATION THUNDERBLT VHS $3.47 $0.00 $0.00 $0.43 $3.90
MV600311 SEPARATE TABLES $3.27 $0.00 $0.00 $0.43 $3.70
MV600317 XX COOL CATS $2.76 $0.00 $0.00 $0.43 $3.19
MV600330 XX/NA COMEBACK VHS $3.13 $0.00 $0.00 $0.43 $3.56
MV600331 XX EVERLY BROS REUNION VHS $2.63 $0.00 $0.00 $0.43 $3.06
MV600366 XX/NA EVERLY BROS ODYSSEY VHS $2.76 $0.00 $0.00 $0.43 $3.19
MV600367 XX/NA UNAPPROACHABLE VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV600406 XX SHARK'S TREASURE VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV600418 AUDREY ROSE* VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV600449 BURNT OFFERINGS $3.36 $0.00 $0.00 $0.00 $3.36
MV600453 MR. MAJESTYK VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV600454 LONG RIDERS VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600455 HOW I WON THE WAR $3.23 $0.00 $0.00 $0.43 $3.66
MV600456 XX YOUNG WARRIORS VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV600468 XX SAFARI 3000 VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV600491 XX GREAT SKYCOPTER RS VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV600534 XX TREASURE SEEKER VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV600576 ALEXANDER THE GREAT VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV600581 HOUSE WHERE EVIL DWELLS, THE $3.01 $0.00 $0.00 $0.00 $3.01
MV600590 MIRACLE WORKER VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600598 XX DEVIL'S TRIANGLE VHS $2.31 $0.00 $0.00 $0.43 $2.74
MV600654 XX SOLDIER OF NIGHT VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV600655 XX CITY'S EDGE VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV600657 XX/NA FINAL EXECUTIONER $2.96 $0.00 $0.00 $0.43 $3.39
MV600659 NEVER ON SUNDAY* VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV200674 XX/NA LOVE SCENES VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600678 XX/NA NORTHEAST OF SEOUL VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600679 XX PRIVATE MANEUVERS VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600684 XX VIOLENT BREED, THE VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV600721 XX/NA SHARMA & BEYOND VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600722 XX/NA ARTHUR HALLOWED VHS $2.76 $0.00 $0.00 $0.43 $3.19
MV600723 XX/NA FOREVER YOUNG $2.92 $0.00 $0.00 $0.43 $3.35
MV600724 XX/NA THOSE GLORY DAYS $2.96 $0.00 $0.00 $0.43 $3.39
MV600725 XX/NA SECRETS $2.76 $0.00 $0.00 $0.43 $3.19
MV600726 CHILLY SCENES $3.15 $0.00 $0.00 $0.00 $3.15
MV600733 LUPO VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV600742 XX SOUTHHELL MOUNTN VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV600760 I WANT TO LIVE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV600839 XX/NA WINTER FLIGHT $3.09 $0.00 $0.00 $0.43 $3.52
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV600872 FISTFUL DYNAMITE, A VHS $4.15 $0.00 $0.00 $0.43 $4.58
MV600878 BOUND FOR GLORY VHS $4.54 $0.00 $0.00 $0.00 $4.54
MV600882 ONE TWO THREE VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV600884 WOODY GUTHRIE $2.70 $0.00 $0.00 $0.43 $3.13
MV600901 MOTEL HELL VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV600902 THEATRE OF BLOOD VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV601121 GUNS MAGNIFICENT 7 VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV601123 UNFORGIVEN, THE VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV601138 RETURN OF THE 7 VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV601146 FOLLOW THAT DREAM VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV601147 FRANKIE & JOHNNY VHS SILVER $2.92 $0.00 $0.00 $0.45 $3.37
MV601161 TWICE TOLD TALES VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV601162 DONOVAN'S BRAIN VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV601453 THUNDER ROAD VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV602129 ROCKY 4PACK (I,II,III,IV) VHS $13.06 $0.32 $0.00 $1.77 $15.15
MV700154 CUTTER'S WAY VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV700166 COMPLEAT BEATLES VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV700172 BEAST WITHIN VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV700186 ENTER THE NINJA VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV700193 MIDNIGHT COWBOY $3.32 $0.00 $0.00 $0.00 $3.32
MV700295 HEAVEN'S GATE VHS DBLCPR $6.45 $0.00 $0.00 $0.45 $6.90
MV700325 XX HOUSE LONG SHADOWS VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV700457 XX/NA CITY LVR/CTRY VHS $3.37 $0.00 $0.00 $0.43 $3.80
MV700488 PENITENTIARY 2 $3.13 $0.00 $0.00 $0.43 $3.56
MV700579 VIKINGS, THE VHS $3.36 $0.00 $0.00 $0.00 $3.36
MV700593 XX SWORD OF VALIANT VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV700675 EQUUS VHS $4.15 $0.00 $0.00 $0.43 $4.58
MV701054 CLAMBAKE VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV701055 KID GALAHAD VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV800145 TRUE CONFESSIONS $3.22 $0.00 $0.00 $0.00 $3.22
MV800190 XX LAST AMERICAN VIRGIN VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800211 SECRET OF NIMH VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV800216 JINXED $3.19 $0.00 $0.00 $0.00 $3.19
MV800221 THAT CHAMPIONSHIP SEASON VHS $3.23 $0.00 $0.00 $0.43 $3.66
MV800280 XX/NA WHITE ROSE VHS $3.13 $0.00 $0.00 $0.43 $3.56
MV800282 TEN TO MIDNIGHT VHS SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV800283 XX NANA $2.92 $0.00 $0.00 $0.43 $3.35
MV800318 XX/NA WICKED LADY, THE VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV800329 XX REVENGE NINJA VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV800364 FINAL OPTION $3.47 $0.00 $0.00 $0.43 $3.90
MV800365 FANNY HILL $2.76 $0.00 $0.00 $0.43 $3.19
MV800368 NIGHT SHOOTING STARS $3.22 $0.00 $0.00 $0.00 $3.22
MV800369 INTERIORS $2.96 $0.00 $0.00 $0.43 $3.39
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV800417 SAHARA $3.13 $0.00 $0.00 $0.43 $3.56
MV800420 CURSE PINK PANTHER $3.23 $0.00 $0.00 $0.43 $3.66
MV800448 XX MAKING THE GRADE VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV800469 MANHATTAN VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV800470 XX OVER BROOKLYN BRIDGE VHS $3.13 $0.00 $0.00 $0.43 $3.56
MV800490 POPE GREENWICH VIL VHS $3.46 $0.00 $0.00 $0.00 $3.46
MV800492 ENTRE NOUS $3.32 $0.00 $0.00 $0.00 $3.32
MV800499 RED DAWN VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV800516 EXTERMINATOR 2 $2.96 $0.00 $0.00 $0.43 $3.39
MV800517 UNTIL SEPTEMBER $3.06 $0.00 $0.00 $0.43 $3.49
MV800540 GABRIELA $3.06 $0.00 $0.00 $0.43 $3.49
MV800546 NINJA 3-DOMINATION VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV800548 XX/NA BLACK VENUS $2.76 $0.00 $0.00 $0.43 $3.19
MV800549 XX/NA FRANK AND I $2.76 $0.00 $0.00 $0.43 $3.19
MV800557 MISSING IN ACTION SILVER $3.09 $0.00 $0.00 $0.45 $3.54
MV800583 XX MATA HARI $3.09 $0.00 $0.00 $0.43 $3.52
MV800599 MARIA'S LOVERS $3.13 $0.00 $0.00 $0.43 $3.56
MV800601 GRACE QUIGLEY $2.92 $0.00 $0.00 $0.43 $3.35
MV800602 EMMANUELLE IV VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV800618 ORDEAL BY INOCENCE VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800642 AVIATOR, THE $3.15 $0.00 $0.00 $0.00 $3.15
MV800647 XX DEJA VU/ALWAYS VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800658 MISSING IN ACTION #2 VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV800673 XX/NA LOVE CIRCLES $2.86 $0.00 $0.00 $0.43 $3.29
MV800677 ASSISI UNDERGROUND VHS $3.23 $0.00 $0.00 $0.43 $3.66
MV800681 XX HERCULES #2 VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV800683 EUREKA VHS $3.47 $0.00 $0.00 $0.43 $3.90
MV800690 XX RAPPIN' $3.05 $0.00 $0.00 $0.00 $3.05
MV800705 AMERICAN NINJA VHS SILVER $3.06 $0.00 $0.00 $0.45 $3.51
MV800728 XX ROCK & RULE $2.76 $0.00 $0.00 $0.43 $3.19
MV800754 PANDEMONIUM VHS $2.86 $0.00 $0.00 $0.43 $3.29
MV800762 XX BERLIN AFFAIR VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV800764 INVASION USA $3.22 $0.00 $0.00 $0.00 $3.22
MV800765 XX AMBASSADOR, THE VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV800788 XX/NA NUMBR 1/SECRT SERV $2.92 $0.00 $0.00 $0.43 $3.35
MV800789 XX HANGING ON A STAR VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800821 DEATH WISH 3 VHS SILVER $2.96 $0.00 $0.00 $0.45 $3.41
MV800838 XX/NA PSYCHO GIRLS VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800866 XX/NA CAMORRA VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800867 RUNAWAY TRAIN VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV800878 KING SOLOMON MN-'85 VHS $3.19 $0.00 $0.00 $0.00 $3.19
MV800889 XX AMERICA 3000 VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV800894 FOOL FOR LOVE VHS $3.13 $0.00 $0.00 $0.43 $3.56
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL STD) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV800966 YOUNGBLOOD VHS SILVER $3.23 $0.00 $0.00 $0.45 $3.68
MV800987 XX/NA SILK $2.86 $0.00 $0.00 $0.43 $3.29
MV800988 XX/NA DEVASTATOR, THE $2.76 $0.00 $0.00 $0.43 $3.19
MV801010 ASSAULT, THE VHS $3.47 $0.00 $0.00 $0.43 $3.90
MV801022 JUNGLE RAIDERS VHS $3.09 $0.00 $0.00 $0.43 $3.52
MV801063 XX UP YOUR ANCHOR VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV801088 XX FIELD OF HONOR VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV801092 XX SALOME VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV801105 XX HOUR OF ASSASSIN VHS $2.96 $0.00 $0.00 $0.43 $3.39
MV801113 AMAZONS VHS $2.76 $0.00 $0.00 $0.43 $3.19
MV801114 EQUALIZER 2000 VHS $2.76 $0.00 $0.00 $0.43 $3.19
MV801116 STRIPPED TO KILL VHS $2.92 $0.00 $0.00 $0.43 $3.35
MV801117 DUET FOR ONE VHS $3.13 $0.00 $0.00 $0.43 $3.56
MV801156 XX/NA DUTCH TREAT VHS $3.06 $0.00 $0.00 $0.43 $3.49
MV801157 NO. 1 WITH BULLET $3.19 $0.00 $0.00 $0.00 $3.19
MV801166 MUNCHIES VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801283 EYE OF THE EAGLE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801326 NIGHTFALL VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801327 BIG BAD MAMA II VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801369 MANCHURIAN CANDIDATE VHS $4.24 $0.00 $0.00 $0.00 $4.24
MV801407 XX BUSTING (RETAIL OFFER) VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV801425 EWOKS BATTLE ENDOR VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV801426 LAWLESS LAND VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801433 NAKED WARRIORS VHS $2.85 $0.00 $0.00 $0.45 $2.85
MV801499 NEST, THE VHS $3.01 $0.00 $0.00 $0.45 $3.01
MV801517 CRIME ZONE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV801535 SATURDAY 14TH STRIKES BK VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV801540 EYE OF THE EAGLE 2 VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV801615 DRIFTER, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV801638 TERROR WITHIN, THE VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV801639 STRIPPED TO KILL 2 VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801646 JIGSAW MURDERS VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV801663 LENNY VHS $3.32 $0.00 $0.00 $0.00 $3.32
MV801669 NOWHERE TO RUN VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV801670 LORDS OF THE DEEP VHS $2.85 $0.00 $0.00 $0.00 $2.85
MV801706 TIME TRACKERS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV801752 HEROES STAND ALONE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801753 BACK TO BACK VHS $3.05 $0.00 $0.00 $0.00 $3.05
MV801777 MASQUE RED DEATH VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801799 XX/NA TRANSYLVANIA TWIST $2.96 $0.00 $0.00 $0.00 $2.96
MV801841 BRAIN DEAD VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801872 PRIMARY TARGET VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV801809 HOLLYWOOD BLVD II VHS $2.96 $0.00 $0.00 $0.00 $2.96
</TABLE>
<PAGE>
METRO-GOLDWYN-MAYER INC.
DIRECT MAIL DEPARTMENT XX - MORATORIUM TITLES
CRITICS' CHOICE NON-TURNER VHS PRICING ----------------------
22-Feb-94
BY CATALOG NUMBER
<TABLE>
<CAPTION>
ADDITIONAL COSTS
-------------------------- CRITICS'
BASE PRICE MACRO BETA SPECIAL CHOICE
CATALOG # TITLE (INCL SH) VISION COST PKG COST PRICE
- ----------- ------------------------------------------------- ---------- ------ ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
MV802039 OVEREXPOSED VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV802053 EWOK ADVENTURE VHS $3.15 $0.00 $0.00 $0.00 $3.15
MV802096 FULL FATHOM FIVE VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV802107 CRY IN THE WILD, A VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV802168 CORPORATE AFFAIRS $2.96 $0.00 $0.00 $0.00 $2.96
MV802317 OFFENCE, THE $3.22 $0.00 $0.00 $0.00 $3.22
MV804593 MCKENZIE BREAK $3.22 $0.00 $0.00 $0.00 $3.22
MV804594 HORNET'S NEST $3.32 $0.00 $0.00 $0.00 $3.32
MV900917 BIG COUNTRY, THE VHS DBLCPR $5.82 $0.00 $0.00 $0.45 $6.27
MV901436 BRIGHT LIGHTS/CITY VHS $3.22 $0.00 $0.00 $0.00 $3.22
MV901671 BLOODFIST VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV901871 STREETS VHS $3.01 $0.00 $0.00 $0.00 $3.01
MV902169 BLOODFIST II VHS $2.96 $0.00 $0.00 $0.00 $2.96
MV903843 NOT OF THIS EARTH $2.96 $0.00 $0.00 $0.00 $2.96
MV903905 STALIN $5.23 $0.00 $0.00 $0.00 $5.23
</TABLE>
<PAGE>
EXHIBIT "B"
-----------
[TO BE INSERTED BY CRITICS' CHOICE]
Exhibit "B"
-----------
- 1 -
<PAGE>
===============================================================================
CREDIT AGREEMENT
DATED AS OF FEBRUARY 10, 1995
AMONG
PLAYBOY ENTERPRISES, INC.,
THE LENDERS
PARTY HERETO,
AND
HARRIS TRUST AND SAVINGS BANK,
INDIVIDUALLY AND AS ADMINISTRATIVE AGENT
AND
LASALLE NATIONAL BANK,
INDIVIDUALLY AND AS CO-AGENT
===============================================================================
<PAGE>
TABLE OF CONTENTS
SECTION DESCRIPTION PAGE
SECTION 1. THE CREDITS............................................... 1
Section 1.1. Revolving Credit........................................ 1
Section 1.2. Loans................................................... 2
Section 1.3. Letters of Credit....................................... 2
Section 1.4. Manner and Disbursement of Loans........................ 6
Section 1.5. Manner of Obtaining Letters of Credit................... 7
SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES...................... 7
Section 2.1. Interest Rate Options................................... 7
Section 2.2. Minimum LIBOR Portion Amounts........................... 8
Section 2.3. Computation of Interest................................. 8
Section 2.4. Manner of Rate Selection................................ 9
Section 2.5. Change of Law........................................... 9
Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR.......................................... 9
Section 2.7. Taxes and Increased Costs...............................10
Section 2.8. Change in Capital Adequacy Requirements.................11
Section 2.9. Funding Indemnity.......................................11
Section 2.10. Lending Branch..........................................11
Section 2.11. Discretion of Lenders as to Manner of Funding...........12
Section 2.12. Interest Rate and Exchange Rate Protection..............12
SECTION 3. FEES, PREPAYMENTS, TERMINATIONS, AND APPLICATIONS.........12
Section 3.1. Fees....................................................12
Section 3.2. Voluntary Prepayments...................................13
Section 3.3. Mandatory Prepayments...................................13
Section 3.4. Voluntary Terminations of Revolving Credit
Commitments.............................................13
Section 3.5. Mandatory Partial Terminations of Revolving Credit
Commitments.............................................14
Section 3.6. Place and Application of Payments.......................14
Section 3.7. Notations...............................................15
SECTION 4. COLLATERAL................................................16
Section 4.1. Generally...............................................16
Section 4.2. Movie Rights............................................16
SECTION 5. DEFINITIONS; INTERPRETATION...............................16
Section 5.1. Definitions.............................................16
Section 5.2. Interpretation..........................................26
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES............................26
Section 6.1. Organization and Qualification..........................26
Section 6.2. Subsidiaries............................................26
Section 6.3. Corporate Authority and Validity of Obligations.........27
Section 6.4. Use of Proceeds; Margin Stock...........................27
Section 6.5. Financial Reports.......................................27
Section 6.6. No Material Adverse Change..............................28
Section 6.7. Litigation and Other Controversies......................28
Section 6.8. Taxes...................................................28
Section 6.9. Approvals...............................................28
Section 6.10. Affiliate Transactions..................................28
Section 6.11. Investment Company; Public Utility Holding Company......28
Section 6.12. ERISA...................................................29
Section 6.13. Compliance with Laws....................................29
Section 6.14. Other Agreements........................................29
Section 6.15. No Default..............................................29
SECTION 7. CONDITIONS PRECEDENT......................................29
Section 7.1. All Advances............................................29
Section 7.2. Initial Advance.........................................30
Section 7.3. Prior Credit Agreement..................................3l
SECTION 8. COVENANTS.................................................32
Section 8.1. Maintenance of Business.................................32
Section 8.2. Maintenance of Properties...............................32
Section 8.3. Taxes and Assessments...................................32
Section 8.4. Insurance...............................................32
Section 8.5. Financial Reports.......................................33
Section 8.6. Inspection..............................................34
Section 8.7. Net Worth...............................................34
Section 8.8. Leverage Ratio..........................................34
Section 8.9. Cash Flow Coverage Ratio................................34
Section 8.10. Indebtedness for Borrowed Money.........................35
Section 8.11. Liens...................................................35
Section 8.12. Investments, Acquisitions, Loans, Advances and
Guaranties..............................................36
Section 8.13. Mergers, Consolidations and Sales.......................37
Section 8.14. Maintenance of Subsidiaries.............................38
Section 8.15. Dividends and Certain Other Restricted Payments.........38
Section 8.16. ERISA...................................................38
Section 8.17. Compliance with Laws....................................38
Section 8.18. Burdensome Contracts With Affiliates....................38
Section 8.19. No Changes in Fiscal Year...............................38
Section 8.20. Change in the Nature of Business........................39
Section 8.21. Flextech Territory......................................39
Section 8.22. Existing Deed of Trust..................................39
-2-
<PAGE>
SECTION 9. EVENTS OF DEFAULT AND REMEDIES............................39
Section 9.1. Events of Default.......................................39
Section 9.2. Non-Bankruptcy Defaults.................................41
Section 9.3. Bankruptcy Defaults.....................................42
Section 9.4. Collateral for Undrawn Letters of Credit................42
SECTION 10. THE ADMINISTRATIVE AGENT..................................42
Section 10.1. Appointment and Authorization...........................42
Section 10.2. Rights as a Lender......................................43
Section 10.3. Standard of Care........................................43
Section 10.4. Costs and Expenses......................................44
Section 10.5. Indemnity...............................................44
Section 10.6. Co-Agent................................................45
SECTION 11. MISCELLANEOUS.............................................45
Section 11.1. Non-Business Days.......................................45
Section 11.2. No Waiver, Cumulative Remedies..........................45
Section 11.3. Waivers, Modifications and Amendments...................45
Section 11.4. Costs and Expenses......................................46
Section 11.5. Documentary Taxes.......................................46
Section 11.6. Survival of Representations.............................46
Section 11.7. Survival of Indemnities.................................46
Section 11.8. Participations..........................................47
Section 11.9. Assignment Agreements...................................47
Section 11.10. Confidentiality.........................................48
Section 11.11 Currency................................................48
Section 11.12. Currency Equivalence....................................48
Section 11.13. Notices.................................................49
Section 11.13. Construction............................................50
Section 11.14. Headings................................................50
Section 11.15. Severability of Provisions..............................50
Section 11.16. Counterparts............................................50
Section 11.17. Binding Nature, Governing Law, Etc......................50
Section 11.18. Entire Understanding....................................50
Section 11.19. Submission to Jurisdiction; Waiver of Jury Trial........51
Signature...................................................................51
Exhibit A - Revolving Credit Note
Exhibit B - Compliance Certificate
Schedule 1.3 - Existing Letters of Credit
Schedule 6.2 - Subsidiaries
-3-
<PAGE>
PLAYBOY ENTERPRISES, INC.
CREDIT AGREEMENT
To:
Harris Trust and Savings Bank
Chicago, Illinois
LaSalle National Bank
Chicago, Illinois
and their from time to time assigns
Ladies and Gentlemen:
The undersigned, Playboy Enterprises, Inc., a Delaware corporation (the
"Company"), applies to you for your several commitments, subject to the terms
and conditions hereof and on the basis of the representations and warranties
hereinafter set forth, to extend credit to the Company, all as more fully
hereinafter set forth. Each of you is hereinafter referred to individually as a
"Lender", all of you are hereinafter referred to collectively as the "Lenders",
Harris Trust and Savings Bank in its capacity as agent for the Lenders hereunder
is hereinafter referred to as the "Administrative Agent", and LaSalle National
Bank in its capacity as co-agent for the Lenders hereunder is hereinafter
referred to as the "Co-Agent."
SECTION 1. THE CREDITS.
Section 1.1. Revolving Credit. Subject to the terms and conditions hereof,
each Lender hereby severally extends a revolving credit (the "Revolving Credit")
to the Company which may be availed of by the Company from time to time during
the period from and including the date hereof to but not including the
Termination Date, at which time the commitments of the Lenders to extend credit
under the Revolving Credit shall expire. The maximum amount of the Revolving
Credit which each Lender hereby extends to the Company shall be as set forth
opposite such Lender's signature hereto under the heading "Revolving Credit
Commitment", as such amount may be reduced pursuant hereto. The Revolving Credit
may be utilized by the Company in the form of Loans and Letters of Credit, all
as more fully hereinafter set forth, provided that the aggregate principal
amount of Loans and Letters of Credit outstanding at any one time (which, in the
case of Letters of Credit payable in an Available Foreign Currency, means the
U.S. Dollar Equivalent thereof as determined pursuant to Section 1.3(g) hereof)
shall not exceed the Revolving Credit Commitments. During the period from and
including the date hereof to but not including the Termination Date, the Company
may use the Revolving Credit Commitments by borrowing, repaying and reborrowing
Loans in whole or in part and/or by having an Issuing Agent issue Letters of
Credit, having such Letters of Credit expire or otherwise terminate without
having been drawn upon or, if drawn upon, reimbursing the
<PAGE>
Administrative Agent for each such drawing, and having the Administrative Agent
issue new Letters of Credit, all in accordance with the terms and conditions of
this Agreement. For purposes of this Agreement, where a determination of the
unused or available amount of the Revolving Credit Commitments is necessary, the
Loans and Letters of Credit shall be deemed to utilize the Revolving Credit
Commitments. The obligations of the Lenders hereunder are several and not joint,
and no Lender shall under any circumstances be obligated to extend credit under
the Revolving Credit in excess of its Revolving Credit Commitment.
Section 1.2. Loans. Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by the Company in the form of loans
(individually a "Loan" and collectively the "Loans"). Each Loan shall be in a
minimum amount of $100,000 or such greater amount which is an integral multiple
of $10,000, and each Loan shall be made pro rata by the Lenders in accordance
with the amounts of their Revolving Credit Commitments. Each advance made by a
Lender of its pro rata share of a Loan shall be made against and evidenced by a
Revolving Credit Note of the Company (individually a "Note" and collectively the
"Notes") payable to the order of such Lender in the amount of its Revolving
Credit Commitment, with each Note to be in the form (with appropriate
insertions) attached hereto as Exhibit A. Each Note shall be dated the date of
issuance thereof, be expressed to bear interest as set forth in Section 2
hereof, and be expressed to mature on the Termination Date. Without regard to
the principal amount of each Note stated on its face, the actual principal
amount at any time outstanding and owing by the Company on account thereof shall
be the sum of all advances then or theretofore made thereon less all payments of
principal actually received.
Section 1.3. Letters of Credit.
(a) General Terms. Subject to the terms and conditions hereof, the
Revolving Credit may be availed of by the Company in the form of standby and
commercial letters of credit issued by Harris Trust and Savings Bank ("Harris")
or LaSalle National Bank ("LaSalle") if then a Lender (each an "Issuing Agent")
for the account of the Company (individually a "Letter of Credit" and
collectively the "Letters of Credit"), provided that the aggregate amount of
Letters of Credit issued and outstanding hereunder (which, in the case of
Letters of Credit payable in an Available Foreign Currency, means the U.S.
Dollar Equivalent thereof as determined pursuant to Section 1.3(g) hereof) shall
not at any time exceed $7,500,000. Notwithstanding anything herein to the
contrary, those certain letters of credit issued by Harris or LaSalle and
described on Schedule 1.3 hereto (the "Existing L/Cs") shall each constitute a
"Letter of Credit" herein for all purposes of this Agreement to the same extent,
and with the same force and effect, as if the Existing L/Cs had been issued at
the request of the Company under this Agreement. For all purposes of this
Agreement, a Letter of Credit shall be deemed outstanding as of any time in an
amount equal to the maximum amount which could be drawn thereunder under any
circumstances and over any period of time plus any unreimbursed drawings then
outstanding with respect thereto. If and to the extent any Letter of Credit
expires or otherwise terminates without having been drawn upon, the availability
under the Revolving Credit Commitments shall to such extent be reinstated on the
date of such expiration or termination. The Letters of Credit shall be
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issued by an Issuing Agent, but each Lender shall be obligated to
reimburse the relevant Issuing Agent for such Lender's pro rata share
of the amount of each draft drawn under a Letter of Credit in
accordance with this Section 1.3 and, accordingly, each Letter of
Credit shall be deemed to utilize the Revolving Credit Commitments of
all Lenders pro rata in accordance with the amounts of their
Revolving Credit Commitments.
(b) Term. Each Letter of Credit issued hereunder shall expire not
later than the earlier of (i) twelve (12) months from the date of
issuance (or be cancelable not later than twelve (12) months from the
date of issuance and each renewal) or (ii) the Termination Date. In
the event an Issuing Agent issues any Letter of Credit with an
expiration date that is automatically extended unless such Issuing
Agent gives notice that the expiration date will not so extend beyond
its then scheduled expiration date, such Issuing Agent will give such
notice of non-renewal before the time necessary to prevent such
automatic extension if before such required notice date (i) the
expiration date of such Letter of Credit if so extended would be
after the Termination Date, (ii) the Revolving Credit Commitments
have terminated or (iii) an Event of Default exists and the Required
Lenders have given such Issuing Agent instructions not to so permit
the extension of the expiration date of such Letter of Credit. Each
Issuing Agent will promptly notify the Lenders of each issuance by
such Issuing Agent of a Letter of Credit. At least thirty (30)
Business Days before the date on which an Issuing Agent is required
to give notice of the non-renewal of such a Letter of Credit in order
to prevent its automatic extension, such Issuing Agent shall give
notice to the Administrative Agent of such circumstance and the
Administrative Agent shall promptly notify each Lender thereof. Each
Issuing Agent also agrees to issue amendments to its Letter(s) of
Credit increasing the amount, or extending the expiration date,
thereof at the request of the Company subject to the conditions of
Section 7 and the other terms of this Section 1.3. Before issuing, or
increasing the amount of, any Letter of Credit under this Section
1.3, the relevant Issuing Agent shall notify the Administrative Agent
of the proposed amount of the Letter of Credit, or of the proposed
increased thereof, and the Administrative Agent shall determine and
notify such Issuing Agent whether such amount would exceed any
restriction in this Section 1 on the aggregate face amount of
Letter(s) of Credit as set forth in Section 7.1(c) hereof.
(c) General Characteristics. Each Letter of Credit issued
hereunder shall be payable in U.S. Dollars or an Available Foreign
Currency, conform to the general requirements of the relevant Issuing
Agent for the issuance of standby or commercial letters of credit, as
the case may be, as to form and substance, and be a letter of credit
which the relevant Issuing Agent may lawfully issue.
(d) Applications. At the time the Company requests each Letter of
Credit to be issued (or prior to the first issuance of a Letter of
Credit in the case of a continuing application), the Company shall
execute and deliver to the relevant Issuing Agent an application for
such Letter of Credit in the form then customarily prescribed by such
Issuing Agent (individually an "Application" and collectively the
"Applications"). The current forms of Harris' applications are
attached as Schedule 1.2 (Harris Standby) and Schedule 1.2 (Harris
Commercial) hereto. The current forms of LaSalle's applications are
attached as Schedule 1.2 (LaSalle Standby) and Schedule 1.2 (LaSalle
Commercial) hereto.
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Subject to the other provisions of this subsection, the obligation of the
Company to reimburse the relevant Issuing Agent for drawings under a Letter of
Credit shall be governed by the Application for such Letter of Credit. Anything
contained in the Applications to the contrary notwithstanding, (i) in the event
an Issuing Agent is not reimbursed by the Company for the amount such Issuing
Agent pays on any draft drawn under a Letter of Credit issued hereunder by 2:00
p.m. (Chicago time) on the date when such drawing is paid, the obligation of the
Company to reimburse such Issuing Agent for the amount of such draft paid shall
bear interest (which the Company hereby promises to pay on demand) from and
after the date the draft is paid until payment in full thereof (x) in the case
of a draft payable in U.S. Dollars, at a fluctuating rate per annum determined
by adding 2-3/4% to the Domestic Rate as from time to time in effect and (y) in
the case of a draft payable in an Available Foreign Currency, at the rate per
annum determined by adding 2% to the sum of the Overnight Eurocurrency Rate as
from time to time in effect and the Applicable Margin for LIBOR Portions, (ii)
payments of drawings on Letters of Credit shall be made to the Administrative
Agent, not the Issuing Agent, by no later than 2:00 p.m. (Chicago time) on the
date when such drawing is paid in immediately available funds at the
Administrative Agent's principal office in Chicago, Illinois, with the
Administrative Agent to promptly thereafter remit such payment in like funds as
received to the relevant Issuing Agent, (iii) the Company shall pay fees in
connection with each Letter of Credit as set forth in Section 3 hereof, (iv)
except as otherwise provided in Section 3.3 hereof, prior to the occurrence of
an Event of Default neither Issuing Agent will call for additional collateral
security for the obligations of the Company under the Applications other than
the collateral security contemplated by this Agreement and the Collateral
Documents and collateral security consisting of rights in goods (or documents of
title covering the same) financed under such Applications, and (v) except as
otherwise provided in Section 3.3 hereof, prior to the occurrence of an Event of
Default neither Issuing Agent will call for the funding of a Letter of Credit by
the Company prior to being presented with a draft drawn thereunder (or, in the
event the draft is a time draft, prior to its due date).
(e) Change in Laws. If any Issuing Agent or Lender shall determine in good
faith that any change in any applicable law, regulation or guideline (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) or any new law, regulation or guideline, or any interpretation
of any of the foregoing by any governmental authority charged with the
administration thereof or any central bank or other fiscal, monetary or other
authority having jurisdiction over such Issuing Agent or Lender (whether or not
having the force of law), shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against the Letters of Credit, or such Issuing Agent's
or Lender's or the Company's liability with respect thereto; or
(ii) impose on such Issuing Agent or Lender any penalty with respect to
the foregoing or any other condition regarding this Agreement, the
Applications or the Letters of Credit;
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and such Issuing Agent or Lender shall determine in good faith that the result
of any of the foregoing is to increase the cost (whether by incurring a cost or
adding to a cost) to such Issuing Agent or Lender of issuing, maintaining or
participating in the Letters of Credit hereunder (without benefit of, or credit
for, any prorations, exemptions, credits or other offsets available under any
such laws, regulations, guidelines or interpretations thereof), then within
thirty (30) days after demand, the Company shall pay to such Issuing Agent or
Lender from time to time as specified by such Issuing Agent or Lender such
additional amounts as such Issuing Agent or Lender shall determine are
sufficient to compensate and indemnify it for such increased cost. If any
Issuing Agent or Lender makes such a claim for compensation, it shall provide
the Company (with a copy to the Administrative Agent) a certificate setting
forth the computation of the increased cost as a result of any event mentioned
herein in reasonable detail and such certificate shall be conclusive if
reasonably determined.
(f) Participations in Letters of Credit. Each Lender shall participate on a
pro rata basis in the Letters of Credit issued by an Issuing Agent, which
participation shall automatically arise upon the issuance of each Letter of
Credit. In the event an Issuing Agent is not reimbursed by the Company for the
amount paid by such Issuing Agent on any draft presented under a Letter of
Credit by 2:00 p.m. (Chicago time) on the date when such drawing is paid, or in
the event an Issuing Agent is required at any time to return to the Company or
to a trustee, receiver, liquidator, custodian or other similar official any
portion of any payment by the Company of any reimbursement obligation in respect
of a Letter of Credit, such Issuing Bank shall promptly notify each Lender
thereof. Each Lender unconditionally agrees that in such event, such Lender
shall pay to such Issuing Agent such Lender's pro rata share of the amount of
each draft so paid, or payment so recaptured, based on the percentage which its
Revolving Credit Commitment bears to the aggregate of the Revolving Credit
Commitments and in return such Lender shall automatically receive an equivalent
percentage participation in the rights of such Issuing Agent to obtain
reimbursement from the Company for the amount so paid by or recaptured from such
Issuing Agent, together with interest thereon as provided for herein. The
obligations of the Lenders to the Issuing Agents under this subsection shall be
absolute, irrevocable and unconditional under any and all circumstances
whatsoever and shall not be subject to any setoff, counterclaim or defense to
payment which any Lender may have or have had against the Company, the
Administrative Agent, any Issuing Agent, any Lender or any other party
whatsoever. In the event that any Lender fails to honor its obligation to
reimburse an Issuing Agent for such Lender's pro rata share of the amount of any
such draft or recaptured payment, then in that event (i) each other Lender shall
pay to such Issuing Agent its pro rata share of the payment due such Issuing
Agent from the defaulting Lender, (ii) the defaulting Lender shall have no right
to participate in any recoveries from the Company in respect of such draft or
recaptured payment and (iii) all amounts to which the defaulting Lender would
otherwise be entitled under the terms of this Agreement or any of the other Loan
Documents shall first be applied to reimbursing the Lenders for their respective
pro rata shares of the defaulting Lender's portion of the draft or recaptured
payment, together with interest thereon as provided for herein. Upon
reimbursement to the other Lenders (pursuant to clause (iii) above or otherwise)
of the amount advanced by them to such Issuing Agent in respect of the
defaulting Lender's share of the draft or recaptured Payment
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together with interest thereon, the defaulting Lender shall thereupon be
entitled to its participation in such Issuing Agent's right of recovery against
the Company in respect of the draft paid by or payment recaptured from such
Issuing Agent.
(g) Foreign Currency Equivalency. For all purposes of determining the
amount of Letters of Credit hereunder, Letters of Credit payable in an Available
Foreign Currency shall be converted into their U.S. Dollar Equivalent as of the
time issued and shall be reconverted into their U.S. Dollar Equivalent as of the
first day of each calendar quarter (and as of any other time the Administrative
Agent deems appropriate), with each such determination to apply until the next
redetermination.
Section 1.4. Manner and Disbursement of Loans.
(a) Generally. The Company shall give written or telephonic notice to the
Administrative Agent (which notice shall be irrevocable once given and, if given
by telephone, shall be promptly confirmed in writing) by no later than 1:00 p.m.
(Chicago time) on the date the Company requests that any Loan be made to it
under the Revolving Credit Commitments, and the Administrative Agent shall
promptly notify each Lender of the Administrative Agent's receipt of each such
notice. Each such notice shall specify the date of the Loan requested (which
must be a Business Day) and the amount of such Loan. Each Loan shall initially
constitute part of the applicable Domestic Rate Portion except to the extent the
Company has otherwise timely elected as provided in Section 2 hereof. The
Company agrees that the Administrative Agent may rely upon any written or
telephonic notice given by any person the Administrative Agent in good faith
believes is an Authorized Representative without the necessity of independent
investigation and, in the event any telephonic notice conflicts with the written
confirmation, such telephonic notice shall govern if the Administrative Agent
and the Lenders have acted in reliance thereon. Not later than 3:00 p.m.
(Chicago time) on the date specified for any Loan to be made by a Lender
hereunder, such Lender shall make the proceeds of its pro rata share of such
Loan available to the Administrative Agent in Chicago, Illinois in immediately
available funds. Subject to the provisions of Section 7 hereof, the proceeds of
each Loan shall be made available to the Company at the principal office of the
Administrative Agent in Chicago, Illinois, in immediately available funds, upon
receipt by the Administrative Agent from each Lender of its pro rata share of
such Loan.
(b) Unpaid Reimbursement Obligation. In the event the Company fails to give
notice pursuant to Section 1.4(a) above of a Loan equal to the amount of its
obligation to reimburse the relevant Issuing Agent for a drawing on a Letter of
Credit payable in U.S. Dollars and has not notified the Administrative Agent by
12:00 noon (Chicago time) on the day such obligation becomes due that it intends
to repay such obligation through funds not borrowed under this Agreement, the
Company shall be deemed to have requested a Loan on such day constituting part
of the Domestic Rate Portion in the amount of such obligation then due, subject
to Section 7.1 hereof, which Loan shall be disbursed to such Issuing Agent and
applied to pay such obligation then due. Unless the Administrative Agent shall
have been notified by a Lender prior to 1:00 p.m. (Chicago time) on the date a
Loan is to be made hereunder that such Lender does not intend to make its pro
rata share of such Loan
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available to the Administrative Agent, the Administrative Agent may assume that
such Lender has made such share available to the Administrative Agent on such
date and the Administrative Agent may in reliance upon such assumption make
available to the Company a corresponding amount. If such corresponding amount is
not in fact made available to the Administrative Agent by such Lender and the
Administrative Agent has made such amount available to the Company, the
Administrative Agent shall be entitled to receive such amount from such Lender
forthwith upon the Administrative Agent's demand, together with interest thereon
in respect of each day during the period commencing on the date such amount was
made available to the Company and ending on but excluding the date the
Administrative Agent recovers such amount at a rate per annum equal to the
effective rate charged to the Administrative Agent for overnight federal funds
transactions with member banks of the federal reserve system for each day as
determined by the Administrative Agent (or in the case of a day which is not a
Business Day, then for the preceding day). If such amount is not received from
such Lender by the Administrative Agent immediately upon demand, the Company
will, on demand, repay to the Administrative Agent the proceeds of the Loan
attributable to such Lender with interest thereon at a rate per annum equal to
the interest rate applicable to the relevant Loan, but without such payment
being considered a payment or prepayment of a LIBOR Portion, so that the Company
will have no liability under Section 2.9 hereof with respect to such payment.
Section 1.5. Manner of Obtaining Letters of Credit. The Company shall
provide at least three Business Days' advance written notice to an Issuing Agent
of the Company's request for the issuance by such Issuing Agent of a Letter of
Credit, such notice in each case to be accompanied by such Issuing Agent's form
of Application for such Letter of Credit properly completed and executed by the
Company and in the case of an extension or an increase in the amount of a Letter
of Credit, a written request therefor, in a form acceptable to the Issuing Agent
which issued such Letter of Credit, in each case, together with the fees called
for by this Agreement. Each Issuing Agent shall promptly notify each Lender of
such Issuing Agent's receipt of each such notice.
SECTION 2. INTEREST AND CHANGE IN CIRCUMSTANCES.
Section 2.1. Interest Rate Options.
(a) Portions. Subject to the terms and conditions of this Section 2,
portions of the principal indebtedness evidenced by the Notes ("Portions") may,
at the option of the Company, bear interest with reference to the Domestic Rate
("Domestic Rate Portions") or with reference to the Adjusted LIBOR ("LIBOR
Portions"), and Portions may be converted from time to time from one basis to
the other. All of the indebtedness evidenced by the Notes which is not part of a
LIBOR Portion shall constitute a single Domestic Rate Portion. All of the
indebtedness evidenced by the Notes which bears interest with reference to a
particular Adjusted LIBOR for a particular Interest Period shall constitute a
single LIBOR Portion. Each Lender shall have a ratable interest in each Portion.
Anything contained herein to the contrary notwithstanding, the obligation of the
Lenders to create, continue or effect by conversion any LIBOR Portion shall be
conditioned upon the fact that at the time
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no Default or Event of Default shall have occurred and be continuing. The
Company hereby promises to pay interest on each Portion at the rates and times
specified in this Section 2.
(b) Domestic Rate Portion. Each Domestic Rate Portion shall bear interest
at the rate per annum determined by adding the Applicable Margin to the Domestic
Rate as in effect from time to time, provided that if the Domestic Rate Portion
or any part thereof is not paid when due (whether by lapse of time, acceleration
or otherwise) such Portion shall bear interest, whether before or after
judgment, until payment in full thereof at the rate per annum determined by
adding 2% to the interest rate which would otherwise be applicable thereto from
time to time. Interest on each Domestic Rate Portion shall be payable quarter-
annually in arrears on the last day of each calendar quarter (commencing
December 31, 1994) and at maturity of the Notes, and interest after maturity
(whether by lapse of time, acceleration or otherwise) shall be due and payable
upon demand. Any change in the interest rate on the Domestic Rate Portion
resulting from a change in the Domestic Rate shall be effective on the date of
the relevant change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding the
Applicable Margin to the Adjusted LIBOR for such Interest Period, provided that
if any LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall bear interest, whether before or
after judgment, until payment in full thereof through the end of the Interest
Period then applicable thereto at the rate per annum determined by adding 2% to
the interest rate which would otherwise be applicable thereto, and effective at
the end of such Interest Period such LIBOR Portion shall automatically be
converted into and added to the applicable Domestic Rate Portion and shall
thereafter bear interest at the interest rate applicable to such Domestic Rate
Portion after default. Interest on each LIBOR Portion shall be due and payable
on the last day of each Interest Period applicable thereto, and interest after
maturity (whether by lapse of time, acceleration or otherwise) shall be due and
payable upon demand. The Company shall notify the Administrative Agent on or
before 12:00 noon (Chicago time) on the third Business Day preceding the end of
an Interest Period applicable to a LIBOR Portion whether such LIBOR Portion is
to continue as a LIBOR Portion, in which event the Company shall notify the
Administrative Agent of the new Interest Period selected therefor, and in the
event the Company shall fail to so notify the Administrative Agent, such LIBOR
Portion shall automatically be converted into and added to the Domestic Rate
Portion as of and on the last day of such Interest Period. The Administrative
Agent shall promptly notify each Lender of each notice received from the Company
pursuant to the foregoing provision.
Section 2.2. Minimum LIBOR Portion Amounts. Each LIBOR Portion shall be in
an amount equal to $1,000,000 or such greater amount which is an integral
multiple of $500,000.
Section 2.3. Computation of Interest. All interest on the Notes shall be
computed on the basis of a year of 360 days for the actual number of days
elapsed.
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Section 2.4. Manner of Rate Selection. The Company shall notify
the Administrative Agent by 12:00 noon (Chicago time) at least three
(3) Business Days prior to the date upon which the Company requests
that any LIBOR Portion be created or that any part of the Domestic
Rate Portion be converted into a LIBOR Portion (each such notice to
specify in each instance the amount thereof and the Interest Period
selected therefor), and the Administrative Agent shall promptly notify
each Lender of each notice received from the Company pursuant to the
foregoing provision. If any request is made to convert a LIBOR Portion
into the Domestic Rate Portion, such conversion shall only be made so
as to become effective as of the last day of the Interest Period
applicable thereto. All requests for the creation, continuance and
conversion of Portions under this Agreement shall be irrevocable. Such
requests may be written or oral and the Administrative Agent is hereby
authorized to honor telephonic requests for creations, continuances
and conversions received by it from any person the Administrative
Agent in good faith believes to be an Authorized Representative
without the necessity of independent investigation, the Company hereby
indemnifying the Administrative Agent and the Lenders from any
liability or loss ensuing from so acting.
Section 2.5. Change of Law. Notwithstanding any other provisions
of this Agreement or any Note, if at any time any Lender shall
determine in good faith that any change in applicable laws, treaties or
regulations or in the interpretation thereof makes it unlawful for such
Lender to create or continue to maintain any LIBOR Portion, it shall
promptly so notify the Administrative Agent (which shall in turn
promptly notify the Company and the other Lenders) and the obligation
of such Lender to create, continue or maintain any such LIBOR Portion
under this Agreement shall terminate until it is no longer unlawful for
such Lender to create, continue or maintain such LIBOR Portion. The
Company, on demand, shall, if the continued maintenance of any such
LIBOR Portion is unlawful, thereupon prepay the outstanding principal
amount of the affected LIBOR Portion, together with all interest
accrued thereon and all other amounts payable to affected Lender with
respect thereto under this Agreement; provided, however, that the
Company may elect to convert the principal amount of the affected LIBOR
Portion into the Domestic Rate Portion, subject to the terms and
conditions of this Agreement.
Section 2.6. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR. Notwithstanding any other provision of this Agreement
or any Note, if prior to the commencement of any Interest Period, the
Required Lenders shall determine in good faith that deposits in the
amount of any LIBOR Portion scheduled to be outstanding during such
Interest Period are not readily available to such Lenders in the
relevant market or, by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining
Adjusted LIBOR, then such Lenders shall promptly give notice thereof to
the Administrative Agent (which shall in turn promptly notify the
Company and the other Lenders) and the obligations of the Lenders to
create, continue or effect by conversion any such LIBOR Portion in such
amount and for such Interest Period shall terminate until deposits in
such amount and for the Interest Period selected by the Company shall
again be readily available in the relevant market and adequate and
reasonable means exist for ascertaining Adjusted LIBOR.
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Section 2.7. Taxes and Increased Costs. With respect to any LIBOR
Portion, if any Lender shall determine in good faith that any change in any
applicable law, treaty, regulation or guideline (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or any new law, treaty, regulation or guideline, or any
interpretation of any of the foregoing by any governmental authority charged
with the administration thereof or any central bank or other fiscal,
monetary or other authority having jurisdiction over such Lender or its
lending branch or the LIBOR Portions contemplated by this Agreement (whether
or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve, special
deposit or similar requirement against assets held by, or deposits in
or for the account of, or loans by, or any other acquisition of funds
or disbursements by, such Lender which is not in any instance already
accounted for in computing the interest rate applicable to such LIBOR
Portion:
(ii) subject such Lender, any LIBOR Portion or a Note to the
extent it evidences such a Portion to any tax (including, without
limitation, any United States interest equalization tax or similar tax
however named applicable to the acquisition or holding of debt
obligations and any interest or penalties with respect thereto), duty,
charge, stamp tax, fee, deduction or withholding in respect of this
Agreement, any LIBOR Portion or a Note to the extent it evidences such
a Portion, except such taxes as may be measured by the overall net
income or gross receipts of such Lender or its lending branches and
imposed by the jurisdiction, or any political subdivision or taxing
authority thereof, in which such Lender's principal executive office or
its lending branch is located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to such Lender hereunder or under a Note
to the extent it evidences any LIBOR Portion (other than by a change in
taxation of the overall net income or gross receipts of such Lender or
its lending branches); or
(iv) impose on such Lender any penalty with respect to the
foregoing or any other condition regarding this Agreement, its
disbursement, any LIBOR Portion or a Note to the extent it evidences
any LIBOR Portion;
and such Lender shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to
a cost) to such Lender of creating or maintaining any LIBOR Portion
hereunder or to reduce the amount of principal or interest received or
receivable by such Lender (without benefit of, or credit for, any
prorations, exemption, credits or other offsets available under any such
laws, treaties, regulations, guidelines or interpretations thereof), then
the Company shall pay on demand to the Administrative Agent for the account
of such Lender from time to time as specified by such Lender such additional
amounts as such Lender shall reasonably determine are sufficient to
compensate and indemnify it for such increased cost or reduced amount. If a
Lender makes such a claim for compensation, it shall provide to the Company
(with a copy to the Administrative Agent) a certificate setting forth the
computation of the increased cost
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or reduced amount as a result of any event mentioned herein in reasonable
detail and such certificate shall be conclusive if reasonably determined.
Section 2.8. Change in Capital Adequacy Requirements. If any Lender
shall determine that the adoption after the date hereof of any applicable
law, rule or regulation regarding capital adequacy, or any change in any
existing law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by such Lender (or any of its branches) or any
corporation controlling such Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's or such
corporation's capital, as the case may be, as a consequence of such
Lender's obligations hereunder or for the credit which is the subject
matter hereof to a level below that which such Lender or such corporation
could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's or such corporation's policies with
respect to liquidity and capital adequacy) by an amount deemed by such
Lender to be material, then from time to time, within thirty (30) days
after demand by such Lender, the Company shall pay to the Administrative
Agent for the account of such Lender such additional amount or amounts
reasonably determined by such Lender as will compensate such Lender for
such reduction.
Section 2.9. Funding Indemnity. In the event any Lender shall incur
any loss, cost or expense (including, without limitation, any loss
(including loss of profit), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired or
contracted to be acquired by such Lender to fund or maintain its part of
any LIBOR Portion or the relending or reinvesting of such deposits or
other funds or amounts paid or prepaid to such Lender) as a result of:
(i) any payment of a LIBOR Portion on a date other than the
last day of the then applicable Interest Period for any reason,
whether before or after default, and whether or not such payment is
required by any provisions of this Agreement; or
(ii) any failure by the Company to create, borrow, continue or
effect by conversion a LIBOR Portion on the date specified in a
notice given pursuant to this Agreement:
then, upon the demand of such Lender, the Company shall pay to the
Administrative Agent for the account of such Lender such amount as will
reimburse such Lender for such loss, cost or expense. If a Lender requests
such a reimbursement, it shall provide to the Company (with a copy to the
Administrative Agent) a certificate setting forth the computation of the
loss, cost or expense giving rise to the request for reimbursement in
reasonable detail and such certificate shall be conclusive if reasonably
determined.
Section 2.10. Lending Branch. Each Lender may, at its option, elect to
make, fund or maintain its pro rata share of the Loans hereunder at the
branches or offices specified on
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the signature pages hereof or on any Assignment Agreement executed and delivered
pursuant to Section 11.9 hereof or at such of its branches or offices as such
Lender may from time to time elect. To the extent reasonably possible, a Lender
shall designate an alternate branch or funding office with respect to its pro
rata share of the LIBOR Portions to reduce any liability of the Company to such
Lender under Section 2.7 hereof or to avoid the unavailability of an interest
rate option under Section 2.6 hereof, so long as such designation is not
otherwise disadvantageous to the Lender.
Section 2.11. Discretion of Lenders as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Lender
shall be entitled to fund and maintain its funding of all or any part of its
Notes in any manner it sees fit, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, without
limitation, determinations under Sections 2.6, 2.7 and 2.9 hereof) shall be made
as if each Lender had actually funded and maintained each LIBOR Portion during
each Interest Period applicable thereto through the purchase of deposits in the
relevant market in the amount of its pro rata share of such LIBOR Portion,
having a maturity corresponding to such Interest Period, and bearing an interest
rate equal to the LIBOR for such Interest Period.
Section 2.12. Interest Rate and Exchange Rate Protection. The Company may
hedge its interest rate risk, commodity price risk and exchange rate risk
through the use of one or more Hedging Arrangements for such time periods and
with such parties (who need not be Lenders) as the Company elects, with the
Company's obligations to any such party who is a Lender in connection with such
Hedging Arrangements not to constitute usage of the Revolving Credit Commitment
of such Lender. While no Lender shall participate in any risk in connection with
another Lender's Hedging Arrangements with the Company, the Company's Hedging
Liability to each Lender shall be secured by the Collateral.
SECTION 3. FEES, PREPAYMENTS, TERMINATIONS, AND APPLICATIONS.
Section 3.1 Fees.
(a) Closing Fee. No later than the date hereof, the Company shall pay to
the Administrative Agent for the ratable account of the Lenders a closing fee
equal to $150,000. The Lenders acknowledge and agree that $75,000 of such fee
has already been paid.
(b) Commitment Fees. The Company shall pay to each Lender a commitment fee
at the rate and at the time mutually agreed upon by the Company and each Lender
in such Lender's Side Letter with the Company.
(c) Letter of Credit Fees. On the date of issuance of each Letter of
Credit, and as condition thereto, and annually thereafter, the Company shall pay
to the Administrative Agent for the account of itself and the Lenders a letter
of credit fee computed at the rate of 1% per annum (computed on the basis of a
year of 360 days for the actual number of days elapsed) on the maximum amount of
the related Letter of Credit which is scheduled to be
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outstanding during the immediately succeeding twelve (12) months. In
addition to the letter of credit fee called for above, the Company
further agrees to pay to each Issuing Agent for its own account such
processing and transaction fees and charges as the Administrative Agent
from time to time customarily imposes in connection with any amendment,
cancellation, negotiation and/or payment of Letters of Credit issued by
such Issuing Agent and drafts drawn thereunder.
(d) Audit Fees. The Company shall pay to the Administrative Agent for
its own use and benefit reasonable charges for audits of the Collateral
performed by the Administrative Agent or its agents or representatives in
such amounts as the Administrative Agent may from time to time request
(the Administrative Agent acknowledging and agreeing that such charges
shall be computed in the same manner as it at the time customarily uses
for the assessment of charges for similar collateral audits); provided,
however, that in the absence of any Default or Event of Default, the
Company shall not be required to pay the Administrative Agent for more
than one (1) such audit per calendar year.
Section 3.2. Voluntary Prepayments. The Company shall have the
privilege of prepaying the Domestic Rate Portion of the Notes in whole or
in part (but if in part, then in a minimum amount of $100,000 or such
greater amount which is an integral multiple of $10,000) at any time upon
prior notice to the Administrative Agent no later than 11:00 a.m.
(Chicago time) on the date of such prepayment (such notice if received
subsequent to 11:00 a.m. (Chicago time) on a given day to be treated as
though received at the opening of business on the next Business Day),
which shall promptly so notify the Lenders, by paying to the
Administrative Agent for the account of the Lenders the principal amount
to be prepaid and if such a prepayment prepays the Notes in full and is
accompanied by the termination in whole of the Revolving Credit
Commitments, accrued interest thereon to the date of prepayment plus any
commitment fee which has accrued and is unpaid. LIBOR Portions of the
Notes may not be voluntarily prepaid except on the last day of their
respective Interest Periods.
Section 3.3. Mandatory Prepayments. In the event that the aggregate
amount of outstanding Loans and Letters of Credit (which, in the case of
Letters of Credit payable in an Available Foreign Currency, means the
U.S. Dollar Equivalent thereof as determined pursuant to Section 1.3(g)
hereof) exceed the Revolving Credit Commitments after giving effect to
any reduction therein, the Company shall immediately and without notice
or demand pay over the amount of the excess to the Administrative Agent
as and for a mandatory prepayment of the Loans.
Section 3.4. Voluntary Terminations of Revolving Credit Commitments.
The Company shall have the right at any time and from time to time, upon
three (3) Business Days' prior notice to the Administrative Agent (which
shall promptly so notify the Lenders), to ratably terminate without
premium or penalty and in whole or in part (but if in part, then in an
aggregate amount not less than $2,000,000 or such greater amount which is
an integral multiple of $1,000,000) the Revolving Credit Commitments,
provided that the Revolving Credit Commitments may not be reduced to an
amount less than the aggregate
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principal amount of the Loans and Letters of Credit then outstanding (which, in
the case of Letters of Credit payable in an Available Foreign Currency, means
the U.S. Dollar Equivalent thereof as determined pursuant to Section 1.3(g)
hereof). Any termination of the Revolving Credit Commitments pursuant to this
Section 3.4 may not be reinstated.
Section 3.5. Mandatory Partial Terminations of Revolving Credit
Commitments. Intentionally omitted.
Section 3.6. Place and Application of Payments. Except has herein provided,
all payments of principal, interest, fees and all other Obligations payable
hereunder and under the other Loan Documents shall be made to the Administrative
Agent at its office at 111 West Monroe Street, Chicago, Illinois (or at such
other place as the Administrative Agent may specify) no later than 1:00 p.m.
(Chicago time) on the date any such payment is due and payable. Payments
received by the Administrative Agent after 1:00 p.m. (Chicago time) shall be
deemed received as of the opening of business on the next Business Day. All such
payments shall be made (i) in the case of Obligations payable in U.S. Dollars,
in lawful money of the United States, in immediately available funds at the
place of payment, or (ii) in the case of Obligations payable in an Available
Foreign Currency, in such Available Foreign Currency in such funds as are then
customary for the settlement of international transactions in such currency. All
payments of the commitment fee called for by Section 3.1(b) shall be paid
directly to each Lender entitled to receive the same and retained by it solely
for its own account. The fees and charges called for by the second sentence of
3.1(c) hereof with respect to any Letter of Credit issued by an Issuing Agent
shall be paid directly to such Issuing Agent and retained by it solely for its
own account. All payments of the Obligations shall be made without set-off or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions and conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof (but excluding any taxes
imposed on or measured by the net income of any Lender). Except as herein
provided, all payments shall be received by the Administrative Agent for the
ratable account of the Lenders and shall be promptly distributed by the
Administrative Agent ratably to the Lenders. Unless the Company otherwise
directs, principal payments shall be first applied to the applicable Domestic
Rate Portion until payment in full thereof, with any balance applied to the
LIBOR Portions in the order in which their Interest Periods expire.
Anything contained herein to the contrary notwithstanding, all payments and
collections received in respect of the Obligations and all proceeds of the
Collateral received in each instance, by the Administrative Agent or any of the
Lenders after the occurrence and during the continuance of an Event of Default
shall be remitted to the Administrative Agent and distributed as follows:
(a) first, to the payment of any outstanding costs and expenses incurred by
the Administrative Agent in monitoring, verifying, protecting, preserving or
enforcing the Liens on the Collateral, and in protecting, preserving or
enforcing rights under this Agreement or any of the other Loan Documents, and in
any event including all costs and expenses of a character which the Company has
agreed to pay under Section 11.4 hereof
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(such funds to be retained by the Administrative Agent for its own account
unless it has previously been reimbursed for such costs and expenses by the
Lenders, in which event such amounts shall be remitted to the Lenders to
reimburse them for payments theretofore made to the Administrative Agent);
(b) second, to the payment of any outstanding interest or other fees or
amounts due under this Agreement or any of the other Loan Documents other than
for principal, pro rata as among the Administrative Agent and the Lenders in
accord with the amount of such interest and other fees or amounts owing each;
(c) third, to the payment of the principal of the Notes and any liabilities
in respect of unpaid drawings under the Letters of Credit, pro rata as among the
Lenders in accord with the then respective unpaid principal balances of the
Notes and the then unpaid liabilities in respect of unpaid drawings under the
Letters of Credit;
(d) fourth, to the Administrative Agent, to be held as collateral security
for any undrawn Letters of Credit, until the Administrative Agent is holding an
amount of cash equal to the then outstanding amount of all Letters of Credit;
(e) fifth, to the Administrative Agent and the Lenders pro rata in accord
with the amounts of any other indebtedness, obligations or liabilities of the
Company owing to them and secured by the Collateral Documents (other than those
described in clause (f) below) unless and until all such indebtedness,
obligations and liabilities have been fully paid and satisfied;
(f) sixth, to the payment of the Hedging Liability (if any), pro rata as
among the Lenders to whom such Hedging Liability is owed in accordance with the
then respective unpaid amounts of such Liability; and
(g) seventh, to the Company or to whoever the Administrative Agent
reasonably determines to be lawfully entitled thereto.
In the event that the amount of any Hedging Liability is not fixed and
determined at the time any funds are to be allocated thereto pursuant to the
above provisions, such funds so allocated shall be held by the Administrative
Agent as collateral security until such Hedging Liability is fixed and
determined and the same shall then be applied to the Hedging Liability, with any
surplus reallocated among the Lenders to cover any deficiency which would not
have existed had the exact amount of the Hedging Liability been known at the
time such funds were originally distributed. Each Lender shall furnish a copy of
its Side Letter to the Administrative Agent upon the occurrence of any Event of
Default and unless and until so furnished, the Administrative Agent shall be
entitled to assume such Lender is not entitled to any amount on account of such
Lender's share of the commitment fees called for in Section 3.1 (b) hereof.
Section 3.7. Notations. All Loans made against a Note, the status of all
amounts evidenced by a Note as constituting part of the Domestic Rate Portion or
a LIBOR Portion,
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and, in the case of any LIBOR Portion, the rate of interest and Interest Period
applicable to such Portion shall be recorded by each Lender on its books and
records or, at its option in any instance, endorsed on a schedule to its Note
and the unpaid principal balance and status, rates and Interest Periods so
recorded or endorsed by such Lender shall be prima facie evidence in any court
or other proceeding brought to enforce such Note of the principal amount
remaining unpaid thereon, the status of the Loans evidenced thereby and the
interest rates and Interest Periods applicable thereto; provided that the
failure of a Lender to record any of the foregoing shall not limit or otherwise
affect the obligation of the Company to repay the principal amount of each Note
together with accrued interest thereon. Prior to any negotiation of a Note, a
Lender shall record on a schedule thereto the status of all amounts evidenced
thereby as constituting part of the applicable Domestic Rate Portion or a LIBOR
Portion and, in the case of any LIBOR Portion, the rate of interest and the
Interest Period applicable thereto.
SECTION 4. COLLATERAL.
Section 4.1. Generally. The payment and performance of the Obligations shall
be secured by valid and perfected first priority Liens in favor of the
Administrative Agent for the benefit of the Lenders on all of the now existing
or hereafter arising or acquired accounts, general intangibles, inventory,
equipment, real estate, chattel paper, instruments, documents, securities
(including stock in subsidiaries) and certain other assets and property of the
Company and its Material Subsidiaries as more fully described the Collateral
Documents. The Company covenants and agrees that it shall comply with, and cause
its Material Subsidiaries to comply with, all the terms and conditions of each
of the Collateral Documents and that it shall, at any time and from time to time
as requested by the Administrative Agent or the Required Lenders, execute and
deliver and cause its Material Subsidiaries to execute and deliver such further
instruments and do such acts and things as the Administrative Agent or the
Required Lenders may reasonably deem necessary or desirable to provide for or
protect or perfect the Lien of the Administrative Agent in the Collateral.
Section 4.2. Movie Rights. The Lenders acknowledge and agree that the
Collateral shall not include rights to develop and distribute movies and videos
in which the Company or any Material Subsidiary has a proprietary interest to
the extent such rights have been pledged to unaffiliated third parties in bona
fide, arm's-length transactions prior to the occurrence of any Default or Event
of Default hereunder, with the prior written consent of the Required Lenders
(which shall not be unreasonably withheld), for a cash consideration to the
Companies (such as royalties) which the Company in good faith deems fair, to
secure the obligations of the Company or such Subsidiary, as the case may be, to
reimburse such third parties for their payment of the out-of-pocket costs and
expenses of producing such media.
SECTION 5. DEFINITIONS; INTERPRETATION.
Section 5.1. Definitions. The following terms when used herein shall have
the following meanings:
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"Adjusted LIBOR" means a rate per annum determined by the Administrative
Agent in accordance with the following formula:
LIBOR
Adjusted LIBOR = _______________________
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this definition,
LIBOR Portions shall be deemed to be Eurocurrency liabilities as defined in
Regulation D without benefit of or credit for prorations, exemptions or offsets
under Regulation D. "LIBOR" means, for each Interest Period, (a) the LIBOR
Index Rate for such Interest Period, if such rate is available, and (b) if the
LIBOR Index Rate cannot be determined, the arithmetic average of the rates of
interest per annum (rounded upward, if necessary, to the nearest 1/1OOth of 1%)
at which deposits in U.S. Dollars in immediately available funds are offered to
the Administrative Agent at 11:00 a.m. (London, England time) two Business Days
before the beginning of such Interest Period by three (3) or more major banks in
the interbank eurodollar market selected by the Administrative Agent for a
period equal to such Interest Period and in an amount equal or comparable to the
applicable LIBOR Portion scheduled to be outstanding from the Administrative
Agent during such Interest Period. "LIBOR Index Rate" means, for any Interest
Period, the rate per annum (rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a
period equal to such Interest Period which appears on the Telerate Page 3750 as
of 11:00 a.m. (London, England time) on the date two Business Days before the
commencement of such Interest Period. "Telerate Page 3750" means the display
designated as "Page 3750" on the Telerate Service (or such other page as may
replace Page 3750 on that service or such other service as may be nominated by
the British Bankers' Association as the information vendor for the purpose of
displaying British Banker's Association Interest Settlement Rates for U.S.
Dollar deposits). Each determination of LIBOR made by the Administrative Agent
shall be conclusive and binding on the Company and the Lenders absent manifest
error.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for the purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise.
"Administrative Agent" means Harris Trust and Savings Bank and any
successor thereto appointed pursuant to Section 10.1 hereof.
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"Agent" shall mean any of the Administrative Agent, the Co-Agent or any
Issuing Agent.
"Agreement" means this Credit Agreement, as the same may be amended, modified
or restated from time to time in accordance with the terms hereof.
"Applicable Margin" means 0% with respect to the Domestic Rate Portion of the
Notes and 2.25% with respect to each LIBOR Portion of the Notes; provided,
however, that such Applicable Margins shall each be increased by 0.75% with
respect to any principal amount outstanding on the Notes in excess of
$20,000,000.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of officers
provided by the Company pursuant to Section 7.2(a) hereof or on any update of
any such list provided by the Company to the Administrative Agent, or any
further or different officer of the Company so named by any Authorized
Representative of the Company in a written notice to the Administrative Agent.
"Available Foreign Currency" means any currency other than United States
Dollars, so long as such currency is freely transferable and convertible into
United States Dollars and is traded and readily available to each of the
Administrative Agent, the Co-Agent and the relevant Issuing Agent in the London
interbank market.
"Business Day" means any day other than a Saturday or Sunday on which banks
are not authorized or required to close in Chicago, Illinois and, when used with
respect to LIBOR Portions, a day on which banks are also dealing in United
States Dollar deposits in London, England and Nassau, Bahamas.
"California Mortgage" means the Deed of Trust, Fixture Filing and Security
Agreement (with Assignment of Rents) encumbering the real estate and related
fixtures comprising the Company's so-called Los Angeles County California
mansion.
"Capital Expenditures" means, for any period, the capital expenditures of the
Company and its Subsidiaries during such period as defined and classified in
accordance with GAAP, but excluding (i) the amount of any Property to the extent
acquired by the trade of an existing item for such new item and (ii)
expenditures on Property acquired to replace lost or destroyed items to the
extent such expenditures are made from insurance proceeds generated by such lost
or destroyed item.
"Capital Lease" means any lease of Property which in accordance with GAAP is
required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on the
balance sheet of any Person in respect of a Capital Lease determined in
accordance with GAAP.
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"Cash Flow Coverage Ratio" means, as of any time the same is to be
determined, the ratio of (x) EBITDA during the four most recently completed
calendar quarters less (to the extent not already deducted in arriving at such
EBITDA) Cash Programming Costs during the same such period to (y) the sum of
(i) Interest Expense during the same such period and (ii) Capital Expenditures
and payments in cash or cash equivalents during the same such period for
Investments.
"Cash Programming Costs" means, with reference to any period, the costs and
expenses paid by the Company and its Subsidiaries during such period that were
attributable to the acquisition and development of television programming,
feature-length films and home video productions.
"Change of Control" means Hugh M. Hefner and Christie Hefner and trusts
controlled by either one or both of them or any one or more members of their
respective immediate family shall, taken collectively (whether or not all of
such persons own any such stock), at any time and for any reason (including
death or incapacity) cease to own, both legally and beneficially, at least 51%
of the issued and outstanding Voting Stock of the Company.
"Co-Agent" means LaSalle National Bank so long as it remains a Lender.
Otherwise, there shall be no Co-Agent.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests and privileges from time
to time subject to the Liens granted to the Administrative Agent for the benefit
of the Lenders by the Collateral Documents.
"Collateral Documents" means the Security Agreement, the California Mortgage
and all other mortgages, deeds of trust, security agreements, assignments,
financing statements and other documents executed by the Company or any
Subsidiary as shall from time to time secure the Obligations.
"Commitments" means and includes the Revolving Credit Commitments.
"Commodity Agreement" means any option or futures contract or similar
agreement or arrangement designed to protect a Person against fluctuations in
commodity prices.
"Company" is defined in the introductory paragraph hereof.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
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"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect a Person
against fluctuations in currency values.
"Default" means any event or condition the occurrence of which would, with the
passage of time or the giving of notice, or both, constitute an Event of
Default.
"Disqualified Stock" means any capital stock of any Person, unless the
Required Lenders in their discretion agree otherwise, that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, (i) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
scheduled Termination Date or (ii) is convertible into or exchangeable for
(whether at the option of the issuer or the holder thereof) (a) debt security or
(b) any capital stock referred to in clause (i) above, in each case, at any time
prior to the scheduled Termination Date.
"Domestic Rate" means, for any day, the greater of (i) the rate of interest
announced by the Administrative Agent from time to time as its prime commercial
rate, as in effect on such day; (ii) the rate of interest announced by the Co-
Agent from time to time as its prime commercial rate or equivalent, as in effect
on such day (the Co-Agent hereby agreeing to use its best efforts to furnish
such rate to the Administrative Agent and notify the Administrative Agent of
each change therein promptly, and it being understood and agreed that if the
Co-Agent does not furnish timely notice of such rate, the Administrative Agent
shall determine the Domestic Rate on the basis of the rates established by
clauses (i) and (ii) of this definition); and (iii) the sum of (x) the rate
determined by the Administrative Agent to be the average (rounded upwards, if
necessary, to the next higher 1/100 of 1%) of the rates per annum quoted to the
Administrative Agent at approximately 10:00 a.m. (Chicago time) (or as soon
thereafter as is practicable) on such day (or, if such day is not a Business
Day, on the immediately preceding Business Day) by two or more Federal funds
brokers selected by the Administrative Agent for the sale to the Administrative
Agent at face value of Federal funds in an amount equal or comparable to the
principal amount owed to the Administrative Agent for which such rate is being
determined, plus (y) 3/8 of 1% (0.375%).
"Domestic Rate Portions" is defined in Section 2.l(a) hereof.
"EBITDA" means, with reference to any period, Net Income for such period plus
all amounts deducted in arriving at such Net Income amount in respect of (i)
Interest Expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets (including without
limitation the amortization of investments in entertainment programming) during
such period on the books of the Company and its Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
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"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"Exchange Rate" means, when converting an Available Foreign Currency into
U.S. Dollars, the rate quoted by the relevant Issuing Agent at the opening of
business on the date any determination thereof is to be made, for the spot rate
at which such Available Foreign Currency is offered for sale by such Issuing
Agent against delivery in U.S. Dollars.
"Existing L/Cs" is defined in Section 1.3(a) hereof.
"Funded Debt" means all Indebtedness for Borrowed Money which by its terms
or by the terms of any instrument or agreement relating thereto matures more
than one year from, or is directly renewable or extendible at the option of the
debtor to a date more than one year from (including an option of the debtor
under a revolving credit or similar agreement obligating the lender or lenders
to extend credit over a period of more than one year), the date of the creation
thereof.
"GAAP" means generally accepted accounting principles as in effect from time
to time, applied by the Company and its Subsidiaries on a basis consistent with
the preparation of the Company's most recent financial statements furnished to
the Lenders pursuant to Section 8.5 hereof.
"Hedging Arrangements" shall mean Currency Agreements, Commodity Agreements
and Interest Protection Agreements.
"Hedging Liability" shall mean the liability of the Company to the Lenders
or any of them in respect of the Hedging Arrangements. Unless and until the
amount of the Hedging Liability is fixed and determined, the Hedging Liability
shall be deemed to be 4% per annum of the notional amount of the hedge from the
date of computation to the date the hedge expires.
"Indebtedness for Borrowed Money" means for any Person (without duplication)
(i) all indebtedness created, assumed or incurred in any manner by such Person
representing money borrowed (including by the issuance of debt securities), (ii)
all indebtedness for the deferred purchase price of property or services (other
than trade accounts payable arising in the ordinary course of business), (iii)
all indebtedness secured by any Lien upon Property of such Person, whether or
not such Person has assumed or become liable for the payment of such
indebtedness, (iv) all Capitalized Lease Obligations of such Person and (v) all
obligations of such Person on or with respect to letters of credit, bankers'
acceptances and other extensions of credit whether or not representing
obligations for borrowed money.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Company and its Subsidiaries for such period determined in accordance with GAAP.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such
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LIBOR Portion and ending one (1), two (2) or three (3) months thereafter as
selected by the Company in its notice as provided herein; provided that, all of
the foregoing provisions relating to Interest Periods are subject to the
following:
(i) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless in the case of an Interest Period for a
LIBOR Portion the result of such extension would be to carry such
Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity date
of the relevant Notes;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the Company will be unable to make a principal payment
scheduled to be made during such Interest Period without paying part of
a LIBOR Portion on a date other than the last day of the Interest
Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day
in the next calendar month, provided, however, if an Interest Period begins on
the last day of a month or if there is no numerically corresponding day in the
month in which an Interest Period is to end, then such Interest Period shall end
on the last Business Day of such month.
"Interest Protection Agreement" means any interest rate swap
agreement, interest rate collar agreement, option or future contract or other
similar agreement or arrangement designed to protect a Person against
fluctuations in interest rates.
"Investments" is defined in Section 8.12 hereof.
"Issuing Agent" is defined in Section 1.3(a) hereof.
"Lender" means Harris Trust and Savings Bank, LaSalle National Bank,
the other signatories hereto (other than the Company) and all other lenders
becoming parties hereto pursuant to Section 11.9 hereof.
"Leverage Ratio" means, as of any time the same is to be determined,
the ratio of (x) Funded Debt to (y) Total Capitalization.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
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"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loan" is defined in Section 1.2 hereof.
"Loan Documents" means this Agreement, the Notes, the Applications and the
Collateral Documents.
"Material Adverse Effect" means (i) any materially adverse change in the
business, operations, condition (financial or otherwise) or Properties of the
Company and its Subsidiaries, taken as a whole, or (ii) any fact or circumstance
as to which singly or in the aggregate, there is a reasonable possibility of (y)
a materially adverse change described in clause (i) with respect to the Company
and its Subsidiaries, taken as a whole, or (z) the inability of the Company to
perform in any material respect its obligations under the Loan Documents or the
inability of the Lenders, the Administrative Agent or the Co-Agent to enforce in
any material respect their rights under the Loan Documents.
"Material Subsidiary" means (i) Playboy Entertainment Group, Inc., a
Delaware corporation, (ii) Critics Choice Video, Inc., an Illinois corporation,
(iii) Lifestyle Brands, Ltd., a Delaware corporation and (iv) each Subsidiary of
the Company whose consolidated total assets (directly and together with its
Subsidiaries), as of the close of the most recent fiscal year of the Company for
which audited financial statements are available, were greater than $3,000,000.
"Net Income" means, with reference to any period, the net income (or net
loss) of the Company and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP, and, without limiting the foregoing,
after deduction from gross income of all expenses and reserves, including
reserves for all taxes on or measured by income, but excluding any extraordinary
profits and also excluding any taxes on such profits.
"Net Worth" means, as of any time the same is to be determined. the total
shareholders' equity (including capital stock, additional paid-in-capital and
retained earnings after deducting treasury stock, but excluding minority
interests in Subsidiaries) which would appear on the balance sheet of the
Company and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Note" is defined in Section 1.2 hereof.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company arising under or in relation to any Loan Document, in
each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired.
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"Overnight Eurocurrency Rate" means for any Letter of Credit payable in an
Available Foreign Currency, the rate of interest per annum as determined by the
relevant Issuing Agent (rounded upwards, if necessary, to the nearest whole
multiple of one-sixteenth of one percent (1/16 of 1%)) at which overnight or
weekend deposits of the appropriate currency for delivery in immediately
available and freely transferable funds would be offered by such Issuing Agent
to major banks in the interbank market upon request of such major banks for the
applicable period as determined above and in an amount comparable to the unpaid
reimbursement obligation (or, if such Issuing Agent is not placing deposits in
such currency in the interbank market, then such Issuing Agent's cost of funds
in such currency for such period).
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, association, trust,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group, or (ii) is maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than one employer
makes contributions and to which a member of the Controlled Group is then making
or accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Portion" is defined in Section 2.1 (a) hereof.
"Prior Credit Agreement" is defined in Section 7.3 hereof.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Required Lenders" means, as of the date of determinations thereof, those
Lenders holding at least 75% of the Revolving Credit Commitments or, in the
event that no Revolving Credit Commitments are outstanding hereunder, holding at
least 75% in aggregate principal amount of the Loans and credit risk on the
Letters of Credit outstanding hereunder.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Commitments" means the commitments of the Lenders to
extend credit under the Revolving Credit in the amounts set forth opposite their
signatures hereto under the heading "Revolving Credit Commitment" and opposite
their signatures on Assignment Agreements delivered pursuant to Section 11.9
hereof under the heading "Revolving Credit Commitment", as such amounts may be
reduced pursuant hereto.
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"Sarah Coventry Note" is defined in Section 8.12(g) hereof.
"SEC" means the Securities and Exchange Commission.
"Side Letter" shall mean with respect to each Lender, the most recent letter
agreement between the Company and such Lender setting forth the commitment fee
due to such Lender under Section 3.1 (b) hereof.
"Subordinated Debt" means indebtedness of the Company for borrowed money
subordinated in right of payment to the Obligations pursuant to documentation
containing interest rates, payment terms, maturities, amortization schedules,
covenants, defaults, remedies, subordination provisions and other material terms
in form and substance reasonably satisfactory to the Required Lenders.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
"Termination Date" means March 31, 1995, or such earlier date on which the
Revolving Credit Commitments are terminated in whole pursuant to Section 3.4,
3.5, 9.2 or 9.3 hereof. THE COMPANY ACKNOWLEDGES AND AGREES THAT THE LENDERS
HAVE ABSOLUTELY NO OBLIGATION WHATSOEVER TO EXTEND THE TERMINATION DATE BEYOND
MARCH 31, 1995.
"Total Capitalization" means, as of any time the same is to be determined,
the sum of (a) Funded Debt and (b) Net Worth.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"U.S. Dollar Equivalent" means the amount of U.S. Dollars which would be
realized by converting an Available Foreign Currency into U.S. Dollars in the
spot market at the exchange rate quoted by the relevant Issuing Agent, at
approximately 11:00 a.m. (London, England time) two Business Days prior to the
date on which a computation thereof is required to be made, to major banks in
the interbank foreign exchange market for the purchase of U.S. Dollars for such
Available Foreign Currency.
"Voting Stock" of any Person shall mean the capital stock of any class or
classes or other equity interest (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person,
other than stock or other equity interest having such power only by reason of
the happening of a contingency.
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"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Section 5.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof', "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Administrative Agent and the
Lenders as follows:
Section 6.1. Organization and Qualification. The Company is duly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware, has full and adequate corporate power to own its Property and
conduct its business as now conducted, and is duly licensed or qualified and in
good standing in each jurisdiction in which the nature of the business conducted
by it or the nature of the Property owned or leased by it requires such
licensing or qualifying except where the failure to be so licensed or qualified
would not have a Material Adverse Effect.
Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted. Each Material
Subsidiary is duly licensed or qualified and in good standing in each
jurisdiction in which the nature of the business conducted by it or the nature
of the Property owned or leased by it requires such licensing or qualifying
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect. Schedule 6.2 hereto identifies each Subsidiary, the
jurisdiction of its incorporation or organization, as the case may be, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by the Company and the Subsidiaries and, if such
percentage is not 100% (excluding directors' qualifying shares as required by
law), a description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and outstanding.
All of the outstanding shares of capital stock and other equity interests of
each Subsidiary are validly issued and outstanding and fully paid and
nonassessable and all such shares and other equity interests indicated on
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Schedule 6.2 as owned by the Company or a Subsidiary are owned, beneficially and
of record, by the Company or such Subsidiary free and clear of all Liens. There
are no outstanding commitments or other obligations of any Subsidiary to issue,
and no options, warrants or other rights of any Person to acquire, any shares of
any class of capital stock or other equity interests of any Subsidiary.
Section 6.3. Corporate Authority and Validity of Obligations. The Company
has full right and authority to enter into this Agreement and the other Loan
Documents, to make the borrowings herein provided for, to issue its Notes in
evidence thereof, to grant to the Administrative Agent the Liens described in
the Collateral Documents, and to perform all of its obligations hereunder and
under the other Loan Documents. The Loan Documents delivered by the Company have
been duly authorized, executed and delivered by the Company and constitute valid
and binding obligations of the Company enforceable in accordance with their
terms except as enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law); and
this Agreement and the other Loan Documents do not, nor does the performance or
observance by the Company of any of the matters and things herein or therein
provided for, contravene or constitute a default under any provision of law or
any judgment, injunction, order or decree binding upon the Company or any
provision of the charter, articles of incorporation or by-laws of the Company or
any covenant, indenture or agreement of or affecting the Company or any of its
Properties, or result in the creation or imposition of any Lien on any Property
of the Company.
Section 6.4. Use of Proceeds; Margin Stock. The Company shall use the
proceeds of the Loans and other extensions of credit made available hereunder
solely for its general working capital purposes and for such other legal and
proper purposes as are consistent with all applicable laws, the Company's
charter, articles of incorporation and by-laws, resolutions of the Company's
board of directors, and the terms of this Agreement. Neither the Company nor any
Subsidiary is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan or any other extension of credit made hereunder will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock.
Section 6.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at June 30, 1994 and the related consolidated
statements of income, retained earnings and cash flows of the Company and its
Subsidiaries for the fiscal year then ended, and accompanying notes thereto,
which financial statements are accompanied by the audit report of Coopers &
Lybrand, independent public accountants, and the unaudited interim consolidated
balance sheet of the Company and its Subsidiaries as at September 30, 1994 and
the related consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for the three (3) months then ended,
heretofore furnished to the Lenders, fairly present the consolidated financial
condition of the Company and its
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Subsidiaries as at said dates and the consolidated results of their operations
and cash flows for the periods then ended in conformity with generally accepted
accounting principles applied on a consistent basis. Neither the Company nor any
Material Subsidiary has contingent liabilities which are material to it other
than as indicated on such financial statements or, with respect to future
periods, on the financial statements furnished pursuant to Section 8.5 hereof.
Section 6.6. No Material Adverse Change. Since June 30, 1994, there has been
no change in the condition (financial or otherwise) or business prospects of the
Company or any Subsidiary except those occurring in the ordinary course of
business, none of which individually or in the aggregate have been materially
adverse.
Section 6.7. Litigation and Other Controversies. There is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened, against the Company or any Subsidiary which if adversely
determined would have a Material Adverse Effect.
Section 6.8. Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have, in fact, been filed (except for
temporary delays in filing state and local tax returns which have no Material
Adverse Effect), and all taxes, assessments, fees and other governmental charges
upon the Company or any Subsidiary or upon any of their respective Properties,
income or franchises, which are shown to be due and payable in such returns,
have been paid (except for such taxes, assessments, fees and other charges the
nonpayment of which would not have a Material Adverse Effect and which are being
contested in accordance with Section 8.3 hereof). The Company does not know of
any proposed additional tax assessment against it or its Subsidiaries for which
adequate provision in accordance with GAAP has not been made on its accounts.
Adequate provisions in accordance with GAAP for taxes on the books of the
Company and each Subsidiary have been made for all open years, and for its
current fiscal period.
Section 6.9. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Company or any other Person, is or will be necessary to the valid execution,
delivery or performance by the Company of this Agreement or any other Loan
Document.
Section 6.10. Affiliate Transactions. Neither the Company nor any Subsidiary
is a party to any contracts or agreements with any of its Affiliates (other than
with Wholly-Owned Subsidiaries) on terms and conditions which are less favorable
to the Company or such Subsidiary than would be usual and customary in similar
contracts or agreements between Persons not affiliated with each other.
Section 6.11. Investment Company; Public Utility Holding Company. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an investment company" within the meaning of the Investment
Company Act of 1940, as
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amended, or a "public utility holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
Section 6.12. ERISA. The Company and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any liability to the PBGC or a Plan under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA. Neither the Company nor any Subsidiary has any contingent
liabilities with respect to any post-retirement benefits under a Welfare Plan,
other than liability for continuation coverage described in article 6 of Title I
of ERISA.
Section 6.13. Compliance with Laws. The Company and its Subsidiaries each
are in compliance with the requirements of all federal, state and local laws,
rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, and laws and regulations establishing quality criteria and
standards for air, water, land and toxic or hazardous wastes and substances),
non-compliance with which could have a Material Adverse Effect. Neither the
Company nor any Subsidiary has received notice to the effect that its operations
are not in compliance with any of the requirements of applicable federal, state
or local environmental, health and safety statutes and regulations or are the
subject of any governmental investigation evaluating whether any remedial action
is needed to respond to a release of any toxic or hazardous waste or substance
into the environment, which noncompliance or remedial action could have a
Material Adverse Effect.
Section 6.14. Other Agreements. Neither the Company nor any Subsidiary is in
default under the terms of any covenant, indenture or agreement of or affecting
the Company, any Subsidiary or any of their Properties, which default if uncured
would have a Material Adverse Effect.
Section 6.15. No Default. No Default or Event of Default has occurred and
is continuing.
SECTION 7. CONDITIONS PRECEDENT.
The obligation of the Lenders to make any Loan or of the Administrative
Agent to issue any Letter of Credit under this Agreement is subject to the
following conditions precedent:
Section 7.1. All Advances. As of the time of the making of each extension of
credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in
Section 6 hereof and in the other Loan Documents shall be true and
correct in all material respects as of such time, except to the extent
the same expressly relate to an earlier date;
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(b) the Company shall be in full compliance with all of the
terms and conditions of this Agreement and of the other Loan
Documents, and no Default or Event of Default shall have occurred and
be continuing or would occur as a result of making such extension of
credit;
(c) after giving effect to such extension of credit the aggregate
principal amount of all Loans and Letters of Credit outstanding under
this Agreement (which, in the case of Letters of Credit payable in an
Available Foreign Currency, means the U.S. Dollar Equivalent thereof as
determined pursuant to Section 1.3(g) hereof) shall not exceed the
Revolving Credit Commitments; and
(d) such extension of credit shall not violate any order, judgment
or decree of any court or other authority or any provision of law or
regulation applicable to the Administrative Agent or any Lender
(including, without limitation, Regulation U of the Board of Governors
of the Federal Reserve System) as then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the foregoing effects.
Section 7.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
(a) the Administrative Agent shall have received the following for
the account of the Lenders (each to be properly executed and completed)
and the same shall have been approved as to form and substance by the
Administrative Agent:
(i) the Notes;
(ii) the Collateral Documents, together with any financing
statements requested by the Administrative Agent in connection
therewith;
(iii) a mortgagee's policy of title insurance (or binding
commitment therefor) for the California Mortgage in the amount of
$15,000,000 insuring the lien of the California Mortgage to be a
valid first lien subject to no defects or objections which are
unacceptable to the Administrative Agent, together with such direct
access reinsurance agreements and endorsements (including without
limitation a comprehensive endorsement and revolving credit
endorsement) as the Administrative Agent may require;
(iv) an ALTA survey prepared by a licensed surveyor of the Los
Angeles, California real estate subject to the lien of the
California Mortgage;
(v) copies (executed or certified, as may be appropriate) of
all legal documents or proceedings taken in connection with the
execution and delivery of this Agreement and the other Loan
Documents to the extent the Administrative Agent or its counsel may
reasonably request;
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(vi) an incumbency certificate containing the name, title
and genuine signatures of each of the Company's Authorized
Representatives;
(vii) evidence of insurance required by Section 8.4 hereof;
and
(viii) except to the extent waived in writing by the
Administrative Agent, landlords' lien waivers in connection with
the Property of the Company located in leased premises.
(b) the Administrative Agent shall have received for itself and
for the Lenders the initial fees called for hereby;
(c) legal matters incident to the execution and delivery of this
Agreement and the other Loan Documents and to the transactions
contemplated hereby shall be satisfactory to each Lender and its
counsel; and the Administrative Agent shall have received for the
account of the Lenders the favorable written opinion of counsel for
the Company in form and substance satisfactory to the Lender and its
counsel;
(d) the Administrative Agent shall have received for the account
of the Lenders a good standing certificate for the Company (dated as
of the date no earlier than thirty (30) days prior to the date
hereof) from the office of the secretary of state of the state of its
incorporation and in the case of the Company, from the office of the
secretary of the state of Illinois;
(e) the Liens granted to the Administrative Agent under the
Collateral Documents shall have been perfected in a manner
satisfactory to each Lender and its counsel; and
(f) the Administrative Agent shall have received for the account
of the Lenders such other agreements, instruments, documents,
certificates and opinions as the Administrative Agent or the Lenders
may reasonably request.
Section 7.3. Prior Credit Agreement. The proceeds of such initial Loan shall
be used to refinance in full all outstanding loans, both principal and interest,
and all other amounts owing by the Company (other than amounts due in respect of
the Existing L/Cs) under that certain Amended and Restated Credit Agreement
between the Company and the Lenders currently party hereto dated as of February
1, 1993, as amended ("Prior Credit Agreement"). Such Lenders and the Company
agree that concurrently with such initial Loan, the Prior Credit Agreement shall
terminate and all loans and other amounts outstanding thereunder (other than
amounts due in respect of the Existing L/Cs) shall be due and payable.
SECTION 8. COVENANTS.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Required Lenders:
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Section 8.1. Maintenance of Business. The Company shall, and shall cause
each Material Subsidiary to, preserve and maintain its existence. The Company
shall, and shall cause each Material Subsidiary to, preserve and keep in force
and effect all licenses, permits and franchises necessary to the proper conduct
of its business except where the failure to maintain such license, permit or
franchise would not have a Material Adverse Effect.
Section 8.2. Maintenance of Properties. The Company shall maintain, preserve
and keep its property, plant and equipment in all material respects in good
repair, working order and condition (ordinary wear and tear excepted) and shall
from time to time make all needful and proper repairs, renewals, replacements,
additions and betterments thereto so that at all times the efficiency thereof
shall be fully preserved and maintained in all material respects, and shall
cause each Material Subsidiary to do so in respect of Property owned or used by
it.
Section 8.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 8.4. Insurance. The Company shall insure and keep insured, and shall
cause each Subsidiary to insure and keep insured, with reputable and responsible
insurance companies, its merchandise inventory, its art, the Company's so-called
Los Angeles County California mansion and all other insurable Property owned by
it which is of a character usually insured by publishing or entertainment
companies to the extent operating like Properties against loss or damage from
such hazards and risks, and in such amounts, as are insured by such types of
companies to the extent operating like Properties (provided, however, that the
Company and its Subsidiaries may self-insure against all on any part of such
hazards and risks, their editorial and photographic material, the Company's so-
called film library and all their other similar assets in each case in such
amounts as are reasonably and in good faith determined as adequate by the
Company); and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with reputable and responsible insurance companies as and to the extent
usually insured (subject to self-insurance retentions in such amounts as are
common or would be reasonable among publishing or entertainment companies to the
extent conducting similar businesses) by such types of companies to the extent
conducting similar businesses. The Company shall in any event maintain insurance
on the Collateral to the extent required by the Collateral Documents. The
Company shall upon request furnish to the Administrative Agent and any Lender a
certificate setting forth in summary form the nature and extent of the insurance
maintained pursuant to this Section.
Section 8.5. Financial Reports. The Company shall, and shall cause each
Material Subsidiary to, maintain a standard system of accounting in accordance
with GAAP and shall furnish to the Administrative Agent, each Lender and each of
their duly authorized representatives such information respecting the business
and financial condition of the
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Company and its Subsidiaries as the Administrative Agent or such Lender may
reasonably request; and without any request, shall furnish to the Lenders:
(a) as soon as available, and in any event within sixty (60)
days after the close of each quarterly accounting period of the
Company, a copy of the consolidated balance sheet of the Company and
its Subsidiaries as of the last day of such period and the
consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for the period and for the fiscal
year-to-date period then ended, each in reasonable detail showing in
comparative form the figures for the corresponding date and period in
the previous fiscal year, prepared by the Company in accordance with
GAAP and certified to by the chief financial officer of the Company;
(b) as soon as available, and in any event within ninety (90)
days after the close of each annual accounting period of the Company,
a copy of the consolidated balance sheet of the Company and its
Subsidiaries as of the last day of the period then ended and the
consolidated statements of income, retained earnings and cash flows
of the Company and its Subsidiaries for the period then ended, and
accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year,
accompanied by an unqualified opinion thereon of Coopers & Lybrand or
another firm of independent public accountants of recognized national
standing, selected by the Company and satisfactory to the Required
Lenders, to the effect that the financial statements have been
prepared in accordance with GAAP and present fairly in accordance
with GAAP the consolidated financial condition of the Company and its
Subsidiaries as of the close of such fiscal year and the results of
their operations and cash flows for the fiscal year then ended and
that an examination of such accounts in connection with such
financial statements has been made in accordance with generally
accepted auditing standards and, accordingly, such examination
included such tests of the accounting records and such other auditing
procedures as were considered necessary in the circumstances; and
(c) to the extent requested by any Lender, any additional
written reports, management letters or other detailed information
contained in writing concerning significant aspects of the Company's
or any Subsidiary's operations and financial affairs given to it by
its independent public accountants;
(d) as soon as available, and in any event within ninety (90)
days after the commencement of each fiscal year of the Company, a
copy of the business and financial plan for the Company and its
Subsidiaries for such fiscal year, month-by-month, together with such
supporting schedules and details as the Required Lenders may
reasonably request, but in any event including projected cash flow
(including details of cash receipts and disbursements in
substantially the same form as heretofore furnished under the Prior
Credit Agreement to the Lenders) and a projected income statement in
each case for the following twelve (12) months;
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(e) promptly after the sending or filing thereof, copies of all
proxy statements, financial statements and reports which the Company
sends to its shareholders, and copies of all other regular, periodic
and special reports and all registration statements which the Company
files with the SEC or any successor thereto, or with any national
securities exchange; and
(f) promptly after knowledge thereof shall have come to the
attention of any responsible officer of the Company, written notice of
any threatened or pending litigation or governmental proceeding or
labor controversy against the Company or any Subsidiary which, if
adversely determined, would have a Material Adverse Effect or result
in the occurrence of any Default or Event of Default.
Each of the financial statements furnished to the Lenders pursuant to
subsections (a) and (b) of this Section 8.5 shall be accompanied by a written
certificate in the form attached hereto as Exhibit B signed by the chief
financial officer of the Company to the effect that to the best of the chief
financial officer's knowledge and belief no Default or Event of Default has
occurred during the period covered by such statements or, if any such Default or
Event of Default has occurred during such period, setting forth a description of
such Default or Event of Default and specifying the action, if any, taken by the
Company to remedy the same. Such certificate shall also set forth the
calculations supporting such statements in respect of Sections 8.7, 8.8 and 8.9
of this Agreement.
Section 8.6. Inspection. The Company shall, and shall cause each Subsidiary
to, permit the Administrative Agent, each Lender and each of their duly
authorized representatives and agents to visit and inspect any of the
Properties, corporate books and financial records of the Company and each
Subsidiary, to examine and make copies of the books of accounts and other
financial records of the Company and each Subsidiary, and to discuss the
affairs, finances and accounts of the Company and each Subsidiary with, and to
be advised as to the same by, its officers and independent public accountants
(and by this provision the Company hereby authorizes such accountants to discuss
with the Administrative Agent and such Lenders the finances and affairs of the
Company and of each Subsidiary) at such reasonable times and reasonable
intervals as the Administrative Agent or any such Lender may designate. The
Lenders acknowledge that Subsidiaries other than the Material Subsidiaries may
not maintain any such books or records.
Section 8.7. Net Worth. Intentionally omitted.
Section 8.8. Leverage Ratio. Intentionally omitted.
Section 8.9. Cash Flow Coverage Ratio. Intentionally omitted.
Section 8.10. Indebtedness for Borrowed Money. The Company shall not, nor
shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
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(a) the Obligations of the Company owing to the Administrative Agent
and the Lenders hereunder;
(b) currently outstanding unsecured term loan evidenced by that certain
Sarah Coventry Note provided such loan aggregates not more than $1,300,000,
bears interest prior to maturity at not more than 10% per annum and
amortizes in substantially equal installments over a period ending no
earlier than in October of 1998;
(c) purchase money indebtedness secured by Liens permitted by Section
8.11(e) hereof in an aggregate amount not to exceed $100,000 at any one
time outstanding;
(d) Capitalized Lease Obligations secured by Liens permitted by Section
8.11(e) hereof in an aggregate amount not to exceed $500,000 at any one
time outstanding; and
(e) Subordinated Debt aggregating not more than $20,000,000; and
(f) indebtedness not otherwise permitted by this Section aggregating
not more than $2,000,000 at any one time outstanding.
Section 8.11. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's compensation,
unemployment insurance, old age benefits, social security obligations,
taxes, assessments, statutory obligations or other similar charges, good
faith cash deposits in connection with tenders, contracts or leases to
which the Company or any Subsidiary is a party or other cash deposits
required to be made in the ordinary course of business, provided in each
case that the obligation is not for borrowed money and that the obligation
secured is not overdue or, if overdue, is being contested in good faith by
appropriate proceedings which prevent enforcement of the matter under
contest and adequate reserves have been established therefor;
(b) mechanics', workmen's, materialmen's, landlords', warehousemen's,
carriers', or other similar Liens arising in the ordinary course of
business with respect to obligations which are not due or which are being
contested in good faith by appropriate proceedings which prevent
enforcement of the matter under contest;
(c) the pledge of assets for the purpose of securing an appeal, stay or
discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted
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under this subsection, including interest and penalties thereon, if any,
shall not be in excess of $250,000 at any one time outstanding;
(d) the Liens granted in favor of the Administrative Agent for the
benefit of the Lenders pursuant to the Collateral Documents;
(e) Liens on Property of the Company or any of its Subsidiaries created
solely for the purpose of securing indebtedness permitted by Section 8.10(b)
hereof, representing or incurred to finance, refinance or refund the
purchase price of Property, provided that no such Lien shall extend to or
cover other Property of the Company or such Subsidiary other than the
respective Property so acquired, and the principal amount of indebtedness
secured by any such Lien shall at no time exceed the original purchase price
of such Property; and
(f) Liens on any Property existing at the time of acquisition thereof by
the Company or any Subsidiary and not created in contemplation of such
acquisition provided (i) such Lien is and will remain confined to the same
Property subject thereto at the time such Property is acquired and (ii) such
Lien secures only the obligations secured thereby at the time such Property
is acquired; and
Section 8.12. Investments, Acquisitions, Loans, Advances and Guaranties.
The Company shall not, nor shall it permit any Subsidiary to, directly or
indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances and other similar cash advances made to employees in
the ordinary course of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person or division
thereof, or be or become liable as endorser, guarantor, surety or otherwise for
any debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of another, or subordinate any claim or demand it may have to the
claim or demand of any other Person (cumulatively, all of the foregoinq
prohibited acts being herein collectively called "Investments"); provided,
however, that the foregoing shall not apply to nor operate to prevent:
(a) investments in direct obligations of the United States of America or
of any agency or instrumentality thereof whose obligations constitute full
faith and credit obligations of the United States of America, provided that
any such obligations shall mature within one year of the date of issuance
thereof;
(b) investments in commercial paper rated at least P-1 by Moody's
Investors Services, Inc. and at least A-1 by Standard & Poor's Corporation
maturing within 270 days of the date of issuance thereof;
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(c) investments in certificates of deposit issued by any United States
commercial bank having capital and surplus of not less than $100,000,000
which have a maturity of one year or less;
(d) endorsement of items for deposit or collection of commercial paper
received in the ordinary course of business; and
(e) currently outstanding investments in present Subsidiaries;
(f) the Company's existing guaranty of obligations of Playboy
Entertainment Group, Inc. under its December 31, 1992 Lease Agreement with
General Electric Credit Corporation;
(g) the currently existing guaranty by the Company of the 10%
Subordinated Note of Lifestyle Brands, Ltd. dated June 28, 1993 payable to
Seaward & Co. (the "Sarah Coventry Note") provided the aggregate amount so
guaranteed does not at any time exceed $1,750,000;
(h) the investment of the Company and Playboy Entertainment Group, Inc.
in Playboy TV UK/Benelux Limited, a company incorporated under the laws of
the United Kingdom, and in related licensing arrangements provided the
amount so invested aggregates not more than $400,000 on a cumulative basis
after January 1, 1995;
(i) investments in Playboy Gaming Greece, Ltd. provided the amount so
invested aggregates not more than $1,500,000 at any one time outstanding;
(j) investments by Critics Choice Video, Inc. in licensing arrangements
with Metro-Golden-Mayer Studios to permit such Subsidiary's sale MGM-branded
products provided the aggregate amount expended for such investments does
not exceed $1,600,000 for each year during which such licensing arrangements
are in effect; and
(k) investments, loans, advances and guaranties not otherwise permitted
by this Section 8.12 aggregating not more than $500,000 at any time
outstanding.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 8.12, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.
Section 8.13. Mergers, Consolidations and Sales. The Company shall not, nor
shall it permit any Subsidiary to, be a party to any merger or consolidation, or
sell, transfer, lease or otherwise dispose of all or any substantial part of its
Property, including any disposition of Property as part of a sale and leaseback
transaction, or in any event sell or discount (with or without recourse) any of
its notes or accounts receivable; provided, however, that this
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Section 8.13 shall not apply to nor operate to prevent the Company or any
Subsidiary from selling its inventory in the ordinary course of its business.
The term "substantial" as used herein shall mean ten percent (10%) of Net Worth.
Section 8.14. Maintenance of Subsidiaries. The Company shall not assign,
sell or transfer, or permit any Subsidiary to issue, assign, sell or transfer,
any shares of capital stock of a Subsidiary; provided that the foregoing shall
not operate to prevent the issuance, sale and transfer to any person of any
shares of capital stock of a Subsidiary solely for the purpose of qualifying,
and to the extent legally necessary to qualify, such person as a director of
such Subsidiary.
Section 8.15. Dividends and Certain Other Restricted Payments. The Company
will not during any fiscal year (a) declare or pay any dividends on or make any
other distributions in respect of any class or series of its capital stock
(other than dividends payable solely in its capital stock) or (b) directly or
indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock.
Section 8.16. ERISA. The Company shall, and shall cause each Subsidiary to,
promptly pay and discharge all obligations and liabilities arising under ERISA
of a character which if unpaid or unperformed might result in the imposition of
a Lien against any of its Properties. The Company shall, and shall cause each
Subsidiary to, promptly notify the Administrative Agent and each Lender of (i)
the occurrence of any reportable event (as defined in ERISA) with respect to a
Plan, (ii) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor, (iii) its
intention to terminate or withdraw from any Plan, and (iv) the occurrence of any
event with respect to any Plan which would result in the incurrence by the
Company or any Subsidiary of any material liability, fine or penalty, or any
material increase in the contingent liability of the Company or any Subsidiary
with respect to any post-retirement Welfare Plan benefit.
Section 8.17. Compliance with Laws. The Company shall, and shall cause each
Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a Material Adverse Effect or could result in a Lien upon any of their
Property.
Section 8.18. Burdensome Contracts With Affiliates. The Company shall not,
nor shall it permit any Subsidiary to, enter into any contract, agreement or
business arrangement with any of its Affiliates (other than with Wholly-Owned
Subsidiaries) on terms and conditions which are less favorable to the Company or
such Subsidiary than would be usual and customary in similar contracts,
agreements or business arrangements between Persons not affiliated with each
other.
Section 8.19. No Changes in Fiscal Year. Neither the Company nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Required Lenders.
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Section 8.20. Change in the Nature of Business. The Company shall not, and
shall not permit any Subsidiary to, engage in any business or activity if as a
result the general nature of the business of the Company or any Subsidiary would
be changed in any material respect from the general nature of the business
engaged in by the Company or such Subsidiary on the date of this Agreement.
Section 8.21. Flextech Territory. Neither the Company nor Playboy
Entertainment Group, Inc. shall without the prior written of the Required
Lenders, expand the Territory subject to their Programme Supply Agreement dated
January 12, 1995 with Playboy TV UK/Benelux Limited beyond the United Kingdom,
the Republic of Ireland, Northern Ireland, Belgium, The Netherlands and
Luxembourg.
Section 8.22. Existing Deed of Trust. Within sixty (60) days of the date
hereof, the Company (i) shall either (a) cause to be discharged that certain
Deed of Trust from HMH Publishing Co., Inc., a Delaware corporation, to Title
Insurance and Trust Company, a California corporation, in trust for the benefit
of Louis D. Statham dated February 1, 1971 and recorded on February 11, 1971
with the Los Angeles County, California Recorder's Office as Instrument Number
160 (the "Existing Deed of Trust"), which Existing Deed of Trust encumbers the
Company's so-called Los Angeles County, California mansion, or (b) furnish
Chicago Title Insurance Company (the "Title Company") with such security or
indemnity as the Title Company requires in order to insure the Bank over and
against the Existing Deed of Trust, and (ii) shall deliver to the Bank an
endorsement to the mortgagee's policy of title insurance provided pursuant to
Section 7.2(a)(iii) hereof removing the Existing Deed of Trust as an exception
to the Bank's coverage under said policy. Failure to comply with the terms of
this Section shall constitute an Event of Default hereunder.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
Section 9.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of the principal
of or interest on any Note (whether at the stated maturity thereof or at any
other time provided for in this Agreement) or of any reimbursement
obligation owing under any Application or of any fee or other Obligation
payable by the Company hereunder or under any other Loan Document, in each
case which default is not remedied within three (3) days after written
notice thereof is given to the Company by the Administrative Agent or any
Lender; or
(b) default in the observance or performance of any covenant set forth
in Sections 8.13, 8.14, 8.15 or 8.21 hereof or of any provision of any Loan
Document requiring the maintenance of insurance on the Collateral subject
thereto or dealing with the use or remittance of proceeds of Collateral
(provided, however, that the inadvertent lapse of an insurance policy on the
Collateral shall not constitute an Event of Default hereunder if such lapse
is cured no later than the third Business Day following the date of the
Company's first knowledge thereof); or
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(c) default in the observance or performance of any covenant set forth
in Sections 8.7, 8.8 or 8.9 hereof which is not remedied within fifteen (15)
days after the earlier of (i) the date on which such failure shall first
become known to any officer of the Company or (ii) written notice thereof is
given to the Company by the Administrative Agent or any Lender; or
(d) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within thirty
(30) days after the earlier of (i) the date on which such failure shall
first become known to any officer of the Company or (ii) written notice
thereof is given to the Company by the Administrative Agent or any Lender;
or
(e) any representation or warranty made by the Company herein or in any
other Loan Document, or in any statement or certificate furnished by it
pursuant hereto or thereto, or in connection with any extension of credit
made hereunder, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(f) any event occurs or condition exists (other than those described in
subsections (a) through (e) above) which is specified as an event of default
under any of the other Loan Documents, or any of the Loan Documents shall
for any reason not be or shall cease to be in full force and effect, or any
of the Loan Documents is declared to be null and void, or any of the
Collateral Documents shall for any reason fail to create a valid and
perfected first priority Lien in favor of the Administrative Agent in any
Collateral purported to be covered thereby except as expressly permitted by
the terms thereof or as a result of the inadvertent lapse of the
effectiveness of any Collateral Document not appropriately continued of
public record (provided the Company cooperates in reinstating to the extent
possible the effectiveness of such Collateral Document); or
(g) default shall occur under any Indebtedness for Borrowed Money
aggregating in excess of $500,000 issued, assumed or guaranteed by the
Company or any Subsidiary or under any indenture, agreement or other
instrument under which the same may be issued, and such default shall
continue for a period of time sufficient to permit the acceleration of the
maturity of any such Indebtedness for Borrowed Money (whether or not such
maturity is in fact accelerated) or any such Indebtedness for Borrowed Money
shall not be paid when due (whether by lapse of time, acceleration or
otherwise); or
(h) any judgment or judgments, writ or writs, or warrant or warrants of
attachment, or any similar process or processes in an aggregate amount in
excess of $1,000,000 shall be entered or filed against the Company or any
Subsidiary or against any of their Property and which remains unvacated,
unbonded, unstayed or unsatisfied for a period of thirty (30) days; or
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(i) the Company or any member of its Controlled Group shall fail to pay
when due an amount or amounts aggregating in excess $1,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $1,000,000 (collectively, a
"Material Plan") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days thereafter;
or a condition shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any Material Plan must be terminated; or
(j) dissolution or termination of the existence of the Company or any
Material Subsidiary; or
(k) the occurrence of a Change of Control; or
(l) the Company or any Subsidiary shall (i) have entered involuntarily
against it an order for relief under the United States Bankruptcy Code, as
amended, (ii) not pay, or admit in writing its inability to pay, its debts
generally as they become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any substantial part of its Property, (v)
institute any proceeding seeking to have entered against it an order for
relief under the United States Bankruptcy Code, as amended, to adjudicate it
insolvent, or seeking dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors or
fail to file an answer or other pleading denying the material allegations of
any such proceeding filed against it, or (vi) fail to contest in good faith
any appointment or proceeding described in Section 9.1(m) hereof; or
(m) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any Subsidiary or any
substantial part of any of their Property, or a proceeding described in
Section 9.1(1)(v) shall be instituted against the Company or any Subsidiary,
and such appointment continues undischarged or such proceeding continues
undismissed or unstayed for a period of sixty (60) days.
Section 9.2. Non-Bankruptcy Defaults. When any Event of Default described in
subsection (a) through (k), both inclusive, of Section 9.1 has occurred and is
continuing, the Administrative Agent shall, upon the request of the Required
Lenders, by notice to the Company, take one or more of the following actions:
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(a) terminate the obligations of the Lenders to extend any further
credit hereunder on the date (which may be the date thereof) stated in such
notice;
(b) declare the principal of and the accrued interest on the Notes to be
forthwith due and payable and thereupon the Notes, including both principal
and interest and all fees, charges and other Obligations payable hereunder
and under the other Loan Documents, shall be and become immediately due and
payable without further demand, presentment, protest or notice of any kind;
and
(c) enforce any and all rights and remedies available to it under the
Loan Documents or applicable law.
Section 9.3. Bankruptcy Defaults. When any Event of Default described in
subsection (1) or (m) of Section 9.1 has occurred and is continuing, then the
Notes, including both principal and interest, and all fees, charges and other
Obligations payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligations of the Lenders to extend further credit
pursuant to any of the terms hereof shall immediately terminate. In addition,
the Administrative Agent may exercise any and all remedies available to it under
the Loan Documents or applicable law.
Section 9.4. Collateral for Undrawn Letters of Credit. When any Event of
Default, other than an Event of Default described in subsection (1) or (m) of
Section 9.1, has occurred and is continuing, the Company shall, upon demand of
the Administrative Agent (which demand shall be made upon the request of the
Required Lenders), and when any Event of Default described in subsection (1) or
(m) of Section 9.1(h) has occurred the Company shall, without notice or demand
from the Administrative Agent, immediately pay to the Administrative Agent the
full amount of each Letter of Credit then outstanding, the Company agreeing to
immediately make such payment and acknowledging and agreeing that the
Administrative Agent and the Lenders would not have an adequate remedy at law
for failure of the Company to honor any such demand and that the Administrative
Agent and the Lenders shall have the right to require the Company to
specifically perform such undertaking whether or not any draws have been made
under any such Letters of Credit. As an alternative to making such payment, the
Company may at its option provide the Administrative Agent an irrevocable clean
letter of credit on which the Administrative Agent can draw in the full amount
of the payment for which the Company is exercising such option, such letter of
credit to be issued by a commercial bank, and to be on terms and conditions, in
each case acceptable to the Lenders in their discretion.
SECTION 10. THE ADMINISTRATIVE AGENT.
Section 10.1. Appointment and Authorization. Each Lender hereby appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers hereunder and under the other Loan Documents
as are designated to the Administrative Agent by the terms hereof and thereof
together with such powers as are reasonably incidental thereto. The
Administrative Agent may resign at any time by sending
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twenty (20) days prior written notice to the Company and the Lenders and may be
removed by the Required Lenders upon twenty (20) days prior written notice to
the Company, the Administrative Agent and the Lenders. In the event of any such
resignation or removal, the Co-Agent shall act as Administrative Agent, but if
the Co-Agent has previously resigned, the Required Lenders may appoint a new
agent after consultation with the Company, which shall succeed to all the
rights, powers and duties of the Administrative Agent hereunder and under the
other Loan Documents; provided, however, that if such new agent is not a Lender
under this Agreement, the Company shall have consented (which consent shall not
be unreasonably withheld) to such new agent. Any resigning or removed
Administrative Agent shall be entitled to the benefit of all the protective
provisions hereof with respect to its acts as an agent hereunder, but no
successor Administrative Agent shall in any event be liable or responsible for
any actions of its predecessor. If the Administrative Agent resigns or is
removed and no successor is appointed, the rights and obligations of such
Administrative Agent shall be automatically assumed by the Required Lenders and
(i) the Company shall be directed to make all payments due each Lender hereunder
directly to such Lender and (ii) the Administrative Agent's rights in the
Collateral Documents shall be assigned without representation, recourse or
warranty to the Lenders as their interests may appear.
Section 10.2. Rights as a Lender. The Administrative Agent has and reserves
all of the rights, powers and duties hereunder and under the other Loan
Documents as any Lender may have and may exercise the same as though it were not
the Administrative Agent and the terms "Lender" or "Lenders" as used herein and
in all of such documents shall, unless the context otherwise expressly
indicates, include the Administrative Agent in its individual capacity as a
Lender.
Section 10.3. Standard of Care. The Lenders acknowledge that they have
received and approved copies of the Loan Documents and such other information
and documents concerning the transactions contemplated and financed hereby as
they have requested to receive and/or review. The Administrative Agent makes no
representations or warranties of any kind or character to the Lenders with
respect to the validity, enforceability, genuineness, perfection, value, worth
or collectibility hereof or of the Notes or any of the other Obligations or of
any of the other Loan Documents or of the Liens provided for thereby or of any
other documents called for hereby or thereby or of the Collateral. The
Administrative Agent need not verify the worth or existence of the Collateral
and may rely exclusively on reports of the Company regarding its financial
condition and Properties, provided that the Administrative Agent agrees to
furnish the Lenders with copies of any field audit reports made in connection
with inspections which it may make pursuant to Sections 3.1 or 8.6 hereof but
the Administrative Agent makes no representations or warranties of any kind in
connection therewith nor shall the Administrative Agent have any liability in
connection therewith except for its own gross negligence or willful misconduct.
The Administrative Agent is not a fiduciary for the Lenders. Neither the
Administrative Agent nor any director, officer, employee, agent or
representative thereof (including any security trustee therefor) shall in any
event be liable for any clerical errors or errors in judgment, inadvertence or
oversight, or for action taken or omitted to be taken by it or them hereunder or
under the other Loan Documents or in connection herewith or therewith except for
its or their own gross negligence or willful misconduct. The Administrative
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Agent shall incur no liability under or in respect of this Agreement or the
other Loan Documents by acting upon any notice, certificate, warranty,
instruction or statement (oral or written) of anyone (including anyone in good
faith believed by it to be authorized to act on behalf of the Company), unless
it has actual knowledge of the untruthfulness of same. The Administrative Agent
may execute any of its duties hereunder by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders for the default or
misconduct of any such agents or attorneys-in-fact selected with reasonable
care. The Administrative Agent shall be entitled to advice of counsel concerning
all matters pertaining to the agencies hereby created and its duties hereunder,
and shall incur no liability to anyone and be fully protected in acting upon the
advice of such counsel. The Administrative Agent shall be entitled to assume
that no Default or Event of Default exists unless notified to the contrary by a
Lender. The Administrative Agent shall in all events be fully protected in
acting or failing to act in accord with the instructions of the Required
Lenders. Upon the occurrence of an Event of Default hereunder, the
Administrative Agent shall take such action with respect to the enforcement of
the Liens on the Collateral and the preservation and protection thereof as it
shall be directed to take by the Required Lenders but unless and until the
Required Lenders have given such direction the Administrative Agent shall take
or refrain from taking such actions as it deems appropriate and in the best of
interest of all Lenders. The Administrative Agent shall in all cases be fully
justified in failing or refusing to act hereunder unless it shall be indemnified
to its satisfaction by the Lenders against any and all liability and expense
which may be incurred by the Administrative Agent by reason of taking or
continuing to take any such action. The Administrative Agent may treat the owner
of any Note as the holder thereof until written notice of transfer shall have
been filed with the Administrative Agent signed by such owner in form
satisfactory to the Administrative Agent. Each Lender acknowledges that it has
independently and without reliance on the Administrative Agent or any other
Lender and based upon such information, investigations and inquiries as it deems
appropriate made its own credit analysis and decision to extend credit to the
Company. It shall be the responsibility of each Lender to keep itself informed
as to the creditworthiness of the Company and the Administrative Agent shall
have no liability to any Lender with respect thereto.
Section 10.4. Costs and Expenses. Each Lender agrees to reimburse the
Administrative Agent for all reasonable costs and expenses suffered or incurred
by the Administrative Agent or any security trustee in performing its duties
hereunder and under the other Loan Documents, or in the exercise of any right or
power imposed or conferred upon the Administrative Agent hereby or thereby, to
the extent that the Administrative Agent is not promptly reimbursed for same by
the Company or out of the Collateral, all such costs and expenses to be borne by
the Lenders ratably in accordance with the amounts of their respective
Commitments. If any Lender fails to reimburse the Administrative Agent for such
Lender's share of any such costs and expenses, such costs and expenses shall be
paid pro rata by the remaining Lenders, but without in any manner releasing the
defaulting Lender from its liability hereunder.
Section 103. Indemnity. The Lenders shall ratably indemnify and hold the
Administrative Agent, and its directors, officers, employees, agents and
representatives (including as such any security trustee therefor) harmless from
and against any liabilities,
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losses, costs and expenses suffered or incurred by them hereunder or under the
other Loan Documents or in connection with the transactions contemplated hereby
or thereby, regardless of when asserted or arising, except to the extent they
are promptly reimbursed for the same by the Company or out of the Collateral and
except to the extent that any event giving rise to a claim was caused by the
gross negligence or willful misconduct of the party seeking to be indemnified.
If any Lender defaults in its obligations hereunder, its share of the
obligations shall be paid pro rata by the remaining Lenders, but without in any
manner releasing the defaulting Lender from its liability hereunder.
Section 10.6. Co-Agent. Nothing in this Agreement shall impose any
obligation on LaSalle National Bank in its capacity as Co-Agent hereunder other
than to furnish the Administrative Agent with the information necessary to
compute the Domestic Rate, as set forth in the definition of such term.
SECTION 11. MISCELLANEOUS.
Section 11.1. Non-Business Days. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section 11.2. No Waiver, Cumulative Remedies. No delay or failure on the
part of any Lender or on the part of any holder of any of the Obligations in the
exercise of any power or right shall operate as a waiver thereof or as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof or the exercise of
any other power or right. The rights and remedies hereunder of the Lenders and
any of the holders of the Obligations are cumulative to, and not exclusive of,
any rights or remedies which any of them would otherwise have.
Section 11.3. Waivers, Modifications and Amendments. Any provision hereof or
of any of the other Loan Documents may be amended, modified, waived or released
and any Default or Event of Default and its consequences may be rescinded and
annulled upon the written consent of the Required Lenders; provided, however,
that without the consent of all Lenders no such amendment, modification or
waiver shall increase the amount or extend the terms of any Lender's Commitment
or reduce the interest rate applicable to or extend the maturity of any
Obligation owed to it or reduce the amount of the fees to which it is entitled
hereunder or release any substantial (in value) part of the collateral security
afforded by the Collateral Documents (except in connection with a sale or other
disposition required to be effected by the provisions hereof or of the
Collateral Documents) or change this Section 11.3 or change the definition of
"Required Lenders" or change the number of Lenders required to take any action
hereunder or under any of the other Loan Documents. No amendment, modification
or waiver of the Administrative Agent's protective provisions shall be effective
without the prior written consent of the Administrative Agent.
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<PAGE>
Section 11.4. Costs and Expenses. The Company agrees to pay on demand the
reasonable costs and expenses of the Administrative Agent in connection with the
negotiation, preparation, execution and delivery of this Agreement, the other
Loan Documents and the other instruments and documents to be delivered hereunder
or thereunder, and in connection with the recording or filing of any of the
foregoing, and in connection with the transactions contemplated hereby or
thereby, and in connection with any consents hereunder or waivers or amendments
hereto or thereto, including the fees and expenses of Messrs. Chapman and
Cutler, counsel for the Administrative Agent, with respect to all of the
foregoing (whether or not the transactions contemplated hereby are consummated).
The Company further agrees to pay to Administrative Agent and the Lenders and
any other holders of the Obligations all costs and expenses (including court
costs and reasonable attorneys' fees), if any, incurred or paid by the
Administrative Agent, the Lenders or any other holders of the Obligations in
connection with any Default or Event of Default or in connection with the
enforcement of this Agreement or any of the other Loan Documents or any other
instrument or document delivered hereunder or thereunder. The Company further
agrees to indemnify and save the Lenders, the Administrative Agent and any
security trustee for the Lenders harmless from any and all liabilities, losses,
costs and expenses incurred by the Lenders or the Administrative Agent in
connection with any action, suit or proceeding brought against the
Administrative Agent, or any security trustee or any Lender by any Person (but
excluding attorneys' fees for litigation solely between the Lenders to which the
Company is not a party) which arises out of the transactions contemplated or
financed hereby or out of any action or inaction by the Administrative Agent,
any security trustee or any Lender hereunder or thereunder, except for such
thereof as is caused by the gross negligence or willful misconduct of the party
seeking to be indemnified. The provisions of this Section 11.4 and the
protective provisions of Section 2 hereof shall survive payment of the
Obligations.
Section 11.5. Documentary Taxes. The Company agrees to pay on demand any
documentary, stamp or similar taxes payable in respect of this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 11.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 11.7. Survival of Indemnities. All indemnities and other provisions
relative to reimbursement to the Administrative Agent and the Lenders of amounts
sufficient to protect the yield of the Administrative Agent and the Lenders with
respect to the Loans and Letters of Credit, including, but not limited to,
Sections 1.3, 2.7 and 2.9 hereof, shall survive the termination of this
Agreement and the payment of the Obligations.
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<PAGE>
Section 11.8. Participations. Any Lender may grant participations in its
extensions of credit hereunder to any other Lender or other lending institution
(a "Participant"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement, (ii) no Lender shall agree with a
Participant not to exercise any of such Lender's rights hereunder without the
consent of such Participant except for rights which under the terms hereof may
only be exercised by all Lenders and (iii) no sale of a participation in
extensions of credit shall in any manner relieve the selling Lender of its
obligations hereunder.
Section 11.9. Assignment Agreements. Each Lender may, from time to time
upon at least five (5) Business Days' prior written notice to the Administrative
Agent, assign to other commercial lenders part of its rights and obligations
under this Agreement (including without limitation the indebtedness evidenced by
the Notes then owned by such assigning Lender, together with an equivalent
proportion of its Commitments to make Loans hereunder) pursuant to written
agreements executed by such assigning Lender, such assignee lender or lenders,
the Company and the Administrative Agent, which agreements shall specify in each
instance the portion of the indebtedness evidenced by the Notes which is to be
assigned to each such assignee lender and the portion of the Commitments of the
assigning Lender to be assumed by it (the "Assignment Agreements"); provided,
however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of the assigning Lender's rights and obligations under this
Agreement and the assignment shall cover the same percentage of such Lender's
Commitments, Loans, Notes and credit risk with respect to Letters of Credit;
(ii) unless the Administrative Agent otherwise consents, the aggregate amount of
the Commitments, Loans, Notes and credit risk with respect to Letters of Credit
of the assigning Lender being assigned pursuant to each such assignment
(determined as of the effective date of the relevant Assignment Agreement) shall
in no event be less than $5,000,000 and shall be an integral multiple of
$1,000,000; (iii) the Administrative Agent and the Company must each consent to
each such assignment to a party which was not an original signatory of this
Agreement; and (iv) the assigning Lender must pay to the Administrative Agent a
processing and recordation fee of $2,500 and any out-of-pocket attorneys' fees
and expenses incurred by the Administrative Agent in connection with such
Assignment Agreement. Upon the execution of each Assignment Agreement by the
assigning Lender thereunder, the assignee lender thereunder, the Company and the
Administrative Agent and payment to such assigning Lender by such assignee
lender of the purchase price for the portion of the indebtedness of the Company
being acquired by it, (i) such assignee lender shall thereupon become a "Lender"
for all purposes of this Agreement with Commitments in the amounts set forth in
such Assignment Agreement and with all the rights, powers and obligations
afforded a Lender hereunder, (ii) such assigning Lender shall have no further
liability for funding the portion of its Commitments assumed by such other
Lender and (iii) the address for notices to such assignee Lender shall be as
specified in the Assignment Agreement executed by it. Concurrently with the
execution and delivery of such Assignment Agreement, the Company shall execute
and deliver Notes to the assignee Lender in the respective amounts of its
Commitments under the Revolving Credit and new Notes to the assigning Lender in
the respective amounts of its Commitments under the Revolving Credit after
giving effect to the reduction occasioned by such assignment, all such Notes to
constitute "Notes" for all purposes of this Agreement and of the other Loan
Documents.
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<PAGE>
Section 11.10. Confidentiality. Each Lender agrees to maintain in confidence
and not to disclose without the Company's consent (other than to its employees,
affiliates, auditors, counsel or other professional advisors, or to another
Lender, each of which shall also be bound by this Section 11.10) any information
concerning the Company or any of its Subsidiaries furnished pursuant to this
Agreement and identified as confidential by the party so furnishing such
information; provided that any Lender may disclose any such information (a) that
has become generally available to the public, (b) if required or appropriate in
any report, statement or testimony submitted to any regulatory body having or
claiming to have jurisdiction over such Lender, (c) if required or appropriate
in response to any summons or subpoena or in connection with any litigation, (d)
in order to comply with any law, order, regulation or ruling applicable to such
Lender, or (e) to any prospective or actual participant under Sections 11.8 and
11.9 hereof in connection with any contemplated or actual transfer of a
participating interest in such Lender's rights or obligations hereunder;
provided, that (i) such actual or prospective transferee executes an agreement
with such Lender containing provisions substantially identical to those
contained in this Section 11.10 and (ii) in the case of any disclosure under
subsection (c) above, such Lender shall (to the extent permitted by applicable
law) notify the Company of such disclosure so that the Company may seek an
appropriate protective order or waive such Lender's compliance with the
provisions of this Section, it being understood that if the Company has no right
to obtain such a protective order or if the Company does not commence procedures
to obtain such a protective order within ten business days of the receipt of
such notice, such Lender's compliance with this Section shall be deemed to have
been waived with respect to such disclosure.
Section 11.11. Currency. Each reference in this Agreement to U.S. Dollars or
to an Available Foreign Currency (the "relevant currency") is of the essence. To
the fullest extent permitted by law, the obligation of the Company in respect of
any amount due in the relevant currency under this Agreement shall,
notwithstanding any payment in any other currency (whether pursuant to a
judgment or otherwise), be discharged only to the extent of the amount in the
relevant currency that the Agent or Lender entitled to such payment may, in
accordance with normal banking procedures, purchase with the sum paid in such
other currency (after any premium and costs of exchange) on the Business Day
immediately following the day on which such party receives such payment. If the
amount in the relevant currency that may be so purchased for any reason falls
short of the amount originally due, the Company shall pay such additional
amounts, in the relevant currency, as may be necessary to compensate for the
shortfall. Any obligations of the Company not discharged by such payment shall,
to the fullest extent permitted by applicable law, be due as a separate and
independent obligation and, until discharged as provided herein, shall continue
in full force and effect.
Section 11.12. Currency Equivalence. If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due from the Company on
the Obligations in the currency expressed to be payable herein (the "specified
currency") into another currency, the parties agree that the rate of exchange
used shall be that at which in accordance with normal banking procedures the
Agent or Lender entitled to such payment could purchase the specified currency
with such other currency on the Business Day preceding that on which
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<PAGE>
final judgment is given. The obligation of such Company in respect of any such
sum due to the Agent or Lender on the Obligations shall, notwithstanding any
judgment in a currency other than the specified currency, be discharged only to
the extent that on the Business Day following receipt by the Agent or Lender of
any sum adjudged to be so due in such other currency, the Agent or Lender
entitled to such payment may in accordance with normal banking procedures
purchase the specified currency with such other currency. If the amount of the
specified currency so purchased is less than the sum originally due to such
Agent or Lender in the specified currency, the Company agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify such Agent or
Lender against such loss, and if the amount of the specified currency so
purchased exceeds the amount originally due to such Agent or Lender in the
specified currency, such Agent or Lender agrees to remit such excess to the
Company.
Section 11.13. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable, telecopy or telex) and shall be
given to the relevant party at its address, telecopier number or telex number
set forth below, in the case of the Company, or on the appropriate signature
page hereof, in the case of the Lenders and the Administrative Agent, or such
other address, telecopier number or telex number as such party may hereafter
specify by notice to the Administrative Agent and the Company given by United
States certified or registered mail, by telecopy or by other telecommunication
device capable of creating a written record of such notice and its receipt.
Notices hereunder to the Company shall be addressed to:
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
Attention: David I. Chemerow
Executive Vice President and
Chief Financial Officer
Howard Shapiro
Executive Vice President
Law and Administration
Rebecca S. Maskey
Senior Vice President
Finance and Treasurer
Telephone: (312) 751-8000
Telecopy: (312) 751-2818
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by telex, when such telex is transmitted to the
telex number specified in this Section and the
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<PAGE>
answer back is received by sender, (iii) if given by mail, five (5) days after
such communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid or (iv) if given by any other means,
when delivered at the addresses specified in this Section; provided that any
notice given pursuant to Section 1 or Section 2 hereof shall be effective only
upon receipt.
Section 11.13. Construction. The parties hereto acknowledge and agree that
this Agreement and the other Loan Documents shall not be construed more
favorably in favor of one than the other based upon which party drafted the
same, it being acknowledged that all parties hereto contributed substantially to
the negotiation of this Agreement and the other Loan Documents. Nothing
contained herein shall be deemed or construed to permit any act or omission
which is prohibited by the terms of any of the other Loan Documents, the
covenants and agreements contained herein being in addition to and not in
substitution for the covenants and agreements contained in the other Loan
Documents.
Section 11.14. Headings. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
Section 11.15. Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. All rights, remedies and powers provided in this Agreement and the
other Loan Documents may be exercised only to the extent that the exercise
thereof does not violate any applicable mandatory provisions of law, and all the
provisions of this Agreement and the other Loan Documents are intended to be
subject to all applicable mandatory provisions of law which may be controlling
and to be limited to the extent necessary so that they will not render this
Agreement or the other Loan Documents invalid or unenforceable.
Section 11.16. Counterparts. This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterpart signature
pages, and all such counterparts taken together shall be deemed to constitute
one and the same instrument.
Section 11.17. Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Administrative Agent and the Lenders and the benefit of their
permitted successors and assigns, including any subsequent holder of an interest
in the Obligations. This Agreement and the rights and duties of the parties
hereto shall be governed by, and construed in accordance with, the internal laws
of the State of Illinois without regard to principles of conflicts of laws. The
Company may not assign its rights hereunder without the written consent of the
Lenders.
Section 11.18. Entire Understanding. This Agreement together with the other
Loan Documents constitute the entire understanding of the parties with respect
to the subject matter hereof and any prior agreements, whether written or oral,
with respect thereto are
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<PAGE>
superseded hereby except for prior understandings related to fees
payable to the Administrative Agent upon the initial closing of the
transactions contemplated hereby.
Section 11.19. Submission to Jurisdiction; Waiver of Jury Trial.
The Company hereby submits to the nonexclusive jurisdiction of the
United States District Court for the Northern District of Illinois
and of any Illinois State court sitting in the City of Chicago for
purposes of all legal proceedings arising out of or relating to this
Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum.
THE COMPANY, THE ADMINISTRATIVE AGENT, AND EACH LENDER HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY.
Upon your acceptance hereof in the manner hereinafter set forth,
this Agreement shall constitute a contract between us for the uses
and purposes hereinabove set forth.
Dated as of this 10th day of February, 1995.
PLAYBOY ENTERPRISES, INC.
By /s/ Rebecca S. Maskey
----------------------------------
Name: Rebecca S. Maskey
----------------------------
Title: Senior Vice President
---------------------------
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<PAGE>
Accepted and Agreed to at Chicago, Illinois as of the day and
year last above written.
Each of the Lenders hereby agrees with each other Lender that if
it should receive or obtain any payment (whether by voluntary
payment, by realization upon collateral, by the exercise of rights of
set-off or banker's lien, by counterclaim or cross action, or by the
enforcement of any rights under this Agreement, any of the other Loan
Documents or otherwise) in respect of the Obligations in a greater
amount than such Lender would have received had such payment been
made to the Administrative Agent and been distributed among the
Lenders as contemplated by Section 3.6 hereof then in that event the
Lender receiving such disproportionate payment shall purchase for
cash without recourse from the other Lenders an interest in the
Obligations of the Company to such Lenders in such amount as shall
result in a distribution of such payment as contemplated by Section
3.6 hereof. In the event any payment made to a Lender and shared with
the other Lenders pursuant to the provisions hereof is ever recovered
from such Lender, the Lenders receiving a portion of such payment
hereunder shall restore the same to the payor Lender, but without
interest.
Revolving Credit Commitment: HARRIS TRUST AND SAVINGS BANK
$15,000,000
By /s/ Ronald L. Dell'Artino
---------------------------------
Name: Ronald L. Dell'Artino
Title: Vice President
111 West Monroe Street
Chicago, Illinois 60690
Attention: Ronald L. Dell'Artino
Vice President
Telephone: (312) 461-5113
Telecopy: (312) 461-2591
Telex: 254157
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<PAGE>
Revolving Credit Commitment: LASALLE NATIONAL BANK
$15,000,000
By /s/ Robert F. Kastenholz
---------------------------------
Name: Robert F. Kastenholz
Title: Senior Vice President
120 South LaSalle Street
Chicago, Illinois 60603
Attention: Robert F. Kastenholz
Telephone: (312) 443-2681
Telecopy: (312) 750-6546
Telex: 253879
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<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
Chicago, Illinois
$______________ ______________, 1995
On the Termination Date, for value received, the undersigned,
PLAYBOY ENTERPRISES, INC., a Delaware corporation (the "Company"), hereby
promises to pay to the order of _______________ (the "Lender"), at the
principal office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of (i) _______________________ and no/100 Dollars
($______________), or (ii) such lesser amount as may at the time of the
maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all Loans owing from the Company to the Lender
under the Revolving Credit provided for in the Credit Agreement hereinafter
mentioned.
This Note evidences loans constituting part of a "Domestic Rate
Portion" and "LIBOR Portions" as such terms are defined in that certain
Credit Agreement dated as of February 10, 1995 between the Company, Harris
Trust and Savings Bank, individually and as Administrative Agent
thereunder, and the other Lenders which are now or may from time to time
hereafter become parties thereto (said Credit Agreement, as the same may be
amended, modified or restated from time to time, being referred to herein
as the "Credit Agreement") made and to be made to the Company by the Lender
under the Revolving Credit provided for under the Credit Agreement, and the
Company hereby promises to pay interest at the office described above on
each loan evidenced hereby at the rates and at the times and in the manner
specified therefor in the Credit Agreement.
Each loan made under the Revolving Credit provided for in the Credit
Agreement by the Lender to the Company against this Note, any repayment of
principal hereon, the status of each such loan from time to time as part of
the Domestic Rate Portion or a LIBOR Portion and, in the case of any LIBOR
Portion, the interest rate and Interest Period applicable thereto shall be
endorsed by the holder hereof on a schedule to this Note or recorded on the
books and records of the holder hereof (provided that such entries shall be
endorsed on a schedule to this Note prior to any negotiation hereof). The
Company agrees that in any action or proceeding instituted to collect or
enforce collection of this Note, the entries so endorsed on a schedule to
this Note or recorded on the books and records of the holder hereof shall
be prima facie evidence of the unpaid principal balance of this Note, the
status of each such loan from time to time as part of the Domestic Rate
Portion or a LIBOR Portion, and, in the case of any LIBOR Portion, the
interest rate and Interest Period applicable thereto.
This Note is issued by the Company under the terms and provisions of
the Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note
A-1
<PAGE>
may be declared to be, or be and become, due prior to its expressed maturity,
voluntary prepayments may be made hereon, and certain prepayments are required
to be made hereon, all in the events, on the terms and with the effects provided
in the Credit Agreement. All capitalized terms used herein without definition
shall have the same meanings herein as such terms are defined in the Credit
Agreement.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS.
The Company hereby promises to pay all costs and expenses (including
reasonable attorneys' fees) suffered or incurred by the holder hereof in
collecting this Note or enforcing any rights in any collateral therefor. The
Company hereby waives presentment for payment and demand.
PLAYBOY ENTERPRISES, INC.
By
----------------------------------
Name:
----------------------------
Title:
---------------------------
A-2
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to the Administrative Agent and
the Lenders pursuant to that certain Credit Agreement dated as of February
10, 1995, by and among Playboy Enterprises, Inc. (the "Company") and you (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Credit
Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected chief financial officer of the Company;
2. I have reviewed the terms of the Credit Agreement and I have made, or
have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company and its Subsidiaries during the
accounting period covered by the attached financial statements:
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or the occurrence of any
event which constitutes a Default or Event of Default during or at the end of
the accounting period covered by the attached financial statements or as of
the date of this Certificate, except as set forth below;
4. The financial statements required by Section 8.5 of the Credit
Agreement and being furnished to you concurrently with this Certificate are
true, correct and complete as of the date and for the periods covered
thereby; and
5. The Attachment hereto sets forth financial data and computations
evidencing the Company's compliance with Sections 8.7, 8.8 and 8.9 of the
Credit Agreement, all of which data and computations are, to the best of my
knowledge, true, complete and correct and have been made in accordance with
the relevant Sections of the Credit Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
B-1
<PAGE>
The foregoing certifications, together with the computations set
forth in the Attachment hereto and the financial statements delivered
with this Certificate in support hereof, are made and delivered this
________ day of ______________ 19__.
____________________________________
_______________ , _________________
(Name) (Title)
B-2
<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
PLAYBOY ENTERPRISES, INC.
Compliance Calculations for Credit Agreement
Dated as of February 10, 1995
Calculations as of ____________, 19__
- --------------------------------------------------------------------------------
A. NET WORTH (Section 8.7)
Intentionally omitted.
B. LEVERAGE RATIO (Section 8.8)
Intentionally omitted.
C. CASH FLOW COVERAGE RATIO (Section 8.9)
Intentionally omitted.
<PAGE>
SCHEDULE 1.3
EXISTING LETTERS OF CREDIT
STATED
LETTER OF MATURITY
ISSUER CREDIT NUMBER DATE STATED AMOUNT BENEFICIARY
Harris SPL 32987 8/11/95 $ 498,486.00 Lexington Building Co.
Harris SPL 33214 12/31/95 $2,500,000.00 General Electric Capital
Corporation
LaSalle 60339284 6/15/95 $ 65.000.00 American Motorists
Insurance Companies
LaSalle 60239038 12/31/95 $2,500,000.00 General Electric Capital
Corporation
<PAGE>
SCHEDULE 6.2
SUBSIDIARIES
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
Lake Shore Press, Inc. Delaware 100%
Lifestyle Brands, Ltd. Delaware 100%
Playboy Entertainment Group, Inc. Delaware 100%
After Dark Video, Inc. Delaware 100% (1)
Alta Loma Productions, Inc. Delaware 100% (1)
Cameo Films, Inc. Illinois 100% (1)
Impulse Productions, Inc. Delaware 100% (1)
Precious Films, Inc. California 100% (1)
Playboy Models, Inc. Illinois 100%
Playboy Products & Services
International, B.V. Netherlands 100%
Playboy Properties, Inc. Delaware 100%
Playboy Gaming International, Ltd. Delaware 100%
Playboy Gaming Greece, Ltd. Delaware 100% (2)
Playboy Shows, Inc. Delaware 100%
Special Editions, Ltd. Delaware 100%
Steelton, Inc. Delaware 100%
Telecom International, Inc. Florida 100%
The Hugh M. Hefner Foundation (3) Illinois 100%
Playboy Clubs International, Inc. Delaware l00%
<PAGE>
Playboy Club of Hollywood, Inc. Delaware 100% (4)
Playboy Club of New York, Inc. New York 100% (4)
Playboy of Lyons, Inc. Wisconsin 100% (4)
Playboy of Sussex, Inc. Delaware 100% (4)
Playboy Preferred, Inc. Illinois 100% (4)
Critic's Choice Video, Inc. Illinois 100% (5)
- --------------------------------------------
(1) by Playboy Entertainment Group, Inc.
(2) by Playboy Gaming International, Ltd.
(3) a not-for-profit corporation
(4) by Playboy Clubs International, Inc.
(5) by Playboy Preferred, Inc.
-2-
<PAGE>
PLAYBOY ENTERPRISES, INC.
FIRST AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
LaSalle National Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
February 10, 1995 (the "Credit Agreement") currently in effect by and among,
Playboy Enterprises, Inc., a Delaware corporation (the "Company"), and you (the
"Lenders"). All capitalized terms used herein without definition shall have the
same meanings herein as such terms have in the Credit Agreement.
The Company hereby applies to the Lenders to extend the availability of the
Revolving Credit provided for by the Credit Agreement, amend certain of the
financial covenants contained therein and make certain other amendments to the
Credit Agreement, and the Lenders are willing to do so under the terms and
conditions set forth in this Amendment.
1. AMENDMENTS.
Upon the Lenders' acceptance hereof in the space provided for that purpose
below, the Credit Agreement shall be and hereby is amended as follows:
1.01. Credit Reduction Upon Rights Offering. Section 3.5 of the Credit
Agreement is hereby amended and as so amended shall be restated in its
entirety to read as follows:
"Section 3.5. Mandatory Partial Terminations of Revolving Credit
Commitments. Effective on the first to occur of a Rights Offering or
December 31, 1995, the Revolving Credit Commitments shall be reduced
to $19,500,000, such reduction to reduce the Revolving Credit
Commitments of the Lenders ratably. Any such termination of the
Revolving Credit Commitments pursuant to this Section 3.5 may not be
reinstated."
1.02. Collateral Documents Include Guarantees. The definition of
"Collateral Documents" appearing in Section 5.1 of the Credit Agreement is
hereby amended:
" `Collateral Documents' means the Security Agreement, the California
Mortgage and all other mortgages, deeds of trust, security agreements,
assignments, financing statements, and other
<PAGE>
documents executed by the Company or any Subsidiary as shall from time
to time secure the Obligations. The Collateral Documents also include
such guarantees of the Obligations by the Material Subsidiaries as the
Required Lenders from time to time request to assure compliance with
Section 4.1 hereof."
1.03. Definition of Leverage Ratio. The definition of "Leverage Ratio"
appearing in Section 5.1 of the Credit Agreement is hereby amended and as
so amended shall be restated in its entirety to read as follows:
" `Leverage Ratio' means, as of any time the same is to be determined,
the ratio of (x) Total Liabilities to (y) Net Worth."
1.04. Definition of Rights Offering. Section 5.1 of the Credit
Agreement is hereby amended by adding the definition of "Rights Offering"
in the appropriate alphabetical order as follows:
" `Rights Offering' shall mean the issuance and sale by the Company
(whether public or private) after the date hereof of any debt or
equity securities issued by it (it being understood and agreed that
any debt security must comply with Section 8.10 hereof)."
1.05. Extension of Termination Date. The definition of "Termination
Date" appearing in Section 5.1 of the Credit Agreement is hereby amended
and as so amended shall be restated in its entirety to read as follows:
" `Termination Date' means September 30, 1997, or such earlier date on
which the Revolving Credit Commitments are terminated in whole pursuant to
Section 3.4, 3.5, 9.2 or 9.3 hereof. THE COMPANY ACKNOWLEDGES AND AGREES
THAT THE LENDERS HAVE ABSOLUTELY NO OBLIGATION WHATSOEVER TO EXTEND THE
TERMINATION DATE BEYOND SEPTEMBER 30, 1997."
1.06. Total Liabilities. Section 5.1 of the Credit Agreement is hereby
amended by adding the definition of "Total Liabilities" in the appropriate
alphabetical order as follows:
" `Total Liabilities' means, as of any time the same is to be
determined, the aggregate of all indebtedness, obligations,
liabilities, reserves and any other items which would be listed as a
liability on a balance sheet of the Company and its Subsidiaries
determined on a consolidated basis in accordance with GAAP, but in any
event excluding deferred revenues."
1.07. Unnecessary Definitions. Section 5.1 of the Credit Agreement is
hereby further amended by deleting from such Section the definitions of the
following terms
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appearing therein: "Funded Debt", "Cash Flow Coverage Ratio", "EBITDA",
"Cash Programming Costs" and "Capital Expenditures."
1.08. Subsidiaries' Corporate Authority. Section 6.3 of the Credit
Agreement is hereby amended by adding the following sentence immediately at
the end thereof:
"The foregoing representations and warranties as to the Company's
right and authority, and as to the Loan Documents, shall also be true
for each Material Subsidiary and the Loan Documents executed by such
Material Subsidiary to the same extent as if (x) all references in the
foregoing representations and warranties to the Company were instead
references to such Material Subsidiary, (y) all references therein to
the Notes and borrowings were instead referenced to any guaranty by
such Material Subsidiary of any Obligations and (z) all references
therein to the Loan Documents were only to those Loan Documents
executed by such Material Subsidiary."
1.09. Net Worth Requirement. Section 8.7 of the Credit Agreement is
hereby amended and as so amended shall be restated in its entirety to read
as follows:
"Section 8.7. Net Worth. The Company will at all times maintain Net
Worth of not less than the Minimum Required Amount. For purposes of
this Section, the term `Minimum Required Amount' shall mean as of any
time, $40,000,000 plus 75% of net proceeds previously received from
any Rights Offering consisting of the issuance of equity securities
(net proceeds for such purposes to be gross proceeds of such offering
less reasonable underwriting discounts and commissions and other
reasonable costs directly incurred and payable as a result thereof)."
1.10. Leverage Ratio Requirement. Section 8.8 of the Credit Agreement
is hereby amended and as so amended shall be restated in its entirety to
read as follows:
"Section 8.8. Leverage Ratio. The Company will at all times maintain a
Leverage Ratio of not more than 2.0 to 1.0."
1.11. Commercial Paper. Section 8.12(b) is hereby amended and as so
amended shall be restated in its entirety to read as follows:
"(b) investments in commercial paper rated at least P1 by Moody's
Investors Services, Inc. or at least A-1 by Standard & Poor's
Corporation, in each case, maturing within 270 days of the date of
issuance thereof;".
1.12. Certificates of Deposit. Section 8.12(c) is hereby amended and
as so amended shall be restated in its entirety to read as follows:
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"(c) investments in certificates of deposit issued by a commercial
bank organized under the laws of the United States, Japan, Germany or
the United Kingdom having capital, surplus and undivided profits of
not less than U.S. S100,000,000 in each case which have a maturity of
one year or less;".
1.13. FlexTech Arrangements. Section 8.12(h) is hereby amended and as
so amended shall be restated in its entirety to read as follows:
"(h) the investment of the Company and Playboy Entertainment Group,
Inc. in Playboy TV UK/Benelux Limited, a company incorporated under
the laws of the United Kingdom, and in related licensing arrangements
provided the amount so invested aggregates not more than $4,000,000 on
a cumulative basis after January 1, 1995;".
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
2.01. The Company, the Agent and the Lenders shall have executed and
delivered this Amendment.
2.02. The Company shall have executed a First Supplemental Deed of
Trust, Fixture Filing and Security Agreement in the form of Exhibit A
hereto (the "First Supplement") supplementing the California Mortgage so
that the same shall secure the Revolving Credit as modified hereby.
2.03. No Default or Event of Default shall have occurred and be
continuing as of the date this Amendment would otherwise take effect.
2.04. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Lenders and their counsel; and the
Lenders shall have received the favorable written opinion of counsel for
the Company in substantially the form of Exhibit B hereto.
3. CALIFORNIA MORTGAGE.
Within fifteen Business Days of the recordation of the First Supplement,
the Company shall at its expense furnish the Agent with an endorsement to the
Agent's February 16, 1995 title insurance policy issued by Chicago Title
Insurance Company under its number 9428314, the effect of which is to insure the
validity and priority of the California Mortgage as security for the Revolving
Credit as modified hereby, which endorsement shall bring the effective date of
coverage thereunder down to the date of such recordation and show no exceptions
to title or coverage other than those shown on the February 8, 1995 commitment
for such policy (provided that the mortgage identified at Section E of Schedule
B to such
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<PAGE>
commitment shall not show as an exception). The failure to furnish such
endorsement shall constitute an Event of Default
4. REPRESENTATIONS.
In order to induce the Lenders to execute and deliver this Amendment, the
Company hereby represents to the Lenders that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that for purposes of this
paragraph, (i) the representations contained in Section 6.3 shall be deemed to
include this Amendment as and when it refers to Loan Documents and (ii) the
representations contained in Section 6.5 shall be deemed to refer to the most
recent financial statements of the Company delivered to the Lenders) and the
Company is in full compliance with all of the terms and conditions of the Credit
Agreement and no Default or Event of Default has occurred and is continuing
under the Credit Agreement or shall result after giving effect to this
Amendment.
5. MISCELLANEOUS.
5.01. The Company acknowledges and agrees that all of the Collateral
Documents to which it is a party remain in full force and effect for the benefit
and security of, among other things, the Revolving Credit as modified hereby.
The Company further acknowledges and agrees that all references in such
Collateral Documents to the Revolving Credit shall be deemed a reference to the
Revolving Credit as so modified. The Company further agrees to execute and
deliver any and all instruments or documents as may be required by the Agent or
Required Lenders to confirm any of the foregoing.
5.02. Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection therewith.
or in any certificate, letter or communication issued or made pursuant to or
with respect to the Credit Agreement, any reference in any of such items to the
Credit Agreement being sufficient to refer to the Credit Agreement as amended
hereby.
5.03. The Company agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation, execution
and delivery of this Amendment, including the fees and expenses of counsel for
the Agent.
5.04. This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
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<PAGE>
Dated as of March 31, 1995.
PLAYBOY ENTERPRISES, INC.
(Signature of Xxxxxxxx Xxxxxxxx)
By _____________________________________
Senior Vice President & Treasurer
Its _________________________________
Each of the undersigned acknowledges and agrees that while the following is
not required, each confirms that: (i) all of the Collateral Documents to which
it is a party remain in full force and effect for the benefit and security of,
among other things, the Revolving Credit as modified hereby; (ii) all references
in such Collateral Documents to the Credit Agreement shall be deemed a reference
to the Credit Agreement as amended hereby; (iii) each of the undersigned will
continue to execute and deliver any and all instruments or documents as may be
required by the Agent or Required Lenders to confirm any of the foregoing.
PLAYBOY ENTERTAINMENT GROUP, INC.
(Signature of Robert O. Capbill)
By _____________________________________
Its Assistant Treasurer
CRITICS' CHOICE VIDEO, INC.
(Signature of Robert O. Capbill)
By _____________________________________
Its Assistant Treasurer
LIFESTYLE BRANDS, LTD.
(Signature of Robert O. Capbill)
By _____________________________________
Its Assistant Treasurer
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<PAGE>
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By ____________________________________
Its Vice President
LASALLE NATIONAL BANK
(Signature of Dick P. ??)
By ____________________________________
Its Commercial Loan Officer
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<PAGE>
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
(Signature of Xxxxxx Xxxxxxx)
By _____________________________________
Its Vice President
LASALLE NATIONAL BANK
By _____________________________________
Its _________________________________
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EXHIBIT A
PLAYBOY ENTERPRISES, INC.
FIRST SUPPLEMENT TO DEED OF TRUST,
FIXTURE FILING AND SECURITY AGREEMENT
WITH ASSIGNMENT OF RENTS
This First Supplement to Deed of Trust, Fixture Filing and Security
Agreement with Assignment of Rents dated as of March 31, 1995 (the "Supplement")
from PLAYBOY ENTERPRISES, INC., a Delaware corporation 680 North Lake Shore
Drive, Chicago, Illinois 60611 (the "Grantor"), to CHICAGO TITLE INSURANCE
COMPANY, a Missouri corporation, as Trustee, having an office at 700 South
Flower, Suite 900, Los Angeles, California 90017 (the "Trustee"), and in trust
for the benefit of HARRIS TRUST AND SAVINGS BANK, an Illinois banking
corporation whose post office address is 111 West Monroe Street, Chicago,
Illinois 60690 (hereinafter referred to individually as "Harris"), as
Administrative Agent hereunder for the Lenders hereinafter defined (Harris
acting as such agent and any successor or successors to Harris in such capacity
being hereinafter referred to as the "Beneficiary");
W I T N E S S E T H T H A T :
WHEREAS, the Grantor did heretofore execute and deliver to the Beneficiary
that certain Deed of Trust, Fixture Filing and Security Agreement with
Assignment of Rents dated as of February 10, 1995 and recorded in the Recorder's
Office of Los Angeles County, California on February 16, 1995 as Document No.
95-263308 (said Deed of Trust, Fixture Filing and Security Agreement with
Assignment of Rents being hereinafter referred to as the "Deed of Trust") to
mortgage, among other things, the real estate described in Schedule I attached
hereto; and
WHEREAS, the Deed of Trust currently secures, among other things, loans
(the "Revolving Loans") and letters of credit (the "Letters of Credit") extended
and to be extended from time to time by the Lenders (as hereinafter defined) on
a revolving basis under a revolving credit facility (the "Revolving Credit") in
a principal amount not to exceed $30,000,000 at any one time outstanding
provided for by that certain Credit Agreement dated as of February 10, 1995 by
and among the Grantor, Harris and LaSalle National Bank, a national banking
association (hereinafter referred to individually as "LaSalle"), individually
and as Co-Agent for the Lenders hereinafter defined (LaSalle acting as such
agent and any successor or successors to LaSalle in such capacity being
hereinafter referred to as "Co-Agent"), and such other lenders which may from
time to time hereafter become parties thereto (Harris, LaSalle and such other
lenders hereafter party to the Credit Agreement being herein referred to
collectively as the "Lenders" and individually a
This Instrument Prepared By:
James E. Basta
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
<PAGE>
"Lender"; and such Credit Agreement as so amended and as the same may from time
to time be further modified or amended being hereinafter referred to as the
"Credit Agreement"); and
WHEREAS, the Revolving Loans are evidenced by those certain Revolving
Credit Notes of the Grantor dated February 10, 1995 payable to the order of the
respective Lenders in the aggregate face principal amount of $30,000,000 (such
Revolving Credit Notes and any and all notes issued in substitution or
replacement therefor or in extension or renewal thereof in whole or in part,
together with any and all modifications and amendments of any of the foregoing,
being hereinafter referred to collectively as the "Notes"); and
WHEREAS, the Grantor has entered into a First Amendment to Credit Agreement
with the Lenders bearing even date herewith (the "First Amendment"), pursuant to
which the Grantor and the Lenders have agreed to, among other things, extend to
September 30, 1997 (the "New Termination Date") (i) the availability of the
Revolving Credit so as to continue through the New Termination Date the
availability to the Grantor under the Revolving Credit on a revolving basis of
new Revolving Loans, Letters of Credit and other financial accommodations. (ii)
the deadline by which Letters of Credit must expire and thus the date by which
drawings thereunder must be made and (iii) the final maturity of the Notes,
Reimbursement Obligations and all other obligations under the Credit Agreement;
and
WHEREAS, as a condition precedent to extending the period of availability
of their respective commitments under the Revolving Credit as provided by the
First Amendment, the Lenders require the Grantor, and to accommodate that
requirement the Grantor desires by this Supplement, to confirm and assure that
all the real estate and other properties, rights, interests and privileges of
the Grantor which are currently subject to the lien of the Deed of Trust be and
constitute collateral security not only for the indebtedness currently secured
thereby but also for the additional credit which may from time to time be
extended under the Revolving Credit as so modified; and
WHEREAS, the Deed of Trust is to continue to secure all the indebtedness
now secured thereby, and this Supplement is being executed and delivered to
confirm and assure the foregoing;
NOW, THEREFORE, for and in consideration of the execution and delivery by
the Lenders of the First Amendment and other good and valuable consideration,
receipt whereof is hereby acknowledged, the Deed of Trust shall be and hereby is
supplemented as follows, to wit:
NOW, THEREFORE, to secure (i) the payment of the principal and premium, if
any, of and interest on the Notes (as amended by, without limitation, the First
Amendment) as and when the same become due and payable (whether by lapse of
time, acceleration or otherwise) and all Revolving Loans now or hereafter
evidenced thereby, (ii) the payment of all sums owing in connection with the
Letters of Credit issued under the Revolving Credit as extended by the First
Amendment (collectively, the "Reimbursement Obligations") as and when the same
become due and payable, including without limitation the obligation to
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reimburse the issuer for each drawing on each Letter of Credit issued by it,
(iii) the payment of all sums due or owing with respect to the Hedging Liability
(as defined in the Deed of Trust), (iv) the obligation of Grantor to pay
Beneficiary, Co-Agent and the Lenders certain fees, costs, expenses, indemnities
and other amounts pursuant to the Credit Agreement (as amended by, without
limitation, the First Amendment) and the applications and agreements for the
Letters of Credit, (v) the payment of all other indebtedness, obligations and
liabilities which the Deed of Trust as supplemented secures pursuant to any of
its terms and (vi) the observance and performance of all covenants and
agreements contained herein or in the Notes, the Credit Agreement or in any
other instrument or document at any time evidencing or securing any of the
foregoing or setting forth terms and conditions applicable thereto (all of such
indebtedness, obligations and liabilities described in clauses (i), (ii), (iii),
(iv), (v) and (vi) above being hereinafter collectively referred to as the
"indebtedness hereby secured"), GRANTOR DOES HEREBY IRREVOCABLY GRANT,
TRANSFER, BARGAIN, SELL, CONVEY, MORTGAGE, WARRANT, ASSIGN AND PLEDGE UNTO
TRUSTEE IN TRUST WITH POWER OF SALE AND RIGHT OF ENTRY AND POSSESSION, all and
singular the properties, rights, interests and privileges described in Granting
Clauses I, II, III, IV, V and VI below, all of the same being collectively
referred to herein as the "Mortgaged Premises", and does hereby grant to
Beneficiary, Beneficiary's successors and assigns, a security interest in that
portion of the Mortgaged Premises constituting personal property described in
Granting Clause II, III, IV and V below:
GRANTING CLAUSE I
That certain real estate lying and being in Los Angeles, County of Los
Angeles and State of California more particularly described in Schedule I
attached hereto and made a part hereof.
GRANTING CLAUSE II
All buildings and improvements of every kind and description heretofore or
hereafter erected or placed on the property described in Granting Clause I and
all materials intended for construction, reconstruction, alteration and repairs
of the buildings and improvements now or hereafter erected thereon, all of which
materials shall be deemed to be included within the premises immediately upon
the delivery thereof to the said real estate, and all fixtures, machinery,
apparatus, equipment, fittings and articles of personal property of every kind
and nature whatsoever now or hereafter attached to or contained in or used or
useful in connection with said real estate and the buildings and improvements
now or hereafter located thereon and the operation, maintenance and protection
thereof, including but not limited to all machinery, motors, fittings,
radiators, awnings, shades, screens, all gas, coal, steam, electric, oil and
other heating, cooking, power and lighting apparatus and fixtures, all fire
prevention and extinguishing equipment and apparatus, all cooling and
ventilating apparatus and systems, all plumbing, incinerating, and sprinkler
equipment and fixtures, all elevators and escalators, all communication and
electronic monitoring equipment, all window and structural cleaning rigs and all
other machinery and equipment of every nature and fixtures and appurtenances
thereto and all items of furniture, appliances,
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<PAGE>
draperies, carpets, other furnishings, equipment and personal property used or
useful in the operation, maintenance and protection of the said real estate and
the buildings and improvements now or hereafter located thereon and all renewals
or replacements thereof or articles in substitution therefor, whether or not the
same are or shall be attached to said real estate, buildings or improvements in
any manner, and all proceeds of any of the foregoing; it being mutually agreed,
intended and declared that all the aforesaid property shall, so far as permitted
by law, be deemed to form a part and parcel of the real estate and for the
purpose of the Deed of Trust as supplemented to be real estate and covered by
the Deed of Trust as supplemented.
GRANTING CLAUSE III
All right, title and interest of Grantor now owned or hereafter acquired in
and to all and singular the estates, tenements, hereditaments, privileges,
easements, licenses, franchises, appurtenances and royalties, mineral, oil, and
water rights belonging or in any wise appertaining to the property described in
the preceding Granting Clause I and the buildings and improvements now or
hereafter located thereon and the reversions, rents, issues, revenues and
profits thereof, including all interest of Grantor in all rents, issues and
profits of the aforementioned property and all rents, issues, profits, revenues,
royalties, bonuses, rights and benefits due, payable or accruing (including all
deposits of money as advanced rent or for security) under any and all leases or
subleases and renewals thereof of, or under any contracts or options for the
sale of all or any part of, said property (including during any period allowed
by law for the redemption of said property after any foreclosure or other sale),
together with the right, but not the obligation, to collect, receive and receipt
for all such rents and other sums and apply them to the indebtedness hereby
secured and to demand, sue for and recover the same when due or payable;
provided that the assignments made hereby shall not impair or diminish the
obligations of Grantor under the provisions of such leases or other agreements
nor shall such obligations be imposed upon Trustee, Beneficiary, Co-Agent or any
Lender.
GRANTING CLAUSE IV
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the property described in Granting Clause I or any part thereof or any
building or other improvement now or at any time hereafter located thereon or
any easement or other appurtenance thereto under the power of eminent domain, or
any similar power or right (including any award from the United States
Government at any time after the allowance of the claim therefor, the
ascertainment of the amount thereof and the issuance of the warrant for the
payment thereof), whether permanent or temporary, or for any damage (whether
caused by such taking or otherwise) to said property or any part thereof or the
improvements thereon or any part thereof, or to any rights appurtenant thereto,
including severance and consequential damage, and any award for change of grade
of streets (collectively, "Condemnation Awards") and all insurance policies
required hereunder and the proceeds thereof.
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<PAGE>
GRANTING CLAUSE V
A11 property and rights, if any, which are by the express provisions of
this instrument required to be subjected to the lien hereof and any additional
property and rights that may from time to time hereafter, by installation or
writing of any kind, be subjected by Grantor or by anyone in Grantor's behalf to
the lien of the Deed of Trust as supplemented.
GRANTING CLAUSE VI
A11 rights in and to common areas and access roads on adjacent properties
heretofore or hereafter granted to Grantor and any after-acquired title or
reversion in and to the beds of any ways, roads, streets, avenues and alleys
adjoining the property described in Granting Clause I or any part thereof.
TO HAVE AND TO HOLD the Mortgaged Premises and the properties, rights and
privileges hereby granted, transferred, bargained, sold, conveyed, mortgaged,
warranted, assigned and pledged, and in which a security interest is granted, or
intended so to be, unto Trustee, and to Trustee's successors and assigns,
forever.
BUT IN TRUST NEVERTHELESS, upon the terms and trust herein set forth, for
the equal and proportionate benefit, security and protection of all present and
future holders of the Notes and the other indebtedness hereby secured; provided,
however, that this instrument is made by Grantor and accepted by Trustee and
Beneficiary upon the express condition that if the principal of and interest on
the Notes and all sums from time to time advanced thereon shall be paid in full
and all other indebtedness hereby secured shall be fully paid and performed
(including all sums payable under or according to the provisions of the
Applications), all Letters of Credit shall have expired and any commitment
contained in the Credit Agreement as amended by, without limitation, the First
Amendment to extend credit thereunder shall have terminated, then this
instrument and the estate and rights hereby shall cease, terminate and be void
and this instrument shall be released by Trustee upon written request and at the
expense of Grantor, otherwise to remain in full force and effect.
In order to induce the Lenders to enter the First Amendment and to induce
the Beneficiary to accept this Supplement, the Grantor hereby further covenants
and agrees with, and represents and warrants to, the Beneficiary as follows:
1. The foregoing Granting Clauses are in addition to and supplemental
of and not in substitution for the granting clauses contained in the Deed
of Trust. Nothing herein contained shall in any manner affect or impair the
priority of the lien of the Deed of Trust as to the indebtedness which
would be secured thereby prior to giving effect to this Supplement.
2. Grantor hereby represents and warrants to Beneficiary that as of
the date hereof each of the representations and warranties set forth in the
Deed of Trust as supplemented hereby are true and correct and that no event
of default (as such term is defined in the Deed of Trust), or any other
event which with the lapse of time, the
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<PAGE>
giving of notice, or both, would constitute such an event of default, has
occurred and is continuing or shall result after giving effect to this
Supplement. The Grantor hereby repeats and reaffirms all covenants and
warranties contained in the Deed of Trust, each and all of which shall be
applicable to all of the indebtedness secured by the Deed of Trust as
supplemented hereby. The Grantor repeats and reaffirms its covenant that
all the indebtedness secured by the Deed of Trust as supplemented hereby
will be promptly paid as and when the same becomes due and payable.
3. All capitalized terms used herein without definition shall have the
same meanings herein as they have in the Credit Agreement as amended by,
without limitation, the First Amendment. The definitions provided herein of
any capitalized terms shall apply to such capitalized terms as the same
appear in the Deed of Trust as supplemented hereby, all to the end that any
such capitalized terms defined herein and used in the Deed of Trust as
supplemented hereby shall now have the meaning given to such capitalized
terms herein. Without limiting the foregoing, all references in the Deed of
Trust to the term "Termination Date" or the date "March 31, 1995" shall be
deemed references to the New Termination Date; all references in the Deed
of Trust to the term "indebtedness hereby secured" shall be deemed
references to all the indebtedness, obligations and liabilities secured by
the Deed of Trust as supplemented hereby; and all references in the Deed of
Trust to the Credit Agreement shall be deemed references to the Credit
Agreement as amended by the First Amendment and as the same may from time
to time be further modified or amended.
4. All of the provisions, stipulations, powers and covenants contained
in the Deed of Trust shall stand and remain unchanged and in full force and
effect except to the extent specifically modified hereby and shall be
applicable to all of the indebtedness secured by the Deed of Trust as
supplemented hereby.
5. The Deed of Trust as hereby supplemented is given to secure, among
other things, loans and letters of credit extended on a revolving basis and
shall secure not only presently existing indebtedness under the Credit
Agreement as amended by the First Amendment but also future advances,
whether such advances are obligatory or to be made at the option of
Beneficiary, or otherwise, as are made within ten (10) years from the date
hereof, to the same extent as if such future advances were made on the date
of the execution of the Deed of Trust, although there may be no advance
made at the time of execution of this Supplement and although there may be
no indebtedness hereby secured outstanding at the time any advance is made.
The lien of the Deed of Trust as hereby supplemented shall be valid as to
all indebtedness hereby secured, including future advances, from the time
of its filing for record in the recorder's or registrar's office in the
county in which the Mortgaged Premises are located. The total amount of
indebtedness hereby secured may increase or decrease from time to time, but
the total unpaid balance of indebtedness secured (including disbursements
which Beneficiary may make under the Deed of Trust as hereby supplemented,
the Credit Agreement as amended by the First Amendment or any other
documents related thereto) at any one time outstanding shall not exceed a
maximum principal amount of Sixty Million Dollars ($60,000,000) plus
interest
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<PAGE>
thereon and any disbursements made for payment of taxes, special
assessments or insurance on the Mortgaged Premises and interest on such
disbursements (all such indebtedness being hereinafter referred to as the
"maximum amount secured hereby"). The Deed of Trust as hereby supplemented
shall be valid and have priority over all subsequent liens and
encumbrances, including statutory liens, excepting solely taxes and
assessments levied on the Mortgaged Premises, to the extent of the maximum
amount secured hereby.
6. This Supplement may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which to constitute one and the
same instrument.
7. No reference to this Supplement need be made in any note,
instrument or other document making reference to the Deed of Trust, any
reference to the Deed of Trust in any of such to be deemed to be a
reference to the Deed of Trust as supplemented hereby.
8. Wherever herein any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such
party; and all the covenants, promises and agreements by or on behalf of
the Grantor, or by or on behalf of the Beneficiary, or by or on behalf of
the holder or holders of the indebtedness hereby secured contained in the
Deed of Trust as supplemented hereby shall bind and inure to the benefit of
the respective successors and assigns of such parties, whether so expressed
or not.
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<PAGE>
IN WITNESS WHEREOF, the Grantor has caused these presents to be duly
executed the day and year first above written.
PLAYBOY ENTERPRISES, INC.
By______________________________________
Its___________________________________
--------------------------------------
(Type or Print Name)
Accepted and agreed to in Chicago, Illinois as of the day and date first
above written.
HARRIS TRUST AND SAVINGS BANK, as
Beneficiary and Administrative Agent
for the Lenders as aforesaid
By______________________________________
Its Vice President
______________________________________
(Type or Print Name)
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<PAGE>
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
On this _____ day of __________, 1995, before me, the undersigned, a Notary
Public of said State, duly commissioned and sworn, personally appeared ________
______________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who executed the within instrument as
the _______________________________________ of Playboy Enterprises, Inc., the
corporation therein named, and acknowledged to me that said corporation
executed the within instrument pursuant to its by-laws or resolution of its
board of directors.
WITNESS my hand and official seal.
_______________________________________
Notary Public
(SEAL)
MY COMMISSION EXPIRES:
_____________________________
<PAGE>
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
On this _____ day of _________, 1995, before me, the undersigned, a Notary
Public of said State, duly commissioned and sworn, personally appeared ________
_____________________, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person who executed the within instrument as
the Vice President of Harris Trust and Savings Bank, the banking corporation
therein named, and acknowledged to me that said corporation executed the within
instrument pursuant to its by-laws or resolution of its board of directors.
WITNESS my hand and official seal.
________________________________________
Notary Public
(SEAL)
MY COMMISSION EXPIRES:
_____________________________
<PAGE>
SCHEDULE I
LEGAL DESCRIPTION
PARCEL 1:
ALL THAT PORTION OF LOT 33 OF TRACT NO. 9061, IN THE CITY OF LOS ANGELES, COUNTY
OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 121 PAGES 64 TO
66 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, LYING
SOUTHEASTERLY OF A LINE PARALLEL WITH AND DISTANT 40 FEET NORTHWESTERLY,
MEASURED AT RIGHT ANGLES FROM THE SOUTHEASTERLY LINE OF SAID LOT 33.
PARCEL 2:
LOT 34 OF TRACT NO. 9061, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES,
STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 121 PAGES 64, 65 AND 66 OF
MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
<PAGE>
EXHIBIT B
PLAYBOY
HOWARD SHAPIRO
Executive Vice President & General Counsel
March 31, 1995
Harris Trust and Savings Bank,
as Administrative Agent under the Credit
Agreement referred to below, and as
Agent under the Collateral Documents
LaSalle National Bank,
as Co-Agent under the Credit Agreement
referred to below
and
The Lenders party to the Credit Agreement
referred to below
Re: Playboy Enterprises, Inc.
Amended Credit Agreement
Ladies and Gentlemen:
I am the General Counsel of Playboy Enterprises, Inc., a Delaware corporation
(the "Borrower"). I am familiar with the Credit Agreement dated as of February
10, 1995 (the "Credit Agreement"), among the Borrower, the Lenders party
thereto, Harris Trust and Savings Bank ("Harris"), individually and as
Administrative Agent (in such capacity, the "Administrative Agent"), and LaSalle
National Bank, individually and as Co-Agent (in such capacity, the "Co-Agent"),
and the transactions contemplated thereby. As General Counsel to the Borrower, I
have also acted as counsel to (i) Playboy Entertainment Group, Inc., a Delaware
corporation ("PEG"), in connection with the Guaranty dated as of February 10,
1995 (the "PEG Guaranty") executed by PEG in favor of the Bank Creditors (as
defined in the PEG Guaranty), (ii) Critics' Choice Video, Inc., an Illinois
corporation ("CCV"), in connection with the Guaranty dated as of February 10,
1995 (the "CCV Guaranty") executed by CCV in favor of the Bank Creditors (as
defined in the CCV Guaranty) and (iii) Lifestyle Brands, Ltd., a Delaware
corporation ("Lifestyle," together with PEG and CCV, the
1
<PAGE>
"Subsidiaries"), in connection with the Guaranty dated as of February 10, 1995.
The Borrower and each of the Subsidiaries are individually referred to herein as
a "Loan Party" and collectively as the "Loan Parties." Capitalized terms used
and not otherwise defined herein have the meanings assigned such terms in the
credit agreement.
In connection with this opinion, I have reviewed copies of the following
documents (collectively, the "Credit Documents"):
(a) the First Amendment to Credit Agreement, dated as of March 31, 1995;
(b) the Notes; and
(c) the First Supplemental Deed of Trust, Fixture Filing and Security
Agreement dated as of March 31, 1995.
I have also made such other examinations and inquiries as I have deemed
necessary and/or appropriate as a basis for the opinions hereinafter expressed.
Based on the foregoing, I am of the opinion that:
1. Each Loan Party is a corporation duly existing and in good standing under
the laws of its state of incorporation. Each Loan Party is duly qualified
and in good standing as a foreign corporation authorized to do business in
each jurisdiction where such qualification is required because of the
nature of its activities or properties.
2. Each Loan Party has full power to execute and deliver, and perform its
obligations under, each Credit Document to which it is a party. Without
limiting the foregoing, the Borrower has full power to borrow monies under
the Credit Agreement and to execute and deliver, and perform its
obligations under, the Notes.
3. The execution and delivery of each Credit Document by each Loan Party a
party thereto, and the performance by each Loan Party of its obligations
under each Credit Document to which it is party, have been duly authorized
by all necessary corporate action, have received all necessary governmental
approval, and do not contravene or conflict with any provision of law or of
the certificate or articles of incorporation or by-laws of any Loan Party
or of any material agreement binding upon any Loan Party.
2
<PAGE>
4. Each Credit Document has been duly executed and delivered by each Loan
Party a party thereto.
5. Each of the Credit Documents constitutes the valid and binding obligation
of each Loan Party a party thereto, enforceable against such party in
accordance with its terms, subject as to enforceability, to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally.
This opinion may be relied upon by only the Administrative Agent, the Co-Agent,
the Agent and the Lenders and is solely for their benefit in connection with the
above transaction. This opinion may not be relied upon by the Administrative
Agent, the Co-Agent, the Agent or the Lenders for any other purpose, or by any
other person, firm or corporation for any purpose, without my prior written
consent. Each of the matters set forth herein is as of the date hereof, and I
hereby undertake no, and disclaim any, obligation to advise you of any change in
any matters set forth herein or upon which this opinion is based.
Very truly yours,
Howard Shapiro
HS:sd
3
<PAGE>
AMENDMENT TO LEASE
------------------
THIS AMENDMENT entered into in Chicago, Illinois as of the 26th
day of October, 1989 by and between AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO, not personally, but solely as Trustee under Trust
Agreement dated May 2, 1989 and known as Trust No. 108237-06
("Lessor"), and PLAYBOY ENTERPRISES, INC., a Delaware corporation
("Lessee").
WITNESSETH:
----------
A. LaSalle National Bank, not individually but solely as Trustee
under Trust Agreement dated December 21, 1987 and known as Trust No.
112912 ("LaSalle"), and Lessee entered into a certain Office Lease
dated April 7, 1988 (the "Lease") whereby LaSalle leased to Lessee
certain premises (the "Premises") known as Suites 1500 and 1600
comprising the entire fifteenth (15th) and sixteenth (16th) floors of
the Office Area (as such term is defined in the Lease) of that certain
building (the "Building") located at 680 North Lake Shore Drive,
Chicago, Illinois for a lease term expiring August 31, 2004.
B. LaSalle assigned its interest under the Lease to Lessor's
predecessor in interest.
C. Pursuant to Section 34 of the Lease, Lessor granted to Lessee
an option to lease up to 2,000 square feet of space in the basement of
the Building for storage and carpentry purposes. Lessee exercised such
option pursuant to a letter dated April 14, 1989 to Lessor.
D. Lessor and Lessee desire to amend the Lease to reflect the
lease by Lessor to Lessee of such additional space on and subject to
the terms and conditions hereinafter set forth.
E. There exists on the roof of the Building an elevator penthouse
(the "Penthouse") in which is located mechanical equipment for certain
of the elevators located in the Building. There also exists a hatch
(the "Elevator Hatch") in the floor of the Penthouse located in column
bay 11-12/E-F of the Building through which Lessor from time to time
moves such elevator equipment. Lessor has requested that Lessee install
a Knock Out Panel (as hereinafter defined) in the ceiling of the
Premises to provide access to the Elevator Hatch and Lessee is willing
to install such Knock Out Panel on and subject to the terms and
conditions hereinafter set forth.
<PAGE>
F. Lessee has placed certain equipment on the roof of the Building beyond
the boundary of the Restricted Area, as such term is defined in Paragraph 8 of
the Lease. The parties desire to further amend the Lease by redefining the term
"Restricted Area" to acknowledge Lessee's placement of such equipment.
G. Lessor and Lessee desire to further amend the Lease to resolve certain
issues that have arisen between Lessor and Lessee in connection with the
construction of the Premises.
H. Lessor and Lessee desire to further amend the Lease to clarify the
provisions regarding the real estate taxes payable by Lessee during the term of
the Lease.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, it is hereby agreed as follows.
All defined terms used herein, when used as such defined terms, shall have the
same meanings as are scribed to such terms in the Lease.
l. Additional Premises. Lessor hereby leases to Lessee and Lessee hereby
accepts from Lessor the premises as outlined on Exhibit A attached hereto (the
"Additional Premises") known as Room B-101 in the basement of the Building. The
Additional Premises contain approximately 1,792 square feet. The Additional
Premises are leased to Lessee upon all of the same terms and conditions as are
set forth in the Lease, except as otherwise specifically provided herein.
2. Term. The Additional Premises are leased for a lease term commencing on
the Commencement Date of the Term of the Lease. The lease term for the
Additional Premises shall be coterminous with the Term of the Lease.
3. Base Rent. Lessee shall pay Base Rent to Lessor for the Additional
Premises as provided in the following schedule:
<TABLE>
<CAPTION>
Lease Year Monthly Base Rent
---------- -----------------
<S> <C>
1 $597.33
2 609.28
3 621.47
4 633.89
5 646.57
6 659.50
7 672.69
8 686.15
9 699.87
10 713.87
11 728.15
12 742.71
13 757.56
14 772.71
15 788.17
</TABLE>
-2-
<PAGE>
In the event Lessee timely and properly exercises the Extension Option pursuant
to Section 37 of the Lease, Lessee shall pay Base Rent for the Additional
Premises during the Extension Term as provided in the following schedule:
<TABLE>
<CAPTION>
Lease Year Monthly Base Rent
---------- -----------------
<S> <C>
16 $803.93
17 820.01
18 836.41
19 853.14
20 870.20
</TABLE>
4. Rent Adjustment. Lessee shall pay no adjustments to Base Rent for the
Additional Premises pursuant to Section 2 of the Lease.
5. Relocation. At any time during the lease term for the Additional
Premises, Lessor may substitute for the Additional Premises other premises
(herein called "Substitute Additional Premises") provided that the Substitute
Additional Premises shall be located in the Building and shall be similar to
the Additional Premises in area and use for Lessee's purposes. Lessor shall
pay the expense of moving Lessee from the Additional Premises to the
Substitute Additional Premises and for improving the Substitute Additional
Premises so that they are substantially similar to the Premises. Lessor shall
first give Lessee at least thirty (30) days prior written notice before
making such change. If Lessor shall exercise its rights under this Paragraph
5, the Substitute Additional Premises shall thereafter be deemed for the
purposes of the Lease, as amended by this Amendment, as the Additional
premises.
6. Termination Option. Lessee shall have the option (the "Termination
Option") to terminate the Lease with respect to all, but not less than all,
of the Additional Premises upon the following terms and conditions:
(a) Lessee gives Lessor not less than ninety (90) days' prior written
notice of such termination, which notice shall set forth the effective date
of termination of the lease term with respect to the Additional Premises;
and
(b) Lessee is not in default under the Lease either on the date Lessee
exercises the Termination Option or on the proposed effective date of
termination.
If Lessee properly exercises the Termination Option, the lease term with respect
to the Additional Premises shall terminate effective as of the date stated in
Lessee's notice described in Paragraph 6(a) above. Rent for the Additional
Premises shall be paid through and apportioned as of the effective date of
termination and neither Lessor nor Lessee shall have any rights, estates,
liabilities or obligations under the Lease, as amended by
-3-
<PAGE>
this Amendment, with respect to the Additional Premises after such date, except
such liabilities which, by the terms of the Lease, expressly survive such
termination (including, without limitation, the provisions of Section 10 of the
Lease). In no event shall the Term of the Lease with respect to the original
Premises be affected by the Termination Option or the exercise thereof by
Lessee.
7. Condition of Additional Premises. Lessee shall accept the Additional
Premises on the commencement date of the lease term for the Additional Premises
in an "as-is", "where-is" physical condition, except that Lessor agrees that the
Additional Premises shall be empty and in a broom-clean condition on the
commencement date of the lease term for the Additional Premises. No promise of
Lessor to alter, remodel, improve, repair, decorate or clean the Additional
Premises or any part thereof has been made except as provided in this Amendment.
Exhibit C to the Lease shall not apply to the Additional Premises.
8.(a) Knock Out Panel. Lessee, at Lessee's sole cost and expense, agrees
to construct and install or cause to be constructed and installed in the ceiling
of the Premises a panel (the "Knock Out Panel") at the location set forth on
Exhibit B attached hereto which shall provide to Lessor and Lessor's employees,
agents and contractors access to the Elevator Hatch. The Knock Out Panel shall
be installed in a good and workmanlike manner using new, first quality materials
and qualified contractors and subcontractors, in accordance with all applicable
laws, ordinances, rules, regulations, codes and governmental and quasi-
governmental requirements.
(b) In no event shall Lessee at any time during the Term of the Lease
install or construct or cause or permit the installation or construction of (i)
any sprinkler heads in or on the Knock Out Panel following the initial
construction of the Premises or (ii) any duct work, wires, pipes, conduits or
any other item or thing above or attached to the exterior of the Knock Out Panel
or in the space between the Knock Out Panel and the Elevator Hatch. If Lessee at
any time during the Term installs or constructs or causes or permits there to be
installed or constructed any of the foregoing, Lessee shall remove the same
within ten (10) days following request therefor from Lessor, failing which
Lessor shall have the right, but not the obligation, to remove any such items
and Lessee shall reimburse Lessor for all costs and expenses incurred by Lessor
in connection therewith. Notwithstanding the foregoing to the contrary, Lessee
shall have the right to install in the Knock Out Panel lighting, sprinkler heads
and HVAC distribution and other equipment to the extent shown in drawings
previously approved by Lessor in connection with the initial construction of the
Premises.
(c) Lessor and Lessor's employees, agents, contractors, subcontractors and
materialmen shall have the right, at any time and from time to time on not less
than two (2) business days' prior written notice to Lessee (except in case of
emergency, in
-4-
<PAGE>
which event no notice shall be required) to enter upon the Premises for purposes
of removing the Knock Out Panel and transporting through the Premises such
elevator equipment, parts and supplies and performing such other work as Lessor,
in Lessor's sole judgment, shall determine to be necessary or desirable in
connection with the operation of the elevators served by the equipment located
in the Penthouse. Such removal work shall be performed only after regular
business hours of Lessee or on weekends, except in case of emergency. Lessor
shall use its reasonable efforts to remove the Knock Out Panel and perform such
work in a manner which will minimize interference with and damage to the
systems, including the sprinkler, lighting and HVAC systems, in the Premises.
The removal of the Knock Out Panel shall be at Lessor's sole cost.
(d) Lessor shall lower and remove all elevator equipment, parts and
supplies through the Knock Out Panel and the Premises at Lessor's risk and
Lessor, at Lessor's sole cost, shall repair and restore the Premises (including
the Knock Out Panel and the lighting and sprinkler heads located thereon) and
any property located therein or thereon (to the extent damaged by Lessor) to the
condition which existed immediately prior to the performance of such work by
Lessor.
9. Definition of Restricted Area. In further consideration of the rights
granted hereunder by Lessee in regard to the Knock Out Panel, Lessor hereby
agrees that effective as of April 7, 1988, the definition of the term
"Restricted Area", as used in the Lease for all purposes, including without
limitation the provisions of Section 8 thereof, shall and hereby is deemed to be
expanded to encompass the two pieces of equipment of Lessee located on the roof
of the Building labeled "Duct" and "Condensor" on Exhibit C attached hereto and
Lessor acknowledges that all equipment of Lessee on the roof of the Building as
of the date hereof shall for all purposes under the Lease be deemed to fall
within the Restricted Area.
10. Resolution of Construction Issues. Lessor hereby agrees, within ten
(10) days following complete execution of this Amendment by Lessor and Lessee,
to pay to Lessee $5,000 to reimburse Lessee for certain corrective work
performed by or on behalf of Lessee in connection with the initial construction
of the Premises pursuant to Exhibit C to the Lease and, in consideration for
such reimbursement, Lessee hereby irrevocably and unconditionally waives and
releases Lessor from all actions, claims, damages, liability and demands, at law
and/or in equity, which Lessee now has or in the future may have against Lessor
in connection with the construction issues described as "Work Letter Claims" in
that certain letter dated November 15, 1989 (the "Claim Letter") from Dale
Gordon to three employees of Golub & Co., a copy of which is attached hereto as
Exhibit D. In addition, Lessee hereby agrees not to withhold the payment of any
rent due under the Lease based on such construction issues. The parties hereto
acknowledge and agree that the Claim Letter is attached hereto for reference
purposes only. Nothing herein or in the
-5-
<PAGE>
Claim Letter shall constitute or be deemed to constitute an acknowledgment by
Lessor that any building code violations presently exist or at any time
heretofore existed in the Premises. Lessor has no knowledge of any such building
code violations in the Premises, whether now or previously existing.
ll. Halon Panel. Lessee, at Lessee's sole cost, shall install or cause to
be installed in the common area of the first floor of the Building a panel (the
"Halon Panel") with a capacity of 64 connections, together with an internal
mechanism containing 24 of such connections. Such 24 connections are to be
hooked up to the halon and pre-action system in the Premises either initially
or at some future date. Lessee agrees that following installation and start-up
of the Halon Panel to the satisfaction of Lessor and Lessee, the Halon Panel
shall be and become the sole property of Lessor, without payment or
reimbursement to Lessee of any kind. Lessee shall have the right to use the 24
connections initially installed by Lessee. The remaining capacity for 40
connections in the Halon Panel shall be allocated by Lessor in Lessor's sole
discretion to the tenants of the Building and Lessee shall have no right
thereto. Lessor shall be solely responsible for the costs associated with the
purchase of the additional 40 connections, except as may be otherwise agreed to
between Lessor and the tenants utilizing such connections. Lessor shall
maintain and repair the Halon Panel and the 24 connections utilized by Lessee
at Lessee's cost and expense, provided that the cost of such maintenance and
repair shall, except in the case of emergency, have been approved in advance in
writing by Lessee. Lessee and Lessee's contractors, subcontractors, agents and
employees shall have the right, from time to time, subject to the terms of the
Lease, to have access to the Halon Panel for purposes of connecting the 24
connections in the Halon Panel to the halon system in the Premises.
12. Taxes. Notwithstanding anything to the contrary in the Lease, Lessee
and Lessor hereby agree as follows with respect to the Taxes payable by Lessee
during the Term of the Lease:
(a) Taxes payable by Lessee during any calendar year shall be those
Taxes which are due for payment or paid in such year rather than Taxes
which are assessed or become a lien during such year. Therefore, for
example, Lessee shall be responsible for Lessee's Proportionate Share of
100% of the Taxes payable in 1990 (i.e., the 1989 general real estate
taxes) because Lessee shall be in occupancy of the Premises for the entire
calendar year l990;
(b) Lessee shall pay no Taxes for the period commencing September 1,
1989 and ending December 31, 1989; and
(c) With respect to the Taxes payable by Lessee for the calendar year
in which the Lease expires or terminates (i.e., calendar year 2004, which
is the stated expiration date, or calendar year 2009, in the event Lessee
exercises the extension option pursuant to Section 37 of the Lease, or
-6-
<PAGE>
calendar year 1994, 1997 or 2000, as the case may be, in the event Lessee
exercises its termination right pursuant to Section 43 of the Lease),
Lessee shall pay Lessee's Proportionate Share of Taxes for the Building due
and payable for such entire calendar year, without proration,
notwithstanding that the Lease shall expire or terminate on August 31 of
such year.
13. Memorandum of Amendment. Lessor and Lessee agree that a Memorandum of
this Amendment, in the form attached hereto as Exhibit E, executed by Lessor and
Lessee may be recorded against all real estate legally described in said
Exhibit E at Lessee's expense, in the Office of the Cook County Recorder of
Deeds.
14. Real Estate Brokers. Lessee represents that Lessee has dealt with and
only with Golub & Co. (whose commission, if any, shall be paid by Lessor
pursuant to a separate agreement) as broker in connection with this Amendment
and agrees to indemnify and hold Lessor harmless from all damages, liability and
expense (including reasonable attorneys' fees) arising from any claims or
demands of any other brokers or finders for any commission alleged to be due
such brokers or finders in connection with its participation in the negotiation
with Lessee of this Amendment.
15. Exculpatory Provisions. It is expressly understood and agreed by and
between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertakings
and agreements herein made on the part of Lessor while in form purporting to be
the representations, warranties, covenants, undertakings and agreements of
Lessor are nevertheless each and every one of them made and intended, not as
personal representations, warranties, covenants, undertakings and agreements by
Lessor or for the purpose of or with the intention of binding Lessor personally,
but are made and intended for the purpose only of subjecting Lessor's interest
in the Office Area and the Premises to the terms of this Amendment and for no
other purpose whatsoever, and in case of default hereunder by Lessor (or default
through, under or by any of its beneficiaries, or agents or representatives of
said beneficiaries), Lessee shall look solely to the interest of Lessor in said
Office Area, and this Amendment is executed and delivered by Lessor not in its
own right, but solely in the exercise of the powers conferred upon it as such
Trustee; that the Lessor shall have no personal liability to pay any
indebtedness accruing hereunder or to perform any covenant, either express or
implied, herein contained and no liability or duty shall rest upon Lessor to
sequester the trust estate or the rents, issues and profits arising therefrom,
or the proceeds arising from any sale or other disposition thereof; and that no
personal liability or personal responsibility of any sort is assumed by, nor
shall at any time be asserted or enforceable against, said Lessor, American
National Bank and Trust Company of Chicago, a national banking association,
individually or personally, but only as Trustee under the provisions of a Trust
Agreement dated May 2, 1989, and known as Trust No. 108237-06, or against any of
the beneficiaries under the
-7-
<PAGE>
Trust Agreement first hereinabove described, on account of this Amendment or on
account of any representation, warranty, covenant, undertaking or agreement of
Lessor in this Amendment contained, either express or implied, all such personal
liability, if any, being expressly waived and released by Lessee and by all
persons claiming by, through or under Lessee.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year
aforesaid.
LESSOR: LESSEE:
- ------- -------
AMERICAN NATIONAL BANK AND PLAYBOY ENTERPRISES, INC.,
TRUST COMPANY OF CHICAGO, a Delaware corporation
not personally, but solely
as Trustee as aforesaid By: Dale C. Gordon
--------------------------------
Title: Vice-President
-----------------------------
By: /s/ Signature illegible
--------------------------------
Title: VP
-----------------------------
-8-
<PAGE>
THIRD AMENDMENT TO LEASE
------------------------
THIS THIRD AMENDMENT TO LEASE (this "Amendment") entered into in Chicago,
Illinois as of the 30th day of August, 1993 by and between AMERICAN NATIONAL
BANK AND TRUST COMPANY OF CHICAGO, not personally, but solely as Trustee under a
Trust Agreement dated May 2, 1989 and known as Trust No. 108237-06 ("Lessor")
and PLAYBOY ENTERPRISES, INC., a Delaware corporation ("Lessee").
W I T N E S S E T H:
-------------------
A. LaSalle National Bank, not individually but solely as Trustee under
Trust Agreement dated December 21, 1987 and known as Trust No. 112912
("LaSalle") and Lessee entered into that certain Office Lease (the "Original
Lease") dated April 7, 1988, whereby LaSalle leased to Lessee certain premises
(the "Original Premises") known as Suites 1500 and 1600 comprising the entire
15th and 16th floors of the "Office Area" (as defined in the Original Lease) of
that certain building (the "Building") located at 680 North Lake Shore Drive,
Chicago, Illinois, for a lease term expiring on August 31, 2004.
B. LaSalle assigned its interest under the Lease to Lessor's predecessor in
interest.
C. Lessor and Lessee entered into that certain Amendment to Lease ("First
Amendment") dated October 26, 1989 which amends certain provisions of the
Original Lease, including the leasing to Lessee of certain additional space in
the basement of the Building (the "Additional Premises; the Original Premises
and the Additional Premises are collectively referred to herein as the
"Premises") in the Building.
D. Lessor and Lessee entered into that certain Second Amendment to Lease
("Second Amendment") dated June 1, 1992. The Original Lease, the First Amendment
and the Second Amendment are collectively referred to herein as the "Lease".
E. Lessor and Lessee desire to amend the Lease to grant to Lessee certain
additional expansion rights in the Building and amend certain other provisions
contained in the Lease, all upon the terms and provisions hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby agree as
follows:
1. Definitions. Each capitalized term used in this Amendment shall have
the same meaning as is ascribed to such capitalized term in the Lease, unless
otherwise provided for herein.
<PAGE>
2. EXPANSION OPTION.
----------------
(a) Section 38 of the Original Lease is hereby deleted in its entirety.
(b) For purposes of the Lease, "Option Space" shall mean that certain
office space containing 5,494 square feet of rentable area on the 14th floor
(Suite 1400) of the Building, as shown on Exhibit A attached hereto.
(c) Lessee shall have an option (the "Expansion Option") to lease all (but
not less than all) of the Option Space for a lease term commencing on a date
occurring during the period (the "Period") commencing on the date this Amendment
is fully executed by the parties hereto and expiring March 31, 1994. The actual
date shall be designated by Lessee as hereinafter provided. The Expansion Option
is granted subject to the following terms and conditions:
(1) Lessee gives Lessor a written notice ("Lessee's Notice") of its
election to exercise the Expansion Option. Lessee's Notice shall contain
the proposed commencement date of the lease term for the Option Space
(which date shall be within the Period and shall not be earlier than the
date which is five (5) days after the date Lessee gives Lessee's Notice to
Lessor);
(2) Lessee submits current audited financial statements of Lessee to
Lessor concurrently with Lessee's Notice exercising the Expansion Option
and such financial statements are approved in writing by Lessor; and
(3) Lessee is not in breach or default under the Lease either on the
date that Lessee exercises the Expansion Option or, unless waived in
writing by Lessor, on the proposed commencement date of the lease term for
the Option Space.
(d) If Lessee exercises the Expansion Option:
(1) The Option Space shall be leased to Lessee for a lease term
commencing on the earlier to occur of (a) the occupancy date specified in
Lessee's Notice for the Option Space (or the date specified in any
amendment signed and delivered pursuant to Paragraph 2(e), as the case may
be), or (b) the date Lessee first occupies any portion of the Option Space
for the conduct of business. The lease term for the Option Space shall be
coterminous with the Term for the Original Premises;
(2) The annual rate of Base Rent per rentable square foot payable for
the Option Space shall at all times during
-2-
<PAGE>
the lease term for the Option Space be equal to the annual rate of Base
Rent per rentable square foot then payable under the Lease for the Original
Premises. Lessee shall pay Rent Adjustment for the Option Space, as
provided in Section 2B of the Original Lease, commencing immediately upon
the commencement date of the lease term for Option Space, and "Lessee's
Proportionate Share" as used in said clause (iii) of Section 2A shall mean
the percentage determined by dividing the aggregate rentable area of the
Original Premises and the Option Space by 424,052.32 rentable square feet.
Notwithstanding anything in this Paragraph 2(d)(2) to the contrary, no Base
Rent or Rent Adjustment shall be due for the Option Space the first Twenty-
four (24) months of the lease term for the Option Space; provided, however,
that (a) Lessee shall pay all Base Rent and Rent Adjustment for the
Original Premises and all Base Rent for the Additional Premises which is
due during or for said 24-month period, and (b) said abatement of Base Rent
and Rent Adjustment is a conditional abatement and the Base Rent and Rent
Adjustment which is otherwise to be abated for said twenty-four (24) months
shall be reinstated and shall become immediately due and payable upon the
occurrence of a Default by Lessee under the Lease, as hereby amended, which
reinstatement shall be as a result of the failure to occur of a condition
subsequent and not as a penalty or as liquidated damages; and
(3) Lessee shall accept the Option Space in an "as-is", "where-is"
physical condition from Lessor, without any agreement, representation,
credit or allowance from Lessor with respect to the improvement or
condition thereof. Lessee shall pay for any and all costs or expenses
associated with any leasehold improvement work to the Option Space which
shall be performed by Lessee in accordance with the terms of Section 13 of
the Original Lease.
All of the provisions of the Lease, as hereby amended, to the extent not
inconsistent with the above provisions shall apply to the Option Space.
(e) If Lessee exercises the Expansion Option, Lessor and Lessee shall
execute and deliver an amendment to the Lease reflecting the lease by Lessor to
Lessee of the Option Space on the terms provided above, which amendment shall be
executed and delivered promptly after Lessee gives Lessor Lessee's Notice.
(f) The Expansion Option shall automatically terminate and become null and
void and of no force or effect upon the earlier to occur of (1) the expiration
or termination of the Lease, (2) the termination of Lessee's right to possession
of the Premises, (3) the assignment of the Lease by Lessee, in whole or in part,
(4) the sublease by Lessee of the Premises, or any part thereof,
-3-
<PAGE>
or (5) the failure of Lessee to timely or properly exercise the Expansion
Option.
3. RIGHTS OF FIRST REFUSAL.
-----------------------
(a) For purposes of the Lease, (1) "First ROFR Space" shall mean as of
any date, the Option Space, as shown on Exhibit A attached hereto, (2) the
"Second ROFR Space" shall mean as of any date, that certain space located on the
14th floor of the Building containing 1,831 square feet of rentable area, as
shown on Exhibit B attached hereto, and (3) the "Third ROFR Space" shall mean as
of any date, that certain space located on the 14th floor of the Building
containing 1,734 square feet of rentable area, as shown on Exhibit C attached
hereto, less such portions of any such space which are leased by Lessee as of
such date. The First ROFR Space, the Second ROFR Space and the Third ROFR Space
shall be referred to herein collectively as the "ROFR Spaces" and each singly as
a "ROFR Space".
(b) With respect to any lease which Lessor hereafter intends to
enter into with a third-party tenant for either (i) if Lessee does not timely or
properly exercise the Expansion Option described in Paragraph 2 above, all or
any portion of the First ROFR Space, (ii) commencing on September 1, 1997, all
or any portion of the Second ROFR Space, (iii) commencing on April 1, 1994, all
or any portion of the Third ROFR Space, or (iv) the space described in clause
(i) (if Lessee does not timely or properly exercise the Expansion Option), (ii)
(commencing on September 1, 1997) or (iii) (commencing on April 1, 1994) above
plus any other space in the Building (for purposes hereof, any such other space
shall be deemed to be part of the ROFR Space) and which has a lease term
commencing prior to the Expiration Date of the Term of the Lease (but excluding
any new or renewal lease or lease expansion with any then existing tenant of all
or any portion of the ROFR Space), Lessor shall give Lessee written notice of
such intent ("Lessor's Notice") prior to Lessor entering into any such lease. In
addition to the foregoing, Lessor shall provide Lessee with a copy of all
proposals made by Lessor for (a) the First ROFR Space if Lessee does not timely
exercise the Expansion Option, (b) the Second ROFR Space on or after September
1, 1997, and (c) the Third ROFR Space on or after April 1, 1994. The Lessor's
Notice shall state (i) the location and rentable area of the portion of the ROFR
Space which Lessor desires to lease, (ii) the proposed lease term for such
portion of a ROFR Space, (iii) the date upon which such portion of a ROFR Space
shall be available for occupancy, (iv) the annual rate of base rent per square
foot of rentable area which Lessor desires to charge for such portion of a ROFR
Space, (v) the amount of all rent adjustments which Lessor desires to charge for
such portion of a ROFR Space, including, without limitation, all fixed and/or
indexed adjustments to such rate and rent adjustments for operatinq expenses and
real estate taxes for the Building, and
-4-
<PAGE>
(vi) the tenant concessions (e.g., rent abatements and tenant improvement
allowances), if any, which Lessor would be willing to provide to lease such ROFR
Space. Lessee shall thereupon have a right of refusal (a "Refusal Right") to
lease all, but not less than all, of the portion of a ROFR Space described in
said Lessor's Notice, subject to the following terms and conditions:
(1) Lessee gives Lessor a written notice exercising the Refusal Right
within ten (10) business days after Lessor gives Lessee Lessor's Notice for
such Refusal Right;
(2) Lessee submits current audited financial statements of Lessee to
Lessor concurrently with Lessee's Notice exercising the Refusal Rights and
such financial statements are approved in writing by Lessor;
(3) Lessee is not in default under the Lease, as hereby amended,
either on the date Lessee exercises such Refusal Right or, unless waived in
writing by Lessor, on the proposed commencement date of the lease term for
such portion of a ROFR Space; and
(4) No other tenant in the Building has exercised a right to lease the
ROFR Space as specified in the applicable Lessor's Notice, which right
exists in favor of such tenant as of the date of execution of this
Amendment.
In the event that Lessee does not timely or properly exercise any Refusal Right,
Lessor may at any time thereafter lease the applicable portion of a ROFR Space
to any third-party tenant on such terms and provisions as Lessor may elect
without any further rights of Lessee to lease such space, until Lessor fails to
consummate a lease for such space or such third-party has vacated such space and
such space is again available for leasing by a third-party.
(c) If Lessee exercises a Refusal Right, the following terms and provisions
shall apply:
(1) Lessor shall lease the applicable portion of the ROFR Space to
Lessee for a lease term commencing on the availability date specified in
the applicable Lessor's Notice and expiring on the Expiration Date of the
Term of the Lease;
(2) The base rent and rental adjustments payable for the applicable
portion of the ROFR Space shall be as set forth in the applicable Lessor's
Notice. For purposes of paying such adjustments, Lessee's Proportionate
Share shall be increased effective as of the commencement date of the lease
term for the applicable portion of the ROFR Space by the percentage
determined by dividing the rentable area of
-5-
<PAGE>
such portion of the ROFR Space by 424,052.32 rentable square feet;
(3) Lessee shall not be entitled to any rental abatement for such
portion of the ROFR Space except as otherwise set forth in the applicable
Lessor's Notice;
(4) Lessee shall accept the applicable portion of the ROFR Space in an
"as-is", "where-is" physical condition from Lessor, without any agreement,
representation, credit or allowance from Lessor with respect to the
improvement or condition thereof, except as otherwise set forth in the
applicable Lessor's Notice; and
(5) All of the terms and provisions of the Lease shall apply with
respect to the applicable portion of the ROFR Space, except as otherwise
provided in this Paragraph 3 or except as same may be inconsistent with the
provisions of this Paragraph 3.
(d) If Lessee exercises a Refusal Right, Lessor and Lessee shall execute
and deliver an amendment of the Lease reflecting the lease of the applicable
portion of a ROFR Space by Lessor to Lessee on the terms and provisions set
forth in this Paragraph 3, which amendment shall be executed and delivered
within thirty (30) days after Lessee exercises the Refusal Right.
(e) The Refusal Right shall automatically terminate and become null and
void upon the earlier to occur of (1) the expiration or termination of the
Lease, (2) the termination of Lessee's right to possession of the Premises, (3)
the assignment of the Lease by Lessee, in whole or in part, (4) the sublease by
Lessee of the Premises, or any part thereof, or (5) the failure of Lessee to
timely or properly exercise a Refusal Right.
4. Extension Option. The provisions of Section 38 of the Original Lease
shall apply to the Option Space if leased by Lessee pursuant to the terms of
this Amendment.
5. Termination Option.
(a) The provisions, as hereby amended, of Section 43 of the Original Lease
shall apply to the Option Space if leased by Lessee pursuant to the terms of
this Amendment.
(b) Section 43A of the Original Lease is hereby amended to delete the date
"August 31, 1994" from the first sentence thereof.
6. Available Space. Effective as of the date hereof, Landlord hereby agrees
to present to Tenant every six (6) months a list containing a summary of the
available unleased office
-6-
<PAGE>
space in the Office Area; provided that delivery of said summary by Landlord
shall not obligate Landlord to lease any such office space to Tenant.
7. Broker. Lessee represents to Lessor that Lessee has not dealt with any
real estate broker, salesperson or finder in connection with this Amendment
other than Golub & Company (the "Broker"), and no other such person initiated or
participated in the negotiation of this Amendment or is entitled to any
commission in connection herewith. Lessee hereby agrees to indemnify, defend and
hold Lessor, its property manager and their respective employees harmless from
and against any and all liabilities, claims, demands, actions, damages, costs
and expenses (including attorneys' fees) arising from a claim for a fee or
commission made by any broker (other than the Broker), claiming to have acted by
or on behalf of Lessee in connection with this Amendment.
8. Submission. Submission of this Amendment by Lessor or Lessor's agent, or
their respective agents or representatives, to Lessee for examination and/or
execution shall not in any manner bind Lessor and no obligations on Lessor shall
arise under this Amendment unless and until this Amendment is fully signed and
delivered by Lessor and Lessee; provided, however, the execution and delivery by
Lessee of this Amendment to Lessor or Lessor's agent, or their respective agents
or representatives, shall constitute an irrevocable offer by Lessee on the terms
and conditions herein contained, which offer may not be revoked for fifteen (15)
days after such delivery.
9. Effect of Amendment. As amended by this Amendment, the Lease shall
remain in full force and effect.
10. Exculpatory Provisions. It is expressly understood and agreed by and
between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertakings
and agreements herein made on the part of Lessor while in form purporting to be
the representations, warranties, covenants, undertakings and agreements of
Lessor are nevertheless each and every one of them made and intended, not as
personal representations, warranties, covenants, undertakings and agreements by
Lessor or for the purpose of or with the intention of binding Lessor personally,
but are made and intended for the purpose only of subjecting Lessor's interest
in the Office Area and the Premises to the terms of this Amendment and for no
other purposes whatsoever, and in case of default hereunder by Lessor (or
default through, under or by any of its beneficiaries, or agents or
representatives of said beneficiaries), Lessee shall look solely to the interest
of Lessor in said Office Area, and this Amendment is executed and delivered by
Lessor not in its own right, but solely in the exercise of the powers conferred
upon it as such Trustee; that
-7-
<PAGE>
the Lessor shall have no personal liability to pay any indebtedness accruing
hereunder or to perform any covenant, either express or implied, herein
contained and no liability or duty shall rest upon Lessor to sequester the trust
estate or the rent, issues and profits arising therefrom, or the proceeds
arising from any sale or other responsibility of any sort is assumed by, nor
shall at any time be asserted or enforceable against, said Lessor, American
National Bank and Trust Company of Chicago, a national banking association,
individually or personally, but only as Trustee under the provisions of a Trust
Agreement dated May 2, 1989 and known as Trust No. 108237-06, on account of this
Amendment or on account of any representation, warranty, covenant, undertaking
or agreement of Lessor in this Amendment contained, either express or implied,
all such personal liability, if any, being expressly waived and released by
Lessee and by all persons claiming by, through or under Lessee.
11. RECORDING. The parties will expeditiously execute and record the
Memorandum of Amendment in the form attached as Exhibit D.
IN WITNESS WHEREOF, this Amendment is executed as of the day and year
aforesaid.
LESSEE: LESSOR:
- ------ ------
PLAYBOY ENTERPRISES, INC. AMERICAN NATIONAL BANK AND
a Delaware corporation TRUST COMPANY OF CHICAGO, not
personally, but solely as
Trustee under as aforesaid
By: /s/ Howard Shapiro By: /s/ Gregory S. Kasprzyk
_________________________________ _________________________________
Title: Executive Vice President & Title: Second Vice President
General Counsel ______________________________
______________________________
-8-
<PAGE>
EXHIBIT D
MEMORANDUM OF THIRD AMENDMENT
THIS MEMORANDUM OF THIRD AMENDMENT ("Memorandum") is made as of this 30th
day of August, 1993 between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
not individually, but solely as Trustee under Trust Agreement dated May 2, 1989
and known as Trust No. 108237-06 (herein called the "Lessor") and PLAYBOY
ENTERPRISES, INC., a Delaware corporation (herein called the "Lessee").
Capitalized terms used herein shall have the same meaning as set forth in the
Lease (defined below) unless expressly defined herein or the context clearly
indicates to the contrary.
WITNESSETH:
----------
Lessor is the owner of a certain mixed used building located in Cook
County, Illinois, of which one or more of four components as are legally
described in Exhibit A attached hereto may be affected by this Memorandum. The
components are defined in Exhibit A as the Office Parcel, the Lot 1 Parcel, the
Skylight Parcel and the Garage Parcel.
The building containing the four components is now commonly known as 680
North Lake Shore Drive, Chicago, Illinois.
Lessor has leased to Lessee a portion of the Office Parcel consisting of
the entire fifteenth (15th) and sixteenth (16th) floors (the "Premises")
together with certain rights and privileges with respect to the Skylight Parcel,
the Garage Parcel and the Lot 1 Parcel for the Term and upon and subject to the
covenants, provisions and conditions contained in that certain Office Lease
dated April 7, 1988 entered into between the parties hereto (the "Lease") and as
such document has been amended by that certain Amendment dated October 26, 1989,
June 1, 1992 and August 30, 1993 (the "Amendments") between Lessor and Lessee.
The Amendments and all of their respective covenants, provisions and conditions
are by this reference expressly incorporated herein and made a part of this
Memorandum of Amendment and all shall take notice thereof whether or not
hereinafter more particularly described. The Amendments' covenants and
provisions affecting all Parcels are binding on the Lessor and its successors
and assigns as owners of any said Parcels.
Without limitation, it is hereby disclosed that the Third Amendment
includes terms and provisions which (among other things) (a) provided that
Lessor grants to Lessee certain expansion rights and rights of first refusal on
certain office space on the 14th floor of the Building, and (b) contemplate that
<PAGE>
the existence of this Third Amendment be disclosed and reference made to its
terms and provisions by means of this Memorandum.
Lessee hereby appoints Lessor as its attorney-in-fact to record a Release
of this Memorandum executed by Lessor for itself and on Lessee's behalf, upon
the occurrence of any one of the following:
1. Expiration of the Lease at either August 31, 2004 or August 31,
2009 or otherwise according to its terms; or
2. Issuance of a nonappealable final order of any court with
jurisdiction over the Premises granting possession of the Premises to
Lessor; or
3. Ninety (90) days after written notice from Lessor to Lessee that
Lessor intends to record such Release, because Lessee has voluntarily
abandoned the Premises, it being acknowledged that for the purposes of this
paragraph "abandoned" does not include an approved subletting or
assignment.
In addition, Lessee hereby appoints Lessor as its attorney-in-fact to
record a Release of this Memorandum as to the Garage Parcel in the event Lessor
or its successors or assigns exercises its option under the Lease to purchase
such parking rights from Lessee.
This Memorandum and the Third Amendment are expressly subject to an
subordinate to the Easements (as defined in the Lease) and to any and all
mortgages now or hereafter encumbering the Office Parcel, and Lot 1 Parcel, the
Garage Parcel or the Skylight Parcel.
Lessor and Lessee have entered into this Memorandum of Third Amendment in
order that third parties may have notice of the existence of the Amendment and
some of its specific provisions. This Memorandum of Amendment is not intended to
amend, modify or otherwise change the terms and conditions of the Lease or the
Third Amendment nor shall provisions of this Memorandum of Third Amendment be
used in interpreting the provisions of the Lease or the Third Amendment. In the
event of a conflict between this Memorandum of Third Amendment and the Third
Amendment, the Third Amendment shall control.
D-2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Memorandum of Third
Amendment as of the date and year first above written.
This instrument is executed by the
undersigned xxxxx Trustee, not
personally but solely as Trustee in
the exercise of the power and
authority conferred upon and vested
in it as such Trustee. It is
expressly understood and agreed that
all of the warranties, indemnities,
representations, covenants,
undertakings and agreements herein
made on the part of the Trustee are
undertaken by it solely in its
capacity as Trustee and not
personally. No personal liability or
personal responsibility is assumed
by or shall at any time be asserted
or enforceable against the Trustee
on account of any warranty, AMERICAN NATIONAL BANK AND TRUST
indemnity, representation, covenant, COMPANY OF CHICAGO, not
undertaking or agreement of the individually, but solely as Trustee
Trustee in this instrument. as aforesaid
Attest: /s/ Anita M. Lutkus By: /s/ Gregory S. Kasprzyk
----------------------------- ------------------------------
Name: Anita M. Lutkus Name:
----------------------------- ------------------------------
Title: Assistant Secretary Title:
----------------------------- ------------------------------
PLAYBOY ENTERPRISES, INC., a
Delaware corporation
Attest: /s/ Irma Villarreal By: /s/ Howard Shapiro
----------------------------- ------------------------------
Name: Irma Villarreal Name: Howard Shapiro
----------------------------- ------------------------------
Title: Corporate Counsel & Title: Executive Vice President
----------------------------- ------------------------------
Secretary & General Counsel
THIS DOCUMENT PREPARED BY AND
AFTER RECORDING RETURN TO:
Heidi J. Herman, Esq.
Greenberger Krauss & Tenenbaum
180 North LaSalle Street
Suite 2700
Chicago, Illinois 60601
D-3
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
I, LAURA KUMINGO, a Notary Public in and for said County, in the State
aforesaid, do hereby certify that Gregory S. Kasprzyk, the Second Vice President
of AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking
association, as Trustee as aforesaid, and Anita V. Lutkus, the ASSISTANT
SECRETARY of said Bank, who are personally known to me to be the same persons
whose names are subscribed to the foregoing instrument as such respective
officers, appeared before me this day in person and acknowledged that they
signed and delivered the said instrument as their own free and voluntary act and
as the free and voluntary act of said Bank, as Trustee, for the uses and
purposes therein set forth; and the said XXXXXXXX XXXXXX then and there did
acknowledge that (s)he, as custodian of the seal of sale Bank, did affix the
seal of said Bank to said instrument as his/her free and voluntary act and as
the free and voluntary act of said Bank, as Trustee, for the uses and purposes
therein set forth.
Given under my hand and notarial seal this day of SEP 29, 1993.
/s/ Laura Kumingo
------------------------------
Notary Public
My Commission Expires:
- --------------------------------
"OFFICIAL SEAL"
LAURA KUMINGO
Notary Public, State of Illinois
My Commission Expires 11/24/96
D-4
<PAGE>
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
I, the undersigned, a Notary Public in and for said County, in the State
aforesaid, do hereby certify that Howard Shapiro, Executive Vice President and
Irma Villarreal, Secretary of PLAYBOY ENTERPRISES, INC., a Delaware
corporation, both personally known to me to be the same persons whose names are
subscribed to the foregoing instrument as such respective officer, appeared
before me this day in person and acknowledged that they signed and delivered the
said instrument as their own free and voluntary act and as the free and
voluntary act of said corporation, for the uses and purposes therein set forth
therein; and the latter office also then and there did acknowledge that (s)he,
as custodian of the corporate seal of said corporation, affixed the same to the
foregoing instrument as his/her free and voluntary act and as the free and
voluntary act of said corporation, for the uses and purposes set forth therein.
Given under my hand and notarial seal this 13th day of September, 1993.
/s/ Sue Ann Dickey
-----------------------------
Notary Public
My Commission Expires:
November 1, 1996
- --------------------------------
"OFFICIAL SEAL"
Sue Ann Dickey
Notary Public, State of Illinois
My Commission Expires ll/1/96
D-5
<PAGE>
LAKE SHORE PLACE
[FLOOR PLAN APPEARS HERE]
EXHIBIT A--EXPANSION OPTION SPACE EXPIRING MARCH 31, 1994
FIRST ROFR SPACE IF "EXPANSION OPTION" NOT EXERCISED
<PAGE>
LAKE SHORE PLACE
[FLOOR PLAN APPEARS HERE]
EXHIBIT B--SECOND ROFR SPACE COMMENCING SEPTEMBER 1, 1997
<PAGE>
LAKE SHORE PLACE
[FLOOR PLAN APPEARS HERE]
EXHIBIT C--THIRD ROFR SPACE SUITE 1430 COMMENCING APRIL 1, 1994
<PAGE>
- -------------------------------------------------------------------------------
[LOGO OF PLAYBOY] PLAYBOY
POLICY
DATE: June 11, 1993 ISSUED BY: Howard Shapiro
- -------------------------------------------------------------------------------
DATE EFFECTIVE: July 1, 1993 CODE: 207-2 (replaces 1/1/92)
- -------------------------------------------------------------------------------
SUBJECT: EXECUTIVE CAR LEASE PROGRAM
- -------------------------------------------------------------------------------
SCOPE: Covers all U.S. locations of Playboy Enterprises, Inc. and its
U.S. departments, divisions and subsidiaries (collectively
"Playboy").
This program does not cover Playboy's ownership of service
vehicles or autos leased for the use of non-executive level
employees for a specific, operational and repetitive purpose
(e.g., sales force cars for sales calls). Such uses are to be
justified and approved under established procedures, including
the annual Business Plan process. (Acquisition and assignment
of autos for such uses outside of this Program are to be
administered by, and subject to the approval of, the Exec. Vice
President, Law and Administration.)
POLICY: It is the policy of Playboy that key executives be expected and
encouraged to drive late model automobiles for the following
purposes:
i) the convenience of Playboy in the executives'
conduct of company business in and around their base
locations;
ii) attracting and retaining highly qualified key
executives.
PROGRAM: The Corporation shall provide a leased car or cash allowance
for all U.S. based executives at or above a salary grade E-5.
Should the executive opt for a leased car, he/she shall choose
the make, model and options (see "Administration of Program"
attached), and Playboy shall make the lease payments directly
to the auto leasing company.
Should the executive opt for a cash allowance, the allowance
will be received via the bi-weekly paycheck subject to all
regular payroll deductions.
<PAGE>
EXECUTIVE CAR LEASE PROGRAM
PAGE TWO
The standard Gross Allowance shall be $770 per month for Senior
Executives (Salary Grade E3 and above) and $550 per month for all
other U.S. based executives at or above salary grade E-5 ("Non-Senior
Executives").
The executive's lease may be more or less than the Standard Gross
Allowance. If his/her monthly lease payment is greater, the excess
amount will be deducted from the last paycheck of each month, via the
payroll system.
TAX RESPON-
SIBILITY: The lesser of the Standard Gross Allowance or the actual
cost of the car lease will be included in the participant's
compensation as reported on his/her W-2 statement. Withholding of all
applicable federal and state taxes will be made on a bi-weekly basis.
Each participant will have the option of documenting and deducting the
costs associated with the business use of the leased car on his/her
personal tax return. IRS Form 2106 can be used for this purpose.
Executives covered by the Program will not be entitled to any expense
account reimbursement for mileage, maintenance or repairs, traffic
violations or any other expenses not included in the actual lease and
will not be entitled to reimbursement for non-business related parking
or tolls.
PREVIOUS
PROGRAM: This Program supercedes and replaces the executive Automobile Lease
Policy dated June 6, 1977, reissued April 18, 1978, January 1, 1980,
January 28, 1983, January 1, 1988, January 1, 1991 and January 1,
1992.
ADMINIS-
TRATION: The Exec. Vice President, Law and Administration shall have
responsibility for administering this Program under the senior
management supervision of the Chairman. The Exec. Vice President, Law
and Administration shall issue procedures consistent with the Proqram
for its effective administration.
<PAGE>
[PLAYBOY BUNNY LOGO] PLAYBOY
POLICY
DATE: March 1, 1990 ISSUED BY: M.L. Bennett
- --------------------------------------------------------------------------------
DATE EFFECTIVE: November 9, 1989 CODE: 313-1 (replaces 8/1/82)
- --------------------------------------------------------------------------------
SUBJECT: PERSONAL AND RESIDENTIAL SECURITY - ALARM INSTALLATIONS
- --------------------------------------------------------------------------------
I. Purpose
-------
The purpose of this policy is to establish criteria under which certain
directors, officers or other employees, or those with an ongoing
contractual relationship with Playboy Enterprises, Inc., may become
eligible to have their primary residence protected by a residential
security alarm system and/or receive bodyguard and related protections, at
Company expense.
II. Eligibility
-----------
Those senior executives in Groups I and II under the Company's Policy on
Organization and Titles are eligible for inclusion in this portion of the
Executive Protection Program. All other officers may become eligible if
they occupy highly visible or controversial positions.
In certain rare instances, other employees, or non-employees performing
services for the Company under the terms of a contract, may become
eligible for an alarm installation and/or bodyguard and related
protections, depending on the nature of the perceived threat to the
person's safety and its likely duration. An example would be an employee
who became embroiled in controversy likely to result in personal danger,
as a result of lawful and otherwise proper actions taken as a Company
representative.
III. Approval
--------
All alarm installations must be approved in writing by the employee's
supervisor and the Chief Executive Officer.
IV. Protection to be Provided
-------------------------
Each eligible participant will be furnished a security alarm installation
at his or her primary residence, to include the following:
<PAGE>
PERSONAL AND RESIDENTIAL SECURITY - DATE EFFECTIVE: 11/9/89
ALARM INSTALLATIONS CODE: 313-1
PAGE 2 OF 2
A. Perimeter protection of external windows, doors, sky lights, etc.
B. Smoke and heat alarms.
C. Independent power source.
D. Related connections, thermostats, and control units.
E. Other sub-systems (such as an interior intercom system, ultrasonic
alarms, etc.), depending on residence design, executive's lifestyle
and number of family members.
In the event the personal safety of a person eligible under this policy is
threatened, professional bodyguard protection will be provided. This will
consist of obtaining the services of experienced and trained persons in
the field of personal protection.
The Chairman and Chief Executive Officer will be furnished with a security
alarm installation at the residences in Chicago and Los Angeles.
V. Implementation
--------------
Under written notification that the employee or executive has been
approved for an alarm installation, the Executive Vice President, Law and
Administration will prepare a written plan specifically recommending
certain kinds of equipment and subsystems. The objective will be to
provide a reasonable degree of security consistent with the residence
design, type of construction, location, lifestyle of the person(s)
involved, and other factors. The Executive Vice President, Law and
Administration will also take an active role in procuring the services of
persons trained in providing bodyguard protection as the need arises.
The Company will pay 100% of the cost of providing an alarm installation
and/or bodyguard protection for senior officers in Groups I and II. The
Company will enter into a cost sharing agreement with all others who may
become eligible under this policy whereby the Company will pay 50% of the
cost of the alarm installation or bodyguard service provided and the
recipient 50%. The executive may add subsystems or an increased level of
protection at his or her expense.
The Executive Vice President, Law and Administration and his or her
representative will contract for the installation of an alarm system from
a reputable state-of-the-art alarm company and supervise its installation.
VI. Recordkeeping
-------------
All written records pertaining to security alarm installations and
bodyguard services provided will be considered confidential and kept in
the custody of the Executive Vice President, Law and Administration.
<PAGE>
August 30, 1990
Playboy Enterprises, Inc.
680 North Lake Shore Drive
Chicago, Illinois 60611
Gentlemen:
In accordance with Section 6. of Article VII of the bylaws of Playboy
Enterprises, Inc. (the "Company"), and Section 145(e) of the Delaware General
Corporation Law, I hereby undertake to repay to the Company any fees and
expenses paid by it on my behalf in advance of the final disposition of that
legal action known as Harry Lewis v. Playboy Enterprises, Inc., Civil Action No.
90 Ch 07882 in the Circuit Court of Cook County, Illinois, if it shall
ultimately be determined that I am not entitled to be indemnified by the Company
as authorized by Section 145 of the General Corporation Law of the State of
Delaware.
Sincerely,
Signature of Christie Hefner
----------------------------
Christie Hefner
<PAGE>
Christie Hefner
PLAYBOY ENTERPRISES, INC.
NON-OUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT, dated February 22, 1990, is made by and between Playboy
Enterprises, Inc., a Delaware corporation hereinafter referred to as "Company,"
and Christie Hefner, an employee of the Company hereinafter referred to as
"Employee":
WHEREAS, the Company wishes to afford the Employee the opportunity to
purchase shares of its $1.00 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Playboy Enterprises, Inc. 1989
Stock Option Plan for key employees dated as of November 9, 1989, as such Plan
may be amended from time to time (the terms of which are hereby incorporated by
reference and made a part of this Agreement); and
WHEREAS, the Compensation Committee of the Company's Board of Directors
(hereinafter referred to as the "Committee"), appointed to administer said Plan,
has determined that it would be to the advantage and best interest of the
Company and its stockholders to grant the Non-Qualified Option provided for
herein to the Employee as an inducement to remain in the service of the Company,
as an incentive for increased efforts during such service, and has advised the
Company thereof and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below.
Section 1.1 - "Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.2 - "Company" shall mean Playboy Enterprises, Inc.
Section 1.3 - "Option" shall mean the non-qualified option to purchase common
stock of the Company granted under this Agreement.
<PAGE>
Section 1.4 - "Plan" shall mean the Playboy Enerprises, Inc. 1989 Stock Option
Plan for key employees dated November 9, 1989, as such plan may be amended from
time to time.
Section 1.5 - "Secretary" shall mean the Secretary of the Company.
Section 1.6 - "Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.7 - "Termination of Employment" shall mean the time when the
employee-employer relationship between the Employee and the Company is
terminated for any reason, with or without cause, which includes termination by
resignation, discharge, death or retirement. The Committee, in its absolute
discretion, shall determine the effect of all other matters and questions
relating to Termination of Employment.
ARTICLE II
GRANT OF OPTION
---------------
Section 2.1 - Grant of Option
---------------
In consideration of the Employee's agreement to remain in the employ of the
Company and for other good and valuable consideration, on the date hereof the
Company irrevocably grants to the Employee the option to purchase any part or
all of an aggregate of 100,000 shares of its $1.00 par value Common Stock upon
the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall be
13 3/8 which was 100% of the fair market value of such shares on the New York
Stock Exchange at the end of the business day immediately preceding the day such
Option is granted.
Section 2.3 - Consideration to Company
------------------------
In consideration of the granting of this Option by the Company, the
Employee agrees to render services to the Company with such duties as the
Company shall from time to time prescribe. Nothing in this Agreement or in the
Plan shall confer upon the Employee any right to continue in the employ of the
Company or shall interfere with or restrict in any way the rights of the Company
which are hereby expressly reserved, to discharge the Employee at any time for
any reason whatsoever, with or without cause.
2
<PAGE>
Section 2.4 - Adjustments in Option
In the event that the outstanding shares of the common stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or combination of shares, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares as to which the Option, or portions
thereof then unexercised, shall be exercisable, so that the Employee's
proportionate interest shall be maintained. Such adjustment in the Option shall
be made without change in the total price applicable to the unexercised portion
of the Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary corresponding
adjustment in the Option price per share. Any such adjustment made by the
Committee shall be final and binding upon the Employee, the Company and all
other interested persons.
ARTICLE III
PERIOD OF EXERCISABILITY
------------------------
Section 3.1 - Commencement of Exercisability
a. Subject to Section 5.5, the Option shall become exercisable in four
(4) cumulative installments as follows:
(i) The first installment shall consist of twenty five percent
(25%) of the shares covered by the Option and shall become exercisable
twelve (12) months after November 9, 1989.
(ii) The second installment shall consist of twenty five percent
(25%) of the shares covered by the Option and shall become exercisable
twenty-four (24) months after November 9, 1989.
(iii) The third installment shall consist of twenty five percent
(25%) of the shares covered by the Option and shall become exercisable
thirty-six (36) months after November 9, 1989.
(iv) The fourth installment shall consist of twenty five percent
(25%) of the shares covered by the Option and shall become exercisable
forty-eight (48) months after November 9, 1989.
3
<PAGE>
b. No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2 - Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. As each such
installment becomes exercisable it shall remain exercisable until it becomes
unexercisable under the terms of Section 3.3.
Section 3.3 - Expiration of Option
--------------------
The Option may be exercised any time until the first of the following
events:
a. Ten (10) years from the date the Option was granted if the Employee
is still employed by the Company.
b. Three (3) months after the Employee's Termination of Employment if
such Termination of Employment results from his retirement or his being
discharged not for good cause.
c. The effective date of (i) Termination of Employment for good cause,
(ii) the Employee's resignation, or (iii) a "Change of Control" described
in clause (iii) of the definition of such term.
d. One (1) year from the effective date of Termination of Employment
of an Optionee who has become disabled (within the meaning of Section
22.e.3 of the Code), provided, however, that this subsection (d) shall not
apply if the Optionee dies prior to the expiration of such one (1) year
period.
e. One (1) year from the date of the Employee's death.
Section 3.4 - Acceleration of Exercisability
------------------------------
Additionally, in the event there is a "Change of Control" (as hereinafter
defined), the Optionee shall have the right to exercise the Option with respect
to all shares covered by the Option held by Optionee.
Not less than ninety (90) days prior to the effective date of any Change of
Control described in clause (iii) below, the Committee shall give the Employee
notice of such event if the Option has then neither been fully exercised nor
become unexercisable under Section 3.3, and shall specify in such notice a date
prior to the effective date of such event when this Option shall be exercisable
-4-
<PAGE>
as to all shares covered hereby; provided that the Committee may make such
determinations and adopt such rules and conditions as it deems appropriate to
ensure that any resulting exercise with respect to any accelerated installment
is conditioned upon the consummation of the contemplated corporate transaction.
For purposes of this Agreement, the term "Change of Control" means the
occurrence of any of the following events: (i) except in a transaction described
in clause (iii) below, Hugh M. Hefner, Christie Hefner and the Hugh M. Hefner
Foundation's ceasing collectively to own at least 50% or more of the total
number of votes that may be cast for the election of directors of the Company;
or (ii) a sale of PLAYBOY Magazine by the Company; or (iii) the liquidation or
dissolution of the Company, or any merger, consolidation or other reorganization
involving the Company unless (x) the merger, consolidation or other
reorganization is initiated by the Company, and (y) is one in which the
stockholders of the Company immediately prior to such reorganization become the
majority stockholders of a successor or ultimate parent corporation of the
Company resulting from such reorganization and (z) in connection with such
event, provision is made for an assumption of this Option or a substitution
therefor of a new option in such successor or ultimate parent of substantially
equivalent value.
ARTICLE IV
EXERCISE OF OPTION
------------------
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Employee, only he or she may exercise the Option
or any portion thereof. If the Employee dies, any exercisable portion of the
Option may be exercised by his or her personal representative or by any person
empowered to do so under the Employee's will or under the then applicable laws
of descent and distribution during the time frame allowed.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option may be exercised in whole or in part
at any time during the time frame allowed provided, however, that each partial
exercise shall be for whole shares only.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, must be exercised by
delivery to the Secretary or his office of:
5
<PAGE>
a. Notice in writing signed by the Employee (or the other person then
entitled to exercise the Option) that the Option or portion is being
exercised; and
b. Payment in full for the exercised shares:
(i) In cash or by certified or cashier's check; or
(ii) In shares of the Company's Common Stock owned by the
Employee. Those shares must be duly endorsed for transfer to the
Company and will be credited at the fair market value on the date of
delivery; or
(iii) With the consent of the Committee, and at the sole discretion
of the Company by a full recourse promissory note bearing interest and
payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by
delivery of a promissory note or by a loan from the Company when or
where such loan or other extension of credit is prohibited by law; or
(iv) Any combination of the consideration provided in the
foregoing subparagraphs (i), (ii) and (iii); and
c. Appropriate proof of the right of such person or persons to
exercise the option in the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Employee;
and
d. Full payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option.
Section 4.4 - Share Certificates
The shares of stock deliverable upon the exercise of the Option shall be
fully paid and non-assessable.
The Company shall not be required to issue or deliver any certificate or
certificates for shares for stock purchased upon the exercise of the Option or
portion thereof prior to fulfillment of all of the following conditions:
a. The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable; and
6
<PAGE>
b. The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
c. The payment to the Company of all amounts which, under federal,
state or local law, it is required to withhold upon exercise of the Option;
Section 4.5 - Rights as Stockholder
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
----------------
Section 5.1 - Administration
The Committee shall have the power to interpret the Plan and this Agreement
and to adopt rules for its administration. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon the Employee, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Option.
Section 5.2 - Option Not Transferable
Neither the Option nor any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof
shall be null and void and of no effect; provided, however, that this Section
5.2 shall not prevent transfers by will or by the applicable laws of descent
and distribution.
7
<PAGE>
Section 5.3 - Amendment, Suspension or Termination of the Plan;
Modification of Options
An option shall be subject in all events to the condition that, if at any
time the Board shall determine, in its discretion, that the listing,
registration or qualification of any of the Company's securities upon any
securities exchange or under any law, regulation or other requirement of any
governmental authority is necessary or desirable, or that any consent or
approval from any governmental authority or compliance of the Plan with any law
or regulation of any such authority is necessary or desirable, then the Board
may modify the terms of any Option granted under the Plan, without the consent
of the Optionee, in any manner which the Board deems necessary or desirable in
order to improve the Company's ability to obtain such listing, registration,
qualification, consent, approval or compliance. Without limitation of the
foregoing, to the extent required for compliance with the provisions of
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended,
the Board may provide for restrictions on the sale or transfer of any shares
acquired upon exercise of this Option.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement will be by
registered mail, return receipt requested and if to the Company shall be
addressed in care of its Secretary at 680 N. Lake Shore Drive, Chicago, Illinois
60611, and if to the Employee shall be addressed to him at the address given
beneath his signature hereto. By a notice given pursuant to this Section 5.4,
either party may hereafter designate a different address for notices to be given
to him. Any notice which is required to be given to the Employee shall, if the
Employee is then deceased, be given to the Employee's personal representative if
such representative has previously informed the Company of his status and
address by written notice under this Section 5.4. Any notice shall be deemed
duly given when delivered or, except in connection with notice of exercise under
Section 4.3, at such time as delivery is attempted.
Section 5.5 - Stockholder Approval
Unless otherwise determined by the Board, the Plan will be submitted for
approval by the Company's stockholders within twelve (12) months after the date
the Plan was initially adopted by the Board. This Option may not be exercised to
any extent by anyone prior to the time when the Plan is approved by the
stockholders, and if such approval has not been obtained by the end of said
twelve-month period, this Option shall thereupon be cancelled and become null
and void unless otherwise determined by the Board.
8
<PAGE>
Section 5.6 - Construction
Section 5.7 - Prior Option Agreement
This Agreement will supercede and replace the previous stock option
agreement between the parties dated November 9, 1989.
This Agreement shall be administered, interpreted and enforced under the
laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties hereto.
PLAYBOY ENTERPRISES, INC.
By /s/ Howard Shapiro
-------------------------
Authorized Representative
680 N. Lake Shore Drive
Chicago, Illinois 60611
/s/ Christie Hefner
- -----------------------------
Employee
- -----------------------------
- -----------------------------
Address
Employee's Taxpayer
Identification Number:
328 - 44 - 1964
- -----------------------------
9
<PAGE>
PLAYBOY ENTERPRISES, INC.
Office of the General Counsel
July 18, 1990
Christie Hefner
680 North Lake Shore Drive
Chicago, Illinois 60611
Dear Christie:
As you know, the Company completed its recapitalization into a dual class
common stock structure on June 7, 1990, with each two shares of common stock
issued prior to that date becoming one share of Class A Common Stock ("Class A
Stock") having one vote per share, and three shares of Class B Common Stock
("Class B Stock") without voting rights. Because the recapitalization created a
second class of stock and approximately doubled the total number of common
shares outstanding, the Company's Stock Option Committee (the "Committee"),
consistent with the terms of Section 4.6 of the Plan and Section 2.4 of your
stock option agreement with the Company, has made the following adjustments to
your option:
Existing Option Option as Adjusted
--------------- ------------------
100,000 shares 50,000 shares of Class A Stock
150,000 shares of Class B Stock
Exercise Price
per share 13-3/8 ($13.375) 6-11/16 ($6.6875) per share of
Class A Stock and Class B Stock
Your option will continue to be exercisable in four equal annual installments
beginning November 9, 1990 with respect to each class of shares covered thereby.
Please call me if you have any questions about the terms of your option, as
revised.
Very truly yours,
PLAYBOY ENTERPRISES, INC.
/s/ Howard Shapiro
-------------------------
Howard Shapiro
HS:gg
680 NORTH LAKE SHORE DRIVE/CHICAGO, ILLINOIS 60611/312-751-8000
<PAGE>
[LOGO] PLAYBOY ENTERPRISES, INC. INTEROFFICE CORRESPONDENCE
DATE: September 12, 1994
-------------------------------------------------------------------
TO: Tony Lynn
-------------------------------------------------------------------
FROM: Christie Hefner
-------------------------------------------------------------------
SUBJECT: Employment Agreement
----------------------------------------------------------------
- -------------------------------------------------------------------------------
Tony, this will confirm our agreement to amend your employment agreement dated
May 21, 1992 as follows:
1. The Employment Term will be extended for one additional year (through
June 30, 1997).
2. Your Basic Compensation for the additional year will be $525,000.
3. The Profits Base on which your Contingent Compensation will be computed
will be $2.35 million.
4. If your employment is terminated by the Company without cause at any time
after July 1, 1994, then the amount payable to you under Paragraph
12.D.(iii) of your Employment Agreement on account of such termination
shall be a lump sum amount equal to the greater of: (x) if the effective
date of such termination is prior to June 30, 1995, the aggregate amount of
the annual Basic Compensation otherwise payable to you under your
Employment Agreement for the period between the effective date of such
termination and July 1, 1996; or (y) if the effective date of such
termination is after June 30, 1995 and prior to June 30, 1996, the
aggregate amount of the annual Basic Compensation otherwise payable to you
under your Employment Agreement for the 12-month period beginning on the
first day of the calendar month next following such effective date of such
termination; or (z) if the effective date of such termination is after June
30, 1996, the aggregate amount of $525,000.
Except as modified above, all of the other terms and conditions of your
agreement will remain as is.
If this is acceptable to you, please sign, date and return the enclosed copy of
this memo.
ACCEPTED AND AGREED TO:
/s/ Anthony J. Lynn
-----------------------
Anthony J. Lynn
Date September 15, 1994
-------------------
<PAGE>
[LOGO OF PLAYBOY ENTERPRISES, INC.] INTEROFFICE CORRESPONDENCE
DATE: June 28, 1995
----------------------------------------------------------------------------
TO: Tony Lynn
-----------------------------------------------------------------------------
FROM: Christie Hefner /s/ Christie Hefner
---------------------------------------------------------------------------
SUBJECT: Employment Agreement
------------------------------------------------------------------------
================================================================================
Tony, this will confirm our agreement to amend your employment agreement dated
May 21, 1992 as follows:
1. The Employment Term will be extended for one additional year (through
June 30, 1998).
2. Your Basic Compensation for the additional year will be $550,000.
3. The Profits Base on which your Contingent Compensation will be computed will
be $2.35 million.
4. If your employment is terminated by the Company without cause at any time
after July 1, 1994, then the amount payable to you under Paragraph
12.D.(iii) of your Employment Agreement on account of such termination shall
be a lump sum amount equal to the greater of: (w) if the effective date of
such termination is prior to June 30, 1995, the aggregate amount of the
annual Basic Compensation otherwise payable to you under your Employment
Agreement for the period between the effective date of such termination and
July 1, 1996; or (x) if the effective date of such termination is after
June 30, 1995 and prior to June 30, 1996, the aggregate amount of the annual
Basic Compensation otherwise payable to you under your Employment Agreement
for the 12-month period beginning on the first day of the calendar month
next following such effective date of such termination; (y) if the effective
date of such termination is after June 30, 1996, the aggregate amount of
$525,000; or (z) if the effective date of such termination is after June 30,
1997, the aggregate amount of $550,000.
Except as modified above, all of the other terms and conditions of your
agreement will remain as is.
If this is acceptable to you, please sign, date and return the enclosed copy of
this memo.
ACCEPTED AND AGREED TO:
/s/ Anthony J. Lynn
----------------------------
Anthony J. Lynn
Date July 3, 1995
------------------------
<PAGE>
EXHIBIT 11
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Primary:
- --------
Earnings:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle $ 629 $(16,364) $ 365
Loss on disposal of discontinued operations - (620) -
--------- -------- ---------
Income (loss) before cumulative effect of change in
accounting principle 629 (16,984) 365
Cumulative effect of change in accounting principle - 7,500 -
--------- -------- ---------
Net income (loss) $ 629 $ (9,484) $ 365
========= ======== =========
Shares:
Weighted average number of common shares outstanding 19,984 19,928 18,871
Assuming exercise of options reduced by the number of
shares which could have been purchased with the proceeds
from exercise of such options 218 286 228
--------- -------- ---------
Weighted average number of common shares outstanding
as adjusted 20,202 20,214 19,099
========= ======== =========
Primary earnings per common share:
Income (loss) before cumulative effect of change in
accounting principle:
From continuing operations $ 0.03 $ (0.81) $ 0.02
From discontinued operations - (0.03) -
--------- -------- ---------
Total 0.03 (0.84) 0.02
Cumulative effect of change in accounting principle - 0.37 -
--------- -------- ---------
Net income (loss) $ 0.03/1/ $ (0.47)/2/ $ 0.02/1/
========= ======== =========
</TABLE>
<PAGE>
EXHIBIT 11
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (CONTINUED)
FOR THE YEARS ENDED JUNE 30
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ---- ----
Fully diluted:
- --------------
<S> <C> <C> <C>
Earnings:
Income (loss) from continuing operations before cumulative
effect of change in accounting principle $ 629 $(16,364) $ 365
Loss on disposal of discontinued operations - (620) -
------- -------- -------
Income (loss) before cumulative effect of change in
accounting principle 629 (16,984) 365
Cumulative effect of change in accounting principle - 7,500 -
------- -------- -------
Net income (loss) $ 629 $ (9,484) $ 365
======= ======== =======
Shares:
Weighted average number of common shares outstanding 19,984 19,928 18,871
Assuming exercise of options reduced by the number
of shares which could have been purchased with the proceeds
from exercise of such options 268 330 279
------- -------- -------
Weighted average number of common shares outstanding
as adjusted 20,252 20,258 19,150
======= ======== =======
Earnings per common share assuming full dilution:
Income (loss) before cumulative effect of change in
accounting principle:
From continuing operations $ 0.03 $ (0.81) $ 0.02
From discontinued operations - (0.03) -
------- -------- -------
Total 0.03 (0.84) 0.02
Cumulative effect of change in accounting principle - 0.37 -
------- -------- -------
Net income (loss) $ 0.03/1/ $ (0.47)/2/ $ 0.02/1/
======= ======== =======
</TABLE>
/1/ This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
/2/ This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1995 1994* 1993*
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues
Publishing
Playboy magazine
Subscription $ 48,556 $ 46,389 $ 44,919
Newsstand 24,876 25,946 23,470
Advertising 27,588 27,978 30,406
Other 3,362 3,654 4,078
- ------------------------------------------------------------------------
Total Playboy magazine 104,382 103,967 102,873
Playboy-related businesses 22,891 19,401 22,008
Other -- -- 163
- ------------------------------------------------------------------------
Total Publishing 127,273 123,368 125,044
- ------------------------------------------------------------------------
Catalog 61,435 48,556 39,411
- ------------------------------------------------------------------------
Entertainment
Playboy Television
Pay-per-view 11,934 8,989 8,006
Monthly subscription 7,004 7,397 8,575
Satellite direct-to-home
and other 10,022 6,511 4,732
- ------------------------------------------------------------------------
Total Playboy Television 28,960 22,897 21,313
Domestic home video 9,517 7,019 10,133
International television
and home video 11,160 9,891 9,822
Movies and other 2,060 282 1,329
- ------------------------------------------------------------------------
Total Entertainment 51,697 40,089 42,597
- ------------------------------------------------------------------------
Product Marketing 6,844 6,974 7,823
- ------------------------------------------------------------------------
Total Net Revenues $247,249 $218,987 $214,875
========================================================================
Operating Income (Loss)
Publishing
Playboy magazine $ 7,168 $ 3,546 $ 7,559
Playboy-related businesses 7,572 5,188 8,426
Administrative expenses, new
magazine development and other (4,031) (5,041) (5,573)
- ------------------------------------------------------------------------
Total Publishing 10,709 3,693 10,412
- ------------------------------------------------------------------------
Catalog 5,209 4,148 4,064
- ------------------------------------------------------------------------
Entertainment
Before programming
expense 21,097 10,870 15,887
Programming expense (20,130) (18,174) (14,076)
- ------------------------------------------------------------------------
Total Entertainment 967 (7,304) 1,811
- ------------------------------------------------------------------------
Product Marketing 3,428 2,518 1,732
- ------------------------------------------------------------------------
Corporate Administration
and Promotion (17,256) (17,278) (16,993)
- ------------------------------------------------------------------------
Total Operating Income (Loss) $ 3,057 $(14,223) $ 1,026
========================================================================
</TABLE>
*Certain reclassifications have been made to conform to the fiscal 1995
presentation.
22
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands, except per share amounts,
number of employees and ad pages) 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Data
Net revenues $247,249 $218,987 $214,875 $193,749 $174,042 $167,697
Interest income (expense), net (569) (779) (131) 1,828 3,224 2,410
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of change in accounting principle 629 (16,364) 365 1,822 2,411 3,596
Net income (loss) 629 (9,484) 365 3,510 4,510 6,228
Per common share
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of change in accounting principle .03 (.83) .02 .10 .13 .19
Net income (loss) .03 (.48) .02 .19 .24 .33
Cash dividends declared -- -- -- -- -- --
Before one-time and unusual items and
nonrecurring expenses/(1)/
Operating income (loss) 3,057 (9,610) 3,291 3,548 2,290 265
Net income (loss) 629 (12,371) 925 4,069 3,147 2,350
Net income (loss) per common share .03 (.62) .05 .22 .17 .12
Adjusted EBITDA/(2)/ $ 5,603 $ (9,984) $ (4,114) $ 58 $ 665 $ 8,219
- -------------------------------------------------------------------------------------------------------------------------------
At Year End
Total assets $137,835 $131,921 $127,767 $121,211 $115,464 $110,118
Long-term financing obligations $ 687 $ 1,020 $ 1,347 $ 1,669 $ 1,987 $ 2,300
Shareholders' equity $ 47,090 $ 46,311 $ 55,381 $ 43,256 $ 39,588 $ 36,230
Long-term financing obligations as a
percentage of total capitalization 1.4% 2.2% 2.4% 3.7% 4.8% 6.0%
Number of shares outstanding
Class A 4,714 4,709 4,701 4,701 4,697 4,697
Class B 15,276 15,255 15,192 13,830 13,813 14,090
Number of employees 600 578 624 637 599 595
- -------------------------------------------------------------------------------------------------------------------------------
Operating Data
Playboy magazine ad pages 595 595 660 648 724 674
Investments in Company-produced and
licensed entertainment programming $ 21,313 $ 17,185 $ 23,033 $ 16,615 $ 15,876 $ 11,411
Amortization of investments in Company-
produced and licensed entertainment
programming $ 20,130 $ 18,174 $ 14,076 $ 8,972 $ 7,931 $ 10,239
Playboy Television (at year end)
Pay-per-view homes 10,600 9,600 9,100 7,300 4,700 3,200
Monthly subscribing households 201 205 232 281 314 358
Satellite direct-to-home households 3,282 1,926 197 106 N/A/(3)/ N/A/(3)/
Percentage of total U.S. pay-per-view
homes with access to Playboy Television 45.2% 43.2% 50.1% 43.6% 31.1% 26.1%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For a more detailed description of the Company's financial position, results of
operations and accounting policies, please refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and notes thereto, beginning on page 25.
Notes to Selected Financial and Operating Data
/(1)/ One-time and unusual items and nonrecurring expenses consist of the
following: 1994: Restructuring expenses of $2,875, unusual items of
$1,676, primarily due to write-offs of entertainment programming, and
nonrecurring expenses of $62. Fiscal 1994 results also included a one-time
tax benefit of $7,500 that resulted from the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, which
required a change in the method of accounting for income taxes. 1993:
Expenses of $1,379 incurred in connection with the relocations of the
Entertainment Group's headquarters, the Publishing Group's headquarters
and the Catalog Group's operations facility, a $1,000 tax benefit
resulting from the settlement of a tax dispute for an amount less than the
related reserve and a gain of $665 resulting from the sale of the Catalog
Group's former operations facility. Fiscal 1993 results also included
nonrecurring expenses of $886, consisting primarily of operating losses
and restructuring charges related to the events business. 1992: Expenses
of $1,064 incurred in connection with the relocation of the Entertainment
Group's headquarters and a gain of $505 resulting from the sale of a note
related to the disposition of one of the Company's former properties.
1991: Interest income of $1,363, which resulted from a state income tax
refund pursuant to a settlement agreement with the state of Illinois.
1990: A gain of $4,806 resulting from the sale of the assets of Boarts
International, Inc. and expenses of $928 related to the Company's
recapitalization in June 1990.
/(2)/ Represents earnings before income taxes plus depreciation and amortization
less cash investments in programming.
/(3)/ The Company began to focus on the emerging satellite direct-to-home market
in fiscal 1992.
23
<PAGE>
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1995/(1)/ 1994/(1)/ 1993/(1)/
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenues/(2)/ /(3)/
Publishing $127,273 $123,368 $125,044
Catalog 61,435 48,556 39,411
Entertainment 51,697 40,089 42,597
Product Marketing 6,844 6,974 7,823
- ---------------------------------------------------------------------------------------------------
Total $247,249 $218,987 $214,875
===================================================================================================
Income (Loss) from Continuing Operations Before Income Taxes
and Cumulative Effect of Change in Accounting Principle/(3)/
Publishing $ 10,709 $ 3,693 $ 10,412
Catalog 5,209 4,148 4,064
Entertainment 967 (7,304) 1,811
Product Marketing 3,428 2,518 1,732
Corporate Administration and Promotion/(4)/ (17,256) (17,278) (16,993)
Investment income (expense), net 139 (128) 274
Interest expense (708) (651) (405)
Minority interest expense -- -- (860)
Other, net (52) (239) 444
- ---------------------------------------------------------------------------------------------------
Total $ 2,436 $(15,241) $ 479
===================================================================================================
Identifiable Assets
Publishing $ 38,433 $ 39,645 $ 37,658
Catalog 14,807 12,184 12,175
Entertainment 53,229 49,737 50,858
Product Marketing 5,964 6,133 8,506
Corporate Administration and Promotion/(5)/ 25,402 24,222 18,570
- ---------------------------------------------------------------------------------------------------
Total $137,835 $131,921 $127,767
===================================================================================================
Depreciation and Amortization/(6)/
Publishing $ 909 $ 1,024 $ 1,060
Catalog 673 792 1,061
Entertainment 20,606 18,573 14,418
Product Marketing 194 182 195
Corporate Administration and Promotion 2,098 1,871 1,706
- ---------------------------------------------------------------------------------------------------
Total $ 24,480 $ 22,442 $ 18,440
===================================================================================================
Capital Expenditures/(7)/
Publishing $ 101 $ 367 $ 2,079
Catalog 10 21 491
Entertainment 22 151 1,646
Product Marketing 2 7 248
Corporate Administration and Promotion 247 275 886
- ---------------------------------------------------------------------------------------------------
Total $ 382 $ 821 $ 5,350
===================================================================================================
The accompanying notes are an integral part of these tables.
</TABLE>
Notes to Financial Information Relating to Industry Segments
/(1)/ In fiscal 1995, the Company revised its segment presentation. Catalog
operations, formerly included in Publishing, are now reported separately.
In addition, certain marketing activities previously reported in Product
Marketing are now included in Corporate Administration and Promotion. The
prior years' segment information has been restated to conform to the
fiscal 1995 presentation.
/(2)/ Net revenues include export sales of $30,858, $26,709 and $28,725 in
fiscal 1995, 1994 and 1993, respectively.
/(3)/ Intercompany transactions have been eliminated.
/(4)/ Corporate Administration and Promotion expenses together with segment
selling and administrative expenses make up the Company's selling and
administrative expenses.
/(5)/ Corporate assets consist principally of property and equipment,
trademarks and net deferred tax assets.
/(6)/ Amounts include depreciation of property and equipment, amortization of
intangible assets, expenses related to the 1995 Stock Incentive Plan and
amortization of investments in entertainment programming.
/(7)/ Capital expenditures for fiscal 1993 were higher than fiscal 1994 and
1995 due to the relocations of the Publishing Group's headquarters in New
York, the Catalog Group's operations facility in suburban Chicago and the
Entertainment Group's headquarters in Los Angeles.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JUNE 30, 1995
COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
The Company's revenues were $247.2 for the fiscal year ended June 30, 1995, a
13% increase over revenues of $219.0 for the fiscal year ended June 30, 1994.
This increase was primarily due to higher revenues from the Catalog and
Entertainment Groups, and the Company's Playboy-related businesses.
The Company reported operating income of $3.1 for the year ended June 30, 1995
compared to an operating loss of $14.2 for the year ended June 30, 1994 largely
due to a significant improvement in operating income of the Publishing Group
combined with operating income reported for the Entertainment Group in the
current year compared to an operating loss in the prior year. In addition, the
prior year included a $2.9 restructuring charge, a $1.7 net charge for unusual
items, the establishment of various reserves totaling $1.5, and a $1.0 reduction
in carrying value of inventories.
Net income for the year ended June 30, 1995 was $.6, or $.03 per share,
compared to a net loss of $9.5, or $.48 per share, for the prior year. A $.6
loss on disposal of discontinued operations in the prior year resulted from
increasing the reserve related to the environmental cleanup of a site in Lake
Geneva, Wisconsin, formerly owned by a subsidiary of the Company. The net loss
for the year ended June 30, 1994 also included a one-time tax benefit of $7.5
that resulted from the adoption of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, which required a change in the method of
accounting for income taxes.
The Company's operating income of $3.1 and net income of $.6, or $.03 per
share, for the year ended June 30, 1995 compared to an operating loss of $9.6
and a net loss of $12.4, or $.62 per share, for the year ended June 30, 1994,
excluding the impact of the $2.9 restructuring charge, the $1.7 net charge
related to unusual items and the $7.5 one-time tax benefit in the prior year.
Several of the Company's businesses can experience variations in quarterly
performance. For example, Playboy magazine newsstand revenues vary from issue to
issue, with revenues generally higher for holiday issues and any issues
including editorial or pictorial features that generate unusual public interest.
Advertising revenues also vary from quarter to quarter, depending on product
introductions by advertising customers, changes in advertising buying patterns
and economic conditions. In addition, Entertainment Group revenues vary with the
timing of sales to international customers, including the timing of new
multiyear agreements to both program and supply programming for exclusive
Playboy-branded time slots on overseas pay television services. As a result, the
Company's performance in any quarterly period is not necessarily reflective of
full-year or longer-term trends.
PUBLISHING GROUP
Fiscal 1995 Publishing Group revenues of $127.3 increased $3.9, or 3%, compared
to fiscal 1994. Operating income of $10.7 increased $7.0 compared to prior year
operating income of $3.7, which was impacted by restructuring expenses of $1.1,
a charge for unusual items of $.4, and charges totaling $1.5 related to the
establishment of reserves and reductions in carrying value of inventories.
Playboy Magazine
Playboy magazine circulation revenues increased 2%, or $1.1, for the year ended
June 30, 1995 primarily due to 5% higher subscription revenues and favorable
newsstand sales adjustments related to prior issues in the current year,
partially offset by 9% fewer U.S. and Canadian newsstand copies sold in the
current year. Advertising revenues declined 1%, or $.4, for the year ended June
30, 1995 compared to the prior year as a result of slightly lower average net
revenue per page, despite a 5% rate increase effective with the January 1995
issue, as a result of higher frequency discounts and special pricing in the
current year and a change in the mix of advertising pages sold. Advertising
pages for fiscal 1995 were flat compared to fiscal 1994, which included the
January 1994 40th anniversary issue that contained a higher than normal number
of advertising pages. Advertising sales for the first quarter fiscal 1996 issues
of the magazine are closed, and the Company will report a 4% increase in the
number of advertising pages compared to the fiscal 1995 first quarter.
Playboy magazine operating income more than doubled for the year ended June
30, 1995 compared to the prior year principally due to decreases in
manufacturing costs and direct costs and operating expenses. Manufacturing
costs for the year ended June 30, 1995 decreased 5% compared to the prior year
principally due to the increased size of the January 1994 40th anniversary issue
of the magazine in the prior year, partially offset by slightly higher paper
prices in the current year. These higher paper prices began impacting the
Company in the second half of fiscal 1995, though most dramatically in the
fourth quarter as average paper prices increased 18% compared to the fourth
quarter of the prior year. For the year ended June 30, 1995 average paper prices
were 1% higher than the prior year. Direct costs and operating expenses
decreased 2% for the year ended June 30, 1995 largely due to prior year charges
totaling $2.1 related to the establishment of reserves, reduction in carrying
value and write-off of editorial inventory and restructuring. Also contributing
to the decrease in direct costs and operating expenses were lower advertising
promotion expenses and lower costs related to the new photo studio in California
in the current year and expenses in the prior year associated with the 40th
anniversary issue, partially offset by an increase in subscription acquisition
amortization expense and higher costs related to a postal rate increase that was
effective on January 1, 1995.
Direct costs and operating expenses are expected to be impacted approximately
$8.7 in fiscal 1996 compared to fiscal 1995 due to paper price and postal rate
increases. The Company plans to implement cost-saving strategies such as
reducing promotional spending and improving efficiencies by lowering the
advertising rate base from 3.40 million to 3.15 million to help offset the
higher paper and postage costs.
25
<PAGE>
Playboy-related Businesses
Operating income from the Company's Playboy-related businesses increased $2.4,
or 46%, on a $3.5, or 18%, increase in revenues for the year ended June 30, 1995
compared to the prior year. These increases were largely due to higher revenues
from newsstand specials as a result of the publication of two additional
newsstand specials in the current year and higher royalties from Playboy foreign
editions.
Administrative Expenses and Other
The Publishing Group's administrative expenses and other costs decreased 20% for
the year ended June 30, 1995 compared to the prior year. The decrease was
primarily due to lower salary expenses and lower employee medical benefit
expenses in the current year, partially offset by higher incentive compensation
costs in the current year and the receipt of a management fee from duPont
Publishing, Inc. in the prior year.
CATALOG GROUP
Fiscal 1995 Catalog Group revenues, which were formerly included in the
Publishing Group, of $61.4 increased $12.9, or 27%, compared to fiscal 1994. The
revenue increase was a result of higher sales volume from all of the Company's
catalogs, Critics' Choice Video, Collectors' Choice Music, which was first
mailed to prospective customers in October 1993, and Playboy. Fiscal 1995
Catalog Group operating income of $5.2 increased $1.1, or 26%, compared to
fiscal 1994 due to higher operating income from all three of the catalogs. The
Critics' Choice Video catalog reported higher operating income partially
attributable to a licensing agreement entered into in February 1994 that allows
the Company to purchase inventory at a lower cost. However, expenses were higher
due to increased mailings to prospective customers, and paper price and postal
rate increases. The Collectors' Choice Music catalog generated a meaningful
profit in fiscal 1995, its first full year of operation, despite higher expenses
related to significantly expanding circulation, and paper price and postal rate
increases. In fiscal 1996, the Company plans to increase the circulation for all
three catalogs, despite expected higher costs compared to fiscal 1995 related to
the previously discussed paper price and postal rate increases of approximately
$2.0.
ENTERTAINMENT GROUP
Fiscal 1995 Entertainment Group revenues of $51.7 increased $11.6, or 29%,
compared to fiscal 1994. The Entertainment Group reported fiscal 1995 operating
income of $1.0 compared to a prior year operating loss of $7.3, which included
restructuring expenses of $.6 and a charge for unusual items of $1.6.
The following discussion focuses on the profit contribution of each business
before programming expense ("profit contribution").
Playboy Television
For the year ended June 30, 1995, revenues of the Company's domestic pay
television service, Playboy Television, were 26% higher compared to the prior
year. Pay-per-view revenues increased 33%, attributable to higher buy rates, an
increase in the number of addressable homes to which Playboy Television was
available, and higher average revenue per buy in the current year. At June 30,
1995, Playboy Television was available to 10.6 million addressable homes, a 10%
increase compared to June 30, 1994. The average annual increase in the number of
addressable homes to which Playboy Television was available over the previous
five years was 34%. Management believes that beginning in the fourth quarter of
fiscal 1993, growth of the Company's domestic pay television business slowed due
to the effects of cable reregulation by the Federal Communications Commission
("FCC"), which has resulted in a slowdown in the industry's rollout of
addressability. Additionally, competition for channel space has contributed to
the slower growth as cable operators have utilized available channel space for
new cable networks in connection with mandated retransmission consent agreements
and for other new services, including adult movie pay television services.
Management believes that growth will continue to be affected in the near term as
the cable television industry responds to the FCC's initial rules and to
subsequent modifications, including the "going-forward rules" announced in
fiscal 1995. Over the coming months, management expects to continue to be
impacted by the slower growth of addressable homes related to these "going-
forward rules," as a result of cable operators being provided with incentives to
add basic services. Nevertheless, management believes that ultimately
reregulation should benefit pay-per-view services as cable operators seek
unregulated sources of revenue, such as pay-per-view. Monthly subscription
revenues declined 5% for the year ended June 30, 1995 compared to the prior year
due to a decline in the average number of subscribing households. The number of
monthly subscribers at June 30, 1995 was relatively flat compared to June 30,
1994.
Satellite direct-to-home and other revenues were 54% higher for the year ended
June 30, 1995 compared to the prior year. The increase was primarily due to a
64% increase in revenues from sales of Playboy Television to home satellite dish
viewers, due to new revenues from the launch of Playboy Television on DirecTV
and PrimeStar, digital broadcast satellite services, and growth in selling
directly to the backyard dish market, distribution by commercial retailers of
satellite programming and increased emphasis on consumer marketing.
Profit contribution for Playboy Television increased $3.9, or 46%, compared to
the prior year as the net increase in revenues more than offset higher expenses
in the current year related to selling directly to the backyard satellite dish
market and the absence of sublease income from the Company's satellite
transponder in the current year. As a result of the Company's move in May 1994
to 24-hour availability for Playboy Television, it no longer receives monthly
sublease income of approximately $.1, the cumulative loss of which was more than
offset in fiscal 1995 by the higher profit contribution resulting from increased
revenues due to 24-hour availability in additional homes. At June 30, 1995,
Playboy Television was available in 3.0 million homes on a 24-hour basis
compared to 1.2 million homes at June 30, 1994.
AdulTVision
In July 1995, the Company launched a second domestic pay television channel,
AdulTVision, to complement the Playboy Television service and to protect the
Company against competitive pressures from other adult channels. AdulTVision is
being offered on a pay-per-view basis and is sold in combination with Playboy
Television through cable operators, and to the direct-to-home market. The
channel is expected to be at least break even in fiscal 1996, its first year of
operation.
Domestic Home Video
Domestic home video revenues rebounded $2.5 for the year ended June 30, 1995
compared to the prior year primarily due to revenues in the
26
<PAGE>
current year related to a guarantee from a new licensing agreement with the
Company's distributor related to catalog titles. Additionally, domestic home
video launched two new product lines, a direct-response continuity series with
Warner Music Enterprises, Inc. to sell Playboy titles, and The Eros Collection,
a small-budget Playboy-produced line of movies. Also contributing to the
increase in revenues were adjustments in the prior year attributable to weak
sales of fiscal 1993 titles, partially offset by sales in the prior year of
higher-priced rental titles. Profit contribution increased $3.7 for the year
ended June 30, 1995 compared to the prior year primarily due to the increase in
revenues in the current year combined with higher marketing expenses in the
prior year largely attributable to fiscal 1993 releases.
International Television and Home Video
For the year ended June 30, 1995, revenues and profit contribution from the
international television and home video businesses increased $1.3 and $.1,
respectively, compared to the prior year. Profit contribution from the
international home video business increased $.7 on a $.6 increase in revenues. A
decrease in the profit contribution of the international television business of
$.6 is primarily due to bad debt expense of $1.3 in the current year related to
sales to an international television distributor in the prior year, partially
offset by an increase in revenues of $.7, in part due to the recent launch of a
Playboy Television channel in the United Kingdom. Variations in quarterly
performance are caused by revenues and profit contribution from multiyear
agreements being recognized depending upon the timing of program delivery,
license periods and other factors.
Programming Expense
Programming amortization expense associated with the Entertainment Group
businesses discussed above increased $2.0 for the year ended June 30, 1995
compared to the prior year. The increase was principally due to increased
investments in entertainment programming combined with the higher international
television and home video revenues. Partially offsetting the increase was a $.4
unusual charge in the prior year related to the establishment of a reserve for
programming of O.J. Simpson: Minimum Maintenance Fitness for Men ("Minimum
Maintenance"), and a $.9 favorable effect of a change in accounting estimate. In
the second quarter of fiscal 1995, the distribution rights and the remaining
inventory of Minimum Maintenance were sold, which resulted in an immaterial
profit contribution.
The Company revised its amortization method for licensed film costs during the
fourth quarter of fiscal 1994 because of its decision to offer Playboy
Television on a 24-hour basis, which resulted in a change in the scheduling of
licensed films. Licensed films are being aired throughout the term of the
license period, and related costs are being amortized over such period,
generally three years.
Cash investments in entertainment programming for all of the Entertainment
Group's businesses, including those related to Movies and Other as discussed
below, were $17.2 in fiscal 1994 and $21.3 in fiscal 1995, and are planned for
$27.0 in fiscal 1996. As a result of these higher levels of cash investments,
management anticipates that programming amortization expense in fiscal 1996 will
be approximately $25.0, or approximately $5.0 higher than in fiscal 1995.
Movies and Other
For the year ended June 30, 1995, revenues from the Entertainment Group's movies
and other businesses increased $1.8 compared to the prior year primarily due to
revenues in the current year related to three new feature-length films produced
in conjunction with Motion Picture Corporation of America, combined with
adjustments in the prior year related to the fiscal 1993 home video release of
the documentary film Hugh Hefner: Once Upon a Time. Operating performance for
the year ended June 30, 1995 increased $2.1 primarily due to the increase in
revenues combined with the favorable impact in the current year of a $1.2 market
value adjustment for the documentary film in the prior year, partially offset by
current year programming amortization expense related to the feature-length
films.
The Entertainment Group's administrative expenses and other costs for the year
ended June 30, 1995 decreased $.6 compared to the prior year. This decrease was
primarily due to costs in the prior year of $.6 associated with restructuring.
Additionally, higher incentive compensation costs were mostly offset by lower
employee medical benefit expenses in the current year.
PRODUCT MARKETING GROUP
Product Marketing Group revenues of $6.8 for the year ended June 30, 1995
decreased $.1, or 2%, compared to the prior year primarily due to lower
royalties from a principal Sarah Coventry licensee that experienced financial
difficulties and was terminated, combined with lower revenues from Special
Editions, Ltd., as the Company's art publishing and art products business moves
from direct sales to licensing. Mitigating the above were 16% higher
international product licensing royalties in the current year primarily due to
strong sales in Hong Kong and China. Operating income of $3.4 increased $.9, or
36%, for the year ended June 30, 1995 compared to the prior year principally due
to increases in the operating performances of international product licensing,
primarily due to the higher revenues, and Special Editions, Ltd., principally
due to a $.5 reduction in carrying value of art publishing inventory in the
prior year, partially offset by the lower revenues. Partially offsetting the
above was a decrease in Sarah Coventry operating income primarily due to the
decrease in revenues partially offset by lower bad debt expense in the current
year.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate administration and promotion expense of $17.3 for the year ended June
30, 1995 was stable compared to the prior year. Higher incentive compensation
costs in the current year were offset by net one-time expenses in the prior year
associated with charges related to restructuring and a real estate tax
obligation related to the Company's former office space in Los Angeles,
California, partially offset by a benefit related to an insurance settlement.
FISCAL YEAR ENDED JUNE 30, 1994
COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
The Company's revenues were $219.0 for the fiscal year ended June 30, 1994, a 2%
increase over revenues of $214.9 for the fiscal year ended June 30, 1993. This
increase was primarily due to higher revenues from the Catalog Group and the pay
television business, partially offset by lower revenues from the domestic home
video and Playboy-related businesses.
27
<PAGE>
The Company reported an operating loss of $14.2 for the year ended June 30,
1994 compared to operating income of $1.0 for the year ended June 30, 1993. This
decrease was primarily due to an operating loss for the Entertainment Group in
fiscal 1994, coupled with declines in operating income for Playboy-related
businesses and Playboy magazine. In addition, the year-to-year comparison was
unfavorably impacted by $7.1 of charges in fiscal 1994 related to restructuring,
unusual items, the establishment of various reserves and a reduction in carrying
value of inventories. Partially offsetting the year-to-year decline in operating
performance was the impact in fiscal 1993 of move-related expenses of $1.4 and
nonrecurring expenses of $.9, which consisted primarily of operating losses and
restructuring charges related to the events business.
For the year ended June 30, 1994, the Company reported nonoperating expense of
$1.0 compared to $.5 in the prior year primarily due to a $.7 gain in the prior
year related to the sale of the Company's former suburban Chicago Catalog Group
operations facility and a $.4 decrease in investment income, partially offset by
$.9 of minority interest expense in the prior year related to the Company's 80%
ownership of Critics' Choice Video, Inc. There was no such expense in fiscal
1994, as a result of the Company's purchase for $3.0 of the remaining 20% of
Critics' Choice Video, Inc. common stock effective July 1, 1993.
The net loss for the year ended June 30, 1994 was $9.5, or $.48 per share,
compared to net income of $.4, or $.02 per share, for the prior year. A $.6 loss
on disposal of discontinued operations in fiscal 1994 resulted from increasing
the reserve related to the environmental cleanup of a site in Lake Geneva,
Wisconsin, formerly owned by a subsidiary of the Company. The net loss for the
year ended June 30, 1994 also included a one-time tax benefit of $7.5 that
resulted from the adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes, which required a change in the method of
accounting for income taxes. Net income for the year ended June 30, 1993
included a one-time tax benefit of $1.0 that resulted from the settlement of a
tax dispute with the state of California in December 1992 for an amount less
than the related reserve.
Excluding the impact of the $2.9 restructuring charge, the $1.7 net charge
related to unusual items and the $7.5 one-time tax benefit in the year ended
June 30, 1994, and the one-time move-related and nonrecurring expenses of $2.3,
the one-time tax benefit of $1.0 and the $.7 gain resulting from the sale of the
former Catalog Group operations facility in the year ended June 30, 1993, the
operating loss would have been $9.6 in fiscal 1994 compared to operating income
of $3.3 in fiscal 1993. The net loss would have been $12.4, or $.62 per share,
for the year ended June 30, 1994 compared to net income of $.9, or $.05 per
share, for the year ended June 30, 1993.
PUBLISHING GROUP
Fiscal 1994 Publishing Group revenues of $123.4 decreased $1.7, or 1%, compared
to fiscal 1993. Operating income of $3.7, which was impacted by restructuring
expenses of $1.1, a charge for unusual items of $.4, and charges totaling $1.5
related to the establishment of reserves and reductions in carrying value of
inventories, decreased $6.7, or 65%, compared to the prior year, which was
impacted by one-time move-related expenses of $.4.
Playboy Magazine
Playboy magazine circulation revenues increased 6%, or $3.9, for the year ended
June 30, 1994 primarily due to the impact of 14% more U.S. and Canadian
newsstand copies sold in fiscal 1994 and higher subscription revenues primarily
resulting from price increases. Advertising revenues declined 8%, or $2.4, for
the year ended June 30, 1994 compared to the prior year primarily as a result of
10% fewer advertising pages, partially mitigated by slightly higher average net
revenue per page due to a 5% rate increase effective with the January 1994
issue. Revenues of $.5 resulting from the settlement of a copyright
infringement lawsuit favorably impacted fiscal 1993.
Playboy magazine operating income declined 53%, or $4.0, for the year ended
June 30, 1994 compared to the prior year principally due to an increase in
direct costs and operating expenses combined with the decline in advertising
revenues, which more than offset the circulation revenue increase discussed
above. Direct costs and operating expenses increased 6% for the year ended June
30, 1994, in part due to charges totaling $1.4 related to the establishment of
reserves and reduction in carrying value and write-off of editorial inventory.
Excluding the charges of $1.4, direct costs and operating expenses would have
increased 4% for fiscal 1994. Restructuring expenses of $.7 in fiscal 1994
related to Playboy magazine were largely offset by resulting savings in the
fiscal year. Manufacturing costs for the year ended June 30, 1994 increased 4%
compared to the prior year principally due to higher paper prices, which began
impacting the Company late in the third quarter of fiscal 1993. For the year
ended June 30, 1994, average paper prices were 7% higher than in the prior year.
However, fourth quarter fiscal 1994 issues of the magazine benefited from
negotiated paper prices that were lower than prior quarters, although still
higher than fiscal 1993 levels.
Playboy-related Businesses
Revenues from the Company's Playboy-related businesses decreased 12% for the
year ended June 30, 1994 compared to the prior year primarily due to revenues in
fiscal 1993 related to an agreement for the use of images from the Company's
photo library for trading cards. Also contributing to the decrease were lower
revenues from the sale of newsstand specials, primarily due to lower average
copy sales in fiscal 1994, and lower royalties from foreign editions of Playboy
magazine, primarily in countries suffering from weak economies. Operating income
declined 38% for the year ended June 30, 1994 compared to the prior year
primarily due to the decrease in revenues previously discussed.
Administrative Expenses, New Magazine Development and Other
The Publishing Group's administrative expenses, new magazine development and
other costs decreased 10% for the year ended June 30, 1994 compared to the prior
year. The decrease was primarily due to expenses incurred in connection with the
relocation of the Publishing Group's headquarters in New York City in fiscal
1993, coupled with the receipt of a management fee from duPont Publishing, Inc.
in fiscal 1994. These improvements were partially offset by $.2 of costs
associated with restructuring in fiscal 1994.
CATALOG GROUP
Fiscal 1994 Catalog Group revenues of $48.5 increased $9.1, or 23%, compared to
fiscal 1993. The revenue increase was primarily a result of higher sales volume
from both the Critics' Choice Video and Playboy
28
<PAGE>
catalogs, combined with the launch of the Collectors' Choice Music catalog,
which was first mailed to prospective customers in October 1993. Fiscal 1994
Catalog Group operating income of $4.2 was relatively stable as higher operating
income from the Playboy catalog due to the higher sales volume, and expenses
incurred in fiscal 1993 in connection with the relocation of the suburban
Chicago operations facility, were mostly offset by lower operating income from
the Critics' Choice Video catalog. Additionally, the revenues from the launch of
the Collectors' Choice Music catalog resulted in a small profit in fiscal 1994.
The decline in operating income from the Critics' Choice Video catalog was
primarily the result of a higher operating margin in fiscal 1993 partially
attributable to a licensing agreement that allowed the Company to purchase
inventory at a lower cost. Although the operating margin of the Catalog Group in
fiscal 1994 was below that of the prior year, it was still higher than the
margin averaged prior to the Postings acquisition in April 1992, even with
higher expenses due to increased mailings to prospective Critics' Choice Video
customers in fiscal 1994.
ENTERTAINMENT GROUP
Fiscal 1994 Entertainment Group revenues of $40.1 decreased $2.5, or 6%,
compared to fiscal 1993. The Entertainment Group reported a fiscal 1994
operating loss of $7.3, which included restructuring expenses of $.6 and a
charge for unusual items of $1.6, compared to prior year operating income of
$1.8, which was impacted by one-time move-related expenses of $.8.
The following discussion focuses on the profit contribution of each business
before programming expense ("profit contribution").
Playboy Television
For the year ended June 30, 1994, revenues of the Company's domestic pay
television service, Playboy Television, were 7% higher compared to the prior
year. Pay-per-view revenues increased 12%, partially attributable to higher buy
rates in the fourth quarter of fiscal 1994, in part due to Playboy Television's
rollout to 24-hour availability that began on May 1, 1994. At June 30, 1994,
Playboy Television was available to 9.6 million addressable homes, a 5% increase
compared to June 30, 1993. Monthly subscription revenues declined 14% for the
year ended June 30, 1994 compared to the prior year primarily due to a decline
in the average number of subscribing households. Fiscal 1994 revenues were
impacted by the effects of cable reregulation as previously discussed and by the
decision of certain cable operators to drop Playboy Television, but overall, net
access to addressable households increased in fiscal 1994.
Satellite direct-to-home and other revenues were 38% higher for the year ended
June 30, 1994 compared to the prior year. The increase was due to an 87%
increase in revenues from sales of Playboy Television to home satellite dish
viewers, as distribution by commercial retailers of satellite programming and
increased emphasis on consumer marketing improved Playboy Television's market
share in the home satellite dish industry. Partially offsetting the increase
were lower revenues from licensing the Company's anthology of short stories,
Inside Out, to Viewer's Choice in fiscal 1994 compared to licensing a PG-rated
version of the Company's dramatic series, Eden, to USA Network in fiscal 1993.
Profit contribution for Playboy Television decreased $1.0 for the year ended
June 30, 1994 compared to the prior year as the net increase in revenues was
more than offset by increased marketing activities, expenses related to selling
directly to the backyard satellite dish market and testing the increased
availability of Playboy Television from ten to 24 hours in fiscal 1994.
Domestic Home Video
Domestic home video revenues decreased $3.1 for the year ended June 30, 1994
compared to the prior year primarily due to a reduction in the number of titles
released on videocassette and laser disc, lower sales of titles in the higher-
priced rental market, and the effect of repricing selected titles from the
rental to the lower-priced sell-through market in fiscal 1994. Also contributing
to the decline in revenues were adjustments in fiscal 1994 attributable to weak
sales of fiscal 1993 titles and a favorable settlement in the prior year with
the Company's former distributor. Profit contribution decreased $2.9 for the
year ended June 30, 1994 compared to the prior year primarily due to the decline
in revenues combined with higher marketing expenses largely attributable to
fiscal 1993 releases, partially offset by lower related cost of sales expense.
Management believed that the cost of releasing 25 new titles, as in fiscal 1993,
was too high compared to total revenues generated, and as a result reduced the
number of new titles released in fiscal 1994 to 14.
International Television and Home Video
For the year ended June 30, 1994, profit contribution from the international
television business decreased $.4 compared to the prior year on a $.2 decline in
revenues. Variations in quarterly performance are caused by revenues and profit
contribution from multiyear agreements being recognized depending upon the
timing of program delivery, license periods and other factors. Profit
contribution from the international home video business increased $.1 compared
to the prior year on a $.3 increase in revenues.
Programming Expense
Programming amortization expense associated with the Entertainment Group
businesses discussed above increased $3.4 for the year ended June 30, 1994
compared to the prior year, principally due to higher amortization resulting
from increased investments in entertainment programming, combined with a $.4
unusual charge in fiscal 1994 related to the establishment of a reserve for
programming of Minimum Maintenance.
Other
For the year ended June 30, 1994, revenues from the Entertainment Group's other
businesses declined $1.0 compared to the prior year primarily due to the fiscal
1993 home video release of the documentary film Hugh Hefner: Once Upon a Time,
and to adjustments in fiscal 1994 related to the release. Operating performance
for the year ended June 30, 1994 decreased $1.7 primarily due to the decline in
revenues and the $1.2 market value adjustment for the documentary film,
partially offset by lower related marketing and programming amortization
expenses in fiscal 1994.
The Entertainment Group's administrative expenses and other costs for the year
ended June 30, 1994 decreased $.2 compared to the prior year. This decrease was
primarily due to move-related expenses of $.8 related to subleasing vacant space
in the Entertainment Group's former headquarters in fiscal 1993, partially
offset by $.6 of costs associated with restructuring in fiscal 1994.
29
<PAGE>
PRODUCT MARKETING GROUP
Product Marketing Group revenues of $7.0 for the year ended June 30, 1994
decreased $.8, or 11%, compared to fiscal 1993, largely due to lower revenues in
fiscal 1994 from the sale of wearable art products manufactured for the Company,
partially offset by a 4% increase in royalties from the international product
licensing business. Operating income of $2.5 increased $.8, or 45%, for the year
ended June 30, 1994 compared to the prior year primarily due to the impact of
operating losses in fiscal 1993 related to certain events activities that were
discontinued and a 21% increase in international product licensing operating
income. Partially offsetting this improvement were a $.5 reduction in carrying
value of art publishing inventory, higher administrative expenses and $.1 of
restructuring expense in fiscal 1994.
CORPORATE ADMINISTRATION AND PROMOTION
Corporate administration and promotion expense of $17.3 for the year ended June
30, 1994 was relatively stable compared to the prior year as costs associated
with restructuring and a charge for a real estate tax obligation related to the
Company's former office space in Los Angeles, California were offset by a
benefit related to an insurance settlement and savings resulting from
restructuring.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company had $1.5 in cash and cash equivalents and $5.0 in
short-term borrowings, compared to $1.3 in cash and cash equivalents and $6.0 in
short-term borrowings at June 30, 1994. The Company expects to meet its short-
term and long-term cash requirements through its revolving line of credit, other
possible long-term financing and cash generated from operations.
Cash Flows From Operating Activities
Net cash provided by operating activities was $3.2 for the year ended June 30,
1995 compared to cash used for operating activities of $4.4 for the prior year.
This increase was primarily due to the Company's improved operating performance
in the current year. Additionally, there was cash provided by accounts payable
during fiscal 1995 compared to cash used for accounts payable in the prior year,
principally in the Entertainment and Catalog Groups, primarily as a result of
liabilities at June 30, 1995 related to profit participation agreements,
licensed programming costs and catalog inventory. There also was cash provided
by deferred subscription acquisition costs in the current year compared to cash
used in the prior year, primarily due to higher spending in fiscal 1994.
Partially offsetting these increases were lower cash provided from deferred
revenues, principally due to higher subscription mailings in the prior year, and
a higher use of cash in the current year related to accounts receivable,
principally in the Entertainment Group, primarily as a result of higher pay-per-
view, continuity series and feature-length film sales in the current year,
partially offset by a bad debt reserve established in the current year related
to an international television distributor. Cash used for inventories in fiscal
1995 was primarily due to higher paper inventory at June 30, 1995 as a result of
the timing of shipments, whereas cash provided by inventories in fiscal 1994 was
principally attributable to an increase of inventory related to the Critics'
Choice Video catalog in fiscal 1993. The Company invested $21.3 in Company-
produced and licensed entertainment programming during fiscal 1995 compared to
$17.2 in the prior year, and expects to invest approximately $27.0 in such
programming in fiscal 1996. Net cash provided by discontinued operations in
fiscal 1994 of $.5 primarily resulted from a United Kingdom tax refund in
connection with the settlement in fiscal 1993 of litigation related to the
Company's discontinued United Kingdom gaming operations.
Net cash used for operating activities was $4.4 for the year ended June 30,
1994 compared to $24.9 for the prior year. This was in part due to a decrease in
cash used for accounts receivable, primarily in the Publishing and Entertainment
Groups, principally due to lower advances from the Company's national
distributor of Playboy magazine for open issues at June 30, 1993 compared to the
prior year, and lower sales in fiscal 1994 of home videos and monthly
subscriptions to Playboy Television. Partially offsetting these decreases were
increased accounts receivable due to higher sales of the Company's entertainment
programming in international markets in the fourth quarter of fiscal 1994
compared to the prior year. Cash provided by deferred revenues increased due to
an overall increase in subscription mailings and an increased level of higher
margin direct-to-publisher subscription sales of Playboy magazine in fiscal 1994
compared to the prior year, partially offset by higher cash used for deferred
subscription acquisition costs in fiscal 1994. Additionally, cash used for
inventories decreased for fiscal 1994 primarily due to an increase of inventory
related to the Critics' Choice Video catalog in the prior year. The Company
invested $17.2 in Company-produced and licensed entertainment programming during
fiscal 1994 compared to $23.0 in the prior year. As previously discussed, net
cash provided by discontinued operations in fiscal 1994 of $.5 primarily
resulted from a United Kingdom tax refund. During fiscal 1993, $2.2 was paid at
the inception of the Company's approximately nine-year satellite transponder
lease, and the Company entered into a settlement agreement with the state of
California regarding tax years 1974 and 1976 through 1981, pursuant to which
$2.3 was paid by the Company.
Cash Flows From Investing Activities
Net cash used for investing activities was $.3 for the year ended June 30, 1995
compared to $2.3 for the prior year. Capital expenditures for the year ended
June 30, 1995 were $.4 lower than in the prior year. The Company also leased
$1.4 of furniture and equipment in fiscal 1995, compared to $.9 in fiscal 1994.
The Company expects to lease assets totaling approximately $1.7 and to make
capital expenditures of approximately $.5 in fiscal 1996. Under the terms of its
July 1988 purchase of an 80% interest in Critics' Choice Video, Inc., effective
July 1, 1993, the Company acquired the remaining 20% interest in Critics' Choice
Video, Inc. for $3.0, which consisted of $1.5 in cash and one-year promissory
notes totaling $1.5, which were paid July 1, 1994.
Net cash used for investing activities was $2.3 for the year ended June 30,
1994 compared to net cash provided by investing activities of $6.7 for the prior
year. The difference was primarily due to sales of short-term investments in
fiscal 1993 to fund increased investments in entertainment programming and
working capital requirements. Capital expenditures for the year ended June 30,
1994 were $4.5 lower than in the prior year primarily as a result of leasehold
improvements made in fiscal 1993 in connection with the relocations of the
Company's Los Angeles and New York offices and suburban Chicago Catalog Group
operations facility. The Company also leased $.9 of furniture and equipment in
fiscal 1994, compared to $2.7 in fiscal 1993, which was primarily related to the
relocation of the Publishing Group's headquarters.
30
<PAGE>
In fiscal 1993, the Company sold the facility previously utilized by its Catalog
Group operations, for which it received net proceeds of $1.2. As previously
discussed, in fiscal 1994, the Company acquired the remaining 20% interest in
Critics' Choice Video, Inc. for $3.0, of which $1.5 was cash.
Cash Flows From Financing Activities
Net cash used for financing activities was $2.7 for the year ended June 30, 1995
compared to net cash provided by financing activities of $6.0 in the prior year.
The decrease is principally due to a reduction in short-term borrowings under
the Company's revolving line of credit of $1.0 in fiscal 1995 compared to an
increase in short-term borrowings of $6.0 in fiscal 1994. Also contributing to
the decrease was the payment on July 1, 1994 of the $1.5 promissory notes
referred to above.
Net cash provided by financing activities was $6.0 for the year ended June 30,
1994 principally due to an increase in short-term borrowings of $6.0 under the
Company's revolving line of credit in fiscal 1994. Net cash provided by
financing activities of $11.4 for the year ended June 30, 1993 was primarily the
result of the Company's completion of a public offering of its nonvoting Class B
stock, which resulted in net proceeds to the Company of $11.7. The Company's net
proceeds were used to repay short-term borrowings under its revolving line of
credit.
Income Taxes
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("Statement 109").
When tax effected at the presently enacted tax rates, the Company's deductible
temporary differences, tax credit carryforwards and net operating loss
carryforwards ("NOLs") at July 1, 1993 resulted in a total potential gross
deferred tax asset for federal income tax purposes of $25.1. Management, after
analyzing available facts, concluded that it was prudent to establish a
valuation allowance of $12.1, which, combined with $5.5 of gross deferred tax
liabilities, resulted in the Company's recognition of a net deferred tax asset
of $7.5. In fiscal 1995, the Company realized $.6 of the $7.5 net deferred tax
asset by utilizing a portion of the NOLs against fiscal 1995 income. Management
believes that the net deferred tax asset of $6.9 at June 30, 1995 is an amount
that will more likely than not be realized in future periods.
Based on current tax law, the Company must generate approximately $20.2 of
future taxable income (net of $6.5 of taxable income that the Company will
report as a result of the automatic reversal of existing taxable temporary
differences between asset and liability values for financial reporting and
income tax purposes) prior to the expiration of the Company's NOLs for full
realization of the net deferred tax asset. At June 30, 1995, the Company had
NOLs of $47.8 for tax purposes, with $12.1 expiring in 2001, $8.9 expiring in
2003, $8.2 expiring in 2004, $1.1 expiring in 2007, $1.1 expiring in 2008 and
$16.4 expiring in 2009.
Management continues to believe that it is more likely than not that a
sufficient level of taxable income will be generated in years subsequent to
fiscal 1995 and prior to the expiration of the Company's NOLs to realize the
$6.9 net deferred tax asset recorded at June 30, 1995. Following is a summary of
the bases for management's belief that a valuation allowance of $28.6 is
adequate, and that it is more likely than not that the net deferred tax asset of
$6.9 will be realized:
. Management reviewed the components of the Company's NOLs and determined
that they primarily resulted from several nonrecurring events, which were
not indicative of the Company's ability to generate future earnings.
. As a result of the restructurings implemented in fiscal 1994, operating
expenses have been reduced.
. The Publishing, Catalog and Product Marketing Groups continue to generate
earnings, while the Company's substantial investments in the Entertainment
Group should continue to lead to increased earnings potential in future
years.
. The Company has several opportunities to accelerate taxable income into the
NOL carryforward period. Tax planning strategies would include the
capitalization and amortization versus immediate deduction of circulation
expenditures, the immediate inclusion versus deferred recognition of prepaid
subscription income, the revision of depreciation and amortization methods
for tax purposes and the sale-leaseback of certain property that would
generate taxable income in future years.
The reconciliation of the Company's income (loss) before income taxes for
financial statement purposes to taxable income (loss) for the years ended June
30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes for
financial statement purposes $ 2.4 $(15.9) $ .2
Exclusion of permanent differences .8 .5 (1.0)
State taxes (.1) (.1) --
Temporary differences
Programming cost amortization (1.3) (2.1) (1.9)
Deferred subscription acquisition costs .7 (3.6) .4
Other 2.9 4.8 1.2
- -------------------------------------------------------------------
Taxable income (loss) $ 5.4 $(16.4) $(1.1)
===================================================================
</TABLE>
Other
In January 1993, the Company received a General Notice from the United States
Environmental Protection Agency (the "EPA") as a "potentially responsible party"
("PRP") in connection with a site identified as the Southern Lakes Trap & Skeet
Club, apparently located at the Resort-Hotel in Lake Geneva, Wisconsin (the
"Resort"), formerly owned by a subsidiary of the Company. The Resort was sold by
the Company's subsidiary to LG Americana-GKP Joint Venture in 1982. Two other
entities were also identified as PRPs in the notice. The notice relates to
actions that may be ordered taken by the EPA to sample for and remove
contamination in soils and sediments, purportedly caused by skeet shooting
activities at the Resort property. During fiscal 1994, the EPA advised the
Company of its position that the area of land requiring remediation is
approximately twice the size of the initial site. As a result, the Company
increased its reserve for this matter, which resulted in a $.6 loss on disposal
of discontinued operations in fiscal 1994. The Company believes that it has
established adequate reserves, which totaled $.8 at June 30, 1995, to cover the
eventual cost of its anticipated share (based on an agreement with one of the
other PRPs) of any remediation that may be agreed upon. The Company is also
reviewing available defenses, insurance coverage and claims it may have against
third parties.
31
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 247,249 $ 218,987 $ 214,875
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (214,327) (196,817) (180,700)
Selling and administrative expenses (29,865) (31,842) (33,149)
Restructuring expenses -- (2,875) --
Unusual items -- (1,676) --
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses (244,192) (233,210) (213,849)
- ----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 3,057 (14,223) 1,026
- ----------------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense)
Investment income (expense), net 139 (128) 274
Interest expense (708) (651) (405)
Minority interest expense -- -- (860)
Other, net (52) (239) 444
- ----------------------------------------------------------------------------------------------------------------------------
Total nonoperating expense (621) (1,018) (547)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes
and cumulative effect of change in accounting principle 2,436 (15,241) 479
Income tax expense (1,807) (1,123) (114)
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
cumulative effect of change in accounting principle 629 (16,364) 365
Loss on disposal of discontinued operations -- (620) --
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle 629 (16,984) 365
Cumulative effect of change in accounting principle -- 7,500 --
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 629 $ (9,484) $ 365
============================================================================================================================
Weighted average number of common shares outstanding 19,984 19,928 18,871
============================================================================================================================
Income (loss) per common share
Income (loss) before cumulative effect
of change in accounting principle
From continuing operations $ .03 $ (.83) $ .02
From discontinued operations -- (.03) --
- ----------------------------------------------------------------------------------------------------------------------------
Total .03 (.86) .02
Cumulative effect of change in accounting principle -- .38 --
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ .03 $ (.48) $ .02
============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
32
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30
<TABLE>
<CAPTION>
(in thousands, except share data) 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,471 $ 1,258
Receivables, net of allowance for doubtful accounts of $4,837 and $3,155 24,151 20,590
Inventories 21,428 19,268
Programming costs 29,740 27,658
Deferred subscription acquisition costs 9,176 10,086
Other current assets 10,190 8,808
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 96,156 87,668
- ----------------------------------------------------------------------------------------------------------------------------
Property and equipment
Land 292 292
Buildings and improvements 8,245 8,108
Furniture and equipment 19,839 20,047
Leasehold improvements 8,200 8,074
- ----------------------------------------------------------------------------------------------------------------------------
Total property and equipment 36,576 36,521
Accumulated depreciation (23,100) (20,867)
- ----------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 13,476 15,654
- ----------------------------------------------------------------------------------------------------------------------------
Programming costs-noncurrent 3,209 4,108
Trademarks 11,046 10,106
Net deferred tax assets 6,493 7,153
Other noncurrent assets 7,455 7,232
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $ 137,835 $ 131,921
============================================================================================================================
Liabilities
Short-term borrowings $ 5,000 $ 6,000
Current financing obligations 333 1,827
Accounts payable 19,549 13,680
Accrued salaries, wages and employee benefits 4,088 3,811
Reserves for losses on disposals of discontinued operations 766 890
Income taxes payable 875 780
Deferred revenues 42,905 41,734
Other liabilities and accrued expenses 8,621 8,040
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 82,137 76,762
- ----------------------------------------------------------------------------------------------------------------------------
Long-term financing obligations 687 1,020
Other noncurrent liabilities 7,921 7,828
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 90,745 85,610
- ----------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity
Common stock, $.01 par value
Class A-7,500,000 shares authorized; 5,042,381 issued 50 50
Class B-30,000,000 shares authorized; 16,477,143 issued 165 165
Capital in excess of par value 36,398 36,381
Retained earnings 18,546 17,917
Less cost of 328,427 and 332,927 Class A common shares and 1,201,294
and 1,222,254 Class B common shares in treasury (8,069) (8,202)
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 47,090 46,311
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 137,835 $ 131,921
============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
33
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Class A Class B Capital in
Common Common Excess of Retained Treasury
(in thousands of dollars) Stock Stock Par Value Earnings Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $50 $151 $24,655 $27,036 $(8,636) $43,256
Net income -- -- -- 365 -- 365
Issuance of 1,350,000 Class B common shares
in public offering -- 14 11,648 -- -- 11,662
Exercise of 10,000 Class B stock options -- -- 38 -- 52 90
Issuance of 1,024 Class B common shares to
employees as service awards -- -- 3 -- 5 8
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 50 165 36,344 27,401 (8,579) 55,381
Net loss -- -- -- (9,484) -- (9,484)
Exercise of 8,400 Class A and
62,500 Class B stock options -- -- 35 -- 372 407
Issuance of 889 Class B common shares to
employees as service awards -- -- 2 -- 5 7
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 50 165 36,381 17,917 (8,202) 46,311
Net income -- -- -- 629 -- 629
Exercise of 4,500 Class A and
20,000 Class B stock options -- -- 14 -- 128 142
Issuance of 960 Class B common shares to
employees as service awards -- -- 3 -- 5 8
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $50 $165 $36,398 $18,546 $(8,069) $47,090
==================================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
34
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 629 $ (9,484) $ 365
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating activities
Depreciation of property and equipment 2,531 2,752 2,665
Amortization of intangible assets 1,590 1,516 1,699
Amortization of investments in entertainment programming 20,130 18,174 14,076
Investments in entertainment programming (21,313) (17,185) (23,033)
Cumulative effect of change in accounting principle -- (7,500) --
(Gain) loss on disposals of property and equipment 12 (2) (572)
Gain and payment related to settlement of tax case -- -- (3,296)
Payments related to transponder lease -- -- (2,241)
Changes in current assets and liabilities
Accounts receivable (3,498) 1,609 (7,423)
Inventories (2,160) 2,398 (3,645)
Deferred subscription acquisition costs 910 (2,478) 873
Other current assets (1,586) (683) (268)
Accounts payable 5,869 (1,287) 1,062
Accrued salaries, wages and employee benefits 277 (327) 461
Income taxes payable 92 (36) 165
Deferred revenues 1,171 5,416 (2,936)
Other liabilities and accrued expenses 581 366 (1,736)
-------- -------- --------
Net change in current assets and liabilities 1,656 4,978 (13,447)
-------- -------- --------
Increase in trademarks (1,856) (1,492) (1,599)
Decrease in net deferred tax assets 629 -- --
(Increase) decrease in other noncurrent assets (832) 318 (412)
Increase in other noncurrent liabilities 96 2,371 2,080
Net cash provided by (used for) discontinued operations (124) 531 (1,259)
Increase in reserve for loss on disposal of discontinued operations -- 620 524
Other, net 32 35 (478)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities 3,180 (4,368) (24,928)
- -------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Additions to property and equipment (382) (821) (5,350)
Acquisition of Critics' Choice Video, Inc. minority interest -- (1,510) --
Proceeds from disposals of property and equipment 17 4 2,003
Net decrease in short-term investments -- 50 10,397
Other, net 50 -- (358)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities (315) (2,277) 6,692
- -------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Increase (decrease) in short-term borrowings (1,000) 6,000 --
Net proceeds from issuance of common stock -- -- 11,662
Repayment of debt (1,850) (350) (350)
Proceeds from exercise of stock options 198 350 54
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (2,652) 6,000 11,366
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 213 (645) (6,870)
Cash and cash equivalents at beginning of year 1,258 1,903 8,773
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,471 $ 1,258 $ 1,903
=======================================================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED JUNE 30, 1995
(A) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
Revenue Recognition: Revenues from the sale of magazine subscriptions are
recognized over the terms of the subscriptions. Sales of magazines and newsstand
specials (net of estimated returns), and revenues from the sale of
advertisements, are recorded when each issue goes on sale. Revenues from the
sale of catalog products are recognized when the items are shipped. Pay
television revenues are recognized based on pay-per-view buys and monthly
subscriber counts reported each month by the system operators carrying Playboy
Television. Domestic home video revenues are recognized based on a licensing
agreement for catalog titles and unit sales reported for new releases each month
by the Company's distributor. International television revenues are recognized
upon delivery of programming to customers and/or upon the commencement of the
license term.
Cash Equivalents: Cash equivalents are temporary cash investments with an
original maturity of three months or less at date of purchase and are stated at
cost, which approximates market value.
Inventories: Inventories are stated at the lower of cost (average cost, specific
cost and first-in, first-out) or market.
Property and Equipment: Property and equipment is stated at cost. Depreciation
is provided on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are depreciated on a straight-line basis over the
shorter of their estimated useful lives or the terms of the related leases.
Repair and maintenance costs are expensed as incurred, and major betterments are
capitalized. Sales and retirements of depreciable property and equipment are
recorded by removing the related cost and accumulated depreciation from the
accounts. Gains or losses on sales and retirements of property and equipment are
included in income.
Deferred Subscription Acquisition Costs: Costs associated with the promotion of
magazine subscriptions, which consist primarily of postage, costs to produce
direct mail solicitation materials and other costs to attract and renew
subscribers, are amortized on a cost-pool-by-cost-pool basis over the period
during which the future benefits are expected to be received. This is consistent
with the provisions of Statement of Position 93-7, Reporting on Advertising
Costs, which the Company adopted in fiscal 1995. See Note K.
Programming Costs and Amortization: Programming costs include original
programming and film acquisition costs, which are capitalized and amortized. The
portion of original programming costs assigned to the domestic pay television
market is amortized on the straight-line method over three years. The portion of
original programming costs assigned to each of the worldwide home video and
international television markets are amortized using the individual-film-
forecast-computation method. Film acquisition costs are assigned to the domestic
pay television market and are amortized on the straight-line method over the
license term, generally three years. Management believes that this method
provides a reasonable matching of expenses with total estimated revenues over
the periods that revenues associated with films and programs are expected to be
realized. Film and program amortization is adjusted periodically to reflect
changes in the estimates of amounts of related future revenues. Film and program
costs are stated at the lower of unamortized cost or estimated net realizable
value as determined on a specific identification basis. Based on management's
estimate of future total gross revenues as of June 30, 1995, substantially all
unamortized programming costs applicable to released programs are expected to be
amortized during the next three years. See Note J.
Intangible Assets: Trademark acquisition costs are capitalized and amortized on
the straight-line method over 40 years. Trademark defense, registration and
renewal costs are capitalized and amortized on the straight-line method over 15
years. Other intangible assets are comprised substantially of goodwill, which is
amortized over 40 years. Accumulated amortization of intangible assets was
$8,279,000 and $6,689,000 at June 30, 1995 and 1994, respectively.
Income (Loss) per Common Share: Income (loss) per common share was computed on
the basis of the weighted average number of shares of both Class A and Class B
common stock outstanding during each period.
(B) RESTRUCTURING EXPENSES
A $2,450,000 charge was recorded in the first quarter of fiscal 1994 related to
a reduction in the Company's workforce of approximately 10%. This charge
primarily related to employee termination payments associated with approximately
60 positions that were eliminated through a combination of early retirement,
attrition and layoffs. An additional $425,000 charge, primarily related to
employee termination payments, was recorded in the third quarter of fiscal 1994
due to further reductions in overhead costs. Employee termination payments of
approximately $615,000 and $2,140,000, respectively, were made in fiscal 1995
and 1994 related to the restructurings.
(C) UNUSUAL ITEMS
The $1,676,000 net charge for unusual items in fiscal 1994 consisted of a
$1,199,000 market value adjustment for a documentary film, Hugh Hefner: Once
Upon a Time; the establishment of a $372,000 reserve related to programming of
O.J. Simpson: Minimum Maintenance Fitness for Men; a $355,000 write-off of photo
inventory that would not be published in Playboy magazine; and a $200,000 real
estate tax obligation related to the Company's former office space in Los
Angeles, California; partially offset by a $450,000 benefit related to an
insurance settlement.
36
<PAGE>
(D) INVESTMENT INCOME (EXPENSE), NET
Investment expense, net for the year ended June 30, 1994 included a net loss of
$150,000 related to the maturity of offsetting options on interest rate swap
agreements entered into late in fiscal 1993. See Note H. Investment income, net
for the year ended June 30, 1993, consisted primarily of $370,000 of gains
resulting from sales of the Company's short-term investments in the first
quarter and $185,000 of expenses incurred in connection with the previously
discussed options on interest rate swap agreements.
(E) OTHER ITEMS
A $665,000 gain on the sale of the Company's former suburban
Chicago Catalog Group operations facility was recognized in fiscal 1993.
(F) INCOME TAXES
The income tax provision (benefit) consisted of the following for the years
ended June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 115 $ -- $ --
State 65 68 (924)
Foreign 998 1,055 792
- -------------------------------------------------------------------------
Total current 1,178 1,123 (132)
- -------------------------------------------------------------------------
Deferred:
Federal 629 -- --
State -- -- --
Foreign -- -- --
- -------------------------------------------------------------------------
Total deferred 629 -- --
- -------------------------------------------------------------------------
Total income tax provision (benefit) $1,807 $1,123 $(132)
=========================================================================
Income tax provision (benefit) applicable to:
Continuing operations $1,807 $1,123 $ 114
Discontinued operations -- -- (246)
- -------------------------------------------------------------------------
Total income tax provision (benefit) $1,807 $1,123 $(132)
=========================================================================
</TABLE>
The fiscal 1993 net tax provision applicable to continuing operations of
$114,000 included a benefit of $1,000,000 resulting from the settlement of a
dispute with the state of California regarding tax years 1974 and 1976 through
1981 for an amount less than the related reserve. The fiscal 1993 net tax
benefit applicable to discontinued operations of $246,000 included a benefit of
$247,000 resulting from a claim for refund of United Kingdom income taxes
related to fiscal 1982.
The income tax provision applicable to continuing operations differed from a
provision computed at the U.S. statutory tax rate as follows for the years
ended June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate tax provision $ 828 $(5,182) $ 158
Increase (decrease) in taxes resulting from:
Foreign withholding tax on licensing income 998 1,055 1,039
State income taxes 65 68 (925)
Minority interest in earnings of subsidiaries -- -- 292
Nondeductible expenses 341 238 182
Payment of prior years' state income taxes -- -- (806)
Tax benefit of domestic losses not recognized -- 4,944 --
Tax benefit of foreign taxes paid or accrued (339) -- --
Other (86) -- 174
- --------------------------------------------------------------------------
Total income tax provision $1,807 $ 1,123 $ 114
==========================================================================
</TABLE>
The U.S. statutory tax rate for fiscal 1993 through 1995 was 34%.
Effective July 1, 1993, the Company changed its method of accounting for
income taxes by adopting the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("Statement 109"). Statement 109
required a change from the deferred method of accounting for income taxes under
APB Opinion No. 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are recognized for the expected future tax consequences attributable to
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates expected to apply in the years in which the
temporary differences are expected to reverse. As permitted by Statement 109,
the Company elected not to restate the financial statements of prior years.
The adoption of Statement 109 resulted in the recognition of $7.5 million, or
$.38 per share, of deferred federal tax benefits. This amount is included in the
net loss for the fiscal year ended June 30, 1994 as "Cumulative effect of change
in accounting principle." In the Consolidated Balance Sheet at June 30, 1994,
$.3 million of the $7.5 million net deferred tax asset is included in "Other
current assets" and $7.2 million is segregated as "Net deferred tax assets." In
the Consolidated Balance Sheet at June 30, 1995, $.4 million of the $6.9 million
net deferred tax asset is included in "Other current assets" and $6.5 million is
segregated as "Net deferred tax assets."
The significant components of the Company's deferred tax assets and deferred
tax liabilities as of June 30, 1994 and 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
June 30, Net June 30,
1994 Change 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 17,546 $(1,298) $ 16,248
Capital loss carryforwards 10,459 53 10,512
Tax credit carryforwards 6,393 (83) 6,310
Other deductible temporary differences 8,257 631 8,888
- ---------------------------------------------------------------------------------
Total gross deferred tax assets 42,655 (697) 41,958
Valuation allowance (28,767) 194 (28,573)
- ---------------------------------------------------------------------------------
Gross deferred tax assets 13,888 (503) 13,385
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred subscription acquisition costs (3,922) 214 (3,708)
Other taxable temporary differences (2,466) (340) (2,806)
- ---------------------------------------------------------------------------------
Gross deferred tax liabilities (6,388) (126) (6,514)
- ---------------------------------------------------------------------------------
Net deferred tax assets $ 7,500 $ (629) $ 6,871
=================================================================================
</TABLE>
In addition to the federal tax benefits in the table above, the Company has net
operating loss carryforwards available in various states, none of which have
been recognized for financial statement purposes.
Realization of deferred tax benefits is dependent upon the Company's ability
to generate taxable income in future years. The recognition of benefits in the
financial statements is based upon projections by management of future operating
income and the anticipated reversal of temporary differences that will result in
taxable income. Projections of future earnings were based on adjusted historical
earnings.
In order to fully realize the net deferred tax asset of $6.9 million at
June 30, 1995, the Company will need to generate future taxable income of
approximately $20.2 million. Management believes that it is more likely than not
that the required amount of taxable income will be realized. Management will
periodically reconsider the assumptions utilized in the projection of future
earnings and, if warranted, increase or decrease the amount of deferred tax
benefits recognized through an adjustment to the valuation allowance.
At June 30, 1995, the Company had operating loss carryforwards of $47.8
million with $12.1 million expiring in 2001, $8.9 million expiring in 2003, $8.2
million expiring in 2004, $1.1 million expiring in 2007, $1.1 million expiring
in 2008 and $16.4 million expiring in
37
<PAGE>
2009. The Company had capital loss carryforwards of $30.9 million with $1.0
million expiring in 1998 and $29.9 million expiring in 1999. The Company had
operating loss carryforwards of $35.0 million for alternative minimum tax
purposes, with $8.2 million expiring in 2001, $3.4 million expiring in 2003,
$6.2 million expiring in 2004, $.5 million expiring in 2007, $.7 million
expiring in 2008 and $16.0 million expiring in 2009. In addition, foreign tax
credit carryforwards of $3.5 million and investment tax credit carryforwards of
$2.5 million are available to reduce future U.S. federal income taxes. The
foreign tax credit carryforwards expire in 1997 through 2000, and the investment
tax credit carryforwards expire in 1996 through 2001.
During fiscal 1993, the Company entered into a settlement agreement with the
state of California regarding tax years 1974 and 1976 through 1981. Under terms
of the agreement, $2.3 million was paid by the Company in February 1993, which
resulted in an income tax benefit and an increase in net income of $1.0 million
due to a previously established reserve exceeding the settlement amount.
(G) DISCONTINUED OPERATIONS
During fiscal 1982, the Company discontinued its resort hotel operations. The
net current liabilities related to these discontinued operations have been
segregated in the Consolidated Balance Sheets at June 30, 1995 and 1994 as
"Reserves for losses on disposals of discontinued operations." Changes in
management's estimates of the Company's remaining liabilities in connection with
these discontinued operations resulted in a loss on disposal of discontinued
operations of $246,000 in fiscal 1993, before an income tax benefit of $246,000,
and $620,000 in fiscal 1994. There was no income tax effect in fiscal 1994, as
the benefit was offset by a corresponding change in the valuation allowance
related to the net deferred tax asset established with the adoption of Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
In January 1993, the Company received a General Notice from the United States
Environmental Protection Agency (the "EPA") as a "potentially responsible party"
("PRP") in connection with a site identified as the Southern Lakes Trap & Skeet
Club, apparently located at the Resort-Hotel in Lake Geneva, Wisconsin (the
"Resort"), formerly owned by a subsidiary of the Company. The Resort was sold by
the Company's subsidiary to LG Americana-GKP Joint Venture in 1982. Two other
entities were also identified as PRPs in the notice. The notice relates to
actions that may be ordered taken by the EPA to sample for and remove
contamination in soils and sediments, purportedly caused by skeet shooting
activities at the Resort property. During fiscal 1994, the EPA advised the
Company of its position that the area of land requiring remediation is
approximately twice the size of the initial site. As a result, the Company
increased its reserve for this matter, which resulted in the previously
discussed $620,000 loss on disposal of discontinued operations in fiscal 1994.
The Company believes that it has established adequate reserves, which totaled
$766,000 at June 30, 1995, to cover the eventual cost of its anticipated share
(based on an agreement with one of the other PRPs) of any remediation that may
be agreed upon. The Company is also reviewing available defenses, insurance
coverage and claims it may have against third parties.
A claim had been made against the Company for indemnity arising out of the
contract under which the Company sold its United Kingdom gaming operations in
fiscal 1982. The extent of the indemnity was in dispute and was being litigated.
In May 1993, the Company settled the dispute for $1,173,000. The Company was
entitled to a United Kingdom tax refund equal to 30% of the amount paid, and, in
July 1993, received $630,000 representing such taxes and related interest. The
net settlement amount of $543,000 was previously reserved.
(H) CASH EQUIVALENTS
At June 30, 1993, the Company had outstanding options on four offsetting
interest rate swap agreements with a major commercial bank, each having a
notional principal amount of $200 million. The options expired on July 13, 1993,
and the Company realized a net loss of $150,000, which was included in
investment expense, net in fiscal 1994.
(I) INVENTORIES
Inventories consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Paper $ 7,342 $ 4,471
Editorial and other prepublication costs 6,193 7,252
Merchandise finished goods 7,893 7,545
- -------------------------------------------------------------------------------
Total inventories $21,428 $19,268
===============================================================================
</TABLE>
(J) PROGRAMMING COSTS
Current programming costs consisted of the following at June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Released, less amortization $23,898 $25,565
Completed, not yet released 5,842 2,093
- -------------------------------------------------------------------------------
Total current programming costs $29,740 $27,658
===============================================================================
</TABLE>
Noncurrent programming costs consist of programs in the process of production.
The Company revised its amortization method for licensed film costs during the
fourth quarter of fiscal 1994 as a result of its decision to offer Playboy
Television on a 24-hour basis, which resulted in a change in the scheduling of
licensed films. Licensed films will be aired throughout the term of the license
period, and related costs will be amortized over such period, generally three
years. This change in accounting estimate resulted in a decrease in programming
expense of $870,000 for the fiscal year ended June 30, 1995. This change in
accounting estimate resulted in a net increase in the Company's net income of
$574,000 (net of related taxes of $296,000), or $.03 per share, for the fiscal
year ended June 30, 1995.
(K) ADVERTISING COSTS
Effective July 1, 1994, the Company adopted the provisions of
Statement of Position 93-7, Reporting on Advertising Costs.
The Company expenses advertising costs as incurred, except for direct-response
advertising. Direct-response advertising consists primarily of costs associated
with the promotion of magazine subscriptions and the distribution of catalogs
for use in the Company's Catalog Group. The capitalized direct-response
advertising costs are amortized on a cost-pool-by-cost-pool basis over the
period during which the future benefits are expected to be received, principally
six to 12 months.
At June 30, 1995 and 1994, advertising costs of $6.4 million and $6.9 million,
respectively, were deferred and included in "Deferred subscription acquisition
costs" and "Other current assets" in the Consolidated Balance Sheets. For the
fiscal years ended June 30, 1995,
38
<PAGE>
1994 and 1993, the Company's advertising expense was $43.5 million, $43.2
million and $37.5 million, respectively.
(L) LONG-TERM FINANCING OBLIGATIONS
Long-term financing obligations consisted of the following at June 30 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------
<S> <C> <C>
10% note due in installments through 1997, net of
unamortized discount of $30 and $53, respectively,
based upon imputed interest rate of 13% $1,020 $ 1,347
6% promissory notes due July 1, 1994 -- 1,500
Less current maturities, net of unamortized discount
of $17 and $23, respectively (333) (1,827)
- ------------------------------------------------------------------------
Total long-term financing obligations $ 687 $ 1,020
========================================================================
</TABLE>
The amount of scheduled annual maturities of long-term debt for each of fiscal
1996, 1997 and 1998 is $350,000.
The Company's original three-year line of credit with two domestic banks
expired in February 1995. At that time, the Company entered into a new $30.0
million revolving line of credit that covers short-term borrowings and the
issuance of letters of credit and is collateralized by substantially all of the
Company's assets. The $30.0 million revolving line of credit decreases to $19.5
million in December 1995 and expires in September 1997. The credit agreement
provides for interest based on fixed spreads over specified index rates and for
commitment fees based on a combination of the unused portion of the total line
of credit and compensating balances. The credit agreement contains two
restrictive covenants pertaining to net worth and leverage. Additionally, there
are limitations on other indebtedness, investments and dividends.
At June 30, 1995, short-term borrowings of $5.0 million and letters of credit
of $5.5 million were outstanding compared to short-term borrowings and letters
of credit outstanding at June 30, 1994 of $6.0 million and $5.6 million,
respectively. The weighted average interest rates on the short-term borrowings
outstanding at June 30, 1995 and 1994 were 8.70% and 5.39%, respectively.
(M) STOCK OPTIONS
The Company has three plans under which stock options or shares may be granted:
the 1989 Stock Option Plan (the "1989 Option Plan"), the 1991 Non-Qualified
Stock Option Plan for Non-Employee Directors (the "Directors' Plan"), and the
1995 Stock Incentive Plan, which was adopted by the Board of Directors in
February 1995 and is subject to stockholder approval.
The 1989 Option Plan authorized the grant of nonqualified stock options to key
employees to purchase up to 342,500 shares of Class A stock and 1,027,500 shares
of Class B stock at a price that is equal to the fair market value at date of
grant. The remaining 103,000 Class B options available for future grants under
the 1989 Option Plan were transferred into the 1995 Stock Incentive Plan. No
further grants of Class B options under the 1989 Option Plan will be made. The
Directors' Plan provides for the grant of nonqualified stock options to each
nonemployee director to purchase 10,000 shares of Class B stock at a price that
is equal to the fair market value at date of grant. Options to purchase an
aggregate of 80,000 shares of Class B stock may be granted under the Directors'
Plan. The 1995 Stock Incentive Plan, which consists of The Incentive Stock
Option Agreement and The Restricted Stock Agreement, authorizes the issuance of
a total of 1,203,000 shares of Class B stock, which includes the previously
mentioned 103,000 shares that were transferred from the 1989 Option Plan. The
Incentive Stock Option Agreement authorizes the grant of options to key
employees to purchase shares of Class B stock at a price that is equal to the
fair market value at date of grant. Options under the three plans are generally
for a term of ten years and are generally exercisable in cumulative annual
installments of 25% each year, beginning on the first anniversary of the date
such options were initially granted. The Restricted Stock Agreement provides for
the issuance of Class B stock to key employees subject to certain vesting
requirements. Such vesting can be accelerated if certain operating income
objectives pertaining to a fiscal year are met. Such operating income objectives
are set at $7.5 million, $10.0 million, $15.0 million and $20.0 million.
However, all vesting requirements will lapse automatically and any remaining
unvested stock will be issued on June 30, 2005. Compensation expense recognized
in fiscal 1995 in connection with the 1995 Stock Incentive Plan was $228,000. At
June 30, 1995, options to purchase 148,750 shares of Class A stock and 684,688
shares of Class B stock were exercisable under the 1989 Option Plan, and options
to purchase 40,000 shares of Class B stock were exercisable under the Directors'
Plan. No options were exercisable under the 1995 Stock Incentive Plan. The Board
of Directors has reserved treasury shares for issuance upon exercise of options
under the 1989 Option Plan. Shares issued upon exercise of options granted or
shares awarded under the Directors' Plan or the 1995 Stock Incentive Plan may be
either treasury shares or newly issued shares. At June 30, 1995, 175,100 shares
of Class A stock and 274,250 shares of Class B stock were available for future
grants of options under the 1989 Option Plan, the Directors' Plan and the 1995
Stock Incentive Plan. Transactions under such plans are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Stock Options Outstanding
- ----------------------------------------------------------------------------
Shares Price Range
--------------------------------------------
Class A Class B Class A Class B
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1992 185,000 995,000 4.88-7.38 4.00-8.50
Exercised -- (10,000) -- 5.38-5.50
Canceled -- (7,500) -- 5.38
- -----------------------------------------------------
Outstanding at June 30, 1993 185,000 977,500 4.88-7.38 4.00-8.50
Granted -- 100,000 -- 6.88-9.38
Exercised (8,400) (62,500) 6.69 5.38-6.13
Canceled -- (21,250) -- 5.50-7.63
- -----------------------------------------------------
Outstanding at June 30, 1994 176,600 993,750 4.88-7.38 4.00-9.38
Granted -- 496,250 -- 8.25-9.13
Exercised (4,500) (20,000) 6.69 5.38-6.13
Canceled (22,100) (161,250) 6.69 5.38-9.38
- -----------------------------------------------------
Outstanding at June 30, 1995 150,000 1,308,750 4.88-7.38 4.00-9.13
============================================================================
- ----------------------------------------------------------------------------
Stock Awards Outstanding
- ----------------------------------------------------------------------------
Class B
- ----------------------------------------------------------------------------
Outstanding at June 30, 1994 --
Awarded 516,250
Vested --
Canceled --
- ----------------------------------------------------------------------------
Outstanding at June 30, 1995 516,250
============================================================================
</TABLE>
(N) ISSUANCE OF COMMON STOCK
In fiscal 1993, the Company completed a public offering of 3,350,000 shares of
nonvoting Class B stock at $9-3/8 per share. Two million shares were sold by a
trust established by, and for the benefit of, Hugh M. Hefner, the Company's
founder and principal stockholder, and 1,350,000 shares were sold by the
Company, resulting in net proceeds
39
<PAGE>
to the Company of $11,662,000. The Company's net proceeds were used to repay
short-term borrowings under its revolving line of credit.
(O) ACQUISITIONS
The Company has an option to acquire the remaining 80% interest in duPont
Publishing, Inc. ("duPont"), publisher of the duPont Registry, at a price based
on fair market value as of December 31, 1999. Previously, the Company was
required to make loans to duPont to fund its working capital requirements. These
loans, which bear interest at a rate of 1% over the prime rate, amounted to
$295,000 and $345,000 at June 30, 1995 and 1994, respectively.
In July 1988, the Company acquired 80% of the common stock of Critics' Choice
Video, Inc., a national direct marketer of theatrical and special-interest
videocassettes, for $125,000. The Company purchased the remaining 20% of
Critics' Choice Video, Inc. common stock effective July 1, 1993 for $3.0
million, which consisted of $1.5 million in cash and one-year promissory notes
totaling $1.5 million, which were paid July 1, 1994. The acquisition was
accounted for using the purchase method. The excess cost of $2.4 million is
being amortized over 40 years.
(P) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes was as follows during the years ended
June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Interest $ 774 $ 566 $ 329
Income taxes 1,064 510 3,246
- ------------------------------------------------------------
</TABLE>
The Company was entitled to a United Kingdom tax refund equal to 30% of the
amount paid pursuant to the settlement in May 1993 of litigation related to its
discontinued United Kingdom gaming operations. Cash paid for income taxes in
fiscal 1994 was net of $630,000 representing such refund and related interest.
See Note G.
Cash paid for income taxes in fiscal 1993 included a $2,296,000 payment to the
state of California. See Note F.
During the fiscal year ended June 30, 1994, the Company had noncash investing
and financing activities related to its July 1988 purchase of an 80% interest in
Critics' Choice Video, Inc. See Note O.
(Q) LEASE COMMITMENTS
The Company's principal lease commitments are for office space, the satellite
transponder used in its pay television operations, and furniture and equipment.
The office leases provide for the Company's payment of its proportionate share
of operating expenses and real estate taxes in addition to monthly base rent.
The Company's corporate headquarters is under terms of a 15-year lease, which
commenced September 1, 1989. In fiscal 1992, the Entertainment Group relocated
its Los Angeles office under terms of a ten-year lease, which commenced April 1,
1992. In fiscal 1993, the Publishing Group relocated its New York office under a
lease with a term of approximately 11 years, which commenced April 1, 1993. In
fiscal 1994, the Publishing Group relocated its Los Angeles photo studio under
terms of a ten-year lease, which commenced January 1, 1994. These leases provide
for base rent abatements; however, rent expense is being charged to operations
on a straight-line basis over the terms of the leases. This resulted in
liabilities of $5.7 million and $5.6 million at June 30, 1995 and 1994,
respectively, which are included in "Other noncurrent liabilities" in the
Consolidated Balance Sheets. In addition, during fiscal 1993, the Company
entered into a five-year lease, which includes a purchase option, for the
Catalog Group's current suburban Chicago operations facility.
In December 1992, the Company executed a lease for its current satellite
transponder that became effective January 1, 1993. This operating lease is for a
term of approximately nine years and includes a purchase option. A $5.0 million
letter of credit was issued under the Company's revolving line of credit for the
benefit of the lessor to secure the Company's obligations under this lease.
During fiscal 1993, the Company began to lease certain furniture and equipment
for use in its operations. The leases are for terms of either three or five
years and include end-of-lease purchase options.
Rent expense was as follows for the years ended June 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent expense $8,854 $ 8,841 $ 7,678
Contingent rent expense -- 344 487
- -------------------------------------------------------------------------------
Total 8,854 9,185 8,165
Sublease income -- (1,364) (1,669)
- -------------------------------------------------------------------------------
Net rent expense $8,854 $ 7,821 $ 6,496
===============================================================================
</TABLE>
The minimum commitment at June 30, 1995, under operating leases with
noncancelable terms in excess of one year, was as follows (in thousands):
<TABLE>
<CAPTION> Operating
Year ending June 30 Leases
- ----------------------------------------------------------------------------
<S> <C>
1996 $ 8,439
1997 8,130
1998 7,537
1999 6,808
2000 7,428
Later years 20,893
- ----------------------------------------------------------------------------
Total minimum lease payments $59,235
============================================================================
</TABLE>
(R) CABLE TELEVISION
Effective April 1, 1986, the Company assumed marketing and distribution
responsibilities for The Playboy Channel and other North American Playboy pay
television products (the "Service") from its former distributor, Rainbow
Programming Services Company ("Rainbow"). The termination agreement provided for
the assignment to the Company of all distribution contracts with cable system
operators and others that carried the Service.
Under the termination agreement, Rainbow is to receive a monthly royalty of 5%
of revenues received by the Company for the Service, subject to a minimum
royalty based on number of subscribers, as long as the Service is in operation.
This royalty was to be payable until April 30, 1991, if Rainbow had received
payments by that date of $15,000,000 (which level was not reached), or April 30,
1996, if that level was not reached by April 30, 1991. The agreement provides
for noncompetition in the North American distribution and production of an
adult-oriented pay television service by Rainbow as long as royalty payments are
being made.
(S) SEGMENT INFORMATION
The four industry segments in which the Company currently operates are as
follows: Publishing, Catalog, Entertainment and Product Marketing. Publishing
Group operations include the publication of Playboy magazine; Playboy-related
businesses, including newsstand
40
<PAGE>
specials and calendars, foreign editions of Playboy magazine and ancillary
businesses; and the production of the Playboy Jazz Festival. Catalog Group
operations include the direct marketing of three catalogs: Critics' Choice
Video, Collectors' Choice Music and Playboy. Entertainment Group operations
include the production and marketing of programming through Playboy Television,
other domestic television, international television and worldwide home video
businesses. Product Marketing Group operations include licensing the
manufacture, sale and distribution of consumer products carrying one or more of
the Company's trademarks and the licensing of artwork owned by the Company.
Financial information relating to industry segments for fiscal 1995, 1994 and
1993 is presented on page 24 and is an integral part of these consolidated
financial statements.
(T) EMPLOYEE BENEFIT PLAN
The Company's Employees Investment Savings Plan (the "Savings Plan"), a defined
contribution plan, covers all employees who have completed a full year of
service of at least 1,000 hours. The Company's discretionary contribution to the
Savings Plan is distributed to each eligible employee's account in an amount
equal to the ratio of each eligible employee's compensation to the total
compensation paid to all such employees. The fiscal 1995 and 1993 contributions
were $200,000 and $115,000, respectively. No such contribution was made in
fiscal 1994.
During fiscal 1995, 1994 and 1993, the Company matched employee contributions
to the Savings Plan to a maximum of 2-3/4%, 2-3/4% and 2-1/2%, respectively, of
each participating employee's eligible compensation, subject to Internal Revenue
Service limitations. For fiscal 1996, the maximum match will be 2-3/4% of such
compensation. The Company's matching contributions in fiscal 1995, 1994 and 1993
related to this program were $630,000, $670,000 and $590,000, respectively.
Effective October 1, 1992, the Company established a Deferred Compensation
Plan, which permits certain employees and directors to annually elect to defer a
portion of their compensation. The Deferred Compensation Plan is available to
approximately 60 of the Company's most highly compensated employees and all
nonemployee directors. Employee participants may defer between 5% and 15% (in 1%
increments) of salary, and up to 50% (in 10% increments) of payments due under
Executive Incentive Compensation Plans or sales commissions. Directors may defer
between 25% and 100% (in 25% increments) of their annual retainer and meeting
fees. Amounts deferred under this plan are credited with interest each quarter
at a rate equal to the preceding quarter's average composite yield on corporate
bonds as published by Moody's Investor's Service, Inc. All amounts deferred and
interest credited are 100% vested immediately and are general unsecured
obligations of the Company. Such obligations totaled $797,000 and $676,000 at
June 30, 1995 and 1994, respectively, and are included in "Other noncurrent
liabilities" in the Consolidated Balance Sheets.
(U) CONTINGENCIES
Playboy Television's programming is delivered primarily through a communications
satellite transponder. The Company's current transponder lease, effective
January 1, 1993, contains protections typical in the industry against
transponder failure, including access to spare transponders on the same
satellite as well as transponders on another satellite currently in operation.
Access to the transponder may be denied under certain narrowly defined
circumstances relating to violations of law or threats to revoke the license of
the satellite owner to operate the satellite based on programming content.
However, the Company has the right to challenge any such denial and believes
that the transponder will continue to be available to it through the end of the
expected life of the satellite (currently estimated to be in 2004).
The Company believes that it has established adequate reserves in connection
with the General Notice received from the EPA in January 1993 related to its
discontinued resort hotel operations. See Note G.
(V) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
the years ended June 30, 1995 and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------
1995 Sept. 30 Dec. 31 Mar. 31 June 30 Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $57,218 $64,663 $58,025 $67,343 $247,249
Gross profit* 6,489 8,227 6,912 11,294 32,922
Operating income (loss) (864) 1,291 236 2,394 3,057
Income (loss) before
cumulative effect
of change in ac-
counting principle (1,228) 1,001 (347) 1,203 629
Net income (loss) (1,228) 1,001 (347) 1,203 629
Income (loss) before
cumulative effect
of change in ac-
counting principle
per common share (.06) .05 (.02) .06 .03
Net income (loss) per
common share (.06) .05 (.02) .06 .03
Common stock price
Class A high 8-7/8 9-7/8 9-1/2 8-3/8
Class A low 6-1/8 7-1/2 8-1/8 7-5/8
Class B high 9-1/8 10-3/4 10-5/8 8-1/4
Class B low $ 6-1/8 $ 7-1/4 $ 7-5/8 $ 7-3/8
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
-------------------------------------------
1994 Sept. 30 Dec. 31 Mar. 31 June 30 Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $47,586 $59,636 $51,800 $59,965 $218,987
Gross profit 3,501 6,845 3,005 8,819 22,170
Operating income (loss) (6,941) (1,385) (7,129) 1,232 (14,223)
Income (loss) before
cumulative effect
of change in ac-
counting principle (7,423) (1,770) (8,385) 594 (16,984)
Net income (loss) 77 (1,770) (8,385) 594 (9,484)
Income (loss) before
cumulative effect
of change in ac-
counting principle
per common share (.38) (.09) (.42) .03 (.86)
Net income (loss) per
common share .00 (.09) (.42) .03 (.48)
Common stock price
Class A high 8-1/2 11 11 7-3/4
Class A low 6-3/4 6-5/8 7 6
Class B high 10 13 13 7-7/8
Class B low $ 7-7/8 $ 7-1/2 $ 6-7/8 $ 6
</TABLE>
*Amounts cannot be calculated from the Company's respective Quarterly Reports on
Form 10-Q as a result of certain reclassifications between "Cost of sales" and
"Selling and administrative expenses" in the Consolidated Statements of
Operations.
The operating loss for the first quarter of fiscal 1995 and operating income for
the second, third and fourth quarters of fiscal 1995
41
<PAGE>
included reductions in programming expense of $220,000, or $.02 per share;
$281,000, or $.01 per share; $200,000, or $.01 per share; and $169,000, or $.00
per share, respectively, resulting from a change in accounting estimate. See
Note J.
The operating loss for the first quarter of fiscal 1994 included $2,450,000 of
restructuring expenses related to a reduction in the Company's workforce of
approximately 10%.
The operating loss for the third quarter of fiscal 1994 included a charge of
$1,754,000 for unusual items and $425,000 of additional restructuring expenses
due to further reductions in overhead costs. The charge for unusual items
consisted of a $1,199,000 market value adjustment for a documentary film, Hugh
Hefner: Once Upon a Time, a $355,000 write-off of photo inventory that would not
be published in Playboy magazine and a $200,000 real estate tax obligation
related to the Company's former office space in Los Angeles, California. The
loss before cumulative effect of change in accounting principle also included a
$620,000 loss on disposal of discontinued operations resulting from increasing
the reserve related to the environmental cleanup of a site in Lake Geneva,
Wisconsin, formerly owned by a subsidiary of the Company.
Operating income for the fourth quarter of fiscal 1994 included a net benefit
from unusual items of $78,000, consisting of a $450,000 benefit related to an
insurance settlement and the establishment of a $372,000 reserve related to
programming of O.J. Simpson: Minimum Maintenance Fitness for Men.
Net income for the first quarter of fiscal 1994 included a $7,500,000 tax
benefit that resulted from the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which required a change in the
method of accounting for income taxes.
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Playboy Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Playboy
Enterprises, Inc. and its Subsidiaries as of June 30, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Playboy
Enterprises, Inc. and its Subsidiaries as of June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
/s/ Cooper & Lybrand LLP
Chicago, Illinois
August 2, 1995
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT
The consolidated financial statements and all related financial information
herein are the responsibility of the Company. The financial statements, which
include amounts based on judgments, have been prepared in accordance with
generally accepted accounting principles. Other financial information in the
annual report is consistent with that in the financial statements.
The Company maintains a system of internal controls that it believes provides
reasonable assurance that transactions are executed in accordance with
management's authorization and are properly recorded, that assets are
safeguarded and that accountability for assets is maintained. The system of
internal controls is characterized by a control-oriented environment within the
Company, which includes written policies and procedures, careful selection and
training of personnel, and internal audits.
Coopers & Lybrand LLP, independent accountants, have audited and reported on
the Company's consolidated financial statements. Their audits were performed in
accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors, composed of four nonmanagement
directors, meets periodically with Coopers & Lybrand LLP, management
representatives and the Company's internal auditor to review internal accounting
control and auditing and financial reporting matters. Both Coopers & Lybrand LLP
and the internal auditor have unrestricted access to the Audit Committee and may
meet with it without management representatives being present.
/s/ Christie Hefner
Christie Hefner
Chairman and Chief Executive Officer
/s/ David I. Chemerow
David I. Chemerow
Executive Vice President, Finance and Operations,
and Chief Financial Officer
43
<PAGE>
EXHIBIT 21
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
Parent and Subsidiaries
- -----------------------
Hugh M. Hefner is a "parent" of the Company, as defined under the Securities
Exchange Act of 1934, as amended, by virtue of his stock ownership. Mr. Hefner
beneficially owned 70.47% of the outstanding voting stock of the Company as of
August 31, 1995.
The accounts of all of the subsidiaries are included in the Company's
Consolidated Financial Statements. Set forth below are the names of certain
active corporate subsidiaries of the Company as of June 30, 1995. Certain
subsidiaries are omitted because such subsidiaries considered individually or in
the aggregate would not constitute a significant subsidiary.
Indented names are subsidiaries of the company under which they are indented:
Percent
Jurisdiction in Ownership
which Incorporated By Immediate
Name of Company or Organized Parent
----------------------------------- ------------------ ------------
Playboy Enterprises, Inc. (parent) Delaware
Lake Shore Press, Inc. Delaware 100%
Lifestyle Brands, Ltd. Delaware 100%
Playboy Models, Inc. Illinois 100%
Playboy Products and Services
International, B.V. The Netherlands 100%
Playboy Entertainment Group, Inc. Delaware 100%
After Dark Video, Inc. Delaware 100%
Alta Loma Productions, Inc. Delaware 100%
Cameo Films, Inc. Illinois 100%
Impulse Productions, Inc. Delaware 100%
Precious Films, Inc. California 100%
AdulTVision Communications, Inc. Delaware 100%
Mystique Films, Inc. California 100%
Playboy Clubs International, Inc. Delaware 100%
Playboy Preferred, Inc. Illinois 100%
Critics' Choice Video, Inc. Illinois 100%
Special Editions, Ltd. Delaware 100%
Playboy Shows, Inc. Delaware 100%
Telecom International, Inc. Florida 100%
Playboy Gaming International, Ltd. Delaware 100%
Playboy Gaming Greece, Ltd. Delaware 100%
Playboy Properties, Inc. Delaware 100%
<PAGE>
EXHIBIT 23
PLAYBOY ENTERPRISES, INC. AND SUBSIDIARIES
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
on Form S-8 (File Nos. 33-37666, 33-46113, 33-58145 and 33-60631) of our report
dated August 2, 1995, on our audits of the consolidated financial statements and
financial statement schedule of Playboy Enterprises, Inc. as of June 30, 1995
and 1994, and for the years ended June 30, 1995, 1994 and 1993, which report is
included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Chicago, Illinois
September 27, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 1,471
<SECURITIES> 0
<RECEIVABLES> 28,988
<ALLOWANCES> 4,837
<INVENTORY> 21,428
<CURRENT-ASSETS> 96,156
<PP&E> 36,576
<DEPRECIATION> 23,100
<TOTAL-ASSETS> 137,835
<CURRENT-LIABILITIES> 82,137
<BONDS> 0
<COMMON> 215
0
0
<OTHER-SE> 46,875
<TOTAL-LIABILITY-AND-EQUITY> 137,835
<SALES> 247,249
<TOTAL-REVENUES> 247,249
<CGS> 214,327
<TOTAL-COSTS> 244,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 708
<INCOME-PRETAX> 2,436
<INCOME-TAX> 1,807
<INCOME-CONTINUING> 629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
