<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Playboy Enterprises, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF PLAYBOY]
-----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
-----------------
NOVEMBER 6, 1997
As a stockholder of Playboy Enterprises, Inc. (the "Company"), you are
hereby notified of and cordially invited to attend the Annual Meeting of
Stockholders of the Company to be held at the Company's New York offices
located at 730 Fifth Avenue, New York, New York 10019, on Thursday, November
6, 1997 at 9:30 a.m., local time, for the following purposes:
1. To elect seven directors for the ensuing year, or until their successors
are elected and qualified;
2. To approve the 1997 Equity Plan for Non-Employee Directors of Playboy
Enterprises, Inc.;
3. To ratify the selection of Coopers & Lybrand L.L.P. as independent
auditors for the current fiscal year; and
4. To transact such other business as may properly come before the meeting.
The Board of Directors has fixed the close of business on September 8, 1997
as the record date for the determination of holders of the Class A Common
Stock entitled to notice of and to vote at the meeting. An alphabetical list
of such stockholders, their addresses and number of shares owned shall be on
display for all purposes germane to the meeting during ordinary business hours
starting at 10:00 a.m. on October 27, 1997 and ending at the close of business
on November 5, 1997 in the Company's New York offices. The list shall be
available in the office of the Company's Director of Security. The list shall
also be on display at the annual meeting.
We hope that you will be present at the meeting. If you cannot attend and
you are the owner of Class A Common Stock, please date and sign the enclosed
proxy card and return it at your earliest convenience in the envelope provided
so that your shares will be represented. The envelope requires no postage if
mailed in the United States.
September 29, 1997
By Order of the Board of Directors
/s/ Howard Shapiro
Howard Shapiro
Secretary
<PAGE>
PLAYBOY ENTERPRISES, INC.
680 NORTH LAKE SHORE DRIVE
CHICAGO, ILLINOIS 60611
-----------------
Proxy Statement
-----------------
SOLICITATION OF PROXIES
This Proxy Statement is being mailed by Playboy Enterprises, Inc. (the
"Company") to all holders of Class A Common Stock, par value $0.01 per share
("Class A Stock"), and Class B Common Stock, par value $0.01 per share ("Class
B Stock" and together with the Class A Stock, the "Common Stock") of the
Company on or about September 29, 1997 in connection with the solicitation by
the Board of Directors of the Company of proxies to be used at the annual
meeting of stockholders to be held November 6, 1997. Each proxy duly executed
and received prior to the meeting will be voted according to its terms. At any
time before the proxy is voted, it may be revoked either by giving a later
proxy, by written notification to the Secretary of the Company or by appearing
at the meeting and voting the shares. Pursuant to the Company's Restated
Certificate of Incorporation, the Class B Stock has no voting rights with
respect to any matter to be presented at the annual meeting.
The solicitation of proxies will be primarily by mail. Proxies may also be
solicited personally and by telephone by officers and full-time employees of
the Company, none of whom will receive any additional compensation for such
activity. The expenses of solicitation will be borne by the Company. Such
expenses may also include ordinary charges and expenses of brokerage houses
and other fiduciaries for forwarding documents to beneficial owners.
Only holders of record of Class A Stock as of the close of business on
September 8, 1997 will be entitled to vote at the meeting or any adjournment
thereof. As of such date, the Company had outstanding 4,748,954 shares of
Class A Stock, having one vote per share and constituting the Company's only
class of voting securities.
2
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
As of August 31, 1997, the only party known to the Company to be the
beneficial owner of 5% or more of the Company's voting securities was:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF CLASS A STOCK OF CLASS
- ---------------- ---------------- --------
<S> <C> <C>
Hugh M. Hefner, Trustee
The Hugh M. Hefner 1991 Trust(1)
9242 Beverly Boulevard
Beverly Hills, CA 90210............................... 3,321,836 69.95%
</TABLE>
- --------
(1) Mr. Hefner, founder of the Company, Editor-in-Chief of Playboy magazine
and Chairman Emeritus, owns these shares through The Hugh M. Hefner 1991
Trust. Mr. Hefner has sole investment and voting power over these shares
of Class A Stock.
Mr. Hefner intends to vote his shares in accordance with the recommendations
made herein by the Board of Directors.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the meeting, seven directors will be elected to serve until the next
ensuing annual meeting of stockholders or until their respective successors
are duly elected and qualified. The Company's bylaws allow for the election of
not fewer than five nor more than ten directors as such number may be fixed by
the Board of Directors (the "Board") from time to time. The Board is currently
comprised of seven directors. The affirmative vote of the holders of a
majority of the Class A Stock represented in person or by proxy is required to
elect each of the nominees. Each nominee is currently a director of the
Company. If for any reason any nominee is not a candidate at the time of
election (which is not expected to occur), it is intended that the proxies
will be voted for the election of the other nominees named and may be voted
for any substituted nominees. Proxies may not be voted for a greater number of
persons than are named.
The following information is provided with respect to the nominees for
director.
CHRISTIE HEFNER
Director since 1979
Age 44
Ms. Hefner was appointed Chairman of the Board and Chief Executive Officer
of the Company in November 1988. From September 1986 to November 1988, she was
Vice Chairman of the Board, President and Chief Operating Officer. From
February 1984 to September 1986, she was President and Chief Operating
Officer; she had been President since April 1982. From January 1978 to April
1982, she was a Corporate Vice President. She joined the Company in 1975 as
Special Assistant to the Chairman of the Board. Ms. Hefner is also a member of
the Board of Directors of Sealy Corporation.
DENNIS S. BOOKSHESTER
Director since 1990
Age 58
Mr. Bookshester is presently an independent business consultant. From
December 1990 to May 1991, he served as Chief Executive Officer of Zale
Corporation, a company principally involved in the retail sale of jewelry. Mr.
Bookshester was Corporate Vice Chairman, Chairman and Chief Executive Officer
of the Retail Group of Carson Pirie Scott & Co., positions which he held from
1984 to 1989. In addition, Mr. Bookshester is a member of the Board of
Directors of Evans, Inc., Fruit of the Loom, Inc. and Sundance Homes. Mr.
Bookshester is Chairman of the Audit Committee of the Board and is a member of
the Compensation Committee of the Board.
3
<PAGE>
DAVID I. CHEMEROW
Director since 1996
Age 46
Mr. Chemerow has been Executive Vice President and Chief Operating Officer
of GT Interactive Software Corp., a company principally engaged in publishing
computer games, since May 1997. Prior to that he was Executive Vice President
and Chief Financial Officer of ENTEX Information Services, Inc., a company
principally involved in personal computer systems integration, from April
1996. Prior to joining ENTEX, he was Executive Vice President, Finance and
Operations, and Chief Financial Officer of the Company from 1990. From 1988 to
1990, he served as President of Beechwood Capital Corporation, an investment
company involved in acquiring and operating businesses. Mr. Chemerow is also a
member of the Board of Directors of Dunham's Athleisure Corporation. Mr.
Chemerow is a member of the Audit Committee of the Board.
DONALD G. DRAPKIN
Director since July 1997
Age 49
Mr. Drapkin has been Vice Chairman and Director of MacAndrews & Forbes
Holdings Inc. since 1987. Prior to his current position, Mr. Drapkin was a
partner in the New York law firm of Skadden, Arps, Slate, Meagher & Flom from
1977 to 1987. In addition, Mr. Drapkin serves as Director of Algos
Pharmaceutical Corporation, Andrews Group Incorporated, The Coleman Company,
Inc., Coleman Holdings Inc., Coleman Worldwide Corporation, The Cosmetic
Center, Inc., Marvel III Holdings Inc., Revlon Consumer Products Corporation,
Revlon, Inc., Revlon Worldwide Corporation and VIMRx Pharmaceuticals Inc.
SOL ROSENTHAL
Director since 1985
Age 62
Mr. Rosenthal has been Of Counsel to the Los Angeles law firm of Blanc
Williams Johnston & Kronstadt, L.L.P. since May 1996. Prior to that he was a
senior partner in the law firm of Buchalter, Nemer, Fields & Younger from 1974
through April 1996. He has served as an Arbitrator in entertainment industry
disputes since 1977 and as the Writers Guild-Association of Talent Agents
Negotiator since 1978. Mr. Rosenthal is a former member of the Board of
Governors, Academy of Television Arts & Sciences, on which he served from 1990
to 1992; he is a former President of the Beverly Hills Bar Association and a
former President of the Los Angeles Copyright Society. In addition, Mr.
Rosenthal is a director of Artista Management, A.G. Mr. Rosenthal is Chairman
of the Compensation Committee of the Board and is a member of the Audit
Committee of the Board.
RICHARD S. ROSENZWEIG
Director since 1976
Age 62
Mr. Rosenzweig has been Executive Vice President of the Company since
November 1988. From May 1982 to November 1988, he was Executive Vice
President, Office of the Chairman, and from July 1980 to May 1982, he was
Executive Vice President, Corporate Affairs. Before that, from January 1977 to
June 1980, he had been Executive Vice President, West Coast Operations. His
other positions with the Company have included Executive Vice President,
Publications Group, and Associate Publisher, Playboy magazine. He has been
with the Company since 1958.
SIR BRIAN WOLFSON
Director since 1996
Age 62
Sir Brian Wolfson has been Chairman of Global Health Alternatives Inc., a
company principally involved in health products, since October 1995. He is
currently a director of Fruit of the Loom, Inc., Kepner-Tregoe Inc. and
Autotote Inc. and a governor of the Joseph H. Lauder Institute of the
University of Pennsylvania. From January 1986 to June 1995, he served as
Chairman of Wembley plc., a company engaged in the sports and entertainment
industry. From 1967 to 1970, he served as joint managing director of Granada
Group. Sir Brian Wolfson is a member of the Audit and Compensation Committees
of the Board.
4
<PAGE>
COMMITTEES AND COMPENSATION
The Company has a standing Audit Committee of the Board currently comprised
of Messrs. Bookshester (who is the Chairman), Chemerow and Rosenthal and Sir
Brian Wolfson. It is currently anticipated that Mr. Rosenthal will cease to be
a member of the Audit Committee after the Annual Meeting. The principal
functions of the Audit Committee are to consider and recommend the selection
of independent public accountants to audit the Company's financial statements,
to review the Company's internal accounting policies and controls, to review
with the independent accountants the scope of their audit and their
recommendations and comments with respect to internal controls and accounting
systems, and to reinforce the independence of the independent accountants.
During fiscal year 1997, the Audit Committee held two meetings.
The Company has a standing Compensation Committee of the Board currently
comprised of Messrs. Rosenthal (who is the Chairman) and Bookshester and Sir
Brian Wolfson. It is currently anticipated that Mr. Drapkin will replace Sir
Brian Wolfson as a member of the Compensation Committee after the Annual
Meeting. The functions of the Compensation Committee include approving
compensation, salary or termination arrangements and all proposed contracts
and transactions with employees whose salaries and bonuses are more than
$150,000 and less than $300,000 per year (except employees who are serving as
members of the Board and the Company's Chief Financial Officer). The
Compensation Committee is also responsible for reviewing and making
recommendations to the Board concerning employee benefit programs,
compensation, salary or termination arrangements and all proposed contracts
and transactions with any employee (including Mr. Hefner) whose salary and
bonus equals or exceeds $300,000 per year, and those individuals mentioned as
exceptions immediately above in regard to the approval authority of the
Compensation Committee. The Compensation Committee administers the Amended and
Restated 1995 Stock Incentive Plan (the "1995 Plan") for the Company's key
employees and has the authority to determine which employees are "key
employees" and thereby eligible to participate in the 1995 Plan. The
Compensation Committee also administers the Company's Employee Stock Purchase
Plan (the "Purchase Plan"). During fiscal year 1997, the Compensation
Committee held six meetings.
The Company does not have a standing Nominating Committee. From time to
time, the Board creates other committees to address Company matters.
During fiscal year 1997, the Board held seven meetings. All members of the
Board attended 75% or more of the aggregate of the total number of all
meetings held during the fiscal year by the Board and the committees of which
they were members during the period they served as such.
Nonemployee directors receive an annual fee of $25,000, pro rated from the
effective date of their election and paid quarterly. An additional fee of $750
is paid for each in-person Board meeting attended by a nonemployee director.
In addition, from time to time the Board of Directors compensates members of
committees for extra time and effort expended on the Company's affairs.
Accordingly, for fiscal year 1997, Messrs. Bookshester, Chemerow and Rosenthal
and Sir Brian Wolfson received $31,000, $32,500, $45,250 and $32,500,
respectively. Since October 1992, nonemployee directors have also been
eligible to participate in the Company's Deferred Compensation Plan ("DCP")
for non-employee directors, under which they may elect to defer any amount
between 25% and 100% (in 25% increments) of their annual fees and per-meeting
payments. Nonemployee directors who are former employees of the Company may
also transfer into the DCP amounts credited to a similar deferred compensation
plan for employees. The amount deferred is credited with interest each quarter
based on the preceding quarter's average composite yield on corporate bonds as
published by Moody's Investors Service, Inc. All amounts deferred and interest
credited are 100% vested immediately and are general unsecured obligations of
the Company. DCP accounts are paid in a lump sum or, in certain circumstances,
in specified installments to directors upon their death or upon termination of
service.
Each nonemployee director is also a participant in the Playboy Enterprises,
Inc. 1991 Non-Qualified Stock Option Plan for Non-Employee Directors (the
"1991 Plan"). Under the 1991 Plan, each director is granted a nonqualified
stock option to purchase shares of Class B Stock. An aggregate of 80,000
shares of Class B Stock are available for grant under the 1991 Plan. Each
option is exercisable in four equal annual installments, beginning on the
first anniversary of the date such options were initially granted, unless
accelerated under certain
5
<PAGE>
circumstances set forth in the 1991 Plan. All of such installments are
cumulative and may be exercised in whole or in part. Options granted under the
1991 Plan generally expire ten years after the date of grant, though they may
expire earlier. Shares issued upon exercise of options granted under the 1991
Plan may be either treasury shares or newly issued shares. During fiscal year
1997, an option for 10,000 shares of Class B Stock with an exercise price of
$14.75 was granted to Mr. Chemerow under the 1991 Plan upon his being deemed a
non-employee director.
During fiscal year 1997, Messrs. Bookshester and Rosenthal were also granted
stock options outside of the 1991 Plan. Each option covers 10,000 shares of
Class B Stock, has an exercise price of $12.00, and is exercisable in four
equal annual installments, beginning on the first anniversary of the date such
options were granted, unless accelerated under certain circumstances set forth
therein. All of such installments are cumulative and may be exercised in whole
or in part. Each option expires ten years after the date of grant unless it
expires earlier pursuant to the terms thereof.
If the holders of Class A Stock approve the 1997 Equity Plan for Non-
Employee Directors of Playboy Enterprises, Inc., non-employee directors will
(i) receive all compensation earned for attendance at Board and committee
meetings in the form of shares of Class B Stock, (ii) be permitted to elect to
receive all or a portion of their annual retainers in the form of shares of
Class B Stock, and (iii) may receive stock options and other equity awards.
See "Proposal No. 2--Approval of The 1997 Equity Plan for Non-Employee
Directors of Playboy Enterprises, Inc."
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of August 31, 1997, the number and
percentage of shares of Common Stock beneficially owned by each Director, by
each Executive Officer named in the Summary Compensation Table on page 10 (the
"Named Executive Officers") and by all Directors and Executive Officers as a
Group. As used in this Proxy Statement, "beneficially owned" means the sole or
shared power to vote or direct the voting of a security and/or the sole or
shared power to dispose or direct the disposition of a security.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR SHARES OF PERCENT OF SHARES OF PERCENT OF
NAMED EXECUTIVE CLASS A CLASS A CLASS B CLASS B
OFFICER(1) STOCK(2) STOCK STOCK(2) STOCK
------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Dennis S. Bookshester(3)............. 3,000 * 14,000 *
David I. Chemerow(3)................. 800 * 32,200 *
Donald G. Drapkin.................... 0 * 0 *
Christie Hefner(3)(4)(5)............. 72,274 1.50 342,178 2.14
Hugh M. Hefner(5).................... 3,321,836 69.95 7,965,508 50.56
Anthony J. Lynn(3)(4)................ 600 * 203,267 1.28
Robert J. Perkins(3)(4).............. 0 * 40,189 *
Sol Rosenthal(3)..................... 252 * 12,756 *
Richard S. Rosenzweig(3)(4).......... 25,365 * 106,095 *
Sir Brian Wolfson(3)................. 2,500 * 2,500 *
All Directors and Executive Officers
as a Group (15 persons)(3)(4)....... 3,461,692 71.17 8,971,384 54.12
</TABLE>
- --------
* Less than 1% of the total shares outstanding.
(1) For fiscal year 1997, in addition to Ms. Hefner and Messrs. Hefner, Lynn,
Perkins and Rosenzweig, the Company's executive officers were: Herbert M.
Laney, Executive Vice President and President, Catalog Group; Howard
Shapiro, Executive Vice President, Law and Administration, General Counsel
and Secretary; Linda G. Havard, Executive Vice President, Finance and
Operations and Chief Financial Officer; Marianne Howatson, Executive Vice
President and President, Publishing Group; Martha O. Lindeman, Vice
President, Corporate Communications and Investor Relations; and Rebecca S.
Maskey, Senior Vice President, Finance (who terminated her employment with
the Company in May 1997).
6
<PAGE>
(2) In each case, beneficial ownership consists of sole voting and investment
power, with the exception of Mr. Rosenthal, who owns two shares of Class A
Stock and six shares of Class B Stock as custodian for his son. As of
August 31, 1997, all Directors and Executive Officers as a Group shared
voting and investment power over 52 shares of Class A Stock and 156 shares
of Class B Stock.
(3) Includes the following shares of Common Stock which are subject to
installments of stock option grants made pursuant to the Company's 1989
Stock Option Plan (the "1989 Plan"), the 1995 Plan and the 1991 Plan,
which are either exercisable, or are exercisable within 60 days of August
31, 1997.
<TABLE>
<CAPTION>
DIRECTOR OR CLASS A CLASS B
NAMED EXECUTIVE OFFICER STOCK STOCK
----------------------- ------- -------
<S> <C> <C>
Mr. Bookshester....................................... -- 10,000
Mr. Chemerow.......................................... -- 2,500
Ms. Hefner............................................ 55,000 221,250
Mr. Lynn.............................................. -- 172,813
Mr. Perkins........................................... -- 25,000
Mr. Rosenthal......................................... -- 10,000
Mr. Rosenzweig........................................ 25,000 85,000
Sir Wolfson........................................... -- 2,500
All Directors and Executive Officers as a Group (11
persons)............................................. 115,000 677,813
</TABLE>
(4) Includes the following shares of Class B Stock which are subject to the
vesting of restricted stock awards made pursuant to the 1995 Plan.
<TABLE>
<CAPTION>
INITIAL UNVESTED
NAMED EXECUTIVE OFFICER GRANT PORTION
----------------------- ------- --------
<S> <C> <C>
Ms. Hefner............................................ 75,000 37,500
Mr. Lynn.............................................. 26,250 13,124
Mr. Perkins........................................... 15,000 15,000
Mr. Rosenzweig........................................ 20,000 10,000
All Directors and Executive Officers as a Group (9
persons)............................................. 238,750 144,374
</TABLE>
(5) Ms. Hefner is the daughter of Mr. Hefner.
EXECUTIVE COMPENSATION
The following tables set forth information regarding the compensation
received by the Company's Chief Executive Officer and the other four most
highly compensated executive officers, determined by reference to fiscal year
1997 (the "Named Executive Officers"), for the last three fiscal years. The
first table ("Compensation Earned During and With Respect to Fiscal Year")
reflects salary and bonus, as well as the value of restricted stock awards and
stock options granted in prior years but which vested with respect to or
through the indicated fiscal year. The second, third and fourth tables
("Summary Compensation Table," "Option Grants in Last Fiscal Year" and
"Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values")
are in the format dictated by the applicable rules of the Securities and
Exchange Commission. The Summary Compensation Table reflects salary, bonus and
other cash compensation earned in the designated fiscal years as well as stock
options and restricted stock awards granted (without regard to vesting) in
such fiscal years. The third table explains in more detail the terms and
hypothetical values of stock options granted to the Named Executive Officers
during fiscal year 1997. The fourth table reflects certain information
regarding vested and unvested stock options held as of June 30, 1997 and the
value thereof as of such date. No Named Executive Officer exercised any stock
options during fiscal year 1997.
7
<PAGE>
COMPENSATION EARNED DURING AND WITH RESPECT TO FISCAL YEAR
<TABLE>
<CAPTION>
ANNUAL COMPENSATION VESTING OF LONG-TERM COMPENSATION
------------------------- ----------------------------------------------------
FISCAL YEAR- FISCAL YEAR-
ESTIMATED END VALUE OF END VALUE OF
VALUE OF TAX LIABILITY CLASS A CLASS B
OTHER VESTED WITH RESPECT STOCK STOCK
ANNUAL CLASS B TO VESTING OF UNDERLYING UNDERLYING
COMPEN- RESTRICTED RESTRICTED EXERCISABLE EXERCISABLE
NAME AND PRINCIPAL SALARY BONUS SATION STOCK STOCK OPTIONS OPTIONS
POSITION YEAR ($)(1) ($) ($) AWARDS ($) ($) ($)(2)(3) ($)(2)(3)
------------------ ---- -------- -------- ------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christie Hefner.......... 1997 $499,980 $178,781 $217,969(6) $70,731(6) $261,250 $ 855,546
Chairman of the Board
and 1996 450,008 337,506 248,438(7) 80,618(7) 446,875 1,410,507
Chief Executive Officer 1995 467,316 247,006 67,969 183,750
Anthony J. Lynn.......... 1997 524,992 757,700 76,295(6) 27,047(6) 582,561
Executive Vice President 1996 499,982 380,000 86,960(7) 30,827(7) 1,047,274
and President, 1995 483,318 10,938
Entertainment Group
Hugh M. Hefner........... 1997 419,978 106,792
Chairman Emeritus and 1996 399,986 160,000
Editor-in-Chief 1995 399,600 98,893
Robert J. Perkins(4)..... 1997 298,450 95,350 $56,818(5)
Executive Vice
President,
Chief Marketing Officer
Richard S. Rosenzweig.... 1997 259,420 82,452 58,125(6) 20,605(6) 120,313 387,500
Executive Vice President 1996 254,800 127,400 66,250(7) 23,486(7) 204,688 631,563
1995 264,600 81,854 32,813 89,063
</TABLE>
- --------
(1) For fiscal year 1995, base salaries reflect compensation paid over 27 pay
periods as compared to fiscal years 1997 and 1996 in which base salaries
reflected compensation paid over 26 pay periods.
(2) Value of stock options under the 1989 Plan and the 1995 Plan that were
exercisable as of the respective year-end are based on the difference
between the closing price of Class A Stock or Class B Stock, as
applicable, on June 30 (or the last business day) of the indicated fiscal
year and the exercise price of such option. The closing price of the Class
A Stock was $11.50 at June 30, 1997, $14.875 at June 28, 1996, and $8.00
at June 30, 1995. The closing price of the Class B Stock was $11.5625 at
June 30, 1997, $14.75 at June 28, 1996, and $7.875 at June 30, 1995.
(3) The year-to-year increase or decrease in value of stock underlying
exercisable options is a function of both fluctuations in the market price
of the Common Stock underlying options and the vesting or exercise of
options. The following tables reflect, for year-to-year fluctuations in
the value of Class A Stock and Class B Stock underlying options, the
amount of the fluctuation attributable to appreciation or depreciation in
the market value of such stock and the amount of any increase attributable
to the vesting of additional options. No Named Executive Officer exercised
any stock options during fiscal year 1997.
<TABLE>
<CAPTION>
CLASS A STOCK
1996 TO 1997 DECREASE IN VALUE 1995 TO 1996 INCREASE IN VALUE
--------------------------------- ----------------------------------
DEPRECIATION VESTING APPRECIATION VESTING
NAME OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL
---- ------------ ---------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ms. Hefner.............. $(185,625) $0 $(185,625) $378,125 $781 $ 378,906
Mr. Rosenzweig.......... (84,375) 0 (84,375) 171,875 0 171,875
<CAPTION>
CLASS B STOCK
1996 TO 1997 DECREASE IN VALUE 1995 TO 1996 INCREASE IN VALUE
--------------------------------- ----------------------------------
DEPRECIATION VESTING APPRECIATION VESTING
NAME OF STOCK OF OPTIONS TOTAL OF STOCK OF OPTIONS TOTAL
---- ------------ ---------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ms. Hefner.............. $(645,469) $90,508 $(554,961) $1,134,375 $ 92,382 $1,226,757
Mr. Lynn................ (550,842) 86,129 (464,713) 806,648 229,688 1,036,336
Mr. Rosenzweig.......... (270,938) 26,875 (244,063) 515,625 26,875 542,500
</TABLE>
8
<PAGE>
(4) Mr. Perkins joined the Company in October 1996. Accordingly, compensation
information is not provided for periods prior to fiscal year 1997.
(5) Represents amounts paid by the Company for Mr. Perkins to relocate to
Chicago and for tax gross-ups related to such amounts.
(6) Values of vested restricted stock awards are based on the closing price of
Class B Stock on August 7, 1997, the date on which restrictions lapsed
with respect to 25% of the shares as a result of the Company's annual
operating income for fiscal year 1997 exceeding $10.0 million. As a result
of such vesting, each of the Named Executive Officers indicated became
liable for payment of taxes owed on the value of such vested shares. The
Company did not withhold shares of restricted stock to satisfy, or
otherwise fund, such tax obligations related to such vesting.
(7) Values of vested restricted stock awards are based on the closing price of
Class B Stock on August 5, 1996, the date on which restrictions lapsed
with respect to 25% of the shares as a result of the Company's annual
operating income for fiscal year 1996 exceeding $7.5 million. As a result
of such vesting, each of the Named Executive Officers indicated became
liable for payment of taxes owed on the value of such vested shares. The
Company did not withhold shares of restricted stock to satisfy, or
otherwise fund, such tax obligations related to such vesting.
9
<PAGE>
SUMMARY COMPENSATION TABLE
The following table reflects salary, bonus and other cash compensation
earned in the last three fiscal years as well as stock options and restricted
stock awards granted (without regard to vesting) in such fiscal years.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
--------------------------- --------------------------------------
OTHER SECURITIES
ANNUAL CLASS B UNDERLYING
COMPENSA- RESTRICTED OPTIONS ALL OTHER
NAME AND PRINCIPAL SALARY BONUS TION STOCK CLASS B COMPENSATION
POSITION YEAR ($)(1) ($) ($) AWARDS(2)($) STOCK (#) ($)
------------------ ---- -------- -------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Christie Hefner........ 1997 $499,980 $178,781 75,000(5) $11,007(8)
Chairman of the Board 1996 450,008 337,506 7,721
and Chief Executive 1995 467,316 247,006 $684,375 75,000(6) 5,378
Officer
Anthony J. Lynn........ 1997 524,992 757,700 11,315(8)
Executive Vice 1996 499,982 380,000 7,683
President and 1995 483,318 239,531 5,578
President,
Entertainment Group
Hugh M. Hefner......... 1997 419,978 106,792 11,057(8)
Chairman Emeritus and 1996 399,986 160,000 8,075
Editor-in-Chief 1995 399,600 98,893 5,026
Robert J. Perkins(3)... 1997 298,450 95,350 $56,818(4) 185,625 100,000(5)
Executive Vice
President, Chief
Marketing Officer
Richard S. Rosenzweig.. 1997 259,420 82,452 9,250(8)
Executive Vice 1996 254,800 127,400 7,668
President 1995 264,600 81,854 182,500 20,000(7) 4,628
</TABLE>
- --------
(1) For fiscal year 1995, base salaries reflect compensation paid over 27 pay
periods as compared to fiscal years 1997 and 1996 in which base salaries
reflected compensation paid over 26 pay periods.
(2) Values of restricted stock awards under the 1995 Plan shown in the Summary
Compensation Table are based on the closing price of Class B Stock on the
date of grant. As of June 30, 1997, Ms. Hefner held 75,000 shares of
restricted Class B Stock, valued at $867,188; Mr. Lynn held 26,250 shares
of restricted Class B Stock, valued at $303,516; Mr. Perkins held 15,000
shares of restricted Class B Stock, valued at $173,438; and Mr. Rosenzweig
held 20,000 shares of restricted Class B Stock, valued at $231,250. The
restrictions on the stock awards granted to Ms. Hefner and Messrs. Lynn
and Rosenzweig lapse in increments of 25% of the shares at the end of any
fiscal year, beginning with the 1996 fiscal year, during which annual
operating income first equals or exceeds $7.5 million; $10.0 million;
$15.0 million; and $20.0 million; in each case less expenses related to
the vesting of such shares. In August 1996, restrictions lapsed on 25% of
the shares as a result of annual operating income for fiscal year 1996
exceeding $7.5 million and in August 1997, restrictions lapsed on an
additional 25% of the shares as a result of annual operating income for
fiscal year 1997 exceeding $10.0 million. The restrictions on the stock
awards granted to Mr. Perkins lapse in increments of 50% of the shares at
the end of any fiscal year during which annual operating income first
equals or exceeds $15.0 million and $20.0 million; in each case after
deducting expenses related to the vesting of restricted shares at such
income level. Dividends are not paid on restricted Class B Stock.
(3) Mr. Perkins joined the Company in October 1996. Accordingly, compensation
information is not provided for periods prior to fiscal 1997.
(4) Represents amounts paid by the Company for Mr. Perkins to relocate to
Chicago and for tax gross-ups related to such amounts.
(5) See "Option Grants in Last Fiscal Year."
10
<PAGE>
(6) Represents two stock options granted in fiscal year 1995 under the 1995
Plan. The first option is an incentive stock option for 43,835 shares of
Class B Stock, with an exercise price of $10.3125 (110% of fair market
value on the date of grant), and an expiration date of February 6, 2000.
The second option is a non-qualified stock option for 31,165 shares of
Class B Stock, with an exercise price of $9.375 (100% of fair market value
on the date of grant), and an expiration date of February 6, 2005. Both
options are exercisable in equal annual increments over a four-year period
beginning February 6, 1996.
(7) Represents a stock option granted in fiscal year 1995 under the 1995 Plan
which is exercisable in equal annual increments over a four-year period
beginning February 6, 1996. The option expires on February 6, 2005.
(8) The amounts disclosed include:
(a) Company contributions of $5,810 on behalf of Ms. Hefner and Messrs.
Lynn, Hefner and Rosenzweig in fiscal year 1997 under the Company's
Employees Investment Savings Plan.
(b) Company matching contributions of the following amounts in fiscal year
1997 under the Company's Employees Investment Savings Plan on behalf of
Ms. Hefner, $5,197; Mr. Lynn, $5,505; Mr. Hefner, $5,247; and Mr.
Rosenzweig, $3,440.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ----------------------------------------------------------------- -------------------
PERCENT
OF TOTAL
OPTIONS
NUMBER OF GRANTED
SECURITIES TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED(#) YEAR(%) ($) DATE 5%($) 10%($)
- ---- ---------- --------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christie Hefner(1)...... 6,779 1.51% $16.225 7/1/01 $ 69,293 $ 174,883
68,221 15.24 14.750 7/1/06 633,944 1,599,953
Robert J. Perkins(2).... 100,000 22.35 12.375 10/1/06 779,625 1,967,625
</TABLE>
- --------
(1) Represents two stock options for the indicated number of shares of Class B
Stock granted in fiscal year 1997 under the 1995 Plan. The first option is
an incentive stock option with an exercise price equal to 110% of fair
market value on the date of grant. The second option is a nonqualified
stock option with an exercise price equal to 100% of fair market value on
the date of grant. Both options are exercisable in equal annual increments
over a four-year period beginning July 1, 1997.
(2) Represents a stock option for the indicated number of shares of Class B
Stock granted in fiscal year 1997 under the 1995 Plan. The option is
exercisable in equal annual increments over a four-year period beginning
October 1, 1997.
11
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT FISCAL VALUE OF UNEXERCISED IN-THE-MONEY
YEAR-END(#) OPTIONS AT FISCAL YEAR-END(1)($)
------------------------------- ---------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- --------------- ----------------- ---------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
STOCK STOCK STOCK STOCK STOCK STOCK STOCK STOCK
------- ------- ------- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christie Hefner
1990 grant............. 50,000 150,000 $240,625 $731,250
1992 grant............. 5,000 15,000 20,625 62,813
1995 grant............. 37,500 37,500 61,484 $61,484
1997 grant............. 75,000 (2)
Anthony J. Lynn
1992 grant ............ 140,000 428,750
1994 grant............. 32,813 10,937 153,811 51,267
Robert J. Perkins
1997 grant............. 100,000 (2)
Richard S. Rosenzweig
1990 grant............. 25,000 75,000 120,313 365,625
1995 grant............. 10,000 10,000 21,875 21,875
</TABLE>
- --------
(1) Based on a closing price for Class A Stock of $11.50 per share and for
Class B Stock of $11.5625 per share on June 30, 1997 as reported in the
New York Stock Exchange Composite Listing.
(2) Option exercise price exceeded closing price as of June 30, 1997.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
This report by the Compensation Committee and the Performance Graph on page
15 shall not be deemed to be incorporated by reference by any general
statement which incorporates by reference this Proxy Statement into any filing
under the Securities Act of 1933 or the Securities Exchange Act of 1934, as
amended (the "Acts"), and they shall not otherwise be deemed filed under such
Acts.
The Company's executive compensation programs are administered by the
Compensation Committee of the Board of Directors (the "Committee"). During
fiscal year 1997, the Committee was composed of four directors who never
served as officers of the Company. Messrs. Rosenthal (who is the Chairman) and
Bookshester and Sir Brian Wolfson served as members of the Committee during
the entire fiscal year 1997. Robert Kamerschen (a former director) served as a
member of the Compensation Committee from July 1996 to November 1996, when his
term as a director ended.
The Company's executive compensation programs are designed to help the
Company achieve its business objectives by:
. setting levels of compensation designed to attract and retain superior
executives in a highly competitive environment;
. providing incentive compensation that varies directly with both Company
financial performance and individual contribution to that performance;
and
. linking compensation to elements which affect short- and long-term share
performance.
Consequently, the Committee considers its primary mission to structure and
administer a range of compensation programs designed to enable the Company to
attract and retain executive talent in a highly competitive marketplace, well-
known for its individually tailored packages. The Committee periodically
evaluates the competitiveness of its executive compensation programs, using
information drawn from a variety of sources, including published survey data,
information supplied by consultants and the Company's own experience in
recruiting and retaining executives. Following are the criteria considered by
the Committee in establishing compensation programs and the factors considered
in determining the compensation of executives.
12
<PAGE>
BASE SALARY
The base salaries and salary ranges for executives are determined in
relation to competitive market data and level of responsibility and are
subject to periodic review by outside executive compensation consultants.
Salary ranges are reviewed on an annual basis taking into consideration, among
other things, the financial performance of the Company, and are adjusted as
necessary. Executives' salaries are reviewed on an annual basis, and salary
changes are based upon individual performance with consideration given to each
executive's total compensation package and external market data. While some of
the companies in the peer group chosen for comparison of shareholder returns
in the Performance Graph on page 15 may be included in the surveys and
information considered by the Committee in setting executives' salaries, there
is no set peer group against which those salaries are measured. Instead, the
Committee reviews broad-based industry salary data, which typically exclude
financial services and not-for-profit companies, and when available, will
examine industry-specific data relative to a particular position. For fiscal
year 1997, the Company continued the practice of restraining base salaries and
salary grade ranges and therefore based salaries slightly above the median of
the data reported in relevant compensation surveys and other information
considered by the Committee. This is consistent with the Company's current
philosophy of focusing less on fixed compensation and more on variable
performance-based compensation in the form of short- and long-term incentives.
SHORT-TERM INCENTIVES
Executives are eligible for annual bonuses under the Company's Executive
Incentive Compensation Program (the "Program"). For fiscal year 1997,
participants could earn 20% to 75% of their respective July 1, 1996 base
salaries. The total bonus amount earned was calculated based on consolidated
profitability and may also be based in part on consolidated cash flow targets,
and/or group or individual segment profitability and/or cash flows, with a
threshold level of performance required before payments would be made.
Pursuant to these compensation arrangements, certain executives, including all
Named Executive Officers except Mr. Lynn, were entitled to, and did receive,
payouts under the Program. Additionally, consistent with a frequently observed
practice in the highly competitive publishing, entertainment and catalog
industries, certain top executive officers' compensation arrangements include
participation by the executive in the incremental profits above a fixed base
of the business for which he or she is responsible. Mr. Lynn has a special
compensation plan pursuant to which he receives profit-sharing remuneration
and he does not participate in the Program. See "Employment and Change in
Control Agreements and Incentive Compensation Plans."
LONG-TERM INCENTIVES
Long-term incentive awards are provided by the 1995 Plan. The 1995 Plan is
administered by members of the Committee who, subject to the terms of the 1995
Plan, designate "key employees" of the Company to whom options and other
awards may be granted, the number of shares of Class B Stock to be covered by
each option or other stock award, the time or times at which the options may
be exercised, the vesting of awards, and other administrative functions. Thus
far, the Committee has granted incentive stock options, non-qualified stock
options and restricted stock awards under the 1995 Plan. The grants are
designed to further the growth, development and financial success of the
Company by providing additional incentives to key employees and assisting them
to become owners of capital stock of the Company and thus to benefit directly
from its growth, development and financial success. Stock option grants and
restricted stock awards also enable the Company to attract and retain the
services of executives considered essential to the long-range success of the
Company by providing them with a competitive compensation package and an
opportunity to become owners of capital stock of the Company. Consistent with
past practice, the Committee granted a stock option and a restricted stock
award to Mr. Perkins upon his joining the Company as an executive officer
during fiscal year 1997.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal year 1997, the Compensation Committee increased Ms. Hefner's
salary by $50,000, or 11%. In deciding to provide the increase, the Committee
considered, among other things, the fact that Ms. Hefner had not received a
salary increase since fiscal year 1994 and the Company's overall financial and
operational performance over the last few fiscal years. The Compensation
Committee also reviewed competitive market data and, consistent with its
general approach to salaries, attempted to place Ms. Hefner's salary slightly
above the median of the data reported in relevant compensation surveys and
other information considered by the Committee.
13
<PAGE>
Ms. Hefner's bonus payout of $178,781 was calculated according to the
Program. Ms. Hefner's maximum bonus opportunity was 75% of base salary and was
based on the Company's financial results for fiscal year 1997. Seventy-five
percent of the bonus was eligible to be earned based on achievement of
consolidated profitability targets and 25% was based on achievement of
consolidated cash flow targets. The Company's consolidated cash flow targets
were not met and, therefore, no bonus was paid with respect to such element
and the Company achieved less than 100% of the consolidated profitability
targets and, therefore, only a portion of the maximum bonus was paid with
respect to that element.
During fiscal year 1997, the Compensation Committee also granted to Ms.
Hefner two stock options for an aggregate of 75,000 shares of Class B Stock.
Consistent with its overall compensation strategy, the Compensation Committee
determined that the stock option grants would place continued emphasis on
long-term incentives as a means of increasing Ms. Hefner's compensation. When
determining the number of shares to be covered by the options, the Committee
considered, among other things, Ms. Hefner's salary, potential bonus and other
elements of her compensation relative to the competitive market data and other
information described above.
DEDUCTIBILITY OF COMPENSATION
In 1993, changes were made to the federal corporate income tax law to limit
the ability of public companies to deduct compensation in excess of $1 million
paid annually to the five most highly compensated executive officers. There
are exemptions from this limit, including compensation that is based on the
attainment of performance goals that are established by the Committee and
approved by the Company's stockholders and forms of current compensation
provided under a binding contract pre-dating the new tax law. It is the
Committee's policy to seek to qualify executive compensation for deductibility
to the extent that such policy is consistent with the Company's overall
objectives in attracting, motivating and retaining its executives. The
Committee believes that grants of stock options under the 1995 Plan and grants
of restricted stock made to executive officers pursuant to the 1995 Plan
during fiscal year 1997 qualify as stockholder-approved performance-based
compensation, and, therefore, will be fully deductible when an option is
exercised or such restricted stock vests. Grants of restricted stock made
pursuant to the 1995 Plan prior to fiscal year 1997, however, do not qualify
as stockholder-approved performance-based compensation and, therefore, will
not be fully deductible to the extent that such compensation, when added to
other non-exempt compensation for a particular executive, exceeds the limit in
any tax year. The Committee believes that, based upon current compensation
levels, compensation paid in fiscal year 1997 should be fully deductible.
Submitted by the
Compensation Committee:
Sol Rosenthal, Chairman
Dennis S. Bookshester
Sir Brian Wolfson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal year 1997 were Sol
Rosenthal, Chairman, Dennis S. Bookshester, Robert Kamerschen (a former
director) and Sir Brian Wolfson.
14
<PAGE>
PERFORMANCE GRAPH
The following graph is a comparison of the yearly percentage change in the
Company's total shareholder return on its Class B Stock, with the cumulative
total return of the Russell 2000 Stock Index and an index of peer companies
selected by the Company consisting of companies engaged in lines of business
similar to its own. In addition to the Company, these companies are: McGraw-
Hill Inc., Meredith Corporation, Time Warner Inc., Tribune Company, and The
Walt Disney Company. The peer group in last year's proxy statement also
included the Class B Common Stock of Turner Broadcasting System, Inc., which
has since been acquired by Time Warner, Inc.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN* AMONG PLAYBOY
ENTERPRISES, INC., THE RUSSELL 2000 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
Measurement Period Russell 2000
(Fiscal Year covered) [Playboy Enterprises, Inc.] Stock Index PEER GROUP
- --------------------- --------------------------- ------------ ----------
<S> <C> <C> <C>
Measurement Pt-
FYE 6/92 $100 $100 $100
FYE 6/93 $108 $126 $122
FYE 6/94 $ 86 $131 $123
FYE 6/95 $100 $158 $155
FYE 6/96 $187 $196 $171
FYE 6/97 $147 $228 $219
</TABLE>
- --------
*$100 invested on 6/30/92 in stock or index--including reinvestment of
dividends. Fiscal year ending June 30.
15
<PAGE>
EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
AND INCENTIVE COMPENSATION PLANS
To aid the Company in retaining its most senior executives and certain other
officers, the Board approved Change in Control Agreements (the "Agreements"),
which provide for the payment of specified benefits to selected officers in
the event their employment terminates after a "change in control" (defined
below) of the Company. Ms. Hefner and Messrs. Lynn, Perkins and Rosenzweig are
beneficiaries of this program. Each Agreement provides that (i) a lump-sum
cash payment will be made within ten days following termination, equal to 300%
of the sum of the officer's annual base salary in effect immediately prior to
the occurrence of the change in control and the maximum bonus for the
officer's position under the Program established for the then applicable
fiscal year; (ii) the amount of the payment would be subject to reduction so
that no portion would be subject to the excise tax provision of the Internal
Revenue Code of 1986, as amended (the "Code"), but only if the officer would
obtain a net after-tax benefit from such reduction; (iii) the officer will be
allowed to continue his or her participation in then existing welfare benefit
plans, such as medical insurance, for up to a year from the effective date of
termination; (iv) it will have an initial five-year term, automatically
extended on each anniversary of its execution unless the Company or the
officer gives notice that it or the officer does not wish to extend the
Agreement; and (v) payments become due and benefits are provided if, within 18
months after a change in control, the employee is involuntarily terminated for
reasons other than death, disability or "cause" (defined below), or
voluntarily terminates employment for certain reasons. A "change in control"
is defined as (1) any liquidation or dissolution of the Company; (2) a sale,
exchange or other disposition of Playboy magazine; (3) any occurrence by which
The Hugh M. Hefner 1991 Trust and Christie Hefner (who is deemed to hold
shares beneficially owned by the Trust to the extent Ms. Hefner has sole
voting power with respect to such shares) cease, collectively, to hold at
least 50% of the Company's stock entitled to vote generally in the election of
Company directors; and (4) the merger, consolidation or reorganization of the
Company, or sale of all or substantially all of the Company's assets, unless
such transaction is initiated by the Company and, as a result of the
transaction, not less than a majority of the combined voting power of the
securities of the surviving or transferee corporation is held by persons who
held not less than a majority of the combined voting power of the outstanding
voting stock of the Company immediately prior to the transaction. Under the
Agreement, "cause" is defined as conviction of a crime involving dishonesty,
fraud or breach of trust, or willful engagement in conduct materially
injurious to the Company. The Agreement also provides that the reasons for
which the officer may voluntarily terminate employment without forfeiture of
benefits include failure to maintain the officer in the position held prior to
the change in control, removal of the officer from the Board, assignment to
the officer of duties materially inconsistent with the authorities and
responsibilities exercised prior to the change in control, an aggregate
reduction in the officer's cash compensation, a termination or reduction in
scope or value of the officer's employee benefits, a good-faith determination
by the officer that, as a result of a change in circumstances following a
change in control, the officer is unable to carry out the authorities or
responsibilities of the officer's position, or requiring the officer to
perform duties beyond a 50-mile radius from the officer's employment
immediately prior to the change in control, or to travel at least 50% more
than was previously required in any of the three years prior to the change in
control.
Effective June 1, 1992, the Company hired Anthony J. Lynn, pursuant to an
employment contract, as President of its Entertainment Group. Mr. Lynn is
charged with the responsibility of managing the Entertainment Group's
television, home video and international operations. Mr. Lynn's employment
contract, as amended, extends through June 30, 2000, unless terminated earlier
pursuant to its terms and conditions. Mr. Lynn is to receive "Base
Compensation" ranging from $525,000 (for fiscal year 1998) to a maximum of
$550,000 per year (beginning with fiscal year 1999) during the amended term
plus all benefits otherwise accorded to senior executives of the Company in
similar positions. During the term of the contract, management shall also
recommend to the Compensation Committee the grant of further such options to
Mr. Lynn should such grants be made generally to other members of senior
management. Upon termination of his employment, Mr. Lynn is entitled to
receive all or a portion of his Base Compensation and benefits, depending on
the date and circumstances of such termination. If the Company terminates Mr.
Lynn without cause, he is entitled to receive a one-time payment equal to his
Base Compensation in the year in which such termination occurs.
Mr. Lynn may also receive compensation under the Playboy Enterprises, Inc.
Incentive Compensation Plan for Anthony J. Lynn (the "Lynn Plan"), which
provides Mr. Lynn with the opportunity to receive compensation
16
<PAGE>
based on the performance of the Company's Entertainment Group. The Lynn Plan
also provides Mr. Lynn with a cash bonus in the event of certain dispositions
of the equity or assets of the Entertainment Group.
The Lynn Plan entitles Mr. Lynn to receive contingent compensation for each
fiscal year ("Contingent Compensation") equal to 5% of the amount by which the
Entertainment's Group's Pre-tax Profits for such fiscal year exceed $2.35
million; provided that if the sum of $550,000 ($525,000 for fiscal year 1997)
plus such fiscal year's Contingent Compensation equals $2,000,000, any
additional Contingent Compensation payable to Mr. Lynn for such fiscal year
will equal 2.5% of the amount by which the Entertainment Group's Pre-tax
Profits exceed $2.35 million. The Entertainment Group's Pre-tax Profits is
defined under the Lynn Plan as the amount, if any, by which the total net
revenues of the Entertainment Group exceeds all reasonable and applicable
operating expenses attributable to same, in accordance with "Generally
Accepted Accounting Principles" computed consistent with methods utilized by
the Company and the Company's outside auditors in the preparation of the
Company's audited financial statements. In computing the Pre-tax Profits of
the Entertainment Group for any fiscal year, there shall be allowed all fair
and reasonable allocation of items of revenue and expenses between divisions,
subsidiaries and affiliates of the Company, including, but not limited to,
intercompany sales, expenses such as rent, occupancy, general administrative
and personnel salaries, MIS, insurance, employee benefits costs, security,
payroll processing, legal and tax advisory fees, depreciation, profit sharing
and auditing expenses. In addition, the effect of any One Time Gain or Loss
(defined below) accounted for as part of the Entertainment Group shall be
amortized evenly over four years, beginning in the month of occurrence, for
purposes of calculating Pre-tax Profits for any fiscal year, regardless of how
the transaction is accounted for under Generally Accepted Accounting
Principles. A "One Time Gain or Loss" is a gain or loss resulting from a
transaction not in the ordinary course of business and which does not result
in an Equity Bonus (as described below). Profits or losses from any other
fiscal year shall not, except as described above for One Time Gains or Losses,
be carried over or back to any other fiscal year or otherwise be taken into
consideration in computing the Pre-tax Profits of a particular fiscal year.
The Lynn Plan entitles Mr. Lynn to receive Contingent Compensation for the
1997, 1998, 1999 and 2000 fiscal years, and for each fiscal year after fiscal
year 2000 unless notice is given by the Compensation Committee to Mr. Lynn
that the provisions of the Lynn Plan pertaining to Contingent Compensation
will not apply to the specified fiscal year after fiscal year 2000. Mr. Lynn's
Contingent Compensation with respect to 1997 was $757,700.
If Mr. Lynn's employment is terminated "for cause," Mr. Lynn will receive
all Contingent Compensation payable with respect to all periods prior to the
fiscal year during which the Company notifies Mr. Lynn that his employment is
terminated. If Mr. Lynn's employment is terminated because of Mr. Lynn's death
or disability, he (or his estate or personal representative, as applicable)
will receive all unpaid Contingent Compensation payable with respect to all
periods prior to the fiscal year during which such death or disability occurs
plus a prorated percentage of the Contingent Compensation for such fiscal
year. If Mr. Lynn's employment is terminated by the Company without cause, he
will receive 100% of the Contingent Compensation to which Mr. Lynn would have
been entitled for and only for the year in which such termination occurs,
reduced by amounts payable to Mr. Lynn pursuant to Mr. Lynn's Change in
Control Agreement (described above).
If the Company directly or indirectly sells, transfers or otherwise disposes
of an equity interest in Playboy Entertainment Group, Inc. ("PEGI") or all or
a portion of the assets comprising the Playboy Entertainment Group operations
(except sales of assets or operations that contributed less than 25% of the
Group's total Pre-tax Profits in the immediately preceding fiscal year or less
than a 25% equity interest) to a third party (including a sale to the public)
during Mr. Lynn's employment or within three (3) months following the
termination of Mr. Lynn's employment (an "Equity Disposition Transaction"),
then Mr. Lynn will receive a one-time Equity Bonus equal to the product of EB
Pre-tax Profits times the Remaining Term. EB Pre-tax Profits is defined in the
Lynn Plan as (i) in the case of the sale, transfer or other disposition of an
equity interest in PEGI entitling Mr. Lynn to an Equity Bonus, the total Pre-
tax Profits of PEGI for the fiscal year immediately preceding the Equity
Disposition Transaction times the fully-diluted percentage equity interest in
PEGI acquired by the third party, and (ii) in the case of a sale, transfer or
other disposition of all or a portion of the assets comprising the
Entertainment Group entitling Mr. Lynn to an Equity Bonus, that portion of the
Pre-tax Profits of the Entertainment Group generated or attributable to such
assets for the fiscal year immediately preceding the Equity Disposition
Transaction. Remaining Term is defined in the Lynn Plan as the lesser of (i)
three (3) or (ii) the
17
<PAGE>
number arrived at by dividing by 12 the number of full months remaining in Mr.
Lynn's employment term. The payment of the Equity Bonus, if any, will be in
addition to any Contingent Compensation payable to Mr. Lynn under the Lynn
Plan. The Equity Bonus will be payable only in connection with an Equity
Distribution which constitutes a bona fide transfer of an equity interest in
PEGI or a bona fide sale of assets and will not be payable in connection with
any other transaction (whether in the form of joint ventures, co-productions
or otherwise) which represents a financing transaction. The Company is
prohibited from structuring a transaction which would otherwise qualify as a
sale or distribution of any equity interest in PEGI or a sale of assets of the
Entertainment Group as a financing transaction for the purpose of frustrating
the provisions of the Lynn Plan.
Effective October 1, 1997, Robert J. Perkins joined the Company as its
Executive Vice President, Chief Marketing Officer. Pursuant to an agreement
related to Mr. Perkin's employment, he receives an annual base salary of
$400,000 and is entitled to participate in the Program at a maximum level for
fiscal year 1997 of 50% of his base salary earned. The Company also agreed to
cover certain expenses related to Mr. Perkin's relocation to Chicago. Pursuant
to the agreement, Mr. Perkins is entitled to receive a full year's severance
(based on his salary at that time) if his employment is terminated for any
reason other than cause, which is described as conviction of a crime involving
dishonesty, fraud or breach of trust, or engaging in conduct materially
injurious to the Company.
TRANSACTIONS WITH MANAGEMENT
The Company owns a 29-room mansion (the "Mansion") located on 5 1/2 acres in
Los Angeles, which is used for various corporate activities, including serving
as a valuable location for video production and magazine photography, business
meetings, enhancing the Company's image, charitable functions and a wide
variety of promotional and marketing purposes. The Mansion generates
substantial publicity and recognition, which increases public awareness of the
Company and its products and services. Facilities at the Mansion include a
tennis court, swimming pool, gymnasium and other recreational facilities as
well as extensive film, video, sound and security systems. The Mansion also
includes accommodations for guests and serves as Mr. Hefner's office and the
residence for his family (the "Hefner Family"). The Mansion has a full-time
staff which maintains it, serves in various capacities at the functions held
there and provides the Hefner Family, their guests, and the Company's guests
with meals, beverages and other services.
Under a 1979 lease entered into with the Company, the annual rent for the
Hefner Family's basic Mansion accommodations, and the Mansion's facilities,
utilities and attendant services is to be determined by independent expert
appraisals based on comparable hotel accommodations. In addition, Mr. Hefner
is required to pay the sum of the per unit value of nonbusiness meals,
beverages and other benefits received by the Hefner Family and any of their
personal guests. Standard food and beverage unit values are determined by
independent expert appraisals based on fair market values. Valuations for both
basic accommodations and standard food and beverage units are to be
reappraised every three years, with annual adjustments made on the basis of
appropriate consumer price index figures in other years. Mr. Hefner is also
responsible for the cost of all improvements in any Hefner Family
accommodations, including capital expenditures, that are in excess of normal
maintenance for those areas. During fiscal year 1997, no such improvements
were made, and consequently no such payments were required.
Usage of services and benefits is recorded through a system initially
developed by the auditing and consulting firm of Price Waterhouse and now
administered (with appropriate modifications approved by the Audit and
Compensation Committees of the Board) by the Company. The lease, effective as
of July 1, 1979, had an initial term ending June 30, 1981, and continues for
ensuing 12-month periods unless terminated by either party. The monthly rent
charged during fiscal year 1997 included the appraised rent and the per unit
value of other benefits described above. Within 120 days after the end of the
Company's fiscal year, the actual monthly charge for all such benefits is
finally determined for the fiscal year. Mr. Hefner pays or receives credit for
any difference between the actual amount and the amount paid. The sum of the
actual rent and such other benefits payable by Mr. Hefner for fiscal year 1997
is estimated to be $48,990 per month, subject to final verification. The
monthly rental charge, effective July 1, 1997, will be determined subject to
the completion of independent appraisals which the Company expects to be
completed by October 31, 1997.
18
<PAGE>
The Company purchased the Mansion in 1971 for $1,050,000 and in the
intervening years has made substantial capital improvements at a cost of
approximately $12,389,000 through fiscal year 1997 (including approximately
$2,465,000 to bring the Hefner Family accommodations to a standard similar to
the Mansion's common areas). The Mansion is included in the Company's
financial statements as of June 30, 1997 at a cost, including all improvements
and after accumulated depreciation, of approximately $2,740,000. The Company
receives rent from Mr. Hefner (see above) and pays all operating costs of the
Mansion, which were approximately $3,635,000 in fiscal year 1997 (net of rent
received from Mr. Hefner), including depreciation, taxes and security charges
related to the protection of the Mansion, employees located there, business
guests, the Hefner Family and other visitors but excluding $325,000 of video
taping activities conducted at the Mansion.
In June 1993, William A. Marovitz, Ms. Hefner's spouse since July 1995,
brought an opportunity to the Company to participate in one or more
applications for gaming licenses in Greece. Over the next two years, Mr.
Marovitz actively pursued that and other gaming opportunities on the Company's
behalf. In June 1994, the independent members of the Company's Board of
Directors, in recognition of Mr. Marovitz' substantial time and effort on
gaming matters, approved a compensation arrangement for all of his gaming-
related activities to date and all of his future activities relating to gaming
opportunities in Greece. In consideration for past and future services, the
Company paid Mr. Marovitz $125,000 in February 1995. In addition, should the
Greek-gaming initiatives result in the opening of a gaming operation in which
the Company has an interest, the independent members of the Board agreed to
pay Mr. Marovitz a success fee of: (1) $25,000 on the date of such opening;
and (2) $100,000 on each of the first, second and third anniversaries of such
opening date, provided that such gaming operations are ongoing on the date of
payment. The Company was part of a consortium (the "Consortium"), which Mr.
Marovitz was instrumental in putting together, that applied for a gaming
license on the island of Rhodes, Greece in June 1995. In November 1995 the
Greek government notified the Consortium that the application for the gaming
license had been granted. The Company has a licensing relationship with, and
owns a minority equity interest in, the Consortium. In October 1996, the
Consortium and the government executed a contract governing the operation of
the casino. The Consortium is currently renovating the property that will be
the Playboy Hotel and Beach Casino, which is expected to open in calendar
1998. Mr. Marovitz has continued to be very involved in government regulatory
negotiations and to travel to Greece to assist in the project, for which he
has received reimbursement of his expenses. Subsidiaries or affiliates of the
Company are entitled to two seats on the Consortium's Board of Directors. Mr.
Marovitz and director Dennis S. Bookshester were appointed to represent the
Company's interests on the Consortium's Board. For their service on that
Board, the Company's Board (with Mr. Bookshester abstaining) approved an
annual retainer of $5,000 and an in-person per meeting fee of $1,250.
Accordingly, for fiscal year 1997, Mr. Bookshester received $8,400 and Mr.
Marovitz received $1,666. This project is the Company's first re-entry into
the casino gaming business.
PROPOSAL NO. 2
APPROVAL OF THE 1997 EQUITY PLAN FOR NON-EMPLOYEE
DIRECTORS OF PLAYBOY ENTERPRISES, INC.
In September 1997 the Board of Directors unanimously approved and adopted,
subject to stockholder approval, the 1997 Equity Plan for Non-Employee
Directors of Playboy Enterprises, Inc. (the "Director Plan"). The Director
Plan requires that payment to non-employee directors of the Company ("Non-
Employee Directors") of all compensation earned for attendance at Board and
committee meetings, and for committee positions held, be in the form of shares
of Class B Stock. The Director Plan also permits Non-Employee Directors to
elect to receive all or a portion of their annual retainers in the form of
shares of Class B Stock. The Director Plan also permits the Company to issue
to Non-Employee Directors (i) options to purchase shares of Class B Stock of
the Company, (ii) restricted stock of the Company and (iii) awards of Class B
Stock of the Company.
The affirmative vote of a majority of the shares of Class A Stock
represented in person or by proxy is required for approval of the Director
Plan. The following summary of the principle provisions of the Director Plan
is not intended to be exhaustive and is qualified in its entirety by the terms
of such plan.
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<PAGE>
PURPOSES OF THE DIRECTOR PLAN
The principal purposes of the Director Plan are (i) to promote the growth
and long-term success of the Company by offering Non-Employee Directors the
ability to acquire Class B Stock of the Company, (ii) to enable the Company to
attract and retain qualified persons to serve as Non-Employee Directors, which
services are considered essential to the long-term success of the Company, by
offering them an opportunity to own Class B Stock of the Company, and (iii) to
more closely align the interests of Non-Employee Directors with the interests
of the Company's stockholders by paying certain amounts of compensation for
services as a Director in the form of shares of Class B Stock.
AVAILABLE SHARES AND ADJUSTMENT
Subject to adjustment as described below, the number of shares of Class B
Stock which may be issued or transferred under the Director Plan, plus the
number of shares of Class B Stock covered by outstanding awards and not
forfeited under the Director Plan, may not in the aggregate exceed 200,000
shares, which may be shares of original issuance or shares held in treasury or
a combination thereof. If an option granted under the Director Plan lapses or
terminates before such option is exercised or if shares of restricted stock or
Class B Stock granted under the Director Plan are forfeited, for any reason,
the shares covered thereby may again be made available under the Director
Plan.
The number, price and kinds of shares available under the Director Plan are
subject to adjustment by the Board of Directors in the event of a stock split,
stock dividend, recapitalization, reorganization, merger or other similar
event. The Company is not required to issue any fractional shares of Class B
Stock pursuant to the Director Plan. The Board of Directors may provide for
the elimination of fractions, for the settlement thereof in cash or for such
other adjustments as contemplated by the Director Plan.
As of September 15, 1997, the closing price of the Company's Class B Stock
on the New York Stock Exchange was $13.375 per share.
EFFECTIVE DATE, TERMINATION AND AMENDMENT
If approved by the stockholders, the effective date of the Director Plan
will be September 10, 1997, the date of its adoption by the Board of
Directors. No further awards may be made under the Director Plan after the
passage of 10 years from the date on which the Company's stockholders first
approved the Director Plan. If the Director Plan is not approved by the
stockholders of the Company, the Director Plan and any awards thereunder will
be void and of no force or effect.
The Board of Directors may amend the Director Plan at any time except that,
without the approval of the stockholders of the Company, no amendment may,
among other things, increase the number of shares of Class B Stock available
under the Director Plan except pursuant to the Board's adjustment authority
described above. No amendment may impair the rights of a holder of an
outstanding award under the Director Plan without the consent of such holder,
unless the award itself expressly provides otherwise.
ADMINISTRATION
The Director Plan will be administered by the Board of Directors of the
Company. Subject to the terms of the Director Plan, the Board has the
authority to prescribe, interpret and revoke rules and regulations for
administering the Director Plan and to decide questions of interpretation or
application of any provision of the Director Plan or any agreements pursuant
to which awards are granted under such Plan. Awards granted under the Director
Plan need not be the same with respect to each holder of such awards.
The Board of Directors has the authority to delegate all or any part of its
authority under the Director Plan to any committee or subcommittee of not less
than two directors appointed by the Board who are "non-employee directors"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934. The
majority of any such committee or subcommittee will constitute a quorum, and
the action of a majority of its members present at any meeting at which a
quorum is present, or acts unanimously approved in writing, will be deemed the
acts of such committee or subcommittee.
20
<PAGE>
AWARDS UNDER THE DIRECTOR PLAN
Mandatory Fee Shares. The Director Plan provides for the payment to each
Non-Employee Director of his or her compensation payable with regard to number
of Board or committee meetings attended, or committee positions held ("Meeting
Fees"), in the form of shares of Class B Stock of the Company ("Mandatory Fee
Shares"), except to the extent that such Director has elected to defer such
compensation pursuant to the DCP.
Mandatory Fee Shares will be paid to each Non-Employee Director no later
than ten days following the end of the applicable accounting period (as
hereinafter defined). Accounting period means each fiscal quarter of the
Company, such quarters beginning on January 1, April 1, July 1 and October 1
of each year. The number of Mandatory Fee Shares paid to each Non-Employee
Director for each Accounting Period will be the number of shares of Class B
Stock of the Company equal to (a) the amount of such Director's Meeting Fees
for such Accounting Period, divided by (b) the market value per share of Class
B Stock on the last trading date of such Accounting Period. To the extent that
application of the foregoing formula would result in the issuance of
fractional shares of Class B Stock, such fractional shares will be
disregarded, and the remaining amount of compensation will be paid in cash.
The Company will pay any and all fees and commissions incurred in connection
with the payment of Mandatory Fee Shares to a Non-Employee Director.
Voluntary Shares. Each Non-Employee Director may elect, by filing a
participation agreement with the Secretary of the Company, to have up to 100
percent of his or her annual retainer payable in cash paid by the Company in
the form of shares of Class B Stock in lieu of a cash payment ("Voluntary
Shares"). Except as the Board may otherwise provide, a participation agreement
must be filed as a one-time election for the applicable fiscal year of the
Company. Unless the Non-Employee Director revokes or changes such election by
filing a new participation agreement before the beginning of a subsequent
fiscal year such participation agreement will continue to apply for each
subsequent fiscal year unless the Board of Directors provides otherwise.
No later than ten days following the end of an Accounting Period the Company
will issue to each Non-Employee Director who has made an election to receive
Voluntary Shares, a number of Voluntary Shares equal to (a) the portion of
such Director's compensation for such Accounting Period that such Director has
elected to receive as Voluntary Shares, divided by (b) the market value per
share of Class B Stock on the last trading day of such Accounting Period. To
the extent that the application of the foregoing formula would result in the
issuance of fractional shares of Class B Stock, such fractional shares will be
disregarded, and the remaining amount of compensation will be paid in cash.
The Company will pay any and all fees and commissions incurred in connection
with the payment of the Voluntary Shares to a Non-Employee Director.
Stock Options. The Director Plan permits the Board of Directors to authorize
awards of options to purchase shares of Class B Stock to Non-Employee
Directors. Each option award will be set forth in an agreement with the Non-
Employee Director receiving the award and will indicate the terms and
conditions of the option award, consistent with the terms of the Director
Plan. The Board may determine the terms and conditions of such awards in
accordance with the following provisions: (i) each award must specify the
number of shares of Class B Stock to which the option rights pertain, (ii)
each award must specify an option price per share of Class B Stock, which
price must be equal to or greater than the market value per share on the date
of award, (iii) any award of option rights may provide for the deferred
payment of the option price from the proceeds of a sale through a broker of
some or all of the shares of Class B Stock to which the exercise relates and
(iv) each award must specify the form of consideration to be paid in
satisfaction of the option price and the manner of payment of such
consideration, which may include (a) cash, (b) nonforfeitable, nonrestricted
shares of Class B Stock, which are already owned by the Non-Employee Director
and have a value at the time of exercise that is equal to the option price,
(c) any other legal consideration that the Board may deem appropriate,
including, under certain circumstances, shares of restricted stock which are
already owned by the Non-Employee Director (with the understanding that all of
the shares received by such Non-Employee Director upon exercise of the option
rights that are paid for by such restricted stock will be subject to the same
restrictions as such restricted stock), and (d) any combination of the
foregoing.
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<PAGE>
Each option award shall provide conditions that must be achieved before the
option rights or installments thereof become exercisable, such as a certain
period of continuous service as a Non-Employee Director or performance
objectives, and any award may provide for the earlier exercise of the option
rights in the event of a change in control of the Company or other transaction
or event.
Successive awards of option rights may be made to the same Non-Employee
Director regardless of whether any option rights previously awarded to the
same Director remain unexercised. The term of an option right will be set by
the Board, but no option right may have a term of more than ten years from the
date of award.
Class B Stock Grants and Restricted Stock. The Director Plan authorizes the
Board of Directors to award shares of Class B Stock of the Company to a Non-
Employee Director in consideration and as additional compensation for services
performed for the Company (a "Class B Stock Grant"). The Director Plan also
authorizes the Board of Directors to award shares of restricted stock to Non-
Employee Directors. Each Class B Stock Grant and award of restricted stock
will be set forth in an agreement with the Non-Employee Director receiving the
award and will indicate the terms and conditions of the award, consistent with
the terms of the Director Plan. The Board may determine the terms and
conditions of such awards subject to the following provisions: (i) each Class
B Stock Grant and award of restricted stock will constitute an immediate
transfer of the ownership of shares of Class B Stock to the Non-Employee
Director in consideration of the performance of services, entitling the holder
thereof to dividend, voting and other ownership rights, subject to, in the
case of awards of restricted stock, the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to, (ii) each award of
restricted stock must provide that the shares of restricted stock covered
thereby are subject to a "substantial risk of forfeiture" within the meaning
of Section 83 of the Code for a period to be determined by the Board of
Directors on the date of award, and may provide for the termination of such
risk of forfeiture upon the achievement of certain performance objectives, in
the event of a change in control of the Company, or upon any other transaction
or event, (iii) any Class B Stock Grant and award of restricted stock may be
made in consideration of payment by the Non-Employee Director of an amount
that is less than the market value per share on the date of award, (iv) any
award of restricted stock may require that any or all dividends or other
distributions paid on the shares of restricted stock during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional shares of Class B Stock, which may be subject to
the same restrictions as the underlying award or such other restrictions as
the Board may determine, and (v) each award of restricted stock must provide
that, during the period for which such substantial risk of forfeiture is to
continue, and any Class B Stock Grant may provide, that the transferability of
the shares of Class B Stock subject to such awards is prohibited or restricted
in the manner and to the extent prescribed by the Board on the date of award.
Such restrictions may include, without limitation, rights of repurchase or
first refusal in the Company or provisions subjecting the shares of restricted
stock to a continuing substantial risk of forfeiture in the hands of any
transferee.
On or after the date of any Class B Stock Grant or award of restricted stock
under the Director Plan, the Board may provide for the payment of a cash award
intended to offset the amount of tax that the Non-Employee Director may incur
in connection with such Class B Stock Grant or restricted stock, including,
without limitation, tax on the receipt of such cash award. The Board may also
provide in any individual stock grant agreement or restricted stock agreement
that the Company has the right to repurchase the restricted stock then subject
to restrictions under the restricted stock agreement, or the Class B Stock
subject to the Class B Stock Grant, immediately upon a termination in
directorship for any reason at a cash price per share equal to the cash price
paid by the stockholder for such restricted stock or Class B Stock. In the
discretion of the Board, provision may be made that no such right of
repurchase will exist in the event of a termination of directorship without
cause or because of the director's retirement, death or permanent and total
disability.
TRANSFER RESTRICTIONS
Except as may be otherwise determined by the Board, (i) awards, Mandatory
Fee Shares and Voluntary Shares issued or granted under the Director Plan may
be issued only to a participating Non-Employee Director, (ii) option rights
and restricted stock issued or granted under the Director Plan may be
transferred by a participating Non-Employee Director only by will or the laws
of descent and distribution, and (iii) option rights may not be exercised
during a Director's lifetime except by the Director or, in the event of the
Director's legal
22
<PAGE>
incapacity, by his guardian or legal representative acting in a fiduciary
capacity on behalf of the Director under state law and court supervision. The
terms of any award made under the Director Plan may provide for further
transfer restrictions on the shares of Class B Stock subject to the award.
To the extent required to satisfy any condition to exemption available
pursuant to Rule 16b-3 of the Securities Exchange Act of 1934, any shares of
Class B Stock which a Non-Employee Director elects to receive as Voluntary
Shares must be held by such Non-Employee Director for at least six months
following the date of such receipt.
EFFECT OF TERMINATION OF DIRECTORSHIPS
Notwithstanding any contrary provision of the Director Plan, in the event of
a termination of directorship by reason of death, disability, hardship or
other special circumstances of a Non-Employee Director who participates in the
Director Plan and who holds (i) an option right that is not immediately and
fully exercisable or (ii) any award as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, the
Board may, in its sole discretion, take any action that it deems equitable
under the circumstances or in the best interests of the Company, including,
without limitation, waiving or modifying any limitation or requirement with
respect to any award under the Director Plan.
If a Non-Employee Director becomes an employee of the Company while
continuing to serve as a director, that fact will not impair the rights such
director may have had under the Director Plan, including, without limitation,
the rights such director may have under any award outstanding under the
Director Plan. Such director will not, however, be eligible to receive any
further awards under the Director Plan.
WITHHOLDING TAX
To the extent, if any, that the Company is required to withhold federal,
state, local or foreign taxes in connection with any payment made or benefit
realized by a participating Non-Employee Director under the Director Plan, and
the amounts available to the Company for the withholding are insufficient, the
participating Non-Employee Director must, as a condition precedent to the
receipt of such payment or realization of such benefit, make arrangements
satisfactory to the Company for payment of the balance of any taxes required
to be withheld. At the Board's discretion, any such arrangements may include
relinquishment of a portion of any such payment or benefit. The Company and
any participating Non-Employee Director may also make similar arrangements
with respect to the payment of any taxes with respect to which withholding is
not required.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief overview of the U.S. federal income tax
consequences generally arising with respect to awards under the Director Plan.
This summary is not intended to be exhaustive and does not describe state or
local tax consequences.
TAX CONSEQUENCES TO PARTICIPANTS
Stock Options. In general: (i) no income will be recognized by the Non-
Employee Director at the time a stock option is granted; (ii) at the time of
exercise of a stock option, ordinary income will be recognized by the Non-
Employee Director in an amount equal to the difference between the option
price paid for the shares and the fair market value of the shares if they are
nonrestricted on the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a stock option, any appreciation (or
depreciation) in the value of the shares after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
Restricted Stock. A Non-Employee Director receiving restricted stock will
not recognize taxable income at the time of the grant unless the Non-Employee
Director makes an election to be taxed at the time restricted stock is
granted. If such election is not made, the Non-Employee Director will
recognize taxable income at the time the restrictions lapse in an amount equal
to the excess of the fair market value of the shares at such time over the
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<PAGE>
amount, if any, paid for the shares. In addition, a Non-Employee Director
receiving dividends with respect to restricted stock for which the above-
described election has not been made and prior to the time the restrictions
lapse will recognize taxable compensation, rather than dividend income, in an
amount equal to the dividends paid. Upon disposition of such shares, any
appreciation (or depreciation) in the value of the shares after the date the
restrictions lapsed will be taxed as either short-term or long-term capital
gain (or loss) depending on the holding period. If a Non-Employee Director
properly makes an election to be taxed at the time the restricted stock is
granted, the Non-Employee Director will recognize taxable income on the date
of grant equal to the excess of the fair market value of the shares at such
time over the amount, if any, paid for such shares. The Non-Employee Director
will not recognize any income at the time the restrictions lapse. Upon
disposition of such shares, any appreciation (or depreciation) in the value of
the stock after the date the restricted shares were granted will be taxed as
either short-term or long-term capital gain (or loss) depending on the holding
period.
Class B Stock Grants, Mandatory Fee Shares and Voluntary Shares. A Non-
Employee Director receiving (i) a Class B Stock Grant, (ii) Mandatory Fee
Shares or (iii) Voluntary Shares will recognize taxable income upon the grant
of such shares in an amount equal to the fair market value of any such shares
delivered by the Company less the amount, if any, paid for such shares. Upon
disposition of such shares, any appreciation (or depreciation) in the value of
the shares after the date of grant will be taxed as either short-term or long-
term capital gain (or loss) depending on the holding period.
TAX CONSEQUENCES TO THE COMPANY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company will be entitled to a corresponding
deduction to the extent that such a deduction is allowed under Section 162 of
the Code.
DIRECTOR PLAN BENEFITS
If the Director Plan is approved by the Class A stockholders, each
participating Non-Employee Director will be entitled to receive as Mandatory
Fee Shares the number of shares of Class B Stock equal to $1,000 for each
meeting of the Board of Directors attended after the effective date of the
Director Plan.
If the Director Plan is approved by the Class A stockholders, each
participating Non-Employee Director will also receive 5,000 shares of
restricted stock of the Company pursuant to a restricted stock agreement
between the Director and the Company. The substantial risk of forfeiture and
restrictions on transferability on such restricted stock will lapse upon
satisfaction of certain performance objectives, or on September 10, 2007
(unless the recipient of such shares is no longer a Non-Employee Director of
the Company or there has been a forfeiture of such shares pursuant to a change
in control of the Company), whichever is earlier. The performance objectives
are based on the Company's operating income after deducting expenses related
to the vesting of restricted shares at such income level. The restrictions
will lapse with respect to specified percentages of the shares of restricted
stock as follows:
<TABLE>
<CAPTION>
ANNUAL OPERATING INCOME PERCENTAGE OF TOTAL RESTRICTED
OBJECTIVE ($ MILLION) STOCK AWARDS
----------------------- ------------------------------
<S> <C>
$15 30%
20 100% less any amount
previously vested
</TABLE>
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<PAGE>
The following chart illustrates the number of shares that will be granted to
Non-Employee Directors pursuant to restricted stock grants and as Mandatory
Fee Shares for Board meetings attended under the Director Plan during 1997
(including the September 10, 1997 Board meeting), if the Director Plan is
approved by the Company's stockholders.
DIRECTOR PLAN BENEFITS
<TABLE>
<CAPTION>
DIRECTOR PLAN
----------------------------------------------
NAME DOLLAR VALUE ($)(1) NUMBER OF SHARES(1)
---- ------------------- --------------------------
<S> <C> <C>
Dennis S. Bookshester..... $67,878 5,000 plus 75 shares of
Class B Stock for each
Board meeting attended
David I. Chemerow......... $67,878 5,000 plus 75 shares
of Class B Stock for each
Board meeting attended
Donald G. Drapkin......... $67,878 5,000 plus 75 shares
of Class B Stock for each
Board meeting attended
Sol Rosenthal............. $67,878 5,000 plus 75 shares
of Class B Stock for each
Board meeting attended
Sir Brian Wolfson......... $67,878 5,000 plus 75 shares
of Class B Stock for each
Board meeting attended
</TABLE>
- --------
(1) The dollar value for the Company's Class B Stock indicated in the table
above was the closing price of such Class B Stock on the New York Stock
Exchange on September 15, 1997. The same value was used to determine the
number of shares issuable for each Board meeting attended. Subject to
changing market conditions, the dollar value of such Class B Stock on the
date of grant to participating Non-Employee Directors may be different
than the value stated above. The number of shares issuable for Board
meetings attended will also fluctuate with the market value of the Class B
Stock. The type and number of other awards which may be granted in the
future are subject to the discretion of the Board of Directors and to the
elections of Non-Employee Directors and, therefore, cannot be determined
with certainty.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE PROPOSAL TO
APPROVE THE DIRECTOR PLAN. DULY EXECUTED PROXIES RECEIVED WILL BE SO VOTED
UNLESS STOCKHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
PROPOSAL NO. 3
INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
determined that Coopers & Lybrand L.L.P. should continue to serve as auditors
for the Company for the fiscal year ending June 30, 1998. The Board of
Directors recommends that the holders of the Company's Class A Stock vote FOR
ratification of this selection.
A representative of Coopers & Lybrand L.L.P. will be present at the annual
meeting and will be available to respond to appropriate questions from
stockholders. The representative will be allowed to make a statement regarding
appropriate issues, should he or she wish to do so. The fees and expenses
incurred by the Company for the fiscal year 1997 annual audit as performed by
Coopers & Lybrand L.L.P. was estimated to be approximately $195,000. The final
cost of the fiscal year 1996 annual audit performed by Coopers & Lybrand
L.L.P. was $190,000 with all expenses included.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and the New York and Pacific Stock Exchanges. Officers, directors and
greater than 10% beneficial owners are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
the Company's review of the copies of such forms received by it, or written
representations from certain reporting persons that no other reports were
required during the fiscal year ended June 30, 1997, all of the Company's
officers, directors and greater than 10% beneficial owners complied with all
Section 16(a) filing requirements except as follows: Ms. Maskey (a former
executive officer) reported on a Form 5 nine option exercises and ten sale
transactions that should have been reported earlier on a Form 4, and Sir Brian
Wolfson filed late a Form 4 reporting one transaction.
STOCKHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Proposals of stockholders intended to be presented at the 1998 annual
meeting must be received by the Company no later than June 1, 1998 to be
considered for inclusion in its proxy statement and form of proxy relating to
that meeting. Such proposals should be addressed to the Secretary, Playboy
Enterprises, Inc., 680 North Lake Shore Drive, Chicago, Illinois 60611, and,
while not required, should be submitted by Certified Mail-Return Receipt
Requested to curtail controversy as to the date of receipt.
ANNUAL REPORT AND FINANCIAL INFORMATION
A copy of the Company's Annual Report to Stockholders, including financial
statements and a substantial portion of the Company's Annual Report on Form
10-K for fiscal year 1997, is being mailed to each stockholder herewith. A
COPY OF THE COMPANY'S COMPLETE ANNUAL REPORT ON FORM 10-K AND A LIST OF ALL
EXHIBITS THERETO WILL BE SUPPLIED WITHOUT CHARGE TO ANY STOCKHOLDER UPON
WRITTEN REQUEST TO HOWARD SHAPIRO, OFFICE OF THE SECRETARY, AT THE COMPANY'S
PRINCIPAL EXECUTIVE OFFICES, 680 NORTH LAKE SHORE DRIVE, 15th FLOOR, CHICAGO,
ILLINOIS 60611.
OTHER BUSINESS
As of the date of this Proxy Statement, management knows of no other
business that will be presented for consideration at the annual meeting.
However, if other proper matters are presented at the meeting, it is the
intention of the proxy holders named in the enclosed form of proxy to take
such action as shall be in accordance with their best judgment. Except as set
forth elsewhere in this proxy statement, all matters to be voted upon by
stockholders require a majority vote of the shares of Class A Stock
represented in person or by proxy. The quorum requirement for convening the
meeting is a majority of the outstanding Class A Stock. Properly executed
proxies that are marked "withheld" (in the case of director elections) or
"abstain" or are held in street name by brokers that are not voted on one or
more particular proposals (if otherwise voted on at least one proposal) will
be counted for purposes of determining whether a quorum is present at the
meeting. "Withhelds" (in the case of director elections) and abstentions (with
respect to all other matters) will have the same effect as a vote against the
proposal to which it applies. Broker non-votes will be treated neither as a
vote for nor as a vote against any of the proposals to which such broker non-
votes apply.
By Order of the Board of Directors
Chicago, Illinois
September 29, 1997
26
<PAGE>
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PROXY PROXY
PLAYBOY ENTERPRISES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 6, 1997
The undersigned hereby constitutes and appoints CHRISTIE HEFNER and HOWARD
SHAPIRO, and each of them, as Proxies, each with full power of substitution, to
vote for the undersigned all of the shares of Class A Common Stock of PLAYBOY
ENTERPRISES, INC. registered in the name of the undersigned, as of September 8,
1997, at the annual meeting of stockholders of said corporation to be held
November 6, 1997 and at any and all adjournments thereof, upon the following
matters, which are more fully described in the Proxy Statement.
The right to revoke this proxy at any time before it is voted is reserved.
When properly executed, this proxy will be voted or withheld in accordance with
the specifications made herein. IF NOT OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF MS. HEFNER AND MESSRS. BOOKSHESTER, CHEMEROW,
DRAPKIN, ROSENTHAL, ROSENZWEIG AND WOLFSON, "FOR" THE APPROVAL OF THE 1997
EQUITY PLAN FOR NON-EMPLOYEE DIRECTORS OF PLAYBOY ENTERPRISES, INC. AND "FOR"
THE RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
- - PLAYBOY ENTERPRISES, INC. -
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [_]
[ ]
For All
Except
Nominee(s)
1. Election of Directors: For Withhold Written
Nominees: D. Bookshester, D. Chemerow, All All Below
D. Drapkin, C. Hefner, S. Rosenthal, [_] [_] [_]
R. Rosenzweig, B. Wolfson. TO WITHHOLD
AUTHORITY TO VOTE FOR ONE OR MORE
(BUT LESS THAN ALL) NOMINEES, WRITE SUCH
NOMINEE(S) NAME BELOW AND MARK "FOR ALL
EXCEPT NOMINEE(S) WRITTEN BELOW" TO THE
RIGHT.
------------------------------------------
2. To approve the 1997 Equity Plan for Non- For Against Abstain
Employee Directors of Playboy Enterprises, [_] [_] [_]
Inc.
3. To ratify the selection of Coopers & For Against Abstain
Lybrand L.L.P. as independent auditors [_] [_] [_]
of the Company for the fiscal year ending
June 30, 1998.
THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR DISCRETION UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature(s)__________________________________ Dated: __________________, 1997
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THE SIGNATURE TO THIS PROXY SHOULD CONFORM EXACTLY TO THE NAME AS SHOWN. WHEN
SHARES ARE HELD BY JOINT TENANT, ALL SUCH TENANTS MUST SIGN.
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