SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
Commission file number 0-21150
Spice Entertainment Companies, Inc.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 11-2917462
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
536 Broadway, New York, NY 10012
________________________________________________________________________________
(Address of principal executive offices)
(212) 941-1434
________________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares outstanding of Registrant's Common Stock as of
October 31, 1997: 11,343,261.
<PAGE>
PART I
ITEM 1: FINANCIAL STATEMENTS
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
____________________________________________________________________________________________________________________________________
(Unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents ......................................................... $ 2,690,000 $ 2,663,000
Accounts receivable, less allowance for doubtful accounts ......................... 4,970,000 4,801,000
Income tax refund receivable ...................................................... 28,000 28,000
Prepaid expenses and other current assets ......................................... 1,103,000 1,325,000
Deferred subscription costs ....................................................... -- 132,000
Due from related parties and officers ............................................. 361,000 23,000
Net assets of discontinued operations ............................................. -- 2,550,000
------------ ------------
Total current assets ............................................... 9,152,000 11,522,000
Property and equipment, net of accumulated depreciation ................................ 7,480,000 61,948,000
Due from related parties and officers .................................................. -- 294,000
Library of movies ...................................................................... 3,984,000 3,797,000
Cost in excess of net assets acquired, net of accumulated amortization ................. 10,913,000 11,399,000
Deferred refinancing costs ............................................................. 449,000 --
Other assets ........................................................................... 653,000 352,000
------------ ------------
Total assets ....................................................... $ 32,631,000 $ 89,312,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of obligations under capital leases ................................ $ 824,000 $ 4,926,000
Current portion of long-term debt .................................................. 2,565,000 817,000
Royalties payable .................................................................. 496,000 2,322,000
Accounts payable ................................................................... 1,692,000 2,319,000
Accrued interest expenses payable .................................................. 688,000 1,118,000
Accrued cost of discontinued operations ............................................ -- 1,800,000
Accrued expenses payable ........................................................... 3,441,000 2,395,000
Current portion of accrued restructuring costs ..................................... 742,000 820,000
Current portion of deferred income ................................................. 218,000 --
Deferred subscription revenue ...................................................... 470,000 1,121,000
------------ ------------
Total current liabilities .......................................... 11,136,000 17,638,000
Obligations under capital leases ....................................................... 1,036,000 53,759,000
Long-term debt ......................................................................... 10,410,000 14,652,000
Accrued restructuring costs ............................................................ 175,000 700,000
Deferred compensation .................................................................. 287,000 269,000
------------ ------------
Total liabilities .................................................. 23,044,000 87,018,000
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; authorized 10,000,000 shares;
24,250 issued and outstanding at September 30, 1997 .................................. -- --
Common stock, $.01 par value; authorized 25,000,000 shares;
11,343,261 and 11,357,928 shares issued and outstanding at
September 30, 1997 and December 31, 1996 ............................................. 113,000 113,000
Additional paid-in capital ......................................................... 26,597,000 22,645,000
Unearned compensation .............................................................. (459,000) (765,000)
Accumulated deficit ................................................................ (16,948,000) (21,338,000)
Cumulative translation adjustment .................................................. 1,422,000 1,639,000
------------ ------------
10,725,000 2,294,000
Less cost of common stock held in treasury, 700,000 shares at
September 30, 1997 ..................................................................... (1,138,000) --
------------ ------------
Total stockholders' equity ......................................... 9,587,000 2,294,000
------------ ------------
Total liabilities and stockholders' equity ......................... $ 32,631,000 $ 89,312,000
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS of OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
___________________________________________________________________________________________________________________________________
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues: ...................................................... $ 8,364,000 $ 7,968,000 $ 25,939,000 $ 25,124,000
------------ ------------ ------------ ------------
Operating expenses:
Salaries, wages and benefits ............................... 1,771,000 1,875,000 5,722,000 5,872,000
Producer royalties and library amortization ................ 613,000 1,185,000 2,162,000 4,022,000
Satellite costs ............................................ 2,182,000 500,000 4,553,000 1,379,000
Selling, general and administrative expenses ............... 3,003,000 2,826,000 8,499,000 8,456,000
Depreciation of fixed assets and amortization of goodwill... 590,000 1,864,000 2,874,000 5,543,000
------------ ------------ ------------ ------------
Total operating expenses ....................................... 8,159,000 8,250,000 23,810,000 25,272,000
------------ ------------ ------------ ------------
Total income (loss) from operations ................ 205,000 (282,000) 2,129,000 (148,000)
Interest expense ............................................... 635,000 1,566,000 2,791,000 4,837,000
Minority interest .............................................. -- (277,000) (680,000) (740,000)
Gain from transponder lease amendment .......................... -- -- (2,348,000) --
Gain on disposition of DSTV .................................... (352,000) -- (352,000) --
Gain on Nethold settlement ..................................... (740,000) -- (740,000) --
Gain on disposition of AGN ..................................... (1,316,000) -- (1,316,000) (875,000)
------------ ------------ ------------ ------------
Income (loss) from continuing operations before
provision for income taxes ................................... 1,978,000 (1,571,000) 4,774,000 (3,370,000)
Provision for income taxes ..................................... 135,000 (120,000) 387,000 (69,000)
------------ ------------ ------------ ------------
Net income (loss) from continuing operations ....... 1,843,000 (1,451,000) 4,387,000 (3,301,000)
Loss from discontinued operations of SEG,
net of income taxes .......................................... -- (193,000) -- (169,000)
Extraordinary gain on debt restructuring ....................... -- -- 143,000 --
------------ ------------ ------------ ------------
Net income (loss) .............................................. 1,843,000 (1,644,000) 4,530,000 (3,470,000)
Dividends on preferred stock ................................... 32,000 -- 140,000 --
------------ ------------ ------------ ------------
Net income (loss) attributable to common stock ................. $ 1,811,000 ($ 1,644,000) $ 4,390,000 ($ 3,470,000)
============ ============ ============ ============
Earnings per common share
Primary
From continuing operations ............................... $ 0.16 ($ 0.12) $ 0.39 ($ 0.30)
Extraordinary item ....................................... -- -- 0.01 --
Discontinued operations .................................. -- (0.02) -- (0.01)
------------ ------------ ------------ ------------
Earnings (loss) per common share ............................... $ 0.16 ($ 0.14) $ 0.40 ($ 0.31)
============ ============ ============ ============
Fully Diluted
From continuing operations ............................... $ 0.15 ($ 0.12) $ 0.35 ($ 0.30)
Extraordinary item ....................................... -- -- 0.01 --
Discontinued operations .................................. -- (0.02) -- (0.01)
------------ ------------ ------------ ------------
Earnings (loss) per common share ............................... $ 0.15 ($ 0.14) $ 0.36 ($ 0.31)
============ ============ ============ ============
Weighted average number of shares outstanding:
Primary ...................................................... 11,395,000 11,340,000 11,038,000 11,354,000
============ ============ ============ ============
Fully Diluted ................................................ 12,201,000 11,340,000 12,490,000 11,354,000
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENT of STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Additional Cumulative
Common Preferred Paid-in Unearned Accumulated Translation Treasury
Stock Stock Capital Compensation Deficit Adjustment Stock Total
-------- -------- ------------ ------------ ------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $113,000 $-- $22,645,000 ($765,000) ($21,338,000) $1,639,000 $-- $2,294,000
Issuance of Preferred Stock
and warrants in connection 3,528,000
with the debt restructuring 3,528,000
Issuance of warrants
in connection with a
consulting agreement 580,000 580,000
Issuance of common stock 103,000 103,000
Cancellation of restrictive stock (259,000) 146,000 (113,000)
Pro rata share of restricted
stock grant to an
executive officer 160,000 160,000
Treasury stock acquired
in connection with the
sale of SEG (1,138,000) (1,138,000)
Net income 4,530,000 4,530,000
Dividend (140,000) (140,000)
Foreign currency
translation adjustment (217,000) (217,000)
======== ======== ============ ============= ============= =========== ============ =============
Balance at September 30, 1997 $113,000 $-- $26,597,000 ($459,000) ($16,948,000) $1,422,000 ($1,138,000) $9,587,000
======== ======== ============ ============= ============= =========== ============ =============
The accompanying notes are an integral part of this consolidated financial statement.
</TABLE>
<PAGE>
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
____________________________________________________________________________________________________________________________________
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................... $ 4,530,000 ($3,470,000)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Income from discontinued operations .................................................. -- (169,000)
Gain on disposition of AGN............................................................ -- (875,000)
Depreciation and amortization of fixed assets ........................................ 2,388,000 5,076,000
Gain on transponder lease amendment .................................................. (2,348,000) --
Extraordinary gain on debt restructuring ............................................. (143,000) --
Gain on sale of DSTV ................................................................. (352,000) --
DSTV cash balance on date of disposal of majority interest ........................... (227,000) --
Amortization of deferred refinancing costs ........................................... 164,000 --
Amortization of goodwill and other intangibles ....................................... 486,000 467,000
Amortization of films and CD-ROM costs................................................ -- 400,000
Amortization of library of movies .................................................... 1,753,000 1,032,000
Provision for bad debts .............................................................. 772,000 309,000
Compensation satisfied through the issuance of common stock .......................... 160,000 121,000
Cancellation of restricted stock granted to an executive officer ..................... (113,000) --
Consulting expense satisfied through the issuance of warrants ........................ 580,000 --
Deferred compensation expense ........................................................ 18,000 71,000
Minority interest .................................................................... (680,000) (740,000)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ...................................... (843,000) 1,602,000
(Increase) decease in prepaid expenses and other current assets ................. (206,000) 719,000
Decrease in deferred subscription costs ......................................... 133,000 297,000
Decrease in other assets ........................................................ 38,000 49,000
Decrease in royalties payable ................................................... (1,826,000) (433,000)
Increase (decrease) in accounts payable and accrued expenses .................... 393,000 68,000
Decrease in accrued restructuring costs ......................................... (603,000) (1,822,000)
Increase in deferred income ..................................................... 218,000 --
Decrease in deferred subscription revenue ....................................... (651,000) (1,009,000)
----------- -----------
Total adjustments ..................................................... (889,000) 5,163,000
----------- -----------
Net cash provided by operating activities
from continuing operations ........................................... 3,641,000 1,693,000
Net cash provided by operating activities
from discontinued operations ......................................... -- 1,107,000
----------- -----------
Net cash provided by operating activities ............................. 3,641,000 2,800,000
----------- -----------
Cash flows from investment activities:
Purchase of property and equipment .............................................. (681,000) (531,000)
Proceeds on sale of equipment ................................................... -- 40,000
Purchase of rights to libraries of movies ....................................... (1,940,000) (1,677,000)
Investment in TeleSelect ........................................................ -- (67,000)
Proceeds on sale of TeleSelect .................................................. -- 3,244,000
----------- -----------
Net cash (used in) provided by investing activities
from continuing operations ........................................... (2,621,000) 1,009,000
Net cash used in investing activities
from discontinued operations ......................................... -- (490,000)
----------- -----------
Net cash (used in) provided by investing activities ................... (2,621,000) 519,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock and detachable warrants .................. 103,000 27,000
Proceeds from capital contributed to CVSP by a third party ...................... 1,030,000 1,000,000
Proceeds from issuance of long-term debt ........................................ 1,015,000 --
(Increase) decrease in loans receivable from related parties .................... (44,000) 484,000
Repayment of long-term debt and capital leases obligations ..................... (2,484,000) (3,899,000)
Deferred refinancing costs ...................................................... (613,000) --
----------- -----------
Net cash used in financing activities
from continuing operations ........................................... (993,000) (2,388,000)
Net cash used in financing activities
from discontinued operations ......................................... -- (617,000)
----------- -----------
Net cash used in financing activities ................................. (993,000) (3,005,000)
----------- -----------
Net increase in cash and cash equivalents ............................. 27,000 314,000
Cash and cash equivalents, beginning of the period ....................................... 2,663,000 1,292,000
----------- -----------
Cash and cash equivalents, end of the period .......................... $ 2,690,000 $ 1,606,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
SPICE ENTERTAINMENT COMPANIES, and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (unaudited)
________________________________________________________________________________
1. In the opinion of Spice Entertainment Companies, Inc., its wholly-owned
subsidiaries and a majority-owned partnership (the "Company"), the accompanying
unaudited consolidated financial statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the financial
position as of September 30, 1997, and the results of operations and cash flows
for the nine and three months ended September 30, 1997 and 1996.
2. The results of operations for the nine and three months ended September 30,
1997 are not necessarily indicative of the results to be expected for the full
year.
3. The accompanying financial statements include the accounts of the Company,
its wholly-owned subsidiaries and a majority-owned partnership. All intercompany
transactions and balances have been eliminated in consolidation. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the Company's December 31, 1996 annual report on Form 10K/A-1.
4. On August 31, 1995, the Company acquired Spector Entertainment Group, Inc.
("SEG") (which provides satellite simulcasting and television production
services to the pari-mutuel industry) in exchange for 700,000 shares of the
Company's Common Stock. On February 7, 1997, the Company split off SEG to the
former shareholders of the wholly-owned subsidiary in exchange for the 700,000
shares of Common Stock of the Company they received in the original merger
between SEG and the Company. SEG is accounted for as a discontinued operation in
the accompanying consolidated financial statements.
5. On January 11, 1997, as a result of AT&T losing contact with and declaring
Telstar 401 permanently out of service, AT&T pre-empted one of the Company's
unprotected transponders and transferred it to another AT&T customer. This
resulted in the reduction of the Company's satellite transponder payments from
$635,000 to $520,000 per month.
On March 31, 1997, the Company and Loral (which acquired AT&T's
satellite business) amended the Skynet Transponder Services Agreement (the
"Transponder Agreement"). The term of the Transponder Agreement, which was to
originally expire at the end of the satellite's useful life, was shortened to
October 31, 2004. In consideration of the amendment, the Company granted Loral
the right to pre-empt one of the Company's transponders after September 1, 1997.
As a result of the amendment, the Transponder Agreement has been classified as
an operating lease commencing on March 31, 1997.
As a result of the two events described above, the Company realized a
non-recurring gain of approximately $2.3 million in quarter ended March 31,
1997.
6. On January 15, 1997, the Company negotiated agreements with PNC Bank N.A.
("PNC") and Darla L.L.C. ("Darla"), as assignee, which resulted in the
replacement of the Company's credit facility with PNC. PNC settled the
outstanding balance of the credit facility, totaling $14.6 million, for $9.6
million in cash, a new $400,000 term loan and 597,000 warrants exercisable at
$2.06 per share. The new PNC agreement canceled the 100,000 warrants previously
issued to PNC, which had an exercise price of $3.88 per share.
The Darla agreement provided a term loan of $10.5 million , of which
$9.6 million was used to satisfy the cash portion of the PNC Agreement and $0.9
million financed loan acquisition fees. Additionally, this agreement included a
revolving line of credit totaling $3.5 million of which $1.8 million has been
drawn down as of September 30, 1997. The term loan and the revolving line of
credit mature in July 1999. The loan bears interest at 5% over the Citibank
prime rate but not less than 13%. Three percentage points of the interest may be
accrued and added to the principal of the loan and will be forgiven if the Darla
credit facility is paid in full before January 15, 1999.
As part of the Darla transaction, the Company issued 24,250 shares of
cumulative, convertible Series A Preferred Stock ("Preferred Stock"), with a
$100 face and liquidation value per share and an 8.0% cumulative dividend,
payable in additional shares of Preferred Stock at the Company's discretion.
After two years, the Preferred Stock is convertible into the Company's Common
Stock at a 10% discount from the then current market price of the Company's
Common Stock.
<PAGE>
SPICE ENTERTAINMENT COMPANIES, and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (unaudited) CONTINUED
________________________________________________________________________________
All the Company's assets, including the stock of its subsidiaries
secure the loan. The loan also restricts payment of common stock dividends. The
Darla loan agreement contains various financial covenants including minimum
levels of revenues and adjusted EBITDA for each quarter. The Company did not
meet these covenants for the quarter ended September 30, 1997. On November 14,
1997, Darla and the Company executed an amendment to the Darla loan agreement
which waived the financial covenant violations for the quarter ended September
30, 1997 and revised the revenue and adjusted EBITDA covenants for the balance
of the term.
7. On March 6, 1996, the Company contributed the Cable Video Store Network
("CVS"), a domestic pay-per-view hit movie service which the Company had
operated since 1989, to a newly formed partnership, CVS Partners ("CVSP"). The
other partner was Wiltech Cable Television Services, Inc. ("WCTV"), a subsidiary
of The Williams Companies, Inc. CVSP ceased satellite distribution of the CVS
network on March 31, 1997, and distribution via alternate means on May 31, 1997.
On June 3, 1997, the parties executed an agreement to dissolve the
partnership. Under the terms of the dissolution agreement, WCTV agreed to pay
the Company $580,000, representing past and future transponder services, and
contribute an additional $1,030,000 to the partnership. The additional
contribution approximates the funding required to wind down CVSP.
8. Pursuant to two short-term agreements effective as of September 1, 1996,
the Company provided transponder services on one of its transponders, made
available as a result of the digital compression of the Company's domestic
networks, and agreed to provide certain telecommunications services to Emerald
Media, Inc. ("EMI"). The Company also agreed to license pictures from its adult
film library and licensed the "EUROTICA" name and related identity to EMI. EMI
owns and operates EUROTICA, a premium television network featuring explicit
version adult movies which is distributed to the domestic direct-to-home C-band
satellite dish ("DTH") market. EMI also granted the Company an option to acquire
its stock or business.
EMI expanded its operations and now operates four explicit television
networks in the DTH market. The Company's agreements with EMI have been
modified. As of September 30, 1997, the Company provided transponder services on
three transponders and playback services for four of EMI's networks from the
Company's master control and digital playback facility.
9. The Company was previously involved in an arbitration with Capital
Distribution, Inc., d/b/a Cupid Network Television ("CNT") which has now been
dismissed. The Company and CNT are parties to (i) an Amended and Restated
Distribution Agreement under which CNT provides merchandising services promoted
on the Spice Networks (the "Distribution Agreement") and (ii) a Telephone
Services Agreement under which CNT provides audiotext services promoted on the
Spice Network. The Company alleged that CNT breached the agreements and the
Company attempted to terminate the agreements. CNT had obtained a temporary
restraining order preventing the Company from terminating the agreements and
also commenced an arbitration. The Company and CNT have executed a Settlement
Agreement dated May 15, 1997, which provides, among other things, for (i) the
dismissal of the arbitration, (ii) the termination of the Distribution Agreement
with the shopping segments airing during the month of June, 1997, and (iii) the
termination of the Telephone Agreement on May 31, 1999.
10. Section 505 of the Telecommunications Act of 1996 requires cable operators
to fully scramble the audio and video signal of television channels such as the
Spice Networks or block the channels between 6:00 a.m. and 10:00 p.m. The
Company challenged the constitutionality of Section 505 but the Supreme Court
affirmed a lower court's ruling upholding the constitutionality of Section 505.
As a result, Section 505 became effective on May 18, 1997, and has adversely
affected the Spice Networks cable revenues. Due to various outside factors that
affect the Company's revenues and the recent implementation of Section 505, the
Company at this time is unable to isolate and quantify the effect of Section 505
on the Company's results of operations.
11. Pursuant to a Joint Venture Agreement dated June 28, 1995, the Company
formed American Gaming Network, J.V. ("AGN") with TV Games, Inc. ("TVG"), a
wholly-owned subsidiary of Multimedia Games, Inc. ("MGAM"), to jointly develop
and promote high stakes proxy play Class II tribal bingo games. The Company
contributed approximately $1.4 million of intellectual property and working
capital to AGN's capital. The Company had acquired the intellectual property
from MGAM for cash and notes. In related transactions, the Company acquired for
cash and notes 275,000 shares of MGAM's outstanding stock and a warrant to
acquire an additional 175,000 shares at an exercise price of $3.50 per share
(the "MGAM Warrant"). The parties were unable to agree on a business plan or a
strategy for going forward with AGN.
Pursuant to a Purchase Agreement dated June 28, 1996, the parties
resolved their differences with the Company giving up its interest in AGN and
the 275,000 shares of MGAM stock in exchange for (i) the cancellation of an
aggregate of $775,000 of liabilities owed to MGAM and TVG, (ii) $100,000
pursuant to a note which was paid in 1996 and (iii) $400,000 due pursuant to a
note due in three years. The Company retained the MGAM Warrant and the parties
released each other. Due to the likelihood that the parties would not proceed
forward with AGN and as part of the Company's restructuring at December 31,
1995, the Company wrote off its investment in AGN and the MGAM stock. As a
result of the foregoing transaction, the Company recognized a non-recurring gain
of $875,000 in the second quarter of 1996 and will recognize an additional
non-recurring gain of $400,000 when the note is paid.
The MGAM stock price increased significantly in 1997. In September,
1997 the Company exercised the MGAM Warrant and sold the175,000 shares of MGAM
stock it received on exercise of the MGAM Warrant. The Company realized a gain
on the sale of $1,316,000.
12. The accrued restructuring reserve at December 31, 1996, March 31, 1997,
June 30, 1997, and September 30, 1997, was approximately $1.5 million, $1.3
million, $1.1 million and $0.9 million, respectively. The reduction in the
accrued restructuring reserve is principally attributable to severance payments
to two former senior executive officers. The Company's severance obligation to
the former officers will expire at the end of 1998.
13. The Company entered into a series of transactions relating to Danish
Satellite TV a/s ("DSTV"). Prior to these transactions DSTV was a wholly-owned
subsidiary of Company which operated Eurotica, a European satellite delivered
subscription network based in Denmark and distributed in the direct to home
("DTH") and cable markets. DSTV entered into a Facilities Agreement with
Multimedia General Entertainment S.A. ("MGE") and Rendez-Vous Television A/S
("RDT") pursuant to which RDT agreed to pay for DSTV's costs in providing
certain playback and uplink services for Eurotica and DSTV agreed to license
Eurotica to RDT for distribution in the DTH market. Pursuant to an Agreement
dated September 12, 1997, the Company sold 51% of the stock of DSTV to MGE. In
related agreements, MGE agreed to license DSTV's existing library of adult films
and agreed to license, over the next 12 months, 120 films from a wholly-owned
subsidiary of the Company. As a result of these transactions, the Company
realized a gain of $352,000 comprised of $45,000 in cash with the remainder a
result of changing DSTV to the equity method of accounting.
14. In July, 1997, The Home Video Channel Limited ("HVC"), the Company's wholly
owned UK subsidiary, and DSTV settled a breach of contract dispute with Nethold,
realizing a $740,000 cash gain. Nethold was obligated to distribute HVC's and
DSTV's television networks and provide related subscriber management services
for a fixed period of time. Nethold withdrew from this business prior to the
expiration of the term.
15. The Company terminated the employment of Christopher Yates as Managing
Director of HVC on October 11, 1997. (Mr. Yates is currently a Company
director.) Mr. Yates has alleged that the Company committed to extend his
Service Agreement for a period of 18 months from October 11, 1997 and has also
claimed that the Company owes him severance of approximately $330,000 under his
Service Agreement and is seeking other damages. The Company and Mr., Yates are
currently attempting to settle their differences. This dispute may result in
litigation if an acceptable settlement cannot be reached.
16. Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which supersedes APB Opinion No. 15, "Earnings per Share," was
issued in February, 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share ("EPS") for complex capital structures on the face of
the Statement of Operations income statement. Basic EPS is computed by dividing
income by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution from the exercise or
conversion of securities into common stock, such as stock options. SFAS 128 is
required to be adopted for year-end 1997; earlier application is not permitted.
The Company believes that the basic EPS will be higher than primary EPS because
of the exclusion of dilutive stock options and that the diluted EPS will
approximate primary EPS because of the inclusion of the dilutive stock options.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure," ("SFAS 129"), was issued in February 1997.
In addition, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") was issued in June, 1997. The Company does
not expect SFAS 129 or SFAS 130 to result in any substantive changes in its
disclosure.
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
________________________________________________________________________________
Results of Operations
This report contains forward looking statements that involve a number of risks
and uncertainties. In addition to the factors discussed elsewhere in this
report, among the other factors that could cause actual results to differ
materially are the following: business conditions and the general economy;
governmental regulation of the Company's adult programming and of the content
and distribution of television programming in general; competitive factors such
as rival adult television networks and alternative sources of adult programming
content; consolidation in the ownership of the Company's principal customers;
the risks of doing business in new international markets; and the risks
associated with the distribution of premium television programming.
For the nine and three months ended September 30, 1997, the Company
reported net income of $4.5 million and $1.8 million as compared to net losses
of $3.5 million and $1.6 million for the same periods in 1996. The income for
the nine months ended September 30, 1997 was primarily attributable to the gain
on the amendment of the Company's transponder services agreement of $2.3 million
(See Note 5) and income from operations of $2.1 million. Also contributing to
net income were the gains from the disposition of American Gaming Network of
$1.3 million (See Note 11), HVC's settlement with Nethold of $0.7 million (See
Note 14), and the sale of a majority interest of DSTV of $0.4 million, as well
as the allocation of the losses from CVSP to the minority partner which was
included in income from operations of $0.7 million. Offsetting these income
sources was interest expense of $2.8 million, which was primarily attributable
to interest on the capitalized Transponder Services Agreement prior to its
amendment and borrowings under the Company's credit facility with Darla (See
Note 6).
The net income of $1.8 million for the three months ended September 30,
1997 was primarily attributable to the gains from the disposition of American
Gaming Network, HVC's settlement with Nethold and the sale of a majority
interest in DSTV. Offsetting these income sources was interest expense of $0.6
million, which was primarily attributable to the borrowings under the Company's
credit facility with Darla.
Revenues
Total revenues for the nine and three months ended September 30, 1997,
increased by approximately $0.8 million and $0.4 million, respectively, as
compared to the same periods in 1996. The revenue growth for the nine months
ended September 30, 1997 was primarily attributable to an increase in revenues
from the sale of excess transponder capacity of $3.6 million and the increase in
revenues from the Spice Networks in the domestic cable and direct broadcast
satellite system ("DBS") markets totaling approximately $0.9 million. Also
contributing to the growth in revenue were increases, totaling $0.8 million,
from audiotext services, Internet activities and film license fees. Offsetting
these increases were declines in revenues from the Cable Video Store network of
$2.2 million as a result of the decision to wind down operations in the first
quarter of 1997 and the elimination of revenue, in the third quarter of 1996,
from the distribution of its adult networks in the domestic direct-to-home
C-band satellite dish ("DTH") market of $1.1 million. The Company also reported
declines in revenue from the UK DTH markets totaling $0.9 million and a decline
in revenue of $0.6 million from the Company's suspension of production and
licensing activities of its wholly-owned subsidiary, CPV Productions Inc.
("CPV").
The revenue growth for the three months ended September 30, 1997, as
compared to the same period in 1996, was primarily attributable to the sale of
excess transponder capacity of $1.0 million. Also contributing to the revenue
growth were increases, totaling $0.5 million, in audiotext services, Internet
activities, and film license fees. Offsetting these increases were declines in
revenues from CVSP of $0.8 million and Spice Networks in the cable market of
$0.5 million.
As of September 30, 1997, Spice Network was available in approximately
22.0 million cable and DBS addressable channel households, representing a 19%
increase from September 30, 1996. The revenue growth from the increase in
addressable households was offset by a decrease in license fees and the effect
of the implementation of Section 505 which resulted in a decline in buy rates
for systems not in compliance with the regulation (See Note 10). The reduction
in license fees was a result of continued competition in the Company's market
segment and the continued concentration in the ownership of cable systems by
multiple system operators ("MSO's"). The Company's top eight MSO's and DirecTV,
the DBS provider, account for over 75% of the Company's domestic
<PAGE>
ITEM 2: MANAGEMENT DISCUSSION and ANALYSIS of
FINANCIAL CONDITION and RESULTS of OPERATIONS
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES CONTINUED
________________________________________________________________________________
cable and DBS revenues. Management expects that downward pressure in license
fees will be offset by continued subscriber growth and revenues from new
services.
The Company elected to cease distribution of the Spice Networks in the
domestic DTH market on August 31, 1996, as a result of competition from several
explicit adult services. These explicit adult services are not distributed by
cable operators and, therefore, do not have an impact on Spice Networks in the
cable market. The Company withdrew from the DTH market and commenced
transmission of its programming in a digitally compressed format that cannot be
received in the DTH market. As a result of the digital compression of the Spice
Networks, the Company freed up two transponders for other uses.
Revenues from international operations have decreased by approximately
$0.5 million and $0.2 million for the nine and three months ended September 30,
1997, as compared to the same periods in 1996. The decline was primarily
attributable to declines in UK DTH revenue that was a result of continued
competition in this market. Offsetting this decline was the addition of revenue
from the new Asian markets in 1997. The Company's management is evaluating
alternatives to strengthen its position and reverse this trend in the UK market.
However, no assurances can be given that the Company will be successful in
reversing the trend or strengthening its position in this market.
Salaries, Wages and Benefits
Salaries, wages and benefits for the nine and three months ended
September 30, 1997, decreased by $0.2 million and $0.1 million, respectively, as
compared to the same periods in 1996. The decline was primarily attributable to
the Company's reduction of corporate administrative salaries, primarily through
the consolidation of employee functions, and the elimination of CPV's activities
in 1996. Offsetting this reduction were increases from expansion of the Network
Operations facilities and increases in the area of sales and marketing.
Producer royalties and film cost amortization
Producer royalties and film cost amortization for the nine and three
months ended September 30, 1997 decreased by approximately $1.9 million and $0.6
million as compared to the same periods in 1996. The decline was primarily
attributable to the elimination of film amortization resulting from suspension
of CPV's production activities in 1996 and the decline in revenues from the
Cable Video Store Network that resulted in a corresponding reduction in producer
royalties.
Satellite, Playback and Uplink Expenses
Satellite, playback and uplink expenses from continuing operations for
the nine and three months ended September 30, 1997, increased by approximately
$3.2 million and $1.7 million as compared to the corresponding periods in 1996.
The increase was primarily attributable to the amendment of the Transponder
Agreement on March 31, 1997 and the corresponding reclassification of the
Transponder Agreement as an operating lease from a capital lease. For the nine
and three months ended September 30, 1997, the Company included in satellite
expense $3.1 million and $1.6 million respectively, of transponder payments
under the Transponder Agreement which previously had been accounted for as a
capital lease. For the same periods in 1996, the payments were treated as a
reduction of debt under the capitalized lease obligation.
For the three months ended March 31, 1997, and prior to the Loral
Amendment described below, the Company accounted for the Transponder Agreement
with Loral (which acquired AT&T's satellite business) as a capital lease and
recognized total expenses attributable to the Transponder Agreement of
approximately $2.0 million comprised of depreciation expense and interest
expense of approximately $1.0 million each. Had the Transponder Agreement been
accounted for as an operating lease, the Company would have recognized
approximately $0.4 million less in total expenses for the nine and three months
ended September 30, 1997.
On January 11, 1997, as a result of AT&T losing contact with and
declaring Telstar 401 permanently out of service, AT&T permanently pre-empted
one of the Company's unprotected transponders and transferred it to another AT&T
customer. This resulted in the reduction of the Company's monthly satellite
transponder costs from $635,000 to $520,000 per month. In addition, on March 31,
1997, the Company and Loral amended the Transponder Agreement to shorten the
Agreement's term, originally scheduled to expire at the end of the satellite's
useful life, to October 31, 2004. As a result of the Loral Amendment, the
Transponder Agreement was classified as an operating lease commencing on March
31, 1997, and the Company realized a non-recurring gain attributable to the
Transponder Agreement of approximately $2.3 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine and three
months ended September 30, 1997, were comparable to the same periods in 1996.
Reductions in selling, general and administrative expenses resulted from the
wind down and suspension of the CVSP operations in the second quarter of 1997
and the elimination of CPV's activities in 1996. Offsetting these reductions was
an increase in costs in 1997, associated with the continued development of Spice
Networks.
Depreciation of Fixed Assets and Amortization of Goodwill
Depreciation of fixed assets and amortization of goodwill decreased by
approximately $2.7 million and $1.3 million in the nine and three months ended
September 30, 1997, as compared to the same periods in 1996. The decline in
depreciation expense was primarily attributable to the amendment of the
Transponder Agreement and the corresponding accounting treatment, which resulted
in the Transponder Agreement being accounted for as a operating lease as of
March 31, 1997.
Interest Expense
Interest expense decreased by approximately $2.0 million and $0.9
million in the nine and three months ended September 30, 1997, as compared to
the same periods in 1996. The decline in interest expense was primarily
attributable to the amendment of the Transponder Agreement and the corresponding
accounting treatment that resulted in the Transponder Agreement being accounted
for as an operating lease as of March 31, 1997. Offsetting this reduction was
the increase in interest on the Company's new credit facility with Darla as
compared to interest on the PNC credit facility in the corresponding periods in
1996 and the additional interest associated with new capital lease obligations
as compared to the first nine months of 1996.
Liquidity and Capital Resources
At September 30, 1997, the Company had cash and cash equivalents of
$2.7 million. The Company currently funds its operations from operating cash
flow. The Company does not plan on making any material capital expenditures in
the near future. The Company has drawn down $1.8 million on its $3.5 million
revolving line of credit from Darla. This revolving line of credit and the term
loan from Darla both mature on July 15, 1999 at which point the Company would
have to obtain replacement financing.
The loan agreement with Darla contains financial covenants; the Company
did not meet two of the covenants, revenues and adjusted EBITDA, for the quarter
ended September 30, 1997. On November 14, 1997, Darla and the Company executed
an amendment to the loan agreement which waived the financial covenant
violations for the quarter ended September 30, 1997 and revised the revenue and
adjusted EBITDA covenants for the balance of the term of the Loan Agreement.
At September 30, 1997, the Company had a working capital deficit of
approximately $2.0 million as compared to a deficit of approximately $6.1
million at December 31, 1996. The decrease in the deficit was primarily
attributable to the amendment of the Transponder Agreement in the first quarter
of 1997 and the corresponding change in its accounting treatment. This resulted
in the Transponder Agreement being accounted for as an operating lease as of
March 31, 1997, thereby causing a reduction of current lease obligations. Also
contributing to the decrease was a reduction of other current liabilities as a
result of cash generated from net income for the nine months ended September 30,
1997.
Net cash provided by operating activities from continuing operations
was approximately $3.6 million for the nine months ended September 30, 1997, as
compared to $1.7 million for the same period in 1996. The increase in cash from
operating activities from continuing operations was primarily attributable to
net income for the nine months ended September 30, 1997, as compared to a loss
in the same period in 1996.
Net cash used in investing activities from continuing operations was
approximately $2.6 million for the nine months ended September 30, 1997, as
compared to net cash provided from investing activities of approximately $1.0
million for the same period in 1996. The decrease was primarily attributable to
the proceeds from the Company's sale of its investment in TeleSelect for
approximately $3.2 million in the second quarter of 1996. In addition the
Company reported a use of cash in investing activities from additional
investment in its library of movies of $1.9 million and $1.7 million for each of
the nine months ended September 30, 1997 and 1996, respectively.
Net cash used in financing activities from continuing operations was
approximately $1.0 million for the nine months ended September 30, 1997, as
compared to $2.4 million for the same period in 1996. The decrease was primarily
attributable to additional proceeds from the new credit facility offset by
financing costs paid in the nine months ended September 30, 1997. Also
contributing to the decrease was the amendment of the Transponder Agreement in
the first quarter of 1997 and the corresponding change in accounting treatment.
The Company reported sources of cash from continuing financing
activities of $1.0 million for each of the nine months ended September 30, 1997
and 1996 from third party investments in CVSP. The Company also reported uses of
cash of $2.5 million and $3.9 million for each of the nine months ended
September 30, 1997 and 1996 from the repayment of the long-term debt and capital
lease obligations for each of the respective periods.
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None - See Form 10-Q for the quarters ended March 31, 1997 and
June 30, 1997 (see Note 9).
Item 4: Submission of Matters to a Vote of Security Holders.
(a) The Company's Annual Meeting of Shareholders was held on August
5, 1997.
(b) The motions before the shareholders were:
1. To elect seven Directors of the Company to serve for the ensuing
year.
Votes
Name of Director Votes For Withheld
---------------- --------- --------
Dean R. Ericson 8,000,921 294,015
J. Roger Faherty 8,001,422 293,514
Stephen K. Liebmann 8,001,422 293,514
Rudy R. Miller 8,001,422 293,514
Leland H. Nolan 8,001,422 293,514
Steve Saril 8,001,302 293,634
R. Christopher Yates 8,001,422 293,514
2. To approve the Amendment of Certificate of Incorporation provide
that actions required or permitted to be taken by stockholders
must be effected at a special or annual meetings of stockholders.
Votes For 2,928,971
Votes Against 664,886
Votes Withheld --
Abstentions 46,250
3. To approve adoption of amendments to the 1991 Amended Management
Stock Option Plan.
Votes For 2,304,407
Votes Against 1,307,500
Votes Withheld --
Abstentions 28,200
4. To approve the selection of Grant Thornton LLP, independent
public accountants, as auditors for the Company for the fiscal
year ended December 31, 1997.
Votes For 8,109,680
Votes Against 139,950
Votes Withheld --
Abstentions 45,306
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits -
Exhibit 4.13 - Amendment Number One to Amended and Restated
Loan and Security Agreement dated November 14,
1997 between Darla L.L.C. and Spice Entertainment
Companies, Inc.
Exhibit 10.30 - Option Agreement for J. Roger Faherty dated
April 1, 1997.
Exhibit 10.31 - Fifth Amendment to Employment Agreement dated
April 1, 1997 between J. Roger Faherty and
Spice Entertainment Companies, Inc.
Exhibit 10.32 - Employment Agreement effective as of January 1,
1997 between Steve Saril and Spice Entertainment
Companies, Inc.
Exhibit 10.33 - Form of Employment Agreement for Senior Officers
effective as of January 1, 1997.
Exhibit 10.34 - Form of Warrant to Purchase Shares for Warrants
granted on March 26, 1997, April 4, 1997 and
June 3, 1997.
Exhibit 10.35 - Form of Option Agreement for April 1, 1997 Grant
to Senior Officers.
Exhibit 11.01 - Computation of Earnings Per Share.
Exhibit 27.00 - Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a Form 8-K on June 13, 1997 reporting the
adoption of Stock Rights Plan under Item 5.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
SPICE ENTERTAINMENT COMPANIES, INC.
Dated: November 14, 1997
By: /s/ John R. Sharpe
__________________________________
John R. Sharpe
Vice President, Controller
& Chief Accounting Officer
AMENDMENT NUMBER ONE TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "First Amendment"), is entered into as of November 14, 1997,
between DARLA L.L.C., a Delaware limited liability company ("Lender"), with a
place of business located at 450 Park Avenue, 28th Floor, New York, New York,
10022, and SPICE ENTERTAINMENT COMPANIES, INC., a Delaware corporation
("Borrower"), with its chief executive office located at 536 Broadway, 7th
Floor, New York, New York, 10012.
RECITALS
A. Borrower and Madeleine L.L.C., a New York limited liability company
("Madeleine"), previously have entered into that certain Loan and Security
Agreement, dated as of January 15, 1997 (as amended, modified, renewed or
extended from time to time, the "Loan Agreement"), pursuant to which Madeleine
made certain loans and financial accommodations available to Borrower.
B. Pursuant to the terms of that certain Assignment And Acceptance
Agreement, dated as of March 10, 1997, between Madeleine and Lender, Madeleine
assigned to Lender, among other things, all rights and obligations of Madeleine
under the Loan Agreement.
C. Borrower and Lender have entered into as of March 1, 1997, that
certain Amended and Restated Loan and Security Agreement (the "Amended Loan
Agreement"), pursuant to which the Loan Agreement was amended and restated in
order to provide that each of the references to Madeleine in the Loan Documents
should now refer to Lender. Any and all capitalized terms used herein without
definition shall have the meanings ascribed to them in the Amended Loan
Agreement.
D. Lender is willing to make the modifications to the Amended Loan
Agreement under the terms and conditions set forth in this First Amendment.
Borrower is entering into this First Amendment with the understanding and
agreement that, except as specifically provided herein, none of Lender's rights
or remedies as set forth in the Amended Loan Agreement is being waived or
modified by the terms of this First Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender
hereby agree as follows:
1. Amendment to the Amended Loan Agreement.
a. Section 1.1 of the Amended Loan Agreement
is hereby amended by adding the following definitions in alphabetical order:
"First Amendment" means that certain Amendment Number One To Amended
And Restated Loan And Security Agreement, dated as of November 14,
1997, between Lender and Borrower.
"Guaranty Reaffirmation and Consent" means that certain guaranty
reaffirmation and consent, dated as of November 14, 1997, by Guarantors
in favor of Lender.
b. The following definitions contained in Section 1.1 of the Amended Loan
Agreement hereby are deleted in their entirety and the following hereby are
substituted in lieu thereof:
"Loan Documents" means this Agreement, the First Amendment,
the Disbursement Letter, the Pay-Off Letter, the Concentration Account
Agreements, the Guaranty, the Guarantor Security Agreement, the
Guaranty Reaffirmation and Consent, the Copyright Security Agreement,
the Patent Security Agreement, the Trademark Security Agreements, the
Collateral Assignments of Transponder Agreement, any note or notes
executed by Borrower and payable to Lender, and any other agreement
entered into, now or in the future, in connection with this Agreement.
"Term Loan" has the meaning set forth in Section 2.2.
c. The Financial Covenants set forth in Section
7.20 of the Amended Loan Agreement hereby are amended to read in their entirety
as follows:
7.20 Financial Covenants. Fail to maintain:
Current Ratio. A ratio of Consolidated Current Assets divided
by Consolidated Current Liabilities of at least .25: 1.0, measured on a fiscal
quarter-end basis;
Tangible Net Worth. Tangible Net Worth of at least
($9,000,000), measured on a fiscal quarter-end basis.
Adjusted EBITDA. Adjusted EBITDA for the applicable quarter of
not less than the relevant amount for the applicable quarter set forth in the
following table, measured on a fiscal quarter-end basis:
<PAGE>
Period Ending Minimum Adjusted EBITDA
-------------------- ---------------------------
12/31/97 $1,200,000
03/31/98 $1,200,000
06/30/98 $1,300,000
09/30/98 $2,885,000
12/31/98 $3,615,000
03/31/99 $4,700,000
d. Revenues. Revenues of not less than the
relevant amount for the applicable quarter set forth in the following table,
measured on a fiscal quarter-end basis:
Period Ending Minimum Revenues
- --------------------- ------------------------
12/31/97 $7,100,000
03/31/98 $7,300,000
06/30/98 $13,065,000
09/30/98 $15,382,000
12/31/98 $15,978,000
03/31/99 $16,248,000
2. Waiver. Lender hereby waives Borrower's compliance with the
Financial Covenants for the quarter ending on September 30, 1997, set
forth in Section 7.20 of the Amended Loan Agreement.
3. Effectiveness of this First Amendment. Lender must have
received the following items, in form and content acceptable to Lender, before
this First Amendment is effective and before Lender is required to extend any
credit to Borrower under the Amended Loan Agreement. The date on which all of
the following conditions have been satisfied is the "Closing Date."
(a) Amendment. This First Amendment fully
executed in a sufficient number of counterparts for
` distribution to Lender and Borrower.
(b) Representations and Warranties. The
Representations and Warranties set forth in the Amended Loan
Agreement must be true and correct.
(c) Consents. Lender has received counterparts of the
Reaffirmation And Consent appended hereto (the "Consent")
executed by each of the Guarantors (such Guarantors, together
with the Borrower, each a "Loan Party" and, collectively, the
"Loan Parties").
(d) Other Required Documentation. All other documents
and legal matters in connection with the transactions
contemplated by this First Amendment shall have been delivered
or executed or recorded and shall be in form and substance
satisfactory to Lender.
(e) Payment of Modification Fee. Lender shall have
received from Borrower a fee of $150,000 for the processing
and approval of this First Amendment; such fee to be payable
by being added to the principal balance of the Term Loan and,
thereafter, to accrue interest at the rate applicable to the
Term Loan and to be repaid in accordance with the terms
applicable to the Term Loan.
4. Representations and Warranties. The Borrower
represents and warrants as follows:
(a) Authority. The Borrower and each other Loan Party
has the requisite corporate power and authority to execute and
deliver this First Amendment or the Consent, as applicable,
and to perform its obligations hereunder and under the Loan
Documents (as amended or modified hereby) to which it is a
party. The execution, delivery and performance by the Borrower
of this First Amendment and by each other Loan Party of the
Consent, and the performance by each Loan Party of each Loan
Document (as amended or modified hereby) to which it is a
party have been duly approved by all necessary corporate
action of such Loan Party and no other corporate proceedings
on the part of such Loan Party are necessary to consummate
such transactions.
(b) Enforceability. This First Amendment has been
duly executed and delivered by the Borrower. The Consent has
been duly executed and delivered by each Guarantor. This First
Amendment and each Loan Document (as amended or modified
hereby) is the legal, valid and binding obligation of each
Loan Party hereto or thereto, enforceable against such Loan
Party in accordance with its terms, and is in full force and
effect.
(c) Representations and Warranties. The
representations and warranties contained in each Loan Document
(other than any such representations or warranties that, by
their terms, are specifically made as of a date other than the
date hereof) are correct on and as of the date hereof as
though made on and as of the date hereof.
(d) No Default. No event has occurred and is
continuing that constitutes an Event of Default.
5. Choice of Law. The validity of this First Amendment, its
construction, interpretation and enforcement, the rights of the parties
hereunder, shall be determined under, governed by, and construed in
accordance with the laws of the State of New York governing contracts only to
be performed in that State.
6. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties and separate counterparts,
each of which when so executed and delivered, shall be deemed an original,
and all of which, when taken together, shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature page to this
First Amendment or the Consent by telefacsimile shall be effective as
delivery of a manually executed counterpart of this First Amendment or such
Consent.
7. Reference to and Effect on the Loan Document.
(a) Upon and after the effectiveness of this First
Amendment, each reference in the Amended Loan Agreement to
"this Agreement", "hereunder", "hereof" or words of like
import referring to the Amended Loan Agreement, and each
reference in the other Loan Documents to "the Amended Loan
Agreement", "thereof" or words of like import referring to the
Amended Loan Agreement, shall mean and be a reference to the
Amended Loan Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Amended
Loan Agreement and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all
respects ratified and confirmed and shall constitute the
legal, valid, binding and enforceable obligations of Borrower
to Lender.
(c) The execution, delivery and effectiveness of this
First Amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy of
Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
(d) To the extent that any terms and conditions in
any of the Loan Documents shall contradict or be in conflict
with any terms or conditions of the Amended Loan Agreement,
after giving effect to this First Amendment, such terms and
conditions are hereby deemed modified or amended accordingly
to reflect the terms and conditions of the Amended Loan
Agreement as modified or amended hereby.
8. Ratification. Borrower hereby restates, ratifies and
reaffirms each and every term and condition set forth in the Amended Loan
Agreement, as amended hereby, and the Loan Documents effective as of the date
hereof.
9. Estoppel. To induce Lender to enter into this First
Amendment and to continue to make advances to Borrower under the Amended Loan
Agreement, Borrower hereby acknowledges and agrees that, after giving effect to
this First Amendment, as of the date hereof, there exists no Event of Default
and no right of offset, defense, counterclaim or objection in favor of Borrower
as against Lender with respect to the Obligations.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
First Amendment, as of the date first above written.
SPICE ENTERTAINMENT COMPANIES, INC.
a Delaware corporation
By: /s/ J. Roger Faherty
___________________________________________
J. Roger Faherty
Title: Chairman and Chief Executive Officer
DARLA L.L.C., a Delaware limited liability company
By: /s/ Kevin P. Genda
__________________________________________
Kevin P. Genda, Attorney-in-Fact
<PAGE>
GUARANTY REAFFIRMATION AND CONSENT
Dated as of November 14, 1997
The undersigned, as Guarantors under the Guaranty and Guarantor
Security Agreement (as such terms are defined in and under the Amended and
Restated Loan And Security Agreement referred to in the foregoing Amendment
Number One To Amended And Restated Loan And Security Agreement dated as of
November 14, 1997, between Spice Entertainment Companies, Inc., a Delaware
corporation, and Darla L.L.C., a Delaware limited liability company (hereinafter
"First Amendment"), each hereby consents and agrees to the said First Amendment
and hereby confirms and agrees that the Guaranty and Guarantor Security
Agreement are, and shall continue to be, in full force and effect and are hereby
ratified and confirmed in all respects.
CPV Productions, Inc., a Delaware Spice International, Inc.,
corporation a Delaware corporation
By /s/ J. Roger Faherty By /s/ J. Roger Faherty
_______________________________ _______________________________
J. Roger Faherty J. Roger Faherty
Chief Executive Officer Chairman
Cable Video Store, Inc., a Delaware Magic Hour Pictures, Inc.,
corporation a California corporation
By /s/ J. Roger Faherty By /s/ J. Roger Faherty
_______________________________ _______________________________
J. Roger Faherty J. Roger Faherty
Chairman Chairman
Spice Direct, Inc., Spice Networks, Inc.,
a Delaware corporation a New York corporation
By /s/ J. Roger Faherty By /s/ J. Roger Faherty
_______________________________ _______________________________
J. Roger Faherty J. Roger Faherty
Chief Executive Officer Chairman
Guest Cinema, Inc., Spice Productions, Inc.,
a Delaware corporation a Nevada corporation
By /s/ J. Roger Faherty By /s/ J. Roger Faherty
_______________________________ _______________________________
J. Roger Faherty J. Roger Faherty
Chairman Chairman
OPTION AGREEMENT, granted April 1, 1997, between SPICE
ENTERTAINMENT COMPANIES, INC. (hereinafter called the "Company"), and J.
ROGER FAHERTY (hereinafter called the "Optionee").
The Company and the Optionee have amended Optionee's employment
agreement dated June 1, 1992 as previously amended (the "Employment Agreement")
eliminating Optionee's entitlement to automatic grant of options each year of
Optionee's employment beginning 1998. The Optionee hereby is granted in
consideration of such amendment and in lieu of such automatic option, the right
to purchase four hundred thousand (400,000) shares of its commons stock, par
value $.01 per share (hereinafter called the "Common Shares").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company
hereby grants Optionee the right and option (hereinafter called the "Option") to
purchase all or any part of an aggregate of four hundred thousand (400,000)
Common Shares on the terms and conditions herein set forth.
2. Exercise Price. The purchase price of the Common Shares
subject to the Option shall be two dollars and twelve and one half cents($2.125)
per share, the fair market value of such Common Shares as determined on the date
hereof.
3. Limitation of Exercisability of Options. The Option shall be
exercisable as follows:
(a) 100,000 Options shall be exercisable immediately.
(b) 150,000 Options shall be exercisable on the earlier of:
(i) when the market price of the Company's common stock shall be $4.00, (ii) the
Company has EBITDA of $7,300,000 for 1997 as reflected in the Company's audited
statement or (iii) in six years from the date of grant if the Optionee is still
employed as an officer by the Company or an affiliate thereof. If the principal
market for the Company's common stock is a national exchange or The Nasdaq
National Market, market price shall mean the average of the last sale prices of
such common stock for twenty (20) consecutive trading days. If the principal
market for the Company's common stock is not a national exchange or The Nasdaq
National Market, market price shall mean the average of the closing bid prices
of such common stock for twenty (20) consecutive trading days.
(c) 150,000 Options shall be exercisable on the earlier of (I)
satisfaction of upon such conditions as shall be reasonably determined by the
Board of Directors and the Optionee after the completion of the Company's budget
for 1998 or (ii) in six years from the date of grant if the Optionee is still
employed as an officer by the Company or an affiliate thereof.
(d) If the criteria in either paragraph (a) or (b) have not
been met, then the board shall set forth new criteria for subsequent periods
consistent with the goals set forth in such paragraph (b) or (c).
(e) Any dispute relating to such determination shall be
settled by arbitration pursuant to Section 11(a), (c) and (d) of the Employment
Agreement with such provision surviving termination of such agreement.
In the event that there is a "Change in Control" as defined in the
Employment Agreement (provided that the percentage change applicable shall be
fifteen percent (15%) and not twenty-five percent (25%)) or if the Employment
Agreement is terminated for any reason other than cause, all of the Common
Shares covered hereby shall be immediately exercisable.
4. Expiration of Option. The Option shall not be exercisable
after April 1, 2007.
5. No Rights as Shareholder. The Optionee shall have none of the
rights of a stockholder with respect to any of the Common Shares subject to the
Option until such shares shall be issue to him upon the exercise of the Option.
6. Adjustments Upon Changes in Capitalization.
(a) In the event that prior to the exercise of the Option in
full, the outstanding common stock of the Company is changed by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination of shares, stock dividends or the like, an appropriate
adjustment shall be made by the Board of Directors in the number of shares and
option price per share subject to the unexercised portion of the Option. If the
Company shall be reorganized, consolidated or merged with another corporation,
or if all or substantially all of the assets of the Company shall be sold or
exchanged, the Optionee shall, at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his Option the same
number and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive had Optionee been a holder
of the number of Common Shares covered by his Option immediate prior to such
event;
(b) Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
7. Method of Exercise of Option.
a) Subject to the terms and conditions of this Agreement, the
Option may be exercised by written notice to the Company at its principal
office, presently located at 536 Broadway, New York, NY 10012, attention of the
Secretary. Such notice shall state the election to exercise the Option and the
number of Common Shares in respect of which it is being exercised, shall be
signed by the person or persons so exercising the Option and shall either be
accompanied by payment in full, by check payable to the order of the Company, of
the purchase price of said shares in which event the Company shall deliver a
certificate or certificates representing said shares as soon as practicable
after the notice shall be received by the Company. The certificate or
certificates for the Common Shares as to which the option shall have been so
exercised shall be registered in the name of the person or persons so exercising
the Option and shall be delivered as aforesaid to or upon the written order of
the person or persons exercising the Option.
(b) In lieu of cash payment, with the consent of the Board of
Directors, the Optionee may elect to deliver either (i) a bank or certified
check equal to the aggregate par value of the Common Shares being purchased with
the balance of the purchase price therefore being paid in the form a Note for
such amount as approved by the Board or (ii) shares of the Company's common
stock owned by the Optionee having a fair market value (determined in the sole
discretion of the Board of Directors) equal to such purchase price. The Option
shall be deemed to have been exercised with respect to any particular Common
Shares if, and only if, the preceding provisions of this Section 7 and the
provisions of Section 8 hereof shall have been complied with, in which event the
Option shall be deemed to have been exercised.
8. Registration Rights. Optionee (including any successor or assign
shall have the registration rights set forth in Section 8(b) and 8(c)
of the Employment Agreement. Such provisions shall survive termination
of the Employment Agreement for any reason.
9. Restrictions on Issuance.
(a) Unless prior to the exercise of the Option the Common
Shares issuable upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or agreement of the
individual exercising the Option of the Company to the effect that such shares
are being acquired for investment and not with a view to the resale or
distribution thereof or such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company, such representation,
agreement or documentation is not necessary to comply with said Act.
(b) The Company shall be not obligated to issue and deliver
any Common Shares until they have been listed on each securities exchange on
which Common shares may then be listed nor until there has been a qualification
under or compliance with such state or federal laws, rules or regulations as the
Company may deem applicable. The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.
(c) The Common Shares issued upon exercise of the Option shall
bear the following legend if required by counsel for the Company:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS
NOT REQUIRED.
10. Company Obligation. The Company shall at all times during the term
of the Option reserve and keep available such number of Common Shares as will be
sufficient to satisfy the requirements of this Agreement, shall pay all original
issue and/or transfer taxes with respect to the issue and/or transfer of shares
by the Company pursuant hereto and all other fees and expenses necessarily
incurred by the Company in connection therewith and will from time to time use
its best efforts to comply with all laws and regulations which in the opinion of
counsel for the Company shall be applicable thereto.
11. Transferability of Option. The Option shall be transferable.
More particularly, but without limiting the generality of the foregoing, the
Option may be assigned, transferred or otherwise disposed of, or pledged or
hypothecated in any way (whether by operation of law or otherwise).
12. Definition of Certain Terms. As used herein, the Optionee
shall include the individual named Optionee, as well as any successor or
assignees.
13. Governing Law. This Option Agreement shall be construed in
accordance with and governed by the laws of the State of New York.
14. Conflict. In the event of any conflict between the Plan and
the Option, the terms of the Plan shall take precedence.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officers thereunto duly authorized, and the Optionee has
hereunto set his hand and seal, all on the day and year first above written.
SPICE ENTERTAINMENT COMPANIES, INC.
ATTEST:
By: /s/ Steve Saril /s/ Daniel J. Barsky
________________________________ ________________________________
Name: Steve Saril Name: Daniel J. Barsky
Title: Title: Senior Vice President
and General Counsel
AGREED TO AND ACCEPTED:
/s/ J. Roger Faherty
________________________________
J. Roger Faherty, Optionee
FIFTH AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Fifth Amendment, dated as of April 1, 1997, is to Employment
Agreement made and entered into as of June 1, 1992 (as heretofore amended, the
"Employment Agreement") by and between GRAFF PAY-PER-VIEW INC. (now Spice
Entertainment Companies, Inc.), a Delaware corporation (the "Company"), and J.
ROGER FAHERTY (the "Executive").
Introduction
The parties entered into the Employment Agreement on June 1, 1992, and
thereafter entered into amendments one through four at February 22, 1993, June
15, 1993, March 23, 1994 and March 20, 1996, respectively, and now desire to
further amend certain provisions of the Employment Agreement, setting forth
herein the revised terms and conditions of the Executive's continued employment
by the Company and its subsidiaries from and after the date of this Amendment.
The Employment Agreement presently provides for automatic grant to Executive of
Options in each year of his employment beginning in 1998. The Executive and the
Company desire to eliminate such provision and, in lieu thereof, issue hereby an
option to purchase a fixed number of shares contingent upon meeting agreed upon
performance goals as established by the Compensation Committee of the Board of
Directors. The Company and Executive also desire to conform certain provisions
of the Employment Agreement to the standard employment agreement being developed
by the Company for execution between the Company and other senior executive
officers.
Accordingly, in consideration of the mutual covenants and agreements
set forth herein and the mutual benefits to be derived here from, and intending
to be legally bound hereby, the Company and the Executive agree as follows:
1. All defined terms used in this Amendment, unless otherwise defined
herein, shall have the meanings ascribed to them in the Employment Agreement.
2. The last two sentences of subparagraph 8(a) of the Employment
Agreement as heretofore amended are hereby deleted in their entirety. In
consideration for the surrender of Employee's rights therein the Company has
granted Executive a non-plan Option in the form of Exhibit A hereto. The
provisions of subparagraph 8(b) and 8(c) of the Employment Agreement shall apply
to such Options. Nothing herein shall be construed to limit Executive's
participation in any further grant of Options pursuant to any Stock Option Plan
of the Company and the grant of the Options hereby shall not be taken into
consideration with respect to any such grant.
3. The Company shall employ the Executive, on the terms set forth in
this Agreement as its Chairman and Chief Executive Officer and throughout the
term of the Agreement the Board of Directors shall appoint Executive to such
position.
4. The parties desire to conform the last sentence of Paragraph 2 to
reflect the term of the Agreement is a six-year term. Therefore, such last
sentence shall read as follows:
"Therefore, upon each January 1 of a Year, this Agreement
shall be effective for a six-year term unless prior thereto
such notice of non-renewal has been given."
5. The first paragraph of subparagraph 3(a) shall be deleted
and the following substituted therefore:
3(a) Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the
Executive's death. If Executive becomes Totally Disabled (as
that term is defined below) for one hundred eighty (180) days
in the aggregate during any consecutive twelve-month period
during the Term, the Company shall have the right to terminate
the Term by giving the Executive thirty (30) days' prior
written notice thereof, and upon the expiration of such
thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties
within thirty (30) days after receipt of a notice of
termination and continues to perform such duties for four (4)
consecutive weeks thereafter, the Term shall continue and the
notice of termination shall be considered null and void and of
no effect. Upon termination of the Term under this Section
7.1, the Company shall have no further obligations or
liabilities under this Agreement, except to pay the
Executive's estate or the Executive, as the case may be: (i)
the portion, if any, that remains unpaid of the Base Salary
for periods worked by the Executive plus one year's Base
Salary; and (ii) the amount of any expenses reimbursable in
accordance with Section 4 above; and (iii) any amounts due
under any Company benefit, welfare or pension plan. Any stock
options or other compensation plan benefits not vested at the
time of the termination of the Agreement under this Section
7.1 shall immediately become fully vested and options shall
remain exercisable for one year following such termination,
subject to earlier termination if the option's maximum term
occurs sooner.
6. Paragraph 12 shall be deleted in its entirety and the following
substituted therefore:
Change in Control.
a. Definitions. For purposes of this Paragraph (12),
a "Change on Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 5(f) of Schedule
14A of Regulation 14A, as in effect on the date of this Agreement,
promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided, that whether or not required
to be reported under such Item 5(f), without limitation, such a
Change in Control shall be deemed to have occurred if (I) any
"person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Acts) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's then outstanding securities;
or (II) during any period of two consecutive years, individuals who,
at the beginning of such period, constitute the Board cease for any
reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's
stockholders, of each new director was approved by Executive;
provided, however, that notwithstanding the foregoing, no Change of
Control shall be deemed to have occurred pursuant to either clause (I)
or (II) above in the event of (and notwithstanding any resultant
change in the membership of the Board) an acquisition is made by any
group comprised of senior officers of the Company, including
Executive, of 25% or more of the combined voting power of the
Company's then outstanding securities.
b. Termination Payment. Notwithstanding any provision of this
Agreement, if, within eighteen (18) months following a Change in
Control of the Company, (a) Executive's employment by the Company shall
be terminated by the Company other than as a result of the Executive
becoming Totally Disabled or (b) Executive terminates the Term for any
reason, then Executive shall be entitled to the benefits provided
below:
i. The Company shall pay Executive full Base Salary
through the date of termination (the "Termination
Date") at the rate in effect at that time, will pay
Executive for any vacation earned but not taken and
the amount, if any, of any bonus for a past Company
fiscal year which has not yet been awarded or paid;
ii. In lieu of any further salary requirements to
Executive for periods subsequent to the Termination
Date, the Company, subject to the limitation
described below, shall pay to executive on the 60th
day following the Termination Date a lump sum amount
equal to four times the Base Salary (the
"Termination Payment");
iii. All stock options held by Executive shall be fully
vested and remain outstanding for their full
original term unless sooner exercised; and
iv. The repayment of all indebtedness owed by the
Employee to the Company shall be changed by
eliminating all payments for a five-year period with
the repayment to commence in ten equal installments
of principal and interest with the first payment due
at the end of the sixth calendar year after Change
in Control.
c. Certain Additional Payments by the Company.
i. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be
determined that any payment or distribution to
or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but
determined without regard to any additional
payments required under this Section (a "Payment")
would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or
penalties are incurred by the Executive with
respect to such excise tax (such excise tax,
together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to
receive an additional payment (a Gross-Up Payment)
in an amount such that after payment by the
Executive of all taxes (including any interest or
penalties imposed with respect to such taxes),
including, without limitation, any income taxes
(and any interest and penalties imposed with
respect hereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payment.
Subject to the provisions of Paragraph
12(c), all determinations required to be made under this Paragraph
12(c), including whether and when Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by an independent public
accounting firm selected by Executive and reasonably acceptable to the
Company (the "Accounting Firm"); provided, however, that the
Accounting Firm shall not determine that no Excise Tax is payable by
the Executive unless it delivers to the Executive a written opinion
(the Accounting Opinion) that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. In the event that
the Accounting Firm has served, at any time during the two years
immediately preceding a Change in Control Date, as accountant or
auditor for the individual, entity or group that is involve in
effecting or has any material interest in the Change in Control, the
Executive shall appoint another nationally recognized accounting firm
to make the determinations and perform the other functions specified
in this Paragraph 12(c). All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company, the Accounting Firm
shall make all determinations required under this Paragraph 12(c),
shall provide to the Company and the Executive a written report
setting forth such determinations, together with detailed supporting
calculations, and, if the Accounting Firm determines that no Excise
Tax is payable, shall deliver the Accounting Opinion to the Executive.
Any Gross-Up Payment, as determined pursuant to this Paragraph 12(c),
shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Subject to the
remainder of this Paragraph 12(c), any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by
the Company should have been made (Underpayment), consistent with the
calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in
Paragraph 12(c) that the Executive is required to make a payment of
any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
The Executive shall notify the Company
in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as practicable but
no later than 30 days after the Executive actually receives notice in
writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid;
provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with
respect thereto) shall not affect any rights granted to the Executive
under this Paragraph 12(c) except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result
of such failure. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which he gives
such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an
attorney selected by the Company and reasonably acceptable to
the Executive;
(iii) cooperate with the Company in good faith
in order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Paragraph 12(c), the Company shall have the right, as its sole option,
to assume the defense of an control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Paragraph 12(c) the
Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying with the
requirements of Paragraph 12(c) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Paragraph
12(c) a determination is made that the Executive shall not be entitled
to any refund with respect to such claim, and the Company does not
notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required
to be paid.
7. Paragraph 13(a) is hereby deleted and the following substituted
therefore:
(a) Executive recognizes that in each of the highly
competitive businesses in which the Company is
engaged, personal contact is of primary importance in
securing new customers and in retaining the accounts
and goodwill of present customers and protecting the
business of the Company. The Executive, therefore,
agrees that during the Employment Period and, if the
Date of Termination occurs by reason of the Executive
terminating his employment for reasons other than
Total Disability or Good Reason or change in control,
for a period of one year after the Date of
Termination, he will not, with respect to the adult
television, cable and pay-per-view entertainment
industry, or any other electronically disseminated
adult entertainment media, in the United States,
Canada and Europe (the "Relevant Geographic Area"),
(i) accept employment or render service to any Person
that is engaged in a business directly competitive
with the business then engaged in by the Company or
any of its affiliated companies or (ii) enter into or
take part in or lend his name, counsel, or assistance
to any business, either as proprietor, principal,
investor, partner, director, officer, executive,
consultant, advisor, agent, independent contractor,
or in any other capacity whatsoever, for any purpose
that would be competitive with the business of the
Company or any of its affiliated companies (all of
the foregoing activities are collectively referred to
as the "Prohibited Activity").
8. Miscellaneous.
(a) The Employment Agreement, as amended by
this Amendment and the previous amendments, constitutes the entire
understanding and agreement between the Company and the Executive regarding its
subject matter and supersedes all prior negotiations and agreements, whether
oral or written, between them with respect to its subject matter. This Agreement
may not be modified except by a written agreement signed by the Executive and
a duly authorized officer of the Company.
(b) This Amendment may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
(c) The Company shall pay Executive's reasonable
legal fees in connection with this amendment.
IN WITNESS WHEREOF, this Agreement has been executed
by the Executive and on behalf of the Company by its duly authorized officer on
the date first written above.
GRAFF PAY-PER-VIEW INC.
(Now Spice Entertainment Companies, Inc.)
By: /s/ Daniel J. Barsky
________________________________
Name: Daniel J. Barsky
Title: Senior Vice President
and General Counsel
By: /s/ J. Roger Faherty
________________________________
J. Roger Faherty
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered as of this
1st day of January, 1997, by and between Spice Entertainment Companies, Inc.
(the "Company" or "Employer"), a Delaware corporation, and Steve Saril (the
"Executive") (collectively the Company and the Executive are referred to as the
"Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment.
1.1 Duties. The Company shall employ the Executive on the
terms and conditions set forth in this Agreement, as its Senior Vice President,
Sales & Marketing. The Executive accepts such employment with the Company and
shall perform and fulfill such duties as are assigned to him hereunder
consistent with his status as a senior executive of the Company, devoting his
best efforts and all of his professional time and attention, to the performance
and fulfillment of his duties and to the advancement of the best interests of
the Company, subject only to the direction, approval, and control of the
Company's President and/or Chief Executive Officer, and specific directives of
the Board of Directors of the Company (collectively, "Senior Management"). In
addition, and without any additional consideration, Executive is and/or may be
requested to serve as a director or as an employee and officer of the Company
and any or all subsidiaries of the Company. Unless otherwise indicated by the
context, the "Company" shall include the Company and all its subsidiaries.
1.2 Place of Performance. In connection with his employment by
the Company, the Executive shall be based at the Company's current corporate
facilities located in the New York City Metropolitan area except for required
travel on Company business.
2. Term.
The Executive's employment under this Agreement shall commence as of
January 1, 1997 (the "Commencement Date") and shall continue uninterrupted up to
and including the hour of midnight of December 31, 2000 (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. If the Company has
not agreed to renew this Agreement and/or extend the term by 90 days prior to
the expiration of the Term, the Executive may terminate this Agreement, which
termination shall be for "Good Reason," as that term is defined in Section 7.4.1
below.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in any
event no less often than twice per month), and calculated as follows:
3.1.1 The Base Salary to be paid to Executive
during the Term shall be $250,000; and
3.1.2 For each Year after the year commencing January
1, 1997, and in conformance with Company policy, the Company shall review the
Executive's performance and may, in the sole determination of the Company,
increase, but not decrease, the Executive's Base Salary and other benefits that
the Company deems appropriate. (As used herein "Year" shall refer to a twelve-
month period ending December 31.)
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company, all subject, however, to the Company rules and policies then in
effect regarding participation therein. During the Term, the benefits provided
to Executive, as described in the preceding sentence, shall not be reduced
except in accordance with the general reduction of such benefits applicable to
all salaried employees generally, but then only to the extent that such benefits
are reduced for such other salaried employees.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses which the Executive reasonably incurs
in connection with the performance of his duties hereunder, provided that the
Executive submits to the Company on proper forms provided by the Company, such
statements and other evidence supporting such expenses as the Company may
reasonably require and provided such expenses meet the Company's policy
concerning such matters.
5. Stock Options.
The Executive is entitled to participate in all Company employee stock
option programs as determined by the Stock Option Committee of the Company's
Board of Directors and approved by the Company's shareholders and Executive
shall be granted stock options on a basis consistent with grants to similarly
situated employees.
6. Vacations.
The Executive shall be entitled to not less than four (4) weeks of paid
vacation in any calendar year (prorated in any Year during which the Executive
is employed hereunder for less than the entire Year).
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus one year's Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Section 4 above; and (iii) any amounts due under any Company
benefit, welfare or pension plan. Any stock options or other compensation plan
benefits not vested at the time of the termination of the Agreement under this
Section 7.1 shall immediately become fully vested and options shall remain
exercisable for one year following such termination, subject to earlier
termination if the option's maximum term occurs sooner.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which in the reasonable opinion of an independent medical
doctor selected by the Company, subject to the Executive's approval, such
approval not to be unreasonably withheld, renders the Executive unable or
incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice; (ii) willfully fails to carry out a material lawful
directive of the Board of Directors, the Chairman of the Board, and/or the
President of the Company; (iii) embezzles or converts to his own use any funds
of the Company or any client or customer of the Company; (iv) converts to his
own use or destroys, any property of the Company having a significant value; (v)
is in material violation of any of the Company policies and/or procedures as
identified in the Company Employee Manual; or (vi) is habitually drunk or
intoxicated. If Executive is discharged for Cause, he shall receive only those
amounts earned but not distributed under the relevant plan, program or practice
of the Company. The Company and the Executive acknowledge that the Company's
business may be considered controversial in some localities and may result in
civil or criminal litigation against the Company based upon obscenity and
similar laws. The Parties agree that, notwithstanding the other provisions of
this Section, the naming of Executive in any such suit, and any conviction of
Executive or plea bargain, settlement or other disposition of such litigation
relating to Executive, shall not be considered Cause for the termination of
Executive's employment, so long as the conduct of Executive upon which such
claim was based consisted of Executive carrying out his duties in good faith and
in accordance with directions of management of the Company.
7.4 Termination by Executive. Executive may terminate the
Term of his employment:
7.4.1 either (i) upon failure by the Company to
comply with the material provisions of this Agreement, which failure is not
cured within ten (10) days after written notice or (ii) the Company elects not
to renew the Term as provided in Section 2 (either of the foregoing are referred
to herein as "Good Reason") or (iii) there is a change in the Company's
Chairman, Chief Executive Officer or President from the individual currently
holding such titles (any such event is referred to as an "Executive Change"); or
7.4.2 upon a "Change in Control of the Company"
(as defined i Section 7.6.1 below) upon thirty (30) days' prior written notice
given at any time within eighteen (18) months after a Change in Control; or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If the Executive's employment
is terminated by the Company without Cause, or the Executive shall terminate
employment for Good Reason other than upon an Executive Change or upon a Change
in Control of the Company, then the Company shall pay the Executive in lieu of
other damages, an amount (the "Severance Payments") equal to his then current
Base Salary payable in installments at the same time the Company pays salary to
its other senior executive employees payable over the longer of (i) the balance
of the Term or (ii) two years (the period over which the Severance Payments are
made is referred to as the "Severance Period"). If Executive shall terminate his
employment upon an Executive Change, then the Company shall pay the Executive in
lieu of other damages, an amount equal to the Executive's then current Base
Salary payable in installments over one year, which shall be the Severance
Period. The Company shall have no liability to make any severance payments as
provided for in this paragraph unless (i) the Executive executes a General
Release in a form substantially as set forth in Exhibit A attached hereto and
(ii) Executive complies with all provisions in Section 8 (Restrictive
Covenants). In addition, (i) any Company stock options not vested at the time of
termination shall immediately become vested and remain exercisable for their
term as if Executive's employment had not been terminated and (ii) the Company
shall maintain during the Severance Period all employee benefit plans and
programs which the Executive participated in immediately prior to such
termination other than bonus, incentive compensation and similar plans based on
performance, provided Executive's participation is permissible under the general
terms and provisions of such plans. If Executive causes a Voluntary Termination,
he shall receive only those amounts earned but not distributed under the
relevant plan, program or practice of the Company.
7.6 Change In Control.
7.6.1 Definitions. For purposes of this Section
7.6, a "Change in Control" shall mean a change in control of a nature that
would be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A, as in effect on the date of this Agreement, promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act");
provided, that whether or not required to be reported under such Item 5(f),
without limitation, such a Change in Control shall be deemed to have occurred
if (i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities; or (ii) during any period
of two consecutive years, individuals who, at the beginning of such period,
constitute the Board cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least three-
fourths of the directors then still in office who were directors at the
beginning of the period; provided, however, that notwithstanding the foregoing,
no Change of Control shall be deemed to have occurred pursuant to either clause
(i) or (ii) above in the event of (and notwithstanding any resultant change in
the membership of the Board) an acquisition by any group comprised of senior
officers of the Company, including Executive, of 25% or more of the combined
voting power of the Company's then outstanding securities.
7.6.2. Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18)months following a Change
in Control of the Company, (a) Executive's employment by the Company shall be
terminated by the Company other than as a result of the Executive becoming
Totally Disabled or (b) Executive terminates the Term for any reason, then
Executive shall be entitled to the benefits provided below:
(1) The Company shall pay Executive full
Base Salary through the Termination Date at the rate in effect at that time,
will pay Executive for any vacation earned but not taken and the amount, if any,
of any bonus for a past Company fiscal year which has not yet been awarded or
paid;
(2) In lieu of any further salary
payments to Executive for periods subsequent to the Termination Date, the
Company, subject to the limitation described below, shall pay to Executive on
the 60th day following the Termination Date a lump sum amount equal to four
times the sum of (i) the Base Salary and (ii) cash bonuses and other cash
compensation paid to Executive during the 12 months preceding the Termination
Date ("Termination Payment"); and
(3) All stock options held by Executive
shall be fully vested and remain outstanding for their full original term unless
sooner exercised.
7.6.3 Certain Additional Payments by the Company.
(1) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution to or for the benefit of the Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7.6.3 (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(2) Subject to the provisions of
Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Deloitte & Touche LLP (the
"Accounting Firm"); provided, however, that the Accounting Firm shall not
determine that no Excise Tax is payable by the Executive unless it delivers
to the Executive a written opinion (the "Accounting Opinion") that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. In the
event that Deloitte & Touche LLP has served, at any time during the two years
immediately preceding a Change in Control Date, as accountant or auditor for the
individual, entity or group that is involved in effecting or has any material
interest in the Change in Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations and perform the
other functions specified in this Section 7.6.3 (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company, the Accounting Firm shall
make all determinations required under this Section 7.6.3, shall provide to the
Company and the Executive a written report setting forth such determinations,
together with detailed supporting calculations, and, if the Accounting Firm
determines that no Excise Tax is payable, shall deliver the Accounting Opinion
to the Executive. Any Gross-Up Payment, as determined pursuant to this Section
7.6.3, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Subject to the remainder of this
Section 7.6.3, any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7.6.3(3) that the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(3) The Executive shall notify the
Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than 30
days after the Executive actually receives notice in writing of such claim
and shall apprise the Company of the nature of such claim and the date on
which such claim is requested to be paid; provided, however, that the failure
of the Executive to notify the Company of such claim (or to provide any required
Executive under this Section 7.6.3 except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to the
Executive;
(iii) cooperate with the Company in good faith in
order to effectively contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7.6.3(3) the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
Section 7.6.3(3)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6.3(3) a determination is made that the Executive
shall not be entitled to any refund with respect to such claim, and the Company
does not notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
8. Restrictive Covenants.
8.1 Covenant Not to Compete. Executive recognizes that in each
of the highly competitive businesses in which the Company is engaged, personal
contact is of primary importance in securing new customers and in retaining the
accounts and goodwill of present customers and protecting the business of the
Company. The Executive, therefore, agrees that during the Employment Period and,
if Executive's employment is terminated for Cause, for one year following the
Termination Date, or for any other reason other than the Executive becoming
Totally Disabled or the Executive terminating his employment for Good Reason,
during the Severance Period, he will not, with respect to the adult television
entertainment industry, the adult movie industry, or any other electronically
disseminated adult entertainment media, in the United States, Canada and Europe
(the "Relevant Geographic Area"), (i) accept employment or render service to any
Person that is engaged in a business directly competitive with the business then
engaged in by the Company or any of its affiliated companies or (ii) enter into
or take part in or lend his name, counsel or assistance to any business, either
as proprietor, principal, investor, partner, director, officer, executive,
consultant, advisor, agent, independent contractor, or in any other capacity
whatsoever, for any purpose that would be competitive with the business of the
Company or any of its affiliated companies (all of the foregoing activities are
collectively referred to as the "Prohibited Activity"). For these purposes, the
adult television entertainment industry shall refer to television channels,
networks or programming services which are or would be if operated in the United
States subject to regulation under Section 505 of the Telecommunications Act of
1996, regardless of the basis on which such programming is sold or the means by
which such programming is distributed.
8.2 Non-Disclosure of Information. The Executive shall:
8.2.1 Never, directly or indirectly, disclose to
any person or entity for any reason, or use for his own personal benefit, any
"Confidential Information" as hereinafter defined; and
8.2.2 At all times take all reasonable precautions
necessary to protect from loss or disclosure by Executive or his subordinates
any and all documents or other information containing, referring, or relating
to such Confidential Information. Upon termination of employment with the
Company for any reason, the Executive shall promptly return to the Company any
and all documents or other tangible property containing referring, or relating
to such Confidential Information, whether prepared by him or others.
8.2.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which
the Executive is called upon by legal process (including, without limitation,
by subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.2.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to the
business of the Company disclosed to or known to the Executive as a consequence
of, result of, or through the Executive's employment by the Company which may
consist of, but not be limited to, technical and non-technical information about
the Company's proprietary products, processes, programs, concepts, forms,
business methods, data, any and all financial and accounting data, employees,
marketing, customers, customer lists, and services and information
corresponding thereto acquired by the Executive during the term of the
Executive's employment by the Company. Confidential Information shall not
include any of such items which are published or are otherwise part of the
public domain, or freely available from trade sources or otherwise.
8.2.5 Upon termination of this Agreement for any
reason, the Executive shall return to a designated officer of the Company all
equipment and/or tangible property then in the Executive's possession or
custody which belongs or relates to the Company, including, without limitation,
copies or reproductions of correspondence, memoranda, reports, notebooks,
drawings, photographs, data base, or any other documents or electronically
stored information which constitutes Confidential Information.
8.3 Trade Secrets - Intellectual Property Rights. Executive
shall provide the Company with any copyrightable work, trade secrets and other
protectable intellectual property developed or produced by Executive while in
the employ of the Company pursuant to this Agreement (collectively, "Work
Product").
8.3.1 All Work Products shall be considered works
made for hire and shall be the exclusive property of the Company and the Company
shall be considered the author and/or creator of such work for worldwide
copyright purposes and renewals and extensions thereof. The Company may request,
at its own cost and expense, that Executive assist the Company in obtaining
worldwide patent, copyright and other property rights for the Work Product.
8.3.2 If Executive's rights in the Work Product
cannot be assigned to the Company, the Executive waives enforcement of all such
rights against the Company. The Executive further agrees to join in any action,
at the Company's sole cost and expense, to enforce or to procure a waiver of
such rights.
8.3.3 If the rights of the Work Product cannot be
waived or the Work Product is not deemed a "work for hire," the Executive
hereby grants the Company and its assigns a worldwide royalty-free license
to reproduce, distribute, modify, publicly display, sublicense and assign
such rights in all media or distribution technologies now known and hereinafter
developed or devised.
8.3.4 The Executive hereby appoints the Company
as his attorney in fact to execute and file any patent, copyright or other
lawful application with respect to the Work Product.
8.4 Conflict of Interest. Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. Executive, therefore, has an obligation to avoid
any activity, agreement, personal interest, or other relationship or situation
which: (i) conflicts with the Company's best interest; (ii) interferes with
Executive's responsibility to serve the Company to the best of Executive's
ability; or (iii) gives the appearance of self dealing.
8.4.1 This policy requires that Executive shall
not have any relationship, nor engage in any activity that might impair the
independence or judgment in the execution of Executive's duties. Executive
shall not have any direct or indirect personal financial interests in suppliers
of property, goods or services that would affect his decisions or actions on
the Company's behalf. Executive shall not accept gifts, benefits, or unusual
hospitality that would be reasonably likely to influence Executive in the
performance of his duties.
8.4.2 If any possible conflict of interest
situation arises, the Executive is responsible to immediately disclose the facts
to the President or Chief Executive Officer of the Company so that an evaluation
may determine whether a problem exists and, if so, to eliminate it.
8.5 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by Executive of this Agreement and specifically
the provisions of Section 8 ("Restrictive Covenants"), will be inadequate and
that the Company or any of its subsidiaries or other successors or assigns shall
be entitled to injunctive relief without bond. Such injunctive relief shall not
be exclusive, but shall be in addition to any other rights and remedies Company
or any of its subsidiaries or their successors or assigns might have for such
breach.
8.5.1 The Employee acknowledges: (i) that
compliance with the restrictive provisions contained in Section 8 is
necessary to protect the business and goodwill of the Company and its
subsidiaries, and (ii) that a breach of this Agreement will result in
irreparable and continuing damage to the Company, for which monetary damages may
not provide adequate relief. Consequently, Employee agrees that in the event of
a breach or threatened breach of any of the restrictive covenants described
herein, the Company, at its discretion, shall be entitled to seek both: (i) a
preliminary and/or permanent injunction in order to prevent such damage, or
continuation of such damage, and (ii) monetary damages as determinable. Nothing
herein, however, shall be construed to restrict and/or prohibit the Company from
pursuing any and all other remedies; the employee acknowledges that all remedies
are cumulative.
8.5.2 If any legal action arises to enforce the
Company's trade secrets, the prevailing party shall be entitled to recover
any and all damages, as well as all costs and expenses, including reasonable
attorney's fees incurred in enforcing or attempting to enforce the Company's
trade secrets.
9. Nature of Company Business.
Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in (i) producing and distributing
television networks which feature explicit and cable version adult movies and
features and other programming depicting sexual situations and/or nudity, (ii)
producing and distributing adult movies and features and (iii) distributing
adult telephone "chat" lines and may engage in other related businesses
(collectively, the "Adult Business"). Executive acknowledges that he will likely
be exposed, from time to time, to one or more aspects of the Adult Business
during the course of his employment by the Company. Furthermore, Executive
confirms that he is currently comfortable working for a company engaged in the
Adult Business and working in an environment where some or all aspects of the
Adult Business are present. If, at any time, Executive's view on the foregoing
changes or Executive otherwise becomes uncomfortable with the nature of the
Company's business, Executive agrees to promptly inform Senior Management. The
Company will work with the Executive to explore mutually acceptable means of
accommodating Executive's concerns which, both parties acknowledge, may result
in the termination of Executive's employment. Termination of Executive's
employment occasioned by Executive's desire not to be associated with the
Company as a result of the nature of its business shall be treated as a
Voluntary Termination by Employee without Good Reason.
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 If the Executive disputes a determination that Cause
exists for terminating his employment hereunder pursuant to Section 7.3, or the
Company disputes the determination that Good Reason exists for Executive's
termination of his employment pursuant to Section 7.4, either party disputing
this determination shall serve the other with written notice of such dispute
("Dispute Notice") within ten (10) days after receipt of the Notice of
Termination. Within ten (10) days thereafter, the Executive or the Company, as
the case may be, shall in accordance with the Rules of the AAA, file a petition
with the AAA for arbitration of the dispute. If the Executive serves a Dispute
Notice upon the Company, an amount equal to the portion of the Base Salary
Executive would be entitled to receive shall be placed in an interest-bearing
escrow account mutually agreeable to the Parties by the Company, or the Company
shall deliver an irrevocable letter of credit for such amount plus interest
containing terms mutually agreeable to the Parties. If the AAA determines that
Cause existed for the termination, the escrowed funds and accrued interest shall
be released and returned to the Company. However, if the AAA determines that the
Executive was terminated without Cause or that Executive resigned for Good
Reason, the Company agrees that the escrowed funds and accrued interests shall
be released and paid to the Executive within five (5) working days after such
determination.
10.3 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, New York 10012
Facsimile: (212) 226-6354
Attn: President
To the Executive:
Steve Saril
[INTENTIONALLY OMITTED]
The foregoing addresses may be changed at any time by either
party by notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith, together with the
Company's Employee Manual in the form attached hereto as Exhibit B, constitutes
the entire understanding and agreement between the Company and the Executive
regarding its subject matter, and supersedes all prior negotiations and
agreements or interpretations, whether oral or written. This Agreement may not
be modified except by written agreement signed by the Executive and a duly
authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. This Agreement shall be governed by
the internal laws of the State of New York.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
SPICE ENTERTAINMENT COMPANIES, INC.
By:/s/ J. Roger Faherty
________________________________
J. Roger Faherty
June 13, 1997
________________________________
Date
EXECUTIVE:
/s/ Steve Saril
________________________________
Steve Saril
June 13, 1997
________________________________
Date
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") effected as of this 1st day
of January, 1997, by and between Spice [INSERT COMPANY] (the "Company" or
"Employer"), a [STATE OF INC.] corporation, and [FIRST NAME] [LAST NAME] (the
"Executive") (collectively the Company and the Executive are referred to as the
"Parties").
INTRODUCTION
WHEREAS, the Parties desire to enter into an Agreement and to
set forth herein the terms and conditions of the Executive's employment by the
Company. Accordingly, in consideration of the mutual covenants and agreement set
forth herein and the mutual benefits to be derived herefrom, and intending to be
legally bound hereby, the Company and the Executive agree as follows:
1. Employment
1.1 Duties. The Company shall employ the Executive on the terms and
conditions set forth in this Agreement, as [EXECUTIVE TITLE]. The Executive
accepts such employment with the Company and shall perform and fulfill such
duties as are assigned to him hereunder consistent with his status as a senior
executive of the Company, devoting his best efforts and all of his professional
time and attention, to the performance and fulfillment of his duties and to the
advancement of the best interests of the Company, subject only to the direction,
approval, and control of the Company's President and/or Chief Executive Officer,
and specific directives of the Board of Directors of the Company (collectively,
"Senior Management"). In addition, and without any additional consideration,
Executive is and/or may be requested to serve as a director or as an employee
and officer of any or all subsidiaries of the Company. Unless otherwise
indicated by the context, the "Company" shall include the Company and all its
subsidiaries.
1.2 Place of Performance. In connection with his employment by the
Company, the Executive shall be based in the [CITY,] [STATE] metropolitan area,
except for required travel on Company business.
2. Term.
The Executive's employment under this Agreement shall commence as of
January 1, 1997 (the "Commencement Date") and shall continue uninterrupted up
to and including the hour of midnight of [EXPIRATION DATE] (the "Term"), unless
otherwise terminated as provided for in Sections 7.1 or 7.3. If the Company has
not agreed to renew this Agreement and/or extend the term by 90 days prior to
the expiration of the Term, the Executive may terminate this Agreement, which
termination shall be for "Good Reason," as that term is defined in Section 7.4.1
below.
3. Compensation.
3.1 Base Salary. During the Term the Executive shall receive a
minimum annual salary (the "Base Salary") payable in installments at such times
as the Company customarily pays its other senior executive employees (but in
any event no less often than bi-monthly), and calculated as follows:
3.1.1 The Base Salary to be paid to Executive
during the Term shall be [SALARY]; and
3.1.2 For each Year after January 1, 1997, and in
conformance with Company policy, the Company shall
review the Executive's performance and may, in the sole determination of the
Company, increase, but not decrease, the Executive's Base Salary and other
benefits that the Company deems appropriate. (As used herein "Year" shall refer
to a twelve-month period ending December 31.)
3.2 Health Insurance and Other Benefits. During the Term the
Executive shall be provided all employee benefits provided by the Company to its
management and all other Company salaried employees, including without
limitation, all medical insurance and life insurance plans or arrangements and
shall be entitled to participate in all pension, profit sharing, stock option
and any other employee benefit plan or arrangement established and maintained by
the Company, all subject, however, to the Company rules and policies then in
effect regarding participation therein. During the Term, the benefits provided
to Executive, as described in the preceding sentence, shall not be reduced
except in accordance with the general reduction of such benefits applicable to
all salaried employees generally, but then only to the extent that such benefits
are reduced for such other salaried employees.
4. Reimbursement of Expenses.
The Executive shall be reimbursed for all items of travel,
entertainment and miscellaneous expenses which the Executive reasonably incurs
in connection with the performance of his duties hereunder, provided that the
Executive submits to the Company on proper forms provided by the Company, such
statements and other evidence supporting such expenses as the Company may
reasonably require and provided such expenses meet the Company's policy
concerning such matters.
5. Stock Options.
The Executive is entitled to participate in all Company employee stock
option programs as determined by the Stock Option Committee of the Company's
Board of Directors and approved by the Company's shareholders and Executive
shall be granted stock options on a basis consistent with grants to similarly
situated employees.
6. Vacations.
The Executive shall be entitled to not less than three (3) weeks of
paid vacation in any calendar year (prorated in any Year during which the
Executive is employed hereunder for less than the entire Year).
7. Termination of Employment.
7.1 Death or Disability. If the Executive dies during the
Term, the Term shall terminate as of the date of the Executive's death. If
Executive becomes Totally Disabled (as that term is defined below) for one
hundred eighty (180) days in the aggregate during any consecutive twelve-month
period during the Term, the Company shall have the right to terminate the Term
by giving the Executive thirty (30) days' prior written notice thereof, and upon
the expiration of such thirty-day period, the Executive's employment under this
Agreement shall terminate. If the Executive resumes his duties within thirty
(30) days after receipt of a notice of termination and continues to perform such
duties for four (4) consecutive weeks thereafter, the Term shall continue and
the notice of termination shall be considered null and void and of no effect.
Upon termination of the Term under this Section 7.1, the Company shall have no
further obligations or liabilities under this Agreement, except to pay to the
Executive's estate or the Executive, as the case may be: (i) the portion, if
any, that remains unpaid of the Base Salary for periods worked by the Executive
plus one year's Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Section 4 above; and (iii) any amounts due under any Company
benefit, welfare or pension plan. Any stock options or other compensation plan
benefits not vested at the time of the termination of the Agreement under this
Section 7.1 shall immediately become fully vested and options shall remain
exercisable for one year following such termination, subject to earlier
termination if the option's maximum term occurs sooner.
7.2 "Totally Disabled," as used herein, shall mean a mental or
physical condition which in the reasonable opinion of an independent medical
doctor selected by the Company, subject to the Executive's approval, such
approval not to be unreasonably withheld, renders the Executive unable or
incompetent to carry out the material duties and responsibilities of the
Executive under this Agreement.
7.3 Discharge for Cause. The Company may discharge the
Executive for "Cause" upon written notice (as defined in Section 11.1), and
thereby immediately terminate his employment under this Agreement. For purposes
of this Agreement, the Company shall have "Cause" to terminate the Executive's
employment if the Executive, in the reasonable good faith judgment of the
Company, (i) materially breaches any of his agreements, duties or obligations
under this Agreement and has not cured such breach within ten (10) days after
Company's written notice; (ii) willfully fails to carry out a material lawful
directive of the Board of Directors, the Chairman of the Board, and the
President of the Company; (iii) embezzles or converts to his own use any funds
of the Company or any client or customer of the Company; (iv) converts to his
own use or destroys, any property of the Company having a significant value; (v)
is in material violation of any of the Company policies and/or procedures as
identified in the Company Employee Manual; or (vi) is habitually drunk or
intoxicated. If Executive is discharged for Cause, he shall receive only those
amounts earned but not distributed under the relevant plan, program or practice
of the Company. The Company and the Executive acknowledge that the Company's
business may be considered controversial in some localities and may result in
civil or criminal litigation against the Company based upon obscenity and
similar laws. The Parties agree that, notwithstanding the other provisions of
this Section, the naming of Executive in any such suit, and any conviction of
Executive or plea bargain, settlement or other disposition of such litigation
relating to Executive, shall not be considered Cause for the termination of
Executive's employment, so long as the conduct of Executive upon which such
claim was based consisted of Executive carrying out his duties in good faith and
in accordance with directions of management of the Company.
7.4 Termination by Executive. Executive may terminate
the Term of his employment.
7.4.1 either (i) upon failure by the Company to
comply with the material provisions of this Agreement, which failure is not
cured within ten (10) days after written notice or (ii) the Company has not
agreed to renew this Agreement and/or extend the term as provided in Section 2
(either of the foregoing are referred to herein as "Good Reason");
7.4.2 or upon a "Change in Control of the Company"
(as defined in Section 7.6.1 below) upon thirty (30) days' prior written
notice given at any time within eighteen (18) months after a Change in Control;
or
7.4.3 for any reason other than Good Reason or
following a Change in Control of the Company, which termination shall be
considered a "Voluntary Termination" by Executive.
7.5 Severance upon Termination. If the Executive's employment
is terminated by the Company without Cause, or the Executive shall terminate
employment for Good Reason prior to a Change in Control of the Company (the date
of termination is referred to as the "Termination Date"), then the Company shall
pay the Executive in lieu of other damages, an amount (the "Severance Payments")
equal to his then current Base Salary payable in installments at the same time
the Company pays salary to its other senior executive employees payable over the
longer of (i) the balance of the Term or (ii) [SEVERANCE PERIOD] (the period
over which the Severance Payments are made is referred to as the "Severance
Period"). The Company shall have no liability to make any Severance Payments
as provided for in this paragraph unless (i) the Executive executes a General
Release in a form substantially as set forth in Exhibit A attached hereto and
(ii) Executive complies with all provisions in Section 8 (Restrictive
Covenants). In addition, (i) any Company stock options not vested at the time
of termination shall immediately become vested and remain exercisable for their
term as if Executive's employment had not been terminated and (ii) the Company
shall maintain during the Severance Period all employee benefit plans and
programs which the Executive participated in immediately prior to such
termination other than bonus, incentive compensation and similar plans based on
performance, provided Executive's participation is permissible under the general
terms and provisions of such plans. If Executive causes a Voluntary Termination,
he shall receive only those amounts earned but not distributed under the
relevant plan, program or practice of the Company.
7.6 Change In Control.
7.6.1 Definitions. For purposes of this
Section 7.6, a "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A, as in effect on the date of this Agreement,
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"); provided, that whether or not required to be reported
under such Item 5(f), without limitation, such a Change in Control shall be
deemed to have occurred if (i) any "person" or "group" (as such terms are used
in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who, at the beginning of
such period, constitute the Board cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, of each new director was approved by a vote of at least
three-fourths of the directors then still in office who were directors at the
beginning of the period; provided, however, that notwithstanding the foregoing,
no Change of Control shall be deemed to have occurred pursuant to either clause
(i) or (ii) above in the event of (and notwithstanding any resultant change in
the membership of the Board) an acquisition by any group comprised of senior
officers of the Company, including Executive, of 25% or more of the combined
voting power of the Company's then outstanding securities.
7.6.2. Termination Payment. Notwithstanding any
provision of this Agreement, if, within eighteen (18) months following a
Change in Control of the Company, (a) Executive's employment by the Company
shall be terminated by the Company other than as a result of the Executive
becoming Totally Disabled or (b) Executive terminates the Term pursuant to
Section 7.4.1, then Executive shall be entitled to the benefits provided below:
(1) The Company shall pay Executive full
Base Salary through the Termination Date at the rate in effect at that time,
will pay Executive for any vacation earned but not taken and the amount, if any,
of any bonus for a past Company fiscal year which has not yet been awarded or
paid;
(2) In lieu of any further salary
payments to Executive for periods subsequent to the Termination Date, the
Company, subject to the limitation described below, shall pay to Executive on
the 60th day following the Termination Date a lump sum amount equal to four
times the sum of (i) the Base Salary and (ii) cash bonuses and other cash
compensation paid to Executive during the 12 months preceding the Termination
Date ("Termination Payment"); and
(3) All stock options held by
Executive shall be fully vested and remain outstanding for their full
original term unless sooner exercised.
7.6.3 Certain Additional Payments by the Company.
(1) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any
payment or distribution to or for the benefit of the Executive (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 7.6.3 (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
(2) Subject to the provisions of
Section 7.6.3(3), all determinations required to be made under this Section
7.6.3, including whether and when Gross-Up Payment is required and the amount
of such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Deloitte & Touche LLP (the "Accounting Firm");
provided, however, that the Accounting Firm shall not determine that no Excise
Tax is payable by the Executive unless it delivers to the Executive a written
opinion (the "Accounting Opinion") that failure to report the Excise Tax on the
Executive's applicable federal income tax return would not result in the
imposition of a negligence or similar penalty. In the event that by Deloitte &
Touche LLP has served, at any time during the two years immediately preceding
a Change in Control Date, as accountant or auditor for the individual, entity
or group that is involved in effecting or has any material interest in the
Change in Control, the Executive shall appoint another nationally recognized
accounting firm to make the determinations and perform the other functions
specified in this Section 7.6.3 (which accounting firm shall then be referred
to as the Accounting Firm hereunder). All fees and expenses of the Accounting
Firm shall be borne solely by the Company. Within 15 business days of the
receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company, the Accounting Firm shall
make all determinations required under this Section 7.6.3, shall provide to the
Company and the Executive a written report setting forth such determinations,
together with detailed supporting calculations, and, if the Accounting Firm
determines that no Excise Tax is payable, shall deliver the Accounting Opinion
to the Executive. Any Gross-Up Payment, as determined pursuant to this Section
7.6.3, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Subject to the remainder of this
Section 7.6.3, any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that it is
ultimately determined in accordance with the procedures set forth in Section
7.6.3(3) that the Executive is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(3) The Executive shall notify the
Company in writing of any claims by the Internal Revenue Service that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than 30
days after the Executive actually receives notice in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid; provided, however, that the failure of the
Executive to notify the Company of such claim (or to provide any required
information with respect thereto) shall not affect any rights granted to the
Executive under this Section 7.6.3 except to the extent that the Company is
materially prejudiced in the defense of such claim as a direct result of such
failure. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
selected by the Company and reasonably acceptable to the
Executive;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) if the Company elects not to assume and
control the defense of such claim, permit the Company to
participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 7.6.3, the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with
such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim, and may either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as
the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on
an interest-free basis, and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided, that any extension of
the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount.
Furthermore, the Company's right to assume the defense of and control
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(4) If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7.6.3(3)
the Executive becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the requirements
of Section 7.6.3(3)) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 7.6.3(3) a determination is made that the Executive
shall not be entitled to any refund with respect to such claim, and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
8. Restrictive Covenants.
8.1 Covenant Not to Compete. Executive recognizes that in each
of the highly competitive businesses in which the Company is engaged, personal
contact is of primary importance in securing new customers and in retaining the
accounts and goodwill of present customers and protecting the business of the
Company. The Executive, therefore, agrees that during the Employment Period and,
if Executive's employment is terminated for Cause, for Severance Period
following the Termination Date, or for any other reason other than the Executive
becoming Totally Disabled or the Executive terminating his employment for Good
Reason, during the Severance Period, he will not, with respect to the adult
television entertainment industry), the adult movie industry, or any other
electronically disseminated adult entertainment media, in the United States,
Canada and Europe (the "Relevant Geographic Area"), (i) accept employment or
render service to any Person that is engaged in a business directly competitive
with the business then engaged in by the Company or any of its affiliated
companies or (ii) enter into or take part in or lend his name, counsel or
assistance to any business, either as proprietor, principal, investor, partner,
director, officer, executive, consultant, advisor, agent, independent
contractor, or in any other capacity whatsoever, for any purpose that would be
competitive with the business of the Company or any of its affiliated companies
(all of the foregoing activities are collectively referred to as the
"Prohibited Activity"). For these purposes, the adult television entertainment
industries shall refer to television channels, networks or programming services
which are or would be if operated in the United States subject to regulation
under Section 505 of the Telecommunications Act of 1996, regardless of the
basis on which such programming is sold or the means by which such programming
is distributed.
8.2 Non-Disclosure of Information. The Executive shall:
8.2.1 Never, directly or indirectly, disclose to
any person or entity for any reason, or use for his own personal benefit, any
"Confidential Information" as hereinafter defined; and
8.2.2 At all times take all reasonable
precautions necessary to protect from loss or disclosure by
Executive or his subordinates any and all documents or other information
containing, referring, or relating to such Confidential Information. Upon
termination of employment with the Company for any reason, the Executive shall
promptly return to the Company any and all documents or other tangible property
containing, referring, or relating to such Confidential Information, whether
prepared by him or others.
8.2.3 Notwithstanding any provision to the
contrary in Section 8, this paragraph shall not apply to information which
the Executive is called upon by legal process (including, without limitation,
by subpoena or discovery requirement) to disclose or any information which has
become part of the public domain or is otherwise publicly disclosed through no
fault or action of the Executive.
8.2.4 For purposes of this Agreement,
"Confidential Information" shall mean any information relating in any way to
the business of the Company disclosed to or known to the Executive as a
consequence of, result of, or through the Executive's employment by the
Company which may consist of, but not be limited to, technical and non-technical
information about the Company's proprietary products, processes, programs,
concepts, forms, business methods, data, any and all financial and accounting
data, employees, marketing, customers, customer lists, and services and
information corresponding thereto acquired by the Executive during the term of
the Executive's employment by the Company. Confidential Information shall not
include any of such items which are published or are otherwise part of the
public domain, or freely available from trade sources or otherwise.
8.2.5 Upon termination of this Agreement for
any reason, the Executive shall return to a designated officer of the
Company all equipment and/or tangible property then in the Executive's
possession or custody which belongs or relates to the Company, including,
without limitation, copies or reproductions of correspondence, memoranda,
reports, notebooks, drawings, photographs, data base, or any other documents
or electronically stored information which constitutes Confidential
Information.
8.3 Trade Secrets - Intellectual Property Rights. Executive
shall provide the Company with any copyrightable work, trade secrets and other
protectable intellectual property developed or produced by Executive while in
the employ of the Company pursuant to this Agreement (collectively, "Work
Product").
8.3.1 All Work Products shall be considered works
made for hire and shall be the exclusive property of the Company and the
Company shall be considered the author and/or creator of such work for worldwide
copyright purposes and renewals and extensions thereof. The Company may request,
at its own cost and expense, that Executive assist the Company in obtaining
worldwide patent, copyright and other property rights for
the Work Product.
8.3.2 If Executive's rights in the Work Product
cannot be assigned to the Company, the Executive waives enforcement of all such
rights against the Company. The Executive further agrees to join in any action,
at the Company's sole cost and expense, to enforce or to procure a waiver of
such rights.
8.3.3 If the rights of the Work Product cannot
be waived or the Work Product is not deemed a "work for hire", the Executive
hereby grants the Company and its assigns a worldwide royalty-free license to
reproduce, distribute, modify, publicly display, sublicense and assign such
rights in all media or distribution technologies now known and hereinafter
developed or devised.
8.3.4 The Executive hereby appoints the Company
as his attorney in fact to execute and file any patent, copyright or other
lawful application with respect to the Work Product.
8.4 Conflict of Interest. Executive shall exercise good
judgment and maintain high ethical standards in the course of his dealings so as
to preclude the possibility of a conflict between the interest of the Company
and his own personal interest. Executive, therefore, has an obligation to avoid
any activity, agreement, personal interest, or other relationship or situation
which: (i) conflicts with the Company's best interest; (ii) interferes with
Executive's responsibility to serve the Company to the best of Executive's
ability; or (iii) gives the appearance of self dealing.
8.4.1 This policy requires that Executive shall
not have any relationship, nor engage in any activity that might impair the
independence or judgment in the execution of Executive's duties. Executive shall
not have any direct or indirect personal financial interests in suppliers of
property, goods or services that would affect his decisions or actions on the
Company's behalf. Executive shall not accept gifts, benefits, or unusual
hospitality that would be reasonably likely to influence Executive in the
performance of his duties.
8.4.2 If any possible conflict of interest
situation arises, the Executive is responsible to immediately disclose the facts
to the President or Chief Executive Officer of the Company so that an evaluation
may determine whether a problem exists and, if so, to
eliminate it.
8.5 Injunctive Relief/Legal Remedies. The Parties agree that
the remedy at law for any breach by Executive of this Agreement and specifically
the provisions of Section 8 ("Restrictive Covenants"), will be inadequate and
that the Company or any of its subsidiaries or other successors or assigns shall
be entitled to injunctive relief without bond. Such injunctive relief shall not
be exclusive, but shall be in addition to any other rights and remedies Company
or any of its subsidiaries or their successors or assigns might have for such
breach.
8.5.1 The Employee acknowledges: (i) that
compliance with the restrictive provisions contained in Section 8 is
necessary to protect the business and goodwill of the Company and its
subsidiaries, and (ii) that a breach of this Agreement will result in
irreparable and continuing damage to the Company, for which monetary damages may
not provide adequate relief. Consequently, Employee agrees that in the event of
a breach or threatened breach of any of the restrictive covenants described
herein, the Company, at its discretion, shall be entitled to seek both: (i) a
preliminary and/or permanent injunction in order to prevent such damage, or
continuation of such damage, and (ii) monetary damages as determinable. Nothing
herein, however, shall be construed to restrict and/or prohibit the Company from
pursuing any and all other remedies; the employee acknowledges that all remedies
are cumulative.
8.5.2 If any legal action arises to enforce the
Company's trade secrets, the prevailing party shall be entitled to recover
any and all damages, as well as all costs and expenses, including reasonable
attorney's fees incurred in enforcing or attempting to enforce the Company's
trade secrets.
9. Nature of Company Business.
Executive acknowledges that the Company, through one or more of its
affiliated companies, is currently involved in (i) producing and distributing
television networks which feature explicit and cable version adult movies and
features and other programming depicting sexual situations and/or nudity, (ii)
producing and distributing adult movies and features and (iii) distributing
adult telephone "chat" lines and may engage in other related businesses
(collectively, the "Adult Business"). Executive acknowledges that he will likely
be exposed, from time to time, to one or more aspects of the Adult Business
during the course of his employment by the Company. Furthermore, Executive
confirms that he is currently comfortable working for a company engaged in the
Adult Business and working in an environment where some or all aspects of the
Adult Business are present. If, at any time, Executive's view on the foregoing
changes or Executive otherwise become uncomfortable with the nature of the
Company's business, Executive agrees to promptly inform Senior Management. The
Company will work with the Executive to explore mutually acceptable means of
accommodating Executive's concerns which, both parties acknowledge, may result
in the termination of Executive's employment. Termination of Executive's
employment occasioned by Executive's desire not to be associated with the
Company as a result of the nature of its business shall be treated as a
Voluntary Termination by Employee without Good Reason.
10. Arbitration.
10.1 Any and all disputes, controversies and claims arising
out of, or relating to, this Agreement, or with respect to the interpretation of
this Agreement, or the rights or obligations of the Parties and their successors
and permitted assigns, whether by operation of law or otherwise, shall be
settled and determined by arbitration in New York City, New York, pursuant to
the then existing rules of the American Arbitration Association ("AAA"), for
commercial arbitration. Each party shall pay their own legal fees. The losing
party shall pay the fees and costs imposed by the AAA; if neither party clearly
prevails in the arbitration, the parties shall request that the AAA appointed
arbitrator apportion the AAA's fees and costs between the parties.
10.2 If the Executive disputes a determination that Cause
exists for terminating his employment hereunder pursuant to Section 7.3, or the
Company disputes the determination that Good Reason exists for Executive's
termination of his employment pursuant to Section 7.4, either party disputing
this determination shall serve the other with written notice of such dispute
("Dispute Notice") within ten (10) days after receipt of the Notice of
Termination. Within ten (10) days thereafter, the Executive or the Company, as
the case may be, shall in accordance with the Rules of the AAA, file a petition
with the AAA for arbitration of the dispute. If the Executive serves a Dispute
Notice upon the Company, an amount equal to the portion of the Base Salary
Executive would be entitled to receive shall be placed in an interest-bearing
escrow account mutually agreeable to the Parties by the Company, or the Company
shall deliver an irrevocable letter of credit for such amount plus interest
containing terms mutually agreeable to the Parties. If the AAA determines that
Cause existed for the termination, the escrowed funds and accrued interest shall
be released and returned to the Company. However, if the AAA determines that the
Executive was terminated without Cause or that Executive resigned for Good
Reason, the Company agrees that the escrowed funds and accrued interests shall
be released and paid to the Executive within five (5) working days after such
determination.
10.3 The Parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal therefrom.
11. Miscellaneous.
11.1 Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below by
registered or certified mail, return receipt requested, or sent by overnight
express mail or courier or facsimile to such address, if a party has a facsimile
machine. Notice shall be deemed to have been given and received (i) when
hand-delivered or after three (3) business days when deposited in the U.S. Mail,
(ii) when transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
To the Company:
Spice Entertainment Companies, Inc.
536 Broadway, 7th Floor
New York, New York 10012
Facsimile: (212) 226-6354
Attn: President
To the Executive:
[FIRST NAME] [LAST NAME]
[HOME STREET]
[HOME CITY], [HOME STATE] [HOME ZIP]
The foregoing addresses may be changed at any time by either
party by notice given in the manner herein provided.
11.2 Integration; Modification. This Agreement, the
Indemnification Agreement executed contemporaneously herewith, together with the
Company's Employee Manual in the form attached hereto as Exhibit B, constitutes
the entire understanding and agreement between the Company and the Executive
regarding its subject matter, and supersedes all prior negotiations and
agreements or interpretations, whether oral or written. This Agreement may not
be modified except by written agreement signed by the Executive and a duly
authorized officer of the Company.
11.3 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
11.4 Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether conduct or otherwise, in any one (1) or more instances
shall be deemed or construed as a further or continuing waiver of any such
condition or breach or a waiver of any other condition, or the breach of any
other term or covenant set forth in this Agreement. Moreover, the failure of
either party to exercise any right hereunder shall not bar the later exercise
thereof with respect to other future breaches.
11.5 Governing Law. This Agreement shall be governed by
the internal laws of the State of New York.
11.6 Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
11.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
11.8 Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the
Executive and on behalf of the Company by its duly authorized officer on the day
and year first above written.
SPICE [COMPANY]
By: ___________________________
[SIGNATURE]
________________________________
Date
EXECUTIVE:
________________________________
[FIRST NAME] [LAST NAME]
[SOCIAL]
________________________________
Social Security No.
________________________________
Date
[INSERT NO. OF SHARES] SHARES
Except as permitted by Section 10 hereof, no transfer shall be
made at any time unless the Company shall have been supplied
with evidence reasonably satisfactory to it that such transfer
is not in violation of the Securities Act of 1933, as amended
(the "Act").
SPICE ENTERTAINMENT COMPANIES, INC.
WARRANT TO PURCHASE
[INSERT NO. OF SHARES] SHARES OF COMMON STOCK
AS HEREIN DESCRIBED
Dated: [INSERT DATE]
This certifies that, for value received
NAME: [INSERT NAME]
ADDRESS: [ADDRESS]
[STATE ZIP]
or registered assigns (the "Holder") are entitled, subject to the terms set
forth herein, to purchase from SPICE ENTERTAINMENT COMPANIES, INC. (the
"Company"), a Delaware corporation, having its offices at 536 Broadway, New
York, New York 10012, [NO. OF SHARES IN WORDS] [NO. OF SHARES] shares of the
Company's common stock subject to adjustment as set forth herein.
1. As used herein:
(a) "Common Stock" or "Common Shares" shall initially refer
to the Company's common stock including Underlying Securities, as more fully set
forth in Section 5 hereof.
(b) "Warrant Price" shall be $[PRICE]
(c) "Underlying Securities" or "Underlying Shares" or
"Underlying Stock" shall refer to the Common Shares or other securities or
property issuable or issued upon exercise of this Warrant.
2. (a) The purchase rights represented by this Warrant may be exercised
by the Holder hereof, in whole or in part (but not as to less than a whole
Common Share), at any time, and from time to time, during the period commencing
on the date hereof and continuing until March 25, 2002 (the "Expiration Date"),
by the presentation of this Warrant, with the purchase form attached duly
executed, at the Company's office (or such office or agency of the Company as it
may designate in writing to the Holder hereof by notice pursuant to Section 14
hereof), specifying the number of Common Shares as to which the Warrant is being
exercised, and upon payment by the Holder to the Company in cash or by certified
check or bank draft, in an amount equal to the Warrant Price times the number of
Common Shares then being purchased hereunder.
(b) The Company agrees that the Holder hereof shall be deemed
the record owner of such Underlying Securities as of the close of business on
the date on which this Warrant shall have been presented and payment made for
such Underlying Securities as aforesaid. Certificates for the Underlying
Securities so obtained shall be delivered to the Holder hereof within a
reasonable time, not exceeding seven (7) days, after the rights represented by
this Warrant shall have been so exercised. If this Warrant shall be exercised in
part only or transferred in part subject to the provisions herein, the Company
shall, upon surrender of this Warrant for cancellation or partial transfer,
deliver a new Warrant evidencing the rights of the Holder hereof to purchase the
balance of the Underlying Shares which such Holder is entitled to purchase
hereunder. Exercise in full of the rights represented by this Warrant shall not
extinguish the rights granted under Section 9 hereof.
3. Subject to the provisions of Section 8 hereof, (i) this Warrant is
exchangeable at the option of the Holder at the aforesaid office of the Company
for other Warrants of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of Common Shares as are purchasable
hereunder; and (ii) this Warrant may be divided or combined with other Warrants
which carry the same rights, in either case, upon presentation hereof at the
aforesaid office of the Company together with a written notice, signed by the
Holder hereof, specifying the names and denominations in which new Warrants are
to be issued, and the payment of any transfer tax due in connection therewith.
4. Subject and pursuant to the provisions of this Section 4, the
Warrant Price and number of Common Shares subject to this Warrant shall be
subject to adjustment from time to time as set forth hereinafter in this
Section 4.
(a) If the Company shall at any time subdivide its outstanding
Common Shares by recapitalization, reclassification, stock dividend, or split-up
thereof or other means, the number of Common Shares subject to this Warrant
immediately prior to such subdivision shall be proportionately increased and the
Warrant Price shall be proportionately decreased, and if the Company shall at
any time combine the outstanding Common Shares by recapitalization,
reclassification or combination thereof or other means, the number of Common
Shares subject to this Warrant immediately prior to such combination shall be
proportionately decreased and the Warrant Price shall be proportionately
increased. Any such adjustment and adjustment to the Warrant Price shall become
effective at the close of business on the record date for such subdivision or
combination.
(b) If the Company after the date hereof shall distribute to
all of the holders of its Common Shares any securities including, but not
limited to Common Shares, or other assets (other than a cash distribution made
as a dividend payable out of earnings or out of any earned surplus legally
available for dividends under the laws of the jurisdiction of incorporation of
the Company), the Board of Directors shall be required to make such equitable
adjustment in the Warrant Price and the type and/or number of Underlying
Securities in effect immediately prior to the record date of such distribution
as may be necessary to preserve to the Holder of this Warrant rights
substantially proportionate to and economically equivalent to those enjoyed
hereunder by such Holder immediately prior to the happening of such
distribution. Any such adjustment made reasonably and in good faith by the Board
of Directors shall be final and binding upon the Holders and shall become
effective as of the record date for such distribution.
(c) No adjustment in the number of Common Shares subject to
this Warrant or the Warrant Price shall be required under this Section 4 unless
such adjustment would require an increase or decrease in such number of shares
of at least 1% of the then adjusted number of Common Shares issuable upon
exercise of the Warrant, provided, however, that any adjustments which by reason
of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment. If the Company shall make a record of the Holders of its
Common Shares for the purpose of entitling them to receive any dividend or
distribution and legally abandon its plan to pay or deliver such dividend or
distribution then no adjustment in the number of Common Shares subject to the
Warrant shall be required by reason of the making of such record.
(d) In case of any capital reorganization or reclassification
or change of the outstanding Common Shares (exclusive of a change covered by
Section 4(a) hereof or which solely affects the par value of such Common Shares)
or in the case of any merger or consolidation of the Company with or into
another corporation (other than a consolidation or merger in which the Company
is the continuing corporation and which does not result in any reclassification,
change, capital reorganization or change in the ownership of the outstanding
Common Shares), or in the case of any sale or conveyance or transfer of all or
substantially all of the property of the Company and in connection with which
the Company is dissolved, the Holder of this Warrant shall have the right
thereafter (until the expiration of the right of exercise of this Warrant) to
receive upon the exercise hereof, for the same aggregate Warrant Price payable
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such reclassification,
change, capital reorganization, merger or consolidation, or upon the dissolution
following any sale or other transfer, by a holder of the number of Common Shares
of the Company equal to the number of common shares obtainable upon exercise of
this Warrant immediately prior to such event; and if any reorganization,
reclassification, change, merger, consolidation, sale or transfer also results
in a change in Common Shares covered by Section 4(a), then such adjustment shall
be made pursuant to both this Section 4(d) and Section 4(a). The provisions of
this Section 4(d) shall similarly apply to successive reclassification, or
capital reorganizations, mergers or consolidations, changes, sales or other
transfers.
(e) The Company shall not be required to issue fractional
Common Shares upon any exercise of this Warrant. As to any final fraction of a
Common Share which the Holder of this Warrant would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in respect
of such final fraction in an amount equal to the same fraction of the market
value of a share of such stock on the business day preceding the day of exercise
or book value as determined by the Company's independent public accountants if
not publicly traded. The Holder of this Warrant, by his acceptance hereof,
expressly waives any right to receive any fractional shares of stock upon
exercise of this Warrant.
(f) As used herein, the current market price ("Market Price")
per share at any date shall be the price of Common Shares on the business day
immediately preceding the event requiring an adjustment hereunder and shall be
(A) if the principal trading market for such securities is an exchange, the
closing price on such exchange on such day provided if trading of such Common
Shares is listed on any consolidated tape, the price shall be the closing price
set forth on such consolidated tape or (B) if the principal market for such
securities is the over-the-counter market, the high bid price on such date as
set forth by NASDAQ or closing price if listed on Nasdaq National Market or
SmallCap or, if the security is not quoted on Nasdaq, the high bid price as set
forth in the NATIONAL QUOTATION BUREAU sheet listing such securities for such
day. Notwithstanding the foregoing, if there is no reported closing price or
high bid price, as the case may be, on a date prior to the event requiring an
adjustment hereunder, then the current market price shall be determined as of
the latest date prior to such day for which such closing price or high bid price
is available.
(g) Irrespective of any adjustments pursuant to this Section 4
in the Warrant Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of this Warrant, and
without impairing any such adjustment the certificate representing this Warrant
may continue to express the Warrant Price and the number of Common Shares
obtainable upon exercise at the same price and number of Common Shares as are
stated herein.
(h) Until this Warrant is exercised, the Underlying Shares,
and the Warrant Price shall be determined exclusively pursuant to the provisions
hereof.
(i) Upon any adjustment of this Warrant the Company shall give
written notice thereof to the Holder which notice shall include the number of
Underlying Securities purchasable and the price per share upon exercise of this
Warrant and shall set forth in reasonable detail the events which resulted in
such adjustment
5. For the purposes of this Warrant, the terms "Common Shares" or
"Common Stock" shall mean (i) the class of stock designated as the common stock
of the Company on the date set forth on the first page hereof or (ii) any other
class of stock resulting from successive changes or reclassification of such
Common Stock consisting solely of changes from par value to no par value, or
from no par value to par value or changes in par value. If at any time, as a
result of an adjustment made pursuant to Section 4, the securities or other
property obtainable upon exercise of this Warrant shall include shares or other
securities of another corporation or other property, then thereafter, the number
of such other shares or other securities or property so obtainable shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Shares
contained in Section 4, and all other provisions of this Warrant with respect to
Common Shares shall apply on like terms to any such other shares or other
securities or property. Subject to the foregoing, and unless the context
requires otherwise, all references herein to Common Shares shall, in the event
of an adjustment pursuant to Section 4, be deemed to refer also to any other
shares or other securities or property when obtainable as a result of such
adjustments.
6. The Company covenants and agrees that:
(a) During the period within which the rights represented by
this Warrant may be exercised, the Company shall, at all times, reserve and keep
available out of its authorized capital stock, solely for the purposes of
issuance upon exercise of this Warrant, such number of its Common Shares as
shall be issuable upon the exercise of this Warrant and at its expense will
obtain the listing thereof on all quotation systems or national securities
exchanges on which the Common Shares are then listed; and if at any time the
number of authorized Common Shares shall not be sufficient to effect the
exercise of this Warrant, the Company will take such corporate action as may be
necessary to increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose; the Company shall have
analogous obligations with respect to any other securities or property issuable
upon exercise of this Warrant;
(b) All Common Shares which may be issued upon exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid, non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof; and
(c) All original issue taxes payable in respect of the
issuance of Common Shares upon the exercise of the rights represented by this
Warrant shall be borne by the Company, but in no event shall the Company be
responsible or liable for income taxes or transfer taxes upon the transfer of
any Warrants.
7. Until exercised, this Warrant shall not entitle the Holder hereof to
any voting rights or other rights as a shareholder of the Company, except that
the Holder of this Warrant shall be deemed to be a shareholder of the Company
for the purpose of bringing suit on the ground that the issuance of shares of
stock of the Company is improper under the Delaware General Corporation Law.
8. No transfer of all or a portion of the Warrant or Underlying
Securities shall be made at any time unless the Company shall have been supplied
with evidence reasonably satisfactory to it that such transfer is not in
violation of the Securities Act of 1933, as amended (the "Act"). Subject to the
satisfaction of the aforesaid condition and upon surrender of this Warrant or
certificates for any Underlying Securities at the office of the Company, the
Company shall deliver a new Warrant or Warrants or new certificate or
certificates for Underlying Securities to and in the name of the assignee or
assignees named therein. Any such certificate may bear a legend reflecting the
restrictions on transfer set forth herein.
9. The Holder shall have the right to have the Company file such
registration statements under the Securities Act of 1933, as amended, with
respect to this Warrant and the Underlying Securities as are set forth in the
Registration Rights Agreement dated Date between the Company and initial Holder
(the "Registration Rights Agreement"), which provisions of the Registration
Rights Agreement are incorporated herein by reference.
10. INTENTIONALLY OMITTED.
11. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such terms as to indemnity or otherwise as the Company may
reasonably impose, issue a new Warrant of like denomination, tenor and date. Any
such new Warrant shall constitute an original contractual obligation of the
Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
12. Any Warrant issued pursuant to the provisions of Section 11 hereof,
or upon transfer, exchange, division or partial exercise of this Warrant or
combination thereof with another Warrant or Warrants, shall set forth each
provision set forth in Sections 1 through 17, inclusive, of this Warrant as each
such provision is set forth herein, and shall be duly executed on behalf of the
Company by its chief executive officer.
13. Upon surrender of this Warrant for transfer or exchange or upon the
exercise hereof, this Warrant shall be canceled by the Company, and shall not be
reissued by the Company and, except as provided in Section 2 in case of a
partial exercise, Section 3 in case of an exchange or Section 8 in case of a
transfer, or Section 11 in case of mutilation. Any new Warrant certificate shall
be issued promptly but not later than seven (7) days after receipt of the old
Warrant certificate.
14. This Warrant shall inure to the benefit of and be binding upon the
Holder hereof, the Company and their respective successors, heirs, executors,
legal representatives and assigns.
15. All notices required hereunder shall be in writing and shall be
deemed given when telecopied, delivered personally or within two (2) days after
mailing when mailed by certified or registered mail, return receipt requested,
or sent by overnight courier service to the party to whom such notice is
intended, at the address of such other party as set forth on the first page
hereof, or at such other address of which the Company or Holder has been advised
by the notice hereunder.
16. The Company will not (i) merge or consolidate with or into any
other corporation or (ii) sell or otherwise transfer its property, assets and
business substantially as an entirety to another corporation, nor shall the
Company become a wholly-owned or majority-owned subsidiary of another
corporation unless the corporation resulting from such merger or consolidation
(if not the Company), or such transferee corporation, or parent corporation, as
the case may be, shall either (x) expressly assume, by supplemental agreement
satisfactory in form to the Holder, the due and punctual performance and
observance of each and every covenant and condition of this Warrant to be
performed and observed by the Company and/or (y) exchange this warrant for a
warrant of such corporation containing substantially the same terms and
conditions as this Warrant.
17. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
18. In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be in any way impaired thereby,
it being intended that all of the rights and privileges of the Holder shall be
enforceable to the fullest extent permitted by law.
19. The validity, interpretation and performance of this Warrant and of
the terms and provisions hereof shall be governed by the laws of the State of
New York applicable to agreements entered into and performed entirely in such
state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of [DATE].
SPICE ENTERTAINMENT COMPANIES, INC.
By: _________________________________________
J. Roger Faherty, Chief Executive Officer
<PAGE>
PURCHASE FORM
To Be Executed
Upon Exercise of Warrant
The undersigned record holder of the within Warrant hereby
irrevocably elects to exercise the right to purchase _________ Common Shares
evidenced by the within Warrant, according to the terms and conditions thereof,
and chase price in full.
The undersigned requests that certificates for such shares and
warrants shall be issued in the name set forth below.
Dated: ____________________, 19__
_______________________________________
Signature
_______________________________________
Print Name of Signatory
_______________________________________(1)
Name to whom certificates
are to be issued if
different from above
_______________________________________
Address
_______________________________________
_______________________________________
Social Security No. or
other identifying number
<PAGE>
If said number of shares and warrants shall not be all the
shares purchasable under the within Warrant, the undersigned requests that a new
Warrant for the unexercised portion shall be registered in the name of:
_______________________________________(1)
(Please Print)
_______________________________________
Address
_______________________________________
_______________________________________
Social Security No. or
other identifying number
_______________________________________
Signature
_______________________________________
Print Name of Signatory
(1) If certificates for shares or unexercised portion of Warrant
are in name other than holder, Form of Assignment on reverse
must be completed.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED , hereby sells, assigns
and transfers to (Social Security or I.D. No. ) the within
Warrant, or that portion of this Warrant purchasable for _______ common shares
together with all rights, title and interest therein, and does hereby
irrevocably constitute and appoint ______________________ attorney to transfer
such Warrant on the register of the within named Company, with full power
of substitution.
_______________________________________
(Signature)
Dated: _____________________, 19__
Signature Guaranteed:
_______________________________________
OPTION AGREEMENT, granted April 1, 1997, between SPICE ENTERTAINMENT
COMPANIES, INC. (the "Company"), and [OPTIONEE] (the "Optionee").
RECITALS
Optionee is employed as the [TITLE] of the Company, pursuant to an
Employment Agreement effective as of January 1, 1997 (the "Employment
Agreement"). The Stock Option Committee of the Board of Directors of the Company
has allocated a pool of options for the Company's senior officers, to be tied to
theirs and the Company's performance.
In consideration of the Optionee's past and future services to the
Company, the Optionee hereby is granted, the right to purchase [# OF OPTIONS]
shares of its commons stock, par value $.01 per share (the "Common Shares").
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Option. In consideration of the foregoing, the
Company hereby grants Optionee the right and option (the "Option") to purchase
all or any part of an aggregate of 21,000 Common Shares on the terms and
conditions herein set forth.
2. Exercise Price. The purchase price of the Common Shares
subject to the Option shall be $2.125 per share, the fair market value of such
Common Shares as determined on the date hereof.
3. Limitation of Exercisability of Options.
3.1 The Option shall be exercisable as follows:
3.1.1 As to that portion of the Option to acquire
[1/2 # OF OPTIONS] Common Shares, the Option shall be
exercisable on the earlier of: (i) [EARLY VESTING CRITERIA]or (ii) in six years
from the date of grant if the Optionee is still employed as an officer by the
Company or an affiliate thereof.
3.1.2 As to that portion of the Option to acquire
[1/2 # OF OPTIONS] Common Shares, the Option shall be exercisable on the earlier
of (i) upon satisfaction of such conditions as shall be reasonably determined by
the Board of Directors and/or the Stock Option Committee, after the completion
of the Company's budget for 1998 or (ii) in six years from the date of grant if
the Optionee is still employed as an officer by the Company or an affiliate
thereof.
3.2 Any dispute relating to such determination shall be
settled by arbitration pursuant to Section 10 of the Employment Agreement with
such provision surviving termination of such agreement.
3.3 In the event that there is a "Change in Control" as
defined in the Employment Agreement or if the Employment Agreement is terminated
for any reason other than Cause (as that term is defined in the Employment
Agreement), all of the Common Shares covered hereby shall be immediately
exercisable.
3.4 Notwithstanding any provision of the Employment Agreement
to the contrary, if all or any portion of the Option is not exercisable on the
date the Optionee's employment is terminated by the Optionee or the Company for
any reason, such Option, or any portion thereof, shall not, as a consequence of
such termination become exercisable.
4. Expiration of Option. The Option shall not be exercisable
after March 31, 2007.
5. No Rights as Shareholder. The Optionee shall have none of the
rights of a stockholder with respect to any of the Common Shares subject to the
Option until such shares shall be issue to him upon the exercise of the Option.
6. Adjustments Upon Changes in Capitalization.
6.1 In the event that prior to the exercise of the Option in
full, the outstanding common stock of the Company is changed by reason of
reorganization, merger, consolidation recapitalization, reclassification, stock
split-up, combination of shares stock dividends or the like, an appropriate
adjustment shall be made by the Board of Directors in the number of shares and
option price per share subject to the unexercised portion of the Option. If the
Company shall be reorganized, consolidated or merged with another corporation,
or if all or substantially all of the assets of the Company shall be sold or
exchanged, the Optionee shall, at the time of issuance of the stock under such a
corporate event, be entitled to receive upon the exercise of his Option the same
number and kind of shares of stock or the same amount of property, cash or
securities as he would have been entitled to receive had Optionee been a holder
of the number of Common Shares covered by his Option immediate prior to such
event.
6.2 Any adjustment in the number of shares shall apply
proportionately to only the unexercised portion of the Option granted hereunder.
If fractions of a share would result from any such adjustment, the adjustment
shall be revised to the next lower whole number of shares.
7. Method of Exercise of Option.
7.1 Subject to the terms and conditions of this Agreement, the
Option may be exercise by written notice to the Company at its principal office,
presently located at 536 Broadway, New York, NY 10012, Attention: Secretary.
Such notice shall state the election to exercise the Option and the number of
Common Shares in respect of which it is being exercised, shall be signed by the
person or persons so exercising the Option and shall either be accompanied by
payment in full, by check payable to the order of the Company, of the purchase
price of said share in which event the Company shall deliver a certificate or
certificates representing said shares as soon as practicable after the notice
shall be received by the Company. The certificate or certificates for the Common
Shares as to which the option shall have been so exercised shall be registered
in the name of the person or person so exercising the Option and shall be
delivered as aforesaid to or upon the written order of the person or persons
exercising the Option.
7.2 In lieu of cash payment, with the consent of the Board of
Directors, the Optionee may elect to deliver either (i) a bank or certified
check equal to the aggregate par value of the Common Shares being purchased with
the balance of the purchase price therefore being paid in the form a Note for
such amount as approved by the Board or (ii) shares of the company's common
stock owned by the Optionee having a fair market value (determined in the sole
discretion of the Board of Directors) equal to such purchase price. The Option
shall be deemed to have been exercised with respect to any particular Common
Shares if, and only if, the preceding provision of this Section 7 and the
provision of Section 8 hereof shall have been complied with, in which event the
Option shall be deemed to have been exercised.
8. Registration Rights. Optionee (including any successor or
assign) shall have the registration rights set forth in Section 8(b) and 8(c) of
the Employment Agreement. Such provisions shall survive termination of the
Employment Agreement for any reason.
9. Restrictions on Issuance.
9.1 Unless prior to the exercise of the Option the Common
Shares issuable upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or agreement of the
individual exercising the Option of the Company to the effect that such shares
are being acquired for investment and not with a view to the resale or
distribution thereof or such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company, such representation,
agreement or documentation is not necessary to comply with said Act.
9.2 The Company shall be not obligated to issue and deliver
any Common Shares until they have been listed on each securities exchange on
which Common shares may then be listed nor until there has been a qualification
under or compliance with such state or federal laws, rules or regulations as the
Company may deem applicable. The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.
9.3 The Common Shares issued upon exercise of the Option
shall bear the following legend if required by counsel for the Company:
THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED
OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE
OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION
IS NOT REQUIRED.
10. Company Obligation. The Company shall at all times during the term
of the Option reserve and keep available such number of Common Shares as will be
sufficient to satisfy the requirement s of this Agreement, shall pay all
original issue and/or transfer taxes with respect to the issue and/or transfer
of shares by the Company pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith and will from time
to time use its best efforts to comply with all laws and regulations which in
the opinion of counsel for the Company shall be applicable thereto.
11. Transferability of Option. The Option shall not be
transferable.
12. Definition of Certain Terms. As used herein, the Optionee
shall include the individual named Optionee, as well as any successor or
assignees.
13. Governing Law. This Option Agreement shall be construed in
accordance with and governed by the laws of the State of New York.
14. Conflict. In the event of any conflict between the Plan
and the Option, the terms of the Plan shall take precedence.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officers thereunto duly authorized, and the Optionee has
hereunto set his hand and seal, all on the day and year first above written.
SPICE ENTERTAINMENT COMPANIES, INC.
ATTEST:
By:
_________________________________ ________________________________
Name: J. Roger Faherty Name:
Title: President and CEO Title:
AGREED TO AND ACCEPTED:
_________________________________
[OPTIONEE]
SPICE ENTERTAINMENT COMPANIES, INC. and SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
____________________________________________________________________________________________________________________________________
1997 1996 1997 1996
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary:
Earnings (loss) per share subject to primary earnings per share;
Income (loss) attributable to common stock from continuing
operations $1,811,000 ($1,451,000) $4,247,000 ($3,301,000)
Loss from discontinued operations - (193,000) - (169,000)
Income from extraordinary items - - 143,000 -
--------------- -------------- --------------- ---------------
Net Income (loss) attributable to common stock, subject to
earnings per share $1,811,000 ($1,644,000) $4,390,000 ($3,470,000)
=============== ============== =============== ===============
Weighted average number of common shares outstanding (1) 10,622,397 11,340,000 10,710,956 11,354,000
Issued common shares assuming that warrants and options
outstanding during that period were exercised 2,762,215 - 1,356,713 -
Common shares assumed to be repurchased with proceeds
from the exercise of warrants and options (2) (1,989,055) - (1,029,435) -
--------------- -------------- --------------- ---------------
Weighted average number of common shares and equivalents
outstanding 11,395,557 11,340,000 11,038,234 11,354,000
=============== ============== =============== ===============
From continuing operations $0.16 ($0.12) $0.39 ($0.30)
Discontinued operations - (0.02) - (0.01)
Extraordinary items - - 0.01 -
--------------- -------------- --------------- ---------------
Earning (loss) per share $0.16 ($0.14) $0.40 ($0.31)
=============== ============== =============== ===============
Fully Diluted:
Earnings (loss) per share subject to primary earnings per share;
Income (loss) from continuing operations $1,843,000 ($1,451,000) $4,387,000 ($3,301,000)
Income (loss) from discontinued operations - (193,000) - (169,000)
Income from extraordinary items - - 143,000 -
--------------- -------------- --------------- ---------------
Net Income (loss), subject to earnings per share $1,843,000 ($1,644,000) $4,530,000 ($3,470,000)
=============== ============== =============== ===============
Weighted average number of common shares outstanding (1) 10,622,397 11,340,000 10,710,956 11,354,000
Issued common shares assuming that warrants and options
outstanding during that period were exercised 2,816,615 - 3,016,615 -
Issued common shares assuming that preferred stock
outstanding during that period were exercised 826,984 - 826,984 -
from the exercise of warrants and options (2) (2,064,810) - (2,064,810) -
--------------- -------------- --------------- ---------------
Weighted average number of common shares and equivalents
outstanding 12,201,186 11,340,000 12,489,745 11,354,000
=============== ============== =============== ===============
From continuing operations $0.15 ($0.12) $0.35 ($0.30)
Discontinued operations - (0.02) - (0.01)
Extraordinary items - - 0.01 -
--------------- -------------- --------------- ---------------
Earning (loss) per share $0.15 ($0.14) $0.36 ($0.31)
=============== ============== =============== ===============
Notes to Primary Earnings per Share:
(1) Represents the number of common shares outstanding
during the period in connection with the treasury stock method.
(2) The common shares assumed to be repurchased under the
treasury stock method.
Notes to Fully Diluted Earnings per Share:
(1) Represents the number of common shares outstanding
during the period in connection with the treasury stock
method.
(2) The common shares assumed to be repurchased under the
treasury stock method.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,690,000
<SECURITIES> 0
<RECEIVABLES> 4,970,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,152,000
<PP&E> 7,480,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 32,631,000
<CURRENT-LIABILITIES> 11,136,000
<BONDS> 14,835,000
0
0
<COMMON> 113,000
<OTHER-SE> 9,474,000
<TOTAL-LIABILITY-AND-EQUITY> 32,631,000
<SALES> 0
<TOTAL-REVENUES> 25,939,000
<CGS> 0
<TOTAL-COSTS> 23,810,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,791,000
<INCOME-PRETAX> 4,774,000
<INCOME-TAX> 387,000
<INCOME-CONTINUING> 4,387,000
<DISCONTINUED> 0
<EXTRAORDINARY> 143,000
<CHANGES> 0
<NET-INCOME> 4,530,000
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.36
</TABLE>
