-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IxDyiaIyuVsrc7yoOs4YGDu9uUQeizy+gZsmV1mNVPAEBdHydM8x4TO5gYVNYP67 7ZtWCi2hf6kTJycKfnqVUw== 0001169232-06-003364.txt : 20060809 0001169232-06-003364.hdr.sgml : 20060809 20060809125820 ACCESSION NUMBER: 0001169232-06-003364 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060809 DATE AS OF CHANGE: 20060809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAYBOY ENTERPRISES INC CENTRAL INDEX KEY: 0001072341 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 364249478 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14790 FILM NUMBER: 061016315 BUSINESS ADDRESS: STREET 1: 680 NORTH LAKE SHORE DRIVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3127518000 MAIL ADDRESS: STREET 1: 680 NORTH LAKE SHORE DR CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: NEW PLAYBOY INC DATE OF NAME CHANGE: 19981020 10-Q 1 d68813_10-q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-14790 Playboy Enterprises, Inc. (Exact name of registrant as specified in its charter) Delaware 36-4249478 (State of incorporation) (I.R.S. Employer Identification Number) 680 North Lake Shore Drive Chicago, IL 60611 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (312) 751-8000 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 such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes |_| No |X| At July 31, 2006, there were 4,864,102 shares of Class A common stock and 28,302,525 shares of Class B common stock outstanding. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains "forward-looking statements," including statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, as to expectations, beliefs, plans, objectives and future financial performance, and assumptions underlying or concerning the foregoing. We use words such as "may," "will," "would," "could," "should," "believes," "estimates," "projects," "potential," "expects," "plans," "anticipates," "intends," "continues" and other similar terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which could cause our actual results, performance or outcomes to differ materially from those expressed or implied in the forward-looking statements. The following are some of the important factors that could cause our actual results, performance or outcomes to differ materially from those discussed in the forward-looking statements: (1) Foreign, national, state and local government regulation, actions or initiatives, including: (a) attempts to limit or otherwise regulate the sale, distribution or transmission of adult-oriented materials, including print, television, video and online materials, (b) limitations on the advertisement of tobacco, alcohol and other products which are important sources of advertising revenue for us, or (c) substantive changes in postal regulations or rates which could increase our postage and distribution costs; (2) Risks associated with our foreign operations, including market acceptance and demand for our products and the products of our licensees; (3) Our ability to manage the risk associated with our exposure to foreign currency exchange rate fluctuations; (4) Changes in general economic conditions, consumer spending habits, viewing patterns, fashion trends or the retail sales environment which, in each case, could reduce demand for our programming and products and impact our advertising revenues; (5) Our ability to protect our trademarks, copyrights and other intellectual property; (6) Risks as a distributor of media content, including our becoming subject to claims for defamation, invasion of privacy, negligence, copyright, patent or trademark infringement, and other claims based on the nature and content of the materials we distribute; (7) The risk our outstanding litigation could result in settlements or judgments which are material to us; (8) Dilution from any potential issuance of common or convertible preferred stock or convertible debt in connection with financings or acquisition activities; (9) Competition for advertisers from other publications, media or online providers or any decrease in spending by advertisers, either generally or with respect to the adult male market; (10) Competition in the television, men's magazine, Internet and product licensing markets; (11) Attempts by consumers or private advocacy groups to exclude our programming or other products from distribution; (12) Our television, Internet and wireless businesses' reliance on third parties for technology and distribution, and any changes in that technology and/or unforeseen delays in its implementation which might affect our plans and assumptions; (13) Risks associated with losing access to transponders and competition for transponders and channel space; (14) Failure to maintain our agreements with multiple system operators and direct-to-home operators on favorable terms, as well as any decline in our access to, and acceptance by, direct-to-home and/or cable systems and the possible resulting deterioration in the terms, cancellation of fee arrangements or pressure on splits with operators of these systems; (15) Risks that we may not realize the expected increased sales and profits and other benefits from acquisitions; (16) Any charges or costs we incur in connection with restructuring measures we may take in the future; (17) Risks associated with the financial condition of Claxson Interactive Group, Inc., our Playboy TV-Latin America, LLC, joint venture partner; (18) Increases in paper, printing or postage costs; (19) Risks associated with revenue guarantees under our cable distribution agreements; (20) Effects of the national consolidation of the single-copy magazine distribution system; and (21) Risks associated with the viability of our primarily subscription- and e-commerce-based Internet model. 2 PLAYBOY ENTERPRISES, INC. FORM 10-Q TABLE OF CONTENTS
Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Quarters Ended June 30, 2006 and 2005 (Unaudited) 4 Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2006 and 2005 (Unaudited) 5 Condensed Consolidated Balance Sheets at June 30, 2006 (Unaudited) and December 31, 2005 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (Unaudited) 7 Notes to Condensed Consolidated Financial Statements (Unaudited) 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 Item 4. Controls and Procedures 22 PART II OTHER INFORMATION Item 1. Legal Proceedings 23 Item 1A. Risk Factors 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits 24
3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PLAYBOY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) for the Quarters Ended June 30 (Unaudited) (In thousands, except per share amounts)
2006 2005 - -------------------------------------------------------------------------------------------------------- Net revenues $ 80,477 $ 82,871 - -------------------------------------------------------------------------------------------------------- Costs and expenses Cost of sales (65,567) (62,055) Selling and administrative expenses (14,257) (13,521) Restructuring expenses (1,906) - - -------------------------------------------------------------------------------------------------------- Total costs and expenses (81,730) (75,576) - -------------------------------------------------------------------------------------------------------- Gains on disposal 29 14 - -------------------------------------------------------------------------------------------------------- Operating income (loss) (1,224) 7,309 - -------------------------------------------------------------------------------------------------------- Nonoperating income (expense) Investment income 602 595 Interest expense (1,281) (1,412) Amortization of deferred financing fees (134) (133) Minority interest - (370) Other, net 50 (324) - -------------------------------------------------------------------------------------------------------- Total nonoperating expense (763) (1,644) - -------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (1,987) 5,665 Income tax expense (1,320) (1,025) - -------------------------------------------------------------------------------------------------------- Net income (loss) (3,307) 4,640 - -------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Unrealized loss on marketable securities (111) (46) Unrealized gain (loss) on derivatives (59) 46 Foreign currency translation gain (loss) 502 (84) - -------------------------------------------------------------------------------------------------------- Total other comprehensive income (loss) 332 (84) - -------------------------------------------------------------------------------------------------------- Comprehensive income (loss) $ (2,975) $ 4,556 ======================================================================================================== Weighted average number of common shares outstanding Basic 33,158 33,080 ======================================================================================================== Diluted 33,158 33,265 ======================================================================================================== Basic and diluted earnings (loss) per common share $ (0.10) $ 0.14 ========================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4 PLAYBOY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS for the Six Months Ended June 30 (Unaudited) (In thousands, except per share amounts)
2006 2005 - -------------------------------------------------------------------------------------------------------- Net revenues $ 162,597 $ 166,322 - -------------------------------------------------------------------------------------------------------- Costs and expenses Cost of sales (128,819) (121,331) Selling and administrative expenses (29,594) (26,788) Restructuring expenses (1,906) -- - -------------------------------------------------------------------------------------------------------- Total costs and expenses (160,319) (148,119) - -------------------------------------------------------------------------------------------------------- Gains on disposal 29 14 - -------------------------------------------------------------------------------------------------------- Operating income 2,307 18,217 - -------------------------------------------------------------------------------------------------------- Nonoperating income (expense) Investment income 1,209 782 Interest expense (2,709) (4,060) Amortization of deferred financing fees (268) (366) Minority interest -- (740) Debt extinguishment expenses -- (19,280) Other, net (146) (800) - -------------------------------------------------------------------------------------------------------- Total nonoperating expense (1,914) (24,464) - -------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 393 (6,247) Income tax expense (2,911) (2,232) - -------------------------------------------------------------------------------------------------------- Net loss (2,518) (8,479) - -------------------------------------------------------------------------------------------------------- Other comprehensive income (loss) Unrealized gain (loss) on marketable securities 9 (71) Unrealized gain (loss) on derivatives (61) 257 Foreign currency translation gain 417 192 - -------------------------------------------------------------------------------------------------------- Total other comprehensive income 365 378 - -------------------------------------------------------------------------------------------------------- Comprehensive loss $ (2,153) $ (8,101) ======================================================================================================== Weighted average number of common shares outstanding Basic and diluted 33,149 33,216 ======================================================================================================== Basic and diluted loss per common share $ (0.08) $ (0.26) ========================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 5 PLAYBOY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
(Unaudited) June 30, Dec. 31, 2006 2005 - -------------------------------------------------------------------------------------------------------- Assets Cash and cash equivalents $ 25,556 $ 26,089 Marketable securities and short-term investments 15,308 25,963 Receivables, net of allowance for doubtful accounts of $4,102 and $3,883, respectively 38,477 46,296 Receivables from related parties 1,475 1,928 Inventories, net 12,554 12,846 Deferred subscription acquisition costs 9,767 10,452 Other current assets 9,354 8,761 - -------------------------------------------------------------------------------------------------------- Total current assets 112,491 132,335 - -------------------------------------------------------------------------------------------------------- Property and equipment, net 14,814 13,771 Long-term receivables 2,777 2,628 Programming costs, net 56,340 52,683 Goodwill 133,056 122,448 Trademarks 62,055 61,139 Distribution agreements, net of accumulated amortization of $2,945 and $2,779, respectively 30,196 30,362 Other noncurrent assets 15,844 13,603 - -------------------------------------------------------------------------------------------------------- Total assets $ 427,573 $ 428,969 ======================================================================================================== Liabilities Acquisition liabilities $ 12,074 $ 11,782 Accounts payable 24,919 25,429 Accrued salaries, wages and employee benefits 5,449 10,068 Deferred revenues 44,285 45,987 Accrued litigation settlement -- 1,000 Other liabilities and accrued expenses 16,274 16,396 - -------------------------------------------------------------------------------------------------------- Total current liabilities 103,001 110,662 - -------------------------------------------------------------------------------------------------------- Financing obligations 115,000 115,000 Acquisition liabilities 15,041 11,792 Net deferred tax liabilities 19,706 17,555 Other noncurrent liabilities 16,291 16,713 - -------------------------------------------------------------------------------------------------------- Total liabilities 269,039 271,722 - -------------------------------------------------------------------------------------------------------- Shareholders' equity Common stock, $0.01 par value Class A voting - 7,500,000 shares authorized; 4,864,102 issued 49 49 Class B nonvoting - 75,000,000 shares authorized; 28,680,804 and 28,643,443 issued, respectively 287 286 Capital in excess of par value 226,976 223,537 Accumulated deficit (62,494) (59,976) Treasury stock, at cost, 381,971 shares (5,000) (5,000) Accumulated other comprehensive loss (1,284) (1,649) - -------------------------------------------------------------------------------------------------------- Total shareholders' equity 158,534 157,247 - -------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 427,573 $ 428,969 ========================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 6 PLAYBOY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS for the Six Months Ended June 30 (Unaudited) (In thousands)
2006 2005 - -------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net loss $ (2,518) $ (8,479) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation of property and equipment 1,827 1,542 Amortization of intangible assets 612 868 Amortization of investments in entertainment programming 17,561 18,968 Amortization of deferred financing fees 268 366 Debt extinguishment expenses -- 19,280 Deferred income taxes 2,151 498 Net change in operating assets and liabilities 1,275 (207) Investments in entertainment programming (19,545) (15,984) Litigation settlement (1,000) (1,875) Stock-based compensation 1,794 74 Other, net 1,275 363 - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 3,700 15,414 - -------------------------------------------------------------------------------------------------------- Cash flows from investing activities Payments for acquisitions (7,761) -- Purchases of investments (267) (34,107) Proceeds from sales of investments 11,000 18,700 Additions to property and equipment (2,826) (2,164) Other, net (95) - - -------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities 51 (17,571) - -------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from financing obligations -- 115,000 Repayment of financing obligations -- (80,000) Payment of debt extinguishment expenses -- (15,197) Payment of acquisition liabilities (4,511) (4,558) Purchase of treasury stock -- (5,000) Payment of deferred financing fees -- (4,040) Proceeds from stock-based compensation 227 784 Other, net -- (39) - -------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities (4,284) 6,950 - -------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (533) 4,793 Cash and cash equivalents at beginning of period 26,089 26,668 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 25,556 $ 31,461 ========================================================================================================
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 7 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (A) BASIS OF PREPARATION The financial information included in these financial statements is unaudited but, in the opinion of management, reflects all normal recurring and other adjustments necessary for a fair presentation of the results for the interim periods. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows for the entire year. These financial statements should be read in conjunction with the financial statements and notes to the financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Certain amounts reported for the prior periods have been reclassified to conform to the current year's presentation. (B) RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on description, classification, interest and penalties, accounting in interim periods, disclosure and transition. We are required to adopt FIN 48 effective at the beginning of 2007. We are currently evaluating the impact of adopting FIN 48 on our future results of operations and financial condition. In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity to choose either the amortization method or fair value method for each class of separately recognized servicing assets and servicing liabilities. At June 30, 2006, we did not have any financial assets or liabilities relating to servicing rights subject to Statement 156. We are required to adopt Statement 156 effective at the beginning of 2007. We do not expect the adoption of Statement 156 to have a significant impact on our future results of operations or financial condition. In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments, or Statement 155. Statement 155 resolves issues addressed in FASB Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. Amongst other things, it permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. At June 30, 2006, we did not have any hybrid financial instruments subject to the fair value election under Statement 155. We are required to adopt Statement 155 effective at the beginning of 2007. We do not expect the adoption of Statement 155 to have a significant impact on our future results of operations or financial condition. (C) RESTRUCTURING EXPENSES In the current quarter, we implemented a cost reduction plan that reduces our annual programming and editorial investments while also lowering other discretionary expenses. As a result of this 2006 restructuring plan, we reported a charge of $2.1 million related to costs associated with a workforce reduction of 15 employees. We reduced our 2002 restructuring plan estimate by $0.3 million and recorded an additional charge of $0.1 million related to our 2001 restructuring plan in the current quarter as a result of changes in assumptions related to leased space. In the fourth quarter of 2005, we recorded an additional charge of $0.1 million related to our 2002 restructuring plan as a result of changes in assumptions related to leased space. During the six-month period ended June 30, 2006, we made cash payments of $0.3 million related to our 2002 restructuring plan. Of the total costs related to our restructuring plans, approximately $10.3 million was paid by June 30, 2006, with the remaining $2.8 million to be paid through 2007. 8 The following table sets forth the activity and balances of our restructuring reserves for the year ended December 31, 2005 and for the six-month period ended June 30, 2006 (in thousands):
Consolidation of Facilities Workforce and Reduction Operations Total - ----------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2004 $ 179 $ 1,827 $ 2,006 Adjustments to previous estimates 17 132 149 Cash payments (196) (749) (945) - ----------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2005 -- 1,210 1,210 Reserve recorded 2,108 -- 2,108 Adjustments to previous estimates -- (202) (202) Cash payments -- (294) (294) - ----------------------------------------------------------------------------------------------------------------------- Balance at June 30, 2006 $ 2,108 $ 714 $ 2,822 =======================================================================================================================
(D) EARNINGS PER COMMON SHARE The following table sets forth the computations of basic and diluted earnings (loss) per share, or EPS (in thousands, except per share amounts):
Quarters Ended June 30, ----------------------- 2006 2005 - ---------------------------------------------------------------------------------------------------------------------- Numerator: For basic and diluted EPS - net income (loss) $ (3,307) $ 4,640 ====================================================================================================================== Denominator: For basic EPS - weighted average shares 33,158 33,080 Effect of dilutive potential common shares: Employee stock options and other -- 185 - ---------------------------------------------------------------------------------------------------------------------- Dilutive potential common shares -- 185 - ---------------------------------------------------------------------------------------------------------------------- For diluted EPS - weighted average shares 33,158 33,265 ====================================================================================================================== Basic and diluted EPS $ (0.10) $ 0.14 ======================================================================================================================
The computations of basic and diluted EPS for the six-month periods ended June 30, 2006 and 2005, were excluded as both periods resulted in a net loss, and therefore, potential common shares would have been antidilutive. The following table sets forth the number of shares related to outstanding options to purchase our Class B common stock, or Class B stock, and the potential shares of Class B stock contingently issuable under our 3.00% convertible senior subordinated notes due 2025, or convertible notes. These shares were not included in the computations of diluted EPS for the quarters and six-month periods ended June 30, 2006 and 2005, as their inclusion would have been antidilutive (in thousands):
Quarters Ended Six Months Ended June 30, June 30, ---------------------------------------------- 2006 2005 2006 2005 - --------------------------------------------------------------------------------------------------------------------- Stock options 3,975 1,982 3,192 2,864 Convertible notes 6,758 6,758 6,758 6,758 - --------------------------------------------------------------------------------------------------------------------- Total 10,733 8,740 9,950 9,622 =====================================================================================================================
9 (E) INVENTORIES, NET Inventories, net, which are stated at the lower of cost (specific cost and average cost) or fair value, consisted of the following (in thousands): June 30, Dec. 31, 2006 2005 - ------------------------------------------------------------------------------- Paper $ 3,310 $ 3,939 Editorial and other prepublication costs 6,533 6,529 Merchandise finished goods 2,711 2,378 - ------------------------------------------------------------------------------- Total inventories, net $ 12,554 $ 12,846 =============================================================================== (F) INCOME TAXES Our income tax provision consists of foreign income tax, which relates to our international networks and withholding tax on licensing income for which we do not receive a current U.S. income tax benefit due to our net operating loss position. Our income tax provision also includes deferred federal and state income taxes related to the amortization of goodwill and other indefinite-lived intangibles, which cannot be offset against deferred tax assets due to the indefinite reversal period of the deferred tax liabilities. (G) CONTINGENCIES In 2002, a $4.4 million verdict was entered against us by a state trial court in Texas in a lawsuit with a former publishing licensee. We terminated the license in 1998 due to the licensee's failure to pay royalties and other amounts due us under the license agreement. We vigorously pursued an appeal with the State Appellate Court sitting in Corpus Christi challenging the verdict. We have posted a bond in the amount of approximately $9.4 million, which represents the amount of the judgment, costs and estimated pre- and post-judgment interest, in connection with the appeal. On May 25, 2006, the State Appellate Court reversed the judgment by the trial court, rendered judgment for us on the majority of the plaintiffs' claims and remanded the remaining claims for a new trial. On July 14, 2006, the plaintiffs filed a motion for rehearing and en banc reconsideration, which we are opposing. We, on advice of legal counsel, believe that it is not probable that a material judgment against us will be obtained. In accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, no liability has been accrued. In 2003, we recorded $8.5 million for the settlement of the Logix litigation, which related to events prior to our 1999 acquisition of Spice. We made payments of $1.0 million, $1.0 million and $6.5 million in 2006, 2005 and 2004, respectively, and have no further obligations under the settlement. In the third quarter of 2005, we acquired an affiliate network of websites to complement our existing online business. We paid $8.3 million at closing, which included $8.0 million for the initial purchase price and $0.3 million of acquisition-related costs. Additional payments of $2.0 million are required in each of 2006 and 2007. Pursuant to the asset purchase agreement, we are also obligated to make future contingent earnout payments over a five-year period based primarily on the financial performance of the acquired business. If the required performance benchmarks are achieved, any contingent earnout payments will be recorded as additional purchase price and/or compensation expense. As of June 30, 2006, an earnout payment of approximately $0.1 million was made and recorded as additional purchase price. Late in the current quarter of 2006, we acquired a multi-media adult entertainment business to complement our existing television and online businesses. As the pro forma results would not be materially different from actual results, they are not presented. We paid $7.7 million at closing with additional payments of $1.6 million, $1.7 million, $2.3 million and $4.3 million required in 2007, 2008, 2009 and 2010, respectively. Pursuant to the acquisition agreement, we are also obligated to make future contingent earnout payments based primarily on sales of existing content of the acquired business over a ten-year period after the closing of the acquisition and based on content produced by the acquired business during the five-year period after the closing of the acquisition. As of June 30, 2006, no earnout payments have been made. 10 (H) STOCK-BASED COMPENSATION On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or Statement 123(R), which is a revision of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, or Statement 123, under the modified prospective method. Statement 123(R) supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and amends Statement of Financial Accounting Standards No. 95, Statement of Cash Flows. Statement 123(R) requires that all stock-based compensation to employees, including grants of employee stock options, be recognized in the income statement based on its fair value. Under the modified prospective method, results for prior periods have not been restated. Stock-based compensation expense for the quarter and six-month period ended June 30, 2006, is based on awards ultimately expected to vest, reduced for estimated forfeitures. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. In our pro forma information required under Statement 123 for the periods prior to fiscal 2006, we accounted for forfeitures as they occurred. Under the fair value recognition provisions of Statement 123(R), we measure stock-based compensation cost at the grant date based on the value of the award and recognize the expense over the vesting period. Compensation expense for all stock-based payment awards granted prior to and subsequent to January 1, 2006, is recognized using the straight-line attribution method. Stock-based compensation expense is reflected in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) in selling and administrative expenses and the proceeds are reflected in our Condensed Consolidated Statements of Cash Flows in proceeds from stock-based compensation. We have stock plans for key employees and nonemployee directors, which provide for the grant of nonqualified and incentive stock options and/or shares of restricted stock units, deferred stock and other performance-based equity awards in our Class B stock. The Compensation Committee of the Board of Directors, which is composed entirely of independent nonemployee directors, administers all the plans. These plans are designed to further our growth, development and financial success by providing key employees with strong additional incentives to maximize long-term stockholder value. The Compensation Committee believes that this objective can be best achieved through assisting key employees to become owners of our stock, which aligns their interests with our interests. As stockholders, key employees will benefit directly from our growth, development and financial success. These plans also enable us to attract and retain the services of those executives whom we consider essential to our long-range success by providing these executives with a competitive compensation package and an opportunity to become owners of our stock. At June 30, 2006, we had 387,861 shares of our Class B stock available for grant under these plans. Stock options, exercisable for shares of Class B stock, generally vest over a two- to four-year period from the grant date and expire ten years from the grant date. It is our policy that options are priced based on the closing price on the day prior to the date of grant. Restricted stock unit grants provide for the issuance of Class B stock if three-year cumulative operating income target thresholds are met. If the operating income minimum threshold is not obtained, the restricted stock units for that grant are forfeited. One of our stock plans pertaining to nonemployee directors also allows for the issuance or deferral of Class B stock as awards and payments for retainer, committee and meeting fees. Finally, we also have an Employee Stock Purchase Plan that provides substantially all regular full- and part-time employees an opportunity to purchase shares of our Class B stock through payroll deductions. The funds are withheld and then used to acquire stock on the last trading day of each quarter, based on that day's closing price less a 15% discount. Employee Stock Purchase Plan expense is reflected in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) in selling and administrative expenses and the proceeds are reflected in our Condensed Consolidated Statements of Cash Flows in proceeds from stock-based compensation. At June 30, 2006, we had 9,152 shares of our Class B stock available for purchase under this plan. 11 Valuation Information Upon adoption of Statement 123(R), we began estimating the value of stock options on the date of grant using a Lattice Binomial model, or Lattice model. Prior to the adoption of Statement 123(R), the value of each employee stock option was estimated on the date of grant using the Black-Scholes model for the purpose of pro forma financial information in accordance with Statement 123. The Lattice model requires extensive analysis of actual exercise behavior data and a number of complex assumptions including expected volatility, risk-free interest rate, expected dividends and option cancellations. The following assumptions were used for the Lattice model in 2006 and the Black-Scholes model in 2005:
Quarters Ended Six Months Ended June 30, June 30, ------------------------------- ------------------------------ 2006 2005 2006 2005 - --------------------------------------------------------------------------------------------------------- Expected volatility 38% 46% 38% 46% Risk-free interest rate 4.32% - 4.51% 3.80% 4.32% - 4.51% 3.80% - 4.18% Expected dividends -- -- -- -- - ---------------------------------------------------------------------------------------------------------
The expected life of stock options represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the Lattice model. The expected life of stock options is impacted by all of the underlying assumptions and calibration of the Lattice model. The Lattice model assumes that exercise behavior is a function of the option's remaining vested life and the extent to which the option's fair value exceeds the exercise price. The Lattice model estimates the probability of exercise as a function of these two variables based upon the entire history of exercises and cancellations on all past option grants. The weighted average expected life for options granted during the first quarter of 2006 using the Lattice model was 5.8 years. There were no options granted in the current quarter. The weighted average expected life for options granted during the prior year quarter and six-month period using the Black-Scholes model was 6.0 years. The weighted average fair value per share for stock options granted during the first quarter of 2006 was $6.40 using the Lattice model, and the weighted average fair value per share for stock options granted during the prior year quarter and six-month period was $5.84 and $5.98, respectively, using the Black-Scholes model. Stock Option Activity This table sets forth stock option activity for the six-month period ended June 30, 2006:
Weighted Average Shares Exercise Price - ----------------------------------------------------------------------- ------------------------- Class A Class B Class A Class B - ----------------------------------------------------------------------- ------------------------- Outstanding at December 31, 2005 - 3,374,135 $ - $ 15.85 Granted - 670,500 - 14.50 Exercised - (13,666) - 10.84 Canceled - (149,220) - 14.20 - ----------------------------------------------------------------------- Outstanding at June 30, 2006 - 3,881,749 $ - $ 15.70 ======================================================================= -------------------------
12 At June 30, 2006, the weighted average remaining contractual lives of options outstanding and options exercisable were 6.1 years and 4.8 years, respectively. At June 30, 2006, the number of options exercisable and the weighted average exercise price of options exercisable were 2,759,083 and $16.54, respectively. There were no options granted or exercised in the current quarter. However, for the six-month period ended June 30, 2006, we had proceeds of $0.1 million from exercises of stock options. There was no aggregate intrinsic value for options granted in the six-month period ended June 30, 2006, since the closing price of our Class B stock on that date was less than the exercise price on the date of grant. The aggregate intrinsic value for options exercised during the six-month period ended June 30, 2006, was approximately $0.1 million. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2006, was $1 thousand. The aggregate intrinsic value for options granted during the quarter and six-month period ended June 30, 2005, was $2 thousand and $0.7 million, respectively. The aggregate intrinsic value for options exercised during the quarter and six-month period ended June 30, 2005, was $0.1 million and $0.4 million, respectively. As a result of adopting Statement 123(R) on January 1, 2006, our income (loss) from continuing operations before income taxes, income (loss) from continuing operations and net income (loss) for the quarter and six-month period ended June 30, 2006, were $0.8 million and $1.5 million lower, respectively, than if we had continued to account for stock-based compensation under APB 25. Basic and diluted EPS for the quarter and six-month period ended June 30, 2006, were $0.02 and $0.05 lower, respectively, than if we had continued to account for stock-based compensation under APB 25. The following table sets forth stock-based compensation expense related to stock options and to our Employee Stock Purchase Plan for the current quarter and six-month period and pro forma amounts for the prior year quarter and six-month period (in thousands, except per share amounts):
Quarters Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2006 2005 2006 2005 - ---------------------------------------------------------------------------------------------------------------- Stock options $ 796 $ 718 $ 1,505 $ 1,422 Employee stock purchase plan 8 -- 14 -- - ---------------------------------------------------------------------------------------------------------------- Total $ 804 $ 718 $ 1,519 $ 1,422 ================================================================================================================ Net income (loss) As reported $ (3,307) $ 4,640 $ (2,518) $ (8,479) Fair value of stock-based compensation excluded from net income, gross (718) (1,422) ----------- ----------- Pro forma $ 3,922 $ (9,901) =========== =========== Basic and diluted EPS As reported $ (0.10) $ 0.14 $ (0.08) $ (0.26) Pro forma $ 0.12 $ (0.30) - ----------------------------------------------------------------------------------------------------------------
As of June 30, 2006, there was $5.2 million of unrecognized stock-based compensation expense related to non-vested stock options, which will be recognized over a weighted average period of 1.5 years. 13 Restricted Stock Unit Activity At June 30, 2006, we had 488,000 restricted stock units outstanding, none of which were vested, and all of which were performance-based restricted stock awards contingent upon meeting certain performance goals. Weighted Average Number of Grant-Date Shares Fair Value - -------------------------------------------------------------------------------- Outstanding at December 31, 2005 319,000 $ 13.07 Granted 188,500 14.51 Canceled (19,500) 13.16 - -------------------------------------------------------------- Outstanding at June 30, 2006 488,000 $ 13.62 ================================================================================ Stock-based compensation expense related to restricted stock units was $0.2 million and $0.4 million for the quarters ended June 30, 2006 and 2005, respectively, and $0.2 million and $0.7 million for the six-month periods ended June 30, 2006 and 2005, respectively. As of June 30, 2006, there was $2.1 million of unrecognized stock-based compensation expense related to non-vested restricted stock units, which will be recognized over a weighted average period of 1.6 years. Employee Stock Purchase Plan Activity The Employee Stock Purchase Plan had minimal impact on our expenses as a result of the adoption of Statement 123(R). Income Taxes On November 10, 2005, the FASB issued Staff Position No. 123(R)-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards, or Staff Position 123(R)-3. We have elected to adopt the alternative transition method provided in Staff Position 123(R)-3 for calculating the tax effects of stock-based compensation pursuant to Statement 123(R). The alternative transition method simplifies the calculation of the beginning balance of the additional paid-in-capital pool, or APIC pool, related to the tax effect of employee stock-based compensation. This method also has subsequent impact on the APIC pool and Condensed Consolidated Statements of Cash Flows relating to the tax effects of employee stock-based compensation awards that are outstanding upon adoption of Statement 123(R). Under Statement 123(R), the income tax effects of share-based payments are recognized for financial reporting purposes only if such awards would result in deductions on our income tax returns. The settlement of share-based payments to date that would have resulted in an excess tax benefit would have increased our existing net operating loss, or NOL, carry forward. Under Statement 123(R), no excess tax benefits resulting from the settlement of a share payment can result in a tax deduction before realization of the tax benefit, i.e., the recognition of excess tax benefits cannot be recorded until the excess benefit reduces current income taxes payable. Additionally, as a result of our existing NOL carry forward position, no tax benefit relating to share-based payments has been recorded for the quarter and six-month period ended June 30, 2006. (I) BENEFIT PLANS We currently maintain a practice of paying a separation allowance under our salary continuation policy to employees with at least five years of continuous service who voluntarily terminate employment with us and are at age 60 or thereafter. For the quarter and six-month period ended June 30, 2006, payments made under this policy were $0.1 million and $0.2 million, respectively. 14 (J) SEGMENT INFORMATION (1) The following table sets forth financial information by reportable segment (in thousands):
Quarters Ended Six Months Ended June 30, June 30, ---------------------- ----------------------- 2006 2005 2006 2005 - ------------------------------------------------------------------------------------------------------------------- Net revenues Entertainment $ 47,545 $ 48,908 $ 98,722 $ 99,390 Publishing 23,790 25,530 47,285 52,534 Licensing 9,142 8,433 16,590 14,398 - ------------------------------------------------------------------------------------------------------------------- Total $ 80,477 $ 82,871 $ 162,597 $ 166,322 =================================================================================================================== Income (loss) before income taxes Entertainment $ 4,881 $ 9,866 $ 12,754 $ 21,686 Publishing (1,752) (2,356) (4,049) (2,740) Licensing 4,076 3,929 8,422 7,607 Corporate Administration and Promotion (6,552) (4,144) (12,943) (8,350) Restructuring expenses (1,906) -- (1,906) -- Gains on disposal 29 14 29 14 Investment income 602 595 1,209 782 Interest expense (1,281) (1,412) (2,709) (4,060) Amortization of deferred financing fees (134) (133) (268) (366) Minority interest -- (370) -- (740) Debt extinguishment expenses -- -- -- (19,280) Other, net 50 (324) (146) (800) - ------------------------------------------------------------------------------------------------------------------ Total $ (1,987) $ 5,665 $ 393 $ (6,247) =================================================================================================================== June 30, Dec. 31, 2006 2005 - ------------------------------------------------------------------------------------------------------------------- Identifiable assets Entertainment $ 286,343 $ 274,473 Publishing 34,415 38,833 Licensing 8,448 7,539 Corporate Administration and Promotion 98,367 108,124 - ------------------------------------------------------------------------------------------------------------------- Total $ 427,573 $ 428,969 ===================================================================================================================
(1) Certain amounts reported for the prior periods have been reclassified to conform to the current year's presentation. (K) SUBSEQUENT EVENT On August 4, 2006, the Sixth Amendment to our Chicago lease, or the Sixth Amendment, with Golub LSP Investors, LP was signed. The Sixth Amendment was effective May 1, 2006, and extends our lease through August 31, 2022. Our current lease was to expire August 31, 2007. This space serves as our corporate headquarters and is used by all of our operating groups and executive and administrative personnel. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes and with our Annual Report on Form 10-K for the year ended December 31, 2005. All period references are to our fiscal periods unless otherwise indicated. RESULTS OF OPERATIONS (1) The following table sets forth our results of operations (in millions, except per share amounts):
Quarters Ended Six Months Ended June 30, June 30, --------------------------- --------------------------- 2006 2005 2006 2005 - --------------------------------------------------------------------------------------------------------------------------------- Net revenues Entertainment Domestic TV $ 20.9 $ 24.9 $ 43.2 $ 50.1 International 13.2 11.9 27.0 25.3 Online subscriptions and e-commerce 11.4 10.8 24.6 21.8 Other 2.0 1.3 3.9 2.2 - --------------------------------------------------------------------------------------------------------------------------------- Total Entertainment 47.5 48.9 98.7 99.4 - --------------------------------------------------------------------------------------------------------------------------------- Publishing Playboy magazine 20.2 22.1 39.4 45.0 Special editions and other 2.0 1.9 4.6 4.2 International publishing 1.6 1.5 3.3 3.3 - --------------------------------------------------------------------------------------------------------------------------------- Total Publishing 23.8 25.5 47.3 52.5 - --------------------------------------------------------------------------------------------------------------------------------- Licensing International licensing 5.6 4.7 11.1 9.2 Domestic licensing 1.3 1.2 2.6 2.5 Marketing events 2.3 2.4 2.5 2.6 Other -- 0.1 0.4 0.1 - --------------------------------------------------------------------------------------------------------------------------------- Total Licensing 9.2 8.4 16.6 14.4 - --------------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 80.5 $ 82.8 $ 162.6 $ 166.3 ================================================================================================================================= Net income (loss) Entertainment Before programming amortization and online content expenses $ 15.2 $ 20.0 $ 32.5 $ 41.7 Programming amortization and online content expenses (10.3) (10.2) (19.7) (20.0) - --------------------------------------------------------------------------------------------------------------------------------- Total Entertainment 4.9 9.8 12.8 21.7 - --------------------------------------------------------------------------------------------------------------------------------- Publishing (1.8) (2.3) (4.1) (2.7) - --------------------------------------------------------------------------------------------------------------------------------- Licensing 4.1 4.0 8.4 7.6 - --------------------------------------------------------------------------------------------------------------------------------- Corporate Administration and Promotion (6.5) (4.2) (12.9) (8.4) - --------------------------------------------------------------------------------------------------------------------------------- Segment income 0.7 7.3 4.2 18.2 Restructuring expenses (1.9) -- (1.9) -- - --------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) (1.2) 7.3 2.3 18.2 - --------------------------------------------------------------------------------------------------------------------------------- Nonoperating income (expense) Investment income 0.6 0.6 1.2 0.8 Interest expense (1.3) (1.5) (2.7) (4.1) Amortization of deferred financing fees (0.2) (0.2) (0.3) (0.4) Minority interest -- (0.3) -- (0.7) Debt extinguishment expenses -- -- -- (19.3) Other, net 0.1 (0.2) (0.1) (0.7) - --------------------------------------------------------------------------------------------------------------------------------- Total nonoperating expense (0.8) (1.6) (1.9) (24.4) - --------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (2.0) 5.7 0.4 (6.2) Income tax expense (1.3) (1.1) (2.9) (2.3) - --------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ (3.3) $ 4.6 $ (2.5) $ (8.5) ================================================================================================================================= Basic and diluted earnings (loss) per common share $ (0.10) $ 0.14 $ (0.08) $ (0.26) =================================================================================================================================
(1) Certain amounts reported for the prior periods have been reclassified to conform to the current year's presentation. 16 Our revenues decreased $2.3 million, or 3%, and $3.7 million, or 2%, for the quarter and six-month period, respectively, primarily due to expected lower revenues from our Publishing and Entertainment Groups, partially offset by higher revenues from our Licensing Group. Segment income decreased $6.6 million, or 91%, and $14.0 million, or 77%, for the quarter and six-month period, respectively, primarily due to lower results from our Entertainment Group and higher Corporate Administration and Promotion expenses. The six-month comparison also was impacted by expected lower results from our Publishing Group, partially offset by improved results from our Licensing Group. Our segment income also was impacted by $0.8 million and $1.5 million for the quarter and six-month period, respectively, of stock option expense as a result of our implementation of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, at the beginning of 2006. The operating loss of $1.2 million for the quarter and operating income of $2.3 million for the six-month period included $1.9 million of restructuring expenses primarily related to a cost reduction plan we implemented during the current quarter. The net loss of $3.3 million for the quarter was $7.9 million unfavorable compared to the prior year period as a result of the lower operating results discussed above. The net loss of $2.5 million for the six-month period was a $6.0 million improvement over the prior year period as the lower operating results previously discussed were more than offset by debt extinguishment expense of $19.3 million in the prior year and a $1.4 million decrease in interest expense in the current year. Several of our businesses may experience variations in quarterly performance. As a result, our performance in any quarter is not necessarily reflective of full-year or longer-term trends. Playboy magazine newsstand revenues vary from issue to issue, with revenues generally higher for holiday issues and any issues including editorial or pictorial features that generate additional public interest. Advertising revenues also vary from quarter to quarter depending on economic conditions, holiday issues and changes in advertising buying patterns. Online subscription revenues and operating results are impacted by decreased Internet traffic during the summer months and e-commerce revenues and operating results are typically strongest in the fourth quarter due to the holiday buying season. ENTERTAINMENT GROUP The following discussion focuses on the revenue and profit contribution before programming amortization and online content expenses of each of our Entertainment Group businesses. Revenues from our domestic TV business decreased $4.0 million, or 16%, and $6.9 million, or 14%, for the quarter and six-month period, respectively. Movie network revenues decreased $2.0 million and $3.7 million for the quarter and six-month period, respectively, primarily due to a decrease in pay-per-view, or PPV, buys as a result of DirecTV, the satellite provider that currently generates the largest portion of our domestic TV revenues, reducing our channel carriage. A new contract with DirecTV is currently under negotiation, however, we expect the loss of carriage will continue to unfavorably impact domestic TV revenues and profitability. The decline was partially offset by adjustments to previously estimated revenues during the current quarter. Playboy TV network revenues decreased $1.8 million and $2.7 million for the quarter and six-month period, respectively, as the prior year periods were favorably impacted by the discontinuation of a distributor's high-definition subscription service agreement, which resulted in the accelerated recognition of $1.4 million of deferred revenues associated with the agreement. Cable revenues decreased $0.5 million and $1.5 million for the quarter and six-month period, respectively, due to decreases in PPV buys for both periods. These decreases were partially offset by increases in monthly subscription revenues for both periods. Revenues from video-on-demand, or VOD, decreased $0.5 million and $0.9 million for the quarter and six-month period, respectively, primarily due to a decrease in buys and adjustments to previously estimated revenues. The decreases in Playboy TV and movie network PPV buys were also impacted by consumers migrating from linear channels to VOD. We continue to expect this trend to negatively impact our networks as we have less shelf space in the VOD environment than in the linear network environment. We also expect Playboy TV to be favorably impacted by the launch of our monthly subscription service with an on-demand component. Revenues associated with our studio facility increased $0.3 million and $0.4 million for the quarter and six-month period, respectively, primarily due to the addition of new clients. Direct-to-home, or DTH, revenues increased $0.3 million and $0.4 million for the quarter and six-month period, respectively, primarily due to increased monthly 17 subscriptions. Profit contribution from our domestic TV business decreased $6.1 million and $10.8 million for the quarter and six-month period, respectively, as a result of the lower revenues previously discussed combined with increased expenses largely due to marketing, revenue sharing and staffing. International revenues increased $1.3 million, or 11%, and $1.7 million, or 7%, for the quarter and six-month period, respectively. International television revenues increased $1.0 million for the quarter primarily due to increased DTH and cable revenues from our U.K. networks combined with favorable foreign currency exchange rate fluctuations. International television revenues increased $1.9 million for the six-month period primarily as a result of increased DTH and cable revenues from our U.K. networks, partially offset by unfavorable foreign currency exchange rate fluctuations and lower revenues from several third-party network licensees. International online and wireless revenues increased $0.3 million for the quarter and decreased $0.2 million for the six-month period. International profit contribution was flat for the quarter and increased $0.4 million for the six-month period principally due to the higher revenues previously discussed, offset by increased television network distribution expenses, in part related to our additional networks, and increased marketing expenses. Online subscriptions and e-commerce revenues increased $0.6 million, or 6%, and $2.8 million, or 13%, for the quarter and six-month period, respectively, primarily due to our acquisition of an affiliate network of websites late in the third quarter of the prior year, partially offset by a decrease in revenues from our existing sites. The prior year periods were also favorably impacted by a $1.2 million payment we received due to the discontinuation of a marketing alliance. Costs associated with the acquired websites and increased investments in technology and marketing initiatives more than offset the increases in revenues. Revenues from other businesses increased $0.7 million, or 47%, and $1.7 million, or 74%, for the quarter and six-month period, respectively, primarily due to advertising revenues from the acquired websites combined with revenues from the current-year launch of Playboy Radio on SIRIUS Satellite Radio. Profit contribution was flat and increased $0.6 million for the quarter and six-month period, respectively, primarily due to the revenue increases previously discussed. Both periods were impacted by costs associated with our acquired websites as well as project development. The group's administrative expenses decreased $1.7 million and $2.4 million for the quarter and six-month period, respectively. These decreases were primarily due to the elimination of our intra-company agreements related to trademark, content and administrative fees that had been paid by Playboy.com, Inc., or Playboy.com, to us as a result of our October 2005 repurchase of the remaining minority interest of Playboy.com, largely offset by increases in other administrative expenses. Programming amortization and online content expenses were flat for the quarter and decreased $0.3 million for the six-month period primarily due to the mix of television programming, partially offset by new programming costs associated with Playboy Radio and the acquired websites. We now expect our programming and online content cash investments to be approximately $43.0 million. Our original projection of $43.7 million excluded approximately $1.4 million of programming for Playboy Radio. We anticipate that our programming and online content amortization expenses will improve slightly. Segment income for the group decreased $4.9 million, or 51%, and $8.9 million, or 41%, for the quarter and six-month period, respectively, due to the previously discussed operating results. PUBLISHING GROUP Playboy magazine revenues decreased $1.9 million, or 9%, and $5.6 million, or 12%, for the quarter and six-month period, respectively. Advertising revenues decreased $1.2 million and $3.5 million for the quarter and six-month period, respectively, primarily due to 19% and 24% fewer advertising pages, respectively. Advertising sales for the 2006 third quarter magazine issues are closed, and we expect to report approximately 17% lower advertising revenues and 7% fewer advertising pages compared to the 2005 third quarter as a result of continued softness in the market. Subscription revenues decreased $1.1 million and $1.8 million for the quarter and six-month period, respectively, primarily due to lower average revenue per copy, partially offset by revenues from our new Playboy 18 magazine digital edition in the current year periods. For the six-month period, subscription revenues were favorably impacted by a lower provision for unpaid copies as a result of improved payment experience. Newsstand revenues increased $0.4 million for the quarter primarily due to the impact of a $1.00 and C$1.00 cover price increase effective with the February 2006 issue and a favorable variance related to prior issue adjustments, partially offset by 6% fewer copies sold. For the six-month period, newsstand revenues were $0.3 million lower primarily due to 18% fewer copies sold, partially mitigated by the previously discussed cover price increase and a favorable variance related to prior issue adjustments. Revenues from special editions and other were flat and increased $0.4 million, or 9%, for the quarter and six-month period, respectively. Special editions revenues increased $0.3 million and $0.5 million for the quarter and six-month period, respectively, primarily due to the impact of a $1.00 and C$1.00 cover price increase effective with the November 2005 issues, favorable variances related to prior issue adjustments and higher revenues from our special editions digital edition in the current year periods, partially offset by 12% and 13% fewer newsstand copies sold for the quarter and six-month period, respectively. The current year periods also included unfavorable revenue adjustments related to prior years' calendars. International publishing revenues were relatively flat for the quarter and six-month period. The group's segment loss decreased $0.5 million, or 26%, for the quarter as the lower revenues previously discussed were more than offset by lower editorial content, subscription acquisition amortization and manufacturing expenses. The group's segment loss increased $1.4 million, or 48%, for the six-month period primarily due to the lower revenues previously discussed, partially offset by lower subscription acquisition amortization, editorial content, manufacturing, advertising sales and marketing expenses. Despite industry trends, our goal this year is to maintain a loss that is consistent with that of the prior year. LICENSING GROUP Licensing Group revenues increased $0.8 million, or 8%, and $2.2 million, or 15%, for the quarter and six-month period, respectively, principally due to higher royalties from existing and new international licensees. The current six-month period also reflects higher revenues from the sale of art from our collection. The group's segment income was flat and increased $0.8 million, or 11%, for the quarter and six-month period, respectively, due to the revenue increases previously discussed, offset by higher growth-related costs. CORPORATE ADMINISTRATION AND PROMOTION Corporate Administration and Promotion expenses increased $2.3 million, or 58%, and $4.5 million, or 55%, for the quarter and six-month period, respectively, largely due to the elimination of our intra-company agreements related to trademark, content and administrative fees as a result of the previously discussed Playboy.com minority interest repurchase. The current year periods also reflected higher marketing expenses. RESTRUCTURING EXPENSES In the current quarter, we implemented a cost reduction plan that reduces our annual programming and editorial investments while lowering other discretionary expenses. As a result of this 2006 restructuring plan, we reported a charge of $2.1 million related to costs associated with a workforce reduction of 15 employees. Partially offsetting this charge was a net favorable adjustment of $0.2 million related to prior plans. INCOME TAX EXPENSE Our effective income tax rate differs from U.S. statutory rates. Our income tax provision consists of foreign income tax, which relates to our international networks and withholding tax on licensing income for which we do not receive a current U.S. income tax benefit due to our net operating loss position. Our income tax provision also includes deferred federal and state income taxes related to the amortization of goodwill and other indefinite-lived intangibles, which cannot be offset against deferred tax assets due to the indefinite reversal period of the deferred tax liabilities. 19 LIQUIDITY AND CAPITAL RESOURCES At June 30, 2006, we had $25.6 million in cash and cash equivalents compared to $26.1 million in cash and cash equivalents at December 31, 2005. We also had $10.0 million of auction rate securities included in marketable securities and short-term investments at June 30, 2006, compared to $21.0 million at December 31, 2005. The decrease is primarily related to our acquisition of a multi-media adult entertainment business. Total financing obligations were $115.0 million at both June 30, 2006 and December 31, 2005. At June 30, 2006, cash generated from our operating activities, existing cash and cash equivalents and marketable securities and short-term investments were fulfilling our liquidity requirements. We also have a $50.0 million credit facility, which can be used for revolving borrowings, issuing letters of credit or a combination of both. At June 30, 2006, there were no borrowings and $10.6 million in letters of credit outstanding under this facility, resulting in $39.4 million of available borrowings under this facility. CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities was $3.7 million, a decrease of $11.7 million compared to the prior year period primarily due to the operating results previously discussed. CASH FLOWS FROM INVESTING ACTIVITIES Net cash provided by investing activities increased $17.6 million compared to the prior year period primarily due to a $33.8 million decrease in investment purchases, partially offset by a $7.7 million decrease in proceeds from sales of investments and payments of $7.8 million primarily related to the acquisition of a multi-media adult entertainment business in the current year. This acquisition requires additional payments of $1.6 million, $1.7 million, $2.3 million and $4.3 million in 2007, 2008, 2009 and 2010, respectively. CASH FLOWS FROM FINANCING ACTIVITIES Net cash used for financing activities was $4.3 million in the current year period compared to net cash provided by financing activities of $7.0 million in the prior year period. The current and prior year periods reflect payments of acquisition liabilities of $4.5 million and $4.6 million, respectively. The prior year period also reflects the issuance of $115.0 million of 3.00% convertible senior subordinated notes due 2025, or convertible notes, and the use of the proceeds to pay $95.2 million in connection with the purchase and retirement of all of the $80.0 million outstanding principal amount of 11.00% senior secured notes issued by one of our subsidiaries and $4.0 million of related financing fees. Proceeds from the convertible note offering were also used to purchase 381,971 shares of our Class B stock for $5.0 million. 20 RECENTLY ISSUED ACCOUNTING STANDARDS In June 2006, the Financial Accounting Standards Board, or the FASB, issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on description, classification, interest and penalties, accounting in interim periods, disclosure and transition. We are required to adopt FIN 48 effective at the beginning of 2007. We are currently evaluating the impact of adopting FIN 48 on our future results of operations and financial condition. In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, Accounting for Servicing of Financial Assets, or Statement 156. Statement 156 permits an entity to choose either the amortization method or fair value method for each class of separately recognized servicing assets and servicing liabilities. At June 30, 2006, we did not have any financial assets or liabilities relating to servicing rights subject to Statement 156. We are required to adopt Statement 156 effective at the beginning of 2007. We do not expect the adoption of Statement 156 to have a significant impact on our future results of operations or financial condition. In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments, or Statement 155. Statement 155 resolves issues addressed in FASB Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. Amongst other things, it permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. At June 30, 2006, we did not have any hybrid financial instruments subject to the fair value election under Statement 155. We are required to adopt Statement 155 effective at the beginning of 2007. We do not expect the adoption of Statement 155 to have a significant impact on our future results of operations or financial condition. 21 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At June 30, 2006, we did not have any floating interest rate exposure. All of our outstanding debt at that date consisted of the 3.00% convertible senior subordinated notes due 2025, or convertible notes, which are fixed-rate obligations. The fair value of the $115.0 million aggregate principal amount of the convertible notes will be influenced by changes in market interest rates, the share price of our Class B stock and our credit quality. At June 30, 2006, the convertible notes had an implied fair value of $102.1 million. ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act. Internal Control Over Financial Reporting There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 22 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On February 17, 1998, Eduardo Gongora, or Gongora, filed suit in state court in Hidalgo County, Texas, against Editorial Caballero SA de CV, or EC, Grupo Siete International, Inc., or GSI, collectively the Editorial Defendants, and us. In the complaint, Gongora alleged that he was injured as a result of the termination of a publishing license agreement, or the License Agreement, between us and EC for the publication of a Mexican edition of Playboy magazine, or the Mexican Edition. We terminated the License Agreement on or about January 29, 1998, due to EC's failure to pay royalties and other amounts due us under the License Agreement. On February 18, 1998, the Editorial Defendants filed a cross-claim against us. Gongora alleged that in December 1996 he entered into an oral agreement with the Editorial Defendants to solicit advertising for the Mexican Edition to be distributed in the United States. The basis of GSI's cross-claim was that it was the assignee of EC's right to distribute the Mexican Edition in the United States and other Spanish-speaking Latin American countries outside of Mexico. On May 31, 2002, a jury returned a verdict against us in the amount of approximately $4.4 million. Under the verdict, Gongora was awarded no damages. GSI and EC were awarded $4.1 million in out-of-pocket expenses and approximately $0.3 million for lost profits, respectively, even though the jury found that EC had failed to comply with the terms of the License Agreement. On October 24, 2002, the trial court signed a judgment against us for $4.4 million plus pre- and post-judgment interest and costs. On November 22, 2002, we filed post-judgment motions challenging the judgment in the trial court. The trial court overruled those motions and we vigorously pursued an appeal with the State Appellate Court sitting in Corpus Christi challenging the verdict. We have posted a bond in the amount of approximately $9.4 million, which represents the amount of the judgment, costs and estimated pre- and post-judgment interest, in connection with the appeal. On May 25, 2006, the State Appellate Court reversed the judgment by the trial court, rendered judgment for us on the majority of the plaintiffs' claims and remanded the remaining claims for a new trial. On July 14, 2006, the plaintiffs filed a motion for rehearing and en banc reconsideration, which we are opposing. We, on advice of legal counsel, believe that it is not probable that a material judgment against us will be obtained. In accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, no liability has been accrued. ITEM 1A. RISK FACTORS There have been no material changes to our Risk Factors as contained in our Annual Report on Form 10-K for the year ended December 31, 2005. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Our annual meeting of shareholders was held on May 17, 2006, in which the holders of our Class A common stock ratified the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2006 and elected the following individuals as directors:
Withheld Proposals For Against or Abstained - ------------------------------------------------------------------------------------------------------- Election of Directors Dennis S. Bookshester 4,592,495 N/A 77,558 David I. Chemerow 4,569,646 N/A 100,407 Donald G. Drapkin 4,592,398 N/A 77,655 Christie Hefner 3,920,543 N/A 749,510 Jerome H. Kern 4,592,397 N/A 77,656 Russell I. Pillar 4,592,398 N/A 77,655 Sol Rosenthal 4,592,488 N/A 77,565 Richard S. Rosenzweig 3,920,660 N/A 749,393 Appointment of Ernst & Young LLP 4,599,746 70,074 233 - -------------------------------------------------------------------------------------------------------
23 ITEM 6. EXHIBITS Exhibit Number Description - -------------- ----------- 10.1 Second Amendment to the Amended and Restated Credit Agreement, effective April 1, 2005, or the Credit Agreement, among PEI Holdings, Inc., as borrower, and Bank of America, N.A., as Agent and the other lenders from time to time party thereto 10.1.1 Second Amendment, dated as of April 27, 2006, to the Credit Agreement, or the Second Amendment 10.1.2 Reaffirmation of Guaranty, dated as of April 27, 2006, by each of the Guarantors, pursuant to the Second Amendment 10.2 Third Amendment to the Credit Agreement 10.2.1 Third Amendment, dated as of May 15, 2006, to the Credit Agreement 10.2.2 Pledge Amendment, dated as of May 15, 2006, from Playboy Enterprises International, Inc. 10.2.3 Pledge Amendment, dated as of May 15, 2006, from Playboy Entertainment Group, Inc. 10.2.4 Joinder to Master Corporate Guaranty, dated as of May 15, 2006, by Playboy.com, Inc., Playboy.com Internet Gaming, Inc., Playboy.com Racing, Inc., SpiceTV.com, Inc., and CJI Holdings, Inc., and accepted by Bank of America, N.A., as agent for the Lenders 10.2.5 Joinder to Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc., Playboy.com Internet Gaming, Inc., Playboy.com Racing, Inc., SpiceTV.com, Inc., and CJI Holdings, Inc., and accepted by Bank of America, N.A., as agent for the Lenders 10.2.6 Pledge Agreement, dated as of May 15, 2006, between Playboy.com, Inc. and Bank of America, N.A., as agent for the Lenders 10.2.7 Pledge Agreement, dated as of May 15, 2006, between Playboy.com Internet Gaming, Inc. and Bank of America, N.A., as agent for the Lenders 10.2.8 Trademark Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc. in favor of Bank of America, N.A., as agent for the Lenders 10.2.9 Copyright Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc. in favor of Bank of America, N.A., as agent for the Lenders 10.3 Playboy Enterprises, Inc. Employee Stock Purchase Plan, as amended and restated through April 25, 2006 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 24 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 by the undersigned thereunto duly authorized. PLAYBOY ENTERPRISES, INC. ------------------------- (Registrant) Date: August 9, 2006 By /s/ Linda Havard -------------- ---------------- Linda G. Havard Executive Vice President, Finance and Operations, and Chief Financial Officer (Authorized Officer and Principal Financial and Accounting Officer) 25 EXHIBIT INDEX Exhibit Number Description 10.1 Second Amendment to the Amended and Restated Credit Agreement, effective April 1, 2005, or the Credit Agreement, among PEI Holdings, Inc., as borrower, and Bank of America, N.A., as Agent and the other lenders from time to time party thereto 10.1.1 Second Amendment, dated as of April 27, 2006, to the Credit Agreement, or the Second Amendment 10.1.2 Reaffirmation of Guaranty, dated as of April 27, 2006, by each of the Guarantors, pursuant to the Second Amendment 10.2 Third Amendment to the Credit Agreement 10.2.1 Third Amendment, dated as of May 15, 2006, to the Credit Agreement 10.2.2 Pledge Amendment, dated as of May 15, 2006, from Playboy Enterprises International, Inc. 10.2.3 Pledge Amendment, dated as of May 15, 2006, from Playboy Entertainment Group, Inc. 10.2.4 Joinder to Master Corporate Guaranty, dated as of May 15, 2006, by Playboy.com, Inc., Playboy.com Internet Gaming, Inc., Playboy.com Racing, Inc., SpiceTV.com, Inc., and CJI Holdings, Inc., and accepted by Bank of America, N.A., as agent for the Lenders 10.2.5 Joinder to Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc., Playboy.com Internet Gaming, Inc., Playboy.com Racing, Inc., SpiceTV.com, Inc., and CJI Holdings, Inc., and accepted by Bank of America, N.A., as agent for the Lenders 10.2.6 Pledge Agreement, dated as of May 15, 2006, between Playboy.com, Inc. and Bank of America, N.A., as agent for the Lenders 10.2.7 Pledge Agreement, dated as of May 15, 2006, between Playboy.com Internet Gaming, Inc. and Bank of America, N.A., as agent for the Lenders 10.2.8 Trademark Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc. in favor of Bank of America, N.A., as agent for the Lenders 10.2.9 Copyright Security Agreement, dated as of May 15, 2006, by Playboy.com, Inc. in favor of Bank of America, N.A., as agent for the Lenders 10.3 Playboy Enterprises, Inc. Employee Stock Purchase Plan, as amended and restated through April 25, 2006 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 26 EX-10.1.1 2 d68813_ex101-1.txt 2ND AMEND TO AMEND AND RESTATED CREDIT AGREE Exhibit 10.1.1 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT April 27, 2006 PEI Holdings, Inc. 680 North Lakeshore Drive Chicago, Illinois 60611 Ladies and Gentlemen: Reference is hereby made to that certain Amended and Restated Credit Agreement, dated as of April 1, 2005, among PEI Holdings, Inc., a Delaware corporation ("Borrower"), the financial institutions from time to time party thereto (the "Lenders"), and Bank of America, N.A., as Agent for the Lenders ("Agent") (as amended, supplemented or otherwise modified to date, the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings provided to such terms in the Credit Agreement. Borrower has requested that Agent and Lenders agree to amend the Credit Agreement in certain respects, and Agent and Lenders have agreed to such amendments, on the terms, and subject to the conditions, contained herein. Therefore, Borrower, Agent and Lenders hereby agree as follows: 1. Amendments to Credit Agreement. Subject to the satisfaction of the conditions set forth in Section 3 hereof, the Credit Agreement is hereby amended as follows: (a) The new definition of the term "Second Amendment Closing Date" is hereby inserted into Section 1.01 of the Credit Agreement in appropriate alphabetical order, as follows: "Second Amendment Closing Date" means April 27, 2006. (b) Section 6.10 of the Credit Agreement is hereby amended by deleting such section and replacing it with the following: 6.10 Additional Guarantors. Notify Agent (i) at the time that any Person (other than a Playboy.com Entity, China or CJI) becomes a Domestic Restricted Subsidiary of Playboy, (ii) within 60 days after the formation of each of China and CJI, and (iii) within 150 days after each Playboy.com Entity becomes a Wholly-Owned Restricted Subsidiary of Playboy; and promptly thereafter (and in any event (x) in the case of all Persons other than a Playboy.com Entity that is a Wholly-Owned Restricted Subsidiary as of the Second Amendment Closing Date, China or CJI, within 30 days after the applicable notice is required to be given, and (y) in the case of each Playboy.com Entity that is a Wholly-Owned Restricted Subsidiary as of the Second Amendment Closing Date and CJI, no later than May 15, 2006), cause each such Person (a) other than a Foreign Subsidiary, to become a Guarantor by executing and delivering to Agent a Loan Guaranty or Loan Guaranty joinder in a form reasonably acceptable to Agent, (b) other than a Foreign Subsidiary, to deliver to Agent documents reasonably necessary to grant to Agent (and permit Agent to perfect) a Lien on the personal property of such Person to the extent permitted herein, (c) to cause the appropriate Person to deliver to Agent a Pledge Agreement granting to Agent a Lien on the Equity Interests of such Person (excluding China and Gibraltar, unless otherwise agreed by Agent and Borrower) and (d) to deliver to Agent documents of the types referred to in clause (iv) of Section 4.01(a) and favorable opinions of counsel (including in-house counsel) to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clauses (a), (b) and (c)), as applicable, all in form, content and scope reasonably satisfactory to Agent. 2. Scope. Except as amended hereby, the Credit Agreement remains unchanged and in full force and effect. 3. Effectiveness. This Second Amendment to Amended and Restated Credit Agreement (the "Amendment") shall be effective when executed by Lenders and Agent and agreed to by Borrower and returned to Agent, together with a reaffirmation of the guaranty executed by each Guarantor. 4. Severability. If any provision of this Amendment or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid, or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. -2- 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT BORROWER, AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. Very truly yours, BANK OF AMERICA, N.A., as Agent By David A. Johanson Its Vice President BANK OF AMERICA, N.A., as a Lender By Craig w. McGuire Its Senior Vice President LASALLE BANK NATIONAL ASSOCIATION, as a Lender By Illegible Its AVP ACKNOWLEDGED AND AGREED TO THIS 27TH DAY OF APRIL, 2006: PEI HOLDINGS, INC., as Borrower By Robert Campbell Its Treasurer Signature Page to Second Amendment to A/R Credit Agreement EX-10.1.2 3 d68813_ex101-2.txt REAFFIRMATIONS OF GUARANTY Exhibit 10.1.2 REAFFIRMATION OF GUARANTY Reference is made to that certain Amended and Restated Credit Agreement, dated as of April 1, 2005 (as the same may be amended, modified or supplemented from time to time, the "Credit Agreement"), among PEI Holdings, Inc., a Delaware corporation ("Borrower"), the various financial institutions as are, or may from time to time become, parties thereto ("Lenders"), and Bank of America, N.A., as a Lender and as agent for the Lenders ("Agent"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Credit Agreement. Each of the undersigned hereby acknowledges that it has executed a Master Corporate Guaranty, dated as of March 11, 2003 (the "Guaranty"), of all of the obligations of Borrower to Agent and Lenders under the Credit Agreement and as more fully described in the Guaranty. Each of the undersigned further acknowledges that such Guaranty was reaffirmed pursuant to certain Reaffirmations of Guaranty dated April 1, 2005 and March 10, 2006, respectively. Each of the undersigned hereby (i) acknowledges and consents to the execution, delivery and performance of the Second Amendment to Amended and Restated Credit Agreement (the "Amendment") of even date herewith and (ii) ratifies and affirms the Guaranty in all respects. Each of the undersigned further agrees that each Loan Document to which it is a party shall remain in full force and effect following the execution and delivery of the Amendment and that all references in the Loan Documents to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended or otherwise modified from and after the date hereof. This Reaffirmation of Guaranty may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. * * * * * * Signature Pages Follow IN WITNESS WHEREOF, this Reaffirmation of Guaranty has been duly executed this 27th day of April 2006. ADULTVISION COMMUNICATIONS, INC. AL ENTERTAINMENT, INC. ALTA LOMA DISTRIBUTION, INC. ALTA LOMA ENTERTAINMENT, INC. ANDRITA STUDIOS, INC. CANDLELIGHT MANAGEMENT LLC By: Playboy TV International, LLC, its Sole Member, By: Playboy Entertainment Group, Inc., its Sole Member CHELSEA COURT HOLDINGS LLC By: Playboy TV International, LLC, its Sole Member, By: Playboy Entertainment Group, Inc., its Sole Member CLARIDGE ORGANIZATION, LLC By: Playboy TV International, LLC, its Sole Member, By: Playboy Entertainment Group, Inc., its Sole Member CPV PRODUCTIONS, INC. CYBERSPICE, INC. ICS ENTERTAINMENT, INC. IMPULSE PRODUCTIONS, INC. INDIGO ENTERTAINMENT, INC. ITASCA HOLDINGS, INC. LAKE SHORE PRESS, INC. LIFESTYLE BRANDS, LTD. MH PICTURES, INC. MYSTIQUE FILMS, INC. PLANET PLAYBOY, INC. PLANET SPICE, INC. PLAYBOY CLUB OF HOLLYWOOD, INC. PLAYBOY CLUB OF NEW YORK, INC. PLAYBOY CLUBS INTERNATIONAL, INC. PLAYBOY CRUISE GAMING, INC. PLAYBOY ENTERTAINMENT GROUP, INC. PLAYBOY GAMING INTERNATIONAL, LTD. PLAYBOY GAMING NEVADA, INC. PLAYBOY GAMING UK, LTD. PLAYBOY JAPAN, INC. PLAYBOY MODELS, INC. By: Name: Robert Campbell Title: Treasurer -2- PLAYBOY OF LYONS, INC. PLAYBOY OF SUSSEX, INC. PLAYBOY PREFERRED, INC. PLAYBOY PROPERTIES, INC. PLAYBOY SHOWS, INC. PLAYBOY TV INTERNATIONAL, LLC By: Playboy Entertainment Group, Inc., its Sole Member PRECIOUS FILMS, INC. SPECIAL EDITIONS, LTD. SPICE DIRECT, INC. SPICE ENTERTAINMENT, INC. SPICE INTERNATIONAL, INC. SPICE NETWORKS, INC. SPICE PRODUCTIONS, INC. STEELTON, INC. TELECOM INTERNATIONAL, INC. WOMEN PRODUCTIONS, INC. By Name: Robert Campbell Title: Treasurer PLAYBOY ENTERPRISES, INC. PLAYBOY ENTERPRISES INTERNATIONAL, INC. By Name: Robert Campbell Title: Senior Vice President, Treasurer and Strategic Planning SPICE HOT ENTERTAINMENT, INC. SPICE PLATINUM ENTERTAINMENT, INC. By Name: Catherine A. Zulfer Title: Treasurer -3- ACKNOWLEDGED AND AGREED TO THIS 27TH DAY OF APRIL 2006: BANK OF AMERICA, N.A., as Agent By Name: David A. Johanson Title: Vice President _______________________ -4- EX-10.2.1 4 d68813_ex102-1.txt 3RD AMEND TO AMEND AND RESTATED CREDIT AGREE Exhibit 10.2.1 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT May 15, 2006 PEI Holdings, Inc. 680 North Lakeshore Drive Chicago, Illinois 60611 Ladies and Gentlemen: Reference is hereby made to that certain Amended and Restated Credit Agreement, dated as of April 1, 2005, among PEI Holdings, Inc., a Delaware corporation ("Borrower"), the financial institutions from time to time party thereto (the "Lenders"), and Bank of America, N.A., as Agent for the Lenders ("Agent") (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings provided to such terms in the Credit Agreement. Borrower has requested that Agent and Lenders agree to amend the Credit Agreement in certain respects, and Agent and Lenders have agreed to such amendments, on the terms, and subject to the conditions, contained herein. Therefore, Borrower, Agent and Lenders hereby agree as follows: 1. Amendment to Credit Agreement. Subject to the satisfaction of the conditions set forth in Section 3 hereof, the Credit Agreement is hereby amended by supplementing the schedules attached thereto with the information in the schedules attached hereto. 2. Scope. Except as amended hereby, the Credit Agreement remains unchanged and in full force and effect. 3. Effectiveness. This Third Amendment to Amended and Restated Credit Agreement (this "Amendment") shall be effective upon receipt by Agent of fully executed originals of this Amendment and each other document listed in Part IV of the Closing Checklist attached as Exhibit A hereto. 4. Severability. If any provision of this Amendment or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid, or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 5. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall constitute an original, but all of which taken together shall be one and the same instrument. 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED THAT BORROWER, AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. [Signatures follow on next page.] -2- Very truly yours, BANK OF AMERICA, N.A., as Agent By David A. Johanson Its Vice President BANK OF AMERICA, N.A., as a Lender By Craig W. McQuire Its Senior Vice President LASALLE BANK NATIONAL ASSOCIATION, as a Lender By Illegible Its Assistant Vice President ACKNOWLEDGED AND AGREED TO THIS 15th DAY OF MAY 2006: PEI HOLDINGS, INC., as Borrower By Robert Campbell Its Treasurer Signature Page to Third Amendment to A/R Credit Agreement EXHIBIT A CLOSING CHECKLIST See attached. SCHEDULES TO CREDIT AGREEMENT EX-10.2.2 5 d68813_ex102-2.txt PLEDGE AMENDMENT Exhibit 10.2.2 PLEDGE AMENDMENT This Pledge Amendment is dated as of May 15, 2006. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated as of March 11, 2003, between the undersigned and Bank of America, N.A., as agent for the Lenders (as amended, restated, supplemented or otherwise modified from time to time, the "Pledge Agreement"; capitalized terms defined therein being used herein as therein defined) and that, as of the date set forth above and at all times thereafter, the shares listed below on this Pledge Amendment shall be deemed to be part of the Pledged Collateral and shall secure all Secured Obligations. In furtherance of the foregoing, to secure the payment and performance of the Secured Obligations, the undersigned hereby pledges and hypothecates to Agent, for the benefit of Agent and Lenders, and grants to Agent, for the benefit of Agent and Lenders, a security interest in, the following: (a) the shares of stock outstanding of the corporation ("Issuer") identified on Schedule I hereto held by the undersigned (the "Pledged Shares") and the certificates, if any, representing the Pledged Shares, and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock of Issuer at any time acquired by the undersigned in any manner, and the certificates representing such additional shares (and any such additional shares shall constitute part of the Pledged Shares under this Pledge Amendment and the Pledge Agreement), and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of any of the foregoing. This Pledge Amendment shall be governed by, and construed in accordance with, the law of the State of Illinois applicable to agreements made and to be performed entirely within such State; provided, that the undersigned and Agent shall retain all rights arising under federal law. [Signature follows on next page.] PLAYBOY ENTERPRISES INTERNATIONAL, INC. By Robert Campbell Its Treasurer SCHEDULE I - -------------------------------------------------------------------------------- Stock Certificate Number of Stock Issuer Class of Stock No(s). Shares Percentage - -------------------------------------------------------------------------------- Playboy.com, Inc. 100% - -------------------------------------------------------------------------------- EX-10.2.3 6 d68813_ex102-3.txt PLEDGE AMENDMENT Exhibit 10.2.3 PLEDGE AMENDMENT This Pledge Amendment is dated as of May 15, 2006. The undersigned hereby agrees that this Pledge Amendment may be attached to the Pledge Agreement, dated as of March 11, 2003, between the undersigned and Bank of America, N.A., as agent for the Lenders (as amended, restated, supplemented or otherwise modified from time to time, the "Pledge Agreement"; capitalized terms defined therein being used herein as therein defined) and that, as of the date set forth above and at all times thereafter, the shares listed below on this Pledge Amendment shall be deemed to be part of the Pledged Collateral and shall secure all Secured Obligations. In furtherance of the foregoing, to secure the payment and performance of the Secured Obligations, the undersigned hereby pledges and hypothecates to Agent, for the benefit of Agent and Lenders, and grants to Agent, for the benefit of Agent and Lenders, a security interest in, the following: (a) the shares of stock outstanding of the corporation ("Issuer") identified on Schedule I hereto held by the undersigned (the "Pledged Shares") and the certificates, if any, representing the Pledged Shares, and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock of Issuer at any time acquired by the undersigned in any manner, and the certificates representing such additional shares (and any such additional shares shall constitute part of the Pledged Shares under this Pledge Amendment and the Pledge Agreement), and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of any of the foregoing. This Pledge Amendment shall be governed by, and construed in accordance with, the law of the State of Illinois applicable to agreements made and to be performed entirely within such State; provided, that the undersigned and Agent shall retain all rights arising under federal law. [Signature follows on next page.] PLAYBOY ENTERTAINMENT GROUP, INC. By Robert Campbell Its Treasurer SCHEDULE I
- ------------------------------------------------------------------------------------------------ Stock Certificate Number of Stock Issuer Class of Stock No(s). Shares Percentage - ------------------------------------------------------------------------------------------------ CJI Holdings, Inc. 100% - ------------------------------------------------------------------------------------------------
EX-10.2.4 7 d68813_ex102-4.txt JOINDER TO MASTER CORPORATE GUARANTY Exhibit 10.2.4 JOINDER TO MASTER CORPORATE GUARANTY Reference is made to that certain Amended and Restated Credit Agreement among PEI Holdings, Inc., a Delaware corporation ("Borrower"), the various financial institutions as are, or may from time to time become, parties thereto ("Lenders"), and Bank of America, N.A., as agent for the Lenders ("Agent"), dated as of April 1, 2005 (as such document is amended, restated, modified or supplemented from time to time, the "Credit Agreement"). In order to induce Agent and the other Lenders to continue to make advances to Borrower under the Credit Agreement and in accordance with Section 6.10 of the Credit Agreement, each of the undersigned Companies (each, a "Company"), each a newly formed direct or indirect subsidiary or Wholly-Owned Restricted Subsidiary (as defined in the Credit Agreement) of Playboy Enterprises, Inc., a Delaware corporation ("Playboy"), hereby agrees to become a party to that certain Master Corporate Guaranty, dated as of March 11, 2003 (as amended, restated, modified or supplemented from time to time, the "Guaranty"; capitalized terms not otherwise defined herein shall have the meanings stated in the Guaranty), among Playboy, certain direct and indirect subsidiaries of Borrower and Agent, by executing this Joinder to Master Corporate Guaranty, and further agrees that, in accordance with the Guaranty on and after the date set forth below, such Company is a "Guarantor" thereunder and shall be bound by all the terms, provisions and obligations of the Guaranty. Each of the Companies hereby agrees that it makes each of the representations set forth in the Guaranty as of the date set forth below. In all other respects, the Guaranty shall remain unchanged and in full force and effect in accordance with its original terms. [Signatures follow on next page.] Dated: May 15, 2006 COMPANIES --------- PLAYBOY.COM, INC., a Delaware corporation By Robert Campbell Its Treasurer PLAYBOY.COM INTERNET GAMING, INC., a Delaware corporation By Robert Campbell Its Treasurer PLAYBOY.COM RACING, INC., a Delaware corporation By Robert Campbell Its Treasurer SPICETV.COM, INC., a Delaware corporation By Robert Campbell Its Treasurer CJI HOLDINGS, INC., a Delaware corporation By Robert Campbell Its Treasurer ACCEPTED: BANK OF AMERICA, N.A., as Agent By David A. Johanson ----------------- Its Vice President -------------- -2- EX-10.2.5 8 d68813_ex102-5.txt JOINDER TO SECURITY AGREEMENT Exhibit 10.2.5 JOINDER TO SECURITY AGREEMENT Reference is made to that certain Amended and Restated Credit Agreement among PEI Holdings, Inc., a Delaware corporation ("Borrower"), the various financial institutions as are, or may from time to time become, parties thereto ("Lenders"), and Bank of America, N.A., as agent for the Lenders ("Agent"), dated as of April 1, 2005 (as such document is amended, restated, modified or supplemented from time to time, the "Credit Agreement"). In order to induce Agent and the other Lenders to continue to make advances to Borrower under the Credit Agreement and in accordance with Section 6.10 of the Credit Agreement, each of the undersigned Companies (each, a "Company"), each a newly formed direct or indirect subsidiary or Wholly-Owned Restricted Subsidiary (as defined in the Credit Agreement) of Playboy Enterprises, Inc., a Delaware corporation ("Playboy"), hereby agrees to become a party to that certain Security Agreement, dated as of March 11, 2003 (as amended, restated, modified or supplemented from time to time, the "Security Agreement"; capitalized terms not otherwise defined herein shall have the meanings stated in the Security Agreement), among Playboy, certain direct and indirect subsidiaries of Borrower and Agent, by executing this Joinder to Security Agreement, and further agrees that, in accordance with the Security Agreement on and after the date set forth below, such Company is a "Debtor" thereunder and shall be bound by all the terms and provisions of the Security Agreement. Each Company hereby agrees that it makes each of the representations and warranties set forth in the Security Agreement as of the date set forth below. For purposes of determining any Company's compliance with such representations and warranties pursuant to this paragraph, references to schedules shall be deemed to include the disclosures made on the correspondingly numbered schedules attached hereto. Each Company hereby agrees that the Schedules to the Security Agreement are each hereby supplemented as set forth on the correspondingly numbered schedules attached hereto. To secure the payment and performance of the Obligations and each Debtor's obligations under this Joinder to Security Agreement, the Security Agreement and the Guaranty, each Company hereby grants to Agent, for Agent's benefit and the benefit of Lenders, and for the benefit of each Affiliate of Agent and each Lender, a lien on, security interest in and right of set-off against any and all right, title and interest in and to any and all of its property and interests in property, whether now owned or existing or hereafter created, acquired or arising, including all of the following properties and interests in properties, whether now owned or hereafter created, acquired or arising (all being collectively referred to herein as the "Collateral"): (i) Accounts; (ii) Chattel Paper; (iii) Commercial Tort Claims specifically identified on Schedule III hereto; (iv) Deposit Accounts, all cash, and other property deposited therein or otherwise credited thereto from time to time and other monies and property in the possession or under the control of Agent or any Lender or any affiliate, representative, agent or correspondent of Agent or any Lender; (v) Documents; (vi) General Intangibles, including without limitation any and all Intellectual Property; (vii) Goods, including without limitation any and all Inventory, any and all Equipment and any and all Fixtures; (viii) Instruments; (ix) Investment Property; (x) Letter-of-Credit Rights; (xi) Supporting Obligations; (xii) Any and all other personal property and interests in property whether or not subject to the UCC; (xiii) Any and all books and records, in whatever form or medium, that at any time evidence or contain information relating to any of the foregoing properties or interests in properties or are otherwise necessary in the collection thereof or realization thereon; (xiv) All Accessions and additions to, and substitutions and replacements of, any and all of the foregoing; and (xv) All Proceeds and products of the foregoing, including without limitation all insurance pertaining to the foregoing and proceeds thereof. Notwithstanding the foregoing, "Collateral" shall not include (i) any stock in a Controlled Foreign Corporation (within the meaning of Section 957 of the Code) in excess of 65% of such stock or in excess of 65% of the total combined voting power of all classes of such entity entitled to vote, (ii) any General Intangibles or other rights arising under any contracts, instruments, licenses or other documents to the extent that the grant of a Lien or security interest therein would (A) result in a breach of the terms of, or constitute a default under, such contract, instrument, license, agreement or other document (other than to the extent that any such term would be rendered ineffective pursuant to Section 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any successor provision of the Uniform Commercial Code of any relevant jurisdiction or other applicable law) or (B) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder pursuant to a valid and enforceable provision (including without limitation in connection with the operation of Section 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any other applicable law), (iii) any personal property (including motor vehicles) in respect of which perfection of a Lien is not either (A) governed by the Uniform Commercial Code or (B) accomplished by appropriate evidence of the lien being recorded in the U.S. Copyright Office or the U.S. Patent and Trademark Office, or (iv) any property subject to any Pledge Agreement. -2- Each Company hereby authorizes Agent to file one or more financing or continuation statements, and amendments thereto (or similar documents required by any laws of any applicable jurisdiction), relating to all or any part of the Collateral without the signature of such Company (to the extent such signature is required under the laws of any applicable jurisdiction), which financing statements may describe the Collateral as "all assets" or "all personal property" or words of like import. [Signatures follow on next page.] -3- In all other respects, the Security Agreement shall remain unchanged and in full force and effect in accordance with its original terms. Dated: May 15, 2006 COMPANIES --------- PLAYBOY.COM, INC., a Delaware corporation By Robert Campbell Its Treasurer PLAYBOY.COM INTERNET GAMING, INC., a Delaware corporation By Robert Campbell Its Treasurer PLAYBOY.COM RACING, INC., a Delaware corporation By Robert Campbell Its Treasurer SPICETV.COM, INC., a Delaware corporation By Robert Campbell Its Treasurer CJI HOLDINGS, INC., a Delaware corporation By Robert Campbell Its Treasurer ACCEPTED: BANK OF AMERICA, N.A., as Agent By David A. Johanson Its Vice President -4- SCHEDULE I Organizational Information SCHEDULE II Collateral Locations SCHEDULE III Commercial Tort Claims SCHEDULE IV Collateral Disclosures SCHEDULE V Intellectual Property Claims SCHEDULE VI Investment Property EX-10.2.6 9 d68813_ex102-6.txt PLEDGE AGREEMENT Exhibit 10.2.6 PLEDGE AGREEMENT This PLEDGE AGREEMENT (this "Agreement") is dated as of May 15, 2006 and is between Playboy.com, Inc., a Delaware corporation ("Company"), and Bank of America, N.A., as agent for "Lenders" (as defined below). W I T N E S S E T H WHEREAS, pursuant to the Amended and Restated Credit Agreement dated as of April 1, 2005 (as the same may be amended, restated, modified or supplemented from time to time, the "Credit Agreement") among PEI Holdings, Inc. ("Borrower"), the various financial institutions as are, or may from time to time become, parties thereto ("Lenders"), and Bank of America, N.A., as a Lender and as agent for the Lenders (in such capacity, "Agent"), Lenders have extended commitments to make credit extensions to Borrower; WHEREAS, pursuant to that certain Joinder to Master Corporate Guaranty of even date herewith pursuant to which the Company has become a party to that certain Master Corporate Guaranty dated as of March 11, 2003 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Guaranty") among Playboy Enterprises, Inc., certain direct and indirect subsidiaries of Borrower and Agent, Company has guaranteed the Borrower's Obligations (as defined in the Guaranty); WHEREAS, it is a condition precedent to the making of the Credit Extensions and extensions of other financial accommodations under the Credit Agreement that Company shall have granted the pledge and security interests contemplated by this Agreement, and Company desires to grant such pledge and security interests in order to induce Lenders to extend credit to Borrower under the Credit Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and provide other financial accommodations under the Credit Agreement, Company hereby agrees with Agent, for the benefit of Agent and Lenders as follows: 1. Reference to Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein shall have the respective meanings provided for in the Credit Agreement. In addition, "Permitted Liens" means those Liens permitted by Section 7.01 of the Credit Agreement. 2. Pledge. To secure the payment and performance of the "Secured Obligations" (as defined in Section 3 below), Company hereby pledges and hypothecates to Agent, for the benefit of Agent and Lenders, and grants to Agent, for the benefit of Agent and Lenders, a security interest in the following (the "Pledged Collateral"): (a) the shares of stock outstanding of the corporations (the "Issuers") identified on Schedule I hereto held by Company (the "Pledged Shares") and the certificates, if any, representing the Pledged Shares, and all stock dividends, cash dividends, cash, -5- instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock of Issuers at any time acquired by Company in any manner, and the certificates representing such additional shares (and any such additional shares shall constitute part of the Pledged Shares under this Agreement), and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of any of the foregoing. 3. Security for Obligations. This Agreement secures the payment and performance of the Obligations and the obligations of Company under this Agreement and the Guaranty (all such debts, obligations and liabilities of Company being collectively called the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates, if any, representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed undated instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Agent. Agent shall have the right, at any time in its discretion and without notice to Company if an Event of Default has occurred and is continuing to transfer to or to register in the name of Agent or any of its nominees any or all of the Pledged Collateral. In addition, in connection with the exercise of its remedies pursuant to Section 12 below following the occurrence and during the continuance of an Event of Default, Agent shall have the right to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. 5. Representations and Warranties. Company represents and warrants as follows: (a) Schedule I hereto completely and accurately sets forth the number of shares of the issued and outstanding stock of Issuers being pledged hereunder by Company as of the date hereof. The Pledged Shares held by Company constitute the percentage of the issued and outstanding shares of stock of Issuers set forth on Schedule I hereto as of the date hereof. (b) The delivery of the Pledged Shares (to the extent such Pledged Shares are certificated) to Agent pursuant to this Agreement is effective to create a valid and perfected first priority security interest in the Pledged Collateral, free of any adverse claim, securing the payment of the Secured Obligations subject to Permitted Liens. -2- (c) No consent of any other Person and no consent, authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the pledge by Company of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Company or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except (i) as has already been obtained or taken , (ii) as may be required in connection with any disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally and (iii) as to which the failure of which to obtain would not be reasonably likely to have a Material Adverse Effect). (d) None of the Pledged Shares constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System. 6. Further Assurances. (a) Company will, from time to time, at Company's expense, and upon Agent's reasonable request, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary, in order to perfect and protect any security interest granted or purported to be granted hereby, to enable Agent to exercise and enforce the rights and remedies of Agent hereunder with respect to any Pledged Collateral or to carry out the provisions and purposes hereof. Without limiting the generality of the foregoing, Company will: (i) upon Agent's reasonable request, appear in and defend any action or proceeding that may affect Company's title to or Agent's security interest in the Pledged Collateral; and (ii) promptly after the purchase or other acquisition thereof, deliver to Agent all Pledged Shares hereunder. (b) Company will, promptly upon request, provide to Agent all information and evidence it may reasonably request concerning the Pledged Collateral to enable Agent to enforce the provisions of this Agreement. (c) Company will, promptly upon the purchase or acquisition of any additional shares of stock of Issuers, deliver to Agent such Pledged Shares as required by Section 4 above, together with the other documents required under Section 4 above. 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default shall have occurred and is continuing and Agent shall not have delivered to Company notice of its election to exercise the rights set forth in subsection (b) below: (i) Company shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof; provided, however, that Company shall not exercise or shall refrain from exercising any such right if, in Agent's reasonable judgment, such action or -3- inaction would have a material adverse effect on the value of the Pledged Collateral taken as a whole or any material part thereof. (ii) To the extent permitted under the Credit Agreement, Company shall be entitled to receive (A) any cash dividends and other cash distributions paid or payable with respect to any of the Pledged Collateral, and (B) any and all instruments, chattel paper and other rights, property or proceeds and products (other than cash or checks) received, receivable or otherwise distributed in respect of any Pledged Collateral. (b) If an Event of Default has occurred and is continuing: (i) All rights of Company to exercise the voting and other consensual rights which Company would otherwise be entitled to exercise pursuant to subsection 7(a)(i), shall cease to be effective upon notice by Agent to Company of Agent's intent to exercise its rights hereunder, and upon delivery of such notice become vested in Agent who shall thereupon have the sole right to exercise such voting and other consensual rights. In order to effect the foregoing, Company hereby grants Agent an irrevocable proxy to vote the Pledged Collateral and Company agrees to execute such other proxies as Agent shall reasonably require. (ii) All rights of Company to receive and retain any cash dividends and other distributions shall cease upon notice by Agent to Company and any such dividends or other distributions paid or payable with respect to any of the Pledged Collateral shall be paid to Agent and held by Agent to secure the Secured Obligations until the earlier of (a) such time as such Event of Default is cured or waived and (b) such time as the Required Lenders elect to apply such dividends and other distributions to the Secured Obligations (any such application to be in such order and manner set forth in Section 8.03 of the Credit Agreement). All dividends and distributions which are received by Company contrary to the provisions of this subsection 7(b) shall be received in trust for the benefit of Agent, shall be segregated from other funds of Company and shall be forthwith paid over to Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). 8. Transfers and Other Liens; Additional Shares. (a) Except as permitted under the Credit Agreement and the other Loan Documents, Company agrees that Company will not (i) encumber, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or (ii) enter into any other Contractual Obligations (including without limitation any voting or shareholders agreement) which could reasonably be expected to restrict or inhibit Agent's rights or ability to vote or sell or otherwise dispose of the Pledged Collateral or any part thereof after the occurrence of an Event of Default. -4- (b) Company agrees that it will not cause Issuers to issue any stock or other securities (including any warrants, options, subscriptions or other Contractual Obligations for the purchase of stock or securities convertible into stock) in addition to or in substitution for the Pledged Shares. 9. Agent Appointed Attorney-in-Fact. Company hereby irrevocably appoints Agent as Company's attorney-in-fact effective during the continuance of an Event of Default, with full authority in the place and stead of Company and in the name of Company, Agent or otherwise, from time to time in Agent's discretion to take any action (including completion and presentation of any proxy) and to execute any instrument that Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation (but subject to the other provisions hereof), to (i) receive, endorse and collect all instruments made payable to Company representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof to the extent it is also Pledged Collateral; (ii) exercise the voting and other consensual rights pertaining to the Pledged Collateral; and (iii) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though Agent was the absolute owner thereof for all purposes, and to do, at Agent's option and Company's expense, at any time or from time to time, all acts and things that Agent deems necessary to protect, preserve or realize upon the Pledged Collateral. Company hereby ratifies and approves all acts of Agent made or taken pursuant to this Section 9. Except as specifically set forth in Section 11 hereof, neither Agent nor any Person designated by Agent shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law. This power of attorney, being coupled with an interest, shall be irrevocable until all Secured Obligations shall have been paid in full and the Credit Agreement shall have been terminated. 10. Agent May Perform. If Company fails to perform any agreement contained herein, Agent may itself perform, or cause performance of, such agreement, and the expenses of Agent incurred in connection therewith shall be payable by Company under Section 15 hereof, and be a part of the Secured Obligations. 11. Limitation on Duty of Agent with Respect to the Pledged Collateral. The powers conferred on Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty on it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for monies actually received by it hereunder, Agent shall have no duty with respect to any Pledged Collateral in its possession (or in the possession of any agent or bailee). Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if it takes such action for that purpose as Company reasonably requests in writing, but failure of Agent to comply with any such request at any time shall not of itself be deemed a failure to exercise reasonable care. It is expressly agreed that Agent shall have no responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Agent has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral, but Agent -5- may do so and, subject to Section 15, all expenses incurred in connection therewith shall be payable by and for the sole account of Company. 12. Remedies upon Event of Default. If any Event of Default shall have occurred and is continuing: (a) Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party under the Uniform Commercial Code (the "UCC") in effect in the State of Illinois at that time, whether or not the UCC applies to the affected Pledged Collateral, and Agent may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Agent's offices or elsewhere, for cash, on credit, or for future delivery, at such price or prices and upon such other terms as Agent deems commercially reasonable. Company agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' prior written notice to Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Pledged Collateral, if permitted by law, Agent may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Pledged Collateral or any portion thereof. Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Company recognizes that Agent may be unable to effect a public sale of all or part of the Pledged Collateral and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Company acknowledges that any such private sales may be at prices and on terms less favorable to the seller than if sold at public sales and agrees that such private sales shall be deemed to have been made in a commercially reasonable manner, and that Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the issuing corporation of such securities to register such securities for public sale under the Securities Act of 1933, as from time to time amended (the "Securities Act"), or under any other requirement of law, even if the issuing corporation would agree to do so. To the extent permitted by law, Company hereby specifically waives all rights of redemption, stay or appraisal which Company has or may have under any law now existing or hereafter enacted. 13. Remedies Cumulative. No failure on the part of Agent to exercise, and no delay in exercising and no course of dealing with respect to, any power, privilege or right under the other Loan Documents or this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by Agent of any power, privilege or right under any of the other Loan Documents or this Agreement preclude any other or further exercise thereof or the -6- exercise of any other such power, privilege or right. The powers, privileges and rights in this Agreement and the Loan Documents are cumulative and are not exclusive of any other remedies provided by law. 14. Application of Proceeds. If an Event of Default has occurred and is continuing, the proceeds of any sale of, or other realization upon, all or any part of the Pledged Collateral shall be applied as provided in Section 8.03 of the Credit Agreement. 15. Expenses. Subject to the provisions of Section 10.04 of the Credit Agreement, Company shall promptly pay to Agent all reasonable costs and expenses of Agent (including reasonable Attorney Costs) in connection with protecting or perfecting Agent's security interest in the Pledged Collateral or in connection with any matters contemplated by or arising out of this Agreement (including without limitation the enforcement of this Agreement), the Credit Agreement or any of the other Loan Documents. 16. Termination of Security Interests; Release of Collateral. Upon payment and performance in full of all Secured Obligations and termination of the Credit Agreement, the security interests granted herein shall automatically terminate and all rights to the Pledged Collateral shall revert to Company. Upon such termination of the security interests or release of any Pledged Collateral, Agent will, at the expense of Company, return to Company all Pledged Collateral then in Agent's possession and execute and deliver to Company such documents as Company shall reasonably request to evidence the termination of the security interests or the release of such Pledged Collateral which has not yet theretofore been sold or otherwise applied or released. Such release shall be without recourse or warranty to Agent. 17. Amendments, Waivers and Consents. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Agent and Company. 18. Notices. All notices, requests and other communications hereunder shall be given to Company at the facsimile number and address set forth on the signature page hereof and to Agent in accordance with Schedule 10.02 of the Credit Agreement. 19. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Agent and each Lender. 20. Waiver. In addition to any other waivers herein, Company waives to the greatest extent it may lawfully do so, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets, redemption or similar law, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Company of its obligations under, or the enforcement by Agent of, this -7- Agreement. Company hereby waives diligence, presentment and demand (whether for nonpayment or protest or of acceptance, maturity, extension of time, change in nature or form of the Secured Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of the Secured Obligations, notice of adverse change in Company's or any other Person's financial condition or any other fact which might materially increase the risk to Company) with respect to any of the Secured Obligations or all other demands whatsoever. Company hereby waives, to the extent it may lawfully do so, any requirement on the part of any holder of any Note to mitigate the damages resulting from any default under any Note. 21. Applicable Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED, THAT COMPANY AND AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITTING IN COOK COUNTY, ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, COMPANY AND AGENT CONSENT, FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. COMPANY AND AGENT IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. COMPANY AND AGENT WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE. 22. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE -8- DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 23. Failure or Indulgence Not Waiver; Remedies Cumulative; Severability. (a) No failure or delay on the part of Agent or any Lender in the exercise of, and no course of dealing with respect to, any power, right or privilege under the Credit Agreement or this Agreement or any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any Default or Event of Default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege. All rights and remedies existing under the Credit Agreement, this Agreement, the other Loan Documents or by law afforded are cumulative to, and not exclusive of, any rights or remedies otherwise available and shall be available to Agent until the Secured Obligations have been indefeasibly paid in full and the termination of all Commitments. (b) The invalidity, illegality or unenforceability of any provision in or obligation under this Agreement shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement. 24. Survival of Representations. All representations and warranties of Company contained in this Agreement shall survive the execution and delivery of this Agreement. 25. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. [Signatures follow on next page.] -9- Witness the due execution hereof by the duly authorized officer of the undersigned as of the day first above written. PLAYBOY.COM, INC. By Robert Campbell Its Treasurer Address for notices: Playboy.com, Inc. c/o PEI Holdings, Inc. 680 North Lake Shore Drive Chicago, Illinois 60611 Attn: Executive Vice President, Finance and Operations and Chief Financial Officer Facsimile: (312) 649-1395 ACKNOWLEDGED AND ACCEPTED: BANK OF AMERICA, N.A., as Agent By David Johanson -------------- Its Vice President -------------- -10- SCHEDULE I TO PLEDGE AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------ Class of Stock Certificate Number of Company Stock Numbers Shares Percentage ------- ----- ------- ------ ---------- - ------------------------------------------------------------------------------------------------------------------------ Playboy.com Internet Gaming, Inc. 100% - ------------------------------------------------------------------------------------------------------------------------ SpiceTV.com, Inc. 100% - ------------------------------------------------------------------------------------------------------------------------
EX-10.2.7 10 d68813_ex102-7.txt PLEDGE AGREEMENT Exhibit 10.2.7 PLEDGE AGREEMENT This PLEDGE AGREEMENT (this "Agreement") is dated as of May 15, 2006 and is between Playboy.com Internet Gaming, Inc., a Delaware corporation ("Company"), and Bank of America, N.A., as agent for "Lenders" (as defined below). W I T N E S S E T H WHEREAS, pursuant to the Amended and Restated Credit Agreement dated as of April 1, 2005 (as the same may be amended, restated, modified or supplemented from time to time, the "Credit Agreement") among PEI Holdings, Inc. ("Borrower"), the various financial institutions as are, or may from time to time become, parties thereto ("Lenders"), and Bank of America, N.A., as a Lender and as agent for the Lenders (in such capacity, "Agent"), Lenders have extended commitments to make credit extensions to Borrower; WHEREAS, pursuant to that certain Joinder to Master Corporate Guaranty of even date herewith pursuant to which the Company has become a party to that certain Master Corporate Guaranty dated as of March 11, 2003 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Guaranty") among Playboy Enterprises, Inc., certain direct and indirect subsidiaries of Borrower and Agent, Company has guaranteed the Borrower's Obligations (as defined in the Guaranty); WHEREAS, it is a condition precedent to the making of the Credit Extensions and extensions of other financial accommodations under the Credit Agreement that Company shall have granted the pledge and security interests contemplated by this Agreement, and Company desires to grant such pledge and security interests in order to induce Lenders to extend credit to Borrower under the Credit Agreement; NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to make Loans and provide other financial accommodations under the Credit Agreement, Company hereby agrees with Agent, for the benefit of Agent and Lenders as follows: 1. Reference to Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined herein shall have the respective meanings provided for in the Credit Agreement. In addition, "Permitted Liens" means those Liens permitted by Section 7.01 of the Credit Agreement. 2. Pledge. To secure the payment and performance of the "Secured Obligations" (as defined in Section 3 below), Company hereby pledges and hypothecates to Agent, for the benefit of Agent and Lenders, and grants to Agent, for the benefit of Agent and Lenders, a security interest in the following (the "Pledged Collateral"): (a) the shares of stock outstanding of the corporation (the "Issuer") identified on Schedule I hereto held by Company (the "Pledged Shares") and the certificates, if any, representing the Pledged Shares, and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (b) all additional shares of stock of Issuer at any time acquired by Company in any manner, and the certificates representing such additional shares (and any such additional shares shall constitute part of the Pledged Shares under this Agreement), and all stock dividends, cash dividends, cash, instruments, chattel paper and other rights, property or proceeds and products from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of any of the foregoing. 3. Security for Obligations. This Agreement secures the payment and performance of the Obligations and the obligations of Company under this Agreement and the Guaranty (all such debts, obligations and liabilities of Company being collectively called the "Secured Obligations"). 4. Delivery of Pledged Collateral. All certificates, if any, representing or evidencing the Pledged Collateral shall be delivered to and held by or on behalf of Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed undated instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Agent. Agent shall have the right, at any time in its discretion and without notice to Company if an Event of Default has occurred and is continuing to transfer to or to register in the name of Agent or any of its nominees any or all of the Pledged Collateral. In addition, in connection with the exercise of its remedies pursuant to Section 12 below following the occurrence and during the continuance of an Event of Default, Agent shall have the right to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations. 5. Representations and Warranties. Company represents and warrants as follows: (a) Schedule I hereto completely and accurately sets forth the number of shares of the issued and outstanding stock of Issuer being pledged hereunder by Company as of the date hereof. The Pledged Shares held by Company constitute the percentage of the issued and outstanding shares of stock of Issuer set forth on Schedule I hereto as of the date hereof. (b) The delivery of the Pledged Shares (to the extent such Pledged Shares are certificated) to Agent pursuant to this Agreement is effective to create a valid and perfected first priority security interest in the Pledged Collateral, free of any adverse claim, securing the payment of the Secured Obligations subject to Permitted Liens. -2- (c) No consent of any other Person and no consent, authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required either (i) for the pledge by Company of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by Company or (ii) for the exercise by Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except (i) as has already been obtained or taken , (ii) as may be required in connection with any disposition of the Pledged Collateral by laws affecting the offering and sale of securities generally and (iii) as to which the failure of which to obtain would not be reasonably likely to have a Material Adverse Effect). (d) None of the Pledged Shares constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System. 6. Further Assurances. (a) Company will, from time to time, at Company's expense, and upon Agent's reasonable request, promptly execute and deliver all further instruments and documents and take all further action that may be reasonably necessary, in order to perfect and protect any security interest granted or purported to be granted hereby, to enable Agent to exercise and enforce the rights and remedies of Agent hereunder with respect to any Pledged Collateral or to carry out the provisions and purposes hereof. Without limiting the generality of the foregoing, Company will: (i) upon Agent's reasonable request, appear in and defend any action or proceeding that may affect Company's title to or Agent's security interest in the Pledged Collateral; and (ii) promptly after the purchase or other acquisition thereof, deliver to Agent all Pledged Shares hereunder. (b) Company will, promptly upon request, provide to Agent all information and evidence it may reasonably request concerning the Pledged Collateral to enable Agent to enforce the provisions of this Agreement. (c) Company will, promptly upon the purchase or acquisition of any additional shares of stock of Issuer, deliver to Agent such Pledged Shares as required by Section 4 above, together with the other documents required under Section 4 above. 7. Voting Rights; Dividends; Etc. (a) So long as no Event of Default shall have occurred and is continuing and Agent shall not have delivered to Company notice of its election to exercise the rights set forth in subsection (b) below: (i) Company shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof; provided, however, that Company shall not exercise or shall refrain from exercising any such right if, in Agent's reasonable judgment, such action or -3- inaction would have a material adverse effect on the value of the Pledged Collateral taken as a whole or any material part thereof. (ii) To the extent permitted under the Credit Agreement, Company shall be entitled to receive (A) any cash dividends and other cash distributions paid or payable with respect to any of the Pledged Collateral, and (B) any and all instruments, chattel paper and other rights, property or proceeds and products (other than cash or checks) received, receivable or otherwise distributed in respect of any Pledged Collateral. (b) If an Event of Default has occurred and is continuing: (i) All rights of Company to exercise the voting and other consensual rights which Company would otherwise be entitled to exercise pursuant to subsection 7(a)(i), shall cease to be effective upon notice by Agent to Company of Agent's intent to exercise its rights hereunder, and upon delivery of such notice become vested in Agent who shall thereupon have the sole right to exercise such voting and other consensual rights. In order to effect the foregoing, Company hereby grants Agent an irrevocable proxy to vote the Pledged Collateral and Company agrees to execute such other proxies as Agent shall reasonably require. (ii) All rights of Company to receive and retain any cash dividends and other distributions shall cease upon notice by Agent to Company and any such dividends or other distributions paid or payable with respect to any of the Pledged Collateral shall be paid to Agent and held by Agent to secure the Secured Obligations until the earlier of (a) such time as such Event of Default is cured or waived and (b) such time as the Required Lenders elect to apply such dividends and other distributions to the Secured Obligations (any such application to be in such order and manner set forth in Section 8.03 of the Credit Agreement). All dividends and distributions which are received by Company contrary to the provisions of this subsection 7(b) shall be received in trust for the benefit of Agent, shall be segregated from other funds of Company and shall be forthwith paid over to Agent as Pledged Collateral in the same form as so received (with any necessary endorsement). 8. Transfers and Other Liens; Additional Shares. (a) Except as permitted under the Credit Agreement and the other Loan Documents, Company agrees that Company will not (i) encumber, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral or (ii) enter into any other Contractual Obligations (including without limitation any voting or shareholders agreement) which could reasonably be expected to restrict or inhibit Agent's rights or ability to vote or sell or otherwise dispose of the Pledged Collateral or any part thereof after the occurrence of an Event of Default. -4- (b) Company agrees that it will not cause Issuer to issue any stock or other securities (including any warrants, options, subscriptions or other Contractual Obligations for the purchase of stock or securities convertible into stock) in addition to or in substitution for the Pledged Shares. 9. Agent Appointed Attorney-in-Fact. Company hereby irrevocably appoints Agent as Company's attorney-in-fact effective during the continuance of an Event of Default, with full authority in the place and stead of Company and in the name of Company, Agent or otherwise, from time to time in Agent's discretion to take any action (including completion and presentation of any proxy) and to execute any instrument that Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation (but subject to the other provisions hereof), to (i) receive, endorse and collect all instruments made payable to Company representing any dividend or other distribution in respect of the Pledged Collateral or any part thereof to the extent it is also Pledged Collateral; (ii) exercise the voting and other consensual rights pertaining to the Pledged Collateral; and (iii) sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though Agent was the absolute owner thereof for all purposes, and to do, at Agent's option and Company's expense, at any time or from time to time, all acts and things that Agent deems necessary to protect, preserve or realize upon the Pledged Collateral. Company hereby ratifies and approves all acts of Agent made or taken pursuant to this Section 9. Except as specifically set forth in Section 11 hereof, neither Agent nor any Person designated by Agent shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law. This power of attorney, being coupled with an interest, shall be irrevocable until all Secured Obligations shall have been paid in full and the Credit Agreement shall have been terminated. 10. Agent May Perform. If Company fails to perform any agreement contained herein, Agent may itself perform, or cause performance of, such agreement, and the expenses of Agent incurred in connection therewith shall be payable by Company under Section 15 hereof, and be a part of the Secured Obligations. 11. Limitation on Duty of Agent with Respect to the Pledged Collateral. The powers conferred on Agent hereunder are solely to protect its interest in the Pledged Collateral and shall not impose any duty on it to exercise any such powers. Except for the safe custody of any Pledged Collateral in its possession and the accounting for monies actually received by it hereunder, Agent shall have no duty with respect to any Pledged Collateral in its possession (or in the possession of any agent or bailee). Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if it takes such action for that purpose as Company reasonably requests in writing, but failure of Agent to comply with any such request at any time shall not of itself be deemed a failure to exercise reasonable care. It is expressly agreed that Agent shall have no responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Collateral, whether or not Agent has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral, but Agent -5- may do so and, subject to Section 15, all expenses incurred in connection therewith shall be payable by and for the sole account of Company. 12. Remedies upon Event of Default. If any Event of Default shall have occurred and is continuing: (a) Agent may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party under the Uniform Commercial Code (the "UCC") in effect in the State of Illinois at that time, whether or not the UCC applies to the affected Pledged Collateral, and Agent may also, without notice except as specified below, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Agent's offices or elsewhere, for cash, on credit, or for future delivery, at such price or prices and upon such other terms as Agent deems commercially reasonable. Company agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' prior written notice to Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. At any sale of the Pledged Collateral, if permitted by law, Agent may bid (which bid may be, in whole or in part, in the form of cancellation of indebtedness) for the purchase of the Pledged Collateral or any portion thereof. Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) Company recognizes that Agent may be unable to effect a public sale of all or part of the Pledged Collateral and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Company acknowledges that any such private sales may be at prices and on terms less favorable to the seller than if sold at public sales and agrees that such private sales shall be deemed to have been made in a commercially reasonable manner, and that Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit the issuing corporation of such securities to register such securities for public sale under the Securities Act of 1933, as from time to time amended (the "Securities Act"), or under any other requirement of law, even if the issuing corporation would agree to do so. To the extent permitted by law, Company hereby specifically waives all rights of redemption, stay or appraisal which Company has or may have under any law now existing or hereafter enacted. 13. Remedies Cumulative. No failure on the part of Agent to exercise, and no delay in exercising and no course of dealing with respect to, any power, privilege or right under the other Loan Documents or this Agreement shall operate as a waiver thereof; nor shall any single or partial exercise by Agent of any power, privilege or right under any of the other Loan Documents or this Agreement preclude any other or further exercise thereof or -6- the exercise of any other such power, privilege or right. The powers, privileges and rights in this Agreement and the Loan Documents are cumulative and are not exclusive of any other remedies provided by law. 14. Application of Proceeds. If an Event of Default has occurred and is continuing, the proceeds of any sale of, or other realization upon, all or any part of the Pledged Collateral shall be applied as provided in Section 8.03 of the Credit Agreement. 15. Expenses. Subject to the provisions of Section 10.04 of the Credit Agreement, Company shall promptly pay to Agent all reasonable costs and expenses of Agent (including reasonable Attorney Costs) in connection with protecting or perfecting Agent's security interest in the Pledged Collateral or in connection with any matters contemplated by or arising out of this Agreement (including without limitation the enforcement of this Agreement), the Credit Agreement or any of the other Loan Documents. 16. Termination of Security Interests; Release of Collateral. Upon payment and performance in full of all Secured Obligations and termination of the Credit Agreement, the security interests granted herein shall automatically terminate and all rights to the Pledged Collateral shall revert to Company. Upon such termination of the security interests or release of any Pledged Collateral, Agent will, at the expense of Company, return to Company all Pledged Collateral then in Agent's possession and execute and deliver to Company such documents as Company shall reasonably request to evidence the termination of the security interests or the release of such Pledged Collateral which has not yet theretofore been sold or otherwise applied or released. Such release shall be without recourse or warranty to Agent. 17. Amendments, Waivers and Consents. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by Company therefrom, shall in any event be effective without the written concurrence of Agent and Company. 18. Notices. All notices, requests and other communications hereunder shall be given to Company at the facsimile number and address set forth on the signature page hereof and to Agent in accordance with Schedule 10.02 of the Credit Agreement. 19. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Agent and each Lender. 20. Waiver. In addition to any other waivers herein, Company waives to the greatest extent it may lawfully do so, and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets, redemption or similar law, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by Company of its obligations under, or the enforcement by Agent of, this -7- Agreement. Company hereby waives diligence, presentment and demand (whether for nonpayment or protest or of acceptance, maturity, extension of time, change in nature or form of the Secured Obligations, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of the Secured Obligations, notice of adverse change in Company's or any other Person's financial condition or any other fact which might materially increase the risk to Company) with respect to any of the Secured Obligations or all other demands whatsoever. Company hereby waives, to the extent it may lawfully do so, any requirement on the part of any holder of any Note to mitigate the damages resulting from any default under any Note. 21. Applicable Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE; PROVIDED, THAT COMPANY AND AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS SITTING IN COOK COUNTY, ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, COMPANY AND AGENT CONSENT, FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. COMPANY AND AGENT IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT RELATED THERETO. COMPANY AND AGENT WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY THE LAW OF SUCH STATE. 22. Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE -8- DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 23. Failure or Indulgence Not Waiver; Remedies Cumulative; Severability. (a) No failure or delay on the part of Agent or any Lender in the exercise of, and no course of dealing with respect to, any power, right or privilege under the Credit Agreement or this Agreement or any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any Default or Event of Default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or any other right, power or privilege. All rights and remedies existing under the Credit Agreement, this Agreement, the other Loan Documents or by law afforded are cumulative to, and not exclusive of, any rights or remedies otherwise available and shall be available to Agent until the Secured Obligations have been indefeasibly paid in full and the termination of all Commitments. (b) The invalidity, illegality or unenforceability of any provision in or obligation under this Agreement shall not affect or impair the validity, legality or enforceability of the remaining provisions or obligations under this Agreement. 24. Survival of Representations. All representations and warranties of Company contained in this Agreement shall survive the execution and delivery of this Agreement. 25. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. [Signatures follow on next page.] -9- Witness the due execution hereof by the duly authorized officer of the undersigned as of the day first above written. PLAYBOY.COM INTERNET GAMING, INC. By Robert Campbell Its Treasurer Address for notices: Playboy.com Internet Gaming, Inc. c/o PEI Holdings, Inc. 680 North Lake Shore Drive Chicago, Illinois 60611 Attn: Executive Vice President, Finance and Operations and Chief Financial Officer Facsimile: (312) 649-1395 ACKNOWLEDGED AND ACCEPTED: BANK OF AMERICA, N.A., as Agent By David A. Johanson ----------------- Its Vice President -------------- -10- SCHEDULE I TO PLEDGE AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------ Class of Stock Certificate Number of Company Stock Numbers Shares Percentage ------- ----- ------- ------ ---------- - ------------------------------------------------------------------------------------------------------------------------ Playboy.com Racing, Inc. 100% - ------------------------------------------------------------------------------------------------------------------------
EX-10.2.8 11 d68813_ex102-8.txt TRADEMARK SECURITY AGREEMENT Exhibit 10.2.8 TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (the "Agreement") made as of this 15th day of May 2006, by PLAYBOY.COM, INC., a Delaware corporation ("Grantor") in favor of Bank of America, N.A., in its capacity as Agent for the Lenders party to the Credit Agreement (defined below) ("Grantee"): W I T N E S S E T H WHEREAS, PEI Holdings, Inc. ("PEI"), Grantee and Lenders are parties to that certain Amended and Restated Credit Agreement dated as of April 1, 2005 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), providing for extensions of credit to be made to or for the benefit of PEI by Lenders; WHEREAS, pursuant to that certain Joinder to Master Corporate Guaranty of even date herewith pursuant to which Grantor has become a party to that certain Master Corporate Guaranty dated as of March 11, 2003 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Guaranty") among Playboy Enterprises, Inc. ("Playboy"), certain direct and indirect subsidiaries of PEI (collectively, the "Other Grantors") and Grantee, Grantor has guaranteed the Borrower's Obligations (as defined in the Guaranty); and WHEREAS, pursuant to the terms of a certain Joinder to Security Agreement of even date herewith pursuant to which Grantor has become a party to that certain Security Agreement dated as of March 11, 2003 among the Other Grantors and Grantee (as the same may be amended or otherwise modified from time to time, the "Security Agreement"), Grantor has granted to Grantee, for the benefit of Lenders, a lien on, and security interest in, any and all right, title and interest in, and to the Trademarks (as defined in the Security Agreement), whether now owned or hereafter created, acquired or arising, to secure the payment of all obligations of and amounts owing by PEI under the Credit Agreement and Grantor's obligations under the Guaranty; NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows: 1. Incorporation of Credit Agreement and Security Agreement. The Credit Agreement and Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto. All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the Security Agreement. 2. Grant and Reaffirmation of Grant of Security Interests. To secure the payment and performance of the Obligations and Grantor's obligations under the Guaranty, Grantor hereby grants to Grantee, for its benefit and the benefit of Lenders, and hereby affirms its grant pursuant to the Security Agreement (which grant shall be deemed to have been made simultaneously herewith) of, a lien on, and security interest in, any and all right, title and interest in and to the following (all of the following items or types of property being herein collectively referred to as the "Trademark Collateral"; provided that Trademark Collateral will not include "intent to use" trademark applications unless Grantor has used such trademarks and has filed a statement of use or amendment to allege use with respect to such application), whether now owned or hereafter created, acquired or arising: (i) any trademarks, trademark registrations, and trademark applications, trade names and trade styles, service marks, service registrations and service mark applications, including without limitation, the United States federal trademark registrations and applications set forth on Schedule A hereto, all renewals and extensions of any of the foregoing and all goodwill symbolized by any of the foregoing; (ii) all income, damages and payments now and hereafter due or payable with respect thereto, including without limitation, damages and payments for past or future infringements, unfair competition, dilution, or for injury to the goodwill associated with any of the Trademarks; (iii) licenses of any of the foregoing to or from third parties and the royalties and other payments, if any, receivable thereunder; (iv) the right to sue for past, present and future infringements thereof; (v) all rights corresponding thereto throughout the world; and (vi) Proceeds and products of the foregoing and all insurance payments pertaining to the foregoing and proceeds thereof. Notwithstanding the foregoing, the Trademark Collateral shall not include any General Intangibles or other rights arising under any contracts, instruments, licenses or other documents to the extent that the grant of a Lien or security interest therein would (a) result in a breach of the terms of, or constitute a default under, such contract, instrument, license, agreement or other document (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any successor provision of the Uniform Commercial Code of any relevant jurisdiction or other applicable law) or (b) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder pursuant to a valid and enforceable provision (including without limitation in connection with the operation of Section 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any other applicable law). -2- IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above. PLAYBOY.COM, INC. By Name: Robert Campbell Title:Treasurer Agreed and Accepted As of the Date First Written Above BANK OF AMERICA, N.A. as Agent By David A Johanson Its Vice President -3- ACKNOWLEDGMENT STATE OF Illinois ) ) SS COUNTY OF Cook ) I, Sue Ann Dickey, a Notary Public in and for and residing in said County and State, DO HEREBY CERTIFY THAT Robert Campbell, of Playboy.com, Inc., personally known to me to be the same persons whose names are subscribed to the foregoing instrument appeared before me this day in person and acknowledged that they signed and delivered said instrument as their own free and voluntary act and as the free and voluntary act of the corporations set forth on the signature page of the foregoing instrument for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 5th day of May 2006. Sue Ann Dickey Notary Public My Commission Expires: September 2, 2007 -4- ACKNOWLEDGMENT STATE OF Illinois ) ) SS COUNTY OF Cook ) I, Maria Paggao, a Notary Public in and for and residing in said County and State, DO HEREBY CERTIFY THAT David A. Johanson of Bank of America, N.A., personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that ___he signed and delivered said instrument as his own free and voluntary act and as the free and voluntary act of said __________ for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 1st day of May 2006. Maria Paggao Notary Public My Commission Expires: 2/1/09 ---------------------------------------- -5- SCHEDULE A TRADEMARK REGISTRATIONS Trademark Title U.S. Registration No. Registration Date --------------- --------------------- ----------------- TRADEMARK APPLICATIONS Trademark Application U.S. Application No. Registration Date - --------------------- -------------------- ----------------- EX-10.2.9 12 d68813_ex102-9.txt COPYRIGHT SECURITY AGREEMENT Exhibit 10.2.9 COPYRIGHT SECURITY AGREEMENT This COPYRIGHT SECURITY AGREEMENT (the "Agreement") made as of this 15th day of May 2006, by PLAYBOY.COM, INC., a Delaware corporation ("Grantor") in favor of Bank of America, N.A., in its capacity as Agent for the Lenders party to the Credit Agreement (defined below) ("Grantee"): W I T N E S S E T H WHEREAS, PEI Holdings, Inc. ("PEI"), Grantee and Lenders are parties to that certain Amended and Restated Credit Agreement dated as of April 1, 2005 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), providing for extensions of credit to be made to or for the benefit of PEI by Lenders; WHEREAS, pursuant to that certain Joinder to Master Corporate Guaranty of even date herewith pursuant to which Grantor has become a party to that certain Master Corporate Guaranty dated as of March 11, 2003 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "Guaranty") among Playboy Enterprises, Inc. ("Playboy"), certain direct and indirect subsidiaries of PEI (collectively, the "Other Grantors") and Grantee, Grantor has guaranteed the Borrower's Obligations (as defined in the Guaranty); and WHEREAS, pursuant to the terms of a certain Joinder to Security Agreement of even date herewith pursuant to which Grantor has become a party to that certain Security Agreement dated as of March 11, 2003 among the Other Grantors and Grantee (as the same may be amended or otherwise modified from time to time, the "Security Agreement"), Grantor has granted to Grantee, for the benefit of Lenders, a lien on, and security interest in, any and all right, title and interest in, and to the Copyrights (as defined in the Security Agreement), whether now owned or hereafter created, acquired or arising, to secure the payment of all obligations of and amounts owing by PEI under the Credit Agreement and Grantor's obligations under the Guaranty; NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows: 1. Incorporation of Credit Agreement and Security Agreement. The Credit Agreement and Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto. All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the Security Agreement. 2. Grant and Reaffirmation of Grant of Security Interests. To secure the payment and performance of the Obligations and Grantor's obligations under the Guaranty, Grantor hereby grants to Grantee, for its benefit and the benefit of Lenders, and hereby affirms its grant pursuant to the Security Agreement (which grant shall be deemed to have been made simultaneously herewith) of a lien on, and security interest in, any and all right, title and interest in and to the following (all of the following items or types of property being herein collectively referred to as the "Copyright Collateral"), whether now owned or hereafter created, acquired or arising: (i) any copyrights, copyright registrations and copyright applications, including without limitation, the United States federal copyright registrations and applications set forth on Schedule A hereto, and all renewals and extensions of any of the foregoing; (ii) all income, damages and payments now and hereafter due or payable with respect thereto, including, without limitation, damages and payments for past or future infringements thereof; (iii) licenses of any of the foregoing to or from third parties and the royalties and other payments, if any, receivable thereunder; (iv) the right to sue for past, present and future infringements thereof; (v) all rights corresponding thereto throughout the world; and (vi) Proceeds and products of the foregoing. Notwithstanding the foregoing, the Copyright Collateral shall not include any General Intangibles or other rights arising under any contracts, instruments, licenses or other documents to the extent that the grant of a Lien or security interest therein would (a) result in a breach of the terms of, or constitute a default under, such contract, instrument, license, agreement or other document (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any successor provision of the Uniform Commercial Code of any relevant jurisdiction or other applicable law) or (b) give any other party to such contract, instrument, license or other document the right to terminate its obligations thereunder pursuant to a valid and enforceable provision (including without limitation in connection with the operation of Section 9-406, 9-407 or 9-408 of the Uniform Commercial Code or any other applicable law). -2- IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above. PLAYBOY.COM, INC. By Name: Robert Campbell Title: Treasurer Agreed and Accepted As of the Date First Written Above BANK OF AMERICA, N.A. as Agent By: David A. Johanson Its: Vice President -------------- -3- ACKNOWLEDGMENT STATE OF Illinois ) ) SS COUNTY OF Cook ) I, Sue Ann Dickey, a Notary Public in and for and residing in said County and State, DO HEREBY CERTIFY THAT Robert Campbell, of Playboy.com, Inc., personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that he signed and delivered said instrument as his free and voluntary act and as the free and voluntary act of the corporations set forth on the signature page of the foregoing instrument for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 5th day of May, 2006. Sue Ann Dickey Notary Public My Commission Expires: September 2, 2007 -4- ACKNOWLEDGMENT STATE OF Illinois ) ) SS COUNTY OF Cook ) I, Maria Paggao, a Notary Public in and for and residing in said County and State, DO HEREBY CERTIFY THAT David A. Johanson of Bank of America, N.A., personally known to me to be the same person whose name is subscribed to the foregoing instrument appeared before me this day in person and acknowledged that ___he signed and delivered said instrument as his own free and voluntary act and as the free and voluntary act of said __________ for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 1st day of May, 2006. Maria Paggao Notary Public My Commission Expires: 02/01/09 -5- SCHEDULE A COPYRIGHT REGISTRATIONS Copyright Title U.S. Registration No. --------------- --------------------- COPYRIGHT APPLICATIONS Copyright Application - --------------------- EX-10.3 13 d68813_ex10-3.txt EMPLOYEE STOCK PURCHASE PLAN Exhibit 10.3 PLAYBOY ENTERPRISES, INC. EMPLOYEE STOCK PURCHASE PLAN (as amended through April 25, 2006) SECTION 1. PURPOSE. This Employee Stock Purchase Plan (the "Plan") is intended to advance the interests of Playboy Enterprises, Inc. (the "Company") and its stockholders by allowing employees of the Company and those subsidiaries of the Company that participate in the Plan the opportunity to purchase shares of the Company's Class B Common Stock ("Class B Common Stock"). It is intended that the Plan will constitute an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). SECTION 2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee (the "Committee") of the Board of Directors, comprised of persons who are both non-employee directors within the meaning of Rule 16b-3 which has been adopted by the Securities Exchange Commission under the Securities Exchange Act of 1934, as amended, as such rule or its equivalent is then in effect ("Rule 16b-3") and "outside directors" within the meaning of Section 162(m) of the Code. The majority of the Committee shall constitute a quorum, and the action of (a) a majority of the members of the Committee present at any meeting at which a quorum is present or (b) all members acting unanimously by written consent, shall be the acts of the Committee. The interpretation and construction by the Committee of any provision of the Plan or of any subscription to purchase shares under it shall be final. The Committee may establish any policies or procedures which in the discretion of the Committee are relevant to the operation and administration of the Plan and may adopt rules for the administration of the Plan. The Committee will, from time to time, designate the subsidiaries (as defined below) of the Company whose employees will be eligible to participate in the Plan. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any subscription to purchase shares under it. For purposes of this Plan, the term "subsidiary" means any corporation in which the Company directly or indirectly owns or controls more than 50 percent of the total combined voting power of all classes of stock issued by the corporation. SECTION 3. ELIGIBILITY. Each employee of the Company or of a participating subsidiary of the Company whose customary employment is a minimum of 20 hours per week may subscribe to purchase shares of Class B Common Stock under the terms of the Plan, except that no employee may subscribe to purchase shares on the immediately following Purchase Date (as defined below) if, immediately after the immediately preceding Subscription Date (as defined below), such employee would own stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or of any subsidiary of the Company. For purposes of this paragraph, stock ownership of an individual shall be determined under the rules of Section 424(d) of the Code. For purposes of the Plan: (a) The term "Subscription Date" means the first business day of each fiscal quarter of the Company during which the Plan is effective or, in the case of a participant who is not an employee of the Company or a participating subsidiary of the Company as of a particular Subscription Date, the date thereafter on which such participant became an employee of the Company or a participating subsidiary of the Company. The first Subscription Date under the Plan will be July 1, 1996. (b) The term "Purchase Date" means the last business day of the fiscal quarter in which the related Subscription Date occurs. SECTION 4. PARTICIPATION. (a) An eligible employee shall evidence his or her agreement to subscribe for shares by completing a written agreement (the "Subscription and Authorization Form") provided by the Committee and filing it as directed by the Committee. A Subscription and Authorization Form will take effect within a reasonable time after it has been filed with the Company. Once an employee provides the Committee with the Subscription and Authorization Form, he or she continues as a participant in the Plan on the terms provided in such form until he or she provides a new form or withdraws from the Plan. (b) In the Subscription and Authorization Form, an eligible employee shall designate any whole dollar amount to be withheld from such employee's compensation in each pay period and used to purchase shares of Common Stock on the next Purchase Date, subject to the following limitations: (i) the whole dollar amount (on an annualized basis) shall not exceed 10 percent of his or her compensation (as defined below) on an annualized basis; (ii) the maximum number of shares of Class B Common Stock which can be purchased by any one employee on any Purchase Date shall not exceed 1,000 shares of the Class B Common Stock; and (iii) the Committee may establish from time to time minimum payroll deductions. For purposes of this Plan, the term "compensation" means an eligible employee's bi-weekly base salary. SECTION 5. STOCK. The stock purchased under the Plan shall be shares of authorized but unissued or reacquired Class B Common Stock. Subject to the provisions of Section 6(h), the aggregate number of shares which may be purchased under the Plan shall not exceed 140,000 shares of Class B Common Stock. In the event that the dollar amount of shares subscribed for in any quarter exceeds the number of shares available to be purchased under the Plan, the shares available to be purchased shall be allocated on a pro rata basis among the subscriptions. 2 SECTION 6. TERMS AND CONDITIONS OF SUBSCRIPTIONS. Subscriptions shall be evidenced by a Subscription and Authorization Form in such form as the Committee shall from time to time approve, provided that all employees subscribing to purchase shares shall have the same rights and privileges (except as otherwise provided in Section 4(b) and subparagraph (d) below), and provided further that such subscriptions shall comply with and be subject to the following terms and conditions: (a) Purchase Price. The purchase price shall be an amount equal to 85 percent of the fair market value of such stock on the Purchase Date. During such time as the Class B Common Stock is traded on the New York Stock Exchange, the fair market value per share shall be the closing price of the Class B Common Stock (as reported in the record of Composite Transactions for New York Stock Exchange listed securities and printed in The Wall Street Journal) on such Purchase Date (or on the next regular business date on which shares of the Class B Common Stock of the Company shall be traded in the event that no shares of the Class B Common Stock shall have been traded on the Purchase Date). Subject to the foregoing, the Committee shall have full authority and discretion in fixing the purchase price. (b) Medium and Time of Payment. The purchase price shall be payable in full in United States dollars, pursuant to uniform policies and procedures established by the Committee. The funds required for such payment will be derived by withholding from an employee's compensation. An employee shall have the right at any time to terminate the withholding from his or her compensation of amounts to be paid toward the purchase price. An employee shall have the right, one time in each quarter, to change the amount so withheld, by submitting a written request to the Company at least 15 business days before any Purchase Date. An employee shall have the right to cancel his or her subscription in whole and to obtain a refund of amounts withheld from his or her compensation by submitting a written request to the Company at least 15 business days before any Purchase Date. Any cancellation of a subscription in whole will constitute a withdrawal under Section 4(a) of the Plan. Such amounts shall thereafter be paid to the employee within a reasonable period of time. (c) No Interest on Employee Funds. No interest shall accrue on any amounts withheld from an employee's compensation. (d) Accrual Limitation. No subscription shall permit the rights of an employee to purchase stock under all "employee stock purchase plans" (as defined in the Code) of the Company to accrue, under the rules set forth in Section 423(b)(8) of the Code, at a rate which exceeds $25,000 of fair market value of such stock (determined at the time of subscription) for each calendar year. (e) Termination of Employment. If an employee who has subscribed for shares ceases to be employed by the Company or a participating subsidiary before any applicable Purchase Date: i. Because of retirement or disability, he or she may elect to continue making payments equal to the rate of payroll deductions made before retirement or disability 3 until the first Purchase Date following retirement or disability; or otherwise the accumulated payment in his or her account at the time of retirement or disability will be applied to purchase shares at the applicable purchase price on the first Purchase Date following such retirement or disability, unless the Company is otherwise notified in writing. ii. For any other reason, he or she may elect to have the accumulated payment in his or her account at the time of termination applied to purchase shares at the applicable purchase price on the first Purchase Date following such termination; or otherwise the total unused payments credited to his or her account on the date of termination will be refunded within a reasonable time without interest, unless the Company is otherwise notified in writing. (f) Transferability. Neither payments credited to an employee's account nor any rights to subscribe to purchase shares of Class B Common Stock under the Plan may be transferred by an employee except by the laws of descent and distribution. Any such attempted transfer will be without effect, except that the Company may treat such act as an election by the employee to withdraw in accordance with Section 6(b). Shares of Class B Common Stock may be purchased under the Plan only by subscribing employees who have legal capacity as determined under applicable state law or, in the event of the employee's legal incapacity, by his or her guardian or legal representative acting in a fiduciary capacity on behalf of the employee under state law or court supervision. (g) Death and Designation of Beneficiary. An employee may file with the Company a written designation of beneficiary and may change such designation of beneficiary at any time by written notice to the Company. On the death of an employee, the elections provided on termination of employment for retirement or disability may be exercised by the employee's beneficiary, executor, administrator, or other legal representative. (h) Adjustments. The Committee may make or provide for such adjustments in the purchase price and in the number or kind of shares of the Class B Common Stock or other securities covered by outstanding subscriptions, or specified in the second sentence of Section 5 of the Plan, as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of employees that would otherwise result from (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company; (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, separation, reorganization, partial or complete liquidation, or other distribution of assets, issuance of rights or warrants to purchase stock; or (iii) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for any or all outstanding subscriptions under this Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances. (i) Rights as a Stockholder. An employee shall have no rights as a stockholder with respect to any Class B Common Stock covered by his or her subscription until the Purchase Date following payment in full. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date of such purchase, except as provided in Section 6(h) of the Plan. 4 (j) Fractional Shares. Fractional shares may be purchased under the Plan and credited to an account for the employee. The Company, however, shall have the right to pay cash in lieu of any fractional shares of Class B Common Stock to be distributed from an employee's account under the Plan. (k) Other Provisions. The Subscription and Authorization Form authorized under the Plan shall contain such other provisions as the Committee may deem advisable, provided that no such provisions may in any way be in conflict with the terms of the Plan. SECTION 7. TERM OF PLAN. Eligible employees may subscribe for shares under the Plan until April 25, 2016; provided, however, that the Committee may terminate or suspend the Plan if at any time there are less than 5 percent of the eligible employees participating in the Plan. SECTION 8. AMENDMENT OF THE PLAN. The Plan may be amended from time to time by the Committee, but without further approval of the stockholders, no such amendment shall (a) increase the aggregate number of shares of Class B Common Stock that may be issued and sold under the Plan (except that adjustments authorized by Section 6(h) of the Plan shall not be limited by this provision) or (b) materially modify the requirements as to eligibility for participation in the Plan. SECTION 9. APPROVAL OF STOCKHOLDERS. The Plan shall take effect upon adoption by the Board of Directors; provided, however, that any subscriptions and purchases under the Plan shall be null and void unless the Plan is approved by a vote of the holders of a majority of the total number of outstanding shares of voting stock of the Company present in person or by proxy at a meeting at which a quorum is present in person or by proxy, which approval must occur within the period of 12 months after the date the Plan is adopted by the Board of Directors. 5 PLAYBOY ENTERPRISES, INC. UNANIMOUS CONSENT OF MEMBERS OF THE BOARD OF DIRECTORS Pursuant to the provisions of Section 141(f) of the Delaware General Corporation Law, the undersigned Directors, constituting all of the members of the Board of Directors (the "Board") of Playboy Enterprises, Inc., a Delaware corporation (the "Corporation"), hereby consent to the taking of the following action without the holding of a meeting and hereby adopt these resolutions effective as of April 25, 2006. WHEREAS, the Board has determined that it is in the interest of the Corporation to amend the Playboy Enterprises, Inc. Employee Stock Purchase Plan (the "Plan") to extend the term thereof; and WHEREAS, Section 8 of the Plan permits the Board to amend the Plan in its discretion (subject to certain restrictions not applicable in this instance); and NOW, THEREFORE, BE IT RESOLVED, that, effective as of April 25, 2006, the Plan is hereby amended to extend the term thereof until April 25, 2016 and to make certain conforming changes to the Plan document; and RESOLVED, FURTHER, that the officers of the Corporation, and each of them, be, and they hereby are, authorized and directed to execute these resolutions and are authorized and directed to execute such other documents and to take such further action as they or any of them, determines to be necessary, desirable or appropriate to accomplish the purpose of the foregoing resolutions. Upon the execution of this Unanimous Consent of the Members of the Board of Directors, in one or more counterparts by all of the members of the Board, the adoption of these resolutions shall be effective as of the date first above written. Dated as of April 25, 2006 /s/ Christie Hefner /s/ Dennis Bookshester - -------------------------- --------------------------------- Christie Hefner Dennis Bookshester /s/ David Chemerow /s/ Donald Drapkin - -------------------------- --------------------------------- David Chemerow Donald Drapkin /s/ Jerome Kern /s/ Russell Pillar - -------------------------- --------------------------------- Jerome Kern Russell Pillar /s/ Sol Rosenthal /s/ Richard Rosenzweig - -------------------------- --------------------------------- Sol Rosenthal Richard Rosenzweig 6 EX-31.1 14 d68813_ex31-1.txt SETION 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christie Hefner, Chairman of the Board, Chief Executive Officer and Director of Playboy Enterprises, Inc., or the registrant, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Playboy Enterprises, Inc. for the quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2006 /s/ Christie Hefner ------------------- Name: Christie Hefner Title: Chairman of the Board, Chief Executive Officer and Director EX-31.2 15 d68813_ex31-2.txt SETION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Linda G. Havard, Executive Vice President, Finance and Operations, and Chief Financial Officer of Playboy Enterprises, Inc., or the registrant, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Playboy Enterprises, Inc. for the quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2006 /s/ Linda Havard ---------------- Name: Linda G. Havard Title: Executive Vice President, Finance and Operations, and Chief Financial Officer EX-32 16 d68813_ex32.txt SETION 906 CERTIFICATION OF CEO AND CFO Exhibit 32 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Playboy Enterprises, Inc. (the "Company") for the quarterly period ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Christie Hefner, as Chief Executive Officer of the Company, and Linda G. Havard, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of her knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Christie Hefner - ------------------- Name: Christie Hefner Title: Chief Executive Officer Date: August 9, 2006 /s/ Linda Havard - ---------------- Name: Linda G. Havard Title: Chief Financial Officer Date: August 9, 2006 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. A signed original of this written statement required by ss. 906 has been provided to Playboy Enterprises, Inc. and will be retained by Playboy Enterprises, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----