Exhibit 4.2
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EXCHANGE AGREEMENT
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dated as of March 11, 2003
among
▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇▇▇.▇▇▇, INC.
PEI HOLDINGS, INC.
and
PLAYBOY ENTERPRISES, INC.
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT, dated as of March 11, 2003 (this "Agreement"),
among ▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual (the "Holder"), ▇▇▇▇▇▇▇.▇▇▇, Inc., a
Delaware corporation ("▇▇▇▇▇▇▇.▇▇▇"), PEI Holdings, Inc., a Delaware corporation
("Holdings"), and Playboy Enterprises, Inc., a Delaware corporation ("Parent").
RECITALS
WHEREAS, on September 26, 2001, ▇▇▇▇▇▇▇.▇▇▇ issued a promissory
note, pursuant to which it promised to pay to the order of the Holder the
principal amount of five million dollars ($5,000,000), together with interest
incurred thereon, as therein provided;
WHEREAS, on July 1, 2002, ▇▇▇▇▇▇▇.▇▇▇ and the Holder entered into
Amendment No. 1 to the September 26, 2001 note (such note, as so amended, the
"First Note") in order to, among other things, modify the repayment provisions
thereof;
WHEREAS, on December 17, 2001, ▇▇▇▇▇▇▇.▇▇▇ issued a promissory note
(the "Second Note"), pursuant to which it promised to pay to the order of the
Holder the principal amount of up to ten million dollars ($10,000,000), together
with interest incurred thereon, as therein provided, and the Holder agreed to
lend to ▇▇▇▇▇▇▇.▇▇▇ such amounts as ▇▇▇▇▇▇▇.▇▇▇ may request between such date
and December 31, 2002, as therein provided;
WHEREAS, on or prior to December 31, 2002, the Holder lent to
▇▇▇▇▇▇▇.▇▇▇ an aggregate of ten million dollars ($10,000,000) pursuant to the
Second Note, such that the principal amount of the Second Note is currently ten
million dollars ($10,000,000);
WHEREAS, on September 27, 2002, ▇▇▇▇▇▇▇.▇▇▇ issued a promissory note
(the "Third Note," and, together with the First Note and the Second Note,
collectively, the "Original Notes"), pursuant to which it promised to pay to the
order of the Holder the principal amount of twelve million two hundred
thirty-five thousand four hundred ninety and 69/100ths dollars ($12,235,490.69),
together with interest incurred thereon, as therein provided;
WHEREAS, in connection with a proposed refinancing of Parent and its
subsidiaries, including the repayment of outstanding indebtedness under
Holdings' existing credit agreement with a group of banks (the "Refinancing"),
Holdings has agreed to issue and sell a series of senior secured notes (the
"Secured Notes"), which would be guaranteed by Parent and specified subsidiaries
of Holdings, pursuant to that certain Purchase Agreement, dated March 6, 2003,
among Holdings, Parent, the Subsidiary Guarantors (as defined therein) listed on
Schedule B thereto and the several Initial Purchasers named in Schedule A
thereto (the "Initial Purchasers");
WHEREAS, as a condition to their willingness to purchase the Secured
Notes, the Initial Purchasers have required that the indebtedness of ▇▇▇▇▇▇▇.▇▇▇
represented by the Original Notes be restructured;
WHEREAS, it is proposed that the Holder, Parent, Holdings and
▇▇▇▇▇▇▇.▇▇▇ enter into and consummate the transactions contemplated by this
Agreement, including (i) the surrender by the Holder of the Original Notes in
exchange for (A) the payment to the Holder of $500,000, (B) the issuance to the
Holder of an aggregate of one thousand (1,000) shares of Series A Exchangeable
Preferred Stock, par value $0.01 per share, of Holdings (the "Holdings Series A
Preferred Stock") and (C) the issuance to the Holder of an aggregate of one
thousand six hundred seventy-three and five hundred forty-nine thousand
sixty-nine millionths (1,673.549069) shares of Series B Exchangeable Preferred
Stock, par value $0.01 per share, of Holdings (the "Holdings Series B Preferred
Stock") and (ii) the subsequent exchange, pursuant to the terms of the Holdings
Series A Preferred Stock and the Holdings Series B Preferred Stock,
respectively, of the Holdings Series A Preferred Stock for shares of Class B
Common Stock, par value $0.01 per share, of Parent (the "Parent Class B Common
Stock") and of the Holdings Series B Preferred Stock for shares of a newly
created series of preferred stock, par value $0.01 per share, of Parent (the
"Parent Series A Preferred Stock") with the powers, designation, dividend
rights, voting powers, rights on liquidation, redemption rights and other
preferences and relative, participating, optional or other special rights and
with the qualifications, limitations or restrictions on the shares of such
series of preferred stock to be governed by the Certificate of the Designations,
Powers, Preferences and Rights of Series A Convertible Preferred Stock of
Playboy Enterprises, Inc. (the "Parent Series A Certificate of Designations") in
the form attached hereto as Exhibit A;
WHEREAS, the board of directors of Parent (the "Board") has
established a special committee of the Board (the "Special Committee") for the
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purpose of evaluating, negotiating and approving the restructuring of the terms
of the Original Notes;
WHEREAS, the Special Committee has, with the assistance of legal and
financial advisors selected by it, informed itself about, and has negotiated,
the restructuring of the Original Notes and, in connection therewith, received
the opinion of its financial advisors that the restructuring of the Original
Notes on the terms set forth in this Agreement (the "Debt Restructuring") was
fair to Parent and its stockholders, from a financial point of view, as of the
date of such opinion;
WHEREAS, the Special Committee has determined that the terms of the
Debt Restructuring are in the best interests of Parent and its stockholders and
has approved this Agreement and the Debt Restructuring and has recommended that
the Board approve and declare advisable this Agreement and the Debt
Restructuring and take all actions required to be taken of the full board to
effectuate the foregoing, and the Board, has effected such approval and taken
such action;
WHEREAS, the Holder wishes to facilitate the Refinancing and the
issuance and sale of the Secured Notes by engaging in the transactions provided
for herein;
WHEREAS, Holdings has heretofore amended its certificate of
incorporation to provide for the issuance of preferred stock in one or more
classes or series and has filed with the Secretary of State of the State of
Delaware (the "Delaware Secretary") certificates of designations setting forth
the powers, designations, dividend rights, voting powers, rights on liquidation,
redemption rights and other preferences and relative, participating, optional or
other special rights and the qualifications, limitations or restrictions of the
shares of Holdings Series A Preferred Stock and Holdings Series B Preferred
Stock;
WHEREAS, the certificate of incorporation of Parent (the "Parent
Charter") does not currently authorize preferred stock;
WHEREAS, Parent and the Holder wish to cause the amendment of the
Parent Charter to authorize the issuance by Parent of preferred stock in one or
more series and to give the board of directors of Parent the authority to
provide by resolution for the creation and issuance of any series thereof and
for the terms of any such series (the "Charter Amendment"); and
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WHEREAS, the Charter Amendment, and the issuance to Holder of the
Parent Class B Common Stock in exchange for the Holdings Series B Preferred
Stock as contemplated hereby, are subject to prior approval by the holders of
Class A Common Stock, par value $0.01 per share, of Parent ("Parent Class A
Common Stock"); and
WHEREAS, the Holder, as the beneficial owner of more than 50 percent
of the outstanding Parent Class A Common Stock, may, in accordance with the
Parent Charter, effect such prior approval by written consent and has executed
such written consent, a copy of which is attached hereto as Exhibit B.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, each of the parties hereto agrees as follows:
ARTICLE I
EXCHANGE AND RELEASE
Section 1.1 Exchange. Subject to the terms and conditions set forth
herein, simultaneously with the closing of the sale of the Secured Notes to the
Initial Purchasers (the "Secured Note Closing"), in exchange for the surrender
by the Holder to Holdings of the Original Notes, Holdings shall pay to Holder
five hundred thousand dollars ($500,000) in cash in immediately available funds
(the "Exchange Cash") in accordance with the wire transfer instructions provided
by Holder and shall issue to Holder 1,000 shares of Holdings Series A Preferred
Stock (the "Exchange A Shares") and one thousand six hundred seventy-three and
five hundred forty-nine thousand sixty-nine millionths (1,673.549069) shares of
Holdings Series B Preferred Stock (together with the Exchange A Shares, the
"Exchange Shares"). The Original Notes shall thereupon be cancelled. The
consummation of the exchange of the Original Notes for the Exchange Cash and
Exchange Shares as described in this Section 1.1 (the "Debt Exchange") is
referred to as the "Debt Exchange Closing."
Section 1.2 Debt Exchange Closing Deliveries. Upon the Debt Exchange
Closing, Holdings will deliver or cause to be delivered to the Holder
certificates registered in the name of the Holder evidencing the Exchange
Shares, and the Holder will deliver to Holdings each of the Original Notes;
provided, however, that in no event shall the delivery of such certificates or
the Original Notes be a condition to the Debt Exchange Closing.
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Section 1.3 Debt Exchange Release. Upon the Debt Exchange Closing,
▇▇▇▇▇▇▇.▇▇▇'s indebtedness under the Original Notes will be immediately
extinguished and cancelled, and any and all obligations of Parent and its
subsidiaries in respect of the Original Notes (including, without limitation,
that certain agreement by and between the Holder and Parent, dated December 17,
2001 (the "Letter Agreement," relating to certain redemption obligations with
respect to Series A Preferred Stock of ▇▇▇▇▇▇▇.▇▇▇) shall be terminated and
released and be of no further force and effect. The Holder hereby, with effect
from and after the Debt Exchange Closing, irrevocably waives, releases and
forever discharges Parent and its subsidiaries and each of Parent's and such
subsidiaries' respective successors, predecessors, assigns, affiliates,
subsidiaries and divisions and each and all of their respective directors,
officers, stockholders, employees, representatives and agents (the "Releasees")
from any and all actions, causes of action, suits, claims, demands, proceedings,
orders, judgments, obligations, rights, privileges, covenants, contracts,
agreements, debts, dues, sums of money, deliveries and liabilities whatsoever,
whether known or unknown, suspected or unsuspected, both at law and in equity
(collectively, "Claims") which the Holder and his heirs, executors,
administrators, successors and assigns may then have, ever will have had or may
thereafter have against the Releasees in connection with, or related directly or
indirectly to, the Original Notes (including, without limitation, the Letter
Agreement) or the indebtedness or obligations represented thereby or the terms
of such indebtedness or Letter Agreement, but not including any claims arising
out of any breach by Holdings or Parent of their respective obligations under
this Agreement.
Section 1.4 Filing of Designations and Information Statement;
Stockholder Approval. As soon as practicable after the Debt Exchange Closing,
Parent shall file with the Securities and Exchange Commission and mail to
stockholders of Parent an information statement relating to the approval by
holders of Parent Class A Common Stock, as evidenced by the Holder's irrevocable
written consent attached hereto as Exhibit B, of the Charter Amendment and the
issuance to the Holder of shares of Parent Class B Common Stock and Parent
Series A Preferred Stock in accordance with terms of the Exchange Shares as set
forth in the applicable certificates of designations.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE HOLDER
The Holder represents and warrants to Parent, Holdings and ▇▇▇▇▇▇▇.▇▇▇ as
follows:
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Section 2.1 Ownership of Notes. The Holder is the sole record owner
of and Beneficially Owns (as defined in Section 3.4(a)) the Original Notes,
which are owned by the Holder free and clear of all pledges, security interests,
liens, charges, encumbrances, claims and options of any nature.
Section 2.2 Consent. The written consent of the Holder attached
hereto as Exhibit B has not been amended, rescinded or modified and remains in
full force and effect as of the date hereof.
Section 2.3 No Conflict; Enforceability. The Holder has full legal
right, power and authority to enter into and deliver this Agreement and to
perform the terms, conditions and obligations hereof. The execution, delivery
and performance of this Agreement do not, and the transactions contemplated
hereby will not, (i) violate or conflict with (a) any law, rule or regulation
applicable to the Holder or (b) any agreement, instrument or license to which
the Holder is a party, or by which the Holder or any of its assets or properties
may be bound or subject, (ii) result in the creation of any encumbrance or
charge upon the Original Notes or the Exchange Shares or (iii) or violate any
order, judgment, injunction, award or decree applicable to the Holder of any
court, arbitrator, governmental or regulatory body. This Agreement constitutes
the valid and legally binding obligation of the Holder enforceable against the
Holder in accordance with its terms except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting enforcement of creditors' rights generally or general principles
of equity.
Section 2.4 Investment Purpose. The Holder is acquiring the Exchange
Shares, any Parent Class B Common Stock and Parent Series A Preferred Stock
(collectively, the "Exchange Securities") for his own account and not with a
view to, or for sale in connection with, any resale (other than pursuant to the
terms of the Exchange Shares) or distribution.
Section 2.5 Accredited Investor. The Holder is an "accredited
investor" within the meaning of Rule 501 under the Securities Act of 1933, as
amended (the "Securities Act").
Section 2.6 No Registration. The Holder understands that (a) the
Exchange Securities will not be registered under the Securities Act or any other
applicable securities law, (b) neither Parent nor Holdings has any obligation to
register the Exchange Securities, (c) the Holder will not be able to sell the
Exchange
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Securities or effect a transfer thereof unless an exemption is available to the
Holder from the registration requirements under the Securities Act and any other
applicable securities law.
ARTICLE III
COVENANTS
Section 3.1 Consummation of Transactions. Subject to the terms and
conditions of this Agreement, each party to this Agreement agrees to use
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable laws to consummate the transactions contemplated by this Agreement.
Section 3.2 Transfer Restrictions.
(a) Except in accordance with this Section 3.2, the Holder shall not
directly or indirectly sell, grant any option or other right to acquire,
acquire any option to dispose of, assign, donate, gift, pledge,
hypothecate, mortgage, encumber or otherwise transfer or dispose (
"Disposition") of any of the Exchange Shares or Parent Series A Preferred
Stock.
(b) The Holder may make a Disposition of any of the Exchange Shares
or the Parent Series A Preferred Stock to any Permitted Transferee for any
purpose. Permitted Transferees are the ▇▇▇▇ ▇. ▇▇▇▇▇▇ 1991 Trust or its
successor trusts, acting by its trustees; the Estate of ▇▇▇▇ ▇. ▇▇▇▇▇▇,
acting by its personal representatives; the ▇▇▇▇ ▇. ▇▇▇▇▇▇ Foundation,
acting by its directors; the beneficiaries of the ▇▇▇▇ ▇. ▇▇▇▇▇▇ 1991
Trust and its successor trusts; the beneficiaries of the Estate of Estate
of ▇▇▇▇ ▇. ▇▇▇▇▇▇; or the spouse, heirs at law, siblings or descendants of
▇▇▇▇ ▇. ▇▇▇▇▇▇ or any trust or trusts created for the benefit of Holder or
his spouse, heirs at law, siblings or descendants.
(c) Upon receipt of any Exchange Shares or any Parent Series A
Shares, a Permitted Transferee shall be bound by all of the provisions of
this Agreement as if such transferee were the Holder and shall, upon the
request of the Company, sign a writing acknowledging that such transferee
is bound by this Section 3.2.
(d) Each certificate representing Exchange Securities shall be
stamped or otherwise imprinted with a legend substantially similar to the
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following (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
(e) Each certificate representing shares of the Exchange Shares or
Parent Series A Preferred Stock shall be stamped or otherwise imprinted
with a legend substantially similar to the following:
THE SHARES REPRESENTED HEREBY ARE SUBJECT TO RESTRICTIONS ON
TRANSFER CONTAINED IN THAT CERTAIN EXCHANGE AGREEMENT, DATED MARCH
11, 2003 AMONG PLAYBOY ENTERPRISES, INC., PEI HOLDINGS, INC.,
▇▇▇▇▇▇▇.▇▇▇ INC. AND ▇▇▇▇ ▇. ▇▇▇▇▇▇.
(f) The Company shall be obligated to reissue promptly unlegended
certificates for Class B Common Stock issuable in connection with the
Exchange Securities at the request of the Holder thereof if the
securities proposed to be disposed of may lawfully be so disposed of
without registration, qualification or legend.
Section 3.3 Holder's Covenant to Support. The Holder will not take
any action inconsistent in any material respect with the efforts of Parent and
Holdings to effectuate the transactions contemplated by this Agreement, and will
use his reasonable best efforts, including in his capacity as a stockholder of
Parent, to consummate, or cause the consummation of, the transactions
contemplated by this Agreement.
Section 3.4 Agreement to Vote; Irrevocable Proxy.
(a) The Holder hereby agrees that at any meeting of Parent
stockholders, however called, or in connection with any written consent of
the stockholders of Parent, the Holder shall vote (or cause to be voted)
the shares of Parent Class A Common Stock ("Class A Shares") held of
record or
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Beneficially Owned by the Holder, whether owned on the date hereof or
hereafter acquired, in favor of approval of the Charter Amendment and the
transactions contemplated by this Agreement, and any actions required in
furtherance thereof.
As used in this Agreement, the term "Beneficially Own" or
"Beneficial Ownership" with respect to any securities means having
"beneficial ownership" of such securities as determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended, including
pursuant to any agreement, arrangement or understanding, whether or not in
writing, except that the term shall not include Class A Shares which the
Holder has the right to acquire under any options to acquire Class A
Shares from Parent ("Parent Stock Options") unless such Class A Shares
have been acquired upon exercise of such Parent Stock Options.
(b) Effective immediately upon the execution of this Agreement, and
in order to secure its obligations hereunder, the Holder hereby grants to,
and appoints Parent and any designee of Parent, and each of them
individually, with full power of substitution and resubstitution, the
Holder's true and lawful irrevocable proxy to vote the Holder's Class A
Shares, or grant a consent or approval in respect of the Holder's Class A
Shares, solely on such matters and as indicated in Section 1(a) above. The
Holder (i) agrees to take such further action and execute such other
instruments as may be reasonably necessary to effectuate the intent of
this proxy, (ii) hereby represents that any proxy heretofore given in
respect of the Holder's Class A Shares is not irrevocable, and (iii)
hereby revokes any proxy previously granted by the Holder with respect to
his Class A Shares; provided that nothing in this sentence or elsewhere in
this Section 3.4(b) shall be construed as a revocation or limitation of
the written consent of the Holder referred to in Section 2.2. The Holder
hereby affirms that this irrevocable proxy is given in connection with the
execution of this Agreement and further affirms that this irrevocable
proxy is coupled with an interest in this Agreement and may under no
circumstances be revoked prior to the earlier to occur of (x) the first
anniversary of the date of this Agreement and (y) the issuance of Parent
Series A Preferred Stock in exchange for Holdings Series B Preferred Stock
in accordance with the terms of the Holdings Series B Preferred Stock.
This proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 212(e) of the General Corporation Law of the
State of Delaware.
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ARTICLE IV
MISCELLANEOUS
Section 4.1 Successors and Assigns. This Agreement shall be binding
on and shall insure to the benefit of each of the parties hereto and their
respective successors and assigns.
Section 4.2 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
Section 4.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to the Holder, at:
▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇▇▇▇, Brownings & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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(ii) if to Parent, Holdings or ▇▇▇▇▇▇▇.▇▇▇, at
Playboy Enterprises, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ (Illinois)
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Morris, Nichols, Arsht & ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, III, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Section 4.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE EXCEPT FOR
CONFLICTS OF LAW PRINCIPLES THEREOF THAT WOULD REQUIRE APPLICATION OF LAWS OF
ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE.
Section 4.5 CONSENT TO JURISDICTION AND VENUE. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE STATE OR FEDERAL
COURTS LOCATED IN THE STATE OF DELAWARE, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PARTIES CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION
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OF THOSE COURTS. EACH OF THE PARTIES IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. EACH OF THE PARTIES WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY
DELAWARE LAW.
Section 4.6 WAIVER OF JURY TRIAL. EACH OF THE PARTIES WAIVES HIS OR
ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section 4.7 Counterparts. This Agreement may be executed in any
number of counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same instrument.
Section 4.8 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement or the validity of
such provision in any other jurisdiction.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, in his individual capacity
▇▇▇▇▇▇▇.▇▇▇, INC.
By:
-------------------------------------------
Name:
Title:
PEI HOLDINGS, INC.
By:
-------------------------------------------
Name:
Title:
PLAYBOY ENTERPRISES, INC.
By:
-------------------------------------------
Name:
Title:
[Exchange Agreement]
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
-------------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, in his individual capacity
▇▇▇▇▇▇▇.▇▇▇, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Treasurer
PEI HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Treasurer
PLAYBOY ENTERPRISES, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Senior Vice President, Treasurer and
Strategic Planning
[Exchange Agreement]
EXHIBIT A
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
PLAYBOY ENTERPRISES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Playboy Enterprises, Inc., a Delaware corporation (the "Company"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Company:
"RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Company (the "Board of Directors") by the
provisions of the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation"), there is hereby created, out of
the 10,000,000 shares of preferred stock, par value $0.01 per share, of the
Company authorized in Article Fourth of the Certificate of Incorporation (the
"Preferred Stock"), a series of the Preferred Stock consisting of 1,674 shares,
which series shall have the following powers, designations, preferences and
relative, participating, optional or other rights, and the following
qualifications, limitations and restrictions (in addition to any powers,
designations, preferences and relative, participating, optional or other rights,
and any qualifications, limitations and restrictions, set forth in the
Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount.
The shares of Preferred Stock created hereby shall be designated the
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the
authorized number of shares constituting such series shall be 1,674. The stated
value per share shall be $10,000 (the "Stated Value").
Section 2. Dividends.
(a) The holders of the then outstanding shares of Series A Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors out of funds of the Company legally available therefor, cumulative
cash dividends, accruing from the Original Issuance Date (as hereinafter
defined) through and including the date on which such dividends are paid at the
annual rate of 8% (the "Applicable Rate") of the Liquidation Preference (as
hereinafter defined) per share of the Series A Preferred Stock, payable in cash
in arrears on the last day of each June and December (each such date being
referred to herein as a "Dividend Payment Date"), commencing on the first
Dividend Payment Date after the Original Issuance Date; provided that if payment
in cash would not be permitted at the time (the "Cash Dividend Block") under the
Indenture (as hereinafter defined), no cash dividends shall be paid or payable,
until such time as the
payment of dividends in cash is no longer prohibited by the terms of the
Indenture. In the event of a Cash Dividend Block, the Company may at its option,
pay any such dividend in Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock"), of the Company. If a dividend payment date is not a
Business Day then such dividend shall be payable on the next Business Day.
Accumulated and unpaid dividends for any prior period may be paid at any time.
Such dividends shall be deemed to accrue on the Series A Preferred Stock from
the Original Issuance Date and shall be cumulative whether or not earned or
declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. The term "Original
Issuance Date" means the date on which the Series A Preferred Stock was issued
to the holder pursuant to the terms of the Series B Preferred Stock (as
hereinafter defined). The term "Indenture" means that certain Indenture dated as
of the Closing Date (as hereinafter defined), among the Company, certain
subsidiaries of the Company and Bank One, N.A., as Trustee. The dividends
provided for in this Section 2(a) are hereinafter referred to as "Base
Dividends." Any dividend paid in the manner specified in this Section 2, if so
paid, shall be deemed to be paid in full.
(b) In the event of a Cash Dividend Block, any dividend payments to
be made by delivering shares of Class B Common Stock shall be made by delivering
the number of shares of Class B Common Stock (rounded up in the case of
fractions to the next whole share) determined by dividing the amount of accrued
but unpaid Base Dividends payable as of the dividend payment date by the
weighted average closing price of Class B Common Stock over the 90-day period
immediately preceding the dividend payment date.
(c) If full cumulative Base Dividends are not paid in full, or
declared in full and sums set apart in trust with a bank or trust company for
the payment thereof, upon the shares of Series A Preferred Stock and the shares
of any other series of capital stock of the Company ranking on a parity as to
dividends with the Series A Preferred Stock ("Parity Dividend Stock"), all
dividends declared upon shares of Series A Preferred Stock and upon all Parity
Dividend Stock shall be paid or declared pro rata so that in all cases the
amount of dividends paid or declared per share on the Series A Preferred Stock
and such Parity Dividend Stock shall bear to each other the same ratio that
unpaid accumulated dividends per share, including dividends accrued or in
arrears, if any, on the shares of Series A Preferred Stock and such other shares
of Parity Dividend Stock, bear to each other. Unless and until full cumulative
Base Dividends on the shares of Series A Preferred Stock in respect of all past
semi-annual dividend periods have been paid, and the full amount of Base
Dividends on the shares of Series A Preferred Stock in respect of the then
current semi-annual dividend period shall have been or are contemporaneously
declared in full and sums set aside in trust with a bank or trust company for
the payment thereof, no dividends shall be paid or declared or set aside for
payment or other distribution upon the Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock") and the Class B Common Stock, and
collectively with the Class A Common Stock the "Common Stock"), of the Company
or any other capital stock of the Company ranking junior to the Series A
Preferred Stock as to dividends (other than in shares of, or warrants or rights
to acquire, solely capital stock of the Company ranking
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junior to the Series A Preferred Stock both as to dividends and as to
distributions upon liquidation, dissolution or winding up of the Company).
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of Series A Preferred
Stock shall be deemed to mean an amount which shall be equal to Base Dividends
thereon at the Applicable Rate per share from the date or dates on which such
dividends commence to accrue to the end of the then current semi-annual dividend
period (or, in the case of redemption or conversion, to the effective date of
redemption or conversion as provided herein), whether or not earned or declared
and whether or not assets of the Company are legally available therefor, and if
full dividends are not declared or paid, then such dividends shall cumulate,
with additional dividends thereon, compounded semi-annually, at the Applicable
Rate, for each semi-annual period during which such dividends remain unpaid.
The amount of any Base Dividends per share of Series A Preferred
Stock for any full semi-annual period shall be computed by multiplying the
Applicable Rate for such semi-annual dividend period by the Liquidation
Preference per share and dividing the result by two. Base Dividends payable on
the shares of Series A Preferred Stock for any period less than a full
semi-annual dividend period shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed for any period less
than one month.
Section 3. Liquidation Preference.
(a) In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (a "Liquidation"), the holders of the
Series A Preferred Stock then outstanding shall be entitled to receive out of
the assets of the Company available for distribution to the Company's
stockholders, whether such assets are stated capital or surplus of any nature,
after payment of the liquidation preference of any Senior Liquidation Stock (as
hereinafter defined), an amount on such date equal to the Stated Value per share
of Series A Preferred Stock (the "Liquidation Preference") plus an amount equal
to any accrued and unpaid Base Dividends as of such date, calculated pursuant to
Section 2 and no more. Such payment shall be made before any payment shall be
made or any assets distributed to the holders of any class or series of the
Common Stock or any other Junior Liquidation Stock (as hereinafter defined). If
upon any Liquidation, the amounts payable with respect to the Series A Preferred
Stock and any Parity Liquidation Stock (as hereinafter defined) are not paid in
full, holders of the Series A Preferred Stock and any Parity Liquidation Stock
will share ratably in any distribution of the assets of the Company in
proportion to the respective amounts that would be payable per share, if the
assets of the Company were sufficient for all such amounts to be paid in full.
Neither the consolidation or merger of the Company into or with any other
entity, nor the sale or transfer by the Company of all or any part of its
assets, nor the reduction of the capital stock of the Company, shall be deemed
to be a Liquidation.
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(b) Any assets to be delivered to the holders of the Series A
Preferred Stock pursuant to this Section 3 as a consequence of a Liquidation
shall be valued at their fair market value as determined in good faith by the
Board of Directors of the Company, whose determination shall be conclusive and
binding absent manifest error.
Section 4. Mandatory Redemption.
On September 15, 2010 (the "Final Redemption Date"), the Company shall,
subject to any limitations or restrictions imposed by law, redeem all shares of
Series A Preferred Stock that are then outstanding at a redemption price per
share equal to the Liquidation Preference thereof plus an amount equal to any
accrued and unpaid Base Dividends as of the Final Redemption Date (the "Final
Redemption Price"). The Final Redemption Price shall be paid, at the Company's
option, in either (i) cash, (ii) shares of Class B Common Stock or (iii) any
combination thereof. The number of shares of Class B Common Stock to which a
holder of Series A Preferred Stock shall be entitled upon redemption pursuant to
clause (ii) shall be determined by dividing (x) the Liquidation Preference of
such Series A Preferred Stock plus the amount of any accrued but unpaid Base
Dividends as of the Final Redemption Date by (y) the weighted average closing
price of the Class B Common Stock over the 90-day period immediately preceding
the Final Redemption Date. Not less than ten (10) days prior to the Final
Redemption Date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Series A Preferred Stock, at such holder's address
as it shall appear upon the stock register of the Company on such date. Each
notice shall specify the Final Redemption Price, the form of payment of the
Final Redemption Price, the place or places of payment and that payment will be
made upon presentation and surrender of the certificate(s) evidencing the shares
of Series A Preferred Stock to be redeemed. On or after the Final Redemption
Date, each holder of shares of Series A Preferred Stock shall surrender the
certificate evidencing such shares to the Company at the place designated in
such notice and shall thereupon be entitled to receive payment of the Final
Redemption Price in the manner set forth in the notice.
Section 5. Status of Redeemed Shares.
Any shares of Series A Preferred Stock which shall at any time have
been redeemed pursuant to Section 4 hereof shall, after such redemption, have
the status of authorized but unissued shares of Preferred Stock, without
designation as to series, and shall not be reissued as Series A Preferred Stock.
On the Final Redemption Date, notwithstanding that the certificates evidencing
any shares so called for redemption shall not have been surrendered, the shares
shall no longer be deemed outstanding, the dividends shall cease to accumulate,
the holders thereof shall cease to be stockholders, and all rights whatsoever
with respect to the Series A Preferred Stock (except the right of the holders to
receive the Final Redemption Price upon surrender of their certificates
therefor) shall terminate, except to the extent the Company shall default in
payment of the Final Redemption Price on the Final Redemption Date.
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Section 6. Voting Rights.
Except as required by applicable law, the holders of outstanding
shares of the Series A Preferred Stock shall have no voting rights or powers;
provided that with respect to any matters required to be submitted to a vote of
the holders of Class B Common Stock under applicable law, the holders of
outstanding shares of Series A Preferred Stock shall (i) vote together with the
holders of Class B Common Stock as a single class and (ii) be entitled to the
number of votes per share of Series A Preferred Stock equal to the number of
shares of Class B Common Stock into which such share is convertible at the time.
Section 7. Conversion Rights.
(a) Optional. Subject to and upon compliance with the provisions of
this Section 7, the holders of the shares of Series A Preferred Stock shall be
entitled, at their option, at any time to convert all or any such shares of
Series A Preferred Stock into a number of fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100,000th of a share) of
Class B Common Stock. The number of shares of Class B Common Stock to which a
holder of Series A Preferred Stock shall be entitled upon conversion shall be
determined by dividing (x) the Liquidation Preference of such Series A Preferred
Stock plus the amount of any accrued but unpaid Base Dividends thereon as of the
Conversion Date (as hereinafter defined) by (y) the Conversion Price (determined
as provided in this Section 7).
(b) Conversion Price. The conversion price (the "Conversion Price")
shall be equal to 1.25 multiplied by the weighted average closing price of the
Class B Common Stock over the 90-day period immediately prior to the Original
Issuance Date, subject to adjustment from time to time in accordance with
Section 7(e).
(c) Mandatory. (i) After the date that is three (3) years after the
Original Issue Date, if at any time the weighted average closing price of the
Class B Common Stock for each of fifteen (15) consecutive Trading Days (each a
"Mandatory Conversion Period") equals or exceeds 150% of the Conversion Price
(subject to proportionate adjustment as provided in Section 7(e)) the Company
shall have the option by delivery of written notice ("Mandatory Conversion
Notice") to holders of shares of Series A Preferred Stock provided within five
(5) Business Days after the end of any Mandatory Conversion Period to convert
any or all shares of Series A Preferred Stock into such number of fully paid and
non-assessable shares of Class B Common Stock determined by dividing (i) the
Liquidation Preference of such Preferred Stock plus the amount of any accrued
but unpaid Base Dividends as of the Mandatory Conversion Date (as hereinafter
defined) by (ii) the Conversion Price. The Company shall send the written notice
provided for above, by mail to each holder of record of Series A Preferred Stock
at its address then shown on the records of the Company, which notice shall
state that the Company has elected to convert some or all of the Series A
Preferred Stock and the effective date (the "Mandatory Conversion Date") of such
conversion, which date shall be the last day of the applicable Mandatory
Conversion Period, and that certificates
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evidencing shares of Series A Preferred Stock must be surrendered at the office
of the Company (or of its transfer agent for the Class B Common Stock, if
applicable).
(ii) On or after the Mandatory Conversion Date, shares of Series A
Preferred Stock shall no longer be deemed outstanding, the dividends shall cease
to accumulate, the holders shall cease to be stockholders, all rights whatsoever
with respect to the Series A Preferred Stock so converted will terminate, and
the holders entitled to receive Class B Common Stock issuable upon conversion
shall be treated for all purposes as the record holder of such Class B Common
Stock as and after the Mandatory Conversion Date. The conversion shall occur on
Mandatory Redemption Date without any further action by such holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
Class B Common Stock issuable upon such conversion unless certificates
evidencing such shares of Series A Preferred Stock so converted are surrendered
to the Company. Upon the occurrence of such conversion of the Series A Preferred
Stock, the holders of Series A Preferred Stock shall promptly surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series A Preferred Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate(s), a certificate or certificates for the
number of shares of Class B Common Stock into which the shares of Series A
Preferred Stock surrendered were convertible on the Mandatory Conversion Date.
(d) Fractions of Shares. The Company shall not issue any fractional
shares of Class B Common Stock upon conversion of the Series A Preferred Stock.
Instead the Company shall round the results of a conversion up to the nearest
full share of Class B Common Stock.
(e) Adjustments to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time as follows:
(1) Upon Stock Dividends, Subdivisions or Splits. If, at any time
after the Original Issuance Date, the number of shares of Class B Common
Stock outstanding is increased by a stock dividend payable in shares of
Class B Common Stock or by a subdivision or split-up of shares of Class B
Common Stock, then, following the record date for the determination of
holders of Class B Common Stock entitled to receive such stock dividend,
or to be affected by such subdivision or split-up, the Conversion Price
shall be appropriately decreased so that the number of shares of Class B
Common Stock issuable on conversion of Series A Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(2) Upon Combinations. If, at any time after the Original Issuance
Date, the number of shares of Class B Common Stock outstanding is
decreased by a combination of the outstanding shares of Class B Common
Stock into a smaller number of shares of Class B Common Stock, then,
following the
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record date to determine shares affected by such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Class B Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be decreased in proportion to such decrease
in outstanding shares.
(3) Upon Reclassifications, Reorganizations, Consolidations or
Mergers. In the event of any capital reorganization of the Company, any
reclassification of the stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or combination
of shares), or any consolidation or merger of the Company with or into
another Person (where the Company is not the surviving Person or where
there is a change in or distribution with respect to the Class B Common
Stock), each share of Series A Preferred Stock shall after such
reorganization, reclassification, consolidation, or merger be convertible
into the kind and number of shares of stock or other securities or
property of the Company or of the successor Person resulting from such
consolidation or surviving such merger, if any, to which the holder of the
number of shares of Class B Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification, consolidation or
merger) upon conversion of such Series A Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations or mergers.
(4) Distributions. If the Company declares, pays or makes a Class B
Common Distribution (as hereinafter defined), then the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close
of business on the date fixed for the determination of stockholders
entitled to receive such Class B Common Distribution by a fraction of
which the numerator shall be the fair market value (as determined in good
faith by the Board of Directors of the Company whose determination shall
be final and binding absent manifest error) per share of Common Stock on
the date fixed for such determination less the fair market value (as
determined above) on such date of the portion of the assets, property
and/or securities so to be distributed applicable to one share of Class B
Common Stock and of which the denominator shall be such fair market value
per share of Class B Common Stock on the date fixed for such
determination, such adjustment to become effective immediately prior to
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such Class B Common
Distribution. For purposes of this Section 7(e)(4), "Class B Common
Distribution" means any dividend or other distribution declared, paid or
made on or in respect of the Class B Common Stock (other than a
distribution or dividend payable solely in Class B Common Stock for which
an adjustment provided by Section 7(e)(1) above is made including any pro
rata distribution of cash, property, securities or other assets to the
holders of Class B Common Stock, whether or not paid out of capital,
surplus or earnings).
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(f) Exercise of Conversion Privilege.
(i) To convert shares of Series A Preferred Stock pursuant to
Section 7(a), a holder must (A) surrender the certificate or
certificates evidencing such holder's shares of Series A Preferred
Stock to be converted, duly endorsed in a form satisfactory to the
Company, at the office of the Company and (B) notify the Company at
such office that such holder elects to convert Series A Preferred
Stock and the number of shares such holder wishes to convert. Such
notice referred to in clause (B) above shall be delivered
substantially in the following form:
"NOTICE TO EXERCISE CONVERSION RIGHT"
The undersigned, being a holder of the Series A Convertible Preferred
Stock of Playboy Enterprises, Inc. (the "Convertible Preferred Stock")
irrevocably exercises the right to convert ____________ outstanding shares of
Convertible Preferred Stock on ___________, ____, into shares of Class B Common
Stock of Playboy Enterprises, Inc. in accordance with the terms of the shares of
Convertible Preferred Stock, and directs that the shares issuable and
deliverable upon the conversion be issued and delivered in the denominations
indicated below to the registered holder hereof unless a different name has been
indicated below.
Dated: [At least one Business Day prior to the date fixed for conversion]
Fill in for registration of
shares of Class B Common Stock
if to be issued otherwise
than to the registered
holder:
___________________________________
Name
___________________________________
Address
___________________________________ ________________________________________
Please print name and (Signature)
address, including postal
code number
Denominations: ____________________
(ii) Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day (the
"Conversion Date") of surrender of such shares of Series A Preferred
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Stock for conversion in accordance with the foregoing provisions and
at such time the shares of Series A Preferred Stock (or portions
thereof) submitted for conversion shall no longer be deemed
outstanding, the dividend shall cease to accumulate on such shares,
the holders shall cease to be stockholders with respect to such
shares, and all rights whatsoever with respect to the Series A
Preferred Stock so converted will terminate and the holders entitled
to receive the Class B Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such
Class B Common Stock as and after such time. As promptly as
practicable on or after the Conversion Date, the Company shall issue
and shall deliver at any office of the Company or the transfer agent
for the Series A Preferred Stock, a certificate or certificates for
the number of full shares of Class B Common Stock issuable upon
conversion.
(iii) In the case of any certificate evidencing shares of
Series A Preferred Stock which is converted in part only, upon such
conversion the Company shall execute and deliver a new certificate
representing an aggregate number of shares of Series A Preferred
Stock equal to the unconverted portion of such certificate.
(g) Notice of Adjustment of Conversion Price. Whenever the
Conversion Price is adjusted as herein provided the Company shall compute the
adjusted Conversion Price in accordance with Section 7(e) and a notice stating
that the Conversion Price has been adjusted and setting forth the adjusted
Conversion Price shall forthwith be prepared by the Company, and as soon as
practicable after it is prepared, such notice shall be mailed by the Company at
its expense to all holders at their last addresses as they shall appear in the
stock register.
(h) Company to Reserve Class B Common Stock. The Company shall at
all times reserve and keep available, free from preemptive rights, out of the
authorized but unissued Class B Common Stock or out of the Class B Common Stock
held in treasury, for the purpose of effecting the conversion of Series A
Preferred Stock, the full number of shares of Class B Common Stock then issuable
upon the conversion of all outstanding shares of Series A Preferred Stock.
(i) Taxes on Conversions. The Company will pay any and all original
issuance, transfer, stamp and other similar taxes that may be payable in respect
of the issue or delivery of shares of Class B Common Stock on conversion of
Series A Preferred Stock pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Class B Common Stock in a name other than
that of the holder to be converted or as payment of dividends, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
reasonable satisfaction of the Company that such tax has been or will be paid.
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(j) Status of Converted Series A Preferred Stock. Any shares of
Series A Preferred Stock which shall have been exchanged pursuant to Section 7
hereof, shall, after such conversion, have the status of authorized but unissued
shares of Preferred Stock without designation as to series, and shall not be
reissued as Series A Preferred Stock.
(k) Minimum Adjustment. No adjustment in the Conversion Price need
be made until all cumulative adjustments amount to 1.0% or more of the
Conversion Price as last adjusted. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
Section 8. Certain Definitions. The following terms shall have the
following respective meanings herein:
"Business Day" means a day other than a Saturday, Sunday or day on
which banking institutions in New York are authorized or required to
remain closed.
"Closing Date" means the Closing Date as defined in that certain
Purchase Agreement, dated ▇▇▇▇▇ ▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ Holdings,
Inc., the subsidiary guarantors listed on Schedule B thereto, Banc of
America Securities LLC and Lazard Freres & Co. LLC.
"Junior Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up of the Company, ranks junior to the Series A
Preferred Stock.
"Parity Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up the Company, ranks on parity to the Series A
Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up of the Company, ranks senior to the Series A
Preferred Stock.
"Series B Preferred Stock" means the shares of the Preferred Stock
created by the Certificate of the Designations, Powers, Preferences and
Rights of Series B Exchangeable Preferred Stock of PEI Holdings, Inc., as
the same may be amended from time to time.
"Trading Day" means a day on which the New York Stock Exchange,
Inc., or if the New York Stock Exchange, Inc. is not the principle
securities exchange or trading market for the Class B Common Stock, the
principle securities exchange or trading market for the Class B Common
Stock, is open for general trading of securities, other than a day on
which general trading of securities on such exchange or market is
suspended based on fluctuations in stock market averages or stock market
indices or (other than where the context so
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requires) on a day on which general trading of the Class B Common Stock is
suspended."
[Execution Page Follows]
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by [officer], its [title], this ____ day of
___________, 2003.
PLAYBOY ENTERPRISES, INC.
By:_____________________________________
Name:
Title:
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ACTION BY WRITTEN CONSENT
IN LIEU OF MEETING OF STOCKHOLDERS
OF
PLAYBOY ENTERPRISES. INC.
The undersigned, as the record owner of shares of Class A Common Stock of
Playboy Enterprises, Inc., a Delaware corporation (the "Company"), acting
pursuant to Section 228 of the General Corporation Law of the State of Delaware,
does hereby consent to the adoption, and does hereby adopt, the following
resolutions with the same force and effect as if adopted by a vote at a duly
convened meeting of the stockholders of the Company:
WHEREAS, in connection with a proposed refinancing of the Company,
PEI Holdings, Inc. ("Holdings") has agreed to issue and sell a series of
senior secured notes (the "Notes"), which would be guaranteed by the
Company and specified subsidiaries of Holdings, pursuant to a Purchase
Agreement among Holdings, the Company, the Subsidiary Guarantors (as
defined therein) listed on Schedule B thereto and the several Initial
Purchasers named in Schedule A thereto (the "Initial Purchasers");
WHEREAS, in connection with the purchase of the Notes, it is
proposed that the indebtedness of ▇▇▇▇▇▇▇.▇▇▇, Inc. ("▇▇▇▇▇▇▇.▇▇▇") owed
to ▇▇. ▇▇▇▇ ▇. ▇▇▇▇▇▇ be restructured (the "Debt Restructuring");
WHEREAS, pursuant to the terms of the Debt Restructuring and the
Exchange Agreement by and among the Company, Holdings, ▇▇▇▇▇▇▇.▇▇▇ and ▇▇.
▇▇▇▇▇▇ pursuant to which the Debt Restructuring will be consummated (the
"Exchange Agreement"), it is proposed that (i) a $10.0 million
▇▇▇▇▇▇▇.▇▇▇ promissory note owed to ▇▇. ▇▇▇▇▇▇ be extinguished in exchange
for $10.0 million of a new series of preferred stock of Holdings that will
be mandatorily exchanged for shares of the Company's Class B common stock
(the "Class B Common Stock") upon the occurrence of specified events
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(the "Series A Exchange") and (ii) two other ▇▇▇▇▇▇▇.▇▇▇ promissory notes,
in a combined principal amount of $17.2 million, owed to ▇▇. ▇▇▇▇▇▇ be
extinguished in exchange for $500,000 in cash and $16.7 million of a new
series of preferred stock of Holdings that will be mandatorily exchanged
for an equivalent amount of a new series of preferred stock of the Company
(the "Preferred Stock"), which may be convertible into shares of Class B
Common Stock, upon the occurrence of specified events (the "Series B
Exchange");
WHEREAS, the Board of Directors of the Company (the "Board") formed
a special committee (the "Special Committee") for the purpose of
evaluating, negotiating the terms of and making a recommendation to the
Board with respect to the Debt Restructuring;
WHEREAS, the Special Committee has (i) determined that the terms of
the Debt Restructuring are in the best interests of the Company and has
approved the Debt Restructuring and the Exchange Agreement and (ii)
recommended that the Board ratify, approve and declare the advisability of
the Debt Restructuring and the Exchange Agreement;
WHEREAS, the Board, based upon the recommendation of the Special
Committee, has determined that the terms of the Debt Restructuring are in
the best interests of the Company and has approved and authorized in all
respects the Debt Restructuring and the Exchange Agreement; and
WHEREAS, the Board deems it advisable and in the best interests of
the Company, and has authorized the Company, to effect an amendment to the
Company's amended and restated certificate of incorporation (the "Charter
Amendment"), the form of which is attached hereto as Exhibit A, providing
for the establishment of preferred stock of the Company, in one or more
classes or series, and authorizing and empowering the Board to fix for
each such class or series such voting power and such distinctive
designations, preferences and rights and such qualifications, limitations
or restrictions thereof as the Board may deem appropriate; and
WHEREAS, the undersigned is the holder of outstanding Class A Common
Stock of the Company having not less than the minimum number of
votes that are necessary to authorize the (i) Charter Amendment, (ii)
issuance of the Class B Common Stock in connection with the Series A
Exchange and the conversion of the Preferred Stock and (iii) issuance of
the Preferred Stock in connection with the Series B Exchange.
2
NOW, THEREFORE BE IT:
RESOLVED, that the form, terms and provisions of the Charter
Amendment, substantially in the form attached hereto as Exhibit A, be, and
they hereby are, approved and adopted in all respects, such Charter
Amendment to become effective upon its filing with the Secretary of State
of the State of Delaware; and
FURTHER RESOLVED, that the issuance of fully paid and nonassessable
shares of Class B Common Stock, as may be required to comply with the
terms and conditions of the Series A Exchange and the conversion of
Preferred Stock into shares of Class B Common Stock, be, and the same
hereby is, authorized and approved; and
FURTHER RESOLVED, that upon the effectiveness of the Charter
Amendment, the issuance of fully paid and nonassessable shares of the
Preferred Stock in accordance with the Series B Exchange with the powers,
designations, dividend rights, voting powers, rights on liquidation,
redemption rights and other preferences and relative participating,
optional or other special rights and with the qualifications, limitations
or restrictions on the shares of such series of Preferred Stock to be
governed by the Certificate of Designations, Powers, Preferences and
Rights of Series A Preferred Stock of the Company in the form attached
hereto as Exhibit B, be, and the same hereby is, authorized and approved.
3
IN WITNESS WHEREOF, the undersigned has executed this Consent in
Lieu of Meeting of Stockholders as of the 11th day of March, 2003.
THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ 1991 TRUST
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
By: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Trustee
EXHIBIT A
to Action by Written Consent
CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PLAYBOY ENTERPRISES, INC.
----------------------------------------------
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
----------------------------------------------
PLAYBOY ENTERPRISES, INC., a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
FIRST: The first paragraph of Article FOURTH of the Amended and Restated
Certificate of Incorporation of the Corporation is hereby amended to read in its
entirety as follows:
"The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is Forty Seven Million Five
Hundred Thousand (47,500,000) consisting of: (i) Seven Million Five
Hundred Thousand (7,500,000) shares of Class A Common Stock of the par
value of One Cent ($.01) per share, (ii) Thirty Million (30,000,000)
shares of Class B Common Stock of the par value of One Cent ($.01) per
share and (iii) Ten Million (10,000,000) shares of Preferred Stock of the
par value of One Cent ($.01) per share."
SECOND: The following paragraph is to be inserted as a new subsection E
entitled "Terms of Preferred Stock" of Article FOURTH of the Amended and
Restated Certificate of Incorporation of the Corporation:
"The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more
classes or series, and to fix for each such class or series such voting
powers, full or limited, or no voting powers, and such distinctive
designations, preferences and relative, participating, optional or other
special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class
or series and as may be permitted by the General Corporation Law of the
State of Delaware, including, without limitation, the authority to provide
that any such class or series may be (i) subject to redemption at such
time or times and at such price or prices; (ii) entitled to receive
dividends (which may be cumulative or non-cumulative) at such rates, on
such conditions, and at such times, and payable in preference to, or in
such relation to, the dividends payable
on any other class or classes or any other series; (iii) entitled to such
rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of
any other class or classes of stock, or of any other series of the same or
any other class or classes of stock, of the Corporation at such price or
prices or at such rates of exchange and with such adjustments; all as may
be stated in such resolution or resolutions. Notwithstanding the
foregoing, any such Preferred Stock shall not have any voting powers,
except as required by law or in the event of failure to pay dividends, and
shall in no event be convertible into shares of Class A Common Stock."
THIRD: The foregoing amendments to the Amended and Restated Certificate of
Incorporation of the Corporation were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Playboy Enterprises, Inc. has caused this Certificate
of Amendment to be executed by its duly authorized officer this ___ day of
______ 2003.
PLAYBOY ENTERPRISES, INC.
By: ______________________
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Executive Vice
President, Law and
Administration, General Counsel
and Secretary
A-2
EXHIBIT B
to Action by Written Consent
CERTIFICATE OF THE DESIGNATIONS,
POWERS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
PLAYBOY ENTERPRISES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Playboy Enterprises, Inc., a Delaware corporation (the "Company"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Company:
"RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors of the Company (the "Board of Directors") by the
provisions of the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation"), there is hereby created, out of
the 10,000,000 shares of preferred stock, par value $0.01 per share, of the
Company authorized in Article Fourth of the Certificate of Incorporation (the
"Preferred Stock"), a series of the Preferred Stock consisting of 1,674 shares,
which series shall have the following powers, designations, preferences and
relative, participating, optional or other rights, and the following
qualifications, limitations and restrictions (in addition to any powers,
designations, preferences and relative, participating, optional or other rights,
and any qualifications, limitations and restrictions, set forth in the
Certificate of Incorporation which are applicable to the Preferred Stock):
Section 1. Designation of Amount.
The shares of Preferred Stock created hereby shall be designated the
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock") and the
authorized number of shares constituting such series shall be 1,674. The stated
value per share shall be $10,000 (the "Stated Value").
Section 2. Dividends.
(a) The holders of the then outstanding shares of Series A Preferred Stock
will be entitled to receive, when, as and if declared by the Board of Directors
out of funds of the Company legally available therefor, cumulative cash
dividends, accruing from the Original Issuance Date (as hereinafter defined)
through and including the date on which such dividends are paid at the annual
rate of 8% (the "Applicable Rate") of the Liquidation Preference (as hereinafter
defined) per share of the Series A Preferred Stock, payable in cash in arrears
on the last day of each June and December (each such date being referred to
herein as a "Dividend Payment Date"), commencing on the first Dividend Payment
Date after the Original Issuance Date; provided that if payment in cash would
not be permitted at the time (the "Cash Dividend Block") under the Indenture (as
hereinafter defined), no cash dividends shall be paid or payable, until such
time as the
payment of dividends in cash is no longer prohibited by the terms of the
Indenture. In the event of a Cash Dividend Block, the Company may at its option,
pay any such dividend in Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock"), of the Company. If a dividend payment date is not a
Business Day then such dividend shall be payable on the next Business Day.
Accumulated and unpaid dividends for any prior period may be paid at any time.
Such dividends shall be deemed to accrue on the Series A Preferred Stock from
the Original Issuance Date and shall be cumulative whether or not earned or
declared and whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. The term "Original
Issuance Date" means the date on which the Series A Preferred Stock was issued
to the holder pursuant to the terms of the Series B Preferred Stock (as
hereinafter defined). The term "Indenture" means that certain Indenture dated as
of the Closing Date (as hereinafter defined), among the Company, certain
subsidiaries of the Company and Bank One, N.A., as Trustee. The dividends
provided for in this Section 2(a) are hereinafter referred to as "Base
Dividends." Any dividend paid in the manner specified in this Section 2, if so
paid, shall be deemed to be paid in full.
(b) In the event of a Cash Dividend Block, any dividend payments to be
made by delivering shares of Class B Common Stock shall be made by delivering
the number of shares of Class B Common Stock (rounded up in the case of
fractions to the next whole share) determined by dividing the amount of accrued
but unpaid Base Dividends payable as of the dividend payment date by the
weighted average closing price of Class B Common Stock over the 90-day period
immediately preceding the dividend payment date.
(c) If full cumulative Base Dividends are not paid in full, or declared in
full and sums set apart in trust with a bank or trust company for the payment
thereof, upon the shares of Series A Preferred Stock and the shares of any other
series of capital stock of the Company ranking on a parity as to dividends with
the Series A Preferred Stock ("Parity Dividend Stock"), all dividends declared
upon shares of Series A Preferred Stock and upon all Parity Dividend Stock shall
be paid or declared pro rata so that in all cases the amount of dividends paid
or declared per share on the Series A Preferred Stock and such Parity Dividend
Stock shall bear to each other the same ratio that unpaid accumulated dividends
per share, including dividends accrued or in arrears, if any, on the shares of
Series A Preferred Stock and such other shares of Parity Dividend Stock, bear to
each other. Unless and until full cumulative Base Dividends on the shares of
Series A Preferred Stock in respect of all past semi-annual dividend periods
have been paid, and the full amount of Base Dividends on the shares of Series A
Preferred Stock in respect of the then current semi-annual dividend period shall
have been or are contemporaneously declared in full and sums set aside in trust
with a bank or trust company for the payment thereof, no dividends shall be paid
or declared or set aside for payment or other distribution upon the Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock") and the
Class B Common Stock, and collectively with the Class A Common Stock the "Common
Stock"), of the Company or any other capital stock of the Company ranking
B-2
junior to the Series A Preferred Stock as to dividends (other than in shares of,
or warrants or rights to acquire, solely capital stock of the Company ranking
junior to the Series A Preferred Stock both as to dividends and as to
distributions upon liquidation, dissolution or winding up of the Company).
The terms "accrued dividends," "dividends accrued" and "dividends in
arrears," whenever used herein with reference to shares of Series A Preferred
Stock shall be deemed to mean an amount which shall be equal to Base Dividends
thereon at the Applicable Rate per share from the date or dates on which such
dividends commence to accrue to the end of the then current semi-annual dividend
period (or, in the case of redemption or conversion, to the effective date of
redemption or conversion as provided herein), whether or not earned or declared
and whether or not assets of the Company are legally available therefor, and if
full dividends are not declared or paid, then such dividends shall cumulate,
with additional dividends thereon, compounded semi-annually, at the Applicable
Rate, for each semi-annual period during which such dividends remain unpaid.
The amount of any Base Dividends per share of Series A Preferred Stock for
any full semi-annual period shall be computed by multiplying the Applicable Rate
for such semi-annual dividend period by the Liquidation Preference per share and
dividing the result by two. Base Dividends payable on the shares of Series A
Preferred Stock for any period less than a full semi-annual dividend period
shall be computed on the basis of a 360-day year of twelve 30-day months and the
actual number of days elapsed for any period less than one month.
Section 3. Liquidation Preference.
(a) In the event of a liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary (a "Liquidation"), the holders of the
Series A Preferred Stock then outstanding shall be entitled to receive out of
the assets of the Company available for distribution to the Company's
stockholders, whether such assets are stated capital or surplus of any nature,
after payment of the liquidation preference of any Senior Liquidation Stock (as
hereinafter defined), an amount on such date equal to the Stated Value per share
of Series A Preferred Stock (the "Liquidation Preference") plus an amount equal
to any accrued and unpaid Base Dividends as of such date, calculated pursuant to
Section 2 and no more. Such payment shall be made before any payment shall be
made or any assets distributed to the holders of any class or series of the
Common Stock or any other Junior Liquidation Stock (as hereinafter defined). If
upon any Liquidation, the amounts payable with respect to the Series A Preferred
Stock and any Parity Liquidation Stock (as hereinafter defined) are not paid in
full, holders of the Series A Preferred Stock and any Parity Liquidation Stock
will share ratably in any distribution of the assets of the Company in
proportion to the respective amounts that would be payable per share, if the
assets of the Company were sufficient for all such amounts to be paid in full.
Neither the consolidation or merger of the Company into or with any other
entity, nor the sale or transfer by the Company of all or any part of its
assets, nor the reduction of the capital stock of the Company, shall be deemed
to be a Liquidation.
B-3
(b) Any assets to be delivered to the holders of the Series A Preferred
Stock pursuant to this Section 3 as a consequence of a Liquidation shall be
valued at their fair market value as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and binding
absent manifest error.
Section 4. Mandatory Redemption.
On September 15, 2010 (the "Final Redemption Date"), the Company shall,
subject to any limitations or restrictions imposed by law, redeem all shares of
Series A Preferred Stock that are then outstanding at a redemption price per
share equal to the Liquidation Preference thereof plus an amount equal to any
accrued and unpaid Base Dividends as of the Final Redemption Date (the "Final
Redemption Price"). The Final Redemption Price shall be paid, at the Company's
option, in either (i) cash, (ii) shares of Class B Common Stock or (iii) any
combination thereof. The number of shares of Class B Common Stock to which a
holder of Series A Preferred Stock shall be entitled upon redemption pursuant to
clause (ii) shall be determined by dividing (x) the Liquidation Preference of
such Series A Preferred Stock plus the amount of any accrued but unpaid Base
Dividends as of the Final Redemption Date by (y) the weighted average closing
price of the Class B Common Stock over the 90-day period immediately preceding
the Final Redemption Date. Not less than ten (10) days prior to the Final
Redemption Date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Series A Preferred Stock, at such holder's address
as it shall appear upon the stock register of the Company on such date. Each
notice shall specify the Final Redemption Price, the form of payment of the
Final Redemption Price, the place or places of payment and that payment will be
made upon presentation and surrender of the certificate(s) evidencing the shares
of Series A Preferred Stock to be redeemed. On or after the Final Redemption
Date, each holder of shares of Series A Preferred Stock shall surrender the
certificate evidencing such shares to the Company at the place designated in
such notice and shall thereupon be entitled to receive payment of the Final
Redemption Price in the manner set forth in the notice.
Section 5. Status of Redeemed Shares.
Any shares of Series A Preferred Stock which shall at any time have been
redeemed pursuant to Section 4 hereof shall, after such redemption, have the
status of authorized but unissued shares of Preferred Stock, without designation
as to series, and shall not be reissued as Series A Preferred Stock. On the
Final Redemption Date, notwithstanding that the certificates evidencing any
shares so called for redemption shall not have been surrendered, the shares
shall no longer be deemed outstanding, the dividends shall cease to accumulate,
the holders thereof shall cease to be stockholders, and all rights whatsoever
with respect to the Series A Preferred Stock (except the right of the holders to
receive the Final Redemption Price upon surrender of their certificates
therefor) shall terminate, except to the extent the Company shall default in
payment of the Final Redemption Price on the Final Redemption Date.
B-4
Section 6. Voting Rights.
Except as required by applicable law, the holders of outstanding shares of
the Series A Preferred Stock shall have no voting rights or powers; provided
that with respect to any matters required to be submitted to a vote of the
holders of Class B Common Stock under applicable law, the holders of outstanding
shares of Series A Preferred Stock shall (i) vote together with the holders of
Class B Common Stock as a single class and (ii) be entitled to the number of
votes per share of Series A Preferred Stock equal to the number of shares of
Class B Common Stock into which such share is convertible at the time.
Section 7. Conversion Rights.
(a) Optional. Subject to and upon compliance with the provisions of this
Section 7, the holders of the shares of Series A Preferred Stock shall be
entitled, at their option, at any time to convert all or any such shares of
Series A Preferred Stock into a number of fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100,000th of a share) of
Class B Common Stock. The number of shares of Class B Common Stock to which a
holder of Series A Preferred Stock shall be entitled upon conversion shall be
determined by dividing (x) the Liquidation Preference of such Series A Preferred
Stock plus the amount of any accrued but unpaid Base Dividends thereon as of the
Conversion Date (as hereinafter defined) by (y) the Conversion Price (determined
as provided in this Section 7).
(b) Conversion Price. The conversion price (the "Conversion Price") shall
be equal to 1.25 multiplied by the weighted average closing price of the Class B
Common Stock over the 90-day period immediately prior to the Original Issuance
Date, subject to adjustment from time to time in accordance with Section 7(e).
(c) Mandatory. (i) After the date that is three (3) years after the
Original Issue Date, if at any time the weighted average closing price of the
Class B Common Stock for each of fifteen (15) consecutive Trading Days (each a
"Mandatory Conversion Period") equals or exceeds 150% of the Conversion Price
(subject to proportionate adjustment as provided in Section 7(e)) the Company
shall have the option by delivery of written notice ("Mandatory Conversion
Notice") to holders of shares of Series A Preferred Stock provided within five
(5) Business Days after the end of any Mandatory Conversion Period to convert
any or all shares of Series A Preferred Stock into such number of fully paid and
non-assessable shares of Class B Common Stock determined by dividing (i) the
Liquidation Preference of such Preferred Stock plus the amount of any accrued
but unpaid Base Dividends as of the Mandatory Conversion Date (as hereinafter
defined) by (ii) the Conversion Price. The Company shall send the written notice
provided for above, by mail to each holder of record of Series A Preferred Stock
at its address then shown on the records of the Company, which notice shall
state that the Company has elected to convert some or all of the Series A
Preferred Stock and the effective date (the "Mandatory Conversion Date") of such
conversion, which date shall be the last day of the applicable Mandatory
Conversion Period, and that certificates
B-5
evidencing shares of Series A Preferred Stock must be surrendered at the office
of the Company (or of its transfer agent for the Class B Common Stock, if
applicable).
(ii) On or after the Mandatory Conversion Date, shares of Series A
Preferred Stock shall no longer be deemed outstanding, the dividends shall cease
to accumulate, the holders shall cease to be stockholders, all rights whatsoever
with respect to the Series A Preferred Stock so converted will terminate, and
the holders entitled to receive Class B Common Stock issuable upon conversion
shall be treated for all purposes as the record holder of such Class B Common
Stock as and after the Mandatory Conversion Date. The conversion shall occur on
Mandatory Redemption Date without any further action by such holders of such
shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided, however, that the
Company shall not be obligated to issue certificates evidencing the shares of
Class B Common Stock issuable upon such conversion unless certificates
evidencing such shares of Series A Preferred Stock so converted are surrendered
to the Company. Upon the occurrence of such conversion of the Series A Preferred
Stock, the holders of Series A Preferred Stock shall promptly surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series A Preferred Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate(s), a certificate or certificates for the
number of shares of Class B Common Stock into which the shares of Series A
Preferred Stock surrendered were convertible on the Mandatory Conversion Date.
(d) Fractions of Shares. The Company shall not issue any fractional shares
of Class B Common Stock upon conversion of the Series A Preferred Stock. Instead
the Company shall round the results of a conversion up to the nearest full share
of Class B Common Stock.
(e) Adjustments to Conversion Price. The Conversion Price shall be subject
to adjustment from time to time as follows:
(1) Upon Stock Dividends, Subdivisions or Splits. If, at any time
after the Original Issuance Date, the number of shares of Class B Common
Stock outstanding is increased by a stock dividend payable in shares of
Class B Common Stock or by a subdivision or split-up of shares of Class B
Common Stock, then, following the record date for the determination of
holders of Class B Common Stock entitled to receive such stock dividend,
or to be affected by such subdivision or split-up, the Conversion Price
shall be appropriately decreased so that the number of shares of Class B
Common Stock issuable on conversion of Series A Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(2) Upon Combinations. If, at any time after the Original Issuance
Date, the number of shares of Class B Common Stock outstanding is
decreased by a combination of the outstanding shares of Class B Common
Stock into a smaller number of shares of Class B Common Stock, then,
following the
B-6
record date to determine shares affected by such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Class B Common Stock issuable on conversion of each share of
Series A Preferred Stock shall be decreased in proportion to such decrease
in outstanding shares.
(3) Upon Reclassifications, Reorganizations, Consolidations or
Mergers. In the event of any capital reorganization of the Company, any
reclassification of the stock of the Company (other than a change in par
value or from par value to no par value or from no par value to par value
or as a result of a stock dividend or subdivision, split-up or combination
of shares), or any consolidation or merger of the Company with or into
another Person (where the Company is not the surviving Person or where
there is a change in or distribution with respect to the Class B Common
Stock), each share of Series A Preferred Stock shall after such
reorganization, reclassification, consolidation, or merger be convertible
into the kind and number of shares of stock or other securities or
property of the Company or of the successor Person resulting from such
consolidation or surviving such merger, if any, to which the holder of the
number of shares of Class B Common Stock deliverable (immediately prior to
the time of such reorganization, reclassification, consolidation or
merger) upon conversion of such Series A Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation or
merger. The provisions of this clause shall similarly apply to successive
reorganizations, reclassifications, consolidations or mergers.
(4) Distributions. If the Company declares, pays or makes a Class B
Common Distribution (as hereinafter defined), then the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the close
of business on the date fixed for the determination of stockholders
entitled to receive such Class B Common Distribution by a fraction of
which the numerator shall be the fair market value (as determined in good
faith by the Board of Directors of the Company whose determination shall
be final and binding absent manifest error) per share of Common Stock on
the date fixed for such determination less the fair market value (as
determined above) on such date of the portion of the assets, property
and/or securities so to be distributed applicable to one share of Class B
Common Stock and of which the denominator shall be such fair market value
per share of Class B Common Stock on the date fixed for such
determination, such adjustment to become effective immediately prior to
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such Class B Common
Distribution. For purposes of this Section 7(e)(4), "Class B Common
Distribution" means any dividend or other distribution declared, paid or
made on or in respect of the Class B Common Stock (other than a
distribution or dividend payable solely in Class B Common Stock for which
an adjustment provided by Section 7(e)(1) above is made including any pro
rata distribution of cash, property, securities or other assets to the
holders of Class B Common Stock, whether or not paid out of capital,
surplus or earnings).
B-7
(f) Exercise of Conversion Privilege.
(i) To convert shares of Series A Preferred Stock pursuant to
Section 7(a), a holder must (A) surrender the certificate or certificates
evidencing such holder's shares of Series A Preferred Stock to be
converted, duly endorsed in a form satisfactory to the Company, at the
office of the Company and (B) notify the Company at such office that such
holder elects to convert Series A Preferred Stock and the number of shares
such holder wishes to convert. Such notice referred to in clause (B) above
shall be delivered substantially in the following form:
"NOTICE TO EXERCISE CONVERSION RIGHT"
The undersigned, being a holder of the Series A Convertible Preferred
Stock of Playboy Enterprises, Inc. (the "Convertible Preferred Stock")
irrevocably exercises the right to convert ____________ outstanding shares of
Convertible Preferred Stock on ___________, ____, into shares of Class B Common
Stock of Playboy Enterprises, Inc. in accordance with the terms of the shares of
Convertible Preferred Stock, and directs that the shares issuable and
deliverable upon the conversion be issued and delivered in the denominations
indicated below to the registered holder hereof unless a different name has been
indicated below.
Dated: [At least one Business Day prior to the date fixed for conversion]
Fill in for registration of
shares of Class B Common Stock
if to be issued otherwise
than to the registered
holder:
____________________________________
Name
____________________________________
Address
____________________________________ ____________________________________
Please print name and (Signature)
address, including postal
code number
Denominations: ____________________
(ii) Series A Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day (the "Conversion
Date") of surrender of such shares of Series A Preferred Stock for
conversion in accordance with the foregoing provisions and at such time
the shares of Series A Preferred
B-8
Stock (or portions thereof) submitted for conversion shall no longer be
deemed outstanding, the dividend shall cease to accumulate on such shares,
the holders shall cease to be stockholders with respect to such shares,
and all rights whatsoever with respect to the Series A Preferred Stock so
converted will terminate and the holders entitled to receive the Class B
Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such Class B Common Stock as and after
such time. As promptly as practicable on or after the Conversion Date, the
Company shall issue and shall deliver at any office of the Company or the
transfer agent for the Series A Preferred Stock, a certificate or
certificates for the number of full shares of Class B Common Stock
issuable upon conversion.
(iii) In the case of any certificate evidencing shares of Series A
Preferred Stock which is converted in part only, upon such conversion the
Company shall execute and deliver a new certificate representing an
aggregate number of shares of Series A Preferred Stock equal to the
unconverted portion of such certificate.
(g) Notice of Adjustment of Conversion Price. Whenever the Conversion
Price is adjusted as herein provided the Company shall compute the adjusted
Conversion Price in accordance with Section 7(e) and a notice stating that the
Conversion Price has been adjusted and setting forth the adjusted Conversion
Price shall forthwith be prepared by the Company, and as soon as practicable
after it is prepared, such notice shall be mailed by the Company at its expense
to all holders at their last addresses as they shall appear in the stock
register.
(h) Company to Reserve Class B Common Stock. The Company shall at all
times reserve and keep available, free from preemptive rights, out of the
authorized but unissued Class B Common Stock or out of the Class B Common Stock
held in treasury, for the purpose of effecting the conversion of Series A
Preferred Stock, the full number of shares of Class B Common Stock then issuable
upon the conversion of all outstanding shares of Series A Preferred Stock.
(i) Taxes on Conversions. The Company will pay any and all original
issuance, transfer, stamp and other similar taxes that may be payable in respect
of the issue or delivery of shares of Class B Common Stock on conversion of
Series A Preferred Stock pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Class B Common Stock in a name other than
that of the holder to be converted or as payment of dividends, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company the amount of any such tax, or has established to the
reasonable satisfaction of the Company that such tax has been or will be paid.
B-9
(j) Status of Converted Series A Preferred Stock. Any shares of Series A
Preferred Stock which shall have been exchanged pursuant to Section 7 hereof,
shall, after such conversion, have the status of authorized but unissued shares
of Preferred Stock without designation as to series, and shall not be reissued
as Series A Preferred Stock.
(k) Minimum Adjustment. No adjustment in the Conversion Price need be made
until all cumulative adjustments amount to 1.0% or more of the Conversion Price
as last adjusted. Any adjustments that are not made shall be carried forward and
taken into account in any subsequent adjustment.
Section 8. Certain Definitions. The following terms shall have the
following respective meanings herein:
"Business Day" means a day other than a Saturday, Sunday or day on
which banking institutions in New York are authorized or required to
remain closed.
"Closing Date" means the Closing Date as defined in that certain
Purchase Agreement, dated ▇▇▇▇▇ ▇, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ Holdings,
Inc., the subsidiary guarantors listed on Schedule B thereto, Banc of
America Securities LLC and Lazard Freres & Co. LLC.
"Junior Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up of the Company, ranks junior to the Series A
Preferred Stock.
"Parity Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up the Company, ranks on parity to the Series A
Preferred Stock.
"Senior Liquidation Stock" means any class or series of capital
stock of the Company that, with respect to distributions upon liquidation,
dissolution or winding up of the Company, ranks senior to the Series A
Preferred Stock.
"Series B Preferred Stock" means the shares of the Preferred Stock
created by the Certificate of the Designations, Powers, Preferences and
Rights of Series B Exchangeable Preferred Stock of PEI Holdings, Inc., as
the same may be amended from time to time.
"Trading Day" means a day on which the New York Stock Exchange,
Inc., or if the New York Stock Exchange, Inc. is not the principle
securities exchange or trading market for the Class B Common Stock, the
principle securities exchange or trading market for the Class B Common
Stock, is open for general trading of securities, other than a day on
which general trading of securities on such exchange or market is
suspended based on fluctuations in stock market averages or stock market
indices or (other than where the context so
B-10
requires) on a day on which general trading of the Class B Common Stock is
suspended."
[Execution Page Follows]
B-11
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by [officer], its [title], this ____ day of
___________, 2003.
PLAYBOY ENTERPRISES, INC.
By:
__________________________________
Name:
Title:
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