SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): March 11, 2003
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PLAYBOY ENTERPRISES, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 001-14790 36-4249478
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
680 North Lake Shore Drive, Chicago, Illinois 60611
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (312) 751-8000
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Not applicable.
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events and Required FD Disclosure.
On March 11, 2003, Playboy Enterprises, Inc. ("Playboy") completed the private
offering of $115 million in aggregate principal amount of senior secured notes
(the "Notes") by PEI Holdings, Inc. ("PEI"), a wholly-owned subsidiary of
Playboy. The Notes mature on March 15, 2010 and bear interest at the rate of
11% per annum, with interest payable on March 15 and September 15 of each
year, beginning September 15, 2003.
The Notes are guaranteed (the "Guarantees") on a senior secured basis by
Playboy and by substantially all of PEI's domestic subsidiaries (together with
Playboy, the "Guarantors"), excluding Playboy.com, Inc. ("Playboy.com") and
its subsidiaries. The Notes and the Guarantees rank equally in right of
payment with PEI's and the Guarantors' other existing and future senior debt.
The Notes and the Guarantees are secured by a first-priority lien on
trademarks of PEI and the Guarantors (the "Primary Collateral") and by a
second-priority lien, junior to a lien for the benefit of the lenders under
the New Credit Facility (as defined below), on (i) 100% of the stock of
substantially all of Playboy's domestic subsidiaries, excluding the
subsidiaries of Playboy.com, (ii) 65% of the capital stock of substantially
all of the indirect first tier foreign subsidiaries of PEI, (iii)
substantially all of PEI's and each Guarantor's domestic personal property,
excluding the Primary Collateral and (iv) the Playboy Mansion (collectively,
the "Secondary Collateral").
The net proceeds from the sale of the Notes were used to repay in full all
outstanding indebtedness under PEI's senior credit facility and the remainder
is intended to be used to pay a portion of the deferred purchase price for the
Califa acquisition and for working capital and other general corporate
purposes.
The Notes have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and may not be offered or sold in the United
States absent registration or an applicable exemption from registration
requirements under the Securities Act. PEI has agreed to offer to exchange the
Notes for a new issue of substantially identical debt securities registered
under the Securities Act.
On March 11, 2003, PEI also entered into a Credit Agreement with Bank of
America, N.A. as administrative agent thereunder and the lenders signatory
thereto, pursuant to which PEI is permitted to borrow up to $20 million in
revolving borrowings, letters of credit or a combination thereof (the "New
Credit Facility"). For purposes of calculating interest, revolving loans made
under the New Credit Facility will be designated at either the offshore dollar
inter bank rate plus a borrowing margin based on Playboy's adjusted EBITDA or,
in certain circumstances, at a base rate plus a borrowing margin based on
Playboy's adjusted EBITDA. Letters of credit issued under the New Credit
Facility bear fees at the offshore dollar inter bank rate plus a borrowing
margin based on Playboy's adjusted EBITDA. All amounts outstanding under the
New Credit Facility will mature on March 11, 2006.
PEI's obligations under the New Credit Facility are guaranteed by Playboy and
each of the Guarantors. The obligations of PEI and each of the Guarantors
under the New Credit Facility are secured by a first-priority lien on the
Secondary Collateral and a second-priority lien on the Primary Collateral.
In connection with the sale of the Notes, Playboy restructured the outstanding
indebtedness of Playboy.com owed to Mr. Hugh M. Hefner (the "Hefner Debt
Restructuring"). In its review of the Hefner Debt Restructuring, the Board of
Directors of Playboy appointed a special committee of independent directors
(the "Special Committee") to evaluate, negotiate and determine the terms of
the Hefner Debt Restructuring on behalf of Playboy. The Special Committee
approved the Hefner Debt Restructuring on the terms described below and
recommended to the full Board of Directors that it approve the restructuring
on those terms, which it did. In connection with their respective approvals of
the Hefner Debt Restructuring, the Special Committee and the Board of
Directors received an opinion from an independent financial advisor of
national standing retained by the Special Committee to the effect that the
Hefner Debt Restructuring is fair to Playboy from a financial point of view.
Playboy.com had an aggregate of approximately $27.2 million of outstanding
indebtedness to Mr. Hefner in the form of three promissory notes. Upon the
closing of the note offering, Playboy.com's debt to Mr. Hefner was
restructured as follows:
o a $10 million promissory note payable by Playboy.com to Mr.
Hefner was extinguished in exchange for a new series of
preferred stock of PEI ("PEI Series A Preferred Stock") that is
to be subsequently mandatorily exchanged for shares of
Playboy's Class B common stock; and
o the other two promissory notes payable by Playboy.com to Mr.
Hefner, in a combined principal amount of approximately $17.2
million, were extinguished in exchange for $500,000 in cash and
shares of a new series of preferred stock of PEI ("PEI Series B
Preferred Stock") that is to be subsequently mandatorily
exchanged for a new series of preferred stock of Playboy
("Playboy Preferred Stock").
In order to issue the Playboy Preferred Stock, the certificate of
incorporation of Playboy must be amended to authorize the issuance (the
"Certificate Amendment"). In accordance with the certificate of incorporation
of Playboy, Mr. Hefner, the holder of more than a majority of the outstanding
Class A common stock, has approved the Certificate Amendment by written
consent. Under federal securities laws, Mr. Hefner's consent, and therefore
the Certificate Amendment, cannot become effective prior to the 20th calendar
day following the mailing to stockholders of Playboy of an information
statement that complies with applicable Securities and Exchange Commission
rules. The PEI Series A Preferred Stock will be mandatorily exchanged for
Class B common stock of Playboy and the PEI Series B Preferred Stock will be
mandatorily exchanged for Playboy Preferred Stock upon the effectiveness of
the Certificate Amendment.
PEI will be required to redeem the PEI Series A Preferred Stock in September
2010, unless exchanged earlier for Class B common stock of Playboy, and the
PEI Series A Preferred Stock will pay an annual dividend of 8%, payable
semi-annually. The dividend will be payable in cash, provided that if the
exchange of the PEI Series A Preferred Stock for shares of Class B common
stock of Playboy has not occurred prior to the 90th day following the original
issuance of the PEI Series A Preferred Stock, dividends accruing after that
date will be paid through the issuance of additional shares of PEI Series A
Preferred Stock. The number of shares of Class B common stock issued in the
exchange would be determined by dividing (a) the sum of the aggregate stated
value of the then outstanding shares of PEI Series A Preferred Stock and the
amount of accrued and unpaid dividends by (b) the weighted average closing
price of the Class B common stock during the 90-day period prior to the date
of the Certificate Amendment.
PEI will be required to redeem the PEI Series B Preferred Stock in September
2010, unless exchanged earlier for Playboy Preferred Stock, and such stock
will pay an annual cash dividend of 8%, payable semi-annually. The Playboy
Preferred Stock would have the same terms as the PEI Series B Preferred Stock,
except that it would be convertible at the option of the holder into shares of
Class B common stock of Playboy. The conversion price (the "Conversion Price")
would equal 125% of the weighted average closing price of Playboy's Class B
common stock over the 90-day period prior to the mandatory exchange of PEI
Series B Preferred Stock for Playboy Preferred Stock. After the date that is
three years after the date the Playboy Preferred Stock is issued, if at any
time the weighted average closing price of Playboy's Class B common stock for
15 consecutive trading days (each a "Mandatory Conversion Period") equals or
exceeds 150% of the Conversion Price, Playboy would have the option, by
delivering a written notice to holders of shares of Playboy Preferred Stock
provided within five business days after the end of any Mandatory Conversion
Period, to convert any or all shares of Playboy Preferred Stock into the
number of shares of Class B common stock determined by dividing (a) the sum of
the aggregate stated value of such Playboy Preferred Stock and the amount of
accrued and unpaid dividends by (b) the Conversion Price.
This current report shall not constitute an offer to sell securities or the
solicitation of an offer to buy, nor shall there be any sale of the Notes in
any state in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: March 11, 2003 PLAYBOY ENTERPRISES, INC.
By: /s/ Linda Havard
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Linda G. Havard
Executive Vice President,
Finance and Operations and
Chief Financial Officer