OPERATING AGREEMENT
                                       FOR
                          PLAYBOY TV INTERNATIONAL, LLC
                      A DELAWARE LIMITED LIABILITY COMPANY

<PAGE>

                                    TABLE OF CONTENTS

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ARTICLE 1     DEFINITIONS......................................................1

ARTICLE 2     ORGANIZATIONAL MATTERS..........................................10
        2.1   Formation.......................................................10
        2.2   Name............................................................10
        2.3   Term............................................................10
        2.4   Office and Agent................................................10
        2.5   Addresses of the Members, the Managers, and the Directors.......10
        2.6   Purpose of Company..............................................11

ARTICLE 3     CAPITAL CONTRIBUTIONS...........................................11
        3.1   Initial Capital Contribution....................................11
        3.2   Additional Capital Contributions................................11
        3.3   Mandatory Additional Capital Contributions......................11
              3.3.1      Equity Contributions.................................11
              3.3.2      Funding Contributions................................11
        3.4   Failure to Make Mandatory Additional Capital Contributions......12
              3.4.1      Notice...............................................12
              3.4.2      Remedies.............................................12
              3.4.3      Other Effects........................................14
              3.4.4      Remedies Reasonable..................................15
              3.4.5      No Waiver............................................15
        3.5   Optional Additional Capital Contributions.......................15
        3.6   Capital Accounts................................................15
        3.7   No Interest.....................................................15

ARTICLE 4     ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS......15
        4.1   Allocations of Net Income and Net Loss..........................15
        4.2   Distribution of Distributable Cash by the Company...............16
        4.3   Form of Distribution............................................16
        4.4   Restriction on Distributions....................................16
              4.4.1      Restriction..........................................16
              4.4.2      Method of Determination..............................16
              4.4.3      Personal Liability...................................16
        4.5   Return of Distributions.........................................16

ARTICLE 5     MANAGEMENT AND CONTROL OF THE COMPANY...........................17
        5.1   Managers and the Management Committee...........................17


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              5.1.1      Managers.............................................17
              5.1.2      General Scope of Authority...........................17
              5.1.3      Voting...............................................17
              5.1.4      Veto Right...........................................17
        5.2   Members of the Management Committee; Appointment and Removal....19
        5.3   Matters Determined by Independent Directors.....................20
        5.4   Meetings of the Management Committee............................20
        5.5   Delegation of Authority; President and Other Officers...........21
              5.5.1      General Power to Delegate Authority..................21
              5.5.2      The President........................................21
              5.5.3      Duties of the President..............................21
              5.5.4      Additional Officers..................................22
              5.5.5      Officers Serve at the Pleasure of the Management
                         Committee............................................22
        5.6   Interested Party Transactions...................................22
              5.6.1      Approval.............................................22
              5.6.2      Termination and Remedies.............................22
        5.7   Performance of Duties; Liability of Managers; Liability of
              Directors.......................................................23
        5.8   Offices and Facilities; Staff...................................23
              5.8.1      Facilities/Company Location..........................23
        5.9   Insurance.......................................................23

ARTICLE 6     BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY.........24
        6.1   The Business Plan...............................................24
              6.1.1      The First Business Plan..............................24
              6.1.2      Additions to Business Plan...........................24
        6.2   Annual Budgets..................................................24
        6.3   Carryover Plan or Budget........................................25
        6.4   Operation of Company............................................25
              6.4.1      Operations During Transition Period..................25
              6.4.2      Absorption of Existing Channels......................25
              6.4.3      German Venture Expenses..............................25
              6.4.4      Services Provided by PEGI............................25
              6.4.5      Creation of Local Ventures and Provision for Local
                         Partners.............................................26
              6.4.6      Supplemental Programs................................26
              6.4.7      Playboy TV Lite......................................27
              6.4.8      Venus and Spice Hot..................................27
              6.4.9      U.S. Activities......................................28
              6.4.10     Certain Tax Matters..................................28


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ARTICLE 7     RIGHTS ACQUISITION FEE..........................................28
        7.1   Rights Acquisition Fee..........................................28
              7.1.1      Payment of Fee.......................................28
              7.1.2      Allocation of Fee....................................29
        7.2   Purchase of U.K. Venture, Japan Venture and Danish Companies....29

ARTICLE 8     MEMBERS.........................................................30
        8.1   Limited Liability...............................................30
        8.2   Admission of Additional Members.................................30
        8.3   Withdrawals or Resignations.....................................30
        8.4   Termination of Membership Interest..............................30
        8.5   Remuneration To Members.........................................30
        8.6   Members Are Not Agents; No Management Authority.................31
        8.7   Meetings of Members.............................................31
              8.7.1      Power to Call Meetings...............................31

ARTICLE 9     TRANSFER AND ASSIGNMENT OF INTERESTS............................31
        9.1   Transfer of Membership Interests................................31
        9.2   Change of Control...............................................32
              9.2.1      Changes in General...................................32
              9.2.2      VSI..................................................32
              9.2.3      PEI/PEGI.............................................32
              9.2.4      ***..................................................33
        9.3   Substitution of Members.........................................33
        9.4   Effective Date of Permitted Transfers...........................33
        9.5   Rights of Legal Representatives.................................33
        9.6   PEGI Buy-up Option..............................................33
              9.6.1      Option Expiration Date...............................34
              9.6.2      Exercise of Buy-up Option............................34

ARTICLE 10    CONSEQUENCES OF DISSOLUTION.....................................35
        10.1  Disassociation Event............................................35
              10.1.1     Purchase Price.......................................35
              10.1.2     Notice of Intent to Purchase.........................35
              10.1.3     Election to Purchase Less Than All of the Former
                         Member's Interest....................................35
              10.1.4     Payment of Purchase Price............................35
              10.1.5     Closing of Purchase of Former Member's Interest......36
              10.1.6     Purchase Terms Varied by Agreement...................36
        10.2  Bankruptcy......................................................36

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***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


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ARTICLE 11    ACCOUNTING, RECORDS, REPORTING BY MEMBERS.......................36
        11.1  Books and Records...............................................36
        11.2  Delivery to Members and Inspection..............................37
              11.2.1     Delivery Upon Request................................37
              11.2.2     Inspection...........................................37
              11.2.3     Authorized Persons...................................37
        11.3  Periodic Statements.............................................38
              11.3.1     Monthly Report.......................................38
              11.3.2     Annual Report........................................38
              11.3.3     Tax Information......................................38
        11.4  Financial and Other Information.................................38
        11.5  Filings.........................................................38
        11.6  Bank Accounts...................................................38
        11.7  Accounting Decisions and Reliance on Others.....................39
        11.8  Tax Matters for the Company Handled by Management Committee
              and Tax Matters Member..........................................39

ARTICLE 12    DISSOLUTION AND WINDING UP......................................39
        12.1  Term............................................................39
        12.2  Dissolution Events..............................................39
        12.3  Effect of Dissolution...........................................40
        12.4  Dissolution.....................................................41
        12.5  Certificate of Dissolution......................................41
        12.6  Winding Up......................................................41
        12.7  Distributions in Kind...........................................41
        12.8  Order of Payment of Liabilities Upon Dissolution................42
              12.8.1     Distributions to Members.............................42
              12.8.2     Payment of Debts.....................................42
        12.9  Certificate of Cancellation.....................................42
        12.10 No Action for Dissolution.......................................43

ARTICLE 13    INDEMNIFICATION AND INSURANCE...................................43
        13.1  Indemnification of Agents.......................................43
        13.2  Insurance.......................................................43

ARTICLE 14    NONCOMPETITION..................................................44
        14.1  Non-competition.................................................44
        14.2  Separate Covenants..............................................44
        14.3  Injunctive Relief...............................................44
        14.4  Outside Businesses..............................................44

ARTICLE 15    MEMBER REPRESENTATIONS AND WARRANTIES...........................45
        15.1  Representations and Warranties by Each Member...................45
              15.1.1     Experience...........................................45
              15.1.2     No Advertising.......................................45


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              15.1.3     Investment Intent....................................45
              15.1.4     Purpose of Entity....................................45
              15.1.5     Economic Risk........................................45
              15.1.6     No Registration of Membership Interest...............45
              15.1.7     Membership Interest in Restricted Security...........45
              15.1.8     No Obligation to Register............................46
              15.1.9     No Disposition in Violation of Law...................46
              15.1.10    Investment Risk......................................46
              15.1.11    Restrictions on Transferability......................46
              15.1.12    Information Reviewed.................................46
              15.1.13    No Representations By Company........................46
              15.1.14    Consultation with Attorney...........................46
              15.1.15    Tax Consequences.....................................47
              15.1.16    No Assurance of Tax Benefits.........................47
        15.2  VSI Representations and Warranties..............................47
        15.3  PEGI Representations and Warranties.............................47
        15.4  Indemnity.......................................................48

ARTICLE 16    DISPUTE RESOLUTION..............................................48
        16.1  Alternative Dispute Resolution..................................48
        16.2  Notification and Negotiation....................................48
        16.3  Mediation.......................................................49
        16.4  Arbitration.....................................................49
        16.5  Damages.........................................................49
        16.6  Statute of Limitations..........................................49
        16.7  Confidential Negotiations.......................................49
        16.8  Service of Process..............................................49
        16.9  Additional Arbitration Provisions...............................50

ARTICLE 17    MISCELLANEOUS...................................................50
        17.1  Superseding Agreements..........................................50
        17.2  Documents and Acts..............................................50
        17.3  Time is of the Essence..........................................50
        17.4  Remedies Cumulative.............................................50
        17.5  Currency; Payments..............................................50
        17.6  Governing Law...................................................51
        17.7  Assignment; No Third Party Beneficiary..........................51
        17.8  Agreement Negotiated............................................51
        17.9  Waivers, Remedies Cumulative, Amendments, etc...................51
        17.10 Notices.........................................................52
        17.11 Public Announcements............................................53
        17.12 Survival........................................................53

EXHIBIT A     CAPITAL CONTRIBUTION AND ADDRESSES OF MEMBERS AS OF
              AUGUST 31, 1999................................................A-1


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EXHIBIT B     TAX ALLOCATIONS................................................B-1

EXHIBIT C     SCHEDULE OF MANDATORY ADDITIONAL CAPITAL CONTRIBUTIONS.........C-1

EXHIBIT D     BUSINESS PLAN..................................................D-1

EXHIBIT E     APPRAISED FAIR MARKET VALUE PROCEDURE..........................E-1

EXHIBIT F     ROLL-UP PROCEDURE..............................................F-1


                                       vi
<PAGE>

                               OPERATING AGREEMENT
                                       FOR
                          PLAYBOY TV INTERNATIONAL, LLC
                      A DELAWARE LIMITED LIABILITY COMPANY

      This Operating Agreement is made and entered into on August 31, 1999 by
and between Playboy Entertainment Group, Inc., a Delaware corporation ("PEGI"),
and Victoria Springs Investments Ltd., a British Virgin Islands corporation
("VSI"), with reference to the following facts:

      A. The parties have formed Playboy TV International, LLC, a limited
liability company under the laws of the State of Delaware.

      B. The parties desire to adopt and approve an operating agreement for the
Company.

      NOW, THEREFORE, the parties by this Agreement set forth the operating
agreement for the Company under the laws of the State of Delaware upon the terms
and subject to the conditions of this Agreement.

                                    ARTICLE 1
                                   DEFINITIONS

      When used in this Agreement, the following terms will have the meanings
set forth below:

            "Acquired Interests" has the meaning set forth in Section 7.2.

            "Act" means the Delaware Limited Liability Company Act, as the same
may be amended from time to time.

            "Adult-Oriented" means, with respect to a Service or program, that
such Service or program is erotic in nature and features nudity.

            "Affiliate" means any Person, directly or indirectly through one or
more intermediaries, controlling of, controlled by, or under common control with
the specified Person. The term "control" (and "controlled" and "controlling,"
respectively), as used in the immediately preceding sentence, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of the specified Person (whether by the
holding of shares or other equity interests, the possession of voting or
contract rights or otherwise).

            "After Tax Basis" means a basis such that any payment (the "Original
Payment") received or deemed to have been received by a Person (the "recipient")
will be supplemented by a further payment to the recipient so that the sum of
the two payments


                                       1
<PAGE>

will equal the Original Payment, after taking into account (x) all taxes that
would result from the receipt or accrual of such payments, if legally required,
and (y) any reduction in taxes that would result from the deduction of the
expense indemnified against, if legally permissible. In the event that the
expense indemnified against is used to reduce taxes by way of amortization or
depreciation, payments made on an After Tax Basis will be refunded in each
taxable year of the recipient in which such expense is deductible in an amount
equal to the sum of (i) the tax savings attributable to such deduction plus (ii)
any reduction in taxes that would result from the deduction of any amounts
described in clause (i) as increased hereby. All payments hereunder will be
calculated on the assumptions that the recipient was subject to tax at the
highest marginal rates of tax applicable to such class of taxpayer and that it
could benefit from the deduction of any expense at such rate of tax. In the
event that a taxing authority will treat any indemnification payment as not
includible in gross income or disallow any deduction taken into account
hereunder, the indemnification will be recomputed and further payments or
refunds made.

            "Agent" has the meaning set forth in Section 13.1.

            "Agreement" means this Operating Agreement, as originally executed
and as amended from time to time in accordance with the terms hereof.

            "Agreement Outline" means that certain "Playboy TV International,
LLC Agreement Outline" entered into by and among PEII, PEGI and Bloomfield,
dated as of December 16, 1998, as amended.

            "Annual Budget" has the meaning set forth in Section 6.2.

            "Bankruptcy" with respect to a Member means: (a) the filing of an
application by a Member for, or such Member's consent to, the appointment of a
trustee, receiver, or custodian of such Member's other assets; (b) the entry of
an order for relief with respect to a Member in proceedings under the United
States Bankruptcy Code, as amended or superseded from time to time; (c) the
making by a Member of a general assignment for the benefit of creditors; (d) the
entry of an order, judgment, or decree by any court of competent jurisdiction
appointing a trustee, receiver, or custodian of the assets of a Member unless
the proceedings and the Person appointed are dismissed within ninety (90) days;
or (e) the failure by a Member generally to pay such Member's debts as the debts
become due within the meaning of Section 303(h)(1) of the United States
Bankruptcy Code, as determined by the Bankruptcy Court, or the admission in
writing of such Member's inability to pay its debts as they become due.

            "Bloomfield" means Bloomfield Mercantile, Inc., a Panamanian company
and the assignor of its rights under the Agreement Outline to VSI.

            "Business Plan" has the meaning set forth in Section 6.1.


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<PAGE>

            "Capital Account" means with respect to any Member the capital
account that the Company establishes and maintains for such Member pursuant to
Section 3.6 and Article 1 of Exhibit B.

            "Capital Contribution" means the total value of cash and fair market
value of property (including promissory notes or other obligation to contribute
cash or property) contributed and/or services rendered or to be rendered to the
Company by Members.

            "Certificate" means the Certificate of Formation for the Company
originally filed with the Delaware Secretary of State and as amended from time
to time.

            "Channels" mean the television channels operated by the Company or
its subsidiaries, now or in the future (each, a "Channel").

            "Claim" has the meaning set forth in Section 15.2.

            "Code" means the Internal Revenue Code of 1986, as amended from time
to time, the provisions of succeeding law, and to the extent applicable, the
Treasury Regulations.

            "Company" means Playboy TV International, LLC, a Delaware limited
liability company.

            "Corporate Income Taxes" means, with respect to any entity, such
entity's United States Federal and State income taxes and franchise taxes
(however denominated) based on such entity's actual net earnings or any similar
taxes (however denominated) payable by such entity to any jurisdiction based on
such entity's actual net earnings, it being agreed that any taxes (however
denominated) required to be withheld by any jurisdiction in order to permit the
remittance of monies from any such jurisdiction will not be deemed to be a tax
based on the actual net earnings of such entity.

            "Corporations Code" means the Delaware General Corporation Law, as
amended from time to time, and the provisions of any succeeding law.

            "Danish Companies" means SEI 2 and SEI 3.

            "Defaulting Member" has the meaning set forth in Section 3.4.1.

            "Director" has the meaning set forth in Section 5.2.1.

            "Disassociation Event" means, with respect to any Member, the
Bankruptcy or dissolution of such Member.

            "Dissolution Event" has the meaning set forth in Section 12.2.


                                       3
<PAGE>

            "Distributable Cash" means the amount of cash that the Management
Committee deems available for distribution to the Members, taking into account
all debts, liabilities and obligations of the Company then due and amounts that
the Management Committee deems necessary to place into reserves for customary
and usual claims with respect to the Company's business and for future operating
needs of the Company.

            "Due Diligence" means the right granted to Bloomfield in the
Agreement Outline to investigate matters relevant to the transactions
contemplated in the Agreement Outline.

            "Economic Interest" means a Member's share of one or more of the
Company's Net Income, Net Losses, and distributions of the Company's assets
pursuant to this Agreement and the Act, but will not include any other rights of
a Member, including, but not limited to, the right to vote or participate in the
management, or except as provided in Section 18-305 of the Act, any right to
information concerning the business and affairs, of the Company.

            "Equity Matching Right" has the meaning set forth in Section 9.2.3.

            "Existing Channel Entities" has the meaning set forth in Section
6.4.2.

            "Existing Library Programs" has the meaning set forth in the Program
Supply Agreement.

            "Fair Market Value" with respect to the Company or to any asset
means the value determined pursuant to Exhibit E.

            "Final First Business Plan" has the meaning set forth in Section
6.1.1.

            "Fiscal Year" means the Company's fiscal year, which will be the
calendar year.

            "Former Member" has the meaning set forth in Section 10.1.

            "Former Member's Interest" has the meaning set forth in Section
10.1.

            "Founders' Price" as of a specified date means, with respect to the
price per 1% Percentage Interest, an amount equal to the sum of PEGI's and VSI's
Capital Contributions through and including such date, divided by 100.

            "Funding Date" means the date which is ten (10) business days after
this Agreement is executed.


                                       4
<PAGE>

            "Funding Side Letter" means the letter agreement of even date
herewith among PEGI, VSI, PTVI, PTVLA, the German Venture and White Oak
Enterprises Ltd. relating to the payment of amounts with respect to programming
and trademark license fees relating to PTVLA, the German Venture and White Oak
Enterprises Ltd. for periods ending on June 30, 1999 and amounts advanced to the
U.K. Venture after July 1, 1999 and loaned to the U.K. Venture before March 31,
1999.

            "German Venture" means Playboy TV - GmbH Germany.

            "Guaranty" means the Guaranty by Hampstead of the obligations
hereunder of VSI, executed concurrently herewith.

            "Hampstead" means Hampstead Management Company Ltd., a British
Virgin Islands corporation.

            "Imagen" means Imagen Satelital, S.A., a corporation formed under
the laws of Argentina.

            "Indemnified Parties" has the meaning set forth in Section 15.2.

            "Indemnifying Party" has the meaning set forth in Section 15.2.

            "Independent Directors" has the meaning set forth in Section 5.2.1.

            "Japan Venture" means The Playboy Channel Japan, Inc., a Japanese
corporation.

            "Licensor" means the licensor under either the Program Supply
Agreement or under the Trademark License Agreement, as the context dictates.

            "Lifford" means Lifford International Co. Ltd., an International
business company incorporated under the laws of the British Virgin Islands.

            "Local Partner" has the meaning set forth in Section 6.4.5.

            "Majority Interest" means Percentage Interests of one or more
Members that taken together exceed fifty percent (50%) of the aggregate of all
Percentage Interests.

            "Management Committee" has the meaning set forth in Section 5.1.1.

            "Managers" means the Managers of the Company pursuant to Section
18-402 of the Act.

            "Mandatory Additional Capital Contributions" has the meaning set
forth in Section 3.3.2.


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<PAGE>

            "Mandatory Additional Cash Contribution" has the meaning set forth
in Section 3.3.2.

            "Mandatory Additional Equity Contributions" has the meaning set
forth in Section 3.3.1.

            "Matching Right" has the meaning set forth in Section 9.1.2.

            "Member" means each Person who (a) is an initial signatory to this
Agreement or has been admitted to the Company as a Member in accordance with
this Agreement and (b) has not resigned, withdrawn, been expelled or dissolved.

            "Membership Interest" means a Member's entire interest in the
Company including the Member's Economic Interest, the right to vote on or
participate in the management, and the right to receive information concerning
the business and affairs, of the Company.

            "Memorandum of Agreement" means that certain Memorandum of Agreement
entered into by and between PEGI and Tohokushinsha Film Corporation dated as of
July 31, 1995, as amended.

            "Net Income" and "Net Losses" have the meanings set forth in Article
2 of Exhibit B hereto.

            "New Venus" has the meaning set forth in Section 6.4.8(a).

            "New Venus Territory" ***

            "Non-Independent Director" means any Director who is not an
Independent Director

            "Offered Asset" has the meaning set forth in Section 9.2.3.

            "Offered Interest" has the meaning set forth in Section 9.1.1.

            "Offered Terms" has the meaning set forth in Section 9.1.2.

            "Option Expiration Date" has the meaning set forth in Section 9.6.1.

            "Option Percentage" has the meaning set forth in Section 9.6.

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       6
<PAGE>

            "Optional Additional Capital Contribution" has the meaning set forth
in Section 3.5.

            "PEGI" means Playboy Entertainment Group, Inc., a Delaware
corporation.

            "PEGI Directors" has the meaning set forth in Section 5.2.1.

            "PEGI Parent" has the meaning set forth in Section 9.2.3.

            "PEI" means Playboy Enterprises, Inc., a Delaware corporation and
the ultimate parent corporation of PEGI.

            "PEII" means Playboy Enterprises International, Inc., a Delaware
corporation and the direct parent corporation of PEGI.

            "Percentage Interest" means the percentage of a Member set forth
opposite the name of such Member under the column "Member's Percentage Interest"
in Exhibit A hereto, as such percentage may be adjusted from time to time
pursuant to the terms of this Agreement.

            "Person" means an individual, general partnership, limited
partnership, limited liability company, corporation, trust, estate, real estate
investment trust, association or any other entity.

            "Playboy TV Lite" has the meaning set forth in Section 6.4.7.

            "President" means the President of the Company from time to time.

            "Program Supply Agreement" means the Program Supply Agreement
between PEGI and the Company, executed concurrently herewith.

            "Proposed Partner" has the meaning set forth in Section 6.4.5(a).

            "Proposed Terms" has the meaning set forth in Section 9.2.3.

            "PTVH" means Playboy TV Holdings, LLC, a California limited
liability company.

            "PTVLA" means Playboy TV-Latin America, LLC, a California limited
liability company.

            "PTVLA/I" has the meaning set forth in Section 3.3.1.


                                       7
<PAGE>

            "PTV U.S." means PTV U.S., LLC, a Delaware limited liability
company.

            "Reference Rate" means the reference rate as set forth from time to
time by BankAmerica.

            "Related Documents" means this Agreement, the Trademark License
Agreement, the Program Supply Agreement, the Stock Purchase Agreements, and the
Guaranty.

            "Release" means the Termination of Guaranty by and among PEI, PEGI,
PTVLA and Venevision International, Inc., a Florida corporation, executed
concurrently herewith.

            "Remaining Members" has the meaning set forth in Section 10.1.

            "Remediable Breach" has the meaning set forth in Section 12.2.2(b).

            "Rights Acquisition Fee" has the meaning set forth in Section 7.1.1.

            "Securities Act" has the meaning set forth in Section 15.1.6.

            "SEI 2" means SEI 2 ApS, a company formed under the laws of Denmark.

            "SEI 3" means SEI 3 ApS, a company formed under the laws of Denmark.

            "Selling Member" has the meaning set forth in Section 9.1.2.

            "Services" means the operation of television channels under the
brand names "Playboy," "Spice" and "AdulTVision" (and variations thereof
permitted under the Trademark License Agreement) in the Territory.

            "Share Purchase Agreement" means that certain Share Purchase
Agreement dated as of November 26, 1998, by and among Playboy TV U.K./Benelux
Limited, PEGI, PEI, Continental Shelf 16 Limited, Flextech (1992) Limited,
British Sky Limited and Sky Ventures Limited, as amended.

            "Southern Cone" means the countries of Argentina, Chile, Peru,
Bolivia, Paraguay, Uruguay and their territories and possessions.

            "Stock Purchase Agreements" means, collectively, (i) the Stock
Purchase Agreement entered into by and between PEGI and the Company as of the
date hereof for the purchase of PEGI's interest in the U.K. Venture (ii) the
Stock Purchase Agreement entered into by and between PEGI and the Company as of
the date hereof for the purchase of PEGI's interest in the Japan Venture; (iii)
the Stock Purchase Agreement entered into by and between PEGI and the Company
for the purchase of PEGI's interest


                                       8
<PAGE>

in SEI 2; and (iv) the Stock Purchase Agreement entered into by and between PEGI
and the Company for the purchase of PEGI's interest in SEI 3.

            "Supplemental Programs" has the meaning set forth in Section 6.4.6.

            "Tax Matters Member" means VSI or such Member's successor as
designated pursuant to Section 11.8.

            "Term" has the meaning set forth in Section 12.1.

            "Territory" means the World, except for the United States and Canada
and their territories and possessions. For certain programs, the Territory will
exclude Bermuda, as set forth in the Program Supply Agreement.

            "Third Party Buyer" has the meaning set forth in Section 9.1.2.

            "Trademark License Agreement" means the Trademark License Agreement,
to be executed concurrently herewith, between PEII and the Company relating to
the license of certain trademarks.

            "Transfer" has the meaning set forth in Section 9.1.1.

            "Transition Period" has the meaning set forth in Section 6.4.1.

            "Treasury Regulations" has the meaning set forth in Exhibit B.

            "Troy" means Troy Limited, a Bahamian company.

            "U.K. Venture" means Home Video Channel Limited and its subsidiary
Playboy TV U.K./Benelux, Limited, each a company organized under the laws of
England and Wales.

            "US Distribution Agreement" means that certain Distribution
Agreement to be entered into between PEGI and PTV U.S.

            "U.S. Taxable Activity" has the meaning set forth in Section 6.4.9.

            "Venus" means that certain Adult-Oriented television programming
service owned and operated by Imagen, primarily in Argentina.

            "VSI Directors" has the meaning set forth in Section 5.2.1.

            "Walk Away Notice" means that certain letter from Cisneros
Television Group (on behalf of Bloomfield) to PEGI dated February 12, 1999, in
which Bloomfield exercised its Walk Away Right, as defined in the Agreement
Outline.


                                       9
<PAGE>

            "Wallpaper" has the meaning set forth in the Program Supply
Agreement.

            "Year 1" means the 12-month period commencing on the Funding Date;
"Year 2" means the 12-month period commencing on the first anniversary of the
Funding Date; and subsequent years will be identified in analogous fashion.

                                    ARTICLE 2
                             ORGANIZATIONAL MATTERS

      2.1 Formation. Pursuant to the Act, the Members formed a limited liability
company under the laws of the State of Delaware by causing Christine Tuthill, an
authorized person, to file the Certificate with the Delaware Secretary of State.
The Members ratify and confirm the filing the Certificate. The rights and
liabilities of the Members will be determined pursuant to the Act and this
Agreement. To the extent that the rights or obligations of any Member are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement will, to the extent permitted by the
Act, control.

      2.2 Name. The name of the Company will be "Playboy TV International, LLC."
The business of the Company may be conducted under such name or, upon compliance
with applicable laws, any other name determined by the Management Committee. The
President or another designated officer of the Company will file any fictitious
name certificates and similar filings, and any amendments thereto, that the
Management Committee considers appropriate or advisable. ***

      2.3 Term. The term of this Agreement will be co-terminus with the period
of duration of the Company provided in the Certificate, unless extended or
sooner terminated as hereinafter provided.

      2.4 Office and Agent. The Company will continuously maintain an office and
registered agent in the State of Delaware as required by the Act. The principal
office of the Company will be as set forth in Section 5.9.1 or such other
location as the Management Committee may determine. The Company also may have
such offices, anywhere within and without the State of Delaware, as the
Management Committee from time to time may determine, or the business of the
Company may require. The registered agent will be as stated in the Certificate
or as otherwise determined by the Management Committee.

      2.5 Addresses of the Members, the Managers, and the Directors. The
respective addresses of the Members are set forth on Exhibit A, which exhibit
will be

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       10
<PAGE>

modified from time to time to reflect changes therein. The respective addresses
of the Managers and the Directors will be maintained in the books of the Company
and made available to any Member, on request.

      2.6 Purpose of Company. The purpose of the Company is to engage in any
lawful activity for which a limited liability company may be organized under the
Act. Notwithstanding the foregoing, without the majority approval of the
Management Committee (and subject to the veto rights of the VSI Directors and
the PEGI Directors under Section 5.1.3), the Company will not engage in any
business other than the business of (i) owning, operating and distributing the
Services in the Territory, (ii) licensing programming to third parties; and
(iii) and such other activities which are ancillary and related thereto as may
be necessary, advisable, or appropriate in the reasonable opinion of the
Management Committee, to further the foregoing business, including but not
limited to the promotion of the Services and related marketing, distribution and
advertising activities.

                                    ARTICLE 3
                              CAPITAL CONTRIBUTIONS

      3.1 Initial Capital Contribution. On the Funding Date, each Member will
contribute such amount as is set forth on Exhibit A as its initial Capital
Contribution to be paid on such date. Both VSI's and PEGI's initial Capital
Contributions will be made in cash. Exhibit A will be further revised from time
to time to reflect any additional contributions made in accordance with this
Agreement.

      3.2 Additional Capital Contributions. Except as specifically provided in
Section 3.3, no Member will be required to make any additional Capital
Contributions.

      3.3 Mandatory Additional Capital Contributions.

            3.3.1 Equity Contributions. VSI will use its reasonable best efforts
to acquire *** as soon as reasonably practicable. Promptly after the date of
such acquisitions, both VSI and PEGI will contribute to the Company their equity
interests (or those interests belonging to PEGI Affiliates or VSI Affiliates) in
*** at book value (the "Mandatory Additional Equity Contributions"); provided,
however, that VSI will, *** As of the effective date of such merger, VSI will
contribute such *** to the Company.

            3.3.2 Funding Contributions. If necessary to cover the deficits of
the Company, each Member will contribute additional capital pro rata in
accordance with their respective Percentage Interests, with such capital calls
subject to the aggregate

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       11
<PAGE>

maximum (including the initial Capital Contributions described in Section 3.1)
*** (each, a "Mandatory Additional Cash Contribution"; and, together with the
Mandatory Additional Equity Contributions, the "Mandatory Additional Capital
Contributions"). A schedule of anticipated Mandatory Additional Cash
Contributions for the first eight (8) quarters of the Company's operation, which
contributions are expected to occur quarterly at the beginning of each quarter,
will be attached hereto as Exhibit C upon completion of the Final First Business
Plan. Subsequent Mandatory Additional Cash Contributions will be made as set
forth in the Business Plan, as in effect from time to time. The Company will
give written notice to each Member of each Mandatory Additional Capital
Contribution at least fifteen (15) business days prior to the date due, stating
the amount owed by each Member and the date on which such amount is due.

      3.4 Failure to Make Mandatory Additional Capital Contributions.

            3.4.1 Notice. If a Member does not timely contribute a Mandatory
Additional Capital Contribution when required, that Member will be in default
under this Agreement (a "Defaulting Member"). In such event, the Company will
send the Defaulting Member written notice of such default, giving the Defaulting
Member fifteen (15) days from the date such notice is given to contribute the
entire amount of the Mandatory Additional Capital Contribution.

            3.4.2 Remedies. If the Defaulting Member does not contribute the
Mandatory Additional Capital Contribution to the Company within the periods set
forth below, the Management Committee, acting for all purposes of this Section
3.4.2 without the vote of the Directors appointed by the Defaulting Member,
(i.e., acting by a Majority Interest of the members of the Management Committee
appointed by the non-Defaulting Members) may elect any one or more of the
remedies set forth below. Notwithstanding the foregoing, in no event will the
Management Committee be entitled to elect more than one remedy if the effect of
doing so would be duplicative.

                  (a) Apply Payments. If PEGI (or an Affiliate of PEGI which is
then a Member) is the Defaulting Member, the Management Committee may elect to
withhold the amount that the Defaulting Member has failed to contribute from
amounts otherwise payable to PEGI (or an Affiliate of PEGI) with respect to the
Rights Acquisition Fee or under the Program Supply Agreement or the Trademark
License Agreement and to pay such withheld amount to the Company on behalf of
the Defaulting Member. For all purposes hereunder, the withheld amount will be
treated as though it were paid by the Company to the party entitled to payment
thereof and as though the Defaulting Member made the capital contribution.

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       12
<PAGE>

                  (b) Advance Funds. If the Defaulting Member does not
contribute the Mandatory Additional Capital Contribution within the fifteen (15)
day period following notice from the Company of default, the Management
Committee may elect to permit non-defaulting Members to advance funds to the
Company to cover those amounts that the Defaulting Member fails to contribute.
Amounts that a non-Defaulting Member so advances on behalf of the Defaulting
Member will become a demand loan due and owing from the Defaulting Member to
such non-defaulting Member, bearing interest at the rate per annum of one
hundred fifty (150) basis points above the Reference Rate as in effect on the
date such Mandatory Additional Capital Contribution was originally due, with
such interest being payable monthly. All cash distributions otherwise
distributable to the Defaulting Member under this Agreement will instead be
paid, on the Defaulting Member's behalf, to the non-Defaulting Members making
such advances until such advances and any accrued but unpaid interest thereon
are paid in full. Any amounts repaid will first be applied to interest and
thereafter to principal. Effective upon a Member becoming a Defaulting Member,
such Member will grant to the non-Defaulting Members who advance funds under
this Section 3.4.2(b) a security interest in its Economic Interest to secure its
obligation to repay such advances and will execute and deliver a promissory
note, security agreement, and such UCC-1 financing statements and assignments of
certificates of membership interest (or other documents of transfer) in such
form as such non-Defaulting Members may reasonably request.

                  (c) Adjust Percentage Interest. If the Defaulting Member does
not, within a further period of ninety (90) days, contribute the Mandatory
Additional Capital Contribution and/or repay in full any advances made by the
non-Defaulting Members, the Member who has made a loan pursuant to Section
3.4.2(b) may elect to convert all or a portion of such loan (plus any accrued
but unpaid interest thereon) to a Capital Contribution. Upon such election, the
Percentage Interests of the Defaulting Member and the non-Defaulting Member(s)
will be adjusted so that each Member's Percentage Interest will be a fraction,
the numerator of which represents the amount of such Member's Capital Account
and the denominator of which represents the sum of all Members' Capital
Accounts, taking into account the contribution represented by the conversion of
the loan.

                  (d) Dissolve. If the Defaulting Member does not contribute
Mandatory Additional Capital Contributions on three (3) occasions, whether or
not consecutive, and the Defaulting Member has failed to cure each such failure
to contribute within the fifteen (15) day period specified in Section 3.4.1
above, the Management Committee may propose to dissolve the Company in which
event the Company will be wound-up, liquidated and terminated pursuant to
Article 12.

                  (e) Purchase Interest. If the Defaulting Member does not
contribute Mandatory Additional Capital Contributions on three (3) occasions,
whether or not consecutive, and the Defaulting Member has failed to cure each
such failure to contribute within the fifteen (15) day period specified in
Section 3.4.1 above, the Management Committee may elect to permit the Company or
the non-Defaulting


                                       13
<PAGE>

Members to purchase the Defaulting Member's entire Membership Interest for the
positive balance of such Member's Capital Account less the total amount owed by
such Member to the Company and non-Defaulting Members in respect of unpaid
Mandatory Additional Capital Contributions or advances by non-Defaulting Members
in respect thereof. Any such purchase of a Member's Percentage Interest will
occur as promptly as practicable following notice of the purchase election to
the Defaulting Member, subject to the receipt of required regulatory approvals.

            3.4.3 Other Effects.

                  (a) No Distributions. A Defaulting Member will have no right
to receive any distributions from the Company until: (i) the principal and
interest of any outstanding loan made by a non-Defaulting Member pursuant to
Section 3.4.2(a) has been repaid; and (ii) to the extent a non-Defaulting Member
elects to convert any such loan to a Capital Contribution, such non-Defaulting
Member has first received distributions in an amount equal to the amount of such
Capital Contribution, plus a cumulative, compounded return thereon at the rate
per annum of one hundred fifty (150) basis points above the Reference Rate as in
effect on the date such additional capital was contributed. In the event a
non-Defaulting Member receives a distribution of interest on a Capital
Contribution pursuant to clause (ii) of the preceding sentence, the Capital
Account of such non-Defaulting Member will be increased by the amount of such
interest payment.

                  (b) No Voting. Except as otherwise provided in this Section
3.4.3(b), if the Management Committee exercises any of the remedies set forth in
paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member (directly or
through the Directors appointed by it) will lose its voting and approval rights
under the Act and this Agreement (unless the Defaulting Member cures the default
and the non-Defaulting Member permits such cure). Notwithstanding the foregoing,
the Directors appointed by the Defaulting Member will retain their veto rights
(to the extent such veto rights were continuing prior to the exercise of such
remedy) with respect to the matters described in Sections 5.1.4(b) and Section
5.1.4(c). No reduction in a Member's Membership Interest, pursuant to Section
3.4.2(b) will affect any of the Defaulting Member's voting or approval rights
under this Agreement (other than to the extent such reduction reduces the voting
power of the Defaulting Member's Directors pursuant to Section 5.2.4).

                  (c) No Participation in Management. Except as provided in
Section 3.4.3(b), if the Management Committee exercises any of the remedies set
forth in paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member will lose
its ability (whether as a Member or through the Directors appointed by it) to
actively participate in the management and operations of the Company until the
completion of dissolution and the winding up of the affairs of the Company, or
such time as the Defaulting Member cures (if the non-Defaulting member
thereafter permits the Defaulting Member to cure) the default or its Percentage
Interest is purchased.


                                       14
<PAGE>

            3.4.4 Remedies Reasonable. Each Member acknowledges and agrees that
the remedies described in this Section 3.4 bear a reasonable relationship to the
damages that the Members estimate may be suffered by the Company and the
non-Defaulting Members by reason of the failure of a Defaulting Member to make
Mandatory Additional Capital Contributions and, subject to the last sentence of
the first paragraph of Section 3.4.2, the election of any or all of the
above-described remedies is not unreasonable.

            3.4.5 No Waiver. Subject to the last sentence of the first paragraph
of Section 3.4.2, the election of the Management Committee or of any
non-Defaulting Member to pursue any remedy provided in this Section 3.4 will not
be a waiver or limitation of the right of the Management Committee, the Company
or the non-Defaulting Members to pursue an additional or different remedy
available hereunder or of law or equity with respect to any subsequent default.

      3.5 Optional Additional Capital Contributions. To the extent approved by
the Management Committee (subject to the veto rights of the VSI Directors and
PEGI Directors under Section 5.1.3), from time to time, the Members may be
permitted to make additional Capital Contributions if and to the extent they so
desire, and if the Directors determine that such additional Capital
Contributions are necessary or appropriate for the conduct of the Company's
business, including without limitation, expansion or diversification (each, an
"Optional Additional Capital Contribution"). In that event, the Members will
have the opportunity, but not the obligation, to participate in such Optional
Additional Capital Contributions on a pro rata basis in accordance with their
Percentage Interests. Immediately following such Optional Additional Capital
Contributions, the Percentage Interests will be adjusted to reflect the new
relative proportions of the Capital Accounts of the Members.

      3.6 Capital Accounts. The Company will establish an individual Capital
Account for each Member in accordance with Article 1 of Exhibit B hereto. If a
Member transfers all or a part of its Membership Interest in accordance with
this Agreement, such Member's Capital Account attributable to the transferred
Membership Interest will carry over to the new owner of such Membership Interest
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(1).

      3.7 No Interest. Except as provided in Section 3.4, no Member will be
entitled to receive any interest on its Capital Contributions.

                                    ARTICLE 4
           ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS

      4.1 Allocations of Net Income and Net Loss. Net Income and Net Loss will
be allocated to the Members in accordance with Article 1 of Exhibit B.


                                       15
<PAGE>

      4.2 Distribution of Distributable Cash by the Company. Subject to
applicable law and any limitations contained elsewhere in this Agreement, the
Management Committee will cause the Company to distribute Distributable Cash on
a quarterly basis to the Members, which distributions will be made to the
Members in proportion to their Percentage Interests as of the end of the
relevant quarter.

      4.3 Form of Distribution. Except as provided in Section 12.7, a Member,
regardless of the nature of the Member's Capital Contribution, has no right to
demand and receive any distribution from the Company in any form other than
money. No Member may be compelled to accept from the Company a distribution of
any asset in kind in lieu of a proportionate distribution of money being made to
other Members. Except upon a dissolution and a winding up of the Company, no
Member may be compelled to accept a distribution of any asset in kind.

      4.4 Restriction on Distributions.

            4.4.1 Restriction. No distribution will be made if, after giving
effect to the distribution:

                  (a) The Company would not be able to pay its debts as they
become due in the usual course of business.

                  (b) The Company's total assets would be less than the sum of
its total liabilities.

            4.4.2 Method of Determination. The Management Committee may base a
determination that a distribution is not prohibited on any of the following: (i)
financial statements prepared on the basis of accounting practices and
principles that are reasonable in the circumstances; (ii) a fair valuation; or
(iii) any other method that is reasonable in the circumstances.

            Except as provided in Section 18-607(b) of the Act, the effect of a
distribution is measured as of the date the distribution is authorized if the
payment occurs within one hundred twenty (120) days after the date of
authorization, or the date payment is made if it occurs more than one hundred
twenty (120) days of the date of authorization.

            4.4.3 Personal Liability. A Member who receives a distribution in
violation of this Agreement or the Act will be liable to the Company for the
amount of the distribution that exceeds what could have been distributed without
violating this Agreement or the Act. Any Member who is so liable will be
entitled to compel the Company to seek repayment from each other Member who is
so liable.

      4.5 Return of Distributions. Except for distributions made in violation of
the Act or this Agreement, no Member will be obligated to return any
distribution to the Company or pay the amount of any distribution for the
account of the Company or to any


                                       16
<PAGE>

creditor of the Company. The amount of any distribution returned to the Company
by a Member or paid by a Member for the account of the Company or to a creditor
of the Company will be added to the account or accounts from which it was
subtracted when it was distributed to the Member.

                                    ARTICLE 5
                      MANAGEMENT AND CONTROL OF THE COMPANY

      5.1 Managers and the Management Committee.

            5.1.1 Managers. Each Person duly admitted as a Member of the Company
pursuant to this Agreement will be a Manager of the Company until such Member's
Membership Interest has been transferred or terminated or such Member has
withdrawn in accordance with this Agreement. VSI and PEGI will be the initial
Managers of the Company.

            5.1.2 General Scope of Authority. The business and affairs of the
Company will be managed by the Managers through a management committee
consisting of representatives appointed by the Managers, and through which the
Managers will exercise their rights and authority hereunder (the "Management
Committee"). The Management Committee will be appointed and constituted in the
manner provided in Section 5.2 hereof. The Management Committee will be
responsible for all aspects of the operations and development of the Company
and, except as otherwise expressly provided for in this Agreement, the
Management Committee will have exclusive authority and full discretion with
respect to the management of the business of the Company and will have the
exclusive right, power and authority to cause the Company to do, or cause to be
done, all acts and actions which in its sole judgment are necessary, proper,
convenient or desirable in order to operate and conduct the business of the
Company and to carry out and fulfill the purposes of the Company.

            5.1.3 Voting. Except as provided in Section 5.1.4 and in Section
5.3, all matters submitted to the Management Committee will be decided by a
majority vote of the Non-Independent Directors. The Non-Independent Directors
will have voting power in proportion to the ratio of Percentage Interests held
by the Manager appointing them. All Non-Independent Directors appointed by a
Manager will collectively exercise such voting power and each Manager will
designate one of its Non-Independent Directors to vote on behalf of all
Non-Independent Directors appointed by such Manager in the event of a
disagreement among the Non-Independent Directors appointed by such Manager.

            5.1.4 Veto Right. Notwithstanding anything to the contrary contained
in this Agreement: (i) the VSI Directors may (so long as VSI or any of its
Affiliates is a Manager) and the PEGI Directors may (so long as PEGI or any of
its Affiliates is a Manager) veto any decision of the Management Committee to
perform, or cause the Company to perform, any of the acts or transactions
described in subsections (a) and (b)


                                       17
<PAGE>

below; and (ii) the VSI Directors may (so long as VSI and its Affiliates hold,
in aggregate, Percentage Interests equal to at least 10%) and the PEGI Directors
may (so long as PEGI and its Affiliates hold, in aggregate, Percentage Interests
equal to at least 10%) veto any decision of the Management Committee to perform,
or cause the Company to perform, any of the following acts or transactions:

                  (a) ***

                  (b) ***

                  (c) ***

                  (d) ***

                  (e) ***

                  (f) ***

                  (g) ***

                  (h) ***

                  (i) ***

                  (j) ***

                  (k) ***

                  (l) ***

                  (m) ***

                  (n) ***

      Notwithstanding the foregoing, if PEGI has not acquired fifty percent
(50%) of the Percentage Interests in the Company prior to the Option Expiration
Date, then thereafter it may not exercise its veto right with respect to a
matter described in clause (h) above.

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***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       18
<PAGE>

      5.2 Members of the Management Committee; Appointment and Removal.

            5.2.1 For so long as VSI (or its Affiliates) and PEGI (or its
Affiliates) are the only Members and Managers, the Management Committee will
consist of nine members: three Non-Independent Directors selected by VSI (the
"VSI Directors"), three Non-Independent Directors selected by PEGI (the "PEGI
Directors") and three other Directors (each, an "Independent Director") selected
in accordance with the following sentence. VSI and PEGI will each select one
Independent Director, and the two Independent Directors will select a third
Independent Director; provided, however, that such third Independent Director
will be mutually acceptable to both VSI and PEGI. To qualify as an Independent
Director, a person must have, and continue to have, no material business,
financial or familial relationship with either VSI or PEGI or their Affiliates
or with any officer or executive thereof. Each of VSI and PEGI will identify the
Directors it is to appoint prior to the Funding Date. Each member of the
Management Committee is referred to as a "Director", and, collectively, as the
"Directors." A duly-admitted Manager will have the right to appoint at least one
Non-Independent Director (or such greater number as the Management Committee may
determine); provided, however, that no group of Affiliated Members will have the
right to appoint more than that number of Directors that could have been
appointed by that group's initial holder of the Membership Interests. A Director
need not be a resident of the State of Delaware or a citizen of the United
States. To the fullest extent permitted by law, no Director will be deemed an
agent or sub-agent of the Company. Each Manager, by execution of this Agreement,
agrees to, consents to, and acknowledges the delegation of powers and authority
to such Directors and the Management Committee, and to the actions and decisions
of such Directors and the Management Committee within the scope of such
Director's and Management Committee's authority as provided herein. No Director
will have the authority in his capacity as a Director to enter into any
transaction on behalf of the Company. The Independent Directors will receive
compensation as determined from time to time by the Management Committee and as
reflected in the applicable Annual Budget.

                  (1) At such time as either the VSI Directors or the PEGI
Directors are no longer entitled to exercise a veto on matters that may be
determined by the Independent Directors pursuant to Section 5.3, the Independent
Directors will be dismissed from the Management Committee.

            5.2.2 Each Manager will have the absolute and unconditional right
from time to time to designate the Directors appointed by it by delivery of
written notice to the Members. A Director may be removed with or without cause
at the sole discretion of the Manager that appointed that Director by delivery
of written notice to the other Manager(s). A vacancy on the Management Committee
may only be filled by the Manager that originally appointed the Director whose
death, disability, removal or resignation created such vacancy, or, in the case
of the third Independent Director, by the other two Independent Directors. Each
Manager will also have the right to appoint alternates to each Director
designated by such Manager by designating the name of such


                                       19
<PAGE>

alternates in a written notice to the other Manager(s). In case of the absence
of a Director, any individual designated as an alternate for that Director will
have the right and power to exercise all rights and powers of the absent
Director.

      5.3 Matters Determined by Independent Directors. If the VSI Directors or
the PEGI Directors exercise their veto power under Section 5.1.3 with respect to
*** such Directors will negotiate in good faith for a period of fifteen (15)
business days in order to resolve the deadlock. If such negotiations are not
successful, then such deadlocked matter will be ***

      5.4 Meetings of the Management Committee.

            5.4.1 Regular quarterly meetings of the Management Committee will be
held without call or notice at such time as will from time to time be fixed by
standing resolution of the Management Committee. Special meetings of the
Management Committee may be held at any time whenever called by any Director.
Written notice of a special meeting of the Management Committee will be given to
the other Directors by the Director calling the meeting at least three (3)
business days before such special meeting, and such notice will include a
proposed agenda for the meeting. Only matters on the proposed agenda may be put
to a vote at such special meeting. Special meetings may only take place at the
Company's principal offices or in Los Angeles.

            5.4.2 *** The presence of Directors representing a Majority Interest
at a duly noticed meeting of the Management Committee will constitute a quorum
for the transaction of business; provided that to transact business with respect
to which the Directors appointed by any Member have a veto right pursuant to
Section 5.1.4, at least one such Director must be present for a quorum to exist.
Directors may participate in a meeting through the use of conference telephone
or similar communications equipment, and such Directors will be considered
present in person as long as all Directors participating in such meeting can
hear one another.

            5.4.3 Every act of the Management Committee taken at any meeting of
the Management Committee, however called and noticed or wherever held, will be
as valid as though made or performed at a meeting duly held after regular call
and notice, if a quorum is present and if, either before or after the meeting,
each of the Managers not present or who, though present, has prior to the
meeting or at its commencement, protested the lack of proper notice to such
meeting, signs a written waiver of notice or a written consent to holding such
meeting or approval of the minutes thereof.

            5.4.4 For so long as VSI and PEGI are the only Managers, any action
required or permitted to be taken at any meeting of the Management Committee may
be

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       20
<PAGE>

taken without a meeting if one VSI Director and one PEGI Director consent
thereto in writing, and the writing is filed with the minutes of proceedings of
the Management Committee.

      5.5 Delegation of Authority; President and Other Officers.

            5.5.1 General Power to Delegate Authority. The Management Committee
may delegate the right, power and authority to manage the day-to-day business,
affairs, operations and activities of the Company to the President (which
authority the President may delegate to other Persons), subject to the ultimate
direction, control and supervision of the Management Committee; provided,
however, that no Person will be authorized to take any action or engage in any
activity subject to the veto right of the VSI Directors and PEGI Directors under
Section 5.1.4 or where the approval of a specified Person is required, without
first obtaining the required approvals.

            5.5.2 The President. The Managers intend that the Management
Committee delegate the management of the day-to-day business, affairs,
operations and activities of the Company to a President. The President will be
the most senior executive of the Company and will report directly to the
Management Committee. Subject to the supervisory powers of the Management
Committee, the President will have general and active management of the business
of the Company and will see that all orders and resolutions of the Management
Committee are carried into effect. The President will have the power to execute
any agreements and instruments on behalf of the Company, except where the
execution thereof will be expressly reserved by the Management Committee or
delegated by the Management Committee or the President to some other officer or
agent of the Company. The President will have such other powers and duties as
may be prescribed by the Management Committee or this Agreement.

            5.5.3 Duties of the President. Unless and until any of the following
duties are delegated to another officer by the Management Committee, the
President's duties will include: preparing the Business Plan and Annual Budget
and presenting them to the Members for approval at least ninety (90) days prior
to commencement of the applicable Fiscal Year; supervision of all key functions
of the Company (including launching and managing Channels; sales and marketing;
program acquisition and production; strategic planning; accounting and financial
planning (including responsibility for the preparation of business plans and
annual budgets); and legal and business affairs); the ability to hire and fire
employees (except employees with compensation packages worth more than *** per
year, in which case such hiring or termination must be approved by the
Management Committee); expending funds in accordance with the approved Business
Plan and Annual Budgets; reporting to the Management Committee on a regular
basis regarding the operations of the Company; and

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       21
<PAGE>

responding to reasonable requests for information from any VSI Director or PEGI
Director.

            5.5.4 Additional Officers. The Company may have such other officers
with such powers and duties as the Management Committee will determine from time
to time.

            5.5.5 Officers Serve at the Pleasure of the Management Committee.
Subject to whatever rights an officer may have under a contract of employment
with the Company, all officers of the Company will serve at the pleasure of the
Management Committee.

      5.6 Interested Party Transactions.

            5.6.1 Approval. Except for transactions provided for in the Related
Documents, the Company will only engage in a transaction with a Member or any
Affiliate of a Member if the transaction is on terms and conditions fair and
reasonable to the Company and at least as favorable to the Company as those
generally available in a similar transaction between parties operating at arm's
length and is approved by the Management Committee. A transaction will
conclusively be deemed to have met the above requirements if, after full
disclosure, the transaction is unanimously approved by the Non-Independent
Directors. Each Member agrees to disclose to the Management Committee the nature
and extent of the interest of such Member and its Affiliates in any transaction
to be acted on by the Management Committee pursuant to this Section 5.6.1 prior
to such action. If a Member or an Affiliate thereof engages in a transaction
with the Company, such Member and/or such Affiliate will have the same rights
and obligations with respect thereto as would be the case if a Person who is not
a Member were the other party to such transaction.

            5.6.2 Termination and Remedies. With respect to any contract between
the Company and a Member or any Affiliate of a Member, including but not limited
to every Related Document, the Directors appointed by the Managers not having an
interest in such contract (other than as a Member) will have the right, acting
by majority vote, to determine what actions, if any, should be taken upon the
other party's default and to cause the Company to exercise any and all remedies
it may have under such contract or applicable law, including without limitation,
the termination of such contract.


                                       22
<PAGE>

      5.7 Performance of Duties; Liability of Managers; Liability of Directors.

            5.7.1 A Manager will not be liable to the Company or to any Member
for any loss or damage sustained by the Company or any Member, unless the loss
or damage will have been the result of fraud, deceit, gross negligence, reckless
or intentional misconduct, or a knowing violation of law by the Manager. The
Managers will perform their managerial duties in good faith, in a manner they
reasonably believe to be in the best interests of the Company and its Members,
and with such care, including reasonable inquiry, as an ordinarily prudent
person in a like position would use under similar circumstances. A Manager who
so performs the duties of Manager will not have any liability by reason of being
or having been a Manager of the Company.

            5.7.2 A Director will not be liable to the Company or to any Member
for any loss or damage sustained by the Company or any Member, unless the loss
or damage will have been the result of fraud, deceit, gross negligence, reckless
or intentional misconduct, or a knowing violation of law by the Director. The
Directors will perform their duties in good faith, in a manner they reasonably
believe to be in the best interests of the Company and its Members, and with
such care, including reasonable inquiry, as an ordinarily prudent person in a
like position would use under similar circumstances. A Director who so performs
the duties of Director will not have any liability by reason of being or having
been a Director of the Company.

      5.8 Offices and Facilities; Staff.

            5.8.1 Facilities/Company Location. The Company will maintain offices
located either with VSI in the Cisneros Television Group office in Miami Beach
or at another location near such office, except for any regional sales,
marketing, production, technical, or management functions that are appropriately
located in one or more places in the Territory. ***

      5.9 Insurance. The Managers will cause the Company to secure errors and
omissions and other customary liability insurance for the Company covering
exhibitions of programming by the Company, which insurance policies will meet
customary standards, and will maintain liability and other insurance covering
the activities of the Company consistent with good business customs and
practices in the Territory and the other locations in which the Company conducts
business. All insurance policies will name each Member and their respective
Affiliates, the Managers, the Directors, the President and any other officers as
named insureds.

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***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       23
<PAGE>

                                    ARTICLE 6
             BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY

      6.1 The Business Plan.

            6.1.1 The First Business Plan. The Management Committee and the
President will conduct the business of the Company in accordance with the
Business Plans and Annual Budgets (each as defined below). Attached hereto as
Exhibit D is the first Business Plan of the Company (as modified pursuant to the
next two sentences and together with additional years added thereto pursuant to
Section 6.1.2, the "Business Plan"). The Members acknowledge that the first
Business Plan needs to be adjusted to reflect *** (as so adjusted, the "Final
First Business Plan"). The Members agree to cause the first Business Plan to be
adjusted prior to the Funding Date. The Business Plan is the financial model for
the operation of the Company and the Services. The Members have, by the
execution of this Agreement, approved the first Business Plan (subject to the
preceding two sentences), the Annual Budget for 1999 and the Capital
Contributions contemplated to be made thereunder.

            6.1.2 Additions to Business Plan. At least ninety (90) days prior to
the end of the first year of the Company and at least ninety (90) days prior to
the end of every succeeding year of the Term thereafter, the President will
cause the Company to prepare an additional year of the Business Plan for review
and approval by the Management Committee such that the Business Plan continues
to have five years of coverage throughout the Term. Such additions to the
Business Plan will be substantially similar to the first Business Plan in scope
and detail, will include such additional information relating to the operating
and capital forecasts and budgets of the Company as the Management Committee may
direct from time to time, and will be accompanied by a report and assessment of
the Company's performance under the preceding five year period of the Business
Plan.

      6.2 Annual Budgets. The Business Plan will be updated annually by a budget
(each, an "Annual Budget") for the coming Fiscal Year. The President will cause
the Company to prepare the Annual Budget and present it to the Management
Committee for approval at least ninety (90) days prior to commencement of the
applicable Fiscal Year. The approved Annual Budget for a given Fiscal Year will
supersede the data contained in the Business Plan for that Fiscal Year. The
Annual Budget for fiscal 1999 is included in the Business Plan attached as
Exhibit D. Each new Annual Budget will be substantially similar to the 1999
Annual Budget in scope and detail, and will include a projection of required
capital contributions for such Fiscal Year, if any, and such additional
information relating to the operating and capital forecasts and budgets of the

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      treatment filed separately with the Securities and Exchange Commission.

                                       24
<PAGE>

Company as the Management Committee may direct from time to time. Each Annual
Budget will be accompanied by a report and assessment of the Company's
performance under the preceding Annual Budget.

      6.3 Carryover Plan or Budget. In the event ***, the Company will continue
to operate in accordance with the most recently approved Business Plan or Annual
Budget, as the case may be, until ***

      6.4 Operation of Company.

            6.4.1 Operations During Transition Period. The parties anticipate
that the Company will require a period of approximately *** after the Funding
Date (the "Transition Period") to arrange appropriate office space and other
facilities and services, hire staff and otherwise be prepared to fully handle
the Company's business. During the Transition Period, PEGI will provide various
services to facilitate the Company's operations (including, but not limited to,
program sales, the servicing of program license agreements and the collection of
license fees) on the Company's behalf and at the Company's direction. Such
services will be at a level which is consistent with the level of services that
PEGI has historically provided for its international operations. The Company
will reimburse PEGI for any direct expenses reasonably incurred in performing
such services during the Transition Period. To the extent VSI or any of its
Affiliates perform services for the Company during the Transition Period, the
Company will also reimburse the entity providing such services for any direct
expenses incurred in performing such services.

            6.4.2 Absorption of Existing Channels. As set forth in Section 3.1,
PEGI and VSI will contribute to the Company their equity interests in PTVLA and
the German Venture, and as set forth in Section 7.2, the Company will purchase
PEGI's interests in the U.K. Venture and the Japan Venture. (PTVLA, the German
Venture, the U.K. Venture and the Japan Venture will be collectively referred to
as the "Existing Channel Entities").

            6.4.3 German Venture Expenses. Notwithstanding the Percentage
Interests of the Members, VSI and PEGI will each pay the formation expenses of
the German Venture (including the costs associated with obtaining the necessary
operating licenses) on a 50/50 basis.

            6.4.4 Services Provided by PEGI. The Company will be entitled to
purchase from PEGI specific services, as the Company may determine, which PEGI
routinely performs for itself (such as creative services, the creation of on-air
promos, and residual accounting) at PEGI's actual direct cost, without mark-up.

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      treatment filed separately with the Securities and Exchange Commission.


                                       25
<PAGE>

            6.4.5 Creation of Local Ventures and Provision for Local Partners.
The Company may invite one or more third parties (each a "Local Partner") to
participate as equity owners in the Company's local venture in a country of the
Territory; provided, however, that the Company may only create a local venture
for the primary purpose of *** The decision to admit a Local Partner will be
determined by a majority vote of the Management Committee, unless *** in which
case the admission of the Local Partner will be subject to the veto rights of
the PEGI Directors and the VSI Directors under Section 5.1.4.*** Management of
each local venture will be controlled by ***

                  (a) Local Partners for the U.K. and Germany. If at a time when
PEGI (alone, or collectively with one or more of its Affiliates) owns less than
*** interest in the Company, the Company wishes to admit a third party as a
Local Partner for the U.K./Benelux territory or the GS Territory (a "Proposed
Partner"), and such Proposed Partner is to acquire an ownership interest in such
local venture that exceed ***, PEGI may recommend ***

            6.4.6 Supplemental Programs. The Company (or its subsidiaries) may
produce and/or acquire programs whose primary use is exhibition on one or more
of the Channels ("Supplemental Programs"). *** PTV U.S. will grant to PEGI the
right to distribute such programming in the United States pursuant to the US
Distribution Agreement. ***

                  (a) Produced Supplemental Programs. Unless PEGI otherwise
consents and except as set forth in the rest of this paragraph (a), for any
Supplemental Program produced by the Company, the Company will either ***

                  (b) Acquired Supplemental Programs. If the Company (or its
subsidiaries) acquires the rights to a program for exploitation in any region of
the Territory, it will also acquire the rights for such program in the United
States, or if it does not acquire such US rights, it will ***

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      treatment filed separately with the Securities and Exchange Commission.


                                       26
<PAGE>

            6.4.7 Playboy TV Lite. ***

                  6.4.8 Venus and Spice Hot. The parties agree to combine the
current television businesses of Venus and Spice Hot as follows:

                  (a) *** New Venus will be formed for the purpose of
developing, marketing, programming and distributing channels in the genre of the
existing Venus and Spice Hot channels *** New Venus will not license programming
to third parties, other than through the distribution of the channels. The
parties agree and acknowledge that the formation and governance of New Venus
must be structured in accordance with, and not to violate, the covenants and
other obligations of Imagen's indenture dated April 30, 1998. The charter
documents and other documents governing the management of and interests in New
Venus will be subject to the prior approval of both VSI and PEGI.

                  (b) ***

                  (c) The Company will cause the distribution contracts of Spice
Hot to be contributed to New Venus in a tax efficient manner, and the Company
and PEII will provide New Venus with a royalty-free exclusive license to use the
Spice marks in connection with the operation, distribution and promotion of the
Spice Hot channel in the New Venus Territory.

                  (d) New Venus and Imagen will enter into an agreement pursuant
to which Imagen will act as New Venus' exclusive sales agent in the Southern
Cone.

                  (e) New Venus and Troy will enter into an agreement pursuant
to which Troy will act as New Venus's exclusive sales agent in the New Venus
Territory, other than in the Southern Cone.

                  (f) Imagen and the Company will enter into a trademark license
agreement pursuant to which Imagen will grant to the Company an exclusive
license to use the Venus name and marks in the Company's discretion on the
Company's "hot" television channels outside of the New Venus Territory. Such
license will bear a royalty of ***% of net channel revenues.

                  (g) The Company will have day-to-day management control of New
Venus, subject to the terms of a "Control Channel Joint Venture" under the
Imagen indenture.

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      treatment filed separately with the Securities and Exchange Commission.


                                       27
<PAGE>

                  (h) The Company, through its subsidiary SEI 2, will supply New
Venus with at least *** of its annual programming requirements, on terms to be
negotiated by the Company and New Venus; provided that the program license fees
per hour of such programming *** The parties acknowledge that the programming
rights held by SEI 2 exclude certain territories *** otherwise included in the
New Venus Territory.

                  (i) Net profits from New Venus will be split in accordance
with the ownership percentages which Imagen and the Company hold in New Venus.

                  (j) ***

            6.4.9 U.S. Activities. The Company will conduct no activities that
generate income subject to United States Federal income tax when earned by a
foreign corporation or a non-resident alien individual (a "U.S. Taxable
Activity"). VSI and PEGI contemplate conducting certain activities which may be
U.S. Taxable Activities relating to the distribution of programming and channels
in the United States. VSI and PEGI (either directly or through wholly-owned
subsidiaries) intend to form PTV U.S. as a separate limited liability company to
engage in such activities. The ownership structure and management of PTV U.S.
will mirror the Company's as provided in this Agreement, mutatis muntandis, and
notwithstanding anything to the contrary in this Agreement, any exercise of
rights or remedies that has the effect of altering the relative Percentage
Interests of the Members must be equally exercised with respect to PTV U.S. VSI
and PEGI agree to use best efforts to prepare and execute the charter documents
and other agreements relating to the formation and operation of PTV U.S. within
30 days from the date hereof.

            6.4.10 Certain Tax Matters. Nothing in this Agreement will be read
to require the Company to conduct its affairs so that: (i) income from the
licensing of programming that might be seen by viewers will be effectively
connected with the conduct of a United States trade or business; and (ii) income
from advertising will be effectively connected with the conduct of a United
States trade or business.

                                    ARTICLE 7
                             RIGHTS ACQUISITION FEE

      7.1 Rights Acquisition Fee.

            7.1.1 Payment of Fee. In exchange for the license of the Existing
Library Programs and the Wallpaper material described in the Program Supply
Agreement, the trademark license for Year 1 through Year 10 described in the
Trademark

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      treatment filed separately with the Securities and Exchange Commission.


                                       28
<PAGE>

License Agreement and the Acquired Interests described in Section 7.2, the
Company will pay to PEGI a "Rights Acquisition Fee" of *** payable as follows:

                  (a) On the Funding Date:        ***

                  (b) On the first day of Year 2: ***

                  (c) On the first day of Year 3: ***

                  (d) On the first day of Year 4: ***

                  (e) On the first day of Year 5: ***

                  (f) On the first day of Year 6: ***

            7.1.2 Allocation of Fee. ***

                  (a) ***

                  (b) ***

                  (c) ***

                  (d) ***

                  (e) ***

                  (f) ***

***

      7.2 Purchase of U.K. Venture, Japan Venture and Danish Companies. On the
date hereof, PEGI and the Company have entered into the Stock Purchase
Agreements pursuant to which PEGI will transfer, convey and assign to the
Company all of its right, title and interest of any kind in and to the U.K.
Venture, the Japan Venture and the Danish Companies (collectively, the "Acquired
Interests"). The Company will assume PEI's (and its Affiliates') obligations
under the Share Purchase Agreement (relating to the U.K. Venture) and the
Memorandum of Agreement (relating to the Japan Venture) on the terms set forth
in the respective Stock Purchase Agreements. Schedule 7.2 describes, as of the
date hereof, the interests of PEGI in the U.K. Venture, the Japan Venture and
the Danish Companies, including the type of entity (corporation,

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      treatment filed separately with the Securities and Exchange Commission.


                                       29
<PAGE>

partnership, limited liability company, etc.) and the names and percentage
interests of all of the owners of each entity. The Funding Side Letter sets
forth the amount of the funds advanced by PEGI to the U.K. Venture from and
after July 1, 1999, the amount of the funds loaned to the U.K. Venture prior to
March 31, 1999, and the manner in which such amounts will be paid.

                                    ARTICLE 8
                                     MEMBERS

      8.1 Limited Liability. Except as required under the Act or as expressly
set forth in this Agreement, no Member will be personally liable for any debt,
obligation, or liability of the Company, whether that liability or obligation
arises in contract, tort, or otherwise. In the event any Member becomes
personally liable for any debt, obligation or liability of the Company arising
from any action or approval of the Members or Management Committee taken without
the approval of such Member or the Directors appointed by such Member or Manager
where such approval is required under the terms hereof, then, in addition to any
other rights set forth herein, the Members or Managers taking or who appointed
the Directors taking such action will indemnify and hold harmless such Member
from and against any liability, loss, claim or damage, including but not limited
to, reasonable attorneys fees and cost, arising from or relating to such action.

      8.2 Admission of Additional Members. The Management Committee will approve
the admission of new (and the terms of such admission) Members through the
issuance of additional Membership Interests, subject to the veto rights of the
VSI Directors and the PEGI Directors under Section 5.13. The Management
Committee will admit to the Company as additional Members any Person who
acquires a Membership Interest in accordance with Article 9 of this Agreement.

      8.3 Withdrawals or Resignations. No Member may withdraw or resign from the
Company, except as permitted by this Agreement.

      8.4 Termination of Membership Interest. Upon the transfer of a Member's
Membership Interest in violation of this Agreement or the occurrence of a
Disassociation Event, the Membership Interest of a Member will be terminated by
the Management Committee and such Membership Interest will be purchased by the
Company or remaining Members as provided in Article 10. Each Member acknowledges
and agrees that such termination or purchase of a Membership Interest upon the
occurrence of any of the foregoing events is not unreasonable. The rights of the
Company and the non-breaching Members under this Section will be in addition to,
and not in limitation of, any other rights and remedies which the Company and
such other Members may have at law or equity.

      8.5 Remuneration To Members. Except as otherwise authorized in, or
pursuant to, this Agreement, no Member is entitled to remuneration for acting in
the


                                       30
<PAGE>

Company business, subject to the entitlement of Directors, Managers or Members
winding up the affairs of the Company to reasonable compensation.

      8.6 Members Are Not Agents; No Management Authority. Pursuant to this
Agreement and the Certificate, the management of the Company is vested in the
Managers, who will exercise their authority through the Management Committee. No
Member, acting solely in the capacity of a Member, is an agent of the Company
nor can any Member in such capacity bind nor execute any instrument on behalf of
the Company. The Members will have no power to participate in the management of
the Company except as expressly authorized by this Agreement and except as
expressly required by the Act.

      8.7 Meetings of Members. Meetings of Members may be held at such date,
time and place within or without the State of Delaware as the Management
Committee may fix from time to time. No annual or regular meetings of Members
are required. At any Members' meeting, the President will preside at the meeting
and will act as secretary of the meeting.

            8.7.1 Power to Call Meetings. Unless otherwise prescribed by the
Act, meetings of the Members may be called by the Management Committee acting by
majority vote or by any Member or group of Members holding more than ten percent
(10%) of the Percentage Interests for the purpose of addressing any matters on
which the Members may vote.

                                    ARTICLE 9
                      TRANSFER AND ASSIGNMENT OF INTERESTS

      9.1 Transfer of Membership Interests.

            9.1.1 No Member may transfer, assign, sell, encumber or in any way
alienate or dispose of (each, a "Transfer"), including to an Affiliate, all of
any portion of its Membership Interest (the "Offered Interest") if such
Transfer: *** If a Member objects to a proposed Transfer on the grounds set
forth above, such dispute must be resolved prior to the consummation of the
proposed Transfer.

            9.1.2 Subject to the provisions of Section 9.1.1, if VSI or PEGI (or
any of their respective Affiliates) (a "Selling Member") wishes to Transfer all
or a part of its Membership Interest to an entity which is not an Affiliate of
such Selling Member (a "Third Party Buyer"), the Selling Member must first offer
to sell the Offered Interest to the non-Selling Member. If the Selling Member is
PEGI (or any of its Affiliates) and the Option Expiration Date has not occurred,
the Offered Terms must disclose whether and to

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      treatment filed separately with the Securities and Exchange Commission.


                                       31
<PAGE>

what extent PEGI (or its Affiliates) intends to exercise the Buy-up Option in
anticipation of such Transfer. If the Selling Member and the non-Selling Member
are not able to reach an agreement after a thirty (30)-day negotiation period,
the Selling Member may Transfer the Offered Interest to the Third Party Buyer;
provided, however, that the Selling Member must give the non-Selling Member: (i)
notice of the terms on which the Selling Member intends to Transfer the Offered
Interest to the Third Party Buyer (the "Offered Terms") and (ii) the right to
acquire the Offered Interest at the price offered by the Third Party Buyer (the
"Matching Right"); provided that to the extent the Offered Terms include
non-cash consideration, the Matching Right will include the right of the
non-Selling Member to pay, in cash, the Fair Market Value to the Selling Member
of such non-cash items, and the time periods prescribed in this Section will be
adjusted to permit the determination of Fair Market Value; but further provided,
that if such non-cash consideration is a promissory note or similar financial
instrument, the non-Selling Member may substitute an equivalent instrument. If
the non-Selling Member fails to exercise the Matching Right within thirty (30)
days after receiving notice of the Offered Terms, the Selling Member may
Transfer the Offered Interest to the Third Party Buyer on terms which are at
least as favorable to the Selling Member as the Offered Terms. If the Selling
Member and Third Party Buyer do not execute a definitive and binding agreement
for the Transfer of the Offered Interest within thirty (30) days after the date
on which the non-Selling Member declines to exercise the Matching Right, the
Selling Buyer must again re-offer the Offered Interest to the non-Selling Member
in accordance with the terms in this Section.

      9.2 Change of Control.

            9.2.1 Changes in General. Except as provided in this Section, a
Transfer of the equity or voting interests of a Member or of an Affiliate of a
Member which results, directly or indirectly, in a change of control of such
Member will be permitted so long as such transfer does not have a material
adverse effect on the other Member or the Company.

            9.2.2 VSI. Notwithstanding Section 9.2.1, the parties agree and
acknowledge that a Transfer of the equity or voting interests of VSI or of an
Affiliate that controls VSI (a "VSI Parent") will be permitted, so long as the
following conditions are satisfied: ***

            9.2.3 PEI/PEGI. The terms of this Section 9.2.3 will apply so long
as VSI and its Affiliates hold, in the aggregate, a Percentage Interest of not
less than ***. Notwithstanding Section 9.2.1 of this Section, in the event PEI,
or such other Affiliate of PEI that may control PEGI (a "PEGI Parent"), wishes
to Transfer to one or more third parties, ***

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<PAGE>

            9.2.4 ***

      9.3 Substitution of Members. A transferee of a Membership Interest will
have the right to become a substitute Member only if (a) the requirements of
Sections 9.1 and 9.2 and any securities or tax requirements of this Agreement
are met, (b) such Person executes an instrument satisfactory to the Management
Committee accepting and adopting the terms and provisions of this Agreement, and
(c) such Person pays any reasonable expenses in connection with its admission as
a new Member. The admission of a substitute Member will not result in the
release of the Member who assigned the Membership Interest from any liability
that such Member may have to the Company.

      9.4 Effective Date of Permitted Transfers. Any permitted transfer of all
or any portion of a Membership Interest will be effective as of the first
business day following the date upon which the requirements of Sections 9.1, 9.2
and 9.3 have been met. The President will promptly provide the Members with
written notice of such transfer. Any transferee of a Membership Interest will
take subject to the restrictions on transfer imposed by this Agreement.

      9.5 Rights of Legal Representatives. If a Member who is an individual dies
or is adjudged by a court of competent jurisdiction to be incompetent to manage
the Member's person or property, the Member's executor, administrator, guardian,
conservator, or other legal representative may exercise all of the Member's
rights for the purpose of settling the Member's estate or administering the
Member's property, including any power the Member has under this Agreement to
give an assignee the right to become a Member. If a Member is a corporation or
other entity and is dissolved or terminated, the powers of that Member may be
exercised by its legal representative or successor.

      9.6 PEGI Buy-up Option. Starting on the Funding Date and continuing
through the Option Expiration Date (as defined in Section 9.6.1), PEGI (or its
Affiliates who are then Members of the Company) has the option to acquire up to
thirty and one-tenths percent (30.1%) of additional Membership Interests in the
Company by purchasing such additional Membership Interests from VSI (and any of
its Affiliates which hold Member Interests, collectively); provided, however,
that if PEGI (and its Affiliates, collectively) transfer Membership Interests to
any Person(s) which is not an Affiliate of PEGI, such thirty and one-tenths
percent (30.1%) will be adjusted downward, pro rata, in accordance with the
decline in PEGI's and its Affiliates' aggregate Membership Interests in the
Company (the applicable percentage from time to time being the "Option
Percentage"; and further provided, that if at any time PEGI and its Affiliates
collectively do not own at least five percent (5%) of the total Membership
Interests, the option

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      treatment filed separately with the Securities and Exchange Commission.


                                       33
<PAGE>

provided in this Section 9.6 will terminate. The Percentage Interest of VSI (and
its Affiliates) subject to the option described in this Section 9.6 is referred
to as the "Option Percentage."

            9.6.1 Option Expiration Date. The "Option Expiration Date" will be
the earlier to occur of ***

            9.6.2 Exercise of Buy-up Option. Until the Option Expiration Date,
PEGI (including for the balance of this Section 9.6.2, its Affiliates who are
then Members) may exercise its option to purchase additional Percentage
Interests of the Company up to the Option Percentage from VSI (including for the
balance of this Section 9.6.2, its Affiliates who are then Members) on December
15 of each year, in increments of ***; provided, however, that PEGI may exercise
its option: (i) immediately prior to the Option Expiration Date, with respect to
any part or all of the then-unpurchased portion of the Option Percentage; and
(ii) immediately prior to a transfer that would decrease the Option Percentage,
with respect to that portion of the Option Percentage that would be lost as a
consequence of such transfer. During Year 1, PEGI may buy such additional
percentage interests from VSI ***. During Year 2, Year 3 and Year 4, the price
at which PEGI may purchase additional Percentage Interests from VSI is ***, plus
interest, compounded annually, at an annual rate equal to the greater of ***
with such interest accruing through the date PEGI pays for such additional
Percentage Interests on an amount equal to the product of the average daily
balance (starting from the Funding Date) of the Members' aggregate unreturned
Capital Contributions multiplied by the Percentage Interest being purchased. In
Year 5 through Year 10, PEGI's buy-in price will be *** at the time of purchase
(as determined in accordance with Exhibit E). PEGI may pay the purchase price
for the additional Percentage Interests in ***, which election will be set forth
in PEGI's notice that it is exercising its buy-up option. *** In the event PEGI
fails to timely pay for any additional Percentage Interests for which it
exercised its buy-up option, VSI may elect either: (i) to terminate PEGI's right
to purchase such Percentage Interests; or (ii) to cause the Company to withhold
any payments otherwise due to PEGI under this Agreement or the Program Supply
Agreement and to pay such amounts to VSI until VSI is paid in full (including
interest at the Reference Rate from the date such payment was due) for such
additional interests, and VSI will then transfer such interests to PEGI.

                  (a) If PEGI pays for some or all of its purchase in PEI stock,
such stock will be registered or be subject to normal and customary registration
rights.

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<PAGE>

                                   ARTICLE 10
                           CONSEQUENCES OF DISSOLUTION
                             OR BANKRUPTCY OF MEMBER

      10.1 Disassociation Event. Upon the occurrence of a Disassociation Event,
the Company will not dissolve. Upon the occurrence of a Disassociation Event,
the Members holding all of the remaining Membership Interests (the "Remaining
Members") and/or, if applicable pursuant to Section 10.1.3, the Company, will
purchase, and the Member whose actions or conduct resulted in the Disassociation
Event ("Former Member") or such Former Member's legal representative will sell,
the Former Member's Membership Interest ("Former Member's Interest") as provided
in this Section 10.1.

            10.1.1 Purchase Price. The purchase price for the Former Member's
Interest will be the lesser of (i) the positive Capital Account balance of the
Former Member or (ii) the Fair Market Value of the Former Member's Interest.
Notwithstanding the foregoing, if the Disassociation Event results from a breach
of this Agreement by the Former Member, the purchase price paid by the Remaining
Members and/or the Company will be reduced by an amount equal to the damages
suffered by such purchasing parties as a result of such breach.

            10.1.2 Notice of Intent to Purchase. Within thirty (30) days after
the President has notified the Remaining Members as to the purchase price of the
Former Member's Interest determined in accordance with Section 10.2, each
Remaining Member will notify the President in writing of its desire to purchase
a portion of the Former Member's Interest. The failure of any Remaining Member
to submit a notice within the applicable period will constitute an election on
the part of the Member not to purchase any of the Former Member's Interest. Each
Remaining Member so electing to purchase will be entitled to purchase a portion
of the Former Member's Interest in the same proportion that the Percentage
Interest of the Remaining Member bears to the aggregate of the Percentage
Interests of all of the Remaining Members electing to purchase the Former
Member's Interest.

            10.1.3 Election to Purchase Less Than All of the Former Member's
Interest. If any Remaining Member elects to purchase none or less than all of
its pro rata share of the Former Member's Interest, then the Remaining Members
can elect to purchase more than their pro rata share. If the Remaining Members
fail to purchase the entire interest of the Former Member, the Company will
purchase any remaining share of the Former Member's Interest.

            10.1.4 Payment of Purchase Price. The purchase price will be paid by
the Remaining Members and/or the Company, as the case may be, at the closing
one-fifth (1/5) in cash and the balance of the purchase price in four equal
annual principal installments, plus accrued interest, and be payable each year
on the anniversary date of the closing. Any such payment by the Company will be
made solely out of Distributable Cash allocable to the Remaining Members. The
unpaid principal balance will accrue


                                       35
<PAGE>

interest at the current applicable federal rate as provided in the Code for the
month in which the initial payment is made, but the Company and the Remaining
Members will have the right to prepay in full or in part at any time without
penalty. The obligation to pay the balance due will be evidenced by a promissory
note, and if purchased by a Remaining Member, secured by a pledge of the
Membership Interest being purchased.

            10.1.5 Closing of Purchase of Former Member's Interest. The closing
for the sale of a Former Member's Interest pursuant to this Article 10 will be
held on a business day at the principal office of the Company no later than
sixty (60) days after the determination of the purchase price. At the closing,
the Former Member or such Former Member's legal representative will deliver to
the Company or the Remaining Members an instrument of transfer (containing
warranties of title and no encumbrances) conveying the Former Member's Interest.
The Former Member or such Former Member's legal representative, the Company and
the Remaining Members will do all things and execute and deliver all papers as
may be necessary fully to consummate such sale and purchase in accordance with
the terms and provisions of this Agreement.

            10.1.6 Purchase Terms Varied by Agreement. Nothing contained herein
is intended to prohibit Members from agreeing upon other terms and conditions
for the purchase by the Company or any Member of the Membership Interest of any
Member in the Company desiring to retire, withdraw or resign, in whole or in
part, as a Member.

      10.2 Bankruptcy. Upon the Bankruptcy of a Member, the Membership Interests
of such Member, whether held by such Member, its trustee or other representative
in bankruptcy, will be converted to an Economic Interest.

                                   ARTICLE 11
                    ACCOUNTING, RECORDS, REPORTING BY MEMBERS

      11.1 Books and Records. The books and records of the Company will be kept,
and the financial position and the results of its operations recorded, in
accordance with generally accepted accounting principles as in effect from time
to time and the accounting methods followed for federal income tax purposes. The
books and records of the Company will reflect all the Company transactions and
will be appropriate and adequate for the Company's business. The Company will
maintain at its principal office all of the following:

                  (a) A current list of the full name and last known business or
residence address of each Member, together with the Capital Contributions,
Capital Account and Percentage Interest of each Member;

                  (b) A current list of the full name and business or residence
address of each Manager and Director;


                                       36
<PAGE>

                  (c) A copy of the Certificate and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which amendments thereto have been executed;

                  (d) Copies of the Company's federal, state, and local income
tax or information returns and reports, if any, for the six most recent taxable
years;

                  (e) A copy of this Agreement and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;

                  (f) Copies of the financial statements of the Company, if any,
for the six most recent Fiscal Years; and

                  (g) The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four Fiscal
Years.

      11.2 Delivery to Members and Inspection.

            11.2.1 Delivery Upon Request. Upon the request of any Member for
purposes reasonably related to the interest of that Person as a Member, the
President will promptly deliver to the requesting Member, at the expense of the
Company, a copy of the information required to be maintained by Sections
11.1(a), (b) and (d), and a copy of this Agreement, as amended. The President
will promptly furnish to a Member a copy of any amendment to the Certificate or
this Agreement executed by a Manager or Director pursuant to a power of attorney
from the Member.

            11.2.2 Inspection. Each Member has the right, upon reasonable
request for purposes reasonably related to the interest of the Person as Member
to:

                  (a) inspect and copy during normal business hours any of the
Company records described in Sections 11.1(a) through (g); and

                  (b) obtain from the President, promptly after their becoming
available, a copy of the Company's federal, state, and local income tax or
information returns for each Fiscal Year.

            11.2.3 Authorized Persons. Any request, inspection or copying by a
Member under this Section 11.2 may be made by that Person or that Person's agent
or attorney.


                                       37
<PAGE>

      11.3 Periodic Statements.

            11.3.1 Monthly Report. The President will cause a monthly report to
be sent to each of the Members not later than thirty (30) days after the end of
each month during a Fiscal Year. The report will contain a balance sheet as of
the last day of such month and an income statement and statement of changes in
financial position for the period then ended. Such financial statements will be
unaudited but will be prepared on a consistent basis with the Company's audited
annual financial statements described below.

            11.3.2 Annual Report. The President will cause an annual report to
be sent to each of the Members not later than forty-five (45) days after the
close of the Fiscal Year. The report will contain a balance sheet as of the end
of the Fiscal Year and an income statement and statement of changes in financial
position for the Fiscal Year. Such financial statements will be audited and will
be accompanied by the report thereon prepared by the independent accountants
engaged by the Company.

            11.3.3 Tax Information. The President will cause to be prepared at
least annually, at Company expense, information necessary for the preparation of
the Members' federal and state income tax returns. The President will send or
cause to be sent to each Member within forty-five (45) days after the end of
each taxable year such information as is necessary to complete federal, state,
and local income tax or information returns, and a copy of the Company's
federal, state, and local income tax or information returns for that year.

      11.4 Financial and Other Information. The President will provide such
financial and other information relating to the Company, as a Member may
reasonably request.

      11.5 Filings. The President, at Company expense, will cause the income tax
returns for the Company to be prepared and timely filed with the appropriate
authorities. At least seventy-five (75) days prior to the last date for timely
filing of such returns, the President will deliver to the Tax Matters Member
copies of such returns for their approval prior to the filing due date. The
President, at Company expense, will also cause to be prepared and timely filed,
with appropriate federal and state regulatory and administrative bodies,
amendments to, or restatements of, the Certificate and all reports required to
be filed by the Company with those entities under the Act or other then current
applicable laws, rules, and regulations. If a Manager or Director required by
the Act to execute or file any document fails, after demand, to do so within a
reasonable period of time or refuses to do so, any other Manager or Member may
prepare, execute and file that document with the Delaware Secretary of State.

      11.6 Bank Accounts. The President will cause the Company to maintain the
funds of the Company in one or more separate bank accounts in the United States
in the name of the Company, and will not permit the funds of the Company to be
commingled in any fashion with the funds of any other Person.


                                       38
<PAGE>

      11.7 Accounting Decisions and Reliance on Others. All decisions as to
accounting matters, except as otherwise specifically set forth herein, will be
made by the Management Committee. A Manager or Director may rely upon the advice
of the Company's accountants as to whether such decisions are in accordance with
accounting methods followed for federal income tax purposes.

      11.8 Tax Matters for the Company Handled by Management Committee and Tax
Matters Member. The Management Committee will from time to time cause the
Company to make such tax elections as it deems to be in the best interests of
the Company; provided, however, that so long as PEGI is a Member, the Management
Committee will not (i) file any tax return or (ii) make any tax election or take
any position with respect to any examination audit or proceeding by a taxing
authority that could have an adverse impact on PEGI, and/or the consolidated tax
group in which PEGI participates, without PEGI's prior written consent, which
consent will not be unreasonably withheld, it being expressly agreed that if
such adverse impact on PEGI or its tax group is not material to such Persons,
PEGI will not withhold its consent. PEGI will respond to any request for its
consent within thirty (30) days after receiving such request in writing, and if
PEGI fails to give such consent, such matter will be determined in accordance
with the dispute resolution procedure set forth in Section 16. The Tax Matters
Member (the equivalent to the Tax Matters Partner as defined in Code Section
6231) will represent the Company (at the Company's expense) in connection with
all examinations of the Company's affairs by tax authorities, including
resulting judicial and administrative proceedings, and will expend the Company's
funds for professional services and costs associated therewith. The Tax Matters
Member will oversee the Company's tax affairs in the overall best interests of
the Company. If for any reason the Tax Matters Member can no longer serve in
that capacity or ceases to be a Member or Manager, as the case may be, Members
holding a Majority Interest may designate another to be Tax Matters Member.

                                   ARTICLE 12
                           DISSOLUTION AND WINDING UP

      12.1 Term. The term (the "Term") of the Company will commence on the date
the Certificate is filed with the Secretary of State of Delaware and terminate
on the earlier to occur of the termination of the Company as provided in the
Certificate or the earlier dissolution of the Company pursuant to the terms of
this Article 12.

      12.2 Dissolution Events. The Company may be dissolved prior to the
termination date set forth in the Certificate upon the happening of any of the
following events (each, a "Dissolution Event"):

            12.2.1 For so long as VSI (with its Affiliates, in aggregate) or
PEGI (with its Affiliates, in aggregate) holds Percentage Interests equal to
10%, such Member may elect to dissolve the Company or buy out the other Member's
Membership Interest (at a


                                       39
<PAGE>

price equal to the lower of Fair Market Value and the positive Capital Account
balance of such Member and its Affiliates) if controlling ownership of the other
Member changes (other than as permitted by, and subject to the conditions of,
Section 9.2); provided, however, that the parties acknowledge that PEI is
publicly held and that no change in its ownership will constitute a change of
control of PEGI as long as PEGI remains a controlled subsidiary of PEI. Any such
dissolution or buy-out will be effective as of such change of control.

            12.2.2 Any Member may, without prejudice to any other remedies it
may have, elect to dissolve the Company by notice in writing to the other
Members on or after the occurrence of any of the following:

                  (a) subject to Section 3.4, the commission of one or more
material breaches of this Agreement by the Company or another Member which are
not capable of remedy, provided that any such breach by the Company is not
caused by the Member its seeking dissolution or any of its Affiliates;

                  (b) the commission of a material breach of this Agreement by
the Company or another Member which is capable of remedy (a "Remediable Breach")
which will not have been remedied within a period of thirty (30) days after the
party in breach has been given notice in writing specifying that Remediable
Breach and requiring it to be remedied; provided, however, that such thirty (30)
day period will be extended for such additional period as will be reasonably
necessary if that Remediable Breach is incapable of remedy within that one month
period and during that thirty (30) day period the party in breach will
diligently endeavor to remedy that Remediable Breach, but only if such extension
would not reasonably be expected to have a material adverse effect on the party
giving notice of such breach and, provided further, that any such breach by the
Company was not caused by the Member seeking dissolution or any of its
Affiliates;

                  (c) the Bankruptcy, insolvency, general assignment for the
benefit of creditors or similar event of or the appointment of a trustee,
receiver or similar person for any other Member holding Percentage Interests
(collectively with its Affiliates) equal to or greater than ten percent (10%);
or

                  (d) the uncured material breach of one or more of the Related
Documents by another Member or the Company, provided that any such breach by the
Company was not caused by the Member seeking dissolution or any of its
Affiliates.

      12.3 Effect of Dissolution. Upon dissolution of the Company, the Trademark
License Agreement and the Program Supply Agreement will automatically terminate
and all rights and obligations of the respective parties thereunder will
terminate, except for any provisions that expressly survive such termination or
claims that have arisen prior to such termination; provided, however, in the
event such dissolution is due to a breach by PEGI (or an Affiliate of PEGI),
then VSI may cause the Trademark License Agreement and the Program Supply
Agreement to be assigned as set forth in those agreements.


                                       40
<PAGE>

Upon dissolution of the Company, each Member will have the right to compel the
Company to be promptly wound-up and liquidated.

      12.4 Dissolution. The Company will be dissolved, its assets will be
disposed of, and its affairs wound up on the first to occur of the following:

                  (a) Upon the election of the applicable Member(s) following
the happening of any Dissolution Event;

                  (b) Upon the entry of a decree of judicial dissolution
pursuant to Section 18-802 of the Act;

                  (c) The occurrence of a Disassociation Event and the failure
of the Remaining Members to purchase the Former Member's Interest as provided in
Article 10; or

                  (d) The sale of all or substantially all of the assets of
Company.

      12.5 Certificate of Dissolution. As soon as possible following the
occurrence of any of the events specified in Section 12.3, the Directors
appointed by the Members whose breach or Disassociation Event have not caused
the dissolution of the Company or, if none, the Members, will execute a
Certificate of Dissolution in such form as will be prescribed by the Delaware
Secretary of State and file the Certificate of Dissolution as required by the
Act.

      12.6 Winding Up. Upon dissolution, the Company will continue solely for
the purpose of winding up its affairs in an orderly manner, liquidating its
assets, and satisfying the claims of its creditors. The Directors appointed the
Member whose breach or Disassociation Event have not caused the dissolution of
the Company or, if none, the Members, will be responsible for overseeing the
winding up and liquidation of Company, will take full account of the liabilities
of Company and assets, will either cause its assets to be sold or distributed,
and if sold as promptly as is consistent with obtaining the fair market value
thereof, will cause the proceeds therefrom, to the extent sufficient therefor,
to be applied and distributed as provided in Section 12.8. The Persons winding
up the affairs of the Company will give written notice of the commencement of
winding up by mail to all known creditors and claimants whose addresses appear
on the records of the Company. The Directors or Members winding up the affairs
of the Company will be entitled to reasonable compensation for such services.

      12.7 Distributions in Kind. Any non-cash asset distributed to one or more
Members will first be valued at its Fair Market Value to determine the Net
Income or Net Loss that would have resulted if such asset were sold for such
value, such Net Income or Net Loss will then be allocated pursuant to Article 4,
and the Members' Capital Accounts will be adjusted to reflect such allocations.
The amount distributed and charged to the Capital Account of each Member
receiving an interest in such distributed asset will be the


                                       41
<PAGE>

Fair Market Value of such interest (net of any liability secured by such asset
that such Member assumes or takes subject to). The Fair Market Value of such
asset will be determined by the Members, or if any Member objects, by an
independent appraiser in accordance with Exhibit E, with a single appraiser
selected by the Members; provided, however, that the Fair Market Value of the
physical embodiment of any intellectual property will be determined based on its
value to a third party (i.e., to a Person other than the owner of such
intellectual property). Except in cases where the Program Supply Agreement and
Trademark License Agreement are not terminated upon dissolution (as set forth in
Section 12.3), PEGI may elect to have distributed to it in kind or destroyed any
assets of the Company that are Playboy-branded, contain Playboy-identified
content or are otherwise identified as a Playboy-related product.

      12.8 Order of Payment of Liabilities Upon Dissolution.

            12.8.1 Distributions to Members. After determining that all known
debts and liabilities of the Company in the process of winding-up, including,
but not limited to, debts and liabilities to Members that are creditors of the
Company, have been paid or adequately provided for, the remaining assets will be
distributed to the Members in accordance with their positive Capital Account
balances, after taking into account income and loss allocations for the
Company's taxable year during which liquidation occurs. Such liquidating
distributions will be made by the end of the Company's taxable year in which the
Company is liquidated, or, if later, within ninety (90) days after the date of
such liquidation.

            12.8.2 Payment of Debts. The payment of a debt or liability, whether
the whereabouts of the creditor is known or unknown, has been adequately
provided for if the payment has been provided for by either of the following
means:

                  (a) Payment thereof has been assumed or guaranteed in good
faith by one or more financially responsible persons or by the United States
government or any agency thereof, and the provision, including the financial
responsibility of the Person, was determined in good faith and with reasonable
care by the Members or Managers to be adequate at the time of any distribution
of the assets pursuant to this Section 12.8.

                  (b) The amount of the debt or liability has been deposited as
provided in Section 280 of the Corporations Code.

            This Section 12.8.2 will not prescribe the exclusive means of making
adequate provision for debts and liabilities.

      12.9 Certificate of Cancellation. The Directors, Managers or Members who
filed the Certificate of Dissolution will cause to be filed in the office of,
and on a form prescribed by, the Delaware Secretary of State, a certificate of
cancellation of the Certificate upon the completion of the winding up of the
affairs of the Company.


                                       42
<PAGE>

      12.10 No Action for Dissolution. Except as expressly permitted in this
Agreement, a Member will not take any voluntary action that directly causes a
Dissolution Event. The Members acknowledge that irreparable damage would be done
to the goodwill and reputation of the Company if any Member should bring an
action in court to dissolve the Company under circumstances where dissolution is
not required by Section 12.4. This Agreement has been drawn carefully to provide
fair treatment of all parties. Accordingly, except where the Managers or
Directors have failed to liquidate the Company as required by this Article 12,
each Member hereby waives and renounces its right to initiate legal action to
seek the appointment of a receiver or trustee to liquidate the Company or to
seek a decree of Judicial dissolution of the Company on the ground that (a) it
is not reasonably practicable to carry on the business of the Company in
conformity with this Agreement, or (b) dissolution is reasonably necessary for
the protection of the rights or interests of the complaining Member. Damages for
breach of this Section 12.10 will be monetary damages only (and not specific
performance), and the damages may be offset against distributions by the Company
to which such Member would otherwise be entitled.

                                   ARTICLE 13
                          INDEMNIFICATION AND INSURANCE

      13.1 Indemnification of Agents. The Company will and hereby agrees to
indemnify any Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason of
the fact that such Person is or was a Member, Manager, Director, officer,
employee or other agent of the Company or that, being or having been such a
Member, Manager, officer, employee or agent, such Person is or was serving at
the request of the Company as a manager, director, officer, employee or other
agent of another limited liability company, corporation, partnership, joint
venture, trust or other enterprise (all such persons being referred to
hereinafter as an "Agent"), to the fullest extent permitted by applicable law in
effect on the Funding Date and to such greater extent as applicable law may
hereafter from time to time permit. The Managers will be authorized, on behalf
of the Company, to enter into indemnity agreements from time to time with any
Person entitled to be indemnified by the Company hereunder, upon such terms and
conditions as the Managers deem appropriate in their business judgment.

      13.2 Insurance. The Company will have the power to purchase and maintain
insurance on behalf of any Person who is or was an agent of the Company against
any liability asserted against such Person and incurred by such Person in any
such capacity, or arising out of such Person's status as an agent, whether or
not the Company would have the power to indemnity such Person against such
liability under the provisions of Section 13.1 or under applicable law.


                                       43
<PAGE>

                                   ARTICLE 14
                                 NONCOMPETITION

      14.1 Non-competition. For so long as VSI or PEGI (or any of their
respective Affiliates) is a Member of the Company, or for any time after a
Member transfers its Membership Interest in violation of this Agreement, such
Member and its Affiliates may not: ***

      14.2 Separate Covenants. The agreements contained in Section 14.1 will be
construed as a series of separate covenants, one for each activity of the
Member, capacity in which the Member is prohibited from competing and each part
of the Territory in which the Company is carrying on such activity.

      14.3 Injunctive Relief. Each Member acknowledges that (a) the covenants
and the restrictions contained in Section 14.1 are a material factor to such
Member's execution of this Agreement and are necessary and required for the
protection of the Company and the other Members, (b) such covenants are
reasonable and appropriate in scope, (c) such covenants relate to matters that
are of a special, unique and extraordinary character that gives each of such
covenants a special, unique and extraordinary value, and (d) a breach of any of
such covenants will result in irreparable harm and damages to the Company and
the Members in an amount difficult to ascertain and that cannot be adequately
compensated by a monetary award. Accordingly, in addition to any of the relief
to which the Company or the other Members may be entitled at law or in equity,
the Company and the other Members will be entitled to temporary and/or permanent
injunctive relief from any breach or threatened breach by a Member of the
provisions of Section 14.1 without proof of actual damages that have been or may
be caused to the Company or such other Members by such breach or threatened
breach.

      14.4 Outside Businesses. Except as provided in Section 14.1, any Member or
Affiliate thereof may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Company, and the Company and the other Members
will have no rights by virtue of this Agreement in and to such independent
ventures or the income or profits derived therefrom, and the pursuit of any such
venture will not be deemed wrongful or improper. No Member or Affiliate thereof
will be obligated to present any particular investment opportunity to the
Company, even if such opportunity is of a character that, if presented to the
Company, could be taken by the Company, and any Member or Affiliate thereof will
have the right to take for its own account, except as expressly provided by this
Agreement, or to recommend to others any such particular investment opportunity.
The provisions of this Section will not in any way limit, modify or amend the
terms of any

--------
***   Confidential information omitted pursuant to a request for confidential
      treatment filed separately with the Securities and Exchange Commission.


                                       44
<PAGE>

noncompetition, license or other agreement that may be entered into between the
Company and any Member, which terms will be binding on the parties thereto.

                                   ARTICLE 15
                      MEMBER REPRESENTATIONS AND WARRANTIES

      15.1 Representations and Warranties by Each Member. Each Member hereby
represents and warrants to, and agrees with, the other Members, and the Company,
as follows:

            15.1.1 Experience. By reason of such Member's business or financial
experience, such Member is capable of evaluating the risks and merits of an
investment in the Membership Interest and of protecting such Member's own
interests in connection with this investment.

            15.1.2 No Advertising. Such Member has not seen, received, been
presented with, or been solicited by any leaflet, public promotional meeting,
newspaper or magazine article or advertisement, radio or television
advertisement, or any other form of advertising or general solicitation with
respect to the sale of the Membership Interest.

            15.1.3 Investment Intent. Such Member is acquiring the Membership
Interest for investment purposes for such Member's own account only and not with
a view to or for sale in connection with any distribution of all or any part of
the Membership Interest. No other Person will have any direct or indirect
beneficial interest in or right to the Membership Interest.

            15.1.4 Purpose of Entity. Such Member was not organized for the
specific purpose of acquiring the Membership Interest.

            15.1.5 Economic Risk. Such Member is financially able to bear the
economic risk of an investment in the Membership Interest, including the total
loss thereof.

            15.1.6 No Registration of Membership Interest. Such Member
acknowledges that the Membership Interest has not been registered under the
Securities Act of 1933 (as amended, the "Securities Act"), or qualified under
any applicable blue sky laws in reliance, in part, on such Member's
representations, warranties, and agreements herein.

            15.1.7 Membership Interest in Restricted Security. Such Member
understands that the Membership Interest is a "restricted security" under the
Securities Act in that the Membership Interest will be acquired from the Company
in a transaction not involving a public offering, and that the Membership
Interest may be resold without registration under the Securities Act only in
certain limited circumstances and that otherwise the Membership Interest must be
held indefinitely. In this connection, such


                                       45
<PAGE>

Member understands the resale limitations imposed by the Securities Act and is
familiar with Rule 144 thereunder, as presently in effect, and the conditions
which must be met in order for Rule 144 to be available for resale of
"restricted securities".

            15.1.8 No Obligation to Register. Such Member represents, warrants,
and agrees that the Company is under no obligation to register or qualify the
Membership Interest under the Securities Act or under any state securities law,
or to assist such Member in complying with any exemption from registration and
qualification.

            15.1.9 No Disposition in Violation of Law. Without limiting the
representations set forth above, and without limiting the other provisions of
this Agreement relating to the transfer of Membership Interests, such Member
will not make any disposition of all or any part of the Membership Interest
which will result in the violation by such Member or by the Company of any
applicable securities laws.

            15.1.10 Investment Risk. Each Member acknowledges that the
Membership Interest is a speculative investment which involves a substantial
degree of risk of loss by such Member of it' entire investment in the Company,
that such Member understands and takes full cognizance of the risk factors
related to the purchase of the Membership Interest, and that the Company is
newly organized and has no financial or operating history.

            15.1.11 Restrictions on Transferability. Such Member acknowledges
that there are substantial restrictions on the transferability of the Membership
Interest pursuant to this Agreement, that there is no public market for the
Membership Interest and none is expected to develop, and that, accordingly, it
may not be possible for such Member to liquidate such Member's investment in the
Company.

            15.1.12 Information Reviewed. Such Member has received and reviewed
all information such Member considers necessary or appropriate for deciding
whether to purchase the Membership Interest.

            15.1.13 No Representations By Company. No Person has at any time
represented, guaranteed or warranted to such Member that such Member may freely
transfer the Membership Interest, that a percentage of profit and/or amount or
type of consideration will be realized as a result of an investment in the
Membership Interest, that past performance or experience on the part of the
Managers or any other Person in any way indicates the predictable results of the
ownership of the Membership Interest or of the overall Company business, that
any cash distributions from Company operations or otherwise will be made to the
Members by any specific date or will be made at all, or that any specific tax
benefits will accrue as a result of an investment in the Company.

            15.1.14 Consultation with Attorney. Such Member has been advised to
consult with such Member's own attorney regarding all legal matters


                                       46
<PAGE>

concerning an investment in the Company and the tax consequences of
participating in the Company, and has done so, to the extent such Member
considers necessary.

            15.1.15 Tax Consequences. Such Member acknowledges that the tax
consequences to such Member of investing in the Company will depend on such
Member's particular circumstances, and such Member will look solely to, and rely
upon, such Member's own advisers with respect to the tax consequences of this
investment.

            15.1.16 No Assurance of Tax Benefits. Such Member acknowledges that
there can be no assurance that the Code or the Treasury Regulations will not be
amended or interpreted in the future in such a manner so as to deprive the
Company and the Members of some or all of the tax benefits they might now
receive, nor that some of the deductions claimed by the Company or the
allocations of items of income, gain, loss, deduction, or credit among the
Members may not be challenged by the Internal Revenue Service.

      15.2 VSI Representations and Warranties. VSI represents and warrants, for
the benefit of the Company and PEGI, that: (i) it is duly authorized to enter
into the transactions contemplated by this Agreement; (ii) this Agreement is a
valid and binding obligation of VSI, enforceable against it in accordance with
its terms; (iii) in entering into this Agreement and consummating the
transactions contemplated hereunder, it will not be in breach of any contract to
which it is a party or in violation of any law, regulation, court order or its
charter documents; (iv) as of the date of transfer thereof, VSI (or its
Affiliates) will own its interest in PTVLA, PTVH and the German Venture free and
clear of any liens or encumbrances and will have the power and authority to
transfer such interests to the Company pursuant to the terms of this Agreement;
and (v) that VSI (or its Affiliates) has disclosed all material information
relating to the transactions contemplated hereunder and that all information
provided by VSI (or its Affiliates) in connection with the negotiation of the
transactions contemplated by this Agreement is true and correct, to the best of
VSI's (or its Affiliate's) knowledge and belief.

      15.3 PEGI Representations and Warranties. PEGI represents and warrants,
for the benefit of the Company and VSI, that: (i) it is duly authorized to enter
into the transactions contemplated by this Agreement; (ii) this Agreement is a
valid and binding obligation of PEGI, enforceable against it in accordance with
its terms; (iii) in entering into this Agreement and consummating the
transactions contemplated hereunder, it will not be in breach of any contract to
which it is a party or in violation of any law, regulation, court order or its
charter documents; (iv) that, as of the date of transfer thereof, PEGI (or its
Affiliates) will own all of its interests in PTVLA, PTVH and the German Venture
free and clear of any liens or encumbrances and will have the power and
authority to transfer such interests to the Company pursuant to the terms of
this Agreement; and (v) that PEGI (or its Affiliates) have disclosed all
material information relating to the transactions contemplated hereunder that
all information provided by PEGI (or its Affiliates) in connection with the
negotiation of the transactions contemplated by


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<PAGE>

this Agreement is true and correct, to the best of PEGI's (or its Affiliate's)
knowledge and belief.

      15.4 Indemnity. Each Member (an "Indemnifying Party") will indemnify and
hold harmless the Company, each and every Manager, each and every Director, and
each and every other Member (and such parties' directors, officers,
shareholders, partners, members, employees, agents, representatives, and
Affiliates) (collectively, the "Indemnified Parties"), on an After Tax Basis,
from and against all claims, losses, damages (including loss of profits and
consequential damages awarded to unrelated third parties, if any, but excluding
loss of profits and consequential damages otherwise suffered by the Indemnified
Parties, if any), expenses, judgements, costs and liabilities (including
reasonable attorneys' fees and costs) incurred by the Indemnified Parties
arising from the Indemnifying Party's breach of any obligation, representation
or warranty contained in this Agreement. Notwithstanding the foregoing: (i) any
claims for indemnification that VSI (or its Affiliates) may have pursuant to
this Section 15.4 will exclude claims based on information known by VSI (or its
Affiliates or Bloomfield or its Affiliates) as of the Funding Date, whether or
not such information formed the basis of the issues raised by Bloomfield during
Due Diligence and whether or not asserted prior to the Walk Away Notice or
thereafter; and (ii) any claims for indemnification that PEGI may have pursuant
to this Section 15.4 will exclude claims based on information known by PEGI as
of the Funding Date. In the event of a dispute regarding a claim for
indemnification, the Indemnified Party will have the burden of proof in
establishing the validity and amount of the claim, and the Indemnifying Party
will have the burden of proof in establishing any defense to such claim,
including but not limited to, a defense asserted by PEGI that the applicable
Person had knowledge of the requisite facts.

                                   ARTICLE 16
                               DISPUTE RESOLUTION

      16.1 Alternative Dispute Resolution. Any dispute arising out of or
relating to this Agreement will be resolved in accordance with the procedures
specified in this Article 16, which will be the sole and exclusive procedures
for the resolution of any such disputes; provided, however, that this Article
will not apply to any dispute concerning the validity, ownership or control of
the trademarks licensed by PEII to the Company pursuant to the Trademark License
Agreement or the copyrights to any programming supplied by PEGI pursuant to the
Program Supply Agreement, and instead any such dispute will be litigated in a
court of law. The parties intend that these provisions will be valid, binding,
enforceable and irrevocable and will survive any termination of this Agreement
or of the Related Documents.

      16.2 Notification and Negotiation. The parties will promptly notify each
other in writing of any dispute arising out of or relating to this Agreement.
The parties will attempt in good faith to resolve any dispute arising out of or
relating to this Agreement promptly by negotiation between executives who have
authority to settle the controversy. All reasonable requests for information
made by one party to the other will


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<PAGE>

be honored. All negotiations pursuant to this clause are confidential and will
be treated as compromise and settlement negotiations for purposes of applicable
rules of evidence.

      16.3 Mediation. If any such dispute remains unresolved within thirty (30)
days of original notice thereof, the parties will endeavor to resolve any
dispute arising out of or relating to this Agreement by mediation under the CPR
Mediation Procedure for Business Disputes. Unless the parties agree otherwise,
the mediator will be selected from the CPR Panel of Neutrals with notification
to CPR.

      16.4 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach, termination or validity thereof, which remains
unresolved forty-five (45) days after appointment of a mediator, will be settled
by arbitration by a sole arbitrator in accordance with the CPR Non-Administered
Arbitration Rules; provided, however, that if either party will not participate
in a non-binding procedure described above, the other may initiate binding
arbitration before expiration of the above period. The arbitration will be
governed by the United States Arbitration Act, 9 U.S.C. ss. 1-16, and judgment
upon the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of arbitration will be Los Angeles, California.
Pending any final determination by the arbitrator pursuant to this Section 16.4,
a Member may seek preliminary or temporary relief, if appropriate, in any
federal or state court located in Los Angeles County, California.

      16.5 Damages. Except as expressly provided below, the arbitrator is not
empowered to award damages in excess of compensatory damages and each party
hereby irrevocably waives any right to recover such damages with respect to any
dispute resolved by arbitration. The arbitrator will have the authority to
include, as an item of damages, the costs of arbitration, including reasonable
legal fees and expenses, incurred by the prevailing party and to apportion such
costs among the parties on a claim by claim basis as such party prevails
thereon. For purposes of the foregoing, the "prevailing party" will mean the
party whose final settlement offer (or other position or monetary claim) prior
to the start of arbitration is closest to the judgement awarded by the
arbitrator, regardless of whether such judgement is entered into in favor of or
against such party.

      16.6 Statute of Limitations. The statute of limitations of the State of
California applicable to the commencement of a lawsuit will apply to the
commencement of an arbitration hereunder, except that no defenses will be
available based upon the passage of time during any negotiation or mediation
called for by the preceding paragraphs of this Article 16.

      16.7 Confidential Negotiations. All negotiations pursuant to Sections 16.2
and 16.3 are confidential and will be treated as compromise and settlement
negotiations for purposes of applicable rules of evidence.

      16.8 Service of Process. Each party agrees that service by registered or
certified mail, return receipt requested, delivered to such party at the address
provided in


                                       49
<PAGE>

Section 17.11 (Notices) below, will be deemed in every respect effective service
of process upon such Person for all purposes of these provisions relating to
mediation and arbitration. Each party irrevocably submits to the jurisdiction of
the courts of the State of California and to any federal court located within
such state for the purpose of any action or judgement with respect to this
Agreement, regardless of where any alleged breach or other action, omission,
fact or occurrence giving rise thereto occurred. Each party hereby irrevocably
waives any claim that any action or proceeding brought in Los Angeles County,
California, has been brought in any inconvenient forum.

      16.9 Additional Arbitration Provisions. The parties will negotiate in good
faith and agree on such further or modified arbitration provisions as are
reasonably necessary for awards and other judgements resulting from the
provisions set forth above to be recognized and enforceable in other
jurisdictions in the Territory.

                                   ARTICLE 17
                                  MISCELLANEOUS

      17.1 Superseding Agreements. This Agreement, the Program Supply Agreement,
the Trademark License Agreement, the Stock Purchase Agreements and the Release,
when executed by the parties, will supersede and replace the Agreement Outline
and the Agreement Outline will be of no further force or effect.

      17.2 Documents and Acts. Each Member agrees to execute and deliver such
additional documents and instruments and to perform such additional acts as may
be necessary or appropriate to effectuate, carry out and perform all of the
terms, provisions, and conditions of this Agreement and the transactions
contemplated hereby.

      17.3 Time is of the Essence. All dates and times in this Agreement are of
the essence.

      17.4 Remedies Cumulative. The remedies under this Agreement are cumulative
and will not exclude any other remedies to which any Person may be lawfully
entitled.

      17.5 Currency; Payments.

            17.5.1 All amounts due from one Member to another Member, from the
Company to one or more Members or from one or more Members to the Company
pursuant to this Agreement and the other Related Documents will be paid in U.S.
Dollars. If any portion of such payment is calculated on the basis of revenues
received in other currencies, such revenues will be calculated using the
exchange rate published in the Wall Street Journal, as of the business day
immediately preceding the date on which the payment initially is due. Such
exchange rate will also apply to any portion of a payment


                                       50
<PAGE>

which is permitted to be deferred, regardless of whether such deferred payment
is represented by a promissory note or other instrument.

            17.5.2 All payments owing pursuant to this Agreement and the other
Related Documents will be made by wire transfer of immediately available funds,
net of any withholding required by applicable law. Each Member and the Company
will from time to time designate one or more accounts into which such payments
will be made and may designate one or more Affiliates to receive such payments.

            17.5.3 Any payment hereunder or under the other Related Documents
not made when due will bear interest from the date due to and including the date
of payment in full at a rate equal to the Reference Rate as in effect on the
date payment was due.

      17.6 Governing Law. All questions with respect to this Agreement and the
relationships of the parties hereunder will be governed by the internal laws of
the State of Delaware, regardless of the choice of law principles of the State
of Delaware or any other jurisdiction.

      17.7 Assignment; No Third Party Beneficiary. Neither the Company nor any
Member will assign its rights or delegate its obligations hereunder without
written consent of all of the Members except to an Affiliate of the Company or
such Member; provided that no such assignment will relieve the assignor of its
obligations. The provisions of this Agreement are for the benefit only of the
Company and the Members, and no third party may seek to enforce or benefit from
these provisions except that the Persons indemnified by the Company pursuant to
Section 13.1 will be third party beneficiaries of this Agreement with respect to
such Section only and will have independent standing to enforce or benefit from
such Section.

      17.8 Agreement Negotiated. The Members are sophisticated and have been
represented by lawyers throughout the negotiation and execution of this
Agreement who have carefully negotiated the provisions hereof. As a consequence,
the parties do not believe the presumption of California Civil Code Section 1654
and similar laws or rules relating to the interpretation of contracts against
the drafter of any particular clause should be applied in this case and
therefore waive its effects.

      17.9 Waivers, Remedies Cumulative, Amendments, etc.

            17.9.1 No failure or delay by the Company or any Member in
exercising any right, power or privilege under this Agreement will operate as a
waiver thereof nor will any single or partial exercise by any of them of any
right, power or privilege preclude any further exercise thereof or the exercise
of any other right, power or privilege.

            17.9.2 The rights and remedies herein provided are cumulative and
not exclusive of any rights and remedies provided by law.


                                       51
<PAGE>

            17.9.3 No provision of this Agreement may be amended, modified,
waived, discharged or terminated, other than by the express written agreement of
all of the Members nor may any breach of any provision of this Agreement be
waived or discharged except with the express written consent of the party(ies)
not in breach.

      17.10 Notices. All notices, requests, demands and other communications
required to be given under this Agreement will be in writing and will
conclusively be deemed to have been duly given to each Member (a) when hand
delivered, (b) the next business day if sent by a generally recognized overnight
courier service that provides written acknowledgment by the addressee of
receipt, or (c) when received, if sent by facsimile (with appropriate answer
back) or other generally accepted means of electronic transmission addressed as
follows:

               if to PEGI to:

               Playboy Entertainment Group, Inc.
               Attention:  President
               9242 Beverly Boulevard
               Beverly Hills, CA  90210
               United States of America
               Fax Number:  (310) 246-4065

               with a copy to:

               Playboy Enterprises, Inc.
               Attention:  General Counsel
               680 North Lake Shore Drive
               Chicago, IL  60611
               United States of America
               Fax Number:  (312) 266-2042

               if to VSI to:

               Victoria Springs Investments Ltd.
               c/o Cisneros Television Group
               Attention: Director Legal and Business Affairs
               404 Washington Avenue
               8th Floor
               Miami Beach, Florida  33139
               Fax Number:  (305) 894-3606


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<PAGE>

               with a copy to:

               Glenn Dryfoos, Esq.
               Greenberg Glusker Fields Claman
                  & Machtinger LLP
               1900 Avenue of the Stars
               Suite 2100
               Los Angeles, CA  90067
               United States of America
               Fax Number:  (310) 553-0687

               if to the Company to:

               Playboy TV International, LLC
               404 Washington Avenue
               8th Floor
               Miami Beach, Florida  33139
               Fax Number:  (305) 894-3606

               with copies to PEGI and VSI

or to such other address, or facsimile transmission number as the relevant
addressee may hereafter by notice hereunder substitute.

      17.11 Public Announcements. Unless otherwise mutually agreed by VSI and
PEGI, or as required by law or by the stock exchange on which any Member's
stock, or the stock of any direct or indirect parent of a Member, is traded, no
public announcement will be made by any of the Company, any Member, any Manager,
any Director, the President or any other officer of the Company or any of their
respective Affiliates with respect to the subject matter of this Agreement.

      17.12 Survival. Notwithstanding the termination of this Agreement, the
dissolution of the Company, or a Member's ceasing to be a Member under this
Agreement, the following sections of this Agreement will survive indefinitely
and be enforceable by PEGI or VSI: Section 12.7, Section 13.1, Article 16 and
this Section 17.12.


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<PAGE>

      IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Agreement, effective as of the Effective Date.

                                            PLAYBOY ENTERTAINMENT GROUP, INC.

                                            By: /s/ Anthony J. Lynn
                                                --------------------------------
                                                Name:  Anthony J. Lynn
                                                Title: President


                                            VICTORIA SPRINGS INVESTMENTS LTD.

                                            By: /s/ Jay Scharer
                                                --------------------------------
                                                Name:  Jay Scharer
                                                Title: Attorney-in-fact

                                            By: /s/ Glenn Dryfoos
                                                --------------------------------
                                                Name:  Glenn Dryfoos
                                                Title: Attorney-in-fact

ACKNOWLEDGED, ACCEPTED AND AGREED
AS TO SECTIONS 9.2.3, 9.2.4 AND EXHIBIT F:

PLAYBOY ENTERPRISES, INC.

By: /s/ Anthony J. Lynn
    ---------------------------------
    Name:  Anthony J. Lynn
    Title: Executive Vice President


                                       54