<PAGE>
 
                                                                EXHIBIT 10.21(C)

                         INDEMNITY, SUBROGATION and CONTRIBUTION AGREEMENT
                   (together with instruments executed and delivered pursuant to
                   Section 12, this "Agreement") dated as of March 15, 1999,
                   among PLAYBOY ENTERPRISES, INC. (f/k/a New Playboy, Inc.), a
                   Delaware corporation (the "Company"), PEI HOLDINGS, INC., a
                   Delaware corporation and wholly owned subsidiary of the
                   Company ("PHI" and, together with the Company, the
                   "Parents"), each other subsidiary of the Company listed on
                   Schedule I hereto (the "Subsidiary Guarantors") and CREDIT
                   SUISSE FIRST BOSTON, a bank organized under the laws of
                   Switzerland, acting through its New York Branch ("CSFB"), as
                   collateral agent (in such capacity, the "Collateral Agent")
                   for the Secured Parties (as defined herein).

     Reference is made to (a) the Credit Agreement dated as of February 26,
1999, (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among the Company, PHI, the Lenders (as defined in Article I
thereof), and CSFB as administrative agent (in such capacity, the
"Administrative Agent"), as collateral agent (in such capacity, the "Collateral
Agent") and as issuing bank (in such capacity, the "Issuing Bank") for the
Lenders and (b) the Subsidiary Guarantee Agreement dated as of March 15, 1999
(as amended, supplemented or otherwise modified from time to time, the
"Subsidiary Guarantee Agreement"), among the Subsidiary Guarantors and the
Collateral Agent and (c) the Security Documents referred to in the Credit
Agreement. Capitalized terms used herein and not defined herein are used with
the meanings assigned to such terms in the Credit Agreement.

     The Lenders have agreed to make Loans to the Borrower, and the Issuing Bank
has agreed to issue Letters of Credit for the account of the Borrower, in each
case pursuant to, and upon the terms and subject to the conditions specified in,
the Credit Agreement. The Guarantors have guaranteed such Loans and the other
Obligations (as defined in the Credit Agreement) of the Borrower under the
Credit Agreement pursuant to the Credit Agreement and the Subsidiary Guarantee
Agreement and have granted Liens on and security interests in certain of their
assets pursuant to the Security Documents to secure the Obligations. The
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit are conditioned on, among other things, the execution and
delivery by the Parents and the Subsidiary Guarantors of an agreement in the
form hereof.

<PAGE>

                                                                               2
 
     Accordingly, the Borrower, each Parent, each Subsidiary Guarantor and the
Collateral Agent agree as follows:

     SECTION 1. Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Subsidiary Guarantors may have under applicable
law (but subject to Section 3), the Parents agree that (a) in the event a
payment shall be made by any Subsidiary Guarantor under the Subsidiary Guarantee
Agreement, the Parents shall indemnify such Subsidiary Guarantor for the full
amount of such payment and, until such indemnification obligation shall have
been satisfied, such Subsidiary Guarantor shall be subrogated to the rights of
the person to whom such payment shall have been made to the extent of such
payment and (b) in the event any assets of any Subsidiary Guarantor shall be
sold pursuant to any Security Document to satisfy a claim of any Secured Party,
the Parents shall indemnify such Subsidiary Guarantor in an amount equal to the
greater of the book value or the fair market value of the assets so sold.

     SECTION 2. Contribution and Subrogation. Each Subsidiary Guarantor (a
"Contributing Guarantor") agrees (subject to Section 3) that, in the event a
payment shall be made by any other Subsidiary Guarantor under the Subsidiary
Guarantee Agreement or assets of any other Subsidiary Guarantor shall be sold
pursuant to any Security Document to satisfy a claim of any Secured Party, and,
in either case, such other Subsidiary Guarantor (the "Claiming Guarantor") shall
not have been fully indemnified by the Parents as provided in Section 1, the
Contributing Guarantor shall, to the extent the Claiming Guarantor shall not
have been so indemnified by the Parents, indemnify the Claiming Guarantor in an
amount equal to the amount of such payment or the fair market value of such
assets, as the case may be, in each case multiplied by a fraction of which the
numerator shall be the net worth of the Contributing Guarantor on the date
hereof (or, in the case of any Subsidiary Guarantor becoming a party hereto
pursuant to Section 12, the date of the Supplement hereto executed and delivered
by such Subsidiary Guarantor) and the denominator shall be the aggregate net
worth of all the Subsidiary Guarantors on the date hereof (or, in the case of
any Subsidiary Guarantor becoming a party hereto pursuant to Section 12, the
date of the Supplement hereto executed and delivered by such Subsidiary
Guarantor). Any Contributing Guarantor making any payment to a Claiming
Guarantor pursuant to this Section 2 shall be subrogated to the rights of such
Claiming Guarantor under Section 1 to the extent of such payment.

     SECTION 3. Subordination. Notwithstanding any provision of this Agreement
to the contrary, all rights of the Subsidiary Guarantors under Sections 1 and 2
and all other rights of indemnity, contribution or subrogation under applicable
law or otherwise shall be fully subordinated to the indefeasible payment in full
in cash of the Obligations. No failure on the part of either Parent or any
Subsidiary Guarantor to make the payments required by Sections 1 and 2 (or any
other payments required under applicable law or otherwise) shall in any respect
limit the obligations and liabilities of any Subsidiary Guarantor with respect
to its obligations hereunder, and each Subsidiary Guarantor shall remain liable
for the full amount of the obligations of such Subsidiary Guarantor hereunder.

<PAGE>

                                                                               3

     SECTION 4. Termination. This Agreement shall survive and be in full force
and effect so long as the Subsidiary Guarantee Agreement has not been
terminated, and shall continue to be effective or be reinstated, as the case may
be, if at any time payment, or any part thereof, of any Obligation is rescinded
or must otherwise be restored by any Secured Party upon the bankruptcy or
reorganization of either Parent, any Subsidiary Guarantor or otherwise.

     SECTION 5. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     SECTION 6. No Waiver; Amendment. (a) No failure on the part of the
Collateral Agent or any Subsidiary Guarantor to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy by the Collateral Agent or any Subsidiary Guarantor preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. None of the Collateral Agent and the Subsidiary
Guarantors shall be deemed to have waived any rights hereunder unless such
waiver shall be in writing and signed by such parties.

     (b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to a written agreement entered into between the
Parents, the Subsidiary Guarantors and the Collateral Agent, with any consent
required under the Credit Agreement.

     SECTION 7. Notices. All communications and notices hereunder shall be in
writing and given as provided in the Credit Agreement or the Subsidiary
Guarantee Agreement, as applicable, and addressed as specified therein.

     SECTION 8. Binding Agreement; Assignments. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all covenants, promises and
agreements by or on behalf of the parties that are contained in this Agreement
shall bind and inure to the benefit of their respective successors and assigns.
Neither Parent nor any Subsidiary Guarantor may assign or transfer any of its
rights or obligations hereunder (and any such attempted assignment or transfer
shall be void) without the prior written consent of the Required Lenders.
Notwithstanding the foregoing, at the time any Subsidiary Guarantor is released
from its obligations under the Subsidiary Guarantee Agreement in accordance with
the Subsidiary Guarantee Agreement and the Credit Agreement, such Subsidiary
Guarantor will cease to have any rights or obligations under this Agreement.

<PAGE>

                                                                               4

     SECTION 9. Survival of Agreement; Severability. (a) All covenants and
agreements made by each Parent and each Subsidiary Guarantor herein and in the
certificates or other instruments prepared or delivered in connection with this
Agreement or the other Loan Documents shall be considered to have been relied
upon by the Collateral Agent, the other Secured Parties and each Subsidiary
Guarantor, shall survive the making by the Lenders of the Loans and the issuance
of the Letters of Credit by the Issuing Bank and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loans or
any other fee or amount payable under the Credit Agreement, this Agreement or
any of the other Loan Documents is outstanding and unpaid, the L/C Exposure does
not equal zero or the Commitments have not been terminated.

     (b) In case any one or more of the provisions contained in this Agreement
should be held invalid, illegal or unenforceable in any respect, no party hereto
shall be required to comply with such provision for so long as such provision is
held to be invalid, illegal or unenforceable, but the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

     SECTION 10. Counterparts. This Agreement may be executed in counterparts
(and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Agreement shall be effective with respect to any
Subsidiary Guarantor when a counterpart bearing the signature of such Subsidiary
Guarantor shall have been delivered to the Collateral Agent. Delivery of an
executed signature page to this Agreement by facsimile transmission shall be as
effective as delivery of a manually signed counterpart of this Agreement.

     SECTION 11. Rules of Interpretation. The rules of interpretation specified
in Section 1.02 of the Credit Agreement shall be applicable to this Agreement.

     SECTION 12. Additional Subsidiary Guarantors. Pursuant to Section 5.09 of
the Credit Agreement, each Domestic Restricted Subsidiary that was not in
existence on the date of the Credit Agreement is required to enter into this
Agreement as a Subsidiary Guarantor upon becoming such a Subsidiary. Upon
execution and delivery, after the date hereof, by the Collateral Agent and such
a Subsidiary of an instrument in the form of Annex 1 hereto, such Subsidiary
shall become a Subsidiary Guarantor hereunder with the same force and effect as
if originally named as a Subsidiary Guarantor hereunder. The execution and
delivery of any instrument adding an additional Subsidiary Guarantor as a party
to this Agreement shall not require the consent of any Subsidiary Guarantor
hereunder. The rights and obligations of each Subsidiary Guarantor hereunder
shall remain in full force and effect notwithstanding the addition of any new
Subsidiary Guarantor as a party to this Agreement.

<PAGE>

                                                                               5
 
  IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first appearing above.


                                      PLAYBOY ENTERPRISES, INC. (f/k/a New
                                      Playboy, Inc.),

                                          by                                    
                                            -----------------------------------
                                            Name:   
                                            Title:   


                                       PEI HOLDINGS, INC.,

                                          by
                                            -----------------------------------
                                            Name:
                                            Title:


                                      EACH OF THE SUBSIDIARIES LISTED
                                      ON SCHEDULE I HERETO,

                                          by
                                            -----------------------------------
                                            Name:
                                            Title:

<PAGE>

                                                                               6
                                     
                                      CREDIT SUISSE FIRST BOSTON, as
                                      Collateral Agent,

                                         by
                                           -----------------------------------
                                           Name:
                                           Title:


                                         by
                                           -----------------------------------
                                           Name:
                                           Title:

<PAGE>
 
                                                                      SCHEDULE I
                                                   to the Indemnity, Subrogation
                                                      and Contribution Agreement


     Subsidiary Guarantor                                 Address
     --------------------                                 -------

AdulTVision Communications, Inc.                c/o Playboy Enterprises, Inc.
                                                680 North Lake Shore Drive
After Dark Video, Inc.                          Chicago, IL 60611
                                                Fax: (312) 751 8000
Alta Loma Entertainment, Inc.                   Attn: General Counsel
                                                Attn: Chief Financial Officer
Alta Loma Distribution, Inc.
                                                with a copy to:
Cameo Films, Inc.                               Paul, Weiss, Rifkind,
                                                 Wharton & Garrison
Critics' Choice Video, Inc.                     1285 Avenue of the Americas
                                                New York, NY 10019
Impulse Productions, Inc.                       Fax: (212) 757-3990
                                                Attn: James M. Dubin
Lake Shore Press, Inc.

Lifestyle Brands, Ltd.

Mystique Films, Inc.

PEI Holdings, Inc.

Playboy Club of Hollywood, Inc.

Playboy Club of New York, Inc.

Playboy Clubs International, Inc.

Playboy Enterprises, Inc. to be renamed Playboy Enterprises International, Inc.

Playboy Entertainment Group, Inc.

Playboy Gaming International, Ltd.

Playboy Gaming Nevada, Inc.

Playboy Models, Inc.

Playboy of Lyons, Inc.

Playboy of Sussex, Inc.

Playboy Preferred, Inc.

<PAGE>

                                                                               2

Playboy Properties, Inc.

Playboy Shows, Inc.

Precious Films, Inc.

Special Editions, Ltd.

Steelton, Inc.

Telecom International, Inc.

Women Productions, Inc.

CPV Productions, Inc.

Cyberspice, Inc.

MH Pictures, Inc.

Spice Entertainment Companies, Inc.

Spice Direct, Inc.

Spice International, Inc.

Spice Networks, Inc.

Spice Productions, Inc.

<PAGE>
 
                                                                      Annex 1 to
                                                  the Indemnity, Subrogation and
                                                          Contribution Agreement

                        SUPPLEMENT NO. (this "Supplement") dated as of [ ], to
                  the Indemnity, Subrogation and Contribution Agreement dated as
                  of March 15, 1999 (as the same may be amended, supplemented or
                  otherwise modified from time to time, the "Indemnity,
                  Subrogation and Contribution Agreement"), among PLAYBOY
                  ENTERPRISES, INC. (f/k/a New Playboy, Inc.), a Delaware
                  corporation (the "Company"), PEI HOLDINGS, INC., a Delaware
                  corporation and wholly owned subsidiary of the Company ("PHI"
                  and, together with the Company, the "Parents"), each other
                  subsidiary of the Company listed on Schedule I thereto (the
                  "Subsidiary Guarantors) and CREDIT SUISSE FIRST BOSTON, a bank
                  organized under the laws of Switzerland, acting through its
                  New York Branch ("CSFB"), as collateral agent (in such
                  capacity, the "Collateral Agent") for the Secured Parties (as
                  defined herein).

     A. Reference is made to (a) the Credit Agreement dated as of February 26,
1999, (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement") among the Company, PHI, the Lenders (as defined in Article I
thereof), and CSFB as administrative agent (in such capacity, the
"Administrative Agent"), as collateral agent (in such capacity, the "Collateral
Agent") and as issuing bank (in such capacity, the "Issuing Bank") for the
Lenders and (b) the Subsidiary Guarantee Agreement dated as of March 15, 1999
(as amended, supplemented or otherwise modified from time to time, the
"Subsidiary Guarantee Agreement"), among the Subsidiary Guarantors and the
Collateral Agent and (c) the Security Documents referred to in the Credit
Agreement.

     B. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Indemnity, Subrogation and
Contribution Agreement and the Credit Agreement.

     C. The Parents and the Subsidiary Guarantors have entered into the
Indemnity, Subrogation and Contribution Agreement in order to induce the Lenders
to make Loans and the Issuing Bank to issue Letters of Credit. Pursuant to
Section 5.09 of the Credit Agreement, each Domestic Restricted Subsidiary that
was not in existence or not such a Subsidiary on the date of the Credit
Agreement is required to enter into the Indemnity, Subrogation and Contribution
Agreement as a Subsidiary Guarantor upon becoming such a Subsidiary. Section 12
of the Indemnity, Subrogation and Contribution Agreement provides that
additional Subsidiaries may become Subsidiary Guarantors under the Indemnity,
Subrogation and Contribution Agreement by execution and delivery of an
instrument in the form of this Supplement. The undersigned Subsidiary (the "New
Guarantor") is executing this Supplement in accordance with the require ments of
the Credit Agreement to become a Subsidiary Guarantor under the Indemnity,
Subrogation and Contribution Agreement in order to induce the Lenders to make
additional

<PAGE>

                                                                               2

Loans and the Issuing Bank to issue additional Letters of Credit and as
consideration for Loans previously made and Letters of Credit previously issued.

     Accordingly, the Collateral Agent and the New Guarantor agree as follows:

     SECTION 1. In accordance with Section 12 of the Indemnity, Subrogation and
Contribution Agreement, the New Guarantor by its signature below becomes a
Subsidiary Guarantor under the Indemnity, Subrogation and Contribution Agreement
with the same force and effect as if originally named therein as a Subsidiary
Guarantor and the New Guarantor hereby agrees to all the terms and provisions of
the Indemnity, Subrogation and Contribution Agreement applicable to it as a
Subsidiary Guarantor thereunder. Each reference to a "Subsidiary Guarantor" in
the Indemnity, Subrogation and Contribution Agreement shall be deemed to include
the New Guarantor.

     SECTION 2. The New Guarantor represents and warrants to the Collateral
Agent and the other Secured Parties that this Supplement has been duly
authorized, executed and delivered by it and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.

     SECTION 3. This Supplement may be executed in counterparts (and by
different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract. This Supplement shall become effective when the Collateral
Agent shall have received counterparts of this Supplement that, when taken
together, bear the signatures of the New Guarantor and the Collateral Agent.
Delivery of an executed signature page to this Supplement by facsimile
transmission shall be as effective as delivery of a manually signed counterpart
of this Supplement.

     SECTION 4. Except as expressly supplemented hereby, the Indemnity,
Subrogation and Contribution Agreement shall remain in full force and effect.

     SECTION 5. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

     SECTION 6. In case any one or more of the provisions contained in this
Supplement should be held invalid, illegal or unenforceable in any respect,
neither party hereto shall be required to comply with such provision for so long
as such provision is held to be invalid, illegal or unenforceable, but the
validity, legality and enforceability of the remaining provisions contained
herein and in the Indemnity, Subrogation and Contribution Agreement shall not in
any way be affected or impaired. The parties hereto shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

<PAGE>

                                                                               3

     SECTION 7. All communications and notices hereunder shall be in writing and
given as provided in Section 7 of the Indemnity, Subrogation and Contribution
Agreement. All communications and notices hereunder to the New Guarantor shall
be given to it at the address set forth under its signature.

<PAGE>

                                                                         1

     SECTION 8. The New Guarantor agrees to reimburse the Collateral Agent for
its reasonable out-of-pocket expenses in connection with this Supplement,
including the reasonable fees, other charges and disbursements of counsel for
the Collateral Agent.

     IN WITNESS WHEREOF, the New Guarantor and the Collateral Agent have duly
executed this Supplement to the Indemnity, Subrogation and Contribution
Agreement as of the day and year first above written.

                                       [Name Of New Guarantor],

                                         by
                                           ------------------------------------
                                           Name:
                                           Title:
                                           Address:


                                       CREDIT SUISSE FIRST BOSTON, as
                                       Collateral  Agent,

                                         by
                                           ------------------------------------
                                           Name:
                                           Title:


                                         by
                                           ------------------------------------
                                           Name:
                                           Title: