Document:

Exhibit 10.1

Exhibit 10.1

EMPLOYMENT
AGREEMENT 

 

Employment
Agreement (this "Agreement") dated as of May 27, 2004 (the "Effective Date") by
and between lnternap Network Services Corporation (the "Company") and David
Buckel ("Executive") (collectively the "Parties"). 

 

1.
Position and Duties.
Effective as of May 27, 2004, Executive shall serve as the Vice President and
Chief Financial Officer for the Company, with such duties, authorities and
responsibilities as are commensurate with such position. Executive shall report
to the Company's Chief Executive Officer ("CEO") and work from the Company's
offices in Atlanta, Georgia. 

 

2.
Base Salary.
Effective as of May 11, 2004, Executive shall receive an annual base salary of
$190,000.00 ("Base Salary"). Payment of Base Salary shall be subject to standard
payroll tax withholdings and deductions. Executive's Base Salary shall be paid
semi-monthly in accordance with the Company's standard payroll practices.
Executive's Base Salary may be increased or decreased from time to time by the
CEO in consultation with the Company's Board of Directors or the Compensation
Committee of such Board of Directors (in either case, the "Board) in their sole
discretion. 

 

3.
Performance-Based
Bonus. While
the Company has not decided to implement a bonus plan ("Bonus") for Executive
and other senior executive officers at this time, should it do so in the future
its present intention is that Executive's Bonus would be from 35% to up to 50%
of Executive's Base Salary, prorated if less than a full year. Performance
metrics for the Bonus, if any, for 2004 shall be established by the CEO in
consultation with the Board and in their sole and reasonable discretion as soon
as practicable after a determination has been made to implement a Bonus plan for
Executive and other senior executive officers. Performance metrics for and
target amount of the Bonus for 2005 and each subsequent calendar year shall be
established on or before February 28 of the year to which the Bonus relates. The
CEO, in consultation with the Board and in their sole and reasonable discretion,
shall determine, on or before February 28 of the year in which the Bonus would
be payable, whether a Bonus is payable and, if so, the amount of such Bonus.
Unless otherwise determined by the Board, all Bonus payments shall be made on
the Company's first regular payroll date following such determination and shall
be subject to standard payroll tax withholdings and deductions. To be eligible
for a Bonus, Executive must be continuously employed by the Company through the
date on which the Bonus is paid. Executive recognizes and agrees that: (a) the
Company may in its sole discretion and with reasonable notice to Executive
determine that any Bonus, if payable, may be paid in whole or in part in the
Company's common stock or other equity securities, including restricted stock
and stock options; and (b) the Company may in its sole discretion suspend or
discontinue any bonus program at any time without any liability on the part of
the Company. 

 

4.
Equity
Compensation. The
Company has heretofore granted Executive one or more options to purchase
1,150,000 shares of the Company's common stock, subject to the terms and
conditions of the relevant option plan(s) and related stock option agreement(s)
(the "Options"). The Board, upon the recommendation of the CEO and in their sole
discretion, may award additional options or equity or other equity-based

compensation
to Executive on terms, in amounts and subject to performance goals as determined
by the CEO and the Board (any such options also being referred to hereinafter as
"Options" and any such equity or equity-based compensation being referred to
herein as "Additional Equity Compensation"). 

 

5.
Employee
Benefits.
Executive shall be entitled to participate in all employee benefit, welfare and
other plans and programs generally applicable to employees of the Company.
Except as provided herein, the Company reserves the right to modify Executive's
compensation and benefits from time to time, as it deems necessary.

 

6.
Vacation.
Executive shall accrue twenty (20) days of combined vacation/sick leave
annually. Executive also shall receive three (3) personal days each year.
Executive shall have the right to carry over unused vacation from any one-year
period to any other subsequent one-year period. 

 

7.
Nature of Employment.
Executive's employment with the Company shall be at-will. Both Executive and the
Company shall have the right to terminate the employment relationship at any
time, with or without cause, and with or without advance notice. 

 

8.
Severance Payments. If
Executive has been terminated involuntarily without Cause (as defined below) by
the Company prior to November 30,2004, Executive shall receive, in recognition
of his undertaking to effect significant operational improvements in the
company's finance organization beginning May 14, 2004, a cash severance payment
equal to 1.11 times his Base Salary. If Executive has been terminated
involuntarily without Cause after that date, Executive shall receive a cash
severance payment equal to one (1) times his Base Salary. Payment of such
severance amounts shall be subject to standard payroll tax withholdings and
deductions. In addition to the severance benefits provided above, upon
Executive's involuntary termination of employment without Cause, all of
Executive's unvested Options and Additional Equity Compensation shall lapse and
expire, and all of Executive's vested Options shall remain exercisable no later
than three months after the date of termination. No payment or acceleration of
Options or Additional Equity Compensation shall be made pursuant to this Section
8 unless prior to or concurrent with such payment a valid release has been
executed and delivered by Executive and becomes effective in accordance with
Section 11 hereof. Notwithstanding the immediately preceding sentence, Executive
shall not be entitled to any benefits or rights under this Section 8 if
Executive also is eligible for payments and/or benefits under Section
9 hereof.

 

9.
Change in Control Payments and Acceleration. Upon
Executive's involuntary termination of employment without Cause (as defined
below) or voluntary termination of employment for Good Reason, in either case
within 12 months after a Change in Control, (i) the Company shall pay Executive
a cash severance payment equal to two time the sum of Executive's then-current
Base Salary and maximum target Bonus and (ii) all of Executive's unvested
Options and Additional Equity Compensation shall become vested, free of
restrictions and immediately exercisable for the remaining term of the relevant
grant or award. 

 

Payment
of such severance payments shall be subject to standard payroll tax withholdings
and deductions. 

2

No
payment or acceleration of Options or Additional Equity Compensation shall be
made unless prior to or concurrent with such payment a valid release has been
executed and delivered by Executive and becomes effective in accordance with
Section 11 hereof. 

 

Executive
will continue to receive the healthcare and life insurance coverages in effect
on his date of termination for twenty-four (24) months after the date of
termination pursuant to this Section 9 just as if he had remained an active
employee of the Company, subject to Executive paying the customary employee
portion of such coverages, provided that if the Company cannot continue to cover
Executive under its plans, the Company will separately provide Executive with
comparable coverages or pay Executive in a lump sum the costs of such coverages.

 

For
purposes of this Agreement, "Change in Control" shall mean the happening of any
of the following events: 

 

(i) An
acquisition by any individual, entity or group (within the meaning of Section 13
(d) (3) or 14 (d) (2) of the Exchange Act) (an "Entity") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or
more of either (A) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (B) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (1) any acquisition directly from the
Company, other than an acquisition by virtue of the exercise of a conversion
privilege unless the security being so converted was itself acquired directly
from the Company, (2) any acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (iii) of this Section; (ii) A change in the composition of the
Board such that the individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the "Incumbent Board"),
excluding the current members of the Board ("Series A Directors") who have been
elected pursuant to the terms of the Company's Series A Convertible Preferred
Stock ("Series A Stock"), cease for any reason to constitute at least a majority
of the Board; provided, however, that for purposes of this definition, any
individual who becomes a member of the Board subsequent to the Effective Date,
whose election, or nomination for election, by the Company's stockholders was
approved by a vote of at least a majority of those individuals who are members
of the Board and who were also members of the lncumbent Board (or deemed to be
such pursuant to this proviso), excluding the Series A Directors, shall be
considered as though such individual were a member of the lncumbent Board; and
provided, further however, that any such individual whose initial assumption of
office occurs as a result of or in connection with either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other than the
Board shall not be so considered as a member of the lncumbent Board;

 

(iii) The
approval by the stockholders of the Company of a merger, reorganization or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (each, a "Corporate Transaction") or, if consummation of
such Corporate Transaction is subject, at the time of 

3

such
approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than
60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation or
other Person which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries (a "Parent Company")) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Entity
(other than the Company, any employee benefit plan (or related trust) of the
Company, such corporation resulting from such Corporate Transaction or, if
reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in connection with the
applicable Corporate Transaction, such Parent Company) will beneficially own,
directly or indirectly, 50% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors unless such ownership
resulted solely from ownership of securities of the Company prior to the
Corporate Transaction, and (C) individuals who were members of the Incumbent
Board will immediately after the consummation of the Corporate Transaction
constitute at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction (or, if reference was made
to equity ownership of any Parent Company for purposes of determining whether
clause (A) above is satisfied in connection with the applicable Corporate
Transaction, of the Parent Company); or 

 

(iv) The
approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company. 

 

For
purposes of this Agreement, "Cause" shall mean: 

 

(i)
Executive's conviction (including a plea of guilty or nolo contendere) of a
crime involving theft, fraud, dishonesty or moral turpitude; 

 

(ii)
violation by Executive of the Company's Code of Conduct or other material
policies; 

 

(iii)
gross omission or gross dereliction of any statutory, common law or other duty
of loyalty to the company or any of its affiliates; or 

 

(iv)
repeated failure to carry out the duties of Executive's position despite
specific instructions to do so. 

4

Executive
shall not be deemed to have been terminated for "Cause" until there shall have
been delivered to him written notice, not less than ten (1 0) days prior to the
proposed termination date, specifying the basis for such termination.

 

For
purposes of this Agreement, Good Reason shall mean any one of the following
events which occurs without Executive's written consent: (i) any significant
diminution in Executive's title, authority or responsibility, including any
change in the reporting relationship between Executive and the CEO; (ii) any
significant reduction in Executive's then current total compensation from that
compensation paid in the prior fiscal year or calendar year; or (iii) a change
of more than fifty (50) miles from Executive's permanent workplace without
Executive's consent. 

 

10.
Parachute
Payments. If any
cash compensation payment, employee benefits or acceleration of vesting of stock
options or other stock awards Executive would receive in connection with a
Change in Control ("Payment") would (i) constitute a "parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), and (ii) but for this sentence, be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then such Payment shall
be equal to the Reduced Amount. The "Reduced Amount" shall be either (x) the
largest portion of the Payment that would result in no portion of the Payment
being subject to the Excise Tax or (y) the largest portion, up to and including
the total, of the Payment, whichever amount, after taking into account all
applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in
Executive's receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting "parachute
payments" is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless Executive elects in writing a
different order: reduction of cash payments; reduction of employee benefits; and
cancellation of accelerated vesting of stock awards. In the event that
acceleration of vesting of stock award compensation is to be reduced, such
acceleration of vesting shall be cancelled in the reverse order of the date of
grant of Executive's stock awards unless Executive elects in writing a different
order for cancellation. The accounting firm engaged by the Company for general
audit purposes as of the day prior to the effective date of the Change in
Control shall perform the foregoing calculations. If the accounting firm so
engaged by the Company is sewing as accountant or auditor for the individual,
entity or group effecting the Change in Control, the Company shall appoint a
nationally recognized accounting firm to make the determinations required
hereunder. The Company shall bear all expenses with respect to the
determinations by such accounting firm required to be made hereunder. The
accounting firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Company
and Executive within fifteen (15) calendar days after the date on which
Executive's right to a Payment arises (if requested at that time by the Company
or Executive) or at such other time as requested by the Company or Executive. If
the accounting firm determines that no Excise Tax is payable with respect to a
Payment, either before or after the application of the Reduced Amount, it shall
furnish the Company and Executive with an opinion reasonably acceptable to
Executive that no Excise Tax will be imposed with respect to such Payment. Any
good faith determination of the accounting firm made hereunder shall be final,
binding and conclusive upon the Company and Executive. 

5

11.
Release. Upon
termination of Executive's employment, unless Executive shall have executed and
provided the Company with an effective release in a form reasonably satisfactory
to the Company, Executive shall not receive any severance payments or benefits
provided under this Agreement. 

 

12.
Confidentiality.
Executive agrees that information not generally known to the public to which he
will be exposed as a result of his employment by the Company is confidential
information that belongs to the Company. This includes information developed by
Executive, alone or with others, or entrusted to the Company by its customers or
others. The Company's confidential information includes, without limitation,
information relating to the Company's trade secrets, research and development,
inventions, know-how, software, procedures, accounting, marketing, sales,
creative and marketing strategies, employee salaries and compensation, and the
identities of customers and active prospects to the extent not publicly
disclosed (collectively, "Confidential Information"). Executive will hold the
Company's Confidential Information in strict confidence, and not disclose or use
it except as authorized by the Company and for the Company's benefit.

 

Executive
further acknowledges and agrees that in order to enable the Company to perform
services for its customers or clients, such customers or clients may furnish to
the Company certain Confidential Information, that the goodwill afforded to the
Company depends upon the Company and its employees preserving the
confidentiality of such information, and that such information shall be treated
as Confidential Information of the Company for all purposes under this
Agreement. 

 

13.
Non-Competition.
Executive recognizes and agrees that lnternap has many substantial, legitimate
business interests that can be protected only by his agreement not to compete
with lnternap under certain circumstances. These interests include, without
limitation and on a national basis, Internap's contacts and relationships with
its clients and active prospects, Internap's reputation and goodwill in the
industry, and Internap's rights in its Confidential Information. Therefore,
Executive agrees that during the term of his employment with lnternap and for a
period of one (1)year after his employment ends for any reason whatsoever and
except as provided in the paragraph immediately following, he shall not,
voluntarily or involuntarily, directly or indirectly, on his own behalf or on
the behalf of another, whether as an employee, contractor, consultant, director
or agent or in another capacity, engage in the businesses of (i) managed high
performance Internet connectivity, (ii) hosting or collocation services, (iii)
virtual private network services (iv) content distribution network services or
(v) any other line of business in which the company is then engaged for (x) any
account that is a customer of lnternap or its affiliates unless he is providing
substantially different services to any such customer from the services he
provided to lnternap or (y) any competitor of lnternap or its affiliates.

 

If,
within one year after commencement of Executive's employment with the Company,
Executive voluntarily terminates such employment or such employment is
terminated for any reason by the Company, the non-compete period shall be equal
to the number of days that Executive was an employee of the Company prior to
such termination. 

 

Executive
also agrees that during the term of his employment with lnternap and for a
period of one (1)
years
after such employment ends for any reason whatsoever, he shall 

6

not
directly or indirectly employ or seek to employ any person employed by lnternap
nor directly or indirectly solicit or induce any such person to leave Internap.

 

Executive
acknowledges that the breach or threatened breach of the above noncompetition
and/or nondisclosure provisions would cause irreparable injury to lnternap that
could not be adequately compensated by money damages. lnternap may obtain a
restraining order and/or injunction prohibiting my breach or threatened breach
of the noncompetition and/or nondisclosure provisions, in addition to any other
legal or equitable remedies that may be available. Executive agrees that the
above noncompetition provision, including its duration, scope and geographic
extent, is fair and reasonably necessary to protect Internap's client
relationships, goodwill, Confidential Information and other protectable
interests. 

 

Provided
that Executive has been employed with the Company for at least one year, if
Executive wishes to compete with the Company during the one-year period after
his termination of employment, Executive will submit a bona fide written offer
of employment he has received from a prospective employer to the Company's Chief
Executive Officer and General Counsel, who will analyze
such proposed employment in light of the then current facts and circumstances.
The Chief Executive Officer may, in his sole and reasonable discretion, provide
a written waiver of all or a portion of the non- compete limitations imposed on
Executive. If such written waiver is unreasonably withheld, Executive shall
remain subject to the non-compete limitations. The non- solicitation obligations
set forth above are not subject to the potential waiver described in the
preceding sentence and will remain in full force and effect pursuant to its
terms. Executive will fully defend, indemnify and hold harmless the Company for
any claims brought against it by Executive or third parties as a result of any
decision the Company makes not to waive Executive's non-compete obligations.

 

14.
No Restrictions. No
Restrictions. Executive represents to the Company that he has not executed or is
not bound by any non-competition covenant or non-solicitation covenant or any
other undertaking similar to either of the foregoing that would prevent him from
performing the duties and responsibilities of the position set forth in Section
1 of this Agreement. 

 

15.
General Provisions. This
Agreement is intended to bind and inure to the benefit of and be enforceable by
Executive, the Company and their respective successors, assigns, heirs,
executors, administrators, except that Executive may not assign any of his
duties hereunder and Executive may not assign any of his rights hereunder
without the written consent of the Company, which shall not be withheld
unreasonably. 

 

This
Agreement, together with the Exhibits, constitutes the complete, final and
exclusive embodiment of the entire agreement between the Parties with regard to
the subject matter hereof. It is entered into without reliance on any promise or
representation, written or oral, other than those expressly contained herein,
and it supersedes any other such promises or representations. 

 

This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect. This Agreement may not be amended or modified otherwise than
by a written agreement 

7

executed
by the Parties hereto or their respective successors and legal representatives.
The invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.
Any invalid or unenforceable provision shall be modified so as to be rendered
valid and enforceable in a manner consistent with the intent of the Parties
insofar as possible. 

 

A failure
of Executive or the Company to insist upon strict compliance with any provision
of this Agreement or the failure to assert any right Executive or the Company
may have hereunder shall not be deemed to be a waiver of such provision or right
or any other provision or right of this Agreement. 

 

This
Agreement shall supersede any employment, severance, change of control or other
agreement, whether oral or written, between the Parties with respect to the
subject matter hereof (other than arrangements effected under compensation plans
generally applicable to other senior executive officers of the Company).

 

This
Agreement may be executed in several counterparts, each of which shall be deemed
to be an original but all of which together will constitute one and the same
instrument. 

 

IN
WITNESS WHEREOF,
the
Parties have executed this Agreement effective as of the day and year first
above written. 

	
      INTERNAP
      NETWORK SERVICES CORPORATION
	
      David
      Buckel

	 	
      

       
	
      By:
      /s/ Gregory A. Peters
	 
	
      
      

      Name: Gregory A. Peters
	 
	
      Title:
      President & CEO
	 

 

 

8Exhibit 10.1

                      AMENDED AND RESTATED CREDIT AGREEMENT

                            Dated as of April 1, 2005

                                      among

                               PEI HOLDINGS, INC.,
                                  as Borrower,

                             BANK OF AMERICA, N.A.,
                                    as Agent

                                       and

                         The Other Lenders Party Hereto

<PAGE>

                                TABLE OF CONTENTS

SECTION                                                                     PAGE
-------                                                                     ----

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.....................................1

   1.01   Defined Terms........................................................1
   1.02   Other Interpretive Provisions.......................................19
   1.03   Accounting Terms....................................................19
   1.04   Rounding............................................................19
   1.05   References to Agreements and Laws...................................19
   1.06   Letter of Credit Amounts............................................19
   1.07   Times of Day........................................................20

ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS..............................20

   2.01   Committed Loans.....................................................20
   2.02   Committed Borrowings, Conversions and Continuations
          of Committed Loans..................................................20
   2.03   Letters of Credit...................................................21
   2.04   Intentionally Omitted...............................................27
   2.05   Prepayments/Mandatory Commitment Reductions.........................27
   2.06   Optional Reduction or Termination of Commitments....................28
   2.07   Repayment of Loans..................................................28
   2.08   Interest............................................................28
   2.09   Fees................................................................29
   2.10   Computation of Interest and Fees....................................29
   2.11   Evidence of Debt....................................................29
   2.12   Payments Generally..................................................30
   2.13   Sharing of Payments.................................................31
   2.14   Effect of Amendment and Restatement.................................31

ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY............................32

   3.01   Taxes...............................................................32
   3.02   Illegality..........................................................33
   3.03   Inability to Determine Rates........................................34
   3.04   Increased Cost and Reduced Return; Capital Adequacy; Reserves
          on Eurodollar Rate Committed Loans..................................34
   3.05   Funding Losses......................................................35
   3.06   Matters Applicable to all Requests for Compensation.................35
   3.07   Replacement of Affected Lenders.....................................35
   3.08   Survival............................................................36

ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS..........................36

   4.01   Conditions of Initial Credit Extension..............................36
   4.02   Conditions to all Credit Extensions.................................37

ARTICLE V REPRESENTATIONS AND WARRANTIES......................................37

   5.01   Existence, Qualification and Power; Compliance with Laws............37
   5.02   Authorization; No Contravention.....................................38
   5.03   Governmental Authorization..........................................38
   5.04   Binding Effect......................................................38
   5.05   Financial Statements; No Material Adverse Effect,
          Internal Control Event..............................................38
   5.06   Litigation..........................................................38

                                       -i-
<PAGE>

   5.07   No Default or Event of Default......................................39
   5.08   Environmental Compliance............................................39
   5.09   Insurance...........................................................39
   5.10   Taxes...............................................................39
   5.11   ERISA Compliance....................................................39
   5.12   Subsidiaries........................................................40
   5.13   Disclosure..........................................................40
   5.14   Compliance with Laws................................................40
   5.15   Margin Regulations; Investment Company Act; Public Utility
          Holding Company Act.................................................40
   5.16   Senior Secured Note Tender; Convertible Note Debt...................40

ARTICLE VI AFFIRMATIVE COVENANTS..............................................40

   6.01   Financial Statements................................................41
   6.02   Certificates; Other Information.....................................41
   6.03   Notices.............................................................42
   6.04   Preservation of Existence, Etc......................................42
   6.05   Compliance with Laws................................................42
   6.06   Books and Records...................................................42
   6.07   Inspection Rights...................................................43
   6.08   Use of Proceeds.....................................................43
   6.09   Financial Covenants.................................................43
   6.10   Additional Guarantors...............................................43
   6.11   Designation of Restricted and Unrestricted Subsidiaries.............43
   6.12   Payment of Obligations..............................................44
   6.13   Maintenance of Properties...........................................44
   6.14   Maintenance of Insurance............................................44

ARTICLE VII NEGATIVE COVENANTS................................................44

   7.01      Liens............................................................44
   7.02      Investments......................................................47
   7.03      Indebtedness.....................................................48
   7.04      Fundamental Changes..............................................50
   7.05      Dispositions.....................................................50
   7.06      Restricted Payments..............................................52
   7.07      Limitations in respect of Subordinated Liabilities...............53
   7.08      Limitations in respect of Convertible Note Debt..................53
   7.09      Limitations in respect of Califa Obligation......................54
   7.10      Change in Nature of Business.....................................54
   7.11      Transactions with Affiliates.....................................54
   7.12      Margin Regulations...............................................55
   7.13      Dividend and Other Payment Restrictions Affecting Restricted
             Subsidiaries.....................................................55

ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES...................................56

   8.01   Events of Default...................................................56
   8.02   Remedies Upon Event of Default......................................58
   8.03   Application of Funds................................................58

ARTICLE IX AGENT..............................................................59

   9.01   Appointment and Authorization of Agent..............................59
   9.02   Delegation of Duties................................................59
   9.03   Liability of Agent..................................................59
   9.04   Reliance by Agent...................................................60
   9.05   Notice of Default, Event of Default.................................60

                                       -ii-
<PAGE>

   9.06   Credit Decision; Disclosure of Information by Agent.................60
   9.07   Indemnification of Agent............................................61
   9.08   Agent in its Individual Capacity....................................61
   9.09   Successor Agent.....................................................61
   9.10   Agent May File Proofs of Claim......................................62
   9.11   Loan Guaranty Matters...............................................62
   9.12   Collateral Matters..................................................62
   9.13   Remedial Action.....................................................63
   9.14   Release of Guaranties...............................................64
   9.15   Co-Agent............................................................64

ARTICLE X MISCELLANEOUS.......................................................64

   10.01  Amendments, Etc.....................................................64
   10.02  Notices and Other Communications; Facsimile Copies..................65
   10.03  No Waiver; Cumulative Remedies......................................65
   10.04  Attorney Costs, Expenses and Taxes..................................66
   10.05  Indemnification by Borrower.........................................66
   10.06  Payments Set Aside..................................................66
   10.07  Successors and Assigns..............................................67
   10.08  Confidentiality.....................................................69
   10.09  Set-off.............................................................69
   10.10  Interest Rate Limitation............................................70
   10.11  Counterparts........................................................70
   10.12  Integration.........................................................70
   10.13  Survival of Representations and Warranties..........................70
   10.14  Severability........................................................70
   10.15  Governing Law; Submission to Jurisdiction...........................70
   10.16  Waiver of Right to Trial by Jury....................................71
   10.17  Restrictions on Foreign Collateral..................................71
   10.18  USA PATRIOT Act Notice..............................................71

SIGNATURES...................................................................S-1

SCHEDULES

         2.01     Commitments and Pro Rata Shares
         5.06     Litigation
         5.08     Environmental Matters
         5.12     Subsidiaries, Restricted Subsidiaries and Equity Investments
         7.02     Investments
         7.03     Indebtedness
         10.02    Addresses for Notices

EXHIBITS

         Form of
         A        Committed Loan Notice
         B        Note
         C        Compliance Certificate
         D        Assignment and Assumption Agreement
         E        Existing Letters of Credit

                                     -iii-
<PAGE>

                                CREDIT AGREEMENT

      This AMENDED AND RESTATED CREDIT  AGREEMENT  ("Agreement") is entered into
as  of  April  1,  2005,  among  PEI  HOLDINGS,  INC.,  a  Delaware  corporation
("Borrower"),  each lender  from time to time party  hereto  (collectively,  the
"Lenders" and individually, a "Lender"), and BANK OF AMERICA, N.A., as Agent.

      Borrower,  Agent and Lenders are party to a certain Credit Agreement dated
as of March 11, 2003 (as amended,  supplemented or otherwise  modified up to but
not including the date hereof,  the "Original  Credit  Agreement"),  pursuant to
which Lenders have provided a revolving  credit facility to Borrower.  Borrower,
Agent and Lenders have agreed to amend and restate the Original Credit Agreement
in its entirety as set forth herein. This Agreement amends, supercedes, restates
and replaces in its entirety the Original Credit Agreement.

      In consideration of the mutual covenants and agreements  herein contained,
the parties hereto covenant and agree as follows:

ARTICLE I DEFINITIONS AND ACCOUNTING TERMS

      1.01 Defined Terms.

      As used in this Agreement, the following terms shall have the meanings set
forth below:

      "Acquired Debt" means, with respect to any specified Person:

      (a)  Indebtedness  of any other  Person  existing  at the time such  other
Person is merged with or into or  consolidated  with or becomes a Subsidiary  of
such  specified  Person,  whether  or  not  such  Indebtedness  is  incurred  in
connection with, or in contemplation of, such other Person merging with or into,
or becoming a Subsidiary of, such specified Person; and

      (b)  Indebtedness  secured by a Lien  encumbering  any  property  or asset
acquired by such  specified  Person (to the extent of the fair  market  value of
such asset where the  Indebtedness  so secured is not the  Indebtedness  of such
Person),  or  Indebtedness   otherwise  assumed  by  such  specified  Person  in
connection with an acquisition of assets from any other Person.

      "Adjusted  EBITDA"  means  net  income,  less  income  or plus  loss  from
discontinued  operations  and  extraordinary  items,  plus  income  taxes,  plus
interest expense,  plus  depreciation,  depletion,  and amortization  (including
programming amortization), plus restructuring charges, plus non-cash expenses or
losses or any other non-cash charges,  and minus cash investments in programming
(plus,  for  purposes  of  calculating  Adjusted  EBITDA for any  period  ending
between,  and including,  June 30, 2004 and March 31, 2005, the following items:
(a) the amount paid to Logix  Development  Corporation  pursuant to that certain
Settlement  Agreement  dated February 18, 2004 not to exceed  $8,500,000 and (b)
the  redemption  premium  incurred in  connection  with the repayment of certain
bonds,  not  to  exceed  $3,850,000,  solely  to  the  extent  deducted  in  the
determination  of net income and not otherwise  added back in the calculation of
Adjusted EBITDA), all determined for Playboy and its Restricted  Subsidiaries on
a consolidated basis and in accordance with GAAP.

      "Agent"  means Bank of America in its  capacity  as Agent under any of the
Loan Documents or any successor Agent.

      "Affiliate"  of any  specified  Person means any other Person  directly or
indirectly  controlling  or  controlled  by or under  direct or indirect  common
control with such specified Person. For purposes of this definition,  "control,"
as used with  respect to any  Person,  shall mean the  possession,  directly  or
indirectly,  of the power to direct or cause the direction of the  management or
policies of such Person, whether through the ownership of voting securities,  by
agreement or otherwise  (it being  understood  that PTVLA is not an Affiliate of
Playboy  on the  Closing  Date  as a  result  of its  ownership  and  governance
structure as in effect on the Closing  Date).  For purposes of this  definition,
the terms  "controlling,"  "controlled by" and "under common control with" shall
have correlative meanings.

      "Agent Fee Letter" has the meaning specified in Section 2.09(b).

<PAGE>

      "Agent's Office" means Agent's address and, as appropriate, account as set
forth on Schedule 10.02, or such other address or account as Agent may from time
to time notify Borrower and Lenders.

      "Aggregate Commitments" means the Commitments of all Lenders.

      "Agreement" means this Credit Agreement.

      "Applicable Rate" means, from time to time, the following  percentages per
annum,  based  upon  Playboy's  Transactions  Adjusted  EBITDA  (the  "Financial
Covenant")  as set forth in the most  recent  quarterly  Compliance  Certificate
received by Agent pursuant to Section 6.02(b):

<TABLE>
<CAPTION>
                                                   Applicable Rate

                                                                          Eurodollar Rate
                                                                             Committed
                                                                             Loans and
      Pricing                                             Commitment      Letter of Credit       Base Rate
       Level             Financial Covenant                  Fee                Fees          Committed Loans
    -----------------------------------------------------------------------------------------------------------
<S>                  <C>                                    <C>                 <C>                 <C>
    1                Greater than $45,000,000               0.25%               1.00%               0.00%

    2                Greater than $35,000,000, but          0.30%               1.25%               0.00%
                     less than or equal to
                     $45,000,000

    3                Greater than $30,000,000, but          0.30%               1.50%               0.25%
                     less than or equal to
                     $35,000,000

    4                Greater than $25,000,000, but          0.30%               2.00%               0.50%
                     less than or equal to
                     $30,000,000

    5                Greater than $20,000,000, but         0.375%               2.25%               0.75%
                     less than or equal to
                     $25,000,000

    6                Less than or equal to                 0.375%               2.75%               1.25%
                     $20,000,000
</TABLE>

      The  Applicable  Margin  will be in  effect  from  the day  following  the
delivery date of each quarterly  Compliance  Certificate (an "Adjustment  Date")
until  the  first  day of the  month  following  the  delivery  date of the next
quarterly Compliance Certificate. The Applicable Rate in effect from the Closing
Date through the  Adjustment  Date  following  the delivery of the June 30, 2005
Compliance  Certificate  shall be  determined  based upon Pricing Level 2. If no
Compliance Certificate is delivered when due in accordance with Section 6.02(b),
the then-applicable Pricing Level will remain in effect until actual delivery of
such  Compliance  Certificate,  at which time the Pricing Level will be adjusted
retroactive to the applicable Adjustment Date.

      "Assignment and Assumption  Agreement"  means an Assignment and Assumption
Agreement entered into by a Lender and an Eligible Assignee (with the consent of
any Person those consent is required by Section  10.07),  and accepted by Agent,
substantially in the form of Exhibit D or any other form approved by Agent.

      "Attorney  Costs"  means and includes all  reasonable  fees,  expenses and
disbursements of any law firm or other external counsel.

      "Attributable Debt" means, in respect of a sale and leaseback transaction,
at the time of  determination,  (i) in the case of a capital lease,  the Capital
Lease  Obligation in respect  thereof,  or (ii) in all other cases,  the present
value of the  obligation  of the  lessee  for net  rental  payments  during  the
remaining  term of the lease  included in such sale and  leaseback  transaction,
including  any  period for which such  lease has been  extended  or may,  at the
option

                                      -2-
<PAGE>

of the lessor, be extended.  Such present value in the case of clause (ii) shall
be calculated  using a discount  rate equal to the rate of interest  implicit in
such transaction, determined in accordance with GAAP.

      "Audited  Financial  Statements"  means the audited  consolidated  balance
sheet of Playboy and its  Subsidiaries  for the fiscal year ended  December  31,
2004,  and  the  related  consolidated   statements  of  income  or  operations,
shareholders'  equity and cash  flows for such  fiscal  year of Playboy  and its
Subsidiaries,   including  the  notes  thereto,  all  audited  by  a  nationally
recognized independent accounting firm.

      "Available Revolver" means, at any time, the amount by which the Aggregate
Commitments at such time exceeds the sum of (a) the L/C  Obligations and (b) the
aggregate principal balance of the Loans at such time.

      "Availability Period" means the period from and including the Closing Date
to the earliest of (a) the Maturity  Date,  (b) the date of  termination  of the
Aggregate  Commitments pursuant to Section 2.06, and (c) the date of termination
of the  commitment of each Lender to make Loans and of the obligation of the L/C
Issuer to make L/C Credit Extensions pursuant to Section 8.02.

      "Bank of America" means Bank of America, N.A. and its successors.

      "Base Amount" means 75% of Net Worth as of December 31, 2004, as reflected
in Borrower's 10-K filing as of such date.

      "Base  Rate" means for any day a  fluctuating  rate per annum equal to the
higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest
in  effect  for  such day as  publicly  announced  from  time to time by Bank of
America as its "prime  rate." The "prime  rate" is a rate set by Bank of America
based upon various factors including Bank of America's costs and desired return,
general economic conditions and other factors,  and is used as a reference point
for pricing some loans,  which may be priced at, above,  or below such announced
rate.  Any change in such rate announced by Bank of America shall take effect at
the opening of business on the day specified in the public  announcement of such
change.

      "Base Rate  Committed  Loan"  means a  Committed  Loan that is a Base Rate
Loan.

      "Base Rate Loan" means a Loan that bears interest based on the Base Rate.

      "Board of Directors" means:

      (a)  with  respect  to a  corporation,  the  board  of  directors  of  the
corporation;

      (b) with respect to a  partnership,  the board of directors of the general
partner of the partnership; and

      (c) with  respect  to any other  Person,  the board or  committee  of such
Person serving a similar function.

      Unless the context otherwise provides,  "Board of Directors" refers to the
Board of Directors of Playboy.

      "Borrower" has the meaning specified in the introductory paragraph hereto.

      "Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks are authorized to close under the Laws of, or are in fact
closed in, New York,  New York,  Chicago,  Illinois or the state  where  Agent's
Office is located  and, if such day  relates to any  Eurodollar  Rate  Committed
Loan,  means any such day on which dealings in Dollar  deposits are conducted by
and between banks in the London interbank eurodollar market.

      "Califa Debt Documents"  means the Asset Purchase  Agreement,  dated as of
June 29, 2001, among Playboy,  Califa  Entertainment  Group, Inc., V.O.D.,  Inc.
Steven Hirsch, Dewi James and William Asher.

                                      -3-
<PAGE>

      "Califa  Obligation"  means any  obligation  of  Playboy,  Borrower or any
Restricted  Subsidiary pursuant to or arising in connection with the Califa Debt
Documents or any related agreement, in each case as amended from time to time.

      "Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.

      "Capital Stock" means:

      (a) in the case of a corporation, corporate stock;

      (b) in the case of an association or business entity,  any and all shares,
interests,  participations,  rights or other equivalents (however designated) of
corporate stock;

      (c) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and

      (d) any other interest or participation that confers on a Person the right
to receive a share of the profits and losses of, or  distributions of assets of,
the issuing Person; provided, that the foregoing expressly excludes any deferred
compensation, phantom equity or similar benefit plan.

      "Cash Collateralize" has the meaning specified in Section 2.03(g)

      "Cash Equivalents" means:

      (a) United States dollars;

      (b) securities  issued or directly and fully  guaranteed or insured by the
United  States  government  or any  agency  or  instrumentality  thereof  having
maturities of not more than one year from the date of acquisition;

      (c)  certificates  of deposit and eurodollar time deposits with maturities
of one year or less  from the date of  acquisition,  bankers'  acceptances  with
maturities  not exceeding one year and overnight  bank  deposits,  in each case,
with any  domestic  commercial  bank  having  capital  and  surplus in excess of
$500,000,000 and a Thomson Bank Watch Rating of "B" or better;

      (d)  repurchase  obligations  with a term of not more than  seven days for
underlying  securities  of the  types  described  in  clauses  (b) and (c) above
entered into with any financial institution meeting the qualifications specified
in clause (c) above;

      (e)  commercial  paper at the time of  acquisition  rated at least  P-2 by
Moody's Investors Service,  Inc. or A-2 by Standard & Poor's Rating Services and
in each case maturing within one year after the date of acquisition;

      (f)  institutional  class money market funds which are AAA-rated and which
have assets in excess of  $1,000,000,000  and stable net asset value of at least
$1.00 per share;

      (g) corporate or municipal securities having the highest rating obtainable
from  two of  the  three  nationally  recognized  ratings  agencies  and  having
maturities  of  not  more  than  one  year  (including   securities  that  reset
periodically via Dutch auction); and

      (h) other investment instruments approved in writing by Agent.

      "Change of Control" means the occurrence of any of the following:

      (a) any  "person" or "group"  (as such term is used in Sections  13(d) and
14(d) of the Exchange Act),  other than (i) Hefner or (ii) any employee  benefit
plan of such person or its Subsidiaries,  and any person or entity

                                      -4-
<PAGE>

acting in its capacity as trustee,  agent or other fiduciary or administrator of
any such plan,  becomes the "beneficial  owner" (as that term is used under Rule
13d-3 and Rule 13d-5 under the  Exchange  Act,  except that in  calculating  the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act),  such "person" shall be deemed to have beneficial
ownership  of all  securities  that such  "person"  has the right to  acquire by
conversion  or exercise of other  securities,  whether  such right is  currently
exercisable  or  is  exercisable  only  upon  the  occurrence  of  a  subsequent
condition)  directly  or  indirectly  of 50% or more of the voting  power of all
classes of voting stock of Playboy;

      (b) the first day during any period of 12 consecutive months commencing on
the Closing Date on which a majority of the members of the board of directors of
Playboy are not Continuing Directors; or

      (c)  Playboy  ceases to own  directly  or  indirectly  100% of the  equity
interests of Borrower.

      "Closing  Date"  means  the first  date all the  conditions  precedent  in
Section 4.01 are  satisfied or waived in  accordance  with Section 10.01 (or, in
the case of Section  4.01(b),  waived by the  Person  entitled  to  receive  the
applicable payment).

      "Code"  means the Internal  Revenue Code of 1986,  as amended from time to
time, and any successor statute.

      "Collateral"  shall mean any and all assets and rights and interests in or
to  property  of Playboy  and each of the other Loan  Parties,  whether  real or
personal, tangible or intangible, in which a Lien was or is granted or was or is
purported to be granted pursuant to the Collateral Documents.

      "Collateral   Documents"  means  the  Security   Agreements,   the  Pledge
Agreements,  the  Deed  of  Trust  and all  other  agreements,  instruments  and
documents heretofore, now or hereafter executed and delivered in connection with
the Original Credit  Agreement and this Agreement  pursuant to which Liens were,
have been or are  granted or  purported  to be  granted  to Agent in  Collateral
securing all or part of the  Obligations  each in form and substance  reasonably
satisfactory to Agent.

      "Commitment"  means,  as to  each  Lender,  its  obligation  to  (a)  make
Committed  Loans  to  Borrower   pursuant  to  Section  2.01  and  (b)  purchase
participations in L/C Obligations,  in an aggregate  principal amount at any one
time  outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule  2.01, or in the Assignment  and  Assumption  Agreement  pursuant to
which such Lender becomes a party hereto,  as applicable,  as such amount may be
adjusted from time to time in accordance with this Agreement.

      "Committed   Borrowing"  means  a  borrowing  consisting  of  simultaneous
Committed  Loans of the same Type and, in the case of Eurodollar  Rate Committed
Loans,  having the same  Interest  Period  made by each of Lenders  pursuant  to
Section 2.01.

      "Committed Loan" has the meaning specified in Section 2.01.

      "Committed Loan Notice" means a notice of (a) a Committed Borrowing, (b) a
conversion of Committed  Loans from one Type to the other, or (c) a continuation
of Eurodollar Rate Committed Loans,  pursuant to Section  2.02(a),  which, if in
writing, shall be substantially in the form of Exhibit A.

      "Companies"  means,   collectively,   the  Loan  Parties  and  each  other
Restricted Subsidiary of Playboy.

      "Compliance Certificate" means a certificate  substantially in the form of
Exhibit C.

      "Continuing  Directors" means, with respect to any specified Person, as of
any date of determination, any member of the board of directors of whom

      (a) was a member of such board of directors on the date hereof;

                                      -5-
<PAGE>

      (b) was nominated for election or elected to such board of directors  with
the approval of (a) at least a majority of the members referred to in clause (i)
above who were members of such board at the time of such  nomination or election
or (b) Hefner; or

      (c) was nominated for election or elected to such board of directors  with
the  approval of (a) at least a majority  of the members  referred to in clauses
(i) and  (ii)(a)  above  who  were  members  of the  board  at the  time of such
nomination or election.

      "Contractual  Obligation"  means,  as to any Person,  any provision of any
security  issued  by  such  Person  or of any  agreement,  instrument  or  other
undertaking  to  which  such  Person  is a party  or by  which  it or any of its
material property is bound.

      "Convertible  Note Debt" means up to $115,000,000  in aggregate  principal
amount of  Indebtedness  of Playboy  issued  pursuant  to the  Convertible  Note
Documents.

      "Convertible  Note Documents"  means,  collectively,  the Convertible Note
Indenture,  the  Convertible  Notes and each  other  agreement,  instrument  and
document now or hereafter evidencing the Convertible Note Debt, each as amended,
supplemented or otherwise modified from time to time.

      "Convertible Note Indenture" means the certain Indenture dated as of March
15, 2005 between  Playboy and  Trustee,  as it may be amended,  supplemented  or
otherwise  modified from time to time,  to the extent not  prohibited by Section
7.08.

      "Convertible  Notes" means,  collectively,  the 3.00%  Convertible  Senior
Subordinated  Notes due 2025 of Playboy issued pursuant to the Convertible  Note
Indenture.

      "Credit  Extension"  means (a) a Committed  Borrowing or (b) an L/C Credit
Extension.

      "Debtor Relief Laws" means the Bankruptcy  Code of the United States,  and
all other liquidation,  conservatorship,  bankruptcy, assignment for the benefit
of   creditors,    moratorium,    rearrangement,    receivership,    insolvency,
reorganization,  or similar  debtor  relief  Laws of the United  States or other
applicable jurisdictions from time to time in effect and affecting the rights of
creditors generally.

      "Deed of Trust" means the Deed of Trust with Assignment of Rents, Security
Agreement and Fixture Filing  executed by PEII in favor of Agent with respect to
the Playboy Mansion.

      "Default"  means  any  event or  condition  that  constitutes  an Event of
Default or that,  with the giving of any notice,  the passage of time,  or both,
would be an Event of Default.

      "Default Rate" means (a) when used with respect to Obligations  other than
L/C Fees, an interest  rate equal to (i) the Base Rate plus (ii) the  Applicable
Rate, if any,  applicable to Base Rate Loans plus (iii) 2% per annum;  provided,
however, that with respect to a Eurodollar Rate Committed Loan, the Default Rate
shall be an interest rate equal to the interest rate  (including  any Applicable
Rate)  otherwise  applicable  to such Loan plus 2% per annum,  and (b) when used
with respect to L/C Fees, a rate equal to the Applicable Rate plus 2% per annum,
in each case to the fullest extent permitted by applicable Laws.

      "Defaulting  Lender"  means  any  Lender  that (a) has  failed to fund any
portion of the Committed Loans or participations in L/C Obligations  required to
be funded by it hereunder  within one  Business  Day of the date  required to be
funded by it  hereunder,  (b) has  otherwise  failed to pay over to Agent or any
other  Lender any other amount  required to be paid by it  hereunder  within one
Business Day of the date when due,  unless the subject of a good faith  dispute,
or (c) has been  deemed  insolvent  or become  the  subject of a  bankruptcy  or
insolvency proceeding.

      "Disposition" or "Dispose" means (a) the sale, transfer, lease, license or
other  disposition  (including  any  sale  and  leaseback  transaction)  of  any
property,  assets or rights  including by way of merger or  consolidation  other
than in the ordinary course of business consistent with past practices; provided
that the sale,  conveyance or other  disposition of all or substantially  all of
the assets of Playboy,  Borrower or any Restricted Subsidiary of Playboy will

                                      -6-
<PAGE>

be governed by Section 7.04; and (b) the issuance of Equity  Interests by any of
Playboy's  Restricted  Subsidiaries  or  the  sale  by  Playboy  or  any  of its
Restricted   Subsidiaries   of  Equity   Interests  in  any  of  its  Restricted
Subsidiaries.

      "Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms  of  any  security  into  which  it is  convertible,  or for  which  it is
exchangeable,  in each case at the  option of the holder  thereof),  or upon the
happening  of any event,  matures  (excluding  any maturity as the result of the
redemption  thereof  at the  option of the  issuer  thereof)  or is  mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, except to the extent that
such  Capital  Stock is  (either  mandatorily  or at the  option  of the  issuer
thereof)  redeemable  solely  with,  or  exchangeable  solely  for,  any  Equity
Interests of Playboy that are not Disqualified Stock;  provided,  however,  that
only the  portion  of  Capital  Stock or other  security  which so  matures,  is
mandatorily  redeemable or is so redeemable at the option of the holder prior to
such date will be deemed to be  Disqualified  Stock;  provided  further that, if
such  Capital  Stock or other  security is issued to any employee or to any plan
for the benefit of  employees of Playboy or its  Subsidiaries  or by any plan to
such  employees,  such  Capital  Stock or  other  security  will not  constitute
Disqualified  Stock  solely  because it may be  required  to be  repurchased  by
Playboy or any of its Subsidiaries in order to satisfy  applicable  statutory or
regulatory  obligations  as a result of such  employee's  termination,  death or
disability. Notwithstanding the preceding sentence, any Capital Stock that would
constitute  Disqualified Stock solely because the holders thereof have the right
to require  Borrower to repurchase  such Capital Stock upon the  occurrence of a
change of control or an asset sale shall not  constitute  Disqualified  Stock if
the terms of such Capital  Stock  provide that  Borrower may not  repurchase  or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with Section 7.06.

      "Dollar" and "$" mean lawful money of the United States.

      "Domestic  Restricted  Subsidiary"  means  any  Restricted  Subsidiary  of
Borrower  that was  formed  under  the laws of the  United  States  or any state
thereof or the District of Columbia.

      "Eligible Assignee" has the meaning specified in Section 10.07(h).

      "Environmental Laws" means any and all Federal,  state, local, and foreign
statutes,  laws, regulations,  ordinances,  rules,  judgments,  orders, decrees,
permits, concessions,  grants, franchises,  licenses, agreements or governmental
restrictions  relating to pollution and the protection of the environment or the
release  of any  materials  into the  environment,  including  those  related to
hazardous  substances or wastes, air emissions and discharges to waste or public
systems.

      "Environmental  Liability"  means any  liability,  contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties  or  indemnities),  of  Playboy,  any  other  Company  or any of their
respective  Restricted  Subsidiaries  directly or indirectly  resulting  from or
based upon (a)  violation of any  Environmental  Law, (b) the  generation,  use,
handling,  transportation,  storage,  treatment  or  disposal  of any  Hazardous
Materials,  (c)  exposure  to  any  Hazardous  Materials,  (d)  the  release  or
threatened  release of any Hazardous  Materials into the  environment or (e) any
contract,  agreement or other consensual arrangement pursuant to which liability
is assumed or imposed with respect to any of the foregoing.

      "Equity Interests" means Capital Stock and all warrants,  options or other
rights to  acquire  Capital  Stock  (but  excluding  any debt  security  that is
convertible into, or exchangeable for, Capital Stock).

      "ERISA" means the Employee  Retirement  Income  Security Act of 1974,  not
amended.

      "ERISA   Affiliate"   means  any  trade  or   business   (whether  or  not
incorporated)  under common  control with Playboy  within the meaning of Section
414(b) or (c) of the Code (and Sections  414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).

      "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by Playboy or any ERISA  Affiliate  from a Pension Plan subject
to  Section  4063 of  ERISA  during a plan  year in  which it was a  substantial
employer  (as  defined  in  Section  4001(a)(2)  of  ERISA)  or a  cessation  of
operations that is treated as such a withdrawal  under Section 4062(e) of ERISA;
(c) a complete or partial  withdrawal by Playboy or any ERISA  Affiliate  from a
Multiemployer   Plan  or   notification   that  a   Multiemployer   Plan  is  in
reorganization; (d) the filing of a

                                      -7-
<PAGE>

notice  of  intent  to  terminate,  the  treatment  of  a  Plan  amendment  as a
termination  under  Sections  4041 or 4041A of  ERISA,  or the  commencement  of
proceedings by the PBGC to terminate a Pension Plan or  Multiemployer  Plan; (e)
an event or condition which might  reasonably be expected to constitute  grounds
under  Section 4042 of ERISA for the  termination  of, or the  appointment  of a
trustee to  administer,  any  Pension  Plan or  Multiemployer  Plan;  or (f) the
imposition  of any  liability  under  Title  IV of  ERISA,  other  than for PBGC
premiums due but not delinquent under Section 4007 of ERISA, upon Playboy or any
ERISA  Affiliate,  in each case under  circumstances  that would  reasonably  be
expected to have a Material Adverse Effect.

      "Eurodollar  Base Rate" has the  meaning  set forth in the  definition  of
Eurodollar Rate.

      "Eurodollar  Rate"  means for any  Interest  Period  with  respect  to any
Eurodollar Rate Committed Loan, a rate per annum determined by Agent pursuant to
the following formula, rounded upward to the nearest 1/100 of one percent:

                                        Eurodollar Base Rate
           Eurodollar Rate  =  ---------------------------------------
                                1.00 - Eurodollar Reserve Percentage

      Where,

      (1)   "Eurodollar  Base  Rate"  (rounded  upwards,  as  necessary,  to the
            nearest  whole  multiple of 1/100 of 1%) the rate per annum equal to
            the  British  Bankers  Association  LIBOR  Rate  ("BBA  LIBOR"),  as
            published  by  Reuters  (or  other  commercially   available  source
            providing  quotations  of BBA LIBOR as designated by Agent from time
            to time) at approximately 11:00 a.m., London time, two Business Days
            prior  to the  commencement  of such  Interest  Period,  for  Dollar
            deposits  (for  delivery on the first day of such  Interest  Period)
            with a term equivalent to such Interest Period.  If such rate is not
            available  at such time for any reason,  then the  "Eurodollar  Base
            Rate" for such Interest Period (rounded  upwards,  as necessary,  to
            the  nearest  whole  multiple  of 1/100 of 1%) shall be the rate per
            annum  determined  by  Agent to be the  rate at  which  deposits  in
            Dollars  for  delivery on the first day of such  Interest  Period in
            same day  funds in the  approximate  amount of the  Eurodollar  Rate
            Committed Loan being made, continued or converted by Bank of America
            and with a term  equivalent to such Interest Period would be offered
            by Bank of  America's  London  Branch to major  banks in the  London
            interbank  eurodollar market at their request at approximately 11:00
            a.m.  (London time) two Business Days prior to the  commencement  of
            such Interest Period.

      (2)   "Eurodollar  Reserve  Percentage"  means,  for  any day  during  any
            Interest  Period,  the reserve  percentage  (expressed as a decimal,
            carried out to five decimal  places) in effect on such day,  whether
            or not applicable to any Lender,  under regulations issued from time
            to time by the Board of Governors of the Federal  Reserve  System of
            the United States for determining  the maximum  reserve  requirement
            (including any  emergency,  supplemental  or other marginal  reserve
            requirement)  with  respect  to  Eurocurrency   funding   (currently
            referred to as "Eurocurrency liabilities").  The Eurodollar Rate for
            each  outstanding  Eurodollar  Rate Committed Loan shall be adjusted
            automatically  as of  the  effective  date  of  any  change  in  the
            Eurodollar Reserve Percentage.

      If at any time Bank of America is no longer acting as Agent hereunder, the
Eurodollar Base Rate may be revised to substitute  another index as agreed to by
the replacement Agent and Borrower.

      "Eurodollar  Rate  Committed  Loan"  means a  Committed  Loan  that  bears
interest at a rate based on the Eurodollar Rate.

      "Event of Default" has the meaning specified in Section 8.01.

      "Exchange Act" means the Securities Exchange Act of 1934.

      "Existing  Letters of Credit" means the letters of credit issued under the
Original  Credit  Agreement  and still in existence on the Closing  Date, as set
forth on Exhibit E.

                                      -8-
<PAGE>

      "Federal  Funds Rate" means,  for any day, the rate per annum equal to the
weighted  average of the rates on  overnight  Federal  funds  transactions  with
members of the Federal  Reserve System arranged by Federal funds brokers on such
day, as  published  by the Federal  Reserve Bank of New York on the Business Day
next succeeding  such day;  provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such  transactions  on
the next preceding Business Day as so published on the next succeeding  Business
Day, and (b) if no such rate is so published  on such next  succeeding  Business
Day,  the  Federal  Funds Rate for such day shall be the average  rate  (rounded
upward,  if necessary,  to the nearest whole multiple of 1/100 of 1%) charged to
Bank of America on such day on such transactions as determined by Agent.

      "Foreign Subsidiary" means any Restricted Subsidiary of Playboy other than
a Domestic Restricted Subsidiary.

      "GAAP" means United States generally  accepted  accounting  principles set
forth in the opinions and  pronouncements of the Accounting  Principles Board of
the American  Institute of  Certified  Public  Accountants  and  statements  and
pronouncements  of the  Financial  Accounting  Standards  Board or in such other
statements by such other entity as have been  approved by a significant  segment
of the accounting profession, that are applicable to the circumstances as of the
date of determination, consistently applied.

      "Governmental  Authority"  means any  nation or  government,  any state or
other political  subdivision  thereof, any agency,  authority,  instrumentality,
regulatory body, court,  administrative  tribunal,  central bank or other entity
exercising   executive,    legislative,    judicial,   taxing,   regulatory   or
administrative  powers or functions of government  (including any supra-national
bodies, such as the European Union or the European Central Bank).

      "Guarantee"  means,  as  to  any  Person,   without  duplication  (a)  any
obligation,  contingent or otherwise,  of such Person guaranteeing or having the
economic effect of guaranteeing any Indebtedness or other obligation  payable or
performable  by another  Person (the "primary  obligor") in any manner,  whether
directly or indirectly,  and including any obligation of such Person,  direct or
indirect, (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such  Indebtedness  or other  obligation,  (ii) to purchase or lease
property,  securities  or services  for the  purpose of assuring  the obligee in
respect of such  Indebtedness or other  obligation of the payment or performance
of such  Indebtedness or other  obligation,  (iii) to maintain  working capital,
equity capital or any other financial  statement condition or liquidity or level
of income or cash  flow of the  primary  obligor  so as to  enable  the  primary
obligor to pay such Indebtedness or other  obligation,  or (iv) entered into for
the  purpose of  assuring  in any other  manner  the  obligee in respect of such
Indebtedness  or other  obligation of the payment or  performance  thereof or to
protect such obligee  against loss in respect  thereof (in whole or in part), or
(b) any Lien on any assets of such Person  securing  any  Indebtedness  or other
obligation  of any  other  Person,  whether  or not such  Indebtedness  or other
obligation  is  assumed  by  such  Person,  provided,  however,  that  the  term
"Guarantee"  shall not  include  endorsements  of  instruments  for  deposit  or
collection in the ordinary course of business. The amount of any Guarantee shall
be deemed to be the lower of (a) an amount  equal to the stated or  determinable
amount of the related  primary  obligation,  or portion  thereof,  in respect of
which  such  Guarantee  is made  and (b)  the  maximum  amount  for  which  such
guaranteeing  person  may be  liable  pursuant  to the  terms of the  instrument
embodying  such  Guarantee  Obligation,  or if such primary  obligation  and the
maximum  amount for which such  guaranteeing  person may be liable  are,  if not
stated or determinable,  the maximum reasonably anticipated liability in respect
thereof  as  determined  by the  guaranteeing  Person  in good  faith.  The term
"Guarantee" as a verb has a corresponding meaning.

      "Guarantors"  means,  collectively,  (a)  Playboy  and (b) each  direct or
indirect Domestic  Restricted  Subsidiary of Playboy  (excluding the Playboy.com
Entities to the extent  provided in Section  6.10) that executes a Loan Guaranty
in accordance with the provisions  hereof;  and their respective  successors and
assigns,  unless and until such time as such Guarantor is released from its Loan
Guaranty pursuant to the provisions hereof.

      "Hazardous  Materials"  means all explosive or  radioactive  substances or
wastes  and all  hazardous  or toxic  substances,  wastes  or other  pollutants,
including petroleum or petroleum  distillates,  asbestos or  asbestos-containing
materials,  polychlorinated  biphenyls,  radon gas, infectious or medical wastes
and all other  substances  or wastes of any  nature  regulated  pursuant  to any
Environmental Law.

      "Hefner" means any of Hugh M. Hefner; any trust created by Hugh M. Hefner,
acting by its trustees;  and any entity controlled,  directly or indirectly,  by
Hugh M. Hefner, and in the event of Hugh M. Hefner's death, any trust

                                      -9-
<PAGE>

created by Hugh M. Hefner and its successor  trusts,  acting by their  trustees;
the estate of Hugh M. Hefner, acting by its personal representatives; any entity
controlled  by any trust  created by Hugh M.  Hefner or by the estate of Hugh M.
Hefner;   the  Hugh  M.  Hefner  Foundation,   acting  by  its  directors;   the
beneficiaries  of any trust created by Hugh M. Hefner and its successor  trusts;
the  beneficiaries  of the  estate  of Hugh M.  Hefner;  or the  heirs at law or
descendants of Hugh M. Hefner,  their respective  estates, or trusts created for
their benefit.

      "Hefner  Option" means a  non-assignable  option granted to Hefner,  which
option shall be subordinate to the Deed of Trust,  pursuant to which Hefner will
have the right to  purchase  the  Playboy  Mansion  and all or a portion  of the
Mansion  Personal  Property  for a price  payable in cash at closing  determined
pursuant  to a third  party  appraisal  process  approved  by a majority  of the
independent directors of Playboy.

      "Increase  Amount"  means 50% of Net Income for the period from January 1,
2005  through the last day of the  applicable  quarter,  excluding  the negative
results from any quarter, if any.

      "Indebtedness"   means,  with  respect  to  any  specified   Person,   any
indebtedness of such Person, whether or not contingent:

      (a) in respect of borrowed money;

      (b) evidenced by bonds,  notes,  debentures or similar written instruments
or letters of credit (or reimbursement agreements in respect thereof), excluding
letters of credit  securing  obligations  other than  obligations  described  in
clauses (a), (b), (d) and (f) of this paragraph and entered into in the ordinary
course of business of such Person,  to the extent such letters of credit are not
drawn upon,  or if drawn upon, to the extent such drawing is reimbursed no later
than the third  business  day  following  receipt by such Person of a demand for
reimbursement;

      (c) in respect of banker's acceptances;

      (d) representing Capital Lease Obligations, Synthetic Lease Obligations or
Attributable Debt;

      (e)  representing the balance deferred and unpaid of the purchase price of
any property or services,  except any such balance that  constitutes  an accrued
expense or trade payable, which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title or the
completing  of such services  excluding any  obligation to the extent that it is
either  required  to be or the  option of each  Person may be  satisfied  solely
through the issuance of Equity  Interests  of Playboy that are not  Disqualified
Stock; or

      (f) representing any Swap Contract;

if and to the extent any of the  preceding  items  (other than letters of credit
and Swap  Contracts)  would  appear as a liability  upon a balance  sheet of the
specified  Person  prepared  in  accordance  with GAAP.  In  addition,  the term
"Indebtedness"   includes  (i)  all  Indebtedness  (excluding  prepaid  interest
thereon)  of  others  secured  by a Lien on any  asset of the  specified  Person
whether or not such  Indebtedness is assumed by the specified  Person,  provided
that the amount of such Indebtedness  shall be the lesser of (A) the fair market
value of such asset as of the date of  determination  and (B) the amount of such
Indebtedness secured and, to the extent not otherwise included, the Guarantee by
the specified Person of any  Indebtedness of any other Person;  (ii) obligations
of such Person and its Restricted  Subsidiaries to repay Disqualified Stock; and
(iii) the  liquidation  preference of all  preferred  stock of any such Person's
Restricted  Subsidiaries  which by its terms requires  redemption on or prior to
the date that is 91 days after the  Maturity  Date  other  than the  Playboy.com
Stock.

      The  amount  of any  Indebtedness  outstanding  as of any date  shall  be,
without duplication:

      (1) with respect to any contingent  obligation  included as  Indebtedness,
the maximum liability upon the occurrence of the contingency  giving rise to the
obligation;

      (2) with respect to any Swap Contract, the net amount payable if such Swap
Contract terminated at that time due to default by such Person;

                                      -10-
<PAGE>

      (3) the accreted value  thereof,  in the case of any  Indebtedness  issued
with original issue discount; and

      (4) the principal amount thereof,  together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness.

      "Indemnified Liabilities" has the meaning specified in Section 10.05.

      "Indemnitees" has the meaning specified in Section 10.05.

      "Information" has the meaning specified in Section 10.08.

      "Interest  Coverage  Ratio"  means  the ratio of  Adjusted  EBITDA to cash
interest expense, all determined for Playboy and its Restricted  Subsidiaries on
a consolidated basis and in accordance with GAAP.

      "Interest  Payment Date" means,  (a) as to any  Eurodollar  Rate Committed
Loan,  the last day of each  Interest  Period  applicable  to such  Loan and the
Maturity Date; provided,  however,  that if any Interest Period for a Eurodollar
Rate Committed Loan exceeds three months,  the respective  dates that fall every
three months after the beginning of such Interest  Period shall also be Interest
Payment  Dates;  and (b) as to any Base Rate Loan, the last Business Day of each
March, June, September and December and the Maturity Date.

      "Interest  Period" means as to each  Eurodollar  Rate Committed  Loan, the
period  commencing on the date such  Eurodollar Rate Committed Loan is disbursed
or converted to or continued as a Eurodollar  Rate  Committed Loan and ending on
the date one,  two,  three or, if  available  to Lenders,  six or twelve  months
thereafter, as selected by Borrower in its Committed Loan Notice; provided that:

      (a) any Interest  Period that would  otherwise  end on a day that is not a
Business Day shall be extended to the next succeeding  Business Day unless, such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Business Day;

      (b) any Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no  numerically  corresponding  day in the
calendar  month  at the end of  such  Interest  Period)  shall  end on the  last
Business Day of the calendar month at the end of such Interest Period; and

      (c) no Interest Period shall extend beyond the Maturity Date.

      "Internal  Control  Event"  means a  material  weakness  in, or fraud that
involves  management of Playboy,  which fraud has a material effect on Playboy's
internal  controls  over  public  reporting,  in each case as  described  in the
Securities Laws.

      "Investment"  means, as to any Person, any direct or indirect  acquisition
or  investment  by such  Person,  whether by means of (a) the  purchase or other
acquisition of capital stock or other securities of another Person,  (b) a loan,
advance or capital  contribution  to,  Guarantee  or  assumption  of debt of, or
purchase  or other  acquisition  of any other  debt or equity  participation  or
interest in, another Person, including any partnership or joint venture interest
in such  other  Person  and any  arrangement  pursuant  to  which  the  investor
Guarantees  Indebtedness  of such other  Person,  or (c) the  purchase  or other
acquisition  (in one  transaction  or a series  of  transactions)  of  assets of
another  Person  that  constitute  a business  unit.  For  purposes  of covenant
compliance,  the amount of any Investment shall be the amount actually invested,
without  adjustment for  subsequent  increases or decreases in the value of such
Investment.

      "IRS"  means the United  States  Internal  Revenue  Service and any Person
succeeding to the functions thereof.

      "ISP"  means,  with  respect to any Letter of Credit,  the  "International
Standby Practices 1998" published by the Institute of International Bank Law and
Practice  (or such  later  version  thereof  as may be in  effect at the time of
issuance).

                                      -11-
<PAGE>

      "Issuer  Documents" means with respect to any Letter of Credit, the Letter
of Credit  Application and any other document,  agreement and instrument entered
into by the L/C Issuer and Borrower (or any other Loan Party) or in favor of the
L/C Issuer and relating to any such Letter of Credit.

      "Laws" means, collectively, all international, foreign, Federal, state and
local statutes, treaties, rules, guidelines, regulations,  ordinances, codes and
administrative   or  judicial   precedents   or   authorities,   including   the
interpretation or administration  thereof by any Governmental  Authority charged
with  the  enforcement,   interpretation  or  administration  thereof,  and  all
applicable   administrative  orders,   directed  duties,   requests,   licenses,
authorizations and permits of, and agreements with, any Governmental  Authority,
in each case whether or not having the force of law, in each case  applicable to
or binding  upon such  Person or any of its  property or to which such Person or
any of its property or to which such Person or any of its property is subject.

      "L/C Advance" means, with respect to each Lender, such Lender's funding of
its participation in any L/C Borrowing in accordance with its Pro Rata Share.

      "L/C  Borrowing"  means an  extension of credit  resulting  from a drawing
under any Letter of Credit which has not been  reimbursed  on the date when made
or refinanced as a Committed Borrowing.

      "L/C Credit Extension"  means,  with respect to any Letter of Credit,  the
issuance  thereof or  extension  of the expiry date  thereof,  or the renewal or
increase of the amount thereof.

      "L/C Fees" has the meaning specified in Section 2.03(i).

      "L/C Issuer" means Bank of America in its capacity as issuer of Letters of
Credit hereunder, or any successor issuer of Letters of Credit hereunder.

      "L/C Obligations"  means, as at any date of  determination,  the aggregate
undrawn face amount of all  outstanding  Letters of Credit plus the aggregate of
all  Unreimbursed  Amounts,  including  all  L/C  Borrowings.  For  purposes  of
computing  the amount  available  to be drawn  under any  Letter of Credit,  the
amount of such Letter of Credit shall be determined  in accordance  with Section
1.06.  For all purposes of this  Agreement,  if on any date of  determination  a
Letter of Credit  has  expired  by its terms but any  amount  may still be drawn
thereunder  by reason of the  operation of Rule 3.14 of the ISP,  such Letter of
Credit shall be deemed to be "outstanding" in the amount so remaining  available
to be drawn.

      "Lender" has the meaning specified in the introductory paragraph hereto.

      "Lending  Office" means,  as to any Lender,  the office or offices of such
Lender described as such on Schedule 10.02, or such other office or offices as a
Lender may from time to time notify Borrower and Agent.

      "Letter of Credit" means any letter of credit  issued  hereunder and shall
include the Existing  Letters of Credit.  A Letter of Credit may be a commercial
letter of credit or a standby letter of credit.

      "Letter of Credit  Application" means an application and agreement for the
issuance or amendment of a Letter of Credit in the form from time to time in use
by the L/C Issuer.

      "Letter of Credit  Expiration Date" means the day that is seven days prior
to the Maturity  Date then in effect (or, if such day is not a Business Day, the
next preceding Business Day).

      "Letter of Credit  Sublimit"  means an amount  equal to  $30,000,000.  The
Letter of Credit  Sublimit  is part of, and not in  addition  to, the  Aggregate
Commitments.

      "Leverage Ratio" means the ratio of aggregate outstanding  Indebtedness to
Adjusted EBITDA, all determined for Playboy and its Restricted Subsidiaries on a
consolidated basis and in accordance with GAAP.

      "Lien"  means,  with respect to any asset,  any  mortgage,  lien,  pledge,
charge,  security  interest or encumbrance of any kind in respect of such asset,
whether or not filed,  recorded or otherwise  perfected  under

                                      -12-
<PAGE>

applicable  law,  including  any  conditional  sale  or  other  title  retention
agreement,  any lease in the nature  thereof,  any option or other  agreement to
sell or give a security  interest in and any filing of or  agreement to give any
financing  statement under the Uniform Commercial Code (or equivalent  statutes)
of any jurisdiction.

      "Liquidity  Test"  means  that,  immediately  after  giving  effect to the
payment subject to the Liquidity Test, the sum of (i) cash and Cash  Equivalents
of Playboy and its Domestic  Restricted  Subsidiaries  at such time and (ii) the
amount of the Available Revolver at such time, exceed $10,000,000.

      "Loan" means an extension of credit by a Lender to Borrower  under Article
II in the form of a Committed Loan.

      "Loan  Documents"  means this Agreement,  each Note, each Issuer Document,
the Agent Fee Letter, each Collateral Document, and each Loan Guaranty,  each as
amended, supplemented or otherwise modified from time to time.

      "Loan Guaranties" means, collectively, the Guaranty made by the Guarantors
in existence on the Original Closing Date in favor of Agent on behalf of Lenders
and each other Guaranty  delivered to Agent after the Original Closing Date by a
Guarantor, each in form and substance reasonably satisfactory to Agent.

      "Loan Parties" means, collectively, (a) Borrower, (b) Playboy and (c) each
Person (other than Agent, the L/C Issuer, any Lender or the Trustee) executing a
Loan Document  including,  without  limitation,  each  Guarantor and each Person
executing a Collateral Document.

      "Mansion Personal Property" means the personal  property,  if any, located
at the Playboy  Mansion which Hefner  elects to purchase in connection  with the
exercise of the Hefner Option.

      "Material  Adverse  Effect" means (a) a material  adverse  change in, or a
material adverse effect upon, the operations, business, properties, or financial
condition of Playboy and its  Restricted  Subsidiaries  taken as a whole;  (b) a
material  impairment of the ability of any Loan Party to perform its obligations
under any Loan Document to which it is a party; or (c) a material adverse effect
upon the legality,  validity,  binding effect or enforceability against any Loan
Party of any Loan Document to which it is a party.

      "Maturity Date" means April 1, 2008.

      "Multiemployer Plan" means any employee benefit plan of the type described
in Section 4001(a)(3) of ERISA, to which Playboy or any ERISA Affiliate makes or
is obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

      "Net  Cash  Proceeds"  means  the  aggregate  proceeds  in  cash  or  Cash
Equivalents received by Playboy or any of its Restricted Subsidiaries in respect
of  any  Disposition  or  insured  loss,  as  applicable,   including,   without
limitation,  any  cash or Cash  Equivalents  received  upon  the  sale or  other
disposition of any non-cash consideration received in any Disposition or insured
loss,  net of the direct costs  relating to such  Disposition  or insured  loss,
including,  without limitation,  legal,  accounting and investment banking fees,
and sales commissions, and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result  thereof,  in each  case,  after  taking  into
account  any  available   tax  credits  or   deductions   and  any  tax  sharing
arrangements,   and  amounts   required  to  be  applied  to  the  repayment  of
Indebtedness  secured by a Lien  (including  any premium,  penalty or make-whole
amount  related  thereto)  on the asset or assets  that were the subject of such
Disposition  or insured loss,  and any reserve for  adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.

      "Net  Income"  means net income,  after income  taxes,  of Playboy and its
Restricted  Subsidiaries  determined on a  consolidated  basis and in accordance
with GAAP.

      "Net  Worth"  means  the  total  assets  of  Playboy  and  its  Restricted
Subsidiaries  less  Total  Liabilities  of  Playboy  and its  Subsidiaries,  all
determined on a consolidated basis and in accordance with GAAP.

      "Non-U.S. Person" means any Person that is not a U.S. Person.

                                      -13-
<PAGE>

      "Note"  means a  second  amended  and  restated  promissory  note  made by
Borrower  in  favor  of  a  Lender   evidencing   Loans  made  by  such  Lender,
substantially in the form of Exhibit B.

      "Obligations"   means  (a)  all  advances  to,  and  debts,   liabilities,
obligations,  covenants  and duties of,  any Loan Party  arising  under any Loan
Document or otherwise  with respect to any Loan or Letter of Credit,  or (b) all
amounts  owing to Agent,  any Lender or any  Affiliate  of Agent or any  Lender,
under or in connection  with any Swap  Contract,  in any case whether  direct or
indirect (including those acquired by assumption),  absolute or contingent,  due
or to become due, now existing or hereafter  arising and including  interest and
fees that  accrue  after the  commencement  by or against  any Loan Party or any
Affiliate  thereof of any  proceeding  under any Debtor  Relief Laws naming such
Person as the debtor in such proceeding, regardless of whether such interest and
fees are allowed claims in such proceeding.

      "Offering Memorandum" means the Offering Memorandum,  dated March 9, 2005,
of Playboy for the issuance of the Convertible Notes.

      "Organization  Documents" means, (a) with respect to any corporation,  the
certificate  or  articles  of  incorporation  and the bylaws (or  equivalent  or
comparable  constitutive  documents with respect to any non-U.S.  jurisdiction);
(b) with respect to any limited liability  company,  the certificate or articles
of formation and operating  agreement;  and (c) with respect to any partnership,
joint venture,  trust or other form of business entity,  the partnership,  joint
venture  or  other   applicable   agreement  of  formation  and  any  agreement,
instrument,  filing or notice with respect  thereto filed in connection with its
formation or  organization  with the  applicable  Governmental  Authority in the
jurisdiction  of  its  formation  or  organization   and,  if  applicable,   any
certificate or articles of formation or organization of such entity.

      "Original Closing Date" means March 11, 2003.

      "Original Credit  Agreement" has the meaning specified in the introductory
paragraph hereto.

      "Outstanding  Amount"  means (i) with  respect to  Committed  Loans on any
date, the aggregate  outstanding principal amount thereof after giving effect to
any borrowings and  prepayments  or repayments of Committed  Loans  occurring on
such date; and (ii) with respect to any L/C  Obligations on any date, the amount
of such L/C  Obligations  on such date  after  giving  effect to any L/C  Credit
Extension  occurring on such date and any other changes in the aggregate  amount
of  the  L/C  Obligations  as  of  such  date,  including  as a  result  of  any
reimbursements of outstanding unpaid drawings under any Letters of Credit or any
reductions in the maximum  amount  available for drawing under Letters of Credit
taking effect on such date.

      "Participant" has the meaning specified in Section 10.07(d).

      "PBGC" means the Pension Benefit Guaranty Corporation.

      "PEGI"  shall  mean  Playboy   Entertainment   Group,   Inc.,  a  Delaware
corporation.

      "PEII"  means  Playboy   Enterprises   International,   Inc.,  a  Delaware
corporation.

      "Pension Plan" means any "employee  pension benefit plan" (as such term is
defined in Section  3(2) of ERISA),  other than a  Multiemployer  Plan,  that is
subject to Title IV of ERISA and is  sponsored or  maintained  by Playboy or any
ERISA Affiliate or to which Playboy or any ERISA Affiliate contributes or has an
obligation to  contribute,  or in the case of a multiple  employer or other plan
described in Section 4064(a) of ERISA, has made contributions at any time during
the immediately preceding five plan years.

      "Person" means any individual, trustee, corporation,  general partnership,
limited  partnership,  limited liability  company,  joint stock company,  trust,
unincorporated  organization,  bank, business association,  firm, joint venture,
Governmental Authority or other entity.

                                      -14-
<PAGE>

      "Plan"  means any  "employee  benefit  plan" (as such term is  defined  in
Section 3(3) of ERISA)  established by Playboy or, with respect to any such plan
that is  subject  to  Section  412 of the Code or Title IV of  ERISA,  any ERISA
Affiliate.

      "Playboy" means Playboy Enterprises, Inc., a Delaware corporation.

      "Playboy.com" means Playboy.com, Inc., a Delaware corporation.

      "Playboy.com   Entities"   means,   collectively,   Playboy.com   and  its
Subsidiaries.

      "Playboy.com  Stock"  means the Series A  Preferred  Stock of  Playboy.com
issued and outstanding on the Closing Date.

      "Playboy  International  Agreements" shall mean (i) the Second Amended and
Restated Operating  Agreement for Playboy TV - Latin America,  LLC, a California
limited  liability  company,  dated as of December 23, 2002 and  effective as of
April 1, 2002,  between  PEGI and Lifford  International  Co. Ltd.  and (ii) the
Playboy TV - Latin America Program Supply and Trademark License Agreement, dated
as of December  23, 2002 and  effective  as of April 1, 2002,  between  PEGI and
PTVLA.

      "Playboy  Mansion"  means the property  owned by PEII and located at 10236
Charing Cross Road, Holmby Hills, California.

      "Pledge Agreements" means, collectively, each Pledge Agreement heretofore,
now or  hereafter  delivered by Playboy or any of its  Restricted  Subsidiaries,
whereby such Person pledges to Agent,  as security for the  Obligations  and for
such Person's  liabilities  under any  applicable  Loan  Guaranty,  100% of such
Person's  interests  in  the  Equity  Interests  of  each  Domestic   Restricted
Subsidiary  or 65% of such  Person's  interests in the Equity  Interests of each
first-tier Subsidiary that is not a Domestic Restricted Subsidiary.

      "Pro Rata  Share"  means,  with  respect to each  Lender,  at any time,  a
fraction  (expressed as a percentage),  carried out to the ninth decimal place),
the  numerator of which is the amount of the  Commitment  of such Lender at such
time and the denominator of which is the amount of the Aggregate  Commitments at
such time;  provided that if the commitment of each Lender to make Loans and the
obligation of Agent to make L/C Credit Extensions have been terminated  pursuant
to Section  8.02,  then the Pro Rata Share of each  Lender  shall be  determined
based on the Pro Rata Share of such Lender immediately prior to such termination
and after giving effect to any subsequent  assignments  made pursuant to Section
10.07.  The initial Pro Rata Share of each Lender is set forth opposite the name
of such Lender on Schedule 2.01 or in the Assignment  and  Assumption  Agreement
pursuant to which such Lender becomes a party hereto, as applicable.

      "Product" means any still or motion pictures, films, videos, movies, sound
recordings,  script or similar audio,  print or visual media of communication in
use now, in the past or in the future or any elements  thereof in which  Playboy
or any  restricted  Subsidiary  of  Playboy  has any  proprietary  or  financial
interest including merchandising rights related thereto.

      "PTVLA" shall mean Playboy TV - Latin America,  LLC, a California  limited
liability company formed pursuant to the Playboy International Agreements.

      "Register" has the meaning set forth in Section 10.07(c).

      "Related  Parties"  means with  respect to either Agent or the L/C Issuer,
such Person's Affiliates,  and the directors,  officers,  employees,  agents and
attorneys-in-fact of such Person and of such Person's Affiliates.

      "Reportable Event" means any of the events set forth in Section 4043(c) of
ERISA, other than events for which the 30 day notice period has been waived.

                                      -15-
<PAGE>

      "Request  for Credit  Extension"  means (a) with  respect  to a  Committed
Borrowing,  conversion or  continuation  of Committed  Loans,  a Committed  Loan
Notice  and (b) with  respect  to an L/C  Credit  Extension,  a Letter of Credit
Application.

      "Required Lenders" means, as of any date of determination,  Lenders having
more than 50% of the Aggregate  Commitments or, if the commitment of each Lender
to make Loans and the  obligation  of Agent to make L/C Credit  Extensions  have
been terminated  pursuant to Section 8.02, Lenders holding in the aggregate more
than 50% of the Total  Outstandings  (with the aggregate amount of each Lender's
risk  participation  and funded  participation  in L/C Obligations  being deemed
"held" by such Lender for purposes of this  definition);  provided,  that at any
time that there are only two Lenders with  Commitments,  Required  Lenders shall
mean both of such Lenders; and provided further, that the Commitment of, and the
portion of the Total  Outstandings held or deemed held by, any Defaulting Lender
shall be excluded for purposes of making a determination of Required Lenders.

      "Responsible Officer" means the chief executive officer,  president, chief
financial  officer,  principal  accounting  officer,  controller,  treasurer  or
assistant  treasurer of a Loan Party. Any document  delivered  hereunder that is
signed by a Responsible  Officer of a Loan Party shall be conclusively  presumed
to have been  authorized by all necessary  corporate,  partnership  and/or other
action on the part of such  Loan  Party and such  Responsible  Officer  shall be
conclusively presumed to have acted on behalf of such Loan Party.

      "Restricted  Payment" means (a) the declaration or payment of any dividend
or the making of any other  payment or  distribution  on account of Playboy's or
any  of  its  Restricted  Subsidiaries'  Equity  Interests  (including,  without
limitation, any payment in connection with any merger or consolidation involving
Playboy or any of its  Restricted  Subsidiaries)  or to the  direct or  indirect
holders of Playboy's or any of its Restricted  Subsidiaries' Equity Interests in
their capacity as such (other than (i) dividends, payments or distributions paid
or payable in Equity Interests of Playboy (other than Disqualified  Stock) or in
options,  warrants or other rights to purchase  such Equity  Interests  and (ii)
dividends  or  distributions  payable  to  Playboy  or  any  of  its  Restricted
Subsidiaries);  and  (b)  the  purchase,  redemption  or  other  acquisition  or
retirement for value  (including,  without  limitation,  in connection  with any
merger or  consolidation  involving  Playboy or any of its  Subsidiaries) of any
Equity  Interests  of Playboy,  any direct or indirect  parent of Playboy or any
Subsidiary of Playboy (other than a Restricted Subsidiary of Playboy).

      "Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary, it being understood that Borrower
shall be a Restricted Subsidiary of Playboy at all times that it is a Subsidiary
of Playboy.

      "Sarbanes-Oxley" means the Sarbanes-Oxley Act of 2002.

      "Securities  Laws" means the  Securities  Act of 1933,  the Exchange  Act,
Sarbanes-Oxley  and the applicable  accounting and auditing  principles,  rules,
standards and practices promulgated,  approved or incorporated by the Securities
and Exchange  Commission or the Public Company  Accounting  Oversight  Board, as
each of the  foregoing  may be  amended  and in  effect on any  applicable  date
hereunder.

      "Security  Agreements"  means,   collectively,   each  Security  Agreement
heretofore,  now or  hereafter  executed  by  Playboy  and  any of its  Domestic
Restricted  Subsidiaries  pursuant  to which  such  Person  grants to Agent,  as
security for the  Obligations and for such Person's  liabilities  under any Loan
Guaranty, a Lien on substantially all of its personal property.

      "Senior Secured Note Documents"  means,  collectively,  the Senior Secured
Note Indenture, the Senior Secured Notes and each other agreement, instrument or
document  executed  prior to the Tender Offer  Closing  Date which  evidenced or
secured the Senior Secured Notes, each as amended, supplemented or modified.

      "Senior  Secured Note Indenture"  means the certain  Indenture dated as of
March 11, 2003 among Borrower, the Guarantors (as defined therein) party thereto
and J.P.Morgan  Trust Company  National  Association  (as successor to Bank One,
N.A.), as trustee,  as amended by the First  Supplemental  Indenture dated as of
July 22, 2003.

      "Senior  Secured  Notes"  means,  collectively,  the Senior  Secured Notes
issued pursuant to the Senior Secured Note Indenture.

                                      -16-
<PAGE>

      "Senior  Secured Note Tender" means the  transaction  whereby (i) Borrower
offered to purchase the outstanding  Senior Secured Notes on the terms set forth
in the Tender  Offer  Offering  Memorandum  and (ii)  either (a) all  collateral
therefor was released in  accordance  with the terms of the Senior  Secured Note
Indenture  or (b) the holders of the Senior  Secured  Notes  agreed to amend the
Senior  Secured Note  Documents to, among other things,  release all  collateral
therefor and eliminate most of the  restrictive  covenants and events of default
contained therein,  all on the Tender Offer Closing Date and as described in the
Tender Offer Offering Memorandum.

      "Subordinated   Liabilities"   means   liabilities   subordinated  to  the
Obligations, including without limitation the Convertible Note Debt.

      "Subsidiary" means, with respect to any specified Person:

      (a) any  corporation,  association or other business  entity of which more
than 50% of the total voting power of shares of Capital Stock entitled  (without
regard  to the  occurrence  of any  contingency)  to  vote  in the  election  of
directors,  managers  or  trustees  thereof is at the time owned or  controlled,
directly or indirectly,  by such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof); and

      (b) any partnership  (i) the sole general partner or the managing  general
partner of which is such Person or a Subsidiary  of such Person or (ii) the only
general  partners of which are such Person or one or more  Subsidiaries  of such
Person (or any combination thereof).

      "Swap Contract" means (a) any and all rate swap transactions, basis swaps,
credit  derivative  transactions,  forward rate  transactions,  commodity swaps,
commodity options, forward commodity contracts,  equity or equity index swaps or
options,  bond or bond price or bond index  swaps or options or forward  bond or
forward bond price or forward bond index  transactions,  interest  rate options,
forward foreign exchange  transactions,  cap transactions,  floor  transactions,
collar  transactions,  currency  swap  transactions,  cross-currency  rate  swap
transactions,   currency   options,   spot  contracts,   or  any  other  similar
transactions or any  combination of any of the foregoing  (including any options
to enter  into any of the  foregoing),  whether or not any such  transaction  is
governed by or subject to any master agreement, and (b) any and all transactions
of any kind, and the related  confirmations,  which are subject to the terms and
conditions  of, or governed  by, any form of master  agreement  published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange  Master  Agreement,  or any other  master  agreement  (any such  master
agreement, together with any related schedules, a "Master Agreement"), including
any such obligations or liabilities under any Master Agreement.

      "Synthetic  Lease  Obligation"  means the monetary  obligation of a Person
under (a) a so-called  synthetic,  off-balance  sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations that
do not appear on the balance sheet of such Person but which, upon the insolvency
or bankruptcy of such Person, would be characterized as the indebtedness of such
Person (without regard to accounting treatment).

      "Taxes" has the meaning specified in Section 3.01(a).

      "Tender Offer Closing Date" means March 15, 2005.

      "Tender Offer Offering Memorandum" means the Offer to Purchase and Consent
Solicitation Statement of Borrower dated February 22, 2005.

      "Threshold Amount" means $5,000,000.

      "Total  Liabilities"  means the sum of current  liabilities plus long term
liabilities.

      "Total  Outstandings" means the aggregate  Outstanding Amount of all Loans
and all L/C Obligations.

      "Transactions  Adjusted EBITDA" means Adjusted EBITDA plus, for any period
ending  between,  and  including  March 31,  2005 and  December  31,  2005,  the
redemption  premium and consent  fees  incurred  in  connection  with the Senior
Secured Note Tender, not to exceed $15,000,000, solely to the extent deducted in
the

                                      -17-
<PAGE>

determination  of net income and not otherwise  added back in the calculation of
Transactions  Adjusted  EBITDA,  all  determined  for Playboy and its Restricted
Subsidiaries on a consolidated basis and in accordance with GAAP.

      "Trustee"  means LaSalle Bank National  Association,  as trustee under the
Convertible  Note  Indenture,  and each successor  trustee under the Convertible
Note Indenture.

      "Type" means with  respect to a Committed  Loan,  its  character as a Base
Rate Committed Loan or a Eurodollar Rate Committed Loan.

      "Unfunded Pension  Liability" means the excess of a Pension Plan's benefit
liabilities  under Section  4001(a)(16) of ERISA, over the current value of that
Pension Plan's assets,  determined in accordance with the  assumptions  used for
funding the Pension Plan pursuant to Section 412 of the Code for the  applicable
plan year.

      "United States," and "U.S." mean the United States of America.

      "Unreimbursed Amount" has the meaning set forth in Section 2.03(c)(i).

      "Unrestricted   Subsidiary"  means  any  Subsidiary  of  Playboy  that  is
designated  by the Board of Directors of Playboy as an  Unrestricted  Subsidiary
pursuant to a board resolution, but only to the extent that such Subsidiary:

      (a) has no  Indebtedness  other  than  debt that is  non-recourse  to such
Subsidiary;

      (b) is not party to any agreement,  contract, arrangement or understanding
with Playboy or any of its Restricted  Subsidiaries unless the terms of any such
agreement,  contract,  arrangement  or  understanding  are no less  favorable to
Playboy or such  Restricted  Subsidiary than those that might be obtained at the
time  from  Persons  who are  not  Affiliates  of  Playboy  or  such  Restricted
Subsidiary;

      (c) is a Person  with  respect  to which  neither  Playboy  nor any of its
Restricted  Subsidiaries has any direct or indirect  obligation (i) to subscribe
for  additional  Equity  Interests or (ii) to maintain or preserve such Person's
financial  condition or to cause such Person to achieve any specified  levels of
operating results;

      (d) has not guaranteed or otherwise directly or indirectly provided credit
support for any  Indebtedness of Playboy or any of its Restricted  Subsidiaries;
and

      (e) has at least  one  director  on its Board of  Directors  that is not a
director or executive  officer of Playboy or any of its Restricted  Subsidiaries
and has at least one  executive  officer  that is not a  director  or  executive
officer of Playboy or any of its Restricted Subsidiaries.

      Any  designation of a Restricted  Subsidiary of Playboy as an Unrestricted
Subsidiary  shall be evidenced to Agent by filing with Agent a certified copy of
the  board  resolution  giving  effect  to  such  designation  and an  officers'
certificate  certifying  that  such  designation  complied  with  the  preceding
conditions and was otherwise  permitted under this  Agreement.  If, at any time,
any Unrestricted  Subsidiary would fail to meet the preceding requirements as an
Unrestricted  Subsidiary,  it  shall  thereafter  cease  to be  an  Unrestricted
Subsidiary  for  purposes  of  this  Agreement  and  any  Indebtedness  of  such
Subsidiary shall be deemed to be incurred by a Restricted  Subsidiary of Playboy
as of such date and, if such  Indebtedness is not permitted to be incurred as of
such date under this Agreement, Borrower shall be in default of such covenant.

      "U.S. Person" means a U.S. person as defined in Section 7701(a)(30) of the
Code.

      "Wholly  Owned  Restricted  Subsidiary"  of any  specified  Person means a
Restricted  Subsidiary  of such Person all of the  outstanding  Capital Stock or
other  ownership  interests of which (other than directors'  qualifying  shares)
shall  at the  time be  owned  by such  Person  or by one or more  Wholly  Owned
Restricted  Subsidiaries of such Person and one or more Wholly Owned  Restricted
Subsidiaries of such Person.

                                      -18-
<PAGE>

      1.02 Other Interpretive Provisions.

      With  reference to this  Agreement  and each other Loan  Document,  unless
otherwise specified herein or in such other Loan Document:

      (a) The meanings of defined  terms are equally  applicable to the singular
and plural forms of the defined terms.

      (b) (i) The words "herein",  "hereto",  "hereof" and "hereunder" and words
of  similar  import  when  used in any Loan  Document  shall  refer to such Loan
Document as a whole and not to any particular  provision thereof;  (ii) Article,
Section,  Exhibit and Schedule references are to the Loan Document in which such
reference  appears;  (iii) the term  "including"  is by way of  example  and not
limitation;  and (iv) the term  "documents"  includes  any and all  instruments,
documents, agreements,  certificates, notices, reports, financial statements and
other writings, whether in physical or facsimile form.

      (c) In the computation of periods of time from a specified date to a later
specified  date, the word "from" means "from and  including;" the words "to" and
"until"  each  mean "to but  excluding;"  and the word  "through"  means "to and
including."

      (d) Section  headings  herein and in the other Loan Documents are included
for  convenience  of reference only and shall not affect the  interpretation  of
this Agreement or any other Loan Document.

      1.03 Accounting Terms.

      All accounting terms not  specifically or completely  defined herein shall
be construed in conformity  with,  and all financial data  (including  financial
ratios and other financial  calculations)  required to be submitted  pursuant to
this  Agreement  shall  be  prepared  in  conformity  with,  GAAP  applied  on a
consistent  basis,  as in effect from time to time,  provided that to the extent
any  change in GAAP  after the  Closing  Date  affects  the  computation  of any
financial  ratio  hereunder,  GAAP shall  mean GAAP as in effect on the  Closing
Date.

      1.04 Rounding.

      Any financial  ratios required to be maintained by any Loan Party pursuant
to this Agreement shall be calculated by dividing the  appropriate  component by
the other  component,  carrying  the result to one place more than the number of
places by which such ratio is  expressed  herein and  rounding  the result up or
down to the nearest number (with a rounding-up if there is no nearest number).

      1.05 References to Agreements and Laws.

      Unless otherwise expressly provided herein, (a) references to Organization
Documents,  agreements  (including  the Loan  Documents)  and other  contractual
instruments shall be deemed to include all subsequent amendments,  restatements,
extensions,  supplements and other modifications thereto, but only to the extent
that  such   amendments,   restatements,   extensions,   supplements  and  other
modifications are not prohibited by any Loan Document; and (b) references to any
Law  shall  include  all  statutory  and  regulatory  provisions  consolidating,
amending, replacing, supplementing or interpreting such Law.

      1.06 Letter of Credit Amounts.

      Unless  otherwise  specified,  all  references  herein to the  amount of a
Letter of Credit at any time shall be deemed to mean the maximum  face amount of
such  Letter  of  Credit  after  giving  effect  to (a)  all  increases  thereof
contemplated  by such  Letter  of Credit  or the  Letter  of Credit  Application
therefor,  whether or not such maximum face amount is in effect at such time and
(b) the operation of any provision which has automatically  reduced such maximum
face amount and any  amendments  thereto  which  reduced the maximum face amount
thereof.

                                      -19-
<PAGE>

      1.07 Times of Day.

      Unless otherwise specified, all references herein to times of day shall be
references to Central time (daylight or standard, as applicable).

ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS.

      2.01 Committed Loans.

      Subject  to the  terms  and  conditions  set  forth  herein,  each  Lender
severally agrees to make loans (each such loan, a "Committed  Loan") to Borrower
from time to time,  on any  Business  Day during the  Availability  Period in an
aggregate  amount  not to  exceed  at any time  outstanding  the  amount of such
Lender's  Commitment;  provided,  however,  that  after  giving  effect  to  any
Committed  Borrowing,  (i) the Total Outstandings shall not exceed the Aggregate
Commitments, and (ii) the aggregate Outstanding Amount of the Committed Loans of
any Lender,  plus such Lender's Pro Rata Share of the Outstanding  Amount of all
L/C Obligations shall not exceed such Lender's Commitment.  Within the limits of
each Lender's Commitment,  and subject to the other terms and conditions hereof,
Borrower may borrow under this Section  2.01,  prepay under  Section  2.05,  and
reborrow  under this Section 2.01.  Committed  Loans may be Base Rate  Committed
Loans or Eurodollar Rate Committed Loans, as further provided herein.

      2.02 Committed  Borrowings,  Conversions  and  Continuations  of Committed
Loans.

      (a) Each Committed Borrowing,  each conversion of Committed Loans from one
Type to the other,  and each  continuation  of Eurodollar  Rate Committed  Loans
shall be made upon Borrower's irrevocable notice to Agent, which may be given by
telephone. Each such notice must be received by Agent not later than 11:00 a.m.,
Chicago time, (i) two Business Days prior to the requested date of any Committed
Borrowing of,  conversion to or  continuation of Eurodollar Rate Committed Loans
or of any conversion of Eurodollar  Rate Committed  Loans to Base Rate Committed
Loans,  and (ii) on the requested  date of any Committed  Borrowing of Base Rate
Committed  Loans.  Each telephonic  notice by Borrower  pursuant to this Section
2.02(a) must be confirmed  promptly by delivery to Agent of a written  Committed
Loan Notice,  appropriately  completed  and signed by a  Responsible  Officer of
Borrower.  Each  Committed  Borrowing  of,  conversion  to  or  continuation  of
Eurodollar Rate Committed Loans shall be in a principal  amount of $1,000,000 or
a whole  multiple of $100,000 in excess  thereof.  Except as provided in Section
2.03(c),  each Committed Borrowing of or conversion to Base Rate Committed Loans
shall be in a principal  amount of  $500,000 or a whole  multiple of $100,000 in
excess thereof. Each Committed Loan Notice (whether telephonic or written) shall
specify (i) whether Borrower is requesting a Committed  Borrowing,  a conversion
of Committed  Loans from one Type to the other,  or a continuation of Eurodollar
Rate  Committed  Loans,  (ii) the  requested  date of the  Committed  Borrowing,
conversion or continuation,  as the case may be (which shall be a Business Day),
(iii) the  principal  amount of  Committed  Loans to be  borrowed,  converted or
continued,  (iv) the Type of Committed Loans to be borrowed or to which existing
Committed Loans are to be converted, and (v) if applicable,  the duration of the
Interest  Period with respect  thereto.  If Borrower  fails to specify a Type of
Committed  Loan in a Committed Loan Notice or if Borrower fails to give a timely
notice  requesting a conversion or continuation,  then the applicable  Committed
Loans  shall be made,  or  converted  to, Base Rate  Loans.  Any such  automatic
conversion  to Base  Rate  Loans  shall be  effective  as of the last day of the
Interest  Period then in effect with respect to the applicable  Eurodollar  Rate
Committed Loans. If Borrower  requests a Committed  Borrowing of, conversion to,
or  continuation  of Eurodollar  Rate Committed Loans in any such Committed Loan
Notice,  but fails to  specify  an  Interest  Period,  it will be deemed to have
specified an Interest Period of one month.

      (b) Following  receipt of a Committed  Loan Notice,  Agent shall  promptly
notify  each  Lender  of the  amount  of its Pro Rata  Share  of the  applicable
Committed  Loans,  and if no timely  notice of a conversion or  continuation  is
provided  by  Borrower,  Agent  shall  notify  each Lender of the details of any
automatic  conversion to Base Rate  Committed  Loans  described in the preceding
subsection.  In the case of a Committed  Borrowing,  each Lender  shall make the
amount of its Committed Loan available to Agent in immediately  available  funds
at Agent's  Office not later than 1:00 p.m.,  Chicago  time, on the Business Day
specified in the applicable  Committed  Loan Notice.  Upon  satisfaction  of the
applicable  conditions  set  forth  in  Section  4.02  (and,  if such  Committed
Borrowing is the initial Credit Extension,  Section 4.01),  Agent shall make all
funds so  received  available  to  Borrower  in like funds as  received by Agent
either by (i)  crediting the account of Borrower on the books of Bank of America
with the amount of such funds or (ii) wire transfer of such funds,  in each case
in accordance with instructions provided to

                                      -20-
<PAGE>

(and reasonably acceptable to) Agent by Borrower; provided, however, that if, on
the date of the Committed Loan Notice with respect to such  Committed  Borrowing
is given by Borrower there are L/C Borrowings outstanding,  then the proceeds of
such Committed Borrowing shall be applied,  first, to the payment in full of any
such L/C Borrowings, and second, shall be made available to Borrower as provided
above.

      (c) Except as otherwise  provided herein, a Eurodollar Rate Committed Loan
may be  continued or  converted  only on the last day of an Interest  Period for
such a  Eurodollar  Rate  Committed  Loan.  During the  existence of an Event of
Default, no Loans may be requested as, converted to or continued as a Eurodollar
Rate Committed Loans without the consent of the Required Lenders.

      (d) Agent shall promptly  notify Borrower and Lenders of the interest rate
applicable  to any Interest  Period for  Eurodollar  Rate  Committed  Loans upon
determination  of such  interest  rate.  At any time that  Base  Rate  Loans are
outstanding,  Agent shall  notify  Borrower  of any change in Bank of  America's
prime  rate used in  determining  the Base Rate  promptly  following  the public
announcement of such change.  The  determination of the Eurodollar Rate by Agent
shall be conclusive in the absence of manifest error.

      (e) After giving effect to all Committed  Borrowings,  all  conversions of
Committed Loans from one Type to the other,  and all  continuations of Committed
Loans as the same  Type,  there  shall not be more than 5  Interest  Periods  in
effect with respect to Committed Loans.

      2.03 Letters of Credit.

      (a) The Letter of Credit Commitment.

            (i) Subject to the terms and  conditions  set forth herein,  (A) the
      L/C Issuer  agrees,  in reliance upon the  agreements of the other Lenders
      set forth in this Section 2.03:  (1) from time to time on any Business Day
      during  the  period  from the  Closing  Date  until  the  Letter of Credit
      Expiration  Date,  to issue Letters of Credit for the account of Borrower,
      Playboy or any of Playboy's Restricted Subsidiaries, and to amend or renew
      Letters of Credit  previously  issued by it, in accordance with subsection
      (b) below, and (2) to honor drawings under the Letters of Credit;  and (B)
      Lenders severally agree to participate in such Letters of Credit; provided
      that  the  L/C  Issuer  shall  not be  obligated  to make  any L/C  Credit
      Extension  with  respect to any Letter of Credit,  and no Lender  shall be
      obligated  to  participate  in,  any Letter of Credit if as of the date of
      such L/C Credit  Extension,  (x) the Total  Outstandings  would exceed the
      Aggregate  Commitments,  (y)  the  aggregate  Outstanding  Amount  of  the
      Committed  Loans of any Lender,  plus such  Lender's Pro Rata Share of the
      Outstanding  Amount of all L/C  Obligations,  would  exceed such  Lender's
      Commitment,  or (z) the Outstanding  Amount of the L/C  Obligations  would
      exceed the Letter of Credit  Sublimit.  Within the foregoing  limits,  and
      subject to the terms and conditions  hereof,  Borrower's ability to obtain
      Letters of Credit shall be fully revolving,  and accordingly Borrower may,
      during the foregoing  period,  obtain Letters of Credit to replace Letters
      of Credit that have  expired or that have been drawn upon and  reimbursed.
      All  Existing  Letters  of Credit  shall be  deemed  to have  been  issued
      pursuant  hereto,  and from and after the Closing Date shall be subject to
      and governed by the terms and conditions hereof.

            (ii) The L/C Issuer shall be under no obligation to issue any Letter
      of Credit if:

                  (A)  any  order,   judgment  or  decree  of  any  Governmental
            Authority  or  arbitrator  shall by its terms  purport  to enjoin or
            restrain the L/C Issuer from  issuing such Letter of Credit,  or any
            Law  applicable  to the  L/C  Issuer  or any  request  or  directive
            (whether  or not  having  the  force of law)  from any  Governmental
            Authority with jurisdiction  over the L/C Issuer shall prohibit,  or
            request that the L/C Issuer refrain from, the issuance of letters of
            credit  generally  or such Letter of Credit in  particular  or shall
            impose upon the L/C Issuer with respect to such Letter of Credit any
            restriction,  reserve  or  capital  requirement  (for  which the L/C
            Issuer is not otherwise  compensated  hereunder or by Borrower after
            the L/C Issuer has  proposed  to  Borrower  a  reasonable  basis for
            compensation  which  Borrower  does not accept) not in effect on the
            Closing Date,  or shall impose upon the L/C Issuer any  unreimbursed
            loss,  cost or expense which was not  applicable on the Closing Date
            and which the L/C Issuer in good faith deems material to it;

                                      -21-
<PAGE>

                        (B) subject to Section  2.03(b)(iv),  the expiry date of
                  such  requested  Letter of Credit would occur more than twelve
                  months after the date of issuance or last renewal,  unless the
                  Required Lenders have approved such expiry date;

                        (C) the expiry date of such  requested  Letter of Credit
                  would occur after the Letter of Credit Expiration Date, unless
                  all  Lenders  have  approved  such  expiry date or unless such
                  Letter  of  Credit  has  been  Cash   Collateralized   to  the
                  reasonable satisfaction of Agent and the L/C Issuer;

                        (D) the issuance of such Letter of Credit would  violate
                  one or more  policies  of the  L/C  Issuer  applicable  to the
                  issuance of all letters of credit by the L/C Issuer;

                        (E)  except  as  otherwise  agreed  by Agent and the L/C
                  Issuer,  such  Letter of Credit is in an initial  amount  less
                  than $100,000,  in the case of a commercial  Letter of Credit,
                  or $500,000,  in the case of a standby Letter of Credit, or is
                  to be denominated in a currency other than Dollars;

                        (F) such  Letter  of Credit  is to be  denominated  in a
                  currency other than Dollars;

                        (G) a default of any Lender's  obligations to fund under
                  Section  2.03(c)  exists  or  any  Lender  is at  such  time a
                  Defaulting Lender hereunder, unless the L/C Issuer has entered
                  into satisfactory arrangements with Borrower or such Lender to
                  eliminate  the L/C Issuer's  risk with respect to such Lender;
                  or

                        (H) such Letter of Credit  contains any  provisions  for
                  automatic reinstatement of the stated amount after any drawing
                  thereunder.

                  (iii) The L/C Issuer shall be under no obligation to amend any
            Letter of Credit if (A) the L/C Issuer would have no  obligation  at
            such time to issue such Letter of Credit in its  amended  form under
            the terms hereof,  or (B) the  beneficiary  of such Letter of Credit
            does not accept the proposed amendment to such Letter of Credit.

                  (iv) The L/C Issuer  shall act on behalf of the  Lenders  with
            respect  to any  Letters  of Credit  issued by it and the  documents
            associated  therewith,  and the L/C  Issuer  shall  have  all of the
            benefits  and  immunities  (A)  provided to Agent in Article IX with
            respect to any acts taken or omissions suffered by the L/C Issuer in
            connection  with  Letters of Credit  issued by it or  proposed to be
            issued by it and  Issuer  Documents  pertaining  to such  Letters of
            Credit  as  fully  as if the  term  "Agent"  as used in  Article  IX
            included the L/C Issuer with respect to such acts or omissions,  and
            (B) as additionally provided herein with respect to the L/C Issuer.

                  (v) Bank of America shall act as L/C Issuer  hereunder  unless
            another L/C Issuer selected as provided in Section 10.07(g).

      (b)   Procedures   for  Issuance  and  Amendment  of  Letters  of  Credit;
Auto-Renewal Letters of Credit.

            (i) Each Letter of Credit  shall be issued or  amended,  as the case
      may be, upon the request of Borrower  delivered  to the L/C Issuer (with a
      copy  to  Agent)   in  the  form  of  a  Letter  of  Credit   Application,
      appropriately  completed and signed by a Responsible  Officer of Borrower.
      Such Letter of Credit  Application  must be received by the L/C Issuer and
      Agent not later than 11:00 a.m. at least two Business  Days (or such later
      date  and time as  Agent  and the L/C  Issuer  may  agree in a  particular
      instance in their sole discretion)  prior to the proposed issuance date or
      date of  amendment,  as the case may be. In the case of a  request  for an
      initial issuance of a Letter of Credit,  such Letter of Credit Application
      shall specify in form and detail  satisfactory to the L/C Issuer:  (A) the
      proposed issuance date of the requested Letter of Credit (which shall be a
      Business Day); (B) the amount  thereof;  (C) the expiry date thereof;  (D)
      the name and address of the beneficiary  thereof;  (E) the documents to be
      presented by such beneficiary in case of any drawing  thereunder;  and (F)
      the full text of any  certificate  to be presented by such  beneficiary in
      case of any drawing thereunder.  In the case of a request for an amendment
      of any  outstanding  Letter of Credit,  such Letter of Credit  Application
      shall  specify in form and detail  satisfactory  to the L/C Issuer (A) the
      Letter of Credit to be amended; (B) the proposed date of amendment thereof
      (which  shall be a  Business  Day);

                                      -22-
<PAGE>

      and (C) the nature of the proposed amendment. Additionally, Borrower shall
      furnish to the L/C Issuer and Agent such other  documents and  information
      pertaining  to such  requested  Letter of Credit  issuance  or  amendment,
      including any Issuer Documents,  as the L/C Issuer or Agent may reasonably
      require.

            (ii) Promptly  after receipt of any Letter of Credit  Application at
      the  address  set forth in Section  10.02 for  receiving  Letter of Credit
      Applications and related correspondence,  the L/C Issuer will confirm with
      Agent (by  telephone or in writing) that Agent has received a copy of such
      Letter of Credit  Application  from  Borrower  and, if not, the L/C Issuer
      will provide Agent with a copy thereof. Unless the L/C Issuer has received
      written  notice  from any Lender,  Agent or any Loan  Party,  at least one
      Business Day prior to the  requested  date of issuance or amendment of the
      applicable  Letter of Credit,  that one or more  applicable  conditions in
      Article  IV shall not then be  satisfied,  then,  subject to the terms and
      conditions  hereof,  the L/C Issuer shall, on the requested date,  issue a
      Letter of Credit or enter into the applicable  amendment,  as the case may
      be, in each case in accordance  with the L/C Issuer's  usual and customary
      business  practices.  Immediately  upon the  issuance  of each  Letter  of
      Credit,  each  Lender  shall be deemed  to,  and  hereby  irrevocably  and
      unconditionally   agrees  to,   purchase   from  the  L/C  Issuer  a  risk
      participation  in such Letter of Credit in an amount  equal to the product
      of such Lender's Pro Rata Share times the amount of such Letter of Credit.

            (iii)  Promptly  after its  delivery  of any Letter of Credit or any
      amendment to a Letter of Credit to an advising  bank with respect  thereto
      or to the  beneficiary  thereof,  the L/C  Issuer  will  also  deliver  to
      Borrower  and Agent a true and  complete  copy of such Letter of Credit or
      amendment.

            (iv) If  Borrower so  requests  in any  applicable  Letter of Credit
      Application, the L/C Issuer may, in it sole and absolute discretion, agree
      to issue a Letter of Credit that has automatic  renewal  provisions (each,
      an "Auto-Renewal  Letter of Credit");  provided that any such Auto-Renewal
      Letter of Credit must permit the L/C Issuer to prevent any such renewal at
      least  once in each  twelve-month  period  (commencing  with  the  date of
      issuance  of  such  Letter  of  Credit)  by  giving  prior  notice  to the
      beneficiary thereof not later than a day (the "Nonrenewal Notice Date") in
      each such twelve-month period to be agreed upon at the time such Letter of
      Credit is issued.  Unless otherwise  directed by the L/C Issuer,  Borrower
      shall not be required to make a specific request to the L/C Issuer for any
      such  renewal.  Once an  Auto-Renewal  Letter of Credit  has been  issued,
      Lenders shall be deemed to have  authorized  (but may not require) the L/C
      Issuer to permit the  renewal  of such  Letter of Credit at any time to an
      expiry date not later than the Letter of Credit Expiration Date; provided,
      however,  that the L/C Issuer shall not permit any such renewal if (A) the
      L/C Issuer has determined that it would have no obligation at such time to
      issue such Letter of Credit in its renewed form under the terms hereof (by
      reason of Section 2.03(a)(ii) or otherwise), or (B) it has received notice
      (which may be by  telephone  or in  writing)  on or before the day that is
      five Business Days before the  Nonrenewal  Notice Date (1) from Agent that
      the  Required  Lenders have elected not to permit such renewal or (2) from
      Agent,  any  Lender  or  Borrower  that  one or  more  of  the  applicable
      conditions  specified  in Section 4.02 is not then  satisfied  and in each
      case directing the L/C Issuer not to permit such renewal.

      (c) Drawings and Reimbursements; Funding of Participations.

            (i) Upon receipt from the beneficiary of any Letter of Credit of any
      notice of drawing under such Letter of Credit, the L/C Issuer shall notify
      Borrower and Agent thereof.  Not later than 11:00 a.m., on the date of any
      payment  by the L/C  Issuer  under a Letter of Credit (or if the notice of
      drawing on such Letter of Credit is given after 11:00 a.m., then not later
      than 11:00 a.m. on the next succeeding  Business Day after the date of any
      payment by such L/C Issuer under a Letter of Credit)  (each such date,  an
      "Honor Date"), Borrower shall reimburse the L/C Issuer through Agent in an
      amount  equal to the  amount  of such  drawing.  If  Borrower  fails to so
      reimburse the L/C Issuer by such time,  Agent shall  promptly  notify each
      Lender of the Honor  Date,  the amount of the  unreimbursed  drawing  (the
      "Unreimbursed  Amount"),  and the amount of such  Lender's  Pro Rata Share
      thereof.  In such  event,  Borrower  shall be deemed to have  requested  a
      Committed  Borrowing  of Base Rate Loans to be disbursed on the Honor Date
      in an  amount  equal to the  Unreimbursed  Amount,  without  regard to the
      minimum and multiples  specified in Section 2.02 for the principal  amount
      of Base Rate Committed  Loans, but subject to the amount of the unutilized
      portion  of the  Aggregate  Commitments  and the  conditions  set forth in
      Section 4.02 (other than the  delivery of a Committed  Loan  Notice).  Any
      notice given by the L/C Issuer pursuant to this Section  2.03(c)(i) may be

                                      -23-
<PAGE>

      given by telephone if immediately confirmed in writing;  provided that the
      lack of such an immediate confirmation shall not affect the conclusiveness
      or binding effect of such notice.

            (ii) Each Lender (including Agent in its capacity as a Lender) shall
      upon any notice  pursuant to Section  2.03(c)(i)  make funds  available to
      Agent for the  account of the L/C  Issuer at  Agent's  Office in an amount
      equal to its Pro Rata Share of the Unreimbursed Amount not later than 1:00
      p.m.,  on the Business Day  specified in such notice by Agent,  whereupon,
      subject to the  provisions  of Section  2.03(c)(iii),  each Lender that so
      makes funds  available  shall be deemed to have made a Base Rate Committed
      Loan to Borrower in such  amount.  Agent shall remit the funds so received
      to the L/C Issuer.

            (iii) With  respect  to any  Unreimbursed  Amount  that is not fully
      refinanced  by a  Committed  Borrowing  of Base  Rate  Loans  because  the
      conditions  set forth in Section 4.02 cannot be satisfied or for any other
      reason,  Borrower  shall be deemed to have incurred from the L/C Issuer an
      L/C  Borrowing  in the amount of the  Unreimbursed  Amount  that is not so
      refinanced,  which  L/C  Borrowing  shall  be due and  payable  on  demand
      (together  with  interest) and shall bear interest at the Default Rate. In
      such event, each Lender's payment to Agent pursuant to Section 2.03(c)(ii)
      shall be  deemed  payment  in  respect  of its  participation  in such L/C
      Borrowing  and  shall  constitute  an L/C  Advance  from  such  Lender  in
      satisfaction of its participation obligation under this Section 2.03.

            (iv) Until  each  Lender  funds its  Committed  Loan or L/C  Advance
      pursuant  to this  Section  2.03(c)  to  reimburse  the L/C Issuer for any
      amount  drawn  under any  Letter of  Credit,  interest  in respect of such
      Lender's  Pro Rata Share of such amount shall be solely for the account of
      the L/C Issuer.

            (v) Each Lender's obligation to make Committed Loans or L/C Advances
      to reimburse the L/C Issuer for amounts drawn under Letters of Credit,  as
      contemplated by this Section 2.03(c),  shall be absolute and unconditional
      and  shall  not  be  affected  by  any  circumstance,  including  (A)  any
      counterclaim,  recoupment,  defense or other  right  which such Lender may
      have against the L/C Issuer,  Agent,  Borrower or any other Person for any
      reason  whatsoever;  (B) the  occurrence or continuance of a Default or an
      Event of Default; or (C) any other occurrence, event or condition, whether
      or not similar to any of the  foregoing.  No such making of an L/C Advance
      shall relieve or otherwise  impair the obligation of Borrower to reimburse
      the L/C Issuer for the amount of any payment  made by the L/C Issuer under
      any Letter of Credit, together with interest as provided herein.

            (vi) If any Lender fails to make  available to Agent for the account
      of the L/C Issuer any amount  required to be paid by such Lender  pursuant
      to the foregoing  provisions of this Section 2.03(c) by the time specified
      in Section  2.03(c)(ii),  the L/C Issuer  (acting  through Agent) shall be
      entitled to recover from such Lender, on demand, such amount with interest
      thereon for the period from the date such  payment is required to the date
      on which such payment is immediately available to the L/C Issuer at a rate
      per annum equal to the greater of Federal Funds Rate and a rate determined
      by the L/C Issuer in accordance  with banking  industry rules on interbank
      compensation,   plus  any  administrative,   processing  or  similar  fees
      customarily charged by the L/C Issuer in connection with the foregoing.  A
      certificate of the L/C Issuer submitted to any Lender (through Agent) with
      respect to any amounts  owing  under this clause (vi) shall be  conclusive
      absent manifest error.

      (d) Repayment of Participations.

            (i) At any time after the L/C  Issuer  has made a payment  under any
      Letter of Credit  and has  received  from any  Lender  such  Lender's  L/C
      Advance in respect of such payment in accordance with Section 2.03(c),  if
      Agent for the account of the L/C Issuer receives any payment in respect of
      the related Unreimbursed Amount or interest thereon (whether directly from
      Borrower  or  otherwise,  including  proceeds of Cash  Collateral  applied
      thereto by Agent), Agent will distribute to such Lender its Pro Rata Share
      thereof  (appropriately  adjusted,  in the case of interest  payments,  to
      reflect  the period of time  during  which such  Lender's  L/C Advance was
      outstanding) in the same funds as those received by Agent.

            (ii) If any  payment  received  by Agent for the  account of the L/C
      Issuer pursuant to Section 2.03(c)(i) is required to be returned under any
      of the circumstances described in Section 10.06 (including pursuant to any
      settlement entered into by the L/C Issuer in its discretion),  each Lender
      shall pay to Agent

                                      -24-
<PAGE>

      for the account of the L/C Issuer its Pro Rata Share  thereof on demand of
      Agent, plus interest thereon from the date of such demand to the date such
      amount  is  returned  by such  Lender,  at a rate per  annum  equal to the
      Federal Funds Rate from time to time in effect. The obligations of Lenders
      under this clause shall survive the payment in full of the Obligations and
      the termination of this Agreement.

      (e) Obligations Absolute.  The obligation of Borrower to reimburse the L/C
Issuer  for each  drawing  under each  Letter of  Credit,  and to repay each L/C
Borrowing, shall be absolute,  unconditional and irrevocable,  and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including the following:

            (i) any lack of validity or enforceability of such Letter of Credit,
      this Agreement, or any other Loan Document;

            (ii) the existence of any claim,  counterclaim,  setoff,  defense or
      other right that Borrower,  Playboy or any Subsidiary of Borrower may have
      at any time against any  beneficiary  or any  transferee of such Letter of
      Credit (or any Person for whom any such beneficiary or any such transferee
      may be acting),  the L/C  Issuer,  Agent or any other  Person,  whether in
      connection with this Agreement, the transactions contemplated hereby or by
      such Letter of Credit or any agreement or instrument  relating thereto, or
      any unrelated transaction;

            (iii) any draft,  demand,  certificate or other  document  presented
      under such Letter of Credit proving to be forged,  fraudulent,  invalid or
      insufficient  in any  respect or any  statement  therein  being  untrue or
      inaccurate  in any respect;  or any loss or delay in the  transmission  or
      otherwise of any document  required in order to make a drawing  under such
      Letter of Credit;

            (iv) any  payment  by the L/C  Issuer  under  such  Letter of Credit
      against  presentation  of a draft or  certificate  that does not  strictly
      comply with the terms of such Letter of Credit; or any payment made by the
      L/C Issuer  under such Letter of Credit to any Person  purporting  to be a
      trustee in bankruptcy,  debtor-in-possession,  assignee for the benefit of
      creditors, liquidator, receiver or other representative of or successor to
      any beneficiary or any transferee of such Letter of Credit,  including any
      arising in connection with any proceeding under any Debtor Relief Law; or

            (v) any other circumstance or happening  whatsoever,  whether or not
      similar to any of the  foregoing,  including any other  circumstance  that
      might  otherwise  constitute a defense  available  to, or a discharge  of,
      Borrower, Playboy or any Subsidiary of Borrower (other than resulting from
      the gross negligence or willful misconduct of the L/C Issuer).

      Borrower shall  promptly  examine a copy of each Letter of Credit and each
amendment  thereto  that is  delivered  to it and,  in the event of any claim of
noncompliance with Borrower's instructions or other irregularity,  Borrower will
promptly notify the L/C Issuer.

      (f) Role of the L/C Issuer. Each Lender and Borrower agree that, in paying
any  drawing  under a  Letter  of  Credit,  the L/C  Issuer  shall  not have any
responsibility to obtain any document (other than any sight draft,  certificates
and  documents  expressly  required by the Letter of Credit) or to  ascertain or
inquire as to the validity or accuracy of any such  document or the authority of
the Person  executing or delivering any such  document.  None of the L/C Issuer,
Agent, any Related Party nor any of the respective correspondents,  participants
or  assignees  of Agent or the L/C Issuer  shall be liable to any Lender for (i)
any action  taken or omitted in  connection  herewith at the request or with the
approval of Lenders or the  Required  Lenders,  as  applicable;  (ii) any action
taken or omitted in the absence of gross  negligence or willful  misconduct;  or
(iii)  the due  execution,  effectiveness,  validity  or  enforceability  of any
document  or  instrument  related  to any  Letter  of  Credit,  Letter of Credit
Application or other Issuer  Document.  Borrower hereby assumes all risks of the
acts or omissions of any  beneficiary  or transferee  with respect to its use of
any Letter of Credit;  provided,  however,  that this assumption is not intended
to, and shall not, preclude  Borrower's  pursuing such rights and remedies as it
may have  against  the  beneficiary  or  transferee  at law or under  any  other
agreement.  None of the L/C Issuer,  Agent or any Related Party,  nor any of the
respective  correspondents,  participants  or  assignees of L/C Issuer or Agent,
shall be liable or responsible  for any of the matters  described in clauses (i)
through (v) of Section 2.03(e); provided, however, that anything in such clauses
to the  contrary  notwithstanding,  Borrower  may have a claim  against  the L/C
Issuer, and the L/C Issuer may be liable

                                      -25-
<PAGE>

to Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential  or exemplary,  damages suffered by Borrower which Borrower proves
were caused by the L/C Issuer's  willful  misconduct or gross  negligence or the
L/C  Issuer's  willful  failure  to pay  under any  Letter  of Credit  after the
presentation  to it by the  beneficiary  of a  sight  draft  and  certificate(s)
complying with the terms and conditions of such Letter of Credit. In furtherance
and not in limitation of the foregoing, the L/C Issuer may accept documents that
appear  on  their  face  to be in  order,  without  responsibility  for  further
investigation,  regardless of any notice or information to the contrary, and the
L/C Issuer  shall not be  responsible  for the  validity or  sufficiency  of any
instrument  transferring  or  assigning  or  purporting  to transfer or assign a
Letter of Credit or the rights or benefits  thereunder or proceeds  thereof,  in
whole or in part, which may prove to be invalid or ineffective for any reason.

      (g) Cash Collateral.  Upon the request of Agent, (i) if the L/C Issuer has
honored any full or partial  drawing request under any Letter of Credit and such
drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit
Expiration Date, any Letter of Credit may for any reason remain  outstanding and
partially or wholly undrawn, Borrower shall promptly Cash Collateralize the then
Outstanding  Amount  of  all  L/C  Obligations  (in  an  amount  equal  to  such
Outstanding Amount determined as of the date of such L/C Borrowing or the Letter
of Credit  Expiration  Date,  as the case may be).  For purposes  hereof,  "Cash
Collateralize"  means to pledge to and deposit with or deliver to Agent, for the
benefit of the L/C Issuer and Lenders,  as collateral  for the L/C  Obligations,
cash or deposit account balances pursuant to documentation in form and substance
reasonably  satisfactory to Agent and the L/C Issuer (which documents are hereby
consented to by Lenders).  Borrower  hereby grants to Agent,  for the benefit of
the L/C  Issuer  and  Lenders,  a security  interest  in all such cash,  deposit
accounts and all balances therein and all proceeds of the foregoing. Derivatives
of such term have corresponding meanings. Cash Collateral shall be maintained in
blocked, interest bearing deposit accounts at Bank of America.

      (h)  Applicability of ISP98 and UCP. Unless otherwise  expressly agreed by
the L/C Issuer and  Borrower  when a Letter of Credit is issued  (including  any
such agreement applicable to an Existing Letter of Credit), (i) the rules of the
ISP shall  apply to each  standby  Letter of  Credit,  and (ii) the rules of the
Uniform Customs and Practice for Documentary Credits, as most recently published
by the  International  Chamber of  Commerce  (the "ICC") at the time of issuance
(including the ICC decision published by the Commission on Banking Technique and
Practice on April 6, 1998 regarding the European single  currency  (euro)) shall
apply to each commercial Letter of Credit.

      (i) L/C Fees.  Borrower  shall pay to Agent for the account of each Lender
in accordance with its Pro Rata Share a letter of credit fee (the "L/C Fee") for
each  Letter of Credit  equal to the  Applicable  Rate  times the daily  maximum
amount  available  to be drawn under such Letter of Credit  (whether or not such
maximum amount is then in effect under such Letter of Credit),  as determined in
accordance with Section 1.06. L/C Fees shall be computed on a quarterly basis in
arrears  and shall be due and  payable on the last  Business  Day of each March,
June, September and December, commencing with the first such date to occur after
the issuance of such Letter of Credit,  on the Letter of Credit  Expiration Date
and thereafter on demand.  If there is any change in the Applicable  Rate during
any quarter,  the actual daily amount of each Letter of Credit shall be computed
and  multiplied by the  Applicable  Rate  separately for each period during such
quarter that such Applicable Rate was in effect. Notwithstanding anything to the
contrary contained herein, if Borrower is so notified by Agent at the request of
Agent or Required Lenders, while any Event of Default exists, all L/C Fees shall
accrue at the Default  Rate,  provided  that no such  notice  shall apply to any
amounts that accrued more than 60 days prior to the date of such notice.

      (j)  Documentary and Processing  Charges Payable to Agent.  Borrower shall
pay  directly  to the L/C Issuer for its own  account  the  customary  issuance,
presentation, amendment and other reasonable processing fees, and other standard
costs and charges,  of the L/C Issuer relating to letters of credit as from time
to time in effect.  Such  customary  fees and standard costs and charges are due
and payable on demand from time to time and are nonrefundable.

      (k) Conflict with Issuer  Documents.  In the event of any conflict between
the terms  hereof and the terms of any Issuer  Document,  the terms hereof shall
control.

      (l)  Letters of Credit  Issued for  Playboy  or  Borrower's  Subsidiaries.
Notwithstanding  that a Letter of Credit issued or  outstanding  hereunder is in
support of any obligations of, or is for the account of, Playboy or a Subsidiary
of Borrower,  Borrower shall be obligated to reimburse the L/C Issuer  hereunder
for  any  and  all  drawings

                                      -26-
<PAGE>

under such Letter of Credit.  Borrower hereby  acknowledges that the issuance of
Letters of Credit for the  account of  Playboy  or any  Subsidiary  of  Borrower
inures  to the  benefit  of  Borrower,  and  that  Borrower's  business  derives
substantial benefits from the businesses of Playboy and such Subsidiaries.

      2.04 Intentionally Omitted.

      2.05 Prepayments/Mandatory Commitment Reductions.

      (a) Borrower may,  upon notice to Agent,  at any time or from time to time
voluntarily  prepay  Committed  Loans  in whole or in part  without  premium  or
penalty;  provided that (i) such notice must be received by Agent not later than
11:00  a.m.,  (A)  three  Business  Days  prior  to any  date of  prepayment  of
Eurodollar Rate Committed  Loans, and (B) on the date of prepayment of Base Rate
Committed Loans; (ii) any prepayment of Eurodollar Rate Committed Loans shall be
in a principal  amount of $2,000,000  or a whole  multiple of $500,000 in excess
thereof;  and (iii) any  prepayment of Base Rate  Committed  Loans shall be in a
principal  amount of $500,000 or a whole multiple of $100,000 in excess thereof,
or, in each case, if less, the entire principal amount thereof then outstanding.
Each such notice,  which may be given by  telephone,  shall specify the date and
amount of such  prepayment  and the  Type(s) of  Committed  Loans to be prepaid.
Agent will promptly  notify each Lender of its receipt of each such notice,  and
of the amount of such Lender's Pro Rata Share of such prepayment. If such notice
is given by Borrower, Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein.
Any  prepayment of a Eurodollar  Rate Committed Loan shall be accompanied by all
accrued interest thereon, together with any additional amounts required pursuant
to Section 3.05. Each such prepayment shall be applied to the Committed Loans of
Lenders in accordance with their respective Pro Rata Shares.

      (b) If for any  reason  the  Total  Outstandings  at any time  exceed  the
Aggregate  Commitments then in effect,  Borrower shall immediately  prepay Loans
and/or Cash  Collateralize  the L/C Obligations in an aggregate  amount equal to
such excess.

      (c) The Aggregate  Commitments shall be automatically reduced by an amount
equal to the Net Cash Proceeds of the  Disposition of the Playboy Mansion or the
Playboy or Rabbit Head Design trademarks (up to the amount necessary to repay in
full all  Obligations),  provided that if no Event of Default exists at the time
of such  Disposition,  the  Aggregate  Commitments  shall not be  reduced  below
$25,000,000  in connection  with a Disposition  of the Playboy  Mansion (and the
balance of such Net Cash Proceeds will be available to Borrower).  If after such
reduction  of the  Aggregate  Commitments,  the Total  Outstandings  exceed  the
Aggregate Commitments as so reduced, Borrower shall immediately prepay the Loans
and/or Cash  Collateralize  the L/C Obligations in an aggregate  amount equal to
such excess.

      (d) Borrower shall prepay the Obligations by an amount equal to 80% of the
Net Cash Proceeds of any Disposition  (other than as provided in Section 2.05(c)
and other than a  Disposition  under any of clauses (a) - (r) of Section  7.05),
subject to the following:

            (i) no such  prepayment  shall be required if such Net Cash Proceeds
      are used  within 365 days  after the  receipt  thereof  to acquire  assets
      useful  in  the  business  of  Playboy,  Borrower  or  any  of  Borrower's
      Restricted Subsidiaries; and

            (ii) no such prepayment shall be required until the aggregate amount
      of such Net Cash  Proceeds  not used as  provided  in clause  (i)  exceeds
      $5,000,000,  at which time such excess  amount  shall be used to repay the
      Obligations.

Notwithstanding the foregoing, if an Event of Default exists at the time of such
Disposition or the receipt of such Net Cash  Proceeds,  the Net Cash Proceeds of
such  Disposition  (including any  Disposition  under any of clauses  (a)-(r) of
Section  7.05)  shall be  applied to prepay the  Obligations  and the  Aggregate
Commitment shall be reduced by a like amount.

      (e) Borrower shall prepay the  Obligations by the Net Cash Proceeds of any
insurance  relating to the loss, damage or destruction of any assets of Playboy,
Borrower or any of Playboy's Restricted Subsidiaries, subject to the following:

                                      -27-
<PAGE>

            (i) no such  prepayment  shall be required if such Net Cash Proceeds
      are used  within 365 days after the  receipt  thereof to repair or replace
      the assets that suffered such loss, damage or destruction; and

            (ii) no such prepayment shall be required until the aggregate amount
      of such Net Cash Proceeds not used as provided in clause (i) above exceeds
      $5,000,000,  at which time such excess  amount  shall be used to repay the
      Obligations.

Notwithstanding the foregoing, if an Event of Default exists at the time of such
loss,  damage or destruction or the receipt of such Net Cash Proceeds,  such Net
Cash  Proceeds  shall be  applied to prepay the  Obligations  and the  Aggregate
Commitment shall be reduced by a like amount.

      (f) If, after giving effect to any reduction of the Aggregate Commitments,
the Letter of Credit Sublimit  exceeds the amount of the Aggregate  Commitments,
the Letter of Credit  Sublimit shall be  automatically  reduced by the amount of
such excess.

      (g) Agent  will  promptly  notify  Lenders  of any such  reduction  in the
Aggregate  Commitments.  Once  reduced  in  accordance  with this  Section,  the
Aggregate  Commitments  may not be  increased.  Any  reduction of the  Aggregate
Commitments  shall be applied to the Commitment of each Lender  according to its
Pro Rata Share.  All  commitment  fees accrued until the  effective  date of any
termination of the Aggregate  Commitments shall be paid on the effective date of
such termination.

      2.06 Optional Reduction or Termination of Commitments.

      Borrower may, upon notice to Agent,  terminate the Aggregate  Commitments,
or from time to time permanently reduce the Aggregate Commitments; provided that
(i) any such notice  shall be received by Agent not later than 11:00 a.m.,  five
Business  Days  prior to the date of  termination  or  reduction,  (ii) any such
partial  reduction  shall be in an aggregate  amount of  $1,000,000 or any whole
multiple of $500,000 in excess  thereof,  (iii)  Borrower shall not terminate or
reduce the  Aggregate  Commitments  if, after giving  effect  thereto and to any
concurrent  prepayments  hereunder,  the Total  Outstandings  would  exceed  the
Aggregate  Commitments  and (iv) if, after giving effect to any reduction of the
Aggregate  Commitments,  the Letter of Credit Sublimit exceeds the amount of the
Aggregate  Commitments,  the Letter of Credit  Sublimit  shall be  automatically
reduced by the amount of such excess.  Agent will promptly notify Lenders of any
such notice of  termination  or reduction  of the  Aggregate  Commitments.  Once
reduced in accordance  with this Section,  the Aggregate  Commitments may not be
increased.  Any reduction of the Aggregate  Commitments  shall be applied to the
Commitment of each Lender  according to its Pro Rata Share.  All commitment fees
accrued until the effective date of any termination of the Aggregate Commitments
shall be paid on the effective date of such termination.

      2.07 Repayment of Loans.

      Borrower  shall  repay to  Lenders  on the  Maturity  Date  the  aggregate
principal amount of Committed Loans outstanding on such date.

      2.08 Interest.

      (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar
Rate  Committed  Loan shall bear interest on the  outstanding  principal  amount
thereof for each  Interest  Period at a rate per annum  equal to the  Eurodollar
Rate for such Interest Period plus the Applicable  Rate; and (ii) each Base Rate
Committed Loan shall bear interest on the outstanding  principal  amount thereof
from the  applicable  borrowing  date at a rate per annum equal to the Base Rate
plus the Applicable Rate.

      (b) If any amount  payable by Borrower under any Loan Document is not paid
when due (without  regard to any applicable  grace  periods),  whether at stated
maturity by acceleration or otherwise, then, if Borrower is so notified by Agent
or Required Lenders, such amount shall thereafter bear interest at a fluctuating
interest  rate per annum at all times equal to the  Default  Rate to the fullest
extent permitted by applicable Laws, provided that no such notice shall apply to
any interest  which  accrued more than 60 days prior to the date of such notice.
Furthermore,  while any Event of Default  exists (other than an Event of Default
caused solely by a breach of Section  6.01,  Section 6.02 or Section  6.03),  or
after  acceleration,  Borrower shall pay interest on the principal amount of all

                                      -28-
<PAGE>

outstanding  Obligations  at a fluctuating  interest rate per annum at all times
equal to the Default Rate to the fullest  extent  permitted by applicable  Laws.
Accrued and unpaid interest on past due amounts (including  interest on past due
interest) shall be due and payable upon demand.

      (c)  Interest  on each Loan  shall be due and  payable  in arrears on each
Interest  Payment  Date  applicable  thereto  and at such other  times as may be
specified herein. Interest hereunder shall be due and payable in accordance with
the  terms  hereof  before  and  after  judgment,   and  before  and  after  the
commencement  of any  proceeding  relating  to any Loan  Party  under any Debtor
Relief Law.

      2.09 Fees.

      In  addition  to certain  fees  described  in  subsections  (i) and (j) of
Section 2.03:

      (a)  Commitment  Fee.  Borrower shall pay to Agent for the account of each
Lender in  accordance  with its Pro Rata Share,  a  commitment  fee equal to the
Applicable Rate times the actual daily amount by which the Aggregate Commitments
exceed the sum of (i) the  Outstanding  Amount of  Committed  Loans and (ii) the
Outstanding  Amount of L/C  Obligations.  The commitment fee shall accrue at all
times during the Availability Period,  including at any time during which one or
more conditions in Article IV is not met, and shall be due and payable quarterly
in arrears on the last Business Day of each March, June, September and December,
commencing  with the first such date to occur after the Closing Date, and on the
Maturity Date. The commitment fee shall be calculated  quarterly in arrears, and
if there is any change in the  Applicable  Rate during any  quarter,  the actual
daily amount shall be computed and multiplied by the Applicable  Rate separately
for each period during such quarter that such Applicable Rate was in effect.

      (b) Agency Fees. Borrower shall pay an agency fee to Agent for Agent's own
account, in the amounts and at the times specified in the letter agreement dated
as of March 11, 2003 (as amended, supplemented or otherwise modified, the "Agent
Fee Letter"),  between Borrower and Agent.  Such fees shall be fully earned when
paid and shall be nonrefundable for any reason whatsoever.

      (c)  Lenders'  Upfront  Fee. On the Closing  Date,  Borrower  shall pay to
Agent,  for the account of each Lender in accordance  with their  respective Pro
Rata Shares, an upfront fee in an aggregate amount of $100,000. Such upfront fee
is for the credit  facilities  committed by Lenders under this  Agreement and is
fully earned on the date paid. The upfront fee paid to each Lender is solely for
its own account and is nonrefundable for any reason whatsoever.

      2.10 Computation of Interest and Fees.

      All  computations  of  interest  for Base Rate Loans when the Base Rate is
determined by Bank of America's  prime rate shall be made on the basis of a year
of 365 or 366 days,  as the case may be and the actual  number of days  elapsed.
All other  computations of interest and all fees shall be made on the basis of a
year of 360 days and the actual number of days elapsed,  (which  results in more
fees or interest,  as applicable,  being paid than if computed on the basis of a
365 day year).  Interest shall accrue on each Loan for the day on which the Loan
is made, and shall not accrue on a Loan, or any portion thereof,  for the day on
which the Loan or such portion is paid, provided that any Loan that is repaid on
the same day on  which  it is made  shall,  subject  to  Section  2.12(a),  bear
interest for one day.  Each  determination  by Agent of an interest  rate or fee
hereunder  shall be  conclusive  and binding for all purposes,  absent  manifest
error.

      2.11 Evidence of Debt.

      (a) The Credit Extensions made by each Lender shall be evidenced by one or
more accounts or records  maintained by such Lender and by Agent in the ordinary
course of business.  The accounts or records maintained by Agent and each Lender
shall be conclusive absent manifest error of the amount of the Credit Extensions
made by Lenders to Borrower and the interest and payments  thereon.  Any failure
to so record or any error in doing so shall  not,  however,  limit or  otherwise
affect the obligation of Borrower hereunder to pay any amount owing with respect
to the  Obligations.  In the event of any  conflict  between  the  accounts  and
records  maintained  by any  Lender  and the  accounts  and  records of Agent in
respect of such matters,  the accounts and records of Agent shall control in the
absence of manifest  error.  Upon the request of any Lender made through

                                      -29-
<PAGE>

Agent, Borrower shall execute and deliver to such Lender (through Agent) a Note,
which shall  evidence,  such  Lender's  Loans,  in addition to such  accounts or
records.  Each Lender may attach  schedules to its Note and endorse  thereon the
date,  Type (if  applicable),  amount and maturity of the  applicable  Loans and
payments with respect thereto.

      (b) In addition to the accounts and records referred to in subsection (a),
each  Lender and Agent  shall  maintain in  accordance  with its usual  practice
accounts  or  records  evidencing  the  purchases  and  sales by such  Lender of
participations  in Letters of Credit.  In the event of any conflict  between the
accounts  and records  maintained  by Agent and the  accounts and records of any
Lender in respect of such  matters,  the  accounts  and  records of Agent  shall
control in the absence of manifest error.

      2.12 Payments Generally.

      (a) All payments to be made by Borrower shall be made without condition or
deduction  for any  counterclaim,  defense,  recoupment  or  setoff.  Except  as
otherwise expressly provided herein, all payments by Borrower hereunder shall be
made to Agent,  for the account of the respective  Lenders to which such payment
is owed, at Agent's  Office in Dollars and in  immediately  available  funds not
later than 12:00 noon,  Chicago time, on the date specified  herein.  Agent will
promptly distribute to each Lender its Pro Rata Share (or other applicable share
as provided  herein) of such payment in like funds as received by wire  transfer
to such  Lender's  Lending  Office.  All payments  received by Agent after 12:00
noon, Chicago time, shall be deemed received on the next succeeding Business Day
and any applicable interest or fee shall continue to accrue.

      (b) If any  payment to be made by  Borrower  shall come due on a day other
than a Business Day,  payment shall be made on the next following  Business Day,
and such extension of time shall be reflected in computing  interest or fees, as
the case may be.

      (c) Unless  Borrower or any Lender has notified  Agent,  prior to the date
any payment is required to be made by it to Agent  hereunder,  that  Borrower or
such Lender,  as the case may be, will not make such  payment,  Agent may assume
that  Borrower or such Lender,  as the case may be, has timely made such payment
and may (but shall not be so required to), in reliance thereon, make available a
corresponding  amount to the Persons entitled thereto. If and to the extent that
such payment was not in fact made to Agent in immediately available funds, then:

            (i) if  Borrower  failed to make such  payment,  each  Lender  shall
      forthwith  on demand  repay to Agent the portion of such  assumed  payment
      that was made  available to such Lender in  immediately  available  funds,
      together with  interest  thereon in respect of each day from and including
      the date such  amount was made  available  by Agent to such  Lender to the
      date such amount is repaid to Agent in immediately available funds, at the
      Federal Funds Rate from time to time in effect; and

            (ii) if any Lender  failed to make such  payment,  such Lender shall
      forthwith  on  demand  pay to Agent  the  amount  thereof  in  immediately
      available  funds,  together with interest  thereon for the period from the
      date such amount was made  available by Agent to Borrower to the date such
      amount is  recovered  by Agent (the  "Compensation  Period") at a rate per
      annum equal to the Federal Funds Rate from time to time in effect. If such
      Lender pays such amount to Agent,  then such amount shall  constitute such
      Lender's Committed Loan included in the applicable Committed Borrowing. If
      such Lender does not pay such amount upon Agent's demand  therefor,  Agent
      may make a demand  therefor  upon  Borrower,  and Borrower  shall pay such
      amount to Agent,  together  with  interest  thereon  for the  Compensation
      Period at a rate per annum equal to the rate of interest applicable to the
      applicable Committed Borrowing.  Nothing herein shall be deemed to relieve
      any Lender from its  obligation to fulfill its  Commitment or to prejudice
      any rights which Agent or Borrower may have against any Lender as a result
      of any default by such Lender hereunder.

      A notice of Agent to any  Lender or  Borrower  with  respect to any amount
owing under this subsection (c) shall be conclusive, absent manifest error.

      (d) If any Lender  makes  available to Agent funds for any Loan to be made
by such Lender as provided in the  foregoing  provisions of this Article II, and
such funds are not made available to Borrower by Agent because the conditions to
the  applicable  Credit  Extension  set forth in Article IV are not satisfied or
waived in accordance  with

                                      -30-
<PAGE>

the terms hereof,  Agent shall return such funds (in like funds as received from
such Lender) to such Lender, without interest.

      (e) The  obligations of Lenders  hereunder to make Committed  Loans and to
fund  participations in Letters of Credit are several and not joint. The failure
of any Lender to make any Committed  Loan or to fund any such  participation  on
any  date  required  hereunder  shall  not  relieve  any  other  Lender  of  its
corresponding  obligation  to do  so on  such  date,  and  no  Lender  shall  be
responsible for the failure of any other Lender to so make its Committed Loan or
purchase its participation.

      (f) Nothing  herein  shall be deemed to obligate  any Lender to obtain the
funds  for any  Loan in any  particular  place  or  manner  or to  constitute  a
representation  by any Lender that it has  obtained or will obtain the funds for
any Loan in any particular place or manner.

      2.13 Sharing of Payments.

      If any Lender shall,  by exercising any right of setoff or counterclaim or
otherwise,  obtain  payment in respect of any principal of or interest on any of
the Committed Loans made by it, or the participations in L/C Obligations held by
it resulting in such Lender's receiving payment of a proportion of the aggregate
amount of such Committed Loans or  participations  and accrued  interest thereon
greater  than its pro rata share  thereof as  provided  herein,  then the Lender
receiving such greater  proportion  shall (a) notify Agent of such fact, and (b)
purchase  (for cash at face value)  participations  in the  Committed  Loans and
subparticipations  in L/C  Obligations of the other Lenders,  or make such other
adjustments  as shall be  equitable,  so that the  benefit of all such  payments
shall be shared by the Lenders ratably in accordance  with the aggregate  amount
of principal of and accrued  interest on their  respective  Committed  Loans and
other amounts owing them, provided that:

            (i) if any such  participations or  subparticipations  are purchased
      and all or any portion of the payment  giving rise  thereto is  recovered,
      such  participations  or  subparticipations  shall  be  rescinded  and the
      purchase price restored to the extent of such recovery,  without interest;
      and

            (ii) the  provisions of this Section shall not be construed to apply
      to (x) any payment made by Borrower pursuant to and in accordance with the
      express terms of this Agreement or (y) any payment obtained by a Lender as
      consideration  for the assignment of or sale of a participation  in any of
      its  Committed  Loans  or  subparticipations  in  L/C  Obligations  to any
      assignee or participant, other than to Playboy, Borrower or any Subsidiary
      thereof (as to which the provisions of this Section shall apply).

      Each Loan Party consents to the foregoing and agrees, to the extent it may
effectively  do  so  under   applicable   law,  that  any  Lender   acquiring  a
participation  pursuant to the foregoing  arrangements may exercise against such
Loan Party rights of setoff and counterclaim with respect to such  participation
as fully as if such  Lender  were a direct  creditor  of such Loan  Party in the
amount of such participation. Agent will keep records (which shall be conclusive
and binding in the absence of manifest error) or participations  purchased under
this Section and will in each case notify  Lenders  following any such purchases
or  repayments.  Each Lender that  purchases  a  participation  pursuant to this
Section  shall from and after such  purchase have the right to give all notices,
requests, demands, directions and other communications under this Agreement with
respect to the portion of the Obligations purchased to the same extent as though
the purchasing Lender were the original owner of the Obligations purchased.

      2.14 Effect of Amendment and Restatement.

      Upon the execution and delivery of this Agreement,  the  indebtedness  and
other  liabilities  of  Borrower  previously  governed  by the  Original  Credit
Agreement shall continue in full force and effect,  but shall be governed by the
terms and conditions set forth in this Agreement.  The execution and delivery of
this Agreement shall not constitute a novation or repayment of the  indebtedness
outstanding  under the Original Credit Agreement.  Borrower hereby  acknowledges
and agrees that any and all  references  in any Loan  Documents  to the Original
Credit  Agreement  shall be deemed  to be  amended  to refer to this  Agreement.
Borrower hereby reaffirms its obligations,  liabilities and indebtedness arising
under each of the Loan Documents existing on the date hereof, in each case after
giving effect to the provisions of the preceding  sentence.  Borrower hereby (a)
confirms  and  continues  the pledge and  security  interest  in the  Collateral
granted by it pursuant to the  Collateral  Documents  to which it is party,

                                      -31-
<PAGE>

(b)  acknowledges  and  agrees  that the  pledge and  security  interest  in the
Collateral granted by it pursuant to such Collateral Documents shall be in favor
of Agent and shall continue to secure the Obligations and the obligations of the
Loan  Parties  under the Loan  Guaranty  and the  Collateral  Documents  and (c)
pledges and grants to Agent, for its benefit and the benefit of the Lenders, and
for the benefit of each Affiliate of Agent and each Lender,  a lien on, security
interest in and to all of the right,  title and  interest of Borrower in, to and
under the  Collateral to secure the payment and  performance  in full of all the
Obligations  and the obligations of the Loan Parties under the Loan Guaranty and
the Collateral Documents.

ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY

      3.01 Taxes.

      (a)  Except  as  otherwise  provided  in this  Section  3.01,  any and all
payments by Borrower to or for the account of Agent or any Lender under any Loan
Document  shall be made free and clear of and without  deduction for any and all
present or future taxes, duties, levies, imposts, deductions, assessments, fees,
withholdings  or similar  charges,  and all  liabilities  with respect  thereto,
excluding, in the case of Agent and each Lender, taxes imposed on or measured by
its net income,  net profits or receipts,  branch profits  taxes,  and franchise
taxes imposed on it, by the jurisdiction (or any political  subdivision thereof)
under the Laws of which Agent or such Lender,  as the case may be, is organized,
incorporated,  maintains  a lending  office or  otherwise  carries  on  business
("Excluded  Taxes")  (all such  non-excluded  taxes,  duties,  levies,  imposts,
deductions,  assessments, fees, withholdings or similar charges, and liabilities
with respect  thereto  being  hereinafter  referred to as "Taxes").  If Borrower
shall be  required by any Laws to deduct any Taxes from or in respect of any sum
payable  under any Loan  Document to Agent or any  Lender,  (i) if Agent or such
Lender,  as  applicable,  has complied with its  obligations  under this Section
3.01,  the sum payable  shall be increased as necessary so that after making all
required deductions  (including deductions applicable to additional sums payable
under this Section),  Agent or such Lender,  as  applicable,  receives an amount
equal to the sum it would have received had no such  deductions  been made (such
amount to be determined  pursuant to Section 3.01(c)),  (ii) Borrower shall make
such  deductions,  (iii)  Borrower  shall pay the full  amount  deducted  to the
relevant  taxation  authority or other  authority in accordance  with applicable
Laws,  and (iv) Borrower shall furnish to Agent (which shall forward the same to
such Lender) the original or a certified  copy of a receipt  evidencing  payment
thereof upon  receipt  thereof by Borrower,  or other  documentation  reasonably
satisfactory to Agent evidencing such payment upon receipt thereof by Borrower.

      (b) In addition,  provided  that all of the  requirements  of this Section
3.01 have been  complied  with,  Borrower  agrees to pay any and all  present or
future stamp,  court or documentary taxes and any other excise or property taxes
or charges or similar  levies  which arise from any payment  made under any Loan
Document  or  from  the  execution,   delivery,   performance,   enforcement  or
registration  of, or otherwise  with respect to, any Loan Document to the extent
not an Excluded Tax (hereinafter referred to as "Other Taxes").

      (c) If  Borrower  shall be  required  to  deduct or pay any Taxes or Other
Taxes from or in respect of any sum payable  under any Loan Document to Agent or
any Lender  and Agent or such  Lender has fully  complied  with its  obligations
under this Section 3.01,  Borrower shall also pay to Agent or to such Lender, as
applicable,  at the time interest is paid, such additional  amount that Agent or
such Lender,  as applicable,  reasonably  specifies is necessary to preserve the
after-tax  yield (after  factoring in all taxes,  including  taxes imposed on or
measured by net income) that Agent or such  Lender,  as  applicable,  would have
received if such Taxes or Other Taxes had not been imposed,  provided that Agent
or such Lender, as applicable,  provides Borrower with a certificate  showing in
reasonable detail the basis for the calculation of the additional amount.

      (d) Except as  otherwise  provided  herein,  Borrower  agrees to indemnify
Agent and each  Lender  that has, in each case,  complied  with its  obligations
under  this  Section  3.01,  for (i) the full  amount of Taxes  and Other  Taxes
(including any Taxes or Other Taxes imposed or asserted by any  jurisdiction  on
amounts  payable  under this Section) paid by Agent and such Lender with respect
to payments under the Loan Documents, (ii) amounts payable under Section 3.01(c)
to the  extent  paid by Agent or such  Lender,  as  applicable,  and  (iii)  any
liability (including additions to tax, penalties, interest and expenses) arising
therefrom  or with  respect  thereto,  in each case whether or not such Taxes or
Other  Taxes were  correctly  or legally  imposed or  asserted  by the  relevant
Governmental  Authority,  provided  that  Borrower  shall  not be  obligated  to
indemnify  Agent or any Lender  pursuant to this  Section  3.01(d) in respect of
penalties,  interest or expenses  arising  from or with respect to such Taxes or
Other Taxes if such penalties,  interest or expenses are attributable to the bad
faith,   gross   negligence  or  willful   misconduct  of  the

                                      -32-
<PAGE>

Person  seeking  indemnification.  Agent and each Lender agrees that if Agent or
such Lender  receives  any amounts  hereunder in respect of Taxes or Other Taxes
and it is subsequently  determined by the relevant  Governmental  Authority or a
court  of  competent  jurisdiction  that  such  Taxes or  Other  Taxes  were not
correctly  or  legally  imposed,  Agent or such  Lender,  as  applicable,  shall
promptly return to Borrower any such amounts refunded,  credited,  returned,  or
for which any tax  benefit  is made  available  to Agent or such  Lender by such
Governmental  Authority;  provided,  that no such  amounts  will be  returned to
Borrower  during  the  existence  of an Event of  Default.  Payment  under  this
subsection (d) shall be made within 30 days after the date Lender or Agent makes
a  demand  therefore  and  provides  Borrower  with  a  certificate  showing  in
reasonable detail the basis for the calculation of the amount demanded.

      (e) Each  Lender  and  Participant  (as if a Lender  for  purposes  of the
definition of the term "Lending Office") agrees to designate a different Lending
Office if such  designation  will avoid or decrease  the amount of Taxes,  Other
Taxes and indemnity  payments pursuant to this Section 3.01 and will not, in the
good faith  judgment  of such Lender or  Participant,  otherwise  be  materially
disadvantageous to such Lender.

      (f) Each  Lender  and Agent  that is a Non-U.S.  Person  shall  deliver to
Borrower and Agent on or prior to the date of this Agreement, or with respect to
assignees (including  Replacement Lenders) and Participants,  on or prior to the
date such assignee or Participant  becomes a party to this  Agreement,  together
with any other  certificate,  form, or statement of exemption required under the
Code,  two or more (as Borrower or Agent may  reasonably  request)  accurate and
properly completed original signed copies of IRS Form W-8BEN or W-8ECI or W-8IMY
(or successor forms), establishing complete exemption from withholding of United
States  withholding  tax with respect to payments  under any Loan  Document.  In
addition,  each Non-U.S. Person shall from time to time, when a lapse in time or
change  in  circumstances  renders  the  previous   certification   obsolete  or
inaccurate  in any material  respect,  promptly  (and before the  expiration  or
obsolescence  of the prior forms)  deliver to Borrower and Agent,  together with
any other certificate,  form, or statement of exemption required under the Code,
two or more (as Borrower or Agent may reasonably  request) accurate and properly
completed  original  signed  copies of IRS Form  W-8BEN or W-8ECI or W-8IMY  (or
successor forms), confirming or establishing complete exemption from withholding
of  United  States  withholding  tax with  respect  to  payments  under any Loan
Document.

      (g)  Each  Lender  and  Agent  that  is a U.S.  Person  and  that is not a
corporation for U.S. federal income tax purposes,  shall deliver to Borrower and
Agent on or prior to the date of this  Agreement,  or with  respect to assignees
(including  Replacement Lenders) and Participants,  on or prior to the date such
assignee or  Participant  becomes a party to this  Agreement,  two  accurate and
properly  completed  original signed copies of IRS Form W-9 (or successor forms)
certifying  such  Lender's,  Agent's  or  Participant's  entitlement  to receive
payments  under the Loan  Documents  without  deduction for United States backup
withholding tax.

      (h) Each Agent, Lender, or Participant, as applicable,  shall promptly and
diligently  pursue any available  refund,  credit, or other tax benefit that, in
the reasonable and good faith judgment of such Agent, Lender, or Participant, is
attributable  to any payment made  pursuant to this  Agreement by Borrower to or
for the account of such Agent,  Lender,  or Participant and shall promptly remit
immediately  available  funds to  Borrower  in an amount  equal to such  refund,
credit, or other tax benefit (including any interest received thereon).

      3.02 Illegality.

      If any  Lender  determines  that any  change in Law or the  interpretation
thereof has made it unlawful,  or that any  Governmental  Authority has asserted
that it is unlawful,  for any Lender or its  applicable  Lending Office to make,
maintain or fund  Eurodollar  Rate  Committed  Loans,  or to determine or charge
interest rates based upon the Eurodollar  Rate,  then, on notice thereof by such
Lender to  Borrower  through  Agent,  any  obligation  of such Lender to make or
continue Eurodollar Rate Committed Loans or to convert Base Rate Committed Loans
to Eurodollar Rate Committed Loans shall be suspended until such Lender notifies
Agent and Borrower that the circumstances  giving rise to such  determination no
longer exist. Upon receipt of such notice, Borrower shall, upon demand from such
Lender (with a copy to Agent),  prepay or convert all Eurodollar  Rate Committed
Loans of such Lender to Base Rate Committed Loans, either on the last day of the
Interest Period therefor,  if such Lender may lawfully continue to maintain such
Eurodollar Rate Committed Loans to such day, or immediately,  if such Lender may
not lawfully continue to maintain such Eurodollar Rate Committed Loans. Upon any
such prepayment or conversion,  Borrower shall also pay accrued  interest on the
amount so  prepaid  or  converted  and all  amounts  due under  Section  3.05 in
accordance  with the terms thereof due to such  prepayment or  conversion.  Each
Lender agrees to designate a

                                      -33-
<PAGE>

different Lending Office if such designation will avoid the need for such notice
and will not, in the good faith judgment of such Lender, otherwise be materially
disadvantageous to such Lender.

      3.03 Inability to Determine Rates.

      If Agent  reasonably  determines  in  connection  with any  request  for a
Eurodollar  Rate Committed Loan or a conversion to or  continuation  thereof for
any reason that (a) Dollar deposits are not being offered to banks in the London
interbank  eurodollar  market for the applicable  amount and Interest  Period of
such  Eurodollar  Rate Committed  Loan, (b) by reason of  circumstances  arising
after the Closing Date  affecting the relevant  market,  adequate and reasonable
means do not  exist  for  determining  the  Eurodollar  Rate  for any  requested
Interest  Period with respect to a proposed  Eurodollar  Rate Committed Loan, or
(c) the  Eurodollar  Rate for any  requested  Interest  Period with respect to a
proposed  Eurodollar  Rate Committed Loan does not adequately and fairly reflect
the cost to Lenders of funding such Eurodollar  Rate Committed Loan,  Agent will
promptly so notify  Borrower  and all Lenders.  Thereafter,  the  obligation  of
Lenders to make or maintain  Eurodollar  Rate Committed Loans shall be suspended
until Agent  revokes  such notice.  Upon receipt of such notice  pursuant to the
first sentence of this Section 3.03, Borrower may revoke any pending request for
a Committed  Borrowing of,  conversion  to or  continuation  of Eurodollar  Rate
Committed  Loans or, failing that, will be deemed to have converted such request
into a  request  for a  Committed  Borrowing  of Base Rate  Loans in the  amount
specified  therein,  in each such case without  incurring  any  liability  under
Section 3.05.

      3.04  Increased Cost and Reduced  Return;  Capital  Adequacy;  Reserves on
Eurodollar Rate Committed Loans.

      (a) If any Lender reasonably  determines that as a result of any change in
or in the  interpretation  of any Law applicable to or binding upon such Lender,
or such  Lender's  compliance  therewith,  in each  case that  occurs  after the
Closing Date, there shall be any increase in the cost to such Lender of agreeing
to make or making, funding or maintaining Eurodollar Rate Committed Loans or (as
the case may be) issuing or participating  in Letters of Credit,  or a reduction
in the amount  received or receivable  by such Lender in connection  with any of
the foregoing  (excluding for purposes of this subsection (a) any such increased
costs or  reduction in amount  resulting  from (i) any taxes  (including  Taxes,
Other  Taxes and  Excluded  Taxes),  (ii)  changes in the basis of  taxation  of
overall net income or overall  gross income by the United  States or any foreign
jurisdiction  or any political  subdivision  of either thereof under the Laws of
which such Lender is  organized  or has its Lending  Office,  and (iii)  reserve
requirements   utilized,   as  to  Eurodollar  Rate  Committed   Loans,  in  the
determination  of the  Eurodollar  Rate),  then from time to time upon demand of
such Lender  (with a copy of such demand to Agent),  Borrower  shall pay to such
Lender such additional amounts as will compensate such Lender for such increased
cost or reduction following receipt by Borrower of the certificate  described in
Section  3.06;  provided,  that no Lender  shall be  entitled  to claim any such
additional  amount for reductions  incurred more than 6 months prior to the date
of delivery of such certificate.

      (b) If any Lender  reasonably  determines that the introduction of any Law
applicable  to or binding  upon such Lender  regarding  capital  adequacy or any
change therein or in the  interpretation  thereof,  or compliance by such Lender
(or its Lending  Office)  therewith,  in each case that occurs after the Closing
Date,  has the  effect of  reducing  the rate of return on the  capital  of such
Lender or any  corporation  controlling  such  Lender as a  consequence  of such
Lender's  obligations  hereunder  (taking into  consideration  its policies with
respect to capital adequacy and such Lender's desired return on capital),  below
that which such Lender could have achieved but for such introduction,  then from
time to time upon demand of such  Lender  (with a copy of such demand to Agent),
Borrower  shall pay to such Lender such  additional  amounts as will  compensate
such Lender for such reduction  following receipt by Borrower of the certificate
described in Section 3.06;  provided,  that no Lender shall be entitled to claim
any such additional  amount for reductions  incurred more than 6 months prior to
the date of delivery of such certificate.

      (c) Each Lender  agrees to  designate a different  Lending  Office if such
designation  will avoid the need for such payment  pursuant to this Section 3.04
and will not, in the good faith judgment of such Lender, otherwise be materially
disadvantageous to such Lender.

                                      -34-
<PAGE>

      3.05 Funding Losses.

      Upon demand of any Lender  pursuant to a certificate  described in Section
3.06  (with  a copy to  Agent)  from  time  to  time,  Borrower  shall  promptly
compensate  such Lender for and hold such Lender harmless from any loss, cost or
expense incurred by it as a result of:

      (a) any continuation,  conversion, payment or prepayment of any Loan other
than a Base Rate Loan on a day other  than the last day of the  Interest  Period
for  such  Loan  (whether  voluntary,   mandatory,   automatic,   by  reason  of
acceleration, or otherwise); or

      (b) any failure by Borrower  (for a reason  other than the failure of such
Lender to make a Loan) to prepay,  borrow,  continue  or convert  any Loan other
than a Base Rate Loan on the date or in the amount notified by Borrower;

in each case other than by reason of any such event  arising  upon  receipt of a
notice  delivered by Agent under  Section  3.03,  including  any loss or expense
arising from the liquidation or reemployment of funds obtained by it to maintain
such Loan or from fees payable to terminate  the deposits  from which such funds
were  obtained;  provided,  however,  that such  Lender  shall use  commercially
reasonable  efforts  to  mitigate  any such  loss,  cost or  expense in a manner
consistent with the internal policies of such Lender and applicable governmental
regulations.  Borrower shall also pay any customary  administrative fees charged
by such Lender in connection with the foregoing.

For purposes of  calculating  amounts  payable by Borrower to Lenders under this
Section 3.05,  each Lender shall be deemed to have funded each  Eurodollar  Rate
Committed  Loan made by it at the Eurodollar  Base Rate used in determining  the
Eurodollar  Rate for such Loan by a matching  deposit or other  borrowing in the
London interbank  eurodollar market for a comparable amount and for a comparable
period,  whether  or not  such  Eurodollar  Rate  Committed  Loan was in fact so
funded.

      3.06 Matters Applicable to all Requests for Compensation.

      A  certificate  of Agent or any Lender  claiming  compensation  under this
Article  III and  setting  forth in  reasonable  detail the  calculation  of the
additional  amount or amounts to be paid to it hereunder and the basis  therefor
shall be  conclusive  in the  absence of manifest  error.  In  determining  such
amount,  Agent or such Lender may use any reasonable  averaging and  attribution
methods.

      3.07 Replacement of Affected Lenders.

      (a) If any Lender becomes a Defaulting Lender or otherwise defaults in its
Obligations  to make Loans or fund  Unreimbursed  Amounts,  (b) if any Lender is
owed  increased  costs  under  Section  3.04 or Borrower is required to make any
payments  under  Section  3.01  to  any  Lender  that  Borrower  determines  are
materially in excess of those to the other Lenders or (c) in the case of refusal
by a Lender to consent  to a proposed  amendment,  change,  supplement,  waiver,
discharge or  termination  with respect to this  Agreement  which under  Section
10.01  requires the  approval of all  Lenders,  but has received the approval of
only the Required Lenders,  Borrower shall have the right to replace such Lender
(the  "Replaced  Lender") with one or more other  Eligible  Assignee or Eligible
Assignees, none of whom shall constitute a Defaulting Lender at the time of such
replacement  (collectively,  the "Replacement  Lender") reasonably acceptable to
Agent,  provided  that,  (i) at the  time of any  replacement  pursuant  to this
Section  3.07,  the  Replacement  Lender  shall  enter  into an  Assignment  and
Assumption  Agreement,  in form and substance reasonably  satisfactory to Agent,
pursuant to which the  Replacement  Lender shall acquire all of the  Commitments
and  outstanding  Loans of,  and  participation  in  Letters  of Credit  by, the
Replaced  Lender and (ii) all  obligations  of  Borrower  owing to the  Replaced
Lender (including,  without limitation, such increased costs and excluding those
amounts and obligations specifically described in clause (i) above in respect of
which the  assignment  purchase price has been, or is  concurrently  being paid)
shall  be  paid  in  full  to  such  Replaced  Lender   concurrently  with  such
replacement.  Upon the execution of the  applicable  Assignment  and  Assumption
Agreement, the payment of amounts referred to in clauses (i) and (ii) above and,
if so requested by the Replacement Lender, delivery to the Replacement Lender of
the appropriate Note or Notes executed by Borrower, the Replacement Lender shall
become a Lender  hereunder  and the Replaced  Lender shall cease to constitute a
Lender hereunder,  except with respect to indemnification  provisions under this
Agreement,  which  shall  survive as to such  Replaced  Lender.  Notwithstanding
anything to the contrary  contained  above,  no Lender that acts as a L/C issuer
may be

                                      -35-
<PAGE>

replaced  hereunder  at any time  which it has  Letters  of  Credit  outstanding
hereunder  unless  arrangements  reasonably  satisfactory  to  such  L/C  issuer
(including  the  furnishing of a standby letter of credit in form and substance,
and issued by an issuer  satisfactory  to such L/C issuer or the  depositing  of
cash collateral in amounts and pursuant to arrangements  reasonably satisfactory
to such L/C issuer) have been made with respect to such  outstanding  Letters of
Credit.

      3.08 Survival.

      All of  Borrower's  obligations  under  this  Article  III  shall  survive
termination of the Aggregate  Commitments and repayment of all other Obligations
hereunder.

ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

      4.01 Conditions of Initial Credit Extension.

      The  obligation  of the L/C  Issuer  and each  Lender to make its  initial
Credit  Extension   hereunder  is  subject  to  satisfaction  of  the  following
conditions precedent:

      (a) Agent's receipt of the following,  each of which shall be originals or
facsimiles  (followed  promptly by originals) unless otherwise  specified,  each
properly executed by a Responsible Officer (or in the case of clause (vi) below,
a secretary or assistant  secretary)  of the signing Loan Party,  each dated the
Closing  Date (or, in the case of  certificates  of  governmental  officials,  a
recent date before the Closing Date) and each in form and  substance  reasonably
satisfactory to Agent:

            (i) executed  counterparts of this Agreement and  reaffirmations  of
      all other Loan Documents,  sufficient in number for distribution to Agent,
      each Lender and Borrower;

            (ii) a Note executed by Borrower in favor of each Lender  requesting
      a Note;

            (iii) an executed second  amendment to deed of trust with respect to
      the Playboy  Mansion,  together with a date down  endorsement  to lender's
      title insurance policy (or new title policy) relating thereto;

            (iv) (A) a copy of the  certificate  or articles  of  incorporation,
      including all amendments thereto, of each of Borrower and PEII,  certified
      as of a recent date by the  Secretary of State or  comparable  official of
      the state or other  jurisdiction  of its  organization,  and,  except with
      respect to jurisdictions  that do not issue such  certificates for persons
      organized in the manner of such Loan Party,  a certificate  as to the good
      standing of such Loan Party as of a recent  date,  from such  Secretary of
      State or other  official;  (B) a certificate of the secretary or assistant
      secretary  of each of  Borrower  and  PEII  dated  the  Closing  Date  and
      certifying  (1) that  attached  thereto is a true and complete copy of the
      by-laws  of such Loan  Party as in effect on the  Closing  Date,  (2) that
      attached  thereto is a true and complete copy of resolutions  duly adopted
      by the Board of Directors of such Loan Party  authorizing  the  execution,
      delivery and  performance  of the Loan Documents to which such person is a
      party and that  such  resolutions  have not been  modified,  rescinded  or
      amended  and are in full force and  effect,  (3) that the  certificate  or
      articles of  incorporation  of such Loan Party have not been amended since
      the date of the last amendment thereto shown on the certified copy thereof
      furnished  pursuant to clause (A) above,  and (4) as to the incumbency and
      specimen  signature of each officer of such Loan Party  executing any Loan
      Document or any other document delivered in connection  herewith on behalf
      of such Loan Party;  and (C) a  certificate  of another  officer as to the
      incumbency and specimen signature of the Secretary or Assistant  Secretary
      executing the certificate pursuant to (B) above;

            (v) one or more  favorable  opinions of counsel to Borrower and PEII
      acceptable  to  Agent,  addressed  to Agent  and each  Lender,  as to such
      matters  concerning  Borrower and PEII and the Loan  Documents in form and
      substance satisfactory to Agent;

                                      -36-
<PAGE>

            (vi) a  certificate  signed by a  Responsible  Officer  of  Borrower
      certifying (A) that the conditions  specified in Sections  4.02(a) and (b)
      have been satisfied,  and (B) that there has been no event or circumstance
      since the date of the Audited  Financial  Statements that has had or would
      reasonably be expected to have a Material Adverse Effect;

            (vii)  evidence  of the  satisfaction  and  discharge  of all Senior
      Secured  Notes and the release of all Liens  securing  the Senior  Secured
      Notes;

            (viii) evidence of the issuance of the Convertible Notes pursuant to
      the Convertible  Note Indenture and the other  Convertible Note Documents,
      together with fully executed copies of the Convertible Note Documents; and

            (ix) such other assurances,  certificates,  documents or consents as
      Agent or the Required Lenders reasonably may require.

      (b) Any fees  required to be paid on or before the Closing Date shall have
been paid.

      (c) Unless waived by Agent, Borrower shall have paid all Attorney Costs of
Agent to the extent invoiced prior to or on the Closing Date.

      4.02 Conditions to all Credit Extensions.

      The  obligation of the L/C Issuer and each Lender to honor any Request for
Credit Extension is subject to the following conditions precedent:

      (a) The  representations  and  warranties  of Borrower and each other Loan
Party  contained  in  Article V or any  other  Loan  Document  shall be true and
correct in all material respects on and as of the date of such Credit Extension,
except to the extent that such representations and warranties specifically refer
to an earlier date, in which case they shall be true and correct in all material
respects as of such earlier  date,  and except that for purposes of this Section
4.02, the representations and warranties contained in subsections (a) and (b) of
Section  5.05 shall be deemed to refer to the most recent  statements  furnished
pursuant to clauses (a) and (b), respectively, of Section 6.01.

      (b) No Default  shall  exist,  or would result from such  proposed  Credit
Extension.

      (c) Agent shall have received a Request for Credit Extension in accordance
with the requirements hereof.

      Each Request for Credit Extension submitted by Borrower shall be deemed to
be a  representation  and  warranty  that the  conditions  specified in Sections
4.02(a)  and (b) have  been  satisfied  on and as of the date of the  applicable
Credit Extension.

ARTICLE V REPRESENTATIONS AND WARRANTIES

      Borrower  represents  and  warrants to Agent and Lenders that on and as of
the Closing Date and each date referred to in Section 4.02(a):

      5.01 Existence, Qualification and Power; Compliance with Laws.

      Each Company (a) is duly organized or formed, validly existing and in good
standing  under  the  Laws  of  the   jurisdiction  of  its   incorporation   or
organization,  (b) has all  requisite  power  and  authority  and all  requisite
governmental  licenses,  authorizations,  consents and  approvals to (i) own its
assets and carry on its  business  and (ii)  execute,  deliver,  and perform its
obligations  under the Loan  Documents  to which it is a party,  and (c) is duly
qualified  and is  licensed  and  in  good  standing  under  the  Laws  of  each
jurisdiction  where its  ownership,  lease or  operation  of  properties  or the
conduct of its business requires such qualification or licenses,  except in each
case

                                      -37-
<PAGE>

referred to above,  to the extent that failure to do so would not  reasonably be
expected to have a Material Adverse Effect.

      5.02 Authorization; No Contravention.

      The  execution,  delivery and  performance by each Loan Party of each Loan
Document  to which  such  Person is party,  have  been  duly  authorized  by all
necessary corporate or other organizational  action, and do not and will not (a)
contravene  the  terms  of any of  such  Person's  Organization  Documents;  (b)
conflict with or result in any breach or  contravention  of, (i) any Contractual
Obligation (other than the Collateral Documents) to which such Person is a party
or (ii) any order,  injunction,  writ or decree of any Governmental Authority or
any arbitral  award to which such Person or its property is subject,  except for
any such conflict,  breach or contravention  that would not be reasonably likely
to have a Material Adverse Effect;  (c) result in the creation of any Lien under
any  Contractual  Obligations  to which such Person is a party (other than Liens
permitted  by this  Agreement);  or (d)  violate  any Law,  except  for any such
violation that would not be reasonably likely to have a Material Adverse Effect.

      5.03 Governmental Authorization.

      No approval,  consent,  exemption,  authorization,  or other action by, or
notice to, or filing  with,  any  Governmental  Authority or any other Person is
necessary or required in connection with the execution,  delivery or performance
by, or enforcement  against,  any Loan Party of this Agreement or any other Loan
Document except for actions and filings  necessary to create or perfect Liens in
the  Collateral  and  except  for  any  such   approval,   consent,   exemption,
authorization or other action, or notice or filing that has been made,  obtained
or  given or that if not  obtained  would  not be  reasonably  likely  to have a
Material Adverse Effect.

      5.04 Binding Effect.

      This  Agreement has been,  and each other Loan  Document,  when  delivered
hereunder,  will have been,  duly executed and delivered by each Loan Party that
is party thereto. This Agreement constitutes,  and each other Loan Document when
so delivered will constitute,  a valid and binding obligation of such Loan Party
enforceable  against  such Loan Party in  accordance  with its terms,  except as
enforceability   may  be   limited   by   applicable   bankruptcy,   insolvency,
reorganization,   moratorium  or  similar  Laws  affecting  the  enforcement  of
creditors'  rights  generally  and  by  general  equitable  principles  (whether
enforcement is sought by proceedings in equity or at law).

      5.05 Financial  Statements;  No Material Adverse Effect,  Internal Control
Event.

      (a) The Audited Financial  Statements (i) were prepared in accordance with
GAAP  consistently  applied  throughout  the period covered  thereby,  except as
otherwise  noted  therein and (ii) fairly  present in all material  respects the
financial  condition of Playboy and its  Subsidiaries as of the date thereof and
their results of operations  for the period covered  thereby in accordance  with
GAAP  consistently  applied  throughout  the period covered  thereby,  except as
otherwise noted therein.

      (b)  Since  the date of the  Audited  Financial  Statements,  no  Internal
Control Event has occurred.

      5.06 Litigation.

      Except as  specifically  disclosed  in Schedule  5.06 hereto and except as
disclosed on the most recent 10-K and 10-Q filings of Playboy, as of the Closing
Date, there are no actions, suits,  proceedings,  claims or disputes pending or,
to the  knowledge  of Borrower,  threatened  in writing,  at law, in equity,  in
arbitration or before any Governmental  Authority,  by or against Playboy or any
of its  Restricted  Subsidiaries  that (a)  expressly  assert the  invalidity or
unenforceability  of this  Agreement or any other Loan  Document,  or any of the
transactions  contemplated  hereby,  or (b) as to which  there  is a  reasonable
possibility of an adverse determination and that, if determined adversely, would
either  individually  or in the  aggregate  reasonably  be  expected  to  have a
Material Adverse Effect.

                                      -38-
<PAGE>

      5.07 No Default or Event of Default.

      No Default or Event of Default has  occurred  and is  continuing  or would
result from the consummation of the transactions  contemplated by this Agreement
or any other Loan Document.

      5.08 Environmental Compliance.

      Except  as  specifically  disclosed  in  Schedule  5.08  hereto,  to their
knowledge,  Playboy  and  its  Restricted  Subsidiaries  have no  liability  for
violation of any applicable  Environmental  Laws, except any such liability that
would not,  individually  or in the aggregate,  reasonably be expected to have a
Material Adverse Effect.

      5.09 Insurance.

      The properties of Playboy and its Restricted Subsidiaries are insured with
reputable  insurance  companies  in such  amounts,  after  giving  effect to any
self-insurance  compatible with the following  standards,  with such deductibles
and  covering  such risks as are  customarily  carried by  companies  engaged in
similar businesses.

      5.10 Taxes.

      Playboy and its Restricted  Subsidiaries  have filed all material Federal,
state and other tax returns and reports  required to be filed, and have paid all
material  Federal,   state  and  other  taxes,   assessments,   fees  and  other
governmental charges levied or imposed upon them or their properties,  income or
assets otherwise due and payable, except those which are being contested in good
faith by  appropriate  proceedings  diligently  conducted and for which adequate
reserves have been  provided in accordance  with GAAP (or in the case of Foreign
Subsidiaries,  generally accepted  accounting  principles in effect from time to
time  in  their  respective   jurisdictions  of  organization).   To  Borrower's
knowledge, there is no proposed tax assessment against Playboy or any Restricted
Subsidiary  of Playboy  that would,  if made,  reasonably  be expected to have a
Material Adverse Effect.

      5.11 ERISA Compliance.

      (a)  Each  Plan  is in  compliance  in  all  material  respects  with  the
applicable provisions of ERISA, the Code and other Federal or state Laws, except
for any such  noncompliance  which  would not  reasonably  be expected to have a
Material  Adverse  Effect.  Each Plan that is intended to qualify  under Section
401(a) of the Code has received a favorable determination letter from the IRS or
an application  for such a letter is currently  being  processed by the IRS with
respect  thereto and, to the knowledge of Borrower,  nothing has occurred  which
would  prevent,  or cause  the  loss  of,  such  qualification,  except  for any
non-qualification  which  would not  reasonably  be  expected to have a Material
Adverse  Effect.  Playboy  and each  ERISA  Affiliate  have  made  all  required
contributions to each Plan subject to Section 412 of the Code,  except where the
failure to do so would not  reasonably  be expected  to have a Material  Adverse
Effect,  and  no  application  for a  funding  waiver  or an  extension  of  any
amortization  period  pursuant  to  Section  412 of the Code has been  made with
respect to any Plan.

      (b) There are no pending  or, to the  knowledge  of  Borrower,  threatened
claims,  actions or  lawsuits,  or action by any  Governmental  Authority,  with
respect to any Plan that would reasonably be expected to have a Material Adverse
Effect.  There has been no prohibited  transaction or violation of the fiduciary
responsibility  rules  with  respect  to any  Plan  that has  resulted  or would
reasonably be expected to result in a Material Adverse Effect.

      (c) (i) No ERISA Event has  occurred or is  reasonably  expected to occur;
(ii) no Pension Plan has any Unfunded Pension  Liability;  (iii) neither Playboy
nor any ERISA  Affiliate  has  incurred,  or  reasonably  expects to incur,  any
liability  under Title IV of ERISA with  respect to any Pension Plan (other than
premiums  due and not  delinquent  under  Section  4007 of ERISA);  (iv) neither
Playboy nor any ERISA  Affiliate has incurred,  or reasonably  expects to incur,
any liability (and no event has occurred which,  with the giving of notice under
Section 4219 of ERISA,  would result in such  liability)  under Sections 4201 or
4243 of ERISA with respect to a Multiemployer  Plan; and (v) neither Playboy nor
any ERISA  Affiliate  has  engaged  in a  transaction  that  could be subject to
Sections  4069 or 4212(c) of ERISA,  except for any such  events  that would not
reasonably be expected to have a Material Adverse Effect.

                                      -39-
<PAGE>

      5.12 Subsidiaries.

      As of the  Closing  Date,  Playboy  has no  Subsidiaries  other than those
disclosed  in Part (a) of  Schedule  5.12  and  neither  Playboy  nor any of its
Subsidiaries has any equity investments in any other corporation or entity other
than those  disclosed in Part (b) of Schedule 5.12. All Restricted  Subsidiaries
of Playboy as of the Closing Date are identified as such on Part (a) of Schedule
5.12.

      5.13 Disclosure.

      All factual information (taken as a whole) heretofore or contemporaneously
furnished  by or on behalf of Playboy,  Borrower or any of its  Subsidiaries  in
writing to Agent or any Lender (including,  without limitation,  all information
contained  in the Loan  Documents)  for purposes of or in  connection  with this
Agreement or any transaction  contemplated herein is, and all other such factual
information  (taken as a whole) hereafter  furnished by or on behalf of Playboy,
Borrower  or any of its  Subsidiaries  in  writing  to Agent or any  Lender  for
purposes of or in connection with this Agreement or any transaction contemplated
herein,  when taken as a whole,  does not contain as of the date  furnished  any
untrue  statement of material fact or omit to state a material fact necessary in
order  to make the  statements  contained  herein  or  therein,  in light of the
circumstances  under which they were made, not misleading;  provided that to the
extent any such factual  information was based upon or constituted a forecast or
projection, Playboy, Borrower and each Subsidiary represent only that they acted
in good  faith  and  utilized  assumptions  reasonable  at the time  made in the
preparation of such factual  information (it being  understood that no assurance
has been or will be given that any  forecast or  projection  has been or will be
achieved).

      5.14 Compliance with Laws.

      Playboy,  each Restricted  Subsidiary of Playboy and each other Company is
in  compliance  in all  material  respects  with  the  requirements  of all Laws
applicable to it and all orders, writs, injunctions and decrees applicable to it
or to its properties,  except in such instances in which (a) such requirement of
Law or order,  writ,  injunction  or decree is being  contested in good faith by
appropriate  proceedings  diligently  conducted  or (b) the  failure  to  comply
therewith,  either  individually  or in the  aggregate,  would not reasonably be
expected to have a Material Adverse Effect.

      5.15 Margin  Regulations;  Investment  Company Act; Public Utility Holding
Company Act.

      (a)  Borrower  is not  engaged,  principally,  or as one of its  important
activities,  in the business of purchasing or carrying  margin stock (within the
meaning of  Regulation  U issued by the Federal  Reserve  Board),  or  extending
credit for the purpose of purchasing or carrying margin stock.

      (b) None of  Playboy or any  Restricted  Subsidiary  of  Playboy  (i) is a
"holding  company" within the meaning of, or subject to regulations  under,  the
Public  Utility  Holding  Company Act of 1935, or (ii) an  "investment  company"
under the Investment Company Act of 1940.

      5.16 Senior Secured Note Tender; Convertible Note Debt.

      (a) The Senior  Secured Notes have been  satisfied and  discharged and all
Liens securing the Senior Secured Notes have been released.

      (b) Playboy has issued  $115,000,000 of the Convertible  Notes pursuant to
the terms of the Offering Memorandum and the Convertible Note Documents.

ARTICLE VI AFFIRMATIVE COVENANTS

      So long as any Lender  shall have any  Commitment  hereunder,  any Loan or
other  Obligation  shall remain  unpaid or  unsatisfied  (other than  unasserted
contingent  indemnity  obligations),  or  any  Letter  of  Credit  shall  remain
outstanding,  Borrower shall, and shall (except in the case of the covenants set
forth in Sections 6.01,  6.02,  6.03 and 6.08) cause Playboy and each Restricted
Subsidiary of Playboy, as applicable, to:

                                      -40-
<PAGE>

      6.01 Financial Statements.

      Deliver to Agent the following and Agent shall provide  copies  thereof to
each Lender:

      (a) as soon as available, but in any event within 95 days after the end of
each fiscal year of Borrower,  a  consolidated  balance sheet of Playboy and its
Restricted  Subsidiaries  as at the end of such  fiscal  year,  and the  related
consolidated  statements of income or operations,  shareholders' equity and cash
flows for such fiscal year,  setting forth in each case in comparative  form the
figures for the  previous  fiscal year and  prepared  in  accordance  with GAAP,
audited and accompanied by (i) a report and opinion of an independent  certified
public accountant of nationally recognized standing reasonably acceptable to the
Required Lenders,  which report and opinion shall be prepared in accordance with
generally accepted auditing  standards and applicable  Securities Laws and shall
not be subject to any "going concern" or like  qualification or exception or any
qualification  or exception as to the scope of such audit and (ii) if Playboy is
then subject to Section 404 of  Sarbanes-Oxley,  an  attestation  report of such
certified  public  accountant as to  management's  report on Playboy's  internal
control over  financial  reporting  showing no Internal  Control Event or Events
that, in the aggregate,  would reasonably be expected to have a Material Adverse
Effect; and

      (b) as soon as available, but in any event within 65 days after the end of
each of the first three  fiscal  quarters  of each  fiscal  year of  Playboy,  a
consolidated balance sheet of Playboy and its Restricted  Subsidiaries as at the
end of such fiscal quarter, and the related consolidated statements of income or
operations,  shareholders' equity and cash flows for such fiscal quarter and for
the portion of Playboy's  fiscal year then ended,  setting forth in each case in
comparative  form  the  figures  for the  corresponding  fiscal  quarter  of the
previous fiscal year and the corresponding  portion of the previous fiscal year,
all  certified by a Responsible  Officer of Playboy as fairly  presenting in all
material respects the financial condition,  results of operations,  shareholders
equity and cash flows of Playboy and its Restricted  Subsidiaries  in accordance
with GAAP, subject only to normal year-end adjustments.

      6.02 Certificates; Other Information.

      Deliver to Agent the following  (and Agent shall provide copies thereof to
each Lender):

      (a) concurrently with the delivery of the financial statements referred to
in  Section  6.01(a),   a  certificate  of  its  independent   certified  public
accountants certifying such financial statements;

      (b) concurrently with the delivery of the financial statements referred to
in Sections 6.01(a) and (b), a duly completed Compliance Certificate signed by a
Responsible Officer of Borrower;

      (c) as soon as reasonably  practicable,  after any request by Agent or any
Lender  (through  Agent),  copies of any audit  reports  or  management  letters
submitted  to the Board of  Directors  (or the audit  committee  of the Board of
Directors) of Playboy by independent accountants in connection with the accounts
or books of Playboy or any audit of Playboy;

      (d) as soon as available, but in any event within 90 days after the end of
any fiscal year of  Borrower,  an annual  budget for Playboy and its  Restricted
Subsidiaries for the succeeding  fiscal year,  prepared on a consolidated  basis
and in conformity with the financial  statements furnished under Section 6.01(a)
and (b), signed by a Responsible  Officer and consisting of at least a projected
income  statement  and a  projected  cash flow  statement,  each  prepared  on a
quarterly basis, and a projected balance sheet prepared on an annual basis;

      (e) promptly after the same are publicly available,  copies of each annual
report,  proxy or financial  statement or other report or communication  sent to
the  stockholders of Playboy,  and copies of all annual,  regular,  periodic and
special  reports  and  registration  statements  which  Playboy  may  file or be
required to file with the  Securities  and Exchange  Commission,  whether  under
Section 13 or 15(d) of the Exchange Act, or otherwise,  including each Form 10-K
Annual Report,  Form 10-Q  Quarterly  Report and Form 8-K Current Report and not
otherwise required to be delivered to Agent pursuant hereto; and

      (f)  as  soon  as  reasonably  practicable,  such  additional  information
regarding  the  business,  financial  or  corporate  affairs  of  Playboy or any
Subsidiary,  or compliance with the terms of the Loan Documents, as Agent or

                                      -41-
<PAGE>

any Lender (through Agent) may from time to time reasonably request, in form and
detail reasonably satisfactory to Agent.

      6.03 Notices.

      Promptly notify Agent:

      (a) of the occurrence of any Default or Event of Default;

      (b) of any matter  that has  resulted or could  reasonably  be expected to
result in a Material  Adverse Effect (other than an Internal Control Event which
shall be reported in accordance with clause (d) below);

      (c) the occurrence of any ERISA Event; and

      (d) the occurrence of any of the following events:

      (i) any Internal Control Event which is required to be publicly  disclosed
of which a Responsible  Officer (other than a Responsible Officer committing the
fraud constituting such Internal Control Event) has knowledge, or

      (ii) any Internal Control Event of which a Responsible Officer (other than
a Responsible  Officer  committing the fraud  constituting such Internal Control
Event) has  knowledge  which  would  reasonably  be  expected to have a Material
Adverse Effect.

      Each notice  pursuant to this Section shall be  accompanied by a statement
of a Responsible  Officer of Playboy  setting  forth  details of the  occurrence
referred to therein and stating  what action  Playboy has taken and  proposes to
take with respect thereto.

      6.04 Preservation of Existence, Etc.

      (a)  Preserve,  renew and  maintain  in full  force and  effect  its legal
existence  and  good  standing  under  the  Laws  of  the  jurisdiction  of  its
organization,  except in a  transaction  permitted  by Section  7.04 or 7.05 and
except when the failure to maintain good standing would not be reasonably likely
to have a  Material  Adverse  Effect;  and (b) take  all  reasonable  action  to
maintain all  material  rights,  privileges,  permits,  licenses and  franchises
necessary in the normal  conduct of business,  except to the extent that failure
to do so would not reasonably be expected to have a Material Adverse Effect.

      6.05 Compliance with Laws.

      Comply in all material respects with the requirements of all Laws, and all
orders,  writs,  injunctions and decrees  applicable to it or to its business or
property,  except  in such  instances  in which (a) such  requirement  of Law or
order,  writ,  injunction  or  decree  is  being  contested  in  good  faith  by
appropriate  proceedings  diligently  conducted;  or (b) the  failure  to comply
therewith would not reasonably be expected to have a Material Adverse Effect.

      6.06 Books and Records.

      (a) Maintain in all material  respects proper books of record and account,
in which correct entries in conformity with GAAP  consistently  applied shall be
made of all appropriate  transactions  and matters of Playboy or each Restricted
Subsidiary of Playboy, as the case may be; and (b) maintain such books of record
and account in  material  conformity  with all  applicable  requirements  of any
Governmental  Authority  having  regulatory  jurisdiction  over  Playboy  or any
material Restricted Subsidiary, as the case may be.

                                      -42-
<PAGE>

      6.07 Inspection Rights.

      Permit  representatives and independent  contractors of Agent to visit and
inspect any of its properties, to examine its corporate, financial and operating
records, and make copies thereof or abstracts  therefrom,  and, provided that an
officer of  Borrower  is then  present,  to discuss its  affairs,  finances  and
accounts  with its  officers  and  Playboy's or  Borrower's  independent  public
accountants,  all at the reasonable  expense of Borrower and at reasonable times
during  normal  business  hours,  upon  reasonable  advance  notice to Borrower;
provided,  however, that Borrower's obligation to reimburse Agent for reasonable
expenses  incurred in connection  with such  inspections  shall be limited to no
more than one (1) inspection  during any calendar year if such  inspections  are
conducted at a time when no Event of Default or Default  shall have occurred and
is continuing.

      6.08 Use of Proceeds.

      Use the proceeds of the Credit Extensions for general  corporate  purposes
not in contravention of any Law or of any Loan Document; provided, however, that
except as provided  in Section  7.08,  in no event shall  proceeds of the Credit
Extensions be used to make any payment in respect of the Convertible Note Debt.

      6.09 Financial Covenants

      (a) Net Worth. Maintain Net Worth on the last day of each calendar quarter
hereafter  commencing  on March 31, 2005, at least equal to the Base Amount plus
the Increase Amount applicable as of such day.

      (b) Interest  Coverage  Ratio.  Maintain an Interest  Coverage Ratio of at
least the ratio  indicated below for the twelve (12) month period ending on each
date below:

                               Date                                    Ratios
                               ----                                    ------

                 March 31, 2005 and June 30, 2005                    1.75 : 1.0

                 September 30, 2005 and each December 31,
                 March 31, June 30 and September 30 thereafter       3:00 : 1.0

      (c) Capital Expenditures. Not to spend or incur obligations (including the
total  amount of any  capital  leases)  to  acquire  fixed  assets for more than
Fifteen  Million  Dollars   ($15,000,000)   in  any  single  fiscal  year  on  a
consolidated basis.

      6.10 Additional Guarantors.

      Notify Agent at the time that any Person (other than a Playboy.com Entity)
becomes a Domestic  Restricted  Subsidiary  of  Playboy,  and in the case of the
Playboy.com  Entities,  at such  time  as  such  Playboy.com  Entity  becomes  a
Wholly-Owned  Restricted  Subsidiary of Playboy, and promptly thereafter (and in
any event  within 30 days),  cause  such  Person to (a)  become a  Guarantor  by
executing and delivering to Agent a Loan Guaranty or Loan Guaranty  joinder in a
form reasonably  acceptable to Agent, (b) deliver to Agent documents  reasonably
necessary to grant to Agent (and permit Agent to perfect) a Lien on the personal
property  of  such  Person  to  the  extent  permitted  herein,  (c)  cause  the
appropriate  Person to deliver to Agent a Pledge  Agreement  granting to Agent a
Lien on the Equity  Interests of such Person and (d) deliver to Agent  documents
of the types  referred  to in  clause  (vi) of  Section  4.01(a)  and  favorable
opinions of counsel  (including  in-house  counsel) to such Person  (which shall
cover,  among  other  things,  the  legality,   validity,   binding  effect  and
enforceability  of the  documentation  referred to in clauses (a), (b) and (c)),
all in form, content and scope reasonably satisfactory to Agent.

      6.11 Designation of Restricted and Unrestricted Subsidiaries.

      The Board of Directors of Playboy may designate any Restricted  Subsidiary
of Playboy as an Unrestricted  Subsidiary if that designation  would not cause a
Default or an Event of Default; provided that in no event shall (a) the business
currently  operated by any  Playboy.com  Entity be  transferred to or held by an
Unrestricted   Subsidiary,   (b)  Borrower  be  designated  as  an  Unrestricted
Subsidiary or (c) any Restricted  Subsidiary in existence

                                      -43-
<PAGE>

on the Closing Date be designated as an  Unrestricted  Subsidiary,  other than a
Restricted Subsidiary that is being merged, consolidated,  dissolved, liquidated
or wound up, or is selling all of its assets, in each case as permitted pursuant
to Section  7.04. If a Restricted  Subsidiary  is designated as an  Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments owned
by Playboy and its Restricted  Subsidiaries in the Subsidiary so designated will
be deemed to be an Investment  made as of the time of such  designation and that
designation will only be permitted if such Investment would be permitted at that
time and if such  Restricted  Subsidiary  otherwise  meets the  definition of an
Unrestricted  Subsidiary.  The Board of  Directors  of  Playboy  may at any time
designate any  Unrestricted  Subsidiary  as a Restricted  Subsidiary of Playboy;
provided  that  such  designation  shall  be  deemed  to  be  an  incurrence  of
Indebtedness   by  a  Restricted   Subsidiary  of  Playboy  of  any  outstanding
Indebtedness of such Unrestricted  Subsidiary and such designation shall only be
permitted if (i) such  Indebtedness is permitted under Section 7.03,  calculated
on a proforma basis as if such  designation had occurred at the beginning of the
four-quarter  reference  period;  and (ii) no Default or Event of Default  would
have occurred and be continuing following such designation.

      6.12 Payment of Obligations.

      Pay and  discharge  as the same  shall  become  due and  payable,  all its
obligations  and  liabilities,  including  (a)  all  material  tax  liabilities,
assessments  and  governmental  charges or levies upon it or its  properties  or
assets,  unless  the same  are  being  contested  in good  faith by  appropriate
proceedings  diligently  conducted and adequate reserves in accordance with GAAP
are being  maintained  by Borrower  or such  Subsidiary;  (b) all lawful  claims
which,  if unpaid,  would by law become a Lien upon its property which would not
be permitted  under  Section 7.01,  unless the same are being  contested in good
faith by appropriate  proceedings  diligently conducted and adequate reserves in
accordance with GAAP are being  maintained by Borrower or such  Subsidiary;  and
(c)  all  Indebtedness,  as  and  when  due  and  payable,  but  subject  to any
subordination  provisions  contained in any  instrument or agreement  evidencing
such Indebtedness, except to the extent that the same is being contested in good
faith by appropriate  proceedings  diligently conducted and adequate reserves in
accordance  with GAAP are maintained by Borrower or such  Subsidiary,  except to
the extent the  failure to pay or  discharge  the same would not  reasonably  be
expected to have a Material Adverse Effect.

      6.13 Maintenance of Properties.

      (a)  Maintain,  preserve  and protect all of its material  properties  and
equipment  necessary in the  operation of its business in good working order and
condition,  ordinary  wear  and  tear  excepted;  and (b)  make  all  reasonably
necessary repairs thereto and renewals and replacements thereof except where the
failure to do so would not  reasonably  be expected  to have a Material  Adverse
Effect.

      6.14 Maintenance of Insurance.

      Maintain  with  financially  sound  and  reputable  insurance   companies,
insurance with respect to its properties and business  against loss or damage of
the kinds customarily  insured against by Persons engaged in the same or similar
business,  of such  types  and in  such  amounts  (after  giving  effect  to any
self-insurance  compatible  with the  following  standards)  as are  customarily
carried under similar  circumstances by such other Persons and providing for not
less than 30 days' prior notice to Agent of  termination,  lapse or cancellation
of such insurance.

ARTICLE VII NEGATIVE COVENANTS

      So long as any Lender  shall have any  Commitment  hereunder,  any Loan or
other  Obligation  hereunder  shall  remain  unpaid or  unsatisfied  (other than
unasserted  contingent  indemnity  obligations),  or any Letter of Credit  shall
remain  outstanding,  Borrower  shall  not,  nor shall it permit  Playboy or any
Restricted Subsidiary of Playboy to, directly or indirectly:

      7.01 Liens.

      Create,  incur,  assume  or  suffer  to  exist,  any Lien  upon any of its
property,  assets or revenues,  whether now owned or hereafter  acquired,  other
than the following:

      (a) Liens securing the Obligations;

                                      -44-
<PAGE>

      (b) Liens in favor of Borrower or any Guarantor;

      (c) Liens on  property  or assets  of a Person  existing  at the time such
Person is acquired by, merged with or into or  consolidated  with Playboy or any
of its  Restricted  Subsidiaries;  provided  that such Liens were not created in
contemplation  of such merger or  consolidation  and do not extend to any assets
other than those of the Person merged into or  consolidated  with Playboy or the
Restricted Subsidiary;

      (d)  Liens on  property  or  assets  existing  at the time of  acquisition
thereof by Playboy or any of its  Restricted  Subsidiaries,  provided  that such
Liens were not created in contemplation of such acquisition and do not extend to
any property other than the property or assets so acquired;

      (e) Liens  existing  on the date  hereof and any  renewals,  refinancings,
replacements  or  extensions  thereof,  provided  that (i) the property  covered
thereby is not changed,  (ii) the principal amount secured or benefited  thereby
is not,  in whole or in part,  increased,  (iii) the  direct  or any  contingent
obligor with respect thereto is not changed, and (iv) any renewal,  refinancing,
replacement  or extension  of the  obligations  secured or benefited  thereby is
permitted by Section 7.03(j);

      (f) Liens securing  judgments for the payment of money not constituting an
Event of Default under Section 8.01(g);

      (g) Liens securing Indebtedness permitted under Section 7.03(d);  provided
that (i) such  Liens do not at any time  encumber  any  property  other than the
property  financed,  constructed or improved by such  Indebtedness  and (ii) the
Indebtedness  secured  thereby  does not exceed the cost or fair  market  value,
whichever is lower,  of the property being acquired or the portion thereof being
constructed or improved on the date of  acquisition  or the  completion  date of
such construction or improvement;

      (h) Liens for taxes,  assessments or other governmental  charges or levies
not yet delinquent or thereafter  payable  without  penalty,  or which are being
contested in good faith and by appropriate  proceedings diligently conducted, if
adequate  reserves  with  respect  thereto  are  maintained  on the books of the
applicable Person in accordance with GAAP;

      (i)  carriers',  warehousemen's,  landlords',  mechanics',  materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are not overdue  for a period of more than 60 days or which are being  contested
in good faith and by appropriate  proceedings diligently conducted,  if adequate
reserves  with respect  thereto are  maintained  on the books of the  applicable
Person;

      (j)  modifications,  extensions,  renewals  or  replacements  of any Liens
referred  to in  clauses  (c),  (d),  (e) or (g) hereof in  connection  with the
refinancing, refunding or extension of the obligations secured thereby, provided
that such Lien does not extend to any other property and, except as contemplated
in Section 7.03, the amount secured by such Lien is not increased (except to the
extent of fees, interest and premium in connection thereto);

      (k) utility  deposits and deposits to secure the  performance  of tenders,
bids,   trade  contracts  and  leases  (other  than   Indebtedness),   statutory
obligations,  surety and appeal bonds, performance or completion bonds and other
obligations  of a like  nature  incurred  in the  ordinary  course  of  business
(including bonds in connection with sweepstakes);

      (l) Liens in favor of customs and revenue  authorities arising as a matter
of law to secure payment of customs duties in connection with the importation of
goods and other similar Liens arising in the ordinary course of business;

      (m) licenses,  leases,  subleases and sublicenses granted to third Persons
not materially  interfering  with the ordinary course of business of Playboy and
its Restricted Subsidiaries taken as a whole;

      (n) pledges or deposits in the ordinary  course of business in  connection
with workers'  compensation,  unemployment  insurance and other social  security
legislation, other than any Lien imposed by ERISA;

                                      -45-
<PAGE>

      (o) deposits made in the ordinary  course of business to secure  liability
to insurance carries;

      (p) licensing  agreements,  options and negotiation rights with respect to
intellectual  property or any rights therein entered into in the ordinary course
of business;

      (q) Liens arising from Uniform Commercial Code filings regarding operating
leases entered into by Playboy and its Restricted  Subsidiaries  in the ordinary
course of business;

      (r) Liens securing Swap Contracts entered into for the purpose of managing
interest  rate risk with  respect  to the  Obligations  which are not  otherwise
prohibited hereunder;

      (s) any Lien arising as a result of the Hefner Option;

      (t)  Liens on any item of  Product  or  rights in  Product  to the  extent
securing  residuals,  deferments  or  participations  payable  by Playboy or any
Restricted  Subsidiary of Playboy relating  exclusively to such items of Product
or rights in Product;

      (u)  Liens on any  asset  relating  to any item of  Product  or  rights in
Product  acquired by Playboy or any of its  Restricted  Subsidiaries  granted in
accordance with customary  industry practice in favor of any lender or financier
financing any or all of the development, acquisition or production costs of such
item of  Product  or in favor  of any  person  guaranteeing  the  completion  of
production  or delivery of such item of Product,  provided  the Lien is and will
remain confined to the same Product or rights in Product so acquired;

      (v)  easements,  rights-of-way,  restrictions,  covenants,  encroachments,
variations,  subdivisions,  minor defects or  irregularities  in title and other
similar encumbrances affecting real property which, in the aggregate,  would not
reasonably be expected to have a Material Adverse Effect;

      (w) Liens listed as title  exceptions in the title insurance  policies (or
any date-down endorsement thereof acceptable to Agent in reasonable judgment) or
as otherwise  described in the reports on title  delivered to Agent  relating to
the Playboy Mansion;

      (x)  Liens of  sellers  of goods to  Playboy  and any of its  Subsidiaries
arising under Article 2 of the Uniform  Commercial Code or similar provisions of
applicable law in the ordinary course of business,  covering only the goods sold
and securing only the unpaid purchase price for such goods and related expenses;

      (y)  normal and  customary  rights of  setoff,  banker's  liens or similar
rights upon deposits of cash or investments in favor of banks or other financial
institutions and Liens of a collecting bank arising under the Uniform Commercial
Code on payment items in the course of collection;

      (z)  Liens on Cash  Equivalents  deemed  to exist in  connection  with and
securing  transactions  of the type set forth in clause (d) of the definition of
"Cash Equivalents";

      (aa)  Liens on  property  or assets  of any  Foreign  Subsidiary  securing
Indebtedness permitted under Section 7.03(i);

      (bb) rights of distributors,  exhibitors,  and other Persons which are not
Affiliates  of Borrower  or any of the  Restricted  Subsidiaries  in any item of
Product created in connection with the  distribution or exploitation of any such
item of Product or rights in Product in the ordinary course of business;

      (cc) Liens  granted in  accordance  with  customary  industry  practice to
distributors  or licensees  which are not  Affiliates  of Borrower or any of the
Restricted  Subsidiaries  to  secure  the  exploitation  rights  or  any  rights
ancillary thereto in items of Product or rights in Product licensed or leased to
such distributors or licensees, provided that the collateral subject to any such
Lien shall be limited to such rights  licensed or leased to such  distributor or
licensee,  the Product and proceeds of such rights and a non-exclusive  right of
access to customary duplicating materials to exercise such rights;

                                      -46-
<PAGE>

      (dd) Liens of film  laboratories,  sound studios or similar  production or
postproduction  facilities  which are not  Affiliates  of Borrower or any of the
Restricted Subsidiaries incurred in the ordinary course of business for sums not
yet delinquent or which are being contested in good faith; and

      (ee) Liens not otherwise  permitted  hereunder security  Indebtedness in a
principal amount outstanding not in excess of $10,000,000.

      7.02 Investments.

      Make any Investments, except:

      (a) any  Investment  in Playboy,  Borrower or a Restricted  Subsidiary  of
Playboy;

      (b) any  Investment  in cash or Cash  Equivalents  and, in the case of any
Foreign Subsidiary,  Investments in short-term instruments substantially similar
to Cash Equivalents and customarily used in the country in which such Subsidiary
is located;

      (c) any Investment by Playboy,  Borrower or any  Restricted  Subsidiary of
Playboy in a Person at a time when no Event of Default is in existence,  if as a
result of such Investment;

            (i) such Person  becomes a  Restricted  Subsidiary  of Playboy and a
      Guarantor; or

            (ii) such  Person is merged,  consolidated  or  amalgamated  with or
      into,  or transfers or conveys  substantially  all of its assets to, or is
      liquidated  into,  Playboy,   Borrower,   or  a  Wholly-Owned   Restricted
      Subsidiary of Playboy that is a Guarantor;

      (d)  any  Investment   made  as  a  result  of  the  receipt  of  non-cash
consideration  from a  Disposition  that was made  pursuant to and in compliance
with Section 7.05;

      (e) any Investment solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of Playboy;

      (f) Investments consisting of Swap Contracts;

      (g) any  Investment  made solely to fund Playboy's  deferred  compensation
plans for employees and  non-employee  directors or any successor plans approved
by the Board of Directors of Playboy;

      (h) any Investments received in satisfaction of judgments,  settlements of
debt or compromises of obligations  incurred in the ordinary course of business,
including pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy  or  insolvency  of any trade  creditor,  customer  or joint  venture
partner;

      (i)  Investments  in  joint  ventures  to  which  Playboy,  Borrower  or a
Restricted Subsidiary of Playboy is party and not otherwise permitted hereunder,
in an aggregate amount not to exceed $5,000,000;

      (j)  Investments in a Person  received solely in exchange for (a) licenses
to intellectual  property (other than an exclusive license or licenses to use in
the United States or a majority of states or states  incorporating a majority of
the  population of the United States thereof (i) the Playboy name or Rabbit Head
Design  for  all  or  substantially  all  of  its  current  uses,  (ii)  all  or
substantially  all of the  video  and  film  library  owned by  Playboy  and its
Subsidiaries  for all or  substantially  all of its current uses or (iii) all or
substantially all of the image library owned by Playboy and its Subsidiaries for
all or substantially  all of its current uses) or (b) other property  (excluding
cash or Cash  Equivalents) in an aggregate  amount in the case of clause (b) not
to exceed $5,000,000;

      (k) Investments deemed to have been made as a result of the acquisition of
a Person  that at the time of such  acquisition  held  instruments  constituting
Investments  that were not acquired in  contemplation of the acquisition of such
Person;

                                      -47-
<PAGE>

      (l)  Investments  consisting  of  extensions  of credit  in the  nature of
accounts  receivable or notes receivable  arising from the grant of trade credit
and  prepaid  expenses  in the  ordinary  course of  business,  and  Investments
received  in  satisfaction  or partial  satisfaction  thereof  from  financially
troubled account debtors to the extent reasonably  necessary in order to prevent
or limit loss;

      (m) Guarantees permitted by Section 7.03;

      (n)  advances  to  officers,  directors  and  employees  of  Borrower  and
Subsidiaries  in an  aggregate  amount  not to  exceed  $2,000,000  at any  time
outstanding;

      (o) Investments permitted under Sections 7.06 and 6.09(c);

      (p) Deposits of cash with banks or other  depository  institutions  in the
ordinary  course of business and  deposits  required by  government  agencies or
utilities;

      (q) Investments existing on the date hereof and set forth on Schedule 7.02
and any modification,  replacement, renewal or extension thereof; provided, that
the amount of the original  investment is not  increased  except by the terms of
such Investment or as otherwise permitted by this Section 7.02;

      (r)  Investments  by Borrower and the  Restricted  Subsidiaries  in Equity
Interests  of  Persons  that,  upon  the  making  of  such  investments,  become
Wholly-Owned Restricted Subsidiaries of Playboy; provided that (i) the ownership
by the Borrower of such persons is consistent  with the  limitations  of Section
7.10,  (ii) no Default or Event of Default  results  from the making of any such
investment,  (iii) all of the  provisions  of Section  6.10 are  satisfied  with
respect to such  Persons  and (iv)  prior to the  making of any such  investment
Borrower shall have delivered to the Agent calculations  demonstrating pro forma
compliance with the covenants  contained in Sections 6.09(a) and (b) computed as
of the last day of the most recently ended calendar quarter but having given pro
forma effect to such incurrence; and

      (s) Investments not otherwise  permitted hereunder in any Person having an
aggregate fair market value  (measured on the date each such Investment was made
and without giving effect to subsequent  changes in value),  when taken together
with all other  Investments  made  pursuant  to this  clause  (s) since the date
hereof, do not exceed $15,000,000.

      7.03 Indebtedness.

      Create,  incur,  assume or suffer to exist any Indebtedness,  unless after
giving effect to such incurrence, the Leverage Ratio for the most recently ended
four full fiscal quarters for which internal financial  statements are available
immediately  preceding  the date of such  incurrence,  determined on a pro forma
basis, would be less than or equal to 5.00:1.0. In addition, and subject to such
incurrence  limitation,  Borrower  shall not, nor shall it permit Playboy or any
Restricted  Subsidiary of Playboy to,  directly or  indirectly,  create,  incur,
assume or suffer to exist any Indebtedness except:

      (a) Indebtedness, including L/C Obligations, under the Loan Documents;

      (b) the Convertible Note Debt;

      (c)  Indebtedness  outstanding  on the date  hereof and listed on Schedule
7.03;

      (d) Indebtedness in respect of Capital Lease Obligations,  Synthetic Lease
Obligations,  mortgage  financings  and purchase  money  obligations to acquire,
construct or improve fixed or capital assets within the limitations set forth in
Section 7.01(g);  provided,  however, that the aggregate principal amount of all
such Indebtedness at any one time outstanding shall not exceed $5,000,000.

      (e) Indebtedness owed to Playboy or any of its Restricted Subsidiaries;

                                      -48-
<PAGE>

      (f)  obligations  (contingent  or otherwise) of Borrower or any Subsidiary
existing or arising under any Swap Contract,  provided that (i) such obligations
are (or were) entered into by such Person in the ordinary course of business for
the  purpose  of  directly   mitigating  risks   associated  with   liabilities,
commitments,  investments, assets, or property held or reasonably anticipated by
such Person,  or changes in the value of securities  issued by such Person,  and
not for purposes of  speculation  or taking a "market  view;" and (ii) such Swap
Contract does not contain any provision  exonerating  the  non-defaulting  party
from  its  obligation  to  make  payments  on  outstanding  transactions  to the
defaulting party;

      (g)  Guarantees  of  Playboy,  Borrower or any  Subsidiary  of Borrower in
respect  of  Indebtedness  otherwise  permitted  hereunder  of  Borrower  or any
Restricted Subsidiary of Playboy;

      (h) Acquired Debt,  provided that (i) such indebtedness is not incurred in
connection with, or in contemplation of, such other Person merging with or into,
or becoming a Subsidiary of Playboy,  (ii) after  incurring  such  Indebtedness,
Borrower is in compliance with the covenants  contained in Sections  6.09(a) and
(b) computed as of the last day of the most recently ended calendar quarter, but
having given pro forma effect to such incurrence,  and (iii) no Event of Default
is then in existence;

      (i) the incurrence by Foreign Subsidiaries of Indebtedness in an aggregate
principal amount at any time outstanding not to exceed $5,000,000;

      (j)  any   refinancings,   refundings,   renewals  or  extensions  of  the
Indebtedness  described in clauses (c),  (d),  (h), (j) or (k) hereof;  provided
that (i) the amount of such  Indebtedness  is not  increased at the time of such
refinancing,  refunding,  renewal or  extension  except by an amount  equal to a
reasonable  premium  or other  reasonable  amount  paid,  and fees and  expenses
reasonably incurred,  in connection with such refinancing and by an amount equal
to any existing commitments unutilized thereunder and (ii) the terms relating to
principal amount, amortization,  maturity, collateral (if any) and subordination
(if any),  and other material  terms taken as a whole,  of any such  refinanced,
refunded,  renewed or extended  Indebtedness,  and of any agreement entered into
and of any instrument issued in connection  therewith,  are no less favorable in
any  material  respect  to the Loan  Parties  or  Lenders  than the terms of any
agreement or instrument  governing the Indebtedness being refinanced,  refunded,
renewed or extended and the interest rate  applicable  to any such  refinancing,
refunding,   renewing  or  extending  Indebtedness  does  not  exceed  the  then
applicable market interest rate;

      (k) the  incurrence  by Playboy,  Borrower or any  Guarantor  of unsecured
Subordinated  Liabilities  (in  addition  to the  Convertible  Note  Debt) in an
aggregate  principal  amount (or  accreted  value,  as  applicable)  at any time
outstanding not to exceed $50,000,000;

      (l) the  incurrence  by  Borrower or any  Guarantor  of  Indebtedness  not
otherwise  permitted  hereunder  in an aggregate  principal  amount (or accreted
value, as applicable) at any time outstanding not to exceed $20,000,000;

      (m) unsecured  Indebtedness arising by reason of endorsement of negotiable
instruments or similar transactions in the ordinary course of business;

      (n) the  incurrence by Playboy or any of its  Restricted  Subsidiaries  of
Indebtedness with respect to letters of credit and bankers'  acceptances  issued
in the ordinary  course of business and not supporting  Indebtedness,  including
letters of credit in respect of worker's  compensation  claims or self-insurance
or  supporting   performance,   bid,   surety,   appeal  and  similar  bonds  or
indemnification, adjustment of purchase price or similar obligations incurred in
connection  with  the  disposition  of any  business  or  assets  (other  than a
Guarantee of Indebtedness of the Person  acquiring any such business or assets);
and

      (o) Indebtedness incurred in the ordinary course of business of Playboy or
any  of  its  Restricted  Subsidiaries  (including  open  accounts  extended  by
suppliers  on normal  trade  terms in  connection  with  purchases  of goods and
services  which are not overdue for a period of more than 90 days or, if overdue
for more than 90 days, as to which a dispute  exists and adequate  reserves have
been  established on the books of Playboy or any of its Restricted  Subsidiaries
if required by and in accordance with GAAP).

                                      -49-
<PAGE>

            In the event  that any item of  Indebtedness  meets more than one of
the categories set forth above,  Borrower may classify and reclassify  such item
of  Indebtedness  and only be  required  to include  the amount and type of such
Indebtedness in one or more of such clauses, as applicable, at its election.

      7.04 Fundamental Changes.

      Merge, dissolve,  liquidate,  consolidate with or into, another Person, or
Dispose of (whether in one  transaction or in a series of  transactions)  all or
substantially all of its assets (whether now owned or hereafter  acquired) to or
in favor of any Person,  except that,  so long as no Event of Default  exists or
would result therefrom:

      (a) any  Subsidiary may  consolidate or merge with (i) Borrower,  provided
that Borrower  shall be the continuing or surviving  Person,  or (ii) any one or
more other  Subsidiaries,  provided  that when any  wholly-owned  Subsidiary  is
merging  with  another  Subsidiary,  the  wholly-owned  Subsidiary  shall be the
continuing or surviving  Person,  and,  provided  further that if a Guarantor is
merging with another Subsidiary,  the Guarantor shall be the surviving Person or
the surviving Person becomes a Guarantor;

      (b) any Subsidiary may Dispose of all or  substantially  all of its assets
(upon voluntary  liquidation or otherwise) to Borrower or to another Subsidiary;
provided  that  if the  transferor  in  such  a  transaction  is a  wholly-owned
Subsidiary,  then the  transferee  must  either be  Borrower  or a  wholly-owned
Subsidiary  and,  provided  further that if the  transferor  of such assets is a
Guarantor,  the  transferee  must either be Borrower or a Guarantor or otherwise
become a Guarantor;

      (c) Borrower and the Guarantors may make  Dispositions  in connection with
investments expressly permitted by Section 7.02;

      (d) Any  Restricted  Subsidiary  may  dissolve,  liquidate  or wind up its
affairs at any time so long as such  dissolution,  liquidation or winding up, as
applicable,  would not reasonably be expected to have a Material Adverse Effect;
and

      (e)  Borrower and the  Restricted  Subsidiaries  may make any  Disposition
permitted under Section 7.05.

      7.05 Dispositions.

      Make any Disposition or enter into any agreement to make any  Disposition,
except:

      (a) any single transaction or series of related transactions that involves
assets having a fair market value of less than  $5,000,000 and an aggregate fair
market  value  for all  such  Dispositions  in any  fiscal  year  of  less  than
$7,500,000;

      (b)  transfers  of assets  between  or among  Playboy  and its  Restricted
Subsidiaries;

      (c) the issuance of Equity Interests by a Restricted Subsidiary to Playboy
or to another Restricted Subsidiary of Playboy;

      (d) the issuance of common stock of  Playboy.com to holders of Playboy.com
Stock or pursuant to the exercise of warrants outstanding on the date hereof, in
each case, as required by the terms thereof as in effect on the date hereof;

      (e) the transfer,  assignment,  lease, sublease,  license or sublicense of
assets or rights in the ordinary course of business generally in accordance with
past practice;

      (f) the sale of the art work in the ordinary course of business consistent
with past practice;

      (g) the sale of inventory in the ordinary course of business;

                                      -50-
<PAGE>

      (h) the sale of uneconomic, surplus, obsolete or worn-out assets or assets
no longer  required in such  Person's  business,  all in the ordinary  course of
business;

      (i) the surrender or waiver of contract  rights or settlement,  release or
surrender of a contract,  tort or other  litigation claim in the ordinary course
of business;

      (j) the granting of Liens not prohibited by this Agreement;

      (k) the sale or other  disposition  of cash or Cash  Equivalents  or other
marketable  securities  (other  than any  marketable  securities  issued  by any
Subsidiary of Playboy);

      (l) the sale or other  disposition of Equity  Interests in or Indebtedness
or other securities of an Unrestricted Subsidiary;

      (m)  a  Restricted  Payment  or  an  Investment  that  is  not  prohibited
hereunder;

      (n) Dispositions permitted by Section 7.04 or Section 7.06;

      (o) the  Disposition of Equity  Interests in any Restricted  Subsidiary of
Playboy (i) to Playboy or to a Wholly Owned  Restricted  Subsidiary  of Playboy,
(ii) to another Person in connection  with the  Disposition of all of the Equity
Interests of such Restricted Subsidiary pursuant to a transaction that otherwise
complies with this Section 7.05,  or (iii) if such  Disposition  consists of the
sale or issuance of Capital Stock  representing  directors  qualifying shares in
Capital  Stock  required by Law to be held by a Person  other than  Playboy or a
Restricted Subsidiary of Playboy;

      (p) the sale or discount of doubtful  accounts  receivable  arising in the
ordinary  course of business in  connection  with the  compromise  or collection
thereof;

      (q) Dispositions not otherwise permitted hereunder, so long as (i) Playboy
(or the Restricted Subsidiary, as the case may be) receives consideration at the
time of such  Disposition  at least equal to the fair market value of the assets
or Equity  Interests  issued or sold or otherwise  disposed of; (ii) no Event of
Default  is then in  existence;  and  (iii)  at least  50% of the  consideration
therefor  received by Playboy or such  Restricted  Subsidiary  is in the form of
cash or Cash Equivalents;  provided, that such 50% requirement will not apply to
any  Disposition  in  which  the cash  portion  of such  consideration  received
therefor on an after tax basis, determined in accordance with this clause (iii),
is equal to or greater than what the after tax proceeds would have been had such
transaction  complied  with the 50%  requirement;  provided  further  that,  for
purposes of this clause (q), each of the  following  shall be deemed to be cash:
(A) any  liabilities  (as shown on Playboy's  most recent  consolidated  balance
sheet) of Playboy or any Restricted Subsidiary (other than unasserted contingent
indemnity  obligations)  relating to the assets  disposed of that are assumed by
the  transferee  of any such  assets in a manner  that  includes  the release of
Playboy  or  such  Restricted  Subsidiary  from  further  liability  and (B) any
securities,  notes  or  other  obligations  received  by  Playboy  or  any  such
Restricted Subsidiary from such transferee that are converted by Playboy or such
Restricted  Subsidiary into cash or Cash  Equivalents  within 90 days of receipt
(to the extent of the case received in such conversion);

      (r) the grant of any  option  or other  right to  purchase  any asset in a
transaction  that would be permitted  under the  provisions  of Section  7.05(q)
above; and

      (s)  Dispositions  of equipment or real property or any interests  therein
(other  than the  Playboy  Mansion)  to the  extent  that (i) such  property  is
exchanged for credit against the purchase price of similar replacement property,
(ii) the  proceeds  of such  Dispositions  are  reinvested  pursuant  to Section
2.05(d)  or (iii)  the  proceeds  of such  Dispositions  are  used to repay  the
Obligations pursuant to Section 2.05(d).

      Notwithstanding  anything  to  the  contrary  contained  herein,  (i)  any
Disposition of assets by Playboy or a Domestic Restricted  Subsidiary of Playboy
to Playboy or any other  Subsidiary  of Playboy shall be made subject to Agent's
Lien on such  assets,  which Lien shall not be  released  or deemed  released in
connection with such Disposition and (ii) in no event shall Borrower, Playboy or
any  Restricted  Subsidiary,  without  the prior  written

                                      -51-
<PAGE>

consent of Required  Lenders,  make a Disposition or enter into any agreement to
make a  Disposition  of (A) any  accounts  receivable  or  inventory  out of the
ordinary  course of business as conducted  prior to the Closing Date (and not by
way of bulk sale) or (B) the Playboy Mansion or the Mansion Personal Property at
any time that a Default or Event of Default is in existence  except  pursuant to
the Hefner Option. Notwithstanding any provision of this Agreement or any of the
other Loan  Documents  to the  contrary,  if a Default or Event of Default  then
exists,  either of Agent or Trustee may notify  Borrower as provided  herein and
Hefner at the address and in the manner set forth in the Hefner Option,  each in
writing (the "Option  Notice"),  that Hefner shall have 30 days after receipt of
such  notice  from Agent or Trustee to notify  Agent,  Trustee  and  Borrower in
writing (the  "Exercise  Notice") that Hefner has elected to exercise the Hefner
Option.  If Hefner fails to timely give the Exercise  Notice,  Agent may proceed
with such foreclosure  without regard to the Hefner Option.  If Hefner elects to
exercise  the Hefner  Option  (which,  notwithstanding  anything to the contrary
contained in this  Agreement,  Hefner  shall have the right to do in  accordance
with the terms hereof and the terms of the Hefner Option  without the consent of
any other  Person) and gives the Exercise  Notice,  PEII shall have the right to
proceed to a closing of the sale of the Playboy Mansion and the Mansion Personal
Property  pursuant to the Hefner  Option,  and Agent and Lenders will forbear in
enforcing  the  Deed of Trust  for up to 90 days  after  Hefner  has  given  the
Exercise  Notice,  provided further that upon such closing all Net Cash Proceeds
from such sale shall be paid to Agent for application to the  Obligations  until
payment  in  full  of  the  Obligations   (other  than   unasserted   contingent
indemnification  obligations as set forth in Section  2.05).  To the full extent
permitted  by law, the  forbearance  described in this Section 7.05 shall not be
deemed to affect or delay the  enforcement  of any of Agent's or Lenders'  other
rights or remedies. In no event shall Agent commence any foreclosure action with
respect to the Playboy  Mansion  until Agent or Trustee has  provided the Option
Notice  to  Borrower  and  Hefner  as  provided  above,  and  Hefner  has had an
opportunity to exercise the Hefner Option as provided  above.  Hefner shall have
the right to remain a tenant of the Playboy  Mansion in accordance with Hefner's
then-existing lease thereof during the 30 and, if applicable, 90 day periods for
exercise of the Hefner Option.

      7.06 Restricted Payments.

      Declare or make, directly or indirectly,  any Restricted Payment, or incur
any obligation (contingent or otherwise) to do so, except that:

      (a) Playboy,  Borrower and the Restricted Subsidiaries may make Restricted
Payments from time to time so long as (i) no Default or Event of Default is then
in existence or would result  therefrom;  and (ii) immediately after making each
such Restricted Payment, Borrower has satisfied the Liquidity Test;

      (b)  dividends  may be paid  within 60 days after the date of  declaration
thereof,  if at said date of declaration  such payment would have been permitted
hereunder;

      (c) any principal or interest on any Equity Interests of Playboy or any of
its Restricted Subsidiaries may be redeemed,  repurchased,  retired, defeased or
acquired in exchange for, or out of the net cash proceeds from the substantially
concurrent  sale or issuance  (other  than to a  Subsidiary  of Playboy)  of, or
otherwise in exchange for, Equity Interests of Playboy (other than  Disqualified
Stock);

      (d) the Playboy.com  Stock may be converted into Playboy.com  common stock
or into  Equity  Interests  of  Playboy  and  Playboy.com  common  stock  may be
converted into Equity Interests in Playboy;

      (e) so long as no Default or Event of  Default  is in  existence  or would
result therefrom,  any Equity Interests of Playboy or any Restricted  Subsidiary
of  Playboy  held by (a)  any  member  of  Playboy's  (or any of its  Restricted
Subsidiaries')   management  pursuant  to  any  management  equity  subscription
agreement  or  stock  option  agreement  or (b) any  employee  benefit  plan for
employees,  directors  or  former  directors,  may  be  repurchased,   redeemed,
defeased,  acquired  or  retired,  provided  that the  aggregate  amount of cash
consideration  paid for all such repurchased,  redeemed,  defeased,  acquired or
retired Equity Interests shall not exceed $250,000 in any  twelve-month  period,
with any unused portion available for future periods;

      (f)  repurchases  of Capital  Stock  deemed to occur upon the  exercise of
stock  options  may occur if such  Capital  Stock  represents  a portion  of the
exercise price thereof;

                                      -52-
<PAGE>

      (g) each Wholly-Owned  Restricted  Subsidiary may make Restricted Payments
to Borrower,  Guarantors  and any other  Person that owns an Equity  Interest in
such Subsidiary,  ratably according to their respective  holdings of the type of
Equity Interest in respect of which such Restricted Payment is being made;

      (h) Playboy,  Borrower and each  Subsidiary  may declare and make dividend
payments  or other  distributions  payable  solely in the common  stock or other
common  Equity  Interests  of such  Person or options or consents  with  respect
thereto;

      (i) Restricted  Payments made to redeem,  repurchase,  retire,  defease or
acquire all or a portion of the Playboy.com Stock;

      (j) Playboy may make Restricted  Payments to satisfy its obligations under
the Convertible Note Debt in accordance with Section 7.08;

      (k)  Playboy or any of its  Restricted  Subsidiaries  may make  Restricted
Payments to make payment  upon or to  repurchase,  redeem,  defease or otherwise
acquire or return for value any  Subordinated  Liabilities  in  accordance  with
Section 7.07;

      (l) in the event  that,  and for each  taxable  year in which,  Playboy is
treated as an association taxable as a corporation for Federal,  state and local
income  tax  purposes  and  Borrower  and its  Subsidiaries  are  included  in a
consolidated  or combined  tax group with  Playboy,  the payment of dividends or
distributions  by  Borrower  to Playboy  in an amount  equal to the share of the
consolidated  or combined  income tax  liability  allocable  to Borrower and its
Subsidiaries (after giving effect to any offsetting  deductions);  provided that
any refunds  received by Playboy  attributable to Borrower and its  Subsidiaries
shall promptly be paid by Playboy to Borrower;

      (m) the issuance by Playboy.com  of  Playboy.com  Stock and Capital Stock;
and

      (n) so long as no Default or Event of  Default  is in  existence  or would
result  therefrom,  Playboy,  Borrower and the Restricted  Subsidiaries may make
Restricted Payments not otherwise permitted hereunder in an amount not to exceed
$5,000,000 in the aggregate during the terms hereof.

      7.07 Limitations in respect of Subordinated Liabilities.

      Make any payment on, or with respect to, or purchase,  redeem,  defease or
otherwise acquire or retire for value any Subordinated  Liabilities  (other than
intercompany Indebtedness), except:

      (a) in respect of the  Convertible  Note Debt, to the extent  permitted in
Section 7.08; and

      (b) in respect of Subordinated Liabilities other than the Convertible Note
Debt, (i) in exchange for or out of the Net Cash Proceeds from the substantially
concurrent  sale or issuance  (other  than to a  Subsidiary  of Playboy)  of, or
otherwise in exchange for, Equity Interests of Playboy (other than  Disqualified
Stock),  (ii) to the extent  permitted  under Section 7.03(j) and (iii) payments
made at a time when no  Default or Event of  Default  is in  existence  or would
result  therefrom,  Borrower is in compliance  with the  covenants  contained in
Section  6.09(a) and (b) computed as of the last day of the most recently  ended
calendar  quarter,  but after  giving  pro forma  effect  to such  payment,  and
immediately after making each such payment, Borrower has satisfied the Liquidity
Test.

      7.08 Limitations in respect of Convertible Note Debt.

      Make any payment on, or with respect to, or purchase,  redeem,  defease or
otherwise  acquire or retire for value any of the Convertible  Note Debt,  other
than (a)  payments  in  exchange  for or out of the net cash  proceeds  from the
substantially  concurrent sale or issuance of Equity Interests of Playboy (other
than Disqualified  Stock), with the proceeds of Indebtedness with respect to any
Subordinated  Liabilities  not  prohibited  under  this  Agreement  or with  the
proceeds  of  Dispositions  which  are not  required  to be used to  prepay  the
Obligations  pursuant  to Section  2.05;  (b)  regularly  scheduled  payments by
Playboy of  principal,  interest  and  contingent  interest  when due on or with
respect to the  Convertible  Note Debt pursuant to the terms of the  Convertible
Note Documents as amended, modified or otherwise altered as permitted hereunder,
so long as each such payment is then  permitted to

                                      -53-
<PAGE>

be made pursuant to the terms of the subordination provisions of the Convertible
Note Indenture,  as amended,  modified or otherwise altered as permitted herein;
provided, that no Loan Party shall make Distributions to Playboy for the purpose
of making any such payment  unless (i) no Event of Default is then in existence,
and (ii)  Borrower is in  compliance  with the  covenants  contained  in Section
6.09(a) and (b) computed as of the last day of the most recently  ended calendar
quarter,  but  after  having  given pro forma  effect to such  payment;  and (c)
payments  in  respect  of  the  optional  redemption,  mandatory  redemption  or
conversion of all or a portion of the Convertible Notes pursuant to the terms of
the Convertible  Note Indenture,  as amended,  modified or otherwise  altered as
permitted  herein  (other than a mandatory  redemption  or  conversion  due to a
merger,  consolidation  or binding share exchange or a "Fundamental  Change" (as
defined in the  Convertible  Note Indenture,  as such  definition  exists on the
Closing Date), or payments in respect of the repurchase from time to time of all
or any portion of the Convertible  Notes by Playboy or any of its  Subsidiaries,
in each case, so long as each such payment is then permitted to be made pursuant
to the terms of the subordination  provisions of the Convertible Note Indenture,
as amended, modified or otherwise altered as permitted herein; provided, that no
Loan Party  shall make  Distributions  to Playboy  for the purpose of making any
such payment  unless (A) no Event of Default is then in existence,  (B) Borrower
is in  compliance  with the  covenants  contained  in  Section  6.09(a)  and (b)
computed as of the last day of the most recently  ended  calendar  quarter,  but
after having given pro forma effect to such payment,  and (C) immediately  after
making such payment, Borrower has satisfied the Liquidity Test; or amend, modify
or otherwise alter the terms of any Convertible  Note Documents if the effect of
such amendment or  modification  is to (1) increase the interest rate or fees on
the Convertible  Note Debt; (2) advance the dates upon which payments in respect
of the  Convertible  Note Debt are due, or increase the principal  amount of the
Convertible  Note Debt;  (3) change the  redemption,  conversion  or  prepayment
provisions  of the  Convertible  Note Debt,  other than to defer or reduce  such
redemptions,  conversions or prepayments;  (4) add any guaranties of or security
for the Convertible Note Debt; or (5) modify the subordination provisions of the
Convertible  Note  Indenture  in a  manner  materially  adverse  to Agent or the
Lenders; or designate any Indebtedness other than the Obligations as "Designated
Senior  Indebtedness"  for  purposes  of  the  subordination  provisions  of the
Convertible Note Indenture without the consent of the Required Lenders.

      7.09 Limitations in respect of Califa Obligation.

      Make any payment on, or with respect to, or purchase,  redeem,  defease or
otherwise acquire or return for value any of the Califa Obligation unless (i) no
Event of Default is in existence and (ii) immediately after making such payment,
or giving  effect  to such  purchase,  redemption,  defeasance,  acquisition  or
return, Borrower has satisfied the Liquidity Test.

      7.10 Change in Nature of Business.

      Engage in any material line of business  substantially  different from any
business  conducted or proposed to be  conducted by Playboy,  Borrower and their
Restricted  Subsidiaries  on the date  hereof  and other  businesses  reasonably
related, complementary or ancillary thereto or that are reasonable extensions or
expansions thereof.

      7.11 Transactions with Affiliates.

      Enter into any  transaction  of any kind with any  Affiliate  of Borrower,
whether  or not in the  ordinary  course  of  business,  other  than on fair and
reasonable  terms  substantially  as favorable to Borrower or such Subsidiary as
would be obtainable  by Borrower or such  Subsidiary at the time in a comparable
arm's length  transaction  with a Person other than an Affiliate,  provided that
the foregoing restriction shall not apply to:

      (a)   transactions   between  or  among  Playboy   and/or  its  Restricted
Subsidiaries;

      (b) transactions or payments pursuant to any employee, officer or director
compensation  or benefit  plans or  arrangements  entered  into in the  ordinary
course of business with Persons who are not  otherwise  Affiliates of Playboy or
any of its Restricted Subsidiaries;

      (c) advances to employees for moving,  entertainment  and travel expenses,
drawing  accounts and similar  expenditures  in the ordinary course of business,
and in any case in an aggregate amount  outstanding not exceeding  $2,000,000 at
any time;

      (d) the Hefner Option;

                                      -54-
<PAGE>

      (e) Restricted Payments that are permitted by Section 7.06 and Investments
permitted by Section 7.02; and

      (f)  transactions  pursuant to the Playboy  Mansion  West Lease  Agreement
between Playboy and Hefner,  as amended,  modified or replaced from time to time
so long as the amended,  modified or new  agreements,  taken as a whole,  are no
less favorable to Playboy and its Restricted  Subsidiaries  than those in effect
on the date hereof.

      7.12 Margin Regulations.

      Use the proceeds of any Credit Extension,  whether directly or indirectly,
and whether immediately, incidentally or ultimately, to purchase or carry margin
stock  (within  the meaning of  Regulation  U of the Board of  Governors  of the
Federal  Reserve  System of the United States) or to extend credit to others for
the purpose of  purchasing  or carrying  margin stock or to refund  indebtedness
originally incurred for such purpose.

      7.13  Dividend  and  Other  Payment   Restrictions   Affecting  Restricted
Subsidiaries.

      Create or permit to exist or become  effective any consensual  encumbrance
or restriction on the ability of any Restricted Subsidiary to:

      (a) pay dividends or make any other  distribution  on its Capital Stock to
Playboy  or any of its  Restricted  Subsidiaries,  or with  respect to any other
interest  or  participation  in,  or  measured  by,  its  profits,  or  pay  any
Indebtedness owed to Playboy or any of its Restricted Subsidiaries;

      (b)  make  loans  or  advances  to  Playboy  or  any  of  its   Restricted
Subsidiaries; or

      (c)  transfer  any of its  properties  or assets to  Playboy or any of its
Restricted Subsidiaries.

      However,  the preceding  restrictions  will not apply to  encumbrances  or
restrictions existing under or by reason of:

            (i) this Agreement;

            (ii) Indebtedness existing on the date hereof or other agreements as
      in  effect  on  the  date  hereof  and  any   amendments,   modifications,
      restatements,  renewals, increases, supplements,  refundings, replacements
      or refinancings  thereof,  provided that such  amendments,  modifications,
      restatements, renewals, increases, supplements, refundings, replacement or
      refinancings are not materially more  restrictive,  taken as a whole, than
      those  contained in such existing  Indebtedness  or other  agreements,  as
      applicable, as in effect on the date hereof;

            (iii) applicable Laws;

            (iv) any  instrument  governing  Indebtedness  or Capital Stock of a
      Person  acquired by Playboy or any of its  Restricted  Subsidiaries  as in
      effect  at the  time  of  such  acquisition  (except  to the  extent  such
      Indebtedness  was incurred in connection with or in  contemplation of such
      acquisition),  which  encumbrance  or restriction is not applicable to any
      Person, or the properties or assets of any Person,  other than the Person,
      or the property or assets of the Person,  so acquired,  provided  that, in
      the case of Indebtedness,  such Indebtedness was permitted by the terms of
      this Agreement to be incurred;

            (v) customary  non-assignment  provisions in leases  entered into in
      the ordinary course of business and consistent with past practices;

            (vi) purchase money obligations  otherwise  permitted  hereunder for
      property   acquired  in  the  ordinary  course  of  business  that  impose
      restrictions on the property so acquired;

                                      -55-
<PAGE>

            (vii)  any  agreement  for the sale or other  disposition  of all or
      substantially  all  of  the  Capital  Stock  or  assets  of  a  Restricted
      Subsidiary  that restricts  distributions  by that  Restricted  Subsidiary
      pending its sale or other disposition;

            (viii)  refinancing   Indebtedness  described  in  Section  7.03(j),
      provided that the restrictions  contained in the agreements governing such
      Indebtedness are not materially more  restrictive,  taken as a whole, than
      those  contained  in  the  agreements  governing  the  Indebtedness  being
      refinanced;

            (ix) any instrument  governing  Indebtedness of Foreign Subsidiaries
      incurred pursuant to Section 7.03(i);

            (x) provisions  with respect to the  disposition or  distribution of
      assets or property in joint  venture  agreements,  asset sale  agreements,
      stock sale  agreements  and other similar  agreements  entered into in the
      ordinary course of business;

            (xi)  restrictions on cash or other deposits or net worth imposed by
      customers under contracts entered into in the ordinary course of business;

            (xii) Liens permitted hereunder securing Indebtedness that limit the
      right of the debtor to dispose of the assets subject to such Lien; and

            (xiii)  customary  restrictions  and  conditions  contained  in  any
      agreement  relating  to the sale of  property  permitted  by Section  7.05
      pending the consummation of such sale.

ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES

      8.01 Events of Default.

      The occurrence and  continuation of any of the following shall  constitute
an Event of Default:

      (a)  Non-Payment.  Borrower  or any other Loan Party fails to pay (i) when
and as required to be paid herein,  any amount of principal of any Loan,  or any
L/C  Obligation,  or (ii) within five  Business Days after the same becomes due,
any  interest on any Loan or on any L/C  Obligation,  or any  commitment  fee or
other fee due  hereunder,  or any other  amount  payable  hereunder or under any
other  Loan  Document  or  under  any  Swap  Contract  constituting  part of the
Obligations; or

      (b)  Specific  Covenants.  Any Loan Party  fails to perform or observe any
term,  covenant or agreement  contained in any of Section 6.01 or 6.02, and such
failure  continues for five Business Days; or any Loan Party fails to perform or
observe any term,  covenant or agreement  contained in any Section  6.03,  6.07,
6.09 or Article VII ; or

      (c) Other  Defaults.  Any Loan Party fails to perform or observe any other
covenant or agreement (not  specified in subsection (a) or (b) above)  contained
in any Loan  Document on its part to be  performed  or observed and such failure
continues for 30 days after notice thereof from Agent to Borrower; or

      (d)   Representations  and  Warranties.   Any  representation,   warranty,
certification  or  statement  of fact  made or  deemed  made by or on  behalf of
Borrower or any other Loan Party herein or in any other Loan  Document  shall be
incorrect in any material respect when made or deemed made; or

      (e)  Cross-Default.  Playboy or any  Restricted  Subsidiary of Playboy (A)
fails to make any payment when due after the expiration of any applicable  grace
period  (whether  by  scheduled  maturity,  required  prepayment,  acceleration,
demand,  or otherwise) in respect of any  Indebtedness or Guarantee  (other than
Indebtedness  hereunder  or under  the  Convertible  Note  Documents)  having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement)  of more than the  Threshold  Amount,  or (B) fails to  observe  or
perform any other  agreement or condition  relating to any such  Indebtedness or
Guarantee or contained in any  instrument or agreement  evidencing,  securing or
relating  thereto,  or any other event occurs  (excluding  any  conversion  made
pursuant to any of the

                                      -56-
<PAGE>

Convertible  Note  Documents),  the effect of which default or other event is to
cause,  or to  permit  the  holder  or  holders  of  such  Indebtedness  or  the
beneficiary or  beneficiaries of such Guarantee (or a trustee or agent on behalf
of such holder or holders or beneficiary or  beneficiaries)  to cause,  with the
giving of notice if required,  such Indebtedness to be demanded or to become due
or  to  be  repurchased,   prepaid,   defeased  or  redeemed  (automatically  or
otherwise),  or an offer  (excluding any conversion  made pursuant to any of the
Convertible  Note  Documents)  to  repurchase,  prepay,  defease or redeem  such
Indebtedness  to be made  prior to its stated  maturity,  or such  Guarantee  to
become  payable or cash  collateral in respect  thereof to be required;  or (ii)
there occurs any event of default or default under any Convertible Note Document
after the expiration of any applicable grace period; or

      (f)  Insolvency  Proceedings,  Etc.  Any Company or any of its  Restricted
Subsidiaries  institutes or consents to the institution of any proceeding  under
any Debtor Relief Law, or makes an assignment  for the benefit of creditors;  or
applies for or consents to the appointment of any receiver,  trustee, custodian,
conservator, liquidator, rehabilitator or similar officer for it or for all or a
material part of its property; or any receiver, trustee, custodian, conservator,
liquidator,   rehabilitator   or  similar  officer  is  appointed   without  the
application or consent of such Person and the appointment continues undischarged
or unstayed for 60 calendar days; or any proceeding  under any Debtor Relief Law
relating to any such Person or to all or any  material  part of its  property is
instituted  without  the  consent of such Person and  continues  undismissed  or
unstayed  for 60  calendar  days,  or an order for relief is entered in any such
proceeding;  provided, however, that if a Foreign Subsidiary is being liquidated
in a transaction otherwise permitted by this Agreement and not involving (i) the
bankruptcy,  insolvency,  or any failure to pay obligations of such  Subsidiary,
Borrower or any other Subsidiary, (ii) the application of any Debtor Relief Law,
or (iii) any claim of any creditor,  and if applicable  foreign Law requires the
appointment of a liquidator to accomplish such  liquidation in the  jurisdiction
where such  Foreign  Subsidiary  is  organized,  then the mere  appointment  and
operation  of a  liquidator  for such  purpose in such  circumstances  shall not
constitute an Event of Default under this clause (f); or

      (g) Judgments. Other than the judgment in the Gongora litigation, there is
entered  against  Playboy or any  Restricted  Subsidiary  of Playboy (i) a final
judgment or order for the payment of money in an aggregate  amount exceeding the
Threshold  Amount  (to  the  extent  not  covered  by  independent   third-party
insurance,  but only to the extent the insurer  does not dispute  coverage),  or
(ii) any one or more non-monetary final judgments that have, or could reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
and, in the case of either (i) or (ii) above,  (A)  enforcement  proceedings are
commenced by any creditor to levy upon the assets or property of Borrower or any
Restricted  Subsidiary  upon such judgment or order, or (B) there is a period of
30 consecutive  days during which a stay of  enforcement  of such  judgment,  by
reason of a pending appeal or otherwise, is not in effect; or

      (h) ERISA.  (i) An ERISA Event  occurs with  respect to a Pension  Plan or
Multiemployer  Plan which has resulted or could reasonably be expected to result
in  liability  of  Borrower  under  Title  IV of  ERISA  to  the  Pension  Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold
Amount,  or (ii) Playboy or any ERISA Affiliate fails to pay when due, after the
expiration of any applicable grace period, any installment  payment with respect
to its withdrawal  liability  under Section 4201 of ERISA under a  Multiemployer
Plan in an aggregate amount in excess of the Threshold Amount; or

      (i)  Invalidity of Loan  Documents.  Any material  provision or obligation
under any Loan  Document,  at any time after its  execution and delivery and for
any  reason  other  than as  expressly  permitted  hereunder  or  thereunder  or
satisfaction  in full of all the  Obligations,  ceases  to be in full  force and
effect;  or any Loan Party contests in any manner the validity or enforceability
of any  Loan  Document;  or any Loan  Party  denies  that it has any or  further
liability or  obligation  under any Loan  Document  (unless such denial is based
solely upon all such liabilities and obligations having been paid,  satisfied or
performed by such Loan Party),  or purports to revoke,  terminate or rescind any
Loan  Document,  or any  Lien  with  respect  to  any  material  portion  of the
Collateral  intended to be secured  pursuant to any  Collateral  Document  after
delivery  thereof (other than pursuant to the terms  thereof)  ceases to be, or,
subject to Section 7.01, is not, valid,  perfected and of the priority purported
to be created  thereby or is  terminated,  revoked or  declared  void by or as a
result of any conduct of a Loan Party, and any such default,  event or condition
shall continue unremedied for a period of ten Business Days; or

      (j) Change of Control. There occurs any Change of Control.

                                      -57-
<PAGE>

      8.02 Remedies Upon Event of Default.

      If any Event of Default  occurs,  Agent shall,  at the request of, or may,
with the  consent of, the  Required  Lenders,  take any or all of the  following
actions:

      (a) declare the commitment of each Lender to make Loans and any obligation
of L/C Issuer to make L/C Credit  Extensions to be  terminated,  whereupon  such
commitments and obligation shall be terminated;

      (b) declare the unpaid  principal  amount of all  outstanding  Loans,  all
interest  accrued and unpaid  thereon,  and all other  amounts  owing or payable
hereunder or under any other Loan  Document to be  immediately  due and payable,
without presentment,  demand,  protest or other notice of any kind, all of which
are hereby expressly waived by Borrower;

      (c) require that Borrower Cash  Collateralize  the L/C  Obligations (in an
amount equal to the then Outstanding Amount thereof); and

      (d)  exercise  on behalf of itself and  Lenders  all  rights and  remedies
available to it and Lenders under the Loan Documents or applicable Law;

provided,  however,  that upon the occurrence of an actual or deemed entry of an
order for relief  with  respect to  Borrower  under the  Bankruptcy  Code of the
United States, the obligation of each Lender to make Loans and any obligation of
the L/C Issuer to make L/C Credit Extensions shall automatically  terminate, the
unpaid  principal  amount of all  outstanding  Loans and all  interest and other
amounts  as  aforesaid  shall  automatically  become  due and  payable,  and the
obligation of Borrower to Cash  Collateralize  the L/C  Obligations as aforesaid
shall automatically become effective,  in each case without further act of Agent
or any Lender.

      Anything  in this  Section  8.02 to the  contrary  notwithstanding,  Agent
shall,  at  the  request  of  the  Required  Lenders,   rescind  and  annul  any
acceleration of the Loans by written  instrument  filed with Borrower,  provided
that, at the time such  acceleration is so rescinded and annulled:  (A) all past
due  interest  and  principal,  if any, on the Loans and all other sums  payable
under this Agreement and the other Loan Documents shall have been duly paid, and
(B) no other Event of Default shall have occurred and be continuing  which shall
not have been waived in accordance  with the provisions of Section 10.01 hereof.
Upon any such rescission and annulment,  Agent shall promptly return to Borrower
any cash collateral deliveries made pursuant to this Section 8.02.

      8.03 Application of Funds.

      After the exercise of remedies  provided for in Section 8.02 (or after the
Loans  have  automatically  become  immediately  due  and  payable  and  the L/C
Obligations have  automatically  been required to be Cash  Collateralized as set
forth in the proviso to Section  8.02),  any amounts  received on account of the
Obligations shall be applied by Agent, to the extent legally  permitted,  in the
following order:

            First,  to payment of that portion of the  Obligations  constituting
      fees,  indemnities,  expenses and other amounts (including  Attorney Costs
      and amounts payable under Article III) payable to Agent in its capacity as
      such;

            Second,  to payment of that portion of the Obligations  constituting
      fees,  indemnities and other amounts (other than  principal,  interest and
      L/C Fees) payable to Lenders (including Attorney Costs and amounts payable
      under  Article  III),  ratably  among them in  proportion  to the  amounts
      described in this clause Second payable to them;

            Third,  to payment of that portion of the  Obligations  constituting
      accrued and unpaid L/C Fees and  interest on the Loans and L/C  Borrowings
      and  other  Obligations,  ratably  among  Lenders  in  proportion  to  the
      respective amounts described in this clause Third payable to them;

                                      -58-
<PAGE>

            Fourth,  to payment of that portion of the Obligations  constituting
      unpaid principal of the Loans and L/C Borrowings and unpaid liabilities in
      respect of Swap  Contracts,  ratably  among  Lenders in  proportion to the
      respective amounts described in this clause Fourth held by them;

            Fifth,  to  Agent,  for  the  account  of the  L/C  Issuer,  to Cash
      Collateralize  that portion of L/C Obligations  comprised of the aggregate
      undrawn and unexpired amount of Letters of Credit; and

            Last, the balance,  if any, after all of the Obligations (other than
      unasserted  contingent indemnity  obligations) have been indefeasibly paid
      in full, to Borrower or as otherwise required by Law.

Subject to Section  2.03(c),  amounts used to Cash  Collateralize  the aggregate
undrawn  amount of Letters of Credit  pursuant  to clause  Fifth  above shall be
applied to satisfy  drawings under such Letters of Credit as they occur.  If any
amount  remains on deposit as Cash  Collateral  after all Letters of Credit have
either been fully drawn or expired,  such  remaining  amount shall be applied to
the other Obligations, if any, in the order set forth above.

ARTICLE IX AGENT.

      9.01 Appointment and Authorization of Agent.

      Each Lender and the L/C Issuer hereby irrevocably appoints, designates and
authorizes  Agent to take such action on its behalf under the provisions of this
Agreement  and each other Loan  Document and to exercise such powers and perform
such duties as are expressly  delegated to it by the terms of this  Agreement or
any other Loan Document,  together with such powers as are reasonably incidental
thereto.  Notwithstanding  any  provision  to the contrary  contained  elsewhere
herein  or in any  other  Loan  Document,  Agent  shall  not have any  duties or
responsibilities,  except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary  relationship with any Lender, the L/C Issuer
or any  Participant,  and no  implied  covenants,  functions,  responsibilities,
duties,  obligations  or  liabilities  shall be read into this  Agreement or any
other Loan  Document or otherwise  exist  against  Agent.  Without  limiting the
generality of the foregoing sentence,  the use of the term "agent" herein and in
the other Loan  Documents with reference to Agent is not intended to connote any
fiduciary  or other  implied  (or  express)  obligations  arising  under  agency
doctrine of any applicable Law. Instead, such term is used merely as a matter of
market  custom,  and is  intended  to create or reflect  only an  administrative
relationship   between  independent   contracting   parties.  All  benefits  and
immunities  provided  to Agent in this  Article IX shall apply to the L/C Issuer
with  respect  to any acts  taken or  omissions  suffered  by the L/C  Issuer in
connection  with  Letters of Credit  issued by it or proposed to be issued by it
and the  applications  and agreements  for letters of credit  pertaining to such
Letters of Credit,  and as additionally  provided herein with respect to the L/C
Issuer.

      9.02 Delegation of Duties.

      Agent may execute any of its duties under this Agreement or any other Loan
Document  by or through  agents,  employees  or  attorneys-in-fact  and shall be
entitled to advice of counsel and other  consultants  or experts  concerning all
matters  pertaining  to such  duties.  Agent  shall not be  responsible  for the
negligence or misconduct of any agent or attorney-in-fact that it selects in the
absence of gross negligence or willful misconduct.

      9.03 Liability of Agent.

      No Related Party shall (a) be liable for any action taken or omitted to be
taken by any of them under or in  connection  with this  Agreement  or any other
Loan Document or the transactions  contemplated hereby (except for its own gross
negligence or willful  misconduct in  connection  with its duties  expressly set
forth herein),  or (b) be responsible in any manner to any Lender or Participant
for any recital, statement, representation or warranty made by any Loan Party or
any officer thereof,  contained herein or in any other Loan Document,  or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection  with,  this  Agreement or any other
Loan Document, or the validity,  effectiveness,  genuineness,  enforceability or
sufficiency of this Agreement or any other Loan Document,  or for any failure of
any  Loan  Party  or any  other  party  to any  Loan  Document  to  perform  its
obligations  hereunder  or  thereunder.  No  Related  Party  shall be under  any
obligation  to any Lender or  Participant  to  ascertain or to inquire as to the
observance or performance  of any of the agreements  contained in, or conditions
of, this  Agreement or any other Loan  Document,  or to inspect the  properties,
books or records of any Loan Party or any Affiliate thereof.

                                      -59-
<PAGE>

      9.04 Reliance by Agent.

      (a) Agent  shall be  entitled  to rely,  and shall be fully  protected  in
relying, upon any writing, communication, signature, resolution, representation,
notice, consent,  certificate,  affidavit, letter, telegram, facsimile, telex or
telephone  message,  electronic  mail  message,  statement or other  document or
conversation  believed by it to be genuine and correct and to have been  signed,
sent or made by the proper Person or Persons,  and upon advice and statements of
legal  counsel,  independent  accountants  and other experts  selected by Agent.
Agent shall be fully  justified  in failing or refusing to take any action under
any Loan Document  unless it shall first receive such advice or  concurrence  of
the Required Lenders as it deems  appropriate  and, if it so requests,  it shall
first be  indemnified  to its  satisfaction  by all Lenders  against any and all
liability  and  expense  which  may be  incurred  by it by  reason  of taking or
continuing to take any such action.  Agent shall in all cases be fully protected
in acting, or in refraining from acting,  under this Agreement or any other Loan
Document in  accordance  with a request or consent of the  Required  Lenders (or
such greater  number of Lenders as may be expressly  required by any  instance),
and such request and any action taken or failure to act pursuant  thereto  shall
be binding upon all Lenders.

      (b) For purposes of determining  compliance with the conditions  specified
in Section 4.01,  each Lender that has signed this Agreement  shall be deemed to
have consented to,  approved or accepted or to be satisfied  with, each document
or other  matter  required  thereunder  to be  consented  to or  approved  by or
acceptable or  satisfactory  to a Lender unless Agent shall have received notice
from such Lender prior to the proposed  Closing Date  specifying  its  objection
thereto.

      9.05 Notice of Default, Event of Default.

      Agent shall not be deemed to have knowledge or notice of the occurrence of
any Event of Default or  Default,  except  with  respect to Default or Events of
Default  occurring  because of the failure to timely pay principal,  interest or
fees required to be paid to Agent for the account of Lenders, unless Agent shall
have  received  written  notice  from a Lender  or  Borrower  referring  to this
Agreement,  describing  such Event of Default or Default and  stating  that such
notice is a "notice of default." Agent will notify Lenders of its receipt of any
such notice.  Agent shall take such action with respect to such Default or Event
of Default as may be directed by the Required Lenders in accordance with Article
VIII;  provided,  however,  that  unless and until Agent has  received  any such
direction,  Agent may (but  shall not be  obligated  to) take  such  action,  or
refrain  from  taking  such  action,  with  respect to such  Default or Event of
Default as it shall deem advisable or in the best interest of Lenders.

      9.06 Credit Decision; Disclosure of Information by Agent.

      Each Lender acknowledges that no Related Party has made any representation
or  warranty  to it, and that no act by Agent  hereafter  taken,  including  any
consent to and  acceptance  of any  assignment  or review of the  affairs of any
Company  or  any  Affiliate   thereof,   shall  be  deemed  to  constitute   any
representation  or warranty by any Related Party to any Lender as to any matter,
including whether Related Parties have disclosed  material  information in their
possession.  Each  Lender  represents  to Agent that it has,  independently  and
without  reliance  upon  any  Related  Party  and  based on such  documents  and
information  as it  has  deemed  appropriate,  made  its  own  appraisal  of and
investigation into the business, prospects,  operations, property, financial and
other  condition and  creditworthiness  of the  Companies  and their  respective
Subsidiaries,  and all applicable bank or other  regulatory Laws relating to the
transactions  contemplated  hereby, and made its own decision to enter into this
Agreement  and  to  extend  credit  to  Borrower  hereunder.  Each  Lender  also
represents  that it will,  independently  and without  reliance upon any Related
Party and based on such documents and  information as it shall deem  appropriate
at the time, continue to make its own credit analysis,  appraisals and decisions
in  taking  or not  taking  action  under  this  Agreement  and the  other  Loan
Documents,  and to make  such  investigations  as it deems  necessary  to inform
itself as to the business, prospects,  operations, property, financial and other
condition and  creditworthiness of Borrower and the other Companies.  Except for
notices,  reports and other  documents  expressly  required to be  furnished  to
Lenders by Agent  herein,  Agent  shall not have any duty or  responsibility  to
provide any Lender with any credit or other information concerning the business,
prospects,    operations,   property,   financial   and   other   condition   or
creditworthiness  of any of the Companies or any of their respective  Affiliates
which may come into the possession of any Related Party.

                                      -60-
<PAGE>

      9.07 Indemnification of Agent.

      Whether  or not the  transactions  contemplated  hereby  are  consummated,
Lenders  shall  indemnify  upon  demand  each  Related  Party (to the extent not
reimbursed by or on behalf of any Loan Party and without limiting the obligation
of any Loan Party to do so), pro rata, and hold harmless each Related Party from
and  against  any and all  Indemnified  Liabilities  incurred  by it;  provided,
however,  that no Lender shall be liable for the payment to any Related Party of
any portion of such Indemnified Liabilities to the extent determined in a final,
nonappealable  judgment by a court of competent jurisdiction to have been caused
primarily by such Related Party's own gross negligence or willful misconduct; it
being  agreed  by all  Lenders  that no  action  taken  in  accordance  with the
directions  of  the  Required  Lenders  shall  be  deemed  to  constitute  gross
negligence  or  willful  misconduct  for  purposes  of  this  Section.   Without
limitation of the foregoing,  each Lender shall  reimburse Agent upon demand for
its ratable share of any costs or  out-of-pocket  expenses  (including  Attorney
Costs and costs and expenses in connection  with the use of IntraLinks,  Inc. or
other  similar  information   transmission   systems  in  connection  with  this
Agreement)  incurred by Agent in  connection  with the  preparation,  execution,
delivery,  administration,   modification,  amendment  or  enforcement  (whether
through  negotiations,  legal  proceedings  or otherwise) of, or legal advice in
respect of rights or  responsibilities  under,  this  Agreement,  any other Loan
Document,  or any document  contemplated by or referred to herein, to the extent
that Agent is not  reimbursed  for such expenses by or on behalf of Borrower (to
the extent  required in this  Agreement).  The undertaking in this Section shall
survive  termination  of the  Aggregate  Commitments,  the  payment of all other
Obligations and the resignation of Agent.

      9.08 Agent in its Individual Capacity.

      Bank of America and its  Affiliates  may make loans to,  issue  letters of
credit for the account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with each of the Companies and their respective  Affiliates as
though Bank of America were not Agent hereunder and without notice to or consent
of Lenders.  Lenders  acknowledge  that,  pursuant to such  activities,  Bank of
America or its Affiliates may receive  information  regarding any Company or its
Affiliates  (including  information  that  may  be  subject  to  confidentiality
obligations  in favor of such Company or such  Affiliate) and  acknowledge  that
Agent shall be under no obligation  to provide such  information  to them.  With
respect to its  Loans,  Bank of  America  shall have the same  rights and powers
under this Agreement as any other Lender and may exercise such rights and powers
as though it were not Agent,  and the terms "Lender" and "Lenders"  include Bank
of America in its individual capacity.

      9.09 Successor Agent.

      Agent may resign as Agent  upon 30 days'  written  notice to  Lenders  and
Borrower;  provided  that any such  resignation  by Bank of  America  shall also
constitute  its  resignation as the L/C Issuer (as it relates to the issuance of
new  Letters of Credit  after the date of such  resignation).  If Agent  resigns
under this  Agreement,  the Required  Lenders shall appoint from among Lenders a
successor  Agent for  Lenders,  which  successor  Agent shall be consented to by
Borrower  at all times other than  during the  existence  of an Event of Default
(which consent of Borrower shall not be unreasonably withheld or delayed). If no
successor  Agent is appointed  prior to the effective date of the resignation of
Agent,  Agent may  appoint,  after  consulting  with  Lenders  and  Borrower,  a
successor  Agent from among Lenders.  Upon the acceptance of its  appointment as
successor  Agent and L/C Issuer  hereunder,  the Person acting as such successor
Agent and L/C Issuer shall  succeed to all the rights,  powers and duties of the
retiring  Agent and L/C Issuer and the terms "Agent" and "L/C Issuer" shall mean
such successor Agent and L/C Issuer in all such capacities, the retiring Agent's
appointment, powers and duties as Agent shall be terminated and the retiring L/C
Issuers' rights, powers and duties as such shall be terminated without any other
or further act or deed on the part of such retiring  Agent,  retiring L/C Issuer
or any other  Lender,  other than the  obligation of the successor L/C Issuer to
issue  letters of credit in  substitution  for the  Letters  of Credit,  if any,
outstanding  at the  time  of such  succession  or to  make  other  arrangements
satisfactory to the retiring L/C Issuer to effectively assume the obligations of
the  retiring  L/C  Issuer  with  respect to such  Letters of Credit.  After any
retiring Agent's resignation  hereunder as Agent, the provisions of this Article
IX and  Sections  10.04 and 10.05  shall  inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this  Agreement.  If
no  successor  Agent has accepted  appointment  as Agent by the date which is 30
days following a retiring  Agent's notice of resignation,  the retiring  Agent's
resignation  shall  nevertheless  thereupon  become  effective and Lenders shall
perform  all of the duties of Agent  hereunder  until such time,  if any, as the
Required Lenders appoint a successor agent as provided for above.

                                      -61-
<PAGE>

      9.10 Agent May File Proofs of Claim.

      In case of the  pendency  of any  receivership,  insolvency,  liquidation,
bankruptcy,  reorganization,   arrangement,  adjustment,  composition  or  other
judicial  proceeding  relative to any Loan Party, Agent (irrespective of whether
the  principal  of any Loan or L/C  Obligation  shall then be due and payable as
herein  expressed or by  declaration  or otherwise and  irrespective  of whether
Agent shall have made any demand on Borrower)  shall be entitled and  empowered,
by intervention in such proceeding or otherwise:

      (a) to file and prove a claim for the whole  amount of the  principal  and
interest owing and unpaid in respect of the Loans, L/C Obligations and all other
Obligations that are owing and unpaid and to file such other documents as may be
necessary  or  advisable  in order to have  the  claims  of  Lenders  and  Agent
(including any claim for the reasonable  compensation,  expenses,  disbursements
and  advances of Lenders and Agent and their  respective  agents and counsel and
all other amounts due Lenders and Agent under Sections 2.03(i) and (j), 2.09 and
10.04) allowed in such judicial proceeding; and

      (b) to  collect  and  receive  any  monies or other  property  payable  or
deliverable on any such claims and to distribute the same;

      and any custodian,  receiver, assignee, trustee, liquidator,  sequestrator
or other similar official in any such judicial  proceeding is hereby  authorized
by each Lender to make such payments to Agent and, in the event that Agent shall
consent to the making of such payments directly to Lenders,  to pay to Agent any
amount due for the reasonable compensation, expenses, disbursements and advances
of Agent and its agents  and  counsel,  and any other  amounts  due Agent  under
Sections 2.09 and 10.04.

      Nothing  contained  herein shall be deemed to authorize Agent to authorize
or  consent  to or  accept  or  adopt  on  behalf  of any  Lender  any  plan  of
reorganization, arrangement, adjustment or composition affecting the Obligations
or the  rights of any  Lender or to  authorize  Agent to vote in  respect of the
claim of any Lender in any such proceeding.

      9.11 Loan Guaranty Matters.

      Each Lender hereby irrevocably  authorizes Agent, at its option and in its
discretion,  to  release  any  Guarantor  from its  obligations  under  the Loan
Guaranty  if such  Person  ceases  to be a  Domestic  Restricted  Subsidiary  of
Borrower as a result of a transaction permitted hereunder. Upon request by Agent
at any time,  each Lender will confirm in writing  Agent's  authority to release
any Guarantor  from its  obligations  under the Loan  Guaranty  pursuant to this
Section 9.11.

      9.12 Collateral Matters.

      (a) Each Lender hereby  irrevocably  authorizes and directs Agent to enter
into the Collateral Documents for the benefit of such Lender. Each Lender hereby
agrees,  and each holder of any Note by the acceptance thereof will be deemed to
agree, that, except as otherwise set forth in Section 10.01, any action taken by
the Required Lenders, in accordance with the provisions of this Agreement or the
Collateral Documents, and the exercise by the Required Lenders of the powers set
forth  herein or  therein,  together  with such other  powers as are  reasonably
incidental thereto,  shall be authorized and binding upon all of Lenders.  Agent
is hereby  authorized on behalf of all of Lenders,  without the necessity of any
notice  to or  further  consent  from any  Lender  from time to time to take any
action with  respect to any  Collateral  or  Collateral  Documents  which may be
necessary  to perfect  and  maintain  perfected  the Liens  upon the  Collateral
granted pursuant to the Collateral Documents.

      (b) Each Lender hereby  irrevocably  authorizes Agent and Agent agrees (in
the case of clauses (i), (ii), (iii) and (iv) below):

            (i) to release any Lien on any property  granted to or held by Agent
      under any Loan Document (A) upon termination of the Aggregate  Commitments
      and  payment  in  full  of  all   Obligations   (other   than   contingent
      indemnification  obligations)  and the  expiration or  termination  of all
      Letters of Credit (or Cash Collateralization thereof in an amount equal to
      the Outstanding  Amount  thereof),  (B) in connection with any Disposition
      permitted  hereunder or under any other Loan  Document,  (C) in connection
      with any release of

                                      -62-
<PAGE>

      a Guarantee in accordance  with Section 9.14 (in each case so long as such
      release is not restricted  under this Agreement) or (D) subject to Section
      10.01,  if  approved,  authorized  or ratified in writing by the  Required
      Lenders; and

            (ii)  at  Agent's  option  and in its  discretion,  but  subject  to
      satisfaction  of any  conditions  set  forth  in the  Loan  Documents,  to
      subordinate  or  release  any Lien on any  property  granted to or held by
      Agent under any Loan  Document to the holder of any Lien on such  property
      that is permitted by this Agreement or any other Loan Document.

Upon request by Agent at any time,  each Lender will confirm in writing  Agent's
authority to release or subordinate its interest in particular types or items of
Collateral  pursuant to this  Section  9.12.  In each case as  specified in this
Section 9.12 or in Section 9.11,  Agent will, at Borrower's  expense,  authorize
the Loan Party to prepare and file any appropriate lien  termination  statements
and authorize and deliver to the  applicable  Loan Party such  documents as such
Loan  Party may  reasonably  request  to  evidence  the  release of such item of
Collateral  from  the  assignment  and  security   interest  granted  under  the
Collateral  Documents  in  accordance  with this Section 9.12 or to release such
Guarantor  from its  obligations  under the Loan  Guaranty  in  accordance  with
Section 9.11, in each case in accordance with the terms of the Loan Documents.

      (c)  Subject  to  subsection  (b)  above,   Agent  shall  (and  is  hereby
irrevocably  authorized  by each Lender,  to) execute  such  documents as may be
necessary to evidence the release or subordination of the Liens granted to Agent
for the  benefit  of Agent  and  Lenders  herein  or  pursuant  hereto  upon the
applicable Collateral;  provided that (i) Agent shall not be required to execute
any such document on terms which, in Agent's  opinion,  would expose Agent to or
create  any  liability  or entail  any  consequence  other  than the  release or
subordination  of such Liens without  recourse or warranty and (ii) such release
or  subordination  shall not in any  manner  discharge,  affect  or  impair  the
Obligations  or any Liens upon (or  obligations  of  Borrower  or any other Loan
Party in respect of) all interests retained by Borrower or any other Loan Party,
including  the proceeds of the sale,  all of which shall  continue to constitute
part of the Collateral.  In the event of any sale or transfer of Collateral,  or
any foreclosure with respect to any of the Collateral, Agent shall be authorized
to deduct all  expenses  reasonably  incurred by Agent from the  proceeds of any
such sale, transfer or foreclosure.

      (d) Agent shall have no  obligation  whatsoever to any Lender or any other
Person to assure that the Collateral exists or is owned by Borrower or any other
Loan Party or is cared for,  protected  or insured or that the Liens  granted to
Agent herein or in any of the Collateral Documents or pursuant hereto or thereto
have been properly or sufficiently or lawfully created, perfected,  protected or
enforced  or are  entitled  to any  particular  priority,  or to  exercise or to
continue  exercising  at all  or in any  manner  or  under  any  duty  of  care,
disclosure  or fidelity  any of the rights,  authorities  and powers  granted or
available to Agent in this Section 9.12 or in any of the  Collateral  Documents,
it being  understood and agreed that in respect of the  Collateral,  or any act,
omission  or event  related  thereto,  Agent  may act in any  manner it may deem
appropriate,  in  its  sole  discretion,  given  Agent's  own  interest  in  the
Collateral  as one of  Lenders  and that Agent  shall have no duty or  liability
whatsoever to Lenders.

      (e) Each Lender hereby appoints each other Lender as agent for the purpose
of perfecting  Lenders'  security  interest in assets which,  in accordance with
Article 9 of the UCC can be  perfected  only by  possession.  Should  any Lender
(other than Agent) obtain  possession of any such Collateral,  such Lender shall
notify Agent thereof,  and, promptly upon Agent's request therefor shall deliver
such Collateral to Agent or in accordance with Agent's instructions.

      9.13 Remedial Action.

      Each  Lender  agrees  that it shall not take or  institute  any actions or
proceedings,  judicial or otherwise,  for any right or remedy against  Borrower,
any Guarantor or any other obligor under any of the Loan  Documents  (including,
without limitation,  the exercise of any right of set-off,  rights on account of
any banker's lien or similar claim or other rights of  self-help),  or institute
any actions or proceedings,  or otherwise commence any remedial procedures, with
respect  to any  Collateral,  without  the prior  written  consent  of Agent and
Required Lenders.

                                      -63-
<PAGE>

      9.14 Release of Guaranties.

      A Guaranty  of a  Guarantor  will be  released  in  connection  with (i) a
Disposition  of all the  Capital  Stock of such  Guarantor  in  compliance  with
Section  7.05,  (ii) a  Disposition  of all of the assets of such  Guarantor  in
compliance with Section 7.04, followed by the liquidation or dissolution of such
Grantor  or  (iii)  if  Playboy   properly   designates  such  Guarantor  as  an
Unrestricted Subsidiary.

      9.15 Co-Agent.

      LaSalle Bank National  Association is hereby appointed as Co-Agent for the
Lenders hereunder.  The Co-Agent, in its capacity as such, shall have no rights,
powers,   duties  or  responsibilities   and  no  rights,   powers,   duties  or
responsibilities shall be read into this Agreement or any other Loan Document or
otherwise  exist on behalf of or against  LaSalle Bank National  Association  in
such  capacity  as  Co-Agent.  If the  Co-Agent  resigns as such,  no  successor
co-agent shall be appointed.

ARTICLE X MISCELLANEOUS

      10.01 Amendments, Etc.

      No  amendment or waiver of any  provision  of this  Agreement or any other
Loan  Document,  and no consent to any  departure  by Borrower or any other Loan
Party  therefrom,  shall be effective  unless in writing  signed by the Required
Lenders and  Borrower  or the  applicable  Loan  Party,  as the case may be, and
acknowledged  by Agent,  and each such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no such amendment, waiver or consent shall:

      (a) waive any condition set forth in Section  4.01(a)  without the written
consent of each Lender; provided, however, in the sole discretion of Agent, only
a waiver by Agent shall be required with respect to immaterial matters;

      (b) extend or increase  the  Commitment  of any Lender (or  reinstate  any
Commitment  terminated  pursuant to Section 8.02) without the written consent of
such Lender;

      (c) postpone any date fixed by this  Agreement or any other Loan  Document
for any payment (excluding mandatory prepayments) of principal,  interest,  fees
or other  amounts due to Lenders (or any of them)  hereunder  or under any other
Loan  Document  without the written  consent of each  Lender  directly  affected
thereby;

      (d) reduce the principal of, or the rate of interest  specified herein on,
any Loan or L/C  Borrowing,  or (subject to clause (ii) of the fourth proviso to
this Section  10.01) any fees or other  amounts  payable  hereunder or under any
other Loan Document without the written consent of each Lender directly affected
thereby; provided,  however, that only the consent of the Required Lenders shall
be  necessary  (i) to amend the  definition  of  "Default  Rate" or to waive any
obligation  of Borrower to pay  interest or L/C Fees at the Default Rate or (ii)
to amend any  financial  covenant  hereunder  (or any defined term used therein)
even if the effect of such amendment  would be to reduce the rate of interest on
any Loan or L/C Borrowing or to reduce any fee payable hereunder;

      (e) change  Section  2.13 or Section 8.03 in a manner that would alter the
pro rata sharing of payments  required  thereby  without the written  consent of
each Lender;

      (f) change any  provision of this Section or the  definition  of "Required
Lenders" or any other  provision  hereof  specifying the number or percentage of
Lenders  required to amend,  waive or otherwise  modify any rights  hereunder or
make any  determination  or grant any  consent  hereunder,  without  the written
consent of each Lender; or

      (g) release all or  substantially  all of the value of Loan  Guaranties or
release  the  Liens on all or  substantially  all of the  Collateral  except  in
accordance  with the  terms of any Loan  Document  (including  Section  9.11 and
Section 9.12 hereof) without the written consent of each Lender.

                                      -64-
<PAGE>

and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by Agent in addition to Lenders  required  above,  affect the
rights or duties of Agent under this  Agreement or any other Loan  Document,  as
Agent; (ii) no amendment,  waiver or consent shall, unless in writing and signed
by the L/C Issuer in addition to the Lenders  required above,  affect the rights
or duties of the L/C Issuer under this Agreement or any Issuer Document relating
to any  Letter of Credit  issued or to be issued by it;  and (iii) the Agent Fee
Letter may be amended,  or rights or privileges  thereunder waived, in a writing
executed only by the respective parties thereto. Notwithstanding anything to the
contrary  herein,  no  Defaulting  Lender  shall  have any right to  approve  or
disapprove  any  amendment,   waiver  or  consent  hereunder,  except  that  the
Commitment of such  Defaulting  Lender may not be increased or extended  without
the consent of such Defaulting Lender.

      10.02 Notices and Other Communications; Facsimile Copies.

      (a) General.  Unless otherwise  expressly provided herein, all notices and
other  communications  provided for hereunder shall be in writing  (including by
facsimile  transmission).  All such written  notices  shall be mailed,  faxed or
delivered, to the applicable address, facsimile number or (subject to subsection
(c) below)  electronic  mail address,  and all notices and other  communications
expressly  permitted  hereunder  to be given by  telephone  shall be made to the
applicable  telephone number,  specified for such Person on Schedule 10.02 or to
such other  address,  facsimile  number,  electronic  mail  address or telephone
number as shall be  designated  by such party in a notice to the other  parties.
All such  notices and other  communications  shall be deemed to be given or made
upon the earlier to occur of (i) actual receipt by the relevant party hereto and
(ii) (A) if delivered by hand or by courier, upon delivery;  (B) if delivered by
mail,  four Business Days after deposit in the mails,  postage  prepaid;  (C) if
delivered  by  facsimile,  when  sent and the  sender  has  received  electronic
confirmation  of error free  receipt;  and (D) if delivered by  electronic  mail
(which form of delivery is subject to the  provisions of subsection  (c) below),
when delivered;  provided,  however,  that notices and other  communications  to
Agent pursuant to Article II shall not be effective  until actually  received by
Agent.  In no  event  shall  a  voicemail  message  be  effective  as a  notice,
communication or confirmation hereunder.

      (b)  Effectiveness of Facsimile  Documents and Signatures.  Loan Documents
may be transmitted  and/or signed by facsimile.  The  effectiveness  of any such
documents and signatures  shall,  subject to applicable Law, have the same force
and  effect  as  manually-signed  originals  and  shall be  binding  on all Loan
Parties,  Agent and Lenders.  Agent may also require that any such documents and
signatures  be  confirmed  by  a  manually-signed  original  thereof;  provided,
however,  that the  failure to  request or deliver  the same shall not limit the
effectiveness of any facsimile document or signature.

      (c) Limited Use of  Electronic  Mail.  Electronic  mail and  internet  and
intranet websites may be used only to distribute routine communications, such as
financial  statements,  and to  distribute  Loan  Documents for execution by the
parties  thereto,  and may be used for other  purposes  pursuant  to  procedures
approved by the Person receiving notice.

      (d) Reliance by Agent and Lenders.  Agent and Lenders shall be entitled to
reasonably rely and act upon any notices  (including  telephonic  Committed Loan
Notices)  purportedly given by or on behalf of Borrower even if (i) such notices
were not made in a manner specified herein, were incomplete or were not preceded
or  followed  by any other form of notice  specified  herein,  or (ii) the terms
thereof, as understood by the recipient,  varied from any confirmation  thereof.
Borrower  shall  indemnify  each Related  Party and each Lender from all losses,
costs,  expenses and  liabilities  resulting from the reliance by such Person on
each  notice  purportedly  given by or on behalf  of  Borrower.  All  telephonic
notices to and other  communications  with Agent may be recorded  by Agent,  and
each of the parties hereto hereby consents to such recording.

      10.03 No Waiver; Cumulative Remedies.

      No failure by any  Lender or Agent to  exercise,  and no delay by any such
Person in exercising,  any right,  remedy,  power or privilege  hereunder  shall
operate as a waiver  thereof;  nor shall any single or partial  exercise  of any
right,  remedy,  power or  privilege  hereunder  preclude  any other or  further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights,  remedies,  powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.

                                      -65-
<PAGE>

      10.04 Attorney Costs, Expenses and Taxes.

      Borrower agrees (a) to pay or reimburse Agent for all reasonable costs and
expenses incurred in connection with the development,  preparation,  negotiation
and execution of this  Agreement and the other Loan Documents and any amendment,
waiver,  consent or other  modification  of the  provisions  hereof and  thereof
(whether   or  not  the   transactions   contemplated   hereby  or  thereby  are
consummated),  and  the  consummation  and  administration  of the  transactions
contemplated  hereby and thereby,  including all Attorney  Costs and  reasonable
costs and  expenses  in  connection  with the use of  IntraLinks,  Inc. or other
similar information  transmission systems in connection with this Agreement, and
(b) to pay or  reimburse  Agent and each  Lender  for all  reasonable  costs and
expenses incurred in connection with the enforcement,  attempted enforcement, or
preservation  of any rights or remedies  under this  Agreement or the other Loan
Documents  (including all such reasonable costs and expenses incurred during any
"workout" or  restructuring  in respect of the  Obligations and during any legal
proceeding, including any proceeding under any Debtor Relief Law), including all
Attorney  Costs.  The foregoing  costs and expenses shall include all reasonable
search, filing, recording,  title insurance and appraisal charges and reasonable
fees and taxes  related  thereto (to the extent not  already  covered by Section
3.01),  but excluding  other taxes  (including  Taxes,  Other Taxes and Excluded
Taxes),  and other reasonable  out-of-pocket  expenses incurred by Agent and the
cost of independent  public  accountants and other outside  experts  retained by
Agent  or  any  Lender.  The  agreements  in  this  Section  shall  survive  the
termination of the Aggregate Commitments and repayment of all other Obligations.

      10.05 Indemnification by Borrower.

      Whether  or not the  transactions  contemplated  hereby  are  consummated,
Borrower shall  indemnify and hold harmless each Related Party,  each Lender and
their respective Affiliates, directors, officers, employees, counsel, agents and
attorneys-in-fact  (collectively the "Indemnitees") from and against any and all
liabilities,  obligations, losses, damages, penalties, claims, demands, actions,
judgments,  suits,  reasonable  costs,  expenses  and  disbursements  (including
Attorney  Costs)  of any  kind  or  nature  whatsoever  (other  than  any  taxes
(including  Taxes,  Other Taxes and  Excluded  Taxes))  which may at any time be
imposed  on,  incurred by or asserted  against  any such  Indemnitee  in any way
relating to or arising out of or in connection with (a) the execution, delivery,
enforcement,  performance  or  administration  of any Loan Document or any other
agreement,  letter or instrument  delivered in connection with the  transactions
contemplated  thereby  or  the  consummation  of the  transactions  contemplated
thereby, (b) any Commitment, Loan or Letter of Credit or the use or proposed use
of the proceeds therefrom  (including any refusal by Agent to honor a demand for
payment under a Letter of Credit if the documents  presented in connection  with
such demand do not strictly comply with the terms of such Letter of Credit), (c)
any actual or alleged presence or release of Hazardous  Materials on or from any
property  currently  or formerly  owned or operated by  Borrower,  Playboy,  any
Restricted  Subsidiary  of Playboy or any other  Company,  or any  Environmental
Liability related in any way to Borrower,  Playboy, any Restricted Subsidiary of
Playboy or any other Company, or (d) any actual or threatened claim, litigation,
investigation or proceeding  relating to any of the foregoing,  whether based on
contract,  tort or any other theory (including any investigation of, preparation
for, or defense of any pending or threatened claim, investigation, litigation or
proceeding)  and  regardless  of whether  Indemnitee is a party thereto (all the
foregoing,  collectively,  the  "Indemnified  Liabilities");  provided that such
indemnity shall not, as to any Indemnitee,  be available to the extent that such
liabilities,  obligations,  losses, damages, penalties, claims, demand, actions,
judgments,  suits, costs, expenses or disbursements are determined by a court of
competent  jurisdiction  by final  judgment  to have  resulted  from  the  gross
negligence or willful misconduct of such Indemnitee, provided that if such final
judgment is reversed on appeal, such  indemnification  obligation will be deemed
reinstated  subject to final  resolution of the matter.  No Indemnitee  shall be
liable for any  damages  arising  from the use by others of any  information  or
other  materials  obtained  through  IntraLinks  or  other  similar  information
transmission systems in connection with this Agreement, nor shall any Indemnitee
have any liability for any indirect or  consequential  damages  relating to this
Agreement  or any other  Loan  Document  or  arising  out of its  activities  in
connection  herewith or therewith  (whether before or after the Original Closing
Date).  The  agreements in this Section shall survive the  resignation of Agent,
the replacement of any Lender, the termination of the Aggregate  Commitments and
the repayment, satisfaction or discharge of all the other Obligations.

      10.06 Payments Set Aside.

      To the  extent  that any  payment by or on behalf of  Borrower  is made to
Agent or any Lender, or Agent or any Lender exercises its right of set-off,  and
such payment or the proceeds of such set-off or any part thereof is

                                      -66-
<PAGE>

subsequently invalidated,  declared to be fraudulent or preferential,  set aside
or required  (including pursuant to any settlement entered into by Agent or such
Lender  in its  discretion)  to be repaid to a  trustee,  receiver  or any other
party,  in  connection  with any  proceeding  under  any  Debtor  Relief  Law or
otherwise,  then (a) to the  extent of such  recovery,  the  obligation  or part
thereof  originally  intended to be satisfied  shall be revived and continued in
full force and effect as if such  payment had not been made or such  set-off had
not occurred,  and (b) each Lender  severally agrees to pay to Agent upon demand
its applicable  share of any amount so recovered  from or repaid by Agent,  plus
interest  thereon  from the date of such demand to the date such payment is made
at a rate per annum equal to the Federal Funds Rate from time to time in effect.

      10.07 Successors and Assigns.

      (a) The  provisions of this  Agreement  shall be binding upon and inure to
the benefit of the parties  hereto and their  respective  successors and assigns
permitted hereby,  except that Borrower may not assign or otherwise transfer any
of its rights or obligations hereunder without the prior written consent of each
Lender  and no Lender  may  assign or  otherwise  transfer  any of its rights or
obligations  hereunder except (i) to an Eligible Assignee in accordance with the
provisions of subsection (b) of this Section,  (ii) by way of  participation  in
accordance  with the provisions of subsection  (d) of this Section,  or (iii) by
way of pledge or assignment of a security  interest  subject to the restrictions
of  subsection  (f) of this  Section  (and any  other  attempted  assignment  or
transfer by any party hereto shall be null and void). Nothing in this Agreement,
expressed or implied,  shall be construed to confer upon any Person  (other than
the parties hereto,  their  respective  successors and assigns  permitted hereby
and, to the extent expressly  contemplated hereby, the Indemnitees) any legal or
equitable right, remedy or claim under or by reason of this Agreement.

      (b) Any  Lender  may  assign to one or more  Eligible  Assignees  all or a
portion of its rights and obligations  under this Agreement  (including all or a
portion  of its  Commitment  and  the  Loans  (including  for  purposes  of this
subsection  (b),  participations  in L/C  Obligations) at the time owing to it);
provided that (i) except in the case of an  assignment  of the entire  remaining
amount of the assigning  Lender's  Commitment and the Loans at the time owing to
it or in the case of an assignment to a Lender or an Affiliate of a Lender,  the
aggregate  amount of the  Commitment  (which  for this  purpose  includes  Loans
outstanding  thereunder)  subject to each such assignment,  determined as of the
date the Assignment and Assumption  Agreement with respect to such assignment is
delivered to Agent,  shall not be less than  $5,000,000  unless Agent  otherwise
consents (such consent not to be  unreasonably  withheld or delayed);  (ii) each
partial assignment shall be made as an assignment of a proportionate part of all
the assigning  Lender's rights and obligations under this Agreement with respect
to the Loans or the  Commitment  assigned,  (iii) any assignment of a Commitment
must be approved by Agent,  unless the Person that is the  proposed  assignee is
itself a Lender (whether or not the proposed assignee would otherwise qualify as
an Eligible  Assignee),  (iv) the parties to each  assignment  shall execute and
deliver  to  Agent an  Assignment  and  Assumption  Agreement,  together  with a
processing  and  recordation  fee of $3,500,  with a copy of the  Assignment and
Assumption  Agreement to Borrower,  along with any forms  required under Section
3.01  and (v) if no  Default  or  Event  of  Default  has  occurred  and is then
continuing,  Borrower  consents  to  such  assignment  (such  consent  not to be
unreasonably  withheld or delayed).  Subject to acceptance and recording thereof
by  Agent  pursuant  to  subsection  (c) of this  Section,  from and  after  the
effective  date  specified in each  Assignment  and  Assumption  Agreement,  the
Eligible  Assignee  thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption  Agreement,  have the rights
and  obligations  of a Lender under this  Agreement,  and the  assigning  Lender
thereunder  shall, to the extent of the interest assigned by such Assignment and
Assumption  Agreement,  be released from its  obligations  under this  Agreement
(and, in the case of an Assignment and Assumption  Agreement covering all of the
assigning  Lender's  rights and obligations  under this  Agreement,  such Lender
shall  cease to be a party  hereto  but shall  continue  to be  entitled  to the
benefits of Sections 3.01, 3.04, 3.05, 10.04 and 10.05 with respect to facts and
circumstances  occurring  prior to the date of such  assignment,  subject to the
requirements  and  restrictions  contained in each such  Section).  Upon written
request from Agent,  Borrower (at its expense)  shall execute and deliver a Note
to the assignee  Lender and any existing Note shall be delivered by Agent or the
assigning Lender to Borrower marked "cancelled". Any assignment or transfer by a
Lender of rights or  obligations  under this Agreement that does not comply with
this  subsection  shall be treated for  purposes of this  Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
subsection (d) of this Section.

      (c) Agent,  acting solely for this purpose as an agent of Borrower,  shall
maintain at Agent's Office a copy of each  Assignment  and Assumption  Agreement
delivered to it and a register for the recordation of the names

                                      -67-
<PAGE>

and addresses of Lenders,  and the Commitments  of, and principal  amount of the
Loans and L/C  Obligations  owing to, each Lender  pursuant to the terms  hereof
from time to time (the "Register").  Upon delivery of the applicable  Assignment
and Assumption Agreement and the processing and recordation described in Section
10.07(b), Agent shall record the information therein in the Register and provide
notice of such  recordation  to Borrower.  The entries in the Register  shall be
conclusive,  and Borrower, Agent and Lenders may treat each Person whose name is
recorded in the Register  pursuant to the terms hereof as a Lender hereunder for
all purposes of this  Agreement,  notwithstanding  notice to the  contrary.  The
Register  shall be available for  inspection by Borrower and any Lender,  at any
reasonable time and from time to time upon reasonable prior notice.

      (d) Any Lender may,  without  the  consent  of, or notice to,  Borrower or
Agent, and in accordance with applicable Law, sell  participations to any Person
(other  than a natural  person or Borrower or any of  Borrower's  Affiliates  or
Subsidiaries  (each a "Participant") in all or a portion of such Lender's rights
and  obligations  under  this  Agreement  (including  all  or a  portion  of its
Commitment  and/or the Loans  (including  such  Lender's  participations  in L/C
Obligations)  owing to it);  provided that (i) such Lender's  obligations  under
this  Agreement  shall remain  unchanged,  (ii) such Lender shall remain  solely
responsible to the other parties hereto for the performance of such  obligations
and (iii)  Borrower,  Agent and the other Lenders shall  continue to deal solely
and  directly  with such  Lender in  connection  with such  Lender's  rights and
obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation  shall provide that such Lender shall retain
the  sole  right  to  enforce  this  Agreement  and to  approve  any  amendment,
modification  or waiver of any provision of this  Agreement;  provided that such
agreement  or  instrument  may provide  that such  Lender will not,  without the
consent of the Participant, agree to any amendment, waiver or other modification
described in the first  provision to Section  10.01 that  directly  affects such
Participant.  Subject to subsection  (e) of this Section,  Borrower  agrees that
each  Participant  shall be entitled to the benefits of Sections 3.01,  3.04 and
3.05 to the same extent as if it were the Lender from whom the participation was
acquired and had acquired its interest by assignment  pursuant to subsection (b)
of this Section.  To the extent permitted by law, each Participant also shall be
entitled to the benefits of Section  10.09 as though it were a Lender,  provided
such  Participant  agrees  to be  subject  to  Section  2.13 as though it were a
Lender.

      (e) A  Participant  shall not be entitled  to receive any greater  payment
under Section 3.01,  3.04,  3.05 or 10.09 than the applicable  Lender would have
been  entitled  to  receive  with  respect  to the  participation  sold  to such
Participant.  A Participant  that is a Non-U.S.  Person shall not be entitled to
the  benefits of Section 3.01 unless  Borrower is notified of the  participation
sold to such  Participant  and  such  Participant  agrees,  for the  benefit  of
Borrower, to comply with Section 3.01 as though it were a Lender.

      (f) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement  (including under its Note, if
any) to secure obligations of such Lender, including any pledge or assignment to
secure  obligations  to a Federal  Reserve Bank and the provisions of clause (b)
above  shall  not  apply to such  assignment;  provided  that no such  pledge or
assignment  shall  release a Lender  from any of its  obligations  hereunder  or
substitute any such pledgee or assignee for such Lender as a party hereto.

      (g)  Notwithstanding  anything to the contrary contained herein, if at any
time  Bank of  America  assigns  all of its  Commitment  and Loans  pursuant  to
subsection (b) above,  Bank of America may, upon 30 days' notice to Borrower and
Lenders,  resign in its  capacity  as the L/C  Issuer.  In the event of any such
resignation  as L/C Issuer,  Borrower  shall be  entitled to appoint  from among
Lenders a successor L/C Issuer hereunder;  provided, however, that no failure by
Borrower to appoint any such successor  shall affect the  resignation of Bank of
America as L/C Issuer.  If Bank of America  resigns as the L/C Issuer,  it shall
retain all the rights and obligations of Agent as the L/C Issuer  hereunder with
respect to all Letters of Credit  outstanding  as of the  effective  date of its
resignation  as the L/C  Issuer and all L/C  Obligations  with  respect  thereto
(including  the right to require  Lenders to make Base Rate  Committed  Loans or
fund risk  participations in Unreimbursed  Amounts pursuant to Section 2.03(c)).
Borrower, Lenders and Bank of America agree that they shall amend this Agreement
as  necessary  to reflect  that Bank of America  remains  Agent for  purposes of
administering this Agreement, but has resigned in its capacity as L/C Issuer and
another  Lender(s) shall provides such service,  including the obligation of the
successor  to Bank of America  as the L/C  Issuer to issue  letters of credit in
substitution for the Letters of Credit, if any,  outstanding at the time of such
succession  or to make  other  arrangements  satisfactory  to Bank of America to
effectively  assume  the  obligations  of Bank of America  with  respect to such
Letters of Credit.

                                      -68-
<PAGE>

      (h) As  used  herein,  "Eligible  Assignee"  means  (a) a  Lender;  (b) an
Affiliate of a Lender;  and (c) any other bank,  financial  institution or other
entity that is engaged in the  business of lending  money  (other than a natural
Person); provided that notwithstanding the foregoing,  "Eligible Assignee" shall
not include Playboy, Borrower or any of Playboy's Affiliates or Subsidiaries.

      10.08 Confidentiality.

      Each of Agent and Lenders  agrees to maintain the  confidentiality  of the
Information (as defined below),  except that Information may be disclosed (a) to
its and its Affiliates'  directors,  officers,  employees and agents,  including
accountants,  legal counsel and other  financial  advisors (it being  understood
that the  Persons  to whom  such  disclosure  is made  will be  informed  of the
confidential  nature of such Information and instructed to keep such Information
confidential);  (b) to the extent  requested by any regulatory  authority having
jurisdiction  over it;  provided,  however,  that in such event, if Agent or the
applicable  Lender is able to do so, Agent or such Lender shall provide Borrower
with prompt  notice of such  requested  disclosure  so that  Borrower may seek a
protective order or other appropriate  remedy,  and, in any event, Agent or such
Lender  will  endeavor  in good  faith to  provide  only  that  portion  of such
information  which,  in the  reasonable  judgment  of Agent or such  Lender,  is
relevant  and legally  required to be  provided;  (c) to the extent  required by
applicable  Laws or  regulations  or by any subpoena or similar  legal  process;
provided, however, that in such event, if Agent or the applicable Lender is able
to do so, Agent or such Lender shall provide Borrower with prompt notice of such
requested  disclosure  so that  Borrower  may seek a  protective  order or other
appropriate  remedy,  and, in any event,  Agent or such Lender will  endeavor in
good  faith to  provide  only that  portion of such  information  which,  in the
reasonable judgment of Agent or such Lender, is relevant and legally required to
be provided;  (d) to any other party to this  Agreement;  (e) in connection with
the exercise of any remedies  hereunder or any other Loan  Document or any suit,
action or  proceeding  relating to this  Agreement or any other Loan Document or
the  enforcement  of rights  hereunder  or under any other  Loan  Document;  (f)
subject to an agreement containing provisions substantially the same as those of
this  Section,  to (i)  any  Eligible  Assignee  of or  Participant  in,  or any
prospective  Eligible  Assignee  of or  Participant  in,  any of its  rights  or
obligations  under this  Agreement  or (ii) any direct or  indirect  contractual
counterparty or prospective counterparty (or such contractual  counterparty's or
prospective  counterparty's  professional  advisor)  to  any  credit  derivative
transaction  relating  to  obligations  of a Loan  Party;  (g) with the  written
consent of Borrower;  (h) to the extent such  Information  (i) becomes  publicly
available  other than as a result of a breach of this  Section  or (ii)  becomes
available to Agent or any Lender on a nonconfidential  basis from a source other
than Borrower and such  information  from such source is not to the knowledge of
Agent or such Lender, subject to an obligation of confidentiality; or (i) to the
National   Association   of  Insurance   Commissioners   or  any  other  similar
organization.  In addition, Agent and Lenders may disclose the existence of this
Agreement  and  information  about this  Agreement  to market  data  collectors,
similar  service  providers to the lending  industry,  and service  providers to
Agent and Lenders in connection with the  administration  and management of this
Agreement, the other Loan Documents, the Commitments, and the Credit Extensions.
For the purposes of this Section, "Information" means all non-public information
received  from any Loan Party  relating  to any Loan  Party or their  respective
businesses,  other than any such  information  that is available to Agent or any
Lender on a  nonconfidential  basis prior to disclosure  by any Loan Party.  Any
Person  required to maintain the  confidentiality  of Information as provided in
this Section shall be  considered to have complied with its  obligation to do so
if  such  Person  has  exercised  the  same  degree  of  care  to  maintain  the
confidentiality  of such  Information  as such  Person  would  accord to its own
confidential information.

      10.09 Set-off.

      In addition to any rights and  remedies of Lenders  provided by Law,  upon
the occurrence and during the  continuance of any Event of Default,  each Lender
is  authorized  at any time  and from  time to time,  without  prior  notice  to
Borrower or any other Loan Party,  any such notice  being waived by Borrower (on
its own behalf and on behalf of each Loan Party) to the fullest extent permitted
by Law, to set off and apply any and all deposits  (general or special,  time or
demand, provisional or final) at any time held by, and other Indebtedness at any
time owing by, such Lender to or for the credit or the account of the respective
Loan Parties against any and all Obligations  owing to such Lender  hereunder or
under any other  Loan  Document,  now or  hereafter  existing,  irrespective  of
whether or not Agent or such Lender shall have made demand under this  Agreement
or any other Loan  Document and although such  Obligations  may be contingent or
unmatured or  denominated  in a currency  different  from that of the applicable
deposit or  Indebtedness.  Each Lender  agrees  promptly to notify  Borrower and
Agent after any such  set-off and  application  made by such  Lender;  provided,
however,  that the failure to give such notice  shall not affect the validity of
such set-off and application.

                                      -69-
<PAGE>

      10.10 Interest Rate Limitation.

      Notwithstanding  anything to the contrary  contained in any Loan Document,
the interest paid or agreed to be paid under the Loan Documents shall not exceed
the maximum  rate of  non-usurious  interest  permitted by  applicable  Law (the
"Maximum Rate"). If Agent or any Lender shall receive interest in an amount that
exceeds  the  Maximum  Rate,  the excess  interest  to the extent  permitted  by
applicable Law, shall be applied to the principal of the Loans or, if it exceeds
such unpaid principal, refunded to Borrower. In determining whether the interest
contracted  for,  charged,  or received by Agent or a Lender exceeds the Maximum
Rate,  such  Person  may,  to  the  extent  permitted  by  applicable  Law,  (a)
characterize  any payment that is not  principal as an expense,  fee, or premium
rather than interest, (b) exclude voluntary prepayments and the effects thereof,
and (c) amortize,  prorate,  allocate,  and spread in equal or unequal parts the
total amount of interest  throughout the  contemplated  term of the  Obligations
hereunder.

      10.11 Counterparts.

      This Agreement may be executed in one or more counterparts,  each of which
shall be deemed an original,  but all of which together shall constitute one and
the same instrument.

      10.12 Integration.

      This  Agreement,  together  with the other Loan  Documents,  comprises the
complete and  integrated  agreement of the parties on the subject  matter hereof
and  thereof  and  supersedes  all prior  agreements,  written or oral,  on such
subject  matter.  In the event of any conflict  between the  provisions  of this
Agreement and those of any other Loan Document, the provisions of this Agreement
shall control; provided that the inclusion of supplemental rights or remedies in
favor of Agent or  Lenders  in any  other  Loan  Document  shall not be deemed a
conflict  with this  Agreement.  Each Loan  Document  was drafted with the joint
participation of the respective  parties thereto and shall be construed  neither
against  nor in favor of any  party,  but  rather  in  accordance  with the fair
meaning thereof.

      10.13 Survival of Representations and Warranties.

      All  representations  and warranties  made hereunder and in any other Loan
Document or other document delivered pursuant hereto or thereto or in connection
herewith or  therewith  shall  survive the  execution  and  delivery  hereof and
thereof. Such representations and warranties have been or will be relied upon by
Agent and each  Lender,  regardless  of any  investigation  made by Agent or any
Lender or on their behalf and notwithstanding  that Agent or any Lender may have
had notice or  knowledge  of any  Default or Event of Default at the time of any
Credit  Extension,  and shall  continue  in full force and effect as long as any
Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any
Letter of Credit shall remain outstanding.

      10.14 Severability.

      If any provision of this  Agreement or the other Loan Documents is held to
be  illegal,   invalid  or  unenforceable,   (a)  the  legality,   validity  and
enforceability of the remaining  provisions of this Agreement and the other Loan
Documents  shall not be affected or impaired  thereby and (b) the parties  shall
endeavor  in  good  faith  negotiations  to  replace  the  illegal,  invalid  or
unenforceable  provisions  with valid  provisions  the economic  effect of which
comes as close as  possible  to that of the  illegal,  invalid or  unenforceable
provisions. The invalidity of a provision in a particular jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

      10.15 Governing Law; Submission to Jurisdiction.

      (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE  STATE  OF  ILLINOIS  APPLICABLE  TO  AGREEMENTS  MADE AND TO BE
PERFORMED  ENTIRELY  WITHIN SUCH STATE;  PROVIDED THAT BORROWER,  AGENT AND EACH
LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.

                                      -70-
<PAGE>

      (b) ANY LEGAL ACTION OR PROCEEDING  WITH RESPECT TO THIS  AGREEMENT OR ANY
OTHER  LOAN  DOCUMENT  MAY BE  BROUGHT  IN THE  COURTS OF THE STATE OF  ILLINOIS
SITTING  IN COOK  COUNTY,  ILLINOIS  OR OF THE UNITED  STATES  FOR THE  NORTHERN
DISTRICT  OF SUCH  STATE,  AND BY  EXECUTION  AND  DELIVERY  OF THIS  AGREEMENT,
BORROWER,  AGENT AND EACH  LENDER  CONSENTS,  FOR  ITSELF  AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. BORROWER, AGENT AND
EACH LENDER  IRREVOCABLY  WAIVES ANY  OBJECTION,  INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE  GROUNDS OF FORUM NON  CONVENIENS,  WHICH IT MAY
NOW OR  HEREAFTER  HAVE TO THE  BRINGING  OF ANY  ACTION OR  PROCEEDING  IN SUCH
JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER DOCUMENT  RELATED THERETO.
BORROWER,  AGENT  AND  EACH  LENDER  WAIVES  PERSONAL  SERVICE  OF ANY  SUMMONS,
COMPLAINT OR OTHER  PROCESS,  WHICH MAY BE MADE BY ANY OTHER MEANS  PERMITTED BY
THE LAW OF SUCH STATE.

      10.16 Waiver of Right to Trial by Jury.

      EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY  CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION  ARISING  UNDER ANY LOAN
DOCUMENT OR IN ANY WAY  CONNECTED  WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN  DOCUMENT,  OR THE
TRANSACTIONS  RELATED  THERETO,  IN EACH CASE  WHETHER NOW EXISTING OR HEREAFTER
ARISING,  AND WHETHER  FOUNDED IN CONTRACT OR TORT OR OTHERWISE;  AND EACH PARTY
HEREBY  AGREES AND  CONSENTS  THAT ANY SUCH  CLAIM,  DEMAND,  ACTION OR CAUSE OF
ACTION  SHALL BE DECIDED BY COURT  TRIAL  WITHOUT A JURY,  AND THAT ANY PARTY TO
THIS  AGREEMENT MAY FILE AN ORIGINAL  COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN  EVIDENCE OF THE CONSENT OF THE  SIGNATORIES  HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

      10.17 Restrictions on Foreign Collateral.

      Notwithstanding anything to the contrary in any Loan Document, (i) no more
than 65% of the stock of any  Subsidiary  that is a  Non-U.S.  Person  (and such
stock shall not represent  more than 65% of the total  combined  voting power of
all  classes of stock of such  Subsidiary  entitled to vote) shall be pledged to
Agent as security for the  Obligations,  (ii) no  Subsidiary  that is a Non-U.S.
Person shall be required to pledge to Agent as security for the  Obligations the
stock of any other Subsidiary that is a Non-U.S.  Person, (iii) no assets of any
Subsidiary  that is a Non-U.S.  Person shall be pledged to Agent as security for
the  Obligations  and (iv) no  Subsidiary  that is a  Non-U.S.  Person  shall be
required  to  guarantee  the  Obligations  either  through  a Loan  Guaranty  or
otherwise.

      10.18 USA PATRIOT Act Notice.

      Each Lender that is subject to the Act (as hereinafter  defined) and Agent
(for  itself and not on behalf of any  Lender)  hereby  notifies  Borrower  that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed  into law October  26,  2001))  (the  "Act"),  it is required to obtain,
verify  and record  information  that  identifies  Borrower,  which  information
includes the name and address of Borrower and other  information that will allow
such Lender or Agent, as applicable, to identify Borrower in accordance with the
Act.

                                      -71-
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
duly executed as of the date first above written.

                               PEI HOLDINGS, INC., as Borrower

                               By    /s/ Robert D. Campbell
                                     -------------------------------------------
                               Name  Robert D. Campbell
                                     -------------------------------------------
                               Title Treasurer
                                     -------------------------------------------

                               BANK OF AMERICA, N.A., as Agent and as L/C Issuer

                               By    /s/ David A. Johanson
                                     -------------------------------------------
                               Name  David A. Johanson
                                     -------------------------------------------
                               Title Vice President
                                     -------------------------------------------

                               BANK OF AMERICA, N.A., as a Lender

                               By    /s/ Craig W. McGuire
                                     -------------------------------------------
                               Name  Craig W. McGuire
                                     -------------------------------------------
                               Title Senior Vice President
                                     -------------------------------------------

                               LASALLE BANK NATIONAL ASSOCIATION, as a Lender

                               By    /s/ Siamak Saidi
                                     -------------------------------------------
                               Name  Siamak Saidi
                                     -------------------------------------------
                               Title Commercial Banking Officer
                                     -------------------------------------------

                                      S-1
<PAGE>

                                                                   SCHEDULE 2.01

                                   COMMITMENTS
                               AND PRO RATA SHARES

Lender                                  Commitment          Pro Rata Share
--------------------------------------------------------------------------------

Bank of America, N.A.                   $25,000,000           50%
LaSalle Bank National Association       $25,000,000           50%
Total                                   $50,000,000          100%

                                  Schedule 2.01
<PAGE>

                                                                   SCHEDULE 5.06

                                   LITIGATION

                                  Schedule 5.06

<PAGE>

                                                                   SCHEDULE 5.08

                              ENVIRONMENTAL MATTERS

                                  Schedule 5.08
<PAGE>

                                                                   SCHEDULE 5.12

                                  SUBSIDIARIES
                          AND OTHER EQUITY INVESTMENTS

Part (a).   Subsidiaries.

            Restricted Subsidiaries.

Part (b).   Other Equity Investments.

                                  Schedule 5.12
<PAGE>

                                                                   SCHEDULE 7.02

                                   INVESTMENTS

                                  Schedule 7.02
<PAGE>

                                                                   SCHEDULE 7.03

                                  INDEBTEDNESS

                                  Schedule 7.03
<PAGE>

                                                                  SCHEDULE 10.02

                              ADDRESSES FOR NOTICES

PEI HOLDINGS, INC.
680 North Lake Shore Drive
Chicago, Illinois 60611
Attn:    Senior Vice President and
         Treasurer,
         with a copy to Executive Vice President,
         Law and Administration and General Counsel
         Telephone: 312.373.2180
         Facsimile: 312.649.1395
         Electronic Mail: bobc@playboy.com

BANK OF AMERICA
Address for Payments and Requests for Loans
Bank of America, N.A.
901 Main Street
Dallas, Texas 75202
Attn:    Runzia Bob
         Credit Services
         Telephone: 214.209.9732
         Facsimile: 214.290.9646
Account No.: 129-2000-883
Ref:  PEI Holdings, Inc.
ABA# 111000012

Address for Receiving Letter of Credit Applications and related correspondence

Standby Letters of Credit:

Bank of America, N.A.
Trade Operations-Chicago
231 South LaSalle Street
Mail Code: IL1-231-17-00
Chicago, Illinois 60604
Attn:    Riyaz Kaka
         Vice President and Operations Manager
         Telephone: 312.923.5924
         Facsimile: 312.987.6828
         Electronic Mail: riyaz.n.kaka@bankofamerica.com

Commercial Letters of Credit

Bank of America, N.A.
Trade Operations-Chicago
231 South LaSalle Street
Mail Code: IL1-231-17-00
Chicago, Illinois 60604
Attn:    Carmen Chavez
         Vice President and Operations Manager
         Telephone: 312.923.5867
         Facsimile: 312.987.6828
         Electronic Mail: carmen.chavez@bankofamerica.com

                             Schedule 10.02 - Page 1
<PAGE>

Other Notices as Agent:

Bank of America, N.A.
Agency Management
231 South LaSalle Street
Mail Code:  IL1-231-08-30
Chicago, Illinois 60604
Attn:    Linda Lov
         Agency Officer
         Telephone: 312.828.8010
         Facsimile: 877.206.1766
         Electronic Mail: linda.k.lov@bankofamerica.com

Other Notices as a Lender:

Bank of America, N.A.
231 South LaSalle Street
Mail Code: IL1-231-06-38
Chicago, Illinois 60604
Attn:    Craig McGuire
         Vice President
         Telephone: 312.828.1320
         Facsimile: 312.828.1974
         Electronic Mail: craig.w.mcguire@bankofamerica.com

LASALLE BANK NATIONAL ASSOCIATION

Requests for Credit Extensions:
LaSalle Bank National Association
135 South LaSalle Street
Chicago, Illinois 60603
Attn:    Jeannette Lahart
         Operations Officer
         Telephone: 312.904.0598
         Facsimile: 312.904.6373
         Electronic Mail: jeannette.lahart@abnamro.com
Account No. 1378018-7300
ABA# 071000505

Notices (other than Requests for Credit Extensions):
LaSalle Bank National Association
135 South LaSalle Street
Suite 1126
Chicago, Illinois 60603
Attn:    Siamak Saidi
         Commercial Banking Officer
         Telephone: 312.904.7734
         Facsimile: 312.904.6546
         Electronic Mail: siamak.saidi@abnamro.com

                             Schedule 10.02 - Page 2
<PAGE>

                                                                       EXHIBIT A

                          FORM OF COMMITTED LOAN NOTICE

                                                        Date: ___________, _____

To:      Bank of America, N.A., as Agent

Ladies and Gentlemen:

      Reference is made to that certain Amended and Restated  Credit  Agreement,
dated as of April 1,  2005 (as  amended,  restated,  extended,  supplemented  or
otherwise  modified in writing from time to time,  the "Credit  Agreement;"  the
terms defined therein being used herein as therein defined), among PEI Holdings,
Inc. ("Borrower"), Lenders from time to time party thereto, and Bank of America,
N.A., as Agent.

      The undersigned hereby requests (select one):

|_|  A Committed Borrowing of                |_| A conversion or continuation
     Committed Loans                             of Committed Loans

      1.    On_________________________________________________(a Business Day).

      2.    In the amount of $_________________________________.

      3.    Comprised  of  _________________________________________.
                              [Type of Committed Loan requested]

      4.    For Eurodollar Rate Committed Loans: with an Interest Period of
            _______ months.

      [The Committed Borrowing requested herein complies with the proviso to the
first sentence of Section 2.01 of the Credit Agreement.]

                                            PEI HOLDINGS, INC.

                                            By__________________________________
                                            Name________________________________
                                            Title_______________________________

                                    Exhibit A

<PAGE>

                                                                       EXHIBIT B

                                      NOTE

                                    Exhibit A
<PAGE>

                                                                       EXHIBIT C

                         FORM OF COMPLIANCE CERTIFICATE

                                        Financial Statement Date: _____________,

To:      Bank of America, N.A., as Agent

Ladies and Gentlemen:

      Reference is made to that certain Amended and Restated  Credit  Agreement,
dated as of April 1,  2005 (as  amended,  restated,  extended,  supplemented  or
otherwise  modified in writing  from time to time,  the  "Agreement;"  the terms
defined therein being used herein as therein defined),  among PEI Holdings, Inc.
("Borrower"),  Lenders  from time to time party  thereto,  and Bank of  America,
N.A., as Agent.

      The undersigned Responsible Officer hereby certifies as of the date hereof
that  he/she  is  the  _____________________________________________________  of
Borrower,  and that,  as such,  he/she is authorized to execute and deliver this
Certificate to Agent on behalf of Borrower, and that:

            [Use following for fiscal year-end financial statements]

      1.  Attached  hereto as  Schedule  1 are the  year-end  audited  financial
statements  required by Section  6.01(a) of the Agreement for the fiscal year of
Borrower ended as of the above date,  together with the report and opinion of an
independent certified public accountant required by such section.

           [Use following for fiscal quarter-end financial statements]

      1. Attached  hereto as Schedule 1 are the unaudited  financial  statements
required by Section  6.01(b) of the Agreement for the fiscal quarter of Borrower
ended as of the above date.  Such  financial  statements  fairly  present in all
material respects the financial condition,  results of operations and cash flows
of Borrower and its Subsidiaries in accordance with GAAP as at such date and for
such period, subject only to normal year-end adjustments.

      2. The  undersigned  has  reviewed  and is familiar  with the terms of the
Agreement and has made, or has caused to be made under  his/her  supervision,  a
review of the  transactions  and condition  (financial or otherwise) of Borrower
during the accounting period covered by the attached financial statements.

      3. A review of the  activities  of Borrower  during such fiscal period has
been made under the  supervision of the  undersigned  with a view to determining
whether  during such fiscal  period  Borrower  performed  and  observed  all its
Obligations under the Loan Documents, and

                                  [select one:]

      [no knowledge was obtained of any Event of Default]

                                     --or--

      [the  following is a list of each such Default or Event of Default and its
nature and status:]

      4. The representations and warranties of the Borrower contained in Article
V of the Agreement, or which are contained in any document furnished at any time
under or in  connection  with the Loan  Documents,  are true and  correct in all
material  respects on and as of the date hereof,  except to the extent that such
representations  and warranties  specifically refer to an earlier date, in which
case they are true and  correct as of such  earlier  date,  and except  that for
purposes of this  Compliance  Certificate,  the  representations  and warranties
contained in subsections  (a) and (b) of Section 5.05 of the Agreement  shall be
deemed to refer to the most recent statements

                               Exhibit C - Page 1
<PAGE>

furnished pursuant to clauses (a) and (b), respectively,  of Section 6.01 of the
Agreement,  including the  statements in connection  with which this  Compliance
Certificate is delivered.

      5. The financial covenant analyses and information set forth on Schedule 2
attached hereto are true and accurate on and as of the date of this Certificate.

      IN WITNESS  WHEREOF,  the undersigned has executed this  Certificate as of
______________, _______.

                                           PEI HOLDINGS, INC.

                                           By __________________________________
                                           Name_________________________________
                                           Title________________________________

                               Exhibit C - Page 2
<PAGE>

                For the Quarter/Year ended ___________________("Statement Date")

                                   SCHEDULE 2
                          to the Compliance Certificate
                                  ($ in 000's)

<TABLE>
<S>     <C>                                                                                       <C>
I.    Section 6.09(a) - Net Worth.

         A.    Net Worth at Statement Date:                                                       $_______________

               1.       Total Assets:                                                             $_______________

               2.       Total Liabilities:                                                        $_______________

               3.       Net Worth (Line I.A.1 less Line I.A.2):                                   $_______________

               Minimum Required Net Worth:                                                        $_______________

         B.    1.       $_________, plus                                                          $_______________

               2.       the sum of 50% of net income
                        (without subtracting losses) earned in each fiscal quarter
                        commencing January 1, 2005                                                $_______________

               3.       Minimum Required Net Worth (I.B.1 plus I.B.2)                             $_______________

         C.    Excess (deficient) for covenant compliance (Line I.A.3 less I.B.3:                 $_______________

II.      Section 6.09(b) - Interest Coverage Ratio.

         A.    Adjusted EBITDA:                                                                   $_______________

               1.       net income                                                                $_______________
               2.       discontinued operations                                                   $_______________
               3.       extraordinary items                                                       $_______________
               4.       interest expense on all obligations                                       $_______________
               5.       depreciation, depletion and amortization                                  $_______________
               6.       restructuring charges,                                                    $_______________
               7.       non-cash expenses or losses                                               $_______________
               8.       other non-cash charges, less                                              $_______________
               9.       cash investments in programming                                           $_______________
               [10.     redemption premium                                                        $_______________]

               [10/11.] Total EBITDA                                                              $_______________

         B.    Cash interest expense                                                              $_______________

         C.    Ratio (Line II.A. / Line II.B)                                                      ___________ to 1.0

         D.    Minimum Required:  _____ to 1.0

III.     Section 6.09(c) -- Capital Expenditures.

         A.    Obligations incurred (including capital leases) for fixed assets
               during fiscal year to date                                                         $_______________

         B.    Maximum permitted capital expenditures:                                            $15,000,000

         C.    Excess (deficient) for covenant compliance (Line III.A - III.B):                   $_______________
</TABLE>

                               Exhibit C - Page 3
<PAGE>

                                                                       EXHIBIT D

                       ASSIGNMENT AND ASSUMPTION AGREEMENT

      This Assignment and Assumption  Agreement (this  "Assignment") is dated as
of the Effective Date set forth below and is entered into by and between [Insert
name  of  Assignor]  (the   "Assignor")  and  [Insert  name  of  Assignee]  (the
"Assignee").  Capitalized  terms  used but not  defined  herein  shall  have the
meanings  given to them in the Credit  Agreement  identified  below (the "Credit
Agreement"),  receipt of a copy of which is hereby acknowledged by the Assignee.
The  Standard  Terms and  Conditions  set forth in Annex 1  attached  hereto are
hereby  agreed to and  incorporated  herein by reference and made a part of this
Assignment as if set forth herein in full.

      For an agreed  consideration,  the Assignor hereby  irrevocably  sells and
assigns to the  Assignee,  and the Assignee  hereby  irrevocably  purchases  and
assumes from the Assignor,  subject to and in accordance with the Standard Terms
and  Conditions and the Credit  Agreement,  as of the Effective Date inserted by
Agent as  contemplated  below,  (i) all of the  Assignor's  rights  (subject  to
Section 10.07(b) of the Credit  Agreement) and obligations as a Lender under the
Credit  Agreement  and any other  documents or  instruments  delivered  pursuant
thereto to the extent related to the amount and percentage  interest  identified
below of all of such  outstanding  rights and  obligations of the Assignor under
the respective facilities identified below (including, to the extent included in
any such facilities and Letters of Credit) included in such facilities and, (ii)
to the extent  permitted  to be  assigned  under  applicable  law,  all  claims,
including,  without  limitation,  suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person,  whether known or
unknown,  arising under or in connection  with the Credit  Agreement,  any other
documents or instruments  delivered  pursuant  thereto or the loan  transactions
governed  thereby  or in any way based on or  related  to any of the  foregoing,
including, but not limited to, contract claims, tort claims, malpractice claims,
statutory  claims and all other claims at law or in equity related to the rights
and obligations  sold and assigned  pursuant to clause (i) above (the rights and
obligations  sold and  assigned  pursuant  to clauses  (i) and (ii) above  being
referred to herein  collectively  as, (the "Assigned  Interest").  Such sale and
assignment is without recourse to the Assignor and, except as expressly provided
in this Assignment, without representation or warranty by the Assignor.

1.    Assignor: ______________________________

2.    Assignee: ______________________________ [and is an Affiliate of Assignor]

3.    Borrower(s): PEI Holdings, Inc.

4.    Agent: Bank of America, N. A., as Agent under the Credit Agreement

5.    Credit Agreement: Amended and Restated Credit Agreement, dated as of April
      1, 2005, among PEI Holdings, Inc., Lenders parties thereto, and Agent

6.    Assigned Interest:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                  Aggregate
                                  Amount of                  Amount of                 Percentage
                              Commitment/Loans            Commitment/Loans             Assigned of
   Facility Assigned           for all Lenders                Assigned              Commitment/Loans            CUSIP No.
   -----------------           ---------------                --------              ----------------            ---------
---------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                        <C>                         <C>                      <C>
     _____________            $_______________           $________________           _____________%           _____________
---------------------------------------------------------------------------------------------------------------------------------
     _____________            $_______________           $________________           _____________%           _____________
---------------------------------------------------------------------------------------------------------------------------------
     _____________            $_______________           $________________           _____________%           _____________
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Effective  Date:  __________________,  20__ [TO BE  INSERTED  BY AGENT AND WHICH
SHALL  BE THE  EFFECTIVE  DATE  OF  RECORDATION  OF  TRANSFER  IN  THE  REGISTER
THEREFOR.]

                               Exhibit D - Page 1
<PAGE>

The terms set forth in this Assignment are hereby agreed to:

                                         ASSIGNOR
                                         [NAME OF ASSIGNOR]

                                         By_____________________________________
                                             Title______________________________

                                         ASSIGNEE
                                         [NAME OF ASSIGNEE]

                                         By_____________________________________
                                             Title______________________________

[Consented to and] Accepted:

Bank of America, N.A., as Agent

By______________________________________
     Title______________________________

                               Exhibit D - Page 2
<PAGE>

                                  ANNEX 1 TO ASSIGNMENT AND ASSUMPTION AGREEMENT

                  STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT

                            AND ASSUMPTION AGREEMENT

      1. Representations and Warranties.

            1.1. Assignor.  The Assignor (a) represents and warrants that (i) it
is the legal and beneficial  owner of the Assigned  Interest,  (ii) the Assigned
Interest is free and clear of any lien,  encumbrance  or other adverse claim and
(iii) it has full power and authority,  and has taken all action  necessary,  to
execute  and  deliver  this  Assignment  and  to  consummate  the   transactions
contemplated  hereby; and (b) assumes no responsibility  with respect to (i) any
statements,  warranties or  representations  made in or in  connection  with the
Credit  Agreement  or any other Loan  Document,  (ii) the  execution,  legality,
validity,  enforceability,   genuineness,  sufficiency  or  value  of  the  Loan
Documents , or any  collateral  thereunder,  (iii) the  financial  condition  of
Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in
respect of any Loan Document or (iv) the  performance or observance by Borrower,
any of its  Subsidiaries  or  Affiliates  or any  other  Person  of any of their
respective obligations under any Loan Document.

            1.2. Assignee.  The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and to consummate the transactions  contemplated  hereby
and  to  become  a  Lender  under  the  Credit  Agreement,  (ii)  it  meets  all
requirements of an Eligible  Assignee under the Credit  Agreement,  (iii) it has
provided all forms  required  under Section 3.01 of the Credit  Agreement,  (iv)
from and after the Effective  Date,  it shall be bound by the  provisions of the
Credit  Agreement  as a lender  thereunder  and,  to the extent of the  Assigned
Interest,  shall have the  obligations  of a Lender  thereunder,  and (v) it has
received a copy of the Credit Agreement, together with copies of the most recent
financial  statements delivered pursuant to Section 6.01 thereof, as applicable,
and such other  documents and  information as it has deemed  appropriate to make
its own  credit  analysis  and  decision  to enter into this  Assignment  and to
purchase the Assigned  Interest on the basis of which it has made such  analysis
and decision  independently  and without  reliance on Agent or any other Lender;
and (b) agrees that (i) it will,  independently  and without  reliance on Agent,
the Assignor or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking  or not  taking  action  under  the Loan  Documents,  and (ii) it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.

            1.3 Assignee's Address for Notices, etc. Attached hereto as Schedule
1  is  all  contact  information,  address,  account  and  other  administrative
information relating to the Assignee.

      2.  Payments.  From and after the  Effective  Date,  Agent  shall make all
payments in respect of the Assigned Interest  (including  payments of principal,
interest,  fees and other  amounts) to the  Assignee  whether  such amounts have
accrued  prior  to or on or after  the  Effective  Date.  The  Assignor  and the
Assignee shall make all appropriate adjustments in payments by Agent for periods
prior to the  Effective  Date or with  respect to the making of this  assignment
directly between themselves.

      3. General Provisions. This Assignment shall be binding upon, and inure to
the benefit of, the parties hereto and their respective  successors and assigns.
This  Assignment may be executed in any number of  counterparts,  which together
shall  constitute  one  instrument.  Delivery  of an executed  counterpart  of a
signature page of this  Assignment by telecopy shall be effective as delivery of
a manually  executed  counterpart of this  Assignment.  This Assignment shall be
governed  by,  and  construed  in  accordance  with,  the  laws of the  State of
Illinois.

                               Exhibit D - Page 3
<PAGE>

                               SCHEDULE 1 TO ASSIGNMENT AND ASSUMPTION AGREEMENT

                             ADMINISTRATIVE DETAILS

(ASSIGNEE TO LIST NAMES OF CREDIT CONTACTS, ADDRESSES, PHONE AND FACSIMILE
NUMBERS, ELECTRONIC MAIL ADDRESSES AND ACCOUNT AND PAYMENT INFORMATION)

                               Exhibit D - Page 4

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