Document:

Exhibit 4.48

Exhibit 4.48

EXECUTION
COPY

SELLERS’ SECURITIES AGREEMENT

$80,000,000 SUBORDINATED SECURED NOTES DUE
2011

PMGI WARRANTS

Dated as of December 6, 2007

by and among

INTERACTIVE NETWORK INC.,
as Issuer

EACH SUBSIDIARY OF INTERACTIVE NETWORK INC., LISTED AS A
SENIOR SUBORDINATED GUARANTOR ON THE SIGNATURE PAGES HERETO,
as Senior
Subordinated Guarantors,

PENTHOUSE MEDIA GROUP, INC. AND EACH SUBSIDIARY OF
PENTHOUSE MEDIA GROUP INC. LISTED AS A JUNIOR SUBORDINATED GUARANTOR ON THE
SIGNATURE PAGES HERETO,
as Junior Subordinated Guarantors,

ANDREW B. CONRU TRUST AGREEMENT, ANDREW B. CONRU TRUSTEE, AND
MAPSTEAD TRUST, CREATED ON APRIL 16, 2002, LARS AND MARIN MAPSTEAD
TRUSTEES, AND SUBSEQUENT HOLDERS OF THE SELLERS’ SECURED NOTES FROM TIME TO TIME
PARTY HERETO,
as Holders,

and

U.S. BANK NATIONAL ASSOCIATION
as Administrative Agent
and Collateral Agent

TABLE OF CONTENTS

Page

ARTICLE
I

DEFINITIONS; CERTAIN TERMS

Section 1.01

Definitions

2

Section 1.02

Terms Generally

26

Section 1.03

Accounting and Other Terms

26

Section 1.04

Time References

26

ARTICLE II

THE
SECURITIES

Section 2.01

Authorization of Securities

27

Section 2.02

Issuance of Securities

27

Section 2.03

Repayment of Sellers’ Secured Notes; Evidence of
Indebtedness

28

Section 2.04

Interest

28

Section 2.05

Optional Redemption of Sellers’ Secured Notes.

29

Section 2.06

[Reserved]

29

Section 2.07

Mandatory Repayment of Sellers’ Secured Notes

29

Section 2.08

[Reserved]

29

Section 2.09

Taxes

30

ARTICLE
III

SECURITY; ADMINISTRATIVE PRIORITY AND RANKING

Section 3.01

Collateral; Grant of Lien and Security Interest

31

Section 3.02

Negotiable Collateral

31

Section 3.03

Collection of Accounts, General Intangibles, and
Negotiable Collateral

31

Section 3.04

Delivery of Additional Documentation Required

32

Section 3.05

Power of Attorney

32

Section 3.06

Rights and Remedies Cumulative

32

ARTICLE IV

FEES, PAYMENTS AND OTHER
COMPENSATION

Section 4.01

Payments; Computations

33

Section 4.02

Apportionment of Payments

33

ARTICLE V

CONDITIONS TO ISSUANCE OF
SECURITIES

Section 5.01

Conditions Precedent to Holders’ Obligations to
Close

34

Section 5.02

Conditions Subsequent to Effectiveness

39

i

ARTICLE VI

REPRESENTATIONS AND
WARRANTIES

Section 6.01

Representations and Warranties of the Obligors

41

Section 6.02

Representations and Warranties of the Holders

61

ARTICLE VII

COVENANTS OF THE OBLIGORS

Section 7.01

Affirmative Covenants

63

Section 7.02

Negative Covenants

72

Section 7.03

Financial Covenants

76

ARTICLE VIII

MANAGEMENT OF COLLATERAL

Section 8.01

Management of Collateral

77

Section 8.02

Accounts Receivable Documentation

78

Section 8.03

Status of Accounts Receivable and Other Collateral

79

Section 8.04

Collateral Custodian

80

ARTICLE IX

EVENTS OF DEFAULT; OTHER
AGREEMENTS

Section 9.01

Events of Default

80

Section 9.02

No Waivers or Election of Remedies, Expenses, Etc

83

Section 9.03

Public Announcement

83

ARTICLE X

AGENT

Section 10.01

Appointment

84

Section 10.02

Nature of Duties

84

Section 10.03

Rights, Exculpation, Etc

85

Section 10.04

Reliance

86

Section 10.05

Indemnification

86

Section 10.06

Successor Agent

87

Section 10.07

Collateral Matters

87

Section 10.08

Agency for Perfection

89

Section 10.09

Compensation for Services

89

ARTICLE XI

GUARANTY

Section 11.01

Guaranty

89

Section 11.02

Guaranty Absolute

89

Section 11.03

Waiver

91

ii

Section 11.04

Continuing Guaranty; Assignments

91

Section 11.05

Subrogation

91

Section 11.06

Liens on Real Property; Other Waivers

92

Section 11.07

Condition of Issuer and its Subsidiaries

93

ARTICLE XII

MISCELLANEOUS

Section 12.01

Notices, Etc

93

Section 12.02

Amendments, Etc

94

Section 12.03

No Waiver; Remedies, Etc

95

Section 12.04

Expenses; Taxes; Attorneys’ Fees

95

Section 12.05

Right of Setoff

96

Section 12.06

Severability

96

Section 12.07

Assignments

97

Section 12.08

Counterparts

98

Section 12.09

GOVERNING LAW

98

Section 12.10

CONSENT TO JURISDICTION; SERVICE OF PROCESS AND
VENUE

98

Section 12.11

WAIVER OF JURY TRIAL, ETC

99

Section 12.12

Consent by the Agent and Holders

99

Section 12.13

No Party Deemed Drafter

99

Section 12.14

Reinstatement; Certain Payments

99

Section 12.15

Indemnification

100

Section 12.16

Binding Effect

100

Section 12.17

Interest

101

Section 12.18

Customer Identification Program

102

iii

SELLERS’ SECURITIES AGREEMENT

$80,000,000 SUBORDINATED SECURED NOTES DUE 2011

PMGI WARRANTS

Sellers’
Secured Notes and Warrants Agreement (the “Agreement”), dated as of
December 6, 2007, by and among Interactive Network Inc., a Nevada corporation,
as issuer (the “Issuer”) of the Sellers’ Secured Notes (as such term is
defined below), each Subsidiary of the Issuer listed as a “Senior
Subordinated Guarantor” on the signature pages hereto, Penthouse Media Group
Inc., a Nevada corporation, as issuer of the Warrants (as such term is defined
below) (“PMGI”, and together with each Subsidiary of PMGI listed as a
“Junior Subordinated Guarantor” on the signature pages hereto,
collectively, the “Junior Subordinated Guarantors”) (as more fully
defined below, each Senior Subordinated Guarantor and each Junior Subordinated
Guarantor are referred to herein as a “Guarantor,” and collectively the
“Guarantors”), Andrew B. Conru Trust Agreement, Andrew B. Conru Trustee,
and Mapstead Trust, created on April 16, 2002, Lars and Marin Mapstead
Trustees (the “Sellers”), and any subsequent holders of the Securities listed on
Schedule 2.02 and from time to time party hereto (each Seller and
each such subsequent holder, a “Holder” and collectively, the
“Holders”), and U.S. Bank National Association, as administrative
agent and collateral agent for the Holders (the “Agent”).

RECITALS

WHEREAS,
concurrently with the execution and delivery of this Agreement and issuance of
the Sellers’ Secured Notes pursuant to this Agreement, Issuer is closing its
purchase from the Sellers of all the issued and outstanding capital stock of
Various, Inc. pursuant to the Various Acquisition Agreement (as defined below).

WHEREAS,
as prescribed in the Various Acquisition Agreement, Issuer desires to issue the
Sellers’ Secured Notes in partial payment of the purchase price under the Stock
Purchase Agreement, and Sellers desire to accept the Sellers’ Secured Notes in
partial payment of such purchase price, upon and subject to the terms and
conditions of this Agreement.

WHEREAS,
as prescribed in, and as a further inducement to the Sellers to sell the stock
under, the Various Acquisition Agreement, PMGI desires to issue the Warrants to
the Sellers as the initial Holders, upon and subject to the terms and conditions
of this Agreement.

NOW,
THEREFORE, in consideration of the premises and the covenants and agreements
contained herein, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS; CERTAIN TERMS

Section
1.01

Definitions.
 As used in this Agreement, the following terms shall have the respective
meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:

“Account Control Agreements” means account control agreements in form and substance
satisfactory to the Agent (including an Account Control Agreement in respect of
the St. Kitts Bank Accounts) (it being agreed that the Agent will be amenable to
working from each deposit account bank’s form, provided that the final account
control agreement is satisfactory in form and substance to the
Agent).

“Account Debtor” means each debtor, customer or obligor in any way
obligated on or in connection with any Account Receivable.  

“Accounts”
means all of the Obligors’ now owned or hereafter acquired right, title, and
interest with respect to “accounts” (as that term is defined in the
Uniform Commercial Code), and any and all supporting obligations in respect
thereof.

“Accounts Receivable” means any and all rights of the Obligors to payment
for goods sold and/or services rendered, including accounts, general intangibles
and any and all such rights evidenced by chattel paper, instruments or
documents, whether due or to become due and whether or not earned by
performance, and whether now or hereafter acquired or arising in the future, and
any proceeds arising therefrom or relating thereto.

“Action” has
the meaning specified therefor in Section 12.12.  

“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such Person; provided,
that no Holder (or group thereof) shall be deemed to be an Affiliate of the
Obligors solely as a result of its right to designate a member of the Board of
Directors pursuant to Section 7.01(v) hereof (or otherwise) and/or by virtue of
its ownership of Securities issued hereunder or of PMGI Notes.  For
purposes of this definition, “control” of a Person means the power, directly or
indirectly, either to (i) vote 10% or more of the Capital Stock having ordinary
voting power for the election of directors of such Person or (ii) direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.  For the purposes of this Agreement, Marc H. Bell,
Daniel Staton and their respective Affiliates shall be considered Affiliates of
the Obligors.

“Agent” has
the meaning specified in the preamble hereto

“Agent Advances” has the meaning specified therefor in
Section 10.07(a).  

“Agent’s Account” means an account at a bank designated by the Agent
(which may be the Agent if it is a bank) from time to time as the account into
which the Obligors shall make all 

2

payments to the Agent for the benefit of the Agent and
the Holders under this Agreement and the other Sellers’ Secured Note Documents.
 

“Agent’s Liens” has the meaning set forth in Section 3.01.
 

“Agreement”
means this Agreement Regarding Sellers’ Securities, including all amendments,
restatements, modifications and supplements and any exhibits to, or schedules
referred to in or attached to, any of the foregoing, and shall refer to the
Agreement as the same may be in effect at the time such reference becomes
operative.

“Annualized Consolidated EBITDA” means, as of the date of determination, the
Consolidated EBITDA of the Issuer for the three calendar months then most
recently ended multiplied by four.

 “Asset Sale”
by any Person means any transfer, conveyance, sale, lease, license or other
disposition by such Person or any of its Subsidiaries (including a consolidation
or merger or other sale of any such Subsidiary with, into or to another Person
in a transaction in which such Subsidiary ceases to be a Subsidiary)
(collectively a “transfer”) of (i) shares of Capital Stock (other than
directors’ qualifying shares) or other ownership interests of a Subsidiary of
such Person, (ii) all or substantially all of the assets of such Person or
any of its Subsidiaries, or (iii) any other property, assets or rights
(including Intellectual Property), or interest therein, of such Person or any of
its Subsidiaries outside of the ordinary course of business; provided that
“Asset Sale” shall not include (A) any transfer by the Issuer to any Wholly
Owned Subsidiary of the Issuer that is a Senior Subordinated Guarantor or by any
Subsidiary of the Issuer to any other Wholly Owned Subsidiary of the Issuer that
is a Senior Subordinated Guarantor or to the Issuer in a manner that does not
otherwise violate the terms of this Agreement, (B) a transfer constituting
the granting of a Permitted Lien, (C) any transfer of obsolete equipment in
the ordinary course of business, or (D) a transfer in any transaction or
series of transactions the fair market value of which, in the aggregate with all
other transactions permitted by this clause (D), does not exceed
$1,000,000.

“Assignment of Acquisition Documents” means the Assignment of Acquisition Documents, dated
as of the date hereof, made by PMGI in favor of Issuer and consented to by the
Sellers.

“Authorized Officer” means, with respect to any Obligor, the Chief
Executive Officer, the Chief Financial Officer, the Treasurer, the Controller or
the Secretary of such Obligor, or any other officer designated on behalf of a
Obligor as an Authorized Officer of such Obligor by written notice to the
Holders.

“Available Excess Cash Flow”  means, with respect to any Fiscal Quarter, an
amount equal to no more than 10% of Excess Cash Flow for such Fiscal
Quarter.

“Back-Up Data Center” means a back up data and server center of at least the
same capacity as the data and server center operated by Various Inc. and its
Subsidiaries as of the Closing Date.

 “Bankruptcy Code” means Chapter 11 of Title 11 of the United
States Code.  

3

“Bankruptcy Event” means an event in which the Issuer shall institute any
proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent,
or seeking dissolution, liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any such Person or for any
substantial part of its property.

 “Board Designee” has the meaning specified therefor in
Section 7.01(v).

“Board of Directors” means, with respect to any Person, the board of
directors (or comparable managers) of such Person or any committee thereof duly
authorized to act on behalf of such board of directors (or comparable
managers).

“Board of Governors” means the Board of Governors of the Federal Reserve
System of the United States.

“Board Observer” has the meaning specified therefor in
Section 9.03.

“Business Day” means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City, Minneapolis or Connecticut are
authorized or required to close.  

“Capital Expenditures” means, with respect to any Person for any period, the
sum of (i) the aggregate of all expenditures by such Person and its
Subsidiaries during such period that in accordance with GAAP are or should be
included in “property, plant and equipment” or in a similar fixed-asset account
on its balance sheet, whether such expenditures are paid in cash or financed and
including all Capitalized Lease Obligations paid or payable during such period,
and (ii) to the extent not covered by clause (i) above, the aggregate
of all expenditures by such Person and its Subsidiaries during such period to
acquire by purchase or otherwise the business or fixed assets of, or the Capital
Stock of, any other Person.  

“Capital Stock” means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, and
(ii) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests (however designated and
whether or not voting) of such Person.

“Capitalized Lease” means, with respect to any Person, any lease of real
or personal property by such Person as lessee which is (i) required under
GAAP to be capitalized on the balance sheet of such Person or (ii) a
transaction of a type commonly known as a “synthetic lease” (i.e., a lease
transaction that is treated as an operating lease for accounting purposes but
with respect to which payments of rent are intended to be treated as payments of
principal and interest on a loan for Federal income tax purposes). 

“Capitalized Lease Obligations” means, with respect to any Person, obligations of such
Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof,
the amount of 

4

any such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.  

“Cash Equivalents” means (i) United States dollars,
(ii) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support thereof)
having maturities of one year or less from the date of acquisition,
(iii) certificates of deposit and Eurodollar time deposits with maturities
of not more than one year 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
$250.0 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in
clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above,
(v) municipal securities having the highest rating obtainable from Moody’s
or Standard & Poor’s and in each case maturing within 60 days or less
after the date of acquisition, (vi) commercial paper having the highest
rating obtainable from Moody’s or Standard & Poor’s and in each case
maturing within one year after the date of acquisition and (vii) money
market funds at least 95% of the assets of which constitute Cash Equivalents of
the kinds described in clauses (i) through (vi) of this definition.

“Change of Control” means, in one transaction or a series of related
transactions:

(a)

(i)
the merger or consolidation of the Issuer or PMGI into or with one or more
Persons, (ii) the merger or consolidation of one or more Persons into or
with the Issuer or PMGI or (iii) a tender offer or other business
combination if, in the case of (i), (ii) or (iii), the stockholders of the
Issuer or PMGI, as the case may be, immediately prior to such merger,
consolidation, tender offer or business combination (together with such
stockholders’ Affiliates) do not retain at least a majority of the voting power
of the surviving Person;

(b)

the
issuance, sale, conveyance, exchange or transfer to another Person or Persons of
(i) the voting capital stock of the Issuer or PMGI if, after such issuance,
sale, conveyance, exchange or transfer, the stockholders of the Issuer or PMGI,
as the case may be, immediately prior to such sale, conveyance, exchange or
transfer (together with such respective stockholders’ Affiliates) do not
immediately after such transaction retain at least a majority of the voting
power of the Issuer or PMGI, as the case may be, or (ii) more than fifty
percent (50%) of the assets of the Issuer or PMGI, as the case may be;
or

(c)

the
Issuer or PMGI shall cease to have beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of at least the same percentage of the
aggregate voting power of the Capital Stock of each Guarantor that the Issuer or
PMGI, respectively, had as of the Closing Date, free and clear of all Liens
(other than any Liens granted hereunder and Permitted Liens).

“Closing” has
the meaning specified therefor in Section 2.02(c).

“Closing
Date” means the date on which all
conditions precedent as set forth in Section 5.01 are satisfied or
waived.

5

“Collateral”
has the meaning specified therefor in Section 3.01. 

“Consolidated Coverage Ratio” means, with respect to the Issuer on any Determination
Date, the ratio of:

(a)

Consolidated
EBITDA for the applicable Measurement Period, to

(b)

(i)
Consolidated Interest Expense of the Issuer during such Measurement Period plus
(ii) dividends or distributions on or in respect of any Capital Stock of
any Senior Subordinated Obligor paid during such Measurement Period (except
dividends or distributions paid to the Issuer or another Senior Subordinated
Obligor); provided that the Consolidated Coverage Ratio shall be
calculated giving pro forma effect, as of the beginning of the applicable
Measurement Period, to any acquisition, incurrence, permanent repayment or
redemption of Indebtedness (including the Sellers’ Secured Notes), issuance or
redemption of Disqualified Capital Stock,
acquisition, Asset Sale, or purchases of assets that were previously leased, at
any time during or subsequent to such Measurement Period, but on or prior to the
applicable Determination Date.

In making such computation, Consolidated Interest
Expense:

(a)

attributable to any Indebtedness bearing a floating
interest rate shall be computed on a pro forma basis as if the rate in effect on
the date of computation had been the applicable rate for the entire Measurement
Period,

(b)

attributable
to interest on any Indebtedness under a revolving Credit Facility shall be
computed on a pro forma basis based upon the average daily balance of such
Indebtedness outstanding during the applicable Measurement Period, or

(c)

attributable
to non-cash interest expense resulting from the amortization of the original
issue discount on the Sellers’ Secured Notes in accordance with GAAP shall be
excluded from such computation.

For purposes of calculating Consolidated EBITDA of the
Issuer for the applicable Measurement Period,

(a)

any
Person that is a Subsidiary on such Determination Date (or would become a
Subsidiary on such Determination Date in connection with the transaction that
requires the determination of the Consolidated Coverage Ratio) shall be deemed
to have been a Subsidiary at all times during such Measurement Period,

(b)

any
Person that is not a Subsidiary on such Determination Date (or would cease to be
a Subsidiary on such Determination Date in connection with the transaction that
requires the determination of the Consolidated Coverage Ratio) will be deemed
not to have been a Subsidiary at any time during such Measurement Period,

(c)

if
any Senior Subordinated Obligor shall have in any manner

6

(i)

acquired
(including through an asset acquisition or the commencement of activities
constituting such operating business), or

(ii)

disposed
of (including by way of an Asset Sale or the termination or discontinuance of
activities constituting such operating business)

any
operating business during such Measurement Period or after the end of such
Measurement Period and on or prior to the Determination Date, such calculation
shall be made on a pro forma basis in accordance with GAAP as if, in the case of
an asset acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Consolidated EBITDA of any acquired Person to the extent that such
Person’s net income would be excluded pursuant to clauses (a) through (g)
of the definition of Consolidated Net Income; and

(d)

any
Indebtedness incurred and proceeds thereof received and applied as a result of
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio will be deemed to have been so incurred, received and applied on the first
day of such Measurement Period.

“Consolidated EBITDA” means, with respect to any period, Consolidated Net
Income for such period increased (without duplication), to the extent deducted
in calculating such Consolidated Net Income, by (a) Consolidated Income Tax
Expense for such period; (b) Consolidated Interest Expense for such period
without regard to the proviso therein relating to reduction of Consolidated
Interest Expense for Subsidiaries that are not Wholly-Owned Subsidiaries of the
Issuer; and (c) depreciation, amortization and any other non-cash items for
such period, less any non-cash items to the extent they increase Consolidated
Net Income (including the partial or entire reversal of reserves taken in prior
periods) for such period, of the Issuer and its Subsidiaries, including without
limitation, amortization of capitalized debt issuance costs for such period, all
of the foregoing determined on a consolidated basis for the Issuer and its
Subsidiaries in accordance with GAAP; provided that, if any Subsidiary is not a
Wholly Owned Subsidiary of the Issuer, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in accordance with GAAP) by an amount equal to
(A) the amount of Consolidated EBITDA attributable to such Subsidiary
multiplied by (B) the percentage ownership interest in such Subsidiary not
owned on the last day of such period by the Issuer or any of its
Subsidiaries.

“Consolidated Income Tax Expense” for any period means the consolidated provision for
income taxes of the Issuer and its Subsidiaries for such period calculated on a
consolidated basis in accordance with GAAP.

“Consolidated Interest Expense” means for any period the consolidated interest expense
included in the consolidated income statement of the Issuer and its Subsidiaries
for such period calculated on a consolidated basis in accordance with GAAP,
including without limitation or duplication (or, to the extent not so included,
with the addition of), (i) the amortization of debt 

7

discounts;
(ii) any payments or fees with respect to letters of credit, bankers’
acceptances or similar facilities; (iii) fees (net of any amounts received)
with respect to any Hedging Agreement; (iv) interest on Indebtedness
guaranteed by the Issuer and/or any of its Subsidiaries, to the extent paid by
the Issuer or any Subsidiary; and (v) the portion of any Capitalized Lease
Obligation allocable to interest expense; provided, that, if any
Subsidiary is not a Wholly Owned Subsidiary of the Issuer, Consolidated Interest
Expense shall be reduced (to the extent not otherwise reduced in accordance with
GAAP) by an amount equal to (A) the amount of Consolidated Interest Expense
attributable to such Subsidiary multiplied by (B) the percentage ownership
interest in such Subsidiary not owned on the last day of such period by the
Issuer or any of its Subsidiaries.

“Consolidated Net Income” for any period means the consolidated net income (or
loss) of the Issuer and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded therefrom:

(a)

the
net income (or loss) of any Person that is not a Subsidiary of the Issuer except
to the extent of the amount of dividends or other distributions actually paid to
the Issuer or a Subsidiary of the Issuer by such Person during such period,

(b)

gains
or losses on Asset Sales by the Issuer or its Subsidiaries,

(c)

all
extraordinary gains and extraordinary losses,

(d)

the
cumulative effect of changes in accounting principles,

(e)

any
net income of any Subsidiary if such Subsidiary is subject to restrictions,
directly or indirectly, by contract, operation of law, pursuant to its charter
or otherwise on the payment of dividends or the making of distributions by such
Subsidiary to such Person except that:

(i)

such
Person’s equity in the net income of any such Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
that could have been paid or distributed during such period to such Person as a
dividend or other distribution (provided that such ability is not due to a
waiver of such restriction), and

(ii)

such
Person’s equity in a net loss of any such Subsidiary for such period shall be
included in determining such Consolidated Net Income regardless of any such
restriction,

(f)

in
the case of a successor to such Person by consolidation or merger or as a
transferee of such Person’s assets, any net income or loss of the successor
corporation prior to such consolidation, merger or transfer of assets; and

(g)

the
tax effect of any of the items described in clauses (a) through
(f) above.

“Consolidated Tangible Assets” means, with respect to the Issuer, the total
consolidated assets of the Issuer and its Subsidiaries, less the total
intangible assets of the Issuer and its Subsidiaries, as shown on the most recent consolidated annual or quarterly balance sheet of the Issuer and its Subsidiaries calculated on a consolidated basis in accordance with GAAP.

8

“Contingent Obligation” means with respect to any Person, any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, (i) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of a primary obligor, (ii) the obligation to make
take-or-pay or similar payments, if required, regardless of nonperformance by
any other party or parties to an agreement, and (iii) any obligation of
such Person, whether or not contingent, (A) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(B) to advance or supply funds (1) for the purchase or payment of any
such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (C) to purchase property, assets,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (D) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided,
however, that the term “Contingent Obligation” shall not include any product warranties extended in
the ordinary course of business and any indemnification obligations incurred in
the ordinary course of business to licensees and customers relating to the
Senior Subordinated Obligors’ Intellectual Property.  The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation with respect to which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.  

“Copyright Security Assignment” means the Copyright Security Assignment, dated as of
the date hereof, executed and delivered by the Senior Subordinated Guarantors to
the Agent for the benefit of the Holders, in connection with the closing of the
transactions contemplated hereof, as the same may be amended or otherwise
modified from time to time.

“Credit Facilities” means, with respect to the Issuer and/or its
Subsidiaries, one or more debt facilities or commercial paper facilities, in
each case with banks or other lenders providing for revolving credit loans, term
loans, debt securities, receivables financing (including through the sale of
receivables to such lenders or special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.

“Credit Parties” means, collectively, the Issuer, the Senior
Subordinated Guarantors, PMGI, and the Junior Subordinated
Guarantors.

“Default”
means an event which, with the giving of notice or the lapse of time or both,
would constitute an Event of Default. 

9

“Determination Date” means, with respect to any calculation, the date on or
as of which such calculation is made in accordance with the terms
hereof.

“Disposition”
means any transaction, or series of related transactions, pursuant to which any
Person or any of its Subsidiaries sells, assigns, transfers or otherwise
disposes of any property or assets (whether now owned or hereafter acquired) to
any other Person, in each case, whether or not the consideration therefor
consists of cash, securities or other assets owned by the acquiring
Person.

“Disqualified Stock” means any Capital Stock or any portion thereof which
by its terms or by the terms of any security into which it is, by its terms,
convertible or for which it is, by its terms, exchangeable at the option of the
holder thereof), or upon the happening of any specified event, is required to be
redeemed or is redeemable (at the option of the holder thereof), or provides for
the mandatory payment of cash dividends, at any time prior to the date that is
180 days after the stated maturity of the Sellers’ Secured Notes or is
exchangeable at the option of the holder thereof for Indebtedness at any time
prior to the date that is 180 days after the stated maturity of the
Sellers’ Secured Notes.

“Dollar,”
“Dollars” and the symbol “$” each
means lawful money of the United States of America. 

“Environmental Laws” means the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. §9601, et seq.),
the Hazardous Materials Transportation Act (49 U.S.C. §1801, et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. §6901, et seq.),
the Federal Clean Water Act (33 U.S.C. §1251 et seq.),
the Clean Air Act (42 U.S.C. §7401 et
seq.), the Toxic Substances Control Act
(15 U.S.C. §2601 et seq.) and the Occupational Safety and Health Act (29 U.S.C.
§651 et seq.), as such laws may be amended or otherwise modified
from time to time, and any other present or future federal, state, local or
foreign statute, ordinance, rule, regulation, order, judgment, decree, permit,
license or other binding determination of any Governmental Authority imposing
liability or establishing standards of conduct for protection of the
environment.

“Environmental Liabilities and Costs” means all liabilities, monetary obligations, Remedial
Actions, losses, damages, punitive damages, consequential damages, treble
damages, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts and consultants and costs of investigations and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand by any Governmental Authority or any third party,
and which relate to any environmental condition or a Release of Hazardous
Materials from or onto (i) any property presently or formerly owned by any
Obligor or (ii) any facility which received Hazardous Materials generated
by any Obligor. 

“Environmental Lien” means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.

“Equity Documents” means this Agreement, the Warrants, the Registration
Rights Agreement, the Security Holders Agreement and all other documents,
instruments and 

10

agreements executed or delivered in connection with the
issuance of the Warrants, as the same may be amended or otherwise modified from
time to time.

“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time in
effect.

“ERISA Affiliate” means any trade or business  (whether or not
incorporated) that is treated as a single employer together with the Issuer
under section 414 of the Internal Revenue Code.

“Event of Default” means any of the events set forth in
Section 9.01.

“Excess Cash Flow” means, with respect to any Person for any period,
(i) Consolidated Net Income of such Person and its Subsidiaries for such
period, plus (ii) all non-cash items of such Person and its
Subsidiaries deducted in determining Consolidated Net Income for such period,
less (iii) the cash portion of Capital Expenditures
made by such Person and its Subsidiaries during such period to the extent
permitted to be made under this Agreement.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Final Maturity Date” means December 6, 2011, or such earlier date on which
any Sellers’ Secured Notes shall become due and payable in accordance with the
terms of this Agreement and the other Sellers’ Secured Note
Documents.

“Financial Statements” means, collectively, the PMGI Financial Statements and
the Various Financial Statements.

“Fiscal Quarter” means the fiscal quarter of the Issuer and PMGI, as
the case may be, ending on each March 31, June 30, September 30 and December
31.

“Fiscal Year”
means the fiscal year of the Issuer ending on December 31 of each
year.

“Foreign Subsidiary” any Subsidiary of the Issuer or PMGI organized under
the laws of any jurisdiction outside of the United States of America.

“Funding Documents” means, collectively, the Sellers’ Secured Note
Documents, the Equity Documents, and all other documents, instruments and
agreements executed or delivered in connection with any of the foregoing as the
same may be amended or otherwise modified from time to time.

“GAAP” means
generally accepted accounting principles in effect from time to time in the
United States, applied on a consistent basis. 

“General Intangibles” means all of the Obligors’ now owned or hereafter
acquired right, title, and interest with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trademarks, servicemarks,
copyrights,  

11

blueprints,
drawings, purchase orders, customer lists, monies due or recoverable from
pension funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs, information
contained on computer disks or tapes, software, literature, reports, catalogs,
money, deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), and any and all supporting obligations in respect thereof, and any
other personal property other than goods, Accounts and Negotiable Collateral.

“Governmental Authority” means any nation or government, any Federal, state,
city, town, municipality, county, local or other political subdivision thereof
or thereto and any department, commission, board, bureau, instrumentality,
agency or other entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.

“Guaranteed Obligations” has the meaning specified therefor in
Section 11.01. 

“Guarantor”
and “Guarantors” have the respective meanings specified for such terms
in the preamble hereto, and also include any Persons becoming Guarantors after
the date of this Agreement pursuant to Section 7.01(m) hereof. 

“Guaranty”
means the guaranty of each Guarantor party hereto contained in Article XI hereof. 

“Hazardous Materials” means (a) any element, compound or chemical that
is defined, listed or otherwise classified as a contaminant, pollutant, toxic
pollutant, toxic or hazardous substances, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic,
including but not limited to, corrosivity, ignitability, toxicity or reactivity
as well as any radioactive or explosive materials; and (e) any raw
materials or building components, including but not limited to
asbestos-containing materials and manufactured products containing hazardous
substances. 

“Hedging Agreement” means any interest rate, foreign currency, commodity
or equity swap, collar, cap, floor or forward rate agreement, or other agreement
or arrangement designed to protect against fluctuations in interest rates or
currency, commodity or equity values (including, without limitation, any option
with respect to any of the foregoing and any combination of the foregoing
agreements or arrangements), and any confirmation executed in connection with
any such agreement or arrangement. 

“Highest Lawful Rate” means, with respect to the Agent or any Holder, the
maximum non-usurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the
Obligations under laws applicable to the Agent or such Holder which are
currently in effect or, to the extent allowed by law, under such applicable laws
which may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than applicable laws now allow.

“Holder” and “Holders”
have the respective meanings specified therefor in the preamble hereto, and
includes any assignee or transferee of any Securities.  For the avoidance
of doubt, the  

12

Sellers’ Secured Notes and Warrants are each separately
transferable, subject only to compliance with this Agreement, the Warrants and
the Security Holders Agreement, as applicable.

“Indebtedness” means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person for the deferred purchase price of
property or services (other than trade payables or other accounts payable
incurred in the ordinary course of such Person’s business and not outstanding
for more than 120 days after the date such payable was created, unless the
amount of such payable outstanding for more than 120 days is the subject of
a bona fide dispute, in which event it shall not be included in Indebtedness);
(iii) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments or upon which interest payments are customarily
made; (iv) all reimbursement, payment or other obligations and liabilities
of such Person created or arising under any conditional sales or other title
retention agreement with respect to property used and/or acquired by such
Person, even though the rights and remedies of the lessor, seller and/or lender
thereunder may be limited to repossession or sale of such property; (v) all
Capitalized Lease Obligations of such Person; (vi) all obligations and
liabilities, contingent or otherwise, of such Person, in respect of letters of
credit, acceptances and similar facilities; (vii) all obligations and
liabilities, calculated on a basis satisfactory to the Agent and in accordance
with accepted practice, of such Person under Permitted Hedging Agreements;
(viii) all Contingent Obligations; (ix) Disqualified Stock; and
(x) all obligations referred to in clauses (i) through (ix) of
this definition of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) a
Lien upon property owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.  The Indebtedness of
any Person shall include the Indebtedness of any partnership of or joint venture
in which such Person is a general partner or a joint venturer.

“Indemnified Matters” has the meaning specified therefor in
Section 12.15. 

“Indemnitees”
has the meaning specified therefor in Section 12.15. 

“Independent Accountants” means independent certified public accountants of
recognized national standing chosen by the Obligors and reasonably satisfactory
to the Holders.

“Intellectual Property” means all trademarks, trade names, service marks and
trade dress, (and all goodwill appurtenant to the foregoing), copyrights,
patents, trade secrets and rights of publicity, including as they pertain to
works of authorship, brand names, product designs and layouts, content, images
and graphics, audio/visual works, articles and other text, product packaging,
business and product names, logos, graphical user interfaces, slogans, know-how,
inventions (whether patentable or not), improvements, processes, formulae,
models, processes, designs, specifications, technology, methodologies, computer
software (including all source code and object code), creative and development
tools, all internet sites and domain names, all databases and data collections
(including, but not limited to, customer and advertiser lists) and all rights
therein, and all pending applications for and registrations, renewals,
divisions, continuations, continuations-in-part and re-examinations and
invention disclosures of or for any of the foregoing.

13

“Interactive First Lien Intercreditor
Agreement” means the Intercreditor and
Subordination Agreement (Interactive Network First Lien/Second Lien) dated the
date hereof  by and among the Issuer, the Senior Guarantors, the initial
Holders, the initial holders of the Senior Secured Notes and U.S. Bank National
Association.

“Interactive
Subordinated Guaranty Intercreditor Agreement” means the Intercreditor and
Subordination Agreement (Subordinated Secured Guaranty of PMGI Notes from
Interactive Network) dated the date hereof by and among the Issuer, the Senior
Guarantors, the holders of the PMGI Notes (excluding the Subordinated Notes),
the initial Holders, the initial holders of the Senior Secured Notes and U.S.
Bank National Association.

 “Intercreditor Agreements” means, collectively, the Interactive First Lien
Intercreditor Agreement, the Interactive Subordinated Guaranty Intercreditor
Agreement and the PMGI Senior Lien Intercreditor Agreement. 

“Interest Period” means, as to each Note, a period of 3 months (or, with
the written consent of all of the Required Holders, any other period, provided
that the consent of any Holder disproportionately affected thereby shall be
required with respect to any such change); provided
that (a) the first day of each Interest Period must be a Business Day, (b) 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 the next calendar month, in which case the Interest Period shall end on
the next preceding Business Day, and (c) no Interest Period may extend beyond
the Final Maturity Date.

“Interest Rate or Currency Protection
Agreement” of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices. 

 “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended
(or any successor statute thereto) and the regulations thereunder.

“Investments”
by any Person means any direct or indirect:

(a)

loan,
advance or other extension of credit or capital contribution (valued at the fair
market value thereof as of the date of contribution or transfer) by means of
transfers of cash or other property or services for the account or use of other
Persons, or otherwise;

(b)

purchase
or acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or not purchased directly
from the issuer of such securities or evidences of Indebtedness);

(c)

guarantee
or assumption of any Indebtedness or any other obligation of any other Person
(except for an assumption of Indebtedness for which the assuming Person receives
consideration at the time of such assumption in the form of property or assets
with a fair market value at least equal to the principal amount of the
Indebtedness assumed); and

 

14

(d)

all
other items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP.

Notwithstanding
the foregoing, the term “Investments” shall exclude extensions of trade credit
and advances to customers and suppliers to the extent made in the ordinary
course of business on ordinary business terms.  The amount of any non-cash
Investment shall be the fair market value of such Investment, as determined
conclusively in good faith by management of the Issuer or the affected
Subsidiary, as applicable, unless the fair market value of such Investment
exceeds $100,000, in which case the fair market value shall be determined
conclusively in good faith by the Board of Directors of such Person as of the
time such Investment is made or such other time as specified in this
Agreement.

“Issuer” has
the meaning specified therefor in the preamble hereto.

“Issuer Security and Pledge Agreement” means the Issuer Security and Pledge Agreement, dated
the date hereof, made by the Issuer and each Senior Subordinated Guarantor in
favor of the Agent for the benefit of the Holders, entered into in connection
with the transactions contemplated hereof, as the same may be further amended or
otherwise modified from time to time.

“Lease” means
any lease of real property to which any Senior Subordinated Obligor or any of
its Subsidiaries is a party as lessor or lessee. 

“Lien” means
any mortgage, deed of trust, pledge, lien (statutory or otherwise), security
interest, charge or other encumbrance or security or preferential arrangement of
any nature, including, without limitation, any conditional sale or title
retention arrangement, any Capitalized Lease and any assignment, deposit
arrangement or financing lease intended as, or having the effect of, security.

“Liquidity Event” has the meaning specified therefor in
Section 2.07(b).

“Majority Equity Sponsor” means, collectively, PET Capital Partners LLC, PET
Capital Partners II LLC, Absolute Return Europe Fund, NAFT Ventures I, LLC and
their respective managers, principals and Affiliates.

“Material Adverse Effect” means a material adverse effect on any of (i) the
operations, business, assets, properties, liabilities, condition (financial or
otherwise) or prospects of any Obligor, (ii) the ability of any Obligor to
perform any of its obligations under any Funding Document to which it is a
party, (iii) the legality, validity or enforceability of this Agreement or
any other Funding Document, (iv) the rights and remedies of the Agent under
any Sellers’ Secured Note Document, (v) the validity, perfection or
priority of a Lien in favor of the Agent on any of the Collateral, or
(vi) the value of any material portion of the Collateral.

“Material Contracts” has the meaning specified therefor in
Section 6.01(r). 

“Measurement Period” means, for any Determination Date, the then most
recently completed period of four full fiscal quarters ending on the last day of
the last quarter for which 

15

reviewed financial statements have been delivered to the
Holders, not more than 135 days prior to such Determination
Date.

“Moody’s”
means Moody’s Investors Service, Inc. and any successor thereto.

“Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such
term is defined in section 4001(a)(3) of ERISA).

“Negotiable Collateral” means all of Obligors’ now owned and hereafter
acquired right, title, and interest with respect to letters of credit, letter of
credit rights, instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel paper), and any
and all supporting obligations in respect thereof. 

“Net Cash Proceeds” means, with respect to any Disposition by any Person
or any of its Subsidiaries, the amount of cash or Cash Equivalents received
(directly or indirectly) from time to time (whether as initial consideration or
through the payment or disposition of deferred consideration) by or on behalf of
such Person or such Subsidiary, in connection therewith after deducting
therefrom only (i) the amount of any Indebtedness secured by any Permitted
Lien on any asset (other than Indebtedness assumed by the purchaser of such
asset) which is required to be, and is, repaid in connection with such
Disposition (other than Indebtedness under this Agreement), (ii) reasonable
expenses related thereto incurred by such Person or such Subsidiary in
connection therewith, (iii) transfer taxes paid to any taxing authorities
by such Person or such Subsidiary in connection therewith, and (iv) net
income taxes to be paid in connection with such Disposition (after taking into
account any tax credits or deductions and any tax sharing
arrangements).

“Non-Obligor”
means any Subsidiary of the Issuer or PMGI that is not a party to the Guaranty
and the applicable Security Documents and whose equity interests have not been
pledged in favor of the Agent to secure the Obligations.

“Non-Voting Common Stock” has the meaning specified therefor in
Section 6.01(e).

“Note Account” means an account maintained hereunder by the Agent on
its books of account at the Payment Office and, with respect to the Issuer, in
which the Issuer will be charged with all Obligations incurred by the Issuer.

“Note Documents” mean this Agreement, the Notes, the Security
Documents, the Intercreditor Agreements and all other agreements, instruments,
and other documents executed and delivered pursuant hereto or thereto or
otherwise evidencing or securing any Note or any other Obligation.

“Obligations”
means all present and future indebtedness, obligations, and liabilities of the
Obligors to the Agent and the Holders under the Sellers’ Secured Note Documents,
whether or not the right of payment in respect of such claim is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, disputed,
undisputed, legal, equitable, secured, unsecured, and whether or not such claim
is discharged, stayed or otherwise affected by any proceeding referred to in
Section 9.01.  Without limiting the generality of the foregoing, the
Obligations of each Obligor under the Sellers’ Secured Note Documents include
(a) the 

16

obligation
to pay principal, pre- and post-judgment interest (whether accruing prior to or
after the commencement of any proceeding under the Bankruptcy Code or other laws
relating to insolvency or providing relief to debtors), charges, expenses, fees,
reasonable attorneys’, appraisers’, investment bankers’ and other professional
fees, charges, commissions, and disbursements, including court costs,
indemnities and other amounts payable by such Person under the Sellers’ Secured
Note Documents, and (b) the obligation of such Person to reimburse any
amount in respect of any of the foregoing that the Agent or any Holder (in its
sole discretion) may without obligation elect to pay or advance on behalf of
such Person.  

“Obligor”
means any of the Issuer and the Guarantors; “Obligors”
means each of the Issuer and the Guarantors.

“Obligor Content or Actions” has the meaning specified therefor in
Section 6.01(w)(8).

“Offering Memorandum” means the Offering Memorandum of the Issuer dated
December 6, 2007.

“Operating Lease Obligations” means all obligations for the payment of rent for any
real or personal property under leases or agreements to lease, other than
Capitalized Lease Obligations.

“Other Taxes”
has the meaning specified therefor in Section 2.09(a)(4).

“Parent Security and Pledge Agreement” means the Parent Security and Pledge Agreement, dated
the date hereof, made by each Junior Subordinated Guarantor in favor of the
Agent for the ratable benefit of the Holders, entered into in connection with
the closing of the transactions contemplated hereby, as the same may be further
amended or otherwise modified from time to time. 

“Payment Office” means the Agent’s office located at Corporate Trust
Services, 225 Asylum Street, 23rd Floor, Hartford, CT  06103, or at such
other office or offices of the Agent as may be designated in writing from time
to time by the Agent to the Issuer.  

“PBGC” means
the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any
successor thereto.

 “Perfection Certificate” means a perfection certificate in form and substance
satisfactory to the Required Holders.

“Permitted Hedging Agreement” of any Obligor means any Hedging Agreement entered
into with one or more financial institutions that is designed to protect such
Person against fluctuations in interest rates or currency exchange rates with
respect to Permitted Indebtedness and in no event for purposes of speculation,
which shall have a notional amount no greater than the payments due with respect
to the Permitted Indebtedness being hedged thereby.  

 “Permitted Indebtedness” means:

(a)

the
Senior Secured Note Obligations, including any Permitted Refinancing;

17

(b)

any
Indebtedness owing to the Agent or any Holder under this Agreement and the other
Sellers’ Secured Note Documents; 

(c)

any
Indebtedness under the Seller Notes;

(d)

any
Indebtedness existing on the Closing Date (after application of the proceeds of
the issuance of the Securities) and listed on Schedule 6.01(aa) to
the Securities Purchase Agreement;

(e)

Capitalized
Lease Obligations, obligations in respect of sale-lease back transactions,
purchase money obligations and unsecured Indebtedness under Credit Facilities on
market terms as determined in good faith by the Board of Directors of the Issuer
that, together with the amount of any Indebtedness listed on
Schedule 6.01(aa) to the Securities Purchase Agreement, does not
exceed $1,500,000 in aggregate amount at any time outstanding; and

(f)

obligations
arising under Permitted Hedging Agreements.

“Permitted Investments” means (i) an Investment in the Issuer or a
Wholly-Owned Subsidiary of the Issuer or a Person which will, upon the making of
such Investment, become a Wholly-Owned Subsidiary of the Issuer or be merged or
consolidated with or into or transfer or convey all or substantially all its
assets to, the Issuer or a Wholly-Owned Subsidiary of the Issuer; (ii) Cash
Equivalents; (iii) guarantees of Indebtedness of a Wholly-Owned Subsidiary
of the Issuer given by the Issuer or another Wholly-Owned Subsidiary of the
Issuer and guarantees of Indebtedness of the Issuer given by any Subsidiary, in
each case in accordance with the terms of this Agreement; (iv) Investments
the consideration of which is Capital Stock of the Issuer that is not
Disqualified Stock; (v) reasonable and customary payroll, travel,
relocation and similar advances to cover matters that are expected at the time
of such advances ultimately to be treated as expenses in accordance with GAAP;
(vi) stock, obligations or securities received (A) in satisfaction of
judgments, (B) pursuant to any plan of reorganization or similar
arrangement pursuant to a bankruptcy or insolvency in settlement of a claim or
(C) in connection with the sale or disposition of a Person, assets or
business; (vii) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility and worker’s compensation, performance
and other similar deposits; (viii) Permitted Hedging Agreements;
(ix) loans or advances to officers or employees of the Issuer or any
Subsidiary of the Issuer that do not exceed $100,000 per Person or $300,000 in
the aggregate at any time outstanding; (x) Investments in any Person,
provided that the aggregate amount of Investments made pursuant to this clause
does not exceed $300,000; and (xi) accounts receivable in the ordinary
course of business (and Investments obtained in exchange or settlement of
accounts receivable for which the Issuer has determined that collection is not
likely).

“Permitted Liens” means: 

(a)

Liens
securing the Obligations;

(b)

Liens
for taxes, assessments and governmental charges the payment of which is not
required under Section 7.01(b); 

18

(c)

Liens
imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s and
other similar Liens arising (provided they are subordinate to the Agent’s Liens
on Collateral) in the ordinary course of business and securing obligations
(other than Indebtedness for borrowed money) that are not overdue by more than
30 days or are being contested in good faith and by appropriate proceedings
promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;

(d)

Subject
to the terms of the PMGI Intercreditor Agreement, Liens in favor of the holders
of the PMGI Notes on property that is also subject to Liens in favor of the
Agent on behalf of the Holders; 

(e)

Subject
to the terms of the Interactive First Lien Intercreditor Agreement, Liens on
property in favor of the holders of the Senior Secured Notes that is also
subject to Liens in favor of the Agent on behalf of the Holders; 

(f)

Liens
existing on the Closing Date and described on Schedule 7.02(a) to
the Securities Purchase Agreement;

(g)

(i)
purchase money Liens on property or equipment acquired or held by the Issuer or
any other Obligor in the ordinary course of its business to secure the purchase
price of such property or equipment or Indebtedness incurred solely for the
purpose of financing the acquisition of such property or equipment or
(ii) Liens existing on such property or equipment at the time of its
acquisition; provided, however, that in either case (A) no
such Lien shall extend to or cover any other property of the Issuer or any other
Obligor, (B) the principal amount of the Indebtedness secured by any such
Lien shall not exceed the cost of the property so held or acquired and
(C) the aggregate principal amount of Indebtedness secured by any or all
such Liens shall not exceed $1,000,000 at any one time outstanding;

(h)

deposits
and pledges of cash securing (i) obligations incurred in respect of
workers’ compensation, unemployment insurance or other forms of governmental
insurance or benefits, (ii) the performance of bids, tenders, leases,
contracts (other than for the payment of money) and statutory obligations or
(iii) obligations on surety or appeal bonds, but only to the extent such
deposits or pledges are incurred or otherwise arise in the ordinary course of
business and secure obligations not past due;

(i)

[Reserved];

(j)

any
Lien arising by reason of (1) any judgment, decree or order of any court,
so long as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment, decree or
order shall not have been finally terminated or the period within which such
proceedings may be initiated shall not have expired; or (2) zoning
restrictions, easements, licenses, reservations, title defects, rights of others
for rights of way, utilities, sewers, electric lines, telephone or telegraph
lines, and other similar purposes, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and with
respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising by,
through or 

19

under
a landlord or owner of the leased property, with or without consent of the
lessee), none of which materially impairs the use of any parcel of property
material to the operation of the business of the Issuer or any other Obligor or
the value of such property for the purpose of such business;

(k)

any
Lien arising from judgments, decrees or attachments in circumstances not
constituting an Event if Default;

(l)

any
Lien in favor of the Issuer or any Wholly-Owned Subsidiary that is a Senior
Subordinated Guarantor;

(m)

any
Lien encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements of the Issuer or any other
Obligor if and to the extent arising in the ordinary course of business,
including rights of offset and set-off;

(n)

any
Lien in favor of customs or revenue authorities to secure payment of customs
duties in connection with the importation of goods in the ordinary course of
business;

(o)

real
property leases or subleases granted to third Persons not interfering with the
ordinary course of business of the Issuer or any other Obligor; and 

(p)

any
Lien securing any extension, renewal, refinancing or replacement, in whole or in
part, of any obligation or Indebtedness described in the foregoing clauses so
long as no additional collateral is granted as security thereby and the amount
of Indebtedness is not increased. 

“Permitted Refinancing” means a refinancing of any remaining original
principal amount of the Senior Secured Notes; provided that (i) the amount of
such refinancing does not exceed the remaining principal original amount of the
Senior Secured Notes, (ii) the terms of such refinancing shall be no less
favorable to the Issuer than the terms of the Senior Secured Notes, and (iii)
the maturity date of such refinancing shall not exceed the original maturity
date of the Senior Secured Notes.

“Person”
means an individual, corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture or other enterprise or entity or Governmental Authority. 

“Plan” means
an “employee benefit plan” (as defined in section 3(3) of ERISA) that has
been established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Issuer or
any ERISA Affiliate or with respect to which the Issuer or any ERISA Affiliate
may have any liability.

“PMGI Financial Statements” has the meaning specified therefor in
Section 6.01(k)(ii).

“PMGI Non-Voting Common Stock” has the meaning specified therefor in
Section 6.01(e)(ii).

20

“PMGI
Notes” means (i) PMGI’s 15% Senior
Secured Notes due 2010 in the initial aggregate principal amount of $5,000,000
issued pursuant to the Securities Purchase Agreement, dated as of
August 23, 2006, by and among PMGI, each Subsidiary of PMGI listed as a
guarantor therein, the holders of the securities listed therein, and the agent
party thereto, (ii) PMGI’s 14% Senior Secured Notes due 2010 in the initial
aggregate principal amount of $33,000,000 issued pursuant to the Securities
Purchase Agreement, dated as of August 17, 2005, by and among PMGI, each
Subsidiary of PMGI listed as a guarantor therein, the holders of the securities
listed therein, and the agent party thereto, and (iii) the PMGI
Subordinated Notes.

“PMGI Senior Lien Intercreditor
Agreement” means the Intercreditor and
Subordination Agreement (PMGI Senior Lien Notes/Subordinated Guaranty by PMGI of
Interactive Notes/Marc Bell Notes/Various Seller Notes) dated the date hereof
 by and among the PMGI, the Subordinated Guarantors, the holders of the
PMGI Notes, the initial holders of the Senior Secured Notes, the holders of the
unsecured promissory note issued to the Sellers in connection with the Various
Acquisition and U.S. Bank National Association.

“PMGI Series A Preferred Stock” has the meaning specified therefor in
Section 6.01(e)(ii).

“PMGI Series B Preferred Stock” has the meaning specified therefor in
Section 6.01(e)(ii).

 “PMGI Subordinated Notes” means PMGI’s 13% Term Loan Notes due 2011, in the
initial aggregate principal amount of $24,441,056, held of record or
beneficially owned by the Majority Equity Sponsors.

“PMGI Voting Common Stock” has the meaning specified therefor in
Section 6.01(e)(ii).

“Post-Default Rate” means a rate of interest of twenty percent (20%) per
annum.

“Pro Rata Share” means, for any Holder, the percentage obtained by
dividing the aggregate outstanding principal amount of the Sellers’ Secured
Notes held by such Holder by the aggregate outstanding principal amount of all
Sellers’ Secured Notes.

“PTO” has the
meaning specified therefor in Section 6.01(w)(2)(i).

“Qualified Cash” means, as of any date of determination, the amount of
unrestricted cash and Cash Equivalents of the Issuer and its Subsidiaries that
is in deposit accounts or in securities accounts, or any combination thereof,
and which such deposit account or securities account (i) is maintained by a
branch office of the bank or securities intermediary located within the United
States and (ii) is subject to the dominion and control of the
Agent.

“Qualified Initial Public Offering” means an underwritten initial public offering of
shares of PMGI Common Stock pursuant to a registration statement under the
Securities Act with either (i) aggregate gross proceeds to PMGI of at least
$25,000,000 or (ii) an implied pre-money equity value of PMGI of at least
$100,000,000.  

“Register”
has the meaning specified therefor in Section 12.07(c).

21

“Registered
Intellectual Property” shall mean all
United States, international and foreign:  (a) registered trademarks,
trade names, service marks, applications to register trademarks, trade names and
service marks, intent-to-use and use-based applications to register trademarks,
trade names and service marks; (b) registered copyrights and applications
for copyright registration; and (c) patents and patent applications
(including provisional applications).

“Registered Sellers’ Secured Notes” has the meaning specified therefor in
Section 12.07(c). 

“Registration Rights Agreement” means the Registration Rights Agreement, dated the
date hereof, among PMGI and the Warrant Right Holders (as defined
therein).

“Regulation T”, “Regulation U” and “Regulation X” mean, respectively, Regulations T, U and X of the
Board of Governors or any successor, as the same may be amended or supplemented
from time to time.  

“Release”
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, seeping, migrating, dumping or disposing of any
Hazardous Material (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Hazardous Material) into
the indoor or outdoor environment, including ambient air, soil, surface or
ground water.  

“Remedial Action” means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or
(iv) any other actions authorized by 42 U.S.C. 9601. 

“Required Holders” means, subject to Section 3.08 hereof, the
Holders whose Pro Rata Shares aggregate at least 51%.

“SEC” means
the Securities and Exchange Commission or any other similar or successor agency
of the Federal government administering the Securities Act. 

“Securities”
means the Sellers’ Secured Notes and the Warrants.

“Securities Act” means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect from time to time. 

“Securities Purchase Agreement” means the Securities Purchase Agreement dated as of
the date hereof pursuant to which the Senior Secured Notes are sold and
issued.

“Security Holders Agreement” means the Security Holders Agreement, dated the date
hereof, among PMGI and the Warrant Holders (as defined therein) and certain
other holders of the capital stock of PMGI listed on signature pages
thereto.

22

“Seller
Note” means that note dated the date
hereof, made by Issuer in favor of the Sellers in the principal amount of
$170,000,000, and guaranteed by PMGI, which is in payment of a portion of the
purchase price under the Various Acquisition Agreement in addition to the
portions paid in cash and by the Sellers’ Secured Notes.

“Seller
Note Subordination Agreement” means the Seller Note Subordination Agreement
dated the date hereof by and among the Issuer, the Sellers and U.S. Bank
National Association.

“Sellers”
means the Andrew B. Conru Trust Agreement, Andrew B. Conru Trustee, Mapstead
Trust, created on  April 16, 2002, Lars and Marin Mapstead Trustees,
Andrew B. Conru and Lars Mapstead as the “Sellers” under the Various Acquisition
Agreement.

“Sellers’ Secured Note Account” means an account maintained hereunder by the Agent on
its books of account at the Payment Office and, with respect to the Issuer, in
which the Issuer will be charged with all Obligations incurred by the Issuer.

“Sellers’ Secured Note Documents” means this Agreement, the Sellers’ Secured Notes, the
Sellers’ Security Documents, the Interactive First Lien Intercreditor Agreement,
the Interactive Subordinated Guaranty Intercreditor Agreement and all other
agreements, instruments, and other documents executed and delivered pursuant
hereto or thereto or otherwise evidencing or securing any Sellers’ Secured Notes
or any other Obligation.

“Sellers’ Secured Notes” or “Notes” means
the Issuer’s Subordinated Secured Notes due 2011 in the initial aggregate
principal amount of $80,000,000, each in substantially the form of Exhibit A, each made payable to the order of a Holder, evidencing
the Indebtedness owing by the Issuer to such Holder and delivered to the Holder
pursuant to Section 2.02, as such Sellers’ Secured Notes may be amended,
supplemented, restated, modified or extended from time to time in accordance
with the terms hereof, and any promissory note or notes issued in exchange or
replacement therefor.  The term “Sellers’ Secured Notes” shall include any
Registered Sellers’ Secured Notes evidencing the Sellers’ Secured
Notes.

“Sellers’ Security Documents” means the Issuer Security and Pledge Agreement, the
Parent Security and Pledge Agreement, the Copyright Security Assignment, the
Trademark Security Assignment, the Account Control Agreements, any additional
Account Control Agreement(s) entered into after the date hereof, the Third Party
Consents and all other documents, instruments and agreements executed or
delivered in connection with the granting, attachment, perfection, priority,
maintenance, or enforcement of the Agent’s Liens.

“Senior Debt”
means the Senior Secured Notes and all other outstanding obligations of Issuer
to which the Sellers’ Secured Notes are subordinate in right of payment.

"Senior Debt Ratio" means, with respect to Issuer and its Subsidiaries for
any period, the ratio of (a) Senior Debt of the Issuer and its Subsidiaries as
at the end of such period to (b) Annualized Consolidated EBITDA of the
Issuer and its Subsidiaries for such period.

“Senior Secured Note Documents” means the Securities Purchase Agreement pursuant to
which the Senior Secured Notes are sold and issued, the Senior Secured Notes,
all documents, instruments and agreements executed or delivered in connection
with the granting, attachment, 

23

perfection,
priority, maintenance, or enforcement of the Liens securing the Senior Secured
Notes, the Intercreditor Agreement, and all other agreements, instruments, and
other documents executed and delivered pursuant to any of the foregoing or
otherwise evidencing or securing any Senior Secured Notes or any other Senior
Secured Note Obligations.

“Senior Secured Notes” means the $257,337,629 Senior Secured Notes of Issuer
due 2011, issued pursuant to the Securities Purchase Agreement and to which the
Sellers’ Secured Notes are subordinate in right of payment as provided in the
Interactive First Lien Intercreditor Agreement.

“Senior Secured Note Obligations” means all obligations owed by Issuer under (i) the
Senior Secured Notes, (ii) the Securities Purchase Agreement, (iii) all
documents securing the Senior Secured Notes,  and (iv) the Interactive
First Lien Intercreditor Agreement.

“Senior Subordinated Obligor” means any of the Issuer and the Senior Subordinated
Guarantors; “Senior Subordinated
Obligors” means each of the Issuer and
the Senior Subordinated Guarantors.

“Social Networking Services” means services whose primary or material focus,
element or facet is the selecting, forging or buttressing of personal
relationships and interactions.

“St. Kitts Bank Accounts” means any Account of any Obligor existing under the
laws of the Federation of St. Kitts and Nevis.

“Significant Relationship” has the meaning specified therefor in
Section 6.01(cc). 

“Standard & Poor’s” means Standard & Poor’s Ratings Services, a
division of The McGraw-Hill Companies, Inc. and any successor thereto.

“Subordinated Notes” means PMGI’s 13% Subordinated Term Loan Notes due
2011, in the initial aggregate principal amount of $24,441,056, held of record
or beneficially owned by the Majority Equity Sponsors.

“Subordinated Obligation” means, with respect to any Senior Subordinated
Obligor, any Indebtedness of such Senior Subordinated Obligor whether
outstanding on the Closing Date or thereafter incurred) which is subordinate or
junior in right of payment to the Sellers’ Secured Notes or a Guaranty of such
Senior Subordinated Obligor, as the case may be, pursuant to a written agreement
to that effect on terms satisfactory to the Holders, and which is either
unsecured or secured by Liens that are subordinate or junior in priority to the
Liens securing the Obligations, pursuant to a written agreement to that effect
on terms satisfactory to the Holders.

“Subsidiary”
means, with respect to any Person at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association,
joint venture or other business entity (i) the accounts of which would be
consolidated with those of such Person in such Person’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP or
(ii) of which more than 50% of (A) the outstanding Capital Stock
having (in the absence of contingencies) ordinary voting power to elect a
majority of the board of directors or other managing body of such Person,
(B) in the case of a partnership of limited 

24

liability
company, the interest in the capital or profits of such partnership or limited
liability company or (C) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
Person.

“Taxes” has
the meaning specified therefor in Section 2.06(a).

“Total Debt Ratio” means, with respect to the Issuer and its Subsidiaries
for any period, the ratio of (a) all Indebtedness of the Issuer and its
Subsidiaries as at the end of such period to (b) Annualized Consolidated
EBITDA of the Issuer and its Subsidiaries for such period.

“Trademark Security Assignment” means the Trademark Security Assignment, dated as of
the date hereof, executed and delivered by the Senior Subordinated Guarantors to
the Agent for the benefit of the Holders, in connection with the closing of the
transactions contemplated hereof, as the same may be amended or otherwise
modified from time to time.

“Transactions” means the transactions contemplated by the Funding
Documents.

“Uniform Commercial Code” has the meaning specified therefor in
Section 1.03.

“Various Acquisition Agreement” means the Stock Purchase Agreement, dated as of
September 21, 2007, by and among Various, Inc., Andrew B. Conru Trust
Agreement, Andrew B. Conru Trustee, Mapstead Trust, created on April 16,
2002, Lars and Marin Mapstead Trustees, Andrew B. Conru, Lars Mapstead and
Penthouse Media Group Inc., as amended by an Amendment to Stock Purchase
Agreement dated as of December 6, 2007.

“Various Acquisition Documents” means the Various Acquisition Agreement, the Escrow
Agreement (as defined in the Various Acquisition Agreement), all non-compete
agreements, all quit claim transfers and acknowledgments, and all other
agreements, instruments and other documents that may be executed or delivered in
connection therewith, together with all schedules and exhibits
thereto.

“Various Acquisition” means the purchase by the Issuer of all of the
outstanding Capital Stock of Various, Inc. and certain of its affiliates and
subsidiaries, as more particularly described in the Various Acquisition
Documents.

“Various Financial Statements” has the meaning specified therefor in
Section 6.01(k)(i).

“Warrants”
mean warrants in substantially the form of Exhibit C hereto issued pursuant to this Agreement to purchase in
the aggregate initially 34,071,541 shares of the PMGI Voting Common
Stock.

“Wholly Owned Junior Subordinated
Guarantor” means a Junior Subordinated
Guarantor that is a Wholly Owned Subsidiary of PMGI.

“Wholly Owned Senior Subordinated
Guarantor” means a Senior Subordinated
Guarantor that is a Wholly Owned Subsidiary of the Issuer. 

25

“Wholly Owned
Subsidiary” means, with respect to any
Person, a Subsidiary all the Capital Stock of which (other than any directors’
qualifying shares) is owned by such Person or one or more other Wholly Owned
Subsidiaries of such Person.

Section
1.02

Terms
Generally.  The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined.  Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms.  The words “include”, “includes” and “including” shall be
deemed to be followed by the phrase “without limitation”.  The word “will”
shall be construed to have the same meaning and effect as the word “shall”.
 Unless the context requires otherwise, (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person’s successors and assigns, (c) the words “herein”, “hereof and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof,
(d) all references herein to Articles, Sections and Exhibits shall be
construed to refer to Articles and Sections of, and Exhibits to, this Agreement,
and all Schedules referred to in this Agreement, other than
Schedule 2.02, shall refer to schedules to the Securities Purchase
Agreement, (e) the words “asset” and “property” shall be construed to have
the same meaning and effect and to refer to any right or interest in or to
assets and properties of any kind whatsoever, whether real, personal or mixed
and whether tangible or intangible and (f) except as otherwise specifically
provided, any reference to a statute or law shall mean that statute or law as
enacted, amended and in effect from time to time.  References in this
Agreement to “determination” by the Agent include good faith estimates by the
Agent (in the case of quantitative determinations) and good faith beliefs by the
Agent (in the case of qualitative determinations).  

Section
1.03

Accounting
and Other Terms.  Unless otherwise expressly provided herein, each
accounting term used herein shall have the meaning given it under GAAP applied
on a basis consistent with those used in preparing the Financial Statements,
subject to any “fresh-start” accounting adjustments consistent with GAAP.
 All terms used in this Agreement which are defined in Article 8 or
Article 9 of the Uniform Commercial Code as in effect from time to
time in the State of New York (the “Uniform Commercial Code”) and
which are not otherwise defined herein shall have the respective meanings herein
set forth therein; provided that terms used herein which are defined in
the Uniform Commercial Code as in effect in the State of New York on the
date hereof shall continue to have the same meaning notwithstanding any
replacement or amendment of such statute except as the Agent may otherwise
determine.  

Section
1.04

Time
References.  Unless otherwise indicated herein, all references to time
of day refer to Eastern standard time or Eastern daylight saving time, as in
effect in New York City on such day.  For purposes of the computation of a
period of time from a specified date to a later specified date, the word “from”
means “from and including” and the words “to” and “until” each means “to but
excluding”; provided, however, that with respect to a computation
of fees or interest payable to the Agent or any Holder, such period shall in any
event consist of at least one full day.  

 

26

ARTICLE II

THE SECURITIES

Section
2.01

Authorization
of Securities.  

On
or before the Closing:

(a)

The
Issuer will have duly authorized the issue of, and each Guarantor will have duly
authorized its Guaranty of, $80,000,000 aggregate principal amount of the
Sellers’ Secured Notes.

(b)

[Reserved]

(c)

Each
Sellers’ Secured Note shall be dated as of the Closing Date, and otherwise
appropriately completed.

(d)

PMGI
will have duly authorized the issue and sale of the Warrants and the shares of
PMGI Voting Common Stock issuable upon exercise thereof.

Section
2.02

Issuance
of Securities.  

(a)

In
partial payment of the purchase price under the Various Acquisition Agreement,
at the Closing provided for in Section 2.02(b), subject to the terms and
conditions of this Agreement, the Issuer will issue to the Holders indicated on
Schedule 2.02, free and clear of any and all Liens, Sellers’ Secured
Notes in the principal amount specified opposite such Holder’s name on
Schedule 2.02.

(b)

Pursuant
to the Various Acquisition Agreement, at the Closing provided for in
Section 2.02(c), subject to the terms and conditions of this Agreement,
PMGI will issue to the Holders indicated on Schedule 2.02, free and
clear of any and all Liens, Warrants to purchase shares of PMGI Voting Common
Stock in the number specified opposite such Holder’s name on
Schedule 2.02.

(c)

Issuance
of the Securities shall occur at the offices of Morrison & Foerster LLP, at
7:00 a.m., pacific time, at a closing (the “Closing”) on December 6, 2007
or at such time or on such other Business Day thereafter as may be agreed upon
by the Issuer and the Holders.  The Closing shall occur concurrently with
the closing under the Various Acquisition Agreement of Issuer’s purchase of all
the issued and outstanding capital stock of Various, Inc.  At the Closing,
the Issuer will deliver to the Holders the Sellers’ Secured Notes, and PMGI will
deliver to the Holders the Warrants, each dated the date of the Closing and
registered in the name of the applicable Holder (or in the name of such Holder’s
nominee)  If at the Closing, the Issuer or PMGI, as the case may be, shall
fail to tender any Security to any Holder as provided above in this
Section 2.02, or any of the conditions specified in Section 5.01 shall
not have been fulfilled to such Holder’s satisfaction, such Holder shall, at its
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights such Holder may have by reason of such failure or
such nonfulfillment.

27

Section
2.03

Repayment
of Sellers’ Secured Notes; Evidence of Indebtedness.  

(a)

The
outstanding principal of all Sellers’ Secured Notes, and all accrued and unpaid
interest and other Obligations outstanding in respect thereof, shall be due and
payable on the Final Maturity Date.

(b)

[Reserved]

(c)

The
Agent shall maintain accounts in which it shall record (i) the amount of
each Sellers’ Secured Note made hereunder, (ii) the amount of any principal
or interest due and payable or to become due and payable from the Issuer to each
Holder hereunder and (iii) the amount of any sum received by the Agent
hereunder for the account of the Holders and each Holder’s share thereof.

(d)

[Reserved]

(e)

The
entries made in the accounts maintained pursuant to paragraph (c) of this
Section shall be prima facie evidence of the existence and amounts of the
obligations recorded therein; provided that the failure of the applicable Agent
to maintain such accounts or any error therein shall not in any manner affect
the obligation of the Issuer to repay the Sellers’ Secured Notes and all other
Obligations in accordance with the terms of this Agreement.

Section
2.04

Interest.
 

(a)

Sellers’
Secured Notes.  Each Sellers’ Secured Note shall bear interest on the
principal amount thereof from time to time outstanding, from the Closing Date
until such principal amount is paid, at a rate of fifteen percent (15.0%) per
annum.

(b)

[Reserved]

(c)

Default
Interest.  To the extent permitted by law, upon the occurrence and
during the continuance of a Default or an Event of Default, the principal of,
and all accrued and unpaid interest on, all Sellers’ Secured Notes, fees,
indemnities or any other Obligations of the Obligors under this Agreement and
the other Sellers’ Secured Note Documents, shall bear interest, from the date
such Default or Event of Default occurred until the date such Default or Event
of Default is cured or waived in writing in accordance herewith, at a rate per
annum equal at all times to the Post-Default Rate.

(d)

Interest
Payment.  Interest on each Sellers’ Secured Note shall be payable in
immediately available and freely transferable funds quarterly in arrears, on
each March 31, June 30, September 30 and December 31 commencing March 31, 2008,
and at maturity (whether at the applicable Final Maturity Date, upon demand, by
acceleration or otherwise).  Interest at the applicable Post-Default Rate
shall be payable on demand.  Each Obligor hereby authorizes the Agent to,
and the Agent may, from time to time, charge the Sellers’ Secured Note Account
pursuant to Section 4.01 with the amount of any interest payment due
hereunder.

(e)

General.
 All interest shall be computed on the basis of a year of 360 days
with twelve 30-day months.

28

Section
2.05

Optional
Redemption of Sellers’ Secured Notes.

On
or after the Closing Date, the Issuer may redeem the Sellers’ Secured Notes, in
whole but not in part, upon not less than 30 days’ prior notice, at a
redemption price equal to the then outstanding principal amount of the Sellers’
Secured Notes plus accrued and unpaid interest.

Section
2.06

[Reserved].

Section
2.07

Mandatory
Repayment of Sellers’ Secured Notes.  

(a)

The
Issuer shall pay the entire outstanding principal amount of the Sellers’ Secured
Notes on the Final Maturity Date.  

(b)

Upon
the occurrence of any liquidation, merger, Change of Control, winding-up,
transfer, conveyance or sale of all or a material part of the assets of the
Credit Parties (each, a “Liquidity Event”), then subject to the right of
the holders of the Senior Secured Notes to payment under the terms of the Senior
Secured Note Documents, Issuer shall repay the entire outstanding principal
amount of the Sellers’ Secured Notes.  If, at the time of the Liquidity
Event, Senior Secured Notes are outstanding, the required repayment under this
Section 2.07(b) shall be made within ten (10) Business Days after the earlier of
(i) Issuer’s payment of its repurchase obligations arising in connection with
the Liquidity Event under the terms of the Senior Secured Note Documents and
(ii) the waiver of such repurchase obligations by the holders of the Senior
Secured Notes.  If, at the time of the Liquidity Event, no Senior Secured
Notes are outstanding (other than as the result of a Permitted Refinancing), the
required repayment under this Section 2.07(b) shall be made within twenty (20)
Business Days after the occurrence of the Liquidity Event.  

(c)

Within
10 days of delivery to the Holders of unaudited annual financial statements
pursuant to Section 7.01(a)(1) hereof for any period following
Issuer’s payment in full of the Senior Secured Notes (other than as the result
of a Permitted Refinancing), or, if such financial statements are not delivered
to the Holders on the date such statements are required to be delivered pursuant
to Section 7.01(a)(1), 10 days after the date such statements
are required to be delivered to the Holders pursuant to
Section 7.01(a)(1), the Issuer shall prepay the outstanding
principal amount of the Sellers’ Secured Notes in an amount equal to 90% of the
Excess Cash Flow (if any) of the Issuer and its Subsidiaries for such quarterly
period.

(d)

No
later than ten Business Days following the receipt of net cash proceeds from a
Qualified Initial Public Offering, the Issuer shall prepay the Sellers’ Secured
Notes in an aggregate amount equal to the greater of (i) the amount by which
such net cash proceeds, after reduction for the portion thereof required to be
paid on the Senior Secured Notes under the terms of the Senior Secured Note
Documents, exceeds Issuer’s reasonable allocation of a portion of such net
proceeds for use as working capital and then identified strategic acquisitions;
and (ii) ninety percent (90.0 %) of such net cash proceeds, after reduction for
the portion thereof required to be paid on the Senior Secured Notes under the
terms of the Senior Secured Note Documents. 

Section
2.08

[Reserved].

29

  

Section
2.09

Taxes.
 

(a)

All
payments made by any Obligor hereunder or under any other Funding Document shall
be made without set-off, counterclaim, deduction or other defense.  All
such payments shall be made free and clear of and without deduction for any
present or future income, franchise, sales, use, excise, stamp or other taxes,
levies, imposts, deductions, charges, fees, withholdings, restrictions or
conditions of any nature now or hereafter imposed, levied, collected, withheld
or assessed by any jurisdiction (whether pursuant to Federal, state, local or
foreign law) or by any political subdivision or taxing authority thereof or
therein, and all interest, penalties or additional amounts, excluding taxes on
the net income of any Holder or the Agent imposed by the jurisdiction in which
such Holder or the Agent is organized or any political subdivision thereof or
taxing authority thereof or any jurisdiction in which such Person’s principal
office is located or any political subdivision thereof or taxing authority
thereof (such nonexcluded taxes, levies, imposts, deductions, charges, fees,
withholdings, restrictions, conditions, interest, penalties and additional
amounts being hereinafter collectively referred to as “Taxes”).  If
any Obligor shall be required to deduct or to withhold any Taxes from or in
respect of any amount payable hereunder or under any other Funding Document,

(1)

the
amount so payable shall be increased so that after making all required
deductions and withholdings (including Taxes on amounts payable pursuant to this
sentence) the Holders or the Agent, as the case may be, receive an amount equal
to the sum they would have received had no such deduction or withholding been
made, 

(2)

such
Obligor shall make such deduction or withholding, 

(3)

such
Obligor shall pay the full amount deducted or withheld to the relevant taxation
authority in accordance with applicable law, and 

(4)

as
promptly as possible thereafter, such Obligor shall send the Holders and the
Agent an official receipt (or, if an official receipt is not available, such
other documentation as shall be satisfactory to the Holders or the Agent, as the
case may be) evidencing payment of the amount or amounts so deducted or
withheld.  In addition, each Obligor agrees to pay any present or future
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery, performance, recordation or filing of, or
otherwise with respect to, this Agreement or any other Sellers’ Secured Note
Document other than the foregoing excluded taxes (hereinafter referred to as
“Other Taxes”).  

(b)

The
Obligors hereby jointly and severally indemnify and agree to hold the Holders
and the Agent harmless from and against Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.09) paid by any Holder or the Agent and any
liability (including penalties, interest and expenses for nonpayment, late
payment or otherwise) arising therefrom or with respect thereto, 

30

whether or not such Taxes or Other Taxes were correctly
or legally asserted.  Such indemnification shall be paid within
10 days from the date on which any such Holder or the Agent makes written
demand therefor, which demand shall identify in reasonable detail the nature and
amount of such Taxes or Other Taxes.  

(c)

If
any Obligor fails to perform any of its obligations under this
Section 2.09, the Obligors shall indemnify the Holders and the Agent for
any taxes, interest or penalties that may become payable as a result of any such
failure.  The obligations of the Obligors under this Section 2.09
shall survive the termination of this Agreement and the payment of the Sellers’
Secured Notes and all other amounts payable hereunder.

ARTICLE III

SECURITY; ADMINISTRATIVE PRIORITY AND
RANKING

Section
3.01

Collateral;
Grant of Lien and Security Interest.  As more fully set forth in the
Sellers’ Security Documents, as security for the full and timely payment and
performance of all of the Obligations, each Obligor hereby assigns, pledges and
grants to the Agent, for the ratable benefit of the Holders, with respect to the
Sellers’ Secured Notes a continuing security interest in and to and Lien on all
right, title and interests in all property or assets of such Obligor, of every
kind or nature whatsoever, wherever located, howsoever evidenced, whether
contingent or absolute, real or personal, now existing or hereafter acquired,
arising or created, including without limitation all Accounts, inventory, goods,
contract rights, instruments, documents, chattel paper, general intangibles,
payment intangibles, letters of  credit, letter-of-credit rights,
supporting obligations, machinery and equipment, real property, fixtures,
leases, 100% of the Capital Stock in any Subsidiary, money, investment property,
deposit accounts, all commercial tort claims and all causes of action arising
under the Bankruptcy Code or otherwise, and all cash and non-cash proceeds,
rents, products and profits of any of the foregoing (such security interest and
Liens being hereafter collectively referred to as the “Agent’s Liens”,
and all property of the Obligors subject to the Agent’s Liens being hereafter
collectively referred to as the “Collateral”).  The Agent’s Liens
shall be prior to all other Liens in or on the Collateral other than Permitted
Liens.

Section
3.02

Negotiable
Collateral.  In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, the Obligors promptly shall
endorse and deliver physical possession of such Negotiable Collateral to the
Agent.  

Section
3.03

Collection
of Accounts, General Intangibles, and Negotiable Collateral.  At any
time after the occurrence and during the continuance of an Event of Default, the
Agent or the Agent’s designee may (a) notify customers or Account Debtors
of each Obligor that the Accounts, General Intangibles, or Negotiable Collateral
have been assigned to the Agent or that the Agent for the benefit of the Holders
in accordance with their respective Pro Rata Shares has a security interest
therein and (b) collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge the collection costs and expenses allocable to
the Sellers’ Secured Notes to the Sellers’ Secured Note Account in accordance
with the respective Pro Rata Shares of the Holders.

31

Section
3.04

Delivery
of Additional Documentation Required.  At any time upon the request of
the Agent, each Obligor shall execute and deliver to the Agent all financing
statements, collateral assignments, continuation financing statements, fixture
filings, security agreements, pledges, assignments, mortgages, leasehold
mortgages, deeds of trust, leasehold deeds of trust, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that the
Agent reasonably may request, in form satisfactory to the Agent, to perfect and
continue perfected the Agent’s Liens on the Collateral (whether now owned or
hereafter arising or acquired), and in order to fully consummate all of the
transactions contemplated hereby and under the other Sellers’ Secured Note
Documents.  

Section
3.05

Power
of Attorney.  Each Obligor hereby irrevocably makes, constitutes, and
appoints the Agent (and any of the Agent’s officers, employees, or agents
designated by the Agent) as such Obligor’s true and lawful attorney, with power
to (a) if such Obligor refuses to, or fails timely to execute and deliver
any of the documents described in Section 3.04, sign the name of such
Obligor on any of the documents described in Section 3.04, (b) at any
time that an Event of Default has occurred and is continuing, sign such
Obligor’s name on any invoice or bill of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to Account Debtors, (c) send requests for
verification of Accounts, (d) endorse such Obligor’s name on any collection
item that may come into the Holders’ possession, (e) at any time that an
Event of Default has occurred and is continuing, notify the post office
authorities to change the address for delivery of such Obligor’s mail to an
address designated by the Agent, to receive and open all mail addressed to such
Obligor, and to retain all mail relating to the Collateral and forward all other
mail to such Obligor, (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under such Obligor’s
policies of insurance and make all determinations and decisions with respect to
such policies of insurance, and (g) at any time that an Event of Default
has occurred and is continuing, settle and adjust disputes and claims respecting
the Accounts directly with Account Debtors, for amounts and upon terms that the
Agent determines to be reasonable, and the Agent may cause to be executed and
delivered any documents and releases that the Agent determines to be necessary.
 The appointment of the Agent as such Obligor’s attorney, and each and
every one of the Agent’s rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and the Holders’ obligations to extend credit hereunder is
terminated.

Section
3.06

Rights
and Remedies Cumulative.  All of the rights and remedies with respect
to the Collateral described in this Article III are cumulative with, in
addition to, and do not limit or in any way impair, the rights and remedies of
the Agent and the Holders set forth elsewhere in this Agreement, in the other
Funding Documents, arising under applicable law, or otherwise available to the
Agent and the Holders.

32

ARTICLE IV

FEES, PAYMENTS AND OTHER COMPENSATION

Section
4.01

Payments;
Computations.  

(a)

The
Issuer will make each cash payment under this Agreement and the Sellers’ Secured
Notes not later than 12:00 noon (New York City time) on the day when due, in
lawful money of the United States of America and in immediately available funds,
and freely transferable to the Agent’s Account.  All payments received by
the Agent after 12:00 noon (New York City time) on any Business Day will be
credited to the Sellers’ Secured Note Account on the next succeeding Business
Day.  All payments shall be made by the Issuer without set-off,
counterclaim, deduction or other defense to the Agent and the Holders.
 Except as provided in Section 4.02(b) and as provided in the
Intercreditor Agreements, after receipt of any cash payment, the Agent will
promptly thereafter cause to be distributed like funds relating to the payment
of principal ratably to the Holders in accordance with their Pro Rata Shares and
like funds relating to the payment of any other amount payable to any Holder to
such Holder, in each case to be applied in accordance with the terms of this
Agreement, provided that the Agent will cause to be distributed all interest and
fees received from or for the account of the Issuer not less than once each
month and in any event not more than ten Business Days after receipt
thereof. The Holders and the Issuer hereby authorize the Agent to, and the
Agent may, from time to time, charge the Sellers’ Secured Note Account of the
Issuer with any amount due and payable by the Issuer under any Sellers’ Secured
Note Document.  Each of the Holders and the Issuer agrees that the Agent
shall have the right to make such charges whether or not any Default or Event of
Default shall have occurred and be continuing.  Any amount charged to the
Sellers’ Secured Note Account of the Issuer shall be deemed an Obligation under
this Agreement and shall bear interest as provided hereunder as if it had
originally been part of the outstanding principal of the Sellers’ Secured Notes.
 The Holders and the Issuer confirm that any charges which the Agent may so
make to the Sellers’ Secured Note Account of the Issuer as herein provided will
be made as an accommodation to the Issuer and solely at the Agent’s discretion.
 Whenever any payment to be made under any such Sellers’ Secured Note
Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.

(b)

All
computations of interest and fees shall be made by the Agent on the basis of a
year of 360 days with twelve 30-day months.  Each determination by the
Agent of an interest rate, interest amount or fees payable hereunder shall be
conclusive and binding for all purposes in the absence of manifest error.
 

Section
4.02

Apportionment
of Payments.  

(a)

All
payments of principal and cash interest in respect of outstanding Sellers’
Secured Notes and all payments of fees and all other payments in respect of any
other Obligations, shall be allocated by the Agent among such of the Holders as
are entitled thereto, in proportion to their respective Pro Rata shares or
otherwise as provided herein or, in respect 

33

of
payments not made on account of Sellers’ Secured Notes, as designated by the
Person making payment when the payment is made.  

(b)

After
the occurrence and during the continuance of an Event of Default, the Agent may,
and upon the direction of the Required Holders, shall, apply all cash payments
in respect of any Obligations and all proceeds of the Collateral, subject to the
provisions of this Agreement and the Intercreditor Agreements,
(i) first, ratably to pay the Obligations in respect of any fees,
expense reimbursements, indemnities and other amounts then due to the Agent
until paid in full; (ii) second, ratably to pay interest due in
respect of the Sellers’ Secured Notes and Agent Advances until paid in full;
(iii) third, ratably to pay principal of the Sellers’ Secured Notes
and Agent Advances (or, to the extent such Obligations are contingent, to
provide cash collateral in respect of such Obligations) until paid in full; and
(iv) fourth, to the ratable payment of all other Obligations then
due and payable.  

(c)

In
the event of a direct conflict between the priority provisions of this
Section 4.02 and other provisions contained in any other Sellers’ Secured
Note Document, it is the intention of the parties hereto that both such priority
provisions in such documents shall be read together and construed, to the
fullest extent possible, to be in concert with each other.  In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of the Intercreditor Agreements shall control and govern.
 

ARTICLE V

CONDITIONS TO ISSUANCE OF
SECURITIES

Section
5.01

Conditions
Precedent to Holders’ Obligations to Close.  The obligation of the
Holders to accept the Securities on the Closing Date in partial payment of the
purchase price under the Various Acquisition Agreement is subject to the
fulfillment, in a manner satisfactory to the Holders, of each of the following
conditions precedent:

(a)

Payment
of Fees, Etc.  The Issuer shall have paid on or before the
Closing Date all fees, costs, expenses and taxes and all other amounts then
payable under this Agreement or any of the Funding Documents.

(b)

Due
Diligence.  The Holders will be satisfied, in their sole discretion,
with the condition of the credit markets generally and the results of their due
diligence review (including but not limited to financial, legal, accounting,
adult-content, regulatory diligence and the corporate legal structure of the
Issuer and its Subsidiaries).

(c)

Representations
and Warranties; No Event of Default; No Material Adverse Effect.  The
following statements shall be true and correct:  (i) the
representations and warranties contained in Article VI and in each other
Funding Document, certificate or other writing delivered to the Agent or any
Holder pursuant hereto or thereto on or prior to the Closing Date are true and
correct on and as of the Closing Date as though made on and as of such date,
(ii) no Default or Event of Default shall have occurred and be continuing
on the Closing Date or would result from this Agreement or the other Funding
Documents becoming effective in accordance with its or their respective terms,
(iii) since December 31, 2006, there shall have
been   

34

no
change in the financial condition, operations, business, assets, liabilities or
prospects of the Senior Subordinated Obligors, taken as a whole, except losses
set forth in the Financial Statements and changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect and
(iv) there shall be no fact known to any Obligor that could reasonably be
expected to have a Material Adverse Effect that has not been set forth herein or
in the other Funding Documents, other than changes in the economy or the law
generally affecting the Obligors’ industry.

(d)

Legality.
 The issuance of Sellers’ Secured Notes and Warrants to the Holders shall
(i) be permitted by the laws and regulations of each jurisdiction to which
each such Holder is subject, without recourse to provisions (such as
Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation T, U or X) and
(iii) not subject any Holder to any tax, penalty or liability under or
pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof.  If requested by any Holder, such Holder shall
have received an officer’s certificate certifying as to such matters of fact as
such Holder may reasonably specify to enable such Holder to determine whether
such issuance is so permitted.  The Issuer and PMGI shall have obtained all
necessary permits and qualifications, or have the availability of exemptions
therefrom, required under any state or federal securities laws for the issuance
of the Securities and, with respect to the Warrants, the PMGI Voting Common
Stock issuable upon exercise or conversion thereof.

(e)

Delivery
of Documents to the Holders.  Each Holder shall have received on or
before the Closing Date the following, each in form and substance satisfactory
to such Holder and, unless indicated otherwise, dated the Closing Date:

(1)

this
Agreement, duly executed by each of the Obligors;

(2)

Sellers’
Secured Note payable to the order of such Holder, duly executed by the Issuer;
and

(3)

the
Warrant issuable to such Holder hereunder, in each case duly executed by
PMGI.

(f)

Delivery
of Documents to the Agent.  The Agent shall have received on or before
the Closing Date the following, each in form and substance satisfactory to the
Holders and, unless indicated otherwise, dated the Closing Date: 

(1)

this
Agreement, duly executed by each of the Obligors;

(2)

each
applicable Sellers’ Security Document, duly executed by each Obligor;

(3)

the
Intercreditor Agreements and the Seller Note Subordination Agreement, each duly
executed by each party thereto ;

(4)

the
Equity Documents, each duly executed by each party thereto;

35

(5)

the
Assignment of Acquisition Documents, duly executed by PMGI in favor of the
Issuer and consented to by each stockholder of Various, Inc.;

(6)

(A)
appropriate financing statements on Form UCC-1, duly executed by each
Obligor and duly filed in such office or offices as may be necessary or, in the
opinion of the Holders, desirable to perfect the security interests purported to
be created by this Agreement; and (B) results of searches for any effective
financing statements which name as debtor the Issuer or any other Obligor and
which are filed in the offices referred to in the preceding clause (A),
together with copies of such financing statements, none of which, except for
Permitted Liens or as otherwise agreed in writing by the Holders, shall cover
any of the Collateral and the results of searches for any tax Lien and judgment
Lien filed against such Person or its property, which results, except for
Permitted Liens or as otherwise agreed to in writing by the Holders, shall not
show any such Liens;

(7)

a
copy of the resolutions of each Obligor, certified as of the Closing Date by an
officer thereof, authorizing (A) the issuance and sale of the Securities
(to the extent applicable), the granting of security interests and the
consummation of other transactions contemplated by the Funding Documents to
which such Obligor is or will be a party (to the extent applicable),
(B) the execution, delivery and performance by such Obligor of each
Sellers’ Secured Note Document to which such Obligor is or will be a party and
the execution and delivery of the other documents to be delivered by such
Obligor in connection herewith and therewith, and (C) an Authorized Officer
to provide all notices under this Agreement and the other Funding Documents;

(8)

a
certificate of an officer of each Obligor, certifying the names and true
signatures of the representatives of such Obligor authorized to sign each
Sellers’ Secured Note Document to which such Obligor is or will be a party and
the other documents to be executed and delivered by such Obligor in connection
herewith and therewith, together with evidence of the incumbency of such
authorized officers; 

(9)

a
certificate of an officer of each Obligor, certifying as to the matters set
forth in subsection (c) of this Section 5.01;

(10)

evidence
of the insurance coverage required by Section 7.01(g) and such other
insurance coverage with respect to the business and operations of the Obligors
as the Holders may reasonably request, in each case, where requested by the
Holders, with such 

36

endorsements
as to the named insureds or loss payees thereunder as the Holders may request
and providing that such policy may be terminated or canceled (by the insurer or
the insured thereunder) only upon 30 days’ prior written notice to the
Agent and each such named insured or loss payee, together with evidence of the
payment of all premiums due in respect thereof for such period as the Holders
may request;

(11)

for
each Obligor organized inside the United States, a copy of the charter,
certificate of formation, certificate of limited partnership or other publicly
filed organizational document of such Obligor certified as of a date not more
than 90 days prior to the Closing Date by an appropriate official of the
state of organization of such Obligor which shall set forth the same complete
name of such Obligor as is set forth herein and the organizational number of
such Obligor, if an organizational number is issued in such jurisdiction;

(12)

a
certificate of an officer of each Obligor organized in the United States
attaching a true and correct copy of the by-laws, limited liability company
agreement, operating agreement, agreement of limited partnership or other
organizational document of such Obligor, together with all amendments
thereto;

(13)

subject
to Section 5.01(t), a certificate of the appropriate official(s) of the
state of organization and each state of foreign qualification of each Obligor
certifying as to the subsistence in good standing of such Obligor in such
states, which certificates shall be dated as of a date not more than
30 days prior to the Closing Date;

(14)

[Intentionally
omitted]

(15)

subject
to Section 5.01(t), for each of Friendfinder Processing, Ltd. or Streamray,
Inc. (St. Kitts), a copy of the charter, certificate of formation, certificate
of limited partnership or other publicly filed organizational document of such
Obligor certified as of a date not more than 90 days prior to the Closing
Date by an appropriate official of the jurisdiction of organization of such
Obligor which shall set forth the same complete name of such Obligor as is set
forth herein and the organizational number of such Obligor, if an organized
number is issued in such jurisdiction;

(16)

subject
to Section 5.01(t), a certificate of an officer of each of Friendfinder
Processing, Ltd. or Streamray, Inc. (St. Kitts)attaching a copy of the by-laws,
limited liability company agreement, operating agreement, agreement of limited
partnership 

37

or
other organizational document of such Obligor, together with all amendments
thereto;

(17)

one
or more opinions of counsel to the Obligors as to such matters as the Holders
may reasonably request, including all matters customarily addressed in opinions
of counsel for transactions of the kinds contemplated by the Funding Documents,
each in form and substance satisfactory to the Holders and their counsel; 

(18)

a
completed Perfection Certificate dated the Closing Date and signed by an
Authorized Officer of each Obligor, together with all attachments contemplated
thereby;

(19)

an
executed certificate of the chief financial officer of the Issuer in the form of
Exhibit H, confirming the solvency of the Issuer and its
Subsidiaries, on a consolidated basis after giving effect to the transactions
contemplated by this Agreement; and

(20)

such
other agreements, instruments, approvals, opinions and other documents, each
satisfactory to the Agent in form and substance, as the Agent may reasonably
request.

(g)

Priority.
 The Required Holders shall be satisfied that the Agent has been granted,
and holds, for the ratable benefit of the Holders of the Sellers’ Secured Notes,
a perfected Lien on, and security interest in, all of the Collateral, subject
only to the Permitted Liens.

(h)

[Intentionally
Omitted.]

(i)

Approvals.
 All consents, authorizations and approvals of, and filings and
registrations with, and all other actions (including, without limitation,
obtaining and maintaining all licenses and permits) in respect of, any
Governmental Authority or other Person required in connection with the purchase
of the Securities or the conduct of the Obligors’ business shall have been
obtained and shall be in full force and effect.  Without limiting the
foregoing, no pending claim, investigation or litigation shall exist with
respect to any Obligor, or the transactions contemplated hereby. 

(j)

No
Changes in Corporate Structure.  None of the Obligors shall have
changed its jurisdiction of incorporation or organization or been a party to any
merger or consolidation and shall not have succeeded to all or any substantial
part of the liabilities of any other entity, at any time following the date of
the most recent Financial Statements.

(k)

Proceedings;
Receipt of Documents.  All proceedings in connection with the issuance
of the Securities and the other transactions contemplated by this Agreement and
the other Funding Documents, and all documents incidental hereto and thereto,
shall be satisfactory to the Holders and their counsel, and the Holders and such
counsel shall have received all such information and such counterpart originals
or certified or other copies of such documents as the Holders or such counsel
may reasonably request.

38

(l)

Existing
PMGI Senior Secured Notes.  Arrangements, satisfactory in form and
substance to the Holders, shall have been made providing for the approval of the
transactions contemplated by the Funding Documents and the Sellers’ Security
Documents by the holders of the PMGI Notes.

(m)

[Intentionally
Omitted.]

(n)

[Intentionally
Omitted.]

(o)

[Intentionally
Omitted.]

(p)

[Intentionally
Omitted.]

(q)

Consents.
 All third party consents (including those required in connection with the
Various Acquisition Agreement) shall have been received and shall be in form and
substance reasonably satisfactory to the Holders in their discretion.

(r)

[Intentionally
Omitted].

(s)

Tax
Clearances.  The Holders shall have received a certificate of the
appropriate official(s) of the state of organization and each state of foreign
qualification of each Obligor certifying as to the payment of taxes by such
Obligor in such states.

(t)

PCIE
Documents.  the documents required pursuant to Section 5.01
(f)(13), (15),and (16) with respect to Penthouse Clubs International
Establishment.

Section
5.02

Conditions
Subsequent to Effectiveness.  As an accommodation to the Issuer, the
Agent and Holders have agreed to execute this Agreement and to accept the
Securities on the Closing Date notwithstanding the failure by the Issuer and
PMGI to satisfy the conditions set forth below on or before the Closing Date.
 In consideration of such accommodation, the Holders agree that, in
addition to all other terms, conditions and provisions set forth in this
Agreement and the other Funding Documents, including, without limitation, those
conditions set forth in Section 5.01, the Issuer and PMGI shall satisfy each of
the conditions subsequent set forth below on or before the date applicable
thereto (it being understood that (i) the failure by the Issuer or PMGI, as the
case may be, to perform or cause to be performed any such condition subsequent
on or before the date applicable thereto shall constitute an immediate Event of
Default and (ii) to the extent that the existence of any such condition
subsequent would otherwise cause any representation, warranty or covenant in
this Agreement or any other Funding Document to be breached, the Required
Holders hereby waive such breach for the period from the Closing Date until the
date on which such condition subsequent is required to be fulfilled pursuant to
this Section 5.02:

(a)

Certified
Articles of California Subsidiaries.  Within 15 days after the Closing
Date, the Issuer shall deliver the articles of incorporation for each Subsidiary
of the Issuer that is incorporated within the State of California, each
certified by the California Secretary of State as of a recent date.  

39

(b)

Non-Obligor
Deliverables.  Within 60 days after the Closing Date, each Non-Obligor
shall deliver the documents contemplated by Section 5.01(f)(2), (3), (7), (8),
(9), (10) and (18), together with (i) a copy of the charter, certificate of
formation, certificate of limited partnership or other publicly filed
organizational document of such Obligor certified as of a date not more than
30 days prior to the Closing Date by an appropriate official of the
jurisdiction of organization of such Non-Obligor which shall set forth the same
complete name of such Non-Obligor as is set forth herein and the organizational
number of such Non-Obligor, if an organized number is issued in such
jurisdiction and (ii) a certificate of an officer of each Non-Obligor attaching
a copy of the by-laws, limited liability company agreement, operating agreement,
agreement of limited partnership or other organizational document of such
Non-Obligor, together with all amendments thereto;

(c)

Control
Agreements.  Within 60 days after the Closing Date, Account Control
Agreements duly executed by the applicable financial institution with respect to
each deposit account and securities account maintained within the United States
of America by the Issuer or any Senior Guarantor.  The Issuer and the
Senior Guarantors shall use its commercially reasonable efforts to obtain
Account Control Agreements over each deposit account and securities account
maintained outside the United States of America (a “Foreign Account”);
provided, however, that if a financial institution refuses to execute an Account
Control Agreement with respect to a Foreign Account, upon the request of the
Agent, the Issuer or the applicable Senior Guarantor will close such Foreign
Account and open a new Foreign Account with a financial institution willing to
execute an Account Control Agreement.  Notwithstanding anything to the
contrary set forth in this Agreement, Account Control Agreements with respect to
the St. Kitts Bank Accounts shall be required to be delivered within 60 days
after the Closing Date without regard to any extension of such time period.

(d)

Foreign
Senior Guarantor Perfection Certificate.  Within 75 days after the
Closing Date, a completed perfection certificate dated the Closing Date and
signed by an Authorized Officer of each Senior Guarantor organized outside the
United States of America (other than Friendfinder Processing Ltd. and Streamray,
Inc. (St. Kitts)), together with all attachments contemplated thereby, such
perfection certificate and attachments to be in form and substance satisfactory
to the Required Holders.

(e)

PMGI
Perfection Certificate.  Within 90 days after the Closing Date, a
completed perfection certificate dated the Closing Date and signed by an
Authorized Officer of PMGI and each Subordinated Guarantor, together with all
attachments contemplated thereby, such perfection certificate and attachments to
be in form and substance satisfactory to the Required Holders.

(f)

Credit
Card Processing Agreements.  Within 90 days after the Closing Date,
letter agreements, in form and substance satisfactory to the Required Holders,
duly executed by the counterparties to credit card processing agreements to
which the Issuer or any Senior Guarantor is a party that account for at least
90% of the credit card processing revenue of the Issuer and the Senior
Guarantors, together with a certificate signed by an Authorized Officer of the
Issuer and the Senior Guarantors certifying that the schedule of credit
processing agreements attached to such certificate account for at least 90% of
the credit card processing revenue of the Issuer and the Senior Guarantors;
provided, however, if a counterparty refuses to 

40

execute
such letter agreement, the Issuer or the applicable Senior Guarantor shall
terminate the applicable processing agreement and if the Issuer or such Senior
Guarantor enters into a new processing agreement, it shall deliver a letter
agreement, in form and substance satisfactory to the Holders, duly executed by
such counterparty within 150 days after the Closing Date.  Notwithstanding
anything to the contrary set forth in this Agreement, letter agreements, in form
and substance satisfactory to the Required Holders, duly executed by the
counterparties to credit card processing agreements entered into by Friendfinder
Processing Ltd. or Streamray, Inc. (St. Kitts)) or otherwise relating to
Federation of St. Kitts and Nevis shall be required to be delivered within 90
days after the Closing Date without regard to any extension of such time
period.

(g)

Landlord
Consents, Etc.  Within 90 days after the Closing Date, the Issuer and
the applicable Senior Guarantors shall use their commercially reasonable efforts
to obtain (i) landlord consents, in form and substance satisfactory to the
Required Holders, with respect to each leased location and (ii) letter
agreements, in form and substance satisfactory to the Required Holders, from
counterparties to service agreements relating to the servers.  

ARTICLE VI

REPRESENTATIONS AND
WARRANTIES

Section
6.01

Representations
and Warranties of the Obligors.  Each Obligor hereby represents and
warrants to the Agent and the Holders as follows: 

(a)

Organization,
Good Standing, Etc.  Each Obligor (i) is a corporation, limited
liability company or limited partnership, or other legal entity, duly organized,
validly existing and in good standing under the laws of the state or
jurisdiction of its organization, (ii) has all requisite power and
authority to conduct its business as now conducted and as presently contemplated
and, in the case of the Issuer, to make the borrowings hereunder, and to execute
and deliver each Funding Document to which it is a party, and to consummate the
transactions contemplated thereby, and (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary except where the failure to be so qualified
and in good standing would not reasonably be expected to have a Material Adverse
Effect.

(b)

Authorization,
Etc.  The execution, delivery and performance by each Obligor of each
Funding Document to which it is or will be a party, (i) have been duly
authorized by all necessary action, (ii) do not and will not contravene its
charter or by-laws, its limited liability company or operating agreement or its
certificate of partnership or partnership agreement, as applicable, or any
applicable law, any contractual restriction binding on or otherwise affecting it
or any of its properties, or any order or decree of any court or Governmental
Authority, (iii) do not and will not result in or require the creation of
any Lien (other than pursuant to any Funding Document) upon or with respect to
any of its properties, and (iv) do not and will not result in any default,
noncompliance, suspension, revocation,  

41

impairment,
forfeiture or nonrenewal of any permit, license, authorization or approval
applicable to its operations or any of its properties.

(c)

Governmental
Approvals.  No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority is required in connection
with the due execution, delivery and performance by any Obligor of any Funding
Document to which it is or will be a party.  

(d)

Execution
and Binding Effect.  Each of the Funding Documents when delivered
hereunder is or will be duly and validly executed and delivered by each of the
Obligors which is a party thereto and constitutes legal, valid and binding
obligations of each of the Obligors which is a party thereto, enforceable in
accordance with the terms hereof or thereof, except as enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws now or hereafter in effect relating to or affecting
creditors’ rights generally and (ii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).

(e)

Capitalization.
 

(i)

The
authorized Capital Stock of the Issuer consists solely of 200 shares of common
stock, no par value per share (the “Common Stock”).  As of the
Closing Date, 1 share of Common Stock is issued and outstanding and held by
PMGI.  The share of Capital Stock of the Issuer was and is duly authorized,
validly issued, fully paid and non-assessable and not subject to, or were issued
in compliance with, any preemptive rights created by statute, the Issuer’s
organizational documents or any agreement to which the Issuer was or is a party
or is bound.  Schedule 6.01(e)(i) to the Securities Purchase
Agreement lists all record holders of Capital Stock of the Issuer as of the date
hereof, including the number of shares of such Capital Stock owned by each such
holder.  Except as set forth on Schedule 6.01(e)(i) to the
Securities Purchase Agreement (which schedule shall include, among other things,
a list of holders of the securities, including options, described in this
paragraph by name, number of securities held, exercise price and vesting
schedule, if any) and except as otherwise contemplated by this Agreement and the
other Funding Documents:  (i) there are no options, warrants or other
rights (including registration rights), agreements, arrangements or commitments
of any character to which the Issuer is a party relating to the issued or
unissued Capital Stock of the Issuer, or obligating the Issuer to grant, issue
or sell any shares of the Capital Stock of the Issuer, by sale, lease, license
or otherwise; (ii) there are no obligations, contingent or otherwise, of
the Issuer to (x) repurchase, redeem or otherwise acquire any shares of the
Capital Stock of the Issuer or (y) provide funds to, or make any investment
in (in the form of a loan, capital contribution or otherwise), or provide any
guarantee (other than endorsements of clearing checks made in the ordinary
course of business) with respect to the obligations of, any other Person;
(iii) there are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any Person is or may be entitled to
receive any payment based on the revenues, earnings or other similar performance
criteria, as a whole, or calculated in accordance therewith, of the Issuer; and
(iv) there are no voting trusts, proxies or other agreements or
understandings to which the Issuer is a party or by which the Issuer is bound
with respect to the voting of any shares of the Capital Stock of the Issuer.
 All shares of Capital Stock of the Issuer previously issued, and all
options, warrants and other rights to acquire Capital Stock of, and all other
securities of,  

42

the
Issuer previously issued, were issued in compliance with or pursuant to valid
exemptions from the registration requirements of federal securities laws and all
applicable state securities or “blue sky” laws.

(ii)

The
authorized Capital Stock of PMGI consists solely of 1,250,000,000 shares of
common stock, par value $0.01 per share, of which 1,000,000,000 shares are
designated voting common stock (“PMGI Voting Common Stock”) and
250,000,000 shares are designated non-voting Series B common stock (“PMGI
Non-Voting Common Stock”), and 250,000,000 of preferred stock, par value
$0.01 per share, of which 50,000,000 shares are designated Series A
Convertible Preferred Stock, par value $0.01 per share (“PMGI Series A
Preferred Stock”) and 200,000,000 shares are designated Series B Convertible
Preferred Stock, par value $0.01 per share (“PMGI Series B Preferred
Stock”).  The following shares are issued and outstanding as of the
date hereof:  71,222,581 shares of PMGI Voting Common Stock, 36,796,500
shares of PMGI Non-Voting Common Stock, 35,334,011 shares of PMGI Series A
Preferred Stock and 168,897,005 shares of PMGI Series B Preferred Stock.
 All of the shares of Capital Stock of PMGI were and are duly authorized,
validly issued, fully paid and non-assessable and not subject to, or were issued
in compliance with, any preemptive rights created by statute, PMGI’s
organizational documents or any agreement to which PMGI was or is a party or is
bound.  Schedule 6.01(e)(ii) to the Securities Purchase Agreement
lists all record holders of Capital Stock of PMGI as of the date hereof,
including the number of shares of such Capital Stock owned by each such holder.
 Except as set forth on Schedule 6.01(e)(ii) to the Securities
Purchase Agreement (which schedule shall include, among other things, a list of
holders of the securities, including options, described in this paragraph by
name, number of securities held, exercise price and vesting schedule, if any)
and except as otherwise contemplated by this Agreement and the other Funding
Documents:  (i) there are no options, warrants or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which PMGI is a party relating to the issued or unissued Capital
Stock of PMGI, or obligating PMGI to grant, issue or sell any shares of the
Capital Stock of PMGI, by sale, lease, license or otherwise; (ii) there are
no obligations, contingent or otherwise, of PMGI to (x) repurchase, redeem
or otherwise acquire any shares of the Capital Stock of PMGI or (y) provide
funds to, or make any investment in (in the form of a loan, capital contribution
or otherwise), or provide any guarantee (other than endorsements of clearing
checks made in the ordinary course of business) with respect to the obligations
of, any other Person; (iii) there are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
Person is or may be entitled to receive any payment based on the revenues,
earnings or other similar performance criteria, as a whole, or calculated in
accordance therewith, of PMGI; and (iv) there are no voting trusts, proxies
or other agreements or understandings to which PMGI is a party or by which PMGI
is bound with respect to the voting of any shares of the Capital Stock of PMGI.
 All shares of Capital Stock of PMGI previously issued, and all options,
warrants and other rights to acquire Capital Stock of, and all other securities
of, PMGI previously issued, were issued in compliance with or pursuant to valid
exemptions from the registration requirements of federal securities laws and all
applicable state securities or “blue sky” laws.

(f)

Validity
of Shares; Private Offering.  Upon the issuance and delivery to the
Holders of the Warrants pursuant to this Agreement and the exercise or
conversion of any Warrants and the delivery of the certificates representing
such Common Stock to the Holders, such Warrants or PMGI Voting Common Stock, as
applicable, will have been duly authorized  

43

and
validly issued and will be fully paid and non-assessable (except that such PMGI
Voting Common Stock may be assessable to the extent of the difference between
the exercise price of $.00001 and the par value thereof, which is $.01) and free
and clear of all Liens and will not be subject to, or will have been issued in
compliance with, any preemptive rights created by statute, PMGI’s organizational
documents or any agreement to which PMGI was or is a party or bound.
 Assuming the truth and correctness of the representations and warranties
of the Holders set forth in Section 6.02 hereof, the Securities will have
been issued in compliance with or pursuant to valid exemptions from the
registration requirements of federal securities laws and all applicable state
securities or “blue sky” laws.

(g)

Subsidiaries.
 Schedules 6.0l(g)(i) and (ii) to the Securities
Purchase Agreement are a complete and correct description of the name,
jurisdiction of incorporation and ownership of the outstanding Capital Stock of
all Subsidiaries of the Issuer and PMGI, respectively.  All of the issued
and outstanding shares of Capital Stock of such Subsidiaries have been validly
issued and are fully paid and nonassessable, and the holders thereof are not
entitled to any preemptive, first refusal or other similar rights.  Except
as indicated on such schedule, all such Capital Stock is owned by the Issuer or
PMGI, as applicable, or one or more of their respective Wholly-Owned
Subsidiaries, free and clear of all Liens.  Except as indicated on
Schedule 6.01(g) to the Securities Purchase Agreement, there are no
outstanding debt or equity securities of the Issuer or PMGI, as applicable, or
any of their respective Subsidiaries, and no outstanding obligations of the
Issuer or PMGI, as applicable, or any of their respective Subsidiaries
convertible into or exchangeable for, or warrants, options or other rights for
the purchase or acquisition from the Issuer or PMGI, as applicable, or any of
their respective Subsidiaries, or other obligations of any Subsidiary to issue,
directly or indirectly, any shares of Capital Stock of any Subsidiary of the
Issuer or PMGI, as applicable.  

(h)

Litigation.
 Except as set forth in Schedule 6.01(h) to the Securities
Purchase Agreement, there is no pending or, to the best knowledge of any
Obligor, threatened action, suit or proceeding involving any Obligor before any
court or other Governmental Authority or any arbitrator. 

(i)

Compliance
with Law, Etc.  No Obligor is in violation of its organizational
documents, any material law, rule, regulation, judgment or order of any
Governmental Authority applicable to it or any of its property or assets binding
on or otherwise affecting it or any of its properties, and no Default or Event
of Default has occurred and is continuing.  

(j)

Compliance
with ERISA; Labor Matters.

(1)

The
Issuer and each ERISA Affiliate have operated and administered each Plan in
compliance with all applicable laws except for such instances of noncompliance
as have not resulted in and could not reasonably be expected to result in a
Material Adverse Effect.  Neither the Issuer nor any ERISA Affiliate has
incurred any liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Internal Revenue Code relating to employee benefit
plans (as defined in Section 3 of 

44

ERISA),
and no event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such liability by the
Issuer or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Issuer or any ERISA Affiliate, in either
case pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Internal Revenue Code,
other than such liabilities or Liens as would not be material individually or in
the aggregate.

(2)

The
present value of the aggregate benefit liabilities under each of the Plans
(other than Multiemployer Plans), determined as of the end of such Plan’s most
recently ended plan year on the basis of the actuarial assumptions specified for
funding purposes in such Plan’s most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such Plan allocable to such
benefit liabilities.  The term “benefit liabilities” has the meaning
specified in section 4001 of ERISA and the terms “current value” and
“present value” have the meaning specified in section 3 of
ERISA.

(3)

The
Issuer and its ERISA Affiliates have not incurred withdrawal liabilities (and
are not subject to contingent withdrawal liabilities) under section 4201 or
4204 of ERISA in respect of Multiemployer Plans that individually or in the
aggregate are material.

(4)

The
expected post-retirement benefit obligation (determined as of the last day of
the Issuer’s most recently ended fiscal year in accordance with Financial
Accounting Standards Board Statement No. 106, without regard to liabilities
attributable to continuation coverage mandated by section 4980B of the
Internal Revenue Code) of the Issuer and its Subsidiaries is not material.

(5)

The
execution and delivery of this Agreement and the issuance and sale of the
Securities hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax
could be imposed pursuant to section 4975(c)(1)(A)(D) of the Internal
Revenue Code.

(6)

Each
Obligor is not presently and since December 31, 2006 has not been a party to, or
bound by, any collective bargaining agreement or union contract with respect to
employees.  There are no pending or, to the knowledge of the Obligors,
threatened representation questions respecting any employees.  The Obligors
are neither involved in nor, to the knowledge of the Obligors, threatened with,
any labor dispute, arbitration or lawsuit that is material in nature and relates
to labor and employment matters involving employees.  

45

There
are no pending or, to the knowledge of the Obligors, threatened labor organizing
activities, whether within or without the United States.

(7)

The
Obligors are in compliance in all material respects with all material applicable
international, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, wages,
hours and withholding, including, without limitation, the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, and payment of all
required amounts (including, without limitation, income and employment
taxes).

(8)

The
Obligors do not have any material liability (and to the knowledge of the
Obligors, there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving
rise to any material liability) arising out of any discrimination against or
harassment of employees or prospective employees based on race, sex, religion,
ethnicity, sexual preference or handicap or other physical or mental impairment
or disability.

(k)

Reports;
Financial Statements; Books of Account.  

(i)

Attached
as part of Schedule 6.01(k)(i) to the Securities Purchase Agreement
are true and correct copies of the (i) audited consolidated balance sheets
of Various, Inc. as of the fiscal years ended December 31, 2005 and
December 31, 2006 and audited consolidated statements of income, cash flows
and changes in shareholders’ equity for each of the twelve month periods then
ended, (ii) unaudited consolidated balance sheets of Various, Inc. as of
the last day of March, June and September 2007, and unaudited consolidated
statements of income, cash flows and changes in shareholders’ equity for the
respective three, six and nine-month periods then ended, (iii) unaudited
consolidated non-GAAP cash basis income statement  “flash reports” of the
Issuer (in the form described in Section 7.01(a)(3)) as of the last day of
January, February, March, April, May, June, July, August, September [and
October] 2007 (all such financial statements in the foregoing
clauses (i) through (iii) inclusive being referred to herein
collectively, as the “Various Financial Statements”), and (iv) an
estimated consolidated balance sheet of Various, Inc. as of the Closing Date,
including a calculation of working capital, pro forma for the consummation of
the transactions contemplated by the Acquisition, this Agreement and the other
Funding Documents.  Each such balance sheet presents fairly the financial
condition, assets and liabilities, and shareholders’ equity of Various, Inc. as
of its date; each such statement of income presents fairly the results of
operations of Various, Inc. for the period indicated; and each such statement of
cash flows and changes in shareholders’ equity presents fairly the information
purported to be shown therein.  Except as set forth on
Schedule 6.01(k)(i) to the Securities Purchase Agreement and, with
respect to unaudited interim statements, except for the absence of notes to the
interim statements and subject to normal, recurring year-end adjustments
consistent with past practice (which will not be material in the aggregate), the
Various Financial Statements have been prepared in accordance with GAAP 

46

consistently
applied throughout the periods involved and are in accordance with the books and
records of Various, Inc.  Except as set forth on
Schedule 6.01(k) to the Securities Purchase Agreement, the books,
records and accounts of Various, Inc. accurately and fairly reflect, in
reasonable detail, the transactions and the assets and liabilities of Various,
Inc.  Various, Inc. maintains a system of internal accounting control
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management’s general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP, (iii) access to assets,
properties, books, records and accounts is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accounting for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

(ii)

Attached
as part of Schedule 6.01(k)(ii) to the Securities Purchase Agreement
are true and correct copies of the (i) audited consolidated balance sheets
of PMGI as of the fiscal year ended December 31, 2005 and audited
consolidated statements of income, cash flows and changes in shareholders’
equity for the twelve month period then ended, (ii) an unaudited
consolidated balance sheet of PMGI as of the fiscal year ended December 31, 2006
and unaudited consolidated statements of income cash flows and changes in
shareholders’ equity for the twelve-month period then ended,
(iii) unaudited consolidated balance sheets of PMGI. as of the last day of
March, June and September 2007, and unaudited consolidated statements of
income, cash flows and changes in shareholders’ equity for the respective three,
six and nine-month periods then ended, (iv) unaudited consolidated non-GAAP
cash basis income statement  “flash reports” of PMGI (in the form described
in Section 7.01(a)(3)) as of the last day of January, February, March,
April, May, June, July, August, September and October 2007 (all such
financial statements in the foregoing clauses (i) through
(iii) inclusive being referred to herein collectively, as the “PMGI
Financial Statements”).  Each such balance sheet presents fairly the
financial condition, assets and liabilities, and shareholders’ equity of PMGI as
of its date; each such statement of income presents fairly the results of
operations of PMGI for the period indicated; and each such statement of cash
flows and changes in shareholders’ equity presents fairly the information
purported to be shown therein.  Except as set forth on
Schedule 6.01(k)(ii) to the Securities Purchase Agreement and, with
respect to unaudited interim statements, except for the absence of notes to the
interim statements and subject to normal, recurring year-end adjustments
consistent with past practice (which will not be material in the aggregate), the
PMGI Financial Statements have been prepared in accordance with GAAP
consistently applied throughout the periods involved and are in accordance with
the books and records of PMGI.  Except as set forth on
Schedule 6.01(k)(ii) to the Securities Purchase Agreement, the
books, records and accounts of PMGI accurately and fairly reflect, in reasonable
detail, the transactions and the assets and liabilities of PMGI.  PMGI
maintains a system of internal accounting control sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP, (iii) access to assets, properties, books, records
and accounts is permitted only in accordance with management’s general or
specific authorization and (iv) the recorded accounting for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.

(l)

Absence
of Certain Changes or Events.  

 

 

 

47

Except
as disclosed in the Financial Statements or in Schedule 6.01(l) to
the Securities Purchase Agreement, (i) since December 31, 2006, each
Obligor has conducted its business only in the ordinary course and in a manner
substantially consistent with past practice and (ii) since
December 31, 2006, there has not been:

(1)

any
material damage, destruction or loss (not covered by insurance) with respect to
any material asset of any Obligor;

(2)

any
change by any Obligor in its accounting methods, principles or practices, or any
changes in depreciation or amortization policies or rates adopted by it;

(3)

(i)
any declaration, setting aside or payment of any dividends or other distribution
(whether in cash, stock or property) in respect of the Capital Stock of the
Obligors or Various, Inc., (ii) any direct or indirect redemption,
purchase, retirement or other acquisition by the Obligors or Various, Inc. of
any Capital Stock of the Obligors or Various, Inc. or any securities convertible
into, exchangeable for or conferring the right to purchase Capital Stock of
 the Obligors or Various, Inc. (or any agreement, arrangement or other
understanding to do the same), or (iii) any issuance, pledge or sale of any
Capital Stock of the Obligors or Various, Inc., or any other securities
convertible into or exchangeable for or conferring the right to purchase capital
stock of the Obligors or Various, Inc. (or any agreement, arrangement or other
understanding to do the same);

(4)

any
amendment, alteration or modification in the terms of any currently outstanding
options, warrants or other rights to purchase any Capital Stock or equity
interest in the Obligors or Various, Inc. or any other securities convertible
into or exchangeable for such Capital Stock or equity interest, including
without limitation a reduction in the exercise or conversion price of any such
rights or securities;

(5)

(i)
any increase in the benefits under, or the establishment, termination,
modification or amendment of, or any commitment to establish, terminate, modify
or amend, any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option (including, without limitation, the
granting of stock options, stock appreciation rights, performance awards or
restricted stock awards), stock purchase or other employee benefit plan, or any
other increase in the compensation payable or to become payable to
(x) directors or officers of the Obligors or Various, Inc.  or
(y) other employees of the Obligors or Various, Inc., or (ii) any
employment, consulting or indemnification agreement, contract or arrangement
(other than the hiring or  

48

dismissal
of consultants or at will employees in the ordinary course of business
consistent with past practice);

(6)

any
termination or failure to renew, or any threat (that was not subsequently
withdrawn) to terminate or fail to renew, any Material Contract of the Obligors
or Various, Inc.;

(7)

any
merger with or into or consolidation with any other person, or any subdivision,
combination or, in any way, reclassification of any shares of Capital Stock of
the Obligors or Various, Inc. or any modification or amendment, or agreement to
modify or amend, in any manner the rights to the Obligors’ or Various, Inc.’s
outstanding capital stock or the character of its business (other than in
connection with the Acquisition);

(8)

any
material change to any of the business, operations or policies of the Obligors
or Various, Inc.,  including, without limitation, advertising, investment,
marketing, pricing, purchasing, production, personnel, sales, returns, budget or
other product acquisition policies;

(9)

any
loan or advance by any Obligor or Various, Inc. to any of its stockholders,
officers, directors, consultants or employees or other representatives (except
for travel and entertainment and moving expense advances made to employees in
the ordinary course of business consistent with past practice in amount and
kind);

(10)

except
for inventory, equipment or Intellectual Property in the ordinary course of
business, any sale, abandonment, transfer, lease, license or any other
disposition of any properties or assets of any Obligor or Various, Inc. or
acquisition of any capital stock or business of any other person (or any
reaching of an agreement, arrangement or understanding to do the same);

(11)

(i)
any incurrence of Indebtedness or assumption, guarantee or other responsibility
for the debts of any other Person (other than check-clearing endorsements made
in the ordinary course of business), (ii) any loans, advances or capital
contributions to or investments in any other Person (other than advances against
commissions and advances of expenses to sales personnel in the normal course of
business), or (iii) any grant of any security interest or creation or
modification of any Liens on any of its properties or assets, other than
Permitted Liens by the Obligors or Various, Inc.;

(12)

any
modification, amendment, termination, transfer or waiver of any material right
under any contract or other agreement of the 

49

type
required to be set forth on any schedule to the Securities Purchase Agreement,
or any agreement, arrangement or other understanding to do any of the foregoing,
or any permitted lapse of 

any
rights to the use of any Intellectual Property or any sale, assignment, license,
transfer or other disposition of any rights thereto, in each case except in the
ordinary course of business consistent with past practice by the Obligors or
Various, Inc.;

(13)

any
payment by any Obligor or Various, Inc. of bonuses or severance pay or any other
obligation arising as a result of termination of employment; or

(14)

any
agreement, arrangement or other understanding by any Obligor or Various, Inc. to
do, cause or suffer any of the foregoing.

(m)

Taxes,
Etc.  Except as set forth on Schedule 6.01(m) to the
Securities Purchase Agreement, all Federal, state and local Tax returns and
other reports required by applicable law to be filed by any Obligor have been
filed, or extensions have been obtained, and all Taxes, assessments and other
governmental charges imposed upon any Obligor or any property of any Obligor and
which have become due and payable on or prior to the date hereof have been paid,
except to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof on the Financial Statements in accordance with GAAP.

(n)

Regulations T,
U and X.  No Obligor is or will be engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation T, U or X), and no proceeds of any of the Securities
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. 

(o)

Nature
of Business.  No Obligor is, or will be, engaged in any business other
than the operation of Social Networking Services and other interactive websites,
online photo-sharing and storage, online publishing and broadcast of
user-generated media content, and other aspects of the adult entertainment
business, which business includes, without limitation, (a) publishing,
(b) motion pictures, video, internet, mobile, satellite and cable
television, audiotext and similar technologies, (c) live, location-based
entertainment clubs, (d) consumer products and services, (e) casino
gaming and sports wagering, whether through the internet or otherwise,
(f) the licensing of its Intellectual Property to third parties, and
(g) all businesses and activities reasonably related to one or more of the
foregoing.  A good faith determination by a majority of the Issuer’s Board
of Directors as to whether a business meets the requirements of this definition
shall be conclusive.

(p)

Permits,
Etc.  Each Obligor has, and is in compliance with, all permits,
licenses, authorizations, approvals, entitlements and accreditations required
for such Person lawfully to own, lease, manage or operate, or to acquire, each
business currently owned, leased, managed or operated, or to be acquired, by
such Person except for the failure to obtain and  

50

maintain
compliance with permits, licenses, authorizations, approvals, entitlements and
accreditations which is not reasonably likely to have a Material Adverse Effect.
 No condition exists or event has occurred which, in itself or with the
giving of notice or lapse of time or both, would result in the suspension,
revocation, impairment, forfeiture or non-renewal of any such permit, license,
authorization, approval, entitlement or accreditation, and there is no claim
that any thereof is not in full force and effect, except for the occurrence of
such conditions or events which is not reasonably likely to have a Material
Adverse Effect.  

(q)

Properties.
 

(1)

Other
than matters concerning Intellectual Property, which are addressed exclusively
in Section 6.01(w), each Obligor has good and marketable title to, valid
leasehold interests in, or valid licenses to use, all property and assets
material to its business, free and clear of all Liens, except Permitted Liens.
 All such properties and assets are in good working order and condition,
ordinary wear and tear excepted.  

(2)

Neither
the Issuer nor any other Obligor owns any real property.
 Schedule 6.01(q) to the Securities Purchase Agreement sets
forth a complete and accurate list, as of the Closing Date, of the location, by
state and street address, of all real property leased by each Obligor.

(r)

Material
Contracts.  Except as otherwise listed on Schedule 6.01(r)
to the Securities Purchase Agreement (such contracts and agreements as are
required to be set forth in such Schedule 6.01(r) being referred to
herein, collectively, as the “Material Contracts”) no Obligor is a party
to or bound by any of the following contracts, agreements, commitments, or
instruments, whether oral or written:

(1)

employment,
commission or consulting agreements (other than any such agreement that is “at
will” and the termination of which would not result in any severance, penalty or
similar payment being owed by any Obligor);

(2)

collective
bargaining agreements or other contracts or commitments to or with any labor
unions or other employee representatives or groups of employees;

(3)

contracts
or agreements limiting the right of the Obligors (A) to engage in, or to
compete with any Person in, any business, including each contract or agreement
containing exclusivity provisions restricting the geographical area in which, or
the method by which, any business may be conducted by the Obligors or
(B) to solicit any customer or client;

(4)

indemnity
or guaranty arrangements, business acquisition agreements, licenses,
nondisclosure agreements (other than  

51

licenses
of rights to software and nondisclosure agreements entered into with customers
in the ordinary course of business), and joint-venture agreements;

(5)

agreements
or contracts with any officer, director or employee of the Obligors, other than
employment, commission and consulting agreements covered by clause (1)
above and other than confidentiality and nondisclosure agreements in favor of
the Obligors, and incentive stock option agreements and restricted stock
agreements between the Issuer and employees thereof, copies of which have been
provided to the Holders;

(6)

(A)
leases or similar agreements under which (x) a Obligor is lessee of, or
holds or uses, any machinery, equipment, vehicle or other tangible personal
property owned by a third person or (y) an Obligor is a lessor or sublessor
of, or makes available for use by any third person, any tangible personal
property owned or leased by the Obligors, or (B) continuing contracts for
the future purchase of materials, supplies or equipment;

(7)

except
for licenses of software generally commercially available on a “shrink wrap” or
similar basis, material licenses or other material agreements relating in whole
or in part to any Intellectual Property of the Obligors (including any material
license or other material agreement under which a Obligor has the right to use
any of the same owned or held by any third Person);

(8)

agreements
or contracts under which a Obligor has borrowed or loaned any money or issued
any note, bond, indenture or other evidence of Indebtedness or directly or
indirectly guaranteed the Indebtedness, liabilities or obligations of others
(other than (x) check-clearing endorsements made in the ordinary course of
business, (y) accounts receivable and accounts payable generated in the
ordinary course of business, and (z) travel and similar expense advances to
employees in the ordinary course of business and immaterial in amount);

(9)

mortgages,
pledges, security agreements, deeds of trust or other documents granting a Lien
(including Liens upon properties acquired under conditional sales, Capitalized
Leases or other title retention or security devices) with respect to any
property;

(10)

contracts
or commitments affecting ownership of, title to, use of, or any interest in real
estate;

(11)

contracts
or commitments, whether or not in the ordinary course of business, which involve
future payments, performance of services 

52

or
delivery of goods and/or materials, to or by the Obligors of an aggregate amount
or value in excess of $100,000;

 

(12)

other
agreements, contracts, leases, licenses, commitments, arrangements or
instruments to which an Obligor is a party or by or to which an Obligor or any
of its assets or business is bound or subject which has an aggregate future
liability (as to such contract or commitment individually) as of the date hereof
in excess of $100,000;

(13)

contracts
or commitments with distributors, sales representatives and other third parties
providing sales and promotional services with respect to the Obligors’ products;
or

(14)

any
other contract which, if terminated or breached, or if the Obligors otherwise
lose the benefits thereof, would be reasonably likely to result in a Material
Adverse Effect.

Except
as disclosed on Schedule 6.01(r) to the Securities Purchase
Agreement, each Material Contract is in full force and effect and is a legal,
valid and binding contract or agreement of the Obligors signatory thereto, and
there is no material default (or any event which, with the giving of notice or
lapse of time or both, would be a material default) by the Obligors or, to the
knowledge of the Obligors, any other party, in the timely performance of any
obligation to be performed or paid under any of the Material Contracts.  No
notice has been received by the Obligors of any default under or termination of
any Material Contract which has not been cured as of the date hereof or which
cannot be promptly cured without the payment of any material sums with respect
thereto.  The Obligors have either delivered or made available to the
Holders true, complete and correct copies of all Material Contracts or, in the
case of oral Material Contracts, true, complete and correct summaries
thereof.

(s)

Full
Disclosure.  Each Obligor has disclosed to the Agent and each Holder
all agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, could result in a Material Adverse Effect.  None of the other
reports, financial statements, certificates or other information furnished by or
on behalf of any Obligor to the Agent and each Holder in connection with the
negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which it was made,
not misleading; provided that, with respect to projected financial
information, each Obligor represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time.
 There is no contingent liability or fact that may have a Material Adverse
Effect which has not been set forth in a footnote included in the Financial
Statements or a schedule to the Securities Purchase Agreement.

(t)

Insurance.
 Each Obligor keeps its property adequately insured and maintains
(i) insurance to such extent and against such risks, including fire, as is
customary with reputable companies in the same or similar businesses,
(ii) workmen’s compensation insurance 

53

in
the amount required by applicable law, (iii) public liability insurance,
which shall include product liability insurance, in the amount customary with
companies in the same or similar business against claims for personal injury or
death on properties owned, occupied or controlled by it, and (iv) such
other insurance as may be required by law or as may be reasonably required by
the Agent (including, without limitation, against larceny, embezzlement or other
criminal misappropriation).  Schedule 6.01(t) to the Securities
Purchase Agreement sets forth a list of all insurance maintained by each Obligor
on the Closing Date.

 

(u)

Use
of Proceeds.  The net proceeds of the issuance of the Securities, shall
be used to consummate the Various Acquisition.

(v)

Location
of Bank Accounts.  Schedule 6.01(v) to the Securities
Purchase Agreement sets forth a complete and accurate list, as of the Closing
Date, of all deposit, checking and other bank accounts, all securities and other
accounts maintained with any broker dealer and all other similar accounts
maintained by each Obligor, together with a description thereof (i.e.,
the bank or broker dealer at which such deposit or other account is maintained
and the account number and the purpose thereof).  

(w)

Intellectual
Property.

(1)

Ownership
of Intellectual Property.  Except as set forth in
Schedule 6.01(w)(1) to the Securities Purchase Agreement, each item
of Registered Intellectual Property is owned solely and exclusively by one or
more of the Obligors.  Without limiting the generality of the foregoing,
except where failure to do so would not constitute a Material Adverse Effect,
each of the Obligors solely and exclusively owns all trademarks, trade names and
service marks, and each copyrighted work, used by such Obligor in connection
with the operation or conduct of its business as currently conducted.
 Except as set forth in Schedule 6.01(w)(1) to the Securities
Purchase Agreement, or except where failure to do so would not constitute a
Material Adverse Effect, (A) the Intellectual Property owned by the
Obligors, or to which Obligors have sufficient rights to use, constitutes all of
the Intellectual Property used in and/or necessary to the conduct of the
business as it is currently conducted and (B) if such Intellectual Property
is material to the conduct of the business as it is currently conducted and
owned by one or more Obligors, such Intellectual Property is Registered
Intellectual Property.

(2)

Registered
Intellectual Property.  (i) Schedule 6.01(w)(2) to the
Securities Purchase Agreement lists all of the Registered Intellectual Property
owned by the Obligors, identifies which entity owns such Registered Intellectual
Property, and lists the current status of any inter parties proceedings
or actions pending as of the date hereof before any court, tribunal or agency
(including the United States Patent and Trademark Office 

54

(“PTO”) or
equivalent authority anywhere in the world) relating to any Registered
Intellectual Property.  Except as set forth on
Schedule 6.01(w)(2) to the Securities Purchase Agreement, each item
of Registered Intellectual Property is subsisting, and all necessary
registration, maintenance, renewal fees, annuity fees and taxes in connection
with such Registered Intellectual Property have been paid if due and all filings
necessary as of the date of this Agreement have been submitted for the purposes
of maintaining such Registered Intellectual Property.

(3)

Third
Parties.  Except where failure to do so would not constitute a Material
Adverse Effect, (A) the Obligors have taken commercially reasonable steps
to protect and preserve its ownership of and in their owned Intellectual
Property; (B) all Intellectual Property created or developed for Obligors
by a third party (including, but not limited to, photographers, authors, models,
artists and others) is designated as “work made for hire” (or similarly
designated under the relevant statutes) pursuant to a sufficient written
agreement and all such third parties have agreed not to assert his or her moral
rights (or similar personal rights associated with authorship of a work under
applicable law) to the extent permitted by law in any work created on behalf of,
for the benefit of, or during the course of performing work for the Obligors;
(C) the Obligors have specified that each such third party represents and
warrants to the Obligors that any Intellectual Property developed or created by
such person is wholly original to such third party, that such third party has
the right to develop and deliver such Intellectual Property to Obligors and such
Intellectual Property does not belong to or conflict with any other third
party’s rights; and (D) the Obligors have taken commercially reasonable
steps to protect the confidentiality of, and their rights in, any confidential
information and trade secrets in their possession or custody, whether owned by
them, or provided by any other person to them subject to a duty of
confidentiality.   Except as set forth on
Schedule 6.01(w)(3) to the Securities Purchase Agreement, all
employees hired by any of the Obligors since December 31, 2006 have executed the
Issuer’s standard confidentiality, non-solicitation, and invention assignment
agreement.

(4)

Content
and Image Rights.  Except as failure to do so would not constitute a
Material Adverse Effect, the Obligors own or have sufficient rights to use all
rights, title and interest in and to any content incorporated into their
products and services, including, without limitation, any images, writings,
drawings, graphics, music or otherwise.  Except as failure to do so would
not constitute a Material Adverse Effect, and to the extent required by law, any
person whose image, name or likeness appears in any of the  

55

products
or services of such Obligor where such image, name or likeness was photographed
or otherwise recorded by or on behalf of any Obligor has (i) knowingly and
validly consented to the use thereof, (ii) executed and delivered a
sufficient, valid and enforceable “image and likeness” release,
(iii) waived and released their rights with respect to the use of their
image, name or likeness, including rights of privacy and publicity, and
(iv) is of legal age and capacity to consent to such use of their image,
name or likeness, execute and deliver such release and waive such rights.
 Except as set forth on Schedule 6.01(w)(4) to the Securities
Purchase Agreement, no Obligor has since December 31, 2006 received any
written notice of any claim threatened or actually asserted against the Obligors
that any person’s image, name or likeness has been used in connection with the
products or services of the Obligors without such person’s valid written
consent, and no such claims (including claims asserted prior to
December 31, 2006) are currently pending and active since December 31,
2006.

(5)

Publication,
Distribution and License Agreements.  Set forth on
Schedule 6.01(w)(5) to the Securities Purchase Agreement is a list
of each Material Contract whose primary purpose is to license or otherwise
authorize a third party to publish, distribute or sell products and services
using or incorporating the Intellectual Property of the Obligors, the products
and services so licensed or authorized and the jurisdiction or territories in
which such third parties are so licensed or authorized.

(6)

Non-Infringement.
 Except as failure to be true would not constitute a Material Adverse
Effect, the operation of the business as currently conducted by the Obligors,
including the design, development, use, publication, distribution and sale of
the products or services of the Obligors, does not (1) infringe or
misappropriate the Intellectual Property of any third party, (2) violate
the Intellectual Property rights of any person, including, without limitation,
rights of privacy and publicity, or (3) constitute an unfair competition or
an unfair trade practice under any law.  Except as set forth on
Schedule 6.01(w)(6) to the Securities Purchase Agreement, no Obligor
has since December 31, 2006 received any written notice from any person
claiming that such operation of the business, or any act, product, or service of
any Obligor (A) infringes or misappropriates the Intellectual Property of
any person, (B) violates the Intellectual Property rights of any person, or
(C) constitutes unfair competition or unfair trade practices under any
law.

(7)

Third
Party Infringement.  Except as failure to do so would not constitute a
Material Adverse Effect, the Obligors have used  

56

commercially
reasonable efforts to enforce their Intellectual Property rights against third
parties.  Schedule 6.01(w)(7) to the Securities Purchase
Agreement sets forth (i) a list of Internet domain name registrations
identified by the Obligors that they believe are or may be inconsistent with its
trademark rights; (ii) other than as concerns Internet domain names and
registrations, a list of each infringement matter currently and actively pursued
by the Obligors.  Except as disclosed on Schedule 6.01(w)(7) to
the Securities Purchase Agreement, to the knowledge of the Obligors, no person
is infringing or misappropriating any Intellectual Property of the Obligors in a
manner that materially adversely affects the validity or enforceability of the
Intellectual Property or would otherwise be reasonably likely to constitute a
Material Adverse Effect.  With respect to the matters disclosed pursuant to
this Section 6.01(w)(7) to the Securities Purchase Agreement, the
Obligors have made commercially reasonable efforts to pursue such infringers and
resolve such unauthorized use.

(8)

No
Violations.  No Intellectual Property, product or service of any
Obligor is subject to any valid and enforceable order against one or more
Obligors, or pending action or proceeding against one or more Obligors, that
restricts the creation, development, use, publication, distribution, sale or
license of any Intellectual Property by any Obligor, or threaten the validity or
enforceability of Intellectual Property owned by any Obligor, in a manner that
would constitute a Material Adverse Effect.  No Obligor has since
December 31, 2006 received written notice of any such order, action or
proceeding, and no such action or proceeding (including those initiated prior to
December 31, 2006) is currently pending against Obligors.  No Obligor
has since December 31, 2006 received written notice from (i) any third
party that any product, service or publication as provided by any Obligor, or
material as published, distributed, licensed or sold by any Obligor, or act,
conduct or statement specifically by any Obligor (collectively, “Obligor
Content Or Actions”) constitutes false advertising or a defamatory
statement; or (ii) any Governmental Authority that any Obligor Content Or
Actions constitutes illegal obscene material.  Except as failure to do so
would not constitute a Material Adverse Effect, no Government Authority has
formally determined that any Obligor Content Or Actions constitutes false
advertising, a defamatory statement or illegal obscene material.

(x)

Holding
Company and Investment Company Acts.  None of the Obligors is
(i) a “holding company” or a “subsidiary company” of a “holding company” or
an “affiliate” of a “holding company”, as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended, or (ii) an “investment
company” or an “affiliated person” or “promoter” of, or 

57

“principal
underwriter” of or for, an “investment company”, as such terms are defined in
the Investment Company Act of 1940, as amended.

(y)

Name;
Jurisdiction of Organization; Organizational ID Number; Chief Place of Business;
Chief Executive Office; FEIN.  Schedule 6.0 l(y) to the
Securities Purchase Agreement sets forth a complete and accurate list as of the
date hereof of (i) the exact legal name of each Obligor, (ii) the
jurisdiction of organization of each Obligor, (iii) the organizational
identification number of each Obligor (or indicates that such Obligor has no
organizational identification number), (iv) each place of business of each
Obligor, (v) the chief executive office of each Obligor and (vi) the
federal employer identification number of each Obligor.

(z)

Locations
of Collateral.  There is no location at which any Obligor has any
Collateral other than (i) those locations listed on
Schedule 6.01(z) to the Securities Purchase Agreement and
(ii) any other locations approved in writing by the Agent from time to
time.

(aa)

Existing
Indebtedness.  Schedule 6.01(aa) to the Securities Purchase
Agreement sets forth a complete and correct list of all outstanding Indebtedness
of each of the Obligors as of October 31, 2007, since which date there has been
no material change in the amounts, interest rates, sinking funds, installment
payments or maturities of the Indebtedness of any of the Obligors.  Except
as set forth on Schedule 6.01(aa) to the Securities Purchase
Agreement, no Obligor is in default and no waiver of default is currently in
effect, in the payment of any principal or interest on any Indebtedness of such
Obligor and no event or condition exists with respect to any Indebtedness of any
Obligor the outstanding principal amount of which exceeds $10,000 that would
permit (or that with notice or the lapse of time, or both, would permit) one or
more Persons to cause such Indebtedness to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.

(bb)

Environmental
Matters.  The Obligors have obtained all material permits, licenses,
registrations, consents and other authorizations that are required with respect
to the operation of the Obligors’ business under any applicable Environmental
Law and all such permits, licenses, registrations, consents and authorizations
are in full force and effect.  To the best of the Obligors’ knowledge, all
of the real property leased by the Obligors is free of any Hazardous Substances
and free of all contamination arising from, relating to, or resulting from any
such Hazardous Substances that could cause the Issuer to incur any Environmental
Liabilities and Costs.  To the best of the Obligors’ knowledge, there are
no underground or aboveground storage tanks, incinerators or surface
impoundments at, on, or about, under or within any real property or tangible
assets owned, operated or controlled in whole or in part by the Obligors.
 The Obligors are now and since December 31, 2006 have been in compliance,
in all material respects, with applicable Environmental Laws.  The Obligors
have not been requested or required by any governmental authority at any time
since December 31, 2006, and are not aware of any basis for such a request or
requirement, to perform any investigatory or remedial activity or other action
in connection with any matter arising out of, relating to, or resulting from
pollution, contamination, protection of the environment, human health or safety,
health or safety of employees, sanitation, and any matters relating to
emissions, discharges, disseminations, releases or threatened releases, of
Hazardous Substances into the air, surface water, groundwater, soil, land
surface or subsurface, buildings or facilities or otherwise arising 

58

out
of, relating to, or resulting from the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.

 

(cc)

Customers;
Distributors; Vendors.  Since December 31, 2006, no Significant
Relationship has (i) cancelled or otherwise terminated, or, to the
knowledge of the Obligors, threatened to cancel or otherwise terminate, its
relationship with any of the Obligors, or (ii) materially changed, or, to
the knowledge of the Obligors, requested a material adverse change in, the price
or quantity of the products or services sold or provided by or to the Obligors.
 “Significant Relationship” shall mean any customer or vendor of any
Obligor or any distributor, sales representative or other third party providing
sales or promotional services to such Obligor, that accounted for 3% or more of
the aggregate revenues of such Obligor during the most recent twelve
(12) calendar months.  Schedule 6.01(cc) to the Securities
Purchase Agreement sets forth the name of each Significant Relationship and the
aggregate revenues attributable to such Significant Relationship for the year
ended December 31, 2006.

(dd)

Accounts
Receivable.  The accounts and notes receivable reflected in the
Financial Statements and those accounts and notes receivable acquired or created
after the date of the most recent Financial Statements through the Closing Date,
are and shall be bona fide accounts and notes receivable created in the ordinary
and usual course of business in connection with bona fide transactions and
consistent with past practice.  The allowance for doubtful accounts that
appears in the Financial Statements has been fairly determined consistent with
past practices in accordance with GAAP.

(ee)

No
Undisclosed Liabilities.  The Obligors do not have any liability or
obligations of any nature, actual, absolute, accrued, contingent or otherwise,
other than the following:  (1) liabilities provided for or disclosed
in the Financial Statements and the notes thereto, (2) trade payables and
other ordinary course expense accruals arising since the date of the most recent
Financial Statements and prior to the Closing Date, and (3) liabilities
that have been disclosed in the schedules to the Securities Purchase
Agreement.

(ff)

Foreign
Assets Control Regulations, etc.  The issuance of the Securities
by the Issuer and PMGI, as applicable, hereunder will violate the Trading with
the Enemy Act, as amended, or any of the foreign assets control regulations of
the United States Department of the Treasury (31 C.F.R., Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order
relating thereto.

(gg)

Certain
Business Practices and Regulations; Potential Conflicts of Interest.
 Neither any Obligor nor, to the best of the Obligors’ knowledge, any
director, officer, agent or employee of the Obligors has (i) used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds or violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended, or
(iii) paid or made any bribe, rebate, payoff, influence payback, kickback
or other unlawful payment.  Except as disclosed on
Schedule 6.01(gg) to the Securities Purchase Agreement, none of the
affiliates, officers, directors or agents of the Obligors or any spouse, lineal
descendent or entity controlled by any of the foregoing (i) owns, directly
or indirectly, in whole or in part, any real or personal property that 

59

an
Obligor uses in the conduct of its business, (ii) has any cause of action
or other suit, action or claim whatsoever against, or owes any amount
(contingent or otherwise) to, or is owed any amount (contingent or otherwise)
by, any Obligor other than claims in the ordinary course of business resulting
from such Person’s status as an affiliate, officer, director or agent of such
Obligor such as for accrued salary, bonus, commissions, vacation pay or accrued
benefits under employee benefit plans, (iii) has sold to, or purchased
from, any Obligor any assets or property for aggregate consideration in excess
of $10,000 since December 31, 2006, or (iv) is a party to any contract
or participates in any arrangement, written or oral, pursuant to which any
Obligor provides in-kind services to any such individual or entity, except to
such individual in his capacity as an employee of such Obligor.

 

(hh)

Brokers.
 Except as set forth on Schedule 6.01(hh) to the Securities
Purchase Agreement, no broker, finder or investment banker is entitled to any
brokerage, finder’s or other fee or commission in connection with the
transactions contemplated by this Agreement or the other Funding Documents based
upon arrangements made by or on behalf of the Issuer or any of the other
Obligors. 

(ii)

Schedules.
 All of the information which is required in this Agreement to be set forth
on schedules to the Securities Purchase Agreement is set forth on such
schedules, is correct and accurate and does not omit to state any information
material thereto.

(jj)

Representations
and Warranties in Documents; No Default.  All representations and
warranties set forth in this Agreement and the other Funding Documents are true
and correct in all respects at the time as of which such representations were
made and on the Closing Date.  No Event of Default has occurred and is
continuing and no condition exists which constitutes a Default or an Event of
Default.

(kk)

Representations
and Warranties in Acquisition Documents; No Default.  All
representations and warranties of all parties (other than Various, Inc.) set
forth in the Acquisition Documents are true and correct in all respects at the
time as of which such representations were made and on the Closing Date.
 No Event of Default has occurred and is continuing and no condition exists
which constitutes a Default or an Event of Default.

(ll)

Perfection
Certificate.  The representations and warranties contained in the
Perfection Certificate are true and correct as of the Closing Date. 

(mm)

Offering
Memorandum.  The Offering Memorandum, as of its date, and as of the
Closing Date, does not contain an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.

(nn)

Foreign
Subsidiary Pledge.  The pledge of the Capital Stock of Streamray, Inc.
(St. Kitts) and Friendfinder Processing, Ltd (St. Kitts) pursuant to each
applicable Issuer Security and Pledge Agreement will not cause Various, Inc. or
the consolidated group of which it is a member to recognize income pursuant to
Internal Revenue Code sections 951(a)(1)(B) and 956.

60

(oo)

Minimum
EBITDA of Issuer.  As of November 30, 2007, the Issuer and its
Subsidiaries had Annualized Consolidated EBITDA of at least $90,000,000.

Section
6.02

Representations
and Warranties of the Holders.  Each Holder (as to itself only), hereby
represents and warrants to the Issuer and the other Obligors that:

(a)

Organization,
Good Standing. Etc.  The Holder (i) is a trust duly organized,
validly existing and in good standing under the laws of the state or
jurisdiction of its organization, (ii) has all requisite power and
authority to conduct its business as now conducted and as presently contemplated
and to execute and deliver each Funding Document to which it is a party, and to
consummate the transactions contemplated thereby, and (iii) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary except where the
failure to be so qualified and in good standing would not be materially adverse
to the ability of the Holder to consummate the transactions contemplated by the
Funding Documents.

(b)

Authorization,
Etc.  The execution, delivery and performance by the Holder of each
Funding Document to which it is or will be a party, have been duly authorized by
all necessary action, (ii) do not and will not contravene its
organizational documents, or any applicable law, any contractual restriction
binding on or otherwise affecting it or any of its properties, or any order or
decree of any court or Governmental Authority, (iii) do not and will not
result in or require the creation of any Lien upon or with respect to any of its
properties, and (iv) do not and will not result in any default,
noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to its operations or
any of its properties, except, with respect to the foregoing clauses (ii),
(iii) and (iv), as would not be materially adverse to the ability of the
Holder to consummate the transactions contemplated by the Funding Documents.

(c)

Governmental
Approvals.  No authorization or approval or other action by, and no
notice to or filing; with, any Governmental Authority is required in connection
with the due execution, delivery and performance by the Holder of any Funding
Document to which it is or will be a party.  

(d)

Execution
and Binding Effect.  Each of the Funding Documents to which the Holder
is a party, when delivered hereunder, is or will be duly and validly executed
and delivered by the Holder and constitutes legal, valid and binding obligations
of the Holder, enforceable in accordance with the terms hereof or thereof,
except as enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors’ rights generally and (ii) general
principles of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).

(e)

Investment
Representation.

(1)

The
Holder is an accredited investor within the meaning of Rule 501 under the
Securities Act of 1933, as amended, and the 

61

Holder
is acquiring Securities for its own account for the purpose of investment and
not with a view to the distribution thereof or dividing all or any part of its
interest therein with any other Person. The Holder acknowledges that the sale of
the Securities has not been registered under the Securities Act of 1933, as
amended, or under any applicable federal securities laws or state securities or
“blue sky” laws and that neither the Securities nor any shares issuable pursuant
to the Warrants can be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under, pursuant to an
exemption from or in a transaction not subject to any applicable federal
securities laws or state securities or “blue sky” laws.  The Holder
acknowledges and agrees that any shares issued pursuant to the Warrants are
subject to the terms and conditions set forth in the Security Holders Agreement,
as amended from time to time, and that no transfer of such shares will be made
on the books of the Issuer unless such transfer is in compliance with the terms
of such Security Holders Agreement.

(2)

The
Holder agrees that until such time as the applicable restriction is terminated
pursuant to Section 6.02(e)(3) hereof, (A) each instrument
representing the Securities issued pursuant to this Agreement, as well as any
securities issued pursuant to the Warrants, shall bear an endorsement reading
substantially as follows:

THE
SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER SECURITIES LAWS OF ANY STATE AND
MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAWS.

and
(B) each instrument representing any shares issued pursuant to the Warrants
shall bear an endorsement reading substantially as follows:

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS SET FORTH IN A SECURITY HOLDERS AGREEMENT DATED AS OF DECEMBER 6,
2007, AS AMENDED FROM TIME TO TIME, COPIES OF WHICH MAY BE OBTAINED FROM THE
ISSUER OR FROM THE HOLDER OF THIS SECURITY.  NO TRANSFER OF SUCH SECURITIES
WILL BE MADE  ON THE BOOKS OF THE ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.

62

(3)

The
restrictions referred to in the endorsement required pursuant to
Section 6.02(e)(2)(A) shall cease and terminate as to any particular
Securities or shares of Capital Stock when the Issuer or PMGI, as applicable,
determines that such restriction is no longer required in order to assure
compliance with the Securities Act.  The restrictions referred to in the
endorsement required pursuant to Section 6.02(e)(2)(B) shall cease and
terminate as to any particular Securities or shares Capital Stock when PMGI
reasonably determines that the provisions of the Security Holders Agreement are
no longer applicable to such shares or the Security Holders Agreement shall have
terminated in accordance with its terms.

(f)

Brokers.
 No broker, finder or investment banker is entitled to any brokerage,
finder’s or other fee or commission in connection with the transactions
contemplated by this Agreement or any of the other Funding Documents based upon
arrangements made by or on behalf of the Holder.

(g)

Litigation.
  There is no pending or, to the best knowledge of the Holder,
threatened action, suit or proceeding involving the Holder before any court or
other Governmental Authority or any arbitrator that relates to this Agreement or
any other Funding Document or any transaction contemplated hereby or
thereby.

ARTICLE VII

COVENANTS OF THE
OBLIGORS

Section
7.01

Affirmative
Covenants.  So long as any Sellers’ Secured Notes or Guaranty shall
remain outstanding, or principal of, interest on or any other Obligation
(whether or not due) in respect of, any Sellers’ Secured Notes or Guaranty shall
remain unpaid, each Obligor will, unless the Required Holders shall otherwise
consent in writing:

(a)

Reporting
Requirements.  Furnish to each Holder:

(1)

as
soon as available and in any event within 45 days after the end of each
Fiscal Quarter of the Issuer and its Subsidiaries and PMGI and its Subsidiaries
commencing with the first Fiscal Quarter ending after the Closing Date,
(A) consolidated balance sheets, consolidated statements of operations and
retained earnings and consolidated statements of cash flows of the Issuer and
its Subsidiaries and PMGI and its Subsidiaries, (B) consolidating balance
sheets, consolidating statements of operations and retained earnings and
consolidating statements of cash flows of the Issuer and each of its
Subsidiaries and PMGI and its Subsidiaries, respectively, and
(C) management’s narrative discussing the results for such period and
forecasting any identifiable trend, in each case, as at the 

63

end
of such quarter, and for the period commencing at the end of the immediately
preceding Fiscal Year and ending with the end of such quarter, setting forth in
each case in comparative form the figures for the corresponding date or period
of the immediately preceding Fiscal Year, all in reasonable detail, certified by
an Authorized Officer of the Issuer and PMGI, respectively, as fairly
presenting, in all material respects, the financial position of the Issuer and
its Subsidiaries and PMGI and its Subsidiaries, respectively, as of the end of
such quarter and the results of operations and cash flows of the Issuer and its
Subsidiaries and PMGI and its Subsidiaries, respectively, for such quarter, and
(D) with respect to PMGI only, a report reflecting the aggregate payments
or transfers made by the Issuer and its Subsidiaries to or for the benefit of
Marc H. Bell, Daniel Staton and their Affiliates and their respective employees
and family members during such quarter (including, without limitation, salaries,
bonuses and other forms of compensation, payments under the Management Agreement
dated as of October 5, 2004 between PMGI and Bell & Staton, Inc., as
amended, expense reimbursements, fulfillment of indemnification obligations and
payments in respect of the Subordinated Notes or other Indebtedness);

(2)

as
soon as available, and in any event within 90 days after the end of each
Fiscal Year, consolidated balance sheets, consolidated statements of operations
and retained earnings and consolidated statements of cash flows of the Issuer
and its Subsidiaries and PMGI and its Subsidiaries, respectively, as at the end
of such Fiscal Year, setting forth in comparative form the corresponding figures
for the immediately preceding Fiscal Year, all in reasonable detail and prepared
in accordance with GAAP, including management’s discussion and analysis, and
accompanied by a report and an unqualified opinion, prepared in accordance with
generally accepted auditing standards of the Obligors’ Independent Accountants
(which opinion shall be without (A) a “going concern” or like
qualification, modification or exception, or (B) any qualification or
exception as to the scope of such audit);

(3)

as
soon as available, and in any event within 30 days after the end of each
calendar month commencing with the first calendar month of the Issuer and its
Subsidiaries and PMGI and its Subsidiaries, respectively, ending after the
Closing Date, a “flash report” for such month setting forth in reasonable detail
(i) revenue, expenses (itemizing operating expenses and SG&A), capital
expenditures and EBITDA, (ii) a balance sheet with all of the line items
set forth in the balance sheet provided by the Issuer and PMGI for the nine
month period ended September 30, 2007 (including, without limitation, cash,
accounts payable, inventory, accounts receivable and other current assets and
liabilities), (iii) a forward-looking,  

64

twelve-month
liquidity forecast, in each case consolidated for the Issuer and its
Subsidiaries and PMGI and its Subsidiaries, respectively, and by segment,
(iv) with respect to PMGI only, current information regarding the
production, financing, cost, marketing, release date and financial performance
of all of the adult entertainment films currently being produced or currently
intended to be produced by PMGI, and (v) account balance information for
all accounts disclosed on, or that would be required to be disclosed on,
Schedule 6.01(v) to the Securities Purchase Agreement.
 Additionally within 30 days after the end of each Fiscal Quarter the
Issuer and PMGI will hold a management conference call open to all Holders
regarding the information set forth in this Section 7.01(a)(3);

(4)

simultaneously
with the delivery of the financial statements of the Issuer and its Subsidiaries
and PMGI and its Subsidiaries required by clauses (1) and (2) of this
Section 7.01(a), a certificate of an Authorized Officer of each of the
Issuer and PMGI stating that such Authorized Officer has reviewed the provisions
of this Agreement and the other Funding Documents and has made or caused to be
made under his or her supervision a review of the condition and operations of
the Obligors during the period covered by such financial statements with a view
to determining whether the Obligors were in compliance with all of the
provisions of this Agreement and such Funding Documents at the times such
compliance is required hereby and thereby, and that such review has not
disclosed, and such Authorized Officer has no knowledge of, the existence during
such period of a Default or an Event or Default or, if a Default or Event of
Default existed, describing the nature and period of existence thereof and the
action which the Obligors propose to take or have taken with respect
thereto;

(5)

promptly
after submission to any Governmental Authority, all documents and information
furnished to such Governmental Authority in connection with any investigation of
any Obligor other than routine inquiries by such Governmental Authority;

(6)

as
soon as possible, and in any event within three (3) days after the
occurrence of an Event of Default or Default or the occurrence of any event or
development that could have a Material Adverse Effect, the written statement of
an Authorized Officer of the Issuer setting forth the details of such Event of
Default or Default or other event or development that could have a Material
Adverse Effect and the action which the affected Obligor proposes to take with
respect thereto;

 

65

(7)

promptly
after the commencement thereof but in any event not later than 5 days after
service of process with respect thereto on, or the obtaining of knowledge
thereof by, any Obligor, notice of each action, suit or proceeding before any
court or other Governmental Authority or other regulatory body or any arbitrator
which, if adversely determined, could have a Material Adverse Effect; 

(8)

promptly
after the sending or filing thereof, copies of all statements, reports and other
information any Obligor sends generally to any holders of its Indebtedness or
its securities or files with the SEC or any national (domestic or foreign)
securities exchange;

(9)

promptly
upon receipt thereof, copies of all financial reports (including, without
limitation, management letters), if any, submitted to any Obligor by its
auditors in connection with any annual or interim audit of the books
thereof;

(10)

promptly
upon request of the Agent or the Required Holders, copies of all minutes of
meetings of the Board of Directors of any Obligor and all other statements,
reports and other information sent by the Board of Directors of any Obligor to
any Person or submitted by any Person to the Board of Directors of any
Obligor,

(11)

promptly,
and in any event within 15 days after any Authorized Officer becoming aware
of any of the following, a written notice setting forth the nature thereof and
the action, if any, that the Issuer or an ERISA Affiliate proposes to take with
respect thereto:

(A)

with
respect to any Plan, any reportable event, as defined in section 4043(b) of
ERISA and the regulations thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date hereof; or

(B)

the
taking by the PBGC of steps to institute, or the threatening by the PBGC of the
institution of, proceedings under section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan, or the receipt by
such Obligor or any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by the PBGC with respect to such Multiemployer Plan;
or

(C)

any
event, transaction or condition that could result in the incurrence of any
liability by such Obligor or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Internal Revenue Code
relating to employee benefit plans, or in the imposition of any Lien on any of
the rights, properties or assets of such Obligor or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such  

66

penalty
or excise tax provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, would reasonably be expected to
have a Material Adverse Effect;

(12)

no
later than 30 days before such change becomes effective, all information
relating to any change of name, organizational structure or jurisdiction of
organization of any Obligor; 

(13)

(A)
as soon as available, and in any event at least 30 days prior to the
commencement of each Fiscal Year, an annual operating plan and budget in scope and detail reasonably
acceptable to the Holders, prepared on
a monthly basis, for such Fiscal Year for the Issuer and its Subsidiaries and
PMGI and its Subsidiaries, provided that with respect to the Fiscal Year
commencing January 1, 2008 such plan and budget shall be delivered by February
1, 2008,  and (B) promptly upon preparation, any amendments to such
annual operating plans and budgets;

(14)

(A) as
soon as available, and in any event within 30 days after the end of each
calendar month commencing with the first calendar month ending after the Closing
Date, management reports in scope and detail reasonably acceptable to the
Holders, summarizing the number of subscribers and other circulation and
subscriber data for the period covered by such financial statements and
including comparisons against the budgeted data for such period and the data for
the comparable period in the prior Fiscal Year, and (B) promptly upon
receipt thereof, circulation reports from the Audit Bureau of Circulations;
and

(15)

promptly
upon request, such other information concerning the condition or operations,
financial or otherwise, of any Obligor as the Agent may from time to time may
reasonably request.

(b)

Compliance
with Laws, Etc.  Comply, and cause each of its Subsidiaries to comply,
in all material respects, with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, (i) paying before
the same become delinquent, all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or upon any of its
properties, and (ii) paying all lawful claims which if unpaid might become
a Lien or charge upon any of its properties, except to the extent contested in
good faith by proper proceedings which stay the imposition of any penalty, fine
or Lien resulting from the non-payment thereof and with respect to which
adequate reserves have been set aside for the payment thereof in accordance with
GAAP.

(c)

Preservation
of Existence, Etc.  Maintain and preserve its existence, rights and
privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.

67

(d)

Keeping
of Records and Books of Account.  Keep adequate records and books of
account, with complete entries made to permit the preparation of financial
statements in accordance with GAAP.

(e)

Inspection
Rights.  Permit the agents and representatives of the Agent and the
Holders at any time and from time to time during normal business hours, upon
reasonable notice (so long as no Default or Event of Default has occurred or is
continuing), to examine and make copies of and abstracts from its records and
books of account, to visit and inspect its properties, to verify materials,
leases, notes, accounts receivable, deposit accounts and its other assets, to
conduct audits, physical counts, valuations, appraisals, or examinations and to
discuss its affairs, finances and accounts with any of its directors, officers,
managerial employees, Independent Accountants or any of its other
representatives.  In furtherance of the foregoing, each Obligor hereby
authorizes its Independent Accountants to discuss the affairs, finances and
accounts of such Person (independently or together with representatives of such
Person) with the agents and representatives of the Agent and the Holders in
accordance with this Section 7.01(e).  So long as no Default or Event
of Default has occurred and is continuing, the Obligors shall only be required
to reimburse the Agent and the Holders for their costs, fees and expenses
incurred in connection with such inspections once annually.

(f)

Maintenance
of Properties, Etc.  Maintain and preserve all of its properties
which are necessary or useful in the proper conduct of its business, in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all leases to which it is a party as lessee or
under which it occupies property, so as to prevent any loss or forfeiture
thereof or thereunder.

(g)

Maintenance
of Insurance.  Maintain, and cause each of its Subsidiaries to
maintain, insurance with responsible and reputable insurance companies or
associations (including, without limitation, comprehensive general liability,
hazard, rent and business interruption insurance) with respect to its properties
(including all real properties leased or owned by it) and business, in such
amounts and covering such risks as is required by any Governmental Authority
having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses,
similarly situated and in any event in amount, adequacy and scope reasonably
satisfactory to the Required Holders.  All policies covering the Collateral
are to be made payable to the Agent for the benefit of the Holders, as its
interests may appear, in case of loss, under a standard non-contributory
“lender” or “secured party” clause and are to contain such other provisions as
the Agent may require to fully protect the Holders’ interest in the Collateral
and to protect any payments to be made under such policies.  All
certificates of insurance are to be delivered to the Agent and the policies are
to be premium prepaid, with the loss payable and additional insured endorsement
in favor of the Agent and such other Persons as the Required Holders may
designate from time to time, and shall provide for not less than 30 days’
prior written notice to the Agent of the exercise of any right of cancellation.
 If any Obligor or any of its Subsidiaries fails to maintain such
insurance, the Agent may (but shall have no obligation to) arrange for such
insurance, but at the Issuer’s expense and without any responsibility on the
Agent’s part for obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of claims.  Upon
the occurrence and during the continuance of an Event of Default, the Agent
shall have the sole right, in the name of the Holders, any Obligor and its
Subsidiaries, to file claims under any 

68

insurance
policies, to receive, receipt and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.

 

(h)

Obtaining
of Permits, Etc.  Obtain, maintain and preserve and take all necessary
action to timely renew, all permits, licenses, authorizations, approvals,
entitlements and accreditations which are necessary or useful in the proper
conduct of its business, except where the failure to obtain, maintain or
preserve such licenses, authorizations, approvals, entitlements and
accreditations is not reasonably likely to have a Material Adverse Effect.

(i)

Further
Assurances.

(1)

Take
such action and execute, acknowledge and deliver, and cause each of its
Subsidiaries to take such action and execute, acknowledge and deliver, at its
sole cost and expense, such agreements, instruments or other documents as the
Agent may reasonably require from time to time in order (i) to carry out
more effectively the purposes of this Agreement and the other Funding Documents,
(ii) to subject to valid and perfected Liens any of the Collateral or any
other property of the Issuer and its Subsidiaries, subject to only Permitted
Liens, (iii) to establish and maintain the validity and effectiveness of
any of the Funding Documents and the validity, perfection and priority of the
Liens intended to be created under this Agreement and the Sellers’ Security
Documents, and (iv) to better assure, convey, grant, assign, transfer and
confirm unto the Holder the rights now or hereafter intended to be granted to
the Holder under this Agreement or any other Funding Document.

(2)

Without
limitation to Section 7.01(i)(1), (A) promptly notify the Agent of any
material accounts established after the Closing Date that would have been
required to be disclosed on Schedule 6.01(v) to the Securities
Purchase Agreement if they had been maintained as of the Closing Date,
(B) upon request of the Agent, cause to be promptly (but in no event later
than 60 days after the Closing Date) executed and delivered an Account
Control Agreement relating to each new account required to be disclosed pursuant
to the foregoing clause (A), and (C) take such other action reasonably
requested by the Agent to maintain the validity, perfection and priority of the
Holders’ Liens on such accounts.

(j)

Change
in Collateral; Collateral Records; Collateral Locations.  The Issuer
and each Obligor shall (i) give the Agent not less than 30 days’ prior
written notice of any change in the location of any Collateral, other than to
locations set forth on Schedule 6.01(z) to the Securities Purchase
Agreement, (ii) advise the Agent promptly in sufficient detail, of any
material adverse change relating to the type, quantity or quality of the
Collateral or the Lien 

69

granted
thereon, (iii) execute and deliver to the Agent for the benefit of the
Holders from time to time, solely for the Agent’s convenience in maintaining a
record of Collateral, such written statements and schedules as the Agent may
reasonably require, designating, identifying or describing the Collateral and
(iv) upon the request of the Agent, upon the occurrence and during the
continuance of an Event of Default, move all Collateral to a location owned or
leased by the Issuer or to a warehouse or other secure location satisfactory to
the Agent.

 

(k)

Use
of Proceeds. The net proceeds of the issuance of the Securities, shall be
used solely to consummate the Acquisition.

(l)

Subordination.
 Except for (i) the Senior Secured Note Obligations and (ii) the Notes
and Permitted Indebtedness incurred pursuant to clause (b) of the
definition thereof, cause all Indebtedness, and other obligations now or
hereafter owed by the Issuer or any Subsidiary to any of its Affiliates (as such
term is interpreted or determined on the date such Indebtedness or other
obligations are incurred), to be and remain Subordinated Obligations.

(m)

Additional
Guaranties and Sellers’ Security Documents.  If the Issuer, PMGI or any
of their respective Subsidiaries acquires or creates another Subsidiary after
the date of this Agreement, then the Issuer, PMGI or such Subsidiary will
(i) cause that newly acquired or created Subsidiary to execute the
Guaranty, pursuant to a joinder agreement in substantially the form of
Exhibit E hereto, with such modifications to the form and substance
thereof as shall be satisfactory to the Agent and deliver an opinion of counsel
to the Agent within 10 Business Days of the date on which it was acquired or
created to the effect that such joinder agreement has been duly authorized,
executed and delivered by that new Subsidiary and constitutes a valid and
binding agreement of that new Subsidiary, enforceable in accordance with its
terms (subject to customary exceptions).  The new Subsidiary shall execute
and deliver such Sellers’ Security Documents, or joinder agreements with respect
to existing Sellers’ Security Documents, and authorize the filing of such
Uniform Commercial Code financing statements and other recordings as the
Agent may deem necessary or advisable to create, perfect, maintain or enforce
the Agent’s Lien on all rights, title and interest of that new Subsidiary in and
to all of its assets and properties.

(n)

 [Intentionally
Omitted].

(o)

Intellectual
Property.

(1)

Use
commercially reasonable efforts to acquire or develop any Intellectual Property
necessary for its current or contemplated future business, and if such
Intellectual Property is material to the business of, and owned by, the Obligors
and registration is available, use commercially reasonable efforts to cause such
Intellectual Property to be Registered Intellectual Property for so long as such
Intellectual Property remains material to the business;

(2)

except
to the extent that the Obligor in its reasonable good faith judgment determines
that any such action is not necessary or desirable in the conduct of the
Obligor’s business, prosecute  

70

diligently
any applications for patents, trademark registrations and copyright applications
pending as of the date of this Agreement or thereafter, and to obtain, preserve
and maintain all rights in the Registered Intellectual Property owned by the
Obligors, including without limitation validly obtaining and duly recording with
PTO, patent assignments from the inventors of patentable inventions and the
payment when due of all maintenance fees and other fees, taxes and other
expenses which shall be incurred or which shall accrue with respect to any of
the Registered Intellectual Property;

(3)

except
to the extent that the Obligor in its reasonable good faith judgment determines
that any such action is not necessary or desirable in the conduct of the
Obligor’s business, not abandon any filed application, or any pending
application for any patent, trademark or copyright without the consent of the
Agent, which consent shall not be unreasonably withheld;

(4)

[Intentionally
Omitted];

(5)

provide
the Agent with prompt, written notice of any event or circumstance that has, or
is reasonably likely to have if adversely determined, a Material Adverse Effect
on the Intellectual Property of the Obligors, including, without limitation, any
such event or circumstance that is a notice of opposition, adverse proceeding,
termination or cancellation, or claim of infringement or invalidity with respect
to any Registered Intellectual Property or any other Intellectual Property that
is material to the business; and

(6)

except
to the extent that the Obligor in its reasonable good faith judgment determines
that any such action is not necessary or desirable in the conduct of the
Obligor’s business, and other than as set forth in Sections 7.01(o)(1)
through (5) above, take such other actions to establish, maintain, enforce
and defend its material Intellectual Property as reasonably requested in writing
to Obligor by Agent.

(p)

[Intentionally
Omitted].

(q)

[Intentionally
Omitted].

(r)

[Intentionally
Omitted].

(s)

[Intentionally
Omitted].

(t)

[Intentionally
Omitted]..

(u)

Wachovia
Bank Sweep.  Sweep all funds contained in the account of Wachovia Bank,
National Association described on Schedule 6.01(v) to the Securities
Purchase  

71

Agreement
to an Obligor’s operating account that is subject to an effective Account
Control Agreement at the following times: (i) at least once each calendar
month following the Closing Date, and (ii) promptly after the account
balance exceeds $25,000.

(v)

Board
Composition.  PMGI shall take all necessary actions to cause (i) one
designee of the Required Holders to be elected to the Board of Directors of PMGI
(and every committee thereof) (the “Board Designee”) and (ii) one
designee of the Required Holders to be permitted to attend all meetings of the
Board of Directors of PMGI (and every committee thereof) as an observer (the
“Board Observer”).  The Board of Directors of PMGI will meet at
least one (1) time per Fiscal Quarter.  If the Board Designee has been
designated, he or she will be entitled to receive copies of all materials
distributed at all meetings of the Board of Directors of PMGI (and every
committee thereof).  If the Board Observer has been designated, he or she
will be entitled to receive copies of all materials distributed at all meetings
of the Board of Directors of PMGI (and every committee thereof).  Upon
election of the Board Designee, PMGI will execute a customary form of
indemnification agreement in favor of the Board Designee in his or her capacity
as a director of PMGI.  At all times during the tenure of the Board
Designee, PMGI  shall maintain a directors’ and officers’ liability
insurance policy with coverage in an amount customary for companies similarly
situated to PMGI from financially sound and reputable insurers.  PMGI shall
pay to the Board Designee the same compensation for his or her services as a
director of PMGI as the compensation, if any, paid to non-employee directors of
PMGI.

(w)

 Back-Up
Data Center.  Cause a Back-Up Data Center to be established, completed
and fully operational by June 30, 2008.

Section
7.02

Negative
Covenants.  So long as any principal of, interest on any Sellers’
Secured Notes or any other Obligation (whether or not due) in respect of, any
Sellers’ Secured Notes or Guaranty shall remain unpaid, unless the Required
Holders shall otherwise consent in writing, each Obligor shall not and shall not
permit its Subsidiaries to:

(a)

Liens,
Etc.  Create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, whether now owned or hereafter acquired; file
or suffer to exist under the Uniform Commercial Code or any similar law or
statute of any jurisdiction, a financing statement (or the equivalent
thereof) that names it as debtor, sign or suffer to exist any security agreement
authorizing any secured party thereunder to file such financing
statement (or the equivalent thereof); sell any of its property or assets
subject to an understanding or agreement, contingent or otherwise, to repurchase
such property or assets (including sales of accounts receivable) with recourse
to it or assign or otherwise transfer any account or other right to receive
income; other than, as to all of the above, Permitted Liens.
 Schedule 7.02(a) to the Securities Purchase Agreement sets
forth all Permitted Liens in existence as of the date hereof.

(b)

Indebtedness.
 Create, incur, assume, guarantee or suffer to exist, or otherwise become
or remain liable with respect to any Indebtedness other than Permitted
Indebtedness.

(c)

Fundamental
Changes; Dispositions.  Wind-up, liquidate or dissolve, or merge,
consolidate or amalgamate with any Person, or conduct any Asset Sale with
respect to, all 

72

or
any part of its business, property or assets, whether now owned or hereafter
acquired (or agree to do any of the foregoing), or purchase or otherwise
acquire, whether in one transaction or a series of related transactions, all or
substantially all of the assets of any Person (or any division thereof) (or
agree to do any of the foregoing); provided, however, that (i) any
Wholly Owned Subsidiary of the Issuer may be merged into the Issuer or another
such Wholly Owned Subsidiary of the Issuer, or may consolidate with only another
Wholly Owned Senior Subordinated Guarantor, and (ii) any Wholly Owned Subsidiary
of PMGI (other than the Issuer or its Subsidiaries) may be merged into PMGI or
another such Wholly Owned Subsidiary of PMGI (other than the Issuer or its
Subsidiaries), or may consolidate with another such Wholly Owned Subsidiary of
PMGI (other than the Issuer or its Subsidiaries), so long as in each case
(A) no other provision of this Agreement would be violated thereby,
(B) the Issuer gives the Holders at least 30 days’ prior written
notice of such merger or consolidation, (C) no Default or Event of Default
shall have occurred and be continuing either before or after giving effect to
such transaction, (D) all action has been taken, to the satisfaction of the
Agent, such that the Agent’s rights in any Collateral, including, without
limitation, the existence, perfection and priority of any Lien thereon, are not
adversely affected in any manner by such merger or consolidation, and
(E) the surviving Subsidiary is a party to this Agreement, the Issuer
Security and Pledge Agreement or the Parent Security and Pledge Agreement and
all other applicable Sellers’ Security Documents, and the Capital Stock of such
Subsidiary is pledged pursuant to the applicable Sellers’ Security Documents,
and each of such documents is in full force and effect on the date of and
immediately after giving effect to such merger or consolidation; and
provided, further, that any Obligor may dispose of obsolete or
worn-out equipment in the ordinary course of business and that neither the
Issuer nor PMGI shall be required to preserve the corporate existence of any
Subsidiary that has no material assets or liabilities if the Board of Directors
of the Issuer (or in the case of any Subsidiary of PMGI, if the Board of
Directors of PMGI) shall reasonably determine that the preservation thereof is
no longer necessary or desirable in the conduct of the business of the Issuer
and PMGI and their Subsidiaries as a whole.

 

(d)

Change
in Nature of Business.  Make any change in the nature of its business
as described in Section 6.01(o).

(e)

Loans,
Advances, Investments, Etc.  Make or commit or agree to make any loan,
advance guarantee of obligations, other extension of credit or capital
contributions to, or hold or invest in or commit or agree to hold or invest in,
or purchase or otherwise acquire or commit or agree to purchase or otherwise
acquire any shares of the Capital Stock, bonds, notes, debentures or other
securities of, or make or commit or agree to make any other investment in, any
other Person, or purchase or own any futures contract or otherwise become liable
for the purchase or sale of currency or other commodities at a future date in
the nature of a futures contract, except for: (i) Investments existing on
the date hereof, as set forth on Schedule 7.02(e) to the Securities
Purchase Agreement, but not any increase in the amount thereof as set forth in
such Schedule or any other modification of the terms thereof, (ii) loans
and advances by the Issuer to any Wholly-Owned Subsidiary of the Issuer and by
such Subsidiaries of the Issuer made to it in the ordinary course of business,
(iii) loans and advances by PMGI to any Subordinated Guarantor and by such
Subordinated Guarantor to PMGI, made in the ordinary course of business, and
(iv) Permitted Investments.

 

73

(f)

Lease
Obligations.  Create, incur or suffer to exist any obligations as
lessee (i) for the payment of rent for any real or personal property in
connection with any sale and leaseback transaction, (ii) for the payment of
rent for any real or personal property under leases or agreements to lease other
than Capitalized Lease Obligations constituting Permitted Indebtedness or
Operating Lease Obligations in the amount permitted under Section 7.03 (d),
or (iii) for the payment of rent for any real property for a production
and/or broadcast facility unless (A) the lessee of such property is a
Guarantor and (B) the definitive documentation relating to such lease
contains provisions satisfactory to the Agent preserving the Agent’s rights to
cure monetary defaults of the lessee and to occupy and use the property in the
event of a foreclosure on the Capital Stock of the lessee.

(g)

Cash
Management System.  Make any change to its cash management system
including any modification, amendment, termination, transfer or waiver of any
material right under any credit card processing agreement, or any agreement,
arrangement or other understanding to do any of the foregoing.

(h)

Restricted
Payments.  (i) Declare or pay any dividend or other distribution,
direct or indirect, on account of its Capital Stock now or hereafter
outstanding, (ii) make any payment pursuant to a guaranty by the Issuer or
any Subsidiary of the Issuer of any PMGI Note or any Seller Note,
(iii) repurchase, redeem, retire, defease, make any payment in respect of a
sinking fund or similar payment, purchase or make any other acquisition for
value, direct or indirect, of its Capital Stock or any direct or indirect parent
of any Obligor, now or hereafter outstanding, (iv) make any payment to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights for the purchase or acquisition of shares of any class of its
Capital Stock, now or hereafter outstanding, (v) return any Capital Stock
to any shareholders or other equity holders of any Obligor or any of its
Subsidiaries, or make any other distribution of property, assets, shares of
Capital Stock, warrants, rights, options, obligations or securities thereto as
such or (vi) except for transactions set forth on
Schedule 7.02(h)(i) to the Securities Purchase Agreement with
respect to the Issuer and Schedule 7.02(h)(ii) to the Securities Purchase
Agreement with respect to PMGI, pay any salaries, bonuses, management fees, or
other form of compensation, fees or expenses (including the reimbursement
thereof by any Obligor or its Subsidiaries) to any of its stockholders or other
equityholders, Subsidiaries or Affiliates, or to any employees or family members
thereof (collectively, “Restricted Payments”); provided,
however, (a) any Subsidiary of the Issuer may pay dividends to the
Issuer or any Wholly-Owned Subsidiary of the Issuer and any Subsidiary of PMGI
which is a Subordinated Guarantor and not a Subsidiary of the Issuer may pay
dividends to PMGI and (b) provided that (i) no Default or Event of
Default is continuing or would result therefrom, the Issuer may make Restricted
Payments described in clauses (i), (ii), (iii) and (iv) above in an aggregate
amount not to exceed an amount equal to the lesser of (A) the Available
Excess Cash Flow for the Fiscal Quarter most recently ended before a Restricted
Payment is proposed to be made and (B) the amount of interest payments on the
PMGI Notes (other than the PMGI Subordinated Notes) which are required to be
paid in the Fiscal Quarter in which such Restricted Payment is made, and PMGI
shall be required to use the full amount of such Restricted Payment to make such
interest payments.

(i)

Federal
Reserve Regulations.  Permit any Sellers’ Secured Notes or the proceeds
of any Sellers’ Secured Notes under this Agreement to be used for any purpose
that 

74

would
cause such Sellers’ Secured Notes to be a margin loan under the provisions of
Regulation T, U or X.

(j)

Transactions
with Affiliates.  Make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, perform any services for or receive any services from,
or enter into or make, amend, extend or renew any transaction, contract,
agreement, understanding, loan, advance or guarantee, or otherwise become or be
a party to any transaction or series of related transactions, with or for the
benefit of any Affiliate, except (i) in the ordinary course of business in
a manner and to an extent consistent with past practice and necessary or
desirable for the prudent operation of its business, for fair consideration and
on terms no less favorable to it than would be obtainable in a comparable arm’s
length transaction with a Person that is not an Affiliate thereof,
(ii) transactions (A)  between or among the Issuer and/or Senior
Guarantors and (B) between or among Subordinated Guarantors,, in either case to
the extent not otherwise prohibited by the Funding Documents,
(iii) transactions permitted by Section 7.02(e) hereof and
(iv) transactions permitted by Section 7.02(h)(v) hereof.

 

(k)

Investment
Company Act of 1940.  Engage in any business, enter into any
transaction, use any securities or take any other action or permit any of its
Subsidiaries to do any of the foregoing, that would cause it or any of its
Subsidiaries to become subject to the registration requirements of the
Investment Company Act of 1940, as amended, by virtue of being an “investment
company” or a company “controlled” by an “investment company” not entitled to an
exemption within the meaning of such Act.

(l)

Modifications
of Indebtedness, Organizational Documents and Certain Other Agreements; Etc.
 (i) Amend, modify or otherwise change (or permit the amendment,
modification or other change in any manner of) any of the provisions of any
Indebtedness of the Obligors or of any instrument or agreement (including,
without limitation, any purchase agreement, indenture, loan agreement or
security agreement) relating to any such Indebtedness if such amendment,
modification or change would shorten the final maturity or average life to
maturity of, or require any payment to be made earlier than the date that is
120 days after the Final Maturity Date, would increase the interest rate
applicable to such Indebtedness, or would change the subordination provision, if
any, of such Indebtedness, or would otherwise be adverse to the issuer of such
Indebtedness in any respect, (ii) except for the Obligations, make any
voluntary or optional payment, prepayment, redemption or other acquisition for
value of any Indebtedness of the Obligors (including, without limitation, by way
of depositing money or securities with the trustee therefor before the date
required for the purpose of paying any portion of such Indebtedness when due),
or refund, refinance, replace or exchange any other Indebtedness for any such
Indebtedness, or make any prepayment, redemption or repurchase of any
outstanding Indebtedness as a result of any asset sale, change of control,
issuance and sale of debt or equity securities or similar event, or give any
notice with respect to any of the foregoing, or (iii) (A) amend, modify or
otherwise change its certificate of incorporation or bylaws (or other similar
organizational documents), including, without limitation, by the filing or
modification of any certificate of designation, other than to effect a merger or
consolidation of Wholly-Owned Subsidiaries in accordance with Section 7.02
(c), or (B) amend, modify or otherwise change any agreement or arrangement
entered into by it with respect to any of its Capital Stock (including any
shareholders’ agreement), or enter into any new agreement with respect to any of
its Capital 

75

Stock,
except any such amendments, modifications or changes or any such new agreements
or arrangements pursuant to this clause (iii) that either individually or
in the aggregate, could not (in the Agent’s reasonable judgment) reasonably be
expected to have a Material Adverse Effect.

 

(m)

Environmental.
 Permit the use, handling, generation, storage, treatment, release or
disposal of Hazardous Materials at any property owned or leased by the Issuer or
any of its Subsidiaries except in compliance with Environmental Laws and so long
as such use, handling, generation, storage, treatment, release or disposal of
Hazardous Materials does not result in a Material Adverse Effect.

(n)

Required
Minimum Subscribers.  Permit the number of paid subscribers to the
businesses of Issuer and its Subsidiaries to decline by 10% or more during any
Fiscal Quarter as compared to the number of paid subscribers to the business of
the Issuer and its Subsidiaries as of the last day of the immediately preceding
Fiscal Quarter.  For purposes of this covenant only, the number of paid
subscribers to the businesses of Issuer and its Subsidiaries as of December 31,
2007 shall be deemed to be 1,214,483.

(o)

Non-Controlled
Accounts.  Transfer any funds into an account disclosed on, or
of the type required to be disclosed on, Schedule 6.01(v) to the
Securities Purchase Agreement unless an Account Control Agreement relating to
such account has been executed, delivered and is in full force and effect.

(p)

Non-Obligor
Subsidiaries.  (i) No Obligor shall make any Investment in any
Non-Obligor, (ii) no Obligor shall make any payment to any creditor of any
Non-Obligor in respect of any liability of any Non-Obligor and (iii) no Obligor
shall be directly or indirectly liable for any Indebtedness that provides that
the holder thereof may (with the passage of time or notice or both) declare a
default thereon or cause the payment thereof to be accelerated or payable prior
to its stated maturity upon the occurrence of a default with respect to any
Indebtedness, Lien or other obligation of any Non-Obligor (including any right
to take enforcement action against such Non-Obligor) until, in each case, (x)
such Non-Obligor becomes a party to the Guaranty and the applicable Security
Documents and otherwise complies with Section 5.02 and its equity interests have
been pledged in favor of the Agent to secure the Obligations and (y) such
Investment, payment or assumption of Indebtedness is permitted by this
Agreement.

Section
7.03

Financial
Covenants.  So long as any Sellers’ Secured Notes or Guaranty shall
remain outstanding or any principal of, interest on or other Obligation (whether
or not due) in respect of any Sellers’ Secured Notes or Guaranty shall remain
unpaid, unless the Required Holders shall otherwise consent in writing, the
Issuer shall not and shall not permit its Subsidiaries to:

(a)

Minimum
Consolidated EBITDA.  Permit Annualized Consolidated EBITDA to be less
than $85,000,000.

(b)

Maximum
Capital Expenditures.  Make or commit or agree to make any Capital
Expenditure (including such expenditures related to the development, acquisition
or marketing of content, but excluding Capital Expenditures in an amount not to
exceed $5,000,000 

 

76

 

in
the aggregate related to the development of the Back-Up Data Center) during any
Fiscal Quarter that would cause the aggregate amount of all such Capital
Expenditures for each such Fiscal Quarter, including Capital Expenditures
arising from purchases made or Capitalized Leases entered into, to exceed
$1,250,000.

  

(c)

Consolidated
Coverage Ratio.  Permit the Consolidated Coverage Ratio during any
period to be less than the amount specified for such period in
Schedule 7.03(c) to the Securities Purchase Agreement.

(d)

Operating
and Capitalized Lease Obligations. (i) Incur Operating Lease
Obligations that, in the aggregate with all other Operating Lease Obligations of
the Issuer and its Subsidiaries, exceed $2,000,000 annually or (ii) incur
new Capitalized Lease Obligations that, in the aggregate, exceed $100,000
annually.

(e)

Total
Debt Ratio.  Permit the Total Debt Ratio of the Issuer and its
Subsidiaries during any period to be greater than the amount specified for such
period in Schedule 7.03(e) to the Securities Purchase Agreement.

(f)

Senior
Debt Ratio.  Permit the Senior Debt Ratio of the Issuer and its
Subsidiaries during any period to be greater than the amount specified for such
period in Schedule 7.03(f) to the Securities Purchase Agreement.
 

ARTICLE VIII

MANAGEMENT OF
COLLATERAL

Section
8.01

Management
of Collateral.  

(a)

After
the occurrence and during the continuance of an Event of Default, the Agent may
send a notice of assignment and/or notice of the Holders’ security interest to
any and all Account Debtors or third parties holding or otherwise concerned with
any of the Collateral, and thereafter the Agent shall have the sole right to
collect the Accounts Receivable and/or take possession of the Collateral and the
books and records relating thereto.  During the continuance of a Default
(except with respect to an Account Receivable owed by an unaffiliated third
party and only in the ordinary course of business in an amount and manner
consistent with past practice) or Event of Default, the Obligors shall not,
without prior written consent of the Agent, grant any extension of time of
payment of any Account Receivable, compromise or settle any Account Receivable
for less than the full amount thereof, release, in whole or in part, any Person
or property liable for the payment thereof, or allow any credit or discount
whatsoever thereon.

(b)

Each
Obligor hereby appoints the Agent or its designee on behalf of such Agent as the
Obligors’ attorney-in-fact with power exercisable during the continuance of an
Event of Default to endorse any Obligor’s name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment relating to the
Accounts Receivable, to sign any Obligor’s name on any invoice or bill of lading
relating to any of the Accounts Receivable, drafts against Account Debtors with
respect to Accounts Receivable, assignments and verifications of 

77

Accounts
Receivable and notices to Account Debtors with respect to Accounts Receivable,
to send verification of Accounts Receivable, and to notify the United States
Postal Service or comparable foreign authorities to change the address for
delivery of mail addressed to any Obligor to such address as such Agent may
designate and to do all other acts and things necessary to carry out this
Agreement.  All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission (other than acts of omission or commission constituting
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction), or for any error of judgment or mistake of
fact or law; this power being coupled with an interest is irrevocable until all
of the Sellers’ Secured Notes and other Obligations under the Sellers’ Secured
Note Documents are paid in full and all of the Sellers’ Secured Note Documents
are terminated.

(c)

Nothing
herein contained shall be construed to constitute the Agent as agent of any
Obligor for any purpose whatsoever, and the Agent shall not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral wherever the same may be located and regardless of the cause
thereof (other than from acts of omission or commission constituting gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction).  The Agent shall not, under any circumstance or in
any event whatsoever, have any liability for any error or omission or delay of
any kind occurring in the settlement, collection or payment of any of the
Accounts Receivable or any instrument received in payment thereof or for any
damage resulting therefrom (other than acts of omission or commission
constituting gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction).  The Agent, by anything
herein or in any assignment or otherwise, does not assume any of the obligations
under any contract or agreement assigned to the Agent and shall not be
responsible in any way for the performance by any Obligor of any of the terms
and conditions thereof.

(d)

During
the continuance of a Default or Event of Default, if any Account Receivable
includes a charge for any tax payable to any Governmental Authority, the Agent
is hereby authorized (but in no event obligated) in its discretion to pay the
amount thereof to the proper taxing authority for the Obligors’ account and to
charge the Obligors therefor.  During the continuance of a Default or Event
of Default, the Obligors shall notify the Agent if any Account Receivable
includes any taxes due to any such Governmental Authority and, in the absence of
such notice, the Agent shall have the right to retain the full proceeds of such
Account Receivable and shall not be liable for any taxes that may be due by
reason of the sale and delivery creating such Account Receivable.

(e)

Notwithstanding
any other terms set forth in the Funding Documents, the rights and remedies of
the Agent and the Holders herein provided, and the obligations of the Obligors
set forth herein, are cumulative of, may be exercised singly or concurrently
with, and are not exclusive of, any other rights, remedies or obligations set
forth in any other Funding Document or as provided by law.

Section
8.02

Accounts
Receivable Documentation.  The Obligors will at such intervals as the
Agent may require, execute and deliver confirmatory written assignments of the
Accounts Receivable to the Agent and furnish such further schedules and/or
information as the Agent may 

78

require
relating to the Accounts Receivable.  In addition, the Obligors shall
notify the Agent and the Holders of any non-compliance in respect of the
representations, warranties and covenants contained in Section 8.03.
 The items to be provided under this Section 8.02 are to be in form
reasonably satisfactory to the Agent and are to be executed and delivered to the
Agent from time to time solely for its convenience in maintaining records of the
Collateral.  The Obligors’ failure to give any of such items to the Agent
shall not affect, terminate, modify or otherwise limit the Agent’s Lien on the
Collateral.  During the continuance of a Default or Event of Default, the
Obligors shall not re-bill any Accounts Receivable without promptly disclosing
the same to the Agent and providing the Agent with a copy of such re-billing,
identifying the same as such.  If the Obligors become aware of anything
materially detrimental to the value, enforceability or collectibility of the
Accounts Receivable generally, or the value, enforceability or collectibility of
a material portion thereof, the Obligors will promptly and in writing advise the
Agent and the Holders thereof.

Section
8.03

Status
of Accounts Receivable and Other Collateral.  With respect to
Collateral of any Obligor at the time the Collateral becomes subject to the
Agent’s Lien, each Obligor covenants, represents and warrants:
 (a) such Obligor shall be the sole owner, free and clear of all Liens
(except for the Liens granted in the favor of the Agent for the benefit of the
Holders and Permitted Liens), and shall be fully authorized to sell, transfer,
pledge and/or grant a security interest in each and every item of said
Collateral; (b) each Account Receivable shall be a good and valid account
representing an undisputed bona fide indebtedness incurred or an amount
indisputably owed by the Account Debtor therein named, for a fixed sum as set
forth in the invoice relating thereto with respect to an absolute sale and
delivery upon the specified terms of goods sold or services rendered by such
Obligor; (c) no Account Receivable shall be subject to any defense, offset,
counterclaim, discount or allowance except as may be stated in the invoice
relating thereto, discounts and allowances as may be customary in such Obligor’s
business and as otherwise disclosed to the Agent, and each Account Receivable
will be paid when due; (d) none of the transactions underlying or giving
rise to any Account Receivable shall violate any applicable state or federal
laws or regulations, and all documents relating thereto shall be legally
sufficient under such laws or regulations and shall be legally enforceable in
accordance with their terms; (e) no agreement under which any deduction or
offset of any kind, other than normal trade discounts, may be granted or shall
have been made by such Obligor at or before the time such Account Receivable is
created; (f) all agreements, instruments and other documents relating to
any Account Receivable shall be true and correct and in all material respects
what they purport to be; (g) all signatures and endorsements that appear on
all material agreements, instruments and other documents relating to any Account
Receivable shall be genuine and all signatories and endorsers shall have full
capacity to contract; (h) such Obligor shall maintain books and records
pertaining to said Collateral in such detail, form and scope as the Agent shall
reasonably require; (i) such Obligor will, immediately upon learning
thereof, report to the Agent any matters affecting the value, enforceability or
collectibility of any of the Collateral; (j) if any amount payable under or
in connection with any Account Receivable is evidenced by a promissory note or
other instrument, such promissory note or instrument shall be immediately
pledged, endorsed, assigned and delivered to the Agent for the benefit of the
Holders as additional Collateral; and (k) such Obligor is not and shall not
be entitled to pledge the Agent’s or any Holder’s credit on any purchases or for
any purpose whatsoever, except (1) in the cases of clauses (b) through
(g) inclusive, as would not materially affect the value, enforceability or
collectibility of any of 

79

 the
Accounts Receivable and (2) in the case of clauses (h) and (i), as
would not materially affect the value, enforceability or collectibility of any
of the Collateral.

Section
8.04

Collateral
Custodian.  Upon the occurrence and during the continuance of any
Default or Event of Default, the Agent may at any time and from time to time
employ and maintain on the premises of any Obligor a custodian selected by the
Agent who shall have full authority to do all acts necessary to protect the
Agent’s and the Holders’ interests.  Each Obligor hereby agrees to, and to
cause its Subsidiaries to, cooperate with any such custodian and to do whatever
the Agent may reasonably request to preserve the Collateral.  All costs and
expenses incurred by the Agent by reason of the employment of the custodian
shall be the responsibility of the Issuer and added to the Obligations.

ARTICLE IX

EVENTS OF DEFAULT; OTHER
AGREEMENTS

Section
9.01

Events
of Default.  If any of the following Events of Default shall occur and
be continuing:

(a)

the
Issuer shall fail to pay any principal of or interest on any Sellers’ Secured
Notes, any Agent Advance, or any fee, indemnity or other amount payable under
this Agreement, or any other Sellers’ Secured Note Document when due (at
scheduled maturity) or within 10 calendar days of the date when due
(otherwise);

(b)

any
representation or warranty made or deemed made by or on behalf of any Obligor or
by any officer of the foregoing under or in connection with any Sellers’ Secured
Note Document or under or in connection with any report, certificate, or other
document delivered to the Agent or any Holder pursuant to any Sellers’ Secured
Note Document shall have been incorrect in any material respect when made or
deemed made;

(c)

any
Obligor shall fail, in any material respect, to perform or comply with any
condition, covenant or agreement contained in Section 5.02,
Sections 7.01(e), (j), (k), (l) and (i)(2), Sections 7.02(a),
(b), (c), (e), (f), (h), (i), (j), and (l) and Section 7.03;

(d)

any
Obligor shall fail, in any material respect, to perform or comply with any other
term, covenant or agreement contained in any Sellers’ Secured Note Document to
be performed or observed by it and, except as set forth in subsections (a),
(b) and (c) of this Section 9.01, such failure, if capable of
being remedied, shall remain unremedied for 30 days after the earlier of
the date a senior officer of any Obligor becomes aware of such failure and the
date written notice of such default shall have been given by the Agent to such
Obligor;

(e)

any
Obligor fails to pay any principal of or interest on any of its Indebtedness
(including the Senior Secured Notes, PMGI Notes or the Seller Note, but
excluding Indebtedness evidenced by the Sellers’ Secured Notes) in excess of
$500,000, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness, or any other default
under 

80

any
agreement or instrument relating to any such Indebtedness, or any other event,
shall occur and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such default or
event is to accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment), redeemed, purchased or defeased or an offer to prepay, redeem,
purchase or defease such Indebtedness shall be required to be made, in each case
prior to the stated maturity thereof;

(f)

any
Obligor (i) shall institute any proceeding or voluntary case seeking to
adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for any such Person or for any substantial part of its property, (ii) shall
be generally not paying its debts as such debts become due or shall admit in
writing its inability to pay its debts generally, (iii) shall make a
general assignment for the benefit of creditors, or (iv) shall take any
action to authorize or effect any of the actions set forth above in this
subsection (f);

(g)

any
proceeding shall be instituted against any Obligor seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, custodian or other similar official for any such Person or for any
substantial part of its property, and either such proceeding shall remain
undismissed or unstayed for a period of 90 days or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against any such Person or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property) shall occur;

(h)

(i)
any Lien or security interest created by this Agreement shall, for any reason,
cease to be valid or (ii) any action is commenced by any Obligor which
contests the validity, perfection or enforceability of any of the Liens and
security interests of Agent and the Holders created or intended to be created by
any Sellers’ Secured Note Document;

(i)

any
material provision of any Funding Document shall at any time for any reason
(other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against any Obligor intended to be a party thereto, or the
validity or enforceability thereof shall be contested by any party thereto, or a
proceeding shall be commenced by any Obligor or any Governmental Authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, which proceeding by such Governmental Authority shall
not have been dismissed within 90 days, or any Obligor shall deny in
writing that it
has any liability or obligation purported to be created under any Sellers’
Secured Note Document;

(j)

this
Agreement or any other Funding Document shall for any reason fail or cease to
create a valid and perfected Lien in favor of the Agent for the benefit of the
Holders on any Collateral purported to be covered thereby, subject to only
Permitted Liens; 

81

 

(k)

any
Obligor is enjoined, restrained or in any way prevented by the order of any
court or any Governmental Authority from conducting all or any material part of
its business for more than fifteen (15) days;

(l)

any
cessation of a substantial part of the business of any Obligor for a period
which materially and adversely affects the ability of such Obligor to continue
its business on a profitable basis;

(m)

the
loss, suspension or revocation of, or failure to renew, any license, permit, now
held or hereafter acquired by any Obligor if such loss, suspension, revocation
or failure to renew could reasonably be expected to have a Material Adverse
Effect;

(n)

there
is entered against any Obligor a final judgment or order for the payment of
money in an aggregate amount exceeding $[1,000,000] (to the extent not covered
by independent third-party insurance as to which the insurer has been notified
of such judgment or order and has not denied coverage) and such judgment or
order shall not have been satisfied, vacated, discharged or stayed or bonded
pending an appeal for a  period of sixty (60) consecutive days;

(o)

an
event or development occurs which could reasonably be expected to have a
Material Adverse Effect; or

(p)

if
(i) any Plan shall fail to satisfy the minimum funding standards of ERISA
or the Internal Revenue Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Internal Revenue Code, (ii) a notice of
intent to terminate any Plan shall have been or is reasonably expected to be
filed with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Issuer or any ERISA Affiliate that a Plan may
become a subject of any such proceedings, (iii) the aggregate “amount of
unfunded benefit liabilities” (within the meaning of section 4001(a)(18) of
ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $500,000, (iv) the Issuer or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Internal Revenue Code relating to employee benefit plans, (v) the Issuer or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Issuer or any Subsidiary establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would increase
the liability of the Issuer or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, would reasonably
be expected to have a Materially Adverse Effect.  As used in
Section 9.01(p), the terms “employee benefit plan” and “employee
welfare benefit plan” shall have the respective meanings assigned to such
terms in Section 3 of ERISA.

then,
and in any such event, the Agent may, and shall at the request of the Required
Holders, by notice to the Issuer, (i) declare all or any portion of the
Sellers’ Secured Notes then outstanding to be due and payable, whereupon all or
such portion of the aggregate principal of all Sellers’ Secured Notes, all
accrued and unpaid interest thereon, all fees and all other Obligations
shall  

82

become
due and payable immediately, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by each Obligor;
provided, that upon the occurrence of an Event of Default of the kind described
in clause (f) or (g) of this Section 9.01, such acceleration
shall be automatic and the Sellers’ Secured Notes and all other Obligations
shall become immediately due and payable without the requirement of declaration
or any other action by the Agent or any Holder, and (ii) exercise any and
all of its other rights and remedies under applicable law (including, but not
limited to, the Bankruptcy Code and the Uniform Commercial Code), hereunder and
under the other Sellers’ Secured Note Documents.  If any Default or Event
of Default has occurred and is continuing, any Holder may at any time proceed to
protect and enforce the rights of such Holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein or in any of the Sellers’ Secured Note Documents,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.

Section
9.02

No
Waivers or Election of Remedies, Expenses, Etc.  No course of dealing
and no delay on the part of any holder of any Sellers’ Secured Notes in
exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder’s rights, powers or remedies.  No right,
power or remedy conferred by this Agreement or by any Sellers’ Secured Notes
upon any holder thereof shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity,
by statute or otherwise, it being understood that all rights and remedies shall
be exercised by the Agent as instructed pursuant to this Agreement.

Section
9.03

Public
Announcement.  No Obligor shall publish or disclose, or permit to be
published or disclosed, the identity of any of the Holders to any other Person
or entity at any time for any purpose other than the consummation of the
transactions contemplated by this Agreement and the other Funding Documents;
provided, that the restrictions of this sentence shall not apply to any
disclosure required by law or governmental process if the applicable Holders
have been given reasonable opportunity in advance to review and comment on such
disclosure.  No Holder shall issue, or cause to be issued, any press
release or other widely distributed disclosure of the existence of or
transactions contemplated by this Agreement and the other Funding Documents
prior to the first public disclosure of any such information by the Issuer.
 Nothing herein shall restrict the Issuer, PMGI or any of their agents from
issuing any press releases or tombstones regarding the transactions under this
Agreement; provided, that no such press releases or tombstones shall indicate
information beyond (i) the legal and trade names of the Issuer, PMGI, the
Guarantors, the Holders and/or the Agent, (ii) the date of the closing, and
(iii) the amounts and types of the Securities issued pursuant to this
Agreement.

Section
9.05 

Adjustments
Relating to Common Stock Par Value.  Notwithstanding anything contained
herein to the contrary, by acceptance of the Warrants, each Holder is deemed to
have agreed that PMGI can at any time during the term of the Warrants,
unilaterally, in each case with the consent, if required, of the holders of the
PMGI Notes (i) change the par value of PMGI Voting Common Stock, including
eliminating par value altogether and/or (ii) change the exercise price of the
Warrants to the lesser of the stated par value of the PMGI Voting Common Stock
or $.01.  In the event that the Company changes the  

83

par
value of the PMGI Voting Common Stock to “no par value,” the exercise price of
the Warrants will not change. 

ARTICLE X

AGENT

Section
10.01

Appointment.
 Each Holder (and each subsequent holder of any Sellers’ Secured Notes by
its acceptance thereof) and each Obligor hereby irrevocably appoints and
authorizes the Agent to perform the duties of the Agent solely as set forth in
this Agreement and the other Sellers’ Secured Note Documents, including, without
limitation:  (i) to receive on behalf of each Holder, any payment of
principal of or interest on the Sellers’ Secured Notes outstanding hereunder and
all other amounts accrued hereunder for the account of the Holders and paid to
the Agent, and, subject to Section 4.02 of this Agreement, to distribute
promptly to each Holder its Pro Rata Share of all payments so received;
(ii) to distribute to each Holder copies of all notices and agreements
received by the Agent and not required to be delivered to each Holder directly
pursuant to the terms of this Agreement, provided that the Agent shall not have
any liability to the Holders for the Agent’s failure to distribute any such
notices or agreements, (iii) to maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the
Obligations, the Sellers’ Secured Notes, and related matters and to maintain, in
accordance with its customary business practices, ledgers and records reflecting
the status of the Collateral and related matters; (iv) to execute or file
any and all financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and other written
agreements with respect to this Agreement or any other Sellers’ Secured Note
Document; (v) to make any Agent Advances, for the Agent or on behalf of the
applicable Holders as provided in this Agreement or any other Sellers’ Secured
Note Document; (vi) to perform, exercise, and enforce any and all other
rights and remedies of the Holders with respect to the Obligors, the
Obligations, or otherwise related to any of same to the extent reasonably
incidental to the exercise by the Agent of the rights and remedies specifically
authorized to be exercised by the Agent by the terms of this Agreement or any
other Sellers’ Secured Note Document; (vii) to incur and pay such fees
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to this Agreement or any other Sellers’ Secured Note
Document; and (viii) subject to Section 10.03 of this Agreement, to
take such action as the Agent reasonably deems appropriate on its behalf to
administer the Sellers’ Secured Notes and the Sellers’ Secured Note Documents
and to exercise such other powers delegated to the Agent by the terms hereof or
the other Sellers’ Secured Note Documents (including, without limitation, the
power to give or to refuse to give notices, waivers, consents, approvals and
instructions and the power to make or to refuse to make determinations and
calculations) together with such powers as are reasonably incidental thereto to
carry out the purposes hereof and thereof.  

Section
10.02

Nature
of Duties.  The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement or in the other Sellers’ Secured
Note Documents.  The duties of the Agent shall be mechanical and
administrative in nature.   

84

WHETHER
BEFORE OR AFTER AN EVENT OF DEFAULT, THE AGENT SHALL NOT HAVE BY REASON
OF THIS AGREEMENT OR ANY OTHER NOTE DOCUMENT, A FIDUCIARY RELATIONSHIP IN
RESPECT OF ANY HOLDER.  Nothing in this Agreement or any other Sellers’
Secured Note Document, express or implied, is intended to or shall be construed
to impose upon the Agent any obligations in respect of this Agreement or any
other Sellers’ Secured Note Document except as expressly set forth herein or
therein.  Each Holder shall make its own independent investigation of the
financial condition and affairs of the Obligors in connection with the making
and the continuance of the Sellers’ Secured Notes hereunder and shall make its
own appraisal of the creditworthiness of the Obligors and the value of the
Collateral, and the Agent shall have no duty or responsibility, either initially
or on a continuing basis, to provide any Holder with any credit or other
information with respect thereto, whether coming into its possession before the
initial Sellers’ Secured Notes hereunder or at any time or times thereafter,
provided that, upon the reasonable request of a Holder, the Agent shall provide
to such Holder any documents or reports delivered to the Agent by the Obligors
pursuant to the terms of this Agreement or any other Sellers’ Secured Note
Document.  If the Agent seeks the consent or approval of the Required
Holders, the Agent shall send notice thereof to each Holder.  The Agent
shall promptly notify each Holder any time that the Required Holders have
instructed the Agent to act or refrain from acting pursuant hereto.  The
Agent and each of its affiliates may make loans to, purchase securities from,
provide services to, accept deposits from and generally engage in any kind of
business with the Obligors and the Holders as though it were not the Agent
hereunder and without notice to or consent of any of the Obligors or the
Holders.  The Agent has no duties or responsibilities under this Agreement
or the Equity Documents with respect to the Warrants.

Section
10.03

Rights,
Exculpation, Etc.  The Agent and its directors, officers, agents or
employees shall not be liable for any action taken or omitted to be taken by it
or them under or in connection with this Agreement or the other Sellers’ Secured
Note Documents, except for its or their own gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction.  Without limiting the generality of the foregoing, the Agent
(i) may treat the payee of any Sellers’ Secured Notes as the owner thereof
until the Agent receives written notice of the assignment or transfer thereof,
pursuant to Section 12.07 hereof, signed by such payee and in form
satisfactory to the Agent; (ii) may consult with legal counsel (including,
without limitation, counsel to the Agent or counsel to the Obligors),
independent public accountants, and other experts selected by any of them and
shall not be liable for any action taken or omitted to be taken in good faith by
any of them in accordance with the advice of such counsel or experts;
(iii) shall make no warranty or representation to any Holder and shall not
be responsible to any Holder for any statements, certificates, warranties or
representations made in or in connection with this Agreement or the other
Sellers’ Secured Note Documents; (iv) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Sellers’ Secured Note Documents on
the part of any Person, the existence or possible existence of any Default or
Event of Default, or to inspect the Collateral or other property (including,
without limitation, the books and records) of any Person; (v) shall not be
responsible to any Holder for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the other
Sellers’ Secured Note Documents or any other instrument or document furnished
pursuant hereto or thereto; and (vi) shall not be deemed to have made any
representation or warranty regarding the existence, value or collectibility of
the Collateral, the existence, priority or perfection of the  

85

Agent’s
Lien thereon, or any certificate prepared by any Obligor in connection
therewith, nor shall the Agent be responsible or liable to the Holders for any
failure to monitor or maintain any portion of the Collateral.  Whenever
pursuant to the provisions hereof or of any of the other Sellers’ Secured Note
Documents it is required that any Person obtain consent or approval the Agent,
or that any matter prove satisfactory to the Agent or that the Agent exercise
discretion or make a request or requirement as it may deem necessary or
appropriate, the Agent shall consult with the Holders in a manner deemed
reasonable by the Agent and the Agent shall be protected in following any
direction of the Required Holders.  The Agent may at any time request
instructions from the Holders with respect to any actions or shall be absolutely
entitled to refrain from taking any action or to withhold any approval under any
of the Sellers’ Secured Note Documents until it shall have received such
instructions from the Required Holders or until it shall first be indemnified to
its satisfaction by the Holders against any and all liability and expense that
may be incurred by it by reason of taking or refraining from taking any such
action.  Without limiting the foregoing, no Holder shall have any right of
action whatsoever against the Agent as a result of the Agent acting or
refraining from acting under this Agreement or any of the other Sellers’ Secured
Note Documents in accordance with the instructions of the Required
Holders.

Section
10.04

Reliance.
 The Agent shall be entitled to rely upon any written notices, statements,
certificates, orders or other documents or any telephone message believed by it
in good faith to be genuine and correct and to have been signed, sent or made by
the proper Person, and with respect to all matters pertaining to this Agreement
or any of the other Sellers’ Secured Note Documents and its duties hereunder or
thereunder, upon advice of counsel selected by it.

Section
10.05

Indemnification.
 

(a)

To
the extent that the Agent is not reimbursed and indemnified by Obligors, the
Holders will reimburse and indemnify the Agent and its affiliates, partners,
members, directors, officers, managers, attorneys, agents and employees from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of this Agreement or any
of the other Sellers’ Secured Note Documents or any action taken or omitted by
the Agent under this Agreement or any of the other Sellers’ Secured Note
Documents, including, without limitation, advances and disbursements made
pursuant to Section 10.07; provided, however, that no Holder shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, advances or disbursements
for which there has been a final judicial determination that such liability
resulted from the Agent’s gross negligence or willful misconduct.  The
obligations of the Holders under this Section 10.05 shall survive the
payment in full of the Sellers’ Secured Notes and the termination of this
Agreement.

(b)

Without
limiting the generality of the foregoing, to the extent that the Agent is not
reimbursed and indemnified by the Obligors, the Holders will jointly and
severally reimburse and indemnify the Agent and its affiliates, partners,
members, directors, officers, managers, attorneys, agents and employees from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances or
disbursements  

86

of
any kind or nature whatsoever which may be imposed on, incurred by, or asserted
against the Agent in any way relating to or arising out of any Account Control
Agreement with respect to a deposit account or securities account of the Issuer
or any of its Subsidiaries or any action taken or omitted by the Agent under any
such Account Control Agreement; provided, however, that no Holder
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements for which there has been a final judicial determination that such
liability resulted from the gross negligence or willful misconduct of the Agent
or its affiliates, partners, members, directors, officers, managers, attorneys,
agents or employees.  The obligations of the Holders under this
Section 10.05 shall survive the payment in full of the Notes and the
termination of this Agreement.

(c)

If
any Holder reimburses or indemnifies the Agent or its affiliates, partners,
members, directors, officers, managers, attorneys, agents or employees pursuant
to Section 10.05(a) or (b) for an amount that exceeds its Pro Rata Share of the
indemnified amount, such Holder shall have a claim against each other Holder for
its Pro Rata Share of such indemnified amount.

Section
10.06

Successor
Agent.  

(a)

The
Agent may resign from the performance of all its functions and duties hereunder
and under the other Sellers’ Secured Note Documents at any time by giving at
least thirty (30) Business Days’ prior written notice to the Issuer and
each Holder.  Such resignation shall take effect upon the acceptance by a
successor Agent of appointment pursuant to clauses (b) and (c) below
or as otherwise provided below.

(b)

Upon
any such notice of resignation, the Required Holders shall appoint a successor
Agent.  Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the Agent, and the
Agent shall be discharged from its duties and obligations under this Agreement
and the other Sellers’ Secured Note Documents.  After the Agent’s
resignation hereunder as the Agent, the provisions of this Article X shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was the Agent under this Agreement and the other Sellers’ Secured Note
Documents.

(c)

If
a successor Agent shall not have been so appointed within said thirty
(30) Business Day period, the Agent may then appoint a successor Agent who
shall serve as the Agent until such time, if any, as the Required Holders
appoint a successor Agent as provided above, or the Agent may petition a court
of competent jurisdiction to appoint a successor Agent

(d)

Any
corporation into which the Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which the Agent shall be a party, or any entity succeeding to substantially all
of the corporate trust business of the Agent, shall be the successor to the
Agent without further action.

Section
10.07

Collateral
Matters.  

(a)

The
Agent may, but shall not be obligated to, from time to time make such
disbursements and advances (“Agent Advances”) which the Agent, in its
sole discretion, deems  

87

necessary
or desirable to preserve, protect, prepare for sale or lease or dispose of the
Collateral or any portion thereof or to pay any other amount chargeable to the
Issuer pursuant to the terms of this Agreement, including, without limitation,
costs, fees and expenses as described in Sections 8.01(d) or 12.04;
provided, that the Agent will provide notice to the Issuer at least
5 days prior to making any Agent Advances (unless giving such notice would
prejudice the Agent’s ability to preserve and protect the Collateral, in which
case the Agent will provide whatever notice is practicable).  The Agent
Advances shall be repayable on demand, shall bear interest as set forth in
Section 2.04(a) or, as applicable, Section 2.04(b), and shall be
secured by the Collateral.  The Agent Advances shall constitute Obligations
hereunder which may be charged to the Sellers’ Secured Note Account in
accordance with Section 4.02.  All such Agent Advances shall be funded
with monies made available by the Holders, as no provisions of this Agreement or
any Sellers’ Secured Note Document shall require the Agent to expand or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder or thereunder, or in the exercise of any of its rights
or powers, unless it shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is assured to
it.  

(b)

The
Holders hereby irrevocably authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral upon final payment and satisfaction of all Loans and all other
Obligations; or Collateral constituting property being sold or disposed of in
the ordinary course of any Obligor’s business and in compliance with the terms
of this Agreement and the other Sellers’ Secured Note Documents; or if approved,
authorized or ratified in writing by the Required Holders.  Upon request by
the  Agent at any time, the Holders will confirm in writing the
Agent’s authority to release particular types or items of Collateral pursuant to
this Section 10.07(b). 

(c)

Without
in any manner limiting the Agent’s authority to act without any specific or
further authorization or consent by the Required Holders (as set forth in this
Section 10.07(c)), each Holder agrees to confirm in writing, upon request
by the Agent, the authority to release Collateral conferred upon the Agent under
this Section 10.07.  Upon receipt by the Agent of confirmation from
the Holders of its authority to release any particular item or types of
Collateral, and upon prior written request by any Obligor, the Agent shall (and
is hereby irrevocably authorized by the Holders to) execute such documents as
may be necessary to evidence the release of the Liens granted to the Agent for
the benefit of the Holders upon such Collateral; provided, however, that
(i) the Agent shall not be required to execute any such document on terms
which, in the Agent’s opinion, would expose the Agent to liability or create any
obligations or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Lien upon (or obligations of
any Obligor in respect of) all interests in the Collateral retained by any
Obligor.

(d)

The
Agent shall have no obligation whatsoever to any Holder to assure that the
Collateral exists or is owned by the Obligors or is cared for, protected or
insured or has been encumbered or that the Lien granted to the Agent pursuant to
this Agreement or any other Sellers’ Secured Note Document has been properly or
sufficiently or lawfully created, perfected, protected or enforced or is
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any 

88

of
the rights, authorities and powers granted or available to the Agent in this
Section 10.07 or in any other Sellers’ Secured Note Document, it being
understood and agreed that in respect of the Collateral, or any act, omission or
event related thereto, the Agent may act in any manner it may deem appropriate,
in its sole discretion, given the Agent’s own interest in the Collateral if it
also is one of the Holders and that the Agent shall have no duty or liability
whatsoever to any other Holder, except as otherwise provided herein.

Section
10.08

Agency
for Perfection.  Each Holder hereby appoints the Agent and each other
Holder as agent and bailee for the purpose of perfecting the security interests
in and liens upon the Collateral in assets which, in accordance with Articles 8
and 9 of the Uniform Commercial Code, can be perfected only by possession or
control (or where the security interest of a secured party with possession or
control has priority over the security interest of another secured party) and
the Agent and each Holder hereby acknowledges that it holds possession of or
otherwise controls any such Collateral for the benefit of the Agent, the
Holders, the holders of the Senior Secured Notes and the holders of the notes
referred to in clauses (i) and (ii) of the definition of PMGI Notes, as their
respective interests appear, as secured parties.  Should any Holder obtain
possession or control of any such Collateral, such Holder shall notify the Agent
thereof, and, promptly upon the Agent’s request therefor, shall deliver such
Collateral to the Agent or in accordance with the Agent’s instructions.
 Each Obligor by its execution and delivery of this Agreement hereby
consents to the foregoing.

Section
10.09

Compensation
for Services. For services rendered as Agent hereunder, the Agent shall be
entitled to such compensation as is set forth in Exhibit F hereto or
as may be agreed between the Agent and the Issuer from time to time.  All
such compensation shall be paid to the Agent by the Issuer.  

ARTICLE XI

GUARANTY

Section
11.01

Guaranty.
 Each Guarantor hereby unconditionally and irrevocably guarantees the
punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of the Issuer now or hereafter existing under any
Sellers’ Secured Note Document, whether for principal, interest, fees,
commissions, expense reimbursements, indemnifications or otherwise (such
obligations, to the extent not paid by the Issuer, being the “Guaranteed
Obligations”), and agrees to pay any and all expenses (including reasonable
counsel fees and expenses) incurred by the Agent and the Holders in enforcing
any rights under the guaranty set forth in this Article XI.

Section
11.02

Guaranty
Absolute.  Each Guarantor guarantees that the Guaranteed Obligations
will be paid strictly in accordance with the terms of the Sellers’ Secured Note
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Agent or
the Holders with respect thereto.   The obligations of each Guarantor
under this Article XI are independent of the Guaranteed Obligations, and a
separate action or actions may be brought and prosecuted against each Guarantor
to enforce such obligations, irrespective of whether any action is brought
against

89

any
Obligor or whether any Obligor is joined in any such action or actions.
 The liability of each Guarantor under this Article XI shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:

(a)

any
lack of validity or enforceability of any Funding Document or any agreement or
instrument relating thereto;

(b)

any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations, or any other amendment or waiver of or any
consent to departure from any Funding Document, including, without limitation,
any increase in the Guaranteed Obligations resulting from the extension of
additional credit to any Obligor or otherwise;

(c)

any
taking, exchange, release or non-perfection of any Collateral, or any taking,
release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Guaranteed Obligations;

(d)

any
change, restructuring or termination of the corporate, limited liability company
or partnership structure or existence of any Obligor;

(e)      
any law which provides that the obligation of a surety or guarantor must neither
be larger in amount nor in other respects more burdensome than that of the
principal or which reduces a surety's or guarantor's obligation in proportion to
the principal obligation;

(f)

any
failure of the Agent or the Holders to file or enforce a claim in any bankruptcy
or other proceeding with respect to any Person;

(g)

the
election by the Agent or the Holders, in any bankruptcy proceeding of any
Person, of the application or non-application of Section 1111(b)(2) of the
United States Bankruptcy Code;

(h)

any
extension of credit or the grant of any Liens under Section 364 of the
United States Bankruptcy Code;

(i)

any
use of cash collateral under Section 363 of the United States Bankruptcy
Code;

(j)

any
agreement or stipulation with respect to the provision of adequate protection in
any bankruptcy proceeding of any Person;

(k)

the
avoidance of any Liens in favor of the Agent or the Holders for any reason;

(l)

any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
liquidation or dissolution proceeding commenced by or against any Person,
including any discharge of, or bar or stay against collecting, all or any of the
Guaranteed Obligations (or any interest thereon) in or as a result of any such
proceeding; or 

90

 

(m)

any
other circumstance whatsoever (including, without limitation, any statute of
limitations) or any existence of or reliance on any representation by the Agent
or the Holders that might otherwise constitute a defense available to, or a
discharge of, any Obligor or any other Guarantor or surety.

This
Article XI shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the Agent, the Holders or any other Person, all
as though such payment had not been made.

Section
11.03

Waiver.
 Each Guarantor hereby waives promptness, diligence, notice of acceptance,
all setoffs and counterclaims and all presentments, demands for payment or
performance, notices of nonpayment or nonperformance, protests, notices of
protest, notices of dishonor and any other notice with respect to any of the
Guaranteed Obligations and this Article XI, and all notices of the existence,
creation or incurring of new or additional Guaranteed Obligations and any
requirement that the Agent or the Holders exhaust any right or take any action
against any Obligor or any other Person or any Collateral.  Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated herein and that the waiver set forth in this
Section 11.03 is knowingly made in contemplation of such benefits.  Each
Guarantor hereby waives any right to revoke this Article XI, and
acknowledges that this Article XI is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.  Each
Guarantor warrants and agrees that each of the waivers and consents set forth
herein is made with full knowledge of its significance and consequences, with
the understanding that events giving rise to any defense waived may diminish,
destroy or otherwise adversely affect rights which such Guarantor otherwise may
have against Issuer, the Holders or others, or against collateral, and that,
under the circumstances, the waivers and consents herein given are reasonable
and not contrary to public policy or law.  If any of the waivers or
consents herein are determined to be contrary to any applicable law or public
policy, such waivers and consents shall be effective to the maximum extent
permitted by law.

Section
11.04

Continuing
Guaranty; Assignments.  This Article XI is a continuing guaranty
and shall (a) remain in full force and effect until the cash payment in
full of the Guaranteed Obligations (other than indemnification obligations as to
which no claim has been made) and all other amounts payable under this
Article XI, (b) be binding upon each Guarantor, its successors and
assigns and (c) inure to the benefit of and be enforceable by the Agent and
the Holders and their successors, pledgees, transferees and assigns.
 Without limiting the generality of the foregoing clause (c), any
Holder may pledge, assign or otherwise transfer all or any portion of its rights
and obligations under this any other Person, and such other Person shall
thereupon become vested with all the benefits in respect thereof granted such
Holder herein or otherwise, in each case as provided in
Section 12.07.

Section
11.05

Subrogation.
 No Guarantor will exercise any rights that it may now or hereafter acquire
against any Obligor or any other Guarantor that arise from the existence,
payment, performance or enforcement of such Guarantor’s obligations under this
Article XI, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the Agent and the Holders against any
Obligor or any other Guarantor or any Collateral, whether or not such claim,
remedy or right arises in equity or under contract, statute or common law,
including, without  

91

limitation, the right to take or receive from any
Obligor or any other Guarantor, directly or indirectly, in cash or other
property or by setoff or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the Guaranteed
Obligations and all other amounts payable under this Article XI shall have
been paid in full in cash.  If any amount shall be paid to any Guarantor in
violation of the immediately preceding sentence at any time prior to the payment
in full in cash of the Guaranteed Obligations and all other amounts payable
under this Article XI, such amount shall be held in trust for the benefit
of the Agent and the Holders and shall forthwith be paid to the Agent and the
Holders to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Article XI, whether matured or unmatured, in
accordance with the terms of this Agreement, or to be held as Collateral for any
Guaranteed Obligations or other amounts payable under this Article XI
thereafter arising.  If (i) any Guarantor shall make payment to the
Agent and the Holders of all or any part of the Guaranteed Obligations and
(ii) all of the Guaranteed Obligations and all other amounts payable under
this Article XI shall be paid in full in cash, the Agent and the Holders
will, at such Guarantor’s request and expense, execute and deliver to such
Guarantor appropriate documents, without recourse and without representation or
warranty, necessary to evidence the transfer by subrogation to such Guarantor of
an interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.

Section
11.06

Liens
on Real Property; Other Waivers.  In the event that all or any part of
the Guaranteed Obligations at any time are secured by any one or more deeds of
trust or mortgages creating or granting Liens on any interests in real property,
each Guarantor authorizes the Agent, upon the occurrence of and during the
continuance of any Event of Default, at its sole option, without notice or
demand and without affecting any Guaranteed Obligations, the enforceability of
this Guaranty, or the validity or enforceability of any Liens of any the Holders
on any collateral, to foreclose any or all of such deeds of trust or mortgages
by judicial or nonjudicial sale.  Insofar as the Liens created herein
secure the obligations of other Persons, (i) each Guarantor expressly
waives any defenses to the enforcement of this Guaranty or any Liens created or
granted hereby or to the recovery by the Agent and the Holders against Issuer or
any other Person liable therefor of any deficiency after a judicial or
nonjudicial foreclosure or sale, even though such a foreclosure or sale may
impair the subrogation rights of such Guarantor and may preclude such Guarantor
from obtaining reimbursement or contribution from any other Person,
(ii) each Guarantor expressly waives any defenses or benefits that may be
derived from California Code of Civil Procedure §§ 580a, 580b, 580d or 726,
or comparable provisions of the laws of any other jurisdiction, and all other
suretyship defenses it otherwise might or would have under California law or
other applicable law, (iii) each Guarantor expressly waives any and all rights
of subrogation, reimbursement, indemnification, and contribution and any other
rights and defenses that are or may become available to such Guarantor or any
other surety by reason of §§ 2787 to 2855, inclusive, of the California Civil
Code and (iv) each Guarantor waives all rights and defenses arising out of an
election of remedies by the Agent or the Holders, even though that election of
remedies, such as nonjudicial foreclosure with respect to security for any
Guaranteed Obligations has destroyed such Guarantor's rights of subrogation and
reimbursement against the principal by the operation of § 580d of the California
Code of Civil Procedure.  Each Guarantor waives all rights and defenses
that such Guarantor may have because the Guaranteed Obligations are secured by
real property.  This means, among other things (i) the Agent and the
Holders may collect from any Guarantor without first foreclosing on any real or
personal property collateral pledged to secure the Guaranteed Obligations and
(ii) if the Agent or the Holders forecloses on

92

any
real property collateral pledged to secure the Guaranteed Obligations (A) the
amount of the Guaranteed Obligations may be reduced only by the price for which
that collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price and (B) the Agent and the Holders may collect from any
Guarantor even if the Agent or the Holders, by foreclosing on the real property
collateral, has destroyed any right such Guarantor may have to collect from the
Issuer or any other Obligor.  This is an unconditional and irrevocable
waiver of any rights and defenses each Guarantor may have because the Guaranteed
Obligations are secured by real property.  These rights and defenses
include, but are not limited to any rights or defenses based upon California
Code of Civil Procedure §§ 580a, 580b, 580d or 726.  Each Guarantor
expressly waives any right to receive notice of any judicial or nonjudicial
foreclosure or sale of any real property or interest therein subject to any such
deeds of trust or mortgages and such Guarantor's failure to receive any such
notice shall not impair or affect such Guarantor's obligations hereunder or the
enforceability of this Guaranty or any Liens created or granted hereby.

Section
11.07

Condition
of Issuer and its Subsidiaries.  Each Guarantor represents and warrants
to the Agent and the Holders that such Guarantor has established adequate means
of obtaining from Issuer and its Subsidiaries, on a continuing basis, financial
and other information pertaining to the businesses, operations and condition
(financial and otherwise) of each of Issuer and its Subsidiaries and their
properties, and each Guarantor now is and hereafter will be completely familiar
with the businesses, operations and condition (financial and otherwise) of
Issuer and its Subsidiaries and their properties.  Each Guarantor hereby
expressly waives and relinquishes any duty on the part of the Agent or the
Holders to disclose to any Guarantor any matter, fact or thing related to the
businesses, operations or condition (financial or otherwise) of Issuer or its
Subsidiaries or their properties, whether now known or hereafter known by the
Agent or the Holders during the life of this Agreement.  With respect to
any of the Guaranteed Obligations, the Holders need not inquire into the powers
of Issuer or any Subsidiaries thereof or the officers or employees acting or
purporting to act on their behalf, and all Guaranteed Obligations made or
created in good faith reliance upon the professed exercise of such powers shall
be secured hereby.

ARTICLE XII

MISCELLANEOUS

Section
12.01

Notices,
Etc.  All notices and other communications provided for hereunder shall
be in writing and shall be mailed, telecopied or delivered

if
to any Obligor, at the following address:

Penthouse
Media Group Inc.
6800 Broken Sound Parkway NW, Suite 100
Boca Raton,
Florida 33487

Attention:

Joshua
R. Bressler, Esq.

Telephone:

(561)
912-7000

Telecopier:

(561)
912-1747 

93

 

with
a copy to:

Moses
& Singer LLP

405
Lexington Avenue

New
York, NY 10174

Attention:

Arnold
N. Bressler, Esq.

Telephone:

(212)
554-7636

Telecopier:

(212)
377-6036

 

if
to the Agent, at the following address:

U.S.
Bank National Association
Corporate Trust Services
225 Asylum Street, 23rd
Floor
Hartford, CT  06103

Attn:

Kathy
L. Mitchell, VP

Telephone:

(860)
241-6832

Telecopier:

(860)
241-6881

if
to a Holder at the address set forth on Schedule 2.02:

with
a copy to:

Bose
McKinney & Evans LLP
2700 First Indiana Plaza
135 North Pennsylvania
Street

Indianapolis,
Indiana  46204

Attn:

Roberts
E. Inveiss, Esq.

Telephone:

(317)
684-5373

Telecopier:

(317)
223-0373

or,
as to each party, at such other address as shall be designated by such party in
a written notice to the other parties complying as to delivery with the terms of
this Section 12.01.  All such notices and other communications shall
be effective, (i) if mailed, when received or three days after deposited in
the mails, whichever occurs first, (ii) if telecopied, when transmitted and
confirmation received, or (iii) if delivered, upon delivery, provided,
however, that notices to the Agent shall not be effective until received by the
Agent.

Section
12.02

Amendments,
Etc.  No amendment or waiver of any provision of this Agreement, and no consent
to any departure by any Obligor therefrom, shall in any event be effective
unless the same shall be in writing and signed by (a) the Issuer, (b) the
Required Holders or by the Agent with the consent of the Required Holders and
(c) with respect to Article XI, the Guarantors, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given, provided, however, that no amendment, waiver or
consent shall disproportionately with respect to any Holder (i) reduce the
principal of, or interest on, the Sellers’ Secured Notes payable to any Holder,
reduce the amount of any fee payable for the account of any Holder, or postpone
or extend any date fixed for any payment of 

94

principal
of, or interest or fees on, the Sellers’ Secured Notes payable to any Holder, in
each case without the written consent of any Holder affected thereby,
(ii) change the percentage of the aggregate unpaid principal amount of the
Sellers’ Secured Notes that is required for the Holders or any of them to take
any action hereunder, (iii) amend the definition of “Required
Holders” or “Pro Rata Share”, (iv) amend, modify or waive
Section 4.02, this Section 12.02 or Section 12.15 or
(v) modify, waive, release or subordinate the perfected status of the
Obligations (except as permitted in this Agreement and the other Sellers’
Secured Note Documents), in each case, without the written consent of
each Holder affected thereby.  Notwithstanding the foregoing, no
amendment, waiver or consent shall, unless in writing and signed by the Agent,
affect the rights or duties of the Agent (but not in its capacity as a Holder)
under this Agreement or the other Sellers’ Secured Note Documents.  For the
avoidance of doubt, the parties hereto agree that the Required Holders or the
Agent with the consent of the Required Holders may enter into or amend any
intercreditor or subordination agreements, including the Intercreditor
Agreements, and any amendments, restatements, supplements or other modifications
thereto.

Section
12.03

No
Waiver; Remedies, Etc.  No failure on the part of the Agent or , to the
extent permitted by the terms hereof, any Holder to exercise, and no delay in
exercising, any right hereunder or under any other Funding Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under any Funding Document preclude any other or further exercise thereof
or the exercise of other Funding Documents are cumulative and are in addition
to, and not exclusive of, any rights or remedies provided by law.  The
rights of the Agent and, to the extent permitted by the terms hereof, the
Holders under any Funding Document against any party thereto are not conditional
or contingent on any attempt by the Agent and the Holders to exercise any of
their rights under any other Funding Document against such party or against any
other Person.

Section
12.04

Expenses;
Taxes; Attorneys’ Fees.  The Issuer will pay, on demand, all costs and
expenses incurred by or on behalf of the Agent and each Holder, regardless of
whether the transactions contemplated hereby are consummated, including, without
limitation, reasonable fees, costs, client charges and expenses of counsel for
the Agent and each Holder, accounting, due diligence, annual field audits,
physical counts, valuations, investigations, searches and filings, monitoring of
assets, appraisals of Collateral, title searches and reviewing environmental
assessments, miscellaneous disbursements, examination, travel, lodging and
meals, arising from or relating to:  (a) the negotiation, preparation,
execution, delivery, performance and administration of this Agreement and the
other Funding Documents (including, without limitation, the review of any of the
agreements, instruments and documents referred to in Section 7.01(e)),
(b) any requested amendments, waivers or consents to this Agreement or the
other Funding Documents whether or not such documents become effective or are
given, (c) the preservation and protection of any of the Agent’s or the
Holders’ rights under this Agreement or the other Funding Documents,
(d) the defense of any claim or action asserted or brought against the
Agent or any Holder by any Person that arises from or relates to this Agreement,
any other Funding Document, the Agent’s or the Holders’ claims against any
Obligor, or any and all matters in connection therewith, (e) the
commencement or defense of, or intervention in, any court proceeding arising
from or related to this Agreement or any other Funding Document, (f) the
filing of any petition, complaint, answer, motion or other pleading by the Agent
or any Holder, or the taking of any action in respect of the Collateral or other
security, in connection with this Agreement or any other Funding Document,
(g) the protection, collection, lease, sale,  

95

taking
possession of or liquidation of, any Collateral or other security in connection
with this Agreement or any other Sellers’ Secured Note Document, (h) any
attempt to enforce any Lien or security interest in any Collateral or other
security in connection with this Agreement or any other Sellers’ Secured Note
Document, (i) any attempt to collect from any Obligor, (j) all
liabilities and costs arising from or in connection with the past, present or
future operations of any Obligor involving any damage to real or personal
property or natural resources or harm or injury alleged to have resulted from
any Release of Hazardous Materials on, upon or into such property, (k) any
Environmental Liabilities and Costs incurred in connection with the
investigation, removal, cleanup and/or remediation of any Hazardous Materials
present or arising out of the operations of any facility of any Obligor,
(l) any Environmental Liabilities and Costs incurred in connection with any
Environmental Lien; or (m) the receipt by the Agent or any Holder of any
advice from professionals with respect to any of the foregoing.  Without
limitation of the foregoing or any other provision of any Funding Document:
 (x) the Issuer agrees to pay all stamp, document, transfer, recording
or filing taxes or fees and similar impositions now or hereafter determined by
the Agent or any Holder to be payable in connection with this Agreement or any
other Funding Document, and the Issuer agrees to save the Agent and each Holder
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions, and (y) the Issuer agrees to pay all
broker fees that may become due in connection with the Issuer’s failure to
perform any covenant or agreement contained herein or in any other Funding
Document, the Agent may itself perform or cause performance of such covenant or
agreement, and the expenses of the Agent incurred in connection therewith shall
be reimbursed on demand by the Issuer.

Section
12.05

Right
of Setoff.  Upon the occurrence and during the continuance of any Event
of Default, the Agent or any Holder may, and is hereby authorized to, at any
time and from time to time, without notice to any Obligor (any such notice being
expressly waived by the Obligors) and to the fullest extent permitted by law,
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other Indebtedness at any time owing
by the Agent or such Holder to or for the credit or the account of any Obligor
against any and all obligations of the Obligors either now or hereafter existing
under any Sellers’ Secured Note Document, irrespective of whether or not the
Agent or such Holder shall have made any demand hereunder or thereunder and
although such obligations may be contingent or unmatured.  The Agent and
each Holder agrees to notify such Obligor promptly after any such setoff and
application made by the Agent or such Holder provided that the failure to give
such notice shall not affect the validity of such setoff and application.
 The rights of the Agent and the Holders under this Section 12.05 are
in addition to the other rights and remedies (including other rights of setoff)
which the Agent and the Holders may have under this Agreement or any other
Sellers’ Secured Note Documents or law or otherwise.

Section
12.06

Severability.
 Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction. 

96

Section
12.07

Assignments.

(a)

This
Agreement and the other Funding Documents shall be binding upon and inure to the
benefit of each Obligor and the Agent and each Holder and their respective
successors and assigns; provided, however, that (i) none of the Obligors
may assign or transfer any of their rights or obligations hereunder, or under
any of the other Funding Documents, without the prior written consent of each
Holder and any such purported assignment without the Holders’ prior written
consent shall be null and void, and (ii) the Warrants issued to the Holders
hereunder may not be transferred except as provided therein.

(b)

Each
Holder may sell to one or more other Persons all or a portion of its rights and
obligations under this Agreement and the other Sellers’ Secured Note Documents
(including, without limitation, all or a portion of its Sellers’ Secured
Notes).

(c)

The
Agent shall, on behalf of the Issuer, maintain, or cause to be maintained at the
Payment Office, a register (the “Register”) for the recordation of the names and
addresses of the Holders of the Sellers’ Secured Notes, and principal amount of
the Sellers’ Secured Notes (the “Registered Sellers’ Secured Notes”) owing to
each Holder from time to time.  The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Issuer,
the Agent and the Holders shall treat each Person whose name is recorded in the
Register as a Holder hereunder for all purposes of this Agreement.  The
Register shall be available for inspection by the Issuer and any Holder at any
reasonable time and from time to time upon reasonable prior notice.  In the
case of any assignment by a Holder to an Affiliate of such Holder, or a fund or
account managed by such Holder or an Affiliate of such Holder, and in which such
assignment is not recorded in the Register, the assigning Holder shall maintain
a comparable register to the Register. 

(d)

A
Registered Sellers’ Secured Notes (and the registered note, if any, evidencing
the same) may be assigned or sold in whole or in part only by registration of
such assignment or sale on the Register (and each registered note shall
expressly so provide).  Any assignment or sale of all or part of such
Registered Sellers’ Secured Notes (and the registered note, if any, evidencing
the same) may be effected only by registration of such assignment or sale on the
Register, together with the surrender of the registered note, if any, evidencing
the same duly endorsed by (or accompanied by a written instrument of assignment
or sale duly executed by) the holder of such registered note, whereupon, at the
request of the designated assignee(s) or transferee(s), one or more new
registered notes in the same aggregate principal amount shall be issued to the
designated assignee(s) or transferee(s).  Prior to the registration of
assignment or sale of any Registered Sellers’ Secured Notes (and the registered
note, if any, evidencing the same), the Agent shall treat the Person in whose
name such Registered Sellers’ Secured Notes (and the registered note, if any,
evidencing the same) is registered as the owner thereof for the purpose of
receiving all payments thereon and for all other purposes, notwithstanding
notice to the contrary.

(e)       Any foreign Person who purchases or is assigned or
participates in any portion of such Registered Sellers’ Secured Notes shall
provide the Agent and the Holder with (i) a completed Internal Revenue
Service Form W-9 or W-8BEN (Certificate of Foreign Status), as applicable, or a
substantially similar form for such purchaser, participant or any other
affiliate

97

who is a holder of beneficial interests
in the Registered Sellers’ Secured Notes, (ii) notice information for
purposes of Section 12.01 hereof, and (iii) payment instructions. 

Section
12.08

Counterparts.
 This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which shall be deemed
to be an original, but all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of this Agreement by
telecopier shall be equally as effective as delivery of an original executed
counterpart of this Agreement.  Any party delivering an executed
counterpart of this Agreement by telecopier also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an original
executed counterpart shall not affect the validity, enforceability, and binding
effect of this Agreement.  The foregoing shall apply to each other Sellers’
Secured Note Document mutatis mutandis.

Section
12.09

GOVERNING
LAW.  THIS AGREEMENT AND THE OTHER FUNDING DOCUMENTS SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT
AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER FUNDING DOCUMENT IN RESPECT OF
SUCH OTHER FUNDING DOCUMENT.

Section
12.10

CONSENT
TO JURISDICTION; SERVICE OF PROCESS AND VENUE.  ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER FUNDING DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY IRREVOCABLY ACCEPTS
IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS.  EACH OBLIGOR AND EACH HOLDER HEREBY IRREVOCABLY
APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR
SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE ISSUER (FOR ITSELF AND THE
GUARANTORS) AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 12.01 AND TO
THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME
EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT AND THE HOLDERS TO SERVICE OF PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY PARTY IN ANY OTHER JURISDICTION.  EACH PARTY HEREBY EXPRESSLY
AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  TO THE
EXTENT THAT ANY PARTY HAS OR HEREAFTER MAY ACQUIRE

98

 

 

ANY
IMMUNITY FROM JURISDICTION OF ANY SUCH COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH PARTY
HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER FUNDING DOCUMENTS.

Section
12.11

WAIVER
OF JURY TRIAL, ETC.  EACH OBLIGOR, THE AGENT AND EACH HOLDER HEREBY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER FUNDING DOCUMENTS, OR
UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT
DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR
ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE
TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH PARTY CERTIFIES THAT NO
OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT OR ANY HOLDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY HOLDER WOULD NOT, IN
THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS.  EACH PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE AGENT AND THE HOLDERS ENTERING INTO THIS
AGREEMENT.

Section
12.12

Consent
by the Agent and Holders.  Except as otherwise expressly set forth
herein to the contrary, if the consent, approval, satisfaction, determination,
judgment, acceptance or similar action (an “Action”) of the Agent or any
Holder shall be permitted or required pursuant to any provision hereof or any
provision of any other agreement to which any Obligor is a party and to which
the Agent or any Holder has succeeded thereto, such Action shall be required to
be in writing and may be withheld or denied by the Agent or such Holder, in its
sole discretion, with or without any reason, and without being subject to
question or challenge on the grounds that such Action was not taken in good
faith.

Section
12.13

No
Party Deemed Drafter.  Each of the parties hereto agrees that no party
hereto shall be deemed to be the drafter of this Agreement.

Section
12.14

Reinstatement;
Certain Payments.  If any claim is ever made upon the Agent or any
Holder for repayment or recovery of any amount or amounts received by the Agent
or such Holder in payment or on account of any of the Obligations, the Agent or
such Holder shall give prompt notice of such claim to each other Holder and the
Issuer, and if the Agent or such Holder repays all or part of such amount by
reason of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over the Agent or such Holder or any of its property,
or (ii) any good faith settlement or compromise of any such claim effected
by the Agent or such Holder with any such claimant, then and in such event each
Obligor agrees that (A) any such judgment, decree, order, settlement or
compromise shall be binding upon it notwithstanding the cancellation of any
Indebtedness hereunder or under the other Sellers’ Secured Note Documents or the
termination of this Agreement or the other Sellers’ Secured Note 

99

Documents,
and (B) it shall be and remain liable to the Agent or such Holder hereunder
for the amount so repaid or recovered to the same extent as if such amount had
never originally been received by the Agent or such Holder.

Section
12.15

Indemnification.
 

(a)

General
Indemnity.  In addition to each Obligor’s other Obligations under this
Agreement, each Obligor agrees to, jointly and severally, defend, protect,
indemnify and hold harmless the Agent and each Holder and all of their
respective officers, directors, employees, attorneys, consultants and agents
(collectively called the “Indemnitees”) from and against any and all
losses, damages, liabilities, obligations, penalties, fees, reasonable costs and
expenses (including, without limitation, reasonable attorneys’ fees, costs and
expenses) incurred by such Indemnitees, whether prior to or from and after the
Closing Date, whether direct, indirect or consequential, as a result of or
arising from or relating to or in connection with any of the following:
 (i) the negotiation, preparation, execution or performance or
enforcement of this Agreement, any other Funding Document or of any other
document executed in connection with the transactions contemplated by this
Agreement, (ii) the Agent’s or any Holder’s furnishing of funds to the
Issuer under this Agreement or the other Funding Documents, (iii) any
matter relating to the financing transactions contemplated by this Agreement or
the other Funding Documents or by any document executed in connection with the
transactions contemplated by this Agreement or the other Funding Documents, or
(iv) any claim, litigation, investigation or proceeding relating to any of
the foregoing, whether or not any Indemnitee is a party thereto (collectively,
the “Indemnified Matters”); provided, however, that the
Obligors shall not have any obligation to any Indemnitee under this
subsection (a) for any Indemnified Matter caused by the gross negligence or
willful misconduct of such Indemnitee, as determined by a final judgment of a
court of competent jurisdiction.

(b)

Payment;
Survival.  The indemnification for all of the foregoing losses,
damages, fees, costs and expenses of the Indemnitees are chargeable against the
Sellers’ Secured Note Account; provided, that the foregoing shall in no
way limit the recourse of the Agent or the Holders directly against the
Indemnitees for such indemnification.  To the extent that the undertaking
to indemnify, pay and hold harmless set forth in this Section 12.15 may be
unenforceable because it is violative of any law or public policy, each Obligor
shall, jointly and severally, contribute the maximum portion which it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.  The
indemnities set forth in this Section 12.15 shall survive the repayment of
the Obligations and discharge of any Liens granted under the Sellers’ Secured
Note Documents.

Section
12.16

Binding
Effect.  This Agreement shall become effective when it shall have been
executed by each Obligor, the Agent and each Holder and when the conditions
precedent set forth in Section 5.01 hereof have been satisfied or waived in
writing by the Agent, and thereafter shall be binding upon and inure to the
benefit of each Obligor, the Agent and each Holder, and their respective
successors and assigns, except no Issuer or Guarantor shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of each Holder, and any assignment by any Holder shall be governed by
Section 12.07 hereof.

100

 

Section
12.17

Interest.
 It is the intention of the parties hereto that the Agent and each Holder
shall conform strictly to usury laws applicable to it.  Accordingly, if the
transactions contemplated hereby or by any other Sellers’ Secured Note Document
would be usurious as to the Agent or any Holder under laws applicable to it
(including the laws of the United States of America and the State of New York or
any other jurisdiction whose laws may be mandatorily applicable to the Agent or
such Holder notwithstanding the other provisions of this Agreement), then, in
that event, notwithstanding anything to the contrary in this Agreement or any
other Sellers’ Secured Note Document or any agreement entered into in connection
with or as security for the Obligations, it is agreed as follows:
 (i) the aggregate of all consideration which constitutes interest
under law applicable to the Agent or any Holder that is contracted for, taken,
reserved, charged or received by the Agent or such Holder under this Agreement
or any other Sellers’ Secured Note Document or agreements or otherwise in
connection with the Obligations shall under no circumstances exceed the maximum
amount allowed by such applicable law, any excess shall be canceled
automatically and if previously paid shall be credited by the Agent or such
Holder on the principal amount of the Obligations (or, to the extent that the
principal amount of the Obligations shall have been or would thereby be paid in
full, refunded by the Agent or such Holder, as applicable, to the Issuer); and
(ii) in the event that the maturity of the Obligations is accelerated by
reason of any Event of Default under this Agreement or otherwise, or in the
event of any required or permitted prepayment, then such consideration that
constitutes interest under law applicable to the Agent or any Holder may never
include more than the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise shall be canceled
automatically by the Agent or such Holder, as applicable, as of the date of such
acceleration or prepayment and, if previously paid, shall be credited by the
Agent or such Holder, as applicable, on the principal amount of the Obligations
(or, to the extent that the principal amount of the Obligations shall have been
or would thereby be paid in full, refunded by the Agent or such Holder to the
Issuer).  All sums paid or agreed to be paid to the Agent or any Holder for
the use, forbearance or detention of sums due hereunder shall, to the extent
permitted by law applicable to the Agent or such Holder, be amortized, prorated,
allocated and spread throughout the full term of the Sellers’ Secured Notes
until payment in full.  If at any time and from time to time (x) the
amount of interest payable to the Agent or any Holder on any date shall be
computed at the Highest Lawful Rate applicable to the Agent or such Holder
pursuant to this Section 12.17 and (y) in respect of any subsequent
interest computation period the amount of interest otherwise payable to the
Agent or such Holder would be less than the amount of interest payable to the
Agent or such Holder computed at the Highest Lawful Rate applicable to the Agent
or such Holder, then the amount of interest payable to the Agent or such Holder
in respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to the Agent or such Holder until
the total amount of interest payable to the Agent or such Holder shall equal the
total amount of interest which would have been payable to the Agent or such
Holder if the total amount of interest had been computed without giving effect
to this Section 12.17.

For
purposes of this Section 12.17, the term “applicable law” shall mean that
law in effect from time to time and applicable to the Obligations that lawfully
permits the charging and collection of the highest permissible, lawful
non-usurious rate of interest on the Obligations and this Agreement, including
laws of the State of New York and, to the extent controlling, laws of the United
States of America. 

101

 

Section
12.18

Customer
Identification Program.  Each of the parties hereto acknowledges
receipt of the notice included in Exhibit F hereto and made part
hereof, which provides that information may be required by the Agent to verify
the identities of the parties.  Each of the parties hereto shall ensure
that any successors or assigns acknowledge receipt of such notice. 

[signature page follows]

102

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

ISSUER:

INTERACTIVE
NETWORK, INC.

By:
/s/ Paul Asher

Name: Paul Asher

Title:
  Secretary

JUNIOR
SUBORDINATED GUARANTORS:

PENTHOUSE
MEDIA GROUP, INC.

GENERAL
MEDIA ART HOLDING, INC.

GENERAL
MEDIA COMMUNICATIONS, INC.

GENERAL
MEDIA ENTERTAINMENT, INC.

GENERAL
MEDIA UK LIMITED

GMCI
INTERNET OPERATIONS, INC.

GMI
ON-LINE VENTURES, LTD.

PENTHOUSE
CLUBS INTERNATIONAL

ESTABLISHMENT

PENTHOUSE
IMAGES ACQUISITIONS, LTD.

WEST
COAST FACILITIES INC.

PMGI
HOLDINGS, INC.

PURE
ENTERTAINMENT

TELECOMMUNICATIONS,
INC.

By:
/s/ Marc H. Bell

Name: Marc H. Bell

Title: President

PENTHOUSE
FINANCIAL SERVICES, N.V.

By:
/s/ Marc H. Bell

Name: Marc H. Bell

Title: Managing Director

PENTHOUSE
DIGITAL MEDIA PRODUCTIONS, INC.

VIDEO
BLISS, INC.

DANNI
ASHE, INC.

By:
/s/ Paul Asher

Name: Paul Asher

Title:
 President

(signature page for Sellers’ Securities Agreement)

 

SNAPSHOT
PRODUCTIONS, LLC

By:
 /s/ Paul Asher

Name: Paul Asher

Title: Manager

SENIOR
SUBORDINATED GUARANTORS:

VARIOUS,
INC.

By:
 /s/ Daniel C. Staton

Name: Daniel C. Staton

Title: CFO

GLOBAL
ALPHABET, INC.

SHARKFISH,
INC.

TRAFFIC
CAT, INC.

BIG
ISLAND TECHNOLOGY GROUP, INC.

FAST
CUPID, INC.

MEDLEY.COM
INCORPORATED

PPM
TECHNOLOGY GROUP, INC.

FRIENDFINDER
NETWORK, INC.

By:
/s/ Daniel C. Staton

Name: Daniel C. Staton

Title: CFO

FRIENDFINDER
PROCESSING LTD.

By:
/s/ Marc H. Bell

Name: Marc H. Bell

Title: CEO

STREAMRAY,
INC.

By:
/s/ Marc H. Bell

Name: Marc H. Bell

Title: CEO

(signature page for Sellers’ Securities Agreement)

 

CONFIRM
ID, INC.

FRNK
TECHNOLOGY GROUP

TRANSBLOOM,
INC.

STREAMRAY
INC.

By:
/s/ David Bloom

Name:
David Bloom

Title:
Secretary

(signature page for Sellers’ Securities Agreement)

 

AGENT:

U.S.
BANK NATIONAL ASSOCIATION

By:
/s/ Kathy L. Mitchell

Name:
Kathy L. Mitchell

Title:
 Vice President

HOLDERS:

TRUST
1:

ANDREW
B. CONRU TRUST AGREEMENT

By:
/s/ Andrew B. Conru

Andrew
B. Conru, Trustee

TRUST
2:

MAPSTEAD
TRUST, 

CREATED
ON APRIL 16, 2002

By:
/s/ Lars Mapstead

Lars
Mapstead, Trustee

By:
/s/ Marin A. Mapstead

Marin
A. Mapstead, Trustee

(signature page for Sellers’ Securities Agreement) 

 

Schedule 2.02

ALLOCATION OF SELLERS’ SECURED NOTES AND WARRANTS

			
	Holder

	Principal Amount of Sellers’ Secured Note

	Number of Warrant Shares

	ANDREW B. CONRU TRUST AGREEMENT,

Andrew B. Conru, Trustee

Address:

116 El Nido

Portola Valley, CA 94028

	$72,814,104

	31,011,353

	MAPSTEAD TRUST,

CREATED ON APRIL 16, 2002,

Lars Mapstead and Marin A. Mapstead, Trustees

Address:

180 Horizon Way

Aptos, CA 95003

	$7,185,896

	3,060,188

	Total

	$80,000,000

	34,071,541Exhibit 4.49

Exhibit 4.49

EXECUTION
VERSION

INTERACTIVE NETWORK, INC.

AMENDMENT TO SELLERS’ SECURITIES AGREEMENT 

This
AMENDMENT TO SELLERS’ SECURITIES AGREEMENT (this “Amendment”), dated as
of December 6, 2008, is entered into by and among Interactive Network, Inc., a
Nevada corporation (the “Issuer”) and the holders whose names appear on
the signature pages hereto (the “Holders”) of the Issuer’s outstanding
Subordinated Secured Notes due 2011 (the “Sellers’ Secured Notes”).

RECITALS

WHEREAS,
this Amendment is being entered into with reference to the Sellers’
Securities Agreement (Sellers’ Secured Notes Due 2011) dated as of December 6,
2007, among the Issuer, the Senior Subordinated Guarantors whose names appear on
the signature pages thereto (the “Senior Subordinated Guarantors”), the
Junior Subordinated Guarantors whose names appear on the signatures pages
thereto (the “Junior Subordinated Guarantors”, and together with the
Senior Subordinated Guarantors, the “Guarantors”), the Holders as
“Holders” defined therein and party thereto, and the U.S. Bank National
Association (the “Agent”), as “Administrative Agent” and “Collateral
Agent” defined therein and party thereto (the “SSA”) and the Sellers’
Secured Notes issued pursuant thereto.

WHEREAS,
the Issuer and the Holders wish to amend the SSA to correct the number of
Warrant Shares listed on Schedule 2.02 thereto; and

WHEREAS,
Section 12.02 of the SSA permits the amendment of the SSA and the Holders have
agreed to such amendment; and

NOW,
THEREFORE, in consideration of the foregoing premises, the agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:

Section
1.

Definitions.

Capitalized
terms used herein without other definition shall have the respective meanings
herein assigned to such terms in the SSA.

Section
2.

Amendment
to Schedule 2.02 to the SSA.

Schedule
2.02 to the SSA is hereby deleted in its entirety and replaced with Schedule
2.02 attached to this Amendment.

Section
3.

Affirmation
of Obligations.

The
Issuer hereby ratifies, affirms and confirms all of the Note Documents and each
and every Obligation, covenant and agreement of the Issuer thereunder in all
respects, except as otherwise expressly modified or waived by this Amendment
upon the terms set forth herein.  In addition, the Issuer hereby represents
and warrants that, as of the date hereof, no counterclaim, right of set-off,
claim or defense of any kind exists or is outstanding with respect to any of the
Obligations or against any of the Holders of any Sellers’ Secured Notes.

			
	
 
	
 
	
 

	
 
	
 
	
 

Section
4.

Reaffirmation
of Guarantees.

Each
Guarantor hereby agrees and acknowledges that such Guarantor’s guarantee of all
Obligations of the Issuer under the Note Documents remains and continues in full
force and effect and is hereby ratified and reaffirmed in all respects.

Section
5.

Miscellaneous.

5.1.

Headings.
 Section and subsection headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect. 

5.2.

Funding
Documents Ratified.  Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights and remedies of, the Holders under the
SSA, the Security Agreements or any other Funding Documents; or be construed to
alter, modify, amend or in any way affect any of the terms, conditions,
obligations, covenants or agreements contained in the SSA, the Security
Agreements or any other Funding Documents, all of which are hereby confirmed and
ratified in all respects and shall continue in full force and effect.

5.3.

Survival
of Agreement.  All covenants, agreements, representations and
warranties made by any party in this Amendment shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Amendment.

5.4.

Note
Documents.  From and after the date of this Amendment, this Amendment
shall be considered a Note Document for all purposes of the SSA, entitled to all
of the benefits and protections thereof, and all references to the Note
Documents shall thereafter be construed to include this Amendment.

5.5.

Applicable
Law.  THIS
AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE
STATE OF NEW YORK.

5.6.

Counterparts;
Facsimile Signatures.   This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.  Facsimile signatures shall
be considered originals for all purposes.

[remainder of page intentionally blank]

			
	
 
	
 
	
 

	 
	
- 2 -
	
 

EXECUTION VERSION

IN
WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered by their respective officers thereunto duly authorized as
of the date first written above.

ISSUER

INTERACTIVE
NETWORK, INC.

By:
 /s/ Paul Asher

Name:

Paul
Asher

Title:

Secretary

HOLDERS

ANDREW
B. CONRU TRUST AGREEMENT

By:
/s/ Andrew B. Conru

Andrew
B. Conru, Trustee

MAPSTEAD
TRUST, 

CREATED
ON APRIL 16, 2002

By:
/s/ Lars Mapstead

Lars
Mapstead, Trustee

By:
/s/ Marin A. Mapstead

Marin
A. Mapstead, Trustee

[signatures continue on following page]

			
	
 

	 
	
 
	
 

ACKNOWLEDGED
AND AGREED:

SENIOR
SUBORDINATED GUARANTORS:

VARIOUS,
INC. 

By:
 /s/ Daniel C. Staton

Name:  Daniel
C. Staton
Title: 

Chief
Financial Officer

GLOBAL
ALPHABET, INC.
SHARKFISH, INC.
TRAFFIC CAT, INC.
BIG ISLAND TECHNOLOGY
GROUP, INC.
FASTCUPID, INC.
MEDLEY.COM INCORPORATED
PPM TECHNOLOGY
GROUP, INC.
FRIENDFINDER NETWORK, INC. 

By:
 /s/ Daniel C. Staton

Name:  Daniel
C. Staton
Title: 

Chief
Financial Officer

FRIENDFINDER
PROCESSING LTD. 

By:
 /s/ Daniel C. Staton

Name:  Daniel
C. Staton
Title: 

Chief
Financial Officer

STREAMRAY,
INC.

By:
 /s/ Daniel C. Staton

Name:  Daniel
C. Staton
Title: 

Chief
Financial Officer

CONFIRM
ID, INC.
FRNK TECHNOLOGY GROUP
TRANSBLOOM, INC.
STREAMRAY INC. 

By:
 David Bloom

Name:  David
Bloom
Title:

Chief
Executive Officer

			
	
 
	
 
	
 

	 
	
- 2 -
	
 

JUNIOR
SUBORDINATED GUARANTORS:

PENTHOUSE
MEDIA GROUP INC.
GENERAL MEDIA ART HOLDING, INC.
GENERAL MEDIA
COMMUNICATIONS, INC.
GENERAL MEDIA ENTERTAINMENT, INC.
GENERAL MEDIA UK
LIMITED
GMCI INTERNET OPERATIONS, INC.
GMI ON-LINE VENTURES,
LTD.
PENTHOUSE CLUBS INTERNATIONAL ESTABLISHMENT
PENTHOUSE IMAGES
ACQUISITIONS, LTD.
WEST COAST FACILITIES INC.
PMGI HOLDINGS INC.
PURE
ENTERTAINMENT TELECOMMUNICATIONS, INC.

By:
 /s/ Marc H. Bell

Name:  Marc
H. Bell
Title: 

President

PENTHOUSE
FINANCIAL SERVICES N.V.

By:
 /s/ Marc H. Bell

Name:  Marc
H. Bell
Title: 

Managing
Director

PENTHOUSE
DIGITAL MEDIA PRODUCTIONS INC.
VIDEO BLISS, INC.
DANNI ASHE, INC.

By:
 /s/ Paul Asher

Name:  Paul
Asher
Title:  

President

SNAPSHOT
PRODUCTIONS, LLC

By:
 /s/ Paul Asher

Name:  Paul
Asher
Title:  

Manager

			
	
 
	
 
	
 

	 
	
- 3 -
	
 

 

Schedule 2.02

ALLOCATION OF SELLERS’ SECURED NOTES AND WARRANTS

			
	Holder

	Principal Amount of Sellers’ Secured Note

	Number of Warrant Shares

	ANDREW B. CONRU TRUST AGREEMENT,

Andrew B. Conru, Trustee

Address:

116 El Nido

Porola Valley, CA 94028

	$72,814,104

	21,625,418

	MAPSTEAD TRUST,

CREATED ON APRIL 16, 2002,

Lars Mapstead and Marin A. Mapstead, Trustees

Address:

180 Horizon Way

Aptos, CA 95003

	$7,185,896

	2,134,175

	Total

	$80,000,000

	23,759,593

Amendment to Sellers’ Securities Agreement – Schedule 2.02

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