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Playboy TV International LLC Agreement 08-31-1999

 

OPERATING AGREEMENT

FOR

PLAYBOY TV INTERNATIONAL, LLC

A DELAWARE LIMITED LIABILITY COMPANY

 

 

TABLE OF CONTENTS

 

 

Page

 

 

<S> <C>

ARTICLE 1

DEFINITIONS...........................................................................1

 

ARTICLE 2

ORGANIZATIONAL MATTERS...............................................................10

2.1 Formation...................................................................10

2.2 Name........................................................................10

2.3 Term........................................................................10

2.4 Office and Agent............................................................10

2.5 Addresses of the Members, the Managers, and the Directors...................10

2.6 Purpose of Company..........................................................11

 

ARTICLE 3

CAPITAL CONTRIBUTIONS................................................................11

3.1 Initial Capital Contribution................................................11

3.2 Additional Capital Contributions............................................11

3.3 Mandatory Additional Capital Contributions..................................11

3.3.1 Equity Contributions...............................................11

3.3.2 Funding Contributions..............................................11

3.4 Failure to Make Mandatory Additional Capital Contributions..................12

3.4.1 Notice ............................................................12

3.4.2 Remedies...........................................................12

3.4.3 Other Effects......................................................14

3.4.4 Remedies Reasonable................................................15

3.4.5 No Waiver..........................................................15

3.5 Optional Additional Capital Contributions...................................15

3.6 Capital Accounts............................................................15

3.7 No Interest.................................................................15

 

ARTICLE 4

ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS...........................15

4.1 Allocations of Net Income and Net Loss......................................15

4.2 Distribution of Distributable Cash by the Company...........................16

4.3 Form of Distribution........................................................16

4.4 Restriction on Distributions................................................16

4.4.1 Restriction. .....................................................16

4.4.2 Method of Determination. .........................................16

4.4.3 Personal Liability. ..............................................16

4.5 Return of Distributions.....................................................16

 

ARTICLE 5

MANAGEMENT AND CONTROL OF THE COMPANY................................................17

5.1 Managers and the Management Committee.......................................17

5.1.1 Managers...........................................................17

5.1.2 General Scope of Authority.........................................17

5.1.3 Voting ............................................................17

5.1.4 Veto Right.........................................................17

5.2 Members of the Management Committee; Appointment and Removal................19

5.3 Matters Determined by Independent Directors.................................20

5.4 Meetings of the Management Committee........................................20

5.5 Delegation of Authority; President and Other Officers.......................21

5.5.1 General Power to Delegate Authority................................21

5.5.2 The President......................................................21

5.5.3 Duties of the President............................................21

5.5.4 Additional Officers................................................22

5.5.5 Officers Serve at the Pleasure of the Management

Committee........................................................22

5.6 Interested Party Transactions...............................................22

5.6.1 Approval...........................................................22

5.6.2 Termination and Remedies...........................................22

5.7 Performance of Duties; Liability of Managers; Liability of Directors........23

5.8 Offices and Facilities; Staff...............................................23

5.8.1 Facilities/Company Location........................................23

5.9 Insurance. .................................................................23

 

ARTICLE 6

BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY..............................24

6.1 The Business Plan...........................................................24

6.1.1 The First Business Plan............................................24

6.1.2 Additions to Business Plan.........................................24

6.2 Annual Budgets..............................................................24

6.3 Carryover Plan or Budget....................................................25

6.4 Operation of Company........................................................25

6.4.1 Operations During Transition Period. .............................25

6.4.2 Absorption of Existing Channels. .................................25

6.4.3 German Venture Expenses. .........................................25

6.4.4 Services Provided by PEGI. .......................................25

6.4.5 Creation of Local Ventures and Provision for Local Partners. ......26

6.4.6 Supplemental Programs. ...........................................26

6.4.7 Playboy TV Lite....................................................27

6.4.8 Venus and Spice Hot. .............................................27

6.4.9 U.S. Activities....................................................28

6.4.10 Certain Tax Matters.........................................................28

 

ARTICLE 7

RIGHTS ACQUISITION FEE...............................................................28

7.1 Rights Acquisition Fee. ....................................................28

7.1.1 Payment of Fee. .................................................28

7.1.2 Allocation of Fee. ...............................................29

7.2 Purchase of U.K. Venture, Japan Venture and Danish Companies................29

 

ARTICLE 8

MEMBERS..............................................................................30

8.1 Limited Liability...........................................................30

8.2 Admission of Additional Members.............................................30

8.3 Withdrawals or Resignations.................................................30

8.4 Termination of Membership Interest..........................................30

8.5 Remuneration To Members. ..................................................30

8.6 Members Are Not Agents; No Management Authority.............................31

8.7 Meetings of Members.........................................................31

8.7.1 Power to Call Meetings.............................................31

 

ARTICLE 9

TRANSFER AND ASSIGNMENT OF INTERESTS.................................................31

9.1 Transfer of Membership Interests............................................31

9.2 Change of Control...........................................................32

9.2.1 Changes in General.................................................32

9.2.2 VSI. ............................................................32

9.2.3 PEI/PEGI...........................................................32

9.2.4 Initial Public Offering............................................33

9.3 Substitution of Members.....................................................33

9.4 Effective Date of Permitted Transfers.......................................33

9.5 Rights of Legal Representatives.............................................33

9.6 PEGI Buy-up Option..........................................................33

9.6.1 Option Expiration Date. ...........................................34

9.6.2 Exercise of Buy-up Option..........................................34

 

ARTICLE 10

CONSEQUENCES OF DISSOLUTION..........................................................35

10.1 Disassociation Event........................................................35

10.1.1 Purchase Price .................................................35

10.1.2 Notice of Intent to Purchase.......................................35

10.1.3 Election to Purchase Less Than All of the Former Member's

Interest.........................................................35

10.1.4 Payment of Purchase Price..........................................35

10.1.5 Closing of Purchase of Former Member's Interest....................36

10.1.6 Purchase Terms Varied by Agreement.................................36

10.2 Bankruptcy..................................................................36

 

ARTICLE 11

ACCOUNTING, RECORDS, REPORTING BY MEMBERS............................................36

11.1 Books and Records...........................................................36

11.2 Delivery to Members and Inspection..........................................37

11.2.1 Delivery Upon Request. ...........................................37

11.2.2 Inspection .................................................37

11.2.3 Authorized Persons.................................................37

11.3 Periodic Statements.........................................................38

11.3.1 Monthly Report .................................................38

11.3.2 Annual Report .................................................38

11.3.3 Tax Information. .................................................38

11.4 Financial and Other Information.............................................38

11.5 Filings. .................................................................38

11.6 Bank Accounts...............................................................38

11.7 Accounting Decisions and Reliance on Others. ...............................39

11.8 Tax Matters for the Company Handled by Management Committee

and Tax Matters Member....................................................39

 

ARTICLE 12

DISSOLUTION AND WINDING UP...........................................................39

12.1 Term. .................................................................39

12.2 Dissolution Events..........................................................39

12.3 Effect of Dissolution.......................................................40

12.4 Dissolution.................................................................41

12.5 Certificate of Dissolution..................................................41

12.6 Winding Up..................................................................41

12.7 Distributions in Kind.......................................................41

12.8 Order of Payment of Liabilities Upon Dissolution............................42

12.8.1 Distributions to Members...........................................42

12.8.2 Payment of Debts .................................................42

12.9 Certificate of Cancellation.................................................42

12.10 No Action for Dissolution...................................................43

 

ARTICLE 13

INDEMNIFICATION AND INSURANCE........................................................43

13.1 Indemnification of Agents. .................................................43

13.2 Insurance .................................................................43

 

ARTICLE 14

NONCOMPETITION.......................................................................44

14.1 Non-competition.............................................................44

14.2 Separate Covenants..........................................................44

14.3 Injunctive Relief...........................................................44

14.4 Outside Businesses. .......................................................44

 

ARTICLE 15

MEMBER REPRESENTATIONS AND WARRANTIES................................................45

15.1 Representations and Warranties by Each Member...............................45

15.1.1 Experience .................................................45

15.1.2 No Advertising .................................................45

15.1.3 Investment Intent .................................................45

15.1.4 Purpose of Entity..................................................45

15.1.5 Economic Risk .................................................45

15.1.6 No Registration of Membership Interest.............................45

15.1.7 Membership Interest in Restricted Security.........................45

15.1.8 No Obligation to Register..........................................46

15.1.9 No Disposition in Violation of Law.................................46

15.1.10 Investment Risk .................................................46

15.1.11 Restrictions on Transferability....................................46

15.1.12 Information Reviewed...............................................46

15.1.13 No Representations By Company......................................46

15.1.14 Consultation with Attorney.........................................46

15.1.15 Tax Consequences .................................................47

15.1.16 No Assurance of Tax Benefits.......................................47

15.2 VSI Representations and Warranties. .......................................47

15.3 PEGI Representations and Warranties. ......................................47

15.4 Indemnity .................................................................48

 

ARTICLE 16

DISPUTE RESOLUTION...................................................................48

16.1 Alternative Dispute Resolution. ..........................................48

16.2 Notification and Negotiation. .............................................48

16.3 Mediation. ................................................................49

16.4 Arbitration. ..............................................................49

16.5 Damages. .................................................................49

16.6 Statute of Limitations. ...................................................49

16.7 Confidential Negotiations. ................................................49

16.8 Service of Process. .......................................................49

16.9 Additional Arbitration Provisions. ........................................50

 

ARTICLE 17

MISCELLANEOUS........................................................................50

17.1 Superseding Agreements......................................................50

17.2 Documents and Acts..........................................................50

17.3 Time is of the Essence......................................................50

17.4 Remedies Cumulative.........................................................50

17.5 Currency; Payments..........................................................50

17.6 Governing Law...............................................................51

17.7 Assignment; No Third Party Beneficiary......................................51

17.8 Agreement Negotiated........................................................51

17.9 Waivers, Remedies Cumulative, Amendments, etc...............................51

17.10 Notices .................................................................52

17.11 Public Announcements........................................................53

17.12 Survival .................................................................53

 

 

EXHIBIT A

 

CAPITAL CONTRIBUTION AND ADDRESSES OF MEMBERS

AS OF AUGUST 31, 1999................................................................A-1

 

EXHIBIT B

 

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

 

EXHIBIT C

 

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

 

EXHIBIT D

 

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

 

EXHIBIT E

 

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

 

EXHIBIT F

 

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

 

</TABLE>

 

 

OPERATING AGREEMENT

FOR

PLAYBOY TV INTERNATIONAL, LLC

A DELAWARE LIMITED LIABILITY COMPANY

 

This Operating Agreement is made and entered into on August 31,

1999 by and between Playboy Entertainment Group, Inc., a Delaware

corporation ("PEGI"), and Victoria Springs Investments Ltd., a British

Virgin Islands corporation ("VSI"), with reference to the following facts:

 

A. The parties have formed Playboy TV International, LLC, a

limited liability company under the laws of the State of Delaware.

 

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

for the Company.

 

NOW, THEREFORE, the parties by this Agreement set forth the

operating agreement for the Company under the laws of the State of Delaware

upon the terms and subject to the conditions of this Agreement.

 

ARTICLE 1

DEFINITIONS

 

When used in this Agreement, the following terms will have the

meanings set forth below:

 

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

 

"Act" means the Delaware Limited Liability Company Act, as the

same may be amended from time to time.

 

"Adult-Oriented" means, with respect to a Service or program, that

such Service or program is erotic in nature and features nudity.

 

"Affiliate" means any Person, directly or indirectly through one

or more intermediaries, controlling of, controlled by, or under common

control with the specified Person. The term "control" (and "controlled" and

"controlling," respectively), as used in the immediately preceding

sentence, means the possession, directly or indirectly, of the power to

direct or cause the direction of the management and policies of the

specified Person (whether by the holding of shares or other equity

interests, the possession of voting or contract rights or otherwise).

 

"After Tax Basis" means a basis such that any payment (the

"Original Payment") received or deemed to have been received by a Person

(the "recipient") will be supplemented by a further payment to the

recipient so that the sum of the two payments will equal the Original

Payment, after taking into account (x) all taxes that would result from the

receipt or accrual of such payments, if legally required, and (y) any

reduction in taxes that would result from the deduction of the expense

indemnified against, if legally permissible. In the event that the expense

indemnified against is used to reduce taxes by way of amortization or

depreciation, payments made on an After Tax Basis will be refunded in each

taxable year of the recipient in which such expense is deductible in an

amount equal to the sum of (i) the tax savings attributable to such

deduction plus (ii) any reduction in taxes that would result from the

deduction of any amounts described in clause (i) as increased hereby. All

payments hereunder will be calculated on the assumptions that the recipient

was subject to tax at the highest marginal rates of tax applicable to such

class of taxpayer and that it could benefit from the deduction of any

expense at such rate of tax. In the event that a taxing authority will

treat any indemnification payment as not includible in gross income or

disallow any deduction taken into account hereunder, the indemnification

will be recomputed and further payments or refunds made.

 

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

 

"Agreement" means this Operating Agreement, as originally executed

and as amended from time to time in accordance with the terms hereof.

 

"Agreement Outline" means that certain "Playboy TV International,

LLC Agreement Outline" entered into by and among PEII, PEGI and Bloomfield,

dated as of December 16, 1998, as amended.

 

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

 

"Bankruptcy" with respect to a Member means: (a) the filing of an

application by a Member for, or such Member's consent to, the appointment

of a trustee, receiver, or custodian of such Member's other assets; (b) the

entry of an order for relief with respect to a Member in proceedings under

the United States Bankruptcy Code, as amended or superseded from time to

time; (c) the making by a Member of a general assignment for the benefit of

creditors; (d) the entry of an order, judgment, or decree by any court of

competent jurisdiction appointing a trustee, receiver, or custodian of the

assets of a Member unless the proceedings and the Person appointed are

dismissed within ninety (90) days; or (e) the failure by a Member generally

to pay such Member's debts as the debts become due within the meaning of

Section 303(h)(1) of the United States Bankruptcy Code, as determined by

the Bankruptcy Court, or the admission in writing of such Member's

inability to pay its debts as they become due.

 

"Bloomfield" means Bloomfield Mercantile, Inc., a Panamanian

company and the assignor of its rights under the Agreement Outline to VSI.

 

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

 

"Capital Account" means with respect to any Member the capital

account that the Company establishes and maintains for such Member pursuant

to Section 3.6 and Article 1 of Exhibit B.

 

"Capital Contribution" means the total value of cash and fair

market value of property (including promissory notes or other obligation to

contribute cash or property) contributed and/or services rendered or to be

rendered to the Company by Members.

 

"Certificate" means the Certificate of Formation for the Company

originally filed with the Delaware Secretary of State and as amended from

time to time.

 

"Channels" mean the television channels operated by the Company or

its subsidiaries, now or in the future (each, a "Channel").

 

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

 

"Code" means the Internal Revenue Code of 1986, as amended from

time to time, the provisions of succeeding law, and to the extent

applicable, the Treasury Regulations.

 

"Company" means Playboy TV International, LLC, a Delaware limited

liability company.

 

"Corporate Income Taxes" means, with respect to any entity, such

entity's United States Federal and State income taxes and franchise taxes

(however denominated) based on such entity's actual net earnings or any

similar taxes (however denominated) payable by such entity to any

jurisdiction based on such entity's actual net earnings, it being agreed

that any taxes (however denominated) required to be withheld by any

jurisdiction in order to permit the remittance of monies from any such

jurisdiction will not be deemed to be a tax based on the actual net

earnings of such entity.

 

"Corporations Code" means the Delaware General Corporation Law, as

amended from time to time, and the provisions of any succeeding law.

 

"Danish Companies" means SEI 2 and SEI 3.

 

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

 

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

 

"Disassociation Event" means, with respect to any Member, the

Bankruptcy or dissolution of such Member.

 

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

 

"Distributable Cash" means the amount of cash that the Management

Committee deems available for distribution to the Members, taking into

account all debts, liabilities and obligations of the Company then due and

amounts that the Management Committee deems necessary to place into

reserves for customary and usual claims with respect to the Company's

business and for future operating needs of the Company.

 

"Due Diligence" means the right granted to Bloomfield in the

Agreement Outline to investigate matters relevant to the transactions

contemplated in the Agreement Outline.

 

"Economic Interest" means a Member's share of one or more of the

Company's Net Income, Net Losses, and distributions of the Company's assets

pursuant to this Agreement and the Act, but will not include any other

rights of a Member, including, but not limited to, the right to vote or

participate in the management, or except as provided in Section 18-305 of

the Act, any right to information concerning the business and affairs, of

the Company.

 

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

9.2.3.

 

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

6.4.2.

 

"Existing Library Programs" has the meaning set forth in the

Program Supply Agreement.

 

"Fair Market Value" with respect to the Company or to any asset

means the value determined pursuant to Exhibit E.

 

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

6.1.1.

 

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

calendar year.

 

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

 

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

10.1.

 

"Founders' Price" as of a specified date means, with respect to

the price per 1% Percentage Interest, an amount equal to the sum of PEGI's

and VSI's Capital Contributions through and including such date, divided by

100.

 

"Funding Date" means the date which is ten (10) business days

after this Agreement is executed.

 

"Funding Side Letter" means the letter agreement of even date

herewith among PEGI, VSI, PTVI, PTVLA, the German Venture and White Oak

Enterprises Ltd. relating to the payment of amounts with respect to

programming and trademark license fees relating to PTVLA, the German

Venture and White Oak Enterprises Ltd. for periods ending on June 30, 1999

and amounts advanced to the U.K. Venture after July 1, 1999 and loaned to

the U.K. Venture before March 31, 1999.

 

"German Venture" means Playboy TV - GmbH Germany.

 

"Guaranty" means the Guaranty by Hampstead of the obligations

hereunder of VSI, executed concurrently herewith.

 

"Hampstead" means Hampstead Management Company Ltd., a British

Virgin Islands corporation.

 

"Imagen" means Imagen Satelital, S.A., a corporation formed under

the laws of Argentina.

 

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

 

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

 

"Independent Directors" has the meaning set forth in Section

5.2.1.

 

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

corporation.

 

"Licensor" means the licensor under either the Program Supply

Agreement or under the Trademark License Agreement, as the context

dictates.

 

"Lifford" means Lifford International Co. Ltd., an International

business company incorporated under the laws of the British Virgin Islands.

 

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

 

"Majority Interest" means Percentage Interests of one or more

Members that taken together exceed fifty percent (50%) of the aggregate of

all Percentage Interests.

 

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

 

"Managers" means the Managers of the Company pursuant to Section

18-402 of the Act.

 

"Mandatory Additional Capital Contributions" has the meaning set

forth in Section 3.3.2.

 

"Mandatory Additional Cash Contribution" has the meaning set forth

in Section 3.3.2.

 

"Mandatory Additional Equity Contributions" has the meaning set

forth in Section 3.3.1.

 

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

 

"Member" means each Person who (a) is an initial signatory to this

Agreement or has been admitted to the Company as a Member in accordance

with this Agreement and (b) has not resigned, withdrawn, been expelled or

dissolved.

 

"Membership Interest" means a Member's entire interest in the

Company including the Member's Economic Interest, the right to vote on or

participate in the management, and the right to receive information

concerning the business and affairs, of the Company.

 

"Memorandum of Agreement" means that certain Memorandum of

Agreement entered into by and between PEGI and Tohokushinsha Film

Corporation dated as of July 31, 1995, as amended.

 

"Net Income" and "Net Losses" have the meanings set forth in

Article 2 of Exhibit B hereto.

 

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

 

"New Venus Territory" means Mexico and each country comprising

Central America, South America and the Caribbean Basin. "Caribbean Basin"

means the following territories, and specifically excludes Guadeloupe,

Martinique, and The Netherlands Antilles: Anguilla, Antigua and Barbuda,

Aruba, Barbados, Bermuda, The British Virgin Islands, The Cayman Islands,

Cuba, Dominica, Dominican Republic, Grenada, Haiti, Jamaica, Montserrat,

Puerto Rico, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines,

Trinidad and Tobago, and the Turks, Caicos Islands, and the U.S. Virgin

Islands.

 

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

Independent Director

 

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

 

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

 

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

 

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

9.6.1.

 

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

 

"Optional Additional Capital Contribution" has the meaning set

forth in Section 3.5.

 

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

corporation.

 

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

 

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

 

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

the ultimate parent corporation of PEGI.

 

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

corporation and the direct parent corporation of PEGI.

 

"Percentage Interest" means the percentage of a Member set forth

opposite the name of such Member under the column "Member's Percentage

Interest" in Exhibit A hereto, as such percentage may be adjusted from time

to time pursuant to the terms of this Agreement.

 

"Person" means an individual, general partnership, limited

partnership, limited liability company, corporation, trust, estate, real

estate investment trust, association or any other entity.

 

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

 

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

 

"Program Supply Agreement" means the Program Supply Agreement

between PEGI and the Company, executed concurrently herewith.

 

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

 

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

 

"PTVH" means Playboy TV Holdings, LLC, a California limited

liability company.

 

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

liability company.

 

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

 

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

company.

 

"Reference Rate" means the reference rate as set forth from time

to time by BankAmerica.

 

"Related Documents" means this Agreement, the Trademark License

Agreement, the Program Supply Agreement, the Stock Purchase Agreements, and

the Guaranty.

 

"Release" means the Termination of Guaranty by and among PEI,

PEGI, PTVLA and Venevision International, Inc., a Florida corporation,

executed concurrently herewith.

 

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

 

"Remediable Breach" has the meaning set forth in Section

12.2.2(b).

 

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

7.1.1.

 

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

 

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

Denmark.

 

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

Denmark.

 

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

 

"Services" means the operation of television channels under the

brand names "Playboy," "Spice" and "AdulTVision" (and variations thereof

permitted under the Trademark License Agreement) in the Territory.

 

"Share Purchase Agreement" means that certain Share Purchase

Agreement dated as of November 26, 1998, by and among Playboy TV

U.K./Benelux Limited, PEGI, PEI, Continental Shelf 16 Limited, Flextech

(1992) Limited, British Sky Limited and Sky Ventures Limited, as amended.

 

"Southern Cone" means the countries of Argentina, Chile, Peru,

Bolivia, Paraguay, Uruguay and their territories and possessions.

 

"Stock Purchase Agreements" means, collectively, (i) the Stock

Purchase Agreement entered into by and between PEGI and the Company as of

the date hereof for the purchase of PEGI's interest in the U.K. Venture

(ii) the Stock Purchase Agreement entered into by and between PEGI and the

Company as of the date hereof for the purchase of PEGI's interest in the

Japan Venture; (iii) the Stock Purchase Agreement entered into by and

between PEGI and the Company for the purchase of PEGI's interest in SEI 2;

and (iv) the Stock Purchase Agreement entered into by and between PEGI and

the Company for the purchase of PEGI's interest in SEI 3.

 

"Supplemental Programs" has the meaning set forth in Section

6.4.6.

 

"Tax Matters Member" means VSI or such Member's successor as

designated pursuant to Section 11.8.

 

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

 

"Territory" means the World, except for the United States and

Canada and their territories and possessions. For certain programs, the

Territory will exclude Bermuda, as set forth in the Program Supply

Agreement.

 

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

 

"Trademark License Agreement" means the Trademark License

Agreement, to be executed concurrently herewith, between PEII and the

Company relating to the license of certain trademarks.

 

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

 

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

 

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

 

"Troy" means Troy Limited, a Bahamian company.

 

"U.K. Venture" means Home Video Channel Limited and its subsidiary

Playboy TV U.K./Benelux, Limited, each a company organized under the laws

of England and Wales.

 

"US Distribution Agreement" means that certain Distribution

Agreement to be entered into between PEGI and PTV U.S.

 

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

6.4.9.

 

"Venus" means that certain Adult-Oriented television programming

service owned and operated by Imagen, primarily in Argentina.

 

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

 

"Walk Away Notice" means that certain letter from Cisneros

Television Group (on behalf of Bloomfield) to PEGI dated February 12, 1999,

in which Bloomfield exercised its Walk Away Right, as defined in the

Agreement Outline.

 

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

Agreement.

 

"Year 1" means the 12-month period commencing on the Funding Date;

"Year 2" means the 12-month period commencing on the first anniversary of

the Funding Date; and subsequent years will be identified in analogous

fashion.

 

ARTICLE 2

ORGANIZATIONAL MATTERS

 

2.1 Formation. Pursuant to the Act, the Members formed a limited

liability company under the laws of the State of Delaware by causing

Christine Tuthill, an authorized person, to file the Certificate with the

Delaware Secretary of State. The Members ratify and confirm the filing the

Certificate. The rights and liabilities of the Members will be determined

pursuant to the Act and this Agreement. To the extent that the rights or

obligations of any Member are different by reason of any provision of this

Agreement than they would be in the absence of such provision, this

Agreement will, to the extent permitted by the Act, control.

 

2.2 Name. The name of the Company will be "Playboy TV

International, LLC." The business of the Company may be conducted under

such name or, upon compliance with applicable laws, any other name

determined by the Management Committee. The President or another designated

officer of the Company will file any fictitious name certificates and

similar filings, and any amendments thereto, that the Management Committee

considers appropriate or advisable. Notwithstanding the foregoing, if PEGI

is no longer a Member, at PEGI's request the Certificate will be amended to

change the name of the Company to a name that does not contain or utilize

any trademarks licensed under the Trademark License Agreement or any

confusingly similar designation or mark.

 

2.3 Term. The term of this Agreement will be co-terminus with the

period of duration of the Company provided in the Certificate, unless

extended or sooner terminated as hereinafter provided.

 

2.4 Office and Agent. The Company will continuously maintain an

office and registered agent in the State of Delaware as required by the

Act. The principal office of the Company will be as set forth in Section

5.9.1 or such other location as the Management Committee may determine. The

Company also may have such offices, anywhere within and without the State

of Delaware, as the Management Committee from time to time may determine,

or the business of the Company may require. The registered agent will be as

stated in the Certificate or as otherwise determined by the Management

Committee.

 

2.5 Addresses of the Members, the Managers, and the Directors. The

respective addresses of the Members are set forth on Exhibit A, which

exhibit will be modified from time to time to reflect changes therein. The

respective addresses of the Managers and the Directors will be maintained

in the books of the Company and made available to any Member, on request.

 

2.6 Purpose of Company. The purpose of the Company is to engage in

any lawful activity for which a limited liability company may be organized

under the Act. Notwithstanding the foregoing, without the majority approval

of the Management Committee (and subject to the veto rights of the VSI

Directors and the PEGI Directors under Section 5.1.3), the Company will not

engage in any business other than the business of (i) owning, operating and

distributing the Services in the Territory, (ii) licensing programming to

third parties; and (iii) and such other activities which are ancillary and

related thereto as may be necessary, advisable, or appropriate in the

reasonable opinion of the Management Committee, to further the foregoing

business, including but not limited to the promotion of the Services and

related marketing, distribution and advertising activities.

 

ARTICLE 3

CAPITAL CONTRIBUTIONS

 

3.1 Initial Capital Contribution. On the Funding Date, each Member

will contribute such amount as is set forth on Exhibit A as its initial

Capital Contribution to be paid on such date. Both VSI's and PEGI's initial

Capital Contributions will be made in cash. Exhibit A will be further

revised from time to time to reflect any additional contributions made in

accordance with this Agreement.

 

3.2 Additional Capital Contributions. Except as specifically

provided in Section 3.3, no Member will be required to make any additional

Capital Contributions.

 

3.3 Mandatory Additional Capital Contributions.

 

3.3.1 Equity Contributions. VSI will use its reasonable best

efforts to acquire Lifford's interest in PTVLA and Bloomfield's interest in

the German Venture as soon as reasonably practicable. Promptly after the

date of such acquisitions, both VSI and PEGI will contribute to the Company

their equity interests (or those interests belonging to PEGI Affiliates or

VSI Affiliates) in PTVLA and the German Venture at book value (the

"Mandatory Additional Equity Contributions"); provided, however, that VSI

will, until the effective date of the merger of PTVLA into Playboy TV-Latin

America/Iberia, LLC, a Delaware limited liability company ("PTVLA/I"),

retain a 1% membership interest in PTVLA. As of the effective date of such

merger, VSI will contribute such 1% membership interest in PTVLA/I to the

Company.

 

3.3.2 Funding Contributions. If necessary to cover the

deficits of the Company, each Member will contribute additional capital pro

rata in accordance with their respective Percentage Interests, with such

capital calls subject to the aggregate maximum (including the initial

Capital Contributions described in Section 3.1) of One Hundred Million

Dollars ($100,000,000) (each, a "Mandatory Additional Cash Contribution";

and, together with the Mandatory Additional Equity Contributions, the

"Mandatory Additional Capital Contributions"). A schedule of anticipated

Mandatory Additional Cash Contributions for the first eight (8) quarters of

the Company's operation, which contributions are expected to occur

quarterly at the beginning of each quarter, will be attached hereto as

Exhibit C upon completion of the Final First Business Plan. Subsequent

Mandatory Additional Cash Contributions will be made as set forth in the

Business Plan, as in effect from time to time. The Company will give

written notice to each Member of each Mandatory Additional Capital

Contribution at least fifteen (15) business days prior to the date due,

stating the amount owed by each Member and the date on which such amount is

due.

 

3.4 Failure to Make Mandatory Additional Capital Contributions.

 

3.4.1 Notice. If a Member does not timely contribute a

Mandatory Additional Capital Contribution when required, that Member will

be in default under this Agreement (a "Defaulting Member"). In such event,

the Company will send the Defaulting Member written notice of such default,

giving the Defaulting Member fifteen (15) days from the date such notice is

given to contribute the entire amount of the Mandatory Additional Capital

Contribution.

 

3.4.2 Remedies. If the Defaulting Member does not contribute

the Mandatory Additional Capital Contribution to the Company within the

periods set forth below, the Management Committee, acting for all purposes

of this Section 3.4.2 without the vote of the Directors appointed by the

Defaulting Member, (i.e., acting by a Majority Interest of the members of

the Management Committee appointed by the non-Defaulting Members) may elect

any one or more of the remedies set forth below. Notwithstanding the

foregoing, in no event will the Management Committee be entitled to elect

more than one remedy if the effect of doing so would be duplicative.

 

(a) Apply Payments. If PEGI (or an Affiliate of PEGI which

is then a Member) is the Defaulting Member, the Management Committee may

elect to withhold the amount that the Defaulting Member has failed to

contribute from amounts otherwise payable to PEGI (or an Affiliate of PEGI)

with respect to the Rights Acquisition Fee or under the Program Supply

Agreement or the Trademark License Agreement and to pay such withheld

amount to the Company on behalf of the Defaulting Member. For all purposes

hereunder, the withheld amount will be treated as though it were paid by

the Company to the party entitled to payment thereof and as though the

Defaulting Member made the capital contribution.

 

(b) Advance Funds. If the Defaulting Member does not

contribute the Mandatory Additional Capital Contribution within the fifteen

(15) day period following notice from the Company of default, the

Management Committee may elect to permit non-defaulting Members to advance

funds to the Company to cover those amounts that the Defaulting Member

fails to contribute. Amounts that a non-Defaulting Member so advances on

behalf of the Defaulting Member will become a demand loan due and owing

from the Defaulting Member to such non-defaulting Member, bearing interest

at the rate per annum of one hundred fifty (150) basis points above the

Reference Rate as in effect on the date such Mandatory Additional Capital

Contribution was originally due, with such interest being payable monthly.

All cash distributions otherwise distributable to the Defaulting Member

under this Agreement will instead be paid, on the Defaulting Member's

behalf, to the non-Defaulting Members making such advances until such

advances and any accrued but unpaid interest thereon are paid in full. Any

amounts repaid will first be applied to interest and thereafter to

principal. Effective upon a Member becoming a Defaulting Member, such

Member will grant to the non-Defaulting Members who advance funds under

this Section 3.4.2(b) a security interest in its Economic Interest to

secure its obligation to repay such advances and will execute and deliver a

promissory note, security agreement, and such UCC-1 financing statements

and assignments of certificates of membership interest (or other documents

of transfer) in such form as such non-Defaulting Members may reasonably

request.

 

(c) Adjust Percentage Interest. If the Defaulting Member

does not, within a further period of ninety (90) days, contribute the

Mandatory Additional Capital Contribution and/or repay in full any advances

made by the non-Defaulting Members, the Member who has made a loan pursuant

to Section 3.4.2(b) may elect to convert all or a portion of such loan

(plus any accrued but unpaid interest thereon) to a Capital Contribution.

Upon such election, the Percentage Interests of the Defaulting Member and

the non-Defaulting Member(s) will be adjusted so that each Member's

Percentage Interest will be a fraction, the numerator of which represents

the amount of such Member's Capital Account and the denominator of which

represents the sum of all Members' Capital Accounts, taking into account

the contribution represented by the conversion of the loan.

 

(d) Dissolve. If the Defaulting Member does not contribute

Mandatory Additional Capital Contributions on three (3) occasions, whether

or not consecutive, and the Defaulting Member has failed to cure each such

failure to contribute within the fifteen (15) day period specified in

Section 3.4.1 above, the Management Committee may propose to dissolve the

Company in which event the Company will be wound-up, liquidated and

terminated pursuant to Article 12.

 

(e) Purchase Interest. If the Defaulting Member does not

contribute Mandatory Additional Capital Contributions on three (3)

occasions, whether or not consecutive, and the Defaulting Member has failed

to cure each such failure to contribute within the fifteen (15) day period

specified in Section 3.4.1 above, the Management Committee may elect to

permit the Company or the non-Defaulting Members to purchase the Defaulting

Member's entire Membership Interest for the positive balance of such

Member's Capital Account less the total amount owed by such Member to the

Company and non-Defaulting Members in respect of unpaid Mandatory

Additional Capital Contributions or advances by non-Defaulting Members in

respect thereof. Any such purchase of a Member's Percentage Interest will

occur as promptly as practicable following notice of the purchase election

to the Defaulting Member, subject to the receipt of required regulatory

approvals.

 

3.4.3 Other Effects.

 

(a) No Distributions. A Defaulting Member will have no right

to receive any distributions from the Company until: (i) the principal and

interest of any outstanding loan made by a non-Defaulting Member pursuant

to Section 3.4.2(a) has been repaid; and (ii) to the extent a

non-Defaulting Member elects to convert any such loan to a Capital

Contribution, such non-Defaulting Member has first received distributions

in an amount equal to the amount of such Capital Contribution, plus a

cumulative, compounded return thereon at the rate per annum of one hundred

fifty (150) basis points above the Reference Rate as in effect on the date

such additional capital was contributed. In the event a non-Defaulting

Member receives a distribution of interest on a Capital Contribution

pursuant to clause (ii) of the preceding sentence, the Capital Account of

such non-Defaulting Member will be increased by the amount of such interest

payment.

 

(b) No Voting. Except as otherwise provided in this Section

3.4.3(b), if the Management Committee exercises any of the remedies set

forth in paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member

(directly or through the Directors appointed by it) will lose its voting

and approval rights under the Act and this Agreement (unless the Defaulting

Member cures the default and the non-Defaulting Member permits such cure).

Notwithstanding the foregoing, the Directors appointed by the Defaulting

Member will retain their veto rights (to the extent such veto rights were

continuing prior to the exercise of such remedy) with respect to the

matters described in Sections 5.1.4(b) and Section 5.1.4(c). No reduction

in a Member's Membership Interest, pursuant to Section 3.4.2(b) will affect

any of the Defaulting Member's voting or approval rights under this

Agreement (other than to the extent such reduction reduces the voting power

of the Defaulting Member's Directors pursuant to Section 5.2.4).

 

(c) No Participation in Management. Except as provided in

Section 3.4.3(b), if the Management Committee exercises any of the remedies

set forth in paragraphs (d) or (e) of Section 3.4.2, the Defaulting Member

will lose its ability (whether as a Member or through the Directors

appointed by it) to actively participate in the management and operations

of the Company until the completion of dissolution and the winding up of

the affairs of the Company, or such time as the Defaulting Member cures (if

the non-Defaulting member thereafter permits the Defaulting Member to cure)

the default or its Percentage Interest is purchased.

 

3.4.4 Remedies Reasonable. Each Member acknowledges and

agrees that the remedies described in this Section 3.4 bear a reasonable

relationship to the damages that the Members estimate may be suffered by

the Company and the non-Defaulting Members by reason of the failure of a

Defaulting Member to make Mandatory Additional Capital Contributions and,

subject to the last sentence of the first paragraph of Section 3.4.2, the

election of any or all of the above-described remedies is not unreasonable.

 

3.4.5 No Waiver. Subject to the last sentence of the first

paragraph of Section 3.4.2, the election of the Management Committee or of

any non-Defaulting Member to pursue any remedy provided in this Section 3.4

will not be a waiver or limitation of the right of the Management

Committee, the Company or the non-Defaulting Members to pursue an

additional or different remedy available hereunder or of law or equity with

respect to any subsequent default.

 

3.5 Optional Additional Capital Contributions. To the extent

approved by the Management Committee (subject to the veto rights of the VSI

Directors and PEGI Directors under Section 5.1.3), from time to time, the

Members may be permitted to make additional Capital Contributions if and to

the extent they so desire, and if the Directors determine that such

additional Capital Contributions are necessary or appropriate for the

conduct of the Company's business, including without limitation, expansion

or diversification (each, an "Optional Additional Capital Contribution").

In that event, the Members will have the opportunity, but not the

obligation, to participate in such Optional Additional Capital

Contributions on a pro rata basis in accordance with their Percentage

Interests. Immediately following such Optional Additional Capital

Contributions, the Percentage Interests will be adjusted to reflect the new

relative proportions of the Capital Accounts of the Members.

 

3.6 Capital Accounts. The Company will establish an individual

Capital Account for each Member in accordance with Article 1 of Exhibit B

hereto. If a Member transfers all or a part of its Membership Interest in

accordance with this Agreement, such Member's Capital Account attributable

to the transferred Membership Interest will carry over to the new owner of

such Membership Interest pursuant to Treasury Regulations Section

1.704-1(b)(2)(iv)(1).

 

3.7 No Interest. Except as provided in Section 3.4, no Member will

be entitled to receive any interest on its Capital Contributions.

 

ARTICLE 4

ALLOCATIONS OF NET INCOME AND NET LOSSES AND DISTRIBUTIONS

 

4.1 Allocations of Net Income and Net Loss. Net Income and Net

Loss will be allocated to the Members in accordance with Article 1 of

Exhibit B.

 

4.2 Distribution of Distributable Cash by the Company. Subject to

applicable law and any limitations contained elsewhere in this Agreement,

the Management Committee will cause the Company to distribute Distributable

Cash on a quarterly basis to the Members, which distributions will be made

to the Members in proportion to their Percentage Interests as of the end of

the relevant quarter.

 

4.3 Form of Distribution. Except as provided in Section 12.7, a

Member, regardless of the nature of the Member's Capital Contribution, has

no right to demand and receive any distribution from the Company in any

form other than money. No Member may be compelled to accept from the

Company a distribution of any asset in kind in lieu of a proportionate

distribution of money being made to other Members. Except upon a

dissolution and a winding up of the Company, no Member may be compelled to

accept a distribution of any asset in kind.

 

4.4 Restriction on Distributions.

 

4.4.1 Restriction. No distribution will be made if, after

giving effect to the distribution:

 

(a) The Company would not be able to pay its debts as they

become due in the usual course of business.

 

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

its total liabilities.

 

4.4.2 Method of Determination. The Management Committee may

base a determination that a distribution is not prohibited on any of the

following: (i) financial statements prepared on the basis of accounting

practices and principles that are reasonable in the circumstances; (ii) a

fair valuation; or (iii) any other method that is reasonable in the

circumstances.

 

Except as provided in Section 18-607(b) of the Act, the

effect of a distribution is measured as of the date the distribution is

authorized if the payment occurs within one hundred twenty (120) days after

the date of authorization, or the date payment is made if it occurs more

than one hundred twenty (120) days of the date of authorization.

 

4.4.3 Personal Liability. A Member who receives a

distribution in violation of this Agreement or the Act will be liable to

the Company for the amount of the distribution that exceeds what could have

been distributed without violating this Agreement or the Act. Any Member

who is so liable will be entitled to compel the Company to seek repayment

from each other Member who is so liable.

 

4.5 Return of Distributions. Except for distributions made in

violation of the Act or this Agreement, no Member will be obligated to

return any distribution to the Company or pay the amount of any

distribution for the account of the Company or to any creditor of the

Company. The amount of any distribution returned to the Company by a Member

or paid by a Member for the account of the Company or to a creditor of the

Company will be added to the account or accounts from which it was

subtracted when it was distributed to the Member.

 

ARTICLE 5

MANAGEMENT AND CONTROL OF THE COMPANY

 

5.1 Managers and the Management Committee.

 

5.1.1 Managers. Each Person duly admitted as a Member of the

Company pursuant to this Agreement will be a Manager of the Company until

such Member's Membership Interest has been transferred or terminated or

such Member has withdrawn in accordance with this Agreement. VSI and PEGI

will be the initial Managers of the Company.

 

5.1.2 General Scope of Authority. The business and affairs

of the Company will be managed by the Managers through a management

committee consisting of representatives appointed by the Managers, and

through which the Managers will exercise their rights and authority

hereunder (the "Management Committee"). The Management Committee will be

appointed and constituted in the manner provided in Section 5.2 hereof. The

Management Committee will be responsible for all aspects of the operations

and development of the Company and, except as otherwise expressly provided

for in this Agreement, the Management Committee will have exclusive

authority and full discretion with respect to the management of the

business of the Company and will have the exclusive right, power and

authority to cause the Company to do, or cause to be done, all acts and

actions which in its sole judgment are necessary, proper, convenient or

desirable in order to operate and conduct the business of the Company and

to carry out and fulfill the purposes of the Company.

 

5.1.3 Voting. Except as provided in Section 5.1.4 and in

Section 5.3, all matters submitted to the Management Committee will be

decided by a majority vote of the Non-Independent Directors. The

Non-Independent Directors will have voting power in proportion to the ratio

of Percentage Interests held by the Manager appointing them. All

Non-Independent Directors appointed by a Manager will collectively exercise

such voting power and each Manager will designate one of its

Non-Independent Directors to vote on behalf of all Non-Independent

Directors appointed by such Manager in the event of a disagreement among

the Non-Independent Directors appointed by such Manager.

 

5.1.4 Veto Right. Notwithstanding anything to the contrary

contained in this Agreement: (i) the VSI Directors may (so long as VSI or

any of its Affiliates is a Manager) and the PEGI Directors may (so long as

PEGI or any of its Affiliates is a Manager) veto any decision of the

Management Committee to perform, or cause the Company to perform, any of

the acts or transactions described in subsections (a) and (b) below; and

(ii) the VSI Directors may (so long as VSI and its Affiliates hold, in

aggregate, Percentage Interests equal to at least 10%) and the PEGI

Directors may (so long as PEGI and its Affiliates hold, in aggregate,

Percentage Interests equal to at least 10%) veto any decision of the

Management Committee to perform, or cause the Company to perform, any of

the following acts or transactions:

 

(a) any amendment to the Certificate, this Agreement, the

Trademark License Agreement and the Program Supply Agreement;

 

(b) any merger or other reorganization of the Company or any

sale of all or substantially all of the assets of the Company;

 

(c) the issuance of additional Membership Interests in the

Company or the call for Optional Additional Capital Contributions;

 

(d) any distribution by the Company with respect to the

interests therein other than distributions of excess cash (including, but

not limited to, any distribution of non-cash assets);

 

(e) the approval of any Company Business Plan or Annual

Budget or of any additions or amendments thereto; provided, however, that

in the event of a Licensor Shortfall (as defined in the Program License

Agreement) the VSI Directors may cause an Annual Budget to be amended to

provide for the production and/or acquisition of sufficient programming to

replace the Licensor Shortfall in a manner reasonably related to the nature

and scope of such Licensor Shortfall without the approval of the PEGI

Directors;

 

(f) the Company taking actions that are inconsistent with an

approved Business Plan or Annual Budget, or which are otherwise outside the

ordinary course of business, including but not limited to the incurrence of

indebtedness in excess of the levels contemplated by the applicable

Business Plan or Annual Budget;

 

(g) the appointment or dismissal of the President and the

approval of the terms of any employment agreement between the Company and

any senior executive officer;

 

(h) the Company entering into any line of business except as

contemplated herein;

 

(i) loans by the Company to any Member;

 

(j) the Company entering into any transaction with an

Affiliate of any Member (other than the Related Documents, as contemplated

in an approved Business Plan or as provided for in this Agreement);

 

(k) except as expressly provided herein, the termination,

dissolution or liquidation of the Company;

 

(l) the decision to admit a Local Partner who will acquire

(y) more than a 50% interest in a local venture for the U.K./Benelux

territory or the "GS Territory" or (z) more than a 33% interest in a local

venture for any other region of the Territory (as described in Section

6.4.5);

 

(m) the adoption of any different or additional names under

which the Company conducts business, other than the name of any "hot

channel" operated by the Company; or

 

(n) the location of the Company's principal offices, if

other than as set forth in Section 5.8.1.

 

Notwithstanding the foregoing, if PEGI has not acquired fifty

percent (50%) of the Percentage Interests in the Company prior to the

Option Expiration Date, then thereafter it may not exercise its veto right

with respect to a matter described in clause (h) above.

 

5.2 Members of the Management Committee; Appointment and Removal.

 

5.2.1 For so long as VSI (or its Affiliates) and PEGI (or

its Affiliates) are the only Members and Managers, the Management Committee

will consist of nine members: three Non-Independent Directors selected by

VSI (the "VSI Directors"), three Non-Independent Directors selected by PEGI

(the "PEGI Directors") and three other Directors (each, an "Independent

Director") selected in accordance with the following sentence. VSI and PEGI

will each select one Independent Director, and the two Independent

Directors will select a third Independent Director; provided, however, that

such third Independent Director will be mutually acceptable to both VSI and

PEGI. To qualify as an Independent Director, a person must have, and

continue to have, no material business, financial or familial relationship

with either VSI or PEGI or their Affiliates or with any officer or

executive thereof. Each of VSI and PEGI will identify the Directors it is

to appoint prior to the Funding Date. Each member of the Management

Committee is referred to as a "Director", and, collectively, as the

"Directors." A duly-admitted Manager will have the right to appoint at

least one Non-Independent Director (or such greater number as the

Management Committee may determine); provided, however, that no group of

Affiliated Members will have the right to appoint more than that number of

Directors that could have been appointed by that group's initial holder of

the Membership Interests. A Director need not be a resident of the State of

Delaware or a citizen of the United States. To the fullest extent permitted

by law, no Director will be deemed an agent or sub-agent of the Company.

Each Manager, by execution of this Agreement, agrees to, consents to, and

acknowledges the delegation of powers and authority to such Directors and

the Management Committee, and to the actions and decisions of such

Directors and the Management Committee within the scope of such Director's

and Management Committee's authority as provided herein. No Director will

have the authority in his capacity as a Director to enter into any

transaction on behalf of the Company. The Independent Directors will

receive compensation as determined from time to time by the Management

Committee and as reflected in the applicable Annual Budget.

 

(a) At such time as either the VSI Directors or the PEGI

Directors are no longer entitled to exercise a veto on matters that may be

determined by the Independent Directors pursuant to Section 5.3, the

Independent Directors will be dismissed from the Management Committee.

 

5.2.2 Each Manager will have the absolute and unconditional

right from time to time to designate the Directors appointed by it by

delivery of written notice to the Members. A Director may be removed with

or without cause at the sole discretion of the Manager that appointed that

Director by delivery of written notice to the other Manager(s). A vacancy

on the Management Committee may only be filled by the Manager that

originally appointed the Director whose death, disability, removal or

resignation created such vacancy, or, in the case of the third Independent

Director, by the other two Independent Directors. Each Manager will also

have the right to appoint alternates to each Director designated by such

Manager by designating the name of such alternates in a written notice to

the other Manager(s). In case of the absence of a Director, any individual

designated as an alternate for that Director will have the right and power

to exercise all rights and powers of the absent Director.

 

5.3 Matters Determined by Independent Directors. If the VSI

Directors or the PEGI Directors exercise their veto power under Section

5.1.3 with respect to * * * such Directors will negotiate in good faith for

a period of fifteen (15) business days in order to resolve the deadlock. If

such negotiations are not successful, then such deadlocked matter will be ***

 

5.4 Meetings of the Management Committee.

 

5.4.1 Regular quarterly meetings of the Management Committee

will be held without call or notice at such time as will from time to time

be fixed by standing resolution of the Management Committee. Special

meetings of the Management Committee may be held at any time whenever

called by any Director. Written notice of a special meeting of the

Management Committee will be given to the other Directors by the Director

calling the meeting at least three (3) business days before such special

meeting, and such notice will include a proposed agenda for the meeting.

Only matters on the proposed agenda may be put to a vote at such special

meeting. Special meetings may only take place at the Company's principal

offices or in Los Angeles.

 

5.4.2 For so long as each of VSI (with its Affiliates, in

aggregate) and PEGI (with its Affiliates, in aggregate) each hold

Percentage Interests equal to at least 10%, the location of the Company's

quarterly Management Committee meetings will rotate among the Company's

offices in Miami Beach, PEGI's headquarters in Beverly Hills, PEI's

headquarters in Chicago and an international location to be determined by

the Management Committee. The presence of Directors representing a Majority

Interest at a duly noticed meeting of the Management Committee will

constitute a quorum for the transaction of business; provided that to

transact business with respect to which the Directors appointed by any

Member have a veto right pursuant to Section 5.1.4, at least one such

Director must be present for a quorum to exist. Directors may participate

in a meeting through the use of conference telephone or similar

communications equipment, and such Directors will be considered present in

person as long as all Directors participating in such meeting can hear one

another.

 

5.4.3 Every act of the Management Committee taken at any

meeting of the Management Committee, however called and noticed or wherever

held, will be as valid as though made or performed at a meeting duly held

after regular call and notice, if a quorum is present and if, either before

or after the meeting, each of the Managers not present or who, though

present, has prior to the meeting or at its commencement, protested the

lack of proper notice to such meeting, signs a written waiver of notice or

a written consent to holding such meeting or approval of the minutes

thereof.

 

5.4.4 For so long as VSI and PEGI are the only Managers, any

action required or permitted to be taken at any meeting of the Management

Committee may be taken without a meeting if one VSI Director and one PEGI

Director consent thereto in writing, and the writing is filed with the

minutes of proceedings of the Management Committee.

 

5.5 Delegation of Authority; President and Other Officers.

 

5.5.1 General Power to Delegate Authority. The Management

Committee may delegate the right, power and authority to manage the day-to-day

business, affairs, operations and activities of the Company to the President

(which authority the President may delegate to other Persons), subject to the

ultimate direction, control and supervision of the Management Committee;

provided, however, that no Person will be authorized to take any action or

engage in any activity subject to the veto right of the VSI Directors and PEGI

Directors under Section 5.1.4 or where the approval of a specified Person is

required, without first obtaining the required approvals.

 

5.5.2 The President. The Managers intend that the Management

Committee delegate the management of the day-to-day business, affairs,

operations and activities of the Company to a President. The President will be

the most senior executive of the Company and will report directly to the

Management Committee. Subject to the supervisory powers of the Management

Committee, the President will have general and active management of the

business of the Company and will see that all orders and resolutions of the

Management Committee are carried into effect. The President will have the

power to execute any agreements and instruments on behalf of the Company,

except where the execution thereof will be expressly reserved by the

Management Committee or delegated by the Management Committee or the President

to some other officer or agent of the Company. The President will have such

other powers and duties as may be prescribed by the Management Committee or

this Agreement.

 

5.5.3 Duties of the President. Unless and until any of the

following duties are delegated to another officer by the Management

Committee, the President's duties will include: preparing the Business Plan

and Annual Budget and presenting them to the Members for approval at least

ninety (90) days prior to commencement of the applicable Fiscal Year;

supervision of all key functions of the Company (including launching and

managing Channels; sales and marketing; program acquisition and production;

strategic planning; accounting and financial planning (including

responsibility for the preparation of business plans and annual budgets);

and legal and business affairs); the ability to hire and fire employees

(except employees with compensation packages worth more than $200,000 per

year, in which case such hiring or termination must be approved by the

Management Committee); expending funds in accordance with the approved

Business Plan and Annual Budgets; reporting to the Management Committee on

a regular basis regarding the operations of the Company; and responding to

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

 

5.5.4 Additional Officers. The Company may have such other

officers with such powers and duties as the Management Committee will

determine from time to time.

 

5.5.5 Officers Serve at the Pleasure of the Management

Committee. Subject to whatever rights an officer may have under a contract

of employment with the Company, all officers of the Company will serve at

the pleasure of the Management Committee.

 

5.6 Interested Party Transactions.

 

5.6.1 Approval. Except for transactions provided for in the

Related Documents, the Company will only engage in a transaction with a

Member or any Affiliate of a Member if the transaction is on terms and

conditions fair and reasonable to the Company and at least as favorable to

the Company as those generally available in a similar transaction between

parties operating at arm's length and is approved by the Management

Committee. A transaction will conclusively be deemed to have met the above

requirements if, after full disclosure, the transaction is unanimously

approved by the Non-Independent Directors. Each Member agrees to disclose

to the Management Committee the nature and extent of the interest of such

Member and its Affiliates in any transaction to be acted on by the

Management Committee pursuant to this Section 5.6.1 prior to such action.

If a Member or an Affiliate thereof engages in a transaction with the

Company, such Member and/or such Affiliate will have the same rights and

obligations with respect thereto as would be the case if a Person who is

not a Member were the other party to such transaction.

 

5.6.2 Termination and Remedies. With respect to any contract

between the Company and a Member or any Affiliate of a Member, including

but not limited to every Related Document, the Directors appointed by the

Managers not having an interest in such contract (other than as a Member)

will have the right, acting by majority vote, to determine what actions, if

any, should be taken upon the other party's default and to cause the

Company to exercise any and all remedies it may have under such contract or

applicable law, including without limitation, the termination of such

contract.

 

5.7 Performance of Duties; Liability of Managers; Liability of

Directors.

 

5.7.1 A Manager will not be liable to the Company or to any

Member for any loss or damage sustained by the Company or any Member,

unless the loss or damage will have been the result of fraud, deceit, gross

negligence, reckless or intentional misconduct, or a knowing violation of

law by the Manager. The Managers will perform their managerial duties in

good faith, in a manner they reasonably believe to be in the best interests

of the Company and its Members, and with such care, including reasonable

inquiry, as an ordinarily prudent person in a like position would use under

similar circumstances. A Manager who so performs the duties of Manager will

not have any liability by reason of being or having been a Manager of the

Company.

 

5.7.2 A Director will not be liable to the Company or to any

Member for any loss or damage sustained by the Company or any Member,

unless the loss or damage will have been the result of fraud, deceit, gross

negligence, reckless or intentional misconduct, or a knowing violation of

law by the Director. The Directors will perform their duties in good faith,

in a manner they reasonably believe to be in the best interests of the

Company and its Members, and with such care, including reasonable inquiry,

as an ordinarily prudent person in a like position would use under similar

circumstances. A Director who so performs the duties of Director will not

have any liability by reason of being or having been a Director of the

Company.

 

5.8 Offices and Facilities; Staff.

 

5.8.1 Facilities/Company Location. The Company will maintain

offices located either with VSI in the Cisneros Television Group office in

Miami Beach or at another location near such office, except for any

regional sales, marketing, production, technical, or management functions

that are appropriately located in one or more places in the Territory. In

the event that the Company's headquarters are located within VSI's offices

or the offices of an Affiliate of VSI, VSI (or its Affiliate) will charge

the Company for the expenses incurred by VSI (or its Affiliate) on account

of the Company's rent and occupancy, determined on a reasonable allocation

basis.

 

5.9 Insurance. The Managers will cause the Company to secure

errors and omissions and other customary liability insurance for the

Company covering exhibitions of programming by the Company, which insurance

policies will meet customary standards, and will maintain liability and

other insurance covering the activities of the Company consistent with good

business customs and practices in the Territory and the other locations in

which the Company conducts business. All insurance policies will name each

Member and their respective Affiliates, the Managers, the Directors, the

President and any other officers as named insureds.

 

ARTICLE 6

BUSINESS PLANS AND ANNUAL BUDGETS; OPERATION OF COMPANY

 

6.1 The Business Plan.

 

6.1.1 The First Business Plan. The Management Committee and

the President will conduct the business of the Company in accordance with

the Business Plans and Annual Budgets (each as defined below). Attached

hereto as Exhibit D is the first Business Plan of the Company (as modified

pursuant to the next two sentences and together with additional years added

thereto pursuant to Section 6.1.2, the "Business Plan"). The Members

acknowledge that the first Business Plan needs to be adjusted to reflect

previously agreed (i) changes in assumptions regarding launch dates; (ii)

amounts relating to the final annual budget for 1999 (including the matters

described in the Funding Side Letter); and (iii) changes in assumptions

regarding third party sales for 1999 and 2000 (as so adjusted, the "Final

First Business Plan"). The Members agree to cause the first Business Plan

to be adjusted prior to the Funding Date. The Business Plan is the

financial model for the operation of the Company and the Services. The

Members have, by the execution of this Agreement, approved the first

Business Plan (subject to the preceding two sentences), the Annual Budget

for 1999 and the Capital Contributions contemplated to be made thereunder.

 

6.1.2 Additions to Business Plan. At least ninety (90) days

prior to the end of the first year of the Company and at least ninety (90)

days prior to the end of every succeeding year of the Term thereafter, the

President will cause the Company to prepare an additional year of the

Business Plan for review and approval by the Management Committee such that

the Business Plan continues to have five years of coverage throughout the

Term. Such additions to the Business Plan will be substantially similar to

the first Business Plan in scope and detail, will include such additional

information relating to the operating and capital forecasts and budgets of

the Company as the Management Committee may direct from time to time, and

will be accompanied by a report and assessment of the Company's performance

under the preceding five year period of the Business Plan.

 

6.2 Annual Budgets. The Business Plan will be updated annually by

a budget (each, an "Annual Budget") for the coming Fiscal Year. The

President will cause the Company to prepare the Annual Budget and present

it to the Management Committee for approval at least ninety (90) days prior

to commencement of the applicable Fiscal Year. The approved Annual Budget

for a given Fiscal Year will supersede the data contained in the Business

Plan for that Fiscal Year. The Annual Budget for fiscal 1999 is included in

the Business Plan attached as Exhibit D. Each new Annual Budget will be

substantially similar to the 1999 Annual Budget in scope and detail, and

will include a projection of required capital contributions for such Fiscal

Year, if any, and such additional information relating to the operating and

capital forecasts and budgets of the Company as the Management Committee

may direct from time to time. Each Annual Budget will be accompanied by a

report and assessment of the Company's performance under the preceding

Annual Budget.

 

6.3 Carryover Plan or Budget. In the event the PEGI Directors or

the VSI Directors * * *, the Company will continue to operate in accordance

with the most recently approved Business Plan or Annual Budget, as the case

may be, until * * *

 

6.4 Operation of Company.

 

6.4.1 Operations During Transition Period. The parties

anticipate that the Company will require a period of approximately six (6)

months after the Funding Date (the "Transition Period") to arrange

appropriate office space and other facilities and services, hire staff and

otherwise be prepared to fully handle the Company's business. During the

Transition Period, PEGI will provide various services to facilitate the

Company's operations (including, but not limited to, program sales, the

servicing of program license agreements and the collection of license fees)

on the Company's behalf and at the Company's direction. Such services will

be at a level which is consistent with the level of services that PEGI has

historically provided for its international operations. The Company will

reimburse PEGI for any direct expenses reasonably incurred in performing

such services during the Transition Period. To the extent VSI or any of its

Affiliates perform services for the Company during the Transition Period,

the Company will also reimburse the entity providing such services for any

direct expenses incurred in performing such services.

 

6.4.2 Absorption of Existing Channels. As set forth in

Section 3.1, PEGI and VSI will contribute to the Company their equity

interests in PTVLA and the German Venture, and as set forth in Section 7.2,

the Company will purchase PEGI's interests in the U.K. Venture and the

Japan Venture. (PTVLA, the German Venture, the U.K. Venture and the Japan

Venture will be collectively referred to as the "Existing Channel

Entities").

 

6.4.3 German Venture Expenses. Notwithstanding the

Percentage Interests of the Members, VSI and PEGI will each pay the

formation expenses of the German Venture (including the costs associated

with obtaining the necessary operating licenses) on a 50/50 basis.

 

6.4.4 Services Provided by PEGI. The Company will be

entitled to purchase from PEGI specific services, as the Company may

determine, which PEGI routinely performs for itself (such as creative

services, the creation of on-air promos, and residual accounting) at PEGI's

actual direct cost, without mark-up.

 

6.4.5 Creation of Local Ventures and Provision for Local

Partners. The Company may invite one or more third parties (each a "Local

Partner") to participate as equity owners in the Company's local venture in

a country of the Territory; provided, however, that the Company may only

create a local venture for the primary purpose of operating one or more

Channels in a country and not merely to conduct third party program sales.

The decision to admit a Local Partner will be determined by a majority vote

of the Management Committee, unless such proposed Local Partner will

acquire more than a fifty percent (50%) interest in a local venture for the

U.K./Benelux territory or the "GS Territory" (as defined in that certain

letter agreement between Bloomfield Mercantile, Inc. and PEGI for the

operation of Playboy TV and AdulTVision channels in Germany and Scandinavia

dated October 20, 1997) or more than a thirty-three percent (33%) interest

in a local venture for any other region of the Territory, in which case the

admission of the Local Partner will be subject to the veto rights of the

PEGI Directors and the VSI Directors under Section 5.1.4. The agreement

governing the participation of the Local Partner must include a provision

that restricts the Local Partner's ability to transfer its interest in the

local venture to any Person other than an Affiliate of the original Local

Partner and provide either (i) that any such permitted Affiliate/transferee

must be at least as credit-worthy as the original Local Partner; or (ii)

that such transfer does not release the original Local Partner from its

obligations (including its funding obligations) with respect to the local

venture. Management of each local venture will be controlled by the

Company, and, after admission of a local partner, matters regarding the

local venture of the same type described in Section 5.1.4 will be subject

to the veto rights of the PEGI Directors and the VSI Directors. A Local

Partner may not be any manufacturer of firearms, weapons or explosives; or

any owner, distributor or provider of telephone sex lines, real time

interactive internet sex services, sex clubs or massage parlors.

 

(a) Local Partners for the U.K. and Germany. If at a time

when PEGI (alone, or collectively with one or more of its Affiliates) owns

less than a 50% interest in the Company, the Company wishes to admit a

third party as a Local Partner for the U.K./Benelux territory or the GS

Territory (a "Proposed Partner"), and such Proposed Partner is to acquire

an ownership interest in such local venture that exceeds 33%, PEGI may

recommend that the Company not admit such Proposed Partner. If the Company

decides, nonetheless, to admit such Proposed Partner, PEGI may prevent such

Proposed Partner from acquiring more than a 33% interest by acquiring the

percentage interests in excess of 33% that the Proposed Partner would have

purchased, on the same pro rata terms as offered to the Proposed Partner.

 

6.4.6 Supplemental Programs. The Company (or its

subsidiaries) may produce and/or acquire programs whose primary use is

exhibition on one or more of the Channels ("Supplemental Programs"). The

Company will engage in such production or acquisition of Supplemental

Programs in conjunction with PTV U.S., which will obtain the United States

distribution rights, if any, to such programs. PTV U.S. will grant to PEGI

the right to distribute such programming in the United States pursuant to

the US Distribution Agreement. The budget for the production/acquisition

cost of Supplemental Programs for each Fiscal Year will be set forth in the

Annual Budget for such Fiscal Year; provided that such budget will not be

less than $1,500,000. The Supplemental Programs will be consistent with the

content, style and production values of the Existing Library Programs and

the Output Programs provided by PEGI to the Company pursuant to the Program

License Agreement. Upon dissolution of the Company, the Supplemental

Programs will become property of PEGI, for a price to be negotiated by PEGI

and the Company; provided that if the parties cannot reach agreement, the

price will be determined through the dispute resolution procedure set forth

in Article 16.

 

(a) Produced Supplemental Programs. Unless PEGI otherwise

consents and except as set forth in the rest of this paragraph (a), for any

Supplemental Program produced by the Company, the Company will either

obtain the worldwide rights to such program or will hold sufficient rights

to prevent any third party from exploiting such program. With respect to

any Supplemental Program the Company intends to co-produce with one or more

third parties, the Company will first offer PEGI the opportunity to

co-produce the program with the Company on terms which are as favorable to

the Company as those available from such third party(ies). If PEGI elects

to co-produce such program, PEGI and the Company will each pay that portion

of the budget of such program and otherwise participate in such programs on

terms reasonably and customary for the applicable split of distribution

rights in regions of the Territory between them. If PEGI does not elect to

co-produce such program, the Company may proceed with the third party

co-producers, but such third party co-producers will not acquire the right

to exploit such program using any trademarks licensed to the Company under

the Trademark License Agreement or otherwise associated with the Company.

 

(b) Acquired Supplemental Programs. If the Company (or its

subsidiaries) acquires the rights to a program for exploitation in any

region of the Territory, it will also acquire the rights for such program

in the United States, or if it does not acquire such US rights, it will

notify PEGI that such rights are available, and PEGI will determine whether

it wishes to acquire such program. If PEGI wishes to acquire the US

distribution rights to such program it will provide to the Company the

range of acceptable terms, and the Company will use its commercially

reasonable efforts to acquire such US distribution rights on PEGI's behalf.

The Company will not enter into any binding agreement on PEGI's behalf

which is outside such range of acceptable terms without PEGI's prior

written consent.

 

6.4.7 Playboy TV Lite. * * *

 

6.4.8 Venus and Spice Hot. The parties agree to combine the

current television businesses of Venus and Spice Hot as follows:

 

(a) Within one hundred and eighty (180) days after the

Funding Date, VSI will use its best efforts to cause its Affiliate, Imagen,

to form one or more new ventures ("New Venus") with the Company. New Venus

will be owned fifty percent (50%) by Imagen and fifty percent (50%) by the

Company. New Venus will be formed for the purpose of developing, marketing,

programming and distributing channels in the genre of the existing Venus

and Spice Hot channels throughout the New Venus Territory; provided that

New Venus will only distribute such channels in Puerto Rico, the U.S.

Virgin Islands and any other territory or possession of the United States

in the Carribean Basin through Galaxy Latin America (or a subsequent DTH

service) and not through any cable systems. New Venus will not license

programming to third parties, other than through the distribution of the

channels. The parties agree and acknowledge that the formation and

governance of New Venus must be structured in accordance with, and not to

violate, the covenants and other obligations of Imagen's indenture dated

April 30, 1998. The charter documents and other documents governing the

management of and interests in New Venus will be subject to the prior

approval of both VSI and PEGI.

 

(b) Imagen will contribute to New Venus the television

rights for the New Venus Territory to the programming controlled by Venus

and the existing Venus distribution contracts. Imagen will provide New

Venus with a royalty-free exclusive license to use the Venus marks in the

New Venus Territory.

 

(c) The Company will cause the distribution contracts of

Spice Hot to be contributed to New Venus in a tax efficient manner, and the

Company and PEII will provide New Venus with a royalty-free exclusive

license to use the Spice marks in connection with the operation,

distribution and promotion of the Spice Hot channel in the New Venus

Territory.

 

(d) New Venus and Imagen will enter into an agreement

pursuant to which Imagen will act as New Venus' exclusive sales agent in

the Southern Cone.

 

(e) New Venus and Troy will enter into an agreement pursuant

to which Troy will act as New Venus's exclusive sales agent in the New

Venus Territory, other than in the Southern Cone.

 

(f) Imagen and the Company will enter into a trademark

license agreement pursuant to which Imagen will grant to the Company an

exclusive license to use the Venus name and marks in the Company's

discretion on the Company's "hot" television channels outside of the New

Venus Territory. Such license will bear a royalty of * * * of net channel

revenues.

 

(g) The Company will have day-to-day management control of

New Venus, subject to the terms of a "Control Channel Joint Venture" under

the Imagen indenture.

 

(h) The Company, through its subsidiary SEI 2, will supply

New Venus with at least * * * of its annual programming requirements, on

terms to be negotiated by the Company and New Venus; provided that the

program license fees per hour of such programming * * * The parties

acknowledge that the programming rights held by SEI 2 exclude certain

territories (e.g., Puerto Rico and the U.S. Virgin Islands) otherwise

included in the New Venus Territory.

 

(i) Net profits from New Venus will be split in accordance

with the ownership percentages which Imagen and the Company hold in New

Venus.

 

(j) Subject only to compliance with Imagen's indenture

described above, the Company will have the option, exercisable at any time,

to acquire Imagen's interest in New Venus for cash consideration equal to

the Fair Market Value thereof. The Company's option will be binding on any

successor or assign of Imagen in New Venus.

 

6.4.9 U.S. Activities. The Company will conduct no

activities that generate income subject to United States Federal income tax

when earned by a foreign corporation or a non-resident alien individual (a

"U.S. Taxable Activity"). VSI and PEGI contemplate conducting certain

activities which may be U.S. Taxable Activities relating to the

distribution of programming and channels in the United States. VSI and PEGI

(either directly or through wholly-owned subsidiaries) intend to form PTV

U.S. as a separate limited liability company to engage in such activities.

The ownership structure and management of PTV U.S. will mirror the

Company's as provided in this Agreement, mutatis muntandis, and

notwithstanding anything to the contrary in this Agreement, any exercise of

rights or remedies that has the effect of altering the relative Percentage

Interests of the Members must be equally exercised with respect to PTV U.S.

VSI and PEGI agree to use best efforts to prepare and execute the charter

documents and other agreements relating to the formation and operation of

PTV U.S. within 30 days from the date hereof.

 

6.4.10 Certain Tax Matters. Nothing in this Agreement will

be read to require the Company to conduct its affairs so that: (i) income

from the licensing of programing that might be seen by viewers will be

effectively connected with the conduct of a United States trade or

business; and (ii) income from advertising will be effectively connected

with the conduct of a United States trade or business.

 

ARTICLE 7

RIGHTS ACQUISITION FEE

 

7.1 Rights Acquisition Fee.

 

7.1.1 Payment of Fee. In exchange for the license of the

Existing Library Programs and the Wallpaper material described in the

Program Supply Agreement, the trademark license for Year 1 through Year 10

described in the Trademark License Agreement and the Acquired Interests

described in Section 7.2, the Company will pay to PEGI a "Rights

Acquisition Fee" of One Hundred Million Dollars ($100,000,000), payable as

follows:

 

(a) On the Funding Date: $30 million

 

(b) On the first day of Year 2: $7.5 million

 

(c) On the first day of Year 3: $5 million

 

(d) On the first day of Year 4: $7.5 million

 

(e) On the first day of Year 5: $25 million

 

(f) On the first day of Year 6: $25 million

 

7.1.2 Allocation of Fee. Unless the parties agree otherwise,

the Rights Acquisition Fee will be allocated as follows:

 

(a) * * * to the Existing Playboy Library and Wallpaper

(each as defined in the Program Supply Agreement);

 

(b) * * * to the trademark license for Year 1 through Year

10 pursuant to the Trademark License Agreement;

 

(c) * * * to the interests in the U.K. Venture (as set forth

in Section 7.2, below);

 

(d) * * * to the interests in the Japan Venture (as set

forth in Section 7.2, below);

 

(e) * * * to the interests in SEI 2 (as set forth in Section

7.2 below); and

 

(f) * * * to the interests in SEI 3 (as set forth in Section

7.2 below).

 

The foregoing allocation will be applied to each installment of the Rights

Acquisition Fee on a pro rata basis.

 

7.2 Purchase of U.K. Venture, Japan Venture and Danish Companies.

On the date hereof, PEGI and the Company have entered into the Stock

Purchase Agreements pursuant to which PEGI will transfer, convey and assign

to the Company all of its right, title and interest of any kind in and to

the U.K. Venture, the Japan Venture and the Danish Companies (collectively,

the "Acquired Interests"). The Company will assume PEI's (and its

Affiliates') obligations under the Share Purchase Agreement (relating to

the U.K. Venture) and the Memorandum of Agreement (relating to the Japan

Venture) on the terms set forth in the respective Stock Purchase

Agreements. Schedule 7.2 describes, as of the date hereof, the interests of

PEGI in the U.K. Venture, the Japan Venture and the Danish Companies,

including the type of entity (corporation, partnership, limited liability

company, etc.) and the names and percentage interests of all of the owners

of each entity. The Funding Side Letter sets forth the amount of the funds

advanced by PEGI to the U.K. Venture from and after July 1, 1999, the

amount of the funds loaned to the U.K. Venture prior to March 31, 1999, and

the manner in which such amounts will be paid.

 

ARTICLE 8

MEMBERS

 

8.1 Limited Liability. Except as required under the Act or as

expressly set forth in this Agreement, no Member will be personally liable

for any debt, obligation, or liability of the Company, whether that

liability or obligation arises in contract, tort, or otherwise. In the

event any Member becomes personally liable for any debt, obligation or

liability of the Company arising from any action or approval of the Members

or Management Committee taken without the approval of such Member or the

Directors appointed by such Member or Manager where such approval is

required under the terms hereof, then, in addition to any other rights set

forth herein, the Members or Managers taking or who appointed the Directors

taking such action will indemnify and hold harmless such Member from and

against any liability, loss, claim or damage, including but not limited to,

reasonable attorneys fees and cost, arising from or relating to such

action.

 

8.2 Admission of Additional Members. The Management Committee will

approve the admission of new (and the terms of such admission) Members

through the issuance of additional Membership Interests, subject to the

veto rights of the VSI Directors and the PEGI Directors under Section 5.13.

The Management Committee will admit to the Company as additional Members

any Person who acquires a Membership Interest in accordance with Article 9

of this Agreement.

 

8.3 Withdrawals or Resignations. No Member may withdraw or resign

from the Company, except as permitted by this Agreement.

 

8.4 Termination of Membership Interest. Upon the transfer of a

Member's Membership Interest in violation of this Agreement or the

occurrence of a Disassociation Event, the Membership Interest of a Member

will be terminated by the Management Committee and such Membership Interest

will be purchased by the Company or remaining Members as provided in

Article 10. Each Member acknowledges and agrees that such termination or

purchase of a Membership Interest upon the occurrence of any of the

foregoing events is not unreasonable. The rights of the Company and the

non-breaching Members under this Section will be in addition to, and not in

limitation of, any other rights and remedies which the Company and such

other Members may have at law or equity.

 

8.5 Remuneration To Members. Except as otherwise authorized in, or

pursuant to, this Agreement, no Member is entitled to remuneration for

acting in the Company business, subject to the entitlement of Directors,

Managers or Members winding up the affairs of the Company to reasonable

compensation.

 

8.6 Members Are Not Agents; No Management Authority. Pursuant to

this Agreement and the Certificate, the management of the Company is vested

in the Managers, who will exercise their authority through the Management

Committee. No Member, acting solely in the capacity of a Member, is an

agent of the Company nor can any Member in such capacity bind nor execute

any instrument on behalf of the Company. The Members will have no power to

participate in the management of the Company except as expressly authorized

by this Agreement and except as expressly required by the Act.

 

8.7 Meetings of Members. Meetings of Members may be held at such

date, time and place within or without the State of Delaware as the

Management Committee may fix from time to time. No annual or regular

meetings of Members are required. At any Members' meeting, the President

will preside at the meeting and will act as secretary of the meeting.

 

8.7.1 Power to Call Meetings. Unless otherwise prescribed by

the Act, meetings of the Members may be called by the Management Committee

acting by majority vote or by any Member or group of Members holding more

than ten percent (10%) of the Percentage Interests for the purpose of

addressing any matters on which the Members may vote.

 

ARTICLE 9

TRANSFER AND ASSIGNMENT OF INTERESTS

 

9.1 Transfer of Membership Interests.

 

9.1.1 No Member may transfer, assign, sell, encumber or in

any way alienate or dispose of (each, a "Transfer"), including to an

Affiliate, all of any portion of its Membership Interest (the "Offered

Interest") if such Transfer: (i) would have a material adverse effect on

the other Member or on the Company; (ii) would cause the termination or

dissolution of the Company; or (iii) would cause a termination of the

Program Supply Agreement or of the Trademark License Agreement. If a Member

objects to a proposed Transfer on the grounds set forth above, such dispute

must be resolved prior to the consummation of the proposed Transfer.

 

9.1.2 Subject to the provisions of Section 9.1.1, if VSI or

PEGI (or any of their respective Affiliates) (a "Selling Member") wishes to

Transfer all or a part of its Membership Interest to an entity which is not

an Affiliate of such Selling Member (a "Third Party Buyer"), the Selling

Member must first offer to sell the Offered Interest to the non-Selling

Member. If the Selling Member is PEGI (or any of its Affiliates) and the

Option Expiration Date has not occurred, the Offered Terms must disclose

whether and to what extent PEGI (or its Affiliates) intends to exercise the

Buy-up Option in anticipation of such Transfer. If the Selling Member and

the non-Selling Member are not able to reach an agreement after a thirty

(30)-day negotiation period, the Selling Member may Transfer the Offered

Interest to the Third Party Buyer; provided, however, that the Selling

Member must give the non-Selling Member: (i) notice of the terms on which

the Selling Member intends to Transfer the Offered Interest to the Third

Party Buyer (the "Offered Terms") and (ii) the right to acquire the Offered

Interest at the price offered by the Third Party Buyer (the "Matching

Right"); provided that to the extent the Offered Terms include non-cash

consideration, the Matching Right will include the right of the non-Selling

Member to pay, in cash, the Fair Market Value to the Selling Member of such

non-cash items, and the time periods prescribed in this Section will be

adjusted to permit the determination of Fair Market Value; but further

provided, that if such non-cash consideration is a promissory note or

similar financial instrument, the non-Selling Member may substitute an

equivalent instrument. If the non-Selling Member fails to exercise the

Matching Right within thirty (30) days after receiving notice of the

Offered Terms, the Selling Member may Transfer the Offered Interest to the

Third Party Buyer on terms which are at least as favorable to the Selling

Member as the Offered Terms. If the Selling Member and Third Party Buyer do

not execute a definitive and binding agreement for the Transfer of the

Offered Interest within thirty (30) days after the date on which the non-

Selling Member declines to exercise the Matching Right, the Selling Buyer

must again re-offer the Offered Interest to the non-Selling Member in

accordance with the terms in this Section.

 

9.2 Change of Control.

 

9.2.1 Changes in General. Except as provided in this

Section, a Transfer of the equity or voting interests of a Member or of an

Affiliate of a Member which results, directly or indirectly, in a change of

control of such Member will be permitted so long as such transfer does not

have a material adverse effect on the other Member or the Company.

 

9.2.2 VSI. Notwithstanding Section 9.2.1, the parties agree

and acknowledge that a Transfer of the equity or voting interests of VSI or

of an Affiliate that controls VSI (a "VSI Parent") will be permitted, so

long as the following conditions are satisfied: (i) notwithstanding such

transfer, Newhaven Overseas Corp. or another member of the Cisneros Group

of Companies retains the right to appoint VSI's representatives on the

Management Committee; and (ii) following such transfer, VSI remains at

least as credit-worthy as PEI (as determined by a nationally-recognized

credit rating agency), and, if it is not, VSI (or an Affiliate of VSI)

provides PEI and PEGI with satisfactory financial assurances (in the form

of a letter of credit, guaranty or otherwise). The parties agree that a

transfer of VSI to a wholly-owned subsidiary of Ibero-America Media

Partners II, LP or of Ibero-America Media Partners B.V. satisfies clause

(ii) of this Section of 9.2.2.

 

9.2.3 PEI/PEGI. The terms of this Section 9.2.3 will apply

so long as VSI and its Affiliates hold, in the aggregate, a Percentage

Interest of not less than * * *. Notwithstanding Section 9.2.1 of this

Section, in the event PEI, or such other Affiliate of PEI that may control

PEGI (a "PEGI Parent"), wishes to Transfer to one or more third parties, * * *

 

9.2.4 Initial Public Offering. * * *

 

9.3 Substitution of Members. A transferee of a Membership Interest

will have the right to become a substitute Member only if (a) the

requirements of Sections 9.1 and 9.2 and any securities or tax requirements

of this Agreement are met, (b) such Person executes an instrument

satisfactory to the Management Committee accepting and adopting the terms

and provisions of this Agreement, and (c) such Person pays any reasonable

expenses in connection with its admission as a new Member. The admission of

a substitute Member will not result in the release of the Member who

assigned the Membership Interest from any liability that such Member may

have to the Company.

 

9.4 Effective Date of Permitted Transfers. Any permitted transfer

of all or any portion of a Membership Interest will be effective as of the

first business day following the date upon which the requirements of

Sections 9.1, 9.2 and 9.3 have been met. The President will promptly

provide the Members with written notice of such transfer. Any transferee of

a Membership Interest will take subject to the restrictions on transfer

imposed by this Agreement.

 

9.5 Rights of Legal Representatives. If a Member who is an

individual dies or is adjudged by a court of competent jurisdiction to be

incompetent to manage the Member's person or property, the Member's

executor, administrator, guardian, conservator, or other legal

representative may exercise all of the Member's rights for the purpose of

settling the Member's estate or administering the Member's property,

including any power the Member has under this Agreement to give an assignee

the right to become a Member. If a Member is a corporation or other entity

and is dissolved or terminated, the powers of that Member may be exercised

by its legal representative or successor.

 

9.6 PEGI Buy-up Option. Starting on the Funding Date and

continuing through the Option Expiration Date (as defined in Section

9.6.1), PEGI (or its Affiliates who are then Members of the Company) has

the option to acquire up to thirty and one-tenths percent (30.1%) of

additional Membership Interests in the Company by purchasing such

additional Membership Interests from VSI (and any of its Affiliates which

hold Member Interests, collectively); provided, however, that if PEGI (and

its Affiliates, collectively) transfer Membership Interests to any

Person(s) which is not an Affiliate of PEGI, such thirty and one-tenths

percent (30.1%) will be adjusted downward, pro rata, in accordance with the

decline in PEGI's and its Affiliates' aggregate Membership Interests in the

Company (the applicable percentage from time to time being the "Option

Percentage"; and further provided, that if at any time PEGI and its

Affiliates collectively do not own at least five percent (5%) of the total

Membership Interests, the option provided in this Section 9.6 will

terminate. The Percentage Interest of VSI (and its Affiliates) subject to

the option described in this Section 9.6 is referred to as the "Option

Percentage."

 

9.6.1 Option Expiration Date. The "Option Expiration Date"

will be the earlier to occur of (i) the last day of Year 10 and (ii) thirty

(30) days after the date on which the Company reaches "cash breakeven" * * *

 

9.6.2 Exercise of Buy-up Option. Until the Option Expiration

Date, PEGI (including for the balance of this Section 9.6.2, its Affiliates

who are then Members) may exercise its option to purchase additional

Percentage Interests of the Company up to the Option Percentage from VSI

(including for the balance of this Section 9.6.2, its Affiliates who are

then Members) on December 15 of each year, in increments of * * *;

provided, however, that PEGI may exercise its option: (i) immediately prior

to the Option Expiration Date, with respect to any part or all of the

then-unpurchased portion of the Option Percentage; and (ii) immediately

prior to a transfer that would decrease the Option Percentage, with respect

to that portion of the Option Percentage that would be lost as a

consequence of such transfer. During Year 1, PEGI may buy such additional

percentage interests from VSI at the Founders' Price. During Year 2, Year 3

and Year 4, the price at which PEGI may purchase additional Percentage

Interests from VSI is Founders' Price, plus interest, compounded annually,

at an annual rate equal to the greater of *** with such interest accruing

through the date PEGI pays for such additional Percentage Interests on an

amount equal to the product of the average daily balance (starting from the

Funding Date) of the Members' aggregate unreturned Capital Contributions

multiplied by the Percentage Interest being purchased. In Year 5 through

Year 10, PEGI's buy-in price will be * * * at the time of purchase (as

determined in accordance with Exhibit E). PEGI may pay the purchase price

for the additional Percentage Interests * * *, which election will be set

forth in PEGI's notice that it is exercising its buy-up option. * * * In

the event PEGI fails to timely pay for any additional Percentage Interests

for which it exercised its buy-up option, VSI may elect either: (i) to

terminate PEGI's right to purchase such Percentage Interests; or (ii) to

cause the Company to withhold any payments otherwise due to PEGI under this

Agreement or the Program Supply Agreement and to pay such amounts to VSI

until VSI is paid in full (including interest at the Reference Rate from

the date such payment was due) for such additional interests, and VSI will

then transfer such interests to PEGI.

 

(a) If PEGI pays for some or all of its purchase in PEI

stock, such stock will be registered or be subject to normal and customary

registration rights.

 

ARTICLE 10

CONSEQUENCES OF DISSOLUTION

OR BANKRUPTCY OF MEMBER

 

10.1 Disassociation Event. Upon the occurrence of a Disassociation

Event, the Company will not dissolve. Upon the occurrence of a

Disassociation Event, the Members holding all of the remaining Membership

Interests (the "Remaining Members") and/or, if applicable pursuant to

Section 10.1.3, the Company, will purchase, and the Member whose actions or

conduct resulted in the Disassociation Event ("Former Member") or such

Former Member's legal representative will sell, the Former Member's

Membership Interest ("Former Member's Interest") as provided in this

Section 10.1.

 

10.1.1 Purchase Price. The purchase price for the Former

Member's Interest will be the lesser of (i) the positive Capital Account

balance of the Former Member or (ii) the Fair Market Value of the Former

Member's Interest. Notwithstanding the foregoing, if the Disassociation

Event results from a breach of this Agreement by the Former Member, the

purchase price paid by the Remaining Members and/or the Company will be

reduced by an amount equal to the damages suffered by such purchasing

parties as a result of such breach.

 

10.1.2 Notice of Intent to Purchase. Within thirty (30) days

after the President has notified the Remaining Members as to the purchase

price of the Former Member's Interest determined in accordance with Section

10.2, each Remaining Member will notify the President in writing of its

desire to purchase a portion of the Former Member's Interest. The failure

of any Remaining Member to submit a notice within the applicable period

will constitute an election on the part of the Member not to purchase any

of the Former Member's Interest. Each Remaining Member so electing to

purchase will be entitled to purchase a portion of the Former Member's

Interest in the same proportion that the Percentage Interest of the

Remaining Member bears to the aggregate of the Percentage Interests of all

of the Remaining Members electing to purchase the Former Member's Interest.

 

10.1.3 Election to Purchase Less Than All of the Former

Member's Interest. If any Remaining Member elects to purchase none or less

than all of its pro rata share of the Former Member's Interest, then the

Remaining Members can elect to purchase more than their pro rata share. If

the Remaining Members fail to purchase the entire interest of the Former

Member, the Company will purchase any remaining share of the Former

Member's Interest.

 

10.1.4 Payment of Purchase Price. The purchase price will be

paid by the Remaining Members and/or the Company, as the case may be, at

the closing one-fifth (1/5) in cash and the balance of the purchase price

in four equal annual principal installments, plus accrued interest, and be

payable each year on the anniversary date of the closing. Any such payment

by the Company will be made solely out of Distributable Cash allocable to

the Remaining Members. The unpaid principal balance will accrue interest at

the current applicable federal rate as provided in the Code for the month

in which the initial payment is made, but the Company and the Remaining

Members will have the right to prepay in full or in part at any time

without penalty. The obligation to pay the balance due will be evidenced by

a promissory note, and if purchased by a Remaining Member, secured by a

pledge of the Membership Interest being purchased.

 

10.1.5 Closing of Purchase of Former Member's Interest. The

closing for the sale of a Former Member's Interest pursuant to this Article

10 will be held on a business day at the principal office of the Company no

later than sixty (60) days after the determination of the purchase price.

At the closing, the Former Member or such Former Member's legal

representative will deliver to the Company or the Remaining Members an

instrument of transfer (containing warranties of title and no encumbrances)

conveying the Former Member's Interest. The Former Member or such Former

Member's legal representative, the Company and the Remaining Members will

do all things and execute and deliver all papers as may be necessary fully

to consummate such sale and purchase in accordance with the terms and

provisions of this Agreement.

 

10.1.6 Purchase Terms Varied by Agreement. Nothing contained

herein is intended to prohibit Members from agreeing upon other terms and

conditions for the purchase by the Company or any Member of the Membership

Interest of any Member in the Company desiring to retire, withdraw or

resign, in whole or in part, as a Member.

 

10.2 Bankruptcy. Upon the Bankruptcy of a Member, the Membership

Interests of such Member, whether held by such Member, its trustee or other

representative in bankruptcy, will be converted to an Economic Interest.

 

ARTICLE 11

ACCOUNTING, RECORDS, REPORTING BY MEMBERS

 

11.1 Books and Records. The books and records of the Company will

be kept, and the financial position and the results of its operations

recorded, in accordance with generally accepted accounting principles as in

effect from time to time and the accounting methods followed for federal

income tax purposes. The books and records of the Company will reflect all

the Company transactions and will be appropriate and adequate for the

Company's business. The Company will maintain at its principal office all

of the following:

 

(a) A current list of the full name and last known business

or residence address of each Member, together with the Capital

Contributions, Capital Account and Percentage Interest of each Member;

 

(b) A current list of the full name and business or

residence address of each Manager and Director;

 

(c) A copy of the Certificate and any and all amendments

thereto together with executed copies of any powers of attorney pursuant to

which amendments thereto have been executed;

 

(d) Copies of the Company's federal, state, and local income

tax or information returns and reports, if any, for the six most recent

taxable years;

 

(e) A copy of this Agreement and any and all amendments

thereto together with executed copies of any powers of attorney pursuant to

which this Agreement or any amendments thereto have been executed;

 

(f) Copies of the financial statements of the Company, if

any, for the six most recent Fiscal Years; and

 

(g) The Company's books and records as they relate to the

internal affairs of the Company for at least the current and past four

Fiscal Years.

 

11.2 Delivery to Members and Inspection.

 

11.2.1 Delivery Upon Request. Upon the request of any Member

for purposes reasonably related to the interest of that Person as a Member,

the President will promptly deliver to the requesting Member, at the

expense of the Company, a copy of the information required to be maintained

by Sections 11.1(a), (b) and (d), and a copy of this Agreement, as amended.

The President will promptly furnish to a Member a copy of any amendment to

the Certificate or this Agreement executed by a Manager or Director

pursuant to a power of attorney from the Member.

 

11.2.2 Inspection. Each Member has the right, upon

reasonable request for purposes reasonably related to the interest of the

Person as Member to:

 

(a) inspect and copy during normal business hours any of the

Company records described in Sections 11.1(a) through (g); and

 

(b) obtain from the President, promptly after their becoming

available, a copy of the Company's federal, state, and local income tax or

information returns for each Fiscal Year.

 

11.2.3 Authorized Persons. Any request, inspection or

copying by a Member under this Section 11.2 may be made by that Person or

that Person's agent or attorney.

 

11.3 Periodic Statements.

 

11.3.1 Monthly Report. The President will cause a monthly

report to be sent to each of the Members not later than thirty (30) days

after the end of each month during a Fiscal Year. The report will contain a

balance sheet as of the last day of such month and an income statement and

statement of changes in financial position for the period then ended. Such

financial statements will be unaudited but will be prepared on a consistent

basis with the Company's audited annual financial statements described

below.

 

11.3.2 Annual Report. The President will cause an annual

report to be sent to each of the Members not later than forty-five (45)

days after the close of the Fiscal Year. The report will contain a balance

sheet as of the end of the Fiscal Year and an income statement and

statement of changes in financial position for the Fiscal Year. Such

financial statements will be audited and will be accompanied by the report

thereon prepared by the independent accountants engaged by the Company.

 

11.3.3 Tax Information. The President will cause to be

prepared at least annually, at Company expense, information necessary for

the preparation of the Members' federal and state income tax returns. The

President will send or cause to be sent to each Member within forty-five

(45) days after the end of each taxable year such information as is

necessary to complete federal, state, and local income tax or information

returns, and a copy of the Company's federal, state, and local income tax

or information returns for that year.

 

11.4 Financial and Other Information. The President will provide

such financial and other information relating to the Company, as a Member

may reasonably request.

 

11.5 Filings. The President, at Company expense, will cause the

income tax returns for the Company to be prepared and timely filed with the

appropriate authorities. At least seventy-five (75) days prior to the last

date for timely filing of such returns, the President will deliver to the

Tax Matters Member copies of such returns for their approval prior to the

filing due date. The President, at Company expense, will also cause to be

prepared and timely filed, with appropriate federal and state regulatory

and administrative bodies, amendments to, or restatements of, the

Certificate and all reports required to be filed by the Company with those

entities under the Act or other then current applicable laws, rules, and

regulations. If a Manager or Director required by the Act to execute or

file any document fails, after demand, to do so within a reasonable period

of time or refuses to do so, any other Manager or Member may prepare,

execute and file that document with the Delaware Secretary of State.

 

11.6 Bank Accounts. The President will cause the Company to

maintain the funds of the Company in one or more separate bank accounts in

the United States in the name of the Company, and will not permit the funds

of the Company to be commingled in any fashion with the funds of any other

Person.

 

11.7 Accounting Decisions and Reliance on Others. All decisions as

to accounting matters, except as otherwise specifically set forth herein,

will be made by the Management Committee. A Manager or Director may rely

upon the advice of the Company's accountants as to whether such decisions

are in accordance with accounting methods followed for federal income tax

purposes.

 

11.8 Tax Matters for the Company Handled by Management Committee

and Tax Matters Member. The Management Committee will from time to time

cause the Company to make such tax elections as it deems to be in the best

interests of the Company; provided, however, that so long as PEGI is a

Member, the Management Committee will not (i) file any tax return or (ii)

make any tax election or take any position with respect to any examination

audit or proceeding by a taxing authority that could have an adverse impact

on PEGI, and/or the consolidated tax group in which PEGI participates,

without PEGI's prior written consent, which consent will not be

unreasonably withheld, it being expressly agreed that if such adverse

impact on PEGI or its tax group is not material to such Persons, PEGI will

not withhold its consent. PEGI will respond to any request for its consent

within thirty (30) days after receiving such request in writing, and if

PEGI fails to give such consent, such matter will be determined in

accordance with the dispute resolution procedure set forth in Section 16.

The Tax Matters Member (the equivalent to the Tax Matters Partner as

defined in Code Section 6231) will represent the Company (at the Company's

expense) in connection with all examinations of the Company's affairs by

tax authorities, including resulting judicial and administrative

proceedings, and will expend the Company's funds for professional services

and costs associated therewith. The Tax Matters Member will oversee the

Company's tax affairs in the overall best interests of the Company. If for

any reason the Tax Matters Member can no longer serve in that capacity or

ceases to be a Member or Manager, as the case may be, Members holding a

Majority Interest may designate another to be Tax Matters Member.

 

ARTICLE 12

DISSOLUTION AND WINDING UP

 

12.1 Term. The term (the "Term") of the Company will commence on

the date the Certificate is filed with the Secretary of State of Delaware

and terminate on the earlier to occur of the termination of the Company as

provided in the Certificate or the earlier dissolution of the Company

pursuant to the terms of this Article 12.

 

12.2 Dissolution Events. The Company may be dissolved prior to the

termination date set forth in the Certificate upon the happening of any of

the following events (each, a "Dissolution Event"):

 

12.2.1 For so long as VSI (with its Affiliates, in

aggregate) or PEGI (with its Affiliates, in aggregate) holds Percentage

Interests equal to 10%, such Member may elect to dissolve the Company or

buy out the other Member's Membership Interest (at a price equal to the

lower of Fair Market Value and the positive Capital Account balance of such

Member and its Affiliates) if controlling ownership of the other Member

changes (other than as permitted by, and subject to the conditions of,

Section 9.2); provided, however, that the parties acknowledge that PEI is

publicly held and that no change in its ownership will constitute a change

of control of PEGI as long as PEGI remains a controlled subsidiary of PEI.

Any such dissolution or buy-out will be effective as of such change of

control.

 

12.2.2 Any Member may, without prejudice to any other

remedies it may have, elect to dissolve the Company by notice in writing to

the other Members on or after the occurrence of any of the following:

 

(a) subject to Section 3.4, the commission of one or more

material breaches of this Agreement by the Company or another Member which

are not capable of remedy, provided that any such breach by the Company is

not caused by the Member its seeking dissolution or any of its Affiliates;

 

(b) the commission of a material breach of this Agreement by

the Company or another Member which is capable of remedy (a "Remediable

Breach") which will not have been remedied within a period of thirty (30)

days after the party in breach has been given notice in writing specifying

that Remediable Breach and requiring it to be remedied; provided, however,

that such thirty (30) day period will be extended for such additional

period as will be reasonably necessary if that Remediable Breach is

incapable of remedy within that one month period and during that thirty

(30) day period the party in breach will diligently endeavor to remedy that

Remediable Breach, but only if such extension would not reasonably be

expected to have a material adverse effect on the party giving notice of

such breach and, provided further, that any such breach by the Company was

not caused by the Member seeking dissolution or any of its Affiliates;

 

(c) the Bankruptcy, insolvency, general assignment for the

benefit of creditors or similar event of or the appointment of a trustee,

receiver or similar person for any other Member holding Percentage

Interests (collectively with its Affiliates) equal to or greater than ten

percent (10%); or

 

(d) the uncured material breach of one or more of the

Related Documents by another Member or the Company, provided that any such

breach by the Company was not caused by the Member seeking dissolution or

any of its Affiliates.

 

12.3 Effect of Dissolution. Upon dissolution of the Company, the

Trademark License Agreement and the Program Supply Agreement will

automatically terminate and all rights and obligations of the respective

parties thereunder will terminate, except for any provisions that expressly

survive such termination or claims that have arisen prior to such

termination; provided, however, in the event such dissolution is due to a

breach by PEGI (or an Affiliate of PEGI), then VSI may cause the Trademark

License Agreement and the Program Supply Agreement to be assigned as set

forth in those agreements. Upon dissolution of the Company, each Member

will have the right to compel the Company to be promptly wound-up and

liquidated.

 

12.4 Dissolution. The Company will be dissolved, its assets will

be disposed of, and its affairs wound up on the first to occur of the

following:

 

(a) Upon the election of the applicable Member(s) following

the happening of any Dissolution Event;

 

(b) Upon the entry of a decree of judicial dissolution

pursuant to Section 18-802 of the Act;

 

(c) The occurrence of a Disassociation Event and the failure

of the Remaining Members to purchase the Former Member's Interest as

provided in Article 10; or

 

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

Company.

 

12.5 Certificate of Dissolution. As soon as possible following the

occurrence of any of the events specified in Section 12.3, the Directors

appointed by the Members whose breach or Disassociation Event have not

caused the dissolution of the Company or, if none, the Members, will

execute a Certificate of Dissolution in such form as will be prescribed by

the Delaware Secretary of State and file the Certificate of Dissolution as

required by the Act.

 

12.6 Winding Up. Upon dissolution, the Company will continue

solely for the purpose of winding up its affairs in an orderly manner,

liquidating its assets, and satisfying the claims of its creditors. The

Directors appointed the Member whose breach or Disassociation Event have

not caused the dissolution of the Company or, if none, the Members, will be

responsible for overseeing the winding up and liquidation of Company, will

take full account of the liabilities of Company and assets, will either

cause its assets to be sold or distributed, and if sold as promptly as is

consistent with obtaining the fair market value thereof, will cause the

proceeds therefrom, to the extent sufficient therefor, to be applied and

distributed as provided in Section 12.8. The Persons winding up the affairs

of the Company will give written notice of the commencement of winding up

by mail to all known creditors and claimants whose addresses appear on the

records of the Company. The Directors or Members winding up the affairs of

the Company will be entitled to reasonable compensation for such services.

 

12.7 Distributions in Kind. Any non-cash asset distributed to one

or more Members will first be valued at its Fair Market Value to determine

the Net Income or Net Loss that would have resulted if such asset were sold

for such value, such Net Income or Net Loss will then be allocated pursuant

to Article 4, and the Members' Capital Accounts will be adjusted to reflect

such allocations. The amount distributed and charged to the Capital Account

of each Member receiving an interest in such distributed asset will be the

Fair Market Value of such interest (net of any liability secured by such

asset that such Member assumes or takes subject to). The Fair Market Value

of such asset will be determined by the Members, or if any Member objects,

by an independent appraiser in accordance with Exhibit E, with a single

appraiser selected by the Members; provided, however, that the Fair Market

Value of the physical embodiment of any intellectual property will be

determined based on its value to a third party (i.e., to a Person other

than the owner of such intellectual property). Except in cases where the

Program Supply Agreement and Trademark License Agreement are not terminated

upon dissolution (as set forth in Section 12.3), PEGI may elect to have

distributed to it in kind or destroyed any assets of the Company that are

Playboy-branded, contain Playboy-identified content or are otherwise

identified as a Playboy-related product.

 

12.8 Order of Payment of Liabilities Upon Dissolution.

 

12.8.1 Distributions to Members. After determining that all

known debts and liabilities of the Company in the process of winding-up,

including, but not limited to, debts and liabilities to Members that are

creditors of the Company, have been paid or adequately provided for, the

remaining assets will be distributed to the Members in accordance with

their positive Capital Account balances, after taking into account income

and loss allocations for the Company's taxable year during which

liquidation occurs. Such liquidating distributions will be made by the end

of the Company's taxable year in which the Company is liquidated, or, if

later, within ninety (90) days after the date of such liquidation.

 

12.8.2 Payment of Debts. The payment of a debt or liability,

whether the whereabouts of the creditor is known or unknown, has been

adequately provided for if the payment has been provided for by either of

the following means:

 

(a) Payment thereof has been assumed or guaranteed in good

faith by one or more financially responsible persons or by the United

States government or any agency thereof, and the provision, including the

financial responsibility of the Person, was determined in good faith and

with reasonable care by the Members or Managers to be adequate at the time

of any distribution of the assets pursuant to this Section 12.8.

 

(b) The amount of the debt or liability has been deposited

as provided in Section 280 of the Corporations Code.

 

This Section 12.8.2 will not prescribe the exclusive means

of making adequate provision for debts and liabilities.

 

12.9 Certificate of Cancellation. The Directors, Managers or

Members who filed the Certificate of Dissolution will cause to be filed in

the office of, and on a form prescribed by, the Delaware Secretary of

State, a certificate of cancellation of the Certificate upon the completion

of the winding up of the affairs of the Company.

 

12.10 No Action for Dissolution. Except as expressly permitted in

this Agreement, a Member will not take any voluntary action that directly

causes a Dissolution Event. The Members acknowledge that irreparable damage

would be done to the goodwill and reputation of the Company if any Member

should bring an action in court to dissolve the Company under circumstances

where dissolution is not required by Section 12.4. This Agreement has been

drawn carefully to provide fair treatment of all parties. Accordingly,

except where the Managers or Directors have failed to liquidate the Company

as required by this Article 12, each Member hereby waives and renounces its

right to initiate legal action to seek the appointment of a receiver or

trustee to liquidate the Company or to seek a decree of Judicial

dissolution of the Company on the ground that (a) it is not reasonably

practicable to carry on the business of the Company in conformity with this

Agreement, or (b) dissolution is reasonably necessary for the protection of

the rights or interests of the complaining Member. Damages for breach of

this Section 12.10 will be monetary damages only (and not specific

performance), and the damages may be offset against distributions by the

Company to which such Member would otherwise be entitled.

 

ARTICLE 13

INDEMNIFICATION AND INSURANCE

 

13.1 Indemnification of Agents. The Company will and hereby agrees

to indemnify any Person who was or is a party or is threatened to be made a

party to any threatened, pending or completed action, suit or proceeding by

reason of the fact that such Person is or was a Member, Manager, Director,

officer, employee or other agent of the Company or that, being or having

been such a Member, Manager, officer, employee or agent, such Person is or

was serving at the request of the Company as a manager, director, officer,

employee or other agent of another limited liability company, corporation,

partnership, joint venture, trust or other enterprise (all such persons

being referred to hereinafter as an "Agent"), to the fullest extent

permitted by applicable law in effect on the Funding Date and to such

greater extent as applicable law may hereafter from time to time permit.

The Managers will be authorized, on behalf of the Company, to enter into

indemnity agreements from time to time with any Person entitled to be

indemnified by the Company hereunder, upon such terms and conditions as the

Managers deem appropriate in their business judgment.

 

13.2 Insurance. The Company will have the power to purchase and

maintain insurance on behalf of any Person who is or was an agent of the

Company against any liability asserted against such Person and incurred by

such Person in any such capacity, or arising out of such Person's status as

an agent, whether or not the Company would have the power to indemnity such

Person against such liability under the provisions of Section 13.1 or under

applicable law.

 

ARTICLE 14

NONCOMPETITION

 

14.1 Non-competition. For so long as VSI or PEGI (or any of their

respective Affiliates) is a Member of the Company, or for any time after a

Member transfers its Membership Interest in violation of this Agreement,

such Member and its Affiliates may not:***

 

14.2 Separate Covenants. The agreements contained in Section 14.1

will be construed as a series of separate covenants, one for each activity

of the Member, capacity in which the Member is prohibited from competing

and each part of the Territory in which the Company is carrying on such

activity.

 

14.3 Injunctive Relief. Each Member acknowledges that (a) the

covenants and the restrictions contained in Section 14.1 are a material

factor to such Member's execution of this Agreement and are necessary and

required for the protection of the Company and the other Members, (b) such

covenants are reasonable and appropriate in scope, (c) such covenants

relate to matters that are of a special, unique and extraordinary character

that gives each of such covenants a special,