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Sample Business Contracts

Incentive Compensation Plan - Playboy Enterprises Inc. and Anthony J. Lynn

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                           PLAYBOY ENTERPRISES, INC.
                INCENTIVE COMPENSATION PLAN FOR ANTHONY J. LYNN

     Playboy Enterprises, Inc., a corporation organized under the laws of the
State of Delaware (the "Company"), hereby adopts this Playboy Enterprises, Inc.
Incentive Compensation Plan for Anthony J. Lynn (the "Plan").  The Compensation
Committee of the Board of Directors of the Company (the "Committee") and the
Board of Directors of the Company have approved the terms and conditions
reflected in the Plan.  The purposes of the Plan are as follows:

     (1) To further the growth, development and financial success of the Company
by providing additional incentives to Anthony J. Lynn ("Employee") through
incentive compensation.

     (2) To enable the Company to obtain and retain the services of Employee who
is considered essential to the long-range success of the Company by providing
and offering him an opportunity to participate in incentive compensation
arrangements which will reflect the growth, development and financial success of
the Company.

     Section 1 - 1997 Contingent Compensation and Post-1997 Contingent
     ---------   -----------------------------------------------------
Compensation.
------------

     (a) Employee shall receive contingent compensation for the 1997 fiscal year
("1997 Contingent Compensation"), computed as follows:

           (i)   Employee shall receive a sum equal to 5% of the amount by which
the 1997 Pre-tax Profits of the Playboy Entertainment Group for the 1997 fiscal
year (July 1 through June 30) exceeds the Profits Base; provided, however, if
the sum of $525,000 plus 1997 Contingent Compensation equals $2,000,000, any
additional 1997 Contingent Compensation payable to Employee will be equal to
2.5% of the amount by which the 1997 Pre-tax Profits of the Playboy
Entertainment Group exceeds the Profits Base.

           (ii)  The Profits Base is defined as $2,350,000.

           (iii) (A) "1997 Pre-tax Profits" of the Playboy Entertainment Group
for the 1997 fiscal year shall be the amount, if any, by which the total net
revenues of the Playboy Entertainment Group, including its subsidiaries and the
Group's pro-rata share of revenues derived from all controlled affiliates
exceeds all reasonable and applicable operating expenses attributable to same,
in accordance with "Generally Accepted Accounting Principles" computed
consistent with methods utilized by the Company in the 1992 fiscal year and used
by the Company's outside auditors in the preparation of the Company's audited
financial statements.
<PAGE>

                 (B) In computing the 1997 Pre-tax Profits of the Playboy
Entertainment Group for the 1997 fiscal year, there shall be allowed all fair
and reasonable allocation of items of revenue and expenses between divisions,
subsidiaries and affiliates of the Company, including, but not limited to, inter
company sales, expenses such as rents, occupancy, general administrative and
personnel salaries, MIS, insurance, employee benefits costs, security, payroll
processing, legal and tax advisory fees, depreciation, profit sharing and
auditing expenses.

                 (C) Further, the effect of any One Time Gains or Losses
accounted for as part of the Playboy Entertainment Group shall be amortized
evenly over four (4) years, beginning in the month of occurrence, for purposes
of calculating 1997 Pre-tax Profits, regardless of how the transaction is
accounted for under Generally Accepted Accounting Principles. A "One Time Gain
or Loss" is a gain or loss resulting from a transaction not in the ordinary
course of business and which does not result in a 1997 Equity Bonus or a Post-
1997 Equity Bonus under Section 2 of this Plan.

                 (D) In no event shall profits or losses, except as described in
Section 1(a)(iii)(C), from any fiscal year be carried over or back to any other
fiscal year or otherwise taken into consideration in computing the 1997 Pre-tax
Profits.

           (iv)  The 1997 Contingent Compensation to which Employee is entitled
shall be paid on or before the date which is five business days after the
earlier of:

                 (A) The date on which the Company's outside auditors complete
their field work for the Company with regard to the 1997 fiscal year; or

                 (B) The date on which such outside auditors approve the release
of the annual earnings of the Company for the 1997 fiscal year; or

                 (C) 90 days after the end of the 1997 fiscal year.

Notwithstanding anything in this Section 1(a)(iv) to the contrary, Employee
shall not be paid 1997 Contingent Compensation until after the Committee
certifies in writing that the performance goals and any other material terms
specified herein and necessary for Employee to receive such 1997 Contingent
Compensation have been satisfied.

           (v)   The Company shall, concurrently with payment to Employee of the
1997 Contingent Compensation to which he is entitled hereunder, deliver and
render to Employee a detailed accounting (certified by the Chief Financial
Officer of the

                                      -2-
<PAGE>

Company) setting forth therein the Company's determination of the 1997 Pre-tax
Profits of the Playboy Entertainment Group.

           (vi)  1997 Contingent Compensation, if any, due to Employee following
the termination of Employee's employment with the Company shall be governed
solely by the provisions of Section 1(c).

     (b)   Employee shall receive annual contingent compensation ("Post-1997
Contingent Compensation") for each of the fiscal years during the Section 1(b)
Term, computed as follows:

           (i)   Employee shall receive a sum equal to 5% of the amount by which
the Pre-tax Profits of the Playboy Entertainment Group for each fiscal year
(July 1 through June 30) during the Section 1(b) Term exceeds the Profits Base;
provided, however, once the sum of $550,000 plus Post-1997 Contingent
Compensation equals $2,000,000 in any fiscal year, any additional Post-1997
Contingent Compensation payable to Employee in such fiscal year will be equal to
2.5% of the amount by which the Pre-tax Profits of the Playboy Entertainment
Group in such fiscal year exceeds the Profits Base. Each fiscal year shall be
deemed a separate accounting period for purposes of computing Post-1997
Contingent Compensation for such fiscal year.

           (ii)  The Profits Base is defined as $2,350,000.

           (iii) (A) "Pre-tax Profits" of the Playboy Entertainment Group for
any fiscal year shall be the amount, if any, by which the total net revenues of
the Playboy Entertainment Group, including its subsidiaries and the Group's pro-
rata share of revenues derived from all controlled affiliates exceeds all
reasonable and applicable operating expenses attributable to same, in accordance
with "Generally Accepted Accounting Principles" computed consistent with methods
utilized by the Company and used by the Company's outside auditors in the
preparation of the Company's audited financial statements.

                 (B) In computing the Pre-tax Profits of the Playboy
Entertainment Group for any fiscal year, there shall be allowed all fair and
reasonable allocation of items of revenue and expenses between divisions,
subsidiaries and affiliates of the Company, including, but not limited to, inter
company sales, expenses such as rents, occupancy, general administrative and
personnel salaries, MIS, insurance, employee benefits costs, security, payroll
processing, legal and tax advisory fees, depreciation, profit sharing and
auditing expenses.

                 (C) Further, the effect of any One Time Gains or Losses
accounted for as part of the Playboy Entertainment Group shall be amortized
evenly over four (4) years, beginning in the month of occurrence, for purposes
of calculating Pre-tax Profits, regardless of how the transaction is accounted
for under

                                      -3-
<PAGE>

Generally Accepted Accounting Principles.  A "One Time Gain or Loss" is a gain
or loss resulting from a transaction not in the ordinary course of business and
which does not result in a 1997 Equity Bonus or a Post-1997 Equity Bonus under
Section 2 of this Plan.

                 (D) In no event shall profits or losses, except as described in
Section 1(b)(iii)(C), from any fiscal year be carried over or back to any other
fiscal year or otherwise taken into consideration in computing the Pre-tax
Profits for any other fiscal year.

           (iv)  The Post-1997 Contingent Compensation for each fiscal year to
which Employee is entitled shall be paid on or before the date which is (5)
business days after the earlier of:

                 (A) The date on which the Company's outside auditors complete
their field work for the Company with regard to such fiscal year; or

                 (B) The date on which such outside auditors approve the release
of the annual earnings of the Company for such fiscal year; or

                 (C) 90 days after the end of such fiscal year.

Notwithstanding anything in this Section 1(b)(iv) to the contrary, Employee
shall not be paid Post-1997 Contingent Compensation for a fiscal year until
after the Committee certifies in writing that the performance goals and any
other material terms specified herein and necessary for Employee to receive such
Post-1997 Contingent Compensation have been satisfied.

           (v)   The Company shall, concurrently with payment to Employee of the
Post-1997 Contingent Compensation for each fiscal year to which he is entitled
hereunder, deliver and render to Employee a detailed accounting (certified by
the Chief Financial Officer of the Company) setting forth therein the Company's
determination of the Pre-tax Profits of the Playboy Entertainment Group for each
such fiscal year.

           (vi)  This Section 1(b) shall be in effect for the 1998, 1999 and
2000 fiscal years, and for each fiscal year thereafter unless and until notice
is given by the Committee to Employee that this Section 1(b) shall not apply to
the specified fiscal year following the 2000 fiscal year ("Section 1(b) Term").
Such notice shall be in writing and delivered no later than 30 calendar days
prior to the commencement of the relevant fiscal year.

                                      -4-
<PAGE>

           (vii) Post-1997 Contingent Compensation, if any, due to Employee
following the termination of Employee's employment with the Company shall be
governed solely by the provisions of Section 1(c).

     (c)   (i)   If Employee's employment with the Company is effectively
terminated for "cause" as provided for under any then existing employment
agreement between Employee and the Company, then Employee shall only be entitled
to receive, and the Company shall unconditionally pay to Employee, all 1997
Contingent Compensation or Post-1997 Contingent Compensation, as the case may
be, payable with respect to all periods prior to the fiscal year ("Section 1(c)
Termination Year") during which the Company notifies Employee that his
employment with the Company is so terminated.

           (ii)  If Employee's employment with the Company is effectively
terminated on account of Employee's disability as provided under any then
existing employment agreement between Employee and the Company, or otherwise as
provided in the Company's long-term disability policy, or on account of
Employee's death, then Employee (or Employee's estate or personal
representative, as applicable) shall only be entitled to receive, and the
Company shall unconditionally pay to Employee (or Employee's estate or personal
representative, as applicable), the following amounts:

                 (A) All unpaid Post-1997 Contingent Compensation and 1997
Contingent Compensation, as the case may be, payable with respect to all periods
prior to the Section 1(c) Termination Year during which the Company notifies
Employee that his employment with the Company is so terminated, or Employee's
death, as the case may be, plus

                 (B) That percentage of the 1997 Contingent Compensation or
Post-1997 Contingent Compensation, as the case may be, otherwise payable to
Employee for the Section 1(c) Termination Year equal to the fraction, the
numerator of which is the number of calendar days from the beginning of the
Section 1(c) Termination Year through the effective date of termination and the
denominator of which is 365.

           (iii) If Employee's employment with the Company is terminated by the
Company without cause as defined under any then existing employment agreement
between Employee and the Company, then Employee shall only be entitled to
receive, and the Company shall pay to Employee, 100% of the 1997 Contingent
Compensation or Post-1997 Contingent Compensation, as the case may be, to which
Employee would have been entitled for and only for the Section 1(c) Termination
Year (based upon the actual 1997 Pre-tax Profits or Pre-tax Profits, as the case
may be, of the Playboy Entertainment Group for such fiscal year).  Any amounts
payable to Employee pursuant to this Section 1(c)(iii) will be

                                      -5-
<PAGE>

reduced by any amounts paid to Employee pursuant to Employee's Change in Control
Severance Agreement dated as of June 1, 1992.



     Section 2 - 1997 Equity Bonus and Post-1997 Equity Bonus.
     ---------   --------------------------------------------

     (a)   Employee shall be entitled to a bonus for the 1997 fiscal year ("1997
Equity Bonus") in accordance with the following provisions:

           (i)   In the event that the Company directly or indirectly sells,
transfers or otherwise disposes of an equity interest in Playboy Entertainment
Group, Inc. ("PEGI") (or all or a portion of the assets comprising the Playboy
Entertainment Group operations) (except sales of assets or operations that
contributed less than 25% of the Group's total Pre-tax Profits in the fiscal
year immediately preceding the fiscal year in which such sale, transfer or
disposition occurs ("Measuring Year") or less than a 25% equity interest) to a
third party (including a sale to the public) ("1997 Disposition") during the
1997 fiscal year and such 1997 Disposition occurs either (A) while Employee is
employed by the Company or (B) within three (3) months after he is no longer
employed by the Company (a "1997 Equity Disposition Transaction"), then Employee
shall be entitled to a one-time 1997 Equity Bonus, as defined in Section
2(a)(ii) of this Plan. The 1997 Equity Bonus will be paid to Employee in cash
promptly following the closing date of the 1997 Equity Disposition Transaction.
However, Employee shall not be paid the 1997 Equity Bonus until after the
Committee certifies in writing that the performance goals and any other material
terms specified herein and necessary for Employee to receive such 1997 Equity
Bonus have been satisfied.

           (ii)  The 1997 Equity Bonus shall be computed by multiplying 1997 EB
Pre-Tax Profits times the Remaining Term. "1997 EB Pre-Tax Profits" means (A) in
the case of the sale, transfer or other disposition of an equity interest in
PEGI entitling Employee to a 1997 Equity Bonus hereunder, the total Pre-tax
Profits of PEGI for the Measuring Year times the fully-diluted percentage equity
interest in PEGI acquired by the third party, and (B) in the case of a sale,
transfer or other disposition of all or a portion of the assets comprising the
Playboy Entertainment Group entitling Employee to a 1997 Equity Bonus hereunder,
that portion of the Pre-tax Profits of Playboy Entertainment Group generated or
attributable to such assets for the Measuring Year. "Remaining Term" means the
lesser of (A) three (3) or (B) the number arrived at by dividing the number of
full months remaining in Employee's employment term, as established by the
Committee, by 12.

           (iii) It is the express intent of the Plan that the 1997 Equity Bonus
shall only be payable in connection with a

                                      -6-
<PAGE>

1997 Equity Disposition Transaction which constitutes a bona fide transfer of an
equity interest in PEGI or a bona fide sale of assets, and shall not be payable
in connection with any other transaction (whether in the form of joint ventures,
co-productions or otherwise) which represents a financing transaction.  In no
event shall the Company structure a transaction which would otherwise constitute
a sale or disposition of an equity interest in PEGI or a sale of assets as a
financing transaction for the purposes of frustrating the provisions of this
Section 2(a)(iii).

           (iv)  The payment of the 1997 Equity Bonus, if any, will be in
addition to any 1997 Contingent Compensation or Post-1997 Contingent
Compensation payable to Employee under Section 1 of this Plan.

     (b)   Employee shall be entitled to a bonus ("Post-1997 Equity Bonus") for
all fiscal years beginning with or after the 1998 fiscal year in accordance with
the following provisions:

           (i)   In the event that the Company directly or indirectly sells,
transfers or otherwise disposes of an equity interest in PEGI (or all or a
portion of the assets comprising the Playboy Entertainment Group operations)
(except sales of assets or operations that contribute less than 25% of the
Group's total Pre-tax Profits in the Measuring Year or less than a 25% equity
interest) to a third party (including a sale to the public) ("Post-1997
Disposition") after June 30, 1997 and such Post-1997 Disposition occurs either
(A) while Employee is employed by the Company or (B) within three (3) months
after he is no longer employed by the Company (an "Equity Disposition
Transaction"), then Employee shall be entitled to a one-time Post-1997 Equity
Bonus, as defined in Section 2(b)(ii) of this Plan. The Post-1997 Equity Bonus
will be paid to Employee in cash promptly following the closing date of the
Equity Disposition Transaction. However, Employee shall not be paid the Post-
1997 Equity Bonus until after the Committee certifies in writing that the
performance goals and any other material terms specified herein and necessary
for Employee to receive such Post-1997 Equity Bonus have been satisfied.

           (ii)  The Post-1997 Equity Bonus shall be computed by multiplying
Post-1997 EB Pre-Tax Profits times the Remaining Term. "Post-1997 EB Pre-Tax
Profits" means (A) in the case of the sale, transfer or other disposition of an
equity interest in PEGI entitling Employee to a Post-1997 Equity Bonus
hereunder, the total Pre-tax Profits of PEGI for the Measuring Year times the
fully-diluted percentage equity interest in PEGI acquired by the third party,
and (B) in the case of a sale, transfer or other disposition of all or a portion
of the assets comprising the Playboy Entertainment Group entitling Employee to a
Post-1997 Equity Bonus hereunder, that portion of the Pre-tax Profits of Playboy
Entertainment Group generated or attributable to such assets for the Measuring
Year.

                                      -7-
<PAGE>

           (iii) It is the express intent of the Plan that the Post-1997 Equity
Bonus shall only be payable in connection with an Equity Disposition Transaction
which constitutes a bona fide transfer of an equity interest in PEGI or a bona
fide sale of assets, and shall not be payable in connection with any other
transaction (whether in the form of joint ventures, co-productions or otherwise)
which represents a financing transaction. In no event shall the Company
structure a transaction which would otherwise constitute a sale or disposition
of an equity interest in PEGI or a sale of assets as a financing transaction for
the purposes of frustrating the provisions of this Section 2(b)(iii).

           (iv)  The payment of the Post-1997 Equity Bonus, if any, will be in
addition to any 1997 Contingent Compensation or Post-1997 Contingent
Compensation payable to Employee under Section 1 of this Plan.

     Section 3 - Approval of Plan by Stockholders.  The Plan will be submitted
     ---------   --------------------------------                            
for the approval by the Company's stockholder prior to the end of the Company's
1997 fiscal year.  The Plan shall not take effect unless and until the Plan
receives such stockholder approval.

     Section 4 - Administration.
     ---------   --------------

     (a)   It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions.  The Committee
shall have the power to interpret the Plan and to adopt rules for the
administration, interpretation and application of the Plan as are consistent
herewith and to interpret, amend or revoke any such rules.

     (b)   The Committee shall act by a majority of its members in attendance at
a meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.

     (c)   Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board of Directors of the
Company.  All expenses and liabilities incurred by members of the Committee in
connection with the administration of the Plan shall be borne by the Company.
The Committee may employ attorney, consultants, accountants, appraisers, brokers
or other persons.  The Committee, the Company and its officers and directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons.  All actions taken and all interpretations and determinations made by
the Committee in good faith shall be final and binding upon Employee, the
Company and all other interested persons.  No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or awards thereunder, and all

                                      -8-
<PAGE>

members of the Committee shall be fully protected by the Company in respect to
such action, determination or interpretation.

     Section 5 - Tax Withholding.  The Company shall be entitled to require
     ---------   ---------------                                          
payment in cash or deduction from other compensation payable to Employee of any
sums required by federal, state or local tax law to be withheld with respect to
the payment or vesting of any award hereunder.

     Section 6 - Titles.  Titles are provided herein for convenience only and
     ---------   ------                                                     
are not to serve as a basis for interpretation or construction of the Plan.

     Section 7 - Governing Law.  The laws of the State of Delaware shall govern
     ---------   -------------                                                
the interpretation, validity, administration, enforcement and performance of the
terms of this Agreement regardless of the law that might be applied under
principles of conflicts of laws.


                                    * * * *

     I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of Playboy Enterprises, Inc. on October 9, 1996.

     Executed on this 22 day of November, 1996.



                             /s/Robert O. Campbell
                             ---------------------
                              Assistant Secretary


                                    * * * *


     I hereby certify that the foregoing Plan was duly approved by the
shareholders of Playboy Enterprises, Inc. on November 13, 1996.

     Executed on this 14th day of November, 1996.


                               /s/Howard Shapiro
                               -----------------
                                   Secretary

                                      -9-