SEVERANCE AGREEMENT

            THIS SEVERANCE AGREEMENT (this "Agreement), dated as of March 1,
2001, by and between Playboy Enterprises, Inc., a Delaware corporation (the
"Company"), and _________, (the "Executive").

                                   WITNESSETH:

            WHEREAS, the Executive is a senior executive or key employee of the
Company and has made and is expected to continue to make major contributions to
the short- and long-term profitability, growth and financial strength of the
Company;

            WHEREAS, the Company recognizes that, as is the case for most
publicly-held companies, the possibility of a Change in Control exists;

            WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executive officers and other key
employees, including the Executive, applicable in the event of a Change in
Control;

            WHEREAS, the Company wishes to ensure that its senior executives and
other key employees are not practically disabled from discharging their duties
in respect of a proposed or actual transaction involving a Change in Control;
and

            WHEREAS, the Company desires to provide additional inducement for
the Executive to continue to remain in the ongoing employ of the Company;

            NOW, THEREFORE, the Company and the Executive agree as follows:

            1. Certain Defined Terms: In addition to terms defined elsewhere
herein, the following terms have the following meanings when used in this
Agreement with initial capital letters:

                (1) "Base Pay" means the Executive's annual base salary at a
      rate not less than the Executive's annual fixed or base compensation as in
      effect for Executive immediately prior to the occurrence of a Change in

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Control or such higher rate as may be determined from time to time by the Board
of Directors of the Company (the "Board") or a Committee thereof.

                (2) "Change in Control" means the occurrence during the Term of
      any of the following events:

                        (1) Hugh M. Hefner directly or as beneficial owner and
            Christie Hefner cease collectively to hold over 50% of the combined
            voting power of the then-outstanding securities entitled to vote
            generally in the election of directors of the Company ("Voting
            Stock");

                        (2) except pursuant to a transaction described in the
            proviso to Section 1(b)(iv) or (v), a sale, exchange or other
            disposition of PLAYBOY Magazine;

                        (3) except pursuant to a transaction described in the
            proviso to Section 1(b)(iv) or (v), the liquidation or dissolution
            of the Company;

                        (4) The Company is merged, consolidated or reorganized
            into or with another corporation or other legal person; provided,
            however, that no such merger, consolidation or reorganization will
            constitute a Change in Control if the merger, consolidation or
            reorganization is initiated by the Company and as a result of such
            merger, consolidation or reorganization not less than a majority of
            the combined voting power of the then-outstanding securities of the
            surviving, resulting or ultimate parent corporation, as the case may
            be, immediately after such transaction is held in the aggregate by
            persons who held not less than a majority of the combined voting
            power of the outstanding Voting Stock of the Company immediately
            prior to such transaction; or

                        (5) The Company sells or otherwise transfers all or
            substantially all of its assets to another corporation or other
            legal person; provided, however, that no such sale or transfer will
            constitute a Change in Control if the sale or transfer is initiated
            by the Company and as a result of such sale or transfer not less
            than a majority of the combined voting power of the then-outstanding
            securities of such


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            corporation or other legal person, as the case may be, immediately
            after such sale or transfer is held in the aggregate by persons who
            held not less than a majority of the combined voting power of the
            outstanding Voting Stock of the Company immediately prior to such
            sale or transfer.

            For purposes of Section 1(b)(i), any Voting Stock beneficially owned
(as such term is defined under Rule 13d-3 or any successor rule or regulation
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) by
the Hugh M. Hefner Foundation shall be deemed to be held by Christie Hefner if
and so long as she has sole voting power with respect to such Voting Stock.

                (3) "Cause" means that, prior to any termination pursuant to
      Section 3(b) hereof, the Executive shall have:

                        (1) been convicted of a criminal violation involving
            dishonesty, fraud or breach of trust; or

                        (2) willfully engaged in misconduct in the performance
            of Executive's duties that materially injures the Company or any
            entity in which the Company directly or indirectly beneficially owns
            50% or more of the voting securities (a "Subsidiary").

                (4) "Employee Benefits" means the perquisites, benefits and
      service credit for benefits as provided under any and all employee
      retirement income and welfare benefit policies, plans, programs or
      arrangements in which Executive is entitled to participate, including
      without limitation any stock option, stock purchase, stock appreciation,
      savings, pension, supplemental executive retirement, or other retirement
      income or welfare benefit, deferred compensation, incentive compensation,
      group or other life, health, medical/hospital or other insurance (whether
      funded by actual insurance or self-insured by the Company), disability,
      salary continuation, executive protection, expense reimbursement and other
      employee benefit policies, plans, programs or arrangements that may now
      exist or any equivalent successor policies, plans, programs or
      arrangements that may be adopted hereafter by the Company, providing
      perquisites, benefits and service credit for benefits at least as great in
      the aggregate as are provided thereunder immediately prior to a Change in
      Control.


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                (5) "Incentive Pay" means bonus, incentive or other payments of
      cash compensation, in addition to Base Pay, made or to be made in regard
      to services rendered pursuant to any bonus, incentive, profit-sharing,
      performance, discretionary pay or similar agreement, policy, plan, program
      or arrangement (whether or not funded) of the Company, or any successor
      thereto providing benefits at least as great as the benefits provided
      thereunder immediately prior to a Change In Control.

                (6) "Severance Period" means the period of time commencing on
      the date of an occurrence of a Change in Control and continuing until the
      earliest of (i) eighteen months following the occurrence of the Change in
      Control, (ii) the Executive's death, or (iii) the Executive's attainment
      of age 65; provided, however, that commencing on each anniversary of the
      Change in Control, the Severance Period will automatically be extended for
      an additional eighteen months unless, not later than 120 calendar days
      prior to such date, either the Company or the Executive shall have given
      written notice to the other that the Severance Period is not to be so
      extended.

                (7) "Term" means the period commencing as of the date hereof and
      expiring as of the later of (i) the close of business on December 31,
      2005, or (ii) the expiration of the Severance Period; provided, however,
      that (A) commencing on January 1, 2002 and each January 1 thereafter, the
      term of this Agreement will automatically be extended for an additional
      year unless, not later than September 30 of the immediately preceding
      year, the Company or the Executive shall have given notice that it or the
      Executive, as the case may be, does not wish to have the Term extended,
      and (B) if, prior to a Change in Control, the Executive ceases for any
      reason to be an employee of the Company or any Subsidiary, thereupon
      without further action the Term shall be deemed to have expired and this
      Agreement will immediately terminate and be of no further effect. For
      purposes of this Section 1(g), the Executive shall not be deemed to have
      ceased to be an employee of the Company or any Subsidiary by reason of the
      transfer of Executive's employment between the Company and any Subsidiary,
      or among any Subsidiaries.

                (8) "Targeted Bonus" shall mean the targeted bonus for
      Executive's position as set forth in the Company's Executive Incentive
      Compensation Plan ("EICP") established for the then applicable fiscal
      year, which shall be equal to fifty percent (50%) times the maximum amount


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<PAGE>

      which Executive could earn under the EICP with respect to established
      quantifiable and objective financial goals.

            2. Operation of Agreement: This Agreement will be effective and
binding immediately upon its execution, but, anything in this Agreement to, the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs, whereupon without further action this Agreement
shall become immediately operative.

            3. Termination Following a Change in Control:

                (1) In the event of the occurrence of a Change in Control, the
      Executive's employment may be terminated by the Company during the
      Severance Period and the Executive shall not be entitled to the benefits
      provided by Section 4 only upon the occurrence of one or more of the
      following events:

                        (1) The Executive's death;

                        (2) If the Executive becomes disabled and begins
            actually to receive disability benefits pursuant to the long-term
            disability plan in effect for, or applicable to, Executive
            immediately prior to the Change in Control; or

                        (3) Cause.

                If, during the Severance Period, the Executive's employment is
      terminated by the Company other than pursuant to Section 3(a)(i), 3(a)(ii)
      or 3(a)(iii), the Executive will be entitled to the benefits provided by
      Section 4 hereof. For purposes of this Agreement, Executive shall be
      deemed "disabled" if, by reason of physical or mental disability,
      Executive becomes unable to perform the services required of Executive for
      more than 120 days in the aggregate (excluding infrequent and temporary
      absences due to ordinary transitory illness) during any twelve-month
      period.

                (2) In the event of the occurrence of a Change in Control, the
      Executive may terminate employment with the Company and any Subsidiary
      during the Severance Period with the right to severance compensation as
      provided in Section 4 upon the occurrence of one or more of the following


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<PAGE>

      events (regardless of whether any other reason, other than Cause as
      hereinabove provided, for such termination exists or has occurred,
      including without limitation other employment):

                        (1) Failure to elect or reelect or otherwise to maintain
            the Executive in the office or the position, or a substantially
            equivalent office or position, of or with the Company and/or a
            Subsidiary, as the case may be, which the Executive held immediately
            prior to a Change in Control, or the removal of the Executive as a
            Director of the Company (or any successor thereto) if the Executive
            shall have been a Director of the Company immediately prior to the
            Change in Control;

                        (2) (I) Executive is assigned duties materially
            inconsistent with the authorities, powers, functions, status,
            responsibilities or duties attached to the position with the Company
            and any Subsidiary which the Executive held immediately prior to the
            Change in Control; (II) a reduction in the aggregate of the
            Executive's Base Pay and Incentive Pay payable to the Executive by
            the Company and any Subsidiary; or (III) the termination or denial
            of the Executive's rights to Employee Benefits or a reduction in the
            scope or value thereof;

                        (3) A determination by the Executive (which
            determination will be conclusive and binding upon the parties hereto
            provided such determination is reasonable and has been made in good
            faith and in all events will be presumed to be a reasonable
            determination made in good faith unless otherwise shown by the
            Company by clear and convincing evidence) that a change in
            circumstances has occurred following a Change in Control, including
            without limitation a change in the scope of the business or other
            activities for which the Executive was responsible immediately prior
            to the Change in Control, which has rendered the Executive
            substantially unable to carry out, has substantially hindered
            Executive's performance of, or has caused Executive to suffer a
            substantial reduction in, any of the authorities, powers, functions,
            responsibilities or duties attached to the position held by the
            Executive immediately prior to the Change in Control, which
            situation is not remedied within 10 calendar days after


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            written notice to the Company from the Executive of such
            determination;

                        (4) The liquidation, dissolution, merger, consolidation
            or reorganization of the Company or transfer of all or substantially
            all of its business and/or assets, unless the successor or
            successors (by liquidation, merger, consolidation, reorganization,
            transfer or otherwise) to which all or substantially all of its
            business and/or assets have been transferred (directly or by
            operation of law) shall have assumed all duties and obligations of
            the Company under this Agreement pursuant to Section 10(a);

                        (5) The Company or any of its Subsidiaries requires the
            Executive regularly to perform Executive's duties of employment
            beyond a 50-mile radius from the location of Executive's employment
            immediately prior to the Change in Control or requires the Executive
            to travel away from Executive's office in the course of discharging
            Executive's responsibilities or duties hereunder at least 50% more
            (in terms of aggregate days in any calendar year or in any calendar
            quarter when annualized for purposes of comparison to any prior
            year) than was required of Executive in any of the three full years
            immediately prior to the Change of Control without, in either case,
            Executive's prior written consent.

                (3) A termination by the Company pursuant to Section 3(a) or by
      the Executive pursuant to Section 3(b) will not affect any rights or
      benefits which the Executive may have pursuant to any agreement, policy,
      plan, program or arrangement of the Company providing Employee Benefits,
      which rights and benefits shall be governed by the terms thereof,
      including, without limitation, rights to payments under the Company's
      bonus and incentive plans for prior fiscal years which have been earned
      but not yet paid to Executive.

            4. Severance Compensation:

                (1) If, following the occurrence of a Change in Control, the
      Company terminates the Executive's employment during the Severance Period
      other than pursuant to Section 3(a), or if the Executive terminates
      Executive's employment pursuant to Section 3(b), the Company will pay to


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<PAGE>

      the Executive the following amounts within ten business days after the
      date (the "Termination Date") that the Executive's employment is
      terminated (the effective date of which shall be the date of termination,
      or such other date that may be specified by the Executive if the
      termination is pursuant to Section 3(b)) and continue to provide to the
      Executive the following benefits:

                        (1) a lump sum cash payment (the "Severance Payment") in
            an amount equal to three times the sum of (A) Base Pay, plus (B) the
            greater of (x) the average actual bonus earned by the Executive
            pursuant to any annual bonus or incentive plan maintained by the
            Company in respect of the three fiscal years ending immediately
            prior to the fiscal year in which occurs such Change in Control (or,
            such lesser number of years during which the Executive was employed
            by the Company and annualized in the case of any such bonus paid in
            respect of a portion of a fiscal year) and (y) the Targeted Bonus
            (determined in accordance with Section 1(h) (the greater of (x) and
            (y) being hereinafter referred to as the "Highest Bonus");

                        (2) for 36 months following the Termination Date (the
            "Continuation Period"), the Company will arrange to provide the
            Executive with Employee Benefits that are welfare benefits (but not
            stock option, stock purchase, stock appreciation or similar
            compensatory benefits) no less favorable than those which the
            Executive was receiving or entitled to receive immediately prior to
            the Termination Date, including benefits provided under the
            Company's Executive Protection Plan. If and to the extent that any
            benefit described in this Section 4(a)(ii) is not or cannot be paid
            or provided under any policy, plan, program or arrangement of the
            Company or any Subsidiary, as the case may be, then the Company will
            itself pay or provide for the payment to the Executive, or
            Executive's dependents and beneficiaries, of such Employee Benefits.
            Without otherwise limiting the purpose or effect of Section 5,
            Employee Benefits otherwise receivable by the Executive pursuant to
            this Section 4(a)(ii) will be reduced to the extent comparable
            welfare benefits are actually received by the Executive from another
            employer during the Continuation Period.

                        (3) Notwithstanding any provision of any annual or
            long-term incentive plan to the contrary, the Company shall pay to
            the Executive a lump sum amount, in cash, equal to the sum of (x)
            any


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            unpaid incentive compensation which has been allocated or awarded to
            the Executive for a completed fiscal year or other measuring period
            preceding the Termination Date under any such plan and which, as of
            the Termination Date, is contingent only upon the continued
            employment of the Executive to a subsequent date, and (y) the
            product of the Highest Bonus and a fraction, the numerator of which
            is the number of days in the fiscal year in which the Termination
            Date occurs prior to the Termination Date and the denominator of
            which is 365.

                        (4) Notwithstanding the terms or conditions of any
            awards relating to a grant of restricted shares, all restricted
            shares which are not vested as of the Termination Date shall become
            fully vested.

                        (5) The Company shall provide the Executive with
            outplacement services suitable to the Executive's position for a
            period of three years or, if earlier, until the first acceptance by
            the Executive of an offer of employment.

                (2) There will be no right of set-off or counterclaim in respect
      of any claim, debt or obligation against any payment to or benefit for the
      Executive provided for in this Agreement, except as expressly provided in
      the last sentence of Section 4(a)(ii).

                (3) Without limiting the rights of the Executive at law or in
      equity, if the Company fails to make any payment or provide any benefit
      required to be made or provided hereunder on a timely basis, the Company
      will pay interest on the amount or value thereof at the prime rate in
      effect at the First National Bank of Chicago. Such interest will be
      payable as it accrues on demand. Any change in such prime rate will be
      effective on and as of the date of such change.

                (4) Notwithstanding any other provision hereof, the parties'
      respective rights and obligations under this Section 4 and under Sections
      6 and 7 will survive any termination or expiration of this Agreement
      following a Change in Control or the termination of the Executive's
      employment following a Change in Control for any reason whatsoever.


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            5. No Mitigation Obligation: The Company hereby acknowledges that it
will be difficult and may be impossible (a) for the Executive to find reasonably
comparable employment following the Termination Date, and (b) to measure the
amount of damages which Executive may suffer as a result of termination of
employment hereunder. Accordingly, the payment of the severance compensation by
the Company to the Executive in accordance with the terms of this Agreement is
hereby acknowledged by the Company to be reasonable and will be liquidated
damages, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise reduce any payments or benefits
to be provided to Executive hereunder, except as expressly provided in the last
sentence of Section 4(a)(ii).

            6. Certain Additional Payments by the Company:

                (1) In the event that this Agreement becomes operative and it is
      determined (as hereafter provided) that any payment or distribution by the
      Company or any of its affiliates to or for the benefit of Executive,
      whether paid or payable or distributed or distributable pursuant to the
      terms of this Agreement or otherwise pursuant to or by reason of any other
      agreement, policy, plan, program or arrangement, including without
      limitation any stock option, stock appreciation right or similar right, or
      the lapse or termination of any restriction on or the vesting or
      exercisability of any of the foregoing (a "Payment"), would be subject to
      the excise tax imposed by Section 4999 of the Internal Revenue Code of
      1986, as amended (or any successor provision thereto), or to any similar
      tax imposed by state or local law, or any interest or penalties with
      respect to such excise tax (such tax or taxes, together with any such
      interest and penalties, are hereafter collectively referred to as the
      "Excise Tax"), then Executive will be entitled to receive an additional
      payment or payments (a "Gross-Up Payment") in an amount such that, after
      payment by Executive of all taxes (including any interest or penalties
      imposed with respect to such taxes), including any Excise Tax, imposed
      upon the Gross-Up Payment, Executive retains an amount of the Gross-Up
      Payment equal to the Excise Tax imposed upon the Payments.

                (2) Subject to the provisions of Section 6(f) below, all
      determinations required to be made under this Section 6, including whether


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      an Excise Tax is payable by Executive and the amount of such Excise Tax
      and whether a Gross-Up Payment is required and the amount of such Gross-Up
      Payment, will be made by a nationally recognized firm of certified public
      accountants (the "Accounting Firm") selected by Executive in Executive's
      sole discretion. Executive will direct the Accounting Firm to submit its
      determination and detailed supporting calculations to both the Company and
      Executive within 15 calendar days after the date of the Change in Control
      or the date of Executive's termination of employment, if applicable, and
      any other such time or times as may be requested by the Company or
      Executive. For purposes of determining the amount of the Gross-Up Payment,
      the Executive shall be deemed to pay federal income tax at the highest
      marginal rate of federal income taxation in the calendar year in which the
      Gross-Up Payment is to be made and state and local income taxes at the
      highest marginal rate of taxation in the state and locality of the
      Executive's residence on the Termination Date (or if there is no
      Termination Date, then the date on which the Gross-Up Payment is
      calculated for purposes of this Section 6(b)), net of the maximum
      reduction in federal income taxes which could be obtained from deduction
      of such state and local taxes. If the Accounting Firm determines that any
      Excise Tax is payable by Executive, the Company will pay the required
      Gross-Up Payment to Executive within five business days after receipt of
      such determination and calculations. If the Accounting Firm determines
      that no Excise Tax is payable by Executive, it will, at the same time as
      it makes such determination, furnish Executive with an opinion that
      Executive has substantial authority not to report any Excise Tax on
      Executive's federal, state, local income or other tax return. Any
      determination by the Accounting Firm as to the amount of the Gross-Up
      Payment will be binding upon the Company and Executive. As a result of the
      uncertainty in the application of Section 4999 of the Code (or any
      successor provision thereto) and the possibility of similar uncertainty
      regarding applicable state or local tax law at the time of any
      determination by the Accounting Firm hereunder, it is possible that
      Gross-Up Payments which will not have been made by the Company should have
      been made (an "Underpayment"), consistent with the calculations required
      to be made hereunder. In the event that the Company exhausts or fails to
      pursue its remedies pursuant to Section 6(f) below and Executive
      thereafter is required to make a payment of any Excise Tax, Executive will
      direct the Accounting Firm to determine the amount of the Underpayment
      that has occurred and to submit its determination and detailed supporting
      calculations to both the Company and Executive as promptly as possible.
      Any such Underpayment will be promptly paid by the


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      Company to, or for the benefit of, Executive within five business days
      after receipt of such determination and calculations.

                (3) The Company and Executive will each provide the Accounting
      Firm access to and copies of any books, records and documents in the
      possession of the Company or Executive, as the case may be, reasonably
      requested by the Accounting Firm, and otherwise cooperate with the
      Accounting Firm in connection with the preparation and issuance of the
      determination contemplated by Section 6(b) above.

                (4) The federal, state and local income or other tax returns
      filed by Executive will be prepared and filed on a consistent basis with
      the determination of the Accounting Firm with respect to the Excise Tax
      payable by Executive. Executive will make proper payment of the amount of
      any Excise Tax. If prior to the filing of Executive's federal income tax
      return, or corresponding state or local tax return, if relevant, the
      Accounting Firm determines that the amount of the Gross-Up Payment should
      be reduced, Executive will within five business days pay to the Company
      the amount of such reduction.

                (5) The fees and expenses of the Accounting Firm for its
      services in connection with the determinations and calculations
      contemplated by Section 6(b) and (d) above will be borne by the Company.
      If such fees and expenses are initially advanced by Executive, the Company
      will reimburse Executive the full amount of such fees and expenses within
      five business days after receipt from Executive of a statement therefor
      and reasonable evidence of Executive's payment thereof.

                (6) Executive will notify the Company in writing of any claim by
      the Internal Revenue Service that, if successful, would require the
      payment by the Company of a Gross-Up Payment. Such notification will be
      given as promptly as practicable, but no later than 10 business days after
      Executive actually receives notice of such claim, and Executive will
      further apprise the Company of the nature of such claim and the date on
      which such claim is requested to be paid (in each case, to the extent
      known by Executive). Executive will not pay such claim prior to the
      earlier of (i) the expiration of the 30-calendar-day period following the
      date on which Executive gives such notice to the Company and (ii) the date
      that any payment of amount with respect to such claim is due. If the
      Company notifies Executive


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            in writing prior to the expiration of such period that it desires to
            contest such claim, Executive will:

                        (1) provide the Company with any written records or
            documents in Executive's possession relating to such claim
            reasonably requested by the Company;

                        (2) take such action in connection with contesting such
            claim as the Company will reasonably request in writing from time to
            time, including without limitation accepting legal representation
            with respect to such claim by an attorney competent in respect of
            the subject matter and reasonably selected by the Company;

                        (3) cooperate with the Company in good faith in order
            effectively to contest such claim; and

                        (4) permit the Company to participate in any proceedings
            relating to such claim;

            provided, however, that the Company will bear and pay directly all
            costs and expenses (including interest and penalties) incurred in
            connection with such contest and will indemnify and hold harmless
            Executive, on an after-tax basis, for and against any Excise Tax or
            income tax, including interest and penalties with respect thereto,
            imposed as a result of such representation and payment of costs and
            expenses. Without limiting the foregoing provisions of this Section
            6(f), the Company will control all proceedings taken in connection
            with the contest of any claim contemplated by this Section 6(f) and,
            at its sole option, may pursue or forego any and all administrative
            appeals, proceedings, hearings and conferences with the taxing
            authority in respect of such claim (provided that Executive may
            participate therein at Executive's own cost and expense) and may, at
            its option, either direct Executive to pay the tax claimed and sue
            for a refund or contest the claim in any permissible manner, and
            Executive agrees to prosecute such contest to a determination before
            any administrative tribunal, in a court of initial jurisdiction and
            in one or more appellate courts, as the Company will determine;
            provided, however, that if the Company directs Executive to pay the
            tax claimed and sue for a refund, the Company will advance the
            amount of such payment


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            to Executive on an interest-free basis and will indemnify and hold
            Executive harmless, on an after-tax basis, from any excise Tax or
            income tax, including interest or penalties with respect thereto,
            imposed with respect to such advance; and provided further, however,
            that any extension of the statute of limitations relating to payment
            of taxes for the taxable year of Executive with respect to which the
            contested amount is claimed to be due is limited solely to such
            contested amount. Furthermore, the Company's control of any such
            contested claim will be limited to issues with respect to which a
            Gross-Up Payment would be payable hereunder and Executive will be
            entitled to settle or contest, as the case may be, any other issue
            raised by the Internal Revenue Service or any other taxing
            authority.

                (7) If, after the receipt by Executive of an amount advanced by
      the Company pursuant to Section 6(f) above, Executive receives any refund
      with respect to such claim, Executive will (subject to the Company's
      complying with the requirements of Section 6(f) above) promptly pay to the
      Company the amount of such refund (together with any interest paid or
      credited thereon after any taxes applicable thereto). If, after the
      receipt by Executive of an amount advanced by the Company pursuant to
      Section 6(f) above, a determination is made that Executive will not be
      entitled to any refund with respect to such claim and the Company does not
      notify Executive in writing of its intent to contest such denial or refund
      prior to the expiration of 30-calendar-days after such determination, then
      such advance will be forgiven and will not be required to be repaid and
      the amount of such advance will offset, to the extent thereof, the amount
      of Gross-Up Payment required to be paid pursuant to this Section 6.

            7. Legal Fees and Expenses: If it should appear to the Executive
that the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void, invalid or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Executive the benefits provided or
intended to be provided to the Executive hereunder, the Company irrevocably
authorizes the Executive from time to time to retain counsel of Executive's
choice, at the expense of the Company as hereafter provided, to advise and
represent the Executive in connection with any such interpretation, enforcement
or defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
Director,


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officer, stockholder or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents to the
Executive's entering into an attorney-client relationship with such counsel, and
in that connection the Company and the Executive agree that a confidential
relationship shall exist between the Executive and such counsel. The Company
will pay and be solely financially responsible for Executive's out-of-pocket
expenses, including reasonable attorneys' fees and expenses, incurred by the
Executive in connection with any of the foregoing; provided, however, in the
case of any such litigation or other action or proceeding in which the Company
or any of its affiliates and Executive are adverse parties, the Company shall
not pay or be responsible for any such expenses if the Company or any of its
affiliates prevails against the Executive.

            8. Employment Rights; Termination Prior to Change in Control:
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any Subsidiary prior to or following any Change in
Control.

            9. Withholding of Taxes: The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any law or government regulation or
ruling.

            10. Successors and Binding Agreement:

                (1) The Company will require any successor (whether direct or
      indirect, by purchase, merger, consolidation, reorganization or otherwise)
      to all or substantially all of the business or assets of the Company, by
      agreement in form and substance satisfactory to the Executive, expressly
      to assume and agree to perform this Agreement in the same manner and to
      the same extent the Company would be required to perform if no such
      succession had taken place. This Agreement will be binding upon and inure
      to the benefit of the Company and any successor to the Company, including
      without limitation any persons acquiring directly or indirectly all or
      substantially all of the business or assets of the Company whether by
      purchase, merger, consolidation, reorganization or otherwise (and such
      successor shall thereafter be deemed the "Company" for the purposes of
      this Agreement), but will not otherwise be assignable, transferable or
      delegable by the Company.


                                       15
<PAGE>

                (2) This Agreement will inure to the benefit of and be
      enforceable by the Executive's personal or legal representatives,
      executors, administrators, successors, heirs, distributees and legatees.

                (3) This Agreement is personal in nature and neither of the
      parties hereto shall, without the consent of the other, assign, transfer
      or delegate this Agreement or any rights or obligations hereunder except
      as expressly provided in Sections 10(a) and 10(b) hereof. Without limiting
      the generality or effect of the foregoing, the Executive's right to
      receive payments hereunder will not be assignable, transferable or
      delegable, whether by pledge, garnishment, creation of a security
      interest, claims for alimony, or otherwise, other than by a transfer by
      Executive's will or by the laws of descent and distribution and, in the
      event of any attempted assignment or transfer contrary to this Section
      10(c), the Company shall have no liability to pay any amount so attempted
      to be assigned, transferred or delegated.

            11. Notices: For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at Executive's
principal residence, or to such other address as any party may have furnished to
the other in writing and in accordance herewith, except that notices of changes
of address shall be effective only upon receipt.

            12. Dispute Resolutions: Any dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois in accordance with the rules of the American Arbitration
Association then in effect; provided, however, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction.


                                       16
<PAGE>

            13. Governing Law: The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.

            14. Validity: If any provision of this Agreement or the application
of any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.

            15. Miscellaneous: No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement. Effective as of the date hereof, this Agreement supercedes and
replaces the prior Severance Agreement entered into between the Executive and
the Company.

            16. Counterparts: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.


                                       17
<PAGE>

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

                                     PLAYBOY ENTERPRISES, INC,


                                     By:
                                         --------------------------------

                                     Title: Executive Vice President
                                            -----------------------------

ACCEPTED and AGREED to:


------------------------------


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