THIS NOTE AND THE SHARES OF COMMON STOCK  ISSUABLE UPON  CONVERSION OF THIS NOTE
HAVE NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED,  OR ANY
STATE  SECURITIES  LAWS.  THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION  OF  THIS  NOTE  MAY  NOT BE  SOLD,  OFFERED  FOR  SALE,  PLEDGED  OR
HYPOTHECATED  IN THE ABSENCE OF AN EFFECTIVE  REGISTRATION  STATEMENT AS TO THIS
NOTE UNDER SAID ACT AND ANY APPLICABLE  STATE  SECURITIES  LAWS OR AN OPINION OF
COUNSEL  REASONABLY  SATISFACTORY  TO PENTHOUSE  INTERNATIONAL,  INC.  THAT SUCH
REGISTRATION IS NOT REQUIRED.

                   AMENDED AND RESTATED CONVERTIBLE TERM NOTE

         FOR  VALUE   RECEIVED,   PENTHOUSE   INTERNATIONAL,   INC.,  a  Florida
corporation  (the  "BORROWER"),  hereby  promises to pay to LAURUS  MASTER FUND,
LTD.,  c/o Ironshore  Corporate  Services Ltd.,  P.O. Box 1234 G.T.,  Queensgate
House, South Church Street, Grand Cayman, Cayman Islands, Fax: 345-949-9877 (the
"HOLDER") or its registered assigns or successors in interest, on order, the sum
of TWELVE MILLION DOLLARS ($12,000,000),  or such lesser principal amount as may
be from time to time owing to the Holder  hereunder,  together  with any accrued
and unpaid interest  hereon,  on February 22, 2007 (the "MATURITY  DATE") if not
sooner paid.

         For  purposes  hereof,  a "BUSINESS  DAY" means any day on which United
States federally chartered banks are open for business and a "TRADING DAY" means
each day the  applicable  Principal  Market (as defined in Section 4.7) on which
the Common Stock (as defined in Section 2.1) is traded is open and  available to
trade securities.  Capitalized  terms used herein without  definition shall have
the  meanings  ascribed  to such  terms  in  that  certain  Securities  Purchase
Agreement  dated as of  February  23,  2004 (the  "Closing  Date")  between  the
Borrower and the Holder (as amended, supplemented or modified from time to time,
the "PURCHASE AGREEMENT").

         The following terms shall apply to this Note:

                                   ARTICLE I
                             INTEREST & AMORTIZATION

         1.1.  INTEREST RATE AND PAYMENT.  Subject to Article IV and Section 5.1
hereof,  interest payable on this Note shall accrue at a rate per annum equal to
the  Applicable  Rate. For purposes of this Note,  the  "APPLICABLE  RATE" shall
mean:  (a) the "prime rate"  published  in THE WALL STREET  JOURNAL from time to
time, plus three and one-half percent (3.5%), subject to a minimum interest rate
of seven and one-half  percent  (7.5%) per annum and a maximum  interest rate of
thirteen and one-half percent (13.5%) per annum (the "FLOATING  RATE");  (b) the
greater of the  Floating  Rate and ten  percent  (10%) per  annum,  unless on or
before  August 23, 2004,  the Holder shall have  received  evidence that a joint
plan of reorganization for General Media, Inc., a Delaware corporation ("GENERAL
MEDIA"),  General Media Art Holding,  Inc., General Media Communications,  Inc.,
General  Media  Entertainment,  Inc.,  General Media (UK),  Ltd.,  GMCI Internet
Operations,  Inc., GMI On-Line Ventures,  Ltd.,  Penthouse Images  Acquisitions,
Ltd.  and  Pure  Entertainment   Telecommunications,   Inc.  (collectively,  the
"DEBTORS")  shall have (i) been

<PAGE>

confirmed by a final order of the United States Bankruptcy Court of the Southern
District  of New York which  order is not,  or is no longer,  subject to stay or
appeal and (ii)  become  effective  pursuant to its terms  which  terms,  in the
Holder's  reasonable  discretion,  do not adversely  affect the Holder's  rights
and/or  remedies under this Agreement or any Related  Agreement (the  "CONFIRMED
PLAN OF  REORGANIZATION");  and (c) the greater of the Floating  Rate and twelve
percent (12%) per annum,  in the event that on or before  February 23, 2005, the
Holder shall not have received  evidence of a Confirmed Plan of  Reorganization.
Interest shall be payable  monthly in arrears  commencing on March 31, 2004, and
on the  last  day  of  each  consecutive  calendar  month  thereafter  (each,  a
"REPAYMENT  DATE"),  and  on the  Maturity  Date,  whether  by  acceleration  or
otherwise.

         1.2. MONTHLY PRINCIPAL  PAYMENTS.  Amortizing payments of the aggregate
principal  amount  outstanding  under  this  Note at any  time  (the  "PRINCIPAL
AMOUNT")  shall begin on September 30, 2004 and shall recur on the last calendar
day of each succeeding month thereafter (each, an "AMORTIZATION DATE") until the
Maturity  Date.  The  Borrower  shall  make  monthly  payments  to the Holder as
follows: beginning on the first Amortization Date and ending on the Amortization
Date of August 31, 2005, the Borrower shall pay to the Holder $200,000 per month
on each Repayment Date; beginning on the Amortization Date of September 30, 2005
and ending on the Amortization Date of February 28, 2006, the Borrower shall pay
to the Holder  $400,000 per month on each  Repayment  Date; and beginning on the
Amortization  Date of March  31,  2006 and  ending  on the  Maturity  Date,  the
Borrower shall pay to the Holder $600,000 per month on each Repayment Date, with
the remaining  principal  balance due under this Note, if any, to be paid on the
Maturity  Date.  Each  of the  aforementioned  monthly  payments  shall  be made
together  with any  accrued and unpaid  interest to date on such  portion of the
Principal  Amount plus any and all other amounts which are then owing under this
Note but have not been paid (collectively, the "MONTHLY AMOUNT").

                                   ARTICLE II
                            BORROWER PAYMENT OPTIONS

         2.1. (a) PAYMENT OF MONTHLY AMOUNT IN CASH OR COMMON STOCK.  Subject to
the terms hereof,  the Holder shall have the sole option to determine whether to
elect to accept  payment of the Monthly  Amount on each Repayment Date either in
cash or in shares of Borrower's  common stock,  $0.0025 par value per share (the
"COMMON  STOCK"),  or a  combination  of both.  Each  month by the  fifth  (5th)
Business  Day prior to each  Amortization  Date,  the  Holder  shall  deliver to
Borrower  written  notice in the form of EXHIBIT B attached  hereto of  Holder's
election to accept  payment of the Monthly  Amount payable on the next Repayment
Date in  either  cash or  Common  Stock,  or a  combination  of  both  (each,  a
"REPAYMENT  ELECTION NOTICE").  Except as provided in Section 2.1(b) below, if a
Repayment  Election  Notice is not  delivered  by the  Holder  on or before  the
applicable  Notice Date for such Repayment  Date, then the Monthly Amount due on
such  Repayment  Date  shall be paid in cash.  If the  Borrower  repays all or a
portion  of the  Monthly  Amount in shares of Common  Stock,  the number of such
shares to be issued for such  Repayment  Date shall be the number  determined by
dividing  (x) the portion of the  Monthly  Amount to be paid in shares of Common
Stock,  by (y) the Fixed  Conversion  Price.  For  purposes  hereof,  the "FIXED
CONVERSION PRICE" means an amount equal to $0.11 per share of Common Stock.

                                        2
<PAGE>

         (b) MONTHLY AMOUNT COMMON STOCK PAYMENT GUIDELINES. Subject to Sections
2.2 and 3.4 hereof,  the Holder  shall elect that all or a portion of any one or
more of the next succeeding  Monthly Amounts due on each Repayment Date shall be
paid in shares of  Common  Stock if the  closing  price of the  Common  Stock as
reported by Bloomberg,  L.P. on the Principal  Market (as defined in Section 4.7
hereof) for the five (5) Trading Days  preceding such Repayment Date was greater
than 110% of the Fixed  Conversion  Price. The Holder shall convert that portion
of the Monthly Amount due on a Repayment Date into shares of Common Stock, up to
that amount of such Common Stock as shall equal twenty five percent (25%) of the
aggregate  trading volume (as determined by Bloomberg  L.P.) of the Common Stock
for each of the ten (10) Trading Days immediately  preceding the Repayment Date;
PROVIDED, that if the closing price of the Common Stock for the ten (10) Trading
Days immediately  preceding the Repayment Date shall be: (i) two hundred percent
(200%) or greater of the Fixed  Conversion  Price,  then the twenty five percent
(25%) limit set forth above shall be  increased  to fifty  percent  (50%);  (ii)
three hundred percent (300%) or greater of the Fixed Conversion  Price, then the
twenty five  percent  (25%) limit set forth above shall be  increased to seventy
five  percent  (75%);  and (iii) four hundred  percent  (400%) or greater of the
Fixed Conversion Price, then the twenty five percent (25%) limit set forth above
shall be increased to one hundred percent (100%). Any part of one or more of the
Monthly  Amounts due on such  Repayment  Date that the Holder has not  converted
into  shares  of  Common  Stock  shall be paid by the  Borrower  in cash on such
Repayment  Date. Any part of the Monthly Amount due on such Repayment Date which
the Holder has  converted  into shares of Common Stock but which must be paid in
cash  (because  the closing  price of the Common Stock on one or more of the ten
(10) Trading Days preceding the applicable  Repayment Date was less than 110% of
the Fixed Conversion Price) shall be paid in cash within three (3) Business Days
of the applicable Repayment Date.

         2.2.  NO  EFFECTIVE  REGISTRATION.   Notwithstanding  anything  to  the
contrary  herein,  the  Borrower  shall not have the  right to direct  Holder to
convert  hereunder unless (i) an effective  current  Registration  Statement (as
defined in the Registration  Rights Agreement)  covering resale of the shares of
Common Stock to be issued in connection with  satisfaction  of such  obligations
exists, (ii) the Holder is not referred to as an underwriter in the Registration
Statement, (iii) no Event of Default hereunder exists and is continuing,  unless
such Event of Default is cured within any applicable cure period or is otherwise
waived in writing by the Holder in whole or in part at the Holder's  option,  or
(iv) an  exemption  from  registration  of the Common  Stock is available to the
Holder  pursuant to Rule 144 of the Securities Act. The  Registration  Statement
(as defined in the Registration  Rights Agreement) shall not be deemed effective
for  purposes of this Note (even if so declared by the  Securities  and Exchange
Commission) if the Holder is named as an underwriter thereunder.

         Any  principal  amount of this Note which is prepaid  pursuant  to this
Section  2.2 shall be deemed to  constitute  payments of  outstanding  principal
applying to Monthly Amounts for the remaining  Repayment Dates in  chronological
order of earliest maturing indebtedness.

         2.3.  OPTIONAL  REDEMPTION  IN CASH.  The  Borrower  shall not have the
option of  redeeming  or  prepaying  in cash any  Principal  Amount on or before
August  23,  2004.  Thereafter,   subject  to  satisfaction  of  the  Prepayment
Conditions  (as  hereafter  defined),  the  Borrower  shall  have the  option of
redeeming or prepaying any Principal Amount of this Note ("OPTIONAL REDEMPTION")
by  paying to the  Holder a sum of money  equal  to:  (i) 110% of the  Principal

                                       3
<PAGE>

Amount if such  redemption or prepayment  occurs after August 23, 2004 and on or
prior to August 23, 2005;  (ii) 105% of the Principal  Amount if such redemption
or  prepayment  occurs during the period  commencing  on the first  calendar day
following  August 25, 2005 and prior to February  23, 2006 and (iii) 100% of the
Principal Amount if such redemption or prepayment occurs at any time thereafter.
Each such  redemption  or  prepayment  made  pursuant to this  Section 2.4 shall
include all accrued and unpaid  interest on the  Principal  Amount so prepaid or
redeemed  and any and all other  sums due,  accrued  or  payable  to the  Holder
arising under this Note or the Purchase  Agreement or any Related  Document (the
"REDEMPTION  AMOUNT")  outstanding on the day written notice of redemption  (the
"NOTICE OF REDEMPTION") is given to the Holder.  The Notice of Redemption  shall
specify the date for such Optional  Redemption (the "REDEMPTION  PAYMENT DATE"),
which date  shall be seven (7) days  after the date of the Notice of  Redemption
(the  "REDEMPTION  PERIOD").  A Notice of Redemption shall not be effective with
respect to any portion of this Note for which the Holder has a pending  election
to convert pursuant to Section 3.1, or for conversions elected to be made by the
Holder  pursuant to Section 3.1 during the  Redemption  Period.  The  Redemption
Amount shall be  determined  as if such  election to convert had been  completed
immediately  prior to the date of the Notice of  Redemption.  On the  Redemption
Payment Date, the Redemption Amount must be paid in good funds to the Holder. In
the event the  Borrower  fails to pay the  Redemption  Amount by the  Redemption
Payment  Date,  then such  Redemption  Notice will be null and void.  The Holder
shall have the right to convert the Principal Amount, and any accrued and unpaid
interest  and any and all other  sums due,  accrued  or  payable  to the  Holder
arising under this Note, the Purchase Agreement or any Related Document,  at the
applicable  Fixed Conversion  Price during the Redemption  Period.  For purposes
hereof,  the term  "PREPAYMENT  CONDITIONS"  means  satisfaction  of each of the
following:  (a) the average  closing  price of the Common Stock on the Principal
Market during the forty five (45) consecutive  Trading Days immediately prior to
the Notice of Redemption is $0.40 or less,  and (b) the  conditions set forth in
Section  2.2 hereof  shall have been  satisfied.  In the event that the  average
closing price of the Common Stock on the Principal  Market during the forty five
(45) consecutive  Trading Days immediately  prior to the Notice of Redemption is
greater than $0.40 and (b) the  conditions set forth in Section 2.2 hereof shall
have been  satisfied,  then the Borrower  shall be able to redeem or prepay this
Note in cash only and with the prior written consent of the Holder, such consent
to given at the sole and absolute discretion of the Holder.

                                  ARTICLE III
                                CONVERSION RIGHTS

         3.1. HOLDER'S  CONVERSION  RIGHTS. The Holder shall have the right, but
not  the  obligation,  to  convert  all or any  portion  of the  then  aggregate
outstanding  principal amount of this Note,  together with interest and fees due
hereon,  into shares of Common  Stock  subject to the terms and  conditions  set
forth in this Article III. The Holder may exercise such right by delivery to the
Borrower of a written  notice of  conversion  not less than one (1) day prior to
the date upon  which  such  conversion  shall  occur.  The date upon  which such
conversion shall occur is (the "CONVERSION DATE").

         3.2. CONVERSION LIMITATION.  Notwithstanding  anything contained herein
to the  contrary,  pursuant to the terms of this Note,  the Holder  shall not be
entitled to convert on a  Conversion  Date (as defined in Section  3.3(a))  that
number of shares of Common Stock which

                                       4
<PAGE>

would be in excess of the sum (i) the number of shares of Common Stock  actually
owned by the Holder and its affiliates on a Conversion  Date and (ii) the number
of shares of Common Stock issuable upon the conversion of this Note and exercise
of the warrants held by such Holder and its affiliates with respect to which the
determination  of this proviso is being made on a Conversion  Date,  which would
result in  beneficial  ownership by the Holder and its  affiliates  of more than
4.99% of the  outstanding  shares of Common  Stock of the Borrower on such date.
For the purposes of the immediately  preceding  sentence,  beneficial  ownership
shall be  determined  in  accordance  with Section 13(d) of the Exchange Act and
Regulation  13d-3  thereunder.  The Holder may void the limitation  described in
this Section 3.2 upon 75 days prior notice to the Borrower or without any notice
requirement upon an Event of Default.

         3.3. PROCEDURES FOR CONVERSION. (a) In the event that the Holder elects
to convert this Note into Common Stock,  the Holder shall give written notice of
such election by delivering to the Borrower an executed and completed  notice of
conversion (the "NOTICE OF CONVERSION"), such Notice of Conversion shall provide
a breakdown in reasonable detail of the Principal  Amount,  accrued interest and
fees being  converted.  On each Conversion Date (as hereinafter  defined) and in
accordance with the Notice of Conversion,  the Holder shall make the appropriate
reduction to the Principal  Amount,  accrued interest and fees as entered in its
records and shall provide  written notice thereof to the Borrower within two (2)
Business  Days  after  the  Conversion  Date.  Each  date on which a  Notice  of
Conversion is delivered or  telecopied  to the Borrower in  accordance  with the
provisions  hereof shall be deemed a Conversion Date (the "CONVERSION  DATE"). A
form of Notice of Conversion  to be employed by the Holder is annexed  hereto as
EXHIBIT A.

         (b)  Pursuant to the terms of the Notice of  Conversion,  the  Borrower
will  issue  instructions  to the  transfer  agent  (together  with  such  other
documents as the transfer agent may request) within two (2) Business Days of the
date  of  the  delivery  to  Borrower  of  the  Notice  of  Conversion.  If  the
Registration  Statement  (as defined in the  Registration  Rights  Agreement) is
effective or the  Conversion  Shares are eligible for sale  pursuant to Rule 144
promulgated  under the  Securities  Act of 1933,  the  Borrower  shall cause the
transfer agent to transmit the certificates  representing the Conversion  Shares
to the Holder by crediting  the account of the Holder's  designated  broker with
the Depository Trust  Corporation  ("DTC") through its Deposit  Withdrawal Agent
Commission  ("DWAC")  system within three (3) Business Days after receipt by the
Borrower of the Notice of Conversion (the "DELIVERY  DATE").  In the case of the
exercise of the  conversion  rights set forth  herein the  conversion  privilege
shall be deemed to have been exercised and the Conversion  Shares  issuable upon
such conversion  shall be deemed to have been issued upon the date of receipt by
the  Borrower of the Notice of  Conversion.  The Holder shall be treated for all
purposes as the record holder of such Common Stock,  unless the Holder  provides
the Borrower written instructions to the contrary.

         3.4. CONVERSION MECHANICS.  (a) The number of shares of Common Stock to
be issued upon each conversion of this Note shall be determined by dividing that
portion of the principal  and interest and fees to be converted,  if any, by the
Fixed Conversion  Price. In the event of any conversions of the Principal Amount
in part  pursuant  to this  Article  III,  such  conversions  shall be deemed to
constitute  conversions  of  outstanding  principal  amount  applying to Monthly
Amounts for the remaining  Repayment  Dates in  chronological  order of earliest
maturing  indebtedness.  By way of example,  if the original principal amount of
this Note is $12,000,000 and the Holder

                                       5
<PAGE>

converted  $250,000  of  such  original  principal  amount  prior  to the  first
Amortization  Date,  then (1) the principal  amount of the Monthly Amount due on
the first  Amortization  Date would  equal $0, (2) the  principal  amount of the
Monthly Amount due on the second  Amortization Date would equal $150,000 and (3)
the principal  amount of the Monthly Amount due on the third  Amortization  Date
would be $200,000.

         (b) No  fractional  shares of  Common  Stock  shall be issued  upon any
conversion of this Note. In lieu of any  fractional  share to which Holder would
otherwise be entitled,  the Borrower  shall pay Holder cash equal to the product
of  such  fraction  multiplied  by the  fair  market  value  as of the  date  of
Conversion  of a share of  Common  Stock,  as  determined  in good  faith by the
Borrower's  Board of Directors  (the  "BOARD"),  or an  authorized  subcommittee
thereof.

         (c)  ADJUSTMENT.  The Fixed  Conversion  Price and  number  and kind of
shares or other securities to be issued upon conversion is subject to adjustment
from time to time  upon the  occurrence  of  certain  events,  as  follows:

                  (i)   RECLASSIFICATION,  ETC.  If the  Borrower  at  any  time
                        shall,  by  reclassification  or  otherwise,  change the
                        Common  Stock  into the same or a  different  number  of
                        securities of any class or classes, the Principal Amount
                        of this Note,  and any accrued and interest  thereon and
                        fees incurred  hereunder,  shall thereafter be deemed to
                        evidence  the right to purchase  an  adjusted  number of
                        such  securities  and kind of  securities  as would have
                        been  issuable as the result of such change with respect
                        to  the   Common   Stock   immediately   prior  to  such
                        reclassification or other change.

                  (ii)  STOCK SPLITS,  COMBINATIONS AND DIVIDENDS. If the shares
                        of  Common  Stock  outstanding  at any  time  after  the
                        Closing Date are  subdivided  or combined into a greater
                        or  smaller  number of shares of Common  Stock,  or if a
                        dividend is paid on the Common Stock in shares of Common
                        Stock,  the  Fixed  Conversion  Price or the  Conversion
                        Price,  as the  case may be,  shall  be  proportionately
                        reduced  in case  of  subdivision  of  shares  or  stock
                        dividend  or  proportionately  increased  in the case of
                        combination  of  shares,  in each such case by the ratio
                        which  the  total  number  of  shares  of  Common  Stock
                        outstanding  immediately  after such event  bears to the
                        total  number  of shares  of  Common  Stock  outstanding
                        immediately prior to such event.


                  (iii) SHARE ISSUANCES. If the Borrower shall at any time prior
                        to the  conversion or repayment in full of the Principal
                        Amount   issue  any  shares  of  Common   Stock  or  any
                        securities    convertible   into   or   exercisable   or
                        exchangeable  for  Common  Stock  ("EQUIVALENTS")  to  a
                        person  other than the Holder  (except  (A)  pursuant to
                        Sections  3.4(c) (i) or (ii) hereof;  or (B) pursuant to
                        options,  warrants, or other obligations to issue shares
                        outstanding  on the  Closing  Date as set  forth  in the
                        Schedules to the Purchase  Agreement  (the "NEW SHARES")
                        for a  consideration  per share or  having an  exercise,
                        conversion  or exchange  price (the "OFFER  PRICE") less
                        than the Fixed Conversion Price in effect at the time of
                        such issuance), then the Fixed Conversion Price shall be
                        immediately  reset to a price  determined by (calculated
                        to the nearest tenth of a cent)  multiplying  such Fixed
                        Conversion  Price

                                       6
<PAGE>

                        by a  fraction,  the  numerator  of  which  shall be the
                        number of shares of Common Stock outstanding immediately
                        prior to such  issue plus the number of shares of Common
                        Stock which the aggregate  consideration received by the
                        Borrower for the total number of  Additional  Shares (as
                        defined  below) of Common Stock so issued would purchase
                        at such Conversion  Price;  and the denominator of which
                        shall  be  the   number  of   shares  of  Common   Stock
                        outstanding  immediately  prior to such  issue  plus the
                        number of such  Additional  Shares  of  Common  Stock so
                        issued.  For  purposes  of  this  Section,   "ADDITIONAL
                        SHARES" of Common  Stock shall mean all shares of Common
                        Stock  issued by the  Borrower  after the Closing  Date,
                        other than shares of Common Stock issuable at any time:

                                (A) upon  conversion  or exercise of all options
                            and  convertible  securities  outstanding  as of the
                            date  hereof,   PROVIDED,   HOWEVER,   that  if  the
                            conversion  or  exercise  price  of  any  option  or
                            convertible   security  is  repriced  or   otherwise
                            adjusted  downward to a conversion or exercise price
                            that is less than the  conversion or exercise  price
                            of such  option or  convertible  security  as of the
                            Closing  Date  (other  than  on  account  of a stock
                            split),  the exclusion  provided by this  subsection
                            3.4(c)(iii)(A) shall be inoperable in all regards in
                            respect of such options and  convertible  securities
                            and such options and convertible securities shall be
                            deemed to be issued  after the Closing  Date and the
                            provisions of subsection  3.4(c)(iii) shall apply in
                            all respects;

                                (B) (x) to officers,  directors,  and  employees
                            of,  and  consultants  to,  the  Borrower  on  terms
                            approved  by the Board of  Directors  and/or  (y) in
                            connection  with business  combinations or corporate
                            partnering  agreements  approved  by  the  Board  of
                            Directors, so long as the number of shares issued in
                            connection with  subsections  3.4(c)(iii)(B)(x)  and
                            3.4(c)(iii)(B)(y) does not exceed, in the aggregate,
                            five  percent  (5%) of the  Borrower's  Common Stock
                            outstanding,  on  a  fully  diluted  basis,  on  the
                            Closing Date.

                        For purposes hereof, the issuance of any security of the
                        Borrower convertible into or exercisable or exchangeable
                        for Common  Stock shall result in an  adjustment  to the
                        Fixed  Conversion  Price at the time of issuance of such
                        securities.

                                (C) In the case of the  issuance  of New  Shares
                            for a  consideration  in whole or in part for  cash,
                            the consideration received by the Borrower upon such
                            issuance  will be  deemed  to be the  amount of cash
                            paid therefor  plus the value of any property  other
                            than cash  received by the  Borrower,  determined as
                            provided in subsection 3.4 (c) (iv)(D) hereof.

                                (D) In the case of the  issuance  of New  Shares
                            for a consideration  in whole or in part in property
                            other than cash,  the value of such  property  other
                            than cash will be deemed to be the fair market value
                            of such  property as  determined  by an  independent
                            appraiser  with   experience  in  such   valuations,
                            selected by the Holder at  Borrower's  sole cost and
                            expense, irrespective of any accounting treatment.

                                       7
<PAGE>

                                (E) In the case of the issuance of  Equivalents,
                            the aggregate  maximum number of shares of New Stock
                            deliverable  upon exercise,  exchange or conversion,
                            as the  case  may be,  of such  Equivalents  will be
                            deemed  to  have  been   issued  at  the  time  such
                            Equivalents  were  issued  and  for a  consideration
                            equal to the consideration,  if any, received by the
                            Borrower upon the issuance of such  Equivalents plus
                            the  maximum   purchase   price   provided  in  such
                            Equivalents  (the  consideration  in each case to be
                            determined  in the manner  provided  in  subsections
                            3.4(c)(iii)(C) and 3.4(c)(iii)(D) hereof);

                                (F)  During  the  period  the  conversion  right
                            exists,   the   Borrower   will   reserve  from  its
                            authorized  and  unissued  Common Stock a sufficient
                            number of  shares to  provide  for the  issuance  of
                            Common Stock upon the full  conversion of this Note.
                            The Borrower  represents  that upon  issuance,  such
                            shares will be duly and validly  issued,  fully paid
                            and  non-assessable.  The  Borrower  agrees that its
                            issuance   of  this  Note  shall   constitute   full
                            authority  to its  officers,  agents,  and  transfer
                            agents who are  charged  with the duty of  executing
                            and issuing stock  certificates to execute and issue
                            the  necessary  certificates  for  shares  of Common
                            Stock upon the conversion of this Note.

         3.5. REORGANIZATIONS, CONSOLIDATIONS, ETC.

              In the event,  at any time after the Closing  Date, of any capital
reorganization,  or any  reclassification  of the capital  stock of the Borrower
(other  than a change  in par value or from par value to no par value or from no
par  value to par  value  or as a result  of a stock  dividend  or  subdivision,
split-up  or  combination  of  shares),  or the  consolidation  or merger of the
Borrower with or into another  person (other than a  consolidation  or merger in
which the Borrower is the  continuing  corporation  and which does not result in
any  change  in  the  powers,  designations,  preferences  and  rights  (or  the
qualifications, limitations or restrictions, if any) of the capital stock of the
Borrower as amended from time to time) (any such transaction,  an "EXTRAORDINARY
TRANSACTION"), then all of the amounts owed under this Note shall be exercisable
for the kind and number of shares of stock or other  securities  or  property of
the  Borrower,   or  of  the  corporation   resulting  from  or  surviving  such
Extraordinary  Transaction,  that a holder of the number of shares of Conversion
Shares deliverable  (immediately prior to the effectiveness of the Extraordinary
Transaction) upon conversion of the amounts owed under this Note would have been
entitled to receive  upon such  Extraordinary  Transaction.  The  provisions  of
Section   3.4(c)(iii)   shall  similarly   apply  to  successive   Extraordinary
Transactions.  The  provisions of this Section 3.5 shall not be deemed  Holder's
consent to any  transaction  otherwise  prohibited  by the terms of the Purchase
Agreement or any Related Agreement.

                                   ARTICLE IV
                                EVENTS OF DEFAULT

         Upon the occurrence  and  continuance of an Event of Default beyond any
applicable grace period,  the Holder, at its sole and absolute  discretion,  may
make all sums of principal, interest and other fees then remaining unpaid hereon
and all other amounts payable hereunder due and

                                       8
<PAGE>

payable  within five (5) days after written notice from Holder to Borrower (each
occurrence  being a  "DEFAULT  NOTICE  PERIOD"),  PROVIDED,  HOWEVER,  that such
Default Notice Period shall not apply to Sections 4.3, 4.6 and 4.9 below. In the
event of such an  acceleration,  the amount due and owing to the Holder shall be
125% of the  outstanding  principal  amount of the Note (plus accrued and unpaid
interest and fees, if any).  If, with respect to any Event of Default other than
a payment  default  described  in Section 4.1 below,  within the Default  Notice
Period the  Borrower  cures the Event of Default,  the Event of Default  will be
deemed to no longer  exist and any rights and remedies of Holder  pertaining  to
such Event of Default will be of no further force or effect.

         The occurrence of any of the following events is an "EVENT OF DEFAULT":

         4.1.  FAILURE TO PAY  PRINCIPAL,  INTEREST OR OTHER FEES.  The Borrower
fails to pay when due any  installment  of  principal,  interest  or other  fees
hereon in accordance herewith,  or the Borrower fails to pay when due any amount
due under any other  promissory note issued by Borrower,  but only to the extent
cash collateral pledged by the Borrower to the Holder shall not be sufficient to
cover the same.

         4.2. BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of this Note, the Purchase Agreement,  or in any Related
Document, in any material respect and such breach, if subject to cure, continues
for a period of thirty (30) calendar days after the occurrence thereof.

         4.3.   BREACH  OF   REPRESENTATIONS   AND   WARRANTIES.   Any  material
representation  or  warranty  of the  Borrower  made  herein,  in  the  Purchase
Agreement,  or in any  Related  Document  shall  have been  materially  false or
misleading  when  made and  shall  not be cured  for a period  of  fifteen  (15)
calendar days after the occurrence thereof.

         4.4.  RECEIVER OR TRUSTEE.  The Borrower or any Guarantor shall make an
assignment  for the  benefit  of  creditors,  or  apply  for or  consent  to the
appointment  of a receiver  or trustee for it or for a  substantial  part of its
property  or  business;  or  such a  receiver  or  trustee  shall  otherwise  be
appointed.

         4.5. JUDGMENTS. Any money judgment, writ or similar final process shall
be entered or filed against the Borrower or any Guarantor or any of its property
or other assets for more than $250,000, and shall remain unvacated,  unbonded or
unstayed for a period of ninety (90) days.

         4.6. BANKRUPTCY. Bankruptcy, insolvency,  reorganization or liquidation
proceedings  or other  proceedings or relief under any bankruptcy law or any law
for the relief of debtors  shall be instituted by or against the Borrower or any
Guarantor and in the case of such proceeding  instituted against the Borrower or
any such Guarantor such proceeding shall not be dismissed,  discharged or lifted
within sixty (60) calendar days from the initial occurrence of such event.

         4.7. STOP TRADE.  An SEC stop trade order or Principal  Market  trading
suspension  of the  Common  Stock  shall be in effect  for five (5)  consecutive
Trading  Days or five (5) Trading  Days during a period of ten (10)  consecutive
Trading Days,  excluding in all cases a suspension of all trading on a Principal
Market, provided that the Borrower shall not have been able to cure such trading
suspension  within  thirty  (30) days of the  notice  thereof or list the Common
Stock on another  Principal  Market  within sixty (60) days of such notice.  The
"PRINCIPAL MARKET" for the

                                       9
<PAGE>

Common  Stock shall  include the OTC Bulletin  Board,  NASDAQ  SmallCap  Market,
NASDAQ  National  Market  System,  American  Stock  Exchange,  or New York Stock
Exchange,  whichever  of the  foregoing  is at the  time the  principal  trading
exchange or market for the Common  Stock,  or any  securities  exchange or other
securities market on which the Common Stock is then being listed or traded.

         4.8. FAILURE TO DELIVER COMMON STOCK. The Borrower's  failure to timely
deliver Common Stock to the Holder  pursuant to and in the form required by this
Note, and Section 9 of the Purchase Agreement, if such failure to timely deliver
Common  Stock shall not be cured  within two (2)  calendar  days  following  the
occurrence thereof.

         4.9. FAILURE TO CAUSE AN EFFECTIVE  REGISTRATION STATEMENT TO BE FILED.
The  Borrower's  failure  to  file  and  cause  to  exist  a  current  effective
Registration  Statement  (as defined in the  Registration  Rights  Agreement) by
September 30, 2004 covering resale of the shares of Common Stock underlying this
Note and the Common Stock Purchase  Warrant  issued by the Borrower  pursuant to
the Purchase Agreement  (including any common stock purchase warrant issued upon
exchange, transfer or split up or any part thereof.

         4.10. GUARANTY;  PLEDGE; MORTGAGE  DOCUMENTATION.  (a) If any Guarantor
shall  repudiate,  purport to revoke or fail to perform  any of its  obligations
under any guaranty agreement made by such Guarantor in favor of Holder or (b) if
an Event of Default shall have  occurred and be continuing  under and as defined
in any Mortgage  Documents or Pledge Document (each as defined  hereafter) which
shall not have been  cured  during  any  applicable  cure or grace  period.  For
purposes  hereof,  (i) "MORTGAGE  DOCUMENTS"  means the mortgage in favor of the
Holder, as agent, on the New York Property or any Substitute Real Property,  and
(ii) "PLEDGE DOCUMENT" means the Member Pledge Agreement dated as of the Closing
Date made by the  Borrower  in favor of the  Holder,  as agent,  as each of such
documents may be amended, modified and supplemented from time to time.

         4.11.  FURTHER  ASSURANCES.  If Borrower or any Guarantor shall fail to
promptly  enter  into  all such  documentation  as  shall  from  time to time be
reasonably  requested  by the Holder in  connection  with the  Holder's  sale of
participating  interests in the Purchase  Agreement  and the Related  Agreements
and/or sale,  assignment  or transfer of all or any part of the Holder's  rights
under this Agreement and the Related Agreements.

                                   ARTICLE V
                           DEFAULT RELATED PROVISIONS

         5.1. PAYMENT GRACE PERIOD. The Borrower shall have a three (3) Business
Day grace period to pay any monetary amounts due under this Note or the Purchase
Agreement or any Related  Document,  after which grace period a default interest
rate of five  percent  (5%) per annum above the then  applicable  interest  rate
hereunder shall apply to the monetary amounts due.

         5.2.  CONVERSION  PRIVILEGES.  The  conversion  privileges set forth in
Article III shall remain in full force and effect  immediately  from the Closing
Date and until  this  Note is paid in

                                       10
<PAGE>

full or until all of the then  outstanding  Principal  Amount and  interest  and
other fees payable  hereunder  shall have been  converted  into shares of Common
Stock.

                                   ARTICLE VI
                                  MISCELLANEOUS

         6.1. FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part
of the Holder hereof in the exercise of any power, right or privilege  hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other  right,  power or  privilege.  All  rights  and  remedies  existing
hereunder  are  cumulative  to, and not  exclusive  of,  any rights or  remedies
otherwise available.

         6.2. NOTICES. Any notice herein required or permitted to be given shall
be in writing and shall be deemed  effectively given: (i) upon personal delivery
to the party  notified,  (ii) when sent by confirmed  telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next Business
Day,  (iii) five days after having been sent by  registered  or certified  mail,
return receipt  requested,  postage  prepaid,  or (iv) one (1) day after deposit
with a nationally  recognized  overnight courier,  specifying next day delivery,
with written  verification of receipt.  All communications  shall be sent to the
Borrower  at  the  address  provided  in  the  Purchase  Agreement  executed  in
connection  herewith,  and to the Holder at the address provided in the Purchase
Agreement for such Holder,  with a copy to Scott J. Giordano,  Esq., Loeb & Loeb
LLP, 345 Park Avenue, New York, New York 10154 and to John E. Tucker,  Esq., 825
Third  Avenue , 14th Floor,  New York,  New York 10022,  facsimile  number (212)
541-4434,  or at such other  address as the Borrower or the Holder may designate
by ten days advance written notice to the other. A Notice of Conversion shall be
deemed given when made to the Borrower pursuant to the Purchase Agreement.

         6.3. AMENDMENT PROVISION. The term "Note" and all reference thereto, as
used  throughout  this  instrument,  shall mean this  instrument  as  originally
executed,  or  if  later  amended  or  supplemented,   then  as  so  amended  or
supplemented,  and any  successor  instrument  issued  pursuant  to Section  3.5
hereof, as it may be amended or supplemented.

         6.4.  ASSIGNABILITY.  This Note shall be binding  upon the Borrower and
its  permitted  successors  and  assigns,  and shall inure to the benefit of the
Holder and its  successors  and  assigns,  and may be  assigned by the Holder in
accordance  with the  requirements  of the  Purchase  Agreement  and  applicable
federal and state securities laws.

         6.5. GOVERNING LAW.

         (a) This Note  cannot be changed  or  terminated  orally,  and shall be
governed by and construed in accordance  with the laws of the State of New York,
without  regard to principles of conflicts of laws. Any action brought by either
party against the other  concerning the  transactions  contemplated by this Note
shall be brought  only in any state or federal  court  sitting in the Borough of
Manhattan,  City of New York; provided that nothing contained in this Note shall
be deemed to preclude  Holder from bringing suit or taking other legal action in
any  other  court of  competent  jurisdiction  and  nothing  shall be  deemed to
preclude the Borrower from

                                       11
<PAGE>

asserting any defenses or counterclaims  in any such actions.  Both the Borrower
and the individual executing this Note on behalf of the Borrower agree to submit
to the jurisdiction of such courts and waive trial by jury. The Borrower and the
individual  executing  this Note further  consent that any summons,  subpoena or
other process or papers (including,  without limitation, any notice or motion or
other application to either of the aforementioned  courts or a judge thereof) or
any  notice  in  connection  with any  proceedings  hereunder,  may be served by
registered or certified mail, return receipt  requested,  or by personal service
provided a reasonable time for appearance is permitted,  or in such other manner
as may be  permissible  under the rules of said  courts.  The  Borrower  and the
individual  executing this Note waive any objection to jurisdiction and venue of
any action  instituted  hereon in the  Supreme  Court for the State of New York,
County of New York or the United States District Court for the Southern District
of New York and shall not assert any defense  based on lack of  jurisdiction  or
venue or based upon FORUM NON  CONVENIENS  in any action  brought in either such
court.

         (b) The  prevailing  party shall be entitled to recover  from the other
party its reasonable attorney's fees and costs.

         (c) In the  event  that  any  provision  of  this  Note is  invalid  or
unenforceable  under any applicable  statute or rule of law, then such provision
shall be deemed  inoperative  to the extent that it may conflict  therewith  and
shall be deemed  modified to conform  with such statute or rule of law. Any such
provision  which  may prove  invalid  or  unenforceable  under any law shall not
affect the validity or unenforceability of any other provision of this Note.

         6.6.  MAXIMUM  PAYMENTS.  Nothing  contained  herein shall be deemed to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against  amounts  owed by the  Borrower  to the Holder and thus  refunded to the
Borrower.

         6.7.  SECURITY  INTEREST.  The holder of this Note, as agent,  has been
granted a security  interest  and lien in certain  real  property  assets of the
Borrower, as more fully described in the Mortgage Documents.

         6.8.  CONSTRUCTION.  Each  party  acknowledges  that its legal  counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction  that  ambiguities are to be resolved  against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

         6.9.  AMENDMENT AND RESTATEMENT.  This Note,  together with the Amended
and Restated  Convertible Term Note dated as of the date hereof made by Borrower
in favor of Alexandra  Global  Master Fund Ltd.  (the  "Alexandra  Note") in the
original  principal  amount of $12,000,000,  amends and restates in its entirety
(and,  together with the Alexandra Note is given in substitution  for and not in
satisfaction of) the Convertible  Promissory Note dated the Closing Date made by
Borrower in favor of Holder in the original principal amount of $24,000,000.

                                       12
<PAGE>

         IN WITNESS WHEREOF,  the Borrower has caused this Convertible Term Note
to be signed in its name effective as of this ___ day of March, 2004.





                                              PENTHOUSE INTERNATIONAL, INC.

                                              By:__________________________
                                              Name:________________________
                                              Title:_______________________


WITNESS:

______________________________

                                       13
<PAGE>


                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be  executed  by the Holder in order to convert all or part of the Note into
Common Stock

[Name and Address of Holder]

The  Undersigned  hereby  elects to convert  $_________  of the principal due on
[specify  applicable  Repayment Date] under the Convertible  Term Note issued by
PENTHOUSE  INTERNATIONAL,  INC. dated __________________ __, 2004 by delivery of
Shares of Common  Stock of PENTHOUSE  INTERNATIONAL,  INC. on and subject to the
conditions set forth in Article III of such Note.

1.       Date of Conversion                 _______________________

2.       Shares To Be Delivered:            _______________________

Date: ____________

                                    By:_______________________________
                                    Name:_____________________________
                                    Title:____________________________

                                       14
<PAGE>

                                    EXHIBIT B

                            REPAYMENT ELECTION NOTICE

Penthouse International, Inc.
11 Penn Plaza
New York, New York 10001

LAURUS MASTER FUND, LTD.  ("Laurus")  hereby elects to accept payment of $______
of the  Monthly  Amount due on  [specify  applicable  Repayment  Date] under the
Convertible Term Note issued to it by Penthouse International, Inc. ("Borrower")
dated  February  __, 2004 by delivery of Shares of  Borrower's  Common  Stock to
Laurus or the following  designee of Laurus,  [____], on ____ and subject to the
conditions set forth in Article II of such Note.

1.       Fixed  Conversion  Price:           $_______________________

2.       Amount  to be paid:                 $_______________________

3.       Shares  To  Be   Delivered   (2  divided  by  1):    __________________

Date: ____________                      LAURUS MASTER FUND, LTD.

                                        By:_______________________________
                                        Name:_____________________________
                                        Title:____________________________

                                       15