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                           PLAYBOY ENTERPRISES, INC.

                              Board of Directors'
                          Deferred Compensation Plan

                        Effective: October 1, 1992
             Amended and Restated: January 1, 1998
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                           PLAYBOY ENTERPRISES' INC.
                              Board of Directors'
                           Deferred Compensation Plan

I.      PURPOSE

II.     DEFINITIONS

III.    ELIGIBILITY; PARTICIPATION LIMITS

IV.     BENEFITS

V.      CLAIM FOR BENEFITS PROCEDURE

VI.     ADMINISTRATION

VII.    AMENDMENT AND TERMINATION

VIII.   MISCELLANEOUS
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                           PLAYBOY ENTERPRISES, INC.
                              Board of Directors
                           Deferred Compensation Plan

     Playboy Enterprises, Inc. hereby amends and restates in its entirety,
     effective as of January 1, 1998, the Playboy Enterprises, Inc. Board of
     Directors' Deferred Compensation Plan, which was originally established
     effective October 1, 1992.

I.   PURPOSE

     The purpose of the Playboy Enterprises, Inc. Board of Directors' Deferred
     Compensation Plan is to provide a means whereby the Company may afford
     certain members of the Board of Directors an opportunity to defer Director
     Fees otherwise payable in cash or stock, and thereby encourage their
     productive efforts on behalf of the Company. By providing a means whereby
     Director Fees may be deferred into the future, the Plan will further the
     growth and development of the Company and aid in attracting and retaining
     Directors of exceptional ability.

II.  DEFINITIONS

     2.01 "Administrative Committee" and "Committee" mean the Committee
          appointed pursuant to Article VI to manage and administer the Plan.

     2.02 "Age" means the Director's chronological age on the relevant date.

     2.03 "Agreement" means the Playboy Enterprises, Inc. Deferred Compensation
          Election Agreement, executed between a Director and the Company,
          whereby a Director agrees to defer all or a portion of his/her
          Director Fees pursuant to the provisions of the Plan, and the Company
          agrees to make benefit payments in accordance with the provisions of
          the Plan.

     2.04 "Beneficiary" means the person, persons or trust designated
          Beneficiary pursuant to Section 4.09.

     2.05 "Change in Control" means the occurrence of any one of the following
          events:

          a)  Hugh M. Hefner and Christie Ann Hefner cease, collectively, to
              beneficially own at least fifty percent (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") (for purposes of this Subsection, 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 1943, as amended] by the Hugh M. Hefner Foundation shall be
              deemed to be beneficially owned by Christie Ann Hefner if and so
              long as she has sole voting power with respect to such Voting
              Stock); or

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    b)  except as provided in Section 2.05(f), a sale, exchange, or other
        disposition of Playboy Magazine; or

    c)  except as provided in Section 2.05(f), any liquidation or dissolution of
        the Company; or

    d)  except as provided in Section 2.05(f), the Company is merged,
        consolidated, or reorganized into or with another corporation or other
        legal person; or

    e)  except as provided in Section 2.05(f), the Company sells or otherwise
        transfers all or substantially all of its assets to another corporation
        or other legal person;

    f)  provided, however, that no such merger, consolidation, reorganization,
        sale, or transfer will constitute a Change in Control if the merger,
        consolidation, reorganization, sale, or transfer is initiated by the
        Company and as a result of such merger, consolidation, reorganization,
        sale, or transfer not less than a majority of the combined voting power
        of the then-outstanding securities of the surviving, resulting, or
        ultimate parent corporation or other legal person, 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
        merger, consolidation, reorganization, sale, or transfer.

2.06 "Company" means Playboy Enterprises, Inc., a Delaware corporation, and its
     successors and assigns.

2.07 "Compensation" means cash remuneration paid pursuant to this Plan for
     services rendered prior to the date paid.

2.08 "Deferred Compensation Account" means the accounting record(s) maintained
     by the Company for each Participant, pursuant to Article III. Separate
     Deferred Compensation Account(s) shall be utilized solely as a device for
     the measurement and determination of the amount to be paid to the
     Participant pursuant to this Plan, and shall be subject to Section 7.02
     hereof. Notwithstanding the provisions of Section 8.09, a Participant's
     Deferred Compensation Account shall not constitute or be treated as a trust
     fund or escrow arrangement of any kind.

2.09 "Deferred Compensation Plan Trust" and "Trust" mean the Deferred
     Compensation Plan Trust, an irrevocable grantor trust or trusts established
     by the Company, in accordance with Section 8.09, with an independent
     trustee for the benefit of persons entitled to receive payments under this
     Plan and any other deferred compensation plan or plans which the Company
     chooses, from time to time, to operate through the Trust.

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2.10 "Determination Date" means the date on which the amount of a Participant's
     Deferred Compensation Account is determined as provided in Article III
     hereof. For Plan Years beginning prior to January 1, 1998, the last day of
     each fiscal quarter and the date of a Participant's Termination of Service
     shall be a Determination Date. For Plan Years beginning on or after January
     1, 1998, the last day of each calendar quarter and the date of 
     a Participant's Termination of Service shall be a Determination Date.

2.11 "Director Fees" for purposes of this Plan shall be the total of the
     Director's fees and other remuneration for services rendered as a member of
     the Board of Directors during a Plan Year, including Retainer Fees and
     Meeting Fees. Director Fees shall not include any amounts paid that are not
     strictly for personal services, such as expense reimbursements.

2.12 "Fair Market Value" means either (a) the closing price of a share of Common
     Stock as reported on the New York Stock Exchange (the "NYSE") on the date
     as of which such value is being determined, or, if there are no reported
     transactions for such date, on the next preceding date for which
     transactions were reported, as published in the Midwest Edition of The Wall
     Street Journal, or (b) if there is no reporting of transactions on the
     NYSE, the fair market value of a share of Common Stock as determined by the
     Board from time to time.

2.13 "Interest Crediting Rate," "Interest" and "Moody's" mean the average yield
     on corporate bonds for the preceding calendar quarter. For purposes of this
     Section, the average yield on corporate bonds means the composite average
     yield of industrial and public utility bonds, rated Aaa through Baa, as
     determined from Moody's Bond Record published monthly by Moody's Investor's
     Service, Inc. (or any successor thereto), or, if such yield is no longer
     available, a substantially similar average selected by the Committee.

2.14 "IRC" means the Internal Revenue Code of 1986, as amended.

2.15 "Meeting Fees" means the compensation payable to a Director with regard to
     the number of Board or Committee meetings attended, or Committee positions
     held, as determined by the Board from time to time.

2.16 "Participant" means a member of the Board of Directors of the Company who
     is not an employee of the Company who is eligible to participate in the
     Plan pursuant to Section 3.01, and who enters into an Agreement.

2.17 "Plan" means the Playboy Enterprises, Inc. Board of Directors' Deferred
     Compensation Plan, as in effect and amended from time to time.

2.18 "Plan Year" means the Company's fiscal year, for the period from October 1,
     1992, to June 30, 1997. For the period from July 1, 1997, to December 31,
     1997, Plan Year shall mean a six month period beginning on July 1, 1997,
     and ending on December 31, 1997. For periods beginning on or after January
     1, 1998, Plan Year shall mean a calendar year.

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     2.19 "Retainer Fees" means the portion of a Director's annual compensation
          that is payable without regard to the number of Board or committee
          meetings attended or committee positions, as determined by the Board
          from time to time.

     2.20 "Retirement Date" and "Retirement" mean the date of termination of
          service of a Director for reasons other than death but after he/she
          (i) attains age sixty (60) and has five (5) or more years of service
          as a Director of the Company.

     2.21 "Tax Funded" means that the interest of a Participant in the Plan will
          be includable in the gross income of the Participant for federal
          income tax purposes prior to actual receipt of Plan benefits by the
          Participant.

     2.22 "Termination of Service" means the Director's ceasing his/her service
          as a member of the Board of Directors of the Company (the "Board") for
          any reason whatsoever, including by reason of Retirement or death.

III. ELIGIBILITY; PARTICIPATION LIMITS

     3.01  Eligibility and Participation. A Director who is not an employee of
           the Company may elect to participate in the Plan by filing an
           Agreement with the Company as follows:

           a)  In the initial year of eligibility, a Director who elects to
               participate in the Plan must file an Agreement with the Company
               at least ten (10) days prior to the beginning of the calendar
               quarter in which the Director's Fees to be deferred are otherwise
               earned. For all years subsequent to the initial year of
               eligibility, a director who elects to participate in the Plan
               must file an Agreement with the Company at least ten (10) days
               prior to the beginning of the Plan Year in which the Director's
               Fees to be deferred are otherwise earned;

           b)  A Director may elect to defer any component of his or her
               Director Fees. A Director who elects to defer the Meeting Fees
               component of his or her Director Fees, must defer one hundred
               percent (100%) of his or her Meeting Fees. A deferral of any
               amount less than one hundred percent (100%) of the Participant's
               Meeting Fees is not permitted under the Plan. A Director may
               also elect to defer all or a portion of the Retainer Fees
               component of his or her Director Fees. A Director may elect to
               defer in twenty-five percent (25%) increments up to one hundred
               percent (100%) of the Retainer Fees component of his or her
               Director Fees; and

           c)  The Agreement shall be irrevocable upon acceptance by the
               Company.

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     A Director who does not file an Agreement for a Plan Year shall be eligible
     to participate in a subsequent Plan Year. Notwithstanding the foregoing,
     the amount credited to the Deferred Compensation Account of a Director who
     was previously a participant in the executives' Deferred Compensation Plan
     will be automatically transferred into this Plan, unless such transfer is
     expressly prohibited by the terms of such other plan, whether or not such
     Director shall otherwise elect to make deferral contributions hereunder.

3.02 Timing of Deferral Credits. The amount of Director Fees that a Participant
     elects to defer in the Agreement shall cause an equivalent reduction in
     his/her Director Fees, and shall be credited to the Director's Deferred
     Compensation Account throughout the Plan Year as the Participant is paid
     (or would have been paid) any remaining non-deferred portion of his/her
     Director Fees for the Plan Year.

3.03 Vesting. A Participant shall be one hundred percent (100%) vested in
     his/her Deferred Compensation Account.

3.04 Determination of Account. Each Director's Deferred Compensation Account as
     of each Determination Date shall consist of the balance of the
     Participant's Deferred Compensation Account as of the immediately preceding
     Determination Date, adjusted for:

     . additional Director Fees deferrals pursuant to Section 3.01,

     . distributions (if any); and

     . the appropriate investment earnings and gains and/or losses and expenses
       pursuant to Section 3.05.

     All adjustments and earnings related thereto, will be determined on a daily
     basis.

3.05 Deferred Compensation Account Investment Options. The Administrative
     Committee shall designate from time to time one or more investment options
     in which Deferred Compensation Accounts may be deemed invested. A
     Participant (or Beneficiary of a deceased Participant) shall allocate his
     or her Deferred Compensation Account among the deemed investment options
     (in 1% increments) by filing with the Administrative Committee an
     investment allocation election. For the Plan Year beginning January 1, 1998
     and until changed by the Administrative Committee, the Administrative
     Committee has designated the following phantom investment options:

     a)  Moody's Bond Index Option.

     b)  Balanced Equity/Bond Option.

     c)  Growth & Income Equity Option.

     d)  Large Cap Equity Option.

     e)  Aggressive Growth Equity Option.

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     f)  International Equity Option.

     g)  Playboy Enterprises, Inc. Common Stock Units Option

     Any such investment allocation election shall be made initially in the
     Agreement and shall be subject to such rules as the Administrative
     Committee may prescribe, including, without limitation, rules concerning
     the manner of making investment allocation elections and, subject to
     Section 3.06, the frequency and timing of changing such investment
     allocation elections. Meeting Fees deferred pursuant to Section 3.01 must
     be deemed invested in the Playboy Enterprises, Inc. Common Stock Units
     Option. Retainer Fees deferred pursuant to Section 3.01 may be deemed
     invested in any of the phantom investment options available in this Section
     3.05.

     The Administrative Committee shall have the sole discretion to determine
     the number of investment options to be designated hereunder and the nature
     of the options and may change or eliminate the investment options provided
     hereunder from time to time. For each investment option, other than the
     Moody's Bond Index Option and the Playboy Enterprises, Inc. Common Stock
     Units Option, the Administrative Committee shall, in its sole discretion,
     select a mutual fund, or an investment index, or shall create a phantom
     portfolio of such investments as it deems appropriate, to constitute the
     investment option. The Company may, but is under no obligation to acquire
     any investment or otherwise set aside assets for the deemed investment of
     Deferred Compensation Accounts hereunder. The Administrative Committee
     shall determine the amount and rate of investment gains or losses with
     respect to any such investment option for any period, and may take into
     account deemed expenses which would be incurred if actual investments were
     made.
  
3.06 Playboy Enterprises, Inc. Common Stock Units Option. Amounts deemed
     invested in the Playboy Enterprises Inc. Common Stock Units Option shall
     initially be deemed invested in a number of phantom shares (the "Stock
     Units") of Class B Common Stock of the Company ("Shares") equal to the
     quotient of (i) the amount deemed invested divided by (ii) the Fair
     Market Value on the date the amount is deemed so invested. Whenever a
     dividend (other than a dividend payable in the form of Shares) is declared
     with respect to the outstanding Shares, the number of Stock Units credited
     to the Participant shall be increased by the number of Stock Units,
     determined by dividing (i) the product of (A) the number of Stock Units
     credited to the Participant under the Plan on the related dividend record
     date and (B) the amount of any cash dividend declared by the Company on a
     Share (or, in the case of any dividend distributable in property other than
     Shares, the per share value of such dividend, as determined by the Company
     for purposes of income tax reporting) by (ii) the Fair Market Value on the
     related dividend payment date. In the case of any dividend declared on
     Shares which is payable in Shares, the amount credited to a Participant's
     deemed investment in the Playboy Enterprises, Inc. Common Stock Units
     Option shall be increased by the number of Stock Units equal to the product
     of (i) the number of Stock Units credited to the Participant

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          under the Plan on the related dividend record date and (ii) the number
          of Shares distributable as a dividend on a Share. In the event of any
          change in the number or kind of outstanding Shares by reason of any
          recapitalization, reorganization, merger, consolidation, stock split
          or any similar change affecting the Shares, other than a stock
          dividend as provided above, the Committee shall make an appropriate
          adjustment in the number of Stock Units credited to the Participant.
          No shares of Class B Common Stock will actually be held (either by
          issuance or purchase) with respect to any investment in the Playboy
          Enterprises, Inc. Common Stock Units Option.

     3.07 Change of Investment Election. Effective as of any January 1, April 1,
          July 1, October 1 (or if the New York Stock Exchange is not open for
          trading on such day, the close of the last business day of the prior
          month on which the New York Stock Exchange was open for trading) a
          Participant may elect by a written notice delivered to the
          Administrative Committee no later than the 20th day of the prior
          calendar month, to transfer all or any portion of his or her deemed
          investment and/or change the manner in which his or her future
          deferrals are deemed invested among the then-available investment
          options. However, once deferrals are made or investment earnings are
          credited into the Playboy Enterprises, Inc. Common Stock Units
          investment alternative, such amounts may not be transferred out of
          this investment option.

IV.  DISTRIBUTIONS
    
     4.01  Distribution on Retirement. Upon a Participant's Termination of
           Service on or after a Retirement Date, distribution of the
           Participant's Deferred Compensation Account, determined under Section
           3.04, as of the Determination Date coincident with or next following
           such Retirement Date, shall be made or commence. The distribution
           shall be made as designated by the Participant in his/her Agreement,
           subject to Section 4.04. In the event a distribution is made pursuant
           to this Section 4.01, the Participant shall immediately cease to be
           eligible for any other benefit provided under this Plan.

     4.02  Distribution on Death. Upon the death of a Participant prior to the
           distribution of all of his or her Deferred Compensation Accounts,
           distribution of the unpaid balance of the Deferred Compensation
           Accounts shall be made or continue to be made to such Participant's
           Beneficiary. If the distribution of the Participant's Deferred
           Compensation Accounts had not yet commenced as of the date of his or
           her death, distribution to the Beneficiary shall be made or commence
           as soon as practical and in any event within 90 days following the
           Participant's death. The method of distribution shall be as
           designated by the Participant in his/her Agreement, subject to
           Section 4.04.

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     4.03 Distribution on Termination of Service. Unless otherwise directed by
          the Administrative Committee, upon the Termination of Service of a
          Participant prior to his or her Retirement Date for reasons other than
          death, distribution of the Participant's Deferred Compensation
          Accounts shall be made as soon as practical after such Termination of
          Service, in a single lump sum, notwithstanding the provisions of
          Section 4.04(a) and (b). Upon a Termination of Service prior to his or
          her Retirement Date or death, the Participant shall immediately cease
          to be eligible for any other benefit provided under this Plan.

     4.04 Method of Timing of Distribution.

          a)  Election-in Agreement. Except in the case of a Termination of
              Service prior to the Participant's Retirement Date for reasons
              other than death or Disability, distribution of a Participant's
              Deferred Compensation Accounts shall be made in a lump sum or
              installments, as elected by the Participant in the Agreement
              relating to each respective Deferred Compensation Account.
              Installment payments shall be made quarterly over a period of
              either ten (10) years or fifteen (15) years, as elected by the
              Participant in the Agreement. The amount of each installment shall
              be equal to the quotient obtained by dividing the balance of the
              Deferred Compensation Account being distributed in installments by
              the number of installments remaining to be paid, including the
              current installment.

          b)  Election to Change Method of Distribution. A Participant may, by
              written request filed with the Administrative Committee at least
              thirteen (13) months prior to the distribution or commencement of
              distribution of a Deferred Compensation Account, change the method
              of distribution elected with respect to a Deferred Compensation
              Account to any other method permitted under Section 4.04(a),
              provided that such request shall not be effective unless and until
              approved by the Committee. After a Participant's death, the
              Participant's Beneficiary may petition the Administrative
              Committee requesting an acceleration of benefit payments otherwise
              due to be paid to the Beneficiary. The Administrative Committee,
              in its sole discretion, but taking into account the cash needs of
              the Beneficiary, may grant such request.

          c)  Notwithstanding any payment method elected by a Participant or
              Beneficiary, the Company may, in its sole discretion, elect to pay
              any Deferred Compensation Account whose balance is less than
              $10,000 in a lump sum.

     4.05 Withholding; Employment Taxes. To the extent required by the law in
          effect at the time payments are made, the Company shall withhold any
          taxes required to be withheld by the federal, or any state or local,
          government.

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     4.06 Commencement of Payments. Unless otherwise provided, payments under
          this Plan shall commence as soon as practicable following the
          Participant's eligibility for payment, but in no event later than
          ninety (90) days following receipt of notice by the Administrative
          Committee of an event which entitles a Participant or a Beneficiary to
          payments under this Plan, or at such other date as may be
          determined by the Administrative Committee in its sole discretion.

     4.07 Hardship Distributions; Cessation of Deferrals. In the event that the
          Administrative Committee, upon written petition of the Participant
          (or, after the Participant's death, the written petition of his or her
          Beneficiary), determines in its sole discretion that the Participant
          (or his or her Beneficiary) has suffered a Hardship, the Company may
          distribute to the Participant (or his or her Beneficiary) as soon as
          reasonably practicable following such determination, an amount, not in
          excess of the value of the Participant's Deferred Compensation
          Accounts, necessary to satisfy the Hardship. Notwithstanding the
          foregoing, the Administrative Committee will not make any distribution
          under this Section 4.07 if such distribution would subject the
          Participant to liability under Section 16(b) of the Securities
          Exchange Act of 1934. For purposes of this Plan, "Hardship" is a
          sudden and immediate financial need that could not reasonably have
          been foreseen by the Participant (or his or her Beneficiary), caused
          by an event beyond the control of the Participant (or Beneficiary),
          and which would result in severe financial hardship which the
          Participant (or Beneficiary) cannot satisfy from other resources
          reasonably available to the Participant (or Beneficiary), such as may
          result from accident, sudden illness or death of an immediate family
          member, or casualty loss. Financial needs arising from foreseeable
          events, such as the purchase of a residence or educational expenses,
          shall not be considered Hardships. A Participant who receives a
          Hardship distribution pursuant to this Section 4.07, shall also cease
          making deferrals of Director Fees until the calendar quarter next
          following or coincident with a twelve (12) month period which begins
          on the date the Hardship distribution is made. A Director who is
          required to cease making deferrals due to the receipt of a Hardship
          distribution, shall be permitted to begin making deferrals into this
          Plan by filing a new Agreement with the Company. The new Agreement
          must be filed with the Company at least thirty (30) days prior to the
          calendar quarter in which deferrals are to commence.

     4.08 Change in Control Distribution Election. If there is a Change in
          Control, there notwithstanding any other provision of this Plan: 
  
          a) Any active non-employee Director may, at any time during the 
             thirty-six (36) month period immediately following such Change in
             Control, elect to receive an immediate lump sum payment of the
             balance of his or her Deferred Compensation Accounts, reduced by a
             penalty equal to ten percent (10%) of the value of the
             Participant's remaining Deferred Compensation Accounts. The ten
             percent (10%) penalty amount shall be permanently forfeited. In the
             event no such request is made by a Participant, the Participant's
             Deferred Compensation Accounts shall be paid in accordance with the
             provisions of this Article IV. Any active non-employee Director who
             elects to receive an

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           immediate lump sum payment pursuant to this Section 4.08, shall not
           be eligible to make any additional deferrals into this Plan until the
           calendar quarter next following or coincident with a twelve (12)
           month period which begins on the date a lump sum payment is received.

      b)   Any retired non-employee Director or any Beneficiary of a deceased
           Participant may, at any time during the thirty-six (36) month period
           immediately following such Change in Control, elect to receive an
           immediate lump sum payment of the balance of his or her Deferred
           Compensation Accounts, reduced by a penalty equal to five percent
           (5%) of the value of the remaining Deferred Compensation Accounts.
           The five percent (5%) penalty amount shall be permanently forfeited.
           In the event no such request is made by a retired non-employee
           Director or Beneficiary, the Deferred Compensation Accounts shall be
           paid in accordance with the provisions of this Article IV.

      c)   Notwithstanding the foregoing, no election under Section 4.08(a) or
           4.08(b) shall be effective until at least six months after the most
           recent election made by such Participant under Section 4.04(a) or
           4.04(b).

4.09  Recipients of Payments; Designation of Beneficiary. All payments to be
      made by the Company under the Plan shall be made to the Participant during
      his/her lifetime, provided that if the Participant dies prior to the
      commencement or completion of such payments, then all subsequent payments
      under the Plan shall be made by the Company to the Beneficiary determined
      in accordance with this Section 4.09. The Participant shall designate a
      Beneficiary by filing a written notice of such designation with the
      Administrative Committee in such form as the Committee requires and may
      include contingent Beneficiaries The Participant may from time-to-time
      change the designated Beneficiaries by filing a new designation in writing
      with the Committee. (In community property states, the spouse of a married
      Participant shall join in any designation of a Beneficiary other than the
      spouse). If no designation is in effect at the time any benefits payable
      under this Plan become due, the Beneficiary shall be the spouse of the
      Participant, or if no spouse is then living, the executor(s) or
      administrator(s) of the Participant's estate.

4.10. Preservation of Interim Distribution Benefit Elections. If a Participant
      who had been a participant in the Company's Deferred Compensation Plan,
      and whose account balance under such plan has been transferred to this
      Plan under Section 3.01 hereof, has made a valid election or elections
      with respect to all or a portion of the amounts so transferred under
      Section 4.05 (Interim Distribution Benefit) of such Deferred Compensation
      Plan, such election(s) shall be preserved and given effect by the
      Administrative Committee. For purposes of applying this provision: (a) the
      Administrative Committee shall refer to Section 4.05 of the Deferred
      Compensation Plan; and (b) references in such Section to the
      "Administrative Committee" shall be deemed to refer to this Plan's
      Administrative Committee. Nothing in this Section 4.10 shall be
      interpreted so as to permit any Participant, including a former
      participant in the Company's Deferred Compensation Plan, to

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            make any similar election with respect to any amounts subject to
            deferral under this Plan.

     4.11.  Distributions in Cash. All distributions of Deferred Compensation
            Accounts shall be paid in United States dollars.

V.   CLAIM FOR BENEFITS PROCEDURE

     5.01   Claim for Benefits. Any claim for benefits under the Plan shall be
            made in writing to the Committee. If such claim for benefits is
            wholly or partially denied by the Committee, the Committee shall,
            within a reasonable period of time, but not later than sixty (60)
            days after receipt of the claim, notify the claimant of the denial
            of the claim. Such notice of denial shall be in writing and shall
            contain:

            a)  The specific reason or reasons for the denial of the claim;

            b)  A reference to the relevant Plan provisions upon which the
                denial is based;

            c)  A description of any additional material or information
                necessary for the claimant to perfect the claim, together with
                an explanation of why such material or information is necessary;
                and

            d)  An explanation of the Plan's claim review procedure.

     5.02   Request for Review of a Denial of a Claim for Benefits. Upon the
            receipt by the claimant of written notice of the denial of a claim,
            the claimant may within ninety (90) days file a written request to
            the Committee, requesting a review of the denial of the claim, which
            review shall include a hearing if deemed necessary by the Committee.
            In connection with the claimant's appeal of the denial of his/her
            claim, he/she may review relevant documents and may submit issues
            and comments in writing. To provide for fair review and a full
            record, the claimant must submit in writing all facts, reasons and
            arguments in support of his/her position within the time allowed for
            filing a written request for review. All issues and matters not
            raised for review will be deemed waived by the claimant.

     5.03   Decision Upon Review of a Denial of a Claim for Benefits. The
            Committee shall render a decision on the claim review promptly, but
            no more than sixty (60) days after the receipt of the claimant's
            request for review, unless special circumstances (such as the need
            to hold a hearing) require an extension of time, in which case the
            sixty (60) day period shall be extended to one hundred-twenty (120)
            days. Such decision shall:

            a)  Include specific reasons for the decision;

            b)  Be written in a manner calculated to be understood by the
                claimant; and

            c)  Contain specific references to the relevant Plan provisions upon
                which the decision is based.

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          The decision of the Committee shall be final and binding in all
          respects on the Company, the claimant and any other person claiming an
          interest in the Plan through or on behalf of the claimant. No
          litigation may be commenced by or on behalf of a claimant with respect
          to this Plan until after the claim and review process described in
          this Article V has been exhausted. Judicial review of Committee action
          shall be limited to whether the Committee acted in an arbitrary and
          capricious manner.


VI.  ADMINISTRATION
     --------------

     6.01 Plan Administrative Committee. The Plan shall be administered by the
          Compensation Committee of the Board, except to the extent that action
          is required by a committee of non-employee Directors under Rule 16b-3
          under the Securities Exchange Act of 1934. The Administrative
          Committee may assign duties to an officer or other employees of the
          Company, and may delegate such duties as it sees fit. A member of the
          Administrative Committee who is also a Participant shall not be
          involved in the decisions of the Administrative Committee regarding
          any determination of any specific claim for benefit with respect to
          himself or herself.

     6.02 General Rights, Powers and Duties of Administrative Committee. The
          Administrative Committee shall be responsible for the management,
          operation and administration of the Plan. In addition to any powers,
          rights and duties set forth elsewhere in the Plan, it shall have
          complete discretion to exercise the following powers and duties:

          a)   To adopt such rules and regulations consistent with the
               provisions of the Plan as it deems necessary for the proper and
               efficient administration of the Plan;

          b)   To administer the Plan in accordance with its terms and any rules
               and regulations it establishes;

          c)   To maintain records concerning the Plan sufficient to prepare
               reports, returns, and other information required by the Plan or
               by law;

          d)   To construe and interpret the Plan, and to resolve all questions
               arising under the Plan;

          e)   To direct the Company to pay benefits under the Plan, and to give
               such other directions and instructions as may be necessary for
               the proper administration of the Plan;
      
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     f)   To employ or retain agents, attorneys, actuaries, accountants or other
          persons, who may also be Participants in the Plan or be employed by or
          represent the Company, as it deems necessary for the effective
          exercise of its duties, and may delegate to such persons any power and
          duties, both ministerial and discretionary, as it may deem necessary
          and appropriate, and the Committee shall be responsible for the
          prudent monitoring of their performance; and

     g)   To be responsible for the preparation, filing, and disclosure on
          behalf of the Plan of such documents and reports as are required by
          any applicable federal or state law.

6.03 Information to be Furnished to Committee. The records of the Company shall
     be determinative of each Participant's period of service as a Director,
     Termination of Service, personal data, and Director Fees. Participants and
     their Beneficiaries shall furnish to the Committee such evidence, data or
     information, and execute such documents as the Committee requests.

6.04 Responsibility. No member of the Administrative Committee shall be liable
     to any person for any action taken or omitted in connection with the
     administration of this Plan unless attributable to his/her own fraud or
     willful misconduct (or that of the Committee, in which he/she
     participated); nor shall the Company be liable to any person for any such
     action unless attributable to fraud or willful misconduct on the part of a
     Director, officer or employee of the Company. Further, the Company shall
     hold harmless and defend any individual in the employment of the Company,
     and any Director of the Company who has or exercises any administrative
     responsibility with respect to the Plan against any claim, action, or
     liability asserted against him/her in connection with any action or failure
     to act regarding the Plan, except as and to the extent such liability may
     be based upon the individual's own willful misconduct or fraud; provided,
     however, that to the extent required by Delaware General Corporation law,
     the payment by the Company of such defense-related expenses under this
     Section to any such person shall be made prior to the final disposition of
     the subject proceeding only upon delivery to the Company of an undertaking,
     by or on behalf of such person, to repay all amounts so advanced if it
     shall ultimately be determined that such persons is not entitled to this
     indemnification. This indemnification shall not duplicate, but may
     supplement, any coverage available under any applicable insurance coverage.
    
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VII. AMENDMENT AND TERMINATION
     -------------------------
     7.01 Amendment. The Plan may be amended in whole or in part by a written
          instrument adopted by the Board of Directors of the Company at any
          time. Notice of any material amendment shall be given in writing to
          the Administrative Committee and to each Participant, retired
          Participant and each Beneficiary of a deceased Participant. No
          amendment shall retroactively decrease either the balance of a
          Participant's Deferred Compensation Account or a Participant's
          interest in his/her Deferred Compensation Account as existing
          immediately prior to the later of the effective date or adoption date
          of such amendment.

     7.02 Company's Right to Terminate.  The Company reserves the sole right
          to terminate, by action of its Board of Directors, the Plan and/or the
          Agreement pertaining to a Participant at any time prior to the
          commencement of payment of his/her benefits.  In the event of any such
          termination, a Participant shall be deemed to have incurred a
          Termination of Service, and his/her Deferred Compensation Account
          shall be paid in the manner provided in Section 4.03.

     7.03 Special Termination.  Any other provision of the Plan to the contrary
          notwithstanding, the Plan shall terminate:

          a)   If the Plan is held to be Tax Funded by a federal court, and
               appeals from that holding are no longer timely or have been
               exhausted. The Company may terminate the Plan if it determines,
               based on a legal opinion which is satisfactory to the Company,
               that either judicial authority or the opinion of the U.S.
               Treasury Department or Internal Revenue Service (as expressed in
               proposed or final regulations, advisory opinions or rulings, or
               similar administrative announcements) creates a significant risk
               that the Plan will be held to be Tax Funded, and failure to
               amend or terminate the Plan could subject the Company or the
               Participant to material penalties. Upon any such termination, the
               Company may:

               i.   Transfer the rights and obligations of the Participants and
                    the Company to a new plan established by the Company, which
                    is not deemed to be Tax Funded, but which is substantially
                    similar to this Plan, if the Company determines that it is
                    possible to establish such a Plan;

               ii.  If the Company, in its sole discretion, determines that it
                    is not possible to establish the Plan in (a) above, each
                    Participant shall be paid a lump sum equal to the value of
                    his/her Deferred Compensation Account;
     
                                       15
<PAGE>
 
               iii. Pay a lump sum benefit equal to the value of the Deferred
                    Compensation Account to a Participant to the extent that a
                    federal court has held that the interest of the Participant
                    in the Plan is includable in the gross income of the
                    Participant for federal income tax purposes prior to actual
                    payment of Plan benefits.

          b)   In the event of a Change in Control.  Upon such termination, each
               Participant shall be deemed to have incurred a Termination of
               Service, and the value of his/her Deferred Compensation Account
               shall be paid to him in the manner provided in Section 4.03.

          A lump sum payment to be made in accordance with this Section shall be
          subject to the provisions of Section 4.06.

VIII. MISCELLANEOUS
      -------------

     8.01 No Implied Rights.  Neither the establishment of the Plan nor any
          amendment thereof shall be construed as giving any Participant,
          Beneficiary, or any other person any legal or equitable right unless
          such right shall be specifically provided for in the Plan or conferred
          by specific action of the Company in accordance with the terms and
          provisions of the Plan.  Except as expressly provided in this Plan,
          the Company shall not be required or be liable to make any payment
          under this Plan.

     8.02 No Right to Company Assets.  Neither the Participant nor any other
          person shall acquire by reason of the Plan any right in or title to
          any assets, funds or property of the Company whatsoever, including,
          without limiting the generality of the foregoing, any specific funds,
          assets or other property which the Company, in its sole discretion,
          may set aside in anticipation of a liability hereunder.  Any benefits
          which become payable hereunder shall be paid from the general assets
          of the Company.  The Participant and his/her Beneficiary shall have
          only a contractual right to the amounts, if any, payable hereunder,
          unsecured by any asset of the Company.  Nothing contained in the Plan
          constitutes a guarantee by the Company that the assets of the Company
          shall be sufficient to pay any benefits to any person.

     8.03 No Right to Continuing Service.  Nothing herein shall constitute a
          contract of continuing service or in any manner obligate the Company
          to continue the personal services of the Participant, or obligate the
          Participant to continue as a member of the Board of Directors of the
          Company, or as a limitation of the right of Company shareholders to
          terminate the services of the Participant.  Nothing herein shall be
          construed as fixing or regulating the Director Fees or other
          remuneration payable to the Participant.
     
                                       16
<PAGE>
 
     8.04 Offset. If at the time payments or installments of payments are to be
          made hereunder, the Participant, retired Participant or Beneficiary is
          indebted or obligated to the Company, then the payments remaining to
          be made to the Participant, retired Participant or Beneficiary may, at
          the discretion of the Company, be reduced by the amount of such
          indebtedness or obligation. However, an election by the Company not to
          reduce any such payment or payments will not constitute a waiver of
          its claim, or prohibit or otherwise impair the Company's right to
          offset future payments for such indebtedness or obligation.

     8.05 Non-assignability. Neither the Participant nor any other person shall
          have any voluntary or involuntary right to commute, sell, assign,
          pledge, anticipate, mortgage or otherwise encumber, transfer,
          hypothecate, or convey in advance of actual receipt the amounts, if
          any, payable hereunder, or any part thereof, which are expressly
          declared to be unassignable and non-transferable. No part of the
          amounts payable shall be, prior to actual payment, subject to seizure
          or sequestration for the payment of any debts, judgments, alimony or
          separate maintenance owed by the Participant or any other person, or
          be transferrable by operation of law in the event of the Participant's
          or any other person's bankruptcy or insolvency.

     8.06 Gender and Number. Wherever appropriate herein, the masculine may mean
          feminine and the singular may mean the plural, or vice versa.

     8.07 Notice. Any notice required or permitted to be given under the Plan
          shall be sufficient if in writing and hand delivered, or sent by
          registered or certified mail, and if given to the Company, delivered
          to the principal office of the Company, directed to the attention of
          the Administrative Committee. Such notice shall be deemed given as of
          the date of delivery, or, if delivery is made by mail, as of the date
          shown on the postmark or the receipt for registration or
          certification.

     8.08 Governing Laws. The Plan shall be construed and administered according
          to the laws of the State of Illinois.

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<PAGE>
 
     8.09 Deferred Compensation Plan Trust.  The Company may establish a Trust
          with (an) independent trustee(s), and shall comply with the terms of
          the Trust.  The Company may transfer to the trustee(s) an amount of
          cash, marketable securities, or other property acceptable to the
          trustee(s) ("Trust Property") equal in value to all or a portion of
          the amount necessary, calculated in accordance with the terms of the
          Trust, to pay the Company's obligations under the Plan (the "Funding
          Amount"), and may make additional transfers to the trustees as may be
          necessary in order to maintain the Funding Amount.  Trust Property so
          transferred shall be held, managed, and disbursed by the trustee(s) in
          accordance with the terms of the Trust.  To the extent that Trust
          Property shall be used to pay the Company's obligations under the
          Plan, such payments shall discharge obligations of the Company;
          however, the Company shall continue to be liable for amounts not paid
          by the Trust.  Trust Property will nevertheless be subject to the
          claims of the Company's creditors in the event of bankruptcy or
          insolvency of the Company, and the Director's rights under the Plan
          and Trust shall at all times be subject to the provisions of Section
          8.02.

IN WITNESS WHEREOF, the Company has adopted and restated the Playboy
Enterprises, Inc. Board of Directors' Deferred Compensation Plan originally
effective October 1, 1992, as of January 1, 1998.


PLAYBOY ENTERPRISES, INC.

By: /s/ Robert D. Campbell
    -------------------------------------------

     
Its: Vice President, Treasurer and
     Assistant Secretary
     -------------------------------------------
    
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