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                           PLAYBOY ENTERPRISES INC. 
                          Deferred Compensation Plan

                              Effective: October 1, 1992
                   Amended and Restated: January 1, 1998
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                           PLAYBOY ENTERPRISES, INC.
                          Deferred Compensation Plan
I.    PURPOSE

II.   DEFINITIONS

III.  ELIGIBILITY; PARTICIPATION LIMITS

IV.   DISTRIBUTIONS

V.    CLAIM FOR BENEFITS PROCEDURE

VI.   ADMINISTRATION

VII.  AMENDMENT AND TERMINATION

VIII. MISCELLANEOUS
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                           PLAYBOY ENTERPRISES, INC.
                          Deferred Compensation Plan

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

I.   PURPOSE

     The purpose of the Playboy Enterprises, Inc. Deferred Compensation Plan is
     to provide a means whereby the Company may afford certain employees and
     senior management with an opportunity to build additional financial
     security, by providing a vehicle to defer compensation amounts in excess of
     the dollar limitation of IRC (S)402(g) applicable to the amount of
     compensation which may be deferred under the Company's Savings Plan.

     By providing a means whereby Salary, Incentive Award, and/or Sales
     Commissions may be deferred into the future, the Plan will aid in
     attracting and retaining managers of exceptional ability. In addition, the
     Company may credit the Deferred Compensation Account of certain
     Participants with an amount equivalent to the "annual addition" which would
     be credited to a Participant's account under the Savings Plan but for the
     limits of IRC Sections 401(a)(17) and 415(c).

     The Plan is a defined contribution plan. Deferrals of Salary, Incentive
     Award, and/or Sales Commissions, together with Company Allocations made
     pursuant to the Plan, will be credited with investment gains or losses, in
     accordance with the Plan, and paid to the Participant (or his Beneficiary)
     as described herein. The Plan is also designed to provide additional
     financial security at the time of Retirement, and to supplement other
     Company-sponsored benefits in the event of death or Disability.

II.  DEFINITIONS

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

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

     2.03 "Agreement" means the Playboy Enterprises, Inc. Deferred Compensation
          Election Agreement, executed between a Participant and the Company,
          whereby a Participant agrees to defer a portion of his Salary and
          Incentive Award (or Sales Commissions, as the case may be), or both,
          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 4.11.

                                       2
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     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

          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 "Company Allocation" means an amount added to a Participant's Deferred
          Compensation Account, as provided in Section 3.06.
    
     2.08 "Compensation" means Eligible Earnings as that term is defined in the
          Savings Plan.

                                       3
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     2.09 "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 8.10, a Participant's Deferred Compensation Account shall 
          not constitute or be treated as a trust fund or escrow arrangement of
          any kind.

     2.10 "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 8.10, 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.

     2.11 "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.

     2.12 "Disability" shall have the same meaning and shall be determined in
          the same manner as in the Company's Group Long-Term Disability
          Insurance Plan. In the absence of such a plan, Disability means any
          sickness or accidental bodily injury which, in the sole determination
          of the Committee, prevents a Participant from performing the material
          and substantial duties of his own occupation for a period of six (6)
          months and from engaging in any other activity for remuneration or
          profit. The determination of whether a Disability constitutes a
          Termination of Service shall be made by the Committee, in its sole
          discretion.

     2.13 "ERISA Funded" means that the Plan is prevented from meeting the
          "unfunded" criterion of the exceptions to the application of Parts 2
          through 4 of Subtitle B of Title I of the Employee Retirement Income
          Security Act of 1974 (ERISA).

     2.14 "Incentive Award" means the Participant's Management Incentive Plan
          Award, if any, for the Company fiscal year coinciding with the Plan
          Year (but payable after the end of the Plan Year) otherwise payable in
          cash, and considered "wages" for FICA and federal income tax
          withholding, but before any deferrals made pursuant to this Plan.

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

     2.16 "Participant" means 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. Deferred Compensation Plan,
          as in effect and amended from time to time.

                                       4
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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.

2.19  "Retirement Date" and "Retirement" mean the date of termination of service
      of a Participant for reasons other than death or Disability after
      he (i) attains age sixty-five (65), (ii) attains age fifty-five (55)
      and has fifteen (15) Years of Service, or (iii) terminates service under
      circumstances which the Committee elects to treat as a Retirement under
      this Plan.

2.20  "Salary" for purposes of the Plan shall be the total of the Participant's
      base salary paid during a Plan Year, and considered "wages" for FICA and
      federal income tax withholding, but before any deferrals made pursuant to
      this or any other plan. For purposes of the Plan, Salary shall not include
      severance or other payments made in connection with a Participant's
      Termination of Service.

2.21  "Sales Commissions" means the earnings of a Participant which are
      attributable to sales results, payable at the end of each month, and
      considered "wages" for FICA and federal income tax withholding, but before
      any deferrals made pursuant to this or any other plan.

2.22  "Savings Plan" means the Playboy Enterprises, Inc. Employees Investment
      Savings Plan, as in effect and amended from time to time.

2.23  "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.

2.24  "Termination of Service" means the Participant's ceasing his/her
      employment with the Company for any reason whatsoever, whether voluntarily
      or involuntarily, including by reason of Retirement, death, or Disability.

2.25  "Year of Service" means a Plan Year in which an employee is credited with
      at least 1,000 hours of service as defined and measured under the Savings
      Plan.
                                       5
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III. ELIGIBILITY; PARTICIPATION LIMITS

3.01 Participation. Participation in the Plan for any Plan Year shall be
     limited to Employees of the Company (including any Employee serving as a
     Director of the Company) who satisfy either of the minimum compensation
     requirements set forth below:

     a)   The Participant is expected to receive Salary for the Plan Year of not
          less than $100,000; or

     b)   The Participant's actual earnings as reported on his or her Form W-2,
          plus any amounts deferred by the Participant under Section 125 and/or
          Section 401(k) of the Internal Revenue Code of 1986 and/or pursuant
          to the terms of this Plan for the immediately preceding complete
          calendar year equaled or exceeded $100,000.

     c)   An employee of the Company who is a non-resident alien whose primary
          work domicile is outside the United States shall not be eligible to
          participate in this Plan.

3.02 Deferral of Salary and Incentive Award or Sales Commissions. Individuals
     who elect to participate in the Plan must file an Agreement with the
     Company as follows:

     a)  Plan Year First Eligible. In the initial year of eligibility, an
         eligible employee who elects to participate in the Plan must file an
         Agreement with the Company within sixty (60) days from the date he or
         she first becomes eligible to participate in the Plan. The Agreement to
         defer Salary must be filed with the Company at least ten (10) days
         prior to the beginning of the calendar quarter in which Salary to be
         deferred is otherwise payable; a Participant's Agreement to defer a
         portion of his or her Incentive Award must be filed with the Company at
         least six (6) months prior to the end of the calendar year to which the
         Incentive Award to be deferred relates; a Participant's Agreement to
         defer Sales Commissions must be filed with the Company at least thirty
         (30) days prior to the end of the first month of a calendar quarter to
         which Sales Commissions to be deferred relate. An eligible employee who
         fails to file an Agreement before such time shall be eligible to
         participate in a subsequent Plan Year.

      b) Subsequent Years of Eligibility. In any Plan Year subsequent to a
         Participant's first year of eligibility, a Participant's Agreement to
         defer Salary, Incentive Award, or Sales Commissions must be filed with
         the Company at least thirty (30) days prior to the beginning of the
         Plan Year.

         Subject to the limitations of Section 3.02(b) immediately above, a
         Participant who does not file an Agreement for a Plan Year may file an
         Agreement for any subsequent Plan Year.

                                  6         
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3.03 Deferral Limitations. A Participant's Agreement to defer Salary, Incentive
     Award, or Sales Commissions shall be subject to the following limitations:

     a)  A Participant may elect to defer no less than six percent (6%) and no
         more than twenty-five percent (25%) of Salary, in increments of one
         percentage point (1%),

     b)  A Participant may elect to defer no less than ten percent (10%) and up
         to one hundred percent (100%) of his or her Incentive Award or Sales
         Commissions, in increments of ten percentage points (10%); and

     c)  A Participant may elect to defer under a) or b) above or both.  The
         Agreement shall be irrevocable upon acceptance by the Company.

3.04 Suspension of Agreement to Defer Salary, Incentive Award, or Sales
     Commissions. 

     a)   A Participant's Agreement to defer Salary, Incentive Award, or Sales
          Commissions shall be suspended in the event that the Administrative
          Committee, in its sole discretion, reasonably determines that a
          Participant ceases to meet the eligibility requirements of the Plan.

     b)   In the event a Participant who resides in the United States is
          transferred to a work domicile outside the United States, the
          Participant shall have a one-time option to elect to suspend his/her
          participation in the Plan until he/she returns to his/her employment
          with the Company in the United States on a full-time basis. In the
          event that a Participant elects to suspend his/her participation in
          the Plan under this Section 3.04(c), he/she shall be eligible to begin
          making deferrals into this Plan upon his/her return to the United
          States and upon the filing of 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. In
          the event a Participant does not elect to suspend his/her
          participation pursuant to this Section 3.04(c), his/her participation
          shall continue as elected under the Agreement.

Except as otherwise provided in Section 7.03(a)(iv), a Participant whose
Agreement has been suspended pursuant to this Section 3.04, shall not be deemed
to have incurred a Termination of Service, and his or her Deferred Compensation
Account shall continue to be maintained under the terms of the Plan. In
addition, no additional Company Allocations shall be made to a Participant's
Deferred Compensation Account during the period the Participant's Agreement is
suspended.

3.05 Timing of Deferral Credits. The amount of Salary, Incentive Award, or Sales
     Commission that a Participant elects to defer in the Agreement shall cause
     an equivalent reduction in Salary, Incentive Award, or Sales Commission
     payment, and shall be credited to the Participant's Deferred Compensation
     Account throughout the Plan Year as the Participant otherwise would have
     been paid the deferred portion of Salary, Incentive Award or Sales
     Commission in each Plan Year.

                                       7
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3.06  Company Allocation.  The Company shall credit a Company Allocation to a
      Participant's Deferred Compensation Account as of December 31/st/ of a 
      Plan Year as set forth in this Section 3.06.

      a)   Participant Eligible to Participate in the Company's Savings Plan.  
           If a Participant is eligible to participate in the Company's Savings
           Plan and is contributing at least six percent (6%) to the Savings
           Plan and is also deferring an amount (including all amounts deferred
           in a Plan Year from his/her Salary, Incentive Award and Sales
           Commissions pursuant to this Plan) at least equal to at least six
           percent (6%) of his/her Salary, then the Company Allocation credited
           to the Participant's Deferred Compensation Account shall be equal to
           three and one-half percent (3 1/2%) of the Participant's annual
           compensation (including amounts deferred pursuant to this Plan) that
           is in excess of the annual compensation limit prescribed in IRC
           Section 401(a) (17) for the current Plan Year.

           If a Participant satisfies all the provisions of this Section 3.06(a)
           except that the Participant is deferring an amount into this Plan
           which is less than six percent (6%) of his/her Salary, then the
           Participant will not be entitled to the full Company Allocation
           available under this Section 3.06(a). Instead, the amount of the
           Company Allocation will be based on the matching formula provided for
           in the Company's Savings Plan but counting all compensation in excess
           of the Savings Plan's legal limits.

           If a Participant under this Plan becomes eligible to be a
           Participant in the Savings Plan after the beginning of a Plan Year,
           the Company Allocation under this Plan shall equal the Company
           Allocation based on the Participant's total Compensation for the Plan
           Year less the Company Allocation contributed to the Savings Plan. 

           If a Participant is eligible to participate in the Savings Plan but
           chooses not to participate in the Savings Plan, no Company Allocation
           shall be credited to the Participant's Deferred Compensation Account
           regardless of the amount deferred pursuant to this Plan.

      b)   Participant Not Currently Eligible to Participate in the Company's
           Savings Plan.  If a Participant is not eligible to participate in the
           Company's Savings Plan but is contributing to this Plan an amount
           (including all amounts deferred in a Plan Year from his/her Salary,
           Incentive Award and Sales Commissions) equal to or greater than six
           percent (6%) of his/her Salary, then the Company Allocation credited
           to the Participant's Deferred Compensation Account shall be equal to
           three and one-half percent (3 1/2%) of the Participant's annual
           Compensation (including amounts deferred pursuant to this Plan).  For
           purposes of this Section 3.06(b), the amount of Compensation utilized
           in calculating the amount of the Company Allocation shall not be
           limited to the excess of the annual compensation limit prescribed in
           IRC Section 401(a)(17), but instead shall include all Compensation
           earned by the Participant in a Plan Year.

                                       8
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          If a Participant's contribution to this Plan is less than 6% of
          Salary, the Participant will receive a Company Allocation based on the
          matching formula provided for in the Company's Savings Plan, but
          counting all compensation for the Plan Year, without regard to limits
          in the Savings Plan.

      c)  If a Participant incurs a Termination of Service prior to December 
          31/st/ of a specific Plan Year, the Participant shall forfeit the
          right to any Company Allocation for the current Plan Year.

3.07  Vesting.  A Participant shall be one hundred percent (100%) vested in
      his/her Deferred Compensation Account equal to the amount of Salary,
      Incentive Award and Sales Commission he/she deferred into his/her Deferred
      Compensation Account and the investment gains or losses credited thereon.
      The Company Allocation and the investment gains or losses credited thereon
      shall vest in the same manner as under the Company's Savings Plan, but any
      unvested portion of a Participant's Deferred Compensation Account shall
      become 100% vested in the event of Retirement, death or Disability.

3.08  Determination of Account.  Each Participant'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 deferrals pursuant to Section 3.02,

          .  Company Allocations made pursuant to Section 3.06, 

          .  distributions (if any); and

          .  the appropriate investment earnings and gains and/or losses and
             expenses pursuant to Section 3.09.

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

3.09  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

                                       9
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      d)  Large Cap Equity Option

      e)  Aggressive Growth Equity Option

      f)  International Equity 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, the frequency
      and timing of changing such investment allocation elections.

      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, 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.

3.10  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.

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 3.08, 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
      4.05. 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.

                                       10
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4.02  Distribution on Death.  Upon the death of a Participant prior to the
      distribution of all of his or her Deferred Compensation Account,
      distribution of the unpaid balance of the Deferred Compensation Account
      shall be made or continue to be made to such Participant's Beneficiary.
      If the distribution of the Participant's Deferred Compensation Account 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 ninety (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 4.05.

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 or
      Disability, distribution of the vested portion of the Participant's
      Deferred Compensation Account shall be made as soon as practical after
      such Termination of Service, in a single lump sum, notwithstanding the
      provisions of Section 4.05(a) and (b). Upon a Termination of Service prior
      to his or her Retirement Date or death or Disability, the Participant
      shall immediately cease to be eligible for any other benefit provided
      under this Plan.

4.04  Disability Benefit. In the event a Participant incurs a Disability which 
      first manifests itself after the Participant's initial participation in
      the Plan but prior to his or her Retirement Date, distribution of the
      Participant's Deferred Compensation Account shall be made or commence as
      soon as practicable after the Participant incurs the Disability. The
      distribution shall be made as designated by the Participant in the
      Agreement, subject to Section 4.05. Such benefit shall be payable until
      the earliest of the following events: (i) there is no longer any balance
      in the Participant's Deferred Compensation Account; (ii) the Participant
      ceases to be Disabled and resumes employment with the Company; or (iii)
      the Participant dies. Disability benefits shall be treated as
      distributions from a Participant's Deferred Compensation Account.

      If a Disability occurs during the period elected in the Agreement, the
      Disabled Participant's Agreement shall be suspended, and further deferrals
      shall not be required during the period of Disability.

4.05  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 Account 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.

                                      11
<PAGE>
 
      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 4.05(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.

4.06  Interim Distribution.  At the time a Participant executes an Agreement,
      he/she may elect to receive an interim distribution. The interim
      distribution election does not apply to the investment earnings credited
      to the Participant's Deferred Compensation Account. A Participant may
      elect to receive, as an interim distribution, an amount equal to a
      specified percentage (up to 100%) of the amount of Salary, Incentive Award
      and Sales Commissions deferred during the specific Plan Year. Pursuant to
      the Participant's election at the time he/she executes an Agreement, each
      such interim distribution shall be made in a lump sum on January 2/nd/, or
      as soon as reasonably practicable thereafter, of the year elected by the
      Participant in his/her Agreement, subject to earlier distribution upon
      Termination of Employment. In no event may the interim distribution be
      paid prior to four full Plan Years after the Plan Year in which the
      deferral was originally made. Once a Participant elects to receive an
      interim distribution, the election shall be irrevocable. Any interim
      distribution paid shall be deemed a distribution, and shall be deducted
      from the Participant's Deferred Compensation Account. A separate interim
      distribution election shall be made for each Plan Year in which amounts
      are deferred.

      If a Participant is not currently deferring any portion of his/her
      Compensation pursuant to the terms of this Plan at the time he/she is
      scheduled to receive an interim distribution, and his/her Deferred
      Compensation Account balance is less than $3,500, the Participant will be
      paid his/her total Deferred Compensation Account balance at the time the
      interim, distribution is due to be paid.

                                      12
<PAGE>
 
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 Account,
      necessary to satisfy the Hardship. 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 the financial hardship which 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, pursuant
      to this Plan, 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 Participant 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.

      For the purposes of determining the order of Hardship withdrawals under
      this Plan and the Savings Plan, exhaustion of the loan and hardship
      withdrawal rights under the Savings Plan shall be required as a condition
      for receiving a benefit under this Section 4.07.

4.08  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.

4.09  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.

                                       13
<PAGE>
 
4.10  Change in Control Distribution Election.  If there is a Change in Control 
      then, notwithstanding any other provision of this Plan:

      a)  Any 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 Account, reduced by a penalty equal to ten percent (10%)
          of the value of the Participant's remaining Deferred Compensation
          Account.  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 Account shall be paid in
          accordance with the provisions of this Article IV.  Any Participant
          who elects to receive an immediate lump sum payment pursuant to this
          Section 4.10, 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 Participant 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
          Account, reduced by a penalty equal to five percent (5%) of the value
          of the remaining Deferred Compensation Account.  The five percent (5%)
          penalty amount shall be permanently forfeited.  In the event no such
          request is made by a retired Participant or Beneficiary, the Deferred
          Compensation Account shall be paid in accordance with the provisions
          of this Article IV.

      c)  Notwithstanding the foregoing, no election under Section 4.10(a) or
          4.10(b) shall be effective until at least six months after the most
          recent election made by such Participant under Section 4.05(a) or
          4.05(b).

4.11  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 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 or
      Beneficiaries determined in accordance with this Section 4.11. The
      Participant shall designate a Beneficiary by filing a written notice of
      such designation with the Committee in such form as the Committee requires
      and may include contingent Beneficiary or Beneficiaries without the
      consent of such Beneficiary or 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
      Beneficiary designated by the Participant in the Savings Plan, if any, or
      the Participant's estate.

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

                                       14
<PAGE>
 
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.

                                       15
<PAGE>
 
      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 16 b-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;

      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

                                       16
<PAGE>
 
      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 employment,
      Termination of Service and the reason therefor, Disability, leave of
      absence, reemployment, Years of Service, personal data, and Salary,
      Incentive Award, or Sales Commissions. 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 person
      is not entitled to this indemnification. This indemnification shall not
      duplicate, but may supplement, any coverage available under any applicable
      insurance coverage.

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.

                                       17
<PAGE>
 
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 ERISA Funded or 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. Department of Labor,
          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 ERISA Funded or Tax Funded, and failure to
          so amend the Plan could subject the Company or the Participants 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 ERISA Funded or Tax Funded, but which is
                 substantially similar in all other respect 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;

          iii)   Pay to a Participant a lump sum benefit equal to the value of
                 his/her Deferred Compensation Account 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;

          iv)    Pay to a Participant a lump sum benefit equal to the value of
                 his/her Deferred Compensation Account if, based on a legal
                 opinion satisfactory to the Company, there is a significant
                 risk that such Participant will be determined not to be part of
                 a "select group of management or highly compensated employees"
                 for purposes of ERISA.

                                       18
<PAGE>
 
     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 4.09.

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

8.01  Separation of Plan: No Implied Rights. The Plan shall not operate to
      increase any benefit payable to or on behalf of a Participant (or his
      Beneficiary) from any other Plan maintained by the Company. 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 Employment Rights. Nothing herein shall constitute a contract of
      employment or of continuing service or in any manner obligate the Company
      to continue the services of the Participant, or obligate the Participant
      to continue in the service of the Company, or as a limitation of the right
      of the Company to discharge any of its employees, with or without cause.
      Nothing herein shall be construed as fixing or regulating the Salary,
      Incentive Award, or Sales Commissions payable to the Participant.

8.04  Offset. If, at the time payments or installments of payments are to be
      made hereunder, the Participant, retired Participant or the Beneficiary is
      indebted or obligated to the Company, then the payments remaining to be
      made to the Participant, retired Participant or the 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 shall 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.

                                       19
<PAGE>
 
8.05 Protective Provisions.  In order to facilitate the payment of benefits
     hereunder, each employee designated eligible to participate in the Plan,
     shall cooperate with the Company by furnishing any and all information
     requested by the Company, including taking such physical examinations as
     the Company may deem necessary, and taking such other action as my be
     requested by the Company.  If the employee refuses to cooperate, he/she
     shall not become a Participant in the Plan and the Company shall have no
     further obligation to him/her under the Plan.  In such event, the
     Participant or his/her Beneficiary shall receive a benefit equal to his/her
     Deferred Compensation Account determined pursuant to Section 3.08 and paid
     in accordance with Section 4.03.

8.06 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 transferable by operation of law in the event of the
     Participant's or any other person's bankruptcy or insolvency.

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

8.08 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.

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

                                       20
<PAGE>
 
8.10 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 trustee(s) 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
     claims of the Company's creditors in the event of bankruptcy or insolvency
     of the Company, and the Participant'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. Deferred Compensation Plan originally effective October 1,
1992, as of January 1, 1998.


PLAYBOY ENTERPRISES, INC.


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

Its: V.P., Treasurer
    -------------------------------------
    
                                       21